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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
OR
______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____ to_____
Commission file number: 0-25229
SKYNET HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 65-1480559
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification #)
6165 Barfield Road, Suite 200, Atlanta, GA 30328
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (404) 847-3120
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _____
As of December 9, 1999, 19,774,857 shares of Registrant's Common Stock were
outstanding. The aggregate market value of the Registrant's Common Stock held
by non-affiliates of the Registrant as of December 9, 1999, was approximately
$73.5 million based on the closing price of $7.8125 per share on that date on
the OTC Electronic Bulletin Board. All directors and officers and more than 5%
stockholders of Registrant are deemed "affiliates" of Registrant for the purpose
of calculating such aggregate market value. Registrant, however, does not
represent that such persons, or any of them, would be deemed "affiliates" of
Registrant for any other purpose under the Securities Exchange Act of 1934 or
the Securities Act of 1933.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS
The following is a summary of certain information contained in this Report
and is qualified in its entirety by the detailed information and financial
statements that appear elsewhere herein. Except for the historical information
contained herein, the matters set forth in this Report include forward-looking
statements within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
subject to risks and uncertainties that may cause actual results to differ
materially. The forward-looking statements included in this Report speak only
as of the date hereof.
GENERAL DEVELOPMENT OF BUSINESS
Skynet Holdings, Inc. and its subsidiaries (the "Company") provides full-
service domestic and international transportation delivery services operating
primarily as an express courier for time sensitive documents and packages. The
Company's primary operations are conducted in the United States, United Kingdom
and Australia.
In its domestic operations, the Company generally carries out all phases of
the delivery process other than long-haul or air transportation of packages and
cargo, for which functions the Company relies on third-party transportation
providers. The Company's domestic operations currently operates from 93
locations in 23 states.
In its international operations, unlike most nationally and internationally
recognized express couriers, the Company does not carry out all phases of the
delivery process. Instead, the Company utilizes available cargo space on
commercial passenger and cargo aircraft when necessary and makes international
deliveries through a global alliance of independent couriers with over 1000
offices in over 100 countries throughout Europe, Asia, North and South America,
Africa and Australia. The Company and these independent couriers comprise the
SkyNet Worldwide Express Network (the "SkyNet Network" or "Network") and operate
under the name "SkyNet Worldwide Express" or "SkyNet". Each member of the
SkyNet Network is linked together by the SkyCom 2000 system, the Company's
computerized tracking and billing information system which tracks each package
handled through the SkyNet Network from initial pick-up to final delivery.
The Company's long-term goal is to become a recognized provider of express
delivery and logistics services throughout the world. The Company plans to
achieve its objective through implementation of a three-fold business strategy
involving strategic acquisitions within its industry, consolidation with key
Network Members and focus on internal growth and increased operating
efficiencies.
The Company operates through its wholly-owned subsidiaries identified below
as well as through the SkyNet Network:
. PONY Express Delivery Services, Inc., a Delaware corporation ("PONY")
. Fleet Acquisition Corp., a Nevada corporation, ("Fleet")
. Sky International Limited, a United Kingdom corporation ("SIL")
. SkyNet Worldwide Express Pty Ltd., a New South Wales, Australia
corporation ("SWEPL")
. DPE International, Ltd., a Delaware corporation ("DPE")
. Skynet, Inc., a New York corporation
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The Company's revenues are primarily derived from retail customers and not
Network Members. Revenues derived from Network Members relate primarily to
charges for use of the Company's SkyCom 2000 system and to a lesser extent on
linehaul charges for packages, generated by Network Members, which pass through
the Company's hubs.
The Company's operations were originally consolidated under Skynet
Holdings, Inc., a Nevada corporation and predecessor to the Company ("Skynet
Nevada"). The consolidation occurred on October 1, 1997 when Skynet Nevada
acquired the stock of four companies pursuant to a share exchange agreement with
the shareholders of SIL, SWEPL, and DPE. This resulted in Skynet Nevada owning
and operating the principal distribution hubs of the Network and operating the
SkyCom proprietary computerized tracking and billing system. Thereafter, the
Company became publicly held by virtue of a merger on October 14, 1998 (the
"Merger") with EPL Resources (Delaware) Corp., a Delaware corporation ("EPLR").
Prior to the Merger, EPLR was an inactive company whose shares were eligible for
quotation on the OTC Electronic Bulletin Board. Since the former stockholders
of Skynet Nevada acquired a controlling interest in EPLR in the Merger, the
Merger has been accounted for as a "reverse acquisition." Accordingly, for
financial statement presentation purposes, Skynet Nevada is viewed as the
continuing entity and the related business combination is viewed as a
recapitalization of Skynet Nevada, rather than an acquisition by EPLR. Upon
completion of the Merger, the combined companies changed their name to "Skynet
Holdings, Inc.", a Delaware corporation.
GEOGRAPHIC INFORMATION
The Company operates in one principal industry segment: the delivery of
time sensitive documents and packages. A summary of the Company's geographic
information is presented below:
<TABLE>
<CAPTION>
United United
States Kingdom Australia Other Total
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<S> <C> <C> <C> <C> <C> <C>
Net sales to customers 1999 $13,017,877 $22,390,015 $5,506,507 $ 96,898 $41,011,297
1998 5,962,396 21,250,613 4,625,910 - 31,838,919
1997 7,597,883 24,079,365 4,474,515 - 36,151,763
Operating income (loss) 1999 (3,057,591) (653,865) 382,859 (75,704) (3,404,301)
1998 (384,849) 630,936 334,890 - 580,977
1997 107,664 (381,347) 244,176 - (29,507)
Identifiable assets 1999 40,095,998 2,947,058 1,205,965 266,140 44,515,161
1998 882,250 5,066,925 936,640 - 6,885,815
1997 918,546 6,199,922 985,603 - 8,104,071
</TABLE>
INDUSTRY OVERVIEW
According to industry data compiled by Triangle Management Services Ltd., a
United Kingdom based consulting company to the global express and freight
industries, the estimated size of the world international express delivery
market (one of the markets in which the Company competes) is approximately $14
billion, the estimated aggregate size of the world's domestic express markets is
approximately $55 billion, and in 1997, the global international market grew at
an estimated annual rate of 12% while the various domestic markets grew at an
average of approximately 6%. In its recently published 1998-1999 World Air
Cargo Forecast, Boeing reported that the international express delivery market
currently accounts for 6% of the world air cargo market, is experiencing rapid
growth and by 2017 is expected to approach 40% of the total market.
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Domestic Express Courier Segment; Same-Day; Regional; and Freight
Forwarding Segments
The next-day and two-day express courier industry in the United States is
dominated by much larger competitors such as United Parcel Service, Inc. ("UPS")
and FDX Corp.'s Federal Express Division ("FedEx"). This service often consists
of picking up packages directly from customers and unless the destination is in
or around one of the Company's domestic stations, forwarding them via other
domestic couriers, typically at lower wholesale rates, to their ultimate
destination. With its recent acquisitions of PONY and Fleet, an increasing
percentage of the Company's domestic operations are conducted in this way. In
areas where the Company does not have a Company-owned service location, the
Company will pick-up packages directly from customers and forward them through
other domestic couriers, typically at lower wholesale rates, for delivery to the
ultimate domestic location.
The same-day freight forwarding, regional express courier and international
segments of the industry are currently undergoing substantial growth and
consolidation. Management of the Company believes that several factors are
driving this growth and consolidation. First, commercial and industrial
companies are continuing to follow the trend of concentrating on their core
business by outsourcing non-core activities. Second, the significant growth in
catalogue and at-home shopping, electronic commerce and modern inventory
management systems, which focus more and more on just-in-time delivery, requires
customized and reliable express delivery services. Management believes that
these trends will increase the demand for specialized time-certain deliveries
and provide significant opportunities for the Company to expand its business
both internally and through strategic acquisitions of same-day, regional and
international express delivery companies.
International Express Courier
Historically, the Company's principal operations were conducted overseas,
with 68% of the Company's revenues during the fiscal year ended June 30, 1999
being generated from deliveries outside of the United States. However, with the
Company's acquisition of PONY in June of 1999, future operating results are
expected to reflect that a majority (approximately 80%) of the Company's revenue
will result from United States operations.
The same-day, regional, freight forwarding and international segments of
the courier services business are more fragmented and served by thousands of
smaller companies. Although major corporations such as DHL, FedEx and UPS have
substantial worldwide operations, the international express courier business is
also served by many smaller independent operators. These markets are more
fragmented and demand more specialized services than the domestic next day
delivery market. The Company participates and competes in these markets.
Through Company owned-stations and the SkyNet Network, the Company serves the
specialized delivery needs of corporate and small business customers in a retail
environment. The Company has also significantly increased the amount of same-
day freight forwarding and regional express courier services performed for
customers as a result of the recent acquisition of PONY.
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OVERVIEW OF BUSINESS
The Company is a single-source provider of global transportation delivery
and logistic services to a diverse domestic and international customer base.
These services consist of the following:
. Time-certain deliveries of documents and packages within 24-48 hours of
pick-up to domestic and, to a lesser extent, international locations.
. Next-flight-out services for same day expedited deliveries of the most
time-sensitive documents and packages.
. Local ground transport of hand-deliveries.
. Freight forwarding services for manufacturing and distribution companies
in the United States and overseas.
. Bulk shipment or "remailing" of mass mailing materials produced in one
country for distribution in another country.
. Global logistics services with respect to inventory management for
manufacturing and distribution companies.
Rather than focusing on particular segments of the industry and offering
standardized services based on rigid pick-up and delivery times, the Company
designs and markets its services to meet the specific needs of its customers.
The variable cost, low overhead structure of the Company's current operations
provides the Company with the flexibility to provide such customized services.
For example, the Company utilizes excess cargo space on commercial aircraft
rather than operating its own fleet, and through the Skynet Network, enjoys a
global presence without incurring the cost of maintaining its own offices in
most locations. As a result, the Company has access to a greater number of
aircraft with a wider range of scheduled departures. This allows the Company to
provide services tailored to any number of specific customer requests.
Operations of Subsidiaries
Domestic Subsidiaries
PONY, acquired in June of 1999, is the Company's largest subsidiary and
operates from 90 locations in 22 states. PONY provides same-day and overnight
services for over 8,000 customers in various industries, including financial
services, pharmaceutical distribution and retail.
DPE, formed in 1984, maintains offices in Los Angeles and San Francisco,
California. Los Angeles serves as the hub for deliveries throughout the western
United States, Canada and parts of the Far East.
Skynet, Inc. formed in 1991, maintains an office in Jamaica, New York and
operates as the hub for the Company's New York operations and for deliveries
throughout the eastern United States and Canada.
Fleet, a regional express delivery and courier system, acquired in March
1999, is headquartered in Las Vegas, Nevada and serves as the hub for regional
same-day and overnight deliveries throughout several western states, principally
to the banking industry.
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International Subsidiaries
SIL, formed in 1974, maintains offices in London, Manchester, Bristol and
Birmingham, England, and acts as the European hub of the Network. SIL makes
deliveries on behalf of the Network throughout the United Kingdom and provides
same-day courier services in select regions of the United Kingdom.
SWEPL, formed in 1984, conducts operations in Sydney, Melbourne and
Brisbane, Australia and acts as a hub for the Pacific Rim operations of the
Network.
Other International Investments
On April 12, 1999, the Company completed the first tier of a scheduled two-
tiered acquisition of Freight on Board International Limited, a corporation
organized under the laws of the United Kingdom ("FOB"). The Company purchased
the remaining 49% during the first week of July 1999. In July 1999, the Company
was informed that an administrative receiver had been appointed for FOB's
largest customer. The receivable from this customer as of June 30, 1999
amounted to approximately $1.25 million. As a result, FOB was unable to meet
its own obligations and a liquidator was appointed for FOB. See "Business
Strategy - Acquisition Strategy - Recent Acquisitions" below.
International Operations and the SkyNet Network
Most express delivery companies, including UPS, FedEx and the Company's
domestic delivery operations (except to the extent such services would require
long-haul or air transportation, which services would be provided by third
parties), seek to carry out all phases of the delivery process by using directly
owned offices, facilities and equipment. By contrast, the Company utilizes the
SkyNet Network to effect the delivery of the vast majority of packages delivered
under the SkyNet name to international locations. As described above, the
Network is comprised of the Company's domestic and international subsidiaries
and independently-owned and operated courier services located in some 1,000
cities in over 100 countries throughout the world operating generally under the
names "SkyNet" or "SkyNet Worldwide Express."
SkyNet Network members ("Members") provide delivery of packages to
destinations in their region, which originate from other Network Members. In
exchange for providing delivery services, each Member receives delivery of its
packages by other Network Members in their respective regions. Payment, if any,
for deliveries by Network Members is dependent upon the number of packages
delivered as compared to the number of packages generated by each Network
Member. Established high volume Network Members have historically achieved a
balance between packages delivered and packages generated for delivery by other
Network Members. Accordingly, no payments are made by or to such Members or to
or from the Company or any other Network Member for such deliveries. Network
Members who experience a significant difference between packages delivered and
packages generated for delivery by other Network Members participate in a cost
recovery system whereby they receive payments from the Company or other Network
Members for providing such delivery services. Any transfer fee imposed by a hub
operator for the transport of packages from one country to another is borne by
the Member who originally generated the shipment.
Each package generated by a Network Member is entered into and tracked from
pick-up to delivery by the SkyCom 2000 system which charges Network Members a
fee for each shipment. In short, through its subsidiaries and the SkyCom 2000
system, the Company forms the core of an extensive group of independent delivery
companies in different parts of the world, which operate under a common brand
name and deliver each other's packages from airport-to-door.
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The Network is an alliance of delivery professionals. In fact, most
Network Members are bound not by a formal licensing agreement, but rather by
mutual opportunity and need. Although management of the Company is currently
evaluating the merits of creating a more formalized arrangement, it believes
that the absence of contractual obligations between the Company and the vast
majority of the Network Members will not have an adverse effect on the Company's
operations even though there can be no assurance that Network Members will not
enter into exclusive or non-exclusive arrangements with competitive networks
offering greater benefits or lower costs. This belief is based, in part, on the
fact that many of the existing couriers are small businesses, which have been
operating as Network Members for many years without a written contract.
Management believes that these entities may resist entering into a more
formalized arrangement. In addition, management continues to believe that
independent couriers receive a number of substantial benefits by being a Network
Member and therefore have an economic incentive to remain a Member.
First and foremost, by gaining access to the Network, independent couriers
have the ability to deliver packages to distant locations throughout the world
cost-effectively. For example, if a local courier in Turkey needed to deliver a
package to Los Angeles, it may incur a minimum airline charge of as much as $70
or more for an individual package. However, by sending the package to the
Company's European hub in London where it is consolidated with numerous other
packages which are going to the United States or the Far East, the unit cost of
transporting that particular package decreases dramatically. This allows the
individual Network Member to provide international delivery service to its
customers at a more reasonable cost. Second, each member has access to the
SkyCom 2000 system. This not only ensures that the package will be tracked
throughout the delivery process and will not be delivered without a signature,
but also serves as the customs declaration manifest ("Manifest") saving the
Member the administrative fees and expenses of preparing its own paper Manifest.
All of the above reduce administrative and other costs associated with numerous
international transactions in varying currencies and permits independent
couriers to offer worldwide delivery services to their customers at competitive
rates.
The SkyCom 2000 System
The SkyCom 2000 system is the Company's advanced computerized billing and
tracking information technology. The SkyCom 2000 system is an Internet-based
software program, which provides computerized tracking and billing information
for each package delivered through the SkyNet Network. Upon a package being
dispatched by a customer, it is given a tracking number and entered into the
SkyCom 2000 system by the Member. Tracking information is monitored and updated
at various stages of the delivery process.
Each Network Member has real time access to the SkyCom 2000 system. This
allows all Network Members to track the status of any package being delivered
through the SkyNet Network at any time. In addition, the SkyCom 2000 system can
be accessed through the Company's web site. Larger customers are provided with
customized software permitting them to directly access the SkyCom 2000 system.
Accordingly, at any point in the delivery process, the Company, any Network
Member and any customer is able to determine the exact location of any
particular shipment within the Network.
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Management believes that maintaining a state of the art computerized
tracking system is an essential component of the Company's operations and
provides the framework upon which the Company will attempt to build a larger
global distribution system. Management believes that the current SkyCom 2000
system is capable of effectively serving the needs of the Company and the
Network Members. The SkyCom 2000 system has recently been upgraded, which
included the outsourcing of the ongoing maintenance of the system. The upgrade
was designed to achieve the following three objectives:
. Provide enhanced Internet applications relying on recent technological
advances;
. Provide additional and enhanced services to better fulfill the needs of the
SkyNet Network and its customers; and
. Reduce the Company's dependence on its existing third party licensing
arrangements.
In this regard, the Company retained a qualified technology vendor to: (i)
develop a state-of-the-art Company-owned information technology system which
will achieve the foregoing objectives; (ii) provide the Company with technology
upgrades and new developments; and (iii) manage and operate the system through
dedicated qualified personnel provided by the vendor. The vendor completed the
upgrade and installed the new system ("SkyCom 2000") in July 1999. In addition
to the fixed price for developing the SkyCom 2000 system for the Company, the
vendor received an option to purchase 50,000 shares of the Company's Common
Stock at $5.00 per share, that vest ratably over three years. As part of the
Agreement, the vendor will provide maintenance and developments services, as
defined, for a period of five (5) years and receive a monthly maintenance fee of
approximately $26,000.
Current Operations
The Company is involved in all aspects of the express courier business.
With respect to the Fleet and PONY operations, the Company operates a fleet of
vehicles that pick-up and deliver time sensitive documents, on a routed basis in
select locations in 22 states of the United States. The other aspect of the
Company's business consists of the following three distinct components; Pick-up,
Line Haul and Delivery.
Pick-up. The Company obtains packages for delivery through two primary
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service types: "On-Call" service and "Routed" service. With on-call service,
the Company or a Network Member picks up packages from a customer and transports
the shipment to one of the Members or the Company's stations.
The Company's "routed" service is performed where Company vehicles make
scheduled pick-up and delivery stops on a pre-set route at regular intervals
(e.g., on a daily, twice daily or more frequently). Examples of the Company's
routed delivery is where it makes deliveries to and pick-ups from numerous
branches of a banking or financial services customer or from multiple locations
of a chain drugstore customer. Routed service can be customized to the needs of
a particular customer, providing the service the customer needs at the times and
in the manner best fulfilling the customer's requirements. Additionally, routed
service can be easily modified at the customer's request to add or subtract
service locations on short-notice, providing customers with the flexibility they
expect in today's rapidly changing delivery market.
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The Company will sometimes perform all of the tasks involved in operating
its domestic routed delivery and on-call services, and in other cases it may
not. Some Company-owned locations performing routed services will primarily
handle packages for only a few of the Company's customers, such as banks or
other financial institutions, and the majority of the pick-ups and deliveries
for that location will be made in a fairly limited geographic region. Documents
and packages delivered through the SkyNet Network are typically picked up by a
Company-owned or Network Member van, which transports the parcel to one of the
Members or Company's stations. Specifically, Company-owned stations pick-up
approximately 25% of the total number of packages delivered through the Network.
After packages are picked up, they are sorted by destination and packed into
bags for transport. At the time packages are sorted, they are entered onto the
SkyCom 2000 system and assigned a tracking number. At the same time, an airway
bill is generated based primarily on the weight and to a lesser extent, the
destination of the package. For international deliveries, a Manifest is created
describing the various documents and packages being sent to a particular
location. The Manifest is entered into the SkyCom 2000 system and transmitted
electronically to the point of destination so that it can be reviewed and
processed prior to the package's arrival. This saves the Company and Members
the expense related to preparing a paper Manifest and the communication expense
of transmitting it via facsimile.
Line Haul. Line Haul refers to the transport of packages from point of
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origination by ground or air to its city or country of destination. With
respect to air transport, the Company does not own or operate any aircraft but
rather, utilizes cargo space on commercial passenger and cargo aircraft. In
this regard, the Company has established relationships with a number of major
international airlines and large air freight companies from which the Company
purchases cargo space on an as-needed basis. The rates are typically charged
per pound and, depending upon departure times and space availability, are
frequently subject to negotiation. Although the Company has historically been
able to secure air cargo space as needed and believes its relations with
commercial airlines and cargo carriers are good, it has no contractual rights
with respect to the acquisition of cargo space and no assurance can be given
that it will continue to be in a position to secure such space in the future.
The Company believes this system is superior to the capital-intensive
alternative of owning, operating and maintaining its own fleet of aircraft. In
order to most efficiently operate an air fleet, couriers such as FedEx must
ensure that each aircraft is filled to capacity. To best achieve this
objective, FedEx maintains a rigid departure schedule; typically one departure
each evening from each city in which it operates. By utilizing commercial
aircraft, the Company has access to many more destinations and departure times.
This provides the Company with the flexibility to provide next-flight-out
services for the fastest delivery of time sensitive documents and the ability to
more effectively meet special customer needs.
With respect to ground transport, the Company operates ground
transportation services at its stations for pick-up and consolidation of
packages at such locations. Some of these services are performed on a "routed"
basis (i.e. scheduled route) while others are on an "on-call" basis.
Delivery. Upon reaching its destination, international packages are sorted
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and released in accordance with the Manifest. All non-documents must be cleared
by a customs agent. In this regard, the Company utilizes the services of a
customs broker to manage the release of packages within the Network. Upon
packages being released from the airport, they are sorted at a Company or a
Network Member-owned station. Documents and packages are then delivered by
truck by the Company or, more often, a Network Member. Specifically, during the
year ended June 30, 1999, Company owned stations delivered approximately 20% of
the total number of packages delivered through the Network. This ensures, to
the best extent possible, that packages reach their intended destination.
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Pricing. Due to the highly competitive nature of the express courier
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business, competitive pricing is critical to the Company's ability to
effectively compete in the market. The Company believes that its variable cost
structure permits it to provide quality services at reasonable rates. Pricing
is typically based on the weight and the destination of the package. Since the
Company and Network Members aggregate large volumes of packages for air cargo
shipment, the Company enjoys per unit air transportation costs which are less
than some smaller regional couriers. Since it does not maintain its own
aircraft, unit costs do not substantially rise or fall with volume fluctuations.
Customers. The Company maintains a diverse international customer base and
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no customer accounts for in excess of 5% of the Company's annual consolidated
revenues. The Company's principal customer base can be divided into three (3)
distinct categories. First, commercial business enterprises with international
offices, customers or distribution centers which utilize the Company's
international services. Second, commercial entities based in the United Kingdom
or Australia, which are primarily engaged in domestic manufacturing or service
businesses with delivery needs to the principal commercial centers of those
countries. Third, Network Members that utilize Company stations to process,
forward or deliver packages which are generated by Network Members.
With its recent acquisitions of PONY and Fleet, the Company now has
contracts with many of its domestic customers. The terms of these contracts
often provide the parties with the ability to terminate the contracts on fairly
short notice (30-90 days) in many instances. Other than those contracts and
airbills for individual packages, the Company does not have contracts with any
of its customers. To date, the Company has not marketed its services on a
global basis to any of its customers but is currently considering the benefits
of such an approach.
Seasonality. Due to the international nature of the Company's business, it
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is not subject to material seasonal fluctuations. For example, although volume
in the United States and Europe decreases in July and August, volume in
Australia is substantially higher during these months.
BUSINESS STRATEGY
The Company's long-term goal is to become a recognized provider of express
delivery and logistics services throughout the world. The Company plans to
achieve its objective through implementation of a three-fold business strategy
involving strategic acquisitions within its industry, consolidation with key
Network Members and focus on internal growth and increased operating
efficiencies.
Acquisition Strategy
The Company intends to pursue an acquisition strategy to enhance its
position in its current markets and acquire operations in new markets. The
Company will focus its acquisition strategy on candidates that either fit into
or complement the Company's current operations. This will include the
acquisition of independent local and regional express courier companies in the
United States and overseas which can be consolidated into the Company's current
operations. It will also include targeting same-day couriers, intra-city
couriers and global freight forwarders which can compliment the Company's
current operations. For example, the Company could acquire an intra-city
courier in a major US or European city or a domestic regional express courier
which, although it might not fit precisely within the Company's current
operations, could provide the Company with a more efficient delivery system and
substantial cross-selling opportunities by offering international delivery
services to a new set of customers.
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The Company's present strategy is to (i) acquire additional companies that
are intended to supplement the Company's existing market presence as "tuck-in"
acquisitions; and (ii) establish a significant presence in new markets or
geographic areas through the acquisition of established regional competitors as
"platform" acquisitions to be followed by additional "tuck-in" acquisitions.
Platform Acquisitions. A "platform acquisition" is defined by management
---------------------
as one that creates a significant presence for the Company in a new geographic
market or market segment. The Company intends, where possible, to make platform
acquisitions in targeted markets by acquiring established local and regional
express courier companies. In general, the Company intends to retain the
management as well as the operating and sales personnel of a platform
acquisition in order to maintain continuity of operations and customer service.
The Company will seek to increase an acquired company's revenues and improve its
profitability by integrating the acquired company into the SkyNet Network. The
Company believes that these acquisitions could provide significant cross-selling
opportunities by providing international express courier services to existing
customers on a cost-effective basis. These acquisitions are also intended to
provide a significant market presence from which additional "tuck-in"
acquisitions can be undertaken.
Tuck-In Acquisitions. A "tuck-in" acquisition will more likely occur in an
--------------------
existing market, will be smaller than a platform acquisition and will enable the
Company to offer additional services or expand into secondary markets within a
region already served. In most instances, management believes that the
operations acquired by tuck-in acquisitions can be integrated into the Company's
existing operations, resulting in the elimination of duplicative overhead and
operating costs and ultimately increasing operating margins and/or price
competitiveness.
The Company's acquisition strategy is intended to complement rather than
replace the existing SkyNet Network. By focusing on "platform acquisitions" in
new markets, the Company is seeking to increase its global presence in order to
provide additional points of delivery for the Company and all Network Members.
Similarly, "tuck-in" acquisitions are primarily intended to provide additional
services or increased presence in existing markets. Although the Company's
acquisition strategy will require the Company to directly pick-up and deliver
additional packages, the Company will continue to utilize available air cargo
space on commercial aircraft for line haul and rely on Network Members for most
deliveries in order to minimize fixed overhead costs.
Recent Acquisitions
PONY
On June 17, 1999, the Company acquired all the outstanding shares of
capital stock of PONY, a courier delivery service operating in 22 states in the
USA with annual revenues of approximately $100 million. The purchase
consideration included 600,000 shares of the Company's Common Stock and 848,808
shares of the Company's Series B Convertible Preferred Stock and amounted to
$3,722,000 (including acquisition costs of $463,000). The acquisition was
accounted for using the purchase method of accounting with the assets acquired
and liabilities assumed recorded at fair values, and the results of the acquired
business are included in the Company's consolidated financial statements from
the closing date of the acquisition. The purchase price exceeded the fair value
of the net assets acquired and resulted in goodwill of approximately $14.7
million.
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<PAGE>
Fleet
On March 15, 1999, the Company acquired the operating assets of Nevada
Fleet Management, Inc., a Nevada corporation, d.b.a. Fleet Delivery Service
("Fleet"), a courier delivery service operating in the states of Nevada,
Arizona, California, Oregon and Washington. Total purchase consideration
amounted to $2,948,000 with the Company issuing 1,423,999 shares of its Common
Stock, plus approximately $100,000 in acquisition costs. The assets acquired
include accounts receivable, delivery vehicles, equipment, refundable deposits,
licenses, administrative material and equipment, records and documents, and all
personal property used in the operation of the business. The acquisition was
accounted for using the purchase method of accounting with the assets acquired
and liabilities assumed recorded at fair values, and the results of the acquired
business are included in the Company's consolidated financial statements from
the closing date of the acquisition. The purchase price exceeded the fair value
of the net assets acquired and resulted in goodwill of approximately $1.8
million.
FOB
On April 12, 1999, the Company completed the first tier of a scheduled two-
tiered acquisition of FOB. At the initial closing, the Company purchased 51% of
the issued and outstanding shares of FOB for cash in the amount of approximately
$680,000; 31,119 shares of Common Stock; and a one (1) year cash earn-out
payment in the amount of up to $144,000 based on quarterly revenues of FOB for
the one year period following the closing. The Company purchased the remaining
49% during the first the week of July 1999 for approximately $570,000 plus
83,067 shares of the Company's Common Stock.
In July 1999, the Company was informed that an administrative receiver
had been appointed for FOB's largest customer. The receivable from this customer
as of June 30, 1999 amounted to approximately $1.25 million. As a result, FOB
was unable to meet its own obligations and a liquidator was appointed and took
control of FOB. Accordingly, the acquisition of FOB was accounted for under the
equity method of accounting, since control of FOB was temporary. The Company
fully reserved its investment in and advances to FOB in the amount of $1,598,210
as of June 30, 1999.
Consolidation of Certain Network Members
The second component of the Company's business strategy is to consolidate,
via acquisition, certain of the Network Members. In this regard, the Company
intends to focus on acquiring Network Members who have a proven record of
generating a large volume of packages for delivery through the SkyNet Network.
Management believes this strategy will lead to increased productivity and
efficiency and substantially increase revenues by effectively converting certain
Network Members into revenue and profit centers for the Company and providing
such Network Members with an equity stake in the Company.
Management believes it can successfully implement its acquisition and
consolidation strategy due to the following factors:
. The highly fragmented composition of certain segments of the express
courier industry.
. The Company's position as a global courier will enable it to offer
acquired companies the ability to expand the services provided to their
existing customers.
. The potential for increased profitability by consolidating the
administrative functions and package volume of an acquired company with
those of the Company and the Network.
. The extensive industry knowledge and experience of its senior management
both in the United States and overseas.
11
<PAGE>
. The nature of the industry, which is characterized by mature privately-
held small businesses whose owners might be receptive to being acquired
by a larger corporation.
To date, although the Company has identified a number of potential
acquisition candidates, with the exception of the PONY, Fleet and FOB
acquisitions described above, the Company has not consummated any other
acquisitions and there can be no assurance that the Company will have the
financial or personnel resources to effectuate this strategy.
Although the Company's capital resources are more limited than most of its
larger competitors, the Company plans to accomplish acquisitions principally
through the issuance of its securities. The successful implementation of this
strategy depends upon the liquidity of the Company's securities which, in turn,
is facilitated by having a class of securities which are eligible for public
trading. The use of Company securities to facilitate acquisitions will rely to
a great extent upon the development and maintenance of an active trading market
for the Company's securities. The public trading market for the Company's
Common Stock has only recently commenced on a very limited basis. There can be
no assurance that a regular trading market will develop or if developed, will be
sustained on a long-term basis.
Internal Growth and Increased Operating Efficiencies
Although the Network effectively provides the Company with a global
presence and international brand identity without incurring the associated costs
of owning and operating offices throughout the world, historically, it has not
been a significant source of revenue for the Company. Management also believes
that there is an imbalance of packages generated versus those delivered by
certain Network Members which is not fully covered by the Company's existing
cost recovery system and results in unequal monetary benefits and burdens among
such Members. Although management does not believe that this has resulted in
any material number of Members dropping out of the SkyNet Network, it is
currently evaluating this situation in order to provide a more equitable system
of distribution. Specifically, management is in the process of creating a
clearinghouse and net billing system, which would utilize a system of debits and
credits to collect and disburse fees from and to Members in order to equalize
the economic benefits among the Members. The Company's upgraded SkyCom 2000
system is being designed to provide such a service. There can be no assurance
that current Network Members would remain in the Network if changes in the
payment and cost-recovery systems employed by the SkyNet Network resulted in
such Members being required to pay some or all of the expense for package
deliveries made by other Network Members.
Management of the Company believes that accurate billing for each package
is critical to maintaining both fair pricing to its customers and consistent
margins. Since the pricing of an airbill is primarily determined by weight,
underestimating weight results in a loss of revenue. This aspect of the
Company's operation is largely controlled by Company employees and independent
contractors working at stations and hubs. Although management believes that
this has not resulted in a material loss of revenue, it continues to believe
that dedicated attention to detail by these employees is essential to the
efficient operation of the Company.
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<PAGE>
SALES AND MARKETING
The Company (including the PONY stations) and SkyNet Network Members engage
in direct sales activities to existing customers and prospects within their
respective regions. This consists of canvassing targeted markets and intensive
follow-up on referrals from existing customers. All sales and marketing is
conducted on a local rather than a global basis through the following Company
owned and independently owned stations throughout the world:
Company Owned Stations:
United States United Kingdom
Arizona (2) London, England
California (14) Manchester, England
Colorado (4) Bristol, England
Florida (7) Birmingham, England
Georgia (1)
Idaho (4)
Illinois (3) Australia
Indiana (5) Sydney, New South Wales
Iowa (1) Melbourne, Victoria
Kansas (5) Brisbane, Queensland
Kentucky (2)
Minnesota (1)
Missouri (5) Malaysia
Nebraska (4) Kuala Lumpur
Nevada (2)
New York (1)
New Mexico (1)
Ohio (3)
Oregon (4)
Texas (14)
Utah (1)
Washington (8)
Wisconsin (1)
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<PAGE>
Stations Independently Owned by Network Members:
Antigua Haiti Peru
Argentina Honduras Philippines
Aruba Hong Kong Portugal
Austria Hungary Puerto Rico
Bahamas India Reunion Island
Bahrain Indonesia Russia
Barbados Iran Rwanda
Belgium Ireland Scotland
Belize Isle of Man Singapore
Bolivia Israel South Africa
Botswana Italy South Korea
Brazil Japan Spain
Brunei Jordan Sri Lanka
Canada Kenya St. Denis
Cayman Islands Kuwait Swaziland
Channel Islands Lebanon Sweden
Czech Republic Malawi Switzerland
Chile Malaysia Syria
China Malta Taiwan
Colombia Mauritius Tanzania
Costa Rica Martinique Thailand
Curacao Mexico Trinidad
Cyprus Mozambique Turkey
Denmark Moresby U.A.E.
Dominican Republic Namibia Uganda
Egypt Nepal United States
El Salvador Netherlands Uruguay
Ecuador New Guinea Vanuatu
Estonia/Lithuania New Zealand Venezuela
Finland Nicaragua Vietnam
France Norway Virgin Islands
Germany Oman Western Samoa
Greece Pakistan Yemen
Guatemala Panama Zambia
Guernsey Paraguay Zimbabwe
Guyana Peking
As management continues to integrate and streamline the operations of the
Company, it will focus on implementing a formalized marketing and sales program.
At this time, the Company intends to expand its direct sales force rather than
engage in any mass marketing or media advertising. The Company believes that
direct sales is the most cost effective way to market the Company's specialized
delivery and logistics services to its current and future customers.
14
<PAGE>
COMPETITION
The market for the Company's delivery services is highly competitive. The
Company believes that the principal competitive factors in the markets in which
it competes is price, followed by reliability, quality and dependability of
service. Since the industry is essentially cost-driven, the Company is
continually seeking to streamline operations to further reduce costs.
Management believes that as it continues to implement its acquisition strategy
and integrates certain Network Members, the Company's per unit costs should
decrease, which should make the Company more competitive in the marketplace.
Although many of the Company's current competitors, particularly those in
the same-day ground and air delivery market, are small privately held companies,
the industry is currently undergoing substantial consolidation. This will
likely increase competition as the Company's competitors become larger and
better capitalized. In addition, the domestic next-day and second-day express
courier market is dominated by large corporations such as UPS and FedEx who have
substantially greater market power and financial resources. The international
market in which the Company operates is more fragmented.
REGULATION
The Company's operations are subject to various state and local regulations
which require permits and licenses from state authorities. Interstate and
intrastate motor carrier operations are subject to safety requirements
prescribed by the United States Department of Transportation and by state
Departments of Transportation. The Company's failure to comply with applicable
regulations could result in fines or possible revocation of one or more of the
Company's operating licenses, any of which events could have a material adverse
effect on the Company. In addition, the Company is also subject to certain
Federal Aviation Administration regulations which require the Company to
identify the source of all packages placed onto aircraft originating or
terminating in the United States.
INTELLECTUAL PROPERTY
In its domestic operations, the Company operates under the tradenames "Pony
Express", "Fleet Delivery Services", "SkyNet" and "SkyNet Worldwide Express".
Pony Express is a registered trademark in the United States and several foreign
countries, and logos combining the "Pony Express" name and a distinctive "horse
and rider" graphic are similarly registered in the United States and several
other countries. Pursuant to an Assignment and Coexistence Agreement between
Borg-Warner Security Corporation (a prior owner of Pony Express Delivery
Services, Inc.) and Mustang Holdings, Inc. (the immediate prior owner of Pony
Express Delivery Services, Inc.) dated May 29, 1998, Borg-Warner retained
certain rights to use the "Pony Express" name in fields other than the
"Transportation Field" (which is defined in the agreement to mean the business
of the transportation and storage of money, valuables, documents, packages,
parcels and freight). Mustang Holdings, Inc. assigned its rights to the "Pony
Express" and the "horse and rider" trademarks to Pony on May 29, 1998.
The Company also operates under the tradenames "SkyNet" and "SkyNet
Worldwide Express". SkyNet is a registered trademark in Australia, which is
owned by SWEPL. Both SkyNet and SkyNet Worldwide Express are registered as
tradenames in the United Kingdom by SIL. The Company has made trademark
applications for SkyNet and SkyNet Worldwide Express with the United States
Patent and Trademark Office and with each of the fifty (50) states, which
applications have been approved in approximately forty (40) states. With
respect to the numerous other countries in which Network Members operate, the
Company does not own the equivalent of registered trademarks in these countries.
In some cases, the names are owned by Network Members. Management does not
believe that failure to own the name in each country will have a material
adverse effect on the Company's operation.
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<PAGE>
EMPLOYEES AND INDEPENDENT CONTRACTORS
As of September 1, 1999, the Company employed approximately 3,141 people;
2,470 as drivers or messengers, 337 in operations, 262 in sales and
administrative positions, and 72 in management. Approximately 2,874 are
employed in the United States. PONY is a party to collective bargaining
agreements at sixty-two of its locations. The collective bargaining agreements
at five of its locations are due to expire on December 31,1999 and four other
locations are due to expire on April 30, 2000.
The Company is otherwise not a party to any collective bargaining
agreements, has not experienced any work stoppages and believes its relationship
with its employees is considered good.
As of September 1, 1999, the Company also utilized approximately 231
independent contract drivers. From time to time, federal and state authorities
assert that independent contractors in the transportation industry, including
those utilized by the Company, are employees, rather than independent
contractors. The Company believes that the independent contractors utilized by
the Company are not employees under existing interpretations of federal and
state laws. However, there can be no assurance that federal and state
authorities will not challenge this position, or that other laws or regulations,
including tax laws, or interpretations thereof, will not change. If, as a
result of any of the foregoing, the Company were held liable for the acts of its
contract drivers or required to pay for and administer added benefits to them,
the Company's operating costs would increase.
BUSINESS RISKS
Our business and the value of our stock is subject to a number of risks.
Some of those risks are described elsewhere in this report and certain
additional risks are set forth below.
Forward Looking Statements
The words "may," "will," "expect," "anticipate," "believe," "continue,"
"estimate," "project," "intend," and similar expressions used in this report are
intended to identify forward-looking statements. You should not place undue
reliance on these forward-looking statements, which speak only as of the date
made. We undertake no obligation to publicly release the result of any revision
of these forward-looking statements to reflect events or circumstances after the
date they are made or to reflect the occurrence of unanticipated events. You
should also know that such statements are not guarantees of future performance
and are subject to risks, uncertainties and assumptions. Should any of these
risks or uncertainties materialize, or should any of our assumptions prove
incorrect, actual results may differ materially from those included within the
forward-looking statements.
1. On and after December 21, 1999, a group of lenders will have the right
to convert their loan to our Common Stock at a rate of $1.00 per share, which is
significantly below our historic trading price and which will significantly
dilute the position of current holders of our Common Stock, if converted.
As discussed below in Part II, Item 5 of this report ("Recent Sales of
Unregistered Securities"), we entered into a loan transaction on November 9,
1999 with certain lenders who provided us with a loan of $9,000,000. We are
required to repay the loan on or before February 9, 2001. The lenders may
convert the principal of and interest on the loan into our Common Stock at a
rate of $5.00 at any time on or before December 20, 1999. If any portion of the
loan remains outstanding on December 21, 1999, the lenders may convert any
outstanding portion of the loan into our Common Stock at a rate of $1.00 per
share as of that date and thereafter. As of the date of this report, we do not
expect to be able to repay fully the loan and, therefore, the loan will be
convertible into Common Stock at $1.00 per share. If all of the loan remains
unpaid on December 21, 1999, the loan may be converted into 9,000,000 shares of
our Common Stock, which if issued, would represent 31.3% of our outstanding
Common Stock.
If all of the loan was converted to Common Stock at $1.00 per share, the
interests of existing holders of our Common Stock would be significantly
diluted. Also, we have issued previously other securities that are convertible
into our Common Stock. Some of the conversion or exercise features of those
instruments may be adjusted as a result of our having to issue Common Stock at
$1.00 per share. Those adjustments could further dilute the position of current
holders of our Common Stock. Finally, we have entered into an agreement with
another party that would require us to obtain the prior written consent of the
other party to issue our Common Stock at $1.00 per share. We may not be able to
obtain the other party's consent to issuing Common Stock at $1.00 per share,
which would result in a situation where we might be in default of our agreements
with the lenders if we do not issue our Common Stock when they request to
convert their loan at $1.00 per share or we would be in default of our
obligation to the other party if we issue the Common Stock at $1.00 per share
without the other party's consent.
2. Our Subsidiaries Have Not Operated as a Single Business Until Recently.
----------------------------------------------------------------------
We are the surviving corporation of a merger completed on October 14, 1998
between EPL Resources (Delaware) Corp., a Delaware corporation, and Skynet
Nevada. EPLR had been an inactive company prior to the Merger and Skynet Nevada
was organized in 1997 to consolidate our operating subsidiaries. Prior to that,
each of these companies had been operating as independent separate businesses.
More recently, we completed the acquisitions of Fleet on March 15, 1999, FOB on
April 12, 1999 and PONY on June 17, 1999. The absence of a combined operating
history for a longer period of time may create uncertainty as to whether our
operations may be undertaken profitably on a consolidated basis. This may
subject an investor's evaluation of our long-term prospects to additional
uncertainty.
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<PAGE>
3. We are Losing Money; We Need to Grow to Make Money. We earned a modest
--------------------------------------------------
net income from operations during fiscal 1996 and fiscal 1998, and experienced a
net loss during fiscal 1997 and fiscal 1999. We attribute this loss to a number
of factors, including an increase in the level of corporate overhead associated
with the EPLR merger, our anticipated operations as a public company and the
development and implementation of our growth strategy. Before we acquired Pony
Express, Pony Express had experienced large operating losses for several years.
If our combined operations remain at current levels, we believe that operating
losses will most likely continue. As a result, our future profitability is
likely to depend upon the successful implementation of our business strategy,
which primarily relies upon growth through acquisition.
4. Execution of Our Acquisition Strategy is Subject to a Number of Risks
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and Uncertainties. One of the central elements of our business strategy is to
- -----------------
grow through acquisitions. We may not be able to identify, acquire or
profitably manage additional businesses or successfully integrate acquired
businesses into our current operations without substantial costs, delays or
other operational or financial problems. Since we just recently commenced this
strategy, we do not have a track record in completing such acquisitions or
integrating acquired businesses into our operations. In addition, the current
consolidation of the express courier, same day delivery and freight forwarding
industries will likely result in increased competition for acquisition
candidates. This may result in fewer acquisition opportunities available to us
as well as higher acquisition prices. Acquisitions also involve a number of
risks, including possible adverse effects on our operating results, diversion of
our management resources, failure to retain key personnel, risks associated with
unanticipated liabilities and amortization of acquired intangible assets.
These risks could have a material adverse effect on our business, financial
condition and results of operations. The performance of a single acquired
company could have an adverse effect on our national and international sales and
marketing initiatives. In addition, businesses we acquire may not achieve
anticipated revenues and earnings. Finally, foreign laws, which restrict
foreign investment or impose unduly restrictive regulations, may prevent us from
completing acquisitions outside of the United States, United Kingdom or
Australia.
5. We Need Additional Money and a Liquid Trading Market to Execute our
-------------------------------------------------------------------
Acquisition Strategy. We have used, and intend to continue to use, a
- --------------------
substantial portion of the proceeds raised through recent sales of our common
and preferred stock to finance acquisitions in the short-term. These proceeds
may not be sufficient to finance any additional material acquisitions. As a
result, we will require additional financing in order to pursue our acquisition
strategy beyond the short-term. We intend to obtain this financing through a
combination of traditional debt financing and the placement of debt and equity
securities. Provided a liquid trading market for our Common Stock develops, we
hope to finance some portion of our future acquisitions by using shares of our
Common Stock as payment of the purchase price. If our Common Stock does not
maintain a sufficient market, or potential acquisition candidates are unwilling
to accept our Common Stock as full or partial payment for the sale of their
business, we may be required to utilize more of our cash resources.
Accordingly, if we do not have sufficient cash resources, our growth could be
limited.
6. There is a Very Limited Market for our Stock; Our Stock Price will
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Likely be Volatile. The public trading market for shares of our Common Stock
- ------------------
has recently commenced on the OTC Electronic Bulletin Board. However, in view
of the very small historical supply of shares eligible for public resale,
trading has been extremely limited. We are uncertain as to whether a regular
trading market will develop. As a result of the limited market, purchasers of
our Common Stock may have difficulty in selling their shares and/or obtaining a
satisfactory price.
17
<PAGE>
Additionally, a large number of shares have recently become available for
public trading. The addition of these newly-tradable shares may adversely
affect the trading market for our Common Stock. As of the date of this report,
there are 19,575,094 outstanding shares of Common Stock, of which approximately
15,500,000 shares are eligible for public trading, subject to limitation imposed
by law and contracts entered into by the holders of some of those shares. The
trading market for the Common Stock may be adversely effected by the subsequent
influx into the market of:
. 1,325,500 shares issued in a private placement transaction plus
132,550 shares issuable upon exercise of outstanding warrants which we
have agreed to register for resale under the Securities Act of 1933,
as amended no later than on or about February 19, 2000.
. 1,479,415 shares issued in connection with our acquisition of Fleet
which we have agreed to register for resale under the Securities Act
of 1933, as amended, no later than March 15, 2000.
. 950,000 shares issuable upon the exercise of warrants granted in
connection with financing transactions completed in June 1999 which we
have agreed to register for resale under the Securities Act of 1933,
as amended, no later than January 17, 2000.
. 1,448,808 shares, comprised of 600,000 shares we have already issued
and 848,808 shares which are issuable upon the conversion of the
Company's Series B Convertible Preferred Stock, in connection with our
acquisition of PONY which we have agreed to register for resale under
the Securities Act of 1933, as amended, no later than June 17, 2000.
. 75,750 shares issued in connection with financing transactions
completed in August 1999.
. 450,000 shares, comprised of 150,000 shares of Common Stock we have
already issued and 300,000 shares of Common Stock issuable upon the
exercise of warrants granted by the Company, in connection with the
extension completed in November 1999 of the maturity of a financing
transaction completed in June of 1999, which we have agreed to
register for resale under the Securities Act of 1933, as amended, no
later than January 17, 2000.
. 875,000 shares, comprised of 375,000 shares of Common Stock we have
already issued and 500,000 shares are issuable upon the exercise of
warrants to purchase Common Stock, issued in connection with a
financing transaction completed in November of 1999, which we have
agreed to register for resale under the Securities Act of 1933, as
amended, on the next registration statement we file with the
Securities and Exchange Commission.
This substantial increase in the number of shares available for public sale
could result in the price of our Common Stock going down. Until a trading
market develops, the market price for our Common Stock is likely to be volatile.
In addition, the stock markets generally have experienced, and continue to
experience, extreme price and volume fluctuations which have affected the market
price of many small capitalization companies. These market fluctuations, as
well as general economic and political conditions, may adversely affect the
market price of our Common Stock.
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7. We Will Be Issuing a Substantial Number of Additional Shares. One of
------------------------------------------------------------
the principal elements of our business strategy is to accomplish strategic
acquisitions, principally through the issuance of additional shares of our
Common Stock as purchase price consideration. This will have the effect of
increasing the number of shares of Common Stock outstanding. Under Delaware
law, we can issue additional shares without notice to, or approval of, existing
stockholders.
In addition, during November 1998, we adopted a stock option plan which
permits us to grant options to purchase shares equal to 10% of our then
outstanding shares of Common Stock (currently 1,893,553). As of the date of
this report, we have issued options, warrants and convertible preferred stock in
the following amounts:
. During January and April 1999, we issued 973,600 options under the Plan.
. In connection with the October 1998 Merger, we issued non-plan options
to purchase 1,800,000 shares of Common Stock.
. During February of 1999, we issued warrants to purchase 132,500 shares
of Common Stock.
. During April of 1999, we issued 2,003,560 shares of our Series A
Convertible Preferred Stock which are convertible into 2,003,560 shares
of Common Stock within two (2) years from the date of issuance.
. During April of 1999, we issued warrants to purchase 500,890 shares of
Common Stock.
. During June of 1999, we issued 848,808 shares of our Series B
Convertible Preferred Stock, which is convertible into at least 848,808
shares of Common Stock.
. During June of 1999 we issued warrants to purchase 950,000 shares of
Common Stock.
. During June of 1999, we issued non-plan options to purchase 740,000
shares of Common Stock.
. During August of 1999, we issued warrants to purchase 75,000 shares of
our Common Stock.
. During November of 1999, we issued warrants to purchase 800,000 shares
of our Common Stock and a promissory note that is convertible into
between 1,800,000 shares and 9,000,000 shares of our Common Stock.
The exercise of the options and warrants identified above and the
conversion of the Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock into Common Stock will result in the issuance of an additional
10,624,407 shares of Common Stock.
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8. We Acquired a Company Which Has Lost a Substantial Amount of Money and
----------------------------------------------------------------------
Has a Negative Net Worth. On June 17, 1999 we acquired Pony Express Delivery
- ------------------------
Services, Inc. Pony Express is an Atlanta, Georgia based express courier with
over 100 offices in 22 states. We believe that during the past several years
Pony Express has incurred substantial operating losses and presently has a
negative net worth of approximately $8 million. Although we believe we can
integrate the operations of Pony Express into our current operations to reduce
costs and achieve an operating profit, we cannot make any assurances that we
will be able to do this. Unless we can substantially reduce the operating costs
of Pony Express, we will have to provide substantial additional capital to Pony
Express over the next twelve (12) months. We believe we will be required to
provide approximately $2 to $3 million to Pony Express during this time. We do
not have this amount of money, and we will need to raise additional financing
through a bank loan or the sale of additional equity securities if Pony Express'
historical losses continue.
9. The Express Courier Business is Very Competitive. We face intense
------------------------------------------------
competition from multinational, regional and local companies in every market in
which we operate. The principal competitive factors within our industry include
price, frequency and capacity of scheduled service, extent of geographic
coverage and reliability. Many of our competitors have well established
reputations and significantly greater financial, marketing, personnel and other
resources than we do. Our principal competitors are DHL Worldwide Express,
Federal Express, TNT Express Worldwide, UPS and post offices providing express
delivery services, all of which are multinational, highly-visible and well-
regarded enterprises. There can be no assurance that we will be able to compete
effectively against these or any other competitors.
10. We are Controlled by a Small Number of Stockholders. As of the date of
---------------------------------------------------
this report, our officers, directors and principal stockholders have the power
to vote approximately 37.6% of our outstanding Common Stock. Consequently,
these stockholders are able to elect directors and control the outcome of other
corporate matters without the approval of our other stockholders. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - Material Voting
Arrangements". In addition, applicable statutory provisions and the ability of
the Board of Directors to issue one or more series of preferred stock without
stockholder approval could deter or delay unsolicited changes in control of our
Company. This may be viewed as a disadvantage to a majority of our stockholders
who may otherwise desire to participate in such a transaction. These
transactions normally provide for the payment of a premium over the existing
market price.
11. We Rely on Independent Businesses to Deliver our Packages Which Have
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No Contractual Obligation to Us. Our operations are dependent upon our Network
- -------------------------------
Members generating packages for delivery through the Network and delivering
packages in their respective regions for other Network Members. The Network is
a worldwide alliance of delivery professionals and most Network Members are not
bound by a formal licensing agreement or other arrangement. Accordingly, most
Network Members have no contractual obligations to us or any other Network
Member. Although we believe that the absence of contractual obligations among
Network Members will not have an adverse effect upon our operations, they are
free to enter into arrangements with competitive networks, which agreements
might also prevent them from doing business with us.
20
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12. We Rely on Commerical Air Carriers Which Have No Contractual
------------------------------------------------------------
Obligation to Us to Ship our Packages. We rely on scheduled flights of
- -------------------------------------
commercial cargo and passenger aircraft to provide our courier and freight
forwarding services. We could be adversely affected by changes in the pricing
and scheduling practices of air carriers. We purchase cargo space from
commercial air cargo and passenger aircraft on an as-needed basis. We have no
contractual relationship with any carrier for the procurement of such space.
Although we have historically been able to secure such space, we may not
continue to be in a position to do so in the future at rates acceptable to us.
The failure to obtain such space at acceptable rates, if at all, would have a
material adverse impact on our results of operations.
13. We may be Liable for Lost or Damaged Shipments. We are responsible to
----------------------------------------------
our customers for the safe delivery of shipments up to $100 in value. Upon the
customer's request, we insure amounts above $200 with various insurance
companies. We do not carry an umbrella insurance policy. From time to time we
have made payments to our customers for claims related to their shipments which,
to date, have not been material to our results of operations. Should we
experience an increase in the number of such claims, there can be no assurance
that our results of operations will not be adversely affected.
14. Our Contracting with Independent Owner/Operators may Subject us to
------------------------------------------------------------------
Payment of Additional Taxes. Federal and state authorities, including the
- ---------------------------
Internal Revenue Service, have asserted that independent owner/operators in the
transportation industry are employees rather than independent contractors, thus
requiring the payment of payroll and related taxes. We believe that the
independent contractors utilized by us and our Network Members are not employees
under existing interpretations of federal and state laws. However, federal
and/or state authorities could challenge this position or change these laws or
regulations. If these independent contractors are deemed to be employees of the
Company, we would be required to pay for and administer added benefits to them.
As a result, our operating costs would increase. We could also be liable for
additional taxes, penalties and interest, which could have a material adverse
effect on our business.
15. Our Operations may be Adversely Affected by the Year 2000 Issues. We
----------------------------------------------------------------
are currently responding to Year 2000 issues, and we have completed the upgrade
to our Sky Comm 2000 package tracking system. Year 2000 issues are the result
of computer programs being written using two digits rather than four to define
the applicable year associated with the program or an associated computation.
Any such two-digit computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculation causing disruptions of
operations, a temporary inability to process transactions, send invoices or
engage in normal business activities. We have substantially completed all of
the systems application changes and believe that our level of preparedness is
appropriate. To the extent that any of the commercial cargo or passenger
airlines we utilize rely upon computer programs which are subject to any Year
2000 issues, our financial condition and results of operation could be adversely
affected.
The total cost of these Year 2000 compliance issues is not anticipated to
be material to our financial position or results of operations in any given
year. These costs and the date on which we plan to complete the Year 2000
modification and testing processes are based on our best estimates.
21
<PAGE>
16. Our Operations may be Adversely Affected by Instability in Foreign
------------------------------------------------------------------
Countries and Local Laws of Foreign Carriers. A significant portion of our
- --------------------------------------------
business is conducted outside the United States. As a result, the operations of
certain Network Members in less stable developing countries are subject to
various risks such as loss of revenue, property or equipment due to
expropriation, nationalization, war, the instability of foreign economies,
currency fluctuations, adverse tax policies and governmental activities that may
limit or disrupt markets. Additionally, our ability to compete may be adversely
affected by foreign governmental regulations that encourage or mandate the
hiring of local contractors, or by regulations that require foreign contractors
to employ citizens of, or purchase supplies from vendors in, a particular
jurisdiction. We are subject to taxation in a number of jurisdictions. The
final determination of our tax liabilities involves the interpretation of the
statutes and requirements of various domestic and foreign taxing authorities,
particularly Australia and the United Kingdom. Moreover, many of the countries
where we operate and plan to operate have legal systems that differ from the
United States legal system and may provide substantially less protection for
foreign investors.
17. Laws Restricting Foreign Investments may Adversely Affect our
-------------------------------------------------------------
Acquisition Strategy. Foreign investment by us in local joint ventures or
- ---------------------
business acquisitions (including investments in Network Members) may be limited
or prohibited by foreign laws. Other foreign laws require governmental approval
of investments by foreign persons and limit the extent of any such investment.
The presence of such laws and regulations may prevent us from executing our
acquisition strategy outside of the United States, United Kingdom and Australia.
18. We are Dependent on International Trade to Generate Revenues.
------------------------------------------------------------
International trade is important to our business and has played an important
role in the economic development of the regions in which we currently operate.
International trade is influenced by many factors, including economic and
political conditions, employment issues, currency fluctuations and laws relating
to tariffs, trade restrictions, foreign investments and taxation. A reduction
in the level of international trade, material restrictions on trade or a
downturn in the economies of the United States of America, United Kingdom or
Australia could have a material adverse effect on our business.
19. Exchange Rate Fluctuations may have an Adverse Effect on our Results
--------------------------------------------------------------------
of Operations. We currently bill in U.S. dollars, Australian dollars and
- --------------
British pounds. Approximately 20.5% of our revenues are generated outside of
the United States and billed in foreign currencies. Of these foreign
currencies, approximately 16.0% are in the form of British pounds and the
remainder Australian dollars. Exchange rates for these currencies and other
local currencies in countries where we may operate in the future often fluctuate
in relation to the U.S. dollar. These fluctuations may have an adverse effect
on our earnings or assets when local currencies are exchanged for U.S. dollars.
We do not currently engage in any hedging transactions in international
currencies. Accordingly, weakening of the value of foreign currencies against
the U.S. dollar could result in lower revenues and lower earnings.
20. We are Subject to Substantial Government Regulation. Our operations
---------------------------------------------------
require licenses, permits and approvals in each jurisdiction in which we
operate. Specifically, our domestic interstate and intrastate motor carrier
operations are regulated by the United States Department of Transportation and
various State Departments of Transportation. These authorities prescribe
certain safety requirements which, if not complied with, may result in fines or
the revocation of existing licenses. The loss or revocation of any existing
licenses, permits or approvals or the failure to obtain any necessary licenses,
permits or approvals that may be required in the future would have an adverse
effect on our ability to conduct our business and/or on our ability to expand
into additional jurisdictions. We may not be able to obtain such licenses,
permits or approvals. In addition, countries in which we seek to operate may
have regulatory systems that impose other impediments on our operations which
may prevent us from executing its acquisition strategy outside of the United
States, United Kingdom and Australia.
22
<PAGE>
ITEM 2. PROPERTIES
As of June 30, 1999, the Company operated from seventy-six leased
facilities. These facilities are principally used for operations and general
and administrative functions. The facilities are located in London, England,
Sydney and Melbourne, Australia and forty-seven other facilities located in the
Central and Western parts of the United States. In addition, the Company's
principal executive office is located in the leased facility in Los Angeles.
The Company's aggregate rental expenses for the fiscal year ended June 30, 1999
amounted to $665,727. Management believes that the Company's facilities are
adequate for its current and reasonably foreseeable operations.
ITEM 3. LEGAL PROCEEDINGS
On June 25, 1999, Skyworld International Couriers, Inc. ("SWIC") filed a
complaint (the "SWIC Complaint") against the Company in the United States
District Court for the Southern District of Florida, alleging that the Company's
use of the name "SkyNet" violates certain federal and state trademark rights
held by SWIC in that name. SWIC claims that the Company's use of the name
"SkyNet" violates federal and Florida statutory trademark rights, Florida common
law servicemark rights, and constitutes a violation of the Florida Unfair Trade
Practices Act. The Company has filed an answer to SWIC's complaint denying all
of SWIC's claims and asserting a counterclaim against SWIC seeking cancellation
of SWIC's trademark.
The SWIC Complaint seeks both monetary damages and injunctive relief but
does not identify a specific dollar amount to be in controversy at this time.
Certain of the claims raised in the SWIC Complaint under Florida law also
provides for punitive damages and treble damages in certain instances. The
matter is currently at an early procedural stage, with discovery having begun
just recently. The parties continue discussions directed toward a negotiated
resolution of the dispute, but there can be no assurance that such a settlement
will be reached. The Company believes that the claims raised in the SWIC
Complaint have no merit and intends to defend them vigorously.
The Company is not a party to any other material legal proceedings,
although it is involved from time to time in routine litigation incident to its
business. The Company cannot predict the outcome of the claims raised in the
SWIC Complaint at this time but management believes that the outcome of that and
all other pending claims should not have a material adverse effect on the
Company's financial position and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
23
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed for quotation on the OTC Electronic
Bulletin Board under the symbol "SKYN". Historically, the market for such
shares has been extremely limited, primarily as a result of the limited number
of shares available for public sale. As a result of the expiration of resale
restrictions on a significant number of shares of the Company's Common Stock,
the shares eligible for public trading will significantly increase in the
future. No assurance can be given that a significant trading market for the
Company's Common Stock will develop or, if developed, will be sustained.
The following table sets forth the range of the high and low closing bid
prices of the Company's Common Stock during each of the calendar quarters
identified below. These bid prices were obtained from the National Quotations
Bureau, Inc. and do not necessarily reflect actual transactions, retail markups,
markdowns or commissions. The transactions include inter-dealer transactions.
Based on the very limited public float and trading in the Company's Common
Stock, management believes that such data is anecdotal and may bear no relation
to the true value of the Company's Common Stock or the range of prices that
would prevail in a fluid market.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1998
-----------
2nd Quarter * *
3rd Quarter $0.53125 $0.03125
4th Quarter $ 5.50 $0.03125
Fiscal 1999
-----------
1st Quarter $ 7.25 $ 3.3125
2nd Quarter $ 8.25 $ 7.50
3rd Quarter $ 7.625 $ 5.00
4th Quarter $ 8.50 $ 7.375
Fiscal 2000
-----------
1st Quarter $ 8.25 $ 7.25
2nd Quarter (through
December 9, 1999) $ 7.9375 $ 7.625
</TABLE>
*No bids reported
The closing bid price of the Company's Common Stock as of December 9, 1999
was $7.9375 per share.
Holders
As of December 9, 1999, the number of stockholders of record of the
Company's Common Stock was approximately 158. The Company believes that there
are additional beneficial owners of the Company's Common Stock who own their
shares in "street name."
24
<PAGE>
Dividends
The Company has not paid any cash dividends to date, and has no intention to pay
any cash dividends on the Company's Common Stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of the
Company's Board of Directors and to certain limitations imposed by the General
Corporation Law of the State of Delaware. The timing, amount and form of
dividends, if any, will depend, among other things, on results of operations,
financial condition, cash requirements and other factors deemed relevant by our
Board of Directors.
Recent Sales of Unregistered Securities
1. On October 14, 1998, in connection with the Merger, the Company issued
9,901,500 shares of Common Stock to the holders of all outstanding shares of
capital stock of Skynet Nevada and options to certain affiliates to purchase
1,800,000 shares of Common Stock. These securities were issued directly by the
Company, without payment of any commissions, in a private placement transaction
exempt from the registration requirements of the Securities Act, pursuant to
Section 4(2) thereof, to the following accredited investors:
Name Number of Shares
---- ----------------
John Cathcart 2,100,000
Deansley Limited 3,152,841
Fir Construction Pty Ltd 3,121,023
Christian J. Weber 509,397
Earnest N. Schnesel 140,000
Ms. Anne Schnesel 12,733
David Schnesel 12,733
Mrs. Jodi Spector-Klein 12,733
Mrs. Shan Spector-Keats 12,733
Ms. Fran Lefkowitz 12,733
Mrs. Stephanie Bower 31,819
Ms. Jamie Bank 31,819
Melvyn Ian Smith 31,819
Moontown Limited 63,641
Vjekoslav Nizic 203,976
Swiss Bank fbo Kettering Trust 35,000
Dr. Thomas J. Slobig 13,125
Arthur Rockert 8,750
Segal Communication, Inc. 8,750
Mark Scatterday 8,750
Sandra M. Lindzon 26,250
Cathy Graham 17,500
John Scatterday 8,750
Donald S. Lindsay 8,750
Thomas Grant Peterson 8,750
Jeff Silverman SEP IRA 8,750
Vincent R. Williams 8,750
Mike Campbell 8,750
Roger Barrett 8,750
Christopher F. Nelson 43,750
Christopher J. Lang 43,750
James B. Norman 17,500
25
<PAGE>
Name Number of Shares
---- ----------------
Stephen A. McConnell 17,500
William H. Fisher 26,250
Vincent & Lois Gann Trust 26,250
Helen Patricia Smith IRA 14,875
George Brooks (MOD Financial Services) 26,250
Nils and Patricia Selden 12,250
Marc Federighi 43,750
---------
Total 9,901,500
=========
Name Number of Options
---- -----------------
Vjekoslav Nizic 700,000
Christian J. Weber 700,000
Synergy Group International, Inc. 400,000
---------
Total 1,800,000
=========
2. During September 1998, the Company issued and sold an aggregate of
4,625,000 shares of Common Stock raising gross proceeds of $555,000. This
offering was undertaken by EPLR prior to the execution and closing of the
definitive merger agreement with Skynet Nevada. At that time EPLR was an
inactive Company with no assets or liabilities. Investors in such offering
were, therefore, subject to a number of risks and uncertainties, including the
material contingencies associated with the execution of the merger agreement and
closing of the Merger. These shares were issued directly by the Company,
without payment of any commissions, to the following accredited investors in a
private placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof and Regulation D promulgated
thereunder:
Name Number of Shares
---- ----------------
Mr. Kim B. Acorn 10,000
Claire Behar, Guardian For Bryce Behar 5,000
Claire Behar, Guardian for Jaclyn Behar 5,000
Chase Trust 25,000
Mr. David Cohen 10,000
Jennifer Cohen 20,000
Susan Nussbaum Cohen 10,000
Mr. Rich Davimos 20,000
Mr. Robert Davimos 10,000
EBR Investments 100,000
Fincord Holding Co. 695,000
J. Scott Flasburg 10,000
Mr. Philip L. Franckel 25,000
John Freedom 5,000
Mr. Marvin Gersten 100,000
Mr. Martin A. Goldstein 10,000
Ms. Aimee Gremmo 20,000
Mr. Edward Gurrieri 30,000
Mark S. Howells Trust 50,000
Mr. Kenneth Kirschenbaum 100,000
Larlan Investors Ltd 416,667
Mr. Howard Lindzon 75,000
26
<PAGE>
Name Number of Shares
---- ----------------
Ms. Sandra Lindzon 130,000
Mr. Frank Marold 150,000
Mr. Franklin Marold 20,000
Vincent Marold 1,030,151
Marold Investment LLC 100,000
Mr. Jonathan Mazinter 2,500
Anna Maria Mintz 20,000
MCZ Investment Company 405,000
Mr. Casey O'Brien 20,000
Mr. Tomas Peterson 65,000
Mr. John Scott Polson 2,500
Mr. Jeffrey J. Puglisi 50,000
Ms. Linda Rufo 20,000
Ms. Rosemary SantaMaria 10,000
Mr. Charles Seavey 100,000
Mr. Mike Segal 20,000
Mr. Rob Segal 130,000
Jose Serrano 2,500
Patricia Trish Trust 20,000
Arnold Hendrik William van Hilton 10,000
Philip-Jan van Hilton 10,000
Veracruz Group Limited 333,182
c/o Bentley Agencies Limited
Wexler & Burkhart 35,000
Diane Winston 15,000
For Benefit of Elizabeth Cohen
Diane Winston 20,000
Custodian For Jarret Cohen
Ms. Diane Gail Winston 150,000
Mr. David M. Wrenn 2,500
---------
Total 4,625,000
=========
3. On December 1, 1998, the Company issued an aggregate 572,500 shares of
Common Stock in exchange for the cancellation of $1,145,000 of short-term
indebtedness (including accrued interest), of which $670,000 had been
collectively advanced to the Company by an entity affiliated with a director.
These shares were issued directly by the Company, without payment of any
commissions, to the following accredited investors in a private placement
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof:
Name Number of Shares
---- ----------------
Pearlgold Pty Ltd (affiliated with Noel
Holmes, a director of the Company) 335,000
Andrew Lovell 162,500
Ceceile Klein 75,000
-------
Total 572,500
=======
27
<PAGE>
4. On February 19 and March 5, 1999 the Company issued an aggregate of
1,325,500 shares of Common Stock raising gross proceeds of $2,651,000. Puglisi
Howells & Co., a registered/broker dealer, acted as placement agent to the
Company pursuant to which it received sales commissions and non-accountable
expenses equal to $265,100. The securities were issued to the following
accredited investors in a private placement transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
and Regulation D promulgated thereunder.
Name Number of Shares
---- ----------------
Todd and Kay Ziplow 25,000
CLS Associates, L.P. 50,000
Michael Ohlhausen 13,000
Irvine Capital Partners, L.P. 100,000
Schottenfeld Associates, L.P. 100,000
Aaron and Cynthia Shenkman 100,000
Puglisi Capital Partners 100,000
Bruce Derrick 125,000
Delaware Charter Guaranty & Trust Co. 12,500
Delaware Charter Guaranty & Trust Co. 12,500
Knut Jensen 25,000
Alan and Susan Shaw 12,500
Joshua and Chanie Manela 12,500
Alan and Jan Kelsey 25,000
Lindzon Capital Partners 70,000
Michael and Fran Mallace 5,000
Brent Richardson 50,000
Delaware Charter Guaranty & Trust Co. 12,500
Ziad M. Sultan Al-Essa 25,000
Philip Van Hilten 15,000
Dr. Leon Zieter 17,500
Mike Campbell and Lorene Hernandez 5,000
Gibralt US, Inc. 125,000
Carolyn Siskin Gordon 17,500
Michael G. Rowe 25,000
Steve and Marion Elbaum 50,000
Bank Julius Baer & Co. Ltd. Zurich 50,000
Sidney Sands (Millworth) 20,000
Jeffrey J. Puglisi 100,000
John Orlando 25,000
---------
Total 1,325,500
=========
28
<PAGE>
5. On March 15, 1999, the Company issued an aggregate of 1,479,415 shares
of Common Stock in connection with the acquisition of the operating assets of
Fleet Delivery Service. In accordance with the acquisition agreement 55,416
shares were returned to the Company. These shares were issued directly by the
Company, without payment of any commissions, to the following investors in a
private placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof:
Name Number of Shares
---- ----------------
Nevada Fleet Management, Inc. 1,358,790
Nevada Yellow Cab Corporation 61,459
Nevada Checker Cab Corporation 2,500
Nevada Star Cab Corporation 1,250
---------
Total 1,423,999
=========
6. On April 12, 1999, the Company issued an aggregate of 31,119 shares of
Common Stock and committed to issue an additional 83,067 shares of Common Stock
in connection with the acquisition of the outstanding capital stock of Freight
On Board International Limited. The shares were issued directly by the Company
without payment of brokerage fees or commissions of any kind to the following
persons in a private placement transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.
Name Number of Shares
---- ----------------
David Victor Amos 5,714
Kim Amos 5,706
Christopher Shaun Brooker 5,714
Susan Jane Brooker 5,706
John William Murray Clark 83,067/(1)/
Louisa Jane Clark 8,279
-------
Total 114,186
=======
__________________
(1) To be issued by no later than December 31, 1999.
29
<PAGE>
7. During April 1999, the Company sold and issued an aggregate of 500,890
Units raising gross proceeds of $4,508,000. Each Unit consisted of four (4)
shares of the Company's Series A Convertible Preferred Stock and one (1) Common
Stock Purchase Warrant. Montrose Management, Ltd., a registered broker-dealer,
acted as placement agent to the Company pursuant to which it received sales
commissions and non-accountable expenses equal to $586,040. The units were
issued to the following accredited investors in a private placement transaction
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof and Regulation D promulgated thereunder.
Name Number of Units
---- ---------------
Delaware Charter Guaranty & Trust
FBO Martin H. Meyerson IRA 2,778
Founders Equity Group 25,000
Donald Moorehead, Jr. 25,000
M.H. Meyerson & Co., Inc. 2,778
George Moorehead 25,000
Lancer Offshore, Inc. 165,000
Lancer Partners, L.P. 110,000
The Orbiter Fund, Ltd. 50,000
Richard Pawliger 55,556
Harold & Beverly Rubenstein Family 12,000
Kenneth J. Koock 2,778
Stoli Ltd. 25,000
-------
Total 500,890
=======
8. On June 17, 1999, the Company acquired all of the issued and
outstanding common stock of Pony Express Delivery Services, Inc. ("Pony
Express"). The acquisition of Pony Express was made pursuant to a Stock Purchase
Agreement dated as of May 27, 1999 (the "Agreement"), by and among the Company,
Pony Express, Mustang Holdings, Inc., a Kansas corporation, (the "Stockholder"),
Greenstreet Pony Partners, LLC ("GPP"), a Missouri limited liability company,
Mustang Investment Partners ("MIP" and, collectively with GPP, the "Mustang
Stockholders"), a Kansas limited liability company; C.M. "Connie" Carson and
Diana Carson, as Trustees of the Carson Family Trust (the "Carson Trust") and
Richard L. Williams ("Williams").
As consideration for the purchase of the Pony Express shares acquired from
Mustang, the Company issued 600,000 shares of its common stock to Mustang. In
consideration for the forgiveness of certain indebtedness of Pony Express to
GPP, MIP, the Carson Trust and Williams, the Company issued an aggregate of
$6,790,464 in stated value of its newly-issued Series B Convertible Preferred
Stock (the "Series B Preferred"). The Series B Preferred stockholders will be
entitled to receive preferred dividends at a rate of 6% commencing December 17,
2000, which dividend rate will increase to 8% on December 17, 2001, 10% on
December 17, 2002 and 12% on December 17, 2003 and thereafter. The Series B
Preferred is convertible into shares of the Company's common stock at a rate of
one share of common stock for each $8.00 in stated value of Series B Preferred.
In connection with the transaction, a financial advisor to the Company was
issued three-year warrants to purchase 500,000 shares of Common Stock at an
exercise price of $5.00 per share.
30
<PAGE>
9. On June 30, 1999, the Company issued 25,000 shares of Common Stock in
exchange for the cancellation of $50,000 of short-term indebtedness. These
shares were issued directly by the Company, without payment of any commissions,
to the following accredited investor in a private placement transaction exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) thereof:
Name Number of Shares
---- ----------------
Gregory E. Walsh IRA Rollover
Dated December 8, 1992 25,000
10. On June 3, 1999, the Company completed a financing transaction where
it borrowed $3,000,000 from a group of private lenders (the "Lenders") pursuant
to the terms of a Letter Agreement between the Company and Founders Equity
Group, Inc., as agent for the Lenders (the "Founders Loan"). The Founders Loan
was initially repayable on October 1, 1999, which payment date was extended to
July 1, 2000 pursuant to the terms of an amendment dated November 3, 1999 to the
Letter Agreement. In conjunction with the Founders Loan, the Company also issued
to the Lenders three-year warrants to purchase 375,000 shares of Common Stock at
an exercise price of $5.00 per share and issued three-year warrants to purchase
75,000 shares of Common Stock at an exercise price of $5.00 per share to a
financial advisor.
Interest accrues on the outstanding principal amount of the Loan at a rate
of ten percent (10%) per annum payable monthly commencing July 1, 1999.
Effective October 1, 1999, interest accrues on the outstanding principal amount
of the Loan at a rate of eighteen percent (18%) per annum.
On November 3, 1999, the Company and the Lenders entered into an amendment
of the Letter Agreement primarily to extend the maturity date of the
indebtedness. In connection with the amendment to the Letter Agreement, the
Company made a principal payment to Lenders of $500,000 and issued to the agent
for the Lenders warrants to purchase up to 300,000 shares of the Company's
Common Stock at a price of $5.00 per share.
Warrants to purchase 100,000 shares of common stock will vest in the event
that on each of the following dates the Company has not made aggregate
repayments of principal of (i) $500,000 on or before November 9, 1999, (ii)
$1,500,000 on or before November 30, 1999 and (iii) $3,000,000 on or before
December 15, 1999.
The Company also agreed in connection with the Founders Loan to register
for resale the common stock into which the principal amount of the loan may be
converted and the shares which are issuable upon the exercise of warrants
granted to the Lenders. As a result of the amendment to Letter Agreement, the
Company is now required to use its best efforts to have such a registration
statement declares effective on or before January 17, 2000. If the registration
statement has not been declared effective by such time, the Lenders have the
option to require the Company to (i) pay the Lenders $25,000 for each 30-day
period during which the registration statement has not been declared effective,
or (ii) issue to the Lenders additional warrants to purchase up to 150,000
shares of common stock at an exercise price of $5.00 per share.
11. On August 2, 1999, Pearlgold Pty. Ltd. (an entity affiliated with Noel
Holmes, a director of the Company) loaned the Company $687,675 pursuant to the
terms of unsecured promissory note from the Company. The loan bears interest at
the rate of 10% per annum and is payable on demand. In conjunction with this
loan, the Company issued 49,013 shares of Common Stock and paid a financing fee
of $32,675 as additional consideration.
31
<PAGE>
12. On November 9, 1999, the Company and Lancer Offshore, Inc., Lancer
Partners, L.P. and Michael Lauer (collectively, the "Lancer Lenders") entered
into a Loan Agreement pursuant to which the Company borrowed $9,000,000 (the
"Lancer Loan"). The maturity date for the Lancer Loan is February 9, 2001 and
interest is payable on the Lancer Loan at a rate of 10% per annum. The Lancer
Loan may be prepaid at any time by the Company, and mandatory prepayments are
required in the amount of 50% of the net proceeds realized by the Company from
any debt or equity financing transaction completed after such date.
As security for the Company's repayment obligations under the Loan
Agreement, the Company granted to the Lancer Lenders a third position security
interest in all of Company's assets.
The Lancer Loan is convertible into common stock of the Company at any time
prior to December 20, 1999 at a rate of $5.00 per share. On and after December
20, 1999, any outstanding principal amount of and interest on the Lancer Loan
may be converted into common stock of the Company at a rate of $1.00 per share.
In consideration for the Lancer Loan, the Company also issued to the Lenders
375,000 shares of common stock and five-year warrants to purchase 500,000 shares
of common stock at $5.00 per share.
The Company agreed to register for resale with the Securities and Exchange
Commission the shares of stock issued to the Lancer Lenders at the closing, the
common stock into which the warrants issued to the Lancer Lenders at closing may
be converted and the shares of stock into which the Lancer Loan itself may be
converted on the next registration statement on which the Company files. In
connection with the funding of the Lancer Loan, the Company paid $450,000 to a
financial advisor which assisted the Company in arranging for the financing.
Shares Eligible for Resale
A significant number of the 19,575,094 shares of the Company's common stock
currently outstanding are subject to certain restrictions upon resale.
7,273,378 of the shares are subject to "lock-up" arrangements entered into
in connection with the Merger with EPLR on October 14, 1998 (the "Merger Lock-
up"). Pursuant to the Merger Lock-up, certain of the historic principal
stockholders of Skynet Nevada, who received an aggregate of 9,087,237 shares of
the Company's common stock in the Merger, have agreed not to sell, transfer,
encumber or otherwise dispose of these shares until October 14, 2000. Each of
these shareholders, however, is permitted during the one-year period commencing
October 14, 1999, to sell up to 50,000 shares of the Company's common stock.
32
<PAGE>
Certain of the shares of the Company's common stock are subject to "lock-
up" arrangements entered into in connection with a private placement of
1,325,500 shares of common stock arranged by Puglisi Howells & Co., Inc., during
February 1999 (the "Puglisi Lock-up")" Pursuant to the Puglisi Lock-up, the
directors and executive officers at the time of the placement, as well as the
holders of one million additional shares, have agreed not to sell, transfer or
otherwise dispose of their shares (without the consent of Puglisi Howells &
Co., Inc.) for the period as set forth hereafter. The Puglisi Lock-up expires,
as to the directors and executives officers, on the last to occur of (i) August
19, 2000); (ii) that date ninety days after the effectiveness of a registration
statement covering the resale of the shares sold in the private placement; and
(iii) the date ninety days after the effectiveness of a registration statement
covering the shares issuable upon exercising the warrants issued to Puglisi
Howells and Co., Inc.; however, in any event, such Lock-up period shall expire
no later then May 19, 2001. The Puglisi Lock-up, as to the holders of one
million additional shares, expires sixty days after the later of (i) the date
the shares of common stock issued in the private placement are first eligible
for public resale under SEC Rule 144 or pursuant to an effective registration
statement under the Securities Act; or (ii) the effectiveness of a registration
statement under the Securities Act covering the resale of the shares issuable
upon exercise of the warrants issued to Puglisi Howell & Co., Inc.; however, in
any event, not later then May 19, 2000. Notwithstanding the above, with the
consent of a majority of the disinterested members of Company's board of
directors, third party private resales, pledges or gifts of the shares will be
permitted as long as the purchaser, pledgee or donee of any such shares agrees
to remain bound by the aforesaid restrictions upon resale for the remainder of
the Lock-up period applicable to such shares.
The balance of the Company's outstanding shares were initially issued as
"restricted securities" under Rule 144 under the Securities Act ("Restricted
Shares") and may not be sold in the absence of registration under the Securities
Act unless an exemption from registration is available, including an exemption
afforded by Rule 144. Rule 144, as currently in effect, provides that an
affiliate of the company or a person (or persons whose sales are aggregated) who
has beneficially owned Restricted Shares for at least one year, but less than
two years, commencing within any three month period thereafter, may sell a
number of shares that does not exceed the greater of one percent of the then
outstanding shares of common stock or the average weekly trading volume in the
common stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
company. However, a person who is not an "affiliate" of the company at any time
during the three months preceding the sale, and who has beneficially owned the
Restricted Shares for at least two years, is entitled to sell such shares under
Rule 144 without regard to the limitations described above.
The one-year holding period under Rule 144 as to 15,500,000 shares of the
Company's common stock has already been satisfied; thus, subject to the
application of contractual resale limitations and volume and manner-of-sale
limitations upon resale under Rule 144, those shares may be freely transferred
by the holders thereof and currently constitute the "float" of the Company's
currently outstanding common stock. The balance of the shares of the Company's
Common Stock are Restricted Shares.
Notwithstanding the restrictions upon resale under Rule 144 described
above, certain of the Restricted Shares may be subject to earlier resale by
virtue of registration rights granted to the holders thereof by the Company, as
follows:
33
<PAGE>
<TABLE>
<CAPTION>
Offering No. of Shares Registrable Date
- -------- ------------- ----------------
<S> <C> <C>
Private Placement completed 1,325,500 Earlier of first Company offering of
in February 1999 securities on its own behalf after
February 1999and February 19, 2000.
Acquisition of Fleet Delivery 1,479,415 Earlier of first Company primary
Services (March 15, 1999) offering after March 15, 1999 and March
15, 2000.
Private Placement completed 2,504,450 (comprised of Date of first registration of shares of
in April 1999 500,890 shares issuable upon Common Stock for any reason following
exercise of warrants and April 1999 closing date.
2,003,560 shares issuable upon
conversion of Series A
Convertible Preferred Stock
Acquisition of Pony Express 1,448,808 (comprised of Earlier of first Company primary
(June 17, 1999) 600,000 shares issued at offering after June 17, 1999 or June
closing and 848,808 shares 17, 2000.
issuable upon conversion of
the Company's Series B
Convertible Preferred Stock
Loan from Founders Equity 450,000 (issuable upon January 17, 2000, subject to penalty
Group, Inc., et al.(June 3, exercise of warrants) provision (at option of holders) of
1999) $25,000 for each 30-day period after
January 17, 2000 as to which Company
has not registered stock or additional
issuance of 3-year warrants to purchase
150,000 shares of Common Stock at $5.00
per share)
Amendment to Loan from 450,000 (comprised of 300,000 January 17, 2000, subject to penalty
Founders Equity Group, Inc. shares issuable upon exercise provision (at option of holders) of
of warrants and 150,000 shares $25,000 for each 30-day period after
issued on extension date) January 17, 2000 as to which Company
has not registered stock, or additional
issuance of 3-year warrants to purchase
150,000 shares of Common Stock at $5.00
per share)
Loan from Lancer Offshore, Varies (comprised of 375,000 Next registration statement filed by
Inc., Lancer Partners, L.P., shares issuable upon exercise Company.
Michael Lauer of warrants issued at closing
and between 1,800,000 -
9,000,000 shares of Common
Stock upon conversion of the
note, depending on time of
conversion)
</TABLE>
34
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Statement of Operations Data:/(1)/
Years Ended June 30,
-------------------------------------------------------------------------------------------
1995/(2)/ 1996/(3)/ 1997 1998 1999/(5)/
--------- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 33,041,182 $ 34,404,946 $ 36,151,763 $ 31,838,919 $ 41,011,297
Gross Profit 9,952,232 11,621,140 11,758,535 12,715,451 13,913,415
Income (loss) before
Income taxes and
extraordinary income (1,238,103) 317,909 (125,268) 351,454 (5,409,662)
Net income (loss) (1,238,103) 1,297,321/(3)/ (39,668) 166,050 (5,319,278)
Basic income (loss) per share:/(4)/
Income (loss) before
extraordinary income (0.18) 0.01 (0.01) 0.02 (0.32)
Net income (loss) (0.18) 0.19 (0.01) 0.02 (0.32)
Dilutive income (loss) per share:/(4)/
Income (loss) before
extraordinary income (0.18) 0.01 (0.01) 0.02 (0.32)
Net income (loss) (0.18) 0.14 (0.01) 0.02 (0.32)
Weighted average number
of shares outstanding:
Basic 7,000,000 7,000,000 7,000,000 7,346,500 16,742,625
Diluted 7,000,000 9,450,000 7,000,000 9,796,500 16,742,625
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------------------------------------
1995/(2)/ 1996 1997 1998 1999
--------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets $ 6,052,484 $ 7,305,317 $ 8,104,071 $ 6,885,815 $ 44,515,161
Long-term Debt 711,628 662,056 662,056 689,441 1,390,232
Total Liabilities 8,613,902 8,555,011 9,397,540 7,572,040 36,525,527
</TABLE>
____________________
(1) The financial data presented above reflects the relevant Statement of
Operations Data of Skynet Holdings, Inc., a Nevada corporation ("Skynet
Nevada"). EPL Resources (Delaware) Corp., a Delaware corporation acquired
Skynet Nevada by virtue of a merger transaction that was completed on
October 14, 1998. Upon completion of the merger, EPLR changed its name to
"Skynet Holdings, Inc." Since the former stockholders of Skynet Nevada
acquired a controlling interest in EPLR, the merger has been accounted
for as a "reverse acquisition." Accordingly, for financial statement
presentation purposes, Skynet Nevada is viewed as the continuing entity
and the related business combination is viewed as a recapitalization of
Skynet Nevada, rather than an acquisition by EPLR.
(2) Reflects unaudited data.
(3) Net income for the year ended June 30, 1996 includes extraordinary income
of $1,263,045 relating to the forgiveness of debt arising out of the
reorganization of one of the Company's subsidiaries.
(4) Basic income (loss) per common share is based upon the weighted average
number of common shares outstanding for each period presented. Diluted
income (loss) per common share is based upon the weighted average number
of common shares plus the dilutive effect of the convertible securities
and options outstanding for each period presented.
(5) Includes approximately $8,000,000 in revenues, $844,000 in net loss and
$36,500,000 of assets relating to the recent acquisitions of PONY and
Fleet.
35
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Unless the context otherwise requires, the "Company" refers to Skynet
Holdings, Inc. and its wholly owned subsidiaries.
The Company is a full service provider of domestic and international
transportation delivery services operating primarily as an express courier for
time sensitive documents and packages. The Company's services consist of:
. Time certain deliveries within 24-48 hours of pick-up
. Next flight out services for same day expedited deliveries
. Local ground transport in select locations
. Freight forwarding services
. Bulk shipment of mass mailing materials for local distributions
. Global logistics services incorporating the Company's
computerized tracking system
These services are formulated on a customized basis to meet the special
needs of a diverse international customer base. The Company provides these
services worldwide through offices in 23 states in the United States, in London,
Manchester and Bristol, England; Sydney, Melbourne and Brisbane, Australia, as
well as through a global network of over 1,000 offices which are independently
owned and operated in over 100 countries. This Network does business under the
name "SkyNet", "SkyNet Worldwide Express", "PONY Express Delivery Services",
"Courier Express", and "Fleet Delivery Service".
The Company's operations were originally consolidated under Skynet Nevada
on October 1, 1997, when Skynet Nevada acquired the stock of four companies
pursuant to a share exchange agreement with the shareholders of SIL, SWEPL, and
DPE. This resulted in Skynet Nevada owning and operating the principal
distribution hubs of the Network and operating the SkyCom proprietary
computerized tracking and billing system. Thereafter, the Company became
publicly held by virtue of the Merger. Prior to the Merger, EPLR was an inactive
company whose shares were eligible for quotation on the OTC Electronic Bulletin
Board. Since the former stockholders of Skynet Nevada acquired a controlling
interest in EPLR in the Merger, the Merger has been accounted for as a "reverse
acquisition." Accordingly, for financial statement presentation purposes,
Skynet Nevada is viewed as the continuing entity and the related business
combination is viewed as a recapitalization of Skynet Nevada, rather than an
acquisition by EPLR. Upon completion of the Merger, the combined companies
changed their name to "Skynet Holdings, Inc.", a Delaware corporation.
Due to the size and nature of its particular industry segments, one of the
Company's principal business strategies is to implement a market roll-up program
through selected acquisitions in the United States and overseas. Assuming it
can successfully implement this strategy, the Company intends to acquire
transportation service companies that fit into or compliment its current
operations, including express and same day courier businesses, as well as more
localized intra-city couriers, intra-regional couriers and global freight
forwarders. In this regard, during the third and fourth quarters of fiscal
1999, the Company completed (i) the acquisition of the principal operating
assets of Fleet; (ii) the acquisition of FOB and (iii) the acquisition of PONY.
See "BUSINESS - Acquisition Strategy."
36
<PAGE>
On June 17, 1999, the Company acquired all the outstanding shares of
capital stock of PONY. The consideration included 600,000 shares of the
Company's Common Stock and 848,808 shares of the Company's Series B Convertible
Preferred Stock. The acquisition was accounted for using the purchase method of
accounting with the assets acquired and liabilities assumed recorded at fair
values, and the results of the acquired business included in the Company's
consolidated financial statements from the closing date of the acquisition. The
purchase price exceeded the fair value of the net assets acquired and resulted
in goodwill of approximately $14.7 million.
On April 12, 1999, the Company completed the first tier of a scheduled two-
tiered acquisition of FOB. At the initial closing, the Company purchased 51% of
the issued and outstanding shares of FOB for cash in the amount of approximately
$680,000; 31,119 shares of Common Stock; and a one (1) year cash earn-out
payment in the amount of up to $144,000 based on quarterly revenues of FOB for
the one year period following the closing. The Company purchased the remaining
49% during the first week of July 1999 for approximately $570,000 plus 83,067
shares of the Company's Common Stock.
In July 1999, the Company was informed that an administrative receiver was
appointed for FOB's largest customer. The receivable from this customer as of
June 30, 1999 amounted to approximately $1.25 million. As a result, FOB was
unable to meet its own obligations and a liquidator was appointed and took
control of FOB. Accordingly, the acquisition of FOB was accounted for under the
equity method of accounting, since control of FOB was temporary and the Company
fully reserved its investment in and advances to FOB in the amount of
$1,598,210.
On March 15, 1999, the Company acquired the operating assets of Fleet. The
purchase consideration amounted to $2,948,000 (including approximately $100,000
acquisition costs) by the Company issuing 1,423,999 shares of its Common Stock.
The assets acquired include accounts receivable, delivery vehicles, equipment,
refundable deposits, licenses, administrative material and equipment, records
and documents, and all personal property used in the operation of the business.
The acquisition was accounted for using the purchase method of accounting with
the assets acquired and liabilities assumed recorded at fair values, and the
results of the acquired business included in the Company's consolidated
financial statements from the closing date of the acquisition. The purchase
price exceeded the fair value of the net assets acquired and resulted in
goodwill of approximately $1.8 million.
The Company's objective is to become one of the leading courier and
delivery businesses within the United States and worldwide. Management plans to
achieve this goal though a combination of growth though acquisition and
accelerated internal-growth. The Company is currently pursuing an aggressive
acquisition strategy to enhance its position in its current markets and acquire
operations in new markets. The Company intends to acquire transportation service
companies that fit into or complement its current operations, including express
and same day courier businesses, as well as more localized inter-city couriers,
inter-regional couriers and global freight forwarders. This strategy will focus
on acquiring target candidates who have a proven record of delivering high
quality services, a customer base of large and midsize companies and which may
benefit from the Company's long-term growth strategy as a public company.
Since the adoption of its growth strategy in the middle of fiscal 1999, the
Company has acquired three businesses which will significantly contribute to the
Company's revenue base during fiscal 2000. During fiscal 1999, however, the
Company's revenues increased to approximately $41.0 million as compared to $38.8
million during fiscal 1998. This is primary because these acquisitions were
accounted for under the purchase method of accounting for business combinations.
Accordingly, the Company's results of operations only include the operations of
each of the acquired businesses from the respective dates of acquisitions
through the end of the period reported.
37
<PAGE>
The following unaudited pro-forma condensed consolidated financial data
assume that the acquisitions of PONY and Fleet, as described above, occurred at
the beginning of each fiscal year presented. This data has been prepared for
comparative purposes only and does not purport to be indicative of the results
of operations which actually would have resulted had the acquisition occurred on
the date indicated, or which may result in the future.
<TABLE>
<CAPTION>
June 30,
------------------------------------
1998 1999
------------------------------------
<S> <C> <C>
Revenues $ 153,649,656 $ 165,601,239
Net loss (10,846,997) (16,671,523)
Basic net loss per common share (0.59) (1.00)
</TABLE>
The Company intends to further enhance the Network's competitive
capabilities by focusing on initiatives designed to ensure a high standard of
quality control, global marketing and accelerated development of leading edge
technology, all of which, if successfully implemented, would enable the Company
to achieve greater global market penetration. Through the implementation of
this strategy, the Company believes it can enhance its position as a provider of
global delivery and transportation services.
RESULTS OF OPERATIONS
Year Ended June 30, 1999 Compared To 1998
Revenues. Revenues for the year ended June 30, 1999 amounted to
$41,011,297 compared to $31,838,919 for the year ended June 30, 1998, an
increase of 28.8%. The increase in revenues of $9,172,378 was attributable
primarily to the acquisition of PONY ($4,124,229) and Fleet ($3,812,042) and to
higher volume including mix of services selected by customers.
Cost of sales. Cost of sales for the year ended June 30, 1999 amounted to
$27,097,882 compared to $19,123,468 for the year ended June 30, 1998. As a
percentage of sales, such costs amounted to 66.1% for the year ended June 30,
1999 compared to 60.1% for the corresponding period of the prior year. The
$7,974,414 increase resulted primarily from the acquisition of PONY ($3,409,122)
and Fleet, ($3,226,313), partially offset by the elimination during fiscal 1998
of marginal business and improved rates received for existing business from
carriers utilized by the Company. The recent acquisitions of PONY and Fleet
produce lower gross profit margins that the Company's other lines.
Operating Expenses. Compensation and compensation related costs increased
to $8,512,647 for the year ended June 30, 1999 compared to $7,178,941 during the
corresponding period of the prior year. As a percentage of sales, compensation
costs decreased to 20.8% during the year ended June 30, 1999 as compared to
22.5% for the corresponding period of the prior year. Of the $1,333,706
increase, approximately $433,503 relates to additional staff level personnel
added with the PONY and Fleet acquisitions and $612,168 relates to the addition
of senior level management personnel.
Occupancy costs increased to $665,727 for the year ended June 30, 1999
compared to $660,742 during the prior year. Occupancy costs as a percentage of
sales decreased to 1.6% during the year ended June 30, 1999 as compared to 2.1%
for the corresponding period of the prior year. Communication expense amounted
to $804,910 during the year ended June 30, 1999 as compared to $630,221 for the
corresponding period of the prior year of which $51,448 of the change resulted
from the Fleet acquisition.
38
<PAGE>
Other operating expenses for the year ended June 30, 1999 amounted to
$7,334,432 compared to $3,664,570 for the year ended June 30, 1998. Of the
$3,669,862 increase $1,231,550 relates primarily to the operations of PONY and
Fleet, professional costs of approximately $200,000, including $50,000 relating
to the Merger that was completed on October 14, 1998, increased audit fees of
$82,000 and increased travel and related costs of approximately $414,000,
partially offset by reductions in other operating expenses.
The equity in the net loss of an investee was caused by the $1,598,000
write off of the Company's investment and advances to FOB as previously
discussed.
Year Ended June 30, 1998 Compared to 1997
Revenues. Revenues for the year ended June 30, 1998 amounted to
$31,838,919 compared to $36,151,763 for the year ended June 30, 1997, a decrease
of 11.9%. The decrease in revenues included the loss of a large customer in the
United Kingdom ($900,000) and management's decision to eliminate lower margin
business, which resulted in a decrease in revenue of approximately $1,400,000.
Cost of sales. Cost of sales for the year ended June 30, 1998 amounted to
$19,123,468 compared to $24,393,228 for the year ended June 30, 1997, a decrease
of 21.6%. As a percentage of sales, such costs amounted to 60.1% for the year
ended June 30, 1998 compared to 67.5% for the prior year. The improvement
during fiscal 1998 resulted from the elimination of marginal business and
improved rates received for existing business from carriers utilized by the
Company.
Operating expenses. Compensation and compensation related costs increased
to $7,178,941 for the year ended June 30, 1998 compared to $6,948,756 during the
prior year. As a percentage of sales compensation costs increased to 22.5%
during the year ended June 30, 1998 as compared to 19.2% for the prior year.
The increase as a percentage of sales resulted from a combination of lower sales
volume and wage increases as the number of employees during 1998 and 1997 was
approximately the same due to the retention of certain employees in spite of the
elimination of the low margin business described above.
Occupancy costs increased to $660,742 for the year ended June 30, 1998
compared to $529,876 during the prior year. Occupancy costs as a percentage of
sales increased from 1.5% during 1997 to 2.1% during 1998. During 1998, the
Company moved into larger facilities in London and Sydney. Communication
expense amounted to $630,221 during the year ended June 30, 1998 as compared to
$615,705 for the prior year. Other operating expenses were approximately the
same in both years and included increased commissions of approximately $195,000.
39
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
On June 3, 1999, the Company completed a financing transaction pursuant to
which it borrowed $3.0 million from a group of private lenders (the "Founders
Loan"). The loan is repayable on October 1, 1999; however, if the Company has
not registered by October 1, 1999 the securities into which the loan may be
converted, the maturity date may be extended at the option of the lenders until
the earlier of (x) the date such securities are registered with the SEC or (y)
January 1, 2000. The Company may prepay the loan without premium or penalty.
Interest accrues on the outstanding principal amount of the loan at a rate of
ten percent (10%) per annum. Interest is payable monthly commencing July 1,
1999. As security for its repayment obligations, the Company granted a security
interest on all of its assets, including without limitation, the assets of any
current subsidiaries and any subsidiaries which are acquired subsequent to the
completion of the financing, provided, however, that such interest is junior to
the interests of certain other creditors of the Company.
At the option of the lenders, the Founders Loan's original principal amount
can be converted into 600,000 shares of the Company Common Stock and three year
warrants to purchase 300,000 shares of the Company's Common Stock at an exercise
price of $5.00 per share. In the event that the agent for the lenders elects to
extend the due date of the loan to January 1, 2000 and on such extended due date
the Company has not filed a registration statement for the registration of the
Common Stock and warrants into which the loan may be converted, then in lieu of
any conversion rights, the lenders will be issued three year warrants to
purchase up to 300,000 shares of the Company's Common Stock at an exercise price
of $5.00 per share. The number of shares of the Company's Common Stock and
warrants which are issuable upon conversion of the loan is subject to upward
adjustment in the event of an issuance of the Company's Common Stock or
securities convertible into the Company's Common Stock for less than $5.00 per
share at any time while the loan is outstanding (other than pursuant to
instruments outstanding prior to the funding of the loan).
As an origination fee for the Founders Loan, the Company granted the
lenders three-year warrants to purchase 375,000 shares of the Company common
stock at an exercise price of $5.00 per share. In conjunction with the
placement of the Founders Loan, the Company paid a facilitation fee of $150,000
and three-year warrants to purchase 75,000 shares of the Company's Common Stock
at an exercise price of $5.00 per share.
On August 13, 1999, the Company completed a $1.0 million short-term bridge
financing (the "Bridge Loan"). The Bridge Loan will bear interest at 10% per
annum and is due and payable on November 11, 1999. The Company paid a financing
fee of $60,000 and issued 75,000 shares of its Common Stock as additional
consideration. In addition, the Company granted the placement agent the right
to designate a nominee to the Board of Directors. The placement agent has
nominated Mr. Gerald T. Harrington as the designee.
In addition during the month of August 1999 the Company received
approximately $2,200,000 in unsecured loans due on demand. The notes bear
interest at 10% per annum. The Company paid financing fees of 5% of the amounts
borrowed and issued 75,750 shares of Common Stock as additional consideration
plus a three-year warrant to purchase 75,000 shares of the Common Stock at an
exercise price of $5.00 per share.
40
<PAGE>
As discussed earlier in this report, (See Part II, Item 5, "Recent Sales of
Unregistered Securities"), the Company completed the Lancer Loan as of November
9, 1999. The Lancer Loan has provided substantially all of the Company's recent
liquidity and cash resources. The terms of the Lancer Loan provide that the
principal of and interest on the loan is convertible into Common Stock at a rate
of $5.00 per share at any time on or before December 20, 1999. If the Lancer
Loan is not repaid by December 20, 1999, any outstanding principal of or
interest on the loan is convertible into Common Stock at a rate of $1.00 per
share commencing December 21, 1999. If the full principal amount of the Lancer
Loan remains outstanding on December 21, 1999, such loan would be convertible
into 9,000,000 shares of Common Stock, which would represent 31.3% of the
Company's outstanding stock, resulting in significant dilution of the positions
of the current holders of the Company's Common Stock.
The Company is not currently in a position to repay fully the Lancer Loan
on or before December 20, 1999, and it is therefore likely that the Lancer
Lenders will be able to convert the Lancer Loan to Common Stock at a rate of
$1.00 per share as of December 21, 1999 should they wish to do so. A conversion
of the Lancer Loan at $1.00 per share may result in adjustments to the
conversion features of other convertible instruments previously issued by the
Company, which adjustments could result in additional Common Stock being issued
upon the exercise of such instruments and the possible further dilution of the
positions of existing holders of Common Stock. The Company has also entered
into an agreement limiting the Company's ability to issue Common Stock below
specified per share prices without the prior written consent of the other party
to the agreement. Issuing Common Stock to the Lancer Lenders at $1.00 per share
would require the consent of the other party, the availability of which consent
cannot be assured at this time.
In addition, the Company issued to the lenders of the Lancer Loan
300,000 shares of its Common Stock and a warrant to purchase 500,000 shares of
Common Stock at a price of $5.00 per share. The Lancer Loan is secured by a
third priority interest in all of PONY's assets. The net proceeds will be
utilized for repayment of existing debt and working capital purposes.
Prior to its acquisition by the Company, PONY and its subsidiary entered
into loan and security agreements with a financial institution which provided
for borrowings up to $9 million under senior revolving credit facilities,
subject to certain borrowing limits, as defined in the agreements. Amounts
outstanding under the credit facilities mature May 28, 2002 and bear interest at
the prime rate (8.0% at June 30, 1999) plus 1%, with interest payable monthly.
The credit facilities specify a commitment fee of .25% per annum to be applied
to the unused portion of the credit facilities, payable monthly in arrears. As
of June 30, 1999, $5,409,801 was outstanding under the credit facilities.
On September 29, 1999, PONY was notified that it was in default under its
senior secured loan agreement whereby the bank informed PONY that interest
on all loans would be charged at a default rate of interest as defined in the
loan agreement. On October 6, 1999, PONY received notification from the bank
that the bank would forbear enforcing its rights under the loan agreement
through December 4, 1999 based on certain conditions. These new conditions
include the absence of other events of default and a reduction of the maximum
amount available from $8.5 million to $4.0 million by October 15, 1999. The
current amount outstanding as of November 30, 1999 under the loan agreement
amounted to approximately $4.0 million. On December 8, 1999, PONY and its
senior secured lender reached an agreement whereby the lender agreed to (i)
continue to forbear from exercising any remedies available to it on account of
the previously-declared defaults under its loan agreement with PONY until March
8, 2000, and (ii) waive all previously-declared defaults upon payment by PONY of
$1,000,000 (the "Paydown"). The Paydown must be made by March 8, 1999. Until
PONY makes the Paydown, PONY will be required to make periodic payments of a
forbearance fee which could total $100,000 depending on when the Paydown is
ultimately made. Once the Paydown is made, PONY will have no further liability
for the forbearance fee. Also, upon the payment by PONY of the Paydown, the loan
agreement will be amended to (x) reduce the credit line available to PONY under
the loan agreement to $3,000,000; (y) reset the interest rate for loans and
advances under the loan agreement to the prime rate of interest plus 3.0% per
annum; and (z) revise the calculation of any early termination fee payable by
PONY upon the early termination of the loan agreement to provide for the
calculation of any such fee on the basis of the maximum loan facility under the
loan agreement on the date of such termination.
On November 2, 1999 the Company signed an amendment to the Founders Loan,
which extended the due date to July 1, 2000, in consideration for the Company
reducing the $3.0 Million Loan balance by $500,000 with proceeds from the
Convertible Debt described above. In addition, the Company has agreed to pay
interest on the note at the rate of 18% from October 1, 1999 until November 2,
1999 and issue, as additional consideration, 150,000 shares of the Company's
Common Stock. The Company also issued, to the placement agent, three-year
warrants to purchase 300,000 shares of its Common Stock at an exercise price of
$5.00 per share, subject to vesting based on repayment terms of the Bridge Loan.
The amendment to the Founders Loan requires the Company to prepay $1.0
million in the event the Company receives net proceeds of at least $5.0 million
from any debt transaction (other than refinancing of the Company's senior line
of credit) or subsequent equity financings, and an additional $1.5 million if
the net proceeds from such financings is at least $6.0 million.
41
<PAGE>
A foreign subsidiary of the Company has a financing agreement with a bank
in London. The agreement provides borrowing for the subsidiary based on 75% of
customer receivables generated from accounts in the United Kingdom, which are
less than 90 days old up to a maximum of $1,700,000. The subsidiary pays an
administrative charge of .2% plus interest at the bank's base rate (5.0% at June
30, 1999) plus 2.25%. Borrowings outstanding under the agreement amounted to
$870,352 at June 30, 1999.
Total cash and cash equivalents at June 30, 1999 amounted to $1,568,529.
Net cash provided by (used in) operating activities amounted to $(984,489),
$286,729 and $(3,293,115) during the years ended June 30, 1997, 1998 and 1999.
In addition to the net loss of $5,319,278 during the current fiscal year, the
changes were primarily caused by fluctuations in receivables and prepaid
expenses of $(665,146), $1,240,132 and $(89,853) and fluctuations in payables
and accrued liabilities of $(574,321), $(1,356,475) and $197,276 during the
years ended June 30, 1997, 1998 and 1999.
Net cash used in investing activities included the acquisition of property
and equipment, amounted to $315,827, $244,212 and $363,212 during the years
ended June 30, 1997, 1998 and 1999 and during the current fiscal year used
approximately $5.0 million for the acquisitions of PONY, FOB and Fleet.
Net cash provided by (used in) financing activities amounted to $1,416,850,
$(70,867) and $10,156,275 during the years ended June 30, 1997 1998 and 1999.
The Company received $1,466,422 from bank borrowings during the year ended June
30, 1997 and repaid $684,410 during the year ended June 30, 1998. During the
year ended June 30, 1998, the Company received net proceeds in the amount of
$398,158 from the sale of 451,500 shares of the Company's Common Stock at $1.14
per share. During the year ended June 30, 1999 the Company received net proceeds
of $6,559,838 from the sale of shares the Company's common and preferred stock.
In addition, the Company received proceeds from short-term borrowings of
$4,137,268.
At June 30, 1999, management provided a 100% valuation allowance amounting
to approximately $3,293,000 against the net deferred tax asset represented by
its net operating loss carry forwards due to the indeterminate nature of the
Company's ability to realize this deferred asset. During the year ended June
30, 1999, the Company enhanced its liquidity through the repayment of an
aggregate of $1,195,000 of outstanding indebtedness through the issuance of
597,500 shares of Common Stock. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Issuance of Shares in Cancellation of Indebtedness."
Capital Resources
On March 5, 1999, the Company completed a private placement resulting in
the issuance of an aggregate of 1,325,500 shares of Common Stock, which
generated net proceeds of approximately $2.1 million. During April of 1999, the
Company further enhanced its liquidity through the issuance of an aggregate of
500,890 Units consisting of an aggregate of 2,003,560 Series A Shares and
warrants to purchase an aggregate of 500,890 shares of Common Stock at an
exercise price of $5.00 per share which generated net proceeds of approximately
$3.9 million.
The Company expended $570,000 during July 1999 in connection with the
completion of the second tier of the acquisition of the remaining 49% of the
issued and outstanding shares of capital stock of FOB.
42
<PAGE>
The Company anticipates incurring capital expenditures in the amount of
between $500,000 and $600,000 during the fiscal year ending June 30, 2000 in
connection with the relocation of PONY to an owned facility, the relocation of
the executive offices in Los Angeles and the addition and replacements of
scanners and related computer equipment.
During the year ended June 30, 1998, the Company completed a private
placement offering and received net proceeds in the amount of $398,000. In
connection with the Merger transaction, the Company received approximately
$500,000 from the sale of EPLR shares in a private placement transaction prior
to the Merger.
In connection with its acquisition of PONY, the Company advanced
approximately $3.5 million to fund PONY's operations during the months of May
and June 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's market risk sensitive instruments do not subject it to
material market risk exposures, except for such risks related to interest rate
fluctuations and foreign currency exchange rates. The carrying value of bank
debt and long-term debt approximates fair value at June 30, 1998 and 1999 since
these notes substantially bear interest at floating rates based upon the
lenders' "prime" rate.
Although the Company currently bills only in U.S. and Australian dollars
and British pounds, exchange rates for these and other local currencies in
countries where the Company may operate in the future may fluctuate in relation
to the U.S. dollar and such fluctuations may have an adverse effect on the
Company's earnings or assets when local currencies are exchanged for U.S.
dollars. Any weakening of the value of such local currency against the U.S.
dollar could result in lower revenues and earnings for the Company. To date,
gains and losses related to foreign currency transactions and foreign currency
translation have not been material for the Company.
Included in the Company's consolidated balance sheets at June 30, 1998 and
1999 are the net assets (liabilities) of the Company's United Kingdom subsidiary
of approximately $410,000 and $(359,000) and the Company's Australian subsidiary
of approximately $212,000, and $405,000 for the same periods.
SEASONALITY
Company revenues in certain geographic regions appear to be subject to
certain seasonal fluctuations. These seasonal fluctuations have not, to date,
been apparent in the Company's overall results of operations.
INFLATION
The Company does not believe that inflation has to date had a material
impact on its operations. Significant increases in labor, or other operating
costs could have a material adverse affect on the Company's results if the
Company were for some reason unable to pass along cost increases due to general
inflation by increasing its prices.
43
<PAGE>
YEAR 2000 ISSUES
The Company is currently addressing Year 2000 issues. Year 2000 issues are
the result of computer programs being written using two digits rather than four
to define the applicable year associated with the program or an associated
computation. Any of the Company's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculation causing
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices or engage in normal business activities.
Management has completed all of the systems application changes and believes
that its level of preparedness is appropriate.
Management recently replaced the accounting software used throughout the
Company with an updated version which includes accounts payable and accounts
receivable modules that are Year 2000 compliant. Management recently upgraded
its SkyCom 2000 system with a "state of the art" Windows 95/98NT manifest
tracking and tracing system with full Internet access capabilities. This new
system was implemented July 1, 1999.
The Company also relies, both domestically and internationally, upon
airlines, government agencies (particularly the Federal Aviation
Administration), utility companies, telecommunication service companies and
other service providers outside of the Company's control. The Company is
monitoring information provided by several national and international
associations which pursue common Year 2000 objectives and are active in a global
and industry-wide effort, to understand the Year 2000 compliance status of
airports, airlines, air traffic systems, customs clearance and other U.S. and
international government agencies, and common vendors and suppliers. However,
there is no assurance that suppliers, governmental agencies or other third
parties will not suffer a Year 2000 business disruption. Such failures could
have a material adverse affect on the Company's financial condition, liquidity
or results of operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") is effective for financial statements with
fiscal years beginning after December 15, 1997. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. This standard was adopted during
fiscal 1999.
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segment of an Enterprise and Related Information" ("SFAS 131"), is effective for
financial statements with fiscal years beginning after December 15, 1997. The
new standard requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and condensed financial statements of interim periods issued to
stockholders. It also requires that public business enterprises report certain
information about their products issued to stockholders. It also requires that
public business enterprises report certain information about their products and
services, the geographic areas in which they operate and their major customers.
This standard was adopted during fiscal 1999 and resulted in expanded financial
statement disclosure.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosure
About Pensions and Other Postretirement Benefits" ("SFAS 132") is effective for
financial statements with fiscal years beginning after December 15, 1997. SFAS
132 requires employers' disclosures about pension and other postretirement
benefits plans. This standard was adopted during fiscal 1999 and resulted in
expanded financial statement disclosure.
44
<PAGE>
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") is effective for
financial statements with fiscal years beginning after June 15, 1999. SFAS 133
establishes accounting and reporting standards for derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. This standard will be adopted during fiscal 2000. The
Company does not expect adoption of SFAS 134 to have a material effect, if any,
on its consolidated financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the index included at "Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
45
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information regarding each of the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
Byron Hogue 63 Chairman of the Board, President
and Chief Executive Officer
Vjekoslav Nizic 46 Executive Vice President - Global
Business Development and Director
Christian J. Weber 56 Chairman and Chief Executive Officer
of SIL and Director
Noel John Holmes 50 Director
Gerald T. Harrington 41 Director
William H. Bethell 43 Chief Financial Officer
John Luft 43 Vice President of Global Marketing
</TABLE>
The following is a brief summary of the business experience of each of the
above-named individuals:
Byron Hogue was appointed Chairman of the Board of Directors on June 17,
1999 and was named Chief Executive Officer on August 2, 1999. Effective
November 1, 1999 Mr. Hogue was appointed President. Mr. Hogue held a
variety of senior executive positions with Federal Express from 1973 to 1992,
including Vice President - Global Operations. Between 1992 and 1995, Mr. Hogue
was involved in a number of projects with the Sam Walton family. Subsequently,
he has been active in personal business affairs. Mr. Hogue graduated from the
University of Arkansas in 1959. Mr. Hogue was a pilot for the U.S. Marine Corps
and served two tours of duty in the Vietnam War.
Vjekoslav ("Vik") Nizic currently serves as Executive Vice President -
Global Business Development. Mr. Nizic previously served as Chief Executive
Officer through August 2, 1999 and Chief Operating Officer for the period August
2, 1999 through October 31, 1999. Mr. Nizic has been involved in the courier
business since 1978 when he founded Skyroad Express as a domestic courier
company in Australia, offering overnight and same-day service. Skyroad Express
became the largest privately-owned express courier company in Australia at that
time. In 1983, Mr. Nizic sold Skyroad Express and formed DPE International Pty.
Ltd., an international courier providing service from Australia to the rest of
the world. In 1987, Mr. Nizic sold DPE International Pty. Ltd., retaining DPE
International, Inc., its U.S. subsidiary, which filed for protection under
Chapter 11 of the U.S. Bankruptcy Code in 1995, emerging from the Chapter 11
proceedings in 1996. Mr. Nizic graduated from the University of New South Wales
in Australia.
46
<PAGE>
Christian J. Weber served as the Chairman of the Board of Directors of the
Company until June 17, 1999 when Mr. Byron Hogue replaced him. Mr. Weber
continues to serve as a director of the Company. Mr. Weber is now the Managing
Director of SIL. Mr. Weber has been involved in the courier business since
1978, when he co-found Sky Courier International, a company engaged in
international courier services. In 1978, Mr. Weber was also a founder of
SkyNet, and in 1980 he purchased, with partners, a controlling interest in SIL
and its subsidiaries. Mr. Weber acted as the managing director of SIL since that
time.
Noel John Holmes has served as a director of the Company since November 16,
1998. Mr. Holmes is a chartered accountant and has been a partner with Holmes &
Partners Pty Ltd., an accounting firm on the Gold Coast, Australia since 1974.
Mr. Holmes has over 30 years of public and private accounting experience and is
a fellow of the Institute of Chartered Accountants in Australia, the Taxation
Institute of Australia and the Australian Institute of Company Directors, among
others.
Gerald T. Harrington has served as a Director of the Company since June 18,
1999. Mr. Harrington has served as a Managing Director of Capitol City Group,
LLC, a Washington D.C. and Providence, Rhode Island-based government relations
firm. Mr. Harrington is a partner in the law firm of Harrington & Hogan, LLP in
Providence, Rhode Island, where he concentrates his practice in municipal
finance matters. From February 1999 through November 1999, Mr. Harrington was
of counsel to the law firm of Nadeau & Simmons, P.C. in Providence, Rhode
Island. From 1992 to February 1999, Mr. Harrington was a partner in the law
firm of McGovern Noel & Benik, Incorporated, where his practice focused on
governmental relations and financial transactions. Mr. Harrington received a
Bachelors of Arts degree from Yale University in 1981 and a Juris Doctor degree
from the University of Pennsylvania in 1985.
William H. Bethell was appointed Chief Financial Officer effective November
8, 1999. Prior to joining the Company Mr. Bethell held the position of Vice
President Finance and Acquisitions for Aviation Holdings International, a
publicly held company in the part business of the aviation industry for the
period August 1999 through November 1999. In addition, Mr. Bethell was the
Chief Financial Officer for Communication Corporation of America for the period
August 1998 through May 1999. Mr. Bethell is a certified public accountant.
Mr. Bethell received a Bachelors of Arts degree from Dowling College in 1978 and
a Juris Doctor degree from Touro College in 1984.
John Luft joined the Company June 7, 1999 as Vice President - Global
Marketing. Mr. Luft is responsible for the Company's global marketing and sales
efforts. Prior to joining the Company, Mr. Luft served in various positions
with Hilton Hotels Corporation, most recently as director of corporate
marketing. Mr. Luft was responsible for planning, coordinating and measuring
Hilton's branded marketing programs, strategic brand and product line planning
and the development and management of Hilton's strategic alliances and
partnerships. Mr. Luft earned a Bachelor of Arts degree in business
communications with a minor in marketing from the University of Southern
California in 1977.
Board of Directors
All directors hold office until the next annual meeting of the stockholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
47
<PAGE>
The Board of Director presently consists of seven (7) members. In
conjunction with the Merger, the Company agreed to maintain a Board of Directors
consisting of five (5) members as follows:
. A designee of Vincent J. Marold, a former EPLR board member and a
principal stockholder of the Company.
. Two (2) designees of Vjekoslav Nizic, Chris Weber, Deansley Limited, Fir
Construction Pty, Ltd. and John Cathcart (the "Historic Principal
Shareholders").
. A designee of Mr. Marold's designee who shall be acceptable to the
Historic Principal Shareholders.
. One additional designee of the Historic Principal Shareholders who is
acceptable to Mr. Marold's designee.
An investment banking agreement with SPH Equities ("SPH") entered into in
August 1999, requires that the Company maintain a board of directors of seven
(7) members, of which two member are to be nominated by SPH for election to the
board in addition to the members appointed pursuant to the Merger Agreement. The
Historic Principal Shareholders have agreed to vote for the nominees of SPH for
election to the board at any annual or special meeting of the shareholders
called prior to February 28, 2001.
Mr. Nizic and Mr. Weber are the designees of the Historic Principal
Shareholders and Mr. Holmes is the additional designee of the Historical
Principal Shareholders. Mr. Harrington is the additional designee of Mr.
Marold.
Matters of Corporate Governance
In connection with the Company's April 1999 private placement of Units
consisting of four (4) Series A Shares and one (1) Common Stock Purchase
Warrant, on March 10, 1999, the Company entered into a placement agent agreement
with Montrose Capital Management, Ltd., a broker-dealer registered under the
Exchange Act and a member in good standing of the National Association of
Securities Dealers, Inc. ("Montrose"). Pursuant to the agreement, during a
"Restrictive Period" commencing March 10, 1999 and terminating on the earlier
of: (i) October 30, 2000; or (ii) the date on which the Company files a
periodic report with the Commission reporting net income for two (2) consecutive
quarters, the Company shall not, without obtaining a prior written consent of
Montrose, engage in certain transactions unless such transaction is approved by
at least two (2) independent members of the Company's Board of Directors. These
transactions include any merger, consolidation or acquisition whereby the
Company acquires a "significant subsidiary" (as that term is defined under
Commission regulations); any reorganization, liquidation, dissolution or winding
up of the Company; any sale or lease or other disposition of substantially all
of the Company's assets or property; or any transaction between the Company and
any officer, director, person holding in excess of 5% of the Company's
outstanding shares or any affiliate of such person. In addition, until the
earlier to occur of (i) the expiration of the Restrictive Period; or (ii) the
date on which the Company's Board of Directors includes at least two (2)
independent members appointed pursuant to the Merger, Montrose shall have the
right to receive notice of and attend all meetings of the Company's Board of
Directors.
48
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to or accrued by the Company's Chief Executive Officer and all
other executive officers who earned more than $100,000 (salary and bonus) (the
"Named Executive Officers") for all services rendered in all capacities to the
Company during the fiscal years ended June 30, 1999, 1998 and 1997:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation/(1)/ Compensation Awards
-------------------------------------------- -----------------------------
Restricted
Name and Principal Fiscal Other Annual Stock Options/
Position Year Salary Bonus Compensation Awards SARs (#)
- ------------------------- ------- --------------- --------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Vjekoslav Nizic/(2)/ 1999 $187,726 -- -- -- 250,000/(3)/
President and Chief 1998 $128,863 -- -- -- --
Executive Officer 1997 $ 58,692 -- -- -- --
Christian J. Weber 1999 $183,836 -- -- -- 50,000/(4)/
Chairman of SIL 1998 $199,980 $20,625 -- -- --
1997 $196,350 $48,950 -- -- --
Martin G. Paravato/(5)/ 1999 $128,585 $25,000 -- -- 150,000
Chief Financial Officer, 1998 -- -- -- -- --
Secretary and Treasurer 1997 -- -- -- -- --
Andrew Lovell/(6)/ 1999 $147,932 -- -- -- 150,000
Chief Operating Officer 1998 -- -- -- -- --
until August 31, 1999 1997 -- -- -- -- --
</TABLE>
__________________________
(1) With respect to each of the executive officers named in the table, if not
separately reported, the aggregate amount of perquisites and other personal
benefits, securities or property received was less than either $50,000 or
10% of the total annual salary and bonus reported for such executive
officer.
(2) As of November 11, 1999, Mr. Nizic's position with the Company is Executive
Vice President - Global Business Development.
(3) Does not reflect 700,000 options granted to Mr. Nizic in conjunction with
the Merger.
(4) Does not reflect 700,000 options granted to Mr. Weber in conjunction with
the Merger, which were subsequently transferred to one of the Company's
principal stockholders.
(5) Mr. Paravato employment terminated on October 14, 1999.
(6) Mr. Lovell's compensation was paid to Tradeserv 94, Inc., of which Mr.
Lovell is the sole shareholder. Mr. Lovell's employment terminated on
August 24, 1999.
49
<PAGE>
Employment Arrangements
The Company has employment agreements with each of Messrs. Nizic, Hogue,
Weber and Luft. Mr. Hogue is employed for an initial term of one year, with his
employment being renewed automatically unless notice of intention to not renew
is received prior to the ninetieth day prior to the end of the current term. Mr.
Hogue's annual base salary is $175,000. Messrs. Nizic and Weber are employed for
terms of three (3) years commencing October 14, 1998, at annual base salaries of
$175,000 and $200,000, respectively. Mr. Luft is employed for a term of two (2)
year, commencing June 7, 1999, at an annual base salary of $125,000, plus a car
allowance of $9,600 and an annual bonus of $37,500. In addition, Mr. Luft
received $55,200 to compensate him for the value of lost stock options from his
previous employer. Each of Messrs. Nizic, Hogue, Weber and Luft are entitled to
participate in the Company's fringe benefit, bonus, profit-sharing and incentive
plans adopted by the Company. They are also entitled to reimbursement for
certain Company-related travel expenses, including use of an automobile and
related expenses.
The employment agreements contain standard confidentiality and non-compete
clauses which preclude the officers from competing directly or indirectly with
the Company or soliciting any customer of the Company for the term of the
agreement and, with respect to Messrs. Weber and Nizic, for a two (2) year
period thereafter and with respect to Mr. Hogue.
Stock Incentive Plan; Outstanding Options
The Company's Board of Directors and stockholders adopted the "Skynet
Holdings, Inc. 1998 Stock Incentive Plan" (the "1998 Plan") during November
1998. The 1998 Plan covers the greater of 1,609,900 or 10% of the total number
of shares of the Company's Common Stock outstanding on each December 31,
beginning on December 31, 1998, provided, however, that the foregoing formula
-------- -------
shall never result in a decrease in the maximum number of shares available under
the 1998 Plan. Under its terms, officers, directors, key employees and
consultants of the Company are eligible to participate in the 1998 Plan. The
1998 Plan permits: (i) the grant of incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code");
(ii) the grant of non-qualified stock options; (iii) the issuance or sale of
Common Stock, with or without vesting or other restrictions; (iv) the grant of
Common Stock upon the attainment of specified performance goals; and (v) the
grant of stock appreciation rights ("SARs"). The 1998 Plan contains certain
limitations on the maximum number of Shares of Common Stock that may be awarded
to any one individual in any calendar year for the purposes of Section 162(m) of
the Code.
The 1998 Plan is administered by the Board of Directors or a committee
consisting of no less than three members designated by the Board of Directors
(the "Plan Administrator".) Subject to the provisions of the 1998 Plan, the
Plan Administrator has full power and authority to determine, from among the
persons eligible for grants or awards under the 1998 Plan: (i) the individuals
to whom grants or awards will be made; (ii) the combination of grants or awards
to participants; and (iii) the specific terms of each grant or award. Incentive
stock options may be granted only to officers or other employees of the Company
or its subsidiaries, including members of the Board of Directors who are also
employees of the Company or its subsidiaries.
50
<PAGE>
Incentive stock options granted under the 1998 Plan are exercisable for a
period of up to 10 years from the date of grant and at an exercise price that is
not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive stock option granted under the 1998
Plan to a stockholder owning more than 10% of the outstanding Common Stock may
not exceed five years and the exercise price of an incentive stock option
granted to such a stockholder may not be less than 110% of the fair market value
of the Common Stock on the date of the grant. Non-qualified stock options may be
granted on terms determined by the Plan Administrator. SARs, which give the
holder the privilege of surrendering such rights for the appreciation in the
Company's Common Stock between the time of grant and the surrender, may be
granted on any terms determined by the Plan Administrator.
Incentive stock options granted under the 1998 Plan are non-transferable,
except upon death, by will or by operation of the laws of descent and
distribution, and may be exercised during the employee's lifetime only by the
optionee. Under the terms of the 1998 Plan, the aggregate fair market value
(determined as of the date of grant) of the shares of Common Stock with respect
to which incentive stock options are exercisable for the first time by an
employee during any calendar year (under all such plans of the Company and any
parent and subsidiary corporation of the Company) may not exceed $100,000.
Options granted under the 1998 Plan may be exercised within 12 months after
the date of an optionee's termination of employment by reason of death or
disability, or within three months after the date of termination by reason of
retirement or voluntary termination approved by the Plan Administrator, but only
to the extent the option was otherwise exercisable on the date of termination.
The 1998 Plan will expire on November 1, 2008, unless terminated earlier by
the Board of Directors. The 1998 Plan may be amended by the Board of Directors
without stockholder approval, except that, in general, no amendment that
increases the maximum aggregate number of shares that may be issued under the
1998 Plan, decreases the minimum exercise price of options provided under the
Plan, or changes the class of employees who are eligible to participate in the
1998 Plan, shall be made without the approval of a majority of the stockholders
of the Company. None of the above actions, if taken, may adversely affect any
right or obligation regarding any grants or awards previously made under the
1998 Plan without the written consent of the recipient. In the event of any
changes in the capital structure of the Company, such as a stock dividend or
split-up, the Board of Directors must make equitable adjustments to outstanding
unexercised awards to that the net value of the award is not changed.
As of November 11, 1999 options to purchase 973,600 shares of Common Stock
have been granted and are outstanding under the 1998 Plan. In addition to the
options granted under the 1998 Plan, the Company also granted non-options and
warrants through November 11, 1999 to purchase 4,923,439 shares of Common Stock
in accordance with the following table:
<TABLE>
<CAPTION>
Exercise Price Life
Per Share Shares (years)
-----------------------------------------------
<S> <C> <C>
$3.00 1,932,549 4.67
$3.31 927,600 9.50
$5.00 2,300,890 3.00
$6.50 600,000 3.50
$7.38 11,000 9.75
$7.75 90,000 3.50
$8.13 35,000 9.75
-------------------------
$3.00 to $8.13 5,897,039 3 to 9.75
=========================
</TABLE>
51
<PAGE>
The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during the twelve months ended June 30,
1999:
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
---------------------------------------------------------
Name Number of % of Total Value at Assumed
----
Securities Options/SARs Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation
Options/SARs Employees in or Base Expiration for Option Term
---------------
Granted (#) Fiscal Year Price ($/Sh) Date 5% 10%
------------- ----------- ------------ ----------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Vjekoslav Nizic/(1)/ 250,000 15.0% $ 3.3125 11/01/2008 $ 2,420,000 $ 4,109,000
Christian J. Weber/(2)/ 50,000 3.0% $ 3.3125 11/01/2008 $ 484,000 $ 822,000
Martin G. Paravato 150,000 9.0% $ 3.3125 11/01/2008 $ 1,451,000 $ 2,465,000
</TABLE>
______________
(1) Does not reflect 700,000 options granted to Mr. Nizic in conjunction with
the Merger.
(2) Does not include 400,000 options, which Mr. Weber acquired from Synergy
Group International, Inc. Does not include 700,000 shares issuable upon
the exercise of options granted in connection with the Merger.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table sets forth certain information regarding exercises of
stock options by the Named Executive Officers during the twelve months ended
June 30, 1999 and the value of unexercised options at June 30, 1999:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End FY-End
------------------------ ----------------------------
Shares
Acquired on Value ($) ($)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vjekoslav Nizic -- -- 83,333 866,667 $ 422,000 $ 4,606,000
Christian J. Weber -- -- 16,667 433,333 $ 84,000 $ 2,319,000
Martin G. Paravato -- -- 50,000 100,000 $ 253,000 $ 506,000
</TABLE>
Directors' Compensation
Directors who are officers of the Company receive no additional
compensation for serving on the Board of Directors, other than reimbursement of
reasonable expenses incurred in attending meetings. Non-employee directors
receive annual compensation of $3,000, a fee of $300 for each meeting attended
(and $250 for each committee meeting attended) and reimbursement of reasonable
expenses incurred in attending meetings.
52
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 9, 1999, by (i) each
person who, to the knowledge of the Company, beneficially owned more than 5% of
the Company's Common Stock; (ii) each director and executive officer of the
Company; and (iii) all executive officers and directors of the Company as a
group:
<TABLE>
<CAPTION>
Name and Address of Amount of Percent of
Beneficial Owner/(1)/ Beneficial Ownership/(2)/ Class
--------------------- ------------------------ -----
<S> <C> <C>
Vjekoslav Nizic 6,817,545/(3)/ 34.7%
Christian J. Weber 216,667/(4)/ 1.1%
Byron Hogue 100,000/(5)/ *
Noel John Holmes 335,000/(6)/ 1.7%
John Cathcart 1,616,667/(7)/ 8.3%
Vincent J. Marold 1,680,151/(8)/ 8.6%
Nevada Fleet Management, Inc. 1,303,374 6.7%
Michael Lauer 1,425,000/(10)/ 7.3%
All Directors, and Executive
Officers as a Group (5 persons) 7,369,211 37.6%
</TABLE>
______________________
*Represents less than 1% of the outstanding shares of Common Stock.
(1) The address of Vjekoslav Nizic, John T. Luft, Byron Hogue is c/o the
Company, 343 South Glasgow Avenue, Inglewood, California 90301, the
address of Christian J. Weber and John William Murray Clark is c/o Skynet
International Limited, Stockley Close, West Drayton, England, UB7 9BL,
the address of Noel John Holmes is PO Box 320, Coolangatta, QLD 4225,
Australia, the address of John Cathcart is 774 Mays Boulevard #10-450,
Incline Village, NV 89451, the address of Vincent J. Marold is c/o
Synergy Group International, Inc. 3725 East Sunrise Drive, Tucson,
Arizona 85718, Michael Lauer's address is c/o Lancer Partners, LP, 375
Park Avenue, Suite 2006, New York, NY 10152.
(2) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
rules and regulations promulgated under the Exchange Act, and
accordingly, may include securities owned by and for among others the
spouse and/or minor children of an individual and any other relative who
has the same home as such individual, as well as other securities as to
which the individual has or shares voting or investment power or which
such person has the right to acquire within 60 days after the date of
this filing pursuant to the exercise of options, or otherwise. Beneficial
ownership may be disclaimed as to certain of the securities. This table
has been prepared based on 19,575,094 shares of Common Stock outstanding
as of November 11, 1999.
53
<PAGE>
(3) Includes 2,721,023 shares of Common Stock held by Fir Construction Pty.
Ltd., of which Mr. Nizic is the managing director plus 83,333 shares
issuable upon exercise of options exercisable presently and within 60
days of the date of the table. Includes 400,000 shares of Common Stock
held by Mr. Nizic's adult brother over which Mr. Nizic has sole voting
power. Also includes 3,425,879 shares which are subject to an irrevocable
proxy in favor of Mr. Nizic which vests Mr. Nizic with the sole power to
vote such shares with respect to the election of directors and any
amendment to the Company's Certificate of Incorporation or Bylaws which
(i) affects the size or composition of the Board of Directors of the
Company. Does not include 700,000 shares issuable upon the exercise of
options subject to vesting commencing October 14, 2000.
(4) Consists of 200,000 shares of Common Stock owned of record by Deansley
Limited an affiliate of Mr. Weber plus 16,667 shares issuable upon
exercise of options exercisable presently and within 60 days of the date
of the table. Does not include 400,000 shares issuable upon exercise of
options subject to vesting commencing October 14, 1999, which Mr. Weber
acquired from Synergy Group International, Inc.
(5) Consists of 100,000 shares issuable upon exercise of options exercisable
presently and within 60 days of the date of the table.
(6) Consists of 335,000 shares held by Pearlgold Pty Ltd., an entity
affiliated with Mr. Holmes.
(7) Includes 50,000 shares held of record by Mr. Cathcart which are subject
to options granted by Mr. Cathcart to third parties plus 16,667 shares
issuable upon exercise of options exercisable presently and within 60
days of the date of the table. Does not include 700,000 shares issuable
upon the exercise of options transferred from Mr. Weber, which are
subject to vesting commencing October 14, 2000.
(8) Includes 250,000 shares held of record by Synergy Group International,
Inc. of which Mr. Marold is the sole shareholder. Does not include
170,000 shares held of record by adult family members of Mr. Marold and
100,000 shares held by a family trust, of which Mr. Marold has a 20%
beneficial interest.
(9) Consists of 440,000 shares issuable upon conversion of Series A Shares
and 325,000 shares upon exercise of warrants owned of record by Lancer
Partners, LP and 660,000 shares issuable upon conversion of Series A
Shares owned of record by Lancer Offshore, Inc. Mr. Lauer acts as
investment manager of each of these entities.
Material Voting Arrangements
Pursuant to the Merger, the Historic Principal Shareholders who held as of
the closing of the Merger, an aggregate of 8,673,128 shares of the Company's
Common Stock, have agreed that until October 14, 2000, they will vote their
shares at every annual meeting of stockholders, at any special meeting of
stockholders called for the purpose of electing directors, or action by written
consent or otherwise take such action as is required, to vote for and elect a
Board of Directors in the manner described below in the section captioned
"DIRECTORS AND EXECUTIVE OFFICERS - Board of Directors." In addition, the
Historic Principal Shareholders have also agreed not to vote their shares to
amend the Company's Bylaws or Certificate of Incorporation in a manner
inconsistent with the provisions described below in the section captioned
"DIRECTORS AND EXECUTIVE OFFICERS - Matters of Corporate Governance." On
February 26, 1999, Christian J. Weber and his affiliates, Deansley Ltd. and
Moontown Ltd., privately sold an aggregate of 3,425,879 shares of Common Stock
to certain institutional investors. The purchasers of such shares have executed
an irrevocable proxy in favor of Mr. Nizic vesting him with the sole power to
vote such shares in the manner described above until no later than on or about
May 19, 2001. See "CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS."
54
<PAGE>
Restrictions Upon Resale
Merger Agreement. In addition to any prohibition on transfers or sales
-----------------
under applicable federal or state securities laws, the Historic Principal
Shareholders may not sell, transfer, encumber or otherwise dispose of the shares
of the Company's Common Stock issued to them in the Merger until October 14,
2000. Not withstanding the foregoing, subject to compliance with applicable
federal and state securities laws and regulations, during the one year period
commencing October 14, 1999, each Historic Principal Shareholder shall be
permitted to sell up to 50,000 additional shares of the Company's Common Stock.
However, any sale of such shares prior to October 14, 1999 shall be on terms and
to parties reasonably acceptable to Mr. Marold's designee to the Company's Board
of Directors. See "DIRECTORS AND EXECUTIVE OFFICERS - Board of Directors."
Puglisi Lock-up Agreement. In connection with a private placement of
--------------------------
1,325,500 shares of Common Stock (the "Private Placement"), the directors and
executive officers of the Company entered into lock up agreements (the "Puglisi
Lock-Up Agreement") with Puglisi Howells & Co., Inc. ("Puglisi"). Under the
Puglisi Lock-Up Agreement, such executive officers and directors have agreed not
to directly or indirectly, offer for public sale, publicly sell, or otherwise
publicly dispose of, any shares of Common Stock which they may own legally or
beneficially for a lock-up period commencing February 19, 1999 and terminating
on the last to occur of: (i) August 19, 2000; (ii) the date ninety (90) days
after the effectiveness of a registration statement covering the resale of the
shares sold in the Private Placement; and (iii) the date ninety (90) days after
the effectiveness of a registration statement covering the shares issuable upon
exercise of the warrants issued to Puglisi; however, in any event, such lock-up
period shall expire no later than May 19, 2001. Notwithstanding the above,
during such lock-up period, the executive officers and directors are permitted
to: (i) with the consent of a majority of the Company's disinterested directors,
engage in private resales, pledges or gifts of the shares so long as the
purchaser, pledgee or donee acquiring the shares agrees to hold such shares in
accordance with the restrictions identified herein for the remainder of the
lock-up period applicable to such shares; or (ii) engage in private transfers or
gifts of the shares to "affiliates" (as the term is defined under the Exchange
Act) or family members, so long as the transferee or donee acquiring the shares
agrees to hold such shares in accordance with the restrictions identified herein
for the remainder of the lock-up period applicable to such shares.
Additional Lock-up Agreements. In connection with the Private Placement,
------------------------------
holders of 1,000,000 shares of Common Stock offered therein have agreed not to
directly or indirectly offer for public sale, publicly sell, or otherwise
publicly dispose of such shares without the prior written consent of the
Placement Agent for a lock-up period commencing on February 19, 1999 and
terminating sixty (60) days after the later of (i) the date the shares of Common
Stock issued in the Private Placement are first eligible for public resale under
either SEC Rule 144 or pursuant to an effective registration statement under the
Securities Act; or (ii) the effectiveness of a registration statement under the
Securities Act covering the resale of the shares issuable upon exercise of the
warrants issued to the Placement Agent; however, in any event, such lock-up
period shall expire no later than on or about May 19, 2000. With the consent of
a majority of the disinterested members of the Company's Board of Directors,
third-party private resales, pledges or gifts of these shares will be permitted
as long as the purchaser, pledgee or donee of any such shares agrees to remain
bound by the aforesaid restrictions upon resale for the remainder of the lock-up
period applicable to such shares. Private transfers or gifts to affiliates or
family members are also permitted as long as the transferee or donee of any such
shares agrees to remain bound by the aforesaid restrictions upon resale for the
remainder of the lock-up period applicable to such shares.
55
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Waiver of Lock-Up, Consent to Sale of Shares; and Release from Escrow
On February 26, 1999 the Company waived the application of the lock-up
provisions of the Merger Agreement in order to permit (i) Christian J. Weber and
his affiliates, Deansley Limited and Moontown Ltd., to privately sell an
aggregate of 3,425,879 shares of Common Stock (the "Weber Shares"); (ii) Mr.
Nizic to sell 100,000 shares of Common Stock (the "Nizic Shares"); and (iii) Mr.
Cathcart to sell 500,000 shares of Common Stock to certain institutional
investors in separate privately negotiated transactions. On March 15, 1999, the
Company waived the lock-up provisions of the Merger Agreement in order to permit
Mr. Nizic to sell 400,000 shares of Common Stock (the "Additional Nizic Shares")
to his brother in a private negotiated transaction. The Company also consented
to the transfer of the Weber Shares, Nizic Shares and Additional Nizic Shares in
accordance with the Placement Agent Lock-Up Agreement (as defined above) in
consideration of the purchasers of such shares being bound by the Placement
Agent Lock-Up Agreement which prohibits the transfer or sale of such shares
until no later than on or about May 19, 2001. See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT - Restrictions Upon Resale." Finally, the
Company released 205,996 of the Weber Shares from Escrow.
Extension of Date for Surrender of Shares
On February 26, 1999, the Company agreed to extend the deadline for EPLR to
raise net proceeds of at least $2.5 million until March 31, 1999. This extended
the date on which certain shares of Common Stock held by certain historical
stockholders of EPLR, including Vincent J. Marold, a principal stockholder of
the Company, will be subject to forfeiture and cancellation. EPLR subsequently
raised such proceeds and the shares have been released from escrow.
Issuance of Shares in Cancellation of Indebtedness
On December 1,1998, the Company issued 335,000 shares of its Common Stock
to Pearlgold Pty Ltd, an entity affiliated with Noel Holmes, a director of the
Company, in exchange for the cancellation of $670,000 short-term indebtedness.
On December 1, 1998, the Company issued 162,500 shares of its Common Stock
to Andrew Lovell, an officer, in exchange for the cancellation of $325,000
short-term indebtedness.
56
<PAGE>
Transactions with Principal Stockholder
In October 1998, in connection with the Merger, the Company repaid $100,000
to John Cathcart, a principal stockholder. Mr. Cathcart had advanced these
funds to the Company in September 1997 pursuant to a non-interest bearing
promissory note. In addition, during fiscal year 1999, the Company paid Mr.
Cathcart consulting fees amounting to $76,000.
On August 2, 1999, Pearlgold Pty. Ltd. (an entity affiliated with Noel
Holmes, a director of the Company) loaned the Company $687,675 pursuant to the
terms of unsecured promissory note from the Company. The loan bears interest at
the rate of 10% per annum and is payable on demand. In conjunction with this
loan, the Company issued 49,013 shares of Common Stock plus a financing fee of
$32,675 as additional consideration.
Agreements with Officers and Directors
The Company has entered into employment agreements with Messrs. Nizic,
Hogue, Weber and Luft and option agreements with Messrs. Nizic, Hogue and Weber.
See "EXECUTIVE COMPENSATION - Employment Arrangements" and "Stock Incentive
Plan; Outstanding Options".
Sale of Shares and Options to Principal Stockholder
As part of an overall private placement of 1,325,500 shares of Common
Stock In September 1998, the Company issued 1,030,151 shares to Vincent J.
Marold, 100,000 shares to Marold Investments LLC, an entity affiliated with Mr.
Marold, and 170,000 shares to immediate family members of Mr. Marold. This
offering was undertaken by EPLR prior to the execution and closing of the
definitive merger agreement with Skynet Nevada. At that time, Mr. Marold was the
sole officer and director of EPLR. These shares were issued on the same terms
and conditions as all other shares in such private placement. In connection with
the Merger, the Company issued options to purchase shares of Common Stock to
Synergy Group International, Inc. of which Mr. Marold is the sole shareholder.
See "EXECUTIVE COMPENSATION - Stock Incentive Plan; Outstanding Options".
57
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Report of Independent Certified Public Accountants F-1
Consolidated Financial Statements:
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Equity (Deficiency) F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
(a)(2) Financial Statement Schedules
All schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the financial statements or notes
thereto.
(a)(3) Exhibits
The following exhibits are filed in the order hereinafter
listed:
<TABLE>
<CAPTION>
Method
No. Exhibit of Filing
--- ------- ---------
<S> <C>
2.1 Agreement and Plan of Merger ("Merger Agreement"), dated as
of September 28, 1998, among Skynet Holdings, Inc., EPL Resources
(Delaware) Corp., Christian J. Weber, Deansley Limited, John E.
Cathcart, Vjekoslav Nizic and FIR Construction Pty. Ltd. (1)
2.2 First Amendment to Merger Agreement, dated October 8, 1998 (1)
2.3 Agreement for the Sale and Purchase of the entire issued share
capital of Freight on Board International Limited dated April 12,
1999 by and among SkyNet Holdings, Inc., Mr. J.W.M. Clark and the
remaining shareholders of Freight on Board International Limited. (2)
2.4 Stock Purchase Agreement dated as of May 27, 1999 ("Pony Agreement")
by and among the Company, Pony Express Delivery Services, Inc. ("Pony"),
Mustang Holdings, Inc. ("Mustang"), Mustang Investment Partners, LLC
("MIP"), Greenstreet Pony Partners, LLC, ("GPP"), C.M. "Connie" Carson
and Diana Carson, as Trustees of the Carson Family Trust (the "Carson
Trust") and Richard L. Williams ("Williams") (3)
2.5 Amendment No. 1 to Pony Agreement (3)
3.1 Certificate of Incorporation, as amended (1)
3.2 Certificate of Merger (1)
3.3 Bylaws (1)
3.4 Amendment to Bylaws dated November 2, 1999 *
3.5 Amendment to Bylaws dated November 2, 1999 *
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Method
No. Exhibit of Filing
--- ------- ---------
<S> <C>
3.6 Certificate of Designation of Series A Convertible Preferred Stock (1)
3.7 Certificate of Designation of Series B Convertible Preferred Stock (3)
10.1 Employment Agreement dated October 14, 1998, between the Company and
Vjekoslav Nizic (1)
10.2 Amendment No. 1 to Vjekoslav Nizic Employment Agreement dated as of
August 2, 1999 *
10.3 Amendment No. 2 to Vjekoslav Nizic Employment Agreement dated as of
November 1, 1999 *
10.4 Employment Agreement dated October 14, 1998, between the Company and
Christian J. Weber (1)
10.5 Employment Agreement dated June 7, 1999, between the Company and
John T. Luft *
10.6 Employment Agreement dated June 18, 1999 between the Company and
Byron Hogue *
10.7 Amendment No. 1 to Byron Hogue to Employment Agreement dated as of
August 2, 1999. *
10.8 Option to Purchase 700,000 Shares of Common Stock of the Company
granted to Vjekoslav Nizic (1)
10.9 Option to Purchase 700,000 Shares of Common Stock of the Company
granted to Christian J. Weber (1)
10.10 Option to Purchase 400,000 Shares of Common Stock of the Company
granted to Synergy Group International, Inc. ("Synergy") (1)
10.11 Option to Purchase 600,000 Shares of Common Stock of the Company
granted to Byron Hogue *
10.12 Escrow Agreement, dated October 14, 1998, among the Company, Synergy,
certain shareholders of Synergy and the Company as Escrow Agent (1)
10.13 Escrow Agreement, dated October 14, 1998, among the Company, Synergy,
Vjekoslav Nizic, John E. Cathcart, Christian J. Weber, Deansley
Limited, Fir Construction Pty Limited, the principal shareholders of
Skynet Holdings, Inc. and EPL Resources (Delaware) Corp. (1)
10.14 Consulting Agreement dated August 24, 1998 between Tradeserv 94, Inc.
and the Company (1)
10.15 The Company's 1998 Stock Incentive Plan (1)
10.16 Asset Purchase Agreement dated March 11, 1999 by and among Skynet
Holdings, Inc., and Fleet Acquisition Corp. as the Buyers and Nevada
Fleet Management, Inc. as Seller (1)
10.17 Vehicle Purchase Agreement dated March 15, 1999 by and among Skynet
Holdings, Inc. and Fleet Acquisition Corp. as the Buyers and Nevada
Yellow Cab Corporation and Nevada Checker Cab Corporation and Nevada
Star Cab Corporation as Sellers. (1)
10.18 Registration Rights Agreement dated April 12, 1999, by and among
SkyNet Holdings, Inc., J.W.M. Clark and certain other shareholders of
Freight on Board International, Limited. (2)
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Method
No. Exhibit of Filing
--- ------- ---------
<S> <C>
10.19 Tax Covenant Agreement dated April 12, 1999, by and among SkyNet
Holdings, Inc. and J.W.M. Clark, D.V. Amos and C.S. Brooker, the
principal shareholders of Fright on Board International Limited. (2)
10.20 Service Agreement dated April 12, 1999 by and among the Company, Sky
International Limited and J.W.M. Clark (2)
10.21 Registration Rights Agreement among the Company, Mustang, GPP, MPP,
the Carson Trust and Williams. *
10.22 Loan and Security Agreement by and between Pony and NationsCredit
Commercial Corporation through its NationsCredit Commercial Funding
Division (the "NationsCredit Loan Agreement") dated as of May 29, 1998. *
10.23 First Amendment to NationsCredit Loan Agreement dated September 30, 1998. *
10.24 Second Amendment to NationsCredit Loan Agreement dated October 20, 1998. *
10.25 Third Amendment to NationsCredit Loan Agreement dated June 18, 1999. *
10.26 Loan and Security Agreement by and between Courier Express, Inc. and
NationsCredit Commercial Corporation through its NationsCredit Commercial
Financing Division dated as of October 18, 1998 ("Courier Express Loan
Agreement"). *
10.27 First Amendment to Courier Express Loan Agreement dated as of June 18, 1999. *
10.28 Guaranty Agreement of the Company for the benefit of NationsCredit Commercial
Corporation (guaranty of Courier Express Loan Agreement dated June 18, 1999. *
10.29 Guaranty Agreement of SkyNet Holdings, Inc. for benefit of NationsCredit
Commercial Corporation dated June 18, 1999. *
10.30 Loan Agreement between Founders Equity Group, Inc. and the Company dated
as of June 2, 1999. *
10.31 Amendment 1 to the Loan Agreement between Founders Equity Group, Inc.
and the Company dated as of November 3, 1999. *
10.32 Promissory Note between Pearlgold Pty. Ltd. and the Company dated as of
August 2, 1999 *
10.33 $9.0 Million Loan Agreement between the Company and Lancer Offshore, Inc.,
Lancer Partners, LP, and Michael Lauer dated as of November 9, 1999. *
10.34 Fourth Amendment to NationsCredit Loan Agreement dated December 8, 1999. *
21.1 Subsidiaries of the Registrant *
27 Financial Data Schedule *
</TABLE>
_____________________
(1) Filed as an Exhibit to the Company's Registration Statement on Form 10
filed on March 23, 1999.
(2) Filed as an Exhibit to the Company's Current Report on Form 8-K dated April
12, 1999.
(3) Filed as an Exhibit to the Company's Current Report on Form 8-K dated June
17, 1999 (as amended).
* Filed herewith.
60
<PAGE>
b) Reports on 8-K
The following Current Reports on Form 8-K were filed during the three
months ended June 30, 1999:
1. Current Report on Form 8-K dated April 12, 1999 reporting
under Item 2, the acquisition of Freight on Board
International.
2. Current Report on Form 8-K dated June 17, 1999 reporting
under Item 2, the acquisition of PONY Express Delivery
Services, Inc.
61
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized the 10th day of
December 1999.
SKYNET HOLDINGS, INC.
By: /S/ BRYON HOGUE
------------------------------------------
Bryon Hogue, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/S/ BYRON HOGUE Chairman of the Board December 10, 1999
- ---------------------- President
Byron Hogue Chief Executive Officer
(Principal Executive Officer)
/S/ VJEKOSLAV NIZIC Vice President-Global December 10, 1999
- --------------------- Operations and Director
Vjekoslav Nizic
/S/ WILLIAM H. BETHELL Chief Financial Officer December 10, 1999
- ----------------------- (Principal Accounting Officer)
William H. Bethell
/S/ NOEL HOLMES Director December 10, 1999
- ------------------
Noel Holmes
/S/ GERALD T. HARRINGTON Director December 10, 1999
- ------------------------
Gerald T. Harrington
/S/ CHRISTIAN J. WEBER Director December 10, 1999
- -------------------------
Christian J. Weber
62
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
To the Board of Directors and
Stockholders of
Skynet Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Skynet Holdings,
Inc. and subsidiaries as of June 30, 1998 and 1999 and the related consolidated
statements of operations, changes in stockholders' equity (deficiency) and cash
flows for each of the three years in the period ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that the Company 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. The Company believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Skynet Holdings,
Inc. and subsidiaries as of June 30, 1998 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1999, in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
September 23, 1999 (except for Notes 4, 5 and
13 which are as of December 8, 1999)
Los Angeles, California
F-1
<PAGE>
SKYNET HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
----------------------------------
1998 1999
----------------------------------
<S> <C> <C>
Assets (Note 4)
Current assets
Cash and cash equivalents $ 337,314 $ 1,568,529
Accounts receivable - trade, net of allowance for
doubtful accounts of $734,257 and $2,800,336 (Note 12) 5,646,209 15,075,002
Receivables - other 11,009 416,455
Prepaid expenses and other 66,430 1,300,738
----------------------------------
Total current assets 6,060,962 18,360,724
Property and equipment, net (Notes 2, and 3) 704,296 8,294,361
Goodwill, net (Note 2) - 16,459,969
Intangible and other assets, net (Note 2) 120,557 1,400,107
----------------------------------
$ 6,885,815 $ 44,515,161
==================================
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities
Accounts payable $ 5,560,712 $ 16,994,751
Short-term debt (Note 4) 970,012 9,280,153
Other accrued liabilities 107,514 5,237,167
Accrued payroll 209,368 3,557,466
Accrued income taxes 34,993 65,758
Current portion of long-term debt (Note 5) 236,619 530,509
----------------------------------
Total current liabilities 7,119,218 35,665,804
----------------------------------
Long-term debt, net of current portion (Note 5) 452,822 859,723
----------------------------------
Commitments and contingencies (Note 8)
Stockholders' Equity (Deficiency) (Note 6)
Convertible preferred stock, $.0001 par value, 5,000,000
shares authorized; 2,450,000 and 2,852,368, shares issued
and outstanding (liquidation preference $11,298,000) 245 285
Common stock, $.0001 par value, 50,000,000 shares authorized;
7,451,000 and 19,504,618 shares issued and outstanding 745 1,950
Additional paid-in capital 402,568 14,326,215
Foreign currency translation adjustment 53,332 123,577
Accumulated deficit (1,143,115) (6,462,393)
----------------------------------
Total stockholders' equity (deficiency) (686,225) 7,989,634
----------------------------------
$ 6,885,815 $ 44,515,161
==================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
SKYNET HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------------------
1997 1998 1999
---------------------------------------------------
<S> <C> <C> <C>
Revenues $ 36,151,763 $ 31,838,919 $ 41,011,297
Cost of sales 24,393,228 19,123,468 27,097,882
---------------------------------------------------
Gross profit 11,758,535 12,715,451 13,913,415
---------------------------------------------------
Operating expenses
Compensation 6,948,756 7,178,941 8,512,647
Occupancy costs 529,876 660,742 665,727
Communication expense 615,705 630,221 804,910
Other operating expenses 3,693,705 3,664,570 7,334,432
---------------------------------------------------
Total operating expenses 11,788,042 12,134,474 17,317,716
---------------------------------------------------
Income (loss) from operations (29,507) 580,977 (3,404,301)
Other income (expense)
Interest expense (169,817) (199,714) (234,062)
Loss on equity investee (Note 2) - - (1,598,210)
Other 74,056 (29,809) (173,089)
---------------------------------------------------
Income (loss) before income taxes (125,268) 351,454 (5,409,662)
Income tax (expense) benefit (Note 7) 85,600 (185,404) 90,384
---------------------------------------------------
Net income (loss) $ (39,668) $ 166,050 $ (5,319,278)
===================================================
Net income (loss) $ (39,668) $ 166,050 $ (5,319,278)
Foreign currency translation adjustments (4,107) 43,036 70,245
---------------------------------------------------
Comprehensive income (loss) $ (43,775) $ 209,086 $ (5,249,033)
===================================================
Basic income (loss) per common share $ (0.01) $ 0.02 $ (0.32)
Diluted earnings (loss) per common share (0.010 0.02 (0.32)
===================================================
Basic weighted average number
of common shares outstanding 7,000,000 7,346,500 16,742,625
Diluted weighted average number
of common shares outstanding 7,000,000 9,796,500 16,742,625
===================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SKYNET HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Foreign
Convertible Additional Currency
Preferred Stock Common Stock Paid-In Translation
------------------------ -----------------------
Shares Amount Shares Amount Capital Adjustment
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996 2,450,000 $ 245 7,000,000 $ 700 $ 4,455 $ 14,403
Foreign currency adjustment - - - - - (4,107)
Net loss - - - - - -
-------------------------------------------------------------------------------------
Balance, June 30, 1997 2,450,000 245 7,000,000 700 4,455 10,296
Sale of Common Stock (Note 6) - - 451,500 45 398,113 -
Foreign currency translation adjustment - - - - - 43,036
Net income - - - - - -
-------------------------------------------------------------------------------------
Balance, June 30, 1998 2,450,000 245 7,451,500 745 402,568 53,332
Adjustment - exchange of stock
and recapitalization (Note 1) (2,450,000) (245) 8,075,000 808 499,437 -
Issuance of stock for debt (Note 6) - - 597,500 59 1,194,941 -
Issuance of stock for acquisitions: (Note 2)
PONY Express Delivery Services 848,808 85 600,000 60 3,259,673 -
Fleet Delivery Service - - 1,423,999 142 2,847,856 -
Freight on Board - - 31,119 3 62,235
Sale of Common Stock (Note 6) - - 1,325,500 133 2,139,245 -
Sale of Series A Preferred Stock (Note 6) 2,003,560 200 - - 3,920,260 -
Foreign currency translation adjustment - - - - - 70,245
Net loss - - - - - -
-------------------------------------------------------------------------------------
Balance, June 30, 1999 2,852,368 $ 285 19,504,618 $1,950 $14,326,215 $123,577
======================================================================================
<CAPTION>
Accumulated
Deficit
--------------
<S> <C>
Balance, July 1, 1996 $(1,269,497)
Foreign currency adjustment -
Net loss (39,668)
--------------
Balance, June 30, 1997 (1,309,165)
Sale of Common Stock (Note 6) -
Foreign currency translation adjustment -
Net income 166,050
--------------
Balance, June 30, 1998 (1,143,115)
Adjustment - exchange of stock
and recapitalization (Note 1)
Issuance of stock for debt (Note 6) -
Issuance of stock for acquisitions: (Note 2)
PONY Express Delivery Services
Fleet Delivery Service
Freight on Board
Sale of Common Stock (Note 6) -
Sale of Series A Preferred Stock (Note 6) -
Foreign currency translation adjustment -
Net loss (5,319,278)
--------------
Balance, June 30, 1999 $(6,462,393)
==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SKYNET HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended June 30,
-------------------------------------------------
1997 1998 1999
-------------------------------------------------
(Increase (decrease) in cash and cash equivalents)
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (39,668) $ 166,050 $ (5,319,278)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 294,646 237,022 323,530
Loss from equity investee - - 1,598,210
Changes in operating assets and liabilities, net of
businesses acquired:
Receivables (657,974) 1,259,802 478,975
Prepaid expenses and other assets (7,172) (19,670) (568,828)
Accounts payable (596,239) (534,609) (582,776)
Accrued expenses and other liabilities 21,918 (821,866) 777,052
------------------------------------------------
Net cash provided by (used in) operating activities (984,489) 286,729 (3,293,115)
------------------------------------------------
Cash flows from investing activities
Purchase of property and equipment (315,827) (244,212) (363,212)
Acquisition of businesses, net of cash - - (4,955,660)
Other, primarily deferred costs - - (383,315)
------------------------------------------------
Net cash used in investing activities (315,827) (244,212) (5,702,187)
------------------------------------------------
Cash flows from financing activities
Proceeds from private placements of stock - 398,158 6,559,838
Proceeds from issuance of short-term notes - 288,000 4,137,268
Bank borrowings (repayments) 1,466,422 (684,410) 88,340
Debt repayments (49,572) (72,615) (629,171)
------------------------------------------------
Net cash provided by (used in) financing activities 1,416,850 (70,867) 10,156,275
------------------------------------------------
Effect of foreign currency translation adjustments (4,107) 43,036 70,245
------------------------------------------------
Net increase in cash and cash equivalents 112,427 14,686 1,231,215
Cash and cash equivalents, beginning of period 210,201 322,628 337,314
------------------------------------------------
Cash and cash equivalents, end of period $ 322,628 $ 337,314 $ 1,568,529
================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. - Summary of Significant Accounting Policies
The Company
Skynet Holdings, Inc. (the "Company") was incorporated in Nevada on September
16, 1997. The Company was incorporated for the purpose of acquiring the
outstanding shares of four companies whose businesses provide international
express courier delivery and freight forwarding services for time sensitive
documents and packages to customers throughout the world under the name SkyNet
Express.
On October 1, 1997, the acquisition described above was completed through an
exchange of 2,800,000 shares of the Company's common stock and 1,400,000 shares
of the Company's preferred stock for all shares of each of the companies
acquired. The transaction was accounted for as a reorganization of entities
under common control in a manner similar to a pooling of interest, whereby the
Company's consolidated financial statements have been restated to include the
accounts and operations of the merged companies for all periods presented prior
to the merger.
The Company currently operates its SkyNet division (i) through company-owned
courier facilities located in London, Bristol and Manchester, England, Los
Angeles, San Francisco and Sacramento, California; Las Vegas and Reno, Nevada;
Portland and Salem, Oregon; Seattle, Everett and Tacoma, Washington; Phoenix,
Arizona; New York, New York, Sydney, Melbourne, Australia and Kuala Lumpur,
Malaysia and (ii) through the "SkyNet Worldwide Express" network, a global
alliance of independent express courier service companies that functions as a
worldwide delivery network for its members.
The Company's PONY subsidiary includes 90 stations in 22 states in the United
States.
Recapitalization
EPL Resources (Delaware) Corp. ("EPLR") was organized December 15, 1994, under
the laws of the State of Florida. EPLR had no operations and was considered a
development stage company. EPLR was formed for the purpose of raising capital
and acquiring a suitable business opportunity through a merger with, or
acquisition of, a private business enterprise seeking to obtain the perceived
benefits of being a publicly owned company. During September 1998, EPLR issued
and sold an aggregate of 4,625,000 shares of Common Stock raising gross proceeds
of $555,000.
On October 14, 1998 EPLR acquired 100% of the outstanding capital stock of
Skynet Holdings, Inc., a Nevada corporation ("Skynet Nevada"), in exchange for
9,901,500 shares of EPLR common stock. Concurrent with this transaction, EPLR
reincorporated in the State of Delaware and changed its name to Skynet Holdings,
Inc., ("Skynet Delaware").
For accounting purposes, the acquisition of Skynet Nevada by Skynet Delaware
has been treated as a reverse acquisition in substance equivalent to the
issuance of stock for the net monetary assets of Skynet Delaware, accompanied by
a recapitalization. The historical operating results reflected in the
accompanying financial statements are those of Skynet Nevada as Skynet
Delaware's operations prior to October 14, 1998 were nominal.
F-6
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. - Summary of Significant Accounting Policies (Continued)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions and balances are
eliminated.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with initial
maturities of three months or less to be cash equivalents.
Concentration of Labor Risk
Employees at certain of the Company's domestic locations are subject to
collective bargaining agreements.
Concentrations of Credit Risks
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of temporary cash investments and trade
receivables. The Company restricts investment of temporary cash investments to
financial institutions with high credit standing. Credit risk on trade
receivables is minimized as a result of the large number of customers comprising
the Company's customer base and their dispersion across different businesses and
geographic regions.
Included in the Company's consolidated balance sheets at June 30, 1998 and
1999 are the net assets (liabilities) of the Company's United Kingdom subsidiary
of approximately, $410,000 and $(359,000) and the Company's Australian
subsidiary of approximately $212,000 and $405,000 for the same periods.
Property and Equipment and Depreciation
Furniture, fixtures, equipment and vehicles are recorded at cost and are being
depreciated over estimated useful lives of 3 to 7 years using the straight-line
method. Buildings are recorded at cost and are depreciated over estimated
useful lives of 15 to 30 years using the straight-line method. Leasehold
improvements are recorded at cost and are amortized over the lesser of the
estimated useful lives of the property or the lease term using the straight-line
method.
Intangible Assets
Goodwill represents the excess cost over the net assets of businesses acquired
during fiscal 1999 (See Note 2) and is being amortized on a straight-line basis
over 20 years. The Company periodically evaluates the recoverability of
goodwill based on expectations of non-discounted cash flows and operating income
for each entity having a material goodwill balance.
The Company owns the rights to certain trademarks. These assets are being
amortized on the straight-line method over 15 years.
F-7
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. - Summary of Significant Accounting Policies (Continued)
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
established guidelines regarding when impairment losses on long-lived assets,
which include property and equipment and certain identifiable intangible assets,
should be recognized and how impairment losses should be measured. The Company
periodically reviews such assets for possible impairment and expected losses, if
any, are recorded currently.
Fair Value of Financial Instruments
The Company has cash, accounts receivable and accounts payable for which the
carrying value approximates fair value due to the short-term nature of these
instruments. The carrying value of bank debt and long-term debt approximates
fair value at June 30, 1998 and 1999 since this debt substantially bears
interest at rates that approximate the lenders' "prime" rate". The fair value
of the debt related to the reorganization of a subsidiary under bankruptcy
cannot be estimated due to the court-mandated nature of the debt.
Revenue Recognition
Revenue for delivery of packages is recognized upon delivery. Revenue from the
Company's SkyCom 2000 system, the Company's package tracking system, is billed
monthly and is recorded when billed. Cost of sales primarily includes charges
for linehaul, pick-up and delivery including driver's salaries and other related
costs.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated at the current
exchange rate at the balance sheet date. Income and expenses are translated at
the average exchange rate in effect during the year. Resulting translation
adjustments are accumulated as a separate component of stockholders' equity.
Realized gains and losses related to other foreign currency transactions are
reported as income or expense in the current year. Such gains or losses were
not material for the years ended June 30, 1997, 1998 and 1999.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." ("SFAS
No. 109"). SFAS No. 109 requires the use of the asset and liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities.
Comprehensive Income
The Company accounts for comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income". In accordance with SFAS 130, the Company
displays its only component of comprehensive income, foreign currency
translation adjustments, as a component of other comprehensive income.
F-8
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. - Summary of Significant Accounting Policies (Continued)
Stock -Based Compensation
In 1999, the Company adopted for footnote disclosure purposes, Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123) which requires that companies measure the cost of
stock-based employee compensation at the grant date based on the value of the
award and recognize this cost over the service period. The value of the stock
based award is determined using a pricing model whereby compensation cost is the
excess of the fair value of the stock as determined by the model at grant date
or other measurement date over the amount an employee must pay to acquire the
stock.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 131, "Disclosure about Segment
of an Enterprise and Related Information" ("SFAS 131"), is effective for
financial statements with fiscal years beginning after December 15, 1997. The
new standard requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and condensed financial statements of interim periods issued to
stockholders. It also requires that public business enterprises report certain
information about their products issued to stockholders. It also requires that
public business enterprises report certain information about their products and
services, the geographic areas in which they operate and their major customers.
This standard was adopted during fiscal 1999 and resulted in expanded financial
statement disclosure.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosure
About Pensions and Other Postretirement Benefits" ("SFAS 132") is effective for
financial statements with fiscal years beginning after December 15, 1997. SFAS
132 requires employers' disclosures about pension and other postretirement
benefits plans. This standard was adopted during fiscal 1999 and resulted in
expanded financial statement disclosure.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") is effective for
financial statements with fiscal years beginning after June 15, 1999. SFAS 133
establishes accounting and reporting standards for derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. The Company does not expect adoption of SFAS 133 to have a
material effect, if any, on its consolidated financial position or results of
operations.
F-9
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. - Summary of Significant Accounting Policies (Continued)
Earnings (Loss) Per Share
Basic earnings (loss) per share of common stock is computed by dividing net
earnings (loss) by the weighted average number of common shares. Diluted
earnings per share is computed based on the weighted average number of shares of
common stock and dilutive securities outstanding during the period. Dilutive
securities are options that are freely exercisable into common stock at less
than market exercise prices, the convertible debentures (after giving
retroactive effect to the elimination of interest expense, net of tax) and
convertible preferred stock. Dilutive securities are not included in the
weighted average number of shares when the inclusion would increase the earnings
per share or decrease the loss per share. During the year ended June 30, 1999,
approximately 5,097,039 of warrant and options were not included in the dilutive
earnings per computation as the effect of including them would be anti-dilutive.
<TABLE>
<CAPTION>
Years ended June 30,
---------------------------------------------
1997 1998 1999
---------------------------------------------
<S> <C> <C> <C>
Basic earnings (loss) per common share:
Numerator
Net earnings (loss) available to common shareholders $ (39,668) $ 166,050 $ (5,319,278)
=============================================
Denominator
Weighted average common shares outstanding 7,000,000 7,346,500 16,742,625
=============================================
Per share amounts
Basic earnings (loss) per share $ (0.01) 0.02 $ (0.32)
=============================================
Diluted earnings (loss) per common share:
Numerator
Net earnings (loss) available to common shareholders $ (39,668) 166,050 $ (5,319,278)
=============================================
Denominator
Weighted average common shares outstanding 7,000,000 7,346,500 16,742,625
Effect of dilutive securities:
Convertible preferred stock outstanding - 2,450,000 -
---------------------------------------------
Weighted average common shares and assumed
conversions outstanding 7,000,000 9,796,500 16,742,625
=============================================
Per share amounts
Diluted earnings (loss) per share $ (0.01) $ 0.02 $ (0.32)
=============================================
</TABLE>
Note 2. - Acquisitions
Pony Express Delivery Services
On June 17, 1999, the Company acquired all the outstanding shares of
capital stock of Pony Express Delivery Services, Inc., a Delaware corporation,
("PONY"), a courier delivery service operating in 22 states in the USA with
annual revenues of approximately $100 million. The purchase consideration
($3,722,000) included 600,000 shares of the Company's Common Stock and 848,808
shares of the Company's Series B Convertible Preferred Stock. The acquisition
was accounted for using the purchase method of accounting with the assets
acquired and liabilities assumed recorded at fair values. The results of the
acquired business are included in the consolidated financial statements from the
closing date of the acquisition. The purchase price exceeded the fair value of
the net assets acquired and resulted in goodwill of approximately $14.8 million.
F-10
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. - Acquisitions (Continued)
Freight on Board
On April 12, 1999, the Company completed the first tier of a scheduled two-
tiered acquisition of Freight on Board International Limited, a corporation
organized under the laws of the United Kingdom ("FOB"). At the initial closing,
the Company purchased 51% of the issued and outstanding shares of FOB for cash
in the amount of approximately $680,000; 31,119 shares of Common Stock; and a
one (1) year cash earn-out payment in the amount of up to $144,000 based on
quarterly revenues of FOB for the one year period following the closing. The
Company purchased the remaining 49% during the first the week of July 1999 for
approximately $570,000 plus 83,067 shares of the Company's Common Stock.
In July 1999, the Company was informed that an administrative receiver was
appointed for FOB's largest customer. The receivable from this customer as of
June 30, 1999 amounted to approximately $1.25 million. As a result, FOB was
unable to meet its own obligations and a liquidator was appointed and took
control of FOB. Accordingly, the acquisition of FOB was accounted for under the
equity method of accounting, since control of FOB was temporary and the Company
fully reserved its investment in and advances to FOB in the amount of
$1,598,210.
Fleet Delivery Service
On March 15, 1999, the Company acquired the operating assets of Nevada Fleet
Management, Inc., a Nevada corporation, d.b.a. Fleet Delivery Service ("Fleet"),
a courier delivery service operating in the states of Nevada, Arizona,
California, Oregon and Washington. Total acquisition cost amounted to
$2,948,000 by the Company issuing 1,423,999 shares of its Common Stock, plus
approximately $100,000 in acquisition costs. The assets acquired include
accounts receivable, delivery vehicles, equipment, refundable deposits,
licenses, administrative material and equipment, records and documents, and all
personal property used in the operation of the business. The acquisition was
accounted for using the purchase method of accounting with the assets acquired
and liabilities assumed recorded at fair values, and the results of the acquired
business included in the Company's consolidated financial statements from the
closing date of the acquisition. The purchase price exceeded the fair value of
the net assets acquired and resulted in goodwill of approximately $1.8 million.
The following unaudited pro-forma condensed consolidated financial data assume
that the acquisitions of PONY and Fleet, as described above, occurred at the
beginning of each fiscal year presented. This data has been prepared for
comparative purposes only and does not purport to be indicative of the results
of operations which actually would have resulted had the acquisition occurred on
the date indicated, or which may result in the future.
<TABLE>
<CAPTION>
June 30,
------------------------------------
1998 1999
------------------------------------
<S> <C> <C>
Revenues $ 153,649,656 $ 165,601,239
Net loss (10,846,997) (16,671,523)
Basic net loss per common share (0.59) (1.00)
</TABLE>
F-11
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Property and Equipment
Property and equipment consists of:
<TABLE>
<CAPTION>
June 30,
----------------------------------
1998 1999
----------------------------------
<S> <C> <C>
Leasehold improvements $ 193,494 $ 210,069
Computer equipment and related software 1,162,905 2,712,353
Land and buildings - 3,420,000
Furniture, fixtures and equipment 668,709 1,913,587
Vehicles 67,723 1,704,366
----------------------------------
2,092,831 9,960,375
Less accumulated depreciation and amortization 1,388,535 1,666,014
----------------------------------
Property and equipment, net $ 704,296 $ 8,294,361
==================================
</TABLE>
Note 4. Short-Term Debt
Pony Debt
In May and October 1998, PONY and its subsidiary entered into loan and
security agreements (the "Agreements") with a financial institution which
provide for borrowings up to $9 million under senior revolving credit facilities
(the "Credit Facilities"), subject to certain borrowing limits, as defined in
the Agreements. Amounts outstanding under the Credit Facilities mature May 28,
2002 and bear interest at the prime rate (8.0% at June 30, 1999) plus 1% with
interest payable monthly. The Credit Facilities specify a commitment fee of .25%
per annum to be applied to the unused portion of the Credit Facilities, payable
monthly in arrears. As of June 30, 1999, $5,409,801 has been borrowed under the
Credit Facilities.
Borrowings under the Agreements are secured by substantially all of the
Company's assets, whether tangible or intangible, now owned or in existence or
hereafter acquired or arising. The Agreements set forth a number of covenants,
which among other things limit the Company's ability to, without prior written
consent, enter into a merger or any other consolidation transaction, acquire any
assets except in the ordinary course of business, incur debt, incur liens, make
investments, repurchase stock, or make dividend or other distributions. In
consideration for the bank giving its consent to the acquisition of PONY, the
Company entered into a guaranty agreement with the bank whereby the Company
absolutely and unconditionally guaranteed to the bank the payment and
performance of all now existing and hereafter arising obligations, liabilities
and indebtedness to the bank.
On September 29, 1999, the bank notified PONY that certain events of default
were committed by PONY under the Agreements relating to failure to deposit all
checks into the blocked bank account and failure to pay certain payroll taxes on
a timely basis and accordingly, will charge interest at the default rate as
permitted by the Agreements. On October 6, 1999, the bank notified PONY that the
bank would forbear from enforcing its rights under the Agreements through
December 4, 1999. The Bank subsequently agreed to extend its forbearance period
to December 10, 1999. On December 8, 1999, PONY and its senior secured lender
F-12
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Short-Term Debt (Continued)
reached an agreement whereby the lender agreed to (i) continue to forbear from
exercising any remedies available to it on account of the previously-declared
defaults under its loan agreement with PONY until March 8, 2000, and (ii) waive
all previously-declared defaults upon payment by PONY of $1,000,000 (the
"Paydown"). The Paydown must be made by March 8, 1999. Until PONY makes the
Paydown, PONY will be required to make periodic payments of a forbearance fee
which could total $100,000 depending on when the Paydown is ultimately made.
Once the Paydown is made, PONY will have no further liability for the
forbearance fee. Also, upon the payment by PONY of the Paydown, the loan
agreement will be amended to (x) reduce the credit line available to PONY under
the loan agreement to $3,000,000; (y) reset the interest rate for loans and
advances under the loan agreement to the prime rate of interest plus 3.0% per
annum; and (z) revise the calculation of any early termination fee payable by
PONY upon the early termination of the loan agreement to provide for the
calculation of any such fee on the basis of the maximum loan facility under the
loan agreement on the date of such termination.
Short-Term Debt-Foreign
A foreign subsidiary of the Company has a financing agreement with a bank in
London. The agreement provides borrowing for the subsidiary based on 75% of
customer receivables less than 90 days old up to a maximum of $1,700,000. The
subsidiary pays an administrative charge of .2% plus interest at the bank's base
rate (5.0% at June 30, 1999) plus 2.25%. Borrowings under the agreement
amounted to $782,012 and $870,352 at June 30, 1998 and 1999.
Founders Loan
On June 3, 1999, the Company completed a loan agreement, with Founders
Equity Group, Inc., in the amount of $3,000,000 that is due and payable October
1, 1999 unless extended (the "Founders Loan"). The Founders Loan bears interest
at the rate of 10% per annum. The Founders Loan can be converted into 600,000
shares of the Company's common stock plus warrants to purchase 375,000 shares of
common stock at an exercise price of $5.00 per share.
The Company granted the Founders lenders three-year warrants to purchase
375,000 shares of the Company common stock at an exercise price of $5.00 per
share. In conjunction with the placement of the financing, the Company paid a
facilitation fee of $150,000 and three-year warrants to purchase 75,000 shares
of the Company's Common Stock at an exercise price of $5.00 per share. As
security for its repayment obligations under the Founders Loan, the Company
granted a security interest on all of its assets, including without limitation,
the assets of any current subsidiaries and any subsidiaries which are acquired
subsequent to the completion of the financing, provided, however, that such
interest is junior to the interests of certain other creditors of the Company.
On November 3, 1999 the Company signed an amendment to the Founders Loan,
which extended the due date to July 1, 2000, in consideration for the Company
reducing the Founders Loan by $500,000. In addition, the Company has agreed to
pay interest on the Founders Loan at the rate of 18% from October 1, 1999 and
issue, as additional consideration, 150,000 shares of the Company's Common
Stock. The Company also issued, to the placement agent, three-year warrants to
purchase 300,000 shares of its Common Stock at an exercise price of $5.00 per
share, subject to vesting based on repayment of the Founders Loan.
The amended Founders Loan requires the Company to prepay $1,000,000 in the
event the Company receives net proceeds of at least $5,000,000 from any debt
transaction (other than refinancing of the Company's senior line of credit) or
subsequent equity financings, and an additional $1,500,000 if the net proceeds
from such financings is at least $6,000,000.
See Note 13 - Subsequent Events.
F-13
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Long-Term Debt
Long-term debt consists of:
<TABLE>
<CAPTION>
June 30,
--------------------------------
1998 1999
--------------------------------
<S> <C> <C>
Promissory notes, payable in monthly installments
with an interest rate of 18%, due June 2004 $ 350,000 $ 200,000
Creditors debt, non-interest bearing debt, payable
in annual installments, maturing June 2001 100,000 100,000
Term note, payable in 60 monthly installments of
$21,583 with interest at prime + 1%, maturing in 2001 - 1,090,232
Internal Revenue Service debt, payable in sixty equal
monthly principal and interest payments of $4,511
with interest charged at 8.0%, due May 2001 138,649 -
California State Employment Development Department
debt, payable in sixty equal monthly principal and
interest payments of $3,402 with interest charged
at 8.0%, due April 2001 100,792 -
--------------------------------
689,441 1,390,232
Amount due within one year (236,619) (530,509)
--------------------------------
Total long-term debt $ 452,822 $ 859,723
================================
</TABLE>
Annual maturities of long-term obligations as of June 30, 1999 are as
follows:
<TABLE>
<CAPTION>
Years ending June 30, Amount
----------
<S> <C>
2000 $ 530,509
2001 613,910
2002 144,085
2003 46,332
2004 55,396
----------
$1,390,232
==========
</TABLE>
F-14
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Stockholders' Equity
Common Stock
During December 1997, the Company completed a private placement of 451,500
shares of its common stock at $1.14 per share. The Company received net
proceeds of $398,158 after deducting offering costs of $119,132.
On December 9, 1998, the Company signed a letter of intent with a Placement
Agent for the purpose of offering (the "Offering") up to 2,000,000 shares of
Common Stock, par value $.0001 per share (the "Shares"), at a purchase price of
$2.00 per Share on a "best efforts, 1,000,000 Shares or none" basis. On
February 19 and March 5, 1999, the Company conducted closings with respect to
the Private Placement resulting in the issuance of an aggregate of 1,325,500
shares of Common Stock which generated net proceeds of approximately $2,139,000
(after offering costs of approximately $512,000).
See Note 2 regarding shares of Common Stock issued to acquire PONY and
Fleet.
Convertible Preferred Stock
During April 1999, the Company completed a private placement through the
issuance of an aggregate of 500,890 Units consisting of an aggregate of
2,003,560 Series A Convertible Preferred Stock and warrants to purchase an
aggregate of 500,890 shares of Common Stock at an exercise price of $5.00 per
share which generated net proceeds (after offering costs of approximately
$680,000) of approximately $3,920,000. The Series A Shares are convertible into
2,003,560 shares of Common Stock within two (2) years from the date of issuance.
The Series A Convertible Preferred Stock can be converted in shares of Common
Stock on a one share for one share basis.
See Note 2 regarding shares of Series B Convertible Preferred Stock issued
to acquire PONY.
Debt Conversion
During the year ended June 30, 1999, the Company received proceeds from
short-term notes of $950,000. In addition, on October 14 and November 30, 1998,
the Company received proceeds from short-term borrowings in the amount of
$245,000 from a corporate officer. During the year ended June 30, 1999,
outstanding indebtedness of $1,195,000, including accrued interest, was
converted, by the holders, into 597,500 shares of the Company's common stock. Of
these shares, 495,000 were issued to related parties.
Stock Warrants
The Company issued a total of 1,583,439 stock purchase warrants in
connection with various financings during 1999. 132,549 were issued at $3.00 per
share and expire in 2004, and 1,450,890 were issued at $5.00 per share and
expire in 2002. At June 30, 1999, these warrants are exercisable to purchase
1,549,690 shares of the Company's common stock.
Stock Awards Plan
During November 1998, the Company adopted the 1998 Incentive Stock Option
Plan (the "Plan") which permits the Company to grant options to purchase shares
of the Company's Common Stock. The Plan covers an aggregate of shares equal to
10% of the Company's outstanding Common Stock (currently 1,947,350).
F-15
<PAGE>
Note 6. Stockholders' Equity (Continued)
During the year ended June 30, 1999, options to purchase 977,000 shares
were granted at a weighted average exercise price of $3.53 per share, which was
at or above fair market value at the date of grant. Of these grants,
approximately 973,600 are outstanding as of June 30, 1999, of which
approximately 310,000 are exercisable at $3.125. The number of shares of Common
Stock available for granting future options as of June 30, 1999 under the 1998
Plan was 973,750.
Non-Plan Options
The Company has from time to time awarded stock options not covered under
the 1998 Incentive Stock Option Plan. These options have terms varying from
three to five years, are exercisable over periods up to 5 years, and have prices
that approximated the fair value on the date granted.
During the year ended June 30, 1999, 2,540,000 shares were granted as
follows: 1,800,000 shares at $3.00 per share with vesting of 100,000 after one
year; 1,500,000 shares after two years; 100,000 shares after three years and
100,000 shares after four years from date of grant. In addition, options to
purchase 740,000 shares were issued in June 1999 at a weighted average exercise
price of $7.82 per share. As of June 30, 1999, none of these options are
exercisable.
Information relating to stock warrants and options at June 30, 1999
summarized by exercise price is as follows.
<TABLE>
<CAPTION>
Outstanding Exercisable
Weighted Average Weighted Average
--------------------------------------- -------------------------------------
Exercise Price Life Exercise Exercise
Per Share Shares (years) Price Shares Price
- ---------------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
$3.00 1,932,549 4.67 $3.00 - $3.00
$3.31 927,600 9.50 $3.31 309,200 $3.31
$5.00 1,500,890 3.00 $5.00 1,450,890 $5.00
$6.50 600,000 3.50 $6.50 - $6.50
$7.38 11,000 9.75 $7.38 - $7.38
$7.75 90,000 3.50 $7.75 - $7.75
$8.13 35,000 9.75 $8.13 - $8.13
--------------------------------------- -------------------------------------
$3.00 to $8.13 5,097,039 3 to 9.75 $4.05 1,760,090 $3.31 to $5.00
======================================= =====================================
</TABLE>
F-16
<PAGE>
Note 6. Stockholders' Equity (Continued)
All stock options and warrants issued to employees have an exercise price
not less that the fair value of the Company's Common Stock on the date of grant.
In accordance with accounting for the warrants and options utilizing the
intrinsic value method, there is no related compensation expense recorded in the
Company's financial statements for the year ending June 30, 1999. Had the
compensation cost for stock based compensation been determined based on the fair
value of the options and warrants at the grant dates consistent with SFAS 123,
the Company's net income and earnings per share for the years ending June 30,
1999 would have been reduced to the proforma amounts presented below:
<TABLE>
<S> <C>
Net loss - as reported $ (5,319,278)
Net loss - proforma (4,235,278)
Net loss per share - as reported $ (0.32)
Net loss per shares - proforma (0.25)
</TABLE>
The fair value of the warrants and options is estimated as of the date of
grant utilizing the Black-Scholes option-pricing model with the following
weighted average assumptions for grants in 1999: expected life of warrants and
options of 3-10 years, expected volatility of 58.50%, risk free interest rates
of 4.18%-5.7% and a 0% dividend yield.
Note 7. Income Taxes
The income tax provision (benefit) in the consolidated statement of
operations consists of the following components:
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------
1997 1998 1999
---------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ - $ - $ -
State - - 8,770
Foreign (85,600) 185,404 (99,154)
---------------------------------------------------
Total $ (85,600) $ 185,404 $ (90,384)
===================================================
</TABLE>
Deferred tax assets - net included in the consolidated balance sheets are as
follows:
<TABLE>
<CAPTION>
June 30,
-------------------------------------
1998 1999
-------------------------------------
<S> <C> <C>
Temporary differences resulting in future deductible amounts $ 184,842 $ 1,685,199
Federal net operating loss carryforwards 459,407 1,526,197
State net operating loss carryforwards 83,802 100,049
-------------------------------------
Deferred tax assets 728,051 3,311,445
Deferred tax liability (6,198) (18,246)
Valuation allowance (721,853) (3,293,199)
-------------------------------------
Deferred tax assets - net $ - $ -
=====================================
</TABLE>
F-17
<PAGE>
Note 7. Income Taxes (Continued)
At June 30, 1999 and 1998, management provided a 100% valuation allowance
against the net deferred tax asset due to the indeterminate nature of the
Company's ability to realize this deferred asset.
Reconciliation of the provisions for income taxes to the expected income
tax based on the statutory rates are as follows:
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------
1997 1998 1999
-------------------------------------------------
<S> <C> <C> <C>
Provision (benefit) - Federal statutory rate $ (42,713) $ 119,494 $ (1,839,285)
Change in valuation allowance - - 2,571,346
Increase (decrease) in income tax resulting from
Foreign taxes (42,887) 65,910 (822,445)
-------------------------------------------------
$ (85,600 ) $ 185,404 $ (90,384)
=================================================
</TABLE>
At June 30, 1999, the Company has approximately $4.5 million of federal net
operating loss carryovers (expiring through 2019) and approximately $1.7 million
of state net operating loss carryovers (expiring through 2004) which may be
available to reduce future taxable income. Section 382 of the Internal Revenue
Code of 1986, as amended ("IRC") may reduce the extent to which net operating
loss carryforwards may be utilized in the event there has been an "ownership
change" of a company as defined by the applicable IRC provisions.
The Company believes that such changes may have occurred in 1999 and
intends to analyze the impact of such transfers on the continued availability,
for tax purposes, of the Company's net operating losses incurred through
June 30, 1999. Future ownership changes, as defined by the IRC, may reduce the
extent to which any net operating losses may be utilized.
Income taxes have been provided for foreign operations based upon the
various tax laws and rates of the countries in which the Company's operations
are conducted. There is no direct relationship between the Company's overall
foreign income tax provision and foreign pre-tax book income due to the
different methods of taxation used by countries throughout the world. There were
no undistributed earnings of the Company's foreign subsidiaries as of
June 30, 1999.
F-18
<PAGE>
Note 8. Commitments and Contingencies
The Company leases its facilities under noncancellable operating leases,
which expire at various dates through July 2016. Future minimum payments, by
year and in the aggregate, under noncancellable operating leases with initial or
remaining terms of one year or more consist of the following at June 30, 1999:
<TABLE>
<CAPTION>
Operating
Year Leases
---- -------------
<S> <C>
2000 $ 2,555,259
2001 1,731,543
2002 1,212,441
2003 917,324
2004 538,464
Thereafter 2,453,379
-------------
Total minimum lease payments $ 9,408,410
=============
</TABLE>
In October 1998, three executive officers signed employment agreements for
periods ranging from one to three years and providing for aggregate annual
compensation of approximately $500,000, plus benefits. In addition, five-year
options to purchase an aggregate of 1,400,000 shares of restricted common stock
at an exercise price of $3.00 per share were issued to two executive officers.
Five-year options to purchase 400,000 shares of restricted common stock at an
exercise price of $3.00 per share were issued to a principal stockholder. In
April 1999, an executive officer of a foreign subsidiary signed an employment
agreement for a period of three years providing for annual compensation of
$240,000. In June 1999, three executive officers signed employment agreements
for a periods ranging from one to two years providing for aggregate annual
compensation of approximately $550,000, plus benefits. In addition, ten-year
options to purchase 600,000 shares of restricted common stock at an exercise
price of $6.50 per share and 35,000 shares of restricted common stock at an
exercise price of $7.75 per share were issued to the two executive officers
In March 1999, the Company signed an agreement for the development of a new
computerized tracking information system. The contract provides for maintenance
and development services for a period of five years at the rate of approximately
$26,000 per month.
Note 9. - Supplemental Cash Flow Information
<TABLE>
<CAPTION>
June 30,
--------------------------------------------
1997 1998 1999
--------------------------------------------
<S> <C> <C> <C>
Cash paid for interest $ 165,638 $ 191,112 $ 197,035
Cash paid for income taxes - 230,487 88,256
Non-cash investing and financing activities:
Issuance of stock related to acquisitions - - 6,170,054
Assumption of liabilities related to acquisitions - - 12,416,373
============================================
</TABLE>
During the year ended June 30, 1999, the Company enhanced its liquidity
through the repayment of an aggregate of $1,195,000 of outstanding indebtedness
through the issuance of 597,500 shares of Common Stock.
F-19
<PAGE>
Note 10. - Related Party Transactions
During September 1997, a major shareholder loaned the Company $100,000 in
the form of a non-interest bearing demand note. The note was repaid from
proceeds in connection with the merger described in Note 1. During the year
ended June 30, 1998 and 1999, the Company paid a major shareholder consulting
fees amounting to $10,000 and $ 76,000.
See Note 13. - Subsequent Events
Note 11. - Geographic Information
The Company operates in one principal industry segment: the delivery of
time sensitive documents and packages. Net sales to customers are aggregated
based on the geographic area in which the sales originate. A summary of the
Company's geographic information is presented below:
<TABLE>
<CAPTION>
United United
States Kingdom Australia Other Total
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales to customers 1999 $13,017,877 $22,390,015 $5,506,507 $ 96,898 $41,011,297
1998 5,962,396 21,250,613 4,625,910 - 31,838,919
1997 7,597,883 24,079,365 4,474,515 - 36,151,763
Operating income (loss) 1999 (3,057,591) (653,865) 382,859 (75,704) (3,404,301)
1998 (384,849) 630,936 334,890 - 580,977
1997 107,664 (381,347) 244,176 - (29,507)
Identifiable assets 1999 40,095,998 2,947,058 1,205,965 266,140 44,515,161
1998 882,250 5,066,925 936,640 - 6,885,815
1997 918,546 6,199,922 985,603 - 8,104,071
</TABLE>
Note 12. - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to Write-offs Balance at
beginning of costs and Acquired against end of
Description period expenses Companies reserve Period
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for possible losses
Year ended June 30,
1999 $ 734,257 $516,557 $1,546,300 $ 3,222 $2,800,336
1998 1,016,921 400,955 - (683,619) 734,257
1997 999,506 329,841 - (312,426) 1,016,921
</TABLE>
F-20
<PAGE>
Note 13. Subsequent Events
On August 13, 1999, the Company completed a $1,000,000 short-term bridge
financing (the "Bridge Loan"). The Bridge Loan will bear interest at 10% per
annum and is due and payable on November 11, 1999. In addition, the Company
issued 75,000 shares of its Common Stock in further consideration. In addition,
the Company granted the placement agent the right to designate a nominee to the
Board of Directors.
During September and October 1999 the Company received approximately
$2,200,000 in unsecured loans due on demand. The notes bear interest at 10% per
annum. The Company paid financing fees of 5% of the amounts borrowed and issued
199,763 shares of Common Stock as additional consideration.
On November 9, 1999, the Company completed a $9,000,000 private placement
of convertible debt financing, which included the Bridge Loan, described above,
due in January 2001 (the "Convertible Debt"). The Convertible Debt bears
interest at 10% per annum. The Convertible Debt is convertible into shares of
the Company's Common Stock at the conversion rate of $5.00 per share through
December 20, 1999 and $1.00 per share thereafter until the debt is repaid or
converted into Common Stock. The Company paid a placement fee of 5.0% to its
financial advisor in the transaction and will be required to pay an additional
placement fee of 3.0% if the Convertible Debt is converted into Common Stock.
The Company also granted the right to the placement agent to nominate two
additional members of the Company's Board of Directors.
In addition, the Company issued 300,000 shares of its Common Stock and a
warrant to purchase 500,000 shares of Common Stock at a price of $5.00 per
share. The Debt is secured by a second priority interest in all of the Company's
assets not previously secured. The net proceeds will be utilized for working
capital purposes.
F-21
<PAGE>
EXHIBIT 3.4
AMENDMENT TO BYLAWS OF SKYNET HOLDINGS, INC.
NOVEMBER 2, 1999
Pursuant to the action of the Board of Directors of SkyNet Holdings, Inc.
taken on November 2, 1999, the Bylaws of the Corporation were amended to amend
Section 3.2 thereof to read as follows:
3.2 Number; Election and Tenure.
---------------------------
The number of directors which shall constitute the whole Board shall
be determined by resolution of the Board of Directors. The first
Board shall consist of one (1) director. Thereafter, the number of
directors shall be determined by resolution of the Board of Directors
but shall not exceed seven (7). The directors shall be elected at the
annual meeting of the stockholders, except as provided in Section 3 of
this Article, and each director elected shall hold office until his
successor is elected and qualified or until his earlier resignation or
removal. Any director may resign at any time upon written notice to
the Corporation. Directors need not be stockholders.
___________________________________
Secretary
<PAGE>
EXHIBIT 3.5
AMENDMENT TO BYLAWS OF SKYNET HOLDINGS, INC.
NOVEMBER 2, 1999
Pursuant to the action of the Board of Directors of SkyNet Holdings, Inc.
taken on November 2, 1999, the Bylaws of the Corporation were amended to amend
Section 3.7 thereof to read in its entirety as follows
3.7 Quorum and Voting.
-----------------
Except as may be otherwise specifically provided by statute
or by the Certificate of Incorporation, a majority of the
total number of directors shall constitute a quorum for the
transaction of business. A vote of the majority of directors
present at any meeting at which a quorum is present shall be
the act of the Board of Directors."
______________________________
Secretary
<PAGE>
EXHIBIT 10.2
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT is made as of August 2,
1999 by and between SKYNET HOLDINGS, INC., a Delaware corporation (the
"Company") and VJEKOSLAV NIZIC, an individual (the "Executive").
W I T N E S S E T H
-------------------
WHEREAS, the Company and the Executive are parties to an Employment
Agreement dated as of October 14, 1998 (the "Employment Agreement"); and
WHEREAS, the Company and the Executive desire to revise the Employment
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual premises and covenants
of the parties contained in this Agreement, the parties hereto do hereby agree
as follows:
1. Employment and Term
-------------------
The first sentence of Section 1.A of the Employment Agreement is
hereby revised to provide in its entirety as follows:
"The Company hereby employs Executive and Executive hereby accepts
employment by the Company as its President and Chief Operating
Officer."
2. Duties.
------
Section 2 of the Employment Agreement is hereby amended to provide in
its entirety as follows:
"During the Term, Executive shall use his best efforts to perform
all duties required in furtherance of his position."
3. The parties hereto agree that all other terms and conditions of
the Employment Agreement shall continue in full force and effect.
4. This Amendment may be executed in counterpart and the counterpart,
taken together, shall constitute the entire Amendment. The Amendment may be
executed and delivered by facsimile transmission, and the facsimile signatures
may be deemed original signatures for all purposes, including for purposes of
the Best Evidence Rule and all other rules and doctrines of similar effect.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed on the date first above written.
SKYNET HOLDINGS, INC.
By: /s/ BYRON HOGUE
-------------------------------
Byron Hogue
Chairman
/s/ VJEKOSLAV NIZIC
----------------------------------
Vjekoslav Nizic
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT is made as of November 1,
1999 by and between SKYNET HOLDINGS, INC., a Delaware corporation (the
"Company") and VJEKOSLAV NIZIC, an individual (the "Executive").
W I T N E S S E T H
-------------------
WHEREAS, the Company and the Executive are parties to an Employment
Agreement dated as of October 14, 1998, as amended by Amendment No. 1 to
Employment Agreement dated as of August 2, 1999 (as amended, the "Employment
Agreement"); and
WHEREAS, the Company and the Executive desire to revise the Employment
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual premises and covenants
of the parties contained in this Agreement, the parties hereto do hereby agree
as follows:
1. Employment and Term
-------------------
The first sentence of Section 1.A of the Employment Agreement is
hereby revised to provide in its entirety as follows:
"The Company hereby employs Executive and
Executive hereby accepts employment by the Company
as its Executive Vice President- Global Business
Development."
2. The parties hereto agree that all other terms and conditions of
the Employment Agreement shall continue in full force and effect.
3. This Amendment may be executed in counterpart and the
counterpart, taken together, shall constitute the entire Amendment. The
Amendment may be executed and delivered by facsimile transmission, and the
facsimile signatures may be deemed original signatures for all purposes,
including for purposes of the Best Evidence Rule and all other rules and
doctrines of similar effect.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed on the date first above written.
SKYNET HOLDINGS, INC.
By: /s/ BYRON HOGUE
-------------------------------
Byron Hogue
Chairman
/s/ VJEKOSLAV NIZIC
----------------------------------
Vjekoslav Nizic
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of the 7th day of June, 1999, by and between
SkyNet Holdings, Inc. ("SkyNet"), a Delaware corporation (hereinafter
"Company"), and JOHN T. LUFT, an individual (hereinafter "Executive").
W I T N E S S E T H:
-------------------
WHEREAS, the Executive agreed to become employed with the Company upon the
terms and conditions herein contained.
NOW, THEREFORE, in consideration of the mutual premises and covenants of
the parties contained within this Agreement, the parties hereto, do hereby agree
as follows:
1. Employment and Term.
-------------------
A. The Company hereby employs Executive and Executive hereby accepts
employment by the Company as its Vice President-Global Marketing. Executive
agrees to serve the Company in such capacity, subject to the terms and
conditions of this Agreement, for a term, commencing on the date hereof and
expiring two years from the date of this Agreement (the "Term"). The Term will
be subject to automatic one year extensions if not terminated by the end of the
then current year of employment.
2. Duties.
------
A. During the Term, Executive shall use his best efforts to perform
all duties required in furtherance of his position, including without limitation
all such duties as are customarily associated with such position or as are
assigned to him from time to time by the Board of Directors of the Company.
B. Executive shall diligently and faithfully devote his entire time,
energy, skill, and best efforts to the performance of his duties under this
Agreement. Executive shall conduct himself at all times so as to advance the
best interests of the Company, and shall not undertake or engage in any other
business activity or continue or assume any other business affiliations which
conflict or interfere with the performance of his services hereunder without the
prior written consent of the Board of Directors. Executive also agrees that he
shall not usurp or misappropriate, either to himself, or to any other person or
entity, any corporate or other opportunities that would otherwise be available
to the Company.
3. Compensation.
------------
A. The Company shall pay Executive and Executive shall accept, as his
base compensation for all services rendered to the Company pursuant hereto, a
salary of $125,000 on
<PAGE>
an annualized basis to be paid in accordance with the general payroll practices
of the Company as from time to time in effect. Executive shall also be entitled,
subject to the terms and conditions of particular plans and programs, to all
fringe benefits afforded to other senior executives of the Company, including
the right to participate in any pension, retirement, major medical, group
health, accident and life insurance and other employee benefit programs made
generally available from time to time, by the Company.
B. In addition to his base compensation, Executive may be awarded an
annual discretionary bonus on the basis of merit performance in the discretion
of the Company's Board of Directors or Compensation Committee thereof. (See
Compensation Package Exhibit A)
C. Executive may also be entitled to participate in any stock option
programs adopted by the Company to the extent determined on a discretionary
basis by the Board of Directors or Compensation Committee thereof. (See
Compensation Package Exhibit A)
D. Executive shall be reimbursed for all such reasonable expenses as
are directly incurred for the business of the Company upon presentation by
Executive of an itemized account of such expenditures, but only to the extent
that such expenses are deductible to the Company pursuant to the provisions of
the Internal Revenue Code of 1986, as amended, and all rules and regulations
promulgated thereunder.
4. Vacations, Holidays, Sick Days.
A. Executive shall receive three (4) weeks of paid vacation in each
calendar year, to be taken at times which do not unreasonably interfere with the
performance of the Executive's duties hereunder and in no event shall Executive
schedule more than ten (10) consecutive days of vacation during any three month
period without the prior written consent of the President of the Company.
B. Executive shall be also entitled to those holidays and compensated
sick leave days as are allowed for by the policy of the Company.
5. Termination.
-----------
A. Executive's employment and rights to compensation hereunder shall
terminate immediately if Executive voluntarily leaves the employment of the
Company, except that the Company shall have the obligation to pay Executive such
portion of his base salary and other benefits provided for in Section 3 hereof
as may be accrued but unpaid on the date Executive voluntarily leaves the
employment of the Company. In the event that Executive voluntarily leaves the
employment of the Company, he shall provide at least sixty (60) days' written
notice.
B. Executive's employment and rights to compensation hereunder shall
terminate immediately upon the death of Executive. If the Executive is unable,
for reasons of illness, disability or other causes, to carry out or perform the
duties required of him hereunder continuously for three (3) months or
intermittently for an aggregate of one hundred twenty (120)
2
<PAGE>
days in a calendar year during the term of this Agreement; Executive's
employment and rights to compensation shall terminate on the first day after the
conclusion of such time period. Notwithstanding the foregoing, the Company shall
have the obligation to pay Executive such portion of his base salary and other
benefits provided for in Section 3 hereof as may be accrued but unpaid on the
date Executive dies or the thresholds respecting the Executive's inability to
perform his duties as a result of illness or disability are reached.
C. The Company may, upon written notice to Executive giving the
reasons therefor, terminate Executive's employment and his rights to
compensation hereunder for cause. As used herein, the term "cause" shall mean
the following: conviction of Executive for any felony, fraud, embezzlement or
crime of moral turpitude, except for such conduct relating to corporate activity
to the extent that Executive would be entitled to be indemnified by the Company
for charges arising from such conduct; controlled substance abuse or drug
addiction; alcoholism which interferes with or affects Executive's
responsibilities to the Company or which reflects negatively upon the integrity
or reputation of the Company; gross negligence which is materially injurious to
the Company; any violation of any express written directions or any reasonable
written rule or regulation established by the Company's Board of Directors from
time to time, and consistent with industry standards, regarding the conduct of
its business, which violation has not been cured to the Company's satisfaction
within thirty (30) calendar days of the dispatch of written notice to the
Executive of the violation; or any violation by the Executive of any material
term or condition of this Agreement. If Executive is terminated for cause as
provided above, Executive's employment and rights to compensation hereunder
shall terminate immediately upon receipt of written notice, except that the
Company shall have the obligation to pay Executive such portion of his base
salary as may be accrued but unpaid on the date his employment is terminated.
D. Notwithstanding anything herein contained to the contrary, the
Company may terminate this Agreement upon sixty (60) days' written notice to
Executive upon the happening of any of the following events:
a) the sale by the Company of substantially all of its assets;
b) a bona fide decision by the Company to terminate its business and
liquidate its assets; or
c) the merger or consolidation of the Company in a transaction in which
the shareholders of the Company's prior to such transaction receive
less than fifty percent (50%) of the outstanding voting shares of the
new or continuing corporation after the transaction.
3
<PAGE>
If Executive's employment is terminated during the Term by virtue of this
Subsection 5.D., Executive shall be entitled to his regular compensation for the
sixty (90) day period following the date notice is given by the Company under
this Section 5.D and thereafter, Executive's employment and rights to
compensation hereunder shall terminate.
E. If Executive's employment is terminated during the Term hereof for
reasons other than those provided in Subsections 5.A., 5.B., 5.C. and 5.D.
above, Executive shall be entitled to his regular compensation for the balance
of the Term, consisting of:
(1) payment of one hundred percent (100%) of Executive's monthly
base salary payable at regular intervals in accordance with the Company's
normal payroll practices; and
(2) continuation of health insurance and fringe benefits as set
forth herein through the remainder of the Term.
F. Notwithstanding the limitations of Section 6 hereof, if Executive's
employment is terminated during the Term hereof for reasons other than those
provided by Subsections 5.A, 5.B, 5.C. or 5.D. above, the limitations set forth
in Section 6 hereafter shall only apply following the date of such termination
for all such periods during which Executive continues to receive compensation
pursuant to the terms of Subsection 5.E. or 5.G. herein.
G. If Executive's term of employment is not renewed beyond the second
year of employment (not as a result of either of Subsections 5.A., 5.B., 5.C. or
5.D.), Executive shall be entitled to receive as severance, salary continuation
of base compensation plus benefits, for a period of the longer of: (i) six (6)
months from the date Executive is notified of the non-renewal of his Employment
term; or (ii) the otherwise scheduled expiration of Executive's then current
term of employment.
6. Confidentiality and Related Matters.
-----------------------------------
A. Acknowledgment of Nature and Value of Confidential Information:
Executive recognizes and acknowledges: (a) that in the course of Executive's
employment by the Company it will be necessary for Executive to acquire, in a
fiduciary capacity of trust, information which could include, in whole or in
part, but is not limited to: information concerning the Company's rate
schedules; rate quotations; the names, addresses, credit terms and nature of
services provided by the vendors utilized by the Company; the names, addresses,
credit terms and nature of services provided to customers of the Company; the
identity of the Company's suppliers, sales representatives, shippers or other
entities with whom Executive has come into contact as a result of his employment
with the Company, or which should otherwise come into his knowledge during the
term of this Agreement; the salaries, skills, education or abilities of the
Company's employees; the Company's sales, sales volume, sales methods and sales
proposals; the identities of the Company's customers and/or prospective
customers; the identities of key purchasing personnel in the employ of customers
and prospective customers; the amounts and/or kinds of customers' purchases from
the Company; the Company's sources of
4
<PAGE>
information and supply; the Company's computer programs, system documentation,
special hardware or software, service or product hardware or software, and
related software or hardware development; the Company's manuals, formulae,
processes, methods, machines, compositions, ideas, improvements, inventions or
other information or materials relating to the Company's affairs (collectively
referred to herein as the "Confidential Information"); (b) that the Confidential
Information is the property of the Company and constitutes a major asset of the
Company; (c) that the use, misappropriation or disclosure of the Confidential
Information would constitute a breach of trust and could cause irreparable
injury to the Company; and (d) that it is essential to the protection of the
Company's goodwill and to the maintenance of the Company's competitive position
that the Confidential Information be kept secret and that Executive neither
disclose the Confidential Information to others nor use the Confidential
Information to Executive's own advantage or to the advantage of others.
B. Acknowledgment of Necessity for Protections of Company's Business.
-----------------------------------------------------------------
Executive further recognizes and acknowledges that it is essential for the
proper protection of the business of the Company, particularly in view of the
recent acquisition of SkyNet by the Company, that Executive be restrained: (a)
from soliciting or inducing any employee of the Company to leave the employ of
the Company; (b) from hiring or attempting to hire any employee of the Company;
(c) from soliciting the trade of, or trading with, the customers or suppliers of
the Company for any business purpose other than that of the Company; and (d)
from competing against the Company for a reasonable period of time and within a
reasonable geographic area following the termination or nonrenewal of
Executive's employment with the Company, as more fully addressed in Section
6.F., below.
C. Work Made For Hire. Executive further recognizes and understands
------------------
that Executive's duties at the Company may include the preparation of materials,
including without limitation written or graphic materials, and that any such
materials conceived or written by Executive shall be done as "work made for
hire" as defined and used in the Copyright Act of 1976, 17 U.S.C. (S)(S) 1 et
--
seq. In the event of publication of such materials, Executive understands that
- ---
since the work is a "work made for hire", the Company will solely retain and own
all rights in said materials, including right of copyright.
D. Non-Disclosure of Confidential Information. In recognition and
------------------------------------------
consideration of the recent acquisition of SkyNet by the Company and Executive's
employment, compensation and fringe benefits, the information which the Company
will give Executive regarding the Company's business, the Executive's
introduction to the Company's customers and prospective customers made in the
course of Executive's employment with the Company, and the carefully-guarded
methods of doing business which the Company utilizes and deems crucial to the
successful operation of its business, Executive agrees to hold and safeguard the
Confidential Information in trust and in a fiduciary capacity for the Company,
its successors and assigns. Executive expressly agrees that he shall not,
without the prior written consent of the Company, misappropriate or disclose or
make available to anyone for use outside the Company's organization at any time,
either during Executive's employment with the Company or subsequent to the
termination or nonrenewal of such employment with the Company, for any reason,
including without limitation termination by the Company for cause or without
cause, any of the
5
<PAGE>
Confidential Information, whether or not developed by Executive, except as
required by the Company in the performance of Executive's duties to the Company.
E. Disclosure of Works and Inventions/Assignment of Patents. In
--------------------------------------------------------
consideration of the promises set forth herein, Executive agrees to disclose
promptly to the Company, or to such person whom the Company may expressly
designate for this specific purpose (its "Designee"), any and all works,
inventions, discoveries and improvements authored, conceived or made by
Executive during the period of employment and related to the business or
activities of the Company, and Executive hereby assigns and agrees to assign all
of Executive's interest in the foregoing to the Company or to its Designee.
Executive agrees that, whenever he is requested to do so by the Company,
Executive shall execute any and all applications, assignments or other
instruments which the Company shall deem necessary to apply for and obtain
Letters Patent or Copyrights of the United States or any foreign country or to
otherwise protect the Company's interest therein. Such obligations shall
continue beyond the termination or nonrenewal of Executive's employment with
respect to any works, inventions, discoveries and/or improvements that are
authored, conceived of, or made by Executive during the period of Executive's
employment, and shall be binding upon Executive's successors, assigns,
executors, heirs, administrators or other legal representatives.
F. Negative Covenant. Executive covenants and agrees that, for and in
-----------------
consideration of the compensation deemed hereunder, the sufficiency and receipt
of which is hereby acknowledged, during the Term and for a period of one (1)
year following termination of employment, Executive will not, on his own behalf
or as partner, officer, director, employee, consultant, or stockholder (holding
more than ten percent (10%) of the issued and outstanding stock of any firm or
company) of any other business, either directly or indirectly, solicit customers
of the Company, or any affiliates or subsidiaries of the Company. Furthermore,
the Company is granted the right by Executive to apply to any court of competent
jurisdiction for one or more temporary or permanent injunctions enjoining
Executive, his agents and employees, from violating the provisions of this
Agreement and/or from continuing to breach such provisions.
G. No Prior Agreements. Executive represents and warrants that
-------------------
Executive is not a party to or otherwise subject to or bound by the terms of any
contract, agreement or understanding which in any manner would limit or
otherwise affect Executive's ability to perform his obligations hereunder,
including without limitation any contract, agreement or understanding containing
terms and provisions similar in any manner to those contained in this Section 6.
Executive further represents and warrants that his employment with the Company
will not under any circumstances require him to disclose or use any confidential
information belonging to prior employers or other persons or entities, or to
engage in any conduct which may potentially interfere with the contractual,
statutory or common-law rights of such other employers, persons or entities. In
the event that Executive knows or learns of any facts whatsoever which suggest
that such interference might arguably occur as the result of any proposed
actions by either Executive or the Company, Executive expressly promises that he
will immediately bring such facts to the Company's attention.
6
<PAGE>
H. Remedies. In the event of a breach by Executive of any of the
--------
terms of this Agreement, the Company shall be entitled, if it shall so elect, to
(i) mandatory arbitration or (ii) institute legal proceedings to obtain damages
for any such breach, or to enforce the specific performance of this Agreement by
Executive and to enjoin Executive from any further violation of this Agreement,
and to exercise such remedies cumulatively or in conjunction with all other
rights and remedies provided by law. Executive acknowledges and agrees that
money damages for any breach by him of any of the provisions of this Agreement
may be inadequate to compensate the Company for the injuries it may suffer as
the result of any such breach, and accordingly that the Company shall be
entitled to injunctive relief against Executive, in addition to money damages,
in the event of any such breach by Executive.
I. Review by Counsel. Executive expressly acknowledges and represents
-----------------
that Executive has been given a full and fair opportunity to review this
Agreement with an attorney of Executive's choice, and that Executive has
satisfied himself, with or without consulting with counsel, that the terms and
provisions of this Agreement, specifically including, but not limited to, the
restrictive covenant and related provisions of Section 6 hereof, are reasonable
and enforceable.
J. Return of Materials. Upon the termination or nonrenewal of
-------------------
Executive's employment with the Company for any reason, including without
limitation termination by the Company for cause or without cause, or at any time
upon demand, Executive shall promptly deliver to the Company all Company
property and materials, including without limitation all documents or other
materials constituting, containing, referencing or relating to the "Confidential
Information" referred to in this Section 6, and any other Company property of
any nature whatsoever, including without limitation correspondence, computer
disks or other electronically-stored information, drawings, blueprints, manuals,
letters, notes, notebooks, reports, flow-charts, programs, proposals and any
documents concerning the Company's customers, or concerning services, products
or processes provided by or to, or used by, the Company.
K. Company-Created Materials. All material that may be furnished to
-------------------------
the Executive, together with literature, rate schedules, customer lists, forms,
filing systems and any other property, documents or other materials furnished or
made available by the Company to the Executive, shall be and remain the property
of the Company, and shall be returned by the Executive to the Company upon any
termination or nonrenewal of employment or at any time upon demand.
L. Executive-Created Materials. All material created by the Executive
---------------------------
during the term of his employment with the Company which is incidental to or
related in any way to the Executive's employment, or to the Company's business,
shall be the property of the Company, and shall be delivered to the Company upon
any termination or nonrenewal of Executive's employment or at any time upon
demand.
M. Definitions. For purposes of this Section 6, the term,
-----------
"material(s)" shall include, but shall not be limited to, data stored in
computers, voicemail or any other electronic, magnetic, or mechanical storage
device, any passwords, codes or keys required to access all or
7
<PAGE>
any portion of such material, and the "Confidential Information" referred to in
Section 6.A. hereof.
7. Conflict of Interest.
--------------------
Executive covenants that, during the Term, he will disclose to the
Company, in writing, any and all interests he may have, whether for profit or
compensation or not, in any venture or activity which he reasonably anticipates
could potentially interfere with his ability to perform under this Agreement or
create a conflict of interest for him with the Company. For purposes of this
paragraph 7 only, "conflict of interest" shall mean ownership of greater than
five percent (5%) of, or $150,000 worth of equity in, another company which
conducts business similar to that undertaken by the Company.
8. Notices.
-------
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed, certified or registered mail, return receipt requested, with
postage prepaid, at the following addresses or to such other address as either
party may designate by like notice:
A. If to Executive, to:
SkyNet Holdings, Inc.
343 South Glasgow Avenue
Inglewood, CA 90301
B. If to Company, to:
SkyNet Holdings, Inc.
343 South Glasgow Avenue
Inglewood, CA 90301
9. Basic Indemnification.
---------------------
Company shall indemnify and defend Executive and his heirs, executors
and administrators against any costs or expense (including reasonable attorneys'
fees and amounts paid in settlement, if such settlement is approved by the
Company), fine, penalty, award, judgment and liability reasonably incurred by or
imposed upon Executive in connection with any action, suit or proceeding, civil
or criminal, to which Executive may be made a party or with which Executive
shall be threatened, by reason of Executive's being or having been an Officer or
employee to the fullest extent permitted by the Certificate of Incorporation of
the Company.
10. Additional Provisions.
---------------------
A. This Agreement, including without limitation its confidentiality,
restrictive covenant and related provisions, shall inure to the benefit of, and
be binding upon, the Company and its successors and assigns and Executive, his
heirs, executors, administrators and legal
8
<PAGE>
representatives, subject to the provisions of Section 10.F. hereof, which
expressly prohibits the assignment or delegation of any of Executive's personal
rights or obligations hereunder.
B. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof, and cannot be modified orally. This
Agreement supersedes all prior and contemporaneously-made written or oral
agreements between the parties relating to the subject matter hereof. No
modification or waiver of any of the provisions hereof shall be effective unless
set forth in a writing that specifically states that it is intended to be a
modification of this Agreement and that is signed by the President of the
Company.
C. If any provision(s) of this Agreement shall be or shall become
illegal or unenforceable in whole or in part, for any reason whatsoever, the
remaining provisions shall nevertheless be deemed valid, binding and subsisting,
and any invalid or unenforceable provision(s) shall be deemed modified to the
least extent possible so as to make them valid and enforceable and so as to give
the maximum effect allowable by law to the parties' original intent as expressed
by the terms hereof.
D. No failure on the part of the Company to exercise, and no delay by
the Company in exercising, any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise by the Company of any
right, power or remedy hereunder, preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy by the Company.
E. "Person" as used herein shall mean a natural person, joint venture,
corporation, partnership, trust, estate, sole proprietorship, governmental
agency or authority or other juridical entity.
F. This is a personal services contract and the rights and obligations
set forth herein may not be assigned or delegated by Executive, except as
otherwise specifically provided in this Agreement with respect to benefits
payable upon Executive's disability or death, without the express, written
consent of the Company.
G. The headings of the several sections of this Agreement have been
inserted for convenience of reference only and shall in no way be used to
restrict, modify, or explain any of the terms or provisions hereof.
H. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware, without regard to its, or any
other sovereignty's, conflicts of laws principles. The parties agree that any
claims brought pursuant to this Agreement shall be brought in a court of
competent jurisdiction located in Los Angeles, California.
I. Tolling Period. The non-competition, non-disclosure and non-
--------------
solicitation obligations contained in Section 6 of this Agreement shall be
extended by the length of time
9
<PAGE>
during which Executive shall have been in breach of any of the provisions of
such Section 6, regardless of whether the Company knew or should have known of
such breach.
J. Company Violation Not a Defense. In an action by the Company to
-------------------------------
enforce any provision of this Agreement, any claims asserted by Executive
against the Company shall not constitute a defense to the Company's action.
K. Construction. This Agreement shall be construed according to the
------------
plain meaning of its terms, and not strictly for or against either party hereto.
L. Release. In consideration of Executive's employment hereafter with
-------
the Company, Executive acknowledges that he has no outstanding claims for past
salary, reimbursements, or benefits of any type whatsoever against SkyNet or any
of its affiliates or subsidiaries, or that if he has such claims, they are
deemed to be waived and released.
M. Counterparts. This Agreement may be executed in counterparts, and
------------
the counterparts, taken together, shall constitute the entire Agreement. The
Agreement may further be executed by facsimile transmission, and the facsimile
signatures may be deemed original signatures for all purposes, including for
purposes of the Best Evidence Rule and all other rules or doctrines of similar
effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first above written.
IMPORTANT NOTICE: THIS AGREEMENT RESTRICTS EXECUTIVE'S RIGHTS TO OBTAIN
----------------
OTHER EMPLOYMENT FOLLOWING HIS EMPLOYMENT WITH THE COMPANY. BY SIGNING IT,
EXECUTIVE ACKNOWLEDGES THIS FACT, AND FURTHER ACKNOWLEDGES THAT HE HAS BEEN
ADVISED BY THE COMPANY TO READ THE AGREEMENT CAREFULLY, AND/OR TO CONSULT
WITH COUNSEL OF HIS CHOICE CONCERNING THE LEGAL EFFECTS OF SIGNING THE
AGREEMENT, PRIOR TO SIGNING IT.
SKYNET HOLDINGS, INC.
Dated: June 7, 1999 By: /s/ Vjekoslav Nizic
--------------------
EMPLOYEE
Dated: June 7, 1999 By: /s/ John T. Luft
--------------------
Signature
By: John T. Luft
Print Name
10
<PAGE>
(EXHIBIT A)
-----------
John T. Luft - VP Global Marketing, SkyNet Holdings Inc.
--------------------------------------------------------
________________________________________________________________________________
Base Salary $125,000.
________________________________________________________________________________
Auto Allowance $ 9,600.
________________________________________________________________________________
Stock Options 50,000++ Minimum Annually
Current Options 6,300 Hilton (HLT) shares @ $6.
(As of 5/28/99) 2,900 Park Place Entertainment (PPE) @ $6.
------------------------------------------
9,200 Total Shares @ $6. = $55,200.
50% SKYN Stock Exchange @ $6.5 Per share
= 4246 (SKYN) shares.
50% Cash = $27,600.
________________________________________________________________________________
Bonus Plan 30% Annual Base Salary
6% - Research, Reposition, and Re-launch
The Pony Express Brand in the U.S.and
International.
5% - Consolidation of Pony Express Brand
Within Fleet, Courier, and SkyNet
Domestically.
5% - Consolidation and Restructure of Pony
Express Sales & Marketing Structure
With Fleet, Courier, and SkyNet
5% - Establish and Launch an aggressive
Pony Express PR Initiative.
4% - Stabilize and grow the SkyNet -UK
Sales and Marketing Effort.
5% - Develop and launch the e-commerce
Site
11
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into effective as of the 1st
day of June, 1999, by and between Skynet Holdings, Inc., a Delaware corporation
(hereinafter referred to as "Employer"), and Byron Hogue, a resident of
Tennessee (hereinafter referred to as "Employee").
IN CONSIDERATION of the mutual promises of the parties, and other valuable
consideration, the parties agree as follows:
1. Term.
----
The Employer does hereby employ and retain the services of Employee
for a term of one (1) year commencing effective as of June 1, 1999 and ending
May 30, 2000 (hereinafter, the "Initial Term"). The Initial Term shall be
automatically extended and renewed for successive one-year periods (each year
beyond the Initial Term referred to as an "Extended Term") upon the terms and
conditions set forth within this Agreement, however, the Agreement may be
terminated by either party hereto provided no less than ninety (90) days notice
is given prior to the scheduled expiration of the Initial Term. Notwithstanding
anything to the contrary contained herein, this Agreement may be terminated at
any time following the expiration of the Initial Term by either party giving the
other party at least ninety (90) days prior written notice.
2. Duties.
------
During the term of employment, Employee shall be employed as Chairman
and shall in that capacity undertake whatever tasks as shall in good faith be
assigned to him by the Employer's Chief Executive Officer or by Employer's Board
of Directors. Employee shall devote his full productive time, energies and
abilities to the proper and efficient operation of the business of Employer and
shall not undertake or engage in any other business activity or continue or
assume any other business affiliations which conflict or interfere with the
performance of his services hereunder without the consent of Employer's Board of
Directors. Employee also agrees that he shall not usurp or misappropriate,
either to himself, or to any other person or entity, any corporate or other
opportunities that would otherwise be available to the Employer.
3. Compensation.
------------
The full compensation and remuneration of Employee for the services
provided for herein during each year of employment hereunder, shall be as
follows:
a) an annual base salary in the sum of One Hundred Seventy-Five
Dollars ($175,000), less applicable employment and withholding taxes imposed
under federal and state law, payable in accordance with the general payroll
practices of Employer, as from time to time in effect.
<PAGE>
b) interim and annual bonuses (of cash, stock and/or options), if at
all, in such amounts and upon such terms and conditions as may be determined
solely within the discretion of the Employer's Board of Directors; and
c) Common Stock Options (the "Employment Options") to purchase an
aggregate of Six Hundred Thousand (600,000) Options at an exercise price of
$6.50 which shall be subject to vesting pursuant to the provisions of Section
2.3 of that certain Option to Purchase Common Stock of Skynet Holdings, Inc.
No.1999-4 ("Option Agreement"), and Employee is subject to and agrees to be
bound by all of the terms, conditions and provisions of said Option Agreement as
though Employee were named therein as "Holder", and the issuance of options to
Employee is fully conditioned upon the issuance thereof to the Holder subject to
all contingencies stated in said Option Agreement.
4. Fringe Benefits.
---------------
a) Employee shall be entitled, subject to the terms and conditions
of particular plans and programs adopted by the Board of Directors, to all
fringe benefits generally afforded to other senior executives of the Employer,
including but not by way of limitation, the right to participate in any pension,
stock option, retirement, major medical, group health, disability, accident and
life insurance, and other employee benefit programs made generally available,
from time to time, by the Employer.
b) During the term of this Agreement, Employer shall include
Employee and his family in family health insurance coverage provided for
executive level employees of Employer, and shall pay one hundred percent (100%)
of all health insurance premiums.
5. Termination.
-----------
Employer shall have the right to terminate this Agreement by twenty
(20) days written notice after which such termination, Employer shall have no
further obligations hereunder other than the payment of accrued base salary and
reimbursement of accrued expenses, upon the occurrence of any of the following
events or circumstances:
a) death of Employee;
b) by reason of "incapacity" of Employee (which for this purpose
shall occur if Employee becomes ill or injured or otherwise becomes
incapacitated such that, in the opinion of the Board of Directors, he cannot
fully carry out and perform his employment duties, and such incapacity shall
continue for a period of 120 consecutive days); or
c) if Employee is terminated for "cause" for any of the following
events: (i) any act or omission perpetrated as the result of gross negligence or
with intent to harm the Employer or any of its affiliates or subsidiaries, or
the business of either; (ii) commission of a felony for which Employee is
convicted by a court of law; (iii) perpetration of a dishonest act or a common
law fraud against the Employer or any of its affiliates or subsidiaries, found
by a court of law; (iv) the continued refusal to follow the directives of the
Board of Directors of Employer which are made in good faith and not contrary to
law; (v) if Employee has so conducted himself
2
<PAGE>
(whether in connection with his employment or otherwise) in a manner in which it
appears, in the sole discretion of Employer's Board of Directors, that his
continued employment under the terms of this Agreement is no longer in the best
interests of the Employer; or (vi) if Employee has violated or broken any of the
covenants or obligations imposed on Employee by this Agreement.
6. Discoveries and Inventions.
--------------------------
Employee, in partial consideration of his employment and salary to be
paid to him, hereby agrees to disclose promptly to Employer, or any subsidiary,
parent, or affiliated company or its nominees, each and every discovery,
improvement and/or invention made, conceived and/or developed by him whether
during working hours or otherwise, during the entire period of his said
employment, which discoveries, improvements and/or inventions are capable of use
in any way in connection with the business of the Employer and for the same
consideration, Employee does hereby grant and convey to Employer or its nominee,
the entire right, title and interest, domestic and foreign, or such lesser
interests as such Employer at its option in any particular case may choose to
accept, in and to each or all of said discoveries, improvements and/or
inventions; and he does further agree to sign all applications for patents or
copyrights, and to execute and deliver all assignments and other documents, and
to perform all acts and do all things necessary to make this Agreement and the
said grant and conveyance effective with respect to particular discoveries,
improvements and/or inventions.
7. Expenses.
--------
Employer agrees to reimburse Employee for all ordinary and necessary
out-of-pocket expenses incurred in connection with his employment hereunder upon
the presentation by Employee, from time to time, of an itemized account of such
expenditures; but only to the extent that such expenses are deductible to
Employer pursuant to the U.S. Internal Revenue Code.
8. Vacation.
--------
Employee shall be entitled each year to a vacation [of up to four (4)
weeks], during which time his compensation shall be paid in full. Employee
shall use his best efforts, however, not to schedule any such vacations at a
time when either the Chief Executive Officer or Chief Operating Officer of
Employer is also on vacation or is otherwise out of the office. Furthermore,
Employee shall not, without the consent of Employer, schedule a vacation of more
than two (2) weeks in any three (3) month period.
9. Confidential Information.
------------------------
a) Employee acknowledges and agrees that all confidential
information, trade secrets, names of customers, suppliers, financial, accounting
or administrative information, business procedures or other information or
knowledge which is made known to Employee during the course of his employment by
Employer or any of its subsidiaries is confidential and the property of the
Employer;
3
<PAGE>
b) Employee agrees that during the term of his employment by
Employer, and at all times thereafter forever, except in the ordinary course of
fulfilling Employee's assigned duties and obligations, Employee shall not,
without the prior express, written consent of the Employer, publish, disclose or
make known to anyone, or make any use of or authorize, assist, or enable anyone
else to publish or disclose or make use of, any confidential information or
Employer property, including, but not limited to, trade secrets, names of
customers, suppliers, financial, accounting or administrative information,
business procedures or any other information or knowledge which becomes known to
Employee as the result of or during his employment by the Employer.
10. Other Termination Provisions.
----------------------------
Notwithstanding anything herein contained to the contrary, Employer
may terminate this Agreement upon thirty (30) days' written notice to Employee
upon the happening of any of the following events:
a) the sale by Employer of substantially all of its assets;
b) a bona fide decision by Employer to terminate its business and
liquidate its assets; or
c) the merger or consolidation of Employer in a transaction in which
the shareholders of Employer receive less than fifty percent (50%) of the
outstanding voting shares of the new or continuing corporation.
11. Negative Covenant.
-----------------
For a period of one (1) year following: (i) termination of this
Agreement either due to expiration of the Initial Term or the Extended Term, or
for any other reason identified in this Agreement, or (ii) the voluntary
resignation of Employee, Employee will not, on his own behalf or as partner,
officer, director, employee, consultant, or stockholder (holding more than ten
percent (10%) of the issued and outstanding stock of any firm or company) of any
other business, either directly or indirectly, solicit any "active customers" of
Employer, or any affiliates or subsidiaries of Employer (for the purposes of
this Paragraph 11, defined in the aggregate as the "Company"), or perform any
work, services, or labor for or on behalf of any firm or company engaged in any
business competitive with or similar to the business of the Company in any state
or foreign country where the Company does business. Accordingly, the Company is
granted the right by Employee to apply to any court of competent jurisdiction
for one or more temporary or permanent injunctions enjoining Employee, his
agents and employees, from violating the provisions of this Agreement and/or
from continuing to breach such provisions. For the purposes of this paragraph
11, the term "active customer" shall mean any current customers of the Company,
or any customers or prospective customers of the Company within the twelve
months immediately preceding the date of termination or nonrenewal of this
Agreement or Employee's resignation.
4
<PAGE>
12. Miscellaneous.
-------------
a) Entire Agreement. This Agreement embodies the entire agreement
----------------
between the parties hereto relative to the subject matter hereof and shall not
be modified, changed or altered in any respect except in writing signed by both
parties to this Agreement.
b) Benefits. This Agreement shall inure to the benefit of and be
--------
binding upon the parties hereto and their respective next of kin, legatees,
administrators, executors, legal representatives, successors and permitted
assigns.
c) Attorneys Fees. In the event either party is required to obtain
--------------
the services of any attorney to enforce the provisions of this Agreement, the
prevailing party shall be entitled to its reasonable costs and attorney's fees
including expert witness fees, and costs of investigation.
d) Illegal Contract. In case any provision of this Agreement shall
----------------
be held invalid, illegal or unenforceable, in whole or in part, neither the
validity of the remaining part of such provision, nor the validity of any other
provision of this Agreement shall in any way be affected thereby.
e) Waiver. A waiver of any breach of this Agreement, or of any of
------
the terms or conditions by either party thereto, shall not be deemed a waiver of
any repetition of such breach or in any way affect any other terms or conditions
hereof. No waiver shall be valid or binding unless it shall be in writing
signed by the parties.
f) Binding Effect. This Agreement, when executed by one duly
--------------
authorized officer of the corporation, shall bind the corporation and its
successors and assigns.
g) Successors and Assigns. Unless otherwise provided for, this
----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto,
and their respective successors in interest and assigns, but in no event shall
any party be relieved of its obligations hereunder without the express written
consent of each other party.
h) Governing Law. This Agreement shall be governed by the laws of
-------------
the State of Delaware. Each party hereby expressly and irrevocably consents to
the jurisdiction of the courts located in the City in which the executive
headquarters of Employer is located, and any action hereunder may be commenced
and tried only in a court of competent jurisdiction located in the City in which
Employer's executive headquarters is located.
i) Time. Time is of the essence of this Agreement and each and
----
every provision hereof. Any extension of time granted for the performance of any
duty under this Agreement shall not be considered an extension of time for the
performance of any other duty under this Agreement.
j) Notices. Any notice to any party under this Agreement shall be
-------
in writing, shall be effective on the earlier of (i) the date when received by
such party, or (ii) the date which
5
<PAGE>
is three (3) days after mailing (postage prepaid) by certified or registered
mail, return receipt requested, to the address of such party set forth as
follows:
To: EMPLOYER
Skynet Holdings, Inc.
343 Glasgow Avenue
Inglewood, CA 90301
Attn: Vjekoslav Nizic,
Chief Executive Officer
With a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center
14th Floor
1835 Market Street
Philadelphia, PA 19103
To: EMPLOYEE
Byron Hogue
_________________________
_________________________
_________________________
k) Additional Acts and Documents. Each party hereto agrees to do
-----------------------------
all such things and take all such actions, and to make, execute and deliver such
other documents and instruments, as shall be reasonably requested to carry out
the provisions, intent and purpose of this Agreement.
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IN WITNESS WHEREOF the parties hereto have duly executed this
Agreement the day and year first above written.
EMPLOYER:
SKYNET HOLDINGS, INC.
By: /s/ Vjekoslav Nizic
----------------------------------
Vjekoslav Nizic,
Chief Executive Officer
EMPLOYEE:
/s/ Byron Hogue
-----------------------------------
Byron Hogue
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EXHIBIT 10.7
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT is made and entered into as of
the August 2, 1999, by and between SKYNET HOLDINGS, INC., a Delaware corporation
(hereinafter referred to as "Employer"), and BYRON HOGUE, a resident of
Tennessee (hereinafter referred to as "Employee").
W I T N E S S E T H
-------------------
WHEREAS, Employer and Employee are parties to a certain Employment
Agreement dated as of June 1, 1999 (the "Employment Agreement"); and
WHEREAS, Employer and Employee now wish to amend the Employment Agreement
on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual promises of the parties, and
other valuable consideration, the parties agree as follows:
1. Duties.
------
The first sentence of Paragraph 2 of the Employment shall be deleted
in its entirety and replaced with the following sentence:
"During the term of employment, Employee shall be employed as Chairman
and Chief Executive Officer and shall in that capacity undertake
whatever tasks as shall in good faith be assigned to him by the
Employer's Board of Directors."
2. Miscellaneous.
-------------
(a) Other than as set forth above, all other terms and conditions of
the Employment Agreement shall remain in full force and effect.
(b) This Amendment may be executed in counterpart and the
counterpart, taken together, shall constitute the entire Amendment. The
Amendment may be executed and delivered by facsimile, and the facsimile
signatures may be deemed original signatures for all purposes, including for
purposes of the Best Evidence Rule and all other rules and doctrines of similar
effect.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement the
day and year first above written.
EMPLOYER:
SKYNET HOLDINGS, INC.
By: /s/ VJEKOSLAV NIZIC
---------------------------------------
Vjekoslav Nizic
President and Chief Operating Officer
EMPLOYEE:
/s/ BYRON HOGUE
------------------------------------------
Byron Hogue
<PAGE>
EXHIBIT 10.11
Certificate No. 1999-4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION,
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN OPINION LETTER OF
COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION.
OPTION TO PURCHASE COMMON STOCK
SKYNET HOLDINGS, INC.
Void after December 31, 2002
This certifies that, for value received, Byron Hogue ("Holder"), is
entitled, subject to the terms set forth below, to purchase from Skynet
Holdings, Inc. (the "Company"), a Delaware corporation, shares of the Common
Stock of the Company (the "Shares"), as constituted on the date hereof (the
"Option Issue Date"), with the Notice of Exercise attached hereto duly executed,
and simultaneous payment therefor in lawful money of the United States, at the
Exercise Price as set forth in Section 2 below. The number, character and
Exercise Price of the shares are subject to adjustment as provided below.
1. Term of Option. Subject to compliance with the vesting provisions
identified at Paragraph 2.3 hereafter, this Option shall be exercisable, in
whole or in part, during the term commencing on the Option Issue Date and ending
at 5:00 p.m. on December 31, 2002, and shall be void thereafter.
2. Exercise Price, Number of Shares and Vesting Provisions.
2.1 Exercise Price. The Exercise Price at which this Option, or
portion thereof, may be exercised shall be $6.50 per share, as adjusted pursuant
to Section 11 hereof.
2.2 Number of Shares. Provided Holder vests in the Options in the
manner identified at paragraph 2.3 below, the number of shares of the Company's
Common Stock ("Common Stock") which may be purchased pursuant to this Option
shall be 600,000 shares, as adjusted pursuant to Section 11 hereof.
2.3 Vesting. The Options granted hereunder shall vest in accordance
with the following schedule:
(i) 100,000 Options shall vest on November 30, 1999 provided
Holder remains continuously employed by the Company through such date;
(ii) An additional 100,000 Options shall vest on May 30, 2000
provided Holder remains continuously employed by the Company through such date,
(iii) An additional 100,000 Options shall vest on November 30,
2000 provided Holder remains continuously employed by the Company through such
date,
(iv) An additional 100,000 Options shall vest on May 30, 2001
provided Holder remains continuously employed by the Company through such date,
<PAGE>
(v) An additional 100,000 Options shall vest on November 30,
2001 provided Holder remains continuously employed by the Company through such
date, and
(vi) An additional 100,000 Options shall vest on May 30, 2002
provided Holder remains continuously employed by the Company through such date.
Holder relinquishes any right to any Options which have not been
subject to vesting and following any failure to vest this Option shall no longer
be of any force or effect with respect to Options that have not vested.
2.4. Death of Holder and Termination.
(a) If the Holder shall die while in the employ of the Company or
his employment is terminated due to "incapacity" (as such term is defined in
Holder's then applicable employment agreement with the Company), all of the
Options shall vest upon the date of his death or termination due to incapacity,
and he or his estate, personal representatives, or beneficiary, as applicable,
shall have the right to exercise the Options at any time after the date of his
death or termination due to incapacity.
(b) In the event Holder's employment by the Company is terminated
for "cause" (as such term is defined in Holder's then applicable employment
agreement with the Company) or Holder voluntarily terminates his employment with
the Company, Holder's right in and to any Option that has not vested as of such
termination date shall lapse and terminate.
(c) In the event Holder's employment by the Company is terminated
without "cause" (as such term is defined in Holder's then applicable employment
agreement with the Company) Holder shall have the right to continue to vest and
exercise the Options as if no termination of employment had occurred.
3. Exercise of Option.
(a) The Exercise Price shall either be payable in cash or by bank or
certified check; or by cashless exercise by delivering to the Company a notice
of exercise together with an irrevocable direction to a broker-dealer registered
under the Securities Exchange Act of 1934, to sell a sufficient portion of the
Shares and deliver the sales proceeds directly to the Company to pay the
Exercise Price.
(b) The purchase rights represented by this Option are exercisable by
the Holder in whole or in part, at any time, or from time to time, by the
surrender of this Option and the Notice of Exercise annexed hereto duly
completed and executed on behalf of the Holder, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company).
(c) This Option shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Option is
exercised in part, the Company at its expense will execute and deliver a new
Option of like tenor exercisable for the number of shares for which this Option
may then be exercised.
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<PAGE>
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Option.
In lieu of any fractional share to which the Holder would otherwise be entitled,
the Company shall make a cash payment equal to the Exercise Price multiplied by
such fraction.
5. Replacement of Option. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Option and,
in the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and substance to the Company or, in the case of
mutilation, on surrender and cancellation of this Option, the Company at its
expense shall execute and deliver, in lieu of this Option, a new Option of like
tenor and amount.
6. Rights of Stockholder. Except as otherwise contemplated herein, the
Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Option shall have been exercised as
provided herein.
7. Transfer of Option.
7.1. Non-Transferability. Prior to vesting in accordance with
paragraph 2 herein, the Option shall not be assigned, transferred, pledged or
hypothecated in any way, nor subject to execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution. To
the extent the Options have vested, transfers thereof which comply with the
remaining provisions of this paragraph 7 may be undertaken upon the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of the Option contrary to the provisions hereof, and the levy of an
execution, attachment, or similar process upon the Option, shall be null and
void and without effect.
7.2. Exchange of Option Upon a Transfer. On surrender of this Option
for exchange, properly endorsed, the Company at its expense shall issue to or on
the order of the Holder a new Option or Options of like tenor, in the name of
the Holder or as the Holder (on payment by the Holder of any applicable transfer
taxes) may direct, of the number of shares issuable upon exercise hereof.
7.3. Compliance with Securities Laws; Restrictions on Transfers.
(a) The Holder of this Option, by acceptance hereof,
acknowledges that this Option and the Shares to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and for investment (unless such shares are subject to resale
pursuant to an effective prospectus), and that the Holder will not offer, sell
or otherwise dispose of this Option or any Shares to be issued upon exercise
hereof except under circumstances that will not result in a violation of
applicable federal and state securities laws. Upon exercise of this Option, the
Holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of Common Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, for investment (unless such shares are subject to resale pursuant
to an effective prospectus), and not with a view toward distribution or resale.
3
<PAGE>
(b) Neither this Option nor any share of Common Stock issued
upon exercise of this Option may be offered for sale or sold, or otherwise
transferred or sold in any transaction which would constitute a sale thereof
within the meaning of the Securities Act of 1933, as amended (the "1933 Act"),
unless (i) such security has been registered for sale under the 1933 Act and
registered or qualified under applicable state securities laws relating to the
offer an sale of securities, or (ii) exemptions from the registration
requirements of the 1933 Act and the registration or qualification requirements
of all such state securities laws are available and the Company shall have
received an opinion of counsel satisfactory to the Company that the proposed
sale or other disposition of such securities may be effected without
registration under the 1933 Act and would not result in any violation of any
applicable state securities laws relating to the registration or qualification
of securities for sale, such counsel and such opinion to be satisfactory to the
Company.
(c) All Shares issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by state securities laws).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION
FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN
OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION."
(d) Holder recognizes that investing in the Option and the Common
Stock involves a high degree of risk, and Holder is in a financial position to
hold the Option and the Common Stock indefinitely and is able to bear the
economic risk and withstand a complete loss of its investment in the Option and
the Common Stock. The Holder is a sophisticated investor and is capable of
evaluating the merits and risks of investing in the Company. The Holder has had
an opportunity to discuss the Company's business, management and financial
affairs with the Company's management, has been given full and complete access
to information concerning the Company, and has utilized such access to its
satisfaction for the purpose of obtaining information or verifying information
and has had the opportunity to inspect the Company's operation. Holder has had
the opportunity to ask questions of, and receive answers from the management of
the Company (and any person acting on its behalf) concerning the Option and the
Common Stock and the agreements and transactions contemplated hereby, and to
obtain any additional information as Holder may have requested in making its
investment decision.
(e) Holder acknowledges and represents: (i) that he has been
afforded the opportunity to review and is familiar with the quarterly, annual
and periodic reports of the Company and has based his decision to invest solely
on the information contained therein and has not been furnished with any other
literature, prospectus or other information except as included in such reports;
(ii) he is at least 21 years of age; (iii) he has adequate means of providing
for his current needs and personal contingencies; (iv) he has no need for
liquidity for his investment in the Option or Common Stock; (v) he maintains his
domicile and is not a transient or temporary resident at the address on the
books and records of the Company; (vi) all of his investments and commitments to
non-liquid assets and similar investments are, after his acquisition of the
Option and Common Stock, will be reasonable in relation to his net worth and
current needs; (vii) he understands that no federal or state agency has approved
or disapproved the Option or Common Stock or made any finding or determination
as to the fairness of the Option and Common Stock for investment; and (viii) he
recognizes that the Common Stock is presently eligible for trading on the over-
the-counter market, and that the Company has made no representations,
4
<PAGE>
warranties, or assurances as to the future trading value of the Common Stock,
whether a public market will continue to exist for the resale of the Common
Stock, or whether the Common Stock can be sold at a price reflective of past
trading history at any time in the future.
8. Reservation and Issuance of Stock; Payment of Taxes.
(a) The Company covenants that during the term that this Option is
exercisable, the Company will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the shares
upon the exercise of this Option, and from time to time will take all steps
necessary to amend its Certificate of Incorporation to provide sufficient
reserves of shares of Common Stock issuable upon the exercise of the Option.
(b) The Company further covenants that all shares of Common Stock
issuable upon the due exercise of this Option will be free and clear from all
taxes or liens, charges and security interests created by the Company with
respect to the issuance thereof, however, the Company shall not be obligated or
liable for the payment of any taxes, liens or charges of Holder, or any other
party contemplated by paragraph 7, incurred in connection with the issuance of
this Option or the Common Stock upon the due exercise of this Option. The
Company agrees that its issuance of this Option shall constitute full authority
to its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the shares of Common Stock upon
the exercise of this Option. The Common Stock issuable upon the due exercise of
this Option, will, upon issuance in accordance with the terms hereof, be duly
authorized, validly issued, fully paid and non-assessable.
(c) Upon exercise of the Option, the Company shall have the right to
require the Holder to remit to the Company an amount in cash (or suitable liquid
instruments in the discretion of the Company) sufficient to satisfy federal,
state and local tax withholding requirements prior to the delivery of any
certificate for shares of Company Common Stock purchased pursuant to the Option,
if in the opinion of counsel to the Company such withholding is required under
applicable tax laws.
9. Notices.
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by first-
class mail, postage prepaid) to the Holder of this Option.
(b) All notices, advices and communications under this Option shall be
deemed to have been given, (i) in the case of personal delivery, on the date of
such delivery and (ii) in the case of mailing, on the third business day
following the date of such mailing, addressed as follows:
If to the Company:
Skynet Holdings, Inc.
343 Glasgow Avenue
Inglewood, CA 90301
5
<PAGE>
and to the Holder:
at the address of the Holder appearing on the books of the
Company or the Company's transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
10. Amendments.
(a) Any term of this Option may be amended with the written consent of
the Company and the Holder. Any amendment effected in accordance with this
Section 10 shall be binding upon the Holder, each future holder and the Company.
(b) No waivers of, or exceptions to, any term, condition or provision
of this Option, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
11. Adjustments. The number of Shares of Common Stock purchasable
hereunder and the Exercise Price is subject to adjustment from time to time upon
the occurrence of certain events, as follows:
11.1. Reorganization, Merger or Sale of Assets. If at any time while
this Option, or any portion thereof, is outstanding and unexpired there shall be
(i) a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise, or (iii) a sale
or transfer of substantially all of the Company's properties and assets as, or
substantially as, an entirety to any other person, then, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the holder of this Option shall upon such reorganization,
merger, consolidation or sale or transfer, have the right by exercising such
Option, to purchase the kind and number of shares of Common Stock or other
securities or property (including cash) otherwise receivable upon such
reorganization, merger, consolidation or sale or transfer by a holder of the
number of shares of Common Stock that might have been purchased upon exercise of
such Option immediately prior to such reorganization, merger, consolidation or
sale or transfer. The foregoing provisions of this Section 11.1 shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Option. If the per-share
consideration payable to the Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Option with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Option
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Option.
6
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11.2. Reclassification. If the Company, at any time while this
Option, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Option exist into the same or a different
number of securities of any other class or classes, this Option shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Option immediately prior to such
reclassification or other change and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 11.
11.3. Split, Subdivision or Combination of Shares. If the Company at
any time while this Option, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Option exist, into a different number of securities of the
same class, the Exercise Price and the number of shares issuable upon exercise
of this Option shall be proportionately adjusted.
11.4. Adjustments for Dividends in Stock or Other Securities or
Property. If while this Option, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Option exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible Stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Option shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this Option,
and without payment of any additional consideration therefor, the amount of such
other or additional stock or other securities or property (other than cash) of
the Company that such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Option on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock, other securities or property available by this Option as
aforesaid during such period.
11.5 The Company will not, by any voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Section 11 and in the taking
of all such action as may be necessary or appropriate in order to protect the
rights of the Holders of this Option against impairment.
12. Severability. Whenever possible, each provision of this Option shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Option is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this Option
in such jurisdiction or affect the validity, legality or enforceability of any
provision in any other jurisdiction, but this Option shall be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
13. Governing Law. The corporate law of the State of Delaware shall
govern all issues and questions concerning the relative rights of the Company
and its stockholders. All other questions concerning the construction,
validity, interpretation and enforceability of this Option and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of Delaware, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of Delaware or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
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<PAGE>
14. Jurisdiction. The Holder and the Company agree to submit to personal
jurisdiction and to waive any objection as to venue in the federal or state
courts in the City in which the executive headquarters of the Company is
located. Service of process on the Company or the Holder in any action arising
out of or relating to this Option shall be effective if mailed to such party at
the address listed in Section 9 hereof.
15. Arbitration. If a dispute arises as to interpretation of this Option,
it shall be decided finally by three arbitrators in an arbitration proceeding
conforming to the Rules of the American Arbitration Association applicable to
commercial arbitration. The arbitrators shall be appointed as follows: one by
the Company, one by the Holder and the third by the said two arbitrators, or, if
they cannot agree, then the third arbitrator shall be appointed by the American
Arbitration Association. The third arbitrator shall be chairman of the panel
and shall be impartial. The arbitration shall take place in the City in which
the executive headquarters of the Company is located. The decision of a
majority of the Arbitrators shall be conclusively binding upon the parties and
final, and such decision shall be enforceable as a judgment in any court of
competent jurisdiction. Each party shall pay the fees and expenses of the
arbitrator appointed by it, its counsel and its witnesses. The parties shall
share equally the fees and expenses of the impartial arbitrator.
16. Corporate Power; Authorization; Enforceable Obligations. The
execution, delivery and performance by the Company of this Agreement: (i) are
within the Company's corporate power; (ii) have been duly authorized by all
necessary or proper corporate action; (iii) are not in contravention of the
Company's certificate of incorporation or by-laws; (iv) will not violate in any
material respect, any law or regulation, including any and all Federal and state
securities laws, or any order or decree of any court or governmental
instrumentality; and (v) will not, in any material respect, conflict with or
result in the breach or termination of, or constitute a default under any
agreement or other material instrument to which the Company is a party or by
which the Company is bound.
17. Successors and Assigns. This Option shall inure to the benefit of and
be binding on the respective successors, assigns and legal representatives of
the Holder and the Company.
IN WITNESS WHEREOF, the Company has caused this Option to be executed by
its officers thereunto duly authorized.
Dated: June 18, 1999
SKYNET HOLDINGS, INC.
BY: /s/ VJEKOSLAV NIZIC
-------------------------------
Vjekoslav Nizic
Accepted and Acknowledged:
/s/ BYRON HOGUE
- -----------------------------
Byron Hogue
8
<PAGE>
NOTICE OF EXERCISE
TO: [_____________________________]
(1) The undersigned hereby elects to purchase _______ shares of Common
Stock of Skynet Holdings, Inc. pursuant to the terms of the attached Option, and
tenders herewith payment of the purchase price for such shares in full in the
following manner (please check one of the following choices):
[_] In Cash; or
[_] Cashless exercise through a broker.
(2) In exercising this Option, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued upon conversion
thereof are being acquired solely for the account of the undersigned and not as
a nominee for any other party, and for investment (unless such shares are
subject to resale pursuant to an effective prospectus), and that the undersigned
will not offer, sell or otherwise dispose of any such shares of Common Stock
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
___________________________________
(Name)
___________________________________
(Name)
________________________ ___________________________________
(Date) (Signature)
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EXHIBIT 10.21
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement is dated as of June 17, 1999 by and
among SKYNET HOLDINGS, INC., a Delaware corporation (the "Company"), MUSTANG
HOLDINGS, INC., a Kansas corporation ("Mustang"), GREENSTREET PONY PARTNERS,
LLC, a Missouri limited liability company ("GPP"), MUSTANG INVESTMENT PARTNERS,
LLC, a Kansas limited liability company ("MIP"), C.M. "CONNIE" CARSON AND DIANA
CARSON, AS TRUSTEES OF THE CARSON FAMILY TRUST ("Carson Trust") and RICHARD L.
WILLIAMS ("Williams," and collectively with GPP, MIP and the Carson Trust, the
"Stockholders").
W I T N E S S E T H:
--------------------
WHEREAS, the Company, and the Stockholders are parties to a Stock Purchase
Agreement dated as of May 27, 1999 (the "Stock Purchase Agreement") pursuant to
which (i) Mustang has agreed to sell to the Company all of the issued and
outstanding common stock of Pony Express Delivery Service, Inc., a Delaware
corporation ("PX") (the "Stock Purchase"), (ii) GPP and MIP have agreed to
exchange certain promissory notes from PX in return for an aggregate of
$3,097,568 in stated value of the Company's Series B Convertible Preferred Stock
(the "Series B Preferred"), (iii) the Carson Trust has agreed to exchange a
promissory note from PX for $3,077,416 in stated value of Series B Preferred;
and (iv) Williams has agreed to exchange a promissory note from PX for $615,480
in stated value of Series B Preferred;
WHEREAS, pursuant to the Stock Purchase, Mustang is to receive certain
shares of the Company's $.0001 par value common stock (the "Common Stock");
WHEREAS, the Series B Preferred (and any additional Series B Preferred
issued on account of accrued dividends payable in respect of such Series B
Preferred) is convertible upon certain conditions and on such terms as are set
forth on the Designation of Series B Preferred Stock set forth as Exhibit A
hereto.
WHEREAS, the parties hereto desire to set forth their agreement concerning
the registration under the Securities Act of 1933, as amended, of the Common
Stock issued to Mustang in connection with the Stock Purchase and the Common
Stock to be issued upon a conversion of the Series B Preferred Stock by one or
more of the holders thereof or otherwise pursuant to the terms of the Series B
Preferred.
NOW, THEREFORE, the parties hereto agree as follows:
AGREEMENT
---------
1. Definitions.
-----------
(a) "Closing" shall mean that date upon which the closing of the
Stock Purchase occurs.
(b) "Company" shall mean SkyNet Holdings, Inc.
<PAGE>
(c) "Conversion Shares" means the shares of the Company's Common
Stock issued upon any conversion of the Series B Preferred (including any Series
B Preferred issued following the date hereof on account of accrued and unpaid
dividends on the Series B Preferred).
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934.
(e) "Mustang Shares" shall mean the shares of the Company's Common
Stock issued to Mustang pursuant to Section 1.2.2 of the Stock Purchase
Agreement.
(f) "Person" means an individual, a partnership (general or limited),
corporation, limited liability company, joint venture, business trust,
cooperative, association or other form of business organization, whether or not
regarded as a legal entity under applicable law, a trust (inter vivos or
testamentary), an estate of a deceased, insane or incompetent person, a quasi-
governmental entity, a government or any agency, authority, political
subdivision or other instrumentality thereof, or any other entity.
(g) "Registration Statement" shall mean a Registration Statement of
the Company filed with the SEC pursuant to the provisions of Section 2 of this
Agreement which covers the resale of the Restricted Stock on an appropriate form
then permitted by the SEC to be used for such registration and the sales
contemplated to be made thereby under the Securities Act, or any similar rule
that may be adopted by the SEC, and all amendments and supplements to such
Registration Statement, including any pre-and post-effective amendments thereto,
in each case including the prospectus contained therein, all exhibits thereto
and all materials incorporated by reference therein.
(h) "Restricted Stock" shall mean all or any of the Mustang Shares,
the Conversion Shares, and any additional shares of Common Stock or other equity
securities of the Company issued or issuable after the date hereof in respect of
any such securities (or other equity securities issued in respect thereof) by
way of a stock dividend or stock split, in connection with a combination,
exchange, reorganization, recapitalization or reclassification of Company
securities, or pursuant to a merger, division, consolidation or other similar
business transaction or combination involving the Company; provided that: as to
any particular shares of restricted stock, such securities shall cease to
constitute Restricted Stock (i) when a registration statement with respect to
the sale of such securities shall have become effective under the Securities Act
and such securities shall have been disposed of thereunder, or (ii) when and to
the extent such securities are permitted to be distributed pursuant to Rule 144
(or any successor provision to such Rule) under the Securities Act or are
otherwise freely transferable to the public without further registration under
the Securities Act.
(i) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
any relevant time.
(j) "SEC" shall mean the United States Securities and Exchange
Commission.
(k) "Stock Purchase" shall mean the purchase by the Company from
Mustang of all of the issued and outstanding common stock of PX pursuant to the
terms of the Stock Purchase Agreement dated May 27, 1999.
2
<PAGE>
(l) "Stockholders" shall mean Mustang, GPP, MIP, the Carson Trust and
Williams, which persons have received, or may receive subsequent to the date
hereof upon conversion of the Series B Preferred, shares of the Common Stock.
(m) "Trading Day" shall mean any day on which the New York Stock
Exchange is open for trading.
Capitalized terms used in this Registration Rights Agreement and not
otherwise defined herein shall have the same meaning ascribed thereto in the
Stock Purchase Agreement.
2. Registration Rights.
-------------------
(a) Shelf Registration.
(i) Subject to subparagraph 2(a)(ii) hereof, the Company shall
use its best efforts to prepare and file, not later than the first anniversary
of the Closing of the Stock Purchase, a Registration Statement with the SEC and
use its best efforts to, as promptly as possible have such Registration
Statement declared effective for the purpose of facilitating the public resale
of the Conversion Shares.
(ii) In the event the Series B Preferred is to be converted at
the direction of the Company pursuant to Section 3(b) of the Designation of
Series B Preferred, no such conversion shall be effected until such time as (A)
the Company shall have filed a Registration Statement with the SEC covering the
public resale of the Conversion Shares and (B) such Registration Statement shall
have been declared effective by the SEC.
(b) Piggyback Registration. If at any time following the first
anniversary of the date hereof the Company proposes to file a registration
statement under the Securities Act (except with respect to registration
statements on Forms S-4, S-8, or any other form not available for registering
the Common Stock for sale to the public), with respect to an offering of newly-
issues Common Stock or other newly-issued securities of the Company for its own
account, then the Company shall in each case give written notice of such
proposed filing to Mustang at least 30 days before the anticipated filing date
of the registration statement with respect thereto (the "Piggyback
Registration"), and shall, subject to subparagraphs 2(c) and 2(d) below, include
in such Piggyback Registration such number of shares of Mustang Shares as
Mustang may designate.
(c) Limitation on Registration. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their reasonable opinion the
amount of Mustang Shares requested to be included in such registration exceeds
the amount which can be sold in an orderly manner in such offering within a
price range acceptable to the Company, the Company shall include in such
registration (i) first, the securities the Company proposes to sell, and (ii)
second, the Mustang Shares requested to be included in such registration by the
Mustang.
(d) Notwithstanding anything to the contrary contained herein, the
Company's obligation in subparagraphs 2(a) and 2(b) above shall extend only to
the inclusion of the Restricted Stock in a Registration Statement filed under
the Securities Act. The Company shall
3
<PAGE>
have no obligation to assure the terms and conditions of distribution, to obtain
a commitment from an underwriter relative to the sale of the Restricted Stock or
to otherwise assume any responsibility for the manner, price or terms of the
distribution of the Restricted Stock. Furthermore, the Company shall not be
restricted in any manner from including within the Registration Statement the
distribution, issuance or resale of any of its or any other securities.
(e) The Stockholders shall not effect any public sale or distribution
(including sales pursuant to Rule 144) of equity securities of the Company, or
any securities convertible into or exchangeable or exercisable for such
securities, following the filing by the Company of a registration statement with
the SEC involving any primary offering to be undertaken by the Company of shares
of its own common stock (the "Primary Offering"), which may also include other
securities, and ending 180 days after completion of any such Primary Offering,
unless the Company, in the case of a non-underwritten offering, or the managing
underwriter, in the case of an underwritten Primary Offering, otherwise agree.
3. Registration Procedures. Whenever it is obligated to register any
-----------------------
Restricted Stock pursuant to this Agreement, the Company shall:
(a) use its best efforts to prepare and file with the Commission a
Registration Statement with respect to the Restricted Stock in the manner set
forth at Paragraph 2 hereof and use its best efforts to cause such Registration
Statement to become effective as promptly as possible and to remain effective
for that period identified in subparagraph 3(g) hereafter;
(b) use its best efforts to prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective for the period specified in subparagraph 3(g) below and to
comply with the provisions of the Securities Act with respect to the disposition
of all Restricted Stock covered by such Registration Statement in accordance
with the Stockholders' intended method of disposition set forth in such
Registration Statement for such period;
(c) furnish to the Stockholders and to each underwriter, if any, such
number of copies of the Registration Statement and the prospectus included
therein (including each preliminary prospectus), as such persons may reasonably
request in order to facilitate the public sale or other disposition of the
Restricted Stock covered by such Registration Statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such Registration Statement under the securities or blue sky laws of
such jurisdictions as the Stockholders, or, in the case of an underwritten
public offering, the managing underwriter shall reasonably request; provided,
however, that the Company shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified or to consent to general service of process in any
such jurisdiction;
(e) immediately notify the Stockholders under such Registration
Statement and each underwriter, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus contained in such Registration
Statement, as then in effect, includes an untrue statement of a
4
<PAGE>
material fact or omits to state any material fact required or necessary to be
stated therein in order to make the statements contained therein not misleading
in light of the circumstances under which they were made;
(f) make available for inspection by the Stockholders, any
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by the
Stockholders or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by the Stockholders, underwriter, attorney, accountant or agent in connection
with such Registration Statement;
(g) for purposes of subparagraphs 3(a) and 3(b) above, the period of
distribution of Restricted Stock shall be deemed to extend until the earlier of:
(A) in an underwritten public offering of all of the Restricted Stock, the
period in which each underwriter has completed the distribution of all
securities purchased by it; (B) in any other registration, the period in which
all shares of Restricted Stock covered thereby shall have been sold; and (C) a
period of two (2) years from the effective date of the first Registration
Statement filed by the Company with the SEC pursuant to this Agreement;
(h) if the Common Stock of the Company is listed on any securities
exchange or automated quotation system, the Company shall use its best efforts
to list (with the listing application being made at the time of the filing of
such Registration Statement or as soon thereafter as is reasonably practicable)
the Restricted Stock covered by such Registration Statement on such exchange or
automated quotation system;
(i) enter into normal and customary underwriting arrangements or an
underwriting agreement and take all other reasonable and customary actions if
the Stockholders sell shares of Restricted Stock pursuant to an underwriting
(however, in no event shall the Company, in connection with such underwriting,
be required to undertake any special audit of a fiscal period in which an audit
is normally not required);
(j) notify the Stockholders if there are any amendments to the
Registration Statement, any requests by the SEC to supplement or amend the
Registration Statement, or of any threat by the SEC or state securities
commission to undertake a stop order with respect to sales under the
Registration Statement; and
(k) cooperate in the timely removal of any restrictive legends from
the shares of Restricted Stock in connection with the resale of such shares
covered by an effective Registration Statement.
4. Expenses.
--------
(a) For the purposes of this Paragraph (4), the term "Registration
Expenses" shall mean: all expenses incurred by the Company in complying with
paragraph (2) of this Agreement, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, "blue sky" fees, fees of the
National Association of Securities Dealers, Inc. ("NASD"), fees and expenses of
5
<PAGE>
listing shares of Restricted Stock on any securities exchange or automated
quotation system on which the Company's shares are listed and fees of transfer
agents and registrars. The term "Selling Expenses" shall mean: all underwriting
discounts and selling commissions applicable to the sale of Restricted Stock and
all accountable or non-accountable expenses paid to any underwriter in respect
of the sale of Restricted Stock.
(b) Except as otherwise provided herein, the Company will pay all
Registration Expenses in connection with the Registration Statement filed
pursuant to paragraph (2) of this Agreement. All Selling Expenses in connection
with any Registration Statement filed pursuant to paragraph (2) of this
Agreement shall be borne by the Shareholder in proportion, or by such persons
other than the Company (except to the extent the Company may be a seller) as
they may agree.
5. Obligations of Stockholders.
---------------------------
(a) In connection with any registration hereunder, each of the
Stockholders owning securities registered in such offering will furnish to the
Company in writing such information with respect to itself and the securities
held by it, and the proposed distribution by it as shall be reasonably requested
by the Company in order to assure compliance with federal and applicable state
securities laws, as a condition precedent to including such seller's Restricted
Stock in the Registration Statement. The Stockholders also shall agree to
promptly notify the Company of any changes in such information included in the
Registration Statement or prospectus as a result of which there is an untrue
statement of material fact or an omission to state any material fact required or
necessary to be stated therein in order to make the statements contained therein
not misleading in light of the circumstances then existing.
(b) In connection with each registration pursuant to this Agreement,
the Stockholders will not effect sales thereof until notified by the Company of
the effectiveness of the Registration Statement, and thereafter will suspend
such sales after receipt of telegraphic or written notice from the Company to
suspend sales to permit the Company to correct or update a Registration
Statement or prospectus. At the end of any period during which the Company is
obligated to keep a Registration Statement current, the Stockholders shall
discontinue sales of shares pursuant to such Registration Statement upon receipt
of notice from the Company of its intention to remove from registration the
shares covered by such Registration Statement which remain unsold, and the
Stockholders shall notify the Company of the number of shares registered which
remain unsold immediately upon receipt of such notice from the Company.
6. Information Blackout.
--------------------
At any time when a Registration Statement effected pursuant to
Paragraph 2 relating to Restricted Stock is effective, upon written notice from
the Company to the Stockholders that the Company has determined in good faith
that sale of Restricted Stock pursuant to the Registration Statement would
require disclosure of non-public material information, the Stockholders shall
suspend sales of Restricted Stock pursuant to such Registration Statement until
such time as the Company notifies the Stockholders that such material
information has been disclosed to the public or has ceased to be material or
that sales
6
<PAGE>
pursuant to such Registration Statement may otherwise be resumed. The Company
will use its best efforts to minimize the duration of any suspension of trading
required hereunder.
7. Indemnification.
---------------
(a) The Company agrees to indemnify, to the extent permitted by law,
the Stockholders against all losses, claims, damages, liabilities and expenses
joint or several, to which an Indemnified person may become subject under the
Securities Act or any other statute or at common law, insofar as such liability
(or action in respect thereof) arises out of or is based upon (a) any alleged
untrue statement of material fact contained in any Registration Statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or (b) any alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act or state securities or other blue
sky laws applicable to the Company in connection with such registration, except
insofar as the same are caused by or contained in any information furnished to
the Company by the Stockholders for use therein or by the Stockholders' failure
to deliver a copy of the Registration Statement or prospectus or any amendments
or supplements thereto after the Company has furnished the Stockholders with a
sufficient number of copies of the same.
(b) In connection with any Registration Statement in which any of the
Stockholders are participating, such participating Stockholders shall furnish to
the Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such Registration Statement or
prospectus and, to the extent permitted by law, shall jointly, but not
severally, indemnify the Company, its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact contained in the Registration
Statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished by such Shareholder.
(c) Any Person entitled to indemnification hereunder shall (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any Person's right to indemnification hereunder to the extent
such failure has not prejudiced the indemnifying party) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
7
<PAGE>
(d) The indemnification provided for under this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and shall survive the transfer of securities. The
Company also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
8. Miscellaneous Provisions.
------------------------
(a) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
(b) Counterparts. This Agreement may be signed in any number of
------------
counterparts and delivered via facsimile, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument.
(c) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
without the written consent of the Company and the Shareholder.
(d) Notices. All communications under this Agreement shall be
-------
sufficiently given if delivered by hand or by overnight courier or mailed by
registered or certified mail, postage prepaid, addressed,
(i) if to the Company, to:
Mr. Vjekoslav Nizic
President and Chief Executive Officer
SkyNet Holdings, Inc.
343 Glasgow Avenue
Inglewood, CA 90301
Telephone Number: (310) 642-7776
Telecopy Number: (310) 568-9637
with a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll, P.C.
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, PA 19103
Telephone Number: (215) 665-3873
Facsimile Number: (215) 665-8760
(ii) if to the Stockholders to the address identified on the
books and records of the Company, with a copy to:
8
<PAGE>
with respect to Mustang, MIP, GPP or Williams:
Robert E. Marsh, Esquire
Corporate Counsel Group LLP
104 W. Ninth
Suite 404
Kansas City, MO 64105
Fax: 816-410-7201
and:
with respect to the Carson Trust:
James G. Jones, Esquire
Knapp, Marsh, Jones & Doran, L.L.P.
Manulife Plaza, Suite 1400
515 S. Figueroa Street
Los Angeles, CA 90071
Fax: 213-627-7897
or, at such other address as any of the parties shall have furnished in writing
to the other parties hereto.
(e) Assignment. Except as set forth in this subparagraph 8(e), the
rights granted to the Stockholders hereunder shall not be assignable, directly
or indirectly, without the prior written consent of the Company, which may be
withheld in the Company's sole and absolute discretion. Notwithstanding the
foregoing, the rights and obligations of Mustang respecting the Mustang Shares
may be assigned by Mustang to MIP, GPP and/or Borg-Warner Security Corporation
upon delivery of documentation reasonably acceptable to the Company pursuant to
which any such permitted assignnee agrees to be bound to all of the terms and
conditions of this Agreement applicable to the registration rights granted
hereunder to Mustang in respect of such Mustang Shares, including without
limitation the indemnification obligations set forth in Paragraph 7 hereof.
(f) Successors and Assigns; Stockholders as Beneficiaries. This
-----------------------------------------------------
Agreement and the agreement of the parties herein shall inure to the benefit of
and be binding upon the parties and their respective successors and permitted
assigns.
(g) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
9
<PAGE>
9. Entire Agreement; Survival; Termination. This Agreement is intended by
---------------------------------------
the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
10
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed or caused this
Registration Rights Agreement to be executed as of the date first above written.
SKYNET HOLDINGS, INC.
By:______________________________________
Name: Vjekoslav Nizic
Title: President and Chief Executive Officer
MUSTANG HOLDINGS, INC
BY: ____________________________________
Terry Matlack
Chairman
GREENSTREET PONY PARTNERS, LLC,
a Missouri limited liability company
By:______________________________________
Name: Terry Matlack
Title: Manager
MUSTANG INVESTMENT PARTNERS, LLC,
a Kansas limited liability company
By: Merit Capital Management, its Manager
By:_________________________________
Name: Michael J. Meyer
Title: President
SIGNATURES CONTINUE ON FOLLOWING PAGE
<PAGE>
SIGNATURES CONTINUED FROM PREVIOUS PAGE
CARSON FAMILY TRUST
By:____________________________________
C.M. "Connie" Carson, Trustee
By:____________________________________
Diana Carson, Trustee
_______________________________________
Richard L. Williams
<PAGE>
EXHIBIT 10.22
____________________________________________
____________________________________________
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
PONY EXPRESS DELIVERY SERVICES, INC.
AND
NATIONSCREDIT COMMERCIAL CORPORATION
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
MAY 29, 1998
____________________________________________
____________________________________________
<PAGE>
NationsCredit Commercial Funding Loan and Security Agreement
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. LOANS AND CREDIT ACCOMMODATIONS.................................... 1
1.1 Amount....................................................... 1
1.2 Reserves..................................................... 2
1.3 Other Provisions Applicable to Credit Accommodations......... 3
1.4 Repayment.................................................... 3
1.5 Minimum Borrowing............................................ 3
2. INTEREST AND FEES.................................................. 4
2.1 Interest..................................................... 4
2.2 Fees and Warrants............................................ 4
2.3 Computation of Interest and Fees............................. 5
2.4 Loan Account; Monthly Accountings............................ 5
3. SECURITY INTEREST.................................................. 5
4. ADMINISTRATION..................................................... 6
4.1 Lock Boxes and Blocked Accounts.............................. 6
4.2 Remittance of Proceeds....................................... 6
4.3 Application of Payments...................................... 6
4.4 Notification; Verification................................... 7
4.5 Power of Attorney............................................ 7
4.6 Disputes..................................................... 8
4.7 Invoices..................................................... 8
4.8 Inventory.................................................... 8
4.9 Access to Collateral, Books and Records...................... 9
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.......................... 9
5.1 Existence and Authority...................................... 9
5.2 Name; Trade Names and Styles................................. 10
5.3 Title to Collateral; Permitted Liens......................... 10
5.4 Accounts and Chattel Paper................................... 10
5.5 Investment Property.......................................... 11
5.6 Place of Business; Location of Collateral.................... 11
5.7 Financial Condition, Statements and Reports.................. 11
5.8 Tax Returns and Payments; Pension Contributions.............. 12
5.9 Compliance with Laws......................................... 12
5.10 Litigation................................................... 12
5.11 Use of Proceeds.............................................. 12
5.12 Insurance.................................................... 12
5.13 Financial and Collateral Reports............................. 13
5.14 Litigation Cooperation....................................... 14
5.15 Maintenance of Collateral, Etc............................... 14
5.16 Notification of Changes...................................... 15
5.17 Further Assurances........................................... 15
5.18 Negative Covenants........................................... 15
5.19 Financial Covenants.......................................... 16
6. RELEASE AND INDEMNITY.............................................. 16
6.1 Release...................................................... 16
</TABLE>
i
<PAGE>
NationsCredit Commercial Funding Loan and Security Agreement
- -----------------------------------------------------------------------------
<TABLE>
<S> <C>
6.2 Indemnity..................................................... 17
7. TERM............................................................... 17
7.1 Maturity Date................................................. 17
7.2 Early Termination............................................. 18
7.3 Payment of Obligations........................................ 18
7.4 Effect of Termination......................................... 18
8. EVENTS OF DEFAULT AND REMEDIES..................................... 18
8.1 Events of Default............................................. 18
8.2 Remedies...................................................... 19
8.3 Application of Proceeds....................................... 21
9. GENERAL PROVISIONS................................................. 21
9.1 Notices....................................................... 21
9.2 Severability.................................................. 21
9.3 Integration................................................... 21
9.4 Waivers....................................................... 22
9.5 Amendment..................................................... 22
9.6 Time of Essence............................................... 22
9.7 Attorneys Fees and Costs...................................... 22
9.8 Benefit of Agreement; Assignability........................... 23
9.9 Headings; Construction........................................ 23
9.10 GOVERNING LAW; CONSENT TO FORUM, ETC.......................... 23
9.11 WAIVER OF JURY TRIAL, ETC..................................... 24
</TABLE>
ii
<PAGE>
Loan and Security Agreement
This Loan and Security Agreement (as it may be amended, this "Agreement")
is entered into on May 29, 1998 between NATIONSCRED1T COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender"), having an
address at 1177 Avenue of the Americas, 36th Floor, New York, New York 10036 and
PONY EXPRESS DELIVERY SERVICES, INC., a Delaware corporation ("Borrower"), whose
chief executive office is located at 6165 Barfield Rd., NE, Suite 200, Atlanta,
Georgia 30328 ("Borrower's Address"). The Schedules to this Agreement are an
integral part of this Agreement and are incorporated herein by reference. Terms
used, but not defined elsewhere, in this Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 Amount. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) Revolving Loans and Credit Accommodations. From time to time
during the Term at Borrower's request, make revolving loans to Borrower
("Revolving Loans"), and make letters of credit, bankers acceptances and other
credit accommodations ("Credit Accommodations") available to Borrower, in each
case to the extent that there is sufficient Availability at the time of such
request to cover, dollar for dollar, the requested Revolving Loan or Credit
Accommodation; provided, that after giving effect to such Revolving Loan or
Credit Accommodation, (x) the outstanding balance of all monetary Obligations
(including the principal balance of any Term Loan and, solely for the purpose of
determining compliance with this provision, the Credit Accommodation Balance)
will not exceed the Maximum Facility Amount set forth in Section l(a) of
Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "Availability" means:
(i) the aggregate amount of Eligible Accounts (less maximum
existing or asserted taxes, discounts, credits and allowances) multiplied by the
Accounts Advance Rate set forth in Section l(b)(i) of Schedule A but not to
exceed the Accounts Sublimit set forth in Section 1 (c) of Schedule A;
plus
(ii) the lower of cost or market value of Eligible Inventory
multiplied by the Inventory Advance Rate(s) set forth in Section 1(b)(ii) of
Schedule A, but not to exceed the Inventory Sublimit(s) set forth in Section
l(d) of Schedule A;
minus
<PAGE>
(iii) all Reserves which Lender has established pursuant to
Section 1.2 (including those to be established in connection with the requested
Revolving Loan or Credit Accommodation);
minus
(iv) the outstanding balance of all of the monetary Obligations
(excluding the Credit Accommodation Balance and the principal balance of the
Term Loan); and
plus
(v) the Overadvance Amount, if any, set forth in Section l(g)
of Schedule A.
(b) Term Loan. On the date of this Agreement, make (i) an advance to
Borrower computed with respect to the value of Borrower's Eligible Equipment
(the ("Equipment Advance") in the principal amount, if any, set forth in Section
2(a)(i) of Schedule A, and (ii) an advance to Borrower computed with respect to
the value of Borrower's Eligible Real Property (the "Real Property Advance") in
the principal amount, if any, set forth in Section 2(a)(ii) of Schedule A. The
Equipment Advance and the Real Property Advance are collectively referred to as
the "Term Loan."
1.2 Reserves. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole discretion ("Reserves") to
reflect (i) events, conditions, contingencies or risks which (A) affect or may
affect the Collateral or its value, or the security interests and other rights
of Lender in the Collateral or (B) would reasonably be expected to affect the
assets, business or prospects of Borrower or any Obligor, (ii) Lender's good
faith concern that any Collateral report or financial information furnished by
or on behalf of Borrower or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect, (iii) any fact or
circumstance which Lender determines in good faith constitutes, or could
constitute, a Default or Event of Default or (iv) any other events or
circumstances which Lender determines in good faith make the establishment or
revision of a Reserve prudent. Without limiting the foregoing, Lender shall (x)
in the case of each Credit Accommodation issued for the purchase of Inventory
(a) which meets the criteria for Eligible Inventory set forth in clauses (i),
(ii), (iii), (v) and (vi) of the definition of Eligible Inventory, (b) which is
or will be in transit to one of the locations set forth in Section 9(d) of
Schedule A, (c) which is fully insured in a manner satisfactory to Lender and
(d) with respect to which Lender is in possession of all bills of lading and all
other documentation which Lender has requested, all in form and substance
satisfactory to Lender in its sole discretion, establish a Reserve equal to the
cost of such Inventory (plus all duties, freight, taxes, insurance, costs and
other charges and expenses relating to such Credit Accommodation or such
Eligible Inventory) multiplied by a percentage equal to 100% minus the Inventory
Advance Rate applicable to Eligible Inventory and (y) in the case of any other
Credit Accommodation issued for any purpose, establish a Reserve equal to the
full amount of such Credit Accommodation plus all costs and other charges and
expenses relating to such Credit Accommodation. In addition, (x)Lender shall
establish a permanent Reserve in the amount set forth in Section l(f) of
Schedule A, and (y) if the outstanding principal balance of the
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Term Loan advance with respect to Eligible Equipment exceeds the percentage set
forth in Section 2(a)(i) of Schedule A of the appraised value of such Eligible
Equipment, Lender may establish an additional Reserve in the amount of such
excess (and, for this purpose, if payments of principal on the Term Loan
advances against Eligible Equipment and Real Property are not calculated
separately, payments of principal of the Term Loan made by Borrower shall be
deemed to apply to the Term Loan advance with respect to Eligible Equipment and
Real Property, respectively, in proportion to the original principal amounts of
such advances). Lender may, in its discretion, establish and revise Reserves by
deducting them in determining Availability or by reclassifying Eligible Accounts
or Eligible Inventory as ineligible. In no event shall the establishment of a
Reserve in respect of a particular actual or contingent liability obligate
Lender to make advances hereunder to pay such liability or otherwise obligate
Lender with respect thereto.
1.3 Other Provisions Applicable to Credit Accommodations. Lender may, in
its sole discretion and on terms and conditions acceptable to Lender, make
Credit Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; provided, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section l(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit Accommodation
in connection with any such Credit Accommodation.
1.4 Repayment. Accrued interest on all monetary Obligations shall be
payable on the first day of each month, for the preceding calendar month.
Principal of the Term Loan, if any, shall be repaid as set forth in Section 2(b)
of Schedule A. If at any time any of the Loan Limits are exceeded, Borrower will
immediately pay to Lender such amounts (or provide cash collateral to Lender
with respect to the Credit Accommodation Balance in the manner set forth in
Section 7.3), as shall cause Borrower to be in full compliance with all of the
Loan Limits. Notwithstanding the foregoing, Lender may, in its sole discretion,
make or permit Revolving Loans, the Term Loan, any Credit Accommodations or any
other monetary Obligations to be in excess of any of the Loan Limits; provided,
that Borrower shall, upon Lender's demand, pay to Lender such amounts as shall
cause Borrower to be in full compliance with all of the Loan Limits. All unpaid
monetary Obligations shall be payable in NationsCredit Commercial Funding Loan
and Security Agreement full on the Maturity Date (as defined in Section 7.1) or,
if earlier, the date of any early termination pursuant to Section 7.2.
1.5 Minimum Borrowing. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to equal or exceed, at all times
prior to the Maturity Date, the Minimum Loan Amount set forth in Section 4 of
Schedule A and (ii) maintain Availability sufficient to enable Borrower to do
so. However, Lender shall not be obligated to loan Borrower the Minimum Loan
Amount other than in accordance with all of the terms and conditions of this
Agreement.
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2. INTEREST AND FEES.
2.1 Interest. All Loans and other monetary Obligations shall bear interest
at the Interest Rate(s) set forth in Section 3 of Schedule A, except where
expressly set forth to the contrary in this Agreement or another Loan Document;
provided, that after the occurrence of an Event of Default, all Loans and other
monetary Obligations shall, at Lender's option, bear interest at a rate per
annum equal to two percent (2%) in excess of the rate otherwise applicable
thereto (the "Default Rate") until paid in full (notwithstanding the entry of
any judgment against Borrower or the exercise of any other right or remedy by
Lender), and all such interest shall be payable on demand. Changes in the
Interest Rate shall be effective as of the date of any change in the Prime Rate.
Notwithstanding anything to the contrary contained in this Agreement, the
aggregate of all amounts deemed to be interest hereunder and charged or
collected by Lender is not intended to exceed the highest rate permissible under
any applicable law, but if it should, such interest shall automatically be
reduced to the extent necessary to comply with applicable law and Lender will
refund to Borrower any such excess interest received by Lender.
2.2 Fees and Warrants. Borrower shall pay Lender the following fees, and
issue Lender the following warrants, which are in addition to all interest and
other sums payable by Borrower to Lender under this Agreement, and are not
refundable:
(a) Closing Fee. A closing fee in the amount set forth in Section
6(a) of Schedule A, which shall be deemed to be fully earned as of, and payable
on, the date hereof.
(b) Facility Fees. A facility fee for the Initial Term in the amount
set forth in Section 6(b)(i) of Schedule A (which shall be fully earned as of
the date of this Agreement and shall be payable in equal installments due,
respectively, on the date of this Agreement and on each anniversary thereof
during the Initial Term), and a facility fee for each Renewal Term in the amount
set forth in Section 6(b)(ii) of Schedule A (which shall be fully earned as of
the first day of such Renewal Term and shall be payable in equal installments
due, respectively, on the first day of such Renewal Term and on each anniversary
thereof during such Renewal Term).
(c) Servicing Fee. A monthly servicing fee in the amount set forth in
Section 6(c) of Schedule A, in consideration of Lender's administration and
other services for each month (or part thereof), which shall be fully earned as
of, and payable in advance on, the date of this Agreement and on the first day
of each month thereafter so long as any of the Obligations are outstanding.
(d) Unused Line Fee. An unused line fee at a rate equal to the
percentage per annum set forth in Section 6(d) of Schedule A of the amount by
which the Maximum Facility Amount exceeds the average daily outstanding
principal balance of the Loans and the Credit Accommodation Balance during the
immediately preceding month (or part thereof), which fee shall be payable, in
arrears, on the first day of each month so long as any of the Obligations are
outstanding and on the Maturity Date.
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(e) Minimum Borrowing Fee. A minimum borrowing fee equal to the
excess, if any, of (i) interest which would have been payable in respect of each
period set forth in Section 6(e)(i) of Schedule A if, at all times during such
period, the principal balance of the Loans was equal to the Minimum Loan Amount
over (ii) the actual interest payable in respect of such period, which fee shall
be fully earned as of the last day of such period and payable on the date set
forth in Section 6(e)(ii) of Schedule A and on the Maturity Date, commencing
with the immediately following period.
(f) Success Fee. A success fee in the amount set forth in Section
6(f) of Schedule A, which shall be fully earned as of the date of this Agreement
and payable as set forth in Section 6(f) of Schedule A.
(g) Warrants. Warrants to acquire the capital stock of Borrower, as
summarized in Section 6(g) of Schedule A and as more fully set forth in a
separate warrant agreement executed by Borrower contemporaneously with this
Agreement.
(h) Credit Accommodation Fees. All of the fees relating to Credit
Accommodations set forth in Section 6(i) of Schedule A.
2.3 Computation of Interest and Fees. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number of days elapsed in a year of 360 days. For purposes of calculating
interest and fees, if the outstanding daily principal balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.
2.4 Loan Account; Monthly Accountings. Lender shall maintain a loan
account for Borrower reflecting all advances, charges, expenses and payments
made pursuant to this Agreement (the "Loan Account'), and shall provide Borrower
with a monthly accounting reflecting the activity in the Loan Account. Each
accounting shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies Lender in
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or omissions. However, Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding nature of any of the Obligations. Interest, fees
and other monetary Obligations due and owing under this Agreement (including
fees and other amounts paid by Lender to issuers of Credit Accommodations) may,
in Lender's discretion, be charged to the Loan Account, and will thereafter be
deemed to be Revolving Loans and will bear interest at the same rate as other
Revolving Loans.
3. SECURITY INTEREST.
3.1 To secure the full payment and performance of all of the Obligations,
Borrower hereby grants to Lender a continuing security interest in all of
Borrower's property and interests in property, whether tangible or intangible,
now owned or in existence or hereafter acquired or arising, wherever located,
including Borrower's interest in all of the following, whether or not eligible
for lending purposes: (i) all Accounts, Chattel Paper, Instruments, Documents,
Goods
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(including Inventory, Equipment, farm products and consumer goods), Investment
Property, General Intangibles, Deposit Accounts and money, (ii) all proceeds and
products of all of the foregoing (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties for loss or any
destruction of any of the foregoing) and (iii) all books and records relating to
any of the foregoing.
4. ADMINISTRATION.
4.1 Lock Boxes and Blocked Accounts. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks, wire transfers and other proceeds of Accounts ("Account Proceeds"),
which may include (i) directing all Account Debtors to send all such proceeds
directly to a post office box designated by Lender either in the name of
Borrower (but as to which Lender has exclusive access) or, at Lender's option,
in the name of Lender (a "Lock Box") or (ii) depositing all Account Proceeds
received by Borrower into one or more bank accounts maintained in Lender's name
(each, a "Blocked Account"), under an arrangement acceptable to Lender with a
depository bank acceptable to Lender, pursuant to which all funds deposited into
each Blocked Account are to be transferred to Lender in such manner, and with
such frequency, as Lender shall specify or (iii)a combination of the foregoing.
Borrower agrees to execute, and to cause its depository banks to execute, such
Lock Box and Blocked Account agreements and other documentation as Lender shall
require from time to time in connection with the foregoing.
4.2 Remittance of Proceeds. Except as provided in Section 4.1, all
proceeds arising from the sale or other disposition of any Collateral shall be
delivered, in kind, by Borrower to Lender in the original form in which received
by Borrower not later than the following Business Day after receipt by Borrower.
Until so delivered to Lender, Borrower shall hold such proceeds separate and
apart from Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.3 Application of Payments. Lender may, in its sole discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations, in such order and manner as
Lender shall determine, whether or not the Obligations are due, and whether
before or after the occurrence of a Default or an Event of Default. For purposes
of determining Availability, such amounts will be credited to the Loan Account
and the Collateral balances to which they relate upon Lender's receipt of advice
from Lender's Bank (set forth in Section 11 of Schedule A) that such items have
been credited to Lender's account at Lender's Bank (or upon Lender's deposit
thereof at Lender's Bank in the case of payments received by Lender in kind), in
each case subject to final payment and collection. However, for purposes of
computing interest on the Obligations, such items shall be deemed applied by
Lender two Business Days after Lender's receipt of advice of deposit thereof at
Lender's Bank.
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4.4 Notification; Verification. Lender or its designee may, from time to
time, whether or not a Default or Event of Default has occurred: (i) verify
directly with the Account Debtors the validity, amount and other matters
relating to the Accounts and Chattel Paper, by means of mail, telephone or
otherwise, either in the name of Borrower or Lender or such other name as Lender
may choose; (ii) notify Account Debtors that Lender has a security interest in
the Accounts and that payment thereof is to be made directly to Lender; and
(iii) after an Event of Default, demand, collect or enforce payment of any
Accounts and Chattel Paper (but without any duty to do so).
4.5 Power of Attorney. Borrower hereby grants to Lender an irrevocable
power of attorney, coupled with an interest, authorizing and permitting Lender
(acting through any of its officers, employees, attorneys or agents), at any
time (whether or not a Default or Event of Default has occurred and is
continuing, except as expressly provided below), at Lender's option, but without
obligation, subject prior to Default or and Event of Default to having given
prior notice to Borrower, and at Borrower's expense, to do any or all of the
following, in Borrower's name or otherwise: (i) execute on behalf of Borrower
any documents that Lender may, in its sole discretion, deem advisable in order
to perfect and maintain Lender's security interests in the Collateral, to
exercise a right of Borrower or Lender, or to fully consummate all the
transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower; (ii) execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or lease (as lessor or lessee) any real or personal property which is part of
the Collateral or in which Lender has an interest; (iii) execute on behalf of
Borrower any invoices relating to any Accounts, any draft against any Account
Debtor, any proof of claim in bankruptcy, any notice of Lien or claim, and any
assignment or satisfaction of mechanic's, materialman's or other Lien; (iv)
execute on behalf of Borrower any notice to any Account Debtor; (v) receive and
otherwise take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; (vi) endorse Borrower's name on all checks and other
forms of remittances received by Lender; (vii) pay, contest or settle any Lien,
charge, encumbrance, security interest and adverse claim in or to any of the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (viii) after the occurrence of a Default or
Event of Default, grant extensions of time to pay, compromise claims relating
to, and settle Accounts, Chattel Paper and General Intangibles for less than
face value and execute all releases and other documents in connection therewith;
(ix) pay any sums required on account of Borrower's taxes or to secure the
release of any Liens therefor; (x) pay any amounts necessary to obtain, or
maintain in effect, any of the insurance described in Section 5.12; (xi) settle
and adjust, and give releases of, any insurance claim that relates to any of the
Collateral and obtain payment therefor; (xii) instruct any third party having
custody or control of any Collateral or books or records belonging to, or
relating to, Borrower to give Lender the same rights of access and other rights
with respect thereto as Lender has under this Agreement; and (xiii) after the
occurrence of a Default or Event of Default, change the address for delivery of
Borrower's mail and receive and open all mail addressed to Borrower. Any and all
sums paid, and any and all costs, expenses, liabilities, obligations and
reasonable attorneys' fees incurred, by Lender with respect to the foregoing
shall be added to and become
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part of the Obligations, shall be payable on demand, and shall bear interest at
a rate equal to the highest interest rate applicable to any of the Obligations.
Borrower agrees that Lender's rights under the foregoing power of attorney or
any of Lender's other rights under this Agreement or the other Loan Documents
shall not be construed to indicate that Lender is in control of the business,
management or properties of Borrower.
4.6 Disputes. Borrower shall promptly notify Lender of all disputes and
claims relating to Accounts and Chattel Paper, except such disputes and claims
which are less than $5000, provided that the total aggregate of said disputes
and claims under $5000 shall not exceed $100,000 and except, however, within the
first sixty (60) days following the date of this Agreement with regard to
Accounts which are more than sixty (60) days past due. Borrower will not,
without Lender's prior written consent, compromise or settle any Account or
Chattel Paper for less than the full amount thereof, grant any extension of time
of payment of any Account or Chattel Paper, release (in whole or in part) any
Account Debtor or other person liable for the payment of any Account or Chattel
Paper or grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any Account or Chattel Paper; except
that prior to the occurrence of an Event of Default, Borrower may take any of
such actions in the ordinary course of its business, provided that Borrower
promptly reports the same to Lender.
4.7 Invoices. At Lender's request, Borrower will cause all invoices and
statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender, to reflect Lender's security
interest therein.
4.8 Inventory.
(a) Returns. Provided that no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower will promptly determine the reason for
such return and promptly issue a credit memorandum to the Account Debtor in the
appropriate amount (sending a copy to Lender). After the occurrence of an Event
of Default, Borrower will not accept any return without Lender's prior written
consent. Regardless of whether an Event of Default has occurred, Borrower will
(i) hold the returned Inventory in trust for Lender; (ii) segregate all returned
Inventory from all of Borrower's other property; (iii)conspicuously label the
returned Inventory as Lender's property; and (iv) immediately notify Lender of
the return of such Inventory, specifying the reason for such return, the
location and condition of the returned Inventory and, at Lender's request,
deliver such returned Inventory to Lender at an address specified by Lender.
(b) Other Covenants. Borrower will not, without Lender's prior
written consent, (i) store any Inventory with any warehouseman or other third
party other than as set forth in Section 9(d) of Schedule A or (ii) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis. All of the Inventory has been produced only in accordance with the Fair
Labor Standards Act of 1938 and all rules, regulations and orders promulgated
thereunder.
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4.9 Access to Collateral, Books and Records. At reasonable times, and on
one Business Day's notice, prior to the occurrence of a Default or an Event of
Default, and at any time and with or without notice after the occurrence of a
Default or an Event of Default, Lender or its agents shall have the right to
inspect the Collateral, and the right to examine and copy Borrower's books and
records. Lender shall take reasonable steps to keep confidential all information
obtained in any such inspection or examination, but Lender shall have the right
to disclose any such information to its auditors, regulatory agencies, attorneys
and participants, and pursuant to any subpoena or other legal process. Borrower
agrees to give Lender access to any or all of Borrower's premises to enable
Lender to conduct such inspections and examinations. Such inspections and
examinations shall be at Borrower's expense and the charge therefor shall be
$650 per person per day (or such higher amount as shall represent Lender's then
current standard charge), plus reasonable out-of-pocket expenses. Lender may, at
Borrower's expense, use Borrower's personnel, computer and other equipment,
programs, printed output and computer readable media, supplies and premises for
the collection, sale or other disposition of Collateral to the extent Lender, in
its sole discretion, deems appropriate. Borrower hereby irrevocably authorizes
all accountants and third parties to disclose and deliver to Lender, at
Borrower's expense, all financial information, books and records, work papers,
management reports and other information in their possession regarding Borrower.
Borrower will not enter into any agreement with any accounting firm, service
bureau or third party to store Borrower's books or records at any location other
than Borrower's Address without first obtaining Lender's written consent (which
consent may be conditioned upon such accounting firm, service bureau or other
third party agreeing to give Lender the same rights with respect to access to
books and records and related rights as Lender has under this Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation by, Lender, and (ii) the accuracy of
each such representation, warranty and covenant will be a condition to each Loan
and Credit Accommodation):
5.1 Existence and Authority. Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation. Borrower is qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse effect
on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable against,
Borrower, and all other Obligors who have signed them, in accordance with their
respective terms. Sections 9(g) and 9(h)
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of Schedule A set forth the ownership of Borrower and the names and ownership of
Borrower's Subsidiaries as of the date of this Agreement.
5.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct and complete legal name as of the date
hereof. Listed in Sections 9(a), 9(b) and 9(c) of Schedule A are all prior names
of Borrower and all of Borrower's present and prior trade names. Borrower shall
give Lender at least thirty days' prior written notice before changing its name
or doing business under any other name. Borrower has complied with all laws
relating to the conduct of business under a fictitious business name. Borrower
represents and warrants that (i) each trade name does not refer to another
corporation or other legal entity; (ii) all Accounts invoiced under any such
trade names are owned exclusively by Borrower and are subject to the security
interest of Lender and the other terms of this Agreement and (iii) all schedules
of Accounts, including any sales made or services rendered using any trade name
shall show Borrower's name as assignor.
5.3 Title to Collateral; Permitted Liens. Borrower has good and marketable
title to the Collateral. The Collateral now is and will remain free and clear of
any and all liens, charges, security interests, encumbrances and adverse claims,
except for Permitted Liens. Lender now has, and will continue to have, a first-
priority perfected and enforceable security interest in all of the Collateral,
subject only to the Permitted Liens, and Borrower will at all times defend
Lender and the Collateral against all claims of others. None of the Collateral
which is Equipment is or will be affixed to any real property in such a manner,
or with such intent, as to become a fixture. Except for leases or subleases as
to which Borrower has delivered to Lender a landlord's waiver in form and
substance satisfactory to Lender, Borrower is not a lessee or sublessee under
any real property lease or sublease pursuant to which the lessor or sublessor
may obtain any rights in any of the Collateral, and no such lease or sublease
now prohibits, restrains, impairs or conditions, or will prohibit, restrain,
impair or condition, Borrower's right to remove any Collateral from the
premises. Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under a deed of
trust, lien or otherwise), Borrower shall, whenever requested by Lender, cause
each such third party to execute and deliver to Lender, in form and substance
acceptable to Lender, such waivers and subordinations as Lender shall specify,
so as to ensure that Lender's rights in the Collateral are, and will continue to
be, superior to the rights of any such third party. Borrower will keep in full
force and effect, and will comply with all the terms of, any lease of real
property where any of the Collateral now or in the future may be located,
provided, however, that Borrower may terminate a lease of real property so long
as said termination would not have an adverse affect upon the operations of
Borrower's business or upon the Collateral.
5.4 Accounts and Chattel Paper. As of each date reported by Borrower, all
Accounts which Borrower has reported to Lender as being Eligible Accounts comply
in all respects with the criteria for eligibility established by Lender and in
effect at such time. All Accounts and Chattel Paper are genuine and in all
respects what they purport to be, arise out of a completed, bona fide and
unconditional and non-contingent sale and delivery of goods or rendition of
services by Borrower in the ordinary course of its business and in accordance
with the terms and conditions of all purchase orders, contracts or other
documents relating thereto,
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each Account Debtor thereunder had the capacity to contract at the time any
contract or other document giving rise to such Accounts and Chattel Paper were
executed, and the transactions giving rise to such Accounts and Chattel Paper
comply with all applicable laws and governmental rules and regulations.
5.5 Investment Property. Borrower will take any and all actions required
or requested by Lender, from time to time, to (i) cause Lender to obtain
exclusive control of any Investment Property in a manner acceptable to Lender
and (ii) obtain from any issuers of Investment Property and such other Persons
as Lender shall specify, for the benefit of Lender, written confirmation of
Lender's exclusive control over such Investment Property and take such other
actions as Lender may request to perfect Lender's security interest in such
Investment Property. For purposes of this Section 5.5, Lender shall have
exclusive control of Investment Property if (A) such Investment Property
consists of certificated securities and Borrower delivers such certificated
securities to Lender (with appropriate endorsements if such certificated
securities are in registered form); (B) such Investment Property consists of
uncertificated securities and either (x) Borrower delivers such uncertificated
securities to Lender or (y) the issuer thereof agrees, pursuant to documentation
in form and substance satisfactory to Lender, that it will comply with
instructions originated by Lender without further consent by Borrower, and (C)
such Investment Property consists of security entitlements and either (x) Lender
becomes the entitlement holder thereof or (y) the appropriate securities
intermediary agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with entitlement orders originated
by Lender without further consent by Borrower.
5.6 Place of Business; Location of Collateral. Borrower's Address is
Borrower's chief executive office and the location of its books and records. In
addition, except as provided in the immediately following sentence, Borrower has
places of business and Collateral located only at the locations set forth on
Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least thirty
days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's Address or one
of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and will
execute and deliver all financing statements and other agreements, instruments
and documents which Lender shall require as a result thereof.
5.7 Financial Condition, Statements and Reports. All financial statements
delivered to Lender by or on behalf of Borrower after the date of this Agreement
will have been prepared in conformity with GAAP and completely and fairly
reflect, in all material respects, the financial condition of Borrower, at the
times and for the periods therein stated. Between the last date covered by any
such financial statement provided to Lender and the date of any Loan or the
providing of any Credit Accommodation, there has been no material adverse change
in the financial condition or business of Borrower. Borrower is solvent and able
to pay its debts as they come due, and has sufficient capital to carry on its
business as now conducted and as proposed to be conducted. All schedules,
reports and other information and documentation delivered by Borrower to Lender
with respect to the Collateral are, or will be, when delivered, true, correct
and complete as of the date delivered or the date specified therein.
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5.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed all tax returns and reports required by applicable law, has timely paid
all applicable taxes, assessments, deposits and contributions owing by Borrower
and will timely pay all such items in the future as they became due and payable.
Borrower may, however, defer payment of any contested taxes; provided, that
Borrower (i) in good faith contests Borrower's obligation to pay such taxes by
appropriate proceedings promptly and diligently instituted and conducted; (ii)
notifies Lender in writing of the commencement of, and any material development
in, the proceedings; (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a Lien upon any of the Collateral and (iv)
maintains adequate reserves therefor in conformity with GAAP. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay, all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not withdrawn from
participation in, permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency.
5.9 Compliance with Laws. Borrower has complied in all material respects
with all provisions of all applicable laws and regulations, including those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, the payment and withholding of taxes, ERISA
and other employee matters, safety and environmental matters.
5.10 Litigation. Section9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of Borrower's
knowledge) threatened against Borrower which are not covered by insurance. There
is no claim, suit, litigation, proceeding or investigation pending or (to the
best of Borrower's knowledge) threatened by or against or affecting Borrower in
any court or before any governmental agency (or any basis therefor known to
Borrower) which may result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of Borrower, or
in any material impairment in the ability of Borrower to carry on its business
in substantially the same manner as it is now being conducted. Borrower will
inform Lender in writing on a monthly basis of any claim, proceeding, litigation
or investigation in the future threatened or instituted by or against Borrower,
except that it shall inform Lender in writing promptly if Borrower reasonably
believes such claim, proceeding, litigation or investigation will have a
material adverse effect on Borrower or the Collateral.
5.11 Use of Proceeds. All proceeds of all Loans will be used solely for
working capital in connection with lawful business and general corporate
purposes.
5.12 Insurance. Borrower will at all times carry property, liability and
other insurance, with insurers acceptable to Lender, in such form and amounts,
and with such deductibles and other provisions, as Lender shall require, and
Borrower will provide evidence of such insurance to Lender, so that Lender is
satisfied that such insurance is, at all times, in full
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force and effect. Each property insurance policy shall name Lender as loss payee
and shall contain a lender's loss payable endorsement in form acceptable to
Lender, each liability insurance policy shall name Lender as an additional
insured, and each business interruption insurance policy shall be collaterally
assigned to Lender, all in form and substance satisfactory to Lender. All
policies of insurance shall provide that they may not be cancelled or changed
without at least thirty days' prior written notice to Lender, shall contain
breach of warranty coverage, and shall otherwise be in form and substance
satisfactory to Lender. Upon receipt of the proceeds of any such insurance,
Lender shall apply such proceeds in reduction of the Obligations as Lender shall
determine in its sole discretion. Borrower will promptly deliver to Lender
copies of all reports made to insurance companies.
5.13 Financial and Collateral Reports. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender):
(a) Collateral Reports. On or before the fifteenth day of each month,
a consolidated aging of Borrower's Accounts, Chattel Paper and notes receivable,
and weekly Inventory reports, all in such form, and together with such
additional certificates, schedules and other information with respect to the
Collateral or the business of Borrower or any Obligor, as Lender shall request;
provided, that Borrower's failure to execute and deliver the same shall not
affect or limit Lender's security interests and other rights in any of the
Accounts, nor shall Lender's failure to advance or lend against a specific
Account affect or limit Lender's security interest and other rights therein.
Together with each such schedule, Borrower shall furnish Lender with copies (or,
at Lender's request, originals) of all contracts, orders, invoices, and other
similar documents, and all original shipping instructions, delivery receipts,
bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Accounts, and Borrower warrants the
genuineness of all of the foregoing. In addition, Borrower shall deliver to
Lender the originals of all Instruments, Chattel Paper, security agreements,
guaranties and other documents and property evidencing or securing any Accounts,
immediately upon receipt thereof and in the same form as received, with all
necessary endorsements. Lender may destroy or otherwise dispose of all
documents, schedules and other papers delivered to Lender pursuant to this
Agreement (other than originals of Instruments, Chattel Paper, security
agreements, guaranties and other documents and property evidencing or securing
any Accounts) six months after Lender receives them, unless Borrower requests
their return in writing in advance and arranges for their return to Borrower at
Borrower's expense.
(b) Annual Statements. Not later than 120 days after the close of
each fiscal year of Borrower, unqualified (except for a qualification for a
change in accounting principles with which the accountant concurs) audited
financial statements of Borrower and its Subsidiaries as of the end of such
year, on a consolidated and consolidating basis, certified by a firm of
independent certified public accountants of recognized standing selected by
Borrower but acceptable to Lender, together with a copy of any management letter
issued in connection
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therewith and a letter from such accountants acknowledging that Lender is
relying on such financial statements;
(c) Interim Statements. Not later than thirty days after the end of
each month hereafter, including the last month of Borrower's fiscal year,
unaudited interim financial statements of Borrower and its Subsidiaries as of
the end of such month and of the portion of Borrower's fiscal year then elapsed,
on a consolidated and consolidating basis, certified by the principal financial
officer of Borrower as prepared in accordance with GAAP and fairly presenting
the consolidated financial position and results of operations of Borrower and
its Subsidiaries for such month and period subject only to changes from audit
and year-end adjustments and except that such statements need not contain notes;
(d) Projections, Etc. Such business projections, Availability
projections, business plans, budgets and cash flow statements for Borrower and
its Subsidiaries as Lender shall request from time to time;
(e) Shareholder Reports, Etc. Promptly after the sending or filing
thereof, as the case may be, copies of any proxy statements, financial
statements or reports which Borrower has made available to its shareholders and
copies of any regular, periodic and special reports or registration statements
which Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;
(f) ERISA Reports. Upon request by Lender, copies of any annual
report to be filed pursuant to the requirements of ERISA in connection with each
plan subject thereto; and
(g) Other Information. Such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Borrower's and each of its Subsidiary's financial
condition or results of operations.
5.14 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Lender with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Lender, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that Lender may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
5.15 Maintenance of Collateral, Etc. Borrower will maintain all of its
Equipment in good working condition (except for Equipment to be disposed of in
the ordinary course of business, so long as replaced with similar equipment with
value of at least that of the equipment disposed of and for the disposal of
Equipment, the total aggregate value of which shall not exceed $100,000 and
which is no longer needed in the operation of Borrower's business), ordinary
wear and tear excepted, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Lender in writing of any
material loss or damage to the Collateral and of any investigation, action,
suit, proceeding or claim relating to the Collateral or which may result in an
adverse impact upon Borrower's business, assets or financial condition.
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5.16 Notification of Changes. Borrower will promptly notify Lender in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, or any material adverse change in the business
or financial affairs of Borrower or the existence of any circumstance which
would make any representation or warranty of Borrower untrue in any material
respect or constitute a material breach of any covenant of Borrower.
5.17 Further Assurances. Borrower agrees, at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as Lender may request from time to
time, to perfect and maintain Lender's security interests in the Collateral and
to fully effectuate the transactions contemplated by this Agreement.
5.18 Negative Covenants. Except as set forth in Section 13 of Schedule A,
Borrower will not, without Lender's prior written consent, (i) merge or
consolidate with another Person, form any new Subsidiary or acquire any interest
in any Person; (ii) acquire any assets except in the ordinary course of business
and as otherwise permitted by this Agreement and the other Loan Documents; (iii)
enter into any transaction outside the ordinary course of business, except as
provided in Section 5.15; (iv) sell or transfer any Collateral or other assets
(other than real estate), except that Borrower may sell finished goods Inventory
in the ordinary course of its business; (v) make any loans to, or investments
in, any Affiliate or other Person in the form of money or other assets; (vi)
incur any debt outside the ordinary course of business; (vii) guaranty or
otherwise become liable with respect to the obligations of another party or
entity; (viii) pay or declare any dividends or other distributions on Borrower's
stock, if Borrower is a corporation (except for dividends payable solely in
capital stock of Borrower) or with respect to any equity interests, if Borrower
is not a corporation; except, however, Borrower may pay dividends or make loans
to Mustang Holdings, Inc. on a combined basis to the extent of regularly
scheduled interest and principal payments then due under the terms of that
certain Promissory Note (as in effect on the date hereof) of Mustang Holdings,
Inc. payable to Borg-Warner Security Corporation dated May 29, 1998 in the
original principal amount of $6,500,000 and regularly scheduled interest
payments then due under the terms of that certain Mustang Holdings, Inc.
Subordinated Convertible Promissory Note (as in effect on the date hereof) made
by Mustang Holdings, Inc. payable to Borg-Warner Security Corporation dated May
29, 1998 in the original principal amount of $8,800,000; provided that Borrower
shall have a minimum availability of $1,000,000 immediately following said
dividend distribution; (ix) redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of Borrower's capital stock or other equity
interests; (x)make any change in Borrower's capital structure; (xi) dissolve or
elect to dissolve; (xii) pay any principal or interest on any indebtedness owing
to an Affiliate, (xiii) enter into any transaction with an Affiliate other than
on arms-length terms; or (xiv) agree to do any of the foregoing. Any provision
of this Section 5.19 to the contrary notwithstanding, Borrower may pay monthly
management fees of up to an average of $25,000 per month, so long as there has
not occurred and is continuing an Event of Default. Borrower hereby agrees not
to sell, mortgage, encumber, or otherwise pledge as security for any its present
or future obligations, its interest in
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any real property, without the prior written consent of Lender, which consent
shall not be unreasonably withheld, provided that no Default or Event of Default
has occurred.
5.19 Financial Covenants.
(a) Capital Expenditures. Borrower will not expend or commit to
expend, directly or indirectly, for capital expenditures (including capital
lease obligations) in excess of the amount set forth in Section 8(a) of Schedule
A as the Capital Expenditure Limitation in any fiscal year.
(b) Net Worth. Borrower will at all times maintain a net worth of at
least the amount set forth in Section 8(b) of Schedule A.
(c) Tangible Net Worth. Borrower will at all times maintain a minimum
tangible net worth of at least the amount set forth in Section 8(c) of Schedule
A.
(d) Working Capital. Borrower will at all times maintain working
capital of at least the amount set forth in Section 8(d) of Schedule A.
(e) Net Losses. Borrower will not permit its cumulative net loss to
exceed the amount set forth in Section 8(e) of Schedule A.
(f) Net Income. Borrower will not permit its cumulative net income to
be less than the amount set forth in Section 8(f) of Schedule A.
(g) Leverage. Borrower will not permit the ratio of its total
liabilities to its net worth to exceed, at any time, the ratio set forth in
Section 8(g) of Schedule A.
(h) Other Financial Covenants. Borrower will comply with any
additional financial covenants set forth in Section 8(j) of Schedule A.
6. RELEASE AND INDEMNITY.
6.1 Release. Borrower hereby releases Lender and its Affiliates and their
respective directors, officers, employees, attorneys and agents and any other
Person affiliated with or representing Lender (the "Released Parties") from any
and all liability arising from acts or omissions under or pursuant to this
Agreement, whether based on errors of judgment or mistake of law or fact, except
for those arising from willful misconduct. However, in no circumstance will any
of the Released Parties be liable for lost profits or other special or
consequential damages. Such release is made on the date hereof and remade upon
each request for a Loan or Credit Accommodation by Borrower. Without limiting
the foregoing:
(a) Lender shall not be liable for (i) any shortage or discrepancy
in, damage to, or loss or destruction of, any goods, the sale or other
disposition of which gave rise to an Account; (ii) any error, act, omission, or
delay of any kind occurring in the settlement, failure to settle,
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collection or failure to collect any Account; (iii) settling any Account in good
faith for less than the full amount thereof; or (iv) any of Borrower's
obligations under any contract or agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any goods to
the documents presented, the validity or genuineness of any documents, delay,
default or fraud by Borrower, shippers and/or any other Person. Borrower agrees
that any action taken by Lender, if taken in good faith, or any action taken by
an issuer of any Credit Accommodation, under or in connection with any Credit
Accommodation, shall be binding on Borrower and shall not create any resulting
liability to Lender. In furtherance thereof, Lender shall have the full right
and authority to clear and resolve any questions of non-compliance of documents,
to give any instructions as to acceptance or rejection of any documents or
goods, to execute for Borrower's account any and all applications for steamship
or airway guaranties, indemnities or delivery orders, to grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto.
6.2 Indemnity. Borrower hereby agrees to indemnify the Released Parties
and hold them harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including attorneys' fees), of every nature, character and description, which
the Released Parties may sustain or incur based upon or arising out of any of
the transactions contemplated by this Agreement or the other Loan Documents or
any of the Obligations, including any transactions or occurrences relating to
the issuance of any Credit Accommodation, the Collateral relating thereto, any
drafts thereunder and any errors or omissions relating thereto (including any
loss or claim due to any action or inaction taken by the issuer of any Credit
Accommodation) (and for this purpose any charges to Lender by any issuer of
Credit Accommodations shall be conclusive as to their appropriateness and may be
charged to the Loan Account), or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Lender relating to Borrower or
the Obligations (except any such amounts sustained or incurred as the result of
the willful misconduct of the Released Parties). Notwithstanding any provision
in this Agreement to the contrary, the indemnity agreement set forth in this
Section shall survive any termination of this Agreement.
7. TERM.
7.1 Maturity Date. Lender's obligation to make Loans and to provide Credit
Accommodations under this Agreement shall initially continue in effect until the
Initial Maturity Date set forth in Section 7 of Schedule A (the "Initial Term");
provided, that such date shall automatically be extended (the Initial Maturity
Date, as it may be so extended, being referred to as the "Maturity Date") for
successive additional terms of three years each (each a "Renewal Term"), unless
one party gives written notice to the other, not less than sixty days prior to
the Maturity Date, that such party elects not to extend the Maturity Date. This
Agreement and the other Loan Documents and Lender's security interests in and
Liens upon the Collateral, and all
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representations, warranties and covenants of Borrower contained herein and
therein, shall remain in full force and effect after the Maturity Date until all
of the monetary Obligations are indefeasibly paid in full.
7.2 Early Termination. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective thirty business days after
written notice of termination is given to Lender or (ii) by Lender at any time
after the occurrence of an Event of Default, without notice, effective
immediately; provided, that if any Affiliate of Borrower is also a party to a
financing arrangement with Lender, no such early termination shall be effective
unless such Affiliate simultaneously terminates its financing arrangement with
Lender. If so terminated under this Section 7.2, Borrower shall pay to Lender
(i) an early termination fee (the "Early Termination Fee") in the amount set
forth in Section 6(h) of Schedule A plus (ii) any earned but unpaid Facility
Fee. Such fee shall be due and payable on the effective date of termination and
thereafter shall bear interest at a rate equal to the highest rate applicable to
any of the Obligations. In addition, if Borrower so terminates and repays the
Obligations without having provided Lender with at least thirty days' prior
written notice thereof, an additional amount equal to thirty days of interest at
the applicable Interest Rate(s), based on the average outstanding amount of the
Obligations for the six month period immediately preceding the date of
termination.
7.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay in full all Obligations,
whether or not all or any part of such Obligations are otherwise then due and
payable. Without limiting the generality of the foregoing, if, on the Maturity
Date or on any earlier effective date of termination, there are any outstanding
Credit Accommodations, then on such date Borrower shall provide to Lender cash
collateral in an amount equal to 110% of the Credit Accommodation Balance to
secure all of the Obligations (including estimated attorneys' fees and other
expenses) relating to said Credit Accommodations or such greater percentage or
amount as Lender reasonably deems appropriate, pursuant to a cash pledge
agreement in form and substance satisfactory to Lender.
7.4 Effect of Termination. No termination shall affect or impair any right
or remedy of Lender or relieve Borrower of any of the Obligations until all of
the monetary Obligations have been indefeasibly paid in full. Upon indefeasible
payment and performance in full of all of the monetary Obligations (and the
provision of cash collateral with respect to any Credit Accommodation Balance as
required by Section 7.3) and termination of this Agreement, Lender shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be reasonably required to terminate Lender's
security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Lender immediate written notice thereof: (i) if any warranty, representation,
statement, report or certificate made or delivered to Lender by Borrower or any
of Borrower's officers, employees or agents is untrue or
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misleading; (ii) if Borrower fails to pay when due any principal or interest on
any Loan or any other monetary Obligation; (iii) if Borrower breaches any
covenant or obligation contained in this Agreement or any other Loan Document or
fails to perform any other non-monetary Obligation (provided, that any breach of
Section 5.13(b), 5.13(c), 5.13(d), 5.13(e) or 5.13(f), of this Agreement shall
not constitute an Event of Default until 20 days after the earlier of Borrower's
knowledge of such breach and notice by Lender to Borrower of such breach; (iv)
if any levy, assessment, attachment, seizure, lien or encumbrance (other than a
Permitted Lien) is made or permitted to exist on all or any part of the
Collateral; (v) if one or more judgments aggregating in excess of $25,000, or
any injunction or attachment, is obtained against Borrower or any Obligor which
remains unstayed for more than ten days or is enforced; (vi) the occurrence of
any default under any financing agreement, security agreement or other
agreement, instrument or document executed and delivered by (A) Borrower with,
or in favor of, any Person other than Lender or (B) Borrower or any Affiliate of
Borrower with, or in favor of, Lender or any Affiliate of Lender; (vii) the
dissolution, death, termination of existence in good standing, insolvency or
business failure or suspension or cessation of business as usual of Borrower or
any Obligor (or of any general partner of Borrower or any Obligor if it is a
partnership) or the appointment of a receiver, trustee or custodian for all or
any part of the property of, or an assignment for the benefit of creditors by
Borrower or any Obligor, or the commencement of any proceeding by Borrower or
any Obligor under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect, or if Borrower makes or sends a
notice of a bulk transfer or calls a meeting of its creditors; (viii) the
commencement of any proceeding against Borrower or any Obligor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; (ix) the actual or attempted revocation or termination of, or
limitation or denial of liability upon, any guaranty of the Obligations, or any
security document securing the Obligations, by any Obligor; (x) if Borrower
makes any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations other than as permitted in the applicable
subordination agreement, or if any Person who has subordinated such indebtedness
or obligations attempts to limit or terminate its subordination agreement; (xi)
if there is any actual or threatened indictment of Borrower or any Obligor under
any criminal statute or commencement or threatened commencement of criminal or
civil proceedings against Borrower or any Obligor, pursuant to which the
potential penalties or remedies sought or available include forfeiture of any
property of Borrower or such Obligor; (xii) if there is a change in the record
or beneficial ownership of an aggregate of more than 20% of the outstanding
shares of stock of Borrower (or partnership or membership interests if it is a
partnership or limited liability company), in one or more transactions, compared
to the ownership of outstanding shares of stock (or partnership or membership
interests) of Borrower as of the date hereof, without the prior written consent
of Lender; (xiii) if there is any change in the chief executive officer or, once
appointed, the chief operating officer or chief financial officer of Borrower,
unless, however, a replacement officer, acceptable to Lender, is in place within
thirty (30) days following said change; or (xiv) if an Event of Default occurs
under any Loan and Security Agreement between Lender and an Affiliate of
Borrower.
8.2 Remedies. Upon the occurrence of any Default, and at any time
thereafter, Lender, at its option, may cease making Loans or otherwise extending
credit to Borrower under
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this Agreement or any other Loan Document. Upon the occurrence of any Event of
Default, and at any time thereafter, Lender, at its option, and without notice
or demand of any kind (all of which are hereby expressly waived by Borrower),
may do any one or more of the following: (i) cease making Loans or otherwise
extending credit to Borrower under this Agreement or any other Loan Document;
(ii) accelerate and declare all or any part of the Obligations to be immediately
due, payable and performable, notwithstanding any deferred or installment
payments allowed by any instrument evidencing or relating to any of the
Obligations; (iii) take possession of any or all of the Collateral wherever it
may be found, and for that purpose Borrower hereby authorizes Lender, without
judicial process, to enter onto any of Borrower's premises without interference
to search for, take possession of, keep, store, or remove any of the Collateral,
and remain (or cause a custodian to remain) on the premises in exclusive control
thereof, without charge for so long as Lender deems it reasonably necessary in
order to complete the enforcement of its rights under this Agreement or any
other agreement; provided, that if Lender seeks to take possession of any of the
Collateral by court process, Borrower hereby irrevocably waives (A) any bond and
any surety or security relating thereto required by law as an incident to such
possession, (B) any demand for possession prior to the commencement of any suit
or action to recover possession thereof and (C)any requirement that Lender
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (iv) require Borrower to assemble any or all of the
Collateral and make it available to Lender at one or more places designated by
Lender which are reasonably convenient to Lender and Borrower, and to remove the
Collateral to such locations as Lender may deem advisable; (v) complete the
processing, manufacturing or repair of any Collateral prior to a disposition
thereof and, for such purpose and for the purpose of removal, Lender shall have
the right to use Borrower's premises, vehicles and other Equipment and all other
property without charge; (vi) sell, lease or otherwise dispose of any of the
Collateral, in its condition at the time Lender obtains possession of it or
after further manufacturing, processing or repair, at one or more public or
private sales, in lots or in bulk, for cash, exchange or other property, or on
credit (a "Sale"), and to adjourn any such Sale from time to time without notice
other than oral announcement at the time scheduled for Sale (and, in connection
therewith, (A) Lender shall have the right to conduct such Sale on Borrower's
premises without charge, for such times as Lender deems reasonable, on Lender's
premises, or elsewhere, and the Collateral need not be located at the place of
Sale; (B) Lender may directly or through any of its Affiliates purchase or lease
any of the Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and (C) any Sale of Collateral shall
not relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title, physical condition or otherwise at the time of sale);
(vii) demand payment of and collect any Accounts, Chattel Paper, Instruments and
General Intangibles included in the Collateral and, in connection therewith,
Borrower irrevocably authorizes Lender to endorse or sign Borrower's name on all
collections, receipts, Instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of Collateral or proceeds thereof and, in Lender's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Accounts, General Intangibles and the like for less than face value; and (viii)
demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
relating thereto. In addition to the foregoing remedies, upon the occurrence of
any Event of Default resulting from a breach of any of the financial covenants
set forth in Section 5.19, Lender may, at its option, upon
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not less than ten days' prior notice to Borrower, reduce any or all of the
Advance Rates set forth in Section 1(b) of Schedule A to the extent Lender, in
its sole discretion, deems appropriate. In addition to the rights and remedies
set forth above, Lender shall have all the other rights and remedies accorded a
secured party after default under the UCC and under all other applicable laws,
and under any other Loan Document, and all of such rights and remedies are
cumulative and non-exclusive. Exercise or partial exercise by Lender of one or
more of its rights or remedies shall not be deemed an election or bar Lender
from subsequent exercise or partial exercise of any other rights or remedies.
The failure or delay of Lender to exercise any rights or remedies shall not
operate as a waiver thereof, but all rights and remedies shall continue in full
force and effect until all of the Obligations have been fully paid and
performed. If notice of any sale or other disposition of Collateral is required
by law, notice at least seven days prior to the sale designating the time and
place of sale in the case of a public sale or the time after which any private
sale or other disposition is to be made shall be deemed to be reasonable notice,
and Borrower waives any other notice. If any Collateral is sold or leased by
Lender on credit terms or for future delivery, the Obligations shall not be
reduced as a result thereof until payment is collected by Lender.
8.3 Application of Proceeds. Subject to any application required by law,
all proceeds realized as the result of any Sale shall be applied by Lender to
the Obligations in such order as Lender shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled thereto;
but Borrower shall remain liable to Lender for any deficiency. If Lender, in its
sole discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any Sale, Lender shall have the option,
exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of the purchase price or deferring the
reduction of the Obligations until the actual receipt by Lender of the cash
therefor.
9. GENERAL PROVISIONS.
9.1 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service, by regular first-class mail or certified mail return receipt requested,
addressed to Lender or Borrower at the address shown in the heading to this
Agreement, or by facsimile to the facsimile number shown in Section 9(i) of
Schedule A, or at any other address (or to any other facsimile number)
designated in writing by one party to the other party in the manner prescribed
in this Section 9.1. All notices shall be deemed to have been given when
received or when delivery is refused by the recipient.
9.2 Severability. If any provision of this Agreement, or the application
thereof to any party or circumstance, is held to be void or unenforceable by any
court of competent jurisdiction, such defect shall not affect the remainder of
this Agreement, which shall continue in full force and effect.
9.3 Integration. This Agreement and the other Loan Documents represent
the final, entire and complete agreement between Borrower and Lender and
supersede all prior and contemporaneous negotiations, oral representations and
agreements, all of which are merged and
21
<PAGE>
integrated into this Agreement. THERE ARE NO ORAL UNDERSTANDINGS,
REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT SET FORTH IN
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4 Waivers. The failure of Lender at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other Loan Documents shall not waive or diminish any right of Lender later to
demand and receive strict compliance therewith. Any waiver of any default shall
not waive or affect any other default, whether prior or subsequent, and whether
or not similar. None of the provisions of this Agreement or any other Loan
Document shall be deemed to have been waived by any act or knowledge of Lender
or its agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, Instrument, Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
9.5 Amendment. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
9.6 Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement and the other Loan
Documents.
9.7 Attorneys Fees and Costs. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to, in
connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this Agreement
and the other Loan Documents; to obtain legal advice in connection with this
Agreement and the other Loan Documents or Borrower or any Obligor; to administer
this Agreement and the other Loan Documents (including the cost of periodic
financing statement, tax lien and other searches conducted by Lender); to
enforce, or seek to enforce, any of its rights; prosecute actions against, or
defend actions by, Account Debtors; to commence, intervene in, or defend any
action or proceeding; to initiate any complaint to be relieved of the automatic
stay in bankruptcy; to file or prosecute any probate claim, bankruptcy claim,
third-rate claim, or other claim, to examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; to protect, obtain
possession of, lease, dispose of, or otherwise enforce Lender's security
interests in, the Collateral; and to otherwise represent Lender in any
litigation relating to Borrower. If either Lender or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including reasonable attorneys' fees and costs incurred in the enforcement
of, execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Lender may be entitled pursuant to this
Section shall immediately become part of the
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<PAGE>
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.
9.8 Benefit of Agreement; Assignability. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and Lender;
provided, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Lender, and any prohibited
assignment shall be void. No consent by Lender to any assignment shall release
Borrower from its liability for any of the Obligations. Lender shall have the
right to assign all or any of its rights and obligations under the Loan
Documents, and to sell participating interests therein, to one or more other
Persons, and Borrower agrees to execute all agreements, instruments and
documents requested by Lender in connection with each such assignment and
participation.
9.9 Headings; Construction. Section and subsection headings are used in
this Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
9.10 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND
FEDERAL COURTS IN NEW YORK OR THE STATE IN WHICH ANY OF THE COLLATERAL IS
LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES THAT ANY CLAIM OR
---------------------
DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL COURTS OF NEW
YORK. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER AND SHALL BE
DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE
23
<PAGE>
EXTENT PERMITTED BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
9.11 WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM
OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE
OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR
BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE; (ii) THE RIGHT TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING
INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii)NOTICE PRIOR TO LENDER'S
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as of
the date set forth in the heading.
Borrower: Lender:
PONY EXPRESS DELIVERY NATIONSCREDIT COMMERCIAL
SERVICES, INC. CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By_______________________________ By_________________________________
Its____________________________ Its Authorized Signatory
24
<PAGE>
Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement
between PONY EXPRESS DELIVERY SERVICES, INC., a Delaware corporation, and
NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION (the "Agreement").
1. Loan Limits for Revolving
Loans:
(a) Maximum Facility Nine Million and 00/100 Dollars
Amount: ($9,000,000.00)
(b) Advance Rates:
(i) Accounts Eighty-Five Percent (85%); provided,
Advance Rate: that if the Dilution Percentage exceeds
3%, Lender may, at its option, (i)
reduce the advance rate or (ii)
implement a reserve, for any amount
of such excess percentage.
(ii) Inventory
Advance
Rate(s):
(A) Finished
goods: N/A
(B) Raw
materials: N/A
(C) Work in
process: N/A
(c) Accounts Sublimit: At any time of determination, the lesser
of (i) $9,000,000 and (ii) Borrower's
cash collections during the 30-day
period immediately preceding such time.
(d) Inventory
Sublimit(s):
A-1
<PAGE>
(i) Overall sublimit N/A
on advances
against Eligible
Inventory
(ii) Sublimit on N/A
advances
against finished
goods
(iii) Sublimit on N/A
advances
against raw
materials
(iv) Sublimit on N/A
advances
against work in
process
(e) Credit
Accommodation
Limit: N/A
(f) Permanent Reserve
Amount: N/A
(g) Overadvance
Amount: N/A
2. Loan Limits for Term
Loan:
(a) Principal Amount:
(i) Equipment N/A
Advance
(ii) Real Property N/A
Advance:
(b) Repayment Schedule:
(i) Equipment
Advance: N/A
A-2
<PAGE>
(ii) Real Property
Advance: N/A
3. Interest Rates:
(a) Revolving Loans: One Percent (1%) per annum in
excess of the Prime Rate
(a) Term Loan: N/A
4. Minimum Loan Amount: None
5. Maximum Days:
(a) Maximum days after
original invoice date
for Eligible
Accounts: 60 days
(b) Maximum days after
original invoice due
date for Eligible
Accounts: N/A
6. Fees:
(a) Closing Fee: $90,000.00
(b) Facility Fee:
(i) Initial Term: None
(ii) Renewal
Term(s): None
(c) Servicing Fee: None
(d) Unused Line Fee: 0.25% per annum
(e) Minimum Borrowing Fee:
(i) Applicable
period: N/A
(ii) Date payable: N/A
A-3
<PAGE>
(f) Success Fee: None
(g) Warrants: None
(h) Early Termination Three percent (3 %) of the Maximum
fees: Facility Amount if terminated
during the first year of the Term,
two percent (2%) of the Maximum
Facility Amount if terminated
during the second year of the
Term, and one percent (1%) of the
Maximum Facility Amount if
terminated during the third year
of the Term and zero percent (0%)
of the Maximum Facility Amount if
terminated thereafter; provided
however, that the Early
Termination shall be waived if all
Obligations are refinanced by
NationsBank.
(i) Fees for letters N/A
of credit and
other Credit
Accommodations (or
guaranties thereof by
Lender):
7. Initial Maturity Date: May 29, 2002
8. Financial Covenants:
(a) Capital Expenditure
Limitation: N/A
(b) Minimum Net Worth
Requirement: N/A
(c) Minimum Tangible
Net Worth: N/A
(d) Minimum Working
Capital: N/A
(e) Maximum
Cumulative Net Loss: N/A
(f) Minimum
A-4
<PAGE>
Cumulative Net
Income: N/A
(g) Maximum Leverage
Ratio: N/A
(h) Limitation on
Purchase Money
Security Interests: N/A
(i) Limitation on
Equipment Leases: No limitations.
(j) Additional Financial
Covenants: N/A
9. Borrower Information:
(a) Prior Names of
Borrower: None
(b) Prior Trade Names of
Borrower: Pony Express Courier Corporation
(c) Existing Trade
Names of Borrower: Pony Express
(d) Inventory Locations: None
(e) Other Locations: None
(f) Litigation: See Schedule C attached hereto and
incorporated herein by this
reference.
(g) Ownership of
Borrower: 100% of the outstanding common
stock held by Mustang Holdings,
Inc.
(h) Subsidiaries (and
ownership thereof): None.
(i) Facsimile Numbers:
Borrower: (913)385-5577
A-5
<PAGE>
Lender: (212)597-1675
10. Description of Real
Property: N/A
11. Lender's Bank: First Chicago-NBD
12. Other Covenants: None
13. Exceptions to Negative
Covenants: None
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as of
the date set forth in the heading to the Agreement.
Borrower: Lender:
PONY EXPRESS DELIVERY NATIONSCREDIT COMMERCIAL
SERVICES, INC. CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By_______________________________ By_________________________________
Its____________________________ Its Authorized Signatory
A-6
<PAGE>
Schedule B
Definitions
This Schedule is an integral part of the Loan and Security Agreement
between PONY EXPRESS DELIVERY SERVICES, INC., a Delaware corporation, and
NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION (the "Agreement")
As used in the Agreement, the following terms have the following meanings:
"Account" means any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"Account Debtor" means the obligor on an Account or Chattel Paper.
"Account Proceeds" has the meaning set forth in Section 4.1.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, member, manager, director, officer, or employee of such Person, any
parent or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person or any other Person affiliated, directly
or indirectly, by virtue of family membership, ownership, management or
otherwise.
"Agreement" and "this Agreement" mean the Loan and Security Agreement
of which this Schedule B is a part and the Schedules thereto.
"Availability" has the meaning set forth in Section l.l(a)
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
(S) 101 et seq.)
-- ---
"Blocked Account" has the meaning set forth in Section 4.1.
"Borrower" has the meaning set forth in the heading to the Agreement.
"Borrower's Address" has the meaning set forth in the heading to the
Agreement.
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<PAGE>
"Business Day" means a day other than a Saturday or Sunday or any
other day on which Lender or banks in New York, New York, are authorized to
close.
"Chattel Paper" has the meaning set forth in the UCC.
"Collateral" means all property and interests in property in or upon
which a security interest or other Lien is granted pursuant to this Agreement or
the other Loan Documents.
"Credit Accommodation" has the meaning set forth in Section l.l(a).
"Credit Accommodation Balance" means the sum of (i) the aggregate
undrawn face amount of all outstanding Credit Accommodations and (ii) all
interest, fees and costs due or, in Lender's estimation, likely to become due in
connection therewith.
"Default" means any event which with notice or passage of time, or
both, would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.1.
"Deposit Account" has the meaning set forth in the UCC.
"Dilution Percentage" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Borrower's Accounts computed as a percentage of Borrower's gross sales,
calculated on a ninety (90) day rolling average.
"Document" has the meaning set forth in the UCC.
"Early Termination Fee" has the meaning set forth in Section 7.2.
"Eligible Account" means, at any time of determination, an Account
which satisfies the general criteria set forth below and which is otherwise
acceptable to Lender (provided, that Lender may, in its sole discretion, change
the general criteria for acceptability of Eligible Accounts upon at least
fifteen days' prior notice to Borrower). An Account shall be deemed to meet the
current general criteria if (i) neither the Account Debtor nor any of its
Affiliates is an Affiliate, creditor or supplier of Borrower; (ii) it does not
remain unpaid more than the earlier to occur of (A) the number of days after the
original invoice date set forth in Section 5(a) of Schedule A or (B) the number
of days after the original invoice due date set forth in Section 5(b) of
Schedule A; (iii) the Account Debtor or its Affiliates are not past due on other
Accounts owing to Borrower comprising more than 25% of all of the Accounts owing
to Borrower by such Account Debtor or its Affiliates; (iv) all Accounts owing by
the Account Debtor or its Affiliates do not represent more than 20% of all
otherwise Eligible Accounts (provided, that Accounts which are deemed to be
ineligible solely by reason of this clause (iv)
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<PAGE>
shall be considered Eligible Accounts to the extent of the amount thereof which
does not exceed 20% of all otherwise Eligible Accounts); (v) no covenant,
representation or warranty contained in this Agreement with respect to such
Account (including any of the representations set forth in Section 5.4) has been
breached; (vi) the Account is not subject to any contra relationship,
counterclaim, dispute or set-off (provided, that Accounts which are deemed to be
ineligible solely by reason of this clause (vi) shall be considered Eligible
Accounts to the extent of the amount thereof which is not affected by such
contra relationships, counterclaims, disputes or set-offs); (vii) the Account
Debtor's chief executive office or principal place of business is located in the
United States or Provinces of Canada which have adopted the Personal Property
Security Act or a similar act, unless (A) the sale is fully backed by a letter
of credit, guaranty or acceptance acceptable to Lender in its sole discretion,
and if backed by a letter of credit, such letter of credit has been issued or
confirmed by a bank satisfactory to Lender, is sufficient to cover such Account,
and if required by Lender, the original of such letter of credit has been
delivered to Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender or (B) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender; (viii) it is absolutely
owing to Borrower and does not arise from a sale on a bill-and-hold, guarantied
sale, sale-or-return, sale-on-approval, consignment, retainage or any other
repurchase or return basis or consist of progress billings; (ix) Lender shall
have verified the Account in a manner satisfactory to Lender; (x) the Account
Debtor is not the United States of America or any state or political subdivision
(or any department, agency or instrumentality thereof), unless Borrower has
complied with the Assignment of Claims Act of 1940 (31 U.S.C. (S)203 et seq.) or
other applicable similar state or local law in a manner satisfactory to Lender;
(xi) it is at all times subject to Lender's duly perfected, first priority
security interest and to no other Lien that is not a Permitted Lien, and the
goods giving rise to such Account (A) were not, at the time of sale, subject to
any Lien except Permitted Liens and (B) have been delivered to and accepted by
the Account Debtor, or the services giving rise to such Account have been
performed by Borrower and accepted by the Account Debtor; (xii) the Account is
not evidenced by Chattel Paper or an Instrument of any kind and has not been
reduced to judgment; (xiii) the Account Debtor's total indebtedness to Borrower
does not exceed the amount of any credit limit established by Borrower or Lender
and the Account Debtor is otherwise deemed to be creditworthy by Lender
(provided, that Accounts which are deemed to be ineligible solely by reason of
this clause (xiii) shall be considered Eligible Accounts to the extent the
amount of such Accounts does not exceed the lower of such credit limits); (xiv)
there are no facts or circumstances existing, or which could reasonably be
anticipated to occur, which might result in any adverse change in the Account
Debtor's financial condition or impair or delay the collectibility of all or any
portion of such Account; (xv) Lender has been furnished with all documents and
other information pertaining to such Account which Lender has requested, or
which Borrower is obligated to deliver to Lender, pursuant to this Agreement;
(xvi) Borrower has not made an agreement with the Account Debtor to extend the
time of payment thereof beyond the time periods set forth in clause (ii) above;
and (xvii) Borrower has not posted a surety or other bond in respect of the
contract under which such Account arose.
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<PAGE>
"Eligible Equipment" means, at any time of determination, Equipment
owned by Borrower which Lender, in its sole discretion, deems to be eligible for
borrowing purposes.
"E1igible Inventory" means, at any time of determination, Inventory
(other than packaging materials and supplies) which satisfies the general
criteria set forth below and which is otherwise acceptable to Lender (provided,
that Lender may, in its sole discretion, change the general criteria for
acceptability of Eligible Inventory upon at least fifteen days' prior written
notice to Borrower). Inventory shall be deemed to meet the current general
criteria if (i) it consists of raw materials or finished goods, or work-in-
process that is readily marketable in its current form; (ii) it is in good, new
and saleable condition; (iii) it is not slow-moving, obsolete, unmerchantable,
returned or repossessed; (iv) it is not in the possession of a processor,
consignee or bailee, or located on premises leased or subleased to Borrower, or
on premises subject to a mortgage in favor of a Person other than Lender, unless
such processor, consignee, bailee or mortgagee or the lessor or sublessor of
such premises, as the case may be, has executed and delivered all documentation
which Lender shall require to evidence the subordination or other limitation or
extinguishment of such Person's rights with respect to such Inventory and
Lender's right to gain access thereto; (v) it meets all standards imposed by any
governmental agency or authority; (vi) it conforms in all respects to any
covenants, warranties and representations set forth in the Agreement; (vii) it
is at all times subject to Lender's duly perfected, first priority security
interest and no other Lien except a Permitted Lien; and (viii)it is situated at
an Inventory Location listed in Section9(d) of Schedule A or other location of
which Lender has been notified as required by Section 5.6.
"Eligible Real Property" means, at any time of determination, Real
Property owned by Borrower which Lender, in its sole discretion, deems to be
eligible for borrowing purposes.
"Equipment" means all Goods which are used or bought for use primarily
in business (including farming or a profession) or by a Person who is a non-
profit organization or governmental subdivision or agency and which are not
Inventory, farm products or consumer goods, including all machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies and jigs, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to, or spare parts for, any of the foregoing.
"Equipment Advance" has the meaning set forth in Section 1.l(b).
"ERISA" means the Employee Retirement Income Security Act of 1974 and
all rules, regulations and orders promulgated thereunder.
"Event of Default" has the meaning set forth in Section 8.1.
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<PAGE>
"GAAP means generally accepted accounting principles as in effect from
time to time, consistently applied.
"General Intangibles" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral and other business
and financial records in the possession of Borrower or any other Person,
inventions, designs, drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than "intent to use" applications
until a verified statement of use is filed with respect to such applications)
and the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, causes of action and other rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, internet
addresses, proprietary information, purchase orders, and all insurance policies
and claims (including life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance), tax refunds and
claims, letters of credit, banker's acceptances and guaranties, computer
programs, discs, tapes and tape files in the possession of Borrower or any other
Person, claims under guaranties, security interests or other security held by or
granted to Borrower, all rights to indemnification and all other intangible
property of every kind and nature.
"Goods" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"Initial Term" has the meaning set forth in Section 7.1.
"Instrument," meaning set forth in the UCC.
"Inventory" means all Goods held for sale or lease or furnished or to
be furnished under contracts of service, including all raw materials, work in
process, finished goods, goods in transit and materials and supplies which are
or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"Investment Property" shall mean all of Borrower's securities, whether
certificated or uncertificated, securities entitlements, securities accounts,
commodity contracts and commodity accounts.
"Lender" has the meaning set forth in the heading to the Agreement.
-11-
<PAGE>
"Lien" means any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, Borrower shall be deemed
to be the owner of any property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for security
purposes.
"Loan Account" has the meaning set forth in Section 2.4.
"Loan Documents" means the Agreement and all notes, guaranties,
security agreements, certificates, landlord's agreements, Lock Box and Blocked
Account agreements and all other agreements, documents and instruments now or
hereafter executed or delivered by Borrower or any Obligor in connection with,
or to evidence the transactions contemplated by, this Agreement.
"Loan Limits" means, collectively, the Availability limits and all
other limits on the amount of Loans and Credit Accommodations set forth in this
Agreement.
"Loans" means, collectively, the Revolving Loans and any Term Loan.
"Lock Box" has the meaning set forth in Section 4.1.
"Maturity Date" has the meaning set forth in Section 7.1.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Lender, whether evidenced by this Agreement or any
other Loan Document, whether arising from an extension of credit, opening of a
Credit Accommodation, guaranty, indemnification or otherwise (including all
fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in Borrower's indebtedness owing to
others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, loan fees, Early Termination Fees, Minimum Borrowing Fees and any
other sums chargeable to Borrower under this Agreement or under any other Loan
Document.
-12-
<PAGE>
"Obligor" means any guarantor, endorser, acceptor, surety or other
person liable on, or with respect to, the Obligations or who is the owner of any
property which is security for the Obligations, other than Borrower.
"Permitted Liens" means: (i) purchase money security interests in
specific items of Equipment in an aggregate amount not to exceed the limit set
forth in Section 8(h) of Schedule A; (ii) leases of specific items of Equipment
in an aggregate amount not to exceed the limit set forth in Section 8(i) of
Schedule A; (iii) Liens for taxes not yet due and payable; (iv) additional Liens
which are fully subordinate to the security interests of Lender and are
consented to in writing by Lender; (v) security interests being terminated
concurrently with the execution of this Agreement; (vi) Liens of materialmen,
mechanics, warehousemen or carriers arising in the ordinary course of business
and securing obligations which are not delinquent; (vii) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clause (i) or (ii) above; provided,
that any extension, renewal or replacement Lien is limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase; (viii) Liens in favor
of customs and revenue authorities which secure payment of customs duties in
connection with the importation of goods; and (ix) security deposits posted in
connection with real property leases or subleases. Lender will have the right to
require, as a condition to its consent under clause (iv) above, that the holder
of the additional Lien sign an intercreditor agreement in form and substance
satisfactory to Lender, in its sole discretion, acknowledging that the Lien is
subordinate to the security interests of Lender, and agreeing not to take any
action to enforce its subordinate Lien so long as any Obligations remain
outstanding, and that Borrower agree that any uncured default in any obligation
secured by the subordinate Lien shall also constitute an Event of Default under
this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"Prime Rate" means, at any given time, the prime rate as quoted in The
Wall Street Journal as the base rate on corporate loans posted as of such time
by at least 75% of the nation's 30 largest banks (which rate is not necessarily
the lowest rate offered by such banks).
"Real Property" means the real property described in Section 10 of
Schedule A.
"Real Property Advance" has the meaning set forth in Section l.l(b).
"Released Parties" has the meaning set forth in Section 6.1.
"Renewal Term" has the meaning set forth in Section 7.1.
"Reserves" has the meaning set forth in Section 1.2.
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<PAGE>
"Revolving Loans" has the meaning set forth in Section 1.l(a).
"Sale" has the meaning set forth in Section 8.2.
"Subsidiary" means any corporation or other entity of which a Person
owns, directly or indirectly, through one or more intermediaries, more than 50%
of the capital stock or other equity interest at the time of determination.
"Term" means the period commencing on the date of this Agreement and
ending on the Maturity Date.
"Term Loan" has the meaning set forth in Section 1.l(b).
"UCC" means, at any given time, the Uniform Commercial Code as adopted
and in effect at such time in the State of New York.
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the UCC, to the extent such terms are defined therein. The
term "including," whenever used in this Agreement, shall mean "including but not
limited to." The singular form of any term shall include the plural form, and
vice versa, when the context so requires. References to Sections, subsections
and Schedules are to Sections and subsections of, and Schedules to, this
Agreement. All references to agreements and statutes shall include all
amendments thereto and successor statutes in the case of statutes.
-14-
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as of
the date set forth in the heading to the Agreement.
Borrower: Lender:
PONY EXPRESS DELIVERY NATIONSCREDIT COMMERCIAL
SERVICES, INC. CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By_________________________________ By_______________________________
Its____________________________ Its Authorized Signatory
-15-
<PAGE>
EXHIBIT 10.23
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment") is
made and entered into as of the 30th day of September, 1998, by and between PONY
EXPRESS DELIVERY SERVICES, INC., a Delaware corporation, (the "Borrower") and
NATIONSCREDIT COMMERCIAL CORPORATION THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION, a Delaware corporation (the "Lender").
WHEREAS, Borrower and Lender entered into that certain Loan and Security
Agreement dated May 29, 1998, wherein Lender agreed to make available to
Borrower a revolving line of credit facility up to the maximum principal amount
of $9,000,000 (the "Loan Agreement", capitalized terms contained herein and not
defined herein shall have the meaning ascribed to them in the Loan Agreement);
and
WHEREAS, the Borrower and Lender now desire to amend the Loan Agreement in
accordance with the terms and conditions stated herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Revolving Loan Notes and Term Loan Note. The Loan Agreement is hereby
---------------------------------------
amended by adding thereto the following section 1.6.
"1.6 Revolving Loan Notes and Term Loan Note.
(a) The Revolving Loan Notes. The Revolving Loans and reimbursement
obligations with respect to Credit Accommodations shall be evidenced by and be
repayable in accordance with the terms of Revolving Loan Note I ("Revolving Loan
Note I"), in the maximum principal amount of $400,000, the form of which is
attached as Exhibit A to the First Amendment to this Agreement dated September
30, 1998 (the "First Amendment") and Revolving Loan Note II, in the maximum
principal amount of $8,600,000 the form of which is attached as Exhibit B to the
First Amendment ("Revolving Loan Note II"). Any provision of this Agreement to
the contrary notwithstanding, all advances of Revolving Loans shall first be
drawn under Revolving Loan Note I and to the extent that Revolving Loan Note I
is fully drawn, said advances shall then be drawn under Revolving Loan Note II.
All repayments of Revolving Loans shall be first applied to Revolving Loan Note
II and then, to the extent that such repayments shall cause the balance of
Revolving Loan Note II to be reduced to zero, said repayments shall be applied
to Revolving Loan Note I.
(b) Term Loan Note. Real Property Advances of the Term Loan shall be
evidenced by and be repayable in accordance with the terms of the Term Loan Note
("Term Loan Note"), in the principal amount of $1,295,000, the form of which is
attached as Exhibit C to the First Amendment ("Term Loan Note").
<PAGE>
2. Schedule A. The Loan Agreement is hereby amended by deleting
----------
Schedule A as originally attached to the Loan Agreement and attaching the First
Amended and Restated Schedule A which is attached hereto and shall be
incorporated into the Loan Agreement as amended hereby.
3. Real Estate Collateral. The Loan Agreement is hereby amended adding
----------------------
the following Section 3.2.
"3.2 The obligations of Lender evidenced by Revolving Loan Note I and the
Term Loan Note are secured by a first lien on the real estate described in
Section 10(a) of Schedule A. All of the Obligations are secured a first lien on
the real estate described in Section 10(b) of Schedule A."
4. Definitions. The Loan Agreement is hereby amended by adding the
-----------
following definitions:
""Revolving Loan Note I" has the meaning set forth in Section 1.6.
"Revolving Loan Note II" has the meaning set forth in Section 1.6.
"Term Loan Note" has the meaning set forth in Section 1.6."
and by deleting the definition of "Obligations" contained therein and
inserting the following definition of "Obligations" in lieu thereof:
""Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Lender, whether evidenced by this Agreement, Revolving
Loan Note I, Revolving Loan Note II, the Term Loan Note or any other Loan
Document, whether arising from an extension of credit, opening of a Credit
Accommodation, guaranty, indemnification or otherwise (including all fees, costs
and other amounts which may be owing to issuers of Credit Accommodations and all
taxes, duties, freight, insurance, costs and other expenses, costs or amounts
payable in connection with Credit Accommodations or the underlying goods),
whether direct or indirect (including those acquired by assignment and any
participation by Lender in Borrower's indebtedness owing to others), whether
absolute or contingent, whether due or to become due, and whether arising before
or after the commencement of a proceeding under the Bankruptcy Code or any
similar statute, including all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, loan fees, Early
Termination Fees, Minimum Borrowing Fees and any other sums chargeable to
Borrower under this Agreement or under any other Loan Document."
and by deleting the definition of "Loan Documents" contained therein and
inserting the following definition of "Loan Documents" in lieu thereof:
""Loan Documents" means the Agreement, Revolving Loan Note I,
Revolving Loan Note II, the Term Loan Note and all other notes, guaranties,
security agreements, certificates,
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<PAGE>
landlord's agreements, Lock Box and Blocked Account agreements and all other
agreements, documents and instruments now or hereafter executed or delivered by
Borrower or any Obligor in connection with, or to evidence the transactions
contemplated by, this Agreement."
5. Representations and Warranties. The representations and warranties
------------------------------
contained in the Loan Agreement are hereby reaffirmed as if made on the date
hereof. The Borrower further represents and warrants that, as of the date
hereof, (i) the Borrower is in compliance with all terms and conditions of the
Loan Agreement, (ii) there exists no Event of Default, and (iii) there exists no
event or condition which would, with the lapse of time or the giving of notice
or both, become an Event of Default.
6. Conditions to Effectiveness of Amendment. The obligation of Lender to
----------------------------------------
agree to the foregoing amendments to the terms of the Loan Agreement is subject
to fulfillment of the following conditions:
(a) confirmation to Lender's satisfaction that Borrower is in
good standing in all jurisdiction of its incorporation and that Lender
continues to maintain a first priority security interest in all collateral;
(b) confirmation to Lender's satisfaction that this Amendment
and the other agreements required hereunder have been duly authorized by
all required corporate and other action and are the legal, valid and
binding obligations of the parties thereto, enforceable in accordance with
their respective terms (including, if requested by Lender, an opinion of
counsel to the foregoing effect and covering such other matters as Lender
may request);
(c) confirmation to the satisfaction of Lender that all
representations, warranties and covenants under the Loan Agreement and all
agreements executed in connection therewith are true and correct and
unbreached as of the date hereof;
(d) confirmation to the satisfaction of Lender that Lender has a
first, perfected lien on the real property described in Section 10 of
Schedule A, a title policy or binding commitment for policy of title
insurance with respect to each parcel of real property, in form and
substance satisfactory to Lender and a survey of each parcel of real
property satisfactory to Lender.
(e) due execution by the Borrower of Revolving Loan Note I,
Revolving Loan Note II, the Term Loan Note and all other notes and other
documents to be delivered thereunder and all instruments and documents to
be delivered hereunder, all in form and substance satisfactory to Lender in
its sole discretion;
(f) execution by the guarantors of the Acknowledgment and
Agreement of Guarantors attached hereto;
-3-
<PAGE>
(g) delivery to Lender of such other certifications and
documents and the performance of such other acts as Lender may reasonably
request.
7. Confirmation of Obligations, Liens and Security Interests. Borrower
---------------------------------------------------------
hereby ratifies and confirms that, except as expressly herein set forth, the
Loan Agreement and all liens, security interests and other rights in favor of
Lender as provided therein and all agreements delivered by or on behalf of
Borrower to Lender in connection therewith remain in full force and effect and
remain enforceable in accordance with their respective terms.
8. No Other Amendments; Reaffirmation. Except as amended hereby, the Loan
----------------------------------
Agreement and all other Loan Documents shall remain in full force and effect and
be binding on the Borrower in accordance with their respective terms. The
Borrower hereby ratifies and reaffirms its obligations under the Loan Agreement
and the other Loan Documents, and acknowledges and covenants that its has no
defense, claim or right of set-off in respect thereof.
9. Course of Dealing. No course of dealing heretofore or hereafter
-----------------
between Lender and Borrower and no failure or delay on the part of Lender in
exercising any rights or remedies under the Loan Agreement or this Amendment or
existing at law or in equity shall operate as a waiver of any right or remedy of
Lender with respect to the Borrower's obligations except to the extent expressly
stated in this Amendment.
10. Release. In consideration of the agreement of Lender to modify the
-------
terms of the Loan Agreement as set forth in this Amendment, Borrower hereby
releases, discharges and acquits forever the Lender and any of its officers,
directors, servants, agents, employees and attorneys, past and present, from any
and all claims, demands and causes of action, of whatever nature, whether in
contract or tort, accrued or to accrue, contingent or vested, known or unknown,
arising out of or relating to the loans evidenced by the Loan Agreement, as
hereby amended, or Lender's administration of same or any other actions taken
pursuant to the Loan Agreement or under any other documents or instruments
evidencing loans made by Lender to Borrower or the administration of same
through the date hereof. Borrower hereby further indemnifies and holds Lender,
any officers, directors, servants, agents, employees and attorneys of Lender,
past or present, harmless from any and all such claims, demands and causes of
action by Borrower, or anyone claiming by, through or under Borrower or any of
them, said indemnity to cover all losses, expenses incurred by the Lender, its
officers, directors, servants, agents, employees or attorneys, past or present,
in connection with any such claims, demands, or causes of action, including all
attorneys' fees and costs.
11. Costs and Expenses. The Borrower hereby reaffirms its agreement under
------------------
the Loan Agreement to pay or reimburse the Lender on demand for all costs and
expenses incurred by the Lender in connection with the Loan Agreement and all
other documents contemplated thereby, including without limitation all
reasonable fees and disbursements of legal counsel. Without limiting the
generality of the foregoing, the Borrower specifically agrees to pay all fees
and disbursements of counsel to Lender for the services performed by such
counsel in connection with the preparation of this Amendment and the documents
and instruments incidental hereto. The Borrower hereby agrees that Lender may,
at any time or from time to time in its sole
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<PAGE>
discretion and without further authorization by the Borrower, make a loan to the
Borrower under the Loan Agreement, or apply the proceeds of any loan, for the
purpose of paying any such fees, disbursements, costs and expenses.
12. Counterparts. This Amendment and the Acknowledgment and Agreement of
------------
Guarantors may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original and all of which
counterparts, taken together, shall constitute one and the same instrument.
13. Miscellaneous.
-------------
(a) The Loan Agreement and all other Loan Documents are hereby
amended wherever necessary to reflect the foregoing amendments.
(b) This Amendment shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns.
(c) This Amendment shall be construed in accordance with and be
governed by the laws of the State of New York.
(d) Borrower agrees to execute such other and further documents,
instruments and agreements as Lender may request to implement the
provisions of this Amendment.
(e) Wherever possible each provision of this Amendment shall be
interpreted in such a manner as to be effective and valid under applicable
law, but if any provision of this Amendment shall be prohibited or invalid
under applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Amendment.
[remainder of page intentionally omitted]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
and delivered by their duly authorized representatives as of the date first
above written.
PONY EXPRESS DELIVERY
SERVICES, INC.
By:___________________________
Name:_________________________
Title:________________________
NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By:___________________________
Name:_________________________
Title:________________________
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<PAGE>
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS
------------------------------------------
MUSTANG HOLDINGS, INC., a Kansas corporation, and COURIER EXPRESS,
INC., a California corporation, a each a guarantor of the indebtedness of PONY
EXPRESS DELIVERY SERVICES, INC. (the "Borrower") pursuant to their guaranties
dated May 29, 1998 and September 30, 1998, respectively (each, a "Guaranty"),
hereby (i) each acknowledges receipt of the foregoing Amendment; (ii) each
consents to the terms and execution thereof; (iii) each reaffirms its
obligations to the Lender pursuant to the terms of its Guaranty; and (iv) each
acknowledges that Lender may amend, restate, extend, renew or otherwise modify
the Loan Agreement and any indebtedness or agreement of the Borrower, or enter
into any agreement or extend additional or other credit accommodations, without
notifying or obtaining the consent of the undersigned and without impairing the
liability of the undersigned under his or its Guaranty.
Mustang Holdings, Inc.
By:___________________________
Name:_________________________
Title:________________________
Courier Express, Inc.
By:___________________________
Name:_________________________
Title:________________________
7
<PAGE>
First Amended and Restated Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement
between PONY EXPRESS DELIVERY SERVICES, INC., a Delaware corporation, and
NationsCredit Commercial Corporation, through its NationsCredit Commercial
Funding Division (the "Agreement").
1. Loan Limits for Revolving
Loans:
(a) Maximum Facility Ten Million Two Hundred
Amount: Ninety-Five Thousand and
00/100 Dollars
($10,295,000.00)
(b) Advance Rates:
(i) Accounts Advance Eighty-Five Percent (85%);
Rate: provided, that if the Dilution
Percentage exceeds 3%, Lender
may, at its option, (i) reduce
the advance rate or (ii)
implement a reserve, for any
amount of such excess
percentage.
(ii) Inventory
Advance
Rate(s):
(A) Finished N/A
goods:
(B) Raw N/A
materials:
(C) Work in N/A
process
(c) Accounts Sublimit: At any time of determination,
lesser of (i) $9,000,000 and
(ii) Borrower's cash
collections during the 30-day
period immediately preceding
such time.
(d) Inventory
Sublimit(s):
8
<PAGE>
(i) Overall sublimit on N/A
advances against
Eligible
Inventory
(ii) Sublimit on N/A
advances against
finished goods
(iii) Sublimit on N/A
raw materials
advances against
(iv) Sublimit on N/A
advances against
work in process
(e) Credit N/A
Accommodation
Limit:
(f) Permanent Reserve
Amount: N/A
(g) Overadvance
Amount: N/A
2. Loan Limits for Term
Loan:
(a) Principal Amount:
(i) Equipment N/A
Advance
(ii) Real $1,295,000
Property
Advance:
(b) Repayment
Schedule:
(i) Equipment N/A
Advance:
9
<PAGE>
(ii) Real In addition to interest payments due and
Property payable pursuant to Section 1.4 of the Loan
Advance: Agreement, principal shall be repaid in
monthly payments of $21,583.33, commencing
November 1, 1998, with subsequent payments
due on the first day of each month
thereafter, and the outstanding balance of
principal and interest due on the Maturity
Date.
3. Interest Rates:
(a) Revolving Loans: One Percent (1%) per annum in excess of
the Prime Rate
(b) Term Loan: One Percent (1%) per annum in excess of the
Prime Rate
4. Minimum Loan Amount: None
5. Maximum Days:
(a) Maximum days
after original invoice
date for Eligible
Accounts: 60 days
(b) Maximum days
after original invoice
due date for Eligible
Accounts: N/A
6. Fees:
10
<PAGE>
(a) Closing Fee: $90,000.00 paid in connection with original
Loan Agreement
$35,000 is to be paid in connection with
First Amendment to Loan and Security
Agreement. No fee to be due and payable with
respect to the subsequent amendment of the
Loan Agreement and the entering into of any
other agreements required to provide for
Advances of the Revolving Loans to Courier
Express, Inc., based on the Availability of
Courier Express, Inc.
(b) Facility Fee:
(i) Initial Term: None
(ii) Renewal
Term(s): None
(c) Servicing Fee: None
(d) Unused Line Fee: 0.25% per annum
(e) Minimum
Borrowing Fee:
(i) Applicable period: N/A
(ii) Date
payable: N/A
(f) Success Fee: None
(g) Warrants: None
(h) Early Termination Three percent (3 %) of the Maximum Facility
Fee: Amount if terminated during the first year of
the Term, two percent (2%) of the Maximum
Facility Amount if terminated during the
second year of the Term, and one percent (1%)
of the Maximum Facility Amount if terminated
during the third year of the Term and zero
percent (0%) of the Maximum Facility Amount
if terminated
11
<PAGE>
thereafter; provided however,
that the Early Termination shall be waived if
all Obligations are refinanced by
NationsLender.
(i) Fees for letters of N/A
credit and other Credit
Accommodations (or
guaranties thereof by
Lender):
7. Initial Maturity Date: May 29, 2002
8. Financial Covenants:
(a) Capital Expenditure N/A
Limitation:
(b) Minimum Net N/A
Worth Requirement:
(c) Minimum Tangible N/A
Net Worth:
(d) Minimum Working N/A
Capital:
(e) Maximum N/A
Cumulative Net Loss:
(f) Minimum N/A
Cumulative Net
Income:
(g) Maximum Leverage
Ratio: N/A
(h) Limitation on
Purchase Money N/A
Security Interests:
12
<PAGE>
(i) Limitation on
Equipment Leases: No limitation
(j) Additional N/A
Financial Covenants:
9. Borrower Information:
(a) Prior Names of
Borrower: None
(b) Prior Trade Names
of Borrower: Pony Express Courier Corporation
(c) Existing Trade
Names of Borrower: Pony Express
(d) Inventory None
Locations:
(e) Other Locations: None
(f) Litigation: See Schedule C attached hereto and
incorporated herein by this reference.
(g) Ownership of
Borrower: 100% of the outstanding common stock held by
Mustang Holdings, Inc.
(h) Subsidiaries (and
ownership thereof): None.
(i) Facsimile Numbers:
Borrower: (913)385-5577
Lender: 312-609-1930
13
<PAGE>
10. Description of Real
Property:
(a) Real property located
in Fulton, County Georgia
and legally described on
Exhibit 1 attached hereto
and incorporated herein.
(b) Real property
located in Adams County,
Colorado and legally
described on Exhibit 2
attached hereto and
incorporated herein.
11. Lender's Lender: First Chicago-NBD
12. Other Covenants: None
13. Exceptions to Negative Covenants: None
14
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as of
the date set forth in the heading to the First Amendment to Loan and Security
Agreement.
Borrower: Lender:
PONY EXPRESS DELIVERY SERVICES, NationsCredit Commercial
INC. Corporation, through its
NationsCredit Commercial Funding
Division
By ___________________________________ By _______________________________
Its________________________________ Its Authorized Signatory
15
<PAGE>
Exhibit 1
Legal Description of Fulton County, Georgia Real Estate
16
<PAGE>
Exhibit 2
Legal Description of Adams County, Colorado Real Estate
17
<PAGE>
Exhibit A
REVOLVING LOAN NOTE I
---------------------
$400,000 September 30, 1998
For value received, the undersigned, PONY EXPRESS DELIVERY SERVICES, INC.,
a Delaware corporation (the "Borrower"), hereby promises to pay to the order of
NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION, a Delaware corporation (the "Lender"), in lawful money of the
United States of America, the principal sum of Four Hundred Thousand and 00/100
Dollars ($400,000), or if less, the amount outstanding under Section 1 of the
Loan Agreement (as hereinafter defined), together with interest from the date
hereof at the rate provided for in Section 2 of the Loan Agreement. Principal
and interest of this Note shall be payable at the time or times provided in
Section 1 of the Loan Agreement.
This Revolving Credit Note I (the "Note") is the Revolving Credit Note I
referred to in, and is issued pursuant to, that certain Loan and Security
Agreement between Borrower and Lender dated as of September 30, 1998 (as amended
or otherwise modified from time to time, the "Loan Agreement"), and is entitled
to all of the benefits and security of the Loan Agreement and other documents
granting security interests identified therein. All of the terms, covenants and
conditions of the Loan Agreement and all other instruments evidencing or
securing the indebtedness hereunder are hereby made a part of this Note and are
deemed incorporated herein in full. All capitalized terms used herein, unless
otherwise specifically defined in this Note, shall have the meanings ascribed to
them in the Loan Agreement.
Interest hereunder shall be computed on the basis of actual days elapsed
over the period of a 360-day year. Upon or after the occurrence and during the
continuation of any Event of Default, the outstanding principal balance of this
Note shall bear interest at a variable rate per annum equal to the Default Rate
until the principal balance of this Note is paid in full.
In no contingency or event whatsoever, whether by reason of advancement of
the proceeds hereof or otherwise, shall the amount paid or agreed to be paid to
Lender for the use, forbearance or detention of money advanced hereunder exceed
the highest lawful rate permissible under any law which a court of competent
jurisdiction may deem applicable hereto.
The termination of the Loan Agreement or the occurrence of an Event of
Default shall entitle Lender, at its option, to declare the then outstanding
principal balance and accrued interest hereon to be, and the same shall
thereupon become, immediately due and payable without notice to or demand upon
Borrower, all of which Borrower hereby expressly waives.
Time is of the essence of this Note. To the fullest extent permitted by
applicable law, Borrower, for itself and its successors and assigns, expressly
waives presentment, demand, protest, notice of dishonor, and any and all other
notices, demands and consents in connection
18
<PAGE>
with the delivery, acceptance, performance, default or enforcement of this Note,
and hereby consents to any extensions of time, renewals, releases or any parties
to or guarantors of this Note, waivers and any other modifications that may be
granted or consented to by Lender from time to time in respect of the time of
payment or any other provision of this Note.
Wherever possible each provision of this Note shall be interpreted in such
a manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or remaining provisions of this
Note. No delay or failure on the part of Lender in the exercise of any right or
remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in
any default, nor shall any single or partial exercise by Lender of any right or
remedy preclude any other right or remedy. Lender, at its option, may enforce
its rights against any collateral securing this Note without enforcing its
rights against Borrower, any guarantor of the indebtedness evidenced hereby or
any other property or indebtedness due or to become due to Borrower. Borrower
agrees that, without releasing or impairing Borrower's liability hereunder,
Lender may at any time release, surrender, substitute or exchange any collateral
securing this Note and may at any time release any party primarily or
secondarily liable for the indebtedness evidenced by this Note.
This Note is secured by the Collateral described in the Loan Agreement.
This Note shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of New York.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed and
delivered by its duly authorized representative as of the date first above
written.
PONY EXPRESS DELIVERY SERVICES, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
19
<PAGE>
Exhibit B
REVOLVING LOAN NOTE II
----------------------
$8,600,000 September 30, 1998
For value received, the undersigned, PONY EXPRESS DELIVERY SERVICES, INC.,
a Delaware corporation (the "Borrower"), hereby promises to pay to the order of
NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION, a Delaware corporation (the "Lender"), in lawful money of the
United States of America, the principal sum of Eight Million Six Hundred
Thousand and 00/100 Dollars ($8,600,000), or if less, the amount outstanding
under Section 1 of the Loan Agreement (as hereinafter defined), together with
interest from the date hereof at the rate provided for in Section 2 of the Loan
Agreement. Principal and interest of this Note shall be payable at the time or
times provided in Section 1 of the Loan Agreement.
This Revolving Credit Note II (the "Note") is the Revolving Credit Note II
referred to in, and is issued pursuant to, that certain Loan and Security
Agreement between Borrower and Lender dated as of September 30, 1998 (as amended
or otherwise modified from time to time, the "Loan Agreement"), and is entitled
to all of the benefits and security of the Loan Agreement and other documents
granting security interests identified therein. All of the terms, covenants and
conditions of the Loan Agreement and all other instruments evidencing or
securing the indebtedness hereunder are hereby made a part of this Note and are
deemed incorporated herein in full. All capitalized terms used herein, unless
otherwise specifically defined in this Note, shall have the meanings ascribed to
them in the Loan Agreement.
Interest hereunder shall be computed on the basis of actual days elapsed
over the period of a 360-day year. Upon or after the occurrence and during the
continuation of any Event of Default, the outstanding principal balance of this
Note shall bear interest at a variable rate per annum equal to the Default Rate
until the principal balance of this Note is paid in full.
In no contingency or event whatsoever, whether by reason of advancement of
the proceeds hereof or otherwise, shall the amount paid or agreed to be paid to
Lender for the use, forbearance or detention of money advanced hereunder exceed
the highest lawful rate permissible under any law which a court of competent
jurisdiction may deem applicable hereto.
The termination of the Loan Agreement or the occurrence of an Event of
Default shall entitle Lender, at its option, to declare the then outstanding
principal balance and accrued interest hereon to be, and the same shall
thereupon become, immediately due and payable without notice to or demand upon
Borrower, all of which Borrower hereby expressly waives.
Time is of the essence of this Note. To the fullest extent permitted by
applicable law.
Borrower, for itself and its successors and assigns, expressly waives
presentment,
20
<PAGE>
demand, protest, notice of dishonor, and any and all other notices, demands and
consents in connection with the delivery, acceptance, performance, default or
enforcement of this Note, and hereby consents to any extensions of time,
renewals, releases or any parties to or guarantors of this Note, waivers and any
other modifications that may be granted or consented to by Lender from time to
time in respect of the time of payment or any other provision of this Note.
Wherever possible each provision of this Note shall be interpreted in such
a manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or remaining provisions of this
Note. No delay or failure on the part of Lender in the exercise of any right or
remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in
any default, nor shall any single or partial exercise by Lender of any right or
remedy preclude any other right or remedy. Lender, at its option, may enforce
its rights against any collateral securing this Note without enforcing its
rights against Borrower, any guarantor of the indebtedness evidenced hereby or
any other property or indebtedness due or to become due to Borrower. Borrower
agrees that, without releasing or impairing Borrower's liability hereunder,
Lender may at any time release, surrender, substitute or exchange any collateral
securing this Note and may at any time release any party primarily or
secondarily liable for the indebtedness evidenced by this Note.
This Note is secured by the Collateral described in the Loan Agreement.
This Note shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of New York.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed and
delivered by its duly authorized representative as of the date first above
written.
PONY EXPRESS DELIVERY SERVICES, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
21
<PAGE>
Exhibit C
TERM LOAN NOTE
--------------
$1,295,000 September 30, 1998
For value received, the undersigned, PONY EXPRESS DELIVERY SERVICES, INC.,
a Delaware corporation (the "Borrower"), hereby promises to pay to the order of
NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION, a Delaware corporation (the "Lender"), in lawful money of the
United States of America, the principal sum of One Million Two Hundred Ninety-
Five Thousand and 00/100 Dollars ($1,295,000), together with interest from the
date hereof at the rate provided for in Section 2 of the Loan Agreement.
Principal and interest of this Note shall be payable at the time or times
provided in Section 1 of the Loan Agreement.
This Term Loan Note (the "Note") is the Term Loan Note referred to in, and
is issued pursuant to, that certain Loan and Security Agreement between Borrower
and Lender dated as of September 30, 1998 (as amended or otherwise modified from
time to time, the "Loan Agreement"), and is entitled to all of the benefits and
security of the Loan Agreement and other documents granting security interests
identified therein. All of the terms, covenants and conditions of the Loan
Agreement and all other instruments evidencing or securing the indebtedness
hereunder are hereby made a part of this Note and are deemed incorporated herein
in full. All capitalized terms used herein, unless otherwise specifically
defined in this Note, shall have the meanings ascribed to them in the Loan
Agreement.
Interest hereunder shall be computed on the basis of actual days elapsed
over the period of a 360-day year. Upon or after the occurrence and during the
continuation of any Event of Default, the outstanding principal balance of this
Note shall bear interest at a variable rate per annum equal to the Default Rate
until the principal balance of this Note is paid in full.
In no contingency or event whatsoever, whether by reason of advancement of
the proceeds hereof or otherwise, shall the amount paid or agreed to be paid to
Lender for the use, forbearance or detention of money advanced hereunder exceed
the highest lawful rate permissible under any law which a court of competent
jurisdiction may deem applicable hereto.
The termination of the Loan Agreement or the occurrence of an Event of
Default shall entitle Lender, at its option, to declare the then outstanding
principal balance and accrued interest hereon to be, and the same shall
thereupon become, immediately due and payable without notice to or demand upon
Borrower, all of which Borrower hereby expressly waives.
Time is of the essence of this Note. To the fullest extent permitted by
applicable law.
Borrower, for itself and its successors and assigns, expressly waives
presentment, demand, protest, notice of dishonor, and any and all other notices,
demands and consents in
22
<PAGE>
connection with the delivery, acceptance, performance, default or enforcement of
this Note, and hereby consents to any extensions of time, renewals, releases or
any parties to or guarantors of this Note, waivers and any other modifications
that may be granted or consented to by Lender from time to time in respect of
the time of payment or any other provision of this Note.
Wherever possible each provision of this Note shall be interpreted in such
a manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or remaining provisions of this
Note. No delay or failure on the part of Lender in the exercise of any right or
remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in
any default, nor shall any single or partial exercise by Lender of any right or
remedy preclude any other right or remedy. Lender, at its option, may enforce
its rights against any collateral securing this Note without enforcing its
rights against Borrower, any guarantor of the indebtedness evidenced hereby or
any other property or indebtedness due or to become due to Borrower. Borrower
agrees that, without releasing or impairing Borrower's liability hereunder,
Lender may at any time release, surrender, substitute or exchange any collateral
securing this Note and may at any time release any party primarily or
secondarily liable for the indebtedness evidenced by this Note.
This Note is secured by the Collateral described in the Loan Agreement.
This Note shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of New York.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed and
delivered by its duly authorized representative as of the date first above
written.
PONY EXPRESS DELIVERY SERVICES, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
23
<PAGE>
EXHIBIT 10.24
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
-----------------------------------------------
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Second
Amendment") is made and entered into as of the 20th day of October, 1998, by and
between PONY EXPRESS DELIVERY SERVICES, INC., a Delaware corporation, (the
"Borrower") and NATIONSCREDIT COMMERCIAL CORPORATION THROUGH ITS NATIONSCREDIT
COMMERCIAL FUNDING DIVISION, a Delaware corporation (the "Lender") .
WHEREAS, Borrower and Lender entered into that certain Loan and Security
Agreement dated May 29, 1998, wherein Lender agreed to make available to
Borrower a revolving line of credit facility up to the maximum principal amount
of $9,000,000 (the "Loan Agreement", capitalized terms contained herein and not
defined herein shall have the meaning ascribed to them in the Loan Agreement);
and
WHEREAS, the Borrower and Lender previously amended the Loan Agreement, as
set forth pursuant to the terms of the First Amendment to Loan and Security
Agreement (the "First Amendment"), dated September 30, 1998.
WHEREAS, the Borrower and Lender now desire to further amend the Loan
Agreement in accordance with the terms and conditions stated herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Schedule A. The Loan Agreement and the First Amendment are hereby
----------
amended by deleting Schedule A as originally attached to the Loan Agreement and
subsequently amended and attached to the First Amendment, by attaching the
Second Amended and Restated Schedule A which is attached hereto and shall be
incorporated into the Loan Agreement and First Amendment as amended hereby.
2. Events of Default. The Loan Agreement is hereby amended by changing
-----------------
Section 8.1, subsection (xiv), which presently states:
"(xiv) if an Event of Default occurs under any Loan and Security
Agreement between Lender and an Affiliate of Borrower"
to provide as follows:
"(xiv) if an Event of Default occurs under any Loan and Security
Agreement between Lender and an Affiliate of Borrower, including but not limited
to that certain Loan and Security Agreement between Lender and Courier Express,
Inc., dated October __, 1998."
<PAGE>
3. Definitions. The Loan Agreement and First Amendment are hereby
-----------
amended by deleting the definition of "Obligations" contained therein and
inserting the following definition of "Obligations" in lieu thereof:
""Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties (including but not limited to that certain
Guaranty by Pony Express Delivery Services, Inc. of the obligations of Courier
Express, Inc. to Lender dated October __, 1998), covenants, duties and
indebtedness at any time owing by Borrower to Lender, whether evidenced by this
Agreement, Revolving Loan Note I, Revolving Loan Note II, the Term Loan Note or
any other Loan Document, whether arising from an extension of credit, opening of
a Credit Accommodation, guaranty, indemnification or otherwise (including all
fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in Borrower's indebtedness owing to
others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, loan fees, Early Termination Fees, Minimum Borrowing Fees and any
other sums chargeable to Borrower under this Agreement or under any other Loan
Document."
4. Representations and Warranties. The representations and warranties
------------------------------
contained in the Loan Agreement and the First Amendment are hereby reaffirmed as
if made on the date hereof. The Borrower further represents and warrants that,
as of the date hereof, (i) the Borrower is in compliance with all terms and
conditions of the Loan Agreement, (ii) there exists no Event of Default, and
(iii) there exists no event or condition which would, with the lapse of time or
the giving of notice or both, become an Event of Default.
5. Conditions to Effectiveness of Amendment. The obligation of Lender to
----------------------------------------
agree to the foregoing amendments to the terms of the Loan Agreement and the
First Amendment is subject to fulfillment of the following conditions:
(a) confirmation to Lender's satisfaction that Borrower is in
good standing in all jurisdiction of its incorporation and that Lender
continues to maintain a first priority security interest in all collateral;
(b) confirmation to Lender's satisfaction that this Amendment
and the other agreements required hereunder have been duly authorized by
all required corporate and other action and are the legal, valid and
binding obligations of the parties thereto, enforceable in accordance with
their respective terms (including, if requested by Lender, an opinion of
counsel to the foregoing effect and covering such other matters as Lender
may request);
-2-
<PAGE>
(c) confirmation to the satisfaction of Lender that all
representations, warranties and covenants under the Loan Agreement and all
agreements executed in connection therewith are true and correct and
unbreached as of the date hereof;
(d) execution by the guarantors of the Acknowledgment and
Agreement of Guarantors attached hereto;
(e) delivery to Lender of such other certifications and
documents and the performance of such other acts as Lender may reasonably
request.
6. Confirmation of Obligations, Liens and Security Interests. Borrower
---------------------------------------------------------
hereby ratifies and confirms that, except as expressly herein set forth, the
Loan Agreement and all liens, security interests and other rights in favor of
Lender as provided therein and all agreements delivered by or on behalf of
Borrower to Lender in connection therewith remain in full force and effect and
remain enforceable in accordance with their respective terms.
7. No Other Amendments; Reaffirmation. Except as amended hereby, the Loan
----------------------------------
Agreement, the First Amendment and all other Loan Documents shall remain in full
force and effect and be binding on the Borrower in accordance with their
respective terms. The Borrower hereby ratifies and reaffirms its obligations
under the Loan Agreement, the First Amendment and the other Loan Documents, and
acknowledges and covenants that its has no defense, claim or right of set-off in
respect thereof.
8. Course of Dealing. No course of dealing heretofore or hereafter
-----------------
between Lender and Borrower and no failure or delay on the part of Lender in
exercising any rights or remedies under the Loan Agreement, the First Amendment
or this Amendment or existing at law or in equity shall operate as a waiver of
any right or remedy of Lender with respect to the Borrower's obligations except
to the extent expressly stated in this Amendment.
9. Release. In consideration of the agreement of Lender to modify the
-------
terms of the Loan Agreement and the First Amendment as set forth in this
Amendment, Borrower hereby releases, discharges and acquits forever the Lender
and any of its officers, directors, servants, agents, employees and attorneys,
past and present, from any and all claims, demands and causes of action, of
whatever nature, whether in contract or tort, accrued or to accrue, contingent
or vested, known or unknown, arising out of or relating to the loans evidenced
by the Loan Agreement, as hereby amended, or Lender's administration of same or
any other actions taken pursuant to the Loan Agreement or under any other
documents or instruments evidencing loans made by Lender to Borrower or the
administration of same through the date hereof. Borrower hereby further
indemnifies and holds Lender, any officers, directors, servants, agents,
employees and attorneys of Lender, past or present, harmless from any and all
such claims, demands and causes of action by Borrower, or anyone claiming by,
through or under Borrower or any of them, said indemnity to cover all losses,
expenses incurred by the Lender, its officers, directors, servants, agents,
employees or attorneys, past or present, in connection with any such claims,
demands, or causes of action, including all attorneys' fees and costs.
-3-
<PAGE>
10. Costs and Expenses. The Borrower hereby reaffirms its agreement under
------------------
the Loan Agreement and the First Amendment to pay or reimburse the Lender on
demand for all costs and expenses incurred by the Lender in connection with the
Loan Agreement and all other documents contemplated thereby, including without
limitation all reasonable fees and disbursements of legal counsel. Without
limiting the generality of the foregoing, the Borrower specifically agrees to
pay all fees and disbursements of counsel to Lender for the services performed
by such counsel in connection with the preparation of this Amendment and the
documents and instruments incidental hereto. The Borrower hereby agrees that
Lender may, at any time or from time to time in its sole discretion and without
further authorization by the Borrower, make a loan to the Borrower under the
Loan Agreement, or apply the proceeds of any loan, for the purpose of paying any
such fees, disbursements, costs and expenses.
11. Counterparts. This Amendment and the Acknowledgment and Agreement of
------------
Guarantors may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original and all of which
counterparts, taken together, shall constitute one and the same instrument.
12. Miscellaneous.
-------------
(a) The Loan Agreement, the First Amendment and all other Loan
Documents are hereby amended wherever necessary to reflect the foregoing
amendments.
(b) This Amendment shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns.
(c) This Amendment shall be construed in accordance with and be
governed by the laws of the State of New York.
(d) Borrower agrees to execute such other and further documents,
instruments and agreements as Lender may request to implement the
provisions of this Amendment.
(e) Wherever possible each provision of this Amendment shall be
interpreted in such a manner as to be effective and valid under applicable
law, but if any provision of this Amendment shall be prohibited or invalid
under applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Amendment.
[remainder of page intentionally omitted]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
and delivered by their duly authorized representatives as of the date first
above written.
PONY EXPRESS DELIVERY
SERVICES, INC.
By:___________________________
Name:_________________________
Title:________________________
NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By:___________________________
Name:_________________________
Title:________________________
-5-
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS
------------------------------------------
MUSTANG HOLDINGS, INC., a Kansas corporation, and COURIER EXPRESS,
INC., a California corporation, a each a guarantor of the indebtedness of PONY
EXPRESS DELIVERY SERVICES, INC. (the "Borrower") pursuant to their guaranties
dated May 29, 1998 and September 15, 1998, respectively (each, a "Guaranty"),
hereby (i) each acknowledges receipt of the foregoing Amendment; (ii) each
consents to the terms and execution thereof; (iii) each reaffirms its
obligations to the Lender pursuant to the terms of its Guaranty; and (iv) each
acknowledges that Lender may amend, restate, extend, renew or otherwise modify
the Loan Agreement and any indebtedness or agreement of the Borrower, or enter
into any agreement or extend additional or other credit accommodations, without
notifying or obtaining the consent of the undersigned and without impairing the
liability of the undersigned under his or its Guaranty.
Mustang Holdings, Inc.
By:___________________________
Name:_________________________
Title:________________________
Courier Express, Inc.
By:___________________________
Name:_________________________
Title:________________________
6
<PAGE>
Second Amended and Restated Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement
between PONY EXPRESS DELIVERY SERVICES, INC., a Delaware corporation, and
NationsCredit Commercial Corporation, through its NationsCredit Commercial
Funding Division (the "Agreement").
1. Loan Limits for Revolving Loans:
(a) Maximum Facility Amount: Ten Million Two Hundred Ninety-Five
Thousand and 00/100 Dollars
($10,295,000.00), less any outstanding
Obligation owed by Courier Express, Inc.
pursuant to the terms of that certain Loan
and Security Agreement dated October __,
1998
(b) Advance Rates:
(i) Accounts Advance Rate: Eighty-Five Percent (85%); provided, that
if the Dilution Percentage exceeds 3%,
Lender may, at its option, (i) reduce the
advance rate or (ii) implement a reserve,
for any amount of such excess percentage.
(ii) Inventory Advance Rate(s):
(A) Finished goods: N/A
(B) Raw materials: N/A
(C) Work in process: N/A
7
<PAGE>
(c) Accounts Sublimit: At any time of determination, lesser of
(i) $9,000,000 and (ii) Borrower's cash
collections during the 30-day period
immediately preceding such time.
(d) Inventory Sublimit(s):
(i) Overall sublimit on
advances against
Eligible Inventory N/A
(ii) Sublimit on advances
against finished goods N/A
(iii) Sublimit on advances
against raw materials N/A
(iv) Sublimit on advances
against work in process N/A
(e) Credit Accommodation Limit: N/A
(f) Permanent Reserve Amount: N/A
(g) Overadvance Amount: N/A
2. Loan Limits for Term Loan:
(a) Principal Amount:
(i) Equipment Advance N/A
8
<PAGE>
(ii) Real Property Advance: $1,295,000
(b) Repayment Schedule:
(i) Equipment Advance: N/A
(ii) Real Property Advance: In addition to interest payments due and
payable pursuant to Section 1.4 of the
Loan Agreement, principal shall be repaid
in monthly payments of $21,583.33,
commencing November 1, 1998, with
subsequent payments due on the first day
of each month thereafter, and the
outstanding balance of principal and
interest due on the Maturity Date.
3. Interest Rates:
(a) Revolving Loans: One Percent (1%) per annum in excess of
the Prime Rate
(b) Term Loan: One Percent (1%) per annum in excess of
the Prime Rate
4. Minimum Loan Amount: None
5. Maximum Days:
(a) Maximum days after original
invoice date for Eligible
Accounts: 60 days
9
<PAGE>
(b) Maximum days after original
invoice due date for Eligible
Accounts: N/A
6. Fees:
(a) Closing Fee: $90,000.00 paid in connection with
original Loan Agreement
$35,000 is to be paid in connection with
First Amendment to Loan and Security
Agreement. No fee to be due and payable
with respect to the subsequent amendment
of the Loan Agreement and the entering
into of any other agreements required to
provide for Advances of the Revolving
Loans to Courier Express, Inc., based on
the Availability of Courier Express, Inc.
(b) Facility Fee:
(i) Initial Term: None
(ii) Renewal Term(s): None
(c) Servicing Fee: None
(d) Unused Line Fee: 0.25% per annum
(e) Minimum Borrowing Fee:
(i) Applicable period: N/A
(ii) Date payable: N/A
(f) Success Fee: None
(g) Warrants: None
10
<PAGE>
(h) Early Termination Fee: Three percent (3 %) of the Maximum
Facility Amount if terminated during the
first year of the Term, two percent (2%)
of the Maximum Facility Amount if
terminated during the second year of the
Term, and one percent (1%) of the Maximum
Facility Amount if terminated during the
third year of the Term and zero percent
(0%) of the Maximum Facility Amount if
terminated thereafter; provided however,
that the Early Termination shall be waived
if all Obligations are refinanced by
NationsBank.
(i) Fees for letters of credit N/A
and other Credit
Accommodations (or guaranties
thereof by Lender):
7. Initial Maturity Date: May 29, 2002
8. Financial Covenants:
(a) Capital Expenditure Limitation: N/A
(b) Minimum Net Worth Requirement: N/A
(c) Minimum Tangible Net Worth: N/A
(d) Minimum Working Capital: N/A
(e) Maximum Cumulative Net Loss: N/A
11
<PAGE>
(f) Minimum Cumulative Net Income: N/A
(g) Maximum Leverage Ratio: N/A
(h) Limitation on Purchase Money N/A
Security Interests:
(i) Limitation on Equipment No limitation
Leases:
(j) Additional Financial Covenants: N/A
9. Borrower Information:
(a) Prior Names of Borrower: None
(b) Prior Trade Names of Borrower: Pony Express Courier Corporation
(c) Existing Trade Names of Pony Express
Borrower:
(d) Inventory Locations: None
(e) Other Locations: None
(f) Litigation: See Schedule C attached hereto and
incorporated herein by this reference.
(g) Ownership of Borrower: 100% of the outstanding common stock held
by Mustang Holdings, Inc.
(h) Subsidiaries (and ownership None.
thereof):
12
<PAGE>
(i) Facsimile Numbers:
Borrower: (913)385-5577
Lender: 312-609-1930
10. Description of Real Property:
(a) Real property located in
Fulton, County Georgia and
legally described on Exhibit 1
attached hereto and
incorporated herein.
(b) Real property located in
Adams County, Colorado and
legally described on Exhibit 2
attached hereto and
incorporated herein.
11. Lender's Bank: First Chicago-NBD
12. Other Covenants: None
13. Exceptions to Negative
Covenants: None
13
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as of
the date set forth in the heading to the Second Amendment to Loan and Security
Agreement.
Borrower: Lender:
PONY EXPRESS DELIVERY SERVICES, INC. NationsCredit Commercial
Corporation, through its
NationsCredit Commercial Funding
Division
By ______________________________ By ______________________________
Its___________________________ Its Authorized Signatory
14
<PAGE>
EXHIBIT 10.25
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Third Amendment")
is made and entered into as of the 18th day of June, 1999, by and between PONY
EXPRESS DELIVERY SERVICES, INC., a Delaware corporation, ("Borrower") and FLEET
ACQUISITION CORP., a Nevada corporation ("Pledgor"), and NATIONSCREDIT
COMMERCIAL CORPORATION THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION, a
Delaware corporation ("Lender").
WHEREAS, Borrower and Lender entered into that certain Loan and Security
Agreement dated May 29, 1998, wherein Lender agreed to make available to
Borrower a revolving line of credit facility up to the maximum principal amount
of $9,000,000, which said Loan and Security Agreement has been previously
amended as set forth pursuant to the terms of the First Amendment to Loan and
Security Agreement dated September 30, 1998 and the Second Amendment to Loan and
Security Agreement dated October 20, 1998 (hereinafter, as may be amended from
time to time in the future, referred to as the "Loan Agreement") (capitalized
terms contained herein and not defined herein shall have the respective meanings
ascribed to them in the Loan Agreement);
WHEREAS, Borrower has requested that Lender permit SKYNET HOLDINGS, INC., a
Delaware corporation, to acquire the outstanding capital stock of Borrower, a
purpose not otherwise permitted under the Loan Documents;
WHEREAS, Pledgor and Lender entered into that certain Security Agreement
dated June ___, 1999; and
WHEREAS, the Borrower, Pledgor and Lender now desire to amend the Loan
Agreement in accordance with the terms and conditions stated herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Lender hereby consents to the acquisition by SKYNET HOLDINGS, INC., a
Delaware corporation, of the outstanding capital stock of Borrower, a purpose
not otherwise permitted under the Loan Documents.
2. The Loan Agreement is hereby amended to include as a party thereto
Fleet Acquisition Corp., a Nevada corporation, whose chief executive office is
located at 4705 South Valley View Blvd., Las Vegas, Nevada 89103.
3. Amount. Section 1.1 of the Loan Agreement is hereby amended by
------
renumbering subsection "(iv)" and subsection "(v)" as subsection "(v)" and
subsection "(vi)", respectively, and by adding the following new subsection
"(iv)":
<PAGE>
"minus
(iv) the excess availability of One Million Dollars ($1,000,000) (on
an aggregate basis with Courier Express, Inc.) which shall be the minimum excess
availability required hereunder."
4. Reserves. Section 1.2 of the Loan Agreement is hereby amended by
--------
replacing "Borrower" in the first sentence of Section 1.2 with "Borrower,
Pledgor".
5. Minimum Borrowing. The Loan Agreement is hereby amended by changing
-----------------
the first sentence of Section 1.5 to read as follows:
"Subject to the terms and conditions of this Agreement, Borrower agrees to
(i) borrow sufficient amounts to cause the outstanding principal balance of the
Loans to equal or exceed, at all times prior to the Maturity Date, the Minimum
Loan Amount set forth in Section 4 of Schedule A and (ii) maintain Availability
in conjunction with Pledgor sufficient to enable Borrower to do so."
6. Lock Boxes and Blocked Accounts. The Loan Agreement is hereby amended
-------------------------------
by deleting Section 4.1 and inserting the following Section 4.1 in lieu thereof:
"4.1 Lock Boxes and Blocked Accounts. Borrower and Pledgor will, at the
expense of each, establish (and revise from time to time as Lender may require)
collection procedures acceptable to Lender, in Lender's sole discretion, for the
collection of checks, wire transfers and other proceeds of Accounts ("Account
Proceeds"), which may include (i) directing all Account Debtors to send all such
proceeds directly to a post office box designated by Lender either in the name
of Borrower or Pledgor (but as to which Lender has exclusive access) or, at
Lender's option, in the name of Lender (a "Lock Box") or (ii) depositing all
Account Proceeds received by Borrower or Pledgor into one or more bank accounts
maintained in Lender's name (each, a "Blocked Account"), under an arrangement
acceptable to Lender with a depository bank acceptable to Lender, pursuant to
which all funds deposited into each Blocked Account are to be transferred to
Lender in such manner, and with such frequency, as Lender shall specify or
(iii)a combination of the foregoing. Borrower and Pledgor each agree to execute,
and to cause their depository banks to execute, such Lock Box and Blocked
Account agreements and other documentation as Lender shall require from time to
time in connection with the foregoing."
7. Remittance of Proceeds. Section 4.2 of the Loan Agreement is hereby
----------------------
amended by replacing "Borrower" in Section 4.2 with "Borrower or Pledgor, as the
case may be" and by replacing "Borrower's" in Section 4.2 with "Borrower's or
Pledgor's, as the case may be".
8. Notification; Verification. Section 4.4 of the Loan Agreement is
--------------------------
hereby amended by replacing "Borrower" in Section 4.4 with "Borrower, Pledgor".
9. Power of Atttorney. The Loan Agreement is hereby amended by deleting
------------------
Section 4.5 and inserting the following Section 4.5 in lieu thereof:
-2-
<PAGE>
"4.5 Power of Attorney. Borrower and Pledgor hereby grant to Lender an
irrevocable power of attorney, coupled with an interest, authorizing and
permitting Lender (acting through any of its officers, employees, attorneys or
agents), at any time (whether or not a Default or Event of Default has occurred
and is continuing, except as expressly provided below), at Lender's option, but
without obligation, subject prior to Default or and Event of Default to having
given prior notice to Borrower or Pledgor, and at Borrower's or Pledgor's
expense, as the case may be, to do any or all of the following, in Borrower's
name, Pledgor's name or otherwise: (i) execute on behalf of Borrower or Pledgor
any documents that Lender may, in its sole discretion, deem advisable in order
to perfect and maintain Lender's security interests in the Collateral, to
exercise a right of Borrower, Pledgor or Lender, or to fully consummate all the
transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower or Pledgor; (ii) execute on behalf of Borrower or Pledgor any
document exercising, transferring or assigning any option to purchase, sell or
otherwise dispose of or lease (as lessor or lessee) any real or personal
property which is part of the Collateral or in which Lender has an interest;
(iii) execute on behalf of Borrower or Pledgor any invoices relating to any
Accounts, any draft against any Account Debtor, any proof of claim in
bankruptcy, any notice of Lien or claim, and any assignment or satisfaction of
mechanic's, materialman's or other Lien; (iv) execute on behalf of Borrower or
Pledgor any notice to any Account Debtor; (v) receive and otherwise take control
in any manner of any cash or non-cash items of payment or proceeds of
Collateral; (vi) endorse Borrower's or Pledgor's name on all checks and other
forms of remittances received by Lender; (vii) pay, contest or settle any Lien,
charge, encumbrance, security interest and adverse claim in or to any of the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (viii) after the occurrence of a Default or
Event of Default, grant extensions of time to pay, compromise claims relating
to, and settle Accounts, Chattel Paper and General Intangibles for less than
face value and execute all releases and other documents in connection therewith;
(ix) pay any sums required on account of Borrower's or Pledgor's taxes or to
secure the release of any Liens therefor; (x) pay any amounts necessary to
obtain, or maintain in effect, any of the insurance described in Section 5.12;
(xi) settle and adjust, and give releases of, any insurance claim that relates
to any of the Collateral and obtain payment therefor; (xii) instruct any third
party having custody or control of any Collateral or books or records belonging
to, or relating to, Borrower or Pledgor to give Lender the same rights of access
and other rights with respect thereto as Lender has under this Agreement; and
(xiii) after the occurrence of a Default or Event of Default, change the address
for delivery of Borrower's or Pledgor's mail and receive and open all mail
addressed to Borrower or Pledgor. Any and all sums paid, and any and all costs,
expenses, liabilities, obligations and reasonable attorneys' fees incurred, by
Lender with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. Borrower and
Pledgor agree that Lender's rights under the foregoing power of attorney or any
of Lender's other rights under this Agreement or the other Loan Documents shall
not be construed to indicate that Lender is in control of the business,
management or properties of Borrower or Pledgor."
-3-
<PAGE>
10. Disputes. Section 4.6 of the Loan Agreement is hereby amended by
--------
replacing "Borrower" in Section 4.6 with "Borrower and Pledgor".
11. Invoices. Section 4.7 of the Loan Agreement is hereby amended by
--------
replacing "Borrower" in Section 4.7 with "Borrower and Pledgor".
12. Access to Collateral, Books Records. The Loan Agreement is hereby
-----------------------------------
amended by deleting Section 4.9 and inserting the following Section 4.9 in lieu
thereof:
"4.9 Access to Collateral, Books and Records. At reasonable times, and on
one Business Day's notice, prior to the occurrence of a Default or an Event of
Default, and at any time and with or without notice after the occurrence of a
Default or an Event of Default, Lender or its agents shall have the right to
inspect the Collateral, and the right to examine and copy Borrower's or
Pledgor's books and records. Lender shall take reasonable steps to keep
confidential all information obtained in any such inspection or examination, but
Lender shall have the right to disclose any such information to its auditors,
regulatory agencies, attorneys and participants, and pursuant to any subpoena or
other legal process. Borrower and Pledgor agree to give Lender access to any or
all of Borrower's or Pledgor's premises to enable Lender to conduct such
inspections and examinations. Such inspections and examinations shall be at
Borrower's or Pledgor's expense, as the case may be, and the charge therefor
shall be $______ per person per day (or such higher amount as shall represent
Lender's then current standard charge), plus reasonable out-of-pocket expenses.
Lender may, at Borrower's or Pledgor's expense, use Borrower's or Pledgor's
personnel, computer and other equipment, programs, printed output and computer
readable media, supplies and premises for the collection, sale or other
disposition of Collateral to the extent Lender, in its sole discretion, deems
appropriate. Borrower and Pledgor hereby irrevocably authorize all accountants
and third parties to disclose and deliver to Lender, at Borrower's or Pledgor's
expense, as the case may be, all financial information, books and records, work
papers, management reports and other information in their possession regarding
Borrower or Pledgor. Borrower or Pledgor will not enter into any agreement with
any accounting firm, service bureau or third party to store Borrower's or
Pledgor's books or records at any location other than Borrower's or Pledgor's
Address without first obtaining Lender's written consent (which consent may be
conditioned upon such accounting firm, service bureau or other third party
agreeing to give Lender the same rights with respect to access to books and
records and related rights as Lender has under this Agreement).
13. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Loan Agreement is
-----------------------------------------
hereby amended by adding the following introductory paragraph at the beginning
of Section 5:
"To induce Lender to amend this Agreement, Pledgor entered into that certain
Security Agreement by and between Pledgor and Lender dated June ___, 1999
(herein the "Pledgor Security Agreement") wherein Pledgor in Section 4 thereof
made certain representations, warranties and covenants. Section 4 of the
Pledgor Security Agreement in its entirety and the representations, warranties
and covenants of Pledgor set forth therein are hereby incorporated herein by
this reference and made a part hereof as though fully set forth herein. In
addition to the
-4-
<PAGE>
representations, warranties and covenants from the Pledgor Security Agreement
incorporated herein by this Section 5, Pledgor hereby agrees to deliver to
Lender by 5:00 p.m. Pacific Standard Time on Thursday of each and every week
following the execution of this provision, a consolidated aging of Pledgor's
Accounts, Chattel Paper and notes receivable, all in such form, and together
with such additional certificates, schedules and other information with respect
to the Collateral or the business of Pledgor, as Lender shall request; provided,
that Pledgor's failure to execute and deliver the same shall not affect or limit
Lender's security interests and other rights in any of the Accounts, nor shall
Lender's failure to advance or lend against a specific Account affect or limit
Lender's security interest and other rights therein.
14. Negative Covenants. Section 5.18 of the Loan Agreement is hereby
------------------
amended by deleting everything following "... if Borrower is not a corporation,"
in and of subsection (viii) thereof.
15. Release. The Loan Agreement is hereby amended by deleting Section 6.1
-------
and inserting the following Section 6.1 in lieu thereof:
"6.1 Release. Borrower and Pledgor hereby release Lender and its
Affiliates and their respective directors, officers, employees, attorneys and
agents and any other Person affiliated with or representing Lender (the
"Released Parties") from any and all liability arising from acts or omissions
under or pursuant to this Agreement, whether based on errors of judgment or
mistake of law or fact, except for those arising from willful misconduct.
However, in no circumstance will any of the Released Parties be liable for lost
profits or other special or consequential damages. Such release is made on the
date hereof and remade upon each request for a Loan or Credit Accommodation by
Borrower. Without limiting the foregoing:
(a) Lender shall not be liable for (i) any shortage or discrepancy
in, damage to, or loss or destruction of, any goods, the sale or other
disposition of which gave rise to an Account; (ii) any error, act, omission, or
delay of any kind occurring in the settlement, failure to settle, collection or
failure to collect any Account; (iii) settling any Account in good faith for
less than the full amount thereof; or (iv) any of Borrower's or Pledgor's
obligations under any contract or agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any goods to
the documents presented, the validity or genuineness of any documents, delay,
default or fraud by Borrower or Pledgor, shippers and/or any other Person.
Borrower and Pledgor agree that any action taken by Lender, if taken in good
faith, or any action taken by an issuer of any Credit Accommodation, under or in
connection with any Credit Accommodation, shall be binding on Borrower and
Pledgor and shall not create any resulting liability to Lender. In furtherance
thereof, Lender shall have the full right and authority to clear and resolve any
questions of non-compliance of documents, to give any instructions as to
acceptance or rejection of any documents or goods, to execute for Borrower's or
Pledgor's account any and all applications for steamship or airway guaranties,
indemnities or delivery orders, to grant any extensions of the maturity of, time
of payment for, or time of presentation of, any drafts, acceptances or
documents, and to agree to any amendments, renewals,
-5-
<PAGE>
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the Credit Accommodations or applications and other
documentation pertaining thereto."
16. Indemnity. Section 6.2 of the Loan Agreement is hereby amended by
---------
replacing "Borrower" in Section 6.2 with "Borrower and Pledgor".
17. Effect of Termination. Section 7.4 of the Loan Agreement is hereby
---------------------
amended by replacing "Borrower" in Section 7.4 with "Borrower or Pledgor, as the
case may be".
18. Events of Default. The Loan Agreement is hereby amended by changing
-----------------
Section 8.1, to read as follows:
"(xiv) if an Event of Default occurs under any Loan and Security
Agreement between Lender and an Affiliate of Borrower, including but not limited
to that certain Loan and Security Agreement between Lender and Courier Express,
Inc., dated October __, 1998, or under that certain Security Agreement dated
June ___, 1999 by and between Pledgor and Lender."
19. Notices. Section 9.1 of the Loan Agreement is hereby amended by
-------
replacing "Borrower" in Section 9.1 with "Borrower or Pledgor".
20. Waivers. Section 9.4 of the Loan Agreement is hereby amended by
-------
replacing "Borrower" in Section 9.4 with "Borrower or Pledgor or both, as the
case may be".
21. Amendment. Section 9.5 of the Loan Agreement is hereby amended by
---------
replacing "Borrower" in Section 9.5 with "Borrower or Pledgor, as the case may
be".
22. Time of Essence. Section 9.6 of the Loan Agreement is hereby amended
---------------
by replacing "Borrower" in Section 9.6 with "Borrower or Pledgor, as the case
may be".
23. Attorneys Fees and Costs. Section 9.7 of the Loan Agreement is hereby
------------------------
amended by replacing "Borrower" in Section 9.7 with "Borrower or Pledgor, as the
case may be" and by replacing "Borrower's" in Section 9.7 with "Borrower's and
Pledgor's, as the case may be".
24. Definitions. The Loan Agreement is hereby amended by adding the
-----------
following definition:
""Pledgor" means Fleet Acquisition Corp., a Nevada corporation, party
to that certain Security Agreement dated June ___, 1999 by and between Pledgor
and Lender.
and by deleting the definitions of "Account", "Dilution Percentage",
"Eligible Account", and "Loan Documents" contained therein and inserting the
following definitions of "Account", "Dilution Percentage", "Eligible Account",
and "Loan Documents", respectively, in lieu thereof:
""Account" means any right to payment of Borrower or Pledgor for Goods
sold or leased or for services rendered which is not evidenced by an Instrument
or Chattel Paper
-6-
<PAGE>
whether or not it has been earned by performance."
""Dilution Percentage" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Accounts of Borrower and Pledgor computed as a percentage of the gross sales of
Borrower and Pledgor, respectively, calculated on a ninety (90) day rolling
average."
""Eligible Account" means, at any time of determination, an Account
which satisfies the general criteria set forth below and which is otherwise
acceptable to Lender (provided, that Lender may, in its sole discretion, change
the general criteria for acceptability of Eligible Accounts upon at least
fifteen days' prior notice to Borrower and Pledgor). An Account shall be deemed
to meet the current general criteria if (i) neither the Account Debtor nor any
of its Affiliates is an Affiliate, creditor or supplier of Borrower or Pledgor;
(ii) it does not remain unpaid more than the earlier to occur of (A) the number
of days after the original invoice date set forth in Section 5(a) of Schedule A
or (B) the number of days after the original invoice due date set forth in
Section 5(b) of Schedule A; (iii) the Account Debtor or its Affiliates are not
past due on other Accounts owing to Borrower or Pledgor comprising more than 25%
of all of the Accounts owing to Borrower or Pledgor by such Account Debtor or
its Affiliates; (iv) all Accounts owing by the Account Debtor or its Affiliates
do not represent more than 20% of all otherwise Eligible Accounts (provided,
that Accounts which are deemed to be ineligible solely by reason of this clause
(iv) shall be considered Eligible Accounts to the extent of the amount thereof
which does not exceed 20% of all otherwise Eligible Accounts); (v) no covenant,
representation or warranty contained in this Agreement with respect to such
Account (including any of the representations set forth in Section 5.4) has been
breached; (vi) the Account is not subject to any contra relationship,
counterclaim, dispute or set-off (provided, that Accounts which are deemed to be
ineligible solely by reason of this clause (vi) shall be considered Eligible
Accounts to the extent of the amount thereof which is not affected by such
contra relationships, counterclaims, disputes or set-offs); (vii) the Account
Debtor's chief executive office or principal place of business is located in the
United States or Provinces of Canada which have adopted the Personal Property
Security Act or a similar act, unless (A) the sale is fully backed by a letter
of credit, guaranty or acceptance acceptable to Lender in its sole discretion,
and if backed by a letter of credit, such letter of credit has been issued or
confirmed by a bank satisfactory to Lender, is sufficient to cover such Account,
and if required by Lender, the original of such letter of credit has been
delivered to Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender or (B) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender; (viii) it is absolutely
owing to Borrower or Pledgor and does not arise from a sale on a bill-and-hold,
guarantied sale, sale-or-return, sale-on-approval, consignment, retainage or any
other repurchase or return basis or consist of progress billings; (ix) Lender
shall have verified the Account in a manner satisfactory to Lender; (x) the
Account Debtor is not the United States of America or any state or political
subdivision (or any department, agency or instrumentality thereof), unless
Borrower or Pledgor has complied with the Assignment of Claims Act of 1940 (31
U.S.C. (S)203 et seq.) or other applicable similar state or local law in a
manner satisfactory to Lender; (xi) it is at all times subject to Lender's duly
perfected, first priority security interest and to no other Lien that is not a
Permitted Lien, and the goods giving rise to such Account (A) were
-7-
<PAGE>
not, at the time of sale, subject to any Lien except Permitted Liens and (B)
have been delivered to and accepted by the Account Debtor, or the services
giving rise to such Account have been performed by Borrower or Pledgor and
accepted by the Account Debtor; (xii) the Account is not evidenced by Chattel
Paper or an Instrument of any kind and has not been reduced to judgment; (xiii)
the Account Debtor's total indebtedness to Borrower or Pledgor does not exceed
the amount of any credit limit established by Borrower, Pledgor or Lender and
the Account Debtor is otherwise deemed to be creditworthy by Lender (provided,
that Accounts which are deemed to be ineligible solely by reason of this clause
(xiii) shall be considered Eligible Accounts to the extent the amount of such
Accounts does not exceed the lower of such credit limits); (xiv) there are no
facts or circumstances existing, or which could reasonably be anticipated to
occur, which might result in any adverse change in the Account Debtor's
financial condition or impair or delay the collectibility of all or any portion
of such Account; (xv) Lender has been furnished with all documents and other
information pertaining to such Account which Lender has requested, or which
Borrower or Pledgor is obligated to deliver to Lender, pursuant to this
Agreement or the Loan Documents; (xvi) Borrower or Pledgor has not made an
agreement with the Account Debtor to extend the time of payment thereof beyond
the time periods set forth in clause (ii) above; and (xvii) Borrower or Pledgor
has not posted a surety or other bond in respect of the contract under which
such Account arose."
""Loan Documents" means the Agreement, Revolving Loan Note I,
Revolving Loan Note II, the Term Loan Note and all other notes, guaranties,
security agreements, certificates, landlord's agreements, Lock Box and Blocked
Account agreements and all other agreements, documents and instruments now or
hereafter executed or delivered by Borrower, Pledgor or any Obligor in
connection with, or to evidence the transactions contemplated by, this Agreement
including but not limited to that certain Security Agreement dated June ___,
1999 by and between Pledgor and Lender."
25. Representations and Warranties. The representations and warranties
------------------------------
contained in the Loan Agreement and the First Amendment are hereby reaffirmed as
if made on the date hereof. The Borrower and Pledgor further represent and
warrant that, as of the date hereof, (i) the Borrower and Pledgor is in
compliance with all terms and conditions of the Loan Agreement, (ii) there
exists no Event of Default, and (iii) there exists no event or condition which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.
26. Conditions to Effectiveness of Amendment. The obligation of Lender to
----------------------------------------
agree to the foregoing amendments to the terms of the Loan Agreement is subject
to fulfillment of the following conditions:
(a) confirmation to Lender's satisfaction that Borrower and
Pledgor is in good standing in all jurisdiction of its incorporation and
that Lender continues to maintain a first priority security interest in all
collateral;
(b) confirmation to Lender's satisfaction that this Amendment
and the other agreements required hereunder have been duly authorized by
all required corporate and other action and are the legal, valid and
binding obligations of the parties thereto,
-8-
<PAGE>
enforceable in accordance with their respective terms (including, if
requested by Lender, an opinion of counsel to the foregoing effect and
covering such other matters as Lender may request);
(c) confirmation to the satisfaction of Lender that all
representations, warranties and covenants under the Loan Agreement and all
agreements executed in connection therewith are true and correct and
unbreached as of the date hereof;
(d) execution by the guarantors of the Acknowledgment and
Agreement of Guarantors attached hereto;
(e) delivery to Lender of such other certifications and
documents and the performance of such other acts as Lender may reasonably
request.
27. Confirmation of Obligations, Liens and Security Interests. Borrower
---------------------------------------------------------
and Pledgor hereby ratify and confirm that, except as expressly herein set
forth, the Loan Agreement and all liens, security interests and other rights in
favor of Lender as provided therein and all agreements delivered by or on behalf
of Borrower and Pledgor to Lender in connection therewith remain in full force
and effect and remain enforceable in accordance with their respective terms.
28. No Other Amendments; Reaffirmation. Except as amended hereby, the Loan
----------------------------------
Agreement, the First Amendment and all other Loan Documents shall remain in full
force and effect and be binding on the Borrower and Pledgor in accordance with
their respective terms. The Borrower and Pledgor hereby ratify and reaffirm
their obligations under the Loan Agreement and other Loan Documents, and
acknowledge and covenant that each has no defense, claim or right of set-off in
respect thereof.
29. Course of Dealing. No course of dealing heretofore or hereafter
-----------------
between Lender and Borrower or Lender and Pledgor and no failure or delay on the
part of Lender in exercising any rights or remedies under the Loan Agreement or
this Third Amendment or existing at law or in equity shall operate as a waiver
of any right or remedy of Lender with respect to the Borrower's or Pledgor's
obligations except to the extent expressly stated in this Amendment.
30. Release. In consideration of the agreement of Lender to modify the
-------
terms of the Loan Agreement as set forth in this Third Amendment, Borrower and
Pledgor hereby release, discharges and acquits forever the Lender and any of its
officers, directors, servants, agents, employees and attorneys, past and
present, from any and all claims, demands and causes of action, of whatever
nature, whether in contract or tort, accrued or to accrue, contingent or vested,
known or unknown, arising out of or relating to the loans evidenced by the Loan
Agreement, as hereby amended, or Lender's administration of same or any other
actions taken pursuant to the Loan Agreement or under any other documents or
instruments evidencing loans made by Lender to Borrower or the administration of
same through the date hereof. Borrower and Pledgor hereby further indemnify and
hold Lender, any officers, directors, servants, agents, employees and attorneys
of Lender, past or present, harmless from any and all such claims, demands and
causes of action by Borrower or Pledgor, or anyone claiming by, through or under
Borrower or Pledgor
-9-
<PAGE>
or any of them, said indemnity to cover all losses, expenses incurred by the
Lender, its officers, directors, servants, agents, employees or attorneys, past
or present, in connection with any such claims, demands, or causes of action,
including all attorneys' fees and costs.
31. Costs and Expenses. The Borrower and Pledgor hereby reaffirm their
------------------
agreement under the Loan Agreement to pay or reimburse the Lender on demand for
all costs and expenses incurred by the Lender in connection with the Loan
Agreement and all other documents contemplated thereby, including without
limitation all reasonable fees and disbursements of legal counsel. Without
limiting the generality of the foregoing, the Borrower and Pledgor specifically
agrees to pay all fees and disbursements of counsel to Lender for the services
performed by such counsel in connection with the preparation of this Amendment
and the documents and instruments incidental hereto. The Borrower and Pledgor
hereby agree that Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower or Pledgor, make a
loan to the Borrower under the Loan Agreement, or apply the proceeds of any
loan, for the purpose of paying any such fees, disbursements, costs and
expenses.
32. Counterparts. This Amendment and the Acknowledgment and Agreement of
------------
Guarantors may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original and all of which
counterparts, taken together, shall constitute one and the same instrument.
33. Miscellaneous.
-------------
(a) The Loan Agreement and all other Loan Documents are hereby
amended wherever necessary to reflect the foregoing amendments.
(b) This Amendment shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns.
(c) This Amendment shall be construed in accordance with and be
governed by the laws of the State of New York.
(d) Borrower and Pledgor agree to execute such other and further
documents, instruments and agreements as Lender may request to implement
the provisions of this Amendment.
(e) Wherever possible each provision of this Amendment shall be
interpreted in such a manner as to be effective and valid under applicable
law, but if any provision of this Amendment shall be prohibited or invalid
under applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Amendment.
THIS SPACE INTENTIONALLY LEFT BLANK
-10-
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have caused this Amendment to
be executed and delivered by their duly authorized representatives as of the
date first above written.
PONY EXPRESS DELIVERY
SERVICES, INC.
By:___________________________
Name:_________________________
Title:________________________
FLEET ACQUISITION CORP.
By:________________________________
Name:______________________________
Title:_____________________________
NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By:___________________________
Name:_________________________
Title:________________________
-11-
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS
------------------------------------------
MUSTANG HOLDINGS, INC., a Kansas corporation, and COURIER EXPRESS,
INC., a California corporation, a each a guarantor of the indebtedness of PONY
EXPRESS DELIVERY SERVICES, INC. (the "Borrower") pursuant to their guaranties
dated May 29, 1998 and September 15, 1998, respectively (each, a "Guaranty"),
hereby (i) each acknowledges receipt of the foregoing Amendment; (ii) each
consents to the terms and execution thereof; (iii) each reaffirms its
obligations to the Lender pursuant to the terms of its Guaranty; and (iv) each
acknowledges that Lender may amend, restate, extend, renew or otherwise modify
the Loan Agreement and any indebtedness or agreement of the Borrower, or enter
into any agreement or extend additional or other credit accommodations, without
notifying or obtaining the consent of the undersigned and without impairing the
liability of the undersigned under his or its Guaranty.
Mustang Holdings, Inc.
By:__________________________
Name:________________________
Title:_______________________
Courier Express, Inc.
By:__________________________
Name:________________________
Title:_______________________
-12-
<PAGE>
EXHIBIT 10.26
____________________________________________
____________________________________________
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
COURIER EXPRESS, INC.
AND
NATIONSCREDIT COMMERCIAL CORPORATION
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
OCTOBER 18, 1998
____________________________________________
____________________________________________
-------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
1. LOANS AND CREDIT ACCOMMODATIONS..................................... 1
1.1 Amount.......................................................... 1
1.2 Reserves........................................................ 2
1.3 Other Provisions Applicable to Credit Accommodations............ 3
1.4 Repayment....................................................... 3
1.5 Minimum Borrowing............................................... 3
2. INTEREST AND FEES................................................... 3
2.1 Interest........................................................ 3
2.2 Fees and Warrants............................................... 4
2.3 Computation of Interest and Fees................................ 5
2.4 Loan Account; Monthly Accountings............................... 5
3. SECURITY INTEREST................................................... 5
4. ADMINISTRATION...................................................... 5
4.1 Lock Boxes and Blocked Accounts................................. 5
4.2 Remittance of Proceeds.......................................... 6
4.3 Application of Payments......................................... 6
4.4 Notification; Verification...................................... 6
4.5 Power of Attorney............................................... 6
4.6 Disputes........................................................ 7
4.7 Invoices........................................................ 8
4.8 Inventory....................................................... 8
4.9 Access to Collateral, Books and Records......................... 8
5. REPRESENTATIONS, WARRANTIES AND COVENANTS........................... 9
5.1 Existence and Authority......................................... 9
5.2 Name; Trade Names and Styles.................................... 9
5.3 Title to Collateral; Permitted Liens............................ 9
5.4 Accounts and Chattel Paper...................................... 10
5.5 Investment Property............................................. 10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.6 Place of Business; Location of Collateral.................... 11
5.7 Financial Condition, Statements and Reports.................. 11
5.8 Tax Returns and Payments; Pension Contributions.............. 11
5.9 Compliance with Laws......................................... 11
5.10 Litigation................................................... 12
5.11 Use of Proceeds.............................................. 12
5.12 Insurance.................................................... 12
5.13 Financial and Collateral Reports............................. 12
5.14 Litigation Cooperation....................................... 14
5.15 Maintenance of Collateral, Etc............................... 14
5.16 Notification of Changes...................................... 14
5.17 Further Assurances........................................... 14
5.18 Negative Covenants........................................... 14
5.19 Financial Covenants.......................................... 15
6. RELEASE AND INDEMNITY.............................................. 15
6.1 Release...................................................... 15
6.2 Indemnity.................................................... 16
7. TERM............................................................... 16
7.1 Maturity Date................................................ 16
7.2 Early Termination............................................ 17
7.3 Payment of Obligations..... ................................. 17
7.4 Effect of Termination........................................ 17
8. EVENTS OF DEFAULT AND REMEDIES..................................... 17
8.1 Events of Default............................................ 18
8.2 Remedies..................................................... 19
8.3 Application of Proceeds...................................... 20
9. GENERAL PROVISIONS................................................. 20
9.1 Notices...................................................... 20
9.2 Severability................................................. 20
9.3 Integration.................................................. 20
9.4 Waivers...................................................... 21
9.5 Amendment.................................................... 21
9.6 Time of Essence.............................................. 21
9.7 Attorneys Fees and Costs..................................... 21
9.8 Benefit of Agreement; Assignability.......................... 22
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9.9 Headings; Construction....................................... 22
9.10 GOVERNING LAW; CONSENT TO FORUM, ETC......................... 22
9.11 WAIVER OF JURY TRIAL, ETC.................................... 23
</TABLE>
<PAGE>
Loan and Security Agreement
This Loan and Security Agreement (as it may be amended, this "Agreement")
is entered into on October _____, 1998 between NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender"),
having an address at 1177 Avenue of the Americas, 36"' Floor, New York, New York
10036 and COURIER EXPRESS, INC., a California corporation ("Borrower"), whose
chief executive office is located at 1250 Sunset Blvd., Los Angeles, California
90026 ("Borrower's Address"). The Schedules to this Agreement are an integral
part of this Agreement and are incorporated herein by reference. Terms used, but
not defined elsewhere, in this Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 Amount. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) Revolving Loans and Credit Accommodations. From time to time
during the Term at Borrower's request, make revolving loans to Borrower
("Revolving Loans"), and make letters of credit, bankers acceptances and other
credit accommodations ("Credit Accommodations") available to Borrower, in each
case to the extent that there is sufficient Availability at the time of such
request to cover, dollar for dollar, the requested Revolving Loan or Credit
Accommodation; provided, that after giving effect to such Revolving Loan or
Credit Accommodation, (x) the outstanding balance of all monetary Obligations
(including the principal balance of any Term Loan and, solely for the purpose of
determining compliance with this provision, the Credit Accommodation Balance)
will not exceed the Maximum Facility Amount set forth in Section 1(a) of
Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "Availability" means.
(i) the aggregate amount of Eligible Accounts (less maximum existing
or asserted taxes, discounts, credits and allowances) multiplied by the Accounts
Advance Rate set forth in Section l(b)(i) of Schedule A but not to exceed the
Accounts Sublimit set forth in Section 1(c) of Schedule A;
plus
(ii) the lower of cost or market value of Eligible Inventory
multiplied by the Inventory Advance Rate(s) set forth in Section l(b)(ii) of
Schedule A, but not to exceed the Inventory Sublimate(s) set forth in Section
1(d) of Schedule A;
minus
(iii) all Reserves which Lender has established pursuant to Section
1.2 (including those to be established in connection with the requested
Revolving Loan or Credit Accommodation);
<PAGE>
minus
(iv) the outstanding balance of all of the monetary Obligations
(excluding the Credit Accommodation Balance and the principal balance of the
Term Loan); and
plus
(v) the Overadvance Amount, if any, set forth in Section 1(g) of
Schedule A.
(b) Term Loan. On the date of this Agreement, make (i) an advance to
Borrower computed with respect to the value of Borrower's Eligible Equipment
(the ("Equipment Advance") in the principal amount, if any, set forth in Section
2(a)(i) of Schedule A, and (ii) an advance to Borrower computed with respect to
the value of Borrower's Eligible Real Property (the "Real Property Advance") in
the principal amount, if any, set forth in Section 2(a)(ii) of Schedule A. The
Equipment Advance and the Real Property Advance are collectively referred to as
the "Term Loan."
1.2 Reserves. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole discretion ("Reserves") to
reflect (i) events, conditions, contingencies or risks which (A) affect or may
affect the Collateral or its value, or the security interests and other rights
of Lender in the Collateral or (B) would reasonably be expected to affect the
assets, business or prospects of Borrower or any Obligor, (ii) Lender's good
faith concern that any Collateral report or financial information furnished by
or on behalf of Borrower or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect, (iii) any fact or
circumstance which Lender determines in good faith constitutes, or could
constitute, a Default or Event of Default or (iv) any other events or
circumstances which Lender determines in good faith make the establishment or
revision of a Reserve prudent. Without limiting the foregoing, Lender shall (x)
in the case of each Credit Accommodation issued for the purchase of Inventory
(a) which meets the criteria for Eligible Inventory set forth in clauses (i),
(ii), (iii), (v) and (vi) of the definition of Eligible Inventory, (b) which is
or will be in transit to one of the locations set forth in Section 9(d) of
Schedule A, (c) which is fully insured in a manner satisfactory to Lender and
(d) with respect to which Lender is in possession of all bills of lading and all
other documentation which Lender has requested, all in form and substance
satisfactory to Lender in its sole discretion, establish a Reserve equal to the
cost of such Inventory (plus all duties, freight, taxes, insurance, costs and
other charges and expenses relating to such Credit Accommodation or such
Eligible Inventory) multiplied by a percentage equal to 100% minus the Inventory
Advance Rate applicable to Eligible Inventory and (y) in the case of any other
Credit Accommodation issued for any purpose, establish a Reserve equal to the
full amount of such Credit Accommodation plus all costs and other charges and
expenses relating to such Credit Accommodation. In addition, (x)Lender shall
establish a permanent Reserve in the amount set forth in Section 1(f) of
Schedule A, and (y) if the outstanding principal balance of the Term Loan
advance with respect to Eligible Equipment exceeds the percentage set forth in
Section 2(a)(i) of Schedule A of the appraised value of such Eligible Equipment,
Lender may establish an additional Reserve in the amount of such excess (and,
for this purpose, if payments of principal on the Term Loan advances against
Eligible Equipment and Real Property are not calculated separately, payments of
principal of the Term Loan made by Borrower shall be
<PAGE>
deemed to apply to the Term Loan advance with respect to Eligible Equipment and
Real Property, respectively, in proportion to the original principal amounts of
such advances). Lender may, in its discretion, establish and revise Reserves by
deducting them in determining Availability or by reclassifying Eligible Accounts
or Eligible Inventory as ineligible. In no event shall the establishment of a
Reserve in respect of a particular actual or contingent liability obligate
Lender to make advances hereunder to pay such liability or otherwise obligate
Lender with respect thereto.
1.3 Other Provisions Applicable to Credit Accommodations. Lender may, in
its sole discretion and on terms and conditions acceptable to Lender, make
Credit Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; provided, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit Accommodation
in connection with any such Credit Accommodation.
1.4 Repayment. Accrued interest on all monetary Obligations shall be
payable on the first day of each month, for the preceding calendar month.
Principal of the Term Loan, if any, shall be repaid as set forth in Section 2(b)
of Schedule A. If at any time any of the Loan Limits are exceeded, Borrower will
immediately pay to Lender such amounts (or provide cash collateral to Lender
with respect to the Credit Accommodation Balance in the manner set forth in
Section 7.3), as shall cause Borrower to be in full compliance with all of the
Loan Limits. Notwithstanding the foregoing, Lender may, in its sole discretion,
make or permit Revolving Loans, the Term Loan, any Credit Accommodations or any
other monetary Obligations to be in excess of any of the Loan Limits; provided,
that Borrower shall, upon Lender's demand, pay to Lender such amounts as shall
cause Borrower to be in full compliance with all of the Loan Limits. All unpaid
monetary Obligations shall be payable in NATIONSCREDIT Commercial Funding Loan
and Security Agreement full on the Maturity Date (as defined in Section 7.1) or,
if earlier, the date of any early termination pursuant to Section 7.2.
1.5 Minimum Borrowing. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to equal or exceed, at all times
prior to the Maturity Date, the Minimum Loan Amount set forth in Section 4 of
Schedule A and (ii) maintain Availability sufficient to enable Borrower to do
so. However, Lender shall not be obligated to loan Borrower the Minimum Loan
Amount other than in accordance with all of the terms and conditions of this
Agreement.
2. INTEREST AND FEES.
2.1 Interest. All Loans and other monetary Obligations shall bear interest
at the Interest Rate(s) set forth in Section 3 of Schedule A, except where
expressly set forth to the contrary in this Agreement or another Loan Document;
provided, that after the occurrence of an Event of Default, all Loans and other
monetary Obligations shall, at Lender's option, bear interest at a rate per
annum equal to two percent (2%) in excess of the rate otherwise applicable
<PAGE>
thereto (the "Default Rate") until paid in full (notwithstanding the entry of
any judgment against Borrower or the exercise of any other right or remedy by
Lender), and all such interest shall be payable on demand. Changes in the
Interest Rate shall be effective as of the date of any change in the Prime Rate.
Notwithstanding anything to the contrary contained in this Agreement, the
aggregate of all amounts deemed to be interest hereunder and charged or
collected by Lender is not intended to exceed the highest rate permissible under
any applicable law, but if it should, such interest shall automatically be
reduced to the extent necessary to comply with applicable law and Lender will
refund to Borrower any such excess interest received by Lender.
2.2 Fees and Warrants. Borrower shall pay Lender the following fees, and
issue Lender the following warrants, which are in addition to all interest and
other sums payable by Borrower to Lender under this Agreement, and are not
refundable:
(a) Closing Fee. A closing fee in the amount set forth in Section 6(a)
of Schedule A, which shall be deemed to be fully earned as of, and payable on,
the date hereof.
(b) Facility Fees. A facility fee for the Initial Term in the amount
set forth in Section 6(b)(i) of Schedule A (which shall be fully earned as of
the date of this Agreement and shall be payable in equal installments due,
respectively, on the date of this Agreement and on each anniversary thereof
during the Initial Term), and a facility fee for each Renewal Term in the amount
set forth in Section 6(b)(ii) of Schedule A (which shall be fully earned as of
the first day of such Renewal Term and shall be payable in equal installments
due, respectively, on the first day of such Renewal Term and on each anniversary
thereof during such Renewal Term).
(c) Servicing Fee. A monthly servicing fee in the amount set forth in
Section 6(c) of Schedule A, in consideration of Lender's administration and
other services for each month (or part thereof), which shall be fully earned as
of, and payable in advance on, the date of this Agreement and on the first day
of each month thereafter so long as any of the Obligations are outstanding.
(d) Unused Line Fee. An unused line fee at a rate equal to the
percentage per annum set forth in Section 6(d) of Schedule A of the amount by
which the Maximum Facility Amount exceeds the average daily outstanding
principal balance of the Loans and the Credit Accommodation Balance during the
immediately preceding month (or part thereof), which fee shall be payable, in
arrears, on the first day of each month so long as any of the Obligations are
outstanding and on the Maturity Date.
(e) Minimum Borrowing Fee. A minimum borrowing fee equal to the
excess, if any, of (i) interest which would have been payable in respect of each
period set forth in Section 6(e)(i) of Schedule A if, at all times during such
period, the principal balance of the Loans was equal to the Minimum Loan Amount
over (ii) the actual interest payable in respect of such period, which fee shall
be fully earned as of the last day of such period and payable on the date set
forth in Section 6(e)(ii) of Schedule A and on the Maturity Date, commencing
with the immediately following period.
<PAGE>
(f) Success Fee. A success fee in the amount set forth in Section 6(f)
of Schedule A, which shall be fully earned as of the date of this Agreement and
payable as set forth in Section 6(f) of Schedule A.
(g) Warrants. Warrants to acquire the capital stock of Borrower, as
summarized in Section 6(g) of Schedule A and as more fully set forth in a
separate warrant agreement executed by Borrower contemporaneously with this
Agreement.
(h) Credit Accommodation Fees. All of the fees relating to Credit
Accommodations set forth in Section 6(i) of Schedule A.
2.3 Computation of Interest and Fees. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number of days elapsed in a year of 360 days. For purposes of calculating
interest and fees, if the outstanding daily principal balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.
2.4 Loan Account; Monthly Accountings. Lender shall maintain a loan
account for Borrower reflecting all advances, charges, expenses and payments
made pursuant to this Agreement (the "Loan Account"), and shall provide Borrower
with a monthly accounting reflecting the activity in the Loan Account. Each
accounting shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies Lender in
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or omissions. However, Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding nature of any of the Obligations. Interest, fees
and other monetary Obligations due and owing under this Agreement (including
fees and other amounts paid by Lender to issuers of Credit Accommodations) may,
in Lender's discretion, be charged to the Loan Account, and will thereafter be
deemed to be Revolving Loans and will bear interest at the same rate as other
Revolving Loans.
3. SECURITY INTEREST.
3.1 To secure the full payment and performance of all of the Obligations,
Borrower hereby grants to Lender a continuing security interest in all of
Borrower's property and interests in property, whether tangible or intangible,
now owned or in existence or hereafter acquired or arising, wherever located,
including Borrower's interest in all of the following, whether or not eligible
for lending purposes: (i) all Accounts, Chattel Paper, Instruments, Documents,
Goods (including Inventory, Equipment, farm products and consumer goods),
Investment Property. General Intangibles, Deposit Accounts and money, (ii) all
proceeds and products of all of the foregoing (including proceeds of any
insurance policies, proceeds of proceeds and claims against third parties for
loss or any destruction of any of the foregoing) and (iii) all books and records
relating to any of the foregoing.
4. ADMINISTRATION.
4.1 Lock Boxes and Blocked Accounts. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in
<PAGE>
Lender's sole discretion, for the collection of checks, wire transfers and other
proceeds of Accounts ("Account Proceeds"), which may include (i) directing all
Account Debtors to send all such proceeds directly to a post office box
designated by Lender either in the name of Borrower (but as to which Lender has
exclusive access) or, at Lender's option, in the name of Lender (a "Lock Box")
or (ii) depositing all Account Proceeds received by Borrower into one or more
bank accounts maintained in Lender's name (each, a "Blocked Account",), under an
arrangement acceptable to Lender with a depository bank acceptable to Lender,
pursuant to which all funds deposited into each Blocked Account are to be
transferred to Lender in such manner, and with such frequency, as Lender shall
specify or (iii)a combination of the foregoing. Borrower agrees to execute, and
to cause its depository banks to execute, such Lock Box and Blocked Account
agreements and other documentation as Lender shall require from time to time in
connection with the foregoing.
4.2 Remittance of Proceeds. Except as provided in Section 4.1, all
proceeds arising from the sale or other disposition of any Collateral shall be
delivered, in kind, by Borrower to Lender in the original form in which received
by Borrower not later than the following Business Day after receipt by Borrower.
Until so delivered to Lender, Borrower shall hold such proceeds separate and
apart from Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.3 Application of Payments. Lender may, in its sole discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations, in such order and manner as
Lender shall determine, whether or not the Obligations are due, and whether
before or after the occurrence of a Default or an Event of Default. For purposes
of determining Availability, such amounts will be credited to the Loan Account
and the Collateral balances to which they relate upon Lender's receipt of advice
from Lender's Bank (set forth in Section 11 of Schedule A) that such items have
been credited to Lender's account at Lender's Bank (or upon Lender's deposit
thereof at Lender's Bank in the case of payments received by Lender in kind), in
each case subject to final payment and collection. However, for purposes of
computing interest on the Obligations, such items shall be deemed applied by
Lender two Business Days after Lender's receipt of advice of deposit thereof at
Lender's Bank.
4.4 Notification; Verification. Lender or its designee may, from time to
time, whether or not a Default or Event of Default has occurred: (i) verify
directly with the Account Debtors the validity, amount and other matters
relating to the Accounts and Chattel Paper, by means of mail, telephone or
otherwise, either in the name of Borrower or Lender or such other name as Lender
may choose; (ii) notify Account Debtors that Lender has a security interest in
the Accounts and that payment thereof is to be made directly to Lender; and
(iii) after an Event of Default, demand, collect or enforce payment of any
Accounts and Chattel Paper (but Without any duty to do so).
4.5 Power of Attorney. Borrower hereby grants to Lender an irrevocable
power of attorney, coupled with an interest, authorizing and permitting Lender
(acting through any of its officers, employees, attorneys or agents), at any
time (whether or not a Default or Event of Default has occurred and is
continuing, except as expressly provided below), at Lender's option,
<PAGE>
but without obligation, subject prior to Default or and Event of Default to
having given prior notice to Borrower, and at Borrower's expense, to do any or
all of the following, in Borrower's name or otherwise: (i) execute on behalf of
Borrower any documents that Lender may, in its sole discretion, deem advisable
in order to perfect and maintain Lender's security interests in the Collateral,
to exercise a right of Borrower or Lender, or to fully consummate all the
transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower; (ii) execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or lease (as lessor or lessee) any real or personal property which is part of
the Collateral or in which Lender has an interest; (iii) execute on behalf of
Borrower any invoices relating to any Accounts, any draft against any Account
Debtor, any proof of claim in bankruptcy, any notice of Lien or claim, and any
assignment or satisfaction of mechanic's, materialman's or other Lien; (iv)
execute on behalf of Borrower any notice to any Account Debtor; (v) receive and
otherwise take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; (vi) endorse Borrower's name on all checks and other
forms of remittances received by Lender; (vii) pay, contest or settle any Lien,
charge, encumbrance, security interest and adverse claim in or to any of the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (viii) after the occurrence of a Default or
Event of Default, grant extensions of time to pay, compromise claims relating
to, and settle Accounts, Chattel Paper and General Intangibles for less than
face value and execute all releases and other documents in connection therewith;
(ix) pay any sums required on account of Borrower's taxes or to secure the
release of any Liens therefor; (x) pay any amounts necessary to obtain, or
maintain in effect, any of the insurance described in Section 5.12; (xi) settle
and adjust, and give releases of, any insurance claim that relates to any of the
Collateral and obtain payment therefor; (xii) instruct any third party having
custody or control of any Collateral or books or records belonging to, or
relating to, Borrower to give Lender the same rights of access and other rights
with respect thereto as Lender has under this Agreement; and (xiii) after the
occurrence of a Default or Event of Default, change the address for delivery of
Borrower's mail and receive and open all mail addressed to Borrower. Any and all
sums paid, and any and all costs, expenses, liabilities, obligations and
reasonable attorneys' fees incurred, by Lender with respect to the foregoing
shall be added to and become part of the Obligations, shall be payable on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations. Borrower agrees that Lender's rights under
the foregoing power of attorney or any of Lender's other rights under this
Agreement or the other Loan Documents shall not be construed to indicate that
Lender is in control of the `business, management or properties of Borrower.
4.6 Disputes. Borrower shall promptly notify Lender of all disputes and
claims relating to Accounts and Chattel Paper, except such disputes and claims
which are less than $5000, provided that the total aggregate of said disputes
and claims under $5000 shall not exceed $100,000 and except, however, within the
first sixty (60) days following the date of this Agreement with regard to
Accounts which are more than sixty (60) days past due. Borrower will not,
without Lender's prior written consent, compromise or settle any Account or
Chattel Paper for less than the full amount thereof, grant any extension of time
of payment of any Account or Chattel Paper, release (in whole or in part) any
Account Debtor or other person liable for the payment of any Account or Chattel
Paper or grant any credits, discounts, allowances, deductions,
<PAGE>
return authorizations or the like with respect to any Account or Chattel Paper,
except that prior to the occurrence of an Event of Default, Borrower may take
any of such actions in the ordinary course of its business, provided that
Borrower promptly reports the same to Lender.
4.7 Invoices. At Lender's request, Borrower will cause all invoices and
statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender, to reflect Lender's security
interest therein.
4.8 Inventory.
(a) Returns. Provided that no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower will promptly determine the reason for
such return and promptly issue a credit memorandum to the Account Debtor in the
appropriate amount (sending a copy to Lender). After the occurrence of an Event
of Default, Borrower will not accept any return without Lender's prior written
consent. Regardless of whether an Event of Default has occurred, Borrower will
(i) hold the returned Inventory in trust for Lender; (ii) segregate all returned
Inventory from all of Borrower's other property; (iii)conspicuously label the
returned Inventory as Lender's property; and (iv) immediately notify Lender of
the return of such Inventory, specifying the reason for such return, the
location and condition of the returned Inventory and, at Lender's request,
deliver such returned Inventory to Lender at an address specified by Lender.
(b) Other Covenants. Borrower will not, without Lender's prior written
consent, (i) store any Inventory with any warehouseman or other third party
other than as set forth in Section 9(d) of Schedule A or (ii) sell any Inventory
on a sale-or-return, guaranteed sale, consignment, or other contingent basis.
All of the Inventory has been produced only in accordance with the Fair Labor
Standards Act of 1938 and all rules, regulations and orders
4.9 Access to Collateral, Books and Records. At reasonable times, and on
one Business Day's notice, prior to the occurrence of a Default or an Event of
Default, and at any time and with or without notice after the occurrence of a
Default or an Event of Default, Lender or its agents shall have the right to
inspect the Collateral, and the right to examine and copy Borrower's books and
records. Lender shall take reasonable steps to keep confidential all information
obtained in any such inspection or examination, but Lender shall have the right
to disclose any such information to its auditors, regulatory agencies, attorneys
and participants, and pursuant to any subpoena or other legal process. Borrower
agrees to give Lender access to any or all of Borrower's premises to enable
Lender to conduct such inspections and examinations. Such inspections and
examinations shall be at Borrower's expense and the charge therefor shall be
$650 per person per day (or such higher amount as shall represent Lender's then
current standard charge), plus reasonable out-of-pocket expenses. Lender may, at
Borrower's expense, use Borrower's personnel, computer and other equipment,
programs, printed output and computer readable media, supplies and premises for
the collection, sale or other disposition of Collateral to the extent Lender, in
its sole discretion, deems appropriate. Borrower hereby irrevocably authorizes
all accountants and third parties to disclose and deliver to Lender, at
Borrower's expense, all financial information, books and records, work papers,
management reports and other information in their possession regarding Borrower.
Borrower will not enter into any agreement with any accounting firm, service
bureau or third party to store Borrower's books or
<PAGE>
records at any location other than Borrower's Address without first obtaining
Lender's written consent (which consent may be conditioned upon such accounting
firm, service bureau or other third party agreeing to give Lender the same
rights with respect to access to books and records and related rights as Lender
has under this Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation by, Lender, and (ii) the accuracy of
each such representation, warranty and covenant will be a condition to each Loan
and Credit Accommodation):
5.1 Existence and Authority. Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation. Borrower is qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse effect
on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable against,
Borrower, and all other Obligors who have signed them, in accordance with their
respective terms. Sections 9(g) and 9(h) of Schedule A set forth the ownership
of Borrower and the names and ownership of Borrower's Subsidiaries as of the
date of this Agreement.
5.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct and complete legal name as of the date
hereof. Listed in Sections 9(a), 9(b) and 9(c) of Schedule A are all prior names
of Borrower and all of Borrower's present and prior trade names. Borrower shall
give Lender at least thirty days' prior written notice before changing its name
or doing business under any other name. Borrower has complied with all laws
relating to the conduct of business under a fictitious business name. Borrower
represents and warrants that (i) each trade name does not refer to another
corporation or other legal entity (ii) all Accounts invoiced under any such
trade names are owned exclusively by Borrower and are subject to the security
interest of Lender and the other terms of this Agreement and (iii) all schedules
of Accounts, including any sales made or services rendered using any trade name
shall show Borrower's name as assignor.
5.3 Title to Collateral; Permitted Liens. Borrower has good and marketable
title to the Collateral. The Collateral now is and will remain free and clear of
any and all liens, charges, security interests, encumbrances and adverse claims,
except for Permitted Liens. Lender now has, and will continue to have, a first-
priority perfected and enforceable security interest in all of the Collateral,
subject only to the Permitted Liens, and Borrower will at all times defend
Lender and the Collateral against all claims of others. None of the Collateral
which is Equipment is or will
<PAGE>
be affixed to any real property in such a manner, or with such intent, as to
become a fixture. Except for leases or subleases as to which Borrower has
delivered to Lender a landlord's waiver in form and substance satisfactory to
Lender, Borrower is not a lessee or sublessee under any real property lease or
sublease pursuant `to which the lessor or sublessor may obtain any rights in any
of the Collateral, and no such lease or sublease now prohibits, restrains,
impairs or conditions, or will prohibit, restrain, impair or condition,
Borrower's right to remove any Collateral from the premises. Whenever any
Collateral is located upon premises in which any third party has an interest
(whether as owner, mortgagee, beneficiary under a deed of trust, lien or
otherwise), Borrower shall, whenever requested by Lender, cause each such third
party to execute and deliver to Lender, in form and substance acceptable to
Lender, such waivers and subordinations as Lender shall specify, so as to ensure
that Lender's rights in the Collateral are, and will continue to be, superior to
the rights of any such third party. Borrower will keep in full force and effect,
and will comply with all the terms of, any lease of real property where any of
the Collateral now or in the future may be located, provided, however, that
Borrower may terminate a lease of real property so long as said termination
would not have an adverse affect upon the operations of Borrower's business or
upon the Collateral.
5.4 Accounts and Chattel Paper. As of each date reported by Borrower, all
Accounts which Borrower has reported to Lender as being Eligible Accounts comply
in all respects with the criteria for eligibility established by Lender and in
effect at such time. All Accounts and Chattel Paper are genuine and in all
respects what they purport to be, arise out of a completed, bona fide and
unconditional and non-contingent sale and delivery of goods or rendition of
services by Borrower in the ordinary course of its business and in accordance
with the terms and conditions of all purchase orders, contracts or other
documents relating thereto, each Account Debtor thereunder had the capacity to
contract at the time any contract or other document giving rise to such Accounts
and Chattel Paper were executed, and the transactions giving rise to such
Accounts and Chattel Paper comply with all applicable laws and governmental
rules and regulations.
5.5 Investment Property. Borrower will take any and all actions required
or requested by Lender, from time to time, to (i) cause Lender to obtain
exclusive control of any Investment Property in a manner acceptable to Lender
and (ii) obtain from any issuers of Investment Property and such other Persons
as Lender shall specify, for the benefit of Lender, written confirmation of
Lender's exclusive control over such Investment Property and take such other
actions as Lender may request to perfect Lender's security interest in such
Investment Property. For purposes of this Section 5.5, Lender shall have
exclusive control of Investment Property if (A) such Investment Property
consists of certificated securities and Borrower delivers such certificated
securities to Lender (with appropriate endorsements if such certificated
securities are in registered form); (B) such Investment Property consists of
uncertificated securities and either (x) Borrower delivers such uncertificated
securities to Lender or (y) the issuer thereof agrees, pursuant to documentation
in form and substance satisfactory to Lender, that it will comply with
instructions originated by Lender without further consent by Borrower, and (C)
such Investment Property consists of security entitlements and either (x) Lender
becomes the entitlement holder thereof or (y) the appropriate securities
intermediary agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with entitlement orders originated
by Lender without further consent by Borrower.
<PAGE>
5.6 Place of Business; Location of Collateral. Borrower's Address is
Borrower's chief executive office and the location of its books and records. In
addition, except as provided in the immediately following sentence, Borrower has
places of business and Collateral located only at the locations set forth on
Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least thirty
days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's Address or one
of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and will
execute and deliver all financing statements and other agreements, instruments
and documents which Lender shall require as a result thereof.
5.7 Financial Condition, Statements and Reports. All financial statements
delivered to Lender by or on behalf of Borrower after the date of this Agreement
will have been prepared in conformity with GAAP and completely and fairly
reflect, in all material respects, the financial condition of Borrower, at the
times and for the periods therein stated. Between the last date covered by any
such financial statement provided to Lender and the date of any Loan or the
providing of any Credit Accommodation, there has been no material adverse change
in the financial condition or business of Borrower. Borrower is solvent and able
to pay its debts as they come due, and has sufficient capital to carry on its
business as now conducted and as proposed to be conducted. All schedules,
reports and other information and documentation delivered by Borrower to Lender
with respect to the Collateral are, or will be, when delivered, true, correct
and complete as of the date delivered or the date specified therein.
5.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed all tax returns and reports required by applicable law, has timely paid
all applicable taxes, assessments, deposits and contributions owing by Borrower
and will timely pay all such items in the future as they became due and payable.
Borrower may, however, defer payment of any contested taxes; provided, that
Borrower (i) in good faith contests Borrower's obligation to pay such taxes by
appropriate proceedings promptly and diligently instituted and conducted; (ii)
notifies Lender in writing of the commencement of, and any material development
in, the proceedings; (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a Lien upon any of the Collateral and (iv)
maintains adequate reserves therefor in conformity with GAAP. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay, all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not withdrawn from
participation in, permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency.
5.9 Compliance with Laws. Borrower has complied in all material respects
with all provisions of all applicable laws and regulations, including those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, the payment and withholding of taxes, ERISA
and other employee matters, safety and environmental matters.
<PAGE>
5.10 Litigation. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of Borrower's
knowledge) threatened against Borrower which are not covered by insurance. There
is no claim, suit, litigation, proceeding or investigation pending or (to the
best of Borrower's knowledge) threatened by or against or affecting Borrower in
any court or before any governmental agency (or any basis therefor known to
Borrower) which may result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of Borrower, or
in any material impairment in the ability of Borrower to carry on its business
in substantially the same manner as it is now being conducted. Borrower will
inform Lender in writing on a monthly basis of any claim, proceeding, litigation
or investigation in the future threatened or instituted by or against Borrower,
except that it shall inform Lender in writing promptly if Borrower reasonably
believes such claim, proceeding, litigation or investigation will have a
material adverse effect on Borrower or the Collateral.
5.11 Use of Proceeds. All proceeds of all Loans will be used solely for
working capital in connection with lawful business and general corporate
purposes.
5.12 Insurance. Borrower will at all times carry property, liability and
other insurance, with insurers acceptable to Lender, in such form and amounts,
and with such deductibles and other provisions, as Lender shall require, and
Borrower will provide evidence of such insurance to Lender, so that Lender is
satisfied that such insurance is, at all times, in full force and effect. Each
property insurance policy shall name Lender as loss payee and shall contain a
lender's loss payable endorsement in form acceptable to Lender, each liability
insurance policy shall name Lender as an additional insured, and each business
interruption insurance policy shall be collaterally assigned to Lender, all in
form and substance satisfactory to Lender. All policies of insurance shall
provide that they may not be cancelled or changed without at least thirty days'
prior written notice to Lender, shall contain breach of warranty coverage, and
shall otherwise be in form and substance satisfactory to Lender. Upon receipt of
the proceeds of any such insurance, Lender shall apply such proceeds in
reduction of the Obligations as Lender shall determine in its sole discretion.
Borrower will promptly deliver to Lender copies of all reports made to insurance
companies.
5.13 Financial and Collateral Reports. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender):
(a) Collateral Reports. On or before the fifteenth day of each month,
a consolidated aging of Borrower's Accounts, Chattel Paper and notes receivable,
and weekly Inventory reports, all in such form, and together with such
additional certificates, schedules and other information with respect to the
Collateral or the business of Borrower or any Obligor, as Lender shall request;
provided, that Borrower's failure to execute and deliver the same shall not
affect or limit Lender's security interests and other rights in any of the
Accounts, nor shall Lender's failure to advance or lend against a specific
Account affect or limit Lender's security interest and other rights therein.
Together with each such schedule, Borrower shall furnish
<PAGE>
Lender with copies (or, at Lender's request, originals) of all contracts,
orders, invoices, and other similar documents, and all original shipping
instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Accounts, and Borrower warrants the genuineness of all of the foregoing. In
addition, Borrower shall deliver to Lender the originals of all Instruments,
Chattel Paper, security agreements, guaranties and other documents and property
evidencing or securing any Accounts, immediately upon receipt thereof and in the
same form as received, with all necessary endorsements. Lender may destroy or
otherwise dispose of all documents, schedules and other papers delivered to
Lender pursuant to this Agreement (other than originals of Instruments, Chattel
Paper, security agreements, guaranties and other documents and property
evidencing or securing any Accounts) six months after Lender receives them,
unless Borrower requests their return in writing in advance and arranges for
their return to Borrower at Borrower's expense.
(b) Annual Statements. Not later than 120 days after the close of each
fiscal year of Borrower, unqualified (except for a qualification for a change in
accounting principles with which the accountant concurs) audited financial
statements of Borrower and its Subsidiaries as of the end of such year, on a
consolidated and consolidating basis, certified by a firm of independent
certified public accountants of recognized standing selected by Borrower but
acceptable to Lender, together with a copy of any management letter issued in
connection therewith and a letter from such accountants acknowledging that
Lender is relying on such financial statements;
(c) Interim Statements. Not later than thirty days after the end of
each month hereafter, including the last month of Borrower's fiscal year,
unaudited interim financial statements of Borrower and its Subsidiaries as of
the end of such month and of the portion of Borrower's fiscal year then elapsed,
on a consolidated and consolidating basis, certified by the principal financial
officer of Borrower as prepared in accordance with GAAP and fairly presenting
the consolidated financial position and results of operations of Borrower and
its Subsidiaries for such month and period subject only to changes from audit
and year-end adjustments and except that such statements need not contain notes;
(d) Projections, Etc. Such business projections, Availability
projections, business plans, budgets and cash flow statements for Borrower and
its Subsidiaries as Lender shall request from time to time;
(e) Shareholder Reports, Etc. Promptly after the sending or filing
thereof, as the case may be, copies of any proxy statements, financial
statements or reports which Borrower has made available to its shareholders and
copies of any regular, periodic and special reports or registration statements
which Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;
(f) ERISA Reports. Upon request by Lender, copies of any annual report
to be filed pursuant to the requirements of ERISA in connection with each plan
subject thereto; and
<PAGE>
(g) Other Information. Such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Borrower's and each of its Subsidiary's financial
condition or results of operations.
5.14 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Lender with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Lender, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that Lender may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
5.15 Maintenance of Collateral, Etc. Borrower will maintain all of its
Equipment in good working condition (except for Equipment to be disposed of in
the ordinary course of business, so long as replaced with similar equipment with
value of at least that of the equipment disposed of and for the disposal of
Equipment, the total aggregate value of which shall not exceed $100,000 and
which is no longer needed in the operation of Borrower's business), ordinary
wear and tear excepted, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Lender in writing of any
material loss or damage to the Collateral and of any investigation, action,
suit, proceeding or claim relating to the Collateral or which may result in an
adverse impact upon Borrower's business, assets or financial condition.
5.16 Notification of Changes. Borrower will promptly notify Lender in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, or any material adverse change in the business
or financial affairs of Borrower or the existence of any circumstance which
would make any representation or warranty of Borrower untrue in any material
respect or constitute a material breach of any covenant of Borrower.
5.17 Further Assurances. Borrower agrees, at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as Lender may request from time to
time, to perfect and maintain Lender's security interests in the Collateral and
to fully effectuate the transactions contemplated by this Agreement.
5.18 Negative Covenants. Except as set forth in Section 13 of Schedule A,
Borrower will not, without Lender's prior written consent, (i) merge or
consolidate with another Person, form any new Subsidiary or acquire any interest
in any Person; (ii) acquire any assets except in the ordinary course of business
and as otherwise permitted by this Agreement and the other Loan Documents; (iii)
enter into any transaction outside the ordinary course of business, except as
provided in Section 5.15; (iv) sell or transfer any Collateral or other assets
(other than real estate), except that Borrower may sell finished goods Inventory
in the ordinary course of its business; (v) make any loans to, or investments
in, any Affiliate or other Person in the form of money or other assets; (vi)
incur any debt outside the ordinary course of business; (vii) guaranty or
otherwise become liable with respect to the obligations of another party or
entity; (viii) pay or declare any dividends or other distributions on Borrower's
stock, if Borrower is a corporation (except for dividends payable solely in
capital stock of Borrower) or with respect to any equity interests, if Borrower
is not a corporation; (ii) redeem, retire, purchase or otherwise acquire,
<PAGE>
directly or indirectly, any of Borrower's capital stock or other equity
interests; (x) make any change in Borrower's capital structure; (xi) dissolve or
elect to dissolve; (xii) pay any principal or interest on any indebtedness owing
to an Affiliate, (xiii) enter into any transaction with an Affiliate other than
on arms-length terms; or (xiv) agree to do any of the foregoing. Any provision
of this Section 5.19 to the contrary notwithstanding, Borrower may pay monthly
management fees of up to an average of $25,000 per month, so long as there has
not occurred and is continuing an Event of Default. Borrower hereby agrees not
to sell, mortgage, encumber, or otherwise pledge as security for any its present
or future obligations, its interest in any real property, without the prior
written consent of Lender, which consent shall not be unreasonably withheld,
provided that no Default or Event of Default has occurred.
5.19 Financial Covenants.
(a) Capital Expenditures. Borrower will not expend or commit to
expend, directly or indirectly, for capital expenditures (including capital
lease obligations) in excess of the amount set forth in Section 8(a) of Schedule
A as the Capital Expenditure Limitation in any fiscal year.
(b) Net Worth. Borrower will at all times maintain a net worth of at
least the amount set forth in Section 8(b) of Schedule A.
(c) Tangible Net Worth. Borrower will at all times maintain a minimum
tangible net worth of at least the amount set forth in Section 8(c) of Schedule
A.
(d) Working Capital. Borrower will at all times maintain working
capital of at least the amount set forth in Section 8(d) of Schedule A.
(e) Net Losses. Borrower will not permit its cumulative net loss to
exceed the amount set forth in Section 8(e) of Schedule A.
(f) Net Income. Borrower will not permit its cumulative net income to
be less than the amount set forth in Section 8(f) of Schedule A.
(g) Leverage. Borrower will not permit the ratio of its total
liabilities to its net worth to exceed, at any time, the ratio set forth in
Section 8(g) of Schedule A.
(h) Other Financial Covenants. Borrower will comply with any
additional financial covenants set forth in Section 8(j) of Schedule A.
6. RELEASE AND INDEMNITY.
6.1 Release. Borrower hereby releases Lender and its Affiliates and their
respective directors, officers, employees, attorneys and agents and any other
Person affiliated with or representing Lender (the "Released Parties") from any
and all liability arising from acts or omissions under or pursuant to this
Agreement whether based on errors of judgment or mistake of law or fact, except
for those arising from willful misconduct. However, in no circumstance
<PAGE>
will any of the Released Parties be liable for lost profits or other special or
consequential damages. Such release is made on the date hereof and remade upon
each request for a Loan or Credit Accommodation by Borrower. Without limiting
the foregoing:
(a) Lender shall not be liable for (i) any shortage or discrepancy in,
damage to, or loss or destruction of, any goods, the sale or other disposition
of which gave rise to an Account; (ii) any error, act, omission, or delay of any
kind occurring in the settlement, failure to settle, collection or failure to
collect any Account; (iii) settling any Account in good faith for less than the
full amount thereof; or (iv) any of Borrower's obligations under any contract or
agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any- goods to
the documents presented, the validity or genuineness of any documents, delay,
default or fraud by Borrower, shippers and/or any other Person. Borrower agrees
that any action taken by Lender, if taken in good faith, or any action taken by
an issuer of any Credit Accommodation, under or in connection with any Credit
Accommodation, shall be binding on Borrower and shall not create any resulting
liability to Lender. In furtherance thereof, Lender shall have the full right
and authority to clear and resolve any questions of non-compliance of documents,
to give any instructions as to acceptance or rejection of any documents or
goods, to execute for Borrower's account any and all applications for steamship
or airway guaranties, indemnities or delivery orders, to grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto.
6.2 Indemnity. Borrower hereby agrees to indemnify the Released Parties
and hold them harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including attorneys' fees), of every nature, character and description, which
the Released Parties may sustain or incur based upon or arising out of any of
the transactions contemplated by this Agreement or the other Loan Documents or
any of the Obligations, including any transactions or occurrences relating to
the issuance of any Credit Accommodation, the Collateral relating thereto, any
drafts thereunder and any errors or omissions relating thereto (including any
loss or claim due to any action or inaction taken by the issuer of any Credit
Accommodation) (and for this purpose any charges to Lender by any issuer of
Credit Accommodations shall be conclusive as to their appropriateness and may be
charged to the Loan Account), or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Lender relating to Borrower or
the Obligations (except any such amounts sustained or incurred as the result of
the willful misconduct of the Released Parties). Notwithstanding any provision
in this Agreement to the contrary, the indemnity agreement set forth in this
Section shall survive any termination of this Agreement.
7. TERM.
7.1 Maturity Date. Lender's obligation to make Loans and to provide Credit
Accommodations under this Agreement shall initially continue in effect until the
Initial Maturity Date set forth in Section 7 of Schedule A (the "Initial Term");
provided, that such date shall
<PAGE>
automatically be extended (the Initial Maturity Date, as it may be so extended,
being referred to as the "Maturity Date") for successive additional terms of
three years each (each a "Renewal Term"), unless one party gives written notice
to the other, not less than sixty days prior to the Maturity Date, that such
party elects not to extend the Maturity Date. This Agreement and the other Loan
Documents and Lender's security interests in and Liens upon the Collateral, and
all representations, warranties and covenants of Borrower contained herein and
therein, shall remain in full force and effect after the Maturity Date until all
of the monetary Obligations are indefeasibly paid in full.
7.2 Early Termination. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective thirty business days after
written notice of termination is given to Lender or (ii) by Lender at any time
after the occurrence of an Event of Default, without notice, effective
immediately; provided, that if any Affiliate of Borrower is also a party to a
financing arrangement with Lender, no such early termination shall be effective
unless such Affiliate simultaneously terminates its financing arrangement with
Lender. If so terminated under this Section 7.2, Borrower shall pay to Lender
(i) an early termination fee (the "Early Termination Fee") in the amount set
forth in Section 6(h) of Schedule A plus (ii) any earned but unpaid Facility
Fee. Such fee shall be due and payable on the effective date of termination and
thereafter shall bear interest at a rate equal to the highest rate applicable to
any of the Obligations. In addition, if Borrower so terminates and repays the
Obligations without having provided Lender with at least thirty days' prior
written notice thereof, an additional amount equal to thirty days of interest at
the applicable Interest Rate(s), based on the average outstanding amount of the
Obligations for the six month period immediately preceding the date of
termination.
7.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay in full all Obligations,
whether or not all or any part of such Obligations are otherwise then due and
payable. Without limiting the generality of the foregoing, if, on the Maturity
Date or on any earlier effective date of termination, there are any outstanding
Credit Accommodations, then on such date Borrower shall provide to Lender cash
collateral in an amount equal to 110% of the Credit Accommodation Balance to
secure all of the Obligations (including estimated attorneys' fees and other
expenses) relating to said Credit Accommodations or such greater percentage or
amount as Lender reasonably deems appropriate, pursuant to a cash pledge
agreement in form and substance satisfactory to Lender.
7.4 Effect of Termination. No termination shall affect or impair any right
or remedy of Lender or relieve Borrower of any of the Obligations until all of
the monetary Obligations have been indefeasibly paid in full. Upon indefeasible
payment and performance in full of all of the monetary Obligations (and the
provision of cash collateral with respect to any Credit Accommodation Balance as
required by Section 7.3) and termination of this Agreement, Lender shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be reasonably required to terminate Lender's
security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
<PAGE>
8.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Lender immediate written notice thereof: (i) if any warranty, representation,
statement, report or certificate made or delivered to Lender by Borrower or any
of Borrower's officers, employees or agents is untrue or misleading; (ii) if
Borrower fails to pay when due any principal or interest on any Loan or any
other monetary Obligation; (iii) if Borrower breaches any covenant or obligation
contained in this Agreement or any other Loan Document or fails to perform any
other non-monetary Obligation (provided, that any breach of Section 5.13(b),
5.13(c), 5.13(d), 5.13(e) or 5.13(f), of this Agreement shall not constitute an
Event of Default until 20 days after the earlier of Borrower's knowledge of such
breach and notice by Lender to Borrower of such breach; (iv) if any levy,
assessment, attachment, seizure, lien or encumbrance (other than a Permitted
Lien) is made or permitted to exist on all or any part of the Collateral; (v) if
one or more judgments aggregating in excess of $25,000, or any injunction or
attachment, is obtained against Borrower or any Obligor which remains unstayed
for more than ten days or is enforced; (vi) the occurrence of any default under
any financing agreement, security agreement or other agreement, instrument or
document executed and delivered by (A) Borrower with, or in favor of, any Person
other than Lender or (B) Borrower or any Affiliate of Borrower with, or in favor
of, Lender or any Affiliate of Lender; (vii) the dissolution, death, termination
of existence in good standing, insolvency or business failure or suspension or
cessation of business as usual of Borrower or any Obligor (or of any general
partner of Borrower or any Obligor if it is a partnership) or the appointment of
a receiver, trustee or custodian for all or any part of the property of, or an
assignment for the benefit of creditors by Borrower or any Obligor, or the
commencement of any proceeding by Borrower or any Obligor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, or if Borrower makes or sends a notice of a bulk transfer or
calls a meeting of its creditors; (viii) the commencement of any proceeding
against Borrower or any Obligor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; (ix) the actual or
attempted revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations, or any security document securing the
Obligations, by any Obligor; (x) if Borrower makes any payment on account of any
indebtedness or obligation which has been subordinated to the Obligations other
than as permitted in the applicable subordination agreement, or if any Person
who has subordinated such indebtedness or obligations attempts to limit or
terminate its subordination agreement; (xi) if there is any actual or threatened
indictment of Borrower or any Obligor under any criminal statute or commencement
or threatened commencement of criminal or civil proceedings against Borrower or
any Obligor, pursuant to which the potential penalties or remedies sought or
available include forfeiture of any property of Borrower or such Obligor; (xii)
if there is a change in the record or beneficial ownership of an aggregate of
more than 20% of the outstanding shares of stock of Borrower (or partnership or
membership interests if it is a partnership or limited liability company), in
one or more transactions, compared to the ownership of outstanding shares of
stock (or partnership or membership interests) of Borrower as of the date
hereof, without the prior written consent of Lender; (xiii) if there is any
change in the chief executive officer or, once appointed, the chief operating
officer or chief financial officer of Borrower, unless, however, a replacement
officer, acceptable to Lender, is in place within thirty (30) days following
said change; or (xiv) if an Event of Default occurs under any Loan and Security
Agreement between Lender and an Affiliate of Borrower, including but not limited
to
<PAGE>
that certain Loan and Security Agreement between Lender and Pony Express
Delivery Services, Inc., dated May 29, 1998.
8.2 Remedies. Upon the occurrence of any Default, and at any time
thereafter, Lender, at its option, may cease making Loans or otherwise extending
credit to Borrower under this Agreement or any other Loan Document. Upon the
occurrence of any Event of Default, and at any time thereafter, Lender, at its
option, and without notice or demand of any kind (all of which are hereby
expressly waived by Borrower), may do any one or more of the following: (i)
cease making Loans or otherwise extending credit to Borrower under this
Agreement or any other Loan Document; (ii) accelerate and declare all or any
part of the Obligations to be immediately due, payable and performable,
notwithstanding any deferred or installment payments allowed by any instrument
evidencing or relating to any of the Obligations; (iii) take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes Lender, without judicial process, to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain (or cause a custodian
to remain) on the premises in exclusive control thereof, without charge for so
long as Lender deems it reasonably necessary in order to complete the
enforcement of its rights under this Agreement or any other agreement; provided,
that if Lender seeks to take possession of any of the Collateral by court
process, Borrower hereby irrevocably waives (A) any bond and any surety or
security relating thereto required by law as an incident to such possession, (B)
any demand for possession prior to the commencement of any suit or action to
recover possession thereof and (C)any requirement that Lender retain possession
of, and not dispose of, any such Collateral until after trial or final judgment;
(iv) require Borrower to assemble any or all of the Collateral and make it
available to Lender at one or more places designated by Lender which are
reasonably convenient to Lender and Borrower, and to remove the Collateral to
such locations as Lender may deem advisable; (v) complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and,
for such purpose and for the purpose of removal, Lender shall have the right to
use Borrower's premises, vehicles and other Equipment and all other property
without charge; (vi) sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time Lender obtains possession of it or after further
manufacturing, processing or repair, at one or more public or private sales, in
lots or in bulk, for cash, exchange or other property, or on credit (a "Sale"),
and to adjourn any such Sale from time to time without notice other than oral
announcement at the time scheduled for Sale (and, in connection therewith, (A)
Lender shall have the right to conduct such Sale on Borrower's premises without
charge, for such times as Lender deems reasonable, on Lender's premises, or
elsewhere, and the Collateral need not be located at the place of Sale; (B)
Lender may directly or through any of its Affiliates purchase or lease any of
the Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and (C) any Sale of Collateral shall
not relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title, physical condition or otherwise at the time of sale);
(vii) demand payment of and collect any Accounts, Chattel Paper, Instruments and
General Intangibles included in the Collateral and, in connection therewith,
Borrower irrevocably authorizes Lender to endorse or sign Borrower's name on all
collections, receipts, Instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of Collateral or proceeds thereof and, in Lender's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Accounts, General Intangibles and the like for less than face value; and (viii)
demand and receive possession of any of Borrower's federal and state income tax
<PAGE>
returns and the books and records utilized in the preparation thereof or
relating thereto. In addition to the foregoing remedies, upon the occurrence of
any Event of Default resulting from a breach of any of the financial covenants
set forth in Section 5.19, Lender may, at its option, upon not less than ten
days' prior notice to Borrower, reduce any or all of the Advance Rates set forth
in Section 1(b) of Schedule A to the extent Lender, in its sole discretion,
deems appropriate. In addition to the rights and remedies set forth above,
Lender shall have all the other rights and remedies accorded a secured party
after default under the UCC and under all other applicable laws, and under any
other Loan Document, and all of such rights and remedies are cumulative and non-
exclusive. Exercise or partial exercise by Lender of one or more of its rights
or remedies shall not be deemed an election or bar Lender from subsequent
exercise or partial exercise of any other rights or remedies. The failure or
delay of Lender to exercise any rights or remedies shall not operate as a waiver
thereof, but all rights and remedies shall continue in full force and effect
until all of the Obligations have been fully paid and performed. If notice of
any sale or other disposition of Collateral is required by law, notice at least
seven days prior to the sale designating the time and place of sale in the case
of a public sale or other time after which any private sale or other disposition
is to be made shall be deemed to be reasonable notice, and Borrower waives any
other notice. If any Collateral is sold or leased by Lender on credit terms or
for future delivery, the Obligations shall not be reduced as a result thereof
until payment is collected by Lender.
8.3 Application of Proceeds. Subject to any application required by law,
all proceeds realized as the result of any Sale shall be applied by Lender to
the Obligations in such order as Lender shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled thereto;
but Borrower shall remain liable to Lender for any deficiency. If Lender, in its
sole discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any Sale, Lender shall have the option,
exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of the purchase price or deferring the
reduction of the Obligations until the actual receipt by Lender of the cash
therefor.
9. GENERAL PROVISIONS.
9.1 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service, by regular first-class mail or certified mail return receipt requested,
addressed to Lender or Borrower at the address shown in the heading to this
Agreement, or by facsimile to the facsimile number shown in Section 9(i) of
Schedule A, or at any other address (or to any other facsimile number)
designated in writing by one party to the other party in the manner prescribed
in this Section 9.1. All notices shall be deemed to have been given when
received or when delivery is refused by the recipient.
9.2 Severability. If any provision of this Agreement, or the application
thereof to any party or circumstance, is held to be void or unenforceable by any
court of competent jurisdiction, such defect shall not affect the remainder of
this Agreement, which shall continue in full force and effect.
9.3 Integration. This Agreement and the other Loan Documents represent the
final, entire and complete agreement between Borrower and Lender and supersede
all prior and
20
<PAGE>
contemporaneous negotiations, oral representations and agreements, all of which
are merged and integrated into this Agreement. THERE ARE NO ORAL UNDERSTANDINGS,
REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT SET FORTH IN
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4 Waivers. The failure of Lender at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other Loan Documents shall not waive or diminish any right of Lender later to
demand and receive strict compliance therewith. Any waiver of any default shall
not waive or affect any other default, whether prior or subsequent, and whether
or not similar. None of the provisions of this Agreement or any other Loan
Document shall be deemed to have been waived by any act or knowledge of Lender
or its agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, Instrument, Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
9.5 Amendment. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
9.6 Time of Essence. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement and the other Loan Documents.
9.7 Attorneys Fees and Costs. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to, in
connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this Agreement
and the other Loan Documents; to obtain legal advice in connection with this
Agreement and the other Loan Documents or Borrower or any Obligor; to administer
this Agreement and the other Loan Documents (including the cost of periodic
financing statement, tax lien and other searches conducted by Lender); to
enforce, or seek to enforce, any of its rights; prosecute actions against, or
defend actions by, Account Debtors; to commence, intervene in, or defend any
action or proceeding; to initiate any complaint to be relieved of the automatic
stay in bankruptcy; to file or prosecute any probate claim, bankruptcy claim,
third-rate claim, or other claim, to examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; to protect, obtain
possession of, lease, dispose of, or otherwise enforce Lender's security
interests in, the Collateral; and to otherwise represent Lender in any
litigation relating to Borrower. If either Lender or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including reasonable attorneys' fees and costs incurred in the enforcement
of, execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Lender may be entitled pursuant to this
Section shall immediately become part of the Obligations, shall be due on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
21
<PAGE>
9.8 Benefit of Agreement; Assignability. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and Lender;
provided, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Lender, and any prohibited
assignment shall be void. No consent by Lender to any assignment shall release
Borrower from its liability for any of the Obligations. Lender shall have the
right to assign all or any of its rights and obligations under the Loan
Documents, and to sell participating interests therein, to one or more other
Persons, and Borrower agrees to execute all agreements, instruments and
documents requested by Lender in connection with each such assignment and
participation.
9.9 Headings; Construction. Section and subsection headings are used in
this Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
9.10 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND
FEDERAL COURTS IN NEW YORK OR THE STATE IN WHICH ANY OF THE COLLATERAL IS
LOCATED SHALL HAVE NON-EXCLUSIVE JURIS DICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER `VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES THAT ANY CLAIM OR
--------------------
DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL COURTS OF NEW
YORK. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER AND SHALL BE
DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE EXTENT PERMITTED
BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT
OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO
PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH
FORUM OR THE
22
<PAGE>
TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY OTHER
APPROPRIATE FORUM OR JURISDICTION.
9.11 WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM
OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE
OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR
BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE; (ii) THE RIGHT TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING
INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii) NOTICE PRIOR TO LENDER'S
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as of
the date set forth in the heading.
Borrower: Lender:
COURIER EXPRESS, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By________________________ By________________________________
Its__________________ Its Authorized Signatory
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<PAGE>
Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement between
COURIER EXPRESS, INC., a California corporation, and NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the
"Agreement").
1. Loan Limits for Revolving
Loans:
(a) Maximum Facility Nine Million and 00/100 Dollars Amount:
($9,000,000.00), less any outstanding
Obligations owed by Pony Express
Delivery Services, Inc. pursuant to the
terms of that certain Loan and Security
Agreement dated May 29,1998.
(b) Advance Rates:
(i) Accounts Eighty-Five Percent (85%); provided,
Advance Rate: that if the Dilution Percentage exceeds
3%,Lender may, as its option, (i) reduce
the advance rate or (ii) implement a
reserve, for any amount of such excess
percentage.
(ii) Inventory
Advance
Rate(s):
(A) Finished
goods: N/A
(B) Raw
materials: N/A
(C) Work in
process: N/A
(c) Accounts Sublimit: At any time of determination, the lesser
of (i) $9,000,000 and (ii) Borrower's
cash collections during the 30-day
period immediately preceding such time.
(d) Inventory
Sublimit(s):
24
<PAGE>
(i) Overall sublimit N/A
on advances
against Eligible
Inventory
(ii) Sublimit on N/A
advances
against finished
goods
(iii) Sublimit on N/A
advances
against raw materials
(iv) Subijinit on N/A
advances
against work in process
(e) Credit
Accommodation
Limit: N/A
(f) Permanent Reserve
Amount: N/A
(g) Overadvance
Amount: N/A
2. Loan Limits for Term
Loan:
(a) Principal Amount:
(i) Equipment N/A
Advance
(ii) Real Property N/A
Advance:
(b) Repayment Schedule:
(i) Equipment
Advance: N/A
(ii) Real Property
Advance:
25
<PAGE>
3. Interest Rates:
(a) Revolving Loans: One Percent (1%) per annum in excess of
the Prime Rate
(b) Term Loan: N/A
4. Minimum Loan Amount: None
5. Maximum Days:
(a) Maximum days after
original invoice date
for Eligible
Accounts: 60 days
(b) Maximum days after
original invoice due
date for Eligible
Accounts: N/A
6. Fees:
(a) Closing Fee: None
(b) Facility Fee:
(i) Initial Term: None
(ii) Renewal
Term(s): None
(c) Servicing Fee: None
(d) Unused Line Fee: 0.25% per annum
(e) Minimum Borrowing Fee:
(i) Applicable
period: N/A
(ii) Date payable: N/A
(f) Success Fee: None
(g) Warrants: None
26
<PAGE>
(h) Early Termination Three percent (3 %) of the Maximum
Fee: Facility Amount if terminated during the
first year of the Term, two percent (2%)
of the Maximum Facility Amount if
terminated during the second year of the
Term, and one percent (1%) of the
Maximum Facility Amount if terminated
during the third year of the Term and
zero percent (0%) of the Maximum
Facility Amount if terminated
thereafter; provided however, that the
Early Termination shall be waived if all
Obligations are refinanced by
NationsBank.
(i) Fees for letters of N/A
credit and other Credit
Accommodations (or
guaranties thereof by
Lender):
7. Initial Maturity Date: May 29, 2002
8. Financial Covenants:
(a) Capital Expenditure
Limitation: N/A
(b) Minimum Net Worth
Requirement: N/A
(c) Minimum Tangible
Net Worth: N/A
(d) Minimum Working
Capital: N/A
(e) Maximum
Cumulative Net Loss: N/A
(f) Minimum
Cumulative Net
Income: N/A
(g) Maximum Leverage
Ratio: N/A
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<PAGE>
(h) Limitation on
Purchase Money
Security Interests: N/A
(i) Limitation on
Equipment Leases: No limitations.
(j) Additional Financial
Covenants: N/A
9. Borrower Information:
(a) Prior Names of
Borrower: California Couriers, Inc. (no longer
used) C Ex. Inc. (1976)
(b) Prior Trade Names of
Borrower: None
(c) Existing Trade
Names of Borrower: Courier Express
(d) Inventory Locations: None
(e) Other Locations: See Schedule C attached hereto and
incorporated herein by this reference.
(f) Litigation: See Schedule D attached hereto and
incorporated herein by this reference.
(g) Ownership of
Borrower: Pony Express Delivery Services, Inc.-
100%
(h) Subsidiaries (and
ownership thereof): Air Courier Express, Inc.-100%
(i) Facsimile Numbers:
Borrower: (213)450-4410
Lender: (212)597-1675
10. Description of Real
Property: N/A
11. Lender's Bank: First Chicago-NBD
12. Other Covenants: None
28
<PAGE>
13. Exceptions to Negative
Covenants: None
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as of
the date set forth in the heading to the Agreement.
Borrower: Lender:
COURIER EXPRESS, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By_______________________________ By_________________________________
Its_________________________ Its Authorized Signatory
29
<PAGE>
Schedule B
Definitions
This Schedule is an integral part of the Loan and Security Agreement between
COURIER EXPRESS, INC., a California corporation, and NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL - FUNDING DIVISION (the
"Agreement ")
As used in the Agreement, the following terms have the following meanings:
"Account" means any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"Account Debtor" means the obligor on an Account or Chattel Paper.
"Account Proceeds" has the meaning set forth in Section 4.1.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, member, manager, director, officer, or employee of such Person, any
parent or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person or any other Person affiliated, directly
or indirectly, by virtue of family membership, ownership, management or
otherwise.
"Agreement" and "this Agreement" mean the Loan and Security Agreement
of which this Schedule B is a part and the Schedules thereto.
"Availability" has the meaning set forth in Section 1.1(a)
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
(S) 101 et seq.)
-------
"Blocked Account" has the meaning set forth in Section 4.1.
"Borrower" has the meaning set forth in the heading to the Agreement.
"Borrower's Address" has the meaning set forth in the heading to the
Agreement.
"Business Day" means a day other than a Saturday or Sunday or any
other day on which Lender or banks in New York, New York, are authorized to
close.
"Collateral" means all property and interests in property in or upon
which a security interest or other Lien is granted pursuant to this Agreement or
the other Loan Documents.
30
<PAGE>
"Credit Accommodation" has the meaning set forth in Section 1.1(a).
"Credit Accommodation Balance" means the sum of (i) the aggregate
undrawn face amount of all outstanding Credit Accommodations and (ii) all
interest, fees and costs due or, in Lender's estimation, likely to become due in
connection therewith.
"Default" means any event which with notice or passage of time, or
both, would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.1.
"Deposit Account" has the meaning set forth in the UCC.
"Dilution Percentage" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Borrower's Accounts computed as a percentage of Borrower's gross sales,
calculated on a ninety (90) day rolling average.
"Document"' has the meaning set forth in the UCC.
"Early Termination Fee" has the meaning set forth in Section 7.2.
"Eligible Account" means, at any time of determination, an Account
which satisfies the general criteria set forth below and which is otherwise
acceptable to Lender (provided, that Lender may, in its sole discretion, change
the general criteria for acceptability of Eligible Accounts upon at least
fifteen days' prior notice to Borrower). An Account shall be deemed to meet the
current general criteria if (i) neither the Account Debtor nor any of its
Affiliates is an Affiliate, creditor or supplier of Borrower; (ii) it does not
remain unpaid more than the earlier to occur of (A) the number of days after the
original invoice date set forth in Section 5(a) of Schedule A or (B) the number
of days after the original invoice due date set forth in Section 5(b) of
Schedule A; (iii) the Account Debtor or its Affiliates are not past due on other
Accounts owing to Borrower comprising more than 25% of all of the Accounts owing
to Borrower by such Account Debtor or its Affiliates; (iv) all Accounts owing by
the Account Debtor or its Affiliates do not represent more than 20% of all
otherwise Eligible Accounts (provided, that Accounts which are deemed to be
ineligible solely by reason of this clause (iv) shall be considered Eligible
Accounts to the extent of the amount thereof which does not exceed 20% of all
otherwise Eligible Accounts); (v) no covenant, representation or warranty
contained in this Agreement with respect to such Account (including any of the
representations set forth in Section 5.4) has been breached; (vi) the Account is
not subject to any contra relationship, counterclaim, dispute or set-off
(provided, that Accounts which are deemed to be ineligible solely by reason of
this clause (vi) shall be considered Eligible Accounts to the extent of the
amount thereof which is not affected by such contra relationships,
counterclaims, disputes or set-offs); (vii) the Account Debtor's chief executive
office or principal place of business is located in the United States or
Provinces of Canada which have adopted the Personal Property Security Act or a
similar act, unless (A) the sale is fully backed by a letter of credit, guaranty
or acceptance acceptable to Lender in its sole discretion, and if backed by a
letter of credit, such letter of credit has been issued or confirmed by a bank
satisfactory to Lender, is sufficient to cover such
31
<PAGE>
Account, and if required by Lender, the original of such letter of credit has
been delivered to Lender or Lender's agent and the issuer thereof notified of
the assignment of the proceeds of such letter of credit to Lender or (B) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender; (viii) it is absolutely
owing to Borrower and does not arise from a sale on a bill-and-hold, guarantied
sale, sale-or-return, sale-on-approval, consignment, retainage or any other
repurchase or return basis or consist of progress billings; (ix) Lender shall
have verified the Account in a manner satisfactory to Lender; (x) the Account
Debtor is not the United States of America or any state or political subdivision
(or any department, agency or instrumentality thereof), unless Borrower has
complied with the Assignment of Claims Act of 1940 (31 U.S.C. (S)203 et seq.) or
other applicable similar state or local law in a manner satisfactory to Lender;
(xi) it is at all times subject to Lender's duly perfected, first priority
security interest and to no other Lien that is not a Permitted Lien, and the
goods giving rise to such Account (A) were not, at the time of sale, subject to
any Lien except Permitted Liens and (B) have been delivered to and accepted by
the Account Debtor, or the services giving rise to such Account have been
performed by Borrower and accepted by the Account Debtor; (xii) the Account is
not evidenced by Chattel Paper or an Instrument of any kind and has not been
reduced to judgment; (xiii) the Account Debtor's total indebtedness to Borrower
does not exceed the amount of any credit limit established by Borrower or Lender
and the Account Debtor is otherwise deemed to be creditworthy by Lender
(provided, that Accounts which are deemed to be in eligible solely by reason of
this clause (xiii) shall be considered Eligible Accounts to the extent the
amount of such Accounts does not exceed the lower of such credit limits); (xiv)
there are no facts or circumstances existing, or which could reasonably be
anticipated to occur, which might result in any adverse change in the Account
Debtor's financial condition or impair or delay the collectibility of all or any
portion of such Account; (xv) Lender has been furnished with all documents and
other information pertaining to such Account which Lender has requested, or
which Borrower is obligated to deliver to Lender, pursuant to this Agreement;
(xvi) Borrower has not made an agreement with the Account Debtor to extend the
time of payment thereof beyond the time periods set forth in clause (ii) above;
and (xvii) Borrower has not posted a surety or other bond in respect of the
contract under which such Account arose.
"Eligible Equipment" means, at any time of determination, Equipment
owned by Borrower which Lender, in its sole discretion, deems to be eligible for
borrowing purposes.
"Eligible Inventory" means, at any time of determination, Inventory
(other than packaging materials and supplies) which satisfies the general
criteria set forth below and which is otherwise acceptable to Lender (provided,
that Lender may, in its sole discretion, change the general criteria for
acceptability of Eligible Inventory upon at least fifteen days' prior written
notice to Borrower). Inventory shall be deemed to meet the current general
criteria if (i) it consists of raw materials or finished goods, or work-in-
process that is readily marketable in its current form; (ii) it is in good, new
and saleable condition; (iii) it is not slow-moving, obsolete, unmerchantable,
returned or repossessed; (iv) it is not in the possession of a processor,
consignee or bailee, or located on premises leased or subleased to Borrower, or
on premises subject to a mortgage in favor of a Person other than Lender, unless
such processor, consignee, bailee or mortgagee or the lessor or sublessor of
such premises, as the case may be, has executed and delivered all documentation
which Lender shall require to evidence the subordination or other limitation or
extinguishment of such Person's rights with respect to such Inventory and
Lender's
32
<PAGE>
right to gain access thereto; (v) it meets all standards imposed by any
governmental agency or authority; (vi) it conforms in all respects to any
covenants, warranties and representations set forth in the Agreement; (vii) it
is at all times subject to Lender's duly perfected, first priority security
interest and no other Lien except a Permitted Lien; and (viii)it is situated at
an Inventory Location listed in Section9(d) of Schedule A or other location of
which Lender has been notified as required by Section 5.6.
"Eligible Real Property" means, at any time of determination, Real
Property owned by Borrower which Lender, in its sole discretion, deems to be
eligible for borrowing purposes.
"Equipment" means all Goods which are used or bought for use primarily
in business (including farming or a profession) or by a Person who is a non-
profit organization or governmental subdivision or agency and which are not
Inventory, farm products or consumer goods, including all machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies and jigs, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to, or spare parts for, any of the foregoing.
"Equipment Advance" has the meaning set forth in Section 1.1(b).
"ERISA" means the Employee Retirement Income Security Act of 1974 and
all rules, regulations and orders promulgated thereunder.
"Event of Default" has the meaning set forth in Section 8.1.
"GAAP means generally accepted accounting principles as in effect from
time to time, consistently applied.
"General Intangibles" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral and other business
and financial records in the possession of Borrower or any other Person,
inventions, designs, drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than "intent to use" applications
until a verified statement of use is filed with respect to such applications)
and the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, causes of action and other rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, internet
addresses, proprietary information, purchase orders, and all insurance policies
and claims (including life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance), tax refunds and
claims, letters of credit, banker's acceptances and guaranties, computer
programs, discs, tapes and tape files in the possession of Borrower or any other
Person, claims under guaranties, security interests or other security held by or
granted to Borrower, all rights to indemnification and all other intangible
property of every kind and nature.
33
<PAGE>
"Goods" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"Initial Term" has the meaning set forth in Section 7.1.
"Instrument, "meaning set forth in the UCC.
"Inventory" means all Goods held for sale or lease or furnished or to
be furnished under contracts of service, including all raw materials, work in
process, finished goods, goods in transit and materials and supplies which are
or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"In vestment Property" shall mean all of Borrower's securities,
whether certificated or uncertificated, securities entitlements, securities
accounts, commodity contracts and commodity accounts.
"Lender" has the meaning set forth in the heading to the Agreement.
"Lien" means any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, Borrower shall be deemed
to be the owner of any property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for security
purposes.
"Loan Account" has the meaning set forth in Section 2.4.
"Loan Documents" means the Agreement and all notes, guaranties,
security agreements, certificates, landlord's agreements, Lock Box and Blocked
Account agreements and all other agreements, documents and instruments now or
hereafter execute Department of Revenue delivered by Borrower or any Obligor in
connection with, or to evidence the transactions contemplated by, this
Agreement.
"Loan Limits" means, collectively, the Availability limits and all
other limits on the amount of Loans and Credit Accommodations set forth in this
Agreement.
"Loans" means, collectively, the Revolving Loans and any Term Loan.
34
<PAGE>
"Lock Box" has the meaning set forth in Section 4.1.
"Maturity Date" has the meaning set forth in Section 7.1.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties (including but not limited to that certain
Guaranty by Courier Express, Inc. of the obligations of Pony Express Delivery
Services, Inc. to Lender dated September 15, 1998), covenants, duties and
indebtedness at any time owing by Borrower to Lender, whether evidenced by this
Agreement or any other Loan Document, whether arising from an extension of
credit, opening of a Credit Accommodation, guaranty, indemnification or
otherwise (including all fees, costs and other amounts which may be owing to
issuers of Credit Accommodations and all taxes, duties, freight, insurance,
costs and other expenses, costs or amounts payable in connection with Credit
Accommodations or the underlying goods), whether direct or indirect (including
those acquired by assignment and any participation by Lender in Borrower's
indebtedness owing to others), whether absolute or contingent, whether due or to
become due, and whether arising before or after the commencement of a proceeding
under the Bankruptcy Code or any similar statue, including all interest,
charges, expenses, fees, attorney's fees, expert witness fees, audit fees,
letter of credit fees, loan fees, Early Termination Fees, Minimum Borrowing Fees
and any other sums chargeable to Borrower under this Agreement or under any
other Loan Document.
"Obligor" means any guarantor, endorser, acceptor, surety or other
person liable on, or with respect to, the Obligations or who is the owner of any
property which is security for the Obligations, other than Borrower.
"Permitted Liens" means: (i) purchase money security interests in
specific items of Equipment in an aggregate amount not to exceed the limit set
forth in Section 8(h) of Schedule A; (ii) leases of specific items of Equipment
in an aggregate amount not to exceed the limit set forth in Section 8(i) of
Schedule A; (iii) Liens for taxes not yet due and payable; (iv) additional Liens
which are fully subordinate to the security interests of Lender and are
consented to in writing by Lender; (v) security interests being terminated
concurrently with the execution of this Agreement; (vi) Liens of materialmen,
mechanics, warehousemen or carriers arising in the ordinary course of business
and securing obligations which are not delinquent; (vii) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clause (i) or (ii) above; provided,
that any extension, renewal or replacement Lien is limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase; (viii) Liens in favor
of customs and revenue authorities which secure payment of customs duties in
connection with the importation of goods; and (ix) security deposits posted in
connection with real property leases or subleases. Lender will have the right to
require, as a condition to its consent under clause (iv) above, that the holder
of the additional Lien sign an intercreditor agreement in form and substance
satisfactory to Lender, in its sole discretion, acknowledging that the Lien is
subordinate to the security interests of Lender, and agreeing not to take any
action to enforce its subordinate Lien so long as any Obligations remain
outstanding, and that Borrower agree that any uncured default in any obligation
secured by the subordinate Lien shall also constitute an Event of Default under
this Agreement.
35
<PAGE>
"Person" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"Prime Rate" means, at any given time, the prime rate as quoted in The
Wall Street Journal as the base rate on corporate loans posted as of such time
by at least 75% of the nation's 30 largest banks (which rate is not necessarily
the lowest rate offered by such banks).
"Real Property" means the real property described in Section 10 of
Schedule A.
"Real Property Advance" has the meaning set forth in Section 1.1(b).
"Released Parties" has the meaning set forth in Section 6.1.
"Renewal Term" has the meaning set forth in Section 7.1.
"Reserves" has the meaning set forth in Section 1.2.
"Revolving Loans" has the meaning set forth in Section 1.1(a).
"Sale" has the meaning set forth in Section 8.2.
"Subsidiary" means any corporation or other entity of which a Person
owns, directly or indirectly, through one or more intermediaries, more than 50%
of the capital stock or other equity interest at the time of determination.
"Term" means the period commencing on the date of this Agreement and
ending on the Maturity Date.
"UCC" means, at any given time, the Uniform Commercial Code as adopted
and in effect at such time in the State of New York.
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the UCC, to the extent such terms are defined therein. The
term including, "whenever used in this Agreement, shall mean "including but not
limited to." The singular form of any term shall include the plural form, and
vice versa, when the context so requires. References to Sections, subsections
and Schedules are to Sections and subsections of, and Schedules to, this
Agreement. All references to agreements and statutes shall include all
amendments thereto and successor statutes in the case of statutes.
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as of
the date set forth in the heading to the Agreement.
36
<PAGE>
Borrower: Lender:
COURIER EXPRESS, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By_______________________________ By_______________________________
Its_________________________ Its Authorized Signatory
37
<PAGE>
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the UCC, to the extent such terms are defined therein. The
term "including," whenever used in this Agreement, shall mean "including but not
limited to." The singular form of any term shall include the plural form, and
vice versa, when the context so requires. References to Sections, subsections
and Schedules are to Sections and subsections of; and Schedules to, this
Agreement. All references to agreements and statutes shall include all
amendments thereto and successor statutes in the case of statutes.
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as of
the date set forth in the heading to the Agreement.
Borrower: Lender:
COURIER EXPRESS, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By______________________________ By____________________________________
Its________________________ Its Authorized Signatory
B-1
<PAGE>
EXHIBIT 10.27
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "First Amendment")
is made and entered into as of the 18/th/ day of June, 1999, by and between
COURIER EXPRESS, INC., a California corporation, ("Borrower") and FLEET
ACQUISITION CORP., a Nevada corporation ("Pledgor"), and NATIONSCREDIT
COMMERCIAL CORPORATION THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION, a
Delaware corporation ("Lender").
WHEREAS, Borrower and Lender entered into that certain Loan and Security
Agreement dated October 20, 1998, wherein Lender agreed to make available to
Borrower upon the terms and conditions therein a revolving line of credit
facility up to the maximum principal amount of $9,000,000 (hereinafter, as may
be amended from time to time in the future, referred to as the "Loan Agreement")
(capitalized terms contained herein and not defined herein shall have the
respective meanings ascribed to them in the Loan Agreement);
WHEREAS, Borrower, a wholly owned subsidiary of Pony Express Delivery
Services, Inc., has requested that Lender permit SKYNET HOLDINGS, INC., a
Delaware corporation, to acquire the outstanding capital stock of Pony Express
Delivery Services, Inc.;
WHEREAS, it is a condition precedent to Lender consenting to and permitting
said acquisition that Borrower execute and deliver this First Amendment;
WHEREAS, Pledgor and Lender entered into that certain Security Agreement
dated June ___, 1999; and
WHEREAS, the Borrower, Pledgor and Lender now desire to amend the Loan
Agreement in accordance with the terms and conditions stated herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. The Loan Agreement is hereby amended to include as a party thereto
Fleet Acquisition Corp., a Nevada corporation, whose chief executive office is
located at 4705 South Valley View Blvd., Las Vegas, Nevada 89103.
2. Amount. Section 1.1 of the Loan Agreement is hereby amended by
------
renumbering subsection "(iv)" and subsection "(v)" as subsection "(v)" and
subsection "(vi)", respectively, and by adding the following new subsection
"(iv)":
"minus
(iv) the excess availability of One Million Dollars ($1,000,000) (on an
aggregate basis with Pony Express Delivery Services, Inc.) which shall be the
minimum excess availability required hereunder."
<PAGE>
3. Reserves. Section 1.2 of the Loan Agreement is hereby amended by
--------
replacing "Borrower" in the first sentence of Section 1.2 with "Borrower,
Pledgor".
4. Minimum Borrowing. The Loan Agreement is hereby amended by changing
-----------------
the first sentence of Section 1.5 to read as follows:
"Subject to the terms and conditions of this Agreement, Borrower agrees to
(i) borrow sufficient amounts to cause the outstanding principal balance of the
Loans to equal or exceed, at all times prior to the Maturity Date, the Minimum
Loan Amount set forth in Section 4 of Schedule A and (ii) maintain Availability
in conjunction with Pledgor sufficient to enable Borrower to do so."
5. Lock Boxes and Blocked Accounts. The Loan Agreement is hereby amended
-------------------------------
by deleting Section 4.1 and inserting the following Section 4.1 in lieu thereof:
"4.1 Lock Boxes and Blocked Accounts. Borrower and Pledgor will, at the
expense of each, establish (and revise from time to time as Lender may require)
collection procedures acceptable to Lender, in Lender's sole discretion, for the
collection of checks, wire transfers and other proceeds of Accounts ("Account
Proceeds"), which may include (i) directing all Account Debtors to send all such
proceeds directly to a post office box designated by Lender either in the name
of Borrower or Pledgor (but as to which Lender has exclusive access) or, at
Lender's option, in the name of Lender (a "Lock Box") or (ii) depositing all
Account Proceeds received by Borrower or Pledgor into one or more bank accounts
maintained in Lender's name (each, a "Blocked Account"), under an arrangement
acceptable to Lender with a depository bank acceptable to Lender, pursuant to
which all funds deposited into each Blocked Account are to be transferred to
Lender in such manner, and with such frequency, as Lender shall specify or
(iii)a combination of the foregoing. Borrower and Pledgor each agree to execute,
and to cause their depository banks to execute, such Lock Box and Blocked
Account agreements and other documentation as Lender shall require from time to
time in connection with the foregoing."
6. Remittance of Proceeds. Section 4.2 of the Loan Agreement is hereby
----------------------
amended by replacing "Borrower" in Section 4.2 with "Borrower or Pledgor, as the
case may be" and by replacing "Borrower's" in Section 4.2 with "Borrower's or
Pledgor's, as the case may be".
7. Notification; Verification. Section 4.4 of the Loan Agreement is
--------------------------
hereby amended by replacing "Borrower" in Section 4.4 with "Borrower,
Pledgor".
8. Power of Attorney. The Loan Agreement is hereby amended by deleting
-----------------
Section 4.5 and inserting the following Section 4.5 in lieu thereof:
"4.5 Power of Attorney. Borrower and Pledgor hereby grant to Lender an
irrevocable power of attorney, coupled with an interest, authorizing and
permitting Lender (acting through any of its officers, employees, attorneys or
agents), at any time (whether or not a Default or Event of Default has occurred
and is continuing, except as expressly provided below), at Lender's
-2-
<PAGE>
option, but without obligation, subject prior to Default or and Event of Default
to having given prior notice to Borrower or Pledgor, and at Borrower's or
Pledgor's expense, as the case may be, to do any or all of the following, in
Borrower's name, Pledgor's name or otherwise: (i) execute on behalf of Borrower
or Pledgor any documents that Lender may, in its sole discretion, deem advisable
in order to perfect and maintain Lender's security interests in the Collateral,
to exercise a right of Borrower, Pledgor or Lender, or to fully consummate all
the transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower or Pledgor; (ii) execute on behalf of Borrower or Pledgor any
document exercising, transferring or assigning any option to purchase, sell or
otherwise dispose of or lease (as lessor or lessee) any real or personal
property which is part of the Collateral or in which Lender has an interest;
(iii) execute on behalf of Borrower or Pledgor any invoices relating to any
Accounts, any draft against any Account Debtor, any proof of claim in
bankruptcy, any notice of Lien or claim, and any assignment or satisfaction of
mechanic's, materialman's or other Lien; (iv) execute on behalf of Borrower or
Pledgor any notice to any Account Debtor; (v) receive and otherwise take control
in any manner of any cash or non-cash items of payment or proceeds of
Collateral; (vi) endorse Borrower's or Pledgor's name on all checks and other
forms of remittances received by Lender; (vii) pay, contest or settle any Lien,
charge, encumbrance, security interest and adverse claim in or to any of the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (viii) after the occurrence of a Default or
Event of Default, grant extensions of time to pay, compromise claims relating
to, and settle Accounts, Chattel Paper and General Intangibles for less than
face value and execute all releases and other documents in connection therewith;
(ix) pay any sums required on account of Borrower's or Pledgor's taxes or to
secure the release of any Liens therefor; (x) pay any amounts necessary to
obtain, or maintain in effect, any of the insurance described in Section 5.12;
(xi) settle and adjust, and give releases of, any insurance claim that relates
to any of the Collateral and obtain payment therefor; (xii) instruct any third
party having custody or control of any Collateral or books or records belonging
to, or relating to, Borrower or Pledgor to give Lender the same rights of access
and other rights with respect thereto as Lender has under this Agreement; and
(xiii) after the occurrence of a Default or Event of Default, change the address
for delivery of Borrower's or Pledgor's mail and receive and open all mail
addressed to Borrower or Pledgor. Any and all sums paid, and any and all costs,
expenses, liabilities, obligations and reasonable attorneys' fees incurred, by
Lender with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. Borrower and
Pledgor agree that Lender's rights under the foregoing power of attorney or any
of Lender's other rights under this Agreement or the other Loan Documents shall
not be construed to indicate that Lender is in control of the business,
management or properties of Borrower or Pledgor."
9. Disputes. Section 4.6 of the Loan Agreement is hereby amended by
--------
replacing "Borrower" in Section 4.6 with "Borrower and Pledgor".
10. Invoices. Section 4.7 of the Loan Agreement is hereby amended by
--------
replacing "Borrower" in Section 4.7 with "Borrower and Pledgor".
-3-
<PAGE>
11. Access to Collateral, Books Records. The Loan Agreement is hereby
-----------------------------------
amended by deleting Section 4.9 and inserting the following Section 4.9 in lieu
thereof:
"4.9 Access to Collateral, Books and Records. At reasonable times, and on
one Business Day's notice, prior to the occurrence of a Default or an Event of
Default, and at any time and with or without notice after the occurrence of a
Default or an Event of Default, Lender or its agents shall have the right to
inspect the Collateral, and the right to examine and copy Borrower's or
Pledgor's books and records. Lender shall take reasonable steps to keep
confidential all information obtained in any such inspection or examination, but
Lender shall have the right to disclose any such information to its auditors,
regulatory agencies, attorneys and participants, and pursuant to any subpoena or
other legal process. Borrower and Pledgor agree to give Lender access to any or
all of Borrower's or Pledgor's premises to enable Lender to conduct such
inspections and examinations. Such inspections and examinations shall be at
Borrower's or Pledgor's expense, as the case may be, and the charge therefor
shall be $______ per person per day (or such higher amount as shall represent
Lender's then current standard charge), plus reasonable out-of-pocket expenses.
Lender may, at Borrower's or Pledgor's expense, use Borrower's or Pledgor's
personnel, computer and other equipment, programs, printed output and computer
readable media, supplies and premises for the collection, sale or other
disposition of Collateral to the extent Lender, in its sole discretion, deems
appropriate. Borrower and Pledgor hereby irrevocably authorize all accountants
and third parties to disclose and deliver to Lender, at Borrower's or Pledgor's
expense, as the case may be, all financial information, books and records, work
papers, management reports and other information in their possession regarding
Borrower or Pledgor. Borrower or Pledgor will not enter into any agreement with
any accounting firm, service bureau or third party to store Borrower's or
Pledgor's books or records at any location other than Borrower's or Pledgor's
Address without first obtaining Lender's written consent (which consent may be
conditioned upon such accounting firm, service bureau or other third party
agreeing to give Lender the same rights with respect to access to books and
records and related rights as Lender has under this Agreement).
12. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Loan Agreement is
-----------------------------------------
hereby amended by adding the following introductory paragraph at the
beginning of Section 5:
"To induce Lender to amend this Agreement, Pledgor entered into that
certain Security Agreement by and between Pledgor and Lender dated June ___,
1999 (herein the "Pledgor Security Agreement") wherein Pledgor in Section 4
thereof made certain representations, warranties and covenants. Section 4 of the
Pledgor Security Agreement in its entirety and the representations, warranties
and covenants of Pledgor set forth therein are hereby incorporated herein by
this reference and made a part hereof as though fully set forth herein. In
addition to the representations, warranties and covenants from the Pledgor
Security Agreement incorporated herein by this Section 5, Pledgor hereby agrees
to deliver to Lender by 5:00 p.m. Pacific Standard Time on Thursday of each and
every week following the execution of this provision, a consolidated aging of
Pledgor's Accounts, Chattel Paper and notes receivable, all in such form, and
together with such additional certificates, schedules and other information with
respect to the
-4-
<PAGE>
Collateral or the business of Pledgor, as Lender shall request; provided, that
Pledgor's failure to execute and deliver the same shall not affect or limit
Lender's security interests and other rights in any of the Accounts, nor shall
Lender's failure to advance or lend against a specific Account affect or limit
Lender's security interest and other rights therein.
13. Release. The Loan Agreement is hereby amended by deleting Section 6.1
-------
and inserting the following Section 6.1 in lieu thereof:
"6.1 Release. Borrower and Pledgor hereby release Lender and its
Affiliates and their respective directors, officers, employees, attorneys and
agents and any other Person affiliated with or representing Lender (the
"Released Parties") from any and all liability arising from acts or omissions
under or pursuant to this Agreement, whether based on errors of judgment or
mistake of law or fact, except for those arising from willful misconduct.
However, in no circumstance will any of the Released Parties be liable for lost
profits or other special or consequential damages. Such release is made on the
date hereof and remade upon each request for a Loan or Credit Accommodation by
Borrower. Without limiting the foregoing:
(a) Lender shall not be liable for (i) any shortage or discrepancy
in, damage to, or loss or destruction of, any goods, the sale or other
disposition of which gave rise to an Account; (ii) any error, act, omission, or
delay of any kind occurring in the settlement, failure to settle, collection or
failure to collect any Account; (iii) settling any Account in good faith for
less than the full amount thereof; or (iv) any of Borrower's or Pledgor's
obligations under any contract or agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any goods to
the documents presented, the validity or genuineness of any documents, delay,
default or fraud by Borrower or Pledgor, shippers and/or any other Person.
Borrower and Pledgor agree that any action taken by Lender, if taken in good
faith, or any action taken by an issuer of any Credit Accommodation, under or in
connection with any Credit Accommodation, shall be binding on Borrower and
Pledgor and shall not create any resulting liability to Lender. In furtherance
thereof, Lender shall have the full right and authority to clear and resolve any
questions of non-compliance of documents, to give any instructions as to
acceptance or rejection of any documents or goods, to execute for Borrower's or
Pledgor's account any and all applications for steamship or airway guaranties,
indemnities or delivery orders, to grant any extensions of the maturity of, time
of payment for, or time of presentation of, any drafts, acceptances or
documents, and to agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the Credit
Accommodations or applications and other documentation pertaining thereto."
14. Indemnity. Section 6.2 of the Loan Agreement is hereby amended by
---------
replacing "Borrower" in Section 6.2 with "Borrower and Pledgor".
15. Effect of Termination. Section 7.4 of the Loan Agreement is hereby
---------------------
amended by replacing "Borrower" in Section 7.4 with "Borrower or Pledgor, as the
case may be".
-5-
<PAGE>
16. Events of Default. The Loan Agreement is hereby amended by changing
-----------------
Section 8.1, to read as follows:
"(xiv) if an Event of Default occurs under any Loan and Security
Agreement between Lender and an Affiliate of Borrower, including but not limited
to that certain Loan and Security Agreement between Lender and Pony Express
Delivery Services, Inc., dated May 28, 1998, or under that certain Security
Agreement dated June ___, 1999 by and between Pledgor and Lender."
17. Notices. Section 9.1 of the Loan Agreement is hereby amended by
-------
replacing "Borrower" in Section 9.1 with "Borrower or Pledgor".
18. Waivers. Section 9.4 of the Loan Agreement is hereby amended by
-------
replacing "Borrower" in Section 9.4 with "Borrower or Pledgor or both, as the
case may be".
19. Amendment. Section 9.5 of the Loan Agreement is hereby amended by
---------
replacing "Borrower" in Section 9.5 with "Borrower or Pledgor, as the case may
be".
20. Time of Essence. Section 9.6 of the Loan Agreement is hereby amended
---------------
by replacing "Borrower" Section 9.6 with "Borrower or Pledgor, as the
case may be".
21. Attorneys Fees and Costs. Section 9.7 of the Loan Agreement is hereby
------------------------
amended by replacing "Borrower" in Section 9.7 with "Borrower or Pledgor, as the
case may be" and by replacing "Borrower's" in Section 9.7 with "Borrower's and
Pledgor's, as the case may be".
22. Definitions. The Loan Agreement is hereby amended by adding the
-----------
following definition:
""Pledgor" means Fleet Acquisition Corp., a Nevada corporation, party
to that certain Security Agreement dated June ___, 1999 by and between Pledgor
and Lender.
and by deleting the definitions of "Account", "Dilution Percentage",
"Eligible Account", and "Loan Documents" contained therein and inserting the
following definitions of "Account", "Dilution Percentage", "Eligible Account",
and "Loan Documents", respectively, in lieu thereof:
""Account" means any right to payment of Borrower or Pledgor for
Goods sold or leased or for services rendered which is not evidenced by an
Instrument or Chattel Paper whether or not it has been earned by performance."
""Dilution Percentage" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Accounts of Borrower and Pledgor computed as a percentage of the gross sales of
Borrower and Pledgor, respectively, calculated on a ninety (90) day rolling
average."
""Eligible Account" means, at any time of determination, an Account
which
-6-
<PAGE>
satisfies the general criteria set forth below and which is otherwise
acceptable to Lender (provided, that Lender may, in its sole discretion, change
the general criteria for acceptability of Eligible Accounts upon at least
fifteen days' prior notice to Borrower and Pledgor). An Account shall be deemed
to meet the current general criteria if (i) neither the Account Debtor nor any
of its Affiliates is an Affiliate, creditor or supplier of Borrower or Pledgor;
(ii) it does not remain unpaid more than the earlier to occur of (A) the number
of days after the original invoice date set forth in Section 5(a) of Schedule A
or (B) the number of days after the original invoice due date set forth in
Section 5(b) of Schedule A; (iii) the Account Debtor or its Affiliates are not
past due on other Accounts owing to Borrower or Pledgor comprising more than 25%
of all of the Accounts owing to Borrower or Pledgor by such Account Debtor or
its Affiliates; (iv) all Accounts owing by the Account Debtor or its Affiliates
do not represent more than 20% of all otherwise Eligible Accounts (provided,
that Accounts which are deemed to be ineligible solely by reason of this clause
(iv) shall be considered Eligible Accounts to the extent of the amount thereof
which does not exceed 20% of all otherwise Eligible Accounts); (v) no covenant,
representation or warranty contained in this Agreement with respect to such
Account (including any of the representations set forth in Section 5.4) has been
breached; (vi) the Account is not subject to any contra relationship,
counterclaim, dispute or set-off (provided, that Accounts which are deemed to be
ineligible solely by reason of this clause (vi) shall be considered Eligible
Accounts to the extent of the amount thereof which is not affected by such
contra relationships, counterclaims, disputes or set-offs); (vii) the Account
Debtor's chief executive office or principal place of business is located in the
United States or Provinces of Canada which have adopted the Personal Property
Security Act or a similar act, unless (A) the sale is fully backed by a letter
of credit, guaranty or acceptance acceptable to Lender in its sole discretion,
and if backed by a letter of credit, such letter of credit has been issued or
confirmed by a bank satisfactory to Lender, is sufficient to cover such Account,
and if required by Lender, the original of such letter of credit has been
delivered to Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender or (B) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender; (viii) it is absolutely
owing to Borrower or Pledgor and does not arise from a sale on a bill-and-hold,
guarantied sale, sale-or-return, sale-on-approval, consignment, retainage or any
other repurchase or return basis or consist of progress billings; (ix) Lender
shall have verified the Account in a manner satisfactory to Lender; (x) the
Account Debtor is not the United States of America or any state or political
subdivision (or any department, agency or instrumentality thereof), unless
Borrower or Pledgor has complied with the Assignment of Claims Act of 1940 (31
U.S.C. (S)203 et seq.) or other applicable similar state or local law in a
manner satisfactory to Lender; (xi) it is at all times subject to Lender's duly
perfected, first priority security interest and to no other Lien that is not a
Permitted Lien, and the goods giving rise to such Account (A) were not, at the
time of sale, subject to any Lien except Permitted Liens and (B) have been
delivered to and accepted by the Account Debtor, or the services giving rise to
such Account have been performed by Borrower or Pledgor and accepted by the
Account Debtor; (xii) the Account is not evidenced by Chattel Paper or an
Instrument of any kind and has not been reduced to judgment; (xiii) the Account
Debtor's total indebtedness to Borrower or Pledgor does not exceed the amount of
any credit limit established by Borrower, Pledgor or Lender and the Account
Debtor is otherwise deemed to be creditworthy by Lender (provided, that Accounts
which are deemed to be ineligible solely by reason of this clause (xiii) shall
be considered Eligible Accounts to the extent
-7-
<PAGE>
the amount of such Accounts does not exceed the lower of such credit limits);
(xiv) there are no facts or circumstances existing, or which could reasonably be
anticipated to occur, which might result in any adverse change in the Account
Debtor's financial condition or impair or delay the collectibility of all or any
portion of such Account; (xv) Lender has been furnished with all documents and
other information pertaining to such Account which Lender has requested, or
which Borrower or Pledgor is obligated to deliver to Lender, pursuant to this
Agreement or the Loan Documents; (xvi) Borrower or Pledgor has not made an
agreement with the Account Debtor to extend the time of payment thereof beyond
the time periods set forth in clause (ii) above; and (xvii) Borrower or Pledgor
has not posted a surety or other bond in respect of the contract under which
such Account arose."
""Loan Documents" means the Agreement, Revolving Loan Note I,
Revolving Loan Note II, the Term Loan Note and all other notes, guaranties,
security agreements, certificates, landlord's agreements, Lock Box and Blocked
Account agreements and all other agreements, documents and instruments now or
hereafter executed or delivered by Borrower, Pledgor or any Obligor in
connection with, or to evidence the transactions contemplated by, this Agreement
including but not limited to that certain Security Agreement dated June ___,
1999 by and between Pledgor and Lender."
23. Representations and Warranties. The representations and warranties
------------------------------
contained in the Loan Agreement and the First Amendment are hereby reaffirmed as
if made on the date hereof. The Borrower and Pledgor further represent and
warrant that, as of the date hereof, (i) the Borrower and Pledgor is in
compliance with all terms and conditions of the Loan Agreement, (ii) there
exists no Event of Default, and (iii) there exists no event or condition which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.
24. Conditions to Effectiveness of Amendment. The obligation of Lender to
----------------------------------------
agree to the foregoing amendments to the terms of the Loan Agreement
is subject to fulfillment of the following conditions:
(a) confirmation to Lender's satisfaction that Borrower and
Pledgor is in good standing in all jurisdiction of its incorporation and
that Lender continues to maintain a first priority security interest in all
collateral;
(b) confirmation to Lender's satisfaction that this Amendment
and the other agreements required hereunder have been duly authorized by
all required corporate and other action and are the legal, valid and
binding obligations of the parties thereto, enforceable in accordance with
their respective terms (including, if requested by Lender, an opinion of
counsel to the foregoing effect and covering such other matters as Lender
may request);
(c) confirmation to the satisfaction of Lender that all
representations, warranties and covenants under the Loan Agreement and all
agreements executed in connection therewith are true and correct and
unbreached as of the date hereof;
-8-
<PAGE>
(d) execution by the guarantors of the Acknowledgment and
Agreement of Guarantors attached hereto;
(e) delivery to Lender of such other certifications and
documents and the performance of such other acts as Lender may reasonably
request.
25. Confirmation of Obligations, Liens and Security Interests. Borrower
---------------------------------------------------------
and Pledgor hereby ratify and confirm that, except as expressly herein set
forth, the Loan Agreement and all liens, security interests and other rights in
favor of Lender as provided therein and all agreements delivered by or on behalf
of Borrower and Pledgor to Lender in connection therewith remain in full force
and effect and remain enforceable in accordance with their respective terms.
26. No Other Amendments; Reaffirmation. Except as amended hereby , the
----------------------------------
Loan Agreement, the First Amendment and all other Loan Documents shall remain in
full force and effect and be binding on the Borrower and Pledgor in accordance
with their respective terms. The Borrower and Pledgor hereby ratify and reaffirm
their obligations under the Loan Agreement and other Loan Documents, and
acknowledge and covenant that each has no defense, claim or right of set-off in
respect thereof.
27. Course of Dealing. No course of dealing heretofore or hereafter
-----------------
between Lender and Borrower or Lender and Pledgor and no failure or delay on the
part of Lender in exercising any rights or remedies under the Loan Agreement or
this First Amendment or existing at law or in equity shall operate as a waiver
of any right or remedy of Lender with respect to the Borrower's or Pledgor's
obligations except to the extent expressly stated in this Amendment.
28. Release. In consideration of the agreement of Lender to modify the
-------
terms of the Loan Agreement as set forth in this First Amendment, Borrower and
Pledgor hereby release, discharges and acquits forever the Lender and any of its
officers, directors, servants, agents, employees and attorneys, past and
present, from any and all claims, demands and causes of action, of whatever
nature, whether in contract or tort, accrued or to accrue, contingent or vested,
known or unknown, arising out of or relating to the loans evidenced by the Loan
Agreement, as hereby amended, or Lender's administration of same or any other
actions taken pursuant to the Loan Agreement or under any other documents or
instruments evidencing loans made by Lender to Borrower or the administration of
same through the date hereof. Borrower and Pledgor hereby further indemnify and
hold Lender, any officers, directors, servants, agents, employees and attorneys
of Lender, past or present, harmless from any and all such claims, demands and
causes of action by Borrower or Pledgor, or anyone claiming by, through or under
Borrower or Pledgor or any of them, said indemnity to cover all losses, expenses
incurred by the Lender, its officers, directors, servants, agents, employees or
attorneys, past or present, in connection with any such claims, demands, or
causes of action, including all attorneys' fees and costs.
29. Costs and Expenses. The Borrower and Pledgor hereby reaffirm their
------------------
agreement under the Loan Agreement to pay or reimburse the Lender on demand for
all costs and expenses incurred by the Lender in connection with the Loan
Agreement and all other documents contemplated thereby, including without
limitation all reasonable fees and disbursements of legal
-9-
<PAGE>
counsel. Without limiting the generality of the foregoing, the Borrower and
Pledgor specifically agrees to pay all fees and disbursements of counsel to
Lender for the services performed by such counsel in connection with the
preparation of this Amendment and the documents and instruments incidental
hereto. The Borrower and Pledgor hereby agree that Lender may, at any time or
from time to time in its sole discretion and without further authorization by
the Borrower or Pledgor, make a loan to the Borrower under the Loan Agreement,
or apply the proceeds of any loan, for the purpose of paying any such fees,
disbursements, costs and expenses.
30. Counterparts. This Amendment and the Acknowledgment and Agreement of
------------
Guarantors may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original and all of which
counterparts, taken together, shall constitute one and the same instrument.
31. Miscellaneous.
-------------
(a) The Loan Agreement and all other Loan Documents are hereby
amended wherever necessary to reflect the foregoing amendments.
(b) This Amendment shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns.
(c) This Amendment shall be construed in accordance with and be
governed by the laws of the State of New York.
(d) Borrower and Pledgor agree to execute such other and further
documents, instruments and agreements as Lender may request to implement
the provisions of this Amendment.
(e) Wherever possible each provision of this Amendment shall be
interpreted in such a manner as to be effective and valid under applicable
law, but if any provision of this Amendment shall be prohibited or invalid
under applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Amendment.
THIS SPACE INTENTIONALLY LEFT BLANK
-10-
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have caused this Amendment to
be executed and delivered by their duly authorized representatives as of the
date first above written.
COURIER EXPRESS, INC.
By:___________________________
Name:_________________________
Title:________________________
FLEET ACQUISITION CORP.
By:___________________________
Name:_________________________
Title:________________________
NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By:___________________________
Name:_________________________
Title:________________________
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<PAGE>
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS
------------------------------------------
PONY EXPRESS DELIVERY SERVICES, INC., a Delaware corporation, a
guarantor of the indebtedness of COURIER EXPRESS, INC. (the "Borrower") pursuant
to that certain Guaranty dated October 20, 1998 hereby (i) acknowledges receipt
of the foregoing Amendment; (ii) consents to the terms and execution thereof;
(iii) reaffirms its obligations to the Lender pursuant to the terms of its
Guaranty; and (iv) acknowledges that Lender may amend, restate, extend, renew or
otherwise modify the Loan Agreement and any indebtedness or agreement of the
Borrower, or enter into any agreement or extend additional or other credit
accommodations, without notifying or obtaining the consent of the undersigned
and without impairing the liability of the undersigned under its Guaranty.
Pony Express Delivery Services, Inc.
By:___________________________
Name:_________________________
Title:________________________
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<PAGE>
EXHIBIT 10.28
Guaranty
Borrower: COURIER EXPRESS, INC., a
California corporation
Guarantor: SKYNET HOLDINGS, INC., a Delaware
corporation
NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS NATIONSCREDIT
COMMERCIAL FUNDING DIVISION ("Lender") has provided certain financial
accommodations to Borrower pursuant to the terms of a Loan and Security
Agreement between Borrower and Lender dated October 20, 1998 herewith for
Borrower's working capital needs (as amended from time to time, the "Loan
Agreement"). Borrower, a wholly owned subsidiary of Pony Express Delivery
Services, Inc., has requested that Lender consent to the purchase by Guarantor
of the outstanding capital stock of Pony Delivery Services, Inc. It is a
condition precedent to Lender granting such consent, among other conditions,
that Guarantor execute and deliver this guarantee in favor of Lender pursuant to
which Guarantor absolutely and unconditionally guarantees to Lender the payment
and performance of all now existing and hereafter arising obligations,
liabilities and indebtedness of Borrowers to Lender. Guarantor deems it to be
in its best interest to acquire said stock and that Lender's consent thereto be
granted.
For value received and in consideration of any loan, advance or
financial accommodation of any kind whatsoever heretofore, now or hereafter
made, given or granted to Borrower by Lender pursuant to the Loan Agreement,
Guarantor unconditionally guarantees the full and prompt payment when due,
whether at maturity or earlier, by reason of acceleration or otherwise, and at
all times thereafter, of the indebtedness, liabilities and obligations of every
kind and nature of Borrower to Lender (including, without limitation, all
interest accruing after the filing of a proceeding under the Bankruptcy Code (as
defined in the Loan Agreement) whether or not allowed by the court in such
proceeding, and all other indebtedness, liabilities and obligations arising
after the filing of a proceeding under the Bankruptcy Code), howsoever created,
arising or evidenced, whether direct or indirect, absolute or contingent, joint
or several, now or hereafter existing, or due or to become due, in each case
arising under the Loan Agreement or the other Loan Documents (as defined in the
Loan Agreement), plus all costs and expenses (including, without limitation, all
court costs and reasonable attorneys' and paralegals' fees and expenses) paid or
incurred by Lender in endeavoring to collect all or any part of such
indebtedness, liabilities and obligations from, or in prosecuting any action
against, Guarantor or any other guarantor of all or any part of such
indebtedness, liabilities and obligations (all such indebtedness, liabilities,
obligations, costs and expenses being hereinafter referred to as "Borrower's
Obligations"). All sums becoming due under this Guaranty shall bear interest
from
<PAGE>
the due date thereof until paid at the highest rate charged with respect to any
of Borrower's Obligations under the Loan Agreement.
Guarantor agrees that its obligations under this Guaranty are
unconditional, irrespective of (i) the validity or enforceability of Borrower's
Obligations or any note or other instrument evidencing Borrower's Obligations,
(ii) the absence of any attempt by Lender to collect Borrower's Obligations from
Borrower or any other guarantor, (iii) Lender's waiver or consent with respect
to any provision of the Loan Documents, (iv) Lender's failure to perfect or
maintain its security interests in, or to preserve its rights with respect to,
any of the Collateral (as defined in the Loan Agreement), (v) Lender's election,
in any proceeding under Chapter 11 of the Bankruptcy Code, of the application of
Section 111 1(b)(2) of the Bankruptcy Code, (vi) any borrowing or grant of a
security interest by Borrower as debtor-in-possession under Section 364 of the
Bankruptcy Code, (vii) the disallowance, under Section 502 of the Bankruptcy
Code, of all or any of Lender's claims for repayment of Borrower's Obligations
or (viii) any other circumstance which might constitute a legal or equitable
discharge or defense of Borrower or a guarantor.
No payment made by or for the account or benefit of Guarantor
(including, without limitation, (i) a payment made by Borrower in respect of
Borrower's Obligations, (ii) a payment made by any person under any other
guaranty of Borrower's Obligations or (iii) a payment made by means of set off
or other application of funds by Lender) shall entitle Guarantor, by subrogation
or otherwise, to any payment by Borrower or from or out of any property of
Borrower, and Guarantor shall not exercise any rights or remedies against
Borrower or any property of Borrower including, without limitation, any right of
contribution, indemnity or reimbursement by reason of any performance by
Guarantor under this Guaranty, all of such rights of subrogation, contribution,
indemnity and reimbursement being hereby waived by Guarantor. The provisions of
this paragraph shall survive the termination of this Guaranty or the release or
discharge of Guarantor from liability hereunder. Borrower is a third party
beneficiary of the provisions of this paragraph.
Guarantor hereby waives diligence, presentment, filing of claims with
a court in the event of receivership or bankruptcy of Borrower, protest or
notice with respect to Borrower's Obligations and all demands whatsoever, and
covenants that this Guaranty will not be discharged, except by complete and
irrevocable payment and performance of the obligations and liabilities contained
herein. Demand hereunder shall constitute a mature and liquidated claim against
Guarantor. At any time after payment becomes due and owing hereunder Lender
may, at its sole election, proceed directly and at once, without further notice,
against Guarantor to collect and recover the full amount or any portion of
Borrower's Obligations, without first proceeding against Borrower or any other
person or against any of the Collateral. Lender shall have the exclusive right
to determine the application of payments and credits, if any, from Guarantor,
Borrower or any other person, on account of Borrower's Obligations.
2
<PAGE>
Lender is hereby authorized, without notice or demand to Guarantor and
without affecting or impairing the liability of Guarantor hereunder, to from
time to time (i) renew, extend, accelerate or otherwise change the time for
payment of, or other terms relating to, Borrower's Obligations or otherwise
modify, amend or change the terms of any promissory note or other agreement,
document or instrument now or hereafter executed by Borrower and delivered to
Lender; (ii) accept partial payments on Borrower's Obligations; (iii) take and
hold Collateral for the payment of Borrower's Obligations, or for the payment of
this Guaranty, or for the payment of any other guaranties of Borrower's
Obligations or other liabilities of Borrower, and exchange, enforce, waive and
release any Collateral; (iv) apply Collateral and direct the order or manner of
sale thereof as it may determine in its sole discretion; and (v) settle,
release, compromise, collect or otherwise liquidate Borrower's Obligations and
any Collateral in any manner.
At any time after payment is due and owing hereunder, Lender may, in
its sole discretion, without notice and regardless of the acceptance of any
Collateral for the payment hereof, appropriate and apply toward payment of
Borrower's Obligations, (i) any indebtedness due or to become due from Lender to
Guarantor and (ii) any moneys, credits or other property belonging to Guarantor
at any time held by or coming into the possession of Lender or any affiliates of
Lender, whether for deposit or otherwise.
Guarantor assumes responsibility for keeping itself informed of the
financial condition of Borrower and all other guarantors of all or any of
Borrower's Obligations, and of all other circumstances bearing upon the risk of
nonpayment of Borrower's Obligations or any part thereof that diligent inquiry
might reveal, and Guarantor agrees that Lender shall have no duty to advise
Guarantor of information known to Lender regarding any of the foregoing.
Guarantor acknowledges familiarity with Borrower's financial condition and
represents that it has not relied on any statements made, or information
furnished, by Lender or its agents in obtaining such familiarity. If Lender
provides any such information to Guarantor, Lender shall be under no obligation
to (i) undertake any investigation not a part of its regular business routine,
(ii) disclose any information which, pursuant to accepted or reasonable
commercial finance practices, Lender wishes to maintain confidential or (iii)
make any other or future disclosures of any information to Guarantor.
Notwithstanding any contrary provision of this Guaranty, it is
intended that neither this Guaranty nor any liens or security interests securing
this Guaranty constitute a "Fraudulent Conveyance" (as defined below).
Consequently, Guarantor agrees that if this Guaranty or any liens or security
interests securing this Guaranty would, but for the application of this
sentence, constitute a Fraudulent Conveyance, this Guaranty and each such lien
and security interest shall be valid and enforceable only to the maximum extent
that would not cause this Guaranty or such lien or security interest to
constitute a Fraudulent Conveyance, and this Guaranty shall automatically be
deemed to have been amended accordingly at all relevant times. For purposes
hereof, a "Fraudulent Conveyance" means a fraudulent conveyance under Section
548 of the Bankruptcy Code or a fraudulent conveyance or fraudulent transfer
under any
3
<PAGE>
applicable fraudulent conveyance or fraudulent transfer law or similar law of
any state or other governmental unit as in effect from time to time.
Guarantor waives the right to assert the doctrine of marshaling with
respect to any of the Collateral securing Borrower's Obligations. Guarantor
further agrees that, to the extent Borrower makes one or more payments to
Lender, or Lender receives any proceeds of Collateral, which are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to Borrower, its estate, trustee, receiver or any other party under
the Bankruptcy Code or other law, that portion of Borrower's Obligations which
has been paid, reduced or satisfied by such payment or proceeds shall be
reinstated and continued in full force and effect as of the date such initial
payment, reduction or satisfaction occurred and this Guaranty shall continue to
be in existence and in full force and effect, irrespective of whether any
evidence of indebtedness or this Guaranty has been surrendered or canceled.
Guarantor agrees that all payments hereunder shall be made without
setoff or counterclaims and Guarantor waives all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor and notices of acceptance of this Guaranty. Guarantor further waives
all notices of the existence, creation or incurring of new or additional
indebtedness, arising either from additional loans extended to Borrower or
otherwise, and also waives all notices that the principal amount, or any portion
thereof, or any interest on any instrument or document evidencing all or any
part of Borrower's Obligations is due, notices of any and all proceedings to
collect from the maker, any endorser or any other guarantor of all or any part
of Borrower's Obligations, or from anyone else, and, to the extent permitted by
law, notices of exchange, sale, foreclosure, surrender or other handling of any
Collateral securing Borrower's Obligations.
No delay on the part of Lender in the exercise of any right or remedy
shall operate as a waiver thereof, and no single or partial exercise by Lender
of any right or remedy shall preclude any further exercise thereof except as
expressly set forth in a writing duly signed and delivered on Lender's behalf by
an authorized officer or agent of Lender; nor shall any modification or waiver
of any of the provisions of this Guaranty be binding upon Lender, except as
expressly set forth in a writing duly signed and delivered on Lender's behalf by
an authorized officer or agent of Lender. Lender's failure at any time or times
hereafter to require strict performance by Borrower or Guarantor of any of the
provisions, warranties, terms and conditions contained in any promissory note,
security agreement, agreement, guaranty, instrument or document now or at any
time or times hereafter executed by Borrower or Guarantor and delivered to
Lender, shall not waive, affect or diminish any right of Lender at any time or
times hereafter to demand strict performance thereof and such right shall not be
deemed to have been waived by any act or knowledge of Lender, or its respective
agents, officers or employees, unless such waiver is contained in an instrument
in writing signed by an officer or agent of Lender, and directed to Borrower or
Guarantor, as applicable, specifying such waiver. No waiver by Lender of any
default shall operate as a waiver of any other default or the same default on a
future occasion, and no action by Lender permitted hereunder shall in any way
affect
4
<PAGE>
or impair Lender's rights or the obligations of Guarantor under this Guaranty.
Any determination by a court of competent jurisdiction of the amount of any
principal or interest owing by Borrower to Lender shall be conclusive and
binding on Guarantor irrespective of whether Guarantor was a party to the suit
or action in which such determination was made.
Guarantor hereby represents and warrants that (i) it is in Guarantor's
direct interest to assist Borrower in procuring credit, because Borrower is an
affiliate of Guarantor, furnishes goods or services to Guarantor, purchases or
acquires goods or services from Guarantor, and/or otherwise has a direct or
indirect investment in or business relationship with Guarantor, (ii) this
Guaranty has been duly and validly, executed and delivered and constitutes the
valid and binding obligation of Guarantor, enforceable in accordance with its
terms, and (iii) the execution and delivery of this Guaranty does not violate or
constitute a default under (with or without the giving of notice, the passage of
time, or both) any order, judgment, decree, instrument or agreement to which
Guarantor is a party or by which it or its assets are affected or bound.
This Guaranty shall be binding upon Guarantor and upon its successors
and permitted assigns and shall inure to the benefit of Lender and its
successors and assigns. All references herein to Borrower shall be deemed to
include its successors and permitted assigns and all references herein to Lender
shall be deemed to include its successors and assigns. Borrower's and
Guarantor's successors and permitted assigns shall include a receiver, trustee,
custodian of or for Borrower or Guarantor or any of their respective assets and
Borrower or Guarantor as debtor in possession. All references to the singular
shall be deemed to include the plural where the context so requires.
GUARANTOR HEREBY CONSENTS AND AGREES THAT THE STATE AND FEDERAL COURTS
IN NEW YORK SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES WITH RESPECT TO THIS GUARANTY AND WAIVES ANY OBJECTION WHICH
IT MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF
----- --- ----------
ANY PROCEEDING IN ANY SUCH COURT AND CONSENTS THAT ALL SERVICE OF PROCESS UPON
GUARANTOR BE MADE BY REGISTERED MAIL OR MESSENGER DIRECTED TO GUARANTOR AT THE
ADDRESS SET FORTH BELOW GUARANTOR'S SIGNATURE AND THAT SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. GUARANTOR HEREBY AGREES
THAT ANY CLAIM OR DISPUTE BROUGHT BY GUARANTOR AGAINST LENDER OR ANY MATTER
ARISING OUT OF THIS GUARANTY SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND
FEDERAL COURTS IN NEW YORK. GUARANTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY
LAW, TRIAL BY JURY. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF LENDER
TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT
OF LENDER TO BRING
5
<PAGE>
ANY ACTION OR PROCEEDING AGAINST GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY
OTHER JURISDICTION.
THIS GUARANTY SHALL BE GOVERNED IN ALL RESPECTS BY THE INTERNAL LAWS OF
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS.
Wherever possible each provision of this Guaranty shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Guaranty shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guaranty.
IN WITNESS WHEREOF, this Guaranty has been duly executed by Guaranty
this 18th day of June, 1999.
SKYNET HOLDINGS, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
ADDRESS: 343 South Glasgow Avenue
Inglewood, California 90301
6
<PAGE>
EXHIBIT 10.29
Guaranty
Borrower: Pony Express Delivery Services, Inc., a
Delaware corporation
Guarantor: Skynet Holdings, Inc., a Delaware
corporation
NationsCredit Commercial Corporation, through its NationsCredit
Commercial Funding Division ("Lender") has provided certain financial
accommodations to Borrower pursuant to the terms of a Loan and Security
Agreement between Borrower and Lender dated May 29, 1998 herewith for Borrower's
working capital needs (as amended from time to time, the "Loan Agreement").
Borrower has requested that Lender consent to the purchase by Guarantor of the
outstanding capital stock of Borrower. It is a condition precedent to Lender
granting such consent, among other conditions, that Guarantor execute and
deliver this guarantee in favor of Lender pursuant to which Guarantor absolutely
and unconditionally guarantees to Lender the payment and performance of all now
existing and hereafter arising obligations, liabilities and indebtedness of
Borrowers to Lender. Guarantor deems it to be in its best interest to acquire
said stock and that Lender's consent thereto be granted.
For value received and in consideration of any loan, advance or
financial accommodation of any kind whatsoever heretofore, now or hereafter
made, given or granted to Borrower by Lender pursuant to the Loan Agreement,
Guarantor unconditionally guarantees the full and prompt payment when due,
whether at maturity or earlier, by reason of acceleration or otherwise, and at
all times thereafter, of the indebtedness, liabilities and obligations of every
kind and nature of Borrower to Lender (including, without limitation, all
interest accruing after the filing of a proceeding under the Bankruptcy Code (as
defined in the Loan Agreement) whether or not allowed by the court in such
proceeding, and all other indebtedness, liabilities and obligations arising
after the filing of a proceeding under the Bankruptcy Code), howsoever created,
arising or evidenced, whether direct or indirect, absolute or contingent, joint
or several, now or hereafter existing, or due or to become due, in each case
arising under the Loan Agreement or the other Loan Documents (as defined in the
Loan Agreement), plus all costs and expenses (including, without limitation, all
court costs and reasonable attorneys' and paralegals' fees and expenses) paid or
incurred by Lender in endeavoring to collect all or any part of such
indebtedness, liabilities and obligations from, or in prosecuting any action
against, Guarantor or any other guarantor of all or any part of such
indebtedness, liabilities and obligations (all such indebtedness, liabilities,
obligations, costs and expenses being hereinafter referred to as "Borrower's
Obligations"). All sums becoming due under this Guaranty shall bear interest
from the due date thereof until paid at the highest rate charged with respect to
any of Borrower's Obligations under the Loan Agreement.
Guarantor agrees that its obligations under this Guaranty are
unconditional, irrespective of (i) the validity or enforceability of Borrower's
Obligations or any note or other instrument evidencing Borrower's Obligations,
(ii) the absence of any attempt by Lender to
<PAGE>
collect Borrower's Obligations from Borrower or any other guarantor, (iii)
Lender's waiver or consent with respect to any provision of the Loan Documents,
(iv) Lender's failure to perfect or maintain its security interests in, or to
preserve its rights with respect to, any of the Collateral (as defined in the
Loan Agreement), (v) Lender's election, in any proceeding under Chapter 11 of
the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy
Code, (vi) any borrowing or grant of a security interest by Borrower as debtor-
in-possession under Section 364 of the Bankruptcy Code, (vii) the disallowance,
under Section 502 of the Bankruptcy Code, of all or any of Lender's claims for
repayment of Borrower's Obligations or (viii) any other circumstance which might
constitute a legal or equitable discharge or defense of Borrower or a guarantor.
No payment made by or for the account or benefit of Guarantor
(including, without limitation, (i) a payment made by Borrower in respect of
Borrower's Obligations, (ii) a payment made by any person under any other
guaranty of Borrower's Obligations or (iii) a payment made by means of set off
or other application of funds by Lender) shall entitle Guarantor, by subrogation
or otherwise, to any payment by Borrower or from or out of any property of
Borrower, and Guarantor shall not exercise any rights or remedies against
Borrower or any property of Borrower including, without limitation, any right of
contribution, indemnity or reimbursement by reason of any performance by
Guarantor under this Guaranty, all of such rights of subrogation, contribution,
indemnity and reimbursement being hereby waived by Guarantor. The provisions of
this paragraph shall survive the termination of this Guaranty or the release or
discharge of Guarantor from liability hereunder. Borrower is a third party
beneficiary of the provisions of this paragraph.
Guarantor hereby waives diligence, presentment, filing of claims with
a court in the event of receivership or bankruptcy of Borrower, protest or
notice with respect to Borrower's Obligations and all demands whatsoever, and
covenants that this Guaranty will not be discharged, except by complete and
irrevocable payment and performance of the obligations and liabilities contained
herein. Demand hereunder shall constitute a mature and liquidated claim against
Guarantor. At any time after payment becomes due and owing hereunder Lender
may, at its sole election, proceed directly and at once, without further notice,
against Guarantor to collect and recover the full amount or any portion of
Borrower's Obligations, without first proceeding against Borrower or any other
person or against any of the Collateral. Lender shall have the exclusive right
to determine the application of payments and credits, if any, from Guarantor,
Borrower or any other person, on account of Borrower's Obligations.
Lender is hereby authorized, without notice or demand to Guarantor and
without affecting or impairing the liability of Guarantor hereunder, to from
time to time (i) renew, extend, accelerate or otherwise change the time for
payment of, or other terms relating to, Borrower's Obligations or otherwise
modify, amend or change the terms of any promissory note or other agreement,
document or instrument now or hereafter executed by Borrower and delivered to
Lender; (ii) accept partial payments on Borrower's Obligations; (iii) take and
hold Collateral for the payment of Borrower's Obligations, or for the payment of
this Guaranty, or for the payment of any other guaranties of Borrower's
Obligations or other liabilities of Borrower, and exchange, enforce, waive and
release any Collateral; (iv) apply Collateral and direct the order or manner of
sale thereof as it may determine in its sole discretion; and (v)
2
<PAGE>
settle, release, compromise, collect or otherwise liquidate Borrower's
Obligations and any Collateral in any manner.
At any time after payment is due and owing hereunder, Lender may, in
its sole discretion, without notice and regardless of the acceptance of any
Collateral for the payment hereof, appropriate and apply toward payment of
Borrower's Obligations, (i) any indebtedness due or to become due from Lender to
Guarantor and (ii) any moneys, credits or other property belonging to Guarantor
at any time held by or coming into the possession of Lender or any affiliates of
Lender, whether for deposit or otherwise.
Guarantor assumes responsibility for keeping itself informed of the
financial condition of Borrower and all other guarantors of all or any of
Borrower's Obligations, and of all other circumstances bearing upon the risk of
nonpayment of Borrower's Obligations or any part thereof that diligent inquiry
might reveal, and Guarantor agrees that Lender shall have no duty to advise
Guarantor of information known to Lender regarding any of the foregoing.
Guarantor acknowledges familiarity with Borrower's financial condition and
represents that it has not relied on any statements made, or information
furnished, by Lender or its agents in obtaining such familiarity. If Lender
provides any such information to Guarantor, Lender shall be under no obligation
to (i) undertake any investigation not a part of its regular business routine,
(ii) disclose any information which, pursuant to accepted or reasonable
commercial finance practices, Lender wishes to maintain confidential or (iii)
make any other or future disclosures of any information to Guarantor.
Notwithstanding any contrary provision of this Guaranty, it is
intended that neither this Guaranty nor any liens or security interests securing
this Guaranty constitute a "Fraudulent Conveyance" (as defined below).
Consequently, Guarantor agrees that if this Guaranty or any liens or security
interests securing this Guaranty would, but for the application of this
sentence, constitute a Fraudulent Conveyance, this Guaranty and each such lien
and security interest shall be valid and enforceable only to the maximum extent
that would not cause this Guaranty or such lien or security interest to
constitute a Fraudulent Conveyance, and this Guaranty shall automatically be
deemed to have been amended accordingly at all relevant times. For purposes
hereof, a "Fraudulent Conveyance" means a fraudulent conveyance under Section
548 of the Bankruptcy Code or a fraudulent conveyance or fraudulent transfer
under any applicable fraudulent conveyance or fraudulent transfer law or similar
law of any state or other governmental unit as in effect from time to time.
Guarantor waives the right to assert the doctrine of marshaling with
respect to any of the Collateral securing Borrower's Obligations. Guarantor
further agrees that, to the extent Borrower makes one or more payments to
Lender, or Lender receives any proceeds of Collateral, which are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to Borrower, its estate, trustee, receiver or any other party under
the Bankruptcy Code or other law, that portion of Borrower's Obligations which
has been paid, reduced or satisfied by such payment or proceeds shall be
reinstated and continued in full force and effect as of the date such initial
payment, reduction or satisfaction occurred and this Guaranty shall continue to
be in existence and in full force and effect, irrespective of whether any
evidence of indebtedness or this Guaranty has been surrendered or canceled.
3
<PAGE>
Guarantor agrees that all payments hereunder shall be made without
setoff or counterclaims and Guarantor waives all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor and notices of acceptance of this Guaranty. Guarantor further waives
all notices of the existence, creation or incurring of new or additional
indebtedness, arising either from additional loans extended to Borrower or
otherwise, and also waives all notices that the principal amount, or any portion
thereof, or any interest on any instrument or document evidencing all or any
part of Borrower's Obligations is due, notices of any and all proceedings to
collect from the maker, any endorser or any other guarantor of all or any part
of Borrower's Obligations, or from anyone else, and, to the extent permitted by
law, notices of exchange, sale, foreclosure, surrender or other handling of any
Collateral securing Borrower's Obligations.
No delay on the part of Lender in the exercise of any right or remedy
shall operate as a waiver thereof, and no single or partial exercise by Lender
of any right or remedy shall preclude any further exercise thereof except as
expressly set forth in a writing duly signed and delivered on Lender's behalf by
an authorized officer or agent of Lender; nor shall any modification or waiver
of any of the provisions of this Guaranty be binding upon Lender, except as
expressly set forth in a writing duly signed and delivered on Lender's behalf by
an authorized officer or agent of Lender. Lender's failure at any time or times
hereafter to require strict performance by Borrower or Guarantor of any of the
provisions, warranties, terms and conditions contained in any promissory note,
security agreement, agreement, guaranty, instrument or document now or at any
time or times hereafter executed by Borrower or Guarantor and delivered to
Lender, shall not waive, affect or diminish any right of Lender at any time or
times hereafter to demand strict performance thereof and such right shall not be
deemed to have been waived by any act or knowledge of Lender, or its respective
agents, officers or employees, unless such waiver is contained in an instrument
in writing signed by an officer or agent of Lender, and directed to Borrower or
Guarantor, as applicable, specifying such waiver. No waiver by Lender of any
default shall operate as a waiver of any other default or the same default on a
future occasion, and no action by Lender permitted hereunder shall in any way
affect or impair Lender's rights or the obligations of Guarantor under this
Guaranty. Any determination by a court of competent jurisdiction of the amount
of any principal or interest owing by Borrower to Lender shall be conclusive and
binding on Guarantor irrespective of whether Guarantor was a party to the suit
or action in which such determination was made.
Guarantor hereby represents and warrants that (i) it is in Guarantor's
direct interest to assist Borrower in procuring credit, because Borrower is an
affiliate of Guarantor, furnishes goods or services to Guarantor, purchases or
acquires goods or services from Guarantor, and/or otherwise has a direct or
indirect investment in or business relationship with Guarantor, (ii) this
Guaranty has been duly and validly, executed and delivered and constitutes the
valid and binding obligation of Guarantor, enforceable in accordance with its
terms, and (iii) the execution and delivery of this Guaranty does not violate or
constitute a default under (with or without the giving of notice, the passage of
time, or both) any order, judgment, decree, instrument or agreement to which
Guarantor is a party or by which it or its assets are affected or bound.
4
<PAGE>
This Guaranty shall be binding upon Guarantor and upon its successors
and permitted assigns and shall inure to the benefit of Lender and its
successors and assigns. All references herein to Borrower shall be deemed to
include its successors and permitted assigns and all references herein to Lender
shall be deemed to include its successors and assigns. Borrower's and
Guarantor's successors and permitted assigns shall include a receiver, trustee,
custodian of or for Borrower or Guarantor or any of their respective assets and
Borrower or Guarantor as debtor in possession. All references to the singular
shall be deemed to include the plural where the context so requires.
GUARANTOR HEREBY CONSENTS AND AGREES THAT THE STATE AND FEDERAL COURTS
IN NEW YORK SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES WITH RESPECT TO THIS GUARANTY AND WAIVES ANY OBJECTION WHICH
IT MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF
----- --- ----------
ANY PROCEEDING IN ANY SUCH COURT AND CONSENTS THAT ALL SERVICE OF PROCESS UPON
GUARANTOR BE MADE BY REGISTERED MAIL OR MESSENGER DIRECTED TO GUARANTOR AT THE
ADDRESS SET FORTH BELOW GUARANTOR'S SIGNATURE AND THAT SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. GUARANTOR HEREBY AGREES THAT
ANY CLAIM OR DISPUTE BROUGHT BY GUARANTOR AGAINST LENDER OR ANY MATTER ARISING
OUT OF THIS GUARANTY SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL
COURTS IN NEW YORK. GUARANTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY LAW,
TRIAL BY JURY. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF LENDER TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF
LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST GUARANTOR OR ITS PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTION.
THIS GUARANTY SHALL BE GOVERNED IN ALL RESPECTS BY THE INTERNAL LAWS
OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAWS.
Wherever possible each provision of this Guaranty shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Guaranty shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guaranty.
IN WITNESS WHEREOF, this Guaranty has been duly executed by Guarantor
this 18th day of June, 1999.
SKYNET HOLDINGS, INC.
5
<PAGE>
By: _____________________________________
Name: ___________________________________
Title: __________________________________
ADDRESS:
6
<PAGE>
ACKNOWLEDGMENT
STATE OF ____________)
) SS.
COUNTY OF ___________)
7
<PAGE>
EXHIBIT 10.30
LETTER AGREEMENT
----------------
THIS LETTER AGREEMENT ("Letter Agreement") is entered into as of the
2nd day of June, 1999, by and among SKYNET HOLDINGS, INC., a Delaware
corporation, whose address is 343 South Glasgow Avenue, Inglewood, California
90301 ("Borrower"), FOUNDERS EQUITY GROUP, INC., a Texas corporation whose
address is 2602 McKinney Avenue, Suite 220, Dallas, TX 75204, as Agent (the
"Agent") for the individuals and entities identified as "Lenders" on Schedule A
attached hereto (collectively, the "Lenders"), and each of the Lenders.
RECITALS
Borrower has requested a certain loan from Lenders, and Lenders have
agreed to extend a loan to Borrower (the "Loan") in the original principal
amount of THREE MILLION DOLLARS ($3,000,000.00), subject to the terms and
conditions of this Letter Agreement.
1. DEFINITIONS
-----------
The capitalized terms set forth below shall have the following meanings:
"Act" - the Securities Act of 1933, as amended.
"Closing" - as defined in Section 13 hereof.
"Closing Date" - the date on which the Closing occurs.
"Common Stock" - shares of common stock, par value $.0001 per share, of the
Borrower.
"Conversion Warrants" - as defined in Section 5(a) hereof.
"Default Rate" - as defined in Section 3(a) hereof.
"Due Date" - October 1, 1999, or, if extended pursuant to Section 3(d) hereof,
the Extended Due Date.
"Extended Due Date" - as defined in Section 3(d) hereof.
"Facilitation Warrants" as defined in Section 3(c) hereof.
"Maturity Date" - the earlier of (x) the Due Date, or (y) the date on which the
Loan is repaid in full pursuant to Section 6.
"Origination Warrants" - as defined in Section 3(b) hereof.
"Pony Express" - Pony Express Delivery Services, Inc., a Delaware corporation.
<PAGE>
"Registration Statement" - as defined in Section 1 of the Registration Rights
Agreement.
"Restricted Stock" - as defined in Section 1 of the Registration Rights
Agreement.
"SEC" - the Securities and Exchange Commission.
"Securities" - shares of Common Stock, the Warrants and the Underlying Shares.
"Underlying Shares" - shares of Common Stock issuable upon exercise of the
Warrants, Conversion Warrants, Facilitation Warrants and/or Origination
Warrants.
"Warrants" - warrants to purchase shares of Common Stock.
2. AMOUNT
------
The Loan shall be in the original principal amount of THREE MILLION
DOLLARS ($3,000,000.00). The Borrower's indebtedness under the Loan shall be
evidenced by promissory notes (collectively, the "Promissory Notes") in an
aggregate amount equal to the Loan, to be executed by Borrower payable to the
order of Lenders The Promissory Notes shall be in form and substance acceptable
to Lenders.
3. INTEREST AND OTHER CHARGES; EXTENDED DUE DATE
---------------------------------------------
(a) Interest. Indebtedness incurred under the Loan shall bear
--------
interest at a fixed rate per annum equal to ten percent (10%). From and after
the Maturity Date, or upon the occurrence and during the continuance of any
Event of Default hereunder, the Loan shall bear interest at a rate per annum
equal to eighteen percent (18%) (the "Default Rate"). In no event shall interest
be due at a rate in excess of the maximum lawful rate allowable from time to
time under the laws of the State of Texas. Should any provision of this Letter
Agreement, or any existing or further notes or any other agreement between
Lenders and Borrower, be construed to require the payment of interest which,
together with any other charges on the principal or any portion thereof,
howsoever computed, exceeds such maximum lawful rate, then any such excess shall
be applied against the remaining principal balance.
(b) Origination Fee. In addition to interest payable in accordance
---------------
with the terms hereof, as consideration for making the Loan, Lenders shall
receive within ten (10) business days after the Closing Date Warrants to
purchase three hundred seventy-five thousand (375,000) shares of Common Stock at
an exercise price equal to Five Dollars ($5.00) per share, exercisable within
three (3) years after the Closing Date (the "Origination Warrants"). The
Origination Warrants shall be substantially in the form of the warrant
instrument attached hereto as Exhibit "B" (the "Warrant Instrument"), and shall
be allocated among the Lenders as set forth on Schedule A attached hereto. The
Underlying Shares issuable upon the exercise of the Origination Warrants shall
be subject to the terms of the registration rights agreement attached hereto as
Exhibit "C" (the "Registration Rights Agreement").
2
<PAGE>
(c) Loan Facilitation Fee. Additionally, the Borrower shall pay KAB
---------------------
Investments, Inc. the following consideration within ten (10) business days
after the Closing Date for facilitating the Loan (the "Loan Facilitation Fee"):
(a) a loan fee in the amount of One Hundred Fifty Thousand Dollars
($150,000.00); and (b) Warrants to purchase seventy five thousand (75,000)
shares of Common Stock at an exercise price equal to Five Dollars ($5.00) per
share, exercisable within three (3) years after the Closing Date (the
"Facilitation Warrants") (which Warrants shall be substantially in the form of
the Warrant Instrument).
(d) Extended Due Date. If, by October 1, 1999, the Borrower has not
-----------------
filed a Registration Statement pursuant to either Sections 3(a) or 3(b) of the
Registrations Rights Agreement and the Loan has not been paid in full, then the
Agent may, at its option and behalf of itself and the other Lenders, extend the
Due Date of the Loan to the earlier of (x) the date on which the Registration
Statement is declared effective by the SEC or (y) January 1, 2000 (such date
being referred to as the "Extended Due Date") by giving written notice thereof
to the Borrower on or before October 1, 1999. In the event that the Agent
elects to extend the Due Date to the Extended Due Date, then commencing October
1, 1999, interest shall accrue on the principal balance of the Loan then
outstanding at the Default Rate.
(e) Right to Warrants in Lieu of Conversion. In the event that the
---------------------------------------
Extended Due Date is January 1, 2000 and the resale of the Restricted Stock is
not subject to an effective Registration Statement on or before January 1, 2000,
then, in lieu of any conversion rights of Agent or Lenders hereunder and as the
sole and exclusive remedy of Agent and Lenders for the failure of Borrower to
have a Registration Statement covering the resale of the Restricted Stock
effective by January 1, 2000, the Lenders shall be automatically entitled to
receive Warrants to purchase up to 300,000 shares of Common Stock for the
portion of the Loan outstanding and unconverted as of January 1, 2000.
4. PRINCIPAL AND INTEREST PAYMENTS
-------------------------------
Interest on the then-outstanding principal balance of the Loan shall
be payable monthly in arrears, commencing July 1, 1999. Principal and any
accrued but unpaid interest under the Loan shall be repaid in full on the
Maturity Date. No payments of principal under the Loan shall be due until the
Maturity Date, except as expressly set forth in Section 12 hereof.
5. CONVERSION OF THE LOAN
----------------------
(a) Right to Convert. At any time prior to the Maturity Date, upon
at least three (3) days prior written notice to the Borrower (the "Conversion
Notice"), the Agent shall have the right to convert, on behalf of itself and the
other Lenders, the entire principal amount of the Loan then outstanding and all
accrued interest and other charges thereon into (x) that number of fully paid
and non-assessable shares of Common Stock which results from dividing the
principal amount of the Loan then outstanding, together with all accrued
interest and other charges thereon, by Five Dollars ($5.00) (the "Conversion
Price"); and (y) Warrants (the
3
<PAGE>
"Conversion Warrants") to purchase that number of shares of Common Stock which
results from dividing the principal amount of the Loan then outstanding,
together with all accrued interest and other charges thereon, by Ten Dollars
($10.00), at an exercise price equal to Five Dollars ($5.00) per share (the
"Exercise Price"), exercisable within three (3) years after the date of the
delivery to the Borrower of the Conversion Notice. Within ten (10) business days
after Borrower's receipt of a Notice of Conversion, Borrower shall issue to the
Agent (x) stock certificates, bearing applicable restrictive legends, duly
endorsed by the appropriate officers of the Borrower and registered in Lenders'
respective names or their respective nominees, representing the number of shares
of Common Stock to which each Lender is entitled pursuant to the terms of this
Section 5 and Schedule A attached hereto and (y) Warrant Instruments, in
Lenders' respective names or the names of their respective nominees, to purchase
that number of shares of Common Stock to which each Lender shall be entitled
pursuant to the terms of this Section 5 and Schedule A attached hereto.
(b) Adjustment of Conversion Price and Exercise Price. In the event
-------------------------------------------------
that prior to the Maturity Date, the Borrower issues shares of Common Stock (or
other equity securities convertible into Common Stock) (the "Additional Shares")
in a private placement transaction or public distribution for consideration per
share less than the Conversion Price or the Exercise Price, as then in effect on
the date of and immediately prior to such issuance (the "Lower Price"), then and
in each such event, with respect to the then-outstanding balance of the Loan for
which a Notice of Conversion has not been delivered, each of (x) the Conversion
Price and (y) the Exercise Price for Warrants issuable upon a subsequent
conversion under this Section 5, as then in effect, shall be reduced to a price
equal to the Lower Price. Notwithstanding the foregoing, the issuance by
Borrower of Additional Shares for consideration per share less than the
Conversion Price or the Exercise Price shall not result in any reduction of
either the Conversion Price or the Exercise Price if such securities are issued
prior to the date hereof or in connection with the exercise or conversion of
instruments existing prior to the date hereof, including, without limitation,
warrants, options and convertible preferred stock, or if such securities are
issued pursuant to Borrower's 1998 Incentive Stock Option Plan or any other plan
existing as of the date hereof.
(i) Determination of Consideration. For purposes of this
------------------------------
Section (5(b), the consideration received by the Borrower for the issuance of
any Additional Shares shall be computed as follows:
(A) Cash and Property: Such consideration shall:
-----------------
(I) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Borrower;
(II) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined by the Borrower's Board of Directors in the good faith exercise of
its reasonable business judgment; and
4
<PAGE>
(III) in the event Additional Shares are issued
together with other shares or securities or other assets of the Borrower for
consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses provided in clauses (I) and (II)
above, as determined by the Borrower's Board of Directors in the good faith
exercise of its reasonable business judgment.
(B) Options and Convertible Securities. The consideration
----------------------------------
per share received by the Borrower for Additional Shares that are options or
other equity securities convertible into Common Stock (collectively, the
"Convertible Securities"), shall be determined by dividing
(I) the total amount, if any, received or receivable
by the Borrower as consideration for the issue of such Convertible
Securities, plus the minimum aggregate amount of additional consideration
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
consideration) payable to the Borrower upon the exercise, conversion or
exchange of such Convertible Securities by
(II) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise, conversion or exchange of such Convertible
Securities.
(c) Subdivisions, Combinations, or Consolidations of Common Stock. In
-------------------------------------------------------------
the event the outstanding shares of Common Stock shall be subdivided, combined
or consolidated, by stock split, stock dividend, combination or like event, into
a greater or lesser number of shares of Common Stock, the Conversion Price and
Exercise Price in effect immediately prior to such subdivision, combination,
consolidation or stock dividend shall, concurrently with the effectiveness of
such subdivision, combination or consolidation, be proportionately adjusted.
(d) Reclassifications. In the case, at any time after the date
-----------------
hereof, of any capital reorganization or any reclassification of the stock of
the Borrower (other than as a result of a stock dividend or subdivision, split-
up or combination of shares), or the consolidation or merger of the Borrower
with or into another person (other than a consolidation or merger in which the
Borrower is the continuing entity and which does not result in any change in the
Common Stock), the balance of the Loan then outstanding for which no Notice of
Conversion has been delivered shall, after such reorganization,
reclassification, consolidation or merger, be convertible into the kind and
number of shares of stock or other securities or property of the Corporation or
otherwise to which the Lenders would have been entitled if immediately prior to
such reorganization, reclassification, consolidation or merger, the Lenders had
converted their shares into Common Stock. The provisions of this Section 5(d)
shall similarly apply to successive reorganizations, reclassifications,
consolidations or mergers.
(e) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price and the Exercise Price
pursuant to this Section 5,
5
<PAGE>
the Borrower at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to Agent a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Borrower
shall, upon the written request at any time of Agent, furnish or cause to be
furnished to Agent a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price at the time in effect, (iii) the number
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of the amount of the Loan then
outstanding and (iv) the Exercise Price of the Warrants which would be issued
upon the conversion of the amount of the Loan then outstanding.
(f) Registration Rights. The public resale of (i) the Underlying
-------------------
Shares issuable upon the exercise of the Origination Warrants and the
Facilitation Warrants, (ii) shares of Common Stock issued by virtue of a
conversion of the Loan and (iii) Underlying Shares issuable upon the exercise of
the Conversion Warrants, to the extent such Conversion Warrants have been
granted, shall be subject to the terms of the Registration Rights Agreement.
(g) Fractional Shares. In lieu of any fractional shares to which a
-----------------
Lender would otherwise be entitled upon conversion, the Borrower shall pay cash
equal to such fraction multiplied by the fair market value of one share of
Common Stock as determined by the Board of Directors in the good faith exercise
of its reasonable business judgment.
6. PREPAYMENT
----------
Upon at least twenty-four (24) hours prior written notice to Agent,
Borrower may prepay the Loan in whole or in part without premium or penalty. In
addition, Borrower shall make mandatory prepayments of principal under the Loan
in an amount equal to the excess of the net proceeds received by the Borrower
from any offering of Common Stock during the term of the Loan over Three Million
Dollars ($3,000,000.00); such mandatory prepayment(s) to be made within ten (10)
days after Borrower has received the net proceeds of any such Common Stock
offering.
7. USE OF PROCEEDS
---------------
Proceeds of the Loan shall be utilized by Borrower for acquisition and
working capital purposes of the Borrower, as well as for advances to Pony
Express prior to Borrower's acquisition of such entity.
8. COLLATERAL
----------
In order to secure the full and timely payment of the Loan, as well as
any renewals, modifications or extensions thereof, and to secure performance of
all obligations of Borrower to Lenders, howsoever and whenever created, and to
protect Lenders' rights hereunder, on or before
6
<PAGE>
the Closing Date or as and when expressly otherwise provided, Borrower shall
grant to Agent, on behalf of itself and the Lenders, a security interest in the
accounts receivable of Borrower, Pony Express and Borrower's presently owned and
future subsidiaries as collateral for the Loan in the form of, and subject to
the terms of, the Security Agreement attached hereto as Exhibit "D" (the
"Security Agreement"), together with requisite forms of UCC financing statements
(the "UCC's") to be filed in all applicable jurisdictions. All of the foregoing
shall hereinafter be referred to collectively as the "Collateral".
9. REPRESENTATIONS AND WARRANTIES OF BORROWER
------------------------------------------
Borrower represents and warrants as follows:
(a) Organization.
------------
Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Borrower has full corporate
power and authority to conduct its business as it is presently being conducted
and to own or lease, as applicable, the assets owned or leased by it. Borrower
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which such qualification is necessary under
applicable law as a result of the conduct of its business or the ownership of
its properties and where the failure to be so qualified would have a material
adverse effect on Borrower.
(b) Capitalization.
--------------
(i) There are 50,000,000 shares of Common Stock authorized under
Borrower's Certificate of Incorporation, 18,903,915 of which were issued and
outstanding as of March 31, 1999 and 5,000,000 authorized shares of Preferred
Stock, $.0001 par value, of Borrower authorized under its Certificate of
Incorporation, of which 2,450,000 shares have been designated Series A
Convertible Preferred Stock and issued as of May 28, 1999. Borrower has no other
stock authorized, issued or outstanding.
(ii) Except for the issued and outstanding shares of Series A
Convertible Preferred Stock described in Section 9(b)(i), options to purchase
965,000 shares of Common Stock issued pursuant to Borrower's 1998 Incentive
Stock Option Plan, additional options to purchase 1,800,000 shares of Common
Stock and warrants to purchase 933,400 shares of Common Stock, there are no
outstanding options, warrants, convertible securities or rights of any kind to
purchase or otherwise acquire any shares of capital stock or other securities of
Borrower.
(c) Authorization.
-------------
Borrower has all necessary corporate power and authority to enter into
this Letter Agreement, the Promissory Notes, the Security Agreement and any
other instrument to be delivered by Borrower to Lenders and Agent to which it is
a party (collectively, the "Ancillary Agreements") and has taken all action
necessary to consummate the transactions contemplated hereby and thereby and to
perform its obligations hereunder and thereunder. This Letter
7
<PAGE>
Agreement has been duly executed and delivered by Borrower, and this Letter
Agreement is, and upon execution and delivery each of the Ancillary Agreements
to which Borrower is a party will be, a valid and binding obligation of Borrower
enforceable against Borrower in accordance with its terms, except that
enforceability may be limited by the effect of (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors or (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
(d) No Conflict or Violation; Consents.
----------------------------------
None of the execution, delivery or performance of this Letter
Agreement or any Ancillary Agreement, the consummation of the transactions
contemplated hereby or thereby, nor compliance by Borrower with any of the
provisions hereof or thereof, will (a) violate or conflict with any provision of
Borrower's governing documents to the extent applicable, (b) violate, conflict
with, or result in a breach of or constitute a default (with or without notice
of passage of time) under, or result in the termination of, or accelerate the
performance required by, or result in a right to terminate, accelerate, modify
or cancel under, or require a notice under, or result in the creation of any
encumbrance upon any of its assets under, any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, security interest or other
arrangement to which Borrower is a party or by which Borrower is bound or to
which any of its assets are subject, (c) violate any court order applicable to
Borrower or (d) impose any encumbrance on any assets of Borrower.
(e) Reports and Financial Statements.
--------------------------------
Since April, 1999, Borrower has timely filed all reports required to
be filed or filed voluntarily with the SEC pursuant to the Exchange Act or the
Securities Act (collectively, the "SEC Reports"), and has previously made
available to Agent true and complete copies of all such SEC Reports. Such SEC
Reports, as of their respective dates, complied in all materials respects with
the applicable requirements of the Securities Act and the Exchange Act, as the
case may be, and none of such SEC Reports contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
Borrower, including the notes thereto, included in the SEC Reports have been
prepared in accordance with GAAP consistently applied and fairly present the
consolidated financial condition of Borrower as at the dates thereof and
consolidated results of operations and cash flows for the periods then ended.
(f) Disclosure.
----------
No representations or warranties by Borrower in this Letter Agreement
or any Ancillary Agreement to which it is a party or in any document, written
information, exhibit, statement, certificate or schedule heretofore or
hereinafter furnished by Borrower, or any of Borrower's officers, directors,
affiliates or any of its representatives to Lenders and the Agent pursuant
hereto, or in connection with the transactions contemplated by this Letter
Agreement or by such Ancillary Agreements contains or will contain any untrue
statement of a material fact, or
8
<PAGE>
omits or will omit to state any material fact necessary to make the statements
or facts contained therein not misleading.
(g) Litigation.
----------
Except as may be set forth in the SEC Reports, there is no action,
suit, or other legal or administrative proceeding or governmental investigation
pending, threatened, anticipated or contemplated against, by or affecting
Borrower, or any of its properties or assets, or which questions the validity or
enforceability of this Letter Agreement or the transactions contemplated hereby,
and, to the knowledge of Borrower, there is no basis for any of the forgoing.
Except as may be set forth in the SEC Reports, there are no outstanding court
orders in any proceeding to which Borrower is or was a party which have not been
complied with in full or which continue to impose any material obligations on
Borrower.
(h) No Default. Except as set forth on Exhibit "A" attached hereto,
----------
it is not in default and the documents, agreements and instruments to be
executed in connection with the Loan will not cause a default under any
contract, agreement, indenture, mortgage or other instrument to which it is a
party or by which its assets may be bound;
(i) No Violation. The purpose for which Borrower intends to use the
------------
proceeds of the Loan does not violate any local, state or federal laws or
regulations; and
(j) Title to Assets. Except as set forth on Exhibit "A" attached
---------------
hereto or on Exhibit "B" attached to the Security Agreement, it has good and
marketable title to all the property and assets reflected on its most recent
financial statements furnished to Lenders and all such property and assets are
free and clear of any liens, except liens for taxes not yet due, liens on
personal or real property as reflected in the most recent financial statements
(or existing in connection with liabilities reflected therein), and except for
those liens, if any, on properties acquired subsequent to the date of said
financial statements until the date of this Letter Agreement;
(k) Reservation of Securities. The requisite number of shares of
-------------------------
Common Stock and Underlying Shares issuable upon the exercise of the Warrants
issuable upon the Closing Date as well as upon the conversion of the Loan has
been duly authorized and reserved for issuance upon the Borrower's receipt and
acceptance of proper payment therefor, and no further corporate action is
required for the valid issuance of such shares.
(l) Tax Matters. All required tax returns of the Borrower have been
-----------
accurately prepared in all material respects and filed (including applicable
extension), and all taxes and penalties required to be paid with respect to the
periods covered by such returns have been timely paid. The Borrower is not
delinquent in the payment of any tax, assessment or governmental charge, has had
any tax deficiency proposed or assessed against it that is still outstanding, or
has executed any waiver still in effect of any statute of limitations on the
assessment or collection of any tax. There is no pending dispute with any
taxing authority that, if determined adversely to the
9
<PAGE>
Borrower, would result in the assertion by any taxing authority of any material
tax deficiency, and the Borrower does not have any knowledge of a proposed
liability for any tax to be imposed upon the Borrower's properties or assets for
which there is not an adequate reserve reflected in the financial statements
included in the SEC Reports.
(m) Subsidiaries. Except as set forth in the SEC Reports, the Borrower
------------
has no other subsidiaries.
(n) Use of Proceeds. The proceeds of the Loan will be used for
---------------
acquisition and working capital purposes of the Borrower, as well as for
advances to Pony Express prior to Borrower's acquisition of such entity.
(o) Principal Office. The principal office of the Borrower is located
----------------
at 343 Glasgow Avenue, Inglewood, CA 90301.
(p) Survival. Representations and warranties contained herein shall
--------
survive the execution and delivery of this Letter Agreement.
10. REPRESENTATIONS AND WARRANTIES OF LENDERS
-----------------------------------------
Each of the Lenders represents and warrants to the Borrower as
follows:
(a) Accredited Investor. The Lender has such knowledge and experience
-------------------
in business and financial matters such that the Lender is capable of evaluating
the merits and risks of acquiring the Securities. The Lender is an "accredited
investor" as that term is defined in Rule 501 of Regulation D of the Act and
represents that it satisfies the suitability standards identified in Section
10(l) hereof;
(b) Loss of Investment. The Lender('s) (i) overall commitment to
------------------
investments which are not readily marketable is not disproportionate to its net
worth; (ii) investment in the Borrower will not cause such overall commitment to
become excessive; (iii) can afford to bear the loss of its entire investment in
the Borrower; and (iv) has adequate means of providing for its current needs and
personal contingencies and has no need for liquidity in its investment in the
Borrower;
(c) Special Suitability. The Lender satisfies any special suitability
-------------------
or other applicable requirements of its state of incorporation or his residence
and/or the state in which the transaction by which the issuance Securities
occurs;
(d) Investment Intent.
-----------------
(i) the Lender hereby acknowledges that the Lender has been
advised that the Securities have not been registered with, or reviewed by, the
Securities and Exchange Commission ("SEC") because such issuance is intended to
be a private placement transaction pursuant to Section 4(2) and Regulation D of
the Act. The Lender represents that the Securities are being acquired for the
Lender's own account and not on behalf of any other person, for
10
<PAGE>
investment purposes only and not with a view towards distribution or resale to
others. The Lender agrees that the Lender will not attempt to sell, transfer,
assign, pledge or otherwise dispose of all or any portion of the Securities
unless they are registered under the Act or unless in the opinion of counsel an
exemption from such registration is available, such counsel and such opinion to
be satisfactory to the Borrower. The Lender understands that the Securities have
not been registered under the Act by reason of a claimed exemption under the
provisions of the Act which depends, in part, upon the Lender's investment
intention; and
(ii) the Securities and any certificates issued in replacement
therefor shall bear the following legend, in addition to any other legend
required by law or otherwise:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT, AND
WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY
NOT BE TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR
DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE RULES AND REGULATIONS THEREUNDER."
(e) State Securities Laws. The Lender understands that no securities
---------------------
administrator of any state has made any finding or determination relating to the
fairness of this investment and that no securities administrator of any state
has recommended or endorsed, or will recommend or endorse, the issuance of the
Securities;
(f) No General Solicitation. The Lender acknowledges that no general
-----------------------
solicitation or general advertising (including communications published in any
newspaper, magazine or other broadcast) has been received by it and that no
public solicitation or advertisement with respect to the offering of the
Securities has been made to it;
(g) Advice of Tax and Legal Advisors. The Lender has relied solely
--------------------------------
upon the advice of its own tax and legal advisors with respect to the tax and
other legal aspects of this investment;
(h) Access to Information. The Lender has had access to all material
---------------------
and relevant information concerning the Borrower, its management, financial
condition, capitalization, market information, properties and prospects
necessary to enable Lender to make an informed investment decision with respect
to its investment in the Securities. Lender has carefully read and reviewed,
and is familiar with and understands the contents thereof and hereof. See
"Understanding of Investment Risks." Lender acknowledges that it has had the
opportunity to ask questions of and receive answers from, and to obtain
additional information from, representatives of the Borrower concerning the
terms and conditions of the acquisition of
11
<PAGE>
the Securities and the present and proposed business and financial
condition of the Borrower, and has had all such questions answered to
its satisfaction and has been supplied all information requested; and
(i) SEC Reports. Lender acknowledges that a copy of the Borrower's
-----------
Registration Statement on S-1 filed on May 17, 1999 (the "S-1") has been made
available for its review. Lender acknowledges that the S-1 remains preliminary
and has not yet been declared effective by the Securities and Exchange
Commission.
(j) Understanding of Investment Risks. An investment in the
---------------------------------
Securities should not be made by a Lender who cannot afford the loss of its
entire investment. The Lender acknowledges that the Securities offered hereby
have not been approved or disapproved by the Securities and Exchange Commission,
or any state securities commissions, nor has the Securities and Exchange
Commission or any state securities commission passed upon the adequacy or
accuracy of this Letter Agreement or any exhibit hereto. Prior to making an
investment in the Securities, the Lender has fully considered, among other
things, the business risks enumerated in the Borrower's S-1.
(k) Intentionally Omitted.
---------------------
(l) Important Considerations: Suitability Standards.
-----------------------------------------------
INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF RISK AND IS
SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED
FOR LIQUIDITY IN THEIR INVESTMENT.
A substantial number of state securities commissions have established
investor suitability standards for the marketing within their respective
jurisdictions of restricted securities. Some have also established minimum
dollar levels for purchases in their states. The reasons for these standards
appear to be, among others, the relative lack of liquidity of securities of such
programs as compared with other securities investments. Investment in the
Securities involves a high degree of risk and is suitable only for persons of
substantial financial means who have no need for liquidity in their investments.
The Borrower has adopted as a general investor suitability standard
the requirement that each Lender acquiring Securities represents in writing that
it: (a) is acquiring the Securities for investment and not with a view to resale
or distribution; (b) can bear the economic risk of losing its entire investment;
(c) its overall commitment to investments which are not readily marketable is
not disproportionate to its net worth, and an investment in the Securities will
not cause such overall commitment to become excessive; (d) has adequate means of
providing for its current needs and personal contingencies and has no need for
liquidity in this investment in the Securities; (e) has evaluated all the risks
of investment in the Borrower; and (f) has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of investing in the Borrower, or is relying on its own purchaser
representative, in making an investment decision.
12
<PAGE>
In addition, each of the Lenders acquiring Securities must be: (1) a
sophisticated investor with substantial net worth and experience in making
investments of this nature; and (2) an "accredited investor," as defined in Rule
501 of Regulation D under the Act, by meeting any of the following conditions:
(i) he has an individual income in excess of $200,000 in each of
the two most recent years or joint income with his spouse in excess of $300,000
in each of those years, and he reasonably expects an income in excess of the
aforesaid levels in the current year, or
(ii) he has an individual net worth, or a joint net worth with his
spouse, at the time of his purchase, in excess of $1,000,000 (net worth for
these purposes includes homes, home furnishings and automobiles), or
(iii) he/it otherwise satisfies the Borrower that he/it is an
accredited investor, as defined in Rule 501 under the Act.
Other categories of investors included within the definition of
accredited investor include the following: certain institutional investors,
including certain banks, whether acting in their individual or fiduciary
capacities; certain insurance companies; federally registered investment
companies; business development companies (as defined under the Investment
Borrower Act of 1940); Small Business Investment Companies licensed by the Small
Business Administration; certain employee benefit plans; private business
development companies (as defined in the Investment Advisers Act of 1940); tax
exempt organizations (as defined in Section 501(c)(3) of the Internal Revenue
Code) with total assets in excess of $5,000,000; entities in which all the
equity owners are accredited investors; and certain affiliates of the Borrower.
A partnership Lender, which satisfies the requirements set forth in
clauses (a) through (f) above in this Section 10(l) shall satisfy the
suitability standards if it is an accredited investor by reason of clause (iii)
above, or if all of its partners are accredited investors. A corporate
purchaser, which satisfies the requirements set forth in clauses (a) through (f)
above in this Section 10(l) shall satisfy the investor suitability standards if
it is an accredited investor by reason of clause (iii) above, or if all of its
shareholders are accredited investors. Corporate purchasers must have net worth
of at least three (3) times the amount of their investment in the Securities.
The suitability standards referred to above represent minimum
suitability requirements for prospective investors and the satisfaction of such
standards by a prospective investor does not necessarily mean that the
Securities are a suitable investment for such investor. Each Lender agrees to
execute Schedule A attached hereto which, inter alia, sets forth the basis of
such Lender's "accredited investor" status.
A Lenders who are resident of certain states may be required to meet
certain additional suitability standards.
THE ISSUANCE OF SECURITIES BY THE BORROWER DOES NOT CONSTITUTE A
DETERMINATION BY THE BORROWER THAT AN INVESTMENT IN
13
<PAGE>
THE SECURITIES IS SUITABLE FOR LENDERS. THE FINAL DETERMINATION OF THE
SUITABILITY OF INVESTMENT IN THE SECURITIES MUST BE MADE BY THE LENDERS AND
THEIR ADVISERS.
(m) State Law Considerations.
------------------------
IN MAKING AN INVESTMENT DECISION, THE LENDERS MUST RELY ON ITS
OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE CONVERSION AND/OR EXERCISE OF
THE SECURITIES, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE
NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THE DESCRIPTION OF THE BORROWER'S
BUSINESS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
11. AFFIRMATIVE COVENANTS
---------------------
From the date hereof, and so long as any obligations of Borrower to
Lenders remain outstanding, Borrower covenants and agrees as follows:
(a) Existence. It shall do or cause to be done all things necessary
---------
to preserve and keep in full force and effect its existence as a corporation,
under the law of its incorporation and all rights, franchises, and privileges
attendant thereto, and remain qualified as a foreign corporation in each
jurisdiction in which failure to be so qualified would have a material adverse
effect on its business and operations or the ownership of its properties.
(b) Compliance with Laws. It shall: (i) comply in all material
--------------------
respects with all applicable laws, rules, statutes and governmental regulations
relating to the conduct of its business; and (ii) pay all taxes, assessments,
governmental charges, claims or labor, supplies, rent and any other obligation
which, if unpaid, might become a lien against any of its respective properties.
(c) Licenses and Permits. It shall preserve and protect its patents,
--------------------
licenses, trademarks, trademark rights, trade names, trade name rights and
copyrights and maintain all of its other properties and assets used or useful in
the conduct of its business in good repair, working order and condition and from
time to time cause to be made all proper replacements, betterment and
improvements thereto.
14
<PAGE>
(d) Books and Records. It shall keep true books, records and accounts
-----------------
in accordance with generally accepted accounting principles applied on a
consistent basis, and in which full, true and correct entries will be made of
its dealings and transactions.
(e) Access. It shall permit any representative of Agent to visit and
------
inspect any of its properties, books and financial records at such times as
Agent may request upon reasonable notice and during ordinary business hours.
(f) Meet with Accountants. It shall, upon the request of Agent,
---------------------
authorize any representative of Agent to discuss its financial statements and
financial affairs with its independent certified public accountants upon
reasonable notice and during ordinary business hours.
(g) Restriction of Dividend Payments. It shall not declare or pay any
--------------------------------
dividends on Common or Preferred Stock so long as there is a continuing Event of
Default.
(h) Performance of Obligations. It shall perform all of the
--------------------------
obligations to be performed pursuant to the terms of each indenture, agreement,
contract and other instrument by which it is bound.
(i) Notice of Events. It shall immediately notify Agent in writing of
----------------
the occurrence of any of the following events:
(i) the pendency or commencement of any action, suit or
proceeding at law or in equity which involves a sum greater than One Hundred
Thousand Dollars ($100,000.00), other than those proceedings initiated by it to
collect monies owed to it by creditors or those proceedings disclosed on Exhibit
"A" attached hereto; or
(ii) any event or condition which shall constitute an event of
default under any other agreement for borrowed money, other than those events
disclosed on Exhibit "A" attached hereto.
(j) Further Documents. It shall promptly execute and deliver from
-----------------
time to time all further instruments and documents and take all further action
that may be reasonably necessary or desirable or that Agent may reasonably
request to enable Agent to exercise and enforce its rights and remedies
hereunder.
12. DEFAULTS AND REMEDIES
---------------------
If any one or more of the following events of default ("Events of
Default") shall occur for any reason whatsoever (and whether such occurrences
shall be voluntary or involuntary, or come about or be effected by operation of
law or pursuant to or in compliance with any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body) and not be cured during any applicable grace or notice and cure period,
that is to say:
15
<PAGE>
(a) any representation or warranty made herein or in any report,
certificate, financial statement or other instrument furnished in connection
with this Letter Agreement, or the borrowing hereunder, shall prove to be false
or misleading in any material respect, and shall not be cured within thirty (30)
days after written notice thereof is sent by Agent to Borrower;
(b) any default shall occur in the payment of principal or interest
on any indebtedness created hereunder and under the Promissory Notes, when and
as the same shall become due and payable (or during any applicable grace
period), which remains uncured for ten (10) days after written notice thereof
has been provided to Borrower by Agent;
(c) any default shall occur in the performance of any agreement, term
or condition contained in any agreement under which any obligation to repay the
Loan is created, which remains uncured for thirty (30) days after written notice
thereof has been provided to Borrower by Agent;
(d) any default shall occur on the part of the Borrower in the due
observance or performance of any covenant, agreement or other provision of this
Letter Agreement other than for the payment of money which remains uncured for
thirty (30) days after written notice thereof has been provided to Borrower by
Agent;
(e) any default shall occur on the part of the Borrower in the due
observance or performance of any covenant, agreement or other provision of any
other document, agreement or instrument executed in connection herewith, which
remains uncured for thirty (30) days after written notice thereof has been
provided to Borrower by Agent;
(f) any default shall occur on the part of Borrower in the payment of
indebtedness created under promissory notes (collectively, the "Third Party
Notes") given or to be given by Borrower in favor of (i) Royal Bank of Scotland
in connection with a revolving line of credit in the approximate amount of
$1,700,000; (ii) George Walsh in the original principal amount of $250,000; or
(iii) NationsCredit Commercial Corporation or other financial institution in
order to facilitate the acquisition of Pony Express, Inc., which default remains
uncured for ten (10) days after written notice thereof has been provided to
Borrower by such creditor;
(g) any default (other than that for failure to pay monetary
obligations) shall occur on the part of Borrower under any agreement entered
into in connection with the Third Party Notes, which remains uncured for thirty
(30) days after written notice thereof has been provided to Borrower by the
applicable creditor under the respective Third Party Note;
(h) the aggregate orderly liquidation value of the Accounts (as such
term is defined in the Security Agreement) constituting part of the Collateral
(as such term is defined in the Security Agreement) under the Security Agreement
is less than Three Million Dollars ($3,000,000).
(i) Borrower shall (i) apply for or consent to the appointment of a
receiver; trustee in Bankruptcy for benefit of creditors, or liquidator of
Borrower or of any of Borrower's
16
<PAGE>
property; (ii) admit in writing Borrower's inability to pay its respective debts
as they mature or generally fail to pay its respective debts as they mature;
(iii) make a general assignment for the benefit of creditors; (iv) be
adjudicated Bankruptcy or insolvent; (v) file a voluntary petition in
Bankruptcy, or a petition or an answer seeking reorganization or an arrangement
with creditors, or seeking to take advantage of any Bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or statute or
an answer admitting an act of Bankruptcy alleged in a petition filed against it,
in any proceeding under any such law; or (vi) take any action for the purpose of
affecting any of the foregoing;
(j) an order, judgment or decree shall be entered against the
Borrower without its application, approval or consent, or by any court of
competent jurisdiction, approving a petition seeking reorganization or
appointing a receiver, trustee or liquidator of the Borrower, or of all or a
substantial part of its assets, and such order, judgment or decree shall
continue unstayed and in effect for a period of sixty (60) days from the date of
entry thereof;
(k) final judgments, excluding claims covered by insurance, in excess
of One Hundred Thousand Dollars ($100,000.00) (other than as disclosed on
Exhibit "A" attached hereto), shall be rendered against the Borrower and the
same shall remain undischarged for a period of sixty (60) consecutive days
during which execution shall not be effectively stayed;
(l) Voluntary dissolution of Borrower; or
(m) Invalidation of any of Agent's security documents.
THEN, and in every such event, Agent may, at its option, (i) declare
all indebtedness of principal and interest hereunder and under the Promissory
Notes forthwith to be due and payable, whereupon the Promissory Notes shall
become due and payable, both as to principal and interest, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
anything contained herein or in such Promissory Notes to the contrary
notwithstanding, and (ii) exercise all legal rights and remedies against
Borrower, or any collateral for the indebtedness of Borrower to Agent, except to
the extent that Agent's and Lenders' remedy for Borrower's failure to have a
Registration Statement covering the resale of the Restricted Stock effective by
January 1, 2000 may be limited as set forth in Section 3(e) hereof.
13. CLOSING; POST CLOSING MATTERS
-----------------------------
(a) At or prior to the closing of the Loan (the "Closing"), Borrower
shall cause copies of the following to be furnished via facsimile to Agent, with
original execution copies to follow via federal express immediately thereafter :
(i) Resolutions: Resolutions of Borrower authorizing the Loan
-----------
and the execution of all documents required in connection with the Loan.
(ii) The executed Promissory Notes.
17
<PAGE>
(iii) The executed Letter Agreement.
(iv) The executed Security Agreement.
(v) UCC-1 Financing Statements.
(vi) A Certificate of Good Standing of Borrower.
(vii) The original promissory note dated as of May 4, 1999 in
the original principal amount of $1,000,000 and the original promissory note
dated as of May 21, 1999 in the original principal amount of $500,000, each made
by Pony Express in favor of the Borrower.
Within ten (10) business days after the Closing, the Borrower shall cause
the following to be delivered to the Agent:
(viii) Warrant Instruments evidencing the Origination Warrants.
In addition, Borrower shall cause the following to be furnished to KAB
Investments, Inc. within ten (10) business days after the Closing:
(ix) $150,000 in immediately available funds, as part of the
Loan Facilitation Fee.
(x) A Warrant Instrument for Warrants to purchase 75,000
shares of Common Stock, as part of the Loan Facilitation Fee.
(b) At the Closing, the Lender shall cause the following to be
furnished via facsimile to Borrower, with original execution copies to follow
via federal express immediately thereafter:
(i) The executed Letter Agreement;
(ii) The executed Schedule A attached to the Letter Agreement;
and
(iii) The executed Security Agreement.
(c) At the Closing, the Agent shall wire $3,000,000 in immediately
available funds to Borrower's account as follows:
Washington Mutual Bank
8825 Sepulveda Boulevard
Los Angeles, California 90045
ABA #321180748
18
<PAGE>
SkyNet Holdings, Inc.
343 Glasgow Avenue
Inglewood, CA 90301
Account #871-845610-1
(d) Prior to the Maturity Date and within ten (10) business days
after the later to occur of (x) the closing of the Borrower's acquisition of
Pony Express and (y) the date on which Borrower secures the written consent of
NationsCredit Commercial Corporation or any other financial institution that
agrees to make Borrower a loan to facilitate the acquisition of Pony Express for
the Borrower to grant Agent a blanket security interest in Pony Express' assets,
the Borrower shall execute and deliver to Agent a security agreement granting,
and a UCC-1 financing statement evidencing, Agent's blanket security interest in
Pony Express' assets, which shall be subordinate to any security interest
granted or to be granted to such commercial lender for the Pony Express
acquisition loan.
(e) Agent agrees, on behalf of itself and the other Lenders, to
execute and deliver subordination agreements as reasonably requested by Borrower
in order to evidence the subordination to any creditor under the Third Party
Notes of any security interest granted to Agent under the Security Agreement as
well as any security interest granted to Agent pursuant to Section 13(d), and
Agent shall have the power and authority to act on behalf of and bind all
Lenders on all decisions other than for forgiveness of any principal or interest
payments due under the Loan.
14. EXPENSES
--------
Each party to this Agreement will bear its respective expenses
incurred in connection with the preparation to close and the closing of the Loan
and the preparation and performance of this Letter Agreement and the
transactions contemplated hereunder, including but not limited to all fees and
expenses of agents, representatives, counsel and accountants, any documentary
stamp taxes, intangible taxes, and filing and recording fees. Said expenses
shall be due and payable upon execution of this Letter Agreement.
15. NOTICE
------
All notices required or allowed to be given hereunder shall be
delivered by hand or sent by certified mail return receipt requested or
overnight courier, to the party to which such notice is to be given as follows:
Agent: Founders Equity Group, Inc.
2602 McKinney Avenue, Suite 220
Dallas, TX 75204
Attention: Scott Cook, Chief Executive Officer
Borrower: SkyNet Holdings, Inc.
19
<PAGE>
343 South Glasgow Avenue
Inglewood, California 90301
Attention: Vjekoslav Nizic, Chief Executive Officer
With a copy to: Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center
1835 Market Street
14th Floor
Philadelphia, PA 19103
provided, that additional or other addresses for the giving of notice may be
thereafter designated by the giving of written notice thereof to the other
party. Such notices shall be deemed given or made three (3) business days
following deposit in the U.S. Mail, certified return receipt requested, or
immediately upon receipt if delivered by hand, or overnight courier addressed as
herein provided.
16. MISCELLANEOUS
-------------
(a) This Letter Agreement is personal in nature and may not be
assigned by Borrower, Agent or Lenders.
(b) Except as otherwise expressly stated to the contrary herein, any
rights or remedies of the Agent and Lenders hereunder, or under the Promissory
Notes, the Security Agreement or any other documents executed in connection
herewith, shall be cumulative and in addition to every right or remedy contained
herein or therein, at law or in equity or by statute or otherwise. Except as
otherwise expressly stated to the contrary herein, upon the occurrence of any
Event of Default hereunder, or as set forth in the Promissory Notes, the
Security Agreement or any other agreement between the Borrower and the Agent or
the Lenders, the Agent may proceed to enforce their rights against the Borrower
or against any collateral given as security for the Loan, and the Agent may
enforce such rights simultaneously or in such order and at such time, or from
time to time, as the Agent, in its sole discretion, shall determine.
(c) No delay or omission on the part of Agent in exercising any
right, power or privilege hereunder or under any Promissory Notes or any other
writings between the parties hereto shall operate as a waiver thereof, nor shall
a single or partial exercise thereof preclude any other or further exercise of
any other right, power or privilege.
(d) This Letter Agreement may not be altered, modified or rescinded
except by a writing executed by Agent and Borrower.
(e) All covenants, agreements, representations and warranties
contained herein shall survive the funding of the Loan by Lenders and the
execution of the Promissory Notes and other collateral and ancillary documents,
and shall continue in full force and effect so long as any indebtedness of
Borrower to Lenders remains outstanding.
20
<PAGE>
(f) This Agreement shall be construed for all purposes in accordance
with the internal laws (and not the law of conflicts) of the State of Texas.
Whenever possible, each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Agreement.
(g) The Borrower and Agent hereby waive any plea of jurisdiction or
venue as not maintaining an office in the State of Texas, for the transaction of
its customary business, and hereby specifically authorize any action brought
upon the enforcement of this Agreement to be instituted and prosecuted in any
court of appropriate jurisdiction in Dallas County, Texas.
(h) The losing party shall pay to the prevailing party on demand all
reasonable attorneys' fees and costs and all other reasonable costs and expenses
(including court costs) incurred by the prevailing party and arising out of any
litigation in connection with this Letter Agreement or any associated loan
documents.
BORROWER AND AGENT HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
LETTER AGREEMENT AND ANY AGREEMENT, DOCUMENT OR INSTRUMENT CONTEMPLATED TO BE
EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR AGENT ENTERING INTO THIS LETTER AGREEMENT
AND LENDERS EXTENDING THE LOAN.
21
<PAGE>
Executed by the parties hereto as of the date above written.
BORROWER:
SKYNET HOLDINGS, INC., a Delaware
Corporation
By: _________________________________
Vjekoslav Nizic,
Chief Executive Officer
AGENT:
FOUNDERS EQUITY GROUP, INC.,
a Texas corporation, as Agent for the
Lenders
By: _________________________________
Scott Cook,
Chief Executive Officer
LENDERS:
FOUNDERS EQUITY GROUP, INC.,
By: _________________________________
Scott Cook,
Chief Executive Officer
FOUNDERS MEZZANINE INVESTORS, LLC
By: _________________________________
Name:
Title:
_____________________________________
DONALD F. MOOREHEAD
_____________________________________
SHELLEY MOOREHEAD
[signature lines continued on next page]
22
<PAGE>
_____________________________________
GEORGE O. MOOREHEAD
STOLI, LTD.
By: _________________________________
Name:
Title:
Accredited Investor Certification Guidelines
--------------------------------------------
(Please indicate the appropriate clause number(s) for
each Lender on Schedule A)
(i) I am a natural person who had individual income of more than
$200,000 in each of the most recent two years or joint income
with my spouse in excess of $300,000 in each of the most recent
two years and reasonably expect to reach that same income level
for the current year ("income", for purposes hereof, should be
computed as follows: individual adjusted gross income, as
reported (or to be reported) on a federal income tax return,
increased by (1) any deduction of long-term capital gains under
section 1202 of the Internal Revenue Code of 1986 (the "Code"),
(2) any deduction for depletion under Section 611 et seq. of the
Code, (3) any exclusion for interest under Section 103 of the
Code and (4) any losses of a partnership as reported on Schedule
E of Form 1040);
(ii) I am a natural person whose individual net worth (i.e., total
----
assets in excess of total liabilities), or joint net worth with
my spouse, will at the time of acquisition of the Securities be
in excess of $1,000,000;
(iii) The Lender is a "Qualified Institutional Buyer" as the term
is defined under Rule 144A of the Act.
(iv) The Lender is an investor satisfying the requirements of Section
501(a)(1), (2) or (3) of Regulation D promulgated under the
Securities Act of 1933, as amended, which includes but is not
limited to, a self-directed employee benefit plan where
investment decisions are made solely by persons who are
"accredited investors" as otherwise defined in Regulation D;
(v) The Lender is a trust, which trust has total assets in excess of
$5,000,000, which is not formed for the specific purpose of
23
<PAGE>
acquiring the Securities offered hereby and whose purchase is
directed by a sophisticated person as described in Rule
506(b)(ii) of Regulation D and who has such knowledge and
experience in financial and business matters that it is capable
of evaluating the risks and merits of an investment in the
Securities;
(vi) I am a director or executive officer of the Borrower; or
(vii) The Lender is an entity (other than a trust) in which all of
the equity owners meet the requirements of at least one of the
above subparagraphs.
24
<PAGE>
Schedule A
<TABLE>
<CAPTION>
Basis of Number of
Accredited Warrants
Investor Amount of Issuable at
Lenders Status * Loan Closing
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Founders Equity Group, Inc. $ 400,000 180,000
Founders Mezzanine $ 400,000 29,995
Investors, LLC
Donald F. Moorehead $ 750,000 56,250
Shelley Moorehead $ 200,000 14,985
George O. Moorehead $ 750,000 56,250
Stoli, Ltd. $ 500,000 37,520
---------- -------
Total $3,000,000 375,000
</TABLE>
* See Accredited Investor Certification Guidelines
Accepted and Agreed:
FOUNDERS EQUITY GROUP, INC.,
By: _____________________________________
Scott Cook, Chief Executive Officer
FOUNDERS MEZZANINE INVESTORS, LLC
By: _____________________________________
Name:
Title:
_________________________________________
DONALD F. MOOREHEAD
_________________________________________
SHELLEY MOOREHEAD
_________________________________________
GEORGE O. MOOREHEAD
STOLI, LTD.
By: _____________________________________
Name:
Title:
25
<PAGE>
Exhibit "A"
26
<PAGE>
Exhibit "B"
Warrant Instrument
------------------
27
<PAGE>
Exhibit "C"
Registration Rights Agreement
- -----------------------------
28
<PAGE>
EXHIBIT 10.31
AMENDMENT TO LETTER AGREEMENT AND
---------------------------------
REGISTRATION RIGHTS AGREEMENTS
------------------------------
THIS AMENDMENT TO LETTER AGREEMENT AND REGISTRATION RIGHTS AGREEMENTS
(this "Amendment") is made this 3rd day of November 1999 by and among SKYNET
HOLDINGS, INC., a Delaware corporation, whose address is 343 South Glasgow
Avenue, Inglewood, California 90301 ("Borrower"), FOUNDERS EQUITY GROUP, INC., a
Texas corporation whose address is 2602 McKinney Avenue, Suite 220, Dallas, TX
75204, as Agent (the "Agent") for the individuals and entities identified as
"Lenders" on the signature page hereto (collectively, the "Lenders"), and each
of the Lenders.
WHEREAS, Borrower and Agent, for itself and on behalf of each of the
Lenders, entered into a Letter Agreement dated as of June 3, 1999 (the "Letter
Agreement"), pursuant to which the Lenders extended a loan to Borrower in the
original principal amount of Three Million Dollars ($3,000,000) (the "Loan");
WHEREAS, under the terms of the Letter Agreement, the due date of the
Loan was October 1, 1999;
WHEREAS, the entire principal amount of the Loan remains outstanding
as of the date hereof; and
WHEREAS, the parties hereto wish to extend the due date of the Loan
and amend other terms of the Letter Agreement, as well as amend certain terms of
the Registration Rights Agreements, each dated as of June 3, 1999, by and
between the Borrower and each of the Lenders (collectively, the "Registration
Rights Agreements"), all as set forth herein;
NOW THEREFORE, in consideration of the mutual covenants and
obligations contained herein and intending to be legally bound, the parties,
subject to the terms and conditions set forth herein, agree that the Letter
Agreement and Registration Rights Agreements are hereby amended as follows:
1. Defined Terms. Capitalized terms used but not otherwise defined
-------------
herein shall have the meaning ascribed to them in the Letter Agreement.
2. Due Date. The Due Date shall mean the earlier to occur of (x)
--------
July 1, 2000 or (y) the Final Payment Date (as such term is defined in Section 3
below).
3. Repayment of Loan. Principal payments in the amounts set forth
-----------------
below each shall be made by Borrower within two (2) business days after each of
the following dates:
3.1. A principal payment of Five Hundred Thousand Dollars
($500,000) after the closing date of the proposed financing transaction (the
"Lancer Financing") pursuant to which the Borrower shall issue a convertible
note in the original principal amount of Nine Million Dollars ($9,000,000) (the
"Lancer Note") to Lancer Management Group, LLC or an affiliate thereof
("Lancer");
<PAGE>
3.2. A principal payment of One Million Dollars ($1,000,000)
after the date on which the Borrower receives net proceeds of at least Five
Million Dollars ($5,000,000) in the aggregate from one or more private
transactions for debt (other than a refinancing of Borrower's senior line of
credit with NationsCredit Commercial Corporation) or equity financings following
the Lancer Financing;
3.3. A principal payment of One Million Five Hundred Thousand
Dollars ($1,500,000) after the date on which the Borrower receives net proceeds
of at least Six Million Dollars ($6,000,000) in the aggregate from one or more
private transactions for debt (other than a refinancing of Borrower's senior
line of credit with NationsCredit Commerical Corporation) or equity financings
following the Lancer Financing (the "Final Payment Date").
4. Closing Conditions. This Amendment shall not be effective until
------------------
Borrower has satisfied all of the following conditions:
4.1. The Lancer Financing shall have closed;
4.2. Agent, on behalf of itself and each of the Lenders, shall
have received from the Borrower the principal payment of Five Hundred Thousand
Dollars ($500,000) referenced in Section 3.1 hereof, as well as all accrued but
unpaid interest due under the Loan as of the date of execution of this
Amendment;
4.3. Borrower shall have caused NationsCredit Commercial
Corporation to deliver to Agent a writing consenting to the payment to be made
to Agent on behalf of the Lenders under Section 3.1 hereof, such writing to be
in form and substance reasonably satisfactory to the Agent;
4.4. Borrower shall have delivered an incumbency certificate to
Agent dated as of the date this Amendment is executed by Agent and Borrower.
5. Mandatory Prepayments. The second sentence of Section 6 of the
---------------------
Letter Agreement is hereby deleted.
6. Interest. Section 3(a) of the Letter Agreement is amended to
--------
provide that from and after October 1, 1999, the Loan shall bear interest at a
rate per annum equal to the Default Rate.
7. Shares. In consideration of the extension of the Loan granted
------
by Lenders pursuant to this Amendment, Borrower agrees to issue to the Agent on
behalf of the Lenders an aggregate 150,000 shares of its Common Stock (the
"Extension Shares"). The Extension Shares shall be entitled to the registration
rights granted in, and subject to the terms of, the Registration Rights
Agreements.
8. Warrants. In consideration of the extension of the Loan granted
--------
by Lenders pursuant to this Amendment, Borrower agrees to issue to the Agent on
behalf of the Lenders three year warrants to purchase an aggregate 300,000
shares of its Common Stock at an exercise price of $5.00 and subject to the
vesting provisions below (the "Extension Warrants"). The shares
-2-
<PAGE>
of Common Stock issuable upon the exercise of the Extension Warrants shall be
entitled to the registration rights granted in, and subject to the terms of, the
Registration Rights Agreements.
8.1 Subject to Vesting. Notwithstanding anything to the contrary
------------------
contained herein, the Extension Warrants shall not be exercisable until they
have vested in accordance with the following schedule:
(a) In the event that Borrower fails to make the principal
payment under the Loan of at least Five Hundred Thousand Dollars ($500,000)
described in Section 3.1 hereof on or before November 9, 1999, then 100,000
Extension Warrants shall vest on November 10, 1999;
(b) In the event that Borrower fails to make aggregate
principal payments under the Loan of at least One Million Five Hundred Thousand
Dollars ($1,500,000) on or before November 30, 1999, then an additional 100,000
Extension Warrants shall vest on December 1, 1999; and
(c) In the event that Borrower fails to make aggregate
principal payments under the Loan of at least Three Million Dollars ($3,000,000)
on or before December 15, 1999, then an additional 100,000 Extension Warrants
shall vest on December 16, 1999.
9. Representations and Warranties of Lenders. Each of the Lenders
-----------------------------------------
represents and warrants to the Borrower that each of the representations and
warranties made by it in Section 10 of the Letter Agreement is true and correct
as of the date hereof with respect to the Extension Shares and Extension
Warrants. Each of the Lenders further represents and warrants to the Borrower
that as of the date hereof, it is an accredited investor on the basis indicated
on Schedule A of the Letter Agreement.
10. Right to Warrants in Lieu of Conversion. Section 3(e) of the
---------------------------------------
Letter Agreement is hereby deleted in its entirety and replaced with the
following:
"Right to Warrants in Lieu of Conversion. In the event that the
---------------------------------------
resale of the Restricted Stock is not subject to an effective Registration
Statement on or before the Due Date, then, in lieu of any conversion rights
of Agent or Lenders hereunder and as the sole and exclusive remedy of Agent
and Lenders for the failure of Borrower to have a Registration Statement
covering the resale of the Restricted Stock effective by the Due Date, the
Lenders shall be automatically entitled to receive Warrants to purchase up
to 300,000 shares of Common Stock for the portion of the Loan outstanding
and unconverted as of the Due Date."
11. Registration Rights. Section 3(b)(i) of each of the
-------------------
Registration Rights Agreements is hereby amended by replacing the phrase "three
(3) months" with the phrase "seven (7) months". Each of the Lenders hereby
waives, to the extent applicable, any and all damages and other remedies it may
have against the Borrower as of the date hereof due to the failure of Borrower
to have filed a registration statement by September 3, 1999 under Section 3(b)
of each of the Registration Rights Agreements. In addition, the term "Restricted
Stock" shall also
-3-
<PAGE>
include the Extension Shares and the shares of Common Stock issuable upon the
exercise of the Extension Warrants. In addition, the following shall be added to
the end of Section 3(b)(i) of each of the Registration Rights Agreements:
"Borrower shall use best efforts to have a Registration Statement declared
effective by the SEC by January 17, 2000. In the event that a Registration
Statement has not been declared effective on or before January 17, 2000, then
the Borrower shall, at the sole option and written instruction of the Agent on
behalf of the Lenders, either (x) pay the Agent on behalf of the Lenders the sum
of Twenty Five Thousand Dollars ($25,000) for such failure as well as for every
30 day calendar period thereafter until the Registration Statement has been
declared effective; or (y) issue to the Agent on behalf of the Lenders three
year warrants to purchase an additional 150,000 shares of Borrower's Common
Stock at an exercise price of $5.00 per share."
12. Representations of Borrower. Borrower represents to Lenders that:
12.1. Upon the consummation of the Lancer Financing and the
extension of the Loan pursuant to this Amendment, the Borrower shall be solvent;
and
12.2. As of September 30, 1999, Borrower's indebtedness to
secured creditors senior to the Lenders was not more than $6,100,000 and the
Accounts (as such term is defined in Section 9-106 of the Uniform Commercial
Code) of Borrower and its subsidiaries were no less than $10,000,000.
13. Effect of Amendment. Except as modified by this Amendment, the
-------------------
Letter Agreement and each of the Registration Rights Agreements shall remain
unmodified and in full force and effect.
14. Governing Law. This Amendment shall be construed and enforced in
-------------
accordance with the laws of the State of Texas without regard to conflicts of
law principles.
15. Counterparts; Facsimile Signatures. This Amendment may be
----------------------------------
executed in one or more counterparts, each of which shall be deemed an original,
and all of which together shall be deemed to be one and the same instrument.
This Amendment may further be executed by facsimile transmission, and the
facsimile signatures may be deemed original signatures for all purposes,
including for purposes of the Best Evidence Rule and all other rules or
doctrines of similar effect.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed the day and year first written above.
SKYNET HOLDINGS, INC.
By:_______________________________
Byron Hogue, Chief Executive Officer
AGENT:
FOUNDERS EQUITY GROUP, INC.,
a Texas corporation, as Agent for the
Lenders
By:_______________________________
Scott Cook,
Chief Executive Officer
LENDERS:
FOUNDERS EQUITY GROUP, INC.,
By:_______________________________
Scott Cook,
Chief Executive Officer
FOUNDERS MEZZANINE INVESTORS, LLC
By:_______________________________
Name:
Title:
__________________________________
DONALD F. MOOREHEAD
__________________________________
SHELLEY MOOREHEAD
[signature lines continued on next page]
-5-
<PAGE>
__________________________________
GEORGE O. MOOREHEAD
STOLI, LTD.
By:_______________________________
Name:
Title:
-6-
<PAGE>
EXHIBIT 10.32
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED
EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION UNDER THE ACT OR
EXEMPTION THEREFROM.
PROMISSORY NOTE
U.S. $687,675 Los Angeles, CA
August 2, 1999
FOR VALUE RECEIVED, SKYNET HOLDINGS, INC., a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of Pearlgold Pty. Ltd.
--------
(ACN075989856), an Australian corporation with an address at 1st Floor, 2 Chalk
Street, Coolangatta, Queensland, Australia (the "Lender"), the principal sum of
------
Six Hundred Eighty Seven Thousand, Six Hundred Seventy Five Dollars (U.S.
$687,675) on August 1, 2000 (the "Maturity Date"), together with interest as
provided herein.
The Borrower shall pay interest on the unpaid principal balance hereof
at the rate of ten percent (10%) per annum, at the times and in the manner
provided in the Loan Agreement. Upon the occurrence and during the continuation
of an Event of Default, Lender shall have the right to accelerate payment of the
entire unpaid principal and accrued interest due hereunder and the Borrower
shall pay interest on the entire principal amount of the Loan then outstanding
evidenced by this Note at a rate per annum (based on a year of 360 days and
actual days elapsed) equal to ten percent (10%) per annum. Such interest rate
will accrue before and after any judgment has been entered. All payments of both
principal and interest shall be made without setoff, counterclaim or other
deduction of any nature to the Lender in lawful money of the United States of
America in immediately available funds. Except as otherwise provided in the Loan
Agreement, the Borrower waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Promissory Note.
Any or all of the outstanding principal amount due hereunder and
accrued interest thereon is may be prepaid at any time without penalty upon five
(5) days' written notice to the Lender.
In addition to interest payable in accordance with the terms hereof,
as consideration for making the Loan, Lender shall receive 49,013 shares of the
Company's Common Stock and a financing fee of $32,675.
<PAGE>
The entire principal amount due hereunder shall be paid on the
Maturity Date or earlier acceleration or repayment hereof. If any payment or
action to be made or taken hereunder shall be stated to be or become due on a
day which is not a Business Day, such payment or action shall be made or taken
on the next following Business Day and such extension of time shall be included
in computing interest or fees, if any, in connection with such payment or
action.
This Note shall bind the Borrower and its successors and assigns, and
the benefits hereof shall inure to the benefit of the Lender and its successors
and assigns. All references herein to the "Borrower" and the "Lender" shall be
deemed to apply to the Borrower and the Lender, respectively, and their
respective successors and assigns.
This Note and any other documents delivered in connection herewith and
the rights and obligations of the parties hereto and thereto shall for all
purposes be governed by and construed and enforced in accordance with the
internal laws of the State of California without giving effect to its conflicts
of law principles.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has executed this Promissory Note as of the date first written above
with the intention that this Promissory Note shall constitute a sealed
instrument.
SKYNET HOLDINGS, INC.
By:__________________________________
Byron Hogue
Chief Executive Officer
2
<PAGE>
EXHIBIT 10.33
LOAN AGREEMENT
By and Among
SKYNET HOLDINGS, INC.
As Borrower
and
LANCER OFFSHORE, INC.,
LANCER PARTNERS, LP
and
MICHAEL LAUER
As Lenders
Dated as of November 9, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. GENERAL DEFINITIONS................................................. 1
-------------------
1.1. Definitions...................................................... 1
-----------
1.2. Construction..................................................... 2
------------
2. LOAN................................................................ 3
----
2.1. The Loan......................................................... 3
--------
2.2. Repayment of Loan; Evidence of Debt.............................. 3
-----------------------------------
2.3. Prepayments...................................................... 3
-----------
2.4. Interest Rates................................................... 4
--------------
2.5. Computation of Interest.......................................... 4
-----------------------
2.6. Payments......................................................... 4
--------
2.7. Security......................................................... 5
--------
2.8. Conversion of Loan to Common Stock............................... 5
----------------------------------
3. CONDITIONS OF LENDING............................................... 5
---------------------
3.1. The Loan......................................................... 6
--------
4. REPRESENTATIONS AND WARRANTIES...................................... 6
------------------------------
4.1. General Representations and Warranties of the Borrower........... 6
------------------------------------------------------
4.2. Representations and Warranties of the Lenders.................... 7
---------------------------------------------
5. COVENANTS AND CONTINUING AGREEMENTS................................. 9
-----------------------------------
5.1. Affirmative Covenants............................................ 9
---------------------
6. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT................... 9
-------------------------------------------------
6.1. Events of Default................................................ 9
-----------------
6.2. Acceleration of Liabilities...................................... 10
---------------------------
6.3. Remedies......................................................... 10
--------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
7. REGISTRATION RIGHTS................................................. 10
-------------------
7.1 Certain Additional Defined Terms................................. 10
--------------------------------
7.2 Piggyback Registration Rights.................................... 11
-----------------------------
7.3 Registration Procedures.......................................... 12
-----------------------
7.4 Expenses......................................................... 13
--------
7.5 Obligations of the Lenders....................................... 14
--------------------------
7.6 Information Blackout, Holdbacks and Lock-Ups..................... 14
--------------------------------------------
7.7 Indemnification.................................................. 15
---------------
8. MISCELLANEOUS....................................................... 16
-------------
8.1. Modification of Agreement........................................ 16
-------------------------
8.2. No Implied Waivers; Cumulative Remedies; Writing Required........ 16
---------------------------------------------------------
8.3. Severability..................................................... 16
------------
8.4. Successors and Assigns........................................... 16
----------------------
8.5. Governing Law; Submission to Jurisdiction........................ 17
-----------------------------------------
8.6. Notice........................................................... 17
------
8.7. Section Titles................................................... 18
--------------
8.8. Duration; Survival............................................... 18
------------------
8.9. Exceptions to Covenants.......................................... 18
-----------------------
8.10. Holiday Payments.............................................. 18
----------------
8.11. Counterparts.................................................. 19
------------
8.12. Entire Agreement.............................................. 19
----------------
</TABLE>
EXHIBITS
- --------
Exhibit A - Promissory Note
Exhibit B - Use of Proceeds
Exhibit C - Common Stock Purchase Warrant
ii
<PAGE>
LOAN AGREEMENT
LOAN AGREEMENT, dated as of November 9, 1999 between SKYNET HOLDINGS,
INC., a Delaware corporation (the "Borrower"), LANCER OFFSHORE, INC., a
--------
Netherlands Antilles company, LANCER PARTNERS, LP, a Delaware limited
partnership, and MICHAEL LAUER, an individual (each a "Lender" and collectively,
------
the "Lenders").
-------
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower has requested that the Lenders make the Loan (as
hereinafter defined) and the Lenders has agreed to make the Loan on and subject
to the terms and conditions and as set forth in a certain term sheet dated as of
October 19, 1999;
NOW, THEREFORE, each of the parties hereto, for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
hereby agree as follows:
A G R E E M E N T:
-----------------
1. GENERAL DEFINITIONS
-------------------
1.1. Definitions When used herein, the following terms shall have the
-----------
following meanings:
Agreement shall mean this Loan Agreement as the same may be amended,
---------
extended, supplemented, modified, restated or replaced from time to time.
Borrower shall mean Skynet Holdings, Inc., a Delaware corporation.
--------
Business Day shall mean a day that is not a Saturday, a Sunday or a
------------
day on which banks are required or permitted to be closed in the State of New
York. Unless specifically denoted "Business Days" herein, references to "days"
shall mean calendar days.
Closing Date shall mean the date of the issuance of the Note. The
------------
closing shall take place on the Closing Date at the offices of Buchanan
Ingersoll Professional Corporation, or at such other time or at such other place
as the parties agree.
Default Rate shall mean the rate or rates determined from time to time
------------
pursuant to Section 4.2.
GAAP shall mean generally accepted accounting principles consistently
----
applied.
Event of Default shall mean any of the Events of Default described in
----------------
Section 7.1.
Knowledge or to the knowledge of a party (or similar phrases) means to
--------- ----------------
the extent of matters (i) which are actually known by such party or (ii) which,
based on facts of which such party is aware, would be known to a reasonable
person in similar circumstances exercising
<PAGE>
reasonable judgment, and when used in the context of the Borrower shall be
deemed to include the knowledge of the manager of the Borrower.
Law shall mean any law (including common law), constitution, statute,
---
treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any national, federal, state, local or
other government or political subdivision or any agency, authority, bureau,
central bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
Lenders shall mean the holder of the Notes.
-------
Loan shall mean the loan made pursuant to Section 2.1.
----
Loan Documents shall mean all agreements, instruments and documents
--------------
whether heretofore, now or hereafter executed by or on behalf of the Borrower
with respect to or in connection with this Agreement including, without
limitation, and the Notes.
Maturity Date shall mean February 9, 2001.
-------------
Notes shall mean the Promissory Notes made by the Borrower to the
-----
Lenders pursuant to Section 2.1, substantially in the form of Exhibit "A".
-----------
Original Issue Date shall mean the date on which the first Note was
-------------------
issued.
Person shall mean an individual, a partnership (general or limited),
------
corporation, limited liability company, joint venture, business trust,
cooperative, association or other form of business organization, whether or not
regarded as a legal entity under applicable law, a trust (inter vivos or
testamentary), an estate of a deceased, insane or incompetent person, a quasi-
governmental entity, a government or any agency, authority, political
subdivision or other instrumentality thereof, or any other entity.
Uniform Commercial Code shall mean the Uniform Commercial Code of the
-----------------------
State of New York or any other applicable jurisdiction, as amended from time to
time.
1.2. Construction. Unless the context of this Agreement otherwise clearly
------------
requires, references to the plural include the singular, the singular the plural
and the part the whole; "or" has the inclusive meaning represented by the phrase
"and/or," and "including" has the meaning represented by the phrase "including
without limitation." References in this Agreement to "determination" of or by
the Lenders shall be deemed to include good faith estimates by the Lenders (in
the case of quantitative determinations) and good faith beliefs by the Lenders
(in the case of qualitative determinations). Whenever the Lenders are granted
the right herein to act in their sole discretion or to grant or withhold
consent, such right shall be exercised in good faith. The words "hereof,"
"herein," "hereunder" and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
section and other headings contained in this Agreement and the Table of Contents
preceding this Agreement are for reference purposes only and shall not control
or affect the construction of this Agreement
2
<PAGE>
or the interpretation thereof in any respect. Section, subsection, schedule and
exhibit references are to this Agreement unless otherwise specified.
2. LOAN
----
2.1. The Loan.
--------
(a) Loan. Subject to the terms and conditions hereof, the Lenders
----
hereby irrevocably agree to lend to Borrower the aggregate principal amount of
$9,000,000 (the "Loan"), the proceeds of which represent (i) the refinancing of
----
$1,000,000 in principal amount and all accrued interest thereon under a certain
promissory note dated as of August 13, 1999 payable to Lancer Offshore, Inc.
(the "August 13 Loan"); and (ii) the advancement of additional funds to be used
for the additional purposes set forth herein. Each Lender shall advance to the
Borrower the amount set forth on Schedule 2.1 hereto.
(b) Use of Proceeds. The proceeds of the Loan shall be as set forth
---------------
on Exhibit "B" hereto.
-----------
2.2. Repayment of Loan; Evidence of Debt.
-----------------------------------
(a) The Borrower hereby unconditionally promises to pay to the
Lenders the full outstanding principal amount of the Loan, together with all
unpaid interest thereon and all other outstanding unpaid amounts owing to
Lenders under or in connection with the Loan Documents, on the Maturity Date (or
on such earlier date that the Loan becomes due and payable pursuant to Section
6). The Borrower hereby agrees to pay interest on the unpaid principal amount of
the Loan, and on the accrued unpaid interest, from time to time outstanding,
from the issuance of the Notes until payment in full thereof at the rates per
annum, on the dates, and in the form and manner set forth herein.
(b) The Loan shall be evidenced by the Notes. The Notes shall (i) be
dated the date of the issuance of the Notes, and (ii) be payable in full on the
Maturity Date (or such earlier date that the Loan becomes due and payable
pursuant to Section 6).
2.3. Prepayments.
-----------
(a) Voluntary Prepayments. The principal of and accrued interest on
the Notes may be prepaid without penalty by the Borrower in cash, in whole or in
part, at any time upon five (5) days' prior written notice to the Lenders, which
notice shall be irrevocable once given. As soon as notice of prepayment is
given, the principal to be prepaid, and any accrued and unpaid interest thereon,
shall become due and payable on the date set forth in such notice on which the
prepayment is to be made.
(b) Mandatory Prepayments. On and after January 1, 2000, the Borrower
shall be required to make mandatory prepayments of the principal amount of and
accrued and unpaid interest on the Loan equal to 50% of the net proceeds
realized by the Borrower from any
3
<PAGE>
debt or equity financing transactions completed thereafter until the earlier to
occur of (i) repayment in full of all such principal and interest and (ii) the
Maturity Date.
(c) Allocation of Prepayments. All prepayments made by Borrower
hereunder shall be allocated on a pro rata basis to each of the Lenders based
upon each Lender's percentage of the aggregate amount of principal and accrued
and unpaid interest outstanding at the time of such prepayment.
2.4. Interest Rates.
--------------
(a) The Loan (including the principal amount from time to time
outstanding and unpaid overdue interest) shall bear interest at a rate equal to
ten percent (10%) per annum.
(b) Upon the occurrence and during the continuation of an Event of
Default, the principal amount and accrued but unpaid interest under the Loan
shall bear interest at a rate per annum equal to twelve percent 12.0%.
(c) Interest on the outstanding principal amount of the Notes and on
any unpaid overdue interest shall be payable quarterly on the first day of each
calendar quarter commencing January 1, 2000.
2.5. Computation of Interest.
-----------------------
(a) Interest shall be calculated on the basis of a 360 day year for
the actual number of days elapsed.
(b) Notwithstanding any other provisions of any of the Loan
Documents, the Borrower shall not be required to make any payments of interest
or other amounts hereunder or under any other Loan Document to the extent such
payments would cause the rate of interest charged hereunder to exceed the
highest rate permitted under applicable law. Any such payments which are
received by the Lenders may, at the Lenders' option, be applied against payment
of principal of the Loan or other obligations payable to the Lenders hereunder
or returned to Borrower.
2.6. Payments.
--------
(a) All payments (including prepayments) to be made by the Borrower
hereunder or under any other Loan Document, whether on account of principal,
interest or otherwise, shall be made without set off or counterclaim and shall
be made prior to 12:00 Noon, New York, New York local time, on the due date
thereof to each of the Lenders at its address shown herein or such other account
or place as the Lenders may from time to time designate, in U.S. Dollars by wire
transfer of immediately available funds. If any payment hereunder becomes due
and payable on a day other than a Business Day, such payment shall be extended
to the next succeeding Business Day, and, interest thereon shall be payable at
the then applicable rate during such extension. The Lenders may apply payments
and prepayments to expenses, interest and then to principal.
4
<PAGE>
(b) All amounts which are or may become payable to the Lenders
hereunder or under or in connection with this Agreement or any other Loan
Document, other than principal of the Loan and interest accrued thereon and not
overdue, shall be payable on demand.
2.7. Security. To secure the prompt payment to the Lenders of the
--------
Borrower's obligations hereunder, Borrower agrees to cause Pony Express Delivery
Services, Inc. ("Pony"), its wholly-owned subsidiary, to grant to the Lenders a
continuing security interest in and to all of Pony's right, title and interest
in, to and under the following described property of Pony (for the purposes of
this paragraph, each capitalized term used herein and not otherwise defined
shall have the meaning given to it by Article 9 of the Uniform Commercial Code):
(A) all now existing and hereafter acquired and arising Accounts, General
Intangibles, Chattel Paper, Documents, Instruments, Investment Property, Letters
of Credit, Advices of Credit, Equipment, and Inventory; and (B) all Products of
and Accessions to the foregoing and all Proceeds of the foregoing, all of the
aforesaid property in which the Lenders are granted a security interest
hereunder is hereinafter called the "Collateral." The Borrower shall cause Pony
----------
to execute and deliver to the Lenders, and the Lenders shall have the right to
file, UCC-1 financing statements describing the Collateral to perfect the
security interest herein granted to the Lenders; copies of which have been
delivered to the Lenders upon the execution hereof. Notwithstanding the
foregoing, any security interest granted to or had by the Lenders and the
priority of such security interest in or claim to the Collateral shall be
subject to and subordinate to the lien, priority and rights of the Borrower's
existing senior indebtedness to (i) NationsCredit Commercial Corporation
("NationsCredit") and (ii) Founders Equity Group, Inc. ("Founders"), as Agent
for the lenders under a Letter Agreement dated as of June 3, 1999. The Lenders
agree to execute subordination agreements provided by NationsCredit and Founders
to evidence such subordination.
2.8. Conversion of Loan to Common Stock.
----------------------------------
(a) At any time prior to December 20, 1999, the principal amount of,
and all accrued and unpaid interest on, the Loan shall be convertible into
shares of the Borrower's common stock, par value $0.001 per share ("Common
Stock"), at a conversion rate of $5.00 per share.
(b) In the event any portion of the principal amount of the Loan or
any accrued interest thereon shall be outstanding on December 20, 1999, the
Lenders on such date and thereafter shall have the right to convert all or any
part thereof to Common Stock at a rate of $1.00 per share.
(c) To exercise its right to convert the outstanding principal of,
and interest on, the Loan hereunder, the Lenders shall give the Borrower not
less than three (3) days' written notice of such conversion, which notice of
conversion shall be irrevocable once given.
3. CONDITIONS OF LENDING.
---------------------
Notwithstanding any other provision of this Agreement or any other Loan
Document and without affecting in any manner the rights of the Lenders under
this Agreement, it is understood
5
<PAGE>
and agreed that the Lenders shall have no obligation at any time under Article 2
of this Agreement unless and until the following conditions have been and
continue to be satisfied, all in form and substance satisfactory to the Lenders
and their counsel:
3.1. The Loan.
--------
(a) The Lenders shall have received, on or prior to a Closing Date,
the following documents and other deliveries:
(i) this Agreement, duly executed and delivered;
(ii) the Notes, duly executed and delivered to each of the
Lenders in the amounts set forth on Schedule 2.1;
(iii) a certificate representing 75,000 shares of Common Stock
issued in the name of Lancer Offshore, Inc., which shares are issued on account
of the August 13 Loan;
(iv) stock certificates for an aggregate of 300,000 shares of
Common Stock (the Lender Shares) issued in the name of the Lenders and in the
amounts set forth on Schedule 3.1(b)(i); and
(v) a five-year common stock purchase warrant of the Borrower
(the "Lender Warrant"), in substantially the form attached as Exhibit "C"
-----------
hereto, to purchase 500,000 shares of Common Stock on the terms and subject to
the conditions set forth in the Lender Warrant, issued in the name of the
Lenders and in the amounts set forth on Schedule 3.1(a)(v).
(c) The representations and warranties of the Borrower contained in
Article 4 hereof shall be true on and as of each Closing Date and the Borrower
shall have complied with all covenants and conditions hereof.
(d) All legal details and proceedings taken or to be taken in
connection with the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in substance and form to the Lenders and their
counsel, and the Lenders and their counsel shall have received all such
counterpart originals or certified or other copies of such documents as the
Lenders or their counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
------------------------------
4.1. General Representations and Warranties of the Borrower. The Borrower
------------------------------------------------------
represents and warrants that:
(a) Organization, Qualification. The Borrower is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The Borrower has the lawful power to own or lease its properties and
to engage in the business it presently conducts and contemplates conducting. The
Borrower is duly qualified or licensed to do business, and is in good standing
in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary except
where such
6
<PAGE>
failure would not have a material adverse effect on its business, operations,
property, assets, condition (financial or otherwise) or prospects.
(b) Power and Authority. The Borrower has the power and authority to
-------------------
make and carry out this Agreement and the other Loan Documents to which it is a
party, to execute and deliver this Agreement and the other Loan Documents, and
to make the borrowings contemplated hereby and to perform its obligations under
this Agreement and the other Loan Documents. All such actions have been duly
authorized by all necessary corporate proceedings on its part.
(c) Validity and Binding Effect. This Agreement and the other Loan
---------------------------
Documents have been duly and validly executed and delivered by the Borrower.
This Agreement and the other Loan Documents to which it is a party constitute
legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms, except to the extent that
enforceability of the foregoing may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforceability of
creditors' rights generally or by laws or judicial decisions limiting the right
of specific performance.
4.2. Representations and Warranties of the Lenders. Each of the Lenders
---------------------------------------------
represents and warrants that:
(a) Organization, Qualification. If the Lender is a natural person,
---------------------------
the Lender has the lawful power to own or lease its properties and to engage in
the business it presently conducts and contemplates conducting.
(b) Power and Authority. The Lender has the power and authority to
-------------------
make and carry out this Agreement and the other Loan Documents to which it is a
party, to execute and deliver this Agreement and the other Loan Documents, and
to make the Loan contemplated hereby and to perform its obligations under this
Agreement and the other Loan Documents. If the Lender is other than a natural
Person, all such actions have been duly authorized by all necessary corporate
proceedings on its part.
(c) Validity and Binding Effect. This Agreement and the other Loan
---------------------------
Documents have been duly and validly executed and delivered by the Lender. This
Agreement and the other Loan Documents to which it is a party constitute legal,
valid and binding obligations of the Lender, enforceable in accordance with
their respective terms, except to the extent that enforceability of the
foregoing may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforceability of creditors' rights
generally or by laws or judicial decisions limiting the right of specific
performance.
(d) Investment Intent. The Lender hereby acknowledges that the Lender
-----------------
has been advised that this transaction and the issuance of the Note, any Lender
Shares, any Lender Warrants and any Common Stock issued upon the exercise of
such Lender Warrants (collectively, the "Securities") has not been registered
with, or reviewed by, the Securities and Exchange Commission ("SEC") because
this offering is intended to be a non-public offering pursuant to Section 4(2)
of the Act and/or Regulation D thereunder. The Lender represents that
7
<PAGE>
the Securities are being acquired for the Lender's own account and not on behalf
of any other person, for investment purposes only and not with a view towards
distribution or resale to others. The Lender agrees that the Lender will not
attempt to sell, transfer, assign, pledge or otherwise dispose of all or any
portion of the Securities unless they are registered under the Act or unless in
the opinion of counsel an exemption from such registration is available, such
counsel and such opinion to be satisfactory to the Borrower. The Lender
understands that the Securities have not been registered under the Act by reason
of a claimed exemption under the provisions of the Act which depends, in part,
upon the Lender's investment intention. In this respect, the Lender understands
that it is the position of the SEC that the statutory basis for such exemption
would not be present if the Lender's representation merely meant that the
Lender's present intention was to hold such Shares for a short period, such as
the capital gains period of tax statutes, for a deferred sale or for any other
fixed period. The Lender realizes that the SEC might regard a purchase with an
intent inconsistent with the Lender's representation to the Borrower, and a sale
or disposition thereof, as a deferred sale to which the exemption is not
available;
(e) Loss of Investment. The Lender's overall commitment to
------------------
investments which are not readily marketable is not disproportionate to his net
worth and an investment in the Borrower will not cause such overall commitment
to become excessive. Furthermore, the Lender can afford to bear the loss of his
entire investment in the Borrower and has adequate means of providing for his
current needs and personal contingencies and has no need for liquidity in his
investment in the Borrower;
(f) No General Solicitation. The Lender acknowledges that no general
-----------------------
solicitation or general advertising (including communications published in any
newspaper, magazine or other broadcast) has been received by him and that no
public solicitation or advertisement has been made to him with respect to the
investment evidenced by this Agreement;
(g) Access to Information. Lender has had access to all material and
---------------------
relevant information concerning the Borrower, its management, financial
condition, capitalization, market information, properties and prospects
necessary to enable Lender to make an informed investment decision with respect
to the investment evidenced by this Agreement. Lender acknowledges that it has
had the opportunity to ask questions of and receive answers from, and to obtain
additional information from, representatives of the Borrower concerning the
terms and conditions of this Agreement and the present and proposed business and
financial condition of the Borrower, and has had all such questions answered to
its satisfaction and has been supplied all information requested;
(h) Legend on Certificates. The Lender understands and acknowledges
----------------------
that the Securities and any certificates issued in replacement therefor shall
bear the following legend, in addition to any other legend required by law or
otherwise:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR
INVESTMENT,
8
<PAGE>
AND WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF,
AND MAY NOT BE TRANSFERRED OR DISPOSED OF WITHOUT AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH
TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE RULES AND REGULATIONS
THEREUNDER."
5. COVENANTS AND CONTINUING AGREEMENTS.
-----------------------------------
5.1. Affirmative Covenants. From the date hereof and thereafter until the
---------------------
Borrower's obligations under the Note and the Loan Documents have been paid in
full in cash, the Borrower covenants and agrees as follows:
(a) Preservation of Existence, etc. The Borrower shall maintain its
-------------------------------
existence and its license or qualification and good standing in each
jurisdiction in which its ownership or lease of property or the nature of its
business makes such license or qualification necessary.
(b) Corporate Franchises. Borrower will do or cause to be done, all
--------------------
things necessary to establish, preserve and keep in full force and effect its
existence and its material trademarks, permits, service marks, trade names,
copyrights, licenses, franchises and formulas, or rights with respect to the
foregoing; provided, however, that nothing in this Section 5.1(b) shall prevent
the withdrawal of its qualification as a foreign corporation in any jurisdiction
where such withdrawal would not have a material adverse effect on its business,
operations, property, assets, condition (financial or otherwise) or prospects.
(c) Conduct of Business. Borrower shall carry on its businesses in
-------------------
the ordinary course of business in substantially the same manner as heretofore
conducted and, to the extent consistent therewith, use all reasonable efforts to
preserve intact its current business organizations, keep available the services
of its current officers and employees (as a group) and preserve its
relationships with customers, suppliers, licensors, licensees, franchisees,
distributors and others having business dealings with it.
(d) Reservation of Common Stock. The Borrower shall reserve for
---------------------------
future issuance from its authorized but unissued Common Stock sufficient shares
of Common Stock as may be issuable to the Lender from time to time (i) upon the
conversion of the outstanding principal of and interest on the Loan pursuant to
Section 2.8 hereof, and (ii) upon the exercise of the Lender Warrant issued
pursuant to Section 3.1(a)(v).
6. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT.
-------------------------------------------------
6.1. Events of Default. The occurrence or existence of any of the following
-----------------
events, conditions, acts or omissions shall constitute an "Event of Default"
hereunder unless waived in writing by the Lender:
9
<PAGE>
(a) The Borrower fails to pay any principal of or interest on the
Loan when due and payable;
(b) Any representation, warranty, statement, report, financial
statement or certificate made or delivered by the Borrower to the Lender shall
have been false or misleading in any material respect as of the time it was made
or furnished;
(c) The Borrower fails to perform, keep or observe any term,
provision, condition or covenant contained in this Agreement or in any other
Loan Document to which it is a party, which is required to be performed, kept or
observed by the Borrower; provided, however, that in the event of such an
occurrence the Borrower shall be permitted to cure such a default, if
susceptible to cure, within thirty days of the occurrence of such a default;
(d) Any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against the party executing the same or such
party's successors and assigns (as permitted under the Loan Documents) in
accordance with the respective terms thereof or shall in any way be terminated
(except in accordance with its terms) or become or be declared ineffective or
inoperative or shall in any way be challenged or contested or cease to give or
provide the respective interests, rights, remedies, powers or privileges
intended to be created thereby;
(e) An application is made by the Borrower for the appointment of a
receiver, trustee or custodian for any of the Borrower's assets; or a petition
under any section or chapter of the federal Bankruptcy Code or any similar law
shall be filed by the Borrower; or the Borrower makes an assignment for the
benefit of its creditors or any case or proceeding is filed by the Borrower for
its dissolution, liquidation or termination; or a petition under any section or
chapter of the federal Bankruptcy Code or any similar law is filed against the
Borrower or any case or proceeding is filed against the Borrower for its
dissolution or liquidation, and such petition, case or proceeding is not
dismissed within thirty (30) days after the filing thereof;
6.2. Acceleration of Liabilities. Immediately upon the occurrence and
---------------------------
continuation of an Event of Default mentioned in any of Sections 6.1(a) through
6.1(e), all of the obligations of the Borrower to the Lenders may, at the option
of the Lenders and without demand, notice or legal process of any kind, be
declared, and immediately shall become, due and payable.
6.3. Remedies. Upon and after an Event of Default, the Lenders shall have
--------
in addition to all of the rights and remedies contained in this Agreement or in
any other Loan Document or other applicable law, all of which rights and
remedies as a secured party shall be cumulative and non-exclusive, to the extent
permitted by law.
7. REGISTRATION RIGHTS
-------------------
The Borrower covenants and agrees as follows:
7.1. Certain Additional Defined Terms. For the purpose of this Section 7,
--------------------------------
the following definitions shall apply:
10
<PAGE>
(a) "Exchange Act" shall mean the Securities Exchange Act of 1934.
(b) "Registration Statement" shall mean the Registration Statement of
the Borrower filed with the SEC pursuant to the provisions of Paragraphs 7.2 of
this Agreement which covers the resale of any of the Securities or the Common
Stock to be issued upon the exercise of any of the Securities on an appropriate
form then permitted by the SEC to be used for such registration and the sales
contemplated to be made thereby under the Securities Act, or any similar rule
that may be adopted by the SEC, and all amendments and supplements to such
Registration Statement, including any pre- and post- effective amendments
thereto, in each case including the prospectus contained therein, all exhibits
thereto and all materials incorporated by reference therein.
(c) "Restricted Stock" shall mean the Securities and any additional
shares of Common Stock or other equity securities of the Borrower issued or
issuable after the date hereof in respect of any such securities by way of a
stock dividend or stock split, in connection with a combination, exchange,
reorganization, recapitalization or reclassification of Borrower's securities,
or pursuant to a merger, division, consolidation or other similar business
transaction or combination involving the Borrower; provided that: as to any
particular shares of Restricted Stock, such securities shall cease to constitute
Restricted Stock (i) when a registration statement with respect to the sale of
such securities shall have become effective under the Securities Act and such
securities shall have been disposed of thereunder, or (ii) when and to the
extent such securities are permitted to be distributed pursuant to Rule 144 (or
any successor provision to such Rule) under the Securities Act or are otherwise
freely transferable to the public without further registration under the
Securities Act.
7.2. Piggyback Registration Rights.
-----------------------------
(a) The Borrower shall advise the Lenders by written notice prior to
the filing of a Registration Statement under the Securities Act (excluding
registration on Forms S-8, S-4, 10 or any successor forms thereto), covering
securities of the Borrower to be offered and sold by the Borrower to the public
generally, or by any stockholder of the Borrower, and shall, upon the request of
the Lenders given at least five (5) business days prior to the filing of such
Registration Statement, include in any such Registration Statement such
information as may be required to permit a public offering of the Restricted
Stock purchased hereby. The Lenders shall furnish such information as may be
reasonably requested by the Borrower in order to include such Restricted Stock
in the Registration Statement. In the event that any registration pursuant to
this Paragraph 7.2 shall be, in whole or in part, an underwritten public
offering of Common Stock on behalf of the Borrower, and the managing underwriter
thereof advises the Borrower in writing that in its opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
acceptable to the Borrower, the Borrower shall include in such registration (i)
first, the securities the Borrower proposes to sell, and (ii) second, the
Restricted Stock and any other registrable securities eligible and requested to
be included in such registration only to the extent that the number of shares to
be registered under this clause (ii) will not, in the opinion of the managing
underwriter, adversely affect the offering of the securities pursuant to clause
(i), pro rata among
11
<PAGE>
the holders of such registrable securities, including the Lenders of the
Restricted Stock, on the basis of the number of shares eligible for registration
which are owned by all such holders. Notwithstanding the foregoing, the Borrower
may withdraw any registration statement referred to in this Paragraph 7.2
without thereby incurring liability to the holders of the Restricted Stock.
(b) Notwithstanding anything to the contrary contained herein, the
Borrower's obligation in this Paragraph 7.2 above shall extend only to the
inclusion of the Restricted Stock in a Registration Statement filed under the
Securities Act. The Borrower shall have no obligation to assure the terms and
conditions of distribution, to obtain a commitment from an underwriter relative
to the sale of the Restricted Stock or to otherwise assume any responsibility
for the manner, price or terms of the distribution of the Restricted Stock.
Furthermore, the Borrower shall not be restricted in any manner from including
within the Registration Statement or the distribution, issuance or resale of any
of its or any other securities.
7.3. Registration Procedures. Whenever it is obligated to register any
-----------------------
Restricted Stock pursuant to this Agreement, the Borrower shall:
(a) prepare and file with the Commission a Registration Statement
with respect to the Restricted Stock in the manner set forth in Paragraph 7.2
hereof and use its best efforts to cause such Registration Statement to become
effective as promptly as possible and to remain effective for that period
identified in Paragraph 7.3(g) hereafter;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
the period specified in Paragraph 7.3(g) below and to comply with the provisions
of the Securities Act with respect to the disposition of all Restricted Stock
covered by such Registration Statement in accordance with the intended method of
disposition set forth in such Registration Statement for such period;
(c) furnish to the Lenders and to each underwriter, if any, such
number of copies of the Registration Statement and the prospectus included
therein (including each preliminary prospectus), as such person may reasonably
request in order to facilitate the public sale or other disposition of the
Restricted Stock covered by such Registration Statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such Registration Statement under the securities or blue sky laws of
such jurisdictions as the Lenders, or, in the case of an underwritten public
offering, the managing underwriter shall reasonably request; provided, however,
that the Borrower shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified or to consent to general service of process in any
such jurisdiction;
(e) immediately notify the Lenders and each underwriter, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus contained in such Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
12
<PAGE>
required or necessary to be stated therein in order to make the statements
contained therein not misleading in light of the circumstances under which they
were made;
(f) make available for inspection by the Lenders, any underwriter
participating in any disposition pursuant to such Registration Statement, and
any attorney, accountant or other agent retained by the Lenders or underwriter,
all financial and other records, pertinent corporate documents and properties of
the Borrower, and cause the Borrower's officers, directors and employees to
supply all information reasonably requested by the Lenders, underwriter,
attorney, accountant or agent in connection with such Registration Statement;
(g) for purposes of Paragraphs 7.3(a) and 7.3(b) above, the period of
distribution of Restricted Stock shall be deemed to extend until the earlier of:
(A) in an underwritten public offering of all of the Restricted Stock, the
period in which each underwriter has completed the distribution of all
securities purchased by it; (B) in any other registration, the earlier of the
period in which all shares of Restricted Stock covered thereby shall have been
sold or two (2) years from the effective date of the first Registration
Statement filed by the Borrower with the SEC pursuant to this Agreement.
(h) if the Common Stock is listed on any securities exchange or
automated quotation system, the Borrower shall use its best efforts to list
(with the listing application being made at the time of the filing of such
Registration Statement or as soon thereafter as is reasonably practicable) the
Restricted Stock covered by such Registration Statement on such exchange or
automated quotation system;
(i) enter into normal and customary underwriting arrangements or an
underwriting agreement and take all other reasonable and customary actions if
one or more of the Lenders sells their shares of Restricted Stock pursuant to an
underwriting (however, in no event shall the Borrower, in connection with such
underwriting, be required to undertake any special audit of a fiscal period in
which an audit is normally not required);
(j) notify the Lenders of any threat by the SEC or state securities
commission to undertake a stop order with respect to sales under the
Registration Statement; and
(k) cooperate in the timely removal of any restrictive legends from
the shares of Restricted Stock in connection with the resale of such shares
covered by an effective Registration Statement.
7.4. Expenses.
--------
(a) For the purposes of this Paragraph 7.4, the term "Registration
Expenses" shall mean: all expenses incurred by the Borrower in complying with
Paragraph 7.2 of this Agreement, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Borrower, "blue sky" fees, fees of the
National Association of Securities Dealers, Inc. ("NASD"), fees and expenses of
listing shares of Restricted Stock on any securities exchange or automated
quotation system on which the Borrower's shares are listed and fees of transfer
agents and registrars. The term
13
<PAGE>
"Selling Expenses" shall mean: all underwriting discounts and selling
commissions applicable to the sale of Restricted Stock and all accountable or
non-accountable expenses paid to any underwriter in respect of the sale of
Restricted Stock.
(b) Except as otherwise provided herein, the Borrower will pay all
Registration Expenses in connection with the Registration Statements filed
pursuant to Paragraph 7.2 of this Agreement. All Selling Expenses in connection
with any Registration Statements filed pursuant to Paragraph 7.2 of this
Agreement shall be borne by the participating holders of Restricted Stock either
solely or, if applicable, in proportion to the number of shares sold by each
selling stockholder whose Shares are covered by such registration statement, or
by such persons other than the Borrower (except to the extent the Borrower may
be a seller) as they may agree.
7.5. Obligations of the Lenders.
--------------------------
(a) In connection with each registration hereunder, each of the
Lenders will furnish to the Borrower in writing such information with respect to
such Lender and the securities held by such Lender, and the proposed
distribution by it as shall be reasonably requested by the Borrower in order to
assure compliance with federal and applicable state securities laws, as a
condition precedent to including the Lender's Restricted Stock in the
Registration Statement. Each Lender also shall promptly notify the Borrower of
any changes in such information included in the Registration Statement or
prospectus as a result of which there is an untrue statement of material fact or
an omission to state any material fact required or necessary to be stated
therein in order to make the statements contained therein not misleading in
light of the circumstances then existing.
(b) In connection with each registration pursuant to this Agreement,
each Lender agrees that it will not effect sales of any Restricted Stock until
notified by the Borrower of the effectiveness of the Registration Statement, and
thereafter will suspend such sales after receipt of telegraphic or written
notice from the Borrower to suspend sales to permit the Borrower to correct or
update a Registration Statement or prospectus. At the end of any period during
which the Borrower is obligated to keep a Registration Statement current, the
Lenders shall discontinue sales of Restricted Stock pursuant to such
Registration Statement upon receipt of notice from the Borrower of its intention
to remove from registration the Restricted Stock covered by such Registration
Statement which remain unsold, and each Lender shall notify the Borrower of the
number of shares registered which remain unsold immediately upon receipt of such
notice from the Borrower.
7.6. Information Blackout, Holdbacks and Lock-Ups.
--------------------------------------------
(a) At any time when a Registration Statement effected pursuant to
Paragraph 7.2 relating to Restricted Stock is effective, upon written notice
from the Borrower to the Lenders that the Borrower has determined in good faith
that the sale of Restricted Stock pursuant to the Registration Statement would
require disclosure of non-public material information, each Lender shall suspend
sales of Restricted Stock pursuant to such Registration Statement until such
time as the Borrower notifies the Lenders that such material information has
been disclosed to the public
14
<PAGE>
or has ceased to be material or that sales pursuant to such Registration
Statement may otherwise be resumed.
(b) Notwithstanding any other provision of this Agreement, the
Lenders shall not effect any public sale or distribution (including sales
pursuant to Rule 144), if and when available, of equity securities of the
Borrower, or any securities convertible into or exchangeable or exercisable for
such securities, during the thirty (30) days prior to the commencement of any
primary offering to be undertaken by the Borrower of shares of its unissued
common stock (the "Primary Offering"), which may also include other securities,
and ending 120 days after completion of any such Primary Offering, unless the
Borrower, in the case of a non-underwritten Primary Offering, or the managing
underwriter, in the case of an underwritten Primary Offering, otherwise agree.
7.7. Indemnification.
---------------
(a) The Borrower agrees to indemnify, to the extent permitted by law,
the Lenders, their officers and directors and each Person who controls any of
the Lenders (within the meaning of the Securities Act) against all losses,
claims, damages, liabilities and expenses caused by any untrue statement of
material fact contained in any Registration Statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are caused by or contained in
any information furnished to the Borrower by any of the Lenders for use therein
or by the Lenders' failure to deliver a copy of the Registration Statement or
prospectus or any amendments or supplements thereto after the Borrower has
furnished the Lenders with a sufficient number of copies of the same.
(b) In connection with any Registration Statement in which any Lender
is participating, such Lender shall furnish to the Borrower in writing such
information and affidavits as the Borrower reasonably requests for use in
connection with any such Registration Statement or prospectus and, to the extent
permitted by law, shall indemnify the Borrower, its directors and officers and
each Person who controls the Borrower (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting from:
(i) any untrue or alleged untrue statement of material fact contained in the
Registration Statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (but only to the extent that such untrue statement or omission
is contained in any information or affidavit so furnished by such Lender); or
(ii) any disposition of the Restricted Stock in a manner that fails to comply
with the permitted methods of distribution identified within the Registration
Statement.
(c) Any Person entitled to indemnification hereunder shall (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any Person's right to indemnification hereunder to the extent
such failure has not prejudiced the indemnifying party) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit
15
<PAGE>
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and shall survive the transfer of securities. The
Borrower also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Borrower's
indemnification is unavailable for any reason.
8. MISCELLANEOUS
-------------
8.1. Modification of Agreement. This Agreement and the other Loan
-------------------------
Documents may not be modified, altered or amended, except by an agreement in
writing signed by the Borrower and the Lenders. The Borrower may not sell,
assign or transfer this Agreement or any other Loan Document or any portion
hereof or thereof, including, without limitation, the Borrower's rights, title,
interests, remedies, powers and/or duties hereunder or thereunder.
8.2. No Implied Waivers; Cumulative Remedies; Writing Required. No course
---------------------------------------------------------
of dealing and no delay or failure of the Lenders in exercising any right,
power, remedy or privilege under this Agreement or any other Loan Document shall
affect any other or future exercise thereof or operate as a waiver thereof; nor
shall any single or partial exercise thereof or any abandonment or
discontinuance of steps to enforce such a right, power, remedy or privilege
preclude any further exercise thereof or any other right, power, remedy or
privilege. The rights and remedies of the Lenders under this Agreement and the
other Loan Documents are cumulative and not exclusive of any rights or remedies
which it would otherwise have. Any waiver, permit, consent or approval of any
kind or character on the part of the Lenders of any provision of, or any breach
or default under, this Agreement or any other Loan Document must be in writing
and shall be effective only to the extent specifically set forth in such
writing.
8.3. Severability. The provisions of this Agreement are intended to be
------------
severable. If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
8.4. Successors and Assigns. This Agreement and the other Loan Documents
----------------------
shall be binding upon and inure to the benefit of the successors and assigns of
the Borrower and the Lenders. This provision, however, shall not be deemed to
modify Section 7.1.
16
<PAGE>
8.5. Governing Law; Submission to Jurisdiction. This Agreement has been
-----------------------------------------
delivered at New York, New York, and shall be deemed to have been made at New
York, New York, and shall be interpreted, and the rights and liabilities of the
parties hereto shall for all purposes be governed by and construed and enforced,
in accordance with the internal laws of the State of Delaware applicable to
agreements executed, delivered and performed within such state without giving
effect to the principles of conflicts of laws of such state. As part of the
consideration for new value this day received, Borrower hereby consents to the
exclusive jurisdiction of any state or federal court located within the City of
New York, State of New York, and waives personal service of any and all process
upon Borrower, and consents that all such service of process be made by
registered mail directed to Borrower at the address set forth in Section 7.6
hereof (or such other address as may be duly designated by borrower pursuant to
section 7.6 hereof) and service so made shall be deemed to be completed upon
actual receipt thereof.
8.6. Notice. Except as otherwise provided herein, any notice or other
------
written communication required hereunder shall be in writing, and shall be
deemed to have been validly served, given or delivered (i) upon deposit in the
United States mail, with proper postage prepaid, (ii) by hand delivery, (iii) by
overnight express mail courier, or (iv) by telecopier, and addressed to the
party to be notified at the address set forth below or to such other address as
each party may designate for itself in writing by like notice, provided notices
--------
to the Lenders shall not be effective until received.
To the Lenders:
Lancer Offshore, Inc.
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Attention:
Telephone:
Telecopier:
Lancer Partners, L.P.
c/o Michael Lauer, General Partner
475 Steamboat Road
Greenwich, CT 06830
Telephone:
Telecopier:
Michael Lauer
c/o Lancer Management Group, LLC
375 Park Avenue, Suite 2006
New York, NY 10152
Attention:
Telephone:
17
<PAGE>
Telecopier:
To the Borrower:
Skynet Holdings, Inc.
343 Glasgow Avenue
Inglewood, CA 90301
Attention: Mr. Byron Hogue
Telephone:
Telecopier: 310-568-9637
with a copy to: Buchanan Ingersoll Professional Corporation
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, PA 19103
Attention: Stephen M. Cohen, Esquire
Telephone: 215-665-3873
Telecopier: 215-665-8760
8.7. Section Titles. The article and section titles contained in this
--------------
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
8.8. Duration; Survival. All representations and warranties of the
------------------
Borrower contained herein or made in connection herewith shall survive the
making of the Loan and shall not be waived by the execution and delivery of this
Agreement, any investigation by the Lenders or payment in full of the Loan. All
covenants and agreements of the Borrower contained in Articles 5 and 7 herein
shall continue in full force and effect from and after the date hereof so long
as the Borrower may borrow hereunder and until termination of this Agreement and
payment in full of the Loans. All covenants and agreements of the Borrower
contained herein relating to the payment of principal, interest, additional
compensation or expenses, fees or expenses and indemnification shall survive
payment in full of the Loan and termination of this Agreement.
8.9. Exceptions to Covenants. The representations, warranties and
-----------------------
covenants contained herein shall be independent of each other and no exception
to any representation, warranty or covenant shall be deemed to be an exception
to any other representation, warranty or covenant contained herein unless
expressly provided, nor shall any such exceptions be deemed to permit any action
or omission that would be in contravention of applicable law.
8.10. Holiday Payments. If any payment to be made to the Lenders
----------------
hereunder shall become due on a date not a Business Day, such payment shall be
made on the next succeeding Business Day and interest shall accrue on any
principal amount of such payment until the date on which such principal amount
is paid to the Lenders.
18
<PAGE>
8.11. Counterparts This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
8.12. Entire Agreement. This Agreement, together with the Exhibits
----------------
hereto, are intended by the parties as a final expression of their agreement
regarding the subject matter hereof and as a complete and exclusive statement of
the terms and conditions of such agreement and, accordingly, this Agreement
supercedes any and all prior or contemporaneous agreements and understanding of
the parties with respect to such subject matter.
19
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, this Loan
Agreement has been duly signed, sealed and delivered by the undersigned as of
the day and year specified at the beginning hereof.
BORROWER:
SKYNET HOLDINGS, INC.
By:_______________________________
Byron Hogue
Chief Executive Officer
LENDERS:
LANCER OFFSHORE, INC.
By:_______________________________
Name:
Title:
LANCER PARTNERS, L.P.
By:_______________________________
Michael Lauer
General Partner
__________________________________
MICHAEL LAUER
20
<PAGE>
EXHIBIT A
FORM OF PROMISSORY NOTE
<PAGE>
EXHIBIT B
USE OF PROCEEDS
The proceeds of the Loan shall be used as follows:
1. Refinancing of $1,000,000 loan from Lancer Offshore, Inc. and accrued
and unpaid interest thereon pursuant to Promissory Note dated as of August 13,
1999;
2. Repayment of up to $3,000,000 to the Borrower's senior lenders; and
3. Working capital purposes.
<PAGE>
EXHIBIT C
FORM OF COMMON STOCK PURCHASE WARRANT
<PAGE>
SCHEDULE 2.1
PRINCIPAL AMOUNT TO BE ADVANCED BY LENDERS
--------------------------------------------------------------------
Lender Principal Amount
--------------------------------------------------------------------
Lancer Offshore, Inc. $7,000,000
--------------------------------------------------------------------
Lancer Partners, LP $1,000,000
--------------------------------------------------------------------
Michael Lauer $1,000,000
--------------------------------------------------------------------
<PAGE>
SCHEDULE 3.1(a)(iv)
ALLOCATION OF LENDER SHARES
----------------------------------------------------------------------
Lender Shares to be issued
----------------------------------------------------------------------
Lancer Offshore, Inc./1/ 200,000
----------------------------------------------------------------------
Lancer Partners, LP 50,000
----------------------------------------------------------------------
Michael Lauer 50,000
----------------------------------------------------------------------
_______________________
/1/ These shares are in addition to the 75,000 shares to be issued Lancer
Offshore, Inc. on account of Lancer Offshore, Inc.'s loan to the Borrower dated
as of August 13, 1999, which shares are to be issued at the closing of the
transactions contemplated by this Agreement.
<PAGE>
SCHEDULE 3.1(a)(v)
ALLOCATION OF LENDER WARRANT
-------------------------------------------------------------------------
Lender Shares issuable upon exercise of Warrant
-------------------------------------------------------------------------
Lancer Partners, LP 500,000
-------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.34
[LETTERHEAD OF BANK OF AMERICA]
December 8, 1999
Pony Express Delivery Services, Inc.
6165 Barfeld Road N.E., Suite 200
Atlanta, Georgia 30328
Re: Pony Express Delivery Services, Inc.
------------------------------------
Gentlemen:
Reference is made to the Loan and Security Agreement and the documents executed
in connection therewith entered into between us, as the same may have been
amended from time to time (the "Loan Agreement").
As you know, you are in Default of the Loan Agreement and we have entered in a
Forbearance Agreement which expires on December 10, 1999. It is our mutual
intention that the existing Loan be permanently reduced by $1,000,000 (the
"Paydown") and you anticipate that such Paydown will occur no later than March
8, 2000. In consideration of our continuing forbearance until March 8, 2000, you
agree to pay to us the following fees ("Forbearance Fees").
1. On the date hereof, $10,000
2. On January 8, 2000, $20,000
3. On February 8, 2000, $35,000
4. On March 8, 2000, $35,000
Notwithstanding the foregoing, if the Paydown occurs at any time after the date
hereof, the Forbearance Fees scheduled after such Paydown shall be waived.
In addition, upon receipt by us of the Paydown, the Loan Agreement shall be
deemed amended as follows (all capitalized terms shall have the meaning given
to such terms in the Loan Agreement);
1. The Maximum Facility Amount shall be $3,000,000.
2. Interest on all loans and advances shall be charged at an annual rate of the
Prime Rate plus 3%.
3. Any Early Termination Fee which may be due and payable as a result of your
early termination of the Loan Agreement, shall be calculated on the Maximum
Facility Amount as of the date of the termination.
In consideration of the Paydown and upon receipt thereof, the following Events
of Default shall be deemed waived:
<PAGE>
Pony Express Delivery Services, Inc.
December 8, 1999
Page 2
1. The receipt by you of proceeds of accounts receivable and your failure to
submit such remittances to us in kind,
2. Your failure to pay payroll taxes on a timely basis; and
3. The merger of an affiliate of Skynet, Inc. into Pony Express Delivery
Services without our prior written consent.
The foregoing waiver applies only to the specific Events of Default mentioned
above and does not apply to any other Event of Default, whether or not known to
us. You hereby warrant and represent to us that you know of no other Events of
Default other than those set forth above.
Finally, you have requested that we terminate and/or satisfy our mortgage
covering your real property in Atlanta, Georgia, and we agree to do so, provided
that at the time of such termination and/or satisfaction.
a) We have received the Paydown
b) You are not in default under the Loan Agreement; and
c) All costs and expenses in connection with such termination and
satisfaction are paid by you.
Except as herein specifically provided, no other changes in the terms and
provisions of the Loan Agreement are intended or implied.
Kindly acknowledge your agreement to the foregoing by signing and returning the
enclosed copy of this letter.
Very truly yours,
Bank of America Commercial Finance Corporation,
through its Commercial Funding Division
By: /s/ Steve Blumberg
--------------------------------
Its: Vice President
-------------------------
READ AND AGREED TO:
PONY EXPRESS DELIVERY SERVICES, INC.
<PAGE>
Pony Express Delivery Services, Inc.
December 8, 1999
Page 3
By: /s/ Illegible
-------------------------
Its: VP - Finance
----------------------
<PAGE>
EXHIBIT 21.1
------------
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Jurisdiction of Formation Ownership
- ---- ------------------------- ---------
<S> <C> <C>
DPE International, Inc. Delaware (USA) 100%
Fleet Acquisition Corp. Nevada (USA) 100%
Freight On Broad International Limited United Kingdom 100%
Pony Express Delivery Services, Inc. Delaware (USA) 100%
Sky International Limited United Kingdom 100%
SkyNet, Inc. New York (USA) 100%
SkyNet Worldwide Express Pty Ltd. New South Wales, Australia 100%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1998 AND 1999 AND
IS QUALIFED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1999
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1999
<CASH> 337,314 1,568,529
<SECURITIES> 0 0
<RECEIVABLES> 6,380,466 17,875,338
<ALLOWANCES> 734,257 2,800,336
<INVENTORY> 0 19,411
<CURRENT-ASSETS> 6,060,962 18,360,724
<PP&E> 2,092,831 9,960,375
<DEPRECIATION> 1,388,535 1,666,014
<TOTAL-ASSETS> 6,885,815 44,515,161
<CURRENT-LIABILITIES> 7,119,218 35,665,804
<BONDS> 0 0
245 285
0 0
<COMMON> 745 1,950
<OTHER-SE> 402,568 14,326,215
<TOTAL-LIABILITY-AND-EQUITY> 6,885,815 44,515,161
<SALES> 31,838,919 41,011,297
<TOTAL-REVENUES> 31,838,919 41,011,297
<CGS> 19,123,468 27,097,882
<TOTAL-COSTS> 12,134,474 17,317,716
<OTHER-EXPENSES> 29,809 173,089
<LOSS-PROVISION> 400,955 516,557
<INTEREST-EXPENSE> 199,714 234,062
<INCOME-PRETAX> 351,454 (5,409,662)
<INCOME-TAX> 185,404 (90,384)
<INCOME-CONTINUING> 166,050 (5,319,278)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 166,050 (5,319,278)
<EPS-BASIC> 0.02 (0.32)
<EPS-DILUTED> 0.02 (0.32)
</TABLE>
