U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File No. 0-27780
U-SHIP, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0355929
--------------------------------- ---------------------------------
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
5583 West 78th Street, Edina, MN 55439
--------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (612) 941-4080
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
As of March 31, 1998 the issuer had outstanding 4,979,717 shares of common
stock, $.004 par value.
<PAGE>
U-SHIP, INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
Page
----
PART 1. FINANCIAL INFORMATION...............................................3
ITEM 1.
a) Condensed Consolidated Financial Statements...................3
b) Condensed Consolidated Balance Sheets -
March 31, 1998 and June 30, 1997..............................3
c) Condensed Consolidated Statements of
Operations - Three and Nine months ended
March 31, 1998 and 1997.......................................4
d) Condensed Consolidated Statements of
Cash Flows - Nine months ended
March 31, 1998 and 1997.......................................5
e) Notes to Condensed Consolidated Financial
Statements....................................................6
ITEM 2.
a) Management's Discussion and Analysis of
Financial Condition and Results of Operations.................8
PART II. OTHER INFORMATION...................................................20
ITEM 6. Exhibits .....................................................21
27 Financial Data Schedule
SIGNATURES....................................................22
<PAGE>
PART. I. - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U-SHIP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 35,408 $ 724,260
Short-term investments -- $ 250,000
Accounts receivable 74,913 138,683
Prepaid expenses 6,315 32,723
Inventories 627,737 753,917
------------ ------------
Total current assets 744,373 1,899,583
------------ ------------
PROPERTY AND EQUIPMENT:
Shipping centers 1,517,185 1,290,952
Furniture, fixtures and equipment 514,831 558,233
Less-Accumulated depreciation (850,781) (496,500)
------------ ------------
Total property and equipment,net 1,181,235 1,352,685
------------ ------------
Other assets, net 181,878 186,871
------------ ------------
$ 2,107,486 $ 3,439,139
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 59,915 $ 72,925
Deferred Revenue 29,171 53,289
Accounts payable 281,308 157,041
Accrued liabilities 226,196 391,265
------------ ------------
Total current liabilities 596,590 674,520
------------ ------------
Long-term debt, net of current maturities 86,205 104,386
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.004 par value; 25,000,000 shares authorized;
none issued and outstanding -- --
Common stock, $.004 par value; 75,000,000 shares authorized;
4,979,717 and 4,967,669 issued and outstanding 19,919 19,871
Additional paid-in capital 10,512,810 10,492,075
Warrants 19,500 19,500
Accumulated deficit (9,127,538) (7,871,213)
------------ ------------
Shareholders' equity 1,424,691 2,660,233
------------ ------------
$ 2,107,486 $ 3,439,139
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
Package shipping revenue $ 178,859 $ 170,455 $ 597,255 $ 492,015
Machine sales revenue 30,021 22,996 111,865 135,628
Other revenue 3,839 3,813 56,214 22,216
----------- ----------- ----------- -----------
Net sales 212,719 197,264 765,334 649,859
Cost of goods sold (181,391) (170,372) (617,213) (545,440)
----------- ----------- ----------- -----------
Gross profit 31,328 26,892 148,121 104,419
General and administrative 316,434 607,254 1,205,642 1,295,642
Marketing and sales 8,638 166,059 76,105 429,157
Research and development 22,037 7,438 120,759 145,437
----------- ----------- ----------- -----------
Loss from operations (315,781) (753,859) (1,254,385) (1,765,817)
Interest income (775) (13,046) (15,679) (79,715)
Interest expense 5,146 6,171 17,619 12,007
----------- ----------- ----------- -----------
Net loss $ (320,152) $ (746,984) $(1,256,325) $(1,698,109)
=========== =========== =========== ===========
Basic & diluted
net loss per share $ (0.06) $ (0.19) $ (0.25) $ (0.42)
----------- ----------- ----------- -----------
Basic & diluted weighted
average number of common
shares outstanding 4,979,718 4,017,906 4,976,732 4,016,281
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss $(1,256,325) $(1,698,109)
Adjustments to reconcile net loss to net cash flows used for
operating activities-
Depreciation and amortization 400,015 198,152
(Gain)/Loss on retirement of equipment 1,986 4,312
Change in current operating items:
Checks held, not yet presented for payment -- (1,851,365)
Accounts receivable 63,770 (77,954)
Inventories 126,180 (92,599)
Prepaid expenses and other 26,408 (49,695)
Accounts payable 124,267 261,325
Accrued liabilities and deferred revenue (189,187) (419,269)
----------- -----------
Cash used for operating activities (702,886) (3,725,202)
----------- -----------
INVESTING ACTIVITIES:
Sale of equipment 20,621 --
Purchases of property and equipment (246,179) (1,132,235)
Sale of short-term investments 250,000 --
----------- -----------
Cash used for investing activities 24,442 (1,132,235)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt -- 151,294
Payments on notes payable and long-term debt (31,191) (45,759)
Sale of common stock 20,783 300,588
----------- -----------
Cash provided by financing activities (10,408) 406,123
----------- -----------
Net decrease in cash and cash equivalents (688,852) (4,451,314)
Cash and cash equivalents, beginning of period 724,260 4,822,785
----------- -----------
Cash and cash equivalents, end of period $ 35,408 $ 371,471
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by U-Ship, Inc. which, together with its wholly-owned subsidiaries,
shall be referred to herein as the "Company", without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. The Company's
business is seasonal and, accordingly, interim results are not indicative of
results for a full year. In the opinion of the Company, all adjustments
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company as of March 31, 1998, and the results of its
operations for the nine months ended March 31, 1998 and 1997, have been
included. Certain information in footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements for the year ended June 30, 1997, and the footnotes thereto, included
in the Company's Report on Form 10-KSB, filed with the Securities and Exchange
Commission on September 26, 1997.
1. Basis of Presentation:
Principles of consolidation - The consolidated financial statements include the
accounts of U-Ship, Inc. and its wholly owned subsidiaries. All inter-Company
balances and transactions have been eliminated in the consolidation.
2. Basic and Diluted Net Loss Per Share:
In the second quarter of fiscal 1998, the Company adopted SFAS No. 128,
"Earnings per Share" which is effective for interim periods ending after
December 15, 1997. As a result, all prior period earnings per share data has
been restated. The adoption of SFAS No. 128 did not have a significant impact on
previously reported earnings per share. Basic earnings per common share was
computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period. Dilutive earnings per common share
was computed similar to the computation of basic earnings per share, except that
the denominator is increased for the assumed exercise of dilutive options and
other dilutive securities using the treasury stock method. No options or other
dilutive securities were included in diluted earnings per share as they would be
antidilutive. Total options and warrants outstanding for the periods ended March
31, 1998 and 1997 were 1,856,946 and 1,180,946, respectively.
3. Inventories:
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market. Inventories consist of shipping systems in various stages of completion,
including component parts. The components of inventory are:
March 31, June 30,
1998 1997
--------- ---------
Raw materials and work components $ 609,737 $ 718,217
Finished goods 18,000 35,700
--------- ---------
$ 627,737 $ 753,917
========= =========
4. Revenue Recognition:
The Company has historically generated revenue from two primary sources: The
per-package shipping revenue generated from ongoing shipping volume and the sale
of automated shipping centers. Revenues are also derived, to a lesser extent,
from the sale of shipping supplies and maintenance contracts.
Package shipping revenue is recognized when the package is shipped. Revenue from
maintenance contracts is deferred and recognized over the period of the related
agreement.
<PAGE>
The Company generally recognizes revenue from sales of shipping systems upon
delivery and installation. Certain sales agreements allow the customer to return
the shipping system under certain circumstances within the first 12 months. Such
revenue and related costs are deferred until the return rights lapse and certain
other conditions are met.
Historically, ASCs placed in service by the Company have been leased by
retailers from third party leasing companies. The Company placed in service
approximately one-sixth of its ASCs through such arrangements. During 1996 and
1997, however, the Company's deployment strategy has been to emphasize the
placement of Company-owned and operated ASCs in retail locations. The lessor has
certain recourse to the Company in case of customer default or return of the
automated shipping center, primarily to re-market the automated shipping center
on a best effort basis. The Company has reserved the estimated cost of
fulfilling such recourse arrangements.
6. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
ultimate outcomes could differ from those estimates.
7. Subsequent Events
On May 4, 1998, the Company sold 750,003 Units (each Unit consisting of 2 shares
of the Company's Series A Cumulative Convertible Preferred Stock and a Warrant
to purchase 1 share of common stock) to various individual accredited investors
(the "Additional Investors") at a purchase price of $1.20 per Unit, for a total
consideration to the Company of $900,003.60. Each share of the Series A
Cumulative Convertible Preferred Stock is convertible into the Company's $.004
par value common stock, has the same voting rights as the common stock, and is
entitled to a 5% cumulative dividend. Each warrant may be exercised to purchase
one share of common stock at a price of $1.75 per share, at any time before May
1, 2001. The Additional Investors were granted demand and "piggy-back"
registration rights in connection with their purchase of the Units. In addition,
pursuant to a private placement memorandum dated April 20, 1998, the Company is
offering to accredited investors up to 1,245,000 Units at a purchase price of
$1.20 per Unit. These Units are identical to the Units purchased by the
Additional Investors and also entitle the purchaser to demand and "piggy-back"
registration rights. These Units are being offered through R.J. Steichen & Co.
(the "Agent") on a "best efforts all or none" basis. The Agent has received
subscriptions for all 1,245,000 Units, plus a portion of the over allotment of
250,000 additional Units, and the funds have been placed in escrow pending
resolution of certain concerns raised by Nasdaq in relation to the Company's
continued listing on the Nasdaq SmallCap Market. See "Financing Subsequent to
March 31, 1998."
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
U-SHIP, INC. AND SUBSIDIARIES
THE FOLLOWING DISCUSSION CONTAINS VARIOUS FORWARD-LOOKING STATEMENTS AS
DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WHICH MAY BE
IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "EXPECT,"
"ANTICIPATE," "ESTIMATE," "GOAL," "CONTINUE," OR OTHER COMPARABLE TERMINOLOGY.
SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES RELATING TO THE
COMPANY'S FUTURE PERFORMANCE. ACTUAL RESULTS OR EVENTS MAY MATERIALLY DIFFER
FROM THOSE INDICATED IN SUCH FORWARD-LOOKING STATEMENTS. IN EVALUATING SUCH
STATEMENTS, SHAREHOLDERS AND PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS AND ARE SPECIFICALLY DIRECTED
TO REVIEW THE VARIOUS FACTORS IDENTIFIED UNDER THE CAPTION "CAUTIONARY FACTORS"
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN
SUCH FORWARD-LOOKING STATEMENTS. IT IS SUGGESTED THAT THIS DISCUSSION BE READ IN
CONJUNCTION WITH THE COMPANY'S REPORT ON FORM 10-KSB, FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1997.
GENERAL
For approximately five years the business of U-Ship, Inc. (the
"Company" or "U-Ship") has been the manufacture, marketing and operation of
self-service, automated shipping systems for use by consumers and small business
shippers who ship packages and priority letters through major carriers in the
air express and package delivery market. In 1996, the Company began deployment
of Company-owned network of electronic, customer-operated, self-service shipping
centers ("ASC"). ASCs have generally been placed in office services/copy centers
including Kinko's and OfficeMax, and in other retail locations such as grocery
and general merchandise stores. As of March 31, 1998, the Company had 315 ASCs
installed in 41 states and Canada. The Company currently derives revenue
primarily from package shipping transactions and, to a lesser extent, from the
sale of ASCs. The Company holds eight patents related to hardware and software
utilized in its ASCs and is not aware of any other comparable self-service,
automated shipping systems currently marketed or available to consumers and
small business package shippers. The Company believes that its ASC technology is
among the most advanced self-service automated air express and package shipping
system available for consumers and small businesses.
The Company enters into agreements with retailers to provide service
and maintenance support related to the operation of the ASCs at retail
locations. The services provided by the Company under these agreements include
data processing of credit card transactions, reconciliation and payment of
weekly UPS bills for service contracted by the Company, customer service support
related to package tracking and damage and loss claims for consumers who have
used the system. These agreements also provide for maintenance of the hardware
and licensing of the software related to operating ASCs. The Company generates
revenue from package shipping transactions and compensates retailers based upon
the number of shipping transactions processed. Each location in the Company's
network of ASCs is centrally controlled and serviced through an electronic
connection to the Company's computer network system located at its headquarters.
The Company accepts cash and major credit cards for payment of package shipping
charges. The Company also issues U-Ship private labeled "Preferred Business
Shipper" credit cards to small businesses for which it bills and collects
monthly.
HISTORICAL BUSINESS STRATEGY. The Company's strategy has been to make
shipping services available to consumers through the installation of its ASC
systems in major office supply and instant printing outlets, business centers
and office parks. Historically, ASCs placed in service by the Company were
leased by retailers from third party leasing companies or were Company-owned.
Beginning in 1996, the Company's deployment strategy emphasized the placement of
Company-owned and operated ASCs in retail locations. In the fourth quarter of
1997, the Company re-evaluated these deployment methods in light of lower than
anticipated package shipping volumes, and reduced its number of new
Company-owned ASC placements. In response to these lower shipping volumes, the
Company has also been seeking to market its ASC technology to private carriers
in addition to its previous strategy of retail placements. The Company believes
that air express and package shipping carriers may, in the future, utilize some
form of self-service technology to increase accessibility to their services,
although there can be no assurance that any major carriers will decide to employ
the Company's technology.
<PAGE>
The Company believes its efforts to increase the volume of ASC
transactions and market acceptance of ASCs have been unsuccessful primarily
because no significant concerted marketing effort has been implemented by the
Company or retail users of its ASCs. Based on this, the Company has recently
revised its business strategy in an attempt to increase revenue and leverage its
technology.
REVISED BUSINESS STRATEGY. The Company has completed the development of
its technology and began testing and evaluating the technology in the field. The
Company has tested several different market segments through installing and
operating its ASCs in mass merchandisers, grocery, copy service, and carrier
locations. The data and performance measures gathered from these in-field
operations provided optimal location factors, and various ownership and/or
leasing operating strategies. The ASC technology was proven to be functionally
successful for consumer use; however, this evaluation phase has indicated
Company ownership of ASCs may not a viable strategy for expansion of the concept
because it is capital intensive and full implementation would require
significant capital which exceeds the Company's resources.
The Company believes the concept needs further and broader market
testing in segments that have shown to provide sufficient package volume for
positive contribution to operations. In addition to focusing on proper placement
of ASCs, the Company plans to test various marketing efforts to generate both
consumer awareness for, and consumer trial of the ACS system. Company management
will evaluate such tests to determine how best to exploit the ASC technology.
The Company intends to pursue certain strategies in an attempt to
increase consumer awareness and acceptance of its ASCs. These strategies
include:
ASC PLACEMENT STRATEGY. The Company has discontinued deploying
additional new Company-owned ASCs in retail locations. The Company will
continue to service existing deployed ASCs pursuant to its contractual
obligations as long as its resources permit, or as long as is
financially viable to do so, and will evaluate existing locations to
determine criteria for new targeted customers. In addition, the Company
intends to reposition approximately 200 ASCs to new locations it
believes may provide increased package revenue.
MARKET TESTING. The Company plans to test various marketing efforts to
prove the financial viability of the ASC concept. The Company intends
to relocate some of the existing ASCs as part of its consumer marketing
plans. Marketing test efforts will be aimed at generating increased
revenues by increasing consumer awareness of the ASC product,
motivating consumers and small businesses to try it and, based on that
trial, to try it again. This should enable the Company to better
understand where to optimally locate units and how to increase volume
cost effectively. Further, by proving the financial viability of the
ASC concept, the Company believes it would have a more compelling
investment story to make to third party purchasers of the ASC systems,
as well as a more compelling investment/alliance opportunity for the
major express package carriers.
Specifically, testing will include:
a) Positioning the ASCs as "shipping made easy", and testing this
positioning versus several other options such as "fast
shipping" similar to the ATM`s positioning of "fast banking."
b) Aggressively gaining consumer trial against the believed
target audience.
c) Developing and testing a customer loyalty program for
continuity of use as well as increased usage from first time
users to increase frequency of exposure and use of the ASC
concept.
STRATEGICALLY POSITION U-SHIP as the brand dominant technology in this
category so U-Ship becomes the dominant standard for how one ships a
package/letter via an automatic machine. This should give the brand
more market value and more leverage with carriers, licensees, joint
<PAGE>
ventures and franchisees, all of which should translate into more
efficient use of advertising dollars and improved future profitability
for the Company. Further, the Company anticipates that this brand
dominance may translate into describing the transaction type to further
reinforce the brand's image.
JOINT VENTURE/FRANCHISE. Although the Company does plan to phase out
self-ownership of new ASCs, it will endeavor to sell/license/lease
units to third parties through partnerships, joint ventures and/or
franchises. The Company believes this may achieve sales revenue while
limiting investment risk for the Company. The Company intends to pursue
partners and licensees to purchase U-Ship ASCs for location in specific
sites/territories, which are independent of the major carriers. The
Company believes that successful implementation of this strategy will
increase Company sales of the ASCs and increase their market
penetration without necessitating additional capital investment in
developing the network.
LEVERAGING TECHNOLOGY. The Company expects to continue to leverage its
existing technology, know-how and patent position to create strategic
relationships with key major carriers through licensing the technology
or selling ASC units/systems. Given the lack of success to date in
forming such relationships, it is unknown whether a major carrier
relationship will result in the foreseeable future.
TECHNOLOGICAL CHANGES. The Company plans to exploit technological
opportunities and changes that emerge. For example, the Company
believes its ASC technology is ideally suited to the recently approved
U.S. Postal "E" Stamp, which allows postage to be electronically
generated. The Company believes that its ASC could provide customers
the ability to more easily and conveniently weigh and label packages
and purchase postage to mail parcel packages through the United States
Postal Service.
PURSUE OEM CARRIERS who control the industry and license them to use
the Company's technology and/or sell them the Company's ASC machines to
efficiently expand their market coverage so they can efficiently
service the occasional small business or consumer shipping transaction
profitably without increasing prices or incurring substantial overhead
charges.
ACQUISITION STRATEGY. Simultaneous to proving the viability of the ASC
concept, the Company will seek to identify and evaluate acquisition or
merger opportunities. The Company may acquire or merge with businesses
outside, and unrelated to, its current field of business. The Company
has not targeted any specific area of business for a potential
acquisition. No assurance can be given that the Company will be
successful in acquiring, or merging with, any business.
ADDITIONAL MANAGEMENT AND OTHER PERSONNEL. The Company has identified
additional management and other personnel to be hired to implement the
strategies discussed herein, and develop additional strategies to
expand its business. These identified personnel will be charged with
the mission of proving the viability of the ASC technology and
determining how to improve shareholder value. The additional management
personnel have provided additional capital to the Company through
acquiring Units as part of the Additional Investors, as described
below.
There can be no assurance that any of the aforementioned strategies
will be implemented, or, if implemented, that any of such strategies will be
successful or cost effective.
CONTINUED EVALUATION OF ASC STRATEGY. The Company's Board is continuing
to evaluate the Company's business and strategy, as well as strategic
alternatives that may enable the Company to remain viable and to achieve
profitable operations. To implement this process and assist the Board, the Board
engaged Manchester Financial Group, Inc. ("Manchester") in September 1997 to
provide certain advisory and consulting services, including, but not limited to,
a strategic review and analysis of the Company's business, market, management,
development plans and financing. Manchester's efforts were helpful in assisting
the Company to reassess its
<PAGE>
current business practices. Recently, Manchester's engagement by the Company was
revised in favor of an as-needed consulting arrangement by which Manchester
agreed to provide ongoing services in an advisory capacity. In addition, in
April 1998, the Company's Board appointed two new directors to fill vacancies on
the Board and began working with several outside consultants to develop a plan
for restructuring, financing and marketing the Company's products and
technology. As a part of its restructuring strategy, the Company will be
evaluating acquisition or merger opportunities. Such evaluations are at an early
stage and no assurance can be given that a suitable acquisition or merger
opportunity can be identified or completed
RESULTS OF OPERATIONS
Package shipping revenue for the three months ended March 31, 1998,
increased $8,404 or 5% to $178,859 from $170,455 for the same period in 1997.
Net sales for the three months ended March 31, 1998, increased $15,455 or 8% to
$212,719 from $197,264 for the same period in 1997. The increase in package
shipping revenue is the result of the higher number of ASC locations. New ASC
units take a number of months to reach their expected on-going volume. As a
result, the increase in package volume does not reflect the expected full impact
of the increase in number of ASC locations from 270 active units as of March 31,
1997 to 315 active units at the end of March 31, 1998. The Company's
expectations of package volume at new ASC locations have not been met to date.
The Company plans to relocate on a gradual basis all or substantially all of its
ASCs currently located at CopyMax stores due to lower than anticipated package
volume from these machines. There can be no assurance that the Company will be
successful in increasing package-shipping volumes substantially at its existing
or relocated ASC locations.
Package shipping revenue for the nine-month period ended March 31,
1998, increased $105,240 or 21% to $597,255 from $492,015 for the same period in
1997. Net sales for the nine-month period ended March 31, 1998, increased
$115,475 or 18% to $765,334 from $649,859 for the same period in 1997. These
increases are due primarily to the Company's increasing number of locations.
Gross margins increased by $4,436 or 16% to $31,328 for the three-month
period ended March 31, 1998, from $26,892 for the same period in 1997. For the
nine-month period ended March 31, 1998, gross margins increased by $43,702 or
42% to $148,121 from $104,419 for the corresponding nine-month period from the
prior year. Gross margins as a percent of sales have increased to 15% in the
third quarter of 1998 from 12% in the second quarter. The Company anticipates
that new installations at Kinko's and CopyMax stores take a minimum of 12 months
to ramp up to expected volumes. Historically, new CopyMax and Kinko's sites have
not performed to these expectations. Provided per site volumes increase, the
Company expects gross margins to increase as fixed costs related to UPS pickup
fees are covered through an increase in package shipping volume. However, these
expectations may be adversely affected by the Company's plan to gradually
relocate its ASCs currently situated at CopyMax locations.
General and administrative expenses for the three months ended March
31, 1998, decreased $290,820 or 48% to $316,434 from $607,254 for the same
period in 1997. The majority of the decrease is attributed to personnel
expenses, which decreased by $190,180, and expenses associated with ASC training
and installation that decreased by $33,281. For the nine-month period ended
March 31, 1998 general and administrative expenses decreased $90,000 or 7% to
$1,205,642 from $1,295,642 for the same period in 1997. Personnel expenses
decreased by $267,141, partially offset by an increase in ASC depreciation
expense of $174,069.
Marketing and sales expenses for the three months ended March 31, 1998
decreased $157,421 or 95% to $8,638 from $166,059 for the same period in 1997.
Personnel expenses represented $82,830 of the decrease and the remainder
reflects the decrease in marketing and sales activities related to the placement
of ASC units. Marketing and sales expenses for the nine-months ended March 31,
1998 decreased $353,052 or 82% to $76,105 from $429,157 for the same period in
the prior year. Personnel expenses represented $203,410 of the decrease between
the two periods and the remainder reflects the decrease in marketing and sales
activities related to the placement of ASC units.
Research and development expenses for the three months ended March 31,
1998, increased $14,599 or 196% to $22,037 from $7,438 for the corresponding
period in fiscal 1997. The increase in research and
<PAGE>
development expense results from a one-time reallocation among existing staff.
For the nine-month period ended March 31, 1998, research and development
expenses decreased by $24,678 or 17% to $120,759 compared to $145,437 for the
corresponding period in fiscal 1997. The reduction in research and development
expenses is primarily related to the implementation of the Company's plan to
reduce general and administrative expense through a reduction in staff. The
Company expects these costs to stay relatively stable for the balance of the
fiscal year.
Interest income decreased by $12,271 for the three months ended March
31,1998 as the Company's short-term investments have been used to fund losses.
Interest expense decreased from $6,171 for the three month period ended March
31, 1997 to $5,146 for the same period in 1998, attributed to the retirement of
a portion of long-term debt. For the nine-month period ended March 31, 1998,
interest income decreased by $64,036 to $15,679, from $79,715 for the
corresponding period in 1997 as the Company's short term investments have been
used to fund losses. For the nine-month period ended March 31, 1998, interest
expense increased by $5,612 to $17,619 from $12,007 for the corresponding period
in 1997. This increase is attributed to an increase in long term lease
financing.
Net loss for the three months ended March 31, 1998, decreased $426,832
to $320,152 from $746,984 for the same period in the prior fiscal year. Net loss
for the nine months ended March 31, 1998 decreased $441,784 to $1,256,325 from
$1,698,109 for the comparable period in the prior year. The Company expects to
incur additional losses until it has a critical mass of ASCs generating
sufficient volume to offset its investment and operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed a public offering in May 1996, which raised
approximately $5.4 million. The Company used approximately $1.9 million of the
proceeds to repay bridge notes and bank debt, leaving net proceeds of
approximately $3.5 million to finance growth and working capital.
The Company's loss for the nine-month period ended March 31, 1998 was
$1,256,325. As noted above, the Company expects revenue levels to continue
increasing as its existing network of ASCs mature. However, the Company expects
to incur losses for the foreseeable future as its present installation base of
315 ASCs do not generate sufficient revenue to support its present level of
general and administrative expense and cost of sales.
During September 1996, the Company entered into an agreement with
Kinko's to install up to 250 ASCs in Kinko's Copy Centers by December 1997. In
October 1996, the Company entered into a similar agreement to install 73 ASCs in
OfficeMax locations by the end of January 1997. Through March 31, 1998, the
Company has installed 201 units at an approximate cost of $886,000. To date, the
Company has utilized funds generated from its May 1997 public offering and
April, 1997 private placement to fund the contract obligation to install these
units. The Company has ceased the installations of Company-owned ASCs as of
December 1997. As noted above, the Company plans to relocate all or
substantially all of its ASCs currently located at CopyMax stores due to lower
than anticipated package volume from these machines. These units will be moved
to locations which the Company believes will result in higher volumes of package
shipments. Although the Company will incur expenses with respect to such
relocations, it believes that it will be able to relocate such ASCs at a cost
below that of new machine fabrication and installation, and believes it may be
able to recoup such costs if increases in package shipment volumes in fact
occur.
Inventory levels decreased by approximately $126,200 as of March 31,
1998, compared to June 30, 1997, reflecting the Company's revised strategy of
discontinuing new placements of Company-owned ASCs. Accounts receivable
decreased by approximately $63,800 from June 30, 1997 to March 31, 1998 due to
concentrated collection efforts. Accounts payable increased by approximately
$124,270 over the same period due to an increase in trade debt to UPS due to
higher shipping volumes. Accrued liabilities and deferred revenue decreased due
to reductions in the Company's liability associated with the possible exercise
of return rights of ASCs.
Based on current commitments and on-going working capital needs, the
Company believes that it will require additional debt or equity funds within the
next 180 days to continue to fund its on-going operations. There
<PAGE>
can be no assurance that such financing will be available to the Company on
terms satisfactory to it. The Company believes that the net proceeds from the
private placement being conducted by the Agent will provide the necessary
working capital, although the Company cannot guarantee that such private
placement will in fact close.
FINANCING SUBSEQUENT TO MARCH 31, 1998
In order to finance the implementation of the revised business strategy
outlined above, the Company has engaged in various efforts to raise equity
capital from private investors. Pursuant to a Confidential Private Placement
Memorandum dated April 20, 1998, the Company is currently offering to accredited
investors 2,491,000 shares of its $0.004 par value Series A Cumulative
Convertible Preferred Stock (the "Preferred Shares"), together with Warrants
("the Warrant") to purchase 1,245,500 shares of common stock. The Preferred
Shares and Warrants are being offered and will be sold in units ("Units"), each
consisting of two (2) Preferred Shares and one (1) Warrant to purchase one share
of common stock at a price of $1.75 per share. The Units are being offered at a
purchase price of $1.20 per Unit. The Company has also agreed to reserve an
additional 250,000 Units for sale to cover over-allotments. Each of the
Preferred Shares is convertible into the Company's $0.004 par value common
stock, has the same voting rights as the common stock, and is entitled to a 5%
cumulative annual dividend. Subject to their registration under, or exemption
from, applicable federal and state securities laws, the Warrants may be
exercised to purchase common stock any time before May 1, 2001. Pursuant to
their subscription agreements, investors in this offering will receive both
demand and "piggy-back" registration rights.
The Units are being offered by R.J. Steichen & Co. (the "Agent"), a
non-exclusive agent of the Company on a "best efforts, all or none" basis.
Subscriptions for all 1,245,000 Units have been received by the Agent and the
funds therefor placed in escrow. In addition, subscriptions for a portion of the
over-allotment of up to 250,000 Units have been received by the Agent and the
funds placed in escrow. Due to concerns regarding the continued listing of the
Company's common stock on the Nasdaq SmallCap Market (see "Cautionary Factors-No
Assurance of Continued Quotation on the Nasdaq Stock Market; Penny Stock
Rules"), the offering has not closed as of the date hereof, and no assurances
can be given as to when, or if, a closing will take place.
The net proceeds from the sale of the Units offered to investors in the
above-described private placement is anticipated to be $1,275,000, not including
any sale of the over-allotment amount. These proceeds, together with the net
proceeds from the sale of the Additional Investor Units (as described below) in
the approximate amount of $900,000, will be used for marketing programs, ASC
repositioning costs, partnership development programs, research and development
and working capital.
The above-described private placement offering was made contingent upon
the Company's sale of a minimum of 583,333 additional Units to various
individual investors. Pursuant to subscription agreements dated between March
15, 1998 and April 10, 1998 various individuals (collectively, the "Additional
Investors") conditionally agreed to purchase a minimum of 583,333 Units (the
"Additional Investor Units") at a purchase price of $1.20 per Unit. These
Additional Investor Units are identical to the Units being offered pursuant to
the above-described offering being sold by the Agent. Pursuant to their
subscription agreements, the Additional Investors were granted both demand and
"piggy-back" registration rights with respect to registration of the sale of the
common stock into which the Additional Investor Units may be converted. These
registration rights are identical to the registration rights being granted to
investors in the Units pursuant to the above-described private placement. The
investment by the Additional Investors was made contingent upon, among other
things, the simultaneous closing of the private placement by the Agent.
On May 4, 1998, the Additional Investors waived their contingencies and
closed on the purchase of 750,003 Units for a total consideration to the Company
of $900,003.60. As a result of these investments, the Company was able to bring
current certain of its outstanding obligations, including its debts to its
principal carrier, UPS. In addition, the Company believes that it is now in the
position to begin limited implementation of certain aspects of its revised
business and marketing strategy described above. However, the Company remains in
an uncertain financial situation, and believes that it is crucial to the
Company's ability to continue as a going concern to sell the Units offered to
investors in the private placement being conducted by the Agent. Failure to
close on that private placement could seriously jeopardize the Company's ability
to implement its revised business strategy
<PAGE>
and continue operations. The closing of the private placement being conducted by
the Agent is contingent upon its sale of the minimum number of Units as set
forth in the Memorandum, as well as the Company's common stock remaining listed
on the Nasdaq SmallCap Market, of which there can be no assurance.
The Company's business consultants, Peter C. Lytle, Marshall T. Masko,
Timothy G. Becker and Kenneth D. Zigrino, have provided the Company with
consulting and business development services in connection with the Company's
revised strategic plan and have agreed to provide such services in the future.
These individuals have assisted the Company's current management to develop a
preliminary strategy to grow the Company's business through re-positioning the
Company's product offerings and marketing efforts. They are also expected to
assist the Company in pursuing strategic partnerships and acquisitions as
opportunities arise. On March 23, 1998, options to purchase 500,000 shares of
common stock were issued to these four individuals in connection with the
development of the new business strategies described above. The options were
issued at the then-current market price of $0.40, and are exercisable for a
period of 10 years from the date of grant. Of these, options to purchase 245,250
shares of common stock were issued pursuant to authority previously granted by
the shareholders to the Company's Board of Directors under the Company's 1995
Stock Option Plan. In addition, the Company's Board of Directors has authorized
an increase of 500,000 shares to the Company's 1995 Stock Option Plan,
contingent upon shareholder approval of the increase in the number of options
issuable under the plan. The remaining options for 254,750 shares were granted
to the consultants subject to shareholder approval of such increase. On May 4,
1998, these consultants purchased a portion of the Additional Investor Units
sold by the Company.
<PAGE>
CAUTIONARY FACTORS. THE COMPANY WISHES TO CAUTION SHAREHOLDERS AND
PROSPECTIVE INVESTORS THAT THE FOLLOWING IMPORTANT FACTORS, AMONG OTHERS, COULD
IN THE FUTURE AFFECT THE COMPANY'S ACTUAL OPERATING RESULTS, AND THAT SUCH
RESULTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING
STATEMENTS MADE BY THE COMPANY. THE STATEMENTS UNDER THIS CAPTION ARE INTENDED
TO SERVE AS CAUTIONARY STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. THE FOLLOWING INFORMATION IS NOT INTENDED TO
LIMIT IN ANY WAY THE CHARACTERIZATION OF OTHER STATEMENTS OR INFORMATION UNDER
OTHER CAPTIONS AS CAUTIONARY STATEMENTS FOR SUCH PURPOSE. THE ORDER IN WHICH
SUCH FACTORS APPEAR BELOW SHOULD NOT BE CONSTRUED TO INDICATE THEIR RELATIVE
IMPORTANCE OR PRIORITY.
LOSSES FROM OPERATIONS; GOING CONCERN UNCERTAINTY. The Company entered
its current business in 1992 and has a limited operating history. The Company's
business is subject to all the risks inherent in the establishment of a new
business. The Company has never generated net income, continues to sustain
substantial operating losses and expects to continue to operate at a loss for
the foreseeable future. For the fiscal year ended June 30, 1997, the Company
incurred a net loss of $2,527,918. At June 30, 1997, the Company had an
accumulated deficit of $7,871,213 and working capital of $1,225,000. For the
nine months ended March 31, 1998, the Company incurred a net loss of $1,256,325
and had working capital of $147,783. The Company will continue to incur losses
at least until ASCs in service generate sufficient revenues to offset operating
costs. The Company requires the net proceeds from the above-described private
placement being offered by the Agent, as well as the proceeds already received
from the sale of Units to the Additional Investors, to continue operations for
the remainder of calendar 1998. As of March 31, 1998, 315 ASCs were in operation
in 41 states. In fiscal years 1996 and 1997, the Company had in service 156 and
300 ASCs, respectively. For the years ended June 30, 1996 and 1997, the Company
processed 52,463 and 55,470 individual shipping transactions, respectively.
During the nine-month period ending March 31, 1998, the Company's
general and administrative expenses were $1,205,642, or approximately 158% of
net sales. No assurances can be given that the Company's operations will ever
generate revenue sufficient to cover general and administrative expense and cost
of sales.
The reports of the Company's independent public accountants concerning
the Company's financial statements as of June 30, 1996 and 1997 contain
explanatory paragraphs relating to the Company's ability to continue as a going
concern. There can be no assurance that the Company will ever achieve profitable
operations. The Company expects that it will require additional debt or equity
financing during the next 180 days to continue its business. The Company has not
made arrangements for additional financing and no assurance can be given that it
will be able to secure such financing when needed. A failure on the part of the
Company to obtain the proceeds from the private placement being conducted by the
Agent or obtain other financing when required would result in the reduction or
cessation of the Company's business.
NO ASSURANCE OF CONTINUED QUOTATION ON THE NASDAQ STOCK MARKET; PENNY
STOCK RULES. The Company's common stock is currently listed on the Nasdaq
SmallCap Market. On August 22, 1997, the SEC approved a number of proposed
changes to the Nasdaq listing requirements that became effective February 22,
1998. These changes include the requirement that common and preferred stock must
have a minimum bid price of $1. All companies listed on the Nasdaq SmallCap
Market must meet specific corporate governance requirements. A company listed on
the Nasdaq SmallCap Market must also have either net tangible assets of over $2
million, a market capitalization of $35 million or net income of $500,000. From
approximately October 28, 1997, through and including April 20, 1998, the
Company's common stock has had a closing bid price below $1. As of March 31,
1998, the Company's net tangible assets were below $2 million. The Company
received notification from Nasdaq of its non-compliance with the listing
requirements and must cure its non-compliance, or file a plan acceptable to
Nasdaq for compliance with regard to its net bid price and net tangible assets.
The Company filed such a plan on March 26, 1998, but has not been informed of
any decision by Nasdaq regarding the acceptability of the plan.
The Company believes that it has come into compliance with Nasdaq's
closing bid price and net tangible asset requirements. From April 24, 1998, to
May 12, 1998, the Company's common stock had a closing bid price
<PAGE>
of over $1.00 for most of that period, going below $1.00 per share only twice.
In addition, with the purchase of the Units on May 4, 1998 by the Additional
Investors, the Company's net tangible assets exceed the $2 million minimum.
In addition to the foregoing, the Company has recently become aware of
additional concerns on the part of Nasdaq regarding the Company's compliance
with Nasdaq's corporate governance rules. As a condition to continued listing,
Nasdaq requires that the Company obtain shareholder approval in at least two
instances. One such instance is when the Company sells in excess of 20% of its
common stock or voting stock outstanding before the issuance, for less than the
greater of book value or market value of the stock. In the private placement
described above (the "Offering"), the Company's Preferred Shares are being sold
at a price equal to $0.60 per share. On March 23, 1998, the closing bid price of
the Company's common stock was approximately $0.39 per share. On April 20, 1998,
the effective date of the Memorandum, the closing bid price of the Company's
common stock was $0.50 per share. At no time from March 23, 1998 through April
20, 1998, did the Company's stock have a closing bid price greater than the
$0.60 per share purchase price for the Preferred Shares in the Offering, and
Nasdaq's requirement for shareholder approval in this instance would not have
applied. However, during the period of the Offering (from April 20, 1998 through
and including the date hereof), the closing bid price of the Company's common
stock fluctuated between $0.50 to $1.37 per share. The Company believes that it
is in compliance with Nasdaq's requirements in this regard, as the offering
price of the Preferred Shares in the Offering exceeded the closing bid price for
the Company's common stock at all times prior to the effective date of the
Memorandum; the offering price of the Preferred Shares was below market for only
sporadic times during the present offering period. However, the Company can give
no assurances that its interpretation is the correct one.
Nasdaq also requires shareholder approval when the issuance of stock
will result in a change of control of the issuer. The Company does not believe
that the sale of the Units, either in the Offering or with respect to the
purchase by the Additional Investors, will result in a change of control of the
Company. The Company is of the opinion that the total issuance of Units, on a
fully-diluted basis (both in the Offering and in the sale of Units to the
Additional Investors, and including all warrants and options issued in
connection with the Additional Investor investments, and assuming exercise of
all Warrants comprising the Units) will result in the sale of less than 50% of
the Company's voting securities. Moreover, a large portion of the Offering has
been subscribed for by existing shareholders of the Company; as a result, new
shareholders (including the Additional Investors) will be acquiring only
approximately 33% of the Company's voting securities. However, Nasdaq has not
defined the term "change of control," and the Company can give no assurances
that its interpretation is the correct one.
Failure on the Company's part to be in compliance with all of the above
requirements or to file a plan of compliance acceptable to Nasdaq will result in
the Company losing its Nasdaq SmallCap listing. Should the common stock be
suspended from trading privileges on such market as a result of the Company's
failure to comply with any of the above, or other applicable requirements, the
Company, prior to re-inclusion, must comply with the respective requirements
prior to continued listing. Should the common stock be terminated from trading
privileges on the Nasdaq SmallCap Market, the Company, prior to re-inclusion,
must comply with the applicable requirements for initial inclusion on the Nasdaq
SmallCap Market which are more stringent than the requirements for continued
listing. Accordingly, there can be no assurance that the common stock will
continue to be listed on the Nasdaq SmallCap Market. Federal regulations
promulgated under the Exchange Act also regulate the trading of so-called "penny
stocks" (the "Penny Stock Rules"), which are generally defined as any security
not listed on a national securities exchange or The Nasdaq Stock Market
("Nasdaq"), priced at less than $5.00 per share and offered by an issuer with
limited net tangible assets and revenues. In addition, equity securities listed
on Nasdaq, which are priced at less than $5.00 per share are deemed penny stocks
for the limited purpose of Section 15(b)(6) of the Exchange Act. Therefore, if,
during the time in which the common stock is quoted on the Nasdaq SmallCap
Market, the common stock is priced below $5.00 per share, trading of the common
stock will be subject to the provisions of Section 15(b)(6) of the Exchange Act,
which make it unlawful for any broker-dealer to participate in a distribution of
any penny stock without the consent of the Commission if, in the exercise of
reasonable care, the broker-dealer is aware of or should have been aware of the
participation of a previously sanctioned person. In such event, it may be more
difficult for broker-dealers to sell the common stock and purchasers of shares
of common stock may experience difficulty in selling such shares in the future
in secondary trading markets.
<PAGE>
In the event that the common stock is delisted from the Nasdaq SmallCap
Market and the Company fails other relevant criteria, trading, if any, in shares
of common stock would be subject to the full range of the Penny Stock Rules.
Under Exchange Act Rule 15g-8, broker-dealers must take certain steps prior to
selling a penny stock, which steps include: (i) obtaining financial and
investment information from the investor; (ii) obtaining a written suitability
questionnaire and purchase agreement signed by the investor; (iii) providing the
investor a written identification of the shares being offered and in what
quantity; and (iv) deliver to the investor a written statement setting forth the
basis on which the broker or dealer approved the investor's account for the
transaction. If the Penny Stock Rules are not followed by a broker-dealer, the
investor has no obligation to purchase the shares. Accordingly, delisting from
the Nasdaq SmallCap Market and the application of the comprehensive Penny Stock
Rules may make it more difficult for broker-dealers to sell the common stock,
purchasers of shares of common stock may have difficulty in selling such shares
in the future in secondary trading markets and the per share price of such stock
would likely be greatly reduced.
NO DIVIDENDS. The Company has never paid a dividend on its common stock
and does not anticipate paying dividends in the foreseeable future on any of the
Company's securities, including the Preferred Shares sold to the Additional
Investors and proposed to be sold to investors in the private placement being
sold by the Agent. While the Preferred Shares bear a 5% cumulative annual
dividend, the Company does not anticipate that funds will be available in the
foreseeable future to pay such dividends. These dividends will accumulate.
MARKET ACCEPTANCE OF PRODUCTS. The Company has placed ASCs in locations
in 41 states from Alaska to New York. A prerequisite to the Company's success
will be the development of demand for self-service, automated shipping services
and wide placement of ASCs at high volume retail and other business locations.
Self-service, automated shipping is unproven and there can be no assurance that
such demand or market acceptance will develop. To date, the Company has had only
limited success in creating a demand for automated shipping services and the
number of shipping transactions utilizing the Company's ASCs are significantly
lower than expected. While the Company is undertaking efforts to address these
problems and to create a demand for the ASCs, the marketing and other costs of
doing so is be beyond the Company's current financial resources. There can be no
assurance that the Company will ever be able to develop acceptance for
self-service automated shipping. The commercial (non-U.S. Postal Service)
package shipping market is dominated by a relatively small number of carriers,
and carriers affiliated with direct air carriers, including UPS, Federal Express
Corporation ("Federal Express), DHL Worldwide Services ("DHL") and Airborne
Express ("Airborne"). These established carriers, together with the U.S. Postal
Service, process the vast majority of consumer and small business package
shipping transactions. There can be no assurance that any of such dominant
commercial package shippers or the public will adopt a self-service shipping
center concept or that they will select the Company's ASCs in preference to the
shipping services offered by its competitors. The failure to achieve market
acceptance will have a material adverse effect on the Company's business. There
can be no assurance that the Company will have the resources or the capacity to
meet the demand, if any, for its product.
DEPENDENCE UPON CARRIERS. The Company is substantially dependent upon
UPS to pick up and transport packages processed via the Company's ASCs. Any
interruption in, or increase in price of, such service, or the failure of the
Company to continue to maintain arrangements with UPS or to develop
relationships with other package carriers, would cause an interruption of
service to the Company's customers and would have a material adverse effect upon
its business. The Company has no control over the nature, cost or availability
of services provided by any carrier, including UPS, and has no long-term
contracts with such carriers.
SUBSTANTIAL INVESTMENT IN EQUIPMENT. As a part of its business
strategy, the Company seeks to sell ASCs to locations that it believes have the
potential to generate high package volume and with businesses that it believes
have multiple strategic locations, such as business centers and other service
provider chains. Although the Company has previously been able to sell ASCs with
financing from third party lessors, no assurance can be given that such
financing will be available in the future, if required.
RELIANCE UPON THIRD PARTIES FOR FINANCING. Historically, the Company
has relied extensively upon third parties to provide lease financing for ASCs
sold or leased to retailers. While the Company's focus has shifted away
<PAGE>
from the placement of ASCs in reliance on such financing, it may seek third
party financing for sales to customers in the future. The Company has no
commitments from third parties to provide financing to it or its customers, and
there can be no assurance that such financing will be available to the Company
on terms acceptable or favorable to it or its customers. In the event the
Company determines to make third party leases or financing arrangements a part
of its marketing strategy, and is unable to maintain relationships with third
parties to provide such financing; its business could be adversely affected.
ABILITY TO FORM STRATEGIC RELATIONSHIPS. The Company's strategy
includes the formation of strategic relationships with major carriers and
retailers. To date, the Company has had limited success in creating such
relationships. The Company believes that relationships with carriers and other
strategic partners will enable it to deploy its proprietary technology in the
market by leveraging a partner's established service and distribution channels.
In the past the Company has received revenue from two international carriers for
the development of customized ASCs. The Company has entered into relationships
with Kinko's and OfficeMax pursuant to which the Company has installed a limited
number of ASCs in Kinko's Copy Centers and CopyMax stores. These agreements
have, however, not generated expected levels of package shipping transactions
and the Company has curtailed installation of ASCs under the terms of both
agreements. The Company plans to relocate on a gradual basis all or
substantially all of its ASCs currently located at CopyMax stores due to lower
than anticipated package volume from these machines. The Company has not been
successful in creating relationships with other potential partners. The Company
will require the proceeds of its private placement of Units being sold by the
Agent, as well as the proceeds from the Units sold to the Additional Investors,
to continue operations through the end of calendar 1998. If the Company is not
able to enter into additional strategic relationships with carriers or other
business partners, it may be required to reduce or cease its self-service
shipping business operations.
DEPENDENCE ON PROPRIETARY RIGHTS. The Company's success depends, in
part, upon its ability to protect its proprietary technology, for which it
relies on a combination of patent, copyright, trademark and trade secret laws.
Although the Company has received patents for its ASC, there can be no assurance
that current intellectual property laws will afford the Company significant
protection against competitors or that other technology will not be developed to
functionally compete with the Company's product. The Company believes that one
or more major carriers, all of which have greater financial, technical and
marketing resources than the Company, have attempted to develop or purchase
products or technologies competitive with the Company's ASCs. The Company is
aware that Federal Express and UPS test marketed PC-based automated self-service
shipping terminals between 1992 and 1994, but believes that substantially all of
these systems have been removed from the test market. The Company also is aware
of the fact that the U.S. Postal Service is in the process of developing a
self-service, automated postal transaction machine ("PTM"), which, the Company
believes, will enable consumers to ship letters and packages via the United
States mail. The Company is unaware of whether the PTM, or parts thereof,
infringe upon any of the Company's proprietary technology. Should the Company
determine that its patents are being infringed, it could incur substantial legal
costs in any action to enforce its patents or other intellectual property
rights, and there can be no assurance that it would be successful in any such
action.
The Company anticipates that any market that develops for automated
shipping services will be characterized by rapidly changing technology and user
preferences. Such market will likely be heavily influenced by the preferences
and acceptance of such technology by major package and parcel carriers. There
can be no assurance that future product or technology developed by others will
not render obsolete the Company's technology. Failure on the part of the Company
to develop new technology to meet competitive challenges may adversely affect
the Company's prospects.
FRANCHISE REGULATION. The Federal Trade Commission regulates the offer
and sale of franchises under its "Franchise Rule," a regulation which sets forth
standards mandating disclosure of information before the sale of a franchise or
business opportunity. Additionally, several states, including Minnesota, have
laws and rules that regulate various aspects of franchising and the sale of
business opportunities. The Company believes that its programs for the sale,
lease or placement of ASCs do not constitute franchises or business
opportunities within the meaning of the Franchise Rule or such state laws. If
the Company should be required to comply with such laws or rules it would incur
substantial costs, delays and other burdens associated with franchise
registration and disclosure
<PAGE>
compliance obligations. In addition, there can be no assurance that other
governmental regulations will not hinder the Company's plans. A finding that the
Company has violated state franchise laws or regulations or the Franchise Rule
could result in administrative, civil or criminal actions against the Company
and would materially and adversely affect its business. In addition, if the
Company is found to have violated franchise laws, certain persons entitled to
the benefit of such laws may have the right to rescind their purchases or leases
of the Company's ASCs, in addition to recovering damages, interest and
attorneys' fees. The Company does not believe, however, that it has operated in
violation of any franchise laws.
COMPETITION. The commercial (non-U.S. Postal Service) package shipping
market is dominated by a relatively small number of companies which have more
experience in the industry and have greater financial and technical resources
than the Company. Both Federal Express and UPS have test marketed automated
self-service shipping terminals, but have, to the best of the Company's
knowledge, discontinued such tests, and neither of them currently operates
competing machines in the market that are comparable to the form and function of
the Company's ASC. The Company is aware, however, that the U.S. Postal Service
is in the process of developing the PTM. Because the Company's ASC does not
currently permit consumers to ship packages through the United States Mail, to
the extent that the PTM will, it may discourage people from using the Company's
ASCs. The Company also competes with major air express carriers, such as UPS,
Federal Express, Airborne, DHL and the U.S. Postal Service, all of which deploy
large numbers of "drop boxes" which compete with the Company's ASCs. According
to industry sources, these carriers are deploying additional drop boxes on an
ongoing basis. Many of such boxes have or will be installed in business centers,
office parks and shopping malls, which could be potential sites for the
Company's ASCs. There can be no assurance that such dominant commercial package
shippers or the public will adopt a self-service shipping center concept or that
they will select the Company's products and services in preference to their
current methods of package collection, or to those of the Company's competitors
or potential competitors. The Company also faces intense competition from the
related service industry providing package collection services, such as mail and
packaging stores. Substantially all of the Company's competitors have greater
resources than the Company, and many of them could develop products competitive
with the Company's ASCs.
DEPENDENCE ON KEY PERSONNEL. The Company's future success will depend
in large part upon the continued service of its key technical and management
personnel, as well as on its ability to continue to attract additional
management and technical personnel and independent contractors. The Company is
also dependent on its ability to identify, hire, train and motivate qualified
personnel necessary to enable it to continue ongoing product development and to
market its products and services. The departure of key employees could have a
material adverse effect on the Company's business. No assurance can be given
that the Company's current employees will continue to provide services to the
Company, or that the Company will be able to obtain the services of additional
personnel necessary for the Company's operations.
IMPACT OF SALE OF SECURITIES; SECURITIES ELIGIBLE FOR FUTURE SALE;
POSSIBLE DILUTIVE EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. There were
4,979,717 shares of common stock outstanding as of March 31, 1998. . In
addition, there were warrants and options outstanding as of such date to
purchase 1,856,946 additional shares of common stock which are exercisable at
prices ranging from $0.40 to $5.20 per share. The Company has filed a
registration statement covering a "shelf" secondary offering for resale of
1,538,474 shares of common stock. As of May 13, 1998, the Company had
outstanding 4,979,717 shares of common stock, $.004 par value, and 1,500,006
shares of Series A Cumulative Convertible Preferred Stock, $.004 par value. The
Series A Preferred Stock was sold to the Additional Investors as Units, and
included Warrants to purchase 750,003 shares of common stock. As noted above,
the Company is currently engaged in a private placement of 1,245,000 Units and
an additional 250,000 Units for over-allotments (each Unit comprised of 2 shares
of Series A Cumulative Convertible Preferred Stock and a Warrant to purchase a
share of common stock). The sale of such shares offered pursuant to such
offerings, and the sale of additional shares of common stock which may become
eligible for sale in the public market from time to time upon the exercise of
warrants outstanding and options or exercise of rights to acquire common stock,
or pursuant to the terms of the Preferred Shares or Warrants comprising the
Units, could have the effect of depressing the market prices for the common
stock.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
The Company is not a party to any material pending or threatened legal
proceedings. The Company is subject to legal proceedings in the
ordinary course of its business, none of which the Company believes is
material.
ITEM 2 - Changes in Securities and Use of Proceeds
Not Applicable
ITEM 3 - Defaults upon Senior Securities
Not Applicable
ITEM 4 - Submission of Matters to a Vote of Securities Holders
Not Applicable
ITEM 5 - Other Information
Not Applicable
ITEM 6 - Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 3 Certificate of Designation of Preferences and Rights of
Series A Cumulative Convertible Preferred Stock of
U-Ship,Inc., dated April 20, 1998.
Exhibit 10.1 Form of Subscription Agreement between the Company and
Additional Investors for the purchase of Units (each Unit
comprised of 2 shares of Series A Cumulative Convertible
Preferred Stock and a Warrant to purchase 1 share of
common stock).
Exhibit 10.2 Form of Stock Purchase Warrant between the Company and
Additional Investors for the purchase of common stock.
Exhibit 10.3 Form of Agency Agreement between the Company and R.J.
Steichen & Co., in connection with the private placement
of 1,245,000 Units, plus an over-allotment of up to
250,000 Units.
Exhibit 10.4 Form of Stock Option Agreement between the Company and
certain consultants for the purchase of common stock.
Exhibit 27 Financial Data Schedule
b. Current Reports on Form 8-K
The Company did not file any reports on Form 8-K with the
Securities and Exchange Commission during the three-month
period ended March 31, 1998.
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
Exhibit 3 Certificate of Designation of Preferences and Rights of
Series A Cumulative Convertible Preferred Stock of U-Ship,
Inc., dated April 20, 1998.
Exhibit 10.1 Form of Subscription Agreement between the Company and
Additional Investors for the purchase of Units (each Unit
comprised of 2 shares of Series A Cumulative Convertible
Preferred Stock and a Warrant to purchase 1 share of common
stock).
Exhibit 10.2 Form of Stock Purchase Warrant between the Company and
Additional Investors for the purchase of common stock.
Exhibit 10.3 Form of Agency Agreement between the Company and
R.J. Steichen & Co., in connection with the private placement
of 1,245,000 Units, plus an over-allotment of up to 250,000
Units.
Exhibit 10.4 Form of Stock Option Agreement between the Company and
certain consultants for the purchase of common stock.
Exhibit 27 Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned; thereunto duly
authorized, in they City of Minneapolis, State of Minnesota on May 13, 1998.
U-SHIP, INC.
By: /s/ Bruce H. Senske
-------------------
Bruce H. Senske
President and Chief Financial Officer
EXHIBIT 3
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
U-SHIP, INC.
U-Ship, Inc., a corporation organized and existing under the laws of
the State of Utah (the "Corporation"), hereby certifies (the "Certificate") as
follows:
1. The name of the corporation is U-Ship, Inc. (the "Corporation").
2. That pursuant to authority vested in it by the provisions of its
Articles of Incorporation, as amended, of the Corporation, the Board of
Directors of said Corporation by action in writing by the Board of Directors
taken pursuant to Section 16-10a-602 of the Utah Business Corporation Act
("UBCA"), at which meeting a quorum of directors was present and acting
throughout, and by action of the Committee thereof taken on March 23, 1998, did
adopt, without shareholder action because shareholder action was not required
pursuant to the Company's Articles of Incorporation, the following resolution
authorizing the creation and issuance of a series of preferred stock designated
as Series A Cumulative Convertible Preferred Stock:
RESOLVED, that the Corporation hereby designates 4,500,000 shares of
its authorized but unissued preferred shares, $0.004 par value, as Series A
Cumulative Convertible Preferred Stock, which shall have the following
designations, preferences, rights, qualifications, limitations and restrictions
in addition to those set forth in the Articles of Incorporation, as amended, of
the Corporation:
1. Designation, Number of Shares, Stated Value.
Four Million Five Hundred Thousand (4,500,000) shares of preferred
stock shall be designated Series A Cumulative Convertible Preferred Stock
(hereinafter sometimes referred to as the "Preferred Stock" or as this
"Series"). Shares of this Series shall have a stated value of $0.60 per share.
2. Voting Privileges.
(a) General. Each holder of Preferred Stock shall have that number of
votes on all matters submitted to the stockholders that is equal to the number
of shares of Common Stock into which such holder's shares of Preferred Stock are
then convertible, as hereinafter provided. Each holder of Common Stock shall
have one vote on all matters submitted to the stockholders for each share of
Common Stock standing in the name of such holder on the books of the
Corporation. Except as otherwise provided herein, and except as otherwise
required by agreement or law, the shares of capital stock of the Corporation
shall vote as a single class on all matters submitted to the stockholders.
(b) Additional Class Votes by Preferred Stock. Without the affirmative
vote or written consent of the holders (acting together as a class) of a
majority of the shares of Preferred Stock at the time outstanding, the
Corporation shall not:
(1) authorize or issue any additional shares of Preferred Stock,
or any shares of stock having priority over Preferred Stock or
ranking on a parity therewith as to the payment or
distribution of assets upon the liquidation or dissolution,
voluntary or involuntary, of the
<PAGE>
Corporation, or the payment of dividends; or
(2) amend the Articles of Incorporation or this Certificate of the
Corporation so as to alter any existing provision relating to
Preferred Stock or the holders thereof or waive any of the
rights granted to the holders of the Preferred Stock by the
Articles of Incorporation of the Corporation or herein; or
(3) sell, lease or otherwise dispose of all or substantially all
of the assets of the Corporation or of any subsidiary of the
Corporation, nor shall the Corporation consolidate with or
merge into any other corporation or entity, or permit any
other corporation or entity to consolidate or merge into the
Corporation.
(c) No Cumulative Voting. No holder of shares of capital stock of the
Corporation shall have any cumulative voting rights.
3. Dividends.
(a) General. The holders of shares of Preferred Shares shall be
entitled to receive cumulative cash dividends, when and as declared by the Board
of Directors out of funds legally available therefor, at a rate of $0.030 per
share per annum and no more, before any dividend or distribution in cash or
other property (other than dividends payable in stock ranking junior to the
Preferred Stock as to dividends and upon liquidation, dissolution or winding-up)
on any class or series of stock of the Corporation ranking junior to the
Preferred Stock as to dividends or on liquidation, dissolution or winding-up
shall be declared and paid or set apart for payment.
(b) Payment. Dividends on the Preferred Stock shall be payable, when
and as declared by the Board of Directors, on May 1 of each year, commencing May
1, 1999.
(c) Dividends Cumulative. Dividends on the Preferred Stock shall be
cumulative and accrue from and after the date of original issuance thereof,
whether or not declared by the Board of Directors. Accrued dividends shall not
bear interest.
4. Other Terms of the Preferred Stock.
(a) Liquidation Preference. In the event of an involuntary or voluntary
liquidation or dissolution of the Corporation at any time, the holders of shares
of Preferred Stock shall be entitled to receive out of the assets of the
Corporation an amount equal to the greater of (i) $.60 per share (appropriately
adjusted to reflect stock splits, stock dividends, reorganizations,
consolidations and similar changes hereafter effected), plus dividends unpaid
and accumulated or accrued thereon, if any; or (ii) the amount per share of
Common Stock which the holder of Preferred Stock would have received upon such
event had the Preferred Stock been converted into shares of Common Stock
(appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes hereinafter effected). In
the event of either an involuntary or a voluntary liquidation or dissolution of
the Corporation payment shall be made to the holders of shares of Preferred
Stock in the amounts herein fixed before any payment shall be made or any assets
distributed to the holders of the Common Stock or any other class of shares of
the Corporation ranking junior to the Preferred Stock with respect to payment
upon dissolution or liquidation of the Corporation. If upon any liquidation or
dissolution of the Corporation, the assets available for distribution shall be
insufficient to pay the holders of all outstanding shares of Preferred Stock the
full amounts to which they respectively shall be entitled, the holders of such
shares shall share pro rata in any such distribution.
<PAGE>
(b) Conversion Right. At the option of the holders thereof, beginning
November 1, 1998, the shares of Preferred Stock, together with all accrued but
unpaid dividends thereon (the "Dividends") shall be convertible, at the office
of the Corporation (or at such other office or offices, if any, as the Board of
Directors may designate), into fully paid and nonassessable shares (calculated
as to each conversion to the nearest 1/100th of a share) of Common Stock of the
Corporation, at the conversion price, determined as hereinafter provided, in
effect at the time of conversion, each share of Preferred Stock being deemed to
have a value of $.60 for the purpose of such conversion. The price at which
shares of Common Stock shall be delivered upon conversion of the Preferred Stock
and Dividends (herein called the "Conversion Price") shall be initially $.60 per
share of Common Stock (i.e., at an initial conversion rate of one share of
Common Stock for each share of Preferred Stock), provided, however, that such
initial Conversion Price shall be subject to adjustment from time to time in
certain instances as hereinafter provided. The following provisions shall govern
such right of conversion (where appropriate, references to the Preferred Stock
shall also refer to the conversion of Dividends thereon):
(1) Manner of Conversion. In order to convert shares of Preferred
Stock into shares of Common Stock of the Corporation, the
holder thereof shall surrender at any office hereinabove
mentioned the certificate or certificates therefor, duly
endorsed to the Corporation or in blank, and give written
notice to the Corporation at such office that such holder
elects to convert such shares. Shares of Preferred Stock shall
be deemed to have been converted immediately prior to the
close of business on the day of the surrender of such shares
for conversion as herein provided, and the person entitled to
receive the shares of Common Stock of the Corporation issuable
upon such conversion shall be treated for all purposes as the
record holder of such shares of Common Stock at such time. As
promptly as practicable on or after the conversion date, the
Corporation shall issue and deliver or cause to be issued and
delivered at such office a certificate or certificates for the
number of shares of Common Stock of the Corporation issuable
upon such conversion.
Upon conversion of the Preferred Stock, accrued, unpaid
dividends shall be paid in additional shares of Common Stock.
Such additional shares of Common Stock shall be paid in full
shares only with a cash payment (based upon an assumed value
of $0.60 per share, subject to adjustment as provided in
Section 4(b)(3)(iii)) equal to the Current Market Value of any
fractional share.
(2) Adjustment of Conversion Price; General. The Conversion Price
shall be subject to adjustment from time to time as
hereinafter provided. Upon each adjustment of the Conversion
Price each holder of shares of Preferred Stock shall
thereafter be entitled to receive the number of shares of
Common Stock of the Corporation obtained by multiplying the
Conversion Price in effect immediately prior to such
adjustment by the number of shares issuable pursuant to
conversion immediately prior to such adjustment and dividing
the product thereof by the Conversion Price resulting from
such adjustment.
(3) Manner of Adjustment to Conversion Price Adjustment. The
Conversion Price shall be subject to adjustment from time to
time as follows:
(i) COMMON STOCK ISSUED AT LESS THAN THE CONVERSION PRICE. If
the Corporation shall issue any Common Stock other than Excluded Stock (as
hereinafter defined) without consideration or for a consideration per share less
than the Conversion Price in effect immediately prior to such issuance, the
Conversion Price in effect immediately prior to each such issuance shall
immediately (except as provided below) be reduced to the price determined by
dividing (1) an amount equal to the sum of (A) the number of shares of Common
Stock outstanding immediately prior to such issuance multiplied by the
Conversion Price
<PAGE>
in effect immediately prior to such issuance and (B) the consideration, if any,
received by the Corporation upon such issuance, by (2) the total number of
shares of Common Stock outstanding immediately after such issuance.
<PAGE>
For the purposes of any adjustment of the Conversion Price pursuant to
clause (i), the following provisions shall be applicable:
(A) CASH. In the case of the issuance of Common Stock for cash, the
amount of the consideration received by the Corporation shall be deemed to be
the amount of the cash proceeds received by the Corporation for such Common
Stock before deducting therefrom any discounts, commissions, taxes or other
expenses allowed, paid or incurred by the Corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(B) CONSIDERATION OTHER THAN CASH. In the case of the issuance of
Common Stock (otherwise than upon the conversion of shares of capital stock or
other securities of the Corporation) for a consideration in whole or in part
other than cash, including securities acquired in exchange therefor (other than
securities by their terms so exchangeable), the consideration other than cash
shall be deemed to be the fair value thereof as determined by the Board of
Directors, irrespective of any accounting treatment; PROVIDED that such fair
value as determined by the Board of Directors shall not exceed the aggregate
Current Market Price (as defined below) of the shares of Common Stock being
issued as of the date the Board of Directors authorizes the issuance of such
shares.
(C) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the issuance of
(i) options, warrants or other rights to purchase or acquire Common Stock
(whether or not at the time exercisable), (ii) securities by their terms
convertible into or exchangeable for Common Stock (whether or not at the time so
convertible or exchangeable) or options, warrants or rights to purchase such
convertible or exchangeable securities (whether or not at the time exercisable):
(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other rights to purchase
or acquire Common Stock shall be deemed to have been issued at the time such
options, warrants or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subclauses (A) and (B)
above), if any, received by the Corporation upon the issuance of such options,
warrants or rights plus the minimum purchase price provided in such options,
warrants or rights for the Common Stock covered thereby;
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options, warrants or other
rights to purchase or acquire such convertible or exchangeable securities and
the subsequent conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options, warrants or
rights were issued and for a consideration equal to the consideration, if any,
received by the Corporation for any such securities and related options,
warrants or rights (excluding any cash received on account of accrued interest
or accrued dividends), plus the additional consideration (determined in the
manner provided in subclauses (A) and (B) above, if any, to be received by the
Corporation upon the conversion or exchange of such securities, or upon the
exercise of any related options, warrants or rights to purchase or acquire such
convertible or exchangeable securities and the subsequent conversion or exchange
thereof;
(3) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options, warrants or rights or conversion
or exchange of such convertible or exchangeable securities or any change in the
consideration to be received by the Corporation upon such exercise, conversion
or exchange, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Conversion Price as then in effect shall
forthwith be readjusted to such Conversion Price as would have been obtained had
an adjustment been made upon the issuance of such
<PAGE>
options, warrants or rights not exercised prior to such change or of such
convertible or exchangeable securities not converted or exchanged prior to such
change, upon the basis of such change;
(4) on the expiration or cancellation of any such options, warrants
or rights, or the termination of the right to convert or exchange such
convertible or exchangeable securities, if the Conversion Price shall have been
adjusted upon the issuance thereof, the Conversion Price shall forthwith be
readjusted to such Conversion Price as would have been obtained had an
adjustment been made upon the issuance of such options, warrants, rights or such
convertible or exchangeable securities on the basis of the issuance of only the
number of shares of Common Stock actually issued upon the exercise of such
options, warrants or rights, or upon the conversion or exchange of such
convertible or exchangeable securities; and
(5) if the Conversion Price shall have been adjusted upon the
issuance of any such options, warrants, rights or convertible or exchangeable
securities, no further adjustment of the Conversion Price shall be made for the
actual issuance of Common Stock upon the exercise, conversion or exchange
thereof; PROVIDED, HOWEVER, that no increase in the Conversion Price shall be
made pursuant to subclauses (1) or (2) of this subclause (C).
(ii) EXCLUDED STOCK. "Excluded Stock" shall mean (A) shares of Common
Stock issued or reserved for issuance by the Corporation at any time as a stock
dividend payable in shares of Common Stock, or upon any subdivision or split-up
of the outstanding shares of Common Stock or Preferred Stock, or upon conversion
of shares of Preferred Stock and (B) any shares of Common Stock to be issued to
employees, consultants and advisors of the Corporation together with any such
shares that are repurchased by the Corporation and reissued to any such
employee, consultant or advisor, whether issued directly or pursuant to any
stock option plan; and (C) shares of Common Stock issued pursuant to outstanding
warrants, including warrants issued in connection with the issuance of the
Preferred Stock. All shares of Excluded Stock, which the Corporation has
reserved for issuance, shall be deemed to be outstanding for all purposes of
computations under subparagraph 4(b)(3)(i).
(iii) STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS OR COMBINATIONS.
If the Corporation shall (i) declare a dividend or make a distribution on its
Common Stock in shares of its Common Stock, (ii) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, the Conversion Price in effect at the time of the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted so that the holder of any
shares of Preferred Stock surrendered for conversion after such date shall be
entitled to receive the number of shares of Common Stock which he would have
owned or been entitled to receive had such Preferred Stock been converted
immediately prior to such date. Successive adjustments in the Conversion Price
shall be made whenever any event specified above shall occur.
(iv) OTHER DISTRIBUTIONS. In case the Corporation shall fix a record
date for the making of a distribution to all holders of shares of its Common
Stock (i) of shares of any class other than its Common Stock or (ii) of evidence
of indebtedness of the Corporation or any subsidiary or (iii) of assets
(excluding cash dividends or distributions, and dividends or distributions
referred to in subparagraph 4(b)(3)(iii) above), or (iv) of rights or warrants
(excluding those referred to in subparagraph 4(b)(3)(i)(c) above), in each such
case the Conversion Price in effect immediately prior thereto shall be reduced
immediately thereafter to the price determined by dividing (1) an amount equal
to the difference resulting from (A) the number of shares of Common Stock
outstanding on such record date multiplied by the Conversion Price per share on
such record date, less (B) the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive) of said shares or evidences
of indebtedness or assets or rights or warrants to be so distributed, by (2) the
number of shares of Common Stock outstanding on such
<PAGE>
record date. Such adjustment shall be made successively whenever such a record
date is fixed. In the event that such distribution is not so made the Conversion
Price then in effect shall be readjusted, effective as of the date when the
Board of Directors determines not to distribute such shares, evidences of
indebtedness, assets, rights or warrants, as the case may be, to the Conversion
Price which would then be in effect if such record date had not been fixed.
(v) CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE. In case of any
consolidation with or merger of the Corporation with or into another
corporation, or in case of any sale, lease or conveyance to another corporation
of the assets of the Corporation as an entirety or substantially as an entirety,
each share of Preferred Stock shall after the date of such consolidation,
merger, sale, lease or conveyance be convertible into the number of shares of
stock or other securities or property (including cash) to which the Common Stock
issuable (at the time of such consolidation, merger, sale, lease or conveyance)
upon conversion of such share of Preferred Stock would have been entitled upon
such consolidation, merger, sale, lease or conveyance; and in any such case, if
necessary, the provisions set forth herein with respect to the rights and
interests thereafter of the holders of the shares of Preferred Stock shall be
appropriately adjusted so as to be applicable, as nearly as may reasonably be,
to any shares of stock or other securities or property thereafter deliverable on
the conversion of the shares of Preferred Stock.
(vi) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENT. All calculations
under this subparagraph (b) shall be made to the nearest cent or to the nearest
one-hundredth (1/100th) of a share, as the case may be. Any provision of this
paragraph 4 to the contrary notwithstanding, no adjustment in the Conversion
Price shall be made if the amount of such adjustment would be less than $0.01,
but any such amount shall be carried forward and an adjustment with respect
thereto shall be made at the time of and together with any subsequent adjustment
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $0.01 or more.
(vii) TIMING OF ISSUANCE OF ADDITIONAL COMMON STOCK UPON CERTAIN
ADJUSTMENTS. In any case in which the provisions of this subparagraph (b) shall
require that an adjustment shall become effective immediately after a record
date for an event, the Corporation may defer until the occurrence of such event
(A) issuing to the holder of any share of Preferred Stock converted after such
record date and before the occurrence of such event the additional shares of
Common Stock issuable upon such conversion by reason of the adjustment required
by such event over and above the shares of Common Stock issuable upon such
conversion before giving effect to such adjustment and (B) paying to such holder
any amount of cash in lieu of a fractional share of Common Stock pursuant to
subparagraph (b)(4) of this paragraph 4; PROVIDED that the Corporation upon
request shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares, and such cash,
upon the occurrence of the event requiring such adjustment.
(viii) CURRENT MARKET PRICE. The Current Market Price at any date shall
mean, in the event the Common Stock is publicly traded, the average of the daily
closing prices per share of Common Stock for 20 consecutive trading days ending
no more than 10 business days before such date (as adjusted for any stock
dividend, split, combination or reclassification that took effect during such 30
business day period). The closing price for each day shall be the last reported
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last closing bid and asked
<PAGE>
prices regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading, or if not listed or
admitted to trading on any national securities exchange, the closing sale price
for such day reported by Nasdaq, if the Common Stock is traded over-the-counter
and quoted in the Nasdaq SmallCap Market, or if the Common Stock is so traded,
but not so quoted, the average of the closing reported bid and asked prices of
the Common Stock as reported by Nasdaq or any comparable system or, if the
Common Stock is not listed on Nasdaq or any comparable system, the average of
the closing bid and asked prices as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time by the
Corporation for that purpose. If the Common Stock is not traded in such manner
that the quotations referred to above are available for the period required
hereunder, Current Market Price per share of Common Stock shall be deemed to be
the fair value as determined by the Board of Directors, irrespective of any
accounting treatment.
(ix) STATEMENT REGARDING ADJUSTMENTS. Whenever the Conversion Price
shall be adjusted as provided in subparagraph 4(b), the Corporation shall
forthwith file, at the office of any transfer agent for the Preferred Stock and
at the principal office of the Corporation, a statement showing in detail the
facts requiring such adjustment and the Conversion Price that shall be in effect
after such adjustment, and the Corporation shall, upon request of a holder of
Preferred Stock, also cause a copy of such statement to be sent by mail, first
class postage prepaid, to such holder at such holder's address appearing on the
Corporation's records. Each such statement shall be signed by the Corporation's
chief financial officer. Where appropriate, such copy may be given in advance
and may be included, as part of a notice required to be mailed under the
provision of subparagraph (b)(4).
(4) Notice of Certain Events. In case at any time:
(i) the Corporation shall declare any cash dividend on
its Common Stock at a rate in excess of the rate of
the last cash dividend theretofore paid;
(ii) the Corporation shall pay any dividend payable in
stock upon its Common Stock or make any distribution
(other than regular cash dividends) to the holders of
its Common Stock;
(iii) the Corporation shall offer for subscription pro rata
to the holders of its Common Stock any additional
shares of stock of any class or other rights;
(iv) there shall be any capital reorganization, or
reclassification of the capital stock of the
Corporation, or consolidation or merger of the
Corporation with, or sale of all or substantially all
of its assets to, another corporation; or
(v) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the
Corporation;
then, in any one or more of said cases, the Corporation shall
give written notice, by first-class mail, postage prepaid,
addressed to the registered holders of Preferred Stock at the
addresses of such holders as shown on the books of the
Corporation, of the date on which (a) the books of the
Corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights, or (b) such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place, as
the case may be. Such notice shall also specify the date as of
which the holders of Common Stock of record shall participate
in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding up, as the case may be.
Such written notice shall be given at least 20 days prior to
<PAGE>
the action in question and not less than 20 days prior to the
record date or the date on which the Corporation's transfer
books are closed in respect thereto.
(5) Board Adjustment. If any event occurs as to which in the
opinion of the Board of Directors of the Corporation the other
provisions of this paragraph ( b) are not strictly applicable
or if strictly applicable would not fairly protect the rights
of the holders of Preferred Stock in accordance with the
essential intent and principles of such provisions, then the
Board of Directors shall make an adjustment in the application
of such provisions, in accordance with such essential intent
and principles, so as to protect such rights as aforesaid.
(6) Common Stock Defined. As used in this paragraph ( b) the term
"Common Stock" shall mean and include the Corporation's
presently authorized Common Stock and shall also include any
capital stock of any class of the Corporation hereafter
authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon
the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; provided that the shares
receivable pursuant to conversion of shares of Preferred Stock
shall include shares designated as Common Stock of the
Corporation as of the date of issuance of such shares of
Preferred Stock, or, in case of any reclassification of the
outstanding shares thereof, the stock, securities or assets
provided for in subparagraph (4) above.
(7) No Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion, but, instead of any fraction
of a share which would otherwise be issuable, the Corporation
shall pay a cash adjustment in respect of such fraction in an
amount equal to the same fraction of the Current Market Price
per share of Common Stock as of the close of business on the
day of conversion.
(c) Mandatory Conversion. The Preferred Stock together with accrued
unpaid Dividends shall automatically be converted into shares of Common Stock of
the Corporation, without any act by the Corporation or the holders of the
Preferred Stock, (i) concurrently with the closing of a public offering by the
Corporation of shares of Common Stock of the Corporation registered under the
Securities Act of 1933, as amended, in which (1) the aggregate public offering
price of the securities sold for cash by the Corporation in the offering is at
least $ 3,000,000, or such lower amount as may be approved by the holders of at
least a majority of the shares of Preferred Stock then outstanding, and (2) the
offering is underwritten on a firm commitment basis by an underwriter, or a
group of underwriters represented by an underwriter or underwriters, unless this
requirement is waived by the holders of at least a majority of the shares of
Preferred Stock then outstanding (in which case such offering may be a
"best-efforts" or company-sponsored offering), and (3) the public offering price
per share of Common Stock is at least $ 2.00, or such lower amount as may be
approved by the holders of at least a majority of the shares of Preferred Stock
then outstanding. As used herein, the term "closing" shall mean the delivery by
the Corporation to the underwriters or purchasers of the shares offered of
certificates representing the shares of Common Stock of the Corporation offered
to the public against delivery to the Corporation of payment therefor. The term
"firm commitment basis" with respect to the underwriting of such public offering
shall mean a commitment pursuant to a written underwriting agreement under which
the nature of the underwriters' commitment is such that all securities will be
purchased by such underwriters if any securities are purchased by such
underwriters.; (ii) upon written notice of the Company at such time as the
Current Market Price of the Corporation's Common Stock in the over-the-counter
market is at least
<PAGE>
$2.00 per share (as adjusted from time to time to reflect stock splits, stock
dividends, recapitalizations, combinations or the like) for at least twenty (20)
trading days; or (iii) upon the merger or consolidation of the Corporation into
or with another corporation, or upon the merger or consolidation of any other
corporation into or with the Corporation or a plan of exchange between the
Corporation and any other corporation (in which consolidation or merger or plan
of exchange (x) the Corporation is not the surviving corporation, or (y) the
stockholders of the Corporation existing prior to such event will not, upon the
closing of such event, maintain voting control of the surviving Corporation).
Each holder of a share of Preferred Stock so converted shall be
entitled to receive the full number of shares of Common Stock into which such
share of Preferred Stock held by such holder could be converted (i) in the event
of a public offering above-described, if such holder had exercised its
conversion right at the time of closing of such public offering, or (ii) in the
event of a merger or exchange or consolidation above-described, if such holder
had exercised its conversion right at the time of closing of such event without
regard to the provisions of subparagraphs 4(b)(3)(i) through 4(b)(3)(ix) hereof.
Upon such conversion, each holder of a share of Preferred Stock shall
immediately surrender such share in exchange for appropriate stock certificates
representing a share or shares of Common Stock of the Corporation
IN WITNESS WHEREOF, this Certificate of Designation of Series A Preferred Stock
is hereby executed on behalf of the Corporation by Bruce H. Senske, this 20th
day of April, 1998.
U-SHIP, INC.
By
Bruce H. Senske, Chief Executive Officer
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument, the Certificate of Designation of Preferences and
Rights of Series A Cumulative Convertible Preferred Stock of U-Ship, Inc., was
acknowledged before me this 20th day of April, 1998, by such individual known to
me to be the person whose name is subscribed in the foregoing instrument.
Notary Public
EXHIBIT 10.1
SUBSCRIPTION AGREEMENT
AND
LETTER OF INVESTMENT INTENT
U-Ship, Inc.
5583 West 78th Street
Edina, MN 55439
Attention: Bruce H. Senske
Chief Executive Officer
Gentlemen:
The undersigned desires to become a shareholder of U-Ship, Inc. a Utah
corporation (the "Company"), and hereby subscribes for _____________________
Units upon the terms and conditions set forth below. Each Unit is comprised of
two (2) shares of the Company's Series A Cumulative Convertible Preferred Stock,
$0.004 par value, the rights and preferences of which are described on that
certain Certificate of Designation a copy of which is attached hereto as Exhibit
A ("Certificate") and by this reference incorporated herein (the "Shares") and
one (1) warrant (the "Warrants") to purchase one share of the Company's common
stock, $0.004 par value (the "Common Stock"). As used herein, the term "Units"
shall mean and include (i) the Units, as units; (ii) the individual Shares and
Warrants comprising the Units being purchased hereunder by the undersigned; and,
(iii) where appropriate, the shares of Common Stock which may be issued upon
conversion of the Shares and upon exercise of the Warrants:
1. The undersigned hereby agrees to purchase the above Units for the sum
of $___________________________, representing the purchase price of $1.20 per
Unit for each Unit subscribed for above. The undersigned acknowledges this
subscription is contingent upon acceptance in whole or in part by the Company,
and upon the satisfaction of the following contingencies on or before April 20,
1998: (a) the Company must obtain at least $1,250,000 (after deduction of
Agent's commission and non accountable expense allowances and other expenses of
the Offering) pursuant to the offering of Units being conducted by the Company
with the assistance of R.J. Steichen & Company; (b) the Company must be listed
on the NASDAQ SmallCap Market; and (c) the Utah Control Acquisition Act must not
apply to the investment by the Subscriber hereunder.
2. The undersigned acknowledges, represents and warrants that the
undersigned:
(a) is able to bear the economic risk of the investment in the
Units;
(b) has knowledge and experience in financial and business matters,
is capable of evaluating the merits and risks of the prospective
investment in the Units and is able to bear such risks;
(c) understands an investment in the Units is highly speculative but
believes that the investment is suitable for it based upon the
undersigned's investment objectives and financial needs, and has adequate
means for providing for current financial needs and personal contingencies
and has no need for liquidity of investment with respect to the Units;
<PAGE>
(d) has reviewed (i) the Certificate; and (ii) copies of the
Company's recent reports filed under the Securities Exchange Act of 1934,
including, the Company's Form 10-KSB Report for the fiscal year ended June
30, 1997, and is familiar with the factors contained therein under the
caption "Factors That May Affect Future Operating Results" which are
intended to serve as cautionary factors within the meaning of the Private
Securities Litigation Reform Act of 1995 and (iii) the Company's Form
10-QSB for the period ended December 31, 1997.
(e) has been given access to full and complete information regarding
the Company (including the opportunity to meet with Company officers and
review all documents as it may have requested in writing) and has utilized
such access to its satisfaction for the purpose of obtaining information
about the Company;
(f) recognizes that the Units, as an investment, involve a high
degree of risk; and
(g) realizes that (i) the purchase of Units is a long-term
investment; (ii) purchasers of Units must bear the economic risk of
investment for an indefinite period of time because the Units have not
been registered under the Securities Act of 1933, as amended (the "Act")
and, therefore, cannot be sold unless they are subsequently registered
under the Act or an exemption from such registration is available; and
(iii) the transferability of the Units is restricted, and (A) requires the
written consent of the Company, (B) requires conformity with the
restrictions contained in paragraph 3 below, and (C) will be further
restricted by a legend placed on the certificate(s) representing the Units
stating that the Units have not been registered under the Act and
referring to the restrictions on transferability of the Units, and by stop
transfer orders or notations on the Company's records referring to the
restrictions on transferability.
3. The undersigned has been advised that the Units are not being
registered under the Act or the relevant state securities laws pursuant to
exemptions from the Act and laws, and that the Company's reliance upon such
exemptions is predicated in part on the undersigned's representations to the
Company as contained herein. The undersigned represents and warrants that the
Units are being purchased for its own account and for investment and without the
intention of reselling or redistributing the same, that the undersigned has made
no agreement with others regarding any of such Units and that its financial
condition is such that it is not likely that it will be necessary to dispose of
any of such Units in the foreseeable future. The undersigned is aware that, in
the view of the Securities and Exchange Commission and applicable state bodies
that administer state securities laws, a purchase of Units with an intent to
resell by reason of any foreseeable specific contingency or anticipated change
in market values, or any change in the condition of the Company or its business,
or in connection with a contemplated liquidation or settlement of any loan
obtained for the acquisition of the Units and for which the Units were pledged
as security, would represent an intent inconsistent with the representations set
forth above. The undersigned further represents and agrees that if, contrary to
its foregoing intentions, it should later desire to dispose of or transfer any
of such Units in any manner, it shall not do so without first obtaining (a) the
opinion of counsel designated by the Company that such proposed disposition or
transfer lawfully may be made without the registration of such Units for such
purpose pursuant to the Act, as then in effect, and applicable state securities
laws, or (b) such registrations (it being expressly understood that the Company
shall not have any obligation to register the Units for such purpose, except
insofar as paragraph 4 hereof requires the Company, in certain instances, to
register Registrable Securities).
<PAGE>
The undersigned agrees that the Company may place a following restrictive
legend on the certificate(s) representing the Shares and documents evidencing
the Warrants, containing substantially the following language:
"The shares represented by this Certificate were issued without
registration under the Securities Act of 1933, as amended (the "Act") and
without registration under Minnesota securities laws, in reliance upon
exemptions contained in the Act and such laws. No transfer of these shares
or any interest therein may be made except pursuant to effective
registration statements under said laws unless this Corporation has
received an opinion of counsel satisfactory to it that such transfer or
disposition does not require registration under said laws and, for any
sales under Rule 144 of the Act, such evidence as it shall request for
compliance with that rule."
The undersigned agrees and consents that the Company may place a stop transfer
order on the Certificate(s) representing the Shares and documents evidencing the
Warrants to assure the undersigned's compliance with this Agreement and the
matters referenced above.
The undersigned agrees to save and hold harmless, defend and indemnify the
Company and its directors, officers and agents from any claims, liabilities,
damages, losses, expenses or penalties arising out of any misrepresentation of
information furnished by the undersigned to the Company in this Subscription
Agreement.
4. The Company agrees to the following terms and conditions relative to
registration of the Shares under the Act:
(a) Definitions. As used in this Agreement, the following terms
shall have the meanings set forth respectively:
"Commission" shall mean the Securities and Exchange Commission, or
any other federal agency then administering the Act.
"Common Stock" shall mean the shares of Common Stock of the Company,
$0.004 par value.
"Holder" means (i) the undersigned purchaser of the Units or
Registrable Securities and (ii) each person to whom Holder transfers the
Units or Registrable Securities as provided herein.
"Other Securities" shall mean any stock (other than Common Stock) or
other securities of the Company which the Holder at any time shall be
entitled to receive, or shall have received, upon the conversion of the
Shares or exercise of the Warrants, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities.
<PAGE>
"Registrable Securities" means any shares of Common Stock issued or
which may be issued upon conversion of the Shares or upon exercise of the
Warrants, and any Other Securities received with respect thereto;
provided, however, that any such Common Stock and Other Securities shall
cease to be Registrable Securities when (i) a Resale Registration
Statement covering such Registrable Securities has been declared effective
and such Registrable Securities have been disposed of pursuant to such
effective Resale Registration Statement, (ii) such Registrable Securities
become eligible for sale pursuant to Rule 144 (or any similar provision
then in force) ("Rule 144") under the Act or (iii) such shares of Common
Stock cease to be outstanding
"Transfer" shall mean any sale, assignment, pledge, or other
disposition of any Units or Registrable Securities, or of any interest in
either thereof, which would constitute a sale thereof within the meaning
of Section 2(3) of the Act.
All terms used in this Agreement which are not defined in Section 1 hereof
have the meanings respectively set forth elsewhere in this Agreement.
(b) Resale Registration. Despite anything in this Agreement to the
contrary, the Holder shall have the following rights regarding registration of
Registrable Securities which may be hereafter acquired upon conversion of the
Shares or exercise of the Warrants.
(1) Required Registration. Upon request of holders of at least
50,000 Units or Registrable Securities not theretofore registered
under the Act, the Company shall prepare and file a registration
statement on Form S-3 under the Act covering the Registrable
Securities which are the subject of such requests and shall use its
best efforts to cause such registration statement to become
effective and to remain effective for at least 24 months. In
addition, upon the receipt of the aforementioned request, the
Company shall promptly give written notice to all other record
holders of Units or Registrable Securities that such registration is
to be effected. The Company shall include in such registration
statement such Registrable Securities for which it has received
written requests to register by such other record holders within
fifteen (15) days after the Company's written notice to such other
record holders. The Company shall be obligated to prepare, file and
cause to become effective only two (2) registration statements
pursuant to this Section 4(b). In the event that the holders of a
majority of the Registrable Securities for which registration has
been requested pursuant to this Section determine for any reason not
to proceed with a registration at any time before the registration
statement has been declared effective by the Commission, and such
holders thereafter request the Company to withdraw such registration
statement, the holders of such Registrable Securities agree to bear
their own expenses incurred in connection therewith and to reimburse
the Company for the expenses incurred by it attributable to such
registration statement, then, and in such event, the holders of such
Registrable Securities shall not be deemed to have exercised their
right to require the Company to register Registrable Securities
pursuant to this Section 4(b).
(2) Incidental Registration. Each time the Company shall determine
to proceed with the actual preparation and filing of a registration
statement under the Act in connection with the proposed offer and
sale for money of any of its Common Stock by it or any of its
<PAGE>
security holders other than a registration statement on From S-4 or
S-8 or any other successor forms prescribed by the commission, the
Company will give written notice of its determination to all record
holders of Units and Registrable Securities. Upon the written
request of a record holder of any Units and Registrable Securities
given within fifteen (15) days after receipt of any such notice from
the Company, the Company will, except as herein provided, cause all
such Registrable Securities, the record holders of which have so
requested registration thereof, to be included in such registration
statement, all to the extent requisite to permit the sale or other
disposition by the prospective seller or sellers of the Registrable
Securities to be so registered; provided, however, that (a) nothing
herein shall prevent the Company from, at any time, abandoning or
delaying any such registration initiated by it; and (b) if the
Company determines not to proceed with a registration after the
registration statement has been filed with the Commission and the
Company's decision not to proceed is primarily based upon the
anticipated public offering price of the securities to be sold by
the Company, the Company shall promptly complete the registration
for the benefit of those selling security holders who wish to
proceed with a public offering of their securities and who bear all
expenses in excess of $25,000 incurred by the Company as the result
of such registration after the Company has decided not to proceed.
If any registration pursuant to this Section shall be underwritten
in whole or in part, the Company may require that the Registrable
Securities requested for inclusion pursuant to this Section be
included in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters. If in the
good faith judgment of the managing underwriter of such public
offering the inclusion of all of the Registrable Securities
originally covered by a request for registration would reduce the
number of shares to be offered by the Company or interfere with the
successful marketing of the shares of stock offered by the Company,
the number of Registrable Securities otherwise to be included in the
underwritten public offering may be reduced pro rata among the
holders thereof requesting such registration to a number that the
managing underwriter believes will not adversely affect the sale of
shares by the Company. Those securities which are thus excluded from
the underwritten public offering, and any other Common Stock owned
by such holders, shall be withheld from the market by the holders
thereof for a period, not to exceed one hundred eighty (180) days,
which the managing underwriter reasonably determines is necessary in
order to effect the underwritten public offering.
(3) Registration Procedures. If and whenever the Company is required
by the provisions of Section 4(b)(1) or 4(b)(2) to effect the
registration of any Registrable Securities under the Act, the
Company will:
(i) prepare and file with the Commission a registration statement
with respect to such Registrable Securities, and use its best
efforts to cause such registration statement to become and
remain effective for such period as may be reasonably
necessary to effect the sale of such Registrable Securities,
not to exceed three (3) months;
(ii) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus
contained therein as may be
<PAGE>
necessary to keep such registration statement effective for
such period as may be reasonably necessary to effect the sale
of such Registrable Securities, not to exceed three (3)
months;
(iii) furnish to the security holders participating in such
registration and to the underwriters of the Registrable
Securities being registered such reasonable number of copies
of the registration statement, preliminary prospectus, final
prospectus and such other documents as such security holders
and underwriters may reasonably request in order to facilitate
the public offering of such Registrable Securities;
(iv) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such
state securities or blue sky laws of such jurisdictions as
such participating holders may reasonably request within ten
(10) days following the original filing of such registration
statement, except that the Company shall not for any purpose
be required to execute a general consent to service of process
or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
(v) notify the security holders participating in such
registration, promptly after it shall receive notice thereof,
of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of
such registration statement has been filed;
(vi) notify such holders promptly of any request by the Commission
for the amending or supplementing of such registration
statement or prospectus or for additional information;
(vii) prepare and file with the Commission, promptly upon the
request of any such holders, any amendments or supplements to
such registration statement or prospectus which, in the
opinion of counsel for such holders (and concurred in by
counsel for the Company), is required under the Act or the
rules and regulations thereunder in connection with the
distribution of the Registrable Securities by such holder;
(viii)prepare and promptly file with the Commission and promptly
notify such holders of the filing of such amendment or
supplement to such registration statement or prospectus as may
be necessary to correct any statements or omissions if, at the
time when a prospectus relating to such securities is required
to be delivered under the Act, any event shall have occurred
as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement
of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
<PAGE>
(ix) advise such holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any
proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued; and
(x) not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of
such holders shall have reasonably objected on the grounds
that such amendment or supplement does not comply in all
material respects with the requirements of the Act or the
rules and regulations thereunder, after having been furnished
with a copy thereof at least five (5) business days prior to
the filing thereof, unless in the opinion of counsel for the
Company the filing of such amendment or supplement is
reasonably necessary to protect the Company from any
liabilities under any applicable federal or state law and such
filing will not violate applicable law.
(4) Expenses. With respect to any registration, requested pursuant
to Section 4(b)(1) (except as otherwise provided in such section
with respect to registrations voluntarily terminated at the request
of the requesting security holders) and with respect to each
inclusion of securities in a registration statement pursuant to
Section 4(b)(2) (except as otherwise provided in Section 4(b)(2)
with respect to registrations terminated by the Company), the
Company shall bear the following fees, costs and expenses: all
registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, fees and
disbursements of counsel for the underwriter or underwriters of such
securities (if the Company and/or selling security holders are
required to bear such fees and disbursements), all internal Company
expenses, the premiums and other costs of policies of insurance
against liability arising out of the public offering, and all legal
fees and disbursements and other expenses of complying with state
securities or blue sky laws of any jurisdictions in which the
securities to be offered are to be registered or qualified. Fees and
disbursements of counsel and accountants for the selling security
holders, underwriting discounts and commissions and transfer taxes
for selling security holders and any other expenses incurred by the
selling security holders not expressly included above shall be borne
by the selling security holders.
(5) Copies of Prospectus; Amendments of Prospectus. The Company will
furnish the Holder with a reasonable number of copies of any
prospectus or offering circular and one copy of the registration
statement included in such filings and will amend or supplement the
same as required during the nine (9) month period following the
effective date of the registration statement, provided, that the
expenses of any amendment or supplement made or filed more than
three (3) months after the effective date of the registration
statement, at the request of the Holder, shall be borne by the
Holder.
(6) Conditions of the Company's Obligations. It shall be a condition
of the Company's obligation to register the Registrable Securities
hereunder that the Holder
<PAGE>
agrees to cooperate with the Company in the preparation and filing
of any such registration statement, or in its efforts to establish
that the proposed sale is exempt under the Act, as to any proposed
distribution. It shall also be a condition of the Company's
obligations under this Agreement that, in the case of the filing of
any registration statement, and to the extent permissible under the
Act, and controlling precedent thereunder, the Company and the
Holder provide cross-indemnification agreements to each other in
customary scope covering the accuracy and completeness of the
information furnished by each.
(c) Restrictions on Sale. In the event of an underwritten public
offering for the account of the Company, upon the written request (the "Lock-up
Request") of the managing underwriter (or underwriters) of such offering, each
Holder agrees not to effect any public sale or distribution of any securities
similar to those being registered in such offering (other than pursuant to such
offering), including, without limitation, through sales of Registrable
Securities pursuant to a registration statement, during the 14 days prior to,
and during the 180-day period beginning on the effective date of the
registration statement relating to such offering (the "Lock-up Period");
provided, however, that the Holders shall not be required to comply with such
Lock-up Request unless the Company simultaneously demands analogous restrictions
on sale and uses all reasonable efforts to obtain from all other persons who are
contractually bound with the Company to comply with such Lock-up Requests and
from the Company's directors. In the event of the delivery of a Lock-up Request,
the time periods for which a registration statement is required to be kept
effective pursuant to Section 4(b) hereof shall be extended by the number of
days during the Lock-up Period.
(g) Transfer of Registration Rights. The registration rights of
Holder and any Holders under this Section 4 may be transferred to any transferee
of Registrable Securities that acquires at least 1,000 shares of Registrable
Securities (appropriately adjusted for stock splits, stock dividends and the
like). Each such transferee shall be deemed to be a "Holder" for purposes of
this Section 4.
5. The undersigned represents and warrants that the undersigned is a bona
fide resident of, and is domiciled in, the State of Minnesota and that the Units
are being purchased solely for the beneficial interest of the undersigned and
not as nominee, for, or on behalf of, or for the beneficial interest of, or with
the intention to transfer to, any other person, trust or organization, except as
specifically set forth in paragraph 8 of this Agreement.
THIS PARAGRAPH 5 IS REQUIRED IN CONNECTION WITH THE EXEMPTIONS FROM THE ACT AND
STATE LAWS BEING RELIED ON BY THE COMPANY WITH RESPECT TO THE OFFER AND SALE OF
THE SHARES. ALL OF SUCH INFORMATION WILL BE KEPT CONFIDENTIAL AND WILL BE
REVIEWED ONLY BY THE COMPANY, THE AGENT, IF ANY, AND THEIR RESPECTIVE COUNSEL.
The undersigned agrees to furnish any additional information which the Company,
the Agent, if any, or their respective legal counsel deem necessary in order to
verify the responses set forth below.
<PAGE>
6. Accredited Status. The undersigned represents and warrants as follows:
(CHECK IF APPLICABLE):
_______ (a) The undersigned is an individual with a net worth, or a joint net
worth together with his or her spouse, in excess of $1,000,000. (In
calculating net worth, you may include equity in personal property and
real estate, including your principal residence, cash, short-term
investments, stock and securities. Equity in personal property and real
estate should be based on the fair market value of such property minus
debt secured by such property.)
_______ (b) The undersigned is an individual with income in excess of $200,000
in each of the prior two years and reasonably expects an income in
excess of $200,000 in the current year.
_______ (c) The undersigned is an individual who, with his or her spouse, had
joint income in excess of $300,000 in each of the prior two years and
reasonably expects joint income in excess of $300,000 in the current
year.
_______ (d) The undersigned is a director or executive officer of U-Ship, Inc.
_______ (e) The undersigned, if other than an individual, is an entity all of
whose equity owners meet one of the tests set forth in (A) through (D)
above.
_______ (f) The undersigned is an entity, and is an "Accredited Investor" as
defined in Rule 501(a) of Regulation D under the Act. This
representation is based on the following (check one or more, as
applicable):
______ i. The undersigned (or, in the case of a trust, the
undersigned trustee) is a bank or savings and loan
association as defined in Sections 3(a)(2) and
3(a)(5)(A), respectively, of the Act acting either in
its individual or fiduciary capacity.
______ ii. The undersigned is an insurance company as defined in
section 2(13) of the Act.
______ iii. The undersigned is an investment company registered under
the Investment Company Act of 1940 or a business
development company as defined in Section 2(a)(48)
of that Act.
______ iv. The undersigned is a Small Business Investment Company
licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment
Act of 1958.
<PAGE>
______ v. The undersigned is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income
Security Act of 1974 ("ERISA") and either (check one or
more, as applicable):
___a. the investment decision is made by a plan fiduciary,
as defined in Section 3(21) of ERISA, which is either
a bank, savings and loan association, insurance
company, or registered investment advisor; or
___b. the employee benefit plan has total assets in excess
of $5,000,000; or
___c. the plan is a self-directed plan with investment
decisions made solely by persons who are "Accredited
Investors" as defined under the Act.
______ vi. The undersigned is a private business development company
as defined in Section 202(a)(22) of the Investment
Advisors Act of 1940.
______ vii. The undersigned has total assets in excess of $5,000,000,
was not formed for the specific purpose of acquiring
shares of the Company and is one or more of the following
(check one or more, as appropriate):
___a. an organization described in Section 501(c)(3) of the
Internal Revenue Code; or
___b. a corporation; or
___c. a Massachusetts or similar business trust; or
___d. a partnership.
______ viii. The undersigned is a trust with total assets exceeding
$5,000,000 which was not formed for the specific purpose
of acquiring shares of the Company and whose purchase is
directed by a person who has such knowledge and
experience in financial and business matters that he or
she is capable of evaluating the merits and risks of the
investment in the Units. (IF ONLY THIS RESPONSE IS
CHECKED, please contact the Company to receive and
complete an information statement before this
subscription can be considered).
<PAGE>
7. NASD Affiliation. The undersigned is affiliated or associated, directly
or indirectly, with a National Association of Securities Dealers, Inc. ("NASD")
member firm or person.
Yes ________ No ________
If yes, list the affiliated member firm or person:_______________________
_________________________________________________________________________
_________________________________________________________________________
Your relationship to such member firm or person:_________________________
_________________________________________________________________________
_________________________________________________________________________
8. Entities. If the undersigned is not an individual but an entity, the
individual signing on behalf of such entity and the entity jointly and severally
agree and certify that:
(a) The undersigned was not organized for the specific purpose of
acquiring the Units; and
(b) This Agreement has been duly authorized by all necessary action
on the part of the undersigned, has been duly executed by an authorized
officer or representative of the undersigned, and is a legal, valid and
binding obligation of the undersigned enforceable in accordance with its
terms.
9. Miscellaneous.
(a) Manner in which title is to be held: (check one)
_____ Individual Ownership
_____ Joint Tenants with Right of Survivorship*
_____ Partnership*
_____ Tenants in Common*
_____ Corporation
_____ Trust
_____ Other _______________________________________________________
_____________________________________________(describe)
-------------
*Multiple signatures required.
<PAGE>
(b) The undersigned agrees that the undersigned understands the meaning
and legal consequences of the agreements, representations and warranties
contained herein, agrees that such agreements, representations and
warranties shall survive and remain in full force and effect after the
execution hereof and payment for the Units, and further agrees to
indemnify and hold harmless the Company, each current and future officer,
director, employee, agent and shareholder from and against any and all
loss, damage or liability due to, or arising out of, a breach of any
agreement, representation or warranty of the undersigned contained herein.
(c) This Agreement shall be construed and interpreted in accordance with
Minnesota law without regard to conflict of law provisions.
(d) The undersigned agrees to furnish to the Company or the Agent, if
applicable, upon request, such additional information as may be deemed
necessary to determine the undersigned's suitability as an investor.
[NOTE: SIGNATURE PAGE FOLLOWS]
<PAGE>
Dated: _______________________, 1998.
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Signature Signature
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Name Typed or Printed Name Typed or Printed
- ------------------------------------ ------------------------------------
Residence Address Residence Address
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
City, State and Zip Code City, State and Zip Code
- ------------------------------------ ------------------------------------
Mailing Address Mailing Address
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
City, State and Zip Code City, State and Zip Code
- ------------------------------------ ------------------------------------
Tax Identification or Social Tax Identification or Social
Security Number Security Number
<PAGE>
ACCEPTANCE BY THE COMPANY
U-Ship, Inc. hereby agrees to and accepts the foregoing Subscription Agreement
to the extent of _______________ Units.
U-SHIP, INC.
By __________________________________
Bruce H. Senske
Its: Chief Executive Officer
EXHIBIT 10.2
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "1933 ACT") OR UNDER THE SECURITIES LAWS OF ANY
OTHER STATE AND MAY NOT BE TRANSFERRED WITHOUT (i) THE OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT
REGISTRATION UNDER THE 1933 ACT OR THE SECURITIES LAWS OF ANY APPLICABLE STATE;
OR (ii) SUCH REGISTRATION."
WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
U-SHIP, INC.
NO. 98W________
APRIL ___, 1998
For good and valuable consideration, ________________, circle one: an
individual, a corporation, a partnership, a limited liability company, a trust
(the "Warrantholder"), is entitled to subscribe for and purchase from U-Ship,
Inc., a Utah Corporation, (the "Company"), at any time after the above date, and
prior to April 30, 2001 (the "Expiration Date"), up to _____shares of the
Company's Common Stock at the Purchase Price set forth herein, subject to
adjustment as hereinafter set forth. The purchase rights are subject to
mandatory redemption provisions set forth in Paragraph 12 of this Warrant.
1. Definitions. For the purposes of this Warrant the following terms shall have
the following meanings: -----------
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency then administering the Securities Act.
"Company" shall mean U-Ship, Inc., a Utah corporation, and any
corporation which shall succeed to, or assume, the obligations of said
corporation hereunder.
"Common Stock" shall mean the shares of Common Stock of the Company,
$0.004 par value.
"Other Securities" shall mean any stock (other than Common Stock) or
other securities of the Company which the Warrantholder at any time shall
be entitled to receive, or shall have received, upon the exercise of the
Warrants, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities.
"Purchase Price" shall mean $1.75 per share. The Purchase Price is
subject to adjustment as hereinafter provided.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, as in effect at
the time.
"Subscription Form" shall mean the subscription forms attached hereto.
<PAGE>
"Transfer" shall mean any sale, assignment, pledge, or other
disposition of any Warrants and/or Warrant Shares, or of any interest in
either thereof, which would constitute a sale thereof within the meaning of
Section 2(3) of the Securities Act.
"Warrant Shares" or "Warrant Stock" shall mean the shares of Common
Stock purchased or purchasable by the Warrantholder upon the exercise of
the Warrants pursuant to Section 2 hereof.
"Warrantholder" shall mean the holder or holders of the Warrants or
any related Warrant Shares.
"Warrants" shall mean the Warrants (including this Warrant), identical
as to terms and conditions , evidencing the right to purchase initially an
aggregate minimum of 2,078,833 shares of Common Stock, and all Warrants
issued in exchange, transfer or replacement thereof.
All terms used in this Warrant which are not defined in Section 1 hereof
have the meanings respectively set forth elsewhere in this Warrant.
2. Exercise of Warrant, Issuance of Certificate, and Payment for Warrant Shares.
The rights represented by this Warrant may be exercised at any time after the
date hereof, and prior to the expiration date, by the Warrantholder, in whole or
in part (but not as to any fractional share of Common Stock), by: (a) delivery
to the Company of a completed Subscription Form, (b) surrender to the Company of
this Warrant properly endorsed and signature guaranteed, and (c) delivery to the
Company of a certified or cashier's check made payable to the Company in an
amount equal to the aggregate Purchase Price of the shares of Common Stock being
purchased, at its principal office or agency in Minnesota (or such other office
or agency of the Company as the Company may designate by notice in writing to
the holder hereof). The Company agrees and acknowledges that the shares of
Common Stock so purchased shall be deemed to be issued to the holder hereof as
the record owner of such shares as of the close of business on the date on which
this Warrant, properly endorsed, and the Subscription Form shall have been
surrendered and payment made for such shares as aforesaid. Upon receipt thereof,
the Company shall, as promptly as practicable, and in any event within fifteen
(15) days thereafter, execute or cause to be executed and deliver to the
Warrantholder a certificate or certificates representing the aggregate number of
shares of Common Stock specified in said Subscription Form. Each stock
certificate shall be registered in the name of the Warrantholder or such other
name as shall be designated by the Warrantholder. If this Warrant shall have
been exercised only in part, the Company shall, at the time of delivery of said
stock certificate or certificates, deliver to the Warrantholder a new Warrant
evidencing the rights of such holder to purchase the remaining shares of Common
Stock covered by this Warrant. The Company shall pay all expenses, taxes, and
other charges payable in connection with the preparation, execution, and
delivery of stock certificates pursuant to this Section 2, except that, in case
any such stock certificate or certificates shall be registered in a name or
names other than the name of the Warrantholder, funds sufficient to pay all
stock transfer taxes which shall be payable upon the execution and delivery of
such stock certificate or certificates shall be paid by the Warrantholder to the
Company at the time of delivering this Warrant to the Company as mentioned
above.
3. Ownership of this Warrant. The Company may deem and treat the registered
Warrantholder as the holder and owner hereof (notwithstanding any notations of
ownership or writing made hereon by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for transfer as provided herein and then only if
such transfer meets the requirements of Section 5.
4. Exchange, Transfer, and Replacement. Subject to Section 5 hereof, this
Warrant is exchangeable upon the surrender hereof by the Warrantholder to the
Company at its office or agency described in
<PAGE>
Section 2 hereof for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of shares purchasable hereunder, each
of such new Warrants to represent the right to purchase such number of shares
(not to exceed the aggregate total number purchasable hereunder) as shall be
designated by the Warrantholder at the time of such surrender. Subject to
Section 5 hereof, this Warrant and all rights hereunder are transferable, in
whole or in part, upon the books of the Company by the Warrantholder in person
or by duly authorized attorney, and a new Warrant of the same tenor and date as
this Warrant, but registered in the name of the transferee, shall be executed
and delivered by the Company upon surrender of this Warrant, duly endorsed, at
such office or agency of the Company. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction, or mutilation of
this Warrant, and, in the case of loss, theft, or destruction, of indemnity or
security reasonably satisfactory to it, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new Warrant of
like tenor and date, in lieu of this Warrant. This Warrant shall be promptly
canceled by the Company upon the surrender hereof in connection with any
exchange, transfer, or replacement. The Company shall pay all expenses, taxes
(other than stock transfer taxes), and other charges payable in connection with
the preparation, execution, and delivery of Warrants pursuant to this Section 4.
5. Restrictions on Transfer. Notwithstanding any provisions contained in this
Warrant to the contrary, neither this Warrant nor the Warrant Shares shall be
transferable except upon the conditions specified in this Section 5, which
conditions are intended, among other things, to ensure compliance with the
provisions of the Securities Act in respect of the transfer of this Warrant or
such Warrant Shares. The holder of this Warrant agrees that such holder will not
transfer this Warrant or the related Warrant Shares (a) prior to delivery to the
Company of an opinion of counsel selected by the Warrantholder and reasonably
satisfactory to the Company, stating that such transfer is exempt from
registration under the Securities Act, or (b) until registration of such
Warrants and/or Warrant Shares under the Securities Act has become effective and
continues to be effective at the time of such transfer. An appropriate legend
may be endorsed on the Warrants and the certificates of the Warrant Shares
evidencing these restrictions.
6. Antidilution Provisions. The rights granted hereunder are subject to the
following:
(a) Stock Splits and Reverse Splits. In case at any time the Company shall
subdivide its outstanding shares of Common Stock into a greater number of
shares, the Purchase Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares
purchasable pursuant to this Warrant immediately prior to such subdivision
shall be proportionately increased, and conversely, in case at any time the
Company shall combine its outstanding shares of Common Stock into a smaller
number of shares, the Purchase Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant
Shares purchasable upon the exercise of this Warrant immediately prior to
such combination shall be proportionately reduced. Except as provided in
this paragraph (a), no adjustment in the Purchase Price and no change in
the number of Warrant Shares so purchasable shall be made pursuant to this
Section 6 as a result of or by reason of any such subdivision or
combination.
(b) Reorganization, Reclassification, Consolidation, Merger, or Sale. If
any capital reorganization or reclassification or merger of the Company
with another corporation, or the sale of all or substantially all of its
assets to another corporation, shall be effected in such a way that holders
of shares of Common Stock shall be entitled to receive Common Stock, Other
Securities or assets with respect to or in exchange for shares of Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be made
whereby the Warrantholder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in the
Warrants and in lieu of the shares of Common Stock of the Company
immediately theretofore purchasable and receivable upon the
<PAGE>
exercise of the Warrants such shares of Common Stock, Other Securities or
assets as may be issued or payable with respect to or in exchange for a
number of outstanding shares of Common Stock equal to the number of shares
of Common Stock immediately theretofore purchasable and receivable upon the
exercise of the Warrants had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case
appropriate provision shall be made with respect to the rights and
interests of the Warrantholder so that the provisions of the Warrants
(including, without limitation, provisions for adjustment of the Purchase
Price and the number of shares purchasable upon the exercise of the
Warrants) shall thereafter be applicable, as nearly as may be, in relation
to any shares of Common Stock, Other Securities or assets thereafter
deliverable upon the exercise of the Warrants.
(c) Adjustment to Purchase Price. The Purchase Price shall be subject to
adjustment from time to time as follows:
(i) COMMON STOCK ISSUED AT LESS THAN THE PURCHASE PRICE. If the
Corporation shall issue any Common Stock other than Excluded Stock (as
hereinafter defined) without consideration or for a consideration per share less
than the Purchase Price in effect immediately prior to such issuance, the
Purchase Price in effect immediately prior to each such issuance shall
immediately (except as provided below) be reduced to the price determined by
dividing (1) an amount equal to the sum of (A) the number of shares of Common
Stock outstanding immediately prior to such issuance multiplied by the Purchase
Price in effect immediately prior to such issuance and (B) the consideration, if
any, received by the Corporation upon such issuance, by (2) the total number of
shares of Common Stock outstanding immediately after such issuance.
For the purposes of any adjustment of the Purchase Price pursuant to clause
(i), the following provisions shall be applicable:
(A) CASH. In the case of the issuance of Common Stock for cash,
the amount of the consideration received by the Corporation shall be deemed to
be the amount of the cash proceeds received by the Corporation for such Common
Stock before deducting therefrom any discounts, commissions, taxes or other
expenses allowed, paid or incurred by the Corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(B) CONSIDERATION OTHER THAN CASH. In the case of the issuance of
Common Stock (otherwise than upon the conversion of shares of capital stock or
other securities of the Corporation) for a consideration in whole or in part
other than cash, including securities acquired in exchange therefor (other than
securities by their terms so exchangeable), the consideration other than cash
shall be deemed to be the fair value thereof as determined by the Board of
Directors, irrespective of any accounting treatment; PROVIDED that such fair
value as determined by the Board of Directors shall not exceed the aggregate
Current Market Price (as defined below) of the shares of Common Stock being
issued as of the date the Board of Directors authorizes the issuance of such
shares.
(C) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the
issuance of (i) options, warrants or other rights to purchase or acquire Common
Stock (whether or not at the time exercisable), (ii) securities by their terms
convertible into or exchangeable for Common Stock (whether or not at the time so
convertible or exchangeable) or options, warrants or rights to purchase such
convertible or exchangeable securities (whether or not at the time exercisable):
(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other rights to purchase
or acquire Common Stock shall be deemed to have been issued at the time such
options, warrants or rights were issued and for a
<PAGE>
consideration equal to the consideration (determined in the manner provided in
subclauses (A) and (B) above), if any, received by the Corporation upon the
issuance of such options, warrants or rights plus the minimum purchase price
provided in such options, warrants or rights for the Common Stock covered
thereby;
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options, warrants or other
rights to purchase or acquire such convertible or exchangeable securities and
the subsequent conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options, warrants or
rights were issued and for a consideration equal to the consideration, if any,
received by the Corporation for any such securities and related options,
warrants or rights (excluding any cash received on account of accrued interest
or accrued dividends), plus the additional consideration (determined in the
manner provided in subclauses (A) and (B) above, if any, to be received by the
Corporation upon the conversion or exchange of such securities, or upon the
exercise of any related options, warrants or rights to purchase or acquire such
convertible or exchangeable securities and the subsequent conversion or exchange
thereof;
(3) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options, warrants or rights or conversion
or exchange of such convertible or exchangeable securities or any change in the
consideration to be received by the Corporation upon such exercise, conversion
or exchange, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Purchase Price as then in effect shall
forthwith be readjusted to such Purchase Price as would have been obtained had
an adjustment been made upon the issuance of such options, warrants or rights
not exercised prior to such change or of such convertible or exchangeable
securities not converted or exchanged prior to such change, upon the basis of
such change;
(4) on the expiration or cancellation of any such options,
warrants or rights, or the termination of the right to convert or exchange such
convertible or exchangeable securities, if the Purchase Price shall have been
adjusted upon the issuance thereof, the Purchase Price shall forthwith be
readjusted to such Purchase Price as would have been obtained had an adjustment
been made upon the issuance of such options, warrants, rights or such
convertible or exchangeable securities on the basis of the issuance of only the
number of shares of Common Stock actually issued upon the exercise of such
options, warrants or rights, or upon the conversion or exchange of such
convertible or exchangeable securities; and
(5) if the Purchase Price shall have been adjusted upon the
issuance of any such options, warrants, rights or convertible or exchangeable
securities, no further adjustment of the Purchase Price shall be made for the
actual issuance of Common Stock upon the exercise, conversion or exchange
thereof; PROVIDED, HOWEVER, that no increase in the Purchase Price shall be made
pursuant to subclauses (1) or (2) of this subclause (C).
(ii) EXCLUDED STOCK. "Excluded Stock" shall mean (A) shares of Common
Stock issued or reserved for issuance by the Corporation at any time as a stock
dividend payable in shares of common Stock, or upon any subdivision or split-up
of the outstanding shares of Common Stock, or upon conversion of any shares of
Preferred Stock and (B) any shares of Common Stock to be issued to employees,
consultants and advisors of the Corporation together with any such shares that
are repurchased by the Corporation and reissued to any such employee, consultant
or advisor, whether issued directly or pursuant to any stock option plan; and
(C) shares of Common Stock issued pursuant to warrants, including the Warrants.
All shares of Excluded Stock which the Corporation has reserved for issuance
shall be deemed to be outstanding for all purposes of computations under
subparagraph 4(b)(3)(i).
<PAGE>
(iii) OTHER DISTRIBUTIONS. In case the Corporation shall fix a record
date for the making of a distribution to all holders of shares of its Common
Stock (i) of shares of any class other than its Common Stock or (ii) of evidence
of indebtedness of the Corporation or any subsidiary or (iii) of assets
(excluding cash dividends or distributions, and dividends or distributions
referred to in subparagraph 4(b)(3)(iii) above), or (iv) of rights or warrants
(excluding those referred to in subparagraph 4(b)(3)(i)(c) above), in each such
case the Purchase Price in effect immediately prior thereto shall be reduced
immediately thereafter to the price determined by dividing (1) an amount equal
to the difference resulting from (A) the number of shares of Common Stock
outstanding on such record date multiplied by the Purchase Price per share on
such record date, less (B) the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive) of said shares or evidences
of indebtedness or assets or rights or warrants to be so distributed, by (2) the
number of shares of Common Stock outstanding on such record date. Such
adjustment shall be made successively whenever such a record date is fixed. In
the event that such distribution is not so made the Purchase Price then in
effect shall be readjusted, effective as of the date when the Board of Directors
determines not to distribute such shares, evidences of indebtedness, assets,
rights or warrants, as the case may be, to the Purchase Price which would then
be in effect if such record date had not been fixed.
(iv) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENT. All calculations
under this subparagraph (b) shall be made to the nearest cent or to the nearest
one-hundredth (1/100th) of a share, as the case may be. Any provision of this
paragraph 4 to the contrary notwithstanding, no adjustment in the Purchase Price
shall be made if the amount of such adjustment would be less than $0.01, but any
such amount shall be carried forward and an adjustment with respect thereto
shall be made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate $0.01 or more.
(v) TIMING OF ISSUANCE OF ADDITIONAL COMMON STOCK UPON CERTAIN
ADJUSTMENTS. In any case in which the provisions of this subparagraph (c) shall
require that an adjustment shall become effective immediately after a record
date for an event, the Corporation may defer until the occurrence of such event
(A) issuing to the holder of any Warrant exercised after such record date and
before the occurrence of such event the additional shares of Common Stock
issuable upon such exercise by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such conversion before
giving effect to such adjustment and (B) paying to such holder any amount of
cash in lieu of a fractional share of Common Stock pursuant to this Section 6.
(vi) CURRENT MARKET PRICE. The Current Market Price at any date shall
mean, in the event the Common Stock is publicly traded, the average of the daily
closing sale prices per share of Common Stock for 20 consecutive trading days
ending no more than 10 business days before such date (as adjusted for any stock
dividend, split, combination or reclassification that took effect during such 30
business day period). The closing price for each day shall be the last reported
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last closing bid and asked prices regular way, in either
case on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or if not listed or admitted to trading on any
national securities exchange, the closing sale price for such day reported by
Nasdaq, if the Common Stock is traded over-the-counter and quoted in the Nasdaq
SmallCap Market, or if the Common Stock is so traded, but not so quoted, the
average of the closing reported bid and asked prices of the Common Stock as
reported by Nasdaq or any comparable system or, if the Common Stock is not
listed on Nasdaq or any comparable system, the average of the closing bid and
asked prices as furnished by two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose. If the Common Stock is not traded in such manner that the quotations
referred to above are available for the period
<PAGE>
required hereunder, Current Market Price per share of Common Stock shall be
deemed to be the fair value as determined by the Board of Directors,
irrespective of any accounting treatment.
(vii) STATEMENT REGARDING ADJUSTMENTS. Whenever the Purchase Price
shall be adjusted as provided in this Section 6, the Corporation shall forthwith
file, at the office of any transfer agent for the Warrant Stock and at the
principal office of the Corporation, a statement showing in detail the facts
requiring such adjustment and the Purchase Price that shall be in effect after
such adjustment, and the Corporation shall, upon request of a holder of the
Warrant, also cause a copy of such statement to be sent by mail, first class
postage prepaid, to such holder at such holder's address appearing on the
Corporation's records. Each such statement shall be signed by the Corporation's
chief financial officer.
(viii) Notice of Certain Events. In case at any time:
(i) the Corporation shall declare any cash dividend on its Common
Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(ii) the Corporation shall pay any dividend payable in stock upon
its Common Stock or make any distribution (other than regular
cash dividends) to the holders of its Common Stock;
(iii) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of
any class or other rights;
(iv) there shall be any capital reorganization, or reclassification
of the capital stock of the Corporation, or consolidation or
merger of the Corporation with, or sale of all or substantially
all of its assets to, another corporation; or
(v) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give
written notice, addressed to the registered holders of the Warrants at
the addresses of such holders as shown on the books of the
Corporation, of the date on which (a) the books of the Corporation
shall close or a record shall be taken for such dividend, distribution
or subscription rights, or (b) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up
shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall
participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding up,
as the case may be. Such written notice shall be given at least 20
days prior to the action in question and not less than 20 days prior
to the record date or the date on which the Corporation's transfer
books are closed in respect thereto.
(5) Board Adjustment. If any event occurs as to which in the opinion of
the Board of Directors of the Corporation the other provisions of this
paragraph ( b) are not strictly applicable or if strictly applicable
would not fairly protect the rights of the holders of the Warrants in
accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make an adjustment in
the application of such provisions, in accordance with such essential
intent and principles, so as to protect such rights as aforesaid.
<PAGE>
(6) Common Stock Defined. As used in this paragraph (b) the term "Common
Stock" shall mean and include the Corporation's presently authorized
Common Stock and shall also include any capital stock of any class of
the Corporation hereafter authorized which shall not be limited to a
fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation.
(7) No Fractional Shares. No fractional shares of Common Stock shall be
issued uponexercise, but, instead of any fraction of a share which
would otherwise be issuable, the Corporation shall pay a cash
adjustment in respect of such fraction in an amount equal to the same
fraction of the Current Market Price per share of Common Stock as of
the close of business on the day of conversion.
7. Special Agreements of the Company.
(a) Will Reserve Shares. The Company will reserve and set apart and have at
all times the number of shares of authorized but unissued Common Stock
deliverable upon the exercise of the Warrants, and it will have at all
times any other rights or privileges provided for herein sufficient to
enable it at any time to fulfill all of its obligations hereunder.
(a) Will Avoid Certain Actions. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, issue or sale of securities or otherwise,
avoid or take any action which would have the effect of avoiding the
observance or performance hereunder by the Company, but will at all times
in good faith assist in carrying out of all the provisions of the Warrants
and in taking all such actions as may be necessary or appropriate in order
to protect the rights of the Warrantholder against dilution or other
impairment.
8. Provisions for Registration. Despite anything in this Warrant to the
contrary, the Warrantholder shall have the following rights regarding
registration of Warrant Shares which may be hereafter acquired upon exercise of
this Warrant.
(a) Required Registration. Upon request of holders of Warrants to purchase
at least 50,000 shares of the Warrant Stock, or the holders of at least
50,000 shares of the Warrant Stock not theretofore registered under the
Securities Act and sold, the Company shall, if it is then eligible, prepare
and file a registration statement on Form S-3 under the Securities Act
covering the Warrant Shares which are the subject of such requests and
shall use its best efforts to cause such registration statement to become
effective and to remain effective for at least 24 months. In addition, upon
the receipt of the aforementioned request, the Company shall promptly give
written notice to all other record holders of Warrant Shares that such
registration is to be effected. The Company shall include in such
registration statement such Warrant Shares for which it has received
written requests to register by such other record holders within fifteen
(15) days after the Company's written notice to such other record holders.
The Company shall be obligated to prepare, file and cause to become
effective only two (2) registration statements pursuant to this Section
8(a). In the event that the holders of a majority of the Warrant Shares for
which registration has been requested pursuant to this Section determine
for any reason not to proceed with a registration at any time before the
registration statement has been declared effective by the Commission, and
such holders thereafter request the Company to withdraw such registration
statement, the holders of such Warrant Shares agree to bear their own
expenses incurred in connection therewith and to reimburse the Company for
the expenses incurred by it attributable to
<PAGE>
such registration statement, then, and in such event, the holders of such
Warrant Shares shall not be deemed to have exercised their right to require
the Company to register Warrant Shares pursuant to this Section 8(a).
(b) Incidental Registration. Each time the Company shall determine to
proceed with the actual preparation and filing of a registration statement
under the Securities Act in connection with the proposed offer and sale for
money of any of its Common Stock by it or any of its security holders, the
Company will give written notice of its determination to all record holders
of Warrant Shares. Upon the written request of a record holder of any
Warrant Shares given within fifteen (15) days after receipt of any such
notice from the Company, the Company will, except as herein provided, cause
all such Warrant Shares, the record holders of which have so requested
registration thereof, to be included in such registration statement, all to
the extent requisite to permit the sale or other disposition by the
prospective seller or sellers of the Warrant Shares to be so registered;
provided, however, that (a) nothing herein shall prevent the Company from,
at any time, abandoning or delaying any such registration initiated by it;
and (b) if the Company determines not to proceed with a registration after
the registration statement has been filed with the Commission and the
Company's decision not to proceed is primarily based upon the anticipated
public offering price of the securities to be sold by the Company, the
Company shall promptly complete the registration for the benefit of those
selling security holders who wish to proceed with a public offering of
their securities and who bear all expenses in excess of $25,000 incurred by
the Company as the result of such registration after the Company has
decided not to proceed. If any registration pursuant to this Section shall
be underwritten in whole or in part, the Company may require that the
Warrant Shares requested for inclusion pursuant to this Section be included
in the underwriting on the same terms and conditions as the securities
otherwise being sold through the underwriters. If in the good faith
judgment of the managing underwriter of such public offering the inclusion
of all of the Warrant Shares originally covered by a request for
registration would reduce the number of shares to be offered by the Company
or interfere with the successful marketing of the shares of stock offered
by the Company, the number of Warrant Shares and other shares otherwise to
be included in the underwritten public offering may be reduced pro rata
among the holders thereof requesting such registration to a number that the
managing underwriter believes will not adversely affect the sale of shares
by the Company. Those securities which are thus excluded from the
underwritten public offering, and any other Common Stock owned by such
holders, shall be withheld from the market by the holders thereof for a
period, not to exceed one hundred eighty (180) days, which the managing
underwriter reasonably determines is necessary in order to effect the
underwritten public offering.
(c) Registration Procedures. If and whenever the Company is required by the
provisions of Sections 8(a) or 8(b) to effect the registration of any
Warrant Shares under the Securities Act, the Company will:
(i) prepare and file with the Commission a registration statement with
respect to such Warrant Shares, and use its best efforts to cause such
registration statement to become and remain effective for such period
as may be reasonably necessary to effect the sale of such Warrant
Shares, not to exceed three (3) months;
(ii) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement
effective for such period as may be reasonably necessary to effect the
sale of such Warrant Shares, not to exceed three (3) months;
(iii) furnish to the security holders participating in such
registration and to the
<PAGE>
underwriters of the Warrant Shares being registered such reasonable
number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such security
holders and underwriters may reasonably request in order to facilitate
the public offering of such Warrant Shares;
(iv) use its best efforts to register or qualify the Warrant Shares
covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as such participating holders may
reasonably request within ten (10) days following the original filing
of such registration statement, except that the Company shall not for
any purpose be required to execute a general consent to service of
process or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
(v) notify the security holders participating in such registration,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been
filed;
(vi) prepare and file with the Commission, promptly upon the request
of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel
for such holders (and concurred in by counsel for the Company), is
required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Warrant Shares
by such holder;
(vii) prepare and promptly file with the Commission and promptly
notify such holders of the filing of such amendment or supplement to
such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus
relating to such securities is required to be delivered under the
Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light
of the circumstances in which they were made, not misleading;
(viii) advise such holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement
or the initiation or threatening of any proceeding for that purpose
and promptly use its best efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such stop order should be issued;
and
(ix) not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of such
holders shall have reasonably objected on the grounds that such
amendment or supplement does not comply in all material respects with
the requirements of the Securities Act or the rules and regulations
thereunder, after having been furnished with a copy thereof at least
five (5) business days prior to the filing thereof, unless in the
opinion of counsel for the Company the filing of such amendment or
supplement is reasonably necessary to protect the Company from any
liabilities under any applicable federal or state law and such filing
will not violate applicable law.
(d) Expenses. With respect to any registration, requested pursuant to
Section 8(a) (except as otherwise provided in such section with respect to
registrations voluntarily terminated at the request of the requesting
security holders) and with respect to each inclusion of securities in a
<PAGE>
registration statement pursuant to Section 8(b) (except as otherwise
provided in Section 8(b) with respect to registrations terminated by the
Company), the Company shall bear the following fees, costs and expenses:
all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, fees and
disbursements of counsel for the underwriter or underwriters of such
securities (if the Company and/or selling security holders are required to
bear such fees and disbursements), all internal Company expenses, the
premiums and other costs of policies of insurance against liability arising
out of the public offering, and all legal fees and disbursements and other
expenses of complying with state securities or blue sky laws of any
jurisdictions in which the securities to be offered are to be registered or
qualified. Fees and disbursements of counsel and accountants for the
selling security holders, underwriting discounts and commissions and
transfer taxes for selling security holders and any other expenses incurred
by the selling security holders not expressly included above shall be borne
by the selling security holders.
(e) Copies of Prospectus; Amendments of Prospectus. The Company will
furnish the Warrantholder with a reasonable number of copies of any
prospectus or offering circular and one copy of the registration statement
included in such filings and will amend or supplement the same as required
during the nine (9) month period following the effective date of the
registration statement, provided, that the expenses of any amendment or
supplement made or filed more than three (3) months after the effective
date of the registration statement, at the request of the Warrantholder,
shall be borne by the Warrantholder.
(f) Conditions of the Company's Obligations. It shall be a condition of the
Company's obligation to register the Warrant Shares hereunder that the
Warrantholder agrees to cooperate with the Company in the preparation and
filing of any such registration statement, or in its efforts to establish
that the proposed sale is exempt under the Securities Act, as to any
proposed distribution. It shall also be a condition of the Company's
obligations under this Agreement that, in the case of the filing of any
registration statement, and to the extent permissible under the Securities
Act, and controlling precedent thereunder, the Company and the
Warrantholder provide cross-indemnification agreements to each other in
customary scope covering the accuracy and completeness of the information
furnished by each.
9. Notices. Any notice or other document required or permitted to be given or
delivered to the Warrantholder shall be delivered or sent by certified mail to
the Warrantholder at the last address shown on the books of the Company
maintained for the registry and transfer of the Warrants. Any notice or other
document required or permitted to be given or delivered to the Company shall be
delivered or sent by certified or registered mail to the principal office of the
Company.
10. No Rights as Shareholders; Limitation of Liability. This Warrant shall not
entitle any holder hereof to any of the rights of a shareholder of the Company.
No provisions hereof, in the absence of affirmative action by the holder hereof
to purchase shares of Common Stock, and no mere enumeration herein of the rights
or privileges of the holder hereof, shall give rise to any liability of such
holder for the Purchase Price or as a shareholder of the Company whether such
liability is asserted by the Company or by creditors of the Company.
11. Governing Law. This Warrant shall be governed by, and construed and enforced
in accordance with, the laws of the State of Minnesota, without regard to
conflicts of laws principles.
12. Mandatory Redemption. In the event the Current Market Price is at least
$3.50 per share for 20 consecutive trading days, the Board of Directors of the
Company shall have the right upon thirty (30) days' notice to the Warrantholder
to purchase this Warrant for a purchase price equal to (i) the number of
<PAGE>
Warrant Shares, as adjusted herein, as to which this Warrant has not been
exercised at the expiration of said 30-day period (the "Unexercised Warrant
Shares"), multiplied by (ii) $0.01 per Unexercised Warrant Share. Nothing herein
shall be construed to prevent the Warrantholder from exercising this Warrant as
to the Unexercised Warrant Shares prior to expiration of said 30-day period.
Upon expiration of such 30-day period, all unexercised purchase rights under
this Warrant shall be void. The above-referenced purchase price shall be payable
in full by the Company on or before 15 days after the expiration of the above
referenced 30-day notice.
13. Miscellaneous. This Warrant and any provision hereof may be changed, waived,
discharged, or terminated only by an instrument in writing signed by the party
(or any predecessor in interest thereof) against which enforcement of the same
is sought. The headings in this Warrant are for purposes of reference only and
shall not affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by a
duly authorized officer, and to be dated as of the ____ day of ____________,
1998.
U-SHIP, INC.
By:________________________________
Bruce H. Senske, President
<PAGE>
FULL SUBSCRIPTION FORM
To Be Executed By the Registered Warrantholder if It/
She/He Desires to Exercise in Full the Within Warrant
The undersigned hereby exercises the right to purchase the _____________
shares of Common Stock covered by the within Warrant at the date of this
subscription and herewith makes payment of the sum of $__________________
representing the Purchase Price of $__________ per share in effect at that date.
Certificates for such shares shall be issued in the name of and delivered to the
undersigned, unless otherwise specified by written instructions, signed by the
undersigned and accompanying this subscription.
Dated:________________________________
Signature: _________________________
Address: _________________________
_________________________
<PAGE>
PARTIAL SUBSCRIPTION FORM
To be Executed by the Registered Warrantholder if It/She/He
Desires to Exercise in Part Only the Within Warrant
The undersigned hereby exercises the right to purchase __________ shares of
the total shares of Common Stock covered by the within Warrant at the date of
this subscription and herewith makes payment of the sum of $____________
representing the Purchase Price of $_________ per share in effect at this date.
Certificates for such shares and a new Warrant of like tenor and date for
the balance of the shares not subscribed for (if any) shall be issued in the
name of and delivered to the undersigned, unless otherwise specified by written
instructions, signed by the undersigned and accompanying this subscription.
[The following paragraph need be completed only if the Purchase Price and number
of shares of Common Stock specified in the within Warrant have been adjusted
pursuant to Section 6.]
The shares hereby subscribed for constitute ______________ shares of Common
Stock (to the nearest whole share) resulting from adjustment of ______________
shares of the total of __________________ shares of Common Stock covered by the
within Warrant, as said shares were constituted at the date of the Warrant.
Dated:__________________________
Signature: _________________________
Address: ___________________________
___________________________
EXHIBIT 10.3
U-SHIP, INC.
1,245,500 UNITS ($1,494,600)
$1.20 PER UNIT
AGENCY AGREEMENT
April 22, 1998
R.J. Steichen & Company
One Financial Plaza
120 S. 6th Street, Suite 100
Minneapolis, MN 55402
Gentlemen and Ladies:
The undersigned, U-Ship, Inc., a Utah corporation (the "Company"),
confirms its agreement with you, R.J. Steichen & Company (the "Agent"), subject
to the terms and conditions stated herein, to act as its agent with respect to
the offer and sale (the "Offering") of 1,245,500 units (the "Units"), each
consisting of two shares of the Company's Series A Cumulative Convertible
Preferred Stock (the "Shares") convertible into two shares of the Company's
Common Stock and one redeemable Warrant to purchase one share of the Company's
Common Stock (the "Investors' Warrants"), as follows:
1. DESCRIPTION OF OFFERING. The Company proposes to issue and sell through
the Agent, on a "best efforts, all or none" basis 1,245,500 Units (the
"Minimum"), which may be increased by an additional 250,000 Units to 1,495,500
Units (the "Optional Maximum") at the option of the Agent. The Units, the
Shares, the Investors' Warrants, the Agent's Warrants (as defined below), and
the shares of Common Stock of the Company issuable upon exercise or conversion
of the Shares, the Investors' Warrants and the Agent's Warrants are collectively
referred to herein as the "Securities."
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with the Agent, as to the following:
(a) The Company has prepared a Confidential Private Placement Memorandum,
dated, ____________, 1998, (the "Memorandum") with respect to the Units in
conformity with applicable requirements of the Securities Act of 1933, as
amended (the "Act"), and the Rules and Regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder,
including Regulation D, and with applicable securities laws of those states
agreed to by the Company and the Agent to sell the Units. The Agent may sell the
Units to an unlimited number of "Accredited" investors as such term is defined
in Regulation D. The Memorandum is either in compliance, or will be supplemented
to be in compliance with, any applicable securities laws. The Company will give
the Agent immediate notice of any supplement or amendment of the Memorandum.
<PAGE>
The term "Memorandum" as used herein, shall mean the Memorandum, including all
financial schedules and exhibits thereto, and all amendments and supplements
thereto.
(b) The Memorandum does not, and will not as of each Closing Date (as
later defined herein), contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that this representation
and warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company by
the Agent expressly for use therein. There are no material contracts or other
information concerning the Company required to be disclosed in the Memorandum
pursuant to the Act, Rules and Regulations or applicable state securities laws
which have not been disclosed therein.
(c) Neither the Commission nor any state securities agency has issued any
order preventing or suspending the use of the Memorandum or the sale of the
Securities.
(d) Subsequent to the respective dates as of which information is given in
the Memorandum and at each Closing Date, except as is otherwise disclosed in the
Memorandum, there has not been:
(i) any material change in the capital stock (other than Securities
pursuant to this Offering) or long-term debt (including any capitalized
lease obligation), or material increase in the short-term debt of the
Company;
(ii) any issuance of options, warrants, convertible securities or
other rights to purchase the capital stock of the Company;
(iii) any material adverse change, or any development involving a
material adverse change, in or affecting the business, business prospects,
properties, management, financial position, stockholders' equity, results
of operations or general condition of the Company;
(iv) any material transaction entered into by the Company;
(v) any material obligation, direct or contingent, incurred by the
Company, except obligations incurred in the ordinary course of business
that, in the aggregate, are not material; or
(vi) any dividend or distribution of any kind declared, paid or made
on the Company's capital stock.
(e) The Company has no subsidiaries, and is not affiliated with any other
company or business entity, except as explicitly stated in the Memorandum.
(f) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Utah, with full
corporate power and authority, to own, lease and operate its properties and
conduct its business as described in the Memorandum. The Company is duly
qualified to do business as a foreign corporation in good standing in each
jurisdiction in which the ownership or lease of its properties, or the conduct
of its business, requires such
<PAGE>
qualification and in which the failure to be qualified or in good standing would
have a material adverse effect on the business of the Company. The Company has
all necessary and material authorizations, approvals and orders of and from all
federal, state and local governmental regulatory officials and bodies to own its
properties and to conduct its business as described in the Memorandum, and is
conducting its business in substantial compliance with all applicable material
laws, rules and regulations of the jurisdictions in which it is conducting
business. The Company holds all material licenses, certificates and permits from
state, federal and other regulatory authorities necessary for the conduct of its
business as described in the Memorandum, or has obtained waivers from any such
applicable requirements from the appropriate state, federal or other regulatory
authority.
(g) The Company is not in violation of its Articles of Incorporation or
Bylaws. The Company is not in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any bond, debenture,
note or other evidence of indebtedness or in any contract, indenture, mortgage,
loan agreement, joint venture or other agreement or instrument to which the
Company is a party or by which the Company or its properties are bound. The
Company is not in violation of any law, order, rule, regulation, writ,
injunction or decree of any government, governmental instrumentality or court,
domestic or foreign.
(h) The Company has full requisite power and authority to enter into this
Agreement. This Agreement has been duly authorized, executed and delivered by
the Company and will be a valid and binding agreement on the part of the
Company, enforceable in accordance with its terms, if and when this Agreement
shall have become effective in accordance with the terms hereof, except as
enforceability may be limited by the application of bankruptcy, insolvency,
moratorium or similar laws affecting the rights of creditors generally and by
judicial limitations on the right of specific performance, and except as the
enforceability of the indemnification or contribution provisions hereof may be
affected by applicable federal or state securities laws ("Enforceability
Limitations"). The performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under:
(i) any bond, debenture, note, contract, lease, license, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement
or instrument to which the Company is a party, or by which it, or any of
its property, is bound;
(ii) the Company's Articles of Incorporation, Bylaws or other
governing documents;
(iii) any law, order, rule, regulation, writ, injunction or decree
of any government, governmental agency or court having jurisdiction over
the Company or any of its properties.
(i) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company of
the transactions contemplated by this Agreement, except, as may be required
under the Act or state securities or Blue Sky laws in connection with the sale
of the Securities by the Company.
(j) Except as is otherwise expressly stated in the Memorandum, there are
no actions, suits or proceedings pending before any court or before any
governmental agency, authority, or body to which the Company is a party or of
which the business or property of the Company is the subject
<PAGE>
which, if determined adverse to the Company, might result in any material
adverse change in the condition (financial or otherwise), business or prospects
of the Company, materially and adversely affect its properties or assets or
prevent consummation of the transactions contemplated by this Agreement and, to
the best of the Company's knowledge, no such actions, suits, or proceedings are
threatened.
(k) The Company will, as of each Closing Date, have the duly authorized
and outstanding capitalization set forth in the Memorandum. The outstanding
capital stock of the Company is duly authorized, validly issued, fully paid and
nonassessable. The Securities conform in substance to all statements relating
thereto contained in the Memorandum. The Securities to be sold by the Company
hereunder have been duly authorized and, when issued and delivered pursuant to
this Agreement, the subscription agreement to be entered into between the
Company and purchasers of the Units (the "Subscription Agreements"), and the
Investors' and Agent's Warrants will be validly issued, fully paid and
nonassessable and will conform to the description thereof contained in the
Memorandum. No preemptive rights or similar rights of any security holders of
the Company exist with respect to the issuance and sale of the Securities by the
Company. Except as disclosed in the Memorandum, the Company has no agreement
with any security holder which gives such security holder the right to require
the Company to register under the Act any securities of any nature owned or held
by such person. Upon payment for and delivery of the Securities to be sold by
the Company pursuant to this Agreement and the Subscription Agreement, the
investors will acquire good and marketable title to such Securities, free and
clear of all liens, encumbrances or claims. The certificates evidencing the
Securities will comply as to form with all applicable provisions of the Utah
Revised Business Corporation Act. A sufficient number of shares of Common Stock
of the Company have been reserved for issuance by the Company upon exercise of
the Investors' and Agent's Warrants. The Investors' and Agent's Warrants, when
issued and delivered, will constitute valid and binding obligations of the
Company in accordance with their terms, except as enforceability may be limited
by the Enforceability Limitations.
(l) The financial statements of the Company, together with the related
notes, forming part of the Memorandum, fairly present the financial position and
the results of operations of the Company at the respective dates and for the
respective periods to which they apply. All financial statements included in the
Memorandum have been prepared in accordance with generally accepted accounting
principles, consistently applied throughout the periods involved, except as may
be otherwise stated therein.
(m) Except as is otherwise disclosed in the Memorandum, the Company has
good and marketable title to all of the property, real and personal, described
in the Memorandum as being owned by the Company, free and clear of all liens,
encumbrances, equities, charges or claims, except as do not materially interfere
with the uses made and to be made by the Company of such property or as
disclosed in the financial statements contained in the Memorandum. Except as is
otherwise disclosed in the Memorandum, the Company has valid and binding leases
to the real and/or personal property described in the Memorandum as being under
lease to the Company.
(n) The Company has filed all necessary federal and state income and
franchise tax returns and paid all taxes shown as due thereon. The Company has
no knowledge of any tax deficiency which might be asserted against it which
would materially and adversely affect the Company's business or properties.
<PAGE>
(o) Except as disclosed in the Memorandum:
(i) the Company owns or possesses the exclusive and unrestricted
rights to use all patents, copyrights, trademarks, trade secrets and
proprietary rights or information reasonably necessary for the conduct of
its present or intended business as described in the Memorandum and has
not received any notice of conflict with asserted rights of others;
(ii) there are no pending legal, governmental or administrative
proceedings relating to patents, copyrights, trademarks or proprietary
rights or information, to which the Company is a party or of which any
property of the Company is subject and no such proceedings are, to the
best of the Company's knowledge, threatened or contemplated against the
Company by any governmental agency or authority or others;
(iii) the Company is not using any confidential information or trade
secrets of any third party without the consent of such third party;
(iv) the Company does not infringe upon the right or claimed right
of any person under, or with respect to, any of the intangible rights
listed above; or
(v) the Company is not obligated or under any liability whatsoever
to make any payments by way of royalties, fees or otherwise to any owner
of, licensor of or other claimant to, any patent, trademark, trade name,
copyright or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise.
(p) The Company intends to apply the proceeds from the sale of the Units
for the purposes and substantially in the manner set forth in the Memorandum.
(q) No person is entitled, directly or indirectly, to compensation from
the Company or the Agent for services as a finder in connection with the
transactions contemplated by this Agreement.
(r) The Company will conduct the offering in compliance with the
requirements of Regulation D promulgated under the Act. The Company is not
disqualified from claiming exemption under Regulation D by Rule 505(b)(2)(iii)
of Regulation D and meets the other requirements to claim exemption under
Regulation D.
(s) No labor disturbance by the employees of the Company or of any of the
Company's exists or, to the best of the Company's knowledge, is imminent which
could reasonably be expected to have a material adverse effect on the conduct of
the business, operations, financial condition or income of the Company.
(t) The Company has no defined benefit pension plan or other plan
promulgated pursuant to, or which is intended to comply with the provisions of,
the Employee Retirement Income Security Act of 1974, except as disclosed in the
Memorandum.
(u) The Company has not sold any securities in violation of Section 5(a)
of the Act or any state securities laws.
<PAGE>
(v) The Company maintains insurance, which is in full force and effect, of
the types and in the amounts adequate for its business and in line with the
insurance maintained by similar companies and businesses.
(w) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations and (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP.
(x) All material transactions between the Company and its stockholders who
beneficially own more than 5% of any class of the Company's voting securities
have been accurately disclosed in the Memorandum, and the terms of each such
transaction are fair to the Company and no less favorable to the Company than
the terms that could have been obtained from unrelated parties.
(y) The Company will use its best efforts to obtain written agreements
from Messrs. Bartholomew, Lytle, Ramsden, Rudebusch, and Senske substantially in
the form of Exhibit B hereto.
(z) The Company has timely filed all documents and amendments to
previously filed documents required to be filed by it pursuant to the Securities
Exchange Act of 1934, as amended, (the "1934 Act") and the rules and regulations
of the SEC thereunder. Each such document conformed in all material respects
with the requirements of the 1934 Act and contained all information required to
be stated therein in accordance with the 1934 Act. No part of any such document
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading. True copies of each of the documents incorporated by reference,
if any, into the Memorandum have been delivered by the Company to the Agent. To
the best of the Company's knowledge, the executive officers and directors of the
Company and stockholders who hold more than 5% of the Company's outstanding
Common Stock, have made, and are current with, all filings, if any, that are
required under the 1934 Act.
3. REPRESENTATIONS AND WARRANTIES OF THE AGENT.
The Agent represents that:
(a) It is not disqualified from acting as a selling agent hereunder as a
result of the application of Rule 505(b)(2)(iii) of Regulation D.
(b) It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Minnesota with all requisite corporate
power to carry on its business as set forth in the Memorandum.
(c) It is licensed as a broker-dealer, authorized to conduct offerings of
the sort contemplated hereby by the Commission and the blue sky authorities of
each state in which the Company and the Agent have agreed to offer the Units and
is a member in good standing of the National Association of Securities Dealers,
Inc. ("NASD"), and, to the best of the Agent's knowledge, no proceedings are
pending or threatened to revoke or limit any such status.
<PAGE>
(d) This Agreement has been duly authorized and executed by the Agent and
is a legal, valid and binding agreement of the Agent enforceable in accordance
with its terms, except as enforceability may be limited by the Enforceability
Limitations.
(e) It will:
(i) not offer, offer for sale or sell the Units by means of any form
of general solicitation or general advertising as described under Rule
502(c) of Regulation D;
(ii) provide each of its offerees of Units a copy of the Memorandum
at all times prior to the date upon which any such offeree purchases any
of the Units;
(iii) not utilize any sales materials other than the Memorandum or
make any statements concerning the Company other than information
contained in the Memorandum unless prior written approval is obtained from
the Company;
(iv) offer and sell the Units on behalf of the Company only to
"accredited investors" within the meaning of Rule 501(a) of Regulation D.
(f) It will not, and will use its best efforts to ensure that any subagent
employed by it will not, offer the Units for sale to, sell to, or solicit any
offers to subscribe for the Units from, any offeree who resides in a state where
the applicable state securities laws require offerees to meet specified
qualifications, unless such offeree meets such qualifications, or where
applicable state securities laws require offerees to receive disclosure
documents, until it has delivered a Memorandum. Within a reasonable time prior
to the Closing respecting such purchase, it or its subagents shall deliver all
such documents to all persons who are to purchase the Units, to the extent they
have not theretofore received such documents.
(g) It will make, and will use its best efforts to ensure that any
subagents employed by it are registered broker-dealers in the appropriate
jurisdictions and will make offers to sell Units to, sell to, or solicit offers
to subscribe for Units from, persons only from those states or other
jurisdictions where the Company has either qualified or registered the offering
for sale or an exemption from such qualification or registration is available
under the applicable securities laws of such states or jurisdictions. It will
not, and will use its best efforts to ensure any subagent employed by it will
not, offer, sell or solicit offers for Units to or from any person unless,
immediately before making such offer, sale or solicitation, it or its subagent
reasonably believes such person would be able to represent that such person is
acquiring such Units for such person's own account as principal for investment
and not with a view to resale or distribution.
(h) Upon the delivery to it by the Company of the requisite number of
copies thereof, it will promptly distribute to each person to whom a Memorandum
was given a copy of any amendment thereof or supplement thereto approved by the
Agent.
(i) The execution of this Agreement and the performance by the Agent of
its obligations hereunder will not result in violation by the Agent of any
federal or state law or regulation or of the rules, regulations or guidelines of
any regulatory or other agency having jurisdiction, including the NASD,
governing the qualification, licensing or conduct of securities brokers or
dealers.
<PAGE>
4. BEST EFFORTS ALL OR NONE PRIVATE OFFERING OF THE UNITS.
(a) On the basis of the representations, warranties and agreements herein
contained, and subject to the terms and conditions herein set forth, the Company
appoints the Agent as its non-exclusive agent to effect sales of the Units,
including the Optional Maximum if the Agent so elects, on a "best efforts, all
or none" basis, for the account and risk of the Company, at a price of $1.20 per
Unit and upon the other terms and conditions set forth in the Memorandum. The
Agent agrees to use its best efforts as such agent to procure purchasers for the
Units during a period commencing with the date of this Agreement and ending with
the Termination Date (as hereinafter defined) of the Agreement. The Agent may,
in its sole discretion, use the services of other brokers or dealers in
connection with the offer and sale of the Units and pay any portion of the
Agent's Commission (as hereinafter defined) to such brokers or dealers who are
members of the NASD and who agree to abide by the provisions of Section 3
hereof.
(b) The Company will pay the Agent, as compensation for its services
hereunder, a cash commission of 10% of the aggregate gross proceeds received
from sales of Units by the Agent in the Offering (the "Agent's Commission").
This amount shall be paid to the Agent at each Closing Date.
(c) Unless the Agreement is extended, or earlier terminated as provided
herein, in the event that the Minimum has not been sold and proceeds therefrom
deposited in the escrow account on or before the Termination Date (as defined
below), the Agreement shall terminate and the Escrow Agent designated in section
(d) below shall refund to any persons who have subscribed for any of the Shares
the full amount which the Agent may have received from them, and neither party
to this Agreement shall have any future obligation to the other hereunder,
except that the provisions of Sections 10, 11 and 14 shall at all times continue
to be effective and binding.
(d) The Agent, the Company, the Additional Investors (as defined in the
Memorandum), and Bank Windsor, Minneapolis, Minnesota, as Escrow Agent, have
contemporaneously with the execution of this Agreement entered into an Escrow
Agreement (the "Escrow Agreement"), which is hereby incorporated by reference.
When the Minimum has been sold, and the proceeds therefor deposited with the
Escrow Agent, the escrowed proceeds from the sale of such Shares may be
transmitted to the Company and the Agent in the manner provided in the Escrow
Agreement.
5. AGENT'S WARRANTS. The Company shall sell to the Agent for $50 a
four-year warrant to purchase a number of shares of the Common Stock equal to
10% of the number of Shares sold in this Offering by the Agent (the "Agent's
Warrants"). The Agent's Warrants shall be issued at the final Closing, and shall
first become exercisable one (1) year after issuance at a price equal to $0.60
per share. The Agent's Warrants shall contain such further terms as those
provided in and be substantially similar to that of Exhibit A.
6. EXPENSES. The Company shall, whether or not the issue and sale of any
of the Units under this Agreement is consummated, be responsible for and
promptly pay all costs and expenses related to the offering of the Units
including, but not limited to, all costs, fees and expenses in connection with:
(i) the preparation, printing and filing of the Memorandum (including financial
statements and exhibits) and any amendments or supplements thereto; (ii) the
printing of any other instruments or documents relating to any transaction
contemplated in this Agreement; (iii) the issuance
<PAGE>
and delivery of the Securities, including taxes, if any; (iv) the preparation,
printing and issuance of the Securities; (v) the services provided by the
Company's accountants and counsel; (vi) furnishing and delivering to the Agent
and to any selected dealers such copies of the Memorandum as may be reasonably
requested for use by the Agent or any dealer; (vii) all costs of obtaining
exemption from registration of the offer and sale of the Securities under the
applicable state Blue Sky laws; and (viii) the performance of the Company's
obligations hereunder. Provided, however, that if the Agent withdraws from the
Offering for any reason beyond its control, or if the Offering is abandoned by
the Company, the Company will reimburse the Agent only up to $5,000 for
accountable expenses incurred by the Agent in connection with the Offering.
Further, the Company will pay a non-accountable expense allowance to the Agent
equal to 3% of the aggregate gross proceeds received from sales of Units by the
Agent in the Offering.
7. BLUE SKY QUALIFICATIONS. The Offering will be qualified for sale under
the securities or Blue Sky laws of such states as the Agent and the Company may
agree, it being understood that the Agent may refuse to go forward with the
Offering if, in its judgment, the Offering is not qualified in such states as
the Agent deems necessary to reasonably complete the Offering. The necessary
legal work for such qualifications will be performed by counsel for the Company
at the expense of the Company.
8. FURTHER AGREEMENTS OF THE COMPANY. The Company further covenants and
agrees with the Agent as to the following:
(a) The Company will advise you promptly upon becoming known to it of the
issuance by the Commission or any state securities commission of any action or
order suspending the offer and/or sale of the Securities, or of the institution
of any proceedings for that purpose, will use its best efforts to prevent the
issuance of any such action or order and, if such an event occurs will obtain as
soon as reasonably possible the withdrawal or lifting thereof. The Company will
notify the Agent promptly of any request by any state securities commission for
an amendment of or supplement to the Memorandum for additional information, and
will not file any amendment of or supplement to the Memorandum to which the
Agent shall have objected in writing.
(b) The Company will furnish the Agent, as soon as available, copies of
the Memorandum and any amendments or supplements thereto, all in such quantities
as you may from time to time reasonably request. The Company specifically
authorizes the Agent to use and distribute copies of the Memorandum in
connection with the sale of the Units as and to the extent permitted by the
applicable securities laws.
(c) The Company will apply the proceeds from the sale of the Units
substantially in the manner set forth in the Memorandum.
9. CONDITIONS TO THE AGENT'S OBLIGATIONS. The Agent's obligation to sell
the Units and close hereunder shall be subject to the condition that all
representations and warranties and other statements herein of the Company are
true and correct, the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed prior to the sale of the Units
and closing hereunder, and the following additional conditions:
<PAGE>
(a) No stop order suspending the offer and/or sale of the Securities shall
have been issued and no proceedings therefor shall be pending or threatened, by
the Commission or any state securities division. Any requests for additional
information on the part of any state securities division to be included in the
Memorandum shall have been complied with to the Agent's reasonable satisfaction,
and no amendment or supplement to the Memorandum shall be made to which the
Agent, or the Agent's counsel, shall have reasonably objected after having
received reasonable notice.
(b) There shall not have occurred any adverse change, or any development
involving a prospective adverse change in, or affecting the business or
properties of, the Company which, in the Agent's reasonable opinion, would
materially adversely affect, the offer and sale of the Units on the Company's
behalf.
(c) The Agent shall not have been advised by the Company and shall not
have advised the Company that the Memorandum, or any amendment thereof or
supplement thereto, contained any untrue statement of a fact which, in the
opinion of its legal counsel, is material, or that the Memorandum omits to state
a fact which, in the opinion of such counsel, is material and is required to be
stated therein or is necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that this paragraph (c) shall not apply to any statements or omissions
which are based upon and conform to written information furnished to the Company
by the Agent (or on behalf of the Agent and specifically at the request of the
Agent) specifically for use in the Memorandum or any amendment thereof or
supplement thereto.
(d) Briggs & Morgan, P.A., counsel for the Company, shall have furnished
to the Agent as of each Closing Date (as defined herein) such opinion or
opinions in form and substance satisfactory to the Agent and the Agent's
counsel, to the effect that:
(i) The Company has been duly incorporated and is validly existing
in good standing under the laws of the State of Utah (assuming that such
laws are substantially similar to the laws of the State of Minnesota); has
the requisite corporate power to own, lease and operate its properties and
conduct its business as described in the Memorandum; and is duly qualified
to do business as a foreign corporation in good standing in the States of
Minnesota and Wisconsin.
(ii) The number of authorized, and to the best of such counsel's
knowledge, the number of issued and outstanding shares of capital stock of
the Company are as set forth in the Memorandum (except as for the addition
of Securities issued pursuant to this Offering), and all such capital
stock has been duly authorized and is validly issued, fully paid and
nonassessable. Upon delivery of, and payment for, the Securities pursuant
to this Agreement and the Subscription Agreements, the subscribers thereof
will acquire the Securities free and clear of all liens, encumbrances or
claims. To the best knowledge of such counsel, no preemptive rights,
contractual or otherwise, of security holders of the Company exist with
respect to the issuance or sale of the Securities by the Company. The
Securities conform as to matters of law in all material respects to the
description of them made in the Memorandum, and such description
accurately sets forth the material legal provisions thereof required to be
set forth in the Memorandum.
<PAGE>
(iii) The Securities have been duly authorized and, upon delivery to
the subscribers thereof against payment therefor, pursuant to this
Agreement and the Subscription Agreements, will be validly issued, fully
paid, and nonassessable.
(iv) The certificates evidencing the Securities comply as to form
with the applicable provisions of the laws of the State of Utah.
(v) This Agreement and the Agent's Warrants have been duly
authorized, executed, and delivered by the Company and are the valid and
binding obligations of the Company, enforceable in accordance with their
terms, except as enforceability may be limited by the Enforceability
Limitations. A sufficient number of shares of Common Stock of the Company
have been reserved for issuance by the Company upon exercise of the
Agent's Warrants.
(vi) To the best of such counsel's knowledge, there are no material
legal or governmental proceedings required by the 1933 Act and the Rules
and Regulations to be described or referred to in the Memorandum that are
not described or referred to therein.
(vii) To the best of such counsel's knowledge there are no legal,
governmental or administrative proceedings pending or threatened against
the Company that relate to patents, trademarks or other intellectual
property, except for pending or proposed United States and foreign patent
applications.
(viii) No authorization, approval or consent of any governmental
authority or agency is necessary in connection with the issuance and sale
of the Securities as contemplated under this Agreement, except such as may
be required under the Act or under state or other securities laws in
connection with the sale of the Securities.
(ix) Assuming that the Securities are offered and sold as
contemplated by the Memorandum and this Agreement (including all
representations and warranties contained therein), the offer, sale,
issuance and delivery of the Securities are exempt from the registration
and prospectus delivery requirements of the Act.
(x) To the best of such counsel's knowledge, the execution,
delivery, and performance of the Agency Agreement and any issuance and
delivery of Securities is not in material contravention of any of the
provisions of any note, indenture, mortgage, deed of trust, joint venture
agreement, agreement or other instrument known to such counsel to which
the Company is a party or by which it is bound and which is material to
the business of the Company as a whole, or of any material law, rule or
regulation of the United States, or the State of Minnesota, or any
judgment, order or decree known to such counsel and applicable to the
Company of any court having jurisdiction over the Company or any of its
properties.
In expressing the foregoing opinion, as to matters of fact relevant to
conclusions of law, counsel may rely, to the extent that they deem proper, upon
certificates of public officials and of the officers of the Company, provided
that copies of such officers' certificates are attached to the opinion.
<PAGE>
(e) The Agent and purchasers shall have received from the Company a
certificate, dated as of each Closing Date, of the principal executive officer
and the principal financial or accounting officer of the Company to the effect
that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on each Closing Date;
(ii) the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at, or prior
to, such date;
(iii) as of each Closing Date, the Memorandum and any supplement
thereto, contained all statements and information required to be included
therein, the Memorandum did not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, and, since the date of the
Memorandum there has occurred no event required to be set forth in an
amendment to the Memorandum which has not been so set forth; provided,
however, that such certificate does not require any representation
concerning statements in, or omissions from, the Memorandum, or any
amendment thereof or supplement thereto, which are based upon and conform
to written information furnished to the Company by the Agent specifically
for use in the preparation of the Memorandum or any such amendment or
supplement;
(iv) except as is otherwise expressly stated in the Memorandum,
there are no material actions, suits or proceedings pending before any
court or governmental agency, authority or body or, to the best of their
knowledge, threatened to which the Company is a party or of which the
business or property of the Company is subject;
(v) subsequent to the date as of which information is given in the
Memorandum, and except as contemplated or referred to in the Memorandum,
the Company has not incurred any direct, or to the best of their
knowledge, contingent liabilities or obligations material to the Company,
or entered into any material transactions, except liabilities, obligations
or transactions in the ordinary course of business or relating to the
offering of Units pursuant to the Memorandum, and there has not been any
change in the capital stock, short-term or long-term debt of the Company,
or any material adverse change in the financial position, net worth or
results of operations of the Company;
(vi) subsequent to the dates as of which information is given in the
Memorandum, the Company has not sustained any material loss of, or damage
to, its properties, whether or not insured.
(f) The Agent and the purchasers shall have received, dated as of each
Closing Date, from the Secretary of the Company a certificate of incumbency
certifying the names, titles and signatures of the officers authorized to
execute the resolutions of the Board of Directors of the Company authorizing and
approving the execution, delivery and performance of this Agreement, a copy of
such resolutions to be attached to such certificate, certifying such resolutions
and certifying that the Articles of Incorporation of the Company and the Bylaws
of the Company in the form attached thereto have been validly adopted and have
not been amended or modified.
<PAGE>
(g) Prior to or simultaneously with the First Closing, the Additional
Investors (as defined in the Memorandum) shall have purchased at a price to
equal to $1.20 per unit at least 583,333 units, each consisting of two shares of
the Company's Series A Cumulative Convertible Preferred Stock (convertible into
two shares of the Company's Common Stock) and one redeemable Warrant to purchase
one share of the Company's Common Stock.
(h) Each of Messrs. Bartholomew, Lytle, Ramsden, Rudebusch, and Senske
shall have entered into an agreement with the Agent, substantially in the form
of Exhibit B hereto.
(i) The Agent shall receive such other letters and certificates as may be
reasonably requested by the Agent and by the Agent's counsel.
10. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company hereby agrees to indemnify and hold harmless the Agent and
each person, if any, who controls the Agent within the meaning of Section 15 of
the Act against any losses, claims, damages or liabilities, joint or several, to
which the Agent or each such controlling person may become subject, under the
Act, the Securities and Exchange Act of 1934, as amended (the "1934 Act"), the
common law, or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of, or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Memorandum or any amendment or supplement thereof, or the omission or
alleged omission to state in the Memorandum or any amendment or supplement,
thereof a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any application or other statement executed by the
Company or based upon written information furnished by the Company filed in any
jurisdiction in order to obtain an exemption from registration for the
Securities or the sale thereof from the securities laws of such jurisdiction, or
the omission or alleged omission to state in such application or statement of a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company will reimburse the Agent and each such controlling
person for any legal or other expenses reasonably incurred by the Agent or
controlling person (subject to the limitation set forth in Section 11(c) hereof)
in connection with investigating or defending against any such loss, claim,
damage, liability or action as such legal or other expenses are incurred;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arise out of, or is based
upon, an untrue statement, or alleged untrue statement, or omission, or alleged
omission, made in reliance upon and in conformity with written information
furnished to the Company by, or on behalf of, the Agent specifically for use in
the preparation of the Memorandum or any amendment or supplement, or in any
application or other statement executed by the Company or the Agent filed in any
jurisdiction in order to exempt the Securities or the sale thereof from
registration under the securities laws of such jurisdiction. This indemnity
agreement is in addition to any liability which the Company may otherwise have.
(b) The Agent agrees to indemnify and hold harmless the Company, each of
its directors and each person who controls the Company within the meaning of
Section 15 of the Act against any losses, claims, damages or liabilities to
which the Company or any such director, or controlling person may become
subject, under the Act, the 1934 Act, the common law, or otherwise, insofar as
such
<PAGE>
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of, or are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Memorandum or any amendment thereof, or the
omission or alleged omission to state in the Memorandum or any amendment or
supplement thereof, a material fact required to be stated therein or necessary
to make the statements therein not misleading; or (ii) any untrue statement or
alleged untrue statement of a material fact contained in any application or
other statement executed by the Company or by the Agent and filed in any
jurisdiction in order to obtain an exemption from registration for the
Securities or the sale thereof from the securities laws of such jurisdiction, or
the omission or alleged omission to state in such application or statement a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; in each case to the extent, but only the extent, that such untrue
statement, or alleged untrue statement, or omission, or alleged omission, was
made in reliance upon and in conformity with written information furnished to
the Company by, or on behalf of, the Agent specifically for use in the
preparation of the Memorandum or any amendment thereof or supplement thereto, or
in any application or other statement executed by the Company or by the Agent
and filed in any jurisdiction. The Agent will reimburse any legal or other
expenses reasonably incurred by the Company or any such director or controlling
person in connection with investigating or defending against any such loss,
claim, damage or liability as such legal or other expenses are incurred. This
indemnity agreement is in addition to any liability which the Agent may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 11
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 11, notify in writing the indemnifying party of the commencement
thereof. The omission so to notify the indemnifying party will not relieve it
from any liability under this Section 11 as to the particular item for which
indemnification is then being sought. In case any such action is brought against
any indemnified party, and the indemnified party notifies an indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel who shall be reasonably satisfactory to such indemnified party; and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 11 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defenses thereof other than reasonable costs of investigation; provided, however
that any indemnified party shall have the right to employ separate counsel to
represent is and all other parties and their controlling persons who may be
subject to liability arising out of any claim in respect of which indemnity may
be sought by the Agent against the Company, or by the Company against the Agent,
hereunder if, in the reasonable judgment of the indemnified party, it is
advisable for such parties and controlling persons to be represented by separate
counsel, in which event the fees and expenses of such separate counsel shall be
borne by the indemnifying party. Any such indemnifying party shall not be liable
to any indemnified party on account of any settlement of any claim or action
effected without the consent of such indemnifying party.
(d) In order to provide for just and equitable contribution in any case in
which the Agent or the Company (or any person who controls the Agent or the
Company within the meaning of Section 15 of the Act) makes claim for
indemnification pursuant to this Section 11 but it is judicially determined (by
entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such
<PAGE>
case, notwithstanding the fact that the provisions of this Section 11 hereof
provide for indemnification in such case, then, and in each such case, (i) the
Company, and any persons controlling the Company and who may be liable for
contribution, in the aggregate, and the Agent, shall contribute to the aggregate
losses, claims, damages, or liabilities to which they may be subject (after
contribution from all others) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the Agent and
any subagents on the other hand from the offering of the Securities or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above, but also the relative fault of the Company on
the one hand and the Agent and any subagents on the other hand in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations;
provided, however, that no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11 of the Act) shall be entitled to contribution
from any person who is not guilty of such fraudulent misrepresentation. The
Company and the Agent agree that it would not be just and equitable if the
respective obligations of the Company and the Agent to contribute pursuant to
this Section 11 were to be determined by pro rata or per capita allocation of
the aggregate damages or by any other method of allocation that does not take
account of the equitable considerations referred to above. Notwithstanding the
provisions of this Section 11, the Agent shall not be required to contribute any
amount in excess of the amount by which the total price of the Units purchased
from the Company pursuant to this Agreement and the Subscription Agreements
exceeds the amount of any damages that the Agent has otherwise been required to
pay by reason of such untrue statement. The foregoing contribution agreement
shall in no way affect the liabilities for contribution of any persons having
liability under Section 11 of the Act other than the Company, the Agent and
persons controlling the Company and the Agent.
(e) Promptly after receipt by a party to this Agreement of notice of the
commencement of any action, suit or proceeding, such person will, if a claim for
contribution in respect thereof is to be made against another party (the
"Contributing Party"), notify the Contributing Party of the commencement
thereof, but the omission so to notify the Contributing Party will not relieve
the Contributing Party from any liability which it may have to any party other
than under this Section 10. In case any such action, suit or proceeding is
brought against any party and such person notifies a Contributing Party of the
commencement thereof, the Contributing Party will be entitled to participate
therein with the notifying party and any other Contributing Party similarly
notified.
11. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. The respective
indemnities, agreements, representations, warranties and other statements of the
Company and the Agent, as set forth in this Agency Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement, shall remain in full
force and effect, regardless of any investigation (or any statement as to the
results thereof) made by or on behalf of the Agent or any controlling person of
the Agent, the Company, or any officer or director or controlling person of the
Company, and shall survive delivery of and payment for the Securities as set
forth in the Memorandum.
12. CLOSING AND DELIVERY OF SHARES. At each closing (a "Closing"), the
Company will deliver to the Agent certificates representing the Securities sold
to purchasers pursuant to this offering as reflected in executed Subscription
Agreements against payment therefor. The initial Closing (the "First Closing")
shall be held as soon as practicable. Thereafter, additional Closings may be
held as agreed upon by the Company and the Agent. The final Closing (the "Final
Closing") shall be held within seven days of the Termination Date (as
hereinafter defined). However, Final Closing may
<PAGE>
be accelerated or extended by agreement between the Company and the Agent. The
times and dates of each Closing are herein collectively referred to as a
"Closing Date."
13. EFFECTIVE DATE OF THE AGREEMENT AND TERMINATION.
(a) This Agreement is effective as of the date first written above.
(b) This Agreement shall terminate on May 29, 1998, subject to a 60-day
extension if agreed to by the Agent and the Company (the "Termination Date"). In
addition, this Agreement may be terminated on or any time prior to the Closing
Date by agreement of the parties, or by the Agent upon written or telegraphic
notice to the Company if:
(i) the market value of securities in general or political,
financial or economic conditions shall have so materially changed as in
the Agent's judgment to render it impractical or inadvisable to proceed
with the best efforts offering of the Units;
(ii) there shall be a material outbreak of hostilities or material
escalation and deterioration in the political and military situation
between the United States and any foreign power or a formal declaration of
war by the United States of America shall have occurred;
(iii) trading in securities on the New York Stock Exchange or the
American Stock Exchange shall have been suspended or minimum or maximum
prices shall have been established in either exchange by action of such
exchange, the Commission or other governmental or regulatory authority; or
(iv) any other restrictions (including, without limitation, any
banking moratorium) on transactions in securities materially affecting the
free market for securities or the payment for such securities shall have
been established by either exchange, by the Commission, by any other
federal or state agency, by action of the Congress or by Executive Order.
Any such termination shall be without liability of any party to any other
party except that the provisions of Sections 10, 11 and 14 hereof shall at
all times be effective and binding.
14. APPLICABLE LAW. This Agreement shall be construed in accordance with
the substantive laws, rules and regulations of the State of Minnesota without
regard to its choice of law provisions.
15. PARTIES. This Agreement shall be binding upon, and inure solely to the
benefit of, the Agent and the Company and the officers and directors of the
Company and each person who controls the Company or the Agent and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Units through the Agent, or any other
party, shall be deemed a successor or assign by reason merely of such purchase.
16. NOTICES. All notices or communications hereunder, except as herein
otherwise provided shall be in writing and if to be given to the Agent, shall be
mailed, delivered, or telegraphed and confirmed to:
<PAGE>
R.J. Steichen & Company
One Financial Plaza
120 S. 6th Street, Suite 100
Minneapolis, MN 55402
with a copy to:
or if to be given to the Company, shall be mailed, delivered, or telegraphed and
confirmed to:
Bruce H. Senske, Chief Executive Officer
U-Ship, Inc.
5583 West 78th Street
Edina, Minnesota 55439
with a copy to:
Avron L. Gordon, Esquire
Briggs and Morgan, P.A.
2400 IDS Center
80 S. 8th Street
Minneapolis, MN 55402
17. EXECUTION. This Agreement may be executed by any one or more of the
parties hereto, in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
If the foregoing is in accordance with your understanding as the Agent,
please sign and return to the Company a counterpart hereof, and upon the
acceptance hereof by you, this letter and such acceptance shall constitute a
binding agreement by and between you, as the Agent, and the Company.
Very truly yours,
U-SHIP, INC.
By /s/ Bruce H. Senske
--------------------------------
Its Chief Executive Officer
---------------------------
Accepted and agreed to this
22nd day of April, 1998.
<PAGE>
R. J. STEICHEN & COMPANY
By ________________________________________
Its ___________________________________
EXHIBIT 10.4
U-SHIP, INC.
NON-STATUTORY
STOCK OPTION AGREEMENT
1. U-Ship, Inc., a Utah corporation (the "Company"), hereby grants to
______________ (the "Optionee"), an option (the "Option") to purchase a total
________________________________ shares of Common Stock (the "Shares"), at the
price determined as provided herein, and subject to the terms, definitions and
provisions of the 1995 Stock Option Plan (the "Plan") adopted by the Company,
which is incorporated herein by reference except to the extent the Plan is
inconsistent with paragraph 13 of this agreement (the "Agreement"). Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings herein.
2. Nature of the Option. This Option is not intended to qualify as an
Incentive Stock Option as defined in Section 422 of the Code, but is instead a
Non-Statutory Stock Option as defined pursuant to the Plan.
3. Exercise Price. The exercise price for each share of Common Stock is
Forty Cents ($0.40) representing the fair market value per share of the Common
Stock on the date of grant.
4. Exercise of Option. This Option shall be exercisable during its term in
accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
(a) This Option shall be exercisable immediately in full.
(b) This Option may not be exercised for a fraction of a
share.
(c) In the event of Optionee's death or disability, the
exercisability of the Option is governed by Sections 7, 8 and 9 below.
(d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in Section 11 below.
(ii) Method of Exercise. This Option shall be exercisable by written
notice which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with respect
to such shares of Common Stock as may be required by the Company pursuant to the
provisions of the Plan. Such written notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the exercise
price. Until certificates for the Shares are issued to the Optionee, such
Optionee shall not have any rights as a Shareholder of the Company.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange upon which the Shares may then be listed.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
5. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, concurrently with the exercise of all or any portion of this
<PAGE>
Option, deliver to the Company his Investment Representation Statement in the
form attached hereto as Exhibit A.
6. Method of Payment. Payment of the exercise price shall be by (i) cash;
(ii) check, bank draft or money order; (iii) if authorized by the Board of
Directors of the Company, by delivery of Common Stock or other securities of the
Company (valued at the fair market value thereof on the date of exercise) or
(iv) by delivery of a combination of cash and Common Stock or other securities.
The Committee may, in order to prevent any possible violation of law, require
the option price to be paid in cash.
7. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
8. Disability of Optionee. In the event of the complete or partial mental
or physical disability of the Optionee such that the Optionee is unable by
himself to make decisions affecting his rights under this Agreement, including
but not limited to the exercise of the Option, the Option may be exercised (but
in no event later than the date of expiration of the term of this Option as set
forth in Section 11 below), by the authorized legal representative or guardian
of the Optionee, and if no such legal representative or guardian has been
appointed, then the Company may petition any Court of competent jurisdiction to
appoint such representative or guardian prior to Company being required to take
any action hereunder.
9. Death of Optionee. In the event of the death of Optionee during the
term of this Option, the Option may be exercised, at any time within three (3)
years following the date of death (but in no event later than the date of
expiration of the term of this Option as set forth in Section 11 below), by
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent Optionee was entitled to
exercise the Option at the date of death.
10. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the Optionee and his or her personal
representatives, heirs, successors and assigns.
11. Term of Option. This Option may not be exercised after March 24, 2008,
and may be exercised only in accordance with the Plan and the terms of this
Option.
12. Change in Control. In accordance with section 12.4 of the Plan, in the
event of a merger, consolidation, acquisition of property or stock, or
reorganization as a result of which the Company is not the surviving corporation
or upon a sale of substantially all the property or stock of the Company to
another corporation, the Company immediately prior to any such transaction will
cause a new option to be substituted for the unexercised portion of all
outstanding Options or cause such old Option to be assumed in its entirety, by
the surviving or purchasing corporation, or a parent or subsidiary of such
corporation; and such new or substitued option shall apply to all shares issued
in
<PAGE>
addition to or in substitution, replacement or modification of the Shares
theretofore covered by such Option.
13. Plan Interpretation. The Board of Directors shall interpret the
Agreement in a manner which is consistent with the terms of the Plan and, in any
case of inconsistency, the terms of he Plan shall control. Optionee hereby
agrees to accept as binding, conclusive and final all decisions and
interpretations of the Board of Directors as to questions arising under the
Plan.
14. Withholding Taxes. As a condition to the issuance of Shares of Common
Stock of the Company under this Option, the Optionee authorizes the Company to
withhold in accordance with applicable law from any regular cash compensation
payable to him any taxes required to be withheld by the Company under federal or
state law as a result of his exercise of this Option.
DATE OF GRANT: March 23, 1998
U-SHIP, INC.
By:___________________________________________
Title: Chief Executive Officer and President
Optionee acknowledges receipt of a copy of the Plan and certain
information related thereto and represents that he is familiar with the terms
and provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions thereof. Optionee has reviewed the Plan and this Option in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the Option.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board upon any questions arising under the Plan.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
Optionee:
______________________________________________
Dated: March 23, 1998
Residence Address:
______________________________________________
______________________________________________
<PAGE>
EXHIBIT A
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
ISSUER : U-Ship, Inc.
SECURITY : COMMON STOCK
AMOUNT : _________________________
DATE : _________________________
In connection with the purchase of the Common Stock ("Securities") of U-SHIP,
INC. (the "Company"), the undersigned represents to the Company the following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act").
(b) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. In this connection, I understand that, in the view of the
Securities and Exchange Commission (the "SEC"), the statutory basis for such
exemption may be unavailable if my representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities. In addition, I
understand that the certificate evidencing the Securities will be imprinted with
a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
(d) I am familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof, in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of
<PAGE>
issuance of the Securities, such issuance will be exempt from registration under
the Securities Act. In the event the Company later becomes subject to the
reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, ninety (90) days thereafter the securities exempt under Rule 701 may be
resold, subject to the satisfaction of certain of the conditions specified by
Rule 144, including among other things: (1) the sale being made through a broker
in an unsolicited "broker's transaction" or in transactions directly with a
market maker (as said term is defined under the Securities Exchange Act of
1934); and, in the case of an affiliate, (2) the availability of certain public
information about the Company, and the amount of securities being sold during
any three month period not exceeding the limitations specified in Rule 144(e),
if applicable. Notwithstanding this paragraph (d), I acknowledge and agree to
the restrictions set forth in paragraph (e) hereof.
In the event that the Company does not qualify under Rule 701 at the time of
issuance of the Securities, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires among other
things: (1) the availability of certain public information about the Company,
(2) the resale occurring not less than two years after the party has purchased,
and made full payment for, within the meaning of Rule 144, the securities to be
sold; and, in the case of an affiliate, or of a non-affiliate who has held the
securities less than three years, (3) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934) and
the amount of securities being sold during any three month period not exceeding
the specified limitations stated therein, if applicable.
(e) I further understand that in the event all of the applicable
requirements of Rule 144 or Rule 701 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 and
Rule 701 are not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 or Rule 701 will
have a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their own
risk.
Signature of Purchaser:
______________________________________________
Date: ________________________________________
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<NAME> U-SHIP INC
<S> <C>
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<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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