UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
July 2, 1998
Date of Report (Date of earliest event reported)
CONSOLIDATED DELIVERY & LOGISTICS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 0-26954 22-3350958
(State or other jurisdiction of (Commission File (IRS Employer
incorporation or organization) Number) Identification No.)
380 Allwood Road, Clifton, New Jersey 07012
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (973) 471-1005
NOT APPLICABLE
(Former name or former address, if changed since last report.)
<PAGE>
This 8-K/A filing amends an 8-K filed on July 16, 1998. Item 7 is hereby
amended to state as follows:
ITEM 7. Financial Statements and Exhibits
a. Financial Statements of Business Acquired.
Audited financial statements of Metro Courier Network, Inc.
("Metro").
Metro Courier Network, Inc. was acquired by the Company on July
2, 1998, and a Form 8-K reporting the transaction was filed on
July 16, 1998, without financial information. Upon review of
Metro's financial statements, the Company determined that Metro
was not a "significant subsidiary" as defined in Regulation S-X,
and that disclosure of its financial statements and pro forma
financial information therefore is not required under SEC rules.
Nonetheless, the Company is filing the financial statements it
received from Metro as additional information for investors.
Metro Balance Sheets as of December 31, 1997 and
1996 and the related audited Statements of Income and Retained
Earnings and Cash Flows for the year ended December 31, 1997
and unaudited Statements of Income and Retained Earnings
and Cash Flows for the year ended December 31, 1996.
Unaudited interim financial statements of Metro.
Metro Balance Sheet as of June 30, 1998 and Statements of
Operations and Retained Earnings and Cash flows for each of the
six months ended June 30, 1998 and 1997.
b. Pro Forma Financial Information.
Consolidated Delivery & Logistics, Inc. ("CDL") and Metro Pro
Forma Condensed Consolidated Combined Financial Statements
(Unaudited).
Pro Forma Condensed Consolidated Combined Balance Sheet as of
June 30, 1998 and Pro Forma Condensed Consolidated Combined
Statements of Continuing Operations for the year ended December
31, 1997 and the six months ended June 30, 1998.
c. Exhibits
10.1* Asset Purchase Agreement dated July 2, 1998 by and
between Consolidated Delivery & Logistics, Inc., Click
Messenger Service, Inc., Metro Courier Network, Inc. and
Dennis Roccaforte.
10.2* 7% Subordinated Convertible Note Due 2001 of
Consolidated Delivery & Logistics, Inc.
10.3 First and Second Contingent Subordinated Convertible
Notes due 2000 and 2001, respectively
* filed previously
<PAGE>
METRO COURIER NETWORK, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
TABLE OF CONTENTS
Independent Auditor's Report 1 - 2
Financial Statements:
Balance Sheets 3
Statements of Income and Retained Earnings 4
Statements of Cash Flows 5 - 6
Notes to Financial Statements 7 - 14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Metro Courier Network, Inc.
We have audited the accompanying balance sheets of Metro Courier Network, Inc.
(a Massachusetts Corporation) ("the Company") as of December 31, 1997 and 1996,
and the related statements of income and retained earnings, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
Except as explained in the following paragraphs, 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.
The Company has not maintained adequate accounting records supporting revenue
for the year ended December 31, 1996, and we were unable to apply procedures to
determine whether the opening balance of accounts receivable in the financial
statements as of December 31, 1996 was fairly presented in conformity with
generally accepted accounting principles or whether accounting principles have
been consistently applied between 1996 and 1997.
Since the Company did not maintain adequate accounting records supporting
revenue for the year ended December 31, 1996, and we were unable to satisfy
ourselves about the opening balances of accounts receivable in the financial
statements as of December 31, 1996, or about the consistent application of
accounting principles between 1996 and 1997, the scope of our work was not
sufficient to enable us to express, and we do not express, an opinion on the
results of operations and cash flows for the year ended December 31, 1996, or on
the consistency of application of accounting principles for the years ended
December 31, 1997 and 1996.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
(Continued)
In our opinion, except for the effects on the 1996 financial statements of the
matter discussed in the fourth paragraph, the 1996 and 1997 balance sheets and
the 1997 statements of income and retained earnings and cash flows referred to
in the first paragraph present fairly, in all material respects, the financial
position of Metro Courier Network, Inc. as of December 31, 1997 and 1996, and
the results of its operations and its cash flows for the year ended December 31,
1997 in conformity with generally accepted accounting principles.
\s\ Leonard, Mulherin & Greene, P.C.
LEONARD, MULHERIN & GREENE, P.C.
Boston, Massachusetts
June 26, 1998
<PAGE>
<TABLE>
<CAPTION>
METRO COURIER NETWORK, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<S> <C> <C>
1997 1996
ASSETS
CURRENT ASSETS:
Accounts receivable, net of $25,000 and $0 reserve
for uncollectible accounts at December 31, 1997
and 1996, respectively $ 576,622 $ 412,259
Prepaid expenses and other current assets (Note 4) 27,373 11,368
--------------- -------------
Total Current Assets 603,995 423,627
Property and equipment, net (Note 5) 367,643 170,918
Shareholder loan (Note 11) 8,000 -
Other assets 7,200 6,847
Intangible assets (Note 6) 274,723 62,889
--------------- -------------
Total Assets $ 1,261,561 $ 664,281
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft $ 764 $ 389
Accounts payable and accrued liabilities (Note 7) 189,846 97,944
Short-term borrowings (Note 8) 200,000 20,900
Current maturities of long-term debt (Note 9) 165,393 67,434
--------------- -------------
Total Current Liabilities 556,003 186,667
Long-term debt, net of current maturities (Note 9) 207,664 43,021
--------------- -------------
Total Liabilities 763,667 229,688
--------------- -------------
Commitments and contingencies (Notes 10, 12 and 13)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 20,000 shares authorized, 500 and 250 shares
issued and outstanding, at December
31, 1997 and 1996, respectively 7,392 7,392
Retained earnings 490,502 427,201
--------------- -------------
Total Stockholders' Equity 497,894 434,593
--------------- -------------
Total Liabilities and Stockholders' Equity $ 1,261,561 $ 664,281
=============== =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
METRO COURIER NETWORK, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<S> <C> <C>
(Unaudited)
1997 1996
Revenue $ 5,182,299 $2,922,824
Cost of Revenue 3,806,882 2,189,912
----------- ----------
Gross Profit 1,375,417 732,912
Selling, general and administrative expenses 1,259,760 592,011
----------- -----------
Net Income from Operations 115,657 140,901
----------- -----------
Other Income/(Expense):
Interest expense (48,855) (13,225)
Loss on sale of asset - (8,984)
----------- ------------
Net Income 66,802 118,692
Retained Earnings, Beginning of Year 427,201 341,836
Shareholder Distributions (3,501) (33,327)
------------ ------------
Retained Earnings, End of Year $490,502 $427,201
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
METRO COURIER NETWORK, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<S> <C> <C>
(Unaudited)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 66,802 $118,692
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 115,572 69,886
Loss on sale of asset - 8,984
Changes in operating assets and liabilities
(Increase)/decrease in:
Accounts receivable, net (164,363) (111,837)
Prepaid expenses and other current assets (16,005) (9,264)
Other assets (8,400) 1,300
Increase/(decrease) in:
Accounts payable and accrued liabilities 91,902 28,107
--------------- ---------------
Net Cash Provided by Operating Activities 85,508 105,868
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property and Equipment (274,084) (77,677)
Purchases of businesses (175,000) -
-------------- ---------------
Net Cash Used in Investing Activities (449,084) (77,677)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings/(repayments), net 179,100 20,900
Long-term borrowings 310,870 33,550
Repayments of long-term debt (123,268) (47,530)
Distributions to shareholders (3,501) (33,327)
--------------- --------------
Net Cash Provided/(Used) by Financing
Activities 363,201 ( 26,407)
--------------- --------------
Net (Decrease)/Increase in Cash and Cash Equivalents (375) 1,784
Cash Overdraft, Beginning of Year (389) (2,173)
---------------- --------------
Cash Overdraft, End of Year ($764) ($389)
================ ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
METRO COURIER NETWORK, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<S> <C> <C>
(Unaudited)
1997 1996
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $46,148 $ 13,225
=============== ===============
Cash paid for income taxes $- $-
=============== ===============
Disclosure of Non-Cash Transactions:
In 1997, the Company incurred a capital lease obligation of $18,450 related
to vehicle leasing.
The Company acquired businesses for $75,000 and $57,000 in 1997 and 1996,
respectively, through issuance of seller financed debt.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Note 1 - Organization and Business
Metro Courier Network, Inc. ("the Company") was founded in 1992. The
Company provides delivery services to a wide range of commercial,
industrial and retail customers in the New England area.
Note 2 - Summary of Significant Accounting Policies
Use of Estimates in Preparation of the 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.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents
are carried at cost, which approximates market value. The Company considers
checks outstanding in excess of cash in bank and deposits in transit to be
a cash overdraft.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Assets subject to capital leases are amortized over the shorter of the
terms of the leases or lives of the assets.
Intangible Assets
Intangible assets consist of goodwill and customer lists. Goodwill
represents the excess of the purchase price over the fair value of assets
of businesses acquired and is amortized on a straight-line basis over 25
years. Customer lists are amortized over the estimated period to be
benefitted, generally from 3 to 5 years.
<PAGE>
Note 2 - Summary of Significant Accounting Policies (continued)
Revenue Recognition
Revenue is recognized when the shipment is completed, or when services are
rendered to customers and expenses are recognized as incurred.
Income Taxes
The Company, with the consent of its shareholders, has elected under the
Internal Revenue Code to be an S corporation. In lieu of corporation income
taxes, the shareholders of an S corporation are taxed on their
proportionate share of the Company's taxable income. Therefore, no
provision or liability for federal or state income taxes has been included
in the financial statements.
Long-Lived Assets
The Company reviews its long-lived assets and certain related intangibles
for impairment whenever changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. The measurement of
impairment losses to be recognized is based on the difference between the
fair values and the carrying amounts of the assets. Impairment would be
recognized in operating results if a diminution in value occurred. The
Company does not believe that any such changes have occurred.
Fair Value of Financial Instruments
Due to the short maturities of the Company's cash, receivables and
payables, the carrying value of these financial instruments approximates
their fair values. The fair value of the Company's debt is estimated based
on the current rates offered to the Company for debt with similar remaining
maturities. The Company believes that the carrying value of its debt
estimates the fair value of such debt instruments.
Note 3 - Business Combinations
During the years ended December 31, 1997 and 1996, the Company acquired certain
businesses in transactions accounted for as purchases. The total consideration
paid in these transactions is contingent upon future activity and is estimated
to aggregate approximately $307,000.
<PAGE>
Note 3 - Business Combinations - (Continued)
The entire amount of the consideration expected to be paid has been assigned to
the excess of purchase price over net assets of businesses acquired (goodwill)
and other intangible assets (customer lists). A liability has been established
to reflect the seller financed debt (see Note 9) which is contingent upon future
activity of the Company.
The operating results of the acquired businesses have been reflected in the
accompanying statements of income and retained earnings since their respective
acquisition dates.
Note 4 - Prepaid Expenses and Other Current Assets
<TABLE>
<CAPTION>
Prepaid expenses and other current assets consist of the following at December 31:
<S> <C> <C>
1997 1996
---- ----
Prepaid insurance $25,373 $11,368
Prepaid legal fees 2,000 -
--------------- ---------------
$ 27,373 $ 11,368
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
Note 5 - Property and Equipment
Property and equipment consist of the following at December 31:
<S> <C> <C> <C>
Useful lives 1997 1996
------------ ---- ----
Vehicles 5 years $333,396 $141,073
Equipment 3-7 years 177,447 101,842
Furniture and fixtures 5-7 years 15,537 15,388
--------------- -------------
526,380 258,303
Less - accumulated depreciation
and amortization 158,737 87,385
--------------- -------------
$367,643 $170,918
=============== =============
</TABLE>
<PAGE>
Note 5 - Property and Equipment - (Continued)
Leased vehicles under capitalized leases (included above) consist of the
following:
<TABLE>
<S> <C> <C>
1997 1996
---- ----
Vehicles $20,500 $-
Less - accumulated amortization (4,100) -
--------------- ------------
$ 16,400 $ -
=============== ============
</TABLE>
The Company incurred capital lease obligations of $18,450 and $0 for the years
ended December 31, 1997 and 1996, respectively, in connection with agreements to
lease vehicles.
Depreciation expense, which includes amortization expense related to the
vehicles leased under capital leases, amounted to $77,359 and $43,270 for the
years ended December 31, 1997 and 1996, respectively.
Note 6 - Intangible Assets
Intangible assets consist of the following:
<TABLE>
<S> <C> <C>
1997 1996
-------------------- --------------------
Goodwill $175,000 $-
Customer lists 172,000 97,000
-------------------- --------------------
347,000 97,000
Less-accumulated amortization 72,277 34,111
-------------------- --------------------
$274,723 $62,889
==================== ====================
</TABLE>
Amortization expense, related to intangible assets, amounted to $38,166 and
$26,333 for the years ended December 31, 1997 and 1996, respectively.
<PAGE>
Note 7 - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
<TABLE>
<S> <C> <C>
1997 1996
---- ----
Accounts payable $85,574 $ 36,405
Accrued payroll and related expenses 22,938 31,251
Accrued commissions 61,961 -
Accrued insurance - 30,288
Accrued interest 2,707 -
Other accrued obligations 16,666 -
--------------- ------------
$189,846 $97,944
=============== ============
</TABLE>
Note 8 - Short Term Borrowings
In May 1997, the Company entered into a revolving credit facility (the
"revolving line of credit agreement") with US Trust. The revolving line of
credit agreement, which matures May 31, 1998 and may be renewed for successive
one (1) year periods thereafter upon the mutual written agreement of US Trust
and the Company, provides for a borrowing capacity of up to $200,000, payable on
demand. Interest is payable monthly at a floating rate equal to the bank's base
lending rate plus 1.0% (9.5 % at December 31, 1997). The revolving line of
credit agreement is secured by substantially all of the Company's assets,
including cash balances, accounts receivable, equipment, contract rights and
general intangibles of the Company. Additionally, the revolving line of credit
agreement is secured by the personal guarantee of the Company's president and a
limited recourse guarantee from a certain family trust executed by the Company's
president in his role as trustee.
At December 31, 1997, the outstanding borrowing on the revolving line of credit
agreement amounted to $200,000.
At December 31, 1996, the Company had outstanding borrowings of $20,900 against
an American Express credit line. This amount was paid in full during 1997.
<PAGE>
Note 9 - Long-Term Debt
Long-term debt consists of the following at December 31:
<TABLE>
<S> <C> <C>
1997 1996
---- ----
Term note payable to a bank, secured by substantially
all of the Company's assets, matures May 2002,
monthly principal payments of $2,500 plus
interest at the bank's base lending rate plus 1.0% (9.5% at
December 31, 1997). $127,500 $-
Various notes payable to finance companies, secured by
vehicles and equipment, maturing at various dates
between March 1998 and June 2000, monthly payments
ranging from $252 to $1,455 including interest at
various rates ranging from 12.25% to 13.50%. 136,557 49,197
Capital lease obligation, secured by a vehicle, maturing in
May 2000, monthly payments of $787 including interest
of 30.32%. 16,031 -
Seller financed debt on business acquisitions,
payable in monthly installments of varying
amounts, based on a percentage of certain
collected revenues, maturing at various dates
between June 1998 and December 2000. 92,969 61,258
---------- ---------
373,057 110,455
Less current maturities 165,393 67,434
---------- ---------
$207,664 $43,021
========== =========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998 $ 165,393
1999 123,356
2000 46,808
2001 30,000
2002 7,500
---------------
$ 373,057
===============
</TABLE>
Note 10 - Commitments and Contingencies
Operating Leases
The Company leases its office and warehouse facilities under a
noncancellable operating lease and tenant at will arrangements. The
noncancellable operating lease expires in May 2003. Additionally, the
Company leases various vehicles under noncancellable operating leases which
expire between April 1999 and September 2002. The approximate minimum
rental commitments of the Company, under noncancellable operating
agreements as of December 31, 1997, are as follows:
1998 $ 124,295
1999 106,700
2000 91,702
2001 92,806
2002 89,092
2003 32,479
Rent expense, which includes vehicle rentals under operating leases,
amounted to $106,013 and $62,720 during the years ended December 31, 1997
and 1996, respectively.
Employment and Consulting Agreement
In February 1997, the Company entered into an employment and consulting
agreement with Ray Leonard (the "employee") calling for the employee to be
employed by the Company as an operations manager of distribution services
for a three (3) year term, commencing March 1, 1997 and ending February 29,
2000. Upon the expiration of such original term, the employee's employment
by the Company shall continue as a consultant for up to fifteen (15) hours
per month through March 1, 2007 (the "consulting period").
The employee is entitled to annual compensation for his services of one
hundred thousand ($100,000) dollars through the initial three (3) year term
of the agreement. Additionally, during the initial term of employment and
during the consulting period thereafter, the Company agrees to pay the
employee a commission of up to five (5%) percent of annual sales, based
upon achieving certain sales volume, derived exclusively from distribution
services of the Company (see Note 13).
<PAGE>
Note 11 - Related Party Transactions
During the year ended December 31, 1997, the Company made a loan of $8,000 to a
shareholder. The loan, payable on demand, is non-interest bearing.
Note 12 - Concentrations
As stated in Note 1, the Company provides delivery services to a wide range of
commercial, industrial and retail customers in New England. The Company utilized
the services of NICA, a subcontractor, to provide drivers for a significant
portion of its deliveries. The Company paid NICA approximately $2,220,000 and
$1,025,000 during the years ended December 31, 1997 and 1996, respectively.
Note 13 - Subsequent Event
On May 27, 1998, the Company and Ray Leonard ("Leonard") entered into an
agreement ("termination agreement") to terminate the employment and consulting
agreement (see Note 10) of February 28, 1997 between Leonard and the Company.
The termination agreement requires the Company to pay Leonard the sum of three
hundred thousand ($300,000) dollars on or before July 31, 1998. Payment terms
are as follows: (i) fifteen thousand ($15,000) dollars upon execution of the
termination agreement; (ii) two thousand ($2,000) dollars per week until the
earlier of July 31, 1998 or the week the balance of the $300,000 due is
tendered; and (iii) the balance of the $300,000 on or before July 31, 1998.
Additionally, the termination agreement requires the Company to pay Leonard all
salary due through the week of May 8, 1998 and certain commissions earned
through May 1998.
Should the Company fail to pay $300,000 to Leonard by July 31, 1998, Leonard may
at his sole discretion either: (i) deem the termination agreement canceled and
the parties shall revert to the terms and provisions of the employment and
consulting agreement, provided that a breach of the termination agreement shall
be deemed a breach of the employment and consulting agreement; or (ii) the
Company shall pay Leonard twenty-five thousand ($25,000) dollars per month as
additional consideration until the balance of $300,000 is tendered in full.
The termination agreement obligation to Leonard is secured by a security
agreement granting Leonard a security interest in substantially all assets of
the Company.
<PAGE>
<TABLE>
<CAPTION>
METRO COURIER NETWORK, INC.
CONDENSED BALANCE SHEETS
<S> <C> <C>
June 30, December 31,
1998 1997
------------------- -------------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $6,076 $-
Accounts Receivable, net 790,266 576,622
Prepaid expenses and other current assets 5,163 27,373
------------------- -------------------
Total current assets 801,505 603,995
PROPERTY AND EQUIPTMENT, net 315,408 367,643
INTANGIBLE ASSETS, net 248,389 274,723
OTHER ASSETS 16,450 15,200
------------------- -------------------
Total assets $1,381,752 $1,261,561
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $200,000 $200,000
Current maturities of long-term debt 165,393 165,393
Accounts payable and accrued liabilities 713,237 190,610
------------------- -------------------
Total current liabilities 1,078,630 556,003
LONG-TERM DEBT 182,922 207,664
------------------- -------------------
Total liabilities 1,261,552 763,667
------------------- -------------------
Common Stock 7,392 7,392
Retained Earnings 112,808 490,502
------------------- -------------------
Total stockholders' equity 120,200 497,894
------------------- -------------------
Total liabilities and stockholders' equity $1,381,752 $1,261,561
=================== ===================
See notes to unaudited condensed interim financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
METRO COURIER NETWORK, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
<S> <C> <C>
For the Six months Ended June 30,
-----------------------------------------
1998 1997
------------------ -----------------
Revenue $3,165,654 $2,178,589
Cost of Revenue 2,452,127 1,762,880
------------------ -----------------
Gross Profit 713,527 415,709
Selling, general, and administrative expenses 1,066,246 545,292
------------------ -----------------
Loss from operations (352,719) (129,583)
Interest expense 24,975 7,417
------------------ -----------------
Net loss (377,694) (137,000)
Retained earnings, beginning of period 490,502 427,201
------------------ -----------------
Retained earnings, end of period $112,808 $290,201
================== =================
See notes to unaudited condensed interim financial statements.
</TABLE>
<PAGE>
METRO COURIER NETWORK, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<S> <C> <C>
For the Six Months
Ended June 30,
----------------------------
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES: -------------- ------------
Net loss ($377,694) ($137,000)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities -
Depreciation and amortization 78,569 54,182
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable, net (213,644) (32,701)
Prepaid expenses and other current assets 22,210 11,368
Other assets (1,250) (9,653)
Increase (decrease) in -
Accounts payable and accrued liabilities 522,627 (2,353)
-------------- ------------
Net cash provided by (used in) operating activities 30,818 (116,157)
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business - (175,000)
-------------- ------------
Net cash used in investing activities - (175,000)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net - 200,000
Proceeds from long-term debt - 190,185
Repayments of long-term debt (24,742) -
-------------- ------------
Net cash (used in) provided by financing activities (24,742) 390,185
-------------- ------------
Net increase in cash and cash equivalents 6,076 99,028
CASH AND CASH EQUIVALENTS, beginning of period - -
-------------- ------------
CASH AND CASH EQUIVALENTS, end of period $6,076 $99,028
============== ============
See notes to unaudited condensed interim financial statements.
</TABLE>
<PAGE>
METRO COURIER NETWORK, INC.
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed interim 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. The
condensed balance sheet at December 31, 1997, has been derived from the
audited financial statements at that date. In the opinion of
management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the six months ended June 30, 1998, are
not necessarily indicative of the results that may be expected for any
other interim period or for the year ending December 31, 1998.
2. SUBSEQUENT EVENT:
On May 27, 1998, the Company and Ray Leonard ("Leonard") entered into an
agreement ("termination agreement") to terminate the employment and
consulting agreement of February 28, 1997 between Leonard and the
Company.
The termination agreement required the Company to pay Leonard the sum of
three hundred thousand ($300,000) dollars on or before July 31, 1998.
Payment terms are as follows: (i) fifteen thousand ($15,000) dollars upon
execution of the termination agreement; (ii) two thousand ($2,000)
dollars per week until the earlier of July 31, 1998 or the week the
balance of the $300,000 due is tendered; and (iii) the balance of the
$300,000 on or before July 31, 1998. The $300,000 termination charge was
included in selling, general and administrative expenses for the six
months ended June 30, 1998, with the related liability of approximately
$274,000 in accounts payable and accrued liabilities as of June 30, 1998.
Additionally, the termination agreement required the Company to pay
Leonard all salary due through the week of May 8, 1998 and certain
commissions earned through May 1998.
On July 2, 1998, the termination agreement was satisfied with the agreed
upon payment of $273,000.
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED
FINANCIAL DATA
The accompanying unaudited pro forma condensed consolidated combined financial
data of CDL and Metro have been prepared to present the effect of the
acquisition of the assets and cerain liabilities of Metro by CDL. The unaudited
pro forma condensed consolidated combined balance sheet as of June 30, 1998 was
prepared by combining the assets of Metro acquired by CDL as if the acquisition
had occurred on June 30, 1998. The unaudited pro forma condensed consolidated
combined statement of continuing operations for the year ended December 31, 1997
and six months ended June 30, 1998 combines historical statements of operations
for CDL and Metro as if the acquisition had occurred on January 1, 1997.
The detailed assumptions used to prepare the unaudited pro forma condensed
consolidated combined financial information are contained herein. The unaudited
pro forma condensed consolidated combined financial information reflects the use
of the purchase method of accounting for the acquisition. The purchase price
allocation used in the preparation of the pro forma financial information is
preliminary and subject to change based upon the final evaluation being
performed.
The following unaudited pro forma financial data may not be indicative of the
results of operations that would have actually occurred had the transaction been
in effect as of the beginning of the respective periods, nor do they purport to
indicate CDL's future results of operations. This information and accompanying
notes should be read in conjunction with CDL's Annual Report on Form 10-K for
the year ended December 31, 1997, its Quarterly Reports on Form 10-Q for the
quarters ended March 31 and June 30, 1998 and Metro's financial statements
included elsewhere in this report on Form 8-K/A.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED COMBINED BALANCE SHEET (UNAUDITED)
June 30, 1998
(In thousands )
<S> <C> <C> <C> <C> <C>
Historical Pro Forma Pro Forma
CDL Metro Adjustments Combined
------------- ------------ ---------------- --------------
CURRENT ASSETS
Cash and cash equivalents $1,281 $6 $1,287
Accounts receivable, net 19,477 790 $(35) (b) 20,232
Prepaid expenses and other
current assets 2,492 5 2,497
------------- ------------ ---------------- --------------
Total current assets 23,250 801 (35) 24,016
EQUIPMENT AND LEASE-
HOLD IMPROVEMENTS, net 5,727 315 79 (b) 6,121
INTANGIBLE ASSETS, net 2,848 248 3,888 (b) 6,984
OTHER ASSETS 1,445 16 (13) (b) 1,448
------------- ------------ ---------------- --------------
Total assets $33,270 $1,380 $3,919 $38,569
============= ============ ================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $4,500 $200 2,500 (a) $7,200
Current maturities of long-term
debt 2,475 165 2,640
Accounts payable and accrued
liabilities 13,095 713 (245) (a,b) 13,563
Net liabilities of discontinued
operations 111 - 111
------------- ------------ ---------------- --------------
Total current liabilities 20,181 1,078 2,255 23,514
------------- ------------ ---------------- --------------
LONG-TERM DEBT 2,398 183 1,783 (a)(b) 4,364
OTHER LONG-TERM
LIABILITIES 1,529 - 1,529
------------- ------------ ---------------- --------------
Total liabilities 24,108 1,261 4,038 29,407
------------- ------------ ---------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock 7 7 (7) (b) 7
Additional paid-in capital 9,026 - 9,026
Treasury stock (162) - (162)
Retained earnings 291 112 (112) (b) 291
------------- ------------ ---------------- --------------
Total stockholder's equity 9,162 119 (119) 9,162
------------- ------------ ---------------- --------------
Total liabilities and
stockholders' equity $33,270 $1,380 $3,919 $38,569
============= ============ ================ ==============
See notes to unaudited pro forma condensed consolidated combined
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED COMBINED STATEMENT OF CONTINUING OPERATIONS
For the Year Ended December 31, 1997
(Unaudited)
(In thousands except per share information)
<S> <C> <C> <C> <C>
Historical Pro Forma Pro Forma
CDL Metro Adjustments Combined
------------- ------------- ---------------- ---------------
Revenue $171,502 $5,182 $176,684
Cost of revenue 130,577 3,807 $26 (c) 134,410
------------- ------------- ---------------- ---------------
Gross profit 40,925 1,375 (26) 42,274
Selling, general and
administrative expenses 38,223 1,260 168 (c) 39,651
------------- ------------- ---------------- ---------------
Operating income 2,702 115 (194) 2,623
Other (income) expense:
Gain on sale of subsidiary (816) - (816)
Other income, net (171) - (171)
Interest expense 1,144 48 348 (c) 1,540
------------- ------------- ---------------- ---------------
Income from continuing
operations before income
taxes 2,545 67 (542) 2,070
Provision for income taxes 888 - (164) (c) 724
------------- ------------- ---------------- ---------------
Income from continuing
operations $1,657 $67 ($378) $1,346
============= ============= ================ ===============
Basic income per share:
Continuing operations $.25 - - (d,e) $.20
============= ============= ================ ===============
Weighted average shares
outstanding 6,672 - - (d,e) 6,672
============= ============= ================ ===============
Diluted income per share:
Continuing operations $.25 - - (d,e) $.20
============= ============= ================ ===============
Weighted average shares
outstanding 6,675 - - (d,e) 6,675
============= ============= ================ ===============
</TABLE>
See notes to unaudited pro forma condensed consolidated combined
financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED COMBINED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(Unaudited)
(In thousands except per share information)
<S> <C> <C> <C> <C>
Historical Pro Forma Pro Forma
CDL Metro Adjustments Combined
------------- ------------ ---------------- ----------------
Revenue $87,278 $3,166 $90,444
Cost of revenue 67,625 2,452 $13 (c) 70,090
------------- ------------ ---------------- ----------------
Gross profit 19,653 714 (13) 20,354
Selling, general and
administrative expenses 18,181 1,066 (216) (c) 19,031
------------- ------------ ---------------- ----------------
Operating income (loss) 1,472 (352) 203 1,323
Other (income) expense:
Other income, net (171) - (171)
Interest expense 498 25 174 (c) 697
------------- ------------ ---------------- ----------------
Income (loss) before income
taxes 1,145 (377) 29 797
Provision for income taxes 435 - (132) (c) 303
------------- ------------ ---------------- ----------------
Net Income (loss) $710 ($377) $161 $494
============= ============ ================ ================
Basic income per share:
Net income per share $.11 - - (d,e) $.07
============= ============ ================ ================
Weighted average shares
outstanding 6,660 - - (d,e) 6,660
============= ============ ================ ================
Diluted income per share:
Net income per share $.10 - - (d,e) $.07
============= ============ ================ ================
Weighted average shares
outstanding 6,824 - - (d,e) 6,824
============= ============ ================ ================
</TABLE>
See notes to unaudited pro forma condensed consolidated combined
financial statements.
<PAGE>
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL STATEMENTS
(Unaudited)
(a) The following pro forma adjustments reflect CDL's purchase of Metro. Pro
forma adjustments include estimated direct costs of acquisition of
$30,000, which accounts for the $30,000 increase from the initial
purchase price of $4.25 million as presented in Item 2 of the 8-K.
(in thousands)
Short-term borrowings $2,500
7% Convertible subordinated note payable 1,750
Accrued expenses 30
------------
Total $4,280
============
(b) The following pro forma adjustments reflect the allocation of the
purchase price to the assets acquired net of liabilities assumed based on
the relative fair value (in thousands):
Fair value adjustment for accounts receivable $(35)
Fair value adjustment for property and equipment, net 79
Fair value adjustment for intangible assets, net (157)
Amount of purchase price allocated to goodwill 4,045
Elimination of Metro's shareholder loans not acquired (8)
Fair value adjustment of other assets (5)
Elimination of Metro's termination liability not acquired 275
Fair value adjustment of long-term debt (33)
Elimination of Metro's common stock 7
Elimination of Metro's retained earnings 112
------------
Total $4,280
============
<PAGE>
<TABLE>
<CAPTION>
(c) The following pro forma adjustments are incorporated in the pro forma condensed combined statements of
operations (in thousands):
<S> <C> <C>
Year ended Six months
December 31, ended
1997 June 30, 1998
------------------ ------------------
1. Increase in interest expense on 7% convertible
note payable. (123) (61)
2. Increase in interest expense on assumed
borrowings on credit facility at 9%. (225) (113)
3. Increase in amortization expense resulting from
the acquired goodwill net of the elimination of
Metro's goodwill using a 25 year life. (168) (84)
4. Increase in depreciation resulting from
adjustment to carrying amount of vehicles using a 3
year life. (26) (13)
5. Decrease in selling, general and adminstrative
expenses for the elimination of Metro's termination
liability not acquired by CDL. - 300
6. Decrease in income taxes associated with the
above adjustments and from the application of CDL's
historical effective tax rate for the periods
presented to the pretax income in the
accompanying consolidated statements of
operations. Metro's historical financial
statements resulted in no federal or state income
tax due to Metro's S corporation
tax status. (164) 132
------------------ ------------------
($378) $161
================== ==================
</TABLE>
(d) The holder of the $1.75 million 7% Subordinated Convertible Note Payable
(the "Note") has the right to convert the Note into fully paid shares of
CDL's common stock at any time after the acquisition of Metro by CDL
through July 1, 2001. The pro forma adjustments do not include an
adjustment for the conversion of the Note since the conversion price is
$7.00 per common share, which exceeds the average market price of CDL's
common stock for the periods presented. Diluted earnings per share is not
effected by the Note since the conversion of the Note into common stock
was antidilutive for the periods presented.
(e) The contingent earn out is comprised of two Contingent Subordinated
Convertible Notes due 2000 and 2001 (the "Contingent Notes"). For the pro
forma financial statements the Contingent Notes were deemed not to be
convertible since the earnings thresholds and fair market value per share
requirements were not met during the periods presented. The pro forma
diluted earnings per share was not effected by the Contingent Notes since
the necessary conditions for conversion were not satisfied by the end of
the periods presented.
<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.
Dated: September 15, 1998 CONSOLIDATED DELIVERY & LOGISTICS, INC.
(Registrant)
By: /s/ Albert W. Van Ness, Jr.
Albert W. Van Ness, Jr.
Chairman of the Board, Chief Executive
Officer and Chief Financial Officer
<PAGE>
Exhibit 10.3
This Note has been, and any shares issued upon conversion
pursuant to the terms hereof ("Underlying Shares") will be,
acquired for investment and not with a view to, or for sale in
connection with, any distribution thereof within the meaning
of the Securities Act of 1933, as amended ("Act"). This Note,
and any securities issued upon conversion pursuant to this
Note, have not been registered under the Securities Act of
1933, or any state securities law, and may be offered and sold
only if registered pursuant to the provisions of that Act or
those laws or if an exemption from registration is available.
Notwithstanding any other provisions contained herein, no
transfer of this security, the Underlying Shares, or of any
interest in either thereof shall be made unless the conditions
specified in Article Four hereof have been fulfilled.
TRANSFER IS ALSO RESTRICTED BY SECTION 6.04.
FIRST CONTINGENT SUBORDINATED CONVERTIBLE NOTE DUE 2000
OF CONSOLIDATED DELIVERY & LOGISTICS, INC.
Registered Holder: Metro Courier Network, Inc.
July 2, 1998
Address: 175 Bay State Drive No. CN-1
Braintree, MA 02184
Principal Amount: Up to $375,000 Clifton, New Jersey
Due: October 2, 2000
FOR VALUE RECEIVED, CONSOLIDATED DELIVERY & LOGISTICS, INC., a
Delaware corporation (hereinafter called the "Company"), hereby promises to pay
to the holder above named (herein called the "Holder"), or its order or its
registered assign(s), the principal sum above stated on October 2, 2000 without
interest. All amounts due hereunder are subject to reduction pursuant to Section
2.3(c) of the Asset Purchase Agreement described in Section 6.04, which
provisions are incorporated herein as if set forth in full, and Article Three
below.
Principal hereof are payable in lawful money of the United
States of America at the Holder's address above or such other address as the
Holder shall designate in writing delivered to the Company from time to time.
Prior to any sale or other disposition of this Note, the Holder will endorse
hereon the amount of principal paid hereon.
PREPAYMENT
The Company may prepay this debt, in whole or in part, without
premium or penalty at any time on and after the "Testing Date" (as defined
below) and from time to time thereafter in its discretion; provided that it
gives the Holder ten (10) days advance written notice of its intent to prepay;
during which period the Holder may exercise its conversion rights.
ARTICLE ONE
SUBORDINATION
Anything contained herein to the contrary notwithstanding, the
indebtedness evidenced by this Note shall be fully subordinate and junior in
right of payment, to the extent and in the manner hereinafter set forth, to all
Senior Debt of the Company, including, without limitation, all indebtedness due
to First Union Commercial Corporation or its affiliates or any other bank or
similar financial institution (hereinafter a "bank"), direct or indirect,
absolute or contingent, due or to become due, whether now outstanding or
hereafter created, and any and all renewals of the foregoing by operation of law
or otherwise. Such indebtedness of the Company to which the indebtedness
evidenced by this Note is subordinate and junior being sometimes hereinafter
referred to as "Senior Debt" and also includes without limitation all debt or
financing from time to time arranged by First Union Commercial Corporation or
its affiliates.
(i) In the event of any insolvency or
bankruptcy proceedings, and any receivership, liquidation,
reorganization or other similar proceedings in connection
therewith, relative to the Company or to its creditors, as
such, or to its property, and in the event of any proceedings
for voluntary liquidation, dissolution or other winding up of
the Company, whether or not involving insolvency or
bankruptcy, and in the event of any execution sale, then the
holders of Senior Debt shall be entitled to receive payment in
full of all principal of, and premium on and interest on all
Senior Debt (including any such interest which may accrue
after the commencement of any such proceedings) before the
Holder of this Note is entitled to receive any further payment
on account of principal of or premium, if any, on this Note,
and to that end the holders of Senior Debt shall be entitled
to receive for application in payment thereof any payment or
distribution of any kind or character, whether in cash or
property or securities, which may be payable or deliverable in
any such proceedings in respect to this Note except with
respect to interest payments.
(ii) The Company shall not be required to
make, directly or indirectly, and the Holder shall not be
entitled to accept, receive (directly or indirectly) or
retain, any payment or prepayment of principal or premium
hereunder if and so long as a payment default under the terms
of any Senior Debt shall have occurred and shall be
continuing.
(iii) In the event that this Note is
declared due and payable before its expressed maturity because
of the occurrence of a default hereunder (under circumstances
when the provisions of clause (i) above shall not be
applicable), and within 90 days of such declaration, the
holders of the Senior Debt accelerate the indebtedness
evidenced by such Senior Debt, the holders of all Senior Debt
shall be entitled to receive payment in full of all principal
and interest on all Senior Debt (including any such interest
which may accrue after the commencement of any proceedings
referred to in clause (i) above) before the Holder of this
Note shall receive any further payment on account of the
principal of or premium, if any, on this Note.
Unless an event described in (i), (ii) or (iii) above shall
occur, principal of this Note shall be payable as provided on the first page;
and in the event the payment is suspended as provided in (i), (ii) or (iii)
above, any amount previously received by the Holder hereof prior to the
effective date of such event and payable to the Holder in accordance with the
terms hereof shall be and remain the property of the Holder, the subordination
provisions being intended only to affect payments due after an event described
in (i), (ii) or (iii).
In case cash, securities or other property otherwise payable
or deliverable to the Holder of this Note shall have been applied pursuant to
the provisions of this Note to the payment of Senior Debt in full, then and in
each such case, the holder or holders of the Senior Debt at the time any
payments or distributions are received by such holder(s) of Senior Debt in
excess of the amount sufficient to pay all Senior Debt in full, (a) shall pay
over such excess to the Holder of this Note and (b) the Holder of this Note
shall be subrogated to any rights of any holder(s) of Senior Debt to receive any
further payments or distributions applicable to the Senior Debt, until this Note
shall have been paid in full. Senior Debt shall not be considered to be paid in
full unless and until all of the obligations which constitute a part of Senior
Debt have been paid in full.
In furtherance of such subordination, the Holder of this Note
hereby grants to the holder(s) of the Senior Debt irrevocable authority, after
any default in the payment of any amounts due on the Senior Debt or in any event
specified in clauses (i), (ii) or (iii) above, to demand, collect, file proofs
of claim with respect to, receive and take any and all proceedings for the
recovery of any and all monies due or to become due on account of this Note.
No present or future holder of Senior Debt shall be prejudiced
in his right to enforce subordination of this Note by any act or failure to act
on the part of the Company. The subordination provisions of this Note are solely
for the purpose of defining the relative rights of the holder(s) of Senior Debt
on the one hand and the Holder of this Note on the other hand, and nothing
herein shall impair as between the Company and the Holder of this Note, the
obligation of the Company, which is unconditional and absolute, to pay to the
Holder hereof the principal hereof and premium, if any, hereon in accordance
with its terms, nor shall anything herein prevent the Holder of this Note from
declaring the Note to be due and payable before its expressed maturity because
of the occurrence of a default hereunder or, in connection therewith, from
exercising all remedies otherwise permitted by applicable law or hereunder upon
default hereunder, subject to the rights of holders of Senior Debt to cash,
securities or other property otherwise payable or deliverable to the Holder of
this Note.
In furtherance of this Subordination the Holder(s) agree to
execute and deliver any and all documents requested by the Company for delivery
to its creditors (in the form as requested by such creditors) in order to
implement or verify this Subordination.
ARTICLE TWO
EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of
Default") shall occur, the Holder hereof, at its option, may declare all sums of
principal then remaining unpaid hereon and all other amounts payable hereunder
immediately due and payable.
2.01 Events of Default
For purposes of this instrument, an Event of Default will be
deemed to have occurred if:
(a) the Company shall fail to pay any
installment of principal on this Note and such non-payment
shall continue for a period of fifteen (15) days from the date
due; or
(b) a receiver, liquidator or trustee of the
Company or of any property of the Company, shall be appointed
by court order; or the Company shall be adjudged bankrupt or
insolvent; or any of the property of the Company shall be
sequestered by court order; or a petition to reorganize the
Company under any bankruptcy, reorganization or insolvency law
shall be filed against the Company and shall not be dismissed
within 60 days after such filing; or
(c) the Company shall file a petition in
voluntary bankruptcy or requesting reorganization under any
provision of any bankruptcy, reorganization or insolvency law
or shall consent to the filing of any petition against it
under any such law; or
(d) the Company shall make a formal or
informal assignment for the benefit of its creditors or admit
in writing its inability to pay its debts generally when they
become due or shall consent to the appointment of a receiver,
trustee or liquidator of the Company or of all or any part of
the property of the Company.
<PAGE>
2.02 Remedies on Default
If an Event of Default shall have occurred, in addition to its
rights and remedies under this Note, and any other instruments, the Holder may
at its option by written notice to the Company declare all indebtedness to
Holder hereunder to be due and payable, whereupon the same shall forthwith
mature and become due and payable, without any further notice to and without
presentment, demand, protest or notice of protest, all of which are hereby
waived. In addition, after an Event of Default, interest shall accrue on the
amounts due hereunder at a rate of eleven percent (11%) per annum.
Subject to the rights of holders of Senior Debt, the Holder
may proceed to protect and enforce its rights by suit in equity, action at law
or other appropriate proceedings, including, without limitation, action for the
specific performance of any agreement contained herein or in any other
instrument, or for an injunction against a violation of any of the terms hereof
or thereof, or in aid of the exercise of any right, power or remedy granted
hereby or by law, equity or otherwise.
ARTICLE THREE
FORGIVENESS/
CONVERSION PRIVILEGE/OBLIGATION
The Company hereby grants to the Holder of this First
Contingent Convertible Note the right to convert this Note into fully paid and
non-assessable shares of the Company's Common Stock, $.001 par value (the
"Common Stock"), at the "Fair Market Value" per share, subject to the following
paragraphs.
On or before the date forty-five (45) days after the end of
the First Measurement Period (the "Testing Date"), CDL shall determine: (A) the
EBIT of the Division for the First Measurement Period, to be computed in
accordance with GAAP, except that EBIT shall be reduced by a corporate charge
equal to two (2%) of the gross revenues of the Division during the First
Measurement Period and (B) the First Period Synergy Savings. If (x) the sum of
the amounts in clauses (A) and (B) above (the "First Sum") does not exceed the
First Benchmark, or (ii) if the First Sum exceeds the First Benchmark but the
closing sales price of CDL's Common Stock as reported on the NMS on the date
thirty (30) days after the end of the First Measurement Period (the "First
Period Price"), is less than the Conversion Value and the Purchaser has made the
payment required by Section 2.3(c)(ii) of the Asset Purchase Agreement, then
this First Contingent Convertible Note shall be forgiven and the principal
amount automatically reduced by Three Hundred Seventy-Five Thousand ($375,000)
Dollars, from $375,000 to zero, and this Note shall be discharged in full and
canceled.
If the First Sum equals or exceeds the First Benchmark after
the First Measurement Period, and if the First Period Price equals or exceeds
the Conversion Value, then this Note shall be due and payable and the Holder
shall have the right to convert the Note.
The right to convert may be exercised by the Holder at any
time after the Testing Date up to and including, September 1, 2000, except as
provided herein. The number of shares of Common Stock into which this Note may
be converted shall be determined by taking (a) the full principal amount of this
Note, namely $375,000, and dividing said sum by (b) the Fair Market Value. The
right to convert may only be exercised with respect to the entire amount due on
the Note at the exercise date.
The Company also shall have the right to convert this Note
into fully paid and non-assessable shares of Common Stock at any time after the
Testing Date at Fair Market Value per share, in accordance with the formula
provided above, but only if a registration statement required under Article Five
is then effective. The Company also may only convert with respect to the entire
amount set forth above.
"Fair Market Value" with respect to the CDL Common Stock means
the closing price of such Common Stock as reported on the Nasdaq National Market
System ("NMS") on the day on which notice of conversion is given by the Holder
or CDL, as the case may be, or the closing price on the next trading day if the
date of notice is not a trading date on NMS.
All capitalized terms used but not defined herein shall have
the meanings set forth in the Asset Purchase Agreement.
3.01 Whole Shares. Upon conversion, only whole shares
shall be issued. Any remainder due hereunder which is insufficient to
purchase a whole share of Common Stock shall be paid by the Company in cash.
3.02 Exercise Procedure.
(a) The Conversion privilege shall be deemed to have been
exercised (the "Exercise Time") when either (x) the Company shall have received
from the Holder all of the following:
(i) a properly completed Exercise
Agreement in form annexed hereto executed by the person exercising such
conversion privilege; and
(ii) this Note; and
(iii) if this Note shall not be registered
in the name of the person exercising such conversion
privilege, an assignment or assignments as described in
Section 3.04 hereof evidencing an assignment of such Note to
the person exercising the same, in which case the Holder shall
comply with Article Four hereof and submit proof, including
opinions of Holder's counsel, that the assignment and exercise
comply with all federal and state securities laws.
or (y) the Company shall have delivered to the Holder its notice of exercise in
writing. Upon receipt of such notice, the Holder shall immediately deliver this
Note to the Company. Exercise of the Company's conversion privilege shall be
effective notwithstanding any failure or delay of the Holder on delivering the
Note to the Company.
(b) Certificates for the underlying shares acquired shall be
delivered to the Holder within 20 days after the Exercise Time (or the date of
delivery of the Note to the Company, if later).
3.03 Exercise Agreement. The Exercise Agreement shall be in
the form set forth at the end of this Note. If the Conversion Shares are not to
be issued in the name of the persons to whom the Note is registered, such
Agreement shall also state the name of the persons to whom the certificates for
the Conversion Shares are to be issued. Such Exercise Agreement shall be dated
the actual date of execution thereof.
3.04 Assignment. The Assignment shall be in the form set forth
at the end of this Note and shall provide that the person executing the same
thereby sells, assigns and transfers to the person(s) named therein the rights
evidenced by this Note to purchase the number of the underlying shares stated
therein. Such Assignment shall be dated the actual date of execution thereof.
The Assignee shall be required to provide the Company with proof of compliance
with all applicable federal and state securities laws.
3.05 Authorization and Issuance of Conversion Shares. The
Company covenants and agrees that:
(a) The Underlying Shares issuable upon any exercise of the
conversion privilege shall be deemed to have been issued to the person
exercising such privilege at the Exercise Time, and the person exercising such
privilege shall be deemed for all purposes to have become the record holder of
such Underlying Shares at the Exercise Time.
(b) All Underlying Shares which may be issued upon any whole
or partial exercise will, upon issuance, be fully paid and non-assessable and
free from all taxes, liens and charges with respect to the issue thereof.
(c) The Company will take all such action as may be necessary
and reasonably within its powers to assure that all underlying shares issuable
upon exercise may be issued without violation of any applicable law or
regulation. The Company will not take any action which would result in any
adjustment of the Conversion Price if the total number of Common Shares issuable
after such action upon exercise of the conversion privilege in full, together
with all Common Shares then outstanding and all Common Shares then issuable upon
the exercise of all outstanding options, warrants, conversion and other rights,
would exceed the total number of Common Shares then authorized by the Company's
Certificate of Incorporation.
(d) The issuance of certificates for the Underlying Shares
upon exercise of the conversion privilege shall be made without charge to the
registered Holder(s) thereof for any issuance tax in respect thereof or other
costs incurred by the Company in connection with the exercise and the related
issuance of the underlying shares.
ARTICLE FOUR
RESTRICTIONS ON TRANSFER
The Holder, by acceptance hereof, acknowledges that it
understands that the Company will rely upon the representations set forth herein
in issuing the Note and the Underlying Shares, if any, without registration
under the Act, the New Jersey Uniform Securities Law, or any other state
securities law.
Accordingly, the Holder, by acceptance of the Note, represents
and warrants that this offering is being made pursuant to the exemption from
registration with the Securities and Exchange Commission ("SEC") afforded by
Sections 3(b) and/or 4(2) of the Act relating to transactions by an issuer not
involving any public offering. The Holder understands that the Company has no
present intention, and is under no obligation to, register the Note or the
Underlying Shares under the Act, or any applicable state law, except as set
forth in Article Five hereof.
The Holder understands that due to lack of registration, the
Note and the Underlying Shares will be restricted securities, that the holder
must bear the economic risk of the investment for an indefinite period, that the
Note and the Underlying Shares may not be sold, pledged or otherwise disposed of
unless they are registered under the Act and any applicable state securities
law, or an exemption from such laws is available and the Company is supplied
with an opinion of counsel to the Holder, satisfactory to the Company, that
registration is not required under any of such laws, and in the opinion of
counsel for the Company, such sale, transfer, or pledge will not cause the
Company to fail to be in compliance with the exemption provisions under which
the Note or the Underlying Shares were issued.
The Holder has such knowledge and experience in financial and
business affairs that it is capable of evaluating the merits and risks of the
prospective investment.
The Holder is able to bear the economic risk of this
investment. An investment in the Note and the Underlying Shares is suitable for
the Holder in light of its financial position and investment objectives, with
full knowledge that this investment could result in a complete loss. The Holder
recognizes that the Note represents a HIGH-RISK, SPECULATIVE INVESTMENT and that
there is no assurance that any return will be received thereon. The Holder can
afford a total loss of this investment.
The Note is being, and the Underlying Shares will be,
purchased for the Holder's own account for investment purposes and not with a
view to the resale or distribution thereof by the Holder.
Prior to the date hereof, the Holder has had ample opportunity
to ask questions of and receive answers from the officers and directors of the
Company, concerning the Company, the Note, and the Company's business and to
obtain any additional information which was considered necessary to verify the
information supplied by those individuals.
The Holder understands that a restrictive legend in
substantially the following form shall be placed on the certificate(s)
representing the Underlying Shares:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended
("Act"). Such shares have been acquired for investment and may
not be publicly offered or sold in the absence of (1) an
effective registration statement for such shares under the
Act; (2) opinions of counsel to the Company and to the holder
hereof and presented to the Company prior to any proposed
transfer to the effect that registration is not required under
the Act; or (3) a letter presented to the Company, prior to
any proposed transfer, from the staff of the Securities and
Exchange Commission, to the effect that it will not take any
enforcement action if the proposed transfer is made without
registration under the Act."
Except as set forth in the documents which the Holder has
reviewed, no representations or warranties have been made to the Holder by the
Company. In entering into this transaction, the Holder is not relying upon any
information, other than the results of its own independent investigation.
ARTICLE FIVE
REGISTRATION RIGHTS
The Company agrees to file a registration statement on Form
S-3 with the Securities and Exchange Commission ("Commission") under the
Securities Act covering the shares of Common Stock into which this Note may be
converted (i.e., the Underlying Shares) within thirty (30) days after the date
hereof; and use its best efforts to cause such registration statement to become
effective as soon as possible thereafter. The Company shall not be obligated to
cause to become effective more than one registration statement with respect to
the Underlying Shares.
At any time and from time to time, the Holder agrees without
further consideration, to take such actions and to execute and deliver such
documents as may be reasonably requested by the Company in order to effectuate
the purposes of this Article Five including, without limitation, supplying
information with respect to the Holder that may be necessary or required for
inclusion in the registration statement. In the event that such information or
other material requested by the Company is not provided to the Company within a
reasonable period of time following delivery of written notice requesting such
information, then the Company's obligations under this Article Five shall be
suspended as to such Holder.
The Company will pay all expenses incurred in complying with
Article Five hereof, including, without limitation, all registration and filing
fees (including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), reasonable fees and disbursements of counsel to the
Company, securities law and blue sky fees and expenses (except where such
payment is prohibited by law or applicable regulation). All underwriting
discounts and selling commissions applicable to the sales of the Underlying
Shares and any state or federal transfer taxes payable with respect to the sales
of the Underlying Shares and all fees and disbursements of counsel for the
Holder, if any, in each case arising in connection with registration of the
Underlying Shares under Article Five hereof, shall be payable by the Holder.
ARTICLE SIX
MISCELLANEOUS
6.01 Failure or Delay Not Waiver. No failure or delay on the
part of the Holder hereof in the exercise of any power, right, or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
6.02 Notices. Any notice herein required or permitted to be
given shall be given by federal express or similar overnight courier or by same
day courier service or by certified mail, return receipt requested, if to the
Holder, at the address set forth on the first page hereof, or,
If to the Company:
Consolidated Delivery & Logistics, Inc., 380 Allwood Road, Clifton, New Jersey
07012, Attn: General Counsel.
6.03 Amendments. The term "Note" or "this Note" and all
reference thereto, as used throughout this instrument, shall mean this
instrument as originally executed or, if later amended or supplemented, then, as
so amended or supplemented.
6.04 Assignability. This Note shall be binding upon the
Company, its successors and assigns, and shall inure to the benefit of Holder,
its successors and assigns. This Note may not be transferred or assigned prior
to July 2, 2000. This is the First Contingent Convertible Note issued pursuant
to an Asset Purchase Agreement dated this date among the Company, the Holder and
others.
6.05 Governing Law. This Note has been executed in and shall
be governed by the laws of the State of New Jersey.
-------------
6.06 No Personal Liability. No officer, director,
shareholder, employee, consultant or agent of the Company shall be personally
liable for repayment of this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed in its name by its duly authorized officer and its corporate seal to be
affixed hereto.
CONSOLIDATED DELIVERY & LOGISTICS, INC.
By: \s\ Albert W. Van Ness, Jr.
Albert W. Van Ness, Jr., Chairman
The undersigned hereby guarantees payment of the obligations of the Company
hereunder.
CLICK MESSENGER SERVICE, INC.
By: \s\ Mark Carlesimo
Mark Carlesimo, Vice President
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED ______________________________________
- ----------------------------------------------------------------------
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Note, with respect to the conversion thereof into a number of shares
of the Common Stock covered thereby set forth hereinbelow unto:
Name of Address Address No. of Shares
Date:
Signature:
Witness:
<PAGE>
This Note has been, and any shares issued upon conversion
pursuant to the terms hereof ("Underlying Shares") will be,
acquired for investment and not with a view to, or for sale in
connection with, any distribution thereof within the meaning
of the Securities Act of 1933, as amended ("Act"). This Note,
and any securities issued upon conversion pursuant to this
Note, have not been registered under the Securities Act of
1933, or any state securities law, and may be offered and sold
only if registered pursuant to the provisions of that Act or
those laws or if an exemption from registration is available.
Notwithstanding any other provisions contained herein, no
transfer of this security, the Underlying Shares, or of any
interest in either thereof shall be made unless the conditions
specified in Article Four hereof have been fulfilled.
TRANSFER IS ALSO RESTRICTED BY SECTION 6.04.
SECOND CONTINGENT SUBORDINATED CONVERTIBLE NOTE DUE 2001
OF CONSOLIDATED DELIVERY & LOGISTICS, INC.
Registered Holder: Metro Courier Network, Inc.
July 2, 1998
Address: 175 Bay State Drive No. CN-2
Braintree, MA 02184
Principal Amount: Up to $375,000 Clifton, New Jersey
Due: October 2, 2001
FOR VALUE RECEIVED, CONSOLIDATED DELIVERY & LOGISTICS, INC., a
Delaware corporation (hereinafter called the "Company"), hereby promises to pay
to the holder above named (herein called the "Holder"), or its order or its
registered assign(s), the principal sum above stated on October 2, 2001 without
interest. All amounts due hereunder are subject to reduction pursuant to Section
2.3(c) of the Asset Purchase Agreement described in Section 6.04, which
provisions are incorporated herein as if set forth in full, and Article Three
below.
Principal hereof are payable in lawful money of the United
States of America at the Holder's address above or such other address as the
Holder shall designate in writing delivered to the Company from time to time.
Prior to any sale or other disposition of this Note, the Holder will endorse
hereon the amount of principal paid hereon.
PREPAYMENT
The Company may prepay this debt, in whole or in part, without
premium or penalty at any time on and after the "Testing Date" (as defined
below) and from time to time thereafter in its discretion; provided that it
gives the Holder ten (10) days advance written notice of its intent to prepay;
during which period the Holder may exercise its conversion rights.
ARTICLE ONE
SUBORDINATION
Anything contained herein to the contrary notwithstanding, the
indebtedness evidenced by this Note shall be fully subordinate and junior in
right of payment, to the extent and in the manner hereinafter set forth, to all
Senior Debt of the Company, including, without limitation, all indebtedness due
to First Union Commercial Corporation or its affiliates or any other bank or
similar financial institution (hereinafter a "bank"), direct or indirect,
absolute or contingent, due or to become due, whether now outstanding or
hereafter created, and any and all renewals of the foregoing by operation of law
or otherwise. Such indebtedness of the Company to which the indebtedness
evidenced by this Note is subordinate and junior being sometimes hereinafter
referred to as "Senior Debt" and also includes without limitation all debt or
financing from time to time arranged by First Union Commercial Corporation or
its affiliates.
(i) In the event of any insolvency or
bankruptcy proceedings, and any receivership, liquidation,
reorganization or other similar proceedings in connection
therewith, relative to the Company or to its creditors, as
such, or to its property, and in the event of any proceedings
for voluntary liquidation, dissolution or other winding up of
the Company, whether or not involving insolvency or
bankruptcy, and in the event of any execution sale, then the
holders of Senior Debt shall be entitled to receive payment in
full of all principal of, and premium on and interest on all
Senior Debt (including any such interest which may accrue
after the commencement of any such proceedings) before the
Holder of this Note is entitled to receive any further payment
on account of principal of or premium, if any, on this Note,
and to that end the holders of Senior Debt shall be entitled
to receive for application in payment thereof any payment or
distribution of any kind or character, whether in cash or
property or securities, which may be payable or deliverable in
any such proceedings in respect to this Note except with
respect to interest payments.
(ii) The Company shall not be required to
make, directly or indirectly, and the Holder shall not be
entitled to accept, receive (directly or indirectly) or
retain, any payment or prepayment of principal or premium
hereunder if and so long as a payment default under the terms
of any Senior Debt shall have occurred and shall be
continuing.
(iii) In the event that this Note is
declared due and payable before its expressed maturity because
of the occurrence of a default hereunder (under circumstances
when the provisions of clause (i) above shall not be
applicable), and within 90 days of such declaration, the
holders of the Senior Debt accelerate the indebtedness
evidenced by such Senior Debt, the holders of all Senior Debt
shall be entitled to receive payment in full of all principal
and interest on all Senior Debt (including any such interest
which may accrue after the commencement of any proceedings
referred to in clause (i) above) before the Holder of this
Note shall receive any further payment on account of the
principal of or premium, if any, on this Note.
Unless an event described in (i), (ii) or (iii) above shall
occur, principal of this Note shall be payable as provided on the first page;
and in the event the payment is suspended as provided in (i), (ii) or (iii)
above, any amount previously received by the Holder hereof prior to the
effective date of such event and payable to the Holder in accordance with the
terms hereof shall be and remain the property of the Holder, the subordination
provisions being intended only to affect payments due after an event described
in (i), (ii) or (iii).
In case cash, securities or other property otherwise payable
or deliverable to the Holder of this Note shall have been applied pursuant to
the provisions of this Note to the payment of Senior Debt in full, then and in
each such case, the holder or holders of the Senior Debt at the time any
payments or distributions are received by such holder(s) of Senior Debt in
excess of the amount sufficient to pay all Senior Debt in full, (a) shall pay
over such excess to the Holder of this Note and (b) the Holder of this Note
shall be subrogated to any rights of any holder(s) of Senior Debt to receive any
further payments or distributions applicable to the Senior Debt, until this Note
shall have been paid in full. Senior Debt shall not be considered to be paid in
full unless and until all of the obligations which constitute a part of Senior
Debt have been paid in full.
In furtherance of such subordination, the Holder of this Note
hereby grants to the holder(s) of the Senior Debt irrevocable authority, after
any default in the payment of any amounts due on the Senior Debt or in any event
specified in clauses (i), (ii) or (iii) above, to demand, collect, file proofs
of claim with respect to, receive and take any and all proceedings for the
recovery of any and all monies due or to become due on account of this Note.
No present or future holder of Senior Debt shall be prejudiced
in his right to enforce subordination of this Note by any act or failure to act
on the part of the Company. The subordination provisions of this Note are solely
for the purpose of defining the relative rights of the holder(s) of Senior Debt
on the one hand and the Holder of this Note on the other hand, and nothing
herein shall impair as between the Company and the Holder of this Note, the
obligation of the Company, which is unconditional and absolute, to pay to the
Holder hereof the principal hereof and premium, if any, hereon in accordance
with its terms, nor shall anything herein prevent the Holder of this Note from
declaring the Note to be due and payable before its expressed maturity because
of the occurrence of a default hereunder or, in connection therewith, from
exercising all remedies otherwise permitted by applicable law or hereunder upon
default hereunder, subject to the rights of holders of Senior Debt to cash,
securities or other property otherwise payable or deliverable to the Holder of
this Note.
In furtherance of this Subordination the Holder(s) agree to
execute and deliver any and all documents requested by the Company for delivery
to its creditors (in the form as requested by such creditors) in order to
implement or verify this Subordination.
ARTICLE TWO
EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of
Default") shall occur, the Holder hereof, at its option, may declare all sums of
principal then remaining unpaid hereon and all other amounts payable hereunder
immediately due and payable.
2.01 Events of Default
For purposes of this instrument, an Event of Default will be
deemed to have occurred if:
(a) the Company shall fail to pay any
installment of principal on this Note and such non-payment
shall continue for a period of fifteen (15) days from the date
due; or
(b) a receiver, liquidator or trustee of the
Company or of any property of the Company, shall be appointed
by court order; or the Company shall be adjudged bankrupt or
insolvent; or any of the property of the Company shall be
sequestered by court order; or a petition to reorganize the
Company under any bankruptcy, reorganization or insolvency law
shall be filed against the Company and shall not be dismissed
within 60 days after such filing; or
(c) the Company shall file a petition in
voluntary bankruptcy or requesting reorganization under any
provision of any bankruptcy, reorganization or insolvency law
or shall consent to the filing of any petition against it
under any such law; or
(d) the Company shall make a formal or
informal assignment for the benefit of its creditors or admit
in writing its inability to pay its debts generally when they
become due or shall consent to the appointment of a receiver,
trustee or liquidator of the Company or of all or any part of
the property of the Company.
<PAGE>
2.02 Remedies on Default
If an Event of Default shall have occurred, in addition to its
rights and remedies under this Note, and any other instruments, the Holder may
at its option by written notice to the Company declare all indebtedness to
Holder hereunder to be due and payable, whereupon the same shall forthwith
mature and become due and payable, without any further notice to and without
presentment, demand, protest or notice of protest, all of which are hereby
waived. In addition, after an Event of Default, interest shall accrue on the
amounts due hereunder at a rate of eleven percent (11%) per annum.
Subject to the rights of holders of Senior Debt, the Holder
may proceed to protect and enforce its rights by suit in equity, action at law
or other appropriate proceedings, including, without limitation, action for the
specific performance of any agreement contained herein or in any other
instrument, or for an injunction against a violation of any of the terms hereof
or thereof, or in aid of the exercise of any right, power or remedy granted
hereby or by law, equity or otherwise.
ARTICLE THREE
FORGIVENESS/
CONVERSION PRIVILEGE/OBLIGATION
The Company hereby grants to the Holder of this Second
Contingent Convertible Note the right to convert this Note into fully paid and
non-assessable shares of the Company's Common Stock, $.001 par value (the
"Common Stock"), at the "Fair Market Value" per share, subject to the following
paragraphs.
On or before the date forty-five (45) days after the end of
the Second Measurement Period (the "Testing Date"), CDL shall determine: (A) the
EBIT of the Division for the Second Measurement Period, to be computed in
accordance with GAAP, except that EBIT shall be reduced by a corporate charge
equal to two (2%) of the gross revenues of the Division during the Second
Measurement Period and (B) the Second Period Synergy Savings. If (x) the sum of
the amounts in clauses (A) and (B) above (the "Second Sum") does not exceed the
Second Benchmark, or (ii) if the Second Sum exceeds the Second Benchmark but the
closing sales price of CDL's Common Stock as reported on the NMS on the date
thirty (30) days after the end of the Second Measurement Period (the "Second
Period Price"), is less than the Conversion Value and the Purchaser has made the
payment required by Section 2.3(c)(ii) of the Asset Purchase Agreement, then
this Second Contingent Convertible Note shall be forgiven and the principal
amount automatically reduced by Three Hundred Seventy-Five Thousand ($375,000)
Dollars, from $375,000 to zero, and this Note shall be discharged in full and
canceled.
If the Second Sum equals or exceeds the Second Benchmark after
the Second Measurement Period, and if the Second Period Price equals or exceeds
the Conversion Value, then this Note shall be due and payable and the Holder
shall have the right to convert the Note.
The right to convert may be exercised by the Holder at any
time after the Testing Date up to and including, September 1, 2001, except as
provided herein. The number of shares of Common Stock into which this Note may
be converted shall be determined by taking (a) the full principal amount of this
Note, namely $375,000, and dividing said sum by (b) the Fair Market Value. The
right to convert may only be exercised with respect to the entire amount due on
the Note at the exercise date.
The Company also shall have the right to convert this Note
into fully paid and non-assessable shares of Common Stock at any time after the
Testing Date at Fair Market Value per share, in accordance with the formula
provided above, but only if a registration statement required under Article Five
is then effective. The Company also may only convert with respect to the entire
amount set forth above.
"Fair Market Value" with respect to the CDL Common Stock means
the closing price of such Common Stock as reported on the Nasdaq National Market
System ("NMS") on the day on which notice of conversion is given by the Holder
or CDL, as the case may be, or the closing price on the next trading day if the
date of notice is not a trading date on NMS.
All capitalized terms used but not defined herein shall have
the meanings set forth in the Asset Purchase Agreement.
3.01 Whole Shares. Upon conversion, only whole shares
shall be issued. Any remainder due hereunder which is insufficient to
purchase a whole share of Common Stock shall be paid by the Company in cash.
3.02 Exercise Procedure.
(a) The Conversion privilege shall be deemed to have been
exercised (the "Exercise Time") when either (x) the Company shall have received
from the Holder all of the following:
(i) a properly completed Exercise
Agreement in form annexed hereto executed by the person
exercising such conversion privilege; and
(ii) this Note; and
(iii) if this Note shall not be registered
in the name of the person exercising such conversion
privilege, an assignment or assignments as described in
Section 3.04 hereof evidencing an assignment of such Note to
the person exercising the same, in which case the Holder shall
comply with Article Four hereof and submit proof, including
opinions of Holder's counsel, that the assignment and exercise
comply with all federal and state securities laws.
or (y) the Company shall have delivered to the Holder its notice of exercise in
writing. Upon receipt of such notice, the Holder shall immediately deliver this
Note to the Company. Exercise of the Company's conversion privilege shall be
effective notwithstanding any failure or delay of the Holder on delivering the
Note to the Company.
(b) Certificates for the underlying shares acquired shall be
delivered to the Holder within 20 days after the Exercise Time (or the date of
delivery of the Note to the Company, if later).
3.03 Exercise Agreement. The Exercise Agreement shall be in
the form set forth at the end of this Note. If the Conversion Shares are not to
be issued in the name of the persons to whom the Note is registered, such
Agreement shall also state the name of the persons to whom the certificates for
the Conversion Shares are to be issued. Such Exercise Agreement shall be dated
the actual date of execution thereof.
3.04 Assignment. The Assignment shall be in the form set forth
at the end of this Note and shall provide that the person executing the same
thereby sells, assigns and transfers to the person(s) named therein the rights
evidenced by this Note to purchase the number of the underlying shares stated
therein. Such Assignment shall be dated the actual date of execution thereof.
The Assignee shall be required to provide the Company with proof of compliance
with all applicable federal and state securities laws.
3.05 Authorization and Issuance of Conversion Shares. The
Company covenants and agrees that:
(a) The Underlying Shares issuable upon any exercise of the
conversion privilege shall be deemed to have been issued to the person
exercising such privilege at the Exercise Time, and the person exercising such
privilege shall be deemed for all purposes to have become the record holder of
such Underlying Shares at the Exercise Time.
(b) All Underlying Shares which may be issued upon any whole
or partial exercise will, upon issuance, be fully paid and non-assessable and
free from all taxes, liens and charges with respect to the issue thereof.
(c) The Company will take all such action as may be necessary
and reasonably within its powers to assure that all underlying shares issuable
upon exercise may be issued without violation of any applicable law or
regulation. The Company will not take any action which would result in any
adjustment of the Conversion Price if the total number of Common Shares issuable
after such action upon exercise of the conversion privilege in full, together
with all Common Shares then outstanding and all Common Shares then issuable upon
the exercise of all outstanding options, warrants, conversion and other rights,
would exceed the total number of Common Shares then authorized by the Company's
Certificate of Incorporation.
(d) The issuance of certificates for the Underlying Shares
upon exercise of the conversion privilege shall be made without charge to the
registered Holder(s) thereof for any issuance tax in respect thereof or other
costs incurred by the Company in connection with the exercise and the related
issuance of the underlying shares.
ARTICLE FOUR
RESTRICTIONS ON TRANSFER
The Holder, by acceptance hereof, acknowledges that it
understands that the Company will rely upon the representations set forth herein
in issuing the Note and the Underlying Shares, if any, without registration
under the Act, the New Jersey Uniform Securities Law, or any other state
securities law.
Accordingly, the Holder, by acceptance of the Note, represents
and warrants that this offering is being made pursuant to the exemption from
registration with the Securities and Exchange Commission ("SEC") afforded by
Sections 3(b) and/or 4(2) of the Act relating to transactions by an issuer not
involving any public offering. The Holder understands that the Company has no
present intention, and is under no obligation to, register the Note or the
Underlying Shares under the Act, or any applicable state law, except as set
forth in Article Five hereof.
The Holder understands that due to lack of registration, the
Note and the Underlying Shares will be restricted securities, that the holder
must bear the economic risk of the investment for an indefinite period, that the
Note and the Underlying Shares may not be sold, pledged or otherwise disposed of
unless they are registered under the Act and any applicable state securities
law, or an exemption from such laws is available and the Company is supplied
with an opinion of counsel to the Holder, satisfactory to the Company, that
registration is not required under any of such laws, and in the opinion of
counsel for the Company, such sale, transfer, or pledge will not cause the
Company to fail to be in compliance with the exemption provisions under which
the Note or the Underlying Shares were issued.
The Holder has such knowledge and experience in financial and
business affairs that it is capable of evaluating the merits and risks of the
prospective investment.
The Holder is able to bear the economic risk of this
investment. An investment in the Note and the Underlying Shares is suitable for
the Holder in light of its financial position and investment objectives, with
full knowledge that this investment could result in a complete loss. The Holder
recognizes that the Note represents a HIGH-RISK, SPECULATIVE INVESTMENT and that
there is no assurance that any return will be received thereon. The Holder can
afford a total loss of this investment.
The Note is being, and the Underlying Shares will be,
purchased for the Holder's own account for investment purposes and not with a
view to the resale or distribution thereof by the Holder.
Prior to the date hereof, the Holder has had ample opportunity
to ask questions of and receive answers from the officers and directors of the
Company, concerning the Company, the Note, and the Company's business and to
obtain any additional information which was considered necessary to verify the
information supplied by those individuals.
The Holder understands that a restrictive legend in
substantially the following form shall be placed on the certificate(s)
representing the Underlying Shares:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended
("Act"). Such shares have been acquired for investment and may
not be publicly offered or sold in the absence of (1) an
effective registration statement for such shares under the
Act; (2) opinions of counsel to the Company and to the holder
hereof and presented to the Company prior to any proposed
transfer to the effect that registration is not required under
the Act; or (3) a letter presented to the Company, prior to
any proposed transfer, from the staff of the Securities and
Exchange Commission, to the effect that it will not take any
enforcement action if the proposed transfer is made without
registration under the Act."
Except as set forth in the documents which the Holder has
reviewed, no representations or warranties have been made to the Holder by the
Company. In entering into this transaction, the Holder is not relying upon any
information, other than the results of its own independent investigation.
ARTICLE FIVE
REGISTRATION RIGHTS
The Company agrees to file a registration statement on Form
S-3 with the Securities and Exchange Commission ("Commission") under the
Securities Act covering the shares of Common Stock into which this Note may be
converted (i.e., the Underlying Shares) within thirty (30) days after the date
hereof; and use its best efforts to cause such registration statement to become
effective as soon as possible thereafter. The Company shall not be obligated to
cause to become effective more than one registration statement with respect to
the Underlying Shares.
At any time and from time to time, the Holder agrees without
further consideration, to take such actions and to execute and deliver such
documents as may be reasonably requested by the Company in order to effectuate
the purposes of this Article Five including, without limitation, supplying
information with respect to the Holder that may be necessary or required for
inclusion in the registration statement. In the event that such information or
other material requested by the Company is not provided to the Company within a
reasonable period of time following delivery of written notice requesting such
information, then the Company's obligations under this Article Five shall be
suspended as to such Holder.
The Company will pay all expenses incurred in complying with
Article Five hereof, including, without limitation, all registration and filing
fees (including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), reasonable fees and disbursements of counsel to the
Company, securities law and blue sky fees and expenses (except where such
payment is prohibited by law or applicable regulation). All underwriting
discounts and selling commissions applicable to the sales of the Underlying
Shares and any state or federal transfer taxes payable with respect to the sales
of the Underlying Shares and all fees and disbursements of counsel for the
Holder, if any, in each case arising in connection with registration of the
Underlying Shares under Article Five hereof, shall be payable by the Holder.
ARTICLE SIX
MISCELLANEOUS
6.01 Failure or Delay Not Waiver. No failure or delay on the
part of the Holder hereof in the exercise of any power, right, or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
6.02 Notices. Any notice herein required or permitted to be
given shall be given by federal express or similar overnight courier or by same
day courier service or by certified mail, return receipt requested, if to the
Holder, at the address set forth on the first page hereof, or,
If to the Company:
Consolidated Delivery & Logistics, Inc., 380 Allwood Road, Clifton, New Jersey
07012, Attn: General Counsel.
6.03 Amendments. The term "Note" or "this Note" and all
reference thereto, as used throughout this instrument, shall mean this
instrument as originally executed or, if later amended or supplemented, then, as
so amended or supplemented.
6.04 Assignability. This Note shall be binding upon the
Company, its successors and assigns, and shall inure to the benefit of Holder,
its successors and assigns. This Note may not be transferred or assigned prior
to July 2, 2000. This is the Second Contingent Convertible Note issued pursuant
to an Asset Purchase Agreement dated this date among the Company, the Holder and
others.
6.05 Governing Law. This Note has been executed in and shall
be governed by the laws of the State of New Jersey.
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6.06 No Personal Liability. No officer, director,
shareholder, employee, consultant or agent of the Company shall be personally
liable for repayment of this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed in its name by its duly authorized officer and its corporate seal to be
affixed hereto.
CONSOLIDATED DELIVERY & LOGISTICS, INC.
By: \s\ Albert W. Van Ness, Jr.
Albert W. Van Ness, Jr., Chairman
The undersigned hereby guarantees payment of the obligations of the Company
hereunder.
CLICK MESSENGER SERVICE, INC.
By: \s\ Mark Carlesimo
Mark Carlesimo, Vice President
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED ______________________________________
- ----------------------------------------------------------------------
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Note, with respect to the conversion thereof into a number of shares
of the Common Stock covered thereby set forth hereinbelow unto:
Name of Address Address No. of Shares
Date:
Signature:
Witness:
<PAGE>
EXERCISE AGREEMENT
Date:__________
The undersigned, pursuant to the provisions set forth in the
within Note, hereby irrevocably elects to subscribe for and purchase the maximum
number of shares of the Company's Common Stock as provided in the Note, and
makes payment in full therefore by conversion and application to the extent
necessary to pay the Conversion Price for such shares of all or each part of the
principal amount of the Note as shall be necessary as provided in the Note. The
undersigned hereby represents and warrants that the shares of Common Stock to be
acquired upon exercise are being acquired for its own account, without any
present intention of reoffering, reselling or distributing such Common Stock,
except to the extent permitted under the Securities Act of 1933, as amended.
Signature
Address
