CONFORMED COPY
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC. 20549
[X] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the twelve month period ending December 31, 1996
Commission file number: 0-28348
DBS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1124675
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 SHORELINE HWY., SUITE 190 A, MILL VALLEY CA 94941
(Address of principal executive offices) (Zip Code)
(415) 380-8055
(Registrant's telephone number, including area code)
FORMER ADDRESS: 495 MILLER AVENUE, MILL VALLEY CA 94941
(Former name, former address and former fiscal year, if changed since last
report)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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
As of March 31, 1997 the aggregate market value for the 4,794,999 shares
of the common stock, par value $.0004 per share, held by non-affiliates was
approximately $7,791,873.
The number of shares outstanding of registrant's only class of common
stock, as of March 31, 1997 was 5,821,003 shares of its common stock, par value
$.0004 per share.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Exhibit Index is located at Page 15.
<PAGE>2
PART I
ITEM 1. BUSINESS
A. GENERAL
DBS Industries, Inc. ("DBSI" or the "Company") is designing and
developing an automated meter reading ("AMR") service utilizing low earth orbit
("LEO") satellites. LEO satellites orbit the earth at regular intervals and,
with the Company's technology, are capable of collecting data from energy
meters in many hard-to-access locations and at a substantial reduction in the
costs of manually retrieving such information. The Company is developing the
hardware and software to accomplish these tasks as well as the potential for
additional data collection applications such as the monitoring of vending
machines and home security systems. The AMR business is primarily conducted by
the Company through its wholly-owned subsidiary Global Energy Metering Service,
Inc. ("GEMS") and its 20% investment in E-Sat, Inc. ("E-SAT"). Further
reference to the Company will also include its subsidiary, GEMS, unless stated
otherwise.
Of slightly less significance is the Company's interest in commercial
broadcasting by use of direct broadcast satellite ("DBS") technology. This is
primarily accomplished through the Company's investment in DBS licensee
EchoStar Communications Corporation ("EchoStar") and potential DBS licensee
Continental Satellite Corporation ("Continental").
The Company's primary strategy is the development of the AMR business,
targeting public utilities in the United States. The Company intends to
promote AMR and build additional value through various direct and indirect
equity investments in communication technologies such as DBS.
A1. LEO SATELLITE INDUSTRY BACKGROUND
The technology of using LEO satellites to gather data has been in
existence for over 20 years and has been used extensively in weather satellite
applications worldwide. Currently, the FCC has approved 3 LEO satellite
license applications for data transmission and has received 4 additional
applications, including E-SAT's. The applications currently with the FCC all
request approval for essentially the same frequency band, but propose using
different communication schemes. The commercial use of LEO satellites is in
its infancy worldwide. Competition will be driven by the ability of each
license holder to build and launch their LEO satellites and by the data
services they propose to provide.
B. GLOBAL ENERGY METERING SERVICES, INC.
GEMS was incorporated in December 1994 to provide the service
applications of the commercial LEO satellite technology developed through its
predecessor company JPS Systems, Inc.("JPS"). In 1995, JPS was formally
consolidated with GEMS and dissolved as a corporate entity. During the two
years prior to consolidation, JPS developed the basic technology of reading
data remotely by LEO satellites and conducted a proof of concept trial for
Pacific Gas & Electric Co. ("PG&E") in California. This trial was completed in
April 1995 and led to the development of a plan for GEMS to provide AMR
solutions for hard-to-access meters owned by public utilities. This plan is
intended to provide suppliers and consumers of the utility and petroleum
industries worldwide remote data collection utilizing LEO satellite technology.
In 1996, GEMS entered into an agreement with the City of Alameda, Bureau of
Electricity, ("Bureau") in California to provide a 5 month trial reading of 4
electric meters.
GEMS also received, in 1996, a purchase order for 10,000 LEO transmitters
from ABB Power T&D Company, Inc. ("ABB") for inclusion in electric meters.
(See ITEM 6. "Management Discussion and Analysis of Financial Condition and
Results of Operation".) Additionally, the Company has an agreement with North
American CLS, Inc. ("NACLS"), providing a limited amount of LEO satellite
capacity for AMR applications utilizing the Argos System-the satellite location
and data collection system under the control of the Centre National d'Etudes
Spatiales (France), and the National Oceanic and Atmospheric Administration
("NOAA"). The Argos System has 4 receivers on board 3 LEO weather satellites
owned by NOAA and operated by the National Aeronautical Space Administration
("NASA"). Unlike the proposed E-SAT technology, which would provide two way
communication to small earth based terminals, the ARGOS system can only receive
one way communications from small earth based transmitters. This agreement
expires December 31, 1997. Although the Company intends to eventually operate
its AMR system utilizing other LEO satellites, currently there are no
agreements in place to secure such satellites. Prior to the anticipated end of
the NACLS agreement, the Company will need to obtain the use of a replacement
satellite. No assurances can be given that a replacement will be available
when required or, if available, that it will be on terms acceptable to the
Company.
<PAGE>3
B1. GEMS TECHNOLOGY BACKGROUND
LEO satellites are particularly suited for AMR, especially in hard-to-
access and rural applications. Many AMR applications require data only
transmission at pre-scheduled intervals and the capacity requirements for AMR
applications are relatively smaller compared to the requirements for the
transmission of voice or video. LEO satellites require less power to operate
than the larger geostationary satellites, such as DBS, translating into lower
capital costs and smaller radios that can be integrated in the actual meter. A
LEO satellite system is also generally less expensive to place into service
than a DBS satellite.
GEMS has shown the viability of its technology and its proposed service
through the JPS/PG&E proof of concept trial completed in April 1995 and with a
series of pilot demonstrations conducted in conjunction with ABB, in which
prototype satellite radios and electric meters were installed at 31 electric
utilities in the Continental United States and 1 utility in South America.
Typical trial demonstrations lasted for a 30 day period, and the demonstrations
were completed in late 1996. The Company has granted ABB exclusive rights to
market GEMS' equipment in conjunction with electric meters in the United
States. In turn, GEMS will be responsible for providing remote reading of all
ABB placed electrical meters with Argos satellite transmitters and for
providing the meter information to subscribing utility companies.
B2. GEMS' MARKET AND COMPETITION
GEMS has focused on electric and gas utilities in the United States,
targeting their high-cost-to-read metering segment. Since meter data has
historically been retrieved by utility personnel, logistical issues such as 1)
significant travel time to a meter site, 2) rugged terrain, 3) physical risk,
4) restricted sites, 5) environmental issues, and 6) mis-reads requiring
additional site visits can contribute to higher costs for utilities.
Approximately 30 competitors are currently developing proposals to
implement AMR at electric and natural gas utilities throughout the United
States. Other proposed AMR technology solutions include terrestrial wireless
radio technologies such as Specialized Mobile Radio, Cellular and Multiple
Address Service licenses, unlicensed radios operating under Part 15 of the FCC
Regulations, and hard wired technologies such as telephone, fiber optics, cable
and power line carriers. While terrestrial wireless technology may be cost
effective in the densely populated urban areas, it may not be cost effective to
automate rural and hard-to-access areas; and it is in these niche market
locations that GEMS intends to compete effectively by utilizing LEO satellite
technology.
Once electric meters with embedded LEO satellite transmitters are fully
developed, the Company expects to market the meters using ABB's marketing and
sales staff. ABB currently has exclusive marketing rights to the GEMS
technology in electric meters in the United States and non exclusive marketing
rights worldwide. GEMS also anticipates that its own marketing staff will be
making initial customer contacts and working to obtain orders for electrical
AMR services.
C. OWNERSHIP IN SEIMAC LIMITED
In November 1995, the Company purchased a 20% equity ownership interest
in Seimac Limited ("Seimac"), a privately-held Canadian satellite radio design
and manufacturing company, in exchange for 165,519 shares of the Company's
common stock. Since 1994, GEMS has been working closely with Seimac to develop
a satellite radio which is intended to be integrated into ABB's Alpha
Stars<trademark> automated electric utility meter. Founded in 1975 in Nova
Scotia, Canada, Seimac specializes in the development of remote data collection
devices used primarily by global ocean research and military organizations for
use in harsh, rugged environments. The Company has worked extensively with
Seimac to develop a transmitter that will fit inside an electric meter and
periodically transmit its data to an Argos satellite. (See Note 4 to the
Company's 1996 Consolidated Financial Statements.)
D. OWNERSHIP IN E-SAT, INC.
E-SAT, a Colorado corporation established in 1994, is owned 20% by the
Company and 80% by EchoStar. In November 1994, E-SAT filed an application with
the FCC for a license to develop a commercial LEO satellite system for data
transmission. Three companies, in a first round of FCC applications submitted
in 1992, were granted data transmission LEO permits in 1993 and 1994. E-SAT's
application was one of four second round applications taken under consideration
by the FCC. All four second round applicants seek the same frequency bands
comprising the total remaining frequencies available in the United States, in
accordance with international agreements, for data transmission by LEOs. The
total capital requirements for the proposed network, including the anticipated
six satellites and start up costs, is estimated to exceed $60 million. In
1996, the Company funded E-SAT expenses of $238,786, which is greater than 20%
of the total expenses to date. The Company's percentage of ownership in E-SAT
is subject to dilution if it cannot meet future funding requirements and no
assurances can be given that the Company will have sufficient resources to meet
the requirements to maintain a leased interest in E-SAT capacity. (See Note 4
to the Company's 1996 Consolidated Financial Statements.)
<PAGE>4
E. OWNERSHIP IN ECHOSTAR COMMUNICATIONS CORPORATION AND CONTINENTAL
SATELLITE CORPORATION, INC.
The Company now owns 270,414 shares of EchoStar Class A Common Stock as a
result of the merger between Direct Broadcasting Satellite Corporation ("DBSC")
and EchoStar. On December 31, 1996, the Securities and Exchange Commission
approved the EchoStar registration statement for the issuance of EchoStar
shares to DBSC shareholders and the merger was formally completed on January 8,
1997. Prior to the merger, the Company owned approximately 25% of the
outstanding shares of DBSC. EchoStar has been a DBS broadcaster since the
unveiling of its service, the "DISH Network," in March 1996. In addition,
EchoStar, through DBSC, is now the holder of a conditional satellite
construction permit and has a contract with Lockheed Martin Corporation for the
construction of two additional satellites, with an anticipated launch of the
first satellite in the Fall of 1997.
In January 1996 the Company purchased 72,030 shares of Continental from
Intraspace Corporation for approximately $2.3 million dollars. Continental has
received an FCC permit for 11 frequencies for DBS service at 61.5 degrees W.L.
and 11 frequencies at 166 degrees W.L. and has entered into a contract for the
construction of 2 satellites.
The Company's ownership interest in Continental and the control of
Continental's FCC permit are being disputed by Loral Aerospace Holdings, Inc.
("Loral"), a subsidiary of Loral Corporation. Loral filed suit in Superior
Court of the State of California in and for the County of Santa Clara, in San
Jose, California, to resolve the matter. Continental shares issued on or after
September 15, 1995, including the Company's shares, were deemed invalid by the
judge in the action, however, it was also indicated that the Company may have
an equitable interest in Continental. Intraspace has agreed to indemnify the
Company against the potential loss of its ownership position and its incurred
legal fees. (See "Legal Proceedings".)
E1. DBS INDUSTRY BACKGROUND
DBS service provides high-powered signals sent directly to the home. DBS
delivers high quality video and audio signals which can be received by an 18"
inch dish with little signal interference and, depending on the satellite's
orbital location, can be broadcast throughout the Continental United States
from a single satellite. Eight satellite orbital slots have been reserved by
the FCC to provide DBS service in the United States.
The FCC has granted conditional satellite construction permits to nine
applicants, including Continental and EchoStar (through DBSC), to implement new
or additional DBS service. Under these grants, each permittee was given
exclusive rights to certain frequency band widths to transmit digital signals
from DBS satellites located at assigned orbital slots. A permittee who has
completed and successfully launched a DBS satellite will be issued a license by
the FCC for a renewable term of 10 years. Prior to licensing, the FCC requires
all permittees to maintain a valid satellite construction contract and to meet
specific schedules for completion and launch of their satellite. Permittees
who fail in their efforts to meet these requirements may have their permits
revoked and the frequencies sold at public auction. In January 1996, the FCC
accepted aggregate bids of $734.8 million for 52 formerly held frequencies.
MCI bid $682.5 million for 28 frequencies at 110 degrees West Longitude
("W.L.") or approximately $25 million per frequency, and EchoStar bid $52.3
million for 24 frequencies at 148 degrees W.L. or approximately $2 million per
frequency. MCI paid a premium on the orbital slot because the signal from one
satellite at that location can reach the entire Continental United States.
E2. DBS MARKET AND COMPETITION
Competition comes from numerous companies engaged in communications and
entertainment, including cable operators, other satellite providers, wireless
cable operators, television networks and home video product companies, as well
as companies developing new technologies. The FCC auction results have shown
that telecommunications companies are willing to spend a substantial amount of
money to enter into the home entertainment market.
E3. THE COMPANY'S STRATEGIC PLAN FOR DBS
The Company is not a DBS permittee and the Company's interest in DBS
permits is solely through its interest in EchoStar and its potential interest
in Continental.
<PAGE>5
F. EMPLOYEES
The Company and its subsidiary currently employ 8 people full-time.
ITEM 2. PROPERTIES
On March 1, 1997, the Company and GEMS leased 2,271 square feet at a
monthly rate of $5,677.50 for their principal offices at 100 Shoreline Hwy.,
Suite 190-A, Mill Valley, California on a 3-year lease which will expire in
March 2000.
ITEM 3. LEGAL PROCEEDINGS
On January 12, 1996, the Company acquired 72,030 shares of common stock
of Continental which the Company believed represented an approximate 34%
interest in Continental Satellite Corporation ("Continental"). Continental has
a conditional construction permit to construct and launch DBS satellites in two
orbital locations which will thereafter entitle it to receive one of the nine
DBS licenses awarded or to be awarded by the FCC. The Company acquired the
72,030 shares of common stock of Continental from Intraspace Corporation for
approximately $2.3 million pursuant to a stock purchase agreement.
The Company financed the purchase of the 72,030 shares of Continental
common stock pursuant to a three-year, $3 million Series B convertible
debenture (the "Convertible Debenture") with EchoStar Communications
Corporation ("EchoStar"). The Convertible Debenture bears interest at the rate
of prime, plus 2% on the outstanding balance. Interest only payments are due
on a quarterly basis and the Convertible Debenture is due on January 12, 1999.
With consent of the holder, the Company may extend the due date in additional
one year increments. At the election of the holder, the holder may receive
interest payments in the form of common stock of the Company based on the
average closing bid price during the quarter. In addition, the holder has the
right to convert the Convertible Debenture, plus any accrued interest, into
common stock of the Company at $7.20 per share subject to adjustment due to
standard anti-dilutive provisions. The Convertible Debenture is subject to
subordination in the event the Company seeks certain types of financing. The
Company may redeem the Convertible Debenture at any time, the Convertible
Debenture is secured by the Company's shares of EchoStar.
On January 22, 1996, Loral Aerospace Holding, Inc. ("Loral") filed a
complaint in the Superior Court of the State of California In and For the
County of Santa Clara (No. CV755366) against Continental and its shareholders.
The complaint seeks declaratory relief to declare that rescission by
Continental of a share certificate issued to Loral is invalid, that a meeting
of Continental's shareholders was not properly noticed and therefore the
meeting and the actions taken at such meeting were invalid, that Loral should
be deemed a 51% shareholder of Continental in accordance with a prior judgment
involving Loral and Continental, that certain shares issued by Continental,
including the 72,030 shares of common stock issued to Intraspace and
subsequently purchased by the Company, were improperly issued and should be
voided, and that a constructive trust should be imposed on 51% of the common
stock issued to defendant shareholders. Loral also sought a temporary
restraining order preventing Continental from taking certain actions in
connection with its common stock including recording any transfer of
Continental common stock on its books and records. The Company was not named
as a defendant in the complaint.
On January 22, 1996, the judge granted a temporary restraining order
preventing Continental from issuing, transferring or otherwise recognizing any
transfer on its books and records of its common stock without court approval.
The temporary restraining order remained in effect until January 26, 1996.
On January 26, 1996, the judge issued a new temporary restraining order
preventing Continental from issuing any new Continental shares that would
dilute Loral's stock interest without first providing written notice of its
intent to Loral. Within 72 hours from written notice, Loral has the right to
acquire, under the same terms and conditions, the Continental shares proposed
to be issued. Loral must exercise its right to acquire additional shares of
Continental within the 72 hour period following the notice or such right will
be waived. The first right of refusal to acquire any proposed new issuance of
Continental shares shall apply only to the extent that Loral's interest remains
below 51% of the issued and outstanding shares of Continental. Further any
shares of Continental acquired by Loral pursuant to this first right of refusal
is subject to rescission by the Court.
At the January 26, 1996 hearing, the judge also scheduled a February 13,
1996 hearing date for consideration of the request for a preliminary injunction
sought by Loral to prevent Continental from taking certain action in connection
with its common stock including recording any transfer of Continental common
stock on its books and records.
<PAGE>6
On May 16, 1996, the judge ruled in favor of Loral's claim that all
shares of Continental issued on or after September 15, 1995, including the
72,030 shares of common stock issued to Intraspace Corporation and sold to the
Company, are invalid. The judge based his decision upon the fact that
Continental did not obtain proper shareholder approval to amend its Articles of
Incorporation to increase the number of shares of common stock that may be
issued. However, the judge further stated that although the Company's shares
in Continental were invalidly issued, Intraspace Corporation and the Company
are not necessarily without an equitable remedy for their contributions.
The Company believes it has a contingent right in Continental. However,
the Company's contingent right in Continental, if any, will not be determined
until the litigation has been completed. Pursuant to the stock purchase
agreement entered into between Intraspace Corporation and the Company,
Intraspace Corporation agreed to defend and indemnify the Company in the event
that there was a breach or inaccuracy of any representation made by Intraspace
Corporation in the agreement. In the event the Company's interest in
Continental is not recognized, the Company may seek indemnity and damages from
Intraspace Corporation pursuant to the stock purchase agreement, since
Intraspace Corporation indicated therein that it had good and marketable title
to the 72,030 shares of Continental.
Although the Company is confident of its position in these legal
proceedings, as with all litigation, there are no assurances of success or
guarantees as to the final outcome.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II.
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
To the Company's knowledge, trading in its Common Stock commenced in the
over-the-counter market in January 1993. The table which follows sets forth
the high and low bid quotations for its Common Stock during each of the last
eight fiscal quarters, as reported by the National Quotation Bureau, Inc. As
of the period ended September 30, 1996, High/Low bids were no longer available
to the Company. All stock prices marked with * reflect the closing bid price
as of the date shown.
Common
QUARTER ENDED HIGH BID LOW BID
April 30, 1995 2.00 .40
July 31, 1995 1.60 .40
October 31, 1995 2.30 .40
December 31, 1995 6.00 .40
March 31, 1996 6.00 5.75
June 30, 1996 4.00 3.75
September 30, 1996 2.38* N/A
December 31, 1996 2.00* N/A
These quotations reflect inter-dealer prices, without retail markup,
mark-down or commission, and may not represent actual transactions. All per
share prices have been adjusted to reflect the Company's 40-to-1 reverse stock
split effected in February, 1996.
As of March 31, 1997, the Company had approximately 528 shareholders of
record. This number does not include shareholders who hold the Company's
securities in street name.
<PAGE>7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
On January 8, 1997, the merger between Direct Broadcasting Satellite
Corporation ("DBSC") and EchoStar Communications Corporation ("EchoStar") was
formally completed. The Company owned approximately 25% of the outstanding
shares of DBSC at December 31, 1996 and as a result of the merger now owns
270,414 shares of EchoStar Class A Common Stock ("EchoStar Shares"). The
EchoStar Shares are currently pledged as security for certain of the Company's
debentures and are, therefore, held in an escrow account. EchoStar (NASDAQ
symbol: DISH) stock was trading at approximately $25.00 per share on January 8,
1997. The merger resulted in a net gain to the Company of approximately $6.2
million, increasing its assets by the same amount. The effect of the merger
will be reflected in the Company's first quarter 1997 financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has been in the development stage since its inception and has
not recognized any significant revenues or capital resources, prior to the DBSC
and EchoStar merger, other than the receipt, of (i) a minimal amount of inside
capitalization funds at its inception, (ii) net proceeds in the amount of
$166,175 from its public offering, (iii) gross proceeds of $70,000 from a sale
of debentures, (iv) subscriptions representing gross proceeds of $2,024,588 in
connection with five private placements of common stock, (v) gross proceeds of
$293,000 from bridge loans made by the Company's president and two
shareholders, (vi) gross proceeds of $1,056,500 from the sale of the Company's
interest in the stock of a company holding a DBS license, and (vii) gross
proceeds of $4,640,000 from the sale of a three convertible debentures..
Additionally, the Company has an established line of credit for $300,000 from
Pacific Bank, Burlingame, California, collateralized by a restricted cash
deposit in the amount of $300,000. As of December 31, 1996, $295,000 was drawn
from this credit facility.
Stockholders' deficit at December 31, 1996 was $2,273.169 compared to
stockholders' equity of $210,532 at December 31, 1995. Although the Company
sold $1 million of common stock in the first quarter of 1996, stockholder's
equity decreased due to the 1996 net loss of approximately $3.8 million.
Subsequent to year end, the net gain resulting from the DBSC merger with
EchoStar, is expected to increase stockholder's equity by approximately $6.2
million, based upon the trading price of EchoStar shares on January 8, 1997.
However, the Company continues to incur approximately $300,000 to $400,000 of
monthly operating costs which will continually act to reduce stockholder's
equity in the absence of the sale of additional equity.
The consolidated balance sheet as of December 31, 1996 reflects cash and
cash equivalents of $402,588 compared to $3,743 as of December 31, 1995. Cash
will continue to be used by the Company for the ongoing development of GEMS'
automatic meter reading ("AMR") business and the Company's operating
activities. The Company anticipates monthly expenses of approximately $300,000
to $400,000 to continue for the balance of 1997. This includes approximately
$50,000 per month for operating expenses, $150,000 per month for legal and
consulting expenses, and $150,000 per month for GEMS' research & development.
Accordingly, cash resources presently available to the Company are not
sufficient to continue operations at their projected level, and additional
capital will be necessary to expand operations or continue current operations.
In addition to the ongoing legal costs necessary to defend its interest in
Continental and legal and consulting costs deemed advisable to maintain its
interest in FCC licenses and pursue pending FCC applications, the Company
expects the development of a low earth orbit satellite transmitter scheduled
for completion in mid 1997 to cost approximately $650,000, of which
approximately $550,000 has already been expended as of December 31, 1996.
Although the Company earned revenue of approximately $11,420 from the sale of
satellite radio units during the quarter ended September 30, 1996, it does not
expect its automated meter reading operations to produce any significant
revenue in 1997 or become profitable until 1999 at the earliest, and no
assurance can be given as to this estimate. Beginning in July 1996, the
Company began to receive milestone payments under the terms of a $1.2 million
purchase order for 10,000 satellite radio units. Under this agreement, the
Company is eligible to receive up to $500,000 towards development costs upon
meeting the milestone requirements of the contract. As of December 31, 1996,
the Company has met the first four milestones of the contract and has received
$400,000 in cash. These funds are currently classified as unearned revenue, and
all such milestone payments are subject to refund if the Company fails to meet
certain development and delivery milestones. Unless and until the Company is
able to raise additional funds or become profitable through its subsidiary's
automated meter reading operations, the Company's liquidity and capital
resources will continue to be depleted. Historically, the Company has funded
its operations and obligations through the private placement of equity
securities and convertible debentures. The Company may continue to fund its
<PAGE>8
commitments through these financing methods, however, no assurances can be
given that the Company will be able to raise the necessary capital to meet its
commitments. In the event the Company is unable to raise the necessary
capital, its business objectives will be adversely affected. The Company now
owns 270,414 shares of EchoStar Class A common stock as a result of the merger
of DBSC and EchoStar, as described above (see Item 6. General). As of January
8, 1997, shares of EchoStar common stock traded on the Nasdaq National Market
System under the trading symbol "DISH", at a price of approximately $25.00 per
share. All of the shares of EchoStar common stock received as a result of the
merger have been pledged to secure certain of the Company's debentures and are,
therefore, held in an escrow account.
Total assets at December 31, 1996 were $4,629,177 compared to $1,839,060
at December 31, 1995. The largest components of total assets represent
investments in and advances to affiliated companies of $1,496,524 compared to
$1,349,312 at December 31, 1995, and other assets of $2,292,409 at September
30, 1996 compared to $62,996 at December 31, 1995. Other assets increased by
approximately $2.2 million which represents the purchase price of the
Continental common shares. (See note 4 to the consolidated financial
statements.) Total current assets increased from $355,898 at December 31,
1995 to $771,532 at December 31, 1996.
Net cash used in operating activities of $1.6 million during 1996
resulted from the Company's net loss of $3.8 million offset somewhat by non-
cash charges of $393,000, increases in liabilities of $1,239,000, and deferred
revenues of $400,000.
Net cash used in investing activities of $2.6 million during 1996
resulted primarily from the Company's purchase of shares of common stock of
Continental Satellite Corporation, Inc. (see Item 1 "Business" and Note 4 to
the Company's 1996 Consolidated Financial Statements) for $2.3 million and
investments in and advances to affiliates of $284,000.
Cash provided by financing activities of $4.6 million during 1996
resulted from the issuance of debentures to EchoStar for $3.6 million and the
sale of shares of the Company's common stock in a private placement of $1
million.
RESULTS OF OPERATIONS
The Company remains in the development stage and did not generate any
revenues other than $11,420 earned by GEMS, nor any net interest earnings for
the year ended December 31, 1996. There were no revenues or net interest
earnings for the year ended December 31, 1995.
The Company's net loss for the year ended December 31, 1996 was
$3,752,583 compared to a net loss for the five month period ended December 31,
1995 of $662,877 and $1,284,588 for the twelve month period ended July 31,
1995. General and administrative costs were $2,245,588 for the year ended
December 31, 1996 compared to $334,694 for the five month period ended December
31,1995 and $693,851 for the twelve months ended July 31, 1995. Research and
development costs associated with GEMS were $1,078,747 for the year ended
December 31, 1996 compared to $219,143 for the five month period ended December
31, 1995 and $461,061 for the twelve month period ended July 31, 1995. Loss
from operations was $3,323,765 for the year ended December 31, 1996 compared to
$553,837 for the five month period ended December 31, 1995 and $1,164,912 for
the twelve month period ended July 31, 1995.
The Company's accumulated deficit at December 31, 1996 rose to $6,908,046
from $3,155,463 at December 31, 1995 and it is believed will continue to
increase unless and until the Company generates revenues from the operations of
GEMS in such amounts so as to cover the Company's expenses. As a result of the
DBSC merger with EchoStar, the Company received 270,414 shares of common stock
of EchoStar which resulted in a net gain to the Company of approximately $6.2
million, which will be reflected in the Company's 1997 first quarter financial
statements. Revenues substantial enough to make the Company profitable are not
expected to be generated until 1999, and no assurances can be given as to that
estimate. The Company has been devoting a substantial amount of its financial
and personnel resources toward developing the Company's AMR business.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The response to this item is being submitted as a separate section of
this report beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>9
PART III.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The present directors and executive officers of the Company, their ages,
positions held in the Company, and duration as such, are as follows:
NAME POSITION AGE PERIOD
Fred W. Thompson Chairman of the Board,
President, Chief 54 December 1992 - present
Executive Officer and
Chief Financial Officer November 1993 -present
Michael T. Schieber Director 57 December 1992 - present
Secretary
Bruce Christopher Director 42 August 1994 - present
E.A. James Peretti Director, President and 54 February 1996 - present
Chief Executive Officer,
GEMS
H. Tate Holt Director 45 February 1996 - present
The Company adopted staggered terms for its Board of Directors at the 1996
Annual Stockholders Meeting. Mr. Christopher will serve until the next annual
meeting of stockholders or until his successor is elected. Messrs. Schieber
and Holt will serve until the 1998 annual meeting of stockholders or until
their successors have been elected, and Messrs. Thompson and Peretti will serve
until the 1999 annual meeting of stockholders or until their successors have
been elected.
CERTAIN SIGNIFICANT EMPLOYEES
While the following person does not serve as a director or executive
officer of the Company, he does serve as an executive officer or director of
the Company's subsidiary and is considered to be a significant employee of that
subsidiary.
Randall L. Smith Executive vice-president,
Chief Engineer 42 January 1996 - present
Director of GEMS
President and Director of GEMS July 1995 - January 1996
President of JPS July 1993 - June 1995
BUSINESS EXPERIENCE
The following is a brief account of the education and business experience
during at least the past five years of each director, executive officer, and
key employee, indicating the principal occupation and employment during that
period, and the name and principal business of the organization in which such
occupation and employment were carried out.
BIOGRAPHICAL INFORMATION
FRED W. THOMPSON, serves as CHAIRMAN OF THE BOARD, PRESIDENT, AND CEO of
the Company. Mr. Thompson also serves as a member of the Board of Directors of
Continental Satellite Corporation and is vice-president of E-Sat, Inc. He has
over thirty years' experience in the telecommunications industry. From 1983 to
1986, Mr. Thompson managed Inter Exchange Consultants, Inc., a company he
founded, providing management, design and engineering services for initial
<PAGE>10
cellular telephone operations in New York City, San Francisco, Los Angeles and
other major cities in the U.S. From 1986 to 1990, Mr. Thompson devoted his
time to consulting on various telecommunication matters as an independent
contractor. His career of over 20 years with AT&T included various management
positions in the Long Lines Department, Western Electric Company, Bell Labs and
with several operating telephone companies. Mr. Thompson received a BS degree
in Electrical Engineering from California Polytechnic.
MICHAEL T. SCHIEBER, DIRECTOR, has served as a Director of the Company
since December 1992. He has served as the Managing General Partner of ZAMSTL
Partners, a real estate development firm in Washington State since June 1991,
and has also served since 1986 as a Director on the Executive Board of Sterling
Communications, the winner of a rural cellular telephone license for Sun
Valley, Idaho. From 1987 to December 1992, Mr. Schieber was the Managing
Partner of Amador Telecommunications and since 1990 has been a partner in
Columbia Communications, both investors in nation-wide paging licenses. Mr.
Schieber also holds minority interests in two Illinois cellular telephone
licenses. He retired from the Department of Fisheries with the State of
Washington in May 1993 where he had served as a civil engineer since 1984. He
is also a retired Air Force Major and Command Pilot. Mr. Schieber received an
MA degree in International Relations and Government from the University of
Notre Dame, a BS in Engineering from the Air Force Academy, and a BA in
Business from The Evergreen State College.
BRUCE CHRISTOPHER, DIRECTOR, has been working as a marketing consultant
over the past seven years. Mr. Christopher has been instrumental in raising
capital, attracting technology partners and generating business plans for
several technology based start-up companies. He started his career in 1977
working in various Sales and Marketing roles beginning with IBM, Texas
Instruments, and Hewlett-Packard Company. Mr. Christopher has been a key
contributor to the successful launching, managing and selling of companies such
as Mountain Computer, Inc., Micro Integration Corp., and Mass Memory
Technology. His management efforts have been utilized as the Vice President of
North American Sales at Anamartic Ltd. and North American Sales Manager at
Ferranti Electronics Ltd. For the past nine years, Mr. Christopher has been
working as a sales and marketing consultant to various start-up companies in
Silicon Valley and is currently setting up a new company to provide engineering
services and chip design consulting services in Los Gatos, California. Mr.
Christopher graduated with a BS degree in Psychology from California Lutheran
University.
E.A. JAMES PERETTI, DIRECTOR appointed in February 1996, and President
and Chief Executive Officer of Global Energy Metering Service, Inc., a wholly
owned subsidiary of DBSI. Previously, Mr. Peretti served as President of
Westinghouse Electric Supply Company (WESCO), a business unit of Westinghouse
Electric Corp. He also served as a Vice President and officer of Westinghouse
Electric Corp. During his 30 year tenure with WESCO, Mr. Peretti also held
positions as Vice President and General Manager of its Pacific Division. Mr.
Peretti holds a BS degree from Purdue University in Electrical Engineering and
a MBA from the University of Hawaii.
H. TATE HOLT, DIRECTOR appointed in February 1996, is currently President
of Holt & Associates, a growth management consulting firm, and has held that
position since July 1990. Previously, from 1987 to 1990, Mr. Holt was a Senior
Vice President at Automatic Data Processing, Inc. in Roseland, New Jersey and
Santa Clara, California. Mr. Holt has over twenty years of experience in
various senior sales, marketing and general management positions with IBM,
Triad Systems, and ADP. He has participated in major restructuring and
strategic planning in these and other companies. Since 1990, Holt & Associates
has assisted its clients in developing and achieving aggressive growth targets,
both domestically as well as internationally. Mr. Holt is also an active
director of several private and publicly traded companies including Onsite
Energy and has been nominated to serve on the Board of Directors of Holiday RV
Superstores. Mr. Holt holds an AB from Indiana University.
RANDALL L. SMITH, EXECUTIVE VICE PRESIDENT AND CHIEF ENGINEER OF GLOBAL
ENERGY METERING SERVICE, INC. joined the Company in July 1993 as President of
JPS Systems, Inc. Mr. Smith has been a key person in the research and
development of providing worldwide turnkey services to utilities, gas and oil
well operators, and bulk energy distributors and users for the measurement,
transmissions and processing of wellhead data. During 14 years at PG&E, his
experience included being the Project Manager for the energy gas and electric
automation throughout PG&E, automatic meter reading and time use control, real-
time pricing, tamper detection, and distribution generation dispatch. He
formulated strategic and financial justification, planned the implementation of
<PAGE>11
systems, and presented technological advancements regarding distribution
automation at PG&E and throughout the utility industry. Prior to that, he was
a Gas and Electric Engineering Supervisor, controlling an $18 million annual
budget, and was the project manager of the Cell Net project, a joint venture
with Digital Automation Company which was the forerunner of the Energy
Communication Network Project. Mr. Smith is a licensed professional engineer
in California and received a BS degree in Electrical Engineering from Michigan
Technological University.
FAMILY RELATIONSHIPS
There are no family relationships between any director, executive officer
or key employee.
ITEM 10. EXECUTIVE COMPENSATION
(A) CASH COMPENSATION
The following table provides certain summary information for the year
ended December 31, 1996, concerning compensation in excess of $100,000 paid or
accrued by the Company and its subsidiary to or on behalf of the Company's
executives and/or employees.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Other Securities
Name and Annual Underlying
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS(2)
Fred W. Thompson
Chief Executive Officer 1996 $180,000(3) $ 4,245 312,500
1995(4) $ 30,000 $ 2,577 4,500
1995 $ 72,000 $ 6,521 0
1994 $ 72,000 $ 7,086 8,125
E.A. James Peretti
CEO GEMS 1996 $155,000 $ 971 375,000
Randall Smith
Executive VP. GEMS 1996 $125,000 $ 2,216 125,000
</TABLE>
(1) Consists entirely of payment of insurance premiums.
(2) Common stock of DBS Industries, Inc.
(3) $72,000 paid in cash, $108,000 deferred pursuant to his employment
agreement
(4) For the transition period from August 1, 1995 to December 31, 1995
Mr. Thompson entered into an employment agreement with the Company on
April 18, 1996 effective January 1, 1996. His annual salary under the
agreement is $180,000, and includes non-qualified stock options to purchase
312,500 shares of the Company's common stock. Pursuant to the agreement, the
Company paid $72,000 of Mr. Thompson's salary and the remaining portion has
been deferred until certain financing requirements of the Company have been
achieved. The Company has maintained a key person insurance policy on Mr.
Thompson's life in the face amount of $2,000,000, and is the sole beneficiary
of such policy. The Company also entered into employment contracts with E.A.
James Peretti, CEO of GEMS, and Randall Smith, Executive VP of GEMS and Chief
Engineer. Mr. Peretti's agreement includes an annual salary of $155,000 and
non-qualified stock options to purchase 375,000 shares of common stock. Mr.
Smith's agreement includes an annual salary of $125,000 and non-qualified stock
options to purchase 125,000 shares of common stock.
<PAGE>12
(B) COMPENSATION PURSUANT TO STOCK OPTION PLAN
The Company has established a 1996 Stock Option Plan (the "Plan") to
serve as a vehicle to attract and retain the services of key employees and to
help such key employees realize a direct proprietary interest in the Company.
The Plan provides for the grant of non-statutory and incentive stock options.
The exercise price of any incentive stock option granted under the Plan may not
be less than 100% of the fair market value of the common stock of the Company
on the date of grant. The fair market value for which an option may be granted
incentive stock options in any calendar year may not exceed $100,000. Shares
subject to options under the Plan may be purchased for cash. Unless otherwise
provided by the Board, an option granted under the Plan is exercisable for a
term of ten years (or for a shorter period up to ten years). The Plan is
administered by the Board of Directors and its Compensation Committee, which
has discretion to determine optionees, the number of shares to be covered by
each option, the exercise schedule, and other terms of the options. The Plan
may be amended, suspended, or terminated by the Board, but no such action may
impair rights under a previously granted option. Each option is exercisable,
during the lifetime of the optionee, only so long as the optionee remains
employed by the Company. No option is transferable by the optionee other than
by will or the laws of descent and distribution.
The Company intends to file one or more registration statements on Form
S-8 under the Securities Act to register shares of common stock subject to
stock options that will permit the resale of such shares, subject to vesting
restrictions with the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The General Corporation Law of the State of Delaware permits
indemnification of directors, officers, and employees of corporations under
certain conditions subject to certain limitations. Article XII of the
Company's certificate of incorporation states that the Company may provide
indemnification of its agents, including its officers and directors, for breach
of duty to the Company to the maximum extent permitted by the General
Corporation Law. Article VI of the Bylaws provide that the Company shall, to
the maximum extent and in the manner permitted in the Corporations Laws,
indemnify each of its agents, including its Officers and Directors, against
expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact any such person is or was an agent of the Company.
OPTIONS GRANTS IN THE YEAR ENDED DECEMBER 31, 1996
Individual Grants
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted in Fiscal Price Expiration Grant Date
NAME 1996 YEAR ($/SH)* DATE PRESENT VALUE
Fred W. Thompson 312,500 31.1% $2.00 Jan 2006 $450,000
President, CEO
E.A. James Peretti 375,000 37.32% $2.00 Jan 2006 $540,000
CEO GEMS
Randall Smith 125,000 12.44% $2.00 Jan 2006 $180,000
Exec. VP GEMS
*Reflects exercise price on December 31, 1996. The exercise price was amended
to $1.4375 in February 1997.
<PAGE>13
FISCAL YEAR-END OPTION VALUE
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARS at FY End (#) Options/SARS at FY End ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
Options at December 31, 1996 Options at December 31, 1996
Fred W. Thompson 87,315 / 244,685 $0 / $0
President, CEO
E.A. James Peretti 150,000 / 225,000 $0 / $0
CEO GEMS
Randall Smith 72,016 / 91,734 $27,520* / $32,480*
Exec. VP GEMS
*Reflects exercise price of $2.00 per share on December 31, 1996. The exercise
price was amended to $1.4375 per share in February 1997.
COMPENSATION OF DIRECTORS
The Company reimburses directors for expenses incurred in connection with
attending Board meetings but does not pay director's fees or other compensation
for services rendered as a director. In lieu of fees the Company grants to
each director options to purchase 37,500 shares of Common Stock for each year
of service successfully completed, under a non-qualified stock option plan as
approved by a shareholder vote in 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) & (B) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 31, 1997, the persons listed in the table set forth below
were known by the Company to own or control beneficially more than five percent
of the Company's outstanding Common Stock, par value $.0004 per share. The
table also sets forth the total number of shares of these securities owned by
each director, director nominee and officer of the Company and of all
directors, director nominees and officers as a group as of March 31, 1997, and
all options and warrants exercisable through May 30, 1997.
Name and Address of Beneficially and Percent
TITLE OF CLASS BENEFICIAL OWNER RECORD OWNED OF CLASS
Common Stock Fred W. Thompson 766,313 (1) 11.9%
109 William Avenue
Larkspur, CA 94939
Common Stock Michael T. Schieber 371,559 (2) 5.8%
5520 Beverly Drive NE
Olympia, WA 98506
<PAGE>14
Common Stock E.A. James Peretti 225,000 (3) 3.5%
8613 Paradise Lagoon Drive
Lucerne, CA 95458
Common Stock Bruce Christopher 195,409 (4) 3.0%
4892 Ironwood Drive
Soquel, CA 95073
Common Stock H. Tate Holt 87,629 (5) 1.4%
240 Wilson Way
Larkspur, CA 94939
Common Stock Officers, Directors
and Nominees as a
Group (5 persons) 1,645,910 25.6%
(1) Includes (i) 599,558 held in Thompson 1996 Revocable Trust and (ii)
options to purchase 156,250 shares at $1.44 expiring on January 1 2006,
and 3,551, 3,044, and 2,535, and 1,375 common shares exercisable at $1.58
per share and expiring February 8, 1999, February 8, 1999 February 15,
2000, and December 31, 2000 respectively.
(2) Includes (i) 285,625 shares held jointly with spouse, Arlene Schieber,
(ii) 8,575 held solely by Mr. Schieber, (iii) 1,075 held solely by Ms.
Schieber, of which shares Mr. Schieber disclaims beneficial ownership,
and (iv) options to purchase 6,250, 13,750, 6,250, 12,534, and 37,500
common shares all exercisable at $1.44 per share which expire on November
22, 2003, February 15, 2005, December 31, 2005, February 15, 2006, and
April 30, 2006, respectively.
(3) Options to purchase 225,000 common shares exercisable at $1.44 per share,
which expire January 1, 2006.
(4) Includes (i) 136,000 Held jointly with spouse, Christy Hertzberg and (ii)
options to purchase 9,375, 12,534, and 37,500 common shares exercisable
at $1.44 per share which expire December 31, 2005, February 15, 2006 and
April 30, 2006, respectively.
(5) Includes (i) 4,821 held solely by Mr. Holt, and (ii) options to purchase
7,808, 37,500, and 37,500 common shares all exercisable at $1.44 per
share which expire on December 15, 2006, April 30, 2006, and April 30,
2006, respectively.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995 and 1996, the Company has not been a party to any
transaction, proposed transaction, or series of transactions in which the
amount involved exceeds $60,000, and in which, to the knowledge of the Company,
any director or executive officer, nominee, five percent beneficial security
holder, or any member of the immediate family of the foregoing persons have, or
will have a direct or indirect material interest.
<PAGE>15
PART IV
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
The following Financial Statements pertaining to the Company are filed as
part of this report:
Report of Independent Accountants F-1
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5 to F-7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9 to F-24
(A) EXHIBITS
The following Exhibits are filed with this report:
NAME OF EXHIBIT
* (2.1) Plan and Agreement of Reorganization, dated September 30, 1992,
entered into with DBS Network, Inc. and certain of its Shareholders
which was previously filed in, and is hereby incorporated by
reference to, the Company's Current Report on Form 8-K, date of
report, December 2, 1992.
* (3.0) Certificate of Incorporation, which was previously filed in, and is
hereby incorporated by reference to, the Company's Registration
Statement on Form S-18, No. 33-31868-D, effective May 11, 1990.
* (3.1) Bylaws, which was previously filed in, and is hereby incorporated
by reference to, the Company's Registration Statement on Form S-18,
No. 33-31868-D, effective May 11, 1990.
(3.2) Restated Certificate of Incorporation, as adopted on August 8,
1996.
* (4.1) Form of Unit Warrant Agreement, which was previously filed in, and
is hereby incorporated by reference to, the Company's Registration
Statement on Form S-18, No. 33-31868-D, effective May 11, 1990.
* (4.2) Specimen Stock Certificate.
* (10.2) Employment Agreement between Fred W. Thompson and DBS Network,
Inc., dated September 1, 1992.
* (10.3) Employment Agreement between Randall L. Smith and JPS Systems,
Inc., dated July 1, 1993.
* (10.4) Employment Agreement between Ellen D. Coll and DBS Industries,
Inc., dated March 1, 1993.
* (10.5) Stockholder Line of Credit and Investment Agreement between DBSN
and Direct Broadcasting Satellite Corporation, dated January 24,
1993.
<PAGE>16
* (10.5A) Promissory Note January 29, 1993 executed by Direct Broadcast
Satellite Corporation issued pursuant to Stockholder Line of
Credit and Investment Agreement
* (10.5B) Promissory Note April 19, 1993 executed by Direct Broadcast
Satellite Corporation issued pursuant to Stockholder Line of
Credit and Investment Agreement
* (10.5C) Promissory Note August 1, 1993 executed by Direct Broadcast
Satellite Corporation issued pursuant to Stockholder Line of
Credit and Investment Agreement
* (10.6) 1993 Incentive Stock Option Plan for DBS Industries, Inc.
* (10.7) 1993 Non-Qualified Stock Option Plan for Non-Employee Directors
of DBS Industries, Inc.
* (10.8) 1993 Non-Qualified Stock Option Plan for Consultants of DBS
Industries, Inc.
* (10.9) Commercial Lease and Sublease and Consent pertaining to
Mill Valley, California office space.
* (10.12) Satellite Construction Contract, dated as of March 12, 1990,
between Direct Broadcast Satellite Corporation and Martin
Marietta as successor to General Electric Company, Astro-Space
Division.
* (10.13) Contract Modification No. 1, dated as of March 30, 1992, to
Exhibit 10.12.
* (10.14) Contract Modification No. 2, dated as of November 12, 1992, to
Exhibits 10.12 and 10.13.
* (10.15) Contract Modification No. 3, dated as of April 2, 1993, to
Exhibits 10.12, 10.13 and 10.14.
* (10.16) Contract Modification No. 4, dated as of June 10, 1993, to
Exhibits 10.12, 10.13, 10.14 and 10.15.
* (10.17) Contract Modification No. 5, dated as of July 30, 1993, to
exhibits 10.12, 10.13, 10.14, 10.15 and 10.16.
* (10.18) DSAT Sale Agreement incorporated by reference to the Company's
Current Report on Form 8-K dated July 21, 1994.
* (10.19) AXION Sale Agreement incorporated by reference to the Company's
Current Report on Form 8-K dated May 16, 1994.
* (10.20) AXION Royalty Agreement incorporated by reference to the
Company's Current Report on Form 8-K dated May 16, 1994.
* (10.21) Burlingame Bank Line of Credit Agreement comprised of Business
Loan Agreement and Promissory Note, both dated September 6, 1994.
* (10.22) Burlingame Bank Line of Credit Change in Terms Agreement.
* (10.23) Stock Purchase Agreement between Intraspace Corporation and DBS
Industries, Inc. incorporated by reference to the Company's
Current Report on Form 8-K dated 2/01/96.
* (10.24) DBS Industries, Inc. $3,000,000, Three Year Convertible
Debenture, Series B due January 12, 1999 incorporated by
reference to the Company's Current Report on Form 8-K dated
2/01/96.
<PAGE>17
* (10.25) Memorandum of Understanding between ABB Power T&D Company, Inc.
and Global Energy Metering Service, Inc. dated February 9, 1996.
* (10.26) Stock purchase Agreement between Seimac Limited and DBS
Industries, Inc., comprised of Common Stock Exchange Agreement
and Shareholders Agreement both dated December 13, 1995.
* (10.27) DBS Industries, Inc. $1,000,000, Three Year Convertible
Debenture, Series A due July 1, 1998.
* (10.28) NACLS Contract No. 95/2475 and Schedule A dated 12/01/95.
* (10.29) Letter dated November 8, 1996 to Donald H. Gips, Chief,
International Bureau, Federal Communications Commission, from
William L. Fishman, Corporate Counsel to Direct Broadcasting
Satellite Corporation.
(10.30) DBS Industries, Inc. $640,000 Three Year Convertible Debenture,
Series C, due December 31, 1999.
(10.31) Employment Agreement between Fred W. Thompson and the Company,
dated April 18, 1996.
(10.32) Employment Agreement between Randall L. Smith and GEMS (the
Company's subsidiary), dated March 1, 1996.
(10.33) Employment Agreement between E.A. James Peretti and GEMS (the
Company's subsidiary) dated April 18, 1996.
(10.34) 1996 Stock Option Plan.
(21.1) List of Subsidiaries of DBS Industries, Inc.
*Previously filed in, and incorporated by reference to, Form 10-K for Fiscal
Years July 31, 1993 July 31, 1994, July 31, 1995, and December 31, 1995 or Form
8-K where indicated.
REPORTS ON FORM 8-K
Date of Report: January 10, 1997, reporting the merger of Direct
Broadcasting Satellite Corporation and EchoStar Communications.
Date of Report: January 12, 1996, reporting the acquisition of an
interest in Continental and change in the Company's fiscal year.
Subsequent to the acquisition of the interest in Continental, the Company
requested financial information from Continental but to date has not received
any such financial information. It is the Company's belief that Continental's
failure to present its financial information is due to its involvement in the
litigation between DBS and Loral.
<PAGE>18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-KSB to be signed on its behalf by the undersigned, duly authorized.
Date: April 14, 1997 DBS INDUSTRIES, INC.
FRED W. THOMPSON
By: Fred W. Thompson, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, which include the
Principal Executive Officer, the Principal Financial Officer and a majority of
the Board of Directors on behalf of the Registrant and in the capacities and on
the dates indicated.
NAME TITLE DATE
FRED W. THOMPSON
Fred W. Thompson President, Director, April 14,1997
Principal Executive Officer
E.A. JAMES PERETTI
E.A. James Peretti Director April 14,1997
MICHAEL T. SCHIEBER
Michael T. Schieber Director, Secretary April 14, 1997
BRUCE CHRISTOPHER Director April 14, 1997
Bruce Christopher
H. TATE HOLT Director April 14, 1997
H. Tate Holt
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant
to Section 12 of the Act.
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
DBS Industries, Inc.:
We have audited the accompanying consolidated balance
sheets of DBS Industries, Inc. and subsidiary (a development
stage company) as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the year ended December 31, 1996,
the five-month transition period ended December 31, 1995, and
the year ended July 31, 1995. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did
not audit the 1995 and 1994 financial statements of Direct
Broadcasting Satellite Corporation (DBSC), the investment in
which is reflected in the accompanying financial statements
using the equity method of accounting (see Note 4 to the
consolidated financial statements). The Company's investment in
DBSC as of December 31, 1995 was $616,002, or approximately 33%
of consolidated assets. The Company's equity in DBSC's net
losses for the five-month period ended December 31, 1995 and the
year ended July 31, 1995 were $56,332 and $81,887, respectively.
DBSC's 1995 and 1994 financial statements were audited by other
auditors whose report, which includes an explanatory paragraph
regarding DBSC's ability to continue as a going concern, has
been furnished to us, and our opinion, in so far as it relates
to the amounts included for DBSC as of December 31, 1995 and for
the five-month period ended December 31, 1995 and the year ended
July 31, 1995, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of
the other auditors, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of DBS Industries, Inc. and subsidiary as of
December 31, 1996 and 1995 and the consolidated results of their
operations and their cash flows for the year ended December 31,
1996, the five-month transition period ended December 31, 1995,
and the year ended July 31, 1995 in conformity with generally
accepted accounting principles.
<PAGE>
To the Board of Directors and Stockholders of
DBS Industries, Inc.: - 2
The accompanying financial statements have been
prepared assuming the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements,
the Company has incurred losses and negative cash flows from
operating activities since inception and will require additional
financing. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's
plans as to these matters are also described in this note. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
San Francisco, California
March 7, 1997
<PAGE>F-3
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1996 1995
Current assets:
Cash and cash equivalents $ 402,588 $ 3,743
Restricted cash 300,000 300,000
Prepaid and other current assets 68,944 52,155
Total current assets 771,532 355,898
Furniture and equipment 73,277 52,778
Less accumulated depreciation 34,406 21,371
38,871 31,407
Other assets:
Investments in and advances to
affiliated companies 1,496,524 1,349,312
Goodwill, net of accumulated
amortization of $61,149 and
$51,543 at December 31, 1996
and 1995, respectively 29,841 39,447
Other assets 2,292,409 62,996
3,818,774 1,451,755
Total assets 4,629,177 1,839,060
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Convertible debentures 4,640,000 1,000,000
Line of credit 295,000 300,000
Accounts payable 960,277 273,713
Accrued liabilities 607,070 54,815
Deferred revenues 400,000 -
Total current liabilities 6,902,347 1,628,528
Commitments (Notes 4 and 8).
Stockholders' (deficit) equity:
Preferred stock, $.0004 par value;
5,000,000 shares authorized; none
issued and outstanding - -
Common stock, $.0004 par value;
100,000,000 shares authorized;
5,827,509 and 5,528,039 shares issued
and outstanding at December 31, 1996
and 1995, respectively 2,351 2,232
Capital in excess of par value 4,605,026 3,448,763
Warrants 112,500 -
Deficit accumulated during the
development stage (6,908,046) (3,155,463)
Less cost of common stock held in
treasury (51,562 shares as of
December 31, 1996 and 1995) (85,000) (85,000)
Total stockholders'
(deficit) equity (2,273,169) 210,532
Total liabilities and
stockholders' (deficit)
equity $ 4,629,177 $1,839,060
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>F-4
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the For the For the April 25,
Twelve-Month Five-Month Twelve-Month 1990
Period Ended Period Ended Period Ended (Inception) to
December 31, December 31, July 31, December 31,
1996 1995 1995 1996
<S> <C> <C> <C> <C>
Revenue $ 11,420 - $ 13,000 $ 161,420
-------- -------- ---------- ----------
Costs and operating expenses:
Cost of revenue 10,850 - 23,000 127,580
Selling, general and
administrative 2,245,588 334,694 693,851 4,990,826
Research and development 1,078,747 219,143 461,061 1,959,456
--------- ------- --------- ---------
3,335,185 553,837 1,177,912 7,077,862
--------- ------- --------- ---------
Loss from operations (3,323,765) (553,837) (1,164,912) (6,916,442)
--------- ------- --------- ---------
Other income (expenses):
Interest, net (395,298) (35,028) 23,869 ( 433,786)
Equity in loss of investees,
net (31,920) (72,312) (112,595) ( 331,802)
Gain on sale of investment - - - 836,478
Other, net - - (27,720) ( 56,634)
--------- -------- -------- ---------
(427,218) (107,340) (116,446) 14,256
--------- -------- -------- ---------
Loss before provision
for income taxes and
minority interests (3,750,983) (661,177) (1,281,358) (6,902,186)
Provision for income taxes 1,600 1,700 3,200 14,435
--------- ------- -------- ---------
Loss before minority
interests (3,752,583) (662,877) (1,284,558) (6,916,821)
Minority interests in losses
of consolidated subsidiaries - - - 8,575
___________ _________ __________ ___________
Net loss $(3,752,583) $(662,877) $(1,284,558) $(6,908,046)
=========== ========= =========== ===========
Net loss per share $ (0.6484) $ (0.1233) $ (0.2411)
=========== ========= ===========
Weighted average number of
shares of common stock 5,787,185 5,376,991 5,328,334
=========== ========= ==========
</TABLE>
<PAGE>F-5
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)
for the period from December 31, 1990 to December 31, 1996
<TABLE>
<CAPTION>
Deficit Total
Common Stock Accumulated Stock-
Capital in During the holders'
Par Excess of Treasury Development Equity
Shares Value Par Value Warrants Stock State (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 of
DBSN as restated pursuant to the
merger on December 2, 1992 301,000 $120 $46,375 - - $(219,990) $(173,495)
Issuance of common stock for
professional services at
$.01 to $2.14 per share 520,000 208 47,542 47,750
Issuance of common stock for
cash at $.01 to $1.00 per
share 244,500 98 124,507 - - - 124,605
Stock issue costs for the twelve
months ended December 31, 1991 - - (15,774) - - - (15,774)
Net loss for the twelve months
ended December 31, 1991 - - - - - (115,339) (115,339)
-------- --- ------- ---- ------- --------- --------
Balance at December 31, 1991 1,065,500 426 202,650 - - (335,329) (132,253)
Issuance of common stock for
cash at $.01 to $1.00 per
share 1,317,290 527 538,998 - - - 539,525
Issuance of common stock for
professional services at
$.01 to $.10 per share 214,240 86 12,338 12,424
Issuance of common stock in
payment of stockholder
loans:
June 1992 at $.01 per share 230,000 92 2,208 - - - 2,300
Net loss for the seven months
ended July 31, 1992 - - - - - (90,750)
--------- ----- ------- ----- ------- -------- -------
Balance at July 31, 1992 2,827,030 1,131 756,194 - - (426,079) 331,246
Shares of Fi-Tek IV, Inc.
from August 3, 1989
(inception) through
December 2, 1992 817,540 327 155,450 - - - 155,777
Issuance of common stock for
cash at $.01 to $3.20 per
share 1,313,926 527 998,088 - - - 998,615
Issuance of common stock for
interest at $5.00 per share 10,000 4 4,996 - - - 5,000
Issuance of common stock for JPS
common stock on September 11, 1992
at $.80 per share 61,447 24 49,134 - - - 49,158
Issuance of common stock for
professional services on
September 11, 1992 at $.10
per share 6,679 3 665 - - - 668
Issuance of common stock in
exchange for DBSC common stock
on October 9, 1992 at
$2.00 per share 6,375 $2 $12,748 - - - $12,750
Redemption of 97,450 common stock
warrants on October 2, 1992 at
$8.00 per share - - (19,490) - - - (19,490)
Issuance of common stock on
December 2, 1992 at closing
of acquisition of DBSN as a
finder's fee at $.0004 per share 25,000 10 - - - - 10
Issuance of common stock for
Axion common stock during
March 1993 at $1.60 per share 50,000 20 79,980 - - - 80,000
Issuance of common stock for
DBSC common stock on July
2, 1993 at $1.60 per share 133,307 53 213,238 - - - 213,291
Stock issue costs for the
period from August 1, 1992
through July 31, 1993 - - (6,374) - - - ( 6,374)
Net loss for the twelve
months ended July 31, 1993 - - - - - (755,040) (755,040)
---------- --- ------- ---- -------- -------- -------
Balance at July 31, 1993 5,251,303 2,101 2,244,629 - - (1,181,119) 1,065,611
Issuance of common stock for
cash at $4.00 per share
(August 1993 through April
1995) 102,257 41 411,943 - - - 411,984
Stock issued in exchange for
46% of JPS stock on
November 19, 1993 3,379 1 10,137 - - - 10,138
Stock issued for professional
services:
January 28, 1994, at $3.60
per share 5,331 2 19,188 - - - 19,190
July 29, 1994, at $2.00
per share 3,833 2 7,663 - - - 7,665
Stock issued due to exercise of
warrants, at $2.00 per
share (March and April 1994) 2,500 1 4,999 - - - 5,000
Stock issued for interest on
July 31, 1994, at $2.00 per
share 1,000 - $2,000 - - - 2,000
Purchase of shares of common
stock on January 28, 1994,
at $3.20 per share (1,563) - - - ( 5,000) - (5,000)
Reacquisition of common stock
pursuant to sale of investment
in Axion in May 1994, at $1.60
per share (50,000) - - - (80,000) - (80,000)
Net loss for the twelve months
ended July 31, 1994 - - - - - $(26,909) (26,909)
--------- ---- ------ ------- -------- ----------
Balance at July 31, 1995 5,318,039 $2,148 2,700,559 (85,000) (1,208,028) 1,409,679
Stock issued for services:
November 30, 1994, at
$1.88 per share 10,000 4 18,796 - - - 18,800
May 15, 1995, at
$2.00 per share 10,724 4 21,443 - - - 21,447
July 15, 1995, at
$1.60 per share 11,373 5 18,192 - - - 18,197
Net loss for the twelve
months ended July 31, 1995 - - - - - (1,284,558) (1,284,558)
--------- ------ ------- -------- --------- ----------
Balance at July 31, 1995 5,350,136 2,161 2,758,990 (85,000) (2,492,586) 183,565
Issuance of common stock
for 1% JPS common stock on
September 21, 1995 at $1.20
per share 9,450 4 11,336 - - - 11,340
Issuance of common stock
for 20% Seimac Limited common
stock on December 13, 1995 at
$4.00 per share 165,519 66 662,010 - - - 662,076
Issuance of common stock
for professional services at
$5.60 per share 2,934 1 16,427 - - - 16,428
Net loss for the five months
ended December 31, 1995 - - - - - (662,877) (662,877)
-------- ----- -------- ------ -------- -----------
Balance at December 31, 1995 5,528,039 2,232 3,448,763 - (85,000) (3,155,463) 210,532
Warrants issued on January 13,
1996, to purchase 75,000
shares of common stock for
services rendered at an exercise
price of $7.30 per share - - - $112,500 - - 112,500
Issuance of common stock for cash:
January 15, 1996, at $4.00
per share, less noncash
issuance cost of $63,900 200,000 80 736,020 - - - 736,100
February 15, 1996, at $5.20
per share, less noncash
issuance cost of $19,999 38,462 15 179,988 - - - 180,003
Stock issued for services:
January 1 - June 30, 1996,
at $3.75 per share 22,743 9 85,277 - - - 85,286
August 15, 1996, at $4.80
per share 6,018 2 28,884 - - - 28,886
September 21, 1996, at $5.60
per share 4,821 2 26,996 - - - 26,998
July 1 - December 31, 1996,
at $2.00 per share 7,605 3 15,207 - - - 15,210
Placement fee associated with
January 15 and February
15, 1996, issuances settled
through issuance of common stock 19,821 8 83,891 - - - 83,899
Net loss for the twelve months
ended December 31, 1996 - - - - - (3,752,583) (3,752,583)
-------- ---- -------- ----- ------- ----------
Balance at December 31, 1996 5,827,509 $2,351 $4,605,026 $112,500 $(85,000) $(6,908,046) $(2,273,169)
========= ====== ========== ======== ======== ===========
</TABLE>
<PAGE>F-8
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the
Twelve- For the Twelve- April 26,
Month Five-Month Month 1990
Period Ended Period Ended Period Ended (Inception) to
December 31, December 31, July 31, December 31,
1996 1995 1995 1996
<S> <C> <C> <C> <C>
Reconciliation of net loss
to net cash used in operating
activities:
Net loss $(3,752,583) $(662,877) $(1,284,558) $(6,908,046)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Depreciation and amortization 124,086 11,230 28,323 231,141
Minority interest's share of net loss - - - ( 8,575)
Noncash charges 268,878 27,768 58,444 434,253
Equity in loss of investees, net 31,920 72,312 112,595 348,954
Gain on sale of investment - - - ( 836,478)
Common stock issued as payment for
interest - - - 7,000
Decrease (increase) in accounts
receivable and other assets 49,416 (43,295) 36,966 ( 64,979)
Increase (decrease) in accounts
payable and accrued liabilities 1,238,819 (102,014) 354,611 1,582,591
Increase in deferred revenues 400,000 - - 400,000
--------- -------- -------- ---------
Net cash used in operating
activities (1,621,464) (698,876) (693,619) (4,814,139)
--------- ------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of investment - - - 900,000
Purchase of fixed assets (20,499) (15,198) (4,896) ( 105,524)
Organization costs - - (12,576) ( 28,526)
Advances to officer - - - ( 31,187)
Purchase of interest in Continental (2,292,409) - - (2,292,409)
Advances to affiliates (56,757) (32,942) (85,812) ( 214,511)
Investments in affiliates (227,029) (215,000) - ( 896,811)
Net assets of purchased subsidiaries - - - ( 147,500)
Cash transferred from Fi-Tek
IV, Inc. pursuant to the
merger and reorganization - - - 156,648
Purchase of patents and other - - - ( 18,251)
Proceeds from repayment of advances
to affiliate - - 152,500 152,500
Cash of divested subsidiary - - - ( 277)
--------- ------- ------- ---------
Net cash provided by (used in)
investing activities (2,596,694) (263,140) 49,216 (2,525,848)
--------- ------- ------- ---------
Cash flows from financing activities:
Proceeds from (payment on) line of
credit (5,000) 5,000 295,000 295,000
Restricted cash on line of credit - - (300,000) ( 300,000)
Issuance of debentures 3,640,000 1,000,000 - 4,710,000
Issuance of common stock 1,000,002 - - 3,153,516
Redemption of common stock warrants - - - ( 19,490)
Stock issue costs - - - ( 57,235)
Proceeds from stockholders' loans - - - 293,000
Payment of debentures - (55,000) - ( 125,000)
Payment of stockholders' loans - - - ( 202,217)
Purchase of shares - - - ( 5,000)
--------- ------- ------- ---------
Net cash provided by (used in)
financing activities 4,635,002 950,000 ( 5,000) 7,742,574
--------- ------- ------- ---------
Net increase (decrease) in
cash 398,844 (10,016) (649,403) 402,588
Cash and cash equivalents,
beginning of period 3,743 13,759 663,162 -
-------- ------- ------- --------
Cash and cash equivalents,
end of period $402,588 $3,743 $13,759 $402,588
======== ======= ======= =========
Supplemental Disclosure of Cash
Flow Information
Cash paid during the period for:
Interest $40,695 $2,551 $2,949 $ 46,195
======= ====== ====== ========
Income taxes $ 3,200 $ - $3,200 $ 14,335
======= ====== ====== ========
Supplemental Disclosures of
Noncash Investing and
Financing Activities (Note 13)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation:
These consolidated financial statements include the
accounts of DBS Industries, Inc. (the Company), and its wholly
owned subsidiary. Intercompany transactions and balances have
been eliminated in consolidation.
The Company was organized as a Delaware corporation on
August 3, 1989. Since inception the Company has been in the
development stage. The Company's financial statements have been
prepared assuming the Company will continue as a going concern.
Since inception, the Company has devoted substantially all of
its efforts to developing its business. The Company has
therefore incurred substantial losses and negative cash flows
from operating activities as reflected in these financial
statements. Accordingly, the Company has relied primarily upon
obtaining equity capital and debt financing to support its
operations.
The Company does not expect revenue to exceed costs and
expenses in 1997 and, accordingly, will continue to incur losses
and negative cash flows from operating activities. To address
financing needs, the Company is pursuing various financing
alternatives. These factors raise substantial doubt about the
Company's ability to continue as a going concern. These
financial statements do not reflect any adjustments that might
result from the outcome of this uncertainty.
On January 13, 1996, the Company's Board of Directors
approved a one-for-forty reverse stock split of the Company's
common stock. The reverse stock split was consummated in
February 1996. All shares and per share amounts have been
restated to retroactively reflect the reverse stock split.
In connection with the reverse stock split, the Company
amended its Articles of Incorporation to decrease its authorized
shares of common stock and preferred stock to 100,000,000 and
5,000,000 shares, respectively. Additionally, the par values of
the common and preferred stock were increased from $.00001 to
$.0004 per share. These changes have also been retroactively
reflected in these financial statements.
On September 11, 1992, the Company's subsidiary, DBSN
(dissolved in May 1995), acquired 51% of the voting shares in
JPS Systems, Inc. (JPS) pursuant to a Stock Exchange Agreement
in exchange for shares of DBSN's common stock which equated to
61,447 shares of the Company's common stock (the fiscal 1993
transaction). In November 1993, the Company acquired, from its
president, additional shares of JPS common stock representing
46% of the issued and outstanding stock of JPS, pursuant to a
stock exchange agreement in exchange for 3,379 shares of the
Company's common stock (the fiscal 1994 transaction). In
January 1994, DBSN transferred its 51% interest in JPS to the
Company. In January 1995, JPS repurchased shares of its common
stock representing 2% of the issued and outstanding common stock
of JPS. In May 1995, JPS
<PAGE>F-10
1. Organization and Basis of Presentation, continued:
was dissolved, and all of its assets and liabilities
were transferred to a newly created wholly-owned subsidiary of
the Company, Global Energy Metering Service, Inc. (GEMS). In
November 1995, the Company repurchased shares of the common
stock of JPS representing the remaining 1% of the issued and
outstanding common stock of its dissolved subsidiary in exchange
for 9,450 shares of common stock of the Company. GEMS is a
Delaware corporation in the development stage whose primary
activity is the development of satellite and radio systems for
use in automating the control and distribution of gas and
electric power by utility companies.
The results of operations of JPS are included in the
accompanying consolidated financial statements since the date of
the fiscal 1993 transaction until the date of dissolution. The
total purchase price of the fiscal 1994 and 1993 transactions
was $10,138 and $49,158, respectively. At the date of the
fiscal 1994 and 1993 transactions, JPS had a stockholders'
deficit of $64,188 and $4,250, respectively. The excess of the
purchase price over the Company's proportionate share of JPS's
net asset deficiency at the dates of the fiscal 1994 and 1993
transactions, $39,664 and $51,326, respectively, has been
recorded as goodwill and is being amortized using the
straight-line method over five years.
In March 1993, the Company acquired 51% of the voting
shares in Axion Logistics, Inc. (Axion) pursuant to a stock
purchase and exchange agreement in exchange for 50,000 shares of
the Company's common stock. In May 1994, the Company
repurchased its 50,000 shares in exchange for its entire equity
interest in Axion. The original purchase transaction was
accounted for as a purchase and, accordingly, the results of
operations of Axion are included in the consolidated financial
statements from the date of acquisition through the May 1994
repurchase. The 50,000 shares of the Company's common stock
were valued at approximately $80,000 at March 1993, the original
purchase date, and at May 1994, when the repurchase occurred.
The Company recognized no gain or loss in connection with the
divestiture. In connection with the Company's divestiture of
Axion, the Company assigned a patent back to Axion and, in
return, the Company retained a royalty interest in that patent.
The Company's investments in Direct Broadcast Satellite Corporation, E-SAT
Corporation and Seimac Limited, in which the Company has ownership interests of
25%, 20% and 20%, respectively, are accounted for using the equity method. The
Company's interest in Continental Satellite Corporation is carried at cost (see
Note 4).
As discussed in Note 4, the merger between Echostar
Communications Corporation and Direct Broadcast Satellite
Corporation became effective on January 8, 1997. In connection
with this transaction, the Company will record a gain of
approximately $6,200,000 in its first quarter of 1997. Had this
transaction occurred as of December 31, 1996, the Company's
total assets and stockholders' equity would have been
approximately $10,800,000 and $3,900,000, respectively.
<PAGE>F-11
2. Summary of Significant Accounting Policies:
Hereafter, unless otherwise specified, all references
to the "Company" include, DBS Industries, Inc. and its
wholly-owned subsidiary.
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 disclosures 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.
Cash Equivalents:
The Company considers all money market instruments and
other highly liquid investments with original maturities of
three months or less to be cash equivalents.
Restricted Cash:
Restricted cash relates to a minimum $300,000 bank
balance that is required as security for the Company's line of
credit.
Depreciation and Amortization:
Furniture and equipment are depreciated over the
estimated useful lives of the assets ranging from five to seven
years using the straight-line method of depreciation. When
assets are disposed of, the related cost and accumulated
depreciation are removed from the books and the resulting gain
or loss is recognized in the year of disposal.
Goodwill:
Goodwill is amortized using the straight-line method
over five years. Amortization expense charged to operations for
the year ended December 31, 1996, the five-month period ended
December 31, 1995, and the year ended July 31, 1995 was $9,606,
$7,583, and $18,996, respectively.
<PAGE>F-12
2. Summary of Significant Accounting Policies, continued:
Income Taxes:
Income taxes are accounted for in accordance with
Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS No. 109). Under SFAS No. 109, deferred
income tax liabilities and assets are determined based on the
difference between the financial reporting amounts and tax bases
of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and
rates in effect for the years in which the differences are
expected to affect taxable income and net operating loss and tax
credit carryforwards. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected
to be realized. Income tax expense is the tax payable for the
period and the change during the period in deferred tax assets
and liabilities.
Net Loss Per Share:
Net loss per share (LPS) is computed based on the
weighted average number of shares outstanding during each period
presented. Common stock equivalents representing options and
warrants are excluded from the LPS calculation as they have the
effect of decreasing LPS.
Statement of Cash Flows:
In the year ended July 31, 1995, the Company changed
its cash flows reporting from the direct method to the indirect
method. The change has been retroactively applied to all
periods presented
Recently Issued Accounting Pronouncements:
In February 1997, Statement of Financial Accounting
Standards No. 128, Earnings Per Share (FAS 128), was issued and
is effective for the Company's year ending December 31, 1997.
The Company has not determined the impact of FAS 128 on its
earnings per share.
Reclassifications:
Certain prior period balances have been reclassified to
conform to the current year's presentation. Such
reclassifications had no impact on net loss or stockholders'
(deficit) equity as previously reported.
<PAGE>F-13
3. Change in Fiscal Year:
The Company changed its fiscal year end from July
31 to December 31, effective January 1, 1996. The five-month
period ended December 31, 1995 (Transition Period), is presented
within the body of the Company's financial statements.
Comparative condensed income statement data is as follows:
Five Months Ended
December 31, 1994
(Unaudited)
Revenue $ 13,000
Loss from operations (491,000)
Other expense (48,500)
Net loss (541,000)
-------------
Net loss per share $ (0.1017)
=============
Weighted average number of
shares of common stock 5,320,065
=============
4. Investments in and Advances to Affiliated Companies:
Following is a summary of the Company's significant
investment activities:
Direct Broadcasting Satellite Corporation (DBSC):
DBSC is one of nine permittees of the Federal
Communications Commission (FCC) for Direct Broadcast Satellite
(DBS) services. As of December 31, 1996 and 1995, the Company
owned approximately 25% of the common stock of DBSC. The
Company accounts for its investment using the equity method.
The Company's total investment in DBSC as of December 31, 1996
and December 31, 1995 was $539,080 and $616,002, respectively.
The Company's investment in DBSC consists of both cash
and noncash transactions. During July 1992, the Company
purchased 60,000 shares of DBSC's common stock for $120,000 in
cash which represented approximately 6.9% of DBSC's issued and
outstanding shares of common stock as of July 31, 1992. During
fiscal year 1993, the Company purchased 187,800 shares of DBSC's
common stock for $364,725 in cash and 6,375 shares of the
Company's common stock valued at $12,750. Additionally, in
fiscal year 1993, the Company entered into an exchange
agreement, whereby the Company exchanged 133,307 shares of its
common stock for 133,307 shares of DBSC's common stock valued at
$213,291.
<PAGE>F-14
4. Investments in and Advances to Affiliated Companies, continued:
Direct Broadcasting Satellite Corporation (DBSC), continued:
In October 1995, the Company acquired 20,000 additional
shares of DBSC common stock for $165,000 in cash. This
investment increased the Company's ownership position to
approximately 25%.
On November 15, 1994, DBSC entered into a Stock
Purchase Agreement with EchoStar Communications Corporation
(Echostar) which provides for DBSC to issue 583,250 shares of
authorized and unissued common stock for total consideration of
$4,109,905 consisting of $2,960,000 in cash and the cancellation
of certain notes payable totaling $625,000, and the related
accrued interest totaling $524,905, as of March 31, 1994.
Additionally, the agreement has granted Echostar certain further
rights, subject to certain future events that have not yet
occurred and may or may not occur.
On December 21, 1995, DBSC and Echostar agreed to a
merger, subject to government approval. Under the terms of the
merger agreement, (1) both parties agreed to merge DBSC into a
wholly owned subsidiary of Echostar, and (2) DBSC shareholders
will be entitled to receive at their option, $7.99 in cash or
.67417 shares of Echostar common stock for each of the 973,148
DBSC shares not already owned by Echostar. At December 31,
1996, the Company owned 401,107 shares of the common stock of
DBSC. The requisite government approvals were obtained and the
merger consummated on January 8, 1997. On January 23, 1997, the
Company elected to exchange all of its 401,107 DBSC shares for
270,414 shares of Echostar common stock which was valued at
$25.00 per share as of January 8, 1997, the effective date of
the merger. In connection with this transaction, the Company
will record a gain of approximately $6,200,000 in its first
quarter of 1997.
Following is a summary of DBSC's financial position as
of December 31, 1996 and 1995:
December 31, December 31,
1996 1995
(Unaudited)
Current assets $ 20,046 $ 366,009
Other assets 52,373,192 18,820,254
---------- ----------
Total assets $52,393,238 $ 19,186,263
=========== ============
Current liabilities $ 186,748 $ 1,547,282
Long-term debt 50,887,763 16,010,082
Stockholders' equity 1,318,727 1,628,899
----------- ------------
Total liabilities and
stockholders' equity $52,393,238 $ 19,186,263
=========== ============
<PAGE>F-15
4. Investments in and Advances to Affiliated Companies, continued:
Direct Broadcasting Satellite Corporation (DBSC), continued:
DBSC's losses for the year ended December 31, 1996
(unaudited) and the nine-month period ended December 31, 1995
amounted to $310,172 and $227,479, respectively.
The Company's equity in losses of DBSC was $76,922,
$56,332 and $81,887 for the year ended December 31, 1996, the
five-month period ended December 31, 1995, and the year ended
July 31, 1995, respectively. The equity in losses for the year
ended July 31, 1995 was based on DBSC's fiscal year ended March
31, 1995. Effective April 1, 1995, DBSC changed its fiscal year
to December 31 from March 31. The equity in losses for the
years ended December 31, 1996 and July 31, 1995 were recorded in
the respective fourth quarters and the equity in losses for the
five-month period ended December 31, 1995 was recorded in
December 1995 when financial information became available.
E-SAT Corporation (E-SAT):
In October 1994, the Company and EchoStar formed E-SAT
for the purpose of filing with the FCC for a low earth orbit
satellite system. E-SAT filed with the FCC on November 16,
1994. The Company holds a 20% interest in E-SAT. The Company's
total investments in and advances to E-SAT were $127,265 and
$70,893 as of December 31, 1996 and 1995, respectively. The
investment is accounted for using the equity method. The
Company's equity in losses of E-SAT for the year ended December
31, 1996, the five-month period ended December 31, 1995, and the
year ended July 31, 1995 were $385, $17,152 and $30,708,
respectively. The equity in losses for the years ended December
31, 1996 and July 31, 1995 was recorded in the respective fourth
quarters and the equity in losses for the five-month period
ended December 31, 1995 was recorded in December 1995 when
financial information became available. As of December 31,
1996, the Company had a receivable of $227,029 from Echostar
which represents the excess of advances to date to E-SAT in
excess of its proportionate 20% share of its investee's
financing requirements.
Seimac Limited:
On November 30, 1995, the Company acquired 232,829
shares representing 20% of the voting shares of common stock of
Seimac Limited, a Canadian company, pursuant to a stock purchase
and exchange agreement in exchange for 165,519 shares of common
stock of the Company, valued at $662,010. The Company's
investment of $662,010 was $464,255 in excess of the Company's
proportionate share of the net book value of Seimac as of
November 30, 1995. This excess is being amortized over a period
of five years. The amortization of this excess book value
amounted to $92,851 for the year ended December 31, 1996. This
investment is accounted for using the equity method.
<PAGE>F-16
4. Investments in and Advances to Affiliated Companies, continued:
Seimac Limited, continued:
For the year ended December 31, 1996 and the five-month
period ended December 31, 1995, the Company has recorded its
proportionate share of Seimac Limited's net income of $45,387
and $1,172, respectively. The Company's investment in Seimac
Limited as of December 31, 1996 was $618,046.
Following is a summary of Seimac's unaudited financial
position as of December 31, 1996 and 1995 and its unaudited
results of operation for the year ended December 31, 1996 and
the one month ended December 31, 1995:
December 31, 1996 December 31, 1995
(Unaudited)
Current assets $ 1,201,477 $ 1,008,133
Other assets 1,352,364 1,480,196
------------ -----------
Total assets $ 2,553,841 $ 2,488,329
============ ===========
Current liabilities $ 469,421 $ 254,969
Long-term debt 597,407 730,987
Shareholders' equity 1,487,013 1,502,373
------------ -----------
$ 2,553,841 $ 2,488,329
============ ===========
Net sales $ 1,607,128 $ 146,500
============ ===========
Net income $ 226,935 $ 858
============ ===========
Continental Satellite Corporation (Continental):
On January 12, 1996, the Company entered into a stock
purchase agreement with a third party (the Seller) to acquire
72,030 shares of common stock of Continental in exchange for
approximately $2,300,000 in cash. A $50,000 advance was paid to
the seller in December 1995 and is accounted for as a
non-current other asset as of December 31, 1995. Continental
has received one of the nine DBS licenses awarded by the FCC.
In connection with this agreement, the Company issued a
three-year, Series B convertible debenture (Note 7) to Echostar
on January 12, 1996 for proceeds of $3,000,000.
<PAGE>F-17
4. Investments in and Advances to Affiliated Companies, continued:
Continental Satellite Corporation (Continental), continued:
On January 22, 1996, Loral Aerospace Holdings, Inc., a
Continental common shareholder (the plaintiff), filed a
complaint in the Superior Court of the State of California
against Continental and its shareholders alleging that the
common shares purchased by the Company were improperly issued
and, therefore, should be voided. On May 16, 1996, the Court
ruled that the Continental shares were invalidly issued.
However, the Court also ruled that the Company was not without
equitable remedy and allowed the Company to commence an action
against Loral. The Court is in the process of determining the
Company's equitable interest in the Continental's DBS License,
if any.
5. Notes Payable:
During 1994, the Company entered into bridge loan note
agreements with three individuals who are stockholders and in
some cases directors or officers of the Company pursuant to
which they loaned the Company $116,550. These notes were
unsecured and bore interest at 8% per annum and were payable
within six months. In August 1995, the Company repaid the
remaining balance of $55,000.
6. Line of Credit:
The Company has a $300,000 line of credit with a bank.
The line is collateralized by a $300,000 certificate of deposit
and expires on September 5, 1997. As of December 31, 1996,
$295,000 was outstanding on the line, at an interest rate of
6.45% (certificate of deposit rate plus 1.25%). The Company
believes that the carrying value of this debt approximates
market value given the short maturity and required collateral.
7. Convertible Debentures:
On July 1, 1995, the Company issued Convertible
Debenture 1995 Series A to the majority shareholder of E-SAT,
EchoStar, and received $1,000,000 in proceeds pursuant to this
issuance in August 1995. Interest on the debt accrues, and is
payable, quarterly at prime plus 2% for a period of three years.
As collateral for the loan, Echostar has a security interest in
125,000 shares of DBSC common stock and 2,000 shares of E-SAT
common stock held by the Company.
<PAGE>F-18
7. Convertible Debentures, continued:
On January 12, 1996, the Company issued a three-year
Series B Convertible Debenture to Echostar for proceeds of
$3,000,000. Interest terms are similar to those of the Series A
Convertible Debenture discussed above. As collateral for the
loan, Echostar has a security interest in 72,030 shares of
common stock of Continental and 200,000 shares of common stock
of DBSC held by the Company.
On December 5, 1996, the Company issued a three-year
Series C Convertible Debenture to Echostar for proceeds of
$640,000. Interest terms are similar to those of the Series A
Convertible Debentures discussed above. As collateral for the
loan, Echostar has a security interest in the remaining 76,107
shares of common stock of DBSC held by the Company.
At the end of the respective three-year periods, the
principal and unpaid accrued interest on the above debentures is
due and payable.
The Holder of these Debentures has the right at any
time prior to the respective due dates, to convert the
outstanding principal amount of the Debentures into shares of
common stock of the Company at a conversion rate of $4.00 per
share, subject to adjustment for certain dilutive transactions.
The Company classified all borrowings under the above
convertible debentures as current liabilities due to the
Company's default in connection with the required quarterly
payment of accrued interest.
The interest payable to Echostar under the
aforementioned debentures amounted to $405,794 and $27,020 as of
December 31, 1996 and 1995, respectively.
8. Commitments:
Operating Leases:
The Company and its wholly-owned subsidiary, GEMS,
lease their facilities under noncancelable operating leases
which run concurrently and expire in March 2000. Minimum future
rental payments under the leases, are as follows:
Year Ending December 31,
1997 $ 68,347
1998 68,130
1999 68,130
2000 11,355
$ 215,962
<PAGE>F-19
8. Commitments, continued:
Operating Leases, continued:
Total rent expense was $74,808, $31,900 and $49,475 for
the year ended December 31, 1996, the five-month period ended
December 31, 1995 and for the year ended July 31, 1995,
respectively.
Satellite Transmission Contract:
In October 1995, the Company entered into a long term
contract with a satellite transmission provider under which, the
Company was to utilize Satellite transmission capabilities
during the period from March 1996 through February 2001. In May
1996, the Company terminated this contract. Payments made by
the Company during fiscal 1996 and the five month period ended
December 31, 1995 were approximately $51,000 and $30,000,
respectively.
9. Stockholders' Equity:
Common Stock:
The Company's Certificate of Incorporation, as amended
in February 1996, authorizes the issuance of 100,000,000 shares
of common stock with a par value of $.0004 per share. Each
record holder of common stock is entitled to one vote for each
share held on all matters properly submitted to the stockholders
for their vote. Cumulative voting for the election of directors
is not permitted by the Certificate of Incorporation.
Preferred Stock:
The Company's Certificate of Incorporation, as amended
in February 1996, authorizes the issuance of 5,000,000 shares of
preferred stock with par value of $.0004 per share. The Board
of Directors of the Company is authorized to issue preferred
stock from time to time in series and is further authorized to
establish such series, to fix and determine the variations in
the relative rights and preferences as between the series, and
to allow for the conversion of preferred stock into common
stock. No preferred stock has been issued by the Company as of
December 31, 1996.
Nonemployee Stock Warrants:
On January 13, 1996, the Company issued warrants for
the purchase of 75,000 shares of the Company's common stock at
an exercise price of $7.30. These warrants were issued for
services rendered and are exercisable through January 2006. As
of December 31, 1996, none of these warrants have been exercised.
<PAGE>F-20
9. Stockholders' Equity, continued:
Employee Stock Options and Warrants:
On February 15, 1996, the Company adopted the 1996
Stock Option Plan (the 1996 Plan) to consolidate its three
existing plans. Provisions of the 1996 Plan are substantially
similar to those of the earlier plans. The overall purpose of
the 1996 plan is to advance the long-term interest of the
Company by motivating its employees, directors and consultants
with the opportunity to obtain an equity interest in the Company
and to attract and retain such persons upon whose judgments the
success of the Company largely depends.
Eligible employees, directors, and consultants can
receive options to purchase shares of the Company's common stock
at a price generally not less than 100% and 85% of the fair
market value of the common stock on the date of the grant of
incentive stock options and nonstatutory stock options,
respectively. The 1996 Plan allows for the issuance of a
maximum of 1,650,000 shares of the Company's common stock. This
number of shares of common stock has been reserved for issuance
under the 1996 Plan. The options granted under the 1996 Plan
are exercisable over a maximum term of ten years from the date
of grant and generally vest over (i) one year in the case of
directors and consultants, and (ii) up to a five-year period in
the case of employees. Shares sold under the 1996 Plan are
subject to various restrictions as to resale.
Information with respect to activity under these
plans as consolidated in the 1996 Plan is set forth below:
Outstanding Options and Warrants
Weighted
Average
Number of Price Per Aggregate Exercise
Shares Share Price Price
Balance, July 31, 1994 28,580 $0.40-$4.00 $ 87,320 $3.06
Options and warrants granted 91,080 $2.00 125,000 2.00
Options exercised - - - -
Options terminated - - - -
------ ----------- ------- -----
Balance, July 31, 1995 91,080 $0.40-$4.00 212,320 2.33
Options and warrants granted 71,501 1.60-6.00 340,156 4.76
Options exercised - - - -
Options terminated - - - -
--------- ---------- --------- -----
Balance, December 31, 1995 162,581 0.40-6.00 552,476 3.40
Options granted 1,017,535 4.75-5.60 5,241,115 5.15
Options exercised - - - -
Options terminated - - - -
--------- ----------- ---------- -----
Balance, December 31, 1996 1,180,116 $0.40-$6.00 $5,793,591 $4.91
========== =========== ========== =====
<PAGE>F-21
9. Stockholders' Equity, continued:
Employee Stock Options and Warrants, continued:
The following table summarizes information with respect
to stock options and warrants outstanding at December 31, 1996:
Options and Warrants Outstanding Options and Warrants Exercisable
<TABLE>
<CAPTION>
Options and Warrants
Options and Warrants Outstanding Exercisable
Weighted Average Weighted Weighted
Number of Remaining Average Number Average
Range of Outstanding Contractual Life Exercise Exercisable Exercise
Exercise Price at 12/31/96 (years) Price at 12/31/96 Price
<S> <C> <C> <C> <C> <C>
$ 0.40 2,500 9.00 $0.40 2,500 $0.40
$ 1.60 - $3.00 106,080 7.00 $2.04 86,419 $2.06
$ 4.75 - $6.00 1,071,536 9.25 $5.17 500,590 $4.48
$ 1.60 - $6.00 1,180,116 9.10 $4.91 587,009 $4.25
</TABLE>
The following information concerning the Company's
stock option plans is provided in accordance with Statement of
Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). The Company accounts for
such plans in accordance with APB No. 25 and related
interpretations.
The weighted average fair value of the options and
warrants granted or modified for the year ended December 31,
1996, the five-month period ended December 31, 1995, and the
year ended July, 31, 1995 was $4.62, $4.27, and $1.78,
respectively. The fair value of each stock option is estimated
on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:
Risk free interest rate 6.11%
Expected life 5.5 years
Volatility 104%
Dividend yield -
<PAGE>F-22
9. Stockholders' Equity, continued:
Employee Stock Options and Warrants, continued:
The following pro forma net loss information has been
prepared following the provision of SFAS 123:
For the For the For the
Twelve-Month Five-Month Twelve-Month
Period Ended Period Ended Period Ended
December 31, December 31, July 31,
1996 1995 1995
Net Loss As Reported $(3,752,583) $(662,877) $(1,284,558)
Pro forma $(5,916,026) $(700,790) $(1,344,755)
Net loss per share As Reported $(0.6484) $(0.1233) $(0.2411)
Pro forma $(1.0223) $(0.1303) $(0.2524)
In February 1997, the Company completed a stock option
repricing program in which 1,119,646 stock options, originally
issued with exercise prices ranging from $1.60 to $6.00 per
share, were reissued with an exercise price of $1.44 per share,
which approximated fair market value.
10. Related Party Transactions:
On September 11, 1992, as discussed in Note 1, the
Company acquired from its president and other individuals 51% of
the voting shares in JPS.
On November 19, 1993, the Company acquired, from its
president, additional shares of JPS common stock representing
46% of the issued and outstanding stock of JPS, pursuant to a
stock exchange agreement in exchange for 3,379 shares of the
Company's common stock valued at $10,137.
Refer to notes 4 (DBSC and E-SAT) and 7 for disclosures
regarding transactions with EchoStar.
In August 1995, the Company entered into consulting
agreements with two directors of the Company. The Company
incurred approximately $29,000 and $31,000 in consulting
expenses in connection with these agreements during the year
ended December 31, 1996 and the five-month period ended December
31, 1995, respectively.
<PAGE>F-23
11. Income Taxes:
The components of the provision for income taxes for
all periods presented relate to current state taxes.
The estimated tax effect of significant temporary
differences and carryforwards that gave rise to deferred income
tax assets as of December 31, 1996 and 1995 is as follows:
December 31, 1996 December 31, 1995
Federal State Federal State
Deferred tax liability - - - -
Deferred tax assets:
Net operating loss
carryforwards $1,700,000 $165,000 $731,000 $79,000
Research and development
credit carryforwards 79,000 35,000 47,000 22,000
Excess of tax over book
basis of investments,
and other deferred
compensation 300,000 55,000 45,000 8,000
--------- ------- ------- -------
Net deferred tax assets 2,079,000 255,000 823,000 109,000
Valuation allowance (2,079,000) (255,000) (823,000) (109,000)
--------- ------- ------- -------
Net deferred tax - - - -
========= ======= ======= =======
Due to the uncertainty of realization, a valuation
allowance has been provided to eliminate the net deferred tax
assets. The increase in the valuation allowance was
approximately $1,402,000, $219,000 and $507,000 during the year
ended December 31, 1996, the five-month period ended December
31, 1995, and the year ended July 31, 1996, respectively.
As of December 31, 1996, the Company has net operating
loss carryforwards of approximately $5,000,000 and $2,700,000
for federal income tax purposes and California state franchise
tax purposes, respectively. The Company has also research and
development credit carryforwards of $79,000 and $35,000 for
federal income tax purposes and California state franchise tax
purposes, respectively. Such carryforwards expire in varying
amounts between 1997 and 2011.
As a result of changes enacted by the 1986 Tax Reform
Act, utilization of net operating loss and tax credit
carryforwards may be limited due to equity transactions
occurring on or after May 6, 1986.
<PAGE>F-24
12. Concentration of Credit Risk:
The Company periodically maintains cash balances at
banks in excess of the Federal Deposit Insurance Corporation
insurance limit of $100,000.
Sales to one customer represented all Company sales in
the years ended December 31, 1996 and July 31, 1995.
13. Supplemental Disclosures of Noncash Investing and Financing Activities:
During the year ended July 31, 1995, the Company issued
32,097 of its shares of common stock to certain individuals in
consideration for services rendered. These shares were valued
at $58,444.
During the five-month period ended December 31, 1995,
the following noncash activities occurred:
The Company issued 9,450 of its shares of common stock in
exchange for the acquisition of the final 1% of JPS it did not
already own. These shares were valued at $11,340.
The Company issued 165,519 of its shares of common stock
in exchange for a 20% interest in the common stock of Seimac
Limited, a Canadian company. These shares were valued at
$662,076.
The Company issued 2,934 of its shares of common stock to
a certain individual in consideration for services rendered.
These shares were valued at $16,428.
During the year ended December 31, 1996, the following
noncash activities occurred:
The Company issued 41,187 of its shares of common stock to
certain individuals in consideration for services rendered.
These shares were valued at $ 156,380.
The Company issued warrants to certain individuals in
consideration for services rendered. These warrants were valued
at $112,500.
The Company issued 19,821 shares of common stock to
certain individuals for services rendered in connection with the
placement of the January and February 1996 sales of the
Company's common stock. These services were valued at $83,899
and were offset against the proceeds.
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF DBS INDUSTRIES, INC.
(A Delaware Corporation)
DBS Industries, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
FIRST: The present name of the corporation is DBS Industries, Inc.
DBS Industries, Inc. was originally incorporated under the name FI-TEK IV,
Inc., and the original Certificate of Incorporation of the corporation was
filed with the Secretary of State of the State of Delaware on August 3,
1989.
SECOND: The Certificate of Incorporation of the corporation is hereby
amended by inserting new paragraph 8.04 into Article VIII and inserting new
Article XIII which are set forth in the Restated Certificate of
Incorporation hereinafter provided.
THIRD: The provisions of the Certificate of Incorporation of the
corporation as heretofore amended and/or supplemented, and as herein
amended, are hereby restated and integrated into a single instrument which
is hereinafter set forth, and which is entitled Restated Certificate of
Incorporation of DBS Industries, Inc. without any further amendments other
than the amendments herein certified and without any discrepancy between
the provisions of the Certificate of Incorporation as heretofore amended
and supplemented and the provisions of the single instrument hereinafter
set forth.
FOURTH: The amendments and the restatement of the corporation's Certificate
of Incorporation as set forth herein have been duly adopted by the
stockholders in accordance with the provisions of Sections 242 and 245 of
the General Corporation Law of the State of Delaware.
FIFTH: The Restated Certificate of Incorporation of the corporation, as
amended and restated herein, read in its entirety as follows:
ARTICLE I
NAME AND DURATION
The name of this corporation is DBS Industries, Inc. (the
"Company"). It shall have perpetual existence.
<PAGE>2
ARTICLE II
REGISTERED OFFICE AND AGENT
The location of the Company's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street, City of
Wilmington, County of New Castle, Delaware 19801. The Company's Registered
Agent at this address is The Corporation Trust Company.
ARTICLE III
INCORPORATOR
The Incorporator's name is Ronald J. Miller and his mailing address is 501
South Cherry Street, Suite 500, Denver, Colorado 80222.
ARTICLE IV
PURPOSE
The Company may engage in any lawful activities for which
corporations may be formed under the General Corporation Law of the State
of Delaware and the laws of any other state wherein the Company transacts
business.
ARTICLE V
CAPITAL STOCK
5.01 Authorized Shares. (a) The aggregate number of shares which
the Company shall have authority to issue is One Hundred and Five Million
(105,000,000). One Hundred Million (100,000,000) shares shall be
designated "Common Stock" and shall have a par value of $0.0004. Five
Million (5,000,000) shares shall be designated "Preferred Stock" and shall
have a par value of $0.0004. All shares of the Company shall be issued for
such consideration, expressed in dollars, as the Board of Directors may,
from time to time, determine.
(b) Each forty (40) issued and outstanding shares of Common
Stock of the Company were combined into one (1) share of validly issued,
fully paid and non-assessable Common Stock, par value $0.0004 per share, on
February 15, 1996. Each person, as of February 15, 1996, holding of record
any issued and outstanding shares of Common Stock shall receive upon
surrender to the Company's transfer agent a stock certificate or
certificates to evidence and represent the number of shares of
postconsolidation Common Stock to which such stockholder is entitled after
giving effect to the consolidation; provided, however, that all fractional
shares resulting therefrom shall be paid in cash.
5.02 Consideration for Stock. Shares of Common and Preferred Stock
issued shall be fully paid and nonassessable if (a) the entire amount of
<PAGE>3
consideration has been received by the Company in the form of cash,
services rendered, personal property, real property, leases of real
property, or a combination thereof; or (b) not less than the amount of the
consideration determined to be capital pursuant to Section 154 of the
General Corporation Law of Delaware has been received by the Company in the
form specified in clause (a) and the Company has received a binding
obligation of the subscriber to pay the balance of the consideration due.
The Board of Directors shall have sole authority to determine the
consideration to be received for the Company's stock and treasury stock,
which shall not be less than the par value thereof.
5.03 Common Stock. The Common Stock may be issued from time to time
in one or more classes or series in any manner permitted by law, as
determined by the Board of Directors and stated in the resolution or
resolutions providing for issuance thereof. Each class or series shall be
appropriately designated, prior to issuance of any shares thereof, by some
distinguishing letter, number or title. All shares of each class or series
of Common Stock shall be alike in every particular and shall be of equal
rank and have the same power, preferences and rights, and shall be subject
to the same qualifications, limitations and restrictions, if any. The
Common Stock may have such voting powers (full, limited, contingent or no
voting powers), such designations, preferences and relative, participating,
optional or other special rights, and be subject to such qualifications,
limitations and restrictions, as the Board of Directors shall determine by
resolution or resolutions. Unless otherwise resolved by the Board of
Directors, each Common Stock share shall be of the same class and carry
such voting rights as elsewhere provided for in this Certificate of
Incorporation, without any designation, preference or relative,
participating, optional or other special rights, and subject to no
qualification, limitation or restriction.
5.04 Preferred Stock. The Preferred Stock may be issued from time
to time in series as determined by the Board of Directors and stated in the
resolution or resolutions providing for issuance thereof. The Board of
Directors is further authorized to fix and determine the variations in the
relative rights and preferences as between series. Each such series shall be
appropriately designated, prior to the issuance of any shares thereof, by
some distinguishing letter, number, or title. The Preferred Stock may have
limited, contingent or no voting powers, may have such designations,
preferences, and relative, participating, optional or other special rights,
and be subject to such qualifications, limitations and restrictions, as the
Board of Directors shall determine by resolution or resolutions. The
Preferred Stock further may be made subject to redemption by the Company at
its option or at the options of the holders thereof and may be convertible
into Common Stock or exchangeable for other securities of the Company.
<PAGE>4
5.05 Amendment of Stockholder Rights. So long as no shares of any
class or series established by resolution of the Board of Directors have
been issued, the voting rights, designations, preferences and relative,
optional, participating or other rights of these shares may be amended by
resolution of the Board of Directors.
5.06 Shares Re-acquired by the Company. Shares of the Company's
Common Stock or Preferred Stock redeemed or otherwise re-acquired by the
Company shall not be cancelled and retired, unless the Board of Directors
specifically so resolves at the time issuance thereof is authorized, but
shall be given the status of authorized and unissued shares.
5.07 Dividends. Dividends in cash, property or shares of the
Company may be paid upon the Preferred and Common Stock, as and when
declared by the Board of Directors, out of funds of the Company to the
extent and in the manner permitted by law. If at any time the Company has
outstanding more than one class of shares, it may pay dividends on its
shares to the holders of any class of shares, without the vote of
stockholders of the class in which the payment is to be made.
5.08 Voting Rights; Cumulative Voting. Each outstanding share of
Common Stock shall be entitled to one vote and each fractional share of
Common Stock shall be entitled to a corresponding fractional vote on each
matter submitted to a vote of stockholders. The voting rights of Preferred
Stock, if any, shall be established by the Board of Directors at the time
such stock is issued in series. Cumulative voting shall not be allowed in
the election of directors of the Company.
5.09 Voting Rights of Debt Holders. Holders of debentures, bonds
or other obligations of the Company may, at the time of issuance thereof,
be given the right to vote in the election of directors or other voting
rights. Any such voting rights may be fixed or contingent.
5.10 Denial of Preemptive Rights. No holder of any shares of the
Company, whether now or hereafter authorized, shall have any preemptive or
preferential right to acquire any shares or securities of the Company,
including shares or securities held in the treasury of the Company.
5.11 Distribution in Liquidation. Upon any liquidation,
dissolution or winding up of the Company, and after paying or adequately
providing for the payment of all its obligations, including any preferences
granted to Preferred Stock, the remainder of the Company or a portion of
its assets may be distributed, in cash or property, subject to the
limitations contained in the General Corporation Law of Delaware. Any such
partial liquidation may be made without the vote or approval of
stockholders. The Company may also make purchases of its Common or
Preferred Stock, directly or indirectly, to the extent of unreserved and
unrestricted earned surplus available, without the vote or approval of
stockholders.
<PAGE>5
ARTICLE VI
REGISTERED HOLDERS
The Company shall be entitled to treat the registered holder of any
shares of the Company as the owner of such shares, and shall not be bound
to recognize any equitable or other claim to, or interest in, such shares
or rights deriving from such shares, unless and until such purchaser,
assignee, transferee or other person becomes the registered holder of such
shares, whether or not the Company shall have either actual or constructive
notice of the interests of such purchaser, assignee, or transferee or other
person. The purchaser, assignee, or transferee of any of the shares of the
Company shall not be entitled: to receive notice of the meetings of the
stockholders; to vote at such meetings; to examine a list of the
stockholders; to be paid dividends or other sums payable to stockholders;
or to own, enjoy and exercise any other property or rights deriving from
such shares against the Company, until such purchaser, assignee, or
transferee has become the registered holder of such shares.
ARTICLE VII
REVERSIONS
Cash, property or share dividends, shares issuable to stockholders
in connection with a reclassification of stock, and the redemption price of
redeemed shares, which are not claimed by the stockholders entitled thereto
within one year after the dividend or redemption price became payable or
the shares became issuable, despite reasonable efforts by the Company to
pay the dividend or redemption price or deliver the certificates for the
share(s) to such stockholders within such time, shall, at the expiration of
such time, revert in full ownership to the Company, and the Company's
obligation to pay such dividend or redemption price or issue such shares,
as the case may be, shall thereupon cease; provided, that the Board of
Directors may, at any time, for any reason satisfactory to it, but need
not, authorize (i) payment of the amount of any cash or property dividend
or redemption price or (ii) issuance of any shares, ownership of which has
reverted to the Company pursuant to this Article VII, to the person or
entity who or which would be entitled thereto had such reversion not
occurred.
<PAGE>6
ARTICLE VIII
DIRECTORS
8.01 Initial Directors. The powers of the incorporator shall
terminate upon the filing of this Certificate of Incorporation. The number
of directors shall be as fixed in the Company's Bylaws; provided that, in
the absence of such provision in the Bylaws, the Company shall have one (1)
director. The following individuals shall serve as the Company's initial
directors until the first annual meeting of stockholders or until their
successors are duly elected and qualified. Directors shall be elected by
plurality vote and need not be elected by written ballot.
Frank L. Kramer, 12543-A East Pacific Circle, Aurora, Colorado 80014
8.02 Exclusion of Liability. As authorized by Section 102(b)(7) of
the General Corporation Law of Delaware, no director of the Company shall
be personally liable to the Company or any stockholder thereof for monetary
damages for breach of his fiduciary duty as a director, except for
liability (i) for any breach of a director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for
acts in violation of Section 174 of the General Corporation Law of
Delaware, as it now exists or may hereafter be amended, or (iv) for any
transaction from which a director derives an improper personal benefit.
This Article 8.02 shall apply to a person who has ceased to be a director
of the Company with respect to any breach of fiduciary duty which occurred
when such person was serving as a director. This Article 8.02 shall not be
construed to limit or modify in any way any director's right to
indemnification or other right whatsoever under this Certificate of
Incorporation, the Company's Bylaws or the General Corporation Law of
Delaware. If the General Corporation Law of Delaware hereafter is amended
to authorize the further elimination or limitation of the liability of
directors, then the liability of the Company's directors, in addition to
the limitation on personal liability provided herein, shall be limited to
the fullest extent permitted by the General Corporation Law of Delaware as
so amended. Any repeal or modification of this Article 8.02 by the
stockholders shall be prospective only and shall not adversely affect any
limitation on the personal liability of any director existing at the time
of such repeal or modification. The affirmative vote of at least two-
thirds (2/3) of the total voting power shall be required to amend or
repeal, or adopt any provision inconsistent with, this Article 8.02.
8.03 Corporate Opportunity. The officers, directors and other
members of management of the Company shall be subject to the doctrine of
<PAGE>7
"corporate opportunities" only insofar as it applies to any business
opportunity in which the Company has expressed an interest as determined
from time to time by the Company's Board of Directors as evidenced by
resolutions appearing in the Company's minutes. Once such areas of
interest are delineated, all such business opportunities within such areas
of interest which come to the attention of the officers, directors, and
other members of management of the Company shall be disclosed promptly to
the Company and made available to it. The Board of Directors may reject any
business opportunity presented to it, and only thereafter may any officer,
director or other member of management avail himself of such opportunity.
Until such time as the Company, through its Board of Directors, has
designated an area of interest, the officers, directors and other members
of management of the Company shall be free to engage in such area of
interest on their own, and this doctrine shall not limit the rights of any
officer, director or other member of management of the Company to continue
a business existing prior to the time that such area of interest is
designated by the Company. This provision shall not be construed to
release any employee of the Company (other than an officer, director or
member of management) from any duties which he may have to the Company.
8.04 Staggered Board of Directors. The business and affairs of the
Company shall be managed by or under the direction of the Board of
Directors. The number of directors shall be determined from time to time by
resolution adopted by the affirmative vote of at least 75% of the
Continuing Directors.
(a) If so provided at the annual meeting of stockholders to be held
in 1996 and subject to applicable law, the directors shall be divided into
three (3) classes, each class to be as nearly equal in number as possible.
The term of office of directors of the first class shall expire at the
annual meeting of stockholders to be held in 1997 and until their
respective successors are duly elected and qualified. The term of office of
directors of the second class shall expire at the annual meeting to be held
in 1998 and until their respective successors are duly elected and
qualified. The term of office of directors of the third class shall expire
at the annual meeting of stockholders to be held in 1999 and until their
respective successors are duly elected and qualified. Subject to the
foregoing, at each annual meeting of stockholders, commencing at the annual
meeting to be held in 1997, the successors to the class of directors whose
term shall then expire shall be elected to hold office for a term expiring
at the third succeeding annual meeting and until their successors shall be
duly elected and qualified. Any vacancies in the Board of Directors for any
reason, and any newly created directorships resulting from any increase in
the number of directors, may be filled only by the Board of Directors,
acting by vote of 75% of the directors then in office, although less than
<PAGE>8
quorum, and any directors so chosen shall hold office until the next
election of the class for which such directors shall have been chosen and
until their respective successor shall be duly elected and qualified. No
decrease in the number of directors shall shorten the term of any incumbent
director. Notwithstanding the foregoing, and except as otherwise required
by law, whenever the holders of any one or more series of Preferred Stock
shall have the right, voting separately as a class, to elect one or more
directors of the Company, the terms of the director or directors elected by
such holders shall expire at the next succeeding annual meeting of
stockholders and vacancies created with respect to any directorship of the
directors so elected may be filled in the manner specified by such
Preferred Stock.
(b) Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the Company (and notwithstanding the fact
that some lesser percentage may be specified by law, this Certificate of
Incorporation or the Bylaws of the Company), any director or the entire
Board of Directors of the Company may be removed at any time, but only for
cause and only by either (1) majority of the Continuing Directors or (2)
the affirmative vote, at a meeting of the stockholders called for that
purpose, as to all stock held by the holders of 80% or more of the
outstanding Voting Stock and the affirmative vote of the holders of at
least sixty-seven percent (67%) of the outstanding shares of Voting Stock
exclusive of the Voting Stock held by an "Interested Stockholder."
(c) Notwithstanding the foregoing, and except as otherwise required
by law, whenever the holders of any one or more series of Preferred Stock
shall have the right, voting separately as a class, to elect one or more
directors of the Company, the provision of Section (b) shall not apply with
respect to the director or directors elected by such holders of Preferred
Stock.
(d) For purposes of this Article VIII, the terms "Continuing
Directors" and "Voting Stock" shall have the same meanings as contained in
Article XIII of this Certificate of Incorporation.
(e) Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the Company (and notwithstanding the fact
that some lesser percentage may be specified by law, this Certificate of
Incorporation or the Bylaws of the Company), this Article VIII shall not be
amended, altered, changed or repealed without:
(1) The affirmative vote of 75% of the Continuing Directors, and
<PAGE>9
(2) The affirmative vote as to all stock held by the holders of
80% or more of the outstanding Voting Stock and the affirmative vote of the
holders of at least sixty-seven percent (67%) of the outstanding shares of
Voting Stock exclusive of the Voting Stock held by an Interested
Stockholder.
ARTICLE IX
STOCKHOLDERS
9.01 Definition. Whenever the term "total voting power" appears
in this Certificate of Incorporation, it shall mean all shares of the
Company entitled to vote on the question presented, and of every class or
series of shares entitled to vote by class or series. Whenever the term
"voting power present" appears in this Certificate of Incorporation, it
shall mean that portion of the total voting power (if less than 100%) which
is present at a legal meeting of the Company's stockholders, duly called
and held, at which a quorum is present.
9.02 Quorum. One-third (1/3) of the total voting power, or where a
separate vote by class or series is required, one-third (1/3) of the shares
of each such class or series, represented in person or by proxy, shall
constitute a quorum at any meeting of the Company's stockholders.
9.03 Vote Required. Any action to be taken by the Company's
stockholders may be taken by a majority of the voting power present, in
person or by proxy, except where this Certificate of Incorporation or the
Company's Bylaws then in effect require a higher proportion of the voting
power present, a proportion of the total voting power, or both. Nothing
contained in this Article shall affect the voting rights of holders of any
class or series of shares entitled to vote as a class or by series.
9.04 Manner of Voting. The vote of stockholders may be taken at a
meeting by a show of hands or other method authorized by the Board of
Directors. Written ballots shall be used only upon authorization of the
Board of Directors or as provided in the Company's Bylaws.
9.05 Action Without Meeting. Notwithstanding any other provision of
this Certificate of Incorporation, any action by the stockholders may be
taken by written consent in lieu of a meeting, without prior notice or
vote, of the holders of that portion of the total voting power necessary to
authorize such action. The manner of obtaining any such written consent
shall be governed by the Company's Bylaws.
<PAGE>10
ARTICLE X
BYLAWS
The initial Bylaws of the Company shall be adopted by its Board of
Directors. The power to alter, amend or repeal the Bylaws or adopt new
Bylaws shall be vested in the Board of Directors, subject to the right of
the stockholders to alter, amend or repeal such Bylaws or adopt new Bylaws
by the affirmative vote of at least two-thirds (2/3) of the total voting
power. The Bylaws may contain any provisions for the regulation and
management of the affairs of the Company not inconsistent with law or this
Certificate of Incorporation.
ARTICLE XI
COMPROMISE AND REORGANIZATION
Whenever a compromise or arrangement is proposed between the Company
and its creditors or any class of them and/or between the Company and its
stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of
the Company or of any creditor or stockholder thereof or on the application
of any receiver or receivers appointed for the Company under Section 291 of
the General Corporation Law of Delaware or on the application of trustees
in dissolution or of any receiver or receivers appointed for the Company
under Section 279 of the General Corporation Law of Delaware order a
meeting of the creditors or class of creditors, and/or of the stockholders
or class of stockholders of the Company, as the case may he, to be summoned
in such manner as the said court directs. If a majority in number
representing three fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Company, as the
case may be, agree to any compromise or arrangement and to any
reorganization of the Company as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been
made, be binding on all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of the Company, as the case may
be, and also on the Company.
ARTICLE XII
INDEMNIFICATION
12.01. Actions, Suits or Proceedings Other than by or in the Right
of the Company. The Company shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the Company), by reason of the fact that he is or was or has agreed to
become a director or officer of the Company, or is or was serving or has
<PAGE>11
agreed to serve at the request of the Company as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
or by reason of any action alleged to have been taken or omitted in such
capacity, against costs, charges, expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the Company. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company.
12.02. Actions or Suits by or in the Right of the Company. The
Company shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit
by or in the right of the Company to procure a judgment in its favor by
reason of the fact that he is or was or has agreed to become a director or
officer of the Company, or is or was serving or has agreed to serve at the
request of the Company as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity, against
costs, charges and expenses (including attorney's fees) actually and
reasonably incurred by him or on his behalf in connection with the defense
or settlement of such action or suit and any appeal therefrom, if he acted
in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company except that no indemnification
shall be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the Company unless and only
to the extent that the Court of Chancery of Delaware or the court in which
such action or suit was brought shall determine upon application that,
despite the adjudication of such liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such costs, charges and expenses which the Court of Chancery
or such other court shall deem proper.
12.03. Indemnification for Costs, Charges and Expenses of
Successful Party. Notwithstanding the other provisions of this Article, to
the extent that a director or officer of the Company has been successful on
the merits or otherwise, including, without limitation, the dismissal of an
action without prejudice, in defense of any action, suit or proceeding
referred to in Sections 12.01 and 12.02 of this Article, or in defense of
any claim, issue or matter therein, he shall be indemnified against all
costs, charges and expenses (including attorney's fees) actually and
reasonably incurred by him or on his behalf in connection therewith.
<PAGE>12
12.04. Determination of Right to Indemnification. Any
indemnification under Sections 12.01 and 12.02 of this Article (unless
ordered by a court) shall be paid by the Company unless a determination is
made (i) by a disinterested majority of the Board of Directors who were not
parties to such action, suit or proceeding, or (ii) if such disinterested
majority of the Board of Directors so directs, by independent legal counsel
in a written opinion, or (iii) by the stockholders, that indemnification of
the director or officer is not proper in the circumstances because he has
not met the applicable standard of conduct set forth in Sections 12.01 and
12.02 of this Article.
12.05. Advances of Costs, Charges and Expenses. Costs, charges and
expenses (including attorney's fees) incurred by a person referred to in
Sections 12.01 or 12.02 of this Article in defending a civil or criminal
action, suit or proceeding shall be paid by the Company in advance of the
final disposition of such action, suit or proceeding; provided, however,
that the payment of such costs, charges and expenses incurred by a director
or officer in his capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a
director or officer) in advance of the final disposition of such action,
suit or proceeding shall be made only upon receipt of an undertaking by or
on behalf of the director or officer to repay all amounts so advanced in
the event that it shall ultimately be determined that such director or
officer is not entitled to be indemnified by the Company as authorized in
this Article. Such costs, charges and expenses incurred by other employees
and agents may be so paid upon such terms and conditions, if any, as the
majority of the directors deems appropriate. The majority of the directors
may, in the manner set forth above, and upon approval of such director,
officer, employee or agent of the Company, authorize the Company's counsel
to represent such person, in any action, suit or proceeding, whether or not
the Company is a party to such action, suit or proceeding.
12.06 Procedure for Indemnification. Any indemnification under
Sections 12.01, 12.02 and 12.03, or advance of costs, charges and expenses
under Section 12.05 of this Article, shall be made promptly, and in any
event within 60 days, upon the written request of the director or officer.
The right to indemnification or advances as granted by this Article shall
be enforceable by the director or officer in any court of competent
jurisdiction if the Company denies such request, in whole or in part, or if
no disposition thereof is made within 60 days. Such person's costs and
expenses incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such action shall also be
<PAGE>13
indemnified by the Company. It shall be a defense to any such action (other
than an action brought to enforce a claim for the advance of costs, charges
and expenses under Section 12.05 of this Article where the required
undertaking, if any, has been received by the Company) that the claimant
has not met the standard of conduct set forth in Sections 12.01 or 12.02 of
this Article, but the burden of proving such defense shall be on the
Company. Neither the failure of the Company (including its Board of
Directors, its independent legal counsel and its stockholders) to have made
a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he
has met the applicable standard of conduct set forth in Sections 12.01 or
12.02 of this Article, nor the fact that there has been an actual
determination by the Company (including its Board of Directors, its
independent legal counsel and its stockholders) that the claimant has not
met such applicable standard of conduct, shall be a defense to the action
or create a presumption that the claimant has not met the applicable
standard of conduct.
12.07. Settlement. If in any action, suit or proceeding, including
any appeal, within the scope of Sections 12.01 or 12.02 of this Article,
the person to be indemnified shall have unreasonably failed to enter into a
settlement thereof, then, notwithstanding any other provision hereof, the
indemnification obligation of the Company to such person in connection with
such action, suit or proceeding shall not exceed the total of the amount at
which settlement could have been made and the expenses by such person prior
to the time such settlement could reasonably have been effected.
12.08. Other Rights; Continuation of Right to Indemnification. The
indemnification provided by this Article shall not be deemed exclusive of
any other rights to which any director, officer, employee or agent seeking
indemnification may be entitled under any law (common or statutory),
agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another
capacity while holding office or while employed by or acting as agent for
the Company, and shall continue as to a person who has ceased to be a
director, officer, employee or agent, and shall inure to the benefit of the
estate, heirs, executors and administrators of such person. All rights to
indemnification under this Article shall be deemed to be a contract between
the Company and each director or officer of the Company who serves or
served in such capacity at any time while this Article is in effect. Any
repeal or modification of this Article or any repeal or modification of
relevant provisions of the General Corporation Law of Delaware or any other
applicable laws shall not in any way diminish any rights to indemnification
of such director, officer, employee or agent or the obligations of the
Company arising hereunder. This Article shall be binding upon any successor
corporation to the Company, whether by way of acquisition, merger,
consolidation or otherwise.
<PAGE>14
12.09. Insurance. The Company may purchase and maintain insurance
on behalf of any person who is or was or has agreed to become a director,
officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him or on his
behalf in any such capacity, or arising out of his status as such, whether
or not the Company would have the power to indemnify him against such
liability under the provisions of this Article; provided, however, that
such insurance is available on acceptable terms, which determination shall
be made by vote of a majority of the directors.
12.10. Saving Clause. If this Article or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then
the Company (i) shall nevertheless indemnify each director and officer of
the Company and (ii) may nevertheless indemnify each employee and agent of
the Company, as to any cost, charge and expense (including attorney's
fees), judgment, fine and amount paid in settlement with respect to any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Company, to
the full extent permitted by any applicable portion of this Article that
shall not have been invalidated and to the full extent permitted by
applicable law.
12.11. Amendment. The affirmative vote of at least two-thirds
(2/3) of the total voting power shall be required to amend, repeal, or
adopt any provision inconsistent with, this Article. No amendment,
termination or repeal of this Article shall affect or impair in any way the
rights of any director or officer of the Company to indemnification under
the provisions hereof with respect to any action, suit or proceeding
arising out of, or relating to, any actions, transactions or facts
occurring prior to the final adoption of such amendment, termination or
repeal.
12.12. Subsequent Legislation. If the General Corporation Law of
Delaware is amended after approval by the stockholders of this Article to
further expand the indemnification permitted to directors, officers,
employees or agents of the Company, then the Company shall indemnify such
persons to the fullest extent permitted by the General Corporation Law of
Delaware, as so amended.
<PAGE>15
ARTICLE XIII
APPROVAL OF BUSINESS COMBINATIONS
The affirmative vote of the holders of at least eighty percent
(80%) of the outstanding shares of Voting Stock (as herein defined) and the
affirmative vote of the holders of at least sixty-seven percent (67%) of
the outstanding shares of Voting Stock exclusive of the Voting Stock held
by an "Interested Stockholder" (as herein defined) shall be required for
the adoption or authorization of any Business Combination (as herein
defined), provided that such eighty percent (80%) and sixty-seven percent
(67%) voting requirements shall not be applicable if all of the conditions
specified in paragraph 13.02 of this Article XIII are met.
13.01 Definitions. The following definitions shall apply for purposes
of this Article XIII:
(a) "Person" shall mean any individual, firm, corporation or other
entity.
(b) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934 provided, however, that the term
"registrant" as used in such definition of "Associate" shall mean the
Company.
(c) "Subsidiary" shall mean any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the Company,
provided, however, that for the purposes of the definition of "Interested
Stockholder" set forth below, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Company.
(d) "Voting Stock" shall mean capital stock of the Company entitled
to vote generally in the election of directors.
(e) "Beneficial Owner" shall have the meaning set forth in
Regulation 13D under the Securities Exchange Act of 1934, and includes any
other person with which such Beneficial Owner has any agreement or
understanding for the purpose of acquiring, holding, voting or disposing of
any shares of Voting Stock.
(f) "Interested Stockholder" shall mean, in respect of any
Business Combination, any person (other than the Company, any Subsidiary,
any pension, savings, or other employee benefit plan of employees of the
Company or any Subsidiary, or any one or a group of more than one
Continuing Director) who or which:
<PAGE>16
(i) is the Beneficial Owner, directly or indirectly, of ten
percent (10%) or more of the voting power of the outstanding Voting Stock;
or
(ii) is an Affiliate of the Company and at any time within
the two-year period immediately prior to the date in question was the
Beneficial Owner, directly or indirectly, of ten percent (10%) or more of
the voting power of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by an
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act of
1933 or any successor securities law.
(g) "Business Combination" shall mean any one or more of the
following transactions:
(i) Any merger or consolidation of the Company or any
Subsidiary with any Interested Stockholder or any Person (whether or not
itself an Interested Stockholder) which is, or after such merger or
consolidation would he, an Affiliate of an Interested Stockholder.
(ii) Any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder, or any Affiliate of
any Interested Stockholder or any Person of substantially all the assets of
the Company or any Subsidiary.
(iii) The issuance or transfer by the Company or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Company or any Subsidiary to any Interested Stockholder
or any Affiliate of any Interested Stockholder or any Person in exchange
for cash, securities or other property (or combination thereof) having an
aggregate Fair Market Value of one million dollars ($1,000,000) or more.
(iv) Any reclassification of securities (including
any reverse stock split), or recapitalization of the Company, or any
merger or consolidation of the Company with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class
of equity or convertible securities of the Company or any Subsidiary which
is directly or indirectly beneficially owned by any Interested Stockholder
or any Affiliate of any Interested Stockholder.
<PAGE>17
(h) "Continuing Director" shall mean any member of the Board of
Directors of the Company who: (i) is not an Interested Stockholder nor an
Affiliate of the Interested Stockholder and was a member of the Board of
Directors prior to the time that such Interested Stockholder became an
Interested Stockholder; or (ii) is a successor of a Continuing Director who
is not an Affiliate of the Interested Stockholder and who is recommended to
succeed a Continuing Director prior to his initial election or appointment
to the Company's Board of Directors by a two-thirds vote of the Continuing
Directors then on the Board of Directors.
(i) "Fair Market Value" shall mean:
(i) in the case of stock, the highest closing sale
price of a share of such stock during the thirty (30) day period
immediately preceding the date for which such Fair Market Value is being
determined on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 or successor law on which such
stock is listed, or if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of such stock during
the thirty (30) day period preceding the date for which such Fair Market
Value is being determined on the National Association of Securities
Dealers, Inc. Automated Quotation System or any system then in use, or if
no such quotations are available, the Fair Market Value of such stock as
determined in good faith by the Board of Directors; and
(ii) in the case of property other than cash or stock,
the Fair Market Value of such property determined by the Board of Directors
in good faith for the date on which such Fair Market Value is being
determined.
13.02 Exception to 80% and 67% Vote Requirements. The eighty percent
(80%) and sixty-seven percent (67%) vote required by this Article XIII for
approval of certain Business Combinations shall not be applicable to a
Business Combination, and such Business Combination shall require only such
affirmative vote as required by law and any other provision of this
Certificate of Incorporation, if:
(a) Such Business Combination shall have been approved by a
seventy-five percent (75%) vote of the Continuing Directors, or
(b) All of the following conditions shall have been met with
respect to such Business Combination:
<PAGE>18
(i) The aggregate amount of cash and the Fair Market
Value as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of Common
Stock in such Business Combination shall be at least equal to the highest
of the following, adjusted to reflect subdivisions of stock and stock
splits:
A. The highest per share price (including brokerage
commissions, transfer taxes and soliciting dealer's fees) paid by the
Interested Stockholder for the Company's Common Stock acquired by it (1)
within the two-year period immediately prior to the first public
announcement of the proposal of the Business Combination (the "Announcement
Date"), or (2) in the transaction in which it became an Interested
Stockholder, whichever is higher;
B. The Fair Market Value per share of the Company's
Common Stock (1) on the Announcement Date, or (2) on the date on which the
Interested Stockholder became an Interested Stockholder (the "Determination
Date"), whichever is higher; or
C. The Fair Market Value per share of the Company's Common
Stock determined pursuant to the immediately preceding subparagraph B,
multiplied by the ratio of (1) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealer's fees) paid by
the Interested Stockholder for any shares of Common Stock acquired by it
within the two-year period immediately prior to the Announcement Date, to
the (2) the Fair Market Value per share of such Common Stock on the first
day in such two-year period upon which the Interested Stockholder acquired
any shares of such Common Stock.
(ii) The consideration to be received by holders of a
particular class of outstanding Voting Stock shall be in cash or in such
form as the holders of the Voting Stock may approve as a class.
(iii) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of shares
of any class or series of outstanding Voting Stock, other than Common
Stock, shall be at least equal to the highest amount determined under
clauses (A), (B) or (C) below.
A. The highest per share price (including any
brokerage commissions, transfer taxes, and soliciting dealers' fees) paid
by or on behalf of the Interested Stockholder for any share of such class
or series of beneficial ownership of shares of such class or series of
Voting Stock (1) within the two-year period immediately prior to the
Announcement Date or (2) in the transaction in which it became an
Interested Stockholder, whichever is higher;
<PAGE>19
B. The Fair Market Value per share of such class
or series of Voting Stock on the Announcement Date or on the Determination
Date, whichever is higher; and
C. The highest preferential amount per share to
which the holders of shares of such class or series of Voting Stock would
be entitled, if any, in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, regardless of
whether the Business Combination to be consummated constitutes such an
event.
(iv) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such Business
Combination: (a) there shall have been (1) no reduction in the annual rate
of dividends paid on the Common Stock (except as necessary to reflect any
subdivision or split of the Common Stock), except as approved by a
seventy-five percent (75%) vote of the Continuing Directors, and (2) an
increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or similar transaction which has the
effect of reducing the number of outstanding shares of the Common Stock,
unless the failure to so increase such annual rate is approved by a
seventy-five percent (75%) vote of the Continuing Directors; and (b) such
Interested Stockholder shall not have become the Beneficial Owner of any
newly issued shares of Voting Stock except as part of the transaction which
results in such Interested Stockholder becoming an Interested Stockholder,
and except as necessary to reflect any subdivision or split of the Common
Stock.
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not have received
the benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages provided by
the Company, whether in anticipation of or in connection with a Business
Combination or otherwise.
(vi) A proxy or information statement describing the
proposed Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations thereunder
(or any subsequent provisions replacing such Act or Rules) shall be mailed
to stockholders of the Company at least thirty (30) days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions).
<PAGE>20
13.03 Certain Determinations. The Continuing Directors, acting as a
committee, shall have the power and duty to determine for the purposes of
this Article XIII, on the basis of information known to them after
reasonable inquiry, (i) whether a person is an Interested Stockholder, (ii)
the number of shares of Voting Stock beneficially owned by any person,
(iii) whether a person is an Affiliate or Associate of another, and (iv)
whether the assets which are the subject of any Business Combination
constitute substantially all the assets of the Company or any Subsidiary,
or the consideration to be received for the issuance or transfer of
securities by the Company or any Subsidiary in any Business Combination has
an aggregate Fair Market Value of one million dollars ($1,000,000) or more.
13.04 Fiduciary Obligations of Interested Stockholders. Nothing
contained in this Article XIII shall be construed to relieve any Interested
Stockholder from any fiduciary obligation imposed by law.
13.05 Amendment and Repeal. Notwithstanding any other provisions of
this Certificate of Incorporation or the Bylaws of the Company (and
notwithstanding the fact that a lesser percentage may be specified by law,
this Certificate of Incorporation or the Bylaws of the Company), the
affirmative vote of 75% of the Continuing Directors and the affirmative
vote of the holders of at least eighty percent (80%) of the outstanding
shares of the Voting Stock and the affirmative vote of the holders of at
least 67% of the outstanding shares of Voting Stock exclusive of the Voting
Stock held by an Interested Stockholder shall be required to amend, modify
or repeal, or to adopt any provisions inconsistent with this Article XIII
of this Certificate of Incorporation; provided, however, that this Article
XIII may be amended, modified or repealed, and any such new provision may
be added, upon the affirmative vote of the holders of not less than a
majority of the total voting power of all outstanding shares of the Voting
Stock of the Company, if such amendment, modification, repeal or addition
shall first have been approved and recommended by a resolution adopted by a
seventy-five percent (75%) vote of the Continuing Directors.
<PAGE>21
IN WITNESS WHEREOF, DBS Industries, Inc. has caused this Restated
Certificate of Incorporation to be signed by Fred W. Thompson, its
President, and Michael T. Schieber, its Secretary, this 8th day of August,
1996.
By: FRED W. THOMPSON
Fred W. Thompson
President
Attest: MICHAEL T. SCHIEBER
Michael T. Schieber
Secretary
EXHIBIT 10.30
Certificate No.: ________ Principal Amount:
$640,000.00
DBS INDUSTRIES, INC.
$640,000
THREE YEAR CONVERTIBLE DEBENTURE
DECEMBER 5, 1996
SERIES C
DUE: DECEMBER 31, 1999
THIS CERTIFIES THAT ECHOSTAR COMMUNICATIONS CORPORATION IS THE REGISTERED
HOLDER OF ONE (1) DEBENTURE, ISSUED IN THE PRINCIPAL AMOUNT OF SIX HUNDRED
FORTY THOUSAND DOLLARS ($640,000.00), OF DBS INDUSTRIES, INC. ("DBSI").
1. DEBENTURE.
1.1 DBSI, a Delaware corporation ("Company"), for value received,
hereby promises to pay to EchoStar Communications Corporation, or to any
other holder hereof ("Holder"), on or before December 31, 1999, the sum of
Six Hundred Forty Thousand Dollars ($640,000.00) as set forth below, with
interest from the date of issuance of this Debenture, at the rate of prime
(as published daily in the Wall Street Journal), adjusted quarterly, plus
two percent (2%) per annum until the principal sum hereof has been paid in
full. Payment of principal and interest shall be made as hereinafter
provided, and shall be paid by wire transfer or other immediately available
funds to the registered address of the Holder.
NEITHER THIS DEBENTURE NOR THE COMMON STOCK ISSUABLE ON
EXERCISE OF THE CONVERSION RIGHT HAVE BEEN OR WILL BE
REGISTERED UNDER THE FEDERAL SECURITIES LAWS OR THE
SECURITIES LAWS OF ANY STATE, AND NEITHER THIS DEBENTURE NOR
ANY COMMON STOCK ACQUIRED ON EXERCISE OF THE CONVERSION
RIGHT MAY BE TRANSFERRED, HYPOTHECATED, SOLD OR ASSIGNED,
EXCEPT IN COMPLIANCE WITH THE PROVISIONS OF THE SECURITIES
ACT OF 1933, AND ANY APPLICABLE STATE SECURITIES LAWS.
NEITHER THIS DEBENTURE NOR ANY COMMON STOCK UNDERLYING THE
DEBENTURE MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED, EXCEPT AFTER NOTICE TO THE COMPANY
<PAGE>2
AND WITH THE COMPANY'S CONSENT, AND THE COMPANY NEED NOT
CONSENT TO ANY SUCH PROPOSED TRANSFER UNLESS, IN THE OPINION
OF LEGAL COUNSEL REASONABLY SATISFACTORY TO THE COMPANY,
SUCH TRANSFER DOES NOT VIOLATE ANY APPLICABLE FEDERAL OR
STATE SECURITIES LAWS.
1.2 This Debenture is one of the duly authorized issue of Three Year
Convertible Debentures of the Company due December 31, 1999, limited to Six
Hundred Forty Thousand Dollars ($640,000.00) aggregate principal amount and
dated as of December 5, 1996, Series "C" (the "Debenture").
1.3 Payment on account of the accrued and unpaid interest shall be
calculated and paid quarterly on March 1, June 1, September 1, and December
1 for the previous quarter, until all interest and the principal sum have
been paid in full. At the election of the Holder, accrued interest may be
paid in shares of the Company's common stock using the average closing bid
price for the quarter in which the interest accrues. All payments made on
account of this Debenture shall be applied first to the cost of collection,
the payment of accrued but unpaid interest, and the balance, if any, to
principal. There shall be no penalty assessed for early redemption of the
principal amount due. Payment of principal is due December 31, 1999.
1.4 In the event the principal amount has not been paid in full by
December 31, 1999, the Company may extend the term of this Debenture upon
thirty (30) days prior written notice by the Company and the express
written consent of the Holder for additional one (1) year periods, which
consent Holder may withhold in its sole and absolute discretion, provided
however that the principal amount and all unpaid interest shall be due
December 31, 2001; provided, further, in the event Holder does not provide
its written consent to extend the term of this Debenture, which consent
Holder may withhold in its sole and absolute discretion, all amounts due
under the terms of this Debenture shall become due and payable on December
31, 1999.
2. CONVERSION.
The Holder of this Debenture shall have conversion rights as follows:
2.1 RIGHT TO CONVERT. The Holder of this Debenture has the right,
but not the obligation at any time prior to December __, 1999, to convert
the outstanding principal amount hereof, in units of Ten Thousand Dollars
($10,000.00) or more, into shares of common stock of the Company, par value
$0.0004 per share (the "Common Shares"), at the conversion price set forth
in Section 2.2 below, upon surrender of this Debenture at the office or
agency of the Company, accompanied by written notice of conversion in a
<PAGE>3
form reasonably satisfactory to the Company, or as attached hereto as
EXHIBIT A, duly executed by the Holder or his or her duly authorized
attorney; provided however that, in case this Debenture shall be called for
redemption or principal and accrued interest shall otherwise be prepaid,
such right shall terminate at the close of business on the seventh day
following written notice to Holder of the Company's intent to redeem or
otherwise prepay principal. Upon such surrender for conversion, the
Company shall issue Common Shares to the Holder of the Debenture promptly
upon surrender of the Debenture for conversion. In the event Holder elects
to convert a portion, but not all, of the outstanding principal amount
hereof into Common Shares of the Company, the Company shall issue to Holder
a new Debenture, which Debenture shall evidence the amount of outstanding
principal amount not converted. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the Debenture and the Holder shall be treated for all purposes
as the record holder or holders of such Common Shares as of such date. All
Common Shares issuable upon conversion of this Debenture shall be fully
paid and non-assessable. No fractional shares or script representing
fractional shares will be issued upon any conversion, but an adjustment in
cash will be made in respect of any fraction of a Common Share which would
otherwise be issuable upon the surrender of this Debenture for conversion.
Any accrued and unpaid interest shall be paid to the date of conversion, or
if not paid, shall be included in calculating the number of Common Shares
converted.
2.2 CONVERSION PRICE. Subject to adjustment pursuant to Section 2.3
hereof, the Conversion Price at which Common Shares shall be issuable upon
conversion under Section 2.1 of this Debenture shall be four dollars
($4.00) per Common Share.
2.3 ADJUSTMENT TO THE CONVERSION PRICE. If at any time or from time
to time the Company:
(a) Pays a dividend or makes a distribution on its Common Shares
in additional Common Shares;
(b) Subdivides its outstanding Common Shares into a greater
number of Common Shares;
(c) Combines its outstanding Common Shares into a smaller number
of Common Shares;
(d) Makes a distribution on its Common Shares in shares of its
capital stock other than Common Shares;
(e) Issues by reclassification of its Common Shares any shares
of its capital stock;
<PAGE>4
(f) Distributes any rights or warrants to all holders of its
Common Shares entitling them to purchase Common Shares at a
price per Common Share less that the current market price
per Common Share; or
(g) Distributes to all holders of its Common Shares any of its
assets or debt securities or any rights or warrants to
purchase securities of the Company (excluding cash dividends
or distributions from current or retained earnings),
then the conversion right and the Conversion Price in effect immediately
prior to such action shall be adjusted so that the Holder of this Debenture
may receive the number of Common Shares of the Company which it would have
owned immediately following such action if it had converted the Debenture
immediately prior to such action.
2.4 RESERVATION OF COMMON SHARES. The Company shall at all times
reserve and keep available out of its authorized but unissued Common
Shares, solely for the purpose of effecting the conversion of this
Debenture, the full number of whole Common Shares then deliverable upon the
conversion of the entire principal amount of this Debenture at the time
outstanding. The Company shall take at all times such corporate action as
shall be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Common Shares upon the conversion of this
Debenture in accordance with the provisions hereof.
3. SUBORDINATION.
The Company and the Holder of this Debenture, by acceptance hereof,
agrees that the payment of the principal and accrued but unpaid interest on
the Debenture is hereby expressly subordinated to the prior payment of the
principal and interest on all existing or future obligations of the Company
for money borrowed from any bank, trust company, venture capital company,
insurance company, or other financial institution engaged in the business
of lending money, (hereinafter called the "Senior Indebtedness"); provided,
however, the payment of principal and accrued but unpaid interest shall not
be subordinated to any other obligation of any other party with respect to
the collateral subject to the Pledge Agreement, as defined below, in which
the Holder shall at all times have a first priority security interest.
Other than as required pursuant to the Pledge Agreement, as defined in
Section 4 below, upon any receivership, insolvency, assignment for the
benefit of creditors, bankruptcy, reorganization, or arrangement with
creditors (whether or not pursuant to bankruptcy or other insolvency laws),
sale of all or substantially all of the assets, dissolution, liquidation,
or any other marshalling of the assets and liabilities of the Company, or
in the event the Debenture shall be declared due and payable upon the
occurrence of an event of default (as specified herein), (a) no amount
<PAGE>5
shall be paid by the Company in respect of the principal or accrued but
unpaid interest on the Debenture at the time outstanding, unless and until
the principal of and interest on the Senior Indebtedness then outstanding
shall have been paid in full, and (b) no claim or proof of claim shall be
filed with the Company by or on behalf of the Holder of this Debenture
which shall assert any right to receive any payment in respect of the
principal and accrued but unpaid interest on the Debenture except subject
to payment in full of the principal and interest on all of the Senior
Indebtedness then outstanding. Notwithstanding anything else to the
contrary in this Section 3, indebtedness to an "affiliate" of the Company
shall not constitute "Senior Indebtedness". In this respect, the term
"affiliate" shall mean any officer, director, or shareholder who controls
the Company. Notwithstanding anything else to the contrary, the provisions
of this Section 3 shall not impair the Holder's rights to foreclose upon
the Pledged Securities in accordance with the terms and conditions of the
Pledge Agreement mentioned in Section 4.
4. SECURITY.
This Debenture is secured by, is subject to and is entitled to the
benefits of that certain Security Pledge Agreement dated as of the original
issue date of this Debenture (the "Pledge Agreement") to which reference is
hereby made. The parties agree and acknowledge that Holder shall at all
times have a first priority security interest in and to the collateral
subject to the Pledge Agreement.
5. REDEMPTION.
5.1 This Debenture is subject to redemption, in whole or in part, at
any time and from time to time, upon payment of the principal amount
thereof to be redeemed together with accrued interest, at the election of
the Company, its successors or assigns, upon giving notice of its election
to redeem, by registered mail, directed to the Holder hereof at least ten
(10) days prior to the date of redemption. If the Holder hereof fails and
neglects to present this Debenture for payment at the time and place
reasonably specified in such notice, this Debenture shall cease to bear
interest from the date fixed for redemption.
5.2 The Company may consider and treat the Holder of this Debenture
as the absolute owner thereof, whether or not the Debenture shall be
overdue, for all purposes whatsoever, and the Company shall not be affected
by any notice to the contrary.
5.3 Recourse for payment on this Debenture shall exist against the
Collateral described in the accompanying Pledge Agreement in addition to
all other assets of the Company available for distribution to creditors
<PAGE>6
generally. No recourse for payment on this Debenture may be had against
any incorporator, shareholder, officer, director or attorney, past,
present, or future, of the Company, whether by virtue of any constitution,
statute, rule of law, enforcement of any assessment, or penalty, or by
reason of any matter prior to the delivery of this Debenture, or otherwise,
all of which liability, by the acceptance hereof and as a part of the
consideration of the issue hereof, being expressly waived.
6. DEFAULT BY COMPANY.
6.1 Any one or more of the following events shall constitute an Event
of Default under this Agreement:
(a) The Company fails to pay any installment of principal or any
interest on this Debenture when the same becomes due and
payable;
(b) The Company fails in the observance or performance of any
representation, warranty, covenant or agreement in this
Debenture or the Pledge Agreement;
(c) The Company shall commence any voluntary proceeding under
any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, receivership, dissolution, or
liquidation law or statute of any jurisdiction, whether now
or hereafter in effect, or the Company shall be adjudicated
insolvent or bankrupt by a decree of a court of competent
jurisdiction; or the Company shall petition or apply for,
acquiesce in, or consent to, the appointment of any receiver
or trustee of the Company or for all or a substantial part
of the property of the Company; or the Company shall make an
assignment for the benefit of creditors; or the Company
shall admit in writing its inability to pay its debts as
they mature; or
(d) There shall be commenced against the Company any proceeding
relating to the Company under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of
debt, receivership, dissolution, or liquidation law or
statute of any jurisdiction; whether now or hereafter in
effect, any such proceeding shall remain undismissed for a
period of forty-five (45) days or the Company by any act
indicates its consent to, approval of, or acquiescence in,
any such proceeding; or a receiver or trustee shall be
appointed for the Company or for all or a substantial part
of the property of the Company and any such receivership or
<PAGE>7
trusteeship shall remain undischarged for a period of forty-
five (45) days; or a warrant of attachment, execution, or
similar process shall be issued against any substantial part
of the property of the Company and the same shall not be
dismissed or bonded within forty-five (45) days after levy.
In the event the Company fails to pay the principal due under the
terms of this Debenture on December 31, 1999, or upon the occurrence of a
default in any interest payment herein which remains uncured for ten (10)
days or any other Event of Default which remains uncured for forty-five
(45) days, the Holder, in its sole and absolute discretion, by written
notice to the Company, may declare the entire unpaid principal amount of
the Debenture together with accrued interest thereon, due and payable and
the same shall, forthwith become due and payable without presentment,
demand, protest, or other notice of any kind, all of which are expressly
waived. The Company shall give notice to Holder within three (3) business
days of the occurrence of any Event of Default specified in paragraphs (b),
(c), and (d) above.
6.2 The obligations, duties, benefits and rights of the Company under
this Debenture shall be binding upon and inure to the benefit of the
Company and its successors, and the Company shall not consolidate with or
merge into or with any other person or entity, or transfer or lease
substantially all of its properties and assets to any other person or
entity unless: (a) the entity formed for such consolidation or into which
the Company is merged, or the entity to which the properties and assets of
the Company are so transferred or leased shall be a corporation,
partnership or trust organized and existing under the laws of the United
States, any state thereof or the District of Columbia, which entity shall
assume the obligation for payment of this Debenture in accordance with its
terms and the performances of all other covenants of the Company under this
Debenture and the Pledge Agreement, and (b) immediately after giving effect
to such transaction, no event of default, and no event which, after notice
or lapse of time or both, would become an event of default, shall have
occurred and be continuing; provided, however, the Company shall not assign
or otherwise transfer, in connection with a merger, sale, consolidation or
otherwise, any of its obligations under the terms of this Debenture if the
financial condition of such assignee, successor or otherwise is not at
least equal to the financial condition of the Company as reasonably
determined by Holder consistent with generally accepted accounting
principles.
7. SECURITIES LAW COMPLIANCE.
The Holder understands that the right of conversion of this Debenture
is subject to full compliance with the provisions of all applicable
securities laws and the availability thereunder upon any conversion of any
exemption from registration thereunder for such conversion, and that the
certificate or certificates evidencing such Shares will bear a legend to
the following effect:
<PAGE>8
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
THE SECURITIES LAWS OF ANY STATE. THEY HAVE NOT BEEN ACQUIRED BY
THE HOLDER FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT COVERING THESE SECURITIES UNDER THE SAID ACT OR LAWS,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS
COUNSEL THAT REGISTRATION IS NOT REQUIRED THEREUNDER."
8. NO WAIVER; RIGHTS AND REMEDIES CUMULATIVE.
No failure on the part of the Holder to exercise, and no delay in
exercising any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise by the Holder of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The rights and remedies herein provided are cumulative and not
exclusive of any remedies or rights provided by law or by any other
agreement between the Company and the Holder.
9. HOLDER IS NOT A SHAREHOLDER.
No Holder of this Debenture, solely by virtue of the ownership of this
Debenture, shall be considered a shareholder of the Company for any
purpose, nor shall anything in this Debenture be construed to confer on any
Holder of this Debenture any rights of a shareholder of the Company
including, without limitation, any right to vote, give or withhold consent
to any corporate action, receive notice of meetings of shareholders or
receive dividends.
10. TRANSFER, EXCHANGE, AND REPLACEMENT OF DEBENTURE.
This Debenture, or any portion thereof, and any payment of principal
or interest due hereunder is transferable, negotiable and assignable at the
option and in the sole discretion of the Holder hereof. Upon surrender of
this Debenture to the Company, the Company shall execute and deliver, at
its expense, one or more new Debentures and in such names, as requested by
the Holder of the surrendered Debenture. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation, or destruction
of any Debenture, the Company will make and deliver a new Debenture, of
like tenor, at the request of the Holder of such Debenture.
11. NOTICES.
All such notices required to be given hereunder shall be given in
accordance with the provisions of Section 12 of the Pledge Agreement.
<PAGE>9
Witness the seal of the Company and the signature of its duly
authorized officers.
Date of Issuance: December 5, 1996
[SEAL]
ATTEST: DBS Industries, Inc.
MICHAEL T. SCHIEBER By: FRED W. THOMPSON
Secretary President
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
The undersigned holder of a Convertible Debenture (the "Debenture")
due December 31, 1999, in the original principal amount of Six Hundred
Forty Thousand Dollars ($640,000.00) of DBS INDUSTRIES, INC. (the
"Company") hereby exercises the option to convert this Debenture into
shares of common stock, par value $0.0004 ("Common Shares") of the Company
in accordance with the terms of this Debenture, and directs that the Common
Shares issuable upon the conversion, be issued in the undersigned's name
and delivered to the undersigned as soon as practicable.
The number of Common Shares to be received in the conversion is
________________.
Date: ______________ ____________________________________
Date: ______________ ____________________________________
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated April 18, 1996, is
entered into by and between DBS Industries, Inc., a Delaware corporation
(the "Company") and Fred Thompson ("Employee"), in consideration of the
mutual promises and conditions made herein.
ARTICLE I
EMPLOYMENT AND TERM OF EMPLOYMENT
1.1. EMPLOYMENT AND TERM. The Company hereby employs Employee to
render full-time services to the Company on an exclusive basis, upon the
terms and conditions set forth below, from the date of this Agreement until
the employment relationship is terminated in accordance with the provisions
of this Agreement. This Agreement is for a term of five years (the "Stated
Term") effective January 1, 1996, unless terminated earlier as provided for
herein (the "Employment Term").
1.2. ACCEPTANCE. Employee hereby accepts employment with the Company
and agrees to devote his full-time attention and best efforts exclusively
to rendering the services described below. The Employee shall accept and
follow the direction and authority of the Board of Directors of the Company
(the "Board") in the performance of his duties, and shall comply with all
existing and future regulations applicable to employees of the Company and
to the Company's business.
ARTICLE II
DUTIES OF EMPLOYEE
2.1. GENERAL DUTIES. Employee shall serve as the President and Chief
Executive Officer of the Company. In his capacity as President and Chief
Executive Officer, Employee shall do and perform all services, acts, or
other things necessary or advisable to manage and conduct the business of
the Company, including, but not limited to, the supervision, direction and
control of the business and other employees of the Company, subject to the
policies and direction of the Board. To the extent consistent with the
Company's certificate and bylaws, Employee shall preside over meetings of
the Company's stockholders and, in the absence of the Chairman of the
Board, or if there be none, at all meetings of the Board. Employee shall
have all powers, duties and responsibilities necessary to carry out his
duties, and such other powers and duties as the Board may prescribe
consistent with the Company's certificate and bylaws.
2.2. EXCLUSIVE SERVICES. It is understood and agreed that Employee
may not engage in any other business activity during the term of his
employment hereunder, whether or not for profit or other remuneration,
<PAGE>2
without the prior written consent of the Company. Further, Employee shall
not directly or indirectly acquire any stock or interest in any
corporation, partnership, or other business entity that competes, directly
or indirectly, with the business of the Company.
2.3. REPORTING OBLIGATIONS. In connection with the performance of his
duties hereunder, unless otherwise instructed by the Company's Board, the
Employee shall report directly to the Board.
2.4. DIRECTOR. Employee shall serve as Chairman of the Board and on
the Executive Committee of the Board, if one exists now or in the future,
and shall be nominated as Director and Chairman of the Board each year
subject to continued approval of the stockholders of the Company as
required by law.
ARTICLE III
COMPENSATION AND BENEFITS OF EMPLOYEE
3.1. ANNUAL BASE SALARY. The Company shall pay the Employee salary
for the services to be rendered by him during the term of this Agreement at
the rate of one hundred eighty thousand dollars ($180,000) annually
(prorated for any portion of a year), subject to increases, if any, as the
Compensation Committee of the Board may determine in its sole discretion
after annual review of the Employee's performance of his duties hereunder.
Such base salary shall be payable in periodic installments in accordance
with the terms of the Company's regular payroll practices in effect from
time to time during the term of this Agreement, but in no event less
frequently than once each month.
3.2. BONUSES. In addition to the base salary and other benefits
provided to Employee hereunder, Employee is eligible to receive bonuses
based on Company performance and Employee's attainment of objectives
established by the Compensation Committee of the Board of Directors
annually.
3.3. STOCK OPTIONS. Employee shall be granted stock options to
purchase 312,500 shares of the Company's common stock at an exercise price
of $5.20 per share 78,125 of which will vest immediately upon the execution
of this Agreement, and the remainder shall vest in 78,125 share increments
on each anniversary of this Agreement. In addition, the stock options are
subject to (a) further terms and conditions set forth herein and in the
Stock Option Agreement attached as Exhibit A to this Agreement, and (b) the
Employee's execution of the Stock Option Agreement and all documents
customarily required by the Company to effect the grant of the options.
<PAGE>3
In connection with a registration statement filed by the Company to
register shares of its common stock for an employee benefit plan on Form S-
8, the Company shall also register the common stock underlying the stock
options granted to Employee.
3.4. EXPENSES. The Company shall pay or reimburse the Employee for
all reasonable, ordinary and necessary business expenses actually incurred
or paid by Employee in the performance of Employee's services under this
Agreement in accordance with the expense reimbursement policies of the
Company in effect from time to time during the Employment Term, upon
presentation of proper expense statements or vouchers or such other written
supporting documents as the Company may reasonably require.
3.5. VACATION. Employee shall be entitled to six (6) weeks paid
vacation for each calendar year (prorated for any portion of a year, as
applicable), such vacation to accrue at the rate of twenty (20) hours per
month. Notwithstanding anything to the contrary in this Agreement,
vacation time shall cease to accrue beyond eight weeks at any given time
during the Employment Term.
3.6. GENERAL EMPLOYMENT BENEFITS. Except where expressly provided for
herein, Employee shall be entitled to participate in, and to receive the
benefits under, any pension, health, life, accident and disability
insurance plans or programs and any other employee benefit or fringe
benefit plans that the Company makes available generally to its employees,
as the same may be in effect from time to time during the Employment Term.
3.7. INDEMNIFICATION. The Company shall indemnify and hold Employee
harmless for any actions taken or decisions made by him in good faith while
performing services in his capacity as President and Chief Executive
Officer of the Company during the Employment Term. The Company agrees to
indemnify and hold Employee harmless to the extent provided in an
indemnification agreement in the form attached hereto as Exhibit B and
incorporated herein by reference.
3.8. ANNUAL PHYSICAL. Employee shall have the right to an annual
physical at the cost of the Company.
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1. TERMINATION. This Agreement may be terminated earlier as
provided for in this Article IV, or extended by further written agreement
of the parties.
4.2. TERMINATION FOR CAUSE. The Company reserves the right to
terminate this Agreement for cause upon: (a) Employee's willful and
continued failure to substantially perform his duties with the Company
<PAGE>4
(other than such failure resulting from his incapacity due to physical or
mental illness) after there is delivered to Employee by the Board, acting
reasonably and in good faith, a written demand for substantial performance
which sets forth in detail the specific respects in which the Board
believes Employee has not performed his duties, and giving Employee not
less than thirty (30) days to correct the deficiencies specified in the
written notice; or (b) Employee's willful engagement in gross misconduct as
determined by the Board which is materially and demonstrably injurious to
the Company. Notwithstanding the foregoing, Employee shall not be deemed
to have been terminated for cause unless and until there shall have been
delivered to Employee a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire Board members at
a meeting called and held for that purpose.
Upon termination for cause, Employee shall not be entitled to any
severance benefits and all options which have not vested shall be
cancelled.
4.3. TERMINATION WITHOUT CAUSE. Notwithstanding anything to the
contrary in this Agreement, the Company reserves the right to terminate
this Agreement at any time without cause, subject to the express terms and
provisions below.
If Employee is terminated without cause, each month for a period of 12
months following termination the Employee shall be paid an amount equal to
his then monthly base salary so long as Employee does not compete with the
Company (in the manner described below) and complies with the provisions of
Article V. Payments shall be made in accordance with Section 3.1. This
arrangement shall continue for a period of 12 months beginning the month
following the month in which termination occurred.
If Employee is terminated without cause, Employee shall be entitled to
full vesting of all options granted pursuant to this Agreement. The
options must be exercised within ten years after the date of such
termination or such lesser period specified in the option agreement (but in
no event after the expiration date of the option).
It is expressly intended by the parties that if the "does not compete"
provision of this Section 4.3 of the Agreement is found to be
unenforceable, the Company's obligation to pay Employee's remaining salary
is conditioned upon Employee's compliance with the provisions of Article V.
For the purposes of this Agreement, the phrase "compete with the
Company," or the substantial equivalent thereof, means that Employee,
either alone or as a partner, member, director, employee, shareholder or
agent of any other business, or in any other individual or representative
<PAGE>5
capacity, directly or indirectly owns, manages, operates, controls, or
participates in the ownership, management, operation or control of, or
works for or provides consulting services to, or permits the use of his
name by, or lends money to, any business or activity which is or which
becomes, at the time of the acts or conduct in question, directly or
indirectly competitive with the business of the Company.
4.4. VOLUNTARY TERMINATION BY EMPLOYEE. Notwithstanding anything to
the contrary in this Agreement, Employee may terminate this Agreement at
any time upon sixty (60) days written notice to the Company. If Employee
voluntarily terminates employment, Employee shall not be entitled to any
severance benefits and all options which have not vested shall be
cancelled.
4.5. CHANGE IN CONTROL. If there is a "change in control" in the
Company during the Employment Term, all options granted hereunder shall
fully vest upon the Company's public announcement of such a change in
control. A "change in control" shall mean an event in which a "group"
within the meaning of Section 13 (d)(3) of the Securities Exchange Act of
1934 ("the Exchange Act") attempts to influence the Board and as a result
of such influence, the Board acts in a manner or direction different that
the one proposed by Employee.
4.6. DISABILITY. If Employee becomes permanently and totally
disabled, this Agreement shall be terminated. Employee shall be deemed
permanently and totally disabled if he is unable to engage in the
activities required by this Agreement by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or which has lasted or can be expected to last for a continuous
period of not less than 3 months. Upon termination due to disability, any
further compensation and effect on any unvested options will be treated as
termination without cause pursuant to Section 4.3.
4.7. DEATH. If Employee dies during the term of this Agreement, this
Agreement shall be terminated on the last day of the calendar month of his
death subject to the express terms and provisions below.
Upon death all unvested options shall be vested as of the date of
death and may be exercised by the designated beneficiary, as provided in
Section 6.8 below, the estate or Employee's personal representative in
whole or in part at any time within ten (10) years after the date of death
or such lesser period specified in the option agreement (but in no event
after the expiration date of option). The Company shall provide Employee
with life insurance, at Company's expense, in an amount equal to two times
the Employee's annual salary.
<PAGE>6
4.8. EFFECT OF TERMINATION. Except as expressly provided for in this
Agreement, the termination of employment shall not excuse any obligation
that accrued prior to termination, nor shall termination excuse the
performance of any obligation which is required or to be performed after
termination. Any such obligation shall survive the termination of
employment and this Agreement.
ARTICLE V
COVENANTS AND REPRESENTATIONS OF EMPLOYEE
5.1. UNFAIR COMPETITION. Employee acknowledges that he will have
access at the highest level to, and the opportunity to acquire knowledge
of, the Company's customer lists, customer needs, business plans, trade
secrets and other confidential and proprietary information from which the
Company may derive economic or competitive advantage, and that he is
entering into the covenants and representations in this Article V in order
to preserve the goodwill and going concern value of the Company, and to
induce the Company to enter into this Agreement. Employee agrees not to
engage in any unfair competition with Company and Company acknowledges
Employee's right to make a living by employing generic skills of Employee.
5.2. CONFIDENTIAL INFORMATION. During the Employment Term and at all
times thereafter, the Employee agrees to keep secret and to retain in the
strictest confidence all confidential matters which relate to the Company
or its "affiliate" (as that term is defined in the Exchange Act), which are
of a specific nature to the Company's business and not generic skills or
knowledge of Employer, and which may include, but not necessarily be
limited to, customer lists, client lists, trade secrets, pricing lists,
business plans, financial projections and reports, business strategies,
internal operating procedures, and other confidential business information
from which the Company derives an economic or competitive advantage, or
from which the Company might derive such advantage in its business whether
or not labeled "secret" or "confidential."
5.3. RETURN OF PROPERTY. Upon termination of employment, and at the
request of the Company otherwise, the Employee agrees to promptly deliver
to the Company all Company or affiliate memoranda, notes, records, reports,
manuals, drawings, designs, computer files in any media, and other
documents (including extracts and copies thereof) relating to the Company
or its affiliate, and all other property of the Company.
5.4. INVENTIONS. All processes, inventions, patents, copyrights,
trademarks, and other intangible rights that may be conceived or developed
by the Employee, either alone or with others, during the Employment Term,
whether or not conceived or developed during Employee's working hours, and
<PAGE>7
which are related to the Company's business, shall be the sole property of
the Company. Employee shall execute all documents, including patent
applications and assignments, required by the Company to establish the
Company's rights under this provision.
5.5. REPRESENTATIONS. The Employee represents and warrants to the
Company that he has full power to enter into this Agreement and perform his
duties hereunder, and that his execution and delivery of this Agreement and
the performance of his duties shall not result in a breach of, or
constitute a default under, any agreement or understanding, whether oral or
written, including, without limitation, any restrictive covenant or
confidentiality agreement, to which he is a party or by which he may be
bound.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1. NOTICES. All notices to be given by either party to the other
shall be in writing and may be transmitted by personal delivery, facsimile
transmission, overnight courier or mail, registered or certified, postage
prepaid with return receipt requested; PROVIDED, HOWEVER, that notices of
change of address or telex or facsimile number shall be effective only upon
actual receipt by the other party. Notices shall be delivered at the
following addresses, unless changed as provided for herein.
To the Employee:
Fred Thompson
109 William Avenue
Larkspur, CA 94939
To the Company:
DBS Industries, Inc.
495 Miller Avenue
Mill Valley, CA 94941
6.2. NO ASSIGNMENT. This Agreement, and the rights and obligations
of the parties, may not be assigned by either party without the prior
written consent of the other party.
6.3. APPLICABLE LAW. This Agreement and the relationships of the
parties in connection with the subject matter of this Agreement shall be
governed by, and construed under, the laws of the State of California.
6.4. ENTIRE AGREEMENT. This Agreement and the Exhibits to this
Agreement supersede any and all other agreements or understandings of the
<PAGE>8
parties, either oral or written, with respect to this employment of
Employee by the Company, and contains the complete and final agreement and
understanding of the parties with respect thereto. Employee acknowledges
that no representation, inducements, promises, or agreements, oral or
otherwise, have been made by the Company or any of its officers, directors,
employees or agents, which are not expressed herein, and that no other
agreement shall be valid or binding on the Company.
6.5. WITHHOLDING TAXES. All amounts payable under this Agreement,
whether such payment is to be made in cash or other property, including
without limitation stock of the Company, may be subject to withholding for
Federal, state and local income taxes, employment and payroll taxes, and
other legally required withholding taxes and contributions to the extent
appropriate in the determination of the Company, and the Employee agrees to
report all such amounts as ordinary income on his personal income tax
returns and for all other purposes, as called for.
At the election of Employee, Employee shall have the right to sell to
the Company any vested stock options (at the then fair market value of the
common stock less the exercise price) in order to meet any withholding
requirements or pay income taxes on income related to such options.
6.6. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable by any judgment of a tribunal of competent
jurisdiction, the remaining provisions and terms of this Agreement shall
not be affected by such judgment, and this Agreement shall be carried out
as nearly as possible according to its original terms and intent and, to
the full extent permitted by law, any provision or restrictions found to be
invalid shall be amended with such modifications as may be necessary to
cure such invalidity, and such restrictions shall apply as so modified, or
if such provisions cannot be amended, they shall be deemed severable from
the remaining provisions and the remaining provisions shall be fully
enforceable in accordance with law.
6.7. EFFECT OF WAIVER. The failure of either party to insist on
strict compliance with any provision of this Agreement by the other party
shall not be deemed a waiver of such of such provision, or a relinquishment
of any right thereunder, or to affect either the validity of this
Agreement, and shall not prevent enforcement of such provision, or any
similar provision, at any time.
6.8. DESIGNATION OF BENEFICIARY. If the Employee shall die before
receipt of all payments and benefits to which he is entitled under this
Agreement, payment of such amounts or benefits in the manner provided
herein shall be made to such beneficiary as he shall have designated in
writing filed with the Secretary of the Company or, in the absence of such
designation, to his estate or personal representative.
<PAGE>9
6.9. ARBITRATION. Any controversy between Employer and Employee
involving the construction or application of any of the terms, provisions,
or conditions of this Agreement shall be submitted to arbitration.
Arbitration shall comply with and be governed by the provisions of the
American Arbitration Association.
6.10. ATTORNEYS FEES. In the event of any litigation arising out of
this Agreement, or the parties' performance as outlined herein, the
prevailing party shall be entitled to an award of costs, including an award
of reasonable attorney's fees.
6.11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
EMPLOYER: DBS INDUSTRIES, INC.
By: FRED W. THOMPSON
Fred W. Thompson, President
EMPLOYEE: FRED W. THOMPSON
Fred Thompson
<PAGE>
Addendum to the 1996 Employment Agreement
Between DBSIndustries, Inc. and Fred Thompson
WHEREAS, DBSIndustries, Inc., a Delaware corporation (the "Company") and
Fred Thompson ("Employee") anticipate entering into an employment agreement
("Agreement") and intend to sign such Agreement prior to April 30, 1996.
WHEREAS, the parties have agreed that the salary rate stated in the
Agreement is to be accrued but is not to be paid to Employee prior to the
time that the Board of Directors of the Company determines that sufficient
funds have been raised in a timely fashion and are available to the Company
to allow the Company to adequately execute its business plan through March
31, 1997 (the "Event").
NOW THEREFORE, the parties agree as follows:
1.) Prior to the Event, while the Employee remains an employee of the
Company, the Company shall pay Employee at the Employee's current
pay rate of $6,000 per month as payment in full under Section 3.1
(titled Annual Base Salary) of the Agreement.
2.) Between the effective date of the Agreement and the Event, the
Company shall accrue the difference between the amount paid to
employee in accordance with Item 1 above and the prorated amount
specified in Article 3.1 of the Agreement, into a balance sheet
suspense account (the "Suspense Account").
3.) The determination that the Event has occurred shall rest with the
Company's Board of Directors and such determination shall be at
their sole discretion.
4.) Upon the determination that the Event has occurred, the balance
of the Suspense Account, less the appropriate employee taxes and
other normal payroll deductions, shall be paid to the employee in
one lump sum and the employee shall henceforth be paid at the
rate specified in Article 3.1 of the Agreement subject to all the
terms and conditions of the Agreement.
5.) All other terms and conditions of the Agreement remain unchanged.
6.) Dated as of April 25, 1996.
FRED W. THOMPSON MICHAEL SCHIEBER
Fred Thompson (Employee) DBS Industries, Inc.
By Michael Schieber,
Secretary
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated March 1, 1996,
is entered into by and between Global Energy Metering Service, Inc., a
Delaware corporation (the "Company") and Randall L. Smith ("Employee"), in
consideration of the mutual promises and conditions made herein.
ARTICLE I
EMPLOYMENT AND TERM OF EMPLOYMENT
1.1. EMPLOYMENT AND TERM. The Company hereby employs Employee to
render full-time services to the Company on an exclusive basis, upon the
terms and conditions set forth below, from the date of this Agreement until
the employment relationship is terminated in accordance with the provisions
of this Agreement. This Agreement is for a term of five years (the "Stated
Term") effective January 1, 1996, unless terminated earlier as provided for
herein (the "Employment Term").
1.2. ACCEPTANCE. Employee hereby accepts employment with the Company
and agrees to devote his full-time attention and best efforts exclusively
to rendering the services described below. The Employee shall accept and
follow the direction and authority of the President of the Company in the
performance of his duties, and shall comply with all existing and future
regulations applicable to employees of the Company and to the Company's
business.
ARTICLE II
DUTIES OF EMPLOYEE
2.1. GENERAL DUTIES. Employee shall serve as the Executive Vice
President and Chief Engineer of the Company. In his capacity as Executive
Vice President and Chief Engineer, Employee shall do and perform all
services, acts, or other things necessary or advisable to manage and
conduct the business of the Company, including, but not limited to, the
supervision, direction and control of the business and other employees of
the Company, subject to the policies and direction of the Board of
Directors (the "Board") and President. Employee shall have all powers,
duties and responsibilities necessary to carry out his duties, and such
other powers and duties as the Board and President may prescribe.
2.2. EXCLUSIVE SERVICES. It is understood and agreed that Employee
may not engage in any other business activity during the term of his
employment hereunder, whether or not for profit or other remuneration,
without the prior written consent of the Company. Further, Employee shall
<PAGE>2
not directly or indirectly acquire any stock or interest in any
corporation, partnership, or other business entity that competes, directly
or indirectly, with the business of the Company.
2.3. REPORTING OBLIGATIONS. In connection with the performance of his
duties hereunder, unless otherwise instructed by the Company's Board, the
Employee shall report directly to the President of the Company.
ARTICLE III
COMPENSATION AND BENEFITS OF EMPLOYEE
3.1. ANNUAL BASE SALARY. The Company shall pay Employee salary for
the services to be rendered by him during the term of this Agreement at the
rate of one hundred twenty-five thousand dollars ($125,000) annually
(prorated for any portion of a year), subject to increases, if any, as the
Compensation Committee of the Board may determine in its sole discretion
after annual review of the Employee's performance of his duties hereunder.
Such base salary shall be payable in periodic installments in accordance
with the terms of the Company's regular payroll practices in effect from
time to time during the term of this Agreement, but in no event less
frequently than once each month.
3.2. BONUSES. In addition to the base salary and other benefits
provided to Employee hereunder, Employee is eligible to receive bonuses
based on Company performance and Employee's attainment of objectives
established by the Compensation Committee of the Board annually. The
Employee's total annual compensation (exclusive of any stock options issued
pursuant to Section 3.3) shall not exceed three hundred percent (300%) of
his annual base salary in any given fiscal year.
3.3. STOCK OPTIONS. Employee shall be granted stock options to
purchase 125,000 shares of DBSI's common stock at an exercise price of
$5.20 per share. The options are subject to vesting, 50,000 of which shall
be immediately exercisable, and the remaining shall vest in 25,000
increments on the first of each following year. In addition, the stock
options are subject to (a) further terms and conditions set forth herein
and in the Stock Option Agreement attached as Exhibit A to this Agreement,
and (b) the Employee's execution of the Stock Option Agreement and all
documents customarily required by the Company to effect the grant of the
options.
<PAGE>3
In connection with a registration statement filed by the Company to
register shares of its common stock for an employee benefit plan on Form S-
8, the Company shall also register the common stock underlying the stock
options granted to Employee.
3.4. EXPENSES. The Company shall pay or reimburse Employee for all
reasonable, ordinary and necessary business expenses actually incurred or
paid by the Employee in the performance of Employee's services under this
Agreement in accordance with the expense reimbursement policies of the
Company in effect from time to time during the Employment Term, upon
presentation of proper expense statements or vouchers or such other written
supporting documents as the Company may reasonably require.
3.5. VACATION. Employee shall be entitled to six (6) weeks paid
vacation for each calendar year (prorated for any portion of a year, as
applicable), such vacation to accrue at the rate of twenty (20) hours per
month. Notwithstanding anything to the contrary in this Agreement,
vacation time shall cease to accrue beyond eight weeks at any given time
during the Employment Term.
3.6. GENERAL EMPLOYMENT BENEFITS. Except where expressly provided for
herein, Employee shall be entitled to participate in, and to receive the
benefits under, any pension, health, life, accident and disability
insurance plans or programs and any other employee benefit or fringe
benefit plans that the Company makes available generally to its employees,
as the same may be in effect from time to time during the Employment Term.
3.7. INDEMNIFICATION. The Company shall indemnify and hold Employee
harmless for any actions taken or decisions made by him in good faith while
performing services in his capacity as Vice President of the Company during
the Employment Term. The Company agrees to indemnify and hold Employee
harmless to the extent provided in an indemnification agreement in the form
attached hereto as Exhibit B and incorporated herein by reference.
3.8. ANNUAL PHYSICAL. Employee shall have the right to an annual
physical at the cost of the Company.
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1. TERMINATION. This Agreement may be terminated earlier as
provided for in this Article IV, or extended by further written agreement
of the parties.
4.2. TERMINATION FOR CAUSE. The Company reserves the right to
terminate this Agreement for cause upon: (a) Employee's willful and
continued failure to substantially perform his duties with the Company
(other than such failure resulting from his incapacity due to physical or
<PAGE>4
mental illness) after there is delivered to Employee by the Board, acting
reasonably and in good faith, a written demand for substantial performance
which sets forth in detail the specific respects in which the Board
believes Employee has not performed his duties, and giving Employee not
less than thirty (30) days to correct the deficiencies specified in the
written notice; or (b) Employee's willful engagement in gross misconduct as
determined by the Board which is materially and demonstrably injurious to
the Company. Notwithstanding the foregoing, Employee shall not be deemed
to have been terminated for cause unless and until there shall have been
delivered to Employee a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire Board members at
a meeting called and held for that purpose.
Upon termination for cause, Employee shall not be entitled to any
severance benefits and all options which have not vested shall be
cancelled.
4.3. TERMINATION WITHOUT CAUSE. Notwithstanding anything to the
contrary in this Agreement, the Company reserves the right to terminate
this Agreement at any time without cause subject to the express terms and
provisions below.
If Employee is terminated without cause, each month for a period of 12
months following termination the Employee shall be paid an amount equal to
his then monthly base salary so long as Employee does not compete with the
Company (in the manner described below) and complies with the provisions of
Article V. Payments shall be made in accordance with Section 3.1. This
arrangement shall continue for a period of 12 months beginning the month
following the month in which termination occurred.
If Employee is terminated without cause, Employee shall be entitled to
full vesting of all options granted pursuant to this Agreement. The
options must be exercised within ten years after the date of such
termination or such lesser period specified in the option agreement (but in
no event after the expiration date of option).
It is expressly intended by the parties that if the "does not compete"
provision of this Section 4.3 of the Agreement is found to be
unenforceable, the Company's obligation to pay Employee's remaining salary
is conditioned upon compliance with the provisions of Article V.
For the purposes of this Agreement, the phrase "compete with the
Company," or the substantial equivalent thereof, means that Employee,
either alone or as a partner, member, director, employee, shareholder or
agent of any other business, or in any other individual or representative
capacity, directly or indirectly owns, manages, operates, controls, or
<PAGE>5
participates in the ownership, management, operation or control of, or
works for or provides consulting services to, or permits the use of his
name by, or lends money to, any business or activity which is or which
becomes, at the time of the acts or conduct in question, directly or
indirectly competitive with the business of the Company.
4.4. VOLUNTARY TERMINATION BY EMPLOYEE. Notwithstanding anything to
the contrary in this Agreement, Employee may terminate this Agreement at
any time upon sixty (60) days written notice to the Company.
If Employee voluntarily terminates employment, Employee shall not be
entitled to any severance benefits and all options which have not vested
shall be cancelled.
4.5. DISABILITY. If Employee becomes permanently and totally
disabled, this Agreement shall be terminated. Employee shall be deemed
permanently and totally disabled if he is unable to engage in the
activities required by this Agreement by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or which has lasted or can be expected to last for a continuous
period of not less than 3 months. Upon termination due to disability, any
further compensation and effect on any unvested options will be treated as
terminated without cause pursuant to Section 4.3.
4.6. DEATH. If Employee dies during the term of this Agreement, this
Agreement shall be terminated on the last day of the calendar month of his
death subject to the express terms and provisions below.
Upon death all unvested options shall be vested as of the date of
death and may be exercised by the designated beneficiary, as provided in
Section 6.8 below, the estate or Employee's personal representative in
whole or in part at any time within ten (10) years after the date of death
or such lesser period specified in the option agreement (in no event after
the expiration date of option).
Company shall provide Employee with life insurance, at Company's
expense, in an amount equal to two times the Employee's annual salary.
4.7. EFFECT OF TERMINATION. Except as expressly provided for in this
Agreement, the termination of employment shall not excuse any obligation
that accrued prior to termination, nor shall termination excuse the
performance of any obligation which is required or to be performed after
termination. Any such obligation shall survive the termination of
employment and this Agreement.
<PAGE>6
ARTICLE V
COVENANTS AND REPRESENTATIONS OF EMPLOYEE
5.1. UNFAIR COMPETITION. Employee acknowledges that he will have
access at the highest level to, and the opportunity to acquire knowledge
of, the Company's customer lists, customer needs, business plans, trade
secrets and other confidential and proprietary information from which the
Company may derive economic or competitive advantage, and that he is
entering into the covenants and representations in this Article V in order
to preserve the goodwill and going concern value of the Company, and to
induce the Company to enter into this Agreement. Employee agrees not to
engage in any unfair competition with Employer.
5.2. CONFIDENTIAL INFORMATION. During the Employment Term and at all
times thereafter, the Employee agrees to keep secret and to retain in the
strictest confidence all confidential matters which relate to the Company
or its "affiliate" (as that term is defined in the Exchange Act),
including, without limitation, customer lists, client lists, trade secrets,
pricing lists, business plans, financial projections and reports, business
strategies, internal operating procedures, and other confidential business
information from which the Company derives an economic or competitive
advantage, or from which the Company might derive such advantage in its
business, whether or not labeled "secret" or "confidential," and not to
disclose any such information to anyone outside of the Company, whether
during or after the Employment Term, except as required in connection with
performing the services to the Company.
5.3. RETURN OF PROPERTY. Upon termination of employment, and at the
request of the Company otherwise, the Employee agrees to promptly deliver
to the Company all Company or affiliate memoranda, notes, records, reports,
manuals, drawings, designs, computer files in any media, and other
documents (including extracts and copies thereof) relating to the Company
or its affiliate, and all other property of the Company.
5.4. INVENTIONS. All processes, inventions, patents, copyrights,
trademarks, and other intangible rights that may be conceived or developed
by the Employee, either alone or with others, during the Employment Term,
whether or not conceived or developed during Employee's working hours, and
with respect to which the equipment, supplies, facilities or trade secret
information of the Company was used, or that relate at the time of
conception or reduction to practice of the invention to the business of the
Company or to the Company's actual or demonstrably anticipated research or
development, or that result from any work performed by Employee for the
Company, shall be the sole property of the Employer. Employee shall
disclose to the Company all inventions or ideas conceived during the
<PAGE>7
Employment Term, whether or not the property of Employer under the terms of
this provision, provided that such disclosure shall be received by the
Company in confidence. Employee shall execute all documents, including
patent applications and assignments, required by the Company to establish
the Company's rights under this provision.
5.5. REPRESENTATIONS. The Employee represents and warrants to the
Company that he has full power to enter into this Agreement and perform his
duties hereunder, and that his execution and delivery of this Agreement and
the performance of his duties shall not result in a breach of, or
constitute a default under, any agreement or understanding, whether oral or
written, including, without limitation, any restrictive covenant or
confidentiality agreement, to which he is a party or by which he may be
bound.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1. NOTICES. All notices to be given by either party to the other
shall be in writing and may be transmitted by personal delivery, facsimile
transmission, overnight courier or mail, registered or certified, postage
prepaid with return receipt requested; PROVIDED, HOWEVER, that notices of
change of address or telex or facsimile number shall be effective only upon
actual receipt by the other party. Notices shall be delivered at the
following addresses, unless changed as provided for herein.
To the Employee:
Randall L. Smith
39 Walnut
Larkspur, California 94939
To the Company:
Global Energy Metering Service, Inc.
495 Miller Avenue
Mill Valley, CA 94941
6.2. NO ASSIGNMENT. This Agreement, and the rights and obligations
of the parties, may not be assigned by either party without the prior
written consent of the other party.
6.3. APPLICABLE LAW. This Agreement and the relationships of the
parties in connection with the subject matter of this Agreement shall be
governed by, and construed under, the laws of the State of California.
<PAGE>8
6.4. ENTIRE AGREEMENT. This Agreement and the Exhibits to this
Agreement supersede any and all other agreements or understandings of the
parties, either oral or written, with respect to this employment of
Employee by the Company, and contains the complete and final agreement and
understanding of the parties with respect thereto. Employee acknowledges
that no representation, inducements, promises, or agreements, oral or
otherwise, have been made by the Company or any of its officers, directors,
employees or agents, which are not expressed herein, and that no other
agreement shall be valid or binding on the Company.
6.5. WITHHOLDING TAXES. All amounts payable under this Agreement,
whether such payment is to be made in cash or other property, including
without limitation stock of the Company, shall be subject to withholding
for Federal, state and local income taxes, employment and payroll taxes,
and other legally required withholding taxes and contributions to the
extent appropriate in the determination of the Company, and the Employee
agrees to report all such amounts as ordinary income on his personal income
tax returns and for all other purposes, as called for.
At the election of Employee, Employee shall have the right to sell to
the Company any vested stock options (at the then fair market value of the
common stock less the exercise price) in order to meet any withholding
requirements.
6.6. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable by any judgment of a tribunal of competent
jurisdiction, the remaining provisions and terms of this Agreement shall
not be affected by such judgment, and this Agreement shall be carried out
as nearly as possible according to its original terms and intent and, to
the full extent permitted by law, any provision or restrictions found to be
invalid shall be amended with such modifications as may be necessary to
cure such invalidity, and such restrictions shall apply as so modified, or
if such provisions cannot be amended, they shall be deemed severable from
the remaining provisions and the remaining provisions shall be fully
enforceable in accordance with law.
6.7. EFFECT OF WAIVER. The failure of either party to insist on
strict compliance with any provision of this Agreement by the other party
shall not be deemed a waiver of such of such provision, or a relinquishment
of any right thereunder, or to affect either the validity of this
Agreement, and shall not prevent enforcement of such provision, or any
similar provision, at any time.
6.8. DESIGNATION OF BENEFICIARY. If the Employee shall die before
receipt of all payments and benefits to which he is entitled under this
Agreement, payment of such amounts or benefits in the manner provided
herein shall be made to such beneficiary as he shall have designated in
writing filed with the Secretary of the Company or, in the absence of such
designation, to his estate or personal representative.
<PAGE>9
6.9. ARBITRATION. Any controversy between Employer and Employee
involving the construction or application of any of the terms, provisions,
or conditions of this Agreement shall be submitted to arbitration.
Arbitration shall comply with and be governed by the provisions of the
American Arbitration Association.
6.10. ATTORNEYS FEES. In the event of any litigation arising out
of this Agreement, or the parties' performance as outlined herein, the
prevailing party shall be entitled to an award of costs, including an award
of reasonable attorney's fees.
6.11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
EMPLOYER: GLOBAL ENERGY METERING SERVICE, INC.
By: E.A. JAMES PERETTI
E. A. James Peretti, President
EMPLOYEE: RANDALL L. SMITH
Randall L. Smith
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated April 18, 1996, is
entered into by and between Global Energy Metering Service, Inc., a
Delaware corporation (the "Company") and E.A. James Peretti ("Employee"),
in consideration of the mutual promises and conditions made herein.
ARTICLE I
EMPLOYMENT AND TERM OF EMPLOYMENT
1.1. EMPLOYMENT AND TERM. The Company hereby employs Employee to
render full-time services to the Company on an exclusive basis, upon the
terms and conditions set forth below, from the date of this Agreement until
the employment relationship is terminated in accordance with the provisions
of this Agreement. This Agreement is for a term of five years (the "Stated
Term") effective January 1, 1996, unless terminated earlier as provided for
herein (the "Employment Term").
1.2. ACCEPTANCE. Employee hereby accepts employment with the Company
and agrees to devote his full-time attention and best efforts exclusively
to rendering the services described below. The Employee shall accept and
follow the direction and authority of the Board of Directors of the Company
(the "Board") in the performance of his duties, and shall comply with all
existing and future regulations applicable to employees of the Company and
to the Company's business.
ARTICLE II
DUTIES OF EMPLOYEE
2.1. GENERAL DUTIES. Employee shall serve as the President and Chief
Executive Officer of the Company. In his capacity as President and Chief
Executive Officer, Employee shall do and perform all services, acts, or
other things necessary or advisable to manage and conduct the business of
the Company, including, but not limited to, the supervision, direction and
control of the business and other employees of the Company, subject to the
policies and direction of the Board. Employee shall have all powers,
duties and responsibilities necessary to carry out his duties, and such
other powers and duties as the Board may prescribe consistent with the
Company's certificate and bylaws.
2.2. EXCLUSIVE SERVICES. It is understood and agreed that Employee
may not engage in any other business activity during the term of his
employment hereunder, whether or not for profit or other remuneration,
without the prior written consent of the Company. Further, Employee shall
<PAGE>2
not directly or indirectly acquire any stock or interest in any
corporation, partnership, or other business entity that competes, directly
or indirectly, with the business of the Company.
2.3. REPORTING OBLIGATIONS. In connection with the performance of his
duties hereunder, unless otherwise instructed by the Company's Board, the
Employee shall report directly to the Chairman of the Board and Board.
2.4. DIRECTOR. Employee shall serve as a Director of the Board and
shall be nominated as a Director of the Board of DBS Industries, Inc.
("DBSI") for each year in which this contract is in effect subject to
continued approval of the stockholders of the Company and DBSI as required
by law.
ARTICLE III
COMPENSATION AND BENEFITS OF EMPLOYEE
3.1. ANNUAL BASE SALARY. The Company shall pay Employee salary for
the services to be rendered by him during the term of this Agreement at the
rate of one hundred fifty-five thousand dollars ($155,000) annually
(prorated for any portion of a year), subject to increases, if any, as the
Compensation Committee of the Board may determine in its sole discretion
after annual review of the Employee's performance of his duties hereunder.
Such base salary shall be payable in periodic installments in accordance
with the terms of the Company's regular payroll practices in effect from
time to time during the term of this Agreement, but in no event less
frequently than once each month.
3.2. BONUSES. In addition to the base salary and other benefits
provided to Employee hereunder, Employee is eligible to receive bonuses
based on Company performance and Employee's attainment of objectives
established by the Compensation Committee of the Board of Directors
annually. The Employee's total annual compensation (exclusive of any stock
options issued to pursuant to Section 3.3) shall not exceed three hundred
percent (300%) of his annual base salary in any given fiscal year.
3.3. STOCK OPTIONS. Employee shall be granted stock options to
purchase 375,000 shares of DBSI's common stock at an exercise price of
$5.20 per share. The options are subject to vesting; 150,000 of which will
vest immediately upon the execution of this Agreement, and the remainder
shall vest in 75,000 share increments on each anniversary of this
Agreement. In addition, the stock options are subject to (a) further terms
and conditions set forth herein and in the Stock Option Agreement attached
as Exhibit A to this Agreement, and (b) the Employee's execution of the
Stock Option Agreement and all documents customarily required by the
Company to effect the grant of the options.
<PAGE>3
In connection with a registration statement filed by the Company to
register shares of its common stock for an employee benefit plan on Form S-
8, the Company shall also register the common stock underlying the stock
options granted to Employee.
3.4. EXPENSES. The Company shall pay or reimburse the Employee for
all reasonable, ordinary and necessary business expenses actually incurred
or paid by Employee in the performance of Employee's services under this
Agreement in accordance with the expense reimbursement policies of the
Company in effect from time to time during the Employment Term, upon
presentation of proper expense statements or vouchers or such other written
supporting documents as the Company may reasonably require.
3.5. VACATION. Employee shall be entitled to six (6) weeks paid
vacation for each calendar year (prorated for any portion of a year, as
applicable), such vacation to accrue at the rate of twenty (20) hours per
month. Notwithstanding anything to the contrary in this Agreement,
vacation time shall cease to accrue beyond eight weeks at any given time
during the Employment Term.
3.6. GENERAL EMPLOYMENT BENEFITS. Except where expressly provided for
herein, Employee shall be entitled to participate in, and to receive the
benefits under, any pension, health, life, accident and disability
insurance plans or programs and any other employee benefit or fringe
benefit plans that the Company makes available generally to its employees,
as the same may be in effect from time to time during the Employment Term.
3.7. INDEMNIFICATION. The Company shall indemnify and hold Employee
harmless for any actions taken or decisions made by him in good faith while
performing services in his capacity as President and Chief Executive
Officer of the Company during the Employment Term. The Company agrees to
indemnify and hold Employee harmless to the extent provided in an
indemnification agreement in the form attached hereto as Exhibit B and
incorporated herein by reference.
3.8. ANNUAL PHYSICAL. Employee shall have the right to an annual
physical at the cost of the Company.
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1. TERMINATION. This Agreement may be terminated earlier as
provided for in this Article IV, or extended by further written agreement
of the parties.
<PAGE>4
4.2. TERMINATION FOR CAUSE. The Company reserves the right to
terminate this Agreement for cause upon: (a) Employee's willful and
continued failure to substantially perform his duties with the Company
(other than such failure resulting from his incapacity due to physical or
mental illness) after there is delivered to Employee by the Board, acting
reasonably and in good faith, a written demand for substantial performance
which sets forth in detail the specific respects in which the Board
believes Employee has not performed his duties, and giving Employee not
less than thirty (30) days to correct the deficiencies specified in the
written notice; or (b) Employee's willful engagement in gross misconduct as
determined by the Board which is materially and demonstrably injurious to
the Company. Notwithstanding the foregoing, Employee shall not be deemed
to have been terminated for cause unless and until there shall have been
delivered to Employee a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire Board members at
a meeting called and held for that purpose.
Upon termination for cause, Employee shall not be entitled to any
severance benefits and all options which have not vested shall be
cancelled.
4.3. TERMINATION WITHOUT CAUSE. Notwithstanding anything to the
contrary in this Agreement, the Company reserves the right to terminate
this Agreement at any time without cause subject to the express terms and
provisions below.
If Employee is terminated without cause, each month for a period of 12
months following termination the Employee shall be paid an amount equal to
his then monthly base salary so long as Employee does not compete with the
Company (in the manner described below) and complies with the provisions of
Article V. Payments shall be made in accordance with Section 3.1. This
arrangement shall continue for a period of 12 months beginning the next
month following the month in which termination occurred.
If Employee is terminated without cause, Employee shall be entitled to
full vesting of all options granted pursuant to this Agreement. The
options must be exercised within ten years after the date of such
termination or such lesser period specified in the option agreement (but in
no event after the expiration date of the option).
It is expressly intended by the parties that if the "does not compete"
provision of this Section 4.3 of the Agreement is found to be
unenforceable, the Company's obligations to pay Employee's remaining salary
is conditioned upon compliance with the provisions of Article V.
<PAGE>5
For the purposes of this Agreement, the phrase "compete with the
Company," or the substantial equivalent thereof, means that Employee,
either alone or as a partner, member, director, employee, shareholder or
agent of any other business, or in any other individual or representative
capacity, directly or indirectly owns, manages, operates, controls, or
participates in the ownership, management, operation or control of, or
works for or provides consulting services to, or permits the use of his
name by, or lends money to, any business or activity which is or which
becomes, at the time of the acts or conduct in question, directly or
indirectly competitive with the business of the Company.
4.4. VOLUNTARY TERMINATION BY EMPLOYEE. Notwithstanding anything to
the contrary in this Agreement, Employee may terminate this Agreement at
any time upon sixty (60) days written notice to the Company.
If Employee voluntarily terminates employment, Employee shall not be
entitled to any severance benefits and all options which have not vested
shall be cancelled.
4.5. CHANGE IN CONTROL. If there is a "change in control" in the
Company during the Employment Term, all options granted hereunder shall
fully vest upon the Company's public announcement of such a change in
control. A "change in control" shall mean an event in which a "group"
within the meaning of Section 13(d)(3) of the Securities Exchange Act of
1934 (the "Exchange Act") attempts to influence the Board of DBSI and as a
result of such influence the Company's Board acts in a manner or direction
different than the one proposed by Employee.
4.6. DISABILITY. If Employee becomes permanently and totally
disabled, this Agreement shall be terminated. Employee shall be deemed
permanently and totally disabled if he is unable to engage in the
activities required by this Agreement by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or which has lasted or can be expected to last for a continuous
period of not less than 3 months. Upon termination due to disability, any
further compensation and effect on any unvested options will be treated as
termination without cause pursuant to Section 4.3.
4.7. DEATH. If Employee dies during the term of this Agreement, this
Agreement shall be terminated on the last day of the calendar month of his
death subject to the express terms and provisions below.
Upon death all unvested options shall be vested as of the date of
death and may be exercised by the designated beneficiary, as provided in
Section 6.8 below, the estate or Employee's personal representative in
whole or in part at any time within ten years after the date of death or
such lesser period specified in the option agreement (but in no event after
the expiration date of the option).
<PAGE>6
Company shall provide Employee with life insurance, at Company's
expense, in an amount equal to two times the Employee's annual salary.
4.8. EFFECT OF TERMINATION. Except as expressly provided for in this
Agreement, the termination of employment shall not excuse any obligation
that accrued prior to termination, nor shall termination excuse the
performance of any obligation which is required or to be performed after
termination. Any such obligation shall survive the termination of
employment and this Agreement.
ARTICLE V
COVENANTS AND REPRESENTATIONS OF EMPLOYEE
5.1. UNFAIR COMPETITION. Employee acknowledges that he will have
access at the highest level to, and the opportunity to acquire knowledge
of, the Company's customer lists, customer needs, business plans, trade
secrets and other confidential and proprietary information from which the
Company may derive economic or competitive advantage, and that he is
entering into the covenants and representations in this Article V in order
to preserve the goodwill and going concern value of the Company, and to
induce the Company to enter into this Agreement. Employee agrees not to
engage in any unfair competition with Employer.
5.2. CONFIDENTIAL INFORMATION. During the Employment Term and at all
times thereafter, the Employee agrees to keep secret and to retain in the
strictest confidence all confidential matters which relate to the Company
or its "affiliate" (as that term is defined in the Exchange Act),
including, without limitation, customer lists, client lists, trade secrets,
pricing lists, business plans, financial projections and reports, business
strategies, internal operating procedures, and other confidential business
information from which the Company derives an economic or competitive
advantage, or from which the Company might derive such advantage in its
business, whether or not labeled "secret" or "confidential," and not to
disclose any such information to anyone outside of the Company, whether
during or after the Employment Term, except as required in connection with
performing the services to the Company.
5.3. RETURN OF PROPERTY. Upon termination of employment, and at the
request of the Company otherwise, the Employee agrees to promptly deliver
to the Company all Company or affiliate memoranda, notes, records, reports,
manuals, drawings, designs, computer files in any media, and other
documents (including extracts and copies thereof) relating to the Company
or its affiliate, and all other property of the Company.
<PAGE>7
5.4. INVENTIONS. All processes, inventions, patents, copyrights,
trademarks, and other intangible rights that may be conceived or developed
by the Employee, either alone or with others, during the Employment Term,
whether or not conceived or developed during Employee's working hours, and
with respect to which the equipment, supplies, facilities or trade secret
information of the Company was used, or that relate at the time of
conception or reduction to practice of the invention to the business of the
Company or to the Company's actual or demonstrably anticipated research or
development, or that result from any work performed by Employee for the
Company, shall be the sole property of the Employer. Employee shall
disclose to the Company all inventions or ideas conceived during the
Employment Term, whether or not the property of Employer under the terms of
this provision, provided that such disclosure shall be received by the
Company in confidence. Employee shall execute all documents, including
patent applications and assignments, required by the Company to establish
the Company's rights under this provision.
5.5. REPRESENTATIONS. The Employee represents and warrants to the
Company that he has full power to enter into this Agreement and perform his
duties hereunder, and that his execution and delivery of this Agreement and
the performance of his duties shall not result in a breach of, or
constitute a default under, any agreement or understanding, whether oral or
written, including, without limitation, any restrictive covenant or
confidentiality agreement, to which he is a party or by which he may be
bound.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1. NOTICES. All notices to be given by either party to the other
shall be in writing and may be transmitted by personal delivery, facsimile
transmission, overnight courier or mail, registered or certified, postage
prepaid with return receipt requested; PROVIDED, HOWEVER, that notices of
change of address or telex or facsimile number shall be effective only upon
actual receipt by the other party. Notices shall be delivered at the
following addresses, unless changed as provided for herein.
To the Employee:
E.A. James Peretti
8613 Paradise Lagoon Drive
Lucerne, CA 95458-8538
<PAGE>8
To the Company:
Global Energy Metering Service, Inc.
495 Miller Avenue
Mill Valley, CA 94941
6.2. NO ASSIGNMENT. This Agreement, and the rights and obligations
of the parties, may not be assigned by either party without the prior
written consent of the other party.
6.3. APPLICABLE LAW. This Agreement and the relationships of the
parties in connection with the subject matter of this Agreement shall be
governed by, and construed under, the laws of the State of California.
6.4. ENTIRE AGREEMENT. This Agreement and the Exhibits to this
Agreement supersede any and all other agreements or understandings of the
parties, either oral or written, with respect to this employment of
Employee by the Company, and contains the complete and final agreement and
understanding of the parties with respect thereto. Employee acknowledges
that no representation, inducements, promises, or agreements, oral or
otherwise, have been made by the Company or any of its officers, directors,
employees or agents, which are not expressed herein, and that no other
agreement shall be valid or binding on the Company.
6.5. WITHHOLDING TAXES. All amounts payable under this Agreement,
whether such payment is to be made in cash or other property, including
without limitation stock of the Company, may be subject to withholding for
Federal, state and local income taxes, employment and payroll taxes, and
other legally required withholding taxes and contributions to the extent
appropriate in the determination of the Company, and the Employee agrees to
report all such amounts as ordinary income on his personal income tax
returns and for all other purposes, as called for.
At the election of Employee, Employee shall have the right to sell to
the Company any vested stock options (at the then fair market value of the
common stock less the exercise price) in order to meet any withholding
requirements.
6.6. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable by any judgment of a tribunal of competent
jurisdiction, the remaining provisions and terms of this Agreement shall
not be affected by such judgment, and this Agreement shall be carried out
as nearly as possible according to its original terms and intent and, to
the full extent permitted by law, any provision or restrictions found to be
invalid shall be amended with such modifications as may be necessary to
cure such invalidity, and such restrictions shall apply as so modified, or
<PAGE>9
if such provisions cannot be amended, they shall be deemed severable from
the remaining provisions and the remaining provisions shall be fully
enforceable in accordance with law.
6.7. EFFECT OF WAIVER. The failure of either party to insist on
strict compliance with any provision of this Agreement by the other party
shall not be deemed a waiver of such of such provision, or a relinquishment
of any right thereunder, or to affect either the validity of this
Agreement, and shall not prevent enforcement of such provision, or any
similar provision, at any time.
6.8. DESIGNATION OF BENEFICIARY. If the Employee shall die before
receipt of all payments and benefits to which he is entitled under this
Agreement, payment of such amounts or benefits in the manner provided
herein shall be made to such beneficiary as he shall have designated in
writing filed with the Secretary of the Company or, in the absence of such
designation, to his estate or personal representative.
6.9. ARBITRATION. Any controversy between Employer and Employee
involving the construction or application of any of the terms, provisions,
or conditions of this Agreement shall be submitted to arbitration.
Arbitration shall comply with and be governed by the provisions of the
American Arbitration Association.
6.10. ATTORNEYS FEES. In the event of any litigation arising out of
this Agreement, or the parties' performance as outlined herein, the
prevailing party shall be entitled to an award of costs, including an award
of reasonable attorney's fees.
6.11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
EMPLOYER: GLOBAL ENERGY METERING SERVICE, INC.
By: E.A. JAMES PERETTI
E.A. James Peretti, President
EMPLOYEE: E.A. JAMES PERETTI
E.A. James Peretti
EXHIBIT 10.34
DBS INDUSTRIES, INC.
1996 STOCK OPTION PLAN
1. PURPOSE; DEFINITIONS.
(a) PURPOSE. The purpose of the Plan is to attract, retain and
motivate officers, employees, consultants and directors of the Company, or a
subsidiary of the Company, or a Subsidiary of the Company, by giving them the
opportunity to acquire Stock ownership in the Company.
(b) DEFINITIONS. For purposes of the Plan, the following terms
have the following meanings:
(i) "Administrator" means the Compensation Committee
referred to in Section 4 in its capacity as administrator of the Plan in
accordance with Section 4.
(ii) "Board" means the Board of Directors of the Company.
(iii) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(iv) "Commission" means the Securities and Exchange
Commission and successor agency.
(v) "Company" means DBS Industries, Inc., a Delaware
Corporation.
(vi) "Director" shall mean a member of the Board.
(vii) "Disinterested Person" has the meaning set forth in Rule
16b-3 under the Exchange Act, and any successor definition adopted by the
Commission.
(viii) "Effective Date" has the meaning set forth in
Section 2.
(ix) "Eligible Person" shall mean in the case of the grant of
an Incentive Stock Option Plan all employees of the Company or a subsidiary of
the Company and in the case of a Non-qualified Stock Option any director,
officer or employee of the Company or other person who, in the opinion of the
Board, is rendering valuable services to the Company, including without
limitation, an independent contractor, outside consultant, or advisor to the
Company.
(x) "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, and any successor statute.
<PAGE>
(xi) "Fair Market Value" shall mean (i) if the stock is
listed or admitted to trade on a national securities exchange, the closing
price of the stock on the Composite Tape, as published in the Western Edition
of the Wall Street Journal, of the principal national securities exchange on
which the stock is so listed or admitted to trade, on such date, or, if there
is no trading of the stock on such date, then the closing price of the stock as
quoted on such Composite Tape on the next preceding date on which there was
trading in such shares; (ii) if the stock is not listed or admitted to trade on
a national securities exchange, the last price for the stock on such date, as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through the NASDAQ National Market Reporting System or a similar organization
if the NASD is no longer reporting such information; (iii) if the stock is not
reported on the National Market Reporting System, the mean between the closing
bid and asked price for the stock on such date, as furnished by the NASD; and
(iv) if the stock is not reported on the National Market Reporting System and
if bid and asked prices for the stock are not furnished by the NASD or a
similar organization, the values established by the Administrator for purposes
of granting options under the Plan.
(xii) "Grant Date" means the date of grant of any Option.
(xiii) "Incentive Stock Option" shall mean an option which is
an option within the meaning of Section 422 of the Code, the award of which
contains such provisions as are necessary to comply with that section.
(xiv) "Non-qualified Stock Option" shall mean an option which
is designated a Non-qualified Stock Option.
(xv) "Officer" shall mean an officer of the Company and an
officer who is subject to Section 16 of the Exchange Act.
(xvi) "Option" shall mean an option to purchase Common Stock
under this Plan. An Option shall be designated by the Committee as an
Incentive Stock Option or a Non-qualified Stock Option.
(xvii) "Option Agreement" means the written option agreement
covering an Option.
(xviii) "Optionee" means the holder of an option.
(xix) "Plan" means this DBS Industries, Inc. 1996 Stock
Option Plan as amended from time to time.
(xx) "Rule 16b-3" means Rule 16b-3 under Section 16 (b) of
the Exchange Act, as amended from time to time, and any successor rule.
(xxi) "Stock" means the Common Stock, par value $0.0004, of
the Company, and any successor entity.
(xxii) "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if, at the time of granting of
an Option, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
<PAGE>
(xxiii) "Tax Date" means the date defined in Section 7.
(xxiv) "Vesting Date" means the date on which an Option
becomes wholly or partially exercisable, as determined by the Administrator in
its sole discretion.
2. EFFECTIVE DATE; TERM OF PLAN. The Effective Date of this Plan shall
be upon shareholder approval of this Plan within 12 months of the date of Board
approval. This Plan, but not Options already granted, shall terminate
automatically ten years after its adoption by the Board, unless terminated
earlier by the Board under Section 13. No Options shall be granted after
termination of this Plan but all Options granted prior to termination shall
remain in effect in accordance with their terms.
3. NUMBER AND SOURCE OF SHARES OF STOCK SUBJECT TO THE PLAN. Subject
to the provisions of Section 8, the total number of shares of Stock with
respect to which Options may be granted under this Plan is 1,650,000 shares of
Stock. The shares of Stock covered by any canceled, expired or terminated
Option or the unexercised portion thereof shall become available again for
grant under this Plan. The shares of Stock to be issued hereunder upon
exercise of an Option may consist of authorized and unissued shares or treasury
shares.
4. ADMINISTRATION OF THE PLAN. This Plan shall be administered by a
committee of at least two (2) members of the Board to which administration of
this Plan is delegated by the Board, all of whom shall be Disinterested Persons
(the "Compensation Committee"). The "Administrator" shall mean the
"Compensation Committee" referred to in this Section 4 in its capacity as
administrator of the Plan in accordance with this Section 4. The Administrator
may delegate non-discretionary administrative duties to such employees of the
Company, or a Subsidiary, as it deems proper.
Subject to the express provisions of this Plan, the Administrator shall
have the authority to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Optionees under this
Plan, to further define the terms used in this Plan, to prescribe, amend and
rescind rules and regulations relating to the administration of this Plan, to
determine the duration and purposes of leaves of absence which may be granted
to Optionees without constituting a termination of their employment for
purposes of this Plan and to make all other determinations necessary or
advisable for the administration of this Plan.
Any decision or action of the Administrator in connection with this Plan
or Options granted or shares of Stock purchased under this Plan shall be final
and binding. The Administrator shall not be liable for any division, action or
omission respecting this Plan, or any Options granted or shares of Stock sold
under this Plan. The Board at any time may abolish the Compensation Committee
and revest in the Board the administration of the Plan; provided that all
members of the Board at the time of such action must be "Disinterested
Persons".
Each non-employee director of DBSI shall receive options to purchase
37,500 shares of common stock under the Plan provided that the director serves
as such for the entire year. Options to purchase shares of common stock will
be prorated for the director's first year. Non-employee directors shall not
otherwise be entitled to participate in the Plan. Options shall be granted to
directors and shall have a term of five years and an excercise price equal to
the closing price of DBSI's common stock as of the last business day of the
fiscal year end in December. Options awarded to directors shall be issued on
the 14th of the month following each fiscal year end. The options granted to
directors shall be subject to similar forfeiture provisions and other
restrictions as other participants under the plan.
<PAGE>
To the extent permitted by applicable law in effect from time to time, no
member of the Compensation Committee or the Board of Directors shall be liable
for any action or omission of any other member of the Compensation Committee or
the Board of Directors nor for any act or omission on the member's own part,
excepting only the member's own willful misconduct or gross negligence, arising
out of or related to the Plan. The Company shall pay expenses incurred by, and
satisfy a judgment or fine rendered or levied against, a present or former
director or member of the Compensation Committee or Board in any action against
such person (whether or not the Company is joined as a party defendant) to
impose liability or a penalty on such person for an act alleged to have been
committed by such person while a director or member of the Compensation
Committee or Board arising with respect to the Plan or administration thereof
or out of membership on the Compensation Committee or Board or by the Company,
or all or any combination of the preceding; provided, the director or
Compensation Committee member was acting in good faith, within what such
director or Compensation Committee member reasonably believed to have been
within the scope of his or her employment or authority and for a purpose which
he or she reasonably believed to be in the best interests of the Company or its
shareholders. Payments authorized hereunder include amounts paid and expenses
incurred in settling any such action or threatened action. The provisions of
this section shall apply to the estate, executor, administrator, heirs,
legatees or devisees of a director or Compensation Committee member, and the
term "person" as used on this section shall include the estate, executor,
administrator, heirs, legatees, or devisees of such person.
5. GRANT OF OPTIONS; TERMS AND CONDITIONS OF GRANT.
(a) GRANT OF OPTIONS. One or more Options may be granted to any
Eligible Person. Subject to the express provisions of the Plan, the
Administrator shall determine from the Eligible Persons those individuals to
whom Options under the Plan may be granted. Each Option so granted shall be
designated by the Administrator as either a Non-qualified Stock Option or an
Incentive Stock Option.
Subject to the express provisions of the Plan, the Administrator shall
specify the Grant Date, the number of shares of Stock covered by the Option,
the exercise price and the terms and conditions for exercise of the Options.
If the Administrator fails to specify the Grant Date, the Grant Date shall be
the date of the action taken by the Administrator to grant the Option. As soon
as practicable after the Grant Date, the Company will provide the Optionee with
a written Option Agreement in the form approved by the Administrator, which
sets out the Grant Date, the number of shares of Stock covered by the Option,
the exercise price and the terms and conditions for exercise of the Option.
The Administrator may, in its absolute discretion, grant Options under
this Plan at any time and from time to time before the expiration of ten years
from the Effective Date to an Eligible Person.
(b) GENERAL TERMS AND CONDITIONS. Except as otherwise provided
herein, the Options shall be subject to the following terms and conditions and
such other terms and conditions not inconsistent with this Plan as the
Administrator may impose:
(i) EXERCISE OF OPTION. In order to exercise all or any
portion of any Option granted under this Plan, an Optionee must remain as an
officer, employee, consultant or director of the Company, or a Subsidiary,
until the Vesting Date. The Option shall be exercisable on or after each
Vesting Date in accordance with the terms set forth in the Option Agreement.
<PAGE>
(ii) OPTION TERM. Each Option and all rights or obligations
thereunder shall expire on such date as shall be determined by the
Administrator, but not later than 10 years after the grant of the Option (5
years in the case of an Incentive Stock Option when the Optionee owns more than
10% of the total combined voting power of all classes of stock of the Company),
and shall be subject to earlier termination as hereinafter provided.
(iii) EXERCISE PRICE. The Exercise Price of any Option shall
be determined by the Administrator, but in the case of Incentive Stock Options
shall not be less than 100% (110% in the case of an Optionee who owns more than
10% of the total combined voting power of all classes of stock of the Company)
of the Fair Market Value of the Stock on the date the Incentive Stock Option is
granted.
(iv) METHOD OF EXERCISE. To the extent the right to purchase
shares of Stock has accrued, Options may be exercised, in whole or in part,
from time to time in accordance with their terms by written notice from the
Optionee to the Company stating the number of shares of Stock with respect to
which the Option is being exercised and accompanied by payment in full of the
exercise price. Payment may be made in cash, certified check or, at the
absolute discretion of the Administrator, by non-certified check.
(v) RESTRICTIONS ON STOCK; OPTION AGREEMENT. At the time it
grants Options under this Plan, the Company may retain, for itself or others,
rights to repurchase the shares of Stock acquired under the Option or impose
other restrictions on such shares. The terms and conditions of any such rights
or other restrictions shall be set forth in the Option Agreement evidencing the
Option. No Option shall be exercisable until after execution of the Option
Agreement by the Company and the Optionee.
(vi) NON-ASSIGNABILITY OF OPTION RIGHTS. No Option shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of an Optionee, only the Optionee may exercise an Option.
(vii) EXERCISE AFTER CERTAIN EVENTS.
(1) TERMINATION OF EMPLOYMENT/CONSULTING/DIRECTORSHIP.
If for any reason other than permanent and total disability or death (as
defined below) an Optionee ceases to be employed by or to be a consultant or
director of the Company, or a Subsidiary, Options held at the date of such
termination (to the extent then exercisable) may be exercised, in whole or in
part, at any time within three months after the date of such termination or
such lesser period specified in the Option Agreement (but in no event after the
earlier of (i) the expiration date of the Option as set forth in the Option
Agreement, and (ii) ten years from the Grant Date).
If an Optionee granted an Incentive Stock Option
terminates employment but continues as a consultant, advisor or in a similar
capacity to the Company or a Subsidiary, Optionee need not exercise the Option
within three months of termination of employment but shall be entitled to
exercise within three months of termination of services to the Company or the
Subsidiary (one year in the event of permanent disability or death). However,
if Optionee does not exercise within three months of termination of employment,
the Option will not qualify as an Incentive Stock Option.
<PAGE>
(2) PERMANENT DISABILITY AND DEATH. If an Optionee
becomes permanently and totally disabled (within the meaning of Section
22(e)(3) of the Code), or dies while employed by the Company, or while acting
as an officer, consultant or director of the Company, or a Subsidiary, (or, if
the Optionee dies within the period that the Option remains exercisable after
termination of employment or affiliation), Options then held (to the extent
then exercisable) may be exercised by the Optionee, the Optionee's personal
representative, or by the person to whom the Option is transferred by will or
the laws of descent and distribution, in whole or in part, at any time within
one year after the disability or death or any lesser period specified in the
Option Agreement (but in no event after the earlier of (i) the expiration date
of the Option as set forth in the Option Agreement, and (ii) ten years from the
Grant Date).
(viii) COMPLIANCE WITH SECURITIES LAWS. The Company shall
not be obligated to issue any shares of Stock upon exercise of an Option unless
such shares are at that time effectively registered or exempt from registration
under the federal securities laws and the offer and sale of the shares of Stock
are otherwise in compliance with all applicable securities laws. [The Company
intends to register the shares of Stock under the federal securities laws and
to take whatever other steps may be necessary to enable the shares of Stock to
be offered and sold under federal or other securities laws.] Upon exercising
all or any portion of an Option, an Optionee may be required to furnish
representations or undertakings deemed appropriate by the Company to enable the
offer and sale of the shares of Stock or subsequent transfers of any interest
in such shares to comply with applicable securities laws. Evidences of
ownership of shares of Stock acquired upon exercise of Options shall bear any
legend required by, or useful for purposes of compliance with, applicable
securities laws, this Plan or the Option Agreement evidencing the Option.
6. LIMITATIONS ON GRANT OF INCENTIVE STOCK OPTIONS.
(a) The aggregate Fair Market Value (determined as of the Grant
Date) of the Stock for which Incentive Stock Options may first become
exercisable by any Optionee during any calendar year under this Plan, together
with that of Stock subject to Incentive Stock Options first exercisable (other
than as a result of acceleration pursuant to Section 9(a)) by such Optionee
under any other plan of the Company or any Subsidiary, shall not exceed
$100,000.
(b) There shall be imposed in the Option Agreement relating to
Incentive Stock Options such terms and conditions as are required in order that
the Option be an "incentive stock option" as that term is defined in
Section 422 of the Code.
<PAGE>
(c) No Incentive Stock Option may be granted to any person who, at
the time the Incentive Stock Option is granted, owns shares of outstanding
Stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, unless the exercise price of such Option is at
least 110% of the Fair Market Value of the Stock (determined as of the Grant
Date) subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the Grant Date.
(d) No Incentive Stock Option may be granted to any person who is
not an employee of the Company or a Subsidiary of the Company.
7. PAYMENT OF TAXES. Upon the disposition by an Optionee or other
person of shares of an Option prior to satisfaction of the holding period
requirements of Section 422 of the Code, or upon the exercise of a Non-
qualified Stock Option, the Company shall have the right to require such
Optionee or such other person to pay by cash, or check payable to the Company,
the amount of any taxes which the Company may be required to withhold with
respect to such transactions. Any such payment must be made promptly when the
amount of such obligation becomes determinable (the "Tax Date"). The
Administrator may, in lieu of such cash payment, withhold that number of Shares
sufficient to satisfy such withholding.
8. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. The existence of
outstanding Options shall not affect the Company's right to effect adjustments,
recapitalizations, reorganizations or other changes in its or any other
corporation's capital structure or business, any merger or consolidation, any
issuance of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock, the dissolution or liquidation of the Company's or any
other corporation's assets or business or any other corporate act whether
similar to the events described above or otherwise. Subject to Section 9, if
the outstanding shares of the Stock are increased or decreased in number or
changed into or exchanged for a different number or kind of securities of the
Company or any other corporation by reason of a recapitalization,
reclassification, stock split, combination of shares, stock dividend or other
event, an appropriate adjustment of the number and kind of securities with
respect to which Options may be granted under this Plan, the number and kind of
securities as to which outstanding Options may be exercised, and the exercise
price at which outstanding Options may be exercised will be made.
9. DISSOLUTION, LIQUIDATION, MERGER.
(a) COMPANY NOT THE SURVIVOR. In the event of a dissolution or
liquidation of the Company, a merger, consolidation, combination or
reorganization in which the Company is not the surviving corporation, or a sale
of substantially all of the assets of the Company (as determined in the sole
discretion of the Board of Directors), the Administrator, in its absolute
discretion, may cancel each outstanding Option upon payment in cash to the
Optionee of the amount by which any cash and the fair market value of any other
property which the Optionee would have received as consideration for the shares
of Stock covered by the Option if the Option had been exercised before such
liquidation, dissolution, merger, consolidation, combination, reorganization or
sale exceeds the exercise price of the Option. In addition to the foregoing,
in the event of a dissolution or liquidation of the Company, or a merger,
consolidation, combination or reorganization, in which the Company is not the
surviving corporation, the Administrator, in its absolute discretion, may
accelerate the time within which each outstanding Option may be exercised.
<PAGE>
(b) COMPANY IS THE SURVIVOR. In the event of a merger,
consolidation, combination or reorganization in which the Company is the
surviving corporation, the Board of Directors shall determine the appropriate
adjustment of the number and kind of securities with respect to which
outstanding Options may be exercised, and the exercise price at which
outstanding Options may be exercised. The Board of Directors shall determine,
in its sole and absolute discretion, when the Company shall be deemed to
survive for purposes of this Plan.
10. CHANGE OF CONTROL. If there is a "change of control" in the
Company, all outstanding Options shall fully vest immediately upon the
Company's public announcement of such a change. A "change of control" shall
vest mean an event involving one transaction or a related series of
transaction, in which (i) the Company issues securities equal to 25% or more of
the Company's issued and outstanding voting securities, determined as a single
class, to any individual, firm, partnership, limited liability company, or
other entity, including a "group" within the meaning of SEC Exchange Act Rule
13d-3, (ii) the Company issues voting securities equal to 25% or more of the
issued and outstanding voting stock of the Company in connection with a merger,
consolidation other business combination, (iii) the Company is acquired in a
merger or other business combination transaction in which the Company is not
the surviving company, or (iv) all or substantially all of the Company's assets
are sold or transferred. See Section 9 with respect to Options vesting upon
the occurrence of either of the events described in (iii) or (iv) of this
Section 10 and the result upon the non-exercise of the Options.
11. SUSPENSION AND TERMINATION. In the event the Board or the
Administrator reasonably believes an Optionee has committed an act of
misconduct specified below, the Administrator may suspend the Optionee's right
to exercise any Option granted hereunder pending final determination by the
Board or the Administrator. If the Administrator determines that an Optionee
has committed an act of embezzlement, fraud, breach of fiduciary duty or
deliberate disregard of the Company rules resulting in loss, damage or injury
to the Company, or if an Optionee makes an unauthorized disclosure of any
Company trade secret or confidential information, engages in any conduct
constituting unfair competition, induces any Company customer to breach a
contract with the Company or induces any principal for whom the Company acts as
agent to terminate such agency relationship, neither the Optionee nor his
estate shall be entitled to exercise any Option hereunder. In making such
determination, the Board or the Administrator shall act fairly and in good
faith and shall give the Optionee an opportunity to appear and present evidence
on the Optionee's behalf. The determination of the Board or the Administrator
shall be final and conclusive.
12. NO RIGHTS AS SHAREHOLDER OR TO CONTINUED EMPLOYMENT. An Optionee
shall have no rights as a shareholder with respect to any shares of Stock
covered by an Option. An Optionee shall have no right to vote any shares of
Stock, or to receive distributions of dividends or any assets or proceeds from
the sale of Company assets upon liquidation until such Optionee has effectively
exercised the Option and fully paid for such shares of Stock. Subject to
Sections 8 and 9, no adjustment shall be made for dividends or other rights for
which the record date is prior to the date title to the shares of Stock has
been acquired by the Optionee. The grant of an Option shall in no way be
construed so as to confer on any Optionee the rights to continued employment by
the Company, or a Subsidiary.
13. TERMINATION; AMENDMENT. The Board may amend, suspend or terminate
this Plan at any time and for any reason, but no amendment, suspension or
termination shall be made which would impair the right of any person under any
outstanding Options without such person's consent not unreasonably withheld.
Further, any amendment which materially increases the benefits accruing to
participants under this Plan, shall be subject to the approval of the Company's
shareholders.
<PAGE>
14. GOVERNING LAW. This Plan and the rights of all persons under this
Plan shall be construed in accordance with and under applicable provisions of
the laws of the State of California.
EXHIBIT 21.1
List of Subsidiaries of DBS Industries, Inc.
GLOBAL ENERGY METERING SERVICE, INC.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE 10-KSB FOR THE PERIOD ENDED DECEMBER 31, 1996 FOR DBS INDUSTRIES,
INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 402,588
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 771,532
<PP&E> 73,277
<DEPRECIATION> 34,406
<TOTAL-ASSETS> 4,629,177
<CURRENT-LIABILITIES> 6,902,347
<BONDS> 0
0
0
<COMMON> 2,351
<OTHER-SE> (2,275,520)
<TOTAL-LIABILITY-AND-EQUITY> 4,629,177
<SALES> 0
<TOTAL-REVENUES> 11,420
<CGS> 10,850
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,324,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 395,298
<INCOME-PRETAX> (3,750,983)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (427,218)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,752,583)
<EPS-PRIMARY> (0.648)
<EPS-DILUTED> (0.648)
</TABLE>
