U.S. SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File No. 0-27780
UNITED SHIPPING & TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0355929
- --------------------------------- ---------------------------------
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
9850 51st Avenue North, Suite 110, Plymouth, MN 55442
-----------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (612) 941-4080
United Shipping & Technology, Inc. was formerly known as U-Ship, Inc.
The Company's previous address was 5583 W. 78th St., Edina, MN 55439
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
As of May 14, 1999, there were 10,109,537 shares of common stock of the
registrant issued and outstanding.
Transitional Small Business Disclosure.
YES [ ] NO [X]
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
Page
----
PART I. FINANCIAL INFORMATION.................................................3
ITEM 1.
a) Condensed Consolidated Financial Statement (UNAUDITED)
b) Condensed Consolidated Balance Sheets -
March 31, 1999 and June 30, 1998..................................3
c) Condensed Consolidated Statements of
Operations - Three and Nine months ended
March 31, 1999 and 1998...........................................4
d) Condensed Consolidated Statements of
Cash Flows - Nine months ended
March 31, 1999 and 1998...........................................5
e) Notes to Condensed Consolidated Financial
Statements........................................................6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................7
PART II. OTHER INFORMATION...................................................14
ITEM 1. Legal Proceedings................................................14
ITEM 2. Changes in Securities and Use of Proceeds........................14
ITEM 3. Defaults upon Senior Securities..................................14
ITEM 4. Submission of Matters to a Vote of Securities Holders............14
ITEM 5. Other Information................................................15
ITEM 6. Exhibits ........................................................15
SIGNATURES.......................................................16
EXHIBIT INDEX................................................................17
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNITED SHIPPING & TECHNOLOGY, INC.
Condensed and Consolidated Balance Sheets
As of
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 411,656 $ 153,693
Short-term investments -- 1,700,000
Accounts receivable 316,955 83,529
Inventories 1,028,232 501,641
Prepaid expenses and other 277,873 --
------------ ------------
Total current assets 2,034,716 2,438,863
------------ ------------
PROPERTY AND EQUIPMENT
Shipping centers 825,439 1,335,234
Furniture, fixtures and equipment 609,524 537,979
Less accumulated depreciation (877,707) (934,054)
------------ ------------
Total property and equipment,net 557,256 939,159
------------ ------------
OTHER ASSETS, net 1,908,568 174,904
------------ ------------
$ 4,500,540 $ 3,552,926
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 40,692 $ 52,881
Accounts payable 529,183 74,143
Accrued liabilities 203,400 144,928
Deferred revenue -- 19,225
------------ ------------
Total current liabilities 773,275 291,177
------------ ------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 1,374,147 61,004
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, $.004 par value; 25,000,000 shares authorized;
4,500,000 shares designated series A cumulative convertible;
0 and 4,455,498 issued and outstanding -- 17,822
Common stock, $.004 par value; 75,000,000 shares authorized;
10,109,537 and 4,979,709 issued and outstanding 40,438 19,919
Additional paid-in capital 14,142,426 12,935,347
Accumulated deficit (11,829,746) (9,772,343)
------------ ------------
Shareholders' equity 2,353,118 3,200,745
------------ ------------
$ 4,500,540 $ 3,552,926
============ ============
</TABLE>
The accompanying notes are an integral part of the
condensed and consolidated financial statements.
3
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UNITED SHIPPING & TECHNOLOGY, INC.
Condensed and Consolidated Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE $ 482,530 $ 212,719 $ 754,616 $ 765,334
EXPENSES
Direct shipping and equipment sales 354,751 181,391 601,489 617,213
General and administrative 751,408 316,434 1,700,896 1,205,642
Marketing and sales 79,604 8,638 245,296 76,105
Research and development 67,293 22,037 273,123 120,759
----------- ----------- ----------- -----------
1,253,056 528,500 2,820,804 2,019,719
Loss from operations (770,526) (315,781) (2,066,188) (1,254,385)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 2,605 775 44,176 15,679
Interest expense (29,057) (5,146) (35,391) (17,619)
----------- ----------- ----------- -----------
Net Loss (796,978) (320,152) (2,057,403) (1,256,325)
=========== =========== =========== ===========
Basic & diluted net loss per share: $ (0.11) $ (0.06) $ (0.36) $ (0.25)
=========== =========== =========== ===========
Basic & diluted weighted
average number of common
shares outstanding 7,214,350 4,979,709 5,721,014 4,976,732
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
condensed and consolidated financial statements.
4
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC.
Condensed and Consolidated Statement of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $(2,057,403) $(1,256,325)
Adjustments to reconcile net loss to net cash flows
used for operating activities-
Depreciation and amortization 312,623 400,015
(Gain)/Loss on retirement of equipment -- 1,986
Change in operating assets and liabilities:
Accounts receivable 49,843 63,770
Inventories (120,591) 126,180
Prepaid expenses and other (277,873) 26,408
Accounts payable 364,575 124,267
Accrued liabilities and Deferred revenue 39,247 (189,187)
----------- -----------
Cash used by operating activities (1,689,579) (702,886)
----------- -----------
INVESTING ACTIVITIES
Sale of equipment -- 20,621
Purchases of property and equipment (158,955) (246,179)
Purchase of other assets (324,265) --
Cash paid for acquisition (809,809) --
Sale of short-term investments 1,700,000 250,000
----------- -----------
Cash provided (used) by investing activities 406,971 24,442
----------- -----------
FINANCING ACTIVITIES
Payments on notes payable and long-term debt (49,046) (31,191)
Proceeds from notes payable and long-term debt 1,350,000 --
Proceeds from sale of common stock 239,617 20,783
----------- -----------
Cash provided (used) by financing activities 1,540,571 (10,408)
----------- -----------
Net increase (decrease) in cash and cash equivalents 257,963 (688,852)
Cash and cash equivalents, beginning of period 153,693 724,260
----------- -----------
Cash and cash equivalents, end of period $ 411,656 $ 35,408
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 35,391 $ 17,619
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment returned to inventory $ 405,500 --
Assets acquired in connection with the acquisition of Gel Trucking,
Inc. and Twin City Transportation, Inc. were as follows:
Allocation of cost based on fair value of assets and liabilities
acquired:
Current assets $ 284,169 --
Property and equipment 113,802 --
Intangible assets 1,472,462 --
Accounts Payable (90,465) --
----------- -----------
1,779,968 --
Less fair market value of common stock issued 970,159 --
Net cash paid for acquisition $ 809,809 --
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
condensed and consolidated financial statements.
5
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by United Shipping & Technology, Inc. (formerly known as U-Ship, Inc.)
which, together with its wholly-owned subsidiaries, shall be referred to herein
as the "Company", without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The Company's business is seasonal and,
accordingly, interim results are not indicative of results for a full year. In
the opinion of the Company, all adjustments consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the Company
as of March 31, 1999, and the results of its operations for the three and nine
months ended March 31, 1999 and 1998, and its cashflows for the nine months
ended March 31, 1999 and 1998 have been included. Certain information in
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. These consolidated financial statements should be read in
conjunction with the financial statements for the year ended June 30, 1998, and
the footnotes thereto, included in the Company's Report on Form 10-KSB, filed
with the Securities and Exchange Commission.
1. Basis of Presentation:
Principles of consolidation - The consolidated financial statements include the
accounts of United Shipping & Technology, Inc. and its wholly owned
subsidiaries. All inter-Company balances and transactions have been eliminated
in the consolidation.
2. Revenue Recognition:
The Company has historically generated revenue from: The per-package shipping
revenue generated from ongoing shipping volume at its Intelligent Shipping
Kiosks (ISKs), the sale of ISKs and custom built intelligent kiosks, and to a
lesser extent, from the sale of shipping supplies and maintenance contracts.
Revenues for the three month period ended March 31, 1999 also include for the
first time, revenues from the company's courier subsidiary, Advanced Courier
Services, Inc. ("ACS").
Package shipping revenue is recognized when the package is shipped. Revenue from
maintenance contracts is deferred and recognized over the period of the related
agreement.
3. Basic and Diluted Net Loss Per Share:
In the second quarter of fiscal 1998, the Company adopted SFAS No. 128,
"Earnings per Share" which is effective for interim periods ending after
December 15, 1997. As a result, all prior period earnings per share data has
been restated. The adoption of SFAS No. 128 did not have a significant impact on
previously reported earnings per share. Basic earnings per common share was
computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period. Dilutive earnings per common share
was computed similar to the computation of basic earnings per share, as the
inclusion of options and warrants would be antidilutive. Total options and
warrants outstanding for the periods ended March 31, 1999 and 1998 were
5,088,453 and 1,856,946, respectively.
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
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-QSB 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-QSB 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.
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-QSB 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. REFERENCE IS MADE TO THE CAUTIONARY
LANGUAGE UNDER THE CAPTION "FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS" IN
THE COMPANY'S 10-KSB FOR FISCAL YEAR END JUNE 30, 1998, FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1998.
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 SUCCESSFULLY
DEVELOP AND IMPLEMENT AN ACQUISITION STRATEGY, INCLUDING THE ABILITY TO
SUCCESSFULLY INTEGRATE AND MANAGE ACQUIRED COMPANIES; (2) 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; (3) THE
ABILITY OF THE COMPANY TO SUCCESSFULLY REDEPLOY EXISTING COMPANY-OWNED ISKs TO
HIGHER VOLUME LOCATIONS; (4) 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;
(5) THE UNCERTAINTIES SURROUNDING TECHNOLOGICAL CHANGES AND THE COMPANY'S
DEPENDENCE UPON COMPUTER SYSTEMS AND THIRD PARTIES WHO MANUFACTURE AND MARKET
THE SAME; (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.
GENERAL
Beginning in 1991, the primary business of the Company was the
development, manufacturing, 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. The Company's intelligent shipping kiosks ("ISKs") were designed to be
installed at the shipping hubs of major package carriers such as United Parcel
Service ("UPS"), and to be placed in office services and copy centers, such as
Kinko's Copy Centers, and in other retail locations such as grocery and general
merchandise stores. The Company's goal was to utilize its proprietary technology
to allow small business and individuals expanded access to shipping services.
The Company holds nine patents related to hardware and software
utilized in its ISKs. Each ISK location is centrally controlled and serviced
through an electronic connection to the Company's computer network system. While
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, lower than expected revenues from the placement
of ISKs in the field caused the Company to reevaluate its placement of shipping
systems.
7
<PAGE>
As a result of this reevaluation, beginning in fiscal 1998, the Company
substantially revised its business strategy to take advantage of a perceived
opportunity to combine its ISK technology with a consolidation of the intraday
courier industry, and to expand the use of the ISK technology in other areas. In
early 1999, the Company began implementation of its courier "rollup" with the
purchase of two Twin Cities courier and transportation companies. Other
acquisitions are currently being pursued. The Company is also engaged in the
production of custom built computerized kiosks for a third party in the
employment information business. The Company currently derives revenue primarily
from its courier operations and ISK package shipping transactions and, to a
lesser extent, from the sale of ISKs and custom built computerized kiosks.
REVISED BUSINESS STRATEGY
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. Based upon information gathered from the
operation of over 300 ISKs in various retail locations such as Kinko's Copy
Centers and CopyMax, the Company determined that existing ISKs were unable to
offer customers the range of shipping choices needed to provide true convenience
of package delivery (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). To address these needs the Company concluded that it needs to have
the in-house capability to provide its own pick up and redelivery of packages
from its ISKs to the major carriers. Market research by the Company's
consultants also indicated that such services may offer a lucrative opportunity
if the Company combines this pick up service with a courier business.
As a result, the Company has identified an opportunity to integrate the
package collection and courier markets and provide increased service options to
its customers. By utilizing the Company's ISK technology both for traditional
package and letter delivery as well as acting as a computerized depository for
courier services, the Company is able to pursue a courier "roll up" strategy
with a unique technological advantage. Once its core courier business is
established, the Company sees an opportunity to expand its operations into the
fast growing web-based commerce industry. The growth of Internet shopping should
create a large market for a technology based courier service to provide both
pickup and delivery services for returned goods (possibly using the ISK as a
depository for consumer returns), as well as the opportunity to participate in
the custom warehousing and delivery services needed for product fulfillment. The
Company believes its technology combined with a courier service can provide a
wide variety of consumers and end users with significant value and will allow
the Company to attract these consumers and end users as customers.
ADVANCED COURIER SERVICES, INC.
To implement its courier roll up strategy, the Company formed a new
subsidiary, Advanced Courier Services, Inc. This subsidiary is actively seeking
acquisitions with the intent of establishing first a regional and then a
national position in the intraday courier business. If the Company is successful
in establishing several key markets, it then plans to expand the concept by a
franchise or similar programs to further leverage a brand name, generate
additional revenues and further explore advances in the Company's technologies
to create greater customer intimacy.
While the courier industry is very large (estimated at over $23 billion
in 1995), the Company's research indicates that the business is highly
fragmented, with no dominant brands and extremely low technological innovation.
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).
On December 11, 1998, the Company, through ACS, purchased substantially
all of the assets of JEL Trucking, a Minneapolis based trucking company engaged
in dock truck and courier shipments, for a combination of cash and the Company's
common stock. Additionally, on January 13, 1999, the Company acquired, through
ACS, Twin City Transportation, Inc., a Minneapolis based courier with revenue of
approximately $1.8 million and 50 drivers, for a combination of cash and the
Company's common stock. The Company continues to evaluate
8
<PAGE>
potential acquisitions of other courier and transportation services, and has
signed letters of intent to acquire additional courier operations. There can be
no assurance that the Company will be able to successfully complete these or any
additional acquisitions.
As part of its marketing efforts for ACS, the Company is seeking 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 potential franchisees, which the Company
expects can result in more efficient use of advertising dollars and improved
future profitability for the Company. There can be no assurance that the Company
will be successful in its efforts to acquire and utilize a nationally recognized
brand.
INTELLIGENT KIOSK COMPANY
The Intelligent Kiosk Company ("IQK") was incorporated as a subsidiary
of the Company 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 believes that its unique kiosk and information management
technology will allow for the integration of the ISK with courier and in-house
delivery services. This technology will be the cornerstone for the Company's
"roll up" of courier and other related services on a regional or national scale,
providing both efficiency and a clear point of differentiation with competitors.
To this end, the Company plans to utilize its ISKs as an "electronic drop box"
for courier services provided through its subsidiary, ACS. As part of this
strategy, ISKs are being redeployed from retailers outside the Twin Cities, such
as Copy Max. Because the ISKs are linked electronically to the Company's central
computers, they will allow for immediate notification to a courier that a pickup
is needed at a particular site. In addition, 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.
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 identified the kiosk
market as potentially providing the opportunity for growth based on the
Company's existing technology and manufacturing capabilities experience. The
Company believes that its current ISK design is readily adaptable to use as
computerized kiosks, with little modification, thereby reducing developmental
costs. As of March 31, 1999, the Company had manufactured 64 information kiosks
for this customer, and has entered into a joint venture agreement to become the
exclusive supplier of kiosks to this customer.
The Company is also engaged in the marketing of its automated shipping
(ISK) technology to major carriers for the purpose of automating their package
intake hubs. The Company believes that the use of its ISKs by major carriers for
use in their hubs will allow for more efficient package intake and use of
existing personnel in servicing customers. In November of 1998, the Company
entered into a pilot test program with one of the world's largest carriers. As
part of this test, the Company has installed its ISKs in one of the carrier's
hubs for use at its commercial package shipping counter. Customers use the ISKs
to ship packages, rather than using traditional counter personnel to do the job,
thereby increasing the carrier's efficiency and allowing the customer easier
payment for shipping services via the Company's built-in credit card swipe.
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
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. There can be no assurance that the Company
will be successful in raising the required funds to implement the plans outlined
above.
9
<PAGE>
In order to highlight the adoption by the Company of the revised
business strategies outlined above, the Company previously applied for the use
of "United Shipping and Technology" as an assumed business name in the State of
Minnesota. At its annual meeting on May 3, 1998, the Company received
shareholder approval for the change of its name to "United Shipping &
Technology, Inc."
RESULTS OF OPERATIONS
Revenue for the three months ended March 31, 1999 increased $269,811 or
127% to $482,530 from $212,719 for the same period in 1998. Revenue for the nine
months ended March 31, 1999 decreased $10,718 or 1.4% to $754,616 from $765,334
for the corresponding period in 1998. Revenues related to ACS and IQK
respectively for the three months ended March 31, 1999 were $376,773 and
$99,864. Prior to this period, there were no significant revenues reported for
ACS. Revenues for IQK for this period as compared to the same period in 1998
decreased due to the reduced number of ISKs in service as the Company continues
its redeployment strategy.
Direct shipping and equipment sales expense and other direct expenses
increased $173,360 or 96% to $354,751 from $181,391 for the corresponding period
in 1998. For the nine month period ended March 31, 1999, direct shipping and
equipment sales expenses decreased $15,724 or 2.5% to $601,489 from $617,213 for
the same period in 1998. The increase for the three month period reflects the
additional courier revenues and related expenses as compared to the same period
for 1998. The decrease for the nine month period similarly reflects the change
in revenues as well as reduction of kiosk related package shipping charges as
the Company effects its redeployment strategy.
General and administrative expenses for the three months ended March
31, 1999, increased $434,974 or 137% to $751,408 from $316,434 for the same
period in 1998. General and administrative expenses for the nine months ended
March 31, 1999 increased $495,254 or 41% to $1,700,896 from $1,205,642 for the
same period in 1998. Personnel expenses attributed to the majority of the
increases for both periods. Significant staff reductions and operating expense
reductions were implemented during 1998. As a result of the Company's revised
business strategy, significant efforts have been undertaken to develop
acquisition activities and to rebuild an experienced management team to
implement the strategy.
Marketing and sales expenses for the three months ended March 31, 1999
increased $70,966 or 822% to $79,604 from $8,638 for the same period in 1998.
For the nine month period ended March 31, 1999 marketing and sales expenses
increased $169,191 or 222% to $245,296 from $76,105 for the same period in 1998.
The increase for both periods is the result of staff additions required to
implement the redeployment strategy and to establish marketing programs for both
IQK and ACS.
Research and development expenses for the three months ended March 31,
1999, increased $45,256 or 205% to $67,293 from $22,037 for the corresponding
period in fiscal 1998. Research and development costs for the nine month period
ended March 31, 1999 increased $152,364 or 126% to $273,123 from $120,759 for
the corresponding period in 1998. The increase in research and development
expense is attributed to the development of new software tools for the ISKs.
Interest income increased to $2,605 for the three months ended March
31, 1999 compared to $775 for the same period in 1998. For the nine month period
ended March 31, 1999 interest income increased to $44,176 from $15,679 for the
same period in 1998. For both periods, the increase is primarily a result from
the investment of cash surpluses generated from the Company's private offerings
in May and June 1998 and it issuance of 12% notes in December 1998. Interest
expense increased from $5,146 for the three month period ended December 31, 1998
to $29,057 for the same period in 1999. Interest expense for the nine month
period ended March 31, 1999 increased to $35,391 from $17,619 for the
corresponding period in 1998. The increase is primarily due to the increase in
debt upon issuance of the Company's 12% notes on December 31, 1998.
Net loss for the three months ended March 31, 1999, increased $476,826
to $796,978 from $320,152 for the same period in the prior year. The net loss of
the nine month period ended March 31, 1999 increased $801,078
10
<PAGE>
to $2,057,403 from $1,256,325 for the same period in 1998. The Company expects
to incur additional losses while it begins implementation of the revised
business strategy.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has operated at a loss and has funded its
operations from the proceeds of public and private equity offerings. In order to
finance the implementation of the revised business strategy outlined above, the
Company completed two private placements raising over $2.6 million equity
capital from private investors during the fiscal year ended June 30, 1998. By
separate closings on April 22, 1998, June 2, 1998, and June 8, 1998, the Company
completed private placements in which it sold to accredited investors 4,455,498
shares of its newly-created Series A Cumulative Convertible Preferred Stock,
together with Warrants to purchase 2,227,749 shares of Common Stock. The
Preferred Shares and Warrants were sold in Units, at a purchase price of $1.20
per Unit. The total net consideration from the sale of the Units in these
offerings was $2,420,859. On February 25, 1999, each of the Preferred Shares
issued pursuant to these private placements was mandatorily converted into one
share of the Company's Common Stock. On December 31, 1998, the Company sold to
accredited investors its 12% Unsecured Notes (the "1998 Notes") in the principal
aggregate amount of $1.10 million, together with warrants to purchase an
aggregate of 29,333 shares of the Company's common stock. 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 continues its efforts to raise additional cash for
acquisitions and working capital needs. On February 26, 1999, the Company sold
to an accredited investor a 12% Unsecured Note in the principal amount of
$250,000, together with a warrant to purchase 3,850 shares of the Company's
common stock an exercise price of $3.25 per share, and an additional warrant to
purchase 11,150 shares of the Company's common stock an exercise price of $3.75
per share, both warrants for a period of 5 years. On March 16, 1999, the Company
sold to an accredited investor 16,000 shares of Common Stock at a purchase price
of $3.125 per share, together with a warrant to purchase 2,500 shares of Common
Stock at an exercise price of $3.50 per share for a period of 5 years. In April
of 1999, the Company sold to accredited investors for an aggregate purchase
price of $100,000, warrants to purchase an aggregate of 100,000 shares of the
Company's common stock at an exercise price of $1.75 per share for a period of 5
years.
Inventory increased $526,591 as of March 31, 1999, compared to June 30,
1998. The Company has increased its purchase of materials during the quarter in
order to implement the new ISK redeployment strategy. In addition, the Company
reclassified the ISKs which were recalled from CopyMax from fixed assets to
inventory as they were being retrofitted to ET300 series in anticipation of
reselling them into the market. Accounts receivable increased $304,108 as of
March 31, 1999, compared to June 30, 1998. The increase is primarily due to the
acquisitions made by ACS. Accounts payable increased $454,242 over the same
period due to the acquisitions and the increased level of purchases associated
with the redeployment efforts. Accrued liabilities increased $47,273 for the
three month period ended March 31, 1999 compared to the same period 1998 due to
the acquisitions.
During the nine month period ended March 31, 1999, the Company incurred
$235,656 of costs associated with the development of a new operating system for
the ET series kiosks. These costs are capitalized and included in Property and
Equipment.
In fiscal 1999 and beyond, the Company plans to focus on the various
aspects of its courier roll up strategy, making acquisitions in the intraday
courier market and supporting technology, the acquisition or building of a
nationally recognized brand name to be used in conjunction with such services,
and related advertising, as well as on the continued development of its
intelligent kiosk technology for both the shipping and information retrieval
market. The Company believes that these efforts will require the Company to
expend significant capital. While the Company will seek to acquire courier
companies that have profits or positive cash flow, or that have the potential to
generate positive cash flow in the future, it is likely that any positive
cashflow that would otherwise result will be utilized in connection with the
Company's ongoing consolidation strategy. The Company believes that these
revised strategies, while initially requiring additional cash outlays, will
result in greater revenues from courier operations, sales and licensure of ISK
technology and package shipping revenues, although no assurance can be given
that such revenues will increase appreciably as a result of these initiatives in
the near future, if at all. The
11
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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 and/or obtain debt
financing.
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
additional 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's loss for the three months ended March 31, 1999 was $769,978. 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. Based on current commitments and ongoing working capital needs, the
Company will continue to require substantial additional debt or equity funding
to continue to implement its revised business strategy, including acquisitions.
The Company's cash needs and usage may vary based on the outcome of these
initiatives. At the present time, the Company has no commitments from any person
to provide additional financing to the Company. 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. While the Company is
not now in a position to determine the price at which its securities may be
issued in any subsequent equity or debt financing, it is likely that additional
equity or debt financing will be highly dilutive to existing shareholders.
THE COMPANY'S YEAR 2000 READINESS
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, in less than a year, computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements.
The Company is presently assessing its Year 2000 readiness for
operations, focusing on critical operating and applications systems,
particularly the Year 2000 compliance of: (i) the product lines, (ii) the key
software/hardware vendors, and (iii) the financial accounting systems of the
Company, in light of its recent acquisitions.
Because the Company's internal computer systems were either developed
or upgraded in the early 1990's, substantial infrastructure concerns inherent in
hardware and software systems developed and placed into service at an earlier
date are not a primary concern. As a result, management does not consider that
the incremental costs directly related to Year 2000 issues will be material.
Costs incurred prior to 1999 were also immaterial. The Company does not expect
to incur significant Year 2000 related costs on its internal computer systems.
The Company believes that its greatest Year 2000 risk for disruption to
its business may be the potential noncompliance of its systems which are in its
ISKs which are currently in the market. The Company is currently in the process
of assessing and testing such systems in order to determine whether any of
theses machines are not Year 2000 compliant. If such machines are not Year 2000
compliant, the Company intends to replace or upgrade the systems to make them
Year 2000 compliant. The cost of doing this testing and the possible
replacements or upgrading is estimated to be less than $50,000. The testing and,
if necessary, the replacement or upgrading the systems which are in the ISKs is
estimated to be completed by late 1999.
The Company has established a team to survey the Year 2000 readiness of
its critical vendors, although management presently has little information
concerning their Year 2000 compliance status. In the event that any such key
vendors do not achieve Year 2000 compliance in a timely manner, or at all, the
Company's business or operations could be adversely affected. The team is also
charged with investigating the Year 2000 readiness of customers, agents and
other third parties which the Company deals with. The Company has identified
critical suppliers, customers and other third parties and is in the process of
surveying their Year 2000 remediation programs. The Company estimates that risk
assessments and contingency plans, where necessary, will be finalized in late
1999.
12
<PAGE>
As a part of its Year 2000 assessment, the Company intends to
demonstrate its Year 2000 readiness by simulating the Year 2000 in an
orchestrated manner for its key infrastructure components, critical business
processes and key applications systems. The Company expects that minor Year 2000
compliance issues will be identified as an outcome of the Year 2000 simulation
test and intends to address these compliance issues no later than the last
quarter of calendar 1999.
The Company recognizes the need for Year 2000 contingency plans in the
event that remediation is not fully successful or that the remediation efforts
of its vendors, suppliers and governmental/regulatory agencies are not timely
completed. The Company intends to address contingency planning during calendar
1999.
The Company intends to complete its Year 2000 remediation efforts
primarily with in-house resources, but will utilize consultants should the need
arise. The Company believes that the costs of Year 2000 remediation described
above will not be material and can be funded from operations.
The Company recognizes that issues related to Year 2000, insofar as
they relate to the Company's ISKs which were placed in service prior to 1998,
constitute a material known uncertainty. The Company also recognizes the
importance of ensuring its operations will not be adversely affected by Year
2000 issues. The Company's Year 2000 efforts are ongoing and its overall plan,
as well as the consideration of contingency plans, will continue to evolve as
new information becomes available. The Company believes that the processes
described above will be effective to manage the risks associated with the
problem. However, there can be no assurance that the processes can be completed
on the timetable described above or that remediation will be fully effective.
The failure to identify and remediate Year 2000 issues, or the failure of users
of the Company's ISKs, key vendors or other critical third parties who do
business with the Company to timely remediate their Year 2000 issues could cause
system failures or errors, business interruptions and, in a worst case scenario,
the inability to engage in normal business practices for an unknown length of
time. The effect on the Company's operation, income and financial condition
could be materially adverse.
If the Company's suppliers or customers fail to complete any required
Year 2000 remediation of their computer systems or product offering company
could suffer delays in product delivery or in processing payments owed to the
Company. In addition, if any products or services sold by the Company to its
customers were to fail, the Company could be liable to its customers for damages
and costs to the extent that the Company's suppliers do not cover such
liability. Any such Year 2000 failures could have a material adverse effect on
the Company's business, operating results, or financial condition.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
The Company is not a party to any material pending or threatened legal
proceedings. The Company is subject to legal proceedings in the
ordinary course of its business, none of which the Company believes is
material.
ITEM 2 - Changes in Securities and Use of Proceeds
On February 25, 1999, the Company sold to an accredited investor a 12%
Unsecured Note in the principal amount of $250,000, together with a
warrant to purchase 3,850 shares of the Company's common stock an
exercise price of $3.25 per share, and an additional warrant to
purchase 11,150 shares of the Company's common stock an exercise price
of $3.75 per share, both warrants for a period of 5 years. The Company
intends to use the net proceeds from the sale of the Note in connection
with its efforts to obtain a nationally recognized brand name.
On March 16, 1999, the Company sold to an accredited investor 16,000
shares of Common Stock at a purchase price of $3.125 per share,
together with a warrant to purchase 2,500 shares of Common Stock at an
exercise price of $3.50 per share for a period of 5 years.
On April 12, 1999, and on April 14, 1999, the Company sold to two
accredited investors for an aggregate purchase price of $100,000,
warrants to purchase an aggregate of 100,000 shares of the Company's
common stock at an exercise price of $1.75 per share for a period of 5
years.
No underwriter was used in connection with any of the above-referenced
securities transactions, and no underwriting commissions were paid. The
securities in each transaction were sold to a limited group of
accredited investors in a private placement transactions, exempt from
registration under Section 4(2) of the Securities Act of 1933, as
amended. Except where otherwise indicated, the Company intends to use
the net proceeds from the sale of these securities for working capital
and to fund acquisitions.
ITEM 3 - Defaults upon Senior Securities
Not Applicable
ITEM 4 - Submission of Matters to a Vote of Securities Holders
The 1998 Annual Meeting of Shareholders was held on May 3, 1999.
Five proposals were submitted for shareholder approval, all of which
passed with voting results as follows:
(1) To elect seven directors for the ensuing year and until their
successors are duly elected and qualified.
For Withhold Non-Votes
--------- -------- ---------
Peter C. Lytle 6,803,650 2,395 88,401
Timothy G. Becker 6,803,650 2,395 88,401
Marshall T. Masko 6,803,650 2,395 88,401
James A. Bartholomew 6,803,650 2,395 88,401
Marlin Rudebusch 6,803,650 2,395 88,401
Susan M. Clemens 6,803,650 2,395 88,401
Ronald G. Olson 6,803,650 2,395 88,401
14
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(2) To consider and vote upon the amendment to the Company's Restated
Articles of Incorporation to change the name of the Company to United
Shipping & Technology, Inc.
For: 6,811,320 Against: 1,695
Abstain: 3,030 Non-Votes: 78,401
(3) To consider and vote upon amendments to the Company's 1995 Stock
Option Plan, including an amendment to increase the number of shares
for which options may be granted under such plan from 450,000 to
1,950,000 shares.
For: 4,336,414 Against: 378,651
Abstain: 352,436 Non-Votes: 1,826,945
(4) To consider and vote upon amendments to the Company's 1996 Director
Stock Option Plan, including an amendment to increase the number of
shares for which options may be granted under such plan from 100,000 to
210,000 shares.
For: 4,347,418 Against: 597,318
Abstain: 122,675 Non-Votes: 1,826,945
(5) To ratify the appointment of Lurie, Besikof, Lapidus & Co., LLP
independent certified public accountants, as auditors of the Company
for its fiscal year ending June 30, 1999.
For: 6,469,485 Against: 18,170
Abstain: 328,390 Non-Votes: 78,401
ITEM 5 - Other Information
Not Applicable
ITEM 6 - Exhibits and Reports on Form 8-K
a. Exhibits required by Item 601 of Regulation S-B
Exhibit 4.1 Form of 12% Short Term Note issued in February of
1999
Exhibit 4.2 Form of Warrant issued to purchaser of 12% Short
Term Note in February of 1999
Exhibit 10.1 Form of Warrant issued to purchaser in March 16,
1999 sale of Common Stock and Warrant
Exhibit 10.2 Form of Warrant issued to purchasers in April,
1999 sale of Warrants
Exhibit 27 Financial Data Schedule
b. Current Reports on Form 8-K for the second quarter ended March
31, 1999.
The Company filed a Current Report on form 8-K on January 27,
1999 and an amendment thereto on March 29, 1999.
15
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned; thereunto duly
authorized, in they City of Plymouth, State of Minnesota on May 17, 1999.
UNITED SHIPPING & TECHNOLOGY, INC.
By: /s/ Peter C. Lytle
-------------------------------------
Peter C. Lytle
President and Chief Executive Officer
16
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
Exhibit 4.1 Form of 12% Short Term Note issued in February of 1999
Exhibit 4.2 Form of Warrant issued to purchaser of 12% Short Term Note
Exhibit 10.1 Form of Warrant issued to purchaser in March 16, 1999 sale
of Common Stock
Exhibit 10.2 Form of Warrant issued to purchasers in April, 1999 sale
of Warrants
Exhibit 27 Financial Data Schedule
EXHIBIT 4.1
PROMISSORY NOTE
$250,000.00 Minneapolis, Minnesota
February 26, 1999
FOR VALUE RECEIVED, effective this 26th day of February, 1999, the
undersigned, U-Ship, Inc., a Utah corporation, ("BORROWER"), hereby agrees and
promises to pay to the order of _____________ ("HOLDER") at such place as Holder
may from time to time designate, the principal sum of Two Hundred Fifty Thousand
Dollars ($250,000.00) upon such terms and conditions as are set forth below.
This Note shall not bear interest. In lieu of interest on the unpaid
principal balance hereunder, the Company shall grant to the Holder a warrant to
purchase (a) 3,850 shares of Common Stock of the Company $.004 par value per
share (the "Common Stock") at an exercise price of $3.25 per share, and (b)
11,150 shares of Common Stock at an exercise price of $3.75 per share, all
pursuant to that certain Note Agreement between Borrower and Holder dated as of
the date hereof (the "Note Agreement").
The principal amount of this Note shall be due and payable in full no
later than the earlier to occur of (a) one hundred eighty (180) days from and
after the date of issuance of the Note, or (b) written demand for repayment
under paragraph 3 of the Note Agreement (in either case, the "Maturity Date").
The outstanding principal balance evidenced by this Note may be prepaid in
full or in part at any time, without premium or penalty of any kind.
This Note is given pursuant to the terms and provisions of that certain
Note Agreement between the parties dated the date hereof.
It is agreed that time is of the essence in the performance of this Note.
The occurrence of any of the following shall be deemed an "Event of
Default" under this Note:
(1) the Company defaults in the payment of the principal of this Note
when the same becomes due and payable at the Maturity Date, upon
redemption or otherwise;
(2) a court of competent jurisdiction enters a final judgment for the
payment of money in excess of $500,000 against the Company or any
subsidiary and such judgment remains undischarged for a period
(during which execution shall not be effectively stayed) of 30 days;
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<PAGE>
(3) the Company pursuant to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case,
(c) consents to the appointment of a Custodian of it or for all or
substantially all of its property, or
(d) makes a general assignment for the benefit of its creditors,
(4) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against the Company or any material subsidiary
in an involuntary case,
(b) appoints a Custodian of the Company or any material subsidiary
or for all or substantially all of its property, or
(c) orders the liquidation of the Company or any material
subsidiary, and the order or decree remains unstayed and in
effect for 60 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal
or State Law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
Upon the occurrence of an Event of Default, Holder shall have the right
and option to declare, upon 10 days' prior written notice to Borrower, all
remaining unpaid principal and other amounts due under this Note to be
immediately due and payable. Holder may exercise this option to accelerate at
any time after the occurrence of any Event of Default, regardless of any
forbearance by Holder. The remedies of Holder, as provided herein and in the
Note Agreement shall be cumulative and concurrent and may be pursued singularly,
successively, or together at the discretion of Holder and may be exercised as
often as the occasion therefor shall arise.
Upon the occurrence of an Event of Default as described above, Borrower
shall pay Holder all expenses and costs of collection, or any other action taken
as a result thereof, including, but not limited to, attorney's fees and costs,
whether or not suit or other formal action has been commenced.
Borrower waives presentment for payment, protest and notice of non-payment
and dishonor or any other notice otherwise provided by law.
No delay or omission on the part of Holder in exercising any right
hereunder shall operate as a waiver of such right or any other remedy under this
Note. A waiver of any one occasion or occasions shall not be construed as a bar
to or waiver of any such right or remedy on a future occasion.
2
<PAGE>
Other than pursuant to registration under federal and any applicable state
securities laws or an exemption from such registration, the availability of
which the Company shall determine in its sole discretion, this Note may not be
transferred, sold or otherwise disposed of unless the Company has received from
the transferee hereof such representations and agreements as the Company shall
determine in its sole discretion may be necessary to permit such transfer. The
Holder, by acceptance hereof, agrees to give written notice to the Company
before transferring this Note of the Holder's intention to do so, describing the
manner of any proposed transfer. Within thirty (30) days after receiving such
written notice, the Company shall notify the Holder as to whether such transfer
may be effected and of the conditions to any such transfer.
All demands and notices to be given hereunder shall be delivered or sent
by certified mail, return receipt requested; in the case of the Company,
addressed to its corporate headquarters, 5583 West 78th Street, Edina, Minnesota
55439, and in the case of the Holder, addressed to the address written above, in
either case, until a new address shall have been substituted by like notice.
IN WITNESS WHEREOF, the Company has caused this Note to be executed on its
behalf by its duly authorized officer; on the day and year first above written.
U-SHIP, INC.
By:
--------------------------------------
Peter C. Lytle
Chief Executive Officer
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS. THIS NOTE HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE LAWS OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE LAWS, THE AVAILABILITY
OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY WHOSE
AUTHORIZED OFFICER HAS SIGNED THIS NOTE ABOVE.
3
EXHIBIT 4.2
WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
U-SHIP, INC.
FEBRUARY 26, 1999
This Certifies that, in consideration of having purchased one (1) Unit of
Unsecured Promissory Notes ("Notes") of U-Ship, Inc., a Utah corporation (the
"Company") on February 26, 1999, and for other good and valuable consideration,
_____________ (the "Warrantholder"), is entitled to subscribe for and purchase
from the Company, at any time after May 26, 1999, and prior to February 26, 2002
(the "Expiration Date") up to 11,150 shares of Common Stock at a purchase price
of $3.75 per share (the "Purchase Price"), subject to adjustment as hereinafter
set forth.
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.
"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.
"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.
1
<PAGE>
"Warrant Shares" 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 and date, issued by the Company in
connection with the sale of the Notes, 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 May 26, 1999, 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 so delivered shall be in such denomination as may be requested by
the Warrantholder and 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.
2
<PAGE>
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, 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. The holder of this Warrant further agrees that
such holder will not, for a period of 180 days from the date that a registration
statement covering securities offered by the Company is declared effective by
the Commission, offer to sell, contract to sell, or otherwise sell, dispose of,
loan, pledge or grant any rights with respect to the Warrant or the Warrant
Shares owned by the holder, otherwise than with the prior written consent of the
Company.
6 Antidilution Provisions. The rights granted hereunder are subject to
the following:
(a) Stock 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
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shall be proportionately increased and the number of Warrant Shares
purchasable upon the exercise of this Warrant immediately prior to such
combination shall be proportionately reduced. Except as provided in this
paragraph (a), no adjustment in the Purchase Price and no change in the
number of Warrant Shares so purchasable shall be made pursuant to this
Section 6 as a result of or by reason of any such subdivision or
combination.
(b) Reorganization, Reclassification, Consolidation, Merger, or
Sale. If any capital reorganization or reclassification or merger of the
Company with another corporation, or the sale of all or substantially all
of its assets to another corporation, shall be effected in such a way that
holders of shares of Common Stock shall be entitled to receive Common
Stock, Other Securities or assets with respect to or in exchange for
shares of Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provision shall be made whereby the Warrantholder shall thereafter have
the right to purchase and receive upon the basis and upon the terms and
conditions specified in the Warrants and in lieu of the shares of Common
Stock of the Company immediately theretofore purchasable and receivable
upon the 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.
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 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.
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(a) Required Registration. If at any time the Company receives the
written request from the Holder of this Warrant, the Company shall prepare
and file a registration statement 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;
provided, however, that all Warrant Shares covered by such registration
statement shall be converted into Common Stock prior to inclusion in such
registration statement. 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) all such Warrant Shares to
be so registered shall be converted into Common Stock prior to sale
pursuant to such registration statement; (b) nothing herein shall prevent
the Company from, at any time, abandoning or delaying any such
registration initiated by it; and (c) 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
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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 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:
1 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;
2 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;
3 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;
4 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;
5 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;
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6 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;
7 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;
8 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;
9 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
10 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
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required to bear such fees and disbursements), all internal Company
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and all legal fees and
disbursements and other expenses of complying with state securities or
blue sky laws of any jurisdictions in which the securities to be offered
are to be registered or qualified. Fees and disbursements of counsel and
accountants for the selling security holders, underwriting discounts and
commissions and transfer taxes for selling security holders and any other
expenses incurred by the selling security holders not expressly included
above shall be borne by the selling security holders.
(e) Copies of Prospectus; Amendments of Prospectus. The Company
will furnish the Warrantholder with a reasonable number of copies of any
prospectus or offering circular and one copy of the registration statement
included in such filings and will amend or supplement the same as required
during the nine (9) month period following the effective date of the
registration statement, provided, that the expenses of any amendment or
supplement made or filed more than three (3) months after the effective
date of the registration statement, at the request of the Warrantholder,
shall be borne by the Warrantholder.
(f) Conditions of the Company's Obligations. It shall be a
condition of the Company's obligation to register the Warrant Shares
hereunder that the Warrantholder agrees to cooperate with the Company in
the preparation and filing of any such registration statement, or in its
efforts to establish that the proposed sale is exempt under the Securities
Act, as to any proposed distribution. It shall also be a condition of the
Company's obligations under this Agreement that, in the case of the filing
of any registration statement, and to the extent permissible under the
Securities Act, and controlling precedent thereunder, the Company and the
Warrantholder provide cross-indemnification agreements to each other in
customary scope covering the accuracy and completeness of the information
furnished by each.
9 Notices. Any notice or other document required or permitted to be
given or delivered to the Warrantholder shall be delivered or sent by certified
mail to the Warrantholder at the last address shown on the books of the Company
maintained for the registry and transfer of the Warrants. Any notice or other
document required or permitted to be given or delivered to the Company shall be
delivered or sent by certified or registered mail to the principal office of the
Company.
10 No Rights as Shareholders; Limitation of Liability. This Warrant
shall not entitle any holder hereof to any of the rights of a shareholder of the
Company. No provisions hereof, in the absence of affirmative action by the
holder hereof to purchase shares of Common Stock, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Purchase Price or as a shareholder of the
Company whether such liability is asserted by the Company or by creditors of the
Company.
11 Governing Law. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the State of Minnesota, without regard
to conflicts of laws principles.
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12 Miscellaneous. This Warrant and any provision hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by the
party (or any predecessor in interest thereof) against which enforcement of the
same is sought. The headings in this Warrant are for purposes of reference only
and shall not affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by a
duly authorized officer, and to be dated as of the 26th day of February, 1999.
U-SHIP, INC.
By:
--------------------------------------
Peter C. Lytle
Chief Executive Officer
"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."
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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:
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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 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:
11
EXHIBIT 10.1
WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
U-SHIP, INC.
MARCH 16, 1999
This Certifies that, in consideration of having purchased 16,000 shares of
the Common Stock (the "Shares") of U-Ship, Inc., a Utah corporation (the
"Company") on March 16, 1999, and for other good and valuable consideration,
__________________, (the "Warrantholder"), is entitled to subscribe for and
purchase from the Company, at any time after June 16, 1999, and prior to March
16, 2004 (the "Expiration Date") up to 2,500 shares of the Company's Common
Stock at a purchase price of $3.50 per share (the "Purchase Price"), subject to
adjustment as hereinafter set forth.
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.
"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.
"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.
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<PAGE>
"Warrant Shares" 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 and date, issued by the Company in
connection with the sale of the Notes, 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 March 16, 1999, 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 so delivered shall
be in such denomination as may be requested by the Warrantholder and 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.
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<PAGE>
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, 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. The holder of this Warrant further agrees that
such holder will not, for a period of 180 days from the date that a registration
statement covering securities offered by the Company is declared effective by
the Commission, offer to sell, contract to sell, or otherwise sell, dispose of,
loan, pledge or grant any rights with respect to the Warrant or the Warrant
Shares owned by the holder, otherwise than with the prior written consent of the
Company.
6 Antidilution Provisions. The rights granted hereunder are subject to
the following:
(a) Stock 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
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shall be proportionately increased and the number of Warrant Shares
purchasable upon the exercise of this Warrant immediately prior to such
combination shall be proportionately reduced. Except as provided in this
paragraph (a), no adjustment in the Purchase Price and no change in the
number of Warrant Shares so purchasable shall be made pursuant to this
Section 6 as a result of or by reason of any such subdivision or
combination.
(b) Reorganization, Reclassification, Consolidation, Merger, or
Sale. If any capital reorganization or reclassification or merger of the
Company with another corporation, or the sale of all or substantially all
of its assets to another corporation, shall be effected in such a way that
holders of shares of Common Stock shall be entitled to receive Common
Stock, Other Securities or assets with respect to or in exchange for
shares of Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provision shall be made whereby the Warrantholder shall thereafter have
the right to purchase and receive upon the basis and upon the terms and
conditions specified in the Warrants and in lieu of the shares of Common
Stock of the Company immediately theretofore purchasable and receivable
upon the 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.
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 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.
4
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(a) Required Registration. If at any time the Company receives the
written request from the Holder of this Warrant, the Company shall prepare
and file a registration statement 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;
provided, however, that all Warrant Shares covered by such registration
statement shall be converted into Common Stock prior to inclusion in such
registration statement. 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) all such Warrant Shares to
be so registered shall be converted into Common Stock prior to sale
pursuant to such registration statement; (b) nothing herein shall prevent
the Company from, at any time, abandoning or delaying any such
registration initiated by it; and (c) 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
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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 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:
1 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;
2 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;
3 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;
4 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;
5 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;
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6 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;
7 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;
8 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;
9 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
10 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
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required to bear such fees and disbursements), all internal Company
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and all legal fees and
disbursements and other expenses of complying with state securities or
blue sky laws of any jurisdictions in which the securities to be offered
are to be registered or qualified. Fees and disbursements of counsel and
accountants for the selling security holders, underwriting discounts and
commissions and transfer taxes for selling security holders and any other
expenses incurred by the selling security holders not expressly included
above shall be borne by the selling security holders.
(e) Copies of Prospectus; Amendments of Prospectus. The Company
will furnish the Warrantholder with a reasonable number of copies of any
prospectus or offering circular and one copy of the registration statement
included in such filings and will amend or supplement the same as required
during the nine (9) month period following the effective date of the
registration statement, provided, that the expenses of any amendment or
supplement made or filed more than three (3) months after the effective
date of the registration statement, at the request of the Warrantholder,
shall be borne by the Warrantholder.
(f) Conditions of the Company's Obligations. It shall be a
condition of the Company's obligation to register the Warrant Shares
hereunder that the Warrantholder agrees to cooperate with the Company in
the preparation and filing of any such registration statement, or in its
efforts to establish that the proposed sale is exempt under the Securities
Act, as to any proposed distribution. It shall also be a condition of the
Company's obligations under this Agreement that, in the case of the filing
of any registration statement, and to the extent permissible under the
Securities Act, and controlling precedent thereunder, the Company and the
Warrantholder provide cross-indemnification agreements to each other in
customary scope covering the accuracy and completeness of the information
furnished by each.
9 Notices. Any notice or other document required or permitted to be
given or delivered to the Warrantholder shall be delivered or sent by certified
mail to the Warrantholder at the last address shown on the books of the Company
maintained for the registry and transfer of the Warrants. Any notice or other
document required or permitted to be given or delivered to the Company shall be
delivered or sent by certified or registered mail to the principal office of the
Company.
10 No Rights as Shareholders; Limitation of Liability. This Warrant
shall not entitle any holder hereof to any of the rights of a shareholder of the
Company. No provisions hereof, in the absence of affirmative action by the
holder hereof to purchase shares of Common Stock, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Purchase Price or as a shareholder of the
Company whether such liability is asserted by the Company or by creditors of the
Company.
11 Governing Law. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the State of Minnesota, without regard
to conflicts of laws principles.
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12 Miscellaneous. This Warrant and any provision hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by the
party (or any predecessor in interest thereof) against which enforcement of the
same is sought. The headings in this Warrant are for purposes of reference only
and shall not affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by a
duly authorized officer, and to be dated as of the 16th day of March, 1999.
U-SHIP, INC.
By:
--------------------------------------
Peter C. Lytle
Chief Executive Officer
"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."
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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:
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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 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:
11
EXHIBIT 10.2
WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
U-SHIP, INC.
APRIL 12, 1999
This Certifies that, in consideration of having paid the sum of $50,000 to
U-Ship, Inc., a Utah corporation (the "Company") on the date hereof, and for
other good and valuable consideration, _______________________ (the
"Warrantholder"), is entitled to subscribe for and purchase from the Company, at
any time after April 12, 1999, and prior to April 12, 2004 (the "Expiration
Date") up to 50,000 shares of the Company's Common Stock at a purchase price of
$1.75 per share (the "Purchase Price"), subject to adjustment as hereinafter set
forth.
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
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.
"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.
"Transfer" shall mean any sale, assignment, pledge, or other
disposition of any 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.
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"Warrant Shares" shall mean the shares of Common Stock purchased or
purchasable by the Warrantholder upon the exercise of the Warrant pursuant
to Section 2 hereof.
"Warrantholder" shall mean the holder or holders of the Warrant or
any related Warrant Shares.
"Warrant" shall mean this Warrant, 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 April 12, 1999, 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 so delivered shall
be in such denomination as may be requested by the Warrantholder and 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.
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<PAGE>
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, 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 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 the Warrant and the certificates of the Warrant Shares
evidencing these restrictions. The holder of this Warrant further agrees that
such holder will not, for a period of 180 days from the date that a registration
statement covering securities offered by the Company is declared effective by
the Commission, offer to sell, contract to sell, or otherwise sell, dispose of,
loan, pledge or grant any rights with respect to the Warrant or the Warrant
Shares owned by the holder, otherwise than with the prior written consent of the
Company.
6 Antidilution Provisions. The rights granted hereunder are subject to
the following:
(a) Stock 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
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<PAGE>
the exercise of this Warrant immediately prior to such combination shall
be proportionately reduced. Except as provided in this paragraph (a), no
adjustment in the Purchase Price and no change in the number of Warrant
Shares so purchasable shall be made pursuant to this Section 6 as a result
of or by reason of any such subdivision or combination.
(b) Reorganization, Reclassification, Consolidation, Merger, or
Sale. If any capital reorganization or reclassification or merger of the
Company with another corporation, or the sale of all or substantially all
of its assets to another corporation, shall be effected in such a way that
holders of shares of Common Stock shall be entitled to receive Common
Stock, Other Securities or assets with respect to or in exchange for
shares of Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provision shall be made whereby the Warrantholder shall thereafter have
the right to purchase and receive upon the basis and upon the terms and
conditions specified in the Warrant and in lieu of the shares of Common
Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the 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 the 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 the
Warrant (including, without limitation, provisions for adjustment of the
Purchase Price and the number of shares purchasable upon the exercise of
the 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 the Warrant.
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 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
the 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.
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<PAGE>
(a) Required Registration. If at any time the Company receives the
written request from the Holder of this Warrant, the Company shall prepare
and file a registration statement 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;
provided, however, that all Warrant Shares covered by such registration
statement shall be converted into Common Stock prior to inclusion in such
registration statement. 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) all such Warrant Shares to
be so registered shall be converted into Common Stock prior to sale
pursuant to such registration statement; (b) nothing herein shall prevent
the Company from, at any time, abandoning or delaying any such
registration initiated by it; and (c) 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
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<PAGE>
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 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:
1 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;
2 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;
3 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;
4 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;
5 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;
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6 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;
7 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;
8 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;
9 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
10 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
7
<PAGE>
premiums and other costs of policies of insurance against liability
arising out of the public offering, and all legal fees and disbursements
and other expenses of complying with state securities or blue sky laws of
any jurisdictions in which the securities to be offered are to be
registered or qualified. Fees and disbursements of counsel and accountants
for the selling security holders, underwriting discounts and commissions
and transfer taxes for selling security holders and any other expenses
incurred by the selling security holders not expressly included above
shall be borne by the selling security holders.
(e) Copies of Prospectus; Amendments of Prospectus. The Company
will furnish the Warrantholder with a reasonable number of copies of any
prospectus or offering circular and one copy of the registration statement
included in such filings and will amend or supplement the same as required
during the nine (9) month period following the effective date of the
registration statement, provided, that the expenses of any amendment or
supplement made or filed more than three (3) months after the effective
date of the registration statement, at the request of the Warrantholder,
shall be borne by the Warrantholder.
(f) Conditions of the Company's Obligations. It shall be a
condition of the Company's obligation to register the Warrant Shares
hereunder that the Warrantholder agrees to cooperate with the Company in
the preparation and filing of any such registration statement, or in its
efforts to establish that the proposed sale is exempt under the Securities
Act, as to any proposed distribution. It shall also be a condition of the
Company's obligations under this Agreement that, in the case of the filing
of any registration statement, and to the extent permissible under the
Securities Act, and controlling precedent thereunder, the Company and the
Warrantholder provide cross-indemnification agreements to each other in
customary scope covering the accuracy and completeness of the information
furnished by each.
9 Notices. Any notice or other document required or permitted to be
given or delivered to the Warrantholder shall be delivered or sent by certified
mail to the Warrantholder at the last address shown on the books of the Company
maintained for the registry and transfer of the Warrants. Any notice or other
document required or permitted to be given or delivered to the Company shall be
delivered or sent by certified or registered mail to the principal office of the
Company.
10 No Rights as Shareholders; Limitation of Liability. This Warrant
shall not entitle any holder hereof to any of the rights of a shareholder of the
Company. No provisions hereof, in the absence of affirmative action by the
holder hereof to purchase shares of Common Stock, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Purchase Price or as a shareholder of the
Company whether such liability is asserted by the Company or by creditors of the
Company.
11 Governing Law. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the State of Minnesota, without regard
to conflicts of laws principles.
12 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
8
<PAGE>
predecessor in interest thereof) against which enforcement of the same is
sought. The headings in this Warrant are for purposes of reference only and
shall not affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by a
duly authorized officer, and to be dated as of the 12th day of April, 1999.
U-SHIP, INC.
By:
--------------------------------------
Peter C. Lytle
Chief Executive Officer
"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."
9
<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:
10
<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 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:
11
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 411,656
<SECURITIES> 0
<RECEIVABLES> 316,955
<ALLOWANCES> 0
<INVENTORY> 1,028,232
<CURRENT-ASSETS> 2,034,716
<PP&E> 3,343,531
<DEPRECIATION> (877,707)
<TOTAL-ASSETS> 4,500,540
<CURRENT-LIABILITIES> 77,327
<BONDS> 0
0
0
<COMMON> 40,438
<OTHER-SE> 14,142,426
<TOTAL-LIABILITY-AND-EQUITY> 4,500,540
<SALES> 482,530
<TOTAL-REVENUES> 482,530
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,253,056
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (26,452)
<INCOME-PRETAX> (796,978)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (796,978)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
