<PAGE>
As filed with the Securities and Exchange Commission on October 24, 1997.
Registration No. 333-35559
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------
AMENDMENT NO. 2 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 of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification
Number)
1 Environmental Way
Broomfield, Colorado 80021-3416
(303) 664-2000
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
JIRKA RYSAVY
Chief Executive Officer
Corporate Express, Inc.
1 Environmental Way
Broomfield, Colorado 80021-3416
(303) 664-2000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
-----------------
Copies to:
GERALD J. GUARCINI, ESQ. KENNETH M. DORAN, ESQ.
Ballard Spahr Andrews & Ingersoll Gibson Dunn & Crutcher LLP
1735 Market Street, 51st Floor 333 South Grand Avenue
Philadelphia, Pennsylvania 19103-7599 Los Angeles, California 90071-3197
(215) 665-8500 (213) 229-7000
-----------------
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 IDD Acquisition Corp., a wholly
owned subsidiary of Corporate Express, Inc., into Data Documents Incorporated as
described in the Agreement and Plan of Merger, dated as of September 10, 1997
(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. [_]
------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
DATA DOCUMENTS INCORPORATED
4205 SOUTH 96TH STREET
OMAHA, NEBRASKA 68127
October 24, 1997
Dear Stockholder:
It is a pleasure to invite you to the Special Meeting of Stockholders of
Data Documents Incorporated ("Data Documents") in Omaha, Nebraska on November
14, 1997 at 10:00 a.m. local time, at Data Documents' principal offices (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, 1997 (the "Merger Agreement"), by and
among Corporate Express, Inc. ("Corporate Express"), IDD Acquisition Corp., a
wholly owned subsidiary of Corporate Express ("Acquisition Sub"), and Data
Documents.
The Merger Agreement provides, among other things, for the merger of
Acquisition Sub with and into Data Documents (the "Merger") pursuant to which
Data Documents will become a wholly owned subsidiary of Corporate Express and
each outstanding share of Data Documents Common Stock would be converted into
1.1 shares of Corporate Express Common Stock subject to adjustment under
certain circumstances. The adjustments to the exchange ratio are described
more fully in the accompanying Proxy Statement and Prospectus. Accordingly,
all of the shares of Data Documents Common Stock issued and outstanding
immediately prior to the consummation of the Merger would be automatically
converted at the effective time into a right to receive shares of Corporate
Express Common Stock.
SINCE ANY ADJUSTMENT TO THE EXCHANGE RATIO WILL OCCUR AFTER THE DATE OF THE
PROXY STATEMENT AND PROSPECTUS, STOCKHOLDERS OF DATA DOCUMENTS WILL BE ABLE TO
OBTAIN THE EXCHANGE RATIO BEGINNING FIVE TRADING DAYS PRIOR TO THE SPECIAL
MEETING BY CALLING (800) 463-5830.
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 or faxing your completed
proxy will not prevent you from voting in person at the meeting if you wish to
do so. Please sign, date and promptly mail or fax your proxy. Your cooperation
will be greatly appreciated.
Your Board of Directors and management look forward to greeting those
stockholders who are able to attend.
Sincerely,
/s/ A. Robert Thomas
------------------------
A. Robert Thomas
Secretary
<PAGE>
DATA DOCUMENTS INCORPORATED
4205 SOUTH 96TH STREET
OMAHA, NEBRASKA 68127
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 14, 1997
To the Stockholders of Data Documents:
A Special Meeting of Stockholders of Data Documents Incorporated, a Delaware
corporation ("Data Documents"), will be held at Data Documents' principal
offices in Omaha, Nebraska, on November 14, 1997 at 10:00 a.m., local time, to
consider and act upon the following matter:
To consider and act upon a proposal to approve and adopt the Agreement
and Plan of Merger dated as of September 10, 1997 among Corporate Express,
Inc., IDD Acquisition Corp. and Data Documents, and the conversion of each
outstanding share of Data Documents Common Stock, par value $.001 per
share, into 1.1 shares of Corporate Express Common Stock, par value $.0002
per share, subject to adjustment under certain circumstances all as more
fully described in the accompanying Proxy Statement and Prospectus.
STOCKHOLDERS OF DATA DOCUMENTS WILL BE ABLE TO OBTAIN THE EXCHANGE RATIO
BEGINNING FIVE TRADING DAYS PRIOR TO THE SPECIAL MEETING BY CALLING (800)
463-5830.
Stockholders of record at the close of business on October 14, 1997 are
entitled to notice of, and to vote at, the Special Meeting and any
adjournments thereof. The Data Documents stock transfer books will remain open
for the purchase and sale of Data Documents' 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
Data Documents for inspection by any stockholder of record for any purpose
germane to the Special Meeting.
All stockholders are cordially invited to attend the meeting.
By order of the Board of Directors,
/s/ Walter J. Kearns
--------------------------
Walter J. Kearns
Chairman of the Board
Omaha, Nebraska
October 24, 1997
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 OR FAX AS PROVIDED HEREIN 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
CORPORATE EXPRESS, INC.
DATA DOCUMENTS INCORPORATED
----------
PROXY STATEMENT AND PROSPECTUS
This Proxy Statement and Prospectus ("Proxy Statement and Prospectus")
relates to the proposed merger (the "Merger") of IDD Acquisition Corp.
("Acquisition Sub"), a wholly owned subsidiary of Corporate Express, Inc.
("Corporate Express") with and into Data Documents Incorporated ("Data
Documents") pursuant to an Agreement and Plan of Merger dated September 10,
1997 among Corporate Express, Acquisition Sub and Data Documents (the "Merger
Agreement"). As a result of the Merger, Data Documents will become a wholly
owned subsidiary of Corporate Express and the stockholders of Data Documents
will receive Corporate Express common stock, par value $.0002 per share
("Corporate Express Common Stock"), in exchange for all of the issued and
outstanding shares of Data Documents common stock, par value $.001 per share
("Data Documents Common Stock"). Pursuant to the Merger, each outstanding share
of Data Documents Common Stock will be converted into 1.1 shares of Corporate
Express Common Stock (the "Exchange Ratio"). The Exchange Ratio is subject to
adjustment as described herein if the average of the closing prices of
Corporate Express Common Stock, as reported on The Nasdaq National Market
("Nasdaq") for ten trading days selected randomly from the twenty consecutive
trading days ending five trading days prior to the special meeting of Data
Documents' stockholders to approve the Merger (the "Corporate Express Stock
Value"), is less than $15.00 or greater than $18.20. If the Corporate Express
Stock Value is less than $15.00, then Corporate Express has the right to
increase the Exchange Ratio to the number (expressed as a decimal fraction)
which, when multiplied by the Corporate Express Stock Value, will equal $16.50
and the Merger shall be consummated on the basis of such increased Exchange
Ratio. In the event Corporate Express does not elect to increase the Exchange
Ratio, then Data Documents may at its option either (i) terminate the Merger
Agreement or (ii) consummate the Merger. Notwithstanding the forgoing, even if
Corporate Express does elect to increase the Exchange Ratio, Data Documents may
at its option terminate the Agreement if the Corporate Express Stock Value is
less than $10.00. See "The Merger--Adjustments to Merger Consideration." The
Data Documents Board of Directors does not currently intend to resolicit
proxies in the event that the right to terminate, as described above, arises.
See "The Special Meeting--Solicitation of Proxies."
Approval of the Merger Agreement requires the affirmative vote of the holders
of a majority of the outstanding shares of Data Documents Common Stock present,
either in person or by proxy, at the special meeting. Certain executive
officers and employee directors of Data Documents, representing approximately
15.9% of Data Documents Common Stock, have executed and delivered irrevocable
proxies to Corporate Express to vote their shares in favor of the Merger. Data
Documents' stockholders will not be entitled to any appraisal or dissenters'
rights under the Delaware General Corporation Law in connection with the
Merger. Since any adjustment to the Exchange Ratio will occur after the date of
this Proxy Statement and Prospectus, stockholders will not know the Exchange
Ratio at the time of their vote, but may obtain the Exchange Ratio beginning
five trading days prior to the special meeting by calling (800) 463-5830, and
may revoke their vote by facsimile as provided below. On October 13, 1997, the
closing price of the Corporate Express Common Stock was $20.625 per share. If
the trading price of Corporate Express Common Stock were to stay at $20.625 per
share to the closing date of the Merger, the Exchange Ratio would be 1.0 shares
of Corporate Express Common Stock for each share of Data Documents Common
Stock. See "The Merger--Adjustments to Merger Consideration."
This Proxy Statement and Prospectus serves as the proxy statement for Data
Documents for its special meeting of stockholders to be held November 14, 1997.
See "The Special Meeting."
TO FACILITATE THE VOTING PROCESS FOR THE SPECIAL MEETING, STOCKHOLDERS OF
DATA DOCUMENTS WILL BE ABLE TO VOTE THEIR SHARES AND REVOKE THEIR VOTES BY
FACSIMILE, BY THE STATED TIME OF THE SPECIAL MEETING, AT THE FOLLOWING
TELEPHONE NUMBER--(402) 339-9270. SEE "THE SPECIAL MEETING--VOTING OF PROXIES"
AND "--REVOCATION OF PROXIES".
This Proxy Statement and Prospectus also constitutes a prospectus of
Corporate Express with respect to up to 10,387,630 shares of Corporate Express
Common Stock to be issued to stockholders of Data Documents pursuant to the
Merger Agreement. This Proxy Statement and Prospectus and the accompanying
forms of proxy are first being mailed to stockholders of Data Documents on or
about October 24, 1997.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS IN EVALUATING THE MERGER.
No persons have been authorized to give any information or to make any
representation other than those contained in this Proxy Statement and
Prospectus in connection with the solicitation of proxies or the offering of
securities made hereby and, if given or made, such information or
representation should not be relied upon as having been authorized by Corporate
Express or Data Documents. 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 Data Documents 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 Data Documents has been furnished by
Data Documents.
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 24, 1997.
<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, Data Documents and Acquisition Sub relating to, among other
matters, analyses, including opinions, if any, from independent financial
advisors to Data Documents' Board of Directors and Corporate Express' Board of
Directors as to the fairness from a financial point of view of the Exchange
Ratio to be offered to Data Documents' 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" 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 Data Documents 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 at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and the Regional Offices of the Commission: 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 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 Commission's Web
site (http://www.sec.gov). Corporate Express Common Stock and Data Documents
Common Stock are quoted on Nasdaq and reports, proxy statements and other
information concerning Corporate Express and Data Documents are available for
inspection and copying at the Public Reference Section of The Nasdaq National
Market, 1735 K Street, N.W., Washington, D.C. 20006-1500.
Corporate Express has filed with the Commission a registration statement on
Form S-4 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Corporate Express Common
Stock to be issued in the Merger. This Proxy Statement and Prospectus also
constitutes the Prospectus of Corporate Express filed as part of the
Registration Statement and does not contain all of the information set forth
in the Registration Statement and the exhibits thereto, certain parts of which
are omitted in accordance with the rules of the Commission. Statements made in
this Proxy Statement and Prospectus as to the contents of any contract,
agreement, or other document referred to are not necessarily complete; with
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
qualified in its entirety by such reference. The Registration Statement and
any amendments thereto, including exhibits filed as part thereof, are
available for inspection and copying at the Commission's offices as described
above.
----------------
Corporate Express(R) is a registered service mark of Corporate Express, Inc.
----------------
As used in this Proxy Statement and Prospectus, "fiscal 1994," "fiscal 1995"
and "fiscal 1996" refer to Corporate Express' fiscal years ended or ending
February 25, 1995, March 2, 1996 and March 1, 1997, respectively or to Data
Documents' fiscal years ended December 31, 1994, 1995 and 1996, respectively.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
FORWARD-LOOKING STATEMENTS................................................. 2
AVAILABLE INFORMATION...................................................... 2
SUMMARY.................................................................... 8
Corporate Express, Inc................................................... 8
Data Documents Incorporated.............................................. 9
Strategic Reasons for the Merger......................................... 10
The Special Meeting...................................................... 11
The Merger............................................................... 11
Comparative Historical and Pro Forma Per Share Data...................... 15
Comparative Market Data.................................................. 16
Dividend Policy.......................................................... 17
RISK FACTORS............................................................... 18
Risks Relating to Corporate Express...................................... 18
Risks Relating to Data Documents......................................... 20
Risks Relating to the Merger............................................. 22
THE SPECIAL MEETING........................................................ 23
Special Meeting of Data Documents Stockholders........................... 23
Quorum................................................................... 23
Vote Required............................................................ 23
Record Date; Stock Entitled to Vote...................................... 23
Voting of Proxies........................................................ 23
Revocation of Proxies.................................................... 24
Solicitation of Proxies.................................................. 24
THE MERGER................................................................. 25
Merger Consideration..................................................... 25
Adjustments to Merger Consideration...................................... 25
Option Plans Warrants.................................................... 26
Conversion of Shares; Procedures for Exchange of Certificates; Fractional
Shares.................................................................. 27
Nasdaq Listing........................................................... 27
Background of the Merger................................................. 27
Recommendation of the Data Documents Board of Directors.................. 30
Reasons for the Merger................................................... 31
Opinion of Data Documents' Financial Advisor............................. 32
Effective Time of the Merger............................................. 38
Interests of Certain Persons in the Merger............................... 39
Certain Federal Income Tax Consequences.................................. 39
Anticipated Accounting Treatment......................................... 40
Resale of Corporate Express Common Stock by Affiliates................... 40
Certain Regulatory Matters............................................... 41
Rights of Dissenting Stockholders........................................ 41
Comparison of Stockholder Rights......................................... 41
THE MERGER AGREEMENT....................................................... 48
Conditions to the Merger................................................. 48
Representations and Warranties........................................... 50
Certain Covenants........................................................ 51
No Solicitation.......................................................... 52
Additional Agreements.................................................... 53
Termination, Amendment and Waiver........................................ 56
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
SELECTED CONSOLIDATED FINANCIAL DATA........................................ 57
Corporate Express......................................................... 57
SELECTED CONSOLIDATED FINANCIAL DATA........................................ 59
Data Documents............................................................ 59
PRO FORMA COMBINED BALANCE SHEET............................................ 62
PRO FORMA COMBINED STATEMENTS OF OPERATIONS................................. 63
HISTORICAL COMBINED STATEMENTS OF OPERATIONS................................ 68
PRINCIPAL STOCKHOLDERS...................................................... 69
Corporate Express......................................................... 69
Data Documents............................................................ 69
DESCRIPTION OF CORPORATE EXPRESS CAPITAL STOCK.............................. 73
General................................................................... 73
Common Stock.............................................................. 73
Nonvoting Common Stock.................................................... 73
Preferred Stock........................................................... 73
Limitations on Directors' Liabilities and Indemnification................. 74
Transfer Agent and Registrar.............................................. 74
DESCRIPTION OF DATA DOCUMENTS CAPITAL STOCK................................. 74
Common Stock.............................................................. 74
Warrants.................................................................. 74
Preferred Stock........................................................... 75
Limitation of Liability and Indemnification of Directors and Officers..... 75
Transfer Agent and Registrar.............................................. 76
LEGAL MATTERS............................................................... 77
EXPERTS..................................................................... 77
</TABLE>
APPENDIX I--AGREEMENT AND PLAN OF MERGER DATED AS OF SEPTEMBER 10, 1997 AMONG
CORPORATE EXPRESS, DATA DOCUMENTS AND ACQUISITION SUB
APPENDIX II--OPINION OF JEFFERIES & COMPANY, INC.
APPENDIX III--CORPORATE EXPRESS' ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
MARCH 1, 1997
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationship and Related Transactions
4
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
APPENDIX IV--CORPORATE EXPRESS' QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED MAY 31, 1997
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets--May 31, 1997 and March 1, 1997
Consolidated statements of operations--Three months ended May
31, 1997 and June 1, 1996
Consolidated statements of cash flows--Three months ended May
31, 1997 and June 1, 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II--OTHER INFORMATION
APPENDIX V--CORPORATE EXPRESS' QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED AUGUST 30, 1997
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets--August 30, 1997 and March 1, 1997
Consolidated statements of operations--Three and six months
ended August 30, 1997 and August 31, 1996
Consolidated statements of cash flows--Six months ended August
30, 1997 and August 31, 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II--OTHER INFORMATION
APPENDIX VI--CORPORATE EXPRESS' PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS HELD ON JULY 17, 1997
Purpose of Annual Meeting
Quorum and Voting Requirements
Proposal 1--Election of Directors
Proposal 2--Amendment to 1994 Stock Option and Incentive Plan
Principal Shareholders
Executive Officers
Executive Compensation
Compensation Committee Report on Executive Compensation
Stock Performance Graph
Auditors
Section 16(a) Beneficial Ownership Reporting Compliance
Shareholder Proposals
Other Matters
5
<PAGE>
APPENDIX VII--DATA DOCUMENTS' ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationship and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
APPENDIX VIII--DATA DOCUMENTS' QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED MARCH 31, 1997
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets--March 31, 1997 and December 31,
1996
Consolidated statements of operations--Three months ended March
31, 1997 and 1996
Consolidated statements of cash flows--Three months ended March
31, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II--OTHER INFORMATION
APPENDIX IX--DATA DOCUMENTS' QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED JUNE 30, 1997
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets--June 30, 1997 and December 31, 1996
Consolidated statements of operations--Three and six months
ended June 30, 1997 and 1996
Consolidated statements of cash flows--Six months ended June 30,
1997 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II--OTHER INFORMATION
APPENDIX X--DATA DOCUMENTS' CURRENT REPORT ON FORM 8-K FILED AUGUST 14, 1997
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
6
<PAGE>
APPENDIX XI--DATA DOCUMENTS' PROXY STATEMENT FOR THE ANNUAL MEETING OF
STOCKHOLDERS HELD ON MAY 8, 1997
Solicitation of Proxies
Voting
Election of Directors
Management
Section 16(a) Beneficial Ownership Reporting Compliance
Executive Compensation
Report of the Compensation Committee on Executive Compensation
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
Performance Graph
Security Ownership of Certain Beneficial Owners and Management
Certain Transactions
Ratification of Selection of Independent Public Accountants
Stockholder Proposals
7
<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, INC.
Corporate Express is a provider of non-production goods 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, France,
Italy and New Zealand. Corporate Express believes it has developed a
substantially different model of non-store retailing, 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 product and
service offering includes office supplies, paper, computer and imaging
supplies, computer desktop software, office furniture, janitorial and cleaning
supplies, advertising specialties, 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 700 locations including 80
distribution centers and a fleet of more than 10,000 owned or contracted
vehicles.
Corporate Express' target customers are large corporations with over 100
employees. Corporate Express believes that these large corporations
increasingly seek to reduce the cost of procuring non-production goods and
services while decreasing the time and effort spent managing functions that
are not considered core competencies. To that end, corporations seek to reduce
the number of their suppliers in order to eliminate the internal costs
associated with multiple invoices, deliveries, complex ordering procedures,
uneven service levels and inconsistent product availability. Many large
corporations operate from multiple locations and can benefit from selecting
suppliers 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 costs by decreasing
their number of suppliers to a small group of reliable and cost-effective
national and international partners will continue to lead to the consolidation
of many currently fragmented product and service sectors, as well as
consolidation in sectors where the key differentiation will be the ability to
fulfill a broad spectrum of customer requirements rather than providing an
individual 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, customized pricing, electronic
interfaces, customized reporting and product catalogs. Corporate Express seeks
to supply a broad range of non-production goods and services to large
corporations. This broad product and service offering permits Corporate
Express to reduce its customers' procurement costs associated with dealing
with multiple vendors, including multiple invoices, deliveries, ordering
procedures, uneven service levels and inconsistent product availability, 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 competitive
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
8
<PAGE>
differentiates the Company from its competitors and permits it to achieve cost
savings, provide superior customer service and centrally manage its
operations. Corporate Express expects to continue making substantial
investments to upgrade and enhance the capabilities of its computer systems.
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 believes that its expanded product line and expanding geographic
coverage enable it to offer its customers a broad array of non-production
goods and services to address their desire to reduce the number of suppliers
with which they interact. Corporate Express seeks to attract new customers,
including national and international accounts, through the marketing efforts
of its direct sales force. Further, Corporate Express has expanded its
delivery capabilities and geographic coverage in the United States, and
Corporate Express intends to increase development of sales efforts in these
new geographic areas. In addition, Corporate Express may open additional
satellite sales offices and distribution breakpoints to serve new accounts.
Corporate Express has in the past funded and intends to continue to fund its
acquisitions through internally generated funds, credit arrangements and
capital raising activities, including public and private offerings of debt and
equity securities.
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 acquired or made
investments in companies in Canada and Australia in calendar 1995 and the
United Kingdom, Germany and New Zealand in calendar 1996. Corporate Express
entered the French market with the acquisition of a computer software reseller
in October 1996, and the Italian market in calendar 1997. The Company plans to
enter additional international markets in the future. Over time, the Company
has and will continue to implement appropriate aspects of the Corporate
Supplier business model in its international operations, including creating
in-stock catalogs, consolidating warehouses, upgrading information systems,
acquiring companies offering complementary products and services and focusing
on larger customers and national and international accounts. Portions of the
Corporate Supplier business model have been implemented in Canada, Australia
and the United Kingdom.
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 1 Environmental Way,
Broomfield, Colorado 80021, and its telephone number is (303) 664-2000.
DATA DOCUMENTS INCORPORATED
Data Documents is a designer and provider of custom business forms,
pressure-sensitive label products and forms management systems that enable its
large corporate customers to enhance productivity and reduce costs associated
with managing information. A substantial portion of Data Documents' forms
sales are made in connection with its proprietary forms management systems. In
addition, Data Documents supplies specialized direct mail products and sells
other computer services and products, including laser printer supplies and
software packages.
Within the pressure-sensitive label market, Data Documents has focused on,
among others, the thermal, laser and combination label/forms segments. Data
Documents has developed many label products, such as the Dual-Web(R)
label/form combination product and airline baggage tracking labels. Many of
Data Documents' products have been developed to satisfy customers' increasing
needs for variable information content, such as inventory control bar coding.
Over the last five years, the business forms industry has been affected by
numerous factors, including changes in end-user requirements and available
technology. These changes have resulted in a shift towards certain custom
value-added products and systems in both the business forms and pressure-
sensitive label markets from the stock forms segment. In addition, end-users
are increasingly seeking to outsource and single source their forms management
and pressure-sensitive label needs. Data Documents has positioned itself as a
provider
9
<PAGE>
of solutions-based approaches to information collection and distribution and
to focus its business on custom value-added products that are tied to Data
Documents' services.
Data Documents establishes strategic, long-term forms management
relationships with its core customers. Data Documents' forms management
services have been designed to respond to increased outsourcing by large
corporations of non-core operations, such as forms design and workflow
analysis, inventory management, warehousing and shipping. Data Documents'
Odyssey Integrated Services(R) program provides a selection of fully
integrated service modules, supported by proprietary software, offering
comprehensive forms management services and efficiency-enhancing tools.
Data Documents conducts all of its consolidated operations through its one
wholly owned subsidiary, Data Documents, Inc., a Nebraska corporation ("DDI"),
and DDI's wholly owned subsidiaries, PBF Washington, Inc., a Washington
corporation ("PBF"), Cal Emblem Labels, Inc., a California corporation ("Cal
Emblem"), and Moore Labels, Inc., a Kansas corporation ("Moore Labels"). Data
Documents was organized by management and an investor group in Delaware in
February 1988 to acquire DDI from Pitney Bowes, Inc.
DDI, PBF, Cal Emblem and Moore Labels account for 100% of the consolidated
revenues and net earnings of Data Documents. Data Documents' sole assets are
the investment in the stock of, and advances to, DDI. Data Documents has no
subsidiaries other than DDI and, indirectly, PBF, Cal Emblem and Moore Labels,
and has no liabilities other than guarantees of indebtedness of DDI, PBF, Cal
Emblem and Moore Labels. Data Document's financial statements are prepared on
a consolidated basis and include the financial results of DDI, PBF, Cal Emblem
and Moore Labels. Unless the context otherwise requires, the term "Data
Documents" includes Data Documents Incorporated and its direct and indirect
subsidiaries.
Data Documents was incorporated under the laws of Delaware in 1988. Data
Documents' executive offices are located at 4205 South 96th Street, Omaha,
Nebraska 68127, and its telephone number is (402) 339-0900.
STRATEGIC REASONS FOR THE MERGER
The Corporate Express Board of Directors and management continually review
strategic alternatives available to Corporate Express, including acquisitions,
product extensions and geographic expansion. The Corporate Express Board of
Directors believes that the combination with Data Documents will: (i) allow
Corporate Express to offer various additional services which are complementary
to its business; (ii) create economies of scale including allowing the
combined entity to reduce duplicative administrative functions and combine
regional and national marketing programs; (iii) create a combined entity
positioned to compete more effectively on both a strategic and financial
basis; and (iv) create cross-selling opportunities.
The Data Documents Board of Directors believes that the Merger with
Corporate Express will (i) enhance Data Documents' product offering,
distribution capabilities and services to its customers, (ii) result in
strategic and operating synergies and (iii) provide the opportunity for
stockholders of Data Documents to have an ownership interest in a larger
company with greater opportunities for growth in the same industry in which
Data Documents occupies a smaller niche.
10
<PAGE>
THE SPECIAL MEETING
Meeting of Stockholders......
The Special Meeting of stockholders of Data
Documents (the "Special Meeting") will be held
on November 14, 1997 at 10:00 a.m. (local time)
at Data Documents' principal offices at 4205
South 96th Street, Omaha, Nebraska.
Matters to be Considered at
the Special Meeting......... At the Special Meeting, stockholders will be
asked to approve and adopt the Merger Agree-
ment. Pursuant to the terms of the Merger
Agreement, each share of Data Documents Common
Stock will be converted into 1.1 shares of Cor-
porate Express Common Stock. The Exchange Ratio
is subject to adjustment in certain circum-
stances. See "The Merger--Merger Consideration"
and "--Adjustments to Merger Consideration."
For additional information relating to the Spe-
cial Meeting, see "The Special Meeting."
Quorum; Vote Required........ The presence, in person or by proxy, of the
holders of a majority of the outstanding shares
of Data Documents Common Stock at the Special
Meeting is necessary to constitute a quorum at
the meeting. Approval of the Merger Agreement
requires the affirmative vote of the holders of
a majority of the outstanding shares of Data
Documents Common Stock. See "The Special Meet-
ing--Vote Required" and "The Merger Agreement--
Conditions to the Merger."
Record Date.................. Only stockholders of record of Data Documents
Common Stock at the close of business on Octo-
ber 14, 1997 are entitled to notice of and to
vote at the Special Meeting. On that date,
there were 9,957,387 shares (which includes
269,607 treasury shares) of Data Documents Com-
mon Stock outstanding, with each share of Data
Documents Common Stock entitled to cast one
vote with respect to the Merger Agreement at
the Special Meeting.
Security Ownership of
Management.................. As of the record date, the directors and execu-
tive officers of Data Documents as a group had
the power to vote approximately 15.9% of the
outstanding shares of Data Documents 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 "The Merger--Interests of Certain Persons
in the Merger."
THE MERGER
Effect of the Merger......... Pursuant to the Merger Agreement, Acquisition
Sub would merge with and into Data Documents,
Data Documents would continue as the surviving
corporation (sometimes referred to as the "Sur-
viving Corporation") and Data Documents would
become a wholly owned subsidiary of Corporate
Express. All of the shares of Data Documents
Common Stock issued and outstanding immediately
prior to the consummation of the Merger would
be automatically converted at the Effective
Time (as defined below) into the right to re-
ceive shares of Corporate Express Common Stock.
Pursuant to the Merg-
11
<PAGE>
er, each share of Data Documents Common Stock
would be converted into 1.1 shares of Corporate
Express Common Stock (the "Exchange Ratio").
The Exchange Ratio is subject to adjustment.
See "The Merger--Merger Consideration" and "--
Adjustments to Merger Consideration."
Assumption of Options; Each unexpired option and warrant to acquire
Warrants.................... shares of Data Documents Common Stock will au-
tomatically be converted at the Effective Time
(as defined below) into an option or warrant,
as the case may be, to purchase shares of Cor-
porate Express Common Stock. The number of
shares which each option or warrant holder
shall have the right to purchase, and the exer-
cise price of such options or warrants, will be
adjusted to reflect the Exchange Ratio. Upon
consummation of the Merger, Corporate Express
will enter into a supplemental agreement with
holders of Data Documents warrants. See "The
Merger Agreement--Additional Agreements."
Recommendation of the Board
of Directors and Reasons
for the Merger..............
The Data Documents Board of Directors believes
that the terms of the Merger are fair to and in
the best interests of the Data Documents stock-
holders and has unanimously approved the Merger
Agreement and the related transactions. The
Data Documents Board of Directors unanimously
recommends that Data Documents stockholders ap-
prove the Merger Agreement. See "The Merger--
Recommendations of the Data Documents Board of
Directors," "--Background of the Merger" and
"--Reasons for the Merger."
Opinion of Data Documents'
Financial Advisor........... Jefferies & Company, Inc. has delivered to the
Board of Directors of Data Documents a written
opinion dated September 5, 1997 to the effect
that, as of the date of such opinion and based
upon and subject to certain matters stated
therein, the consideration was fair, from a fi-
nancial point of view, to the holders of Data
Documents Common Stock. The full text of the
written opinion of Jefferies & Company, Inc.
dated September 5, 1997, and confirmed by
Jefferies & Company, Inc. on the date of this
Proxy Statement and Prospectus, which sets
forth the assumptions made, matters considered
and limitations on the review undertaken, is
attached as Appendix II to this Proxy Statement
and Prospectus and should be read carefully in
its entirety. See "The Merger--Opinion of Data
Documents' Financial Advisor."
Effective Time of the The Merger will become effective at the time
Merger...................... provided in a certificate of merger (the "Cer-
tificate of Merger") to be filed with the Sec-
retary of State of Delaware (the "Effective
Time"). The filing will be made simultaneously
with or as soon as practicable after the clos-
ing of the Merger. The closing of the Merger
(the "Closing") will occur on the third busi-
ness day after all of the conditions to the
Merger contained in the Merger Agreement have
been satisfied or waived, or at such other time
as Corporate Express and Data Documents shall
reasonably agree. See "The Merger Agreement--
Conditions to the Merger."
12
<PAGE>
Conditions to the Merger.....
The obligations of Corporate Express and Data
Documents to consummate the Merger are subject
to certain conditions including: (i) obtaining
the approval of the stockholders of Data Docu-
ments; (ii) obtaining authorization for listing
on Nasdaq, subject to official notice of issu-
ance, of the Corporate Express Common Stock to
be issued in connection with the Merger; (iii)
the expiration or termination of the relevant
waiting period under the Hart-Scott-Rodino An-
titrust Improvements Act of 1976, as amended
(the "HSR Act") and all other governmental
waivers, consents, orders and approvals legally
required for the consummation of the Merger are
obtained; (iv) the effectiveness of the Regis-
tration Statement of which this Proxy Statement
and Prospectus is a part; (v) no order being
entered in any action or proceeding or other
legal restraint or prohibition preventing the
consummation of the Merger; (vi) the receipt by
each party of various legal, financial and ac-
counting opinions, comfort letters and other
certificates, consents, reports and approvals
from the other parties to the Merger and from
third parties; (vii) the accuracy in all mate-
rial respects of the representations and war-
ranties of each party and performance in all
material respects by each party of its obliga-
tions under the Merger Agreement; and (viii)
the absence of any material adverse change in
the business or financial condition of Corpo-
rate Express or Data Documents. See "The Merg-
er--Certain Regulatory Matters" and "The Merger
Agreement--Conditions to the Merger."
No Solicitation..............
Data Documents has agreed that, prior to the
Effective Time, it will not initiate or solicit
any proposal or offer to acquire the capital
stock of Data Documents and its subsidiaries or
similar actions, whether by merger, purchase of
assets, tender offer or otherwise. See "The
Merger Agreement--No Solicitation."
Termination, Amendment and The Merger Agreement may be terminated at any
Waiver...................... time prior to the Effective Time by mutual con-
sent of Corporate Express and Data Documents
or, generally, by either party if (i) the
Merger shall not have been completed by Decem-
ber 31, 1997, (ii) the Merger is enjoined by
court order, (iii) either party fails to per-
form in any material respect any of its cove-
nants under the Merger Agreement or (iv) Data
Documents' stockholders fail to approve the
Merger. In addition, either Corporate Express
or Data Documents may extend the time for per-
formance of any of the obligations of the other
party or may waive conditions with respect to
those obligations. Data Documents may terminate
the Merger Agreement in connection with consum-
mating an alternative Acquisition Transaction
(as hereinafter defined) or upon certain
changes in the value of Corporate Express Com-
mon Stock. See "The Merger Agreement--Termina-
tion, Amendment and Waiver."
Expenses..................... In general, each party will bear its own ex-
penses in connection with the Merger, however
Corporate Express will pay for fees and ex-
penses relating to the printing, filing and
mailing of the Proxy Statement and Prospectus
if the Merger is consummated. See "Merger
Agreement--Additional Agreements--Expenses and
Fees."
13
<PAGE>
Appraisal Rights ............
Data Documents stockholders will not be enti-
tled to any appraisal or dissenters' rights un-
der the Delaware General Corporation Law in
connection with the Merger. See "The Merger--
Rights of Dissenting Stockholders."
Certain Regulatory Matters... Consummation of the Merger is subject to the
expiration or termination of the relevant wait-
ing period under the HSR Act. Corporate Express
and Data Documents believe that the Merger can
be effected in compliance with any other appli-
cable federal and state regulations, although
no assurance can be given to that effect. See
"The Merger--Certain Regulatory Matters."
Certain Federal Income Tax
Consequences................ The Merger is intended to qualify as a tax-free
reorganization for federal income tax purposes
so that no gain or loss would be recognized by
Corporate Express or Data Documents, and no
gain or loss would be recognized by Data Docu-
ments stockholders, except in respect of cash
received for fractional shares. Consummation of
the Merger is conditioned upon there being de-
livered to Data Documents an opinion of counsel
prior to the Closing to the effect that the
Data Documents stockholders will recognize no
gain or loss for federal income tax purposes as
a result of the consummation of the Merger, ex-
cept to the extent cash is received in lieu of
fractional shares. See "The Merger--Certain
Federal Income Tax Consequences."
Anticipated Accounting The Merger is intended to qualify as a "pooling
Treatment................... of interests" for accounting and financial re-
porting 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 to Corpo-
rate Express stating that the Merger will qual-
ify as a pooling-of-interests transactions and
a letter from Deloitte & Touche L.L.P., inde-
pendent public accountants to Data Documents
stating that Data Documents has not taken any
action that would affect the ability to account
for the Merger as a pooling-of-interests trans-
action for financial accounting purposes. See
"The Merger--Anticipated Accounting Treatment."
Interests of Certain Persons
in the Merger............... In considering the recommendation of the Data
Documents Board of Directors with respect to
the Merger, Data Documents stockholders should
be aware that certain members of the Data Docu-
ments Board of Directors who are also employees
of Data Documents, have interests in the Merger
and may be entitled to receive non-qualified
options of Corporate Express Common Stock upon
consummation of the Merger. See "The Merger--
Interests of Certain Persons in the Merger" for
a description of such arrangements.
14
<PAGE>
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The following summary presents selected comparative per share information
for (i) Corporate Express on an historical basis in comparison with pro forma
information giving effect to the Merger on a pooling-of-interests basis, and
(ii) Data Documents 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 Data Documents 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 Data Documents 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. Corporate Express and Data
Documents have never paid cash dividends on their respective common stock. See
"--Dividend Policy."
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
MARCH 1, MARCH 2, FEBRUARY 25, AUGUST 30,
1997 1996 1995 1997
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Pro Forma income from continuing
operations per common and
common equivalent share:
Corporate Express historical.. $0.31 $0.06 $0.19 $0.18
Corporate Express and Data
Documents combined........... 0.35 0.10 0.18 0.21
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
---------------------------------- JUNE 30,
1996 1995 1994 1997
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Data Documents historical..... $1.05 $0.61 $0.13(2) $0.56
Data Documents pro forma
equivalent(1)................ 0.35 0.10 0.18 0.21
</TABLE>
<TABLE>
<CAPTION>
MARCH 1, AUGUST 30,
1997 1997
------------ ----------
<S> <C> <C>
Stockholders' equity per common equivalent share:
Corporate Express historical.......................... $5.33 $5.48
Corporate Express and Data Documents combined......... 5.20 5.37
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Data Documents historical............................. $3.79 $4.35
Data Documents pro forma equivalent(3)................ 5.17 5.37
</TABLE>
- --------
(1) Represents the Corporate Express and Data Documents combined pro forma
income from continuing operations per common and common equivalent share
multiplied by the Exchange Ratio.
(2) Represents the Data Documents historical primary income from continuing
operations per common and common equivalent share for the year ended
December 31, 1994. The Data Documents historical fully diluted income from
continuing operations per common and common equivalent share for the year
ended December 31, 1994 is $0.11.
(3) Represents the Corporate Express and Data Documents combined stockholders'
equity per common and common equivalent share multiplied by an assumed
Exchange Ratio of 1.0. The Exchange Ratio is subject to adjustment. See
"The Merger--Adjustments to Merger Consideration."
15
<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 Corporate
Express Common Stock, as reported by Nasdaq, and reflects the 50% share
dividends distributed by the Company in June 1995 and January 1997:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1995
First Quarter............................................. $13.33 $10.22
Second Quarter............................................ 17.17 12.67
Third Quarter............................................. 19.92 13.33
Fourth Quarter............................................ 21.09 15.42
FISCAL 1996
First Quarter............................................. 28.17 19.25
Second Quarter............................................ 30.54 21.83
Third Quarter............................................. 26.08 18.67
Fourth Quarter............................................ 23.75 16.63
FISCAL 1997
First Quarter............................................. 18.38 8.38
Second Quarter............................................ 17.88 12.63
Third Quarter (through October 8, 1997)................... 22.06 16.94
</TABLE>
As of October 8, 1997, Corporate Express Common Stock was held by
approximately 810 holders of record.
Data Documents Common Stock is traded on Nasdaq under the symbol "DDII."
Data Documents Common Stock was not listed on Nasdaq for a full quarterly
period during its fiscal year ended December 31, 1995. The following table
sets forth, for the fiscal quarters indicated, the high and low closing sales
prices for Data Documents Common Stock, as reported by Nasdaq:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1996
First Quarter............................................. $10.75 $ 7.88
Second Quarter............................................ 14.00 8.88
Third Quarter............................................. 14.00 10.13
Fourth Quarter............................................ 12.75 9.50
FISCAL 1997
First Quarter............................................. 13.00 9.13
Second Quarter............................................ 13.00 9.00
Third Quarter............................................. 21.75 11.25
Fourth Quarter (through October 8, 1997).................. 21.00 19.63
</TABLE>
As of October 8, 1997, Data Documents Common Stock was held by approximately
66 holders of record.
16
<PAGE>
The following table sets forth the closing price per share of Corporate
Express Common Stock and Data Documents Common Stock on Nasdaq and the
equivalent per share price (as explained below) of Data Documents Common Stock
on September 9, 1997, the business day preceding public announcement of the
Merger:
<TABLE>
<CAPTION>
MARKET PRICE CORPORATE EXPRESS DATA DOCUMENTS EQUIVALENT
PER SHARE AT: COMMON STOCK COMMON STOCK PER SHARE PRICE(1)
------------- ----------------- -------------- ------------------
<S> <C> <C> <C>
September 9, 1997 $19.00 $14.88 $20.00(2)
</TABLE>
- --------
(1) The equivalent per share price of a share of Data Documents Common Stock
represents the closing price of a share of Corporate Express Common Stock
on such date multiplied by the Exchange Ratio of 1.1 shares of Corporate
Express Common Stock for each share of Data Documents Common Stock. The
Exchange Ratio is subject to adjustment under certain circumstances. See
"The Merger--Merger Consideration" and "--Adjustments to Merger
Consideration."
(2) In the event that the Corporate Express Stock Value is greater than
$18.20, the Exchange Ratio will be decreased to the number (expressed as a
decimal fraction) which, when multiplied by the Corporate Express Stock
Value, will equal $20.00. See "The Merger--Merger Consideration" and "--
Adjustments to Merger Consideration."
Data Documents stockholders are advised to obtain current market quotations
for Corporate Express Common Stock and Data Documents Common Stock. No
assurance can be given as to the market price of Corporate Express Common
Stock or Data Documents 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 (the "CEI Senior Notes") prohibits any dividend which would
cause a default under such indenture or which would cause the failure to
comply with certain financial covenants.
Data Documents has not paid cash dividends on its Common Stock to date.
Because Data Documents currently intends to retain any earnings to provide
funds for the operation and expansion of its business and to repay any
indebtedness, Data Documents does not intend to pay cash dividends on Data
Documents Common Stock in the foreseeable future. Furthermore, as a holding
company with no independent operations, the ability of Data Documents to pay
cash dividends will be dependent upon the receipt of dividends or other
payments from its wholly owned subsidiary, DDI. Under the terms of the
Indenture governing DDI's 13 1/2% Senior Secured Notes (the "DDI Senior
Notes"), DDI is not permitted to pay any dividends on DDI's common stock
unless certain financial ratio tests are satisfied. In addition, DDI's current
revolving credit facility contains similar restrictions on the payment of
dividends by DDI. Any determination to pay cash dividends on Data Documents
Common Stock in the future will be at the sole discretion of Data Documents'
Board of Directors.
17
<PAGE>
RISK FACTORS
In addition to other information in this Proxy Statement and Prospectus, the
following factors should be considered carefully in evaluating the proposals
to be voted on at the Special Meeting and in evaluating an investment in
Corporate Express Common Stock.
RISKS RELATING TO CORPORATE EXPRESS
Rapid Expansion; Integration of Acquisitions; Dependence on Acquisitions for
Future Growth. Through numerous acquisitions completed since 1991, Corporate
Express significantly increased the scope of its operations from a regional
operation in Colorado to operations throughout the United States, Canada, the
United Kingdom, Australia, Germany, France, Italy and New Zealand. The
majority of these acquisitions have occurred since 1994. For fiscal year 1996
and fiscal year 1997 to date, Corporate Express has completed 113
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, the United Kingdom,
Germany, France and New Zealand in calendar 1996 and Italy in calendar 1997.
Over time, Corporate Express plans to implement appropriate aspects of the
Corporate Express business model in its international operations, including
creating in-stock catalogs, consolidating warehouses, upgrading information
systems, acquiring companies offering complementary products and services and
focusing on larger customers and national and international accounts.
Expansion into international markets may involve additional risks relating to
implementing key aspects of the Corporate Express business model, as well as
risks relating to currency exchange rates, new and different legal, tax,
accounting and regulatory requirements, difficulties in staffing and managing
foreign operations, operating difficulties and other factors. Due to a review
of competition in the Australian office products market by the Australian
Competition and Consumer
18
<PAGE>
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. Corporate Express has significantly
expanded its product and service offering through the acquisition of Richard
Young Journal, Inc. ("Young"), a computer products distributor, U.S. Delivery
Systems, Inc. ("Delivery") and United TransNet, Inc. ("UT"), same-day local
delivery companies, ASAP Software Express, Inc. ("ASAP"), a direct reseller of
computer software and provider of related services, Hermann Marketing, Inc.
("Hermann"), an advertising specialties distributor and Sofco-Mead, Inc.
("Sofco"), a janitorial and cleaning supplies distributor. Certain
complementary products now offered by Corporate Express, such as computer
software, have lower gross profit margins than the products traditionally sold
by Corporate Express. Corporate Express intends to continue to make additions
to its product and service offering in the future. Moreover, the addition by
Corporate Express to its product and service offering presents certain risks
and uncertainties involving Corporate Express' relative unfamiliarity with
these new products and services and the market for such new products and
services. There can be no assurance that Corporate Express will be successful
in developing or integrating these or other additions, or that its existing
customers will accept such additions, to the products and services currently
offered by Corporate Express.
Dependence on Systems. During 1996, Corporate Express continued the
development of its "ISIS" computer software and, on a limited basis,
implemented it for its national accounts. ISIS 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 give Corporate Express the ability to integrate various product and service
offerings, enabling it to reduce procurement costs for its customers and add
value as a service provider. There can be no assurance that Corporate Express'
goals with respect to the systems will be attained. 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, in many of its product lines and
services, operates in a highly competitive environment. Corporate Express'
principal competitors in North America for office supplies and computer
products are regional and national contract stationers, including the contract
stationer operations of office products superstores, large direct resellers,
privately-held companies that generally operate in only one location, and
distributors of business software for personal computers. In the delivery
services sector Corporate Express has numerous competitors, certain of which
have service offerings which are similar to Corporate Express' and others
which provide different types or levels of service.
Each of Corporate Express' major product and service categories are within
fragmented industries which are currently experiencing a trend toward
consolidation. Certain of Corporate Express' competitors have greater
19
<PAGE>
financial resources than Corporate Express. In addition, there may be
increasing competition for acquisition candidates and there can be no
assurance that acquisitions will continue to be available on favorable terms,
if at all.
Fluctuations in Quarterly Operating Results. Corporate Express' product
distribution business is subject to seasonal influences. In particular, net
sales and profits in the United States and Canada are typically lower in the
three months ending in late August due to lower levels of business activity
during the summer months. Because cost of sales includes delivery and
occupancy expenses, gross profit as a percentage of net sales may be impacted
by seasonal fluctuations in net sales and the acquisition of less efficient
operations. Quarterly results may be materially affected by the timing of
acquisitions and the timing and magnitude of acquisition assimilation costs.
Therefore, the operating results for any three month period are not
necessarily indicative of the results that may be achieved for any subsequent
fiscal quarter or for a full fiscal year.
Dependence on Key Management. Corporate Express' success will continue to
depend to a significant extent on its executive officers and other key
management. Corporate Express has entered into employment agreements with
certain executive officers. There can be no assurance that Corporate Express
will be able to retain its executive officers and key personnel or attract
additional qualified members of management in the future. In addition, the
success of certain of Corporate Express' acquisitions may depend, in part, on
Corporate Express' ability to retain management personnel of the acquired
companies. The loss of the services of any key managers could have a material
adverse effect upon Corporate Express' business.
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 through
September 10, 1997, Corporate Express Common Stock has traded in the range of
$8.38 to $30.54. 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 DATA DOCUMENTS
Effect of Changes in the Business Forms Industry; Acceptance of New
Products. Historically, the business forms industry has been affected by the
price of paper, general economic conditions and changes in end-user
requirements. Paper prices represent a substantial portion of the cost of
producing business forms. During the period from May 1989 to January 1992,
paper prices decreased 33% and Data Documents passed on these reductions to
its customers, which resulted in a period of declining revenues. During the
last half of 1994, paper prices increased rapidly and, in December 1994,
reached May 1989 levels. Through 1995, prices paid by Data Documents for paper
rose steadily. As in the past, these paper price increases were passed on to
customers. There can be no assurance that Data Documents will be able to pass
on all or a portion of any future increases to its customers. In addition, any
cyclical downturns in the economy could have an adverse impact on both Data
Documents and the industry. During 1996 and in the first two quarters of 1997,
Data Documents has experienced declines in paper prices. Such declines, if
passed on to Data Documents' customers, could negatively affect the Data
Documents' revenues.
Furthermore, over the last several years, the forms industry has undergone a
transition as a result of end-users' conversion from impact to laser printing
technology, which has led to decreased or shifting demand for many products,
such as stock and certain custom continuous forms and multi-part forms, while
other forms and forms-related products, such as pressure-sensitive labels and
forms for laser printers, have experienced growth. During this period, there
has also been a trend among large corporate users of Data Documents' products
towards outsourcing non-core operations such as forms management. Data
Documents has developed its Odyssey Integrated Services(R) programs partially
in response to these trends. While Data Documents has signed agreements with
50 customers and is in various stages of installation, there can be no
assurances that the introduction of the program will prove successful or that
it will be adopted by existing or new customers.
20
<PAGE>
The foregoing factors have caused and may continue to cause Data Documents
to experience period-to-period changes in net sales and operating income.
Specifically, the convergence of falling paper prices and the reduction in
paper content of business forms along with the recession of 1990-1992
adversely affected the business forms industry in a number of ways, including
by increasing price competition. In 1992, this led to reduced operating income
for Data Documents and a net loss. No assurance can be given as to the effect
of a continuation of, or change in, these trends and business cycles on Data
Documents' business or results of operations. In addition, any delay or
inability by Data Documents to respond to changing market trends could
adversely affect Data Documents' results of operations or financial condition.
Competitive Industry. The business forms, pressure-sensitive label and
direct mail industries are highly competitive. Data Documents competes with
both national and regional manufacturers based on several factors, including
price, quality of service, turnaround time and other factors. Many of Data
Documents' competitors are larger than Data Documents and have greater
financial and other resources.
Acquisition of Moore Labels. In July 1997, Data Documents completed its
acquisition of the capital stock of Moore Labels, a privately held pressure-
sensitive label company. While Data Documents has moved quickly to accomplish
a combination of the businesses, the consolidation of the Moore Labels
operations into the operations of Data Documents will require management time
and could result in diversion of management resources from other important
matters. No assurances can be given regarding the ultimate success of the
integration of the two companies.
Significant Leverage and Debt Service. As a result of the acquisition in
1988 of the Company by management and an investor group, and the DDI Senior
Notes, Data Documents is highly leveraged. At June 30, 1997, Data Documents
had total consolidated debt of approximately $64.9 million. This leverage may
significantly limit Data Documents' ability to withstand competitive pressure
or adverse economic conditions, make acquisitions or take advantage of
business opportunities.
Data Documents' ability to meet its debt service obligations and to comply
with the financial terms of its outstanding DDI Senior Notes and its working
capital revolving credit facility will be dependent upon its future
performance, which, in turn, will be subject to general economic conditions
and to financial, business, competitive and other factors affecting the
operations of Data Documents, many of which are beyond its control. If Data
Documents is unable to generate sufficient cash flow from operations in the
future to service its debt, it may be required to refinance all or a portion
of such debt or to obtain additional financing. However, there can be no
assurance that any refinancing would be possible or that any additional
financing could be obtained.
Fluctuations in Quarterly Results. Data Documents' results of operations may
fluctuate between quarterly periods due to the effect of possible future
acquisitions, the number of shipping days in the quarter, the timing of
significant contracts, changes in raw material prices and other factors, many
of which may be beyond the control of Data Documents. Such variability in Data
Documents' results of operations could cause Data Documents' stock price to
fluctuate following the release of interim results of operations or other
information and may have a material adverse effect on Data Documents and its
stock price.
Dependence on Key Personnel. Data Documents' continued success will depend
upon its ability to retain a core group of key officers and employees. The
loss of certain key employees or Data Documents' inability to attract and
retain other qualified employees could have an adverse impact on Data
Documents' business. Data Documents does not maintain key man life insurance
on any of its key employees.
Possible Volatility of Stock Price. The stock market has from time to time
experienced extreme price and volume fluctuations which often have been
unrelated to the operating performance of particular companies. Announcements
of new products or accounts by Data Documents or its competitors, changes in
earnings estimates by analysts and economic and other external factors, as
well as period-to-period fluctuations in financial results of Data Documents,
may have a significant impact on the market price and marketability of the
Common Stock. Fluctuations or decreases in the trading price of the Common
Stock may adversely affect the liquidity of
21
<PAGE>
the trading market for the Common Stock and Data Documents' ability to raise
capital through future equity financing.
RISKS RELATING TO THE MERGER
No Assurance of Successful Integration of Certain Operations. Corporate
Express and Data Documents have entered into the Merger Agreement with the
expectation that the Merger will result in certain benefits for the combined
company. See "The Merger--Reasons for the Merger." Achieving the anticipated
benefits of the Merger will depend in part upon whether the integration of the
two companies' business is achieved in an efficient and effective manner, and
there can be no assurance that this will occur. The combination of the two
companies will require, among other things, coordination of the companies'
sales and marketing and research and development efforts. There can be no
assurance that integration will be accomplished on a timely basis, or at all.
The difficulties of such integration may be increased by the necessity of
coordinating geographically separated organizations. The integration of
certain operations following the Merger will require the dedication of
management resources which may distract attention from the day-to-day business
of the combined company. Failure to effectively accomplish the integration of
the two companies' operations could have a material adverse effect on
Corporate Express' results of operations and financial condition.
Exchange Ratio May Not Fully Reflect Changes in Stock Prices. The relative
stock prices of Corporate Express Common Stock and Data Documents 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
stockholders vote on the Merger due to, among other factors, market perception
of the synergies expected to be achieved by the Merger, changes in the
business, operations or prospects of Corporate Express or Data Documents,
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 within certain ranges and may not reflect 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 Data Documents Common Stock.
See "The Merger--Merger Consideration."
22
<PAGE>
THE SPECIAL MEETING
SPECIAL MEETING OF DATA DOCUMENTS STOCKHOLDERS
The Special Meeting will be held at the principal offices of Data Documents,
4205 South 96th Street, Omaha, Nebraska on November 14, 1997, at 10:00 a.m.,
local time, and at any adjournment or postponement thereof.
At the Special Meeting, the stockholders of Data Documents 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 Data
Documents with Data Documents surviving the Merger. Data Documents would
become a wholly owned subsidiary of Corporate Express, and all of the issued
and outstanding shares of Data Documents 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 9,687,780
shares of Corporate Express Common Stock, assuming an Exchange Ratio of 1 to
1, and each unexpired and outstanding option or warrant to acquire Data
Documents Common Stock would be converted into an equivalent option or warrant
to acquire Corporate Express Common Stock, with quantity and exercise price
adjusted to reflect the Exchange Ratio. The Exchange Ratio is subject to
adjustment in certain circumstances described herein. A copy of the Merger
Agreement is attached hereto as Appendix I. See "The Merger--Adjustments to
the Merger Consideration."
The Data Documents 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 Data Documents 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 Data Documents Common Stock is required to approve the Merger Agreement.
RECORD DATE; STOCK ENTITLED TO VOTE
The Data Documents Board of Directors has established October 14, 1997 as
the date to determine those record holders of Data Documents Common Stock
entitled to notice of and to vote at the Special Meeting. On that date, there
were 9,957,387 shares (which includes 269,607 treasury shares) of Data
Documents Common Stock outstanding, with each share entitled to one vote with
respect to the Merger Agreement.
VOTING OF PROXIES
Shares represented by all properly executed proxies received in time for the
Special Meeting will be voted at such meetings in the manner specified by the
holders thereof. Properly executed proxies that do not contain voting
instructions will be voted FOR approval of the Merger Agreement at the Special
Meeting. It is not expected that any matter other than that referred to herein
will be brought before the Special Meeting.
If a holder of Data Documents 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.
TO FACILITATE THE VOTING PROCESS FOR THE SPECIAL MEETING, STOCKHOLDERS OF
DATA DOCUMENTS MAY VOTE THEIR SHARES BY FACSIMILE AT THE FOLLOWING TELEPHONE
NUMBER--(402) 339-9270.
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<PAGE>
Data Documents has agreed to use its best efforts to cause its executive
officers and employee directors to execute and deliver to Corporate Express
irrevocable proxies authorizing Corporate Express to vote all shares of Data
Documents 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 Data Documents of its approval of the Merger Agreement.
REVOCATION OF PROXIES
Any holder of Data Documents 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 Data
Documents 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.
TO FACILITATE THE VOTING PROCESS FOR THE SPECIAL MEETING, STOCKHOLDERS OF
DATA DOCUMENTS MAY REVOKE THEIR SHARES BY FACSIMILE AT THE FOLLOWING TELEPHONE
NUMBER--(402) 339-9270.
SOLICITATION OF PROXIES
Solicitation of proxies for use at the Special Meeting may be made in person
or by mail, telephone, telecopy or telegram. Data Documents will bear the cost
of the solicitation of proxies from its stockholders, and Corporate Express
will pay the cost of printing and mailing this Proxy Statement and Prospectus
in the event that the Merger is consummated. In addition to solicitation by
mail, the directors, officers and employees of Data Documents and its
subsidiaries may solicit proxies from stockholders of Data Documents by
telephone, telecopy, telegram or in person. Data Documents has requested
banking institutions, brokerage firms, custodians, trustees, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of Data
Documents Common Stock held of record by such entities, and Data Documents
will, upon the request of such record holders, reimburse reasonable forwarding
expenses. Data Documents has retained Shareholder Communications Corporation
to assist in the solicitation process.
The Data Documents Board of Directors does not currently intend to resolicit
proxies if the Corporate Express Stock Value is less than $15.00 and Corporate
Express does not elect to increase the Exchange Ratio (or if the Corporate
Express Stock Value is less than $10.00) thereby giving Data Documents the
right to terminate the Merger. In such event the Data Documents Board will
meet to consider all relevant factors including general market conditions and
the relative performance of Corporate Express and any other material event
occurring at the time and use its business judgment to determine whether to
proceed with the Merger or terminate.
DATA DOCUMENTS STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES
WITH THEIR PROXY CARDS.
24
<PAGE>
THE MERGER
MERGER CONSIDERATION
Pursuant to the Merger Agreement, at the Effective Time, Acquisition Sub
will merge with and into Data Documents. Upon consummation of the Merger, each
share of Data Documents Common Stock issued and outstanding immediately prior
to the Effective Time (other than shares of Data Documents Common Stock owned
by Data Documents as treasury stock and shares of Data Documents Common Stock
owned by Corporate Express, Acquisition Sub or any wholly owned subsidiary of
Corporate Express or Data Documents to be canceled in accordance with the
Merger Agreement) shall be converted into 1.1 shares of Corporate Express
Common Stock, subject to adjustment in certain circumstances and each
unexpired Data Documents option and warrant to purchase Data Documents Common
Stock which is outstanding at the Effective Time shall automatically be
converted into an option or warrant to purchase a number of shares of
Corporate Express Common Stock equal to the number of shares of Data Documents
Common Stock entitled to be purchased under such option or warrant multiplied
by the Exchange Ratio, at an exercise price which is adjusted to reflect the
Exchange Ratio.
Immediately after the Effective Time, the stockholders of Data Documents
will hold approximately 6.9% of the outstanding Corporate Express Common
Stock.
The consideration to be issued to each Data Documents 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
Data Documents Common Stock held by such Data Documents stockholder on the
Closing Date. The Exchange Ratio equals 1.1 shares of Corporate Express Common
Stock for each share of Data Documents Common Stock immediately prior to the
Effective Time, subject to adjustment under certain circumstances.
ADJUSTMENTS TO MERGER CONSIDERATION
If the average of the closing prices of Corporate Express Common Stock as
reported on Nasdaq for the ten (10) trading days selected randomly from the
twenty (20) consecutive trading days ending five (5) trading days prior to the
Special Meeting (the "Corporate Express Stock Value") is less than $15.00,
then Corporate Express has the right to increase the Exchange Ratio to the
number (expressed as a decimal fraction) which, when multiplied by the
Corporate Express Stock Value, will equal $16.50 and the Merger shall be
consummated on the basis of such increased Exchange Ratio. In the event
Corporate Express does not elect to increase the Exchange Ratio, then Data
Documents may at its option either (i) terminate the Merger Agreement or (ii)
consummate the Merger. Notwithstanding the forgoing, even if Corporate Express
does elect to increase the Exchange Ratio, Data Documents may at its option
terminate the Agreement if the Corporate Express Stock Value is less than
$10.00. The Data Documents Board of Directors does not currently intend to
resolicit proxies in the event that the right to terminate the Agreement
arises. See "The Special Meeting--Solicitation of Proxies." In the event that
the Merger is not consummated because Corporate Express does not exercise its
right to increase the Exchange Ratio, unless the Corporate Express Stock Value
is less than $13.20 per share, then Corporate Express has agreed to pay Data
Documents the sum of $3,000,000. If the Corporate Express Stock Value is
greater than $18.20, then the Exchange Ratio will be decreased to the number
(expressed as a decimal fraction) which, when multiplied by the Corporate
Express Stock Value, will equal $20.00. In no event will the Exchange Ratio be
less than one share of Corporate Express Stock for each share of Data
Documents Common Stock.
Stockholders of Data Documents may obtain the Exchange Ratio beginning five
(5) trading days prior to the Special Meeting by calling (800) 463-5830.
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<PAGE>
The following tables set forth the Exchange Ratio to be applied in the
Merger assuming various Corporate Express Stock Values as set out in the first
column, with the equivalent value (in dollars per Data Documents share,
rounded) to be received for each share of Data Documents Common Stock:
<TABLE>
<CAPTION>
CORPORATE EXPRESS EXCHANGE EQUIVALENT
STOCK VALUE ($) RATIO (1) VALUE ($)
----------------- --------- ----------
<S> <C> <C>
20.50............................................. 1.00 20.50
20.00............................................. 1.00 20.00
19.50............................................. 1.03 20.00
19.00............................................. 1.05 20.00
18.50............................................. 1.08 20.00
18.20............................................. 1.10 20.00
17.00............................................. 1.10 18.70
16.00............................................. 1.10 17.60
15.00............................................. 1.10 16.50
14.00............................................. 1.18(2) 16.50(2)
</TABLE>
- --------
(1) Number of shares of Corporate Express Common Stock for each share of Data
Documents Common Stock.
(2) Corporate Express has no obligation to increase the Exchange Ratio in the
event the Corporate Express Stock Value is less than $15.00 per share. In
the event Corporate Express does not elect to increase the Exchange Ratio,
Data Documents may at its option either (i) terminate the Merger Agreement
or (ii) consummate the Merger.
Since the actual number of shares of Corporate Express Common Stock issuable
to Data Documents stockholders in the Merger depends on the Corporate Express
Stock Value, there is no guarantee as to the number of shares or value of the
Corporate Express Common Stock that Data Documents stockholders will receive.
If the Corporate Express Stock Value is greater than $18.20, the Exchange
Ratio will be adjusted such that the equivalent value to be received for each
share of Data Documents Common Stock will equal $20.00, provided, however,
that the Exchange Ratio will not be less than 1 to 1. Accordingly, if the
Corporate Express Stock Value is greater than $18.20, the Exchange Ratio would
be reduced with the result that stockholders of Data Documents would be
entitled to receive fewer shares of Corporate Express Common Stock in the
Merger. In addition, the Corporate Express Stock Value may differ from the
actual market price of the Corporate Express Common Stock reported on Nasdaq
on the date of the Special Meeting, the date of the consummation of the Merger
or the date that Data Documents stockholders actually receive their shares of
Corporate Express Common Stock after the Merger is completed.
OPTION PLANS; WARRANTS
At the Effective Time and subject to registration, each option and warrant
granted by Data Documents to purchase shares of Data Documents' Stock (each, a
"Data Documents Option" or a "Data Documents Warrant") which is outstanding
and exercisable immediately prior thereto shall cease to represent a right to
acquire shares of Data Documents Common Stock and shall be converted
automatically into an option or warrant (the "Exchanged Option" or "Exchanged
Warrant") to purchase shares of Corporate Express Common Stock exercisable
until the current termination of the Data Documents Option or Data Documents
Warrant, as the case may be, without accelerated termination by virtue of the
Merger and in an amount and at an exercise price determined as provided below
(and subject to the terms of the Data Documents' 1995 Stock Inventive Plan or
the terms of the option issued to John Bailey in connection with Data
Documents' acquisition of Cal Emblem, and the agreements evidencing such
grants, including but not limited to the accelerated vesting of any such
options or warrants which shall occur by virtue of the consummation of the
Merger to the extent required by such plans and agreements):
(a) The number of shares of Corporate Express Common Stock to be subject
to the converted options and warrants shall be equal to the product of the
number of shares of Data Documents Common Stock subject to the original
options or warrants and the Exchange Ratio, provided that any fractional
shares of Corporate Express Common Stock resulting from such multiplication
shall be rounded down to the nearest share;
26
<PAGE>
(b) The exercise price per share of Corporate Express Common Stock under
the converted option or warrant shall be equal to the exercise price per
share of Data Documents Common Stock under the original option or warrant
divided by the Exchange Ratio, provided that such exercise price shall be
rounded to the nearest cent; and
(c) Corporate Express shall (i) reserve for issuance the number of shares
of Corporate Express Common Stock that will become issuable upon the
exercise of the Exchanged Options and the Exchanged Warrants and (ii)
promptly after the Effective Time, issue to each holder of an Exchanged
Option and Exchanged Warrant a document evidencing Corporate Express'
assumption of Data Documents' obligations under the Data Documents Options
and Data Documents Warrants. The Exchanged Options and the Exchanged
Warrants shall have the same terms and conditions as the Data Documents
Options and the Data Documents Warrants, respectively.
In the case of any converted options which are intended to qualify as
"incentive stock options" (as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code")), the exercise price, the number of
shares purchasable pursuant to such options and the terms and conditions of
exercise of such options shall be determined in order to comply with Section
424(a) of the Code. The duration and other terms of the converted option shall
be the same as the original option except that all references to Data
Documents shall be deemed to be references to Corporate Express.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL
SHARES
The conversion of Data Documents Common Stock into Corporate Express Common
Stock will occur automatically at the Effective Time.
Promptly after the special meeting of Data Documents' stockholders at which
the Merger will be considered, ChaseMellon Shareholder Services, or another
bank or trust company designated by Corporate Express and reasonably
acceptable to Data Documents, in its capacity as Exchange Agent (the "Exchange
Agent"), will mail a transmittal form to each Data Documents stockholder. The
transmittal form will contain instructions with respect to the surrender of
certificates representing Data Documents Common Stock to be exchanged for
Corporate Express Common Stock.
DATA DOCUMENTS' STOCKHOLDERS SHOULD NOT FORWARD DATA DOCUMENTS STOCK
CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS.
DATA DOCUMENTS STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE
ENCLOSED PROXY.
No fractional shares of Corporate Express Common Stock will be issued to any
Data Documents stockholder upon consummation of the Merger. For each
fractional share that would otherwise be issued, the Exchange Agent will pay a
cash payment equal to such fraction multiplied by 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, subject
to official notice of issuance.
BACKGROUND OF THE MERGER
In the ordinary course of Corporate Express' business, Corporate Express
routinely analyzes potential combinations and acquisitions of companies which
offer products or services complementary to those offered by Corporate Express
and consistent with its Corporate Supplier business model. In this regard,
Corporate Express has significantly expanded its product and service offering
through the acquisition of Young, a computer products distributor; Delivery
and UT, same-day local delivery companies; ASAP, a direct reseller of computer
software
27
<PAGE>
and provider of related services; Hermann, an advertising specialties
distributor; and Sofco, a janitorial and cleaning supplies distributor.
Corporate Express has indicated to the investment community on several
occasions its desire to expand its forms management business. Corporate
Express' management believes that the Merger will strengthen its current forms
management business nationwide.
On February 24, 1997, as part of its business development efforts, certain
senior officers of Jefferies & Company, Inc. ("Jefferies"), which also acts as
financial advisor to Data Documents, met with senior management of Corporate
Express in order to introduce Corporate Express to the Jefferies firm and its
service offerings. Present at the meeting were Mr. Frank Baxter, Chief
Executive Officer of Jefferies, Mr. David Eisner, Executive Vice President of
Jefferies, Mr. John Chiles, Managing Director of Corporate Finance at
Jefferies, Mr. Jirka Rysavy, Chairman and Chief Executive Officer of Corporate
Express and Mr. Bob King, Chief Operating Officer of Corporate Express. Mr.
Eisner had previously performed investment banking services for Corporate
Express. Mr. King is a director of Investment Technology Group, Inc. which is
an affiliate of Jefferies Group, Inc., the parent corporation of Jefferies.
Mr. Eisner arranged such meeting with Mr. King in order to introduce Mr.
Baxter, Jefferies' Chief Executive Officer, and Mr. Chiles, Jefferies' senior
business services banker, to Corporate Express' senior management. The purpose
of the meeting was to present Jefferies' financial advisory and underwriting
capabilities. In the normal course of discussing Jefferies' investment banking
services and Corporate Express' business operations, several companies that
Jefferies had knowledge of or relationships with, including Data Documents,
were mentioned as potential joint venture business partners or as possible
candidates for a business combination with Corporate Express.
During the February 24, 1997 meeting, Data Documents was discussed as a
possible candidate for a business combination to expand its forms management
business. Messrs. Rysavy, King and Jacobs wanted to discuss the matter further
with Corporate Express management before pursuing a meeting with Data
Documents' senior management.
On February 26, 1997, Mr. Chiles called Mr. Walter Kearns, Chief Executive
Officer of Data Documents, to inform him of the meeting with Corporate
Express. Mr. Kearns indicated he would meet with Corporate Express to discuss
a potential business relationship as a business partner in forms management
with Data Documents.
During the week of March 3, 1997, Mr. Chiles contacted Mr. King by telephone
to determine if Corporate Express management was interested in meeting with
Data Documents management. Mr. King indicated that Corporate Express remained
interested but could not arrange a meeting at that time.
On April 15, 1997, Mr. Chiles left a telephone message for Mr. King
regarding arranging a meeting between Corporate Express and Data Documents and
mentioned that another party had approached him regarding a business
combination with Data Documents. On April 25, 1997, Mr. Chiles and Mr. King
spoke by telephone during which Mr. King asked Mr. Chiles to arrange for a
meeting with Mr. Kearns in Omaha. Mr. Chiles asked Mr. Kearns if he should
proceed any further with the other party who approached him regarding a
business combination with Data Documents. Mr. Kearns said that he wished to
assess the level of interest at Corporate Express before pursuing any
discussion with the other party. As such, Mr. Chiles did not proceed any
further with the other party.
On May 9, 1997, Mr. Kearns, Mr. King and Mr. Chiles met in Omaha, Nebraska
at Data Documents' principal offices. Mr. Kearns presented information and an
overview of Data Documents, and Mr. King presented information and an overview
of Corporate Express. The parties discussed the business and cultural fit
between the two companies. The parties agreed that Mr. King would review a
possible business combination with the Corporate Express senior management and
contact Mr. Kearns for a future meeting.
On June 12, 1997, Mr. Chiles, Mr. Kearns and Mr. Ray Killam, Vice President
of Data Documents, met with Messrs. Rysavy, King, Jacobs, and Mr. Sam Leno,
Executive Vice President and Chief Financial Officer of
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Corporate Express, at Corporate Express' principal offices in Broomfield,
Colorado. The parties each provided an in-depth presentation on their
respective company's business and strategy.
On June 13, 1997 Data Documents signed an Engagement Letter with Jefferies
related to a business combination between Data Documents and Corporate
Express. The Engagement Letter confirmed the engagement of Jefferies as
exclusive financial advisor to Data Documents in connection with its
discussions with Corporate Express regarding a possible business combination
and to render a written opinion to the Board of Directors of Data Documents
regarding the fairness from a financial point of view of any such transaction
to the shareholders of Data Documents' Common Stock of the consideration
proposed to be paid in any such transaction.
On June 20, 1997, a due diligence meeting was held at the Omaha Airport,
Omaha, Nebraska with Messrs. King and Jacobs, and certain other members of
Corporate Express' management and Mr. Kearns, Mr. Killam and Mr. Robert
Thomas, Executive Vice President of Data Documents. A presentation of the
Odyssey Integrated Services(R) program was given by Mr. Killam and a
discussion of Data Document's financial results and accounting was held.
On June 30, 1997, Mr. Kearns received from Mr. Jacobs an initial outline of
proposed terms for a merger including due diligence requirements, conditions
to the closing of the Merger and covenants to be performed prior to closing.
Under the initial outline, the proposed exchange ratio was 1.15 shares of
Corporate Express Common Stock for each share of Data Documents Common Stock.
From June 30, 1997 to July 14, 1997, numerous telephone conversations were
held between senior management of Data Documents, including Mr. Kearns and Mr.
Thomas of Data Documents, and their legal counsel, Jefferies, and Mr. Jacobs
of Corporate Express regarding the proposed terms. On July 14, 1997, Jefferies
personnel and legal counsel to Data Documents held a due diligence meeting at
the principal offices of Corporate Express with senior management of Corporate
Express. At such due diligence meeting, Jefferies was provided with actual
results for Corporate Express' first quarter and its fiscal 1997 operating
plan. Jefferies subsequently forwarded such projections to the management of
Data Documents on July 15, 1997. Projections regarding Data Documents for
1997, 1998 and 1999 were delivered to Corporate Express on July 17, 1997.
Additional information was exchanged between the two companies during the
following weeks in the normal course of due diligence.
At a regularly scheduled meeting of the Corporate Express Board of Directors
held on July 17, 1997 (which was also attended by Mr. Jacobs), Mr. Rysavy
advised the Directors of the discussions with Mr. Kearns and Jefferies about
the possibility of a combination between the two companies. In addition, Mr.
Jacobs distributed to the Directors certain publicly available information
about Data Documents, including annual, quarterly and current reports filed
with the Commission, reports prepared by securities analysts, and a draft
proposal letter regarding the Merger. Following a brief discussion, the
Corporate Express Board of Directors authorized management to proceed with
discussions with management of Data Documents and to retain counsel and an
investment banker to assist with the evaluation of a possible transaction.
On July 23, 1997, Corporate Express and Data Documents entered into a letter
of understanding regarding the proposed business combination which was based
upon the Corporate Express Common Stock value at that time. The letter of
understanding included a proposed exchange ratio of 1.25 shares of Corporate
Express Common Stock for each share of Data Documents Common Stock with a
proposed collar of $12.50 to $16.50 per share for the Corporate Express Common
Stock, outside of which the exchange ratio would be adjusted upward or
downward. The letter of understanding also contained provisions regarding due
diligence requirements, conditions to the closing of the Merger, covenants to
be performed prior to closing and certain employment matters.
On July 30, 1997, Jefferies presented a business and valuation analysis of
Corporate Express to the Board of Directors of Data Documents. Also on July
30, 1997, a telephone conference call was held between the Board
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of Directors of Data Documents and Mr. King, Mr. Jacobs, Ms. Farver and Ronald
H. Hoffman, Director of Planning and Analysis of Corporate Express. The Data
Documents Board granted management and Jefferies the authority to continue
negotiations with Corporate Express.
On August 5, 1997, the Board of Directors of Data Documents met in New York,
New York to consider the proposed transaction and to receive Jefferies
preliminary analysis concerning the fairness of the transaction. The Board of
Directors of Data Documents authorized Jefferies and management to complete
the negotiation of a definitive Merger Agreement on the basis considered at
the meeting. In a telephone call on August 5, 1997, Mr. Jacobs informed Mr.
Chiles that Corporate Express had substantially completed its due diligence
and pending a few items was prepared to present the Merger to its Board.
On September 3, 1997, the Corporate Express Board of Directors discussed the
potential Merger at a regularly scheduled meeting (which was also attended by
Mr. Jacobs). Prior to the meeting, the Directors had been provided with a
detailed description of the proposed transaction, detailed financial and due
diligence analyses, and drafts of the Merger Agreement and S-4 registration
statement. Mr. Rysavy made a presentation to the Directors which reviewed Data
Documents history, strategic vision, revenues, major accounts, and other
issues. He also advised the Directors that it was his belief, based upon
discussions with financial advisors to Corporate Express, that such financial
advisors would be prepared to render a fairness opinion if requested by
Corporate Express. Following a review of the transaction and the presentation
of Mr. Rysavy, the Corporate Express Board of Directors unanimously voted to
approve the Merger, and to authorize the execution and delivery of the Merger
Agreement subject to Messrs. Rysavy and Jacobs successfully negotiating a
reduction in the Exchange Ratio to levels acceptable to the Board of
Directors. Mr. Rysavy was to report back to the Directors to confirm his
success in such negotiations. The Corporate Express Board of Directors has
unanimously: (i) determined that it is in the best interest of Corporate
Express and its shareholders to proceed with the Merger; (ii) determined that
the terms of the Merger are fair to the Corporate Express shareholders; and
(iii) approved the Merger.
On September 4, 1997, a conference call with Messrs. Rysavy, Jacobs, Kearns,
Thomas and Chiles was held in which Mr. Rysavy communicated the Corporate
Express Board's determination that the maximum exchange ratio Corporate
Express would pay, as a result of the increase in its stock price, was 1.1 and
that the collar should be reset to a range which reflects Corporate Express'
then current stock price. The Data Documents Board members were conferred with
informally during the day of September 4. Modifications to the transaction's
structure were negotiated including a modification to the break-up fee and a
reciprocal payment by Corporate Express in certain circumstances.
On September 5, 1997, the Data Documents Board held a special meeting to
consider the proposed Merger Agreement. At this meeting, Jefferies discussed
the financial aspects of the proposed business combination and the procedures
it had undertaken to evaluate the proposal from a financial point of view and
addressed questions from members of the Board. Gibson, Dunn & Crutcher made a
presentation regarding the structure of the proposed transaction, the
negotiations surrounding the Merger Agreement and then discussed the Merger
Agreement and the exhibits and disclosure schedules thereto with the Board.
Jefferies delivered its opinion that the consideration to be received by the
Data Documents shareholders was fair to such shareholders from a financial
point of view as of such date. Following discussion of the terms of the
proposed transaction including the revised structure, the Board of Directors
of Data Documents unanimously approved the Merger Agreement, subject to
certain changes and the resolution of certain remaining issues.
RECOMMENDATION OF THE DATA DOCUMENTS BOARD OF DIRECTORS
For the reasons described below under "--Reasons for the Merger," the Data
Documents Board of Directors has unanimously approved the Merger and
recommends that Data Documents stockholders vote FOR approval of the Merger
Agreement.
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REASONS FOR THE MERGER
Corporate Express. The Corporate Express Board of Directors believes that
the Merger with Data Documents will: (i) allow Corporate Express to offer
various additional services which are complementary to its business; (ii)
create economies of scale by allowing the combined entity to reduce
duplicative administrative functions and combine regional and national
marketing programs; (iii) create a combined entity positioned to compete more
effectively on both a strategic and financial basis; and (iv) create cross-
selling opportunities.
In reaching the conclusions discussed above, the Corporate Express Board of
Directors considered the following material factors with no particular weight
of importance for any single factor: (i) the judgment, advice and analyses of
its management; (ii) the financial condition, results of operations and cash
flows of Corporate Express and Data Documents, both on a historical and a
prospective basis; (iii) the opportunity to achieve synergies, cost reductions
and operating efficiencies that may become available to the combined
enterprise as a result of the Merger; (iv) the strategic benefits of the
Merger; (v) 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; (vi) the historical market prices and trading information
with respect to Corporate Express Common Stock and Data Documents Common
Stock; (vii) the tax effects of the Merger on Corporate Express; and (viii)
the ability to consummate the Merger as a pooling-of-interests under generally
accepted accounting principles. While Corporate Express is unable at the
present time to quantify the costs of integrating the operations of Data
Documents into its operations, Corporate Express is in the process of
estimating such costs and such estimate may be completed on or before the
consummation of the Merger. Any potential synergies or cost savings resulting
from the proposed Merger have not been quantified.
Data Documents. The Board of Directors of Data Documents has concluded that
the Merger is fair to and in the best interests of the Data Documents
stockholders after considering financial, business, securities market and
other information available to the Board concerning Corporate Express and Data
Documents, including the investigations of Corporate Express by Data
Documents' management and consultation with Data Documents' legal, financial
and business advisors.
In reaching its conclusion to approve the Merger and to unanimously
recommend that the stockholders of Data Documents vote in favor of the Merger,
the Board of Directors considered the following material factors (in
connection with such consideration, no special weight of importance was given
to any single factor):
1. The belief of management of Data Documents that the Merger will
enhance Data Documents product offering, distribution capabilities and
services to its customers.
2. The principal terms of the Merger Agreement, which the Data Documents'
Board of Directors viewed as being reasonable to Data Documents and its
stockholders under the circumstances. In particular, the Data Documents'
Board noted that: (i) although Data Documents agreed to not solicit
additional offers, it had the ability to respond to unsolicited alternative
proposals to acquire Data Documents; (ii) the size of the breakup-fee
payable under the Merger Agreement and the circumstance that it is not
payable unless Data Documents enters into an Acquisition Transaction with
another party within twelve months from the date of the Merger Agreement;
(iii) the reciprocal nature of the breakup-fee under certain circumstances
if Corporate Express does not increase the Merger consideration; and (iv)
the generally reciprocal nature of the representations and warranties of
Data Documents and Corporate Express.
3. The Corporate Express Common Stock to be exchanged for Data Documents
Common Stock represents an ownership interest in a larger company with
greater opportunities for growth in the same industry in which Data
Documents occupies a smaller niche.
4. The opportunity to achieve economics of scale by allowing the combined
entity to consolidate operating facilities, reduce duplicative
administrative functions and to create a combined entity able to compete
more effectively on both a strategic and operating basis than Data
Documents would be able to if it were to remain independent.
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5. The information presented by Jefferies at the August 5 and September 5
meetings of the Board of Directors and the written opinion of Jefferies
dated September 5, 1997, to the effect that the Merger consideration is
fair to the Data Documents stockholders.
6. The likelihood of continued consolidation in the industry in which
Data Documents and Corporate Express operate.
7. The fact that the merger consideration represents a significant
premium above the pre-announcement market price of Data Documents Common
Stock (Based upon a pre-announcement closing market price of $14.88 and
$19.00 for Data Documents Common Stock and Corporate Express Common Stock,
respectively, the premium would be 27.7% and 40.5% based upon an Exchange
Ratio of 1 to 1 and 1.1 to 1, respectively).
OPINION OF DATA DOCUMENTS' FINANCIAL ADVISOR
Data Documents engaged Jefferies to render an opinion to the Data Documents'
Board as to the fairness, from a financial point of view, to the stockholders
of Data Documents of the consideration to be received by such stockholders
pursuant to the transaction as originally contemplated by the Merger
Agreement. The Data Documents' Board selected Jefferies to render such opinion
because of Jefferies' reputation as an internationally recognized investment
banking firm. As part of its investment banking business, Jefferies is
regularly engaged in the evaluation of capital structures, the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements, financial restructurings
and other financial services.
On September 5, 1997, Jefferies delivered its oral presentation to the Data
Documents' Board and followed this presentation with a written opinion to the
Data Documents' Board, dated September 5, 1997, (the "Opinion"), to the effect
that, as of such date and based upon procedures and subject to the assumptions
set forth in the Opinion, the consideration to be received by the stockholders
of Data Documents pursuant to the Merger is fair to such stockholders from a
financial point of view. Except as set forth below, no limitations were
imposed by the Data Documents' Board on the scope of Jefferies' investigations
or procedures to be followed by it in rendering its Opinion. Jefferies was not
requested to opine as to, and the Opinion did not address, the underlying
business decision of the Data Documents' Board to proceed with or to effect
the Merger.
THE FULL TEXT OF THE OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX
II TO THIS PROXY STATEMENT AND PROSPECTUS. STOCKHOLDERS OF DATA DOCUMENTS ARE
URGED TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY FOR INFORMATION WITH
RESPECT TO PROCEDURES FOLLOWED, ASSUMPTIONS MADE AND MATTERS CONSIDERED BY
JEFFERIES IN ARRIVING AT THE CONCLUSIONS EXPRESSED THEREIN. THE SUMMARY OF THE
OPINION SET FORTH IN THIS PROXY STATEMENT AND PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE OPINION IS
DIRECTED ONLY TO THE CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS OF DATA
DOCUMENTS IN THE MERGER AND DOES NOT ADDRESS THE UNDERLYING BUSINESS DECISION
TO PROCEED WITH THE MERGER OR CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER
OF DATA DOCUMENTS (OR ANY OTHER PERSON) AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE SPECIAL MEETING.
The Opinion notes that: (i) the consummation of the Merger is conditioned
upon the approval of the stockholders of Data Documents, and Jefferies is not
recommending that Data Documents, the Data Documents' Board, any of its
security holders or any other person should take any specific action in
connection with the Merger; (ii) Jefferies was not requested to solicit, nor
did Jefferies solicit, any third party indications of interest in acquiring
all or any part of Data Documents, (iii) such opinion does not constitute a
recommendation of the Merger over any alternative transactions which may be
available to Data Documents, and does not address Data Documents' underlying
business decision to effect the Merger; (iv) Jefferies did not opine as to the
market value
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of the consideration to be received by the stockholders of Data Documents or
the prices at which any of the securities of Corporate Express may trade upon
following the consummation of the Merger; (v) Jefferies has no obligation to
advise any person of any change in any fact or matter affecting the Opinion of
which Jefferies becomes aware after the date of such Opinion; and (vi) such
Opinion is for the use of the Data Documents' Board, as one element in the
Data Documents' Board's consideration of the Merger, and may not be used for
any other purpose, or otherwise referred to, relied upon or circulated,
without Jefferies' prior written consent.
In connection with the provision of the Opinion, Jefferies, among other
things, (i) reviewed a draft of the Merger Agreement (including the schedules
and exhibits thereto) and certain financial and other information that was
publicly available or furnished to Jefferies by Data Documents and Corporate
Express, including certain internal financial analyses, budgets, reports and
other information prepared by the respective managements of the companies;
(ii) held discussions with various members of senior management of Data
Documents and Corporate Express concerning each company's historical and
current operations, financial conditions and prospects, as well as the
strategic and operating benefits anticipated from the business combination;
and (iii) conducted such other reviews, analyses and inquiries relating to
Data Documents and Corporate Express as it considered appropriate.
In Jefferies' review and analysis in rendering the Opinion, Jefferies relied
upon, without independent investigation or verification, the accuracy,
completeness and fair presentation of all financial and other information that
was provided to Jefferies by Data Documents and Corporate Express, or that was
publicly available (including, without limitation, the information described
above and the financial projections prepared by Data Documents and Corporate
Express regarding the estimated future performance of the respective companies
before and after giving effect to the Merger). The Opinion is expressly
conditioned upon all such information (whether written or oral) being
complete, accurate and fair in all respects.
With respect to the financial projections provided by Data Documents and
Corporate Express to, and examined by, Jefferies, Jefferies noted that
projecting future results of any company is inherently subject to vast
uncertainty. However, the Data Documents' Board informed Jefferies, and
Jefferies assumed, that such projections were reasonably prepared on bases
reflecting the best currently available estimates and good faith judgments of
the respective managements of the companies as to the future performance of
each company. In addition, although Jefferies performed sensitivity analyses
thereon in rendering the Opinion, Jefferies assumed, with the permission of
the Data Documents' Board, that each company will perform in accordance with
such projections for all periods specified therein. Although such projections
did not form the principal basis for the Opinion, but rather constituted one
of many items that Jefferies employed, changes to such projections could
affect the Opinion. In addition, Jefferies assumed, with the permission of the
Data Documents' Board, that the Merger will be a tax-free reorganization and
will be accounted for under the "pooling of interests" method of merger
accounting. Jefferies has disclaimed any undertaking or obligation to advise
any person of any change in any fact or matter affecting the Opinion of which
it becomes aware after the date of the Opinion.
Jefferies was not requested to, and did not make any independent evaluation
or appraisal of the assets or liabilities of, nor conducted a comprehensive
physical inspection of any of the assets of, Data Documents or Corporate
Express, nor was Jefferies furnished with any such appraisals.
The Opinion is based on economic, monetary, political, market and other
conditions existing and which could be evaluated as of the date of the Opinion
(including, without limitation, then current market prices of shares of Data
Documents Common Stock and shares of Corporate Express Common Stock and the
terms of the Merger Agreement as of such date). The Opinion expressly noted
that such conditions, however, are subject to rapid and unpredictable change
and such changes could affect the conclusions expressed in the Opinion.
Jefferies did not make an independent investigation of any legal matters
affecting Data Documents or Corporate Express, and assumed the correctness of
all legal and accounting advice given to such parties and their respective
boards of directors, including (without limitation) advice as to the
accounting and tax consequences of the Merger to Data Documents, Corporate
Express and the stockholders of Data Documents.
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In rendering the Opinion, Jefferies also assumed that: (i) the terms and
provisions contained in the definitive Merger Agreement (including the
schedules and exhibits thereto) will not differ from those contained in the
draft of those documents Jefferies reviewed; (ii) the conditions to the
consummation of the Merger set forth in the Merger Agreement will be satisfied
without material expense; and (iii) there is not now, and there will not as a
result of the consummation of the transactions contemplated by the Merger
Agreement be, any default, or event of default, under any indenture, credit
agreement or other material agreement or instrument to which Data Documents,
Corporate Express or any of their respective subsidiaries or affiliates is a
party.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analyses and the
application of those methods to particular circumstances and, therefore, such
an opinion is not readily susceptible to summary description. Furthermore, in
arriving at the Opinion, Jefferies did not attribute any particular weight to
any analysis or factor considered by it, but rather made qualitative judgments
as to the significance of each analysis and factor. Accordingly, Jefferies'
analyses must be considered as a whole. Considering any portion of such
analyses and of the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process
underlying the Opinion. In its analyses, Jefferies made many assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the merging companies.
Any estimates contained in these analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than as set forth therein and herein. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses actually may be sold.
The following summarizes the material financial and comparative analyses
Jefferies performed in arriving at the conclusions expressed in the Opinion.
The information presented below is based on the financial condition of Data
Documents and Corporate Express as of June 30, 1997 and May 31, 1997,
respectively and share price information of Data Documents Common Stock and
Corporate Express Common Stock through the close of the market on September 4,
1997. The following does not purport to be a complete description of the
analyses performed or the matters considered by Jefferies in arriving at the
Opinion.
Jefferies noted that the aggregate implied purchase price for Data Documents
was approximately $265.7 million, which is comprised of (i) the assumption of
approximately $76.3 million (market value assuming Senior Secured Notes price
of 115.2%) in Data Documents debt and (ii) the issuance of shares of Corporate
Express Common Stock valued at approximately $189.4 million.
ANALYSIS OF DATA DOCUMENTS
Current Market Valuation. Jefferies examined the range of implied total
enterprise value ("Total Enterprise Value" or "TEV") of Data Documents using
its trading range over the last 52 weeks. Based on a September 4, 1997 closing
bid price of $13.625, a 52-week high price of $14.750 and a 52-week low price
of $9.000, the implied Total Enterprise Values ranged from $165.7 million to
$222.8 million. Jefferies also noted that Data Documents' average trading
price per share over the last 30 days was $13.101, over the last 90 days was
$12.518 and the average over the last 180 days was $11.513.
Comparable Publicly-Traded Company Analysis. Using public information, as
part of its analysis, Jefferies calculated the implied TEV of Data Documents
based on (i) Data Documents' latest twelve months ("LTM") historical
information (the "Base Case") and (ii) "Data Documents with $5 Million in
Synergies", which assumes that as a result of the Merger, cost redundancies
between Data Documents and Corporate Express will be eliminated and that the
pro forma combined company realizes the benefits of its respective operational
strengths. Jefferies calculated these values using the multiples of TEV/LTM
revenue, TEV/LTM earnings before interest, taxes, depreciation and
amortization ("EBITDA"), price/LTM earnings per share ("EPS"), price/1997 EPS
and price/1998 EPS at which five publicly traded business forms and services
companies were trading on September 4, 1997. The five comparable companies
examined were: Moore Corporation, Ltd., The Reynolds and Reynolds Company,
Standard Register Corporation, Wallace Computer Services, Inc. and American
Business
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Products, Inc. The resulting multiples from these comparables were as follows:
TEV/LTM Revenue (mean: 1.1x, median: 0.9x, and range: 0.6x-1.8x); TEV/LTM
EBITDA (mean: 7.4x, median; 7.1x, and range: 5.9x-9.3x); price/LTM EPS (mean:
16.9x, median: 15.9x, and range: 13.9x-21.3x); price/1997 EPS (mean: 15.9x,
median: 16.5x, and range: 13.3x-18.1x); and price/1998 EPS (mean: 13.7x,
median: 14.2x, and range: 11.4x-15.6x). Jefferies applied the mean multiples
of these five comparable companies to the analogous LTM June 30, 1997
statistics for Data Documents. This analysis indicated an implied Total
Enterprise Value of Data Documents of between approximately $239.0 million and
$273.0 million based on the Base Case and of between approximately $242.7
million and $314.8 million based on Data Documents with $5 Million in
Synergies. In comparison, the Total Enterprise Value consideration to be
received by Data Documents in the Merger, based on an Exchange Ratio of 1.1
shares of Corporate Express Common Stock for each share of Data Documents
Common Stock and a Corporate Express Common Stock closing bid share price of
$17.00 on September 4, 1997, equals approximately $265.7 million.
None of the companies used in the above analysis is identical to Data
Documents. Because of the inherent differences between the operations of Data
Documents and the comparable companies, a purely quantitative comparable
company analysis is not particularly meaningful. An appropriate use of a
comparable company analysis in this instance necessarily involves qualitative
judgments concerning, among other things, differences between the financial
and operating characteristics of Data Documents and the selected comparable
companies that could affect the public trading values of Data Documents and
such companies.
Discounted Cash Flow Analysis. Jefferies applied a discounted cash flow
analysis to Data Documents' financial forecasts for fiscal years 1997 through
1999. In conducting its discounted cash flow analysis, Jefferies first
calculated the estimated future streams of cash flows that Data Documents
would produce through the year 1999. These future streams of cash flows were
calculated by taking the projected net income of Data Documents and making the
following adjustments: (i) adding back depreciation and amortization, (ii)
subtracting capital expenditures, changes in working capital, and changes in
other non-cash items, and (iii) adding back after-tax interest expense. These
projections were based on financial models provided by the management of Data
Documents, which incorporated numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond Data Documents' control. With respect to industry
performance, general business and economic conditions, the assumptions
reflected modest increases in inflation and economic activity. In particular,
the models assumed that sales and net income would grow 7.0% and 15.4%,
respectively, in 1997, 11.2% and 16.7%, respectively, in 1998, and 8.2% and
26.4%, respectively, in 1999. The models assumed that gross margins would
remain essentially flat at 27% and selling, general and administrative
expenses as a percentage of sales would improve from 15.5% in 1996 to 14.9% in
1999. The models assumed that Data Documents would redeem its 13.5% senior
secured notes due 2002 on July 15, 1999 at a price of 104.2% of principal
amount. In addition, Jefferies applied various terminal EBITDA multiples to
Data Documents' 1999 projected EBITDA for terminal valuation purposes. The
terminal EBITDA multiples used were a range from 5x to 7x EBITDA. Finally,
Jefferies discounted such cash flow streams to present values using discount
rates ranging from 8.3% to 12.3%, calculated using a weighted average cost of
capital methodology for Data Documents. Based on this discounted cash flow
analysis and the projections provided, the range of equity values for Data
Documents were $125.1 million to $216.4 million, or $12.35 to $21.36 per
share. These values imply a range of Total Enterprise Values of Data Documents
of between $201.4 million to $292.7 million.
Comparable Merger and Acquisition Transaction Analysis. Jefferies reviewed
the consideration paid in the following four transactions that Jefferies
believed were the only reasonable comparable transactions completed on or
after August 1, 1995 for which sufficient public data was available as
screened by Securities Data Company (target/acquirer): DIMAC
Corporation/Heritage Media Corporation (October 1995), Duplex Products,
Inc./Reynolds & Reynolds Company (April 1996), SFI Net, Inc./U.S. Office
Products Company (January 1997) and Shade-Allied, Inc./American Pad & Paper
Company (January 1997). Jefferies analyzed the consideration paid in such
transactions as a multiple of the target companies' sales, EBITDA and earnings
for the LTM period prior to the acquisition of the target. Such analysis
yielded mean multiplies of 0.9x LTM sales, 10.5x LTM EBITDA and 13.7x LTM
earnings. Jefferies compared these multiples with the respective multiples
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calculated using the Total Enterprise Value of Data Documents based on an
offer price of $18.700 per share of Data Documents Common Stock (the Exchange
Ratio multiplied by the closing share price of Corporate Express Common Stock
on September 4, 1997 of $17.000 (the "Offer Price")). These multiplies were
1.1x LTM sales, 8.2x LTM EBITDA and 9.6x LTM earnings. Jefferies noted that
each of the above targets differed from Data Documents in certain operational
respects as follows: DIMAC Corporation was solely a direct mail company;
Duplex Products, Inc. was a company with severely poor operating performance
for a number of years; SFI Net, Inc. was primarily a distributor of business
forms, as opposed to a manufacturer; and Shade-Allied, Inc. was a manufacturer
of only machine paper and certain types of printed forms.
Because the reasons for and circumstances surrounding each of the
transactions analyzed were diverse and because of the inherent differences
between the operations of Data Documents and the companies engaged in the
selected transactions, Jefferies believes that a purely quantitative
comparable transaction analysis is not particularly meaningful. An appropriate
use of a comparable transaction analysis in this instance necessarily involves
complex considerations and qualitative judgments concerning, among other
things, differences between the characteristics of these transactions and the
Merger that could affect the public trading value of the companies to which
Data Documents is being compared.
Leveraged Buyout/Change of Control Analysis. Jefferies examined an implied
range of Total Enterprise Values for Data Documents based on a potential
leveraged buyout of Data Documents. The analysis performed assumes that a
purchaser could leverage Data Documents by 5.0x its LTM EBITDA and then
determines the amount of cash equity that such a purchaser would be required
to infuse in order to earn a range of equity rates of return upon a sale of
Data Documents in three years. Based on a range of terminal EBITDA multiples
for Data Documents' projected 1999 EBITDA from 5.0x to 7.0x and a purchaser's
required return on equity range of 25% to 35%, the resulting implied Total
Enterprise Values of Data Documents ranged from $206.0 million to $260.2
million. Jefferies noted that this range was less than the implied purchase
price of Data Documents of $265.7 million in the Merger.
Premiums Paid Analysis. Jefferies examined the premiums paid in all
completed acquisition transactions announced on or after July 14, 1995 with
transaction values between $100 and $500 million as screened by Securities
Data Company. The mean premiums paid in these completed transactions based on
the target's stock price one day, one week and one month prior to the
announcement were 40.6%, 43.5% and 53.3%, respectively. In the proposed
Merger, the assumed Offer Price of $18.700 per original share of Data
Documents Common Stock represents, based on the closing bid prices of $13.625
per share of Data Documents Common Stock on September 4, 1997, $13.750 per
share on August 28, 1997, and $12.500 per share on August 7, 1997, an
approximate premium of 37.2%, 36.0% and 49.6%, respectively.
Summary of Analyses. Jefferies noted that the average implied Total
Enterprise Values based on the valuation methodologies performed resulted in a
range of approximately $203.0 million to $272.6 million for Data Documents. In
addition, Jefferies noted that the implied purchase price of Data Documents of
$265.7 million was at the upper end of the average valuation range.
ANALYSIS OF CORPORATE EXPRESS
Current Market Valuation. Jefferies examined the range of implied Total
Enterprise Values of Corporate Express using its trading range over the last
52 weeks. Based on a September 4, 1997 closing bid price of $17.000, a 52-week
high price of $26.172 and a 52-week low price of $8.250, the implied Total
Enterprise Values ranged from $1,727.3 million to $4,116.9 million.
Comparable Publicly-Traded Company Analysis. Using public information, as
part of its analysis, Jefferies calculated the implied Total Enterprise Value
of Corporate Express based on (i) Corporate Express' LTM historical
information (the "Base Case") and (ii) "Corporate Express with $5 Million in
Synergies", which assumes that as a result of the Merger, cost redundancies
between Data Documents and Corporate Express will be eliminated and that the
pro forma combined company realizes the benefits of its respective operational
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strengths. Jefferies calculated these values using the multiples of TEV/LTM
revenue, TEV/LTM EBITDA, price/LTM EPS and price/1997 EPS at which four
publicly traded office products and contract stationer companies were trading
on September 4, 1997. The four comparable companies examined were: Boise
Cascade Office Products, Inc., BT Office Products International, Inc., Viking
Office Products, Inc. and U.S. Office Products Company. The resulting
multiples from these comparables were as follows: TEV/LTM Revenue (mean: 0.9x,
median: 0.8x, and range: 0.3x-1.4x); TEV/LTM EBITDA (mean: 13.3x, median:
13.7x, and range: 8.2x-16.6x); price/LTM EPS (mean: 27.5x, median: 26.1x, and
range: 17.1x-42.0x); and price/1997 EPS (mean: 22.5x, median: 23.5x, and
range: 13.8x-29.9x). Jefferies applied the mean multiples of these four
comparable companies to the analogous LTM May 31, 1997 statistics for
Corporate Express. This analysis indicated an implied Total Enterprise Value
of Corporate Express of between approximately $2,051.8 million and $3,112.7
million based on the Base Case and of between approximately $2,134.3 million
and $3,112.7 million based on Corporate Express with $5 Million in Synergies.
The average of these parameters based on the Base Case and Corporate Express
with $5 Million in Synergies implies a net equity value of Corporate Express
of between approximately $1,859.3 million and $1,898.5 million, or between
$13.94 and $14.24 per share.
None of the companies used in the above analysis is identical to Corporate
Express. Because of the inherent differences between the operations of
Corporate Express and the comparable companies, a purely quantitative
comparable company analysis is not particularly meaningful. An appropriate use
of a comparable company analysis in this instance necessarily involves
qualitative judgments concerning, among other things, differences between the
financial and operating characteristics of Corporate Express and the selected
comparable companies that could affect the public trading values of Corporate
Express and such companies.
Discounted Cash Flow Analysis. Jefferies applied a discounted cash flow
analysis to Corporate Express' financial forecasts for 1997 through 1999.
Jefferies noted that it only received one year of projections from Corporate
Express (fiscal 1997) and extrapolated out its projections for EBITDA and free
cash flow for two additional years using Corporate Express' projected five-
year average annual growth rate of 45%. In conducting its discounted cash flow
analysis, Jefferies first calculated the estimated future streams of cash
flows that Corporate Express would produce through the year 1999. These future
streams of cash flows were calculated by taking the projected net income of
Corporate Express and making the following adjustments: (i) adding back
depreciation and amortization, (ii) subtracting capital expenditures, changes
in working capital, and changes in other non-cash items, and (iii) adding back
after-tax interest expense. In addition, Jefferies applied various terminal
EBITDA multiples to Corporate Express' 1999 projected EBITDA for terminal
valuation purposes. The terminal EBITDA multiples used were a range from 8x to
10x EBITDA. Finally, Jefferies discounted such cash flow streams to present
values using discount rates ranging from 8.8% to 12.8%, calculated using a
weighted average cost of capital methodology for Corporate Express. Based on
this discounted cash flow analysis and the projections provided, the range of
equity values for Corporate Express were $2,676.2 million to $3,917.1 million,
or $20.07 to $29.38 per share. These values imply a range of Total Enterprise
Values of Corporate Express of between $3,303.5 million to $4,544.3 million.
Summary of Analyses. Jefferies noted that the average implied Total
Enterprise Values based on the valuation methodologies performed resulted in a
range of approximately $2,360.9 million to $3,924.6 million for Corporate
Express. In addition, Jefferies noted that the implied net equity value range
for Corporate Express was between $1,733.6 million and $3,297.3 million, or
between $13.00 and $24.73 per share.
ANALYSIS OF COMBINED COMPANY
Earnings Per Share Analysis. Jefferies analyzed the effects of the Merger on
the earnings per share of the combined company by comparing Corporate Express'
LTM May 31, 1997 and fiscal year 1997 projected earnings per share on a stand-
alone basis to (i) the LTM May 31, 1997 and fiscal year 1997 projected
earnings per share pro forma for the Merger with "$5 Million in Synergies"
assumed to be realized, and (ii) the LTM May 31, 1997 and fiscal year 1997
projected earnings per share pro forma for the Merger with no synergies ("No
Synergies"). For the purpose of calculating earnings per share, Jefferies
assumed that on a pro forma basis, there were approximately 134.5 million
shares of Corporate Express outstanding in fiscal year 1997. Based on
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these analyses, Jefferies observed that in the Merger, the LTM May 31, 1997
and fiscal year 1997 projected earnings per share of Corporate Express Common
Stock with $5 Million in Synergies were accretive to Corporate Express'
stockholders by 16.7% and 9.8%, respectively. In addition, Jefferies observed
that even with No Synergies, the Merger resulted in LTM May 31, 1997 and
fiscal year 1997 projected earnings per share of Corporate Express Common
Stock that were accretive to Corporate Express' stockholders by 11.9% and
4.9%, respectively.
Contribution Analysis. Jefferies analyzed the relative contribution of each
of Data Documents and Corporate Express to the pro forma combined company
based on the projections provided to Jefferies by Data Documents and Corporate
Express. Based on pro forma fiscal year 1997 data, Data Documents would
contribute approximately 5.9% of revenues, 6.5% of gross margin and 12.2% of
EBITDA of the combined company before taking into account any synergies that
may be achieved if the Merger were consummated. Based on data as of September
4, 1997, Data Documents would contribute 5.6% of the market capitalization of
the combined companies. Based on the Exchange Ratio, Data Documents would
receive approximately 7.7% of the equity of Corporate Express following
consummation of the Merger. Jefferies compared the above projected
contribution percentages with the approximately 7.7% ownership that current
Data Documents stockholders would have in the combined company. Jefferies
considered this analysis relevant to the fairness to Data Documents' public
stockholders from a financial point of view of the consideration to be paid by
Corporate Express in the Merger because, to the extent that the percentage
ownership of the Corporate Express shareholders in the combined company
exceeds the projected contribution by Corporate Express to the combined
operating results, the proportionate return to the Data Documents stockholders
would adversely affect the fairness of the consideration to be paid.
Conversely, to the extent that the proportionate ownership of the Corporate
Express shareholders following the Merger is lower than the anticipated
contribution of Corporate Express to the combined operating results, the
Merger could be expected to improve per share results of operations from the
perspective of current Data Documents stockholders. This would generally
support a conclusion that the transaction is fair. In addition, Jefferies
noted that although Data Documents' contribution to combined EBITDA in fiscal
1997 was greater than its initial ownership position in the combined entity,
its relative contribution would decrease in each successive year of the
projection period, and that the growth prospects that Corporate Express brings
to the combined company mitigate any initial excess contribution by Data
Documents on an EBITDA basis. As a result, Jefferies considered the relative
contribution analysis to support its Opinion.
Based on the foregoing analyses and factors Jefferies arrived at the
Opinion; however, the summary set forth above does not propose to be a
complete description of the analysis performed and factors considered by
Jefferies in arriving at the Opinion.
Pursuant to an engagement letter dated June 13, 1997 between Data Documents
and Jefferies, as compensation for Jefferies' services in connection with its
delivery of an opinion to Data Documents with respect to the Merger, Data
Documents has paid Jefferies a fee of $250,000 (without regard to whether
Jefferies' Opinion ultimately would be favorable or unfavorable), of which
such fee is to be credited against the Advisory Fee described below, if
earned. In addition, in connection with Jefferies' role as exclusive financial
advisor to Data Documents, Data Documents will pay to Jefferies an advisory
fee of 1.5% of the Total Enterprise Value of Data Documents on the closing
date, or approximately $4.0 million, (the "Advisory Fee") upon closing of the
Merger. Data Documents has also agreed to indemnify Jefferies against certain
liabilities, including liabilities arising under the federal securities laws,
and to reimburse Jefferies promptly for all out-of-pocket expenses (including
the reasonable fees and expenses of counsel). In the ordinary course of its
business, Jefferies may actively trade the securities of Data Documents and
Corporate Express for its own account and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in those
securities.
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 Data Documents at the Effective Time. The Merger will
become effective immediately when the Certificate of Merger, prepared and
executed in
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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 Data Documents on the third business day after satisfaction of (or
waiver in accordance with the Merger Agreement) the latest to occur of the
conditions set forth in Article VIII of the Merger Agreement, or at such other
time and place as Corporate Express and Data Documents shall reasonably agree
(the "Closing Date"). See "The Merger Agreement--Conditions to the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Data Documents Board of Directors
with respect to the Merger, Data Documents's stockholders should be aware that
certain members of the Data Documents Board of Directors and management have
certain interests separate from their interests as holders of Data Documents
Common Stock, including those referred to below.
Upon consummation of the Merger, Corporate Express shall grant options to
purchase 400,000 shares of Corporate Express Common Stock at an exercise price
equal to the fair market value at the date of grant to certain employees of
Data Documents, as recommended to Corporate Express in writing by senior
management of Data Documents and as agreed to by the compensation committee of
the Corporate Express Board of Directors. The amounts and terms of such
options shall be consistent with the Corporate Express policies relating to
stock option grants to new employees, providing for a four-year ratable
vesting schedule beginning one year from the date of grant (2.083% per month,
for months thirteen (13) through sixty (60), inclusive, following the
Effective Time). See "The Merger Agreement--Additional Agreements." While the
exact amounts are not yet determined or agreed upon, it is anticipated that
certain members of the Data Documents Board of Directors and other senior
management will receive a substantial percentage of such options.
The Merger Agreement provides for indemnification for a period of six years
of the officers and directors of Data Documents for any claims against such
directors and officers, in such capacities, occurring prior to the Effective
Time or arising out of transactions contemplated by the Merger Agreement. See
"The Merger Agreement--Additional Agreements."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger Agreement requires that Data Documents receive an opinion
effective as of the Closing Date, based on factual representations by Data
Documents and Corporate Express, from Gibson Dunn & Crutcher LLP, tax counsel
to Data Documents, 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 Data Documents 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 Data Documents as a result
of the Merger with respect to the shares of Data Documents 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 Data
Documents 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 Data Documents 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
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Data Documents or its stockholders who receive Corporate Express Common Stock
in the Merger in exchange for their shares of Data Documents 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 Data Documents stockholders in the Merger will be the same as
the basis of the shares of Data Documents Common Stock surrendered in exchange
therefor and (iv) the holding period of the shares of Corporate Express Common
Stock to be received by the Data Documents stockholders in the Merger will
include the holding period of the respective shares of Data Documents Common
Stock exchanged therefor, provided that all shares are held as capital assets
of Data Documents stockholders at the Effective Time.
THE DISCUSSION SET FORTH ABOVE DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN
TAX ASPECTS OF THE MERGER. THE DISCUSSION IS BASED ON CURRENTLY EXISTING
PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER
AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING
ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY
OF THIS DISCUSSION. EACH CORPORATE EXPRESS AND DATA DOCUMENTS 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 and published interpretations thereof. The
"pooling-of-interests" method of accounting assumes that the combining
companies have been merged from inception, and the historical financial
statements for periods prior to consummation of the Merger are restated as
though the companies had been combined from inception. The restated financial
statements are adjusted to conform the accounting policies of the separate
companies. See "The Merger Agreement--Conditions to the Merger" and "Corporate
Express and Data Documents--Unaudited Combined and Pro Forma Financial
Statements."
Corporate Express, Acquisition Sub and Data Documents each represent that to
its knowledge and based upon consultation with its independent accountants,
neither it nor any of its affiliates has taken or agreed to take any action
that would affect the ability of Corporate Express to account for the business
combination to be affected by the Merger as a pooling of interests.
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 Data
Documents 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 Data Documents 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 Data Documents or Corporate Express at the time of the Special Meeting
(generally, directors, executive officers and major stockholders). Affiliates
of Data Documents 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 one year 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 one-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 Corporate Express Common Stock during the four
calendar weeks preceding such sale. Rule 145 would remain available to
Affiliates only if Corporate Express
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remained current with its information filings with the Commission under the
Exchange Act. One year 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. Two years after the Effective Time, an Affiliate would be able to
sell such shares of Corporate Express Common Stock without any restrictions
provided such Affiliate has not been an Affiliate of Corporate Express for at
least three months prior thereto.
With certain non-material exceptions, shares of Corporate Express Common
Stock received by Affiliates of Data Documents or held by Affiliates of
Corporate Express may not be sold until Corporate Express publishes at least
thirty (30) days of the combined results of operations of Corporate Express
and Data Documents.
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 Data Documents 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, Data Documents believes that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, Corporate Express and Data Documents 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
Data Documents 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 Data Documents stockholders are
governed by the DGCL, the Data Documents Certificate of Incorporation (the
"Data Documents Certificate") and the Data Documents By-Laws (the "Data
Documents By-Laws"). At the Effective Time, the stockholders of Data Documents
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 Data Documents Common Stock
and holders of the Corporate Express Common Stock. The following summarizes
certain provisions of the DGCL, the Colorado Business Corporation Act (the
"CBCA"), the Corporate Express Articles and the Corporate Express By-Laws, the
Data Documents Certificate and the Data Documents 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 issued and outstanding voting stock
of Corporate Express and the Corporate Express
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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
Data Documents Certificate."
The DGCL has no equivalent provisions for voting groups.
Amendments to Corporate Express Articles and Data Documents
Certificate. Under the CBCA, an amendment to the Corporate Express Articles
(with certain exceptions for routine amendments) must be proposed by the
Corporate Express Board of Directors or the holders of shares representing at
least ten percent (10%) of all of the votes entitled to be cast on the
amendment, and must then be approved by the holders of a majority of the votes
cast within the voting groups entitled to vote on the amendment.
Under the CBCA, all of the holders of Corporate Express Common Stock, and
each holder of shares of an affected class or series of stock, if any, voting
in separate voting groups, are entitled to vote on any amendment of the
Corporate Express Articles that would (i) increase or decrease the aggregate
number of authorized shares of the class or series; (ii) effect an exchange or
reclassification of all or part of the shares of the class or series into
shares of another class or series; (iii) effect an exchange or
reclassification, or create the right of exchange, of all or part of the
shares of another class or series into shares of the class or series; (iv)
change the designation, preferences, limitations, or relative rights of all or
part of the shares of the class or series; (v) change the shares of all or
part of the class or series into a different number of shares of the same
class or series; (vi) create a new class of shares having rights or
preferences with respect to distributions or dissolution that are prior,
superior or substantially equal to the shares of the class or series; (vii)
increase the rights, preferences, or number of authorized shares of any class
or series that, after giving effect to the amendment, have rights or
preferences with respect to distributions or to dissolution that are prior,
superior, or substantially equal to the shares of the class or series; (viii)
limit or deny an existing preemptive right of all or part of the shares of the
class or series; or (ix) cancel or otherwise affect rights to distributions or
dividends that have accumulated but have not yet been declared on all or part
of the shares of the class or series.
Under the DGCL and the Data Documents Certificate, amendments to the Data
Documents Certificate must be adopted by the Data Documents 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. 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. As permitted under the CBCA, the Corporate Express
By-Laws provide that the Corporate Express By-Laws may be amended,
supplemented or repealed by the Corporate Express Board of Directors.
As permitted under the DGCL, the Data Documents Certificate provides that
the Data Documents By-Laws may be adopted, amended, or repealed by the Data
Documents Board of Directors.
Vote Required for Merger and Certain Other Transactions. Under the CBCA,
except for certain specific situations, whole shareholder approval is not
required, 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 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
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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 Data Documents' assets must be approved by the Data
Documents 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 Data Documents Certificate provides that the number of directors shall
be fixed from time to time solely by resolution of the Data Documents Board of
Directors. The Data Documents By-Laws provide that the Data Documents Board of
Directors shall consist of not less than two nor more than seven members.
Removal of Directors. Under the Corporate Express By-Laws, a member of the
Corporate Express Board of Directors may be removed, with or without cause, by
the holders of a majority of the shares of stock entitled to vote on the
election of directors. In addition, a director may be removed by the district
court of the county in Colorado in which Corporate Express' principal or
registered office is located, in a proceeding commenced either by Corporate
Express or by shareholders holding at least ten percent 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 and the Data Documents By-Laws, directors of Data Documents
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 Data Documents By-Laws, newly created directorships
resulting from any increase in the number of directors, including an increase
effected by the Data Documents Board of Directors, may be filled by a majority
of the directors then in office, provided that a quorum is present. Any other
vacancy on the Board may be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Whenever
the holders of any one or more classes or series of Preferred Stock issued by
Data Documents shall have the right, voting separately by class or series, to
elect directors at an annual or special meeting of the stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of the Preferred Stock
Designation applicable thereto. 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.
The Data Documents Certificate does not provide for cumulative voting in the
election of directors.
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Limitation of Director's Liability. As permitted by both the CBCA and the
DGCL, both the Corporate Express Articles and the Data Documents Certificate
eliminate or limit the personal liability of a director to Corporate Express
or its shareholders and Data Documents 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 advance expenses
upon a written undertaking for their repayment if the person receiving the
advance is not ultimately entitled to indemnification. In addition, the CBCA
requires (i) written affirmation of a good faith belief of having met his or
her standard of conduct and (ii) determination that facts known would not
preclude indemnification. The CBCA prohibits provisions in articles of
incorporation, bylaws, or contracts that are inconsistent with the statutory
provisions, while the DGCL specifies that the statutory provisions are not
exclusive of other rights to indemnification or advancement of expenses that
may be provided by bylaws, agreements, votes of stockholders or disinterested
directors, or otherwise.
Special Meeting of Shareholders; Action by Consent. Under the CBCA and the
Corporate Express By-Laws, a special meeting of the shareholders of Corporate
Express may be called for any purpose by the Chairman of the Corporate Express
Board of Directors, by the Corporate Express Board of Directors, by the Chief
Executive Officer or by the President of Corporate Express and must be called
by the Chairman of the Corporate Express Board of Directors at the request of
the holders of not less than ten percent (10%) of all votes entitled to be
cast on any issue proposed to be considered at such meeting. Under the CBCA,
unless the Corporate Express Articles require that action be taken at a
shareholders' meeting, any action required or permitted to be taken at a
shareholders' meeting may be taken without a meeting if all of the
shareholders entitled to vote thereon consent to such action in writing.
As permitted under the DGCL, the Data Documents By-Laws provide that special
meetings of stockholders of Data Documents may be called by the Data Documents
Board of Directors, the Chairman of the Board, the Chief Executive Officer,
the President or the holders of ten percent or more of the combined voting
power of all classes of Data Documents' capital stock. Under the DGCL, any
action required or permitted to be taken at a shareholders' meeting may be
taken without a meeting if all the shareholders entitled to vote thereon
consent to such action in writing.
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
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corporation contains a provision expressly electing not to be governed by this
prohibition. The Data Documents 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.
Dissenters' Rights. Under the CBCA, a shareholder who complies with
prescribed statutory procedures, whether or not entitled to vote, is entitled
to dissent and obtain payment of the fair value of the shareholder's shares in
the event of (i) consummation of a plan of merger to which Corporate Express
is a party, if approval by Corporate Express shareholders is required for the
merger or if Corporate Express were a subsidiary that was merged with its
parent corporation, (ii) consummation of a plan of share exchange to which
Corporate Express is a party as the corporation whose shares will be acquired,
(iii) consummation of a sale, lease, exchange, or other disposition of all, or
substantially all, of Corporate Express' property, if a shareholder vote is
required for such disposition under the CBCA or (iv) consummation of a sale,
lease, exchange, or other disposition of all, or substantially all, of the
property of an entity controlled by Corporate Express if Corporate Express
shareholders are entitled to vote on whether Corporate Express will consent to
the disposition; unless the shareholder's shares are listed on a national
securities exchange or on the National Market System of the National
Association of Securities Dealers Automated Quotation System or are held of
record by more than 2,000 shareholders, provided, however, that this
limitation shall not apply if the shareholder will receive for the
shareholder's shares, pursuant to the corporation action, anything except (a)
shares of the corporation surviving the consummation of the plan of merger or
share exchange, (b) shares of any other corporation which at the effective
date of the plan of merger or share exchange either will be listed on a
national securities exchange or on the National Market System of the National
Association of Securities Dealers Automated Quotation System or will be held
of record by more than 2,000 shareholders, (c) cash in lieu of fractional
shares or (d) any combination of the shares described in (a) and (b) or cash
in lieu of fractional shares.
A shareholder is also entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of (i) a reverse split that
reduces the number of shares owned by the shareholder to a fraction of a share
or to scrip if such fractional share or scrip is to be acquired for cash or
the scrip is to be voided under the CBCA or (ii) any corporate action, to the
extent provided by the Corporate Express By-Laws or a resolution of the
Corporate Express Board of Directors.
Generally, stockholders of a Delaware corporation who object to certain
mergers or consolidations of the corporation are entitled to appraisal rights,
requiring the surviving corporation to pay the fair value of the dissenting
shares. There are, however, no statutory rights of appraisal with respect to
stockholders of a Delaware corporation whose shares of stock are either (i)
listed on a national securities exchange or (ii) held of record by more than
2,000 stockholders. In addition, no appraisal rights shall be available for
any shares of stock of a surviving corporation in a merger if the merger did
not require the approval of the stockholders of such corporation. Further, the
DGCL does not provide appraisal rights to stockholders who dissent from the
sale of all or substantially all of the corporation's assets unless the
certificate of incorporation provides otherwise. The Data Documents
Certificate does not provide for appraisal rights upon the sale of all or
substantially all of the assets of Data Documents.
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
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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 Data Documents 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 Data Documents 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, Data Documents may purchase, redeem or otherwise acquire its
own shares. However, Data Documents may not (i) purchase or redeem its own
shares of capital stock for cash or other property when the capital of the
corporation is impaired or when such purchase or redemption would cause any
impairment of the capital of the corporation, except that a corporation may
purchase or redeem out of capital any of its own shares which are entitled
upon any distribution of its assets, whether by dividend or in liquidation, to
a preference over another class or series of its stock, if such shares will be
retired upon their acquisition and the capital of the corporation reduced or
(ii) purchase, for more than the price at which they may then be redeemed, any
of its shares which are redeemable at the option of the corporation.
Related Party Transactions. Under the CBCA, no contract or transaction
between Corporate Express and one or more of its directors or between
Corporate Express and any other corporation, partnership, association, or
other organization in which one or more of Corporate Express' directors 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 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 Data Documents may loan money to, or
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guaranty any obligation incurred by, its officers (including those who are
also directors) if, in the judgment of the Data Documents Board of Directors,
such loan or guarantee may reasonably be expected to benefit Data Documents.
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 of
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 or to the holders of any class or series of shares as a group, a list of
the names and business addresses of current directors and officers, the most
recent corporate report delivered to the Colorado Secretary of State, and
certain financial statements of Corporate Express prepared for periods ending
during the last three years. In addition, a shareholder who (i) has been a
Corporate Express shareholder for at least three months or who is a holder of
at least five percent of all of the outstanding shares of any class of
Corporate Express capital stock, (ii) makes a demand in good faith and for a
purpose reasonably related to the shareholder's interest as a shareholder,
(iii) describes with reasonable particularity the purpose and the records the
shareholder desires to inspect, and (iv) requests records that are directly
connected with the described purpose, or such shareholder's agent or attorney,
is entitled to inspect and copy, upon at least five business days' written
notice and during regular business hours at a reasonable location specified by
Corporate Express: excerpts from minutes or records of any Corporate Express
Board of Directors meeting or action, minutes or records of any shareholders'
meeting or action, excerpts of records of any action of a Corporate Express
Board of Directors committee, waivers of notices of any shareholder, Corporate
Express Board of Directors or Corporate Express Board of Directors committee
meeting, accounting records of Corporate Express, and records of the names and
addresses of shareholders.
Under the DGCL, any stockholder of Data Documents, 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 Data Documents do not have preemptive
rights unless specifically granted in the certificate of incorporation. The
Data Documents Certificate does not grant Data Documents stockholders
preemptive rights.
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THE MERGER AGREEMENT
The following description 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 Data Documents 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 governmental consents, orders and approvals
shall have been obtained and be in effect at the Effective Time. All required
consents and approvals of lenders who have advanced $5,000,000 or more to
Corporate Express or Data Documents and lessors of material leases shall have
been obtained and be in effect at the Effective Time.
Pooling of Interests. Coopers & Lybrand L.L.P., certified public accountants
for Corporate Express and Acquisition Sub, shall have delivered a letter
addressed to Corporate Express, dated as of the Closing Date, in form and
substance reasonably satisfactory to Corporate Express, stating that the
Merger will qualify as a pooling of interests transaction under APB 16 and
published interpretations thereof. Deloitte & Touche LLP, certified public
accountants for Data Documents, shall have delivered a letter, dated as of the
Closing Date, addressed to Data Documents, in form and substance reasonably
satisfactory to Data Documents, stating that Data Documents has not taken any
action that would affect the ability to account for the Merger as a pooling of
interests transaction under APB 16 and published interpretations thereof.
The obligation of Corporate Express and Acquisition Sub to effect the Merger
is subject to the fulfillment or waiver at or prior to the Closing of the
following additional conditions:
Performance of Obligations and Representations and Warranties of Data
Documents. Data Documents 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 Data
Documents contained
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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 Corporate Express shall have received a Certificate of the President
and Chief Executive Officer or of a Vice President of Data Documents, in form
and substance reasonably satisfactory to Corporate Express, to that effect.
Legal Opinion. Corporate Express shall have received an opinion from Gibson
Dunn & Crutcher LLP, special counsel to Data Documents, effective as of the
Closing Date, addressing various legal matters related to the Merger.
Comfort Letters. Corporate Express shall have received "comfort" letters in
customary form and substance reasonably satisfactory to Corporate Express from
Deloitte & Touche LLP, certified public accountants for Data Documents, 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 related to Data
Documents.
No Material Changes. Since the date of the Merger Agreement, there shall
have been no changes that have, and no event or events shall have occurred
which have resulted in or have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of Data Documents 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 by the Merger Agreement 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.
Other Agreements and Assurances. Corporate Express has received the
Affiliate Agreements and waivers and/or amendments to certain employment
agreements.
Audited Financial Statements. Corporate Express has received Data Documents'
audited consolidated financial statements for the year ended December 31,
1996, together with an unqualified opinion from Deloitte & Touche LLP
regarding such financial statements, which financial statements shall reflect
earnings which are not materially less than the average of the published
projections of the securities analysts' which regularly follow Data Documents
and which financial statements shall reflect all normal, recurring adjustments
necessary to present fairly Data Documents' results from operations or
financial conditions.
Fairness Opinion. Corporate Express shall have received from Merrill Lynch,
Pierce, Fenner & Smith, Inc. (or other nationally recognized investment
banking firm reasonably acceptable to Corporate Express) an opinion reasonably
acceptable to Corporate Express, dated as of the date on which the Proxy
Statement and Prospectus is first distributed, 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. This condition
is expected to be waived by Corporate Express.
The obligation of Data Documents 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
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date, and Data Documents 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.
Legal Opinions. Data Documents shall have received an opinion of Gibson Dunn
& Crutcher LLP, special counsel to Data Documents, in form and substance
reasonably satisfactory to Data Documents, effective as of the Closing Date
and based on representations of Corporate Express and Acquisition Sub, to the
effect that (i) the Merger of Acquisition Sub with and into Data Documents
pursuant to the Merger Agreement and applicable State law will be treated for
United States federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code; (ii) Corporate Express, Acquisition Sub
and Data Documents will each be a party to the reorganization within the
meaning of Section 368(b) of the Code; and (iii) stockholders of Data
Documents will not recognize gain or loss as a result of the Merger, except to
the extent such stockholders receive cash in lieu of fractional shares and
such opinion shall not have been withdrawn or modified in any material
respect. In addition, Data Documents shall have received an opinion or
opinions from Ballard Spahr Andrews & Ingersoll, special counsel to Corporate
Express and Acquisition Sub, dated the Closing Date, reasonably satisfactory
to Data Documents and addressing various legal matters related to the Merger.
Comfort Letters. Data Documents 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 Data Documents) 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 related to Corporate Express.
No Material Changes. Since the date of the Merger Agreement, there shall
have been no changes that have, and no event or events shall have occurred
which have resulted in or have, 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. Data Documents shall have received from Jefferies &
Company, Inc. (or other nationally recognized investment banking firm
reasonably acceptable to Corporate Express) an opinion, dated as of the date
on which this Proxy Statement and Prospectus is first distributed to the
stockholders of Data Documents, to the effect that the consideration to be
received by the stockholders of Data Documents is fair, from a financial point
of view, to the holders of Data Documents Common Stock, and such opinion shall
not have been withdrawn.
Other Agreements. Corporate Express shall have entered into an employment
agreement with Walter J. Kearns.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties by each
of Corporate Express, Acquisition Sub and Data Documents 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
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and this Proxy Statement and Prospectus, (x) no 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) material agreements, (xviii) pooling-of-interests
matters and (xix) brokers, finders or investment bankers in connection with
the Merger. Data Documents makes additional representations and warranties
with respect to (i) stockholder approval, (ii) excess parachute payments,
(iii) trademarks and intellectual property, (iv) transactions with related
parties, (v) insurance and (vi) year 2000 compliance. Corporate Express and
Acquisition Sub further represent and warrant that Acquisition Sub has had no
prior activities, obligations or liabilities.
CERTAIN COVENANTS
During the period from the date of the Merger Agreement and continuing until
the Closing Date, Data Documents shall, and shall cause its subsidiaries to:
Ordinary Course. Conduct their respective businesses in the ordinary and
usual course of business and consistent with past practice.
Changes in Stock. Not (i) amend or propose to amend their respective
charters or by-laws, (ii) split, combine or reclassify their outstanding
capital stock or (iii) declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise, except for the payment of
dividends or distributions by a wholly owned subsidiary of Data Documents.
Issuance of Securities. Not issue, sell, pledge or dispose of, or agree to
issue, sell, pledge or dispose of, or otherwise cause to become outstanding,
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 Data Documents 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 described in
the Merger Agreement.
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, the
terms of which shall be satisfactory to Corporate Express, (ii) redeem,
purchase, acquire or offer to purchase or acquire any shares of its capital
stock or any options, warrants or rights to acquire any of its capital stock
or any security convertible into or exchangeable for its capital stock, (iii)
take any action which would jeopardize the treatment of the Merger as a
pooling of interests under APB 16 and published interpretations thereof, (iv)
take or fail to take any action which action or failure would cause Data
Documents 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)
make any acquisition of any assets or businesses other than acquisitions of
assets in the ordinary course of business, (vi) sell, pledge, dispose of or
encumber any assets or businesses other than sales in the ordinary course of
business, or (vii) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing.
Preservation of Goodwill. Use all commercially 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.
51
<PAGE>
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.
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 financially responsible and adequately
capitalized insurance companies insurance coverage on its 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 Closing Date, Corporate Express shall, and shall cause Acquisition Sub 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 Agreement, amend or propose to amend their
respective charters or by-laws, (ii) split, combine or reclassify (whether by
stock dividend or otherwise) their outstanding capital stock, or (iii)
declare, set aside or pay any dividend or distribution payable in cash, stock,
property or otherwise, except for the payment of dividends or distributions by
a wholly owned subsidiary of Corporate Express.
Communication with Data Documents. Confer on a regular and frequent basis
with one or more representatives of Data Documents 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, Data Documents shall not, and
shall not permit any of its subsidiaries (including officers, directors,
representatives and agents of Data Documents and its subsidiaries) to,
directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with or provide information to any corporation,
partnership, person or other entity or group except Corporate Express,
concerning any merger, sale of assets, sale of or tender offer for its common
stock or similar actions (any such transactions, an "Acquisition
Transaction"). However, the Board of Directors of Data Documents is not
prevented from taking and disclosing to Data Documents' stockholders a
position contemplated by Rules 14d-9 and 14e-2 under the Exchange Act with
regard to any tender offer.
Notwithstanding the provisions in the Merger Agreement, in response to an
unsolicited written proposal with respect to an Acquisition Transaction, Data
Documents may furnish information to a financially capable corporation,
partnership, person or other entity or group (a "Potential Acquirer") pursuant
to appropriate confidentiality agreements and may participate in discussions
and negotiate with such Potential Acquirer concerning any inquiry or proposal
to acquire Data Documents in an Acquisition Transaction or negotiate with such
Potential Acquirer if (i) Data Documents shall have given not less than two
(2) business days' advance written notice to Corporate Express of Data
Documents' intention to do so, (ii) the board of directors of Data Documents
is advised by one or more of its independent financial advisors that providing
information to the Potential Acquirer is likely to lead to an Acquisition
Transaction on terms that would yield a higher value to Data Documents'
stockholders than the Merger and is in furtherance of the best interests of
Data Documents' stockholders and (iii) based upon advice of its legal counsel,
its board of directors determines in good faith, that such action is in
furtherance of the best interests of Data Documents' stockholders and that the
failure to provide such information to such Potential Acquirer would
constitute a breach of its fiduciary duty to its stockholders.
52
<PAGE>
In the event Data Documents 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) promptly inform Corporate
Express that information is to be provided, that negotiations are to take
place or that an offer has been received and (iii) if a request, inquiry,
proposal or offer has been received, furnish to Corporate Express a
description of the material terms thereof and, unless the board of directors
of Data Documents concluded that such disclosure is inconsistent with its
fiduciary duties under applicable law, furnish to Corporate Express the
identity of the person receiving such information or the proponent of such
offer, if applicable.
Data Documents may terminate the Merger Agreement and enter into a
definitive agreement for an Acquisition Transaction which meets the
requirements set forth above with a Potential Acquirer with which it is
permitted to negotiate, but only if (i) the independent financial advisors of
the Company shall have determined in good faith that such Acquisition
Transaction would be more favorable to Data Documents' stockholders from a
financial point of view than the Merger and is in furtherance of the best
interests of Data Documents' stockholders, (ii) Data Documents shall have
furnished Corporate Express with a copy of the definitive agreement at least
five (5) business days prior to its execution and (iii) Corporate Express
shall have failed within such five (5) 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 Board of Directors of Data Documents, at least as
favorable to Data Documents' stockholders from a financial point of view as
the Acquisition Transaction.
ADDITIONAL AGREEMENTS
Pursuant to the Merger Agreement, Corporate Express and Data Documents have
made the following additional agreements:
Access. Corporate Express and Data Documents and their respective
subsidiaries shall each afford to the other and their respective accountants,
counsel, financial advisors and other representatives, full access to all of
their respective properties, books, contracts, commitments, records and
documents filed or received pursuant to federal or state securities laws or
filed with the Commission or which may have a material effect on their
respective businesses, properties or personnel and such other information as
the other party may reasonably request. Corporate Express and its
subsidiaries, and Data Documents and its subsidiaries, shall hold and shall
use their reasonable best efforts to cause their representatives to hold, in
strict confidence all non-public documents and information furnished to
Corporate Express and Acquisition Sub or to Data Documents, 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, Data Documents stockholders' approval and
as required by law or judicial or administrative order.
Registration Statement and Proxy Statement. Corporate Express and Data
Documents will file with the Commission as soon as is reasonably practicable,
this Proxy Statement and Prospectus and shall use all reasonable efforts to
have the Registration Statement declared effective by the Commission as
promptly as practicable. Corporate Express shall also take any reasonable
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. Data Documents will submit the Merger Agreement for the
approval of its stockholders at a meeting of stockholders and, subject to the
fiduciary duties of the Boards of Directors under applicable law, shall use
its reasonable best efforts to obtain stockholder approval and adoption of the
Merger Agreement and the transactions contemplated thereby.
Affiliates of the Company. Within 30 days after the Merger Agreement is
entered into, Data Documents shall identify in a letter to Corporate Express
all persons who may be deemed affiliates of Data Documents under Rule 145 of
the Securities Act ("Rule 145") and shall advise the persons identified in
such letter of the resale restrictions imposed by applicable securities laws.
Data Documents shall use its reasonable best efforts to obtain
53
<PAGE>
as soon as practicable from any person who may be deemed to have become an
affiliate of Data Documents after Data Documents' delivery of the letter
referred to above a written agreement regarding Affiliate status.
Nasdaq 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 and the shares of Corporate Express
Common Stock to be reserved for issuance upon exercise of Exchanged Options
and Exchanged Warrants.
Expenses and Fees. Data Documents and Corporate Express shall bear their own
expenses, including reasonable and customary fees and expenses payable to
attorneys, accountants and investment bankers, incurred in connection with the
Merger. In addition, Corporate Express will pay the fees and expenses incurred
in connection with the printing, filing and mailing of this Proxy Statement
and Prospectus and the HSR Act filing, provided, however, that in the event
the Merger is not consummated, the parties will share equally in such fees and
expenses. If the Merger is not consummated because either party breaches a
material representation or warranty or fails to perform a material covenant
contained in the Merger Agreement, and such breach has not been cured within
twenty (20) business days after notice by the other party thereof, and the
other party has not breached and such non-breaching party chooses to terminate
the Merger Agreement as a direct result of such breach or failure, the
breaching party shall pay the non-breaching party the sum of $1,000,000.
Additionally, if the Merger is not consummated because Data Documents enters
into an Acquisition Transaction at any time within twelve months of the date
of the Merger Agreement, Data Documents shall pay to Corporate Express the sum
of $3,000,000, which sum shall be in lieu of the $1,000,000 listed above. In
the event that the Merger is not consummated because Corporate Express does
not exercise its right to increase the Exchange Ratio (because of a drop in
its stock price), unless Corporate Express Stock Value is less than $13.20 per
share, then Corporate Express shall pay to Data Documents the sum of
$3,000,000, which sum shall be in lieu of the $1,000,000 listed above.
Agreement to Cooperate. Corporate Express and Data Documents 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 Data Documents undertakes and agrees
to make all filings and comply with all requests related to the HSR Act.
Public Statements. Unless required by law or by obligations pursuant to any
listing agreement with the Nasdaq National Market, Corporate Express and Data
Documents (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.
Option Plans and Warrants. Corporate Express will cause a Form S-8 to be
filed with the Commission as soon as practicable following the Effective Time,
but not later than thirty days after the Effective Time, to register the
shares of Corporate Express Common Stock underlying the Corporate Express
Options granted in replacement of Data Documents Options, or will cause such
shares to be subject to an existing Form S-8.
Pursuant to Data Documents' existing Warrant Agreement dated as of November
28, 1994 between Data Documents and The Bank of New York (as successor-in-
interest to NationsBank of Texas, N.A.), concurrently with the consummation of
the Merger, Corporate Express shall enter into a Supplemental Warrant
Agreement and shall mail a notice describing such Supplemental Warrant
Agreement to the holders of Data Documents' warrants.
Notification. Each of Data Documents, 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
54
<PAGE>
material failure on its part to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it under the Merger
Agreement.
Indemnification. For a period of six years after the Effective Time,
Corporate Express shall, and Corporate Express shall cause the Surviving
Corporation, to the extent permitted under Section 145 of the DGCL and to the
extent of Data Documents' indemnification prior to the Effective Time,
indemnify and hold harmless (and advance expenses to) each present and former
officer, director, previously indemnified employee and previously indemnified
agent of Data Documents and any of its subsidiaries (collectively, the
"Indemnified Parties") against any costs, expenses, judgments, fines, losses,
claims, damages, liabilities or amounts that are paid in settlement 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 Data Documents and arising out of acts or omissions
occurring at or prior to the Effective Time, or arising out of the
transactions contemplated by the Merger Agreement.
For a period of six years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by Data Documents (or
may substitute therefore policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous) with respect
to claims arising from facts or events that occurred 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 Data Documents'
stockholders, each of Data Documents and Corporate Express shall promptly
correct any information provided by it 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 Data Documents, to the extent required by applicable law.
Employment Agreements. Following the execution of the Merger Agreement, Data
Documents will use its best efforts to cause any and all employees of Data
Documents who are parties to agreements that may provide to them cash
compensation upon a change of control (as defined therein) of Data Documents
and certain other events to execute amendments and/or waivers of the cash
compensation provisions applicable upon such a change of control in exchange
for which Corporate Express will enter into employment agreements with each
such employee of Data Documents in form and substance reasonably satisfactory
to the parties thereto.
Irrevocable Proxies. Data Documents will use its best efforts to cause its
executive officers and directors to execute and deliver to Corporate Express
irrevocable proxies authorizing Corporate Express to vote all shares of Data
Documents Common Stock which such executive officers and directors are
entitled to vote in favor of the Merger.
Grant of Options to Data Documents Employees. Upon consummation of the
Merger, Corporate Express shall grant options to purchase 400,000 shares of
Corporate Express Common Stock to certain employees of Data Documents as
recommended to Corporate Express in writing by senior management of Data
Documents and as agreed to by the compensation committee of the Corporate
Express Board of Directors. Options granted to an employee for the aggregate
purchase of 5,000 shares or less of Corporate Express Common Stock shall be
qualified as incentive stock options. Options granted to an employee for the
aggregate purchase of more than 5,000 shares of Corporate Express Common Stock
shall be non-qualified options. Corporate Express will register
55
<PAGE>
the shares issuable pursuant to such options on a Form S-8 and shall use
reasonable efforts to effect authorization for listing of such shares on
Nasdaq.
Tax-Free Treatment of Merger. Corporate Express, Acquisition Sub and Data
Documents 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. As soon as
practicable 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 Data Documents and
Corporate Express as required by ASR 135 within the time prescribed for the
filing of such report.
Employee Benefits. Corporate Express will provide employee benefits to the
employees of Data Documents and its subsidiaries in an amount and nature
materially consistent with benefits provided to existing employees of
Corporate Express and its subsidiaries, which benefits will, to the extent
practicable and feasible, be generally comparable to existing benefits
provided to Data Documents' employees. Notwithstanding the foregoing, nothing
contained in the Merger Agreement shall be construed as requiring Corporate
Express or the Surviving Corporation to continue any specific employee benefit
plans or to continue the employment of any specific person. Corporate Express
will also use its reasonable best efforts cause each employee medical benefit
plan in which the employees of Data Documents and its subsidiaries participate
from and after the Effective Time to waive (i) any preexisting condition
restriction that was waived under the terms of any analogous plan immediately
prior to the Effective Time or (ii) any waiting period limitation that would
otherwise be applicable to an employee of Data Documents or its subsidiaries
on or after the Effective Time to the extent such employee had satisfied any
similar waiting period limitation under any analogous plan prior to the
Effective Time.
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 Data Documents,
(i) by either Data Documents or Corporate Express: (A) if the Merger is not
consummated by December 31, 1997, other than on account of delay or default on
the part of the terminating party; (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 Data Documents stockholders' vote is not sufficient to approve
the Merger; and (ii) by Data Documents if: (X) it determines to enter into a
qualifying Acquisition Transaction; (Y) Corporate Express does not elect to
increase the Exchange Ratio because the Corporate Express Stock Value is less
than $15.00; or (Z) the Corporate Express Stock Value is less than $10.00,
even if Corporate Express does elect to increase the Exchange Ratio.
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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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CORPORATE EXPRESS
The following selected consolidated financial data for fiscal 1996 (ending
March 1, 1997), 1995 (ending March 2, 1996), 1994 (ending February 25, 1995),
and 1993 (ending February 28, 1994) have been derived from Corporate Express'
consolidated financial statements which have been audited by independent
accountants. The selected consolidated financial data for the six months ended
August 30, 1997 and August 31, 1996 and fiscal 1992 is derived from unaudited
consolidated financial statements. The unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and in the opinion of management, contain all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for
these periods. The information set forth below should be read in conjunction
with the consolidated financial statements of Corporate Express incorporated
herein by reference.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
------------------------------------------------------ -------------------------------
1996 1995 1994 1993 1992 AUGUST 30, 1997 AUGUST 31, 1996
---------- ---------- ---------- -------- -------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:(1)
Net sales............... $3,196,056 $1,890,639 $1,145,151 $520,956 $420,030 $1,854,976 $1,405,870
Cost of sales(2)........ 2,417,746 1,417,366 855,361 402,142 323,922 1,418,524 1,058,727
Merger related inventory
provisions(3).......... -- 5,952 -- 1,146 -- -- --
---------- ---------- ---------- -------- -------- ---------- ----------
Gross profit........... 778,310 467,321 289,790 117,668 96,108 436,452 347,143
Warehouse operating and
selling expenses....... 562,879 342,581 219,213 97,054 76,056 320,900 249,281
Corporate general and
administrative
expenses............... 95,101 49,742 29,624 13,063 12,408 55,480 44,124
Merger and other
nonrecurring
charges(4)............. 19,840 36,838 -- 1,928 2,592 -- --
---------- ---------- ---------- -------- -------- ---------- ----------
Operating profit....... 100,490 38,160 40,953 5,623 5,052 60,072 53,738
Interest expense, net... 26,949 17,968 16,915 5,014 4,972 19,374 10,555
Other income (expense).. 244 1,786 562 (104) (993) 180 (114)
---------- ---------- ---------- -------- -------- ---------- ----------
Income (loss) before
income taxes........... 73,785 21,978 24,600 505 (913) 40,878 43,069
Income tax expense...... 33,649 13,766 8,294 2,316 1,567 17,331 17,670
---------- ---------- ---------- -------- -------- ---------- ----------
Income (loss) before
minority interest...... 40,136 8,212 16,306 (1,811) (2,480) 23,547 25,399
Minority interest
(income)/expense....... (1,860) 1,436 69 152 -- (1,042) (100)
---------- ---------- ---------- -------- -------- ---------- ----------
Income (loss) from
continuing operations.. 41,996 6,776 16,237 (1,963) (2,480) 24,589 25,499
Loss from discontinued
operations(5).......... -- 1,225 327 712 4,571 -- --
---------- ---------- ---------- -------- -------- ---------- ----------
Income (loss) before
extraordinary item..... 41,996 5,551 15,910 (2,675) (7,051) 24,589 25,499
Extraordinary item(6)... -- -- 586 (1,169) -- -- --
Net income (loss)...... $ 41,996 $ 5,551 $ 16,496 $ (3,844) $ (7,051) $ 24,589 $ 25,499
========== ========== ========== ======== ======== ========== ==========
Pro forma net income
(loss)(7).............. $ 40,281 $ 5,140 $ 15,769 $ (5,124) $ (7,390) $ 24,589 $ 24,842
========== ========== ========== ======== ======== ========== ==========
Weighted average common
shares outstanding..... 130,029 110,408 80,993 55,598 133,786 128,267
Pro forma net income
(loss) per common
share:(8)
Continuing operations.. $ 0.31 $ 0.06 $ 0.19 $ (0.09) $ 0.18 $ 0.19
Discontinued
operations............ -- (0.01) (0.01) (0.01) -- --
Extraordinary item..... -- -- 0.01 (0.02) -- --
---------- ---------- ---------- -------- ---------- ----------
Net income (loss)...... $ 0.31 $ 0.05 $ 0.19 $ (0.12) $ 0.18 $ 0.19
BALANCE SHEET DATA:(1)
Working capital......... $ 393,653 $ 253,693 $ 166,421 $ 96,880 $ 50,771 $ 411,780 $ 326,764
Total assets............ 1,843,977 1,023,365 645,309 446,189 160,510 1,906,965 1,373,313
Long-term debt and
capital lease
obligations............ 633,250 163,399 188,340 177,523 52,375 637,614 539,385
Shareholders' equity and
redeemable
preferred(9)........... 693,607 521,776 259,325 116,363 39,584 732,603 536,269
</TABLE>
57
<PAGE>
- --------
(1) The Hermann Marketing, Inc. ("HMI") acquisition (effective January 30,
1997), the Sofco-Mead, Inc. ("Sofco") acquisition (effective January 24,
1997), the United TransNet ("UT") acquisition (effective November 8,
1996), the Nimsa S.A. ("Nimsa") acquisition (effective October 31, 1996),
the U.S. Delivery Systems, Inc. ("Delivery") acquisition (effective March
1, 1996), the Richard Young Journal, Inc. ("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 HMI, Sofco, UT, Nimsa, Delivery, Young and Lucas
accounts and results are included for all applicable periods.
(2) Cost of sales includes occupancy and delivery expenses.
(3) Reflects the write-down to fair market value of certain inventory which
Corporate Express decided to eliminate from its product line.
(4) Merger and other nonrecurring charges relate primarily to the mergers with
Sofco, HMI, Nimsa and UT in fiscal 1996, Delivery and Young in fiscal 1995
and Lucas in fiscal 1993 and include, among other things, costs to
complete the acquisitions, merging and closing redundant facilities,
personnel reductions and centralizing certain administrative functions.
(5) In fiscal 1995, Sofco adopted a plan to discontinue Sofco-Eastern, Inc.,
and in February 1993, Lucas adopted a plan to discontinue its retail
operations.
(6) Reflects extraordinary loss related to a write-off of an unamortized
discount on debt in fiscal 1993 and extraordinary gain related to the
repurchase by Corporate Express of $10 million principal amount of
Corporate Express' 9 1/8% Senior Subordinated Notes (the "CEI Senior
Notes") in fiscal 1994.
(7) Pro forma net income reflects the additional taxes that would be incurred
to treat a subchapter S acquisition as if the acquired company was a C
corporation.
(8) Pro forma net income (loss) per common share is calculated by dividing pro
forma net income (loss), after preferred stock dividend requirements of
Young of $432,000 and $1,500,000 for fiscal 1994 and fiscal 1993,
respectively.
(9) Redeemable preferred was converted to common stock in fiscal 1994.
58
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DATA DOCUMENTS
The following table sets forth selected consolidated financial data of Data
Documents as of and for each of the years in the five-year period ended
December 31, 1996. The consolidated financial data as of and for each of the
five years in the period ended December 31, 1996, have been derived from Data
Documents' audited Consolidated Financial Statements. Data Documents'
Consolidated Financial Statements as of December 31, 1996 and 1995, and for
the years ended December 31, 1996, 1995 and 1994 and Deloitte & Touche LLP's
audit report with respect thereto have been incorporated herein by reference.
The consolidated financial data as of and for the six month periods ended June
30, 1997 and 1996 are derived from unaudited consolidated financial statements
of Data Documents and, in the opinion of Data Documents' management, reflect
all adjustments, consisting only of adjustments of a normal recurring nature,
necessary for a fair presentation of such data. The statement of operations
data for interim periods is not necessarily indicative of results for the full
years.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
----------------------------------------------------------- ---------------------------
1996 1995 1994 1993 1992 JUNE 30, 1997 JUNE 30, 1996
---------- ---------- ---------- ----------- ---------- ------------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net Sales.............. $ 246,496 $ 242,238 $ 193,626 $ 193,588 $ 184,400 $ 126,394 $ 124,678
Cost of Goods Sold..... 181,058 186,011 148,797 152,036 144,630 93,338 92,242
---------- ---------- ---------- ----------- ---------- ---------- ----------
Gross Profit........... 65,438 56,227 44,829 41,552 39,770 33,056 32,436
Selling, General and
Administrative
Expenses.............. 38,177 35,334 32,729 32,306 32,398 19,009 18,802
Stock Compensation
Charge(1)............. -- 156 -- -- -- -- --
Nonrecurring
Charge(2)............. -- -- -- -- 4,208 -- --
---------- ---------- ---------- ----------- ---------- ---------- ----------
Operating Income....... 27,261 20,737 12,100 9,246 3,164 14,047 13,634
Debt Expense........... 9,751 13,335 8,735 8,063 8,160 4,607 4,960
---------- ---------- ---------- ----------- ---------- ---------- ----------
Income (Loss) Before
Income Taxes.......... 17,510 7,402 3,365 1,183 (4,996) 9,440 8,674
Income Tax Expense
(Benefit)............. 7,086 3,127 1,533 212 (1,785) 3,818 3,520
---------- ---------- ---------- ----------- ---------- ---------- ----------
Income (Loss) Before
Extraordinary Item.... $ 10,424 $ 4,275 $ 1,832 $ 971 $ (3,211) $ 5,622 $ 5,154
========== ========== ========== =========== ========== ========== ==========
Net Income (Loss)
(3),(4),(5)........... $ 10,370 $ 1,354 $ (963) $ 971 $ (3,211) $ 5,622 $ 5,100
========== ========== ========== =========== ========== ========== ==========
Net Income (Loss)
Available for Common
Stock................. $ 10,370 $ 1,354 $ (1,583) $ 288 $ (3,898) $ 5,622 $ 5,100
========== ========== ========== =========== ========== ========== ==========
Earnings (Loss) Per
Common Share:
Primary:
Income (Loss) Before
Extraordinary Item.... $ 1.05 $ 0.61 $ 0.13 $ 0.03 $ (0.71) $ 0.56 $ 0.52
Extraordinary Item..... (0.01) (0.40) (0.30) -- -- -- (0.01)
---------- ---------- ---------- ----------- ---------- ---------- ----------
Net Income (Loss)..... $ 1.04 $ 0.21 $ (0.17) $ 0.03 $ (0.71) $ 0.56 $ 0.51
========== ========== ========== =========== ========== ========== ==========
Fully Diluted:
Income (Loss) Before
Extraordinary Item.... $ 1.05 $ 0.61 $ 0.11 $ 0.05 $ (0.24) $ 0.56 $ 0.52
Extraordinary Item..... (0.01) (0.40) (0.17) -- -- -- (0.01)
---------- ---------- ---------- ----------- ---------- ---------- ----------
Net Income (Loss)...... $ 1.04 $ 0.21 $ (0.06) $ 0.05 $ (0.24) $ 0.56 $ 0.51
========== ========== ========== =========== ========== ========== ==========
Weighted Average Common
and Common Share
Equivalents
Outstanding:
Primary................ 9,939,454 7,333,864 9,453,494 10,025,704 5,505,652 9,954,979 9,932,331
Fully Diluted.......... 9,943,754 7,333,864 16,911,580 18,161,798 13,641,746 9,954,979 9,932,331
BALANCE SHEET DATA:
Working Capital........ $ 53,445 $ 43,016 $ 37,231 $ 29,179 $ 28,691 $ 59,111 $ 49,352
Total Assets........... 133,977 125,725 116,221 104,534 105,289 140,153 127,123
Long-Term Obligations,
Less Current
Maturities............ 63,965 65,212 86,719 68,569 71,298 63,952 64,689
Redeemable Preferred
Stock................. -- -- -- 6,829 6,829 -- --
Exchangeable
Warrants(6)........... -- -- 2,771 -- -- -- --
Common Stockholders'
Equity (Deficit)...... 37,676 27,424 (5,143) (2,979) (3,267) 43,329 32,397
</TABLE>
59
<PAGE>
- --------
(1) Reflects the difference between the fair value and the price paid for Data
Documents Common Stock issued to an employee and a director in the second
quarter of 1995.
(2) Relates to $1,863,000 of plant consolidation costs in connection with the
cessation of operations at two of Data Documents' manufacturing facilities
and the $2,345,000 writedown of the carrying values of certain real estate
property in connection with the sale and leaseback of five other
manufacturing facilities.
(3) In November 1994, Data Documents incurred an extraordinary charge of
$2,795,000 net of income tax benefit of $1,787,000 for the write-off of
unamortized deferred financing costs and unamortized original issue
discount and certain termination fees and costs associated with the early
termination of debt in connection with the issuance of the DDI 13 1/2%
Senior Secured Notes (the "DDI Senior Notes").
(4) In November 1995, Data Documents incurred an extraordinary charge of
$2,921,000 net of income tax benefit of $1,790,000 for the write-off of
unamortized deferred financing costs, unamortized original issue discount
and prepayment fees associated with the prepayment of $24,000,000 of DDI
Senior Notes.
(5) In June 1996, Data Documents incurred an extraordinary charge of $54,000
net of income tax benefit of $34,000 for the write-off of unamortized
deferred financing costs, unamortized original issue discount, and certain
premium on reacquisition associated with the repurchase of $500,000 of DDI
Senior Notes.
(6) Exchangeable warrants include the present value of Data Documents
outstanding warrants, which were exchangeable, under certain
circumstances, for an aggregate of $4 million principal amounts of DDI
Senior Notes or $4 million cash. This exchangeability feature was
terminated upon completion of the Data Documents' initial public offering.
60
<PAGE>
CORPORATE EXPRESS AND DATA DOCUMENTS
UNAUDITED COMBINED AND PRO FORMA FINANCIAL STATEMENTS
The unaudited Historical Combined Statements of Operations are based upon
the historical financial statements of Corporate Express and Data Documents
which are included or incorporated by reference in this Proxy Statement and
Prospectus 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 for the six months ended August 30, 1997 and
August 31, 1996 and for the years ended March 1, 1997, March 2, 1996 and
February 25, 1995 with the results of operations of Data Documents for the six
months ended June 30, 1997 and June 30, 1996 and for the years ended December
31, 1996, December 31, 1995 and December 31, 1994. For purposes of the
combined presentation, certain conforming accounting adjustments and
reclassifications have been made to the Data Documents financial information
to be consistent with the Corporate Express presentation.
The unaudited Pro Forma Combined Balance Sheet presents the combined
financial position of Corporate Express as of August 30, 1997 with the
financial position of Data Documents as of June 30, 1997 assuming the Merger
was consummated on August 30, 1997.
The unaudited Pro Forma Combined Statements of Operations gives effect to
the proposed Merger by combining the results of operations of Corporate
Express for the years ended March 1, 1997, March 2, 1996, and February 25,
1995 and the six months ended August 30, 1997 and August 31, 1996 with the
results of operations of Data Documents for the years ended December 31, 1996,
1995 and 1994 and the six months ended June 30, 1997 and June 30, 1996
assuming the Merger was consummated as of the beginning of the earliest period
presented.
The unaudited Pro Forma Combined Balance Sheet and the unaudited Pro Forma
Combined Statements of Operations exclude transaction costs and certain
estimated consolidation costs and do not reflect the planned retirement of
Data Documents' senior subordinated notes following the Merger and related
write-off of capitalized debt costs and original issue discount.
61
<PAGE>
CORPORATE EXPRESS AND DATA DOCUMENTS, INC.
PRO FORMA COMBINED BALANCE SHEET
AUGUST 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE
EXPRESS
CORPORATE AND
EXPRESS DATA
AND DOCUMENTS
CORPORATE DATA DATA DOCUMENTS PRO FORMA PRO FORMA
EXPRESS DOCUMENTS COMBINED ADJUSTMENTS COMBINED
---------- --------- -------------- ----------- ----------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equiva-
lents................ $ 39,290 $ 13,300 $ 52,590 52,590
Receivables, net...... 569,376 34,152 603,528 603,528
Inventories........... 201,354 38,183 239,537 (5,508)(1) 234,029
Other current assets.. 64,695 1,962 66,657 2,148 (2) 68,805
---------- -------- ---------- -------- ----------
Total current as-
sets............... 874,715 87,597 962,312 (3,360) 958,952
Property and equipment,
net.................... 280,580 37,623 318,203 318,203
Goodwill, net........... 680,396 9,531 689,927 689,927
Other assets, net....... 71,274 5,402 76,676 76,676
---------- -------- ---------- -------- ----------
Total assets........ $1,906,965 $140,153 $2,047,118 $ (3,360) $2,043,758
========== ======== ========== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 307,722 $ 16,383 $ 324,105 $ 324,105
Accrued liabilities... 105,638 11,156 116,794 116,794
Accrued purchase
costs................ 11,307 11,307 11,307
Accrued merger and re-
lated costs.......... 12,292 12,292 12,292
Current portion of
long-term debt and
capital leases....... 25,976 947 26,923 26,923
---------- -------- ---------- -------- ----------
Total current lia-
bilities........... 462,935 28,486 491,421 -- 491,421
Capital lease obliga-
tions.................. 11,398 11,398 11,398
Long-term debt.......... 626,216 63,952 690,168 690,168
Deferred income taxes... 38,350 2,489 40,839 40,839
Minority interest in
subsidiaries........... 22,285 22,285 22,285
Other non-current lia-
bilities............... 13,178 1,897 15,075 15,075
---------- -------- ---------- -------- ----------
Total liabilities... 1,174,362 96,824 1,271,186 -- 1,271,186
Shareholders' equity:
Common stock.......... 26 10 36 (8)(3) 28
Additional paid-in
capital.............. 666,461 32,022 698,483 8 (3) 698,491
Retained earnings..... 72,811 11,503 84,314 (3,360)(4) 80,954
Stockholder notes re-
ceivable............. (206) (206) (206)
Foreign currency
translation adjust-
ments................ (6,695) (6,695) (6,695)
---------- -------- ---------- -------- ----------
Total shareholders'
equity............. 732,603 43,329 775,932 (3,360) 772,572
---------- -------- ---------- -------- ----------
Total liabilities
and shareholders'
equity............. $1,906,965 $140,153 $2,047,118 $ (3,360) $2,043,758
========== ======== ========== ======== ==========
</TABLE>
- --------
(1) Conform DDI from LIFO basis inventory valuation to a FIFO basis inventory
valuation consistent with CEI accounting policies.
(2) Income tax effect of the above pro forma adjustment at the statutory tax
rate.
(3) To adjust for the difference between the DDI common stock and CEI common
stock par values.
(4) Retained earnings impact of the above pro forma adjustments and related
income tax effects.
62
<PAGE>
CORPORATE EXPRESS AND DATA DOCUMENTS
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 1, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CORPORATE
CORPORATE EXPRESS
EXPRESS AND
AND DATA DOCUMENTS
CORPORATE DATA DATA DOCUMENTS PRO FORMA PRO FORMA
EXPRESS DOCUMENTS COMBINED ADJUSTMENTS COMBINED
---------- --------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net sales............... $3,196,056 $246,496 $3,442,552 $3,442,552
Cost of sales........... 2,417,746 181,058 2,598,804 $ 2,719 (2) 2,601,523
---------- -------- ---------- ------- ----------
Gross profit.......... 778,310 65,438 843,748 (2,719) 841,029
Warehouse operating and
selling expenses....... 562,879 31,138 594,017 594,017
Corporate general and
administrative
expenses............... 95,101 7,039 102,140 102,140
Merger and other
nonrecurring charges... 19,840 -- 19,840 19,840
---------- -------- ---------- ------- ----------
Operating profit...... 100,490 27,261 127,751 (2,719) 125,032
Interest expense, net... 26,949 9,751 36,700 36,700
Other income............ (244) -- (244) (244)
---------- -------- ---------- ------- ----------
Income before income
taxes................ 73,785 17,510 91,295 (2,719) 88,576
Income tax expense...... 33,649 7,086 40,735 (1,060)(3) 39,675
---------- -------- ---------- ------- ----------
Income before minority
interest............. 40,136 10,424 50,560 (1,659) 48,901
Minority interest....... (1,860) -- (1,860) (1,860)
---------- -------- ---------- ------- ----------
Income from continuing
operations........... $ 41,996 $ 10,424 $ 52,420 $(1,659) $ 50,761
========== ======== ========== ======= ==========
Pro forma income from
continuing operations
(4).................... $ 49,046
==========
Weighted average common
and common equivalent
shares outstanding:
(1).................... 139,968
Pro forma income from
continuing operations
per common share(4).... $ 0.35 (5)
</TABLE>
- --------
(1) Weighted average common shares outstanding reflects the conversion of Data
Documents common stock into 1.0 shares of Corporate Express common stock.
(2) Conform Data Documents from LIFO basis inventory valuation to a FIFO basis
inventory valuation consistent with Corporate Express accounting policies.
(3) Tax effects of the pro forma adjustment.
(4) Pro forma income from continuing operations reflects the additional taxes
that would be incurred to treat a subchapter S acquisition as if this
acquired company was a C corporation.
(5)Excludes transaction costs and consolidation costs of the merger.
63
<PAGE>
CORPORATE EXPRESS AND DATA DOCUMENTS
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 2, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
CORPORATE
CORPORATE EXPRESS
EXPRESS AND
AND DATA DOCUMENTS
CORPORATE DATA DATA DOCUMENTS PRO FORMA PRO FORMA
EXPRESS DOCUMENTS COMBINED ADJUSTMENTS COMBINED
---------- --------- -------------- ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales............... $1,890,639 $ 242,238 $ 2,132,877 $ 2,132,877
Cost of sales........... 1,417,366 186,011 1,603,377 $ (1,872)(2) 1,601,505
Merger related inventory
provisions............. 5,952 5,952 5,952
---------- --------- ----------- -------- -----------
Gross profit........... 467,321 56,227 523,548 1,872 525,420
Warehouse operating and
selling expenses....... 342,581 28,265 370,846 370,846
Corporate general and
administrative
expenses............... 49,742 7,225 56,967 56,967
Merger and other
nonrecurrring charges.. 36,838 -- 36,838 36,838
---------- --------- ----------- -------- -----------
Operating profit....... 38,160 20,737 58,897 1,872 60,769
Interest expense, net... 17,968 13,335 31,303 31,303
Other income............ (1,786) -- (1,786) (1,786)
---------- --------- ----------- -------- -----------
Income before income
taxes................. 21,978 7,402 29,380 1,872 31,252
Income tax expense...... 13,766 3,127 16,893 730(3) 17,623
---------- --------- ----------- -------- -----------
Income before minority
interest.............. 8,212 4,275 12,487 1,142 13,629
Minority interest....... 1,436 -- 1,436 1,436
---------- --------- ----------- -------- -----------
Income from continuing
operations............. $ 6,776 $ 4,275 $ 11,051 $ 1,142 $ 12,193
========== ========= =========== ======== ===========
Pro forma income from
continuing operations.. $ 11,782
===========
Weighted average common
and common equivalent
shares
outstanding:(1)........ 117,742
Pro forma income from
continuing operations
per common share(4).... $ 0.10
</TABLE>
- --------
(1) Weighted average common shares outstanding reflects the conversion of DDI
common stock into 1.0 shares of CEI common stock.
(2) Conform DDI from LIFO basis inventory valuation to a FIFO basis inventory
valuation consistent with CEI accounting policies.
(3) Tax effects of the pro forma adjustment.
(4) Pro forma net reflects the additional taxes that would be incurred to
treat a subchapter S acquisition as if this acquired company was a C
corporation.
64
<PAGE>
CORPORATE EXPRESS AND DATA DOCUMENTS
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 25, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CORPORATE
CORPORATE EXPRESS
EXPRESS AND
AND DATA DOCUMENTS
CORPORATE DATA DATA DOCUMENTS PRO FORMA PRO FORMA
EXPRESS DOCUMENTS COMBINED ADJUSTMENTS COMBINED
---------- --------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net sales............... $1,145,151 $193,626 $1,338,777 $1,338,777
Cost of sales........... 855,361 148,797 1,004,158 $(388)(2) 1,003,770
---------- -------- ---------- ----- ----------
Gross profit.......... 289,790 44,829 334,619 388 335,007
Warehouse operating and
selling expenses....... 219,213 25,767 244,980 244,980
Corporate general and
administrative
expenses............... 29,624 6,962 36,586 36,586
Merger and other
nonrecurrring charges.. -- -- -- --
---------- -------- ---------- ----- ----------
Operating profit...... 40,953 12,100 53,053 388 53,441
Interest expense, net... 16,915 8,735 25,650 25,650
Other income............ (562) -- (562) (562)
---------- -------- ---------- ----- ----------
Income before income
taxes................ 24,600 3,365 27,965 388 28,353
Income tax expense...... 8,294 1,533 9,827 151 (3) 9,978
---------- -------- ---------- ----- ----------
Income before minority
interest............. 16,306 1,832 18,138 237 18,375
Minority interest....... 69 -- 69 69
---------- -------- ---------- ----- ----------
Income from continuing
operations............. $ 16,237 $ 1,832 $ 18,069 $ 237 $ 18,306
========== ======== ========== ===== ==========
Pro forma income from
continuing
operations(4).......... $ 17,579
==========
Weighted average common
and common equivalent
shares outstanding:(1)
Primary............... 90,447
Fully diluted......... 97,905
Pro forma income from
continuing operations
per common share:(4)
Primary............... $ 0.18
Fully diluted......... $ 0.17
</TABLE>
- --------
(1) Weighted average common shares outstanding reflects the conversion of DDI
common stock into 1.0 shares of CEI common stock.
(2) Conform DDI from LIFO basis inventory valuation to a FIFO basis inventory
valuation consistent with CEI accounting policies.
(3) Tax effects of the pro forma adjustment.
(4) Pro forma income from continuing operations reflects the additional taxes
that would be incurred to treat a subchapter S acquisition as if this
acquired company was a C corporation.
65
<PAGE>
CORPORATE EXPRESS AND DATA DOCUMENTS
PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CORPORATE
CORPORATE EXPRESS
EXPRESS AND
AND DATA DOCUMENTS
CORPORATE DATA DATA DOCUMENTS PRO FORMA PRO FORMA
EXPRESS DOCUMENTS COMBINED ADJUSTMENTS COMBINED
---------- --------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net sales............... $1,854,976 $126,394 $1,981,370 $1,981,370
Cost of sales........... 1,418,524 93,338 1,511,862 $ 327 (2) 1,512,189
---------- -------- ---------- ----- ----------
Gross profit.......... 436,452 33,056 469,508 (327) 469,181
Warehouse operating and
selling expenses....... 320,900 15,767 336,667 336,667
Corporate general and
administrative
expenses............... 55,480 3,242 58,722 58,722
---------- -------- ---------- ----- ----------
Operating profit...... 60,072 14,047 74,119 (327) 73,792
Interest expense, net... 19,194 4,607 23,801 23,801
---------- -------- ---------- ----- ----------
Income before income
taxes................ 40,878 9,440 50,318 (327) 49,991
Income tax expense...... 17,331 3,818 21,149 (128)(3) 21,021
---------- -------- ---------- ----- ----------
Income before minority
interest............. 23,547 5,622 29,169 (199) 28,970
Minority interest....... (1,042) -- (1,042) (1,042)
---------- -------- ---------- ----- ----------
Income from continuing
operations............. $ 24,589 $ 5,622 $ 30,211 $(199) $ 30,012
========== ======== ========== ===== ==========
Weighted average common
and common equivalent
shares
outstanding:(1)........ 143,741
Income from continuing
operations per common
share:................. $ 0.21
</TABLE>
- --------
(1) Weighted average common shares outstanding reflects the conversion of DDI
common stock into 1.0 shares of CEI common stock.
(2) Conform DDI from LIFO basis inventory valuation to a FIFO basis inventory
valuation consistent with CEI accounting policies.
(3) Tax effects of the pro forma adjustment.
66
<PAGE>
CORPORATE EXPRESS AND DATA DOCUMENTS
PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CORPORATE
CORPORATE EXPRESS
EXPRESS AND
AND DATA DOCUMENTS
CORPORATE DATA DATA DOCUMENTS PRO FORMA PRO FORMA
EXPRESS DOCUMENTS COMBINED ADJUSTMENTS COMBINED
---------- --------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net sales............... $1,405,870 $124,678 $1,530,548 $1,530,548
Cost of sales........... 1,058,727 92,242 1,150,969 $ 1,171(2) 1,152,140
---------- -------- ---------- ------- ----------
Gross profit........... 347,143 32,436 379,579 (1,171) 378,408
Warehouse operating and
selling expenses....... 249,281 15,406 264,687 264,687
Corporate general and
administrative
expenses............... 44,124 3,396 47,520 47,520
---------- -------- ---------- ------- ----------
Operating profit....... 53,738 13,634 67,372 (1,171) 66,201
Interest expense, net... 10,669 4,960 15,629 15,629
---------- -------- ---------- ------- ----------
Income before income
taxes................. 43,069 8,674 51,743 (1,171) 50,572
Income tax expense...... 17,670 3,520 21,190 (457)(3) 20,733
---------- -------- ---------- ------- ----------
Income before minority
interest.............. 25,399 5,154 30,553 (714) 29,839
Minority interest....... (100) -- (100) (100)
---------- -------- ---------- ------- ----------
Income from continuing
operations............. $ 25,499 $ 5,154 $ 30,653 $ (714) $ 29,939
========== ======== ========== ======= ==========
Pro Forma income from
continuing
operations(4).......... $ 29,282
==========
Weighted average common
and common equivalent
shares
outstanding:(1)........ 138,199
Pro forma income from
continuing operations
per common share(4).... $ 0.21
</TABLE>
- --------
(1) Weighted average common shares outstanding reflects the conversion of DDI
common stock into 1.0 shares of CEI common stock.
(2) Conform DDI from LIFO basis inventory valuation to a FIFO basis inventory
valuation consistent with CEI accounting policies.
(3) Tax effects of the pro forma adjustment.
(4) Pro forma income from continuing operations reflects the additional taxes
that would be incurred to treat a subchapter S acquisition as if this
acquired company was a C corporation.
67
<PAGE>
CORPORATE EXPRESS AND DATA DOCUMENTS
HISTORICAL COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
------------------------------------ ----------------------
MARCH 1, MARCH 2, FEBRUARY 25, AUGUST 30, AUGUST 31,
1997 1996 1995 1997 1996
---------- ---------- ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales............... $3,442,552 $2,132,877 $1,338,777 $1,981,370 $1,530,548
Cost of sales........... 2,601,523 1,601,505 1,003,770 1,512,189 1,152,140
Merger related inventory
provisions............. -- 5,952 -- -- --
---------- ---------- ---------- ---------- ----------
Gross profit........... 841,029 525,420 335,007 469,181 378,408
Warehouse operating and
selling expenses....... 594,017 370,846 244,980 336,667 264,687
Corporate general and
admin. expense......... 102,140 56,967 36,586 58,722 47,520
Merger and other
nonrecurring charges... 19,840 36,838 -- -- --
---------- ---------- ---------- ---------- ----------
Operating profit....... 125,032 60,769 53,441 73,792 66,201
Interest expense, net... 36,700 31,303 25,650 23,801 15,629
Other income............ (244) (1,786) (562) -- --
---------- ---------- ---------- ---------- ----------
Income before income
taxes................. 88,576 31,252 28,353 49,991 50,572
Income tax expense...... 39,675 17,623 9,978 21,021 20,733
---------- ---------- ---------- ---------- ----------
Income before minority
interest.............. 48,901 13,629 18,375 28,970 29,839
Minority interest....... (1,860) 1,436 69 (1,042) (100)
---------- ---------- ---------- ---------- ----------
Income from continuing
operations............ 50,761 12,193 18,306 30,012 29,939
Discontinued operations
Loss from discontinued
operations............. -- (1,225) (327) -- --
---------- ---------- ---------- ---------- ----------
Income before
extraordinary item.... 50,761 10,968 17,979 30,012 29,939
Extraordinary item:
Extraordinary item..... (54) (2,921) (2,209) -- (54)
---------- ---------- ---------- ---------- ----------
Net income (1) (3)...... $ 50,707 $ 8,047 $ 15,770 $ 30,012 $ 29,885
========== ========== ========== ========== ==========
Pro forma net income
(2).................... $ 48,992 $ 7,636 $ 15,043 $ 30,012 $ 29,228
========== ========== ========== ========== ==========
Weighted average common
and common equivalent
shares outstanding:
Primary................ 139,968 117,742 90,447 143,741 138,199
Fully diluted.......... 139,973 117,742 97,905 143,741 138,199
Pro forma per common
share:
Pro forma continuing
operations............ $ 0.35 $ 0.10 $ 0.18 $ 0.21 $ 0.21
Discontinued
operations............ -- (0.01) (0.01) -- --
Extraordinary item..... -- (0.02) (0.02) -- --
---------- ---------- ---------- ---------- ----------
Pro forma net income
(2) (3).............. $ 0.35 $ 0.07 $ 0.15 $ 0.21 $ 0.21
========== ========== ========== ========== ==========
Fully diluted:
Pro forma continuing
operations............ $ 0.35 $ 0.10 $ 0.17 $ 0.21 $ 0.21
Discontinued
operations............ -- (0.01) (0.01) -- --
Extraordinary item..... -- (0.02) (0.02) -- --
---------- ---------- ---------- ---------- ----------
Pro forma net income
(2) (3)............... $ 0.35 $ 0.07 $ 0.14 $ 0.21 $ 0.21
========== ========== ========== ========== ==========
Balance Sheet data:
Working capital........ $ 441,837 $ 295,053 $ 199,870 $ 467,531 $ 373,943
Total assets........... 1,972,693 1,147,434 757,748 2,043,758 1,498,263
Long-term debt and
capital lease
obligations........... 697,215 228,611 275,059 701,566 604,074
Shareholders' equity
and redeemable
preferred............. 728,074 548,190 251,875 772,572 566,899
</TABLE>
- --------
(1) Reflects impact of adjustments to conform Data Documents from LIFO basis
inventory to a FIFO basis inventory valuation, net of tax, to increase
(decrease) net income by ($1,659,000), $1,142,000, $237,000, ($199,000),
and ($714,000) for the years ended March 1, 1997, March 2, 1996, February
25, 1995 and the six months ended August 30, 1997 and August 31, 1996,
respectively.
(2) Pro forma net income reflects the additional taxes that would be incurred
to treat a subchapter S acquisition as if the acquired company was a C
corporation.
(3) Excludes transaction costs and consolidation costs of the Merger.
68
<PAGE>
PRINCIPAL STOCKHOLDERS
CORPORATE EXPRESS
The following table sets forth, as of October 8, 1997 (unless otherwise
noted), certain information with respect to the beneficial ownership of Common
Stock, for (i) each person (or group of affiliated persons) who, insofar as
Corporate Express has been able to ascertain, beneficially owned more than 5%
of the outstanding shares of Common Stock of Corporate Express, (ii) each
director and named executive officer, and (iii) all current directors and
executive officers as a group. Corporate Express has relied on information
received from each of the shareholders as to beneficial ownership, including
information contained on Schedules 13G and Forms 3, 4 and 5.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE THE MERGER(2) AFTER THE MERGER(2)
----------------------------------------------
NAME AND ADDRESS OF HOLDER(1) NUMBER PERCENT NUMBER PERCENT
- ----------------------------- ------------ ---------------------- ----------
<S> <C> <C> <C> <C>
FMR Corp.(3)
82 Devonshire Street
Boston, MA 02109.................. 15,244,650 12.0% 15,244,650 11%
Pumam Investments(4)
One Post Office Square
Boston, MA 02109.................. 12,552,024 9.9 12,552,024 9
T. Rowe Price Associates, Inc.(5)
100 E. Pratt Street
Baltimore, MD 21202............... 7,608,298 6.0 7,608,298 5.5
DLJ Affiliates(6)
277 Park Avenue, 21st Floor
New York, NY 10172................ 1,411,615 1.1 1,411,615 1
Jirka Rysavy(7).................... 3,886,764 3.0 3,886,764 2.7
Robert L. King(8).................. 1,644,949 1.2 1,644,949 1
Gary M. Jacobs(9).................. 1,079,791 * 1,079,791 *
Sam Leno(10)....................... 321,942 * 321,942 *
Mark Hoffman....................... 10,425 * 10,425 *
Tom Frank.......................... 500 * 500 *
Janet A. Hickey(11)................ 1,457,649 1.1 1,457,649 1
Mo Siegel(12)...................... 15,000 * 15,000 *
James Argyropoulos(13)............. 956,017 * 956,017 *
All directors and executive
officers as a group (9 persons)... 9,373,037 6.9 9,373,037 6.5
</TABLE>
- --------
* Less than 1.0%.
(1) Except as otherwise noted, the address of the holder is in care of
Corporate Express.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days upon the exercise of options or warrants. Each
beneficial owner's percentage ownership is determined by assuming that
options or warrants that are held by that person (but not those held by
any other person) that are exercisable within 60 days of October 8, 1997
have been exercised. Unless otherwise noted, Corporate Express believes
that all persons named in the table have sole voting and investment power
with respect to all shares of Common Stock beneficially owned by them.
(3) Represents ownership as of May 30, 1997. Includes 285,000 shares of
Common Stock issuable upon conversion of Corporate Express' 4 1/2%
Convertible Subordinated Debentures due July 2000.
(4) Represents ownership as of March 31, 1997.
(5) Represents ownership as of May 30, 1997. These securities are owned by
various individual and institutional investors which T. Rowe Price
Associates, Inc. ("Price Associates") serves as investment adviser with
power to direct investments and/or sole power to vote the securities. For
purposes of the reporting requirements of the Exchange Act, Price
Associates is deemed to be a beneficial owner of such securities;
however, Price Associates expressly disclaims that it is, in fact, the
beneficial owner of such securities.
69
<PAGE>
(6) Includes as of May 30, 1997: (a) 720,393 shares of Common Stock owned by
Sprout Capital VI, L.P.; (b) 375,927 shares of Common Stock owned by
Sprout Growth II, L.P.; (c) 75,578 shares of Common Stock owned by DLJ
Capital Corporation; (d) 23,229 shares of Common Stock owned by DLJ
Venture Capital Fund II, L.P. (collectively, the "Sprout Entities"); (e)
22,727 shares of Common Stock held by DLJ First ESC L.L.C., an employee
securities corporation of which DLJ LBO Plans Management Corporation, an
affiliate of DLJ Securities Corporation, is the manager and has voting
and dispositive power; (f) 180,755 shares of Common Stock owned by ML
Venture Partners II, L.P.; (g) 11,500 shares of Common Stock owned by
Donaldson, Lufkin & Jenrette, Inc.; and (h) 1,506 shares of Common Stock
owned by DLJ Capital Associates VI, Inc. Does not include shares of
Common Stock held by employees of DLJ Securities Corporation and its
affiliates. DLJ Securities Corporation and its affiliates disclaim
beneficial ownership of all shares held directly or indirectly by its
employees.
(7) Includes: (a) 898,014 shares of Common Stock owned by Synergom, Inc., a
Colorado corporation, of which Mr. Rysavy is the sole shareholder; (b)
525,000 shares of Common Stock owned by Transecon, Inc., a Colorado
corporation, of which Mr. Rysavy is the majority shareholder; (c) 112,500
shares of Common Stock owned by Polly Source, Inc., a Colorado
corporation, of which Mr. Rysavy is the sole shareholder; (d) warrants to
purchase 562,500 shares of Common Stock for $4.89 per share which expire
on January 31, 2001; (e) options to purchase 1,125,000 shares of Common
Stock for $5.33 per share which expire on June 13, 2006; and (f) options
to purchase 393,750 shares of Common Stock for $13.33 per share which
expire on June 30, 2007.
(8) Includes: (a) options to purchase 547,500 shares of Common Stock for
$3.55 per share which expire on September 1, 2000; (b) options to
purchase 787,500 shares of Common Stock for $5.33 per share which expire
June 13, 2006; and (c) options to purchase 281,250 shares of Common Stock
for $13.33 per share which expire on August 29, 2007.
(9) Includes: (a) warrants to purchase 112,500 shares of Common Stock for
$1.78 per share which expire on February 28, 2000; (b) options to
purchase 16,875 shares of Common Stock for $0.45 per share which expire
on November 16, 1999; (c) options to purchase 59,766 shares of Common
Stock for $4.89 per share which expire on February 1, 2001; (d) options
to purchase 450,000 shares of Common Stock for $5.33 per share which
expire on June 13, 2006; and (e) options to purchase 168,750 shares of
Common Stock for $13.33 per share which expire on August 29, 2007.
(10) Includes: (a) options to purchase 152,250 shares of Common Stock for
$13.33 per share which expire on August 29, 2002; and (b) options to
purchase 168,750 shares of Common Stock for $13.33 per share which
expire on August 29, 2007.
(11) Includes, as of May 30, 1997, 26,315 shares of Common Stock owned by Ms.
Hickey and 4,719 shares of Common Stock owned by the JHT 1994 Limited
Partnership which are deposited in a voting trust. Also includes options
to purchase 15,000 shares of Common Stock for $26.42 per share which
expire on August 8, 2006. Ms. Hickey is a General Partner of the JHT
1994 Limited Partnership. Also includes shares of Common Stock owned by
the Sprout Entities (see note 6). Ms. Hickey is a director of Corporate
Express and a general partner of several limited partnerships
comprising, in part, the Sprout Group. Ms. Hickey shares voting and
investment power with respect to the shares owned by the Sprout Group
and may be deemed to be the beneficial owner of such shares. Ms. Hickey
disclaims beneficial ownership as to the shares owned by the Sprout
Entities. Does not include shares of Common Stock held by employees of
DLJ Securities Corporation and its affiliates. DLJ Securities
Corporation and its affiliates disclaim beneficial ownership of all
shares held directly or indirectly by its employees.
(12) Represents options to purchase 15,000 shares of Common Stock for $26.42
per share which expire on August 8, 2006.
(13) Includes: (a) 848,817 shares of Common Stock owned by the James P.
Argyropoulos Trust dated August 8, 1991; (b) 60,000 shares of Common
Stock owned by The James P. Argyropoulos IRA Account; (c) 20,200 shares
of Common Stock owned by Argyropoulos Investors, G.P.; and (d) 9,000
shares of Common Stock each owned by The Peter J. Argyropoulos Trust,
The Nicholas J. Argyropoulos Trust and The Alexander J. Argyropoulos
Trust.
70
<PAGE>
DATA DOCUMENTS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 14, 1997 (i) by each person who is
known by Data Documents to own beneficially more than 5% of Data Documents
Common Stock, (ii) by each of Data Documents directors, (iii) by each Named
Executive Officer and (iv) by all directors and executive officers as a group.
The number of shares beneficially owned by each person shown in the table
below is determined under rules of the Securities and Exchange Commission, and
such information is not necessarily indicative of beneficial ownership for any
other purpose. Unless otherwise noted, the address of each such person is that
of Data Documents at 4205 South 96th Street, Omaha, Nebraska 68127.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF DATA DOCUMENTS BENEFICIAL OWNERSHIP
COMMON STOCK OF CORPORATE EXPRESS
AS OF OCTOBER 14, COMMON STOCK
1997 AFTER THE MERGER(12)
-------------------- --------------------
NUMBER OF NUMBER OF
SHARES (1)(2) PERCENT SHARES (1)(2) PERCENT
------------- ------- ------------- -------
<S> <C> <C> <C> <C>
Walter J. Kearns(3)................. 849,443 8.8% 849,443 *
A. Robert Thomas(4)................. 43,333 * 43,333 *
Morris W. Caudle(5)................. 351,028 3.6 351,028 *
Allyn D. Plejdrup(6)................ 358,428 3.7 358,428 *
William Rinehart(7)................. 101,762 1.1 101,762 *
Joseph C. Addison(8)................ 355,809 3.7 355,809 *
Thomas W. Blumenthal(9)............. 91,987 * 91,987 *
Robert W. Cruickshank(10)........... 47,913 * 47,913 *
All directors and executive officers
as a group (8 persons)(11)......... 2,169,878 22.2 2,169,878 1.5%
</TABLE>
- --------
* Indicates ownership of less than one percent.
(1) The shares of Common Stock underlying options, warrants, rights or
convertible securities that are exercisable as of October 14, 1997 or
that will become exercisable within 60 days thereafter are deemed to be
outstanding for the purpose of calculating the beneficial ownership of
the holder of such options, warrants, rights or convertible securities,
but are not deemed to be outstanding for the purpose of computing the
beneficial ownership of any other person.
(2) Unless otherwise noted, sole voting and dispositive power are possessed
with respect to all shares of Common Stock shown.
(3) Includes 5,200 shares held by members of Mr. Kearns' family, as to which
Mr. Kearns disclaims beneficial ownership. Also includes 8,000 shares of
Common Stock issuable upon exercise of options by Mr. Kearns.
(4) Includes 33,333 shares of Common Stock issuable upon exercise of options
by Mr. Thomas.
(5) Includes 76,200 shares held by members of Mr. Caudle's family, as to
which Mr. Caudle disclaims beneficial ownership. Also includes 3,333
shares of Common Stock issuable upon exercise of options by Mr. Caudle.
(6) Includes 3,333 shares of Common Stock issuable upon exercise of options
by Mr. Plejdrup. Mr. Plejdrup's address is Data Documents, 3403 Dan
Morton Drive, Dallas, Texas 75236-1068.
(7) Includes 50,047 shares held by members of Mr. Rinehart's family, as to
which Mr. Rinehart disclaims beneficial ownership. Also includes 1,667
shares of Common Stock issuable upon exercise of options by Mr. Rinehart.
Mr. Rinehart recently retired from Data Documents on August 1, 1997.
(8) Mr. Addison's address is 1118 North 122 Street, Omaha, Nebraska 68154.
(9) Includes 3,400 shares held by members of Mr. Blumenthal's family, as to
which Mr. Blumenthal disclaims beneficial ownership. Also includes 17,666
shares of Common Stock issuable upon exercise of options by Mr.
Blumenthal. Mr. Blumenthal's address is c/o The Baupost Group, 44 Brattle
Street, Second Floor, Cambridge, Massachusetts 02138.
(10) Includes 1,000 shares of Common Stock issuable upon exercise of options
by Mr. Cruickshank. Mr. Cruickshank's address is P.O. Box 395, New
Canaan, Connecticut 06840.
71
<PAGE>
(11) Includes 73,331 shares of Common Stock issuable upon exercise of options
by executive officers and directors as a group. Also includes, for
certain executive officers and directors, shares held by family members,
as to which such executive officers and directors disclaim beneficial
ownership.
(12) Based upon an Exchange Ratio of 1 to 1. The Exchange Ratio is subject to
adjustment under certain circumstances. See "The Merger--Merger
Consideration" and "--Adjustments to Merger consideration".
72
<PAGE>
DESCRIPTION OF CORPORATE EXPRESS CAPITAL STOCK
GENERAL
Corporate Express is authorized to issue 300,000,000 shares of Common Stock,
par value $.0002 per share, 25,000,000 shares of preferred stock, par value
$.0001 per share (the "Preferred Stock") and 3,000,000 shares of nonvoting
common stock, par value $.0002 per share. All outstanding shares of Common
Stock are fully paid and nonassessable. As of July 1, 1997, there were
129,713,444 shares of Common Stock outstanding and no shares of Preferred
Stock or nonvoting common stock outstanding.
The following summary description of Corporate Express' capital stock does
not purport to be complete and is subject to and qualified in its entirety by
the description of Corporate Express' capital stock contained in the Corporate
Express Articles of Amendment and Restatement to the Articles of Incorporation
(the "Articles of Incorporation"), a copy of which has been filed with the
Securities and Exchange Commission. Reference is made to the Articles of
Incorporation for a detailed description of the provisions summarized below.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share owned of
record on all matters submitted to the vote of shareholders. There are no
cumulative voting rights. Accordingly, the holders of a majority of the shares
voting for the election of directors can elect all the directors if they
choose to do so, subject to voting rights, if any, of holders of Preferred
Stock, if any, to elect directors. Subject to preferences that may be
applicable to any Preferred Stock that may be issued in the future and the
restrictions on payment of dividends imposed by Corporate Express' credit
facilities and other agreements, as described in "THE SUMMARY--Dividend
Policy," the holders of Common Stock will be entitled to such dividends as may
be declared from time to time by the Board of Directors from funds legally
available therefor and will be entitled, after payment of all prior claims, to
receive, on a pro rata basis, all assets of Corporate Express upon
liquidation, dissolution or winding up of Corporate Express. The Common Stock
is not redeemable, does not have any conversion rights and is not subject to
call. Holders of shares of Common Stock generally have no preemptive rights to
maintain their respective percentage of ownership in future offers and sales
of stock by Corporate Express. The rights, preferences and privileges of
holders of Common Stock are subject to the rights, preferences and privileges
of any Preferred Stock which Corporate Express may issue in the future.
The Common Stock is listed on the Nasdaq National Market and trades under
the symbol "CEXP."
NONVOTING COMMON STOCK
Corporate Express, J.P. Morgan and certain other designated shareholders are
parties to Recapitalization Agreements dated as of December 3, 1991 and August
29, 1992, pursuant to which J.P. Morgan, or any transferee of J.P. Morgan, may
exchange its voting shares of Corporate Express' capital stock for nonvoting
shares of the same number and class to comply with regulatory constraints. If
such exchange rights are exercised, the voting shares held by J.P. Morgan, or
its transferee, would be exchanged for an equal number of shares of nonvoting
common stock. The rights of any holder of nonvoting common stock, if issued,
would be identical to the rights of the holders of Common Stock, except that
there would be no voting rights with respect to the nonvoting common stock. No
shares of nonvoting common stock have been issued.
PREFERRED STOCK
None of Corporate Express' authorized Preferred Stock is issued or
outstanding. The Board of Directors is authorized to divide the Preferred
Stock into one or more series and to determine the preferences and rights and
the qualifications, limitations or restrictions thereof including any dividend
rights, conversion rights, voting rights, redemption rights, liquidation
preferences, sinking fund provisions, the number of shares constituting the
series and the designation of such series. The Board of Directors may, without
shareholder approval, issue Preferred Stock with voting and other rights that
could adversely affect the voting power of the holders of Common Stock and
could have certain anti-takeover effects. Corporate Express has no present
plans to issue any shares of Preferred Stock.
73
<PAGE>
LIMITATIONS ON DIRECTORS' LIABILITIES AND INDEMNIFICATION
As permitted by the Colorado Business Corporation Act, the Articles of
Incorporation and Bylaws provide that no director or officer will be liable to
Corporate Express or its shareholders for monetary damages for breach of
fiduciary duty as a director or officer, except for liability (i) for any
breach of the director's or officer's duty of loyalty to Corporate Express or
its shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases, and
(iv) for any transaction from which the director or officer derives an
improper personal benefit. The effect of this provision is to eliminate the
rights of Corporate Express and its shareholders to recover monetary damages
against a director or officer for breach of the fiduciary duty of care as a
director or officer (including breaches resulting from negligent or grossly
negligent behavior), except in the situations described in clauses (i), (ii),
(iii) and (iv) above. This provision does not limit or eliminate the rights of
Corporate Express or any shareholder to seek non-monetary relief such as an
injunction or recession in the event of a breach of a director's or officer's
duty of care. The Articles of Incorporation and By-laws also provide that
Corporate Express shall, to the fullest extent permitted by law, indemnify and
advance expenses to each of its currently acting and former directors and
officers and may indemnify and advance expenses to each of its currently
acting and former employees and agents. Corporate Express has entered into
agreements to provide indemnification for Corporate Express' directors and
certain officers consistent with the Articles of Incorporation and By-laws.
Corporate Express has obtained the director's and officer's liability
insurance.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Corporate Express' Common Stock is
ChaseMellon Shareholder Services.
DESCRIPTION OF DATA DOCUMENTS CAPITAL STOCK
The authorized capital stock of Data Documents consists of 15,000,000 shares
of Common Stock, $.001 par value ("Common Stock"), and 5,000,000 shares of
Preferred Stock, $.01 par value ("Preferred Stock"). As of October 14, 1997,
9,687,780 shares of Common Stock were issued and outstanding and were held of
record by 65 stockholders. As of the same date, Data Documents held 269,607
shares of Common Stock in its treasury at no cost, and no shares of preferred
stock were outstanding. As of the same date, warrants to purchase an aggregate
of approximately 198,000 shares of Data Documents Common Stock were
outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. Subject to
preferences that may be granted to the holders of Preferred Stock, each holder
of Common Stock is entitled to share ratably in distributions to stockholders
and to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor and, in the event of the
liquidation or dissolution of Data Documents, is entitled to share ratably in
all assets of Data Documents remaining after payment of liabilities. Holders
of Common Stock have no conversion, preemptive or other subscription rights,
and there are no redemption rights or sinking fund provisions with respect to
the Common Stock. The outstanding Common Stock is, validly issued, fully paid
and non-assessable.
Additional shares of Common Stock may be issued from time to time by Data
Documents. Data Documents' Certificate of Incorporation (the "Charter")
provides that the Board of Directors has no power to alter the rights of any
outstanding shares of Common Stock. Certain other provisions of the Charter
affect the rights of holders of Common Stock and may have the effect of
delaying, deferring or preventing a change in control of Data Documents.
WARRANTS
In connection with senior notes ("Senior Notes") offered in November 1994,
Data Documents issued warrants to purchase the aggregate 1,280,455 shares of
Common Stock (the "Warrants"). Warrants to purchase 320,114 of these shares
were issued to Teachers Insurance and Annuity Association of America
("Teachers") in exchange for warrants previously issued to Teachers, and the
remainder was issued to purchasers of the Senior Notes. Holders of Warrants
are entitled to receive approximately 6.53 shares of Common Stock upon payment
of an exercise price of approximately $.002. Unless exercised, the Warrants
will automatically expire on July 15, 2002.
74
<PAGE>
The exercise price and the number of shares of Common Stock are subject to
customary anti-dilution provisions that are effective upon the occurrence of
certain events. The Warrants were issued in registered form, pursuant to two
Warrant Agreements dated as of November 28, 1994 by and between Data Documents
and NationsBank of Texas, N.A., as warrant agent. The Bank of New York has
since become the successor warrant agent.
If Data Documents consummates an initial public offering of its common
stock, the holders of the Warrants or the Common Stock received upon exercise
thereof (the "Warrant Shares") will also have the right to exercise the
Warrants, or exchange the Warrant Shares, for such number of shares of common
stock of DDI as have an equivalent fair market value to the fair market value
of the number of Warrant Shares or shares of Common Stock the Warrants are
exercisable into as of the date of such offering, as determined by an
appraisal firm of national standing.
The exercise price of the Warrants was determined by negotiation between
Data Documents and Jefferies and was not intended to bear any relationship to
any objective criteria of value. In no event should such exercise price be
regarded as an indicator of any future market price of Data Documents'
securities.
The Warrants may be exercised prior to expiration upon surrender of the
warrant certificate at the offices of the warrant agent for the Warrants, with
the subscription form on the reverse side of the warrant certificate completed
and executed as indicated, accompanied by payment of the full exercise price
(which may be cash, certified check or bank check payable to the order of Data
Documents) for the number of Warrants being exercised.
Pursuant to the Warrant Agreements, Data Documents is required to register
the issuance of the Warrant Shares upon exercise of the Warrants under the
Securities Act and to maintain a current prospectus as long as the Warrants
are exercisable and outstanding except during the 30-day period prior to and
30 days following any underwritten public offering of Data Documents' or DDI's
common stock yielding net proceeds of at least $20 million.
PREFERRED STOCK
The Board of Directors, without further action by the holders of Common
Stock, may issue shares of Preferred Stock and may fix or alter the voting
rights, redemption provisions (including sinking fund provisions), dividend
rights, dividend rates, liquidation preferences, conversion rights and the
designation of and number of shares constituting any wholly unissued series of
Preferred Stock. The issuance of Preferred Stock could adversely affect the
voting power and other rights of the holders of Common Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control
of Data Documents through a merger, tender offer, proxy contest or otherwise
by making such attempts more difficult to achieve or more costly. The Board of
Directors may issue Preferred Stock with voting and conversion rights that
could adversely affect the voting power of the holders of Common Stock. There
are no agreements or understandings for the issuance of Preferred Stock and
the Board of Directors has no present intention to issue any Preferred Stock.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Data Documents limits the liability of directors to the maximum extent
permitted by Delaware law. Delaware law provides that directors of a company
will not be personally liable for monetary damages for breach of their
fiduciary duties as directors, except for liability for (i) any breach of
their duty of loyalty to the company or its stockholders, (ii) acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (iii) unlawful payment of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law or (iv) any transaction from which the director derived an
improper personal benefit.
75
<PAGE>
Data Documents' Bylaws provide that it shall indemnify its officers,
directors, employees and other agents to the extent permitted by Delaware law.
Data Documents' Bylaws also permit it to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity, regardless of whether the Bylaws would
permit indemnification.
Data Documents has entered into agreements to indemnify its officers and
directors. These agreements, among other things, indemnify Data Documents'
officers and directors for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of Data
Documents, arising out of such person's services as an officer or director of
Data Documents, any subsidiary of Data Documents or any other company or
enterprise to which such person provides services at the request of Data
Documents. Data Documents believes that the provisions in the Charter and its
Bylaws and the indemnification agreements are necessary to attract and retain
qualified persons as officers and directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Data Documents' Common Stock is
American Stock Transfer & Trust Company.
76
<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 Data
Documents by Gibson Dunn & Crutcher LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements and financial statement schedule of
Corporate Express as of March 1, 1997 and March 2, 1996 and for the years
ended March 1, 1997, March 2, 1996 and February 25, 1995, incorporated by
reference from Corporate Express' annual report on Form 10-K into this Proxy
Statement and Prospectus, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, and have been incorporated by reference in reliance
upon the report of such firm given on their authority as experts in accounting
and auditing.
The consolidated financial statements and the related financial statement
schedules incorporated in this Proxy Statement and Prospectus by reference
from Data Documents' Annual Report on Form 10-K for the year ended December
31, 1996 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports, which are incorporated therein by reference, and have
been so incorporated by reference in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
77
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APPENDIX I
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 10, 1997
BY AND AMONG
CORPORATE EXPRESS, INC.,
IDD ACQUISITION CORP.
AND
DATA DOCUMENTS INCORPORATED
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
ARTICLE I
THE MERGER
SECTION 1.1 The Merger.................................................. 1
SECTION 1.2 Effective Time of the Merger................................ 1
ARTICLE II
THE SURVIVING AND PARENT CORPORATIONS
SECTION 2.1 Certificate of Incorporation................................ 1
SECTION 2.2 By-laws..................................................... 1
SECTION 2.3 Officers.................................................... 1
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 Conversion of Company Shares in the Merger.................. 2
SECTION 3.2 Conversion of Subsidiary Shares............................. 2
SECTION 3.3 Exchange of Certificates.................................... 2
SECTION 3.4 No Fractional Securities.................................... 4
SECTION 3.5 Options and Warrants........................................ 4
SECTION 3.6 Closing..................................................... 4
SECTION 3.7 Closing of the Company's Transfer Books..................... 5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY
SECTION 4.1 Organization and Qualification.............................. 5
SECTION 4.2 Capitalization.............................................. 5
SECTION 4.3 Subsidiaries................................................ 6
SECTION 4.4 Authority; Non-Contravention; Approvals..................... 6
SECTION 4.5 Reports and Financial Statements............................ 7
SECTION 4.6 Absence of Undisclosed Liabilities.......................... 8
SECTION 4.7 Absence of Certain Changes or Events........................ 8
SECTION 4.8 Litigation.................................................. 8
SECTION 4.9 Registration Statement and Proxy Statement.................. 8
SECTION 4.10 No Violation of Law......................................... 8
SECTION 4.11 Compliance with Agreements.................................. 9
SECTION 4.12 Taxes....................................................... 9
SECTION 4.13 Employee Benefit Plans; ERISA............................... 10
SECTION 4.14 Labor Controversies......................................... 11
SECTION 4.15 Environmental Matters....................................... 11
SECTION 4.16 Title to Assets............................................. 12
SECTION 4.17 Material Agreements......................................... 12
SECTION 4.18 Pooling Matters............................................. 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 5.1 Organization and Qualification............................ 13
SECTION 5.2 Capitalization............................................ 13
SECTION 5.3 Subsidiaries.............................................. 13
SECTION 5.4 Authority; Non-Contravention; Approvals................... 14
SECTION 5.5 Reports and Financial Statements.......................... 15
SECTION 5.6 Absence of Undisclosed Liabilities........................ 15
SECTION 5.7 Absence of Certain Changes or Events...................... 15
SECTION 5.8 Litigation................................................ 16
SECTION 5.9 Registration Statement and Proxy Statement................ 16
SECTION 5.10 No Violation of Law....................................... 16
SECTION 5.11 Compliance with Agreements................................ 16
SECTION 5.12 Taxes..................................................... 17
SECTION 5.13 Employee Benefit Plans; ERISA............................. 17
SECTION 5.14 Labor Controversies....................................... 18
SECTION 5.15 Environmental Matters..................................... 18
SECTION 5.16 Title to Assets........................................... 19
SECTION 5.17 Company Stockholders' Approval............................ 19
SECTION 5.18 No Excess Parachute Payments.............................. 19
SECTION 5.19 Trademarks and Intellectual Property Compliance........... 20
SECTION 5.20 Material Agreements....................................... 20
SECTION 5.21 Pooling Matters........................................... 20
SECTION 5.22 Transactions with Related Parties......................... 20
SECTION 5.23 Insurance................................................. 20
SECTION 5.24 Year 2000 Compliance...................................... 20
SECTION 5.25 Brokers................................................... 21
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 Conduct of Business by the Company Pending the Merger..... 21
Conduct of Business by Parent and Subsidiary Pending the
SECTION 6.2 Merger.................................................... 22
SECTION 6.3 Control of the Company's Operations....................... 22
SECTION 6.4 Control of Parent's or Subsidiary's Operations............ 22
SECTION 6.5 Acquisition Transactions.................................. 22
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Access to Information..................................... 23
SECTION 7.2 Registration Statement and Proxy Statement................ 24
SECTION 7.3 Company Stockholders' Approval............................ 24
SECTION 7.4 Affiliates of the Company................................. 25
SECTION 7.5 Nasdaq Listing............................................ 25
SECTION 7.6 Expenses and Fees......................................... 25
SECTION 7.7 Agreement to Cooperate.................................... 26
SECTION 7.8 Public Statements......................................... 26
SECTION 7.9 Option Plans and Warrants................................. 26
SECTION 7.10 Notification of Certain Matters........................... 26
</TABLE>
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SECTION 7.11 Directors' and Officers' Indemnification............... 27
Corrections to the Proxy Statement and Prospectus and
SECTION 7.12 Registration Statement................................. 28
SECTION 7.13 Employment Agreements.................................. 28
SECTION 7.14 Irrevocable Proxies.................................... 28
SECTION 7.15 Grant of Options to Company Employees.................. 28
SECTION 7.16 Tax-Free Treatment of Merger........................... 29
SECTION 7.17 Parent's Periodic Reports Following the Merger......... 29
SECTION 7.18 Employee Benefits...................................... 29
ARTICLE VIII
CONDITIONS
Conditions to Each Party's Obligation to Effect the
SECTION 8.1 Merger................................................. 29
Conditions to Obligation of the Company to Effect the
SECTION 8.2 Merger................................................. 30
Conditions to Obligations of Parent and Subsidiary to
SECTION 8.3 Effect the Merger...................................... 31
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination............................................ 32
SECTION 9.2 Effect of Termination.................................. 32
SECTION 9.3 Amendment.............................................. 32
SECTION 9.4 Waiver................................................. 33
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Non-Survival of Representations and Warranties......... 33
SECTION 10.2 Validity............................................... 33
SECTION 10.3 Notices................................................ 33
SECTION 10.4 Interpretation......................................... 34
SECTION 10.5 Miscellaneous.......................................... 34
SECTION 10.6 Counterparts........................................... 34
SECTION 10.7 Parties In Interest.................................... 34
SECTION 10.8 Exhibits and Schedules................................. 34
SECTION 10.9 Personal Liability..................................... 34
SECTION 10.10 Definition of "Knowledge" and "Belief"................. 34
EXHIBITS
Exhibit 7.4 Form of Letter Agreement with Company Affiliates
Form of Representation relating to tax matters of the
Exhibit 7.16(a) Company
Form of Representation relating to tax matters of
Exhibit 7.16(b) Parent and Subsidiary
Matters to be covered by Opinion of Tax Counsel to the
Exhibit 8.2(b) Company
Matters to be covered by Opinion of Legal Counsel to
Exhibit 8.2(c) the Company
Exhibit 8.2(i) Form of Kearns Employment Agreement
Matters to be covered by Legal Counsel to the Parent
Exhibit 8.3(b) and Subsidiary
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SCHEDULES
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Schedule 2.3 List of Officers of the Surviving Corporation
Schedule 4.2 Parent Capitalization
Schedule 4.3 Subsidiaries
Schedule 4.6 Absence of Undisclosed Liabilities
Schedule 4.8 Litigation of Parent
Schedule 4.11 Compliance with Agreements
Schedule 4.13 Employee Benefit Plans of Parent
Schedule 4.15 Environmental Matters
Schedule 5.2 Company Capitalization
Schedule 5.3 Subsidiaries
Schedule 5.4 Non-contravention of Agreements
Schedule 5.5 Company SEC Compliance Exceptions
Schedule 5.8 Litigation of the Company
Schedule 5.10 Violations of Laws by Company
Schedule 5.13 Employee Benefit Plans of the Company
Schedule 5.15 Environmental Matters
Schedule 5.16 Title to Assets
Schedule 5.18 Parachute Payments
Schedule 6.1 Securities to be Issued in Acquisitions by the Company
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This Areement and Plan of Merger, dated as of September 10, 1997 (the
"Agreement"), by and among Corporate Express, Inc., a Colorado corporation
("Parent"), IDD Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ("Subsidiary"), and Data Documents Incorporated, a
Delaware corporation (the "Company");
W I T N E S S E T H:
Whereas, the Boards of Directors of Parent and the Company have determined
that the merger of Subsidiary with and into the Company (the "Merger") is
consistent with and in furtherance of the long-term business strategy of
Parent and the Company, and is fair to and in the best interests of Parent and
the Company and their respective stockholders; and
Whereas, Parent, Subsidiary and the Company intend the Merger to qualify as
a tax-free reorganization under the provisions of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"), and to be treated as a "pooling
of interests" under Accounting Principles Board Opinion No. 16 ("APB 16").
Now, Therefore, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, 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 Corporation
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 Officers. The officers of the Surviving Corporation following
the Merger shall be as designated in Schedule 2.3, and such officers shall
serve in accordance with the By-laws of the Surviving Corporation until their
respective successors are duly elected or appointed and qualified.
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ARTICLE III
Conversion of Shares
Section 3.1 Conversion of Company 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 capital stock of the Company:
(a) each share of the Company's Common Stock, par value $.001 per share
(the "Company Common Stock"), issued and outstanding immediately prior to
the Effective Time, except any Non-Converting Shares (as defined in Section
3.1(c)), shall, subject to Section 3.1(b), be converted into the right to
receive consideration (the "Merger Consideration") equal to that number of
shares of common stock, par value $.0002 per share, of Parent ("Parent
Common Stock"), which is determined by multiplying the Exchange Ratio (as
defined below) by the number of shares of Company Common Stock held by such
Company stockholder on the Closing Date (as defined in Section 3.5). The
"Exchange Ratio" shall equal 1.1 shares of Parent Common Stock for each
share of Company Common Stock outstanding at the time of the Merger,
subject to adjustment upward or downward pursuant to this Section 3.1.
There shall be no adjustment to the Exchange Ratio, and the Exchange Ratio
shall remain 1.1 shares of Parent Common Stock for each share of Company
Common Stock, if the average of the closing prices of Parent Common Stock
as reported on the Nasdaq National Market ("Nasdaq") for ten (10) trading
days selected randomly from the twenty (20) consecutive trading days ending
five (5) trading days prior to the special meeting of the Company's
stockholders to approve the Merger (the "Parent Stock Value"), is greater
than or equal to $15.00 but less than or equal to $18.20.
(b) (i) If the Parent Stock Value is less than $15.00, then the Parent
shall have the right to increase the Exchange Ratio to the number
(expressed as a decimal fraction) which, when multiplied by the Parent
Stock Value, will equal $16.50 and the Merger shall be consummated on the
basis of such increased Exchange Ratio. In the event that the Parent does
not elect to increase the Exchange Ratio to the amount set forth in the
immediately preceding sentence, then the Company may at its option, either
(i) terminate the Agreement or (ii) consummate the Merger. Notwithstanding
the foregoing, even if Parent does elect to increase the Exchange Ratio,
the Company may at its option terminate the Agreement if the Parent Stock
Value is less than $10.00.
(ii) If the Parent Stock Value is greater than $18.20, then the Exchange
Ratio shall be decreased to the number (expressed as a decimal fraction)
which, when multiplied by the Parent Stock Value, will equal $20.00.
Notwithstanding the foregoing, the Exchange Ratio will not be less than one
share of Parent Common Stock for each share of Company Stock.
(c) each share of Company Common Stock, if any, owned by Parent or any
subsidiary of Parent or held in treasury by the Company or any subsidiary
of the Company (each a "Non-Converting Share") immediately prior to the
Effective Time shall be cancelled and shall cease to exist from and after
the Effective Time.
(d) 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.
(e) The holders of shares of Company Common Stock shall not be entitled
to appraisal rights.
Section 3.2 Conversion of Subsidiary Shares. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent as the sole
stockholder of Subsidiary, 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 $.001 per share, of the
Surviving Corporation.
Section 3.3 Exchange of Certificates. (a) From and after the Effective Time,
all Company Common Stock shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing shares of Company Common Stock shall
cease to have any rights with respect thereto, except the right to receive in
exchange therefor, upon surrender thereof to ChaseMellon Shareholder Services
(the "Exchange Agent"), a certificate or certificates representing the number
of whole
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shares of Parent Common Stock to which such holder is entitled pursuant to
Section 3.1 and cash payment for any fractional shares referred to in Section
3.4. 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 shall be paid with respect to any Parent Common Stock 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 Parent Common Stock dividends 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 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 certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and the person
requesting such exchange shall have paid to Parent or its transfer agent
any applicable transfer or other taxes required by reason of such issuance.
(c) Promptly after the Effective Time, Parent shall make available to the
Exchange Agent the certificates representing shares of Parent Common Stock
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.
(d) Promptly after the Effective Time, 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, and the Company Certificates so
surrendered shall be cancelled. 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.
(e) Promptly following the date which is nine (9) months after the
Effective Time, the Exchange Agent shall deliver to Parent all certificates
(including certificates representing shares of any Parent Common Stock),
property 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 Parent and (subject to applicable abandoned
property, escheat and similar laws) receive in exchange therefor the number
of shares of Parent Common Stock to which such person is entitled, without
any interest thereon. Notwithstanding the foregoing, none of the Exchange
Agent, Parent, Subsidiary 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 Section 3.3. When
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authorizing such payment in exchange therefor, the Board of Directors of
Parent 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 Parent such indemnity as it may reasonably direct as
protection against any claim that may be made against Parent or 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 of the Parent Common Stock as reported on
Nasdaq on the last trading day immediately preceding the Effective Time.
Section 3.5 Options and Warrants. At the Effective Time and subject to
Section 7.9, each option and warrant granted by the Company to purchase shares
of the Company's Stock (each, a "Company Option" or a "Company Warrant") which
is outstanding and exercisable immediately prior thereto shall cease to
represent a right to acquire shares of Company Common Stock and shall be
converted automatically into an option or warrant (the "Exchanged Option" or
"Exchange Warrant") to purchase shares of Parent Common Stock exercisable
until the current termination of the Company Option or Company Warrant, as the
case may be, without accelerated termination by virtue of the Merger and in an
amount and at an exercise price determined as provided below (and subject to
the terms of the Company's 1995 Stock Inventive Plan or the terms of the
option issued to John Bailey in connection with the Company's acquisition of
Cal Emblem, and the agreements evidencing such grants, including but not
limited to the accelerated vesting of any such options or warrants which shall
occur by virtue of the consummation of the Merger to the extent required by
such plans and agreements):
(a) The number of shares of Parent Common Stock to be subject to the
converted options and warrants shall be equal to the product of the number
of shares of Company Common Stock subject to the original options or
warrants and the Exchange Ratio, provided that any fractional shares of
Parent Common Stock resulting from such multiplication shall be rounded
down to the nearest share; and
(b) The exercise price per share of Parent Common Stock under the
converted option or warrant shall be equal to the exercise price per share
of Company Common Stock under the original option or warrant divided by the
Exchange Ratio, provided that such exercise price shall be rounded out to
the nearest cent.
(c) 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 the Exchanged Warrants and (ii) promptly after the Effective
Time, issue to each holder of an Exchanged Option and Exchanged Warrant a
document evidencing Parent's assumption of the Company's obligations under
the Company Options and Company Warrants. The Exchanged Options and the
Exchanged Warrants shall have the same terms and conditions as the Company
Options and the Company Warrants, respectively.
Section 3.6 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 third (3rd) business day
immediately following the date on which the last of the conditions set forth
in Article VIII hereof is fulfilled or waived, or at such other time and place
as Parent and the Company shall reasonably agree (the date on which the
Closing occurs is referred to in this Agreement as the "Closing Date").
In the case of any converted options which are intended to qualify as
"incentive stock options" (as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code")), the exercise price, the number of
shares purchasable pursuant to such options and the terms and conditions of
exercise of such options shall be determined in order to comply with Section
424(a) of the Code. The duration and other terms of the converted
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option shall be the same as the original option except that all references to
Company shall be deemed to be references to Parent.
Section 3.7 Closing of the Company's Transfer Books. At and after the
Effective Time, holders of Company Common Stock 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 3.1 and the right to receive cash for
the 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 Parent or the
Surviving Corporation, they shall be cancelled and exchanged for Parent Common
Stock in accordance with this Article III.
ARTICLE IV
Representations and Warranties of Parent and Subsidiary
Parent and Subsidiary each represent and warrant to the Company as of the
date hereof 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 Articles of Incorporation and Subsidiary's Certificates of
Incorporation and respective 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) 300,000,000
shares of Parent Common Stock, of which 129,713,444 shares were issued and
outstanding as of July 31, 1997, (ii) 3,000,000 shares of non-voting common
stock, par value $.0002 per share, no shares of which are outstanding as of
September 9, 1997 and (iii) 25,000,000 shares of preferred stock, par value
$.0001 per share, no shares of which are outstanding as of September 9,
1997. All of the issued and outstanding shares of Parent Common Stock are
validly issued and are fully paid, nonassessable and free of preemptive
rights. The Parent Common Stock constitutes the only class of equity
securities of Parent or its subsidiaries registered or required to be
registered under the Exchange Act (as defined in Section 4.4(c) hereof).
(b) The authorized capital stock of Subsidiary consists of 1,000 shares
of Subsidiary Common Stock, of which 1,000 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,
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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 to be 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 have a Parent Material
Adverse Effect. All of the outstanding shares of capital stock of each
corporate subsidiary of Parent that are owned by 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 with respect to the pledge
of certain subsidiaries' stock to secure promissory notes issued in connection
with certain acquisitions. Except as set forth on Schedule 4.3, there are no
outstanding subscriptions, options, warrants, rights, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions or
arrangements relating to the issuance, sale, voting, transfer, ownership or
other rights with respect to any shares of capital stock of any corporate
subsidiary of Parent, including any right of conversion or exchange under any
outstanding security, instrument or agreement. As used in this Agreement, the
term "subsidiary" shall mean, when used with reference to any person or
entity, any corporation, partnership, joint venture or other entity which such
person or entity, directly or indirectly, controls or of which such person or
entity (either acting alone or together with its other subsidiaries) owns,
directly or indirectly, 50% or more of the stock or other voting interests,
the holders of which are entitled to vote for the election of a majority of
the board of directors or any similar governing body of such corporation,
partnership, joint venture or other entity.
Section 4.4 Authority; Non-Contravention; Approvals.
(a) Parent and Subsidiary each have all necessary 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. Without limitation of the foregoing, each of the
covenants and obligations of Parent set forth in Sections 6.2, 6.5, 7.6,
7.7, 7.8, 7.10, 7.14 and 7.15 is valid, legally binding and enforceable.
(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
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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. 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 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 Proxy Statement and 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 or (iii) the making of the Merger
Filing with the Secretary of State of the State of Delaware in connection
with the Merger (the filings and approvals referred to in clauses (i)
through (iii) above are collectively referred to as the "Parent Required
Statutory Approvals"), no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and delivery of
this Agreement by Parent or Subsidiary or the consummation by Parent or
Subsidiary of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in
the aggregate, have a Parent Material Adverse Effect.
Section 4.5 Reports and Financial Statements. Since February 28, 1995,
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 Report on Form
10-K for the fiscal year ended March 1, 1997, 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 March 1, 1997, until the date hereof and (c) all
other reports, including quarterly reports, or registration statements filed
by Parent with the SEC since March 1, 1997 (other than Registration Statements
filed on Form S-8) (collectively, 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.
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Section 4.6 Absence of Undisclosed Liabilities. Except as disclosed in the
Parent SEC Reports or with respect to acquisitions or potential transactions
set forth on Schedule 4.6 attached hereto, neither Parent nor any of its
subsidiaries had at May 31, 1997, 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, 1997 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 reflected in the consolidated financial statements of Parent and its
subsidiaries 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 May 31, 1997, there
has not been any 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.
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
attachedd hereto, neither Parent nor any of its subsidiaries is subject to any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality, authority or arbitrator which
prohibits or restricts the consummation of the transactions contemplated
hereby or would reasonably be expected, either alone or in the aggregate, to
have a Parent Material Adverse Effect.
Section 4.9 Registration Statement and Proxy Statement. None of the
information supplied or 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 and the Company in connection with the
Merger for the purpose of registering the shares of Parent Common Stock to be
issued in connection with 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 "Proxy Statement and 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 thereof
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 and at the time of such meeting
of the stockholders of the Company, 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 Proxy Statement
and 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 is made by Parent or Subsidiary with
respect to information 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
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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 to Parent 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,
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 or in Schedule 4.11 attached hereto, 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 notice or lapse of time or action by a third party, could
result in a default under (a) the respective charters, by-laws or other
similar organizational instruments of Parent or any of its subsidiaries or (b)
any contract, commitment, agreement, indenture, mortgage, loan agreement,
note, lease, bond, license, approval or other instrument to which Parent or
any of its subsidiaries is a party or by which any of them is bound or to
which any of their property is subject, which breaches, violations and
defaults, in the case of clause (b) of this Section 4.11, would have, in the
aggregate, a Parent Material Adverse Effect.
Section 4.12 Taxes.
(a) Parent and its subsidiaries have (i) duly filed with the appropriate
governmental authorities all Tax Returns (as defined in Section 4.12(c))
required to be filed by them for all periods ending on or prior to the
Effective Time, other than those Tax Returns the failure of which to file
would not have a Parent Material Adverse Effect, and such Tax Returns are
true, correct and complete in all material respects and (ii) duly paid in
full or made adequate provision in the Parent Financial Statements for the
payment of all Taxes (as defined in Section 4.12(b)) for all periods ending
at or prior to the Effective Time, except where the failure to pay such
Taxes would not have a Parent Material Adverse Effect. The liabilities and
reserves for Taxes reflected in the Parent balance sheet included in the
latest Parent SEC Report are expected to be 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 subsidiary of Parent other than
agreements the consequences of which are fully and adequately reserved for
in the Parent Financial Statements. Neither Parent nor any of its
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.
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(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 material contributions or which cover a material number of
employees. 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 May 31, 1997, based upon reasonable actuarial
assumptions currently utilized for such Parent Plan, (vi) each of the
Parent Plans has been operated and administered in all material respects in
accordance with applicable laws during the period of time covered by the
applicable statute of limitations, (vii) each of the Parent Plans which is
intended to be "qualified" within the meaning of Section 401(a) of the Code
has been determined by the IRS to be so qualified and such determination
has not been modified, revoked or limited by failure to satisfy any
condition thereof or by a subsequent amendment thereto or a failure to
amend, except that it may be necessary to make additional amendments
retroactively to maintain the "qualified" status of such Parent Plans, and
the period for making any such necessary retroactive amendments has not
expired, (viii) with respect to Multi- employer Plans, neither Parent nor
any of its subsidiaries has made or suffered a "complete withdrawal" or a
"partial withdrawal," as such terms are defined in Sections 4203, 4204 and
4205 of ERISA, respectively, and, to the 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 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 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).
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(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 material 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 cause a Parent Material Adverse Effect.
Section 4.15 Environmental Matters. (a) To Parent's knowledge and except as
set forth in the Parent SEC Reports, (i) Parent and its subsidiaries have
conducted their respective businesses in compliance with all applicable
Environmental Laws (as defined in Section 4.15(b)), 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 by Parent or any of its
subsidiaries contain any Hazardous Substance (as defined in Section 4.15(c))
as a result of any activity of Parent or any of its subsidiaries in amounts
exceeding the levels permitted by 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, (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
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, released or transported
in violation of any applicable Environmental Law from any properties owned by
Parent or any of its subsidiaries as a result of any activity of Parent or any
of its subsidiaries during the time such properties were owned, leased or
operated by Parent or any of its subsidiaries, (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 Parent or its subsidiaries, (viii)
except as set forth on Schedule 4.15 attached hereto, there are no underground
storage tanks on, in or under any properties owned 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, (ix) there is no 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, 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
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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 and 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, or any state counterpart thereof, 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, damages
or penalties 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, or otherwise regulated, under any Environmental
Law. Hazardous Substance includes any substance to which exposure is
regulated by any government authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial
substance 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
such 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 material in character, amount or extent and do not
materially and adversely affect 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), (iii) as disclosed in the Parent SEC Reports or (iv) mortgages
incurred in the ordinary course of business, and except for such matters
which, singly or in the aggregate, could not reasonably be expected to cause a
Parent Material Adverse Effect. All leases under which Parent leases any real
or personal property are in good standing, valid and effective in accordance
with their respective terms, and there is not, under any of such leases, any
existing default or event which with notice or lapse of time or both would
become a default other than defaults under such leases which in the aggregate
will not cause a Parent Material Adverse Effect.
Section 4.17 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 Form S-4.
Section 4.18 Pooling Matters. To the Parent's knowledge and based upon
consultation with its independent advisors, neither the Parent nor any of its
affiliates has taken or agreed to take any action that would prevent the
Merger (a) from constituting a reorganization qualifying under the provisions
of Section 368(a) of the Code or (b) from being treated for financial
accounting purposes as a pooling of interests in accordance with generally
accepted accounting principles and the rules, regulations and interpretations
of the SEC.
Section 4.19 No Prior Activities. Except for obligations incurred in
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby,
Subsidiary has neither incurred any obligation or liability nor engaged in any
business or activity of any type or kind whatsoever or entered into any
agreement or arrangement with any person.
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Section 4.20 Brokers. 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(g)) 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.
ARTICLE V
Representations and Warranties of the Company
The Company represents and warrants to Parent and Subsidiary as of the date
hereof as follows:
Section 5.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. The Company is qualified to do business and is in good
standing in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in
good standing will not, when taken together with all other such failures, have
a material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects 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 15,000,000
shares of Company Common Stock and 5,000,000 shares of preferred stock. As
of July 31, 1997, 9,687,582 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. No subsidiary of the Company holds any shares of
the capital stock of the Company. The Company Common Stock constitutes the
only class of equity securities of the Company or its subsidiaries
registered or required to be registered under the Exchange Act.
(b) Except as set forth on Schedule 5.2 attached hereto, as of the date
hereof (i) there were 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 or otherwise to become outstanding, 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) except as contemplated hereby, there are 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 and there are no such
trusts, proxies, agreements or understandings by, between or among any of
the Company's stockholders with respect to Company Common Stock. There are
no outstanding or authorized stock appreciation rights, phantom stock,
profit participation or similar rights with respect to the Company.
Section 5.3 Subsidiaries. Except as set forth in Schedule 5.3, each direct
and indirect subsidiary of the Company is duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation or
organization 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. 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
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Company Material Adverse Effect. All of the outstanding shares of capital
stock of each 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 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 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. The Board of Directors of the Company has
recommended that the Merger be approved by the stockholders of the Company
and has authorized the solicitation of proxies therefor. 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, 7.1, 7.3, 7.6,
7.7, 7.8, 7.10, 7.13 and 7.14 is valid, legally binding and enforceable
notwithstanding the absence of the Company Stockholders' Approval.
(b) Except as set forth in Schedule 5.4, 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 requirement to redeem, 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. 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 Stockholder's 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.
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(c) Except for (i) the filings by Parent and the Company required by the
HSR Act, (ii) the filing of the Proxy Statement and 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 and (iii) the making of the Merger Filing with the
Secretary of State of the State of Delaware in connection with the Merger
(the filings and approvals referred to in clauses (i) through (iii) above
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 31, 1995, the Company 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. The Company has previously delivered
to Parent copies of its (a) Annual Report on Form 10-K for the fiscal year
ended December 31, 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 December 31, 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 31, 1995 (the documents referred to in
clauses (a), (b) and (c) are collectively referred to as the "Company SEC
Reports"). As of their respective dates, the Company SEC Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited
interim consolidated financial statements of the Company included in such
reports (collectively, the "Company Financial Statements") have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of the Company and its subsidiaries
as of the dates thereof and the results of their operations and changes in
financial position for the periods then ended, subject, in the case of the
unaudited interim financial statements, to normal year-end and audit
adjustments and any other adjustments described therein.
Section 5.6 Absence of Undisclosed Liabilities. Except as disclosed in the
Company SEC Reports or, with respect to acquisitions or potential
transactions, as set forth on Schedule 5.6 attached hereto, neither the
Company nor any of its subsidiaries had at March 31, 1997, 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 March 31, 1997 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 reflected in the consolidated financial statements of the Company and
its subsidiaries prepared in accordance with generally accepted accounting
principles consistently applied and which were incurred in the normal 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.
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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, authority
or 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 supplied or 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 and at the time of such meeting
of the stockholders of the Company, 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 Proxy Statement
and Prospectus will comply, as of its effective date, as to form in all
material respects with all applicable laws, including the provisions of the
Securities Act, the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by the Company with respect
to information supplied by Parent or Subsidiary for inclusion therein. The
Company is qualified to use Form S-3 under the Securities Act.
Section 5.10 No Violation of Law. Except as disclosed in the Company SEC
Reports or in Schedule 5.10 attached hereto, neither the Company nor any of
its subsidiaries is in violation of or has been given notice or been charged
with any violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental law,
ordinance or regulation) of any governmental or regulatory body or authority,
except for violations which, in the aggregate, could not reasonably be
expected to have a Company Material Adverse Effect. Except as disclosed in the
Company SEC Reports, 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
to the Company 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,
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, 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 notice or 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.
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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
in the Company Financial Statements for the payment of all Taxes for all
periods ending at or prior to the Effective Time (whether or not shown on any
Tax Return), except where the failure to pay such Taxes would not have a
Company Material Adverse Effect. 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 asset 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 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, as supplemented by
Schedule 5.13 attached hereto, at the date hereof, the Company and its
subsidiaries do not maintain, contribute to or have any obligation or
liability to any 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 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 or has any liability,
contingent or otherwise. Neither the Company nor its subsidiaries has any
obligation to create any additional such plan or to amend any such plan so
as to increase benefits thereunder, except as required under the terms of
the Company Plans, under existing collective bargaining agreements or to
comply with applicable law.
(b) Except as disclosed in the Company SEC Reports or Schedule 5.13, (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
September 30, 1995, 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 Internal Revenue Service to be so qualified and such
determination has not been
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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 defined in Sections 4203, 4204 and 4205 of ERISA,
respectively, 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 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
412 of the Code).
(c) The Company SEC Reports, as supplemented by Schedule 5.13 attached
hereto, 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 controversies pending or, to the knowledge of the
Company, threatened between the Company or its subsidiaries and any
representatives of any of their employees, (b) to the knowledge of the
Company, there are no material organizational efforts presently being made
involving any of the presently unorganized employees of the Company or its
subsidiaries, (c) the Company and its subsidiaries have, to the knowledge of
the Company, complied in all material respects with all laws relating to the
employment of labor, including, without limitation, any provisions thereof
relating to wages, hours, collective bargaining, and the payment of social
security and similar taxes and (d) no person has, to the knowledge of the
Company, asserted that the Company or any of its subsidiaries is liable in any
material amount for any arrears of wages or any taxes or penalties for failure
to comply with any of the foregoing, except for such controversies,
organizational efforts, non-compliance and liabilities which, singly or in the
aggregate, could not reasonably be expected to cause a Company Material
Adverse Effect.
Section 5.15 Environmental Matters. Schedule 5.15 attached hereto lists all
environmental studies, audits and reports prepared by or for the Company
relating to any currently owned or leased properties of the Company and its
subsidiaries conducted or completed since December 31, 1994. To the Company's
knowledge and except as set forth in the Company SEC Reports or the studies,
audits and reports identified in Schedule 5.15 or as otherwise set forth on
Schedule 5.15, since December 31, 1994, (i) the Company and its subsidiaries
have conducted their respective businesses in compliance in all material
respects 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 currently owned by the
Company or any of its subsidiaries contain any Hazardous Substance as a result
of any activity of the Company or any of its subsidiaries in concentrations
that require removal or remediation 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 material violation of, or liable under, any
Environmental Law in connection with the ownership or operation of their
businesses, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or
threatened in writing, against the Company or any of its subsidiaries
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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 any Environmental Law by the Company or any
of its subsidiaries, (vi) no Hazardous Substance has been disposed of,
released or transported in violation of any applicable Environmental Law from
any properties currently owned by the Company or any of its subsidiaries as a
result of any activity of 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, (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 the Company or its subsidiaries, (viii) any underground storage
tanks on, in or under any properties currently owned by the Company or any of
its subsidiaries are operated in material compliance with all applicable
Environmental Laws and no underground storage tanks have been closed or
removed from any of such properties currently during the time such properties
were owned, leased or operated by the Company or any of its subsidiaries, (ix)
there is no asbestos or asbestos containing material present in any of the
properties owned by the Company and its subsidiaries that require removal or
remediation under any applicable Environmental Law, 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 of 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, (iv) mortgages
incurred in the ordinary course of business, or (v) except as set forth on
Schedule 5.16 attached hereto and except for such matters which, singly or in
the aggregate, could not reasonably be expected to cause a Company Material
Adverse Effect. All leases under which the Company leases real or personal
property have been delivered to Parent and are in good standing, valid and
effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event which with notice or lapse
of time or both would become a default other than defaults under such leases
which in the aggregate will not have a Company Material Adverse Effect.
Section 5.17 Company Stockholders' Approval. The affirmative vote of
stockholders of the Company required for approval and adoption of this
Agreement and the Merger is a majority of the outstanding shares of Company
Common Stock.
Section 5.18 No Excess Parachute Payments. Except as set forth on Schedule
5.18, the Company has no contracts, arrangements or understandings 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, 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 twenty 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
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(6) 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 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 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 which will be
filed with the Form S-4.
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 prevent the
Merger (a) from constituting a reorganization qualifying under the provisions
of Section 368(a) of the Code or (b) from being treated for financial
accounting purposes as a pooling of interests in accordance with generally
accepted accounting principles and the rules, regulations and interpretations
of the SEC.
Section 5.22 Transactions with Related Parties. Except as set forth in the
Company SEC Reports, (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") since December 31, 1996 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 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 $100,000, 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, except with respect to directors and executive officers. 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 Year 2000 Compliance. The Company believes that its ongoing
management information system upgrading program will result in each system,
comprised of software, hardware, databases or embedded control systems
(microprocessor controlled, robotic or other device) (collectively, a
"System"), that constitutes any material part of, or is used in connection
with the use, operation or enjoyment of, any material tangible or intangible
asset or real property of the Company and its subsidiaries not being
materially adversely affected by the advent of the year 2000, the advent of
the twenty-first century or the transition from the twentieth century through
the year 2000 and into the twenty-first century, and that neither the Company
nor any of its subsidiaries will incur material expenses arising from or
relating to the failure of any of its Systems as a result of the advent
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of the year 2000, the advent of the twenty-first century or the transition
from the twentieth century through the year 2000 and into the twenty-first
century.
Section 5.25 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.
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 or otherwise cause to become outstanding, 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 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 (x) borrowings in the ordinary
course of business or (y) borrowings to refinance existing indebtedness,
the terms of which shall be reasonably satisfactory to Parent, (ii) redeem,
purchase, acquire or offer to purchase or acquire any shares of its capital
stock or any options, warrants or rights to acquire any of its capital
stock or any security convertible into or exchangeable for its capital
stock, (iii) take any action which would jeopardize the treatment of the
Merger as a pooling of interests under APB 16, (iv) take or fail to take
any action which action or failure 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) make any
acquisition of any assets or businesses other than acquisitions of assets
in the ordinary course of business, (vi) sell, pledge, dispose of or
encumber any assets or businesses other than sales in the ordinary course
of business or (vii) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(e) use all commercially 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 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;
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(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 and adequately capitalized
insurance companies insurance coverage on its 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 Subsidiary to:
(a) conduct their respective businesses in the ordinary and usual course
of business and consistent with past practice;
(b) not (i) except as necessary to consummate the transactions
contemplated hereby, 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) use all commercially 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; and
(d) 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.
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 and subject to the
terms and conditions of this Agreement, complete control and supervision of
its operations.
Section 6.4 Control of Parent's or Subsidiary's Operations. Nothing
contained in this Agreement shall give to the Company, directly or indirectly,
rights to control or direct Parent's or Subsidiary's operations prior to the
Effective Time. Prior to the Effective Time, Parent shall exercise, consistent
with and subject to 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 (including officers, directors, representatives and
agents of the Company and its subsidiaries) to, directly or indirectly,
encourage, solicit, participate in or initiate discussions or negotiations
with or provide information to any corporation, partnership, person or
other entity or group except the Parent, concerning any merger, sale of
assets, sale of or tender offer for its common stock or similar actions
(any such transactions being referred to herein as "Acquisition
Transactions") provided, however, that nothing herein shall prevent the
Board of Directors of the Company from taking and disclosing to the
Company's stockholders a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to any tender offer.
(b) Notwithstanding the provisions of paragraph (a) above, the Company
may, in response to an unsolicited written proposal with respect to an
Acquisition Transaction, furnish information to a financially capable
corporation, partnership, person or other entity or group (a "Potential
Acquirer") pursuant to appropriate confidentiality agreements and may
participate in discussions and negotiate with such Potential
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Acquirer concerning any inquiry or proposal to acquire the Company in an
Acquisition Transaction or negotiate with such Potential Acquirer if (i)
the Company shall have given not less than two (2) business days' advance
written notice to the Parent of the Company's intention to do so, (ii) the
board of directors of the Company is advised by one or more of its
independent financial advisors that providing information to the Potential
Acquirer is likely to lead to an Acquisition Transaction on terms that
would yield a higher value to the Company's stockholders than the Merger
and is in furtherance of the best interests of the Company's stockholders
and (iii) based upon advice of its legal counsel, its board of directors
determines in good faith, that such action is in furtherance of the best
interests of the Company stockholders and that the failure to provide such
information to such Potential Acquirer would constitute a breach of its
fiduciary duty to its stockholders.
(c) In the event the Company shall determine to provide any information
or negotiate as described in paragraph (b) above, or shall receive any
request, inquiry proposals or offer of the type referred to in paragraph
(b) above, it shall (i) immediately provide Parent with a copy of all
information being provided to the third party, (ii) promptly inform the
Parent that information is to be provided, that negotiations are to take
place or that an offer has been received and (iii) if a request, inquiry,
proposal or offer has been received, furnish to the Parent a description of
the material terms thereof and, unless the board of directors of the
Company concluded that such disclosure is inconsistent with its fiduciary
duties under applicable law, furnish to the Parent the identity of the
person receiving such information or the proponent of such offer, if
applicable.
(d) Subject to Subsection (e) below, the Company may enter into a
definitive agreement for an Acquisition Transaction which meets the
requirements set forth above with a Potential Acquirer with which it is
permitted to negotiate pursuant to paragraph (b) above, but only if (i) the
independent financial advisors of the Company shall have determined in good
faith that such Acquisition Transaction would be more favorable to the
Company's stockholders from a financial point of view than the Merger and
is in furtherance of the best interests of the Company's stockholders, (ii)
at least five (5) business days prior to the execution of such definitive
agreement, the Company shall have furnished the Parent with a copy of such
definitive agreement and (iii) the Parent shall have failed within such
five-day period to offer to amend the terms of this Agreement in order that
the Merger be, in 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 hereof.
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 or which may have a
material effect on their respective businesses, properties or personnel and
(ii) such other information concerning their respective businesses,
operations, properties, assets, condition (financial or other), results of
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operations 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.
(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), or results of operations 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 Proxy Statement and 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 reasonable 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 preceding sentences. The information
provided and to be provided by Parent and the Company, respectively, for use
in the Proxy Statement and Prospectus shall be true and correct in all
material respects without omission of any material fact which is required to
make such information not misleading as of the date thereof and in light of
the circumstances under which given or made.
Section 7.3 Company 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, shall use its reasonable best efforts to obtain stockholder
approval and adoption (the "Company Stockholders' Approval") of this Agreement
and the transactions contemplated hereby, provided that the Board of Directors
of the Company may make any disclosure that it is compelled to make with
respect to the receipt of a proposal for an Acquisition Transaction with a
Potential Acquirer in order to comply with its fiduciary duties or Rule 14d-9
or 14e-2 promulgated under the Exchange Act with regard to any tender offer.
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, 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
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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 Affiliates of the Company. (a) Within 30 days after the date of
this Agreement, (i) the Company shall deliver to Parent a letter identifying
all persons who may be deemed affiliates of the Company under Rule 145 of the
Securities Act ("Rule 145"), including, without limitation, all directors and
executive officers of the Company and (ii) the Company shall advise the
persons identified in such letter of the resale restrictions imposed by
applicable securities laws, including Accounting Series Release No. 135 ("ASR
135"). The Company shall use its reasonable best efforts to obtain as soon as
practicable from any person who may be deemed to have become an affiliate of
the Company after the Company's delivery of the letter referred to above and
prior to the Effective Time, a written agreement substantially in the form of
Exhibit 7.4.
(b) If any stockholder of the Company reasonably determines on the basis
of a rule or interpretation of the staff of the SEC that such stockholder
will not be eligible to sell all of the shares (the "Stockholder Shares")
of Parent received by such stockholder in the Merger pursuant to Rule
145(d) (1) in the three (3) month period immediately following the
publication of thirty (30) days of combined financial results of operations
of the Company and Parent as required by ASR 135, Parent agrees, if
requested by such stockholder, to either, at Parent's option, (i) take such
actions reasonably necessary to register the Stockholder Shares for resale
pursuant to the Registration Statement or (ii) promptly after the Effective
Time, register the Stockholder Shares pursuant to a registration statement
on Form S-3. Parent shall maintain the effectiveness of any such
registration statement (subject to Parent's right to convert to a Form S-3
registration from the Registration Statement at any time) until the earlier
of the second anniversary of the Effective Time or such time as Parent
reasonably determines that such stockholder will be eligible to sell all of
the Stockholder Shares then owned by the Stockholder pursuant to Rule
145(d) (1) in the three month period immediately following the termination
of the effectiveness of the applicable registration statement. Parent's
obligations contained in this paragraph (b) shall terminate on the second
anniversary of the Effective Time.
Section 7.5 Nasdaq Listing. Parent 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 Parent Common Stock to be
issued pursuant to the Merger and the shares of Parent Common Stock to be
reserved for issuance upon exercise of Exchanged Options and Exchanged
Warrants.
Section 7.6 Expenses and Fees. Each party hereto agrees to bear its own
expenses, including reasonable and customary fees and expenses payable to
attorneys, accountants and investment bankers in connection with the
transactions contemplated hereby. In addition, Parent will pay the fees and
expenses incurred in connection with the printing, filing and mailing of the
Proxy Statement and Prospectus and the HSR Act filing, provided, however, that
in the event the Merger is not consummated, the parties will share equally in
such fees and expenses.
(a) If the Merger is not consummated because either party breaches a
material representation or warranty or fails to perform a material covenant
contained in this Agreement, and such breach shall not have been cured or
such representation or warranty shall not have been made true within twenty
(20) business days after notice by the other party thereof, and the other
party has not breached any material representation or warranty or failed to
perform a material covenant and the non-breaching party chooses to
terminate this Agreement as a direct result of such breach or failure, the
breaching party shall pay the non-breaching party the sum of $1,000,000.
(b) If the Merger is not consummated because the Company enters into an
Acquisition Transaction with another party other than the Parent as set
forth in Section 6.5 hereof, at any time within twelve (12) months from the
date of this Agreement, the Company shall pay to Parent the sum of
$3,000,000, which sum shall be in lieu of the amount listed in subsection
(a) of this Section 7.6. In the event that the Merger is not consummated
because the Parent does not exercise its right under Section 3.1(b)(i)
hereof, unless the
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Parent Stock Value is less than $13.20 per share, then the Parent shall pay
to the Company the sum of $3,000,000, which sum shall be in lieu of the
amount listed in subsection (a) of this Section 7.6.
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 pursuant to all agreements, contracts, indentures or
other instruments to which the parties hereto are a party, or under any
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including using its reasonable
efforts (i) to obtain all necessary or appropriate waivers, consents and
approvals from lenders, landlords, security holders or other parties whose
waiver, consent or approval is required to consummate the Merger, (ii) to
effect all necessary registrations, filings and submissions and (iii) 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 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. Unless required by law or by obligations
pursuant to any listing agreement with the Nasdaq National Market as
determined by Parent, Subsidiary or the Company, as the case may be, the
parties (i) 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 (ii) shall not issue any such press
release or written public statement prior to such consultation.
Section 7.9 Option Plans and Warrants. (a) The Parent will cause a Form S-8
("Form S-8") to be filed with the SEC as soon as practicable following the
Effective Time, but in no event more than thirty (30) days after the Effective
Time, which registration statement shall register the shares of Parent Common
Stock underlying the Parent Options granted in replacement of Company Options,
or will cause such shares underlying such Parent Options to be subject to an
existing Form S-8, and the Parent shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such Parent Options remain outstanding. At or before
the Effective Time, the Company shall cause to be effected any necessary
amendments to the Plan to give effect to the foregoing provisions of this
Section 7.9.
(b) Pursuant to Section 12(h) of the Warrant Agreement dated as of
November 28, 1994 between the Company and The Bank of New York (as the
successor-in-interest to NationsBank of Texas, N.A.), concurrently with the
consummation of the Merger the Parent shall enter into a supplemental
Warrant Agreement and shall mail a notice describing such supplemental
Warrant Agreement to the holders of Company Warrants.
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 their
respective 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
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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.
(a) For a period of six years after the Effective Time, the Surviving
Corporation and the Parent shall, to the extent permitted under Section 145
of the DGCL and to the extent of the Company's indemnification prior to the
Effective Time, indemnify and hold harmless (and shall also advance
expenses as incurred to the fullest extent permitted under applicable law
to) each present and former director, officer, previously indemnified
employee and previously indemnified agent of the Company or any of its
subsidiaries (each, together with such person's heirs, executors or
administrators, an "indemnified Party" and collectively, the "indemnified
Parties") against any costs or expenses (including attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of, relating to or in connection with any action or omission
occurring prior to the Effective Time (including, without limitation, acts
or omissions in connection with such persons serving as an officer,
director or other fiduciary in any entity if such service was at the
request or for the benefit of the Company) or arising out of or pertaining
to the transactions contemplated by this Agreement. In the event of any
such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) the Company or Parent and the
Surviving Corporation, as the case may be, shall pay the reasonable fees
and expenses of counsel selected by the indemnified Parties, which counsel
shall be reasonably satisfactory to the Parent and the Surviving
Corporation, promptly after statements therefor are received, (ii) the
Parent and the Surviving Corporation will cooperate in the defense of any
such matter and (iii) any determination required to be made with respect to
whether an indemnified Party's conduct complies with the standards set
forth under Section 145 of the DGCL and the Parent's or the Surviving
Corporation's respective Certificates of Incorporation or By-Laws shall be
made by independent legal counsel acceptable to the Parent or the Surviving
Corporation, as the case may be, and the indemnified Party; provided,
however, that neither Parent nor the Surviving Corporation shall be liable
for any settlement effected without its written consent (which consent
shall not be unreasonably withheld). The parties hereto intend, to the
extent not prohibited by applicable law, that the indemnification provided
for in this Section 7.11 shall apply without limitation to negligent acts
or omissions by an indemnified Party. Each indemnified Party is intended to
be a third party beneficiary of this Section 7.11 and may specifically
enforce its terms. This Section 7.11 shall not limit or otherwise adversely
affect any rights any indemnified Party may have under any agreement with
the Company or under the Company's Certificate of Incorporation or bylaws
as presently in effect.
(b) Without limiting any of the obligations under paragraph (a) of this
Section 7.11, Parent agrees that all rights to indemnification and all
limitations of liability existing in favor of the indemnified Parties as
provided in the Company's Certificate of Incorporation or Bylaws or in the
similar governing documents of any of the Company's subsidiaries as in
effect as of the date of this Agreement or as provided in the
indemnification agreements of the Company with respect to matters occurring
on or prior to the Effective Time shall survive the Merger and shall
continue in full force and effect, without any amendment thereto, for a
period of six years from the Effective Time; provided, however, that all
rights to indemnification in respect of any claim, action, suit, proceeding
or investigation asserted or made within such period shall continue until
the final disposition of such claim, action, suit, proceeding or
investigation; provided, further, however, that nothing contained in this
Section 7.11(b) shall be deemed to preclude the liquidation, consolidation
or merger of the Company or any of the Company's subsidiaries, in which
case all of such rights to indemnification and limitations on liability
shall be deemed to so survive and continue notwithstanding any such
liquidation, consolidation or merger and shall constitute rights which may
be asserted against Parent.
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(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) For a period of six years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by the Company
(provided that the Surviving Corporation may substitute therefor policies
of at least the same coverage and amounts containing terms and conditions
which are no less advantageous) with respect to claims arising from facts
or events that occurred before the Effective Time; provided, however, that
in no event shall the Surviving Corporation be required to expend pursuant
to this Section 7.11(c) more than an amount equal to 150% of current annual
premiums paid by the Company for such insurance (which premiums the Company
represents and warrants to be approximately $190,000 in the aggregate).
Section 7.12 Corrections to the Proxy Statement and 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
Proxy Statement and 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 Proxy Statement and Prospectus or the
Registration Statement so as to correct the same and to cause the Proxy
Statement and Prospectus as so corrected to be disseminated to the
stockholders of the Company, to the extent required by applicable law.
Section 7.13 Employment Agreements. Following the execution hereof, the
Company will use its best efforts to cause any and all employees of the
Company who are parties to agreements that may provide to them cash
compensation upon a change of control (as defined therein) of the Company and
certain other events (the "Employment Agreements") to execute amendments
and/or waivers of the cash compensation provisions applicable upon such a
change of control (as defined therein), in exchange for which the Parent will
enter into employment agreements with each such employee of the Company in
form and substance reasonably satisfactory to the parties thereto.
Section 7.14 Irrevocable Proxies. Upon the execution hereof, the Company
will use its best efforts to cause its executive officers and employee
directors to execute and deliver to the Parent irrevocable proxies in a form
reasonably acceptable to the 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 Grant of Options to Company Employees. Upon consummation of the
Merger, Parent shall grant options to purchase 400,000 shares of Parent Common
Stock (at an exercise price equal to the fair market price on the date of
grant) to certain employees of the Company as recommended to Parent in writing
by senior management of the Company and as agreed to by the compensation
committee of the Parent's Board of Directors. Options granted to an employee
for the aggregate purchase of 5,000 shares or less of Parent Common Stock
shall be qualified as incentive stock options. Options granted to an employee
for the aggregate purchase of more than 5,000 shares of Parent Company Stock
shall be non-qualified options. The amounts and terms of such options shall be
consistent with the Parent's policies relating to stock option grants to new
employees, providing for a four-year ratable vesting schedule beginning one
year from the date of grant (2.083% per month, for months thirteen (13)
through sixty (60), inclusive, following the Effective Time) and a seven year
expiration (or earlier in the event of termination of employment, except for
Mr. Kearns' options, the expiration of which will be governed by Mr. Kearns'
employment agreement). The Parent will register the shares issuable pursuant
to the options Parent has agreed to grant under this Section 7.15 on a Form S-
8, and shall use reasonable efforts to effect authorization for listing of
such shares on the Nasdaq.
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Section 7.16 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. The Company, on the
one hand, and Parent and Subsidiary, on the other hand, shall execute and
deliver to legal counsel to the Company and Parent certificates substantially
in the form attached hereto as Exhibits 7.16(a) and 7.16(b), respectively, at
such time or times as reasonably requested by such legal counsel in connection
with its delivery of an opinion with respect to transactions contemplated
hereby and the Company and Parent shall each provide a copy thereof to the
other parties hereto. Prior to the Effective Time, none of the Company, Parent
or Subsidiary shall take or cause to be taken any action which would cause to
be untrue (or fail to take or cause not to be taken any action which would
cause to be untrue) any of the representations in Exhibits 7.16(a) and
7.16(b).
Section 7.17 Parent's Periodic Reports Following the Merger. As soon as
practicable 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 for the filing of such report.
Section 7.18 Employee Benefits. The Parent shall provide employee benefits
to the employees of the Company and its subsidiaries in an amount and nature
materially consistent with benefits provided to existing employees of the
Parent and its subsidiaries, which benefits will, to the extent practicable
and feasible, be generally comparable to existing benefits provided to the
Company's employees. Notwithstanding the foregoing, nothing contained herein
shall be construed as requiring Parent or the Surviving Corporation to
continue any specific employee benefit plans or to continue the employment of
any specific person. The Parent will also use its reasonable best efforts
cause each employee medical benefit plan in which the employees of the Company
and its subsidiaries participate from and after the Effective Time to waive
(i) any preexisting condition restriction that was waived under the terms of
any analogous plan immediately prior to the Effective Time or (ii) any waiting
period limitation that would otherwise be applicable to an employee of the
Company or its subsidiaries on or after the Effective Time to the extent such
employee had satisfied any similar waiting period limitation under any
analogous plan prior to the Effective Time.
ARTICLE VIII
Conditions
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger. Unless waived by the parties, 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 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);
29
<PAGE>
(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;
(h) Coopers & Lybrand L.L.P., 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 16; and
(i) all required material consents and approvals of lenders who have
advanced $5,000,000 or more to Parent or the Company and lessors of
material leases shall have been obtained and be in effect at the Effective
Time; provided, however, that the failure to obtain such consents or
approvals shall not be due to the default or delay of the party responsible
for obtaining such consents and approvals.
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 Gibson Dunn & Crutcher
LLP, special counsel to the Company, in form and substance reasonably
satisfactory to the Company, effective as of the Closing Date and based on
representations of the Company and Parent, to the effect that (i) the
Merger of Subsidiary with and into the Company pursuant to the Merger
Agreement and applicable state law will be treated for United States
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code; (ii) Parent, Subsidiary and Company will each
be a party to the reorganization within the meaning of Section 368(b) of
the Code; and (iii) the stockholders of the Company will not recognize gain
or loss as a result of the Merger, except to the extent such stockholders
receive cash in lieu of fractional shares, and such opinion shall not have
been withdrawn or modified in any material respect, substantially in the
form of Exhibit 8.2(b);
(c) the Company shall have received an opinion or opinions from Ballard
Spahr Andrews & Ingersoll, special counsel to Parent and Subsidiary, dated
the Closing Date, reasonably satisfactory to the Company substantially in
the form set forth in Exhibit 8.2(c) attached hereto;
(d) the Company shall have received "comfort" letters in customary form
from Coopers & Lybrand L.L.P., 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 related to Parent;
(e) since the date hereof, there shall have been no changes that have,
and no event or events shall have occurred which have resulted in or have,
a Parent Material Adverse Effect;
(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
30
<PAGE>
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;
(g) the Company shall have received from Jefferies & Company, Inc. (or
other nationally recognized investment banking firm reasonably acceptable
to Parent) an opinion, dated as of the date on which the Proxy Statement
and Prospectus is first distributed to the stockholders of the Company, to
the effect that the consideration to be received by the stockholders of the
Company in the Merger is fair, from a financial point of view, to the
holders of Company Common Stock, and such opinion shall not have been
withdrawn;
(h) Deloitte & Touche LLP, independent public accountants for the
Company, shall have delivered a letter, dated the Closing Date, addressed
to the Company, in form and substance reasonably satisfactory to the
Company, stating that the Company has not taken any action that would
affect the ability to account for the Merger as a pooling-of-interests
transaction under APB 16; and
(i) The parent shall have entered into an employment agreement with
Walter J. Kearns ("Mr. Kearns"), a form of which is attached hereto as
Exhibit 8.2(i).
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 additional following 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 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, in form and substance reasonably satisfactory to Parent to that
effect;
(b) Parent shall have received an opinion from Gibson Dunn & Crutcher
LLP, special counsel to the Company, effective as of the Closing Date,
substantially in the form set forth in Exhibit 8.3(b) attached hereto;
(c) Parent shall have received "comfort" letters in customary form and
substance reasonably satisfactory to Parent from Deloitte & Touche LLP,
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 related to the Company;
(d) the Affiliate Agreements required to be delivered to Parent pursuant
to Section 7.4 shall have been furnished as required by Section 7.4;
(e) since the date hereof, there shall have been no changes that have,
and no event or events shall have occurred which have resulted in or have,
a Company Material Adverse Effect;
(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;
(g) Parent shall have received from Merrill Lynch, Pierce, Fenner &
Smith, Inc. (or other nationally recognized investment banking firm
reasonably acceptable to the Parent) an opinion reasonably acceptable to
the Parent, dated as of the date on which the Proxy Statement and
Prospectus is first distributed to the shareholders of Parent, 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;
(h) the Company shall have delivered to Parent its audited consolidated
financial statements for the year ended December 31, 1996, together with an
unqualified opinion from Deloitte & Touche LLP regarding
31
<PAGE>
such financial statements, which financial statements shall reflect
earnings which are not materially less than the average of the published
projections of the securities analysts' which regularly follow the Company
and which financial statements shall reflect all normal, recurring
adjustments necessary to fairly present the Company's results from
operations or financial condition; and
(i) Coopers & Lybrand L.L.P., public accountants for Parent and
Subsidiary, 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 16.
ARTICLE IX
Termination, Amendment and Waiver
Section 9.1 Termination. This Agreement may be terminated by the mutual
written consent of the parties or 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, 1997 other than on
account of delay or default on the part of the Company;
(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) are satisfied;
(iv) if Parent (A) fails to perform in any material respect any of
its 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
(v) in the manner set forth in Section 3.1; or
(vi) if the Company's shareholders' vote is not sufficient to approve
the Merger.
(b) Parent shall have the right to terminate this Agreement:
(i) if the Merger is not completed by December 31, 1997 other than on
account of delay or default on the part of Parent;
(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 (A) fails to perform in any material respect any
of its 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
(iv) in the manner set forth in Section 3.1; or
(v) if the Company's shareholders' vote is not sufficient to approve
the Merger.
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.
32
<PAGE>
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 such waiver shall not be deemed to be
continuing or to apply to any future obligation or requirement of any party
hereto provided 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. The
representations and warranties contained in Articles IV and V of this
Agreement shall not survive the Merger, and after effectiveness of the Merger
the Company, Parent, Subsidiary or their respective officers or directors
shall have no further obligation with respect thereto. This Section 10.1 shall
not limit any covenant or agreement of the parties hereto which by its terms
requires performance after the Effective Time.
Section 10.2 Validity. If any provision of this Agreement or the application
thereof to any person or circumstance is held invalid or unenforceable, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected thereby and to such end the
provisions of this Agreement are agreed to be severable.
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.
1 Environmental Way
Broomfield, Colorado 80021-3416
Attention: Gary M. Jacobs
Facsimile Number: (303) 664-3823
with a copy to:
Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103
Attention: Gerald J. Guarcini, Esq.
Facsimile Number: (215) 864-8999
(b) If to the Company, to:
Data Documents Incorporated
4205 South 96th Street
Omaha, Nebraska 68217
Attention: Walter J. Kearns
Facsimile Number: (402) 339-9270
33
<PAGE>
with a copy to:
Gibson Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
Attention: Kenneth M. Doran, Esq.
Facsimile Number: (213) 229-6537
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.
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. Each of the parties agrees
to accept and be bound by facsimile signatures hereto.
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.
Section 10.9 Personal Liability. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect stockholder of the Company or Parent or any officer,
director, employee, agent, representative or investor of any party hereto.
Section 10.10 Definition of "Knowledge" and "Belief". As used in this
Agreement, "knowledge" or "belief" or similar language means, with respect to
the Company, all things known to or believed by, after reasonable
investigation and inquiry, Walter Kearns, A. Robert Thomas, Ralph Scheer and
Milt Romjue.
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<PAGE>
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.
/s/ Gary M. Jacobs
By: _________________________________
GARY M. JACOBS Executive Vice
President
IDD Acquisition Corp.
/s/ Gary M. Jacobs
By: _________________________________
GARY M. JACOBS Executive Vice
President
Data Documents Incorporated
/s/ Walter J. Kearns
By: _________________________________
WALTER J. KEARNS Chief Executive
Officer
35
<PAGE>
Appendix II
[Jefferies & Company, Inc. Letterhead Appears Here]
September 5, 1997
Board of Directors
DATA DOCUMENTS INCORPORATED
4205 South 96/th/ Street
Omaha, NE 68127-1290
Re: The proposed merger transaction between Data Documents Incorporated, a
Delaware corporation ("DDII" or the "Company"), and Corporate Express,
Inc., a Colorado corporation ("CEXP"), which merger would be accomplished
through a merger of a wholly-owned subsidiary of CEXP into DDII pursuant to
which all of the outstanding common stock of DDII would be converted into
shares of common stock of CEXP at a rate of 1.1 shares of CEXP common stock
for each share of DDII common stock outstanding as of the effective date
(the "Transaction"); all upon the terms and conditions more fully set forth
in an Agreement and Plan of Reorganization (the "Agreement") to be entered
into by and among DDII and CEXP.
---------------------------------------------------------------------------
To the Members of the Board of Directors:
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to the holders of the outstanding
shares of common stock, par value $.01 per share (the "Common Stock"), of the
Company (the "Stockholders") of the consideration to be received by such
Stockholders pursuant to the Transaction (the "Consideration"). The terms and
conditions of the Transaction are more fully set forth in the Agreement.
Jefferies & Company, Inc. ("Jefferies"), as part of its investment
banking business, is regularly engaged in the evaluation of capital structures,
the evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, financial
restructurings and other financial services. In the ordinary course of our
business, we may trade the securities of DDII and CEXP for our own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in those securities.
As you are aware, Jefferies will receive a fee for providing this
opinion. In addition to delivering this opinion, Jefferies has acted as
exclusive financial advisor to DDII in connection with the Transaction and has
actively assisted DDII in negotiating the terms thereof. Jefferies will receive
an additional fee in connection with the consummation of the Transaction for
acting in such capacity. In addition, over the last twelve months, Jefferies has
received customary fees from CEXP for certain investment banking services
performed by Jefferies.
In conducting our analysis and arriving at the opinion expressed
herein, we have reviewed a draft of the Agreement, dated August 26, 1997
(including any schedules and exhibits thereto) and certain financial and other
information that was publicly available or furnished to us by DDII and CEXP,
including certain internal financial analyses, budgets, reports and other
information
<PAGE>
Board of Directors
DATA DOCUMENTS INCORPORATED
September 5, 1997
Page 2
prepared by the respective company's management. We have also held discussions
with various members of senior management of the Company and CEXP concerning
each company's historical and current operations, financial conditions and
prospects, as well as the strategic and operating benefits anticipated from the
business combination. In addition, we have conducted such other reviews,
analyses and inquiries relating to DDII and CEXP as we considered appropriate in
rendering this opinion.
In our review and analysis and in rendering this opinion, we have
relied upon, but have not independently investigated or verified, the accuracy,
completeness and fair presentation of all financial and other information that
was provided to us by DDII or CEXP, or that was publicly available to us
(including, without limitation, the information described above and the
financial projections prepared by DDII and CEXP regarding the estimated future
performance of the respective companies before and after giving effect to the
Transaction). This opinion is expressly conditioned upon such information
(whether written or oral) being complete, accurate and fair in all respects.
With respect to the financial projections provided to and examined by
us, we note that projecting future results of any company is inherently subject
to vast uncertainty. You have informed us, however, and we have assumed with
your permission, that such projections were reasonably prepared on bases
reflecting the best currently available estimates and good faith judgments of
the respective managements of the companies as to the future performance of each
company. In addition, although we have performed sensitivity analyses thereon,
in rendering this opinion we have assumed, with your permission, that each
company will perform in accordance with such projections for all periods
specified therein. Although such projections did not form the principal basis
for our opinion, but rather constituted one of many items that we employed,
changes thereto could affect the opinion rendered herein. We have assumed, with
your permission, that the Transaction will be a tax free reorganization and will
be accounted for under the "pooling of interests" accounting method.
We have not been requested to, and did not solicit third party
indications of interest in acquiring all or any part of the Company; or make any
independent evaluation or appraisal of the assets or liabilities of, nor conduct
a comprehensive physical inspection of any of the assets of, DDII or CEXP, nor
have we been furnished with any such appraisals. Our opinion is based on
economic, monetary, political, market and other conditions existing and which
can be evaluated as of the date of this opinion (including, without limitation,
current market prices of the common stock of the Company and CEXP); however,
-------
such conditions are subject to rapid and unpredictable change and such changes
could affect the conclusions expressed herein. We have made no independent
investigation of any legal matters affecting DDII or CEXP, and we have assumed
the correctness of all legal and accounting advice given to such parties and
their respective boards of directors, including (without limitation) advice as
to the accounting and tax consequences of the Transaction to DDII, CEXP and
their respective stockholders.
In rendering this opinion we have also assumed, with your permission,
that: (i) the terms and provisions contained in the definitive Agreement
(including any schedules and exhibits
<PAGE>
Board of Directors
DATA DOCUMENTS INCORPORATED
September 5, 1997
Page 3
thereto) will not differ from those contained in the drafts of those documents
we have heretofore reviewed; (ii) the conditions to the consummation of the
Transaction set forth in the Agreement will be satisfied without material
expense; and (iii) there is not now, and there will not as a result of the
consummation of the transactions contemplated by the Agreement be, any default,
or event of default, under any indenture, credit agreement or other material
agreement or instrument to which DDII, CEXP or any of their respective
subsidiaries or affiliates is a party.
Moreover, in rendering the opinion set forth below we note that the
consummation of the Transaction is conditioned upon the approval of DDII's
stockholders, and we are not recommending that DDII, its Board of Directors, any
of its security holders or any other person should take any specific action in
connection with the Transaction. Our opinion does not constitute a
recommendation of the Transaction over any alternative transactions which may be
available to DDII, and does not address DDII's underlying business decision to
effect the Transaction. Finally, we are not opining as to the market value of
the Consideration to be received by the Stockholders or the prices at which any
of the securities of CEXP may trade upon and following the consummation of the
Transaction.
Based upon and subject to the foregoing, and upon such other matters
as we consider relevant, it is our opinion as investment bankers that, as of the
date hereof, the Consideration to be received by the Stockholders is fair from a
financial point of view.
It is understood and agreed that this opinion is provided for the use
of the Board of Directors of DDII as one element in the Board's consideration of
the Transaction, and may not be used for any other purpose, or otherwise
referred to, relied upon or circulated, without our prior written consent.
Without limiting the foregoing, this opinion does not constitute a
recommendation to any Stockholder (or any other person) as to how such person
should vote with respect to the Transaction. We expressly disclaim any
undertaking or obligation to advise any person of any change in any fact or
matter affecting our opinion of which we become aware after the date hereof.
This opinion may be reproduced in full in any proxy statement mailed to holders
of Common Stock in connection with the Transaction but may not otherwise be
disclosed publicly in any manner without our prior written approval.
Sincerely,
JEFFERIES & COMPANY, INC.
<PAGE>
APPENDIX III
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 1, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-24642
CORPORATE EXPRESS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 84-0978360
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1 ENVIRONMENTAL WAY 80021
BROOMFIELD, COLORADO (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 664-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.0002 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at April 30, 1997 was $1,231,242,000.
The number of shares outstanding of the registrant's Common Stock as of
April 30, 1997 was 126,824,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference:
Part III--The Registrant's definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders, to be filed not later than 120 days after the end of
the fiscal year.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CORPORATE EXPRESS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 1, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
------ ------
<C> <S> <C>
PART I
1 Business...................................................... 1
2 Properties.................................................... 8
3 Legal Proceedings............................................. 8
4 Submission of Matters to a Vote of Security Holders........... 8
PART II
5 Market for Registrant's Common Equity and Related Stockholder
Matters....................................................... 9
6 Selected Consolidated Financial Data.......................... 10
7 Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 11
8 Financial Statements and Supplementary Data................... 19
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 50
PART III
10 Directors and Executive Officers of the Registrant............ 50
11 Executive Compensation........................................ 50
12 Security Ownership of Certain Beneficial Owners and
Management.................................................... 50
13 Certain Relationships and Related Transactions................ 50
PART IV
14 Exhibits, Financial Statements, Schedules and Reports on Form
8-K........................................................... 50
Signatures.................................................... 53
</TABLE>
i
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PART I
ITEM 1. BUSINESS
OVERVIEW
Corporate Express, Inc. ("Corporate Express" or the "Company") is a leading
provider of non-production goods 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, Germany, France, Australia, and other markets. Corporate
Express believes it has developed a substantially different model of non-store
retailing, 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 product and service offering includes office supplies,
paper, computer and imaging supplies, computer desktop software, office
furniture, janitorial and cleaning supplies, advertising specialties, forms
management, printing, same-day local delivery services and distribution
logistics management. Corporate Express markets to its existing and
prospective customers through a direct sales force and fulfills its products
and services utilizing over 700 locations including 80 distribution centers
and a fleet of over 10,000 owned or contracted vehicles.
INDUSTRY OVERVIEW
The Company's target customers are large corporations with over 100
employees. The Company believes that these large corporations increasingly
seek to reduce the cost of procuring non-production goods and services while
decreasing the time and effort spent managing functions that are not
considered core competencies. To that end, corporations seek to reduce the
number of their suppliers in order to eliminate the internal costs associated
with multiple invoices, deliveries, complex ordering procedures, uneven
service levels and inconsistent product availability. Many large corporations
operate from multiple locations and can benefit from selecting suppliers 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. The Company
believes that the desire of large corporations to reduce costs by decreasing
their number of suppliers to a small group of reliable and cost-effective
national and international partners will continue to lead to the consolidation
of many currently fragmented product and service sectors, as well as
consolidation in sectors where the key differentiation will be the ability to
fulfill a broad spectrum of customer requirements rather than an individual
product or service.
THE CORPORATE SUPPLIER STRATEGY
The Company's 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. The Company believes that
its target customers value a high level of service including account
relationship managers, delivery services, customized pricing, electronic
interfaces, customized reporting and product catalogs. Corporate Express seeks
to supply a broad range of the non-production goods and services to large
corporations. This broad product and service offering permits Corporate
Express to reduce its customers' procurement costs associated with dealing
with multiple vendors, including multiple invoices, deliveries, ordering
procedures, uneven service levels, and inconsistent product availability,
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 competitive
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
1
<PAGE>
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. The Company expects to continue making
substantial investments to upgrade and enhance the capabilities of its
computer systems.
A key element of Corporate Express' business strategy is to seek to provide
superior customer service in addition to providing "one-stop shopping,"
reliable delivery, national account service, electronic customer interfacing,
customized reporting and other customized services. Also, in order to better
serve 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.
PRODUCTS AND SERVICES
Corporate Express provides a broad range of non-production goods and
services used by large corporations. The Company's current product
distribution offering includes office supplies, computer and imaging supplies,
computer software, office furniture, promotional products and forms management
and printing and its current service offering includes same-day local
delivery, distribution logistics management and other services. Name-brands
offered by the Company include such brands as 3M, Microsoft, and Hewlett-
Packard, as well as the Company's own "EXP" private label. The approximate
percentages of the Company's net sales by product and service category were as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------
CATEGORY 1996 1995 1994
-------- ---- ---- ----
<S> <C> <C> <C>
Office, computer, and janitorial supplies; desktop software;
promotional products; and furniture........................ 76% 82% 81%
Delivery services........................................... 24% 18% 19%
</TABLE>
Company Catalogs. Corporate Express' merchandising strategy is based
primarily on the Company's proprietary, full-color In-Stock Catalog. This
catalog provides a comprehensive selection and variety of the approximately
5,000 best-selling items in the core categories of office and computer
supplies which Corporate Express regularly maintains in inventory in its
regional warehouses for next-day delivery. This merchandising strategy differs
from that of traditional contract stationers which typically provide their
customers with wholesaler-produced catalogs and maintain only a small portion
of inventory on hand. Corporate Express has introduced an In-Stock Catalog in
all of its United States regions as well as Canada, Australia and the United
Kingdom. Substantially all products featured in the In-Stock Catalog are
purchased by Corporate Express directly from the manufacturer, or its agents
at comparable prices, eliminating the intermediate wholesaler's mark-up. A
broad selection of specialty computer and imaging supplies, computer software,
furniture and other items are listed in various Company specialty catalogs.
The number of items found in the In-Stock Catalog is comparable to that
found in a typical office products superstore, although the merchandise mix
differs substantially. Products are selected for the In-Stock Catalog
utilizing computerized sales trend analyses which determine the best-selling
items and needs of the large corporate customer. The In-Stock Catalog is
updated annually to account for new sales trends, new product introductions
and changes in manufacturers' list prices. The In-Stock Catalog includes a
full-color photograph of each item, a narrative product description that
emphasizes the particular benefits and features of each item and a bar code to
permit electronic order entry. In addition to the In-Stock Catalog, Corporate
Express produces supplementary specialty catalogs for complementary products
and services, including additional computer and imaging products, office
furniture, promotional products and advertising specialties. The Company also
offers various electronic versions of the In- Stock Catalog complete with
pictures and custom pricing.
Computer Software. Corporate Express offers its customers microcomputer
("PC") software, and help desk, training, installation and evaluation support
for IBM, IBM-compatible and Macintosh PC's, and for all
2
<PAGE>
major PC operating systems such as DOS, Windows, OS/2, Netware and UNIX. The
Company's product offering includes major business programs for word
processing, spreadsheets, electronic mail, suites/offices, databases,
graphics, operating systems, utilities and languages.
Services. The Company provides same day local delivery service including
both prescheduled and on-demand delivery services and offers distribution
logistics management based on the specific needs of each customer. The Company
expanded its delivery operations with the acquisition of United TransNet, Inc.
("UT") in fiscal 1996.
DISTRIBUTION FACILITIES
The Company's distribution network consists of 80 warehouses that maintain
significant inventory for resale and 625 distribution breakpoints and
satellite sales offices which extend the Company's geographic coverage.
Corporate Express has eliminated and plans to continue to eliminate redundant
facilities in the United States and abroad. In its office products business,
the Company typically operates from a single regional warehouse which
generally supports multiple distribution breakpoints and satellite sales
offices in each of its regions. Items stocked in regional office products'
warehouses generally consist of the most commonly ordered items for which
customers demand next-day delivery through Company owned or contracted
vehicles.
PROPRIETARY COMPUTER SOFTWARE APPLICATIONS
Corporate Express continues to make substantial investments in the
development and enhancement of its proprietary computer software applications.
The Company continues to maintain a significant investment in information
systems development and implementation staff as it executes its expansion
plans and increases the scope of its product and service offerings in response
to customer needs and new developments in technology.
During 1996, Corporate Express continued the development of its "ISIS"
computer software and on a limited basis implemented it for National Accounts.
Key features of the ISIS system are the use of three-tier client/server
architecture that allows customers and suppliers to better communicate with
Corporate Express and the use of object oriented design techniques and a
relational database designed to handle warehouse and management information
applications. Through the implementation of these enhanced systems, Corporate
Express plans to make its products and services available to a broader range
of customers through its Corporate Supplier Business Model and to further
customize customer services and account information while lowering the
customer's overall procurement cost. In addition, the new systems are expected
to allow Corporate Express to more effectively integrate acquisitions and
streamline operations by providing greater electronic access to information
between the Company, its customers and its suppliers. There can be no
assurance that these objectives will be attained. Presently, substantially all
United States office products regions are linked to Corporate Express'
national accounts and financial systems. In addition, the delivery services
segment is aggressively implementing the financial system and is expected to
be completed by the end of the third fiscal quarter of 1997.
The Company anticipates that ongoing enhancements and modifications to its
computer systems will continue to be made in the future. 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 the
Company's operations and financial performance.
CUSTOMER RELATIONSHIPS, SALES AND MARKETING
Corporate Express has a broad customer base and believes that no single
customer accounted for more than one percent of total sales during fiscal
1996. The Company relies primarily on commission-based sales forces dedicated
to each of its major product and service categories thereby ensuring product
and service knowledge among its principal customer contacts.
3
<PAGE>
Corporate Express establishes and maintains relationships with its customers
by assigning an account manager to each customer account. The Company's
account managers offer customers customized merchandising and purchasing
programs tailored to the customers' needs. Corporate Express generally offers
a discount from the manufacturers' suggested list prices on many products.
Prices for some high volume items are often established by competitive
bidding. Account managers have frequent contact with their customers and share
responsibility for increasing account penetration and solving customer
problems. Account managers are also responsible for marketing efforts directed
at an explicit list of prospective customers assigned to them and for
responding to all contract situations for existing or prospective customers.
Corporate Express has not conducted significant mass market advertising.
The Company markets its various services directly to individual customers by
designing and offering a customized service package for that customer after
determining its specific needs. A substantial portion of the Company's
revenues from services is derived from customers who have entered into
contracts with the Company.
The Company's national accounts program focuses on the sale of a broad array
of the Company's products and services to multi-location customers. The
marketing of this program is coordinated by a national accounts sales team
with dedicated information technology support.
INTERNATIONAL OPERATIONS
The Company has operations in Canada, Australia, New Zealand, the United
Kingdom, Germany, France and Italy and may enter additional international
markets in the future. Over time, the Company has and will continue to
implement appropriate aspects of the Corporate Supplier Business Model in its
international operations, including creating in-stock catalogs, consolidating
warehouses, upgrading information systems, acquiring companies offering
complementary products and services while focusing on larger customers and
developing national and international accounts. Portions of the Corporate
supplier business model have been implemented in Canada, Australia and the
United Kingdom.
In 1995, Corporate Express acquired a controlling interest in Macquarie
Office Limited ("Macquarie") a publicly-traded office products firm based in
Sydney, Australia. Since the acquisition of this controlling interest,
Macquarie, which is now named Corporate Express Australia, has become the
largest supplier of office products to large Australian corporations,
primarily through the acquisition of ten companies. The Company is currently
integrating the catalog, operations and distribution facilities of these
acquired companies. Corporate Express Australia also made three acquisitions
in New Zealand in fiscal 1996. Due to a review of the consolidation of the
Australian office products market by the Australian Competition and Consumer
Commission, future acquisitions of office products suppliers in Australia, if
any, may be subject to heightened regulatory scrutiny.
In February 1995, the Company entered the Canadian market by acquiring two
office product suppliers in Vancouver, British Columbia and Calgary, Alberta.
Since then, the Company has acquired eight additional Canadian office products
suppliers, extending its geographic coverage throughout Canada. In fiscal
1996, the Company also acquired two same-day local delivery companies in
Canada. The Company plans to run its Canadian office products' operations as
part of its North American distribution network, and is structuring its
integration plans to that end. An in-stock catalog, modified to account for
market differences in Canada, was introduced in the Canadian regions in April
1996.
In fiscal 1995, Corporate Express entered the United Kingdom through the
acquisition of a controlling interest in The Chisholm Group, an office
products supplier in the London area. The Company purchased the remaining
interest in The Chisholm Group in fiscal 1996. Corporate Express has acquired
eight other U.K. office products suppliers, including seven in fiscal 1996,
extending its geographic coverage throughout the United Kingdom.
In fiscal 1996, the Company acquired five office products companies in
Germany and two in Italy. The Company entered the French market with the
acquisition of Nimsa S.A. ("Nimsa"), a computer software reseller, in October
1996.
4
<PAGE>
Expansion into international markets involves unique risks in addition to
those risks relating to acquisitions in general. These risks include risks
relating to implementing elements of the Company's corporate supplier 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 and other factors.
EXPANSION STRATEGY
The Company historically has grown and intends to continue to grow in the
future through a combination of acquisitions and internal growth. The Company
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. The Company believes that
its expanded product line and expanding geographic coverage enable it to offer
its customers a broad array of non-production goods and services to address
their desire to reduce the number of suppliers with which they interact.
Corporate Express seeks to attract new customers, including national and
international accounts, through the marketing efforts of its direct sales
force. Further, the mergers with U.S. Delivery Systems, Inc. ("Delivery") and
UT have expanded the Company's delivery capabilities and geographic coverage
in the United States and Corporate Express intends to increase development of
sales efforts in these new geographic areas. In addition, the Company may open
additional satellite sales offices and distribution breakpoints to serve new
accounts.
The Company believes that its domestic and international network of
centrally-managed warehouses, computer systems and direct sales force provide
the infrastructure to supply corporate customers with a broad range of non-
production goods and services. Since 1994, the Company has added, through
acquisitions, the following major product and service categories: forms
management, same-day local delivery services, distribution logistics
management, computer and imaging supplies, desktop software, advertising
specialties, and janitorial and cleaning supplies. The Company may add
additional product categories either internally or through acquisitions in the
future and may increase its presence in existing product and service
categories through adding new customers, acquisitions or product line
expansion.
The additions by the Company of new products and services presents certain
risks and uncertainties resulting from the Company's relative unfamiliarity
with these new products and services, the market for such new products and
services, and the financial and operating controls required to manage such new
product and service offerings. There can be no assurance that the Company will
be successful in marketing these or other additions to its product and service
offering or that its existing customers will accept such additions to the
products and services currently purchased from the Company.
STRUCTURE AND INTEGRATION OF ACQUISITIONS
The Company has grown through numerous acquisitions of smaller United States
office products and service companies and the Company expects that such
acquisitions will continue to be an important contributor to the future growth
of its operations. However, there can be no assurance that the Company will be
able to continue to complete acquisitions at the same rate or of the type that
it has in the past or that such acquisitions, if completed, will prove to be
beneficial to the Company. Many of these acquisitions involve companies with
annual sales of less than $30 million including companies in international
markets such as Canada, Australia, the United Kingdom, New Zealand, Germany,
France and Italy.
Consideration for all acquisitions typically involves any or all of cash,
promissory notes and, in certain cases, common stock. Acquisitions are made
pursuant to acquisition agreements containing customary representations,
warranties, covenants and indemnification provisions. The Company typically
obtains noncompete and confidentiality agreements from selling owners and may
enter into employment agreements with key personnel of the acquired company.
The Company generally seeks to increase the sales, profitability and asset
productivity of its acquisitions by combining them with the Company's existing
operations, implementing the Company's business model and
5
<PAGE>
eliminating redundant facilities. Integration of acquisitions is often a
complex process which may entail material nonrecurring expenditures, including
facility closing costs, warehouse assimilation expenses, asset writedowns and
severance payments.
These expenditures have in the past had, and may continue to have, an
adverse impact on the Company's results of operations. Integration of
acquisitions generally involves the following elements:
Elimination of Redundant Facilities and Services. In cases where acquired
companies have facilities, systems and administrative functions in the
Company's existing markets, these operations are eliminated or consolidated
with Corporate Express' existing operations.
Upgrading of Facilities. In addition to eliminating redundant facilities,
Corporate Express has undertaken a program to upgrade certain of its
existing facilities to enable these facilities to handle higher sales
volumes resulting from its acquisition activity and internal growth. These
upgrades include modernization of equipment and computer systems, phone
systems and wide area network standardization and the reconfiguration of
inventory within the warehouse. Corporate Express will also, where
appropriate, develop new distribution facilities into which existing,
outdated facilities will be combined. Planned expenditures for such
upgrading and development are included in the Company's capital expenditure
budget.
Consolidation of Purchasing Power. As part of its integration of
acquisitions, Corporate Express takes advantage of its volume purchasing
power and seeks to negotiate better prices and terms from suppliers.
Implementation of Proprietary Computer Software. Acquired companies are
generally incorporated into the Company's proprietary computer software
environment, including EDI, common master information files, national
accounts software and customer ordering, inventory management software,
etc. Certain elements of these implementations will be timed with respect
to recent acquisitions to coincide with introduction of the Company's next
generation of computer software. See "--Proprietary Computer Software
Applications."
The Company implements various aspects of the Corporate Express business
model as is appropriate in various international acquisitions. The Company has
typically retained existing management and information systems and may,
depending on the circumstances, either accelerate or defer implementation of
the In-Stock Catalog and modifications to the information systems. Similarly,
with respect to the acquisition of companies which offer complementary
products, the Company concentrates initially on marketing efforts to expand
the customer base to include many of the Company's existing customers for
other products while it enhances and expands its product and services
offering.
The Company anticipates that acquisitions will continue to constitute a
component of growth in revenue and operating income. However, there can be no
assurance that the Company 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. The Company may require
additional debt or equity financing for future acquisitions, which additional
financing may not be available on favorable terms. The failure to complete
acquisitions and/or continue its expansion could impact the Company's
financial performance.
As the Company proceeds with its acquisition strategy, it will continue to
encounter certain risks associated with some acquisitions. There can be no
assurance that the Company's 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 the Company's operations and
acquisition activity. In addition, there can be no assurance that the Company
will be able to successfully implement its business plan in a timely manner
without substantial costs, delays or other problems. Various acquisitions may
not achieve sales, profitability and asset productivity commensurate with
Corporate Express' other operations or its expectations and the addition of
new product or service offerings will frequently create risk and uncertainties
with respect to the operation, control and
6
<PAGE>
management of acquired business units. In addition, consolidation,
centralization and integration of widely dispersed businesses 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, management of
disparate financial and accounting reporting systems, 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 the Company's operations and financial performance.
INDUSTRY AND GEOGRAPHIC SEGMENT DATA
Information on the Company's industry and geographic segments is presented
in Note 14 of the Notes to the Consolidated Financial Statements.
COMPETITION
Corporate Express operates in a highly competitive environment. The
Company's principal competitors in North America for office supplies and
computer products include both regional and national contract stationers
(including the contract stationer operations of office products superstores),
large direct resellers, privately-held companies that generally operate in
only one location, and distributors of business software for personal
computers. In the delivery services sector the Company has numerous
competitors, certain of which have service capabilities which are similar to
the Company's and others which provide different types or levels of service.
Each of the Company's major product and service categories are a part of
fragmented industries which are currently experiencing a trend toward
consolidation. Although the Company believes its pricing is competitive with
its competitors, Corporate Express also seeks to differentiate itself from its
competitors in each of its major product and service categories through its
service offering. Certain of the Company's competitors have greater financial
resources than Corporate Express. However, Corporate Express believes that its
Corporate Supplier business model increases its differentiation from its
competitors by offering through a single source a unique selection of products
and services for the corporate office.
EMPLOYEES
As of April 30, 1997, the Company had approximately 27,000 full-time
employees, 4,700 of whom were employed primarily in management and
administration, 15,800 in regional warehouse, delivery and distribution
operations and 6,500 in sales and marketing, order processing and customer
service. As of April 30, 1997, approximately 270, or 1%, of the Company's
employees were members of labor unions.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water as well as handling
and disposal practices for solid and hazardous wastes, or (ii) impose
liability for the costs of cleaning up, and certain damages resulting from,
sites of past spills, disposals or other releases of hazardous substances.
Certain of the Company's subsidiaries operate printing facilities which may
generate, or may have generated in the past, hazardous wastes, and the Company
operates a fleet of vehicles, the maintenance or fueling of which may generate
hazardous waste.
The Company currently is not aware of any environmental conditions relating
to present or past waste generation at or from these facilities, or any other
of the Company's facilities or operations, that would be likely to have a
material adverse effect on the financial condition or results of operations of
the Company. However, there can be no assurance that environmental liabilities
in the future will not have a material adverse effect on the financial
condition or results of operations of the Company.
7
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IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Some of the information presented in this report constitutes forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Although the Company believes that its expectations are based on
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results of the Company's
operations will not differ materially from its expectations. Factors which
could cause actual results to differ from expectations include, among others,
uncertainties related to integrating recent acquisitions, uncertainties
relating to operating the Company's new product and service offerings,
uncertainties related to legislation with respect to independent contract
drivers, uncertainties related to future domestic and international
acquisitions, uncertainties related to the Company's systems and proprietary
software, uncertainty of whether the Company's activities will continue to be
successful, and uncertainties related to competition and to the demand for the
products and services offered for sale by the Company.
ITEM 2. PROPERTIES
As of April 30, 1997, Corporate Express owned approximately 42 facilities
and leased approximately 664 facilities. Of these 706 total facilities, one is
the Company's corporate headquarters in Broomfield, Colorado, 80 are product
distribution centers, 625 are sales and service facilities. The Company's
principal properties are as follows:
<TABLE>
<CAPTION>
SALES AND
DISTRIBUTION SERVICE
CENTERS FACILITIES
------------ ----------
<S> <C> <C>
United States...................................... 43 578
Australia.......................................... 12 --
New Zealand........................................ 6 --
Canada............................................. 6 19
United Kingdom..................................... 7 17
France............................................. 1 --
Germany............................................ 4 11
Italy.............................................. 1 --
--- ---
Total............................................ 80 625
=== ===
</TABLE>
The Company periodically evaluates the location and efficiency of its
facilities to maximize customer satisfaction and increase economies of scale.
The Company plans to eliminate redundant facilities such that it typically
will operate product distribution from a single regional warehouse with
satellite sales offices and distribution breakpoints in each of its regions.
The Company may also close, consolidate or relocate regional warehouses,
satellite sales offices and distribution breakpoints from time to time.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine legal proceedings incidental to the
conduct of its business. Management believes that none of these legal
proceedings will have a material adverse effect on the financial condition or
results of operations of the Company. The Company maintains general liability
and business interruption insurance coverage in amounts which it believes to
be adequate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
8
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since the Company's initial public offering of its Common Stock on September
23, 1994, the Company's Common Stock has traded on the Nasdaq National Market
under the symbol "CEXP." The following table sets forth, for the fiscal
quarters indicated, the high and low closing sale prices for the Common Stock,
as reported by the Nasdaq National Market, and reflect the 50% share dividend
distributed by the Company in January 1997:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1995
First Quarter.............................................. $13.33 $10.22
Second Quarter............................................. 17.17 12.67
Third Quarter.............................................. 19.92 13.33
Fourth Quarter............................................. 21.09 15.42
Fiscal 1996
First Quarter.............................................. 28.17 19.25
Second Quarter............................................. 30.54 21.83
Third Quarter.............................................. 26.08 18.67
Fourth Quarter............................................. 23.75 16.63
</TABLE>
As of May 1, 1997 the Company's Common Stock was held by 774 holders of
record.
The Company has never paid a dividend on its Common Stock. The Company does
not anticipate paying any cash dividends on its Common Stock in the
foreseeable future because it intends to retain its earnings to finance the
expansion of its business and for general corporate purposes. Any payment of
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual
restrictions with respect to the payment of dividends and other relevant
factors. The Company's $350,000,000 revolving line of credit (the "Credit
Facility") prohibits the distribution of dividends without the prior written
consent of the lenders and the Indenture governing the 9 1/8% Senior
Subordinated Notes due 2004 (the "Senior Notes") prohibits the Company from
paying a dividend which would cause a default under such Indenture or which
would cause the Company to fail to comply with certain financial covenants.
During the fiscal quarter ended March 1, 1997, in connection with certain
business acquisitions, the Company issued 3,762,978 shares of common stock to
former shareholders of the acquired companies in exchange for such
shareholders' shares of capital stock. All of the issuances of common stock by
the Company during the quarter ended March 1, 1997 pursuant to exemptions from
registration under Section 4(2) of the Securities Act of 1933, as amended.
9
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for fiscal 1996 (ending
March 1, 1997), 1995 (ending March 2, 1996), and 1994 (ending February 25,
1995) have been derived from the Company's consolidated financial statements
which have been audited by independent auditors. The selected consolidated
financial data for fiscal 1993 and 1992 is derived from unaudited consolidated
financial statements. The unaudited consolidated financial statements have
been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, contain all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company.
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
Statements of Operations
Data:(1)
Net sales............. $ 3,196,056 $ 1,890,639 $ 1,145,151 $ 520,956 $ 420,030
Cost of sales(2)...... 2,417,746 1,417,366 855,361 402,142 323,922
Merger related inven-
tory provisions(3)... -- 5,952 -- 1,146 --
----------- ----------- ----------- --------- ---------
Gross profit........ 778,310 467,321 289,790 117,668 96,108
Warehouse operating and
selling expenses....... 562,879 342,581 219,213 97,054 76,056
Corporate general and
administrative
expenses............... 95,101 49,742 29,624 13,063 12,408
Merger and other nonre-
curring charges(4)..... 19,840 36,838 -- 1,928 2,592
----------- ----------- ----------- --------- ---------
Operating profit...... 100,490 38,160 40,953 5,623 5,052
Interest expense, net... 26,949 17,968 16,915 5,014 4,972
Other income (expense).. 244 1,786 562 (104) (993)
----------- ----------- ----------- --------- ---------
Income (loss) before in-
come taxes............. 73,785 21,978 24,600 505 (913)
Income tax expense...... 33,649 13,766 8,294 2,316 1,567
----------- ----------- ----------- --------- ---------
Income (loss) before mi-
nority interest........ 40,136 8,212 16,306 (1,811) (2,480)
Minority interest
(income)/expense....... (1,860) 1,436 69 152 --
----------- ----------- ----------- --------- ---------
Income (loss) from con-
tinuing operations..... 41,996 6,776 16,237 (1,963) (2,480)
Loss from discontinued
operations(5).......... -- 1,225 327 712 4,571
----------- ----------- ----------- --------- ---------
Income (loss) before ex-
traordinary item....... 41,996 5,551 15,910 (2,675) (7,051)
Extraordinary item(6)... -- -- 586 (1,169) --
----------- ----------- ----------- --------- ---------
Net income (loss)..... $ 41,996 $ 5,551 $ 16,496 $ (3,844) $ (7,051)
=========== =========== =========== ========= =========
Pro forma net income
(loss)(7).............. $ 40,281 $ 5,140 $ 15,769 $ (5,124) $ (7,390)
=========== =========== =========== ========= =========
Weighted average common
shares outstanding..... 130,029 110,408 80,993 55,598
Pro forma net income
(loss) per common
share:(8)
Continuing opera-
tions................ $ 0.31 $ 0.06 $ 0.19 $ (0.09)
Discontinued opera-
tions................ -- (0.01) (0.01) (0.01)
Extraordinary item.... -- -- 0.01 (0.02)
----------- ----------- ----------- ---------
Net income (loss)..... $ 0.31 $ 0.05 $ 0.19 $ (0.12)
=========== =========== =========== =========
Balance Sheet Data:(1)
Working capital....... $ 393,653 $ 253,693 $ 166,421 $ 96,880 $ 50,771
Total assets.......... 1,843,977 1,023,365 645,309 446,189 160,510
Long-term debt and
capital lease
obligations.......... 633,250 163,399 188,340 177,523 52,375
Shareholders' equity
and redeemable
preferred(9)......... 693,607 521,776 259,325 116,363 39,584
</TABLE>
- --------
(1) The Hermann Marketing, Inc. ("HMI") acquisition (effective January 30,
1997), the Sofco-Mead, Inc. ("Sofco") acquisition (effective January 24,
1997), the UT acquisition (effective November 8, 1996), the Nimsa
acquisition (effective October 31, 1996), the U.S. Delivery, Inc.
("Delivery") acquisition (effective
10
<PAGE>
March 1, 1996), the Richard Young Journal, Inc. ("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 HMI, Sofco, UT, Nimsa, Delivery, Young and
Lucas accounts and results are included for all applicable periods.
(2) Cost of sales includes occupancy and delivery expenses.
(3) Reflects the write-down to fair market value of certain inventory which
the Company decided to eliminate from its product line.
(4) Merger and other nonrecurring charges relate primarily to the mergers with
Sofco, HMI, Nimsa and UT in fiscal 1996, Delivery and Young in fiscal 1995
and Lucas in fiscal 1993 and include, among other things, costs to
complete the acquisitions, merging and closing redundant facilities,
personnel reductions and centralizing certain administrative functions.
(5) In fiscal 1995, Sofco adopted a plan to discontinue Sofco-Eastern, Inc;
and in February 1993, Lucas adopted a plan to discontinue its retail
operations.
(6) Reflects extraordinary loss related to a write-off of an unamortized
discount on debt in fiscal 1993 and extraordinary gain related to the
repurchase by the Company of $10 million principal amount of Notes in
fiscal 1994.
(7) Pro forma net income reflects the additional taxes that would be incurred
to treat a subchapter S acquisition as if the acquired company was a C
corporation.
(8) Pro forma net income (loss) per common share is calculated by dividing pro
forma net income (loss), after preferred stock dividend requirements of
Young of $432,000 and $1,500,000 for fiscal 1994 and fiscal 1993,
respectively.
(9) Redeemable preferred was converted to common stock in fiscal 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes thereto appearing elsewhere in this
Form 10-K.
Some of the information presented in this Form 10-K constitutes forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Company believes that its expectations are
based on reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results of the
Company's operations and acquisition activities and their effect on the
Company's results of operations will not differ materially from its
expectations. See Item 1.--"Business--Important Factors Regarding Forward
Looking Statements."
GENERAL
Corporate Express has grown primarily through a series of acquisitions
including the acquisition of HMI on January 30, 1997, Sofco on January 24,
1997, UT on November 8, 1996, Nimsa on October 31, 1996, Delivery on March 1,
1996, and Young on February 27, 1996, all of which were accounted for as
poolings of interest. Accordingly, the Consolidated Financial Statements have
been restated to include the accounts and operations of Sofco, HMI, Nimsa,
Delivery and Young for all periods prior to the mergers. The accompanying
financial statements have been restated to include the operations of UT
effective March 3, 1996 and Nimsa effective for fiscal 1995. Reference to
fiscal 1996 refers to the year ended March 1, 1997 for Corporate Express and
all pooled companies. Reference to fiscal 1995 refers to the year ended March
2, 1996 for Corporate Express, Delivery, Young, and Sofco, to the year ended
December 31, 1995 for HMI, and to the year ended June 30, 1996 for Nimsa.
Reference to the fiscal year 1994 and prior fiscal years refers to the
February year end for Corporate Express, to the December 31 year end for
Delivery and HMI, to the May 31 year end for Sofco, to the June 30 year end
for Nimsa, and to the September 30 year end for Young.
During the third and fourth quarters of fiscal 1996, the Company recorded
net expense of $12,366,000 and $7,474,000 primarily related to the mergers
with Nimsa and UT in the third fiscal quarter and Sofco and HMI in the fourth
fiscal quarter, respectively. These merger and other nonrecurring charges
primarily consisted of transaction costs, severance, facility closure costs
and asset writedowns.
11
<PAGE>
The Company continues to significantly increase the scope of its operations
throughout the United States, Canada, the United Kingdom, and Australia, and
has entered new markets with acquisitions in New Zealand, Germany, France and
Italy. Corporate Express expanded the delivery service segment through the
acquisition of UT and other delivery companies. Substantial emphasis will be
placed in fiscal 1997 on improving operations while implementing the Corporate
Express business model in the most recently acquired operations and on
pursuing additional acquisition opportunities. These anticipated acquisitions,
if they occur, will result in increased accounts receivable, inventory,
accounts payable and other account balances, as well as increased warehouse
closing costs in future periods. Implementation of the Company's expansion and
acquisition strategy, both domestically and internationally, involves
significant risks and uncertainties. See Item 1.--"Business--International
Operations"; "Expansion Strategy"; "Structure and Integration of
Acquisitions."
In addition to acquisitions, Corporate Express will place substantial
emphasis on internal growth through implementation of the Corporate Express
business model, including increased sales of the Company's various product
lines to existing customers. The Company also 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.
International markets historically have higher gross profit margins and
higher operating costs than the Company experiences domestically. Certain
complementary products now offered by the Company, such as computer software,
have lower gross profit margins and lower operating costs than the products
traditionally sold by the Company. In addition, the acquisition of companies
with break-even or marginal operating results may impact the operating margins
and profitability of the Company.
RESULTS OF OPERATIONS
The following table sets forth the percentages which the items in the
Company's consolidated statements of operations bear to net sales for the
periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Statements of Operations Data:
Net sales............................................. 100.0% 100.0% 100.0%
Cost of sales......................................... 75.6 75.0 74.7
Merger related inventory provisions................... -- 0.3 --
----- ----- -----
Gross profit........................................ 24.4 24.7 25.3
Warehouse operating and selling expenses.............. 17.6 18.1 19.1
Corporate general and administrative expenses......... 3.0 2.6 2.6
Merger and other nonrecurring charges................. 0.6 1.9 --
----- ----- -----
Operating profit.................................... 3.2 2.1 3.6
Interest expense, net................................. 0.8 1.0 1.5
Other income.......................................... 0.0 0.1 0.0
----- ----- -----
Income before income taxes.......................... 2.4 1.2 2.1
Income tax expense.................................... 1.1 0.7 0.7
----- ----- -----
Income before minority interest..................... 1.3 0.5 1.4
Minority interest (income) expense.................... (0.0) 0.1 0.0
----- ----- -----
Income from continuing operations................... 1.3 0.4 1.4
Loss from discontinued operations..................... -- 0.1 0.0
----- ----- -----
Income before extraordinary item...................... 1.3 0.3 1.4
Extraordinary gain.................................... -- -- 0.0
----- ----- -----
Net income.......................................... 1.3% 0.3% 1.4%
===== ===== =====
Pro forma net income................................ 1.3% 0.3% 1.4%
===== ===== =====
</TABLE>
12
<PAGE>
FISCAL YEARS 1996 AND 1995
Net Sales. Consolidated net sales increased 69.0% to $3,196,056,000 in
fiscal 1996 from $1,890,639,000 in fiscal 1995. Net sales for the Company's
product distribution segment increased 57.4% to $2,436,296,000 in fiscal 1996
from $1,548,175,000 in fiscal 1995 while net sales for its service segment
increased 121.9% to $759,760,000 from $342,464,000 in the same periods. These
increases were primarily attributable to 100 acquisitions in fiscal 1996 of
which 77 were product based companies (48 domestic and 29 international) and
23 were service based companies (21 domestic and two international) and the
merger with UT, which was accounted for as a pooling of interests with the
result of operations included from March 3, 1996 (prior year results were
immaterial). Also contributing to the sales increase was strong internal
growth reflecting increased market penetration in products distribution. HMI,
Nimsa and Sofco were accounted for as material poolings of interest and their
results of operations were included for all applicable periods.
International operations accounted for 17.7% of total sales or $565,126,000
in fiscal 1996 and 12.6% of total sales or $238,201,000 in fiscal 1995. The
Company expanded its international operations in fiscal 1996 to include
operations in New Zealand, Germany, France, and Italy.
Gross Profit. Cost of sales includes merchandise, occupancy and delivery
costs. Consolidated gross profit as a percentage of sales was 24.4% for fiscal
1996 compared to 24.7% for fiscal 1995. Included in cost of sales in fiscal
1995 is a merger related inventory provision of $5,952,000, representing 0.3%
of sales. In fiscal 1995, the Company made the decision to expand to new
product categories, while discontinuing certain low-end products, to
standardize core product lines and to eliminate certain inventory historically
maintained for specific customers and wrote certain inventory down to its fair
market value. Impacting the declining gross profit percentage in fiscal 1996
was the addition of a desktop software line of products which has
substantially lower gross profit margins, and decreased gross margins in the
delivery business.
The gross profit percentage of sales for the product distribution segment
was 24.0% in fiscal 1996 and 23.8% in fiscal 1995 (excluding the merger
related inventory provision). The increase reflects gross margin improvement
in all of the domestic office product distribution operations which was
partially offset by lower margin sales from an acquired desktop software
distributor. The improvement in domestic office product distribution gross
profit is due, in part, to the expanded usage of the Company's In-Stock
Catalog resulting in fewer wholesaler purchases and increased vendor rebates.
The gross profit percentage in the service segment was 25.5% in fiscal 1996
compared to 30.8% in fiscal 1995. The decrease in the gross profit percentage
in the service segment is primarily attributable to the acquisition of UT
which had lower gross profit margins than other delivery services operations.
Warehouse Operating and Selling Expenses. Warehouse operating and selling
expenses primarily include labor and administrative costs associated with
operating regional warehouses and sales offices, selling expenses and
commissions related to the Company's direct sales force, and warehouse
assimilation costs. Warehouse operating and selling expenses decreased as a
percentage of sales to 17.6% in fiscal 1996 from 18.1% in fiscal 1995. This
decrease is primarily attributable to the Company's efforts to leverage and
streamline its operations and to the software distribution operation and UT,
both of which have lower operating expenses as a percentage of sales.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses include both the central expenses incurred to provide
corporate oversight and support for regional operations, and goodwill
amortization. Corporate general and administrative expenses increased to
$95,101,000 in fiscal 1996 from $49,742,000 in fiscal 1995, reflecting the
Company's expanded operations. As a percentage of net sales, corporate general
and administrative expenses increased to 3.0% in fiscal 1996 from 2.6% in
fiscal 1995. This increase reflects increased goodwill amortization resulting
from purchase acquisitions in fiscal 1995 and fiscal 1996 and costs associated
with developing a larger corporate staff to support acquisition efforts and
expanded operations, including an expanded information system staff.
Merger and Other Nonrecurring Charges. During fiscal 1996, the Company
recorded $19,840,000 in net merger and other non-recurring charges primarily
in conjunction with the acquisitions of Nimsa, UT, Sofco and
13
<PAGE>
HMI. Of the total charge, a net $12,366,000 was recorded in the third quarter
and $7,474,000 was recorded in the fourth quarter of fiscal 1996. The third
quarter charge is comprised of $19,937,000 in merger and other nonrecurring
charges primarily in conjunction with the acquisitions of UT and Nimsa, offset
by $7,571,000 in adjustments to the merger and other nonrecurring charge
established in the fourth quarter of fiscal 1995, largely caused by changes in
delivery consolidation plans due to the acquisition of UT. The third quarter
charge includes the planned closure of 115 facilities and reduction of
approximately 485 employees. The fourth quarter charge primarily reflects the
actual costs of completing the acquisitions of Sofco and HMI. (See Note 3 to
the Consolidated Financial Statements).
Operating Profit. Consolidated operating profit was $100,490,000, or 3.2% of
net sales, in fiscal 1996, compared to operating profit of $38,160,000, or
2.1% of net sales, in fiscal 1995. Before merger related and other
nonrecurring charges, operating profit increased 48.6% to $120,330,000 in
fiscal 1996 from $80,950,000 in fiscal 1995, reflecting increased
acquisitions, internal growth, and improved operating efficiencies. Before
merger related and other nonrecurring charges, operating profit for the
product distribution segment increased 52.1% to $88,802,000, or 3.6% of net
sales, in fiscal 1996 from fiscal 1995 operating profit of $58,394,000 or 3.8%
of net sales. Operating profit before nonrecurring charges for the service
segment increased 39.8% to $31,528,000, or 4.1% of net sales, in fiscal 1996
from $22,556,000, or 6.6% of net sales, in fiscal 1995. The decrease in
operating profit for the service segment as a percentage of sales reflects the
results of UT which had lower operating margins, poor performance at several
delivery locations and expenses related to consolidation projects. Operating
profit before nonrecurring charges for international operations decreased to
1.1% of net international sales in fiscal 1996 from 3.9% of net international
sales in fiscal 1995 reflecting operating losses in Australia related to
warehouse consolidation projects and expansion to new European markets,
partially offset by increased operating profits in Canada. International
operating profit before nonrecurring charges accounted for 6.8% of total
office products operating profit in fiscal 1996 and 15.8% of total office
products operating profit in fiscal 1995.
Interest Expense. Net interest expense of $26,949,000 in fiscal 1996
increased from $17,968,000 in fiscal 1995. This increase reflects increased
borrowings under the Senior Credit Facility and the sale of $325,000,000
aggregate principal amount of the Company's 4 1/2% Convertible Notes due July
1, 2000 (the "Convertible Notes"). The proceeds from the sale of the Notes
were used to fund acquisitions and provide the additional working capital
required as a result of increased business and general corporate purposes. See
"Liquidity and Capital Resources."
Minority Interest. Minority interest income of $1,860,000 in fiscal 1996
compares to an expense of $1,436,000 in fiscal 1995, reflecting a 47.6%
minority interest in the operating losses at Corporate Express Australia
partially offset by a 49.0% minority interest in operating profits in
Corporate Express United Kingdom through November 1996. The Company acquired a
majority ownership interest in Corporate Express Australia in May 1995 and a
majority ownership interest in Corporate Express United Kingdom in December
1995. In November 1996, the Company acquired the remaining 49.0% ownership
interest in Corporate Express United Kingdom.
Net Income. Net income of $41,996,000 in fiscal 1996 compares to net income
of $5,551,000 in fiscal 1995. This increase reflects the increased profits
from the Company's more mature operations, the lower merger and other
nonrecurring charges recorded in fiscal 1996 and the purchase acquisitions.
The Company experienced an effective tax rate of 45.6% in fiscal 1996 compared
to 62.6% in fiscal 1995. The fiscal 1995 tax rate reflects certain non-
deductible merger costs, the utilization of certain net operating losses
("NOLs"), and certain non-deductible goodwill. The fiscal 1996 tax rate
reflects certain non-deductible merger costs and certain non-deductible
goodwill. The valuation allowance remaining in fiscal 1996 reflects net
operating losses subject to restriction on realization and certain loss
carryforwards of foreign subsidiaries acquired in fiscal 1996. The principal
reason the 1995 effective tax rate exceeds the 1996 rate is the higher level
of non-deductible merger costs in fiscal 1995.
Other. The net accounts receivable balance at March 1, 1997 of $494,199,000
increased $173,716,000 from $320,483,000 at March 2, 1996 primarily as a
result of acquired receivables and internal sales growth in
14
<PAGE>
existing regions. The allowance for doubtful accounts as a percentage of
consolidated accounts receivable was 2.6% and 2.1% at the end of fiscal 1996
and fiscal 1995, respectively. The Company's historical bad debt write-offs
have been very low due to the high credit quality of its customers, resulting
from the Company's focus on large corporations, and the fact that, in certain
acquisitions, the seller guarantees acquired receivables.
The inventory amount at March 1, 1997 of $187,558,000 increased $58,755,000
from $128,803,000 at March 2, 1996 primarily as a result of acquired
inventories and inventory growth to support increased sales.
Goodwill at March 1, 1997 of $671,967,000 increased $338,806,000 from
$333,161,000 reflecting additions from acquisitions of $357,125,000 offset by
current year amortization of $15,907,000 and reversals of $2,412,000.
The accounts payable trade balance at March 1, 1997 of $292,041,000
increased $114,746,000 from $177,295,000 at March 2, 1996 primarily as a
result of acquired trade payables.
Accrued purchase costs at March 1, 1997 of $12,888,000 increased by
$9,839,000 from the March 2, 1996 balance of $3,049,000. This increase
reflects acquisition additions of $21,429,000, payments of $9,178,000, and
reversals of $2,412,000 against goodwill. Of the remaining balance, $9,233,000
represents the current estimate for costs to be incurred in conjunction with
consolidation projects in the international operations.
FISCAL YEARS 1995 AND 1994
Net Sales. Net sales increased 65.1% to $1,890,639,000 in fiscal 1995 from
$1,145,151,000 in fiscal 1994. Net sales in the product distribution segment
increased 67.4% to $1,548,175,000 in fiscal 1995 from $924,886,000 in fiscal
1994, while the service segment increased 55.5% to $342,464,000 from
$220,265,000 in the same periods. These increases were primarily attributable
to 51 acquisitions, of which 28 were product based companies (17 domestic and
11 international), seven were repurchases of computer product franchises by
Young, and 16 were service based companies principally in the delivery
services business (all domestic). Also contributing to the sales increase was
the inclusion of the results of operations of acquisitions accounted for as
purchases during fiscal 1995 and internal growth.
Gross Profit. Consolidated gross profit as a percentage of sales was 24.7%
for fiscal 1995 compared to 25.3% for fiscal 1994. Included in cost of sales
for fiscal 1995 is a merger related inventory provision of $5,952,000. The
gross profit percentage, excluding the merger related inventory provision was
25.0% in fiscal 1995. The gross profit percentage in product distribution,
excluding the merger related inventory provision was 23.8% in fiscal 1995
compared to 23.9% in fiscal 1994 and services segment gross profit percentage
was 30.8% in fiscal 1995 compared to 31.3% in fiscal 1994. Decreases in
services are primarily attributable to increased delivery costs resulting from
unusually severe weather in the Northeast.
Warehouse Operating and Selling Expenses. Warehouse operating and selling
expenses decreased as a percentage of sales to 18.1% in fiscal 1995 from 19.1%
in fiscal 1994. This decrease reflects cost savings as a result of the
implementation of the Corporate Express business model at certain regional
warehouses, which includes centralizing certain administrative functions. Also
contributing to this decrease is a reduction of approximately $3,100,000 in
Delivery compensation expense which was eliminated in fiscal 1995 pursuant to
agreements made in connection with companies acquired in poolings of interest
acquisitions.
Corporate General and Administrative Expenses. As a percentage of net sales,
corporate general and administrative expenses were 2.6% in both fiscal 1995
and fiscal 1994. Expenses increased to $49,742,000 in fiscal 1995 from
$29,624,000 in fiscal 1994, reflecting the Company's expanded operations.
Merger and Other Nonrecurring Charges. During the fourth quarter of fiscal
1995, the Company recorded $36,838,000 in merger and other nonrecurring
charges (in addition to $5,952,000 in merger related inventory provisions)
primarily in conjunction with the acquisitions of Delivery and Young. The
charges include the actual costs of completing the acquisitions and additional
costs associated with a plan to integrate the combined
15
<PAGE>
companies' operations. The major activities associated with the plan include
merging various Delivery and Young facilities into Company locations, closing
duplicate facilities and centralizing certain administrative functions. These
merger and other nonrecurring charges include merger transaction related costs
of $13,273,000; severance and employee termination costs of $7,457,000
(representing approximately 760 employees); facility closure and consolidation
costs of $9,693,000; and other asset write-downs and costs of $6,415,000. Of
the $36,838,000 charges, $7,724,000 are non-cash charges.
Operating Profit. Operating profit of $38,160,000 in fiscal 1995 compares to
operating profit of $40,953,000 in fiscal 1994. Operating profit before
nonrecurring charges for product distribution increased to $58,394,000 in
fiscal 1995 from $29,811,000 in fiscal 1994. This increase reflects the
contribution of acquired companies and increased regional operating profits at
the Company's other regional operations. Operating profit before nonrecurring
charges for services increased to $22,556,000, or 6.6% of net sales, in fiscal
1995 from $11,142,000, or 5.1% of net sales, in fiscal 1994.
Interest Expense. Net interest expense increased to $17,968,000 in fiscal
1995 from $16,915,000 in fiscal 1994. Increases due to the elimination of the
0.5% per annum additional illiquidity payment of the Senior Notes effective
upon completion of a registered exchange offer in March 1995 and principal
reductions on the line of credit using funds from the public offerings of
Common Stock completed in March 1995 and September 1995 were offset by higher
levels of Delivery, Young and HMI debt outstanding as a result of their
increased borrowings to fund acquisitions and to provide the additional
working capital required as a result of increased business. On February 27,
1996, the Company borrowed on its line of credit and repaid in full, as
required under its terms, the Young revolving line of credit balance of
$10,809,000 which bore interest at prime plus 1.25%, the Young subordinated
debt of $11,930,000 which bore interest at 17.5% and debt payable to the
selling shareholders of $10,834,000 which bore interest at 9.75%. The Delivery
bank credit facility became due as of the acquisition date due to a change of
control provision. This facility was amended to expire on May 31, 1996 to
provide time for the Company to renegotiate its primary bank revolver, which
has been completed and the Delivery credit facility has been repaid. See
"Liquidity and Capital Resources."
Extraordinary Item. The extraordinary gain of $586,000, net of tax, in the
second quarter of fiscal 1994 related to the repurchase of $10,000,000
principal amount of Senior Notes.
Net Income. Net income of $5,551,000 in fiscal 1995 decreased compared to a
net income of $16,496,000 in fiscal 1994. This decrease reflects the merger
and other nonrecurring charges recorded in fiscal 1995 offset by contributions
from purchase acquisitions and increased profits from the Company's more
mature operations. The pre-tax profitability is reduced by an increase in the
effective tax rate to 62.6% in fiscal 1995 from 33.7% in fiscal 1994. The
fiscal 1995 tax rate reflects certain non-deductible merger costs,
international tax rates, the utilization of certain NOLs, and certain non-
deductible goodwill. The fiscal 1994 tax rate included the utilization of
certain NOLs and certain non-deductible goodwill. The principal reason the
1995 effective tax rate exceeds the 1994 effective tax rate is the non-
deductibility of certain merger costs. The fiscal 1994 period included in net
income an extraordinary gain of $586,000, net of tax, related to the
repurchase of $10,000,000 principal amount of Notes.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations through internally
generated funds and borrowings from commercial banks and has financed its
acquisitions through the use of such funds and the issuance of equity and debt
securities.
The Company's revolving credit facility (the "Senior Credit Facility") was
amended and restated on November 26, 1996 to increase the borrowing capacity
from $90,000,000 to $350,000,000, extend the facility termination date to
March 31, 2000, lower the cost of its borrowings to LIBOR plus .50%, unsecure
the assets of the Company (the previous facility was secured by substantially
all of the assets, including accounts receivable and inventory of the Company
and its United States subsidiaries), and to make certain other changes. The
Senior
16
<PAGE>
Credit Facility was previously amended on May 10, 1996 to increase the
Company's borrowing capacity from $90,000,000 to $250,000,000, subject to
borrowing base and other restrictions and to lower the cost of its borrowings
to LIBOR plus 1.25%. On May 31, 1996, the Company borrowed on its Senior
Credit Facility and repaid in full the $33,270,000 outstanding revolving
credit facility previously established by Delivery. On June 24, 1996, the
outstanding amounts under the Senior Credit Facility were paid in full from
funds generated from the issuance of the Convertible Notes. Upon this
repayment, the borrowing capacity of the Senior Credit Facility was reduced
from the amended capacity of $250,000,000 to $90,000,000, subject to borrowing
base and other restrictions. As of May 2, 1997, the Company had $145,000,000
outstanding under the Senior Credit Facility and an unused borrowing capacity
of $205,000,000.
On June 24, 1996, the Company issued $325,000,000 aggregate principal amount
of Convertible Notes. The notes are convertible into the Company's common
stock at a conversion price of $33.33 per share, subject to adjustments under
certain conditions. A portion of the proceeds from the sale of the Convertible
Notes was used to repay the Company's Senior Credit Facility and an
acquisition note payable with the remaining proceeds being used to fund
acquisitions and for other general corporate purposes.
During fiscal 1996, the Company acquired, for a net cash purchase price of
$241,846,000 and 5,542,000 shares of common stock, 77 office products
distributors and 23 service companies. Of these 100 acquisitions, 86 were
accounted for as purchases and 14 were accounted for as immaterial poolings of
interest. In addition, the Company acquired UT, which was accounted for as a
pooling of interests with financial results included from March 3, 1996 for
6,332,000 shares of common stock. Total liabilities assumed in connection with
these acquisitions were $282,777,000 (including accounts payable and assumed
debt). In addition, the Company made payments of approximately $13,984,000
related to prior acquisitions. Included in the net cash purchase price of
$241,846,000 is the purchase of ASAP, a computer software distribution
company, in May 1996 for approximately $98,000,000 in cash offset by cash
acquired of approximately $14,000,000.
The Company had capital expenditures of $119,639,000 in fiscal 1996 which
included $30,905,000 of capitalized software, $29,075,000 for the new
corporate headquarters facility in Broomfield, Colorado, and $10,804,000 for
the new warehouse facility in Miami, Florida.
Cash and cash equivalents increased by $24,686,000 in fiscal 1996. This
increase reflects proceeds of $325,000,000 from issuance of the convertible
debt, net borrowings on lines of credit of $104,382,000 and cash from
operations of $25,753,000, offset by capital expenditures of $119,639,000,
payments for acquisitions of $255,830,000, repayment of debt of $64,893,000
and net other additions of $9,913,000. Net cash provided by operating
activities of $25,753,000 reflects cash generated by net income plus non-cash
expenses, primarily depreciation and amortization, offset by an increase in
accounts receivable, inventories, and accrued liabilities reflecting increased
sales. The repayment of debt is primarily debt of acquired operations.
The Company expects net capital expenditures for fiscal 1997 of
approximately $95,000,000 comprised of approximately $64,000,000 to be used
for upgrading and enhancing its information systems, approximately $40,000,000
for warehouse reconfiguration and equipment, approximately $13,000,000 to be
used for acquisition related initial capital costs, and approximately
$3,000,000 for transportation and telecommunications equipment offset by
anticipated sales and lease backs or mortgages on a number of its facilities
of approximately $25,000,000. Actual capital expenditures for fiscal 1997 may
be greater or less than budgeted amounts.
During fiscal 1995, the Company purchased 45 companies for a net cash
purchase price of $96,971,000 and newly issued securities representing a 52.5%
interest in Corporate Express Australia for a net cash outlay of $98,000
($16,785,000 purchase price less cash acquired of $16,687,000). The Company
also repurchased seven computer product franchises for $21,187,000. Total
liabilities assumed in connection with these acquisitions were $118,447,000
(including accounts payable and assumed debt). In addition, the Company made
payments of approximately $6,044,000 related to acquisitions completed in
fiscal 1994. During fiscal 1995, the Company sold its high-end furniture
business for $4,362,000, which was acquired as part of the acquisition of
Joyce International, Inc.'s office products division ("Joyce"). The sale was
contemplated at the time of the Joyce acquisition and was reflected in the
financial statements accordingly.
17
<PAGE>
Cash and cash equivalents increased by $14,314,000 in fiscal 1995. This
increase reflects net proceeds from the sale of common stock of $449,288,000
(primarily from the March and September 1995 public offerings) offset by the
purchase of common stock held by OfficeMax, Inc. for $195,831,000, net
payments on the line of credit of $18,871,000, payments for capital
expenditures during fiscal 1995 of $53,124,000, cash paid for acquisitions of
$124,300,000, cash used for operations and repayment of debt of $99,838,000
and net other additions of $56,990,000. Net cash used for operating activities
of $16,433,000 reflects cash generated by net income plus non-cash expenses
offset by an increased investment in accounts receivable and inventories
reflecting increased sales and the introduction of the In-Stock Catalog into
acquired operations. The repayment of debt includes the repayment of debt of
acquired companies.
The Company believes the borrowing capacity under the credit facility,
together with proceeds from future debt and/or equity activity, coupled with
its cash on hand, capital resources and cash flows, will be sufficient to fund
its ongoing operations, anticipated capital expenditures and acquisition
activity for the next twelve months. However actual capital needs may change,
particularly in connection with acquisitions which the Company may make in the
future.
INFLATION
Certain of the Company's product offerings, particularly paper products,
have been and are expected to continue to be subject to significant price
fluctuations due to inflationary and other market conditions. The Company
generally is able to pass such increased costs on to its customers through
price increases, although it may not be able to adjust its prices immediately.
Significant increases in paper, fuel and other costs in the future could
materially affect the Company's profitability if these costs cannot be passed
on to customers. In general, the Company does not believe that inflation has
had a material effect on its results of operations in recent years. However,
there can be no assurance that the Company's business will not be affected by
inflation in the future.
SEASONALITY AND QUARTERLY RESULTS
The Company's 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 ended August 31 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, more costly
delivery costs during inclement weather, and the acquisition of less efficient
operations. Quarterly results may be materially affected by the timing of
acquisitions and the timing and magnitude of acquisition 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.
Revenues and profit margins from the Company's local delivery services are
subject to seasonal variations. Prolonged inclement weather can have an
adverse impact on the Company's business to the extent that transportation and
distribution channels are disrupted.
ACCOUNTING STANDARDS
In the fourth quarter of fiscal 1997, the Company will adopt SFAS No. 128,
"Earnings per Share." This statement simplifies the standards for computing
earnings per share found in APB Opinion No. 15, "Earnings per Share" and makes
them comparable to international EPS standards. Had SFAS No. 128 been
effective during fiscal 1996, 1995 and 1994, (i) "Basic earnings per share"
under SFAS No. 128 would have been $0.33, $0.05 and $0.22, respectively, and
(ii) "Dilutive earnings per share" under SFAS No. 128 would have been $0.31,
$0.05 and $0.19, respectively.
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation"
during fiscal 1996 (See Note 11 to the consolidated financial statements).
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders ofCorporate Express, Inc.:
We have audited the accompanying consolidated financial statements and the
consolidated financial statement schedule of Corporate Express, Inc. as of
March 1, 1997 and March 2, 1996 and for the years ended March 1, 1997, March
2, 1996 and February 25, 1995 listed in the index in Item 14. 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 audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Corporate Express, Inc. as of March 1, 1997 and March 2, 1996 and the
consolidated results of their operations and their cash flows for the years
ended March 1, 1997, March 2, 1996, and February 25, 1995, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Denver, Colorado
April 18, 1997
19
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 1, MARCH 2,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 54,499 $ 29,813
Trade accounts receivable, net of allowance of
$13,004 and $6,964, respectively.................... 494,199 320,483
Notes and other receivables.......................... 55,530 30,046
Inventories.......................................... 187,558 128,803
Deferred income taxes................................ 29,076 18,470
Other current assets................................. 28,548 27,357
---------- ----------
Total current assets............................... 849,410 554,972
Property and equipment:
Land................................................. 14,105 8,715
Buildings and leasehold improvements................. 106,824 38,663
Furniture and equipment.............................. 249,693 130,497
---------- ----------
370,622 177,875
Less accumulated depreciation........................ (106,891) (60,744)
---------- ----------
263,731 117,131
Goodwill, net of accumulated amortization of $36,471
and $16,292, respectively............................. 671,967 333,161
Other assets, net...................................... 58,869 18,101
---------- ----------
Total assets....................................... $1,843,977 $1,023,365
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 1, MARCH 2,
1997 1996
---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable--trade............................... $ 292,041 $ 177,295
Accounts payable--acquisitions........................ 5,078 2,063
Accrued payroll and benefits.......................... 45,512 26,648
Accrued purchase costs................................ 12,888 3,049
Accrued merger and related costs...................... 18,484 24,880
Other accrued liabilities............................. 52,012 42,955
Current portion of long-term debt and capital leases.. 29,742 24,389
---------- ----------
Total current liabilities........................... 455,757 301,279
Capital lease obligations............................... 11,545 9,568
Long-term debt.......................................... 621,705 153,831
Deferred income taxes................................... 26,819 7,374
Minority interest in subsidiaries....................... 22,015 24,843
Other non-current liabilities........................... 12,529 4,694
---------- ----------
Total liabilities................................... 1,150,370 501,589
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock, $.0001 par value, 25,000,000 shares
authorized, none issued or outstanding............... -- --
Common stock, $.0002 par value, 300,000,000 shares
authorized, 126,171,467 and 111,954,350 shares issued
and outstanding, respectively........................ 25 22
Common stock, non-voting, $.0002 par value, 3,000,000
shares authorized, none issued or outstanding........ -- --
Additional paid-in capital............................ 646,536 513,358
Retained earnings..................................... 48,222 8,200
Foreign currency translation adjustments.............. (1,176) 196
---------- ----------
Total shareholders' equity.......................... 693,607 521,776
---------- ----------
Total liabilities and shareholders' equity........ $1,843,977 $1,023,365
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------
MARCH 1, MARCH 2, FEBRUARY 25,
1997 1996 1995
---------- ---------- ------------
<S> <C> <C> <C>
Net sales................................ $3,196,056 $1,890,639 $1,145,151
Cost of sales............................ 2,417,746 1,417,366 855,361
Merger related inventory provisions...... -- 5,952 --
---------- ---------- ----------
Gross profit........................... 778,310 467,321 289,790
Warehouse operating and selling
expenses................................ 562,879 342,581 219,213
Corporate general and administrative
expenses................................ 95,101 49,742 29,624
Merger and other nonrecurring charges.... 19,840 36,838 --
---------- ---------- ----------
Operating profit....................... 100,490 38,160 40,953
Interest expense, net.................... 26,949 17,968 16,915
Other income............................. 244 1,786 562
---------- ---------- ----------
Income before income taxes............. 73,785 21,978 24,600
Income tax expense....................... 33,649 13,766 8,294
---------- ---------- ----------
Income before minority interest........ 40,136 8,212 16,306
Minority interest (income) expense....... (1,860) 1,436 69
---------- ---------- ----------
Income from continuing operations...... 41,996 6,776 16,237
Discontinued operations:
Loss from discontinued operations...... -- -- 327
Loss on disposals...................... -- 1,225 --
---------- ---------- ----------
Income before extraordinary item....... 41,996 5,551 15,910
Extraordinary item:
Gain on early extinguishment of debt... -- -- 586
Net income............................. $ 41,996 $ 5,551 $ 16,496
========== ========== ==========
Pro forma net income (Note 13)........... $ 40,281 $ 5,140 $ 15,769
========== ========== ==========
Weighted average common shares
outstanding............................. 130,029 110,408 80,993
========== ========== ==========
Pro forma per common share:
Continuing operations.................. $ .31 $ .06 $ .19
Discontinued operations................ -- (.01) (.01)
Extraordinary item..................... -- -- .01
---------- ---------- ----------
Net income............................. $ .31 $ .05 $ .19
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 25, 1995, MARCH 2, 1996 AND MARCH 1, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOREIGN
PREFERRED STOCK COMMON STOCK ADDITIONAL CURRENCY
-------------------- ------------------- PAID-IN TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS
----------- ------- ----------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 28,
1994................... 26,980,000 $ 7,502 38,378,246 $ 8 $115,805 $ 9 $(6,963)
Issuance of common
stock.................. 31,602,150 6 138,300
Conversion of common
stock.................. 100,000 (112,500) --
Conversion of preferred
stock.................. (19,580,000) (2) 22,027,500 4 (2)
Redemption of preferred
stock.................. (7,500,000) (7,500)
Preferred stock
dividend............... (432)
S Corporation dividends
and other equity
transactions of pooled
companies.............. 117 (4,076)
Net income.............. 16,496
Foreign currency
translation
adjustment............. 50
----------- ------- ----------- --- -------- ------- -------
Balance, February 25,
1995................... -- -- 91,895,396 18 254,220 59 5,025
Issuance of common
stock.................. 20,058,954 4 245,573
Young capital
contribution........... 12,182
Adjustment to conform
fiscal year ends of
certain pooled
companies.............. 1,876
S Corporation dividends
and other equity
transactions of pooled
companies.............. 1,383 (4,252)
Net income.............. 5,551
Foreign currency
translation
adjustment............. 137
----------- ------- ----------- --- -------- ------- -------
Balance, March 2, 1996.. -- -- 111,954,350 22 513,358 196 8,200
Issuance of common
stock.................. 14,217,117 3 119,274
Tax benefit on non-
qualified stock options
exercised.............. 11,161
Adjustment to conform
fiscal year ends of
certain pooled
companies.............. (430)
S Corporation dividends
and other equity
transactions of pooled
companies.............. 2,743 (1,544)
Net income.............. 41,996
Foreign currency
translation
adjustment............. (1,372)
----------- ------- ----------- --- -------- ------- -------
Balance, March 1, 1997.. -- $ -- 126,171,467 $25 $646,536 $(1,176) $48,222
=========== ======= =========== === ======== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------
MARCH 1, MARCH 2, FEBRUARY 25,
1997 1996 1995
--------- --------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 41,996 $ 5,551 $ 16,496
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation............................... 30,319 18,765 10,705
Amortization............................... 18,417 9,733 6,373
Non-cash portion of merger and
restructuring charge...................... 3,761 10,268 --
Adjustment to conform fiscal years......... (430) 1,876 --
Gain on early extinguishment of debt....... -- -- (700)
Minority interest (income)/expense......... (1,860) 1,436 69
Other...................................... 1,496 (1,263) 492
Changes in assets and liabilities,
excluding acquisitions:
Increase in accounts receivable............ (45,552) (43,173) (29,672)
Increase in inventory...................... (12,015) (11,538) (5,934)
Increase in other current assets........... (1,984) (12,494) (3,338)
(Increase) decrease in other assets........ 3,694 (2,194) (1,260)
Increase (decrease) in accounts payable.... (667) (8,798) 16,167
Increase (decrease) in accrued
liabilities............................... (11,422) 15,398 2,638
--------- --------- ---------
Net cash provided by (used in) operating
activities................................. 25,753 (16,433) 12,036
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of assets............... 3,026 5,899 463
Capital expenditures....................... (119,639) (53,124) (18,670)
Payment for acquisitions, net of cash
acquired.................................. (255,830) (124,300) (87,886)
Purchase of marketable securities.......... (15,602) -- --
Other, net................................. (1,978) 72 (612)
--------- --------- ---------
Net cash used in investing activities....... (390,023) (171,453) (106,705)
--------- --------- ---------
Cash flows from financing activities:
Issuance of preferred and common stock..... 12,643 449,288 134,993
Stock offering costs....................... 0 (20,313) (9,388)
Issuance of subsidiary common stock........ 2,258 7,733 --
Young capital contribution................. -- 12,182 --
Purchase of common stock held by
OfficeMax................................. -- (195,831) --
Preferred stock redemption................. -- -- (7,500)
Debt issuance costs........................ (8,818) -- (869)
Proceeds from long-term borrowings......... 347,829 44,208 35,189
Repayments of long-term borrowings......... (37,948) (71,813) (35,422)
Proceeds from short-term borrowings........ 772 12,835 --
Repayments of short-term borrowings........ (26,945) (11,592) (11,095)
Cash paid to retire bonds.................. -- -- (9,300)
Net proceeds from (payments on) line of
credit.................................... 104,382 (18,871) 1,778
Other...................................... (4,833) (4,245) (1,647)
--------- --------- ---------
Net cash provided by financing activities... 389,340 203,581 96,739
--------- --------- ---------
Net cash provided by (used in) discontinued
operations................................. 61 (222) (600)
--------- --------- ---------
Effect of foreign currency exchange rate
changes on cash............................ (445) (1,159) 25
--------- --------- ---------
Increase in cash and cash equivalents....... 24,686 14,314 1,495
Cash and cash equivalents, beginning of
period..................................... 29,813 15,499 14,004
--------- --------- ---------
Cash and cash equivalents, end of period.... $ 54,499 $ 29,813 $ 15,499
--------- --------- ---------
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest... $ 35,526 $ 20,469 $ 13,829
--------- --------- ---------
Cash paid during the period for taxes...... $ 25,413 $ 16,046 $ 6,082
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations in the amount of $7,198,000, $4,305,000 and
$3,103,000 were incurred during fiscal 1996, 1995 and 1994, respectively, for
equipment.
During fiscal 1996, the Company acquired, for a net cash purchase price of
$241,846,000 and 5,542,000 shares of common stock, 77 office products
distributors and 23 service companies. Of these 100 acquisitions, 86 were
accounted for as purchases and 14 were accounted for as immaterial poolings of
interest. In addition, the Company merged with UT, which was accounted for as
a pooling of interests with financial results included from March 3, 1996 for
6,332,000 shares of common stock and Nimsa, which was accounted for as a
pooling of interests with financial results included beginning in fiscal 1995
for 1,125,000 shares of common stock. The Company completed 52 acquisitions
for a net cash outlay in fiscal 1995 of $118,256,000. During fiscal 1994, the
Company completed 24 acquisitions for a net cash outlay of $74,707,000. In
conjunction with the acquisitions, liabilities were assumed as follows:
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------
MARCH 1, MARCH 2, FEBRUARY 25,
1997 1996 1995
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fair value of assets acquired............... $620,252 $271,264 $135,248
Cash paid, net of cash acquired............. 241,846 118,256 74,707
Issuance of notes payable................... 4,650 11,111 --
Issuance of stock........................... 86,922 9,562 4,614
Forgiveness of debt......................... -- 11,138 150
Purchase price payable, included in current
liabilities................................ 4,057 2,750 5,325
-------- -------- --------
Liabilities assumed......................... $282,777 $118,447 $ 50,452
======== ======== ========
</TABLE>
In addition to the amounts set forth above, Corporate Express paid
$11,695,000 and $6,044,000 for prior period acquisitions during fiscal 1996
and fiscal 1995, respectively.
During fiscal 1996, the Company paid $2,289,000 to dissenting shareholders
of a pooled company; purchased a warehouse facility for 202,500 shares of
common stock; issued 107,207 shares of common stock to retire convertible debt
of $1,449,400 previously issued by one of the Company's acquired subsidiaries;
and acquired the remaining 49% interest in Corporate Express United Kingdom.
In January 1995, the Company purchased for $1,186,000 in cash, $1,000,000 in
accounts payable, and $650,000 in notes payable the remaining interest of a
company for which a majority interest was acquired in fiscal 1993.
In December 1994, the Company recorded a liability of $1,855,000 for
subsequent payments due to the sellers of a company acquired by Lucas in
fiscal 1993.
On September 30, 1994, the Company issued 14,610,000 shares of Common Stock
upon conversion of its Series A, B and C preferred on a two for one basis.
In August 1994, the Company purchased for $350,000 in cash and $100,000 in
notes payable a 45% interest in an office products distributor. During fiscal
1994, the Company paid $234,000 for additional expenses for prior period
acquisitions. In addition, the Company made a final payment of $11,409,000 for
the Hanson acquisition and Delivery distributed non-cash dividends of $493,000
to certain Delivery stockholders in fiscal 1994.
During January 1994, accrued dividends of $2,044,007 on Young's preferred
stock were converted to a subordinated promissory note. This note and accrued
interest of $138,712 was contributed as additional paid-in capital in December
1994.
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. As more fully described in Note 2, the
following acquisitions have been consummated by the Company:
. CEX Acquisition Corp., a wholly-owned subsidiary of the Company, was
merged with and into Young on February 27, 1996.
. DSU Acquisition Corp., a wholly-owned subsidiary of the Company, was
merged with and into Delivery on March 1, 1996.
. Nimsa was acquired by the Company on October 31, 1996.
. Bevo Acquisition Corp., Inc. a wholly-owned subsidiary of the Company,
was merged with and into UT on November 8, 1996.
. IMS Acquisition, Inc., a wholly-owned subsidiary of the Company, was
merged with and into Sofco on January 24, 1997.
. H.M. Acquisition Corp., Inc. a wholly-owned subsidiary of the Company,
was merged with and into HMI on January 30, 1997.
These acquisitions were accounted for as poolings of interests and,
accordingly, the accompanying financial statements have been restated to
include the accounts and operations of Delivery, Young, Nimsa, HMI and Sofco
for all applicable periods. The accompanying financial statements have been
restated to include the operations of UT effective March 3, 1996 and Nimsa
effective for fiscal 1995; prior UT results were immaterial. Acquisitions
accounted for as purchases are included in the accounts and operations as of
the effective date of the transaction and immaterial acquisitions accounted
for as poolings of interests are included in the accounts and operations as of
the beginning of the fiscal quarter in which the transaction is effective. The
Company accounts for its investments in less than 50% owned entities using the
equity or cost methods. All intercompany balances and transactions have been
eliminated.
Definition of Fiscal Year:
As used in these consolidated financial statements and notes to consolidated
financial statements, "fiscal 1996," "fiscal 1995," and "fiscal 1994" refer to
the Company's fiscal years ended March 1, 1997, March 2, 1996 and February 25,
1995, respectively. In connection with the mergers, Nimsa, UT and HMI changed
their 1996 fiscal year ends, Sofco changed its 1996 and 1995 fiscal year ends,
and Delivery and Young changed their 1995 fiscal year ends to conform to the
fiscal year ends of the Company. References to fiscal 1995 for Nimsa refers to
Nimsa's June 1996 year end; references to fiscal 1995 and prior fiscal years
for HMI refers to HMI's December year end; and references to fiscal 1994 and
prior fiscal years for Sofco, Delivery and Young refer to Sofco's May year
end, Delivery's December year end and Young's September year end.
Cash and Cash Equivalents:
Cash and cash equivalents include short-term investments with original
maturities of three months or less.
Inventories:
Inventories primarily consist of finished goods which are valued at the
lower of first-in, first-out (FIFO) cost or market. The Company periodically
assesses its inventory to determine market value based upon such
26
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
factors as historical sales and purchases, inclusion in the Company's
proprietary In-Stock Catalog and other factors. Included in cost of sales for
fiscal 1995 is a merger related inventory provision of $5,952,000. This
provision reflects the write-down to fair market value of certain inventory
which the Company decided to eliminate from its product line.
Property and Equipment:
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over estimated useful lives which range from three to
seven years for furniture and equipment; up to 40 years for buildings; and
over the life of the lease for leasehold improvements. Ordinary maintenance
and repairs are charged to operations while expenditures which extend the
physical or economic life of property and equipment are capitalized. Gains and
losses on disposition of property and equipment are recognized in operations
in the year of disposition.
The Company capitalizes certain internal and external software costs that
benefit future years. The amortization commencement and useful life is
dependent upon whether the software is non-interactive or interactive. Non-
interactive software has functionality that is not directly tied into and/or
dependent upon future development or software at other company sites.
Interactive software has significant functionality that is dependent upon
future development or that is directly tied into and/or dependent upon the
installation of the same software at other Company sites. All software is
amortized over its economic useful life, which is three to ten years using the
straight-line method.
Capitalized software costs totaled $47,695,000 and $16,790,000 at March 1,
1997 and March 2, 1996, respectively. Software amortization expense was
$476,000 for fiscal year 1996. There was no software amortization expense for
fiscal years 1995 and 1994.
Concentration of Credit Risk:
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents. The Company places
its cash and temporary cash investments with high quality credit institutions.
At times, such investments may be in excess of the FDIC insurance limit.
Concentration of credit risk with respect to trade receivables is limited
due to the wide variety of customers and markets into which the Company's
products are sold, as well as their dispersion across many geographic areas.
As a result, as of March 1, 1997, the Company did not consider itself to have
any significant concentrations of credit risk. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company maintains allowances for potential credit losses and historical
losses have been within management's expectations.
Intangible Assets:
Goodwill is amortized on a straight-line basis over periods of 25 and 40
years. Noncompete agreements, which are included in other assets, are
amortized on a straight-line basis over periods of 2-10 years. The Company
evaluates intangible assets periodically in accordance with Statement of
Financial Accounting Standards No. 121 to determine whether they are properly
reflected in the financial statements based upon future undiscounted operating
cash flows. If an impairment is determined to exist, the impaired asset is
written down to fair market value. The balance of $671,967,000 at March 1,
1997 reflects additions from acquisitions and changes in foreign exchange
rates of $357,125,000.
27
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accrued Purchase Costs:
The Company accrues direct external costs incurred to consummate an
acquisition, other external costs and liabilities to close the acquired
entity's facilities, and severance and relocation payments to the acquired
entity's employees. Prior to the adoption of EITF 95-3 effective with the
consensus, the Company also accrued the external incremental costs of
converting certain computer systems to the Company's systems.
Accrued Merger and Related Costs:
Accrued merger and related costs include the actual costs of completing
acquisitions accounted for as poolings of interests transactions and
additional costs associated with integrating the combined companies'
operations, including liabilities for severance benefits for employees
expected to be terminated.
Revenue Recognition:
Revenue is recognized upon the shipment of products and completion of
service to customers.
Cost of Sales:
Vendor rebates and similar payments are recognized on an accrual basis in
the period earned and are recorded as a reduction to cost of sales. Delivery
and occupancy costs are included as an increase to cost of sales.
Warehouse Operating and Selling Expenses:
Warehouse operating and selling expenses include all costs associated with
operating regional warehouses and sales offices, including warehouse labor,
related warehouse general and administrative expenses (excluding occupancy),
selling expenses and commissions related to the Company's direct sales force
and warehouse assimilation costs.
Foreign Currency Translation:
Balance sheet accounts of foreign operations are translated using the year-
end exchange rate, and income statement accounts are translated on a monthly
basis using the average exchange rate for the period. Translation gains and
losses are recorded in shareholders' equity, and realized gains and losses
from transactions are reflected in income. An aggregate transaction gain of
$116,000 and a loss of $37,000 were included in the determination of net
income in fiscal 1996 and 1995, respectively. No transaction gains or losses
were included in the determination of net income in fiscal 1994. The Company
does not currently hedge foreign currency risk exposure.
Income Taxes:
For all periods presented, income taxes are calculated using the liability
method in accordance with the provisions set forth in Statement of Financial
Accounting Standards (SFAS) No. 109.
Pro Forma Income Taxes:
In fiscal 1996, the Company acquired an entity in a pooling of interests
transaction, which was previously an S Corporation for income tax purposes
prior to its acquisition by Corporate Express and, accordingly, any income tax
liabilities for the periods prior to the acquisition are the responsibility of
the previous owner. For
28
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
purposes of these consolidated financial statements, federal and state income
taxes have been provided as a pro forma adjustment as if the acquired entity
had filed C Corporation tax returns for the pre-acquisition periods (See Note
13).
Pro Forma Net Income Per Share:
Pro forma net income per share is calculated by dividing pro forma net
income (net income after giving effect to the pro forma tax adjustment), after
preferred stock dividend requirements of Young of $432,000 for the year ended
February 25, 1995 by the weighted average shares of common stock and common
stock equivalents outstanding. Pursuant to the rules of the Securities and
Exchange Commission, common stock equivalents related to common stock,
preferred stock, stock options and warrants issued within one year prior to
the Company's initial public offering have been included as if they were
outstanding for all periods presented. Fully diluted earnings per share differ
from primary earnings per share by less than 3%.
Stock Split and Stock Dividends:
In connection with its initial public offering, the Company effected a one-
for-two reverse stock split in August 1994 and converted all of its
outstanding preferred stock to common stock on a three for two share basis in
September 1994. The Company distributed a 50% share dividend in June 1995 and
January 1997. All share numbers and prices have been adjusted to reflect the
reverse stock split, the conversion of preferred to common and the 50% share
dividends.
Use of Estimates in the Preparation of Financial Statements:
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.
Reclassifications:
Certain reclassifications have been made to the fiscal 1995 and fiscal 1994
consolidated financial statements to conform to the fiscal 1996 presentation.
These reclassifications had no impact on net income.
New Accounting Standards:
In the fourth quarter of fiscal 1997, the Company will adopt SFAS No. 128,
"Earnings per Share." This statement simplifies the standards for computing
earnings per share found in APB Opinion No. 15, "Earnings per Share" and makes
them comparable to international EPS standards. Had SFAS No. 128 been
effective during fiscal 1996, 1995 and 1994, (i) "Basic earnings per share"
under SFAS No. 128 would have been $0.33, $0.05 and $0.22, respectively, and
(ii) "Dilutive earnings per share" under SFAS No. 128 would have been $0.31,
$0.05 and $0.19, respectively.
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation"
during fiscal 1996 (See Note 11).
2. POOLING OF INTERESTS:
Effective January 30, 1997, the Company issued approximately 4,650,000
shares of common stock in exchange for all of the outstanding stock of HMI,
the largest privately-held supplier of promotional products to large
corporations.
29
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective January 24, 1997, the Company issued approximately 2,550,000
shares of common stock in exchange for all of the outstanding stock of Sofco,
one of the largest suppliers of janitorial and cleaning supplies in the United
States.
Effective November 8, 1996, the Company issued approximately 6,332,000
shares of common stock in exchange for all of the outstanding stock of UT, the
second largest same-day delivery service provider in the United States.
Effective October 31, 1996, the Company issued approximately 1,125,000
shares of common stock and paid approximately $2,289,000 to the consenting and
dissenting sharesholders, respectively, of Nimsa, a computer software reseller
located in Paris, France, in exchange for all of Nimsa's outstanding stock.
Effective March 1, 1996, the Company issued approximately 23,409,000 shares
of common stock in exchange for all of the outstanding stock of Delivery, a
provider of same-day local delivery services.
Effective February 27, 1996, the Company issued approximately 4,398,000
shares of common stock in exchange for all of the outstanding stock of Young,
a distributor of computer and imaging supplies and accessories.
In addition to the above acquisitions, the Company completed 14 other
acquisitions which were accounted for as immaterial poolings of interests for
approximately 1,942,000 shares of common stock during fiscal 1996. The
financial statements for these immaterial acquisitions for periods prior to
the acquisition have not been restated.
During fiscal 1995, prior to merging with the Company, Delivery acquired the
outstanding stock of 14 companies in exchange for approximately 3,951,000
shares of Delivery common stock. During fiscal 1994, Delivery acquired the
stock of six companies in exchange for approximately 1,722,000 shares of
Delivery common stock.
30
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Separate results of operations for Corporate Express and the pooled
operations for the periods prior to the mergers are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
MARCH 1, MARCH 2, FEBRUARY 25,
1997 1996 1995
---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
Corporate Express................... $2,715,785 $1,132,012 $ 621,469
HMI................................. 92,080 84,013 83,752
Sofco............................... 139,734 144,621 133,481
UT.................................. 196,199 -- --
Nimsa............................... 52,258 71,901 --
Young............................... -- 115,628 86,184
Delivery............................ -- 306,364 109,865
Delivery poolings prior to merger
with Delivery...................... -- 36,100 110,400
---------- ---------- ----------
Combined............................ $3,196,056 $1,890,639 $1,145,151
========== ========== ==========
Net income (loss):
Corporate Express................... $ 31,710 $ 3,702 $ 5,248
HMI................................. 4,182 990 1,772
Sofco............................... 3,529 319 1,989
UT.................................. 1,369 -- --
Nimsa............................... 1,206 1,762 --
Young............................... -- (3,073) 1,264
Delivery............................ -- 815 4,223
Delivery poolings prior to merger
with Delivery...................... -- 1,036 2,000
---------- ---------- ----------
Combined............................ $ 41,996 $ 5,551 $ 16,496
========== ========== ==========
Other changes in shareholders' equity:
Corporate Express................... $ 106,299 $ 229,356 $ 115,024
HMI................................. (3,761) (2,193) (1,917)
Sofco............................... 1,538 (230) 692
UT.................................. 26,135 -- --
Nimsa............................... (376) 6,026 --
Young............................... -- 13,028 (7,932)
Delivery............................ -- 12,032 23,211
Delivery poolings prior to merger
with Delivery...................... -- (1,116) (2,613)
---------- ---------- ----------
Combined............................ $ 129,835 $ 256,903 $ 126,467
========== ========== ==========
</TABLE>
Certain reclassifications and adjustments have been made to the prior
financial statements of the pooled companies to conform to the Corporate
Express financial presentation and policies which adjustments had an
immaterial effect on net income.
All intercompany transactions have been eliminated.
The consolidated statement of operations for fiscal 1996 includes the income
and expenses of Corporate Express (including Young and Delivery), HMI, Sofco,
UT and Nimsa for the twelve months ended March 1, 1997.
31
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The consolidated statement of operations for fiscal 1995 includes the income
and expenses of Corporate Express, Sofco, Young and Delivery for the twelve
months ended March 2, 1996, of HMI for the twelve months ended December 31,
1995, and of Nimsa for the twelve months ended June 30, 1996. In order to
conform the HMI and Nimsa year ends to Corporate Express' fiscal year end,
Nimsa net income for the March 1996 to June 1996 period was included in both
fiscal 1995 and 1996, and HMI net income for the January 1996 to February 1996
period was excluded from fiscal 1995. Accordingly, an adjustment has been made
in fiscal 1996 to debit retained earnings directly for the March 1996 to June
1996 Nimsa net income of $630,000 and to credit retained earnings directly for
the January 1996 to February 1996 HMI net income of $200,000.
The consolidated statement of operations for fiscal 1994 includes the income
and expenses of Corporate Express for the twelve months ended February 25,
1995, of Sofco for the twelve months ended May 26, 1995, of HMI for the twelve
months ended December 31, 1994, of Young for the twelve months ended September
30, 1994, and of Delivery for the twelve months ended December 31, 1994. In
order to conform the Sofco, Young and Delivery year ends to Corporate Express'
fiscal year end, Sofco net income for the March 1995 to May 1995 period was
included in both fiscal 1994 and 1995, Young net income for the October 1994
to February 1995 period was excluded from fiscal 1994, and Delivery net income
for the January 1995 to February 1995 period was excluded from fiscal 1994.
Accordingly, an adjustment has been made in fiscal 1995 to debit retained
earnings directly for the March 1995 to May 1995 Sofco net income of $747,000,
and to credit retained earnings for the October 1994 to February 1995 Young
net income of $846,000 and the January 1995 to February 1995 Delivery net
income of $1,777,000.
The results of operations for the adjustment periods are as follows:
<TABLE>
<CAPTION>
PERIOD NET SALES NET INCOME
---------- --------- ----------
<S> <C> <C> <C>
Nimsa........................................ 3/96-6/96 $25,986 $ 630
HMI.......................................... 1/96-2/96 15,415 200
Sofco........................................ 3/95-5/95 33,085 747
Young........................................ 10/94-2/95 39,683 846
Delivery..................................... 1/95-2/95 50,382 1,777
</TABLE>
3. MERGER AND OTHER NONRECURRING COSTS:
During fiscal year 1996, the Company recorded an estimated net merger and
other nonrecurring charge of $19,840,000. This net charge is comprised of
$27,411,000 in merger and other nonrecurring charges primarily in conjunction
with the acquisitions of UT, Nimsa, HMI and Sofco, offset by $7,571,000 of
reduction to the merger and other nonrecurring charge established in the
fourth quarter of fiscal 1995, largely caused by changes in plans due to the
acquisition of UT. The fiscal year 1996 charges include the actual costs of
completing the acquisitions and anticipated costs for merging various UT
facilities into Company locations and closing redundant facilities. The charge
includes the closure of 115 facilities and the reduction of approximately 485
employees.
<TABLE>
<CAPTION>
BALANCE
CASH NON-CASH TOTAL USAGE 3/1/97
------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Merger transaction costs(1)..... $15,274 $15,274 $(12,706) $ 2,568
Severance and terminations(2)... 5,333 5,333 (760) 4,573
Facility closure and
consolidation(3)............... 3,575 3,575 (102) 3,473
------- ------- -------- -------
Accrued merger and related
costs, balance................. 24,182 24,182 (13,568) 10,614
Other asset write-downs and
costs(4)....................... -- $3,229 3,229 (1,180) 2,049
------- ------ ------- -------- -------
Total......................... $24,182 $3,229 $27,411 $(14,748) $12,663
======= ====== ======= ======== =======
</TABLE>
32
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------
(1) Merger transaction costs are the direct costs from the pooling
transactions and include legal, investment banking, printing and other
related costs.
(2) Severance and employee termination costs are related to the elimination of
duplicate management positions and facility closures and consolidations.
Approximately 34 of the 485 employees estimated to be terminated have been
terminated as of March 1, 1997.
(3) Facility closure and consolidation costs are the estimated costs to close
redundant facilities, lease costs and other costs associated with closed
facilities. Eight of the 115 facilities estimated to be closed or
consolidated have been closed or consolidated as of March 1, 1997.
(4) Other asset write-downs and costs are recorded as contra assets and
include software, leasehold improvements and equipment being abandoned or
written off as a result of the UT acquisition.
During the fourth quarter of fiscal 1995, the Company recorded $36,838,000
in merger and other nonrecurring charges (in addition to $5,952,000 in merger
related inventory provisions) primarily in conjunction with the acquisitions
of Delivery and Young. These merger and other nonrecurring charges include
merger transaction related costs of $13,273,000; severance and employee
termination costs of $7,457,000 (representing approximately 760 employees);
facility closure and consolidation costs of $9,693,000; and other asset write-
downs and costs of $6,415,000. Of the $36,838,000 charges, $7,724,000 are non-
cash charges.
This liability was adjusted in fiscal 1996 to reflect the actual merger
transaction costs incurred and revised plans primarily as a result of the
integration of UT with Delivery. This adjustment was recorded as an offset to
the third quarter merger and other nonrecurring charge.
<TABLE>
<CAPTION>
BALANCE CASH NON-CASH BALANCE
3/2/96 PAYMENTS USAGE ADJUSTMENTS 3/1/97
------- -------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Merger transaction
costs(1).................. $ 9,161 $ (7,388) $ (259) $1,514
Severance and
terminations(2)........... 7,165 (1,523) (2,550) 3,092
Facility closure and
consolidation(3).......... 8,554 (1,169) (4,121) 3,264
------- -------- ------- ------
Accrued merger and related
costs, balance............ 24,880 (10,080) (6,930) 7,870
Other asset write-downs and
costs(4).................. 3,789 -- $(1,045) (641) 2,103
------- -------- ------- ------- ------
Total.................... $28,669 $(10,080) $(1,045) $(7,571) $9,973
======= ======== ======= ======= ======
</TABLE>
- --------
(1) Remaining merger transactions costs represent the estimated contract buy-
outs for certain former Delivery employees and other transaction costs,
both of which are being negotiated.
(2) Severance and termination costs are the severance payments related to
facility closures and centralization of certain shared services.
Approximately 58 of the 760 employees estimated to be terminated have been
terminated as of March 1, 1997, and 278 positions will no longer be
eliminated as a result of the revised exit plan.
(3) Of the 88 facilities estimated to be closed or consolidated, 31 have been
closed or consolidated as of March 1, 1997, and 18 facilities will no
longer be eliminated as a result of the revised exit plan.
(4) Other asset write downs and costs are recorded as contra assets and
include software, leasehold improvements and equipment being abandoned or
written off as a result of the acquisition.
4. PURCHASES:
Fiscal 1996
The Company purchased for a net cash purchase price of $241,846,000 and
approximately 3,600,000 shares of common stock, 46 domestic office product
distributors, 29 international office product distributors and 11 delivery
service companies. The excess of the purchase price over the fair market value
of the net tangible assets
33
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
acquired was allocated to goodwill and is being amortized over 40 years for
office product distributors and 25 years for delivery service companies.
Included in the 46 domestic product acquisitions are three purchases and one
immaterial pooling consummated by UT prior to its acquisition by Corporate
Express, and ASAP Software Express, Inc. ("ASAP"), a distributor of software
to large corporations. The ASAP purchase price was $97,611,000 offset by cash
acquired of $13,792,000. Included in the 29 international product acquisitions
is Boulevard Produits De Bureau, Inc. ("Boulevard"), a seller of office
supplies, furniture and equipment, for a net cash purchase price of
$16,102,000. The Company also repaid $9,498,000 of Boulevard promissory notes
with cash of $731,900 and 356,832 shares of the Company's common stock.
In January 1997, Corporate Express Australia ("CEA") shareholders approved a
one for five non-renounceable common stock rights offer at a price of A$.85
(US$.65) per share. Pursuant to the rights offer, on February 27, 1997, CEA
issued 8,216,721 shares to Corporate Express and 3,553,370 shares to
institutional investors. As of March 1, 1997, Corporate Express interest in
CEA was 54.6%. On March 10, 1997, an additional 3,750,000 shares were issued
to institutional investors which changed the Corporate Express interest in CEA
to 52.4%.
In November 1996, Corporate Express purchased the remaining 49% interest in
the Chisholm Group by issuance of shares of Corporate Express common stock.
The Company has earn-out agreements with former shareholders that may require
additional payments by the Company of up to $3,259,000. Any additional
payments will be accounted for as increases to the purchase price.
Fiscal 1995
Corporate Express purchased for a net cash purchase price of $79,111,000, 27
office product distributors including five distributors purchased by CEA and a
software distributor purchased by Nimsa. Also included in the above purchases
is one office product distributor purchased by the Chisholm Group, a United
Kingdom contract stationer, in which Corporate Express acquired a 51% interest
in February 1996.
Young repurchased its remaining seven franchises for approximately
$20,512,000, terminated four franchises for consideration of $233,000 and
purchased substantially all of the business, properties and assets of a
computer supplies distributor for a purchase price of $675,000. The excess of
the purchase price over the fair value of the net tangible assets acquired was
allocated to goodwill and is being amortized over 40 years. Delivery completed
16 acquisitions accounted for as purchases. The net cash purchase price paid
in these transactions was $15,208,000 in cash, 378,000 shares of Delivery
common stock and $5,565,000 in convertible notes. The excess of the purchase
price over the fair value of the net tangible assets acquired has been
allocated to goodwill and is being amortized over 25 years. All of the
companies acquired provide same-day delivery service.
In December 1994, Young purchased all of the issued and outstanding shares
of a computer supplies distributor for a purchase price of $2,750,000 and the
assumption of other liabilities. Young may be required to pay additional
consideration to the former shareholders should the acquired company reach
certain earnings thresholds. No such additional amounts were paid in 1995. The
excess purchase price over the fair value of net tangible assets acquired was
allocated to goodwill and is being amortized over 40 years.
In February 1996, CEA shareholders approved the issue of an additional
12,939,000 shares and 50,000 shares of its common stock at a price of A$1.30
(US$.96) per share and A$1.00 (US$.74) per share, respectively. Of the shares
issued, 5,789,000 were purchased by Corporate Express, 4,600,000 were
purchased by institutional investors and 2,600,000 shares were approved for
issue to CEA officers and employees as employee incentive shares (of which
1,710,000 were issued as of March 2, 1996). As a result, at March 2, 1996,
Corporate Express' interest in CEA was 51.8%.
34
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On December 21, 1995 CEA issued an additional 6,110,000 shares of its common
stock at a price of A$1.30 (US$.96) per share. Of the shares offered,
3,110,000 were purchased by Corporate Express and 3,000,000 were purchased by
institutional investors for cash. As a result, Corporate Express' interest in
CEA changed from 52.7% to 52.5%.
The operating results of all of the above acquisitions, which were accounted
for as purchases, are included in the Company's consolidated statements of
operations from the dates of acquisition. The following pro forma financial
information assumes the acquisitions occurred at the beginning of the period.
These results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisitions been
made at the beginning of the year, or of results which may occur in the
future. The pro forma results listed below are unaudited and reflect purchase
price adjustments.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 1, MARCH 2,
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales............................................. $3,550,205 $2,995,708
Net income before extraordinary items................. 41,302 29,769
Net income............................................ 41,302 29,010
Net income per common share........................... 0.31 0.25
</TABLE>
5. ACCRUED PURCHASE COSTS:
In conjunction with purchase acquisitions, the Company accrues the direct
external costs associated with closing redundant facilities of acquired
companies, and severance and relocation payments to the acquired company's
employees. Prior to the adoption of EITF 95-3 in May 1995, the Company also
accrued the external incremental costs of converting acquired company computer
systems to the Company's systems.
The following tables set forth activity in the Company's accrued purchase
liabilities:
Prior to EITF 95-3:
<TABLE>
<CAPTION>
WAREHOUSE DISPOSITION
& SYSTEM REDUNDANT OF ASSETS
TOTAL INTEGRATIONS FACILITIES SEVERANCE & OTHER
------- ------------ ---------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, February 25,
1995................... $11,252 $ 8,109 $1,005 $ 1,596 $ 542
Additions............... 1,731 659 223 734 115
Payments................ (6,469) (3,630) (784) (1,766) (289)
Reversals............... (5,250) (4,388) (41) (523) (298)
------- ------- ------ ------- -----
Balance, March 2, 1996.. 1,264 750 403 41 70
Payments................ (675) (452) (182) (41) --
Reversals to goodwill... (589) (298) (221) -- (70)
------- ------- ------ ------- -----
Balance, March 1,
1997(1)................ $ 0 $ 0 $ 0 $ 0 $ 0
======= ======= ====== ======= =====
</TABLE>
- --------
(1) All consolidation projects relating to companies acquired prior to the
adoption of EITF 95-3 have been successfully completed.
35
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
After adoption of EITF 95-3:
<TABLE>
<CAPTION>
WAREHOUSE DISPOSITION
& SYSTEM REDUNDANT OF ASSETS
TOTAL INTEGRATIONS FACILITIES SEVERANCE & OTHER
------- ------------ ---------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, February 25,
1995................... $ -- $ -- $ -- $ -- $ --
Additions............... 2,414 691 202 1,065 456
Payments................ (629) (177) (4) (293) (155)
------- ------ ------- ------- -------
Balance, March 2, 1996.. 1,785 514 198 772 301
Additions............... 21,429 2,037 4,912 9,727 4,753
Payments................ (8,503) (699) (557) (4,066) (3,181)
Reversals to goodwill... (1,823) (7) (1,284) (284) (248)
------- ------ ------- ------- -------
Balance, March 1,
1997(1)................ $12,888 $1,845 $ 3,269 $ 6,149 $ 1,625
======= ====== ======= ======= =======
</TABLE>
- --------
(1) Accrued purchase costs, after adoption of EITF 95-3, primarily represent
the liabilities incurred to consolidate acquired operations into existing
Company facilities.
6. DISCONTINUED OPERATIONS:
During fiscal 1995, Sofco adopted a plan to discontinue the operations of
Sofco-Eastern, Inc. ("Eastern"). Accordingly, the consolidated financial
statements have been reclassified to report separately the net assets,
liabilities and operating results of the Eastern operations. As of March 1,
1997, all Eastern operations have been disposed of and actual losses recorded
on the disposal of the assets. The loss from discontinued operations in fiscal
1995 and fiscal 1994 were $1,225,000 (net of tax benefits of $851,000),
representing the loss on disposal and $327,000 (net of tax benefits of
$225,000), representing the net loss on operations. The Eastern revenues were
not material to total consolidated revenues for fiscal years 1996, 1995 and
1994.
36
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. DEBT:
Debt consisted of the following:
<TABLE>
<CAPTION>
MARCH 1, MARCH 2,
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
4 1/2% Convertible Notes (the "Notes"), due July 1, 2000,
interest payable on January 1 and July 1 of each year
commencing on January 1, 1997, convertible into shares of
the Company's common stock at a conversion price of $33.33
per share.................................................. 325,000 --
$350,000,000 unsecured multi-currency revolving line of
credit. Interest rates are equal to either (i) the
Corporate Base Rate or (ii) LIBOR plus .5%, each of which
is based upon a performance grid (6.0% at March 1, 1997),
with principal due on March 31, 2000. Commitment fees on
the unused balance are based on the ratio of debt to cash
flow (as defined) and was 0.18% at March 1, 1997........... 136,000 8,000
9 1/8% Series B Senior Subordinated Notes, unsecured,
subordinated to existing debt up to an aggregate of $155
million, guaranteed by the operating subsidiaries of the
Company. Due March 15, 2004, semi-annual interest payments
beginning September 15, 1994. Redeemable by the Company
from March 1999 to March 2001 at premiums ranging from
3.422% to 1.141%........................................... 90,000 90,000
Various revolving lines of credit, variable interest rates
ranging from 4.0% to 9.5% at March 1, 1997................. 23,959 --
HMI revolving bank line of credit agreement collateralized
by accounts receivable, inventory and other assets.
Interest payable monthly at the lesser of the lender's
prime rate or the applicable average federal funds rate
plus 1.5%. This agreement was repaid in full on January 31,
1997....................................................... -- 15,873
$55,000,000 Delivery unsecured revolving credit facility.
Interest rates are equal to
i) LIBOR plus 1.25% or ii) the prime rate, at the Company's
option (weighted average rate of 6.56% for fiscal 1995).
This loan was repaid in full on May 31, 1996............... -- 11,900
Term loan facility collateralized by CEA's assets. Fixed
interest rates ranging from 8.9% to 10.95%. $4,409,000
repaid in March 1997. Principal payments of $389,000 per
quarter plus interest commencing October 1998. Final
payment of $156,000 plus interest due in July 1999......... 5,682 6,094
CEA revolving loans, interest at floating rates, 7.7% at
March 1, 1997. Interest payable monthly. Maturity dates
range from December 1998 to July 1999...................... 13,396 --
Bank term loans, collateralized by equipment, with interest
floating at LIBOR plus 1.75% to 2.0%, principal and
interest payable monthly, maturities range from 48 months
to 60 months through March 2002............................ 9,341 5,620
Convertible subordinated notes due between March 31, 1997
and January 31, 1998, bearing interest of 5.0% to 6.0%,
payable quarterly or semi-annually, and convertible prior
to maturity at the holder's option at prices ranging from
$19.97 to $32.70, into 222,000 shares of common stock...... 4,864 5,565
City of Aurora, Colorado Industrial Development Bonds,
Series 1984, collateralized by land and building, interest
at a floating rate, as defined, ranging from 4.8% in 1995
to 5.0% at March 1, 1997, payable semi-annually and
principal installments of varying amounts ($100,000 in 1995
and $200,000 in 1996) payable annually through November
2009....................................................... 4,380 4,480
Various notes payable due December 2006, variable interest
rates (4.75% on March 1, 1997 and 5.34% on March 2, 1996),
collateralized by cash deposits............................ 4,015 4,641
Other, interest from 2.9% to 17.4%.......................... 28,870 21,810
-------- --------
Total debt.................................................. 645,507 173,983
Less current portion of debt................................ 23,802 20,152
-------- --------
Long-term portion of debt................................... $621,705 $153,831
======== ========
</TABLE>
37
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The annual maturities of debt for succeeding years are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
----------- --------------
<S> <C>
1997............................... $ 23,802
1998............................... 10,909
1999............................... 19,506
2000............................... 465,627
2001............................... 2,244
Thereafter......................... 123,419
--------
Total............................ $645,507
========
</TABLE>
Certain of the debt agreements contain provisions which require maintenance
of the Company's minimum net worth, certain financial ratios, including debt
to cash flow and fixed charge coverage, and limit the Company's ability to pay
dividends. Delivery's credit facility became due upon the acquisition by the
Company but was extended until May 31, 1996, when it was repaid using the
Company's line of credit.
The Company's revolving credit facility (the "Senior Credit Facility") was
amended and restated on November 26, 1996 to increase the borrowing capacity
from $90,000,000 to $350,000,000, extend the facility termination date to
March 31, 2000, lower the cost of its borrowings to LIBOR plus .50%, unsecure
the assets of the Company (the previous facility was secured by substantially
all of the assets, including accounts receivable and inventory of the Company
and its United States subsidiaries), and to make certain other changes. The
Senior Credit Facility was previously amended on May 10, 1996 to increase the
Company's borrowing capacity from $90,000,000 to $250,000,000, subject to
borrowing base and other restrictions and to lower the cost of its borrowings
to LIBOR plus 1.25%. On May 31, 1996, the Company borrowed on its Senior
Credit Facility and repaid in full the $33,270,000 outstanding revolving
credit facility previously established by Delivery. On June 24, 1996, the
outstanding amounts under the Senior Credit Facility were paid in full from
funds generated from the issuance of the Convertible Notes. Upon this
repayment, the borrowing capacity of the Senior Credit Facility was reduced
from the amended capacity of $250,000,000 to $90,000,000, subject to borrowing
base and other restrictions.
On June 24, 1996, the Company issued $325,000,000 principal amount of
Convertible Notes. The Convertible Notes are convertible into the Company's
common stock at a conversion price of $33.33 per share, subject to adjustments
under certain conditions. A portion of the proceeds from the sale of the Notes
was used to repay the Company's revolving credit facility and an acquisition
note payable with the remaining proceeds being used to fund acquisitions and
for other general corporate purposes.
On March 17, 1995, the Company exchanged its 9 1/8% Series A Senior
Subordinated Notes due 2004 (the "Series A Notes") for 9 1/8% Series B Senior
Subordinated Notes due 2004 (the "Series B Notes"). The terms of the Series B
Notes are substantially the same as the Series A Notes, except that the Series
B Notes are registered under the Securities Act of 1933. The illiquidity
payment of approximately .5% per annum previously payable on the Series A
Notes ceased when they were exchanged for the Series B Notes on March 17,
1995, reducing the annual interest rate from 9 5/8% to 9 1/8%. In fiscal 1994,
the Company repurchased $10,000,000 principal amount of the Series A Notes.
The Company's Senior Credit Facility prohibits the distribution of dividends
without the prior written consent of the lenders and the Indenture governing
the Series B Notes prohibits the Company from paying a dividend which would
cause a default under such indenture or which would cause the Company to fail
to comply with certain financial covenants.
38
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company capitalized $3,887,000 and $882,000 of interest expense in
fiscal 1996 and 1995, respectively, primarily related to software developed
for internal use and the construction of corporate facilities. No interest was
capitalized in fiscal 1994.
8. COMMITMENTS AND CONTINGENCIES:
Operating Leases:
The Company has various noncancellable operating leases, primarily for
warehouse buildings and delivery trucks. Lease expense, net of sublease
rentals of $992,000, $30,000, and $127,000 for the years ended March 1, 1997,
March 2, 1996, and February 25, 1995 was $54,567,000, $19,195,000, and
$13,906,000, respectively.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
----------- --------------
<S> <C>
1997............................... $ 42,191
1998............................... 33,135
1999............................... 26,340
2000............................... 18,908
2001............................... 13,295
Thereafter......................... 46,950
--------
Total.............................. 180,819
Less subleases..................... 1,361
--------
Net obligation..................... $179,458
========
</TABLE>
The leases generally are for periods of three to ten years and provide for
renewals of one month to five years at the Company's option.
Capital Leases:
The Company is the lessee of certain property and equipment under capital
leases expiring in various years through 2009. Included in furniture and
equipment at March 1, 1997 is $24,511,000 of assets under capital leases and
related accumulated depreciation of $9,677,000.
Future minimum lease payments required under these capital leases are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
----------- --------------
<S> <C>
1997............................... $ 7,187
1998............................... 5,397
1999............................... 3,753
2000............................... 2,242
2001............................... 1,070
Thereafter......................... 2,250
-------
Total minimum lease payments....... 21,899
Less amount representing interest.. 4,414
-------
Present value of minimum lease
payments.......................... 17,485
Less current portion of capital
lease obligations................. 5,940
-------
Non-current portion of capital
lease obligations................. $11,545
=======
</TABLE>
39
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Contingencies:
In the normal course of business, the Company is subject to certain legal
proceedings. In the opinion of management, the outcome of such litigation will
not have a material adverse effect on the Company's financial position or
operating results. The Company has a dispute with certain of the former
shareholders of a company acquired by the Company in fiscal 1996. No legal
proceedings have been commenced by these shareholders and the Company cannot
determine if any legal action will be initiated, or the results or materiality
of any such action.
9. INCOME TAXES:
Federal, state and foreign income taxes for the fiscal years ended March 1,
1997, March 2, 1996, and February 25, 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal......................................... $ 202 $10,604 $ 7,707
State........................................... 615 1,089 1,218
Foreign......................................... 1,943 3,205 --
Deferred
Federal......................................... 17,149 (429) (2,499)
State........................................... 5,401 1,544 (251)
Foreign......................................... (793) -- --
Utilization of net operating loss................. -- (2,247) (1,051)
Change in tax status.............................. (2,029) -- --
Allocated to goodwill............................. -- -- 4,374
Allocated to contributed capital.................. 11,161 -- --
Adjustment of beginning valuation allowance....... -- -- (1,204)
------- ------- -------
Total income tax expense.......................... $33,649 $13,766 $ 8,294
======= ======= =======
</TABLE>
The benefit recognized in fiscal 1996 for change in tax status relates to
establishing deferred tax assets for an acquired S corporation. The
$11,161,000 contribution to capital relates to deductions recognizable only
for tax purposes of non-qualified stock options exercised during fiscal 1996.
At March 1, 1997 the Company had, for United States federal and foreign tax
purposes, net operating loss carryforwards of $33,650,000 and alternative
minimum tax net operating loss carryforwards of $11,908,000 expiring beginning
in 2003.
Included in the net operating loss carryforwards are losses from acquired
subsidiaries. The utilization of these carryforwards may be affected by
limitations under the Internal Revenue Code and, therefore, the benefit of
these pre-acquisition net operating loss carryforwards may be limited.
40
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the net deferred tax assets and liabilities as of March 1,
1997 and March 2, 1996 are as follows:
<TABLE>
<CAPTION>
MARCH 1, MARCH 2,
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Inventory.............................................. $ 5,999 $ 3,712
Allowance accounts..................................... 4,532 1,615
Accrued purchase costs................................. 3,734 1,053
Insurance reserves..................................... 3,980 271
Accrued merger and other costs......................... 8,760 6,767
Vacation and benefits accrual.......................... 5,407 396
Accounting methods..................................... -- 4,066
Other current.......................................... 949 2,240
Net operating loss carryforwards....................... 13,275 4,879
Valuation allowance.................................... (6,049) (2,433)
Other non-current...................................... 784 1,092
------- -------
Total deferred tax assets................................ 41,371 23,658
------- -------
Deferred tax liabilities:
Accounting methods..................................... 4,943 1,650
Other current.......................................... 281 --
Property, plant and equipment.......................... 28,807 4,731
Intangible assets...................................... 3,926 5,886
Other non-current...................................... 1,157 295
------- -------
Total deferred tax liability............................. 39,114 12,562
------- -------
Net deferred tax asset................................... $ 2,257 $11,096
======= =======
Financial Statements
Current deferred tax assets............................ 29,076 18,470
Non-current deferred tax liabilities................... 26,819 7,374
------- -------
Net deferred tax asset................................... $ 2,257 $11,096
======= =======
</TABLE>
The net change in the valuation allowance for deferred taxes in the year
ended March 1, 1997 is an increase of $3,616,000, primarily related to net
operating losses acquired in the current year. The Company reviewed the need
for a valuation allowance and determined that it was more likely than not that
certain deferred tax assets of acquired foreign subsidiaries may go
unrealized. This increase was partially offset by the lapsing of restrictions
placed on the usage of certain net operating losses.
41
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the differences between the Company's expense (benefit)
for income taxes and taxes at the statutory rate for the fiscal years ended
March 1, 1997, March 2, 1996 and February 25, 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory federal income tax expense............ $25,825 $ 7,692 $ 8,610
Adjustments:
State income taxes, net of federal effect..... 3,910 1,521 886
Foreign income taxes.......................... (123) 461 --
Merger costs.................................. 4,924 4,952 --
Amortization of goodwill...................... 3,693 1,404 1,784
Untaxed S Corporation earnings and change in
tax status................................... (3,514) (347) (620)
Other non-deductible items.................... 739 366
Valuation allowance on tax loss carryforward.. (47) (2,247) (2,636)
Other......................................... (1,758) (36) 270
------- ------- -------
Income tax expense............................ $33,649 $13,766 $ 8,294
======= ======= =======
</TABLE>
10. EMPLOYEE BENEFIT PLANS:
Effective September 1, 1992, the Company implemented a retirement plan which
allows employee contributions in accordance with Section 401(k) of the
Internal Revenue Code. The Company matches a portion of the employee's salary
and all full-time employees are eligible to participate in the plan after six
months of service. For the years ended March 1, 1997, March 2, 1996, and
February 25, 1995, the Company's matching contribution expense was $2,204,000,
$1,807,000, and $1,704,000, respectively.
CEA, the Company's majority-owned Australian subsidiary since May 1995,
sponsors superannuation funds for its employees (similar to 401(k) plans in
the United States). Total matching contributions by the Company for the year
ended March 1, 1997 and March 2, 1996 were approximately $1,912,000 and
$980,000, respectively.
Certain of the Delivery pooled companies have qualified defined contribution
plans, which allow for voluntary pretax contributions by employees. Expenses
related to these plans totaled $316,000, $96,000, and $192,000 during fiscal
1996, 1995, and 1994, respectively.
Young had a retirement plan which allowed employee contributions in
accordance with Section 401(k). Young's matching contribution expenses were
$106,000 and $52,000 in fiscal 1995 and 1994, respectively.
On August 29, 1994, the Company's shareholders approved the adoption of the
1994 Employee Stock Purchase Plan. A maximum of 1,125,000 shares of Common
Stock may be purchased by eligible employees under the 1994 Employee Stock
Purchase Plan. All full-time employees with six months service at the start of
the annual offering period are eligible to participate at contribution levels
ranging from 1% to 15% of compensation. Contributions are applied to purchase
common stock at a price equal to the lower of the beginning of the year or end
of the year market price, less a discount of up to 15%. Contributions to this
plan during fiscal 1996 and fiscal 1995 totaled approximately $2,066,000 and
$679,000, respectively and purchases under the plan totaled 115,488 and 49,200
shares. There were no contributions to or stock purchases under the 1994
Employee Stock Purchase Plan during fiscal 1994.
Sofco has an Employee Stock Ownership Plan ("the ESOP") covering
substantially all full-time employees. The ESOP invested in the common stock
of Sofco which was converted to Corporate Express common stock upon
consummation of the acquisition. As of March 1, 1997 and March 2, 1996, the
ESOP owned
42
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1,512,164 shares and 1,303,512 shares, respectively, of Corporate Express
common stock or equivalents. Of the shares owned, 329,034 were in escrow as of
March 2, 1996. Employer contributions were $436,000 for fiscal 1996,
$1,925,000 for fiscal 1995, and $805,000 for fiscal 1994. In December 1990,
Sofco guaranteed a $4,000,000 loan to the ESOP which is collateralized by the
stock held in escrow and a security interest in accounts receivable and
inventory. The loan had an approximate interest rate of 85% of prime and was
repaid in full in August 1996. The loan balance at March 2, 1996 was
$1,047,619 and is included in liabilities on the Company's consolidated
balance sheets with a corresponding reduction in additional paid-in capital.
11. COMMON STOCK:
As of March 1, 1997 and March 2, 1996 there were 126,171,467 and 111,954,350
common shares outstanding, respectively (after giving effect to the three-for-
two stock split effected in the form of a stock dividend in January 1997). On
January 31, 1997, a 50% share dividend of approximately 39,979,000 shares of
common stock was distributed to shareholders of record as of January 24, 1997.
On September 15, 1995, the Company sold 24,486,792 shares in a follow-on
public offering of its common stock, and selling shareholders sold 3,113,208
shares at a price of $16.00 per share. Of the $375,200,000 of net proceeds to
the Company from the offering, $195,800,000 was used to pay for the prior
purchase of the Company shares held by OfficeMax, Inc., the Company's largest
shareholder, and $61,000,000 was used to repay existing indebtedness. The
remaining proceeds were used to finance the Company's acquisitions and for
general corporate purposes.
On June 21, 1995, a 50% share dividend of approximately 21,075,000 shares of
common stock was distributed to shareholders of record as of June 15, 1995.
On March 30, 1995, a follow-on public offering of 10,155,938 shares of
common stock was consummated at a price to the public of $11.12 per share. Of
the shares offered, 4,500,000 shares were sold by the Company and 5,655,938
shares were sold by selling security holders, including 397,407 shares issued
upon exercise of warrants purchased by the underwriters.
On September 30, 1994, the Company consummated its initial public offering
of 15,750,000 shares of common stock at a price of $7.11 per share. Selling
shareholders sold an additional 3,656,250 shares of common stock in the
initial public offering. In connection with this offering, the Company
effected a one-for-two reverse stock split in August 1994 and converted all of
its outstanding preferred stock to common stock on a three-for-two basis in
September 1994.
The Company has authorized 3,000,000 shares of Non-Voting Common Stock, par
value $.0002 per share. No shares of the Non-Voting Common Stock are issued or
outstanding at March 1, 1997 or March 2, 1996. In addition, the Company has
authorized 25,000,000 shares of Preferred Stock, par value $.0001 per share.
No shares of Preferred Stock are issued or outstanding at March 1, 1997 or
March 2, 1996.
STOCK-BASED COMPENSATION PLANS:
Options:
1992 Stock Option Plan. In February 1992, the Company adopted the Corporate
Express, Inc. 1992 Stock Option Plan (the "1992 Stock Option Plan"). The 1992
Stock Option Plan was approved by the Company's shareholders in May 1992 and
amended in January 1994. Options were granted under the 1992 Stock Option Plan
at the fair market value at the time of grant as determined by the Board of
Directors or the Compensation
43
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Committee, based on recent stock transactions. Options granted under the 1992
Stock Option Plan typically vest in equal monthly installments over a five-
year period, beginning on the month after the first anniversary of the grant
date. The options generally expire on the seventh anniversary of the grant
date.
Executive Plan. In June 1994, the Board of Directors adopted the 1994
Executive Stock Option Plan (the "Executive Plan") which permits the grant of
stock options to the Company's executive officers. The Compensation Committee
administers the plan and establishes the terms of the options granted,
including the number of shares, the exercise price, vesting schedule and
termination provisions. The particular terms of each grant are set forth in
separate stock option agreements entered into between the Company and the
executive officer. The maximum aggregate number of shares of common stock for
which options may be granted under this plan originally was 3,375,000 and was
increased to 5,625,000 in August 1995, which increase was approved by
shareholders in August 1996, and no single executive officer may be granted
options covering more than 750,000 shares of common stock in any calendar
year. Vesting accelerates upon occurrence of certain conditions, including
increases in the Company's stock price and changes in control of the Company.
The options expire ten years from the date of grant.
1994 Stock Option Plan. The 1994 Stock Option and Incentive Plan (the "1994
Stock Option Plan") was adopted by the Board of Directors and approved by
shareholders in August 1994. This plan replaced, for future grants, the 1992
Stock Option Plan. The 1994 Stock Option Plan permits the Company to grant
incentive stock options and nonqualified stock options. The maximum aggregate
number of shares of common stock which may be issued under the 1994 Stock
Option Plan was 2,812,500 and was increased to 9,562,500 in March 1996 and
approved by the shareholders in August 1996. Options granted under the 1994
Stock Option Plan typically vest in equal monthly installments over a period
of five years, beginning in the month after the first anniversary of the grant
date. The options generally expire on the seventh anniversary of the grant
date. Options and awards that expire, terminate or are cancelled or forfeited
will again be available for grant or award under the plan.
Delivery Plan. Delivery had a stock option plan which was approved by its
shareholders in January 1994. On March 1, 1996, effective with the merger with
Corporate Express, all Delivery options became vested and were exercisable
into shares of common stock, as adjusted to reflect the exchange ratio as
defined in the merger agreement.
UT Plan. UT had stock option plans which, effective with the merger with
Corporate Express on November 8, 1996, became vested and were exercisable into
shares of common stock, as adjusted to reflect the exchange ratio as defined
in the merger agreement.
Directors Plan. The 1996 Stock Option Plan for Outside Directors (the
"Directors Plan") was adopted by the Board of Directors and approved by
shareholders in August 1996. The maximum aggregate number of shares of common
stock for which options may be granted under this plan is 375,000. Initial
options granted under the Directors Plan vest at 40% on the first anniversary
of the date of grant, 40% on the second anniversary and the remaining 20% on
the third anniversary. All other stock options shall become exercisable at 50%
on the first anniversary of the date of grant and the remaining 50% on the
second anniversary of the date of grant. Each eligible director who first
becomes a member of the Board shall automatically be granted stock options to
purchase 37,500 shares on the date of his or her selection or election to the
Board. Each eligible director shall also automatically be granted stock
options to purchase 15,000 shares on each anniversary of the date of such
initial grant (beginning on the second such anniversary).
Supplemental Plan. The 1996 Supplemental Stock Option Plan (the
"Supplemental Plan") was adopted by the Board of Directors in December 1996.
The maximum aggregate number of shares of common stock for which options may
be granted under this plan is 6,000,000. Option grants under the Supplemental
Plan and the terms of the grants are identical to the 1994 Stock Option Plan.
44
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The summary of the status of the Company's seven fixed stock option plans as
of March 1, 1997, March 2, 1996 and February 25, 1995, and changes during the
years ending on those dates is presented below:
<TABLE>
<CAPTION>
MARCH 1, 1997 MARCH 2, 1996 FEBRUARY 25, 1995
------------------ ------------------ -----------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 15,216 $10.90 6,465 $4.57 2,914 $2.88
Granted................. 4,405 21.15 9,872 14.21 4,076 5.74
Exercised............... (1,686) 5.98 (819) 2.03 (240) 3.83
Forfeited............... (1,102) 18.46 (302) 7.67 (285) 4.62
------ ------ -----
Outstanding at end of
year................... 16,833 13.59 15,216 10.90 6,465 4.57
====== ====== =====
Options exercisable at
year end............... 5,407 3,324 716
Weighted-average fair
value of options
granted during the
year................... $ 7.61 $ 6.26
</TABLE>
The following table summarizes information about fixed stock options
outstanding as of March 1, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ----------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
OUTSTANDING REMAINING EXERCISABLE
RANGE OF AT 3/1/97 CONTRACTUAL LIFE WEIGHTED-AVERAGE AT 3/1/97 WEIGHTED-AVERAGE
EXERCISE PRICES (000'S) IN YEARS EXERCISE PRICE (000'S) EXERCISE PRICE
--------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ .10 to 3.55........... 1,200 3.4 $ 2.99 731 $ 2.92
4.50 to 6.53............ 4,114 7.2 5.05 3,622 5.07
7.11 to 11.11........... 756 6.1 8.68 357 8.72
12.45 to 14.67.......... 3,323 7.5 13.37 355 12.95
15.38 to 19.83.......... 5,209 6.3 19.43 191 16.63
21.75 to 38.70.......... 2,231 6.5 23.37 151 29.83
------ -----
16,833 6.6 13.59 5,407 6.63
====== =====
</TABLE>
The Company applies APB Opinion 25 and related interpretations in accounting
for the above plans. Accordingly, no compensation cost has been recognized for
its fixed stock-based plans. The fair value of each option grant was estimated
on the date of grant using the Black-Scholes option-pricing model with the
following assumptions for fiscal 1996 and 1995: risk-free interest rates
ranging from 5.38% to 6.58%; expected life of four years; volatility of 35%;
dividend yield of 0%. Had compensation cost been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of FASB Statement 123, the Company's net income and net income per
common share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------
MARCH 1, MARCH 2,
1997 1996
-------- --------
<S> <C> <C> <C>
Net income (loss)........................... As reported $40,281 $5,140(1)
Pro forma 32,062 $2,808
Net income (loss) per common share.......... As reported $ 0.31 $ 0.05(1)
Pro forma 0.25 0.03
</TABLE>
- --------
(1) Net income and net income per common share as reported represent pro forma
net income and pro forma net income per common share as adjusted for the
effects of pro forma S Corporation taxes as more fully described in Note
13.
45
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Warrants:
As of February 25, 1995, warrants to purchase 1,489,500 shares of the
Company's common stock, had been issued with exercise prices of $.02 per share
for 6,750 shares, $4.89 per share for 562,500 shares and $1.78 for the
remaining 920,250 shares. As of March 1 1997, warrants to purchase 675,000 of
common stock were outstanding, with exercise prices of $4.89 per share for
562,500 shares and $1.78 per share for the remaining 112,500 shares. The
warrants expire on various dates through January 31, 1999.
Outstanding warrants to purchase Delivery common stock are vested and
exercisable into shares of Corporate Express common stock, effective with the
merger with Corporate Express on March 1, 1996, at an exchange ratio as
defined in the merger agreement. As of March 1 1997, warrants to purchase
49,950 and 54,000 shares of Corporate Express common stock were outstanding at
prices of $5.55 and $9.44 per share, respectively.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Pursuant to SFAS No. 107, "Disclosure About Fair Value of Financial
Instruments," the Company has estimated the fair value of its financial
instruments using the following methods and assumptions:
. The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value;
. The fair value of the Convertible Notes is based on quoted market prices
and was approximately $295,750,000 at March 1, 1997;
. The fair value of the Series B Notes is based on quoted market prices and
was approximately $92,025,000 at March 1, 1997;
. The carrying amounts of the Company's debt, other than the Convertible
Notes and the Series B Notes, approximates fair value, estimated by
discounted cash flow analyses based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
13. PRO FORMA NET INCOME:
The pro forma net income and pro forma net income per share reflects the tax
adjustment for a fiscal 1996 acquisition accounted for as a pooling of
interests that was previously an S corporation for income tax purposes, as if
the acquired company had filed a C corporation tax returns for all periods
presented. The effect is as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1995 1994
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income before pro forma adjustments, per
consolidated statements of operations............. $41,996 $5,551 $16,496
Pro forma provision for income taxes............... 1,715 411 727
------- ------ -------
Pro forma net income............................... $40,281 $5,140 $15,769
======= ====== =======
</TABLE>
14. INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION
The Company's major operations consist of providing the distribution of
products and services. The product distribution segment has operations in the
United States, Australia, New Zealand, Canada, the United Kingdom, Germany,
France and Italy. Currently, the largest operations in the international
segment are in Australia. Services include same day delivery, distribution and
logistics management and call center.
46
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net sales, merger and other nonrecurring charges, operating profit,
identifiable assets, capital expenditures and depreciation and amortization
pertaining to the industries and geographic areas in which the Company
operates are presented below.
INDUSTRY SEGMENTS:
<TABLE>
<CAPTION>
CORPORATE
EXPRESS PRODUCT
CONSOLIDATED DISTRIBUTION SERVICES
------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fiscal year ended March 1, 1997:
Net sales.................................. $3,196,056 $2,436,296 $759,760
Merger and other nonrecurring charges...... 19,840 8,406 11,434
Operating profit........................... 100,490 80,396 20,094
Identifiable assets........................ 1,843,977 1,685,716 158,261
Capital expenditures....................... 119,639 104,432 15,207
Depreciation and amortization.............. 48,736 33,446 15,290
Fiscal year ended March 2, 1996:
Net sales.................................. $1,890,639 $1,548,175 $342,464
Merger and other nonrecurring charges...... 42,790 29,203 13,587
Operating profit........................... 38,160 29,191 8,969
Identifiable assets........................ 1,023,365 900,722 122,643
Capital expenditures....................... 53,124 41,469 11,655
Depreciation and amortization.............. 28,498 19,977 8,521
Fiscal year ended February 25, 1995:
Net sales.................................. $1,145,151 $ 924,886 $220,265
Operating profit........................... 40,953 29,811 11,142
Identifiable assets........................ 645,309 568,562 76,747
Capital expenditures....................... 18,670 11,525 7,145
Depreciation and amortization.............. 17,078 12,694 4,384
</TABLE>
47
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GEOGRAPHICAL SEGMENTS:
<TABLE>
<CAPTION>
CORPORATE
EXPRESS DOMESTIC INTERNATIONAL
CONSOLIDATED OPERATIONS OPERATIONS
------------ ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fiscal year ended March 1, 1997:
Net sales............................... $3,196,056 $2,630,930 $565,126
Merger and other nonrecurring charges... 19,840 18,511 1,329
Operating profit........................ 100,490 95,788 4,702
Identifiable assets..................... 1,843,977 1,519,152 324,825
Capital expenditures.................... 119,639 108,655 10,984
Depreciation and amortization........... 48,736 41,598 7,138
Fiscal year ended March 2, 1996:
Net sales............................... $1,890,639 $1,652,438 $238,201
Merger and other nonrecurring charges... 42,790 42,790 --
Operating profit........................ 38,160 28,943 9,217
Identifiable assets..................... 1,023,365 868,227 155,138
Capital expenditures.................... 53,124 50,963 2,161
Depreciation and amortization........... 28,498 26,010 2,488
Fiscal year ended February 25, 1995:
Net sales............................... $1,145,151 $1,143,457 $ 1,694
Operating profit........................ 40,953 40,939 14
Identifiable assets..................... 645,309 641,898 3,411
Capital expenditures.................... 18,670 18,665 5
Depreciation and amortization........... 17,078 17,066 12
</TABLE>
48
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. QUARTERLY FINANCIAL DATA (UNAUDITED):(A)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Fiscal year ended March 1, 1997:
Net sales..................... $ 650,861 $ 755,009 $ 889,563 $ 900,623
Gross profit.................. 164,329 182,814 217,197 213,970
Net income.................... 12,082 13,417 9,290(b) 7,208(b)
Pro forma net income.......... 11,752 13,090 8,918 6,521
Pro forma net income per
common share................. .09 .10 .07 .05
Fiscal year ended March 2, 1996:
Net sales..................... $ 394,115 $ 452,540 $ 493,725 $ 550,259
Gross profit.................. 99,211 111,075 125,670 131,365
Income(loss) from continuing
operations................... 7,154 7,637 11,898 (19,913)
Net income (loss)............. 6,069 7,637 11,898 (20,053)(c)
Pro forma income (loss) from
continuing operations........ 7,236 7,501 11,691 (20,064)
Pro forma net income (loss)... 6,152 7,501 11,691 (20,204)
Pro forma income (loss) from
continuing operations per
common share................. .07 .07 .10 (.18)
Pro forma net income (loss)
per common share............. .06 .07 .10 (.18)
</TABLE>
- --------
(a) Quarterly amounts have been restated to include the accounts and
operations of HMI, Sofco, Nimsa and UT for fiscal 1996, and HMI, Sofco,
Nimsa, Delivery and Young for fiscal 1995.
(b) In the third and fourth quarters of fiscal 1996, the Company recognized
pretax charges of $12.4 million and $7.5 million, respectively, related to
merger and other nonrecurring items.
(c) In the fourth quarter of fiscal 1995, the Company recognized pretax
charges of $42.8 million related to merger and other nonrecurring items.
49
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No change of accountants or disagreements on any matter of accounting
principles or financial statement disclosures have occurred within the last
two years.
PART III
The information called for by Item 10, Directors and Executive Officers of
the Registrant; Item 11, Executive Compensation; Item 12, Security Ownership
of Certain Beneficial Owners and Management; and Item 13, Certain
Relationships and Related Transactions, is incorporated herein by reference to
the Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders, presently scheduled to be held on July 17, 1997, which will be
filed with the Securities and Exchange Commission within 120 days from the end
of the Registrant's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements of the Company and its Consolidated Subsidiaries
Report of Independent Accountants
Consolidated Balance Sheets as of March 1, 1997 and March 2, 1996
Consolidated Statements of Operations for the fiscal years ended March
1, 1997, March 2, 1996, and February 25, 1995
Consolidated Statements of Shareholders' Equity for the fiscal years
ended March 1, 1997, March 2, 1996, and February 25, 1995
Consolidated Statements of Cash Flows for the fiscal years ended March
1, 1997, March 2, 1996, and February 25, 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
II. Valuation and Qualifying Accounts
3. Exhibits
The following exhibits are incorporated in this report by reference or
included and submitted with this report, as indicated. Except as otherwise
noted, the exhibit has previously been filed as an exhibit to the Company's
Registration Statement on Form S-1, File No. 33-81924 (the "Registration
Statement"), and is incorporated herein by reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Articles of Amendment and Restatement of the Articles of
Incorporation of Corporate Express, Inc., a Colorado corporation
(the "Company"), filed on September 30, 1994.
*3.2 Articles of Amendment and Restatement of the Company, filed on
August 22, 1996.
3.3 Amended and Restated By-Laws of the Company.
4.1 Specimen Common Stock Certificate of the Company.
4.2 Form of Warrant Agreement.
4.3 Indenture dated as of February 28, 1994 by and among the Company,
and the Guarantors named therein and First Trust National
Association for the $100,000,000 9 1/8% Senior Subordinated Notes.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.4 Note Purchase Agreement dated February 22, 1994 by and among the
Company, 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.
4.5 Recapitalization Agreement dated December 3, 1991, by and between
the Company, J.P. Morgan Investment Corporation ("J.P. Morgan") and
Shareholders.
4.6 Recapitalization Agreement dated August 29, 1992 by and among the
Company, J.P. Morgan and certain shareholders.
4.7 Indenture dated as of June 24, 1996 by and among the Company and
Bankers Trust Company, as trustee, for the 4 1/2% Convertible Notes
due July 1, 2000 (including Form of Notes) (incorporated by
reference to the Company's Registration Statement on Form S-3, File
No. 333-12451).
4.8 First Supplemental Indenture dated as of October 15, 1996 relating
to the Company's 4 1/2% Convertible Notes (incorporated by reference
to the Company's Registration Statement on Form S-3, File No. 333-
12451).
4.9 Form of 4 1/2% Convertible Note (incorporated by reference to the
Company's Registration Statement on Form S-3, File No. 333-12451).
10.1 Employment Agreement dated as of August 25, 1993, by and between the
Company and Robert King, as amended effective July 15, 1994.
10.2 Amended and Restated 1992 Stock Option Plan, Form of Non-qualified
Stock Option Agreement and Form of Incentive Stock Option Agreement.
10.3 1994 Executive Stock Option Plan.
10.4 Form of Indemnification Agreement between the Company and its
officers and directors.
10.5 1994 Stock Option and Incentive Plan.
10.6 1994 Employee Stock Purchase Plan.
10.7 Employment Agreement dated as of July 31, 1995 by and between the
Company and Sam Leno (incorporated by reference to the Company's
Registration Statement on Form S-1, File No. 33-95902).
10.8 Agreement among the Company, Synergom, Inc. and OfficeMax, Inc.
dated as of August 25, 1995 (incorporated by reference to the
Company's Registration Statement on Form S-1, File No. 33-95902).
10.9 Agreement and Plan of Merger dated as of January 6, 1996 among the
Company, Delivery Systems, Inc. and DSU Acquisition Corp., as
amended (incorporated by reference to the Company's Registration
Statement on Form S-4, File No. 333-288).
10.10 Agreement and Plan of Merger dated as of February 8, 1996 by and
among the Company, CEX Acquisition Corp., Young, Richard Young, HCC
Investments, Inc., Juliet Challenger, Inc. and Wilmington
Securities, Inc. (incorporated by reference to the Company's
Registration Statement on Form S-4, File No. 333-288).
10.11 Stock Purchase Agreement dated April 22, 1996 by and among the
Company, ASAP Software Express, Inc. and the shareholders of ASAP
Software Express, Inc. (incorporated by reference to the Company's
Form 8-K dated May 15, 1996).
*10.12 Corporate Express, Inc. Supplemental Stock Option Plan.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.13 Amended and Restated Credit Agreement, dated as of November 26, 1996
by and among CEX Holdings, Inc., as borrower, the Company, as a
guarantor, the lenders named therein and The First National Bank of
Chicago, as agent (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the period ended November 30,
1996).
10.14 Agreement and Plan of Merger dated as of September 10, 1996 among
the Company, United TransNet, Inc. and Bevo Acquisition Corp., Inc.
(incorporated by reference to the Company's Registration Statement
on Form S-4, File No. 333-13217).
*11.1 Statement regarding Computation of Net Income Per Share.
*21.1 List of Subsidiaries.
*23.1 Consent of Independent Accountants.
*27.1 Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
(b) Reports on Form 8-K
None.
52
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Corporate Express, Inc.
(Registrant)
/s/ Sam R. Leno
By: _________________________________
SAM R. LENO
EXECUTIVE VICE PRESIDENT ANDCHIEF
FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Jirka Rysavy Chairman of the May 14, 1997
- ------------------------------------- Board and Chief
JIRKA RYSAVY Executive Officer
(Principal
Executive Officer)
/s/ Robert L. King President, Chief May 14, 1997
- ------------------------------------- Operating Officer
ROBERT L. KING and Director
/s/ Gary M. Jacobs Executive Vice May 14, 1997
- ------------------------------------- President and
GARY M. JACOBS Secretary
/s/ Sam R. Leno Executive Vice May 14, 1997
- ------------------------------------- President and Chief
SAM R. LENO Financial Officer
(Principal
Financial Officer)
/s/ Joanne C. Farver Vice President, May 14, 1997
- ------------------------------------- Controller
JOANNE C. FARVER (Principal
Accounting Officer)
/s/ Mo Siegal Director May 14, 1997
- -------------------------------------
MO SIEGAL
/s/ Janet A. Hickey Director May 14, 1997
- -------------------------------------
JANET A. HICKEY
53
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED FEBRUARY 25, 1995, AND THE PERIODS ENDED MARCH 2, 1996 AND MARCH 1,
1997(A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Year ended February
25, 1995............. $4,090 $ 2,460 $1,050(b) $(1,610) $5,990
Period ended March 2,
1996................. 5,990 4,226 1,633(b) (4,885) 6,964
Period ended March 1,
1997................. 6,964 6,152 5,324(d) (5,436) 13,004
Inventory Reserve:
Year ended February
25, 1995............. $5,145 $ 2,564 $ 330(c) $ (850) $7,189
Period ended March 2,
1996................. 7,189 1,212 (259) 8,142
Period ended March 1,
1997................. 8,142 4,306 (3,546) 8,902
Discontinued Operations
Reserve:
Year ended February
25, 1995............. $1,138 $ -- $ -- $ (697) $ 441
Period ended March 2,
1996................. 441 -- -- (222) 219
Period ended March 1,
1997................. 219 -- -- (183) 36
Valuation Allowance for
Deferred Tax Assets:
Year ended February
25, 1995............. $5,145 $(2,636) $2,345 $ -- $4,854
Period ended March 2,
1996................. 4,854 (2,247) (174) -- 2,433
Period ended March 1,
1997................. 2,433 (47) 3,663(b) -- 6,049
</TABLE>
- --------
(a) The period ended March 1, 1997 includes the twelve months ended March 1,
1997 for Corporate Express, Inc., and the fourteen months ended March 1,
1997 for Hermann Marketing, Inc. as each company had different fiscal year
ends. The period ended March 2, 1996 includes the twelve months ended
March 2, 1996 for Corporate Express, Inc., the fourteen months ended March
2, 1996 for Delivery, the seventeen months ended March 2, 1996 for Young,
and the nine months ended March 2, 1996 for Sofco, as each company had
different fiscal year ends.
(b) Represents additional allowances as a result of the purchase acquisitions
and UT, which was accounted for as a pooling of interests effective March
3, 1996.
(c) Represents inventory reserve for Lucas pooling.
54
<PAGE>
APPENDIX IV
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------- -------
Commission File No. 0-24642
--------------
CORPORATE EXPRESS, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0978360
------------------------------- ---------------
(State of incorporation or (I.R.S. Employer
organization) Identification No.)
1 Environmental Way
Broomfield, Colorado 80021
---------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 664-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---------- ----------
The number of shares of the registrant's common stock, par value $.0002 per
share, outstanding as of July 9, 1997 was 129,381,953.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS
May 31, March 1,
1997 1997
----------------- ------------------
<S> <C> <C>
(Unaudited)
Current assets:
Cash and cash equivalents $ 28,748 $ 54,499
Trade accounts receivable, net of allowance
of $14,244 and $13,004, respectively 493,855 494,199
Notes and other receivables 48,344 55,530
Inventories 191,939 187,558
Deferred income taxes 26,752 29,076
Other current assets 31,484 28,548
----------- -----------
Total current assets 821,122 849,410
Property and equipment:
Land 13,955 14,105
Buildings and leasehold improvements 110,954 106,824
Furniture and equipment 266,693 249,693
----------- -----------
391,602 370,622
Less accumulated depreciation (113,490) (106,891)
----------- -----------
278,112 263,731
Goodwill, net of $41,167 and $36,471 of accumulated
amortization, respectively 676,064 671,967
Other assets, net 64,792 58,869
----------- -----------
Total assets $ 1,840,090 $ 1,843,977
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
May 31, March 1,
1997 1997
------------------- -------------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 284,169 $ 292,041
Accounts payable - acquisitions 3,243 5,078
Accrued payroll and benefits 55,889 45,512
Accrued purchase costs 10,538 12,888
Accrued merger and related costs 14,968 18,484
Other accrued liabilities 39,014 52,012
Current portion of long-term debt and capital leases 27,356 29,742
-------------- --------------
Total current liabilities 435,177 455,757
Capital lease obligations 11,397 11,545
Long-term debt 617,265 621,705
Deferred income taxes 35,110 26,819
Minority interest in subsidiaries 26,375 22,015
Other non-current liabilities 11,650 12,529
-------------- --------------
Total liabilities 1,136,974 1,150,370
Contingencies (Note 5)
Shareholders' equity:
Preferred stock, $.0001 par value, 25,000,000 shares
authorized, none issued or outstanding - -
Common stock, $.0002 par value, 300,000,000 shares
authorized, 126,606,188 and 126,171,467 shares 25 25
issued and outstanding, respectively
Common stock, non-voting, $.0002 par value, 3,000,000
shares authorized, none issued or outstanding - -
Additional paid-in capital 646,793 646,536
Retained earnings 58,244 48,222
Foreign currency translation adjustments (1,946) (1,176)
-------------- --------------
Total shareholders' equity 703,116 693,607
-------------- --------------
Total liabilities and shareholders' equity $ 1,840,090 $ 1,843,977
============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------
May 31, June 1,
1997 1996
------------------ -----------------
<S> <C> <C>
(Unaudited)
Net sales $ 913,342 $ 650,861
Cost of sales 699,114 486,532
--------- ---------
Gross profit 214,228 164,329
Warehouse operating and selling expenses 159,043 117,440
Corporate general and administrative expenses 29,483 21,238
--------- ---------
Operating profit 25,702 25,651
Interest expense, net 9,915 4,704
--------- ---------
Income before income taxes 15,787 20,947
Income tax expense 6,710 8,635
--------- ---------
Income before minority interest 9,077 12,312
Minority interest (income) expense (945) 230
--------- ---------
Net income $ 10,022 $ 12,082
========= =========
Pro forma net income $ 10,022 $ 11,752
========= =========
Pro forma net income per share (Note 6) $ .08 $ .09
========= =========
Weighted average common shares outstanding 130,246 127,362
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
May 31, June 1,
1997 1996
--------------- ---------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,022 $ 12,082
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 9,751 6,256
Amortization 5,493 3,580
Adjustment to conform fiscal years - 204
Minority interest (945) 230
Other 438 (509)
Changes in assets and liabilities, excluding acquisitions:
Decrease in accounts receivable 11,367 11,850
Increase in inventory (3,845) (4,767)
Decrease (increase) in other current assets 861 (719)
Decrease (increase) in other assets (3,188) 3,129
Decrease in accounts payable (8,561) (15,173)
Decrease in accrued liabilities (1,196) (12,090)
----------- -----------
Net cash provided by operating activities 20,197 4,073
----------- -----------
Cash flows from investing activities:
Proceeds from sale of assets 598 518
Capital expenditures (23,869) (29,740)
Payment for acquisitions, net of cash acquired (11,295) (75,718)
Other (1,225) (63)
----------- -----------
Net cash used in investing activities (35,791) (105,003)
----------- -----------
Cash flows from financing activities:
Issuance of common stock 2,684 3,594
Issuance of subsidiary common stock 2,434 -
Debt issuance costs (104) (375)
Proceeds from long-term borrowings 7,383 7,832
Repayments of long-term borrowings (15,947) (7,101)
Proceeds from short-term borrowings 3,625 970
Repayments of short-term borrowings (2,063) (710)
Net (payments on) proceeds from line of credit (8,092) 98,991
Other 47 (1,927)
----------- -----------
Net cash (used in) provided by financing activities (10,033) 101,274
Effect of foreign currency exchange rate changes on cash (124) 177
----------- -----------
(Decrease) increase in cash and cash equivalents (25,751) 521
Cash and cash equivalents, beginning of period 54,499 29,813
----------- -----------
Cash and cash equivalents, end of period $ 28,748 $ 30,334
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations in the amount of $1,725,000 and $2,004,000 were
incurred during the three months ended May 31, 1997 and June 1, 1996,
respectively, for equipment and software.
During the three months ended May 31, 1997, the Company acquired six
contract stationers for a net cash purchase price of $7,941,000 and
approximately 18,000 shares of common stock. During the three months ended June
1, 1996, the Company acquired 14 contract stationers, one software distributor,
and five delivery operations for a net cash purchase price of $72,780,000, a
note payable of $45,111,000 and approximately 228,000 shares of common stock.
In conjunction with these acquisitions, liabilities were assumed as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
May 31, June 1,
1997 1996
------- --------
(In thousands)
(Unaudited)
<S> <C> <C>
Fair value of assets and goodwill acquired $14,586 $189,597
Cash paid, net of cash acquired (7,941) (72,780)
Issuance of notes payable -- (45,111)
Issuance of stock (165) (6,785)
Purchase price payable, included
in current liabilities ( 25) (1,973)
------- --------
Liabilities assumed $ 6,455 $ 62,948
======= ========
</TABLE>
In addition to the amounts set forth above, during the three months ended
May 31, 1997 and June 1, 1996, the Company paid $3,354,000 and $2,938,000,
respectively, for prior period acquisitions.
In November 1996, the Company reflected in the consolidated financial
statements its acquisition of the remaining 49% interest in Corporate Express
United Kingdom; however, as of May 31, 1997 this transaction had not been
completed as consideration for the transaction was not transferred on a timely
basis. Accordingly, the adjustment to this transaction has been recorded as a
reduction to equity and goodwill with an offsetting increase to minority
interest. The impact on prior period results was not material. On July 1,
1997, the acquisition of this minority interest was completed.
During the three months ended May 31, 1997, the Company issued 342,000
shares of common stock related to acquisitions that closed in fiscal 1996.
The accompanying notes are an integral part of the consolidated financial
statements.
-6-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
1. Basis of Presentation and Significant Accounting Policies
The consolidated financial statements include the accounts of Corporate
Express, Inc. ("Corporate Express" or the "Company") and its majority-owned
subsidiaries. The following acquisitions were accounted for as poolings of
interests and, accordingly, the accompanying financial statements have been
restated to include their accounts and operations:
. Nimsa S.A. ("Nimsa") was acquired by the Company on October 31, 1996.
. Bevo Acquisition Corp., Inc., a wholly-owned subsidiary of the Company,
was merged with and into United TransNet, Inc. ("UT") on November 8, 1996.
. IMS Acquisition, Inc., a wholly-owned subsidiary of the Company, was
merged with and into Sofco Mead, Inc. ("Sofco") on January 24, 1997.
. H.M. Acquisition Corp., a wholly-owned subsidiary of the Company, was
merged with and into Hermann Marketing, Inc. ("HMI") on January 30, 1997.
Acquisitions accounted for as purchases are included in the accounts and
operations as of the effective date of the transaction and immaterial
acquisitions accounted for as poolings of interests are included in the accounts
and operations as of the beginning of the fiscal quarter in which the
transaction is effective. The Company accounts for its investments in less than
50% owned entities using the equity or cost methods. All intercompany balances
and transactions have been eliminated.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, such interim statements reflect all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position and the results of operations and cash flows for the interim
periods presented. The results of operations for these interim periods are not
necessarily indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with the audited consolidated
financial statements and footnotes included in the Company's Annual Report on
Form 10-K for the year ended March 1, 1997.
Certain of the Company's locations calculate cost of sales using an estimated
gross profit method for interim periods. Cost of sales at these locations are
adjusted based on physical inventories which are performed no less than once a
year.
New Accounting Standards:
In the fourth quarter of fiscal 1997, the Company will adopt SFAS No. 128,
"Earnings per Share." This statement simplifies the standards for computing
earnings per share found in APB Opinion No. 15, "Earnings per Share" and makes
them comparable to international EPS standards. Had SFAS No. 128 been effective
during the three months ended May 31, 1997 and June 1, 1996, (i) "Basic earnings
per share" under SFAS No. 128 would have been $.08 and $.10, respectively, and
(ii) "Dilutive earnings per share" under SFAS No. 128 would have been $.08 and
$.09, respectively.
-7-
<PAGE>
2. Accrued Purchase Costs
In conjunction with purchase acquisitions, the Company accrues certain of
the direct external costs incurred to consummate the acquisition, external costs
associated with closing duplicate facilities of acquired companies, and
severance and relocation payments for the acquired company's employees.
The following table sets forth activity in the Company's accrued purchase
liability accounts for the period ended May 31, 1997:
<TABLE>
<CAPTION>
Disposition
Facility Redundant of Assets
Total Exit Costs Facilities Severance & Other
------------ ----------- ----------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance, March 1, 1997 $12,888 $1,845 $3,269 $ 6,149 $1,625
Additions/Adjustments 680 327 135 365 (147)
Payments (2,994) (753) (401) (1,792) (48)
Reversals to goodwill (36) -- (4) (32) --
------- ------ ------ ------- ------
Balance, May 31, 1997 $10,538 $1,419 $2,999 $ 4,690 $1,430
======= ====== ====== ======= ======
</TABLE>
3. Merger and Other Nonrecurring Charges
During the third and fourth quarters of fiscal 1996, the Company recorded an
estimated net merger and other nonrecurring charge of $19,840,000 in connection
with the Company's acquisition of UT, Nimsa, HMI and Sofco. The following table
sets forth the usage of this charge for the three months ended May 31, 1997:
<TABLE>
<CAPTION>
Balance Cash Non-Cash Balance
3/1/97 Payments Usage 5/31/97
------- ------- ----- --------
<S> <C> <C> <C> <C>
Merger transaction costs (1) $ 2,568 $ (523) -- $ 2,045
Severance and terminations (2) 4,573 (1,096) -- 3,477
Facility closure and consolidation (3) 3,473 (193) -- 3,280
------- ------- ----- --------
Accrued merger and related costs,
balance 10,614 (1,812) -- 8,802
Other asset write-downs and costs (4) 2,049 -- $(134) 1,915
------- ------- ----- --------
Total $12,663 $(1,812) $(134) $ 10,717
======= ======= ===== ========
</TABLE>
(1) Remaining merger transaction costs are primarily for the UT acquisition.
(2) Severance and employee termination costs are related to the elimination of
duplicate management positions and facility closures and consolidations.
Approximately 203 of the 485 employees originally estimated to be terminated
have been terminated as of May 31, 1997.
(3) Of the 115 facilities estimated to be closed or consolidated, 31 have been
closed or consolidated as of May 31, 1997.
(4) Other asset write-downs and costs are recorded as contra assets and include
software, leasehold improvements and equipment being abandoned or written
off as a result of the UT acquisition.
During the fourth quarter of fiscal 1995, the Company recorded $36,838,000
in merger and other nonrecurring charges. This liability was adjusted by
$7,571,000 in the third quarter of fiscal 1996 to reflect the actual merger
transaction costs incurred and revised plans primarily as a result of the
integration of UT with U.S. Delivery Systems, Inc. ("Delivery"). The following
table sets forth the usage of this charge for the three months ended May
31,1997:
-8-
<PAGE>
<TABLE>
<CAPTION>
Balance Cash Non-Cash Balance
3/1//97 Payments Usage 5/31/97
-------- ------- ------ --------
<S> <C> <C> <C> <C>
Merger transaction costs (1) $ 1,514 $ (979) -- $ 535
Severance and terminations (2) 3,092 (303) -- 2,789
Facility closure and consolidation (3) 3,264 (422) -- 2,842
-------- ------- ------ --------
Accrued merger and related costs,
balance 7,870 (1,704) 6,166
Other asset write-downs and costs (4) 2,103 -- $ (208) 1,895
-------- ------- ------ --------
Total $ 9,973 $(1,704) $ (208) $ 8,061
======== ======= ====== ========
</TABLE>
(1) Remaining merger transactions costs represent the estimated contract buy-
outs for certain former Delivery employees and other transaction costs.
(2) Approximately 61 of the 482 employees originally estimated to be terminated
have been terminated as of May 31, 1997.
(3) Of the 70 facilities originally estimated to be closed or consolidated, 34
have been closed or consolidated as of May 31, 1997.
(4) Other asset write downs and costs are recorded as contra assets and include
software, leasehold improvements and equipment being abandoned or written
off as a result of the consolidation projects.
4. Pro Forma Acquisition Results
On May 15, 1996, the company acquired all of the outstanding capital stock
of ASAP Software Express, Inc. ("ASAP"), a leading distributor of software to
large corporations for a purchase price of approximately $98,000,000, subject to
certain adjustments. The excess of the purchase price over the fair market value
of the net tangible assets acquired was allocated to goodwill and is being
amortized over 40 years.
The operating results of ASAP are included in the Company's consolidated
statement of operations from the effective date of the acquisition. The
following pro forma financial information assumes the ASAP acquisition occurred
at the beginning of the three month period ended June 1, 1996. These results
have been prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisition been made at the
beginning of the period or of results which may occur in the future. The pro
forma results listed below are unaudited and reflect purchase price adjustments.
<TABLE>
<CAPTION>
Three Months Ended
June 1, 1996
-----------------------
(In thousands, except per share amounts)
<S> <C>
Net sales $676,620
Net income 12,751
Net income per share 0.10
</TABLE>
5. Contingencies
In the normal course of business, the Company is subject to certain legal
proceedings. In the opinion of management, the outcome of such litigation will
not have a material adverse effect on the Company's financial position or
operating results. The Company has a dispute with certain of the former
shareholders of a company acquired by
-9-
<PAGE>
the Company in fiscal 1996. No legal proceedings have been commenced by these
shareholders, and the Company cannot determine if any legal action will be
initiated, or the results or materiality of any such action.
6. Pro Forma Net Income:
The pro forma net income and pro forma net income per share reflects the
tax adjustment for a fiscal 1996 acquisition accounted for as a pooling of
interests that was previously an S corporation for income tax purposes, as if
the acquired company had filed a C corporation tax return for all periods
presented. The effect is as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 1, 1996
------------------
<S> <C>
Net income before pro forma adjustments, per
consolidated statements of operations $12,082
Pro forma provision for income taxes 330
-------
Pro forma net income $11,752
=======
</TABLE>
-10-
<PAGE>
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net Sales. Consolidated net sales increased 40.3% to $913,342,000 in the
three months ended May 31, 1997 from $650,861,000 in the three months ended June
1, 1996. Net sales for the Company's product distribution business increased
44.1% to $700,322,000 in the three months ended May 31, 1997 from $486,056,000
in the three months ended June 1, 1996 while net sales in the service business
increased 29.3% to $213,020,000 in the three months ended May 31, 1997 from
$164,805,000 in the prior year period. These increases were primarily
attributable to 86 acquisitions since June 1, 1996. Also contributing to the
sales increase was strong internal growth reflecting increased market
penetration in product distribution.
International operations accounted for 19.1% of total sales or $174,377,000
in the three months ended May 31, 1997 and 14.5% of total sales or $94,500,000
in the three months ended June 1, 1996. The Company has expanded its
international operations since June 1, 1996 to include operations in New
Zealand, Germany, France and Italy.
Gross Profit. Cost of sales includes merchandise, occupancy and delivery
costs. Gross profit as a percentage of sales was 23.5% for the three months
ended May 31, 1997 and 25.2% for the three months ended June 1, 1996. The
decrease in gross profit is primarily attributable to the addition of a desktop
software line of products, which has substantially lower merchandise profit
margins, and the delivery operations, which have reduced gross profit margins as
a result of increases in driver and vehicle related costs and pricing issues.
Also impacting gross profit were higher delivery cost structures associated with
recent acquisitions partially offset by increased vendor rebates reflecting the
integration of acquisitions to common vendors.
Warehouse Operating and Selling Expenses. Warehouse operating and selling
expenses as a percentage of sales decreased to 17.4% for the three months ended
May 31, 1997 from 18.0% for the three months ended June 1, 1996. The
improvement in operating expenses as a percentage of sales primarily reflects
the recent consolidation cost savings and elimination of duplicative
administrative functions in the delivery segment. Warehouse operating and
selling expenses increased to $159,043,000 in the three months ended May 31,
1997 from $117,440,000 in the three months ended June 1, 1996. This increase is
primarily attributable to the 40.3% increase in net sales in the comparable
three-month period.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses include central expenses incurred to provide corporate
oversight and support for regional operations and goodwill amortization.
Corporate general and administrative expenses increased to $29,483,000 in the
three months ended May 31, 1997 from $21,238,000 in the three months ended June
1, 1996. This increase reflects the costs associated with developing a larger
corporate staff to support the expanded operations, including an expanded
information systems staff, and increased goodwill amortization resulting from
purchase acquisitions since June 1996. As a percentage of net sales, corporate
general and administrative expenses decreased to 3.2% in the three months ended
May 31, 1997 from 3.3% in the three months ended June 1, 1996, which reflects
the leveraging of these expenses as the Company's sales increase.
Operating Profit. Consolidated operating profit was $25,702,000, or 2.8%
of net sales, for the three months ended May 31, 1997 compared to consolidated
operating profit of $25,651,000, or 3.9% of net sales, for the three months
ended June 1, 1996. Operating profit for the product distribution segment
increased to $18,533,000, or 2.6% of product distribution net sales, in the
three months ended May 31, 1997 from $17,951,000, or 3.7% of product
distribution net sales, in the three months ended June 1, 1996. The decrease in
operating profit as a percentage of product distribution net sales primarily
reflects decreased international operating profits and the large number of
-11-
<PAGE>
acquisitions which have lowered operating margins in the last twelve months.
Operating profit for the service segment decreased to $7,169,000, or 3.4% of
service net revenues, in the three months ended May 31, 1997 from $7,701,000, or
4.7% of service net revenues, in the three months ended June 1, 1996. The
decrease in operating profit for the service segment reflects the weak
performance at several delivery locations and expenses related to consolidation
projects. Operating profit for international operations decreased to 1.2% of
net international sales in the three months ended May 31, 1997 from 2.4% in the
three months ended June 1, 1996 primarily reflecting operating losses in
Australia and the United Kingdom, due to consolidation efforts, partially offset
by increased operating profits in Canada and France.
Interest Expense. Net interest expense of $9,915,000 in the three months
ended May 31, 1997 increased from $4,704,000 in the three months ended June 1,
1996. The increase in net interest expense reflects increased Company debt
including the interest on the $325,000,000 principal amount of 4.5% Convertible
Notes due July 1, 2000 which were issued June 24, 1996 (the "Convertible
Notes"), and interest expense for borrowings to fund international and domestic
expansion.
Minority Interest. Minority interest income of $945,000 in the three
months ended May 31, 1997 compares to an expense of $230,000 in the three months
ended June 1, 1996. The minority interest income reflects the 47.4% and 49%
minority interests in the operating losses at Corporate Express Australia
("CEA") and Corporate Express United Kingdom ("CEUK"), respectively. On March
10, 1997, CEA issued an additional 3,750,000 shares to institutional investors
which changed the Corporate Express interest in CEA from 54.6% at March 1, 1997
to 52.6% at May 31, 1997. In November 1996, the Company reflected in its
consolidated financial statements the acquisition of the remaining 49% interest
in CEUK; however, as of May 31, 1997, this transaction had not been completed as
consideration for the transaction was not transferred on a timely basis. The
49% minority interest was recorded for the three months ended May 31, 1997. The
impact on prior period results was not material. On July 1, 1997, the
acquisition of this minority interest was completed.
Net Income. Net income of $10,022,000 in the three months ended May 31,
1997 compared to net income of $12,082,000 in the three months ended June 1,
1996. The after-tax profitability was reduced by an increase in the effective
tax rate to 42.5% in the three months ended May 31, 1997 from 41.2% in the three
months ended June 1, 1996.
Other. Goodwill at May 31, 1997 of $676,064,000 increased $4,097,000 from
$671,967,000 at March 1, 1997, reflecting net additions from acquisitions of
$8,793,000, offset by current year amortization of $4,696,000.
Accrued purchase costs at May 31, 1997 of $10,538,000 decreased by
$2,350,000 from the March 1, 1997 balance of $12,888,000. This decrease
reflects acquisition additions of $680,000, usage of $2,994,000 and reversals
of $36,000. The remaining balance primarily represents the current estimate for
costs to be incurred in conjunction with current consolidation projects in
Canada, the United Kingdom and Germany. (See Note 2 to the Consolidated
Financial Statements.)
The accrued merger and related costs balance at May 31, 1997 of $14,968,000
decreased by $3,516,000 from the March 1, 1997 balance of $18,484,000, primarily
as a result of severance and termination costs related to the Delivery and UT
mergers and final payments for Delivery and Richard Young Journal, Inc.
("Young") transaction costs. (See Note 3 to the Consolidated Financial
Statements.)
-12-
<PAGE>
Liquidity and Capital Resources
Historically, the Company has financed its operations through internally
generated funds and borrowings from commercial banks and has financed its
acquisitions through the use of such funds and the issuance of equity and debt
securities.
On June 24, 1996, the Company issued the Convertible Notes which are
convertible into shares of Common Stock of the Company at a conversion price of
$33.33 per share, subject to certain conditions. A portion of the proceeds from
the sale of the Convertible Notes was used to repay the Company's revolving
credit facility (the "Senior Credit Facility") and an acquisition note payable
with the remaining proceeds being used to fund acquisitions and for other
general corporate purposes.
The Company's Senior Credit Facility was amended and restated on November
26, 1996 to increase the borrowing capacity from $90,000,000 to $350,000,000,
extend the facility termination date to March 31, 2000, lower the cost of its
borrowings to LIBOR plus .50%, release the assets of the Company (the previous
facility was secured by substantially all of the assets, including accounts
receivable and inventory of the Company and its United States subsidiaries), and
to make certain other changes. The Senior Credit Facility was previously
amended on May 10, 1996 to increase the Company's borrowing capacity from
$90,000,000 to $250,000,000, subject to borrowing base and other restrictions
and to lower the cost of its borrowings to LIBOR plus 1.25%. On May 31, 1996,
the Company borrowed on the Senior Credit Facility and repaid in full the
$33,270,000 outstanding revolving credit facility previously established by
Delivery. On June 24, 1996, the outstanding amounts under the Senior Credit
Facility were paid in full from funds generated from the issuance of the
Convertible Notes. Upon this repayment, the borrowing capacity of the Senior
Credit Facility was reduced from the amended capacity of $250,000,000 to
$90,000,000, subject to borrowing base and other restrictions.
During the first quarter of fiscal 1997, the Company purchased six contract
stationers for a net cash purchase price of $7,941,000, and approximately 18,000
shares of common stock. Total liabilities assumed in connection with these
acquisitions were $6,455,000. In addition, the Company made payments of
approximately $3,354,000 related to acquisitions completed in fiscal 1996.
The Company had capital expenditures of $23,869,000 in the first quarter of
fiscal 1997 for computer systems and software, warehouse reconfigurations,
telecommunications equipment, delivery vehicles, leasehold improvements and
investments in facilities.
Cash and cash equivalents decreased by $25,751,000 in the first quarter of
fiscal 1997. This decrease reflects cash provided by operating activities of
$20,197,000, the issuance of common stock for acquisitions of $2,684,000 and the
issuance of subsidiary common stock of $2,434,000, offset by cash paid for
acquisitions of $11,295,000, net debt repayments of $15,094,000, capital
expenditures of $23,869,000 and net other activities of $808,000.
The Company believes the borrowing capacity under the credit facility,
together with proceeds from future debt and/or equity financings, coupled with
the Company's cash on hand, capital resources and cash flows, will be sufficient
to fund its ongoing operations, anticipated capital expenditures and acquisition
activity for the next twelve months. However, actual capital needs may change,
particularly in connection with acquisitions which the Company may make in the
future.
Inflation
Certain of the Company's product offerings, particularly paper products,
have been and are expected to continue to be subject to significant price
fluctuations due to inflationary and other market conditions. The Company
generally is able to pass such increased costs on to its customers through price
increases, although it may not be able to adjust its prices immediately.
Significant increases in fuel costs in the future could affect the Company's
profitability if these costs cannot be passed on to customers. In general, the
Company does not believe that inflation has had a material effect on its results
of operations in recent years. However, there can be no assurance that the
Company's business will not be affected by inflation in the future.
-13-
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None.
-14-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE EXPRESS, INC.
By: /s/ Sam R. Leno
------------------------------------------
Sam R. Leno
Executive Vice President and Chief
Financial Officer
Date: July 14, 1997 (Principal Financial Officer and Duly
Authorized Officer)
<PAGE>
APPENDIX V
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 30,1997
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _______
Commission File No. 0-24642
-------
CORPORATE EXPRESS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0978360
-------------------------- ----------
(State of incorporation or (I.R.S. Employer
organization) Identification No.)
1 Environmental Way
Broomfield, Colorado 80021
------------------------ -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 664-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---------- ----------
The number of shares of the registrant's common stock, par value $.0002 per
share, outstanding as of October 8, 1997 was 130,073,050.
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
August 30, March 1,
1997 1997
------------------ ----------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 39,290 $ 54,499
Trade accounts receivable, net of allowance
of $14,567 and $13,004, respectively 519,040 494,199
Notes and other receivables 50,336 55,530
Inventories 201,354 187,558
Deferred income taxes 28,363 29,076
Other current assets 36,332 28,548
------------------ ----------------
Total current assets 874,715 849,410
Property and equipment:
Land 13,831 14,105
Buildings and leasehold improvements 104,198 106,824
Furniture and equipment 286,628 249,693
------------------ ----------------
404,657 370,622
Less accumulated depreciation (124,077) (106,891)
------------------ ----------------
280,580 263,731
Goodwill, net of $45,896 and $36,471 of accumulated
amortization, respectively 680,396 671,967
Other assets, net 71,274 58,869
------------------ ----------------
Total assets $ 1,906,965 $ 1,843,977
================== ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-2-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
(IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 30, March 1,
1997 1997
---------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 307,722 $ 297,119
Accrued payroll and benefits 57,709 45,512
Accrued purchase costs 11,307 12,888
Accrued merger and related costs 12,292 18,484
Other accrued liabilities 47,929 52,012
Current portion of long-term debt and capital leases 25,976 29,742
---------------- -------------
Total current liabilities 462,935 455,757
Capital lease obligations 11,398 11,545
Long-term debt 626,216 621,705
Deferred income taxes 38,350 26,819
Minority interest in subsidiaries 22,285 22,015
Other non-current liabilities 13,178 12,529
---------------- -------------
Total liabilities 1,174,362 1,150,370
Contingencies (Note 7)
Shareholders' equity:
Preferred stock, $.0001 par value, 25,000,000 shares
authorized, none issued or outstanding - -
Common stock, $.0002 par value, 300,000,000 shares
authorized, 129,840,434 and 126,171,467 shares 26 25
issued and outstanding, respectively
Common stock, non-voting, $.0002 par value, 3,000,000
shares authorized, none issued or outstanding - -
Additional paid-in capital 666,461 646,536
Retained earnings 72,811 48,222
Foreign currency translation adjustments (6,695) (1,176)
---------------- -------------
Total shareholders' equity 732,603 693,607
---------------- -------------
Total liabilities and shareholders' equity $ 1,906,965 $ 1,843,977
================ =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-3-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------- ---------------------------------------
August 30, August 31, August 30, August 31,
1997 1996 1997 1996
--------------- ---------------- ------------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 941,634 $ 755,009 $ 1,854,976 $ 1,405,870
Cost of sales 719,410 572,195 1,418,524 1,058,727
--------------- ---------------- ------------------- -----------------
Gross profit 222,224 182,814 436,452 347,143
Warehouse operating and selling expense 161,857 131,841 320,900 249,281
Corporate general and administrative expenses 25,997 22,886 55,480 44,124
--------------- ---------------- ------------------- -----------------
Operating profit 34,370 28,087 60,072 53,738
Interest expense, net 9,279 5,965 19,194 10,669
--------------- ---------------- ------------------- -----------------
Income before income taxes 25,091 22,122 40,878 43,069
Income tax expense 10,621 9,035 17,331 17,670
--------------- ---------------- ------------------- -----------------
Income before minority interest 14,470 13,087 23,547 25,399
Minority interest (97) (330) (1,042) (100)
--------------- ---------------- ------------------- -----------------
Net income $ 14,567 $ 13,417 $ 24,589 $ 25,499
=============== ================ =================== =================
Pro forma net income $ 14,567 $ 13,090 $ 24,589 $ 24,842
=============== ================ =================== =================
Pro forma net income per share $ .11 $ .10 $ .18 $ .19
=============== ================ =================== =================
Weighted average common shares outstanding 137,061 128,961 133,786 128,267
=============== ================ =================== =================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-4-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
August 30, August 31,
1997 1996
-------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 24,589 $ 25,499
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 20,337 13,432
Amortization 11,028 7,946
Adjustment to conform fiscal years - (430)
Minority interest (1,042) (100)
Other 2,299 881
Changes in assets and liabilities, excluding acquisitions:
(Increase) decrease in accounts receivable (16,778) (8,255)
(Increase) decrease in inventory (12,194) (5,174)
(Increase) decrease in other current assets (2,232) (4,208)
(Increase) decrease in other assets (1,605) (108)
Increase (decrease) in accounts payable 5,087 4,882
Increase (decrease) in accrued liabilities 8,819 (4,269)
-------------- -------------
Net cash provided by operating activities 38,308 30,096
-------------- -------------
Cash flows from investing activities:
Proceeds from sale of assets 13,040 752
Capital expenditures (47,447) (59,135)
Payment for acquisitions, net of cash acquired (14,603) (199,085)
Purchase of marketable securities (12,762) (11,575)
Other 3,507 (8,241)
-------------- -------------
Net cash used in investing activities (58,265) (277,284)
-------------- -------------
Cash flows from financing activities:
Issuance of common stock 4,261 5,810
Issuance of subsidiary common stock 2,434 -
Debt issuance costs (155) (7,198)
Proceeds from long-term borrowings 7,423 343,967
Repayments of long-term borrowings (19,033) (6,236)
Proceeds from short-term borrowings 7,085 2,011
Repayments of short-term borrowings (5,711) (8,366)
Net (payments on) proceeds from all lines of credit 9,305 (19,285)
Other (67) (3,056)
-------------- -------------
Net cash (used in) provided by financing activities 5,542 307,647
Effect of foreign currency exchange rate changes on cash (794) (314)
-------------- -------------
(Decrease) increase in cash and cash equivalents (15,209) 60,145
Cash and cash equivalents, beginning of period 54,499 29,813
-------------- -------------
Cash and cash equivalents, end of period $ 39,290 $ 89,958
============== =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-5-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations in the amount of $3,342,000 and $4,732,000 were
incurred during the six months ended August 30, 1997 and August 31, 1996,
respectively, for equipment and vehicles.
During the six months ended August 30, 1997, the Company acquired nine
companies accounted for as purchases for a net cash purchase price of
$10,467,000 and approximately 105,000 shares of common stock and seven companies
accounted for as immaterial poolings of interest for 2,056,000 shares of common
stock. During the six months ended August 31, 1996, the Company acquired 47
companies accounted for as purchases for a net cash purchase price of
$192,724,000 and approximately 617,000 shares of common stock, and nine
companies accounted for as immaterial poolings of interest for 924,000 shares of
common stock. In conjunction with these acquisitions, liabilities were assumed
as follows:
<TABLE>
<CAPTION>
Six Months Ended
-----------------
August 30, August 31,
1997 1996
---- ----
(In thousands)
(Unaudited)
<S> <C> <C>
Fair value of assets and goodwill acquired $ 35,164 $ 356,563
Cash paid, net of cash acquired (10,467) (192,724)
Issuance of stock (5,248) (25,326)
Purchase price payable, included
in current liabilities ( 57) (1,916)
-------- ---------
Liabilities assumed $ 19,392 $ 136,597
======== =========
</TABLE>
In addition to the amounts set forth above, during the six months ended
August 30, 1997, the Company paid $4,136,000 and issued approximately 354,000
shares of common stock for prior period acquisitions and acquired the remaining
49% interest in Corporate Express United Kingdom for shares of common stock of
the Company. During the six months ended August 31, 1996, the Company paid
$6,361,000 for prior period acquisitions.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
1. Basis of Presentation and Significant Accounting Policies
The consolidated financial statements include the accounts of Corporate
Express, Inc. ("Corporate Express" or the "Company") and its majority-owned
subsidiaries. The following acquisitions were accounted for as poolings of
interests and, accordingly, the accompanying financial statements have been
restated to include their accounts and operations:
. Nimsa S.A. ("Nimsa") was acquired by the Company on October 31, 1996.
. Bevo Acquisition Corp., Inc., a wholly-owned subsidiary of the Company,
was merged with and into United TransNet, Inc. ("UT") on November 8, 1996.
. IMS Acquisition, Inc., a wholly-owned subsidiary of the Company, was
merged with and into Sofco Mead, Inc. ("Sofco") on January 24, 1997.
. H.M. Acquisition Corp., a wholly-owned subsidiary of the Company, was
merged with and into Hermann Marketing, Inc. ("HMI") on January 30, 1997.
Acquisitions accounted for as purchases are included in the accounts and
operations as of the effective date of the transaction and immaterial
acquisitions accounted for as poolings of interests are included in the accounts
and operations as of the beginning of the fiscal quarter in which the
transaction is effective. The Company accounts for its investments in less than
50% owned entities using the equity or cost methods. All intercompany balances
and transactions have been eliminated.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, such interim statements reflect all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position and the results of operations and cash flows for the interim
periods presented. The results of operations for these interim periods are not
necessarily indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with the audited consolidated
financial statements and footnotes included in the Company's Annual Report on
Form 10-K for the year ended March 1, 1997.
Certain of the Company's locations calculate cost of sales using an estimated
gross profit method for interim periods. Cost of sales at these locations are
adjusted based on physical inventories which are performed no less than once a
year.
New Accounting Standards:
In the fourth quarter of fiscal 1997, the Company will adopt SFAS No. 128,
"Earnings per Share." This statement simplifies the standards for computing
earnings per share found in APB Opinion No. 15, "Earnings per Share" and makes
them comparable to international earnings per share standards. Had SFAS No. 128
been effective during the six months ended August 30, 1997 and August 31, 1996,
(i) "Basic earnings per share" under SFAS No. 128 would have been $.19 and $.21,
respectively, and (ii) "Dilutive earnings per share" under SFAS No. 128 would
have been $.18 and $.19, respectively. Had SFAS No. 128 been effective during
the three months ended August 30, 1997 and August 31, 1996, (i) "Basic earnings
per share" under SFAS No. 128 would have been $.11 and $.11, respectively, and
(ii) "Dilutive earnings per share" under SFAS No. 128 would have been $.11 and
$.10, respectively.
7
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
2. Accrued Purchase Costs
In conjunction with purchase acquisitions, the Company accrues certain of the
direct costs associated with closing redundant facilities of acquired companies,
and severance and relocation payments for the acquired company's employees.
The following table sets forth activity in the Company's accrued purchase
liability accounts for the six months ended August 30, 1997:
<TABLE>
<CAPTION>
Disposition
Facility Redundant of Assets
Total Exit Costs Facilities Severance & Other
------------ ----------- ----------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance, March 1, 1997 $12,888 $ 1,845 $3,269 $ 6,149 $1,625
Additions/Adjustments 4,280 724 864 2,699 (7)
Payments (5,681) (1,364) (829) (3,301) (187)
Reversals to goodwill (180) -- (71) (109) --
------- ------- ------ ------- ------
Balance, August 30, 1997 $11,307 $ 1,205 $3,233 $ 5,438 $1,431
======= ======= ====== ======= ======
</TABLE>
3. Merger and Other Nonrecurring Charges
During the second quarter of fiscal 1997, the Company incurred $754,000 of
merger transaction costs related to second quarter acquisitions accounted for as
immaterial poolings of interests. Additionally, the Company reduced previous
charges by $874,000 to reflect actual exit costs to be incurred. Due to the
immateriality of these net amounts, they are included in corporate general and
administrative expenses in the consolidated statement of operations.
During the third and fourth quarters of fiscal 1996, the Company recorded an
estimated net merger and other nonrecurring charge in connection with the
Company's acquisition of UT, Nimsa, HMI and Sofco. This charge was adjusted in
the second quarter of fiscal 1997 to reflect the actual merger transaction costs
incurred. The following table sets forth the usage of this charge for the six
months ended August 30, 1997:
<TABLE>
<CAPTION>
Balance Cash Non-Cash Balance
3/1/97 Payments Usage Adjustment 8/30/97
------- -------- -------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Merger transaction costs (1) $ 2,568 $ (915) -- $(235) $ 1,418
Severance and terminations (2) 4,573 (1,494) -- -- 3,079
Facility closure and consolidation (3) 3,473 (361) -- -- 3,112
------- ------- -------- ----- --------
Accrued merger and related costs, balance 10,614 (2,770) -- (235) 7,609
Other asset write-downs and costs (4 ) 2,049 -- $(285) -- 1,764
------- ------- -------- ----- --------
Total $12,663 $(2,770) $(285) $(235) $ 9,373
======= ======= ======== ===== ========
</TABLE>
(1) Remaining merger transaction costs are primarily for the UT acquisition and
include contract buy-outs for certain employees. These amounts are expected
to be resolved by the end of fiscal 1997.
(2) Severance and employee termination costs are related to the elimination of
duplicative management positions and facility closures and consolidations.
Approximately 236 of the 485 employees originally estimated to be terminated
have been terminated as of August 30, 1997. The remaining terminations will
occur in conjunction with the facility closures and be concluded by the end
of fiscal 1998.
(3) Of the 115 facilities estimated to be closed or consolidated, 36 have been
closed or consolidated as of August 30, 1997. The remaining facilities are
expected to be closed by the end of fiscal 1998.
(4) Other asset write-downs and costs are recorded as contra assets and include
software, leasehold improvements and equipment being abandoned or written
off as a result of the UT acquisition and the facility consolidations.
8
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
During the fourth quarter of fiscal 1995, the Company recorded a merger and
other nonrecurring charge primarily in conjunction with the U.S. Delivery
Systems, Inc. ("Delivery") and Richard Young Journal, Inc. acquisitions. This
liability was adjusted in fiscal 1996 to reflect the actual merger transaction
costs incurred and revised plans primarily as a result of the integration of UT
with Delivery. The Company expected to complete this plan within two years;
however, due to the acquisition of UT in the third quarter of fiscal 1996, the
exit plan is expected to be completed by the end of the first quarter of fiscal
1998. This liability was adjusted by $639,000 during the second fiscal quarter
to reflect the actual exit costs to be incurred. The following table sets forth
the usage of this charge for the six months ended August 30, 1997:
<TABLE>
<CAPTION>
Balance Cash Non-Cash Balance
3/1/97 Payments Usage Adjustment 8/30/97
------- -------- -------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Merger transaction costs (1) $ 1,514 $(1,075) -- -- $ 439
Severance and terminations (2) 3,092 (648) -- $(448) 1,996
Facility closure and consolidation (3) 3,264 (886) -- (191) 2,187
------- ------- ----- ----- --------
Accrued merger and related costs, balance 7,870 (2,609) (639) 4,622
Other asset write-downs and costs (4 ) 2,103 -- $(737) -- 1,366
------- ------- ----- ----- --------
Total $ 9,973 $(2,609) $(737) $(639) $ 5,988
======= ======= ===== ===== ========
</TABLE>
(1) Remaining merger transactions costs represent the estimated contract buy-
outs for certain former Delivery employees which are being negotiated and
will be resolved in the third quarter of fiscal 1997.
(2) Severance and termination costs are the severance payments related to
facility closures and centralization of certain shared services. Of the 391
employees planned to be terminated, 67 have been terminated as of August 30,
1997. The Company expects to complete the facility closures and related
terminations by the end of the first quarter in fiscal 1998. The
centralization of certain shared services has begun in the second quarter of
fiscal 1997 and will continue through the first quarter of fiscal 1998.
(3) Facility closure and consolidation costs are the estimated costs to close
duplicate facilities, lease costs, and other costs associated with closed
facilities. Thirty-six of the 70 facilities planned to be closed or
consolidated have been; the remaining 34 facilities are expected to be
closed by the end of the first quarter in fiscal 1998.
(4) Other asset write-downs and costs are recorded as contra assets and include
software, leasehold improvements and equipment being abandoned or written
off as a result of the acquisition. The remaining balance primarily
represents assets that will be disposed of in conjunction with facility
closures which are expected to be completed by the end of the first quarter
in fiscal 1998.
4. PRO FORMA ACQUISITION RESULTS
On May 15, 1996, the company acquired all of the outstanding capital stock
of ASAP Software Express, Inc. ("ASAP"), a leading distributor of software to
large corporations for a purchase price of approximately $98 million. In
addition, the Company purchased all of the outstanding capital stock of
Boulevard Produits De Bureau, Inc. ("Boulevard"), a seller of office supplies,
furniture and equipment, for a net cash purchase price of $16,102,000. The
Company also repaid $9,498,000 of Boulevard promissory notes with cash of
$731,900 and 356,832 shares of the Company's common stock. The excess of the
purchase price over the fair market value of the net tangible assets acquired in
both acquisitions was allocated to goodwill and is being amortized over 40
years.
The operating results of ASAP and Boulevard are included in the Company's
consolidated statement of operations from the effective date of each
acquisition. The following pro forma financial information assumes the ASAP and
Boulevard acquisitions occurred at the beginning of the six-month period ended
August 31, 1996. These results have been prepared for comparative purposes only
and do not purport to be indicative of what would have occurred had the
transaction occurred at the beginning of the period, or of results which may
occur in the future. The pro forma results listed below are unaudited and
reflect purchase price adjustments.
Six Months Ended
August 31, 1996
------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
<S> <C>
Net sales $1,456,863
Net income 26,169
Net income per share 0.20
</TABLE>
9
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
5. Pro Forma Net Income:
The pro forma net income and pro forma net income per share reflects the tax
adjustment for a fiscal 1996 acquisition accounted for as a pooling of interests
that was previously an S corporation for income tax purposes, as if the acquired
company had filed a C corporation tax return for all periods presented. The
effect is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, 1996 August 31, 1996
------------------ ----------------
<S> <C> <C>
Net income before pro forma adjustments, per
consolidated statements of operations $13,417 $25,499
Pro forma provision for income taxes 327 657
------- -------
Pro forma net income $13,090 $24,842
======= =======
</TABLE>
6. Subsequent Events
On September 10, 1997, the Company announced that a definitive agreement had
been executed providing for the merger with Data Documents, Inc. ("DDI"), a
provider of forms management services and systems, custom business forms and
pressure-sensitive labels for large corporate customers. Pursuant to the merger
agreement DDI will become a wholly-owned subsidiary of the Company and each
outstanding share of DDI's common stock will be converted into 1.1 shares of the
Company's common stock. The exchange ratio is subject to adjustment if the
price per share of the Company's common stock is greater than $18.20 or less
than $15.00 during a specified period prior to the closing date of the merger,
as provided in the merger agreement. In addition, the parties have the right to
terminate the merger agreement in certain circumstances. The shares of the
Registrant's common stock to be issued to DDI's shareholders will be registered
on a Registration Statement on Form S-4 filed under the Securities Act of 1933,
as amended. The consummation of the merger is subject to approval by DDI's
stockholders, receipt of all necessary regulatory approvals, satisfactory
confirmation that the merger will be treated as a tax-free reorganization and
accounted for as a pooling of interests, and other customary conditions. The
merger agreement may be terminated by the parties if the merger is not
consummated by December 31, 1997.
7. CONTINGENCIES
In the normal course of business, the Company is subject to certain legal
proceedings. In the opinion of management, the outcome of such litigation will
not have a material adverse effect on the Company's financial position or
operating results.
10
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Net Sales. Consolidated net sales increased 24.7% to $941,634,000 in the
three months ended August 30, 1997 from $755,009,000 in the same period last
year and 31.9% to $1,854,976,000 from $1,405,870,000 for the respective six-
month periods. Net sales for the Company's product distribution business
increased 27.8% to $734,168,000 in the three months ended August 30, 1997 from
$574,413,000 in the same period last year, while net sales in the service
business increased 14.9% to $207,466,000 from $180,596,000 for the respective
three-month periods. Net sales for the Company's product distribution business
increased 35.3% to $1,434,490,000 in the six months ended August 30, 1997 from
$1,060,469,000 in the same period last year, while net sales in the service
business increased 21.7% to $420,486,000 from $345,401,000 for the respective
six-month periods. These increases were primarily attributable to 60
acquisitions completed since August 31, 1996. Also contributing to the sales
increase was strong internal growth reflecting increased market penetration in
domestic product distribution.
International operations accounted for 17.7% of consolidated net sales, or
$166,351,000, in the three months ended August 30, 1997 and 16.4% of
consolidated net sales, or $123,896,000, in the same period last year and 18.4%
of consolidated net sales, or $340,728,000, for the six months ended August 30,
1997 compared to 15.5% of consolidated net sales, or $218,396,000, for the same
period last year. The Company has expanded its international operations since
August 31, 1996 by acquiring 16 entities and expanding into France and Italy.
Gross Profit. Cost of sales includes merchandise, occupancy and delivery
costs. Gross profit as a percentage of sales was 23.6% for the three months
ended August 30, 1997 and 24.2% for the same period last year compared to 23.5%
and 24.7% for the respective six-month periods. The decrease in the gross
profit percentage is primarily attributable to the service business, which has
experienced reduced gross profit margins as a result of consolidation costs,
increases in driver and vehicle related costs, and pricing. Also affecting gross
profit were lower international gross margins primarily as a result of increased
competitive pressures and the addition of a desktop software line of products,
offset by increased vendor rebates reflecting improved programs due to the
integration of acquisitions to common vendors.
Warehouse Operating and Selling Expenses. Warehouse operating and selling
expenses as a percentage of sales decreased to 17.2% for the three months ended
August 30, 1997 from 17.5% for the same period last year and to 17.3% from 17.7%
for the respective six-month periods. The improvement in operating expenses as
a percentage of sales primarily reflects the recent consolidation cost savings
and elimination of duplicative administrative functions in the service and
international segments. Warehouse operating and selling expenses increased to
$161,857,000 in the three months ended August 30, 1997 from $131,841,000 in the
same period last year and to $320,900,000 from $249,281,000 for the respective
six-month periods. This dollar increase is primarily attributable to the 24.7%
increase in net sales in the comparable three-month period and 31.9% increase in
the comparable six-month period.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses include central expenses incurred to provide corporate
oversight and support for regional operations and goodwill amortization.
Corporate general and administrative expenses increased to $25,997,000 in the
three months ended August 30, 1997 from $22,886,000 in the same period last year
and to $55,480,000 from $44,124,000 for the respective six-month periods. This
increase reflects the costs associated with developing a larger corporate staff
to support the expanded operations, including an expanded information systems
staff, and increased amortization of goodwill resulting from purchase
acquisitions since August 1996. As a percentage of net sales, corporate general
and administrative expenses decreased to 2.8% in the three months ended August
30, 1997 from 3.0% in the same period last year, and to 3.0% from 3.1% for the
respective six-month periods. These decreases reflect the leveraging of these
expenses as the Company's sales increase.
11
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONT'
Operating Profit. Consolidated operating profit was $34,370,000, or 3.7%
of net sales, for the three months ended August 30, 1997 compared to
consolidated operating profit of $28,087,000, or 3.7% of net sales, for the same
period last year. Consolidated operating profit was $60,072,000, or 3.2% of net
sales, for the six months ended August 30, 1997 compared to consolidated
operating profit of $53,738,000, or 3.8% of net sales, for the same period last
year. Operating profit for the product distribution segment increased to
$28,338,000, or 3.9% of product distribution net sales, in the three months
ended August 30, 1997 from $19,946,000, or 3.5% of product distribution net
sales, in the same period last year, and to $46,871,000, or 3.3% of product
distribution net sales, from $37,897,000, or 3.6% of product distribution net
sales, for the corresponding six-month periods. The increase in operating
profit as a percentage of product distribution net sales for the respective
three-month periods primarily reflects increased international operating
profits. Operating profit for the service segment decreased to $6,032,000, or
2.9% of service net revenues, in the three months ended August 30, 1997 from
$8,142,000, or 4.5% of service net revenues, in the same period last year, and
to $13,201,000 or 3.1% of service net sales, from $15,842,000, or 4.6% of
service net sales, for the corresponding six-month periods. The decrease in
operating profit for the service segment reflects restructuring efforts and weak
performance at several delivery locations, partially offset by some cost savings
from consolidation efforts and the elimination of duplicative personnel.
Operating profit for international operations increased to 1.2% of net
international sales in the three months ended August 30, 1997 from break even in
the same period last year, and to 1.2% from 1.0% in the respective six-month
periods, primarily reflecting operating profits in Canada, Australia, and
France, partially offset by operating losses in the United Kingdom, Germany, and
Italy. Recent consolidations in the United Kingdom and Italy have negatively
impacted operating profits.
Interest Expense. Net interest expense of $9,279,000 in the three months
ended August 30, 1997 increased from $5,965,000 in the same period last year,
and to $19,194,000 from $10,669,000 for the respective six-month periods. The
increase in net interest expense reflects increased Company debt to fund
international and domestic expansion and reflects the interest on the
$325,000,000 principal amount of 4.5% Convertible Notes due July 1, 2000 which
were issued June 24, 1996 (the "Convertible Notes").
Minority Interest. Minority interest income of $97,000 in the three months
ended August 30, 1997 compares to minority interest income of $330,000 in the
same period last year, and to $1,042,000 from $100,000 for the respective six-
month periods. The minority interest income for the three months ended August
30, 1997 reflects the 47.4% minority interest in the operating profits at
Corporate Express Australia ("CEA"), offset by the 49% minority interest
operating losses at Corporate Express United Kingdom ("CEUK") through June 30,
1997. On July 1, 1997, the Company acquired the remaining 49% interest in
CEUK. The minority interest income for the six months ended August 30, 1997
reflects the 47.4% minority interest in the operating losses at CEA and the 49%
minority interest operating losses at CEUK through June 30, 1997.
Net Income. Net income of $14,567,000 in the three months ended August 30,
1997 compared to net income of $13,417,000 in the same period last year, and to
$24,589,000 from $25,499,000 for the respective six-month periods. The after-
tax profitability was reduced by an increase in the effective tax rate to 42.3%
in the three months ended August 30, 1997 from 40.8% in the same period last
year, and to 42.4% from 41.0% for the respective six-month periods.
Other. Goodwill at August 30, 1997 of $680,396,000 increased $8,429,000
from $671,967,000 at March 1, 1997, reflecting net additions from acquisitions
of $17,854,000, offset by current year amortization of $9,425,000.
Accrued purchase costs at August 30, 1997 of $11,307,000 decreased by
$1,581,000 from the March 1, 1997 balance of $12,888,000. This decrease
reflects acquisition additions of $4,280,000, usage of $5,681,000 and reversals
to goodwill of $180,000. The remaining balance primarily represents the current
estimate for costs
12
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONT'
to be incurred in conjunction with planned consolidation projects in Canada, the
United Kingdom, Italy, Germany, and certain domestic locations. (See Note 2 to
the Consolidated Financial Statements.)
The accrued merger and related costs balance at August 30, 1997 of
$12,292,000 decreased by $6,192,000 from the March 1, 1997 balance of
$18,484,000, primarily as a result of severance and termination costs related to
the Delivery and UT mergers and final payments for the acquisitions of Delivery
and Richard Young Journal, Inc. transaction costs. (See Note 3 to the
Consolidated Financial Statements.)
Liquidity and Capital Resources
Historically, the Company has financed its operations through internally
generated funds and borrowings from commercial banks and has financed its
acquisitions through the use of such funds and the issuance of equity and debt
securities.
On June 24, 1996, the Company issued the Convertible Notes, which are
convertible into shares of Common Stock of the Company at a conversion price of
$33.33 per share, subject to certain conditions. A portion of the proceeds from
the sale of the Convertible Notes was used to repay the Company's revolving
credit facility (the "Senior Credit Facility") and an acquisition note payable
with the remaining proceeds being used to fund acquisitions and for other
general corporate purposes.
The Company's Senior Credit Facility was expanded on September 10, 1997 to
increase the borrowing capacity from $350,000,000 to $500,000,000 and the cost
of borrowings under the Facility was increased to LIBOR plus .75%. The Senior
Credit Facility was previously amended and restated on November 26, 1996 to
increase the borrowing capacity from $90,000,000 to $350,000,000, extend the
facility termination date to March 31, 2000, release the assets of the Company
(the previous facility was secured by substantially all of the assets, including
accounts receivable and inventory of the Company and its United States
subsidiaries), and to make certain other changes.
During the six months ended August 30, 1997, the Company purchased 16
companies for a net cash purchase price of $10,467,000 and approximately
2,161,000 shares of common stock. Total liabilities assumed in connection with
these acquisitions were $19,392,000. In addition, the Company made payments of
approximately $4,136,000 and issued approximately 354,000 shares of common stock
related to acquisitions completed in prior fiscal years.
During the six months ended August 30, 1997, the Company had capital
expenditures of $47,447,000 for computer systems and software, warehouse
reconfigurations, telecommunications equipment, delivery vehicles, leasehold
improvements and investments in facilities. The Company continues to invest in
the development of its proprietary computer software and the upgrade of its
computer systems.
Significant uses of cash in the six months ended August 30, 1997 were as
follows: capital expenditures of $47,447,000, cash paid for acquisitions of
$14,603,000, purchase of marketable securities of $12,762,000 and net debt
repayments of $931,000, partially offset by cash provided by operating
activities of $38,308,000, proceeds from the sale of assets of $13,040,000,
issuance of common stock of $4,261,000, issuance of subsidiary common stock of
$2,434,000, and net other activities of $2,491,000.
The Company believes that the borrowing capacity under the Senior Credit
Facility, together with proceeds from future debt and equity financings, in
addition to the Company's cash on hand, capital resources and cash flows, will
be sufficient to fund the Company's ongoing operations, anticipated capital
expenditures and acquisition activity for the next twelve months. However,
actual capital needs may change, particularly in connection with acquisitions
which the Company may complete in the future.
13
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONT'
INFLATION
Certain of the Company's product offerings, particularly paper products,
have been and are expected to continue to be subject to significant price
fluctuations due to inflationary and other market conditions. The Company
generally is able to pass such increased costs on to its customers through price
increases, although it may not be able to adjust its prices immediately.
Significant increases in fuel costs in the future could affect the Company's
profitability if these costs cannot be passed on to customers. In general, the
Company does not believe that inflation has had a material effect on its results
of operations in recent years. However, there can be no assurance that the
Company's business will not be affected by inflation in the future.
14
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
On June 13, 1997, in connection with a business acquisition, the
Company issued 5,297 shares of common stock to former shareholders of an
acquired company in exchange for such shareholders' shares of capital stock.
This issuance was made pursuant to exemptions from registration under Section
4(2) under the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on July
17, 1997. Of the 127,113,436 shares of the Company's common stock issued and
outstanding and entitled to vote at the meeting, there were present, in person
or by proxy, 112,036,351 shares, or 88.1% of those shares eligible to vote, such
percentage representing a quorum.
The matters voted upon at the annual meeting and the votes cast for,
against and abstaining as to each matter, were as follows:
(1) The election of directors of the Company to serve until the next
meeting of shareholders or until their successors are duly elected and
qualified.
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
Jirka Rysavy 110,677,668 1,358,683
Janet A. Hickey 110,495,631 1,540,720
Robert L. King 110,674,221 1,362,130
Mo Siegel 110,597,545 1,438,806
James P. Argyropoulos 110,750,021 1,286,330
</TABLE>
(2) To approve an amendment to the 1994 Stock Option and Incentive
Plan to increase the number of shares authorized for grant from 9,562,500 to
13,562,500:
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
97,253,988 14,635,170 100,358 46,835
76.5% of outstanding voting in favor; 11.5% against.
ITEM 5. OTHER INFORMATION
None.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE EXPRESS, INC.
By: /s/ Sam R. Leno
----------------
Sam R. Leno
Executive Vice President and
Chief Financial Officer
Date: October 14, 1997 (Principal Financial Officer and Duly
Authorized Officer)
17
<PAGE>
APPENDIX VI
LOGO
ONE ENVIRONMENTAL WAY
BROOMFIELD, COLORADO 80021
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, JULY 17, 1997
To the Shareholders of Corporate Express, Inc.:
The 1997 Annual Meeting of Shareholders (the "Annual Meeting") of Corporate
Express, Inc., a Colorado corporation (the "Company"), will be held on
Thursday, July 17, 1997, at 9:00 a.m. (local time), at the Boulderado Hotel,
2115 13th Street, Boulder, Colorado, for the following purposes:
1. to elect five directors of the Company to serve until the next annual
meeting of shareholders or until their successors are duly elected and
qualified;
2. to approve an amendment to the Corporate Express, Inc. 1994 Stock Option
and Incentive Plan (the "1994 Plan") to increase the number of shares of
Common Stock authorized for grant from 9,562,500 to 13,562,500; and
3. to transact such other business as may properly come before the Annual
Meeting, or any adjournment(s) or postponement(s) thereof.
The Board of Directors has fixed the close of business on Friday, May 30,
1997, as the record date (the "Record Date") for determining the shareholders
entitled to notice of, and to vote at, the Annual Meeting. A complete list of
shareholders entitled to vote at the Annual Meeting will be available, upon
written request, for inspection during normal business hours by any
shareholder of the Company prior to the Annual Meeting, for a proper purpose,
at the Company's Broomfield, Colorado office. Only shareholders of record on
the Record Date are entitled to notice of, and to vote at, the Annual Meeting
and any adjournments or postponements thereof.
A copy of the Company's Annual Report to Shareholders for the fiscal year
ended March 1, 1997, a Proxy Statement and a proxy card accompany this notice.
These materials are first being sent to shareholders on or about June 24,
1997.
Shareholders are cordially invited to attend the Annual Meeting in person.
To assure your representation at the Annual Meeting, please complete and sign
the enclosed proxy card and return it promptly. If you choose, you may still
vote in person at the Annual Meeting even though you previously submitted a
proxy card.
By Order of the Board of Directors,
LOGO
Gary M. Jacobs
Secretary
Broomfield, Colorado
June 24, 1997
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO DATE, SIGN AND PROMPTLY RETURN YOUR PROXY SO THAT YOUR
SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND THAT THE PRESENCE OF A
QUORUM MAY BE ASSURED. THE PROMPT RETURN OF YOUR SIGNED PROXY, REGARDLESS OF
THE NUMBER OF SHARES YOU HOLD, WILL AID THE COMPANY IN REDUCING THE EXPENSE OF
ADDITIONAL PROXY SOLICITATION. THE GIVING OF YOUR PROXY DOES NOT AFFECT YOUR
RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
<PAGE>
CORPORATE EXPRESS, INC.
ONE ENVIRONMENTAL WAY
BROOMFIELD, COLORADO 80021
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 17, 1997
This Proxy Statement and the accompanying proxy card are being furnished to
the shareholders of Corporate Express, Inc. (the "Company") in connection with
the solicitation of proxies by and on behalf of the Board of Directors of the
Company (the "Board") for use at its 1997 Annual Meeting of Shareholders to be
held on Thursday, July 17, 1997, at 9:00 a.m. (local time), at the Boulderado
Hotel, 2115 13th Street, Boulder, Colorado, and at any adjournment(s) or
postponement(s) thereof (the "Annual Meeting"). This Proxy Statement, the
accompanying proxy card and the Company's Annual Report to Shareholders (the
"Annual Report") for the fiscal year ended March 1, 1997 ("fiscal 1996"), are
being mailed to shareholders on or about June 24, 1997. The Annual Report is
not to be considered a part of the Company's proxy solicitation materials.
PURPOSE OF ANNUAL MEETING
At the Annual Meeting, shareholders will be asked: (i) to elect five
directors of the Company to serve until the next annual meeting of
shareholders or until their successors are duly elected and qualified
(Proposal 1); (ii) to approve an amendment to the Corporate Express, Inc. 1994
Stock Option and Incentive Plan (the "1994 Plan") to increase the number of
shares of Common Stock authorized for grant from 9,562,500 to 13,562,500
(Proposal 2); and (iii) to transact such other business as may properly be
brought before the Annual Meeting. The Board recommends a vote in favor of
(i.e., "FOR") (a) the election of the five nominees for directors of the
Company listed below and (b) the proposal set forth in (ii) above.
QUORUM AND VOTING RIGHTS
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting. Only shareholders of record at the close of business on
Friday, May 30, 1997 (the "Record Date") will be entitled to notice of, and to
vote at, the Annual Meeting. As of the Record Date, there were 127,113,436
shares of Common Stock outstanding and entitled to vote. Holders of Common
Stock as of the Record Date are entitled to one vote for each share held.
All shares of Common Stock represented by properly executed proxies will,
unless the proxies have previously been revoked, be voted in accordance with
the instructions indicated in the proxies. Directors will be elected by a
plurality of the votes cast. Approval of the amendment to the 1994 Plan
requires that the votes in favor of the proposal exceed the votes against the
proposal. If no instructions are indicated, the shares will be voted in favor
of (i.e., "FOR") (i) the election of the five nominees for director of the
Company listed under Proposal 1 and (ii) the increase in the number of shares
of Common Stock authorized under the 1994 Plan listed under Proposal 2. For
purposes of Proposal 2 to amend the 1994 Plan, abstentions and broker non-
votes will not be counted as votes cast and will have no effect on the result
of the vote, although they will count towards the presence of a quorum. Any
shareholder executing
a proxy has the power to revoke the proxy at any time prior to its exercise. A
proxy may be revoked prior to exercise by (a) filing with the Company a
written revocation of the proxy, (b) appearing at the Annual Meeting and
casting a vote contrary to that indicated on the proxy or (c) submitting a
duly executed proxy bearing a later date.
1
<PAGE>
The cost of preparing, printing, assembling and mailing this Proxy Statement
and other material furnished to shareholders in connection with the
solicitation of proxies will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, officers, directors and regular
employees of the Company may solicit proxies by written communication, by
telephone, telegraph or personal call. These persons are to receive no special
compensation for any solicitation activities. The Company has engaged the firm
of Georgeson & Company, Inc. ("Georgeson") to assist the Company in the
distribution and solicitation of proxies. The Company has agreed to pay
Georgeson a fee of approximately $6,500 plus expenses for its services. The
Company will reimburse banks, brokers and other persons holding Common Stock
in their names, or those of their nominees, for their expenses in forwarding
proxy solicitation materials to beneficial owners of Common Stock.
PROPOSAL 1--ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
The Board currently consists of five members: Jirka Rysavy, Janet A. Hickey,
Robert L. King, Mo Siegel and James P. Argyropoulos. The Board proposes that
the five current directors, listed below as nominees, be elected as directors
of the Company to hold office until the next annual meeting of shareholders or
until their successors are duly elected and qualified. Directors will be
elected by a plurality of the shares present and voting at the Annual Meeting.
Unless contrary instructions are given, the proxies will be voted for the
nominees listed below. It is expected these nominees will serve but, if for
any unforeseen cause any of them should decline or be unable to serve, the
proxies will be voted to fill any vacancy so arising in accordance with the
discretionary authority of the persons named in the proxy, unless contrary
instructions are given.
The names of the nominees, their ages, the years in which they began serving
as directors, and positions are set forth below.
<TABLE>
<CAPTION>
NOMINEE AGE DIRECTOR SINCE POSITION
- ------- --- -------------- --------
<S> <C> <C> <C>
Jirka Rysavy.................... 43 1986 Chairman of the Board and
Chief Executive Officer
Janet A. Hickey................. 52 1991 Director
Robert L. King.................. 46 1993 President, Chief Operating
Officer and Director
Mo Siegel....................... 47 1996 Director
James P. Argyropoulos........... 53 1997 Director
</TABLE>
Mr. Rysavy has been Chairman of the Board and Chief Executive Officer since
1986. In addition to founding the Company's business in 1986, Mr. Rysavy has
been responsible for the Company's strategic vision, planning and direction.
Ms. Hickey has served as a director of the Company since December 1991. Ms.
Hickey is a General Partner of the Sprout Group and a Senior Vice President of
DLJ Capital Corporation. The Sprout Group is a division of DLJ Capital
Corporation, which is a wholly-owned subsidiary of Donaldson, Lufkin &
Jenrette, Inc. Prior to joining the Sprout Group in 1985, Ms. Hickey was with
the General Electric Company for fifteen years in a variety of positions, most
recently as Senior Vice President-Venture Investments of the General Electric
Investment Corporation and as a Trustee of the General Electric Pension Trust.
Ms. Hickey also serves as a director of Loehmann's Holdings, Inc., as well as
several private companies, and is a Trustee of Mt. Holyoke College.
Mr. King joined the Company in August 1993 as President, Chief Operating
Officer and a director. During the previous ten years, Mr. King held various
executive positions with Foxmeyer Corporation, a distributor of
pharmaceuticals and healthcare products, serving as its President and Chief
Executive Officer from 1989 to 1993. Prior to 1983, Mr. King served as
Executive Vice President of Narco Drug Co. and Vice President of computer
services for Fox-Vliet Drug Co. Mr. King serves as a director of Investment
Technology Group, Inc.
2
<PAGE>
Mr. Siegel has been a director of the Company since June 1996. Mr. Siegel
has served as Chairman and Chief Executive Officer of Celestial Seasonings,
Inc. ("Celestial") since 1991 and as a director of Celestial since 1988. Mr.
Siegel founded Celestial, the largest manufacturer and marketer of herb teas
in the United States, in 1970, and was President and Chairman of the Board
until 1986.
Mr. Argyropoulos has been a director of the Company since June 1997 when he
filled the vacancy created by Clayton Trier's resignation. Mr. Argyropoulos
was previously a director of the Company until October 1993. A private
investor, Mr. Argyropoulos is the founder, Chairman and Chief Executive
Officer of The Walking Company, a lifestyle specialty retailer, and serves on
the Board of Earthshell, a concrete technology business specializing in fast
food packaging. Mr. Argyropoulos previously served as Chairman of the Board
and Chief Executive Officer of The Cherokee Group Inc. between 1972 and 1989,
a shoe manufacturing and apparel business he founded in 1972.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During fiscal 1996, the Board held thirteen meetings and acted by consent
one time. Each director attended over 75% of the aggregate number of meetings
of the Board and of the committees of the Board on which the directors served
during fiscal 1996.
The Board has three standing committees which have responsibility for
particular corporate matters. The Board does not have a nominating committee.
Audit Committee. The Audit Committee consisted of Ms. Hickey and Mr. Siegel
during fiscal 1996. Ms. Hickey serves as chairperson of the Audit Committee.
The Audit Committee has the authority to recommend the appointment of the
Company's independent auditors and review the results and scope of audits,
internal accounting controls, tax and other accounting-related matters. The
Audit Committee held three meetings during fiscal 1996.
Compensation Committee. The Compensation Committee consisted of Ms. Hickey
and Mr. Siegel during fiscal 1996. Ms. Hickey serves as chairperson of the
Compensation Committee. The Compensation Committee sets compensation policies
applicable to executive officers and approves salaries, bonuses and other
compensation matters for executive officers of the Company and administers the
Company's stock option plans and employee stock purchase plan. The
Compensation Committee held six meetings during fiscal 1996 and acted by
consent one time.
Administrative Committee. The Administrative Committee consisted of Messrs.
Rysavy and King during fiscal 1996. The Administrative Committee administers
the Company's employee benefit plans (exclusive of the stock option plans and
the stock purchase plan), reviews and approves certain acquisitions and
performs other administrative functions as requested by the Board. The
Administrative Committee held four meetings and acted by consent a number of
times during fiscal 1996.
DIRECTOR COMPENSATION
Directors did not receive any fees for serving on the Board or any committee
of the Board during fiscal 1996, but were reimbursed for their reasonable
expenses related to attending meetings. Pursuant to the Company's 1996 Stock
Option Plan for Outside Directors, each director who is not an employee of the
Company or any of its subsidiaries receives an initial grant of options to
purchase 25,000 shares of the Company's Common Stock at an exercise price
equal to the fair market value of the Company's Common Stock on the date of
becoming a director. Each outside director shall also automatically be granted
stock options to purchase 10,000 shares of Common Stock on each anniversary of
the date of such initial grant (beginning on the second such anniversary). The
directors may from time to time receive other non-qualified stock options. The
Board recently approved annual fees and attendance fees for non-employee
directors starting in the 1997 fiscal year.
3
<PAGE>
Beginning in April 1997, directors who are not employees of the Company or its
affiliates will be paid an annual fee, paid quarterly, of $15,000, a fee of
$4,000 for each meeting of the Board of Directors that they attend and a fee
of $1,000 for each telephone meeting. In addition, non-employee directors will
receive a fee of $500 for attendance at each committee meeting and non-
employee chairpersons of each standing committee will receive an annual fee of
$1,000.
PROPOSAL 2--AMENDMENT TO 1994 STOCK OPTION AND INCENTIVE PLAN
The Corporate Express, Inc. 1994 Stock Option and Incentive Plan (the "1994
Plan") was adopted by the Company's Board of Directors and approved by the
shareholders in August 1994. The 1994 Plan provides for the grant of incentive
stock options and non-qualified stock options to purchase shares of Common
Stock to officers, key employees, directors and consultants of the Company and
its subsidiaries. All employees of the Company (approximately 27,000
individuals as of the Record Date) are eligible for grants of stock options
under the 1994 Plan. The maximum aggregate number of shares of Common Stock
which may be issued under the 1994 Plan is 9,562,500 (of which, as of March 1,
1997, 7,423,127 have been granted, net of forfeitures), plus an additional
number of shares equal to the number of options granted under the 1992 Stock
Option Plan that are terminated or forfeited. The closing sale price of the
Company's Common Stock was $13.625 on June 23, 1997. Employees may also
receive stock options under various other stock option plans administered by
the Compensation Committee.
The purpose of the 1994 Plan is to direct the attention and efforts of
participating employees to the long-term performance of the Company and its
subsidiaries, by relating incentive compensation to the achievement of long-
term corporate economic objectives. The 1994 Plan is also designed to retain,
reward and motivate participating employees by providing an opportunity for
investment in the Company and the advantages inherent in stock ownership in
the Company.
The proposed amendment seeks to allocate an additional 4,000,000 shares for
issuance under the 1994 Plan, bringing the total number of shares authorized
for issuance thereunder to 13,562,500 shares. The remaining provisions will
continue as stated in the 1994 Plan.
The term of options granted under the 1994 Plan may not exceed ten years
from the date of grant. The per share option price for incentive stock options
and nonqualified stock options granted under the 1994 Plan may not be less
than 100% and 85%, respectively, of the fair market value of a share of Common
Stock on the date of grant and is payable to the Company in full upon
exercise. Payment may be made in cash or, unless otherwise determined by the
Compensation Committee at the time of grant, in shares of Common Stock or by
reduction in the number of shares issuable upon such exercise.
Options granted under the 1994 Plan typically vest in equal monthly
installments over a period of five years, beginning on the month after the
first anniversary of the grant date. The options generally expire on the
earliest to occur of (a) the seventh anniversary of the grant date or (b) a
breach by the optionee of the confidentiality and noncompete agreement with
the Company. Options and awards that expire, terminate or are cancelled or
forfeited will again be available for grant or award under the 1994 Plan.
Pursuant to the 1994 Plan, the Company may also make awards of restricted
stock, performance shares and performance units to officers, employees,
directors and consultants of the Company and its subsidiaries. No awards of
restricted stock, performance units or performance shares have been made under
the 1994 Plan. A restricted stock award is an award pursuant to which a given
number of shares of Common Stock will be issued if the grantee continues to be
an employee of the Company or any of its subsidiaries during a period set by
the Compensation Committee. A performance unit is an award of a fixed dollar
amount, payable in cash, Common Stock or a combination of both. The value of a
performance unit may be paid to the recipient after the expiration of a
specified period of time, subject to the satisfaction of vesting requirements
and the attainment of specified performance goals as may be determined by the
Compensation Committee. A performance share is an award of
4
<PAGE>
the right to receive Common Stock, payable in Common Stock or cash of an
equivalent value (or a combination of both), after the expiration of a
specified period. The value of a performance share may be paid to the
recipient after the expiration of a specified period of time, subject to the
satisfaction of vesting requirements and the attainment of specified
performance goals as may be determined by the Compensation Committee.
Options and awards generally are not transferable and terminate upon the
termination of employment or within 30 days after an involuntary termination
without cause or one year after death, disability or retirement in the case of
options. In addition, the 1994 Plan provides that, in the event of death,
disability or retirement of a participant, one-half of the participant's
unvested options will become exercisable, one-half of the restricted stock
awards will cease to be subject to forfeiture and one-half of the performance
shares and performance units will be paid out if the Compensation Committee
determines that the applicable performance goals were satisfied. The
particular terms and conditions of each option and award will be set forth in
a separate agreement which may include confidentiality and noncompetition
provisions.
Recipients of awards made under the 1994 Plan are subject to the following
federal income tax consequences under current law. The federal income tax
consequences depend on whether the options are incentive stock options or non-
qualified stock options.
For incentive stock options, no tax is due at the time an incentive stock
option is granted or exercised. If the shares of Common Stock acquired upon
exercise of an incentive stock option are not sold until two years after the
grant date and one year after the exercise date, any gain (the excess of the
sale price over the exercise price) or loss (the excess of the exercise price
over the sale price) will be a long-term capital gain or loss.
If the option shares are sold within two years after the grant date or
within one year after the exercise date, the sale is a "disqualifying
disposition." The optionee will generally recognize income in the year of the
"disqualifying disposition" equal to the gain (excess of the sale price over
the exercise price). The portion of the gain equal to the excess of the fair
market value of the Common Stock on the exercise date over the exercise price
will be compensation taxable as ordinary income, and any remaining gain will
be long-term or short-term capital gain depending on whether the shares were
sold more than one year after the option was exercised. If the "disqualifying
disposition" is a sale or exchange (other than a sale or exchange with certain
persons related to the optionee), the amount of compensation taxable as
ordinary income cannot exceed the excess of the sale price over the exercise
price, even if the sale price is less than the fair market value of the Common
Stock on the exercise date. If any of the exercise price is paid by
surrendering shares of Common Stock acquired upon exercise of another
incentive stock option within two years after the grant date or within one
year of the exercise date, proposed Internal Revenue Service regulations
require the optionee to recognize compensation taxable as ordinary income in
the amount equal to the excess of the fair market value on the exercise date
over the exercise price.
Special rules apply to incentive stock optionees who are subject to the
alternative minimum tax. The Company may be entitled to a tax deduction in the
year of the "disqualifying disposition."
For non-qualified stock options, tax is due upon exercise of the option,
even if the option shares are not sold when the option is exercised. The
optionee will be taxed upon exercise on ordinary income in an amount per share
equal to the difference between the exercise price of the non-qualified stock
option and the fair market value of the Common Stock on the exercise date. The
Company will (subject to any applicable limitation contained in the Internal
Revenue Code of 1986, as amended (the "Code")) be entitled to a tax deduction
for the compensation taxable as ordinary income when a non-qualified stock
option is exercised. An optionee will not be deemed to receive any taxable
income at the time a non-qualified stock option is granted, nor will the
Company be entitled to a deduction at that time.
5
<PAGE>
Upon a sale of the option shares, any gain (the excess of the sale price
over the fair market value of the Common Stock on the exercise date) or loss
(the excess of the fair market value of the Common Stock on the exercise date
over the sale price) will be a long-term capital gain or loss if the sale
occurs more than one year after the date of exercise (or, if later, the date
when income was recognized by the optionee). Otherwise, if the option shares
are sold less than a year after exercise, there will be a short-term capital
gain or loss.
If any of the exercise price of a non-qualified stock option is paid by
surrendering shares of Common Stock (including, based upon proposed
regulations under the Code, shares previously acquired upon exercise of an
incentive stock option), no gain or loss will be recognized on the shares
surrendered. Option shares equal to the number of shares surrendered will have
the same basis and holding period, for purposes of determining whether
subsequent dispositions result in long-term or short-term capital gain or
loss, as the shares surrendered. The balance of the option shares will be
treated for federal income tax purposes as though issued for an exercise price
equal to the consideration, if any, paid by the optionee in cash. The
optionee's compensation and the Company's deduction will be determined under
the normal non-qualified stock option rules with respect to such balance of
the option shares.
If a non-qualified stock option is exercised by a controlling person under
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") within six months of the grant date, the recognition of income
may be delayed until such shares may be resold without incurring liability
under Section 16(b) of the Exchange Act (generally six months after the grant
date).
The 1994 Plan is administered by the Compensation Committee, which has the
authority to determine the plan's participants and the terms and conditions of
the options and awards granted under the 1994 Plan, including the number of
shares or the amount of other awards, the price or performance goals and
vesting and termination provisions. The Compensation Committee, at its
discretion, may at any time amend, discontinue or terminate the 1994 Plan,
provided that the rights of a participant with respect to any outstanding
grant or award under the 1994 Plan may not be diminished or impaired without
the participant's consent.
Under the 1994 Plan, the Compensation Committee, as of March 1, 1997, had
granted options to purchase 7,423,127 shares, net of forfeitures. Of those
grants, 337,500 were granted to Sam Leno and 285,000 were granted to Clayton
Trier, as of March 1, 1997. As a group, all current executive officers,
including the Chief Executive Officer and the named executive officers, have
received 645,000 option grants under the 1994 Plan. All other employees as a
group have received options to purchase 6,778,127 shares under the 1994 Plan.
The Board of Directors believes that the 1994 Plan is important in order to
recruit and retain a pool of skilled and experienced employees. The addition
of 4,000,000 authorized shares of Common Stock under the 1994 Plan will allow
the Board of Directors to provide incentives to new employees and existing
employees.
Approval of the amendment of the 1994 Plan requires that the votes in favor
of the proposal exceed the votes against the proposal.
THE BOARD RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT TO THE 1994 PLAN TO
INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK TO BE ISSUED UNDER
THE 1994 PLAN TO 13,562,500 SHARES.
6
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the Record Date (unless otherwise
noted), certain information with respect to the beneficial ownership of Common
Stock, for (i) each person (or group of affiliated persons) who, insofar as
the Company has been able to ascertain, beneficially owned more than 5% of the
outstanding shares of Common Stock of the Company, (ii) each director and
named executive officer, and (iii) all current directors and executive
officers as a group. The Company has relied on information received from each
of the shareholders as to beneficial ownership, including information
contained on Schedules 13G and Forms 3, 4 and 5.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF HOLDER(1) NUMBER(2) PERCENT
- ----------------------------- ---------- -------
<S> <C> <C>
FMR Corp.(3)
82 Devonshire Street
Boston, MA 02109........................................... 15,244,650 12.0%
Putnam Investments (4)
One Post Office Square
Boston, MA 02109........................................... 12,552,024 9.9
T. Rowe Price Associates, Inc.(5)
100 E. Pratt Street
Baltimore, MD 21202........................................ 7,608,298 6.0
DLJ Affiliates(6)
277 Park Avenue, 21st Floor
New York, NY 10172......................................... 1,411,615 1.1
Jirka Rysavy(7)............................................. 3,886,764 3.0
Robert L. King(8)........................................... 1,476,199 1.1
Gary M. Jacobs(9)........................................... 1,067,251 *
Sam Leno(10)................................................ 237,567 *
Janet A. Hickey(11)......................................... 1,442,649 1.1
Mo Siegel................................................... -- --
James Argyropoulos(12)...................................... 956,017 *
All directors and executive officers as a group (8
persons)................................................... 9,173,920 7.0
</TABLE>
- --------
* Less than 1.0%.
(1)Except as otherwise noted, the address of the holder is in care of the
Company.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days upon the exercise of options or warrants. Each
beneficial owner's percentage ownership is determined by assuming that
options or warrants that are held by that person (but not those held by
any other person) that are exercisable within 60 days of the Record Date
have been exercised. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(3) Represents ownership as of May 30, 1997. Includes 285,000 shares of Common
Stock issuable upon conversion of the Company's 4 1/2% Convertible
Subordinated Debentures due July 2000.
(4) Represents ownership as of March 31, 1997.
(5) Represents ownership as of May 30, 1997. These securities are owned by
various individual and institutional investors which T. Rowe Price
Associates, Inc. ("Price Associates") serves as investment adviser with
power to direct investments and/or sole power to vote the securities. For
purposes of the reporting requirements of the Exchange Act, Price
Associates is deemed to be a beneficial owner of such securities; however,
Price Associates expressly disclaims that it is, in fact, the beneficial
owner of such securities.
(6) Includes: (a) 720,393 shares of Common Stock owned by Sprout Capital VI,
L.P.; (b) 375,927 shares of Common Stock owned by Sprout Growth II, L.P.;
(c) 75,578 shares of Common Stock owned by DLJ Capital Corporation; (d)
23,229 shares of Common Stock owned by DLJ Venture Capital Fund II, L.P.
7
<PAGE>
(collectively, the "Sprout Entities"); (e) 22,727 shares of Common Stock
held by DLJ First ESC L.L.C., an employee securities corporation of which
DLJ LBO Plans Management Corporation, an affiliate of DLJ Securities
Corporation, is the manager and has voting and dispositive power; (f)
180,755 shares of Common Stock owned by ML Venture Partners II, L.P.; (g)
11,500 shares of Common Stock owned by Donaldson, Lufkin & Jenrette, Inc.;
and (h) 1,506 shares of Common Stock owned by DLJ Capital Associates VI,
Inc. Does not include shares of Common Stock held by employees of DLJ
Securities Corporation and its affiliates. DLJ Securities Corporation and
its affiliates disclaim beneficial ownership of all shares held directly or
indirectly by its employees.
(7) Includes: (a) 898,014 shares of Common Stock owned by Synergom, Inc., a
Colorado corporation, of which Mr. Rysavy is the sole shareholder; (b)
525,000 shares of Common Stock owned by Transecon, Inc., a Colorado
corporation, of which Mr. Rysavy is the majority shareholder; (c) 112,500
shares of Common Stock owned by Polly Source, Inc., a Colorado
corporation, of which Mr. Rysavy is the sole shareholder; (d) warrants to
purchase 562,500 shares of Common Stock for $4.89 per share which expire
on January 31, 1999; (e) options to purchase 1,125,000 shares of Common
Stock for $5.33 per share which expire onJune 13, 2006; and (f) options to
purchase 393,750 shares of Common Stock for $13.33 per share which expire
on June 30, 2007.
(8) Includes: (a) options to purchase 378,750 shares of Common Stock for $3.55
per share which expire on September 1, 2000; (b) options to purchase
787,500 shares of Common Stock for $5.33 per share which expire June 13,
2006; and (c) options to purchase 281,250 shares of Common Stock for
$13.33 per share which expire on August 29, 2007.
(9) Includes: (a) warrants to purchase 112,500 shares of Common Stock for
$1.78 per share which expire on February 28, 1998; (b) options to purchase
9,375 shares of Common Stock for $0.45 per share which expire on November
16, 1999; (c) options to purchase 50,976 shares of Common Stock for $4.89
per share which expire on February 1, 2001; (d) options to purchase
450,000 shares of Common Stock for $5.33 per share which expire on June
13, 2006; and (e) options to purchase 168,750 shares of Common Stock for
$13.33 per share which expire on August 29, 2007.
(10) Includes: (a) options to purchase 67,875 shares of Common Stock for
$13.33 per share which expire on August 29, 2002; and (b) options to
purchase 168,750 shares of Common Stock for $13.33 per share which expire
on August 29, 2007.
(11) Includes 26,315 shares of Common Stock owned by Ms. Hickey and 4,719
shares of Common Stock owned by the JHT 1994 Limited Partnership which
are deposited in a voting trust. Ms. Hickey is a General Partner of the
JHT 1994 Limited Partnership. Also includes shares of Common Stock owned
by the Sprout Entities (see note 6). Ms. Hickey is a director of the
Company and a general partner of several limited partnerships comprising,
in part, the Sprout Group. Ms. Hickey shares voting and investment power
with respect to the shares owned by the Sprout Group and may be deemed to
be the beneficial owner of such shares. Ms. Hickey disclaims beneficial
ownership as to the shares owned by the Sprout Entities. Does not include
shares of Common Stock held by employees of DLJ Securities Corporation
and its affiliates. DLJ Securities Corporation and its affiliates
disclaim beneficial ownership of all shares held directly or indirectly
by its employees.
(12) Includes: (a) 848,817 shares of Common Stock owned by the James P.
Argyropoulos Trust dated August 8, 1991; (b) 60,000 shares of Common
Stock owned by The James P. Argyropoulos IRA Account; (c) 20,200 shares
of Common Stock owned by Argyropoulos Investors, G.P.; and (d) 9,000
shares of Common Stock each owned by The Peter J. Argyropoulos Trust, The
Nicholas J. Argyropoulos Trust and The Alexander J. Argyropoulos Trust.
8
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jirka Rysavy.......... 43 Chairman of the Board and Chief Executive Officer
Robert L. King........ 46 President and Chief Operating Officer
Gary M. Jacobs........ 50 Executive Vice President and Secretary
Sam R. Leno........... 51 Executive Vice President and Chief Financial Officer
Joanne C. Farver...... 42 Vice President--Controller
Mark Hoffman.......... 44 President--North American Operations
Thomas E. Frank....... 58 President--International Operations
</TABLE>
The business backgrounds of Messrs. Rysavy and King are included under
"Proposal 1--Election of Directors."
Mr. Jacobs joined the Company in November 1992 as Executive Vice President
and Chief Financial Officer, and currently serves as Executive Vice President
and Secretary of the Company. Mr. Jacobs previously served the Company as a
director from August 1988 through September 1990. From 1990 to 1992, Mr.
Jacobs served as the Chief Executive Officer of Boulder Retail Finance
Corporation, an investment firm controlled by Mr. Jacobs. From 1978 through
mid-1990, he served as Executive Vice President of Capital Associates, Inc., a
public equipment leasing company. Mr. Jacobs also served as a director of
Capital Associates, Inc. from 1978 to 1991 and from 1994 to present. Prior to
joining Capital Associates, Inc., Mr. Jacobs served as a director of finance
for Storage Technology Corporation, a public company which manufactures
computer peripheral devices.
Mr. Leno joined the Company as Executive Vice President and Chief Financial
Officer in July 1995. From July 1994 until July 1995, Mr. Leno was the Chief
Financial Officer of Coram Healthcare. Prior thereto, for 23 years, Mr. Leno
served in various management positions with Baxter International, a
manufacturing and multinational distribution company, including Vice President
of Finance and Information Technology.
Ms. Farver joined the Company in August 1988 and has served as Vice
President--Controller of the Company since November 1991. Ms. Farver also
served as a director of the Company from July 1991 to February 1992 and as
Secretary of the Company from June 1990 to November 1991. Ms. Farver joined
Commercial Office Products as Controller in August 1985. From 1982 to 1985,
Ms. Farver held various financial management positions with NBI, Inc., a
computer company and the parent company of Commercial Office Products. Prior
to 1982, Ms. Farver spent three years as a Certified Public Accountant with
Touche Ross & Company.
Mr. Hoffman joined the Company as President--North American Office Product
Operations during April 1997. Mr. Hoffman previously served as President,
Chief Executive Officer and a director of APS Holdings, Inc. from August 1992
to March 1997. Mr. Hoffman was Vice President, Planning and Development at W.
W. Grainger, Inc., from April 1991 to July 1992. From 1987 to April 1991, he
was with TRW, Inc., a manufacturer of automotive parts and other products and
a provider of information system services, in various executive capacities,
including Vice President and General Manager of TRW, Inc.'s Asia Pacific
steering and suspension operations and Managing Director, TRW Products, Ltd.
Mr. Frank joined the Company as President--International Operations during
May 1997. Mr. Frank previously served as President and Chief Executive Officer
of Hickory Farms Incorporated from 1988 to 1996. From 1972 to 1986, he served
in various management positions with Kentucky Fried Chicken, including Senior
Vice President and Managing Director of KFC International leading the
operations in Great Britain, Continental Europe, South Africa and the Middle
East. From 1996 to 1997, Mr. Frank was a marketing professor at the University
of Michigan Graduate School of Business.
9
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
Summary Compensation Table. The following table sets forth individual
compensation (cash and non-cash, plan and non-plan) paid to the Chief
Executive Officer and to certain other executive officers (other than the
Chief Executive Officer) of the Company (the "named executive officers") for
all services rendered in all capacities to the Company and its subsidiaries
for fiscal 1994, fiscal 1995 and fiscal 1996:
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION
----------------------------- ------------
NAME AND NUMBER OF ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) OPTIONS(#) COMPENSATION($)(3)
- ------------------ ---- --------- ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Jirka Rysavy............ 1996 $275,000 -- -- --
Chairman of the Board
and 1995 256,732 $137,500 787,500 --
Chief Executive Officer 1994 212,630 $141,900 1,125,000 12,813
Robert L. King.......... 1996 $250,000 -- -- --
President and Chief 1995 235,775 $125,000 562,500 37,448
Operating Officer 1994 194,498 132,000 787,500 --
Gary M. Jacobs.......... 1996 $225,000 -- -- --
Executive Vice
President 1995 217,452 $112,500 337,500 --
and Secretary 1994 177,776 92,500 450,000 --
Sam Leno................ 1996 $225,000 -- -- --
Executive Vice
President 1995 129,807(4) $112,500 675,000 --
and Chief Financial
Officer
Clayton Trier........... 1996 $225,000 -- -- 7,800
Chief Executive 1995 $151,769(5) -- 285,000 --
Officer, U.S. Delivery
</TABLE>
- --------
(1) With respect to the Chief Executive Officer and each of the named
executive officers, the aggregate amount of perquisites and other personal
benefits, securities or property received was less than either $50,000 or
10% of the total annual salary and bonus reported.
(2) Bonuses for fiscal 1996 have not yet been determined but it is expected
that any bonus to the Chief Executive Officer and named executive officers
with respect to fiscal 1996 will be substantially less than the bonus
amount paid in the prior fiscal year.
(3) All other compensation includes taxable relocation, temporary housing and
other executive benefits.
(4) This amount represents Mr. Leno's salary from July 1995, when he joined
the Company, through the end of fiscal 1995.
(5) This amount represents Mr. Trier's salary paid by U.S. Delivery Systems,
Inc. ("U.S. Delivery") during fiscal 1995. Mr. Trier joined the Company
following the merger with U.S. Delivery on March 1, 1996.
Option Exercises and Option Values. The following table sets forth
information concerning stock options exercised by the Chief Executive Officer
and each of the named executive officers during fiscal 1996 and the number of
unexercised options and warrants at the end of fiscal 1996 and the value of
these options:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED "IN-THE-MONEY" OPTIONS
OPTIONS AND WARRANTS AND WARRANTS AT
AT FISCAL YEAR END(1) FISCAL YEAR END(2)
------------------------- -------------------------
NUMBER OF
SHARES ACQUIRED VALUE
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jirka Rysavy............ -- -- 1,687,500 787,500 $23,948,438 $4,760,438
Robert L. King.......... 127,500 $2,776,950 1,166,250 562,500 $17,054,155 $6,070,781
Gary M. Jacobs.......... 20,625 $ 402,133 497,695 394,805 $ 9,007,201 $2,945,176
Sam Leno................ 16,500 $ 198,000 67,875 590,625 $ 410,304 $3,570,329
Clayton Trier........... 41,475 $ 871,929 253,953 -- $ 3,591,442 --
</TABLE>
10
<PAGE>
- --------
(1) The value realized represents the difference between the fair market value
on the date of exercise and the exercise price, multiplied by the
applicable number of options.
(2) Options or warrants are "in-the-money" if the fair market value of the
underlying securities exceeds the exercise price of the option or warrant.
The amounts set forth represent the difference between $19.375 per share,
the fair market value of the Company's Common Stock issuable upon exercise
of options or warrants at March 1, 1997, and the exercise price of the
option or warrant, multiplied by the applicable number of options or
warrants.
Summary of Option Grants. The following information summarizes the aggregate
number of options granted by the Company or assumed by the Company in
connection with acquisitions during fiscal 1996, net of forfeitures. Each
option is exercisable for one share of the Company's Common Stock, which stock
had a market value of $19.375 per share as of March 1, 1997. During fiscal
1996, no stock options were granted to the named executive officers.
1996 Outside Directors Plan: 75,000
1994 Plan: 1,659,511; none of which were
granted to the Chief Executive
1994 Executive Plan: Officer and the named executive
United TransNet Assumed Plans: officers
None
1996 Supplemental Plan: 276,111; none of which were granted
to the Chief Executive Officer and
the named executive officers
1,368,000; none of which were
granted to the Chief Executive
Officer and the named executive
officers
EMPLOYMENT CONTRACTS
Mr. King has an employment agreement with the Company pursuant to which he
serves as President and Chief Operating Officer, which agreement expires on
August 31, 1997 and is expected to be renewed. In addition to his base salary,
Mr. King is entitled to participate in all benefit and incentive plans
available to executive officers and to receive a bonus of up to 100% of his
base salary if the Company achieves certain financial performance targets. Mr.
King was also granted options to purchase 675,000 shares of Common Stock at an
exercise price of $3.55 per share, which options vest in four equal annual
installments beginning on September 1, 1994. If the employment agreement is
terminated other than for cause by the Company, upon the death or disability
of Mr. King or voluntarily by Mr. King following a breach of the agreement by
the Company, Mr. King will be entitled to receive salary, bonus and benefits
for twelve months following termination and one-third of any unvested stock
options granted to Mr. King will become exercisable.
Mr. Leno has an employment agreement with the Company, pursuant to which he
serves as Executive Vice President and Chief Financial Officer, which expires
on July 31, 1999. In addition to his base salary, Mr. Leno is entitled to
participate in all benefit and incentive plans available to executive officers
and to receive a bonus of up to 100% of his base salary if the Company
achieves certain financial performance targets. Mr. Leno also received options
to purchase 337,500 shares of Common Stock at an exercise price of $13.33 per
share, which options vest in four equal annual installments beginning on
August 1, 1996. Mr. Leno was granted options to purchase an additional 337,500
shares of Common Stock under the Executive Stock Option Plan on the same terms
as are granted to other executive officers. If the employment agreement is
terminated other than for cause by the Company, upon the death or disability
of Mr. Leno or voluntarily by Mr. Leno following a breach of the agreement by
the Company, Mr. Leno will be entitled to receive salary, bonus and benefits
for twelve months following termination.
Mr. Jacobs has an employment agreement with the Company pursuant to which he
serves as Executive Vice President and Secretary. The employment agreement
automatically renews for successive 180 day periods, unless
11
<PAGE>
either party provides notice to the other prior to the end of the then current
term. The current term of the employment agreement expires on November 16,
1997. In addition to his base salary, Mr. Jacobs is entitled to participate in
all benefit and incentive plans available to executive officers and to receive
a bonus of up to 100% of his base salary if the Company achieves certain
financial performance targets. If the agreement is terminated by the Company
other than for cause or upon the death or disability of Mr. Jacobs or
voluntarily by Mr. Jacobs, Mr. Jacobs is entitled to receive salary and
benefits for six months following termination.
Mr. Trier resigned from the Company's Board of Directors in January 1997.
Mr. Trier terminated his employment with the Company on April 23, 1997 and in
connection with such termination the Company paid Mr. Trier a lump sum payment
of $225,000 and will pay $112,500 per annum in bi-weekly payments through
April 23, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board established a Compensation Committee on August 24, 1993. During
fiscal 1996, the Compensation Committee was comprised of Ms. Hickey and Mr.
Siegel. None of the executive officers of the Company currently serves on the
compensation committee of another entity or on any other committee of the
board of directors of another entity performing similar functions. Members of
the Compensation Committee, or their affiliates, have entered into the
following transactions with the Company.
In connection with the several rounds of private equity financing of the
Company, certain entities comprising the Sprout Group purchased an aggregate
of 5,697,197 shares of Common Stock (some of which were originally issued as
preferred stock) for an aggregate purchase price of $16,397,293. Some of these
shares have subsequently been transferred to other entities within the Sprout
Group or sold. Ms. Hickey is a general partner of several limited partnerships
comprising, in part, the Sprout Group, and is a divisional Senior Vice
President of DLJ Capital Corporation. The Sprout Group is a division of DLJ
Capital Corporation. DLJ Capital Corporation and DLJ Securities Corporation
are each wholly-owned subsidiaries of Donaldson, Lufkin & Jenrette, Inc. DLJ
Securities Corporation was one of the Underwriters for the Company's initial
public offering. Sprout VI, Sprout Growth and DLJ Venture Capital Fund II,
L.P. are each limited partnerships associated with the Sprout Group and DLJ
Capital Management, a wholly-owned subsidiary of DLJ Capital Corporation,
submanages ML Venture's and Merrill Lynch Venture Capital Inc.'s investments
in the Company (collectively with DLJ Capital Corporation and DLJ Securities
Corporation, the "DLJ Affiliates"). As of the date hereof, the DLJ Affiliates
collectively owned approximately 1.1% of the issued and outstanding Common
Stock of the Company. DLJ Securities Corporation performed investment banking
and financial advisory services on behalf of the Company in connection with
the offering of the Company's 9 1/8% Senior Subordinated Notes due 2004, the
private equity financing in January 1994, the Hanson Acquisition, the
Company's initial public offering, and the Company's subsequent public
offerings of debt and equity securities for which it received customary fees.
In fiscal 1996, DLJ Securities Corporation received fees in the amount of
$1,099,370 for services performed in connection with the U.S. Delivery and
United TransNet, Inc. acquisitions, and customary fees in connection with the
Company's 4 1/2% Convertible Subordinated Debenture offering.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
consisted of Ms. Hickey and Mr. Siegel during fiscal 1996, each of whom is a
disinterested person under Rule 16b-3 under the Exchange Act. The Committee
sets compensation policies applicable to executive officers, has the authority
to approve salaries and bonuses and other compensation matters for these
executive officers and administers the Company's various stock option and
stock purchase plans.
EXECUTIVE COMPENSATION PHILOSOPHY
The Company's executive compensation policy is designed with the goals of
ensuring that an appropriate relationship exists between executive pay and
corporate performance, while at the same time motivating and
12
<PAGE>
retaining highly qualified executive officers, and providing total
compensation that is competitive with companies in comparable industries or
other companies of comparable growth and performance. The Company's policies
emphasize compensation through long-term equity participation.
EXECUTIVE COMPENSATION COMPONENTS
The key components of the Company's compensation program are base salary,
annual incentive bonus awards and equity participation in the form of stock
options and warrants. Executive officers are also entitled to customary
benefits generally available to all employees of the Company, including group
medical, dental and life insurance and 401(k) and employee stock purchase
plans.
Annual Cash Compensation. The named executive officers received salary
increases for fiscal 1995 which were approved in July and August of 1995. The
Compensation Committee did not review or modify the annual cash compensation
for the named executive officers during the 1996 fiscal year.
Stock Options. The Company did not review stock option grants for the named
executive officers during fiscal 1996 and no options were granted.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Rysavy received a base salary of $275,000 in fiscal 1996, which salary
was approved in August 1995. Mr. Rysavy's salary was not reviewed by the
Compensation Committee during fiscal 1996, but shall be reviewed during the
1997 fiscal year.
FUTURE EXECUTIVE OFFICER COMPENSATION
During fiscal 1994, William M. Mercer, Incorporated, a national compensation
consulting firm, prepared an analysis of the cash compensation practices of a
group of comparable companies extracted from compensation data banks, surveys
and recent proxy statements. The companies surveyed included companies from
the office products industry (Office Depot, Staples and OfficeMax) and other
selected high-growth or acquisition-oriented retailers and health care
companies, general industry fast-growth companies and companies with market
capitalization or sales comparable to the Company. After examination of the
survey data, the Committee determined that the cash compensation portion of
the Company's executive compensation program is generally somewhat less than
the amounts paid by comparable companies, but that the Company's total
compensation arrangements are generally satisfactory. The Committee intends to
continue to emphasize stock options and other forms of long-term compensation,
and to periodically review all forms of executive compensation to ensure that
the Company can attract and retain key executives. Management has advised the
Committee of its desire to continue to have a substantial portion of executive
compensation directly tied to corporate performance.
The Company has adopted an incentive plan for its executive officers and
other management employees. The incentive plan provides for annual cash
bonuses based upon the performance by the Company of specified financial
objectives. Financial objectives and target awards for the Chief Executive
Officer and the named executive officers are determined by the Committee. For
the Company's Chief Executive Officer, Chief Operating Officer and Executive
Vice Presidents, the objectives for fiscal 1997 are based on the Company's
earnings per share and individual performance. Target awards for these
executives are not yet firmly established for fiscal 1997, but are expected to
be 50% of base salary if financial objectives are met and not less than 100%
of base salary if financial objectives are exceeded by specified percentages
and the individual objectives are met.
In addition, the Company anticipates that it will continue to hire, appoint
or otherwise change senior managers and other key executives as it continues
to grow. Executive compensation and compensation policies may change as the
Company continues to grow and as management changes are implemented.
13
<PAGE>
TAX CONSIDERATIONS
Amendments to the Code enacted in 1993 generally limit the tax deductibility
of compensation paid by a public company to its chief executive officer and
four other most highly compensated executive officers to $1 million unless the
executive compensation is awarded under a performance-based plan approved by
the shareholders of the company. Although the Committee believes that tax
deductibility is of value to the Company, it has decided not to submit its
incentive plan for shareholder approval at this time because annual cash
incentive compensation for any executive officer is unlikely to exceed $1
million in the near future. The Committee may decide to submit the incentive
plan for shareholder approval if cash incentive compensation is likely to
exceed $1 million. The Executive Stock Option Plan was submitted to and
approved by the shareholders in August 1994, and complies with the
performance-based requirements of the new tax laws.
Compensation Committee
Janet A. Hickey
Mo Siegel
This report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended (the
"Securities Act") or under the Exchange Act, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under the Securities Act and the Exchange Act and
shall not be deemed to be soliciting material.
14
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in cumulative total
shareholder return on the Common Stock since September 23, 1994, the date the
Company's shares began trading on the Nasdaq National Market, with the
cumulative total return on the S & P 500 Index and the S & P Retail Stores
Common Stock Composite Index over the same period. The comparison assumes $100
was invested on September 23, 1994 in the Common Stock and in each of the
indices and assumes reinvestment of dividends, if any, since that date. The
Company has not paid cash dividends on the Common Stock. Historic stock price
is not indicative of future stock price performance.
LOGO
(1)Assumes $100 investment on September 23, 1994.
This Stock Performance Graph shall not be deemed incorporated by reference by
any general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act or under the Exchange Act, except to the extent
that the Company specifically incorporates this information by reference, and
shall not otherwise be deemed filed under the Securities Act or the Exchange
Act and are not to be deemed to be soliciting material.
15
<PAGE>
AUDITORS
A representative of Coopers & Lybrand L.L.P., the Company's auditors for the
1996 fiscal year, is expected to be present at the Annual Meeting and will
have the opportunity to make a statement and will be available to respond to
appropriate questions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors, officers
(including a person performing a principal policy-making function) and persons
who own more than 10% of a registered class of the Company's equity securities
("10% Holders") to file with the Securities and Exchange Commission ("SEC")
initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company. Directors, officers and 10%
Holders are required by SEC regulations to furnish the Company with copies of
all of the Section 16(a) reports they file. Based solely upon a review of the
copies of the forms furnished to the Company and the representations made by
the reporting persons to the Company, the Company believes that during fiscal
1996 its directors, officers and 10% Holders complied with all filing
requirements under Section 16(a) of the Exchange Act.
SHAREHOLDER PROPOSALS
Shareholders may submit proposals on matters appropriate for shareholder
action at the Company's annual meetings consistent with regulations adopted by
the SEC. For shareholder proposals to be considered for inclusion in the proxy
statement and form of proxy relating to the 1998 Annual Meeting of
Shareholders, they must be received by the Company not later than February 24,
1998. Such proposals should be addressed to the Company at One Environmental
Way, Broomfield, Colorado 80021, Attention: General Counsel.
OTHER MATTERS
Management does not intend to present, and has no information as of the date
of preparation of this Proxy Statement that others will present, any business
at the Annual Meeting other than business pertaining to matters required to be
set forth in the Notice of Annual Meeting and Proxy Statement. However, if
other matters requiring the vote of the shareholders properly come before the
Annual Meeting, it is the intention of the persons named in the enclosed proxy
to vote the proxies held by them in accordance with their best judgment on
such matters.
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO DATE, SIGN AND PROMPTLY RETURN YOUR PROXY SO THAT YOUR
SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND THAT THE PRESENCE OF A
QUORUM MAY BE ASSURED. THE PROMPT RETURN OF YOUR SIGNED PROXY, REGARDLESS OF
THE NUMBER OF SHARES YOU HOLD, WILL AID THE COMPANY IN REDUCING THE EXPENSE OF
ADDITIONAL PROXY SOLICITATION. THE GIVING OF YOUR PROXY DOES NOT AFFECT YOUR
RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
16
<PAGE>
APPENDIX VII
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-26674
------------------
DATA DOCUMENTS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 47-0714942
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4205 SOUTH 96TH STREET
OMAHA, NEBRASKA 68127
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (402) 339-0900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON
STOCK, $.001 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant was $75,406,434 as of February 28, 1997.
The number of shares outstanding of the Registrant's Common Stock,
as of February 28, 1997, was 9,615,668 shares (excluding 269,607 treasury
shares).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Data Documents Incorporated definitive Proxy
Statement to be filed with the Securities and Exchange Commission within 120
days after the close of the fiscal year ended December 31, 1996 are incorporated
by reference into Part III hereof.
<PAGE>
DATA DOCUMENTS INCORPORATED
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ITEM 1. BUSINESS............................................................1
ITEM 2. PROPERTIES..........................................................8
ITEM 3. LEGAL PROCEEDINGS...................................................8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................8
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.............................................................9
ITEM 6. SELECTED FINANCIAL DATA.............................................9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..............................................11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE...............................................16
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................16
ITEM 11. EXECUTIVE COMPENSATION.............................................16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................16
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K....17
</TABLE>
i
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PART I
ITEM 1. BUSINESS.
GENERAL
Data Documents Incorporated (the "Company") conducts all of its
consolidated operations through its one wholly-owned subsidiary, Data Documents,
Inc., a Nebraska corporation ("DDI"), and DDI's wholly-owned subsidiaries, PBF
Washington, Inc., a Washington corporation ("PBF"), and Cal Emblem Labels, Inc.,
a California corporation ("Cal Emblem"). DDI, PBF and Cal Emblem account for
100% of the consolidated revenues and net earnings of the Company. The Company's
sole assets are the investment in the stock of, and advances to, DDI. The
Company has no subsidiaries other than DDI and, indirectly, PBF and Cal Emblem,
and has no liabilities other than guarantees of indebtedness of DDI, PBF and Cal
Emblem. The Company's financial statements are prepared on a consolidated basis
and include the financial results of DDI, PBF and Cal Emblem. Unless the context
otherwise requires, the term "Company" includes Data Documents Incorporated and
its direct and indirect subsidiaries.
In August 1995, the Company purchased the capital stock of Cal
Emblem, expanding the Company's products to include prime labels and increasing
its market presence in California and Colorado.
In October 1995, the Company consummated an initial public offering
(the "Offering") of 3,400,000 shares of its common stock, par value $0.001 per
share (the "Common Stock"), to the public. The Offering was registered under the
Securities Act of 1933, as amended (the "Securities Act"), on a registration
Statement on Form S-1. The net proceeds to the Company of approximately $27.9
million were used by the Company to redeem $24,000,000 in aggregate principal
amount of the 13 1/2 % Senior Secured Notes of DDI due 2002 (the "Senior
Notes").
The Company was organized by management and an investor group in
Delaware in February 1988 to acquire DDI from Pitney Bowes, Inc. (the "1988
Management Acquisition").
The Company is a leading designer and provider of custom business
forms, pressure-sensitive label products and forms management systems that
enable its large corporate customers to enhance productivity and reduce costs
associated with managing information. A substantial portion of the Company's
forms sales are made in connection with its proprietary forms management
systems. In addition, the Company supplies specialized direct mail products and
services ("InteliMail(R)") and sells other computer services and products,
including laser printer supplies and software packages.
Within the pressure-sensitive label market, the Company has focused
on, among others, the thermal, laser and combination label/forms segments. The
Company has developed many label products, such as the Dual-Web(R) label/form
combination product and airline baggage tracking labels. Many of the Company's
products have been developed to satisfy customers' increasing needs for variable
information content, such as inventory control bar coding for manufacturing,
retailing and distribution customers.
Over the last five years, the business forms industry has been
affected by numerous factors, including changes in end-user requirements and
available technology. These changes have resulted in a shift towards certain
custom value-added products and systems in both the business forms and
pressure-sensitive label markets. Consequently, there has been a decline in the
stock forms segment and a reduction of the paper content of forms products. In
addition, end-users are increasingly seeking to outsource and single source
their forms management and pressure-sensitive label needs. The Company has
positioned itself as a provider of solutions-based approaches to information
collection and distribution and to focus its business on custom value-added
products that are tied to the Company's services. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Custom products
accounted for approximately 81% of the Company's net sales in 1996.
1
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The Company establishes strategic, long-term forms management
relationships with its core customers. The Company's forms management services
have been designed to respond to increased outsourcing by large corporations of
non-core operations, such as forms design and workflow analysis, inventory
management, warehousing and shipping. The Company's Odyssey Integrated
Services(R) program ("Program"), provides a selection of fully integrated
service modules, supported by proprietary software, offering comprehensive forms
management services and efficiency-enhancing tools.
INDUSTRY OVERVIEW
The Company has focused its product offerings in the business forms,
pressure-sensitive label and custom direct mail industries.
The U.S. market for business forms is divided into two primary
segments: custom forms and stock forms. The Company has targeted the
higher-margin custom forms segment. Based on industry analyses, the custom forms
segment generated approximately $6.4 billion of sales in 1995 and includes such
custom-made products as invoices, statements, purchase orders and checks. The
stock forms segment of the industry (excluding blank cut sheet laser printer
paper) generated approximately $1.5 billion of sales in 1995 and includes a wide
variety of more standard computer-output paper.
Advances in computer and laser technology have resulted in changes
in forms demands for some traditional products while creating new opportunities
for forms products and solutions that address the needs created by this new
technology. The installed base of laser printers has increased significantly
over the past few years and, as a result, custom laser form sales have been one
of the fastest-growing segments of the forms market.
In addition, larger companies have increased their outsourcing of
non-core operations such as forms management and have reduced the number of
vendors providing such products and services. The increase in outsourcing and in
the installed base of laser printers has resulted in an increase in the
customization of information flows. This trend towards outsourcing has also
increased the use of color and higher paper grades in print media. The Company
has worked to focus its business on custom value-added products and services and
has sought to develop solutions-based approaches to information collection and
distribution. See "-- Product Development."
The overall U.S. market for pressure-sensitive labels has grown
rapidly and was approximately $3.2 billion in 1995. Within this market, the
Company has historically focused its efforts on the EDP label segment. The
market for EDP pressure-sensitive labels was approximately $875 million in 1995.
With the acquisition of Cal Emblem in 1995, the Company added prime labels to
this product line. Evolving technologies are the catalysts for changes and
growth in the pressure-sensitive label market. The use of label products in
applications that are critical to the operations of business users is spurring
the development of new products and technologies, and end-users are demanding
reliable delivery and higher quality.
The direct mail product line comprises only approximately 7.9% of
the Company's sales.
FORMS MANAGEMENT/ODYSSEY INTEGRATED SERVICES
In 1983, the Company introduced its forms management program to
assist its larger customers in improving overall productivity and reducing the
costs associated with information management. For a typical customer, the
greatest portion of the total costs of forms usage is not the form itself, but
rather the costs of creating, procuring, managing, storing and using forms. By
developing programs tailored to each customer's requirements, the Company helps
to control these costs and improve efficiency in each phase of the customer's
forms usage. These programs also respond to the trend among large corporations
of outsourcing non-core operations such as forms management.
2
<PAGE>
In the second quarter of 1995, the Company announced the development
of its Odyssey Integrated Services program. The Program is a collection of
fully integrated service modules providing comprehensive forms management
services and efficiency-enhancing tools. As a package, the Program provides a
more extensive array of forms management services than the Company's standard
forms management programs. The Program incorporates proprietary software, the
Odyssey Network/sm/, that runs on the Microsoft Windows platform. The Odyssey
Network has been designed to operate on either a fully-outsourced basis or on
the customer's own file server. The Program was developed through the efforts of
the Company's marketing force, in close collaboration with the Company's
customers and the Company's in-house technical personnel. The Company's focus is
on attracting new customers whose businesses are large enough to generate
savings from the various service modules. Some of the Company's existing
customers may also be converted to the Program. During 1996, twenty-eight
customers were added to the Program for a total through December 1996 of
thirty-five customers having signed agreements. Implementation or
implementation planning is in process at all thirty-five sites. Of these
thirty-five customers, fourteen are new and twenty-one are conversions. Although
the Company believes that the Program can enable certain customers to realize
cost savings, there can be no assurances that the availability of the Program
will attract new customers or that it will be accepted by existing customers.
Forms management services offered by the Company (both in the
Odyssey Integrated Services program and the Company's standard forms management
programs) include: (i) forms and systems workflow analysis; (ii) forms design
services which utilize advanced design techniques, including DataLaser(R)
technology; (iii) forms control services; and (iv) inventory management
services. An example of a forms management service is a warehousing/storage
agreement whereby the Company receives an order for up to a year's supply of
forms which can be produced in economic lots throughout the year and delivered
to the customer on a just-in-time basis. As part of its traditional forms
management program, for its major customers the Company also provides on-line
direct computer access with software that enables the customer to determine the
production status of orders, check current inventory levels and place orders.
Additional services available under the Program modules include workflow
reengineering for improving employee productivity and disaster recovery
services. The Company also offers consolidated billing and the Company's "Pick
`n' Pack" forms warehousing/storage services on a selected basis. Through this
warehousing/storage service, the Company distributes products to various
locations in less than case lot quantities on an "as needed" basis.
The Company does not currently charge a separate fee for many of
these services offered as part of its traditional forms management program;
however, the Company does charge a fee for certain service modules. For example,
development of a forms database and subsequent analysis and maintenance of the
database in the Program's Forms Analysis Module, generate income for the
Company. Although the Company does not anticipate that the fees alone will be a
significant source of revenue for the Company, the goal of the forms management
programs, such as the Odyssey Integrated Services program, is to attract and
retain large customers with significant forms usage by enabling them to generate
cost savings and efficiencies in information management. As is the Company's
expectation for the Program, not all aspects of the Company's traditional forms
management program are offered to, or utilized by, all customers.
PRODUCTS
The Company's products consist primarily of business forms,
pressure-sensitive label products and InteliMail(R) custom direct mail products,
with aggregate sales of these products constituting 97%, 98% and 98% of the
Company's net sales for 1996, 1995 and 1994, respectively.
Business Forms. The Company primarily manufactures a complete line
of custom business forms produced to buyers' specifications for size, plies,
paper, inks and content. Products manufactured include invoices, statements,
purchase orders and receiving reports. These forms can be finished in a variety
of formats (fanfolded, roll-fed or cut-sheet) depending on the customer's
intended use. The Company also provides stock forms as a support product to its
custom forms and forms management accounts. These
3
<PAGE>
products are generally pre-printed, generic forms and blank or
green-bar forms for use on all types of computer printers.
Many major customers now employ high speed laser printers in a
centralized "print center." These customers are converting from fanfolded forms
to sheeted and/or jumbo roll (50") forms and the Company has developed processes
to manufacture high-quality, reliable roll and sheeted products for this new
printing environment. The Company's sales of custom laser forms represented
approximately 10.1% of its total net sales for 1996.
Pressure-Sensitive Labels. The Company's electronic data processing
pressure-sensitive labels are used in a wide range of retail, wholesale,
manufacturing, industrial and medical businesses and often relate to
applications that are critical to the operations of the Company's customers. The
Company produces bar code and other labels for a wide range of scanning systems,
which may be imprinted through the Company's plant or at the customer's
location. The uses of bar codes and other types of variable information
labeling, which uniquely identify individual products or transactions, are
growing, and customers are seeking to provide greater detail in packaging and
labeling, including hazardous materials notifications. In addition, government
regulations in various industries are increasing the demand for more informative
and extensive labels. The Company also serves as a value-added reseller of
certain of integrated label applications. See "-- Product Development."
The Company's custom label products include the following:
. Dual-Web(R) Labels. The Dual-Web product combines a custom-designed
business form and a pressure-sensitive label into a single unit.
Such label/form combination products are now used extensively in the
pharmacy and other industries.
. Laserprint(R) Labels. These labels, used primarily in retail and
distribution industries, are manufactured under strict
humidity-controlled conditions to ensure stability, with a
specially-coated surface for laser imaging of bar codes, pricing
information and other variable information.
. Airline Baggage Tracking Labels. On-demand printed bag tags. Label
stock is printed by the Company, and bar codes and other
variable-imaged information for baggage identification and routing
is added by airline personnel at ticket counters.
. Specialty Labels. Non-paper labels (vinyl, mylar, foils and other
films) with resistance to chemicals, heat and moisture for harsh
environments such as continuous rating plates for electric and gas
appliances, certain hazardous warning labels (used for applications
such as government-mandated chemical labeling) and bar coding
labels.
. Direct Thermal Labels. Custom labels that produce an image when
thermal-coated paper comes in contact with a heated printhead. These
labels, which the customer normally uses to identify specific items,
are used in a variety of applications, including parts
identification and inventory control.
. Thermal Transfer Labels. On-demand custom labels produced by
pressing a heated printhead against a film ribbon transferring the
image to the label surface. Applications include consumer product
tags, tickets, packaging, photo identification cards and inventory
control.
. Prime Labels. Pressure-sensitive labels that serve as the primary
product identification for the produce industry and other consumer
products industries.
InteliMail. InteliMail is a specialized single-source supplier of
custom direct mail services including printing, data processing and mailing
services offered to firms marketing their products and services
4
<PAGE>
through the mail. Direct mail users include companies in the publishing,
insurance, finance, communications, retail sales, non-profit and automotive
industries. In addition, federal, state and local governments, agencies,
political parties and lobbyists are large users for applications such as
ballots, voter registration, license renewal statements and payment coupons. The
InteliMail Division focuses on middle market customers and provides a complete
line of printed products, design capabilities, personalization and mailing
services.
Products of the InteliMail Division include a variety of different
mailer formats, processes and services for custom direct mail solicitations such
as: (i) production formats including promotional printing, imaged insert/window
envelopes, imaged envelope/generic insert, one-part folded/mailer, and
InteliMailer(R) and (ii) processes and services including data processing,
in-line finishing and variable imaging.
PRODUCT DEVELOPMENT
In 1985, the Company introduced the "Combo Label," a patented
three-part product used for picking, pricing and shipping and the "Dual-Web(R)"
label, a label/form combination. In 1987, the Company introduced the
"Laserprint(R) Label," a sheetfed label allowing customers to apply their own
variable imaging on-site. In 1989, in conjunction with airline industry
representatives, the Company developed a heat-sensitive label to upgrade baggage
tracking systems. In 1990, the Company released a new product line to provide
custom cut sheets and 50" rolls (custom and stock) to the growing laser forms
market. In 1995, the Company released a guaranteed matched mailer, a
personalized letter and matching envelope produced with video and computer
equipment.
In response to the increased use of laser printing technology and
the trend towards outsourcing by large corporations, the Company developed the
Odyssey Integrated Services program in 1995. The Program was developed through
the efforts of the Company's marketing force, in close collaboration with the
Company's customers and the Company's in-house technical personnel.
The Company has an internal team of electronic forms designers and
information specialists. This team works to provide electronic forms to the
Company's customers. In 1991, the Company entered into an agreement with a
software developer to market software for electronic forms design and to further
enhance the Company's photo-composition system by using personal computers to
generate copy/proofs on a local basis.
The Company over the last three years developed informal,
joint-venture type relationships with software and other technology-based
companies to provide integrated system solutions for commercial applications.
One application is Medi-Link, a prescription labeling package that provides
prescription labels, patient counseling documentation and point-of-sale coupons
and is marketed through the Company's sales force. The Medi-Link package, which
incorporates not only the Company's label products but also computer software
and hardware, has been adopted by a number of pharmacy companies. Another
application is an inventory compliance labeling system that is offered for sale
to vendors of Wal-Mart Stores. The system, which is called Compliance Plus,
includes software, hardware and label products that conform to Wal-Mart's
product identification requirements for its vendors.
CUSTOMERS
The Company's sales force targets large consumers of forms and
labels with revenue potential in excess of $50,000 per year and has historically
focused its sales efforts on its core geographic markets of mid-America, the
southwest and the northwest due to these regions' proximity to the Company's
manufacturing facilities and the impact of transportation costs on the Company's
margins. The Company also targets specific nationwide accounts where increased
volume and resulting efficiencies can offset delivery costs. The Company's five
largest customers accounted for 15.5%, 14.3% and 14.2% of net sales in 1996,
1995 and 1994 respectively. One customer accounted for 5.2% of the Company's net
sales in 1996 and no customer accounted for more than 5.0% of the Company's net
sales during 1995 or 1994.
5
<PAGE>
BACKLOG
At December 31, 1996, the Company's backlog of unfilled customer
orders was $53.6 million, as compared to $54.6 million at December 31, 1995 and
$49.3 million at December 31, 1994. The Company expects that substantially all
of its current orders will ship within the next 180 days. The Company's typical
order to shipment cycles range from two to four weeks for custom products, while
stock products are sold "off the shelf."
DISTRIBUTION
Finished products produced by both the forms and labels operations
are normally distributed by truck either to warehouse facilities or directly to
the customer. Finished products generally are transported by outside trucking
services. However, the Company maintains and operates a fleet of trucks for
distribution within areas where the volume of shipments warrants ownership and
control.
Products are stored in all of the forms plants as well as in leased
or public warehouse facilities in outlying locations. The Company leases four of
its warehouses and uses 20 public warehouses across the country to decrease
delivery time and costs. Stock forms are stored in order to be readily available
to the sales force, while custom forms are stored for the convenience of the
customer, often pursuant to a forms management program. Warehouse storage is an
important part of the value-added services provided to customers. By producing
forms or labels required by a particular customer in advance and storing these
products, they are immediately available to the customer. The Company is
compensated for the expense of providing this warehousing function.
RAW MATERIALS
Paper is the Company's predominant raw material, accounting for
50% - 55% of the total cost of custom forms, 75% - 80% of the total cost of
stock forms and 67% - 74% of the total cost of pressure-sensitive labels. To
satisfy its paper requirements, the Company has entered into agreements with
major paper suppliers. The Company's paper supply contracts entitle the Company
to purchase paper at specified discounts to market prices. Purchases under these
agreements account for more than 80% of the Company's total paper requirements,
with the remainder purchased primarily from suppliers with which the Company has
long-standing relationships. Other raw materials used in the Company's
operations include carbon, ink and cartons.
COMPETITION
The business forms, pressure-sensitive label and direct mail
industries are very fragmented and highly competitive. The Company believes that
a relatively small number of companies account for a majority of the market for
business forms. Most other competitors are small local or regional companies
which often source from larger manufacturers. The Company's competitors include
manufacturers of all sizes, some of which have significantly greater financial,
distribution and marketing resources than the Company. In general, because the
business forms and prime label industries tend to be regional, different
competitive factors have greater influence in different areas. In particular,
the number of competitors in a region and their relative strengths and selling
tactics dictate the regional competitive environments. Competition in the
pressure-sensitive label and direct mail industries tends to be nationwide in
scope. The Company generally competes on the basis of price and service in the
stock forms and stock labels markets and on the basis of price, quality,
technical expertise and service, including speed of delivery, in the custom
forms and labels markets and in the customized direct mail market.
The Company's largest competitors in the business forms industry are
Moore Business Forms, Reynolds & Reynolds, Standard Register Co., Uarco (a
division of Settsu) and Wallace Computer Services, Inc. The Company's largest
competitors in the pressure-sensitive label market are Avery, Moore Business
Forms and Uarco. The largest competitors in the direct mail market are
Colorforms (a division of
6
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Wallace), Communicolor (a division of Standard Register Co.), Direct Marketing
Corp. of America, InstaWeb and Response Marketing Services (a division of Moore
Business Forms).
EMPLOYEES
At December 31, 1996 the Company had approximately 1,200 full-time
and part-time employees at its various plants and facilities. The Company hires
temporary employees from time to time as needed. The Company considers its
employee relations to be excellent and has not experienced any significant work
disruptions due to labor difficulties. Approximately 10% of the Company's
employees, representing the hourly production work forces at the Bloomington,
Minnesota and Tacoma, Washington plants and one of the Denver, Colorado plants,
are covered by collective bargaining agreements with local units of the Graphic
Communications International Union. Wages and benefits at the union plant
locations do not differ materially from those of non-unionized employees in the
same labor markets. The remaining employees are not covered by collective
bargaining agreements.
TRADEMARKS
The Company owns and utilizes trademarks with respect to its name
and logo, the Cal Emblem name and logo, Dual-Web, InteliMail, Laserprint,
InteliMailer, and Odyssey Integrated Services. These trademarks (with the
exception of the Cal Emblem logo) are registered in the United States with the
U.S. Patent and Trademark Office. The Company believes that its trademarks and
other proprietary rights are significant assets and have value in the marketing
of its products.
MANUFACTURING
Manufacturing. Most of the Company's products are manufactured at
one of the Company's 11 facilities. With the exception of the pressure-sensitive
label plants in Dallas, Denver, Fresno and Kansas City and the Kansas City
InteliMail plant, each plant is multi-purpose so that regional locations can
offer a full range of business forms products.
The Company's forms manufacturing plants utilize rotary presses in
the production of business forms. The press configurations range from 14", 17",
20", 22" and 24" repeat sizes and provide from one- to six-color printing
capability. These presses, along with accessory equipment, provide broad
capability to satisfy the wide range of forms demand from the Company's
customers. The Company's multiple plants allow the Company to shift work during
periods of peak demands at one or more plants in order to maintain service
levels.
Subcontracting Program. The Company manufactures only those products
it can produce efficiently, complementing its production with a subcontracting
program focusing on very short-run quantities, extremely fast turnaround
products, electronic data processing supplies and mailers and envelopes. Sales
of purchased products totaled $37 million, or approximately 15% of net sales, in
1996. The Company's overall margins from those products it purchases from
subcontractors are generally at least as high as its margins from internally
manufactured products. Coordinated efforts among the Company's offices have led
to purchasing economies and higher margins.
ENVIRONMENTAL MATTERS
The Company's operations are subject to a variety of federal, state
and local environmental laws and regulations which have become increasingly
stringent. The Company believes its current operations are in material
compliance with current environmental laws and regulations. However, the scope
of environmental laws is very broad and is subject to change.
7
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ITEM 2. PROPERTIES.
PROPERTIES
The Company's 11 facilities are located in or near Fresno,
California; Chicago, Illinois; Dallas, Texas (2); Denver, Colorado (2); Kansas
City, Kansas (2); Minneapolis, Minnesota; Tacoma, Washington and Omaha,
Nebraska. The Company's executive and administrative offices are located in
Omaha, Nebraska, including its headquarters offices. The following table sets
forth function, location, size, ownership status and leasehold term of the
facilities and plants operated by the Company (excluding sales offices):
<TABLE>
<CAPTION>
APPROXIMATE PRIMARY
SQUARE OWNED/ LEASE FUNCTIONAL
FUNCTION/LOCATION FOOTAGE LEASED EXPIRATION USE
- -------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
CORPORATE OFFICE:
Omaha, Nebraska........... 35,000 Owned -- Office
MANUFACTURING:
Bloomington, Minnesota.... 81,000 Leased 1999 Forms
Crystal Lake, Illinois.... 79,000 Leased 2006 Forms
Hutchins (Dallas), Texas.. 104,000 Owned -- Forms
Dallas, Texas............. 98,000 Owned -- Labels
Denver, Colorado.......... 109,000 Owned -- Forms
Denver, Colorado.......... 35,000 Leased 1998 Labels
Fresno, California........ 52,000 Leased 1999 Labels
Lenexa (Kansas City),
Kansas.................... 15,000 Leased 1997 Labels
Lenexa (Kansas City),
Kansas.................... 66,000 Owned -- InteliMail
Omaha, Nebraska........... 130,000 Owned -- Forms
Tacoma, Washington........ 84,000 Owned -- Forms
COMPOSITION:
Kansas City, Kansas....... 6,000 Leased 1999 Composition
</TABLE>
The Company believes that its existing corporate and manufacturing
facilities will be adequate to meet its current and foreseeable requirements,
and that suitable additional or alternative space will be available as needed on
commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various lawsuits arising in the ordinary
course of business. In management's opinion, the outcome of these matters will
not have a material adverse effect on the Company's financial condition,
liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the stockholders of the Company during
the quarter ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock presently is traded on The Nasdaq
National Market ("NASDAQ") under the symbol "DDII." As of February 28, 1997,
there were approximately 98 record holders of its Common Stock. The Common Stock
was not listed on NASDAQ for a full quarterly period during the fiscal year
ended December 31, 1995. The following sets forth for the quarters indicated the
high and low sales price per share of Common Stock on NASDAQ from January 1,
1996 through December 31, 1996:
<TABLE>
<CAPTION>
1996
-----------------------------------
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
March 31 10 3/4 7 7/8
June 30 14 8 7/8
September 30 14 10 1/8
December 31 12 3/4 9 1/2
</TABLE>
The Company has not paid cash dividends on its Common Stock to date.
Because the Company currently intends to retain any earnings to provide funds
for the operation and expansion of its business and to repay any indebtedness,
the Company does not intend to pay cash dividends on the Common Stock in the
foreseeable future. Furthermore, as a holding company with no independent
operations, the ability of the Company to pay cash dividends will be dependent
upon the receipt of dividends or other payments from DDI. Under the terms of the
Indenture governing the Senior Notes, DDI is not permitted to pay any dividends
on DDI's common stock unless certain financial ratio tests are satisfied. In
addition, DDI's current revolving credit facility contains similar restrictions
on the payment of dividends by DDI. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." Any determination to pay cash dividends on the Company's Common
Stock in the future will be at the sole discretion of the Company's Board of
Directors.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial data
of the Company as of and for each of the years in the five-year period ended
December 31, 1996. The consolidated financial data as of and for each of the
five years in the period ended December 31, 1996, have been derived from the
Company's audited Consolidated Financial Statements. The Company's Consolidated
Financial Statements as of December 31, 1996 and 1995, and for the years ended
December 31, 1996, 1995 and 1994 and Deloitte & Touche LLP's audit report with
respect thereto have been included in this Annual Report on Form 10-K. The
information below is qualified in its entirety by the detailed information
included elsewhere herein and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Annual Report on Form 10-K.
9
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<TABLE>
<CAPTION>
(Amounts in Thousands, Except Share YEARS ENDED DECEMBER 31,
and Per Share Data)
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales .................................... $ 246,496 $ 242,238 $ 193,626 $ 193,588 $ 184,400
Cost of Goods Sold ........................... 181,058 186,011 148,797 152,036 144,630
------------ ------------ ------------ ------------ ------------
Gross Profit ................................. 65,438 56,227 44,829 41,552 39,770
Selling, General and Administrative
Expenses ................................... 38,177 35,334 32,729 32,306 32,398
Stock Compensation Charge(1) ................. -- 156 -- -- --
Nonrecurring Charge(2) ....................... -- -- -- -- 4,208
------------ ------------ ------------ ------------ ------------
Operating Income ............................. 27,261 20,737 12,100 9,246 3,164
Debt Expense ................................. 9,751 13,335 8,735 8,063 8,160
------------ ------------ ------------ ------------ ------------
Income (Loss) Before Income Taxes ............ 17,510 7,402 3,365 1,183 (4,996)
Income Tax Expense (Benefit) ................. 7,086 3,127 1,533 212 (1,785)
------------ ------------ ------------ ------------ ------------
Income (Loss) Before Extraordinary
Item ....................................... $ 10,424 $ 4,275 $ 1,832 $ 971 $ (3,211)
============ ============ ============ ============ ============
Net Income (Loss)(3),(4),(5) ................. $ 10,370 $ 1,354 $ (963) $ 971 $ (3,211)
============ ============ ============ ============ ============
Net Income (Loss) Available for
Common Stock ............................... $ 10,370 $ 1,354 $ (1,583) $ 288 $ (3,898)
============ ============ ============ ============ ============
Earnings (Loss) Per Common Share:
Primary:
Income (Loss) Before Extraordinary
Item ................................... $ 1.05 $ 0.61 $ 0.13 $ 0.03 $ (0.71)
Extraordinary Item ....................... (0.01) (0.40) (0.30) -- --
============ ============ ============ ============ ============
Net Income (Loss) ........................ $ 1.04 $ 0.21 $ (0.17) $ 0.03 $ (0.71)
============ ============ ============ ============ ============
Fully Diluted:
Income (Loss) Before Extraordinary
Item ................................... $ 1.05 $ 0.61 $ 0.11 $ 0.05 $ (0.24)
Extraordinary Item ....................... (0.01) (0.40) (0.17) -- --
============ ============ ============ ============ ============
Net Income (Loss) ........................ $ 1.04 $ 0.21 $ (0.06) $ 0.05 $ (0.24)
============ ============ ============ ============ ============
Weighted Average Common and
Common Share
Equivalents Outstanding:
Primary .................................... 9,939,454 7,333,864 9,453,494 10,025,704 5,505,652
Fully Diluted .............................. 9,943,754 7,333,864 16,911,580 18,161,798 13,641,746
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital .............................. $ 53,445 $ 43,016 $ 37,231 $ 29,179 $ 28,691
Total Assets ................................. 133,977 125,725 116,221 104,534 105,289
Long-Term Obligations, Less
Current Maturities ......................... 63,965 65,212 86,719 68,569 71,298
Redeemable Preferred Stock ................... -- -- -- 6,829 6,829
Warrants ..................................... -- -- 2,771 -- --
Common Stockholders' Equity
(Deficit) .................................. 37,676 27,424 (5,143) (2,979) (3,267)
</TABLE>
10
<PAGE>
- --------------
(1) Reflects the difference between the fair value and the price paid for
Common Stock issued to an employee and a director in the second quarter
of 1995.
(2) Relates to $1,863 of plant consolidation costs in connection with the
cessation of operations at two of the Company's manufacturing
facilities and the $2,345 writedown of the carrying values of certain
real estate property in connection with the sale and leaseback of five
other manufacturing facilities.
(3) In November 1994, the Company incurred an extraordinary charge of $2,795,
net of income tax benefit of $1,787, for the write-off of unamortized
deferred financing costs and unamortized original issue discount and
certain termination fees and costs associated with the early
termination of debt in connection with the issuance of the Senior
Notes.
(4) In November 1995, the Company incurred an extraordinary charge of $2,921,
net of income tax benefit of $1,790, for the write-off of unamortized
deferred financing costs, unamortized original issue discount and
prepayment fees associated with the prepayment of $24,000 of Senior
Notes.
(5) In June 1996, the Company incurred an extraordinary charge of $54, net of
income tax benefit of $34, for the write-off of unamoritized deferred
financing costs, unamortized original issue discount, and certain
premium on reacquisition associated with the repurchase of $500 of
Senior Notes.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The following discussion and analysis should be read in
conjunction with the Consolidated Financial Statements of the Company and Notes
thereto appearing elsewhere in this Annual Report on Form 10-K.
When used in the following discussion, the words "believes,"
"estimates," "expects" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected, including, but not limited to, fluctuations in paper prices, cyclical
downturns in the economy and the effect of emerging technologies such as
electronic data interchange on the business forms industry as a whole. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release any revisions to these forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
The Company provides business forms, pressure-sensitive label
and direct mail products and software-based services to its customers to assist
them in managing their information collection and dissemination needs. The
Company was organized to purchase the stock of DDI from Pitney Bowes, Inc. in
February 1988. In September 1988, the Company extended its presence into the
northwest by purchasing the assets of Pioneer Business Forms, Inc. in Tacoma,
Washington. The Company was recapitalized in early 1993. In the
recapitalization, the Company mortgaged or sold and leased back six of its
manufacturing facilities and entered into a new revolving credit facility. The
Company used the proceeds from such transactions to pay off the lender which
provided the senior debt incurred in connection with the 1988 Management
Acquisition and to repay a material portion of the subordinated debt incurred in
connection with the 1988 Management Acquisition. In November 1994, the Company
completed the offering of the Senior Notes and Warrants (the "Warrants") and
used the proceeds to repurchase certain properties previously sold
11
<PAGE>
and leased back, to redeem its preferred stock, and to reduce its outstanding
bank debt and repay outstanding subordinated debt.
In August 1995, the Company purchased the capital stock of Cal
Emblem, expanding the Company's products to include prime labels and increasing
its market presence in California and Colorado. In October 1995, the Company
consummated the Offering of 3,400,000 shares of its Common Stock. The Offering
was registered under the Securities Act on a Registration Statement on Form S-1.
The net proceeds to the Company of approximately $27.9 million were used by the
Company to redeem $24,000,000 in aggregate principal amount of the Senior Notes.
Over recent years the business forms industry has been
affected by changes in paper prices, general economic conditions and changes in
end-user requirements. Paper has historically accounted for approximately 60% of
the Company's average cost of goods sold, although the paper content of each of
the Company's products varies, and as a result, the sales price, as well as the
cost of sales, of the Company's products have been directly affected by the
price of paper. From May 1989 to January 1992, the price of 20 pound bond paper
decreased 33% and, from January 1992 until mid-1994, the price fluctuated
(although remaining well under the high levels experienced during the spring of
1989). Historically, lower paper costs have not produced increased margins since
the Company and its competitors generally have passed any savings on to their
customers through price reductions. During the last half of 1994, prices
increased rapidly and, in December 1994, reached May 1989 levels. Through the
first six months of 1995, prices paid by the Company for paper continued to
increase steadily. During this period of increases, the Company was able to pass
on paper price increases to its customers due in part to the tight paper supply;
however, no assurance can be given that the Company will be able to pass on any
future increases to its customers. Beginning in the fourth quarter of 1995,
paper demand began to soften and price reductions have occurred throughout 1996.
While the Company does not yet know if this signals a new, continuing trend, if
these reduced prices continue or even decline further and are passed on to the
customers, the Company's revenues could be negatively affected. While no
assurances can be given, the Company does not currently anticipate that the
recent price decreases will have a material adverse impact on the Company's net
income since the Company's past experience is that declining prices also reduce
costs.
The general economic conditions of 1990-1992 began to affect
the business forms industry during the last six months of 1990. The reduced
level of business activity which accompanied these conditions led to reduced
demand for business forms in general and increased competition from suppliers.
The Company addressed these business conditions by reducing costs and by
instituting an aggressive sales effort to retain and add high-volume customers.
Cost reductions included restructuring the forms plant administrative and
production control departments and terminating manufacturing in the Los Angeles,
California and North Haven, Connecticut plants in April and October 1993,
respectively. Production was moved to other plants without any material loss of
business. The 1993 upturn in the economy, coupled with the Company's
restructuring actions, shift in product mix and increased sales volumes, led to
improved results of the Company for 1994 and continued through 1995 and 1996.
The Company's net forms sales have also come under pressure as
the amount of paper used in business forms has declined due to changes in
end-user requirements. During recent years, the Company's customers have been
shifting to laser forms, which are typically single-ply letter size (8-1/2" x
11") compared to the more traditional continuous form (14-7/8" x 11"), which
often had multiple pages. The effects on the Company's net forms sales of
declining paper prices from 1989 through mid-1994 and of declining forms sizes
during the six years have been substantially offset by increases in net sales of
higher-margin pressure-sensitive label and InteliMail products as well as
increased higher-margin custom business form sales.
During 1995, the Company introduced its new Odyssey Integrated
Services program which provides software tools to help customers manage the cost
of forms and supplies as well as related operating processes. This program
significantly broadens the Company's markets beyond the traditional business
forms
12
<PAGE>
industry. The Company has enjoyed favorable acceptance in the market and has
signed more than thirty multi-year agreements with large customers.
In accordance with generally accepted accounting principles,
the Company used purchase accounting in recording the acquisition of certain
real and personal property from Pitney Bowes, Inc. in February 1988 and in the
1988 Management Acquisition and from Pioneer Business Forms, Inc. in September
1988. Depreciation of most of the fixed assets acquired in these transactions
(which were assigned a remaining useful life of eight years) was completed in
January 1996 and September 1996, respectively. Depreciation expenses with
respect to these assets was $4,600,000 in 1995 and approximately $600,000 in
1996.
RESULTS OF OPERATIONS
Comparison of Years Ended December 31, 1996 and 1995
Net Sales. Net sales were $246.5 million for the year ended
December 31, 1996, an increase of 1.8% from $242.2 million in 1995. Paper price
decreases in 1996 over 1995 are estimated to have negatively impacted total
sales by approximately 3.8%, most of which related to business forms and
supplies. Net sales of business forms, supplies and services decreased 5.8% with
little change in custom forms sales and decreases of 12.6% in stock forms sales.
Sales to federal governmental units were $1.4 million, a decrease of $2.3
million from 1995. The decreases were partially offset by $3.9 million of
increased sales to Odyssey Integrated Services customers. Pressure-sensitive
label sales increased 13.8% and include revenues from Cal Emblem, which was
acquired in August 1995. The pressure-sensitive label market was soft throughout
the first nine months of 1996, partly due to the weaknesses in the retail
economy and the manufacturing sector, generally. While order activity and
backlogs for labels increased during the fourth quarter of 1996, shipments were
not affected. InteliMail sales increased 24.1% due to the addition of new
customers and growth from existing customers.
Gross Profit. Gross profit was $65.4 million for the year
ended December 31, 1996, an increase of $9.2 million, or 16.4% from $56.2
million in 1995. Gross profits in 1996 were favorably impacted by approximately
$4.0 million in reduced depreciation expense from fully-depreciated assets. As a
percentage of sales, gross profit was 26.5% compared with 23.2% in 1995. Gross
profit margins of business forms, supplies and services increased 5.0% for the
year ended December 31, 1996. Pressure-sensitive label gross profit margins
decreased 0.3% in the year ended December 31, 1996 primarily as a result of
sales mix. InteliMail gross profit margins increased 5.1%, primarily as a result
of operating levels from increased sales volume.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses were $38.2 million for the year ended December 31,
1996, an increase of $2.8 million over 1995. The increase in expenses resulted
from higher commissions and inclusion of the expenses of Cal Emblem. Total
expenses increased as a percentage of sales to 15.5% from 14.6% in 1995
primarily from the effect of lower paper prices in reducing total sales.
Debt Expense. The decrease in debt expense of $3.6 million is
primarily attributable to repayment of $24.0 million of the Senior Notes, as
well as the related reduction in amortization of debt issuance costs and
accretion of discount.
Extraordinary Expense. In June 1996, the Company repurchased
$500,000 of the Senior Notes at a price of $110. The premium along with the
related unamortized debt issuance cost and issuance discount resulted in a
charge of $54,000, net of income tax benefit of $34,000.
Comparison of Years Ended December 31, 1995 and 1994
13
<PAGE>
Net Sales. Net sales were $242.2 million for the year ended
December 31, 1995, an increase of $48.6 million, or 25.1%, from $193.6 million
for the year ended December 31, 1994. Custom forms sales (excluding federal
government sales) increased 14.6%. The increase of custom forms sales was
primarily a result of higher prices due to higher paper prices in 1995. Stock
forms sales (excluding federal government sales) increased 47.9%, primarily from
significantly increased sales to existing accounts due in part to the Company's
long-term relationships with its paper vendors which helped ensure the Company's
reliability of supply in the generally tight paper market that prevailed during
1995 and, to a lesser extent, to higher paper prices. Based on the historical
and ongoing trend of stock forms sales, which have declined since 1989, the
Company does not anticipate that this trend will continue in future periods.
Pressure-sensitive label sales increased 40.0%, resulting from increased usage
of products by existing accounts as well as the addition of new customers and
the introduction of new applications. Sales of Cal Emblem, acquired on August
25, 1995, contributed to the increase in pressure sensitive label sales.
Pressure-sensitive label sales were also modestly affected by higher raw
material prices. InteliMail sales increased 0.3%. Sales to the federal
government increased to $3.8 million from $3.6 million.
Gross Profit. Gross profit was $56.2 million for the year
ended December 31, 1995, an increase of $11.4 million, or 25.4%, from $44.8
million for the year ended December 31, 1994. As a percentage of sales, gross
profit margins remained unchanged at 23.2% of net sales. Forms gross profit
margins increased slightly, while pressure-sensitive label gross profit margins
decreased slightly and InteliMail gross profit margins improved.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses were $35.3 million for the year ended December 31,
1995, an increase of $2.6 million. Commissions on increased sales and the
expenses of Cal Emblem, which was acquired on August 25, 1995, constituted most
of the increase. Total expenses declined as a percentage of sales to 14.6% in
1995 from 16.9% in 1994.
The Company recorded a non-recurring expense of $156,000 to
reflect the estimate of the difference in the fair value and the amount received
for capital stock sold in June 1995. (See Note N of Notes to Consolidated
Financial Statements.)
Debt Expense. The increase of $4.6 million in debt expense in
the year 1995 as compared to 1994 is primarily due to the higher interest rate
on the Senior Notes as well as the amortization of debt issuance cost and
accretion of the discount attributable to the Senior Notes and the outstanding
Warrants issued in connection with the issuance of the Senior Notes. See
"-- General"
Extraordinary Expense. On November 30, 1995, $24.0 million in
aggregate principal amount of the Senior Notes were called and retired. The
retirement of these Senior Notes resulted in a charge of $2.9 million, net of
$1.8 million in income tax benefit. The charge was comprised of the 11.4% cash
call premium and write-off of the unamortized original issue discount and debt
issuance costs related to the retired Senior Notes. (See Note P of Notes to
Consolidated Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCES
The Company relies primarily upon operating cash flow and
borrowings under its revolving credit facilities to finance capital
expenditures, increases in working capital and debt service. At December 31,
1996, working capital was $53.4 million, an increase of $10.4 million from the
working capital balance as of December 31, 1995. Operating activities generated
cash of approximately $18.2 million during the year ended December 31, 1996.
Cash provided by operations during the year of 1996 was primarily the result of
increased earnings. The Company had a net cash outflow of approximately $3.8
million from its investing activities during the year ended December 31, 1996,
for capital expenditures. The Company estimates that its capital expenditures
for fiscal 1997 will be approximately $6.0 to $7.0 million.
In connection with the acquisition of Cal Emblem, the Company
issued two five-year term promissory notes in the aggregate principle amount of
$2.2 million which accrue interest at the rate of 10%
14
<PAGE>
per annum. The remaining principal and interest payments will be due in
approximately equal installments over the next four years.
The tax-exempt industrial revenue bonds in the principal
amount of $170,000 bear an annual interest rate of 10.125% and are due on
October 1, 1997. Monthly sinking fund payments are required.
In January, 1997 DDI entered into a new revolving credit
facility (the "Revolving Credit Facility") that provides for borrowing of up to
$20 million. The Revolving Credit Facility is secured by the Company's accounts
receivable and the proceeds thereof and, subject to the first lien of the
holders of the Senior Notes, by the Company's inventory and proceeds thereof.
Outstanding indebtedness under the Revolving Credit Facility is limited to 80%
of eligible accounts receivable (subject to reduction by the lender under
certain circumstances). The facility will expire in July 1999. Under the terms
of the Indenture governing the Senior Notes, the Company is permitted to incur
additional revolving credit indebtedness in an amount equal to 85% of its
accounts receivable, and based upon accounts receivable balances at December 31,
1996, the Company was permitted to incur approximately $26.4 million of
revolving credit indebtedness. As of December 31, 1996, there was no amount
outstanding under the Company's prior revolving credit facility. The facility
restricts certain liens, the payment of dividends on, and redemption of, any
class of the capital stock of DDI (all of which is currently owned by Data
Documents Incorporated), PBF or Cal Emblem and certain other restricted
payments, among other things.
The Company expects to satisfy its obligations under the
Senior Notes, the promissory notes issued in connection with the Cal Emblem
acquisition and the industrial revenue bonds, as well as future capital
expenditures and working capital requirements, with cash flow from operations,
and believes that this source will provide sufficient liquidity to enable it to
meet its working capital requirements for at least the next 12 months.
The information in the immediately preceding paragraph is
forward-looking and involves risks and uncertainties that could significantly
impact the Company's expected liquidity requirements in the short and long term.
While it is impossible to itemize the many factors and specific events that
could affect the Company's outlook for its liquidity requirements, such factors
would include fluctuations in paper prices, cyclical downturns in the economy
and the effect of emerging technologies such as electronic data interchange on
the business forms industry as a whole. These factors could reduce the Company's
revenues and increase its expenses, resulting in a greater burden on the
Company's liquidity than that which the Company has described above.
INFLATION
Inflation has not had a significant negative impact on the
Company's operations during the periods presented. The Company has historically
been able to pass on to its customers increases in raw material prices caused by
inflation; however, no assurances can be given as to the extent of the Company's
ability to continue to pass on any future increases should they occur.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's results of operations may fluctuate between
quarterly periods due to the effect of possible future acquisitions, the number
of shipping dates in the quarter, the timing of significant contracts, changes
in raw material prices and other factors, many of which may be beyond the
control of the Company. Such variability in the Company's results of operations
could cause the Company's stock price to fluctuate following the interim results
of operations or other information and may have a material adverse effect on the
Company or its stock price.
SECURITIES LITIGATION REFORM ACT
15
<PAGE>
Except for the historical information contained herein, the
matters discussed in this annual report are forward-looking statements which
involve risks and uncertainties, including but not limited to economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices, and other factors discussed
in the Company's filings with the Securities and Exchange Commission.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities which established accounting and reporting
standards for such transfers. The Company will adopt SFAS No. 125 effective
January 1, 1997 as required. The impact on the Company's financial position and
results of operations is not expected to be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Consolidated Financial Statements on page 17.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item will be contained in the
Company's proxy statement to be filed within 120 days after the end of the
Company's most recent fiscal year and is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item will be contained in the
Company's proxy statement to be filed within 120 days after the end of the
Company's most recent fiscal year and is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this Item will be contained in the
Company's proxy statement to be filed within 120 days after the end of the
Company's most recent fiscal year and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item will be contained in the
Company's proxy statement to be filed within 120 days after the end of the
Company's most recent fiscal year and is incorporated herein by this reference.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(a) Index to Consolidated Financial Statements, Consolidated
Financial Statement Schedules and Exhibits:
1. Consolidated Financial Statements Index
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................................. F-1
Consolidated Balance Sheets at December 31, 1996 and 1995................................. F-2
Consolidated Statements of Operations for the Years Ended December 31, 1996,
1995 and 1994............................................................................ F-3
Consolidated Statements of Common Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994............................................................................ F-5
Notes to Consolidated Financial Statements for the Years Ended December 31,
1996, 1995 and 1994...................................................................... F-7
</TABLE>
2. Consolidated Financial Statement Schedules Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report S-1
I -- Condensed Financial Information S-2
II -- Valuation and Qualifying Accounts S-6
</TABLE>
All other schedules have been omitted since the required
information is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the Consolidated Financial Statements and related Notes.
3. Exhibit Index
The following exhibits are filed as part of this Annual Report
on Form 10-K, or are incorporated herein by reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
3.1 Certificate of Incorporation of Data Documents Incorporated
(the "Company") (previously filed as Exhibit 3.3 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-82700) and incorporated herein by this reference).
3.2 Bylaws of the Company (previously filed as Exhibit 3.4 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-82700) and incorporated herein by this reference).
</TABLE>
17
<PAGE>
3.3 Certificate of Amendment to Certificate of Incorporation of
the Company, filed November 23, 1994 (previously filed as
Exhibit 3.3 to the Company's Registration Statement on Form
S-1 (Registration No. 33-95804) and incorporated herein by
this reference).
3.4 Certificate of Amendment to Certificate of Incorporation of
the Company, filed August 31, 1995 (previously filed as
Exhibit 3.4 to the Company's Registration Statement on Form
S-1 (Registration No. 33-95804) and incorporated herein by
this reference).
3.5 Certificate of Amendment to Certificate of Incorporation of
the Company, filed October 3, 1995 (previously filed as
Exhibit 3.5 to the Company's Registration Statement on Form
S-1 (Registration No. 333-1340) and incorporated herein by
this reference).
4.1 Specimen certificate of Common Stock (previously filed as
Exhibit 4.1 to the Company's Registration Statement on Form
S-1 (Registration No. 33-95804) and incorporated herein by
this reference).
10.1 Employment Agreement dated November 28, 1994 by and between
Data Documents, Inc. ("DDI") and Walter J. Kearns
(previously filed as Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by this reference).
10.2 Termination Benefits Agreement dated November 28, 1994 by and
between DDI and each of Joseph Addison, Morris Caudle,
Jeffrey Holton, Allyn Plejdrup and William Rinehart
(previously filed as Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (Registration No. 33-
95804) and incorporated herein by this reference).
10.3 Amended and Restated Stock Subscription Agreement dated as of
November 28, 1994 by and among the Company and the other
persons named therein (previously filed as Exhibit 10.9 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by this
reference).
10.4 Promissory Note Secured by Deed of Trust, dated December 8,
1992 in the principal amount of $2,600,000 made by DDI in
favor of the J. David Gladstone Institutes (previously filed
as Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (Registration No. 33-82700) and incorporated herein
by this reference).
10.5 Deed of Trust with Assignment of Rents and Fixture filing,
dated as of December 8, 1992, by and among DDI, Pacific
Title Guaranty Company and the J. David Gladstone Institutes
(previously filed as Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (Registration No. 33-
82700) and incorporated herein by this reference).
10.6 Security Agreement dated December 8, 1992 by and between and
the J. David Gladstone Institutes (previously filed as
Exhibit 10.7 to the Company's Registration Statement on Form
S-1 (Registration No. 33-82700) and incorporated herein by
this reference).
10.7 Pension Plan, restated as of January 1, 1989 (previously filed
as Exhibit 10.8 to the Company's Registration Statement on
Form S-1 (Registration No. 33-82700) and incorporated herein
by this reference).
10.8 Warrant Agreement (Teachers) dated as of November 28, 1994 by
and between DDI and The Bank of New York ("BoNY"), the
successor-in-interest to NationsBank of Texas, N.A.
("NationsBank") (previously filed as Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by this
reference).
18
<PAGE>
10.9 Termination Agreement dated November 28, 1994 by and between
DDI and Raebarn Corporation (previously filed as Exhibit
10.10 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated herein by this
reference).
10.10 Warrant Agreement (including form of warrant certificate)
dated as of November 28, 1994 by and between the Company and
BoNY, the successor-in-interest to NationsBank (previously
filed as Exhibit 10.11 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 and
incorporated herein by this reference).
10.11 Security Agreement dated November 28, 1994 by and between the
Company and BoNY, the successor-in-interest to NationsBank
(previously filed as Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by this reference).
10.12 Security Agreement dated as of November 28, 1994 by and
between DDI and BoNY, the successor-in-interest to
NationsBank (previously filed as Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by this
reference).
10.13 Security Agreement dated as of November 28, 1994 by and
between PBF Washington, Inc. ("PBF") and BoNY, the
successor-in-interest to NationsBank (previously filed as
Exhibit 10.14 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994 and incorporated herein
by this reference).
10.14 Stock Purchase Agreement dated as of July 12, 1995 by and
among John E. Bailey, Jay W. Hunzeker and DDI (previously
filed as Exhibit 10.15 to the Company's Registration
Statement on Form S-1 (Registration No. 33-95804) and
incorporated herein by this reference).
10.15 Non-Qualified Stock Option Agreement dated as of August 25,
1995 by and between the Company and John E. Bailey
(previously filed as Exhibit 99.1 to the Company's Current
Report on Form 8-K filed on September 6, 1995 and
incorporated herein by this reference).
10.16 Promissory Note dated August 25, 1995 in the principal amount
of $2,095,000 made by the Company in favor of John E. Bailey
(previously filed as Exhibit 99.2 to the Company's Current
Report on Form 8-K filed on September 6, 1995 and
incorporated herein by this reference).
10.17 Form of Indemnity Agreement by and between the Company and its
directors and certain officers (previously filed as Exhibit
10.18 to the Company's Registration Statement on Form S-1
(Registration No. 33-95804) and incorporated herein by this
reference).
10.18 Amended and Restated 1995 Stock Incentive Plan of the Company.
10.19 Form of Incentive Stock Option Agreement.
10.20 Form of Non-Qualified Stock Option Agreement.
10.21 Form of Restricted Stock Agreement (previously filed as
Exhibit 10.22 to the Company's Registration Statement on
Form S-1 (Registration No. 33-95804) and incorporated herein
by this reference).
10.22 Indenture dated as of November 28, 1994 among DDI, the
Guarantors named therein and BoNY, the successor-in-interest
to NationsBank (previously filed as Exhibit 10.25 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-95804) and incorporated herein by this reference).
10.23 Leasehold Mortgage, Assignment of Leases and Rents and Fixture
Filing dated as of November 18, 1994 by DDI to BoNY, the
successor-in-interest to NationsBank relating to
Bloomington, Minnesota property (previously filed as Exhibit
10.26 to the Company's Registration Statement on Form S-1
(Registration No. 33-95804) and incorporated herein by this
reference).
19
<PAGE>
10.24 Leasehold Mortgage, Assignment of Leases and Rents and Fixture
Filing dated as of November 18, 1994 by DDI to BoNY, the
successor-in-interest to NationsBank relating to Crystal
Lake, Illinois property (previously filed as Exhibit 10.27
to the Company's Registration Statement on Form S-1
(Registration No. 33-95804) and incorporated herein by this
reference).
10.25 Deed of Trust, Assignment of Leases and Rents and Fixture
Filing dated as of November 18, 1994 by DDI to Jonathan
Hooper for BoNY, the successor-in-interest to NationsBank
relating to Dallas, Texas property (previously filed as
Exhibit 10.28 to the Company's Registration Statement on
Form S-1 (Registration No. 33-95804) and incorporated herein
by this reference).
10.26 Deed of Trust, Assignment of Leases and Rents and Fixture
Filing dated as of November 18, 1994 by DDI to the Public
Trustee of Denver, Colorado for BoNY, the successor-in-
interest to NationsBank relating to Denver, Colorado
property (previously filed as Exhibit 10.29 to the Company's
Registration Statement on Form S-1 (Registration No. 33-
95804) and incorporated herein by this reference).
10.27 Mortgage, Assignment of Leases and Rents and Fixture Filing
dated as of November 18, 1994 by DDI for BoNY, the
successor-in-interest to NationsBank relating to Lenexa,
Kansas property (previously filed as Exhibit 10.20 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-95804) and incorporated herein by this reference).
10.28 Deed of Trust, Assignment of Leases and Rents and Fixture
Filing dated as of November 18, 1994 by DDI to Chicago Title
Insurance Company for BoNY, the successor-in-interest to
NationsBank relating to Los Angeles, California property
(previously filed as Exhibit 10.31 to the Company's
Registration Statement on Form S-1 (Registration No. 33-
95804) and incorporated herein by this reference).
10.29 Deed of Trust, Assignment of Leases and Rents and Fixture
Filing dated as of November 18, 1994 by DDI to Chicago Title
Insurance Company for BoNY, the successor-in-interest to
NationsBank relating to Omaha, Nebraska property (previously
filed as Exhibit 10.32 to the Company's Registration
Statement on Form S-1 (Registration No. 33-95804) and
incorporated herein by this reference).
10.30 Deed of Trust, Assignment of Leases and Rents and Fixture
Filing dated as of November 18, 1994 by PBF to Chicago Title
Insurance Company for BoNY, the successor-in-interest to
NationsBank relating to Tacoma, Washington property
(previously filed as Exhibit 10.33 to the Company's
Registration Statement on Form S-1 (Registration No. 33-
95804) and incorporated herein by this reference).
10.31 Security Agreement dated as of January 4, 1996 by and between
Cal Emblem Labels, Inc. ("Cal Emblem") and BoNY (previously
filed as Exhibit 10.34 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1340) and
incorporated herein by this reference).
10.32 Supplemental Indenture dated as of January 4, 1996 among DDI,
the Guarantors named therein and BoNY (previously filed as
Exhibit 10.35 to the Company's Registration Statement on
Form S-1 (Registration No. 333-1340) and incorporated herein
by this reference).
10.33 Loan Agreement dated as of January 31, 1997 between DDI and
First Bank National Association (the "Bank").
10.34 Intercreditor Agreement dated as of January 31, 1997 among
BoNY and the Bank.
11.1 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Company (previously filed as Exhibit 21.1
to the Company's Registration Statement on Form S-1
(Registration No. 333-1340) and incorporated herein by this
reference).
23.1 Consent of Deloitte & Touche LLP, independent auditors
20
<PAGE>
23.2 Consent of Deloitte & Touche LLP, independent auditors
(b) Reports on Form 8-K:
The Company filed no Reports on Form 8-K during the last
quarter of the 1996 fiscal year.
(c) Refer to (a) 3 above.
(d) Refer to (a) 2 above.
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Data Documents Incorporated
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of Data Documents
Incorporated and subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Data Documents Incorporated and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
February 6, 1997
Omaha, Nebraska
F-1
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note G) $ 11,151 $ 2,024
Accounts receivable, net of allowances of
$311,000 and $458,000 (Note H) 31,459 31,569
Inventories (Note D) 37,979 36,048
Other current assets 898 1,788
------------ ------------
Total Current Assets 81,487 71,429
PROPERTY, PLANT AND EQUIPMENT, net (Notes E and H) 37,328 37,502
GOODWILL, net of accumulated amortization of $2,689,000 and $2,273,000 9,837 10,248
DEFERRED FINANCING COSTS AND OTHER ASSETS 5,325 6,546
------------ ------------
$ 133,977 $ 125,725
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities (Note G) $ 18,566 $ 19,326
Accrued compensation 3,453 3,579
Accrued interest payable 4,072 3,877
Current maturities of long-term obligations (Note H) 934 1,169
Current and deferred income taxes (Note F) 1,017 462
------------ ------------
Total Current Liabilities 28,042 28,413
POST-RETIREMENT BENEFITS (Note M) 1,881 1,805
LONG-TERM OBLIGATIONS (Note H) 63,965 65,212
DEFERRED INCOME TAXES (Note F) 2,413 2,871
CONTINGENCIES (Notes H, K and L)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued -- --
Common stock, $0.001 par value; 15,000,000 shares authorized;
9,564,831 and 8,873,016 shares issued; 9,295,224 and 8,603,409 shares outstanding 10 9
Additional paid-in capital 32,020 32,162
Retained earnings (deficit) 5,881 (4,489)
Stockholder notes receivable (235) (258)
Treasury stock, acquired at no cost, 269,607 shares -- --
------------ ------------
Total Stockholders' Equity 37,676 27,424
------------ ------------
$ 133,977 $ 125,725
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(COLUMNAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
NET SALES $ 246,496 $ 242,238 $ 193,626
COST OF GOODS SOLD 181,058 186,011 148,797
------------ ------------ ------------
Gross Profit 65,438 56,227 44,829
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 38,177 35,334 32,729
STOCK COMPENSATION CHARGE (Note N) -- 156 --
------------ ------------ ------------
Operating Income 27,261 20,737 12,100
DEBT EXPENSE, Including amortization of
$828,000, $1,312,000 and $1,072,000 9,751 13,335 8,735
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 17,510 7,402 3,365
INCOME TAX EXPENSE (Note F) 7,086 3,127 1,533
------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 10,424 4,275 1,832
EXTRAORDINARY ITEM, net of tax (Note P) (54) (2,921) (2,795)
------------ ------------ ------------
NET INCOME (LOSS) 10,370 1,354 (963)
LESS PREFERRED DIVIDENDS -- -- 620
------------ ------------ ------------
NET INCOME (LOSS) AVAILABLE FOR COMMON STOCK $ 10,370 $ 1,354 $ (1,583)
============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Primary:
Income before extraordinary item $ 1.05 $ 0.61 $ 0.13
Extraordinary item $ (0.01) $ (0.40) $ (0.30)
------------ ------------ ------------
Net Income (Loss) $ 1.04 $ 0.21 $ (0.17)
============ ============ ============
Fully diluted:
Income before extraordinary item $ 1.05 $ 0.61 $ 0.11
Extraordinary item (0.01) (0.40) (0.17)
------------ ------------ ------------
Net Income (Loss) $ 1.04 $ 0.21 $ (0.06)
============ ============ ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Primary 9,939,454 7,333,864 9,453,494
============ ============ ============
Fully Diluted 9,943,754 7,333,864 16,911,580
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL RETAINED STOCKHOLDER
COMMON PAID-IN EARNINGS NOTES
STOCK CAPITAL (DEFICIT) RECEIVABLE TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 $ 5 $ 1,276 $ (4,260) $ -- $ (2,979)
Acquisition of 710,190 shares of treasury stock
in exchange at no cost -- -- -- -- --
Preferred dividends -- -- (620) -- (620)
407,947 shares issued from treasury stock in
exchange for notes receivable -- 226 -- (226) --
Redemption of warrants (Note J) -- (581) -- -- (581)
Net loss -- -- (963) -- (963)
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1994 5 921 (5,843) (226) (5,143)
48,954 shares issued for cash (Note N) -- 142 -- -- 142
32,636 shares issued from treasury stock in
exchange for note receivable (Note N) -- 95 -- (55) 40
Warrant reclassification (Note J) -- 3,087 -- -- 3,087
Payment on stockholders' notes -- -- -- 23 23
Issuance of 3,400,000 common shares (Note C) 4 27,917 -- -- 27,921
Net income -- -- 1,354 -- 1,354
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1995 9 32,162 (4,489) (258) 27,424
691,815 shares issued on 61,233 warrants
exercised (Note J) 1 -- -- -- 1
Warrant registration costs -- (142) -- -- (142)
Payment on stockholders' notes -- -- -- 23 23
Net income -- -- 10,370 -- 10,370
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1996 $ 10 $ 32,020 $ 5,881 $ (235) $ 37,676
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 10,370 $ 1,354 $ (963)
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Depreciation 4,062 7,552 6,992
Amortization of intangibles 1,490 1,804 1,504
Stock compensation charge -- 156 --
Extraordinary item 37 1,975 2,941
Provision for deferred income taxes (296) (1,375) (1,743)
(Gain) loss on sale of property, plant and equipment (65) (4) 46
Changes in operating assets and liabilities:
Accounts receivable 110 (2,181) (3,695)
Inventories (1,931) (3,468) (1,545)
Other current assets 168 144 (265)
Accounts payable and accrued liabilities 2,579 (3,513) 3,291
Accrued interest 195 2,744 141
Current taxes on income and other 1,176 131 (445)
Other assets 259 (438) 96
----------- ----------- -----------
Net cash flows from operating activities 18,154 4,881 6,355
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,940) (3,955) (6,972)
Proceeds from the sale of property, plant and equipment 117 58 193
Investment in Cal Emblem -- (2,403) --
----------- ----------- -----------
Net cash flows from investing activities (3,823) (6,300) (6,779)
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt -- -- $ 85,000
Payment of debt $ (1,697) $ (30,227) (56,673)
Principal payments of lease finance obligation -- -- (12,608)
Change in liability for outstanding checks (3,389) 1,347 512
Dividends paid -- -- (620)
Preferred stock redemptions -- -- (6,829)
Debt issuance and related costs -- -- (4,651)
Payment for stock registration costs - net (141) -- --
Proceeds from sale of common stock -- 27,947 --
Principal receipts on stockholder notes receivable 23 23 --
----------- ----------- -----------
Net cash flows from financing activities (5,204) (910) 4,131
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 9,127 (2,329) 3,707
CASH AND CASH EQUIVALENTS, Beginning of period 2,024 4,353 646
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, End of period $ 11,151 $ 2,024 $ 4,353
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 9,031 $ 9,639 $ 7,522
=========== =========== ===========
Income taxes $ 6,084 $ 2,759 $ 1,941
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Termination agreement (Note H) $ 1,349
===========
Exchange of common stock purchase warrants with
exchangeable warrants (Note J) $ 581
===========
Issuance of 32,636 and 407,947 shares of common stock for
stockholder notes receivable $ 55 $ 226
=========== ===========
Acquisition of treasury stock at no cost in 1994 --
===========
Issuance of promissory notes to the former stockholders of
Cal Emblem Labels, Inc. (Note B) $ 2,245
==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(COLUMNAR DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Data Documents Incorporated (the "Company") was
formed for the purpose of acquiring Data Documents, Inc. The Company
designs, manufactures, and markets business forms, pressure-sensitive
label products and supplies, specialized direct mail products and
software-based services. A substantial portion of the Company's forms
sales are made in connection with its proprietary forms management system.
The principal markets for the business forms are primarily located in the
geographic markets of mid-America, the southwest and the northwest. The
principal markets for the labels and direct mail business are nationwide.
CONSOLIDATION - The consolidated financial statements of the Company
include the accounts of its wholly-owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated during
consolidation. All operating activities, assets and liabilities are those
of the Company's subsidiaries.
CASH AND CASH EQUIVALENTS - All highly liquid investments, purchased with
a maturity of three months or less are considered cash equivalents.
INVENTORIES - Inventories are valued at the lower of cost, determined by
the last-in, first-out (LIFO) method, or market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated
at cost and are depreciated using the straight-line method over the
estimated useful life of the asset, which are as follows: buildings, 30
years; leased facilities and leasehold improvements, life of the lease;
machinery and equipment, 3 to 12 years; and furniture and fixtures, 4 to
10 years.
GOODWILL - Goodwill represents the excess of costs over the value of net
tangible assets acquired in the acquisition of Data Documents, Inc., PBF
Washington, Inc., and Cal Emblem Labels, Inc. This cost is being amortized
on a straight-line basis over 30 years. Recoverability of this asset is
evaluated periodically based on management's estimate of future
undiscounted operating income of the businesses acquired.
DEFERRED FINANCING COSTS - Deferred financing costs represents the cost of
securing debt financing. The cost is being amortized over the estimated
periods of outstanding principal amounts of the related obligations.
OTHER ASSETS - Subscriber installation costs for the Company's
software-based Odyssey Integrated Services program are capitalized and
amortized over the initial period of the subscriber agreement, generally 3
years.
REVENUE RECOGNITION - Sales and related cost of goods sold are recognized
upon shipment of products.
F-7
<PAGE>
INCOME TAXES - The Company and its wholly-owned subsidiaries file a
consolidated income tax return. The Company uses an asset and liability
approach for the financial reporting of income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109 - Accounting
for Income Taxes. Deferred income taxes arise from temporary differences
between financial and tax reporting.
OTHER POSTRETIREMENT BENEFITS - The Company accounts for postretirement
benefits in accordance with SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions. The Company has elected to
recognize the transition obligation relating to prior service cost in its
statement of operations over a 20-year period beginning in 1993.
STOCK SPLIT - The Company's Board of Directors declared a 6.52715097-to-1
stock split in August 1995 and the financial statements presented herein
reflect the split for all periods presented.
EARNINGS PER SHARE - The earnings per share calculation is based upon net
income less preferred dividends and the weighted average number of shares
of common stock outstanding and warrants and options when dilutive. The
calculation on a fully-diluted basis assumes conversion of the convertible
preferred stock at the beginning of the period.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1996, the Financial Accounting
Standards Board issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities which
established accounting and reporting standards for such transfers. The
Company will adopt SFAS No. 125 effective January 1, 1997 as required. The
impact on the Company's financial position and results of operations is
not expected to be material.
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.
RECLASSIFICATIONS - Certain reclassifications have been made to the prior
year financial statements to conform to the 1996 presentation.
B. ACQUISITION
On August 25, 1995, the Company acquired all of the outstanding stock of
Cal Emblem Labels, Inc. ("Cal Emblem") for $4.5 million, plus replacement
of Cal Emblem's bank debt, which was funded through borrowings of
approximately $5.9 million under the Company's existing revolving credit
facility and the issuance of five-year term promissory notes in the
aggregate principal amount of $2.2 million to the former owners. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the assets and liabilities and results of operations of Cal
Emblem are included in the Company's consolidated financial statements
subsequent to the acquisition date. The purchase price has been allocated
to the underlying assets and liabilities of Cal Emblem based on their
respective fair values at the date of acquisition. The excess cost over
the fair market value of net assets acquired of $4,122,000 is being
amortized over a 30-year period on a straight-line basis.
F-8
<PAGE>
The following unaudited pro forma financial information shows the results
of operations of the Company as though the acquisition occurred as of
January 1, 1994.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1995 1994
(UNAUDITED)
<S> <C> <C>
Net sales $ 256,030 $ 216,244
Income from continuing operations 4,174 2,026
Net income (loss) available for common stock 1,253 (1,389)
Earnings per common share before
extraordinary item:
Primary $ 0.60 $ 0.15
Fully diluted 0.60 0.12
</TABLE>
C. INITIAL PUBLIC OFFERING
In October 1995, the Company completed an initial public offering (the
"Offering") of 3,400,000 shares of common stock of the Company at an
offering price of $9.00 per share. The net proceeds of the offering were
used to redeem approximately $24,000,000 in aggregate principal amount of
Data Documents, Inc.'s 13 1/2% Senior Notes.
D. INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
<S> <C> <C>
Finished goods $ 28,739 $ 26,888
Work in process 1,264 1,287
Raw materials 7,032 6,860
Supplies and spare parts 944 1,013
----------- -----------
$ 37,979 $ 36,048
=========== ===========
</TABLE>
Substantially all inventories were valued using the LIFO method. If the
FIFO method of inventory accounting had been used, inventories at December
31, 1996 and 1995 would have been lower than reported by $3,500,000, and
$712,000, respectively. On a FIFO basis, operating income would have been
higher (lower) by $(2,788,000), $2,057,000, and $390,000, respectively,
for fiscal years 1996, 1995, 1994. The FIFO cost of inventories
approximates replacement cost.
F-9
<PAGE>
E. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
<S> <C> <C>
Land $ 5,336 $ 5,336
Buildings 18,835 18,517
Leasehold improvements 1,205 1,146
Machinery and equipment 57,790 57,531
Furniture and fixtures 1,608 1,572
----------- -----------
84,774 84,102
Less accumulated depreciation and amortization 47,446 46,600
----------- -----------
$ 37,328 $ 37,502
=========== ===========
</TABLE>
F. INCOME TAXES
The provision for income taxes on income from continuing operations
consists of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Current provision:
Federal $ 6,330 $ 3,792 $ 2,265
State 1,052 710 399
Deferred (296) (1,375) (1,131)
----------- ----------- -----------
$ 7,086 $ 3,127 $ 1,533
=========== =========== ===========
</TABLE>
The following represents a reconciliation between the actual income tax
expense and income taxes computed by applying the statutory Federal income
tax rate to income before income taxes from continuing operations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Statutory rate 35.0% 34.0% 34.0%
State income tax effect 3.8 4.0 5.0
Amortization of excess of purchase
price over net assets acquired 0.9 1.6 3.2
Other 0.8 1.5 3.3
Expense of change in estimate of
deferred income tax liabilities - 1.1 -
---- ---- ----
40.5% 42.2% 45.5%
==== ==== ====
</TABLE>
F-10
<PAGE>
Deferred income tax assets (liabilities) are comprised of the following
at:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
<S> <C> <C>
Deferred income tax assets:
Acquired net operating loss of Cal Emblem $ 506 $ 653
Non-deductible accrued liabilities 747 498
Non-deductible bad debt reserve 121 179
Other -- 167
--------- ---------
1,374 1,497
--------- ---------
Valuation allowance (506) (653)
--------- ---------
Deferred income tax liabilities:
Basis of property and equipment (2,534) (2,647)
Basis of inventory (1,108) (1,143)
Accrual for pension costs (129) (387)
Other (73) --
--------- ---------
(3,844) (4,177)
--------- ---------
Net deferred income tax liability ($ 2,976) ($ 3,333)
========= =========
</TABLE>
In connection with the Company's acquisition of Cal Emblem, the Company
acquired a net operating loss carryforward. At December 31, 1996, the loss
carryforward was $1,307,000 and expires through the year 2009. A valuation
allowance has been established for the deferred tax asset related to the
loss carryforward. If realized, the loss carryforward will result in a
decrease in goodwill.
G. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A cash management system is utilized under which deposits are made to
cover only those checks presented to the bank for payment. Checks not yet
presented to the bank for payment in the amounts of $3,946,000, and
$7,336,000 at December 31, 1996 and 1995, respectively, are included in
accounts payable and accrued liabilities.
F-11
<PAGE>
H. LONG-TERM OBLIGATIONS
Long-term obligations consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------- ----------
1996 1995
<S> <C> <C>
Senior Secured Notes, 13 1/2%, due 2002, less unamortized
discount of $1,128,000 and $1,343,000 $ 59,372 $ 59,657
Mortgage note, 10.5%, (due in monthly installments with balloon
payment in 2002) 2,414 2,469
Promissory notes, 10%, to former Cal Emblem stockholders
due in annual installments through August 2000 1,684 2,245
Obligation under termination agreement payable in monthly
installments through December 1, 2002, less unamortized
discount of $661,000 and $848,000 1,205 1,288
Note payable, 10.125%, Pierce County, Washington
(due in varying amounts through 1997) 170 570
Other 54 152
---------- ----------
64,899 66,381
Less current maturities of debt 934 1,169
---------- ----------
$ 63,965 $ 65,212
========== ==========
</TABLE>
In November 1994, the Company issued 85,000 units, each consisting of
$1,000 aggregate principal amount of 13 1/2% senior secured notes of Data
Documents, Inc. due 2002 (the "Senior Notes") and common stock purchase
warrants to purchase common stock of Data Documents Incorporated. Interest
is due semi-annually on January 15 and July 15. The Senior Notes are
guaranteed by the Company and its subsidiaries. On or after July 15, 1999,
the Senior Notes are redeemable, at the option of the Company, in whole or
in part at the redemption prices of 104.2% in 1999 decreasing to 100% in
2001. Upon the change of control, the Company is required to offer to
repurchase all outstanding Senior Notes at 101% of the principal amount
plus accrued interest to the date of redemption. The restrictions on
redemption do not limit the ability of the Company to purchase Senior
Notes on the open market.
In November 1995, the net proceeds of the Offering were used to redeem $24
million of the Company's Senior Notes at a redemption price of 111.4%.
In June 1996, the Company repurchased from the open market $500,000 of the
Senior Notes at a price of 110%.
The Senior Notes are collateralized by a first priority security interest
in substantially all assets other than accounts receivable. The Senior
Notes contain certain restrictive covenants which limit, subject to
certain exceptions; the incurrence of additional debt, the payment of
dividends on and redemption of stock of the Company, asset sales,
consolidations, mergers or transfers of all or substantially all of the
Company's assets, certain transactions with affiliates including
intercompany dividends, and liens, among other things.
F-12
<PAGE>
A surety agreement for the benefit of the holders of the Pierce County,
Washington debt obligation was allowed to expire in 1995 and payment of
$2,030,000 principal was made. The remaining principal of $170,000 will be
paid under scheduled maturities without the benefit of a surety agreement.
In November 1994, the Company terminated an agreement for management,
advisory and consulting services. The termination agreement is payable in
monthly installments of $21,667 (increasing each January 1 by 4%) to
December 1, 2002. The obligation has been recorded at its present value
using a 15% discount rate over the seven year term.
The Company has a revolving credit facility with a maximum credit line of
the lesser of $20,000,000 or 80% of eligible accounts receivables, which
are pledged as collateral. No amounts under this credit facility were
outstanding at December 31, 1996 or 1995. On February 5, 1997, the Company
replaced the previous revolving credit facility with a new revolving
facility which expires in July, 1999. Debt covenants under this revolving
credit facility require maintenance of minimum amounts of net worth.
Interest under the revolving facility is paid monthly at .75% above prime
and .25% per annum on the unused line available.
At December 31, 1996, a contingent liability to a financial institution
exists for outstanding letters of credit in the amount of $358,000.
FAIR VALUE - The fair value of the Company's long-term debt is based on
quoted market prices or on the current rates offered to the Company for
debt of similar maturities. At December 31, 1996, the carrying amount of
the Company's debt was $64,899,000 and the estimated fair value was
$73,590,000. At December 31, 1995, the carrying value was $66,381,000 and
estimated fair value was $71,871,000.
Aggregate maturities of long-term obligations in each of the next five
years are as follows:
<TABLE>
<S> <C>
1997 $ 934
1998 786
1999 808
2000 296
2001 352
</TABLE>
I. PREFERRED STOCK
On September 7, 1995, the Company amended its articles of incorporation to
authorize issuance of 5,000,000 shares of preferred stock having a par
value of $0.01 per share. None of the shares of the authorized preferred
stock have been issued. The Board of Directors, without further action by
the holders of common stock, may issue shares of preferred stock and may
fix or alter the voting rights, redemption provisions, dividend rights,
dividend rates, liquidation preferences, conversion rights and the
designation of and number of shares constituting any wholly-unissued
series of preferred stock.
F-13
<PAGE>
Prior to November 23, 1994, the two classes of preferred stock of the
Company were entitled to quarterly dividends at the rate of $10 per annum.
Dividends were cumulative, if not declared. In November 1994, all of the
outstanding preferred stock was repurchased at face value.
J. WARRANTS
In connection with the 1994 issuance of the Senior Notes, the Company
issued warrants to purchase its common stock (the "Warrants"). Each
Warrant, when exercised, entitles the holder thereof to receive the number
of shares of common stock as set forth on the Warrant at $.002 per share.
Prior to the completion of the Offering, the Warrants were exercisable at
any time on or after November 28, 1995 and unless exercised, automatically
expire on July 15, 2002. The Warrants entitle the holders to purchase in
the aggregate 960,344 shares of common stock, or approximately 10% of the
outstanding common stock on a fully-diluted basis. During 1996, 61,233
Warrants were exercised for 691,815 shares of common stock.
Also in 1994, upon the issuance of the Senior Notes, the Company canceled
all previously existing common stock purchase warrants outstanding at that
date and replaced them with additional Warrants to purchase in the
aggregate 320,111 shares of common stock or approximately 3% of the
outstanding common stock on a fully-diluted basis and which are
exchangeable under the same terms as described above. All these warrants
remain outstanding at December 31, 1996.
Under specified conditions the warrants were redeemable for cash or Senior
Notes. In 1995, the warrants became solely exchangeable for shares of
common stock, and the warrants were reclassified to additional paid in
capital.
K. CONTINGENCIES
The Company is subject to lawsuits and claims which arise out of the
normal course of its business. In the opinion of management, the
disposition of such claims will not have a material adverse effect on the
Company's financial position or results of operations.
L. LEASES
Sales offices, certain manufacturing facilities, certain transportation
and other equipment are leased under long-term noncancellable leases.
Substantially all of the leases are net leases which require payment of
property taxes, insurance and maintenance costs in addition to rental
payments.
At December 31, 1996, the future minimum lease payments under
noncancellable operating leases with rental terms of more than one year
amount to:
<TABLE>
<S> <C>
1997 $ 2,223
1998 1,790
1999 877
2000 380
2001 218
Later Years 812
-------
Total minimum obligation $ 6,300
=======
</TABLE>
F-14
<PAGE>
Rent expenses relating to all operating leases were $2,692,000,
$2,537,000, and $2,328,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
M. EMPLOYEE BENEFIT PLANS
Pension Plans -- The Company and its subsidiaries have defined benefit
retirement plans for eligible salaried and hourly employees. Benefits are
based on years of credited service and average compensation for each year
of service. For 1996, 1995 and 1994, the Company's funding policy is to
contribute the minimum amount deductible for federal income tax purposes.
Plan assets are invested in common trust funds administered by a corporate
trustee.
Net periodic pension cost of the defined benefit plans includes the
following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
<S> <C> <C> <C>
Service cost $ 690 $ 571 $ 632
Interest cost on projected benefit obligation 1,015 881 800
Return on plan assets (1,906) (1,911) 180
Net amortization and deferral 866 892 (1,206)
------- ------- -------
Net periodic pension cost $ 665 $ 433 $ 406
======= ======= =======
</TABLE>
The following table sets forth the plan's funded status and the amount
recognized in the Company's balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 12,592 $ 11,494
Nonvested benefit obligation 363 360
----------- -----------
Accumulated benefit obligation $ 12,955 $ 11,854
=========== ===========
Projected benefit obligation for services rendered to date $ 15,069 $ 13,690
Plan assets at fair value 14,170 11,734
----------- -----------
Plan assets less than projected benefit obligation (899) (1,956)
Unrecognized net loss 1,276 2,191
Unrecognized prior service cost (48) (74)
----------- -----------
Prepaid pension cost $ 329 $ 161
=========== ===========
</TABLE>
The projected benefit obligation is determined using a weighted average
discount rate of 7.5% for 1996 and 1995, and a 3.5% rate of increase in
future compensation levels for 1996 and 1995.
The Company and its subsidiaries are also participants in multi-employer
pension plans covering union employees. Costs associated with these plans
aggregate approximately $68,000, $66,000 and $62,000 for 1996, 1995 and
1994, respectively.
F-15
<PAGE>
SAVINGS PLAN - The Company has a Salary Deferral Savings Plan which
permits employees to make salary reduction contributions from 1% to 18%.
The Plan is a defined contribution pension plan which became effective
July 1, 1988. The administrative expenses related to the Plan are paid by
the Company.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - The Company accounts for
postretirement benefits in accordance with SFAS No. 106. The Company
accrues the estimated cost of retiree benefit payments during the years
the employee provides services. The Company has elected to recognize the
initial obligation of approximately $1,637,000 over a period of twenty
years.
Certain medical and dental benefits are provided to qualifying employees.
The following table sets forth the medical and dental plans' funded
status:
Accumulated postretirement benefits obligation:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
<S> <C> <C>
Retirees $ 605 $ 741
Fully eligible plan participants 1,011 983
----------- -----------
Accumulated postretirement benefit obligations in excess
of plan assets (1,616) (1,724)
Unrecognized transition obligation (included in other assets) 1,310 1,391
Unrecognized net gain (265) (81)
----------- -----------
Accrued postretirement benefit cost $ (571) $ (414)
=========== ===========
</TABLE>
Net postretirement benefit cost consisted of the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
<S> <C> <C> <C>
Service cost of benefits earned $ 127 $ 87 $ 115
Interest cost on accumulated postretirement benefit
obligation 129 131 116
Amortization of transition obligation 81 82 81
--------- --------- ---------
Net postretirement benefit cost $ 337 $ 300 $ 312
========= ========= =========
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of January 1, 1993 was 12% for 1993,
decreasing gradually to a 6% annual growth rate after 12 years and
remaining at a 6% annual rate thereafter. A one-percentage point increase
in the assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation by approximately $218,000 as of December
31, 1996 and would increase net postretirement health care cost by $10,000
for the year ended December 31, 1996. The assumed discount rate used in
determining the accumulated postretirement benefit obligation was 7.5% for
the years ended December 31, 1996 and 1995.
F-16
<PAGE>
N. STOCK COMPENSATION PLANS
The Company accounts for its stock-based compensation under the provisions
of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, which utilizes the intrinsic value method. Compensation cost
related to stock-based compensation was $0 and $156,000 for the years
ended December 31, 1996 and 1995, respectively.
The Board of Directors of the Company adopted the 1995 Employee Stock
Incentive Plan (the "Plan") pursuant to which the Board may award options
to purchase, in aggregate, 500,000 shares of common stock. Options vest
and become exercisable over a one to three year period after date of grant
and generally expire no later than ten years from the date of grant. The
exercise price per share is no less than the fair market value on the date
each option is granted.
In connection with the Company's acquisition of Cal Emblem in August,
1995, the Company granted options for 195,815 shares to a former
stockholder of Cal Emblem at the initial public offering price of $9.00.
During the second quarter of 1995, the Company recorded a noncash expense
of $156,000 relating to the sale of common shares to a director and an
employee. The amount represents the excess of the estimated fair value of
the common shares over consideration received. Such shares have been
considered outstanding for all periods presented in the computation of
earnings per share.
If compensation cost for the Company's stock-based compensation plan had
been determined based on the fair value at the grant dates for awards
under the plan consistent with the method of SFAS No. 123, Accounting for
Stock-Based Compensation, the Company's net income (loss) and earnings
(loss) per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
Net Income (loss) As reported $ 10,370 $ 1,354 $ (963)
Pro forma $ 10,190 $ 833 $ (963)
Primary earnings (loss) per share As reported $ 1.04 $ 0.21 $ (0.17)
Pro forma $ 1.02 $ 0.14 $ (0.17)
Fully Diluted earnings (loss) per share As reported $ 1.04 $ 0.21 $ (0.06)
Pro forma $ 1.02 $ 0.14 $ (0.06)
</TABLE>
The fair market value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995: dividend yield of
0.0 percent, expected volatility of 39.9 percent, risk-free interest rates of
6.3 percent and expected lives of 5 years for all the years presented.
F-17
<PAGE>
A summary of the status of the Company's stock option plans as of December
31, 1996 and 1995 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1995
--------------------------------- ---------------------------------
Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price
------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 324,615 $ 9.03 0 N/A
Granted 187,650 $ 10.44 324,615 $ 9.03
Exercised 0 N/A 0 N/A
Forfeited (5,000) $ 10.43 0 N/A
------- -------
Outstanding at end-of-year 507,265 $ 9.54 324,615 $ 9.03
======= =======
Options exerciseable at year-end 258,082 195,815
======= =======
Weighted-average fair value of options
granted during the year $ 4.68 $ 4.05
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exerciseable
-------------------------------------------------------------- ---------------------------------------
Range of Number Weighted-Average Number
Exercise Outstanding at Remaining Weighted-Average Exerciseable at Weighted-Average
Prices 12/31/96 Contractual Life Exercise Price 12/31/96 Exercise Price
------------------- -------- ---------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
$ 9.00 - $ 9.99 332,615 6.8 years $ 9.06 258,082 $ 9.01
$ 10.00 - $ 10.99 100,000 9.8 years $ 10.00 0 N/A
$ 11.00 - $ 11.99 74,650 9.7 years $ 11.07 0 N/A
------- -------
$ 9.00 - $ 11.99 507,265 7.8 years $ 9.54 258,082 $ 9.01
======= =======
</TABLE>
F-18
<PAGE>
O. RELATED PARTY TRANSACTIONS
In February 1988, the Company entered into an agreement for management,
advisory and consulting services through 1998 with Raebarn Corporation
whose principals are common stockholders and/or directors of the Company.
The agreement provided in the event that the Company, at any time during
the term of the agreement, engaged in certain transactions, Raebarn
Corporation had the right to act as the Company's financial advisors.
Payments to Raebarn totaled $250,000 in 1994. In November 1994, the
Company terminated its agreement with Raebarn in exchange for monthly
payments to Raebarn through December 2002 the present value of which has
been accrued (See Note H).
P. EXTRAORDINARY ITEMS
In June 1996, the Company incurred an extraordinary charge of $54,000, net
of income tax benefit of $34,000, for the write-off of unamortized
deferred financing costs, unamortized original issue discount, and certain
premium on reacquisition associated with the purchase and retirement of
$500,000 of Senior Notes.
In November 1995, the Company incurred an extraordinary charge of
$2,921,000 net of income tax benefit of $1,790,000, for the write-off of
unamortized deferred financing costs, unamortized original issue discount
and prepayment fees associated with the prepayment of $24,000,000 of
Senior Notes.
In November 1994, the Company incurred an extraordinary charge of
$2,795,000, net of income tax benefit of $1,787,000, for the write-off of
unamortized deferred financing costs, unamortized original issue discount
and certain termination fees and costs associated with the early
termination of debt.
Q. SUMMARIZED FINANCIAL INFORMATION
Following is the summarized financial information of Data Documents, Inc.
and subsidiaries:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
<S> <C> <C>
Current assets $81,487 $71,429
Noncurrent assets $52,490 $54,296
Current liabilities $28,042 $28,413
Noncurrent liabilities $68,259 $69,888
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Net sales $246,496 $242,238 $193,626
Gross profit $ 65,438 $ 56,227 $ 44,829
Net income (loss) $ 10,370 $ 1,354 $ (963)
</TABLE>
Following is the summarized combined financial information of PBF
Washington, Inc. and Cal Emblem Labels, Inc. (wholly-owned subsidiaries of
Data Documents, Inc.), guarantors of the Senior Notes. The information
presented for Cal Emblem Labels, Inc. is as of December 31, 1996 and 1995
and for the year ended December 31, 1996 and from August 25, 1995 (date of
acquisition) through December 31, 1995:
F-19
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
<S> <C> <C>
Current assets $ 6,849 $ 7,948
Noncurrent assets $ 8,813 $ 10,581
Current liabilities $ 7,474 $ 11,301
Noncurrent liabilities $ 883 $ 1,140
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Net sales $ 33,438 $ 23,455 $ 14,486
Gross profit $ 6,854 $ 4,204 $ 2,394
Net income $ 1,075 $ 608 $ 217
</TABLE>
F-20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Omaha, State of Nebraska, on the 21st day of March, 1997.
DATA DOCUMENTS INCORPORATED
(Registrant)
/s/ A. ROBERT THOMAS
-----------------------------------------
A. Robert Thomas, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WALTER J. KEARNS Chairman, President and March 21, 1997
- ----------------------------------- Chief Executive Officer
Walter J. Kearns (Principal Executive
Officer)
/s/ A. ROBERT THOMAS Senior Vice President Finance and March 21, 1997
- ----------------------------------- General Manager - Business Forms,
A. Robert Thomas Supplies and Services, Secretary,
Treasurer, Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ JOSEPH C. ADDISON Director March 21, 1997
- -----------------------------------
Joseph C. Addison
/s/ THOMAS E. BLUMENTHAL Director March 21, 1997
- -----------------------------------
Thomas W. Blumenthal
/s/ ROBERT W. CRUICKSHANK Director March 21, 1997
- -----------------------------------
Robert W. Cruickshank
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
Data Documents Incorporated
Omaha, Nebraska
We have audited the consolidated financial statements of Data Documents
Incorporated as of December 31, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996, and have issued our report thereon dated
February 6, 1997; such report is included elsewhere in this Form 10-K. Our
audits also included the consolidated financial statement schedules of Data
Documents Incorporated and subsidiaries listed in Item 14. These consolidated
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such consolidated financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 6, 1997
S-1
<PAGE>
DATA DOCUMENTS INCORPORATED Schedule I
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
ASSETS 1996 1995
<S> <C> <C>
INVESTMENT IN AND ADVANCES TO (FROM)
SUBSIDIARY (Note A) $ 37,676 $ 27,424
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
COMMITMENTS AND CONTINGENCIES (Note B)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued -- --
Common stock, $0.001 par value; 15,000,000 shares authorized;
9,295,224 and 8,873,016 shares issued; 9,564,831
and 8,603,409 shares outstanding 10 9
Additional paid-in capital 32,020 32,162
Retained earnings (deficit) 5,881 (4,489)
Stockholder notes receivable (235) (258)
Treasury stock, acquired at no cost, 269,607 shares -- --
----------- -----------
Total Stockholders' Equity 37,676 27,424
----------- -----------
$ 37,676 $ 27,424
=========== ===========
</TABLE>
See notes to financial statements.
S-2
<PAGE>
DATA DOCUMENTS INCORPORATED Schedule I
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
EQUITY IN EARNINGS (LOSS) OF SUBSIDIARY AND
NET INCOME (LOSS) $ 10,370 $ 1,354 $ (963)
CASH DIVIDENDS PAID TO PREFERRED STOCKHOLDERS -- -- (620)
ACCUMULATED DEFICIT - Beginning of year (4,489) (5,843) (4,260)
----------- ----------- -----------
RETAINED EARNINGS (DEFICIT) $ 5,881 $ (4,489) $ (5,843)
=========== =========== ===========
</TABLE>
See notes to financial statements.
S-3
<PAGE>
DATA DOCUMENTS INCORPORATED Schedule I
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 10,370 $ 1,354 $ (963)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Equity in (earnings) loss of subsidiary (10,370) (1,354) 963
----------- ----------- -----------
Net cash flows from operating activities -- -- --
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to preferred stockholders -- -- (620)
Preferred stock redemptions -- -- (6,829)
Advances from and payments on intercompany account
with subsidiary -- (27,970) 7,449
Proceeds from sale of stock -- 27,970 --
----------- ----------- -----------
Net cash flows from financing activities -- -- --
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH -- -- --
CASH, Beginning of year -- -- --
----------- ----------- -----------
CASH, End of year $ -- $ -- $ --
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Exchange of common stock purchase warrants with
exchangeable warrants $ 581
===========
Acquisition of treasury stock at no cost $ --
===========
Issuance of 32,636 and 407,947 shares of common stock
for stockholder notes receivable, respectively $ 55 $ 226
=========== ===========
</TABLE>
See notes to financial statements.
S-4
<PAGE>
SCHEDULE I
DATA DOCUMENTS INCORPORATED
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT IN AND ADVANCES TO (FROM) SUBSIDIARY - Data Documents
Incorporated (Incorporated) accounts for its investment in Data Documents,
Inc. (Company) under the equity method of accounting. Advances to (from)
the Company are included within the investment in subsidiaries. Certain
immaterial franchise taxes are paid by the Company for Incorporated and
are expensed in the operations of the Company.
B. COMMITMENTS AND CONTINGENCIES
Data Documents Incorporated has provided guarantees of the indebtedness of
its subsidiary Data Documents, Inc.
S-5
<PAGE>
Schedule II
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
DATA DOCUMENTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning of Costs and Charged to Net at End of
Year Expenses Other Accounts Charge-offs Year
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts $ 457,501 $ 123,968 $ -- $ (270,427) $ 311,042
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts $ 199,964 $ 165,759(a) $ 125,000 $ (33,222) $ 457,501
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts $ 155,781 $ 138,756 $ -- $ (33,222) $ 199,964
</TABLE>
(a) Balance of allowance for doubtful accounts of Cal Emblem Labels, Inc. on
the date of acquisition.
S-6
<PAGE>
APPENDIX VIII
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 0-26674
DATA DOCUMENTS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 47-0714942
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4205 SOUTH 96TH STREET, OMAHA, NEBRASKA
(Address of principal executive offices)
68127
(Zip Code)
(402) 339-0900
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
The number of shares outstanding of the Registrant's Common Stock, as of
March 31, 1997, was 9,615,668 shares (excluding 269,607 treasury shares).
1
<PAGE>
DATA DOCUMENTS INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
-----------------------------
- --------------------------------------------------------------------------------
Page Number
-----------
ITEM 1: FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS -
At March 31, 1997 and December 31, 1996 3
CONSOLIDATED STATEMENTS OF OPERATIONS -
For the Three Months Ended March 31, 1997 and 1996 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
For the Three Months Ended March 31, 1997 and 1996 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-10
PART II. OTHER INFORMATION
--------------------------
ITEM 2. CHANGES IN SECURITIES 11
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 11-12
SIGNATURES 13
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I. - FINANCIAL STATEMENTS
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------------------
1997 1996
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,467 $ 11,151
Accounts receivable, net of allowance of $ 415,000 and $311,000 32,396 31,459
Inventories (Note B) 38,747 37,979
Other current assets 916 898
--------- ---------
Total Current Assets 81,526 81,487
PROPERTY, PLANT AND EQUIPMENT 37,072 37,328
GOODWILL, net of accumulated amortization of $2,793,000 and $ 2,689,000 9,677 9,837
DEFERRED FINANCING COSTS AND OTHER ASSETS 5,245 5,325
--------- ---------
$ 133,520 $ 133,977
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 16,440 $ 18,566
Accrued compensation 2,811 3,453
Accrued interest payable 2,029 4,072
Current maturities of long-term obligations 938 934
Current and deferred income taxes 2,518 1,017
--------- ---------
Total Current Liabilities 24,736 28,042
POSTRETIREMENT BENEFITS 1,889 1,881
LONG-TERM OBLIGATIONS 63,959 63,965
DEFERRED INCOME TAXES 2,424 2,413
COMMITMENTS AND CONTINGENCIES (Note C)
COMMON STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued -- --
Common stock, $0.001 par value; 15,000,000 shares authorized; 9,885,275 and
9,564,831 shares issued; 9,615,668 and 9,295,224 shares outstanding 10 10
Additional paid-in capital 32,022 32,020
Retained Earnings 8,686 5,881
Stockholder notes receivable (206) (235)
Treasury stock, 269,607 shares acquired at no cost -- --
--------- ---------
Total Common Stockholders' Equity 40,512 37,676
--------- ---------
$ 133,520 $ 133,977
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(COLUMNAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET SALES $ 62,583 $ 65,040
COST OF GOODS SOLD 45,727 48,721
--------- ---------
Gross Profit 16,856 16,319
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 9,785 9,499
--------- ---------
Operating Income 7,071 6,820
DEBT EXPENSE, net, including amortization of $ 201,000 and $208,000 2,353 2,520
--------- ---------
INCOME BEFORE INCOME TAXES 4,718 4,300
INCOME TAX EXPENSE 1,913 1,745
--------- ---------
NET INCOME $ 2,805 $ 2,555
========= =========
EARNINGS PER COMMON SHARE:
Primary $ 0.28 $ 0.26
========= =========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary 9,957,992 9,904,265
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,805 $ 2,555
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation 968 1,262
Amortization of intangibles 398 350
Provision for deferred income taxes (72) (107)
(Gain)/loss on sale of property, plant and equipment 2 (37)
Changes in operating assets and liabilities:
Accounts receivable (937) (421)
Inventories (768) (140)
Other current assets (18) (325)
Accounts payable and accrued liabilities (2,072) 1,302
Accrued interest (2,043) (1,990)
Current taxes on income and other 1,640 1,680
Other assets (163) (27)
------- ------
Net cash flows from operating activities (260) 4,102
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (718) (653)
Proceeds from the sale of property, plant and equipment 4 81
------- ------
Net cash flows from investing activities (714) (572)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt (53) (57)
Change in liability for outstanding checks (688) (1,669)
Payment for stock registration costs - net -- (53)
Proceeds from sale of common stock 2 --
Principal receipts on stockholder notes receivable 29 --
------- ------
Net cash flows from financing activities (710) (1,779)
------- ------
NET INCREASE (DECREASE) IN CASH (1,684) 1,751
CASH AND CASH EQUIVALENTS, Beginning of period 11,151 2,024
------- ------
CASH AND CASH EQUIVALENTS, End of Period $ 9,467 $ 3,775
======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,344 $ 4,372
======= ======
Income taxes $ 348 $ 139
======= ======
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
A. MANAGEMENT STATEMENTS
The consolidated financial statements of DATA DOCUMENTS INCORPORATED
include the accounts of its wholly-owned subsidiaries Data Documents,
Inc. (DDI), PBF Washington, Inc. (PBF) and Cal Emblem Labels, Inc. (Cal
Emblem). The summarized financial information of DDI (see Note D)
include the accounts of its wholly-owned subsidiaries PBF and Cal
Emblem. All significant intercompany transactions and accounts have been
eliminated during consolidation.
The consolidated financial statements of the Company contained herein
should be read in conjunction with the financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
The consolidated financial statements are unaudited and reflect all
adjustments (consisting of normal and recurring adjustments) that are,
in the opinion of management, necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods.
Certain reclassifications have been made to the 1996 financial
statements to conform to those classifications used in 1997.
B. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ------------
1997 1996
(UNAUDITED)
<S> <C> <C>
Finished goods $29,571 $28,739
Work in process 1,108 1,264
Raw materials 7,082 7,032
Supplies and spare parts 986 944
------- -------
$38,747 $37,979
======= =======
</TABLE>
Substantially all inventories were valued using the LIFO method. If the
FIFO method of inventory accounting had been used, inventories would
have been lower than reported by $3,705,000 and $3,500,000 at March 31,
1997 and December 31, 1996, respectively. On a FIFO basis, operating
income would have been lower by $205,000 and $1,158,000, respectively,
for the three months ended March 31, 1997 and March 31, 1996. The FIFO
cost of inventories approximates replacement cost.
6
<PAGE>
C. COMMITMENTS AND CONTINGENCIES
The Company is subject to lawsuits and claims which arise out of the
normal course of its business. In the opinion of management, the
disposition of such claims will not have a material adverse effect on
the Company's financial position or results of operations.
D. SUMMARIZED FINANCIAL INFORMATION
Following is the summarized financial information of Data Documents,
Inc. and subsidiaries in (thousands):
<TABLE>
<CAPTION>
March 31, December 31,
---------------------------
1997 1996
(Unaudited)
<S> <C> <C>
Current assets $ 81,526 $ 81,487
Noncurrent assets $ 51,994 $ 52 490
Current liabilities $ 24,736 $ 28,042
Noncurrent liabilities $ 68,272 $ 68,259
<CAPTION>
Three Months Ended
---------------------------
March 31, March 31,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $ 62,583 $ 65,040
Gross Profit $ 16,856 $ 16,319
Net income $ 2,805 $ 2,555
</TABLE>
Following is the summarized financial information of PBF Washington,
Inc. and Cal Emblem Labels, Inc. (wholly owned subsidiaries of Data
Documents, Inc.), guarantors of the Senior Notes.
<TABLE>
<CAPTION>
March 31, December 31,
----------------------------
1997 1996
(Unaudited)
<S> <C> <C>
Current assets $ 6,370 $ 6,849
Noncurrent assets $ 8,621 $ 8,813
Current liabilities $ 6,627 $ 7,474
Noncurrent liabilities $ 722 $ 883
<CAPTION>
Three Months Ended
March 31, March 31,
----------------------------
1997 1996
(Unaudited) Unaudited)
<S> <C> <C>
Net sales $ 8,428 $ 8,642
Gross Profit $ 1,766 $ 1,760
Net income $ 337 $ 261
</TABLE>
7
<PAGE>
E. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities which established accounting and reporting standards for
such transfers. The Company has adopted SFAS No. 125 effective January
1, 1997 as required. The impact on the Company's financial position and
results of operations was not material.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings Per Share which specifies the computation,
presentation and disclosure requirements for earnings per share. The
objective of the statement is to simplify the computation of earnings
per share. The impact on the Company's earnings per share is not
materially different than earnings per share determined in accordance
with current guidance. SFAS No. 128 is applicable for fiscal years
ending after December 15, 1997.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND 1996:
- --------------------------------------------------------
NET SALES
Net sales were $62.6 million for the quarter ended March 31, 1997, a decrease of
3.7% from $65.0 million in 1996. Paper price decreases in 1997 over 1996 are
estimated to have negatively impacted total sales by approximately 6.1%, most of
which related to business forms and supplies. Net sales of business forms,
supplies and services decreased 10.4% with decreases of 2.9% in custom forms
sales and 29.1% in stock forms sales. These decreases were partially offset by
$1.6 million of increased sales from Odyssey Integrated Services(R) customers.
Pressure-sensitive label sales increased 7.5% and InteliMail(R) sales increased
5.2% in 1997 as compared to 1996.
GROSS PROFIT
Gross profit was $16.9 million for the quarter ended March 31, 1997, an increase
of 3.3% from $16.3 million in 1996. Gross profit in 1997 was favorably impacted
by approximately $0.3 million in reduced depreciation expense from
fully-depreciated assets. As a percentage of sales, gross profit was 26.9%
compared with 25.1% in 1996. Gross profit margins of business forms, supplies
and services increased 3.5% for the first quarter of 1997. Pressure-sensitive
labels gross profit margins decreased by 0.6% in the first quarter of 1997
primarily as a result of sales mix. InteliMail gross profit margins increased
1.0%, primarily as a result of operating levels from increased sales volume.
During the first quarter of 1997, LIFO income of $0.2 million was more than
offset by $0.3 million reduction of on-hand standard inventory values. During
the comparable quarter of 1996, LIFO income of $1.2 million was offset by a
reduction of on-hand standard inventory values of $1.5 million.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $9.8 million for the quarter
ended March 31, 1997, an increase of $0.3 million over 1996. This increase is
primarily the result of payroll related costs. These expenses as a percentage of
sales were 15.6% in 1997 compared to 14.6% in 1996.
DEBT EXPENSE
The decrease in debt expense of $0.2 million is due to the combination of lower
debt in 1997 and interest income from the Company's cash balance.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company relies primarily upon operating cash flow and borrowings under its
revolving credit facilities to finance capital expenditures, increases in
working capital and debt service. At March 31, 1997, working capital was $56.8
million, an increase of $3.4 million from the working capital balance as of
December 31, 1996. Operating activities used cash of approximately $0.3 million
during the quarter ended March 31, 1997. Cash generated by the increased
earnings during the quarter was primarily used to pay interest, accounts payable
and accrued liabilities. The Company had a net cash outflow of approximately
$0.7 million from its investing activities in the quarter ended March 31, 1997,
for capital expenditures. The Company estimates that its capital expenditures
for fiscal 1997 will be between $6.0 million and $7.0 million.
In connection with the 1995 acquisition of Cal Emblem, the Company issued two
five-year term promissory notes in the aggregate principal amount of $2.2
million which accrue interest at the rate of 10% per annum. Principal and
interest payments are due in approximately equal installments over five years.
The tax-exempt industrial revenue bonds in the principal amount of $170 thousand
bear an annual interest rate of 10.125% and are due on October 1, 1997. Monthly
sinking fund payments are required.
In January 1997, DDI entered into a new revolving facility (the "Revolving
Credit Facility") that provides for borrowing of up to $20 million. The
Revolving Credit Facility is secured by the Company's accounts receivable and
the proceeds thereof and, subject to the first lien of the holders of the Senior
Notes, by the Company's inventory and proceeds thereof. Outstanding indebtedness
under the Revolving Credit Facility is limited to 80% of eligible accounts
receivable (subject to reduction by the lender under certain circumstances). The
facility will expire in July 1999. Under the terms of the Indenture governing
the Senior Notes, the Company is permitted to incur additional revolving credit
indebtedness in an amount equal to 85% of its accounts receivable, and based
upon accounts receivable balances at March 31, 1997, the Company was permitted
to incur approximately $20 million of revolving credit indebtedness. As of March
31, 1997, there was no amount outstanding under the Company's Revolving Credit
Facility. The facility restricts certain liens, the payment of dividends on, and
redemption of, any class of the capital stock of DDI (all of which is currently
owned by Data Documents Incorporated), PBF or Cal Emblem and certain other
restricted payments, among other things.
The Company expects to satisfy its obligations under the Senior Notes, the
promissory notes issued in connection with the Cal Emblem acquisition and the
industrial revenue bonds, as well as future capital expenditures and working
capital requirements, with cash flow from operations, and believes that this
source will provide sufficient liquidity to enable it to meet its working
capital requirements for at least the next 12 months.
10
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 2. CHANGES IN SECURITIES
---------------------
(a) During the quarter ended March 31, 1997, 320,111 shares of
common stock were issued as a result of the exercise of 49,043
Warrants.
(b) During the quarter ended March 31, 1997, 333 shares of common
stock were issued as a result of the exercise of stock options.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 11 - Statement Regarding Computation of Per Share
Earnings
(b) Current Reports on Form 8-K
---------------------------
No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATA DOCUMENTS INCORPORATED
Date: May 13, 1997 By: /s/ A. ROBERT THOMAS
-------------------------------------
A. Robert Thomas,
Chief Financial Officer
Date: May 13, 1997 By: /s/ WALTER J. KEARNS
-------------------------------------
Walter J. Kearns,
President and Chief Executive Officer
13
<PAGE>
APPENDIX IX
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
Commission file number: 0-26674
DATA DOCUMENTS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 47-0714942
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4205 SOUTH 96TH STREET, OMAHA, NEBRASKA
(Address of principal executive offices)
68127
(Zip Code)
(402) 339-0900
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------ ------
The number of shares outstanding of the Registrant's Common Stock, as of
June 30, 1997 was 9,687,532 (excluding 269,607 treasury shares).
1
<PAGE>
DATA DOCUMENTS INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
-----------------------------
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
ITEM 1: FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS -
At June 30, 1997 and December 31, 1996 3
CONSOLIDATED STATEMENTS OF OPERATIONS -
For the Three and Six Months Ended June 30, 1997 and 1996 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
For the Six Months Ended June 30, 1997 and 1996 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 - 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 -11
PART II. OTHER INFORMATION
--------------------------
ITEM 3: CHANGES IN SECURITIES 12
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 12-13
SIGNATURES 14
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I. - FINANCIAL STATEMENTS
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
--------------------------
1997 1996
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,300 $ 11,151
Accounts receivable, net of allowance of $475,000 and $311,000 34,152 31,459
Inventories (Note B) 38,183 37,979
Other current assets 1,962 898
--------- ---------
Total Current Assets 87,597 81,487
PROPERTY, PLANT AND EQUIPMENT 37,623 37,328
GOODWILL, net of accumulated amortization of $2,897,000 and $2,689,000 9,531 9,837
DEFERRED FINANCING COSTS AND OTHER ASSETS 5,402 5,325
--------- ---------
$ 140,153 $ 133,977
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 19,824 $ 18,566
Accrued compensation 3,166 3,453
Accrued interest payable 4,134 4,072
Current maturities of long-term obligations 947 934
Current and deferred income taxes 415 1,017
--------- ---------
Total Current Liabilities 28,486 28,042
POST-RETIREMENT BENEFITS 1,897 1,881
LONG-TERM OBLIGATIONS, net of current maturities 63,952 63,965
DEFERRED INCOME TAXES 2,489 2,413
COMMITMENTS AND CONTINGENCIES (Note C)
COMMON STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued -- --
Common stock, $0.001 par value; 15,000,000 shares authorized; 9,957,139 and
9,564,831 shares issued; 9,687,532 and 9,295,224 shares outstanding, respectively 10 10
Additional paid-in capital 32,022 32,020
Retained earnings 11,503 5,881
Stockholder notes receivable (206) (235)
Treasury stock, 269,607 shares acquired at no cost -- --
--------- ---------
Total Common Stockholders' Equity 43,329 37,676
--------- ---------
$ 140,153 $ 133,977
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(COLUMNAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ---------------------------
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES $ 63,811 $ 59,638 $ 126,394 $ 124,678
COST OF GOODS SOLD 47,611 43,521 93,338 92,242
----------- ----------- ----------- -----------
Gross Profit 16,200 16,117 33,056 32,436
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 9,224 9,303 19,009 18,802
----------- ----------- ----------- -----------
Operating Income 6,976 6,814 14,047 13,634
DEBT EXPENSE, including amortization of
$198,000, $207,000, $399,000 and $415,000 2,254 2,440 4,607 4,960
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 4,722 4,374 9,440 8,674
INCOME TAX EXPENSE 1,905 1,775 3,818 3,520
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 2,817 2,599 5,622 5,154
EXTRAORDINARY ITEM, net of tax (Note D) - (54) - (54)
----------- ----------- ----------- -----------
NET INCOME $ 2,817 $ 2,545 $ 5,622 $ 5,100
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE:
Primary:
Income before extraordinary item $ 0.28 $ 0.26 $ 0.56 $ 0.52
Extraordinary item - (0.01) - (0.01)
----------- ----------- ----------- -----------
Net Income $ 0.28 $ 0.25 $ 0.56 $ 0.51
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary 9,951,967 9,960,398 9,954,979 9,932,331
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(COLUMNAR AMOUNTS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
----------------------
1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,622 $ 5,100
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 1,941 2,172
Amortization of intangibles 783 715
Extraordinary item -- 37
Provision for deferred income taxes 26 (265)
Gain on sale of property, plant and equipment (14) (58)
Changes in operating assets and liabilities:
Accounts receivable (2,693) 574
Inventories (204) 950
Other current assets (984) (59)
Accounts payable and accrued liabilities 606 (429)
Accrued interest 62 87
Current taxes on income and other (534) 639
Other assets (550) 276
-------- --------
Net cash flows from operating activities 4,061 9,739
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,247) (1,031)
Proceeds from the sale of property, plant and equipment 25 111
-------- --------
Net cash flows from investing activities (2,222) (920)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt (102) (621)
Change in liability for outstanding checks 381 (2,586)
Payments for stock registration costs -- (127)
Proceeds from exchange of stock options and warrants 2 --
Principal receipts on stockholder notes receivable 29 --
-------- --------
Net cash flows from financing activities 310 (3,334)
-------- --------
NET INCREASE IN CASH 2,149 5,485
CASH AND CASH EQUIVALENTS, Beginning of period 11,151 2,024
-------- --------
CASH AND CASH EQUIVALENTS, End of period $ 13,300 $ 7,509
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,452 $ 4,553
======== ========
Income taxes $ 4,330 $ 3,065
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
A. MANAGEMENT STATEMENTS
The consolidated financial statements of DATA DOCUMENTS INCORPORATED
include the accounts of its wholly-owned subsidiaries Data Documents,
Inc. (DDI), PBF Washington, Inc. (PBF) and Cal Emblem Labels, Inc. (Cal
Emblem). The summarized financial information of DDI (see Note E)
include the accounts of its wholly-owned subsidiaries PBF and Cal
Emblem. All significant intercompany transactions and accounts have been
eliminated during consolidation.
The consolidated financial statements of the Company contained herein
should be read in conjunction with the financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
The consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal and recurring adjustments) that
are, in the opinion of management, necessary for a fair presentation of
the financial position, results of operations and cash flows for the
interim periods. The results of operations and cash flows for the six
months ended June 30, 1997 are not necessarily indicative of the
results for the year ending December 31, 1997.
Certain reclassifications have been made to the 1996 financial
statements to conform to those classifications used in 1997.
B. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------------------
1997 1996
(UNAUDITED)
<S> <C> <C>
Finished goods $28,891 $28,739
Work in process 1,181 1,264
Raw materials 7,126 7,032
Supplies and spare parts 985 944
------- -------
$38,183 $37,979
======= =======
</TABLE>
Substantially all inventories were valued using the LIFO method. If the
FIFO method of inventory accounting had been used, inventories would
have been lower than reported by $3,786,000 and $3,500,000 at June 30,
1997 and December 31, 1996, respectively. On a FIFO basis, operating
income would have been higher (lower) by ($81,000) and $16,000,
respectively, for the three months ended June 30, 1997 and June 30,
1996, and ($286,000) and ($1,142,000) for the six months ended June 30,
1997 and June 30, 1996. The FIFO cost of inventories approximates
replacement cost.
C. COMMITMENTS AND CONTINGENCIES
The Company is subject to lawsuits and claims which arise out of the
normal course of its business. In the opinion of management, the
disposition of such claims will not have a material adverse effect on
the Company's financial position or results of operations.
6
<PAGE>
D. EXTRAORDINARY ITEM
In June 1996, the Company incurred an extraordinary charge of $54,000,
net of income tax benefit of $34,000, for the write-off of unamortized
deferred financing costs, unamortized original issue discount, and
certain premium on reacquisition associated with the repurchase of
$500,000 of Senior Notes.
E. SUMMARIZED FINANCIAL INFORMATION
Following is the summarized financial information of DDI and its
subsidiaries (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------------------------------
1997 1996
(UNAUDITED)
<S> <C> <C>
Current assets $87,597 $81,487
Noncurrent assets $52,556 $52,490
Current liabilities $28,486 $28,042
Noncurrent liabilities $68,338 $68,259
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 63,811 $ 59,638 $126,394 $124,678
Gross profit $ 16,200 $ 16,117 $ 33,056 $ 32,436
Net income $ 2,817 $ 2,545 $ 5,622 $ 5,100
</TABLE>
Following is the summarized financial information of PBF and Cal Emblem
(wholly-owned subsidiaries of DDI), which are guarantors of the Senior
Notes.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-----------------------------------
1997 1996
(UNAUDITED)
<S> <C> <C>
Current assets $7,155 $6,849
Noncurrent assets $8,889 $8,813
Current liabilities $7,461 $7,474
Noncurrent liabilities $ 675 $ 883
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 8,317 $ 8,038 $16,745 $16,680
Gross profit $ 1,607 $ 1,488 $ 3,373 $ 3,248
Net income $ 266 $ 126 $ 603 $ 387
</TABLE>
7
<PAGE>
F. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, which established accounting and reporting standards for
such transfers. The Company has adopted SFAS No. 125 effective January
1, 1997 as required. The impact on the Company's financial position and
results of operations was not material.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings Per Share, which specifies the computation,
presentation and disclosure requirements for earnings per share. SFAS
No. 128 is applicable for fiscal years ending after December 15, 1997.
The objective of the statement is to simplify the computation of
earnings per share and replaces primary and fully diluted earnings per
share, as disclosed under certain pronouncements, with basic and diluted
earnings per share. Pro forma basis earnings per share for the three
months and six months ended June 30, 1997 and 1996 are $0.29, $0.26,
$0.57 and $0.51, respectively. Pro forma diluted earnings per share for
the three months and six months ended June 30, 1997 and 1996 are $0.28,
$0.25, $0.56 and $0.51, respectively.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, Disclosures About Segments of an Enterprise and Related
Information, which established presentation of financial data based on
the "management approach". SFAS No. 131 is applicable for fiscal years
beginning after December 15, 1997. The Company is currently in the
process of reviewing this new presentation requirement.
G. SUBSEQUENT EVENT
In July 1997, the Company acquired Moore Labels, Inc. (Moore Labels) of
Wichita, Kansas, a privately held supplier of pressure-sensitive labels
used in the pharmaceutical, food, plastics and miscellaneous
manufacturing industries. This acquisition was not material to the
Company.
8
<PAGE>
ITEM 2.
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 AND 1996:
- -------------------------------------------------------
NET SALES
Net sales were $63.8 million for the quarter ended June 30, 1997, an increase of
7.0% from $59.6 million in 1996. Paper price decreases in 1997 over 1996 are
estimated to have negatively impacted total sales by approximately 2.7%, most of
which related to business forms and supplies. Net sales of business forms,
supplies and services decreased 0.5% with an increase of 8.3% in custom forms
sales and a decrease of 22.9% in stock forms sales. Pressure-sensitive label
sales increased 13.8% and InteliMail(R) sales increased 37.1% due to the
addition of new customers.
GROSS PROFIT
Gross profit was $16.2 million for the quarter ended June 30, 1997, an increase
of $0.1 million, or 0.5% from $16.1 million in 1996. As a percentage of sales,
gross profit was 25.4% compared with 27.0% in 1996. Gross profit margin dollars
of business forms, supplies and services decreased 8.4% for the second quarter
of 1997 as a result of competitive pressures and lower margins on products
purchased from third party vendors. Pressure-sensitive label gross profit margin
dollars increased 13.0% in the second quarter of 1997 primarily as a result of
higher sales. InteliMail gross profit margin dollars increased 29.1%, primarily
as a result of operating levels from increased sales volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $9.2 million for the quarter
ended June 30, 1997, a decrease of $0.1 million over 1996. The decrease in
expenses resulted from cost reduction efforts. These expenses decreased as a
percentage of sales to 14.4% from 15.6% in 1996, as a result of the increased
sales on slightly lower operating expenses.
DEBT EXPENSE
The decrease in debt expense of $0.2 million is due to the combination of lower
debt in 1997 and interest income generated from the Company's cash balance.
EXTRAORDINARY EXPENSE
In June 1996, the Company repurchased $500,000 of the Senior Notes at a price of
$110. The premium along with the related unamortized debt issuance cost and
issuance discount resulted in a charge of $54,000, net of income tax benefit of
$34,000.
9
<PAGE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996:
- -----------------------------------------------------
NET SALES
Net sales were $126.4 million for the six months ended June 30, 1997, an
increase of 1.4% from $124.7 million in 1996. Paper price decreases in 1997 over
1996 are estimated to have negatively impacted total sales by approximately
4.4%, most of which related to business forms and supplies. Net sales of
business forms, supplies and services decreased 5.8% with an increase of 2.4% in
custom forms sales and a decrease of 26.2% in stock forms sales.
Pressure-sensitive label sales increased 10.6% and InteliMail sales increased
20.0% due to the addition of new customers and growth from existing customers.
GROSS PROFIT
Gross profit was $33.0 million for the six months ended June 30, 1997, an
increase of $0.6 million, or 1.9% from $32.4 million in 1996. As a percentage of
sales, gross profit was 26.2% compared with 26.0% in 1996. Gross profit margin
dollars of business forms, supplies and services decreased 2.9% for the first
six months of 1997 as a result of competitive pressures and lower margins on
products purchased from third party vendors. Pressure-sensitive label gross
profit margin dollars increased 8.0% in the first six months of 1997 on more
sales volume. InteliMail gross profit margin dollars increased 17.7%, primarily
as a result of operating levels from increased sales volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $19.0 million for the six
months ended June 30, 1997, an increase of $0.2 million over 1996. These
expenses as a percentage of sales were 15.0% from 15.1% in 1996, as a result of
increased sales on slightly higher operating expenses.
DEBT EXPENSE
The decrease in debt expense of $0.4 million is due to the combination of lower
debt in 1997 and interest income generated from the Company's cash balance.
EXTRAORDINARY EXPENSE
In June 1996, the Company repurchased $500,000 of the Senior Notes at a price of
$110. The premium along with the related unamortized debt issuance cost and
issuance discount resulted in a charge of $54,000, net of income tax benefit of
$34,000.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company relies primarily upon operating cash flow and borrowings under its
revolving credit facilities to finance capital expenditures, increases in
working capital and debt service. At June 30, 1997, working capital was $59.1
million, an increase of $5.7 million from the working capital balance as of
December 31, 1996. Operating activities generated cash of approximately $4.1
million during the six months ended June 30, 1997. Cash provided by operations
during the first six months of 1997 was the result of increased earnings. The
Company had a net cash outflow of approximately $2.2 million from its investing
activities during the six months ended June 30, 1997, for capital expenditures.
The Company estimates that its capital expenditures for fiscal 1997 will be
between $6.0 million and $7.0 million.
In connection with the 1995 acquisition of Cal Emblem, the Company issued two
five-year term promissory notes in the aggregate principal amount of $2.2
million which accrue interest at the rate of 10% per annum. Principal and
interest payments are due in approximately equal installments over five years.
The tax-exempt industrial revenue bonds in the principal amount of $170 thousand
bear an annual interest rate of 10.125% and are due on October 1, 1997. Monthly
sinking fund payments are required.
In January 1997, DDI entered into a new revolving facility (the "Revolving
Credit Facility") that provides for borrowing of up to $20 million. The
Revolving Credit Facility is secured by the Company's accounts receivable and
the proceeds thereof and, subject to the first lien of the holders of the Senior
Notes, by the Company's inventory and proceeds thereof. Outstanding indebtedness
under the Revolving Credit Facility is limited to 80% of eligible accounts
receivable (subject to reduction by the lender under certain circumstances). The
facility will expire in July 1999. Under the terms of the Indenture governing
the Senior Notes, the Company is permitted to incur additional revolving credit
indebtedness in an amount equal to 85% of its accounts receivable, and based
upon accounts receivable balances at June 30, 1997, the Company was permitted to
incur approximately $20 million of revolving credit indebtedness. As of June 30,
1997, there was no amount outstanding under the Company's Revolving Credit
Facility. The facility restricts certain liens, the payment of dividends on, and
redemption of, any class of the capital stock of DDI (all of which is currently
owned by Data Documents Incorporated), PBF or Cal Emblem and certain other
restricted payments, among other things.
In connection with the acquisition of Moore Labels, the aggregate consideration
for the transfer of the capital stock of Moore Labels was approximately $13.6
million. The consideration paid was a combination of: (a) $11.6 million on the
Closing Date, and (b) $2.0 million in cash deposited in an escrow account to be
paid to the Shareholders over three years. The cash portion of the purchase was
supplied by excess cash and the use of approximately $5.0 million of the
Revolving Credit Facility.
The Company expects to satisfy its obligations under the Senior Notes, the
promissory notes issued in connection with the Cal Emblem acquisition and the
industrial revenue bonds, as well as future capital expenditures and working
capital requirements, with cash flow from operations, and believes that this
source will provide sufficient liquidity to enable it to meet its working
capital requirements for at least the next 12 months.
11
<PAGE>
PART II. OTHER INFORMATION
- --------------------------
Item 2. CHANGES IN SECURITIES
---------------------
(a) During the quarter ended June 30, 1997, 71,031 shares of common
stock were issued as a result of the exercise of 6,287 Warrants.
(b) During the quarter ended June 30, 1997, 833 shares of common
stock were issued as a result of the exercise of stock options.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On May 8, 1997 at the Annual Meeting of Stockholders, all nominees were
re-elected to the Board of Directors as follows:
<TABLE>
<CAPTION>
Total Votes For Total Vote Against
Each Director Each Director
------------- -------------
<S> <C> <C>
Walter J. Kearns 7,517,594 5,140
Joseph C. Addison 7,517,594 5,140
Thomas W. Blumenthal 7,517,594 5,140
Robert W. Cruickshank 7,517,594 5,140
</TABLE>
The second item of business conducted at the meeting was, as described in the
Proxy Statement dated April 7, 1997, the ratification of the selection of
Deloitte & Touche LLP as the independent public accountants of the Company
during 1997. The ratification was approved based on the votes set forth below:
<TABLE>
<CAPTION>
Number of Votes For Number of Votes Against Number of Votes Abstained
------------------- ----------------------- -------------------------
<S> <C> <C>
7,508,856 2,873 11,005
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 11 - Statement Regarding Computation of Per Share
Earnings
(b) Current Reports on Form 8-K
---------------------------
No reports on Form 8-K were filed during the quarter ended June
30, 1997.
12
<PAGE>
DATA DOCUMENTS INCORPORATED
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATA DOCUMENTS INCORPORATED
/s/ A. Robert Thomas
-----------------------------------
A. Robert Thomas
Chief Financial Officer
/s/ Walter J. Kearns
-----------------------------------
Walter J. Kearns
President and Chief Executive Officer
<PAGE>
APPENDIX X
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 31, 1997
--------------------------------
Data Documents Incorporated
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 33-82700 47-0714942
- --------------------------------------------------------------------------------
(State or other (Commission file (IRS employer identification no.)
jurisdiction of number)
incorporation)
4205 South 96th Street, Omaha, Nebraska 68127
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (402) 339-0900
-----------------------------
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Data Documents, Inc. ("DDI"), a Nebraska corporation and a wholly owned
subsidiary of Data Documents Incorporated (the "Company"), previously entered
into (i) a Stock Purchase Agreement dated as of July 11, 1997 (the "Stock
Purchase Agreement") by and among DDI, Christopher C. Moore ("Chris Moore"),
Melody J. Moore ("Melody Moore"), The Chris and Melody Moore Charitable
Remainder Unitrust (the "Trust" and, collectively, with Chris Moore and Melody
Moore, the "Shareholders") and Moore Labels, Inc., a Kansas corporation ("Moore
Labels"); and (ii) a LLC Interest Purchase Agreement dated July 11, 1997 (the
"LLC Interest Purchase Agreement") by and among DDI, Moore Labels, Chris Moore,
Melody Moore and Norman A. Moeder ("Norman Moeder" and, collectively, with Chris
Moore and Melody Moore, the "Interestholders"). Pursuant to the Stock Purchase
Agreement, DDI agreed to acquire all of the issued and outstanding capital stock
of Moore Labels from the Shareholders. Pursuant to the LLC Interest Purchase
Agreement, DDI agreed to acquire one percent (1%) and Moore Labels agreed to
acquire ninety-nine percent (99%) of the interests of Labelit Land Company, LLC,
a Kansas limited liability company (the "LLC"), from the Interestholders. On
July 31, 1997, each of the acquisitions was consummated. The description of the
Stock Purchase Agreement and the LLC Interest Purchase Agreement set forth
herein is qualified in its entirety by reference to the full text of the Stock
Purchase Agreement and LLC Interest Agreement, respectively, which are attached
hereto as Exhibits 2.1 and 2.2, respectively.
The aggregate consideration for the transfer of the capital stock of
Moore Labels and the interests of the LLC was approximately $13.6 million. The
consideration paid was a combination of: (a) $11.6 million in cash on the
Closing Date, and (b) $2.0 million in cash deposited in an escrow account to be
paid to the Shareholders over three years. The cash portion of the purchase was
supplied by excess cash and the use of approximately $5.0 million under DDI's
existing revolving credit facility with First Bank National Association.
In connection with the Stock Purchase Agreement and the LLC Interest
Purchase Agreement, Moore Labels entered into three-year employment and
non-competition agreements with each of Chris Moore, Melody Moore and Norman
Moeder.
Moore Labels produces pressure-sensitive labels primarily for the
pharmaceutical, food, plastics and miscellaneous manufacturing industries and
operates a manufacturing facility (the "Manufacturing Facility") located in
Wichita, Kansas, which it leases from the LLC.
The LLC's sole purpose is that of a holding company for the land (the
"Land") on which the Manufacturing Facility is located. The construction of the
Manufacturing Facility was financed through the issuance of Industrial Revenue
Bonds (the "Bonds") by Sedgwick County, Kansas ("Sedgwick County") in December,
1994. Moore Labels and the LLC have guaranteed the repayment of the Bonds. The
LLC leases the Manufacturing Facility from Sedgwick County, with the rental
payments going towards the repayment of the Bonds. The LLC has an option to
purchase the Manufacturing Facility upon the repayment of all of the Bonds for a
nominal purchase price.
Upon the consummation of the transaction, Moore Labels became a
wholly-owned subsidiary of DDI and the LLC became 99% owned by Moore Labels and
1% owned by DDI. The Company and DDI presently intend to conduct the business of
Moore Labels in a manner substantially unchanged from the conduct of such
business prior to its acquisition by DDI, except that it is proposed that the
LLC will be merged into Moore Labels with Moore Labels being the survivor. The
consolidation of the LLC and Moore Labels is subject to the consent of Union
National Bank of Wichita, the trustee with respect to the Bonds.
Prior to the transactions discussed herein, there were no material
relationships between the Shareholders or the Interestholders and DDI or the
Company, or any of their respective affiliates, any director or officer of DDI
or the Company, or any associate of any such director or officer. In addition,
prior to the transactions discussed herein, there were no material relationships
between Moore Labels or the LLC and DDI or the Company, or any of their
respective affiliates, any director or officer of DDI or the Company, or any
associate of any such director or officer.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired:
Not required.
(b) Pro Forma Financial Information:
Not required.
(c) Exhibits:
2.1 Stock Purchase Agreement dated as of July 11, 1997 by and
among Data Documents, Inc., Christopher C. Moore, Melody
J. Moore, The Chris and Melody Moore Charitable Remainder
Unitrust and Moore Labels, Inc.
2.2 LLC Interest Purchase Agreement dated July 11, 1997 by and
among Data Documents, Inc., Moore Labels, Inc.,
Christopher C. Moore, Melody J. Moore and Norman A.
Moeder.
99.1 Press Release dated July 14, 1997 issued by the Company
regarding the transactions.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DATA DOCUMENTS INCORPORATED
Date: August 14, 1997 By: /s/ A. Robert Thomas
-------------------------------
A. Robert Thomas,
Chief Financial Officer
4
<PAGE>
APPENDIX XI
DATA DOCUMENTS INCORPORATED
4205 SOUTH 96TH STREET
OMAHA, NEBRASKA 68127
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 8, 1997
---------------
To The Stockholders of
Data Documents Incorporated:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Data
Documents Incorporated, a Delaware corporation (the "Company"), will be held at
the Company's principal offices, on Thursday, May 8, 1997, at 10:00 a.m., local
time, for the purposes of considering and acting upon the following:
1. The election of four directors, to hold office until the 1998
Annual Meeting of Stockholders and thereafter until their
successors are elected and qualified.
2. The ratification of the selection of Deloitte & Touche LLP as
the independent public accountants of the Company during 1997.
3. The transaction of such other business as may properly come
before the meeting or any adjournment thereof.
Only stockholders of record at the close of business on April 3, 1997
will be entitled to notice of and to vote at the meeting and any adjournments
thereof.
By Order of the Board of Directors,
A. ROBERT THOMAS
Secretary
Dated: April 7, 1997
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
DATA DOCUMENTS INCORPORATED
4205 SOUTH 96TH STREET
OMAHA, NEBRASKA 68127
April 7, 1997
---------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 8, 1997
---------------
SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Data Documents Incorporated, a Delaware
corporation (or the "Company"), for use at the Annual Meeting of Stockholders
of the Company (the "Meeting") to be held at the Company's principal offices,
4205 South 96th Street, Omaha, Nebraska on May 8, 1997 at 10:00 a.m., Central
Time, and all adjournments and postponements thereof. This Proxy Statement and
the accompanying form of proxy were first mailed to stockholders on or about
April 7, 1997.
The cost of preparing, assembling and mailing the Notice of Annual
Meeting of Stockholders, Proxy Statement and form of proxy and the solicitation
of proxies will be paid by the Company. Proxies may be solicited by directors,
officers and other regular employees of the Company, none of whom will receive
any additional compensation for such solicitation. Proxies may be solicited in
person or by telephone. The Company will pay brokers or other persons holding
stock in their names or the names of their nominees for the expenses of
forwarding soliciting material to their principals.
VOTING
The close of business on April 3, 1997 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the Meeting. On that date, there were outstanding 9,615,668 shares of the
Company's Common Stock, $.001 par value ("Common Stock"). A majority of the
shares entitled to vote, present in person or represented by proxy, will
constitute a quorum at the Meeting. Each share of Common Stock is entitled to
one vote on any matter that may be presented for consideration and action by
the stockholders at the meeting. In all matters other than the election of
directors, the affirmative vote of the majority of shares of Common Stock
present in person or represented by proxy at the meeting and entitled to vote
on the subject matter will be the act of stockholders. Directors will be
elected by a plurality of the votes of the shares of Common Stock present in
person or represented by proxy and entitled to vote on the election of
directors. Abstentions will be treated as the equivalent of a negative vote
for the purpose of determining whether a proposal has been adopted and will
have no effect for the purpose of determining whether a director has been
elected. If a broker indicates
<PAGE>
on the proxy that such broker does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will be treated as
present for purposes of determining the existence of a quorum but will not be
considered as present and entitled to vote with respect to that matter.
Proxies will be voted in accordance with the instructions thereon. In
the absence of such instructions, proxies will be voted for management's
nominees for election as directors. As of the date hereof, the Board of
Directors of the Company was not aware of any matters which would be presented
for action at the Meeting other than those specifically identified in the
Notice of Meeting accompanying this Proxy Statement. However, should any other
matters come before the meeting, proxies will be voted in the discretion of the
persons named as proxies thereon as to any other business that may properly
come before the Meeting or any adjournment thereof.
Any stockholder has the power to revoke his or her proxy at any time
before it is voted at the Meeting by submitting written notice of revocation to
the Secretary of the Company, or by filing a duly executed proxy bearing a
later date. A proxy will not be voted if the stockholder who executed it is
present at the Meeting and elects to vote the shares represented thereby in
person.
ELECTION OF DIRECTORS
The directors of the Company are elected annually. The authorized
number of directors was reduced from five to four directors upon the retirement
during 1996 of Mark R. Allison from the Board of Directors. However, the Board
of Directors intends to increase the authorized number of directors to appoint
an independent director sometime in the future. The term of office of all
present directors expires on the date of the Meeting, at which the four
directors are to be elected to serve for the ensuing year and until their
successors are elected and qualified. The nominees of management for election
as directors (all of whom are presently directors) are set forth below along
with certain information regarding these nominees. Should any nominees become
unavailable to serve as a director or should any vacancy occur before the
election (which events are not anticipated), the proxies may be voted for a
substitute nominee selected by the Board of Directors or the authorized number
of directors may be reduced. If for any reason the authorized number of
directors is reduced, the proxies will be voted, in the absence of instructions
to the contrary, for the election of the remaining nominees named in this Proxy
Statement. To the best of the Company's knowledge, all nominees are and will
be available to serve.
2
<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
---- --------------------
<S> <C>
Walter J. Kearns Chairman of the Board, President and
Chief Executive Officer of the Company
Joseph C. Addison Retired Vice President, Finance, Chief Financial
Officer, Secretary and Treasurer of the Company
Thomas W. Blumenthal Vice President of The Baupost Group, Inc., a
private investment firm
Robert W. Cruickshank President of R. W. Cruickshank & Company, an
investment firm providing consulting services
</TABLE>
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
YEARS OF
COMPANY
NAME AGE SERVICE POSITION
---------------------------- --- -------- ------------------------------------------
<S> <C> <C> <C>
Walter J. Kearns . . . . . 59 13 Chairman of the Board, President and Chief
Executive Officer
A. Robert Thomas . . . . . 53 -- Chief Financial Officer, General Manager,
Business Forms, Supplies and Services,
Secretary and Treasurer
Morris W. Caudle . . . . . 54 10 Vice President, General Sales Manager
Jeffrey R. Holton . . . . . 46 4 Vice President, General Manager,
InteliMail(R)
Allyn D. Plejdrup . . . . . 61 21 Vice President, General Manager, Label Group
William R. Rinehart . . . . 60 20 Vice President, Manufacturing
Joseph C. Addison . . . . . 64 23 Director
Thomas W. Blumenthal . . . 38 -- Director
Robert W. Cruickshank . . . 51 -- Director
</TABLE>
Walter J. Kearns has served as President and Chief Executive Officer
of the Company's principal subsidiary, Data Documents, Inc., a Nebraska
corporation ("DDI"), since 1984 and he assumed such offices for the Company in
1988 upon the formation of the Company and the acquisition of DDI from Pitney
Bowes, Inc. (the "1988 Management Acquisition"). Previously, he was employed
by Burroughs Corporation for over 20 years, last serving as Vice President and
General Manager, Business Forms Division. Mr. Kearns has been a director of
DDI and the Company since the 1988 Management Acquisition.
3
<PAGE>
A. Robert Thomas joined DDI in November 1996 as Senior Vice President,
Finance and General Manager, Business Forms, Supplies and Services. In March
1997, Mr. Thomas also assumed the positions of Chief Financial Officer,
Secretary and Treasurer. Prior to joining DDI, Mr. Thomas served as the Chief
Operating Officer of Oriental Trading Company, Inc. from 1989 to 1996. Prior
to 1989, Mr. Thomas was with Arthur Andersen & Co. for more than 20 years.
Morris W. Caudle joined DDI in January 1987 as Vice President, Sales
(Eastern Region). He assumed such office for the Company upon the 1988
Management Acquisition. In October 1989, Mr. Caudle became Vice President,
General Sales Manager.
Jeffrey R. Holton is Vice President and General Manager,
InteliMail(R). Mr. Holton joined the Company in August 1993 after a 21-year
career in the direct mail industry with the Communicolor Division of The
Standard Register Company in Ohio.
Allyn D. Plejdrup joined DDI in 1976 as Director of Marketing of the
Label division and was promoted in that year to Division Manager. He assumed
that position for the Company upon the 1988 Management Acquisition. In
February 1988, Mr. Plejdrup became Vice President, General Manager, Data Label.
In September 1995 and in connection with the acquisition of Cal Emblem Labels,
Inc., Mr. Plejdrup became Vice President, General Manager, Label Group.
William R. Rinehart joined DDI in 1977 as Plant Manager of the Dallas
Plant. He has served as Plant Manager, Dallas Forms; Division Manager, Dallas;
and since 1986, Vice President, Manufacturing for DDI. He assumed that
position for the Company upon the 1988 Management Acquisition.
Joseph C. Addison joined DDI in 1974 and served as Vice President,
Finance, Chief Financial Officer, Secretary and Treasurer and as a Director
upon the 1988 Management Acquisition until his retirement in February 1997.
Prior to holding such positions, Mr. Addison served successively as Director,
Management Information and Treasurer.
Thomas W. Blumenthal became a director of DDI and the Company upon the
1988 Management Acquisition. Mr. Blumenthal is currently a Vice President of
The Baupost Group, Inc. From 1984 until 1993, Mr. Blumenthal was associated
with Dean Witter Reynolds Inc. in various capacities where he became a Managing
Director in 1989. Mr. Blumenthal is also a director of Richey Electronics,
Inc.
Robert W. Cruickshank has been a director of the Company since 1992
and DDI since December 1994. Mr. Cruickshank operates an investment firm
providing consulting services ranging from investment policy to supervision of
private companies. Mr. Cruickshank is a director of Calgon Carbon Inc.,
Friedman's Inc. and New Canaan Bank and Trust.
4
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Company maintains an Audit Committee, a Compensation Committee and
a Stock Option Committee.
The Audit Committee held two meetings in 1996. The Audit Committee is
comprised of Messrs. Blumenthal and Cruickshank. The Audit Committee is charged
with establishing the scope of the Company's audit procedures, negotiating with
and retaining the Company's independent auditors, reviewing and presenting to
the board for approval the audit reports rendered to the Audit Committee and
initiating any other such audit procedures which it may deem necessary or
advisable with respect to the financial control of the Company's operations.
The Compensation Committee held two meetings in 1996. The Compensation
Committee is comprised of Messrs. Blumenthal and Cruickshank. The Compensation
Committee establishes the general compensation policies of the Company and
establishes the specific compensation programs utilized by the Company with
respect to the executive officers of the Company.
The Stock Option Committee is comprised of Messrs. Blumenthal and
Cruickshank. The Stock Option Committee held three meetings in 1996. The Stock
Option Committee has oversight responsibility for administering the Company's
1995 Employee Stock Incentive Plan.
In 1996, the Board of Directors held four meetings. Each director
attended at least 75 percent of the meetings of the Board of Directors and the
committees of the Board on which he served in 1996.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and persons who own more than 10% of any equity
security of the Company to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and to furnish copies of these
reports to the Company. Based solely on a review of the copies of the forms
that the Company received, the Company believes that Forms 4 were not timely
filed by (i) Messrs. Blumenthal and Cruickshank and Mark R. Allison, a former
director, to report options granted in May 1996; (ii) Mr. Caudle to report
three donative transfers that occurred in December 1995 and one sale that
occurred in August 1996; (iii) Mr. Holton to report options granted in October
1996; (iv) Mr. Kearns to report shares purchased by his wife in October 1995;
and (v) Mr. Rinehart to report two donative transfers and three sales by each
of Mr. Rinehart and his wife. These transactions were subsequently reported on
Forms 4 or 5, thereby correcting the oversight.
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, for the three most recent fiscal
years, the cash compensation for services in all capacities to the Company of
those persons who were, as of December 31, 1996, the Company's Chief Executive
Officer, and the four other most highly compensated executive officers of the
Company whose total annual salary and bonus exceeded $100,000 during the last
fiscal year (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSA-
ANNUAL COMPENSATION TION
----------------------------------- ----------
ALL OTHER SECURITIES
COMPENSA- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) TION(2) OPTIONS
- ----------------------------------------------- ---- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Walter J. Kearns . . . . . . . . . . . . . 1996 $245,100 $229,400 1,350 --
Chairman, President and Chief 1995 234,500 320,500 1,350 12,000
Executive Officer 1994 227,700 200,400 1,350 --
William R. Rinehart . . . . . . . . . . . . 1996 137,900 52,300 1,692 --
Vice President, Manufacturing 1995 131,925 63,500 1,085 5,000
1994 126,442 54,200 1,085 --
Morris W. Caudle . . . . . . . . . . . . . 1996 147,033 50,000 576 --
Vice President, General Sales 1995 140,717 76,200 576 5,000
Manager 1994 135,725 52,500 576 --
Joseph C. Addison (3) . . . . . . . . . . . 1996 133,050 45,500 2,106 --
Vice President, Finance, 1995 126,125 69,400 2,106 5,000
Chief Financial Officer, Secretary and 1994 118,750 42,200 2,106 --
Treasurer
Allyn D. Plejdrup . . . . . . . . . . . . . 1996 144,133 50,000 1,903 --
Vice President, General Manager, 1995 131,500 83,600 1,902 5,000
Label Group 1994 122,700 47,700 1,220 --
- ---------------
</TABLE>
(1) Includes amounts earned during the subject year, but paid in the
subsequent year.
(2) Consists of the value of the Company's contributions to group life
insurance over $50,000. Excludes perquisites and other personal
benefits that do not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus for any Named Executive Officer.
(3) Mr. Addison served as the Company's Vice President, Finance, Chief
Financial Officer, Secretary and Treasurer until March 1997.
6
<PAGE>
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUE TABLE
Shown below is information relating to the value of unexercised
options for each of the Named Executive Officers as of December 31, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NAME OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END (1)
---------------------- -------------------------- -----------------------
<S> <C> <C>
Walter J. Kearns 12,000 $11,700
William R. Rinehart 5,000 9,375
Morris W. Caudle 5,000 9,375
Joseph C. Addison 5,000 9,375
Allyn D. Plejdrup 5,000 9,375
- ---------------
</TABLE>
(1) Calculated using closing per-share price of $10.875 of the Company's
Common Stock on The Nasdaq National Market on December 31, 1996.
The actual amount, if any, realized from unexercised options will be
dependent upon the price of the Company's Common Stock at the time
shares obtained upon exercise of such options are sold and, as to
unexercisable options, whether restrictions upon exercise of such
options lapse.
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement (the "Employment
Agreement") with Mr. Kearns which sets forth the terms and conditions of Mr.
Kearns' employment as Chairman, President and Chief Executive Officer. The
Employment Agreement provides for a base salary of $227,700, reviewable
annually by the Board of Directors for increase, as well as an annual targeted
bonus of 96% of the annual salary range midpoint ($239,000 for 1996), based
upon the attainment by the Company of certain financial performance objectives.
See "-- Annual Cash Bonus Plan."
The Employment Agreement does not provide for a specified term of
employment. If Mr. Kearns' employment is terminated by the Company without
cause or if he resigns for good reason, other than within two years following a
Change of Control (in each case, as defined in the Employment Agreement), Mr.
Kearns would be entitled to receive severance payments and other benefits
including: (a) a single lump sum payment of any accrued base salary, benefits
and bonus under the Annual Cash Bonus Plan (as defined below); (b) continuation
of base salary, bonus payments and certain fringe benefits for a period of 24
months following termination of employment, provided that such amounts shall be
reduced if Mr. Kearns accepts third-party employment; and (c) full vesting of
all outstanding stock options, if any.
Within two years following a Change of Control, if Mr. Kearns'
employment is terminated by the Company without cause or if he resigns for good
reason, he would be entitled to receive certain lump sum payments and other
benefits, including: (a) a single lump sum
7
<PAGE>
payment of any accrued base salary, benefits and bonus under the Annual Cash
Bonus Plan; (b) a single lump sum payment equal to the sum of two times Mr.
Kearns' applicable base salary and targeted annual bonus; and (c) reimbursement
of any excise tax incurred under Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), plus any resulting income taxes as a result of
such reimbursement. In addition, upon the occurrence of a Change in Control,
Mr. Kearns will become fully vested in all outstanding stock incentive awards,
including all stock options, if any, granted to him.
If Mr. Kearns' employment is terminated by the Company for cause or if
he resigns without good reason, he would not be entitled to any severance pay
or any other additional compensation.
ANNUAL CASH BONUS PROGRAM
The Annual Cash Bonus Program provides for the granting of cash
bonuses to officers and other key employees of the Company. Each year
objective financial performance measurements for the Company and target bonus
levels for each executive are approved in advance by the Compensation Committee
of the Board of Directors. Bonus amounts are determined based on a combination
of the performance results for the Company and individual performance goal
results and are paid following the end of the fiscal year. The typical target
bonus ranges from 10% to 40% of the annual salary range midpoint for the
particular employee's position ("annual salary range midpoint"). Mr. Kearns'
annual bonus target is 96% of annual salary range midpoint and may not exceed
149% of annual salary range midpoint pursuant to his employment agreement. The
maximum bonus of the other named Executive Officers may not exceed 60% of their
annual salary range midpoint.
TERMINATION BENEFITS AGREEMENTS
The Company has entered into certain Termination Benefits Agreements
(the "Termination Agreements") with each of the Company's executive officers
other than Mr. Kearns and Mr. Thomas. Under the terms of the Termination
Agreements, such executives are entitled to receive certain benefits upon the
termination of their employment within two years following a Change in Control
if termination is by the Company without cause or by such executive for good
reason (all terms as defined in the Termination Agreements). Benefits payable
upon termination would include: (a) a single lump sum payment of any accrued
base salary, benefits and bonus under the Annual Cash Bonus Plan; (b)
continuation of certain fringe benefits for a period of 12 months following
termination of employment; (c) a single lump sum payment equal to 1 1/2 times
the executive's applicable base salary and targeted annual bonus; and (d)
reimbursement of any excise tax incurred under Section 4999 of the Code, plus
any resulting income taxes. In addition, upon the occurrence of a Change in
Control, the executive will become fully vested in all outstanding stock
incentive awards, including all stock options, if any, granted to him.
RETIREMENT PLANS
Pension Benefits. The Data Documents, Inc. Pension Plan (the "Pension
Plan") is a non-contributory defined benefit pension plan covering all salaried
and hourly employees of DDI
8
<PAGE>
who have completed one year of service and attained age 21, other than
employees who are participants in a collective bargaining agreement that does
not provide for participation in the Pension Plan. Upon retirement at normal
retirement age (65), a participant in the Pension Plan is entitled to an annual
pension benefit equal to 0.8% of his "average annual compensation" up to an
amount equal to his "covered compensation" plus 1.2% of average annual
compensation in excess of covered compensation multiplied by the number of
years of service accrued by the participant, up to a maximum of 35 years. For
purposes of the application of this formula, "average annual compensation" is
calculated on the basis of the average of the highest-paid five consecutive
years of the participant's final ten calendar years of service. "Covered
compensation" is the average of the taxable wage bases in effect for each
calendar year during the 35-year period ending on the last day of the calendar
year in which the participant attains "retirement age" as defined in the Social
Security Act. Benefits received are not reduced by amounts received from
Social Security or other benefit plans. The normal form of pension benefit for
a married participant is a joint and 50% survivor annuity and for a single
participant is a straight life annuity. A participant becomes entitled to a
non-forfeitable benefit under the Pension Plan upon completion of five years of
service. For purposes of vesting and benefit accrual, an employee accrues one
year of service upon completion of at least 1,000 hours of service in a
calendar year. The Pension Plan also provides for payment of benefits upon a
participant's early retirement date (attainment of age 55 with at least five
years of service), actuarially reduced by factors set forth in the Pension
Plan.
The following table shows the annual pension benefits, calculated on
the basis of a straight life annuity, that would be payable under the Pension
Plan for retirement at age 65 for various levels of average annual compensation
and years of service:
<TABLE>
<CAPTION>
ANNUAL BENEFITS FOR YEARS OF SERVICE(2)
------------------------------------------------------
AVERAGE ANNUAL COMPENSATION(1) LEVELS: 15 20 25 30 35
-------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$100,000 . . . . . . . . . . . . . $16,541 $22,055 $27,569 $33,083 $38,596
$125,000 . . . . . . . . . . . . . 21,041 28,055 35,069 42,083 49,096
$150,000(3) . . . . . . . . . . . . 25,541 34,055 42,569 51,083 59,596
- ---------------
</TABLE>
(1) Under Section 401(a)(17) of the Code, effective for benefits accrued
under the Pension Plan in Plan years beginning on or after January 1,
1994, compensation in excess of $150,000 must be disregarded.
(2) Under Section 415 of the Code, annual benefits which can be paid under
the Pension Plan to any employee may not exceed an amount equal to
$120,000, as adjusted annually.
(3) Due to the restrictions discussed in footnote (1) above, benefits for
average annual compensation in excess of $150,000 are the same as those
for average annual compensation of $150,000.
Compensation for purposes of the determination of average annual
compensation means the total earnings paid or made available to an employee
during a Plan year, as defined in Section 415(c)(3) of the Code, but including
compensation not currently includable in an employee's gross income by reason
of the application of Sections 125 and 402(a)(8) of the Code.
9
<PAGE>
For purposes of determining annual compensation, the Company includes the value
of Company contributions for group life insurance over $50,000.
The years of service, for Pension Plan purposes, and estimated average
annual compensation as of December 31, 1996, of each individual named in the
Summary Compensation Table above were: Mr. Kearns: 13 years, $431,554; Mr.
Addison: 16 years, $170,525; Mr. Caudle: 10 years, $191,908; Mr. Plejdrup: 16
years, $175,539; and Mr. Rinehart: 16 years, $185,473. The current vested
annual benefits for those eligible to retire as of January 1, 1997 would be:
Mr. Kearns, $24,864; Mr. Addison, $26,604; Mr. Plejdrup, $25,428 and Mr.
Rinehart, $26,496. Mr. Caudle is not currently eligible to retire.
The Company currently intends to continue the Pension Plan, but has
reserved the right to terminate it at any time.
401(k) Plan. The Data Documents, Inc. 401(k) Salary Deferral Savings
Plan (the "401(k) Plan") is a tax-qualified defined contribution plan that
contains a qualified cash or deferred arrangement under Section 401(k) of the
Code. All employees, other than those covered under collective bargaining
agreements, are eligible to participate in the 401(k) Plan upon completion of
one year of service. Employees may elect to contribute a percentage of their
annual earnings to the 401(k) Plan on a pre-tax basis by payroll deduction up to
a maximum of $9,500 each year (or such higher limit as the Internal Revenue
Service may prescribe). The amounts so contributed are credited to individual
accounts maintained for each 401(k) Plan participant in the tax-exempt trust
established by the 401(k) Plan. Participants are fully vested at all times in
such account balances. Amounts held in such accounts are invested at the
direction of the participant in one or more of the several diversified
investment funds made available by the Company as plan administrator. Other
than forwarding the participants' salary deferrals to the 401(k) Plan on their
behalf, the Company makes no contributions to the 401(k) Plan. The Company
maintains separate 401(k) plans for its Denver, Colorado and Tacoma, Washington
collective bargaining unit employees, which include contributions made by the
Company. As a result of the acquisition of Cal Emblem Labels, Inc. in August
1995, the Company also maintains a 401(k) plan for employees of that subsidiary,
with a matching contribution of 15% of a participant's salary deferrals made by
the Company. Participants become fully vested in these matching contributions
on a gradual schedule over seven years.
As of December 31, 1996, the account balances under the 401(k) Plan of
each individual named in the Summary Compensation Table above were: Mr. Kearns,
$121, 626; Mr. Addison, $103,012; Mr. Caudle, $119,863; Mr. Plejdrup, $12,340;
and Mr. Rinehart, $86,134. Upon termination of employment, the foregoing
officers would be entitled to receive a distribution of their account balances
from the 401(k) Plan.
The Company currently intends to continue the 401(k) Plan, but has
reserved the right to terminate it at any time.
10
<PAGE>
DIRECTOR COMPENSATION
Each director who is not an employee of the Company receives an annual
fee of $18,000 plus a fee of $500 for each attended regularly scheduled meeting
as well as reimbursement of such directors' expenses relating to their
activities as directors. Non- employee directors also receive automatic option
grants every three years under the Company's 1995 Employee Stock Incentive Plan
pursuant to a pre-determined formula.
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
The executive compensation programs are administered by the
Compensation Committee of the Board of Directors, which is comprised exclusively
of non-employee directors. The Compensation Committee has utilized the
proprietary system of HAY Associates, an independent consulting firm. Set forth
below is the Compensation Committee's report for 1996.
COMPENSATION PHILOSOPHY
The executive compensation program is designed to attract, retain and
motivate executive personnel whose sustained performance will increase
stockholder value through successful achievement of short-term corporate goals
and long-term company objectives, and includes a mix of base salary and bonus.
Each executive's compensation is integrally linked to the achievement of both
specific individual goals and the Company's strategic business plans. BASE
SALARY
A base salary range is established for each officer position based
upon an evaluation of the skills and knowledge needed to perform the position,
the decision and problem-solving abilities necessary to satisfactorily achieve
the assigned duties and responsibilities, the accountability of the position
and its impact on the operations and financial results of the Company.
Each year the Company and the Compensation Committee compare base
salary, bonus and total compensation ranges of the Company's executives to
those of similar positions in comparable companies using independent survey
data. These independent surveys are used to establish a base salary merit
increase budget for each position within the Company. Within this budget,
executives may or may not receive a base salary increase dependent upon
performances in the prior year and their position relative to comparable
company positions. The amount of increase, if any, varies with individual
performance against established performance objectives.
ANNUAL INCENTIVE BONUS
The Company's compensation program includes an annual incentive bonus
that is expressed as a targeted percentage of salary range midpoint, typically
35%, for each position. A target bonus is paid when both financial performance
(as measured by key components of earnings and cash flow) and individual
performance objectives are met. The financial goals are
11
<PAGE>
directly related to the Company's strategic business plan. Individual
performance goals are value added, representing achievements of annually
agreed-upon objectives beyond normal position expectations. The Company's
Chief Executive Officer recommends the specific objectives for the management
team members to the Compensation Committee of the Board for approval.
The annual incentive bonus program is structured to establish minimum
expectations which determine whether any bonus will be paid. As performance
exceeds the minimum, the amount of the targeted incentive earned increases.
INCENTIVE STOCK OPTIONS
Prior to the Company's initial public offering in October 1995, its
compensation programs were principally comprised of cash salary and bonus.
Subsequent to such offering, the Compensation Committee implemented
equity-based compensation incentives as an integral part of the Company's
overall compensation program. The Company enjoys a significant equity culture
with approximately 23.7% of its fully diluted shares outstanding held by
members of management and the Board of Directors. The Compensation Committee
believes that such ownership, together with the long-term incentive offered by
increased ownership through option grants, positively aligns the interests of
management and the Company's stockholders. The Company's incentive stock
option grants typically vest over a three-year period and are granted at
current market prices as of the date of grant. CHIEF EXECUTIVE OFFICER
COMPENSATION
Mr. Kearns has served as the Company's Chief Executive Officer since
the time of the 1988 Management Acquisition. In November 1994, the Company
entered into an employment agreement with Mr. Kearns which sets forth the term
and conditions of his employment. Mr. Kearns' employment agreement provides
for a base salary of $227,700, reviewable annually as well as an annual
targeted bonus of 96% of his salary range midpoint (subject to a cap of 149%
of such midpoint), based upon the attainment by the Company of certain
financial performance objectives. Mr. Kearns was granted an increase in base
salary to $234,500 effective January 1995, and a subsequent increase to
$245,100 effective January 1996. Mr. Kearns was awarded a year-end bonus of
$229,400 which was based upon the Company exceeding cash flow and earnings
objectives.
POLICY WITH RESPECT TO $1 MILLION DEDUCTION LIMIT
Section 162(m) of the Internal Revenue Code limits the tax
deductibility of annual compensation (including base salary, annual and
longer-term incentives, gains from stock option exercises and certain benefits)
paid to certain executive officers in excess of $1 million. This deduction
limit does not apply to payments which qualify as "performance-based." To
qualify as "performance-based," compensation payments must be determined solely
upon the achievement of objective performance goals under a plan that is
administered by a committee of outside directors. In addition, the material
terms of the plan must be disclosed to and approved by stockholders, and the
compensation committee must certify that the performance goals were achieved
before payments can be made. It is the intent of the Company and the
Compensation
12
<PAGE>
Committee to structure the Company's compensation programs to conform with the
Section 162(m) limitations so that total compensation paid to any employee will
not exceed $1 million in any one year, except for compensation payments that
qualify as "performance- based" or are exempt for other reasons. However, it
is possible at some point in the future that circumstances may arise that make
it advisable, based upon sound business purposes, to authorize compensation
that is not deductible.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
THOMAS W. BLUMENTHAL
ROBERT W. CRUICKSHANK
The report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference and shall not otherwise
be deemed filed under such Acts.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS
Neither Mr. Blumenthal nor Mr. Cruickshank is or has been an employee or
officer of the Company or any of its subsidiaries.
PERFORMANCE GRAPH
The following graph shows the Company's total return to stockholders
compared to the Nasdaq Market Value Index1 ("Nasdaq") and a Peer Group Index2
("Peer Group") over the period from October 3, 1995 (the initial day of trading
of the Company's Common Stock) to December 31, 1996 (the final day of the most
recently completed fiscal year).
- ----------------------------------
1 Includes all issues trading over the Nasdaq National Market and
Over-the-Counter Markets during the period from October 3, 1995 through
December 31, 1996, weighted annually by market capitalization (shares
outstanding multiplied by stock price).
2 A Peer Group Index compiled and published by Media General Financial
Services, Inc. comprised of certain business forms companies that were
publicly traded in the United States at December 31, 1996, weighted
annually by market capitalization (shares outstanding multiplied by stock
price). Copies of this index can be obtained by ordering "SIC Code Group
2761 -- Manifold Business Forms" from Media General Financial Services,
Inc., P.O. Box 85333, Richmond, VA. 23293, telephone number (804) 649-6587,
and paying their standard fee.
13
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG DATA DOCUMENTS INCORPORATED, NASDAQ AND PEER GROUP
October 3, 1995 - December 31, 1996
<TABLE>
<CAPTION>
10/3/95 12/31/95 12/31/96
------- -------- --------
<S> <C> <C> <C>
Data Documents Incorporated $100.00 $ 95.17 $120.00
Nasdaq 100.00 101.99 127.26
Peer Group 100.00 99.20 123.27
</TABLE>
The cumulative total return shown on the stock performance graph
indicates historical results only and is not necessarily indicative of future
results.
Each line on the stock performance graph assumes that $100 was
invested in the Company's Common Stock and the respective indices on October 3,
1995 (the initial day of trading of the Company's Common Stock). The graph
then presents the value of these investments, assuming reinvestment of
dividends, through December 31, 1996.
The stock performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of March 17, 1997 (i) by each
person who is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) by each of the Company's directors, (iii) by each
Named Executive Officer and (iv) by all directors and executive officers as a
group. The number of shares beneficially owned by each person shown in the
table below is
14
<PAGE>
determined under rules of the Securities and Exchange Commission, and such
information is not necessarily indicative of beneficial ownership for any other
purpose. Unless otherwise noted, the address of each such person is that of
the Company at 4205 South 96th Street, Omaha, Nebraska 68127.
<TABLE>
<CAPTION>
NUMBER OF
SHARES(1)(2) PERCENT
------------ -------
<S> <C> <C>
Walter J. Kearns(3) . . . . . . . . . . . . 845,443 8.8%
A. Robert Thomas . . . . . . . . . . . . . 0 *
Morris W. Caudle(4) . . . . . . . . . . . . 349,362 3.6
Allyn D. Plejdrup(5) . . . . . . . . . . . 356,762 3.7
William R. Rinehart(6) . . . . . . . . . . 174,762 1.8
Joseph C. Addison(7) . . . . . . . . . . . 360,095 3.7
Thomas W. Blumenthal(8) . . . . . . . . . . 83,654 *
Robert W. Cruickshank(9) . . . . . . . . . 47,913 *
All directors and executive officers
as a group (9 persons)(10) . . . . . . . . 2,286,595 23.7
- ---------------
</TABLE>
* Indicates ownership of less than one percent
(1) The shares of Common Stock underlying options, warrants, rights or
convertible securities that are exercisable as of March 17, 1997 or that
will become exercisable within 60 days thereafter are deemed to be
outstanding for the purpose of calculating the beneficial ownership of
the holder of such options, warrants, rights or convertible securities,
but are not deemed to be outstanding for the purpose of computing the
beneficial ownership of any other person.
(2) Unless otherwise noted, sole voting and dispositive power are possessed
with respect to all shares of Common Stock shown.
(3) Includes 5,200 shares held by members of Mr. Kearns' family, as to which
Mr. Kearns disclaims beneficial ownership. Also includes 4,000 shares of
Common Stock issuable upon exercise of options by Mr. Kearns.
(4) Includes 76,200 shares held by members of Mr. Caudle's family, as to
which Mr. Caudle disclaims beneficial ownership. Also includes 1,667
shares of Common Stock issuable upon exercise of options by Mr. Caudle.
(5) Includes 1,667 shares of Common Stock issuable upon exercise of options
by Mr. Plejdrup. Mr. Plejdrup's address is Data Documents, 3403 Dan
Morton Drive, Dallas, Texas 75236-1068.
(6) Includes 86,547 shares held by members of Mr. Rinehart's family, as to
which Mr. Rinehart disclaims beneficial ownership. Also includes 1,667
shares of Common Stock issuable upon exercise of options by Mr. Rinehart.
(7) Includes 5,000 shares of Common Stock issuable upon exercise of options
by Mr. Addison. Mr. Addison's address is 1118 North 122 Street, Omaha,
Nebraska 68154.
(8) Includes 2,000 shares held by members of Mr. Blumenthal's family, as to
which Mr. Blumenthal disclaims beneficial ownership. Also includes 9,333
shares of Common Stock issuable upon exercise of options by Mr.
Blumenthal. Mr. Blumenthal's address is
15
<PAGE>
c/o The Baupost Group, 44 Brattle Street, Second Floor, Cambridge,
Massachusetts 02138.
(9) Includes 1,000 shares of Common Stock issuable upon exercise of
options by Mr. Cruickshank. Mr. Cruickshank's address is P.O. Box
396, New Canaan, Connecticut 06840.
(10) Includes 27,667 shares of Common Stock issuable upon exercise of
options by executive officers and directors as a group. Also
includes, for certain executive officers and directors, shares held by
family members, as to which such executive officers and directors
disclaim beneficial ownership.
CERTAIN TRANSACTIONS
STOCKHOLDERS' AGREEMENT AND REGISTRATION RIGHTS
In connection with the acquisition of the Company in 1988 by certain
members of management (the "Management Stockholders") and certain private
investors (including entities affiliated with Mark R. Allison, a former
director of the Company), the Management Stockholders, the private investors,
and the Company entered into a Stock Subscription Agreement, which was amended
and restated upon the consummation of the Company's November 1994 13-1/2%
Senior Note offering (as amended and restated, the "Stockholders' Agreement").
Most of the rights contained in the Stockholders' Agreement terminated
upon consummation of the Company's initial public offering in October 1995,
except that all of the parties thereto continue to have incidental, or
piggyback, registration rights if the Company proposes to register any of its
equity securities under the Securities Act of 1933 (other than in certain
instances) subject to customary underwriting cut-back and hold-back provisions.
The registration rights of the Stockholders' Agreement continue until September
1, 2004. The Company will pay all expenses relating to any such registrations
other than underwriting discounts and commissions.
CONSULTING AGREEMENTS
Mr. Allison, a former director of the Company, was previously the Chief
Executive Officer of Ashtree Holdings, Inc. (formerly known as Lafarick
Corporation in Los Angeles, and prior to that known as Raebarn Corporation,
"Ashtree"), which initiated the 1988 acquisition of the Company, since 1985.
Pursuant to an Agreement for Management, Advisory and Consulting Services, dated
as of February 26, 1988, among DDI, the Company and a predecessor-in-interest to
Ashtree (the "Raebarn Agreement"), the Company paid such predecessor a
transaction fee of $600,000 upon consummation of the 1988 Acquisition. In 1991,
the predecessor-in-interest assigned 50% of its rights and obligations under the
Raebarn Agreement to Ashtree. Pursuant to the Raebarn Agreement, the Company
agreed to pay Ashtree, as assignee, an annual fee of $125,000, in addition to
out-of-pocket expenses for a term of ten years which was to expire in February
1998. The parties terminated the Raebarn Agreement effective upon consummation
of the Senior Note offering in November 1994 and recorded the present value of
the liability at the time of such termination. In connection with such
termination, the Company agreed to make
16
<PAGE>
termination payments to Ashtree of $125,000 per year, subject to a 4% annual
increase through December 1, 2002. The Company made payments aggregating
$135,000 to Ashtree during 1996 in accordance with this agreement.
TRANSACTIONS WITH AFFILIATES
The Board of Directors has adopted a policy that any transactions
between the Company and its officers, directors, principal stockholders or
other affiliated parties are subject to approval by a majority of the Company's
disinterested directors.
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
Subject to ratification by the stockholders at the Annual Meeting, the
Board of Directors has selected Deloitte & Touche LLP to serve as the
independent certified public accountants for the Company and its subsidiaries
in 1997. Deloitte & Touche LLP has served as the independent certified public
accountants of the Company since 1988. Representatives of Deloitte & Touche
LLP are expected to be present at the Meeting to make a statement should they
desire to do so and will be available to respond to appropriate questions that
may be asked by stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR 1997.
ANNUAL REPORT
The Company's Annual Report to Stockholders is being mailed to all
stockholders. Any stockholder who has not received a copy may obtain one by
writing to the Company at 4205 South 96th Street, Omaha, Nebraska 68127,
Attention: Ms. Anita M. Meints. In addition, any person wishing to receive a
copy of the Company's Annual Report on Form 10-K for the year ended December
31, 1996 (excluding the exhibits thereto) may obtain a copy by sending a
written request to the Company at the same address.
STOCKHOLDER PROPOSALS
FOR THE 1998 ANNUAL MEETING OF STOCKHOLDERS
Any eligible stockholder of the Company wishing to have a proposal
considered for inclusion in the Company's 1998 proxy solicitation materials
must set forth such proposal in writing and file it with the Secretary of the
Company on or before January 9, 1998. The Board of Directors of the Company
will review new proposals received from eligible stockholders by that date and
will determine whether such proposals will be included in its 1998 proxy
solicitation materials. Generally, a stockholder is eligible to present
proposals if he or she has been for at least one year the record or beneficial
owner of at least one percent or $1,000 in market value of securities entitled
to be voted at the 1998 Annual Meeting of Stockholders and he or she continues
to own such securities through the date on which the meeting is held.
17
<PAGE>
DATA DOCUMENTS INCORPORATED
4205 South 96th Street, Omaha, Nebraska 68127
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Walter J. Kearns and A. Robert Thomas
as Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and vote, as designated on the reverse, all shares
of Common Stock of Data Documents Incorporated (the "Company") held of record
by the undersigned on April 3, 1997 at the Annual Meeting of Stockholders to be
held on May 8, 1997 or any adjournment thereof.
(To Be Signed on Reverse Side.)
<PAGE>
Please mark your
A [X] votes as in this
example.
WITHHOLD
AUTHORITY
to vote for all nominees Nominees:
FOR listed at right Walter J. Kearns
1. ELECTION OF [_] [_] Joseph C. Addison
DIRECTORS Thomas W. Blumenthal
Robert W. Cruickshank
FOR AGAINST ABSTAIN
2. Proposal to ratify the selection of Deloitte & [_] [_] [_]
Touche LLP to serve as the Company's
independent accountants for fiscal 1997.
3. In their discretion, upon such other business as may properly come before the
Annual Meeting or any postponement or adjournment thereof.
THIS PROXY WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY
WILL BE VOTED FOR THE FOUR NOMINEES FOR ELECTION AND FOR PROPOSAL 2.
STOCKHOLDERS ARE URGED TO DATE, MARK, SIGN AND RETURN THIS PROXY PROMPTLY IN
THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE UNITED
STATES.
SIGNATURES _____________________________________ Dated _________________, 1997
- ------------------------------
Signature if Held Jointly
Note: Please sign exactly as your name or names appear on stock certificate
(as indicated hereon).
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 7-109-101, et seq., of the Colorado Business Corporation Act
generally provides that a corporation may indemnify its directors,
officers, employees, fiduciaries and agent against liabilities and
reasonable expenses incurred in connection with any threatened, pending, or
completed action, suit or proceeding whether civil, criminal,
administrative or investigative and whether formal or informal (a
"Proceeding"), by reason of being or having been a director, officer,
employee, fiduciary or agent of the corporation, if such person acted in
good faith and reasonably believed that his conduct, in his official
capacity, was in the best interests of the corporation (or, with respect to
employee benefit plans, was in the best interests of the participants of
the plan), and in all other cases his conduct was at least not opposed to
the corporation's best interests. In the case of a criminal proceeding, the
director, officer, employee, fiduciary or agent must have had no reasonable
cause to believe his conduct was unlawful. Under Colorado law, the
corporation may not indemnify a director, officer, employee, fiduciary or
agent in connection with a Proceeding by or in the right of the corporation
if the director is adjudged liable to the corporation, or in a proceeding
in which the director, officer, employee or agent is adjudged liable for an
improper personal benefit.
Corporate Express' Articles of Amendment and Restatement to the
Articles of Incorporation and By-Laws provide that Corporate Express shall
indemnify its officers and directors to the full extent permitted by the
law. The indemnification provisions in Corporate Express' By-Laws are
substantially similar to the provisions of Section 7-109-101, et seq.
Corporate Express has entered into agreements to provide indemnification
for its directors and certain officers consistent with its Articles of
Amendment and Restatement to the Articles of Incorporation and By-Laws.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Except as otherwise noted, the exhibit was previously filed as an
exhibit to Corporate Express' Registration Statement on Form S-1, File No.
33-81924 (the "Initial Registration Statement"), and is incorporated herein
by reference.
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
2.1* Agreement and Plan of Merger dated as of September 10, 1997
among Corporate Express, Inc., IDD Acquisition Corp. and
Data Documents Incorporated
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 Articles of Amendment and Restatement of Corporate Express,
Inc., filed on August 22, 1996 (incorporated by reference to
Corporate Express' Form 10-K for the year ended
March 1, 1997)
3.3 Amended and Restated By-Laws of Corporate Express, Inc.
4.1 Specimen Common Stock Certificate of Corporate Express, Inc.
4.2 Form of Warrant Agreement
4.3 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
91/8% Senior Subordinated Notes
4.4 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
4.5 Recapitalization Agreement dated December 3, 1991, by and
between Corporate Express, Inc., J.P. Morgan Investment
Corporation ("J.P. Morgan") and Shareholders
4.6 Recapitalization Agreement dated August 29, 1992 by and
among Corporate Express, Inc., J.P. Morgan and certain
shareholders
4.7 Indenture dated as of June 24, 1996 by and among Corporate
Express, Inc. and Bankers Trust Company, as trustee, for the
4 1/2% Convertible Notes due July 1, 2000 (including Form of
Notes) (incorporated by reference to Corporate Express'
Registration Statement on Form S-3, File No. 333-12451)
4.8 First Supplemental Indenture dated as of October 15, 1996
relating to Corporate Express Inc.'s 4 1/2% Convertible
Notes (incorporated by reference to Corporate Express'
Registration Statement on Form S-3, File No. 333-12451)
4.9 Form of 4 1/2% Convertible Note (incorporated by reference
to Corporate Express' Registration Statement on Form S-3,
File No. 333-12451)
5.1* Opinion of Ballard Spahr Andrews & Ingersoll as to the
validity of the shares of Corporate Express Common Stock
being registered
8.1** Opinion of Gibson Dunn & Crutcher LLP as to certain tax
matters relating to the Merger
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.1 Employment Agreement dated as of August 25, 1993, by and
between Corporate Express, Inc. and Robert King, as amended
effective July 15, 1994
10.2 Amended and Restated 1992 Stock Option Plan, Form of Non-
qualified Stock Option Agreement and Form of Incentive Stock
Option Agreement
10.3 1994 Executive Stock Option Plan
10.4 Form of Indemnification Agreement between Corporate Express,
Inc. and its officers and directors
10.5 1994 Stock Option and Incentive Plan
10.6 1994 Employee Stock Purchase Plan
10.7 Employment Agreement dated as of July 31, 1995 by and
between Corporate Express, Inc. and Sam Leno (incorporated
by reference to Corporate Express' Registration Statement on
Form S-1, File No. 33-95902)
10.8 Agreement among Corporate Express, Inc., Synergom, Inc. and
OfficeMax, Inc. dated as of August 25, 1995 (incorporated by
reference to Corporate Express' Registration Statement on
Form S-1, File No. 33-95902)
10.9 Agreement and Plan of Merger dated as of January 6, 1996
among the Company, Delivery Systems, Inc. and DSU
Acquisition Corp., as amended (incorporated by reference to
the Company's Registration Statement on Form S-4, File No.
333-288)
10.10 Agreement and Plan of Merger dated as of February 8, 1996 by
and among Corporate Express, Inc., CEX Acquisition Corp.,
Young, Richard Young, HCC Investments, Inc., Juliet
Challenger, Inc. and Wilmington Securities, Inc.
(incorporated by reference to Corporate Express'
Registration Statement on Form S-4, File No. 333-288)
10.11 Stock Purchase Agreement dated April 22, 1996 by and among
the Company, ASAP Software Express, Inc. and the
shareholders of ASAP Software Express, Inc. (incorporated by
reference to Corporate Express' Form 8-K dated May 15, 1996)
10.12 Corporate Express, Inc. Supplemental Stock Option Plan
(incorporated by reference to Corporate Express' Form 10-K
for the year ended March 1, 1997)
10.13 Amended and Restated Credit Agreement, dated as of November
26, 1996 by and among CEX Holdings, Inc., as borrower,
Corporate Express, as a guarantor, the lenders named therein
and The First National Bank of Chicago, as agent
(incorporated by reference to Corporate Express' Quarterly
Report on Form 10-Q for the period ended November 30, 1996)
10.14 Agreement and Plan of Merger dated as of September 10, 1996
among Corporate Express, United TransNet, Inc. and Bevo
Acquisition Corp., Inc. (incorporated by reference to
Corporate Express' Registration Statement on Form S-4, File
No. 333-13217)
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
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 Deloitte & Touche LLP
23.4** Consent of Gibson Dunn & Crutcher LLP (included as part of
Exhibit 8.1)
24.1* Power of Attorney (included on signature page to Form S-4)
99.1* Form of Proxy
</TABLE>
------------------
* Previously filed.
** Filed herewith.
Item 22. Undertakings
The undersigned Registrant undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) ((S) 230.424(b) of
this chapter) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the
"Act"), each filing of the Registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act") (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Exchange Act) that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
The Undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder
through use of a prospectus which is part of this Registration
Statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and issued in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment and that, for purposes of determining
any liability under the Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE>
The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of
responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became
effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of
Broomfield, State of Colorado, on October 24, 1997.
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
amendment to Registration Statement has been signed on October 24, 1997
by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jirka Rysavy Chairman of the Board and Chief October 24, 1997
- --------------------------- Executive Officer (Principal Executive
Jirka Rysavy Officer)
/s/ Robert L. King* President, Chief Operating Officer and October 24, 1997
- --------------------------- Director
Robert L. King
/s/ Sam R. Leno Executive Vice President and Chief October 24, 1997
- --------------------------- Financial Officer (Principal Financial
Sam R. Leno Officer)
/s/ Joanne C. Farver* Vice President and Controller October 24, 1997
- --------------------------- (Principal Accounting Officer)
Joanne C. Farver
/s/ Janet A. Hickey* Director October 24, 1997
- ---------------------------
Janet A. Hickey
/s/ James P. Argyropoulos* Director October 24, 1997
- ---------------------------
James P. Argyropoulos
/s/ Mo Siegel* Director October 24, 1997
- ---------------------------
Mo Siegel
</TABLE>
* Gary M. Jacobs, by signing his name hereto, signs this document on behalf of
the persons indicated above, pursuant to a power of attorney duly executed by
such person and previously filed with the Securities and Exchange Commission
with this Registration Statement.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
2.1* Agreement and Plan of Merger dated as of September 10, 1997
among Corporate Express, Inc., IDD Acquisition Corp. and
Data Documents Incorporated
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 Articles of Amendment and Restatement of Corporate Express,
Inc., filed on August 22, 1996 (incorporated by reference to
Corporate Express' Form 10-K for the year ended March 1,
1997)
3.3 Amended and Restated By-Laws of Corporate Express, Inc.
4.1 Specimen Common Stock Certificate of Corporate Express, Inc.
4.2 Form of Warrant Agreement
4.3 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 1/8% Senior Subordinated Notes
4.4 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
4.5 Recapitalization Agreement dated December 3, 1991, by and
between Corporate Express, Inc., J.P. Morgan Investment
Corporation ("J.P. Morgan") and Shareholders
4.6 Recapitalization Agreement dated August 29, 1992 by and
among Corporate Express, Inc., J.P. Morgan and certain
shareholders
4.7 Indenture dated as of June 24, 1996 by and among Corporate
Express, Inc. and Bankers Trust Company, as trustee, for the
4 1/2% Convertible Notes due July 1, 2000 (including Form of
Notes) (incorporated by reference to Corporate Express'
Registration Statement on Form S-3, File No. 333-12451)
4.8 First Supplemental Indenture dated as of October 15, 1996
relating to Corporate Express Inc.'s 4 1/2% Convertible
Notes (incorporated by reference to Corporate Express'
Registration Statement on Form S-3, File No. 333-12451)
4.9 Form of 4 1/2% Convertible Note (incorporated by reference
to Corporate Express' Registration Statement on Form S-3,
File No. 333-12451)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.1* Opinion of Ballard Spahr Andrews & Ingersoll as to the
validity of the shares of Corporate Express Common Stock
being registered
8.1** Opinion of Gibson Dunn & Crutcher LLP as to certain tax
matters relating to the Merger.
10.1 Employment Agreement dated as of August 25, 1993, by and
between Corporate Express, Inc. and Robert King, as amended
effective July 15, 1994
10.2 Amended and Restated 1992 Stock Option Plan, Form of Non-
qualified Stock Option Agreement and Form of Incentive Stock
Option Agreement
10.3 1994 Executive Stock Option Plan
10.4 Form of Indemnification Agreement between Corporate Express,
Inc. and its officers and directors
10.5 1994 Stock Option and Incentive Plan
10.6 1994 Employee Stock Purchase Plan
10.7 Employment Agreement dated as of July 31, 1995 by and
between Corporate Express, Inc. and Sam Leno (incorporated
by reference to Corporate Express' Registration Statement on
Form S-1, File No. 33-95902)
10.8 Agreement among Corporate Express, Inc., Synergom, Inc. and
OfficeMax, Inc. dated as of August 25, 1995 (incorporated by
reference to Corporate Express' Registration Statement on
Form S-1, File No. 33-95902)
10.9 Agreement and Plan of Merger dated as of January 6, 1996
among the Company, Delivery Systems, Inc. and DSU
Acquisition Corp., as amended (incorporated by reference to
the Company's Registration Statement on Form S-4, File No.
333-288)
10.10 Agreement and Plan of Merger dated as of February 8, 1996 by
and among Corporate Express, Inc., CEX Acquisition Corp.,
Young, Richard Young, HCC Investments, Inc., Juliet
Challenger, Inc. and Wilmington Securities, Inc.
(incorporated by reference to Corporate Express'
Registration Statement on Form S-4, File No. 333-288)
10.11 Stock Purchase Agreement dated April 22, 1996 by and among
the Company, ASAP Software Express, Inc. and the
shareholders of ASAP Software Express, Inc. (incorporated by
reference to Corporate Express' Form 8-K dated May 15, 1996)
10.12 Corporate Express, Inc. Supplemental Stock Option Plan
(incorporated by reference to Corporate Express' Form 10-K
for the year ended March 1, 1997)
10.13 Amended and Restated Credit Agreement, dated as of November
26, 1996 by and among CEX Holdings, Inc., as borrower,
Corporate Express, as a guarantor, the lenders named therein
and The First National Bank of Chicago, as agent
(incorporated by reference to Corporate Express' Quarterly
Report on Form 10-Q for the period ended November 30, 1996)
10.14 Agreement and Plan of Merger dated as of September 10, 1996
among Corporate Express, United TransNet, Inc. and Bevo
Acquisition Corp., Inc. (incorporated by reference to
Corporate Express' Registration Statement on Form S-4, File
No. 333-13217)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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 Deloitte & Touche LLP
23.4** Consent of Gibson Dunn & Crutcher LLP (included as part of
Exhibit 8.1)
24.1* Power of Attorney (included on signature page to Form S-4).
99.1* Form of Proxy
</TABLE>
------------------
* Previously filed.
** Filed herewith.
<PAGE>
Exhibit 8.1
[LETTERHEAD OF GIBSON, DUNN & CRUTCHER LLP APPEARS HERE]
Data Documents Incorporated
4205 South 96th Street
Omaha, Nebraska 68127-1290
Re: Registration Statement on Form S-4 (Registration No. 333-35559)
Gentlemen:
We are acting as counsel to Data Documents Incorporated, a Delaware
corporation (the "Company") in connection with the merger (the "Merger) of IDD
Acquisition Corp. ("Acquisition Sub"), a Delaware corporation and a wholly owned
subsidiary of Corporate Express, Inc., a Colorado corporation ("Parent"), with
and into the Company. You have requested our opinion as to the material federal
income tax consequences of the Merger to holders of Company common stock, $.001
par value (the "Company Common Stock"). The Merger will be effected pursuant to
the terms and conditions of the Agreement and Plan of Merger (the "Merger
Agreement") dated as of September 10, 1997, among the Company, Parent and
Acquisition Sub. The Merger Agreement is attached as Exhibit 2.1 to Registration
Statement on Form S-4 (the "Registration Statement") filed on September 12, 1997
with the Securities and Exchange Commission in connection with the Merger.
Defined terms used herein have the meanings ascribed to them in the Merger
Agreement.
In rendering our opinion, we have examined the Merger Agreement and
have, with your permission, relied upon, and assumed as correct now and as of
the Effective Time, (i) the factual information contained in the Registration
Statement, (ii) the representations and covenants contained in the Merger
Agreement, (iii) certain factual representations made by the Company, Parent and
Acquisition Sub, which are described under Exhibit 7.16 to the Merger Agreement
and are attached hereto and made a part hereof, and (iv) such other materials as
we have deemed necessary or appropriate as a basis for our opinion.
On the basis of the information, representations and covenants contained
in the foregoing materials, it is our opinion that: (i) the Merger will be
treated for federal
<PAGE>
Data Documents Incorporated
October 13, 1997
Page 2
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"); (ii) Parent,
Acquisition Sub and the Company will each be a party to that reorganization with
the meaning of Section 368(b) of the Code, and (iii) no gain or loss will be
recognized by a stockholder of the Company as a result of the Merger with
respect to the shares of Company Common Stock converted into Parent Common
Stock, except to the extent such stockholders receives cash in lieu of
fractional shares. Furthermore, the discussion under the caption "Certain
Federal Income Tax Consequences" in the Registration Statement is based on the
opinions expressed herein and accurately describes such opinions and the
material federal income tax consequences of the Merger.
This opinion expresses our views only as to federal income tax laws in
effect as of the date hereof, including the Code, applicable Treasury
Regulations, published rulings and administrative practices of the Internal
Revenue Service (the "Service") and court decisions. This opinion represents our
best legal judgment as to the matters addressed herein, but is not binding on
the Service or the courts. Furthermore, the legal authorities upon which we rely
are subject to change either prospectively or retroactively. Any change in such
authorities or any change in the facts or representations, or any past or
future actions by the Company, Parent, or Acquisition Sub contrary to such
representations, might adversely affect the conclusions stated herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name under the
caption "Certain Federal Income Tax Consequences" in the Registration Statement.
Very truly yours,
/s/ Gibson, Dunn & Crutcher, LLP
GIBSON, DUNN & CRUTCHER, LLP
<PAGE>
EXHIBIT 7.16(a)
Form of Representations Relating to Tax Matters of the Company
--------------------------------------------------------------
1. As of the Effective Time, the Company will hold at least ninety
percent (90%) of the fair market value of the net assets and at least seventy
percent (70%) of the fair market value of the gross assets held by it
immediately prior to the Merger. For the purpose of determining the percentage
of the Company's net and gross assets held immediately prior to the Merger, the
following assets will be treated as property immediately prior to the Merger:
(i) assets used by the Company to pay stockholders perfecting dissenters' rights
or other expenses or liabilities incurred in connection with the Merger and (ii)
assets used to make distributions, redemptions or other payments in respect of
stock of the Company (except for regular, normal distributions) or in respect of
rights to acquire such stock (including payments treated as such for tax
purposes) that are made in contemplation of the Merger or that are related
thereto;
2. Other than in the ordinary course of business or pursuant to in
obligations under the Agreement, the Company has not disposed of any of its
assets (including any distributions of assets with respect to, or in redemption
of, stock) since ______________, 1997;
3. The Company's principal reasons for participating in the Merger are
bona fide business purposes not related to federal income taxes;
4. In the Merger, shares representing "Control" of the Company will be
exchanged solely for voting stock of Parent. For purposes of this paragraph,
shares exchanged in the Merger for cash and other property (including, without
limitation, cash paid to stockholders of the Company perfecting dissenters'
rights or in lieu of fractional shares of Parent Common Stock) will be treated
as outstanding shares on the date of the Merger but not exchanged for shares of
Parent Common Stock. As used herein, "Control" shall consist of direct ownership
of shares of stock possessing at lease eighty percent (80%) of the total
combined voting power of shares of all classes of stock entitled to vote and at
lease eighty percent (80%) of total number of shares of each other claim of
stock of the corporation. For purposes of determining Control, a person shall
not be considered to own shares of voting stock if rights to vote such shares
(or to restrict or otherwise control the voting of such shares) are held by a
third party (including a voting trust) other than an agent of such person;
5. The Company has no outstanding warrants, options, convertible
securities or any other type of right to acquire capital stock of the Company
(or any other equity interest in the Company) or to vote (or restrict or
otherwise control the vote of) shares of the Company's capital stock which, if
exercised, would affect Parent's retention of Control of the Company;
1
<PAGE>
6. The payment of cash in lieu of fractional shares of Parent
Common Stock is solely for the purpose of avoiding the expense and inconvenience
to Parent of issuing fractional shares and does not represent separately
bargained for consideration. The total cash consideration that will be paid in
the Merger to the Company stockholders in lieu of fractional shares of Parent
Common Stock will not exceed one percent (1%) of the fair market value of the
total consideration that will be issued in the Merger to the Company
stockholders in exchange for their shares;
7. The Company has no plan or intention to issue additional shares
of capital stock after the Merger, or take any other action, that would result
in Parent losing Control of the Company;
8. The Company has not plan or intention to sell or otherwise
dispose of any of its assets or of any of the assets acquired from Subsidiary in
the Merger except for dispositions made in the ordinary course of business or
payment of expenses, including payments to stockholders of the Company
perfecting dissenters' rights, incurred by the Company pursuant to the Merger
and except for transfers of its assets or assets of Subsidiary to a corporation
controlled by the Company;
9. The fair market value of the Company's assets will, at the
Effective Time of the Merger, exceed the aggregate liabilities of the Company
plus the amount of liabilities, if any, to which such assets are subject;
10. The ratio for the exchange of shares for Parent Common Stock
was negotiated through arm's length bargaining and with the assistance of
competent professional advisors. Consequently, the fair market value of the
shares of Parent Common Stock to be received by each stockholder of the Company
in the Merger will be approximately equal to the fair market value of the shares
surrendered in exchange therefor and the aggregate consideration to be received
by stockholders of the Company in exchange for their shares will be
approximately equal to the fair market value of all of the outstanding shares
immediately prior to the Merger;
11. The Company is not an "investment company" within the meaning
of Sections 368(a)(2)(F)(iii) and (iv) of the Code;
12. The Company is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code;
13. There is no plan or intention ("Plan") on the part of the
stockholders of the Company who own five percent (5%) or more of the shares, and
to the best knowledge of the management of the Company, there is no Plan on the
part of the remaining stockholders of the Company to engage in a sale, exchange,
transfer, distribution (including, without limitation,
2
<PAGE>
a distribution by a corporation to its stockholders), pledge, disposition or any
other transaction which will result in a reduction in the risk of ownership or a
direct or indirect disposition (a "Sale") of shares of Parent Common Stock
received in the Merger that would reduce ownership by the Company stockholders
of Parent Common Stock to a number of shares having a value as of the Effective
Time of the Merger of less than fifty percent (50%) of the aggregate fair market
value, immediately prior to the Merger, of all outstanding shares. For purposes
of this paragraph, shares (i) with respect to which a stockholder of the Company
receives consideration in the Merger other than shares of Parent Common Stock
(including, without limitation, cash received pursuant to the exercise of
dissenters' rights or in lieu of fractional shares of Parent Common Stock)
and/or (ii) with respect to which a Sale occurs prior to and in contemplation of
the Merger, shall be considered outstanding shares exchanged for shares of
Parent Common Stock in the Merger and then disposed of pursuant to a Plan;
14. There is no intercorporate indebtedness existing between Parent
and the Company or between Subsidiary and the Company that was issued, acquired,
or will be settled at a discount as a result of the Merger;
15. None of the compensation received by any shareholder-employees of
the Company will be separate consideration for, or allocable to, any of shares
owned by them; none of the shares of Parent Common Stock received by any
shareholder-employees or independent contractors of the Company will be separate
consideration for, or allocable to, any employment agreement or any covenants
not to compete; and the compensation paid to any shareholder-employees or
independent contractors of the Company will be for the services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services;
16. To the best knowledge of the Company, during the past five (5)
years, none of the outstanding shares of its capital stock of, including the
right to acquire or vote any such shares, have directly or indirectly been owned
by Parent;
17. Up to and including the Effective Time, the Company has taken no
action that would cause the merger to fail to qualify as a "reorganization"
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
18. Parent, Subsidiary and Company will each pay their respective
expenses, if any, incurred in connection with the Merger. None of Parent,
Subsidiary or Company will pay any expenses of the stockholders of Company
incurred in connection with the Merger.
19. The liabilities of Company and the liabilities to which its
assets are subject at the Effective Time of the Merger were incurred by it in
the ordinary course of its business. None of the Shares of Company to be
surrendered in the Merger in exchange for Parent Common Stock in the Merger will
be subject to any liabilities.
3
<PAGE>
Form of Representation Relating to Tax Matters of Parent and Subsidiary
-----------------------------------------------------------------------
1. Pursuant to the Merger, Subsidiary will merge with and into the
Company, and the Company will acquire all of the assets and liabilities of
Subsidiary. Specifically, the assets transferred to the Company pursuant to the
Merger will represent at least ninety percent (90%) of the fair market value of
the net assets and at least seventy percent (70%) of the fair market value of
the gross assets held by Subsidiary immediately prior to the Merger. In
addition, at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the gross
assets held by the Company immediately prior to the Merger will continue to be
held by the Company immediately after the Merger. For the purpose of determining
the percentage of the Company's and Subsidiary's net and gross assets held by
the Company immediately following the Merger, the following assets will be
treated as property held by Subsidiary or the Company, as the case may be,
immediately prior but not subsequent to the Merger; (i) assets used by the
Company or Subsidiary (other than assets transferred from Parent to Subsidiary
for each purpose) to pay stockholders perfecting dissenters' rights or other
expenses or liabilities incurred in connection with the Merger and (ii) assets
used to make distributions, redemptions or other payments in respect of stock of
the Company (except for regular, normal distributions) or in respect of rights
to acquire such stock (including payments treated as such for tax purposes) that
are made in contemplation of the Merger or that are related thereto;
2. Subsidiary was formed solely for the purpose of consummating the
transactions contemplated by the Agreement, and at no time has Subsidiary
conducted or will Subsidiary conduct any business activities or other
operations, or dispose of any of its assets, other than pursuant to its
obligations under the Agreement;
3. Parent's principal reasons for participating in the Merger are bona
fide business purposes not related to federal income taxes;
4. No shares of Subsidiary (or, following the Effective Time, the
Company) have been or will be used as consideration or issued to stockholders of
the Company pursuant to Merger;
5. Prior to and at the Effective Time, Parent will be in "Control" of
Subsidiary. As used herein, "Control" shall consist of direct ownership of
shares of stock possessing at least eighty percent (80%) of the total combined
voting power of all classes of stock entitled to vote and at least eighty
percent (80%) of the total number of shares of each other class of stock of the
corporation. For purposes of determining Control, a person shall not be
considered to own shares of voting stock if rights to vote such shares (or to
restrict or
1
<PAGE>
otherwise control the voting of such shares) are held by a third party
(including a voting trust) other than an agent of such person:
6. In the Merger, shares representing Control of the Company will be
exchanged solely for shares of voting stock of Parent. For purposes of this
paragraph, shares exchanged in the Merger for cash and other property
(including, without limitation, cash paid to shareholders of the Company
perfecting dissenters' rights or in lieu of fractional shares of Parent Common
Stock) will be treated as shares outstanding on the date of the Merger but not
exchanged for shares of voting stock of Parent. Parent has no plan or intention
to cause the Company to issue additional shares after the Merger, or take any
other action, that would result in Parent losing Control of the Company;
7. The payment of cash in lieu of fractional shares of Parent Common Stock
is solely for the purpose of avoiding the expense and inconvenience to Parent of
issuing fractional shares and does not represent separately bargained for
consideration. The total cash consideration that will be paid in the Merger to
the Company stockholders in lieu of fractional shares of Parent Common Stock
will not exceed one percent (1%) of the total consideration that will be issued
in the Merger to the Company stockholders in exchange for their shares;
8. Parent has no plan or intention to reacquire any of its stock issued
pursuant to the Merger;
9. Parent has no plan or intention to liquidate the Company; to merge the
Company with or into another corporation; to sell, distribute or otherwise
dispose of the stock of the Company, including by means of a spinoff; to spin-
off any other Subsidiary of Parent; or to cause the Company to sell or otherwise
dispose of any of its assets, including by means of a spin-off, or of any assets
acquired from Subsidiary, except for dispositions made in the ordinary course of
business or payment of expenses, including payments to stockholders of the
Company perfecting dissenters' rights, incurred by the Company pursuant to the
Merger and except for transfers of stock of the Company to a corporation
controlled by the Parent, and subsequent to the Merger, the Company will
continue to conduct its historic business using its historic assets;
10. In the merger, Subsidiary will have no liabilities assumed by the
Company and will not transfer to the Company any assets subject to liabilities,
except to the extent incurred in connection with the transactions contemplated
by the Agreement;
11. During the past five (5) years, none of the outstanding shares of
Company capital stock, including the right to acquire or vote any such shares,
have directly or indirectly been owned by Parent;
<PAGE>
12. Neither Parent nor Subsidiary is an "investment company"
within the meaning of Sections 368(a)(2)(F)(iii) and (iv) of the Code:
13. Neither Parent nor Subsidiary is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code:
14. The liabilities of Subsidiary assumed by the Company and the
liabilities to which the transferred assets of Subsidiary are subject were
incurred by Subsidiary in the ordinary course of its business;
15. The ratio for the exchange of shares for Parent Common Stock
has been negotiated through arm's length bargaining and with the assistance of
competent professional advisors. Consequently, the fair market values of the
shares of Parent Common Stock to be received by each stockholder of the Company
in the Merger will be approximately equal to the fair market value of the shares
surrendered in exchange therefor and the aggregate consideration to be received
by stockholders of the Company in exchange for their shares will be
approximately equal to the fair market value of all of the outstanding shares
immediately prior to the Merger;
16. Parent, Subsidiary and Company will each pay their respective
expenses, if any, incurred in connection with the Merger. None of Parent,
Subsidiary or Company will pay any expenses of the stockholders of Company
incurred in connection with the Merger.
17. There is no intercorporate indebtedness existing between
Parent and the Company or between Subsidiary and the Company that was issued,
acquired or will be settled at a discount as a result of the Merger;
18. Any amounts paid with respect, to discounting shares of the
Company will be paid by the Company solely from the Company's pre-Merger assets
and without reimbursement therefor by Parent or Subsidiary;
19. Other than as specifically provided in this Agreement, Parent
will not reimburse any stockholder of the Company for the Company's capital
stock such stockholder may have purchased or for other obligations such
stockholder may have incurred;
20. Parent and Subsidiary shall (and, following the Effective
Time, Parent shall cause the Company to) take no action with respect to the
capital stock, asset or liabilities of the Company that would cause the Merger
to fail to qualify as a "reorganization" within the meaning of Section
368(a)(1)(A) and 368(a)(2)(E) of the Code. Without limitation on the foregoing,
following the Effective Time, Parents shall cause the Company to either continue
the historic business of the Company or use a significant portion the Company's
historic business assets in a business.
3
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration
statement of Corporate Express, Inc. on Form S-4 (the "Registration
Statement") of our report dated April 18, 1997 on our audits of the
consolidated financial statements and financial statement schedule of
Corporate Express, Inc. as of March 1, 1997 and March 2, 1996, and for the
years ended March 1, 1997, March 2, 1996 and February 25, 1995. We also
consent to the reference to our Firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
Denver, Colorado
October 24, 1997
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration
Statement No. 333-35559 of Corporate Express, Inc. on Form S-4 of our
reports dated February 6, 1997, appearing in the Prospectus, which is a
part of such Registration Statement, and to the references to us under the
headings "Selected Financial Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Omaha, Nebraska
October 24, 1997
