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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission File No.: 0-26954
CONSOLIDATED DELIVERY & LOGISTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3350958
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Mack Centre IV, 61 South Paramus Road
Paramus, New Jersey 07652
(201) 291-1900
(Address, including Zip Code, and telephone number, including area code, of
principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
Indicate by check mark whether: the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $11,502,706 as of March 14, 1997.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Outstanding as of March 14, 1997
Common Stock, $.001 par value 6,795,790
Documents Incorporated by Reference: The information required by Part III
(other than the required information regarding executive officers) is
incorporated by reference from the registrant's definitive proxy statement,
which will be filed with the Commission not later than 120 days following
December 31, 1996.
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PART I
Item 1. Business
Consolidated Delivery & Logistics, Inc. (the "Company") was founded in
June 1994 to create a national, full service, same-day ground and air delivery
and logistics company. In November 1995, the Company consummated the merger (the
"Mergers") of eleven established businesses providing same-day ground and air
delivery and logistics services (collectively, the "Founding Companies")
concurrently with the closing of the Company's initial public offering (the
"Offering"). During 1996, the Company has acquired certain assets from and
assumed certain liabilities of four Companies and agreed to provide continuing
service to the customers of another Company with estimated annual revenues
aggregating approximately $15.6 million. The Company provides an extensive
network of same-day ground and air delivery and logistics services to a wide
range of commercial, industrial and retail customers. The Company's ground
delivery operations currently are concentrated on the East Coast, with a
strategic presence in the Midwest and on the West Coast. The Company's logistics
services are provided on a national basis and its air delivery services are
provided throughout the United States and to major cities around the world.
The Company's same-day delivery services are generally divided between
rush and scheduled delivery. Rush delivery service, provided via ground and air,
typically consists of delivering time-sensitive packages, such as critical
machine parts or emergency medical devices. Scheduled or routed delivery
services, provided on a recurring and often daily basis, include deliveries from
pharmaceutical suppliers to pharmacies, manufacturers to retailers, and the
interbranch distribution of financial documents. The Company's logistics
services include designing and managing systems created to maximize efficiencies
in transporting, warehousing, sorting and delivering customers' products.
The Company believes that it can enhance revenues and profitability by
systematically integrating the operations of the businesses acquired by the
Company. The Company expects to realize internal growth opportunities by
offering customers a single source for their same-day ground and air delivery
and logistics needs and by internalizing services currently being purchased from
other delivery companies. The Company intends to achieve increased operating
efficiencies by rationalizing and consolidating operations to increase the
density of its delivery routes and to improve the productivity of existing
personnel, equipment and facilities. While the Company has previously pursued an
aggressive acquisition strategy, the Company has recently curtailed its
acquisition activities to focus on internal growth. In this regard, the Company
recently announced that it plans to implement more effective financial and
managerial information systems to facilitate the improvement of the Company's
business. Also, in order to more effectively deploy the Company's resources, the
Company sold Distributions Solutions, Inc., a Founding Company ("DSI") in
January 1997, to DSI's founder and president.
Industry Overview
The ground and air delivery industry in the United States is composed
largely of companies providing same-day, next-day and two-day services. The
Company primarily services the same-day delivery market. In contrast, the
next-day and two-day delivery markets are dominated by large nationally
established entities, such as United Parcel Service, Inc. ("UPS") and FedEx
Corp. ("FedEx").
The Company believes that the same-day ground and air delivery and
logistics industry, which is currently serviced by a fragmented system of
approximately 10,000 companies, is undergoing substantial growth and
consolidation. The Company estimates that revenues generated by the same-day
delivery and logistics industry were in excess of $15 billion in 1996. The
Company believes that several factors, including the following, are driving the
growth and resulting consolidation of the industry:
Outsourcing. Commercial and industrial companies, major consumers of
same-day delivery and logistics services, have continued to follow the trend
toward controlling their own costs by outsourcing delivery and logistics
requirements. Companies that can offer comprehensive, customized delivery and
logistics services at attractive prices will be able to capitalize on this
trend.
Vendor Consolidation. Businesses are increasingly seeking single-source
solutions for their same-day delivery and logistics needs in order to increase
efficiencies and improve service. As a result, the Company believes that
significant opportunities exist for delivery and logistics companies able to
provide a full range of services on a national or multi-regional basis.
Heightened Customer Expectations. Increased customer demand for
customized billing, enhanced tracking, storage and inventory management
capabilities favor companies with greater resources to devote to providing such
services.
New Market Opportunities. The significant growth in catalog and at-home
shopping and in-home medical care present substantial growth opportunities for
companies capable of economically providing more customized, reliable services.
Strategy
The Company's objective is to become "The Total Package in
Delivery"(TM) by developing the product strength and service quality in the
ground and air divisions of the Company on the local, regional, national, and
international level so that the Company becomes a viable and reliable "first
choice" for those companies that need a transportation and logistics solution
within critical time frames. The Company intends to achieve its objectives by
pursuing the followings strategies.
Realize Internal Growth Opportunities. The Company intends to offer its
customer base an expanded range of services and geographic coverage. In
addition, the Company intends to internalize business opportunities created by
its acquisitions by redirecting services previously purchased from other
delivery companies. The Company also expects to gain additional business by
offering new and existing customers single source solutions for ground and air
delivery and logistics needs on a national and multi-regional basis.
Improve Operating Efficiencies. The Company continues to work toward
improving operating efficiencies by reducing costs and heightening productivity
by rationalizing and consolidating operations to increase the density of its
delivery routes and to improve the productivity of personnel, equipment and
facilities. The Company's size and purchasing power have enabled it to achieve
significant economies in areas such as insurance coverage and vehicle costs. The
Company expects that it will achieve further efficiencies through the continuing
consolidation of its operations.
Services
The Company provides a full range of same-day ground and air delivery
and logistics services. In many cases, the Company combines several service
capabilities to meet the needs of its customers.
Ground Delivery
The Company's comprehensive same-day ground delivery services include:
Rush. In providing rush or on-demand services, Company messengers and
couriers respond to customer requests for immediate pick-up and delivery of
time-sensitive packages, such as emergency medical devices and supplies, or a
critical part necessary to repair a defective machine, as well as urgent
documents and other materials. The Company generally offers one-, two- and four-
hour service, seven days a week, twenty-four hours a day. Typical customers
include commercial and industrial companies, hospitals and service providers
such as accountants, lawyers, advertising and travel agencies and public
relations firms.
Scheduled and Routed. The Company's scheduled or routed delivery
services are provided on a recurring and often daily basis. These services
typically consist of picking up or receiving large shipments of products, which
the Company sorts, routes and delivers. These shipments are generally delivered
in accordance with a customer's demanding schedule calling for deliveries to be
made within an agreed upon time window. These services include deliveries from
pharmaceutical suppliers to pharmacies, from manufacturers to retailers, the
interbranch distribution of checks, payroll data and other documents, and the
delivery of time-sensitive materials for banks, financial institutions,
insurance companies and photo-finishing laboratories. In addition, the Company
provides these services to large retailers seeking low-cost home-delivery
capabilities, including large cosmetic companies, door-to-door retailers,
catalog marketers, home health care distributors and other direct sales
companies.
Air Services
The Company provides next-flight-out (rush) and scheduled air courier
and air freight services to its customers, both domestically and
internationally. The services provided include arranging for (i) the
transportation of a shipment from the customer's location to the airport, (ii)
air transportation and (iii) the delivery of the shipment to the destination. In
order to meet the needs of its customers, the Company has established
relationships with many major airlines and large air freight companies from
which the Company purchases cargo space on an as-needed basis.
Logistics
The Company provides a wide range of logistics services to its
customers including the following:
Warehousing/Just-in-Time. The Company has facilities to warehouse and
deliver products on a just-in-time delivery basis. At many of these facilities,
bulk shipments are broken down for processing and local delivery by the Company
as part of its scheduled and routed delivery services. Typical customers include
computer and electronics manufacturers, automotive parts distributors and
pharmaceutical wholesalers.
Facilities Management. The Company provides mail room management
services, including the provision and supervision of mailroom personnel, mail
and package sorting, internal delivery and outside local messenger services.
Typical customers include commercial enterprises and professional firms.
Fulfillment. The Company provides fulfillment services to manufacturers
and various promotion companies which includes receiving orders directly from
the client's customers, shipping those orders with the client's product or
promotion material, and providing detailed shipping information back to the
clients. In addition, the Company can assemble the components of a promotion,
add mailing and other information provided by the client, sort and mail out a
completed promotion, and provide the client with detailed distribution
information.
Operations
Ground Delivery
The Company's delivery operations are currently managed on a local
basis. Most locations have operations centers staffed by dispatchers, as well as
order entry and other operations personnel. The Company's ground delivery
services are provided on a rush or on-demand basis or pursuant to established
scheduled and routing arrangements. Coordination and deployment of delivery
personnel is accomplished either through communications systems linked to the
Company's computers, through pagers or by radio. A dispatcher coordinates
shipments for delivery within a specific time frame. Shipments are routed
according to the type and weight of the shipment, the geographic distance
between the origin and destination and the time allotted for the delivery. In
the case of scheduled and routed deliveries, routes are designed to minimize the
unit costs of the deliveries and to enhance route density. Because the specific
products of the Company vary in terms of the type of air and ground services and
the geographic and time sensitive nature of the services provided, no general
standard presently exists for the systems used to operate these services. The
Company is evaluating new hardware and software systems designed to enhance and
centralize the reporting and tracking of shipments through the ground system as
well as to simplify the process of designing delivery routes. The Company
believes that this investment in technology will likely reduce costs by
streamlining the delivery process and reducing back office expenses while
enhancing the Company's tracking capabilities.
Air Services
The Company's air courier and air freight service begins with a
customer placing an order which is then dispatched for pickup by a local driver.
A tracking number is assigned to the shipment and entered into the Company's
computer system. The computer system then selects the optimal route for the
shipment based on delivery, destination and timing considerations, tracks the
shipment as it flows through the delivery stream until it is ultimately
delivered to the recipient and prepares the appropriate billing charges. At the
final destination, a "proof of delivery" is obtained to conclude and confirm the
delivery. At any point in the process, the Company is able to inform the
customer as to the exact location of its shipment within the distribution
network.
Logistics
The Company's logistics services are coordinated by trained logistics
specialists who have substantial experience in designing, implementing and
managing integrated networks for the transportation, warehousing, sorting,
routing and distribution of the customer's products and promotional materials.
The Company analyzes the customer's distribution requirements; identifies,
engages, coordinates and supervises the delivery services to be used to effect
the distribution; and generates customized reports to manage and track the
distribution.
Sales and Marketing
The Company believes that its customers for same-day ground and air
delivery and logistics services are most effectively reached by a direct sales
force and, accordingly, the Company does not currently engage in mass media
advertising. The Company markets directly to individual customers by designing
and offering customized service packages after determining a customer's specific
delivery, distribution and logistics requirements. The Company intends to
implement a coordinated "major account" strategy by building on established
relationships with regional and national customers. The Company also employs
certain direct response marketing techniques.
Many of the services provided by the Company, such as facilities
management, logistics, distribution services and scheduled and routed services
are determined on the basis of competitive bids. However, the Company believes
that quality and service capability are also important competitive factors. In
certain instances, the Company has obtained business by offering a superior
level of service, even though it was not the low bidder for a particular
contract. The Company derives a substantial portion of its revenues from
customers with whom it has entered into contracts. Virtually all scheduled and
routed services, dedicated vehicle services, facilities management services and
logistics services are provided pursuant to contracts. Many of these contracts
are terminable by the customer on relatively short notice without penalty.
Competition
The market for the Company's same-day ground and air delivery and
logistics services is highly competitive. The Company believes that the
principal competitive factors in the markets in which it competes are
reliability, quality and breadth of service and price. The Company competes on
all such factors. The Company's principal competitors in the same-day ground and
air delivery industry are other ground and air delivery companies and the
commercial and industrial businesses already using the Company's services. The
Company's principal competitors in the logistics market are national freight
carrier companies (including FedEx and UPS) and other logistics providers. In
addition, UPS and FedEx have recently begun to provide same-day air delivery
services.
Most of the Company's competitors in the same-day ground and air delivery
market are privately held companies that operate in only one location or in a
limited service area. However, there is a growing trend toward consolidation in
the industry. The Company's primary competitor in the same-day ground delivery
business is Corporate Express, Inc. ("Corporate Express") which, during 1996
acquired two of the Company's major competitors, U.S. Delivery Systems, Inc. and
United Transnet, Inc.
In addition to the same-day ground and air delivery services provided
by the Company, customers also utilize next-day and second-day air services. The
market for next-day and second-day air services is primarily dominated by
nationwide network providers, such as FedEx and UPS, which have built large,
capital-intensive distribution channels that allow them to process a high volume
of materials. In order to effectively operate their networks, these companies
typically have fixed deadlines for next-day or second-day delivery services. In
contrast, the Company specializes in on-demand, next-flight-out deliveries or
services which, by their nature, are not governed by rigid time schedules. If a
customer is unable to meet a network provider's established deadline, the
Company can pick up the shipment, put it on the next available flight and
deliver it, in some cases, before the network provider's scheduled delivery
time. The Company's services are available twenty-four hours a day, seven days a
week.
The Company obtains space on scheduled airline flights to provide its
same-day air services and accordingly does not have to acquire or maintain an
expensive fleet of airplanes. As a result, the Company can provide a more
flexible, specialized service to its customers on demand without incurring the
high fixed overhead that the larger network providers must incur.
Acquisitions and Divestitures
In November 1995 the Company acquired the eleven Founding Companies.
The aggregate consideration paid by the Company for the Founding Companies was
approximately $29.6 million in cash and 2,935,702 shares of Common Stock, par
value $.001 per share (the "Common Stock"), for an aggregate value of
approximately $67.8 million.
In addition to the acquisition of the Founding Companies described
above, during 1995, the Company acquired certain additional assets (comprised
primarily of customer lists and other assets) from other entities to supplement
and enhance the assets and expertise of the Founding Companies. The assets
acquired in those transactions were not material to the Company.
The Company acquired certain assets from and assumed certain
liabilities of four Companies and agreed to provide continuing service to the
customers of another Company during 1996:
Approximate Annual Revenues
Name Date of Transaction
International Courier Services, Inc. May 1996 $2.7 million
Celadon Express, Inc. June 1996 $2.8 million
Interim Personnel, Inc. June 1996 $3.8 million
HurryWagon, Inc. September 1996 $3.1 million
W. I. Services, Inc. November 1996 $3.2 million
The aggregate purchase price paid by the Company was approximately $3.3
million, consisting of a combination of cash and shares of Common Stock. Each of
the transactions has been accounted for as a purchase. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
The Company has been consolidating the operations it acquired by, among
other things, combining dispatching, integrating routes where feasible and
eliminating redundant facilities. In addition, the Company appointed General
Managers for each of its Manhattan, Northeast and Southeast Regions to better
coordinate the operations of the various companies and to manage the integration
process.
In January 1997, the Company sold DSI, a Founding Company, to David
Mathia, DSI's founder and president in exchange for 137,239 shares of the
Company's common stock. In connection with the sale, the Company recorded a gain
of approximately $830,000 before the effect of Federal and state income taxes
during the first quarter of 1997.
As a result of a change in strategic focus, the Company has
substantially curtailed its acquisition strategy. However, the Company may make
additional acquisitions as part of the implementation of its new business plan.
The Company's ability to make additional acquisitions is limited under the terms
of its Credit Agreement - See Risk Factors, Non-Compliance Under Bank Covenants.
Regulation
The Company's delivery operations are subject to various state and
local regulations and, in many instances, require permits and licenses from
state authorities. To a limited degree, state and local authorities have the
power to regulate the delivery of certain types of shipments and operations
within certain geographic areas. Interstate and intrastate motor carrier
operations are also subject to safety requirements prescribed respectively, by
the United States Department of Transportation (the "DOT") and by State
Departments of Transportation. Failure of the Company to comply with the
applicable regulations could result in substantial fines or possible revocation
of one or more of the Company's operating permits.
Safety
The Company seeks to ensure that all employee drivers meet safety
standards established by the Company and its insurance carriers as well as the
DOT. In addition, where required by the DOT or state or local authorities, the
Company requires independent owner/operators utilized by the Company to meet
required safety standards. The Company reviews prospective drivers to ensure
that they meet all applicable requirements.
Intellectual Property
An application to register the service mark "Consolidated Delivery &
Logistics, Inc. - The Total Package in Delivery" is currently pending in the
U.S. Patent and Trademark Office. No assurance can be given that any such
registration will be granted or that if granted, such registration will be
effective to prevent others from (i) using this or a similar service mark
concurrently or (ii) preventing the Company from using the service mark in
certain locations. The Company is not aware of any other entity using the name
"Consolidated Delivery & Logistics, Inc." or the service mark "The Total Package
in Delivery."
Employees and Independent Contractors
At December 31, 1996, the Company employed approximately 3,000 people,
1,500 of whom were employed as drivers, 600 as messengers, 400 in operations,
300 in clerical and administrative positions, 50 in sales and 150 in management.
The Company is not a party to any collective bargaining agreements although the
Company is subject to union organizing activity from time to time. See Item 3.
Legal Proceedings. The Company has not experienced any work stoppages and
believes that its relationship with its employees is good.
The Company also had contracts with approximately 900 independent
contractors as of December 31, 1996. From time to time, federal and state
authorities have sought to 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 is required to
pay for and administer added benefits to independent contractors, the Company's
operating costs would increase. See "Risk Factors - Independent Contractors and
Employee Owner/Operators."
Risk Factors
Prospective investors should consider carefully the following risk
factors as well as the other information contained in this Annual Report on Form
10-K.
Limited Combined Operating History
The Company was founded in June 1994 and conducted no operations prior
to consummating the Mergers. The businesses acquired by the Company have all
operated as separate independent entities prior to their acquisition by the
Company. There can be no assurance that the Company will be able to integrate
these businesses in an economic manner or that the recently assembled management
group will be able to oversee the combined entity and implement the Company's
operating or growth strategies. Failure to properly integrate these businesses
and to implement the Company's operating and growth strategy could have a
material adverse impact on the Company's operating results. See Item 1.
Business.
Non-Compliance Under Bank Covenants
The Company and certain of its subsidiaries are parties to a Credit
Agreement, dated as of May 31, 1996 (the "Credit Agreement"), with Summit Bank
and Mellon Bank, N.A. as co-agents for the banks party thereto (collectively,
the "Banks") pursuant to which the Banks have provided the Company with a
working capital facility (the "Facility"). At December 31, 1996, as a result of
losses during 1996, the Company was in violation of certain of the financial
covenants contained in the Credit Agreement, including leverage, interest and
fixed charge coverage ratios. In April 1997, the Company entered into a
Forbearance and Amendment Agreement with the Banks (the "Forbearance Agreement")
pursuant to which the Banks waived any default arising out of the Company's
failure to comply with the covenants referenced above and agreed not to exercise
any remedies under the Credit Agreement in respect thereof until April 1, 1998.
Pursuant to the terms of the Forbearance Agreement, amounts available for
borrowing under the Facility were reduced to approximately $8.8 million until
June 15, 1997 and, thereafter, to the lesser of $8.8 million or an amount
determined on a formula basis taking into account the Company's eligible
accounts receivable and any pre-tax losses incurred after March 31, 1997. The
interest rates borne by borrowings under the Facility were increased on variable
rate loans to prime plus 2.5% and may increase to prime plus 3.5% if the Company
does not comply with certain provisions in the Forbearance Agreement (fixed rate
loans expiring in June 1997 will bear interest at LIBOR plus 4.5%), the types of
borrowings available to the Company were reduced and the commitment fees payable
to the Banks were increased. In addition, under the Forbearance Agreement, the
Company must maintain a consolidated net worth of at least $6.8 million, may not
make any acquisitions and is required to establish certain separate cash
collection accounts. All amounts outstanding under the Facility will become due
and payable on April 1, 1998. The Company is currently seeking to replace the
Facility. However, there can be no assurance that the Company will be able to
obtain replacement financing or that such replacement financing will be
available on terms acceptable to the Company. In the event that the Company is
unable to comply with the terms of the Forbearance Agreement, the Banks will
have the right, under the Credit Agreement, to exercise certain remedies,
including accelerating the repayment of any loans outstanding thereunder. There
can be no assurance that the Banks will continue to forbear from exercising
their remedies in those circumstances. If the Banks demand repayment of the
loans outstanding under the Facility and no replacement financing is available,
the Company might be required to significantly curtail its operations. See Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Competition
The markets for the Company's same-day ground and air delivery and
logistics services are highly competitive. Price competition is often intense,
particularly in the market for basic delivery services where entry barriers are
low. Major participants in the next-day and second-day air delivery market, such
as UPS and FedEx, provide logistics services and have recently begun to provide
same-day air delivery services. The Company's primary competitor in the same-day
ground delivery business is Corporate Express. Furthermore, other companies with
significantly greater capital and other resources than the Company that do not
currently operate same-day ground and air delivery and logistics services
businesses may enter the industry in the future. See Item 1. Business -
Competition.
Independent Contractors and Employee Owner/Operators
From time to time, federal and state authorities have sought to 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 is required to pay for and administer added benefits to
independent contractors, the Company's operating costs would increase. See Item
1. Business - Employees and Independent Contractors.
In addition, certain of the Company's employees own and operate their
own vehicles in the course of their employment. In certain cases, the Company
pays those employees for all or a portion of the costs of operating those
vehicles. The Company believes that these arrangements do not represent
additional compensation to those employees. However, there can be no assurance
that federal and state taxing authorities will not seek to recharacterize some
or all of such payments as additional compensation. If such amounts were so
recharacterized, the Company would have to pay additional employment-related
taxes on such amounts.
Claims Exposure
The Company utilizes the services of approximately 1,500 drivers, and
from time to time such drivers are involved in accidents. The Company currently
carries liability insurance of at least $25 million for each such accident
(subject to applicable deductibles), and requires its independent contractors to
maintain liability insurance of at least the minimum amounts required by state
and federal law. However, there can be no assurance that claims against the
Company will not exceed the amount of coverage. In addition, the Company's
increased visibility and financial strength as a public company may create
additional claims exposure. If the Company were to experience a material
increase in the frequency or severity of accidents, liability claims or workers'
compensation claims, or unfavorable resolutions of claims, the Company's
operating results could be materially affected. In addition, significant
increases in insurance costs would reduce the Company's profitability.
Shares Eligible for Future Sale
The market price of the Common Stock could be adversely affected by the
sale of substantial amounts of Common Stock in the public market. As of March
14, 1997, 6,795,790 shares of Common Stock were issued and outstanding,
3,250,312 of which were registered for resale by the holders thereof, other than
certain affiliates of the Company. The remaining shares may only be sold except
in transactions registered under the Securities Act of 1933, as amended (the
"Securities Act"), or pursuant to an exemption from registration, including the
exemption contained in Rule 144 under the Securities Act.
In September 1995, the Company issued $2 million in aggregate principal
amount of its 8% Subordinated Convertible Debentures due August 2000 (the
"Debentures") to certain individuals. The Debentures are convertible into
180,995 shares of Common Stock. None of these shares will have been acquired in
transactions registered under the Securities Act, and, accordingly, such shares
may not be transferred except in transactions registered under the Securities
Act or pursuant to an exemption from registration. Pursuant to the terms of the
Debentures, the Company has agreed to register the shares of Common Stock into
which the Debentures are convertible.
As of March 14, 1997, the Company had outstanding under its stock
option plans options to purchase an aggregate of 654,876 shares of Common Stock,
234,883 of which were exercisable as of that date. The shares of Common Stock
issuable upon the exercise of such options have been registered under the
Securities Act and, as a result, will be eligible for resale in the public
market, unless held by affiliates of the Company.
Reliance on Key Personnel
The Company's operations are dependent on the continued efforts of its
executive officers and senior management. Furthermore, the Company will likely
be dependent on the senior management of companies that may be acquired in the
future. If any of these people elect not to continue in their present roles, or
if the Company is unable to attract and retain other skilled employees, the
Company's business could be adversely affected. See Item 10. Directors and
Executive Officers of the Registrant and Item 1. Business - Strategy.
Permits and Licensing
The Company's delivery operations are subject to various state, local
and federal regulations that in many instances require permits and licenses.
Failure by the Company to maintain required permits or licenses, or to comply
with applicable regulations, could result in substantial fines or possible
revocation of the Company's authority to conduct certain of its operations.
No Future Dividends
The Company does not anticipate paying any cash dividends on shares of
the Common Stock in the foreseeable future and intends to retain future
earnings, if any, for use in its business. In addition, the Company's ability to
pay cash dividends on the Common Stock is limited by the terms of its working
capital facility. See Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters - Dividends and Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources.
Effect of Certain Charter Provisions
The Board of Directors of the Company is empowered to issue preferred
stock without stockholder action. The existence of this "blank-check" preferred
stock could render more difficult or discourage an attempt to obtain control of
the Company by means of a tender offer, merger, proxy contest or otherwise and
may adversely affect the prevailing market price of the Common Stock. The
Company currently has no plans to issue shares of preferred stock. In addition,
Section 203 of the Delaware General Corporation Law prohibits certain persons
from engaging in business combinations with the Company.
Item 2. Properties -
As of December 31, 1996, the Company operated from 58 leased facilities
(excluding 9 authorized sales agent locations). These facilities are principally
used for operations, general and administrative functions and training. In
addition, several facilities also contain storage and warehouse space. The table
below summarizes the location of the Company's current facilities (excluding the
sales agent locations).
State Number of Facilities
- ----- --------------------
New York..................................................................... 20
Florida...................................................................... 7
New Jersey................................................................... 7
California................................................................... 3
Georgia...................................................................... 2
Illinois..................................................................... 2
Louisiana.................................................................... 2
Missouri..................................................................... 2
Ohio......................................................................... 2
Alabama...................................................................... 1
Connecticut.................................................................. 1
Indiana...................................................................... 1
Maine........................................................................ 1
Maryland..................................................................... 1
Massachusetts................................................................ 1
Michigan..................................................................... 1
North Carolina............................................................... 1
Tennessee.................................................................... 1
Virginia..................................................................... 1
Washington................................................................... 1
The Company's corporate headquarters are located in Paramus, New
Jersey. The Company believes that its properties are generally well maintained,
in good condition and adequate for its present needs. Furthermore, the Company
believes that suitable additional or replacement space will be available when
required. In February 1997, the Company entered into a lease agreement for
approximately 120,000 square feet in Clifton, New Jersey to consolidate three of
the above facilities into one in order to combine operations, reduce overall
rent expense, and better serve its logistics customers.
As of December 31, 1996, the Company owned or leased approximately 440
cars and 225 trucks of various types, which are primarily operated by drivers
employed by the Company. In addition, certain of the Company's employee drivers
own or lease their own vehicles. The Company also hires independent contractors
who typically provide their own vehicles and are required to carry at least the
minimum amount of insurance required by state law.
On January 31, 1997, a subsidiary of the Company contracted with a
vehicle leasing company to lease 175 delivery vehicles. The net present value of
the three-year agreement, which is being accounted for as a capitalized lease,
is estimated at $2.3 million. Receipt of the vehicles is expected to begin in
March 1997 and conclude by May 1997.
The Company's aggregate rental expense for the year ended December
31, 1996 was approximately $4.4 million. See Note 11 to the Company's
Consolidated Financial Statements.
Item 3. Legal Proceedings
Olympic Courier Systems, Inc. ("Olympic"), a subsidiary of the Company
and a successor to Orbit/Lightspeed Courier Systems, Inc. and related companies
("Orbit"), is the respondent in an administrative proceeding before the National
Labor Relations Board ("NLRB") arising out of a representation election held in
November 1994 in which Orbit's messengers voted against the Local 840,
International Brotherhood of Teamsters ("Union") becoming their collective
bargaining representative. The administrative proceeding is based upon
objections the Union filed in November, 1994 following the election, as well as
unfair labor practice charges first filed by the Union in September, 1994, with
respect to which General Counsel for the NLRB went to complaint on February 16,
1995 and May 31, 1995. The Union and General Counsel seek an order directing a
second election. On May 20, 1996, the Administrative Law Judge recommended that
the election held on November 18, 1994 be rerun and found that Orbit had
committed certain violations alleged by the Union. On July 30, 1996, Orbit filed
exceptions to the decision of the Administrative Law Judge. In the event that
Orbit is not successful in its appeal, the Company may be required to hold a
rerun election if it is determined that an appropriate bargaining unit exists.
In March 1996, a purported class action lawsuit was filed against
Olympic, Robert Wyatt, Rick Katz, Jeremy Weinstein and certain related entities
(collectively the "Orbit/Lightspeed parties") in the Supreme Court of the State
of New York, County of Kings, on behalf of former and current messengers of
Olympic, alleging that the Orbit Lightspeed parties unlawfully withheld certain
amounts otherwise payable to the messengers. A similar action had previously
been filed against the Orbit/Lightspeed parties in October 1995 but was later
voluntarily discontinued by the plaintiffs. A motion to deny certification of
the class is currently pending in State Court. On November 20, 1996, plaintiffs
filed an action in the United States District Court for the Eastern District of
New York alleging the same causes of action contained in the first and second
actions mentioned above which are pending in State Court. Olympic has moved to
dismiss the lawsuit in the United States District Court of the Eastern District
of New York. Both suits claim violations of contract minimum wage and overtime
statutes and civil provisions of the Federal RICO statute, an unspecified amount
of compensatory and punitive damages from the Orbit/Lightspeed parties, as well
as attorneys' fees and other expenses. The Company believes that the plaintiffs'
claims are without merit and is defending both actions vigorously. The Company
does not believe that this action will have a material adverse effect on the
consolidated financial position or results of operations of the Company.
In February 1996, Liberty Mutual Insurance Company ("Liberty Mutual")
filed an action against Securities Courier Corporation, a subsidiary of the
Company, Mr. Vincent Brana and certain other parties in the United States
District Court for the Southern District of New York alleging, among other
things, that Securities Courier had fraudulently obtained automobile liability
insurance from Liberty Mutual in the late 1980s and early 1990s at below market
rates. This suit, which claims common law fraud, fraudulent inducement, unjust
enrichment and violations of the civil provisions of the Federal RICO statute,
among other things, seeks an unspecified amount of compensatory and punitive
damages from the defendants, as well as attorneys' fees and other expenses.
Discovery is currently pending in the matter. Under the terms of its acquisition
of Securities Courier, the Company is entitled to indemnification from Mr. Brana
for any class of damages in excess of $100,000. Accordingly, the Company does
not believe that this action will have a material adverse effect on the
consolidated financial position or results of operations of the Company.
On March 19, 1997, a purported class action complaint, captioned
Gapszewicz v. Consolidated Delivery & Logistics, Inc., et al. (97 Civ. 1939),
was filed in the United States District Court for the Southern District of New
York against the Company, certain of the Company's present and former executive
officers, and the co-managing underwriters of the Company's initial public
offering (the "Offering"). The gravamen of the complaint is that the Company's
registration statement for the Offering contained misstatements and omissions of
material fact in violation of the federal securities laws and that the Company's
financial statements included in the registration statement were false and
misleading and did not fairly reflect the Company's true financial condition.
The complaint seeks the certification of a class consisting of purchasers of the
Company's Common Stock from November 21, 1995 through February 27, 1997,
rescission of the Offering, attorneys' fees and other damages. The Company
believes that the allegations contained in the complaint are without merit and
intends to defend the action vigorously.
On April 14, 1997, the Company received notice that a purported class
action complaint was filed against the Company, certain of the Company's
directors, and the co-managing underwriters of the Company's initial public
offering. The complaint was filed by the plaintiff Morris Rubin on behalf of
buyers of Consolidated Delivery & Logistics, Inc.'s stock during the period
November 20, 1995 through February 27, 1997. As of April 15, 1997 the Company
had not yet been served with the complaint and therefore cannot comment further
on the allegations contained therein.
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with its same-day ground and air
delivery operations. Management believes that none of these actions, including
the actions described above, will have a material adverse effect on the
consolidated financial position or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters -
The Company's Common Stock is included for quotation on the Nasdaq
National Market under the symbol "CDLI." The following table sets forth the high
and low sales prices for the Common Stock from November 20, 1995, the date of
the Offering, through March 14, 1997.
1995 Low High
Fourth Quarter (from November 20, 1995) $10.00 $13.50
1996 Low High
First Quarter $5.75 $12.25
Second Quarter $4.75 $9.25
Third Quarter $4.25 $6.63
Fourth Quarter $4.00 $5.88
On March 14, 1997, the last reported sale price of the Common Stock was
$2.38 per share. As of March 14, 1997, there were approximately 104 shareholders
of record of Common Stock and, based on security position listings, the Company
believes there were approximately 1,652 beneficial holders of the Common Stock.
On September 30, 1996 the Company issued 25,000 shares of restricted
stock in connection with the acquisition of certain assets subject to certain
liabilities of Hurry Wagon, Inc.
On November 1, 1996 the Company issued 90,909 shares of restricted
stock in connection with the acquisition of certain assets subject to certain
liabilities of W.I. Services, Inc.
Dividends
The Company has not declared or paid any dividends on its Common Stock.
The Company currently intends to retain earnings to support its growth strategy
and does not anticipate paying dividends in the foreseeable future. Payment of
future dividends, if any, will be at the discretion of the Company's Board of
Directors after taking into account various factors, including the Company's
financial condition, results of operations, current and anticipated cash needs
and plans for expansion. The Company's ability to pay cash dividends on the
Common Stock is also limited by the terms of its Credit Agreement. See Item 1.
Business - Risk Factors - No Future Dividends and Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources.
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Separate, wholly-owned subsidiaries of Consolidated Delivery & Logistics,
Inc. (the "Company") merged (the "Mergers") with the following 11 companies:
American Courier Express, Inc. ("American"); Bestway Distribution Services, Inc.
and Crown Courier Systems, Inc. ("Bestway/Crown"); Click Messenger Service, Inc.
and related companies ("Click"); Court Courier Systems, Inc. and a related
company ("Court"); Distribution Solutions International, Inc. ("DSI");
Clayton/National Courier Systems, Inc. and a related company ("National");
Olympic Courier Systems, Inc. and a related company ("Olympic");
Orbit/Lightspeed Courier Systems, Inc. and related companies
("Orbit/Lightspeed"); Securities Courier Corporation ("Securities Courier");
Silver Star Express, Inc. and related companies ("Silver Star"); and SureWay Air
Traffic Corporation and a related company ("SureWay") (collectively the
"Founding Companies") in exchange for shares of the Company's common stock and
cash.
The statement of operations data shown below for the years ended
December 31, 1992, 1993, 1994 and for the nine month period ended September 30,
1995 and the balance sheet data as of December 31, 1992, 1993 and 1994 are that
of the Combined Founding Companies prior to the Mergers (the "Combined Founding
Companies") on a historical basis. During the periods presented, the Combined
Founding Companies were not under common control or management and some were not
taxable entities. Therefore the data presented may not be comparable to or
indicative of post-Merger results to be achieved by the Company after the
Mergers.
The selected financial data with respect to Consolidated Delivery &
Logistics, Inc.'s consolidated statement of operations for the years ended
December 31, 1995 and 1996 and with respect to Consolidated Delivery &
Logistics, Inc.'s consolidated balance sheet as of December 31, 1995 and 1996
have been derived from Consolidated Delivery & Logistics, Inc.'s consolidated
financial statements that appear elsewhere herein. The financial data provided
below should be read in conjunction with these accompanying financial statements
and notes thereto as well as "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SELECTED FINANCIAL DATA (Continued)
(In thousands, except per share amounts)
Statement of Operations Data:
Combined Founding Companies (4)
---------------------------------------------------
Consolidated Consolidated
Delivery & Delivery &
Logistics, Logistics,
Inc. and Inc. and
Subsidiaries For the Pro Subsidiaries
For The Nine For The Year Forma Period For The
For The Years Ended December 31, Months Ended Ended Ended Year Ended
-----------------------------------
September 30, December 31, December 31, December 31,
1992 1993 1994 1995 1995 (3) 1995 (1) 1996
----------- ----------- ----------- -------------- ------------- ------------- ------------
Revenues $111,972 $121,752 $137,544 $111,406 $39,036 $150,442 $171,049
Gross profit 34,944 37,715 42,194 33,859 11,597 45,456 50,281
Operating income (loss) 645 1,300 1,856 4,082 296 4,377 (1,183)
Net income (loss) $362 $722 $721 $2,182 ($195) $1,987 ($683)
Net loss per share
($.10) ($.10)
============= ============
Pro forma net income
per share (2) $.29
=============
Balance Sheet Data:
Consolidated Delivery &
Combined Founding Companies Logistics, Inc. and
Subsidiaries
December 31, December 31,
---------------------------------------------------- --------------------------------
1992 1993 1994 1995 1996
------------------ --------------- ---------------- ---------------- ---------------
Working capital $1,290 $3,211 $3,548 $7,542 $5,472
Equipment and leasehold
improvements, net 3,255 3,651 3,102 3,925 4,316
Total assets 21,453 23,045 23,869 32,270 35,690
Long-term debt, net of
current maturities 3,226 3,680 1,164 3,027 3,415
Stockholders' equity 4,149 5,212 5,568 8,311 8,730
(1) Reflects the results of operations of the Combined Founding Companies for
the period from January 1 to September 30, 1995 and the results of
operations of Consolidated Delivery & Logistics, Inc. and Subsidiaries for
the year ended December 31, 1995.
(2) The computation of pro forma earnings per share for the year ended December
31, 1995 is based upon 6,810,564 shares of Common Stock outstanding, which
includes (i) 493,869 shares issued prior to the Mergers, (ii) 2,935,700
shares issued to the stockholders of the Founding Companies in connection
with the Mergers, (iii) 3,200,000 shares sold in the Offering, and (iv) the
dilution attributable to the debentures which are convertible into 180,995
shares of Common Stock. The conversion of the stock options outstanding at
December 31, 1995 are not included in the computation as the effect would
be antidilutive.
(3) The Company selected October 1, 1995 as the effective date of the Merger.
The assets and liabilities of the Founding Companies at September 30, 1995
were recorded by CD&L at their historical amounts. The statement of
operations includes the results of operations of the Founding Companies
from October 1, 1995 through December 31, 1995. The results of operations
for Consolidated Delivery & Logistics, Inc. prior to the Mergers are not
significant.
(4) Pro Forma income tax provisions have been provided for certain Founding
Companies.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The following discussion of the Company's results of operations and of
its liquidity and capital resources should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes thereto
appearing elsewhere in this Report. Prior to the Mergers, each of the Founding
Companies operated as a separate independent entity. The Company selected
October 1, 1995 as the effective date of the Mergers. For the year ended
December 31, 1995 the pro forma combined historical statement of operations
presented in Item 6 - Selected Financial Data includes the accounts of the
Founding Companies as if the Founding Companies had always been members of the
same operating group without giving effect to the Mergers or the Offering. The
Company conducted no business prior to the Mergers. As a result, combined
results may not be comparable to or indicative of future performance (see
below).
During the year ended December 31, 1996, the Company acquired certain
assets from and assumed certain liabilities of four Companies and agreed to
provide continuing service to the customers of another Company in transactions
accounted for as purchases. The total consideration to be paid for the
businesses is contingent on future activity and is estimated to be $3.3 million
in cash and 166,221 shares of the Company's common stock. The excess of purchase
price over net assets acquired ($3.1 million) is being amortized on a
straight-line basis over 25 years. Since the transactions were accounted for as
purchases, operating results for these acquisitions have been included in the
accompanying consolidated financial statements from the date of the
transactions.
Non-comparability - 1996 vs. 1995
Because the eleven Founding Companies operated as separate independent
entities prior to the Mergers, comparisons between the consolidated results of
the Company for the year ended December 31, 1996, and the pro forma combined
historical results of the eleven Founding Companies for the year ended December
31, 1995, are difficult to make for numerous reasons, including the following:
1. In 1996, the Founding Companies were all subsumed within the common
management of the Company. This resulted among other things in a) each
Founding Company being subjected to an administrative charge, b)
reallocation of costs, such as, for instance, common insurance being
acquired for the Company and its subsidiaries as a whole, and c) the
Founding Companies being relieved of the necessity of performing various
administrative functions for themselves.
2. In 1996, the Company as a new entity began the process of merging and
rationalizing operations of the previously unrelated Founding Companies.
For example, a) Olympic, Orbit/Lightspeed and the Manhattan Region of Click
were combined into one Manhattan Region of the Company, b) the balance of
Click, Court and American were combined into the Northeast Region of the
Company, c) Silver Star and Crown-Bestway were combined into the Southeast
Region of the Company, and d) work was rationalized and reallocated among
the former Founding Companies.
3. The Company incurred approximately $4.5 million in expenses during 1996
related to corporate overhead and the costs of operating as a public
company, compared to approximately $300,000 in 1995.
4. Most of the Founding Companies were operated as Subchapter S corporations
prior to the effective date of the Mergers.
The selected financial data presented in this report includes the
actual financial results of the Company for the years ended December 31, 1995
and 1996. The pro forma combined historical results reflect the operations of
the Combined Founding Companies for the period from January 1 to September 30,
1995 and the results of operations of Consolidated Delivery & Logistics, Inc.
and Subsidiaries for the year ended December 31, 1995. For all the reasons set
forth above and others, combined results are not indicative of results that
would have been achieved if the Founding Companies had actually been combined
during those periods, and may not be comparable to or indicative of future
performance. Nonetheless, the following section discusses consolidated 1996
results compared to pro forma combined historical 1995 results to indicate
general trends affecting operations. For the above stated reasons a comparative
presentation of 1994 compared to 1995 has not been presented. The following
section should be read with the foregoing caveats as to non-comparability in
mind.
Disclosure Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information contained in this
Form 10-K includes information that is forward looking, such as the Company's
expectations for future performance, its growth and acquisition strategies, its
anticipated liquidity and capital needs and its future prospects. The matters
referred to in such forward looking statements could be affected by the risks
and uncertainties related to the Company's business. These risks and
uncertainties include, but are not limited to, the effect of economic and market
conditions, the Company's lack of prior operating history, the Company's
non-compliance with the financial covenants contained in the Credit Agreement
and the results thereof, the ability of the Company to successfully integrate
the business of acquired companies, the impact of competition, as well as
certain other risks described elsewhere herein. Subsequent written and oral
forward looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the cautionary statements
contained herein and elsewhere in this Form 10-K.
Results of Operations
Revenues
Consolidated Delivery's revenues increased 13.7 percent to $171.0
million in 1996 from $150.4 million in 1995. In spite of the loss of significant
revenue in the Company's contract logistics business, the Company achieved
revenue growth in all other areas of it's business. Revenue in the ground
delivery business, including rush/demand, scheduled and routed and distribution
services increased 11.4 percent from $91.4 million in 1995 to $101.8 million in
1996. Air courier produced a 22.1 percent increase to $52.0 million in 1996 from
$42.6 million in 1995. Revenue in the Company's logistics business grew by 4.9
percent from $16.4 million in 1995 to $17.2 million in 1996. This growth was
achieved in a variety of logistics programs including fulfillment and project
services. The Company's contract logistics revenue declined $3.5 million due to
the cancellation and/or non-renewal of several long-term contractual
relationships.
The Company expects to continue revenue growth in all areas of its
business. Ground delivery revenue has benefited from the acquisition of three
companies in the Northeast during 1996 and the Company expects continued growth
in product and sample distribution, particularly in the pharmaceutical industry.
Continued demand in home delivery as well as the continuing trend to outsource
warehouse and delivery functions should also contribute. The Company's air
courier revenues will also continue to grow. In 1996, internal growth was
augmented by the acquisition of two companies which solidified and expanded the
New York to Los Angeles air route.
Although the Company demonstrated modest growth in overall logistics
services, the product fulfillment and project services revenues contributed most
of the growth in this area. The significant decline in contract logistics
revenues during 1996 contributed to the Company's decision to sell its contract
logistics subsidiary early in 1997 (see Note 16 to the Company's Consolidated
Financial Statements).
Cost of Revenues
Cost of revenues include, among other things, payment to employee
drivers, owner operators and independent contractors as well as agents, air
freight carriers, commercial airlines, and pick-up and delivery fees. The
increase in these costs during 1996 caused the Company's gross profit percentage
to decline from 30.2 percent for 1995 to 29.4 percent for 1996. Among other
factors contributing to increased costs of revenues are a change in the
Company's general business mix to lower margin business, mobilization and
start-up costs for several large distribution contracts and the effect of fuel
surcharges from several air carriers. While the gross profit percentage slipped
somewhat, gross profit increased by $4.8 million or 10.5 percent from $45.5
million in 1995 to $50.3 million in 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased from 27.3
percent of revenue in 1995 to 30.1 percent of revenue in 1996. Selling, general
and administrative expenses include salaries, sales commissions and travel to
support the Company's marketing and sales effort. Also included are the expenses
of maintaining the Company's information systems, human resources, financial,
legal, procurement and other administrative functions. The increase includes
$4.2 million in expenses necessary in the establishment and maintenance of the
Company's corporate and administrative infrastructure as a public company.
During the fourth quarter of 1996, the Company recognized the impact of several
non-recurring charges totaling approximately $1.4 million which included salary
and contract settlements, abandonment of operating leases and other costs
associated with management headcount reduction and other consolidation issues.
The remainder of the increase of approximately $4.8 million is attributable to
administrative and other costs associated with the increased revenue base of the
Company.
Operating Income
For the reasons described above, primarily the increase in selling,
general and administrative expenses including the impact of non-recurring
charges, operating income decreased from operating income of $4.4 million in
1995 to an operating loss of $1.2 million in 1996.
Interest expense decreased by 8.7 percent from $882,000 for the year
ended December 31, 1995 to $805,000 for the year ended December 31, 1996. This
decrease results from refinancing of the Founding Companies existing debt
carrying higher interest rates than the Company's current Credit Agreement (See
Liquidity and Capital Resources).
As a result of the foregoing the Company recorded a net loss of $683,000 in
1996, compared to net income of $2.0 million in 1995.
As a result of the losses in 1996, the Company has instituted certain
actions including the sale of DSI, elimination of redundant overhead and the
design of more effective financial and operating management information systems.
The Company is presently considering the implementation of a management
compensation system based on business unit results for 1997.
Liquidity and Capital Resources
Working capital at December 31, 1996 of $5.5 million represents a
decrease of $2 million when compared to $7.5 million as of December 31, 1995.
Cash and cash equivalents decreased by $4.9 million from $6.6 million as of
December 31, 1995 to $1.7 million as of December 31, 1996. The decrease in cash
is primarily due to the use of cash by operations of approximately $3.6 million,
the purchases of businesses using approximately $2.3 million, the addition of
equipment and leasehold improvements of approximately $1.5 million offset
somewhat by cash provided from financing activities (net borrowing) of
approximately $2.4 million.
Capital expenditures amounted to $730,000 and $1.5 million for the
years ended December 31, 1995 and 1996, respectively. These expenditures were
used primarily to upgrade equipment and maintain and expand Company facilities
in the ordinary course of business and its consolidation efforts.
The Company was provided $5.6 million and $2.4 million from financing
activities for the years ended December 31, 1995 and 1996 respectively. On
November 27, 1995 the Company completed the Offering which involved the public
sale of 3,200,000 shares of Common Stock. The net proceeds were approximately
$3.5 million after payment of the cash portion of the purchase price for the
Founding Companies. During 1996 the Company borrowed approximately $4.5 million
to finance the addition of equipment mentioned above, repay long-term debt and
for general working capital purposes.
At December 31, 1996, as a result of losses during 1996, the Company was in
violation of certain of the financial covenants contained in the Credit
Agreement, including leverage, interest and fixed charge coverage ratios. In
April 1997, the Company entered into the Forbearance Agreement pursuant to which
the Banks waived any default arising out of the Company's failure to comply with
the covenants referenced above and agreed not to exercise any remedies under the
Credit Agreement in respect thereof until April 1, 1998. Pursuant to the terms
of the Forbearance Agreement, amounts available for borrowing under the Facility
were reduced to approximately $8.8 million until June 15, 1997 and, thereafter,
to the lesser of $8.8 million or an amount determined on a formula basis taking
into account the Company's eligible accounts receivable and any pre-tax losses
incurred after March 31, 1997. The interest rates borne by borrowings under the
Facility were increased on variable rate loans to prime plus 2.5% and may
increase to prime plus 3.5% if the Company does not comply with certain
provisions in the Forbearance Agreement (fixed rate loans expiring in June 1997
will bear interest at LIBOR plus 4.5%), the types of borrowings available to the
Company were reduced and the commitment fees payable to the Banks were
increased. In addition, under the Forbearance Agreement, the Company must
maintain a consolidated net worth of at least $6.8 million, may not make any
acquisitions and is required to establish certain separate cash collection
accounts. All amounts outstanding under the Facility will become due and payable
on April 1, 1998. The Company is currently seeking to replace the Facility.
However, there can be no assurance that the Company will be able to obtain
replacement financing or that such replacement financing will be available on
terms acceptable to the Company. In the event that the Company is unable to
comply with the terms of the Forbearance Agreement, the Banks will have the
right, under the Credit Agreement, to exercise certain remedies, including
accelerating the repayment of any loans outstanding thereunder. There can be no
assurance that the Banks will continue to forbear from exercising their remedies
in those circumstances. If the Banks demand repayment of the loans outstanding
under the Facility and no replacement financing is available, the Company might
be required to significantly curtail its operations. See Item 1. Business.
The consolidated financial statements included herein have been prepared
assuming that the Company will continue as a going concern. The Company suffered
a loss from operations and is in violation of certain loan covenants that give
the lenders the right to accelerate the due date of their loans. As discussed
more fully in Note 8 to the consolidated financial statements, the lenders and
the Company have executed a Forbearance and Amendment Agreement with respect to
such default, during which time the Company plans to seek replacement financing.
No assurance can be given that replacement financing can be obtained or, if
obtained, what the terms and conditions thereof will be. Management believes
based on results to date and projected results for the remainder of 1997 that
cash flow from operations will be sufficient to meet its cash requirements in
the next twelve months. See Item 1. Business.
Recently Issued Accounting Pronouncement
The Financial Accounting Standards Board has issued a new standard,
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 establishes standards for computing and presenting earnings per
share. SFAS 128 simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15, "Earnings Per Share," and makes them
comparable to international earnings per share standards. It replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share. It also requires dual presentation of basic and diluted earnings per
share on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic earnings per share computation to the numerator and denominator of the
diluted earnings per share computation. The Company is required to adopt this
standard as of December 15, 1997 and early adoption is not permitted. SFAS 128
requires restatement of all prior period earnings per share calculations
presented. The Company has not determined the effect adoption of SFAS 128 will
have on earnings per share.
Inflation
Inflation has not had a material impact on the Company's results of
operations for the last three years.
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants........................................................................23
Consolidated Balance Sheets as of December 31, 1995 and 1996....................................................24
Consolidated Statements of Operations For The Period From Inception (June 30, 1994) Through December 31, 1994 and
For The Years Ended December 31, 1995 and 1996..............................................................25
Consolidated Statements of Changes in Stockholders' Equity For The Period From
Inception (June 30, 1994) Through December 31, 1994 and For The Years Ended
December 31, 1995 and 1996..................................................................................26
Consolidated Statements of Cash Flows For The Period From Inception (June 30, 1994) Through December 31, 1994 and
For The Years Ended December 31, 1995 and 1996..............................................................27
Notes to Consolidated Financial Statements......................................................................28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Consolidated Delivery & Logistics, Inc.:
We have audited the accompanying consolidated balance sheets of Consolidated
Delivery & Logistics, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1995 and 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for the period from inception
(June 30, 1994) through December 31, 1994 and for the years ended December 31,
1995 and 1996. These consolidated financial statements and the schedule referred
to below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Consolidated
Delivery & Logistics, Inc. and subsidiaries as of December 31, 1995 and 1996 and
the results of their operations and their cash flows for the period from
inception (June 30, 1994) through December 31, 1994 and for the years ended
December 31, 1995 and 1996, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statement schedules is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
April 15, 1997
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
ASSETS
December 31,
--------------------------------------
1995 1996
------------------ ------------------
CURRENT ASSETS:
Cash and cash equivalents, including $50,000 of restricted cash
(Note 2) $6,589 $1,725
Accounts receivable, less allowance for doubtful accounts of $1,285
and $1,705 in 1995 and 1996, respectively (Note 8) 18,555 22,858
Deferred income taxes (Notes 2 and 10) 660 1,046
Prepaid expenses and other current assets (Note 4) 1,082 1,430
------------------ ------------------
Total current assets 26,886 27,059
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net (Notes 2 and 5)
3,925 4,316
INTANGIBLE ASSETS, net (Notes 2, 3 and 6) 652 3,844
SECURITY DEPOSITS AND OTHER ASSETS 807 471
------------------ ------------------
Total assets $32,270 $35,690
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Note 8) $2,803 $7,200
Current maturities of long-term debt (Note 8) 2,907 1,152
Accounts payable 5,986 6,760
Accrued expenses and other current liabilities (Note 7 and 15) 5,637 5,720
Income taxes payable (Notes 2 and 10) 957 218
Deferred revenue (Note 2) 1,054 537
------------------ -------------------
Total current liabilities 19,344 21,587
------------------ -------------------
LONG-TERM DEBT, net of current maturities (Note 8) 3,027 3,415
------------------ -------------------
DEFERRED INCOME TAXES PAYABLE (Notes 2 and 10) 1,543 1,027
------------------ -------------------
OTHER LONG-TERM LIABILITIES (Note 15) 45 931
------------------ -------------------
COMMITMENTS AND CONTINGENCIES (Notes 11 and 13)
STOCKHOLDERS' EQUITY (Notes 12 and 13):
Preferred stock, $.001 par value; 2,000,000 shares authorized; no
shares issued and outstanding 0 0
Common stock, $.001 par value; 30,000,000 shares authorized in
1995 and 1996; 6,629,569 and 6,795,790 shares issued and
outstanding in 1995 and 1996, respectively 7 7
Additional paid-in capital 8,499 9,601
Accumulated deficit (195) (878)
------------------ -------------------
Total stockholders' equity 8,311 8,730
------------------ -------------------
Total liabilities and stockholders' equity $32,270 $35,690
================== ===================
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)
For The Period
From Inception
(June 30, 1994) For The Year For The Year
Through Ended Ended
December 31, December 31, December 31,
1994 1995 1996
------------------- --------------------- ----------------------
Revenues (Note 2) $0 $39,036 $171,049
Cost of revenues 0 27,439 120,768
------------------- --------------------- ----------------------
Gross profit 0 11,597 50,281
Selling, general and administrative expenses 0 11,301 51,464
------------------- --------------------- ----------------------
Operating income (loss) 0 296 (1,183)
Other (income) expense:
Interest income 0 (17) (89)
Interest expense 0 274 805
Other income, net 0 (348) (372)
------------------- --------------------- ----------------------
0 (91) 344
------------------- --------------------- ----------------------
Income (loss) before provision for (benefit from)
income taxes 0 387 (1,527)
Provision for (benefit from) income taxes
(Notes 2 and 10) 0 582 (844)
------------------- --------------------- ----------------------
Net loss $0 ($195) ($683)
=================== ===================== ======================
Net loss per share (Note 2) ($.10) ($.10)
===================== ======================
Weighted average shares outstanding (Note 2) 2,059,894 6,677,546
===================== ======================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 12)
FOR THE PERIOD FROM INCEPTION (JUNE 30, 1994) THROUGH DECEMBER 31, 1994 AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(in thousands except share data)
Additional Total
Common Stock Paid-In Accumulated Stockholders'
-------------------------------
Shares Amount Capital Deficit Equity
---------------- --------------- --------------- ---------------- ---------------
Issuance of Common Stock 2,100,000 $ 2 $ 0 $ 0 $ 2
---------------- --------------- --------------- ---------------- ---------------
BALANCE AT
DECEMBER 31, 1994 2,100,000 2 0 0 2
Repurchase of shares pursuant
to a termination agreement (1,400,000) (1) 0 0 (1)
Reduction in ownership of
shares pursuant to a
management agreement (305,577) 0 0 0 0
Issuance of common stock:
Public offering, net of offering
costs 3,200,000 3 33,148 0 33,151
Acquisition of Founding
Companies 2,935,700 3 (3) 0 0
Distributions to Founding
Companies' Stockholders 0 0 (29,604) 0 (29,604)
Shares issued in connection
with termination agreement 99,446 0 0 0 0
Equity of Founding Companies 0 0 5,972 0 5,972
Distributions to stockholders 0 0 (949) 0 (949)
Charge to capital in an amount
equal to the current income
tax benefit of S Corporations 0 0 (65) 0 (65)
Net loss 0 0 0 (195) (195)
---------------- --------------- --------------- ---------------- ---------------
BALANCE AT
DECEMBER 31, 1995 6,629,569 $7 $8,499 ($195) $8,311
Shares issued in connection with
acquisitions of businesses 166,221 0 1,102 0 1,102
Net loss 0 0 0 (683) (683)
---------------- --------------- --------------- ---------------- ---------------
BALANCE AT
DECEMBER 31, 1996 6,795,790 $7 $9,601 ($878) $8,730
================ =============== =============== ================ ===============
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Period From
Inception For The Years Ended
(June 30, 1994) December 31,
---------------------------------
Through
CASH FLOWS FROM OPERATING ACTIVITIES: December 31, 1994 1995 1996
--------------------- ---------------- ---------------
Net loss $0 ($195) ($683)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities -
Loss on disposal of equipment and leasehold improvements 0 63 29
Depreciation and amortization 0 452 1,626
Provision for doubtful accounts 0 204 1,422
Capital contribution equal to current income taxes of S Corporations 0 (65) 0
Deferred income tax expense. 0 77 (752)
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable 0 (312) (4,907)
Prepaid expenses and other current assets 0 3,039 (300)
Other assets 0 140 499
Increase (decrease) in -
Accounts payable, accrued liabilities and income taxes payable 0 (797) (1,243)
Other long-term liabilities 0 (33) 736
--------------------- ---------------- ---------------
Net cash provided by (used in) operating activities 0 2,573 (3,573)
--------------------- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and leasehold improvements 0 (730) (1,462)
Proceeds from sales of equipment and leasehold improvements 0 0 66
Purchases of businesses, net of cash acquired 0 (651) (2,278)
Other, net 0 (26) 0
--------------------- ---------------- ---------------
Net cash used in investing activities 0 (1,407) (3,674)
--------------------- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net 0 550 4,397
Proceeds from 8% Subordinated Convertible Debentures 0 2,000 0
Proceeds from long-term debt 0 513 113
Repayments of long-term debt 0 (1,411) (3,077)
Issuance of Common Stock, net of offering costs 2 33,151 0
Cash acquired through acquisition of Founding Companies 0 1,172 0
Distributions to stockholders 0 (949) 0
Distributions to Founding Companies' Stockholders 0 (29,604) 0
Deferred financing costs 0 0 (152)
Issuances of Common Stock in connection with purchases of businesses 0 0 1,102
Repurchase of Common Stock 0 (1) 0
--------------------- ---------------- ---------------
Net cash provided by financing activities 2 5,421 2,383
--------------------- ---------------- ---------------
Net increase (decrease) in cash and cash equivalents 2 6,587 (4,864)
CASH AND CASH EQUIVALENTS, beginning of period 0 2 6,589
===================== ================ ===============
CASH AND CASH EQUIVALENTS, end of period $2 $6,589 $1,725
===================== ================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $0 $177 $831
Cash paid for income taxes 0 383 878
===================== ================ ===============
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Capital lease obligations incurred $0 $238 $202
===================== ================ ===============
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS:
Consolidated Delivery & Logistics, Inc. ("CD&L") was founded in June 1994. In
November 1995, simultaneously with the closing of the Company's initial public
offering (the "Offering") separate wholly-owned subsidiaries of the Company
merged with each of the eleven Founding Companies (the "Mergers"). Consideration
for the acquisition of these businesses consisted of a combination of cash and
common stock of CD&L, par value $0.001 per share. The assets and liabilities of
the acquired companies at September 30, 1995, were recorded by the Company at
their historical amounts. These eleven businesses are referred to herein as the
"Founding Companies". CD&L and its subsidiaries are collectively referred to
herein as the "Company."
The Company provides an extensive network of same-day ground and air delivery
and logistics services to a wide range of commercial, industrial and retail
customers. The Company's ground delivery operations currently are concentrated
on the East Coast, with a strategic presence in the Midwest and on the West
Coast. The Company's logistics services are provided on a national basis and its
air delivery services are provided throughout the United States and to major
cities around the world.
The consolidated financial statements included herein have been prepared
assuming that the Company will continue as a going concern. The Company suffered
a loss from operations and is in violation of certain loan covenants that give
the lenders the right to accelerate the due date of their loans. As discussed
more fully in Note 8, the lenders and the Company have executed a Forbearance
and Amendment Agreement (the "Forbearance Agreement") with respect to such
default, during which time the Company plans to seek replacement financing. No
assurance can be given that replacement financing can be obtained or, if
obtained, what the terms and conditions thereof will be. Management believes
based on results to date and projected results for the remainder of 1997 that
cash flow from operations will be sufficient to meet its cash requirements in
the next twelve months. See Item 1.
Business.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation -
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated.
Use of Estimates in Preparation of the Financial Statements -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents are carried at
cost, which approximates market value. Included in cash and cash equivalents is
cash restricted for a national marketing and advertising program for the
Company's sales agency agreements (see Note 11).
Equipment and Leasehold Improvements -
Equipment and leasehold improvements are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements and assets subject to capital leases are
amortized over the shorter of the terms of the leases or lives of the assets.
Deferred Financing Costs -
The costs incurred for obtaining financing, including all legal and accounting
fees are included in other assets in the accompanying consolidated balance
sheets and are amortized over the life of the related debt (2 years).
Intangible Assets -
Intangible assets consist of goodwill, customer lists, and noncompete
agreements. Goodwill represents the excess of the purchase price over the fair
value of assets of businesses acquired and is amortized on a straight-line basis
over 25 years. Customer lists and noncompete agreements are amortized over the
estimated period to be benefited, generally from 3 to 5 years.
Revenue Recognition -
Revenue is recognized when the shipment is completed, or for the logistics
business, when services are rendered to customers and expenses are recognized as
incurred. Certain customers pay in advance, giving rise to deferred revenue.
Income Taxes -
The Company has implemented Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes." This statement provides for a liability approach
to accounting for income taxes. Deferred income taxes are provided for
differences in the recognition of assets and liabilities for tax and financial
reporting purposes. Temporary differences result primarily from accelerated
depreciation and amortization for tax purposes, various accruals and reserves
being deductible for tax purposes in future periods and certain Founding
Companies reporting on the cash basis for income tax purposes prior to the
Mergers.
Long-Lived Assets -
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of,"
requires, among other things, that an entity review its long-lived assets and
certain related intangibles for impairment whenever changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable. As a
result of its review, the Company does not believe that any such changes have
occurred that would result in an impairment in the recoverability of its
long-lived assets.
Stock Based Compensation -
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") requires that an entity account for employee stock
compensation under a fair value based method. However, SFAS 123 also allows an
entity to continue to measure compensation cost for employee stock-based
compensation plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
("Opinion 25"). Entities electing to remain with accounting under Opinion 25 are
required to make pro forma disclosures of net income and earnings per share as
if the fair value based method of accounting under SFAS 123 had been applied.
The Company has elected to continue to account for employee stock-based
compensation under Opinion 25 and provide the required pro forma disclosures
(see Note 13).
Net Loss Per Share -
The net loss per common share is computed by dividing the net loss by the
weighted average number of common shares and common share equivalents
outstanding during the period. The computation of net loss per share for the
year ended December 31, 1995 is based upon 2,059,894 weighted average shares
outstanding which includes (i) the weighted average portion of 2,100,000 shares
issued in 1994 for the formation of CD&L, (ii) the weighted average portion of
1,705,577 shares redeemed and canceled and 99,446 shares subsequently reissued
related to a termination agreement (see Note 12) and (iii) the weighted average
portion of 6,135,700 shares issued in connection with the Offering and Mergers.
The computation of net loss per share for the year ended December 31, 1996 is
based upon 6,677,546 weighted average shares outstanding which includes (i)
6,629,569 shares issued prior to 1996 and (ii) the weighted average portion of
166,221 shares issued in connection with the acquisitions of businesses. The
conversion of the debentures (see Note 8) and stock options (see Note 13) is not
included in the 1995 and 1996 computations as the effect would be antidilutive.
The Financial Accounting Standards Board has issued a new standard,
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 establishes standards for computing and presenting earnings per
share. SFAS 128 simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15, "Earnings Per Share," and makes them
comparable to international earnings per share standards. It replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share. It also requires dual presentation of basic and diluted earnings per
share on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic earnings per share computation to the numerator and denominator of the
diluted earnings per share computation. The Company is required to adopt this
standard as of December 15, 1997 and early adoption is not permitted. SFAS 128
requires restatement of all prior period earnings per share calculations
presented. The Company has not determined the effect adoption of SFAS 128 will
have on earnings per share.
Reclassifications -
Certain reclassifications have been made to the prior year's consolidated
financial statements in order to conform to the 1996 presentation.
(3) BUSINESS COMBINATIONS:
In November 1995, the Company purchased certain assets of two Companies. The
total consideration paid in these transactions aggregated approximately
$900,000. The assets acquired include accounts receivable, customer lists,
machinery and equipment and various other assets. The transactions were
accounted for as purchases and resulted in excess of the purchase price over net
assets acquired (goodwill) of $501,000. One of the Companies acquired was 50%
owned by stockholders of the Company.
During 1996, the Company acquired certain assets from and assumed certain
liabilities of four Companies and agreed to provide continuing service to the
customers of another Company in transactions accounted for as purchases. Two of
the businesses acquired provide air courier services and three provide ground
delivery. The total consideration paid in these transactions is contingent upon
future activity and is estimated to aggregate $3.3 million, which consists of
$2.2 million in cash, 75,312 shares of Common Stock at $8 per share and 90,909
shares of Common Stock at $5.50 per share. The Company also assumed
approximately $185,000 of debt due to the former owners of one of the acquired
businesses and their relatives. Of this amount $3.1 million has been assigned to
the excess of purchase price over net assets of businesses acquired (goodwill)
and other intangible assets. Final determinations of the individual acquisition
costs will be made by April 2000.
The results of the acquired businesses have been reflected in the accompanying
consolidated statements of operations since their respective acquisition dates.
The results of operations of the acquired businesses prior to their acquisitions
are not material to the Company's consolidated statements of operations.
(4) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following
(in thousands) -
December 31,
------------------------------
1995 1996
-------------- --------------
Prepaid insurance $198 $282
Prepaid office and other supplies 387 191
Employee advances and other receivables 311 326
Shipping charges 0 96
Other 186 535
-------------- --------------
$1,082 $1,430
============== ==============
(5) EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements consist of the following (in thousands) -
December 31,
--------------------------------
Useful Lives 1995 1996
------------
--------------- --------------
Transportation and warehouse equipment 3-7 years $3,823 $5,151
Office equipment 3-7 years 4,943 5,433
Other equipment 5-7 years 907 729
Leasehold improvements Lease period 1,103 1,387
--------------- --------------
10,776 12,700
Less - accumulated depreciation and amortization (6,851) (8,384)
--------------- --------------
$3,925 $4,316
=============== ==============
Leased equipment under capitalized leases (included above) consists of the
following (in thousands) -
December 31,
--------------------------------
1995 1996
---------------- --------------
Equipment $1,103 $1,424
Less - accumulated amortization (459) (667)
---------------- --------------
$644 $757
================ ==============
(6) INTANGIBLE ASSETS:
Intangible assets (see Note 3) consist of the following (in thousands) -
December 31,
-------------------------------
1995 1996
--------------- --------------
Goodwill $564 $3,675
Noncompete agreements 177 277
Customer lists 141 167
Other 15 165
--------------- --------------
897 4,284
Less - accumulated amortization (245) (440)
--------------- --------------
$652 $3,844
=============== ==============
(7) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following
(in thousands) -
December 31,
-------------------------------
1995 1996
--------------- --------------
Payroll and related expenses $2,345 $2,790
Workers compensation and medical 1,125 816
Amounts due to independent contractors 367 605
Professional fees 977 413
Rent 162 408
Other 661 688
--------------- --------------
$5,637 $5,720
=============== ==============
(8) SHORT-TERM BORROWINGS AND LONG-TERM DEBT:
Short-term borrowings -
At December 31, 1995 and 1996, the Company had available lines of credit
aggregating $3.1 million and $10 million, respectively. The Company's
outstanding borrowings on such lines of credit are payable to various banks and
totaled, respectively $2.8 million at December 31, 1995, and $7.2 million at
December 31, 1996.
In May 1996, the Company entered into a two-year agreement with Summit Bank and
Mellon Bank N.A. to establish a revolving credit facility (the "Credit
Agreement"). Credit availability is based on certain criteria, up to an initial
maximum amount of $15 million, which may under certain conditions be increased
to $25 million, and is secured by substantially all of the assets, including
certain cash balances, accounts receivable, equipment and leasehold improvements
and intangible assets of the Company and its subsidiaries. The Credit Agreement
provides for fixed rate and variable rate loans. Interest rates on fixed rate
borrowings are based on the London Inter-bank Offered Rate (7.53% at December 31
1996) and variable rate borrowings are based on margins over the banks' lending
rates (8.75% at December 31, 1996). Borrowings under the line of credit averaged
approximately $6.6 million with an average interest rate of 8.23% for the year
ended December 31, 1996. Maximum borrowings were $7.3 million in the same period
At December 31, 1996, as a result of losses during 1996, the Company was in
violation of certain of the financial covenants contained in the Credit
Agreement, including leverage, interest and fixed charge coverage ratios. In
April 1997, the Company entered into the Forbearance Agreement pursuant to which
the Banks waived any default arising out of the Company's failure to comply with
the covenants referenced above and agreed not to exercise any remedies under the
Credit Agreement in respect thereof until April 1, 1998. Pursuant to the terms
of the Forbearance Agreement, amounts available for borrowing under the Credit
Agreement were reduced to approximately $8.8 million until June 15, 1997 and,
thereafter, to the lesser of $8.8 million or an amount determined on a formula
basis taking into account the Company's eligible accounts receivable and any
pre-tax losses incurred after March 31, 1997. The interest rates borne by
borrowings under the Credit Agreement were increased on variable rate loans to
prime plus 2.5% and may increase to prime plus 3.5% if the Company does not
comply with certain provisions in the Forbearance Agreement (fixed rate loans
expiring in June 1997 will bear interest at LIBOR plus 4.5%), the types of
borrowings available to the Company were reduced and the commitment fees payable
to the Banks were increased. In addition, under the Forbearance Agreement, the
Company must maintain a consolidated net worth of at least $6.8 million, may not
make any acquisitions and is required to establish certain separate cash
collection accounts. All amounts outstanding under the Credit Agreement will
become due and payable on April 1, 1998. The Company is currently seeking to
replace the Credit Agreement. However, there can be no assurance that the
Company will be able to obtain replacement financing or that such replacement
financing will be available on terms acceptable to the Company. In the event
that the Company is unable to comply with the terms of the Forbearance
Agreement, the Banks will have the right, under the Credit Agreement, to
exercise certain remedies, including accelerating the repayment of any loans
outstanding thereunder. There can be no assurance that the Banks will continue
to forbear from exercising their remedies in those circumstances.
In 1995, the Company had several available lines of credit which bore interest
at rates ranging from prime plus 0.75% to prime plus 1.5%. These lines of credit
were collateralized by certain Founding Companies accounts receivable and
guaranteed by certain stockholders. Borrowings under the lines of credit
averaged approximately $2.4 million with an average interest rate of 9.75% for
the year ended December 31, 1995. Maximum borrowings were approximately $2.9
million for the year ended December 31, 1995. In 1996, average borrowings under
the previous lines of credit were approximately $2.5 million with an average
interest rate of 8.2%. Maximum borrowings for 1996 were approximately $2.9
million. These lines of credit were repaid during 1996.
Long-Term Debt -
Long-term debt consists of the following (in thousands) -
December 31,
-------------------------
1995 1996
----------- ------------
8% Subordinated Convertible Debentures (a) $2,000 $2,000
Seller-financed debt on acquisitions, includes annual and quarterly installments
through April 1998 and monthly payments based on collected revenues
through September 2000 with interest imputed at the rate of 9%.
490 1,348
Capital lease obligations due through August 2000 with interest at rates ranging
from 7.5% to 21.65% and secured by the related property 428 636
Various equipment and vehicle notes payable to banks and finance companies due
through January 2000 with interest ranging from 8.0% to 11.75% and secured by
various assets of certain Founding Companies 321 341
Debt due to former owners, their relatives, and employees of a business acquired
by the Company in 1996, with quarterly principal and interest payments through
September 2001 together with interest at a rate of 8%. 0 185
Term loans payable to various banks due through September 1998. Interest ranging
from 5% to 12.5%, interest and principal payable monthly and secured by
various assets of the Founding Companies . The term loans were repaid during
1996. 1,593 0
Notes payable to various stockholders of the Founding Companies due on
various dates through April 1998. Interest ranging from 6% to prime
plus .5% with interest and principal payable in varying amounts
ranging from due on demand to April 1998. The notes payable were
repaid during 1996.
515 0
Notes payable due on various dates through April 1998. Interest ranging
from 7.25% to 10% with interest and principal payable monthly,
secured by various assets of the Founding Companies. The notes
payable were repaid during 1996.
469 0
Small business administration loan with monthly principal and interest
payments and a final payment due in December 1998. Interest is
payable at prime plus 1% and secured by all of the assets of a
subsidiary of the Company and a personal guarantee of a former
shareholder of the subsidiary. The loan was
repaid during 1996. 74 0
Other 44 57
----------- ------------
5,934 4,567
Less - Current maturities 2,907 1,152
----------- ------------
$3,027 $3,415
=========== ============
a) In September 1995, the Company issued $2 million in the aggregate principal
amount of its 8% Subordinated Convertible Debentures due 2000 (the
"Debentures"). The Debentures mature on August 21, 2000. Interest on the
Debentures accrues at the rate of 8% per annum from the date of issuance
and is payable quarterly on each February 21, May 21, August 21 and
November 21. The Debentures are redeemable at the option of the Company, in
whole or in part, without premium or penalty at any time on or after August
18, 1998, at their face amount plus accrued and unpaid interest, if any, to
the date of redemption. The Debentures are redeemable at the option of the
holder, in whole but not in part, without premium or penalty, at any time
after August 21, 1998. The Debentures are convertible into 180,995 shares
of Common Stock at the option of the holder through August 20, 2000 at a
conversion price equal to 85% of the initial public offering price
($11.05).
The aggregate amounts of annual principal maturities of long-term debt
(excluding capital lease obligations) as of December 31 1996 are as follows (in
thousands) -
1997 $903
1998 506
1999 340
2000 2,148
2001 34
-----------------
Total $3,931
=================
The Company leases certain transportation equipment under capital lease
agreements which expire at various dates. At December 31, 1996, minimum annual
payments under capital leases, including interest, are as follows (in thousands)
- -
1997 $292
1998 212
1999 146
2000 62
---------------
Total minimum payments 712
Less - Amounts representing interest (76)
---------------
Net minimum payments 636
Less - Current portion of obligations under capital leases (249)
---------------
Long-term portion of obligations under capital leases $387
===============
(9) EMPLOYEE BENEFIT PLANS:
Several of the Founding Companies had defined contribution plans, which allowed
for voluntary pretax contributions by the employees. The Founding Companies paid
all general and administrative expenses of the plans and in some cases made
matching contributions on behalf of the employees. The Company adopted a 401(k)
retirement plan during 1996 and merged all of the former Founding Company plans
into the newly adopted plan. Substantially all employees are eligible to
participate in the plan and are permitted to contribute between 1% and 20% of
their annual salary. The Company has the right to make discretionary
contributions which will be allocated to each eligible participant. The Company
did not make a contribution for the year ended December 31, 1996.
(10) INCOME TAXES:
Federal and state income tax provision (benefit) for the years ended
December 31, 1995 and 1996 are as follows (in thousands) -
1995 1996
---------------- ------------------
Federal-
Current $424 $28
Deferred 77 (752)
State 81 (120)
---------------- ------------------
$582 ($844)
================ ==================
The differences in Federal income taxes provided and the amounts determined by
applying the Federal statutory tax rate (34%) to income (loss) before income
taxes for the years ended December 31, 1995 and 1996, result from the following
(in thousands) -
1995 1996
----------------- ----------------
Tax at statutory rate $132 ($519)
Add (deduct) the effect of-
State income taxes 53 (79)
Nondeductible expenses and other, net 27 65
Provision for potential tax matters 400 0
Reduction of estimated taxes provided in the prior year 0 (311)
Other (30) 0
----------------- ----------------
$582 ($844)
================= ================
The Founding Companies filed "short-period" Federal tax returns through November
30, 1995. In connection with such filings the Company provided $400,000 during
1995 to cover any potential exposures related to the filings.
The components of deferred income tax liabilities and assets, are as follows
(in thousands) -
December 31,
-----------------------------------
1995 1996
---------------- ---------------
Current deferred income tax asset -
Allowance for doubtful accounts $513 $690
Reserves and other, net 147 356
---------------- ---------------
Total deferred income tax asset $660 $1,046
================ ===============
Non-current deferred income tax liability -
Cash to accrual differences, net ($1,158) ($369)
Accumulated depreciation and amortization (385) (658)
---------------- ---------------
Total deferred income tax liability ($1,543) ($1,027)
================ ===============
(11) COMMITMENTS AND CONTINGENCIES:
Operating Leases -
The approximate minimum rental commitments of the Company, under existing
agreements as of December 31, 1996, are as follows (in thousands) -
1997 $3,694
1998 2,921
1999 2,231
2000 1,406
2001 884
Thereafter 2,161
Rent expense related to operating leases amounted to approximately
$1.9 million and $4.4 million for the years ended December 31, 1995 and 1996,
respectively.
Litigation -
On March 19, 1997, a purported class action complaint, captioned
Gapszewicz v. Consolidated Delivery & Logistics, Inc., et al. (97 Civ. 1939),
was filed in the United States District Court for the Southern District of New
York against the Company, certain of the Company's present and former executive
officers, and the co-managing underwriters of the Company's initial public
offering (the "Offering"). The gravamen of the complaint is that the Company's
registration statement for the Offering contained misstatements and omissions of
material fact in violation of the federal securities laws and that the Company's
financial statements included in the registration statement were false and
misleading and did not fairly reflect the Company's true financial condition.
The complaint seeks the certification of a class consisting of purchasers of the
Company's Common Stock from November 21, 1995 through February 27, 1997,
rescission of the Offering, attorneys' fees and other damages. The Company
believes that the allegations contained in the complaint are without merit and
intends to defend the action vigorously.
On April 14, 1997, the Company received notice that a purported class
action complaint was filed against the Company, certain of the Company's
directors, and the co-managing underwriters of the Company's initial public
offering. The complaint was filed by the plaintiff Morris Rubin on behalf of
buyers of Consolidated Delivery & Logistics, Inc.'s stock during the period
November 20, 1995 through February 27, 1997. As of April 15, 1997 the Company
had not yet been served with the complaint and therefore cannot comment further
on the allegations contained therein.
The Company and its subsidiaries are from time to time, parties to litigation
arising in the normal course of their business, most of which involves claims
for personal injury and property damage incurred in connection with their
operations. Management believes that none of these actions, including the above
actions, will have a material adverse effect on the financial position or
results of operations of the Company and its subsidiaries.
Sales Agency Agreements -
The Company has entered into sales agency agreements with independent
contractors with varying terms to perform courier services on behalf of the
Company. The independent contractors provide marketing and sales services and
the Company provides the resources to perform courier services. In connection
with these transactions the Company retains from the independent contractors a
fee for services rendered of approximately 10% of revenues. Sales agency fees
totaled $1 million and $3.8 million in 1995 and 1996, respectively.
(12) STOCKHOLDERS' EQUITY:
In September 1995, CD&L amended its Articles of Incorporation to increase the
number of authorized shares of Common Stock from 20,000,000 to 30,000,000 and to
authorize 2,000,000 shares of Preferred Stock. The Company's Board of Directors
may direct the issuance of the Company's $.001 par value Preferred Stock in
series and may, at the time of issuance, determine the rights, preferences and
limitations of each series.
Pursuant to a Representation Agreement, dated November 15, 1994 (as amended, the
"Representation Agreement"), between the Company and CTA Group, LLC ("CTA"),
David T. Lardier agreed to lend or otherwise advance to the Company all funds
necessary to effect the Mergers and to provide CTA with all funds necessary to
provide the services to be provided by CTA under the Representation Agreement,
including but not limited to, the funds necessary to retain and pay certain
professional expenses incurred in connection therewith. In exchange, the Company
agreed upon completion of the Mergers to reimburse Mr. Lardier for the amounts
advanced.
At June 30, 1995, CTA had incurred expenses totaling approximately $1.3 million
in connection with the Mergers (consisting primarily of professional fees and
expenses) for which it had not been reimbursed by Mr. Lardier. Under the terms
of the Representation Agreement, Messrs. Mattei and Wojak had the right to
require the Company to repurchase the 1,400,000 shares of common stock held by
Mr. Lardier at a price of $1,000 (his original purchase price) in the event that
Mr. Lardier did not advance funds needed to complete the Mergers.
Pursuant to Mr. Lardier's failure to perform under the Representation Agreement,
CTA redeemed his shares for his original purchase price. Pursuant to a
Termination Agreement, dated August 14, 1995 (the "Termination Agreement") the
Company agreed to permit Mr. Lardier to assign 99,446 shares of common stock and
his contingent right to repayment of funds advanced plus interest (fixed at $1.2
million) to certain of Mr. Lardier's creditors in exchange for their releases of
all claims against CTA and the Company. In addition, Mr. Lardier agreed that CTA
was not entitled to any fee upon the completion of the Mergers. The Company has
also agreed to release Mr. Lardier from any obligation to fund the unreimbursed
expenses incurred by CTA prior to the date of the Termination Agreement and his
continuing obligation to fund future expenses.
Under a management agreement in 1995, certain officers reduced their ownership
of Common Stock by 305,577 shares to an aggregate of 394,423 shares.
(13) STOCK OPTION PLANS:
The Company has two stock option plans under which employees and independent
directors may be granted options to purchase shares of Company Common Stock at
or above the fair market value at the date of grant. Options generally vest in
one to four years and expire in 10 years.
Employee Stock Compensation Program -
In September 1995, the Board of Directors adopted, and the stockholders of the
Company approved the Company's Employee Stock Compensation Program (the
"Employee Stock Compensation Program"). The Employee Stock Compensation Program
authorizes the granting of incentive stock options, non-qualified supplementary
options, stock appreciation rights, performance shares and stock bonus awards to
key employees of the Company, including those employees serving as officers or
directors of the Company. The Company has reserved 1,400,000 shares of Common
Stock for issuance in connection with the Employee Stock Compensation Program.
The Employee Stock Compensation Program is administered by a committee of the
Board of Directors (the "Administrators") made up of directors who are
disinterested persons. Options and awards granted under the Employee Stock
Compensation Program will have an exercise or payment price as established by
the Administrators provided that the exercise price of incentive stock options
may not be less than the fair market value of the underlying shares on the date
of grant. Unless otherwise specified by the Administrators, options and awards
will vest in four equal installments on the first, second, third and fourth
anniversaries of the date of grant.
1995 Stock Option Plan for Independent Directors -
In September 1995, the Board of Directors adopted, and the stockholders of the
Company approved, the Company's 1995 Stock Option Plan for Independent Directors
(the "Director Plan"). The Director Plan authorizes the granting of
non-qualified stock options to non-employee directors of the Company. The
Company has reserved 100,000 shares of Common Stock for issuance in connection
with the Director Plan. The Director Plan is administered by a committee of the
Board of Directors (the "Committee"), none of whom will be eligible to
participate in the Director Plan. The Director Plan provides for an initial
grant of an option to purchase 1,500 shares of Common Stock upon election as a
director of the Company, a second option to purchase 1,000 shares of Common
Stock upon the one-year anniversary of such director's election and subsequent
annual options for 500 shares of Common Stock upon the anniversary of each year
of service as a director. Options granted under the Director Plan will have an
exercise price per share equal to the fair market value of the underlying shares
on the date of grant and are fully exercisable one year after the date of grant.
Information regarding the Company's stock option plans is summarized below:
Employee Stock
Compensation Plan Director Plan
---------------------------------------- -----------------------------------
Shares Exercise Price Shares Exercise Price
------------------ ------------------ ------------- ------------------
Shares under option:
Outstanding at
January 1, 1995 0 0
Granted 390,500 $13.00 4,500 $13.00
Exercised 0 0
Canceled 0 0
------------------ -------------
Outstanding at
December 31, 1995 390,500 $13.00 4,500 $13.00
Granted 216,706 (1) $6.13 - $13.00 3,000 $4.75
Exercised 0 0
Canceled (52,138) 0
------------------ -------------
Outstanding at
December 31, 1996 555,068 $6.13 - $13.00 7,500 $4.75 - $13.00
================== =============
(1) Includes 100,179 grants approved by the Compensation Committee of the Board
of Directors in January 1996 that were priced effective as of the date of
the Mergers (November 27, 1995).
At December 31, 1996, options available for grant under the Employer Stock
Compensation Program and the Director Plan total 844,932 and 92,500,
respectively.
Effective January 1, 1996, the Company adopted the provisions of SFAS 123. As
permitted by SFAS 123, the Company has chosen to continue to account for
stock-based compensation using the intrinsic value method. Accordingly, no
compensation expense has been recognized for its stock-based compensation plans.
Had the fair value method of accounting been applied to the Company's stock
option plans, which requires recognition of compensation cost ratably over the
vesting period of the underlying equity instruments, net loss and loss per share
in 1996 and 1995 would not have been affected as the fair value of the options
was less than the exercise price. The fair value was estimated using the
Black-Scholes option pricing model based on the weighted average market price at
grant date of $13.00 in 1995 and $11.37 in 1996 and the following assumptions:
risk free interest rate of 6.5% for 1995 and 1996, expected life of 10 years for
1995 and 1996 and volatility of 82% for 1995 and 1996.
(14) RELATED PARTY TRANSACTIONS:
Notes Payable To Stockholders -
A director and a stockholder of the Company together with their spouses obtained
a $500,000 bank line of credit which was used to provide working capital. The
line, which expired in August of 1996, bore interest at prime plus 1/2%, and was
guaranteed by a subsidiary of the Company. The outstanding balance under the
line of credit was repaid by the Company during 1996.
A subsidiary of the Company repaid a relative of the subsidiary's former owners
$67,000 in connection with a loan outstanding as of December 31, 1995.
Leasing Transactions -
Certain subsidiaries of the Company paid an aggregate of $217,000 and $851,000
for the years ended December 31, 1995 and 1996, respectively, in rent to certain
directors, stockholders or Companies owned and controlled by directors or
stockholders of the Company. Rent is paid for office, warehouse facilities and
transportation equipment.
Administrative Fees and Other -
The Company paid sales commissions and consulting fees of $229,000 in 1995 and
$2.1 million in 1996 to companies affiliated through common ownership with
directors or stockholders of the Company or to former employees of the Company
or its subsidiaries.
In connection with the merger discussed in Note 2, stockholders of the Founding
Companies entered into five-year covenants-not-to-compete with the Company.
Additionally, certain of the stockholders received employment contracts.
(15) RESTRUCTURING CHARGE:
During the fourth quarter of 1996, the Company recognized the impact of several
non-recurring charges totaling $1.4 million ($0.12 per share). The restructuring
charge includes salary and contract settlements, abandonment of operating leases
and other costs associated with management headcount reduction and other
consolidation issues. At December 31, 1996, $602,000 was included in accrued
expenses and $781,000 was included in other liabilities related to this charge
in the accompanying consolidated financial statements.
(16) SUBSEQUENT EVENTS:
On January 31, 1997, the Company sold a subsidiary involved in contract
logistics, headquartered in Traverse City, Michigan, to its former owner and
president in exchange for 137,239 shares of the Company's Common Stock, valued
at approximately $4.38 per share. In connection with the sale, the Company
recorded a gain of approximately $830,000 before applicable Federal and state
income taxes in the first quarter of 1997. Revenues from this operation were
approximately $8.2 million and $4.6 million for the years ended December 31,
1995 and 1996, respectively, and $400,000 for the month ended January 31, 1997.
Operating losses were approximately $123,000 and $650,000 for the years ended
December 31, 1995 and 1996, respectively and $20,000 for the month ended January
31, 1997.
On January 31, 1997, a subsidiary of the Company contracted with a vehicle
leasing company to lease 175 delivery vehicles. The net present value of the
three-year agreement, which is being accounted for as a capitalized lease, is
estimated at $2.3 million. Receipt of the vehicles is expected to begin in March
1997 and conclude by May 1997.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
III-2
PART III
Item 10. Directors and Executive Officers of the Company
The Company hereby incorporates by reference the applicable information
from its definitive proxy statement for its 1997 Annual Meeting of Stockholders,
except for certain information relating to the Company's executive officers
which is provided below.
Executive Officers
The following table sets forth certain information as of February 5, 1997
concerning each of the Company's executive officers:
Name Age Position
Albert W. Van Ness, Jr. 54 Chairman of the Board, Chief Executive Officer
and Director
William T. Brannan 48 President, Chief Operating Officer and Director
Joseph G. Wojak 59 Executive Vice President, Chief Financial
Officer, Secretary and Director
William T. Beaury 44 Vice Chairman - Strategic Planning and Director
Cynthia A. Gentile 31 General Counsel and Assistant Secretary
Norton F. Hight 63 Vice President - Corporate Development
Joseph J. Leonhard 45 Vice President - Controller
.........Albert W. Van Ness, Jr. has served as the Chairman of the Board, Chief
Executive Officer and Director of the Company since February 1997. He remains a
Managing Partner of Club Quarters, LLC, a hotel development and management
company, since October 1992. From June 1990 until October 1992, Mr. Van Ness
served as Director Consultant of Managing People Productivity, a consulting
firm. Prior thereto, from 1982 until June 1990, Mr. Van Ness held various
executive offices with Cunard Line Limited, a passenger ship and luxury hotel
company, including Executive Vice President and Chief Operating Officer of the
Cunard Leisure Division and Managing Director and President of the Hotels and
Resorts Division. Prior thereto, Mr. Van Ness served as the President of
Seatrain Intermodal Services, Inc., a cargo shipping company.
.........William T. Brannan has served as the President and Chief Operating
Officer of the Company since November 1994. From January 1991 until October
1994, Mr. Brannan served as President, Americas Region - US Operations, for TNT
Express Worldwide, a major European-based overnight express delivery company.
Mr. Brannan has 23 years of experience in the transportation and logistics
industry.
.........Joseph G. Wojak has served as the Executive Vice President, Chief
Financial Officer and Secretary since June 1994. Prior thereto, from May 1994 to
June 1994, Mr. Wojak served as a consultant to the Company. From September 1990
until May 1994, Mr. Wojak was a financial and management consultant. Prior to
September 1990, Mr. Wojak served as the Executive Vice President and Chief
Financial Officer of The Howard Savings Bank. The Howard Savings Bank was placed
under Resolution Trust Corporation receivership in October 1992.
.........William T. Beaury has served as the Vice Chairman - Strategic Planning
since December 1995. Prior thereto, Mr. Beaury was a co-founder and the Chairman
and a director of SureWay Air Traffic Corporation ("SureWay") and SureWay
Logistics Inc., since 1984 and October 1993, respectively, both of which were
acquired by the Company in the Mergers. In addition, since 1975, Mr. Beaury has
served as President of Assets Management Limited, an investment management
company which previously owned 74% of SureWay. Mr. Beaury has 20 years of
experience in the same-day ground and air delivery industry. Mr. Beaury also has
been a member of the Air Conference of America since 1980, The Advertising
Production Club since 1988, and a member of the Presidents Association - the CEO
Division of the American Management Association.
.........Cynthia A. Gentile has been General Counsel and Assistant Secretary of
the Company since May 1996 and June 1995, respectively. From May 1995 until May
1996, Ms. Gentile was the Assistant General Counsel of the Company. Prior
thereto, Ms. Gentile was a consultant to the Swiss Bank Corporation from October
1994 to May 1995. From February 1993 until May 1994, Ms. Gentile was an
associate with the law firm of Detisch, Christensen & Wood. Prior thereto, from
September 1992 until February 1993 Ms. Gentile was an associate with Smith,
Smith & Kring.
.........Norton F. Hight has been Vice-President-Corporate Development of the
Company since December 1995. From March 1995 to December 1995, Mr. Hight served
as Chairman and CEO of Crown Courier Systems, which was acquired by the Company
in the Mergers. Prior thereto, Mr. Hight served as President of Crown Courier
Systems from May 1974 to March 1995. From June 1976 to March 1995, Mr. Hight
served as President of Bestway Distribution Services (formerly Bestway Cartage
Corp.), which was acquired by the Company in the Mergers. Mr. Hight has
twenty-two years experience in the same-day delivery industry. Mr. Hight has
been a member of the Messenger Courier Association of the Americas since 1990
and served on the Board of Directors. Mr. Hight has also been a member of the
Florida Messenger Association since 1988 where he also served on the Board of
Directors.
.........Joseph J. Leonhard has been the Controller of the Company since June
1995 and was appointed to the position of Vice-President in May 1996. Prior
thereto, from June 1987 until June 1995, Mr. Leonhard was the Controller and
Chief Financial Officer of Scientific Devices East, Inc.
Item 11. Executive Compensation
The Company hereby incorporates by reference the applicable information
from its definitive proxy statement for its 1997 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Company hereby incorporates by reference the applicable information
from its definitive proxy statement for its 1997 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
The Company hereby incorporates by reference the applicable information
from its definitive proxy statement for its 1997 Annual Meeting of Stockholders.
IV-5
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
See Item 8. Financial Statements and Supplementary Data.
(a)(2) Financial Statement Schedules
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES:
Schedule II - Consolidated Valuation and Qualifying Accounts -
For the period from inception (June 30, 1994) through December 31, 1994 and
for the years ended December 31, 1995 and 1996...................................................S-1
All other schedules called for by Regulation S-X are not submitted
because they are not applicable or not required or because the required
information is not material or is included in the financial statements or notes
thereto.
(a)(3) Exhibits
The Exhibits listed in (c) below are filed herewith.
(b) Reports on Form 8-K
None.
(c) Exhibits
Exhibit Description
Number
3.1 Second Restated Certificate of Incorporation of Consolidated Delivery & Logistics, Inc.
(filed as Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File No. 33-97008)
and incorporated herein by reference).
3.2 Amended and Restated By-laws of Consolidated Delivery & Logistics, Inc. (filed as Exhibit 3.2
to the Company's Registration Statement on Form S-1 (File No. 33-97008) and incorporated
herein by reference).
4.1 Form of certificate evidencing ownership of Common Stock of Consolidated Delivery &
Logistics, Inc. (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-1
(File No. 33-97008) and incorporated herein by reference).
4.2 Instruments defining the rights of holders of the Company's long-term debt (not filed
pursuant to Regulation S-K Item 601((b)(4)(iii); to be furnished to the Commission upon
request).
10.1 Consolidated Delivery & Logistics, Inc. Employee Stock Compensation Program (filed as Exhibit
10.1 to the Company's Registration Statement on Form S-1 (File No. 33-97008) and incorporated
herein by reference).
10.2 Consolidated Delivery & Logistics, Inc. 1995 Stock Option Plan for Independent Directors
(filed as Exhibit 10. 2 to the Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.3 Employment Agreement, dated as of February 5, 1997, with Albert W. Van Ness, Jr.
10.4 Employment Agreement, dated as of September 8, 1995, with
John Mattei (filed as Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (File No. 33-97008) and
incorporated herein by reference).
10.5 Amendment, dated April 11, 1996, to Employment Agreement,
with John Mattei (filed as Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996 (File No. 0-26954) and incorporated herein
by reference).
10.6 Employment Agreement, dated as of September 8, 1995, with William T. Brannan (filed as
Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No. 33-97008) and
incorporated herein by reference).
10.7 Employment Agreement, dated as of September 8, 1995, with Joseph G. Wojak (filed as Exhibit
10.7 to the Company's Registration Statement on Form S-1 (File No. 33-97008) and incorporated
herein by reference).
10.8 Employment Agreement, dated as of September 15, 1995, with William T. Beaury (filed as
Exhibit 10.9 to the Company's Registration Statement on Form S-1 (File No. 33-97008) and
incorporated herein by reference).
10.9 Employment Agreement, dated as of September 15, 1995, with
Vincent Brana (filed as Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (File No. 33-97008) and
incorporated herein by reference).
10.10 Employment Agreement, dated as of September 15, 1995, with
Michael Brooks (filed as Exhibit 10.12 to the Company's
Registration Statement on Form S-1 (File No. 33-97008) and
incorporated herein by reference).
10.11 Employment Agreement, dated as of September 15, 1995, with
Norton Hight (filed as Exhibit 10.18 to the Company's
Registration Statement on Form S-1 (File No. 33-97008) and
incorporated herein by reference).
10.12 Employment Agreement, dated as of September 15, 1995, with Andrew B. Kronick (filed as
Exhibit 10.21 to the Company's Registration Statement on Form S-1 (File No. 33-97008) and
incorporated herein by reference).
10.13 Employment Agreement, dated as of September 15, 1995, with
Labe Leibowitz (filed as Exhibit 10.24 to the Company's
Registration Statement on Form S-1 (File No. 33-97008) and
incorporated herein by reference).
10.14 Employment Agreement, dated as of September 15, 1995, with
Thomas LoPresti (filed as Exhibit 10.26 to the Company's
Registration Statement on Form S-1 (File No. 33-97008) and
incorporated herein by reference).
10.15 Employment Agreement, dated as of September 15, 1995, with
Robert Wyatt (filed as Exhibit 10.35 to the Company's
Registration Statement on Form S-1 (File No. 33-97008) and
incorporated herein by reference).
10.16 Forbearance and Amendment Agreement dated as of April 14, 1997.
11.1 Statement Regarding Computation of Net Loss Per Share.
21.1 List of subsidiaries of Consolidated Delivery & Logistics, Inc.
23.1 Consent of Independent Public Accountants
25.1 Power of Attorney
27.1 Financial Data Schedule (for electronic submission only)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on April 15, 1997.
CONSOLIDATED DELIVERY & LOGISTICS, INC.
By: ___________________________
Albert W. Van Ness, Jr.,
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities indicated on April 15, 1997.
Signature Capacity
__________________________ Chairman of the Board, Chief Executive Officer (Principal
Albert W. Van Ness, Jr. Executive Officer) and Director
__________________________ President, Chief Operating Officer and Director
William T. Brannan
__________________________ Executive Vice President, Chief Financial Officer (Principal
Joseph G. Wojak Financial and Accounting Officer), Secretary and Director
__________________________ Vice Chairman-Strategic Planning and Director
William T. Beaury
__________________________ Director
Vincent P. Brana
__________________________ Director
Michael Brooks
__________________________ Director
Andrew B. Kronick
__________________________ Director
Labe Leibowitz
__________________________ Director
Thomas LoPresti
__________________________ Director
John Mattei
__________________________ Director
Kenneth W. Tunnell
__________________________ Director
Robert Wyatt
*By: _________________________
Joseph G. Wojak,
Attorney-in-Fact
S-1
Schedule II
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance Charged
at to Costs Balance
Beginning and at End
Description of Period Expenses Write-offs Other of
(a) (b) Period
- ------------------------------- --------------- -------------- -------------- ------------- -------------
For the period from inception (June 30, 1994) through December 31, 1994 -
Allowance for
doubtful accounts $0 $0 $0 $0 $0
- ------------------------------- =============== ============== ============== ============= =============
For the year ended
December 31, 1995 -
Allowance for doubtful
accounts $0 $204 ($48) $1,129 $1,285
=============== ============== ============== ============= =============
For the year ended
December 31, 1996 -
Allowance for doubtful
accounts $1,285 $1,422 ($1,002) $0 $1,705
=============== ============== ============== ============= =============
(a) Represents write-offs net of recoveries.
(b) Represents the addition of the Founding Companies.
The accompanying notes to consolidated financial statements are an
integral part of this schedule.
20
INDEX TO EXHIBITS
Exhibits Page
10.16 Forbearance and Amendment Agreement dated April 14, 1997 2
11.1 Statement Regarding Computation of Net Loss Per Share 13
21.1 List of Subsidiaries of Consolidated Delivery & Logistics, Inc. 15
23.1 Consent of Independent Public Accountants 16
25.1 Power of Attorney 17
27.1 Financial Data Schedule (for electronic submission only) 19
EXHIBIT 11.1
FORBEARANCE AND AMENDMENT AGREEMENT
dated as of April 14, 1997
among
CONSOLIDATED DELIVERY & LOGISTICS, INC.
SUBSIDIARY BORROWERS
THE BANKS SIGNATORY HERETO
and
SUMMIT BANK
as Agent
and
MELLON BANK, N.A.
as Co-Agent
FORBEARANCE AND AMENDMENT AGREEMENT ("Agreement") dated as of
April 14, 1997 among CONSOLIDATED DELIVERY & LOGISTICS, INC., a corporation
organized under the laws of Delaware (the "Borrower"), each of the Subsidiaries
of the Borrower which is a signatory hereto (individually a "Subsidiary
Borrower" and collectively the "Subsidiary Borrowers" and, together with the
Borrower, the "Obligors"), each of the banks which is a signatory hereto
(individually a "Bank" and collectively the "Banks") and SUMMIT BANK (as
successor to UNITED JERSEY BANK), a banking corporation organized under the laws
of the State of New Jersey, as agent for the Banks (in such capacity, together
with its successors in such capacity, the "Agent") and MELLON BANK, N.A., a
national banking association, as co-agent for the Banks (in such capacity,
together with its successors in such capacity, the "Co-Agent").
WHEREAS, the Obligors, the Agent, the Co-Agent and the Banks
are parties to that certain Credit Agreement ("Credit Agreement") dated as of
May 31, 1996, pursuant to which the Banks have extended credit and provided
certain financial accommodations to the Obligors; and
WHEREAS, the Borrower has informed the Banks that, as of
December 31, 1996, March 31, 1997, and as of the date hereof, it is in breach of
certain of the financial covenants contained in the Credit Agreement and it
anticipates that it will continue to be unable to comply with such financial
covenants during fiscal year 1997; and
WHEREAS, the Borrower has requested that the Banks waive such
defaults and forbear from exercising their rights and remedies under the terms
of the Credit Agreement for a limited period of time in order to provide the
Borrower and the Obligors with an opportunity to seek substitute financing to
repay the amounts owing to the Banks; and
WHEREAS, the Banks have agreed to enter into this Agreement
subject to the amendments to the Credit Agreement and the other terms and
conditions contained herein.
NOW THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.
1. Definitions. Except as otherwise defined herein,
words and terms defined in the Credit Agreement shall have the same meaning
when used herein.
2. Waiver and Forbearance. Subject to the terms and conditions
contained herein, the Banks do hereby agree that, as of December 31, 1996 and
during the period commencing on January 1, 1997 and ending on the date of this
Agreement, the Banks shall and do hereby (i) waive any breach by the Borrower of
the financial covenants contained in Sections 8.01, 8.02, 8.03 and 8.04 of the
Credit Agreement (the "Subject Financial Covenants") and (ii) agree to forbear
from exercising any rights or remedies under the terms of the Credit Agreement
in respect of any breach of the Subject Financial Covenants occurring as of the
date of this Agreement and through April 1, 1998.
3. Amendment to Credit Agreement. Effective as of
April 14, 1997, the Borrower, the other Obligors, the Banks, the Agent and
the Co-Agent hereby amend and modify the Credit Agreement as follows:
3.1. The following definitions set forth in Section 1.01
of the Credit Agreement shall be amended to read as follows:
"Applicable Commitment Fee Rate" means 0.50% per annum.
"Applicable Margin" means (a) with respect to Fixed Rate Loans
outstanding as of April 14, 1997, 4.50% per annum, and (b) with respect to
Variable Rate Loans (i) until June 30, 1997, 2.50% per annum and (ii) as of June
30, 1997 and thereafter, 3.50% per annum; provided, however, that if the
Borrower shall deliver to the Banks a Commitment Letter on or before June 16,
1997, then the "Applicable Margin" shall remain 2.50% per annum for so long as
such Commitment Letter remains in effect.
"Available Commitment" means (i) $8,750,000 until June 15,
1997 and (ii) as of June 16, 1997 and any date thereafter, the lesser of (A)
$8,750,000 or (B) the Borrowing Base as of such date.
"Eligible Accounts Receivable" means, as of any date, the
aggregate amount of all accounts receivable at such date owing to the Obligors,
or any of them, which accounts receivable meet all of the following
requirements:
(a) such account receivable represents a complete bona fide
transaction which requires no further act under any circumstances on the part of
any Obligor to make such account receivable payable by the account debtor;
(b) such account receivable shall not be unpaid more than 90
days beyond its original invoice date, unless the account debtor thereof is a
Rated Customer, in which event such account receivable shall not be unpaid more
than 150 days beyond its original invoice date;
(c) such account receivable is not evidenced by chattel paper,
a note or an instrument of any kind, unless the same has been pledged to, and is
in the possession of, the Agent under the terms of the Pledge Agreement;
(d) the account debtor with respect to such account receivable
is not, to the best of each Obligor's knowledge, insolvent or the subject of any
bankruptcy or insolvency proceedings of any kind or of any other proceeding or
action, which might have a materially adverse effect on the business of such
account debtor;
(e) if such account receivable arises from the performance of
services, such services have been fully rendered in the ordinary course of such
Obligor's business;
(f) the principal office or corporate headquarters
of the account debtor with respect thereto is located within the United States
of America;
(g) such account receivable is a valid, legally enforceable
obligation of the account debtor with respect thereto and is not subject to any
present or contingent, and each Obligor has no knowledge of the existence of any
facts which may form the basis for any future, offset, counterclaim, recoupment
or any other offset for credits, advancements or adjustments by the account
debtor because of returned, inferior or damaged goods or unsatisfactory services
or for any other reason or other defense on the part of such account debtor,
including without limitation, any account payable owing by any Obligor to such
account debtor;
(h) title and legal ownership to such account receivable is
vested in an Obligor, free and clear of any Lien other than a first priority and
perfected Lien in favor of the Agent pursuant to the Security Documents;
(i) such account receivable is not owing from any
Obligor, Consolidated Entity or any Affiliate of any Obligor or Consolidated
Entity;
(j) such account receivable is not subject to any provision
prohibiting its assignment or requiring notice of or consent to such assignment
or which renders such account receivable void or unenforceable in the event of
any assignment;
(k) such account receivable (or portion thereof) does not
represent amounts owing as an unearned discount, service charge, deferred
interest, late fee or similar service charge, nor shall such account receivable
include any rebilling of any existing account receivable;
(l) the account debtor with respect to such account
receivable is not the United States government or any Governmental Authority;
(m) such accounts receivable is not owing from an account
debtor as to whom 25% or more of the accounts receivable owing to the Obligors
from such account debtor are unpaid for more than 90 days past the original
invoice date (unless such account debtor is a Rated Customer);
(n) to the extent that the account debtor with respect to any
account receivable is the account debtor with respect to more than 25% (in
dollar amount) of all accounts receivable of the Obligors, such portion of the
accounts receivable of such account debtor which exceeds such 25% shall not be
included within "Eligible Accounts Receivable";
(o) such account receivable is evidenced by a written
invoice or other documentation in form and substance satisfactory to the Banks;
(p) such account receivable is payable in U.S. Dollars by
the account debtor;
(q) such account receivable is in an amount not less
than the amount represented by the Obligors to be owing by the account debtor
in respect of such account receivable; and
(r) such account receivable is not owing by an account debtor
whom the Banks have reasonably determined to be uncreditworthy (whether as a
result of the Banks' receipt of an unsatisfactory credit report or
unsatisfactory experience by any Bank or Obligor with such account debtor).
"Revolving Credit Termination Date" means April 1, 1998.
3.2. The following definitions shall be added to Section
1.01 of the Credit Agreement.
"Borrowing Base" means, as of any date, 50% of the aggregate
amount of Eligible Accounts Receivable as of such date less the Consolidated
Pre-tax Loss arising since March 31, 1997 through such date.
"Borrowing Base Certificate" means a certificate, in a form
reasonably acceptable to the Banks, duly completed, executed and delivered by
the chief financial officer of the Borrower reflecting computations for each
Obligor.
"Commitment Letter" means a letter or other written agreement
issued to the Borrower which (i) is duly executed and delivered by an
established and reputable commercial or institutional lender, (ii) is accepted
in writing by the Borrower in a timely manner, (iii) does not require, as a
condition to its acceptance, the payment of any fees or expenses which have not
been paid, (iv) evidences the obligation of such lender to provide the Borrower
with sufficient financing to repay all Senior Obligations, (v) provides for a
closing thereunder within 60 days of the date thereof, (vi) does not contain any
conditions to closing other than standard and ordinary conditions generally
required in similar financing transactions and (vii) has not been modified,
rescinded or terminated and is in full force and effect in accordance with its
terms.
"Consolidated Pre-tax Loss" means, with respect to any period,
the pre-tax loss for the Consolidated Entities for such period, as determined on
a consolidated basis in accordance with GAAP.
"Operating Account" means a demand deposit account established
and maintained by the Borrower at the Principal Office of the Agent.
3.3. Section 2.01(b) of the Credit Agreement is amended to
read as follows: "The Loans may only be outstanding as Variable Rate Loans;
provided, however, that any Fixed Rate Loan which is outstanding as of April 14,
1997 may continue to be outstanding until the end of the applicable Interest
Period at which time such Fixed Rate Loan shall convert to a Variable Rate
Loan."
3.4. Section 2.04 of the Credit Agreement is amended to read
as follows: "The Obligor which intends to effect a borrowing shall give the
Agent and Co-Agent notice of each borrowing to be made hereunder as provided in
Section 2.08. Not later than 3:00 p.m. (eastern time) on the date of such
borrowing, each Bank shall, through its Lending Office and subject to the
conditions of this Agreement, make the amount of the Loan to be made by it on
such day available to the Agent at the Principal Office and in immediately
available funds for the account of the Agent. The amount so received by the
Agent shall, subject to the conditions of this Agreement, be made available to
such Obligor, in immediately available funds, by the Agent crediting the
Operating Account."
3.5. Section 2.05 of the Credit Agreement is amended to read
as follows: "Subject to the provisions of Section 6.10 hereof, the Borrower (on
behalf of itself and the other Obligors) shall have the right to make
prepayments of principal at any time or from time; provided that (i) the
Borrower shall give the Agent notice of each such prepayment as provided in
Section 2.08, (ii) no Fixed Rate Loan outstanding as of April 14, 1997 may be
prepaid unless the Borrower provides the Agent for the account of each Bank with
compensation in accordance with Section 3.05 and (iii) if at any time the
aggregate amount of Loans outstanding exceeds the Available Commitment, the
Borrower shall immediately, without any requirement of notice or demand, prepay
the Loans in a sufficient amount so that the aggregate principal amount thereof
does not exceed the Available Commitment."
3.6. Sections 2.06 and 2.07(a) of the Credit Agreement are
deleted.
3.7. Section 2.08 of the Credit Agreement is amended to read
as follows: "Notices to the Agent of each borrowing pursuant to Section 2.04,
each prepayment pursuant to Section 2.05 and each reduction or termination of
the Available Commitment pursuant to Section 2.07 shall be irrevocable and shall
be effective only if received by the Agent and the Co-Agent not later than 11:00
a.m. (eastern time) and (a) in the case of borrowings and prepayments, given the
same Banking Day and (b) in the case of reductions or termination of the
Available Commitment, given three Banking Days prior thereto. Each such notice
shall specify the Loans to be borrowed or prepaid and the amount (subject to
Section 2.09) to be borrowed or prepaid and the date of the borrowing or
prepayment (which shall be a Banking Day). Each such notice of reduction of the
Available Commitment shall specify the amount to be so reduced. The Agent shall
promptly and, in any event, within two Banking Days, notify the Banks of the
contents of each such notice."
3.8. Section 2.11 of the Credit Agreement is amended by adding
the following paragraph (e) thereto: "(e) In the event the Borrower does not
deliver a Commitment Letter to the Banks on or before June 15, 1997, the
Borrower shall pay to the Agent on June 16, 1997, for the account of each Bank
(to be shared pro rata based on each Bank's Commitment Percentage), a
non-refundable fee of $50,000."
3.9. Section 4.02 of the Credit Agreement is amended by adding
the following to the end of such Section: "(iii) since March 31, 1997, no event
or condition has occurred which has caused or is reasonably likely to cause a
Material Adverse Effect, (iv) commencing June 16, 1997, the Borrower shall have
delivered to the Banks a Borrowing Base Certificate, dated as of a date no
earlier than two Banking Days prior to the date of the making of such Loan and
(v) the aggregate principal amount of all Loans outstanding as of the date of
such Loan (and after giving effect thereto) does not exceed the Available
Commitment."
3.10. Section 6.08 of the Credit Agreement is amended by
adding the following paragraph (o) thereto: "(o) Not later than 25 days
following the last day of each month, a certificate of the chief financial
officer of the Borrower stating whether the Borrower was, as of the last day of
the immediately prior month, in compliance with the Net Worth Covenant set forth
in Section 8.06 below together with the calculation thereof."
3.11. Section 6.10 of the Credit Agreement is amended to
read as follows:
"(a) (i) Not later than May 2, 1997, each Subsidiary Borrower
shall establish a special account ("Special Account") with a depository bank
(each a "Depository") selected by such company (and reasonably acceptable to the
Banks) for the sole purpose of the receipt of all collections of accounts
receivable of such company and (ii) unless otherwise provided herein or
otherwise directed by the Banks following the occurrence of an Event of Default,
all collections of accounts receivable received by each such company shall be
deposited in the respective above-described Special Account of such company
immediately upon receipt thereof.
(b) Not later than May 15, 1997, (i) each Subsidiary Borrower
shall execute, and cause its respective Depository to execute, and deliver to
the Banks a blocked account agreement, substantially in the form of Exhibit G
attached hereto, with respect to the applicable Special Account. So long as any
Depository has not received written notice from the Agent that an Event of
Default has occurred and that funds in the Special Account should be remitted to
the Concentration Account, such Depository shall, prior to June 16, 1997, be
entitled to release funds in its Special Account to its respective Subsidiary
Borrower depositor at the request of such company.
(c) At any time subsequent to July 15, 1997, the Banks shall
have the right, upon not less than 15 days' notice, to direct each Obligor to
instruct (to be completed within two weeks of such instruction) all account
debtors, and otherwise take any and all actions and steps, so that payment of
all of its accounts receivable shall be remitted to one or more post office
boxes (collectively, the "Lockbox") which shall be under the sole dominion and
control of the Agent (or any agent or representative acting on its behalf).
Prior to or concurrently with the establishment of the Lockbox, each Obligor and
the Agent shall enter into a lockbox agreement (the "Lockbox Agreement"),
substantially in the form of Exhibit H attached hereto.
(d) Commencing (i) as of June 15, 1997 or (ii) if the Borrower
shall have delivered a Commitment Letter to the Banks on or before June 15,
1997, then as of the earlier to occur of (1) the termination or expiration of
such Commitment Letter or (2) July 15, 1997, the Borrower will establish and
maintain at the Principal Office of the Agent a special account in the name of
the Borrower (the "Concentration Account"). As of and after the commencement
date set forth in the preceding sentence, the Borrower and the other Obligors
shall, on a daily basis, cause (and Agent is hereby irrevocably authorized to
cause, without further consent or action of or objection by the Borrower or the
other Obligors) the transfer of all funds from the Special Accounts and from the
Lockbox to the Concentration Account. All funds in the Concentration Account
shall then be applied (without further action or consent of or notice to any
Obligor) by the Agent daily, subject to the Agent's standard clearing procedures
and clearing periods for deposited funds, as follows: (i) first, to the payment
or reimbursement of all fees, charges and expenses owing by any Obligor to the
Banks, the Agent or the Co-Agent under the Facility Documents, (ii) second, to
the payment of all accrued and unpaid interest then due and owing under the
Loans and (ii) third, to the repayment of the outstanding principal balance of
all Loans. Any available funds remaining after full payment of the foregoing
shall be transferred to the Operating Account of the Borrower maintained with
the Agent.
(e) Any Loans to Borrower shall be made, pursuant and subject
to the terms and conditions of this Agreement, by the Agent's depositing such
sums into the Operating Account. At no time shall any proceeds of Loans be
deposited in the Concentration Account or any Special Account.
(f) Except as expressly set forth in paragraph (b) above,
neither the Borrower nor any other Obligor shall have any right to withdraw,
claim, demand or otherwise assert any interest in, to or under any funds held or
deposited in any Special Account. At no time shall the Borrower or any other
Obligor have any right to withdraw, claim, demand or otherwise assert any
interest in, to or under any funds held or deposited in the Lockbox or the
Concentration Account."
3.12. Section 7.10(b) of the Credit Agreement is deleted.
3.13. Section 7.11 of the Credit Agreement is amended to
read as follows: "Make, or permit any of its Subsidiaries to make, any
Acquisition."
3.14. Section 8.03 of the Credit Agreement is deleted and
a new Section 8.06 is added to the Credit Agreement to read as follows:
"Net Worth Covenant. As of April 1, 1997 and at all times
thereafter, the Borrower will not permit its Consolidated Net Worth to be
less than $6,800,000."
3.15. Section 9.01(c)(i) is amended to read as follows:
"the Borrower or any Obligor shall fail to perform or observe any term,
covenant or agreement contained in Sections 2.03 or 6.10 or Articles 7 or 8".
3.16. [deleted]
3.17. Section 12.03 of the Credit Agreement is amended by
deleting the first sentence thereof and inserting the following in its stead:
"The Borrower and each Obligor agree to pay or reimburse each
of the Banks and the Agent on demand for: (a) all reasonable out-of-pocket costs
and expenses (including, without limitation, the reasonable fees and expenses of
counsel for each Bank and the Agent) in connection with (i) after the occurrence
of an Event of Default, protecting, advising and defending the interests of the
Banks hereunder and under any modification, supplement or waiver of any of the
terms of this Agreement or any of the other Facility Documents; (ii) the
negotiation or preparation of any modification, supplement or waiver of any of
the terms of this Agreement or any of the other Facility Documents (whether or
not consummated) and all related agreements and documents; (iii) any Default or
any enforcement or collection proceedings resulting therefrom, including,
without limitation, all manner of participation in or other involvement with (A)
bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation
proceedings, (B) judicial or regulatory proceedings and (C) workout,
restructuring or other negotiations or proceedings (whether or not the workout,
restructuring or transaction contemplated thereby is consummated); (iv) all
audit fees, including the fees of the Receivables Audit, all search fees, all
filing fees and all other fees and expenses arising in connection with the
foregoing; and (v) the enforcement of this Section 12.03; and (b) all transfer,
stamp, documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement or any of the
other Facility Documents or any other document referred to herein or therein (or
any amendments or modifications thereof) and all costs, expenses, taxes,
assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any security interest contemplated by
any Security Document or any other document referred to therein.
3.18. Section 12.05(a)(i) of the Credit Agreement is amended
by deleting the following phrase therefrom: "provided, however, that within five
Banking Days of its receipt of such notice, the Borrower shall have the right to
reasonably object to such assignment."
4. Receivables Audit; Lien Searches.
4.1. At the sole expense of the Borrower, the Banks shall (i)
appoint and retain an agent or representative firm or person to perform an audit
and evaluation of the Obligors' accounts receivable (the "Receivables Audit")
and (ii) order and obtain copies of lien, tax and judgment searches identifying
all financing statements, liens and judgments of record or filed against each
Obligor in all jurisdictions reasonably requested by the Banks (the "Lien
Search").
4.2. The Borrower and the Obligors shall promptly provide all
cooperation, information and assistance as may be reasonably requested by the
Banks in connection therewith so that such Lien Search shall be completed as
soon as possible and such Receivables Audit may be commenced no later than May
5, 1997 and completed as soon as possible; provided, however, that if, prior to
May 5, 1997, the Borrower shall deliver to the Banks the written statement of an
established and reputable commercial or institutional lender (the "New Lender")
stating that (i) such New Lender is considering providing the Borrower with
sufficient financing to repay all Senior Obligations, (ii) the New Lender will
cause a Receivables Audit (as herein described) to be commenced on or prior to
May 5, 1997 and (iii) the New Lender will, without representation, provide the
Banks, on a confidential basis, with copies of all reports, analyses and other
findings of such Receivables Audit, then, in such event, the Borrower may delay
the commencement of a Receivables Audit on behalf of the Banks hereunder for so
long as such Receivables Audit on behalf of the New Lender is being diligently
conducted, provided, however, such delay shall not exceed 30 days from the
Banks' receipt of the aforementioned written statement from the New Lender.
4.3. The Borrower and the Obligors acknowledge and agree that
the Receivables Audit shall include the confirmation of account balances and the
Banks (or such agent or firm) shall have the right to contact account debtors in
writing in connection therewith. All costs and expenses incurred by the Banks in
connection with the Receivables Audit and Lien Search shall be payable upon
demand and shall be deemed Senior Obligations. The Banks agree to share, without
representation or recourse, the written reports produced from the Lien Search
and Receivables Audit with any prospective lender evaluating a potential
financing arrangement with the Obligors so long as such prospective lender
executes a confidentiality agreement reasonably acceptable to the Banks.
5. Final Maturity Date; No Duty to Extend. The Borrower and
the Obligors shall take any and all actions and steps as may be necessary in
order to repay in full all Senior Obligations on or before the Revolving Credit
Termination Date. THE BORROWER AND EACH OBLIGOR EXPRESSLY ACKNOWLEDGE THAT THE
BANKS HAVE NO OBLIGATION OR DUTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED, TO (1)
EXTEND THE REVOLVING CREDIT TERMINATION DATE OR RENEW OR PROVIDE ANY EXTENSION
OF CREDIT BEYOND SUCH DATE OR (2) CONSIDER, REVIEW OR SUBMIT FOR APPROVAL ANY
REQUEST FOR ANY SUCH EXTENSION OR RENEWAL. ANY SUCH REQUEST MAY OR MAY NOT BE
CONSIDERED BY THE BANKS IN THEIR SOLE AND ABSOLUTE DISCRETION OR, IF CONSIDERED,
MAY OR MAY NOT BE GRANTED OR APPROVED, OR MAY BE SUBJECT TO SUCH TERMS AND
CONDITIONS, INCLUDING WITHOUT LIMITATION, CONDITIONS REGARDING BORROWING
AVAILABILITY, COLLATERAL, LOCKBOX ARRANGEMENTS, GUARANTEES, SUBORDINATIONS AND
USE OF PROCEEDS, ALL AS THE BANKS MAY DETERMINE IN THEIR SOLE AND ABSOLUTE
DISCRETION. THE BORROWER AGREES NOT TO RELY UPON, AND THE BANKS SHALL NOT BE
BOUND BY, ANY STATEMENT, REPRESENTATION OR ACTION OF ANY OFFICER OR
REPRESENTATIVE OF ANY BANK UNLESS THE SAME SHALL BE EVIDENCED BY A WRITTEN
INSTRUMENT DULY EXECUTED AND DELIVERED BY AN AUTHORIZED OFFICER OF EACH BANK.
6. Conditions Precedent. This Agreement, and the terms
and provisions contained herein, including the forbearance and amendment set
forth herein, shall not become effective until the receipt by the Banks of
each of the following:
(a) an original copy of this Agreement, duly executed
and delivered by the Borrower and each Obligor;
(b) a Certificate of the Secretary or Assistant Secretary of
each of the Obligors (i) attesting to all corporate action taken by such
Obligor, including resolutions of its Board of Directors, authorizing the
execution, delivery and performance of this Agreement, (ii) certifying the names
and true signatures of the officers of such Obligor authorized to sign this
Agreement and (iii) verifying that there has been no change to the certificate
of incorporation or by-laws of such Obligor since the initial closing under the
Credit Agreement, except as attached to such certificate;
(c) [deleted]
(d) a fee of $12,500 for each Bank;
(e) [deleted]
(f) to the extent of any bills presented as of the date
hereof, payment or reimbursement for all reasonable out-of-pocket costs and
expenses incurred by each Bank as of the date hereof in connection with the
negotiation and preparation of this Agreement and protecting, analyzing and
defending the interests of the Banks hereunder, including without limitation,
the reasonable fees and disbursements of counsel for each Bank; and
(g) all financial and other information regarding the business
and financial condition of the Borrower and each Obligor, including projections
and statements of cash flow, as shall be reasonably requested by the Banks.
7. Effect. Except as expressly set forth herein,
all of the terms and provisions set forth in the Credit Agreement are, and
shall continue, in full force and effect.
8. Termination of Forbearance, etc.. In the event of (i) any
breach by the Borrower or any Obligor of any term, covenant or agreement
contained herein, (ii) any representation or warranty of the Obligors contained
herein shall prove to have been incorrect in any material respect on or as of
the date hereof, or (iii) the occurrence of any Event of Default under the
Credit Agreement or any of the Facility Documents, then, without limitation of
any right set forth in the Credit Agreement, any Bank may, at its sole option,
declare (x) the forbearance described in Section 2 of this Agreement to be
terminated and of no force and effect, (y) the Available Commitment to be
terminated, whereupon neither the Borrower nor any Obligor shall have the right
to request any further Loan and (z) the Senior Obligations to be immediately due
and payable.
9. Representations, etc. In order to induce the Banks to enter
into this Agreement, the Obligors hereby represent, warrant, covenant and agree
that, except as set forth in the most recent draft copy of the Borrower's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, and the
financial statements and notes thereto set forth in Item 8 therein (the "Draft
10-K") delivered to the Banks prior to the date hereof:
(a) The Draft 10-K is complete and correct and fairly presents
the financial condition of the Obligors as of such date and the results of the
operations of the Obligors for the fiscal periods covered thereby, all in
accordance with GAAP consistently applied, which Draft 10-K is to be finalized
upon execution of this Agreement.
(b) Except for the litigation reflected by the Class Action
Complaint commenced against the Borrower and other defendants by John Gaspzcwicz
in the United States District Court, Southern District of New York, No.
97CIV.1939 (which is deemed incorporated into Schedule II of the Credit
Agreement), all of the representations and warranties set forth in the Facility
Documents are true, complete and correct in all material respects on and as of
the date hereof with the same force and effect as if made on and as of the date
hereof and as if set forth at length herein.
(c) Except for the breach of the Subject Financial Covenants,
no Default or Event of Default presently exists and is continuing on and as of
the date hereof.
(d) Since March 31, 1997, no event or condition has occurred
which has caused or is reasonably likely to cause a Material Adverse Effect.
(e) Each Obligor has full power and authority to execute,
deliver and perform any action or step which is necessary to carry out the terms
of this Agreement; this Agreement has been duly executed and delivered by each
Obligor and is the legal, valid and binding obligation of each Obligor and is
enforceable in accordance with its terms, subject to any applicable bankruptcy,
insolvency, general equity principles or other similar laws affecting the
enforcement of creditors' rights generally.
(f) The execution, delivery and performance of this Agreement
will not (i) violate any provision of any existing law, statute, rule,
regulation or ordinance, (ii) conflict with, result in a breach of or constitute
a default under (A) the certificate of incorporation of each Obligor or (B) any
order, judgment, award or decree of any court, governmental authority, bureau or
agency, or (C) any mortgage, indenture, lease or other material contract,
agreement or undertaking to which any Obligor is a party or by which any Obligor
or any of its properties or assets may be bound, or (iii) result in the creation
or imposition of any lien or other encumbrance upon or with respect to any
property or asset now owned or hereafter acquired by any Obligor, other than
those created or imposed by the Facility Documents.
(g) No consent, license, permit, approval or authorization of,
exemption by, notice to, report to, or registration, filing or declaration with
any person is required in connection with the execution, delivery, performance
or validity of this Agreement or the transactions contemplated thereby by the
Obligors.
(h) Except for the sale of Distribution Solutions, Inc. and
the merger of Crown-Bestway Corp. into Silver Star Express, Inc., Schedule IV of
the Credit Agreement sets forth, as of the date hereof, the name of (a) each
Subsidiary of the Borrower and (b) each Affiliate that is owned by a
Consolidated Entity, that has an ownership interest in a Consolidated Entity or
that has entered into a transaction with any Consolidated Entity, in each case
showing the jurisdiction of its incorporation or organization and showing the
percentage of each Person's ownership of the outstanding stock or partnership
interests of such Subsidiary or Affiliate. All of the outstanding shares of
capital stock and all of the partnership interests of each Subsidiary owned by
the Borrower, either directly or indirectly, are validly issued, fully paid and
nonassessable (except for statutory wage claims), and all such shares or
interests are owned free and clear of all Liens (other than as created under the
Security Documents). Except as set forth in said Schedule IV, no Consolidated
Entity owns or holds the right to acquire any shares of stock or any other
security or interest in any other Person.
(i) After giving effect to the provisions of this Agreement,
(i) the Borrower is currently solvent and has no intention to file or acquiesce
in any bankruptcy or insolvency proceedings at any time hereafter, and (ii) the
waiver provided by this Agreement is sufficient for it to reorganize its
financial affairs, and if an Event of Default shall occur, the Borrower and each
Obliger acknowledge that the Banks shall be entitled (and the Borrower and each
Obligor hereby consent) to relief from any automatic stay which may be imposed
under Section 362 of Title 11 of the U.S. Code, or under any other applicable
provision thereof, and to exercise all rights and remedies to which it may be
entitled.
(j) The Obligors confirm that all of the Secured Obligations
are due and owing in accordance with their respective terms and are not subject
to, and the Obligors hereby release and waive, any claim, counterclaim, defense
or offset of any kind or nature. The Borrower and each Obligor further release
and discharge each Bank, the Agent and the Co-Agent from any claim, demand or
liability of any kind or nature arising in connection with or relating to this
Agreement and the consummation of the transactions contemplated herein.
(k) The Obligors confirm and acknowledge that they were
represented by counsel of their choosing in connection with this Agreement and
have entered into this Agreement with full understanding of each of the terms
and provisions hereof.
10. Further Covenants. To induce the Banks to enter
into this Agreement, the Obligors further covenant and agree as follows:
(a) The Borrower shall deliver to the Banks a true, correct
and complete copy of its Annual Report on Form 10-K for the fiscal year ending
December 31, 1996 no later than 5:00 p.m., April 15, 1997, which Annual Report
shall be substantially identical to the Draft 10-K (except for such changes as
shall be identified by the Borrower prior to the execution of this Agreement).
(b) Each Obligor shall execute, from time to time, immediately
upon request of any Bank, UCC-1 financing statements necessary or desirable for
the Banks to further reflect of record their security interests in the property
of the Obligors.
11. General Provisions. All of the terms and provisions
of Article 12 of the Credit Agreement are incorporated herein by reference as
if set forth at length herein.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
BORROWER:
CONSOLIDATED DELIVERY & LOGISTICS, INC.
By:
Name:
Title:
By:
Name:
Title:
(signatures continued on next page)
SUBSIDIARY BORROWERS:
AMERICAN COURIER, INC.
By:
Name:
Title:
By:
Name:
Title:
CLICK MESSENGER SERVICE, INC.
By:
Name:
Title:
By:
Name:
Title:
COURT COURIER SYSTEMS, INC.
By:
Name:
Title:
By:
Name:
Title:
SILVER STAR EXPRESS, INC.
By:
Name:
Title:
By:
Name:
Title:
CLAYTON/NATIONAL COURIER SYSTEMS, INC.
By:
Name:
Title:
By:
Name:
Title:
(signatures continued on next page)
SUREWAY LOGISTICS CORPORATION
By:
Name:
Title:
By:
Name:
Title:
NATIONAL EXPRESS COMPANY, INC.
By:
Name:
Title:
By:
Name:
Title:
OLYMPIC COURIER SYSTEMS, INC.
By:
Name:
Title:
By:
Name:
Title:
SECURITIES COURIER CORPORATION
By:
Name:
Title:
By:
Name:
Title:
SUREWAY AIR TRAFFIC CORPORATION
By:
Name:
Title:
By:
Name:
Title:
(signatures continued on next page)
CLICK MESSENGER SERVICE OF N.Y., INC.
By:
Name:
Title:
By:
Name:
Title:
SUMMIT BANK, as Agent
By:
Name:
Title:
MELLON BANK, N.A., as Co-Agent
By:
Name:
Title:
BANKS:
SUMMIT BANK
By:
Name:
Title:
MELLON BANK, N.A.
By:
Name:
Title:
EXHIBIT 11.1
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
NET LOSS PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(In Thousands Except Share Information)
SHARES CONSIDERED: 1995 1996
------------------ ---------------
Weighted average portion of 2,100,000 common shares issues in connection with
the formation of CD&L adjusted to reflect 1,400,000 common shares redeemed and
canceled in connection with a termination agreement and 305,577 common shares
redeemed and canceled in connection with a management agreement
1,450,479 394,423
Weighted average portion of 99,446 common shares issued in connection with a
termination agreement 37,871 99,446
Weighted average portion of 2,935,700 common shares issued to the stockholders
of the Founding Companies 273,462 2,935,700
Weighted average portion of 3,200,000 common shares sold in the Initial Public
Offering 298,082 3,200,000
Weighted average portion of 166,221 common shares issued in connection with the
acquisitions of businesses 0 47,977
------------------ ---------------
Total common shares considered 2,059,894 6,677,546
================== == ===============
NET LOSS ($195) ($683)
================== == ===============
NET LOSS PER SHARE (a) ($.10) ($.10)
================== == ===============
(a) The conversion of the Company's debentures and stock options are
excluded from the computation as the effect would be antidilutive.
Exhibit 21.1
LIST OF SUBSIDIARIES
1. American Courier, Inc.
2. Clayton/National Courier Systems, Inc.
3. Click Messenger Service, Inc.
4. Click Messenger Service of N.Y., Inc.
5. Court Courier Systems, Inc.
6. National Express Company, Inc.
7. Olympic Courier Systems, Inc.
8. Securities Courier Corporation
9. Silver Star Express, Inc.
10. SureWay Air Traffic Corporation
11. SureWay Logistics Corporation
EXHIBIT 23.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Consolidated Delivery & Logistics, Inc.:
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 333-3321 and 333-3323).
ARTHUR ANDERSEN LLP
Roseland, New Jersey
April 15, 1997
Exhibit 25.1
POWER OF ATTORNEY
WHEREAS, the undersigned officers and directors of Consolidated Delivery &
Logistics, Inc. (the "Company") desire to authorize Albert W. Van Ness, Jr.,
William T. Brannan and Joseph G. Wojak to act as their attorneys-in-fact and
agents, for the purpose of executing and filing the Company's Annual Report on
Form 10-K, including all amendments thereto;
NOW, THEREFORE,
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Albert W. Van Ness, Jr.,
William T. Brannan and Joseph G. Wojak, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
to execute the Company's Annual Report on Form 10-K, including any and all
amendments and supplements thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned have executed this power
of attorney in the following capacities as of the15th day of April, 1997.
SIGNATURE TITLE
______________________________ Chairman of the Board, Chief Executive Officer and
Albert W. Van Ness, Jr. Director (Principal Executive Officer)
______________________________ Chief Operating Officer and Director
William T. Brannan
______________________________ Executive Vice President, Chief Financial Officer and
Joseph G. Wojak Director (Principal Financial and Accounting Officer)
______________________________ Vice Chairman-Strategic Planning and Director
William T. Beaury
______________________________ Director
Vincent P. Brana
______________________________ Director
Michael Brooks
______________________________ Director
Andrew B. Kronick
______________________________ Director
Labe Leibowitz
______________________________ Director
Thomas LoPresti
______________________________ Director
John Mattei
______________________________ Director
Kenneth W. Tunnell
______________________________ Director
Robert Wyatt