UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A2
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 30, 1998 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from_____________to_____________
Commission file number 0-14273
Integrated Spatial Information Solutions, Inc.
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(Name of small business issuer)
Colorado 84-0868815
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13119 Professional Drive, Suite 200, Jacksonville, Florida 32225
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(Address of principal executive offices) (Zip code)
Issuer's telephone number (904) 220-4747
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of each class
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Common Stock, no par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities and Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $8,146,367.
As of December 31, 1998, the aggregate market value of the shares of the
issuer's voting stock held by non-affiliates of the issuer based on the average
of closing bid and asked prices of the Common Stock as reported on the OTC
Bulletin Board, was approximately $4,013,295.
As of December 31, 1998, the issuer had outstanding 11,456,571 shares of Common
Stock.
Transitional Small Business Disclosure Format: Yes [ ]; No [ X ]
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PART I
This amendment No. 2 to Annual Report on Form 10-KSB is filed supply the
explanation of losses for Continuing Operations--Fiscal Year 1998 Compared to
Fiscal Year 1997 at Management's Discussion and Analysis of Financial Condition
and Results of Operations.
This annual report contains forward-looking statements that describe the
business and prospects of Integrated Spatial Information Solutions, Inc. (the
"Company") and the expectations of the Company and management. These statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those set forth. These risks and uncertainties include
but are not limited to: the timing of and expense associated with, expansion and
modification of the Company's operations in accordance with its business
strategy or in response to competitive pressures or other factors arising in the
future. All statements other than statements of historical fact included in this
annual report, including without limitation, expected growth of the domestic and
global geographical information systems markets, beliefs regarding the strength
of the Company's market position with respect to new or contemplated business
strategies and activities, expectations regarding availability and marketability
of new digital imaging products, anticipated growth in the Company's revenue and
profitability, cash operating costs and certain significant expenses, and
potential acquisitions of, or strategic partnering with, other geographic
information system providers, are forward-looking statements. Factors that could
cause actual results to differ materially include, among others, the entry of
new companies into the geographic information systems business, unanticipated
competition from new strategic alliances in the industry, increased price
competition from software manufacturers and affiliated vendors, decreased
reliance on custom design software services, shifts in governmental policy on
the availability of government-owned data and difficulties in hiring and
retaining sufficient numbers of professional and other skilled personnel. All
forward-looking statements included in this annual report are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update such statements. Although the Company believes that the
assumptions and expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct or that the Company will take any actions that may presently be
planned.
Item 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition (Liquidity and Capital Resources)
The following discussion of liquidity and capital resources addresses the
combined requirements and sources of the Company and its subsidiaries as of
September 30, 1998.
Liquidity
At September 30, 1998, the Company had working capital of $653,180 and its
current ratio was 1.20:1; unrestricted cash balances available for immediate use
amounted to $55,045. Compared with negative working capital in the prior year of
($413,041) when the current ratio was .91:1 and cash balances available for use
amounted to $582,326. The increase in working capital is primarily associated
with the imminent sale of the property, land and building combined with
reductions of liabilities and debt. Changes in cash during fiscal year 1998 (FY
1998) resulted in a net decrease of $527,281 as compared to an increase during
fiscal year 1997 (FY 1997) of $372,689. The primary cause for the decrease in
cash during FY 1998 was reduction of debt and accounts payable.
The Company has, at the end of FY 1998, lease payment commitments through 2003
of $1,976,864 which will require total annual payments of approximately $543,000
in fiscal year 1999 (FY 1999). Of this required payment amount, approximately
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$419,000 is for capital lease obligations and $124,000 relates to operating
leases. Management believes normal operating cash flows are adequate to fund
these payments. (See also Note 7 to the Financial Statements). The Company
considers its facilities adequate to support anticipated sales and operations
for the next several years; accordingly, no commitments for additional
facilities expansion have been entered into for the twelve months ended
September 30, 1998. Approximately $831,000 of principal payments on notes
payable are due during fiscal year 1999. Of this amount, $620,000 is related to
the property in Franktown, Colorado and is expected to be paid from proceeds
received from the pending sale of the building. The remaining balance of
$211,000 is structured in monthly payments and management believes monthly cash
flows will be adequate to meet these obligations.
Cost reductions and other efficiencies associated with improved operational
performance at the operating subsidiary during the third and fourth fiscal
quarters of FY 1998 have achieved enhanced financial performance. This coupled
with the increased backlog of work ($9.7 million as compared with $7.5 million a
year ago) is expected to have a positive effect on future cash flows from
operations. As discussed at Note 15 in the accompanying financial statements,
the Company has secured a letter of intent for a line of credit for up to $3
million based upon accounts receivable; the line of credit would provide cash
advances of up to 75 percent of eligible receivables thereby potentially
resulting in enhanced available cash resources by making cash available sooner
from qualifying outstanding accounts receivable. The pending sale of the
Franktown, Colorado real property (See Item 2, Description of Property, above)
will also yield net cash after liquidation of the debt associated with the
property which is expected to fund parent company recurring cash requirements
for FY 1999. While the Company has a litigation reserve of $478,997 for
reprocurement costs assessed by the federal government, it has recently learned
it may be able to resolve the matter for a lesser amount including its own legal
costs which are already accrued as a liability. Accordingly, the Company
believes it has adequate liquidity and capital resources to be able to meet the
known cash requirements resulting from pending litigation and its current level
of operations from presently projected cash inflows.
In order to carry out its expansion plans during FY 1999, the Company believes
it will need to raise additional funds through equity or debt placements in
order to meet its cash needs for expansion efforts until it can operate on
internally generated cash flows in the expanded form. While the Company has been
successful in raising funds through debt and equity, there is no guarantee the
Company will be successful in raising additional funds.
The Company does not believe that its business has been significantly impacted
during the past three years by general cost inflation; however, it has noted a
trend of increasing compensation required to fill its key professional staffing
positions during the past year.
As a result of SEC guidance issued in early 1997 with respect to beneficial
conversion features in connection with the issuance of convertible preferred
stock, the Company was deemed to recognize non-cash preferred stock dividends
totaling approximately $476,112 in FY 1998 and $892,592 in FY 1997. This amount
is equivalent to the discount from the fair market value of the common stock
given to the purchasers of the Preferred Stock calculated as of the date of
issuance of such stock.
Primarily as a result of collection of the amount due from sale of assets of
$1.1 million, the reclassification of the property, land and building held for
sale, and application of the proceeds to reduction of payables and debt, current
assets decreased $136,285 from $4,120,826 in the prior year to $3,984,541 in the
current year.
Cash used in operating activities during FY 1998 ($2.4 million) increased
significantly ($2.1 million) over the FY 1997 usage of $249,346. Major causes
for the increased use were reductions of accounts payable ($669,604 decrease
versus an increase of $95,803 in FY 1997), reductions of accrued expenses
($299,089 decrease versus increase of $526,883 in FY 1997) and a decrease in
deferred revenue ($76,308 decrease versus an increase of $156,701 in FY 1997).
In addition, operating activities of the subsidiary encompassed an entire year
for FY 1998 versus only nine business days in the report for FY 1997, thereby
contributing to the increased use of cash in FY 1998. Sources for the cash used
were the $527,281 reduction of cash available, investing activities provision of
net cash of $856,823 and a net amount of $972,832 cash provided by financing
activities after making $2 million in payments on debt.
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Capital Resources
The Company has taken actions to increase its exposure to the investment banking
community by apprising relevant principals of its diversification activities,
acquisition program and other business development endeavors designed to result
in new business. As a result the Company has secured needed financing through
the placement of equity pursuant to Regulations D and S, as noted in Item 5,
Market For Common Equity and Related Stockholder Matters. As discussed at Note
15 in the accompanying financial statements, the Company has also secured a
letter of commitment for a $3 million asset based line of credit for internal
working capital needs. In addition, the Company has received expressions of
interest from several entities for providing additional credit facilities in
support of its acquisition program. An additional placement of equity or debt or
the successful negotiation of a credit facility will be needed to meet projected
cash demands for expansion programs. There can be no assurance the Company will
be successful in these efforts.
Results of Operations
The following discussion of Results of Operations addresses the Company's
operations in light of its September 1997 acquisition of PlanGraphics, Inc. (the
"subsidiary") which now constitutes its Continuing Operations. See also the
forward looking statement disclaimer in Part I as it pertains to nonfactual and
non-historical statements appearing within this section.
Continuing Operations--Fiscal Year 1998 compared to Fiscal Year 1997
Losses. The Company reported an operating loss of $2,401,789 for FY 1998, an
increase of $877,365 over the prior year's report. The operating loss resulted
primarily from the increased parent company costs for compensation, legal and
audit expenses, noted below, for Total FY 1998 costs and expenses. The Company
also reported a loss from continuing operations of $3,000,864 for an increase of
$2,047,799 over the prior year amount. The change in the loss from continuing
operations resulted from the increase in operating loss of $877,365 plus the net
change of a negative $1,170,434 to total other income and expenses, for which
the explanations of increased interest expense and the net change in other
income and expense are also provided below.
The reported consolidated revenue for FY 1998 is not comparable with that
reported for the prior year as only eight days of revenue from the operating
subsidiary were included in FY 1997 revenue. Revenue for FY 1998 was $8,146,367
compared with the subsidiary's operating revenue of $8,204,236 for the period
ended September 30, 1997 as disclosed in Note 1 to the consolidated financial
statements, a slight decrease of $57,869 or 0.7% from the prior year. The
decrease in revenue is associated with the winding down of a several contracts
and delays in the startup of replacement contract activities. The Company
recognized the potential for flat revenue and added two full time sales persons
to help develop the increased backlog for FY 1999 as discussed below.
Total FY 1998 costs and expenses amounted to $10,548,156, or 129.5% of revenue.
This amount is also not comparable to the reported prior year total as only
eight days of subsidiary costs and expenses were included in the reported figure
along with costs of operating the parent company. Comparable costs and expenses
or FY 1997 amounted to $10,115,628, which when compared to FY 1998 amounts
results in an increase of $432,528, or 4.1%. Significant reductions in costs and
expenses were experienced in overhead at the subsidiary ($584,000) and noncash
compensation expenses required by SFAS 123 and APB 25 ($487,000). These
decreases were offset by increases in salaries and benefits of $582,000 at the
subsidiary, and $173,886 at the parent, consulting fees of $316,000, and audit
and legal fees of approximately $174,000.
Interest expense amounted to $540,490 during FY 1998, which is comparable to the
$541,744 of interest expense actually incurred during the prior year. It is not
comparable to the amount of $126,263 reported for the prior year, however, as
$415,481 FY 1997 interest expense was embedded partially within the costs of
discontinued operations for FY 1997 as well as partially within subsidiary
activities occurring prior to consummation of the acquisition.
<PAGE>
Other income and expense decreased significantly from the prior year as the
prior year period included a one-time receipt of key man life insurance proceeds
of $400,000. In addition, FY 1998 included the expense for the write down of
capitalized software of $262,927. These reductions to the total are somewhat
offset by the collection of rent ($149,750) from the lease on the Franktown,
Colorado real property.
Discontinued Operations--Fiscal Year 1998 Compared to Fiscal Year 1997
There were no manufacturing operations during fiscal year 1998.
Operations Outlook.
The Company believes the Geographic Information Systems (GIS) is a global
market, which is rapidly evolving and becoming the basis for a myriad of new
applications creating additional markets. The Company believes the gross
potential profit margins are much higher than presently experienced and is
working to grow the GIS business according to forward looking statements in its
business plan, augmenting growth to be achieved through acquisitions. Presently
the consolidated results are adversely impacted by the overhead structure
developed at the parent company in anticipation of its developing acquisition
program.
Subsequent to fiscal year end, the Company has received new contract and project
awards of approximately $4.5 million bringing its backlog and assignments to
approximately $9.7 million. Management believes this is a result of a more
focused marketing and sales program. At the same date in the prior year, the
Company had approximately $7.5 Million in backlog and assignments.
Currently, the Company plans to expand through additional acquisitions.
Tax Valuation Allowance--FY 1998
As discussed in Note 6 in the accompanying financial statements, the Company has
net operating loss carry forwards for income tax purposes of approximately $6.1
million. The Company has established a 100 percent valuation allowance on the
net deferred tax asset arising from the loss carry forwards in excess of the
deferred tax liability. The valuation allowance has been recorded as the
Company's management has not been able to determine that it is more likely than
not that the deferred tax assets of the Company will be realized.
Year 2000 Effect
The Company has completed its review of the extent to which its own computer
systems and hardware, and non-information technology equipment, are capable of
operating on and after January 1, 2000 without error or other deficiency ("Year
2000 Compliance"), and believes that the year 2000 will not have a material
impact upon its own software, hardware and non-information technology equipment.
Updates and upgrades which are required are underway, the Company believes that
these will be completed prior to the end of its fiscal year 1999. To date, the
Company has incurred minimal capital expenditures to investigate and remediate
Year 2000 Compliance problems.
Suppliers to the Company consist of database software developers and geographic
information system providers. The Company's review has also included an analysis
of its material suppliers and customers as to the Year 2000 compliance of their
systems and equipment, and the Company has set in motion an effort to obtain
written assurances from these suppliers and customers regarding their Year 2000
Compliance status.
<PAGE>
The Company's contingency plan in the event of any customer Year 2000 Compliance
problems is to offer direct consulting and programming services to offset the
demands placed on the clients' internal resources. The Company believes that its
customers would require database construction and development services to
continue during any period in which supplier products experience Year 2000
issues. The Company also believes that the various satellite, airborne and
ground-based sources of data provided to the Company are presently or will
timely be Year 2000 Compliant. The Company's contingency plan in the event
material suppliers are not Year 2000 Compliant is to assist customers in
developing alternate means of obtaining the decision-making guidance previously
provided by non-functioning or unavailable data or database products. There can
be no assurance that the failure of the Company and/or its material customers
and suppliers to timely attain Year 2000 Compliance will not materially reduce
Company revenues, or that these failures and/or the impacts of broader
compliance failures by telephone, mail, data transfer or other utility or
general service providers or government or private entities will not have a
material adverse effect upon the Company.
The Company has incurred de minimis costs insuring it is Year 2000 compliant and
based upon its reviews expects only de minimis costs in the future.
Effect of Recent Accounting Pronouncements.
The issuance of several accounting pronouncements was evaluated by the Company
in FY 1998 (see the Financial Statements, Summary of Accounting Policies). None
of them had a material effect on the consolidated financial statements. The
Company adopted three of these pronouncements in FY 1998 and they are:
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
Share. This pronouncement provides a different method of calculating earnings
per share which requires the calculation of "Basic" and "Dilutive" earnings per
share.
SFAS 129, Disclosure of Information About an Entity's Capital Structure,
establishes standards for disclosing information about an entity's capital
structure.
Statement of Position 97-2, Software Revenue Recognition, provides guidance on
when revenue should be recognized and in what amounts for licensing, selling,
leasing or other marketing of computer software.
<PAGE>
The pronouncements required to be adopted in the following fiscal years (FYs
1999 and 2000) are:
SFAS 130 and 131 are effective for financial statements for periods beginning
after December 15, 1997 and require comparative information for earlier years to
be restated. Because of the recent issuance of these standards, management has
been unable to fully evaluate the impact, if any, the standards may have on
future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by the implementation of these standards.
SFAS 132, Employers' Disclosures about Pensions and Other Post-retirement
Benefits, standardizes the disclosure requirement for pensions and other
post-retirement benefits and requires additional information on changes in the
benefits obligations and fair values of plan assets that will facilitate
financial analysis. SFAS 132 is effective for years beginning after December 15,
1997 and requires comparative information for earlier years to be restated,
unless such information is not readily available. Management believes the
adoption of this statement will have no material impact on the Company's
consolidated financial statements.
SFAS No. 133 established standards for recognizing all derivative instruments
including those for hedging activities as either assets or liabilities in the
statement of financial position and measuring those instruments at fair value.
This Statement is effective for fiscal years beginning after June 30, 1999. The
Company has not yet determined the effect of SFAS No. 133 on its consolidated
financial statements.
SFAS No. 134 establishes accounting and reporting standards for certain
activities of mortgage banking enterprises and other enterprises that conduct
operations that are substantially similar to the primary operations of a
mortgage banking enterprise. The statement is effective for the first fiscal
quarter beginning after December 15, 1998. Because the Company does not conduct
mortgage banking or similar activities, management believes this statement does
not apply to the Company.
<PAGE>
PART IV
Item 13-EXHIBITS AND REPORTS ON FORM 8-K
The following exhibit is filed as a part of this report:
Exhibit
Number Exhibit
10.6 Executive Employment Agreement dated March 18, 1998
between the Company and Robert S. Vail.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this Amendment No. 1 to Form 10-KSB to be signed
on its behalf by the undersigned, thereunto duly authorized.
Integrated Spatial Information Solutions, Inc.
Date: 1/22/99 By: /s/ Fred Beisser
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Frederick G. Beisser,
Vice President Finance and
Administration
EXECUTIVE EMPLOYMENT AGREEMENT
This agreement (the "Agreement") is made effective March 18, 1998, between DCX,
Inc. ("DCXI" or the "Company") and Mr. Robert S. Vail (the "Executive").
A. Executive is to be employed as Chief Financial Officer of DCXI.
B. DCXI desires to secure the services of Executive, and Executive desires to
serve DCXI Corporate
C. In consideration of the foregoing recitals and the agreements set forth
herein, DCXI and Executive agree as follows:
1. TERM
DCXI shall employ Executive and Executive accepts such employment for a term
beginning on the date of this Agreement and ending December 31, 2000, upon the
terms and conditions set forth herein, unless earlier terminated in accordance
with the provisions herein.
Notwithstanding the foregoing, if this Agreement shall not have been terminated
in accordance with the provisions herein on or before December 31, 2000, the
remaining term of the Agreement shall be extended such that at each and every
moment of time thereafter, the remaining term shall be three years unless (a)
the Agreement is terminated earlier in accordance with the provisions herein or
(b) this Agreement will expire one year from the date of such notification.
2. DEFINITIONS
For purposes of this Agreement, the following terms shall have the meaning set
forth in this paragraph 2:
a. "Base Compensation" shall mean an amount per annum equal to the sum of (i)
the annual base salary in effect for Executive immediately preceding termination
of employment (excluding any reduction in base salary made in breech of this
Agreement), (ii) an amount equal to the product of (A) and (B), where (A) equals
the cumulative cash bonus paid to Executive over the three most recently
completed calendar years prior to termination (including any bonus amounts
deferred by Executive under any DCXI deferred compensation plan or arrangement)
divided by the cumulative base salary paid to Executive over the same three year
period (including any base salary deferred by Executive and where (B) equals the
amount set forth in 2.a.(i) above, (iii) continued participation in all basic
and supplemental life, accident, disability, and other Company-sponsored
insurance benefits provided to Executive immediately preceding termination (or,
if continued participation in one or more of these benefits is not possible,
benefits substantially similar to those which Executive would have been entitled
to if he had continued as an employee of the Company at the same compensation
level in effect immediately prior to termination), and (iv) continuance of
vesting and benefit accrual under any Company-sponsored basic and supplemental
retirement programs in effect for Executive immediately prior to termination
(or, if continued participation in such programs is not possible, benefits
substantially similar to those which executive would have been entitled to if he
had continued as an employee of the Company at the same compensation level
immediately prior to termination).
b. "Board" means the Board of Directors of the Company.
c. "Cause" shall mean (I) willful refusal by Executive to follow a lawful
written demand of the Board, (ii) Executive's willful and continued failure to
perform his duties under this Agreement (except due to Executive's incapacity
due to physical or mental illness) after a written demand is delivered to
Executive by the Board specifically identifying the manner in which the Board
believes that Executive has failed to perform his duties, (iii) Executive's
willful engagement in conduct materially injurious to the Company, or (iv)
Executive conviction for any felony involving moral turpitude. For purposes of
clauses (I), (ii) or (iii) of this definition, no act, or failure to act on
Executive's part shall be deemed "willful" unless done, or omitted to be done,
by Executive not in good faith and without reasonable belief that Executive's
act, or failure to act, was in the best interests of the Company.
<PAGE>
d. "Constructive Termination" shall mean Executive's voluntary termination of
employment within ninety (90) days following the occurrence of one or more of
the following events, unless such event is approved in writing by Executive in
advance of such event:
(i) A failure by the Company to abide by any part of this Agreement that is
not remedied within ten (10) business days of notification by Executive of
such failure, including any violation of Executive's rights as described in
Section 3 of this Agreement unless such rights are replaced by alternative
rights of approximately equal value;
(ii) A reduction in Executive's title or responsibilities below Chief
Financial Officer of Corporate
e. "Disability" shall be deemed to have occurred if Executive makes application
for disability benefits under any Company-sponsored long-term disability program
covering Executive and qualifies for such benefits.
f. "Retirement" shall mean Executive's termination of service with the Company
in accordance with the provisions of any Company retirement plan or the
Company's 401K Retirement Savings Plan in which the Executive is eligible to
participate.
3. EXECUTIVE'S RIGHTS REGARDING BASE SALARY, BONUS AND OTHER BENEFITS WHILE
EMPLOYED BY THE COMPANY
a. Base Salary. The minimum annual base salary payable to Executive upon
commencement of this Agreement shall be $120,000 (one hundred twenty thousand
dollars). The Board or its Executive Compensation Committee of the Board (if one
is designated) will review the Executive's base salary at least annually to
determine the amount of any increase. Upon any such increase in Executive's base
salary, such increased rate shall thereafter constitute Executive's minimum
annual base salary for all purposes of this Agreement, except that the Company
may reduce Executives annual base Salary during any year by not more than 10%
below the base salary in effect at the beginning of the year as part of any
general salary reduction which applies to all officers of the Company and its
subsidiaries (if any).
b. Incentive and Performance Bonus.
In recognition of the considerable challenges accepted by him, Executive shall
receive an Incentive Bonus consisting of a stock option grant of 200,000 shares
of the Company's common stock fully vested and priced at the closing bid price
on signature date of acceptance of agreement, the first business day which
Executive was engaged. In addition Executive shall receive a stock option grant
of 160,000 shares of the Company's common stock also priced at the bid price on
signature date of acceptance of agreement, and vesting in accordance with the
appropriate portions of the Performance Bonus schedule delineated below (the
"Performance Options).
Executive shall, as provided herein, and subject to paragraph (I) and (ii),
below, receive a Performance Bonus for
(i) The Company's fiscal year ending September 30, 1998, equal to:
* Five percent of base salary if Executive is directly responsible for net
income savings after taxes for DCX of $150,000 or more.
* Executive shall receive an additional bonus of ten percent of base salary if
the average closing bid price for the last five business days on NASDAQ of DCXI
ending September 30, 1998 is equal to the closing NASDAQ bid price on January 2,
1998 plus $1.35.
* Further, if the revenue of the Company exceeds $25 million at September 30,
1998, executive shall receive an additional bonus equal to 0.75% of the amount
of revenue that exceeds $25 million.
(ii) The Company's fiscal years ending September 30, 1998 and later,
* An amount equal to 2% of that portion of the net income of the Company for
each fiscal year in excess of the amount determined by multiplying stockholder's
equity for each such fiscal year by .11. For purposes of these calculations of
stockholders' equity under this Agreement, stockholder's equity for any fiscal
year shall be the average of the four quarterly stockholders' equity figures
reported by the Company for that fiscal year.
* An amount equal to 21% of base salary if the average closing bid price for the
five business days on NASDAQ (or the closing price if listed on another SEC
recognized stock exchange) ending September 30 of such fiscal year exceeds the
previous year's five day average for the same period by 55% or more.
<PAGE>
* Further, if the consolidated gross revenue of the Company exceeds $20 million
by September 30, 1998, the Executive shall be deemed vested in 30 percent of the
Performance Options; if in excess of $30 million by September 30, 1999 shall be
deemed vested in 30 percent of the Performance Options and if the Company
exceeds $40 million by September 30, 2000 he will be vested in the remaining 40
% of the Performance Options. Vesting occurs as the annual revenues are met
regardless of year this was accomplished.
(iii) Each cash Performance Bonus shall be payable either 30 days following
the date Company's audited consolidated financial statements for the fiscal
year become available or on January 15 following the end of that fiscal
year, whichever is later (the "Bonus Payment Date").
In the event that there shall be a combination of the Company with another
company, or any other occurrence similar to a combination, and as a result
thereof the amount or value of the bonuses payable pursuant to any of the
formulae set forth above could reasonably be expected to be significantly
affected thereby, appropriate changes will, at the request of either party, be
negotiated to establish a substitute formula or formulae satisfactory to both
parties. If an acceptable substitute formula (e) cannot be developed, they shall
submit such matter to arbitration by a qualified investment banker with at least
ten years' experience in corporate finance. Neither party shall have had
dealings with such arbitrator during the preceding three years.
Executive shall be entitled to receive the bonus provided for in the foregoing
paragraphs for each fiscal year during which he is employed hereunder and, in
addition, for the next 18 months after termination of his employment, except
that said post-termination bonus coverage shall only extend for twelve months
after termination if Executive takes employment (other than as an independent
consultant) with another company in the same industry within twelve months of
termination and shall not apply if Executive has been discharged for cause.
Bonus payments shall be in cash for the fiscal years ending September 30, 1998
and 1999; thereafter the bonus payments shall be payable in cash or a
combination of cash and Restricted Stock or stock options at the discretion of
the Executive.
Executive shall participate in any key executive long-term incentive program or
other executive bonus program which the Board or its Executive Compensation
Committee (if any) may define.
c. Registration of Performance and Incentive Stock Options. The Company agrees
to file with the Securities and Exchange Commission the performance and
incentive stock options granted under paragraph b, above, within 180 days of
executing this Agreement.
d. Non-dilution of Incentive and Performance Options. Options granted with
respect to Section c, above, shall be granted to the Executive on a non-diluted
basis, such that any increase or decrease in the number of shares of common
stock of the Company which occurs during the option period (the time during
which the Executive is an employee and the options remain unexercised for any
reason) will cause the number of options to be proportionately increased or
decreased, commensurate with the change in outstanding shares of the Company.
The option price shall be determined by the Board of Directors so as not to
cause undo financial hardship on Executive and/or the Company.
e. Vacation. Executive shall receive four weeks of vacation per year. Unused
vacation at the expiration of the Agreement's initial three year period will be
paid in cash at a rate equal to the Base Compensation.
e. Automobile allowance. Executive shall receive an unaccountable automobile
allowance of $300 per month.
f. Relocation allowance. Executive shall be entitled to relocation expenses not
to exceed 10% of Executive annual salary and in the event his primary place of
business is subsequently moved in excess of 200 miles from its present location.
g. Executive shall have the right to perform his duties out of any personal
residences he may have, provided that such right does not result in behavior or
actions injurious to the Company.
h. Executive shall be entitled to participate in all perquisites and health and
welfare benefits generally available to other executive officers and employees
of the Company.
i. Reimbursement of all reasonable expenses incurred by Executive in connection
with performance of his duties upon submission of vouchers. Reasonable expense
shall include, but not be limited to all reasonable out-of-pocket expenses for
entertainment, automobile expenses, travel, meals, lodging, professional fees,
professional dues and the like incurred by Executive in the interest of the
Company, subject to such guidelines and policies as may be promulgated by the
Company for senior executives or employees.
<PAGE>
4. EXECUTIVE RIGHTS UPON TERMINATION
In the event that Executive's employment at DCXI is terminated for any reason
other than (a) death, (b) Disability, (c) Cause, (d) voluntary resignation by
Executive not constituting Constructive Termination, or (e) the expiration of
the term of this Agreement, DCXI will pay to Executive Base Compensation for a
period continuing three years after the date of termination. In addition, DCXI
will fully vest all stock options and restricted stock awards previously granted
by DCXI to Executive and fully vest and immediately pay to Executive any accrued
award earned by Executive under the Performance Bonus Plan(s), above, or any
other DCXI executive incentive plans which may exist at the time of termination
and in which the Executive is a participant.
Base Compensation payments shall be made when payments would otherwise have been
made to Executive if he were still employed by DCXI, except in such cases where
a different payment schedule is provided for in other Company-sponsored plans or
programs.
In the event Executive's employment at DCXI is terminated for death, Disability,
Cause, voluntary resignation not constituting Constructive Termination, or upon
expiration of the term of this Agreement, Executive shall not be entitled to any
benefits under this Agreement. This statement, however, shall not preclude
Executive from any payments or benefits available to Executive from
participation in Company-sponsored plans or programs.
5. DESIGNATION OF BENEFICIARIES
If Executive should die while receiving Base Compensation payments pursuant to
Paragraph 4, the remaining Base Compensation payments which would have been paid
to Executive if he had lived shall be paid as designated by Executive on his
Company Beneficiary Designation Form. Such payments shall be made at the same
time and in the same manner as if Executive were alive to receive the payments,
except in such cases where a different payment schedule is provided, or in other
company-sponsored plans or programs.
The filing of a new Company Beneficiary Designation Form will cancel all
designations previously filed. Any finalized divorce or marriage (other than a
common-law marriage) of Executive subsequent to the date of filing of a
beneficiary designation shall revoke such designation, unless:
(a) In the case of divorce, the previous spouse was not designated as
beneficiary, and
(b) In the case of marriage, Executive's new spouse had previously been
designated as beneficiary.
The spouse of a married Executive shall join in any designation of a beneficiary
other than the spouse.
If Executive fails to designate a beneficiary as provided for above, or if the
beneficiary designation is revoked by marriage, divorce, or otherwise without
execution of a new designation, then the Company's Board (or its Compensation
Committee it one exists) shall direct the distribution of any benefits under
this Agreement to Executive's estate.
<PAGE>
6. DUTIES OF EXECUTIVE
Executive as Chief Financial Offer agrees to devote substantially all of his
time and energy to the performance of the duties of that position so long as his
employment in that position shall be continued by DCXI. Notwithstanding the
above, Executive shall be permitted to serve as a Director or Trustee of other
organizations, provided such service does not prevent Executive from performing
his duties under this Agreement.
7. MITIGATION AND OFFSET
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking employment or otherwise, nor to offset the
amount of any payment provided for in this Agreement by amounts earned as a
result of Executive's employment or self-employment during the period he is
entitled to such payment.
8. TAX "GROSS-UP" PROVISION
If any payments due Executive under this Agreement result in Executive's
liability for an excise tax ("parachute tax") under Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), the Company will pay to
Executive, after deducting any Federal, state or local income tax imposed on the
payment, an amount sufficient to fully satisfy the "parachute tax" liability.
Such payment shall be made to Executive not later than 30 days prior to the due
date of the "parachute tax."
9. SUCCESSORS
The rights and duties of a party hereunder shall not be assignable by that
party; provided, however, that this Agreement shall be binding upon and inure to
the benefit of any successor of DCXI, and any such successor shall be deemed
substituted for DCXI under the terms of this Agreement. The term successor as
used herein shall include any person, firm, corporation or other business entity
which at any time, by merger, purchase or otherwise, acquires all or
substantially all of the assets or business of DCXI.
<PAGE>
This Agreement shall also be binding upon and shall inure to the benefit of
Executive, Executive's heirs, executors, administrators and beneficiaries.
10. ENTIRE AGREEMENT
With respect to the matters specified herein, this Agreement contains the entire
agreement between the parties and supersedes all prior oral and written
agreements, understandings and commitments between the parties. This Agreement
shall not affect the provisions of any other compensation, retirement or other
benefit programs of DCXI to which Executive is a party or of which he is a
beneficiary. No amendments to this Agreement may be made except through a
written document signed by both parties.
11. VALIDITY
In the event that any provision of this Agreement is held to be invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of the Agreement.
12. PARAGRAPHS AND OTHER HEADINGS
Paragraphs and other headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
13. NOTICE
Any noticed or demand required or permitted to be given under this Agreement
shall be made in writing and shall be deemed effective upon the personal
delivery thereof is delivered or, if by express delivery service, 24 hours after
placing in the control of the express delivery service; or if mailed, 48 hours
after having been deposited in the United States mail, postage prepaid, and
addressed in the case of DCXI to its then principal place of business, presently
200 West Forsyth Street, Suite 803, Jacksonville Florida 32222 , and in the case
of Executive to:
Mr. Robert S. Vail, CPA
5210 Lodge Creek Drive
Houston, Texas 77066
Either party may change the address to which such notices are to be addressed by
giving the other party notice in the manner herein set forth.
14. ATTORNEYS' FEES
In any action at law or in equity to enforce any of the provisions or rights
under this Agreement, the unsuccessful party to such litigation, as determined
by the Court in a final judgment or decree, shall pay the successful party or
parties all costs, expenses and reasonable attorneys' fees incurred therein by
such party or parties (including without limitation such costs, expenses and
fees on any appeals), and if such successful party or parties shall recover
judgment in any such action or proceeding, such costs, expenses and attorneys'
fees shall be included as part of such judgment.
Notwithstanding the foregoing provision, in no event shall the successful party
or parties be entitled to recover any amount from the unsuccessful party for
costs, expenses and attorneys' fees that exceed the unsuccessful party's costs,
expenses and attorneys' fees in connection with the action or proceeding.
<PAGE>
15. WITHHOLDING TAXES
To the extent required by law, the Company shall withhold from any payments
under this Agreement any applicable federal, state or local taxes.
16. INDEMNIFICATION
So long as Executive is not found by a court of law to be guilty of a willful
and material breach of this agreement, or to be guilty of gross misconduct, he
shall be indemnified from and against any and all losses, liability, claims and
expenses, damages, or causes of action, proceeding or investigations, or threats
thereof (including reasonable attorney fees and expenses of counsel satisfactory
to and approved by Executive) incurred by Executive, arising out of, in
connection with, or based upon Executive's services and the performance of his
duties pursuant to this Employment Agreement, or any other matter contemplated
by this Employment Agreement, whether or not resulting in any such liability
subject to such limitations as are provided by the Colorado Business
Corporations Act; and Executive shall be reimbursed by the Company as and when
incurred for any reasonable legal and other expenses incurred by Executive in
connection with investigating or defending against any such loss, claim, damage,
liability, action proceeding, investigation or threat thereof, or producing
evidence, producing documents or taking any other action in respect thereto
(whether or not Executive is a defendant in or target of such action, proceeding
or investigation), subject to such limitations as are provided by the Colorado
Business Corporations Act.
17. APPLICABLE LAW AND DISPUTE RESOLUTION
To the full extent controllable by stipulation of the parties, this Agreement
shall be interpreted under Florida law. All disputes arising out of this
Agreement will be settled by binding arbitration in Jacksonville, Florida with a
representative of the American Arbitration Association.
IN WITNESS THEREOF, DCX, Inc. has caused this Agreement to be executed by its
duly authorized representatives and Executive has affixed his signature, as of
the date first above written.
For DCX, Inc. Executive
/s/ Stephen Carreker /s/ Robert s. Vail
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Stephen Carreker Robert S. Vail, CPA
Chief Executive Officer
Dated : 3/18/1998 Dated: 3/18/1998
