SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 0-28452
UNITED SHIPPING & TECHNOLOGY, INC.
(Name of Small Business Issuer in Its Charter)
UTAH 87-0355929
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
9850 51ST AVENUE NORTH, SUITE 110
MINNEAPOLIS, MINNESOTA 55442
(Address of principal executive offices including Zip Code)
Issuer's Telephone Number, Including Area Code: (612) 941-4080
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $.004 per share
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No ___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation SB contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10--KSB or any
amendment to this Form 10--KSB. [ ]
State issuer's revenues for its most recent fiscal year. $1,482,799.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within the past 60 days: $47,029,741 as of September 15, 1999.
As of September 15, 1999, there were 10,931,643 shares of common stock of the
registrant issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
PAGE
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PART I ........................................................................1
Item 1. DESCRIPTION OF BUSINESS .........................................1
Item 2. DESCRIPTION OF PROPERTY ........................................20
Item 3. LEGAL PROCEEDINGS ..............................................21
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............21
EXECUTIVE OFFICERS OF THE REGISTRANT ...........................22
PART II ......................................................................23
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS ........................................................23
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS ...........................26
Item 7. FINANCIAL STATEMENTS............................................31
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE .......................................48
PART III .....................................................................48
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT ............................................................48
Item 10. EXECUTIVE COMPENSATION .........................................51
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT .....................................................53
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................55
Item 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K .........................56
SIGNATURES ...................................................................57
POWER OF ATTORNEY ............................................................57
EXHIBIT INDEX ................................................................58
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING INFORMATION
In accordance with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company notes that certain
statements in this Form 10-KSB and elsewhere which are forward-looking and which
provide other than historical information, involve risks and uncertainties that
may impact the Company's results of operations. These forward-looking statements
include, among others, statements concerning the Company's general business
strategies, financing decisions, and expectations for funding capital
expenditures and operations in the future. When used herein, the words
"believe," "plan," "continue," "hope," "estimate," "project," "intend,"
"expect," and similar expressions are intended to identify such forward-looking
statements. Although the Company believes the expectations reflected in such
forward-looking statements are based on reasonable assumptions, no statements
contained in this Form 10-KSB should be relied upon as predictions of future
events. Such statements are necessarily dependent on assumptions, data or
methods that may be incorrect or imprecise and may be incapable of being
realized. The risks and uncertainties inherent in these forward-looking
statements could cause actual results to differ materially from those expressed
in or implied by these statements.
Important factors that could cause actual results to differ materially
from the expectations reflected in any forward-looking statement herein include
among other things: (1) the ability of the Company to successfully and
profitably operate its newly-acquired same-day delivery business and to
integrate the former Corporate Express Delivery Systems, Inc. ("CEDS")
operations into the Company's existing operations; (2) the ability of the
Company to remain current on the payments of debt incurred to complete the
acquisition of CEDS; (3) the ability of the Company to develop an e-commerce
fulfillment business and integrate this with its same-day delivery operations;
(4) the ability of the Company to integrate its ISK technology (as defined
below) and its other technology into the Company's same-day delivery operations;
(5) the ability of the Company to leverage and market its ISK technology to
major shippers and carriers and operate a brand identity relating thereto; (6)
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; (7) the uncertainties surrounding
technological changes in the same-day delivery and transportation industries,
and the Company's dependence upon computer and communications systems and third
parties who manufacture, maintain and market the same; (8) the ability of the
Company to access public and private equity markets; and (9) the ability of the
Company to stem operating losses and position the Company to achieve positive
cash flow.
Readers are cautioned not to place undue reliance on the
forward-looking statements contained herein, which speak only as of the date
hereof. The information contained in this Form 10-KSB is believed by the Company
to be accurate as of the date hereof. Changes may occur after that date, and the
Company will not update that information except as required by law in the normal
course of its public disclosure practices.
COMPANY OVERVIEW - RECENT SIGNIFICANT ACQUISITION
On September 24, 1999, United Shipping & Technology, Inc., ("US&T" or
the "Company"), acquired Corporate Express Delivery Systems, Inc. ("CEDS") from
CEX Holdings, Inc. ("CEX") pursuant to a merger of CEDS with the Company's
wholly-owned subsidiary, United Shipping & Technology Acquisition Corp. The
purchase price was approximately $60.6 million, consisting of $43.0 million in
cash provided by institutional debt financing, and the remainder in a
combination of short and long-term notes issued to CEX. CEDS was the surviving
corporation in the merger, and changed its name to UST Delivery Systems, Inc.
("Delivery Systems"). Delivery Systems is incorporated in Delaware.
With the acquisition of CEDS, the Company believes that it has become
the leader in nationwide customized delivery solutions for same-day,
time-critical shipping and distribution in the United States. The Company
provides an array of same-day ground and air delivery services, including
scheduled delivery, on-demand delivery, distribution services and air courier
services, from a network of
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approximately 230 locations in 83 of the top 100 metropolitan areas in the
United States. The Company's operations are supported by a fleet of
approximately 9,800 vehicles, including 4,700 Company-leased and owned vehicles
and 5,100 vehicles utilized by independent contractors. The Company has
approximately 10,000 employees. The Company's Delivery Systems subsidiary has
offices in Australia, Canada, France, Hong Kong and the United Kingdom, to
facilitate its same-day international air delivery business.
The purchase of CEDS is a major step toward the fulfillment of the
Company's goal of becoming the premier same-day express delivery and e-commerce
fulfillment service in the United States. In late 1998, the Company's new
management team concluded that the Company's historical business of
manufacturing and operating self-service intelligent shipping kiosks ("ISKs") in
retail locations such as Kinko's Copy Centers and CopyMax stores was not
profitable or generating revenue levels acceptable to the Company or the
retailers. The Company has subsequently adopted a revised business strategy of
utilizing its kiosks and communications technology both for self-service
shipping and hub-automation purposes and in conjunction with a planned
consolidation in the same-day delivery market. The Company also intends to
integrate its technology into its same-day delivery operations to enable
consumers to participate in Internet-based business, and to offer integrated
distribution and logistics services to corporate clients and companies engaged
in e-commerce. While there can be no assurance that such integration will be
successful or that the Company's same-day delivery or other operations will be
profitable, the Company believes that its acquisition of CEDS gives it the
revenue, customer base and market penetration needed to pursue its vision of
becoming the branded leader in same-day delivery solutions.
With the acquisition of CEDS, the Company provides the following
products and services to individual consumers and businesses:
* same-day ground and air transportation services throughout the
United States and internationally,
* distribution, logistics and integrated supply services,
* self-service automated shipping kiosks automate the shipping
hubs of major carriers and that enable customers and small
businesses to conveniently ship packages and priority letters
through a major carrier in the air express and package
delivery market,
* computerized interactive kiosks that provided information
through the Internet, and
* secure delivery of information over the Internet.
The Company derives revenues primarily from its same-day ground and air
delivery operations, and to a lesser extent, from package shipping transactions
and selling shipping kiosks and customized interactive kiosks. The Company's
revenues for the fiscal year ended June 30, 1999 were approximately $1.5
million. For the fiscal year ended January 30, 1999, CEDS' revenue from
operations was approximately $648.3 million.
The Company has organized its operations in three subsidiaries. The
Company conducts the CEDS same-day delivery business through UST Delivery
Services, Inc. and continues to operate a portion of its Minneapolis same-day
delivery and package delivery services through the Company's Advanced Courier
Services, Inc. subsidiary. The Company develops software and kiosk technology
through its Intelligent Kiosk Company subsidiary.
The Company incorporated in Utah in 1979 under the name Basin Energy
Corporation. The Company has amended its name several times since then. In 1992
the Company changed its name to U-Ship, Inc., and in May 1999 the Company
changed its name to United Shipping & Technology, Inc. From 1979 until 1991, the
Company engaged in business activities that were unrelated to the Company's
current business. The Company's principal executive offices are located at 9850
51st Avenue North, Suite 110, Minneapolis, Minnesota 55442 and the Company's
telephone number is (612) 941-4080. The Company's website is www.u-s-t.com.
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HISTORICAL BUSINESS AND EVOLUTION OF BUSINESS STRATEGY
In 1991, the Company began the development of self-service automated
shipping systems designed to be installed at the shipping hubs of major package
carriers such as United Parcel Service ("UPS"). The Company's kiosks have had a
limited test experience with UPS, but no significant sales of hub-automation
kiosks have been made to UPS or any other carrier. The Company believes that
automating these hubs will provide businesses and individuals greater access to
convenient shipping services and will allow the carriers to provide more
efficient customer service.
In 1996 the Company introduced a new generation of intelligent shipping
kiosks designed to be used in retail and other non-hub locations. From that time
until the beginning of 1999, the primary business of the Company was the
development, manufacture and marketing of self-service, automated shipping
systems for use by consumers and small businesses who ship packages and priority
letters through major carriers in the air express and package delivery market.
Historically, the Company placed these kiosks in service in multiple locations
of major retailers, such as Kinko's Copy Centers and OfficeMax. By mid-1998, the
Company had 303 kiosks in service in 43 states and Canada.
In 1997, the Company began developing and marketing custom-built,
computerized interactive kiosks for a customer that provides employment
information for different markets. These kiosks allow job seekers to access
information on job availability, benefits and the like, and to electronically
submit job applications. Data is provided by local newspapers and employers.
Based in part on this application, the Company believes that it can easily adapt
the Company's kiosk technology to make interactive kiosks that provide a wide
variety of information services to consumers, such as building directories,
"how-to" guides in home hardware stores and automated ticket dispensers in
theaters.
In late 1997, as a result of lower than anticipated revenues from ISKs
placed in retail locations, the Company began an extensive evaluation of its
strategies and results from its placement sites. Ultimately, in 1998, the
Company concluded that its historical ISK placement strategy was not profitable
or generating the business volume the Company or the retailers required. In the
course of reviewing alternative directions for its business, the Company's
management determined that the "intraday" courier business presented an
opportunity for the Company to employ its advanced technology in a large but
fragmented market and obtain an independent revenue stream in a growing
industry. Based on this determination, the Company adopted a revised business
strategy with the goal of becoming the national leader in same-day delivery and
related services through a series of acquisitions - a "roll-up" - of courier
businesses. The Company's plan has been to utilize its kiosks and other
technology both for self-service shipping and hub-automation purposes and in
conjunction with a planned consolidation within the same-day delivery market.
The Company believes that the rapid growth in Internet-based business, or
"e-commerce," has also presented an opportunity to leverage the Company's ISK
technology and courier rollup strategy. The Company has begun the process of
upgrading its kiosks to act as portals to the Internet for the performance of
"back office" shipping functions, such as dispatch, tracking and invoicing,
on-line ordering of same-day delivery services, and for the secure delivery of
information. Plans were also initiated to utilize the Company's technology and
same-day delivery operations to allow consumers to participate in Internet-based
business, or e-commerce, and to offer an array of integrated distribution and
logistics services to corporate clients and companies engaged in e-commerce.
The Company began its courier roll-up strategy in late 1998, through
the acquisition of JEL Trucking, Inc., which enabled it to offer same-day
delivery and package delivery services in the Minneapolis/St. Paul metropolitan
area. In January 1999, the Company acquired Twin City Transportation, Inc.,
expanding its same-day delivery service in the Minneapolis/St. Paul metropolitan
area.
On September 24, 1999, the Company acquired Corporate Express Delivery
Systems, with annual revenues in excess of $600 million in 1998. The Company is
also exploring the acquisition of additional same-day delivery companies to
increase market penetration and provide a national platform for e-commerce
fulfillment and logistics services. As of September 28, 1999, the Company had no
material agreements pending to acquire any additional companies.
In order to increase the strength of its market leadership in the
same-day delivery business and obtain the maximum economies of scale from the
Company's same-day delivery consolidation efforts, the Company has made a
determination that it must continue to invest in upgrading and developing
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computer and communications technology. The Company currently employs in most of
its fleet a sophisticated communications and dispatch system. In addition, the
Company has begun the testing in its larger on-demand delivery operations of a
satellite-driven, computerized, on-demand routing system that utilizes GPS
positioning technology and mobile data terminals to continuously track every
vehicle and package in real time. The Company plans to expand the capabilities
of its communications systems to provide for the further integration of its
same-day delivery, supply-chain management and logistics services, and to
provide an Internet-based platform for e-commerce delivery solutions. In
addition, the Company's kiosk technology is currently being upgraded to provide
more robust and comprehensive capabilities so that it can be integrated with the
Company's same-day delivery operations.
In March, 1999, the Company introduced a new Internet-based service
called i-courier(TM). This service offers secure, trackable electronic document
transfer and storage for small or large files. The Company intends to expand
this service to include links to the Company's dispatch system for on-line
ordering and package tracking. The Company intends to add additional services
and products and expand the capabilities of i-courier(TM).
THE COMPANY'S SAME-DAY DELIVERY OPERATIONS
MARKET OPPORTUNITY
The same-day delivery market provides non-scheduled, same-day delivery
of documents and packages in a local market. Some couriers offer specialized
services beyond small package delivery, for example legal filing, process
serving and dock-truck services for large items. A few same-day delivery
companies, such as the Company, offer warehousing, integrated distribution and
logistics, cross-dock and package aggregation services as well.
Industry sources, which the Company believes to be reliable, estimate
that the same-day delivery services industry is a $15 billion market in the
United States, with a growth rate of more than 5% per year. Although the market
is large, it is highly fragmented. There are relatively low barriers to entry in
this market, because the capital requirements to start a local courier business
are relatively small and the industry is not subject to extensive regulation.
There are as many as 6,000 same-day delivery companies in the United States.
Most participants are privately held and operate only on the local level. The
focus is generally on operations, with little attention given to marketing and
sales; accordingly, the Company believes there is little perceived service
differentiation between competitors, and that customer loyalty is generally
short-term. There are no dominant brands in the industry, and the industry has a
low level of technology usage. By contrast, the next-day package delivery
industry is highly consolidated and dominated by large, well-recognized
companies such as UPS and Federal Express, which use technology extensively.
Same-day delivery customers increasingly seek greater speed,
convenience and dependability from their package delivery providers, as well as
additional services. The Company expects that growth in the same-day shipping
market will be fueled by corporate America's trend toward outsourcing, as well
as the rapid growth of e-commerce and the heightened demand for immediate
response and comprehensive distribution management solutions. The Company
believes that customers will be attracted to companies with the ability to offer
greater efficiency through the use of technology, such as the Company's
sophisticated dispatch and communications software and its network of
intelligent shipping kiosks, and with the kind of national market presence that
offers customers the ability to purchase an array of services from one vendor
operating in multiple markets. The Company believes that the increasingly time
dependent nature of these same-day delivery services provides an opportunity to
utilize its ISK as an "electronic drop box" for same-day delivery services and
as an Internet portal for ordering same-day delivery and other services on-line
and for performing "back-office" shipping-related functions. The ISKs are
electronically networked to the Company's central computers, allowing for
immediate notification of a courier that a pickup is needed at a particular
site. The Company's information technology allows for the management and
coordination of dispatching, delivery tracking and other "back room" functions
to provide support services more efficiently and, the Company believes, more
cost-effectively. This integration of the Company's high-tech kiosk and
communications software with the currently low-tech same-day delivery business
can also provide a market differentiation between the Company's services and
those of competitors.
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COURIER ROLLUP STRATEGY
To meet potential customers' increased expectations and needs, the
Company in late 1998 adopted a courier roll-up strategy with three major
components:
* to realize economies of scale,
* to use the Company's present and developing technology to reduce
costs and to provide better service, and
* to develop a national brand to differentiate the Company's
service and foster customer loyalty.
The Company entered the same-day delivery business in the
Minneapolis/St. Paul metropolitan area by acquiring courier and package delivery
companies beginning in late 1998. With the purchase of CEDS on September 24,
1999, the Company has completed a major step in the realization of its roll-up
strategy, becoming the national leader in same-day delivery services. As the
Company grows, it intends to integrate its delivery service operations, and
expects to be able to achieve substantial cost savings by consolidating and
standardizing dispatch, billing and other administrative functions. The Company
plans to continue to increase its market penetration through additional
acquisitions and/or internal growth.
The Company will also use technology to provide better and new services
to customers. To meet its customers' needs for speed and efficiency, the Company
currently employs in most of its fleet a sophisticated communications and
dispatch system. In addition, the Company has begun the testing in its larger
on-demand delivery operations of a satellite-driven, computerized, on-demand
routing system. This product utilizes GPS positioning technology and mobile data
terminals to continuously track every vehicle and package in real time. The
system increases pick-up choices and route optimization, which the Company
anticipates will result in significantly lower mileage, fleet and administrative
expenses through improved driver productivity and route density. In addition,
the Company believes that its existing and proposed systems will provide
additional benefits to the customer, including enhancing the accuracy of package
delivery estimates, up-to-the minute status updates on all jobs, and electronic
proof of delivery. The Company intends to expand the capabilities of its
communications systems to provide for the further integration and increased
efficiency of its same-day delivery, supply chain management and logistics
services, and to provide an Internet-based platform for e-commerce delivery
solutions. The Company believes that utilizing such technologies will result in
a paradigm shift in the same-day delivery business. Such communications and
route optimization software would allow the Company to use its on-demand and
scheduled resources interchangeably, allowing more efficient utilization of its
fleet and personnel, and should allow the Company to expand the reach and
attractiveness of its array of delivery and related services.
Additionally, the Company's shipping kiosks are being further developed
to offer increased convenience to customers of same-day delivery service,
through the utilization of the kiosks as electronic document and package "drop
boxes", which can be tied into the Company's electronic network through the
application of the communications technologies the Company currently uses or
will seek to develop or acquire. For instance, rather than waiting for the
arrival of a driver to pick up a package for delivery, such a network of kiosks
would enable customers to deposit a document or package in the kiosk storage bin
for later pickup, choose delivery options, and pay for the service selected via
credit card. The shipping kiosks are designed to be electronically networked to
the Company's central computers, which would be able to automatically notify a
driver that a pickup is needed at a particular site and include information
regarding which delivery service options the customer has selected. Order
functions could also be performed directly over the Internet, through the
customer's personal computer, and drivers would be electronically connected via
the Company's communications system. The Company believes that such a real-time
communications network, once implemented, will result in more deliveries meeting
the time requirements set by its customers.
The Company also intends to develop, license or acquire a national
brand for its same-day delivery services. The Company will seek a
well-recognized brand that represents speed, high quality, security and
reliability. The Company believes that a uniform presentation of its same-day
delivery and related
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services across several local markets will provide a significant competitive
advantage, both by fostering customer loyalty and familiarity, and will assist
in integrating its acquired companies.
The Company's i-courier(TM) Internet initiative is also designed to
support the Company's roll-up strategy. Currently, i-courier(TM) provides
secure, trackable electronic document transfer services. In addition, the
Company intends to incorporate an interface to its same-day delivery services on
the Company's web site, including online ordering of delivery services as well
as package tracking. The i-courier(TM) initiative will also help build brand
recognition since the Company's web site will be developed to reflect its
corporate identity, including the Company's brand for its service offerings.
Ultimately, the Company plans to allow users of its kiosks to utilize the
Internet to access a full range of electronic commerce options in addition to
shipping services. The Company also intends to expand the current offering of
logistics services to companies engaged in electronic commerce and for companies
needing "just in time" inventory and spare parts warehousing and delivery
services.
SAME-DAY DELIVERY OPERATIONS
In late 1998 and early 1999, the Company acquired two Minneapolis/St.
Paul courier and package delivery companies, JEL Trucking, Inc. and Twin City
Transportation, Inc. With the acquisition of these two companies, the Company
began to offer 24-hour same-day delivery and dock truck service in the
Minneapolis/St. Paul metropolitan area, western Wisconsin and Duluth. On
September 24, 1999, the Company acquired Corporate Express Delivery Systems,
Inc. ("CEDS") from CEX Holdings, Inc. The purchase price was approximately $60.6
million, consisting of $43 million in cash provided by institutional debt
financing, and the remainder in a combination of short and long-term notes. CEDS
was the surviving corporation in the merger, and changed its name to UST
Delivery Systems, Inc. ("Delivery Systems"). Delivery Systems is incorporated in
Delaware.
With the acquisition of CEDS, the Company believes that it has become
the leader in nationwide customized delivery solutions for same-day,
time-critical shipping and distribution in the United States. The Company is the
only same-day delivery company in the United States with a truly national
presence and a full complement of service offerings. With 1998 revenues of over
$600 million, the Company is approximately twice the size of its nearest
competitor. The Company's network is comprised of approximately 230 locations.
The Company services 83 of the top 100 metropolitan markets in the United States
and numerous secondary markets. No public or private competitor currently
duplicates the Company's national presence or service offerings, giving what the
Company believes is a significant competitive advantage in meeting the demands
of sophisticated, national customers who depend on same-day delivery services in
the execution of their businesses.
As a result of the transaction, the Company's Delivery Systems
subsidiary now has approximately 10,000 employees throughout the United States.
In addition, the Company has offices in Australia, Canada, France, Hong Kong and
the United Kingdom, primarily in conjunction with its same-day air delivery
business. The same-day ground delivery service employs approximately 9,800
vehicles, 4,700 of which are owned or leased by the Company and 5,100 of which
are utilized by independent contractors. Of the Company's approximately 13,300
drivers, 8,200 are employees and 5,100 are independent contractors.
Currently, the Company's same-day delivery operations are divided into
two segments: ground services and air services. Each of these segments is broken
into various service offerings and a diversified customer base. Following is a
brief description of the various services offered by the Company:
GROUND SERVICES.
The Company believes that it is the largest same-day ground delivery
service provider in North America. The Company's ground operations provide
delivery services from approximately 190 locations in the United States and
operate in 80 of the 100 top metropolitan areas, as well as numerous secondary
markets. The Company segregates its ground business into three main business
units and derives approximately 85 percent of its total ground revenues from
same-day
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delivery services.
The Company generally enters into customer contracts for scheduled
delivery, distribution services and integrated supply services which are
terminable by customers upon notice, generally ranging from 30 to 60 days.
Typically, the Company does not enter into contracts with its customers for
on-demand, delivery services. Prices for the Company's services are currently
determined at the branch level based on the distance, weight and time
sensitivity of a particular delivery. Billing information is generated and
processed locally through the Company's computer systems.
SCHEDULED DELIVERY. Same-day scheduled delivery services are provided
for time sensitive deliveries that are recurring in nature. Pickup and delivery
routes are pre-defined based on the needs of the customer. A dispatcher
coordinates and assigns scheduled pickups and deliveries to the drivers and
manages the delivery flow. In many cases, certain drivers will handle a
designated group of scheduled routes on a recurring basis.
The largest customer base for this type of service consists of
financial institutions needing a pickup and delivery of non-negotiable
instruments, primarily canceled checks and ATM receipts. Typical service
involves the pickup of non-negotiable instruments from various bank branches in
a designated geographic area at a pre-scheduled time for delivery to a central
processing center. The expeditious and reliable transportation of the
instruments from the branches to a processing center is vital in order to obtain
the rapid transfer of funds from individual accounts to the institution.
Consequently, financial institutions consider scheduled delivery to be a
critical part of their outsourcing service needs. The Company believes that it
maintains a dominant position in scheduled delivery services for financial
institutions, with a greater than 35 percent market share. Other users of
scheduled delivery services include film processors, pharmaceutical companies
and companies with critical parts replenishment needs. The Company provides
scheduled delivery services in 79 of the top 100 metropolitan markets.
ON-DEMAND DELIVERY. The Company provides local and inter-city same-day
on-demand delivery services, whereby Company messengers or drivers respond to a
customer's request for immediate pickup and delivery. The Company typically
offers one hour, 2 to 4 hour, and 4+ hour delivery services depending on the
customer's time requirements. Most deliveries occur within a metropolitan area
or radius of 40 miles. On-demand delivery services are typically available 24
hours a day, seven days a week.
Most of the Company's on-demand operations centers are staffed by
dispatchers, as well as customer service representatives and operations
personnel. Incoming calls are received by trained customer service
representatives who provide the customer with a job specific price quote and
transmit the order to the appropriate dispatched location. A dispatcher
coordinates shipments for delivery within a specific time frame, and if
necessary, coordinates flight arrangements for inter-city deliveries. Shipments
are routed according to the type and weight of the shipment, the geographic
distance between the origin and destination, and the time allotted for the
delivery. After proper routing for the package is determined, coordination and
deployment of delivery personnel is accomplished either through mobile data
terminals linked to the Company's dispatch computer system, through pagers or by
radio. In addition to its current fleet-wide communications and dispatch system,
the Company is currently in the process of testing a new routing and dispatch
system to manage its on-demand system. This product is an advanced, satellite
driven on-demand management system which links dispatchers and drivers through a
personal two-way mobile data terminal. The system continuously tracks every
vehicle and every job in real-time and provides electronic proof of delivery to
close the loop on chain of custody issues. Typical users of on-demand services
include a wide variety of customers ranging from hospitals for organ
transportation to law offices for delivery of legal documents. The Company
provides on-demand delivery services in 48 of the top 100 metropolitan areas.
DISTRIBUTION SERVICES. The Company provides same-day distribution
services for time-sensitive local deliveries that require intermediate handling
or sorting prior to delivery to multiple locations. Typically, the
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Company receives a bulk shipment at its warehouse from a customer's supplier.
This shipment is then subdivided into smaller bundles and sorted for delivery to
specific locations. For example, the Company may receive a bulk shipment of
inventory for retailer, sort and divide the shipment into smaller bundles, and
then deliver the shipment to the customer's stores. Same-day distribution
services are provided on both a local and multi-city basis. The Company's
on-demand delivery resources are available to supplement the customer's drivers
as needed. Customers utilizing distribution services typically include air
freight companies, pharmaceutical wholesalers, retailers, manufacturers or other
companies which must distribute merchandise every day from a single point of
origin to many locations within a clearly defined geographic region. The Company
provides distribution services and 70 of the top 100 metropolitan areas.
INTEGRATED SUPPLY. The Company offers integrated supply services
whereby it assumes inventory replenishment responsibilities of non-critical
items for customers. The Company's integrated supply services include monitoring
the customer's inventory based on predetermined inventory levels and reordering
needed supplies through the customer's purchasing agent. Inventory shipments are
sent to a Company site adjacent to the customer's facility, from which the
Company sorts and then distributes items to their appropriate destination. The
Company also offers "critical parts banking" for a customer's parts and supplies
and offers related "just-in-time" transportation of those items to support
service or production activities. Parts are stored at Company facilities located
in a metropolitan area. A customer's service technician lacking a needed repair
part, for instance, can order the part which is quickly delivered to the service
site, adding the kind of value which the Company believes will allow purchase
decisions to be based more on capability than price. The Company intends to
expand its "just-in-time" warehousing and delivery and logistics business both
through internal growth and acquisitions. Companies utilizing integrated supply
services include petrochemical companies which use the services to centralize
non-critical inventory management at their large chemical plants. Though
accounting for less than 2 percent of the Company's total revenues, integrated
supply services augment the Company's value added service offerings.
OTHER SERVICES. The remainder of the Company's services include
inter-company delivery, dedicated fleet services, logistics, long-haul services
and warehouse and storage services.
Several industry sectors need national or regional same-day delivery
services. Typical industries served by the Company include:
FINANCIAL INSTITUTIONS. Financial institutions, primarily commercial
banks, utilize the Company's scheduled delivery services to deliver non
negotiable instruments, primarily canceled checks and ATM receipts. Typical
service involves the pickup of non negotiable instruments from various bank
branches in a designated geographic area at a pre-scheduled time for delivery to
a central processing center. The expeditious and reliable transportation of the
instruments from the branches to the center is vital in order to obtain the
rapid transfer of funds from individual accounts to the institution.
Consequently, financial institutions consider scheduled delivery to be a crucial
part of their outsourced service needs. Management estimates that the Company
has a greater than 35 percent market share in the financial institutions
same-day delivery industry.
HEALTH CARE. Health care customers consist primarily of pharmaceutical
wholesalers and hospitals. Pharmaceutical wholesalers primarily utilize the
Company's distribution delivery services to transport bulk shipments from
centralized location to various retail sites. The Company typically receives a
bulk shipment of inventory from a wholesaler, sorts and divides the shipment
into smaller bundles, and then delivers the shipment to destination outlets,
including retail drug stores and hospitals. Hospitals primary utilize the
Company's on-demand services to transport time sensitive, critical items for
immediate patient care.
RETAIL. Retail customers, typically large national companies, primarily
utilize the Company's distribution delivery service. For example, the Company
services its largest retail customer by providing a national network
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of scheduled and routed vehicles to deliver three separate product lines:
technical parts, gas repair shop parts and retail products. Included in these
product lines are items such as refrigerators, condensers, weed whackers and
other retail products. Typically, the Company receives a bulk shipment and then
breaks it down into multiple shipments. The Company then delivers the items to
retail locations or pre-specified drop sites to be picked up by the customer.
PETROCHEMICAL. Petrochemical customers utilize the Company's integrated
supply services to centralized non-critical inventory management at their large
chemical plants. Typically, the Company monitors a petrochemical customer's
inventory based on predetermined inventory levels and reorders needed supplies
through the customers' purchasing agent. Inventory shipments are sent to a
Company site adjacent to the customer's facility, from which the Company sorts
and then distributes items to their appropriate destination. Petrochemical
customers prefer to utilize a national provider such as the Company, in order to
streamline the number of vendors with whom they conduct business.
TECHNOLOGY. Technology customers primarily utilize the Company's
on-demand services. The prototype service the Company is aiming to provide
technology customers is a critical parts management system utilizing the
Internet. For example, the Company services its largest technology customer by
partnering with its third party logistics supplier to provide critical parts
banking. This provider, one of the largest third party logistics providers in
North America, provides a national network whereby they centrally manage 100
regional stocking locations of 500 to 1500 square feet, utilizing an
Internet-based warehouse management system. Typically, the Company's customer
places in order over the telephone, which is then entered into its suppliers'
database. The database determines if the part is available and, if available,
the applicable regional stocking location. The part is then pulled from the
regional stocking location while a driver is dispatched. The driver delivers the
part to its destination and puts the damaged part in a return package to be
delivered to repair center.
AIR SERVICES.
The Company's Air Group ("Air Group") provides primarily same-day
scheduled and on-demand delivery services demanding inter-city delivery. The Air
Group operates under three main brand names: Tricor, Air Courier Dispatch, and
Midnite Express. The Air Group provides delivery services from approximately 40
locations supported by its own ground fleet of approximately 228 vehicles. The
Air Group does not own any aircraft, relying instead on purchasing its air
transportation from preferred vendors. The Air Group has negotiated contracts
with most major airlines with whom it has secured favorable terms that enable it
to charge competitive rates for services. In order to utilize fleet assets
efficiently, certain Air Group locations perform scheduled ground and on-demand
delivery services.
SCHEDULED AIR DELIVERY SERVICES. Same-day scheduled delivery services
are provided for time-sensitive deliveries that are recurring in nature. Pickup
and delivery routes are pre-defined based on the needs of the customer. The
largest customer base for this type of service consists of financial
institutions for delivery of non negotiable instruments, primarily canceled
checks.
A typical shipment of bank documents is picked up from the sending
bank's processing center by an Air Group courier. The courier follows a
predetermined pickup schedule. Shipments are pre-sorted by city by bank
personnel and then transported to Air Group facilities generally located in
close proximity to the local airport.
At Air Group's facilities, packages are consolidated by destination,
placed in large shipping bags with an attached air bill and then transferred to
the airport for shipment. Air Group purchases its air transportation from major
airlines and air charter operators from whom it has negotiated favorable terms
that enable it to charge competitive rates for its services. At the airport, the
bags are verified against an internal manifest to ensure that
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all of the packages are accounted for and sent to the proper destination. Upon
arrival at the destination city, the shipment is off-loaded for the final time
and delivered by an Air Group courier to the receiving bank or Federal Reserve
Branch.
ON-DEMAND DELIVERY. The Air Group provides local same-day on-demand
delivery services, whereby messengers or drivers respond to a customer's request
for immediate pick up and delivery. The Air Group's on-demand service begins
with a customer placing an order to a customer service representative who
provides the customer with the job specific price quote, and coordinates the
pickup schedule, flight arrangements and delivery times. Similar to its
scheduled services, the Air Group purchases its air transportation from certain
major airlines and air charter operators. Pickup of the package is handled by an
Air Group carrier or agent, dependent upon whether the Air Group maintains
ground operations at a particular pickup location. Upon receipt by the driver,
the driver notifies the dispatcher that the package has been picked up and is en
route to the airport. At the airport the package is placed on the plane and sent
to a specific destination. Upon arrival an Air Group carrier or agent secures
the package and notifies the Air Group of its receipt. The package is then
transported from the airport to its final destination where the customer signs
the bill and finishes the chain of custody. Typical customers of the Air Group's
on-demand services include entertainment firms shipping production materials,
including film footage and music, investment banks, advertising agencies,
hospitals shipping human organs and manufacturing firms requiring parts for
idled machines.
AIR GROUP CUSTOMER BASE. As of January 30th, 1999, the Air group had a
diversified customer base of over 6600 active customers across the United
States. The Company's target customers are businesses that distribute
time-sensitive, non-flexible items to multiple locations and financial
institutions, primarily commercial banks, transferring non-negotiable items to
processing centers.
THE COMPANY'S KIOSK OPERATIONS
SHIPPING KIOSKS
In 1991, the Company began the development of automated shipping
systems which are designed to be installed at the shipping hubs of major package
carriers such as UPS. In 1996 the Company introduced a new generation of
intelligent shipping kiosks for use in non-hub locations. From 1991 to 1998, the
Company's primary business was the manufacture, marketing and operation of
self-service, automated shipping systems for use by consumers and small
businesses who ship packages and priority letters through major carriers in the
air express and package delivery market.
The Company's shipping kiosks automate many of the functions involved
in shipping packages and priority letters, such as weighing, determining the
charge, accepting payment and printing a shipping label. The kiosks include a
touch screen and a keyboard for entering information, a scale for weighing
packages, a credit card reader to accept payment, and a printer to generate the
bar-coded shipping label. The Company's shipping kiosks are either stand-alone
kiosks, which automate all shipping and billing functions and include storage
bins for later retrieval of packages, or kiosks designed to perform some
functions such as weighing, calculation of charges and label generation, but
require counter personnel to accept payment and complete a transaction. Once a
package has been weighed, priced and labeled, the customer either pays for the
shipment and deposits the parcel in the drop box if the unit is stand-alone, or
pays and deposits the parcel at the counter. The Company holds nine United
States patents related to hardware and software utilized in its ISKs and is not
aware of any other comparable self-service, automated shipping system currently
marketed or available to consumers and small business package shippers. Each
location in the Company's network of ISKs is centrally controlled and serviced
through an electronic connection to the Company's computer network system
located at its headquarters. The Company believes that its ISK technology is
among the most advanced self-service automated air express and package shipping
systems available for consumers and small businesses. As of June 30, 1999, the
Company had installed approximately 162 shipping kiosks in various retail
locations and carrier hubs in over 29 states.
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Based on its strategy of becoming the branded global leader in same-day
delivery solutions, the Company's shipping kiosks are being further developed to
offer increased convenience to customers of same-day delivery service, through
the utilization of the kiosks as electronic document and package "drop boxes",
which can be tied into the Company's electronic network through the application
of the communications technologies the Company currently uses or will seek to
develop or acquire. For instance, rather than waiting for the arrival of a
courier to pick up a package for delivery, the Company envisions that a customer
would deposit a document or package in the kiosk storage bin for later pickup,
choose delivery options, and pay for the service selected via credit card. Order
functions could also be performed directly over the Internet, through the
customer's personal computer, and drivers would be electronically connected via
the Company's communications system. The Company believes that such a real-time
delivery communications and kiosk network will result in more deliveries meeting
the time requirements set by its customers.
The Company believes that there is an opportunity in developing
shipping kiosks for third-party use. Currently the Company is testing four
counter assisted shipping kiosks in a major air/ground hub of a next-day carrier
company. If the test is successful, the Company believes that a significant
potential market for such shipping kiosks will exist among major carriers. There
can be no assurance, however, that the Company will be able to successfully
market kiosks to the carriers or any other potential customers.
INTERACTIVE KIOSKS
The interactive kiosk market includes banking applications, similar to
ATMs, as well as informational and counter assistance kiosks, similar to the
devices used by car rental companies to generate much of the paperwork for a
rental, as well as kiosks for other applications. The Company believes that the
market for interactive kiosks is growing rapidly. By 1995, over 20,000 units had
been shipped in the United States, and sales totaled approximately $250 million.
The Company expects that the United States interactive kiosk market will grow to
over $1.5 billion by the year 2000, and to almost $3 billion by the year 2003.
In 1997, the Company began the development of custom-built,
computerized interactive kiosks for a customer that provides employment
information for different markets. These kiosks allow job seekers to access
information on job availability, benefits and the like, and to electronically
submit job applications. Data is provided by local newspapers and employers. As
of June 30, 1999, the Company sold 65 of these job-related kiosks to this
customer, who has placed them in several markets. Based on this successful
adaptation, the Company believes that the Company can further adapt its kiosk
technology to make interactive kiosks that provide a wide variety of information
services to consumers, such as building directories, "how-to" guides in home
hardware stores, automated ticket dispensers in theaters, and on-line stock
trading or other applications.
INDUSTRY BACKGROUND
SAME-DAY DELIVERY SERVICES
The Company believes that the market for same-day delivery services is
large and growing. Based on industry studies which the Company believes to be
reliable, the same-day delivery services market in the United States was
estimated to generate revenues of approximately $15 billion per year, with an
industry growth rate in excess of 5% per year. Although the market is large, it
is highly fragmented. There are relatively low barriers to entry in this market,
because the capital requirements to start a local courier business are
relatively small and the industry is not subject to extensive regulation. There
are as many as 6,000 courier companies in the United States. Most participants
are privately held and operate only on the local level. The focus is generally
on operations, with little attention given to marketing and sales; accordingly,
the Company believes there is little perceived service differentiation between
competitors and that customer loyalty is generally short term. There are no
dominant brands in the industry, and the industry has a low level of technology
usage.
The Company has determined that customer needs are continually changing
and emerging as customers seek to streamline their processes, improve their
customer-vendor relationships and increase productivity. The same day delivery
industry is benefiting from several fundamental business trends. For example,
the trend toward outsourcing of non-core functions has resulted in numerous
shippers turning to third party providers for a range of services including
same-day delivery and management of in-house distribution. Many businesses that
outsource their distribution requirements prefer to purchase such services from
one source capable of servicing multiple
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cities, which not only decreases their number of vendors, but also maximizes
efficiency, improves customer service and simplifies billing. The Company
believes that it is the only national same-day delivery service with the
geographic reach to meet these evolving needs.
Trends also show that customers are increasingly seeking greater speed
and convenience from their package delivery service provider, along with
reliability, security, operating efficiency and effectiveness. Customers are
seeking to reduce their cycle times and implement "supply chain management" and
"just-in-time" inventory management practices designed to reduce inventory
carrying costs, together with attendant logistics and customized warehousing
services. The growth of these practices has increased the demand for more rapid
delivery services. Technological developments such as e-mail and facsimile have
increased the pace of business and other transactions, thereby increasing demand
for the same-day delivery of a wide array of items, ranging from voluminous
documents to critical manufacturing parts to medical devices. Consequently,
there has been increased demand for same-day transportation of items that are
not suitable for fax or electronic transmission, but for which there is an
immediate need.
Industry participants have recently taken demand practices beyond basic
point-to-point delivery into more advanced applications. For instance, some
same-day delivery companies, including the Company, provide "critical parts
banking" for a customer's parts and supplies and offer related just-in-time
transportation of those items to support service or production activities. Parts
are stored at Company facilities located in a metropolitan area. A customer's
service technician lacking a needed repair part can order the part which is
quickly delivered to the service site within a pre-determined time period,
generally under one hour. When such applications are provided, the customer
receives exceptional value, and their purchase decisions are based on capability
more than price.
The nature of the growing e-commerce segment places additional demands
for speed and reliability, as well as the capability to handle consumer returns
of goods and interface electronically with the e-commerce web sites. To provide
these, the Company believes that customers are looking to more advanced
technology, such as the Company's computerized customer ordering, tracking, and
management systems, as well as professionalism and appropriate ancillary
services such as logistics, warehousing, returns and the like. To serve these
current and emerging customers needs, existing and future same-day delivery
service companies will need to realize economies of scale and provide greater
service options, such as the Company's current and planned critical parts
banking, logistics and warehousing services. Economies of scale will enable the
low-cost application of technology, a more dense or concentrated network of
drivers and related operations, and more intensive marketing to assist in
customer acquisition and to reinforce customer retention.
To meet its customers' needs for speed and efficiency, the Company is
currently utilizing a fleet-wide communications and dispatch system. In
addition, the Company is testing in its larger on-demand delivery operations of
a satellite-driven, computerized, on-demand routing system. This product
utilizes GPS positioning technology and mobile data terminals to continuously
track every vehicle and package in real time. The system increases pick-up
choices and route optimization, resulting in significantly lower mileage, fleet
and administrative expenses through improved driver productivity and route
density. In addition, the Company believes that its existing and planned
communications systems will provide additional benefits to the customer,
including enhancing the accuracy of package delivery estimates, up-to-the minute
status updates on all jobs, and electronic proof of delivery. Additionally, the
Company is planning to utilize its ISK technology to augment its same-day
delivery operations through the use of its kiosks as electronic document and
package drop boxes, which can be tied into the Company's electronic network
through the application of the communications technologies the Company currently
uses or will seek to develop or acquire. The Company believes that utilizing
such technologies to the scheduled delivery business would result in a paradigm
shift in the same-day delivery business. Such route optimization software would
allow the Company to use its on-demand and scheduled resources interchangeably,
allowing more efficient utilization of its fleet and personnel.
As customers' needs continue to emerge, the Company believes that
increased pressure will be placed on security, delivery performance and full
service. As a result, customers will most likely rely on fewer and better
providers of package movement and services. The Company believes that no
national brand exists within the same-
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day delivery industry. The Company believes that brand development will instill
greater confidence in current and prospective customers by indicating a higher
level of professionalism and service performance. In addition, the brand
initiative, when combined with higher levels and variety of services such as may
be provided by the Company's network of ISKs, may expand the industry and
provide a strategic competitive advantage for the Company. Through the
achievement of market penetration and resulting economies of scale in the
building of a strong brand, the Company believes it will be uniquely suited for
customer growth and retention. At the same time, the Company hopes to increase
the industry barriers to entry through these methods.
INTERACTIVE KIOSKS
The Company believes that the market for intelligent interactive kiosks
is growing at an appreciable rate and that this presents an opportunity to
capitalize on the Company's advanced technology and its experience in
manufacturing and development. Based on industry sources, in 1993, the first
year in which data is available, revenues for the interactive kiosk market were
$83 million with shipments of approximately 5,000 units. By 1995, over 20,000
kiosks were sold in the United States, with annual revenues of approximately
$250 million. For 1996, that market had increased to approximately $370 million
in revenue per year, and was expected to increase another 50% by 1997, to $562
million in annual revenues. Market studies anticipated that the United
States interactive kiosk market will grow to over $1.5 billion by the year 2000,
and to almost $3 billion per year by the year 2003.
This extraordinary growth was propelled by improvements in touch
screens, expansion of the Internet and issues of convenience. As end-users
became familiar with kiosks, they discovered that purchasing decisions or
informational questions could be handled more quickly and efficiently using a
kiosk than through traditional methods. For instance, automated corporate
directory kiosks provide useful assistance for people visiting large
organizations. The kiosks enable users to readily identify where to meet a
specific person working on a corporate campus or in a skyscraper. Such kiosks
also allow front desk receptionists to spend less time directing traffic.
Because multimedia applications and the Internet supply more information
covering broader subjects, more companies are expected to use kiosks to maintain
a competitive edge in business.
Based on these figures, the Company believes it is in a unique position
to take advantage of this projected growth in the interactive kiosk market. The
Company's ISK is one such intelligent kiosk, adapted to the consumer and small
business shipping market with the added benefit of sophisticated shipping and
site management technology. The ISK can be easily adapted to non-shipping
applications, as the Company has done with its current line of job-related kiosk
applications. The adaptability of the Company's current technology, the Company
believes, will enable it to participate in the growth of the kiosk market
without the necessity of altering its basic design parameters. However, to keep
pace with the changing market and particular needs of its customers, the Company
plans to consider opportunities to invest in the increasing adaptability and
sophistication of its systems.
PACKAGE SHIPPING KIOSKS
Small package shipping remains one of the growth segments of the
shipping industry, with more than 6.5
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billion packages and priority letters shipped per year. Of the 6.5 billion small
packages shipped, approximately 1.5 billion are overnight or second-day
shipments, indicating a strong demand for priority services. Priority package
shippers are frequently under a deadline and need to ship "after hours."
Twenty-four hour service and intraday service is a critical need for such
shippers and package handling becomes a labor-intensive element within the small
business. The growth of companies such as Federal Express Corporation and UPS,
and the launch of new small parcel shipping services by the United States Post
Office attest to the high growth of this business segment. Further, for the
consumer segment, home delivery and outbound package mailing continue to be
problems due to inconvenient shipping locations and limited hours which the
carriers are open for business. Currently, in 70% of U.S. households both adults
work outside the home, making it difficult and time-consuming to ship packages
on an outbound basis. Additionally, in 40% of all home deliveries, no one is
home to receive the package. Despite these issues, the Company believes small
package shipping will continue to increase for the foreseeable future due in
part to the following trends:
* SERVING THE CONSUMER AND SMALL BUSINESS MARKET. Because these shipments
occur infrequently, there can be significant expense if the carrier
provides pickup. Carrier depots are usually inconvenient for shippers to
access, and hours are limited. The result of this has been the growth of a
shipping interface industry, including "mailbox" stores, but these
alternatives are often expensive to use and are not always more convenient
from an office hours or location standpoint. The Company believes it can
serve this large segment of the business and be an attractive partner for
one or more major carriers by automating their hubs or helping them access
a substantial, but not currently profitable segment of their business.
* HIGH GROWTH OF CATALOG, TV AND INTERNET SHOPPING. Busy two-income families
have less time to shop at conventional stores, and tend to purchase more
merchandise through catalogs and TV shopping channels. Such purchases
generated revenues of more than $54 billion in 1994. There is also a new
and growing trend toward virtual shopping, with people buying goods and
services through the Internet. Based upon information the Company believes
to be accurate, approximately 20% of all items purchased through the mail
and television are returned, creating a significant and growing small
package shipping return market which the Company believes can be served by
a combination of the ISK and its expanded same-day delivery operations.
* GROWTH OF HOME-BASED BUSINESSES AND TELECOMMUNICATION. The latest census
data from the United States government indicates that of the approximately
19 million small businesses currently existing in the United States, 13.2
million are sole proprietorships, many of which operate from private
residences. The Company believes that small business growth drives growth
in priority shipments. The Company believes its ISK technology and expanded
same-day delivery operations, as well as its i-courier(TM) secure document
transfer services, can be employed to increase access to the at-home
business market.
THE ISK AND RELATED CORE TECHNOLOGIES DEVELOPED BY THE COMPANY
In addition to its same-day delivery operations, the Company
manufactures, markets, develops and operates self-service, automated,
self-contained shipping kiosks for use by consumers and small business shippers
to ship packages and priority letters through major carriers. The Company's ISK
contains proprietary software, a computer monitor and a keyboard to facilitate a
user-friendly interface to consumers. The ISK also contains algorithms and
electronic communication capabilities which permit it to communicate with a
central computer system located at the Company's headquarters. The Company has
used market research and tests to refine and simplify its interface, which uses
graphics and voice prompts to simplify the shipping process. The Company has
also developed communications software that provides a seamless link to access
shipping information. This tool provides the Company with accurate data used to
manage site performance.
The Company's ISKs generally incorporate the following features:
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* A graphic user interface supported by voice prompting to take the shipper
through the shipping process step-by-step.
* A touch screen that allows the user to make choices by lightly touching
large, colorful graphic "buttons" on the screen.
* A keyboard for quick entry of "ship to" and contents data.
* A credit card "swipe" that accepts all major credit cards and the US&T
proprietary card. The system captures sender name, telephone number and
other key information encoded on the credit card's magnetic stripe.
* An integrated electronic scale that feeds accurate package weight to the
system.
* Some systems also include integrated package measuring systems that
automatically record package dimensions using sonic sensors.
* A thermal label printer that prints a label to carrier specifications
including proprietary tracking numbers and sort codes.
* A second printer, accessible only to the carrier pick-up driver, which
provides an accurate, computer-generated manifest.
* Americans with Disabilities Act accessible design.
* Extensive software development providing a unique easy-to-use
voice-prompted interface capable of translating complex rate and zone
calculations into layman's language.
* State-of-the-art communications network that allows US&T to control,
communicate with and reconfigure systems in remote sites in a matter of
minutes.
The Company believes that its ISK provides a complete shipping solution
for consumers and small businesses, and that this unique technology can be
successfully integrated into the Company's same-day delivery business. The
Company believes that its sophisticated communications software will allow the
kiosks to be used as electronic "drop boxes" both for same-day delivery services
and as repositories for facilitating consumer returns of merchandise purchased
via catalogs and the Internet, giving the Company's consolidation strategy a
technological edge.
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CARRIER RELATIONSHIPS
For each ISK location, or group of locations, the Company has
historically entered into a Commercial Counter Agreement with UPS, which
provides the basic terms of service, advertising restrictions and certain
related matters. The Company has also entered into an Automated Shipping System
Letter Agreement with UPS regarding the Company's arrangements for use of UPS'
Parcel Register, Computer Manifest and other systems for identifying and
recording packages turned over to UPS for delivery. This agreement is generally
terminable at will, although the Company has enjoyed a shipper-carrier
relationship with UPS since 1992. However, the Company has no control over the
nature, cost or availability of services provided by any carrier and has no
long-term contracts with any carrier. Accordingly, there can be no assurance
that the Company can continue its relationship with UPS or establish new
relationships with any other carrier.
In 1998, the Company was notified by UPS that the Company's software
must be upgraded so that its ISKs are able to connect electronically with UPS,
and that UPS will not provide pick up service to non-complying ISKs placed in
service after July 1, 1998. While this date has been extended, the Company
remains in the process of developing the necessary software upgrades and
believes it can do so in time to meet the UPS requirements for ISKs placed in
service after July 1, 1998 or can provide adequate alternatives to UPS pickup
service for its ISKs. In June 1999, the Company formed an alliance with a
software company, TanData, a minority interest of which is owned by UPS, to
develop an electronic data interface through the Internet between the Company's
kiosks and major carriers such as UPS, which the Company believes will allow us
to meet these requirements. In addition, in the future, the Company's own
couriers will pick up packages from an increasingly larger percentage of
self-service shipping kiosks.
REGULATION AND SAFETY
The Company's operations are subject to various state and local
regulations and, in many instances, require permits and licenses from state
authorities. In connection with the operation of certain motor vehicles and the
handling of hazardous materials, the Company is subject to regulation by the
United States Department of Transportation and the corresponding agencies in the
states in which such same-day delivery operations occur. The Company's
relationships with its employees is subject to regulations that relate to
occupational safety, hours of work, workers' compensation and other matters. To
the extent the Company holds licenses to operate two-way radios to communicate
with couriers, the Company is also regulated by the Federal Communications
Commission.
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YEAR 2000 ISSUES
The Company has developed an internal group and utilizes outside
vendors to review its computer software and systems to determine that the
programs and systems will function properly and will be Year 2000 compliant. As
part of this process, the Company has identified those operating systems,
application software and hardware that are crucial to continuing its ongoing
operations and servicing its interactive kiosk and same-day delivery technology.
The Company has substantially completed the process of contacting vendors and
manufacturers to determine whether their products and services are Year 2000
compliant. Based on these efforts, the Company believes that its proprietary
software, which is the software used to run its ISK as well as its management
software, is Year 2000 compliant. In addition, the Company believes that, with
minor modifications to existing third party software, Year 2000 issues will not
pose significant operational problems for the Company's internal computer
systems. In addition, the Company will over the next two months continue testing
of its hardware and software systems to ensure and verify compliance. The
estimated costs of these efforts are not expected to be material to the
Company's financial position or any year's results of operations.
SALES AND MARKETING
The Company has initiated a comprehensive marketing plan emphasizing
its competitive position as the leading national provider of same-day delivery
services, significantly enhanced its national accounts sales team to capitalize
on this position, restructured its field sales organization and hired 65 new
sales professionals to help implement the program.
Sales efforts are conducted at both local and national levels through
the Company's extensive network of local sales representatives and the national
accounts group. The Company employs over 150 sales representatives who make
regular calls on existing and potential customers to identify each customer's
delivery and logistics needs. Sales efforts are coordinated with customer
service representatives who regularly communicate with customers to monitor the
quality of services and to quickly respond to customer concerns. The Company's
National Accounts Group focuses on developing and retaining accounts with larger
corporations with multi-location requirements. The group is divided into four
groups, financial institutions, integrated supply, healthcare and third party
logistics. The Company's Air Group focuses on developing and expanding existing
and new next-flight-out and air courier accounts throughout its domestic and
international markets.
The Company's marketing department is organized into two product areas,
same-day delivery and logistics support. These product areas are supported by
corporate communications and research services. The marketing department
develops and executes marketing strategies and programs. In addition, the
marketing department provides ongoing communication of corporate activities and
programs to employees, the press and the general public.
RESEARCH AND DEVELOPMENT
The focus of US&T's ongoing research and development is aimed at
increasing the sophistication, use and deployment of both its present and
potential communications systems. To meet its customers' needs for speed and
efficiency, the Company currently employs a computerized communications and
dispatch system. In addition, the Company is currently testing in its larger
on-demand delivery operations a satellite-driven, computerized, on-demand
routing system. This product utilizes GPS positioning technology and mobile data
terminals to continuously track every vehicle and package in real time. The
Company plans to expand the capabilities of its present and planned
communications systems to provide for the further integration of its same-day
delivery, supply-chain management and logistics services, and to provide an
Internet-based platform for e-commerce delivery solutions.
Currently, the Company's shipping kiosks are being upgraded to make the
software and hardware more multi-functional and user friendly. The Company
intends to continue this development process to allow the ISKs to be used as
electronic "drop boxes" for same-day delivery service, and to integrate the
Company's sophisticated dispatch software with the ISKs' existing network
communications systems. The Company believes that this standardized
communications system and real-time dispatch, routing and tracking software,
integrated with the Company's kiosk communications capabilities, will increase
the efficiency of the Company's same-day delivery operations in every market in
which the Company operates.
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The Company is also working with third parties on the development of
interactive kiosks meeting specific informational and other needs. Experience
has shown that the Company's current ISK design is adaptable for use in
interactive non-shipping applications. The Company intends to engage in the
custom development of ISKs and interactive kiosks for those customers who have
needs particular to their markets. For instance, the Company is currently under
discussions with a major carrier for the development of an ISK that would
automate that carrier's regional hubs. It is intended that the ISKs will be
upgraded in accordance with the particular needs and specifications of this
potential customer, if and when a contract is obtained. In addition, the Company
is currently working with several potential customers for its interactive
kiosks, and will develop such designs, software and hardware systems as these
potential customers may require.
MANUFACTURING
The Company purchases substantially all of the components for its ISK
and other interactive kiosks from third parties for assembly and testing by the
Company at its facility. Some of these components are designed by the Company
and custom manufactured to the Company's specifications, which permits the
Company to produce these systems without the substantial commitment of resources
that an integrated manufacturing facility would require. However, most of the
components the Company purchases are standard and readily available from several
vendors. The Company believes it maintains good relationships with its suppliers
and has no long-term manufacturing commitments with any such component
manufacturer or supplier. The Company does not believe that it is materially
dependent on any of its component suppliers or contract manufacturers because
alternative sources for product components and manufacturing services are
readily available. The Company believes that its existing facility has adequate
manufacturing capacity to produce ISKs and other interactive kiosks sufficient
to meet its anticipated sales.
COMPETITION
In the same-day delivery business in any market, the Company expects to
experience substantial competition from established local couriers and messenger
services. In the Minneapolis/St. Paul metropolitan area, for example, there are
over 30 courier services with which the Company competes, but none of the
services is believed by the Company to have more than 10% of the market.
Nationally, the Company competes with other large competitors. There
are several companies that have courier operations in multiple markets. For
instance, Dynamex/Roadrunner, is believed to have over 30 branches, most of
which are in Canada. Pony Express is believed to be doing business in 36 states,
primarily in the Northeast, Southeast and the Midwest. DMS has adopted a
"roll-up" strategy and has acquired several courier operations in various major
markets in the United States. These and other companies which may compete with
US&T have substantial resources and experience in the same-day delivery
business. The Company believes that its national presence and wide array of
service offerings, its use of sophisticated communications and other technology
and its branding strategy will differentiate the Company's services and allow it
to compete successfully in any market in which the Company operates or may
enter, but there can be no assurances that other, larger competitors will not
enter the market or develop as a result of the trend toward consolidation in the
same-day delivery market, thereby eroding the Company's competitive position.
The express package and document collection and shipping markets, which
are dominated by major carriers, such as UPS, Federal Express, Airborne, DHL and
the U.S. Postal Service, are also extremely competitive. These companies engage
primarily in the next-day and second-day ground and air delivery businesses and
operate by imposing strict drop-off deadlines, rigid package dimensions and
weight limitations on customers. By comparison, the Company operates in the same
day delivery business, and handles deliveries as diverse as human organs and
truckloads of steel pipe on a same-day basis, either scheduled or on-demand.
Accordingly, the Company does not believe it is in direct competition with these
major carriers in same-day delivery services, although there can be no
assurances that such organizations will not determine to enter into
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direct competition with the Company. Such organizations may have more
experience, as well as human and financial resources than the Company. For
example, UPS, the world's largest package distribution company, had revenues of
over $22 billion on a volume of over three billion packages and documents in
1997. In addition, many potential competitors, including Federal Express, UPS,
and the United States Postal Service are larger, possess more established
methods of operation and have developed loyalty to select manufacturing vendors
who provide them with new technology and automation. The Company is at a
disadvantage in competing with these larger and more established companies in
trying to establish itself as a leader in the same-day express delivery
business.
The Company is also at a disadvantage competing with larger companies
in its business as a manufacturer of automated kiosks to be used in the shipping
industry. The Company believes that both Federal Express and UPS have developed,
or had third parties develop for them, one or more forms of automated shipping
systems which could be competitive with the Company's ISKs, but that these
systems have not been deployed other than on a limited test market basis. The
Company's primary method of competition with such carriers has been to patent
its technology, which the Company believes creates barriers to entry by such
carriers into the automated shipping market.
The Company also expects to have significant competition in the new
industries it is pursuing as part of its revised business strategy involving the
manufacture of intelligent kiosks. Large kiosk vendors hold an advantage over
smaller firms because of their vast resources and ability to deliver products
and ongoing service on a large scale. The substantial growth of the industry is
likely to attract wider competition, especially from computer firms and
companies involved in the growing Internet business. Most of these competitors
are likely to have resources and experience that far exceed that of the Company.
PATENTS AND INTELLECTUAL PROPERTY
The Company owns nine U.S. patents and one Canadian patent which
together cover technology and methodology currently employed in its ISK
products. The Company has also filed for patent protection in several foreign
countries, including Japan and the European Patent Community. However, there can
be no assurance that the Company's patents will afford it significant
protection, and the Company may be vulnerable to competitors, many of whom are
larger and have greater financial and technological resources, who may attempt
to copy or design around the Company's products.
The Company's success in integrating its ISK technology with its
same-day delivery business will depend upon its ability to protect and enforce
its proprietary technology, for which it relies on a combination of patents,
copyright, trademark and trade secret laws. Although the Company has received
patents for its ISK, there can be no assurance that current intellectual
property laws will afford the Company significant protection against competitors
or that other technology will not be developed to functionally compete with the
Company's product. The Company believes that one or more major carriers, all of
which will have greater financial, technical and marketing resources, could
develop or purchase products or technologies competitive with the Company's
ISKs.
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There can be no assurance that any patents now issued or that may be
issued in the future will afford protection against competitors with similar
technology. In addition, no assurance can be given that patents issued to the
Company will not be infringed, designed-around by others or invalidated. Some
foreign countries provide significantly less patent protection than the United
States. There also can be no assurance that the Company's technology will not
infringe patents or proprietary rights of others. Furthermore, there can be no
assurance that challenges will not be instituted against the validity or
enforceability of any patent owned by the Company or, if instituted, that such
challenges will not be successful. The cost of litigation to uphold the validity
and prevent infringement of a patent can be substantial as can be the costs of
defending against such claims.
The Company also owns other proprietary technology and intellectual
property, including trade dress, trade secrets and software that the Company
intends to protect vigorously with applicable state and federal intellectual
property laws. Although limited protection for software under the patent laws of
the United States is currently available, there can be no assurance that
software will continue to be the subject of such protection in the United
States. Also, foreign countries offer varying levels of patent protection for
software when compared with the United States.
TRADEMARKS
The Company currently has applications for United States trademark
registrations for trademarks and service marks, including but not limited to
United Shipping & Technology and Design, and i-courier(TM). However, there can
be no assurance that any of these registrations will be granted. These
applications for registration are for the following goods and services, among
others: automated shipping machine for packages and overnight letters which
computes charges and prints labels, receipts and other similar documents, the
provision of delivery services, and the secure transmission of documents over
the Internet. The Company also owns United States trademark registrations for
the trademark U-Ship & Design and for the trademark U-Ship.
There can be no assurance that any trademarks or service marks of the
Company, if registered, will afford protection against competitors with similar
marks that may have a prior use date. In addition, no assurance can be given
that trademarks owned by the Company will not be infringed upon by others. There
also can be no assurance that the Company's trademarks will not infringe upon
trademarks or proprietary rights of others. Furthermore, there can be no
assurance that challenges will not be instituted against the validity or
enforceability of any trademark claimed by the Company and, if instituted, that
such challenges will not be successful. The cost of litigation to uphold the
validity and prevent infringement of a trademark can be substantial, as can be
the costs of defending against such claims.
EMPLOYEES
As of September 28, 1999, the Company employed approximately 10,000
people in the Company's Delivery Systems subsidiary. As of September 15, 1998,
the Company employed 12 people on a full-time basis and two on a part-time
basis, outside of its same-day delivery operations. As of September 15, 1999,
the Company employed 5 people on a fulltime basis and none on a part-time basis,
in the Company's ACS subsidiary. The Company believes that its relations with
its employees are good. The Company also utilizes the services of over 5,100
independent contractor drivers in its same-day delivery operations.
ITEM 2. DESCRIPTION OF PROPERTY
The Company subleases approximately 9,460 square feet of space used for
offices, assembly, storage and packaging at 9850 51st Avenue North, Suite 110,
Minneapolis, Minnesota 55442 at a monthly rent of $5,687. The
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Company believes that these subleased premises will meet its requirements for
its assembly, storage and packaging, and research and development facilities for
the remainder of the sublease term. The sublease expires on November 24, 2001.
The executive offices of the CEDS operations acquired are located at 11 Greenway
Plaza, Suite 250, Houston Texas, where the Company leases 11,885 square feet of
office space. The Company's operating facilities are conducted from
approximately 230 local offices. With the exception of approximately 10 Company
owned locations, all of the Company's operating facilities are leased, generally
with terms of two to five years, although certain facilities are leased on a
monthly basis. Leasing rates generally range from $5.00 per square foot to $22
per square foot. The Company operates warehouses typically ranging in size from
1,000 to 10,000 square feet, although the Company has a number of warehouses of
over 10,000 square feet. Warehouses are typically used for inventory storage and
products in transition. The Company's field offices generally range in size from
one thousand to 20,000 square feet, although the Company has a number of offices
over 20,000 square feet. Offices typically consist of processing support, local
management and administrative space. The Company believes that the
above-described premises will meet its requirements for its ongoing same-day
delivery and other operations for the remainder of the lease terms.
As of December 31st, 1998, the Company's fleet consisted of
approximately 4700 leased and owned vehicles, including vans, pickup trucks,
cars, straight trucks, trailers and tractors. Cars, vans and pickup trucks are
typically utilized by the scheduled and on-demand business lines for
transporting small packages on a point-to-point basis. Straight trucks, tractors
and trailers are typically utilized by the distribution business, transporting
large, longer haul shipments to warehouses or customer sites. The Company has
recently overhauled its fleet, retiring approximately 400 aged vehicles, while
leasing approximately 1300 new vehicles in the past year. As a result of the
overhaul, the Company believes that its fleet is in very good condition, as
illustrated by its average age of four years.
ITEM 3. LEGAL PROCEEDINGS
As of June 30, 1999, and prior to its acquisition of CEDS in September
1999, the Company was not a party to any material legal proceedings. CEDS and
certain related parties are parties to lawsuits arising out of the business of
CEDS. Most of the pending lawsuits are covered by primary and umbrella insurance
policies providing for payment of a deductible by the Company in the amount of
$250,000 per claim. The Company believes that any potential exposure in these
pending actions will not exceed the policy limits.
CEDS is also a party to five lawsuits which are not covered by primary
or umbrella insurance policies. The Company is in the process of investigating
and evaluating these cases to determine the extent of the Company's exposure.
The Company does not believe that the pending lawsuits, if resolved or
settled unfavorably to the Company, would have a material adverse effect upon
the Company's financial position or results of operations. A monetary settlement
paid by the Company or an award against it in any of such actions could,
however, have a material adverse effect upon the Company's cash flow in a given
period in which a settlement or award occurs. Following completion of its
evaluation of the pending actions, the Company intends to establish an accrual
for losses it may sustain in the pending actions. The financial statements dated
as of August 27, 1999, for courier operations of Corporate Express Delivery
Systems, Inc., provided for an accrual of $1.0 million for pending lawsuits,
with liability in excess of the accrual being covered by insurance. The Company
has not determined whether such an accrual level will be adequate for purposes
of its financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-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
(2) To consider and vote upon the amendment to the Company's Restated
Articles of Incorporation
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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
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names, ages and positions held with the
Company of all executive officers of the Company. There are no family
relationships between any director or executive officer and any other director
or executive officer of the Company. The executive officers serve at the
discretion of the Board of Directors.
Name Age Position
---- --- --------
Peter C. Lytle 50 Chairman, President, Chief Executive Officer
and Director
Timothy G. Becker 39 Treasurer, Chief Financial Officer and
Director
Kenneth D. Zigrino 43 Vice President - Administration, General
Counsel and Secretary
PETER C. LYTLE. Mr. Lytle became employed by the Company in May 1998
and has served as the Company's Chairman, President, Chief Executive Officer and
a director since June 1998. From March 1998 to May 1998, Mr. Lytle rendered
consulting services to the Company in connection with its strategic
restructuring. Mr. Lytle is a principal with the Business Development Group (the
"BDG") which he co-founded in 1994. The BDG provides turn-around management
services, investment banking and strategic planning to companies in the United
States and
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Europe. His responsibilities at the BDG included acting as CEO and Chairman of
Primo Piatto, Inc. during a successful acquisition of the Borden Pasta
Manufacturing business (which was recently sold to Dakota Growers) and acting as
Chairman of Pink Business Interiors during a successful employee buyout and
reorganization. From 1986 to 1994, Mr. Lytle was employed by Land O' Lakes, Inc.
in a variety of positions from Vice President of Advanced Food Sciences to
General Manager of Business Development. Prior to this time he has held
positions with the Beatrice Companies as a Group Brand Manager, and Allied
International as Vice President of Marketing and Business Development. He
currently is on the Board of Directors of Humanetics, Inc., BioSun Systems,
Inc., Agrotec, Inc. and Pink Business Interiors, Inc. He is on the Board of
Advisors for the Center for Advanced Biotechnology in Africa, and Menu Direct,
Inc.
TIMOTHY G. BECKER. Mr. Becker is a director of the Company and has
served as its Chief Financial Officer and Treasurer since June 1998. From March
1998 to June 1998, Mr. Becker rendered consulting services to the Company in
connection with its strategic restructuring. Since 1994, Mr. Becker has worked
as an independent financial workout consultant for his own firm, the Becker
Group, Ltd., and during this time Mr. Becker served as Chief Financial Officer
of Primo Piatto, Inc. Between February, 1992 and February, 1994, Mr. Becker was
employed as Director of Business Systems for Munsingwear, Inc. Prior to 1992,
Mr. Becker, was employed as Senior Manager with Ernst & Young LLP's
Restructuring and Reorganization Consulting Practice. Mr. Becker has over 15
years of experience with a variety of companies during periods of financial
crisis and rapid change along with positioning companies and their balance
sheets for sale, merger or acquisitions. Mr. Becker is a Certified Public
Accountant and is on the Board of Directors of the Minnesota Chapter of
Turnaround Management Association.
KENNETH D. ZIGRINO. Mr. Zigrino joined the Company in May, 1998 and has
served as its Vice President of Administration, Secretary and General Counsel
since June 1998. From March 1998 to June 1998, Mr. Zigrino rendered consulting
services to the Company in connection with its strategic restructuring. Mr.
Zigrino practiced law in his own firm between November 1996 and May 1998, and
between January 1990 and January 1995. He served as President of the law firm of
Zigrino & LoGalbo, P.A. from January 1995 to November 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock began trading under the symbol "USHP" on the
NASDAQ SmallCap Market in June 1996. Prior to such time, the common stock of the
Company was traded on a limited basis on the over-the-counter market under the
symbol "UBOT." The following table sets forth the quarterly high and low closing
prices for the Company's common stock, as reported by the National Association
of Securities Dealers' Bulletin Board, for each full quarterly period within the
two most recent fiscal years. These prices represent inter-dealer prices without
adjustment for mark-up, mark-down or commission and do not necessarily reflect
actual transactions.
HIGH LOW
---- ---
Period
------
Fiscal 1998
First Quarter ........ 2-3/8 13/16
Second Quarter ....... 1-5/16 3/16
Third Quarter ........ 1/2 5/32
Fourth Quarter ....... 1-3/8 3/8
Fiscal 1999
First Quarter ........ 1 5/8
Second Quarter ....... 3-1/4 13/16
Third Quarter ........ 4 1/4 2 3/4
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Fourth Quarter ....... 3-11/16 2 5/8
On September 15, 1999, the number of holders of record of common stock
was 427. The transfer agent for the Company's common stock is American Stock
Transfer & Trust, 40 Wall Street, New York, New York.
The Company has not paid any cash dividends on its common stock and
expects that for the foreseeable future it will follow a policy of retaining
earnings in order to finance the continued development of its business. Payment
of dividends is within the discretion of the Company's Board of Directors and
will depend upon the earnings, capital requirements and operating and financial
condition of the Company, among other factors.
RECENT SALES OF UNREGISTERED SECURITIES
The following describes sales of the Company's securities in the last
three years without registration under the Securities Act of 1933 (the
"Securities Act"):
In April 1998 certain accredited investors agreed to purchase in a
private placement transaction an aggregate of 785,837 units (the "Units"), each
Unit consisting of two shares of its $0.004 par value per share Series A
Cumulative Convertible Preferred Stock (the "Preferred Shares") and a warrant to
purchase one share of Common Stock at a price of $1.75 per share (the
"Warrants"), at a price of $1.20 per Unit, for a total consideration received by
the Company of $943,003. Each of the Preferred Shares was convertible into the
Company's $0.004 par value Common Stock and was entitled to 5% cumulative annual
dividend. Subject to their registration under, or exemption from, applicable
federal and state securities laws, the Warrants were exercisable to purchase
Common Stock at any time before May 1, 2001. Closing procedures for such private
placement were completed in May 1998. These Units were sold by the Company
without the services of an agent.
In separate closings on June 2, 1998, and June 8, 1998, the Company
completed a private placement in which it sold to accredited investors 1,441,912
Units. The Units were offered by R.J. Steichen & Co. (the "Agent"), a
non-exclusive agent of the Company on a "best-efforts, all or none" basis, at a
purchase price of $1.20 per Unit. The total consideration received by the
Company for the sale of these Units was $1,477,856, net of interest ($7,080) and
the Agent's commissions and nonaccountable expense reimbursement and other
expenses of the private placement. The Company paid the Agent commissions and
expenses and paid other expenses of the offering totaling $252,489, and sold a
warrant to the Agent for the sum of $50.00 for the purchase of 288,381 shares of
common stock at an exercise price of $0.60 per share.
On February 25, 1999, the Company elected to cause the mandatory
conversion of each of the outstanding Preferred Shares into one share of Common
Stock, for a total of 4,455,498 shares of Common Stock. On September 10, 1999,
the Company exercised its option to redeem the unexercised Warrants (other than
the Agent's warrant) purchased by investors in the above-described Unit
offering. Such redemption is at a price of $0.01 for each share of Common Stock
issuable upon exercise of said unexercised Warrants, subject to the rights of
the warrantholders to exercise the Warrants during the 30 day period beginning
on the date of the Company's notice of redemption.
On June 3, 1998, the Company issued a common stock purchase warrant to
Manchester Financial Group, Inc. ("Manchester"). The warrant was for the
purchase of 100,000 shares of the Company's $0.004 par value per share Common
Stock at an exercise price of $0.60 per share and is exercisable at any time
prior to April 30, 2001. The warrant was issued to Manchester in lieu of fees
owed to Manchester for consulting services rendered to the Company.
Between December 31, 1998 and February 25, 1999, the Company sold to a
limited number of accredited investors, in two private placement transactions,
$1,350,000 principal amount of unsecured, 12% notes (the "Notes"). In connection
with the sale of the Notes, the Company issued five-year warrants for the
purchase of 29,333 shares of Common Stock exercisable at $1.875 per share 11,150
shares of Common Stock exercisable at $3.25 per share and 3,850 shares of Common
Stock exercisable at $3.75 per share. Pursuant to a Note Conversion Agreement
dated March 30, 1999, $500,000 of the Notes were converted by one Note holder
into 175,000 shares of Common Stock and a warrant to purchase 50,000 shares of
Common Stock at an exercise price of $2.00 per share. Pursuant to another Note
Conversion Agreement dated May 5, 1999, $250,000 of the Notes and accrued
interest were converted by one Note holder into 100,000 shares of Common Stock.
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Between March 16, 1999 and August 12, 1999, the Company sold to seven
purchasers an aggregate of 373,000 shares of Common Stock at prices ranging from
$2.87 to $3.125 per share, for an aggregate of $1,105,000. In connection with
the sales, the Company issued to the purchasers either one-year or four-year
warrants to purchase an aggregate of 119,668 shares of Common Stock at exercise
prices ranging from $2.00 to $3.50 per share.
Between April 12, 1999 and June 7, 1999, the Company sold to two
purchasers five-year warrants for the purchase of an aggregate of 150,000 shares
of Common Stock, at an exercise price of $1.75 per share, for an aggregate of
$150,000.
Except with respect to its private placement of Preferred Shares, no
underwriter or placement agent was used in connection with any of the
above-referenced securities transactions, and no underwriting commissions were
paid. No means of general solicitation was used in offering the securities. 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 or Regulation D thereunder. All purchasers of
the Company's securities were sophisticated investors who qualified as
accredited investors within the meaning of Rule 501(a) of Regulation D under the
Securities Act. 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.
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In July of 1999, the Company sold to certain of its employees an
aggregate of 7,612 shares of its Common Stock at a purchase price of $3.00 per
share $0.004 par value common stock (the "Shares"), in a private placement
transaction. No underwriter was used in connection with any of the
above-referenced securities transactions, and no underwriting commissions were
paid. The securities in this transaction were sold to a limited group of
non-accredited investors in a private placement transactions, exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Annual Report on Form 10-KSB
contain forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements and such differences may be material.
GENERAL
From 1996 until the beginning of 1999, the primary business of the
Company was the development, manufacture and marketing of self-service,
automated shipping systems for use by consumers and small businesses who ship
packages and priority letters through major carriers in the air express and
package delivery market. Historically, the Company placed these kiosks in
service in multiple locations of major retailers, such as Kinko's Copy Centers
and OfficeMax. By the middle of 1998, the Company had 303 kiosks in service in
43 states and Canada.
In 1998, as a result of lower than anticipated revenues from ISKs
placed in retail locations, the Company reevaluated its strategies and results
from its kiosk deployment. In the course of reviewing alternative directions
for its business, the Company's management determined that the same-day delivery
business presented a unique opportunity for the Company to employ its advanced
technology in a large but fragmented market and obtain an independent revenue
stream in a growing industry. Based on this determination, the Company adopted a
revised business strategy with an objective of becoming the national leader in
same-day delivery and related services through a "roll-up" of courier
businesses.
The Company initiated its roll-up strategy in late 1998, by acquiring
JEL Trucking, Inc. and began offering same-day delivery and package delivery
services in the Minneapolis/St. Paul metropolitan area. In January 1999, the
Company acquired Twin City Transportation, Inc., thereby expanding the Company's
same-day delivery service in the Minneapolis/St. Paul metropolitan area. In
September 1999, the Company acquired Corporate Express Delivery Systems
("CEDS"), which had annual revenues in excess of $600 million in 1998. With the
acquisition of CEDS, the Company believes that it has become one of the largest
same-day courier delivery services in the world. The Company offers an array of
same-day ground and air delivery services, including scheduled delivery,
on-demand delivery, distribution services and air courier services, from
approximately 230 locations in 83 of the top 100 metropolitan areas in the
United States.
Following the acquisition of CEDS, the Company's business provides the
following products and services to individual consumers and businesses:
* same-day ground and air package transportation services
throughout the United States and internationally,
* distribution services and integrated supply services,
* self-service automated shipping kiosks automate the shipping hubs
of major carriers and enable customers and small businesses to
conveniently ship packages and priority letters through a major
carrier in the air express and package delivery market,
* computerized interactive kiosks that provided information through
the Internet, and
* secure delivery of information over the Internet.
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<PAGE>
RESULTS OF OPERATIONS
Revenue for the fiscal year ended June 30, 1999, increased $529,941 or
56% to $1,482,799 from $952,858 for the fiscal year ended June 30, 1998.
Revenues related to ACS and IQK for fiscal 1999 were $831,007 and $651,729,
respectively. Revenues related to ACS were generated during its first seven
months of operation. Revenues for IQK decreased $301,067 in fiscal year 1999.
The decrease in revenue is due to a reduction in the number of ISKs remaining in
service. In September 1998, the Company reached an agreement to remove ISKs
deployed with one multiple location retailer, and is currently negotiating with
another retailer to remove ISKs, in order to implement a new ISK placement
strategy.
Direct shipping and equipment sales expenses decreased by $29,659 or 4%
to $745,779 from $775,438 in fiscal year 1998. The decrease is primarily due to
the de-emphasis on the placement of new Company-owned ISKs.
General and administrative expenses for the fiscal year ended June 30,
1999, increased $1,124,869 or 62% to $2,947,040 from $1,822,171 in fiscal year
1998. General and administrative expenses that related to ACS and IQK for fiscal
year 1999 were $968,392 and $1,978,648, respectively. The majority of the
increase is attributed to personnel expenses of $729,105 incurred by ACS during
its first seven months of operation and an increase in personnel expenses of
$251,650 for IQK. Significant staff reductions and other operating expense
reductions were implemented during fiscal year 1998. As a result of the
Company's revised business strategy, significant efforts have been undertaken
during fiscal year 1999 to develop acquisition activities and to rebuild an
experienced management team to implement the strategy.
Marketing and sales expenses for the fiscal year ended June 30, 1999
increased $292,780 or 317% to $385,072 from $92,292 for the fiscal year ended
June 30, 1998. The increase is the result of staff additions required to
implement the redeployment strategy and to establish marketing programs for both
ACS and IQK.
Research and development expenses for the fiscal year ended June 30,
1999, increased $128,377 or 77% to $296,118 from $167,741 for fiscal year 1999.
The increase in research and development expenses is attributed to the
development of new software tools for the ISKs and costs associated with the
development of new experimental models of the ISK.
Interest income increased to $52,375 for the fiscal year ended June
30,1999 compared to $25,863 for the fiscal year ended June 30, 1998. The
increase is a result of the investment of cash surpluses generated from the
Company's private offerings in May and June 1998 and its issuance of the
Company's 12% notes on December 31, 1998. Interest expense increased to $55,644
for the fiscal year ended June 30, 1999 compared to $22,209 for the fiscal year
ended June 30, 1998. This increase is due to the increase in debt upon issuance
of the Company's 12% notes in December 1998.
Net loss for the fiscal year ended June 30, 1999 increased by $993,349
to $2,894,479 from $1,901,130 for the comparable period in the prior year. The
Company expects to incur additional losses until its revised business strategy
results in sufficient revenues to offset its investment and operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
In order to finance its revised business strategy, the Company sold
Common Stock and warrants in private placements aggregating over $855,000 equity
capital from private investors during the fiscal year ended June 30, 1999. In
addition, the Company sold its short and medium-term promissory notes and
warrants in the aggregate original principal amount of $1.35 million during the
fiscal year ended June 30, 1999.
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 Preferred
Shares, 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 was $2,420,859.
Each Unit consisted of two (2) Preferred Shares and one (1) Warrant to purchase
one share of Common Stock at a price of $1.75 per share. Each of the Preferred
Shares was convertible into the Company's $0.004 par value common stock (the
"Common Stock"). Subject to their registration under, or exemption from,
applicable federal and state securities laws, the Warrants may be exercised to
purchase Common Stock any time
27
<PAGE>
before May 1, 2001. Pursuant to their subscription agreements, investors in this
offering received both demand and incidental registration rights with respect to
registration of the sale of the Common Stock into which the Units were
convertible and the Warrants exercisable. On February 25, 1999, each of the
Preferred Shares was manditorily converted into one share of Common Stock. On
September 10, 1999, the Company gave notice to the investors in the above
offerings that it would redeem, for the purchase price of $0.01 per share, the
shares of Common Stock as to which the Warrants remained unexercised, subject to
the right of the investors to exercise the Warrants within 30 days of said
notice. 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 is currently operating at a loss and expects to continue to
depend on cash generated from the sale of debt and equity securities to fund its
operating deficit. There can be no assurance that the Company will be able to
generate sufficient revenues to meet its operating cash and growth needs or that
any equity or debt funding will be available or at terms acceptable to the
Company in the future to enable it to continue operating in its current form.
The Company's loss for the fiscal year ended June 30, 1999 was
$2,894,479. The Company expects to incur losses for the foreseeable future due
to the ongoing activities of the Company to expand its ISK network and the costs
incurred in supporting this network, and in pursuing other aspects of its
revised business strategy. The Company believes that these programs, while
initially requiring additional cash outlays, will result in greater package
shipping revenues per shipping center, although no assurance can be given that
volumes will increase appreciably as a result of these initiatives in the near
future, if at all. The Company expects that its current ISK network and other
operations will continue to result in negative cash flow and working capital
deficiencies that will require the Company to continue to obtain additional
capital.
Inventory increased by approximately $381,395 as of June 30, 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 approximately $405,500 of 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 by approximately $209,367 from June 30, 1998 to
June 30, 1999. The increase is due to the acquisition by ACS. Accounts payable
increased by approximately $482,949 over the same period due to the acquisitions
and the increased level of purchases associated with the redeployment efforts.
Accrued liabilities increased $83,723 over fiscal year 1999 due to the
acquisitions made by ACS. Deferred revenue decreased by $19,225 due to the
expiration of the liabilities associated with the possible exercise of return
rights and maintenance agreements on the ISKs.
Based on current commitments and on going working capital needs, the
Company believes that it will require substantial additional debt or equity
funding to continue to implement its revised business strategy, including
acquisitions. The Company's cash needs and usage may vary based on the outcome
of these initiatives. There can be no assurance that the necessary financing
will be available to the Company or, if available, that the same will be on
terms satisfactory or favorable to it. It is likely that additional equity
financing will be highly dilutive to existing shareholders.
On September 24, 1999, the Company acquired for approximately $60.6
million Corporate Express Delivery Systems, Inc., one of the largest same-day
delivery services in North America, operating from a network of 230 locations in
83 of the top 100 United States metropolitan areas. The acquisition was financed
by a $43.0 million credit facility from two institutional lenders, secured by
cash and accounts receivable and the remainder was financed by notes in favor of
CEX Holdings, Inc., which notes are secured by Delivery Systems' property, plant
and equipment.
28
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
(formerly U-Ship, Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
29
<PAGE>
CONTENTS
Page
----
INDEPENDENT AUDITOR'S REPORT 31
FINANCIAL STATEMENTS
Consolidated balance sheets 32
Consolidated statements of operations 33
Consolidated statements of shareholders' equity 34
Consolidated statements of cash flows 35
Notes to consolidated financial statements 36 - 47
30
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
United Shipping & Technology, Inc.
Plymouth, Minnesota
We have audited the accompanying consolidated balance sheets of UNITED SHIPPING
& TECHNOLOGY, INC. AND SUBSIDIARIES (formerly U-Ship, Inc.) as of June 30, 1999
and 1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UNITED SHIPPING & TECHNOLOGY,
INC. AND SUBSIDIARIES as of June 30, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As reflected in the accompanying financial
statements, the Company incurred net losses of $2,894,479 and $1,901,130 for the
years ended June 30, 1999 and 1998, respectively. This factor, among others, as
discussed in Note 2, raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans regarding those factors are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
August 13, 1999, except for Notes 2 and 15, as to
which the date is September 9, 1999
31
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 252,356 $ 153,693
Short-term investments -- 1,700,000
Accounts receivable (net of allowance of $22,600
and $14,100) 274,896 65,529
Stock subscription receivable, subsequently collected 250,000 18,000
Note receivable 121,972 --
Inventories 883,036 501,641
Prepaid expenses and other 193,573 --
----------- -----------
TOTAL CURRENT ASSETS 1,975,833 2,438,863
----------- -----------
PROPERTY AND EQUIPMENT
Shipping kiosks 763,905 1,335,234
Furniture, fixtures, and equipment 1,046,726 537,979
----------- -----------
1,810,631 1,873,213
Less accumulated depreciation 952,935 934,054
----------- -----------
857,696 939,159
----------- -----------
OTHER ASSETS
Goodwill, net of accumulated amortization of $46,120 1,426,339 --
Patents, net of accumulated amortization of $135,351
and $106,903 83,422 99,729
Financing costs, net of accumulated amortization of $5,000 25,000 --
Other assets 19,826 75,175
----------- -----------
1,554,587 174,904
----------- -----------
$ 4,388,116 $ 3,552,926
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 39,609 $ 52,881
Accounts payable 557,092 74,143
Accrued liabilities 228,651 144,928
Deferred revenue -- 19,225
----------- -----------
TOTAL CURRENT LIABILITIES 825,352 291,177
----------- -----------
LONG-TERM OBLIGATIONS, net of current maturities 615,815 61,004
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $.004 par value; 25,000,000 shares authorized,
4,500,000 shares designated series A cumulative convertible
preferred stock; no shares and 4,455,498 shares outstanding -- 17,822
Common stock, $.004 par value; 75,000,000 shares authorized;
10,610,537 and 4,979,709 shares outstanding 42,442 19,919
Additional paid-in capital 15,571,329 12,935,347
Accumulated deficit (12,666,822) (9,772,343)
----------- -----------
2,946,949 3,200,745
----------- -----------
$ 4,388,116 $ 3,552,926
=========== ===========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUES $ 1,482,799 $ 952,858
----------- -----------
EXPENSES
Direct shipping and equipment sales 745,779 775,438
General and administrative 2,947,040 1,822,171
Marketing and sales 385,072 92,292
Research and development 296,118 167,741
----------- -----------
4,374,009 2,857,642
----------- -----------
LOSS FROM OPERATIONS (2,891,210) (1,904,784)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 52,375 25,863
Interest expense (55,644) (22,209)
----------- -----------
(3,269) 3,654
----------- -----------
NET LOSS ($2,894,479) ($1,901,130)
=========== ===========
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (.42) $ (.38)
=========== ===========
SHARES USED TO COMPUTE NET LOSS
PER COMMON SHARE - BASIC AND DILUTED 6,881,764 4,977,469
=========== ===========
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Series A
Cumulative Convertible
Preferred Stock Common Stock Additional
--------------------------- --------------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1997 -- $ -- 4,967,669 $ 19,871 $ 10,511,575 $ (7,871,213) $ 2,660,233
Private placements of
preferred stock 4,455,498 17,822 -- -- 2,403,037 -- 2,420,859
Private placement of
common stock -- -- 12,040 48 20,735 -- 20,783
Net loss -- -- -- -- -- (1,901,130) (1,901,130)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT JUNE 30, 1998 4,455,498 17,822 4,979,709 19,919 12,935,347 (9,772,343) 3,200,745
Acquisition of Jel
Trucking, Inc. -- -- 100,000 400 59,600 -- 60,000
Acquisition of Twin
City Transportation, Inc. -- -- 423,330 1,693 908,467 -- 910,160
Conversion of
preferred stock (4,455,498) (17,822) 4,455,498 17,822 -- -- --
Warrants issued to
purchase common stock -- -- -- -- 135,000 -- 135,000
Stock options exercised -- -- 121,000 484 166,216 -- 166,700
Warrants exercised -- -- 20,000 80 58,320 -- 58,400
Conversion of notes
payable and accrued
interest -- -- 275,000 1,100 761,558 -- 762,658
Private placement of
common stock -- -- 236,000 944 546,821 -- 547,765
Net loss -- -- -- -- -- (2,894,479) (2,894,479)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT JUNE 30, 1999 -- $ -- 10,610,537 $ 42,442 $ 15,571,329 $(12,666,822) $ 2,946,949
============ ============ ============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
34
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,894,479) $(1,901,130)
Adjustments to reconcile net loss to net cash flows
used by operating activities:
Depreciation 346,267 490,930
Amortization 79,568 30,846
Asset obsolescence and reserves -- 155,805
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable 74,302 55,154
Note receivable (121,972) --
Inventories 24,605 158,615
Prepaid expenses and other (193,573) 32,723
Other assets 55,349 --
Accounts payable 392,484 (82,898)
Accrued liabilities 96,381 (246,337)
Deferred revenue (19,225) (34,064)
----------- -----------
Net cash used by operating activities (2,160,293) (1,340,356)
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (556,502) (158,427)
Acquisition of Twin City Transportation, Inc.
and Jel Trucking, Inc. (809,808) --
Purchases of short-term investments -- (1,700,000)
Redemption of short-term investments 1,700,000 250,000
Purchase of patents (42,138) --
----------- -----------
Net cash provided (used) by investing activities 291,552 (1,608,427)
----------- -----------
FINANCING ACTIVITIES
Proceeds from notes payable 1,350,000 --
Payments on notes payable and long-term debt (58,461) (63,426)
Proceeds from the sale of common stock 480,000 20,783
Proceeds from sale of preferred stock -- 2,673,348
Expenditures related to sale of preferred and common stock (182,235) (252,489)
Collection of stock subscription 18,000 --
Proceeds from exercise of options and warrants 225,100 --
Proceeds from the sale of warrants 135,000 --
----------- -----------
Net cash provided by financing activities 1,967,404 2,378,216
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 98,663 (570,567)
CASH AND CASH EQUIVALENTS
Beginning of year 153,693 724,260
----------- -----------
End of year $ 252,356 $ 153,693
=========== ===========
</TABLE>
See notes to consolidated financial statements.
35
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies -
The Company
United Shipping & Technology, Inc., formerly U-Ship, Inc. (the Parent),
a holding company, has four subsidiaries, U-Ship International, Ltd.
(International), Intelligent Kiosk Company (IQK), Advanced Courier
Services, Inc. (ACS), and U-Ship America, Inc. (America), collectively
referred to as the Company. International and IQK are in the business
of developing, manufacturing, and operating equipment used as automated
self-service intelligent shipping kiosks (ISK) throughout the United
States and Canada. ACS is in the intraday courier business operating in
Minnesota. America is an inactive subsidiary.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Parent, International, IQK, ACS, and America. All intercompany balances
and transactions are eliminated in consolidation.
Revenue Recognition
Package shipping revenue is recognized when the package is shipped.
Revenue from courier services is recognized when the service is
performed.
The Company recognizes revenue from sales of ISK upon delivery and
installation. Maintenance contract revenue is deferred and recognized
over the period of the related agreements.
Use of Estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that may affect certain reported amounts and
disclosures in the financial statements and accompanying notes. Actual
results could differ from these estimates.
At June 30, 1999, a significant amount of the Company's inventory and
shipping kiosks, included in property and equipment, are in excess of
current requirements based on recent sales and revenues derived from
the kiosks. The Company developed a new shipping kiosk for its largest
customer, which is currently being tested. Additionally, the Company
continues to negotiate with new customers for its kiosks. Management
believes, based on its current plans, that no additional reserves for
inventories or reduction of the carrying value of the shipping kiosks
are required. In the event management's plans are not successful,
including failure of its customer to accept and order the new shipping
kiosks, additional reserves for inventories and reduction of the
carrying value of the shipping kiosks may be required in the near term
and such amounts could be material.
Cash Equivalents and Short-Term Investments
All highly liquid investments with a maturity of three months or less
at the date of purchase are considered to be cash equivalents, which
consist primarily of money market accounts.
Short-term investments consisted of marketable securities classified as
available-for-sale and were recorded at market value, which was equal
to cost. These investments were redeemed in fiscal 1999.
(continued)
36
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies -
(continued)
Inventories
Inventories are stated at the lower of cost, using the first-in,
first-out method (FIFO), or market.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is included in general and administrative
expenses and is provided using the straight-line method over the
estimated useful lives of the related assets as follows:
Years
-----
Shipping kiosks 3 - 4
Furniture, fixtures, and equipment 3 - 5
Intangible Assets
Intangible assets are being amortized as follows:
Years
-----
Goodwill 15
Patents 5
Financing costs 6
Financial Instruments
Financial instruments consist of cash and cash equivalents, short-term
investments, accounts receivable, accounts payable, and long-term debt,
which are recorded at amounts approximating their fair values.
Concentrations of Credit Risk
Concentrations of credit risk with respect to accounts receivable for
package revenues are limited due to the large number of customers and
the geographical dispersion. The Company generally does not require
collateral or other security for customer receivables. The Company
sells ISK to third-party leasing companies and, at times, could
maintain individually significant receivable balances with primary
leasing companies. Company credit card receivables are monitored and
controlled through credit checks, verification of bank references, and
regular monitoring. An allowance for doubtful accounts is reviewed
periodically based on management's evaluation of collectibility,
historical experiences, and other economic factors.
The Company's field units are dependant on United Parcel Service for
all package shipping.
The Company maintains cash balances with banks insured by the Federal
Deposit Insurance Corporation (FDIC). Cash balances on deposit with one
bank at June 30, 1999, exceeded the balances insured by the FDIC by
approximately $152,000.
(continued)
37
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies -
(continued)
Research and Development Costs
Research and development costs are charged to expense as incurred.
Accounting for Stock-Based Compensation
The Company accounts for employee stock options under Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees" and provides the pro forma disclosures required by Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation".
Net Loss Per Common Share
Options and warrants to purchase common stock and all series A
cumulative convertible preferred stock were anti-dilutive due to the
net losses incurred during 1999 and 1998 and, therefore, excluded from
the calculation of diluted net loss per common share.
New Accounting Pronouncements
Effective in fiscal 1999, the Company adopted SFAS No. 131, "Disclosure
About Segments of an Enterprise and Related Information." This
statement establishes standards for the way companies report
information about operating segments in annual and interim financial
statements. SFAS No. 131 also establishes standards for related
disclosure about products and services, geographic areas and major
customers. The adoption of SFAS No. 131 did not effect results of
operations or financial position.
Reclassifications
Certain reclassifications were made to the 1998 financial statements in
order to conform to the classifications used for the current year.
2. Going Concern -
Since inception (September 30, 1991) through June 30, 1994, the Company
was a development stage enterprise, devoting substantially all of its
efforts to proprietary product development and providing prototype
products to certain customers. Such efforts also included raising
capital and acquiring and constructing property and equipment. The
Company began actively selling products during 1995 and no longer
considers itself to be in the development stage. However, the Company
has not operated profitably to date and there are no assurances that
there will be future profitable operations.
The Company incurred net losses of $2,894,479 and $1,901,130 for the
years ended June 30, 1999 and 1998, respectively. The Company's ability
to continue present operations, further develop potential proprietary
products, and operate as a going concern is contingent upon approval,
acceptance, and sales of the Company's products and the ability to
obtain financing that might not be available. The aforementioned
factors raise substantial doubt about the Company's ability to continue
as a going concern.
(continued)
38
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Going Concern - (continued)
Several new board members and senior management were appointed in
connection with raising additional capital through the preferred stock
private placements (Note 6). The new management adopted new strategies
for the Company and developed a plan of action as follows:
* The Company completed acquisitions of and has announced plans
to acquire an additional local, same day delivery, couriers
(Notes 3 and 15). The Company is pursuing strategic
acquisitions which will allow it to capitalize on its
technology in the shipping industry and become less reliant on
national carriers.
* The Company is pursuing additional strategic alliances to
expand the development and marketing of its core technology
beyond shipping stations and continuing to market and develop
custom built intelligent kiosks.
* The Company is redeploying its existing ISKs to sites where
greater revenues and margins can be achieved.
* The Company intends to concentrate its ISK in the redeployment
effort in the greater Twin Cities Metropolitan area. The
Company expects to be able to achieve significant savings on
service and maintenance, as well as sales and marketing costs
by having the core group of ISK within a single geographic
area.
Management believes the successful completion of its plans and
activities will result in a greater array and awareness of its products
and services resulting in increasing revenues and cash flows. However,
no assurance can be given that the Company will be successful in the
implementation of its plans, that the current working capital will be
able to meet the Company's ongoing business needs, or that the Company
will be able to raise additional funds, if necessary. In the event the
Company's activities do not result in increased revenues and cash flows
or working capital is not adequate to meet its ongoing business needs,
and the Company is not able to raise additional financing to meet its
operating needs, the Company may no longer be able to continue as a
going concern. The financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as a
going concern.
3. Acquisitions -
On December 11, 1998, the Company acquired substantially all the assets
and assumed certain liabilities of JEL Trucking, Inc., a Minneapolis
based trucking company engaged in dock truck and courier shipments. The
purchase price included 100,000 shares of the Company's common stock
valued at $60,000 and cash of $90,000.
(continued)
39
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisitions - (continued)
On January 13, 1999, the Company acquired Twin City Transportation,
Inc. (TCT) through a merger of TCT into ACS. TCT was an established
courier service operating in the Minneapolis-St. Paul metropolitan
area. Under the terms of the merger agreement, the common stock of TCT
was exchanged for 423,300 shares of the Company's common stock valued
at $910,160, a warrant for the purchase of 1,000 shares of common stock
exercisable at $1.063 per share, cash of $400,000, payment by the
Company of $298,733 for TCT liabilities, and acquisition expenses of
$21,075.
The acquisitions were accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the net
assets acquired based upon their estimated fair values. The purchase
price was allocated as follows:
Accounts receivable $ 283,669
Other current assets 500
Property and equipment 113,802
Goodwill 1,472,459
Accounts payable (90,462)
----------
$1,779,968
==========
The following unaudited pro forma financial information gives effect to
the TCT acquisition as if it had occurred at the beginning of each of
the years ended June 30, 1999 and 1998. The pro forma results were
prepared for comparative purposes only and do not purport to be
indicative of the results of operations which actually would result had
the acquisition occurred on the date indicated, or which may result in
the future.
1999 1998
----------- -----------
Revenues $ 2,196,775 $ 2,175,904
Net loss (2,917,699) (1,934,485)
Net loss per common share -
basic and diluted $ (.42) $ (.36)
Weighted average common shares
outstanding - basic and diluted 7,093,429 5,400,799
4. Note Receivable -
The note is due from a consultant, bears annual interest at 5 1/2%, is
unsecured, and is due on demand.
40
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Inventories -
Inventories consist of ISKs in various stages of completion, including
component parts, as follows:
1999 1998
-------- --------
Raw materials and work components $860,499 $467,932
Finished goods 22,537 33,709
-------- --------
$883,036 $501,641
======== ========
Raw material and work components were reduced by a reserve of
approximately $40,000 in 1999 and 1998.
6. Long-Term Obligations -
Long-term obligations consist of the following:
1999 1998
-------- --------
Notes payable, interest at 12%,
due January 2002 $600,000 $ --
Obligations under capital leases 55,424 113,885
-------- --------
$655,424 $113,885
======== ========
Future maturities of long-term obligations are as follows:
Year Ending
June 30, Amount
-------- ----------
2000 39,609
2001 13,103
2002 602,712
----------
$ 655,424
==========
7. Income Taxes -
The Company provides for income taxes based on income reported for
financial reporting purposes. Deferred taxes are recognized for
temporary differences between the bases of assets and liabilities for
financial statement and income tax purposes. Deferred tax assets were
reduced by a valuation allowance until their realization is reasonably
assured. No income taxes are currently payable due to the net operating
losses.
(continued)
41
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Income Taxes - (continued)
The significant components of deferred income tax assets and
liabilities, primarily long-term, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------- -------------------------------------------
Total Federal State Total Federal State
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss
carryforwards $ 4,500,000 $ 4,090,400 $ 409,600 $ 3,496,350 $ 3,185,750 $ 310,600
Reserves, allow-
ances and accruals 61,650 55,550 6,100 53,990 48,660 5,330
Other 52,760 47,560 5,200 45,625 41,125 4,500
----------- ----------- ----------- ----------- ----------- -----------
4,614,410 4,193,510 420,900 3,595,965 3,275,535 320,430
Other (142,810) (142,810) -- (108,890) (108,890) --
----------- ----------- ----------- ----------- ----------- -----------
4,471,600 4,050,700 420,900 3,487,075 3,166,645 320,430
Valuation allowance (4,471,600) (4,050,700) (420,900) (3,487,075) (3,166,645) (320,430)
----------- ----------- ----------- ----------- ----------- -----------
$ -- $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== =========== ===========
</TABLE>
The Company had net operating loss carryforwards for income tax
purposes of approximately $12,000,000, which expire from 2005 through
2020.
The change in the valuation allowance was an increase of $984,525 and
$849,585, in fiscal 1999 and 1998, respectively
Under Internal Revenue Code Section 382, utilization of approximately
$9,200,000 of these net operating loss carryforwards are limited to
approximately $370,000 each year. The carryforward is cumulative if not
utilized each year.
8. Series A Cumulative Convertible Preferred Stock -
In April 1998, the Company designated 4,500,000 shares of authorized
but unissued preferred stock as series A cumulative convertible
preferred stock. The series A preferred shares are convertible into
common stock and are entitled to a cumulative annual dividend of $.03
per share. The stock is convertible beginning November 1, 1998, at an
initial conversion rate of one share of common stock for each preferred
share, to be adjusted if additional common stock is issued for less
than $.60 per share. This preferred stock contains additional voting
rights, as a class, regarding the authorization or issuance of
additional stock with priority, or parity with the stock, mergers,
consolidations, or disposals of all or substantially all assets of the
Company. This preferred stock also contains certain liquidation
preferences.
(continued)
42
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Series A Cumulative Convertible Preferred Stock - (continued)
The Company sold 4,455,498 shares of its series A cumulative
convertible preferred stock in private placements in May and June 1998,
raising approximately $2,421,000, net of expenses of approximately
$252,000. The shares were sold in units at a purchase price of $1.20
per unit, each unit consisting of two preferred shares and one warrant
to purchase one share of common stock at a price of $1.75 per share.
The warrants may be exercised any time before May 1, 2001. The shares
were sold to various investors, certain directors, and officers of the
Company. In connection with the private placement in June 1998, the
placement agent received warrants to purchase up to 288,381 shares of
common stock at $.60 per share. These warrants are exercisable for
three years beginning one year from the date of issuance.
In February 1999, the Company converted all series A cumulative
convertible preferred stock to an equal number of shares of common
stock.
9. Stock Options and Warrants -
Stock Options
The Company has an employee stock option plan and reserved 1,950,000
shares. Under the plan, the board of directors may grant options to
purchase shares of common stock to eligible employees and contractors
at a price of not less than the fair market value at the time of the
grant for incentive stock options. Outstanding options expire at
various dates through March 2008.
The Company also has the 1996 Director Stock Option Plan authorizing up
to 210,000 options to be issued. These options are issued at a price of
not less than the fair market value at the time of grant, expire within
five years, and are exercisable at the fair market value at the date of
grant.
Stock option activity consists of the following:
1999 1998
--------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
--------- -------- ---------- --------
Outstanding, beginning of year 767,750 $1.10 337,500 $3.48
Granted 473,500 1.91 637,000 0.52
Exercised (121,000) 1.38 -- --
Forfeited (90,500) 3.77 (206,750) 3.19
--------- ----------
Outstanding, end of year 1,029,750 $1.11 767,750 $1.10
========= ==========
(continued)
43
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Stock Options and Warrants - (continued)
Stock Options (continued)
Options outstanding at June 30, 1999, are as follows:
Outstanding Exercisable
---------------------------------- --------------------
Weighted Average
---------------------- Weighted
Remaining Average
Range of Contractual Exercise Exercise
Exercise Prices Options Life-Years Price Options Price
- --------------- --------- ----------- -------- --------- ---------
$0.38 - $0.40 560,000 8.6 $0.40 560,000 $0.40
$1.13 - $1.25 310,000 9.2 1.25 10,000 1.13
$2.94 - $3.25 105,500 6.7 3.11 13,400 3.20
$3.50 - $4.88 54,250 4.5 3.82 16,000 3.93
--------- ---------
1,029,750 8.4 $1.11 599,400 $0.57
========= =========
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
in accounting for its stock option plans. Accordingly, no compensation
cost was recognized in the accompanying consolidated statements of
operations. Had compensation cost been recognized based on the fair
values of options at the grant dates consistent with the provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's
net loss per common share would increase to the following pro forma
amounts:
1999 1998
----------- -----------
Net loss:
As reported $(2,894,479) $(1,901,130)
Pro forma (3,063,158) (1,931,103)
Loss per common share, basic and diluted:
As reported (.42) (.38)
Pro forma (.45) (.39)
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to June 30, 1995, the resulting pro forma
compensation may not be representative of that to be expected in future
years. The weighted average fair value of options granted in 1999 and
1998 was $1.81 and $.45, respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used: risk-free interest rates of 5.10%
for 1999 and 5.25% for 1998; no expected dividends; expected lives of 5
years; and expected volatility of 167% and 154% for 1999 and 1998
grants, respectively.
(continued)
44
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Stock Options and Warrants - (continued)
Warrants
Warrant activity consists of the following:
1999 1998
--------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Warrants Price Warrants Price
-------- -------- -------- --------
Outstanding, beginning of year 3,700,826 $2.05 1,087,196 $3.43
Granted 439,399 1.86 2,616,130 1.48
Exercised (20,000) 2.92 -- --
Forfeited (111,160) 3.53 (2,500) 3.50
--------- ---------
Outstanding, end of year 4,009,065 $2.05 3,700,826 $2.05
========= =========
Warrants outstanding at June 30, 1999, are as follows:
Weighted Average
---------------------------
Remaining
Range of Contractual Exercise
Exercise Prices Warrants Life-Years Price
- --------------- --------- ------------ ---------
$0.09 - $0.60 438,381 3.9 $0.54
$1.75 - $2.17 2,559,148 2.2 1.77
$2.80 - $3.25 469,350 1.7 2.83
$3.50 - $5.20 542,186 1.4 3.93
---------
4,009,065 2.2 $2.05
=========
10. Lease Commitment -
The Company leases facilities under operating leases which expire
between August 1999, and April 2002. The leases require monthly rent
plus the Company's share of certain operating expenses and real estate
taxes over a certain amount. Rent expense was approximately $145,000
and $125,000 in 1999 and 1998, respectively.
Future minimum rentals under the leases at June 30, 1999, are as
follows:
Year Ended
June 30 Amount
----------- -----------
2000 $ 75,091
2001 75,047
2002 33,606
-----------
$ 183,744
45
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Employee Benefit Plan -
The Company has a 401(k) retirement plan for qualified employees. The
Company has not made any contributions to the plan.
12. Shipping Claims -
The Company may have exposure to the maximum extent of the declared
value of a shipped package in the event of its damage or destruction
while in the possession of the Company or the retailer. The Company
limits its liability to the customer to the amount of the declared
value pursuant to the shipping transactions documentation. The Company
has no insurance which protects it against losses from shipping claims,
however, the Company may have recourse to the carrier. Claims against
the Company have not been significant.
13. Supplemental Cash Flow Information -
Selected cash payments and noncash activities were as follows:
1999 1998
-------- --------
Cash paid for interest $ 23,951 $ 22,209
Noncash investing and financing activities:
Preferred stock converted to common stock $ 17,822 $ --
Notes payable, including accrued interest
of $12,658, converted to common stock 762,658 --
Equipment transferred to inventory 405,500 --
14. Segment Information -
The Company has two business segments: kiosks and courier services. The
kiosk segment develops and manufactures automated self-service
intelligent shipping kiosks and job kiosks for a third party in the
employment information business. The courier services segment, which
became operational during 1999, operates in the intraday courier
business. The accounting policies of the segments are the same as those
described in nature of business and significant accounting policies.
Revenues by segment reflect sales to unaffiliated customers.
Segment information for 1999 and 1998 were as follows:
Kiosks Courier Consolidated
----------- ----------- ------------
Revenues:
1999 $ 651,792 $ 831,007 $ 1,482,799
1998 952,858 -- 952,858
Loss from operations:
1999 $(2,753,825) $ (137,385) $(2,891,210)
1998 (1,904,784) -- (1,904,784)
Identifiable assets:
1999 $ 2,594,488 $ 1,793,628 $ 4,388,116
1998 3,552,926 -- 3,552,926
(continued)
46
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Segment Information - (continued)
Kiosks Courier Consolidated
---------- ---------- ------------
Depreciation and amortization:
1999 $ 359,356 $ 66,479 $ 425,835
1998 521,776 -- 521,776
Capital expenditures:
1999 $ 549,512 $ 9,255 $ 558,767
1998 158,427 -- 158,427
15. Subsequent Event -
On September 9, 1999, the Company announced an agreement with
Broomfield, Colorado-based Corporate Express, Inc. to acquire its
subsidiary, Corporate Express Delivery Systems, Inc.
47
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive offices of the Company are as follows:
Name Age Position(s)
---- --- --------------------------------------------
Peter C. Lytle 50 Chairman, President, Chief Executive Officer
and Director
Timothy G. Becker 39 Treasurer, Chief Financial Officer and
Director
Marshall T. Masko 42 Vice Chairman and Director
Kenneth D. Zigrino 43 Vice President - Administration, General
Counsel and Secretary
Ronald G. Olson 58 Director
James Bartholomew 42 Director
Marlin Rudebusch 53 Director
Susan M. Clemens 36 Director
PETER C. LYTLE. Mr. Lytle became employed by the Company in May 1998
and has served as the Company's Chairman, President, Chief Executive Officer and
a director since June 1998. From March 1998 to May 1998, Mr. Lytle rendered
consulting services to the Company in connection with its strategic
restructuring. Mr. Lytle is a principal with the Business Development Group (the
"BDG") which he co-founded in 1994. The BDG provides turn-around management
services, investment banking and strategic planning to companies in the United
States and Europe. His responsibilities at the BDG included acting as CEO and
Chairman of Primo Piatto, Inc. during a successful acquisition of the Borden
Pasta Manufacturing business (which was recently sold to Dakota Growers) and
acting as Chairman of Pink Business Interiors during a successful employee
buyout and reorganization. From 1986 to 1994, Mr. Lytle was employed by Land O'
Lakes, Inc. in a variety of positions from Vice President of Advanced Food
Sciences to General Manager of Business Development. Prior to this time he has
held positions with the Beatrice Companies as a Group Brand Manager, and Allied
International as Vice President of Marketing and Business Development. He
currently is on the Board of Directors of Humanetics, Inc., BioSun Systems,
Inc., Agrotec, Inc. and Pink Business Interiors, Inc. He is on the Board of
Advisors for the Center for Advanced Biotechnology in Africa, and Menu Direct,
Inc.
TIMOTHY G. BECKER. Mr. Becker is a director of the Company and has
served as its Chief Financial Officer and Treasurer since June 1998. From March
1998 to June 1998, Mr. Becker rendered consulting services to the Company in
connection with its strategic restructuring. Since 1994, Mr. Becker has worked
as an independent financial workout consultant for his own firm, the Becker
Group, Ltd., and during this time Mr. Becker served as Chief Financial Officer
of Primo Piatto, Inc. Between February, 1992 and February, 1994, Mr. Becker was
employed
48
<PAGE>
as Director of Business Systems for Munsingwear, Inc. Prior to 1992, Mr. Becker,
was employed as Senior Manager with Ernst & Young LLP's Restructuring and
Reorganization Consulting Practice. Mr. Becker has over 15 years of experience
with a variety of companies during periods of financial crisis and rapid change
along with positioning companies and their balance sheets for sale, merger or
acquisitions. Mr. Becker is a Certified Public Accountant and is on the Board of
Directors of the Minnesota Chapter of Turnaround Management Association.
MARSHALL T. MASKO. Mr. Masko was elected as Vice Chairman and a
director of the Company in June, 1998. In addition, Mr. Masko has been retained
as an independent consultant to assist the Company in its marketing efforts.
From April 1996 to February 1998, Mr. Masko served as the Senior Vice President
- - Marketing of NordicTrack. From August 1994 to March 1996, he served as Senior
Vice President and General Manager of K-tel, International. Prior to that, Mr.
Masko was Group Vice President - Marketing for NordicTrack from January 1990 to
July 1994. His career experience includes new product development, brand
management, advertising management, direct response marketing, international
marketing, sales and retail marketing, strategic planning and business
development.
KENNETH D. ZIGRINO. Mr. Zigrino joined the Company in May, 1998 and has
served as its Vice President of Administration, Secretary and General Counsel
since June 1998. From March 1998 to May 1998, Mr. Zigrino rendered consulting
services to the Company in connection with its strategic restructuring. Mr.
Zigrino practiced law in his own firm between November 1996 and May 1998, and
between January 1990 and January 1995. He served as President of the law firm of
Zigrino & LoGalbo, P.A. from January 1995 to November 1996.
RONALD G. OLSON. Mr. Olson was elected to the Company's Board in
December 1998. Since January 1990, Mr. Olson has served as President, Chief
Executive Officer and a Director of Grow Biz International, Inc. Mr. Olson has
also served as President and Chief Executive Officer of Franchise Business
Systems, Inc. since July 1988.
JAMES A. BARTHOLOMEW. Mr. Bartholomew was elected to the Company's
Board in March 1998. Mr. Bartholomew has been a financial and strategic workout
consultant for the last eleven years with his own firm. Mr. Bartholomew is a
certified public accountant and has been involved in a substantial number of
workout engagements including negotiations of acquisitions and divestitures,
negotiations with secured lenders, banks, asset based lenders, subordinated note
holders and unsecured creditors. He was employed by the firm Deloitte, Haskins
and Selles between July, 1978 and April 1978. He is a member of the Board of
Directors of the Minnesota Chapter of Turnaround Management Association.
MARLIN RUDEBUSCH. Mr. Rudebusch was elected to the Company's Board in
March 1998. Mr. Rudebusch is the Business Unit Director for Renal Systems
division of Minntech Corporation, by which he has been employed since December,
1997. Prior to joining Minntech, he was Vice President of Marketing of Nutrition
Medical from September, 1994 through November, 1997 and was Director of
Marketing at AudioScience from 1993 to 1994. He served in various sales and
marketing management positions at Medtronic, Inc. between 1981 to 1993.
SUSAN M. CLEMENS. Ms. Clemens was elected to the Company's Board in
June 1998. Since February 1998, Ms. Clemens has been employed by Dakota Growers
Pasta Company in the position of Vice President of Human Resources. From August
1997 to February 1998, she was employed by Primo Piatto, Inc. as Vice President
of Human Resources and Administration. From January 1993 to August 1997, Ms.
Clemens was the Senior Human Resources Manager for Borden Foods Corporation.
Between September 1986 to January 1993 she was employed by Tiro Industries, Inc.
as Human Resources Manager.
There is no family relationship between directors or executive officers
of the Company.
COMMITTEES
49
<PAGE>
The Company has established an Executive Committee, a Stock Option Plan
Committee, a Compensation Committee and an Audit Committee.
The Executive Committee currently consists of Susan M. Clemens, James
Bartholomew and Peter C. Lytle. Marlin Rudebusch is an alternative member of the
Executive Committee. The Executive Committee has the powers and exercises the
duties of the Board of Directors in the management of the business of the
corporation, subject to certain limitations, between meetings of the Board and
while the Board is not in session. The Executive Committee met once in fiscal
1999.
The Compensation Committee currently consists of Susan M. Clemens,
Marlin Rudebusch and Peter C. Lytle. The Compensation Committee reviews and
approves the Company's compensation policies and administers its option plans.
The Compensation Committee did not meet in fiscal 1999.
The Audit Committee currently consists of James A. Bartholomew and
Timothy G. Becker. The Audit Committee is responsible for approving the services
performed by the Company's independent auditors and reviewing reports of the
Company's internal and external auditors regarding the Company's accounting
practices and systems of internal accounting controls. The Audit Committee did
not meet in fiscal 1999.
The Stock Option Plan Committee consists of Marlin Rudebusch, Susan
Clemens and James Bartholomew. The Stock Option Plan Committee did not meet in
fiscal 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and officers and the holders of 10% or more of
the Company's stock to file with the Securities and Exchange Commission initial
reports of changes in ownership of equity securities of the Company. Based on
the Company's review of copies of such reports received by it, or written
representations from reporting persons, the Company believes that during fiscal
year 1999 its directors and executive officers filed all reports on a timely
basis except as follows: (a) securities ownership reports on Form 4 for James A.
Bartholomew, Marlin Rudebusch, Susan M. Clemens and Marshall T. Masko in
connection with grants of options pursuant to the Company's 1996 Director Stock
Option Plan, through inadvertance, were filed late; (b) initial report on Form 3
by Richard Neslund in connection with his becoming the beneficial owner of 10%
or more of the Company's stock was filed late through inadvertence.
50
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid to
or accrued by each of the Company's executive officers receiving in excess of
$100,000 (the "Named Executive Officers") for services rendered to the Company
during the fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997.
The Company has not formalized employment agreements with its executive
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Fiscal
Year Salary Securities Underlying Options
---- ------ -----------------------------
<S> <C> <C> <C>
Peter C. Lytle........................ 1999 100,000 100,000 (1)
Chief Executive Officer 1998 16,667 125,000
Timothy G. Becker..................... 1999 100,000 100,000 (2)
Chief Financial Officer 1998 16,667 125,000
Kenneth D. Zigrino.................... 1999 100,000 100,000 (3)
Secretary and General Counsel 1998 12,500 125,000
</TABLE>
- --------------
(1) Mr. Lytle's employment with the Company began on May 4, 1998. In connection
with consulting services rendered to the Company as an independent
contractor between March 1998 and the commencement of his employment, the
Company granted Mr. Lytle an option to purchase 125,000 shares of common
stock, which option is fully vested. In October of 1998, Mr. Lytle was also
granted an incentive stock option to purchase 100,000 shares of common
stock. Such option vests as to 80% of the shares on October 29, 1999 and
the remainder vests on October 29, 2000.
(2) Mr. Becker's employment with the Company began on May 4, 1998. In
connection with consulting services rendered to the Company as an
independent contractor between March 1998 and the commencement of his
employment, the Company granted Mr. Becker an option to purchase 125,000
shares of common stock, which option is fully vested. In October of 1998,
Mr. Becker was also granted an incentive stock option to purchase 100,000
shares of common stock. Such option vests as to 80% of the shares on
October 29, 1999 and the remainder vests on October 29, 2000.
(3) Mr. Zigrino's employment with the Company began on May 4, 1998. In
connection with consulting services rendered to the Company as an
independent contractor between March 1998 and the commencement of his
employment, the Company granted Mr. Zigrino an option to purchase 125,000
shares of common stock, which option is fully vested. In October of 1998,
Mr. Zigrino was also granted an incentive stock option to purchase 100,000
shares of common stock. Such option vests as to 80% of the shares on
October 29, 1999 and the remainder vests on October 29, 2000.
51
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
Number of Percent of Total Options
Options Granted to Employees in Exercise
Name Granted Fiscal Year Price Expiration Date
- ------------------ ----------- ------------------------ -------- ----------------
<S> <C> <C> <C>
Peter C. Lytle 100,000 (1) 29.7% $1.25 October 29, 2008
Timothy G. Becker 100,000 (2) 29.7% $1.25 October 29, 2008
Kenneth D. Zigrino 100,000 (3) 29.7% $1.25 October 29, 2008
</TABLE>
- -------------
(1) In October of 1998, the Company granted Mr. Lytle an incentive stock option
to purchase 100,000 shares of common stock. Such option vests as to 80% of
the shares on October 29, 1999 and the remainder vests on October 29, 2000.
(2) In October of 1998, the Company granted Mr. Becker an incentive stock
option to purchase 100,000 shares of common stock. Such option vests as to
80% of the shares on October 29, 1999 and the remainder vests on October
29, 2000.
(3) In October of 1998, the Company granted Mr. Zigrino an incentive stock
option to purchase 100,000 shares of common stock. Such option vests as to
80% of the shares on October 29, 1999 and the remainder vests on October
29, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Unexercised Value of Unexercised
Acquired Value Options at FY-end In-the-Money Options at
Name on Realized Exercisable FY-end Exercisable
Exercise /Unexercisable /Unexercisable
- ------------------- ---------- ---------- ----------------------- -------------------------
<S> <C> <C> <C> <C>
Peter C. Lytle -- -- 125,000 / 100,000(1) $309,375 / $62,000
Timothy G. Becker -- -- 125,000 / 100,000(2) $309,375 / $62,000
Kenneth D. Zigrino -- -- 125,000 / 100,000(3) $309,375 / $62,000
</TABLE>
- --------------
(1) In March 1998, the Company granted Mr. Lytle an option to purchase 125,000
shares of common stock. Such option has fully vested. In October of 1998,
Mr. Lytle was also granted an incentive stock option to purchase 100,000
shares of common stock. Such option vests as to 80% of the shares on
October 29, 1999 and the remainder vests on October 29, 2000.
(2) In March 1998, the Company granted Mr. Becker an option to purchase 125,000
shares of common stock. Such option has fully vested. In October of 1998,
Mr. Becker was also granted an incentive stock option to purchase 100,000
shares of common stock. Such option vests as to 80% of the shares on
October 29, 1999 and the remainder vests on October 29, 2000.
(3) In March 1998, the Company granted Mr. Zigrino an option to purchase
125,000 shares of common stock. Such option has fully vested. In October of
1998, Mr. Zigrino was also granted an incentive stock option to purchase
100,000 shares of common stock. Such option vests as to 80% of the shares
on October 29, 1999 and the remainder vests on October 29, 2000.
52
<PAGE>
COMPENSATION OF DIRECTORS
CASH COMPENSATION The Company has not paid any cash compensation to a
director in his or her capacity as a director and has no present plan to pay
directors' fees.
DIRECTOR STOCK OPTION PLAN. In February 1996, the Company adopted its
1996 Director Stock Option Plan, pursuant to which it automatically awards each
outside director an option to purchase 5,000 shares of common stock for each
year of service as a director, not to exceed in the aggregate 15,000 shares per
director. The term of each option granted under the plan is five years and the
exercise price per share for stock granted under the plan is 100% of the fair
market value per share on the date on which the respective option is granted. At
its annual meeting of shareholders on May 3, 1999, the Company's shareholders
approved amendments to the 1996 Director's Stock Option Plan. Such amendments
increased the total number of shares issuable upon the exercise of options under
to plan from 100,000 to 210,000, and increased the number of automatic option
grants from 5,000 per year of service to 15,000 per year of service. The
amendments also eliminated any limit on the aggregate number of options a
director could receive under the plan subject to the total number of shares
issuable upon options granted under the plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains certain information known to the Company
regarding beneficial ownership of its Common Stock as of September 15, 1999, (i)
each person who is known to the Company to own beneficially more than five
percent of the Company's Common Stock, (ii) each of the Company's directors,
(iii) each Named Executive Officer, and (iv) all current executive officers and
directors as a group. Unless otherwise noted, each person identified below has
sole voting and investment power with respect to such shares.
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) OWNED (2)
- ------------------------------------- ---------------------- ------------
Richard Neslund (3).................. 1,184,233 10.8%
15210 Wayzata Boulevard
Wayzata, MN 55391
Robertson Stephens Investment
Management (4)....................... 1,119,243 10.2%
555 California Street
San Francisco, CA 94101
Oscar Investment Fund, L.P (5)....... 991,998 9.1%
900 Third Avenue, 2nd Floor
New York, NY 10022
Peter C. Lytle (6)................... 581,600 5.2%
Kenneth D. Zigrino (7)............... 392,500 3.5%
Timothy G. Becker (8)................ 267,502 2.4%
Marshall T. Masko (9)................ 196,813 1.8%
Susan Clemens (10)................... 130,001 1.2%
James A. Bartholomew (11)............ 5,000 *
Marlin Rudebusch (12)................ 5,000 *
53
<PAGE>
Ronald G. Olson (13)................. -0- *
All directors and officers as
a group (8 persons) (14)............. 1,578,416 13.2%
- -------------------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and includes securities owned by or for, among others, the
spouse, children or certain other relatives of such person as well as other
securities as to which the person has or shares voting or investment power
or has the right to acquire within 60 days. The same shares may be
beneficially owned by more than one person. Unless otherwise indicated, the
address for each listed shareholder is c/o United Shipping & Technology,
Inc., 9850 51st Avenue North, Suite 110, Minneapolis, Minnesota 55442. To
the Company's knowledge, except as indicated in the footnotes to this
table, the persons named in this table have sole voting and investment
power with respect to all shares. The number of shares beneficially owned
includes shares issuable pursuant to warrants and stock options that are
exercisable within 60 days of September 15, 1999.
(2) Percentage of beneficial ownership is based on 10,931,643 shares
outstanding as of September 15, 1999. Shares issuable pursuant to warrants
and stock options are deemed outstanding for computing the percentage of
the person holding such warrants or stock options, but are not deemed
outstanding for computing the percentage of any other person. Assumes no
exercise of 5,029,094 shares of common stock issuable upon exercise of
outstanding employee stock options, director stock options or warrants,
including warrants issued in conjunction with bridge financing completed by
the Company in December 1995,and private placements.
(3) Includes 995,900 shares of Common Stock, and 188,333 shares purchasable
pursuant to warrants.
(4) As set forth in documents filed with the Commission by Robertson Stephens
Investment Management Co. ("RSIMC"), Robertson, Stephens & Company
Investment Management, L.P. ("RSCIMLP") and The Robertson Stephens Growth &
Income Fund ("RSGIF"), and as set forth in the Company's records. Includes
1,004,243 shares over which RSIMC and RSCIMLP claim shared voting and
dispositive power, 527,586 shares over which RSGIF claims shared voting and
dispositive power with RSIMC and RSCIMLP. Includes 85,000 shares of Common
Stock 30,000 shares purchasable pursuant to warrants.
(5) Includes 670,332 shares of Common Stock and 321,666 shares purchasable
pursuant to warrants.
(6) Includes 251,600 shares of Common Stock, 125,000 shares purchasable
pursuant to warrants and 125,000 shares purchasable pursuant to a
non-qualified stock option. Also includes 80,000 shares purchasable
pursuant to an incentive stock option for 100,000 shares. Under the
Company's 1995 Stock Option Plan, this option vests as to 80,000 shares on
October 29, 1999. Does not include 20,000 shares pursuant to this incentive
stock option, which portion vests on October 29, 2000.
(7) Includes 125,000 shares of Common Stock, 62,500 shares purchasable pursuant
to warrants and 125,000 shares purchasable pursuant to a non-qualified
stock option. Also includes 80,000 shares purchasable pursuant to an
incentive stock option for 100,000 shares. Under the Company's 1995 Stock
Option Plan, this option vests as to 80,000 shares on October 29, 1999.
Does not include 20,000 shares pursuant to this incentive stock option,
which portion vests on October 29, 2000.
54
<PAGE>
(8) Includes 41,668 shares of Common Stock, 20,834 shares purchasable pursuant
to warrants, and 125,000 shares purchasable pursuant to a non-qualified
stock option. Also includes 80,000 shares purchasable pursuant to an
incentive stock option for 100,000 shares. Under the Company's 1995 Stock
Option Plan, this option vests as to 80,000 shares on October 29, 1999.
Does not include 20,000 shares pursuant to this incentive stock option,
which portion vests on October 29, 2000.
(9) Includes 93,734 shares of Common Stock, 41,667 shares purchasable pursuant
to warrants and 61,312 shares purchasable pursuant to a non-qualified stock
option. Mr. Masko received a stock option for 5,000 shares of Common Stock
upon becoming a director of the Company, which option is fully vested. Mr.
Masko also received a stock option for 15,000 shares of Common Stock upon
beginning his second year of service as a director of the Company. Under
the Company's 1996 Director Stock Option Plan, this option has not yet
vested.
(10) Includes 83,334 shares of Common Stock and 41, 667 shares purchasable
pursuant to warrants. Ms. Clemens received a stock option for 5,000 shares
of Common Stock upon becoming a director of the Company, which option is
fully vested. Ms. Clemens also received a stock option for 15,000 shares of
Common Stock upon beginning her second year of service as a director of the
Company. Under the Company's 1996 Director Stock Option Plan, this option
has not yet vested.
(11) Mr. Bartholomew received a stock option for 5,000 shares of Common Stock
upon becoming a director of the Company, which option is fully vested. Mr.
Bartholomew also received stock options for 15,000 shares of Common Stock
upon beginning his second year of service as a director of the Company.
Under the Company's 1996 Director Stock Option Plan, this option has not
yet vested.
(12) Mr. Rudebusch received a stock option for 5,000 shares of Common Stock upon
becoming a director of the Company, which option is fully vested. Mr.
Rudebusch also received stock options for 15,000 shares of Common Stock
upon beginning his second year of service as a director of the Company.
Under the Company's 1996 Director Stock Option Plan, this option has not
yet vested.
(13) Mr. Olson received a stock option for 5,000 shares of Common Stock upon
becoming a director of the Company. Under the Company's 1996 Director Stock
Option Plan, this option has not yet vested. Includes a warrant to purchase
23,000 shares of Common Stock at an exercise price of $3.875 per share.
This warrant has not yet vested.
(14) Includes an aggregate of 982,980 shares purchasable pursuant to currently
exercisable stock options and warrants, and those exercisable within 60
days of the date hereof.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1998, various individual accredited investors, including
executive officers and directors of the Company, purchased 785,837 Units, each
Unit consisting of two shares of its $0.004 par value per share Series A
Cumulative Convertible Preferred Stock and one warrant to purchase one share of
Common Stock at a price of $1.75 per share, at a price of $1.20 per Unit, for a
total consideration received by the Company of $943,003. Each Preferred Share
could be voted on an as-if converted basis and was convertible into the
Company's $0.004 par value Common Stock, commencing November 1, 1998, subject to
anti-dilution adjustments. Each share of Preferred Stock was entitled to 5%
cumulative annual dividend. The Warrants could be exercised to purchase Common
Stock at any time before May 1, 2001. These Units were sold by the Company
without the services of an Agent. The closing of these transactions was
completed on May 4, 1998. The following executive officers and directors
purchased Preferred Stock and Warrants in the amounts set forth respectively:
55
<PAGE>
<TABLE>
<CAPTION>
Number of
Preferred
Name Position Shares Number of Warrants
- ------------------- ------------------------------------- ----------- --------------------
<S> <C> <C> <C>
Peter C. Lytle President, Chief Executive Officer 250,000 125,000
and Director
Susan M. Clemens Director 83,334 41,667
Kenneth D. Zigrino Vice President 125,000 62,500
Marshall T. Masko Director 83,334 41,667
Timothy G. Becker Chief Financial Officer and Director 41,668 20,884
</TABLE>
The above persons purchased Units for the same consideration as was
paid by nonaffiliated purchasers. In separate closings on June 2, 1998, and June
8, 1998, the Company also completed a private placement in which it sold to
non-affiliated accredited investors, some of whom are officers and directors of
the Company, 1,441,912 Units. The Units were offered by R.J. Steichen & Co., a
non-exclusive agent of the Company on a "best-efforts, all or none" basis, at a
purchase price of $1.20 per Unit. The total consideration received by the
Company for the sale of these Units was $1,477,856, net of interest ($7,080) and
the Agent's commissions and nonaccountable expenses and other expenses of the
private placement.
On February 25, 1999, the Company elected to cause the mandatory
conversion of each of the outstanding Preferred Shares into one share of Common
Stock, for a total of 4,455,498 shares of Common Stock. On September 10, 1999,
the Company exercised its option to redeem the unexercised Warrants (other than
the Agent's warrant) purchased by investors in the above-described Unit
offering. Such redemption is at a price of $0.01 for each share of Common Stock
issuable upon exercise of said unexercised Warrants, subject to the rights of
the warrantholders to exercise the Warrants during the 30 day period beginning
on the date of the Company's notice of redemption.
In 1999, Marshall Masko rendered consulting services to the Company in
connection with the development and implementation of portions of its revised
business strategy. For his services, the Company paid him the aggregate sum of
$10,500.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8K
(a) EXHIBITS.
Reference is made to the Exhibit Index.
(b) REPORTS ON FORM 8K.
The Company filed one report on Form 8-K during the fiscal quarter
ended June 30, 1999, as follows:
(i) Current Report on Form 8-K filed on September 13, 1999,
relating to the announcement that the Company had signed a
definitive agreement to purchase Corporate Express Delivery
Systems, Inc. (the "CEDS Merger").
56
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of Minneapolis, state
of Minnesota on September 28, 1999.
UNITED SHIPPING & TECHNOLOGY, INC.
By /s/ Peter C. Lytle
-------------------------------------
Peter C. Lytle
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Timothy G. Becker and Kenneth D. Zigrino,
or either of them, his attorneys-in-fact, each with the power of substitution,
for him in any and all capacities, to sign any amendments to this Report on Form
10-KSB, and to file the same, with exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or substitute
or substitutes may do or cause to be done by virtue hereof.
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Peter C. Lytle Chairman, President, Chief September 28, 1999
- ------------------------ Executive Officer and Director
Peter C. Lytle
/s/ Timothy G. Becker Treasurer, Chief Financial September 28, 1999
- ------------------------ Officer and Director
Timothy G. Becker
/s/ Marshall T. Masko Vice Chairman and Director September 28, 1999
- ------------------------
Marshall T. Masko
/s/ Ronald G. Olson Director September 28, 1999
- ------------------------
Ronald G. Olson
/s/ James Bartholomew Director September 28, 1999
- ------------------------
James Bartholomew
/s/ Marlin Rudebusch Director September 28, 1999
- ------------------------
Marlin Rudebusch
/s/ Susan M. Clemens Director September 28, 1999
- ------------------------
Susan M. Clemens
57
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
1.1 Agency Agreement dated April 20, 1998 between the Company and
R.J. Steichen & Co. (incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1998).
3.1 The Company's Articles of Incorporation, as amended and restated
(incorporated by reference to the Company's Statement on Form
10-KSB for the year ended June 30, 1998).
3.2 The Company's Bylaws, as amended (incorporated by reference to
the Company's Registration Statement on Form SB-2, File No.
333-01652C).
4.1 Specimen form of the Company's common stock certificate
(incorporated by reference to the Company's Statement on Form
SB-2, File No. 333-01652C).
4.2 The Company's Articles of Incorporation, as amended and restated
(see Exhibit 3.1)
4.3 The Company's Bylaws (see Exhibit 3.2)
10.1 Form of warrant issued pursuant to bridge loan financing
completed by the Company in December 1995 (incorporated by
reference to the Company's Statement on Form SB-2, File No.
333-01652C).
10.2 1995 Stock Option Plan (incorporated by reference to the
Company's Statement on Form SB-2, File No. 333-01652C), as
amended.
10.3 1996 Director Stock Option Plan (incorporated by reference to the
Company's Statement on Form SB-2, File No. 333-01652C), as
amended.
10.4 Kinko's Installations Financing Arrangements dated September 30,
1996 between Company and Kinko's Service Corporation.
(incorporated by reference to the Company's Statement on Form
10-QSB, File No. 000-28452).
10.5 Warrant dated June 3, 1998 between Company and Manchester
Financial Group, Inc. for the purchase of 100,000 shares of
common stock (incorporated by reference to the Company's
Statement on Form 10-KSB for the year ended June 30, 1998).
10.6 Form of Warrant between Company and investors in 1998 private
placement (incorporated by reference to the Company's Statement
on Form 10-KSB for the year ended June 30, 1998).
10.7 Form of Subscription Agreement and Letter of Investment Intent
between Company and investors in private placement of May and
June 1998 (incorporated by reference to the Company's Statement
on Form 10-KSB for the year ended June 30, 1998).
10.8 Warrant dated June 8, 1998 between Company and R.J. Steichen &
Co. for the purchase of 288,381 shares of common stock.
(incorporated by reference to the Company's Statement on Form
10-KSB for the year ended June 30, 1998).
10.9 Sublease Agreement dated March 15, 1999, between the Company and
NM Holdings, Inc. for property located at 9850 51st Avenue North,
Suite 110, Plymouth, Minnesota 55442.
58
<PAGE>
10.10 Form of Promissory Note used in connection with the Company's
sale of its Medium Term 12% Unsecured Notes in December of 1998
(incorporated by reference to the Company's Statement on Form
10-QSB for the quarter ended December 31, 1998).
10.11 Form of Warrant used in connection with the Company's sale of its
12% Medium Term Unsecured Notes in December of 1998 (incorporated
by reference to the Company's Statement on Form 10-QSB for the
quarter ended December 31, 1998).
10.12 Form of Promissory Note used in connection with the Company's
sale of its Short Term 12% Unsecured Note in February of 1999
(incorporated by reference to the Company's Statement on Form
10-QSB for the quarter ended March 31, 1999).
10.13 Form of Warrant used in connection with the Company's sale of its
12% Short Term Unsecured Note in February of 1999 (incorporated
by reference to the Company's Statement on Form 10-QSB for the
quarter ended March 31, 1999).
10.14 Form of Note Conversion Agreement used in connection with the
Company's conversion of its 12% Medium Term Unsecured Notes to
common stock in March of 1999.
10.15 Form of Warrant used in connection with the Company's conversion
of its 12% Medium Term Unsecured Notes to common stock in March
of 1999.
10.16 Form of Note Conversion Agreement used in connection with the
Company's conversion of its 12% Short Term Unsecured Note to
common stock in May of 1999.
10.17 Form of Warrant between Company and investors in private
placement of common stock on March 16, 1999 (incorporated by
reference to the Company's Statement on Form 10-QSB for fiscal
quarter ended March 31, 1999).
10.18 Form of Warrant between Company and investors in private
placements of warrants on April 12, 1999 and April 14, 1999
(incorporated by reference to the Company's Statement on Form
10-QSB for fiscal quarter ended March 31, 1999).
10.19 Form of Warrant between Company and investor in private placement
of warrants on June 7, 1999.
10.20 Form of Warrant between Company and investors in private
placements of common stock on May 13, 1999 and May 18, 1999.
10.21 Form of Warrant between Company and investors in private
placements of common stock on June 30, 1999 and July 26, 1999.
10.22 Form of Subscription Agreement and Letter of Investment Intent
between Company and employee investors in private placement of
common stock in July of 1999.
11 Computation of Net Loss Per Common Share.
21 Subsidiaries.
23.1 Consent of Lurie, Besikof, Lapidus & Co., LLP.
27 Financial Data Schedule.
59
EXHIBIT 10.9
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT is made as of this 15th day of March, 1999 between N M
Holdings Inc formerly known as Nutrition Medical Inc (a Minnesota corporation),
hereinafter referred to as "Sublessor", and U-Ship Inc (a Utah corporation),
hereinafter referred to as "Sublessee".
WITNESSETH, WHEREAS:
Sublessor, as Tenant, entered into a lease with Caliber Development
Corp and/or assigns as Landlord, dated February 22, 1996 and amended on March
31, 1996 and again on August 5, 1996 leasing certain space containing
approximately 9,460 square feet in the building, located at 9850 51st Avenue
North, Plymouth, Minnesota (the "Building"), to which lease (hereinafter, the
"Prime Lease") reference is hereby made, and which is incorporated by reference
as if the same were herein set forth at length; and
Whereas Caliber Development Corporation, assigned its interest in the
Lease to Bass Lake Realty Corporation, a Minnesota corporation (the "Prime
Landlord"); and
The parties hereto have agreed that Sublessor shall sublet
approximately 9.460 square feet of such space to Sublessee;
NOW THEREFORE. the parties hereto hereby covenant and agree as follows:
1. Sublessor hereby subleases to Sublessee said 9,460 square feet, more
or less, of the space in said Building, as depicted on Exhibit "A" attached
hereto and made a part hereof, (the "Subleased Premises"), for a term of
thirty-two (32) months beginning April 1, 1999, and ending November 29, 2001,
unless sooner terminated in accordance herewith. Sublessee to pay to Sublessor a
Monthly Base Rent as follows:
Period Monthly Base Rent
4/l/99 - 8/31/2000 $5,687.00
9/l/2000 -11/29/2001 $5,971.25
plus any additional rent as set forth in paragraph 4 hereof, on the first day of
each and every month during the term hereof.
The Subleased Premises shall be used for the purpose of General
Office, Warehouse and Light Manufacturing, as outlined in the Prime Lease.
3. Sublessee shall not assign its interest in this Sublease nor further
sublet the Subleased Premises in whole or in part; and shall not permit its
interest in this Sublease to be vested in any third party by operation of law or
otherwise.
4. When Sublessor is charged for Additional Rent or other sums due
pursuant to the provisions of the Prime Lease, Sublessee shall be liable for all
of such additional rent or sums attributable to the Subleased Premises. Any rent
or other sums payable by Sublessee under this Article 4 shall be additional rent
and collectable as such. If Sublessor shall receive any refund
<PAGE>
under the Prime Lease, Sublessee shall be entitled to the return of so much
thereof from Sublessor as shall be attributable to prior payments by Sublessee.
5. This Sublease is subject and subordinate to the Prime Lease. Except
as may be inconsistent with the terms hereof, all the terms, covenants and
conditions contained in the Prime Lease shall be applicable to this Sublease
with the same force and effect as if Sublessor were the Landlord under the Prime
Lease and Tenant were the lessee thereunder, and in the case of any breach
hereof by Sublessee. Sublessor shall have all the rights against Sublessee as
would be available to the Landlord against the Tenant under the Prime Lease if
such breach were by the Tenant thereunder. A complete copy of the Prime Lease is
found in Exhibits "B" attached hereto and made a part hereof. Except as
otherwise set forth in this Sublease, Sublessee assumes and agrees to keep, obey
and perform all of the terms, covenants and conditions of Sublessor as Tenant
under the Prime Lease with respect to the Subleased Premises.
6. Notwithstanding, anything to the contrary herein set forth, the only
services or rights to which Sublessee may be entitled hereunder are those to
which Sublessor may be entitled under the Prime Lease.
7. Neither Sublessee nor Sublessor shall do or permit anything to be
done (including without limitation failure to make any payments when due) which
would cause the Prime Lease to be terminated or forfeited by reason of any right
of termination or forfeiture reserved or vested in the lessor under the Prime
Lease, and each party shall indemnify and hold the other harmless from and
against all claims of any kind whatsoever by reason of which the Prime Lease may
be terminated or forfeited by the indemnifying party's breach of this provision.
8. Sublessee has paid Sublessor on the execution and delivery of this
Sublease the sum of Four Thousand Five Hundred and 00/100 Dollars ($4,500.00) as
security for the full and faithful performance of the terms, covenants and
conditions of this sublease on Sublessee's part to be performed or observed,
including but not limited to payment of base rent and additional rent in default
or for any other sum which Sublessor may expend or be required to expend by
reason of Sublessee's default, including any damages or deficiency in reletting
the Subleased Premises. in whole or in part, whether such damages shall accrue
before or after summary proceedings or other re-entry by Sublessor or the Prime
Landlord. If Sublessee shall fully and faithfully comply with all the terms,
covenants and conditions of this sublease on Sublessee's part to be performed or
observed, the security, or any unapplied balance thereof, shall be returned to
Sublessee after the time fixed as the expiration of the demised term and after
the removal of Sublessee and surrender of possession of the Subleased Premises
to Sublessor.
9. The Sublessee agrees to accept the Sublease Premises in "as is'"
condition. Sublessee shall be responsible for the installation and cost of any
and all improvements, alterations or other work required on or to the Subleased
Premises or on or to any other portion of the property and/or building of which
the Subleased Premises are a part by the Americans With Disabilities Act of 1990
or any other applicable law, rule or regulation as a result of Sublessee's use
of the Subleased Premises. Sublessee shall make or install no other
improvements, alterations or work on or to the Subleased Premises or on or to
the property and/or building of which the Subleased Premises are a part without
the prior written consent Of Sublessor (which consent shall not be unreasonably
withheld) and Prime Landlord (to the extent such consent is required under the
Prime Lease).
<PAGE>
10. Sublessee shall, during the term hereof, keep in full force and
effect, at its expense a policy or polices of public liability insurance with
respect to the Subleased Premises and the business of Sublessee, in which
Sublessee, Sublessor and Landlord shall be covered by being named as insured
parties under reasonable limits of liability not less than: $1,000,000 for
injury/death to any one person: $2,000,000 for injury/death to more than one
person, and $1,000,000 with respect to damage to property. Such policy or
policies shall provide that ten (10) days written notice must be given to
Sublessor and Landlord prior to cancellation thereof. Sublessee shall furnish
evidence satisfactory to Sublessor and Landlord at the time this Sublease is
executed that such coverage is in full force and effect.
11. Sublessee represents that it has read and is familiar with the
terms of the Prime Lease.
12. All prior understandings and agreements between the parties are
merged within this Agreement, which alone fully and completely sets forth the
understanding of the parties; and this Sublease may not be changed or terminated
orally or in any manner other than by an agreement in writing to which the
written consent of the Landlord under the Prime Lease shall have been obtained.
13. The Sublessee shall be responsible for payment of all utility costs
attributable to the Subleased Premises as outlined in the Prime Lease.
14. Sublessor shall not be liable for any non performance of or
noncompliance with or breach or failure to observe any term, covenant or
condition of the Prime Lease upon Prime Landlord's part to be kept, observed,
performed or complied with, or for any delay or interruption in Prime Landlord's
performing its obligations thereunder, provided that Sublessor shall cooperate
with Sublessee in assisting Sublessee in enforcing the terms of the Prime
Lease, to the extent provided below. Sublessor assigns unto Subtenant for so
long as this Sublease shall be in force and effect, any and all assignable
rights and causes of action which Sublessor may have against Prime Landlord with
respect to the Subleased Premises due to defaults by Prime Landlord under the
Prime Lease. Sublessor agrees to cooperate with and join with Sublessee in any
claims or stilts brought by Sublessee against Prime Landlord under the Prime
Lease, provided that such participation shall be without cost or expense to
Sublessor.
15. Sublessee will indemnify. defend and hold harmless Sublessor from,
and shall reimburse Sublessor for all costs and expenses, including reasonable
attorneys' fees incurred by Sublessor in connection with the defense of all
claims and demands or third persons, including but not limited to those for
death, personal injuries, or property damage, arising out of any default of
Sublessee in performing or observing any term, covenant, condition or provision
of this Sublease, or out of the use or occupancy of the Subleased Premises by
Sublessee, or out of any acts or omissions of the Sublessee, its agents.
representatives, employees, customers, guests, invitees or other persons who are
doing business with Sublessee or who are at the Subleased Premises with
Sublessee's consent. Sublessee, for itself and its insurers, hereby further
expressly waives all claims against Sublessor for any and all damages to
persons or property caused by or resulting from any thing or circumstance.
16. This Sublease shall terminate at the end of the Sublease term
hereof. Sublessee will peacefully and quietly vacate and surrender the Subleased
Premises to Sublessor at the expiration of this Sublease term, in the condition
called for under the Prime Lease. The existence of this Sublease is dependent
and conditioned upon the continued existence of the Prime Lease, and in the
event of the cancellation or termination of the Prime Lease, this Sublease
automatically shall be
<PAGE>
terminated; provided, however, that this provision shall or be deemed to release
Sublessor of liability if the Prime Lease is canceled or terminated due to a
default by Sublessor as Tenant under the Prime Lease, which default did not
result in whole or in part from a default by Sublessee under this Sublease.
Sublessor agrees not to amend, alter or modify any of the provisions of the
Prime Lease affecting, Sublessee, or to surrender the Prime Lease, without
Sublessee's consent, which consent will not be unreasonably withheld or delayed.
Sublessor shall have no liability to Sublessee due to the termination of the
Prime Lease by reason of any default by Sublessee under this Sublease, or by
reason of any condemnation or destruction of the Subleased Premises.
17. If Sublessee defaults in its obligations under this Sublease,
Sublessor shall have all of the same rights and remedies against Sublessee as
would be available to the Prime Landlord against Sublessor if Sublessor were in
default under the Prime Lease, as fully as if such rights and remedies were set
forth in this Sublease.
18. This Sublease, and the obligations of Sublessor hereunder, is
contingent upon the consent of Prime Landlord hereto.
19. Any notice or demand which either party may or must give to the
other hereunder shall be in writing and delivered personally or sent by
certified mail, return receipt requested, addressed to Sublessor as follows:
N M Holdings. Inc
Mr. Rich Hegstrand
2700 Black Oak Lane
Plymouth, MN 55447
with a copy thereof to the Landlord under the Prime Lease as follows:
Bass Lake Realty Corporation
c/o Sentinal Real Estate Corporation
666 Fifth Avenue
26th Floor
New York, NY 10123-2698
and to Sublessee, as follows:
U-Ship Inc
Mr. Peter Lytle
9850 51th Avenue North
Plymouth. MN 55442
Either party may, by notice in writing, direct that future notices or demands be
sent to a different address.
20. The covenants and agreements herein contained shall bind and inure
to the benefit of Sublessor, Sublessee, and their respective heirs, executors,
administrators, successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed the date and year first above written.
SUBLESSEE: SUBLESSOR:
U-Ship Inc. N M Holdings Inc.
(a Utah corporation) formerly known as Nutrition Medical Inc.
(a Minnesota corporation)
BY: /S/ Kenneth D. Zigrino BY: /S/ Rich Hegstrand
ITS: V.P. Admin and Secretary ITS: Chief Operating Officer
DATE: 3/15/99 DATE: 3/15/99
<PAGE>
CONSENT TO SUBLEASE
March 24, 1999
Nutrition Medical, Inc.
9850 51st Avenue North
Suite 120
Plymouth, Minnesota 55447
RE: Sublease Agreement dated March 15, 1999 ("Sublease") between Nutrition
Medical, Inc., a Minnesota corporation ("Tenant") and U-Ship, Inc., a
Utah corporation ("Subtenant")
Premises: Suite 120, consisting of approximately 9,460 square feet at
the Bass Lake Business Centre II, 9850 51st Avenue North, Plymouth,
Minnesota 55447
Gentlemen:
Reference is hereby made to your request for consent to the subletting
contemplated by the Sublease.
Subject to and contingent upon your consent to the Sublease, we hereby
consent to such subletting subject to the following understandings, agreements
and conditions:
1. Neither this consent nor the terms of the Sublease modifies,
amend, waives or affects any of the terms, covenants,
conditions, provisions or agreements of the lease between
Tenant and the undersigned's predecessor-in-interest dated
February 22, 1996, as amended on March 31, 1996 and August 15,
1996 ("Lease"), which Lease shall continue to apply to all the
space covered by the Lease and the use and occupancy thereof.
The Sublease is subject and subordinate at all times to this
consent and to the Lease and all of its terms, covenants,
conditions, provisions and agreements.
2. This consent shall not be construed to create a landlord-tenant
relationship or privity of contract or estate between the
undersigned and Subtenant.
3. Nothing contained herein shall be construed as a consent to,
approval of, or ratification by the undersigned of any of the
particular provisions of the Sublease or as a representation or
warranty by the undersigned in respect thereof. The undersigned
is not passing on the terms, covenants and conditions of the
Sublease and is not assuming any obligations under the
Sublease.
<PAGE>
4. Neither the Sublease, nor this consent thereto shall be
construed as a consent by the undersigned to any further
subletting either by Tenant or by Subtenant.
5. If Tenant breaches any of the terms and provisions of the
Lease, the undersigned may elect to receive directly from
Subtenant all sums due and payable to Tenant by Subtenant
pursuant to the Sublease, and upon written notice from the
undersigned, Subtenant shall thereafter pay to the undersigned
any and all sums becoming due or payable under the Sublease.
Notwithstanding the foregoing, neither the giving of such
notice to Subtenant nor the receipt of such direct payments
from Subtenant shall cause the undersigned to assume any of
Tenant's obligations and/or liabilities under the Sublease,
nor shall such event impose upon the undersigned the
obligation to honor the Sublease nor subsequently to accept
Subtenant's attornment.
6. This consent is not assignable, nor shall this consent be a
consent to any amendment, modification, extension or renewal
of the Sublease, without the undersigned's prior written
consent.
7. Tenant and Subtenant agree to reimburse the undersigned, upon
demand, for any and all costs and expenses (including, without
limitation, attorney's fees and disbursements) incurred by the
undersigned in connection with the Sublease and any failure to
pay the same upon demand shall be a default under the Lease.
8. Tenant and Subtenant covenant and agree that under no
circumstances shall the undersigned be liable for any
brokerage commission or other charge or expense in connection
with the Sublease and both Tenant and Subtenant agree to
indemnify the undersigned, its directors, officers, agents,
shareholders and employees against same and against any cost
or expense (including, without limitation, attorney's fees and
disbursements) incurred by the undersigned, its directors,
officers, agents, shareholders and employees in resisting any
claim for any such brokerage commission.
9. If for any reason the term of the Lease shall terminate, the
Sublease shall automatically be terminated, and on or prior to
the date of such termination of the Sublease, Subtenant shall
quit and surrender the Premises to the undersigned in
accordance with all applicable provisions of the Lease.
10. Tenant shall be liable to the undersigned for any default
under the Lease, whether such default is caused by Tenant or
Subtenant or anyone claiming by or through either Tenant or
Subtenant, but the foregoing shall not be deemed to restrict
or diminish any right which the undersigned may have against
Subtenant pursuant to the Lease, in law or in equity for
violation of the Lease or otherwise, including, without
limitation, the right to enjoin or otherwise restrain any
violation of the Lease by Subtenant.
<PAGE>
11. Subtenant agrees to promptly deliver a copy to the undersigned
of all notices of default and all other notices sent to Tenant
under the Sublease, and Tenant agrees to promptly deliver a
copy to the undersigned of all such notices sent to Subtenant
under the Sublease. All copies of any such notices shall be
delivered by United States registered or certified mail,
postage prepaid, return receipt requested, to Bass Lake Realty
Corp., c/o Sentinel Real Estate Corporation, 666 Fifth Avenue,
26th Floor, New York, New York 10103, or to other such place
or persons as the undersigned or its agent may from time to
time designate.
12. The execution of this consent by Tenant and Subtenant shall
indicate their joint and several confirmation of the foregoing
conditions and their agreement to be bound thereby.
Very truly yours,
Bass Lake Realty Corp.
By: /S/Christine C. Kurtz
----------------------------------
(Title) Vice President
Confirmed and Agreed:
Nutrition Medical, Inc., a Minnesota corporation
By: /S/ Rich Hegstrand
----------------------------------
(Title) Chief Operating Officer
U-Ship, Inc., a Utah corporation
By: /S/ Kenneth D. Zigrino
----------------------------------
(Title) V.P. Admin & Secretary
EXHIBIT 10.14
NOTE CONVERSION AGREEMENT
THIS NOTE CONVERSION AGREEMENT (the "Agreement") dated as of March 30,
1999, by and between U-Ship, Inc., a Utah corporation (the "Company"), and
_____________ (the "Investor"), an individual whose business address is
_____________________________________.
WHEREAS, on January 13, 1999, pursuant to that certain Note Agreement
between Company and Investor (the "Note Agreement"), the Company sold to
Investor investment units (the "Units"), comprised of (i) $500,000 principal
amount of the corporation's unsecured promissory note (the "Note") payable in 3
years with an interest rate of 12% per annum, and (ii) a warrant to purchase
13,333 shares of its $0.004 par value common stock (the "Common Stock") at a
purchase price of $1.875 per share, for a period of 5 (the "Original Warrant");
and
WHEREAS, it is desirable for this corporation to convert the Note into
shares of Common Stock in accordance with the terms and conditions of this
Agreement;
NOW THEREFORE, in consideration of the foregoing, the mutual promises
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Conversion of Loan/ Cancellation of Promissory Note. The Investor
agrees that the indebtedness represented by the Note, including interest, shall
be cancelled and converted into 175,000 shares of Common Stock (the "Shares")
together with a warrant to purchase 50,000 shares of Common Stock for a period
of 5 years at an exercise price of $2.00 per share (the "New Warrant") upon
Investor's (a) execution and delivery of a Subscription Agreement to that effect
in form satisfactory to Company and its counsel, (b) delivery to the Company of
the original Note marked "paid in full" and signed by Investor, and (c) delivery
to the Company of the original Note Agreement. Upon acceptance of said
Subscription Agreement by Company and delivery of the original Note, Company
shall cause a certificate for the Shares, and the written New Warrant, to be
issued to Investor as soon as practicable, said Shares issued to Investor to be
fully paid and nonassessable.
2. Warrants. Notwithstanding the cancellation of the Note and issuance
of the Shares and the New Warrant, the Original Warrant issued to Investor in
connection with the sale of the Units shall remain valid and in full force and
effect, in accordance with their terms.
3. Note Agreement. Upon issuance of the Shares and the Warrant, and
except with regard to the representations and warranties of the Investor which
shall remain in force, the Note Agreement shall become null and void and of no
further force or effect.
4. Other.
1
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(a) This Agreement, including the appendices attached hereto,
constitutes the entire agreement of the parties relative to
the subject matter hereof and supersedes any and all other
agreements and understandings, whether written or oral,
relative to the matters discussed herein.
(b) This Agreement shall be construed and enforced in accordance
with the laws of the State of Minnesota, without regard to
conflicts of laws principles.
(c) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date set forth above.
INVESTOR: U-SHIP, INC.
By
- ------------------------------------ -----------------------------------
Print Full Name Peter C. Lytle
Chief Executive Officer
- ------------------------------------
Signature
- ------------------------------------
Address
- ------------------------------------
Telephone Number
- ------------------------------------
Social Security Number
2
EXHIBIT 10.15
WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
U-SHIP, INC.
MARCH 30, 1999
This Certifies that, in consideration of having converted $500,000 of
debt and accrued interest thereon into 175,000 shares of the Company's Common
Stock, and for other good and valuable consideration, __________ (the
"Warrantholder"), is entitled to subscribe for and purchase from the Company, at
any time after March 30, 1999, and prior to March 30, 2004 (the "Expiration
Date") up to 50,000 shares of the Company's Common Stock at a purchase price of
$2.00 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.
"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.
1
<PAGE>
"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 30, 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.
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
2
<PAGE>
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 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
3
<PAGE>
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.
(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
4
<PAGE>
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 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
5
<PAGE>
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;
6
<PAGE>
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
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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 30th 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."
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
EXHIBIT 10.16
NOTE CONVERSION AGREEMENT
THIS NOTE CONVERSION AGREEMENT (the "Agreement") dated as of May ____,
1999, by and between United Shipping & Technology, Inc., a Utah corporation (the
"Company"), and ____________ (the "Investor"), an individual whose business
address is _________________.
WHEREAS, on February 26, 1999, pursuant to that certain Note Agreement
between Company and Investor (the "Note Agreement"), the Company sold to
Investor an investment unit (the "Unit"), comprised of (i) $250,000 principal
amount of the corporation's unsecured promissory note (the "Note") payable in
180 days, (ii) in lieu of interest on the Note, a warrant to purchase 3,850
shares of its $0.004 par value common stock (the "Common Stock") at a purchase
price of $3.25 per share, for a period of 5 years, and (iii) in lieu of interest
on the Note, a warrant to purchase 11,150 shares of its Common Stock at a
purchase price of $3.75 per share, for a period of 5 years (collectively, the
"Warrants"); and
WHEREAS, it is desirable for this corporation to convert the Note into
shares of Common Stock in accordance with the terms and conditions of this
Agreement;
NOW THEREFORE, in consideration of the foregoing, the mutual promises
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Conversion of Loan/ Cancellation of Promissory Note. The Investor
agrees that the $250,000 indebtedness represented by the Note shall be cancelled
and converted into 100,000 shares of Common Stock at a price of $2.50 per share
(the "Shares") upon Investor's (a) execution and delivery of a Subscription
Agreement to that effect in form satisfactory to Company and its counsel, (b)
delivery to the Company of the original Note marked "paid in full" and signed by
Investor, and (c) delivery to the Company of the original Note Agreement. Upon
acceptance of said Subscription Agreement by Company and delivery of the
original Note, Company shall cause a certificate for the Shares to be issued to
Investor as soon as practicable, said Shares issued to Investor to be fully paid
and nonassessable.
2. Warrants. Notwithstanding the cancellation of the Note and issuance
of the Shares, the Warrants issued to Investor in lieu of interest on the Note
shall remain valid and in full force and effect, in accordance with their terms.
3. Use of Funds. Upon issuance of the Shares, and except with regard to
the representations and warranties of the Investor which shall remain in force,
the Note Agreement shall become null and void and of no further force or effect,
and all restrictions on the use of the funds shall cease.
4. Other.
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(a) This Agreement, including the appendices attached hereto,
constitutes the entire agreement of the parties relative to
the subject matter hereof and supersedes any and all other
agreements and understandings, whether written or oral,
relative to the matters discussed herein.
(b) This Agreement shall be construed and enforced in accordance
with the laws of the State of Minnesota, without regard to
conflicts of laws principles.
(c) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date set forth above.
INVESTOR: UNITED SHIPPING & TECHNOLOGY, INC.
By
- --------------------------------- ------------------------------------
Print Full Name Peter C. Lytle
Chief Executive Officer
- ---------------------------------
Signature
- ---------------------------------
Address
- ---------------------------------
Telephone Number
- ---------------------------------
Social Security Number
2
EXHIBIT 10.19
WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
UNITED SHIPPING & TECHNOLOGY, INC.
JUNE 7, 1999
This Certifies that, in consideration of having paid the sum of $50,000
to United Shipping & Technology, 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 June 7, 1999, and prior to June 7, 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 United Shipping & Technology, 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 June 7, 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 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.
4
<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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<PAGE>
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
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<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 Mandatory Redemption. In the event at any time after the date hereof
the average of the daily last sale prices per share of Common Stock for 20
consecutive trading days, as adjusted for any stock dividend, split, combination
or reclassification that took effect during such period (the "Current Market
Price") is at least $5.00 per share, the Board of Directors of the
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Company shall thereafter have the right (after 6 months from the date of this
Warrant) upon thirty (30) days' notice to the Warrantholder to purchase this
Warrant for a purchase price equal to (i) the number of Warrant Shares, as
adjusted herein, as to which this Warrant has not been exercised at the
expiration of said 30-day period (the "Unexercised Warrant Shares"), multiplied
by (ii) $0.01 per Unexercised Warrant Share. Nothing herein shall be construed
to prevent the Warrantholder from exercising this Warrant as to the Unexercised
Warrant Shares prior to expiration of said 30-day period. Upon expiration of
such 30-day period, all unexercised purchase rights under this Warrant shall be
void. The above-referenced purchase price shall be payable in full by the
Company on or before 15 days after the expiration of the above referenced 30-day
notice. If the Common Stock is not traded in such manner that the quotations
referred to above are available for the period required hereunder, Current
Market Price per share of Common Stock shall be deemed to be the fair value as
determined by the Board of Directors, irrespective of any accounting treatment.
12 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.
13 Miscellaneous. This Warrant and any provision hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by the
party (or any predecessor in interest thereof) against which enforcement of the
same is sought. The headings in this Warrant are for purposes of reference only
and shall not affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
a duly authorized officer, and to be dated as of the 7th day of June, 1999.
UNITED SHIPPING & TECHNOLOGY, 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:
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
EXHIBIT 10.20
WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
UNITED SHIPPING & TECHNOLOGY, INC.
MAY 13, 1999
This Certifies that, in consideration of having purchased 100,000
shares of the Company's Common Stock, and for other good and valuable
consideration, ____________________ (the "Warrantholder"), is entitled to
subscribe for and purchase from the Company, at any time after the date hereof,
and prior to May 13, 2004 (the "Expiration Date") up to 30,000 shares of the
Company's Common Stock at a purchase price of $3.00 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 United Shipping & Technology, 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 13, 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
3
<PAGE>
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
<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
5
<PAGE>
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;
6
<PAGE>
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
7
<PAGE>
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.
8
<PAGE>
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 13th day of May, 1999.
UNITED SHIPPING & TECHNOLOGY, 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
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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:
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
EXHIBIT 10.21
WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
UNITED SHIPPING & TECHNOLOGY, INC.
JULY 1, 1999
This Certifies that, in consideration of having purchased 87,000 shares
of the Company's Common Stock, and for other good and valuable consideration,
_______________(the "Warrantholder"), is entitled to subscribe for and purchase
from the Company, at any time after the date hereof, and prior to July 1, 2004
(the "Expiration Date") up to 30,000 shares of the Company's Common Stock at a
purchase price of $2.00 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 United Shipping & Technology, 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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"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, 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 July 1, 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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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
3
<PAGE>
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
<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
5
<PAGE>
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;
6
<PAGE>
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
7
<PAGE>
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.
8
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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 1st day of July, 1999.
UNITED SHIPPING & TECHNOLOGY, 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
EXHIBIT 10.22
SUBSCRIPTION AGREEMENT
AND
LETTER OF INVESTMENT INTENT
United Shipping & Technology, Inc.
9850 51st Avenue North, Suite 110
Plymouth, MN 55442
Attention: Peter C. Lytle
Chief Executive Officer
Gentlemen:
The undersigned, __________________________________________________, a
Minnesota resident, desires to become a shareholder of United Shipping &
Technology, Inc. a Utah corporation (the "Company"), and hereby subscribes for
_________________________ shares (the "Shares") of the Company's common stock,
$0.004 par value (the "Common Stock") for the sum of $__________________,
payable by the cancellation of the debt owed by the Company to the undersigned
in said amount, representing the purchase price of $3.00 per Share for each
Share subscribed for above.
1. The undersigned hereby acknowledges that this subscription is
contingent upon acceptance in whole or in part by the Company.
2. The undersigned acknowledges, represents and warrants that the
undersigned:
(a) is able to bear the economic risk of the investment in the
Shares;
(b) has knowledge and experience in financial and business
matters, is capable of evaluating the merits and risks of the
prospective investment in the Shares and is able to bear such risks;
(c) understands an investment in the Shares is highly
speculative but believes that the investment is suitable for it based
upon the undersigned's investment objectives and financial needs, and
has adequate means for providing for current financial needs and
personal contingencies and has no need for liquidity of investment with
respect to the Shares;
(d) has reviewed (i) copies of the Company's recent reports
filed under the Securities Exchange Act of 1934, including, the
Company's Form 10-KSB Report for the fiscal year ended June 30, 1998,
and is familiar with the factors contained therein under the caption
"Factors That May Affect Future Operating Results" which are intended
to serve as cautionary factors within the meaning of the Private
Securities Litigation Reform Act of 1995, (ii) the Company's Form
10-QSB for the period ended December 31, 1998, (iii) the Company's 1998
Annual Report, (iv) the Company's proxy statement in connection with
its 1998 annual meeting of shareholders held on May 3, 1999, and (v)
the Company's confidential private placement memorandum dated June 30,
<PAGE>
1999 in connection with the sale of the Shares;
(e) has been given access to full and complete information
regarding the Company (including the opportunity to meet with Company
officers and review all documents as it may have requested in writing)
and has utilized such access to its satisfaction for the purpose of
obtaining information about the Company;
(f) recognizes that the Shares, as an investment, involve a
high degree of risk; and
(g) realizes that (i) the purchase of Shares is a long-term
investment; (ii) purchasers of Shares must bear the economic risk of
investment for an indefinite period of time because the Shares have not
been registered under the Securities Act of 1933, as amended (the
"Act") and, therefore, cannot be sold unless they are subsequently
registered under the Act or an exemption from such registration is
available; and (iii) the transferability of the Shares is restricted,
and (A) requires the written consent of the Company, (B) requires
conformity with the restrictions contained in paragraph 3 below, and
(C) will be further restricted by a legend placed on the certificate(s)
representing the Shares stating that the Shares have not been
registered under the Act and referring to the restrictions on
transferability of the Shares, and by stop transfer orders or notations
on the Company's records referring to the restrictions on
transferability.
3. The undersigned has been advised that the Shares are not being
registered under the Act or the relevant state securities laws pursuant to
exemptions from the Act and laws, and that the Company's reliance upon such
exemptions is predicated in part on the undersigned's representations to the
Company as contained herein. The undersigned represents and warrants that the
Shares are being purchased for its own account and for investment and without
the intention of reselling or redistributing the same, that the undersigned has
made no agreement with others regarding any of such Shares and that its
financial condition is such that it is not likely that it will be necessary to
dispose of any of such Shares in the foreseeable future. The undersigned is
aware that, in the view of the Securities and Exchange Commission and applicable
state bodies that administer state securities laws, a purchase of Shares with an
intent to resell by reason of any foreseeable specific contingency or
anticipated change in market values, or any change in the condition of the
Company or its business, or in connection with a contemplated liquidation or
settlement of any loan obtained for the acquisition of the Shares and for which
the Shares were pledged as security, would represent an intent inconsistent with
the representations set forth above. The undersigned further represents and
agrees that if, contrary to its foregoing intentions, it should later desire to
dispose of or transfer any of such Shares in any manner, it shall not do so
without first obtaining (a) the opinion of counsel designated by the Company
that such proposed disposition or transfer lawfully may be made without the
registration of such Shares for such purpose pursuant to the Act, as then in
effect, and applicable state securities laws, or (b) such registrations (it
being expressly understood that the Company shall not have any obligation to
register the Shares for such purpose, except insofar as paragraph 4 hereof
requires the Company, in certain instances, to register Registrable Securities).
The undersigned agrees that the Company may place the following
restrictive legend on the certificate(s) representing the Shares, containing
substantially the following language:
"The shares represented by this Certificate were issued without
registration under the
2
<PAGE>
Securities Act of 1933, as amended (the "Act") and without registration
under Minnesota or any other state's securities laws, in reliance upon
exemptions contained in the Act and such laws. No transfer of these
shares or any interest therein may be made except pursuant to effective
registration statements under said laws unless this Corporation has
received an opinion of counsel satisfactory to it that such transfer or
disposition does not require registration under said laws and, for any
sales under Rule 144 of the Act, such evidence as it shall request for
compliance with that rule."
The undersigned agrees and consents that the Company may place a stop transfer
order on the Certificate(s) representing the Shares to assure the undersigned's
compliance with this Agreement and the matters referenced above.
The undersigned agrees to save and hold harmless, defend and indemnify
the Company and its directors, officers and agents from any claims, liabilities,
damages, losses, expenses or penalties arising out of any misrepresentation of
information furnished by the undersigned to the Company in this Subscription
Agreement.
4. The Company agrees to the following terms and conditions relative to
registration of the Shares under the Act:
(a) Definitions. As used in this Agreement, the following
terms shall have the meanings set forth respectively:
"Commission" shall mean the Securities and Exchange
Commission, or any other federal agency then administering the Act.
"Common Stock" shall mean the shares of Common Stock of the
Company, $0.004 par value.
"Holder" or, collectively, "Holders, means (i) the undersigned
purchaser of the Shares or Registrable Securities and (ii) each person
to whom Holder transfers the Shares or Registrable Securities as
provided herein.
"Other Securities" shall mean any stock (other than Common
Stock) or other securities of the Company which the Holder at any time
shall be entitled to receive, or shall have received, or which at any
time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities.
"Registrable Securities" means the Shares, and any Other
Securities received with respect to the Shares; provided, however, that
any such Common Stock and Other Securities shall cease to be
Registrable Securities when (i) a Resale Registration Statement
covering such Registrable Securities has been declared effective and
such Registrable Securities have been disposed of pursuant to such
effective Resale Registration Statement, (ii) such Registrable
Securities become eligible for sale pursuant to Rule 144 (or any
similar provision then in force) ("Rule 144") under the Act or (iii)
such shares of Common Stock cease to be outstanding. Registrable
Securities may, for
3
<PAGE>
purposes of a registration statement filed by the Company under the
Act, include other securities of the Company which it has a contractual
obligation to register under federal or state securities laws.
"Transfer" shall mean any sale, assignment, pledge, or other
disposition of any Shares or Registrable Securities, or of any interest
in either thereof, which would constitute a sale thereof within the
meaning of Section 2(3) of the Act.
All terms used in this Agreement which are not defined in Section 1
hereof have the meanings respectively set forth elsewhere in this Agreement.
(b) Resale Registration. Despite anything in this Agreement to
the contrary, the Holder shall have the following rights regarding registration
of Registrable Securities.
(1) Required Registration. Upon request of a Holder owning at
least 5,000 Shares or Registrable Securities not theretofore
registered under the Act, the Company shall prepare and if it
is then eligible file a registration statement on Form S-3
under the Act covering the resale of the Registrable
Securities which are the subject of such requests and shall
use its best efforts to cause such registration statement to
become effective and to remain effective for at least 24
months. In addition, upon the receipt of the aforementioned
request, the Company shall promptly give written notice to all
other record Holders of Shares or Registrable Securities that
such registration is to be effected. The Company shall include
in such registration statement such Registrable Securities for
which it has received written requests to register by such
other Holders within fifteen (15) days after the Company's
written notice to such other Holders. The Company shall be
obligated to prepare, file and cause to become effective only
two (2) registration statements pursuant to this Section 4(b).
In the event that the holders of a majority of the Registrable
Securities for which registration has been requested pursuant
to this Section determine for any reason not to proceed with a
registration at any time before the registration statement has
been declared effective by the Commission, and such Holders
thereafter request the Company to withdraw such registration
statement, the Holders of such Registrable Securities agree to
bear their own expenses incurred in connection therewith and
to reimburse the Company for the expenses incurred by it
attributable to such registration statement, then, and in such
event, the Holders of such Registrable Securities shall not be
deemed to have exercised their right to require the Company to
register Registrable Securities pursuant to this Section 4(b).
(2) Incidental Registration. Each time the Company shall
determine to proceed with the actual preparation and filing of
a registration statement under the Act in connection with the
proposed offer and sale for money of any of its Common Stock
by it or any of its security holders (other than a
registration statement on From S-4 or S-8) or any other
successor forms prescribed by the commission, the Company will
give written notice of its determination to all Holders of
Shares and Registrable Securities. Upon the written request of
a Holder of any Shares and Registrable Securities given within
fifteen (15) days after receipt of any such notice from the
Company, the Company will, except as herein provided, cause
all such Registrable Securities, the Holders of which have so
4
<PAGE>
requested registration thereof, to be included in such
registration statement, all to the extent requisite to permit
the sale or other disposition by the prospective seller or
sellers of the Registrable Securities to be so registered;
provided, however, that (a) nothing herein shall prevent the
Company from, at any time, abandoning or delaying any such
registration initiated by it; and (b) if the Company
determines not to proceed with a registration after the
registration statement has been filed with the Commission and
the Company's decision not to proceed is primarily based upon
the anticipated public offering price of the securities to be
sold by the Company, the Company shall promptly complete the
registration for the benefit of those selling security holders
who wish to proceed with a public offering of their securities
and who bear all expenses in excess of $25,000 incurred by the
Company as the result of such registration after the Company
has decided not to proceed. If any registration pursuant to
this Section shall be underwritten in whole or in part, the
Company may require that the Registrable Securities requested
for inclusion pursuant to this Section be included in the
underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters. If
in the good faith judgment of the managing underwriter of such
public offering the inclusion of all of the Registrable
Securities originally covered by a request for registration
would reduce the number of shares to be offered by the Company
or interfere with the successful marketing of the shares of
stock offered by the Company, the number of Registrable
Securities otherwise to be included in the underwritten public
offering may be reduced pro rata among the Holders thereof
requesting such registration to a number that the managing
underwriter believes will not adversely affect the sale of
shares by the Company. Those securities which are thus
excluded from the underwritten public offering, and any other
Common Stock owned by such Holders, shall be withheld from the
market by the Holders thereof for a period, not to exceed one
hundred eighty (180) days, which the managing underwriter
reasonably determines is necessary in order to effect the
underwritten public offering.
(3) Registration Procedures. If and whenever the Company is
required by the provisions of Section 4(b)(1) or 4(b)(2) to
effect the registration of any Registrable Securities under
the Act, the Company will:
(i) prepare and file with the Commission a registration
statement with respect to such Registrable
Securities, and use its best efforts to cause such
registration statement to become and remain effective
for such period as may be reasonably necessary to
effect the sale of such Registrable Securities;
(ii) prepare and file with the Commission such amendments
to such registration statement and supplements to the
prospectus contained therein as may be necessary to
keep such registration statement effective for such
period as may be reasonably necessary to effect the
sale of such Registrable Securities;
(iii) furnish to the Holders participating in such
registration and to the underwriters of the
Registrable Securities being registered such
reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus
and such
5
<PAGE>
other documents as such Holders and underwriters may
reasonably request in order to facilitate the public
offering of such Registrable Securities;
(iv) use its best efforts to register or qualify the
Registrable Securities covered by such registration
statement under such state securities or blue sky
laws of such jurisdictions as such participating
Holders may reasonably request within ten (10) days
following the original filing of such registration
statement, except that the Company shall not for any
purpose be required to execute a general consent to
service of process or to qualify to do business as a
foreign corporation in any jurisdiction wherein it is
not so qualified;
(v) notify the Holders participating in such
registration, promptly after it shall receive notice
thereof, of the time when such registration statement
has become effective or a supplement to any
prospectus forming a part of such registration
statement has been filed;
(vi) prepare and file with the Commission, promptly upon
the request of any such Holders, any amendments or
supplements to such registration statement or
prospectus which, in the reasonable opinion of
counsel for such Holders (and concurred in by counsel
for the Company), is required under the Act or the
rules and regulations thereunder in connection with
the distribution of the Registrable Securities by
such Holder;
(vii) prepare and promptly file with the Commission such
amendment or supplement to such registration
statement or prospectus as may be necessary to
correct any statements or omissions if, at the time
when a prospectus relating to such securities is
required to be delivered under the Act, any event
shall have occurred as the result of which any such
prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact
or omit to state any material fact necessary to make
the statements therein, in the light of the
circumstances in which they were made, not
misleading; and
(viii) advise such Holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance
of any stop order by the Commission suspending the
effectiveness of such registration statement or the
initiation or threatening of any proceeding for that
purpose and promptly use its best efforts to prevent
the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued.
(4) Expenses. With respect to any registration, requested
pursuant to Section 4(b)(1) (except as otherwise provided in
such section with respect to registrations voluntarily
terminated at the request of the requesting security holders)
and with respect to each inclusion of securities in a
registration statement pursuant to Section 4(b)(2) (except as
otherwise provided in Section 4(b)(2) with respect to
registrations terminated by the Company), the Company shall
bear the following fees, costs and expenses: all
6
<PAGE>
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
Holders are required to bear such fees and disbursements), all
internal Company expenses, the premiums and other costs of
policies of insurance against liability arising out of the
public offering, and all legal fees and disbursements and
other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be
offered are to be registered or qualified. Fees and
disbursements of counsel and accountants for such Holders,
underwriting discounts and commissions and transfer taxes for
such Holders and any other expenses incurred by such Holders
not expressly included above shall be borne by such Holders.
(5) Copies of Prospectus; Amendments of Prospectus. The
Company will furnish the Holder with a reasonable number of
copies of any prospectus or offering circular and one copy of
the registration statement included in such filings and will
amend or supplement the same as required during the nine (9)
month period following the effective date of the registration
statement, provided, that the expenses of any amendment or
supplement made or filed more than three (3) months after the
effective date of the registration statement, at the request
of the Holder, shall be borne by the Holder.
(6) Conditions of the Company's Obligations. It shall be a
condition of the Company's obligation to register the
Registrable Securities hereunder that the Holder agrees to
cooperate with the Company in the preparation and filing of
any such registration statement, or in its efforts to
establish that the proposed sale is exempt under the Act, as
to any proposed distribution. It shall also be a condition of
the Company's obligations under this Agreement that, in the
case of the filing of any registration statement, and to the
extent permissible under the Act, and controlling precedent
thereunder, the Company and the Holder provide
cross-indemnification agreements to each other in customary
scope covering the accuracy and completeness of the
information furnished by each.
(c) Restrictions on Sale. In the event of an underwritten
public offering for the account of the Company, upon the written request (the
"Lock-up Request") of the managing underwriter (or underwriters) of such
offering, each Holder agrees not to effect any public sale or distribution of
any securities similar to those being registered in such offering (other than
pursuant to such offering), including, without limitation, through sales of
Registrable Securities pursuant to a registration statement, during the 14 days
prior to, and during the 180-day period beginning on the effective date of the
registration statement relating to such offering (the "Lock-up Period");
provided, however, that the Holders shall not be required to comply with such
Lock-up Request unless the Company simultaneously demands analogous restrictions
on sale and uses all reasonable efforts to obtain from all other persons who are
contractually bound with the Company to comply with such Lock-up Requests and
from the Company's directors. In the event of the delivery of a Lock-up Request,
the time periods for which a registration statement is required to be kept
effective pursuant to Section 4(b) hereof shall be extended by the number of
days during the Lock-up Period.
7
<PAGE>
(g) Transfer of Registration Rights. The registration rights
of Holder and any Holders under this Section 4 may be transferred to any
transferee of Registrable Securities that acquires at least 5,000 shares of the
Common Stock (appropriately adjusted for stock splits, stock dividends and the
like). Each such transferee shall be deemed to be a "Holder" for purposes of
this Section 4.
5. The undersigned represents and warrants that the undersigned is a
bona fide resident of, and is domiciled in, the State of California and that the
Shares are being purchased solely for the beneficial interest of the undersigned
and not as nominee, for, or on behalf of, or for the beneficial interest of, or
with the intention to transfer to, any other person, trust or organization,
except as specifically set forth in paragraph 8 of this Agreement.
THE FOLLOWING PARAGRAPH 6 IS REQUIRED IN CONNECTION WITH THE EXEMPTIONS FROM THE
ACT AND STATE LAWS BEING RELIED ON BY THE COMPANY WITH RESPECT TO THE OFFER AND
SALE OF THE SHARES. ALL OF SUCH INFORMATION WILL BE KEPT CONFIDENTIAL AND WILL
BE REVIEWED ONLY BY THE COMPANY, THE AGENT, IF ANY, AND THEIR RESPECTIVE
COUNSEL. The undersigned agrees to furnish any additional information which the
Company, the Agent, if any, or their respective legal counsel deem necessary in
order to verify the responses set forth below.
6. Accredited Status. The undersigned represents and warrants as
follows: (CHECK IF APPLICABLE):
_______ (a) The undersigned is an individual with a net worth, or a
joint net worth together with his or her spouse, in excess of
$1,000,000. (In calculating net worth, you may include equity
in personal property and real estate, including your principal
residence, cash, short-term investments, stock and securities.
Equity in personal property and real estate should be based on
the fair market value of such property minus debt secured by
such property.)
_______ (b) The undersigned is an individual with income in excess of
$200,000 in each of the prior two years and reasonably expects
an income in excess of $200,000 in the current year.
_______ (c) The undersigned is an individual who, with his or her
spouse, had joint income in excess of $300,000 in each of the
prior two years and reasonably expects joint income in excess
of $300,000 in the current year.
_______ (d) The undersigned is a director or executive officer of
United Shipping & Technology, Inc.
8
<PAGE>
7. NASD Affiliation. The undersigned is affiliated or associated,
directly or indirectly, with a National Association of Securities Dealers, Inc.
("NASD") member firm or person.
Yes ________ No ________
If yes, list the affiliated member firm or person:___________
_____________________________________________________________
_____________________________________________________________
Your relationship to such member firm or person:_____________
_____________________________________________________________
_____________________________________________________________
8. Miscellaneous.
(a) Manner in which title is to be held: (check one)
_____ Individual Ownership
_____ Joint Tenants with Right of Survivorship*
_____ Other ________________________________
________________________________(describe)
(b) The undersigned agrees that the undersigned understands the meaning
and legal consequences of the agreements, representations and
warranties contained herein, agrees that such agreements,
representations and warranties shall survive and remain in full force
and effect after the execution hereof and payment for the Shares, and
further agrees to indemnify and hold harmless the Company, each current
and future officer, director, employee, agent and shareholder from and
against any and all loss, damage or liability due to, or arising out
of, a breach of any agreement, representation or warranty of the
undersigned contained herein.
(c) This Agreement shall be construed and interpreted in accordance
with Minnesota law without regard to conflict of law provisions.
(d) The undersigned agrees to furnish to the Company or the Agent, if
applicable, upon request, such additional information as may be deemed
necessary to determine the undersigned's suitability as an investor.
[NOTE: SIGNATURE PAGE FOLLOWS]
- --------------------------------------
*Multiple signatures required.
9
<PAGE>
INDIVIDUAL SUBSCRIBER
Dated: July ___, 1999.
- --------------------------------- ------------------------------------
- --------------------------------- ------------------------------------
Signature Signature
- --------------------------------- ------------------------------------
Name Typed or Printed Name Typed or Printed
- --------------------------------- ------------------------------------
Residence Address Residence Address
- --------------------------------- ------------------------------------
- --------------------------------- ------------------------------------
- --------------------------------- ------------------------------------
City, State and Zip Code City, State and Zip Code
- --------------------------------- ------------------------------------
Mailing Address Mailing Address
- --------------------------------- ------------------------------------
- --------------------------------- ------------------------------------
City, State and Zip Code City, State and Zip Code
- --------------------------------- ------------------------------------
Tax Identification or Social Tax Identification or Social
Security Number Security Number
10
<PAGE>
ACCEPTANCE BY THE COMPANY
United Shipping & Technology, Inc. hereby agrees to and accepts the foregoing
Subscription Agreement to the extent of ____________________ Shares.
UNITED SHIPPING & TECHNOLOGY, INC.
By
------------------------------------
Peter C. Lytle
Its: Chief Executive Officer
11
EXHIBIT 11
UNITED SHIPPING & TECHNOLOGY, INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
For the Year Ended June 30,
1999 1998
----------- -----------
<S> <C> <C>
Weighted average number of issued shares outstanding 6,881,764 4,977,469
Shares outstanding used to compute net loss per share 6,881,764 4,977,469
=========== ===========
Net Loss $(2,894,479) $(1,901,130)
=========== ===========
Net Loss Per Common Share, basic and diluted ($0.42) ($0.38)
=========== ===========
</TABLE>
EXHIBIT 21
SUBSIDIARIES
NAME OF SUSIDIARY STATE OF INCORPORATION
----------------- ----------------------
U-SHIP International Ltd. Wisconsin
U-Ship America, Inc. Minnesota
Intelligent Kiosk Company Minnesota
Advanced Courier Services, Inc. Minnesota
United Acquisitions, Inc. Minnesota
United Vehicle Leasing, Inc. Minnesota
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the registration
statements of United Shipping & Technology, Inc. on Form S-3/A (File No.
333-34411) and Form S-8 (File No. 333-06269) of our report dated August 13,
1999, except for Notes 2 and 15, as to which the date is September 9, 1999,
relating to the consolidated financial statements of United Shipping &
Technology, Inc. and subsidiaries as of June 30, 1999 and for the year then
ended, which report appears in this June 30, 1999 annual report on Form 10-KSB
of United Shipping & Technology, Inc.
/s/ LURIE, BESIKOF, LAPIDUS & CO., LLP
------------------------------------------
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
September 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 252,356
<SECURITIES> 0
<RECEIVABLES> 646,868
<ALLOWANCES> 0
<INVENTORY> 883,036
<CURRENT-ASSETS> 1,975,833
<PP&E> 1,810,631
<DEPRECIATION> (952,935)
<TOTAL-ASSETS> 4,388,116
<CURRENT-LIABILITIES> 825,352
<BONDS> 0
0
0
<COMMON> 42,442
<OTHER-SE> 15,571,329
<TOTAL-LIABILITY-AND-EQUITY> 4,388,116
<SALES> 1,482,799
<TOTAL-REVENUES> 1,482,799
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,374,009
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,269
<INCOME-PRETAX> (2,894,479)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,894,479)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,894,479)
<EPS-BASIC> (0.42)
<EPS-DILUTED> (0.38)
</TABLE>
