SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File No. 0-28452
U-SHIP, INC.
(Name of Small Business Issuer in Its Charter)
UTAH 39-1713181
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
5583 WEST 78TH STREET
EDINA, MINNESOTA 55439
(Address of principal executive offices including Zip Code)
Issuer's Telephone Number, Including Area Code: (612) 941-4080
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.004 per share
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 ____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year. $952,858.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within the past 60 days: $3,490,395 as of September 15, 1998.
As of September 15, 1998, there were 4,979,709 shares of common stock of the
registrant issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
TABLE OF CONTENTS
PAGE
----
PART I........................................................................ 1
Item 1. DESCRIPTION OF BUSINESS............................................ 1
Item 2. DESCRIPTION OF PROPERTY............................................16
Item 3. LEGAL PROCEEDINGS..................................................16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS................17
EXECUTIVE OFFICERS OF THE REGISTRANT..............................17
PART II.......................................................................18
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS............................................................18
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS...............................19
Item 7. FINANCIAL STATEMENTS...............................................27
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...........................................43
PART III......................................................................43
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT................................................................43
Item 10. EXECUTIVE COMPENSATION.............................................46
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.........................................................48
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................50
Item 13. EXHIBITS AND REPORTS ON FORM 8-K...................................51
SIGNATURES....................................................................52
POWER OF ATTORNEY.............................................................52
EXHIBIT INDEX.................................................................53
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING INFORMATION
In accordance with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company notes that certain
statements in this Form 10-KSB and elsewhere which are forward-looking and which
provide other than historical information, involve risks and uncertainties that
may impact the Company's results of operations. These forward-looking statements
include, among others, statements concerning the Company's general business
strategies, financing decisions, and expectations for funding capital
expenditures and operations in the future. When used herein, the words
"believe," "plan," "continue," "hope," "estimate," "project," "intend,"
"expect," and similar expressions are intended to identify such forward-looking
statements. Although the Company believes the expectations reflected in such
forward-looking statements are based on reasonable assumptions, no statements
contained in this Form 10-KSB should be relied upon as predictions of future
events. Such statements are necessarily dependent on assumptions, data or
methods that may be incorrect or imprecise and may be incapable of being
realized. The risks and uncertainties inherent in these forward-looking
statements could cause actual results to differ materially from those expressed
in or implied by these statements.
Important factors that could cause actual results to differ materially
from the expectations reflected in any forward-looking statement herein
included, among other things, (1) the ability of the Company to leverage and
market its ISK technology (as defined below) to major shippers and carriers and
operate a brand identity relating thereto; (2) the ability of the Company to
successfully redeploy existing Company-owned ISKs to higher volume locations;
(3) the ability of the Company to increase its original equipment manufacturing
business for kiosks and the growth in kiosks as tools for providing information,
marketing and vending services and products; (4) the uncertainties surrounding
technological changes and the Company's dependence upon computer systems and
third parties who manufacture and market the same; (5) the ability of the
Company to successfully develop and implement an acquisition strategy; (6) the
ability of the Company to access public and private equity markets; and (7) the
ability of the Company to stem operating losses and position the Company to
achieve positive cash flow. See also "Management's Discussion and Analysis -
Factors That May Affect Future Operating Results."
Readers are cautioned not to place undue reliance on the
forward-looking statements contained herein, which speak only as of the date
hereof. The information contained in this Form 10-KSB is believed by the Company
to be accurate as of the date hereof. Changes may occur after that date, and the
Company will not update that information except as required by law in the normal
course of its public disclosure practices.
COMPANY OVERVIEW AND HISTORICAL BUSINESS STRATEGY
In 1991, U-Ship, Inc. (the "Company" or "U-Ship") began the initial
development of self-service automated shipping systems designed to be installed
at the shipping hubs of major package carriers such as United Parcel Service
("UPS") and Federal Express Corporation ("FedEx"), thereby allowing small
business and individuals expanded access to shipping services. The original
shipping kiosks developed by the Company were large and relatively slow,
reflecting the state of the computer industry of that day. Since that time,
rapid advances in computer software and hardware have allowed the Company to
reduce the size of the systems, build in higher levels of intelligence with
greater speed, and to make the kiosks more consumer friendly.
In 1996 the Company introduced a third generation of intelligent
shipping kiosks ("ISKs") (formerly known as the self-service automated shipping
center or "ASC"). Since that time, the primary business of the Company has been
the manufacture, marketing and operation of self-service, automated shipping
systems for use by consumers and small businesses who ship packages and priority
letters through major carriers in the air express and package delivery market.
Historically, ISKs 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 consumer testing and deployment strategy began to emphasize the
placement of Company-owned and operated ISKs in retail locations. ISKs have been
placed
1
<PAGE>
in office services and copy centers, including Kinko's and OfficeMax, and in
other retail locations such as grocery and general merchandise stores. As of
June 30, 1998, the Company had installed a total of 303 ISKs in test sites in 40
states and Canada. Of these, 73 ISKs were located in Kinko's Copy Centers and
113 ISKs were located in various OfficeMax stores. Beginning in fiscal 1997, the
Company began the production of custom built computerized kiosks for a third
party in the employment information business. The Company currently derives
revenue primarily from package shipping transactions and, to a lesser extent,
from the sale of ISKs and custom built computerized kiosks.
The Company holds eight patents and has one allowed patent application
related to hardware and software utilized in its ISKs and is not aware of any
other comparable self-service, automated shipping system currently marketed or
available to consumers and small business package shippers. Each location in the
Company's network of ISKs is centrally controlled and serviced through an
electronic connection to the Company's computer network system located at its
headquarters. The Company believes that its ISK technology is among the most
advanced self-service automated air express and package shipping systems
available for consumers and small businesses.
Based on its efforts to date, the Company believes it has created a
core competency in the development and manufacture of intelligent interactive
kiosks, as well as the development of sophisticated software to simplify complex
shipping transactions, provide data processing of credit card transactions and
customer service support, and to monitor a variety of attributes that range from
price sensitivity to realtime monitoring and troubleshooting for each kiosk
deployed in the market. The Company is preparing to launch a new generation of
intelligent systems in the Fall of 1998. These ISKs systems are believed by the
Company to be among the most advanced in the marketplace.
In late 1997, as a result of lower than anticipated revenues from ISKs
placed in the field, the Company began an extensive evaluation of its strategies
and results from its test sites. Additional review of the revenues, customer
responses to advertising and promotions, and changes in the marketplace led the
Company to change its operating and marketing focus. The Company has concluded
that its ability to offer consumers expanded services and to reduce shipping
time through use of the Company's ISK or other technologies (such as the ability
to select one of several package delivery and/or carrier options, and the
enhancement of speed of delivery and ease of use) are critical to remaining in
the shipping and related service business. It determined, for example, that the
major carriers will not make pickups from kiosks in which packages slated for
delivery by different carriers are intermingled. This requires that multiple
units be placed in a location if service from more than a single carrier is
desired. Also, with the large number of kiosks and shipping boxes placed in
lobbies and like locations, landlords are looking for a way to consolidate these
types of units. To address these needs the Company has concluded that it needs
to have the in-house capacity to provide its own pick up and redelivery of
packages from its ISKs to the major carriers. Market research by the Company's
consultants indicated such services may offer a lucrative opportunity if the
Company combines this pick up service with a courier business.
The Company has also focused on the growth of the "intraday" courier
services, as customers demand more rapid service for shipments. The courier
business is highly fragmented, with no dominant brands and extremely low
technological innovation. The Company believes that the "intraday" courier
business segments are currently not being served by the major carriers but may
be a future target for acquisitions. The Company believes its technology
combined with a courier service can provide consumers and end users with
significant value and will allow the Company to participate in a window of
opportunity. To achieve this goal the Company has formed a new subsidiary,
Advanced Courier Services, Inc. This subsidiary will actively seek acquisitions
with the intent of establishing first a regional and then a national position in
the intraday courier business. The subsidiary will also attempt to license an
established brand name for its courier services, or create its own brand, to
achieve market differentiation. If the Company is successful in establishing
several key markets, it then may expand the concept by a franchise or similar
program to further leverage the brand name, generate additional revenues and
further explore advances in the Company's technologies to create greater
customer intimacy.
The Company has also determined that its current kiosks have been
spread over too large a market to allow the Company to actively support them
with maintenance and to efficiently engage in sufficient marketing and
advertising to create customer awareness of, and promote use of the ISKs.
Accordingly, the Company is in the process
2
<PAGE>
of consolidating these units to the Minneapolis and St. Paul markets to take
advantage of economies of scale in both maintenance and advertising. The Company
has been actively working with key customers such as Kinko's and OfficeMax to
remove these units as quickly as possible and relocate them to what the Company
believes will be more profitable locations. These units may then be utilized by
Advanced Courier Services pursuant to the Company's courier roll up strategy. On
September 15, 1998, the Company entered into an agreement with OfficeMax to
redeploy all of its 113 ISKs located in OfficeMax stores over the next 90 days.
Negotiations with Kinko's continue.
In addition to carrier and customer requirements the Company has
determined it must make continued investments in its technology to remain
competitive and to create a barrier to entry from the competition. Company
research indicates shipping technology is subject to the same changes as other
computer technologies and will require the Company to continually enhance its
products. The Company has a core competency in the development of intelligent
kiosks and shipping management systems. The Company will leverage these assets
to spread the development overhead needed for the pursuit of its revised
business strategy by offering its kiosk designs, software or other properties to
the marketplace as an original equipment manufacturer ("OEM") or in other
capacities. In order to best manage this process the Company has formed a
subsidiary called Intelligent Kiosk Company ("IQK"). Currently, IQK is in
negotiations with a major shipper to provide kiosk systems to fully automate its
regional shipping hubs. IQK will also act as a OEM supplier and developer to
Advanced Courier Services, Inc. It is also working with a variety of non
shipping customers to build intelligent kiosks for selected non shipping
purposes, such as information exchange, selling, promotions and training. The
kiosk business is growing rapidly as a result of consumer familiarity with the
Internet, and the Company believes it is in a position to utilize its experience
to penetrate these emerging markets. The Company also intends that IQK will
explore synergistic acquisitions and strategic alliances to support the
development of new technologies for the Company.
The Company was incorporated in Utah under the name Basin Energy
Corporation on September 10, 1979. In January 1980, the Company completed a
public offering of 750,000 shares of Common Stock and thereafter engaged in
various activities unrelated to its present business. In February 1990, the
Company changed its name to EuroDynamics Corporation, and in May 1992, the
Company entered into an exchange agreement with U-Ship International, Ltd., a
Wisconsin corporation ("USI"), which provided for the acquisition of USI by the
Company, which then amended its name to U-Ship, Inc. All references to the
Company herein shall include U-Ship International, Ltd., the Company's operating
subsidiary, and its other wholly-owned subsidiaries, U-Ship America, Inc.,
Intelligent Kiosk Company and Advanced Courier Services, Inc. Substantially all
of the Company's current management and Board of Directors joined the Company
subsequent to April 1998.
OPPORTUNITY
Since its inception, the Company has invested heavily in the
development of advanced intelligent kiosk technology, primarily for the small
business and consumer shipping market but increasingly for that portion of the
kiosk market that deals with the retrieval and utilization of information. The
Company believes that the development of its ISK and related technology puts it
in a unique position to take advantage of the various opportunities presented by
the shipping and courier market as well as the growing market for interactive
kiosks. Additionally, the Company sees an opportunity to integrate these markets
and provide increased service options to its customers by utilizing the
Company's technology both for traditional package and letter delivery as well as
acting as a computerized depository for courier services, thus making it
feasible for the Company to pursue a courier "rollup" strategy with a unique
technological advantage.
The Company believes that the market for shipping letters, documents
and small packages remains a viable market for the utilization of its advanced
kiosk technology. The small package market is among the fastest growing segments
of the shipping industry, with more than 6.5 billion parcels shipped by
consumers and small businesses every year. The Company estimates that the
occasional shipper market represents an $8 billion annual market and is the
market that U-Ship's technology is ideally suited to serve. While this market is
substantial, the Company believes that it does not generate enough package
volume to cover all the labor and overhead costs associated with collecting
packages from widely dispersed package pickup points. The Company believes that
the occasional small business shipper is seen by carriers as an expense drain,
which may be why UPS, and other carriers have instituted pick-up surcharges and
premiums, restricted hours of operation, and limited collection locations. The
3
<PAGE>
Company's ISK technology addresses the problems which consumers face with
current shipping options. The ISK is available to receive packages 24 hours a
day, can be placed almost anywhere thereby increasing locations and
accessibility, takes only two to three minutes to use, and can be priced
competitively compared to other shipping alternatives.
In addition, the Company believes that its ISK technology can also
reduce carrier operating expenses by automating the shipping hubs of major
package carriers, such as UPS. The ISKs would act as unmanned in-house shipping
kiosks, allowing customers to weigh and measure packages, print labels,
calculate charges and accept payment via the built-in credit card "swipe." This
could free attendants to provide more efficient customer service, and would
provide more convenient access to carrier services. ISKs can also be located at
places currently unserved by the carriers, thereby increasing the number of
drop-off points and hours of service.
The Company also believes that the market for intelligent interactive
kiosks is growing at an appreciable rate and that this presents an opportunity
to capitalize on the Company's advanced technology and its experience in
manufacturing and development. In 1995, over twenty thousand kiosks were sold in
the United States, with annual revenues of approximately $250 million. For 1996,
that market had increased to approximately $370 million, and was expected to
increase another 50% by 1997, to $562 million in annual revenues. Market studies
anticipate the United States interactive kiosk market will grow to over $1.5
billion by the year 2000 and almost $3 billion by 2003. Improvements in
touchscreens, expansion of the Internet, and issues of convenience have
propelled growth. As end users have become more familiar with kiosks, they
discovered that purchasing decisions or informational questions could be handled
more quickly and efficiently using a kiosk than through traditional methods.
Because multimedia applications and the Internet supply more information
covering broader subjects, more companies are expected to use kiosks to maintain
a competitive edge in business. The Company's success to date in this market,
and the adaptability of its current technology and hardware designs to the
manufacture of interactive kiosks, leads the Company to believe that it should
increasingly focus on this market segment.
Finally, the Company believes that its unique kiosk and information
management technology will allow for the integration of the ISK with courier and
in-house delivery services and, ultimately, will provide a base for a "rollup"
of courier and other transportation services on a regional or national scale.
According to the Department of Transportation, in 1995 the courier industry was
a $23.7 billion market in the United States, with a growth rate in excess of 5%
per year. Despite the size of this industry, the Company's informal market
surveys have indicated that the courier industry is highly fragmented and
relatively low-tech. Most participants are privately held and operate only at
the local level. The focus is generally on operations, with little attention
given to marketing and sales; accordingly, the Company believes there is little
perceived service differentiation between competitors and that customer loyalty
is generally short term. The Company believes that the increasingly time
dependent nature of these services provides an opportunity to utilize the
Company's ISK as an "electronic drop box" for courier services. The ISKs are
electronically networked to the Company's central computers, allowing for
immediate notification of a courier that a pickup is needed at a particular
site; the Company's information technology allows for the management and
coordination of dispatching and other "back room" functions to provide support
services more efficiently and, the Company believes, more cost-effectively. This
integration of the Company's high-tech kiosk with the currently low-tech courier
business can also provide a market differentiation between the Company's
services and those of competitors. Additionally, the use of in-house pickup
service for traditional package deliveries will allow the Company to consolidate
its ISK shipments at a central location, or to make deliveries directly to
carrier hubs, allowing the major carriers such as UPS the ability to focus on
large volume pickups rather than fragmented individual package shipments. This
should also translate into cost savings for the Company, through reduction of
carrier charges. Finally, in addition to providing an adjunct to the shipping
services provided by the Company's ISK and other management technologies, the
Company believes that the acquisition of courier and other transportation
services can provide an independent revenue stream to fund the Company's
operations and the further development of its technology. Because the Company is
growth-focused, any additional revenues the Company might realize would be
utilized in the development of the Company's business for the foreseeable
future.
4
<PAGE>
REVISED BUSINESS STRATEGY
Based upon information gathered from the operation of over 300 ISKs in
various retail locations such as Kinko's and OfficeMax, and in light of
lower-than-anticipated package shipping volumes, the Company has substantially
revised its historical business strategy of installing Company-owned ISK systems
in major office supply and instant printing outlets, business centers and office
parks. The Company has concluded that these placements were not sufficiently
concentrated to allow for economies of scale in marketing and advertising, which
the Company believes is crucial to customer awareness and acceptance of the ISK,
and that existing ISKs were unable to offer customers the range of shipping
choices needed to provide true convenience of package delivery. Additionally,
the prospects for substantial growth of the interactive kiosk market and the
opportunity the Company believes exists in the courier market, coupled with the
Company's core competency in the development and manufacture of intelligent
kiosk systems for use in both of these markets, has convinced the Company that
it should increase its focus on interactive kiosk manufacturing and a "rollup"
of courier services.
Accordingly, the Company has recently formed two wholly owned
subsidiaries, the Intelligent Kiosk Company and Advanced Courier Services, Inc.,
to pursue the Company's revised business strategy. These subsidiaries will be
utilized to pursue the two primary new areas of focus for the Company's
business. In addition, the Company, recently added new management as its first
step in positioning the Company to take advantage of new marketplace
opportunities and to implement the Company's revised business strategy.
INTELLIGENT KIOSK COMPANY
The Intelligent Kiosk Company ("IQK") was incorporated in Minnesota in
August 1998. The purpose of IQK is to consolidate the Company's core competency
in the development and manufacture of interactive kiosks for both the shipping
and non-shipping industry, as well as related software systems. The Company
plans that all technological development for the Company's ISKs and interactive
kiosks will be performed by IQK.
During fiscal 1997, the Company began manufacturing and marketing
intelligent kiosks on an original equipment manufacturer ("OEM") basis for a
business that provides information on employment opportunities to prospective
job applicants. This kiosk allows electronic job searches and applications to be
processed and transmitted electronically. The Company has identified the kiosk
market as potentially providing the opportunity for growth based on the
Company's existing technology and manufacturing expertise. Market data, as well
as ongoing requests from other businesses for quotations on the manufacture of
intelligent kiosk systems, have led the Company to conclude that a substantial
market for such products may exist. The Company intends to position itself as an
OEM producer of advanced computerized kiosk systems for a multitude of
applications. The Company's current ISK design is readily adaptable to use as
computerized kiosks, with little modification, thereby reducing developmental
costs. To pursue these opportunities, the Company has formed a relationship with
Agra Computer Systems, a hardware/software integrator, to enable Agra to market
the Company's experience in intelligent kiosk manufacturing to potential
customers. This relationship and the Company's OEM efforts are in a preliminary
stage and no assurance can be given that the Company will be able to develop any
significant business as a manufacturer of kiosks.
In the past, the Company has attempted to market its ISK technology to
major carriers for the purpose of automating their package pickup operations.
The Company expects to continue leveraging its existing technology, know-how and
patent position to create strategic relationships with major carriers through
licensing the technology or selling ISK units/systems as an OEM manufacturer.
The Company believes that the use of the Company's ISKs can enable these
carriers to expand their market coverage to more efficiently and profitably
service the small business or consumer shipping transaction without increasing
prices or overhead. The Company markets its ISKs to major carriers for use in
their hubs to allow for more efficient package intake and use of existing
personnel in servicing customers. Given the Company's limited success in forming
significant carrier relationships to date, however, no assurance can be given
that the Company will be successful in convincing carriers to utilize the
Company's technology.
5
<PAGE>
With respect to the Company's intelligent shipping kiosks ("ISKs"), the
Company has re-evaluated its deployment methods in light of data obtained from
its operational testing of over 300 units in the field and
lower-than-anticipated package shipping volumes. The Company's management
believes the Company's ISK technology remains viable and intends to build on the
Company's strengths in manufacturing, automation and information systems.
Although the Company believes that its ISK technology has proven to be
functionally successful for consumer use, it has determined that sole reliance
upon Company ownership of ISKs may not be a viable strategy for expansion of the
concept because of the significant capital investment required, which currently
exceeds the Company's resources. The Company intends to continue servicing
existing ISKs pursuant to its contractual obligations as long as its resources
permit, and will evaluate existing locations to determine criteria for new
targeted customers.
The Company intends to test a repositioning of approximately 200 ISKs
to new locations in the Minneapolis/St.Paul metropolitan market that it believes
will provide increased package volume. The Company anticipates that these units
will be transferred to Advanced Courier Services for management and use in its
courier operations. This deployment will be accompanied by a marketing effort
aimed at increasing consumer awareness and trial of the Company's unique
technology. It is likely that the repositioned units will be drawn primarily
from those underperforming units which were deployed pursuant to contracts with
Kinko's and OfficeMax. If these units are removed from Kinko's and OfficeMax
locations, the Company intends to redeploy a majority of these ISKs in the
Minneapolis/St. Paul metropolitan area. On September 15, 1998, the Company
entered into an agreement with OfficeMax to redeploy all of its 113 ISKs located
in OfficeMax stores. This agreement requires the Company to remove the units
over the next 90 days, and the Company and OfficeMax have released each other
from liability under their previous agreement. Negotiations with Kinkos to
remove the 73 ISKs located in Kinkos stores around the country continue. There
can be no assurance, however, that the Company will be successful in negotiating
an agreement with Kinko's on terms acceptable to the Company. In addition, there
can be no assurance that any of the ISKs removed from either Kinko's or
OfficeMax can be redeployed as planned, or if redeployed, that they will operate
successfully.
The Company believes that its unique kiosk and information management
technology will allow for the integration of the ISK with courier and in-house
delivery services and, ultimately, will provide a base for a "rollup" of courier
and other related services on a regional or national scale. To this end, the
Company plans to utilize its ISKs as an "electronic drop box" for courier
services provided through its subsidiary, Advanced Courier Services. Because the
ISKs are linked electronically to the Company's central computers, they will
allow for immediate notification of a courier that a pickup is needed at a
particular site; the Company's information technology will allow for the
management and coordination of dispatching and other "back room" functions to
provide support services more efficiently and, the Company believes, more
cost-effectively.
The Company plans to exploit technological opportunities and changes
that emerge. For example, the Company believes its ISK technology is ideally
suited to utilize the recently-approved U.S. Postal "E" Stamp, which allows
postage to be electronically generated by the shipper. The Company believes that
ISKs 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. In addition, the Company is in the process of
upgrading its existing ISK technology in several aspects to provide a more
robust and user-friendly transaction.
There can be no assurance that current or other strategies currently
being considered by the Company will serve to increase market acceptance of the
Company's ISKs. See "Management's Discussion and Analysis--Factors That May
Affect Future Operating Results."
ADVANCED COURIER SERVICES, INC.
As part of its revised business strategy, the Company has been seeking to
identify and evaluate acquisition opportunities with businesses that complement
its current field of business. The Company has initially targeted the courier
and transportation industries as areas for potential acquisitions. The Company
believes that purchases of local courier and transportation businesses, in
addition to creating independent revenue streams, may enable the Company to
utilize its ISKs as intelligent "drop boxes" from which the Company can provide
same-day courier and package freight forwarding services. This service may be
especially attractive if the Company is successful in its planned
6
<PAGE>
redeployment of ISKs into the Minneapolis/St. Paul metropolitan area. This will
provide a network of ISKs coupled with local courier services, linked together
with the Company's management software, which the Company believes can be
duplicated in other markets. In addition, transportation services combined with
the Company's ISK technology may allow the Company to consolidate package
shipments at the Company's facilities, or to make deliveries directly to the
major carriers' hubs, producing economies of scale.
While the courier industry is very large (estimated at over $23 billion
in 1995), the Company's informal market surveys indicate that it has become
highly fragmented as a result of deregulation and low entry barriers. Based upon
this and information from the Company's consultants, the Company believes that
consolidation of this industry will provide a basis for brand building,
increased customer service, new customer service programs, and achievement of
operating synergies (e.g., office infrastructure, network effectiveness,
dispatch, and management).
To pursue these opportunities, the Company formed a new subsidiary,
Advanced Courier Services, Inc. ("ACS"), which was incorporated in Minnesota in
September 1998. ACS was formed to implement the Company's vision of becoming a
leading provider of courier services through acquisition and technology. The
basic strategic initiatives include an acquisition strategy to consolidate the
highly fragmented courier industry, the application of technology to better
serve customers and lower operating costs, and the adoption of a major brand
through licensing.
The Company's growth plan is based upon proving the acquisition and
consolidation strategy in its initial targeted markets, in conjunction with the
redeployment of the Company's ISKs under ACS management to explore development
of, and then accelerating growth through a multi-city simultaneous roll-out of
the concept. Central to the consolidation strategy is the utilization of a
strong service brand that will enable efficient acquisition of customers and
increased customer retention. The basic strategy and tactics include testing the
building or licensure of a well known brand name, the effective advertising of
the brand to create awareness of the Company, brand positioning and service
performance, and the development of promotions. The Company intends that this
brand identity will be synonymous with speed, service, quality and security.
The Company plans to realize operating synergies to prove the economic
viability of the consolidation strategy prior to accelerating market expansion.
Upon achieving success in its test markets, the Company intends to move rapidly
into up to ten major metropolitan geographic markets through an acquisition
strategy. Subsequently, ACS plans to develop and market a franchise program
which includes brand and technology licensure to existing or new local courier
firms in other large or secondary geographic markets. Long term, the franchise
program will enable faster market saturation with less capital intensive growth
while reinforcing a strong brand within this industry sector.
In September 1998, the Company signed a letter of intent to purchase
certain assets of JEL Trucking, a smaller Minneapolis based trucking company
engaged in dock truck and courier shipments, for a combination of cash and
stock. In addition, the Company continues its acquisition negotiations with
several other courier and transportation services. There can be no assurance
that the Company will be able to successfully complete any acquisition or, if
completed, that any acquisition will be successful.
As part of its marketing efforts for ACS, the Company has also
undertaken efforts to license and test a nationally recognizable brand name, to
be utilized in connection with personal and small business shipping and courier
services. The Company believes this will build brand value and increase leverage
with carriers, licensees, joint ventures and franchisees, which the Company
expects can result in more efficient use of advertising dollars and improved
future profitability for the Company. The Company is currently discussing the
licensing of nationally recognized name brands from various third parties,
however, no assurance can be given that the Company will be successful in these
discussions.
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. If implemented, the Company expects overall revenues from the use of
7
<PAGE>
its ISKs to drop significantly in the short term. Because the Company is
growth-focused, it intends that any earnings it realizes will be utilized for
the continued development of its technologies and the expansion of its business.
Accordingly, the Company believes that it will require substantial financing to
implement its revised business plan. The Company currently does not have any
arrangements for such financing, and there can be no assurance that the Company
will be successful in raising the required funds to implement the plans outlined
above.
In order to highlight the adoption by the Company of the revised
business strategies outlined above, the Company has recently applied for the use
of "United Shipping and Technology" as an assumed business name in the State of
Minnesota. The Company plans to seek shareholder approval for the change of its
name to "United Shipping and Technology, Inc." at its next meeting of
shareholders.
INDUSTRY BACKGROUND
COURIER SERVICES
The Company believes that the market for courier services is large and
growing. Based on U.S. Department of Transportation data for 1995, the courier
business in the United States was estimated to generate revenues of more than
$23 billion per year, with an industry growth rate in excess of 5% per year.
The Company has determined that customer needs are continually changing
and emerging as customers seek to streamline their processes, improve their
customer-vendor relationships and increase productivity. Trends show that
customers are seeking to reduce their cycle times and implement "just in time"
processes just as manufacturers have done in the past. Customers are
increasingly seeking greater speed and convenience from their package delivery
service provider, along with reliability, security, operating efficiency and
effectiveness. To provide these, customers are looking to more advanced
technology, such as computerized customer ordering, tracking, and management
systems, as well as professionalism (such as may be provided by a nationally
recognizable brand) and appropriate ancillary services such as legal process
serving and the like. To serve these current and emerging customers needs,
existing and future courier service companies will need to realize economies of
scale and provide greater service options. Economies of scale will enable the
low-cost application of technology, a more dense or concentrated network of
drivers and related operations, and more intensive marketing to assist in
customer acquisition and to reinforce customer retention.
While the courier industry is very large, it has become highly
fragmented as a result of deregulation and low-entry barriers. Most courier
companies are private, single-city companies with few multi-city operators. As
the industry matures, the business processes required for service program
development, along with advances in technology and benefits of scale, will, the
Company believes, force the industry into consolidation. Consolidation will
provide a basis for brand building, increased customer service, new customer
service programs and achievement of operating synergies (e.g. office
infrastructure, network effectiveness, dispatch and management).
As customers' needs continue to emerge, the Company believes that
increased pressure will be placed on security, delivery performance and full
service. As a result, customers will most likely rely on fewer and better
providers of package movement and services. Today, no national brand exists
within the courier industry. The Company believes that brand development will
instill greater confidence in current and prospective customers by indicating a
higher level of professionalism and service performance. In addition, the brand
initiative, when combined with higher levels and variety of services such as may
be provided by the Company's network of ISKs, may expand the industry and
provide a strategic competitive advantage for the Company. Through the
achievement of economies of scale in the building of a strong brand, the Company
believes it will be uniquely suited for customer growth and retention. At the
same time, the Company hopes to increase the industry barriers to entry through
these methods.
INTERACTIVE KIOSKS
The Company believes that the market for intelligent interactive kiosks
is growing at an appreciable rate and that this presents an opportunity to
capitalize on the Company's advanced technology and its experience in
8
<PAGE>
manufacturing and development. Based on industry sources, in 1993, the first
year in which data is available, revenues for the interactive kiosk market were
$83 million with shipments of approximately 5,000 units. By 1995, over 20,000
kiosks were sold in the United States, with annual revenues of approximately
$250 million. For 1996, that market had increased to approximately $370 million
in revenue per year, and was expected to increase another 50% by 1997, to $562
million in annual revenues. Annual unit shipments increased from 5,000 in 1993
to an estimated 64,000 in 1997.
Market studies anticipated that the United States interactive kiosk
market will grow to over $1.5 billion by the year 2000, and to almost $3 billion
per year by the year 2003. By the year 2003, annual unit shipments will exceed
440,000 per year. The compound annual growth rate between 1996 and 2003 was
estimated to average 35%.
This extraordinary growth was propelled by improvements in touch
screens, expansion of the Internet and issues of convenience. As end-users
became familiar with kiosks, they discovered that purchasing decisions or
informational questions could handled more quickly and efficiently using a kiosk
than through traditional methods. For instance, automated corporate directory
kiosks provide useful assistance for people visiting large organizations. The
kiosks enable users to readily identify where to meet a specific person working
on a corporate campus or in a skyscraper. Such kiosks also allow front desk
receptionists to spend less time directing traffic.
Strong growth in the industry is projected as Internet use, financial
applications, and retail applications for kiosks spur demand. Both banking and
retail kiosks segments are expected to continue to drive a significant portion
of the total market growth. Increasing capabilities and unchanged or lowered
prices will quite likely prompt additional demand from organizations. Beginning
in 1998, growth rates are expected to begin to slow. By the year 2003, a revenue
growth rate of 18% is expected, though the average growth rate from 1996 to 2003
for the total United States interactive kiosks market is projected to be 35%.
This figure reflects strong persistent demand for the various transactions that
can be completed on interactive kiosks. Because multi-media applications and the
Internet supply more information covering broader subjects, more companies are
expected to use kiosks to maintain a competitive edge in business.
Based on these figures, the Company believes it is in a unique position
to take advantage of this projected growth in the interactive kiosk market. The
Company's ISK is one such intelligent kiosk, adapted to the consumer and small
business shipping market with the added benefit of sophisticated shipping and
site management technology. The ISK can be easily adapted to non-shipping
applications, as the Company has done with its current line of job-related kiosk
applications. The adaptability of the Company's current technology, the Company
believes, will enable it to participate in the growth of the kiosk market
without the necessity of altering its basic design parameters. However, to keep
pace with the changing market and particular needs of its customers, the Company
plans to consider opportunities to invest in the increasing adaptability and
sophistication of its systems.
PACKAGE SHIPPING
Small package shipping remains one of the growth segments of the
shipping industry, with more than 6.5 billion packages and priority letters
shipped per year. Of the 6.5 billion small packages shipped, approximately 1.5
billion are overnight or second-day shipments, indicating a strong demand for
priority services. Priority package shippers are frequently under a deadline and
need to ship "after hours." Twenty-four hour service and intraday service is a
critical need for such shippers and package handling becomes a labor-intensive
element within the small business. The growth of companies such as Federal
Express Corporation and UPS, and the launch of new small parcel shipping
services by the United States Post Office attest to the high growth of this
business segment. Further, for the consumer segment, home delivery and outbound
package mailing continue to be a problem due to inconvenient shipping locations
and limited hours which the carriers are open for business. Currently, in 70% of
U.S. households both adults work outside the home, making it difficult and
time-consuming to ship packages on an outbound basis. Additionally, in 40% of
all home deliveries, no one is home to receive the package. Despite these
issues, the Company believes small package shipping will continue to increase
for the foreseeable future due in part to the following trends:
9
<PAGE>
* SERVING THE CONSUMER AND SMALL BUSINESS MARKET. Although the number of
packages shipped per year (6.5 billion) appears to be growing, the Company
believes that this is a difficult market for carriers to service because
these shipments occur on a one-at-a-time basis. Thus, there can be
significant expense if the carrier provides pickup. Carrier depots are
generally located in difficult-to-find offices, warehouses or airport
spaces, which are usually inconvenient for shippers to access. Further, with
the typical household having both adults employed outside the home in 9:00
to 5:00 jobs, it is difficult to mail these packages because shippers are
seldom open beyond typical office hours. The result of this has been the
growth of a shipping interface industry, including "mailbox" stores and
shipping counters in grocery stores and small factories to compensate for
the shortcomings in the existing service network. These alternatives are
often expensive to use and are not always more convenient from an office
hours or location standpoint. U-Ship believes it can profitably serve this
segment of the business and be an attractive partner for one or more major
carriers by helping them to access a substantial, but not currently
profitable segment of their business.
* HIGH GROWTH OF CATALOG AND TV SHOPPING. Busy two-income families have less
time to shop at conventional stores, and tend to purchase more merchandise
through catalogs and TV shopping channels. Such purchases generated revenues
of more than $54 billion in 1994. There is also a new and growing trend
toward virtual shopping, with people buying goods and services through the
Internet. The ISK, if utilized by the catalog and TV shopping consumer,
can be very convenient. Based upon information the Company believes to be
accurate, approximately 20% of all items purchased through the mail and
television are returned, creating a significant and growing small package
shipping return market. Yet, with two-income households, the time-consuming
nature of returning these packages makes it inconvenient and time-consuming
for the typical consumer. The Company believes that the ISK utilized in
connection with a catalog/home shopping company can facilitate consumer
returns of such products.
* GROWTH OF HOME-BASED BUSINESSES AND TELECOMMUNICATION. The latest census
data from the United States government indicates that of the approximately
19 million small businesses currently existing in the United States, 13.2
million are sole proprietorships, many of which operate from private
residences. The availability of powerful personal computers, facsimile and
digital telephone lines have increased the number of people who correspond
through telecommunication. At home workers are able to gather and receive
information quickly, which frequently requires them to send documents by
overnight courier. Small business growth drives growth in priority
shipments. The Company believes its technology can be employed to increase
access to and facilitate the package mailing process for small at-home
businesses.
THE ISK AND RELATED CORE TECHNOLOGIES DEVELOPED BY THE COMPANY
The Company manufactures, markets, develops and operates self-service,
automated, self-contained shipping kiosks for use by consumers and small
business shippers to ship packages and priority letters through major carriers.
The Company's ISK contains proprietary software, a computer monitor and a
keyboard to facilitate a user-friendly interface to consumers. The ISK also
contains algorithms and electronic communication capabilities which permit it to
communicate with a central computer system located at the Company's
headquarters. The Company has used market research and tests to refine and
simplify its interface, which uses graphics and voice prompts to simplify the
shipping process. The Company has also developed communications software that
provides a seamless link to access shipping information. This tool provides the
Company with accurate data used to manage site performance.
The U-Ship ISK uses an ATM-like interface incorporating colorful,
user-friendly graphics and voice instructions that allow shippers to make
informed cost/delivery priority shipping decisions. The interface helps the
shipper complete all necessary shipping documents and generates a high-quality
label that can be scanned. This technology also allows the shipper to pay for
the transaction using any major credit card. The highly legible, scannable
labels and accurate invoices lower the cost for a common carrier receiving
aggregated packages from Company collection sites.
The Company currently has two ISK models in production: Model 4100 and
Model 3100. The Model 4100
10
<PAGE>
is a semi-automatic shipping machine that allows for self-service shipping
(weighing, billing, labeling) with or without counter help. It contains an
easy-to-use voice-prompted touch screen for all information entry (mailing
address, package contents, billing options), a scale to automatically weigh and
price the package, a printer for label printing, and a credit card magnetic
scanner for payment. Once the package has been weighed, priced, and labeled, the
customer either pays for the transaction or takes it to the counter and pays for
it and deposits the package behind the counter. The Model 3100 is a fully
automatic machine that contains a voice-prompted touch screen, automatic scale,
label printer, credit card scanner, and a deposit door through which the package
is placed for mailing. This type of ISK can be placed virtually anywhere free
from weather conditions and which does not require counter help for operation.
The customer enters in all relevant shipping data on the touch screen, places
the package on the scale for weighing and pricing, and pays via the magnetic
credit card swipe. The label is then printed and affixed to the package by the
shipper. The shipper then places the package in the machine's deposit door. The
deposit door is like a large ATM deposit door and prevents retrieval of the
package by anyone other than the shipping carrier.
The Company has recently decided to rename Models 3100 and 4100 as part
of its revised strategy. The Model 3100 will become the ET 300, and the Model
4100 will become the ET 400. In addition, the Company is designing a new model,
tentatively designated the ET 200, which will be a Model 4100 with a
wall-mounted drop box feature to be used in locations calling for a
large-capacity, secure package intake capability. The Company's ISKs generally
incorporate the following features:
* A graphic user interface supported by voice prompting to take the shipper
through the shipping process step-by-step.
* A touch screen that allows the user to make choices by lightly touching
large, colorful graphic "buttons" on the screen.
* A keyboard for quick entry of "ship to" and contents data.
* A credit card "swipe" that accepts all major credit cards and the U-Ship
proprietary card. The system captures sender name, telephone number and
other key information encoded on the credit card's magnetic stripe.
* An integrated electronic scale that feeds accurate package weight to the
system.
* Some systems also include integrated package measuring systems that
automatically record package dimensions using sonic sensors. The Model 4100
(ET 400) provides a visible measuring grid that allows the shipper to
quickly judge the package dimensions and enters them into the system.
* A thermal label printer that prints a label to carrier specifications
including proprietary tracking numbers and sort codes.
* A second printer, accessible only to the carrier pick-up driver, which
provides an accurate, computer-generated manifest.
* Americans with Disabilities Act accessible design.
* Extensive software development providing a unique easy-to-use voice-prompted
interface capable of translating complex rate and zone calculations into
layman's language.
* State-of-the-art communications network that allows U-Ship to control,
communicate with and reconfigure systems in remote sites in a matter of
minutes.
The Company believes that its ISK provides a complete solution that
reduces expenses related to bank credit card processing; training employees
about carrier services, rates and new service changes; package processing time
for label completion, shipping charge calculation, service explanations and
customer interaction; daily shipping documentation preparation; accounting and
record keeping, reconciling and paying weekly carrier bills and generating
management reports; damage, loss and claims processing for customers with
shipping related problems; and customer service, assisting customers with
tracking packages and explaining services.
11
<PAGE>
CARRIER RELATIONSHIPS
For each ISK location, or group of locations, the Company has historically
entered into a Commercial Counter Agreement with UPS, which provides the basic
terms of service, advertising restrictions and certain related matters. The
Company has also entered into an Automated Shipping System Letter Agreement with
UPS regarding the Company's arrangements for use of UPS' Parcel Register,
Computer Manifest and other systems for identifying and recording packages
turned over to UPS for delivery. This agreement is generally terminable at will,
although the Company has enjoyed a shipper-carrier relationship with UPS since
1992. Further, UPS is a regulated carrier which, under applicable laws and
regulations, is obligated, upon reasonable request, to provide safe and adequate
service, equipment and facilities for the surface transportation of property in
interstate commerce. This duty to furnish continuous and adequate service
obligates UPS to furnish ground transportation services without discrimination
at its established rates and to the limit of its capacity. However, UPS is not
regulated with respect to shipments tendered, which involve prior or subsequent
movement, by air. The Company is currently dependent upon UPS to pick up and
transport packages processed via the Company's ISKs. Any interruption in, or
increase in price of, such service, or the failure of the Company to continue to
maintain such arrangements with UPS and the failure to develop alternate
relationships with other carriers, would cause an interruption to the Company's
package shipping business and would likely have a material adverse effect upon
the Company's operations and prospects. The Company has no control over the
nature, cost or availability of services provided by any carrier and has no
long-term contracts with any carrier. Accordingly, there can be no assurance
that the Company can continue its relationship with UPS or establish new
relationships with any other carrier.
The Company has recently been notified by UPS that the Company's
software must be upgraded so that its ISKs are able to connect electronically
with UPS, and that UPS will not provide pick up service to non-complying ISKs
placed in service after July 1, 1998. Currently, the Company has no ISKs that
were installed after July 1, 1998. The Company is in the process of developing
the necessary software upgrades and believes it can do so in time to meet the
UPS requirements for ISKs placed in service after July 1, 1998 or can provide
adequate alternatives to UPS pickup service for its ISKs.
12
<PAGE>
YEAR 2000 ISSUES
The Company has developed an internal group and utilizes outside
vendors to review its computer programs and systems to determine that the
programs and systems will function properly and will be Year 2000 compliant. As
part of this process, the Company has identified those operating systems,
application software and hardware that are crucial to continuing its ongoing
operations and servicing its interactive kiosk and courier technology. The
Company is actively in the process of contacting vendors and manufacturers to
determine whether their products and services are Year 2000 compliant. Based on
these efforts, the Company believes that its proprietary software, which is the
software used to run its ISK, as well as its management software, is Year 2000
compliant. In addition, the Company believes that, with minor modifications to
existing third party software, the Year 2000 problem will not pose significant
operational problems for the Company's internal computer systems. In addition,
the Company will over the next six months continue testing of its hardware and
software systems to ensure and verify compliance. The estimated costs of these
efforts are not expected to be material to the Company's financial position or
any year's results of operations.
MARKETING
The Company currently markets ISKs and its non-shipping interactive
kiosks through Company personnel. As of June 30, 1998, the Company employed
three of its personnel, including its President and Chief Executive Officer, in
sales and marketing activities.
The Company currently markets ISKs and other interactive kiosks through
direct contacts with potential customers. The Company intends, as part of its
revised business strategy, to employ alternate marketing methods such as
telemarketing, direct mail and print advertising, and to supplement these
marketing efforts with displays and appearances at industry trade shows. In
addition, the Company intends that it will market its courier services through
both in-house Company personnel as well as by utilization of existing marketing
and sales personnel employed by courier and other transportation services
companies that the Company may acquire in the future.
RESEARCH AND DEVELOPMENT
The focus of U-Ship's ongoing research and development is aimed at
increasing the deployment of both its ISKs and other interactive kiosks in sites
that are attractive to the identified market targets. Currently, the Company's
ISKs are being upgraded to make its software and hardware more robust and user
friendly. These efforts include the development of a stand-alone, fully
unattended version of the ISK system for financial centers and others that
utilize packaging shipping and courier services, as well as a desktop version
for convenience stores and small business applications.
The Company's current ISK design is adaptable for use in interactive
non-shipping applications. The Company intends to engage in the custom
development of ISKs and interactive kiosks for those customers who have needs
particular to their markets. For instance, the Company is currently under
discussions with a major carrier for the development of an ISK that would
automate that carrier's regional hubs. It is intended that the ISKs will be
upgraded in accordance with the particular needs and specifications of this
potential customer, if and when a contract is obtained. In addition, the Company
is currently working with several potential customers for its interactive
kiosks, and will develop such designs, software and hardware systems as these
potential customers may require.
U-Ship also has under development a variety of communication tools that
will help the shipper access information about their shipping options, costs and
current status of their shipped packages more quickly using the communications
capabilities of the Internet. In addition, the Company is exploring revising the
machines' programming to better permit queries that would capture the name,
address, and telephone number of the original shipper for purposes of direct
marketing promotional efforts to increase existing users' package shipping
volume through the ISK, as well as make the screens slightly easier to use.
These products have not yet been scheduled for release and remain subject to
further development and market research.
13
<PAGE>
MANUFACTURING
The Company purchases substantially all of the components for its ISK
and other interactive kiosks from third parties for assembly and testing by the
Company at its facility. Some of these components are designed by the Company
and custom manufactured to the Company's specifications, which permits the
Company to produce these systems without the substantial commitment of resources
that an integrated manufacturing facility would require. The Company believes it
maintains good relationships with its suppliers and has no long-term
manufacturing commitments with any such component manufacturer or supplier. The
Company does not believe that it is materially dependent on any of its component
suppliers because alternative sources for product components are available. The
Company believes that its current facility has adequate manufacturing capacity
to produce ISKs and other interactive kiosks sufficient to meet its current
goals.
SHIPPING MARKETPLACE AND COMPETITIVE POSITION
The express package and document collection and shipping industries,
which are dominated by major carriers, such as UPS, Federal Express, Airborne,
DHL and the U.S. Postal Service, are extremely competitive. The Company's
competitors and potential competitors have more experience, as well as human and
financial resources than the Company. For example, UPS, the world's largest
package distribution company, had revenues of over $22 billion on a volume of
over three billion packages and documents in 1997. In addition, many potential
customers, including Federal Express, UPS, and the United States Postal Service
are larger, possess more established methods of operation and have developed
loyalty to select manufacturing vendors who provide them with new technology and
automation. The Company is at a disadvantage in competing with these larger and
more established companies in trying to establish itself as a manufacturer of
automation equipment to be used in the shipping industry. The Company believes
that between 1992 and 1994 both Federal Express and UPS developed, or had third
parties develop for them, one or more forms of automated shipping systems which
could be competitive with the Company's ISKs, but that these systems have not
been deployed other than on a limited test market basis. The Company's primary
method of competition with such carriers has been to patent its technology,
which the Company believes creates barriers to entry by such carriers into the
automated shipping market.
In addition to the competition from the commercial counter and pick-up
services provided by the major carriers, the Company also competes to a limited
extent with the drop boxes maintained by these competitors. According to an
industry source, as of 1994, UPS and Federal Express maintained at least 32,000
and 30,000 drop boxes, respectively, in the United States. In addition, most of
the Company's competitors offer reduced prices to persons who use their boxes.
The Company believes that the cost of these non-automated drop boxes is
substantially less than that of its ISK. The Company believes that it can
compete with the non-automated drop boxes by offering more convenience and
service to shippers who desire a means of weighing a package, acceptance of a
credit card and the printing of shipping documentation, including coded shipping
labels. The Company's ISKs are user-friendly and interactive, providing the
shipper with options for the method of shipment (e.g., overnight air or 3-day
shipment) and for the purchase of insurance. The Company's ISKs permit the
shipment of most sizes of packages and letters shipped by consumers and small
businesses.
The related service industry (e.g., "mailbox" stores) providing package
collection services to consumers and small businesses is similarly very
competitive. The Company believes that these companies, many of which are
franchised, price their charges for shipping transactions based upon marking-up
line carrier charge and taking into account such factors as the type of service
provided, the size and weight of the package and the distance of the shipment.
The Company believes that there are at least nine national companies that have
established over 3,000 locations throughout the United States, primarily through
franchises. While the Company believes that such companies are a potential
customer base for the Company, they also represent intense competition for
Company owned and operated ISKs. The Company's primary method of competition
with packaging stores is to offer package shipping automation, self-service and
24-hour access to its ISKs in most retail locations, with minimal services
required by on-site personnel.
14
<PAGE>
Additionally, the Company believes it has two major competitors in the
consumer retail market, Express Shipping Center, Inc. and Package Express, Inc.,
both of which provide services to retail and mass merchandisers related to
receiving and aggregating packages for commercial carrier pickup. These
competitors utilize store labor for manual processing and accepting of packages
at over 5,000 locations nationwide. The Company believes that its technology
provides substantial labor savings for retailers and mass merchandisers over the
methods provided by these competitors. The Company competes with these
competitors by offering a complete and automated solution that reduces time and
expenses related to: bank credit card processing; training employees related to
carrier services, rates and new service changes; package processing time for
label completion, shipping charge calculation, service explanations and customer
interaction; daily shipping documentation preparation; accounting and record
keeping, reconciliation and paying weekly carrier bills and generating
management reports.
The Company also expects to have significant competition in the new
industries it is pursuing as part of its revised business strategy involving the
manufacture of intelligent kiosks. Large kiosk vendors such as IBM and NCR hold
an advantage over smaller firms because of their vast resources and ability to
deliver products and ongoing service on a large scale. The substantial growth of
the industry is likely to attract wider competition, especially from computer
firms and companies involved in the growing Internet business. Most of these
competitors are likely to have resources and experience that far exceed that of
the Company. If the Company is successful in acquiring one or more courier
businesses, it expects to experience substantial competition from the national
and international couriers as well as established local couriers and messenger
services. This industry is believed to be in excess of $23 billion annually and
is highly fragmented, meaning that the Company will compete with a multitude of
local, privately owned companies. Other larger competitors exist, all of whose
resources and experience far exceed that of the Company. For instance,
Dynamex/Roadrunner, is believed to have over 30 branches, most of which are in
Canada. Corporate Express is believed to have approximately 700 locations in the
United States and internationally, though their focus is primarily in the office
supply and printing businesses. Pony Express is believed to be doing business in
36 states, primarily in the Northeast, Southeast and the Midwest.
PATENTS AND INTELLECTUAL PROPERTY
The Company owns eight U.S. patents and has an allowed U.S. patent
application which together cover technology and methodology currently employed
in its ISK products. The Company has also filed for patent protection in several
foreign countries, including Canada, Japan, and the European Patent Community.
However, there can be no assurance that the Company's patents will afford it
significant protection, and the Company may be vulnerable to competitors, many
of whom are larger and have greater financial and technological resources, who
may attempt to copy or design around the Company's products.
The Company's success will depend upon its ability to protect and
enforce its proprietary technology, for which it relies on a combination of
patents, copyright, trademark and trade secret laws. Although the Company has
received patents for its ISK, 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 carries, all of which will have greater financial, technical and
marketing resources, may be attempting to develop or purchase products or
technologies competitive with the Company's ISKs. The Company could incur
substantial legal costs in any legal action that may be necessary to enforce its
patents or other intellectual property rights, and there can be no assurance
that it would be successful in any such action.
15
<PAGE>
There can be no assurance that any patents now issued or that may be
issued in the future will afford protection against competitors with similar
technology. In addition, no assurance can be given that patents issued to the
Company will not be infringed, designed-around by others or invalidated. Some
foreign countries provide significantly less patent protection than the United
States. There also can be no assurance that the Company's technology will not
infringe patents or proprietary rights of others. Furthermore, there can be no
assurance that challenges will not be instituted against the validity or
enforceability of any patent owned by the Company or, if instituted, that such
challenges will not be successful. The cost of litigation to uphold the validity
and prevent infringement of a patent can be substantial as can be the costs of
defending against such claims.
The Company also owns other proprietary technology and intellectual
property, including trade dress, trade secrets and software that the Company
intends to protect vigorously with applicable state and federal intellectual
property laws. Although limited protection for software under the patent laws of
the United States is currently available, there can be no assurance that
software will continue to be the subject of such protection in the United
States. Also, foreign countries offer varying levels of patent protection for
software when compared with the United States.
TRADEMARKS
The Company presently owns United States trademark registrations for
the trademark U-SHIP & Design and for the trademark U-SHIP. Each of these
registrations are for the following goods: automated shipping machine for
packages and overnight letters which computes charges and prints labels,
receipts and other similar documents.
There can be no assurance that the registered trademarks of the Company
will afford protection against competitors with similar marks that may have a
prior use date. In addition, no assurance can be given that trademarks owned by
the Company will not be infringed upon by others. There also can be no assurance
that the Company's trademarks will not infringe upon trademarks or proprietary
rights of others. Furthermore, there can be no assurance that challenges will
not be instituted against the validity or enforceability of any trademark
registration owned by the Company or, if instituted, that such challenges will
not be successful. The cost of litigation to uphold the validity and prevent
infringement of a trademark can be substantial as can be the costs of defending
against such claims.
EMPLOYEES
As of September 1, 1998, the Company employed 10 people on a full-time
basis and four on a part-time basis. The Company believes that its relations
with its employees are good. The Company also utilizes the services of
consultants in marketing and acquisitions, and other services.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 9,940 square feet of space used for
offices, assembly, storage and packaging at 5583 West 78th Street, Edina,
Minnesota 55439 at a monthly rent of $7,600. The lease expires on March 31,
1999. The Company believes that these leased premises will meet is requirements
for facilities for the remainder of the lease term. However, the Company is
actively searching for a new facility or facilities that will not only meet its
production needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to nor is any of its property subject to any
material pending legal proceedings, nor does the Company know of any material
legal proceedings being contemplated by governmental authorities.
16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of the Company's shareholders
during the quarter ended June 30, 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names, ages and positions held with the
Company of all executive officers of the Company. There are no family
relationships between any director or executive officer and any other director
or executive officer of the Company. The executive officers serve at the
discretion of the Board of Directors.
Name Age Position
---- --- --------
Peter C. Lytle 49 Chairman, President, Chief Executive
Officer and Director
Timothy G. Becker 38 Treasurer, Chief Financial Officer
and Director
Kenneth D. Zigrino 42 Vice President - Administration, General
Counsel and Secretary
Bruce H. Senske 43 Vice President - Technology and Director
PETER C. LYTLE. Mr. Lytle became employed by the Company in May 1998
and has served as the Company's Chairman, President, Chief Executive Officer and
a director since June 1998. From March 1998 to May 1998, Mr. Lytle rendered
consulting services to the Company in connection with its strategic
restructuring. Mr. Lytle is a principal with the Business Development Group (the
"BDG") which he co-founded in 1994. The BDG provides turn-around management
services, investment banking and strategic planning to companies in the United
States and Europe. His responsibilities at the BDG included acting as CEO and
Chairman of Primo Piatto, Inc. during a successful acquisition of the Borden
Pasta Manufacturing business (which was recently sold to Dakota Growers) and
acting as Chairman of Pink Business Interiors during a successful employee
buyout and reorganization. From 1986 to 1994, Mr. Lytle was employed by Land O'
Lakes, Inc. in a variety of positions from Vice President of Advanced Food
Sciences to General Manager of Business Development. Prior to this time he has
held positions with the Beatrice Companies as a Group Brand Manager, and Allied
International as Vice President of Marketing and Business Development. He
currently is on the Board of Directors of Humanetics, Inc., BioSun Systems,
Inc., Agrotec, Inc. and Pink Business Interiors, Inc. He is on the Board of
Advisors for the Center for Advanced Biotechnology in Africa, and Menu Direct,
Inc.
TIMOTHY G. BECKER. Mr. Becker is a director of the Company and has
served as its Chief Financial Officer and Treasurer since June 1998. From March
1998 to June 1998, Mr. Becker rendered consulting services to the Company in
connection with its strategic restructuring. Since 1994, Mr. Becker has worked
as an independent financial workout consultant for his own firm, the Becker
Group, Ltd., and during this time Mr. Becker served as Chief Financial Officer
of Primo Piatto, Inc. Between February, 1992 and February, 1994, Mr. Becker was
employed as Director of Business Systems for Munsingwear, Inc. Prior to 1992,
Mr. Becker, was employed as Senior Manager with Ernst & Young LLP's
Restructuring and Reorganization Consulting Practice. Mr. Becker has over 15
years of experience with a variety of companies during periods of financial
crisis and rapid change along with positioning companies and their balance
sheets for sale, merger or acquisitions. Mr. Becker is a Certified Public
Accountant and is on the Board of Directors of the Minnesota Chapter of
Turnaround Management Association.
17
<PAGE>
KENNETH D. ZIGRINO. Mr. Zigrino joined the Company in May, 1998 and has
served as its Vice President of Administration, Secretary and General Counsel
since June 1998. From March 1998 to June 1998, Mr. Zigrino rendered consulting
services to the Company in connection with its strategic restructuring. Mr.
Zigrino practiced law in his own firm between November 1996 and May 1998, and
between January 1990 and January 1995. He served as President of the law firm of
Zigrino & LoGalbo, P.A. from January 1995 to November 1996.
BRUCE H. SENSKE. Mr. Senske is a director of the Company and serves as
its Vice President of Technology. He has been employed by Manchester Financial
Group, Inc. since June 1998 and currently consults with the Company through
Manchester. Mr. Senske has served as the Company's President and Chief Executive
Officer from January 1993 until June 3, 1998, with the exception of the period
of June 5, 1997 to July 24, 1997, when he was removed as Chief Executive Officer
by action of the Company's Board of Directors. On July 24, 1997, Mr. Senske was
re-appointed as the Company's Chief Executive Officer. Mr. Senske has been a
member of the Company's Board since January 1993, and served as its Chief
financial Officer and Treasurer between January 1993 and November 1996. From
1988 to 1992, Mr. Senske was Vice President of Strategic Marketing and Product
Planning at Vocam Systems, Inc. which became a division of the Pitney Bowes
Company in 1990, a manufacturer of transportation management software systems.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock began trading under the symbol "USHP" on the
NASDAQ SmallCap Market in June 1996. Prior to such time, the common stock of the
Company was traded on a limited basis on the over-the-counter market under the
symbol "UBOT." The following table sets forth the quarterly high and low closing
prices for the Company's common stock, as reported by the National Association
of Securities Dealers' Bulletin Board, for each full quarterly period within the
two most recent fiscal years. These prices represent inter-dealer prices without
adjustment for mark-up, mark-down or commission and do not necessarily reflect
actual transactions.
HIGH LOW
---- ---
Period
------
Fiscal 1997
First Quarter....................... 3-5/8 3-1/4
Second Quarter...................... 3-3/8 3-1/16
Third Quarter....................... 2-1/2 2
Fourth Quarter...................... 1-15/16 1
Fiscal 1998
First Quarter....................... 2-3/8 13/16
Second Quarter...................... 1-5/16 3/16
Third Quarter....................... 1/2 5/32
Fourth Quarter...................... 1-3/8 3/8
On September 14, 1998, the number of holders of record of common stock
was 432. The transfer agent for the Company's common stock is American Stock
Transfer & Trust, 40 Wall Street, New York, New York.
The Company has not paid any dividends on its common stock and expects
that for the foreseeable future it will follow a policy of retaining earnings in
order to finance the continued development of its business. While the Company's
Series A Cumulative Convertible Preferred Shares bear a 5% annual dividend, the
Company does not anticipate that funds will be available in the foreseeable
future to pay such dividends. These dividends will accumulate. Payment of
dividends is within the discretion of the Company's Board of Directors and will
depend upon the earnings, capital requirements and operating and financial
condition of the Company, among other factors.
18
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
In April 1998 certain accredited investors agreed to purchase in a
private placement transaction an aggregate of 785,837 units (the "Units"), each
Unit consisting of two shares of its $0.004 par value per share Series A
Cumulative Convertible Preferred Stock (the "Preferred Shares") and one warrant
to purchase one share of Common Stock at a price of $1.75 per share (the
"Warrants"), at a price of $1.20 per Unit, for a total consideration received by
the Company of $943,003. Each of the Preferred Shares is convertible into the
Company's $0.004 par value Common Stock and is entitled to 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 at any time before May 1, 2001. Closing procedures for such private
placement were completed in May 1998. These Units were sold by the Company
without the services of an Agent.
In separate closings on June 2, 1998, and June 8, 1998, the Company
completed a private placement in which it sold to accredited investors 1,441,912
Units. The Units were offered by R.J. Steichen & Co. (the "Agent"), a
non-exclusive agent of the Company on a "best-efforts, all or none" basis, at a
purchase price of $1.20 per Unit. The total consideration received by the
Company for the sale of these Units was $1,477,856, net of interest ($7,080) and
the Agent's commissions and nonaccountable expense reimbursement and other
expenses of the private placement. The Company paid the Agent commissions and
expenses and paid other expenses of the offering totaling $252,489, and sold a
warrant to the Agent for the sum of $50.00 for the purchase of 288,381 shares of
common stock at an exercise price of $0.60 per share.
On June 3, 1998, the Company issued a common stock purchase warrant to
Manchester Financial Group, Inc. ("Manchester"). The warrant was for the
purchase of 100,000 shares of the Company's $0.004 par value per share Common
Stock at an exercise price of $0.60 per share and is exercisable at any time
prior to April 30, 2001. The warrant was issued to Manchester in lieu of fees
owed to Manchester for consulting services rendered to the Company.
The foregoing securities were offered in private transactions, not
involving a general solicitation, to accredited investors, exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended,
and Rule 506 of Regulation D thereunder.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Annual Report on Form 10-KSB
contain forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements and such differences may be material. Factors
that might cause such a difference include, but are not limited to, "Factors
That May Affect Future Operating Results" discussed below.
GENERAL
U-Ship employs leading technology in packaging collection, the ISK,
which the Company believes could parallel the utility of the ATM, and make
consumer shipment of packages as easy as ATM's have made the dispensing of cash
to consumers. Currently, approximately 40% of all banking transactions are
conducted via ATM's. As of August 1998, U-Ship currently has approximately 303
ISK machines deployed in a variety of locations across the country in 40 states
and in Canada. U-Ship believes that its ISK technology is the only fully
automated packaging interface available today, and among the most advanced
self-service, automated package shipping systems available for consumers and
small businesses.
Currently, package delivery carriers are not geared to efficiently
serve either the occasional small business shipper or the consumer market.
Current shipping services have restricted hours of operation, are time-consuming
to use, are expensive (pick-up fees), and can be inconvenient from a location
standpoint. As a result today's shipping business does not easily fit small
businesses' increased need for responsiveness, flexibility and timesavings. For
the small business and consumer, U-Ship's ISK automation now can bring
time-savings, convenience, speed, flexibility, and improved locations, as well
as reduced costs to the shipping industry, benefiting both major shipping
carriers and the consumer.
U-Ship receives packages from customers for shipment by common carriers
using the Company's proprietary, self-service shipping technology. The Company
19
<PAGE>
designs, develops, and manufactures its patented automated shipping equipment
and has historically placed them in locations that are convenient to small
business shippers and consumers. The Company arranges for guaranteed shipment,
insures packages during shipment, and tracks packages to their destination,
providing customers with the ability to know precisely where their package is in
the shipment process. Many of U-Ship's ISKs are open to the public 24 hours a
day.
RESULTS OF OPERATIONS
Revenue for the fiscal year ended June 30, 1998, increased $35,153 or
4% to $952,858 from $917,705 for the fiscal year ended June 30, 1997. The
increase in revenue is the result of the ISKs that were placed in service in
multiple locations of national retailers between July and December 1997, which
increased package volume levels. The Company's expectations of package volume at
new ISK locations, however, have not been met to date.
As a result, the Company expects to redeploy the majority of these ISKs
within a more concentrated geographical market. The Company reached an agreement
to remove ISKs deployed with one multiple location retailer in September 1998,
and is currently negotiating with another retailer to remove ISKs, in order to
implement a new ISK placement strategy.
Direct shipping and equipment sales expenses decreased by $17,283 or 2%
to $775,438 from $792,721 in fiscal year 1997. The decrease is primarily due to
the de-emphasis on the placement of new Company-owned ISKs.
General and administrative expenses for the fiscal year ended June 30,
1998, decreased $106,582 or 6% to $1,822,171 from $1,928,753 in fiscal year
1997. Personnel expenses decreased by $188,650 while ISK depreciation expense
increased. In April 1997, the Company implemented cost-cutting measures through
the reduction of staff and the deferral of certain expenditures. Additional
staff reductions and operating expense reductions were implemented during
December of 1997 and the results of these reductions were realized in the third
and fourth quarters of fiscal 1998.
Marketing and sales expenses for the fiscal year ended June 30, 1998
decreased $483,850 or 84% to $92,292 from $576,142 for the fiscal year ended
June 30, 1997. The decrease is due to reductions in staff and the termination of
related marketing efforts during the first quarter of fiscal 1998.
Research and development expenses for the fiscal year ended June 30,
1998, decreased $70,151 or 29% to $167,741 from $237,892 for fiscal year 1997.
The Company's research and development activities were focused primarily on the
total unattended stand-alone ISK model 3100 and no new significant development
activities were undertaken during the fiscal year. Research and development
expenses relate primarily to the development of new software tools for the ISKs
and costs associated with the development of new experimental models of the ISK.
Interest income decreased to $25,863 for the fiscal year ended June
30, 1998 compared to $108,577 for the fiscal year ended June 30, 1997 as a
result of the Company's short term investments being used to fund operating
deficits. Interest expense was increased by $3,517 resulting from additional
financing assumed by the Company.
Net loss for the fiscal year ended June 30, 1998 decreased by $626,788
to $1,901,130 from $2,527,918 for the comparable period in the prior year. The
Company expects to incur additional losses until its revised business strategy
results in sufficient revenues to offset its investment and operating expenses.
There can be no assurance that the revised business strategy will result in
profitable operations.
LIQUIDITY AND CAPITAL RESOURCES
In order to finance the implementation of the revised business strategy
outlined above, the Company closed on two private placements to raise over $2.6
million equity capital from private investors during the fiscal year ended June
30, 1998. By separate closings on June 2, 1998, and June 8, 1998, the Company
completed a private placement in which it sold to accredited investors 2,883,824
shares of its newly-created Series A Cumulative Preferred Shares,
20
<PAGE>
together with Warrants to purchase 1,441,912 shares of Common Stock. The
Preferred Shares and Warrants were sold in Units, at a purchase price of $1.20
per Unit. Each Unit consisted of two (2) Preferred Shares and one (1) Warrant to
purchase one share of Common Stock at a price of $1.75 per share. Each of the
Preferred Shares is convertible into the Company's $0.004 par value common stock
(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 received both demand and "piggy-back" registration rights with respect
to registration of the sale of the Common Stock into which the Units may be
converted. The Units were offered by R.J. Steichen & Co. (the "Agent"), a
non-exclusive agent of the Company on a "best efforts, all or none" basis. The
total consideration received by the Company for the sale of these Units was
$1,477,856, net of interest ($7,080) and the Agent's commissions and
non-accountable expenses and other expenses of the offering. The Agent purchased
for $50.00 a Warrant to purchase up to 288,381 shares of the Company's common
stock at an exercise price of $.60 per share.
In April 1998, certain accredited investors (the "Additional
Investors") purchased, in a private placement transaction an aggregate of
785,837 Units at a price of $1.20 per Unit, for a total consideration received
by the Company of $943,003. These Units were sold by the Company without the
services of the Agent. Closing procedures for such private placement were
completed in May 1998. The terms and conditions of these Units were identical to
those sold to investors by the Agent in the above-referenced June 1998 private
placements. 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
Investors' 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 placements. The total net consideration from the sale of
the Units in the two offerings described above was $2,420,859. In April 1997, to
meet working capital requirements, the Company completed a private placement of
its Common Stock raising approximately $1.6 million.
The Company completed a public offering in May 1996, which raised
approximately $5.1 million. During the first quarter of fiscal 1997, the Company
received an additional $0.3 million as a result of the exercise by the
underwriter of its over-allotment option. The Company used approximately $1.9
million of the public offering proceeds to repay bridge notes and bank debt,
leaving net proceeds of approximately $3.5 million to finance growth and working
capital. The Company is currently operating at a loss and depends on cash
generated through its equity offerings to fund its operating deficit. There can
be no assurance that the Company will be able to generate sufficient revenues to
meet its operating cash and growth needs or that any equity or debt funding will
be available or at terms acceptable to the Company in the future to continue
operating in its current form.
The Company's loss for the fiscal year ended June 30, 1998 was
$1,901,130. The Company expects to incur losses for the foreseeable future due
to the ongoing activities of the Company to expand its ISK network and the costs
incurred in supporting this network, and in pursuing other aspects of its
revised business strategy. The Company believes that these programs, while
initially requiring additional cash outlays, will result in greater package
shipping revenues per shipping center, although no assurance can be given that
volumes will increase appreciably as a result of these initiatives in the near
future, if at all. The Company expects that its current ISK network and other
operations will continue to result in negative cash flow and working capital
deficiencies that will require the Company to continue to obtain additional
capital.
Inventory decreased by approximately $252,276 as of June 30, 1998,
compared to June 30, 1997. The Company has reduced its purchase of materials
during the year and is drawing down its current inventory stock to fulfill its
service agreements. Accounts receivable decreased by approximately $55,154 from
June 30, 1997 to June 30, 1998 due to concentrated collection efforts. Accounts
payable decreased by approximately $82,898 over the same period due to the
decreased level of inventory purchases. Accrued liabilities and deferred revenue
decreased due to reductions in the liability associated with the possible
exercise of return rights on the ISKs, as well as due to severance payments to
officers and the payments of sales and use taxes.
Based on current commitments and on going working capital needs, the
Company believes that it will require substantial additional debt or equity
funding to continue to implement its revised business strategy, including
21
<PAGE>
acquisitions. The Company's cash needs and usage may vary based on the outcome
of these initiatives. There can be no assurance that the necessary financing
will be available to the Company or, if available, that the same will be on
terms satisfactory or favorable to it. It is likely that additional equity
financing will be highly dilutive to existing shareholders.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
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, 1998, the Company's net sales were $952,858 and the Company
incurred a net loss of $1,901,130. At June 30, 1998, the Company had an
accumulated deficit of $9,772,343 and working capital of $2,147,686. The Company
will continue to incur losses at least until ISKs in service generate sufficient
revenues to offset operating costs or until aspects of the revised business
strategy bear fruit. The Company expects the proceeds from its private
placements in fiscal 1998 will allow it to continue operations throughout fiscal
1999. If the Company's business does not turn around, or if it cannot raise
future funds through equity or debt financing, the Company may be unable to
continue as a going concern. As of June 30, 1998, 303 ISKs were in operation in
40 states and Canada. In fiscal years 1996 and 1997, the Company had in service
156 and 300 ISKs, respectively. For the years ended June 30, 1997 and 1998, the
Company processed 55,470 and 55,412 individual shipping transactions,
respectively.
During the fiscal year ended June 30, 1998, the Company's general and
administrative expenses were $1,822,171, or approximately 200% of revenue. 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, 1997 and 1998 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 to continue its business and provide financing for acquisitions. 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.
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 its Series A Cumulative Convertible Preferred Stock. While
the Series A Cumulative Convertible Preferred Stock bears a 5% 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 AND SERVICES
The Company has placed ISKs in locations in 40 states from Alaska to
New York and Canada. A prerequisite to the Company's success will be the
development of demand for self-service, automated shipping services
22
<PAGE>
and wide placement of ISKs 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 ISKs are significantly
lower than expected. While the Company is undertaking efforts to address these
problems and to create a demand for the ISKs, the marketing and other costs of
doing so is 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, DHL Worldwide Services and Airborne Express. 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 ISKs 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 products.
The Company's revised business strategy includes the expansion of its
business of manufacturing non-shipping interactive kiosks, and to enter the
intraday courier business. There can be no assurance, however, that there will
be a demand for such products or services, or that the Company will have the
resources to meet any such demand.
DEPENDENCE UPON CARRIERS
The Company is substantially dependent upon UPS to pick up and
transport packages processed via the Company's ISKs. 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. While
the Company's revised business strategy envisions the development of a
Company-operated network to consolidate the collection and delivery of packages
to carriers such as UPS, no assurance can be given that strategy can be
profitably implemented.
SUBSTANTIAL INVESTMENT IN EQUIPMENT
As a part of its business strategy, the Company seeks to place ISKs in
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 ISKs 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 ISKs sold or leased to retailers. While the
Company's focus has shifted away from the placement of ISKs in reliance on lease
financing, it may seek third-party financing of other kinds for sales to
customers in the future. In addition, the Company is seeking to require third
parties to finance the placement of ISKs. 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 RELATIONSHIP WITH CARRIERS
The Company's revised business strategy includes the formation of
strategic relationships with major carriers, to whom the Company continues to
market its automated shipping technology. 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. There can be no assurance that the Company
will be able to successfully conclude any such strategic relationships or that
if concluded, the same would be financially successful.
23
<PAGE>
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 ISK, 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 ISKs. See "Description of Business -
Competition." The Company 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.
TECHNOLOGICAL RISKS
The Company anticipates that any market which develops for automated
shipping services or other interactive kiosk products 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 and users of interactive kiosk products. 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 ISKs 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
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 ISKs, 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 in form and function to the Company's
ISK. The Company is aware, however, that the U.S. Postal Service is in the
process of developing the PTM. Because the Company's ISK 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 ISKs. 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 ISKs. 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
24
<PAGE>
parks and shopping malls, which could be potential sites for the Company's ISKs.
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. The kiosk market and the courier market are also very
competitive and most of the market share is currently held by companies with
greater resources than the Company. 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 ISKs and interactive kiosks.
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, and 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.
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 Securities and Exchange Commission (the
"Commission") 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
$1.00. 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, a public float of
500,000 shares, and the market value of such public float must be over $4
million. From approximately July 2, 1998, through and including September 19,
1998, the Company's common stock had a closing bid price below $1.00. On
September 17, 1998, the Company received notification from Nasdaq of it
non-compliance with the minimum bid price continued listing requirement. The
Company will be provided ninety (90) calendar days in which to regain compliance
with the minimum bid price requirement. If at any time within the next ninety
calendar days from September 17, 1998, the common stock reports a closing bid
price of $1.00 or greater for ten consecutive trading days, it will have
complied with the minimum bid price requirement. There can be no assurance that
the Company will be able to comply with such minimum bid price requirement.
Failure on the Company's part to be in compliance with the above
requirements could result in the Company losing its Nasdaq SmallCap Market
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 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.
25
<PAGE>
In the event that the common stock is delisted from the Nasdaq SmallCap
Market and the Company fails other relevant criteria, trading, 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) delivering 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. The delisting of the Company's common stock
from Nasdaq is also likely to adversely affect the prices for which the Company
would be able to sell its equity securities.
SECURITIES ELIGIBLE FOR FUTURE SALE; POSSIBLE DILUTIVE EFFECT OF OUTSTANDING
OPTIONS AND WARRANTS
There were 4,979,709 shares of common stock, $.004 par value per share,
and 4,455,498 shares of Series A Cumulative Convertible Preferred Stock, $.004
par value per share, outstanding as of June 30, 1998. An aggregate of 4,455,498
shares of Series A Cumulative Convertible Preferred Stock were sold to investors
as units, each unit included one warrant to purchase one share of common stock
and two shares of Series A Cumulative Convertible Preferred Stock, $.004 par
value per share, each of which is convertible into one share of common stock. In
addition, there were warrants and options outstanding as of such date to
purchase 4,468,576 additional shares of common stock which are exercisable at
prices ranging from $0.19 to $5.20 per share. In August, 1997, the Company
registered 958,858 shares of common stock for resale by selling shareholders.
Resales in the public market of such common stock or securities convertible
into, or exercisable for, common stock could have the effect of depressing the
price for the Company's common stock.
26
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
U-SHIP, INC. PAGE
- ------------ ----
Independent Auditor's Report................................................ 28
Report of Independent Public Accountants.................................... 29
Financial Statements
Consolidated Balance Sheets............................................ 30
Consolidated Statements of Operations.................................. 31
Consolidated Statements of Shareholders' Equity........................ 32
Consolidated Statements of Cash Flows.................................. 33
Notes to Consolidated Financial Statements............................. 34
27
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
U-Ship, Inc.
Edina, Minnesota
We have audited the accompanying consolidated balance sheet of U-SHIP, INC. AND
SUBSIDIARIES as of June 30, 1998, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of U-SHIP, INC. AND SUBSIDIAIRIES
as of June 30, 1998, and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As reflected in the accompanying
financial statements, the Company incurred a net losses of $1,901,130 and
$2,527,918 for the years ended June 30, 1998 and 1997, respectively. This
factor, among others, as discussed in Note 2, raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
those factors are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ LURIE, BESIKOF, LAPIDUS & CO., LLP
-------------------------------------------
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
August 7, 1998, except for Note 11, as to which
the date is September 15, 1998
28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To U-Ship, Inc.:
We have audited the accompanying consolidated balance sheet of U-Ship, Inc. and
Subsidiaries as of June 30, 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of U-Ship, Inc. and Subsidiaries
as of June 30, 1997, and the results of their operations and their cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As reflected in the accompanying
financial statements, the Company incurred a net loss of $2,527,918 for the
year ended June 30, 1997. This factor, among others, as discussed in Note 2,
raises substantial doubt about the ability of the Company to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
/s/ Arthur Andersen LLP
-------------------------------------------
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
August 22, 1997
29
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 153,693 $ 724,260
Short-term investments 1,700,000 250,000
Accounts receivable 83,529 138,683
Inventories 501,641 753,917
Prepaid expenses and other -- 32,723
------------ ------------
TOTAL CURRENT ASSETS 2,438,863 1,899,583
------------ ------------
PROPERTY AND EQUIPMENT
Shipping centers 1,335,234 1,290,952
Furniture, fixtures, and equipment 537,979 558,233
------------ ------------
1,873,213 1,849,185
Less accumulated depreciation 934,054 496,500
------------ ------------
939,159 1,352,685
------------ ------------
OTHER ASSETS, net 174,904 186,871
------------ ------------
$ 3,552,926 $ 3,439,139
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 52,881 $ 72,925
Accounts payable 74,143 157,041
Accrued liabilities 144,928 391,265
Deferred revenue 19,225 53,289
------------ ------------
TOTAL CURRENT LIABILITIES 291,177 674,520
------------ ------------
LONG-TERM DEBT, net of current maturities 61,004 104,386
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $.004 par value; 25,000,000 shares authorized,
4,500,000 shares designated series A cumulative convertible
preferred stock; 4,455,498 shares issued and outstanding in
1998, none in 1997 17,822 --
Common stock, $.004 par value; 75,000,000 shares authorized;
4,979,709 and 4,967,669 shares issued and outstanding
in 1998 and 1997 19,919 19,871
Additional paid-in capital 12,935,347 10,511,575
Accumulated deficit (9,772,343) (7,871,213)
------------ ------------
3,200,745 2,660,233
------------ ------------
$ 3,552,926 $ 3,439,139
============ ============
</TABLE>
See notes to consolidated financial statements.
30
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
REVENUES $ 952,858 $ 917,705
EXPENSES
Direct shipping and equipment sales 775,438 792,721
General and administrative 1,822,171 1,928,753
Marketing and sales 92,292 576,142
Research and development 167,741 237,892
------------ ------------
2,857,642 3,535,508
------------ ------------
LOSS FROM OPERATIONS (1,904,784) (2,617,803)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 25,863 108,577
Interest expense (22,209) (18,692)
------------ ------------
3,654 89,885
------------ ------------
NET LOSS $ (1,901,130) $ (2,527,918)
============ ============
NET LOSS PER COMMON SHARE, basic and diluted $ (.38) $ (.61)
============ ============
SHARES USED TO COMPUTE NET LOSS
PER COMMON SHARE, basic and diluted 4,977,469 4,172,862
============ ============
</TABLE>
See notes to consolidated financial statements.
31
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Series A
Cumulative Convertible
Preferred Stock Common Stock Additional
--------------- ------------ Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
--------- -------- --------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1996 -- $ -- 3,916,573 $ 15,666 $ 8,568,375 ($5,343,295) $ 3,240,746
Public offering over-allotment of common
stock sold to underwriter -- -- 100,000 400 300,089 -- 300,489
Issuance of common stock in
exchange for patent -- -- 4,286 17 14,983 -- 15,000
Private placement of common stock -- -- 946,810 3,788 1,628,128 -- 1,631,916
Net loss -- -- -- -- -- (2,527,918) (2,527,918)
--------- -------- --------- -------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1997 -- -- 4,967,669 19,871 10,511,575 (7,871,213) 2,660,233
Private placements of preferred stock 4,455,498 17,822 -- -- 2,403,037 -- 2,420,859
Private placement of common stock -- -- 12,040 48 20,735 -- 20,783
Net loss -- -- -- -- -- (1,901,130) (1,901,130)
--------- -------- --------- -------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1998 4,455,498 $ 17,822 4,979,709 $ 19,919 $12,935,347 ($9,772,343) $ 3,200,745
========= ======== ========= ======== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,901,130) $(2,527,918)
Adjustments to reconcile net loss to net cash flows
used for operating activities:
Depreciation and amortization 521,776 323,473
Asset obsolescence and reserves 155,805 --
Changes in operating assets and liabilities:
Accounts receivable 55,154 (79,548)
Inventories 158,615 68,476
Prepaid expenses and other 32,723 (20,515)
Checks held, not yet presented for payment -- (1,851,365)
Accounts payable (82,898) (37,186)
Accrued liabilities (246,337) 140,912
Deferred revenue (34,064) (366,413)
----------- -----------
Net cash used by operating activities (1,340,356) (4,350,084)
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (158,427) (1,363,630)
Purchases of short-term investments (1,700,000) (250,000)
Redemption of short-term investments 250,000 --
----------- -----------
Net cash used by investing activities (1,608,427) (1,613,630)
----------- -----------
FINANCING ACTIVITIES
Payments on notes payable and long-term debt (63,426) (67,216)
Proceeds from sale of preferred stock 2,673,348 --
Expenditures related to sale of preferred stock (252,489) --
Sale of common stock 20,783 1,932,405
----------- -----------
Net cash provided by financing activities 2,378,216 1,865,189
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (570,567) (4,098,525)
CASH AND CASH EQUIVALENTS
Beginning of year 724,260 4,822,785
----------- -----------
End of year $ 153,693 $ 724,260
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 22,209 $ 18,692
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock issued in exchange for patent $ -- $ 15,000
Property and equipment leased under capital lease -- 186,091
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
The Company
U-Ship, Inc. (the Parent), a holding company, has two subsidiaries,
U-Ship International, Ltd. (International) and U-Ship America, Inc.
(America), collectively referred to as the Company. International is in
the business of developing, manufacturing, and operating equipment used
as automated self-service intelligent shipping kiosks (ISK) throughout
the United States and Canada. America is an inactive subsidiary.
Principles of Consolidation
The consolidated financial statements include the accounts of the Parent,
International and America. All intercompany balances and transactions
were eliminated in consolidation.
Use of Estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that may affect certain reported amounts and
disclosures in the financial statements and accompanying notes. Actual
results could differ from these estimates.
Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents,
which consist primarily of money market accounts.
Short-term investments consist of marketable securities classified as
available-for-sale and are recorded at market value, which is equal to
cost. These investments may be redeemed upon demand at their par value,
and therefore have minimal risk associated with them.
Inventories
Inventories are stated at the lower of cost, using the first-in,
first-out method (FIFO), or market.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is included in general and administrative expenses and is
provided using the straight-line method over the estimated useful lives
of the related assets as follows:
Shipping kiosks 3-4 years
Furniture, fixtures, and equipment 3-5 years
(continued)
34
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
(CONTINUED)
Other Assets
Other assets primarily represent costs related to the intelligent
shipping kiosk patents. These costs are amortized using the straight-line
method over 5 and 15 years.
Financial Instruments
The carrying amounts of financial instruments consisting of cash and cash
equivalents, short-term investments, accounts receivable, accounts
payable, and long-term debt approximate their fair values.
Revenue Recognition
Approximately 75% of the Company's revenue is from the per package
shipping activity. Additional revenues are from the sales of ISK and
custom built intelligent kiosks, and 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 agreements.
The Company recognizes revenue from sales of ISK upon delivery and
installation. Certain sales agreements prior to 1998 allowed the customer
to return the ISK under certain circumstances within the first 12 months.
Such revenue and related costs were deferred until return rights lapsed.
Most of the ISK sales prior to 1998 were financed by third-party
equipment lessors. The lessor had certain recourse to the Company in the
event of customer default or return of the automated shipping center,
primarily to remarket the ISK on a best-efforts basis. The Company's
obligations under such recourse arrangements were fulfilled or expired.
Concentrations of Credit Risk
Concentrations of credit risk with respect to accounts receivable for
package revenues are limited due to the large number of customers
comprising the Company's customer base and their geographical dispersion.
The Company generally does not require collateral or other security for
customer receivables. The Company sells ISK to third-party leasing
companies and, at times, could maintain individually significant
receivable balances with primary leasing companies. Company credit card
receivables are monitored and controlled through credit checks,
verification of bank references, and regular monitoring. An allowance for
doubtful accounts is evaluated periodically based on management's
evaluation of collectibility, historical experiences, and other economic
factors.
At June 30, 1998, approximately 37% (Note 11) and 24% of the ISKs
generating package shipping revenue are located with two entities with
nationwide retail locations. The 24% are located under an agreement
whereby each location's obligation expires three years after
installation. These expire beginning August 1999 through July 2000.
The Company is dependent on United Parcel Service for all package
shipping.
(continued)
35
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
(CONTINUED)
Research and Development Costs
Research and development costs are charged to expense as incurred.
Accounting for Stock-Based Compensation
The Company accounts for employee stock options under Accounting
Principles Board Opinion (APB) No. 25 and provides the pro forma
disclosures required by Statement of Financial Accounting Standards
(SFAS) No. 123.
Net Loss Per Common Share
The Company adopted SFAS No. 128, "Earnings per Share", during the
quarter ended December 31, 1997. SFAS No. 128 requires the presentation
of both basic earnings per share and, for companies with complex capital
structures (or potentially dilutive securities, such as convertible debt,
options, and warrants), diluted earnings per share on the face of the
statement of operations. All prior period amounts were restated to
conform with SFAS No. 128. Basic earnings per share is computed by
dividing income (loss) available to common shareholders (numerator) by
the weighted average number of common shares outstanding (denominator)
during the period. Diluted earnings per share gives effect to all
potential common stock outstanding during a period, if dilutive. In
computing diluted earnings per share, the average stock price is used in
determining the number of shares assumed to be repurchased from the
exercise of stock options. For fiscal 1998 and 1997, the numerator and
denominator in the basic and diluted per share computations were the
same.
All options and warrants to purchase common stock and all series A
cumulative convertible preferred stock were considered anti-dilutive due
to the net losses incurred during 1998 and 1997 and, therefore, excluded
from the calculation of diluted net loss per common share.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements for
fiscal years beginning after December 15, 1997. Comprehensive income, as
defined, includes all changes in equity (net assets) during a period from
non-owner sources, including unrealized gains and losses on
available-for-sale securities. Reclassification of financial statements
for earlier periods is required. The Company will adopt SFAS No. 130
beginning in fiscal 1999 and management does not expect the
implementation to have a material effect on its financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information." This statement establishes
standards for the way companies report information about operating
segments in annual financial statements for fiscal years beginning after
December 15, 1997. It also establishes standards for related disclosure
about products and services, geographic areas and major customers. The
Company will adopt SFAS No. 131 in fiscal 1999. SFAS No. 131 only
addresses disclosure and reporting issues, therefore its adoption will
not have a material effect on the Company's financial position or results
of operations.
36
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. GOING CONCERN -
Since inception (September 30, 1991) through June 30, 1994, the Company
was a development stage enterprise, having devoted substantially all of
its efforts to proprietary product development and providing prototype
products to certain customers. Such efforts also included raising capital
and acquiring and constructing property and equipment. Although the
Company began actively selling its products during 1995 and no longer
considers itself to be in the development stage, it has not operated
profitably to date and there are no assurances that it will operate
profitably in the future.
The Company incurred net losses of $1,901,130 and $2,527,918 for the
years ended June 30, 1998 and 1997, respectively, and unaudited
information indicates that losses are continuing subsequent to June 30,
1998. The Company's ability to continue present operations, further
develop potential proprietary products, and operate as a going concern is
contingent upon approval, acceptance, and sales of the Company's products
and the ability to obtain financing that might not be available. The
aforementioned factors raise substantial doubt about the Company's
ability to continue as a going concern.
In connection with raising additional capital through the preferred stock
private placements (Note 6) several new board members were appointed,
along with new members of senior management. The new management adopted
new strategies for the Company and developed a plan of action as follows:
* The Company announced plans to acquire one or more local, same day
delivery, couriers. The Company is pursuing acquisitions which will
allow it to capitalize on its technology in the shipping industry
and become less reliant on national carriers.
* The Company is pursuing additional strategic alliances to expand the
development and marketing of its core technology beyond shipping
stations and continuing to market and develop custom build
intelligent kiosks.
* The Company is redeploying the existing ISK. The Company recently
negotiated to terminate a three year installation and service
agreement with a nationwide retailer (Note 11). The Company
determined that these ISK were substantially underperforming. The
Company intends to redeploy these and other underperforming ISK to
sites where greater revenues and margins can be achieved.
* The Company intends to concentrate its ISK in the redeployment
effort in the greater Twin Cities Metropolitan area. The Company
expects to be able to achieve significant savings on service and
maintenance, as well as sales and marketing costs by having the core
group of ISK within a single geographic area.
Management believes the successful completion of its plans and activities
will result in a greater array and awareness of its products and services
resulting in increasing revenues and cash flows. However, no assurance
can be given that the Company will be successful in the implementation of
its plans, that the current working capital will be able to meet the
Company's ongoing business needs, or that the Company will be able to
raise additional funds, if necessary. In the event the Company's
activities do not result in increased revenues and cash flows or working
capital is not adequate to meet its ongoing business needs, and the
Company is not able to raise additional financing to meet its operating
needs, it may no longer be able to continue as a going concern. The
financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern.
37
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVENTORIES -
Inventories consist of ISK in various stages of completion, including
component parts. Inventories consist of the following:
1998 1997
---------- ----------
Raw materials and work components $ 467,932 $ 718,217
Finished goods 33,709 35,700
---------- ----------
$ 501,641 $ 753,917
========== ==========
Raw material and work components were reduced by a reserve of
approximately $40,000 and $50,000 in 1998 and 1997, respectively.
4. LONG-TERM DEBT -
Long-term debt consists primarily of capital lease obligations. Future
maturities are as follows:
Year Ending
June 30, Amount
-------- ----------
1999 $ 52,881
2000 35,606
2001 22,457
2002 2,941
----------
$ 113,885
==========
5. INCOME TAXES -
As of June 30, 1998, the Company had net operating loss carryforwards for
income tax purposes of approximately $9,200,000, which expire beginning
in the year 2005. Because of the lack of profitability, a valuation
allowance equal to the deferred tax asset has been recorded.
Under Internal Revenue Code Section 382, utilization of approximately
$3,000,000 of these net operating loss carryforwards are limited to
approximately $640,000 each year. The carryforward is cumulative if not
utilized each year.
38
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. CAPITAL STOCK -
Series A Cumulative Convertible Preferred Stock
In April 1998, the Company designated 4,500,000 shares of its authorized
but unissued preferred stock as series A cumulative convertible preferred
stock. The series A preferred shares are convertible into common stock
and are entitled to a cumulative annual dividend of $.03 per share. The
stock is convertible beginning November 1, 1998, at an initial conversion
rate of one share of common stock for each preferred share, to be
adjusted if additional common stock is issued for less than $.60 per
share. This preferred stock contains additional voting rights, as a
class, regarding the authorization or issuance of additional stock with
priority, or parity with the stock, mergers, consolidations, or disposals
of all or substantially all assets of the Company. This preferred stock
also contains certain liquidation preferences.
The Company sold 4,455,498 shares of its series A cumulative convertible
preferred stock in private placements in May and June 1998, raising
approximately $2,421,000, net of expenses of approximately $252,000. The
shares were sold in units at a purchase price of $1.20 per unit, each
unit consisting of two preferred shares and one warrant to purchase one
share of common stock at a price of $1.75 per share. The warrants may be
exercised any time before May 1, 2001. The shares were sold to various
investors, certain directors, and officers of the Company. In connection
with the private placement in June 1998, the placement agent received
warrants to purchase up to 288,381 shares of common stock at $.60 per
share. These warrants are exercisable for three years beginning one year
from the date of issuance.
Common Stock
The Company sold 946,810 shares of common stock at $1.725 per share in
April 1997, raising approximately $1,632,000 in a private placement. The
shares were sold to certain existing institutional shareholders, certain
directors, and officers of the Company. In fiscal year 1998, an
additional 12,040 shares were sold.
During fiscal year 1997, the Company issued 4,286 shares of common stock
for a patent, with a value of $15,000.
7. STOCK OPTIONS AND WARRANTS -
Stock Options
During 1995, the Company established an employee stock option plan which
reserved 450,000 shares of the Company's common stock. In March 1998, an
additional 500,000 shares were reserved under this plan. Under the plan,
the board of directors may grant options to purchase shares of the
Company's stock to eligible employees and contractors at a price of not
less than the fair market value at the time of the grant for incentive
stock options. Outstanding options expire at various dates through March
2008.
(continued)
39
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCK OPTIONS AND WARRANTS - (CONTINUED)
Stock Options (continued)
In January 1996, the Company adopted the 1996 Director Stock Option Plan
authorizing up to 100,000 options to be issued. These options are issued
at a price of not less than the fair market value at the time of grant,
expire within five years, and are exercisable at the fair market value at
the date of grant.
Stock option activity consists of the following:
1998 1997
------------------------ ---------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
----------- ----------- --------- ----------
Outstanding, beginning of year 337,500 $ 3.48 107,000 $ 4.09
Granted 637,000 0.52 254,500 3.20
Expired (42,500) 4.00 - -
Forfeited (164,250) 2.98 (24,000) 3.30
--------- ---------
Outstanding, end of year 767,750 $ 1.10 337,500 $ 3.48
========= ======== ========= ========
Options outstanding at June 30, 1998, are as follows:
Weighted-
Average
Range of Exercise
Exercise prices Options Price
--------------- --------- -----------
$0.19 - $0.38 15,000 $ 0.31
$0.40 550,000 0.40
$1.44 - $1.50 100,000 1.47
$3.13 - $5.20 102,750 3.70
---------
$0.19 - $5.20 767,750 $ 0.98
========= ========
Substantially all options outstanding are exercisable at June 30, 1998.
(continued)
40
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCK OPTIONS AND WARRANTS - (CONTINUED)
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
in accounting for its stock option plans. Accordingly, no compensation
cost was recognized in the accompanying consolidated statements of
operations. Had compensation cost been recognized based on the fair
values of options at the grant dates consistent with the provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's
net loss per common share would increase to the following pro forma
amounts:
1998 1997
------------ ------------
Net loss:
As reported $(1,901,130) $(2,527,918)
Pro forma (1,931,103) (2,643,393)
Loss per common share, basic and diluted:
As reported (.38) (.61)
Pro forma (.39) (.63)
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to June 30, 1995, the resulting pro forma
compensation may not be representative of that to be expected in future
years. The weighted average fair value of options granted in 1998 and
1997 was $.45 and $2.71, respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used: risk-free interest rates of 5.25% for
1998 and 6.4% for 1997; no expected dividends; expected lives of 5 years;
and expected volatility of 154% and 119% for 1998 and 1997 grants,
respectively.
Warrants
Warrants totaling 2,516,130 were issued in connection with the preferred
stock sold in 1998 (Note 6). An additional 100,000 Warrants were issued
in 1998 at an exercise price of $.60 per share. Warrants to purchase
1,087,196 shares of common stock were issued prior to fiscal year 1997,
of which 2,500 expired in 1998. These warrants are outstanding and
exercisable at June 30, 1998, at prices ranging from $2.80 to $4.56, with
a weighted average exercise price of $3.43 per share. Warrants
outstanding at June 30, 1998, totaled 3,700,826, exercisable at prices
ranging from $.60 to $4.56 per share through 2003.
8. LEASE COMMITMENT -
The Company leases facilities under an operating lease which expires in
March 1999. The lease requires monthly rent of $7,600 plus the Company's
share of certain operating expenses and real estate taxes over a certain
amount. Rent expense was approximately $125,000 and $109,000 in 1998 and
1997, respectively.
41
<PAGE>
U-SHIP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLAN -
The Company has a 401(k) retirement plan for qualified employees. The
Company has not made any contributions to the plan.
10. SHIPPING CLAIMS -
The Company may have exposure to the maximum extent of the declared value
of a shipped package in the event of its damage or destruction while in
the possession of the Company or the retailer. The Company limits its
liability to the customer to the amount of the declared value pursuant to
the shipping transactions documentation; however, the Company has no
insurance which would protect it against losses from shipping claims.
Through June 30, 1998, claims against the Company have not been
significant.
11. SUBSEQUENT EVENTS -
Effective September 15, 1998, the Company and a nationwide retailer
agreed to terminate its three year installation and marketing agreement
dated October 1996. The termination agreement requires the Company to
remove, within 90 days, all ISK located in the retailer's locations,
which account for approximately 37% of the ISK currently generating
package shipping revenue.
Subsequent to June 30, 1998, two additional subsidiaries were formed:
Intelligent Kiosk Company and Advanced Courier Services, Inc.
42
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive offices of the Company are as follows:
Name Age Position(s)
---- --- -----------
Peter C. Lytle 49 Chairman, President, Chief Executive Officer
and Director
Timothy G. Becker 38 Treasurer, Chief Financial Officer and
Director
Marshall T. Masko 41 Vice Chairman and Director
Kenneth D. Zigrino 42 Vice President - Administration, General
Counsel and Secretary
Bruce H. Senske 43 Vice President - Technology and Director
James Bartholomew 41 Director
Gary W. Ramsden 40 Director
Marlin Rudebusch 51 Director
Susan M. Clemens 36 Director
PETER C. LYTLE. Mr. Lytle became employed by the Company in May 1998 and
has served as the Company's Chairman, President, Chief Executive Officer and a
director since June 1998. From March 1998 to May 1998, Mr. Lytle rendered
consulting services to the Company in connection with its strategic
restructuring. Mr. Lytle is a principal with the Business Development Group (the
"BDG") which he co-founded in 1994. The BDG provides turn-around management
services, investment banking and strategic planning to companies in the United
States and Europe. His responsibilities at the BDG included acting as CEO and
Chairman of Primo Piatto, Inc. during a successful acquisition of the Borden
Pasta Manufacturing business (which was recently sold to Dakota Growers) and
acting as Chairman of Pink Business Interiors during a successful employee
buyout and reorganization. From 1986 to 1994, Mr. Lytle was employed by Land O'
Lakes, Inc. in a variety of positions from Vice President of Advanced Food
Sciences to General Manager of Business Development. Prior to this time he has
held positions with the Beatrice Companies as a Group Brand Manager, and Allied
International as Vice President of Marketing and Business Development. He
currently is on the Board of Directors of Humanetics, Inc., BioSun Systems,
Inc., Agrotec, Inc. and Pink Business Interiors, Inc. He is on the Board of
Advisors for the Center for Advanced Biotechnology in Africa, and Menu Direct,
Inc.
TIMOTHY G. BECKER. Mr. Becker is a director of the Company and has
served as its Chief Financial Officer and Treasurer since June 1998. From March
1998 to June 1998, Mr. Becker rendered consulting services to the Company in
connection with its strategic restructuring. Since 1994, Mr. Becker has worked
as an independent financial workout consultant for his own firm, the Becker
Group, Ltd., and during this time Mr. Becker served as Chief Financial Officer
of Primo Piatto, Inc. Between February, 1992 and February, 1994, Mr. Becker was
employed as
43
<PAGE>
Director of Business Systems for Munsingwear, Inc. Prior to 1992, Mr. Becker,
was employed as Senior Manager with Ernst & Young LLP's Restructuring and
Reorganization Consulting Practice. Mr. Becker has over 15 years of experience
with a variety of companies during periods of financial crisis and rapid change
along with positioning companies and their balance sheets for sale, merger or
acquisitions. Mr. Becker is a Certified Public Accountant and is on the Board of
Directors of the Minnesota Chapter of Turnaround Management Association.
MARSHALL T. MASKO. Mr. Masko was elected as Vice Chairman and a director
of the Company in June, 1998. In addition, Mr. Masko has been retained as an
independent consultant to assist the Company in its marketing efforts. From
April 1996 to February 1998, Mr. Masko served as the Senior Vice President -
Marketing of NordicTrack. From August 1994 to March 1996, he served as Senior
Vice President and General Manager of K-tel, International. Prior to that, Mr.
Masko was Group Vice President - Marketing for NordicTrack from January 1990 to
July 1994. His career experience includes new product development, brand
management, advertising management, direct response marketing, international
marketing, sales and retail marketing, strategic planning and business
development.
KENNETH D. ZIGRINO. Mr. Zigrino joined the Company in May, 1998 and has
served as its Vice President of Administration, Secretary and General Counsel
since June 1998. From March 1998 to May 1998, Mr. Zigrino rendered consulting
services to the Company in connection with its strategic restructuring. Mr.
Zigrino practiced law in his own firm between November 1996 and May 1998, and
between January 1990 and January 1995. He served as President of the law firm of
Zigrino & LoGalbo, P.A. from January 1995 to November 1996.
BRUCE H. SENSKE. Mr. Senske is a director of the Company and serves as
its Vice President of Technology. He has been employed by Manchester Financial
Group, Inc. since June 1998 and currently consults with the Company through
Manchester. Mr. Senske has served as the Company's President and Chief Executive
Officer from January 1993 until June 3, 1998, with the exception of the period
of June 5, 1997 to July 24, 1997, when he was removed as Chief Executive Officer
by action of the Company's Board of Directors. On July 24, 1997, Mr. Senske was
re-appointed as the Company's Chief Executive Officer. Mr. Senske has been a
member of the Company's Board since January 1993, and served as its Chief
financial Officer and Treasurer between January 1993 and November 1996. From
1988 to 1992, Mr. Senske was Vice President of Strategic Marketing and Product
Planning at Vocam Systems, Inc. which became a division of the Pitney Bowes
Company in 1990, a manufacturer of transportation management software systems.
JAMES A. BARTHOLOMEW. Mr. Bartholomew was elected to the Company's Board
in March 1998. Mr. Bartholomew has been a financial and strategic workout
consultant for the last eleven years with his own firm. Mr. Bartholomew is a
certified public accountant and has been involved in a substantial number of
workout engagements including negotiations of acquisitions and divestitures,
negotiations with secured lenders, banks, asset based lenders, subordinated note
holders and unsecured creditors. He was employed by the firm Deloitte, Haskins
and Selles between July, 1978 and April 1978. He is a member of the Board of
Directors of the Minnesota Chapter of Turnaround Management Association.
GARY W. RAMSDEN. Mr. Ramsden served as the President of U-Ship
International, Ltd., a subsidiary of the Company, from its inception in
September 1991 to January 1993, and has served as a director of the Company
since June 1992. Mr. Ramsden is currently an officer and director of Commonweal
Holdings, Ltd. in Eau Claire, Wisconsin. From October 1989 to March 1991, Mr.
Ramsden was employed in sales and management capacities for Crandell Moving and
Storage, Incorporated in Altoona, Wisconsin.
MARLIN RUDEBUSCH. Mr. Rudebusch was elected to the Company's Board in
March 1998. Mr. Rudebusch is the Business Unit Director for Renal Systems
division of Minntech Corporation, by which he has been employed since December,
1997. Prior to joining Minntech, he was Vice President of Marketing of Nutrition
Medical from September, 1994 through November, 1997 and was Director of
Marketing at AudioScience from 1993 to 1994. He served in various sales and
marketing management positions at Medtronic, Inc. between 1981 to 1993.
SUSAN M. CLEMENS. Ms. Clemens was elected to the Company's Board in June
1998. Since February 1998, Ms. Clemens has been employed by Dakota Growers Pasta
Company in the position of Vice President of Human
44
<PAGE>
Resources. From August 1997 to February 1998, she was employed by Primo Piatto,
Inc. as Vice President of Human Resources and Administration. From January 1993
to August 1997, Ms. Clemens was the Senior Human Resources Manager for Borden
Foods Corporation. Between September 1986 to January 1993 she was employed by
Tiro Industries, Inc. as Human Resources Manager.
There is no family relationship between directors or executive officers
of the Company.
COMMITTEES
The Company has established a Compensation Committee and an Audit
Committee.
The Compensation Committee currently consists of Susan M. Clemens,
Marlin Rudebusch and Peter C. Lytle. The Compensation Committee reviews and
approves the Company's compensation policies and administers its option plans.
The Audit Committee currently consists of James A. Bartholomew, Timothy
G. Becker and Gary W. Ramsden. The Audit Committee is responsible for approving
the services performed by the Company's independent auditors and reviewing
reports of the Company's internal and external auditors regarding the Company's
accounting practices and systems of internal accounting controls.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and officers and the holders of 10% or more of
the Company's stock to file with the Securities and Exchange Commission initial
reports of changes in ownership of equity securities of the Company. Based on
the Company's review of copies of such reports received by it, or written
representations from reporting persons, the Company believes that during fiscal
year 1998 its directors and executive officers filed all reports on a timely
basis except as follows: (a) initial reports on Form 3 following their elections
or appointments as executive officers or directors of the Company by James A.
Bartholomew, Marlin Rudebusch, Timothy G. Becker, Susan M. Clemens, Kenneth D.
Zigrino, Peter C. Lytle and Marshall T. Masko through inadvertence were filed
late; (b) securities ownership reports on Form 4 by Bruce H. Senske in
connection with his purchase of 15,000 Units in connection with the Company's
1998 private placement was filed late.
45
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid to
or accrued by each of the Company's executive officers receiving in excess of
$100,000 (the "Named Executive Officers") for services rendered to the Company
during the fiscal years ended June 30, 1998, June 30, 1997 and June 30, 1996.
The Company has not formalized employment agreements with its executive
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Long-Term
---------
Compensation
------------
Fiscal
Year Salary Securities Underlying Options
---- ------ -----------------------------
<S> <C> <C> <C>
Peter C. Lytle........................ 1998(1) 16,667 125,000
Chief Executive Officer
Bruce H. Senske....................... 1998(2) 121,624(3) 50,000
Vice President of Technology 1997 110,000 15,000
1996 114,000 -
</TABLE>
- ---------------
(1) Mr. Lytle's employment with the Company began on May 4, 1998. In
connection with consulting services rendered to the Company as an
independent contractor between March 1998 and the commencement of his
employment, the Company granted Mr. Lytle an option to purchase 125,000
shares of common stock. Such option had vested to the extent of 61,312
shares as of June 30, 1998. The right to purchase the remaining 63,688
shares was granted subject to shareholder approval of an amendment to the
Company's 1995 Stock Option Plan increasing the number of shares
available for the grant of options thereunder.
(2) Mr. Senske's employment as the Company's Chief Executive Officer
terminated on June 3, 1998. Mr. Senske remains an officer and director of
the Company and consults with the Company on a part-time basis as an
employee of Manchester Financial Group, Inc. In June 1998, Mr. Senske
earned $4,625 as a consultant to the Company. This amount is reflected in
his 1998 annual compensation.
(3) Includes severance compensation from the Company in the amount of
$36,666.
46
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
Percent of Total Options
Number of Granted to Employees in Exercise
Name Options Granted Fiscal Year Price Expiration Date
- ---------------------- ---------------- ----------------------------- ----------- -------------------
<S> <C> <C> <C> <C>
Peter C. Lytle 125,000(1) 19.6 $0.40 March 22, 2008
Bruce H. Senske 50,000 7.8 $0.40 March 23, 2008
</TABLE>
(1) In March 1998, the Company granted Mr. Lytle an option to purchase
125,000 shares of common stock. Such option had vested to the extent of
61,312 shares as of June 30, 1998. The right to purchase the remaining
63,688 shares was granted subject to shareholder approval of an amendment
to the Company's 1995 Stock Option Plan increasing the number of shares
available for the grant of options thereunder.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Unexercised Value of Unexercised
Acquired on Value Options at FY-end In-the-Money Options
Name Exercise Realized Exercisable at FY-end Exercisable
- ---------------------- ---------------- ------------- ------------------------- -----------------------
<S> <C> <C> <C> <C>
Peter C. Lytle --- --- 125,000(1) $75,000
Bruce H. Senske --- --- 50,000 $30,000
</TABLE>
- ---------------
(1) In March 1998, the Company granted Mr. Lytle an option to purchase
125,000 shares of common stock. Such option had vested to the extent of
61,312 shares as of June 30, 1998. The right to purchase the remaining
63,688 shares was granted subject to shareholder approval of an amendment
to the Company's 1995 Stock Option Plan increasing the number of shares
available for the grant of options thereunder.
COMPENSATION OF DIRECTORS
CASH COMPENSATION. The Company has not paid any cash compensation to a
director in his or her capacity as a director and has no present plan to pay
directors' fees.
DIRECTOR STOCK OPTION PLAN. In February 1996, the Company adopted its
1996 Director Stock Option Plan, pursuant to which it automatically awards each
outside director 5,000 shares of common stock for each year of service as a
director, not to exceed in the aggregate 15,000 shares per director. The term of
each option granted under the plan is five years and the exercise price per
share for stock granted under the plan is 100% of the fair market value per
share on the date on which the respective option is granted.
COMPENSATION TO MARSHALL T. MASKO. In March 1998, Mr. Masko, a director
of the Company, received an option for the purchase of 125,000 shares of Common
Stock. Such option had vested to the extent of 61,312 shares as of June 30,
1998. The right to purchase the remaining 63,688 shares was granted subject to
shareholder approval of an amendment to the Company's 1995 Stock Option Plan
increasing the number of shares available for the grant of options thereunder.
The option is exercisable at a price of $0.40 per share over a 10-year period.
The option is comparable to the terms of options granted to Messrs. Lytle,
Becker and Zigrino, officers of the Company who rendered consulting services
beginning in March 1998.
47
<PAGE>
CONSULTING COMPENSATION TO BRUCE H. SENSKE. Beginning in June 1998, Mr.
Senske became employed by Manchester whereby Mr. Senske provides consulting
services to the Company at a rate of $125 per hour. Manchester rendered
consulting and management services to the Company through 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains certain information known to the Company
regarding beneficial ownership of its common stock as of June 30, 1998, (i) each
person who is known to the Company to own beneficially more than five percent of
the Company's common stock, (ii) each of the Company's directors, (iii) each
Named Executive Officer, and (iv) all current executive officers and directors
as a group. Unless otherwise noted, each person identified below has sole voting
and investment power with respect to such shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(2)
- ------------------------------------ --------------------- ---------------------
<S> <C> <C>
BankAmerica Corporation (3)...................... 1,099,566 21.6%
555 California Street
San Francisco, CA 94104
Bruce H. Senske (4).............................. 306,629 6.0%
Donald L. Kotula (5)............................. 268,312 5.3%
2800 South Cross Drive West
Burnsville, MN 55337
Peter C. Lytle (6)............................... 186,312 3.6%
Kenneth D. Zigrino (7)........................... 123,812 2.4%
Marshall T. Masko (8)............................ 102,979 2.0%
Gary W. Ramsden (9).............................. 92,235 1.8%
5896 Crocus Drive
Eau Claire, WI 54701
Timothy G. Becker (10)........................... 82,146 1.6%
Susan Clemens (11)............................... 41,667 *
James Bartholomew (12)........................... -- *
Marlin Rudebusch (13)............................ -- *
All directors and officers as
a group (9 person) (14).......................... 1,204,092 20.9%
</TABLE>
- -------------------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and includes securities owned by or for, among others, the
spouse, children or certain other relatives of such person as well as other
securities as to which the person has or shares voting or investment power
or has the right to acquire within 60 days. The same shares may be
beneficially owned by more than one person. Voting or investment power with
respect to securities. Unless otherwise indicated, the address for each
listed shareholder is c/o U-Ship,
48
<PAGE>
Inc., 5583 West 78th Street, Edina, Minnesota 55439. To the Company's
knowledge, except as indicated in the footnotes to this table, the persons
named in this table have sole voting and investment power with respect to
all shares. The number of shares beneficially owned includes shares
issuable pursuant to warrants and stock options that are exercisable within
60 days of June 30, 1998.
(2) Percentage of beneficial ownership is based on 4,979,709 shares outstanding
as of June 30, 1998. Shares issuable pursuant to warrants and stock options
are deemed outstanding for computing the percentage of the person holding
such warrants or stock options but are not deemed outstanding for computing
the percentage of any other person. Assumes no exercise of: (a) 4,213,826
shares of common stock issuable upon exercise of outstanding employee stock
options, director stock options or warrants, including warrants issued in
conjunction with bridge financing completed by the Company in December
1995,and private placements or (b) up to 463,381 shares of common stock
issuable upon exercise of warrants granted to broker-dealers in connection
with private placements and a public offering of the Company's securities.
(3) As set forth in Schedule 13G/A jointly filed with the Commission on
February 6, 1998, by BankAmerica Corporation ("BAC"), Robertson Stephens
Investment Management Co. ("RSIMC"), Robertson, Stephens & Company
Investment Management, L.P. ("RSCIMLP") and The Robertson Stephens Growth &
Income Fund ("RSGIF"). Includes 999,566 shares over which BAC, RSIMC and
RSCIMLP claim shared voting and dispositive power. Includes 620,367 shares
over which RSGIF claims shared voting and dispositive power. Includes
379,199 shares over which funds managed by RSCIMLP claim shared voting and
dispositive power. Does not include beneficial ownership of 200,000 shares
of Series A Commulative Convertible Preferred Stock ("Preferred Stock")
convertible into an equal number of shares of Common Stock, subject to
certain anti-dilution adjustments, commencing November 1, 1998. The holders
of Preferred Stock have the right to vote Preferred Stock on an
as-if-converted basis.
(4) Includes 172,394 shares owned directly and 134,235 shares purchasable
pursuant to options and warrants. Does not include 30,000 shares of
Preferred Stock.
(5) Includes 40,467 shares held by Mr. Kotula, 132,010 shares held by Norquip
Leasing, Inc. ("Norquip"), a company owned by Mr. Kotula, 8,335 shares
purchasable pursuant to options and warrants held by Mr. Kotula and 87,500
shares purchasable pursuant to warrants held by Norquip.
(6) Includes 125,000 shares purchasable pursuant to warrants and 61,312
purchasable pursuant a stock option. In addition, Mr. Lytle was granted an
option for the purchase of 63,688 shares in March 1998, which grant is
subject to the shareholders of the Company approving an amendment to the
Company's 1995 Stock Option Plan increasing the number of shares available
for grant thereunder. Mr. Lytle's beneficial ownership does not include
250,000 shares of Preferred Stock.
(7) Includes 62,500 shares purchasable pursuant to warrants and 61,312 shares
purchasable pursuant to a stock option. Does not include an option for the
purchase of 63,688 shares of common stock granted by the Company, subject
to shareholder approval of an amendment to the Company's 1995 Stock Option
Plan, increasing the number of shares available for options thereunder. Mr.
Zigrino's beneficial ownership does not include 125,000 shares of Preferred
Stock.
(8) Includes 41,667 shares purchasable pursuant to warrants and 61,312 shares
purchasable pursuant to a stock option. Does not include an option for the
purchase of 63,688 shares of common stock granted by the Company, subject
to shareholder approval of an amendment to the Company's 1995 Stock Option
Plan, increasing the number of shares available for options thereunder. Mr.
Masko's beneficial ownership does not include 83,334 shares of Preferred
Stock.
(9) Includes 72,230 shares owned directly and 20,005 shares purchasable
pursuant to director options.
(10) Includes 20,834 shares purchasable pursuant to warrants, and 61,312
purchasable pursuant to a stock option. Does not include an option for the
purchase of 63,688 shares of common stock granted by the Company, subject
to shareholder approval of an amendment to the Company's 1995 Stock Option
Plan,
49
<PAGE>
increasing the number of shares available for options thereunder. Mr.
Becker's beneficial ownership does not include 41,668 shares of Preferred
Stock.
(11) Includes 41,667 shares purchasable pursuant to warrants. Ms. Clemens'
beneficial ownership does not include 83,334 shares of Preferred Stock.
(12) Mr. Bartholomew received a stock option for 5,000 shares of common stock
upon becoming a director of the Company. Under the Company's 1995 Stock
Option Plan, this option has not yet vested.
(13) Mr. Rudebusch received a stock option for 5,000 shares of common stock
upon becoming a director of the Company. Under the Company's 1995 Stock
Option Plan, this option has not yet vested.
(14) Includes an aggregate of 786,991 shares purchasable pursuant to currently
exercisable stock options and warrants. Does not include an aggregate of
613,555 shares of Preferred Stock convertible into Common Stock commencing
November 1, 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1998, various individual accredited investors, including executive
officers and directors of the Company, purchased 785,837 Units, each Unit
consisting of two shares of its $0.004 par value per share Series A Cumulative
Convertible Preferred Stock and one warrant to purchase one share of Common
Stock at a price of $1.75 per share, at a price of $1.20 per Unit, for a total
consideration received by the Company of $943,003. Each Preferred Shares may be
voted on an as-if converted basis and is convertible into the Company's $0.004
par value Common Stock, commencing November 1, 1998, subject to anti-dilution
adjustments. Each share of Preferred Stock is entitled to 5% cumulative annual
dividend. The Warrants may be exercised to purchase Common Stock at any time
before May 1, 2001. These Units were sold by the Company without the services of
an Agent. The closing of these transactions was completed on May 4, 1998. The
following executive officers and directors purchased Preferred Stock and
warrants in the amounts set forth respectively:
<TABLE>
<CAPTION>
Number of
Preferred
Name Position Shares Number of Warrants
- ------------------ ------------------------------------ --------- ------------------
<S> <C> <C> <C>
Peter C. Lytle President, Chief Executive Officer 250,000 125,000
and Director
Susan M. Clemens Director 83,334 41,667
Kenneth D. Zigrino Vice President 125,000 62,500
Marshall T. Masko Director 83,334 41,667
Timothy G. Becker Chief Financial Officer and Director 41,668 20,884
Bruce H. Senske Executive Officer and Director 30,000 15,000
</TABLE>
The above persons purchased Units for the same consideration as was paid by
nonaffiliated purchasers. In separate closings on June 2, 1998, and June 8,
1998, the Company also completed a private placement in which it sold to
non-affiliated accredited investors, some of whom are officers and directors of
the Company, 1,441,912 Units. The Units were offered by R.J. Steichen & Co., a
non-exclusive agent of the Company on a "best-efforts, all or none" basis, at a
purchase price of $1.20 per Unit. The total consideration received by the
Company for the sale of these Units was $1,477,856, net of interest ($7,080) and
the Agent's commissions and nonaccountable expenses and other expenses of the
private placement.
In March 1998, Messrs. Lytle, Masko, Becker and Zigrino rendered consulting
services to the Company in connection with its strategic restructuring,
preceding its ultimate financing in April 1998. For their services, the Company
issued to each of them an option for the purchase of 125,000 shares of common
stock. See "Item 10. Executive Compensation" and "Item 11. Security Ownership of
Certain Beneficial Owners and Management."
50
<PAGE>
Bruce H. Senske, an Executive Officer and Director of the Company, is
also a consultant to the Company. Mr. Senske is paid $125 per hour for
consulting service he gives to the Company. In fiscal year 1998, Mr. Senske
earned $4,625 as a consultant to the Company, subsequent to his termination of
his full-time employment as Chief Executive Officer in June 1998. This amount is
reflected in Mr. Senske's 1998 annual compensation by the Company. See "Item 10
- - Executive Compensation."
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Reference is made to the Exhibit Index.
(b) REPORTS ON FORM 8-K.
The Company filed four reports on Form 8-K during the fiscal quarter
ended June 30, 1998, as follows:
(i) Current Report on Form 8-K filed on June 12, 1998, relating to
the announcement by the Company that Nasdaq has approved the
Company's Plan of Compliance with certain requirements for
continued listing, and announcing the completion of private
placement transactions involving the issuance of Series A
Cumulative Convertible Preferred Stock and Warrants of the
Registrant.
(ii) Current Report on Form 8-K filed on June 16, 1998, relating to
a change in the Registrant's certifying accountant.
(iii) Current Report on Form 8-K filed on June 16, 1998, relating to
a change in the Registrant's certifying accountant.
(iv) Current Report on Form 8-K filed on June 19, 1998, relating to
a change in the Registrant's certifying accountant.
51
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of Minneapolis, state
of Minnesota on September 14, 1998.
U-SHIP, INC.
By /s/ Peter C. Lytle
--------------------------------------
Peter C. Lytle
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Timothy G. Becker and Kenneth D. Zigrino,
his attorneys-in-fact, each with the power of substitution, for him in any and
all capacities, to sign any amendments to this Report on Form 10-KSB, and to
file the same, with exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, hereby ratifying and confirming all
that each of said attorneys-in-fact, or substitute or substitutes may do or
cause to be done by virtue hereof.
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Peter C. Lytle Chairman, President, Chief Executive September 14, 1998
- -------------------------- Officer and Director
Peter C. Lytle
/s/ Timothy G. Becker Treasurer Chief Financial September 14, 1998
- -------------------------- Officer and Director
Timothy G. Becker
/s/ Marshall T. Masko
- --------------------------
Marshall T. Masko Vice Chairman and Director September 15, 1998
/s/ Bruce H. Senske
- --------------------------
Bruce H. Senske Director September 15, 1998
/s/ James Bartholomew
- --------------------------
James Bartholomew Director September 21, 1998
/s/ Marlin Rudebusch
- --------------------------
Marlin Rudebusch Director September 21, 1998
/s/ Susan M. Clemens
- --------------------------
Susan M. Clemens Director September 19, 1998
/s/ Gary W. Ramsden
- --------------------------
Gary W. Ramsden Director September 28, 1998
</TABLE>
52
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
1.1 Agency Agreement dated April 20, 1998 between the Company and R.J.
Steichen & Co.
3.1 The Company's Articles of Incorporation, as amended and restated.
3.2 The Company's Bylaws, as amended (incorporated by reference to the
Registrant's Registration Statement on Form SB-2, File No.
333-01652C).
4.1 Specimen form of the Company's common stock certificate (incorporated
by reference to the Registrant's Statement on Form SB-2, File No.
333-01652C).
4.2 The Company's Articles of Incorporation, as amended and restated
(see Exhibit 3.1)
4.3 The Company's Bylaws (see Exhibit 3.2)
10.1 Lease Agreement dated February 27, 1995, and amended by Amendment No.
1 dated March 25, 1995 and Amendment No. 2 dated March 27, 1996
between the Company and Carpenter Land Company for property located
at 5575-5599 West 78th Street, Edina, Minnesota (incorporated by
reference to the Registrant's Statement on Form SB-2, File No.
333-01652C).
10.4 Form of warrant issued pursuant to bridge loan financing completed by
the Company in December 1995 (incorporated by reference to the
Registrant's Statement on Form SB-2, File No. 333-01652C).
10.6 1995 Stock Option Plan (incorporated by reference to the Registrant's
Statement on Form SB-2, File No. 333-01652C).
10.7 Director Stock Option Plan (incorporated by reference to the
Registrant's Statement on Form SB-2, File No. 333-01652C).
10.8 Kinko's Installations Financing Arrangements dated September 30, 1996
between Company and Kinko's Service Corporation. (incorporated by
reference to the Registrant's Statement on Form 10-QSB, File No.
000-28452).
10.9 Installation and Marketing Agreement dated October 16, 1996 between
the Company and OfficeMax, Inc. (incorporated by reference to the
Registrant's Statement on Form 10-QSB, File No. 000-28452).
10.10 Warrant dated June 3, 1998 between Company and Manchester Financial
Group, Inc. for the purchase of 100,000 shares of common stock.
10.11. Form of Warrant between Company and investors in 1998 private
placement.
10.12 Form of Subscription Agreement and Letter of Investment Intent
between Company and investors in private placement of May and June
1998.
10.13 Warrant dated June 8, 1998 between Company and R.J. Steichen & Co.
for the purchase of 288,381 shares of common stock.
53
<PAGE>
10.14 Letter Agreement dated September 15, 1998 between Company and
OfficeMax, Inc. terminating the Installation and Marketing Agreement
dated October 16, 1996 between the Company and OfficeMax, Inc.
11 Computation of Net Loss Per Common Share.
21 Subsidiaries.
23.1 Consent of Lurie, Besikof, Lapidus & Co., LLP.
23.2 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
54
EXHIBIT 1.1
U-SHIP, INC.
1,245,500 UNITS ($1,494,600)
$1.20 PER UNIT
AGENCY AGREEMENT
April 20, 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, RJ. 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 April 20, 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
<PAGE>
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. 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.
2
<PAGE>
(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 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;
3
<PAGE>
(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 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
4
<PAGE>
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.
(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
5
<PAGE>
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 506 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.
(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
6
<PAGE>
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 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.
(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
7
<PAGE>
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.
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.
8
<PAGE>
(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. AGENTS 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 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
9
<PAGE>
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:
(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
10
<PAGE>
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 I 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.
(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
11
<PAGE>
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.
(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
12
<PAGE>
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.
(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
13
<PAGE>
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 thereto 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 flied
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
14
<PAGE>
person may become subject, under the Act, 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 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. I 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 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
15
<PAGE>
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 light of appeal) that such indemnification may not be
enforced in such 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
16
<PAGE>
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 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.
17
<PAGE>
15. PARTIES. This Agreement shall be binding upon, and inure solely
to the benefit of, I 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:
R.J. Steichen & Company
One Financial Plaza
120 5. 6th Street, Suite 100
Minneapolis, MN 55402
with a copy to:
Girard P. Miller, Esquire
Doherty Rumble & Butler, P.A.
3500 Fifth Street Towers
150 South Fifth Street
Minneapolis, MN 55402
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 70th Street
Edna, 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.
18
<PAGE>
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/s Bruce H. Senske
-------------------------------------
Its CEO
Accepted and agreed to as of the 20th day of April, 1998.
R. J. STEICHEN & COMPANY
By /s/ Patrick M. Sidders
-----------------------------------
Its Senior VP
19
<PAGE>
EXHIBIT A
FORM OF AGENT'S WARRANT
TO PURCHASE___________ SHARES OF COMMON STOCK
OF
U-SHIP, INC.
_______________ 1998
THIS CERTIFIES THAT, for good and valuable consideration, R.J.
Steichen & Company (the "Agent"), or its registered assigns, is entitled to
subscribe for and purchase from U-Ship, Inc., a Utah corporation (the
"Company"), at any time from __________, 1999 to and including __________ ,2003,
fully paid and nonassessable shares of the Common Stock of the Company at the
price of $0.60 per share (the "Warrant Exercise Price"), subject to the
antidilution provisions of this Warrant. Reference is made to this Warrant in
the Agency Agreement dated __________, 1998, by and between the Company and the
Agent. The shares which may be acquired upon exercise of this Warrant are
referred to herein as the "Warrant Shares." As used herein, the term
"Holder"means the Agent, any party who acquires all or a part of this Warrant as
a registered transferee of the Agent, or any record Holder or Holders of the
Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant. The term "Common Stock" means and includes the Company's presently
authorized common stock, $.004 per share par value, and shall also include any
capital stock of any class of the Company 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 Company.
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise; Transferability.
(a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of Common
Stock), by written notice of exercise (in the form attached hereto) delivered to
the Company at the principal office of the Company prior to the expiration of
this Warrant and accompanied or preceded by the surrender of this Warrant along
with a check in payment of the Warrant Exercise Price for such shares, subject
to the additional right to convert set forth in Section 10 hereof.
(b) This Warrant is traffic in whole or in part, subject to
applicable federal and state securities laws and regulations. This Warrant may
not be sold, transferred, assigned, hypothecated or divided into two or more
Warrants of smaller denominations, nor may any Warrant Shares issued pursuant to
exercise of this Warrant be transferred, except as provided in Section 7 hereof.
2. Exchange and Replacement. Subject to Sections 1 and 7 hereof,
this Warrant is
A-1
<PAGE>
exchangeable upon the surrender hereof by the Holder to the Company at its
office for new Warrants of like tenor and date representing in the aggregate the
right to purchase the number of Warrant Shares purchasable hereunder, each of
such new Warrants to represent the right to purchase such number of Warrant
Shares (not to exceed the aggregate total number purchasable hereunder) as shall
be designated by the Holder at the time of such surrender. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction, or mutilation of this Warrant and, in 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 now Warrant of like tenor, in lieu of this Warrant; provided,
however, that if the Agent shall be such Holder, an agreement of indemnity by
such Holder shall be sufficient for all purposes of this Section 2. This Warrant
shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange 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 2.
3. Issuance of the Warrant Shares.
(a) The Company agrees that the Warrant Shares purchased hereby
shall be and are deemed to be issued to the Holder as of the close of business
on the date on which this Warrant shall have been surrendered and the payment
made for such Warrant Shares as aforesaid. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding fifteen (15) days after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to purchase the
number of Warrant Shares if any, with respect to which this Warrant shall not
then have been exercised shall also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in Section 9. If
registrations are not in effect and if exemptions are not available when the
Holder seeks to exercise the Warrant, the Warrant exercise period will be
extended, if need be, to prevent the Warrant from expiring, until such time as
either registrations become effective or exemptions are available, and this
Warrant shall then remain I exercisable for a period of at least 120 calendar
days from the date the Company delivers to the Holder written notice of the
availability of such registrations or exemptions. The Holder agrees to execute
such documents and make such representation, warranties, and agreements as may
be required solely to comply with the exemptions relied upon by the Company, or
the registrations made, for the issuance of the Warrant Shares.
4. Covenants of the Company. The Company Covenants and agrees that
all Warrant Shares will, upon issuance, be duly authorized and issued, fully
paid, nonassessable, and free from all taxes, liens, and charges with respect to
the issue thereof The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised,
A-2
<PAGE>
the Company will at all times have authorized and reserved for the purpose of
issue or transfer upon exercise of the subscription rights evidenced by this
Warrant a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant and a sufficient number of
shares of Common Stock to provide for the conversion of the Warrant Shares.
5. Antidilution Adjustments. The provisions of this Warrant are
subject to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time
such that in case the Company shall hereafter.
(i) pay any dividends on any class of stock of the
Company payable in Common Stock or securities convertible into
Common Stock;
(ii) subdivide its then outstanding shares of Common
Stock into a greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
classification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall he the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If; as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Board of Directors (whose determination shall be conclusive) in
good faith shall determine the allocation of the adjusted Warrant Exercise Price
between or among shares of such class of capital stock or shares of Common Stock
and other capital stock. All calculations under this Subsection shall be made to
the nearest cent or to the nearest 1/100 of a share, as the case may be. In the
event that at any time as a result of an adjustment made pursuant to this
Subsection, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive any shares of the Company other than shares of Common
Stock, thereafter the Warrant Exercise Price of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in this Section.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to
Section 5(a) above, the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase
A-3
<PAGE>
at the adjusted Warrant Exercise Price the number of shares, calculated to the
nearest full share, obtained by multiplying the number of shares specified in
such Warrant (as adjusted as a result of all adjustments in the Warrant Exercise
Price in effect prior to such adjustment) by the Warrant Exercise Price in
effect prior to such adjustment and dividing the product so obtained by the
adjusted Warrant Exercise Price.
(c) In case of any consolidation or merger to which the Company is a
party, or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), there, shall be no adjustment under Subsection
(a) of this Section above but the Holder of each Warrant then outstanding shall
have the right thereafter to convert such Warrant into the kind and amount of
shares of stock and other securities and property which he would have owned or
have been entitled to receive immediately after such consolidation, merger,
statutory exchange, sale, or conveyance had such Warrant been converted
immediately prior to the effective date of such consolidation, merger, statutory
exchange, sale, or conveyance and in any such case, if necessary, appropriate
adjustment shall be made in the application of the provisions set forth in this
Section with respect to the right and interests thereafter of any Holders of the
Warrant, to the end that the provisions set forth in this Section shall
thereafter correspondingly be made applicable, as any as may reasonably be, in
relation to any shares of sock and other securities and property thereafter
deliverable on the exercise of the Warrant. The provisions of this Subsection
shall similarly apply to successive consolidations, mergers, statutory
exchanges, sales or conveyances.
(d) Upon any adjustment of the Warrant Exercise Price, then and in
each such case, the Company shall give written notice thereof, by first-class
mail, postage prepaid, addressed to the Holder as shown on the books of the
Company, which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock or other securities purchasable at such price upon the exercise of
this Warrant, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
6. No Voting Rights. This Warrant shall not entitle the Holder to
any voting rights or other rights as a shareholder of the Company.
7. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other
transfer restrictions set forth in Section 1 hereof; the Holder, by acceptance,
hereof; agrees to give written notice to the Company before transferring this
Warrant or transferring any Warrant Shares of such Holder's intention to do so,
describing briefly the manner of any proposed transfer. Promptly upon receiving
such written notice, the Company shall present copies thereof to the Company's
counsel and to counsel to the original purchaser of this Warrant. If in the
opinion of each such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities laws), the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the Holder
A-4
<PAGE>
shall be entitled to transfer this Warrant or to dispose of Warrant Shares
received upon the previous exercise of this Warrant, all in accordance with the
terms of the notice delivered by the Holder to the Company; provided that an
appropriate legend may be endorsed on this Warrant or the certificates for such
Warrant Shares respecting restrictions upon transfer thereof necessary or
advisable in the opinion of counsel and satisfactory to the Company to prevent
further transfers which would be in violation of Section 5 of the Securities Art
of 1933, as amended (the "1933 Act") and applicable state securities laws; and
provided further that the prospective transferee or purchaser shall execute such
documents and make such representations, warranties, and agreements as may be
required solely to comply with the exemptions relied upon by the Company for the
transfer or disposition of the Warrant or Warrant Shares.
(b) If in the opinion of either of the counsel referred to in this
Section 7, the proposed transfer or disposition of this Warrant or such Warrant
Shares described in the written notice given pursuant to this Section 7 may not
be effected without registration or qualification of this Warrant or such
Warrant Shares the Company shall promptly give written notice thereof to the
Holder, and the Holder will limit its activities in respect to such as, in the
opinion of both such counsel, are permitted by law.
8. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Fair Market Value (as defined in Section
10) of such fractional share over the proportional part of the Warrant Exercise
Price represented by such fractional share, plus (b) the proportional part of
the Warrant Exercise Price represented by such fractional share.
9. Registration Rights.
(a) If at any time prior to the end of the two-year period following
complete exercise of this Warrant or _________, 2005, whichever occurs earlier,
the Company proposes to register under the 1933 Act (except by a Form S-4 or
Form S-8 Registration Statement or any successor forms thereto) or qualify for a
public distribution under Section 3(b) of the 1933 Act, any of its securities,
it will give written notice to all Holders of this Warrant any Warrants issued
pursuant to Section 2 or Section 3(a) hereof, and any Warrant Shares of its
intention to do so and, on the written request of any such Holder given within
twenty (20) days after receipt of any such notice (which request shall specify
the interest in this Warrant or the Warrant Shares intended to be sold or
disposed of by such Holder and describe the nature of any proposed sale or other
disposition thereof), the Company will use its best efforts to cause all such
Warrant Shares, the Holders of which shall have requested the registration or
qualification thereof, to be included in such registration statement proposed to
be filed by the Company; provided, however, that if a greater number of Warrant
Shares is offered for participation in the proposed offering than in the
reasonable opinion of the man aging underwriter of the proposed offering can be
accommodated without adversely affecting the proposed offering, then, the amount
of Warrant Shares proposed to be offered by such Holders for registration, as
well as the number of securities of any other selling shareholders participating
in the registration, shall be proportionately reduced to a number deemed
satisfactory by the managing underwriter.
A-5
<PAGE>
(b) Further, to the extent that Form S-3 is available for use by the
Company and on a one-time basis only, upon request during the duration of this
Warrant by the Holder or Holders of a majority in interest of this Warrant, of
any Warrants issued pursuant to Section 2 or Section 3(a) hereof, and of any
Warrant Shares, the Company will promptly take all necessary steps to register
or qualify on Form S-3 (or such successor form) under the 1933 Act and the
securities laws of such states as the Holders may reasonably request, such
number of Warrant Shares issued and to be issued upon conversion of the Warrants
requested by such Holders in their request to the Company. The Company shall
keep effective and maintain any registration, qualification, notification, or
approval specified in this Paragraph (b) for such period as may be reasonably
necessary for such Holder or Holders of such Warrant Shares to dispose thereof
and from time to time, shall amend or supplement the prospectus used in
connection therewith to the extent necessary in order to comply with applicable
law.
(c) With respect to each inclusion of securities in a registration
statement pursuant to this Section 9, the Company shall bear the following fees,
costs, and expenses: all registrations 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 is required to bear such fees and disbursements), all internal
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and legal fees and disbursements
and other expenses of complying with state securities laws of any jurisdictions
in which the securities to be offered are to be registered or qualified. Fees
and disbursements of special counsel and accountants for the selling Holders,
underwriting discounts and commissions, and transfer taxes for selling Holders
and any other expenses relating to the sale of securities by the selling Holders
not expressly included above shall be borne by the selling Holders.
(d) The Company hereby indemnifies each of the Holders of this
Warrant and of any Warrant Shares, and the officers and directors, if any, who
control such Holders, within the meaning of Section 15 of the 1933 Act, against
all losses, claims, damages, and liabilities Caused by (1) any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (and as amended or supplemented if the Company shall
have furnished any amendments thereof or supplements thereto), any Preliminary
Prospectus or any state securities law filings; (2) any omission or alleged
omission to state therein a material fact required to be sold therein or
necessary to make the statements therein not misleading except insofar as such
losses, claims, damages, or liabilities are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Holder expressly for use therein; and each such Holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the Company, each of
its officers who signs such Registration Statement, and each person, if any, who
controls the Company, within the meaning of Section 15 of the 1933 Act, with
respect to losses, claims, damages, or liabilities which are caused by any
untrue statement or omission contained in information furnished in writing to
the Company by such Holder expressly for use therein.
10. Additional Right to Convert Warrant.
(a) The Holder of this Warrant shall have the right to require the
Company to convert this
A-6
<PAGE>
Warrant (the "Conversion Right") at any time after it is exercisable but prior
to its expiration, into shares of Company Common Stock as provided for in this
Section 10. Upon exercise of the Conversion Right, the Company shall deliver to
the Holder (without payment by the Holder of any Warrant Exercise Price) that
number of shares of Company Common Stock equal to the quotient obtained by
dividing (x) the value of the Warrant at the time the Conversion Right is
exercised (determined by subtracting the aggregate Warrant Exercise Price for
the Warrant Shares in effect immediately prior to the exercise of the Conversion
Right from the aggregate Fair Market Value for the Warrant Shares immediately
prior to the exercise of the Conversion Right) by (y) the Fair Market Value of
one share of Company Common Stock immediately prior to the exercise of the
Conversion Right.
(b) The Conversion Right may be exercised by the Holder, at any time
or from time to time, prior to its expiration, on any business day by delivering
a written notice in the form attached hereto (the "Conversion Notice") to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of shares of Stock the Holder will purchase
pursuant to such conversion and (ii) a place and date not less than one or more
than 20 business days from the date of the Conversion Notice for the closing of
such purchase.
(c) At any closing under Section 10(b) hereof; (i) the Holder will
surrender the Warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of shares of Company Common stock
issuable upon such conversion, together with cash, in lieu of any fraction of a
share, and (iii) the Company will deliver to the Holder a new warrant
representing the number of shares, if any, with respect to which the warrant
shall not have been exercised.
(d) "Fair Market Value" of a share of Common Stock as of a
particular date (the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on an
exchange or is quoted on the Nasdaq National Market, then the
average closing or last sale prices, respectively, reported for the
ten (10) business days immediately preceding the Determination Date;
(ii) If the Company's Common Stock is not traded on an
exchange or on the Nasdaq National Market but is traded on the
Nasdaq SmallCap Market or other over-the-counter market, then the
average closing bid and asked prices reported for the ten (10)-
business days immediately preceding the Determination Date; and
(iii) If the Company's Common Stock is not traded on an
exchange or on the Nasdaq National Market, Nasdaq SmallCap Market or
other over-the-counter market, then the price established in good
faith by the Board of Directors.
A-7
<PAGE>
IN WITNESS WHEREOF, U-Ship, Inc. has caused this Warrant to be
signed by its duly authorized officer as of the date first above Written.
U-SHIP, INC.
By:
------------------------------------
Its:
------------------------------------
A-8
<PAGE>
To: U-Ship, Inc.
NOTICE OF EXERCISE OF WARRANT
To Be Executed by the Registered Holder in
Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, - ____________________ of the shares issuable upon the
exercise of such Warrant, and requests that certificates for such shares
(together with a new Warrant to purchase the number of shares, if any, with
respect to which this Warrant is not exercised) shall be issued in the name of
-----------------------------------
(Print Name)
Please insert social security or other
identifying number of registered Holder of
certificate ( )
----------------------------- Address:
-----------------------------------
-----------------------------------
Date:
------------------------------------- -----------------------------------
Signature*
*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a company,
partnership, trust or other entity, PLEASE indicate your position(s) and
title(s) with such entity.
A-9
<PAGE>
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto ____________________________ the right to purchase the
securities of U-Ship, Inc. to which the within Warrant relates and appoints,
attorney, to transfer said right on the books of U-Ship, Inc. with full power of
substitution in the premises.
Dated:
---------------------------- -----------------------------------
(Signature)
Address:
-----------------------------------
-----------------------------------
A-10
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 10)
The undersigned hereby irrevocably elects a cashless exercise of the
right represented by the within Warrant Certificate for, and to purchase
thereunder, _________________________________ shares of Common Stock, as
provided for in Section 10 therein.
Please issue a certificate or certificates for such Common Stock in
the name of, any pay any cash for any fractional share to:
Name
-----------------------------------
(Please print Name)
Address
--------------------------------
--------------------------------
Social Security No.
--------------------
Signature
------------------------------
NOTE: The above signature should correspond exactly with the name on
the first page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares shall not be all the shares purchasable
under the within Warrant Certificate, a new Warrant Certificate is to be issued
in the name of said undersigned for the balance remaining of the shares
purchasable thereunder rounded up to the next higher number of shares.
A-11
<PAGE>
EXHIBIT B
FORM OF LOCKUP AGREEMENT
R.J. Steichen & Company
One Financial Plaza
120 5. 6th Street, Suite 100
Minneapolis, MN 55402
Ladies and Gentlemen:
The undersigned, a beneficial owner of common stock of U-Ship, Inc.
(the "Company"), understands that the Company has entered into an Agency
Agreement with R.J. Steichen & Company (the "Agent") regarding the offer and
sale of 1,245,500 units, each consisting of two shares of Series A Cumulative
Convertible Preferred Stock and a redeemable warrant to purchase one share of
Common Stock of the Company (the "Offering").
In order to induce the Agent to proceed with the Offering, the
undersigned agrees, for the benefit of the Company and the Agent, that the
undersigned will not, without the prior written consent of the Agent, which
shall not be unreasonably withheld, sell, transfer or otherwise dispose of; or
agree to sell, transfer or otherwise dispose of the shares of common stock of
the Company held by the undersigned as of this date (__________ shares) and
shares acquired during the term of this Agreement. The foregoing does not
prohibit gifts to a member of the undersigned's immediate family, sales to an
officer, director or employee of the Company who agrees to be bound by the
restrictions set forth herein, or transfers by will or the laws of descent.
This Lockup Agreement shall terminate 180 days from the date of the
last closing of the Offering.
Very truly yours,
- ---------------------------------
Dated: , 1998
---------------------
B-1
EXHIBIT 3.1
ARTICLES OF RESTATEMENT
OF THE
ARTICLES OF INCORPORATION
OF
U-SHIP, INC.
February 29, 1996
In accordance with Section 16-10a-1007 of the Utah Revised Business
Corporation Act (as amended, supplemented or superseded, the "URBCA"), U-Ship,
Inc., a Utah corporation (the "Corporation"), hereby declares and certifies as
follows:
1. The name of the Corporation is U-Ship, Inc.
2. The text of the Amended and Restated Articles of Incorporation (the
"Amended and Restated Articles") is attached hereto as Exhibit A and is
incorporated herein by this reference.
3. The amendments contained in the Amended and Restated Articles provide
for an exchange, reclassification and cancellation of both unissued and issued
shares of the Corporation. The provisions for implementing the amendments
contained in the Amended and Restated Articles are as follows:
(a) Upon the filing of these Articles of Restatement, all of the
Corporation's authorized and unissued shares of $.001 par value common
stock (the "Old Common Stock"), automatically and without any further
action by the Corporation or its shareholders, shall be converted into
authorized and unissued shares of $.004 par value common stock (the
"Common Stock") at a ratio of one (1) share of Common Stock for four (4)
shares of Old Preferred Stock.
(b) Upon the filing of these Articles of Restatement, all of the
Corporation's authorized and unissued shares of $.001 par value preferred
stock (the "Old Preferred Stock"), automatically and without any further
action by the Corporation or its shareholders, shall be converted into
authorized and unissued shares of $.004 par value preferred stock (the
"Preferred Stock") at a ratio of one (1) share of Preferred Stock for four
(4) shares of Old Preferred Stock.
(c) Upon the filing of these Articles of Restatement, all of the
Corporation's issued and outstanding shares of Old Common Stock,
automatically and without any further action by the Corporation or its
shareholders, shall be converted into issued and outstanding shares of
Common Stock at a ratio of one (1) share of Common Stock for four (4)
shares of Old Common Stock.
<PAGE>
(d) No fractional shares of Common Stock will be issued to any
shareholder. Accordingly, shareholders of record who would otherwise be
entitled to receive fractional shares of Common Stock, will, upon
surrender of their certificates representing shares of the Old Common
Stock, receive a cash payment in lieu thereof equal to the value of such
fractional share of Common Stock determined by reference to the average
closing bid prices of the shares of Common Stock for a period of ten (10)
trading days immediately preceding the Effective Date of these Articles of
Restatement, as reported on the NASD over-the-counter electronic bulletin
board ("NASD Bulletin Board"). The Effective Date of these Articles of
Restatement shall be the date on which they are filed with the Utah
Department of Commerce, Division of Corporations and Commercial Code (the
"Division"). Holders of less than one (1) share of Common Stock as a
result of the conversion of four (4) shares of Old Common Stock into one
(1) share of Common Stock no longer will be shareholders of the
Corporation as of the Effective Date.
(e) Once filed with the Division, no additional action on the part
of the Corporation or any shareholder will be required in order to effect
the conversion of four (4) shares of Old Common Stock into one (1) share
of Common Stock. Shareholders will be requested to exchange their
certificates representing shares of Old Common Stock for new certificates
representing shares of Common Stock and will be furnished the necessary
materials and instructions to effect such exchange promptly following the
Effective Date by the Corporation's transfer agent. Certificates
representing shares of Old Common Stock will not be transferred on the
books and records of the Corporation until such certificates have been
exchanged for new certificates representing shares of Common Stock. In the
event any certificate representing shares of Old Common Stock is not
presented for exchange upon request by the Corporation, any dividends that
may be declared after the Effective Date with respect to the shares of
Common Stock represented by such certificate will be withheld by the
Corporation until such certificate has been properly presented for
exchange, at which time all such withheld dividends which have not yet
been paid to the public official pursuant to relevant abandoned property
laws will be paid to the holder thereof or his designee, without interest.
4. The Amended and Restated Articles were adopted on February 29, 1996, in
accordance with the requirements of the URBCA.
5. In accordance with the URBCA, no shareholders were entitled to vote in
separate voting groups. The designation, number of outstanding shares, number of
votes entitled to be cast, number of votes indisputably represented at the
meeting, and the total number of votes cast for and against the Amended and
Restated Articles were as follows:
2
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================
Designation Outstanding Votes Entitled Votes For Against
Shares to be Cast Represented at
the Meeting
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common
Stock 8,036,412 8,036,412 5,915,136 5,910,004 5,132
==========================================================================================
</TABLE>
The number of votes cast for the Amended and Restated Articles was sufficient
for approval.
IN WITNESS WHEREOF, these Articles of Restatement have been executed
by the Corporation as of the date first written above.
U-Ship, Inc., a Utah corporation
/s/ Bruce H. Senske
----------------------------------
President
Attest:
/s/ Richard Vogen
- -----------------------------------
Secretary
3
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
U-SHIP, INC.
Pursuant to and in accordance with Section 16-10a-1007 of the Utah
Revised Business Corporation Act (as amended, supplemented or superseded, the
"URBCA"), the following are the Amended and Restated Articles of Incorporation
of U-Ship, Inc., a Utah corporation (the "Corporation"):
ARTICLE I
NAME
The name of the Corporation is U-Ship, Inc.
ARTICLE II
PURPOSES AND POWERS
The Corporation is organized to engage in any and all lawful acts,
activities and/or pursuits for which corporations may presently or hereafter be
organized under the URBCA.
The Corporation shall have all powers allowed by law, including
without limitation those powers described in Section 302 of the URBCA. The
purposes stated herein shall be construed as powers as well as purposes and the
enumeration of a specific purpose or power shall not be construed to limit or
restrict the meaning of general terms or the general powers; nor shall the
expression of one thing be deemed to exclude another not expressed, although it
be of like nature.
ARTICLE III
AUTHORIZED SHARES
The Corporation is authorized to issue two classes of shares. The
total number of shares the Corporation is authorized to issue is One Hundred
Million (100,000,000) shares. The preferences, limitations and relative rights
of the two classes of shares of the Corporation are as follows:
<PAGE>
Common Stock
6. Number, Designation and Par Value. The Corporation is authorized
to issue Seventy-five Million (75,000,000) shares designated as "Common Stock,"
each having par value of $.004 per share (the "Common Stock").
7. Voting. All voting rights of the Corporation, subject to any
preferences or rights that may be granted to the holders of the Preferred Stock
(as defined below), shall be exercised by the holders of the Common Stock. No
shareholder shall be entitled to any cumulative voting rights.
8. Net Assets. The holders of the Common Stock, subject to any
preferences or rights that may be granted to the holders of the Preferred Stock,
shall be entitled to receive the net assets of the Corporation upon the
dissolution of the Corporation.
9. Payment. All shares of the Common Stock shall be fully paid and
nonassessable.
Preferred Stock
1. Number, Designation and Par Value. The Corporation is authorized
to issue Twenty-five Million (25,000,000) shares designated as "Preferred
Stock," each having par value of $.004 per share (the "Preferred Stock").
2. Additional Terms. The Board of Directors of the Corporation,
without shareholder action, may amend these Articles of Incorporation to
establish additional terms of the Preferred Stock (or any series of the
Preferred Stock) pursuant to and in accordance with Section 602 of the URBCA.
ARTICLE IV
LIMITATION ON LIABILITY
1. Within the meaning of and in accordance with Section 841 of the
URBCA:
a. Personal Liability. No director of the Corporation
shall be personally liable to the Corporation or its shareholders
for monetary damages for any action taken or failure to take any
action as a director, except liability for (i) the amount of a
financial benefit received by a director to which he is not
entitled, (ii) an intentional infliction of harm on the Corporation
or its shareholders, (iii) a violation of Section 842 of the URBCA,
or (iv) an intentional violation of criminal law.
2
<PAGE>
b. Modification. Any repeal or modification of Paragraph
1 of this Article IV by the shareholders of the Corporation shall
not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
c. Interpretation. Without limitation, Paragraph 1 of
this Article IV shall be applied and interpreted, and shall be
deemed to incorporate, any provision of the URBCA, as the same
exists or may hereafter be amended, as well as any applicable
interpretation of Utah law, so that personal liability of directors
of the Corporation to the Corporation or its shareholders, or to any
third person, shall be eliminated or limited to the fullest extent
as from time to time permitted by Utah law.
2. The personal liability of officers of the Corporation to the
Corporation or its shareholders, or to any third person, shall be eliminated or
limited to the fullest extent as from time to time permitted by Utah law.
MAILING ADDRESS
If, upon completion of filing of the above Articles of
Restatement, the Division elects to send a copy of the Articles of Restatement
to the Corporation by mail, the address to which the copy should be mailed is:
U-Ship, Inc.
5583 West 78th Street
Edina, Minnesota 55439
3
<PAGE>
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:
3. The name of the corporation is U-Ship, Inc. (the "Corporation").
4. 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
4
<PAGE>
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 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.
5
<PAGE>
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.
(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.
6
<PAGE>
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) 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 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 Conversion Price pursuant
to clause (i), the following provisions shall be applicable:
7
<PAGE>
(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
8
<PAGE>
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 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
9
<PAGE>
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 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
10
<PAGE>
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 that $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 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 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
11
<PAGE>
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;
12
<PAGE>
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 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.
13
<PAGE>
(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 $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.
14
<PAGE>
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 /s/ Bruce H. Senske
-------------------------------------------
Bruce H. Senske, Chief Executive Officer
15
EXHIBIT 10.10
"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 100,000 SHARES OF
COMMON STOCK OF
U-SHIP, INC.
NO. 98W-35
JUNE 3, 1998
For good and valuable consideration, Manchester Financial Group, Inc. (the
"Warrantholder"), is entitled to subscribe for and purchase from U-Ship, Inc., a
Utah Corporation, (the "Company"), any time after the above date, and prior to
April 30, 2001 (the "Expiration Date"), up to one hundred thousand (100,000)
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 this
Warrant, 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 $.60 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 this Warrant 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
this Warrant pursuant to Section 2 hereof.
"Warrantholder" shall mean the holder or holders of this Warrant or
any related Warrant Shares.
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 Section
2
<PAGE>
2 hereof for a new Warrant of like tenor and date representing in the aggregate
the right to purchase the number of shares purchasable hereunder, such new
Warrant 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 this Warrant 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 this
Warrant 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 this Warrant 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
3
<PAGE>
the Warrantholder shall thereafter have the right to purchase and receive
upon the basis and upon the terms and conditions specified Warrant and in
lieu of the shares of Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of this Warrant 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 this Warrant
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 this Warrant (including, without limitation, provisions for
adjustment of the Purchase Price and the number of shares purchasable upon
the exercise of this Warrant) 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 this Warrant.
(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, this Warrant 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
4
<PAGE>
not at the time so convertible or exchangeable) or options, this Warrant 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, this Warrant or other rights to
purchase or acquire Common Stock shall be deemed to have been issued at the time
such options, this Warrant 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, this Warrant or rights plus the minimum purchase price provided in such
options, this Warrant 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, this Warrant 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, this Warrant 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, this
Warrant 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, this Warrant 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, this Warrant 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,
this Warrant 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, this Warrant 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, this Warrant, 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, this Warrant 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, this Warrant, 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).
5
<PAGE>
(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 this
Warrant, including this Warrant. 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) 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 this
Warrant (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 this Warrant 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 this Warrant, 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. 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
6
<PAGE>
stock dividend, split, combination or reclassification that took effect during
such 30 business day period). The closing 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 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 this Warrant
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
7
<PAGE>
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
this Warrant 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.
(7) No Fractional Shares. No fractional shares of Common Stock shall be
issued upon exercise, 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 this Warrant, 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.
(b) 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 this Warrant
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.
8
<PAGE>
(a) Required Registration. Upon request of holders of this Warrant 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 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.
9
<PAGE>
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 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
10
<PAGE>
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
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
11
<PAGE>
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 this Warrant. 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 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.
12
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by a
duly authorized officer, and to be dated as of the 3rd day of June, 1998.
U-SHIP, INC.
By: /s/ Peter C. Lytle
-------------------------------
Peter C. Lytle, President
13
<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:
--------------------------------
--------------------------------
14
<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:
--------------------------------
--------------------------------
15
EXHIBIT 10.11
"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-1
APRIL 22, 1998
For good and valuable consideration, Peter C. Lytle and Vivian
Lezcano-Lytle, JT WROS, 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"), any time after the above date, and prior to April 30, 2001 (the
"Expiration Date"), up to 125,000 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.
<PAGE>
"Subscription Form" shall mean the subscription forms attached
hereto.
"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
2
<PAGE>
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 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.
3
<PAGE>
(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 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
4
<PAGE>
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 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
5
<PAGE>
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).
(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.
6
<PAGE>
(vi) CURRENT MARKET. 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 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 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
7
<PAGE>
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.
(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 upon exercise, 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.
(b) 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
<PAGE>
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 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
9
<PAGE>
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 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;
10
<PAGE>
(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
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
11
<PAGE>
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 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.
12
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by a
duly authorized officer, and to be dated as of the 22nd day of April, 1998.
U-SHIP, INC.
By: /s/ Bruce H. Senske
------------------------------
Bruce H. Senske, President
13
<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:
--------------------------------
--------------------------------
14
<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:
--------------------------------
--------------------------------
15
EXHIBIT 10.12
Account # _____________
Registered Representative #_________
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, _________________, a resident of or entity, organized under the
laws of the State of _____________ 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 Exhibit E
to the Company's Confidential Private Placement Memorandum dated April 15, 1998
("Memorandum") 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.
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
<PAGE>
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;
(d) has reviewed (i) the Memorandum by which the Company proposes to
offer the Units for sale and is familiar with the factors contained
therein under the caption "Risk Factors" which are intended to serve as
cautionary factors within the meaning of the Private Securities Litigation
Reform Act of 1995; and (ii) copies of the Company's recent reports filed
under the Securities Exchange Act of 1934, including, the Company's Form
l0-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
2
<PAGE>
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).
The undersigned agrees that the Company may place the 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 or any other state's 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" or, collectively, "Holders, means (i) the undersigned
purchaser of the Units or Registrable Securities and (ii) each person to
whom Holder transfers the Units or
3
<PAGE>
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.
"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(k) (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 if its then eligible
file a registration statement on Form S-3 under the Act covering the
resale of 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
4
<PAGE>
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
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
5
<PAGE>
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 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;
6
<PAGE>
(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;
(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.
7
<PAGE>
(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 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 1810-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.
(d) 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 ________________ 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.
8
<PAGE>
THE FOLLOWING PARAGRAPH 6 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.
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 50 1(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.
9
<PAGE>
_____ 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.
10
<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 S5,000,000, 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).
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: ____________________
_______________________________________________________________________
_______________________________________________________________________
11
<PAGE>
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
(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.
12
<PAGE>
(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]
13
<PAGE>
INDIVIDUAL SUBSCRIBER
Dated: April ___, 1998.
- --------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------
Signature Signature
- --------------------------------------- ------------------------------------
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
14
<PAGE>
ENTITY SUBSCRIBER
Dated: April _____, 1998.
- ---------------------------------------
Signature
- ---------------------------------------
Name Typed or Printed
- ---------------------------------------
Address
- ---------------------------------------
- ---------------------------------------
City State and Zip Code
- ---------------------------------------
Tax Identification
CERTIFICATE OF SIGNATORY
(To be completed if Units are being subscribed for by an entity)
I, _________________________, am the __________________ of _________________,
the "Entity").
I certify that I am empowered and duly authorized by the Entity to execute
and carry out he terms of the Subscription Agreement and to purchase and hold
the Units, and certify further that the Subscription has been duly and validly
authorized and executed on behalf of the Entity and constitutes a legal, valid
and binding obligation of the Entity.
IN WITNESS WHEREOF, I have signed this certificate this _____day of ,
1998.
---------------------------------------
Signature
15
<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
16
EXHIBIT 10.13
AGENT'S WARRANT
TO PURCHASE 288,381 SHARES OF COMMON STOCK
OF
U-SHIP, INC.
JUNE 8, 1998
THIS CERTIFIES THAT, for good and valuable consideration, R.J.
Steichen & Company (the "Agent"), or its registered assigns, is entitled to
subscribe for and purchase from U-Ship, Inc., a Utah corporation (the
"Company"), at any time from June 8, 1999 to and including June 8, 2003, 288,381
fully paid and nonassessable shares of the Common Stock of the Company at the
price of $0.60 per share (the "Warrant Exercise Price"), subject to the
antidilution provisions of this Warrant. Reference is made to this Warrant in
the Agency Agreement dated April 20, 1998, by and between the Company and the
Agent. The shares which may be acquired upon exercise of this Warrant are
referred to herein as the "Warrant Shares." As used herein, the term "Holder"
means the Agent, any party who acquires all or a part of this Warrant as a
registered transferee of the Agent, or any record Holder or Holders of the
Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant. The term "Common Stock" means and includes the Company's presently
authorized common stock, $.004 per share par value, and shall also include any
capital stock of any class of the Company 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 Company.
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise; Transferability.
a. The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of Common
Stock), by written notice of exercise (in the form attached hereto) delivered to
the Company at the principal office of the Company prior to the expiration of
this Warrant and accompanied or preceded by the surrender of this Warrant along
with a check in payment of the Warrant Exercise Price for such shares, subject
to the additional right to convert set forth in Section 10 hereof.
b. This Warrant is transferable in whole or in part, subject to
applicable federal and state securities laws and regulations. This Warrant may
not be sold, transferred, assigned, hypothecated or divided into two or more
Warrants of smaller denominations, nor may any Warrant Shares issued pursuant to
exercise of this Warrant be transferred, except as provided in Section 7 hereof
<PAGE>
2. Exchange and Replacement. Subject to Sections I and 7 hereof,
this Warrant is exchangeable upon the surrender hereof by the Holder to the
Company at its office for new Warrants of like tenor and date representing in
the aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in 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, in lieu of this Warrant;
provided, however, that if the Agent shall be such Holder, an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section 2.
This Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any exchange 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 2.
3. Issuance of the Warrant Shares.
a. The Company agrees that the Warrant Shares purchased hereby shall
be and are deemed to be issued to the Holder as of the close of business on the
date on which this Warrant shall have been surrendered and the payment made for
such Warrant Shares as aforesaid. Subject to the provisions of the next section,
certificates for the Warrant Shares so purchased shall be delivered to the
Holder within a reasonable time, not exceeding fifteen (15) days after the
rights represented by this Wt shall have been so exercised, and, unless this
Warrant has expired, a new Warrant representing the right to purchase the number
of Warrant Shares, if any, with respect to which this Warrant shall not then
have beat exercised shall also be delivered to the Holder within such time.
b. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in Section 9. If
registrations are not in effect and if exemptions are not available when the
Holder seeks to exercise the Warrant, the Warrant exercise period will be
extended, if need be, to prevent the Warrant from expiring, until such time as
either registrations become effective or exemptions are available, and the Wan
ant shall then remain exercisable for a period of at least 120 calendar days
from the date the Company delivers to the Holder written notice of the
availability of such registrations or exemptions. The Holder agrees to execute
such documents and make such representations, warranties, and agreements as may
A 2
<PAGE>
be required solely to comply with the exemptions relied upon by the Company, or
the registrations made, for the issuance of the Warrant Shares.
4. Covenants of the Company. The Company covenants and agrees at all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
or transfer upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant and a sufficient number of shares of Common
Stock to provide for the conversion of the Warrant Shares.
5. Antidilution Adjustments. The provisions of this Warrant are
subject to adjustment as provided in this Section 5.
a. The Warrant Exercise Price shall be adjusted from time to time
such that in case the Company shall hereafter:
i. pay any dividends on any class of stock of the
Company payable in Common Stock or securities convertible into
Common Stock;
ii. subdivide its then outstanding shares of Common
Stock into a greater number of shares; or
iii. combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the insulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Board
A 3
<PAGE>
of Directors (whose determination shall be conclusive) in good faith shall
determine the allocation of the adjusted Warrant Exercise Price between or among
shares of such classes of capital stock or shares of Common Stock and other
capital stock. All calculations under this Subsection shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be. In the
event that at any time as a result of an adjustment made pursuant to this
Subsection, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive any shares of the Company other than shares of Common
Stock, thereafter the Warrant Exercise Price of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in this Section 5.
b. Upon each adjustment of the Warrant Exercise Price pursuant to
Section S(a) above, the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as adjusted as a
result of all adjustments in the Warrant Exercise Price in effect prior to such
adjustment) by the Warrant Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the adjusted Warrant Exercise Price.
c. In case of any consolidation or merger to which the Company is a
party, or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), there shall be no adjustment under Subsection (a)
of this Section above but the Holder of each Warrant then outstanding shall have
the right thereafter to convert such Warrant into the kind and amount of shares
of stock and other securities and property which he would have owned or have
been entitled to receive immediately after such consolidation, merger, statutory
exchange, sale, or conveyance had such Warrant been converted immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale,
or conveyance and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this Section with
respect to the rights and interests thereafter of any Holders of the Warrant, to
the end that the provisions set forth in this Section shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock and other securities and property thereafter deliverable
on the exercise of the Warrant. The provisions of this Subsection shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.
d. Upon any adjustment of the Warrant Exercise Price, then and in
each such case, the Company shall give written notice thereof, by first-class
mail, postage prepaid, addressed to the Holder as shown on the books of the
Company, which notice shall state the Warrant
A 4
<PAGE>
Exercise Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares of Common Stock or other securities purchasable at
such price upon the exercise of this Warrant, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based.
6. No Voting Rights. This Warrant shall not entice the Holder to any
voting rights or other rights as a shareholder of the Company.
7. Notice of Transfer of Warrant or Resale of the Warrant Shares.
a. Subject to the sale, assignment, hypothecation, or other transfer
restrictions set for in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Company before transferring this Warrant or
transferring any Warrant Shares of such Holder's intention to do so, describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, the Company shall present copies thereof to the Company's
counsel and to counsel to the original purchaser of this Warrant. If in the
opinion of each such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities laws), the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the Holder shall be entitled to transfer this Warrant or to dispose of
Warrant Shares received upon the previous exercise of this Warrant, all in
accordance with the terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on this Warrant or the
certificates for such Warrant Shares respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel and satisfactory to the
Company to prevent further transfers which would be in violation of Section 5 of
the Securities Act of 1933, as amended (the "1933 Act") and applicable state
securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company for the transfer or disposition of the
Warrant or Warrant Shares.
b. If in the opinion of either of the counsel referred to in this
Section 7, the proposed transfer or disposition of this Warrant or such Warrant
Shares described in the written notice given pursuant to this Section 7 may not
be effected without registration or qualification of this Warrant or such
Warrant Shares the Company shall promptly give written notice thereof to the
Holder, and the Holder will limit its activities in respect to such as, in the
opinion of both such counsel, are permitted by law.
8. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay
A 5
<PAGE>
a sum in cash equal to the sum of (a) the excess, if any, of the Fair Market
Value (as defined in Section 10) of such fractional share over the proportional
part of the Warrant Exercise Price represented by such fractional share, plus
(b) the proportional part of the Warrant Exercise Price represented by such
fractional share.
9. Registration Rights.
a. If at any time prior to the end of the two-year period following
complete exercise of this Warrant or , June 8, 2005, whichever occurs earlier,
the Company proposes to register under the 1933 Act (except by a Form S4 or Form
S-8 Registration Statement or any successor forms thereto) or qualify for a
public distribution under Section 3(b) of the 1933 Act, any of its securities,
it will give written notice to all Holders of this Warrant, any Warrants issued
pursuant to Section 2 or Section 3(a) hereof, and any Warrant Shares of its
intention to do so and, on the written request of any such Holder given within
twenty (20) days after receipt of any such notice (which request shall specify
the interest in this Warrant or the Warrant Shares intended to be sold or
disposed of by such Holder and describe the nature of any proposed sale or other
disposition thereof), the Company will use its best efforts to cause all such
Warrant Shares, the Holders of which shall have requested the registration or
qualification thereof, to be included in such registration statement proposed to
be filed by the Company; provided, however, at if a greater number of Warrant
Shares is offered for participation in the proposed offering than in the
reasonable opinion of the managing underwriter of the proposed offering can be
accommodated without adversely affecting the proposed offering, then the amount
of Warrant Shares proposed to be offered by such Holders for registration, as
well as the number of securities of any other selling shareholders participating
in the registration, shall be proportionately reduced to a number deemed
satisfactory by the managing underwriter.
b. Further, to the extent that Form S-3 is available for use by the
Company and on a one-time basis only, upon request during the duration of this
Warrant by the Holder or Holders of a majority in interest of this Warrant, of
any Warrants issued pursuant to Section 2 or Section 3(a) hereof, and of any
Warrant Shares, the Company will promptly take all necessary steps to register
or qualify on Form S-3 (or such successor form) under the 1933 Act and the
securities laws of such states as the Holders may reasonably request, such
number of Warrant Shares issued and to be issued upon conversion of the Warrants
requested by such Holders in their request to the Company. The Company shall
keep effective and maintain any registration, qualification, notification, or
approval specified in this Paragraph (b) for such period as may be reasonably
necessary for such Holder or Holders of such Warrant Shares to dispose thereof
and from time to time shall amend or supplement the prospectus used in
connection therewith to the extent necessary in order to comply with applicable
law.
A 6
<PAGE>
c. With respect to each inclusion of securities in a registration
statement pursuant to this Section 9, 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 is required to bear such fees and disbursements), all internal
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and legal fees and disbursements
and other expenses of complying with state securities laws of any jurisdictions
in which the securities to be offered are to be registered or qualified. Fees
and disbursements of special counsel and accountants for the selling Holders,
underwriting discounts and commissions, and transfer taxes for selling Holders
and any other expenses relating to the sale of securities by the selling Holders
not expressly included above shall be borne by the selling Holders.
d. The Company hereby indemnifies each of the Holders of this
Warrant and of any Warrant Shares, and the officers and directors, if any, who
control such Holders, within the meaning of Section 15 of the 1933 Act, against
all 1osses, claims, damages, and liabilities caused by (1) any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (and as amended or supplemented if the Company shall
have furnished any amendments thereof or supplements thereto), any Preliminary
Prospectus or any state securities law filings; (2) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as such
losses, claims, damages, or liabilities are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Holder expressly for use therein; and each such Holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the Company, each of
its officers who signs such Registration Statement, and each person, if any, who
controls the Company, within the meaning of Section 15 of the 1933 Act, with
respect to losses, claims, damages, or liabilities which are caused by any
untrue statement or omission contained in information furnished in writing to
the Company by such Holder expressly for use therein.
10. Additional Right to Convert Warrant.
a. The Holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time after it is
exercisable but prior to its expiration, into shares of Company Common Stock as
provided for in this Section 10. Upon exercise of the Conversion Right, the
Company shall deliver to the Holder (without payment by the Holder of any
Warrant Exercise Price) that number of shares of Company Common Stock equal to
the quotient obtained by dividing (x) the value of the Warrant at the time the
Conversion Right is exercised (determined by subtracting the aggregate Warrant
Exercise Price for the Warrant Shares in effect immediately prior to the
exercise of the Conversion Right from the aggregate Fair Market Value for the
Warrant Shares immediately
A 7
<PAGE>
prior to the exercise of the Conversion Right) by (y) the Fair Market Value of
one share of Company Common Stock immediately prior to the exercise of the
Conversion Right.
b. The Conversion Right may be exercised by the Holder, at any time
or from time to time, prior to its expiration, on any business day by delivering
a written notice in the form attached hereto (the "Conversion Notice',) to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of shares of Stock the Holder will purchase
pursuant to such conversion and (ii) a place and date not less than one or more
than 20 business days from the date of the Conversion Notice for the closing of
such purchase.
c. At any closing under Section l0(b) hereof, (i) the Holder will
surrender the Warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of shares of Company Common stock
issuable upon such conversion, together with cash, in lieu of any fraction of a
share, and (iii) the Company will deliver to the Holder a new warrant
representing the number of shares, if any, with respect to which the warrant
shall not have been exercised.
d. "Fair Market Value" of a share of Common Stock as of a particular
date (the "Determination Date") shall mean:
i. If the Company's Common Stock is traded on an exchange or is
quoted on the Nasdaq National Market, then the average closing or last sale
prices, respectively, reported for the ten (10) business days immediately
preceding the Determination Date.
ii. If the Company's Common Stock is not traded on an exchange or on
the Nasdaq National Market but is traded on the Nasdaq SmallCap Market or other
over-the-counter market, then the average closing bid and asked prices reported
for the ten (10) business days immediately preceding the Determination Date, and
iii. If the Company's Common Stock is not traded on an exchange or
on the Nasdaq National Market, Nasdaq SmallCap Market or other over-the-counter
market, then the price established in good faith by the Board of Directors.
A 8
<PAGE>
IN WITNESS WHEREOF, U-Ship, Inc. has caused this Warrant to be
signed by its duly authorized officer as of the date first above written.
U-SHIP, INC.
By: /s/ Peter C. Lytle
-------------------------------------
Peter C. Lytle
Its: President and Chief Executive Officer
-------------------------------------
A 9
<PAGE>
To: U-Ship, Inc.
NOTICE OF EXERCISE OF WARRANT
To Be Executed by the Registered Holder in
Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, of the shares issuable upon the exercise of such Warrant, and
requests that certificates for such shares (together with a new Warrant to
purchase the number of shares, if any, with respect to which this Warrant is not
exercised) shall be issued in the name of
---------------------------------------
(Print Name)
Please insert social security
or other identifying number
of registered Holder of
certificate (____________) Address:
---------------------------------------
---------------------------------------
Date:
---------------------------------------
Signature*
* The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a company,
partnership, trust or other entity, PLEASE indicate your position(s) and
title(s) with such entity.
A 10
<PAGE>
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto ________________________ the right to purchase the securities of
U-Ship, Inc. to which the within Warrant relates and appoints _________________,
attorney, to transfer said right on the books of U-Ship, Inc. with full power of
substitution in the premises.
Dated:
------------------------- -----------------------------------------
Signature:
Address:
-----------------------------------------
-----------------------------------------
A 11
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 10)
The undersigned hereby irrevocably elects a cashless exercise of the
right of purchase represented by the within Warrant Certificate for, and to
purchase thereunder, ______________ shares of Common Stock, as provided for in
Section 10 therein.
Please issue a certificate or certificates for such Common Stock in
the name of, and pay any cash for any fractional share to:
Name:
----------------------------------
(Please Print Name)
Address:
----------------------------------
----------------------------------
Social Security No.:
-----------------------
Signature:
----------------------------------
NOTE: The above signature should correspond exactly with the name on
the first page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares hall not be all the shares purchasable
under the within Warrant Certificate, a new Warrant Certificate is to be issued
in the name of said undersigned for the balance remaining of the shares
purchasable thereunder rounded up to the next higher number of shares.
A 12
EXHIBIT 10.14
September 15, 1998
OfficeMax, Inc.
P. O. Box 228070
Cleveland, OH 44122
Attn: Mr. Joseph Ozmina
Divisional Vice President
RE: Installation and Marketing Agreement dated October 16, 1996 between
OfficeMax, Inc., and U-Ship, Inc. (the "Agreement")
Ladies and Gentlemen:
The purpose of this letter is to set forth the mutual agreements and covenants
of OfficeMax and U-Ship with respect to the termination of the Agreement.
1. OfficeMax and U-Ship hereby agree that effective as of the date of this
letter agreement, the Agreement is hereby terminated and shall be of no
further force and effect, except for (i) those provisions in the
Agreement, including without limitation paragraph 18, that expressly state
that the provision shall survive termination of the Agreement, and (ii)
paragraphs 7 (except for the grant of license, which license is hereby
terminated) and 9, which the parties agree shall remain in full force and
effect.
2. U-Ship shall pay OfficeMax all commissions earned up to and including the
date of the removal of the last ASC hereunder. OfficeMax shall pay U-Ship
all amounts due to U-Ship for collections made by OfficeMax for cash
payments by ASC users earned up to and including the date of the removal
of the last ASC hereunder.
3. Within ninety (90) days of the date of this letter agreement, U-Ship
shall, at its sole expense, disassemble and remove each automated shipping
center ("ASC") from each OfficeMax location as shown on Exhibit A attached
hereto and incorporated herein by reference. Such removal shall be at such
times and in such sequence as U-Ship shall determine in cooperation with
OfficeMax, during normal business hours with minimal disruption to the
business of OfficeMax. OfficeMax personnel shall reasonably cooperate with
U-Ship to allow the
<PAGE>
expeditious removal of the ASCs by U-Ship personnel or agents by providing
direction and access to the ASC location and suggesting an appropriate
path of removal. Each ASC shall remain in operation pending U-Ship's
removal of same, provided that U-Ship shall have no obligation to repair
any ASC which is damaged or inoperative pending such removal.
4. Within five business days following the removal of the last ASC by U-Ship,
OfficeMax shall pay U-Ship $22,400.
5. OfficeMax shall return to U-Ship all confidential information or
proprietary information in the possession of OfficeMax, including without
limitation software, computer discs, operating manuals, marketing
materials, specifications or the like. Notwithstanding anything contained
in this Agreement to the contrary, whether expressed or implied (i)
OfficeMax shall not disclose to any person or use any confidential or
proprietary information of U-Ship, and (ii) OfficeMax agrees that it has
no right, title or interest in, no license to, and no right to use any of
U-Ship's copyrights, trademarks, servicemarks, patents or proprietary
rights or property of any kind, including without limitation the "U-SHIP
Software" as that term is defined in the Agreement, all of which OfficeMax
agrees belong exclusively to U-Ship. OfficeMax agrees that it will not use
any such property in contravention of the restrictions of paragraph 7 of
the Agreement, which restrictions shall survive the termination of the
Agreement.
6. To the extent provided in section 16 of the Agreement, OfficeMax agrees
that it shall keep the ASCs insured against damage (with U-Ship as an
additional insured under such insurance policy) until their removal by
U-Ship hereunder.
7. Except for their obligations hereunder which shall survive termination of
the Agreement, and effective upon the removal of the last ASC hereunder,
each party hereby releases and forever discharges the other party from all
claims, demands, actions and causes of action, damages, costs, attorneys'
fees, payments and expenses of every kind, nature or description that it
may have with respect to the Agreement.
8. The validity, performance and enforcement of this letter agreement shall
be governed by the laws of the State of Ohio.
9. This letter agreement constitutes the entire agreement of OfficeMax and
U-Ship and supersedes all other understandings, written or oral, with
respect to the subject matter hereof.
<PAGE>
Please confirm your agreement with the foregoing by signing in the space
provided below.
Very truly yours,
U-Ship, Inc.
/s/ Timothy G. Becker
Timothy G. Becker
CFO and COO
The foregoing is hereby accepted and agreed to:
OfficeMax, Inc.
By /s/ Joseph Ozmina
------------------------
Joseph Ozmina
Divisional Vice President, CopyMax Product
EXHIBIT 11
U-SHIP, INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
For the Year Ended June 30,
---------------------------
1997 1998
----------- -----------
Weighted average number of issued shares outstanding 4,172,862 4,977,469
Shares outstanding used to compute net loss per share 4,172,862 4,977,469
=========== ===========
Net Loss $(2,527,918) $(1,901,130)
=========== ===========
Net Loss Per Common Share, basic and diluted $ (0.61) $ (0.38)
=========== ===========
EXHIBIT 21
SUBSIDIARIES
NAME OF SUSIDIARY STATE OF INCORPORATION
----------------- ----------------------
U-Ship International Ltd. Wisconsin
U-Ship America, Inc. Minnesota
Intelligent Kiosk Company Minnesota
Advanced Courier Services, Inc. Minnesota
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the registration statements of
U-Ship, Inc. on Form S-3/A (File No. 333-34411) and Form S-8 (File No.
333-06269) of our report dated August 7, 1998, except for Note 11, as to which
the date is September 15, 1998, relating to the consolidated financial
statements of U-Ship, Inc. and subsidiaries as of June 30, 1998 and for the year
then ended, which report appears in this June 30, 1998 annual report on Form
10-KSB of U-Ship, Inc.
/s/ LURIE, BESIKOF, LAPIDUS & CO., LLP
--------------------------------------
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
September 28, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-KSB, into the Company's
previously filed Registration Statement File Nos. 333-06269 and 333-34411.
/s/ARTHUR ANDERSEN LLP
--------------------------------------
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
September 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,853,693
<SECURITIES> 0
<RECEIVABLES> 83,529
<ALLOWANCES> 0
<INVENTORY> 501,641
<CURRENT-ASSETS> 2,438,863
<PP&E> 1,873,213
<DEPRECIATION> (934,054)
<TOTAL-ASSETS> 3,552,926
<CURRENT-LIABILITIES> 291,177
<BONDS> 0
0
17,822
<COMMON> 19,919
<OTHER-SE> 3,163,004
<TOTAL-LIABILITY-AND-EQUITY> 3,552,926
<SALES> 952,858
<TOTAL-REVENUES> 952,858
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,857,642
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,654)
<INCOME-PRETAX> (1,901,130)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,901,130)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,901,130)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
