U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-QSB
(Mark One)
_X_ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2000
___ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File No. 0-27780
UNITED SHIPPING & TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0355929
- --------------------------------- ---------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
9850 51st Avenue North, Suite 110, Minneapolis, MN 55442
--------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (612) 941-4080
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES (X) NO ( )
As of May 9, 2000, there were 16,296,260 shares of common stock of the
registrant issued and outstanding.
Transitional Small Business Disclosure.
YES _____ NO __X__
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC.
FORM 10-QSB
FOR THE QUARTER ENDED APRIL 1, 2000
INDEX
Page
----
PART I. FINANCIAL INFORMATION......................................... 3
ITEM 1.
a) Consolidated Financial Statements............................. 3
b) Consolidated Balance Sheets - April 1, 2000 and June 30,
1999.......................................................... 3
c) Consolidated Statements of Operations -
Three and Nine months ended April 1, 2000 and March 31,
1999.......................................................... 4
d) Consolidated Statements of Cash Flows -
Nine months ended April 1, 2000 and March 31, 1999............ 5
e) Notes to Consolidated Financial Statements.................... 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 10
PART II. OTHER INFORMATION................................................ 14
ITEM 1. Legal Proceedings............................................. 14
ITEM 2. Changes in Securities and Use of Proceeds..................... 14
ITEM 3. Defaults upon Senior Securities............................... 15
ITEM 4. Submission of Matters to a Vote of Securities Holders......... 15
ITEM 5. Other Information............................................. 15
ITEM 6. Exhibits...................................................... 15
SIGNATURES................................................................ 17
EXHIBIT INDEX............................................................. 18
2
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UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
April 1, 2000 June 30, 1999
------------- -------------
(UNAUDITED)
-------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,085 $ 252
Accounts receivable, net of allowance for doubtful accounts 68,579 275
Stock subscription receivable -- 250
Other current assets 2,531 1,199
------------- -------------
Total current assets 74,195 1,976
Property and equipment:
Land 779 --
Buildings and leasehold improvements 2,019 --
Furniture, equipment and vehicles 15,008 1,811
------------- -------------
17,806 1,811
Less: accumulated depreciation (2,894) (953)
------------- -------------
14,912 858
Goodwill 54,720 1,426
Other assets, net 3,779 128
------------- -------------
Total assets $ 147,606 $ 4,388
============= =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Trade accounts payable $ 32,878 $ 557
Accrued auto and workers' compensation claims 16,274 --
Other accrued liabilities 36,361 228
Current portion of long-term debt and capital leases 6,245 40
------------- -------------
Total current liabilities 91,758 825
Long-term debt and capital leases 49,582 617
------------- -------------
Total liabilities 141,340 1,442
Shareholders' equity:
Common stock, $0.004 par value, 16,293,760 and 10,610,537
shares issued and outstanding in 2000 and 1999, respectively 65 42
Additional paid-in capital 39,601 15,571
Accumulated deficit (33,361) (12,667)
Foreign currency translation (39) --
------------- -------------
Total shareholders' equity 6,266 2,946
------------- -------------
Total liabilities and shareholders' equity $ 147,606 $ 4,388
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(UNAUDITED)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
April 1, March 31, April 1, March 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 138,900 $ 483 $ 331,532 $ 755
Cost of services 111,441 355 266,277 602
------------ ------------ ------------ ------------
Gross profit 27,459 128 65,255 153
Selling, general and administrative
expenses 33,882 899 83,249 2,219
------------ ------------ ------------ ------------
Loss from operations (6,423) (771) (17,994) (2,066)
Other income(expense)
Interest expense (1,511) (29) (3,263) (35)
Other income 63 0 517 0
Interest income 24 3 46 44
------------ ------------ ------------ ------------
Net loss $ (7,847) $ (797) $ (20,694) $ (2,057)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.50) $ (0.11) $ (1.57) $ (0.36)
------------ ------------ ------------ ------------
Basic and diluted weighted average number
of common shares
outstanding 15,656,080 7,214,350 13,166,497 5,721,014
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(UNAUDITED)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
April 1, 2000 March 31, 1999
------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (20,694) $ (2,057)
Adjustments to reconcile net loss to net cash flows used for operating
activities-
Depreciation and amortization 5,745 313
Equity instruments issued in lieu of services received 199 --
(Gain)/Loss on retirement of equipment (42) --
Change in operating assets and liabilities:
Accounts receivable (6,338) 50
Other current assets 2,776 (121)
Other assets (1,834) (278)
Accounts payable 14,760 364
Accrued liabilities and deferred revenue (10,097) 39
------------ ------------
Cash used by operating activities (15,525) (1,690)
------------ ------------
INVESTING ACTIVITIES
Proceeds from sale of
equipment 280 --
Purchases of property and equipment (2,463) (159)
Acquisition of business, net of cash received (55,570) (810)
Redemption of short-term investments -- 1,700
Other, net (39) (324)
------------ ------------
Cash provided by (used in) investing activities (57,792) 407
------------ ------------
FINANCING ACTIVITIES
Payments on notes payable and long-term debt (3,771) (49)
Proceeds from notes payable and long-term debt 58,266 1,350
Proceeds from stock subscription 250 --
Proceeds from sale of common stock 21,444 240
------------ ------------
Cash provided by financing activities 76,189 1,541
------------ ------------
Effect of currency exchange rate changes on cash (39) --
------------ ------------
Net increase in cash and cash equivalents 2,833 258
Cash and cash equivalents, beginning of period 252 154
------------ ------------
Cash and cash equivalents, end of period $ 3,085 $ 412
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 226 $ 35
------------ ------------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Issuance of common stock through the conversion of debt $ 616 $ --
Value of warrants issued in lieu of services performed 45 --
Property and equipment returned to inventory 257 406
------------ ------------
Assets acquired in connection with the
acquisition of JEL Trucking, Inc. were as follows:
Allocation of cost based on fair value of assets acquired:
Current assets $ -- $ 284
Property and equipment -- 114
Intangible assets -- 1,472
Accounts payable -- (90)
------------ ------------
-- 1,780
Less fair market value of common stock issued -- 970
------------ ------------
Net cash paid for acquisition $ -- $ 810
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The consolidated financial statements included herein have been prepared
by United Shipping & Technology, Inc. which, together with its wholly-owned
subsidiaries, shall be referred to herein as the "Company," without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of the Company, all adjustments consisting only of normal
recurring adjustments, necessary to present fairly the financial position of the
Company as of April 1, 2000, and the results of its operations for the three and
nine months ended April 1, 2000 and March 31, 1999, and its cash flows for the
nine months ended April 1, 2000 and March 31, 1999 have been included. Certain
information in footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. These consolidated financial statements should be read
in conjunction with the financial statements for the year ended June 30, 1999,
and the footnotes thereto, included in the Company's Report on Form 10-KSB,
filed with the Securities and Exchange Commission.
1. Basis of Presentation:
Principles of Consolidation - The consolidated financial statements
include the accounts of United Shipping & Technology, Inc. and its wholly owned
subsidiaries. All inter-company balances and transactions have been eliminated
in the consolidation.
Change in Fiscal Year - On November 10, 1999, the Company approved a
change in its fiscal year from a June 30th year-end to a 52-53 week fiscal year
ending on the Saturday closest to June 30th, beginning in fiscal year 2000. Each
quarter will consist of a 13-week period ending on a Saturday. In fiscal years
consisting of 53 weeks, the final quarter will consist of 14 weeks. For fiscal
2000, the quarter end dates are October 2, 1999, January 1, 2000, April 1, 2000
and July 1, 2000.
2. Revenue Recognition:
The Company has historically generated revenue from: the same-day delivery
operations conducted through the Company's Advanced Courier Services, Inc.
subsidiary, and to a lesser extent, the per-package shipping revenue generated
from ongoing shipping volume at its intelligent shipping kiosks (ISKs), and the
sale of ISKs and custom built intelligent kiosks. Revenues for the nine months
ended April 1, 2000 are derived primarily from the same-day delivery business of
the Company's subsidiary, UST Delivery Services, Inc. ("Delivery Services"),
since the August 28, 1999 acquisition date. Revenue from the same-day delivery
services is recognized when services are rendered to customers. Package shipping
revenue is recognized when the package is shipped.
3. Net Loss Per Share:
Basic loss per share excludes any dilutive effects of options, warrants
and convertible securities. Dilutive loss per share for the Company is the same
as basic loss per share because the effect of options and warrants is
anti-dilutive. Total options and warrants outstanding as of April 1, 2000 and
March 31, 1999 were 5,095,835 and 5,088,453, respectively.
4. Comprehensive Loss:
Comprehensive loss was $(7,886), $(797), $(20,655) and $(2,057) for the
three months ended April 1, 2000, the three months ended March 31, 1999, the
nine months ended April 1, 2000 and the nine months ended March 31, 1999,
respectively. The difference between net loss and total comprehensive loss, if
any, related to foreign currency translation adjustments.
6
<PAGE>
5. Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
6. Acquisitions:
On September 24, 1999 (with an effective date of August 28, 1999), the
Company acquired from CEX Holdings, Inc. ("CEX") all of the outstanding shares
of common stock of Corporate Express Delivery Systems, Inc. ("CEDS"), a provider
of same day delivery solutions. The purchase price was approximately $62,500,
subject to adjustment as defined in the merger agreement. The purchase price is
expected to be finalized by the end of the fiscal year. The purchase price
consisted of $43,000 in cash provided by institutional debt financing from
General Electric Capital Corporation ("GE") and Bayview Capital Partners, LP
("Bayview"), and the remainder in a combination of short and long-term notes
issued to CEX (see Note 7). The acquisition has been accounted for under the
purchase method of accounting. The excess purchase price over the estimated fair
value of the net tangible assets acquired has been allocated to goodwill and is
being amortized on a straight-line basis over 15 years.
The purchase price allocation is preliminary, as the purchase price has
not been finalized with CEX and the Company has not had sufficient amount of
time to finalize the valuation of certain assets and liabilities acquired or
evaluate the effects of deferred taxes. The Company expects to make adjustments
to the allocation of the purchase price by the end of this fiscal year.
In connection with the August 28, 1999 acquisition of CEDS, management
implemented a plan to involuntarily terminate approximately 100 employees and to
consolidate certain facilities. Approximately $2,430 in anticipated costs
relating to such items was included in the acquisition cost allocation. This
plan has not been completely finalized, and adjustments to the acquisition cost
allocation may be made prior to the plan's anticipated completion, which is one
year. As of April 1, 2000 approximately $1,009 in costs (primarily related to
severance payments) were charged against the reserve and no amounts related to
such plan have been included in the determination of net loss for the period.
In connection with the acquisition of CEDS, the Company incurred or may
incur fees for merger and acquisition related services totaling up to $5,000.
These fees consist of $3,800 upon the closing of the transaction and possible
contingent payments of up to $1,200. The contingent payments are due in annual
increments of $600 in fiscal years 2001 and 2002, upon the Company achieving
various revenue targets. The Company has paid the $3,800 of fees that were due
upon the closing. Given the nature of the contingent portion of the agreement,
the Company will recognize the expense associated with the contingent payments
if and at the time the revenues targets are achieved. If the revenue targets are
not achieved, the Company is not liable for the contingent portion of the
agreement.
The following unaudited pro forma financial information gives effect to
the CEDS acquisition as if it had occurred at the beginning of fiscal years 2000
and 1999. The pro forma results were prepared for comparative purposes only and
are not 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.
Nine months ended
-----------------
April 1, 2000 March 31, 1999
--------------- ----------------
Revenue $ 418,126 $ 463,782
Loss from operations (25,256) (19,165)
Net loss (22,430) (23,383)
Basic and diluted loss per share (1.70) (4.09)
Basic and diluted weighted average
common shares outstanding 13,166,497 5,721,014
7
<PAGE>
7. Long-term Debt and Capital Leases:
Long-term debt and capital leases consisted of the following:
April 1, 2000 June 30, 1999
-------------- -------------
GE Revolving Note $ 35,741 --
Bayview Senior Subordinated Note and
Warrant 3,491 --
Long-term Subordinated Note to CEX 6,519 --
Short-term Subordinated Note to CEX 4,404 --
Convertible Subordinated Note to CEX 3,600 --
9% Convertible Subordinated Note to J. Iver
& Company 1,690 --
Various Other Notes and Leases 382 657
------------- -------------
55,827 657
Less current maturities 6,245 40
------------- -------------
Total $ 49,582 $ 617
============= =============
Borrowings under the GE Revolving Note are limited to the lesser of
$55,000 or an amount based on a defined portion of receivables less the amount
outstanding on the $5,000 Swing Line Note issued to GE. Interest is payable
monthly at a rate of Prime plus 0.6% (9.6% at April 1, 2000). The Company may
elect the rate of LIBOR plus 3% at its discretion from time to time. All amounts
advanced are due September 23, 2004. In addition, the Company is required to pay
a commitment fee of 0.375% on unused amounts of the total commitment, as defined
in the agreement.
The Bayview Senior Subordinated Note has interest payable quarterly at 12%
and is due September 30, 2004. The note is subordinate to the GE Revolving Note.
The initial carrying value of the Senior Subordinated Note was reduced by $1,708
for the estimated fair value of the common stock warrant issued to Bayview,
recorded as Additional Paid in Capital on the financial statements. The
unamortized discount aggregated $1,509 at April 1, 2000. The discount is
amortized over the life of the note. The warrant has an exercise price of
$3.3125 per share and entitles Bayview to acquire, in whole or in part,
1,366,200 shares of the Company's common stock, subject to adjustment for
certain anti-dilution rights as defined in the warrant purchase agreement. The
Company is required to redeem the warrants or repurchase the stock issued upon
exercise at the request of the holder or upon the happening of certain events,
such as default, the sale of 50% of the Company's stock or assets, or after the
fifth anniversary of the date of the warrant. The purchase price for the common
stock upon exercise of the warrant is at the market value (as defined in the
warrant purchase agreement) of the Company's common stock. The future carrying
value of the warrant will be adjusted periodically to its then estimated
redemption value.
The Long-term Subordinated Note issued to CEX has interest payable
quarterly at 12% and is due September 24, 2004. The note is subordinate to the
GE Revolving Note and the Bayview Senior Subordinated Note.
The $7,500 Short-term Subordinated Note issued to CEX has interest payable
quarterly at 9% and is due September 24, 2000. The note was reduced by the
mandatory prepayment from the exercise of the Company's warrants issued in
connection with the purchase of its Series A Preferred Stock in April and June
of 1998. The note is subordinate to the GE Revolving Note and the Bayview Senior
Subordinated Note.
The Convertible Subordinated Note issued to CEX has interest payable
quarterly at 6% and is due September 24, 2004. The note is subordinate to the
Revolving Note and the Senior Subordinated note. The note is convertible in
whole or in part into shares of the Company's common stock at an exchange rate
of $4.59 per share to a maximum of 784,314 shares, subject to certain
anti-dilution rights under an exchange agreement entered into in connection with
the Convertible Subordinated Note.
As a result of the acquisition of CEDS, the Company was also liable on a
6% Convertible Subordinated Note to J. Iver & Company which was due January 31,
2000. In March 2000, the Company made a principle payment in the amount of $500
plus accrued interest and in April 2000 restructured the terms of the original
agreement into a 9% Convertible Subordinated Note in the amount of $1,690. Under
the new agreement the Company is required to pay principle and interest in an
amount equal to $200 (or such lesser amount if less than $200 of unpaid
principal and accrued interest is outstanding) commencing May 1, 2000 and
continuing until all principal and interest is paid or otherwise provided for.
In connection with the new agreement the Company also issued a warrant to
purchase
8
<PAGE>
15,000 shares of common stock at an exercise price of $12.925 per share. The
Company will determine the fair value associated with this warrant and record it
as a discount against the carrying value of the Note in the fourth quarter.
Substantially all of the assets and operations of the Company's Delivery
Systems subsidiary have been pledged to secure borrowing under the GE Revolving
Note, the Bayview Senior Subordinated Note and the CEX subordinated notes. The
Company is subject to certain restrictive covenants, the more significant of
which include limitations on dividends, loans and investments, capital
expenditures, new indebtedness and changes in capital structure. The Company is
also required to maintain certain financial covenants related to minimum EBITDA
and minimum fixed charge coverage ratio. The agreements with the lenders also
require the Company to obtain the consent of the lenders for additional
acquisitions.
8. Commitments and Contingencies:
The Company leases equipment, vehicles and buildings under various
non-cancelable operating and capital lease agreements with terms generally
ranging from three to ten years. Future minimum lease commitments under
non-cancelable leases at April 1, 2000 range from $50 to $60. The Company has
not completed the valuation of these commitments and expects to complete the
valuation by the end of this fiscal year.
The Company is self-insured for automobile and workers' compensation
claims. However, the Company has elected to retain a portion of expected losses
through the use of deductibles. Provisions for losses expected under these
programs are recorded based upon the Company's estimates of the aggregate
liability for claims incurred. These estimates include the Company's actual
experience based on information received from the Company's insurance carriers
and historical assumptions of development of unpaid liabilities over time.
9. Equity:
The Company continues its efforts to reduce debt and raise additional cash
for acquisitions and working capital needs. In February 2000 an accredited
investor purchased 666,667 shares of the Company's common stock at a purchase
price of $7.50 per share, for a total purchase price of $5,000. On April 25,
2000, the Company issued to an accredited investor, J. Iver & Company (the
"Holder") a 9% Convertible Subordinated Promissory Note in the original
principal amount of $1,690 (the "New Note"), together with a warrant to purchase
up to 15,000 shares of common stock at a price of $12.925 per share (the
"Warrant") in exchange for a previously-issued promissory note, payable to the
Holder by the Company's UST Delivery Systems, Inc. subsidiary, in the original
principal amount of $2,190 (the "Old Note"), which Old Note was retired. The New
Note is payable in equal consecutive monthly installments of $200, beginning May
1, 2000, and continuing until all principal and interest are paid in full. Under
the New Note, the Holder has the option of converting all or a portion of the
outstanding principal and accrued interest thereon into common stock of the
Company. The number of shares receivable by the Holder upon each conversion is
equal to the outstanding principal and accrued interest being converted divided
by the average closing sale price of the Company's common stock for the 20
trading days preceding the date of the Notice to Set Conversion Price delivered
by the Holder to the Company from time to time. For example, if the holder
delivered its Notice to Set Conversion Price on May 11, 2000, the Holder upon
conversion would have the right to receive approximately 136,542 shares of
common stock at a purchase price of $10.9124 per share. Under the New Note, the
Holder also has anti-dilution protection and registration rights with respect to
the shares receivable upon conversion. In the event the registrable shares are
not registered in the time frames set forth in the New Note, the outstanding
principal balance on the Note is subject to increase as set forth therein.
On May 11, 2000, the Company issued a non-qualified option outside of the
Company's 1995 Stock Option Plan to an employee for the purchase of 75,000
shares of common stock at a purchase price of $4.95 per share.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
IN ACCORDANCE WITH THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, THE COMPANY NOTES THAT CERTAIN STATEMENTS IN THIS
FORM 10-QSB AND ELSEWHERE WHICH ARE FORWARD LOOKING AND WHICH PROVIDE OTHER THAN
HISTORICAL INFORMATION, INVOLVE RISKS AND UNCERTAINTIES THAT MAY IMPACT THE
COMPANY'S RESULTS OF OPERATIONS. THESE FORWARD LOOKING STATEMENTS INCLUDE, AMONG
OTHERS, STATEMENTS CONCERNING THE COMPANY'S GENERAL BUSINESS STRATEGIES,
FINANCING DECISIONS, AND EXPECTATIONS FOR FUNDING CAPITAL EXPENDITURES AND
OPERATIONS IN THE FUTURE. WHEN USED HEREIN, THE WORDS "BELIEVE," "PLAN,"
"CONTINUE," "HOPE," "ESTIMATE," "PROJECT," "INTENT," "EXPECT," AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD LOOKING STATEMENTS. ALTHOUGH
THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD LOOKING
STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, NO STATEMENTS CONTAINED IN THIS
FORM 10-QSB SHOULD BE RELIED UPON AS PREDICTIONS OF FUTURE EVENTS. SUCH
STATEMENTS ARE NECESSARILY DEPENDENT ON ASSUMPTIONS, DATA OR METHODS THAT MAY BE
INCORRECT OR IMPRECISE AND MAY BE INCAPABLE OF BEING REALIZED. THE RISKS AND
UNCERTAINTIES INHERENT IN THESE FORWARD-LOOKING STATEMENTS COULD CAUSE RESULTS
TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN OR IMPLIED BY THESE STATEMENTS.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE
INFORMATION CONTAINED IN THIS FORM 10-QSB IS BELIEVED BY THE COMPANY TO BE
ACCURATE AS OF THE DATE HEREOF. CHANGES MAY OCCUR AFTER THAT DATE, AND THE
COMPANY WILL NOT UPDATE THAT INFORMATION EXCEPT AS REQUIRED BY LAW IN THE NORMAL
COURSE OF ITS PUBLIC DISCLOSURE PRACTICES.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THE EXPECTATIONS REFLECTED IN ANY FORWARD-LOOKING STATEMENT HEREIN
INCLUDED, AMONG OTHER THINGS, (1) THE ABILITY OF THE COMPANY TO SUCCESSFULLY AND
PROFITABLY OPERATE ITS RECENTLY ACQUIRED SAME DAY DELIVERY BUSINESS, CORPORATE
EXPRESS DELIVERY SYSTEMS, INC. ("CEDS"), AND TO INTEGRATE ITS OPERATIONS WITH
THE COMPANY'S EXISTING OPERATIONS; (2) THE ABILITY OF THE COMPANY TO MEET DEBT
SERVICE OBLIGATIONS AND COMPLY WITH DEBT COVENANTS WITH RESPECT TO THE DEBT
INCURRED IN CONNECTION WITH THE FINANCING FOR 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 MANAGE 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, (5) THE ABILITY OF THE COMPANY TO DEVELOP AND
IMPLEMENT A NATIONAL BRAND IDENTITY STRATEGY FOR ITS PRODUCTS AND SERVICES; (6)
THE ABILITY OF THE COMPANY TO ACCESS PUBLIC AND PRIVATE EQUITY MARKETS; AND (7)
THE ABILITY OF THE COMPANY TO STEM OPERATING LOSSES AND POSITION THE COMPANY TO
ACHIEVE POSITIVE CASH FLOW.
OVERVIEW-RECENT SIGNIFICANT ACQUISITION
On September 24, 1999, the Company acquired the same-day delivery
operations of Corporate Express Delivery Systems, Inc. ("CEDS") from CEX
Holdings, Inc.("CEX") by a merger of CEDS with its wholly owned subsidiary,
United Shipping & Technology Acquisition Corp. The purchase price was
approximately $62,500, subject to adjustment as defined in the merger agreement.
The purchase price consisted of $43,000 in cash provided by institutional debt
financing from General Electric Capital Corporation ("GE") and Bayview Capital
Partners, LP ("Bayview") and the remainder in a combination of short and
long-term notes issued to CEX. CEDS was the surviving corporation in the merger.
CEDS changed its name to its current name, which is UST Delivery Systems, Inc.
("Delivery Systems"), but still conducts its business under the name Corporate
Express Delivery Systems. Delivery Systems is incorporated in Delaware.
With the acquisition of CEDS, the Company has become the leader in
nationwide customized delivery solutions for same-day, time-critical shipping
and distribution. 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. The Company's network consists
of approximately 240 locations in 80 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 currently
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.
10
<PAGE>
The purchase of CEDS was the final step in the Company meeting its goal of
becoming the premier same-day express delivery and e-commerce fulfillment
service in the United States. With the acquisition of CEDS, the Company now
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 supply chain management services;
* the ability to fulfill any type of customer need in transferring virtually
any type of product or goods by many different forms and time scenarios;
and
* secure transfer of information over the Internet.
The Company now derives its revenues primarily from same-day ground and
air delivery operations. The Company's revenues for the fiscal year ended June
30, 1999 were approximately $1,500. For the fiscal year ended January 30, 1999,
CEDS' revenue from operations was approximately $648,300.
The Company has currently organized its operations in a number of
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. The Company also
develops software and kiosk technology through its Intelligent Kiosk subsidiary.
The Company was 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 to United Shipping
& Technology, Inc. From 1979 until 1991, the Company was engaged in business
activities that were unrelated to its current business. The Company's principal
executive offices are located at 9850 51st Avenue North, Suite 110, Minneapolis,
Minnesota 55442 and its telephone number is (612) 941-4080. The Company's
website is www.u-s-t.com.
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. The Company's kiosks had a limited test
experience with UPS, but to date the Company has not made significant sales of
hub-automation kiosks to UPS or any other carrier. Later, the Company began to
manufacture and operate self-service intelligent shipping Kiosks (ISKs) in
retail locations such as Kinko's Copy Centers and CopyMax stores.
In late 1997, as a result of lower than anticipated revenues from the 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.
In the course of reviewing alternative directions for its business, the Company
determined that the same-day delivery business presented an opportunity to
employ its advanced technology in a large but fragmented market and obtain an
independent revenue stream in a growing industry. The Company also felt that the
same-day delivery industry could benefit from a variety of emerging economic and
technological trends, such as movement toward outsourcing of corporate services,
the explosive growth of e-commerce, the increasing use of the Internet and the
availability of sophisticated communications technology. 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 of same-day delivery businesses. The Company's goal was
to develop a national network of delivery services and to combine it with
sophisticated communications technology and a same-day delivery nationally
recognized brand identity. The Company felt that this combination would allow
customers 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 same-day delivery consolidation strategy in late
1998, through the acquisition of JEL Trucking, Inc., which enabled the Company
to offer same-day delivery and package delivery services in the Minneapolis/St.
Paul metropolitan area. In January 1999, the Company also acquired Twin City
Transportation, Inc., which expanded the Company's same-day delivery service in
the Minneapolis/St. Paul metropolitan area. On September 24, 1999, the Company
acquired Corporate Express Delivery Systems, with 1998 revenues in excess of
$600 million. The Company continues to explore 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 the
date of this report, the Company had no agreements pending to acquire any
additional companies.
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In order to increase the strength of its market leadership in the same-day
delivery business and obtain the maximum economies of scale from its
consolidation efforts, the Company has made a determination that it must
continue to invest in upgrading and developing computer and communications
technology. The Company currently employs in most of its fleet, sophisticated
communications and dispatch systems. In addition, the Company has been testing
in its larger on-demand delivery operations of a satellite-driven, computerized,
on-demand routing system that utilizes Global Positioning System technology and
mobile data terminals to continuously track the location of every vehicle and
package in real time. The Company's ultimate goal is to expand the capabilities
of its communications systems to further improve its same-day delivery,
supply-chain management and logistics services, and to provide an Internet-based
platform for customized e-commerce delivery solutions. The Company also
continues to explore the opportunity of utilizing its kiosk technology to
provide more robust and comprehensive capabilities that can be ultimately
integrated with its same-day delivery operations.
In March 1999, the Company introduced an Internet-based shipping 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 its dispatch system for on-line ordering and
package tracking. The Company also intends to expand the capabilities of
i-courier(TM) and to pursue other e-commerce opportunities.
RESULTS OF OPERATIONS:
Comparison of Three Months Periods Ended April 1, 2000 and March 31, 1999
Revenue for the quarter ended April 1, 2000, increased $138,417 to
$138,900 from $483 for the quarter ended March 31, 1999. The large increase is
primarily due to the acquisition of CEDS.
Cost of service expense increased $111,086 to $111,441 from $355 for the
quarter ended March 31, 1999. The large increase is primarily due to the CEDS
acquisition.
Selling, general and administrative expenses for the quarter ended April
1, 2000, increased $32,983 to $33,882 from $899 for the quarter ended March 31,
1999. The large increase is primarily due to the CEDS acquisition.
Interest expense increased to $1,511 for the quarter ended April 1, 2000
compared to $29 for the quarter ended March 31, 1999. The increase is primarily
due to the increase in debt associated with the CEDS acquisition. Interest and
other income increased by $84 for the quarter ended April 1, 2000. The large
increase is primarily due to the CEDS acquisition.
Net loss for the quarter ended April 1, 2000, increased $7,050 to $7,847
from $797 for the quarter ended March 31, 1999. The large increase is primarily
due to the CEDS acquisition. The Company expects to incur additional losses
while it integrates the acquisition of CEDS into its current business strategy.
Comparison of Nine Month Periods Ended April 1, 2000 and March 31, 1999
Revenue for the nine months ended April 1, 2000 increased $330,777 to
$331,532 from $755 for the nine months ended March 31, 1999. The large increase
is primarily due to the acquisition of CEDS.
Cost of service expense increased $265,675 to $266,277 from $602 for the
nine months ended March 31, 1999. The large increase is primarily due to the
acquisition of CEDS.
Selling, general and administrative expenses for the nine months ended
April 1, 2000, increased $81,030 to $83,249 from $2,219 for the nine months
ended March 31, 1999. The large increase is primarily due to the acquisition of
CEDS.
Interest expense increased to $3,263 for the nine months ended April 1,
2000 compared to $35 for the nine months ended March 31, 1999. The increase is
primarily due to the increase in debt associated with the CEDS acquisition.
Interest and other income increased by $519 for the nine months ended March 31,
2000. The large increase is primarily due to the CEDS acquisition.
Net loss for the nine months ended April 1, 2000, increased $18,637 to
$20,694 from $2,057 for the nine months ended March 31, 1999. The large increase
is primarily due to the CEDS acquisition. The Company expects to incur
additional losses while it integrates the acquisition of CEDS into its current
business strategy.
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LIQUIDITY AND CAPITAL RESOURCES:
Historically, the Company has operated at a loss and has funded its
operations from the proceeds of public and private equity offerings. Throughout
fiscal 1999 and continuing through the third quarter of fiscal 2000, the
Company has financed the implementation of its revised business strategy through
various private placements of debt and equity, including but not limited to
sales of common stock, sales of preferred stock (subsequently converted into
common stock), issuances of debt (some of which was subsequently converted into
common stock), warrant exercises and the sale of warrants. From July 1999
through May 9, 2000, the Company raised over $22,222 in connection with these
transactions, and issued an aggregate of 5,588,192 shares of common stock
(taking into account conversions of preferred stock and debt) at prices ranging
from $0.60 to $7.50 per share, and warrants to purchase an aggregate of
1,774,711 shares of common stock at exercise prices ranging from $0.60 to $12.50
per share for periods ranging from one to five years.
The Company continues its efforts to reduce debt and raise additional cash
for acquisitions and working capital needs. In February 2000 an accredited
investor purchased 666,667 shares of the Company's common stock at a purchase
price of $7.50 per share, for a total purchase price of $5,000. On April 25,
2000, the Company issued to an accredited investor, J. Iver & Company (the
"Holder") a 9% Convertible Subordinated Promissory Note in the original
principal amount of $1,690 (the "New Note"), together with a warrant to purchase
up to 15,000 shares of common stock at a price of $12.925 per share (the
"Warrant") in exchange for a previously-issued promissory note, payable to the
Holder by the Company's UST Delivery Systems, Inc. subsidiary, in the original
principal amount of $2,190 (the "Old Note"), which Old Note was retired. The New
Note is payable in equal consecutive monthly installments of $200, beginning May
1, 2000, and continuing until all principal and interest are paid in full. Under
the New Note, the Holder has the option of converting all or a portion of the
outstanding principal and accrued interest thereon into common stock of the
Company. The number of shares receivable by the Holder upon each conversion is
equal to the outstanding principal and accrued interest being converted divided
by the average closing sale price of the Company's common stock for the 20
trading days preceding the date of the Notice to Set Conversion Price delivered
by the Holder to the Company from time to time. For example, if the holder
delivered its Notice to Set Conversion Price on May 11, 2000, the Holder upon
conversion would have the right to receive approximately 136,542 shares of
common stock at a purchase price of $10.912 per share. Under the New Note, the
Holder also has anti-dilution protection and registration rights with respect to
the shares receivable upon conversion. In the event the registrable shares are
not registered in the time frames set forth in the New Note, the outstanding
principal balance on the Note is subject to increase as set forth therein.
On May 11, 2000, the Company issued a non-qualified option outside of the
Company's 1995 Stock Option Plan to an employee for the purchase of 75,000
shares of common stock at a purchase price of $4.95 per share.
The Company financed its acquisition of CEDS through a combination of
institutional debt financing and the notes to CEX. The Company entered into a
Revolving Note agreement, which allows the Company to borrow from GE, in the
aggregate under the Revolving Note, $55,000. The note agreement required, among
other things, that there be unused availability of at least $14,000 at the time
of acquisition. As of April 1, 2000, the loan had an outstanding balance of
$35,741, and the unused portion was $19,259. The proceeds from this loan were
used to fund a portion of the acquisition purchase price and are being used to
fund the Company's present and future working capital needs.
In fiscal 2000 and beyond, the Company plans to focus on the various
aspects of its acquisition strategy, making acquisitions in the same-day
delivery market and supporting technology, and the acquisition or building of a
nationally recognized brand name to be used in conjunction with such services.
The Company believes that these efforts will require the Company to expend
significant capital. While the Company will seek to acquire companies that have
profits or positive cash flow, or that have the potential to generate positive
cash flow in the future, it is likely that any positive cash flow that would
otherwise result will be utilized in connection with the Company's ongoing
consolidation strategy. The Company believes that these revised strategies,
while initially requiring additional cash outlays, will result in greater
revenues from same-day delivery operations, and sales and licensure of ISK
technology, although no assurance can be given that such revenues will increase
appreciably as a result of these initiatives in the near future, if at all.
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There can be no assurance that the Company will be able to generate
sufficient revenues to meet its operating cash and growth needs or that any
additional equity or debt funding will be available or at terms acceptable to
the Company in the future to continue operating in its current form. The
Company's loss for the fiscal year ended June 30, 1999 was $2,894. The Company's
loss for the nine months ended April 1, 2000 was $20,694. The Company expects to
incur losses for the foreseeable future due to the ongoing activities of the
Company, and in pursuing other aspects of its revised business strategy. The
Company will continue to require substantial additional debt or equity funding
to continue to implement its revised business strategy, which may include
additional future 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. While the Company is not
now in a position to determine the price at which its securities may be issued
in any subsequent equity or debt financing, it is likely that additional equity
or debt financing will be highly dilutive to existing shareholders.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
During February 2000, the parties in the Addvensky class action
litigation, as reported in the Company's Form 10-QSB for the quarter ended
October 2, 1999, met to continue mediation and reached a tentative agreement to
settle all claims. On May 4, 2000, the Court issued preliminary approval of the
settlement agreement, which provides for a total settlement fund of $9,750,
inclusive of plaintiffs' attorneys' fees of $3,250. After attorneys' fees are
paid, the remaining settlement fund will be payable to any class members who
return claim forms. The amounts paid to each claimant will be based on a
formula, which remains to be approved by the Court. After the claims period
expires and all claims are paid, any amounts remaining in the settlement fund
will be paid into a trust fund for health benefits for the Company's employees.
Payment of the plaintiffs' attorneys' fees, costs, and administrative costs are
expected to commence within the next three months, upon final approval of the
settlement, with payments to the claimants and trust fund expected to conclude
within the following three to six months.
The Company is subject to various other legal proceeding and claims,
either asserted or unasserted, which arise in the ordinary course of business.
Management does not believe that the outcome of any of these legal matters will
have a material adverse effect on the Company's results of operation or
consolidated financial position.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In January, 2000, the Company sold to an accredited investor 666,667
shares of common stock at a purchase price of $7.50 per share.
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On April 25, 2000, the Company issued to an accredited investor, J. Iver &
Company (the "Holder") a 9% Convertible Subordinated Promissory Note in the
original principal amount of $1,690 (the "New Note"), together with a warrant to
purchase up to 15,000 shares of common stock at a price of $12.925 per share
(the "Warrant") in exchange for a previously-issued promissory note, payable to
the Holder by the Company's UST Delivery Systems, Inc. subsidiary, in the
original principal amount of $2,190 (the "Old Note"), which Old Note was
retired. The New Note is payable in equal consecutive monthly installments of
$200, beginning May 1, 2000, and continuing until all principal and interest are
paid in full. Under the New Note, the Holder has the option of converting all or
a portion of the outstanding principal and accrued interest thereon into common
stock of the Company. The number of shares receivable by the Holder upon each
conversion is equal to the outstanding principal and accrued interest being
converted divided by the average closing sale price of the Company's common
stock for the 20 trading days preceding the date of the Notice to Set Conversion
Price delivered by the Holder to the Company from time to time. For exapmle, if
the holder delivered its Notice to Set Conversion Price on May 11, 2000, the
Holder upon conversion would have the right to receive approximately 136,542
shares of common stock at a purchase price of $10.9124 per share. Under the New
Note, the Holder also has anti-dilution protection and registration rights with
respect to the shares receivable upon conversion. In the event the registrable
shares are not registered in the time frames set forth in the New Note, the
outstanding principal balance on the Note is subject to increase as set forth
therein.
On May 11, 2000, the Company issued a non-qualified option outside of the
Company's 1995 Stock Option Plan to an employee, for the purchase of 75,000
shares of common stock at a purchase price of $4.95 per share.
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. 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION
On May 15, 2000, the Company signed a definitive agreement with TH
Lee.Putnam Internet Partners, L.P. and TH Lee.Putnam Internet Parallel Partners,
L.P. (collectively, "TH Lee") whereby TH Lee has agreed to purchase 2,806,796
shares of the Company's Series B Convertible Preferred Stock (the "Series B
Preferred") at a price of $9.00 per share for a total purchase price of
approximately $25.2 million. The Series B Preferred is convertible into
2,806,796 shares of the Company's common stock, representing approximately 13%
of the Company's common stock outstanding on a fully diluted basis.
In addition, the Company agreed to issue TH Lee a warrant (the
"Preferred Warrant") to purchase that number of additional shares of Series B
Preferred equal to $30 million divided by the 45-day average closing sales price
of the Company's common stock (the "Market Price") immediately prior to the date
of exercise. The Preferred Warrant has a term of 18 months and is exercisable at
the Market Price immediately prior to the date of exercise. TH Lee will also
receive a warrant to purchase an additional 452,901 shares of Series B Preferred
(the "Additional Warrant"). The Additional Warrant has a term of 18 months and
an exercise price of $9.00 a share. Exercise of the Preferred Warrant and the
Additional Warrant is conditioned upon (i) approval of the Company's
stockholders of the issuance of the common stock and Series B Preferred upon the
exercise of the Warrants and (ii) expiration or termination of the
Hart-Scott-Rodino Act waiting period applicable to TH Lee's acquisition of the
Series B Preferred Stock issuable upon exercise of the Preferred Warrant and the
Additional Warrant. TH Lee will also receive a warrant to purchase up to 425,000
shares of the Company's common stock (the "Common Warrant"). The Common Warrant
will have a term of 4 years and will become exercisable as options granted under
the Company's 2000 Stock Option Plan (the "2000 Plan Options") are exercised.
The exercise price of the Common Warrant will equal the lowest exercise price of
the initially approved 2000 Plan Options, subject to decrease in exercise price
and accelerated vesting in the event of the Company's making certain write-offs
for fiscal 2000. The exercise price of the Common Warrant is conditioned upon
expiration or termination of the Hart-Scott-Rodino Act waiting period applicable
to TH Lee's acquisition of the common stock upon exercise. Consummation of the
TH Lee investment is subject to customary conditions and is expected to occur by
the end of May 2000, although there can be no guarantee the investment will
close.
The Series B Preferred will vote on all matters submitted to the
shareholders on an as-converted basis. In addition, so long as TH Lee owns 5% of
the Company's equity securities on an as-converted basis, the Series B Preferred
will have the right to vote separately as a class for the election of one member
of the Company's Board of Directors. So long as 20% of the Series B Preferred
remains outstanding, the affirmative vote of holders of two-thirds of the Series
B Preferred will be required for the Company to (i) change the rights, increase
the authorized number of, or authorize the issuance of additional shares of the
Series B Preferred, (ii) change the Company's articles or bylaws, (iii) declare
or pay dividends or distributions on, or repurchase or redeem, the Company's
securities, (iv) merge or consolidate with, or transfer assets out of the
ordinary course of business to, any Person, (v) liquidate, dissolve or
reorganize, or (vi) permit a Lien on all or substantially all of the Company's
property in excess of $5 million, other than in connection with refinancing the
Company's existing debt. The Series B Preferred will receive dividends on an
as-converted basis, and has a liquidation preference of $9.00 per share.
The Company will be required to redeem the outstanding Series B
Preferred six years after the date of issuance at a price equal to the
Liquidation Value of each share ($9.00) plus all accrued and unpaid dividends.
The Company will also be required to redeem the outstanding Series B Preferred
upon a Change of Control of the Company.
In addition, the Company has agreed that if the Company's audited
results for its fiscal year ended June 30, 2000 reflect (i) accounts receivable
write-offs in excess of $3.0 million or (ii) goodwill write-offs in excess of $2
million, the exercise price of the Common Warrants will be reduced by the amount
of such excess and, if the excess exceeds the aggregate exercise of the Common
Warrant, the Company will pay the additional amount to TH Lee in cash or shares
of Common Stock.
The Company will use the proceeds of the sale of the Series B Preferred
primarily to meet certain of its net obligations under the Credit Agreement
dated September 24, 1999 between General Electric Capital Corporation ("GE"),
the Company's UST Delivery Systems, Inc. subsidiary ("CEDS") and others (the
"Credit Agreement"). The Credit Agreement was entered into in connection with
GE's financing of the Company's purchase of CEDS' same-day delivery business in
September 1999. The remainder of the proceeds will be used to settle outstanding
litigation and workers compensation claims and for working capital.
On May 15, 2000, the Company entered into agreements with GE, whereby
GE agreed to waive the Company's inability to comply with certain covenants
contained in the Credit Agreement and other matters in return for certain
commitments by the Company and the amendment of portions of the Credit
Agreement.
Historically, CEDS has billed for services provided by independent
contractors on a weekly basis but has accrued revenue for such services on the
day that delivery services are provided. The Company agreed with GE in the
Credit Agreement to discontinue such practices for purposes of calculating the
availability of its working capital credit facility. The May 15 agreement with
GE provides that after May 22, 2000, such unbilled accounts receivable will no
longer be eligible accounts for purposes of the working capital credit facility.
This adjustment will result in a temporary reduction of the availability of the
credit facility by approximately $11 million until such account receivables are
billed.
GE's May 15 agreement is conditioned upon the Company using its best
efforts to raise at least $15 million of new equity by May 16, 2000 and to use
$15 million and one-half of any additional amounts raised to reduce the
Company's outstanding borrowings under the Credit Agreement. Accordingly the
Company will apply approximately $20 million of the net proceeds of the TH Lee
investment to repay borrowings under the Credit Agreement. These repayments will
not reduce the aggregate credit availability under the Credit Agreement,
however. Following consummation of the TH Lee investment, the Company estimates
it will increase its availability under the Credit Agreement by approximately
$17.5 million.
In addition, GE and the Company amended the Credit Agreement in certain
respects in return for GE's agreement to waive the Company's inability as of
March 31, 2000, to meet targets for earnings before interest, taxes,
depreciation and amortization ("EBITDA") and for fixed charge coverage ratios.
In return for these waivers, the Company agreed to amend the Credit Agreement to
provide that it will implement its accounts receivable computer systems by July
7, 2000 (the Credit Agreement originally required that this be done by January
31, 2000) and to provide revised EBITDA targets.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits required by Item 601 of Regulation S-B:
Exhibit 10.1 Form of Subscription Agreement and Letter of Investment
Intent between the Company and investors in a private placement of
the Company's common stock in January 2000.
Exhibit 10.2 Form of Option issued to employee on May 11, 2000.
Exhibit 10.3 Restructuring Agreement dated January 31, 2000 between
the Company, UST Delivery Systems, Inc. and J. Iver & Company.
Exhibit 10.4 9% Convertible Subordinated Promissory Note in the
original principal amount of $1,690,000 issued by the Company to J.
Iver & Company dated April 25, 2000.
Exhibit 10.5 Warrant to purchase up to 15,000 shares of common stock
at a price of $12.925 per share issued by the Company to J. Iver &
Company dated April 25, 2000.
Exhibit 27 Financial Data Schedule.
b. Reports on Form 8-K
The registrant filed no Current Reports on Form 8-K for the quarter
ended April 1, 2000.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned; thereunto duly
authorized, in the City of Plymouth, State of Minnesota on May 16, 2000.
UNITED SHIPPING & TECHNOLOGY, INC.
By /s/ Peter C. Lytle
-------------------------------------
Peter C. Lytle
President and Chief Executive Officer
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
Exhibit 10.1 Form of Subscription Agreement and Letter of Investment Intent
between the Company and investors in a private placement of
the Company's common stock in January 2000.
Exhibit 10.2 Form of Option issued to employee on May 11, 2000.
Exhibit 10.3 Restructuring Agreement dated January 31, 2000 between the
Company, UST Delivery Systems, Inc. and J. Iver & Company.
Exhibit 10.4 9% Convertible Subordinated Promissory Note in the original
principal amount of $1,690,000 issued by the Company to J.
Iver & Company dated April 25, 2000.
Exhibit 10.5 Warrant to purchase up to 15,000 shares of common stock at a
price of $12.925 per share issued by the Company to J. Iver &
Company dated April 25, 2000.
Exhibit 27 Financial Data Schedule.
18
EXHIBIT 10.1
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, _____________________, desires to become a shareholder
of United Shipping & Technology, Inc. a Utah corporation (the "Company"), and
hereby subscribes for 666,667 shares (the "Shares") of the Company's common
stock, $0.004 par value (the "Common Stock") at a purchase price of $7.50 per
share, for the aggregate sum of $5,000,000.00.
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, 1999,
(ii) the Company's Form 10-QSB for the period ended October 2, 1999,
and (iii) the Company's Current Reports on Form 8-K filed October 8,
1999 (and as amended December 8, 1999) and November 12, 1999 and all
other relevant documents as filed with the Securities and Exchange
Commission;
(e) has been given access to full and complete information
regarding the Company and the various risk factors (including pending
litigation) pertaining to an investment in 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;
<PAGE>
(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 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."
2
<PAGE>
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 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 thereto or 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 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.
3
<PAGE>
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
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
4
<PAGE>
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 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
5
<PAGE>
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 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
6
<PAGE>
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.
(d) Transfer of Registration Rights. The registration rights
of Holder and any Holders under this Section 4 may be transferred to any
transferee of Registrable Securities that acquires at least 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,
7
<PAGE>
and is domiciled in, the State of Minnesota 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.
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
<PAGE>
8. Entities. If the undersigned is not an individual but an entity, the
individual signing on behalf of such entity and the entity jointly and severally
agree and certify that:
(a) The undersigned was not organized for the specific purpose of
acquiring the Shares; and
(b) This Agreement has been duly authorized by all necessary action on
the part of the undersigned, has been duly executed by an authorized
officer or representative of the undersigned, and is a legal, valid and
binding obligation of the undersigned enforceable in accordance with
its terms.
9. Miscellaneous.
(a) Manner in which title is to be held: (check one)
_____ Individual Ownership
_____ Joint Tenants with Right of Survivorship*
(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: January 18, 2000.
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
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 666,667 Shares.
UNITED SHIPPING & TECHNOLOGY, INC.
By
--------------------------
Peter C. Lytle
Its: Chief Executive Officer
11
EXHIBIT 10.2
UNITED SHIPPING & TECHNOLOGY, INC.
NON-STATUTORY
STOCK OPTION AGREEMENT
1. United Shipping & Technology, Inc., a Utah corporation (the
"Company"), hereby grants to ______________________ (the "Optionee"), an option
(the "Option") to purchase a total of Seventy Five Thousand (75,000) shares of
Common Stock (the "Shares"), at the price determined as provided in this
agreement (the "Agreement"). This Option shall not be awarded pursuant to the
Company's 1995 Stock Option Plan.
2. Nature of the Option. This Option is not intended to qualify as an
Incentive Stock Option as defined in Section 422 of the Code, but is instead a
Non-Statutory Stock Option as defined pursuant to the Plan.
3. Exercise Price. The exercise price for each share of Common Stock is
Four Dollars and Ninety Five Cents ($4.95) representing the fair market value
per share of the Common Stock on the date of grant.
4. Exercise of Option. This Option shall be exercisable during its term
as follows:
(i) Right to Exercise.
(a) This Option shall be exercisable immediately in
full.
(b) This Option may not be exercised for a fraction
of a share.
(c) In the event of Optionee's death or disability,
the exercisability of the Option is governed by Sections 7, 8 and 9 below.
(d) In no event may this Option be exercised after
the date of expiration of the term of this Option as set forth in Section 11
below.
(ii) Method of Exercise. This Option shall be exercisable by
written notice which shall state the election to exercise the Option, the number
of Shares in respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with respect
to such shares of Common Stock as may be required by the Company. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the exercise price. Until certificates for the Shares
are issued to the Optionee, such Optionee shall not have any rights as a
Shareholder of the Company.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
5. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as
<PAGE>
amended, at the time this Option is exercised, Optionee shall, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his
Investment Representation Statement in the form attached hereto as Exhibit A.
6. Method of Payment. Payment of the exercise price shall be by (i)
cash; (ii) check, bank draft or money order; (iii) if authorized by the Board of
Directors of the Company, by delivery of Common Stock or other securities of the
Company (valued at the fair market value thereof on the date of exercise) or
(iv) by delivery of a combination of cash and Common Stock or other securities.
The Committee may, in order to prevent any possible violation of law, require
the option price to be paid in cash.
7. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
8. Disability of Optionee. In the event of the complete or partial
mental or physical disability of the Optionee such that the Optionee is unable
by himself to make decisions affecting his rights under this Agreement,
including but not limited to the exercise of the Option, the Option may be
exercised (but in no event later than the date of expiration of the term of this
Option as set forth in Section 11 below), by the authorized legal representative
or guardian of the Optionee, and if no such legal representative or guardian has
been appointed, then the Company may petition any Court of competent
jurisdiction to appoint such representative or guardian prior to Company being
required to take any action hereunder.
9. Death of Optionee. In the event of the death of Optionee during the
term of this Option, the Option may be exercised, at any time within three (3)
years following the date of death (but in no event later than the date of
expiration of the term of this Option as set forth in Section 11 below), by
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent Optionee was entitled to
exercise the Option at the date of death.
10. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by him. The terms of
this Option shall be binding upon the Optionee and his or her personal
representatives, heirs, successors and assigns.
11. Term of Option. This Option may not be exercised after May 10,
2000, and may be exercised only in accordance with the Plan and the terms of
this Option.
12. Change in Control. In the event of a merger, consolidation,
acquisition of property or stock, or reorganization as a result of which the
Company is not the surviving corporation or upon a sale of substantially all the
property or stock of the Company to another corporation, the Company immediately
prior to any such transaction will cause a new option to be substituted for the
unexercised portion of all outstanding Options
<PAGE>
or cause such old Option to be assumed in its entirety, by the surviving or
purchasing corporation, or a parent or subsidiary of such corporation; and such
new or substituted option shall apply to all shares issued in addition to or in
substitution, replacement or modification of the Shares theretofore covered by
such Option.
13. Withholding Taxes. As a condition to the issuance of Shares of
Common Stock of the Company under this Option, the Optionee authorizes the
Company to withhold in accordance with applicable law from any regular cash
compensation payable to him any taxes required to be withheld by the Company
under federal or state law as a result of his exercise of this Option.
DATE OF GRANT: May 10, 2000
UNITED SHIPPING & TECHNOLOGY, INC.
By:
-----------------------------------------
Title: Chief Executive Officer and President
Optionee:
--------------------------------------------
Dated: May 10, 2000
Residence Address:
--------------------------------------------
--------------------------------------------
<PAGE>
EXHIBIT A
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: ___________
ISSUER: United Shipping & Technology, Inc.
SECURITY: COMMON STOCK
AMOUNT: 75,000
DATE: May 10, 2000
In connection with the purchase of the Common Stock ("Securities") of UNITED
SHIPPING & TECHNOLOGY, INC. (the "Company"), the undersigned represents to the
Company the following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act")
(b) I understand that the Securities have not been registered under
the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of my
investment intent as expressed herein. In this connection, I understand that, in
the view of the Securities and Exchange Commission (the "SEC"), the statutory
basis for such exemption may be unavailable if my representation was predicated
solely upon a present intention to hold these Securities for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or until an
increase or decrease in the market price of the Securities, or for a period of
one year or any other fixed period in the future.
(c) I further understand that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, I understand
that the Company is under no obligation to register the Securities. In addition,
I understand that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
(d) I am familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof, in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides
A-1
<PAGE>
that if the issuer qualifies under Rule 701 at the time of issuance of the
Securities, such issuance will be exempt from registration under the Securities
Act. In the event the Company later becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter the securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including among other things: (1) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934); and,
in the case of an affiliate, (2) the availability of certain public information
about the Company, and the amount of securities being sold during any three
month period not exceeding the limitations specified in Rule 144(e), if
applicable. Notwithstanding this paragraph (d), I acknowledge and agree to the
restrictions set forth in paragraph (e) hereof. In the event that the Company
does not qualify under Rule 701 at the time of issuance of the Securities, then
the Securities may be resold in certain limited circumstances subject to the
provisions of Rule 144, which requires among other things: (1) the availability
of certain public information about the Company, (2) the resale occurring not
less than two years after the party has purchased, and made full payment for,
within the meaning of Rule 144, the securities to be sold; and, in the case of
an affiliate, or of a non-affiliate who has held the securities less than three
years, (3) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934) and the amount of securities
being sold during any three month period not exceeding the specified limitations
stated therein, if applicable.
(e) I further understand that in the event all of the applicable
requirements of Rule 144 or Rule 701 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 and
Rule 701 are not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 or Rule 701 will
have a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their own
risk.
Signature of Purchaser:
----------------------------------
Date: May 10, 2000
A-2
EXHIBIT 10.3
RESTRUCTURING AGREEMENT
THIS AGREEMENT, is made as of the 31st day of January, 2000, by and
among UNITED SHIPPING & TECHNOLOGY, INC., a Utah corporation ("UST"), UST
DELIVERY SYSTEMS, INC., a Delaware corporation f/k/a Corporate Express Delivery
Systems, Inc. ("CEDS"), and J. IVER & COMPANY, a California corporation
("Iver").
RECITALS:
WHEREAS, CEDS has issued its $2,190,000 Convertible Subordinated
Note due 2000 dated December 7, 1995 payable to Iver (the "Note");
WHEREAS, the Note is convertible into Common Stock of Corporate
Express, Inc., the former parent corporation of CEDS;
WHEREAS, UST has acquired all the issued and outstanding capital
stock of CEDS from Corporate Express pursuant to a Merger Agreement dated as of
September 8, 1999; and
WHEREAS, the parties hereto desire to exchange the Note for a new
note of UST convertible into Common Stock of UST.
NOW, THEREFORE, in consideration of the foregoing, the parties
hereto hereby agree as follow:
1. Exchange of Note for New Note. On or before the date of Closing
(as defined in paragraph 8 hereof), UST will make a payment to Iver in the
amount of $500,000, plus all unpaid and accrued interest on the Note through the
date of such payment, calculated at the rate of 6% per annum through January 31,
2000, and 12% per annum from February 1, 2000 through the date of such payment,
such payments to be made by wire transfer of immediately available funds to an
account designated by Iver. Any interest accruing on the Note after the date of
such payments (calculated at the rate of 12% per annum) through the date of
Closing, shall be payable on the first interest payment date for the New Note
(as hereinafter defined). UST shall execute and deliver to Iver, in exchange for
the Note, a new 9% Convertible Subordinated Note in the principal amount of
$1,690,000 dated the date of Closing in the form of Exhibit A hereto (the "New
Note"). For purposes of Article Four of the New Note, Iver shall be deemed to
have submitted a Notice to Set Conversion Price as of February 1, 2000 as to the
entire principal and interest payable on the New Note. The maturity date of the
Note shall be deemed to be extended to the date of Closing and all defaults
thereunder are hereby waived, subject to consummation of the Closing.
<PAGE>
2. Warrant. UST will issue to Iver a Warrant in the form of Exhibit
B hereto (the "Warrant") to purchase 15,000 shares of Common Stock of UST at a
price of $12.925 per share, with the registration rights set forth in the
Warrant.
3. Sale of Assets. So long as the New Note remains outstanding, if
CEDS proposes to sell or shut down any of its existing delivery operations, CEDS
will promptly (and in any event prior to entering into any agreement with any
other party to purchase such operations) give Iver notice of such proposed sale
or shut-down. Iver agrees to keep confidential any information contained in such
notice prior to any public announcement of such proposed sale or closure by CEDS
or UST. CEDS will give Iver an equal opportunity along with other potential
buyers (but not a right of first refusal) to negotiate with CEDS and purchase
any such delivery operations that CEDS desires to sell. In the event Iver
acquires any such existing delivery operations from CEDS, CEDS will waive any
non-competition restrictions it may have against Iver (or its affiliates) as
such restrictions may relate to the operation of delivery operations in
competition with CEDS.
4. Payments Under Sublease. So long as both (a) the New Note remains
outstanding and (b) UST or any of its subsidiaries continue to lease and occupy
its San Diego, California facility, then (i) Iver will not be required to make
payments under the Sublease dated November 1, 1999 between CEDS, as landlord,
and Iver, as tenant, relating to CEDS' facility in San Diego, California and
rent otherwise payable after the Closing will be forgiven and not accumulated,
and (ii) CEDS will give Iver the use of an additional private office at the San
Diego, California facility rent free.
5. Payment of Legal and Accounting Fees. UST will reimburse Iver
upon submission of appropriate invoices for reasonable legal and accounting fees
and expenses incurred in connection with (i) review and negotiations relating to
the Note in connection with the acquisition of CEDS by UST and (ii) the review
and negotiation of this Agreement, the New Note and the Warrant.
6. Restrictions on Stock Sales. Notwithstanding anything in the New
Note or the Warrant to the contrary, in no event shall Iver sell more than
$600,000 of shares of UST Common Stock (calculated using the actual sales price
of the shares) obtained upon conversion of the New Note during any five (5) day
trading period. Except for the aforementioned restriction, and subject to
compliance with applicable securities laws and the other terms of this
Agreement, there shall be no restrictions imposed by UST on the sale of shares
obtained upon conversion of the New Note.
7. Representation and Warranties.
(a) The Company and UST represent and warrant to Iver as follows:
(i) UST is a corporation duly organized, validly existing and in
good standing under the laws of the State of Utah and has all the
requisite power and authority to carry on its business as presently
conducted and to execute, deliver and
-2-
<PAGE>
perform its obligations under this Agreement, the New Note and the Warrant
(collectively, the "Transaction Documents").
(ii) CEDS is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all the
requisite power and authority to carry on its business as presently
conducted and to execute, deliver and perform its obligations under the
Transaction Documents.
(iii) Each of the Transaction Documents to which UST is a party has
been duly authorized, executed and delivered by UST and constitutes a
legal, valid and binding obligation of UST enforceable against UST in
accordance with its terms, subject to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally, and subject, as to
enforceability, to general principles of equity.
(iv) Each of the Transaction Documents to which CEDS is a party has
been duly authorized, executed and delivered by CEDS and constitutes a
legal, valid and binding obligation of CEDS enforceable against CEDS in
accordance with its terms, subject to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally, and subject, as to
enforceability, to general principles of equity.
(v) No consent or action of, or filing or registration with, any
governmental or public regulatory body or authority is required to
authorize, or is otherwise required in connection with the execution,
delivery or performance by UST and CEDS of the Transaction Documents.
(vi) Neither the execution and delivery of the Transaction
Documents, nor the issuance and delivery of the Common Stock of UST upon
conversion of the New Note or exercise of the Warrant in accordance with
their terms, nor the fulfillment of or compliance with the terms and
provisions of the Transaction Documents by UST and CEDS, will (i) result
in the creation or imposition of any mortgage, lien, charge or encumbrance
of any nature whatsoever upon any of the properties or assets of UST or
CEDS, or (ii) violate or result in a breach or default under any of the
terms of the charter documents or by-laws of UST or CEDS, any material
contract or instrument to which UST or CEDS is a party or by which either
of them or their respective property is bound, or any law or regulation,
or any order, writ, injunction or decree of any court or government
instrumentality, to which UST or CEDS is subject or by which either of
them or their respective property is bound.
(vii) Neither UST or CEDS is an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(viii) The Common Stock of UST issued and delivered upon conversion
of the New Note and/or exercise of the Warrant in accordance with their
terms will be duly authorized, validly issued, and fully paid and
non-assessable.
-3-
<PAGE>
(b) Iver represents and warrants to the Company and UST as follows:
(i) Iver has been advised that the New Note and the Warrant
(collectively, the "Securities") are not being registered under the
Securities Act of 1933 (the "Act") or the relevant state securities laws
pursuant to exemptions from the Act and such laws, and that UST's and the
Company's reliance upon such exemptions is predicated in part on Iver's
representations to UST and the Company as contained herein.
(ii) Iver represents and warrants that the Securities are being
purchased for its own account and for investment and without the intention
of reselling or redistributing the same, that Iver has made no agreement
with others regarding any of such Securities and that its financial
condition is such that it is not likely that it will be necessary to
dispose of any of such Securities in the foreseeable future. Iver is aware
that, in the view of the Securities and Exchange Commission and applicable
state bodies that administer state securities laws, a purchase of
Securities 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 UST, the Company or their respective businesses, would
represent an intent inconsistent with the representations set forth above.
Iver represents and warrants that it is an "accredited investor" as
defined in Rule 501, of Regulation D under the Act.
(iii) Iver further represents and agrees that if, contrary to its
foregoing intentions, it should later desire to dispose of or transfer any
of such Securities in any manner, it shall not do so without first
obtaining (a) the opinion of counsel satisfactory to UST that such
proposed disposition or transfer lawfully may be made without the
registration of such Securities 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 and UST
shall not have any obligation to register the Securities for such purpose,
except insofar as the Securities require UST, in certain instances, to
register Common Stock.
(iv) Iver agrees that UST may place the following restrictive legend
on the certificate(s) representing the Securities, containing
substantially the following language:
"The Securities represented by this Certificate were
issued without registration under the Securities Act of
1933, as amended (the "Act") and without registration
under Minnesota or any other state's securities laws, in
reliance upon exemptions contained in the Act and such
laws. No transfer of these Securities 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.
-4-
<PAGE>
8. Conditions to Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") are subject to the following
conditions:
(i) Iver shall surrender the original Note to UST
(ii) UST shall execute and deliver the New Note to Iver.
(iii) UST will execute and deliver the Warrant to Iver.
(iv) Iver shall have received a favorable opinion of counsel to UST
and CEDS as to the matters set forth in Exhibit C hereto.
9. Indemnification. The following provisions shall apply to any
registration of Common Stock pursuant to the terms of the Securities:
(a) UST will indemnify and hold harmless Iver and each person, if
any, who controls Iver within the meaning of the Act against any losses, claims,
damages or liabilities, joint or several, to which Iver or such controlling
person may become subject, under the Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any part of any Registration Statement relating to the Common
Stock issuable upon conversion or exercise of the Securities, when such part
became effective, any preliminary prospectus or preliminary prospectus
supplement, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and will reimburse Iver and each such controlling person
for any legal or other expenses reasonably incurred by Iver or such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that UST will not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any of such documents in reliance upon
and in conformity with written information furnished to UST by Iver specifically
for use therein. This indemnity agreement will be in addition to any liability
which UST may otherwise have.
(b) Iver will indemnify and hold harmless UST, each of its
directors, each of its officers who have signed any Registration Statement, and
each person, if any, who controls UST within the meaning of the Act, against any
losses, claims, damages, or liabilities to which UST or any such director,
officer, or controlling person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any part of any Registration
Statement relating to the Common Stock issuable upon conversion or exercise of
the Securities, when such part became effective, any preliminary prospectus or
preliminary prospectus supplement, the Prospectus, or any amendment or
supplement thereto, or arise out of or are
-5-
<PAGE>
based upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to UST by
Iver specifically for use therein; and will reimburse any legal or other
expenses reasonably incurred by UST or any such director, officer, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, or action. This indemnity agreement will be in
addition to any liability which Iver may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability that it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party (who shall not, without the consent of the indemnified party, be counsel
to the indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. An indemnifying party shall not be liable for any
settlement of a claim or action effected without its written consent, which
shall not be unreasonably withheld.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party for any loss,
claim, damage, liability, or action described in subsection (a) or (b) above,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of the losses, claims, damages or liabilities
referred to in subsection (a) or (b) above on the following basis: (1) if such
loss, claim, damage, liability, or action arises under subsection (a) above,
then (i) in such proportion as is appropriate to reflect the relative benefits
received by UST on the one hand and Iver on the other from the offering of the
Common Stock issuable upon conversion or exercise of the Securities or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of UST on the one
hand and Iver on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities as well as any other
relevant equitable consideration; and (2) if such loss, claim, damage,
liability, or action arises under subsection (b) above, then in such proportion
as is appropriate to reflect the relative fault of Iver on the one hand and UST
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities as well as any other relevant
equitable
-6-
<PAGE>
considerations. For the purposes of clause (1) above, the relative benefits
received by UST on the one hand and Iver on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by UST bear to the total net proceeds from the
offering (before deducting expenses) received by Iver. For the purposes of
clauses (1) and (2) above, the relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by UST or Iver and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
10. Notices. All notices to be given under this Agreement shall be
in writing and shall be sent by (i) first class U.S. mail, postage prepaid, (ii)
overnight courier, or (iii) facsimile (with a copy by overnight courier) to:
In the case of UST and CEDS:
United Shipping & Technology, Inc.
9850 51st Avenue North, Suite 110
Minneapolis, Minnesota 55442
Facsimile: 612-941-6440
Attention: Timothy Becker
With a copy to:
Daniel J. Amen
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Facsimile: 612-336-3026
In the case of Iver:
Jeffrey Rhodes
P.O. Box 9030
6155 Avenida Quatro Vientos
Ranch Santa Fe, California 92067
Facsimile: 858-569-4411
-7-
<PAGE>
With a copy to:
Cheryl A. Ikegami
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-2202
Facsimile: 602-382-6070
11. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective executors, heirs,
successors, and permitted assigns.
12. Amendment, Modification or Waiver. No amendment, modification or
waiver of any condition, provision or term of this Agreement shall be valid or
of any effect unless made in writing, signed by the party or parties to be bound
or such party's duly authorized representative and specifying with particularity
and nature and extent of such amendment, modification or wavier. Any waiver by
any party of any default of another party shall not affect or impair any right
arising from any subsequent default. Nothing herein shall limit the remedies and
rights of the parties hereto under this Agreement.
13. Severability. To the extent any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect.
14. Entire Agreement. This Agreement and the documents referred to
herein contain the entire understanding of the parties in respect of the
transactions contemplated and supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
15. Captions. All captions in the Sections of this Agreement are
inserted for convenience of reference only and shall not constitute a part of
this Agreement or act as a limitation of the scope of the particular Sections to
which they apply.
16. Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be considered one and the same Agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other.
17. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above-written.
UNITED SHIPPING &
TECHNOLOGY, INC.
By:
--------------------------------------
Its:
------------------------------------
UST DELIVERY SYSTEMS, INC.
By:
--------------------------------------
Its:
------------------------------------
J. IVER & COMPANY
By:
--------------------------------------
Jeffrey Rhodes, President
-9-
EXHIBIT 10.4
UNITED SHIPPING & TECHNOLOGY, INC.
$1,690,000
9% CONVERTIBLE SUBORDINATED NOTE
DATED AS OF APRIL 25, 2000
----------------------------
THE SECURITIES REPRESENTED HEREBY WERE NOT ISSUED IN A TRANSACTION REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR ANY
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED HEREBY HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR
TRANSFER IS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND APPLICABLE STATE SECURITIES LAWS OR, IN THE OPINION OF COUNSEL TO THE
ISSUER, IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
SUCH LAWS.
----------------------------
United Shipping & Technology, Inc., a Utah corporation (herein called
the "Company"), for value received, hereby promises, subject to the provisions
of Section 401 hereof, to pay to J. Iver & Company or its assigns the aggregate
principal sum of One Million Six Hundred Ninety Thousand Dollars ($1,690,000) in
such coin or currency of the United States of America as at the time of payment
shall be legal tender for the payment of public and private debts, and to pay to
the registered holder hereof interest from the date hereof on said principal
sum, in like coin and currency, at a rate per annum of nine percent (9%)
calculated on the basis of a 360-day year of twelve 30-day months. The principal
amount of and interest on this Note shall be payable in consecutive, combined
monthly installments of principal and interest, each in an amount equal to
$200,000 (or such lesser amount if less than $200,000 of unpaid principal and
accrued interest is outstanding on this Note), payable on the first day of each
month, commencing May 1, 2000 (each such installment to be applied to the
payment of accrued interest on the unpaid principal and the remainder to be
applied to principal), and continuing until all principal and interest is paid
or otherwise provided for.
All payments shall be made at the office of the Company in the City of
Minneapolis, Minnesota; provided, however, that payment of principal and
interest may be made at the option of the registered holder by wire transfer of
funds to such bank account in the United States as shall be designated in
writing to the Company by the registered holder hereof or by
<PAGE>
check mailed to the address of the person entitled thereto as such address shall
appear in the Note Register maintained by the Company.
This Note may be prepaid, in whole or in part, at any time by the
Company, without premium.
In the event any payment of principal and interest on this Note is not
paid within three (3) days after the date such payment was due (whether by
regular installment, by acceleration, at maturity, or otherwise) the principal
amount of this Note shall thereafter bear interest at the rate of 15% per annum
until such overdue payment is made.
ARTICLE ONE
Defined Terms
SECTION 101. Defined Terms. Unless the context otherwise requires,
capitalized terms used herein shall be defined in Article Ten.
ARTICLE TWO
General Provisions
SECTION 201. Mutilated, Destroyed, Lost or Stolen Note. If this Note is
mutilated, destroyed, lost or stolen, the Company shall execute and deliver a
new Note, in exchange and substitution for the mutilated Note or in lieu of and
in substitution for the destroyed, lost or stolen Note. In such case, the
Noteholder shall furnish to the Company such security or indemnity as may be
required by it to save the Company harmless, and, in every case of destruction,
loss or theft the Noteholder shall also furnish to the Company evidence to its
satisfaction of the destruction, loss or theft of this Note and of the ownership
thereof.
SECTION 202. Exchange and Registration of Notes. This Note may be
exchanged by surrender hereof at the office of the Company maintained for that
purpose in accordance with the provisions of Section 503, and the Company shall
execute and deliver in exchange herefor the Note or Notes which the Noteholder
making the exchange shall be entitled to receive.
The Company shall keep or cause to be maintained at said office a
register (herein sometimes referred to as the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall register
this Note.
ARTICLE THREE
[Reserved]
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<PAGE>
ARTICLE FOUR
Conversion of Note
SECTION 401. Conversion Right and Conversion Price. Subject to and upon
compliance with the provisions of this Article Four, the registered holder
hereof shall have the right and option to convert all or any part of the
outstanding principal amount of and accrued interest on this Note, in increments
of not less than $200,000 or, if less, the remaining balance of principal and
interest on this Note, at any time that there is a conversion price in effect
pursuant to a Notice to Set Conversion Price delivered in accordance with the
following paragraph into that number of fully-paid and nonassessable shares
(calculated as to such conversion to the nearest 1/100th of a share) of common
stock, par value $.004 per share of the Company, obtained by dividing the
outstanding principal amount of, and accrued interest on this Note (or portion
thereof surrendered for conversion) by the conversion price in effect at the
time of conversion, upon surrender of the Note accompanied by (i) a duly
executed Notice of Conversion (in the form attached as Exhibit A hereto) during
usual business hours at the office or agency to be maintained by the Company in
accordance with the provisions of Section 503 and (ii) a written instrument or
instruments of transfer in form satisfactory to the Company duly executed by the
holder or the holder's attorney duly authorized in writing; provided that in no
event shall the aggregate number of shares of common stock of the Company into
which this Note may be converted equal or exceed 20% of the aggregate number of
shares of common stock of the Company outstanding on the date hereof.
Unless adjusted as set forth in Section 403 below, the price at which
shares of Common Stock shall be delivered upon conversion of all or any part of
this Note (herein called the "conversion price") shall be the average closing
sale price per share of the Common Stock for the twenty (20) trading days
immediately preceding the date of a Notice to Set Conversion Price in the form
of Exhibit B hereto, executed by the holder of this Note and delivered on the
same day by fax to the Company (with an original by overnight courier). The
conversion price established pursuant to any Notice to Set Conversion Price
shall remain in effect until the earlier of (i) a date 150 days following the
date of the Notice to Set Conversion Price, or (ii) the execution and delivery
by the holder hereof of a superseding Notice to Set Conversion Price. A Notice
to Set Conversion Price or any superseding Notice to Set Conversion Price may be
given at any time as to all or any portion of this Note. Multiple conversion
prices may be in effect for different portions of this Note at any time.
The delivery of one or more Notices to Set Conversion Price shall not
relieve the Company from its obligation to continue to make payments of
principal and interest on this Note as otherwise required under any of the
provisions hereof. In the event that any such payments reduce the outstanding
balance of this Note to an amount less than the amount described in any Notice
to Set Conversion Price, then (i) if there is only one Notice to Set
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<PAGE>
Conversion Price in effect, the amount available to be converted under the
Notice to Set Conversion Price shall be reduced to the total outstanding balance
of principal and interest in this Note and (ii) if more than one Notice to Set
Conversion Price is then in effect, the amounts available to be converted under
each such Notice shall be reduced proportionately.
SECTION 402. Issuance of Common Stock on Conversion. (a) Within two (2)
business days after the surrender of this Note or any portion thereof for
conversion, the Company shall deliver or cause to be delivered at its said
office or agency, to or upon the written order of the holder hereof,
certificates representing the number of fully paid and nonassessable shares of
Common Stock of the Company into which this Note or portion thereof surrendered
for conversion may be converted in accordance with the provisions of this
Article Four. Such conversion shall be deemed to have been made at the close of
business on the date that this Note or portion thereof shall have been
surrendered for conversion with a Notice of Conversion duly executed, so that
the rights of the Noteholder shall cease at such time and, subject to the
following provisions of this paragraph, the person or persons entitled to
receive the shares of Common Stock upon conversion of this Note or portion
thereof shall be treated for all purposes as having become the record holder or
holders of such shares of Common Stock at such time and such conversion shall be
at the conversion price or prices in effect at such time; provided, however,
that no such surrender on any date when the stock transfer books of the Company
shall be closed shall result in the person or persons entitled to receive the
shares of Common Stock upon such date, and such person or persons shall become
record holders of such shares of Common Stock for all purposes at the close of
business on the next succeeding day on which such stock transfer books are open;
and, in that event such conversion shall be at the conversion price or prices in
effect on the date that this Note shall have been surrendered for conversion, as
if the stock transfer books of the Company had not been closed. Unless the
entire outstanding amount of principal and interest on the Note has been
converted into Common Stock, the Company shall issue to the holder hereof a new
Note of like tenor and terms for the remaining principal balance due after such
conversion.
(b) No fractional shares of Common Stock shall be issued upon
conversion of this Note. In lieu of any fractional share of Common Stock which
would otherwise be issuable upon conversion of this Note (or specified portions
thereof), the Company shall pay a cash adjustment in respect of such fraction in
an amount equal to such fraction multiplied by the closing sale price per share
of Common Stock on the date of conversion.
SECTION 403. Adjustments of Conversion Price. The conversion price or
prices in effect at any time shall be subject to adjustments from time to time
on or after the date of the applicable Notice to Set Conversion Price and prior
to the expiration thereof or the issuance of a superseding Notice to Set
Conversion Price as follows:
(i) If the Company shall (A) declare a dividend or make a
distribution payable in Common Stock on the Common Stock, (B) subdivide
or reclassify its outstanding shares of Common Stock into a greater
number of shares, or (C) combine its outstanding shares of Common Stock
into a smaller number of shares, the
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conversion price in effect at the time of the record date for such
dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately reduced in the
case of any increase in the number of shares of Common Stock
outstanding, and increased in the case of any reduction in the number
of shares of Common Stock outstanding, so that the Noteholder shall be
entitled to receive the kind and amount of shares which he would have
owned or have been entitled to receive had this Note been converted
into Common Stock immediately prior to such time and had such Common
Stock received such dividend or other distribution or participated in
such subdivision, combination or reclassification. Such adjustment
shall be effective as of the record date for such dividend or
distribution or the effective date of such combination, subdivision or
reclassification and shall be made successively whenever any event
listed above shall occur. If, as a result of an adjustment made
pursuant to this Section 403(i), the holder of this Note thereafter
surrendered for conversion shall become entitled to receive shares of
two or more classes of the capital stock of the Company, the Board of
Directors of the Company (whose determination shall be conclusive if
made in good faith and shall be described in a statement provided to
the registered holder of this Note) shall in good faith determine the
allocation of the conversion price between and among shares of such
classes of capital stock.
(ii) If (A) the Company shall issue rights or warrants to all
holders of its Common Stock entitling them (for a period expiring
within 45 days of the date fixed for the determination of stockholders
entitled to receive such rights or warrants) to subscribe for or
purchase shares of Common Stock at a price per share less than the
Current Market Price (as defined in paragraph (iv) below) of the Common
Stock, on the date fixed for the determination of stockholders entitled
to receive such rights or warrants (the "Determination Date"), and (B)
such rights or warrants are not issuable in respect of the shares of
Common Stock issuable upon conversion of this Note, then the conversion
price at the opening of business on the day following the Determination
Date shall be reduced by multiplying the conversion price by a fraction
of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the Determination Date plus the
number of shares of Common Stock which the aggregate of the offering
price of the total number of shares of Common Stock so offered for
subscription or purchase would purchase at such Current Market Price of
the Common Stock and the denominator shall be the number of shares of
Common Stock outstanding at the close of business on the Determination
Date plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to become effective
immediately after the opening of business on the day following the
Determination Date. For purposes of determining under this paragraph
the number of shares of Common Stock outstanding at any time, there
shall be excluded all shares of Common Stock held in the treasury of
the Company. If any or all such rights or warrants are not so issued or
expire or terminate before being exercised, the conversion price then
in effect shall be appropriately readjusted, but such readjustment
shall not be applied retroactively to any conversion hereof effected
prior to such readjustment.
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(iii) If (A) the Company shall distribute to all holders of
its Common Stock evidences of its indebtedness or assets (including
securities, but excluding cash dividends or a distribution referred to
in paragraph (i) above or paid out of surplus) or rights or warrants to
subscribe for or purchase any of the Company's securities (excluding
those referred to in clause (A) of paragraph (ii) above), and (B) such
evidences of indebtedness, assets, rights or warrants are not issuable
in respect of shares of Common Stock issuable upon conversion of this
Note, then the conversion price shall be adjusted so that it shall
equal the price determined by multiplying the conversion price in
effect immediately prior to the close of business on the date fixed for
the determination of stockholders entitled to receive such distribution
by a fraction of which the numerator shall be the Current Market Price
per share of the Common Stock on the date fixed for such determination
less the then fair market value (as determined by the Board of
Directors of the Company, in good faith and in the exercise of its
reasonable business judgment and described in a resolution of the Board
of Directors certified by the Secretary or Assistant Secretary), of the
portion of the assets or evidences of indebtedness so distributed
applicable to one share of Common Stock and the denominator shall be
such Current Market Price per share of the Common Stock; provided,
however, if exercise of such right or warrant is subject to the
occurrence of a contingent event, adjustment of the conversion price
shall be made in the manner provided for in paragraph (ii) above and
the date that the right or warrant becomes exercisable shall be deemed
to be the Determination Date for purposes of such adjustment. The
conversion price adjustment made pursuant to this paragraph (iii) shall
become effective immediately prior to the opening of business on the
day following the date fixed for the determination of stockholders
entitled to receive such distribution (except in the case of rights or
warrants subject to exercise upon the occurrence of a contingent event,
in which case such adjustment shall become effective at the time such
rights or warrants become exercisable).
(iv) For the purposes of this Article Four, the "Current
Market Price" per share of Common Stock on any date shall be deemed to
be the average of the last reported sale prices for the ten (10)
consecutive Trading Days (as defined below) next preceding the day in
question. The last reported sale price for each day shall be (i) the
last reported sale price of Common Stock on the New York Stock Exchange
or any similar system of automated dissemination of quotations of
securities prices then in common use, if so quoted, or (ii) if not
quoted as described in clause (i), the mean between the high bid and
low asked quotations for Common Stock as reported by the National
Quotation Bureau Incorporated if at least two securities dealers have
inserted both bid and asked quotations for such class of stock on at
least 5 of the 10 preceding days, or (iii) if the Common Stock is
listed or admitted for trading on any national securities exchange, the
last sale price, or the closing bid price if no sale occurred, of such
class of stock on the principal securities exchange on which such class
of stock is listed. If the Common Stock is quoted on a national
securities or central market system, in lieu of a market or quotation
system described above, the closing price shall be determined in the
manner set forth in clause (ii) of the preceding sentence if bid and
asked quotations are reported but actual transactions are not, and in
the
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manner set forth in clause (iii) of the preceding sentence if actual
transactions are reported. If none of the conditions set forth above is
met, the closing price of Common Stock on any day or the average of
such closing prices for any period shall be the fair market value of
such class of stock as determined in good faith in the exercise of
their reasonable business judgment by the Board of Directors of the
Company. As used herein the term "Trading Days" with respect to Common
Stock shall mean (i) if the Common Stock is quoted on the New York
Stock Exchange or any similar system of automated dissemination of
quotations of securities prices, days on which trades may be made on
such system or (ii) if the Common Stock is listed or admitted for
trading on any national securities exchange days on which such national
securities exchange is open for business.
(v) All calculations under this Section 403 shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the
case may be.
(vi) No adjustment in the conversion price shall be required
pursuant to any paragraph of this Section 403 unless such adjustment
(together with prior adjustments which by reason of this paragraph (vi)
were not required to be made at the time otherwise required by the
above paragraphs of this Section 403) would require a change of at
least 1 % in such price; provided, however, that any adjustments which
by reason of this paragraph (vi) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
SECTION 404. Certain Notices and Calculations. Whenever the conversion
price is adjusted as provided in Section 403, the Company shall promptly deliver
to the Noteholder an Officers' Certificate setting forth the conversion price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment and the computation thereof, which Officers' Certificate shall
be conclusive evidence of the correctness of any such adjustment.
SECTION 405. Effect of Consolidation, Merger, etc. (a) In case of any
consolidation or merger of the Company with and into any other corporation
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock), or in case of
any sale or transfer of all or substantially all of the assets of the Company,
or the reclassification of the Common Stock into another form of capital stock
of the Company, whether in whole or in part, this Note shall thereafter be
convertible, in lieu of the shares of Common Stock otherwise purchasable and
receivable upon conversion of this Note, into the kind and amount of shares of
stock and other securities and property or cash (including, if applicable,
Common Stock) which the holder would have been entitled to receive upon such
consolidation, merger, sale, transfer or reclassification if he had held the
Common Stock issuable upon the conversion of this Note immediately prior to such
consolidation, merger, sale, transfer, or reclassification. Notwithstanding the
foregoing, if the holders of Common Stock in any such consolidation, merger,
sale, transfer or reclassification are afforded an election or are otherwise
permitted or required to exchange such shares for two or more alternate forms of
consideration, then the holder of this Note
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shall after such consolidation, merger, sale, transfer or reclassification have
the right to convert this Note into the kind and amount of shares of stock and
other securities and property or cash (including, if applicable, Common Stock)
into or for which the Common Stock issuable upon conversion of this Note would
have been converted or exchanged as a result of such consolidation, merger,
sale, transfer or reclassification if held by a holder of Common Stock who
failed to exercise such rights of election (provided that if the kind and amount
of shares of stock and other securities and property or cash receivable upon
such consolidation, merger, sale, transfer or reclassification is not the same
for each share of Common Stock in respect of which such rights of election shall
not have been exercised ("non-electing share"), then for the purpose of this
Section 405(a), the kind and amount of shares of stock and other securities and
property or cash receivable upon such consolidation, merger, sale, transfer or
reclassification in respect of each non-electing share shall be deemed to be the
kind and amount so receivable per share by a plurality of the non-electing
shares).
(b) The above provisions of this Section 405 shall similarly apply to
successive reclassification and changes of shares of Common Stock of the Company
and to successive consolidations, mergers, sales. transfers, or
reclassifications.
SECTION 406. Reserves. The Company covenants that it will at all times
reserve and keep available, free from pre-emptive rights, out of its authorized
but unissued Common Stock, solely for the purpose of issue upon conversion of
this Note as herein provided, such number of shares of Common Stock as shall
then be issuable upon the conversion of this Note. The Company covenants that
all shares of Common Stock which shall be so issuable shall, upon issuance, be
duly and validly issued and fully paid and non-assessable. The Company shall
from time to time, in accordance with applicable law, increase the authorized
amount of its Common Stock if at any time the authorized amount of its Common
Stock remaining unissued shall not be sufficient to permit the conversion of all
Notes at the time outstanding.
SECTION 407. Certain Covenants. (a) Before taking any action which
would cause an adjustment reducing the conversion price below the then stated or
par value of the shares of Common Stock issuable upon conversion of this Note,
the Company will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and non-assessable shares of such Common Stock at such adjusted
conversion price.
(b) The Company covenants that if any shares of Common Stock required
to be reserved for purposes of conversion of this Note require registration with
or approval of any governmental authority under any Federal or State law, or
listing upon any national securities exchange, before such shares may be issued
upon conversion, the Company will in good faith and as expeditiously as possible
endeavor to cause such shares to be duly registered, approved or listed, as the
case may be. The covenant is in addition to the covenant of the Company in
Section 504 to issue shares of Common Stock which have been registered for
public resale under the Act.
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SECTION 408. Taxes Upon Conversion. The issuance of certificates for
shares of Common Stock upon the conversion of this Note shall be made without
charge to the converting Noteholder for any tax in respect of the issuance of
such certificates, and such certificates shall be issued in the respective names
of, or in such names as may be directed by, the holder of this Note; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate in a name other than that of the holder of this Note, and the
Company shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid; and provided, further, that in no
event shall the Company be required to pay or reimburse the holder for any
income tax payable by such holder as a result of such issuance.
SECTION 409. Certain Notices. In case:
(i) the Company shall authorize the distribution to all
holders of its Common Stock of evidences of its indebtedness or assets
(other than cash dividends or other cash distributions paid out of
surplus); or
(ii) the Company shall authorize the granting to all holders
of its Common Stock of rights or warrants to subscribe for or purchase
any shares of capital stock or any class or of any other rights; or
(iii) of any reclassification of the capital stock of the
Company (other than a subdivision or combination of its outstanding
shares of Common Stock), or of any consolidation or merger to which the
Company is a party and for which approval of any stockholders of the
Company is required, or of the sale, lease or transfer of all or
substantially all of the property of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in each case, the Company shall cause to be mailed, to the holder hereof
at such holder's last address as the same appears on the Note Register, at least
20 days prior to the applicable record or effective date hereinafter specified,
a notice stating (x) the date on which a record is to be taken for the purpose
of such dividend, distribution, rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution, rights or warrants are to be determined, or (y)
the date on which such reclassification, consolidation, merger, sale, lease,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reclassification, consolidation, merger,
sale, lease, transfer, dissolution, liquidation or winding up.
SECTION 410. Common Stock Defined. Whenever reference is made in this
Article Four to the issue or sale of shares of Common Stock, the term "Common
Stock" shall
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include only shares of the class designated as Common Stock, $.004 par value, of
the Company at the date hereof or shares of any class or classes resulting from
any reclassification or reclassifications thereof and which have no preference
in respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company and which are
not subject to redemption by the Company; provided, that if at any time there
shall be more than one such resulting class, the shares of each such class then
so deliverable shall be substantially in the proportion which the total number
of shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
ARTICLE FIVE
Particular Covenants of the Company
SECTION 501. Payment of Principal and Interest on Note. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and the interest on this Note at the place, at the respective
times and in the manner provided herein.
SECTION 502. Prepayments. (a) Mandatory. In the event that after the
date hereof, the Company receives (net of fees, commissions and expenses) cash
proceeds from the issuance of its Common Stock in the amount of $15,000,000 or
more in any single transaction or related series of transactions, the Company
shall prepay this Note in the amount at least equal to 50% of the outstanding
principal amount of, and accrued interest on this Note on the date that is later
of (i) the business day following the expiration of the notice period
contemplated in Section 502(c) or (ii) fifteen (15) days after the receipt of
such cash proceeds.
(b) Voluntary. The Company may at any time prepay all or part
of the outstanding principal of and interest on this Note, without
premium or penalty.
(c) Notice. Within five (5) days of receipt of cash proceeds
(as provided in Section 502 (a)(ii)), the Company shall give the holder
of this Note notice of such receipt. The Company shall give the holder
of this Note at least 10 business days notice prior to any prepayment
pursuant to Section 502(a) or (b), which notice may be waived by the
holder of this Note.
SECTION 503. Office for Notices and Payments, etc. So long as this Note
remains outstanding, the Company will maintain in the City of Minneapolis,
Minnesota, an office or agency where this Note may be presented for payment, an
office or agency where this Note may be presented for registration of transfer
or exchange or for conversion as herein provided, and an office or agency where
notices and demands to or upon the Company in respect of this Note may be
served. Until otherwise designated by the Company in a written notice such
offices or agencies shall be the offices of the Company.
SECTION 504. Common Stock issued to be Registered for Resale. Within
sixty (60) days following the date of this Note, the Company shall either (i)
have an effective
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registration statement on file with the Securities and Exchange Commission
covering the shares of Common Stock to be issued upon conversion of this Note,
or (ii) have made arrangements for a buyer to purchase such shares at the
current market price within two (2) business days after this Note is surrendered
for conversion. Solely for purposes of clause (i) of the preceding sentence, the
number of shares of Common Stock issuable upon conversion of this Note shall be
deemed to be 338,000, less the number of shares of Common Stock previously sold
pursuant to clause (i) or (ii) immediately above; provided, that, if at any time
the shares registered under such registration statement are less than one
hundred twenty percent (120%) of the number of shares of Common Stock into which
the outstanding principal and accumulated interest of this Note is then
convertible, the Company shall promptly amend such registration statement or
file a new registration statement such that upon the effectiveness of the
amended or new registration statement there shall be at least that number of
shares registered under such registration statement which is equal to one
hundred twenty percent (120%) of the number of shares of Common Stock into which
the outstanding principal and accumulated interest of this Note is then
convertible. If the holder of this Note delivers a Conversion Notice after sixty
(60) days following the date of this Note, and neither of such resale options
are available, the Company shall within one (1) business day notify the holder
of this Note thereof. Following receipt of such notice from the Company, (i) if
the holder of this Note within one (1) business day confirms in writing its
desire to convert this Note in accordance with the Conversion Notice, then this
Note will be converted in accordance with the provisions of Article IV hereof,
or (ii) if such confirmation is not received, this Note will not be converted
and, in either such event, the then outstanding principal amount of this Note
would be increased by the following percentages:
(i) 10% if the Conversion Notice is received more than sixty
(60) days, but not more than ninety (90) days after the date of this
Note;
(ii) 15%, less the percentage amount of any prior adjustments
under this Section 504, if the Conversion Notice is received more than
ninety (90) days, but not more than one hundred twenty (120) days after
the date of this Note;
(iii) 20%, less the percentage amount of any prior adjustments
under this Section 504, if this Conversion Notice is received more than
one hundred twenty (120) days, but not more than one hundred fifty
(150) days after the date of this Note;
(iv) 25%, less the percentage amount of any prior adjustments
under this Section 504, if the Conversion Notice is received more than
one hundred fifty (150) days, but not more than one hundred eighty
(180) days after the date of this Note; and
(v) 50%, less the percentage amount of any prior adjustments
under this Section 504, if the Conversion Notice is received more than
one hundred eighty (180) days after the date of this Note;
provided, however, that only one such adjustment will be made during each period
described in clause (i) through (v) above.
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ARTICLE SIX
Immunity of Incorporators, Stockholders,
Officers and Directors
SECTION 601. Note Solely Corporate Obligation. No recourse for the
payment of the principal of or interest on this Note, or for any claim based
hereon or otherwise in respect hereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in this Note or in any
supplemental debenture, or because of the creation of any indebtedness
represented hereby, shall be had against any incorporator, stockholder, officer
or director, as such, past, present or future, of the Company or of any
successor corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute, or rule of law, or
by the enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Note.
ARTICLE SEVEN
Remedies in Event of Default
SECTION 701. Event of Default. In case one or more of the following
Events of Default shall have occurred and be continuing:
(a) default in the payment (whether or not prohibited by the
provisions of Article Eight) of any installment of interest and
principal upon this Note as and when the same shall become due and
payable, either at maturity, by declaration or otherwise, and
continuance of such default for a period of 10 days; or
(b) default in the issuance of Common Stock upon conversion as
provided in Section 402, and continuance of such default for a period
of 15 days; or
(c) failure on the part of the Company duly to observe or
perform any covenants or agreements (other than a covenant or agreement
the breach or a default in the performance of which is elsewhere in
this Section 701 specifically dealt with) on the part of the Company in
the Note contained for a period of 60 days after the date on which
written notice (such written notice to state it is a "Notice of
Default" hereunder) of such failure, requiring the Company to remedy
the same, shall have been given to the Company and each holder of any
Senior Indebtedness and each person or entity committed or obligated to
issue or fund any Senior Indebtedness (provided that such holder,
person or entity has previously given the holder hereof written notice
to the effect that it is a holder of Senior Indebtedness or a person or
entity committed or obligated to issue or fund Senior Indebtedness (as
the case may be) and that such holder, person or entity requests that
he or it be given any such notice) by the holder hereof; or
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(d) the Company or any of its Subsidiaries defaults in any
payment of principal of or interest on any other obligation for
borrowed money beyond any period of grace provided with respect thereto
or in the performance of any other agreement, term or condition
contained in any agreement under which any such obligation is created
if the effect of such default is to cause, or permit the holder or
holders of any obligation or obligations of the Company or any of its
Subsidiaries in excess of $1,000,000 in the aggregate (or a trustee on
behalf of such holder or holders) to cause, such obligation or
obligations to become due prior to their stated maturity; or
(e) without the consent of the Company or any of its
Subsidiaries, a court having jurisdiction shall enter an order for
relief with respect to the Company or any of its Subsidiaries under the
Bankruptcy Code or without the consent of the Company or any of its
Subsidiaries a court having jurisdiction shall enter a judgment, order
or decree adjudging the Company or any of its Subsidiaries, a bankrupt
or insolvent, or enter an order for relief for reorganization,
arrangement, adjustment or composition of or in respect of the Company
or any of its Subsidiaries under the Bankruptcy Code or applicable
state insolvency law and the continuance of any such judgment, order or
decree unstayed and in effect for a period of 90 consecutive days; or
(f) the Company or any of its Subsidiaries shall institute
proceedings for entry of an order for relief with respect to the
Company or any of its Subsidiaries under the Bankruptcy Code or for an
adjudication of insolvency, or shall consent to the institution of
bankruptcy or insolvency proceedings against it, or shall file a
petition seeking, or seek or consent to reorganization, arrangement,
composition or relief under the Bankruptcy Code or any applicable state
law, or shall consent to the filing of such petition or to the
appointment of a receiver, custodian, liquidator, assignee, trustee,
sequestrator or similar official (other than a custodian pursuant to 8
Delaware Code Section 226 or any similar statute under other state
laws) of the Company or any of its Subsidiaries or of substantially all
of its property, or the Company or any of its Subsidiaries shall make a
general assignment for the benefit of creditors as recognized under the
Bankruptcy Code;
then and in each and every such case, unless the principal of this Note shall
have already become due and payable, (i) in the case of an Event of Default
under subclause (e) or (f) of this Section 701, the principal of this Note and
all accrued interest shall become immediately due and payable without any
further action on the part of the holder hereof and (ii) in each other case, the
holder hereof, by notice in writing to the Company and each holder of any Senior
Indebtedness and each person or entity committed or obligated to issue or fund
any Senior Indebtedness (provided that such holder, person or entity has
previously given the holder hereof written notice to the effect that it is a
holder of Senior Indebtedness or a person or entity committed or obligated to
issue or fund Senior Indebtedness (as the case may be) and that such holder,
person or entity requests that he or it be given any such notice), may declare
the principal of this Note and any accrued interest to the date of declaration
to be due
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and payable immediately, and in either such case the same shall become and shall
be immediately due and payable, anything in this Note to the contrary
notwithstanding.
SECTION 702. Remedies Cumulative and Continuing. All powers and
remedies given by this Article Seven to the Noteholder shall, to the extent
permitted by law, be deemed cumulative and not exclusive of any other thereof or
of any other powers and remedies available to the Noteholder, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Note, and no delay or omission of the
holder of this Note to exercise any right or power accruing upon any default
occurring and continuing as aforesaid, shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and every power and remedy given by this Article Seven or by law to the
Noteholder may be exercised from time to time, and as often as shall be deemed
expedient, by the Noteholder.
ARTICLE EIGHT
Subordination of Note
SECTION 801. Agreement of Subordination. The Company irrevocably
covenants and agrees, and the holder of this Note, by acceptance hereof,
likewise irrevocably covenants and agrees, that the payment of the principal of
and interest on this Note is hereby expressly subordinated, to the extent and in
the manner hereinafter set forth, to the prior payment and/or cancellation (as
shall be appropriate) in full of all Senior Indebtedness. The provisions of this
Article Eight are made for the benefit of the holders of Senior Indebtedness,
and such holders shall, at any time, be entitled to enforce such provisions
against the Company or Noteholder. No holder of any Senior Indebtedness shall be
deemed to owe any fiduciary duty or any other obligation to any holder of this
Note now or at any time hereafter.
SECTION 802. Payment Over of Proceeds Upon Dissolution, etc. (a) In the
event of (x) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relative
to the Company or its creditors or its property, (y) any proceeding for
voluntary liquidation, dissolution or other winding up of the Company whether or
not involving insolvency or bankruptcy proceedings, and (z) any assignment for
the benefit of creditors or any marshalling of the assets of the Company, then
and in any such event,
(i) all Senior Indebtedness (including interest accruing on
such Senior Indebtedness after the date of filing a petition or other
action commencing any such proceeding) shall first be paid in full, or
have provision made for payment and/or cancellation (as shall be
appropriate) in full to the reasonable satisfaction of the holder of
any Senior Indebtedness, before the holder of this Note is entitled to
receive any payment on account of the principal of or premium, if any,
or interest on the indebtedness evidenced by this Note, and
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(ii) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities (other
than securities of the Company or any other corporation provided for by
a plan of reorganization or readjustment, provided the rights of the
holders of Senior Indebtedness are not altered by such reorganization
or readjustment, the payment of which is subordinate, at least to the
extent provided in this Article Eight with respect to this Note, to the
payment of all Senior Indebtedness at the time outstanding and to the
payment of all securities issued in exchange therefor to the holders of
Senior Indebtedness at the time outstanding), to which the holder of
this Note would be entitled except for the provisions of this Article
Eight shall be paid by the liquidating trustee or agent or other person
making such payment or distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or other trustee or agent, directly to
the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under
which any instruments evidencing any of such Senior Indebtedness may
have been issued, ratably according to the aggregate amounts remaining
unpaid on account of the principal of and premium, if any, and interest
on, the Senior Indebtedness held or represented by each, to the extent
necessary to make payment of and/or to cancel (as may be appropriate)
in full all Senior Indebtedness remaining unpaid and/or outstanding (as
the case may be), after giving effect to any concurrent payment or
distribution, or provision therefor, to the holders of such Senior
Indebtedness.
(b) No payments on account of principal of or interest on this Note
shall be made unless full payment of amounts then due for principal of
(including any sinking fund payment), premium, if any, and interest on all
Senior Indebtedness has been made and/or canceled (as may be appropriate) or
otherwise duly provided for to the reasonable satisfaction of each holder of any
Senior Indebtedness.
(c) In the event and during the continuation of any default or event of
default in respect of any Senior Indebtedness or under any agreement under which
any Senior Indebtedness was issued continuing beyond the period of grace, if
any, specified in such agreement, then, unless and until such default shall have
been cured or waived or shall have ceased to exist, no payment shall be made by
the Company and no application of funds shall be made with respect to the
principal of or interest on this Note.
(d) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities (other than securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, provided
that the rights of the holders of Senior Indebtedness are not altered by such
reorganization or readjustment, the payment of which is subordinate, at least to
the extent provided in this Article Eight with respect to this Note, to the
payment of all Senior Indebtedness at the time outstanding and to the payment of
all securities issued in exchange therefor to the holders of Senior Indebtedness
at the time outstanding), shall be received by the holder of this Note during
the continuance of any event specified in Sections 802(a), 802(b) or 802(c)
prohibiting such payment and before all Senior Indebtedness is paid
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<PAGE>
in full and/or canceled (as may be appropriate), or provision made for its
payment to the reasonable satisfaction of each holder of any Senior
Indebtedness, such payment or distribution (subject to Section 804) shall be
immediately paid by the holder hereof over to the holders of Senior Indebtedness
(or their representative or representatives or to the trustee or trustees under
any indenture under which any instruments evidencing any of such Senior
Indebtedness may have been issued upon their written request remaining unpaid or
unprovided for as provided in the foregoing subparagraph (ii) of paragraph (a)
of this Section 802, for application to the payment of such Senior Indebtedness
until all such Senior Indebtedness shall have been paid in full, after giving
effect to any concurrent payment or distribution, or provision therefor, to the
holders of such Senior Indebtedness,
(e) Subject to the payment in full and/or cancellation (as may be
appropriate) of all Senior Indebtedness and the irrevocable and complete
termination of all commitments and obligations to issue or fund any Senior
Indebtedness (and not before such time), the holder of this Note shall be
subrogated equally and ratably with the holders of all Pari Passu Debt to all
rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company applicable to the
Senior Indebtedness until the principal of and interest on this Note shall be
paid in full; and, for purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of cash, property or
securities distributable or paid over to the holders of Senior Indebtedness
under the provisions hereof to which the holder of this Note or Pari Passu Debt,
or any trustee of Pari Passu Debt, would be entitled except for the provisions
of this Article Eight shall, as between the Company, its creditors other than
the holders of Senior Indebtedness, and the holder of this Note or of Pari Passu
Debt, be deemed to be a payment by the Company to or on account of the Senior
Indebtedness, it being understood that the provisions of this Article Eight are
and are intended solely for the purpose of defining the relative rights of the
holder of this Note, the holders of Pari Passu Debt and the holders of the
Senior Indebtedness.
(f) Nothing contained in this Article Eight or elsewhere in this Note
is intended to or shall impair, as between the Company, its creditors other than
the holders of Senior Indebtedness (and the persons and entities committed or
obligated to issue or fund any Senior Indebtedness), and the holder of this
Note, the obligation of the Company, which is absolute and unconditional, to pay
to the holder hereof the principal of and premium, if any, and interest hereon,
as and when the same shall become due and payable in accordance with the terms
hereof, or is intended to or shall affect the relative rights of the holder
hereof and other creditors of the Company other than the holders of the Senior
Indebtedness (and the persons and entities committed or obligated to issue or
fund any Senior Indebtedness), nor shall anything in this Note prevent the
holder from exercising all remedies otherwise permitted by applicable law upon
the happening of any Event of Default under this Note, subject to the rights, if
any, under this Article Eight of the holders of Senior Indebtedness (and the
persons and entities committed or obligated to issue or fund any Senior
Indebtedness) in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.
(g) The Company shall give prompt written notice to the holder of this
Note of any insolvency, bankruptcy, liquidation, reorganization, readjustment,
composition,
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<PAGE>
dissolution, assignment, marshalling of assets or similar proceedings of the
Company within the meaning of this Section 802. Upon any payment or distribution
of assets of the Company referred to in this Article Eight, the holder of this
Note shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending or a certificate of the liquidating
trustee or agent or other person making any distribution to the holder of this
Note for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
Eight. If the holder of this Note determines, in its sole discretion, that
further evidence is required with respect to the right of any person as a holder
of Senior Indebtedness to participate in any payment or distribution pursuant to
this Section 802, such holder may request such person to furnish evidence to the
reasonable satisfaction of such holder as to the amount of Senior Indebtedness
held by such person, as to the extent to which such person is entitled to
participate in such payment or distribution, and as to other facts pertinent to
the rights of such person under this Section 802, and if such evidence is not
furnished, such holder may defer any payment to such person pending judicial
determination as to the right of such person to receive such payment. Such
holder shall be entitled to rely on the delivery to it of a written notice by a
person representing himself, herself or itself, to be a holder of Senior
Indebtedness (or a trustee on behalf of such holder) to establish that notice
has been given by a holder of Senior Indebtedness or a trustee on behalf of any
such holder. With respect to the holders of Senior Indebtedness, the holder of
this Note undertakes to perform or to observe only such of its covenants and
obligations as are set forth in this Article Eight, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Note against the holder of this Note. The holder of this Note shall
not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness
and in the absence of receipt of written request as provided for herein shall
not be liable to any such holder if it shall retain or pay over to any other
person, money or assets to which any holder of Senior Indebtedness shall be
entitled pursuant to this Article Eight or otherwise.
(h) Without notice to or the consent of the holder of this Note, the
holders of the Senior Indebtedness or the persons or entities committed or
obligated to issue or fund any Senior Indebtedness may at any time and from time
to time, without impairing or releasing the subordination herein made, change
the manner, place or terms of payment, or change or extend the time of payment
of or renew or alter the Senior Indebtedness or the commitment or obligation to
issue or fund any Senior Indebtedness, or amend or supplement in any manner any
instrument evidencing the Senior Indebtedness or the commitment or obligation to
issue or fund any Senior Indebtedness, any agreement pursuant to which the
Senior Indebtedness was issued or incurred or any instrument securing or
relating to the Senior Indebtedness or the commitment or obligation to issue or
fund any Senior Indebtedness; release any person liable in any manner for the
payment or collection of the Senior Indebtedness; exercise or refrain from
exercising any rights in respect of the Senior Indebtedness against the Company
or any other person; apply any money or other property paid by any person or
released in any manner to the Senior Indebtedness; accept or release
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<PAGE>
any security for the Senior Indebtedness; sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; or exercise or refrain from exercising any rights against the
Company or any other person, all without thereby impairing the rights of such
holders of Senior Indebtedness as provided in this Article Eight.
SECTION 803. No Waiver of Subordination Provision. No right of any
present or future holder of any Senior Indebtedness of the Company to enforce
subordination, as herein provided, shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance by
the Company with the terms, provisions and covenants of this Note, regardless of
any knowledge thereof any such holder may have or be otherwise charged with.
SECTION 804. Payments to Noteholder. Nothing contained in this Article
Eight or elsewhere in this Note, shall, however, affect the obligation of the
Company to make, or prevent the Company from making, at any time, except as
provided in Section 802, payments of principal of or premium, if any, or
interest on this Note.
SECTION 805. Authorization of Noteholder to Company to Effect
Subordination. The holder of this Note by acceptance hereof irrevocably
authorizes and directs the Company on the holder's behalf to take such action as
may be necessary or appropriate to effectuate the subordination provided in this
Article Eight and appoints the Company to serve as the holder's attorney-in-fact
for such purpose.
SECTION 806. All Provisions of Note Qualified by Article Eight.
Notwithstanding anything herein contained to the contrary, all the provisions of
this Note shall, except as otherwise provided herein, be subject to the
provisions of this Article Eight, so far as the same may be applicable thereto;
provided, however, that nothing in this Article Eight shall affect the rights of
the holder hereof to convert this Note in accordance with the provisions of
Article Four hereof.
ARTICLE NINE
Miscellaneous Provisions
SECTION 901. Successors and Assigns of Company Bound. All the
covenants, stipulations, promises and agreements in this Note contained by or in
behalf of the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 902. Notices. When this Note provides for notice of any event,
such notice shall be sufficiently given (unless otherwise expressly herein
provided) if in writing and sent by (i) first class U.S. mail, postage prepaid,
(ii) overnight courier, or (iii) facsimile (with a copy by overnight courier),
if to the Noteholder at the address appearing on the Note Register, and if to
the Company to United Shipping & Technology, Inc., 9850 51st Avenue North, Suite
110, Minneapolis, Minnesota 55442, facsimile: 612-941-6440, with a copy to
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Daniel J. Amen, Faegre & Benson LLP, 2200 Norwest Center, 90 South Seventh
Street, Minneapolis, Minnesota 55402, facsimile: 612-336-3026, not later than
the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. Any notice which is mailed to the Noteholder in this
manner herein provided shall be conclusively presumed to have been duly given.
Where this Note provides for notice in any manner such notice may be waived in
writing by the person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice.
SECTION 903. MINNESOTA CONTRACT. THIS NOTE SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF MINNESOTA, AND FOR ALL PURPOSES
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE.
SECTION 904. Legal Holidays. In any case where the date of maturity of
interest on or principal of this Note or the date fixed for redemption of this
Note shall not be a business day, then payment of interest on or principal of
this Note need not be made on such date, but may be made on the next succeeding
business day with the same force and effect as if made on the date of maturity
or the date fixed for redemption, and no interest shall accrue for the period
after such prior date.
SECTION 905. Severability In case any provision of this Note shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
ARTICLE TEN
Definitions
SECTION 1001. Definitions. The terms defined in this Section 1001
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Note shall have the respective meanings
specified in this Section 1001.
"Act" shall mean the United States Federal Securities Act of 1933, as
amended, or any successor thereto.
"Bankruptcy Code" shall mean the United States Bankruptcy Code, 11
United States Code ss. 101 et seq., or any successor statute thereto.
"Board of Directors," when used with reference to the Company, shall
mean the Board of Directors of the Company, or any committee of such Board
authorized to exercise the powers and authority of such Board with respect to
the action purportedly taken by such committee.
"Business Day" shall mean any day except a Saturday, a Sunday or a day
on which banking institutions in the City of Minneapolis, Minnesota, are
authorized or required by law to close.
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<PAGE>
"Capitalized Lease Obligation" shall mean any obligation of the Company
or any Subsidiary, as lessee or guarantor, to pay rent under a lease of real or
personal property, which obligation, in the judgment of the independent public
accountants employed by the Company, is required to be capitalized on the
balance sheet of the lessee or guarantor in accordance with generally accepted
accounting principles.
"Common Stock," except as provided in Section 410, shall mean any stock
of any class of the Company which has no preference in respect of dividends or
of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which is not subject to redemption
by the Company.
"Event of Default" shall have the meaning specified in Section 701
hereof, continued for the period of time, if any, and after the giving of
notice, if any, therein designated. Unless the context otherwise requires, the
term "default" shall mean any event specified in Section 701 not including any
period of grace, if any, therein provided for and irrespective of the giving of
notice, if any, therein designated.
"Junior Indebtedness" shall mean indebtedness of the Company heretofore
or hereafter created which, by the terms of the instrument by which such
indebtedness is created or evidenced, ranks junior and subordinate in right of
payment to this Note.
"Note" shall mean this Note and any Note issued on exchange or transfer
hereof.
"Noteholder," "holder of this Note" or other similar terms mean any
person in whose name at the time this Note shall be registered in the Note
Register kept for that purpose in accordance with the terms hereof.
"Pari Passu Debt" shall mean any indebtedness of the Company heretofore
or hereafter created which, by the terms of the instrument by which such
indebtedness is created or evidenced, ranks pari passu in right of payment with
this Note and is entitled to like rights of subrogation.
"Senior Indebtedness" shall mean the following, whether outstanding on
the date hereof or hereafter created, incurred, assumed or guaranteed, (a) the
principal of, premium if any, and interest on (i) indebtedness (other than this
Note) of the Company for money borrowed (including any indebtedness representing
the deferred and unpaid balance of the purchase price of any property, if such
indebtedness is payable by its terms over a period of more than 12 months), (ii)
indebtedness of the Company evidenced by bonds, notes, debentures or similar
obligations sold by the Company for money (other than this Note), (iii)
Capitalized Lease Obligations, (iv) indebtedness or obligations incurred,
assumed or guaranteed by the Company in connection with the acquisition or
improvement of any property or asset or the acquisition by it or by a Subsidiary
of any business, (v) indebtedness of others of the kinds described in the
preceding clauses (i), (ii), (iii), and (iv), assumed or guaranteed by the
Company or in effect guaranteed by the Company through an agreement to purchase
or otherwise, (vi) obligations which would be classified as liabilities on the
balance sheet of the Company in accordance with generally accepted accounting
principles,
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<PAGE>
evidencing the purchase price for the acquisition of assets of any kind,
tangible or intangible, by the Company, except in the ordinary course of
business; unless in each case referred to in clauses (i), (ii), (iii), (iv), (v)
and (vi) above, by the terms of the instrument creating or evidencing the
indebtedness or obligation it is expressly provided that such indebtedness is
Pari Passu Debt or Junior Indebtedness under this Note, (b) any other
indebtedness, liability or obligation, contingent or otherwise other than that
arising pursuant to this Note, of the Company (any such indebtedness, liability
or obligation being hereinafter in this definition referred to as an
"Obligation"), and any guaranty, endorsement or other contingent obligation in
respect of any Obligation of another, which is created, assumed or incurred by
the Company after the date of this Note and which, when created, assumed or
incurred, is specifically designated by the Company as Senior Indebtedness for
the purposes hereof in the instrument creating or evidencing the Company's
liability with respect to the Obligations of another and (c) any increases,
refundings, renewals, rearrangements or extensions of and amendments,
modifications and supplements to any indebtedness, liability or obligation
described in clauses (a) or (b) above.
"Subsidiary" shall mean any corporation of which the Company, or the
Company and one or more Subsidiaries, or any one or more Subsidiaries, directly
or indirectly own voting securities entitling the holders thereof to elect a
majority of the directors, either at all times or so long as there is no default
or contingency which permits the holders of any other class or classes of
securities to vote for the election of one or more directors.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by a duly authorized officer.
UNITED SHIPPING & TECHNOLOGY, INC.
By:
--------------------------------------
Title:
-----------------------------------
[$1,690,000 Convertible Subordinated Note
payable to J. Iver & Company]
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<PAGE>
EXHIBIT A TO
9% CONVERTIBLE
SUBORDINATED NOTE
NOTICE OF CONVERSION
To: United Shipping & Technology, Inc.
The undersigned hereby exercises the right to convert $_____________ of
the outstanding principal and interest of the within 9% Convertible Subordinated
Note at the date of this Notice at the conversion price of $__________ per share
established pursuant to the Notice to Set Conversion Price dated ______________.
Certificate(s) for such shares, *[and a new Note of like tenor for the
balance of the principal and interest not converted] shall be issued in the name
of and *[delivered to the undersigned][deposited into the account of the
undersigned specified below].
Dated: _____________________
**[NAME OF NOTEHOLDER]
By:
--------------------------------------
Its:
----------------------------------
* if applicable/as applicable
** insert name of Noteholder
<PAGE>
EXHIBIT B TO
9% CONVERTIBLE
SUBORDINATED NOTE
NOTICE TO SET CONVERSION PRICE
To: United Shipping & Technology, Inc.
The undersigned hereby gives you notice pursuant to Section 401 of the
Note of its election to set the conversion price with respect to *[$________]
*[all] of the outstanding principal amount of the Note at the amount of
$________, being an amount equal to the average closing price of Common Stock
for the twenty trading days immediately preceding the date of this Notice.
**[This Notice shall supersede the prior Notice dated ____________ sent
by the undersigned.]
Dated: _____________________
***[NAME OF NOTEHOLDER]
By:
--------------------------------------
Its:
----------------------------------
* insert amount converted or select "all"
** insert prior Notice date
*** insert name of Noteholder
EXHIBIT 10.5
WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
UNITED SHIPPING & TECHNOLOGY, INC.
APRIL 25, 2000
This Certifies that, in consideration of its agreement to restructure
the terms of the 6% Convertible Subordinated Note dated December 7, 1995 of UST
Delivery Systems, Inc. (f/k/a Corporate Express Delivery Systems, Inc.), a
wholly-owned subsidiary of the Company, pursuant to the terms of a Restructuring
Agreement dated as of January 31, 2000, and for other good and valuable
consideration, J. IVER & COMPANY (the "Warrantholder"), is entitled to subscribe
for and purchase from the Company, at any time after the date hereof, and prior
to April 25, 2010 (the "Expiration Date") up to 15,000 shares of the Company's
Common Stock at a purchase price of $12.925 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.
<PAGE>
"Transfer" shall mean any sale, assignment, pledge, or other
disposition of any Warrants and/or Warrant Shares, or of any interest
in either thereof, which would constitute a sale thereof within the
meaning of Section 2(3) of the Securities Act.
"Warrant Shares" 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 this Warrant and all Warrants issued in
exchange, transfer or replacement hereof.
All terms used in this Warrant which are not defined in Section 1
hereof have the meanings respectively set forth elsewhere in this Warrant.
2. Exercise of Warrant, Issuance of Certificate, and Payment for
Warrant Shares. The rights represented by this Warrant may be exercised at any
time after the date hereof, and prior to the Expiration Date, by the
Warrantholder, in whole or in part (but not as to any fractional share of Common
Stock), by: (a) delivery to the Company of a completed Subscription Form, (b)
surrender to the Company of this Warrant properly endorsed and signature
guaranteed, and (c) delivery to the Company of cash, or 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 five (5)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.
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<PAGE>
3. Ownership of this Warrant. The Company may deem and treat the
registered Warrantholder as the holder and owner hereof (notwithstanding any
notations of ownership or writing made hereon by anyone other than the Company)
for all purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for transfer as provided herein and then only if
such transfer meets the requirements of Section 5.
4. Exchange, Transfer, and Replacement. Subject to Section 5 hereof,
this Warrant is exchangeable upon the surrender hereof by the Warrantholder to
the Company at its office or agency described in Section 2 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,
if the Company is requested by an underwriter, 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.
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<PAGE>
6. Antidilution Provisions. The rights granted hereunder are subject to
the following:
(a) Dividends, Distributions, Reclassifications, or
Combinations. If the Company shall (A) declare a dividend or make a
distribution payable in Common Stock on the Common Stock, (B) subdivide
or reclassify its outstanding shares of Common Stock into a greater
number of shares, or (C) combine its outstanding shares of Common Stock
into a smaller number of shares, the Purchase Price in effect at the
time of the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification
shall be proportionately reduced in the case of any increase in the
number of shares of Common Stock outstanding, and increased in the case
of any reduction in the number of shares of Common Stock outstanding,
and the number of Warrant Shares purchasable pursuant to this Warrant
shall be proportionally increased in the case of any increase in the
number of shares of Common Stock outstanding, and decreased in the case
of any reduction in the number of shares of Common Stock outstanding,
so that the Warrantholder shall be entitled to receive the kind and
amount of shares which he would have owned or have been entitled to
receive had this Warrant been exercised immediately prior to such time
and had the Warrant Shares issued upon such exercise received such
dividend or other distribution or participated in such subdivision,
combination or reclassification. Such adjustment shall be effective as
of the record date for such dividend or distribution or the effective
date of such combination, subdivision or reclassification and shall be
made successively whenever any event listed above shall occur. If, as a
result of an adjustment made pursuant to this Section 6(a), the holder
of this Warrant thereafter exercised shall become entitled to receive
shares of two or more classes of the capital stock of the Company, the
Board of Directors of the Company (whose determination shall be
conclusive if made in good faith and shall be described in a statement
provided to the registered holder of this Warrant) shall in good faith
determine the allocation of the Purchase Price between and among shares
of such classes of capital stock.
(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
-4-
<PAGE>
limitation, provisions for adjustment of the Purchase Price and the
number of shares purchasable upon the exercise of the Warrants) shall
thereafter be applicable, as nearly as may be, in relation to any
shares of Common Stock, Other Securities or assets thereafter
deliverable upon the exercise of the Warrants.
(c) Issuance of Rights or Warrants. If (A) the Company shall
issue rights or warrants to all holders of its Common Stock entitling
them (for a period expiring within 45 days of the date fixed for the
determination of stockholders entitled to receive such rights or
warrants) to subscribe for or purchase shares of Common Stock at a
price per share less than the Current Market Price (as defined in
paragraph (e) below) of the Common Stock, on the date fixed for the
determination of stockholders entitled to receive such rights or
warrants (the "Determination Date"), and (B) such rights or warrants
are not issuable in respect of the shares of Common Stock issuable upon
exercise of this Warrant, then (i) the Purchase Price at the opening of
business on the day following the Determination Date shall be reduced
by multiplying the Purchase Price by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close
of business on the Determination Date plus the number of shares of
Common Stock which the aggregate of the offering price of the total
number of shares of Common Stock so offered for subscription or
purchase would purchase at such Current Market Price of the Common
Stock and the denominator shall be the number of shares of Common Stock
outstanding at the close of business on the Determination Date plus the
number of shares of Common Stock so offered for subscription or
purchase, such reduction to become effective immediately after the
opening of business on the day following the Determination Date and
(ii) the number of Warrant Shares purchasable pursuant to this Warrant
at the Purchase Price resulting from the foregoing adjustment shall be
the number of shares obtained by multiplying the Purchase Price in
effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment
and dividing the product thereof by the Purchase Price resulting from
such adjustment. For purposes of determining under this paragraph the
number of shares of Common Stock outstanding at any time, there shall
be excluded all shares of Common Stock held in the treasury of the
Company. If any or all such rights or warrants are not so issued or
expire or terminate before being exercised, the Purchase Price then in
effect and the number of Warrant Shares purchasable pursuant hereto
shall be appropriately readjusted, but such readjustment shall not be
applied retroactively to any exercise hereof effected prior to such
readjustment.
(d) Distributions of Indebtedness or Other Assets. If (A) the
Company shall distribute to all holders of its Common Stock evidences
of its indebtedness or assets (including securities, but excluding cash
dividends or a distribution referred to in paragraph (a) above or paid
out of surplus) or rights or warrants to subscribe for or purchase any
of the Company's securities (excluding those referred to in clause (A)
of paragraph (c) above), and (B) such evidences of indebtedness,
assets, rights or warrants are not issuable in respect of shares of
Common Stock issuable upon exercise of this Warrant, then (i) the
Purchase Price shall be adjusted so that it shall equal the price
determined by multiplying the Purchase Price in effect immediately
prior to the close of business on the date fixed for the determination
of stockholders entitled to receive such distribution by a fraction of
which the numerator shall be the Current Market Price per
-5-
<PAGE>
share of the Common Stock on the date fixed for such determination less
the then fair market value (as determined by the Board of Directors of
the Company, in good faith and in the exercise of its reasonable
business judgment and described in a resolution of the Board of
Directors certified by the Secretary or Assistant Secretary), of the
portion of the assets or evidences of indebtedness so distributed
applicable to one share of Common Stock and the denominator shall be
such Current Market Price per share of the Common Stock, and (ii) the
number of Warrant Shares purchasable pursuant to this Warrant at the
Purchase Price resulting from the foregoing adjustment shall be the
number of shares obtained by multiplying the Purchase Price in effect
immediately prior to such adjustment by the number of Warrant Shares
purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Purchase Price resulting from such
adjustment; provided, however, if exercise of such right or warrant is
subject to the occurrence of a contingent event, adjustment of the
Purchase Price shall be made in the manner provided for in paragraph
(c) above and the date that the right or warrant becomes exercisable
shall be deemed to be the Determination Date for purposes of such
adjustment. The Purchase Price adjustment made pursuant to this
paragraph (d) shall become effective immediately prior to the opening
of business on the day following the date fixed for the determination
of stockholders entitled to receive such distribution (except in the
case of rights or warrants subject to exercise upon the occurrence of a
contingent event, in which case such adjustment shall become effective
at the time such rights or warrants become exercisable).
(e) Current Market Price. For the purposes of this Section 6,
the "Current Market Price" per share of Common Stock on any date shall
be deemed to be the average of the last reported sale prices for the
ten (10) consecutive Trading Days (as defined below) next preceding the
day in question. The last reported sale price for each day shall be (i)
the last reported sale price of Common Stock on the New York Stock
Exchange or any similar system of automated dissemination of quotations
of securities prices then in common use, if so quoted, or (ii) if not
quoted as described in clause (i), the mean between the high bid and
low asked quotations for Common Stock as reported by the National
Quotation Bureau Incorporated if at least two securities dealers have
inserted both bid and asked quotations for such class of stock on at
least 5 of the 10 preceding days, or (iii) if the Common Stock is
listed or admitted for trading on any national securities exchange, the
last sale price, or the closing bid price if no sale occurred, of such
class of stock on the principal securities exchange on which such class
of stock is listed. If the Common Stock is quoted on a national
securities or central market system, in lieu of a market or quotation
system described above, the closing price shall be determined in the
manner set forth in clause (ii) of the preceding sentence if bid and
asked quotations are reported but actual transactions are not, and in
the manner set forth in clause (iii) of the preceding sentence if
actual transactions are reported. If none of the conditions set forth
above is met, the closing price of Common Stock on any day or the
average of such closing prices for any period shall be the fair market
value of such class of stock as determined in good faith in the
exercise of their reasonable business judgment by the Board of
Directors of the Company. As used herein the term "Trading Days" with
respect to Common Stock shall mean (i) if the Common Stock is quoted on
the New York Stock Exchange or any similar system of automated
dissemination of quotations of securities prices, days on which trades
may be made on such system or (ii) if the
-6-
<PAGE>
Common Stock is listed or admitted for trading on any national
securities exchange days on which such national securities exchange is
open for business.
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) Evergreen Registration. As soon as practical after the
date hereof, and in no event later than 60 days thereafter, the Company
shall file a registration statement on Form S-3 covering the Warrant
Shares and use its best efforts to cause such registration statement to
become effective, and prepare and file such amendments and
post-effective amendments and supplements to the prospectus as may be
necessary to keep such registration statement effective until the
earlier of (i) the third anniversary of the date of this Warrant, or
(ii) until all Warrant Shares included in the registration statement
shall have been sold.
(b) Required Registration. If at any time after the three (3)
year period set forth in Section 8(a), 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 sale pursuant
to 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 Warrants or 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(b). In the event that (i) the holders of a majority
of the Warrants or Warrant Shares for which registration has been
requested
-7-
<PAGE>
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, (ii) such holders thereafter
request the Company to withdraw such registration statement, and (iii)
the holders of such Warrants or 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 Warrants or
Warrant Shares shall not be deemed to have exercised their right to
require the Company to register Warrant Shares pursuant to this Section
8(b).
(c) Incidental Registration. If at any time after the three
(3) year period set forth in Section 8(a), 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 Warrants and Warrant Shares.
Upon the written request of a record holder of any Warrants or 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 Warrant Shares requested by such holders 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 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 and of other securities of selling
shareholders included in the 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 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.
-8-
<PAGE>
(d) Registration Procedures. If and whenever the Company is
required by the provisions of Sections 8(a), 8(b) or 8(c)to effect the
registration of any Warrant Shares under the Securities Act, the
Company will:
(i) prepare and file with the Commission a
registration statement with respect to such Warrant Shares,
and, in the case of a registration required by Section 8(b) or
8(c), 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 (i) nine (9) months in the case of a
registration statement filed on Form S-3, and (ii) three (3)
months in the case of a registration statement filed on any
other form;
(ii) prepare and file with the Commission such
amendments to such registration statement and supplements to
the prospectus contained therein as may be necessary to keep
such registration statement effective for such period as may
be reasonably necessary to effect the sale of such Warrant
Shares, not to exceed the applicable period described in
subclause (d)(1) immediately above;
(iii) furnish to the security holders participating
in such registration and to the underwriters of the Warrant
Shares being registered such reasonable number of copies of
the registration statement, preliminary prospectus, final
prospectus and such other documents as such security holders
and underwriters may reasonably request in order to facilitate
the public offering of such Warrant Shares;
(iv) use its best efforts to register or qualify the
Warrant Shares covered by such registration statement under
such state securities or blue sky laws of such jurisdictions
as such participating holders may reasonably request within
ten (10) days following the original filing of such
registration statement, except that the Company shall not for
any purpose be required to execute a general consent to
service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so
qualified;
(v) notify the security holders participating in such
registration, promptly after it shall receive notice thereof,
of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of
such registration statement has been filed;
(vi) notify such holders promptly of any request by
the Commission for the amending or supplementing of such
registration statement or prospectus or for additional
information;
(vii) prepare and file with the Commission, promptly
upon the request of any such holders, any amendments or
supplements to such registration statement or prospectus
which, in the opinion of counsel for such holders (and
concurred in by counsel for the Company), is required under
the Securities Act or
-9-
<PAGE>
the rules and regulations thereunder in connection with the
distribution of the Warrant Shares by such holder;
(viii) prepare and promptly file with the Commission
and promptly notify such holders of the filing of such
amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the 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 and to promptly advise such holders that
the Company has determined that the filing of such amendment
or supplement is necessary to correct any statements or
omissions;
(ix) advise such holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness
of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly
use its best efforts to prevent the issuance of any stop order
or to obtain its withdrawal if such stop order should be
issued; and
(x) not file any amendment or supplement to such
registration statement or prospectus to which a majority in
interest of such holders shall have reasonably objected on the
grounds that such amendment or supplement does not comply in
all material respects with the requirements of the 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.
(e) Expenses. With respect to any registration requested
pursuant to Section 8(b) (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(c) (except
as otherwise provided in Section 8(c)with respect to registrations
terminated by the Company), the Company shall bear the following fees,
costs and expenses: all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for the
Company, fees and disbursements of counsel for the underwriter or
underwriters of such securities (if the Company and/or selling security
holders are required to bear such fees and disbursements), all internal
Company expenses, the premiums and other costs of policies of insurance
against liability arising out of the public offering, and all legal
fees and disbursements and other expenses of complying with state
securities or blue sky laws of any jurisdictions in which the
securities to be offered are to be registered or qualified. Fees and
disbursements of counsel and
-10-
<PAGE>
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.
(f) 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 two copies of the
registration statement included in such filings and will amend or
supplement the same as required during the applicable period during
which the registration statement is required to be effective 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.
(g) 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.
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 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.
-11-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
a duly authorized officer, and to be dated as of the 25th day of April, 2000.
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."
[Warrant for 15,000 Shares issued to J. Iver & Company]
-12-
<PAGE>
FULL SUBSCRIPTION FORM
To Be Executed By the Registered Warrantholder if It/
She/He Desires to Exercise in Full the Within Warrant
The undersigned hereby exercises the right to purchase the ____________
shares of Common Stock covered by the within Warrant at the date of this
subscription and herewith makes payment of the sum of $________________________
representing the Purchase Price of $__________ per share in effect at that date.
Certificates for such shares shall be issued in the name of and delivered to the
undersigned, unless otherwise specified by written instructions, signed by the
undersigned and accompanying this subscription.
Dated:___________________________
Signature:
---------------------------------
Address:
<PAGE>
PARTIAL SUBSCRIPTION FORM
To be Executed by the Registered Warrantholder if It/She/He
Desires to Exercise in Part Only the Within Warrant
The undersigned hereby exercises the right to purchase _____________
shares of the total shares of Common Stock covered by the within Warrant at the
date of this subscription and herewith makes payment of the sum of $____________
representing the Purchase Price of $_________ per share in effect at this date.
Certificates for such shares and a new Warrant of like tenor and date
for the balance of the shares not subscribed for (if any) shall be issued in the
name of and delivered to the undersigned, unless otherwise specified by written
instructions, signed by the undersigned and accompanying this subscription.
The 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:
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-01-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> APR-01-2000
<CASH> 3,085,000
<SECURITIES> 0
<RECEIVABLES> 68,579,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 74,195,000
<PP&E> 17,806,000
<DEPRECIATION> (2,894,000)
<TOTAL-ASSETS> 147,606,000
<CURRENT-LIABILITIES> 91,758,000
<BONDS> 0
0
0
<COMMON> 65,000
<OTHER-SE> 69,601,000
<TOTAL-LIABILITY-AND-EQUITY> 147,606,000
<SALES> 138,900,000
<TOTAL-REVENUES> 138,900,000
<CGS> 111,441,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 33,882,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,511,000
<INCOME-PRETAX> (7,847,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,847,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,847,000)
<EPS-BASIC> (0.50)
<EPS-DILUTED> (0.50)
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