As filed with the Commission on May 3, 1999 File No. ___________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
DBS INDUSTRIES, INC.
(Name of small business issuer in its charter)
Delaware 7389 84-1124675
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or organization) Classification Code)
100 Shoreline Highway, Suite 190A, Mill Valley, California
94941; 415-380-8055 (Address and telephone number of
principal executive offices)
100 Shoreline Highway, Suite 190A, Mill Valley, California 94941;
415-380-8055 (Address of principal place of business or intended
principal place of business)
Fred W. Thompson, President and CEO
DBS Industries, Inc.
100 Shoreline Highway, Suite 190A
Mill Valley, California 94941
415-380-8055
(Name, address and telephone number of agent for service)
Copy to:
Roger D. Linn, Esq.
Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, California 95814
Telephone: 916-442-0400
Approximate date of proposed sale to the public: As soon as practicable after
the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following blocks and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
maximum maximum Amount of
Title of each class of Amount to be offering price aggregate registration
securities to be registered registered per share offering price fee
- ------------------------------------ -------------- ---------------- --------------- --------------
Common Stock to be offered by Selling
Stockholders 2,329,906 $3.375(1) $7,863,433 $2,185
Common Stock for resale by holders of
Warrants assuming the exercise of such
Warrants 595,000 $3.375(2) $2,008,125 $ 556
Total 2,924,906 $9,871,558 $2,741
==================================== ============== ================ =============== ==============
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(1) Fee calculated in accordance with Rule 457(c) of the Securities Act of
1933, as amended ("Securities Act"). Estimated for the sole purpose of
calculating the registration fee and based upon the average quotation of
the high and low price per share of the Company's Common Stock on April
26, 1999, as reported on the NASD OTC Bulletin Board.
(2) Assumes that the holder of the warrant has exercised such warrant.
Maximum offering price per share is based upon the average quotation of
the high and low price per share of the Company's Common Stock on April
26, 1999, as reported on the NASD OTC Bulletin Board.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>ii
DBS INDUSTRIES, INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501 of Regulation S-B
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Registration Statement
Item Number and Caption Prospectus Caption
1. Front of Registration Statement and Outside Front
Cover Page of Prospectus.................................... Outside Front Cover
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................................. Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors ...................... Prospectus Summary; Risk Factors
4. Use of Proceeds............................................. Use of Proceeds
5. Determination of Offering Price...... ...................... Plan of Distribution; Selling Stockholders and
Warrant holders
6. Dilution.................................................... Not Applicable
7. Selling Security Holders.................................... Selling Stockholders and Warrantholders
8. Plan of Distribution........................................ Plan of Distribution; Selling Stockholders and
Warrant holders
9. Legal Proceedings........................................... Legal Proceedings
10. Directors, Executive Officers, Promoters and Management; Principal Stockholders; Certain
Control Persons............................................. Relationships and Related Transactions
11. Security Ownership of Certain Beneficial Owners
and Management.............................................. Principal Stockholders
12. Description of Securities................................... Description of Securities
13. Interest of Named Experts and Counsel ...................... Experts; Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities Act Lia...................... Management
15. Organization Within Last Five Years ...................... Business
16. Description of Business..................................... Prospectus Summary; Business
17. Management's Discussion and Management's Discussion and Analysis of Financial
Analysis or Plan of Operation .............................. Condition and Results of Operations
18. Description of Property..................................... Business
19. Certain Relationships and Related Tran...................... Certain Relationships and Related Transactions
20. Market for Common Equity and Related
Stockholder Matters......................................... Price Range of Common Stock
21. Executive Compensation...................................... Executive Compensation
22. Financial Statements........................................ Consolidated Financial Statements
23. Change In and Disagreements With Accountants or
Accounting and Financial Disclosure ...................... Not Applicable
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<PAGE>iii
Information Contained Herein Is Subject to Completion or Amendment. A
Registration Statement Relating to These Securities Has Been Filed with the
Securities and Exchange Commission. These Securities May Not Be Sold Nor May
Offers to Buy Be Accepted Prior to the Time the Registration Statement Becomes
Effective. This Prospectus Shall Not Constitute an Offer to Sell or the
Solicitation of an Offer to Buy Nor Shall There Be Any Sale of These Securities
in Any State in Which Such Offer, Solicitation, or Sale Would Be Unlawful Prior
to Registration or Qualification under the Securities Laws of Any Such State.
A Registration Statement relating to the securities being offered by
this Prospectus has been filed with the Securities and Exchange Commission
("SEC") and cannot be sold until the Registration Statement has been made
effective by the SEC. The information contained in this Prospectus may be
changed. This Prospectus cannot be used to offer or sell securities in any state
until such offer or sale can be made in compliance with the securities laws of
that state.
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PROSPECTUS Subject to Completion
April __, 1999
DBS INDUSTRIES, INC.
COMMON STOCK
----------------
Certain stockholders of DBS Industries, Inc. ("DBSI" or "we") are
offering up to 2,924,906 shares of DBSI Common Stock ("Common Stock"). These
stockholders (who DBSI will refer to as the "Selling Stockholders") will be
selling shares of Common Stock which they own or which they can acquire by
exercising certain outstanding warrants. For more complete information, refer to
the Prospectus sections entitled "The Offering" and "Selling Stockholders."
We will not receive any proceeds from the resale of shares of Common
Stock by the Selling Stockholders. Expenses of this offering will be paid by
DBSI.
DBSI's Common Stock is traded in the over-the-counter market and quoted
on the OTC Bulletin Board under the symbol "DBSS." On April 26, 1999, the
average of the high and low quotation for one share of Common Stock was $3.375,
as reported on the OTC Bulletin Board. The Warrants are not quoted or traded on
any exchange or quotation system.
--------------------------------
An Investment in the Common Stock Involves Significant Risks. See "Risk
Factors" Commencing on Page 4 for Certain Considerations Relevant to an
Investment in the Common Stock.
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
DBSI's business is subject to many risks and an investment in its Common
Stock or Warrants will also involve significant risks. You should carefully
consider the various Risk Factors described on pages 4 to 11 before investing in
the Common Stock or Warrants.
--------------------------------
The date of this Prospectus is April __, 1999.
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY...........................................................................3
RISK FACTORS.................................................................................4
THE OFFERING................................................................................11
USE OF PROCEEDS.............................................................................12
PRICE RANGE OF COMMON STOCK.................................................................13
DIVIDEND POLICY.............................................................................13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............................................14
BUSINESS....................................................................................18
PROPERTY....................................................................................26
MANAGEMENT..................................................................................27
EXECUTIVE COMPENSATION......................................................................29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.......................................................................35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................................36
PLAN OF DISTRIBUTION........................................................................37
SELLING STOCKHOLDERS .......................................................................38
DESCRIPTION OF CAPITAL STOCK................................................................39
CERTIFICATE OF INCORPORATION................................................................39
LEGAL PROCEEDINGS...........................................................................40
LEGAL MATTERS...............................................................................40
EXPERTS ....................................................................................40
AVAILABLE INFORMATION.......................................................................40
FINANCIAL STATEMENTS AND SCHEDULES..........................................................41
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
Prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in the Common Stock of DBS
Industries, Inc. ("DBSI"). You should carefully read the entire Prospectus,
including the documents and information incorporated by reference into it. This
Prospectus contains forward-looking statements that are subject to risks and
uncertainties, including those risk factors discussed elsewhere in this
Prospectus, and in DBSI's Annual Report on Form 10-KSB as filed with the
Commission.
Our Business
DBSI proposes to design, construct, launch and operate a system of six
(6) satellites positioned in a low earth orbit ("Little LEO") which will provide
two-way, low-cost data messaging services worldwide (the "E-SAT System"). The
E-SAT System, when operational, would be capable of collecting and transmitting
data at regular intervals from fixed devices such as meters (i.e., electric/gas
meters, vending machines, stream or river flow gauges, etc.) at a cost
substantially less than manually retrieving the information.
DBSI is currently pursuing its business through its twenty percent (20%)
interest in E-SAT, Inc. ("E-SAT"). On March 31, 1998, the Federal Communications
Commission ("FCC") approved E-SAT's application for a Little Leo satellite
license. This license authorizes E-SAT to launch and operate six (6) Little LEO
satellites providing messaging services in the U.S. utilizing specified radio
frequency bands.
Pursuant to DBSI's business objectives, DBSI recently entered into a
contract with two European companies to build the satellites and to launch them
into orbit. DBSI is also actively negotiating with another company to serve as
the prime contractor to design and supervise the building of the satellites.
Because DBSI intends to develop and operate the E-SAT System, it is
essential to DBSI's overall business objectives to acquire a controlling
interest in E-SAT and the FCC license which E-SAT holds. DBSI is currently
negotiating with EchoStar Communications Corporation ("EchoStar") to acquire
EchoStar's eighty percent (80%) interest in E-SAT. However, as of the date of
this Prospectus, no agreement with EchoStar has yet been reached.
DBSI is a Delaware corporation with its business offices located at 100
Shoreline Highway, Suite 190A, Mill Valley, California 94941, and its telephone
number is (415) 380-8055. DBSI has two (2) wholly-owned subsidiaries, Global
Energy Metering Service, Inc. ("GEMS") and Newstar Limited ("Newstar").
Summary Of Risk Factors
An investment in DBSI's Common Stock involves a number of risks which
should be carefully considered and evaluated. These risks would include:
(i) DBSI's minority interest in E-SAT;
(ii) The fact that DBSI is a development stage company and has not had
operating revenues;
(iii) The technological challenges involved in developing a new
communication system using Little LEO satellites; and
<PAGE>4
(iv) The need to raise a significant amount of capital (estimated at
over $100 million) to design, build and launch the E-SAT System.
For a more complete discussion of risk factors relevant to an investment
in DBSI's Common Stock and Warrants, see the "Risk Factors" section.
The Offering
The Selling Stockholders are registering for resale shares of Common
Stock held by such stockholders and the resale of shares of Common Stock
assuming the exercise of outstanding Warrants. The Selling Stockholders acquired
their shares or Warrants from DBSI in private placements or as compensation for
services rendered to DBSI. DBSI will receive no proceeds from the sale of Common
Stock by the Selling Stockholders.
Summary Consolidated Financial Data
The summarized consolidated financial data presented below should be
read in conjunction with the more detailed financial statements of DBSI and
notes thereto which are included elsewhere in this Prospectus along with the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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For the year ended For the year ended For the year ended April 25, 1990
December 31, December 31, December 31, (Inception) to
1998 1997 1996 December 31,
1998
Revenue $ - $ - $ 11,420 $ 161,420
Loss from operations (2,995,848) (1,682,277) (3,323,765) (11,594,567)
Net Income (Loss) (3,293,493) 3,068,917 (3,752,583) (7,132,622)
Income (Loss) per Share (0.47) .49 (.65) -
Working Capital (Deficit) 233,078 (411,185) (6,130,815) -
Total Assets 3,512,511 1,785,543 4,629,177 -
Stockholders' Equity (Deficit) $ 2,382,740 $ 872,039 $ (2,273,169) -
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RISK FACTORS
An investment in DBSI's Common Stock involves a number of very
significant risks. You should carefully consider the following risks and
uncertainties in evaluating the Company and its proposed business before
purchasing shares.
Minority Ownership in E-SAT, Inc.
E-SAT has been granted an FCC license to construct, launch and operate
six Little LEO satellites to provide two-way, low-cost data messaging services
in the U.S. E-SAT is owned 20% by DBSI and 80% by EchoStar. Although DBSI has
only a 20% interest in E-SAT, DBSI has spent a substantial amount of time and
money evaluating satellite and rocket manufacturers, performing proof-of-concept
demonstrations with utility companies, and developing hardware and software for
collecting and transmitting data in anticipation of E-SAT receiving its FCC
license. DBSI and EchoStar have held and are currently having negotiations
regarding DBSI's acquiring a controlling interest in E-SAT. As of the
<PAGE>5
date of this Prospectus, DBSI and EchoStar have not reached an agreement
regarding the restructuring of E-SAT's ownership and there is no assurance that
an agreement for DBSI to acquire a controlling interest in E-SAT will be
achieved. Unless and until this restructuring is completed, on terms deemed
acceptable to DBSI, DBSI's investments in the E-SAT System will be subject to
its minority interest in E-SAT and the control disadvantages which such a
minority position represents, including the possible inability of DBSI to
proceed with its current plans to develop and launch the E-SAT System
satellites.
Development Stage Company
DBSI is a development stage company in which it is primarily involved in
technology development of the E-SAT System. As such, DBSI has not yet started
offering commercial services and, as a result, is not generating any revenues.
DBSI's ability to provide commercial service and to eventually generate
operating revenue will depend on its ability to, among other things: (i)
successfully construct and deploy the E-SAT System in a timely manner; (ii)
develop U.S. and international marketing arrangements permitting distribution of
the data messaging services inside and outside the U.S.; (iii) construct the
necessary ground infrastructure inside and outside the U.S.; and (iv) obtain and
maintain necessary regulatory licenses and authorizations in the U.S. and
worldwide. Given DBSI's limited operating history and lack of revenues, there
can be no assurance that it will be able to construct and establish the E-SAT
System, and, if established, to develop a sufficiently large customer base to be
profitable.
Lack of Revenues and Increasing Costs
DBSI and its subsidiaries have earned no substantial revenues since
their formation. However, DBSI expects its operating expenses to significantly
increase as the E-SAT System reaches critical stages of development.
DBSI recorded an operating loss of approximately $2,996,000 for 1998 and
does not anticipate any revenues during 1999. It expects to incur substantial
and increasing operating losses and negative net cash flow until the E-SAT
System is developed, deployed and operating in a profitable manner.
Development Contract Commitments
In order to comply with development milestones required by E-SAT's FCC
license, DBSI has entered into various development contracts including a
satellite construction contract and a satellite launch contract. DBSI is also
negotiating with another company to become the prime contractor for development
of the E-SAT System. Entering into these and other development and service
contracts is critical to the overall development of the E-SAT System. Failure to
maintain these contracts would adversely affect the construction of the E-SAT
System.
In addition, if DBSI were unable to obtain a controlling interest in
E-SAT's FCC license, or if other technological or financial difficulties were to
arise, DBSI might be unable to proceed with its current satellite construction
and launch agreements. Any cancellation or termination of these contracts could
result in substantial costs to DBSI.
Need for Future Capital and its Dilutive Effect
DBSI currently estimates that it will incur in excess of $100 million in
capital expenditures relating to the development and operating costs in building
and deploying the E-SAT System. Given the risks in an undertaking of this
nature, there can be no assurance that actual cash requirements will not exceed
DBSI's estimates. In particular, additional capital will be required in the
event that: (i) DBSI
<PAGE>6
incurs unexpected costs in completing the system design or encounters any
unexpected technical or regulatory difficulties, (ii) DBSI incurs delays and
additional expenses as the result of a launch or satellite failure, (iii) DBSI
is unable to enter into marketing agreements with third parties, or (iv) DBSI
incurs any significant unanticipated expenses. The occurrence of any such events
could adversely affect DBSI's ability to meet its business plan.
DBSI will depend almost exclusively on outside capital to pay for the
E-SAT System development, including the sale of additional stock and commercial
borrowing. There can be no assurance that capital will be available to DBSI to
meet development costs or on terms acceptable to DBSI. The issuance of
additional equity securities by DBSI would result in a significant dilution in
the equity interests of the current stockholders. Obtaining commercial loans
will increase DBSI's liabilities and future cash commitments.
If DBSI is unable to obtain financing in the amounts and at the terms
necessary, DBSI's business and future success will be adversely affected.
Technological Risks
The design and construction of the E-SAT System are exposed to risks
associated with a space- based communications system. Although DBSI believes
that the E-SAT System is based on sound technology, its design will contain
certain technology that has not been used in a commercial application. Although
DBSI will engage contractors who are experienced in the satellite and
communications industry, it has no experience in developing, constructing, and
operating a data communications system. Furthermore, an agreement with a prime
contractor for building the E-SAT System has not yet been reached. The failure
of the E-SAT System to function as designed, or the failure of system components
to function with other components or to specification could result in delays,
unanticipated costs, and loss of system performance, thereby rendering the E-SAT
System unable to perform at the quality and capacity levels anticipated.
In addition, future advances in the telecommunications industry could
lead to new technologies, products or services competitive with the products or
services to be provided by DBSI. Such technological advances could also lower
the costs of other products or services that may compete with the E-SAT System,
resulting in pricing pressures on DBSI's products and services, which could
adversely affect its results of operations.
Unscheduled Delays
Delays and related increases in costs in the construction, launch and
implementation of the E- SAT System could result from a variety of causes,
including: (i) delays encountered in the construction, integration and testing
of the E-SAT System; (ii) launch delays or failures; (iii) delays caused by
design reviews in the event of a launch vehicle failure or a loss of satellites
or other events beyond the control of DBSI; (iv) further modification of the
design of all or a portion of the E-SAT System in the event of, among other
things, technical difficulties or changes in regulatory requirements; (v) the
failure of DBSI to enter into agreements with space craft manufacturers and
other technology providers and with marketing providers at the times or on the
terms expected; and (vi) the failure to develop or acquire effective
applications for use with the E-SAT System. There can be no assurance that the
E-SAT satellites or the E-SAT data messaging services will be available on a
timely basis, or at all, or that implementation of the E-SAT System will occur.
A significant delay in the completion of the E-SAT System could erode DBSI's
competitive position, could result in cancellation of E-SAT's FCC license, and
could have a material adverse effect on its financial condition and results of
operations.
<PAGE>7
Launch Risks
Satellite launches are subject to considerable risks, including the
possible failure of the launch vehicle, which may result in the loss or damage
to the satellite or its deployment into an incorrect or unusable orbit.
Furthermore, each launch is expected to carry three satellites. Consequently, an
unsuccessful launch could adversely affect one-half of DBSI's planned satellite
constellation. DBSI will seek to obtain insurance to cover its exposure to loss
in this area.
DBSI has entered into a launch services agreement providing for two
payload launches from a launch site in Plesetzk, Russia during a specific
period. It is anticipated that any launch must be approved by a governmental
agency of the Russian Federation. No assurance can be given that the launches
will take place as planned or that such launch will be approved by the Russian
Federation.
Potential Satellite Malfunction
A number of factors will affect the useful lives of the E-SAT System's
Little LEO satellites, including the quality of construction, the expected
gradual environmental degradation of solar panels, the amount of fuel on board
and the durability of component parts. Random failure of satellite components
could result in damage to or loss of a satellite. In rare cases, satellites
could also be damaged or destroyed by electrostatic storms, high levels of
radiation or collisions with other objects in space. Any premature loss of
satellite performance or capacity could have a material adverse effect on the
efficiency of the overall system and the operation of the E-SAT System.
Limited Insurance
DBSI expects to obtain launch insurance for each of its satellite
launches. This insurance would, in the event of a launch failure, provide funds
for replacement launch services. In addition, DBSI expects to obtain satellite
replacement insurance, which would provide funds for rebuilding satellites
damaged in construction, shipment or launch. Lastly, DBSI is considering
obtaining insurance to cover loss or damage to a satellite while in orbit.
However, this insurance is available on a very limited basis and it is very
expensive. Consequently, DBSI may find it uneconomical to cover this type of
loss exposure. No assurance can be given that in the event of a launch or
construction failure, the insurance proceeds will be sufficient to cover the
costs of the launch and satellite. In the event a covered loss occurs prior to
the next event that would be subject to any such policy, DBSI will need to
satisfy the insurance underwriters that the technological or other problems
associated with the covered loss have been addressed. The launch and replacement
insurance marketplace is volatile and there can be no assurance that launch or
replacement insurance, or both, will be available to DBSI, or if available, will
be available on terms acceptable to DBSI. DBSI will continue to evaluate the
insurance marketplace to determine the level of risk it is willing and able to
absorb internally versus the amount of risk to be transferred to third parties.
Regulatory Risks
United States License. The E-SAT System is subject to U.S. regulation.
Pursuant to its license from the FCC, E-SAT is authorized to provide data
messaging services in the U.S. Operation of the E-SAT System and the FCC license
it operates under may be significantly affected by regulatory changes in the
U.S. resulting from judicial decisions and/or adoption of treaties, laws,
regulations or policies, or by changes in the interpretation or application of
existing treaties, laws, regulations or policies.
In order to maintain the validity of its FCC license, E-SAT must comply
at all times with the terms of such FCC license, unless specifically waived or
modified by the FCC. These terms include, among other things, system
construction milestones. In order to comply with the milestone requirements of
the FCC license, E-SAT must commence construction of the first two satellites by
March 1999 and the
<PAGE>8
remaining four satellites by March 2001. On March 31, 1999, DBSI, on E-SAT's
behalf, entered into an agreement with a European space craft manufacturer for
the construction of the E-SAT satellites. DBSI notified the FCC on April 8, 1999
that it had met the first milestone of E-SAT's license (commencement of
satellite construction by March, 1999). The FCC has neither confirmed nor denied
DBSI's assertion. If the FCC or any competing licensee challenged DBSI's
assertion, E-SAT's FCC license could be jeopardized. Further, although E-SAT has
every expectation of meeting future milestone requirements, there can be no
assurance that these or any other requirements and conditions of the FCC license
can be met by E-SAT or DBSI. In the event that E-SAT cannot meet these milestone
requirements, and the FCC does not waive or modify such requirements, E-SAT will
lose its FCC license. Such a loss would have an immediate and significant
adverse effect on DBSI's financial position and results of operations. The terms
of the FCC license also require that construction, launch and operation of the
E-SAT System be accomplished in accordance with the technical specifications set
forth in E-SAT's FCC application, as amended, and consistent with the FCC's
rules, unless specifically waived. During the process of constructing the E-SAT
System, there may be certain modifications to the design set forth in E-SAT's
FCC application that may necessitate regulatory approval. There can be no
assurance that such modifications will be approved by the FCC.
The FCC license is effective for ten (10) years from the date on which
E-SAT certifies to the FCC that its initial satellites have been successfully
placed into orbit and that the operations of such satellites conform to the
terms and conditions of the FCC license. While DBSI expects it will apply to
renew the FCC license beyond the initial 10-year license term, and expects the
FCC will grant such renewal, there can be no assurance that, if applied for,
such a renewal of license would be granted.
In addition, the E-SAT System's remote terminal units ("RTU") to be
integrated with the fixed devices must be a type accepted (i.e., Part 15) by the
FCC. DBSI intends to seek approval of the RTU's under a separate application
with the FCC.
Foreign Authorization. In addition to the FCC license for operation of
the E-SAT System in the U.S., E-SAT will be required to seek certain "landing
rights" in each country in which its RTUs will be located. There can be no
assurance that the required regulatory authorizations will be obtained in any
country in which DBSI proposes to offer its services, or that such
authorizations will be obtained in a timely manner or in the form necessary to
implement DBSI's proposed operations. In the event DBSI is not successful in
obtaining a foreign license in a particular country, it will be unable to offer
E-SAT System services in such country. Depending on the number of proposed RTU's
to be operating in a country, the unavailability to offer data messaging
services to such country may materially adversely affect DBSI's business plan.
International Telecommunications Union Coordination. All communications
satellite systems must be technically coordinated with other satellite systems,
and in some cases, with terrestrial communication systems. The purpose of this
coordination is to ensure, to the maximum extent feasible, that communication
systems will be able to operate without unacceptable radiofrequency interference
from other communication systems. This process, called "satellite coordination,"
takes place under the auspices of the International Telecommunication Union
(ITU) and is essentially a first come, first served process. That is, earlier
filings generally establish some priority over later filings although the ITU
encourages applicants to cooperate to enable as many satellite systems as
possible to be implemented. While there can be no assurance that the E-SAT
System will successfully complete the international coordination process, most
countries seek to accommodate satellite systems of other countries and
historically, virtually all coordination requests are ultimately successful.
However, any delays in obtaining international satellite coordination would
result in delays in offering messaging services outside the U.S.
<PAGE>9
Utility Industry Acceptance
DBSI's success is largely dependent, at least initially, on whether
utility companies will contract for services utilizing the E-SAT System.
Although DBSI has other proposed uses of the data messaging services, utility
companies, such as gas, electrical and water utility companies remain the
primary focus of DBSI's marketing and development efforts. Although DBSI has
demonstrated the ability of Little LEO satellites to read data from meters
(RTUs) in proof-of-concept trials with utility companies, no assurance can be
given that DBSI will be successful in completing the development and commercial
implementation of automatic meter reading ("AMR") using the E-SAT System. DBSI
must complete a number of technical developments and continue to expand and
upgrade its capabilities prior to implementing its AMR services on a full
commercial basis. Utility companies typically go through numerous steps before
making final decisions which can take up to several years to complete.
Further, automatic meter reading utilizing satellite data messaging
services is a relatively new and evolving business. It is difficult to predict
the future growth of the market or the potential size of the market. Utility
companies are testing products from a number of entities developing various
communication technologies. The use of the E-SAT System is but one possible
solution for hard-to- access meter sites. No assurances can be given that DBSI
will be successful in achieving the adoption of the E-SAT System or to what
extent utilities will employ it. In the event that utility companies do not
adopt this technology, or do so less rapidly than expected, DBSI's future
results, including its ability to achieve profitability, will be materially and
adversely affected.
The development of low-cost RTU's to collect and transmit data from
fixed devices such as meters will be important in the development of a broad
utility market for E-SAT's data messaging services. RTUs must be manufactured
and operated at a low cost in order to make E-SAT's data messaging services
attractive to commercial users. It is expected that the cost of RTUs will
decline as the volume of units produced increases. DBSI believes that it can
develop a low cost RTU which requires less power to operate and will be
attractive to utility and other companies that may be interested in E-SAT's data
messaging services. However, there can be no assurance that RTUs can be
developed at a cost and with the capabilities that will attract a large enough
commercial subscriber base for DBSI to achieve profitability.
Reliance on United States and International Distributors to Market Services
DBSI intends to rely in part on third parties with existing distribution
channels in specific markets to sell E-SAT data messaging services to
subscribers in the United States and throughout the world. Such relationships
may take the form of a joint venture or by distribution license. DBSI has
committed significant time and resources to developing these potential
relationships and believes additional corporate opportunities may develop from
such business alliances. The ability and willingness of third parties to market
DBSI's data messaging services will depend upon many factors, including the
technical capabilities of the E-SAT System, the wholesale price of the service,
the third party's ability to realize a profit on marketing the service, the cost
of the RTU, and the competitive environment. There can be no assurance that DBSI
will be successful in identifying distributors or value added resellers ("VARs")
for all of its target markets, or that such distributors and VARs that are
willing to market the services will be successful in their sales efforts.
DBSI intends to enter into international distribution license agreements
for countries other than the U.S. Each international distributor will be
responsible for obtaining all regulatory approvals in the local country and
marketing the services directly to subscribers or through sublicenses. There is
no assurance DBSI will be successful in identifying international distributors
in each country in which it intends to operate, or that the international
distributors will be successful in obtaining regulatory
<PAGE>10
authorizations to offer E-SAT System's services. Failure to do so may preclude
DBSI from operating in those markets.
Reliance on Vendors and Consultants
DBSI has relied on and will continue to rely on vendors and consultants
that are not employees of DBSI or its affiliates to complete the design,
construct and implement the E-SAT System, to market its data messaging services
and for representation on regulatory issues. DBSI has no long-term contractual
relationship with these vendors and consultants. While DBSI believes that
vendors and consultants will continue to provide the expertise necessary to
complete the design and construction of the E-SAT System, there can be no
assurance that such vendors and consultants will be available in the future, and
if available, will be available on terms deemed acceptable to DBSI.
In addition, DBSI relies and will continue to rely on outside parties to
manufacture parts and equipment for the E-SAT System such as meters,
transmitters, antennas, and other Little LEO satellite related devices. No
assurances can be given that these manufacturers will be able to meet DBSI's
needs in a satisfactory and timely manner or that DBSI will be able to obtain
additional manufacturers when and if necessary. A significant price increase, a
quality control problem, an interruption in supply or other difficulties with
third party manufacturers could have a material adverse effect on DBSI's plan of
business. Further, the failure of third parties to deliver the requisite
products, components, necessary parts or equipment on schedule, or the failure
of third parties to perform at expected levels, could delay DBSI's deployment of
the E-SAT System. Any such delay or increased costs could have a material
adverse effect on DBSI's business.
Development of Business and Management Growth; Key Personnel
DBSI expects to experience significant and rapid growth in the scope and
complexity of its business as it proceeds with the development of the E-SAT
System. Currently, DBSI does not have sufficient staff to manage operations,
control the operations of the proposed satellites, handle sales and marketing
efforts or perform finance and accounting functions. See "Risk Factors -
Reliance on Vendors and Consultants." DBSI will be required to hire a broad
range of additional personnel before it begins commercial operations. This
growth is likely to place a strain on DBSI's management and operational
resources. The failure to develop and implement effective systems, or to hire
and train sufficient personnel for the performance of all of the functions
necessary to effectively service and manage its subscriber base and business, or
the failure to manage growth effectively, would have a material adverse effect.
DBSI's performance is substantially dependent on the performance of its
executive officers and key personnel and on its ability to retain and motivate
high-quality personnel. The loss of any of the Company's key personnel,
particularly Fred W. Thompson, President, could have a material adverse effect
on DBSI's business, financial condition, and operating results. In order to
mitigate such a loss, DBSI has a "key person" life insurance policy on Mr.
Thompson in the aggregate amount of $2,000,000.
Competition
DBSI will encounter competition from other Little LEO satellite systems,
as well as from an increasingly competitive terrestrial-based communications
industry. The market for collection and transmission of data from fixed devices
such as meters and the potential market for other applications of data messaging
services have led to substantial and increasing competition. Many of DBSI's
present and future competitors using Little LEO satellites have begun to address
collecting and transmitting data from the fixed devices for the utility industry
and vending machine industry and have substantially greater: (i) financial,
marketing, technical and manufacturing resources, (ii) name recognition, and
(iii)
<PAGE>11
experience than DBSI. Such competitors may be able to respond more quickly to
new or emerging advancements in the industry and to devote greater resources to
the development, promotion and sale of their products and services. While DBSI
believes that its technology is competitive and that the E-SAT System has been
designed to provide a data transmission service at a cost lower than its
competitors, no assurances can be given that such competitors, in the future,
will not succeed in developing better or more cost effective data transmission
systems.
In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties that could increase their ability to reach commercial customers or
subscribers of data messaging services. Further, terrestrial-based wireless
communication systems are providing data messaging services to the utility
industry. Such existing and future competition could affect DBSI's ability to
form and maintain agreements with utility companies and other customers. No
assurances can be given that DBSI will be able to compete successfully against
current and future competitors, and any failure to do so would have a material
adverse effect on DBSI's business.
Penny Stock Regulations
The Securities and Exchange Commission (the "SEC") has adopted
regulations which generally define "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
of less than $5.00 per share, subject to certain exceptions. DBSI's securities
may be covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established
customers and accredited investors (generally, institutions with assets in
excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by this rule, the broker-dealers must make a special
suitability determination of the purchaser and receive the purchaser's written
agreement of the transaction prior to the sale. Consequently, the rule may
affect the ability of broker-dealers to sell DBSI's securities and affect the
ability of existing stockholders to sell their shares in the secondary market.
Certain Anti-Takeover Provisions
DBSI's Certificate of Incorporation contains a fair price provision that
requires a certain threshold approval by DBSI's board of directors in the event
of a merger, sale of assets or other type of business combination. In addition,
DBSI's board consists of staggered three year terms, and the board of directors
is authorized to issue preferred stock the terms of which may be determined by
the board of directors. These provisions may have the effect of deterring a
change in control of DBSI. See "Certificate of Incorporation."
No Dividends
DBSI has not declared or paid any dividends on its Common Stock since
its inception, and does not anticipate paying any such dividends for the
foreseeable future.
THE OFFERING
The Selling Stockholders are offering for resale up to 2,329,906 shares
of Common Stock and up to 595,000 shares of Common Stock assuming the exercise
of outstanding Warrants and options.
The shares of Common Stock, Warrants and options were issued in
connection with the following transactions:
<PAGE>12
(1) The issuance of 50,000 Units to an accredited investor at $2.50
per Unit. Each Unit consisted of one share of Common Stock and a
Warrant to purchase one share of Common Stock at $3.50 per share.
The unit holder has exercised the Warrants so that a total of
100,000 shares of Common Stock are included in this offering.
(2) The issuance of a total of 500,000 Units to four accredited
investors at $3.00 per Unit. Each Unit consists of one share of
Common Stock and a Warrant to purchase one share of Common Stock
at $4.00 per share. A total of 1,000,000 shares of Common Stock
are included in this Offering.
(3) The issuance of 75,000 Warrants issued as selling compensation to
one accredited investor. Each Warrant provides for the purchase
of one share of Common Stock at $3.75 per share. A total of
75,000 shares of Common Stock are included in this Offering.
(4) The issuance of 63,239 shares of Common Stock in settlement of a
legal dispute.
(5) The issuance of 1,333,334 shares of Common Stock to one purchaser
at $3.00 per share. All of the shares of Common Stock are
included in the Offering.
(6) The issuance of 333,333 shares of Common Stock to one purchaser
at $3.00 per share. All of the shares of Common Stock are
included in this Offering.
(7) Options to purchase 20,000 shares of Common Stock at $4.6875 per
share. All of the shares underlying the options are included in
this Offering.
The shares of Common Stock offered for resale and the shares of Common
Stock to be issued upon the exercise of the Warrants or options may be sold in a
secondary offering by the holders thereof pursuant to this Prospectus.
Pursuant to the terms of those private placements, DBSI is contractually
required to register the shares of Common Stock issued in the legal settlement
and the Common Stock which are part of the Units and the shares of Common Stock
to be issued upon the exercise of the Warrants or options.
USE OF PROCEEDS
DBSI will not receive any proceeds from the resale of the shares of
Common Stock by the Selling Stockholders. DBSI is registering the shares of
Common Stock, and shares of Common Stock upon the exercise of the Warrants for
resale pursuant to contractual terms incurred in the private placements.
<PAGE>13
PRICE RANGE OF COMMON STOCK
The following table sets forth the high and low bids for DBSI's Common
Stock during each quarter for the past two fiscal year ends and until the
quarter ended March 31, 1999, as quoted on the OTC Bulletin Board. DBSI's
trading symbol is "DBSS." Subject to meeting The Nasdaq Stock Market, Inc.
requirements, DBSI intends to apply to list the Common Stock included in this
registration on The Nasdaq SmallCap Market.
Common Stock
Quarter Ended High Low
March 31, 1999 4.97 4.06
December 31, 1998 4.25 4.00
September 30, 1998 4.63 1.88
June 30, 1998 2.88 1.50
March 31, 1998 2.32 .50
December 31, 1997 1.38 .38
September 30, 1997 1.00 .53
June 30, 1997 1.94 .75
March 31, 1997 1.94 1.50
These quotations reflect inter-dealer prices, without retail markup,
mark-down or commission, and may not represent actual transactions.
As of March 31, 1999, DBSI had 12,508,760 shares of Common Stock
outstanding and approximately 443 stockholders of record. This number does not
include stockholders who hold DBSI securities in street name.
DIVIDEND POLICY
DBSI has not declared or paid any cash dividends since its inception.
DBSI currently intends to retain future earnings, if any, for use in the
operation and expansion of its business and does not intend to pay any cash
dividends in the foreseeable future.
<PAGE>14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
DBSI has historically recognized its operating costs and expenses
primarily through its 20% interest in E-SAT. However, effective March 31, 1998,
DBSI started recognizing the expenditures for development of the E-SAT System
through DBSI's wholly-owned subsidiary, Newstar Limited. Newstar will be the
entity primarily responsible for the construction, launch and operation of the
E-SAT System on behalf of DBSI.
Plan of Operation
An essential element of DBSI's business plan is the negotiation with
EchoStar to obtain a controlling interest in E-SAT and/or the FCC license to
operate the Little LEO satellite system. Although DBSI will continue its plans
to develop the E-SAT System, such plans are based on the assumption that current
negotiations with EchoStar will result in DBSI gaining a controlling interest in
E- SAT and/or the FCC license.
Throughout 1999, DBSI plans to advance the development of the E-SAT
license by negotiating vendor agreements with the objectives of beginning
construction of the LEO satellites, securing a launch service provider, and
developing the ground support network. The plan includes a Research and
Development program to produce a low cost ASIC chip CDMA-DSSS RTU. DBSI plans to
satisfy all milestone conditions provided within the Little Leo license issued
by the FCC.
DBSI plans to attract partners to the E-SAT project who would be engaged
in technical and marketing aspects to effectuate the business plan. Technical
and marketing personnel resources may be increased and will depend on those
resources provided by E-SAT partners.
DBSI will seek to satisfy its 1999 cash requirements by supplementing
its present cash base with the potential future exercise of previously issued
warrants and other outside sources of capital, in addition to attracting new
equity partners in the E-SAT project.
Results of Operations
Revenues
DBSI remains in the development stage and did not generate any revenues
in either of the last two fiscal years ended December 31, 1998 or December 31,
1997.
Cost and Operating Expenses
Cost and operating expenses for the year ended December 31, 1998, were
$2,995,848 as compared to $1,682,277 for the year ended December 31, 1997.
General and administrative expenses increased by approximately $726,500 to
$2,198,701 during the year ended December 31, 1998, compared to $1,472,162 spent
in the year ended December 31, 1997. This 50% increase in general and
administrative expenses was due primarily to approximately $350,000 in stock and
cash as settlement of a lawsuit against an officer of DBSI, a compensation
expense of $159,000 relating to options for services provided by consultants,
and the expansion of DBSI's business interests in Europe and the U.S.
<PAGE>15
Research and development expenditures increased approximately $587,000
to $797,147 during the year ended December 31, 1998, compared to $210,115 spent
in the year ended December 31, 1997. This significant increase in research and
development was due primarily to the issuance of the E-SAT license in April 1998
and related increases in engineering and design costs not capitalized by DBSI
and associated with meeting the terms of the FCC license and the development of
the E-SAT System.
Other Income (Expense)
DBSI experienced a non-operating loss of $296,045 for the year ended
December 31, 1998, compared to a non-operating gain of $4,831,994 for the year
ended December 31, 1997. During 1998, interest income was recognized on cash
received in connection with the sale of approximately 2.8 million units of
DBSI's stock and warrants at $2.00 per unit. Each unit consists of one share of
Common Stock and a warrant to purchase one share of Common Stock at $3.00 per
share. The interest income was more than offset by losses in 1998 of $328,466
from the sale of investment in Seimac and its equity interest in the results of
operations of E-SAT. DBSI sold its interest in Seimac during 1998. During 1997,
DBSI incurred interest expense of $308,094 relating to certain outstanding
debentures owed to EchoStar. During 1997, these debentures were exchanged for
EchoStar Common Stock that EchoStar held as collateral against such debentures.
DBSI experienced a loss of approximately $1 million relating to this exchange.
DBSI also incurred a loss of $80,975 attributed to its equity interest in the
results of operations of E-SAT and Seimac. These expenses/losses were more than
offset by a gain of approximately $6.2 million on the sale of marketable
securities.
Net Loss and Income
DBSI's net loss for the year ended December 31, 1998, was $3,293,493
compared to a net income of $3,068,917 for the year ended December 31, 1997.
During 1997, DBSI's net income was due primarily to a one-time gain on sale of
marketable equity securities of approximately $6.2 million offset by operating
and non-operating expenses.
Liquidity and Capital Resources
DBSI has been in the development stage since its inception and has not
recognized any significant revenues or generated any significant cash flows from
operations. DBSI's monthly expenses averaged approximately $325,000 per month
during calendar year 1998 which included approximately $25,000 per month for
operating, legal and consulting expenses, and $70,000 per month for GEMS & E-SAT
research & development. However, expenses will continue to increase during 1999
with the demands of developing the satellites for the E-SAT System and business
applications and additional capital will be necessary to expand operations or
continue current operations. In February 1999, DBSI raised $1.5 million in gross
proceeds from a private placement of its Common Stock and $7.5 million from the
exercise of outstanding warrants. In April 1999, DBSI made approximately $7.8
million in payments to several contractors.
Traditionally, DBSI has relied on equity and debt financings to pay for
its operations. This financing was supplemented by the sale of DBSI's interest
in entities that held direct broadcast satellite licenses. DBSI no longer has
any interest in direct broadcast satellite licensees. On April 30, 1998, DBSI
sold its interest in Seimac in exchange for $200,000 in cash and $51,417 in
forgiven debt.
During 1998, DBSI conducted a private placement of up to 3 million units
at $2.00/unit for an aggregate amount of $6 million with each unit consisting of
one share of Common Stock and one warrant to purchase one share of Common Stock
at $3.00 per share. The offering closed in October 1998, with DBSI selling 2.5
million units for gross proceeds of $5 million before stock issuance costs of
$442,500.
<PAGE>16
In February 1999, DBSI conducted a private placement of 50,000 units at
$2.50/unit for an aggregate amount of $125,000. Each unit consisted of one share
of Common Stock and one warrant to purchase one share of Common Stock at $3.50
per share. This private placement included stock issuance costs of approximately
$1,465.
In February 1999, DBSI conducted a second private placement of 500,000
units at $3.00/unit for an aggregate amount of $1.5 million. Each unit consisted
of one share of Common Stock and one warrant to purchase one share of Common
Stock at $4.00 per share. This private placement included a stock issuance
finders fee of 75,000 warrants exercisable at $3.75/share issued to a finder and
costs of the offering of approximately $78,426.
In March 1999, DBSI received gross proceeds of $7.8 million from the
exercise of 2,818,660 outstanding warrants at exercise prices ranging from $0.50
to $3.50 per share.
In April 1999, two of DBSI's contractors made capital investments in
DBSI of $5 million in exchange for 1,666,667 shares of Common Stock acquired
from DBSI at $3.00/share.
During 1999, DBSI has also realized $701,021 of proceeds from the
exercise of 514,645 stock options held by officers, directors, employees and
consultants of DBSI. Option exercise prices ranged from $0.53 to $2.80 per
share.
In addition to the cash proceeds described above, DBSI will need
substantial additional capital, an estimated $111 million over the next 24
months, to construct and launch the satellites comprising the E-SAT System.
Further, the construction of the first two of the six planned satellites
commenced on March 31, 1999 pursuant to the terms of a satellite construction
contract and a satellite launch services contract entered into by DBSI. (See
"Satellite Constellation.")
DBSI had cash and cash equivalents of $1,291,711 and $383,054 as of
December 31, 1998 and 1997, respectively. DBSI had working capital of $233,078
as of December 31, 1998. DBSI had a negative working capital of $411,185 as of
December 31, 1997. Until DBSI is able to develop, construct and operate its
E-SAT System and derive revenues therefrom, it will continue to use cash
obtained from outside sources for its operations and development of the E-SAT
System.
Net cash used in operating activities was $2,161,111 for the year ended
December 31, 1998, as compared to $2,972,153 for the year ended December 31,
1997. Net cash used in operating activities during 1998 as compared with the
prior year was a result of the 1998 loss of $3,293,493 as offset by certain
non-cash charges, a loss on sale of investment in Seimac and the equity in E-SAT
losses. Cash expenditures accelerated in the fourth quarter of 1998 as DBSI
increased its level of development activity relating to the E-SAT System. An
increased level of development costs is expected to continue into 1999. Net cash
used in operating activities was $2,972,153 for the year ended December 31,
1997, which reflects an increase compared to 1996, due to the payment of
accounts payable which accrued during 1996 and were paid in 1997.
Net cash used in investing activities for the year ended December 31,
1998, was $1,484,958. This net cash used represents the difference between the
proceeds from the divestiture of Seimac of $199,940 less DBSI's advances to
E-SAT of $407,292 and approximately $1.2 million in progress payments relating
to satellite construction costs. Net cash provided by investing activities was
$4,183,565 in 1997 as DBSI received proceeds of $3,573,677 in connection with
its divestiture of its interest in Continental Satellite Corporation.
Net cash provided by financing activities for the year ended December
31, 1998, was $4,554,726 compared to $1,230,994 used in financing activities for
the year ended December 31, 1997. Net cash
<PAGE>17
provided by financing activities during 1998 related to the net proceeds from
the sale of units of common stock. Net cash used in financing activities of
$1,230,994 during 1997 related primarily to the repayment of debentures in the
amount of $1,043,445.
In July 1996, DBSI began to receive milestone payments under the terms
of a $1.2 million purchase order for 10,000 satellite radio units. Under this
agreement, DBSI was eligible to receive up to $500,000 towards development costs
upon meeting the milestone requirements of the contract. DBSI met the first four
milestones of the contract and has received $400,000 in cash. Currently, DBSI
and the customer have suspended their development under this agreement due to
the expiration of DBSI's agreement for the use of the Argos System on December
31 1997, and the subsequent limits placed on future commercial use of the Argos
System. Therefore, such milestone payments could be subject to refund, in whole
or in part.
Factors Affecting Future Operating Results
Factors that could cause future results to differ materially from
historic results, include factors identified in the section "Risk Factors" in
addition to other factors identified in this Prospectus. Other factors that
could have an impact on DBSI's future performance include uncertainties relating
to general economic and political conditions, both domestically and
internationally, changes in the law and regulations governing DBSI's activities
in the Little LEO satellite technology, results of DBSI's financing efforts,
marketing conditions for its services, as well as other factors which generally
affect the market for stocks of development stage, high technology companies.
These factors could affect the price of DBSI's stock and could cause such stock
prices to fluctuate over relatively short periods of time. Readers of this
Prospectus are cautioned not to put undue reliance on "forward looking"
statements which are, by their nature, uncertain as reliable indicators of
future performance.
Successfully addressing the factors discussed above is subject to
various risks described in this Prospectus, as well as other factors which
generally affect the market for stocks of development stage, high technology
companies. These factors could affect the price of DBSI's stock and could cause
such stock prices to fluctuate over relatively short periods of time.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's, or its suppliers' and customers' computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. In the Company's assessment, because the Company's and its
subsidiaries' information systems are primarily comprised of recently purchased
personal computers and software, the Company does not believe that the Year 2000
Issue will materially affect its operations.
In addition, in developing the E-SAT System, the Company will be relying
on vendors to, among other things, manufacture the Little LEO satellites, launch
the Little LEO satellites, manufacture the RTU and build the E-SAT
infrastructure including the control stations which are Y2K compliant. The
Company has entered into contracts with several vendors to develop the E-SAT
System, and, an assessment has been made as to their Year 2000 compliance. As
part of ongoing contract negotiations, the Company will request and determine
the vendors' Year 2000 readiness. In the event that it is determined that a key
vendor will not be Year 2000 compliant, this may have an adverse effect on the
Company's business plans.
<PAGE>18
BUSINESS
This discussion, other than the historical financial information, may
consist of forward-looking statements that involve risks and uncertainties,
including quarterly and yearly fluctuations in results, the timely availability
of new communication products, the impact of competitive products and services,
and the other risks described in DBSI's SEC reports. These forward-looking
statements speak only as of the date hereof and should not be given undue
reliance. Actual results may vary significantly from those projected.
DBSI undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
General
DBSI was formed August 3, 1989, under the laws of the State of Delaware.
DBSI is involved in designing and developing a data messaging service utilizing
low earth orbit ("LEO") satellites. DBSI is developing its business primarily
through its 20% interest in E-SAT, Inc., a Colorado corporation ("E- SAT") and
through its subsidiary, Newstar Limited ("Newstar") and to a lesser extent
through its second subsidiary, Global Energy Metering Service Inc. ("GEMS").
DBSI, through its wholly-owned subsidiary, Newstar, proposes to
construct, launch and operate a system (the "E-SAT System") utilizing six
non-voice, non-geostationary mobile ("Little LEO") satellites to provide
two-way, low-cost data messaging services worldwide. In March 1998, E-SAT was
granted a license by the Federal Communications Commission ("FCC") to develop
and operate the E-SAT System. (See "FCC Regulations".) DBSI's proposed
development of the E-SAT System is intended to utilize the FCC license granted
to E-SAT.
With DBSI's technology, these Little LEO satellites are capable of
collecting and transmitting data at regular intervals from fixed devices such as
meters (i.e., electric/gas meters on homes and buildings, vending machines,
stream gauges, etc.) at a cost substantially less than manually retrieving the
information. Meters equipped with DBSI's designed Remote Terminal Units ("RTU")
will allow Little LEO satellites to retrieve data from the meters, store such
data, and forward the data at specified times to an earth station to be
processed, validated and delivered to the customer. DBSI intends to provide data
messaging services for the energy industry including gas and electrical
utilities and water agencies, as well as for vending machines, heavy equipment
usage, and environmental monitoring, worldwide.
Our goal is to provide low-cost data messaging services using Little LEO
satellites to enable businesses to economically gather data from fixed devices
located in remote and hard-to-access locations. With the emergence of automatic
meter reading ("AMR") and the deregulation of the utility industry, one of
DBSI's target markets is the electric and natural gas utilities, particularly
their high-cost-to-read metering segment which historically required such "meter
reading" to be conducted by utility personnel. This labor intensive activity
presents logistical issues such as (i) significant travel time to a meter site;
(ii) rugged terrain; (iii) physical risk; (iv) restricted sites; (v)
environmental issues; and (vi) mis-reads requiring additional site visits, all
of which can contribute to higher costs for utilities.
Other target markets include vending machines, where numerous machines
could be monitored for stock and coin levels; heavy equipment usage, where heavy
equipment could be monitored worldwide for in-use time, mileage and maintenance
scheduling; and environmental monitoring, where plant waste discharge, streams,
lakes or air could be continuously monitored for pollutants, volume, etc.
DBSI began business operations by purchasing interests in direct
broadcast satellite licensees. in the past, DBSI has had an interest in Direct
Broadcast Satellite Corporation which was subsequently
<PAGE>19
acquired by EchoStar Communications Corporation ("EchoStar"). In addition, DBSI
had an equitable interest in Continental Satellite Corporation. During 1997,
DBSI sold its last indirect interest in a direct broadcast satellite licensee
and settled litigation involving DBSI's equitable interest in another direct
broadcast satellite licensee.
Prior to its involvement with E-SAT, DBSI was developing hardware and
software for data collection and transmission. DBSI has conducted
proof-of-concept demonstrations with utility companies to determine the
effectiveness and viability of Little LEO satellites to collect and transmit
data from fixed devices. DBSI has also been evaluating rocket and satellite
vendors in anticipation of acquiring an FCC license to operate a Little LEO
satellite system. As a result of these efforts, DBSI had identified several
potential prime contractors to construct the LEO satellites and a launch service
provider to lift the satellites into their intended orbit. (See "Satellite
Constellation".)
Ownership Interest in E-SAT
E-SAT was incorporated in 1994 and is owned 20% by DBSI and 80% by
EchoStar. E-SAT was formed for the purpose of acquiring an FCC license to
develop, construct and operate a Little LEO satellite system. Since E-SAT's
formation, DBSI has had negotiations with EchoStar to restructure E- SAT in
order to allow DBSI to acquire a majority interest in E-SAT. If and when DBSI
acquires a controlling interest in E-SAT or the FCC license, DBSI, through its
subsidiary Newstar, will assume full responsibility for the development,
launching and operation of the E-SAT System and the marketing of its
transmission capacity through joint ventures with other partners. In light of
the recent satellite construction and launch services agreements entered into by
DBSI, DBSI is actively negotiating with EchoStar regarding the future
development rights of the FCC license and the E-SAT System. However, despite
several months of negotiations, no agreement has been entered into. No assurance
can be given that DBSI will be able to purchase a controlling interest in E-SAT
or enter into a leasing or other arrangement with E-SAT on terms deemed
acceptable to us. Further, any proposed acquisition of a controlling interest in
E-SAT will be subject to FCC approval.
In the event that DBSI cannot acquire a controlling interest in E-SAT or
otherwise acquire the rights to utilize E-SAT's FCC license, DBSI will continue
to have a minority interest in E-SAT and be subjected to the limitations
inherent in such a position. Furthermore, DBSI's percentage of ownership in
E-SAT may be subject to dilution if DBSI cannot meet E-SAT's future funding
requirements. The total capital requirements for the E-SAT System's proposed
data transmission system, including the anticipated six satellites and other
start up costs, is estimated to be approximately $111 million. For the years
ended December 31, 1998 and 1997, DBSI funded E-SAT expenses of $407,292 and
$385,671, respectively. These amounts represent greater than 20% of E-SAT's
total expenditures for those years and includes advances made by us on behalf of
EchoStar. No assurance can be given that DBSI will have sufficient resources to
meet the financial requirements of E-SAT to maintain DBSI's current equity
interest in E-SAT.
In addition, if an agreement with EchoStar is not achieved, DBSI's
business plans set forth in this Prospectus may have to be curtailed or
suspended. There is also the possibility that DBSI would be unwilling or unable
to proceed with DBSI's development plans as currently described below. This
might result in DBSI's inability to proceed with DBSI's current satellite
construction and launch agreements. Any cancellation or significant revision of
these contracts could result in substantial costs to DBSI.
Little LEO Satellite Technology Development
The technology of using Little LEO satellites has been in existence for
over 40 years and has been used extensively in weather satellite applications
worldwide. However, the commercial use of Little LEO satellites is in its
development stage.
<PAGE>20
GEMS, a wholly-owned subsidiary of DBSI, was formed in December 1994 to
develop commercial service applications utilizing Little LEO satellite
technology. A previous company, JPS Systems, Inc. ("JPS") had been working on
this technology and, in 1995, the business of JPS was consolidated with GEMS and
JPS was dissolved as a corporate entity. During the two years prior to
consolidation, JPS developed the basic technology of collecting and transmitting
data remotely by Little LEO satellites. JPS conducted a proof-of-concept trial
for Pacific Gas & Electric Co. in California, in which data from several natural
gas wellhead meters was collected and transmitted by Little LEO satellites to
the customer. This trial was completed in April 1995 and led to the development
of a plan for GEMS to provide automatic meter reading solutions for
hard-to-access meters owned by utility companies as well as collection and
transmission of data from other fixed devices. This plan is intended to provide
utility and petroleum industries worldwide with remote data collection and
transmission capabilities utilizing Little LEO satellite technology.
Subsequently, a series of proof-of-concept demonstrations were conducted in
conjunction with ABB Power T&D Company, Inc. ("ABB"), in which prototype
satellite radios (RTUS) and electric meters were installed at 34 electric
utilities in the continental U.S. and two international utility companies in
South America and Canada. Typical trial demonstrations lasted for a 30 day
period, and the demonstrations were completed in late 1997. These early trials
utilized the Argos System, a satellite location and data collection system
operated and controlled by the Centre National d'Etudes Spatiales (France) and
the National Oceanic and Atmospheric Administration ("NOAA").
We also had an agreement with North American CLS, Inc. ("NACLS"), which
provided access to a limited amount of Little LEO satellite capacity for trials
of DBSI's AMR applications utilizing the Argos System. In 1996, GEMS received a
purchase order for Little LEO transmitters that could be used with the Argos
System as part of its overall development of a satellite transmitter integrated
with an electronic utility meter from ABB. DBSI's agreement for use of the Argos
System expired on December 31, 1997, and in March 1998, NOAA established new
criteria which limits future commercial use of the Argos System and effectively
prohibits us from using the Argos System. The expiration of the NACLS agreement
and the future limits on use of the Argos System have caused GEMS and ABB to
suspend the purchase order. Although DBSI and ABB intend to pursue the use of
the LEO satellite technology for use in ABB's meters, no assurances can be given
that the purchase order will be reinstated or whether the terms of any future
purchase order will be acceptable to DBSI.
The E-SAT System
DBSI is focusing its technology development on the E-SAT System. The
E-SAT System will consist of the following: six Little LEO satellites; a Mission
Control Center (to manage data flow); a Satellite Control Center (to handle
telemetry, tracking and control of the satellites); an Earth Station (serving as
the network control center); a Ground Support Network (to distribute data to
customers); and numerous RTU's (transmitting data to the satellites). The E-SAT
System has been designed to provide low cost messaging services worldwide for
use primarily by industrial/commercial customers. The E- SAT System is
specifically suited for the projected service markets and is intended to provide
low-cost and reliable service for those markets.
The primary service of collection and transmission of data from fixed
devices such as meters located in remote locations is accomplished by periodic
readings of utility company meters over a wide geographical region by E-SAT's
satellites. An RTU, integrated with the utility meter, will electronically
transmit the relevant data in digital form to E-SAT's satellite which stores the
collected data to be forwarded to the Earth Station. The Mission Control Center
will provide overall operational control of the collection and retrieval of
data, and will interface with the Earth Station and the Satellite Control Center
which will provide overall operational control of the satellites. Based on the
current design, E- SAT estimates that these satellites will operate for a period
of five years. Although metropolitan and urban or suburban areas can benefit
from the E-SAT System, the E-SAT System will be especially
<PAGE>21
advantageous in providing meter reading functions in remote, rural and low
population density areas, eliminating the costly need of routine visits by
utility personnel. Similar advantages could be realized with numerous vending
machines, residential propane gas tanks or remote environmental monitoring.
The E-SAT System will be transmitting non-voice data in short data
transmissions and will not be designed for transmitting data that requires
real-time or near real-time communications. As a result, the System's
infrastructure is expected to be simpler and less costly than those Little LEO
systems offering real-time data information services. The E-SAT System will also
incorporate emergency back-up systems.
CDMA/DSSS Technology
Due to the continuing growth of electrical and electronic equipment,
such as personal paging systems that incorporate wireless communication
technology, the radio frequency spectrum has become crowded or "noisy".
Commercial applications demand the communication system transmit data reliably
and accurately. This objective is harder to achieve with conventional solutions
because of numerous wireless systems creating more noise in the frequency bands
of operation. To minimize the impact of noise and interference on the data being
transmitted, the E-SAT System will use Code Division Multiple Access/Direct
Sequence Spread Spectrum ("CDMA/DSSS") modulation techniques. CDMA/DSSS will
enable the E-SAT System to function well in a noisy radio frequency environment
and achieve its particular data transmission objectives.
With most conventional modulation techniques, energy concentration is
maximized for a narrowband transmission channel. While narrowband transmission
normally uses a single carrier channel, the transmitted signal must be strong
enough to be recognized over the background noise. Therefore, RTU's operating in
a narrowband channel must have relatively high power capability. CDMA/DSSS
spreads the data signal over the entire band of operations reducing the power
required by an E-SAT RTU to transmit data to a satellite. E-SAT is presently the
only commercial Little LEO system to implement CDMA/DSSS in its communications
design. DBSI believes CDMA/DSSS is a strategic advantage over competing systems
to effectively transmit data messages.
In operation, the E-SAT System would assign each RTU with an individual
and a group identification number. All individual and group transmissions
between the RTU and the LEO satellite would be managed by the Mission Center
based on a predetermined schedule. The receiver on each E- SAT satellite will
store the incoming code stream over the entire frequency band of operation and
forward that code stream to the Earth Station as it passes over. Signal
processing performed at the Mission Center regenerates the original RTU data
messages by digitally screening out unwanted background noise signals. This
schedule would be synchronized with the Satellite Control Center so that each
satellite can download collected data and receive new instructions as it passes
over the Earth Station. The total time of connectivity scheduled between a group
of RTU's and a satellite will be optimized by the number of RTU's in any
particular group.
Satellite Constellation
The initial constellation to be launched in the E-SAT System will
consist of six satellites. DBSI's plans are to initially launch three satellites
on a single launch vehicle in a circular, near polar orbit at an altitude of
approximately 550 miles and a 99 degree inclination angle. At this altitude,
there will be fourteen revolutions per satellite per day. After the initial
three satellites are deployed and become operational, and the system is
established, an additional three satellites will be deployed in a second near
polar orbital plane within FCC guidelines. The Little LEO satellites will be
almost constantly illuminated by the sun, thereby significantly reducing battery
usage. Supplemental battery power will be required only for power load leveling,
occasional brief eclipse periods and contingencies.
<PAGE>22
In August 1998, DBSI and Matra Marconi Space France s.a. ("MMS") entered
into a non-binding memorandum of understanding to engage and appoint MMS as
prime contractor for the design, construction, delivery and launch support
services of six Little LEO satellites. Further, in August 1998, the Company and
SAIT Radio Holland SA ("SAIT") entered into a non-binding letter of intent to
explore an arrangement dealing with SAIT as the main contractor for the
engineering, development and provision of hardware and software for E-SAT's
RTU's. In the latter part of September 1998, DBSI and MMS mutually agreed to
terminate their non-binding memorandum of understanding. DBSI engaged SAIT to
perform studies on antennas for the proposed RTU, develop and test RTU
prototypes, and assist in RTU design in anticipation of manufacturing RTU's for
us. The letter of intent with SAIT expired under its terms on November 23, 1998.
No assurance can be given that DBSI and SAIT will enter into a contract to
manufacture the RTU.
On December 15, 1998, DBSI and Alcatel Space Industries ("Alcatel")
entered into a Memorandum of Understanding ("MOU") and an Authority to Proceed
("ATP") pursuant to which Alcatel would become the prime contractor for the
design, construction and delivery into orbit of the E- SAT System satellites.
DBSI and Alcatel are currently negotiating a definitive construction agreement.
Upon signing the MOU and ATP, DBSI paid $1,000,000 to Alcatel to commence
project work. DBSI made two additional payments of $500,000 each to Alcatel in
January and February of 1999. The MOU expired on March 15, 1999, while the ATP
was extended to and completed on April 15, 1999. At this time, both companies
are continuing to negotiate a final contract. Although DBSI believes a
definitive agreement will be reached with Alcatel, there can be no assurance
that such will be the case. If no final agreement is reached, DBSI would have to
find some other company to be the prime contractor for the E- SAT System.
On March 31, 1999, DBSI entered into a contract with Surrey Satellite
Technology Ltd. of the U.K. ("SSTL") to design and construct the six satellites
for the E-SAT System. The construction contract includes SSTL providing
designing, developing, manufacturing, and testing the E-SAT microsatellites. The
contract contains provisions whereby SSTL will provide integration support with
other satellite sub-systems and will provide launch and early operation support
once the satellites are placed into orbit. The contract has a term of two (2)
years.
DBSI previously entered into a launch reservation agreement with
Eurockot Launch Services GmbH ("Eurockot"). On March 31, 1999, DBSI entered into
a formal launch service agreement with Eurockot. The first three satellites,
when constructed, are expected to be launched on a single Eurockot launch
vehicle. Under the terms of the launch service agreement, Eurockot reserved for
E-SAT a launch opportunity on a launch vehicle at the Plesetzk, Russia launch
site for two dedicated, triple satellite launches.
Investment in Seimac Limited
In November 1995, DBSI purchased a 20% equity ownership interest in
Seimac Limited ("Seimac"), a privately-held Canadian satellite radio design and
manufacturing company. On April 30, 1998, DBSI sold its interest in Seimac for
$200,000 in cash and cancellation of $51,417 of debt owed to Seimac.
FCC Regulations
All commercial non-voice, non-geostationary mobile-satellite service
"NVNG-MSS" or "Little LEO" such as E-SAT's satellites in the U.S. are subject to
the regulatory authority of the FCC. Little LEO operators must obtain
authorization from the FCC to launch and operate their satellites and to provide
permitted services in assigned spectrum segments.
<PAGE>23
In November 1994, E-SAT filed an application with the FCC for a license
to develop a commercial Little LEO satellite system for data collection and
transmission. E-SAT was one of five applicants requesting approval for
essentially the same frequency band but proposing a different use. The five
applicants mutually agreed upon a spectrum sharing plan (the "Joint Proposal")
which requires the applicants to share an uplink and downlink frequency band
with other satellite systems. In October 1997, the FCC released a Report and
Order which concluded that with use of appropriate transmission techniques,
proper system coordination, the time-sharing of frequencies and the adoption of
the Joint Proposal, there was sufficient spectrum to license all five
applicants. Thereafter, E-SAT filed an amendment conforming its application to
the guidelines adopted by the FCC Report and Order which, ultimately, resulted
in the FCC's approval of E-SAT's application.
On March 31, 1998, the FCC approved E-SAT's application for a Little LEO
satellite license. Under the license, E-SAT is authorized to launch and operate
six Little LEO satellites to provide a two-way, low-cost messaging service in
the U.S. in the 148-148.905 MHz for service and feeder uplinks, and the
137.0725-137.9725 MHz frequency band for service and feeder downlinks. E-SAT
will operate in the other 355 kHz of the 148-148.905 MHz band on a co-frequency
basis with LEO One, Final Analysis and ORBCOMM. In the downlink direction, E-SAT
will operate in the band 137.0725-137.9275 MHz co-frequency with NOAA
satellites, ORBCOMM and Final Analysis. E-SAT is obligated to coordinate with
the other U.S. Little LEO licensees and NOAA, coordinate internationally and
engage in consultations as required by Article 14 of the INTELSAT Agreement and
Article 8 of the Inmarsat Convention.
In E-SAT's application to the FCC for a license to operate the E-SAT
System, EchoStar represented that it has the financial ability to meet the
estimated cost of construction, launch and first year operation of the first two
satellites of the E-SAT System. Pursuant to E-SAT's license, unless extended by
the FCC for good cause, E-SAT must commence construction of the first two
satellites by March 1999, complete construction by March 2002 and launch by
September 2002. The remaining four satellites must commence construction by
March 2001, complete construction by March 2004 and launch by March 2004. DBSI
believes that the contract with Surrey Satellite Technology, Ltd. represents the
commencement of satellite construction and satisfies the initial FCC requirement
that satellite construction commence on or before March 31, 1999. By letter
dated April 18, 1999, DBSI's representative notified the FCC of this
achievement. To comply with the requirements of the FCC license, DBSI is
currently negotiating with Alcatel for the design and development of the E-SAT
satellites, however, no contract has yet been entered into. (See "Satellite
Constellation".) In the event E- SAT fails to meet these and other specified
conditions, absent any modification of terms by the FCC, E- SAT could jeopardize
its license with the FCC.
International Regulations
The E-SAT System operates in frequencies that are allocated on an
international basis under the authority of the International Telecommunications
Union ("ITU"). The U.S., on behalf of various Little LEO service providers,
pursued international allocations of additional frequencies for use by Little
LEO systems. In addition to cooperation through the FCC, E-SAT will be required
to engage in international coordination with respect to other satellite systems
under the auspices of the ITU. The coordination process is initiated by the
filing of technical information about each system by the government of the
country in which the system is seeking a space segment license. For E-SAT, that
country is the United States of America. Through the filing of this information,
other counties have the opportunity to identify whether they seek to coordinate
their systems with the newly filed system. During coordination, some systems may
be required to revise their operating parameters or geographical coverage. In
E-SAT's case, two filings cover its system. One filing was originally made at
the request of another U.S. system which had certain transmission parameters
similar to E-SAT's. The second filing included the specific characteristics of
E-SAT, along with those of the other applicants in the FCC's second round Little
LEO
<PAGE>24
licensing proceeding. The first filing has progressed in the ITU process through
successful coordination with a number of countries. When coordination is
successfully completed with all countries that requested coordination, the
system is "notified" to the ITU and is placed in the Master Register of
satellite systems. The FCC has advised E-SAT that it may use the earlier filing,
if it chooses, or may use the later filing. E-SAT is working with the FCC to
complete the necessary coordination as well as to update both the first and
second ITU filings with the modified characteristics. While it is not
anticipated that the filing of modified characteristics will result in
additional technical coordination beyond those already completed or requested,
there can be no assurance that the E-SAT System will successfully complete the
international coordination process, most countries seek to accommodate satellite
systems of other countries and historically, virtually all coordination requests
are ultimately successful. However, any delays in obtaining international
satellite coordination would result in delays in offering messaging services
outside the U.S. The United States permits its licensed systems to be
implemented even when the coordination process has not been completed. In
addition, E-SAT must receive operational authority called "landing rights" from
each of the foreign countries in which it proposes to provide services. DBSI
intends to utilize international distributors or licensees of each country to
obtain such authority. In the event DBSI is unable to obtain authority to offer
its service in a particular country or region, this may have a material adverse
affect on its business plans and operations.
Potential Markets
Our goal is to provide low cost data messaging satellite services
worldwide using the Little LEO satellite technology. DBSI believes that E-SAT's
two-way, low cost data messaging services will reduce costs for customers by
providing a more efficient and reliable retrieval of data because the E-SAT
System (i) has a lower infrastructure cost and (ii) transmits data using
CDMA/DSSS technology which provides greater capacity than channelized systems
and allows transmissions within the background noise in the radio frequency
environment. DBSI expects to be able to offer its data messaging services at
cost lower than manual retrieval systems or other Little LEO satellite operators
who may have much greater capital cost structures.
We envision a customer base comprised of investor owned utilities, rural
electric membership co-operatives, municipalities and other publicly owned
utilities, electric holding companies, meter data management agents, meter
manufacturers, local public works agencies and others that have dispersed
operations and may require aggregate billing services. It is the rural and
hard-to-access meter segment that DBSI will initially focus its marketing
efforts. DBSI intends to develop communication products to integrate into
metering equipment and will provide an associated automatic reading data service
to include remote data collection, validation, formatting and electronic
delivery to the customer.
Utility Meters. The utilities industry is faced with increasing
competition, strict regulation of power generation facilities, and an increasing
cost of operations. DBSI believes that the E-SAT System will provide a cost
effective two-way communication path to hard-to-access gas and electric meters.
There are over 150 million electric meters in the U.S. and the 103rd edition of
the Directory of Electric Power Producers lists 198 investor-owned electric
utilities, 1,818 electric municipalities, 922 rural cooperatives and numerous
holding, governmental and public works, agencies. Three principal objectives
used by utilities when evaluating automatic meter reading services include
proficiency to reduce meter reading expense, ability to address hard-to-read
locations, and contribution to improving customer service. DBSI believes its
planned data messaging services will address these needs.
Natural Gas Wells. The natural gas industry is regulated by the U.S.
Department of Transportation. Many utilities have had to divest its pipeline and
wellhead assets. There are 111 investor owned natural gas companies operating
throughout the U.S. (Pennwell Publications). It is estimated that more than
285,000 well heads exist throughout the U.S. There is over 300,000 miles of
interstate pipeline connected to a 1.2 million-mile natural gas gathering and
distribution network serving over 160
<PAGE>25
million gas service meters throughout the U.S. Collecting data from these fixed
locations is another service DBSI intends to provide.
Environmental and Agriculture. Environmental monitoring is becoming
increasingly important as foreign, U.S. federal, state, and local governments
are closely monitoring air, water, and waste disposal sites. The waste disposal
industry, faced with an increased public awareness of pollution problems, must
monitor the quality of its waste disposal efforts through readings of air
quality and water quality, temperature, and flow-rates from multiple points. In
addition, DBSI believes that existing irrigation systems for agricultural and
land management applications will benefit significantly from E- SAT System's
monitoring and remote control services.
Vending Machines. The E-SAT System is also designed to remotely
communicate with stand-alone equipment, such as vending machines. This remote
communications capability is expected to increase the efficiency of the
personnel servicing the vending machines, and has the potential to increase
sales for those companies. For example, a soda distributor tracks the contents
of each soda vending machine, thus allowing the soda truck driver to know
exactly which kind and quantity of soda to bring to refill the vending machine.
As of 1997, in the U.S. there were approximately 6.9 million vending machines
owned and operated by independent vending machine companies (Vending Time Census
of Industry Issue 1998).
Competition
Competition in the communications industry is characterized by rapid
change with new technologies and entrants vying for a currently increasing
customer base. Industry participants are forming alliances and integrating
networks to provide a broad range of services to the marketplace. The
communications capabilities provided by the Little LEO industry will create a
low-cost source of global mobile data services. In addition to E-SAT, there are
three other FCC licensed commercial Little LEO satellite operators (Orbcomm,
LeoOne, and Final Analysis). A fifth Little LEO operator is Volunteers In
Technical Assistance ("VITA"), a non-profit organization established to transmit
humanitarian/emergency data and is not deemed to be a competitor to DBSI.
Our competitors are all attempting to serve multiple markets such as
cargo and vehicle mobile asset tracking, monitoring and remote control personal
communications services, emergency services and transaction processing. By
choosing to address markets requiring near real time inter-connectivity, DBSI's
competitors (excluding VITA) will launch a constellation of between 26 to 48
Little LEO satellites and will have many earth stations located throughout the
U.S. and the world. These Little LEO systems are much more costly and complex
compared to the E-SAT System. DBSI believes the RTU's designed for other Little
LEO operators are more expensive and require more power to operate than E- SAT's
RTU's. DBSI believes that the lower uplink power requirement for an E-SAT RTU
will give E- SAT System a cost competitive advantage when targeting fixed device
applications.
A number of competitors are currently developing proposals to implement
AMR services at electric and natural gas utilities throughout the U.S. Other
proposed AMR technology solutions include terrestrial wireless radio
technologies such as Specialized Mobile Radio, Cellular and Multiple Address
Service licenses, unlicenced 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 densely populated urban areas, it may not be cost effective to
implement in rural and hard-to-access areas; and it is in these niche market
locations that DBSI intends to compete effectively by utilizing E-SAT System's
satellite technology.
<PAGE>26
Employees
As of March 31, 1999, DBSI had nine full-time employees. The Company
considers its relationship with its employees to be good.
PROPERTY
DBSI and its subsidiaries have leased 3,287 square feet at a monthly
rate of $8,574, for their principal offices at 100 Shoreline Highway, Suite
190A, Mill Valley, California, on a three year lease which expires on March 1,
2000.
MANAGEMENT
Directors and Executive Officers of DBSI
The present directors, executive officers, and key employees of DBSI,
their ages, positions held in DBSI, and duration as such, are as follows:
<TABLE>
<S> <C> <C> <C>
Name Position Age Period
- ----------------------- ------------------------------------ --------- --------------------------
Fred W. Thompson Chairman of the Board, President, 56 December 1992 - present
Chief Executive Officer, and
Chief Financial Officer November 1993 - present
- ----------------------- ------------------------------------ --------- --------------------------
Michael T. Schieber Director, Secretary 59 December 1992 - present
- ----------------------- ------------------------------------ --------- --------------------------
E. A. James Peretti Director, Chief Operating Officer 56 February 1996 - present
- ----------------------- ------------------------------------ --------- --------------------------
H. Tate Holt Director 47 February 1996 - present
- ----------------------- ------------------------------------ --------- --------------------------
Jerome W. Carlson Director 62 May 1997 - present
- ----------------------- ------------------------------------ --------- --------------------------
Jessie J. Knight, Jr. Director 48 February 1999 - present
Gregory T. Leger Executive Vice President March 1998 - present
Engineering
43
- ----------------------- ------------------------------------ --------- --------------------------
Frederick R. Vice President, Business 37 August 1995 - present
Skillman, Jr. Development
- ----------------------- ------------------------------------ --------- --------------------------
</TABLE>
DBSI adopted staggered terms for its Board of Directors at its 1996
Annual Stockholders Meeting. Messrs. Thompson, Peretti and Knight will serve
until the 1999 annual meeting of stockholders or until their successors have
been elected; Mr. Carlson will serve until the 2000 annual meeting of
stockholders or until his successor has been elected; and Messrs. Schieber and
Holt will serve until the 2001 annual meeting of stockholders or until their
successors have been elected. The Board of Directors
<PAGE>27
does not have a standard arrangement for compensation, but has in past received,
stock options as compensation.
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.
Fred W. Thompson, serves as Chairman of the Board, President, and CEO of
the Company. 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 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. 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.
E. A. James Peretti, Director, has served as Chief Operating Officer
since August 1998, and was appointed in February 1996, as 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. Mr. Holt
holds an AB from Indiana University.
Jerome W. Carlson, Director, appointed in May 1997, is currently President
of Raljer, Inc., management consulting firm, and has held that position since
January 1995. Previously, from 1984 to 1995, Mr. Carlson was the Chief Financial
Officer, Vice President of Finance and Corporate Secretary for Triad Systems
Corporation in Livermore, California. Mr. Carlson has over twenty years
experience
<PAGE>28
in both finance and general management positions with Hewlett Packard. Since
1995 he has assisted a number of businesses in developing and achieving certain
strategic and tactical goals in their industries. Mr. Carlson is a director of
Valley Community Bank and Tri-Valley Business Council, as well as director and
advisor for several private companies. He holds a BS degree from the University
of California at Davis and an MBA from the Stanford Graduate School of Business.
Jessie J. Knight, Jr., Director, appointed in February 1999, was a
Commissioner of the California Public Utilities Commission from 1993 through
December 1998. Appointed by former Governor Peter Wilson, he was one of five
individuals responsible for economic and regulatory oversight of California's
$52 billion telecommunications, utility, trucking and rail industries. Before
his appointment to the Commission, he was Executive Vice-President of the San
Francisco Chamber of Commerce, responsible for international operations,
economic development and attracting businesses to San Francisco. He also served
as Vice-President, Marketing for the San Francisco Newspaper Agency, a $400
million publishing operation encompassing the San Francisco Chronicle and the
San Francisco Examiner. Mr. Knight is a director of Blue Shield of California
and has been nominated to serve on the board of directors of Avista, Inc. Mr.
Knight holds a BA degree from St. Louis University and an MBA from the
University of Wisconsin.
Gregory T. Leger, Executive Vice President Engineering, joined the
Company in March 1998. Mr. Leger is responsible for the design and construction
of the E-SAT System. Mr. Leger has over nine years' experience in engineering
systems, management, business planning, marketing and proposal preparation with
strong analytical and negotiating skills. Most recently and for the past five
years, Mr. Leger was employed by Seimac Limited, as its Product Development
Manager, where he combined business development activities with technical and
project leadership to provide customers with solutions encompassing electronics
data telemetry, software and packaging. Mr. Leger received his BS degree in
Physics at Dalhousie University, Canada, his MS degree in Oceanography at
Dalhousie University, and a degree in Master Space Systems Engineering at
Technical University of Delft, Netherlands.
Frederick R. Skillman, Jr., Vice President Business Development, joined
the Company in August 1995. Mr. Skillman manages the business case development
and oversees the marketing and the sales activities for the Company. Mr.
Skillman has been working in the utility industry for 14 years, with extensive
utility operating experience, contract administration, product development,
project management and direct line supervision. Prior to joining the Company,
Mr. Skillman worked for Pacific Gas & Electric ("PG&E") for eleven years. During
his tenure at PG&E, Mr. Skillman was an electrical engineer for the initial AMR
system installed for PG&E in Marin County, California. Mr. Skillman holds a BS
degree in Electrical Engineering from California Polytechnical State University,
and an MBA degree from the University of San Francisco.
Committees of the Board
The Board has an audit committee consisting of Messrs. Schieber, Carlson,
and Peretti, a nominating committee consisting of Messrs. Holt, Carlson and
Thompson, and a compensation committee consisting of Messrs. Schieber and
Carlson.
The primary functions of the audit committee is to review the scope and
results of audits by the Company's independent auditors, the Company's internal
accounting controls, non-audit services performed by the independent accountants
and the cost of accounting services.
The nominating committee assists in the process of officer and director
nominations.
The compensation committee administers the Company's various stock
option plans and approves compensation, remuneration and incentive arrangements
for officers of the Company.
<PAGE>29
Family Relationships
There are no family relationships between any director, executive
officer.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation of DBSI's Chief Executive Officer and each employee of DBSI or its
subsidiaries who earned in excess of $100,000 for the year ended December 31,
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Long-Term
Annual Compensation Compensation
Other Securities
Name and Annual Underlying All Other
Principal Position Year Salary Bonus Compensation(1) Options Compensation
- --------------------- ------ ---------------- -------- ---------------- -------------- ---------------
Fred W. Thompson 1998 $ 180,000 $20,000 $ 8,005 - 0 - $235,691(2)
Chief Executive 1997 $ 180,000(3) - 0 - $ 6,705 185,000
Officer 1996 $ 180,000(4) - 0 - $ 4,245 312,500
E.A. James Peretti 1998 $ 155,000 - 0 - $ 2,576 - 0 -
Chief Operating 1997 $ 155,000 - 0 - $ 3,732 150,000
Officer 1996 $ 155,000 - 0 - $ 971 375,000
Randall Smith 1998 $ 72,917 - 0 - $ 1,798 - 0 - $ 52,083 (5)
Former Executive VP 1997 $ 125,000 - 0 - $ 2,385 87,500
GEMS 1996 $ 125,000 - 0 - $ 2,216 125,500
Gregory T. Leger 1998 $ 93,230 $20,000 $ 1,914 125,000
Executive VP
Frederick R. Skillman, 1998 $ 110,000 - 0 - $ 2,512 - 0 -
Jr., Vice-President
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists entirely of payment of insurance premiums.
(2) Represents $27,691 of pay in lieu of vacation and $208,000 of compensation
deferred in 1996 and 1997.
(3) $80,000 paid in cash, $100,000 deferred pursuant to his employment
agreement.
(4) $72,000 paid in cash, $108,000 deferred pursuant to his employment
agreement. (5) In July 1998, DBSI agreed to a severance package with Mr.
Smith consisting of $125,000 in cash payments to be made through July 1999
(of which $52,083 was paid in 1998) and the immediate vesting of all of Mr.
Smith's unvested stock options.
Employment Agreements
Mr. Thompson entered into an employment agreement with DBSI 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
DBSI's Common Stock. In October 1998, DBSI paid Mr. Thompson the amount of
$208,000 related to his previously deferred compensation through December 31,
1997.
<PAGE>30
DBSI maintains 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.
DBSI also entered into an employment contract with E.A. James Peretti,
Chief Operating Officer of DBSI and CEO of GEMS. Mr. Peretti's agreement
includes an annual salary of $155,000 and non-qualified stock options to
purchase 375,000 shares of Common Stock.
Effective March 1, 1998, DBSI entered into a three-year employment
agreement with Mr. Gregory T. Leger to serve as Executive Vice President
Engineering. Under the employment agreement, Mr. Leger's annual salary is
$120,000. He also received $20,000 upon the execution of the agreement and
received an additional $20,000 in March 1999, as a bonus. Mr. Leger also
received an option to purchase 125,000 shares of DBSI Common Stock subject to
vesting requirements.
Stock Option Plans
DBSI has established the 1998 Stock Option Plan (the "1998 Plan") which
was approved by the stockholders in May 1998 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 DBSI. The 1998 Plan provides for the grant of
up to 500,000 non-statutory and incentive stock options. Under the 1998 Plan,
officers, directors, consultants and employees of DBSI will be eligible for
participation. The exercise price of any incentive stock option granted under
the 1998 Plan may not be less than 100% of the fair market value of the Common
Stock of DBSI on the date of grant. The aggregate Fair Market Value (determined
as of the Grant Date) of the Stock for which Incentive Stock Options may first
become exercisable by Optionee during any calendar year under this Plan,
together with that of Stock subject to Incentive Stock Options first exercisable
by such Optionee under any other plan of DBSI or any Subsidiary, cannot exceed
$100,000. Shares subject to options under the 1998 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 1998 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 1998 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 only so long as the optionee remains employed by
DBSI. No option is transferable by the optionee other than by will or the laws
of descent and distribution. As of March 31, 1999, options to acquire 150,000
shares of Common Stock were outstanding.
DBSI has established a 1996 Stock Option Plan (the "1996 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 DBSI. The 1996 Plan
provided for the grant of up to 1,650,000 non-statutory and incentive stock
options of which 860,236 were outstanding as of March 31, 1999. Under the 1996
Plan, officers, directors, consultants and employees of DBSI are eligible for
participation. The exercise price of any incentive stock option granted under
the 1996 Plan may not be less than 100% of the fair market value of the Common
Stock of DBSI on the date of grant. The fair market value for which an optionee
may be granted incentive stock options in any calendar year may not exceed
$100,000. Shares subject to options under the 1996 Plan may be purchased for
cash. Unless otherwise provided by the Board, an option granted under the 1996
Plan is exercisable for a term of ten years (or for a shorter period up to ten
years). The 1996 Plan is administered by the Board of Directors and its
Compensation Committee, which has discretion to determine optionees, the number
of shares to be covered by each option, the exercise schedule, and other terms
of the options. The 1996 Plan may be amended, suspended, or terminated by the
Board, but no such action may impair rights under a previously granted option.
Each option is exercisable only so long as the optionee remains employed by
DBSI. No option is transferable by the optionee other than by will or the laws
of descent and distribution.
<PAGE>31
DBSI also has established three stock option plans to award certain
employees, directors, and consultants with the opportunity to purchase DBSI's
Common Stock. Under DBSI's 1993 Incentive Stock Option Plan ("1993 ISO Plan")
options to purchase up to 69,644 shares of Common Stock were issued to eligible
employees. Under the Non-Qualified Stock Option Plan for Non-Employee Directors
("Director's Plan") options to purchase up to 48,750 shares of Common Stock were
granted to non-employee directors. Under the Non-Qualified Stock Option Plan for
Consultants ("Consultant's Plan") options to purchase up to 14,625 shares of
Common Stock were granted to certain consultants. As of March 31, 1999, options
to acquire 24,875, 42,500, and 14,625 shares of Common Stock were outstanding
under the 1993 ISO Plan, Director's Plan and Consultant's Plan, respectively.
OPTION GRANTS IN THE YEAR ENDED DECEMBER 31, 1998
INDIVIDUAL GRANTS
<TABLE>
<S> <C> <C> <C> <C>
Number of % of Total Options
Securities Granted to
Underlying Employees in Fiscal Exercise or Base
Name Options Granted Year 1998 Price ($/SHARE) Expiration
1998 Date
- --------------------- ------------------- --------------------- --------------------- ------------
Gregory T. Leger, 125,000 100% $.53 3/1/08
Executive Vice-President
-------------------------------------------------------------------------------------------------
FISCAL YEAR-END OPTION VALUE
</TABLE>
<TABLE>
<S> <C> <C>
Number of Securities Value(s) of Unexercised In-the-
Underlying Unexercised Money Options/SARs at FY
Options/SARs at FY End (#) End ($) *
Exercisable/Unexercisable Exercisable/Unexercisable
Name Options at December 31, 1998 Options at December 31, 1998
- -------------------------------- ------------------------------- --------------------------------
Fred W. Thompson, 312,612 / 204,388 $1,328,601/ $868,649
President, CEO
E. A. James Peretti, 350,000 / 175,000 $1,487,500 / $743,750
CEO GEMS
Gregory T. Leger 65,000 / 60,000 $276,250 / $255,000
Exec. VP
Frederick R. Skillman, Jr. 50,000 / 100,000 $212,500 / $425,000
VP
- -------------------------------------------------------------------------------------------
</TABLE>
* The value of unexercised in-the-money stock options is based on a per share
price of $4.25 as quoted on the OTC Bulletin Board on December 31, 1998.
<PAGE>32
OPTION REPRICING SCHEDULE
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Length of
Number of Exercise Original
Securities Market Price Price at Optional Term
Underlying of Stock at Time of New Remaining at
Effective Date Options Time of Repricing Exercise Date of
Name of Reprice Repriced (#) Repricing ($) ($) Price ($) Repricing
- ---------------------- ------------------- -------------- -------------- ------------ ----------- -----------------
Fred Thompson December 31, 1997 4,375 $ .53 $1.58 $ .58 1 year
President December 31, 1997 3,750 .53 1.58 .58 1 year
December 31, 1997 4,500 .53 1.58 .58 2 years
December 31, 1997 6,875 .53 1.58 .58 3 years
December 31, 1997 312,500 .53 1.44 .53 8 years
February 13, 1997 4,375 1.44 3.20 1.58 2 years
February 13, 1997 3,750 1.44 3.20 1.58 2 years
February 13, 1997 4,500 1.44 2.40 1.58 3 years
February 13, 1997 6,875 1.44 6.00 1.58 4 years
February 13, 1997 312,500 1.44 5.20 1.44 9 years
- ---------------------- ------------------- -------------- -------------- ------------ ----------- -----------------
Michael Schieber February 23, 1998 37,500 .60 1.00 .60 9 years
Director February 13, 1997 6,250 1.44 2.80 1.44 7 years
February 13, 1997 13,750 1.44 2.00 1.44 8 years
February 13, 1997 6,250 1.44 5.60 1.44 8 years
February 13, 1997 37,500 1.44 4.75 1.44 9 years
February 13, 1997 12,534 1.44 5.50 1.44 9 years
- ---------------------- ------------------- -------------- -------------- ------------ ----------- -----------------
James Peretti December 31, 1997 375,000 .53 1.44 .53 8 years
Chief Operating February 13, 1997 375,000 1.44 5.20 1.44 9 years
Officer
- ---------------------- ------------------- -------------- -------------- ------------ ----------- -----------------
Tate Holt February 23, 1998 37,500 .60 1.00 .60 9 years
Director February 13, 1997 7,808 1.44 5.50 1.44 9 years
February 13, 1997 75,000 1.44 4.75 1.44 9 years
- ---------------------- ------------------- -------------- -------------- ------------ ----------- -----------------
Jerome Carlson February 23, 1998 75,000 .60 1.00 .60 9 years
Director
- ---------------------- ------------------- -------------- -------------- ------------ ----------- -----------------
</TABLE>
Report on Repricing of Stock Options
During calendar 1997 there was a substantial decrease in the market
price of the Company's Common Stock due, in part, to regulatory delays in the
approval of E-SAT's Little LEO satellite license application. As a result, the
Compensation Committee repriced stock options in February and December of 1997.
The repricing was done in an effort to retain the Company's quality employees
and directors who had lost a significant portion of their financial interest in
the Company because their options were "out of the money." In February 1997, the
Company completed the first stock option repricing program for the Company's
directors and employees in which stock options for 1,119,646 shares of Common
Stock, originally issued with exercise prices ranging from $1.60 to $6.00 per
share, were reissued with exercise prices ranging from $1.44 to $1.58 per share,
which approximated the fair market value on the date of repricing. In December
1997, DBSI completed a second stock option repricing program for DBSI's
employees (including employee directors) in which stock options for
approximately 1,135,726 shares of Common Stock, with exercise prices ranging
from $1.44 to $1.58, were reissued with exercise
<PAGE>33
prices ranging from $0.53 to $0.58 per share, which approximated the fair market
value on the date of repricing.
In February 1998, options to acquire 150,000 shares of Common Stock to
non-employee directors were repriced from their original exercise price of $1.00
per share to $.60 per share which approximated the fair market value on the date
of repricing. Directors maintained their original vesting schedules.
Stock options are intended to provide incentives to DBSI's directors,
officers and employees. The Board of Directors believes that such equity
incentives are a significant factor in DBSI's ability to attract, retain and
motivate directors, officers and employees who are critical to DBSI's long-term
success. In repricing the stock options, the Board of Directors considered the
fact that directors are not compensated for their services other than through
stock options. Further, many of DBSI's officers and employees are not being
compensated in accordance with industry standards, and have had to either defer
their salary or were delayed in receiving their salary at times during the
current and prior calendar year due to the poor financial condition of DBSI. The
Board of Directors believes that the repricing of the options is a form of
incentive to the directors, officers, and employees of DBSI and believes that it
is in the best interests of DBSI and its stockholders.
Board of Directors Date: February 12, 1998
As Supplemented: February 23, 1998
Fred W. Thompson H. Tate Holt
Michael T. Schieber Jerome W. Carlson
E. A. James Peretti
Directors Compensation
DBSI reimburses directors for expenses incurred in connection with
attending Board meetings but does not pay directors's fees or other cash
compensation for services rendered as a director. In lieu of fees, DBSI has
granted to each non-employee director options to purchase 37,500 shares of
Common Stock upon first becoming a director and for each year of service
successfully completed, under a stock option plan as approved by a shareholder
vote in 1996 and the 1998 Plan which allows an unspecified number of options to
be awarded to directors. Options are issued at the time of the Annual
Shareholders Meeting and vest over the next 12-month period.
<PAGE>34
Current non-employee directors of DBSI have been awarded the following
stock options (all of which have a 10-year term):
<TABLE>
<S> <C> <C> <C>
Date Number of Exercise
Director Options Granted Options Granted Price
- ----------------------- ------------------- --------------- --------------
Michael T. Schieber April 1996 37,500 $1.4375*
May 1997 37,500 $0.60**
May 1998 37,500 $2.1875
H. Tate Holt February 1996 37,500 $1.4375*
April 1996 37,500 $1.4375*
May 1997 37,500 $0.060**
May 1998 37,500 $2.1875
Jerome W. Carlson May 1997 75,000 $0.60**
May 1998 37,500 $2.1875
Jessie J. Knight, Jr. February 1999 37,500 $5.50
- -------------------------------------------------------------------------------------------
</TABLE>
* Repriced 2/13/97 from $4.75
** Repriced 2/23/98 from $1.00
- -------------------------------------------
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 DBSI's
certificate of incorporation states that DBSI may provide indemnification of its
agents, including its officers and directors for reach of duty to DBSI, to the
maximum extent permitted by the General Corporation Law. Article VI of the
Bylaws provide that DBSI shall, to the maximum extent and in the manner
permitted in the Commercial Corporations Laws, indemnify each of its agents,
including its officers, directors, and employees, 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 DBSI.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
DBSI pursuant to the foregoing provisions, or otherwise, DBSI has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by DBSI of expenses incurred or paid by a director, officer or
controlling person of DBSI in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, DBSI will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
<PAGE>35
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
The following table set forth certain information as of March 31, 1999,
with respect to the beneficial ownership of DBSI's Common Stock for (i) each
director, (ii) all directors and officers of DBSI as a group, and (iii) each
person known to DBSI to own beneficially five percent (5%) or more of the
outstanding shares of its Common Stock.
<TABLE>
<S> <C> <C>
Name and Address of Beneficially and
Beneficial Owner Record Owned(1) Percent of Class
- ------------------------------------------------ ------------------------ -----------------------
Fred W. Thompson 868,267(2) 6.7%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
Michael T. Schieber 353,989(3) 2.8%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
E.A. James Peretti 425,000(4) 3.3%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
H. Tate Holt 156,379(5) 1.2%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
Jerome W. Carlson 106,250(6) .8%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
37,500(7) .3%
Jessie J. Knight
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
Officers and Directors as a Group (6 persons) _________ _____
1,947,385 15.1% *
2,000,000 16%
Astoria Capital Partners, L.P.
6600 Southwest 92nd Street, Suite 370
Portland, OR 97223
</TABLE>
* Total percentage amount does not reflect rounding of individual ownership
percentages.
(1) The persons named in the table have sole voting or investment power with
respect to all of the Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in the footnotes to this table.
<PAGE>36
(2) Includes (i) 15,418 shares held by Mr. Thompson; (ii) 474,558 shares
held in Thompson 1996 Revocable Trusts; and (iii) options to purchase
312,500 shares at $0.531 per share expiring January 1, 2006, and 4,125
and 61,666 shares of Common Stock exercisable at $0.584 per share and
expiring December 31, 2000 and December 31, 2002, respectively.
(3) Includes (i) 215,625 shares held jointly with spouse, Arlene
Schieber, (ii) 6,505 held solely by Mr. Schieber, (iii) 3,075 held
solely by Ms. Schieber, of which shares Mr. Schieber disclaims
beneficial ownership, and (iv) options to purchase 13,750, 12,534 and
37,500 shares of Common Stock all exercisable at $1.4375 per share which
expire on February 15, 2005, February 15, 2006 and April 30, 2006,
respectively, and options to purchase 27,500 shares of Common Stock
exercisable at $0.60 per share which expire May 13, 2007, and options to
purchase 37,500 shares of Common Stock at $2.1875 which expire on May
12, 2008.
(4) Options to purchase 375,000 and 50,000 shares of Common Stock
exercisable at $0.531 per share, and expiring January 1, 2006 and
December 31, 2007, respectively.
(5) Includes (i) 21,488 shares held solely by Mr. Holt, and (ii) options
to purchase 7,808 and 75,000 shares of Common Stock all exercisable at
$1.4375 per share which expire December 31, 2006 and April 30, 2006,
respectively, and options to purchase 20,833 shares of Common Stock
exercisable at $0.60 per share which expire May 13, 2007, and options to
purchase 37,500 shares of Common Stock at $2.1875 per share which expire
May 12, 2008.
(6) Includes 37,500 shares held by Mr. Carlson, options to purchase
37,500 shares of Common Stock exercisable at $0.60 per share which
expire May 13, 2007, and options to purchase 37,500 shares of Common
Stock at $2.1875 per share which expire May 12, 2008.
(7) Options to purchase 37,500 shares of Common Stock exercisable at
$5.50 per share which expire February 19, 2009.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as otherwise indicated below, during 1997 and 1998, and through
the first quarter of 1999, DBSI 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 DBSI 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. In March 1999, DBSI indemnified its
president relating to a lawsuit filed against the president. (See "Legal
Proceedings.")
On March 31, 1999, DBSI entered into a launch services agreement with
Eurockot. Pursuant to that agreement, DBSI paid Eurokot an initial payment of
$4.4 million. On April 8, 1999, Eurockot purchased 1,333,334 shares of DBSI's
restricted Common Stock for a total of $4 million.
On March 31, 1999, DBSI entered into a satellite construction agreement
with Surrey. Pursuant to that agreement, DBSI paid Surrey an initial payment of
$1 million. On April 14, 1999, Surrey purchased 333,333 shares of DBSI's
restricted Common Stock for a total of $1 million.
Pursuant to a purchase agreement among DBSI, Astoria Capital and
Microcap, DBSI was obligated to register with the SEC the Registrable Securities
acquired by Astoria Capital and Microcap in a private placement. The
registration statement had to be declared effective by the SEC by December 4,
1998. In the event the registration statement was not declared effective by the
SEC by December 4, 1998, DBSI was obligated to refund to Astoria Capital and
Microcap, in the aggregate, an amount equal to $2.5 million times 3% for each 30
days (prorata as to a period of less than 30 days) the registration statement is
not declared effective, subject to certain exceptions, or the effectiveness of
such registration statement or related prospectus is suspended because such
prospectus includes an untrue statement of a material fact or omits to state a
material fact required to be stated. DBSI filed a registration statement with
the SEC which was declared effective on November 30, 1998, thus fulfilling its
obligation under the purchase agreements.
<PAGE>37
All expenses of the registration statement including, but not limited
to, legal, accounting, printing and mailing fees were borne by DBSI. DBSI has
agreed to indemnify Astoria Capital and Microcap against certain liabilities
under the Securities Act. DBSI's registration obligations to Astoria Capital and
Microcap ceased effective upon disposition of the Registrable Securities by such
holders pursuant to the above referenced effective registration statement.
PLAN OF DISTRIBUTION
The Selling Stockholders may, from time to time, sell all or a portion
of the shares of Common Stock on any market upon which the Common Stock may be
quoted, in privately negotiated transactions or otherwise, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
related to such market prices or at negotiated prices. The shares of Common
Stock may be sold by the Selling Stockholders by one or more of the following
methods, without limitation, (a) block trades in which the broker or dealer so
engaged will attempt to sell the shares of Common Stock as agent but may
position and resell a portion of the block as principal to facilitate the
transaction, (b) purchases by broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus, (c) an exchange
distribution in accordance with the rules of such exchange, (d) ordinary
brokerage transactions and transactions in which the broker solicits purchasers,
(e) privately negotiated transactions, (f) market sales (both long and short to
the extent permitted under the federal securities laws), and (g) a combination
of any such methods of sale. In effecting sales, brokers and dealers engaged by
the Selling Stockholders may arrange for other brokers or dealers to
participate. Brokers or dealers may receive commissions or discounts from the
Selling Stockholders (or, if any such broker-dealer acts as agent for the
purchaser of such shares, from such purchaser) in amounts to be negotiated which
are not expected to exceed those customary in the types of transactions
involved. Broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares of Common Stock at a stipulated price per share,
and, to the extent such broker-dealer is unable to do so acting as agent for the
Selling Stockholders, to purchase as principal any unsold shares of Common Stock
at the price required to fulfill the broker-dealer commitment to the Selling
Stockholders. Broker-dealers who acquire shares of Common Stock as principal may
thereafter resell such shares of Common Stock from time to time in transactions
(which may involve block transactions and sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such shares of Common Stock commissions as
described above. The Selling Stockholders may also sell the shares of Common
Stock in accordance with Rule 144 under the Securities Act, rather than pursuant
to this Prospectus.
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in sales of the shares of Common Stock
may be deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales. In such event, any commissions received by such
broker-dealers or agents and any profit on the resale of the shares of Common
Stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
From time to time, the Selling Stockholders may pledge their shares of
Common Stock pursuant to the margin provisions of its customer agreements with
its brokers. Upon default by a Selling Stockholder, the broker may offer and
sell such pledged shares of Common Stock from time to time. Upon a sale of the
shares of Common Stock, the Selling Stockholder intends to comply with the
Prospectus delivery requirements, under the Securities Act, by delivering a
Prospectus to each purchaser in the transaction. DBSI intends to file any
amendments or other necessary documents in compliance with the Securities Act
which may be required in the event a Selling Stockholder defaults under any
customer agreement with brokers.
<PAGE>38
DBSI is required to pay all fees and expenses incident to the
registration of the shares of Common Stock, including fees and disbursements of
counsel to the Selling Stockholders. DBSI has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of shares of Common Stock by the Selling Stockholders as of
April 15, 1999, and the number of shares of Common Stock covered by this
Prospectus.
<TABLE>
<S> <C> <C> <C> <C> <C>
Number of Number of
Common Shares Number of Common Shares
Beneficially Owned Common Beneficially Owned
Owned Prior to Shares Offered Following the
Name of Shareholder the Offering Hereby Offering
-------------------- ------------------- --------------- -------------------
# Of % Of # Of # Of % Of
Shares Class Shares Shares Class
-------- ------- ----------- ---------- --------------
Michael Associates 100,000 * 100,000 -0- -0-
Lodestone Capital 133,334(1) 1.1 133,334 -0- -0-
Michael Fitzsimmons 33,334(1) * 33,334 -0- -0-
Fourteen Hill Capital 666,666(1) 2.6 666,666 -0- -0-
High Peak Ltd. 166,666(1) 1.3 166,666 -0- -0-
Bridge Group Holdings 65,453 * 63,239 2,214 *
Eurockot Launch 1,333,334 10.7 1,333,334 -0- -0-
Services GmbH
Surrey Satellite 333,333 2.7 333,333 -0- -0-
Technology
Cyrrus Consulting 20,000(2) * 20,000 -0- -0-
Cardinal Capital LLC 325,000(3) 2.6 75,000 250,000 2.0
</TABLE>
* Less than 1% of the outstanding Common Stock.
(1) Of the shares of Common Stock beneficially owned, one-half represent shares
of Common Stock owned and one-half represent shares of Common Stock that
may be immediately acquired pursuant to Warrants.
(2) Represents Options to acquire 20,000 shares of Common Stock.
(3) Includes 225,000 shares of Common Stock that may be acquired pursuant to
Warrants.
<PAGE>39
DESCRIPTION OF CAPITAL STOCK
DBSI's authorized capital stock consists of 50,000,000 shares of Common
Stock, $.0004 par value, and 5,000,000 shares of Preferred Stock, $.0004 par
value. As of March 31, 1999, there were outstanding 12,508,760 shares of Common
Stock held of record by stockholders and no shares of Preferred Stock
outstanding.
Common Stock
Each stockholder is entitled to one vote for each share of Common Stock
held on all matters submitted to a vote of stockholders. Cumulative voting for
the election of directors is not provided for in DBSI's certificate of
incorporation, which means that the holders of a majority of the shares of
Common Stock voted can elect all of the directors then standing for election.
Subject to such preferences as may apply to any Preferred Stock outstanding at
the time, the holders of outstanding shares of Common Stock are entitled to
receive dividends out of assets legally available therefor at such times and in
such amounts as the Board of Directors may from time to time determine. The
Common Stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Upon the liquidation, dissolution, or winding up of
DBSI, the holders of Common Stock and any participating Preferred Stock
outstanding at that time would be entitled to share ratably in all assets
remaining after the payment of liabilities and the payment of any liquidation
preferences with respect to any outstanding Preferred Stock.
Preferred Stock
The Board of Directors is authorized, subject to any limitations
prescribed by the General Corporation Law of the State of Delaware, to provide
for the issuance of shares of Preferred Stock in one or more series, to
establish from time to time the number of shares to be included in each such
series, to fix the powers, designations, preferences and rights of the shares of
each wholly-unissued series and any qualifications, limitations or restrictions
thereon and to increase or decrease the number of shares of any such series (but
not below the number of shares of such series then outstanding) without any
further vote or action by the stockholders. The Board of Directors may authorize
the issuance of Preferred Stock with voting or conversion rights that could
adversely affect the voting power or other rights of the holders of Common
Stock. Therefore, the issuance of Preferred Stock may have the effect of
delaying, deterring or preventing a change in control of DBSI. There are no
shares of Preferred Stock outstanding.
Warrants
As of March 31, 1999, DBSI had Warrants outstanding providing for the
purchase of an aggregate of 1,329,920 shares of Common Stock. The exercise price
of the Warrants range from $1.4375 to $3.00 per share, with terms expiring on
dates ranging from April 26, 2001 to January 13, 2006.
CERTIFICATE OF INCORPORATION
Certain provisions of DBSI's Certificate of Incorporation and bylaws
have the effect of deterring a change of control of DBSI. DBSI's Certificate of
Incorporation contains provisions requiring the approval of 80% of its
stockholders for certain merger, sales of all or substantially all of its assets
and certain other corporate action unless the transaction is approved by 75% of
the disinterested board members or unless all stockholders receive a price for
their shares of DBSI's capital stock which meets certain minimum price criteria.
In addition, DBSI's Certificate of Incorporation also contains a provision which
establishes a "classified" Board of Directors consisting of three classes, the
members of which
<PAGE>40
serve staggered terms of three years. A vacancy on the Board can be filled only
by vote of 75% of the Continuing Directors (as defined). Further, directors can
be removed, for cause only, by either a 80% vote or by vote of a majority of the
Continuing Directors (as defined), or by a vote of stockholders holding 80% or
more of the outstanding voting stock which vote must include at least 67% of the
outstanding voting stock exclusive of voting stock held by an "Interested
Stockholder" (as defined). DBSI's Certificate of Incorporation also requires the
approval of 80% of its stockholders in order to amend these provisions.
LEGAL PROCEEDINGS
DBSI is not a party to any legal proceedings. In July 1998, a complaint
was filed in the Superior Court of California, County of Marin, by Bridge Group
(HK) International, Ltd. (the "Bridge Group") against DBSI's president, alleging
that the Bridge Group was promised shares of DBSI's Common Stock. DBSI agreed to
indemnify its president for any damages or settlement related to this lawsuit.
In March 1999, this case was settled by issuing 63,239 shares of DBSI's Common
Stock and paying $15,000 to the Bridge Group.
LEGAL MATTERS
The validity of the shares of Common Stock offered by Selling
Stockholders will be passed upon by the law firm of Bartel Eng Linn & Schroder,
Sacramento, California. Certain members of the firm own shares of Common Stock
of DBSI representing less than 1% of the outstanding shares of Common Stock.
EXPERTS
The consolidated balance sheets as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended and for the period from April 25, 1990 (date of
inception) to December 31, 1998, included in this Prospectus have been included
herein in reliance on the report which includes an explanatory paragraph
regarding certain factors raising substantial doubt about DBSI's ability to
continue as a going concern, of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm, as experts in accounting and
auditing.
AVAILABLE INFORMATION
DBSI files annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information on file at the
Commission's Public Reference Section in Washington, D.C. You can request copies
of those documents, upon payment of a duplicating fee, by writing to the
Commission at the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549.
DBSI has filed a registration statement on Form SB-2 with the
Commission. This prospectus, which forms a part of that registration statement,
does not contain all information included in the registration statement. Certain
information is omitted and you should refer to the registration statement and
its exhibits. With respect to references made in this prospectus to any contract
or other document of DBSI, such references are not necessarily complete and you
should refer to the exhibits attached to the registration statement for copies
of the actual contract or document. You may review a copy of the registration
statement at the Commission's public reference room, and at the Commission's
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and Seven World Trade Center,
<PAGE>41
13th Floor, New York, New York 10048. Please call the Commission at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. DBSI's filings and the registration statement can also be reviewed by
accessing the Commission's website at http://www.sec.gov.
FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements
The following Financial Statements pertaining to DBSI are filed as part
of this Prospectus:
Report of Independent Accountants F-1
- --------------------------------------------------------- ---------------
Consolidated Balance Sheets F-2
- --------------------------------------------------------- ---------------
Consolidated Statements of Operations F-3
- --------------------------------------------------------- ---------------
Consolidated Statements of Stockholders' Equity F-4 to F-9
- --------------------------------------------------------- ---------------
Consolidated Statements of Cash Flows F-10 to F-11
- --------------------------------------------------------- ---------------
Notes to Consolidated Financial Statements
F-12 to F-24
<PAGE>F-1
REPORT OF INDEPENDENT ACCOUNTANTS
February 5, 1999, except for Note 14,
as to which the date is April 8, 1999
To the Board of Directors and Stockholders of
DBS Industries, Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity, and of cash
flows present fairly, in all material respects, the financial position of DBS
Industries, Inc. and Subsidiaries (a development stage company) as of December
31, 1998 and 1997, and the results of their operations and their cash flows for
the years then ended and for the period from April 25, 1990 (date of inception)
to December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion expressed
above.
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
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
\s\ PricewaterhouseCoopers LLP
San Francisco, California
<PAGE>F-2
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
December 31, December 31,
1998 1997
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,291,711 $ 383,054
Prepaid and other current assets 71,138 119,265
-------------- ---------------
Total current assets 1,362,849 502,319
-------------- ---------------
Furniture and equipment (at cost) 65,516 73,277
Less accumulated depreciation 42,989 47,828
-------------- ---------------
22,527 25,449
-------------- ---------------
Other assets:
Investments and advances 851,490 1,248,649
Goodwill, net of accumulated amortization of
$87,428 and $81,864, respectively 3,562 9,126
Satellite Construction Costs 1,272,083 -
-------------- ----------------
2,127,135 1,257,775
-------------- ----------------
Total assets $ 3,512,511 $ 1,785,543
============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 240,240 $ 152,485
Customer advances 400,000 400,000
Accrued liabilities 489,531 145,019
Deferred compensation - 216,000
------------- --------------
Total current liabilities 1,129,771 913,504
------------- --------------
Commitments (Notes 8 and 14)
Stockholders' equity
Common stock, $0.0004 par value; 20,000,000 shares
authorized; 8,581,117 and 5,882,928 issued and outstanding at
December 31, 1998 and 1997, respectively 3,452 2,373
Capital in excess of par value 8,511,410 4,681,295
Warrants 1,085,500 112,500
Deficit accumulated during the development stage (7,132,622) (3,839,129)
Treasury stock (51,562 shares as of December 31, 1998 and
1997) (85,000) (85,000)
------------- ----------------
Total stockholders' equity 2,382,740 872,039
------------- ----------------
Total liabilities and stockholders' equity $ 3,512,511 $ 1,785,543
============= ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>F-3
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C>
April 25, 1990
(Inception) to
December 31, December 31,
------------ --------------
1998 1997 1998
------------ ------------- --------------
Revenue $ - $ - $ 161,420
Cost and operating expenses:
Cost of revenue - - 127,580
General and administrative 2,198,701 1,472,162 8,661,689
Research and development 797,147 210,115 2,966,718
------------ --------- -------------
2,995,848 1,682,277 11,755,987
----------- ----------- --------------
Loss from operations (2,995,848) (1,682,277) (11,594,567)
----------- ----------- --------------
Other income (expense):
Interest, net 32,421 (308,094) (709,459)
Equity in loss of investees, net (100,143) (80,975) (512,920)
Gain (loss) on sale of
investments (228,323) 5,221,063 5,829,218
Other, net - - (56,634)
-------------------------------- ------------
(296,045) 4,831,994 4,550,205
------------ ----------- ---------
Income (loss) before provision
for income taxes and minority interests (3,291,893) 3,149,717 (7,044,362)
Provisions for income taxes 1,600 80,800 96,835
------------ ------------- ---------------
Income (loss) before minority
interests (3,293,493) 3,068,917 (7,141,197)
Minority interests in income of
consolidated subsidiaries - - 8,575
----------------------------------------------
Net income (loss) $(3,293,493) $3,068,917 $ (7,132,622)
============ ========== =============
Basic net income (loss) per share $ (0.47) $ 0.52
============ ==========
Diluted net income (loss) per share $ (0.47) $ 0.49
============= ==========
Weighted average number of shares
of common stock, basic 6,979,818 5,863,261
============= ==========
Weighted average number of shares
of common stock, diluted 6,979,818 6,235,144
============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>F-4
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
Common Stock
------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Capital in During the Total
Excess of Treasury Development Stockholders'
Shares Par Value Par Value Warrants Stock Stage Equity
------- --------- ---------- -------- -------- ------------- -------------
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)
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) (90,750)
--------- -------- ---------- ------- ------- ----------- ------------
Balance at July 31, 1992 2,827,030 1,131 756,194 - - (426,079) 33,1246
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
</TABLE>
<PAGE>F-5
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock
------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Capital in During the Total
Excess of Treasury Development Stockholders'
Shares Par Value Par Value Warrants Stock Stage Equity
------- --------- ---------- -------- -------- ------------- -------------
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 1994) 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)
-------- ------- ------ ---- -------- ---------- ---------
</TABLE>
<PAGE>F-6
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock
------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Capital in During the Total
Excess of Treasury Development Stockholders'
Shares Par Value Par Value Warrants Stock Stage Equity
------- --------- ---------- -------- -------- ------------- -------------
Balance at July 31, 1994 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 shares 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
</TABLE>
<PAGE>F-6
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Capital in During the Total
Excess of Treasury Development Stockholders'
Shares Par Value Par Value Warrants Stock Stage Equity
------- --------- ---------- -------- -------- ------------- -------------
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)
Stock issued for services:
January 31, 1997, at $1.69 per share 5,088 2 8,586 - - - 8,588
February 14, 1997, at $1.75 per share 4,701 2 8,225 - - - 8,227
February 28, 1997, at $2.00 per share 7,918 3 15,834 - - - 15,837
March 31, 1997, at $1.63 per share 302 - 491 - - - 491
April 10, 1997, at $2.00 per share 7,500 3 14,997 - - - 15,000
April 30, 1997, at $1.50 per share 332 - 498 - - - 498
June 30, 1997, at $1.13 per share 14,578 6 16,394 - - - 16,400
July 9, 1997, at $0.75 per share 15,000 6 11,244 - - - 11,250
Net income for the twelve months ended
December 31, 1997 - - - - - 3,068,917 3,068,917
------- ------ --------- -------- ------ ---------- -----------
</TABLE>
<PAGE>F-8
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Capital in During the Total
Excess of Treasury Development Stockholders'
Shares Par Value Par Value Warrants Stock Stage Equity
--------- ------------ ------------ ---------- -------- ------------- ----------
Balance at December 31, 1997 5,882,928 2,373 4,681,295 112,500 (85,000) (3,839,129) 872,039
Common Stock issued for cash, on
April 16, 1998, at $2.00 per share 102,000 41 203,959 - - - 204,000
Common Stock issued upon exercise of options,
on June 11, 1998, at $1.44 per share 12,500 5 17,964 - - - 17,969
Common Stock issued (voided) in connection with
services rendered:
February 12, 1998, at $0.53 per share 26,209 10 13,906 - - - 13,916
April 1, 1998, at $3.25 per share 10,000 4 32,496 - - - 32,500
May 14, 1998, at $3.75 per share 13,646 6 51,168 - - - 51,174
May 14, 1998, at $3.75 per share (22,743) (9) (85,277) - - - (85,286)
Common Stock issued for cash in August and
September 1998 at $2.00 per share net of 2,800,000 1,120 5,113,054 - - - 5,114,173
issuance costs of $485,826
Common Stock issued upon exercise of options 17,202 6 9,128 - - - 9,134
$0.53 per share
Fair value of Common Stock warrants committed
to representing stock issuance costs - - (973,000) 973,000 - - 0
Fair value of options granted in connection with
services rendered - - 159,000 - - - 159,000
Common Stock issued for exercise of options
$.60 per share 10/1/98 37,500 15 22,485 - - - 22,500
Common Stock returned to investees at $2.00
share in October 1998 (400,000) (160) (799,840) - - - (800,000)
Common Stock issued upon exercise of options 94,375 38 50,075 - - - 50,113
per share in October 1998
Common Stock issued representing stock issuance
costs 7,500 3 14,997 - - - 15,000
</TABLE>
<PAGE>F-9
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Capital in During the Total
Excess of Treasury Development Stockholders'
Shares Par Value Par Value Warrants Stock Stage Equity
--------- ------------ ------------ ---------- -------- ------------- ----------
Net loss for the year ended
December 31, 1998 - - - - - (3,293,493) (3,293,493)
--------- ------------ ------------ ---------- -------- ------------- -----------
Balance at December 31, 1998 8,581,117 $ 3,452 $ 8,511,410 $1,085,500 $(85,000) $(7,132,622) $2,382,740
========= =========== ============= ========== ======== ============ ==========
</TABLE>
<PAGE>F-10
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
April 25, 1990
Year Ended (Inception) to
December 31, December 31
------------ -----------
1998 1997 1998
---- ------------- -------------
Reconciliation of net income (loss) to net
cash used in operating activities:
Net income (loss) $ (3,293,493) $3,068,917 $(7,132,622)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 73,122 126,989 431,256
Minority interest's share of net loss - - (8,575)
Noncash charges 573,999 76,293 1,084,545
Equity in loss of investees, net 100,143 80,875 529,972
Loss (gain) on sale of investments 228,323 (5,221,063) (5,829,218)
Allowance for losses on advances 216,932 - 216,932
Common stock issued as payment for
interest - - 7,000
Decrease (increase) in accounts
receivable and other assets 48,127 (50,320) (51,934)
Increase (decrease) in accounts payable
and accrued liabilities (108,264) (1,053,843) 405,240
Increase in customer advances - - 400,000
------------------- -------------------- -------------
Net cash used in operating activities (2,161,111) (2,972,153) (9,947,404)
Cash flows from investing activities:
Proceeds from sale of investment 199,940 - 1,099,940
Proceeds from Loral settlement - 3,573,677 3,573,677
Purchase of fixed assets (5,523) - (111,047)
Satellite Construction Payments (1,272,083) - (1,272,083)
Organization costs - - (28,526)
Advances to officer - - (31,187)
Purchase of interest in Continental - (2,292,409)
Investments and advances (407,292) 309,888 (1,208,726)
Net assets of purchased subsidiaries - - (147,500)
Cash transferred from Fi-Tek IV, Inc.
pursuant to the merger and reorganization
Cash of divested subsidiary - - 156,648
Purchase of patents - - (277)
Proceeds from repayment of advances to - - (18,251)
affiliate - -
Restricted cash on credit line 152,500
Net cash provided by (used in) investing - 300,000 300,000
------------- ---------------- ------------
activities
($1,484,958) $4,183,565 $ 172,759
------------ ---------- ---------
</TABLE>
<PAGE>F-11
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
April 25, 1990
Cash flows from financing activities:
Repayment of borrowing under credit line - (295,000) (300,000)
Issuance of debentures - 107,501 4,817,501
Issuance of common stock 4,997,226 - 8,150,742
Redemption of common stock warrants - - (19,490)
Stock issue costs (442,500) - (499,735)
Purchase of shares - - (5,000)
Payment of debentures - (1,043,445) (1,168,445)
Proceeds from stockholders' loans - 149,750 442,750
Payment of stockholders' loans - (149,750) (351,967)
------------ ---------------- ------------
Net cash provided by (used in) financing
activities 4,554,726 (1,230,994) 11,066,356
----------- --------------- ------------
Net increase (decrease) in cash 908,657 (19,534) 1,291,711
Cash and cash equivalents, beginning
of period 383,054 402,588 -
---------- --------------- ------------
Cash and cash equivalents, end of period$ 1,291,711 $ 383,054 $ 1,291,711
=========== ============== =============
Supplemental Disclosures of Cash Flow
information:
Interest $ - $ 11,456 $ 57,651
============== =============== =============
Income taxes $ 4,265 $ 1,600 $ 20,220
============== =============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>F-11
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
These consolidated financial statements include the accounts of DBS
Industries, Inc. (the "Company"), and its wholly-owned subsidiaries, Global
Energy Metering Service, Inc. ("GEMS"), and Newstar Limited ("Newstar").
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
current business plan is to develop a low earth orbit satellite constellation
through its subsidiary Newstar and through proposed licensing arrangements with
its 20% investor, E-SAT. 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 1999
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 circumstances raise substantial doubt
about the Company's ability to continue as a going concern. During fiscal 1998,
the Company raised approximately $5 million from the sale of shares of Common
Stock. During the first quarter of 1999, the Company raised approximately $9
million from warrant exercises and sale of shares of common stock. However, the
Company will need substantial additional capital, at least $100 million, to
construct its proposed E-SAT satellite constellation. Such financing is likely
to result in a significant dilution in the equity interests of the current
stockholders. The construction of the first two of the six planned satellites is
required to commence by April 1999 pursuant to the terms of the Federal
Communications Commission (FCC) license granted to E-SAT. As discussed in Note
14, the Company notified the FCC that it has entered into a construction
contract on March 31, 1999. These financial statements do not reflect any
adjustments that might result from the outcome of this uncertainty.
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 Company's investments in E-SAT Corporation, in which the Company has
an ownership interest of 20%, are accounted for using the equity method. The
Company's investment in EchoStar Communication Inc. (EchoStar) and interest in
Continental Satellite Corporation were disposed of during 1997 (see Notes 3 and
6) and its interest in Seimac Limited was disposed of during 1998 (see Note 3).
In January 1998, the Company created Newstar Limited, a wholly-owned
subsidiary organized under the Laws of the Republic of Bermuda.
<PAGE>F-13
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hereafter, unless otherwise specified, all references to the "Company"
include DBS Industries, Inc. and its wholly-owned subsidiaries.
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.
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 years ended December 31, 1998
and 1997, was $36,513 and $20,715, respectively.
Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. 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.
Such amounts are based on enacted tax laws and rates in effect for the years in
which the differences are expected to affect taxable income, 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 Earnings (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which establishes standards for computing and
presenting earnings (loss) per share. Under
<PAGE>F-14
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the new standards, basic earnings per share is computed based on the weighted
average number of common shares outstanding and excludes any potential dilution;
diluted earnings per share reflects diluted effects of all outstanding common
stock equivalents. Options to purchase 2,044,156 shares of common stock with
exercise prices ranging from $0.40 to $5.60 were outstanding as of December 31,
1998, and were excluded from the loss per share calculation for the year ended
December 31, 1998, as they have the effect of decreasing loss per share. Options
and warrants to purchase 1,418,233 shares of common stock with exercise prices
from $.40 to $5.60 were outstanding as of December 31, 1997, and were included
in the earnings per share calculation for the year ended December 31, 1997.
Recently Issued Accounting Pronouncements
In March 1997, SFAS No. 129, Disclosure of Information About Capital
Structure, was issued and has been implemented by the Company. In June 1997,
SFAS No. 130, Reporting Comprehensive Income and SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information were issued and are effective
for the year ended December 31, 1998. The Company has not implemented SFAS Nos.
130 and 131 as their provisions are not applicable to the Company's operations.
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' equity as previously reported.
NOTE 3. 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
for Direct Broadcast Satellite (DBS) services. As of December 31, 1996, the
Company owned approximately 25% of the common stock of DBSC. The Company
accounted for its investment using the equity method.
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
stockholders would 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 recorded a gain of approximately $6.2 million in its first quarter of
1997.
<PAGE>F-15
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 29, 1997, the Company transferred the 270,414 shares back to
EchoStar in exchange for the retirement of certain debentures and recognized a
loss on such transfer of approximately $2.3 million due to a decline in the
market value in the EchoStar stock.
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 license to operate 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 E-SAT were $127,265 as of
December 31, 1998 and 1997. The investment is accounted for using the equity
method. The Company's equity in losses of E-SAT for the years ended December 31,
1998 and 1997, were $134,524 and $66,469, respectively. The equity in losses for
the year ended December 31, 1997 was recorded in December 1997, when financial
information became available. As of December 31, 1998, the Company had a
receivable of $724,225 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.
On March 31, 1998, the Federal Communications Commission approved
E-SAT's application for a low earth orbit satellite license. E-SAT is required
to meet certain milestones and other covenants in order to maintain its license.
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 $30,949 and $92,851 for the years ended December 31, 1998
and 1997. This investment is accounted for using the equity method.
For the years ended December 31, 1998 and 1997, the Company has recorded
its proportionate share of Seimac Limited's net (loss) income of $34,381 and
$(14,506), respectively.
On April 30, 1998, the Company sold its entire interest consisting of
232,829 Seimac shares in exchange for $200,000 in cash and $51,417 in forgiven
debt. The Company recorded a loss of approximately $228,000 in connection with
this transaction.
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. Continental has received one of the
nine DBS licenses awarded by the FCC.
<PAGE>F-16
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with this agreement, the Company issued a three-year,
Series B convertible debenture to EchoStar on January 12, 1996, for proceeds of
$3,000,000.
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 stockholders 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.
On April 21, 1997, the Superior Court of Santa Clara County awarded the
Company damages of approximately $4.1 million, plus 50 percent annual interest.
On August 17, 1997, the Company and Loral formally completed an agreement
wherein the Company received a cash payment of approximately $3.5 million from
Loral in exchange for dismissals of appeals by both parties.
The agreement provides that the Company return the Continental stock the
Company acquired, that the Company acknowledge that all Continental stock held
by the Company owned is invalid, and that the Company has no objection to the
cancellation of that stock by Continental. The parties to the agreement released
one another from all present or future claims connected with the allegations
related to the action which give rise to the agreement.
The excess of the settlement payment over the Company's carrying value
for its interest in Continental of $1.2 million was recorded as a gain on sale
of investment for the year ended December 31, 1997.
NOTE 4. SATELLITE CONSTRUCTION COSTS
On December 15, 1998, the Company and Alcatel Space Industries
("Alcatel") entered into a Memorandum of Understanding and authorization to
proceed ("MOU") pursuant to which Alcatel would become the General Contractor
for the design, construction and launch services for the Company's planned low
earth orbit satellites. The Company and Alcatel are negotiating a definitive
agreement. Upon signing of the MOU, the Company made a $1 million advance
payment to Alcatel (see Note 14).
During the construction of the E-SAT System, the Company is capitalizing
all construction costs. Included in satellite construction are approximately
$270,000 in engineering and other costs in connection with the design of the
satellites and the $1 million advance to Alcatel for design services.
NOTE 5. CUSTOMER ADVANCES
The Company's wholly-owned subsidiary, Global Energy Metering Services,
Inc. (GEMS), is party to a contract to deliver 10,000 satellite radio units. The
purchase order is for $1.2 million and under the terms of the purchase order,
GEMS would receive a total of $500,000 in advance payments on the contract,
based on certain milestone achievements. As of December 31, 1998, this purchase
order had been suspended by both parties due to the Company's limited access to
the Argos System. The $400,000 in milestone payments received are reported as
customer advances on the accompanying balance sheet. These milestone payments
could be subject to refund in whole or in part.
<PAGE>F-17
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. LINE OF CREDIT
The Company maintained a $300,000 line of credit with a bank. The line
was collateralized by a $300,000 certificate of deposit. As of December 31,
1996, the Company had outstanding borrowings of $295,000 under this line of
credit. As of December 31, 1997, $295,000 had been repaid and the credit
facility was discontinued.
NOTE 7. CONVERTIBLE DEBENTURES
On July 1, 1995, the Company issued Convertible Debenture 1995 Series A
to EchoStar, the majority shareholder of E-SAT, and received $1,000,000 in
proceeds in August 1995. Interest on the debt accrued, and was payable,
quarterly at prime plus 2% for a period of three years. As collateral for the
loan, EchoStar held a security interest in 125,000 shares of DBSC common stock
and 2,000 shares of E-SAT common stock held by the Company.
On January 12, 1996, the Company issued a three-year Series B
Convertible Debenture to EchoStar for proceeds of $3,000,000. Interest terms
were similar to those of the Series A Convertible Debenture discussed above. As
collateral for the loan, EchoStar had 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 were
similar to those of the Series A Convertible Debentures discussed above. As
collateral for the loan, EchoStar held a security interest in the remaining
76,107 shares of common stock of DBSC held by the Company.
On August 29, 1997, the Company completed an agreement with EchoStar to
retire three convertible debentures, Series A, Series B, and Series C, with
accrued interest of $722,811 and certain legal fees and other expenses related
to the transaction. In exchange for EchoStar's retirement of the debt, the
Company transferred back to EchoStar 270,414 shares of EchoStar Class A common
stock and made a cash payment of approximately $936,000 from the proceeds of its
settlement with Loral (Note 3). The value of the EchoStar shares was determined
based on a per share price of $16.57 which represented the closing bid price on
August 27, 1997, the date the parties initially agreed to the terms of the
transaction.
<PAGE>F-18
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. COMMITMENTS
Operating Leases
The Company and its wholly-owned subsidiaries 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,
1999 102,891
2000 17,149
------------
$ 120,040
Total rent expense was $82,615 and $66,592 for the years ended December
31, 1998 and 1997, respectively.
Other
In July 1998, the Company's president was named as a defendant in a
lawsuit filed by a firm claiming that it was promised shares of the Company's
Common Stock. In March 1999, the Company settled this matter by issuing 63,239
shares of the Company's Common Stock, valued at approximately $324,000, and
paying $15,000 in cash to the plaintiff.
In July 1998, the Company agreed to a severance package with one of its
former employees which consists of $125,000 in cash payments to be made through
July 1999 and the acceleration of vesting of all of the former employee's
unvested options.
Refer to Note 14 for certain contract commitments.
NOTE 9. STOCKHOLDERS' EQUITY
Common Stock
The Company's Certificate of Incorporation, as amended in May 1997,
authorizes the issuance of 20,000,000 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 May 1997,
authorizes the issuance of 5,000,000 shares of preferred stock with par value of
$.0004 per share. The Board of Directors of the
<PAGE>F-19
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1998.
Equity Transactions With Non-Employees
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. On
December 31, 1997, the Company replaced these with new warrants at an exercise
price of $1.44. These warrants were issued for services rendered and are
exercisable through January 2006. As of December 31, 1997, none of these
warrants have been exercised.
On July 9, 1997, the Company issued warrants for the purchase of 200,000
shares of the Company's Common Stock at an exercise price of $0.50 per share.
These warrants were issued in connection with a $100,000 short-term loan made by
a stockholder of the Company. As of December 31, 1997, the loan had been repaid.
In April 1998, the Company granted options to two consulting firms to
purchase 400,000 and 300,000 shares of the Company's Common Stock at prices of
$1.45 and $1.50 per share, respectively. These options have terms of five years
and vest over a one year period.
In June 1998, the Company issued 102,000 shares of its Common Stock at a
price of $2.00 per share. In connection with this stock offering, the Company
issued warrants to purchase 102,000 shares of the Company's Common Stock at an
exercise price of $3.00 per share through June 30, 2001.
During the six months ended December 31, 1998, the Company issued
2,800,000 units each consisting of a share of Common Stock at a price of $2.00
per share and a warrant to purchase a share of common stock at an exercise price
of $3.00. In connection with this stock offering, the Company incurred the
following stock issuance costs: (i) cash payments of $85,000, (ii) 7,500 shares
of Common Stock with a fair value of $15,000, and (iii) warrants to purchase
728,000 shares of the Company's Common Stock at exercise prices varying from
$1.50 to $3.00. The fair value of such warrants amounted to $973,000 and was
recorded as a separate element of the Company's equity.
In October 1998, at the request of two stockholders due to changes in
their financial condition, the Company rescinded stock purchase agreements
relating to 400,000 units and refunded $800,000 in proceeds to the two
stockholders.
Under the terms of the above stock offering, the Company registered such
shares and warrants in December 1998.
Equity Transactions With Employees
In February 1996, the Company adopted the 1996 Stock Option Plan (the
1996 Plan) to consolidate its three existing plans. In May 1998, the Company
adopted the 1998 Stock Option Plan ("the 1998 Plan"), which provides for the
issuance of a maximum of 500,000 shares of the Company's
<PAGE>F-20
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock. Provisions of the 1996 and 1998 Plans are substantially similar to
those of the earlier plans. The overall purpose of the 1996 and 1998 Plans 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 options granted under the 1996 and 1998 Plans 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 and 1998 Plans are subject to
various restrictions as to resale.
Information with respect to activity under these plans is set forth
below:
Outstanding Options and Warrants
<TABLE>
<S> <C> <C> <C> <C>
Weighted
Average
Number of Price Per Aggregate Exercise
Shares Share Price Price
------------ ------------ ------------- -----------
Balance, December 31, 1996 1,180,116 $0.40-$6.00 5,793,591 4.91
Granted 1,373,843 $0.53-$1.44 980,835 0.71
Exercised - - - -
Terminated (1,135,726) $0.40-$6.00 (5,502,778) 4.83
------------- --------------
Balance, December 31, 1997 1,418,233 $0.40-$5.60 1,271,648 0.90
Granted 787,500 $0.53-$2.19 614,380 0.78
Exercised (161,577) $0.53-$1.44 (99,722) 0.617
Terminated - - - -
--------------- -----------------
Balance, December 31, 1998 2,044,156 $0.40-$5.60 $ 1,786,306 0.87
=========== ============
</TABLE>
The following table summarizes information with respect to stock options
and warrants outstanding at December 31, 1998:
Options and Warrants Outstanding Options and Warrants
Exercisable
<TABLE>
<S> <C> <C> <C> <C> <C>
Weighted Average
Remaining Weighted Weighted Average
Range of Number Contractual Life Average Exercise Number Exercise
Exercise Price Outstanding (years) Price Exercisable Price
- -------------- --------------- ------------- ----------------- ------------ -----------------
$0.53-$1.44 1,856,372 7.76 $0.65 1,379,140 $0.69
$1.60-$2.80 149,375 8.44 $2.24 105,797 2.26
$3.00-$5.60 38,409 7.06 $5.23 38,409 5.23
---------- ------------
2,044,156 1,523,346
========== ============
</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 No. 123). The Company accounts for
such plans in accordance with APB No. 25 and related interpretations.
<PAGE>F-21
The weighted average fair value of the options and warrants granted or
modified for the years ended December 31, 1997 and 1998 was $0.90 and $0.68
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:
1998 1997
----------- -----------
Risk free interest rate 5.7% 5.7%
Expected life 7.3 years 8.2 years
Volatility 227% 80%
Dividend yield - -
The following pro forma net income (loss) information has been prepared
following the provisions of SFAS No. 123:
December 31, December 31,
1998 1997
----------------- ------------------
Net income (loss) As Reported $(3,293,493) $3,068,917
Pro forma $(3,713,942) $1,793,791
Net income (loss) As Reported $(0.47) $0.49
per share Pro forma $(0.53) $0.29
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.
In December 1997, the Company completed a second voluntary stock option
repricing program in which approximately 1,135,726 stock options, originally
issued with an exercise price of $1.44 per share were reissued with exercise
prices ranging from $0.53 to $0.58 per share. These repriced options are
generally exercisable over four years and the Company has maintained the vesting
schedule from the original grants.
NOTE 10. RELATED PARTY TRANSACTIONS
In January 1997, the Company began to defer payment of a portion of all
future compensation of the Company's president. The deferred compensation
balance was $216,000 as of December 31, 1997. In October 1998, the Company paid
its president the amount of $246,000 related to his deferred
<PAGE>F-22
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
compensation through September 1998. The president also received a cash bonus of
$20,000 in connection with his efforts in securing the E-SAT license.
On April 28, 1997, the Company's president provided a bridge loan to the
Company for $47,750 representing collateral funds pledged to Pacific Bank for
the Company's bank overdraft. As of December 31, 1997, both the bank overdraft
and the bridge loan have been repaid.
During 1997, the Company borrowed $100,000 under a loan agreement with a
stockholder. Borrowings under the agreement were unsecured and bore interest at
8% per annum. All borrowings and accrued interest were repaid as of December 31,
1997.
Refer to Notes 3 and 7 for disclosures regarding related party
transactions with EchoStar.
NOTE 11. INCOME TAXES
The provision for income taxes for all periods presented relates to
current minimum taxes.
The estimated tax effect of significant temporary differences and
carryforwards that gave rise to deferred income tax assets as of December 31,
1998 and 1997, is as follows:
<TABLE>
<S> <C> <C> <C> <C>
1998 1997
------------------------- -------------------------
Federal State Federal State
------------- ----------- ------------- -----------
Deferred tax assets:
Net operating loss carryforwards $1,785,000 $ 305,000 $ 706,000 $ 108,000
Research and development credit
carryforwards 115,000 - 95,000 -
Excess of tax over book basis of investments,
deferred compensation, and other 10,000 1,500 12,000 2,000
------------- ----------- ------------- -----------
Deferred tax assets 1,910,000 306,500 813,000 110,000
Valuation allowance (1,910,000) (306,500) (813,000) (110,000)
------------- ----------- ------------- -----------
Net deferred tax assets $ $ - $ - $ -
=====================================================
</TABLE>
Due to the uncertainty of realization, a valuation allowance has been
provided to offset the net deferred tax assets. The increase (decrease) in the
valuation allowance was approximately $1,293,500 and ($1,411,000) during the
years ended December 31, 1998 and 1997, respectively. The provision for income
taxes differs from the amount which would arise by applying the combined
statutory income tax rate of approximately 40% due to changes in the deferred
tax valuation allowance.
As of December 31, 1998, the Company has net operating loss
carryforwards of approximately $5,250,000 and $5,000,000 for federal income tax
purposes and California state franchise tax purposes, respectively. The Company
has also research and development credit carryforwards of $115,000 and $0 for
federal income tax purposes and California state franchise tax purposes,
respectively. Such carryforwards expire in varying amounts between 1998 and
2018.
<PAGE>F-23
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
NOTE 12. RISKS AND UNCERTAINTIES
The Company periodically maintains cash balances at banks in excess of
the Federal Deposit Insurance Corporation insurance limit of $100,000.
NOTE 13. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES
During the years ended December 31, 1998 and 1997, the following noncash
activities occurred:
o In April 1998, the Company granted options to two consulting
firms to purchase 700,000 shares of the Company's Common Stock.
The Company recorded a compensation charge of $159,000 in
connection with this transaction during 1998.
o The Company issued 728,000 warrants to purchase shares of Common
Stock to certain individuals for services rendered in connection
with the placement of the September 1998 sales of the Company's
Common Stock. These warrants were valued at $973,000 and were
offset against the proceeds.
o During 1997, the Company issued 55,419 of its shares of Common
Stock to certain individuals in consideration for services
rendered. These shares were valued at $76,293.
o 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 were valued at approximately $539,000 and $6,760,000,
respectively.
o On August 29, 1997, the Company settled all principal and accrued
interest balances outstanding under its convertible debentures,
in exchange for 270,414 shares of EchoStar common stock and a
cash payment of approximately $936,000.
NOTE 14. SUBSEQUENT EVENTS
In February 1999, the Company issued 500,000 units each consisting of a
share of Common Stock at a price of $3.00 per share and a warrant to purchase a
share of Common Stock at an exercise price of $4.00. Sale of these units
resulted in gross proceeds to the Company of $1.5 million.
In March 1999, the Company received proceeds of approximately $7.5
million from the exercise of warrants to purchase 2.5 million shares of the
Company's Common Stock issued in connection with the 2.8 million unit offering
discussed above.
<PAGE>F-24
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the terms of the MOU signed with Alcatel, the Company made
additional payments totaling $1 million in January and February 1999. The ATP
was extended to April 15, 1999. The Company and Alcatel are negotiating a
definitive agreement.
On March 31, 1999, the Company signed construction and launch contracts
with two European entities and made advance payments of $4.4 million. Total
payments under such cancellable contracts will amount to approximately $47
million through January 2001.
During April 1999, the two European contractors purchased 1,666,667 shares
of the Company's Common Stock for a total of $5 million in cash (unaudited).
On April 8, 1999, the Company notified the FCC that it has entered into
a construction contract for the first two satellites of the E-SAT System on
March 31, 1999.
Subsequent to December 31, 1998, the Company solicited stockholder
approval to increase the number of authorized shares of Common Stock from
20,000,000 to 50,000,000. The requisite stockholder approval was obtained.
<PAGE>II-1
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of Delaware provides for the
indemnification of officers and directors under certain circumstances against
expenses incurred successfully defending against a claim and authorizes Delaware
corporations to indemnify their officers and directors under certain
circumstances against expenses and liabilities incurred in legal proceedings
involving such persons because of their being or having been an officer or
director. The Articles of Incorporation and the Bylaws of DBSI provide for
indemnification of its officers and directors to the full extent authorized by
law.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable by DBSI in
connection with the issuance and distribution of the securities being registered
hereunder. No expenses shall be borne by the Selling Stockholders. All of the
amounts shown are estimates, except for the SEC Registration and NASD
Application Fees.
SEC registration fee $ 2,741
Printing and engraving expenses * $ 2,000
Accounting fees and expenses * $ 20,000
Legal fees and expenses * $ 20,000
Transfer agent and registrar fees * $ 5,000
Fees and expenses for qualification
under state securities laws $ -0-
Miscellaneous * $ 1,000
---------
TOTAL $ 50,741
=========
*estimated
Item 26. Recent Sales of Unregistered Securities
(a) On April 14, 1999, DBSI sold 333,333 shares of its Common Stock to
Surrey Satellite Technology Limited. The stock was sold for $3.00/share
resulting in gross proceeds to DBSI of $1 million. No commission was paid in
connection with this transaction. The transaction was exempt from registration
upon reliance on Regulation S.
(b) On April 8, 1999, DBSI sold 1,333,334 shares of its Common Stock to
Eurockot Launch Services GmbH. The stock was sold for $3.00/share resulting in
gross proceeds to DBSI of $4 million. No commission was paid in connection with
this transaction. The transaction was exempt from registration upon reliance on
Regulation S.
(c) On February 12, 1999, DBSI sold 500,000 Units at $3.00 per Unit to
four accredited investors. Each Unit consisted of one share of Common Stock and
a Warrant to purchase one share of Common Stock at $4.00 per share. The Warrants
have a term of three years. The transaction was exempt from registration upon
reliance on Rule 506 of Regulation D. DBSI paid $75,000 and issued a Warrant to
purchase 75,000 shares of Common Stock at $3.75/share to Cardinal Capital, LLC
as a selling commission in connection with this transaction.
<PAGE>II-2
(d) On February 1, 1999, DBSI sold 50,000 Units at $2.50 per Unit to one
accredited investor. Ech Unit consisted of one share of Common Stock and a
Warrant to purchase one share of Common Stock at $5.12 per share. The Warrants
have a term of three years. No commission was paid in connection with this
transaction. The transaction was exempt from registration upon reliance on Rule
506 of Regulation D.
(e) In March 1999, DBSI issued 63,239 shares of its Common Stock to
Bridge Group (HK) International, Ltd. as part of a settlement of a legal claim
asserted by the Bridge Group against DBSI's president. Such shares were valued
at $3.00 per share. No commission was paid in connection with the transaction.
The transaction was exempt from registration upon reliance on Section 4(2) of
the Securities Act.
(f) On September 10, 1998, a former employee exercised his options to
acquire 17,202 shares of Common Stock at $.53 per share. No commission was paid
in connection with the transaction. The transaction was exempt from registration
upon reliance on Section 4(2) of the Securities Act.
(g) During the period from May 22, 1998 to October 1998, DBSI sold
2,509,500 Units at $2.00 per Unit to 23 accredited investors. Each Unit
consisted of one share of Common Stock and a Warrant to purchase one share of
Common Stock at $3.00 per share. In connection with the sale of 1,250,000 Units,
DBSI paid a commission of $125,000 to Strome Susskind Securities L.P., who
served as placement agent for such sale. In addition, DBSI has paid an aggregate
of $355,500 and Warrants to purchase 728,000 shares of Common Stock to various
entities as finders' fees and for other financial services rendered. The
transactions were exempt from registration upon reliance on Rule 506 of
Regulation D.
(h) On June 15, 1998, a director exercised an option to purchase 12,500
shares of Common Stock at $1.44 per share. No commission was issued in
connection with the transaction. The transaction was exempt from registration
upon reliance on Section 4(2) of the Securities Act.
(i) On May 15, 1998, DBSI issued 10,000 shares of Common Stock at $1.94
per share; (ii) March 4, 1998, 26,209 shares of Common Stock at $.53 per share;
(iii) November 3, 1997, 14,578 shares of Common Stock at $1.13 per share; (iv)
May 20, 1997, 7,605 shares of Common Stock at $2.00 per share; (v) September 26,
1996, 22,743 shares of Common Stock at $3.75 per share; and (vi) May 1, 1996,
2,933 shares of Common Stock at $5.60 per share to an attorney for legal
services. No commissions were paid in connection with these transactions. These
transactions were exempt from registration upon reliance of Section 4(2) of the
Securities Act.
(j) On August 1, 1997, DBSI issued 15,000 shares of Common Stock valued
at $.56 per share to one individual in consideration of such individual making a
$100,000 loan to DBSI. No commission was paid in connection with the
transaction. This transaction was exempt from registration upon reliance of
Section 4(2) of the Securities Act.
(k) DBSI issued (i) 5,088 shares of Common Stock at $1.69 per share on
January 31, 1997; (ii) 7,918 shares of Common Stock at $2.00 per share on
February 28, 1997; (iii) 301 shares of Common Stock at $1.63 per share on March
31, 1997; and (iv) 332 shares of Common Stock at $1.50 per share on April 30,
1997, to a corporation in exchange for consulting services. No commission was
paid in connection with this transaction. This transaction was exempt from
registration upon reliance of Section 4(2) of the Securities Act.
(l) On April 16, 1997, DBSI issued 4,701 shares of Common Stock at $1.75
per share to a corporation for consulting services. No commission was paid in
connection with this transaction. This transaction was exempt from registration
upon reliance of Section 4(2) of the Securities Act.
<PAGE>II-3
(m) On April 15, 1997, DBSI issued 7,500 shares of Common Stock valued
at $2.00 per share, and on September 20, 1996, DBSI issued 6,018 shares of
Common Stock at $4.80 per share to an individual for consulting services. No
commission was paid in connection with this transaction. This transaction was
exempt from registration upon reliance of Section 4(2) of the Securities Act.
(n) On February 15, 1996, DBSI sold 38,462 shares of Common Stock at
$5.20 per share to four accredited investors. No commissions were paid. However,
DBSI issued 3,846 shares of Common Stock as a finder's fee. DBSI relied on Rule
506 of Regulation D and Section 4(2) of the Securities Act as an exemption from
registration.
(o) From January 5, 1996 to February 5, 1996, DBSI sold 200,000 shares
of Common Stock at $4.00 per share to twenty accredited investors. No commission
was paid in connection with this transaction. However, DBSI issued 15,975 shares
of Common Stock as a finder's fee. DBSI relied on Rule 506 of Regulation D and
Section 4(2) of the Securities Act as an exemption from registration.
Item 27. Exhibits
The following Exhibits are filed with or incorporated by reference into
this Prospectus:
<TABLE>
<S> <C>
*(2.1) Plan and Agreement of Reorganization, dated September 30, 1992, entered into
with DBS Industries, Inc. 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.
(5.1) Opinion of Bartel Eng Linn & Schroder
*(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.
*(10.20) AXION Royalty Agreement incorporated by reference to the Company's Current
</TABLE>
<PAGE>II-4
<TABLE>
<S> <C>
Report on Form 8-K dated May 16, 1994.
*(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
February 1, 1996.
*(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.
*(10.30) 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.
*(10.36) 1998 Stock Option Plan.
**(10.37) Memorandum of Understanding Between DBS Industries and Matra Marconi
Space.
**(10.38) Letter of Intent with SAIT-Radio Holland SA.
**(10.39) Purchase Agreement with Astoria Capital, L.P. and Microcap Partners, L.P.
**(10.40) Warrant Agreement with Astoria Capital, L.P. and Microcap Partners, L.P.
***(10.41) Employment Agreement between Gregory T. Leger and DBS Industries, Inc.
dated March 1, 1998.
(10.42) Unit Purchase Agreement with Michael Associates.
(10.43) Unit Purchase Agreement with Lodestone Capital Fund LLC,
Fourteen Hill Capital, L.P., High Peak Limited and Michael
Fitzsimmons.
(10.44) Launch Services Agreement with Eurockot Launch Services GmbH dated March
31, 1999. (Redacded per Confidential Treatment Request.)
(10.45) Satellite Construction Agreement with Surrey Satellite
Technology Limited dated March 31, 1999 (Redacded per
Confidential Treatment Request.)
** (21.1) List of Subsidiaries of DBS Industries, Inc.
(23.1) Consent of PricewaterhouseCoopers, LLP
(23.2) Consent of Bartel Eng Linn & Schroder is contained in Exhibit 5.1.
</TABLE>
<PAGE>II-5
* Previously filed in, and incorporated by reference to, Form 10-KSB for
Fiscal Years July 31, 1993, July 31, 1994, July 31, 1995, and December 31,
1995, December 31, 1996, December 31, 1997 or Form 8-K where indicated.
** Previously filed with Registration Statement on Form SB-2 filed on
September 16, 1998.
*** Previously filed with Registration Statement on Form SB-2 filed on November
30, 1998.
Item 28. Undertakings
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
DBSI pursuant to the foregoing provisions, or otherwise, DBSI has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by DBSI of expenses incurred or paid by a director, officer or
controlling person of DBSI in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, DBSI will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
<PAGE>II-6
SIGNATURE
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Mill
Valley, State of California, on April 30, 1999.
DBS INDUSTRIES, INC.,
a Delaware Corporation
/s/ FRED W. THOMPSON,
-----------------
Fred W. Thompson,
President
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Signatures Date
- --------------------------------------------------------- ---------------
/s/ FRED W. THOMPSON,
-----------------
Fred W. Thompson,
President, Director, Chief Executive
Officer, Chief Financial Officer
(Principal Executive Officer; Principal Financial
and Accounting Officer)
/s/ E.A. JAMES PERETTI April 30, 1999
- ----------------------------------------------------------
E. A. James Peretti
Director
/s/ MICHAEL T. SCHIEBER April 30, 1999
- ----------------------------------------------------------
Michael T. Schieber
Director
/s/ H. TATE HOLT April 30, 1999
- ----------------------------------------------------------
H. Tate Holt
Director
/s/JEROME W. CARLSON April 30, 1999
- ----------------------------------------------------------
Jerome W. Carlson
Director
Jessie J. Knight, Jr. April __, 1999
Director
UNIT PURCHASE AGREEMENT
DBS INDUSTRIES, INC.
A Delaware corporation
50,000 UNITS CONSISTING OF
COMMON STOCK
Par Value, $0.0004
WARRANTS TO PURCHASE COMMON STOCK
February 1, 1999
<PAGE>
TABLE OF CONTENTS
Page
1. UNIT PURCHASE.......................................................1
1.1. Purchase of Units............................................1
1.2. Consideration................................................1
1.3. Wire Transfer Instructions...................................2
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................2
2.1. Due Organization: Good Standing and Corporate Power..........2
2.2. Authorization................................................2
2.3. No Conflict; No Consents or Approvals Required...............3
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER.........................3
3.1. Authorization................................................3
3.2. Purchase Entirely for Own Account............................3
3.3. Reliance Upon Purchasers' Representations....................3
3.4. Receipt of Information.......................................4
3.5. Investment Experience........................................4
3.6. Accredited Investor..........................................4
3.7. Restricted Securities........................................4
3.8. Legends......................................................5
4. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS.................5
4.1. Restrictions on Transferability..............................5
4.2. Restrictive Legend...........................................5
4.3. Notice of Proposed Transfer..................................5
4.3.1. Notice................................................5
4.3.2. Certificate for Transferred Securities................6
4.4. Registration.................................................6
4.4.1. SB-2 or S-3 Registration..............................6
4.4.2. Expenses of Registration..............................7
4.4.3. Registration Procedures...............................7
4.5. Indemnification and Contribution.............................7
4.6. Information by the Purchaser.................................9
5. MISCELLANEOUS.......................................................9
5.1. Entire Agreement............................................9
5.2. Survival of Warranties......................................9
5.3. Successors and Assigns.....................................10
5.4. Governing Law..............................................10
5.5. Counterparts...............................................10
5.6. Titles and Subtitles.......................................10
5.7. Notices....................................................10
5.8. Attorneys' Fees............................................11
5.9. Amendments and Waivers.....................................11
5.10. Severability.................................................11
5.11. Commissions..................................................11
<PAGE>
UNIT PURCHASE AGREEMENT
THIS UNIT PURCHASE AGREEMENT (the "Agreement"), dated as of February 1,
1999, is made and entered into by and between DBS Industries, Inc., a Delaware
corporation (the "Company") Michael Associates ("Purchaser"). Reference to
dollars in this Agreement shall mean United States dollars.
W I T N E S S E T H
WHEREAS, the Company desires to sell Units with each Unit consisting of
one share of Common Stock (the "DBSI Common Stock") and a warrant to purchase
one share of DBSI Common Stock at $3.50 per share (the "Warrant") to Purchaser
who is an "accredited investors" as that term is defined in Rule 501(a) of
Regulation D, promulgated by the United States Securities and Exchange
Commission ("SEC") under the Securities Act of 1933, as amended (the "Securities
Act") upon the terms and conditions contained herein; and
WHEREAS, the Purchaser desires to purchase Units upon the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, for and in consideration of the premises and of the
mutual representations, warranties, covenants, and agreements set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. UNIT PURCHASE
1.1. Purchase of Units. Upon the terms and subject to the conditions set
forth in this Agreement, the Purchaser hereby agrees to purchase from the
Company, and the Company hereby agrees to issue and sell to the Purchaser,
50,000 Units with each Unit consisting of one share of the Company's Common
Stock, par value $0.0004 per share, (the "Common Stock") and one warrant to
purchase one share of Common Stock at $3.50 per share. The exercise period of
the Warrants shall be for a period of three years, shall be callable under
certain conditions and shall have the terms as set for in the Warrant a form of
which is attached hereto and made a part hereof as Exhibit A. Subject to
compliance with federal and state securities laws, the Warrants may be
detachable from the Units.
1.2. Consideration. In consideration of the purchase in Section 1.1, the
Purchaser hereby agrees to pay to the Company $2.50 per Unit in immediately
available United States Dollars, for an aggregate amount equal to one hundred
twenty-five thousand ($125,000) dollars.
1.3. Wire Transfer Instructions. The consideration provided
for in Section 1.2. above should be delivered to the Company's
legal counsel by the Purchaser via wire transfer to the following:
<PAGE>
Bartel Eng Linn & Schroder, Client Trust Account
Wells Fargo Bank
400 Capitol Mall
Sacramento, CA 95814
Account No: 0168-032878
ABA No.: 121000248
Customer Service Phone Number: (916) 920-2507
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser that:
2.1. Due Organization: Good Standing and Corporate Power. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business, and to own, lease and operate any properties
related to such business, except where the failure to have such power and
authority would not individually or in the aggregate have a Material Adverse
Effect (as defined below). The Company is duly qualified or licensed to do
business and in good standing in the State of California. For purposes of this
Agreement, a "Material Adverse Effect" shall mean an event that could reasonably
be expected to have a material adverse effect on the business of the Company, or
on its results of operations, properties or financial condition; for purposes of
this definition, any event which reasonably could be expected to result in a
potential liability to the Company either individually or in the aggregate in
excess of Two Hundred Fifty Thousand Dollars ($250,000) will be deemed to have a
Material Adverse Effect.
2.2. Authorization.
(a) All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the sale and issuance of the
Units pursuant hereto and the performance of the Company's obligations hereunder
has been taken.
(b) The Common Stock when issued and delivered for the
consideration expressed and in compliance with the provisions of this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable, and will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement and under applicable federal and state securities laws.
(c) The Warrants when issued and delivered for the consideration
expressed and in compliance with the provision of this Agreement will be duly
authorized, binding and an enforceable obligation of the Company in accordance
with its terms.
<PAGE>
2.3. No Conflict; No Consents or Approvals Required. Neither the
execution and delivery of this Agreement by the Company, nor the consummation by
the Company of the transactions contemplated hereby will:
(a) conflict with or violate any provision of the
Certificate of Incorporation or Bylaws of the Company;
(b) conflict with or violate any law, rule, regulation,
ordinance, order, writ, injunction, judgment or decree applicable to the Company
or by which it or any of its properties or assets are bound or affected; or
(c) conflict with or result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination or cancellation of,
or result in the creation of any lien, charge or encumbrance on any of the
respective properties or assets of it pursuant to any of the terms, conditions
or provisions of, any material note, bond, mortgage, indenture, deed of trust,
lease, permit, license, franchise, authorization, agreement or other instrument
or obligation to which the Company is a party or by which the Company or any of
its properties or assets is bound or affected.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
The Purchaser represents and warrants that:
3.1. Authorization. All action on the part of the Purchaser, and if the
Purchaser is a corporation, its officers, directors and stockholders, necessary
for the purchase of the Units pursuant hereto and the performance of the
Purchaser's obligations hereunder has been taken.
3.2. Purchase Entirely for Own Account. This Agreement is made with the
Purchaser in reliance upon such Purchaser's representation to the Company, which
by the Purchaser's execution of this Agreement the Purchaser hereby confirms,
that the Units to be purchased by the Purchaser will be acquired for investment
purposes for the Purchaser's own account and not with a view to the resale or
distribution of any part thereof in violation of applicable federal and state
securities laws.
3.3. Reliance Upon Purchasers' Representations. The Purchaser
understands that the Common Stock and Warrants (and Common Stock underlying
them) comprising the Units has not been registered under the Securities Act on
the grounds that the transactions contemplated by this Agreement and the
issuance of the securities hereunder is exempt from registration under the 1933
Act pursuant to Section 4(2) thereof, and Regulation D promulgated
<PAGE>
thereunder, and that the Company's reliance on such exemption is predicated on
the Purchasers' representations set forth herein.
3.4. Receipt of Information. The Purchaser has received all the
information, including, but not limited to, the Company's Registration Statement
on Form SB-2 declared effective on November 30, 1998, Form 10-KSB for the year
ended December 31, 1997, Form 10-QSB for the nine months ended September 30,
1998, and the Company's proxy statement for its 1998 annual meeting of
stockholders, as well as all other information, he considers necessary or
appropriate for deciding whether to purchase the Units. The Purchaser further
represents that he has had the opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the Units
hereby, and the business, properties, prospects, and financial condition of the
Company and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify the accuracy of any information furnished to the
Purchaser or to which the Purchaser has access. The foregoing, however, does not
limit or modify the representations and warranties of the Company in Section 2
hereof or the right of the Purchaser to rely thereon.
3.5. Investment Experience. The Purchaser represents that it is
experienced in evaluating and investing in securities of companies in the
development stage and acknowledges that it is able to fend for themselves, can
bear the economic risk of the investment, and has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the investment in the Units. The Purchaser further represents that
it has not been organized solely for the purpose of acquiring the Units.
3.6. Accredited Investor. The Purchaser represents that it
is an "accredited investor" as that term is defined in SEC Rule 501(a) of
Regulation D, 17 C.F.R. 230.501.(a).
3.7. Restricted Securities. The Purchaser understands that the Units,
and the Common Stock and Warrants (including the Common Stock underlying such
Warrants) comprising such Units, issued, or to be issued, hereunder may not be
sold, transferred, or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Common Stock and Warrants, or an
available exemption from registration under the Securities Act, the Common Stock
and Warrants must be held indefinitely. In particular, the Purchaser is aware
that the Common Stock and Warrants may not be sold pursuant to SEC Rule 144, 17
C.F.R. 230.144, unless all of the conditions of that Rule are met.
3.8. Legends. To the extent applicable, each certificate or
other document evidencing the Common Stock and Warrants shall be
<PAGE>
endorsed with a legend disclosing that the securities have not been registered
under the Securities Act and may not be sold, transferred, assigned, pledged or
hypothecated absent registration under the Securities Act or an exemption
therefrom.
4. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS
4.1. Restrictions on Transferability. The Common Stock and Warrants
(hereinafter in this Section 4 referred to collectively as the "Securities")
shall not be transferable, except upon the conditions specified in this Section
4. The Purchaser will cause any successor or proposed transferee of their
Securities to agree to take and hold such Securities subject to the conditions
specified in this Section 4. The Purchaser acknowledges the restrictions upon
its right to transfer the Securities set forth in this Section 4.
4.2. Restrictive Legend. Each certificate representing the Securities
shall (unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED."
Upon request of a holder of such a certificate, the Company shall remove
the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if, with such request, the
Company shall have received the opinion referred to in Section 4.3.
4.3. Notice of Proposed Transfer.
4.3.1.Notice. Prior to any proposed transfer of any of the
Securities (other than under circumstances described in Sections 4.4.1 or 4.4.2
hereof), the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer. Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall be accompanied by a written opinion of legal counsel reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Securities may be effected without registration
under the Securities Act,
<PAGE>
whereupon the holder of such Securities shall be entitled to transfer such
Securities, subject to the restrictions contained in this Agreement, in
accordance with the terms of the notice delivered by the holder to the Company.
4.3.2.Certificate for Transferred Securities. Each certificate
evidencing the Securities transferred as above provided shall bear the
appropriate restrictive legend set forth in Section 4.2 above, except that such
certificate shall not bear such restrictive legend if the opinion of counsel
referred to above is to the further effect that such legend is not required in
order to establish compliance with any provisions of the Securities Act. Each
transferee of the Securities shall agree with respect to those securities to be
bound by the terms of this Section 4.3.
4.4. Registration.
4.4.1.SB-2 or S-3 Registration. By July 31, 1999, the Company
shall file a registration with the SEC with respect to all or a part of the DBSI
Common Stock, including Common Stock to be issued upon the exercise of the
Warrants, (hereinafter referred to as the "Registrable Securities") on a Form
SB-2 or Form S-3 registration statement or other eligible registration form. In
this respect, and in connection with all Registrable Securities, the Company
will:
(a) as soon as practicable, use its best
efforts to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments, and appropriate
compliance with applicable regulations issued under the Securities Act and
applicable state securities laws) to permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
purchased hereunder, together with all or such portion of the Registrable
Securities of any other holder or holders of the Company's Common Stock joining
in such registration; provided that the Company shall not be obligated to
effect, or to take any action to effect, any such registration pursuant to this
Section 4.4 in any particular jurisdiction in which the Company would be
required to qualify to do business as a foreign corporation in such jurisdiction
unless the Company is already qualified as a foreign corporation in such
jurisdiction and except as may be required by the Securities Act or applicable
rules or regulations thereunder; and
(b) The holders of Registrable Securities
shall be entitled to only one (1) registration pursuant to this
Section 4.4
The registration statement on Form SB-2 or Form S-3 may include
securities of the Company held by persons other than the Purchaser, and the
Company shall have the right to include securities in such registration for its
own account.
<PAGE>
4.4.2.Expenses of Registration. All Registration Expenses
relating to the Registrable Securities incurred in connection with the
registration, qualification or compliance pursuant to this Section 4 shall be
borne by the Company. All Selling Expenses shall be borne by the holders of the
securities so registered, pro rata on the basis of the number of their shares so
registered.
4.4.3.Registration Procedures. Pursuant to the registration
effected by the Company pursuant to Section 4, the Company will keep the holders
advised as to the initiation of such registration and as to the completion
thereof. At its expense, the Company will:
(a) Furnish such number of prospectuses,
including a summary or a preliminary prospectus, and other documents incident
thereto as each Purchaser from time to time may reasonably request;
(b) Use its best efforts to list such
Registrable Securities on any securities exchange on which any equity security
of the Company is then listed, if such Registrable Securities are not already so
listed and if such listing is then permitted under the rules of such exchange,
and to provide a transfer agent and registrar for such Registrable Securities
covered by such registration statement not later than the effective date of such
registration statement; and
(c) In the event of the issuance of any stop
order suspending the effectiveness of such registration statement or of any
order suspending or preventing the use of any prospectus or suspending the
qualification of any Registrable Securities for sale in any jurisdiction, use
its best efforts promptly to obtain its withdrawal.
4.5. Indemnification and Contribution.
(a) The Company will indemnify the Purchaser and its successors
and each of its officers, directors and partners, and each person controlling
the Purchaser, and its successors, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 4,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to
<PAGE>
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse the Purchaser, and
its successors and its officers, directors and partners, and each person
controlling the Purchaser, its successors, for any legal and any other expenses
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by any
Purchaser, and stated to be specifically for use therein.
(b) The Purchaser, and its successors will, if Registrable
Securities held by there are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and its directors and officers for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by any Purchaser
(or the Purchaser's successors) and stated to be specifically for use therein;
provided, however, that the obligations of the Purchasers (or the Purchasers'
successors) hereunder shall be limited to an amount equal to the net proceeds to
the Purchasers (or the Purchasers' successors) of Registrable Securities sold or
to be sold in such registration.
(c) Each party entitled to indemnification under this Section
4.5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld or delayed), and the Indemnified Party may participate
in such defense at its own expense (except in the event such Indemnified Party
may not be represented by the counsel retained by
<PAGE>
the Indemnifying Party due to a conflict of interest, in which case the
Indemnifying Party shall pay the counsel fees incurred by the Indemnified
Party), and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 4. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation alleged by such claimant or plaintiff. Each
Indemnified Party shall furnish such information regarding itself or the claim
in question as an Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Party or any officer, director or controlling person
of such Indemnified Party and will survive the transfer of securities. The
Indemnifying Party also agrees to make such provisions, as are reasonably
requested by any Indemnified Party, for contribution to such party in the event
the Indemnifying Party's indemnification is unavailable for any reason.
4.6. Information by the Purchaser. If Registrable Securities of the
Purchaser (or its successors) are included in any registration, the Purchaser
(or its successor) shall furnish to the Company such information regarding the
Purchaser (or its successor) and the distribution proposed by them as the
Company may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Section 4.
5. MISCELLANEOUS
5.1. Entire Agreement. This Agreement constitutes the entire agreement
among the parties and no party shall be liable or bound to any other party in
any manner by any warranties, representations, or covenants except as
specifically set forth herein.
5.2. Survival of Warranties. The warranties, representations, and
covenants of the Company and the Purchaser, jointly and severally, contained in
or made pursuant to this Agreement shall survive the execution and delivery of
this Agreement.
5.3. Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to
<PAGE>
the benefit of and be binding upon the respective successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
5.4. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
5.5. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
5.6. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.7. Notices. All notices or other communications required or permitted
hereunder shall be in writing (except as otherwise provided herein) and shall be
deemed duly given when received by delivery in person, by facsimile, telex or
telegram or by an overnight courier service or three (3) days after deposit in
the U.S. Mail, certified with postage prepaid, addressed as follows:
If to Company : DBS Industries, Inc.
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
Attn: Fred W. Thompson
with copies tBartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, CA 95814
Attn: Scott E. Bartel, Esq.
If to Purchaser: Michael Associates
1 Evertrust Plaza
Jersey City, NJ 07302
or to such other addresses as a party may designate by five (5) days
prior written notice to the other party.
5.8. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs, and disbursements in addition to
any other relief to which such party may be entitled.
5.9. Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be
<PAGE>
waived (either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Purchaser.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon the holder of securities purchased under this Agreement (including
securities into which such securities have been converted), each future holder
of such securities and the Company.
5.10. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
5.11. Finder's Fee. The Company intends to pay a finder's fee in
connection with this investment in an amount of 10% of the gross proceeds raised
by the purchase of the Units and 10% of the gross proceeds received upon the
exercise of the Warrants which are a part of the Units.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
DBS Industries, Inc.
By:_______________________________
Fred Thompson
President
PURCHASER:
Michael Associates
By:_______________________________
PURCHASE AGREEMENT
DBS INDUSTRIES, INC.
A Delaware corporation
500,000 SHARES OF COMMON STOCK, PAR VALUE, $0.0004
WARRANTS TO PURCHASE 500,000 SHARES OF COMMON STOCK
February 12, 1999
<PAGE>
TABLE OF CONTENTS
Page
1. PURCHASES.............................................................1
1.1. Purchase of DBSI Common Stock and DBSI Warrants.........1
1.2. Consideration...........................................1
1.3. Wire Transfer Instructions..............................2
1.4. Closing Date............................................2
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................2
2.1. Due Organization; Good Standing and Corporate Power.....2
2.2. Capitalization and Voting Rights........................2
2.3. Authorization...........................................3
2.4. Subsidiaries............................................4
2.5. FCC License.............................................4
2.6. No Conflict; No Consents or Approvals Required..........4
2.7. Disclosure..............................................5
2.8. [Intentionally Left Blank]..............................5
2.9. Offering................................................5
2.10. Binding Effect..........................................5
2.11. Governmental Regulation.................................5
2.12. Permits.................................................6
2.13. Financial Authorization.................................6
2.14. Litigation..............................................6
2.15. Tax Matters.............................................7
2.17. Title and Related Matters...............................9
2.18. Intellectual Property...................................9
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................10
3.1. Authorization..........................................10
3.2. Purchase Entirely for Own Account......................10
3.3. Reliance Upon Purchaser's Representations..............10
3.4. Receipt of Information.................................10
3.5. Investment Experience..................................11
3.6. Accredited Investor....................................11
3.7. Restricted Securities..................................11
3.8. Legends................................................11
4. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH
SECURITIES ACT; REGISTRATION RIGHTS..................................11
4.1. Restrictions on Transferability........................11
<PAGE>
4.2. Restrictive Legend.....................................11
4.3. Notice of Proposed Transfer............................12
4.4. Registration...........................................12
4.4.1 Registration....................................12
4.4.2 [Intentionally Left Blank]......................12
4.4.3 Registration Procedures.........................13
4.4.4 [Intentionally Left Blank]......................17
4.4.5 Expenses........................................17
4.4.6 Modification Upon Issuance or Distribution of
Other Equity Securities.........................17
4.4.7 No Inconsistent Agreements......................17
4.5. Indemnification and Contribution.......................17
4.6. Information by the Purchaser...........................19
4.7. Rule 144...............................................19
5. MISCELLANEOUS........................................................19
5.1. Entire Agreement.......................................19
5.2. Survival of Warranties.................................20
5.3. Successors and Assigns.................................20
5.4. Governing Law..........................................20
5.5. Counterparts...........................................20
5.6. Titles and Subtitles...................................20
5.7. Notices................................................20
5.8. [Intentionally Left Blank].............................21
5.9. Attorneys' Fees........................................21
5.10. Amendments and Waivers.................................21
5.11. Severability...........................................21
5.12. Defaults...............................................21
5.13. Non-Disclosure.........................................21
ii
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement"), dated as of February 12,
1999, is made and entered into by and between: (i) DBS Industries, Inc., a
Delaware corporation (the "Company"); and (ii)(1) Lodestone Capital Fund, LLC,
(2) Fourteen Hill Capital, LP, (3) High Peak Limited, and (4) Michael
Fitzsimmons (collectively, the "Purchaser"). Reference to dollars in this
Agreement shall mean United States dollars.
W I T N E S S E T H
WHEREAS, the Company desires to sell shares of its Common Stock, par
value .0004 per share (the "Common Stock") and warrants to purchase Common Stock
(the "Warrants") to Purchaser who is an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D, promulgated by the United States
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended (the "Securities Act") upon the terms and conditions contained herein;
and
WHEREAS, the Purchaser desires to purchase Common Stock and Warrants
upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the mutual
representations, warranties, covenants, and agreements set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. PURCHASES
1.1. Purchase of DBSI Common Stock and DBSI Warrants. Upon the terms and
subject to the conditions set forth in this Agreement, the Purchaser hereby
agrees to purchase from the Company, and the Company hereby agrees to issue and
sell to the Purchaser, 500,000 shares of Common Stock (the "DBSI Common Stock")
and 500,000 Warrants, each Warrant granting the holder thereof the right to
purchase one share of Common Stock for $4.00 per share (the "DBSI Warrants").
66,667 shares of DBSI Common Stock and 66,667 DBSI Warrants shall be allocated
to Lodestone Capital Fund, LLC; 333,333 shares of DBSI Common Stock and 333,333
DBSI Warrants shall be allocated to Fourteen Hill Capital, LP; 83,333 shares of
DBSI Common Stock and 83,333 DBSI Warrants shall be allocated to High Peak
Limited; and 16,667 shares of DBSI Common Stock and 16,667 shares of DBSI
Warrants shall be allocated to Michael Fitzsimmons. The exercise period of the
DBSI Warrants shall be for a period of three years, shall be redeemable under
certain conditions, and shall have the terms as set forth in the Warrant
Agreement, a form of which is attached hereto and made a part hereof as Exhibit
A.
<PAGE>
1.2. Consideration. In consideration of the purchase in Section 1.1, the
Purchaser hereby agrees to pay to the Company the aggregate amount of one
million five-hundred thousand dollars ($1,500,000) (the "Consideration").
Lodestone Capital Fund, LLC shall pay two hundred thousand dollars ($200,000) of
the Consideration, Fourteen Hill Capital, LP shall pay one million dollars
($1,000,000) of the Consideration, High Peak Limited shall pay two hundred fifty
thousand dollars ($250,000) of the Consideration, and Michael Fitzsimmons shall
pay fifty thousand dollars ($50,000) of the Consideration. Said obligations
shall be independent, not joint and several.
1.3. Wire Transfer Instructions. The Consideration provided for in
Section 1.2 above shall be delivered to the Company's legal counsel by the
Purchaser via wire transfer to the following:
Bartel Eng Linn & Schroder, Client Trust Account
Wells Fargo Bank
400 Capitol Mall
Sacramento, CA 95814
Account No.: 0168-032878
ABA No.: 121000248
Customer Service Phone Number: (916) 920-2507
1.4. Closing Date. On the day such consideration is delivered to the
Company as set forth in Section 1.3 above, the Company shall deliver to the
Purchaser the DBSI Common Stock and DBSI Warrants (the "Closing Date").
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser that:
2.1. Due Organization; Good Standing; and Corporate Power. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted, and to own, lease, and operate any properties related to such
business, except where the failure to have such power and authority would not
individually or in the aggregate have a Material Adverse Effect (as defined
below). The Company is duly qualified or licensed to do business and is in good
standing in the State of California. For purposes of this Agreement, a "Material
Adverse Effect" shall mean an event that could reasonably be expected to have a
material adverse effect on the business of the Company, or on its results of
operations, properties or financial condition; including, but not limited to,
any event which reasonably could be expected to result in a potential liability
to the Company either individually or in the aggregate in excess of Two Hundred
Fifty Thousand Dollars ($250,000).
<PAGE>
2.2. Capitalization and Voting Rights.
(a) On the Closing Date, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, of which 9,232,717
shares shall be issued and outstanding, including the DBSI Common Stock, and
5,000,000 shares of Preferred Stock, par value .0004 per share, of which no
shares are issued and outstanding. All of such issued and outstanding shares of
Common Stock will be validly issued, fully paid, and the holders thereof will
not be entitled to any preemptive or other similar rights. The rights,
privileges, preferences, and restrictions of the Common Stock and Preferred
Stock are as stated in the Company's Articles of Incorporation. In connection
with the Company's Stock Option Plans, 1,481,380 shares of Common Stock have
been reserved for issuance to employees of the Company under the Plans (the
"Employee Options"). In addition to the shares reserved for issuance pursuant to
the exercise of the Employee Options, 4,594,330 shares of Common Stock have been
reserved for issuance sufficient for the exercise of (i) the DBSI Warrants (the
"Warrant Shares"), as more fully set forth in the Warrant Agreement, and (ii)
the options and warrants, in addition to the DBSI Warrants, which are set forth
on the Schedule of Options, Warrants, and Rights that is attached hereto and
made a part hereof as Exhibit B. This Schedule contains a complete list of
warrants, options, and other rights authorized and/or issued by the Company as
of the Closing Date. All of such issued and outstanding warrants, options,
Employee Options, and other rights will be validly issued and the holders
thereof will not be entitled to any preemptive or other similar rights. Except
as set forth above, there are no outstanding rights, plans, options, warrants,
conversion rights, or agreements for the purchase or acquisition from the
Company of capital stock.
(b) The Company is not a party or subject to any agreement or
understanding that affects or relates to the voting or giving of written
consents with respect to any security or the voting by any director of the
Company.
(c) The shares of Common Stock currently outstanding, all
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal) or agreements for the purchase or acquisition from
the Company of any shares of its capital stock have been granted in accordance
with the registration or qualification provisions of the Securities Act and any
relevant state securities laws or pursuant to valid exemptions therefrom.
(d) Except as set forth in the Schedule of Registration Rights
which is attached hereto and made a part hereof as Exhibit C and as contemplated
herein, the Company has not granted or agreed to grant any registration rights,
including piggyback rights, to any Person. "Person" shall mean any individual,
corporation, association, partnership, group (as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), joint
venture, business trust or unincorporated organization, or a governmental agency
or authority or political subdivision thereof. To the Company's knowledge, no
shareholder has entered into any agreements with respect to the voting of
capital shares of the Company.
<PAGE>
(e) The Company has not issued any capital stock, warrants,
options, or other rights that are subject to a right of repurchase in favor of
the Company.
2.3. Authorization.
(a) All corporate action on the part of the Company, its
officers, directors, and stockholders necessary for the execution and delivery
of this Purchase Agreement, the Warrant Agreement, and all other agreements and
instruments contemplated thereunder, has been taken.
(b) The DBSI Common Stock when issued and delivered for the
consideration expressed and in compliance with the provisions of this Agreement,
will be duly authorized, validly issued, fully paid, and nonassessable, and will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement and under applicable federal and state securities laws.
(c) The DBSI Warrants, when issued and delivered for the
consideration expressed and in compliance with the provisions of this Agreement,
will be duly authorized, validly issued, and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement, the Warrant
Agreement, and under applicable federal and state securities laws, and shall
constitute binding and enforceable obligations of the Company in accordance with
the terms of the Warrant Agreement.
(d) On the Closing Date, the Warrant Shares will have been duly
and validly reserved for issuance and, upon issuance in compliance with the
Warrant Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, will be free of restrictions on transfer other than restrictions
on transfer under this Agreement, the Warrant Agreement, and under applicable
federal and state securities laws.
2.4. Subsidiaries. Global Energy Metering Service, Inc., a Delaware
corporation, and Newstar Limited, a Bermuda corporation, are wholly-owned
subsidiaries of the Company (each a "Subsidiary" and, collectively, the
"Subsidiaries"). In addition, the Company owns a 20% interest in E-SAT, Inc.
Other than as set forth in this Section 2.4, the Company does not own or
control, directly of indirectly, a majority interest in any other corporations
or other entities and is not a party in any joint venture, partnership, or
similar arrangement.
2.5. FCC License. The Federal Communications Commission has approved
E-SAT, Inc.'s application for a license to operate a low earth satellite system
(the "License"). E-SAT, Inc. is 80% owned by EchoStar Communications Corporation
and 20% owned by the Company. The Company will use its best efforts to obtain a
controlling interest in E-SAT, Inc.
2.6. No Conflict; No Consents or Approvals Required. The Company is not
in violation or default of any provision of its articles of incorporation or
bylaws or in violation or default under any judgment, order, writ, or decree or
agreement to which it is a party or by which it is bound, or, to the best of its
knowledge, of any provision of any federal or state statute, rule or regulation
of any
<PAGE>
country applicable to the Company which violation or default, or violations and
defaults in the aggregate, would have a Material Adverse Effect. Neither the
execution and delivery of this Agreement or the Warrant Agreement by the
Company, nor the consummation by the Company of the transactions contemplated
therein will:
(a) conflict with or violate any provision of the Certificate
of Incorporation or Bylaws of the Company;
(b) conflict with or violate any law, rule, regulation,
ordinance, order, writ, injunction, judgment, or decree applicable to the
Company or by which it or any of its properties or assets are bound or affected;
or
(c) conflict with or result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, cancellation,
suspension, revocation, impairment, forfeiture, or nonrenewal of, or result in
the creation of any lien, charge, or encumbrance on any of the properties or
assets of the Company pursuant to any of the terms, conditions, or provisions
of, any material note, bond, mortgage, indenture, deed of trust, lease, permit,
license, franchise, authorization, agreement, or other instrument or obligation
to which the Company is a party or by which the Company or any of its respective
properties or assets are bound or affected.
2.7. Disclosure. The Company has provided the Purchaser with all the
information reasonably available to it that the Purchaser has requested for
determining whether to purchase the DBSI Common Stock and DBSI Warrants. Neither
this Agreement, the exhibits and schedules hereto, the Warrant Agreement, nor
any other written statements or certificates made or delivered by the Company to
the Purchaser in connection herewith including, but not limited to, the
Company's Registration Statement on Form SB-2 declared effective on November 30,
1998 ("Registration Statement"), Form 10-KSB for the year ended December 31,
1997, the Company's Form 10-QSB for the nine months ended September 30, 1998, or
the proxy statement for the Company's 1998 annual meeting of stockholders,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein and therein not misleading.
2.8. [Intentionally Left Blank.]
2.9. Offering. Assuming the accuracy of the representations set forth in
Section 3 hereof, the offer, sale, and issuance of the DBSI Common Stock and the
DBSI Warrants to the Purchaser on the Closing Date as contemplated by this
Agreement are exempt from the registration requirements of the Securities Act.
2.10. Binding Effect. Each of this Agreement and the Warrant Agreement
constitutes a valid and binding agreement of the Company, enforceable in
accordance with its respective terms subject to applicable bankruptcy,
insolvency, and other laws affecting the enforcement of creditors' rights
generally. Each of the shares of DBSI Common Stock, the DBSI Warrants, and the
Warrant
<PAGE>
Shares (collectively, the "Securities"), when issued pursuant to this Agreement
and the Warrant Agreement, shall constitute a valid and binding obligation of
the Company.
2.11. Governmental Regulation. Except as required pursuant to the
Securities Act, the Exchange Act and state securities laws, the Company is not
subject to any Federal or state law or regulation limiting its ability to issue
and perform its obligations under the Securities.
2.12. Permits. The Company has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could have a Material Adverse Effect, and the
Company reasonably believes it can obtain, directly or indirectly and without
undue burden or expense, any similar authority, including, but not limited to,
the License, for the conduct of its business as planned to be conducted. The
Company is not in default under any of such franchises, permits, licenses, or
other similar authority where such default, or defaults in the aggregate, would
have a Material Adverse Effect.
2.13. Financial Authorization. The consolidated balance sheet of the
Company as of December 31, 1997 (the "1997 Balance Sheet") and related
consolidated statement of operations, changes in stockholders' equity and cash
flows for the fiscal year then ended, reported on by Coopers & Lybrand L.L.P.,
included in the Company's Form 10-KSB for the year ended December 31, 1997,
fairly present, in conformity with generally accepted accounting principles, the
consolidated financial position of the Company as of such date and results of
operations and cash flows for such fiscal year.
(a) The consolidated balance sheet of the Company as of September
30, 1998 (the "September 1998 Balance Sheet") and the related unaudited
consolidated statement of operations, for the fiscal quarter then ended,
included in the Company's Form 10-QSB for the nine months ended September 30,
1998, fairly present, in conformity with generally accepted accounting
principles applied on a basis consistent with the financial statements referred
to in Section 2.13, the consolidated financial position of the Company as of
such date and its consolidated results of operations for the nine months then
ended (subject to normal year-end adjustments).
(b) Except as set forth in the Company's Registration Statement,
1997 Balance Sheet, or the September 1998 Balance Sheet, and disclosed in
section 2.13(a), the Company does not have any material liabilities, contingent
or otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to September 30, 1998, and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in the Company's
1997 Balance Sheet and September 1998 Balance Sheet which, in both cases,
individually or in the aggregate, are material to the financial condition or
operating results of the Company.
2.14. Litigation. There is no action, suit, proceeding, or investigation
pending or, to the knowledge of the Company, currently threatened against the
Company that questions the validity of this Agreement or any other agreement or
instrument contemplated hereunder or the right of the Company to enter into such
agreements, or to consummate the transactions contemplated hereby or
<PAGE>
thereby, or that might have a Material Adverse Effect on the Company. The
Company is not a party to or subject to the provisions of any order, writ,
injunction, judgment, or decree of any court or government agency or
instrumentality. There is currently no action, suit, proceeding, or
investigation by the Company pending or that the Company intends to initiate
that would have a Material Adverse Effect.
2.15. Tax Matters.
(a) The Company has fully and timely, properly and accurately
filed all material tax returns and reports required to be filed by them,
including all federal, foreign, state, and local returns and reports for all
years and periods for which any such returns or reports were due. All income,
sales, use, occupation, property, or other taxes or assessments due from the
Company have been paid, and there are no pending assessments, asserted
deficiencies or claims for additional taxes that have not been paid. There are
no tax liens on any property or assets by any applicable government agency
except those not yet due. No state of facts exists or has existed which would
constitute grounds for the assessment of any penalty or any further tax
liability beyond that shown on the respective tax reports or returns. There are
no outstanding agreements or waivers extending the statutory period of
limitation applicable to any federal, state, or local income tax return or
report for any period.
(b) All taxes which the Company has been required to collect or
withhold have been duly withheld or collected and, to the extent required, have
been paid to the proper taxing authority.
(c) The Company is not a party to any tax-sharing agreement or
similar arrangement with any other party.
(d) At no time has the Company been included in the federal
consolidated income tax return of any affiliated group of corporations.
(e) The Company is not currently under any contractual obligation
to pay any government agency any tax obligations of any other person or to
indemnify any other person with respect to any tax.
(f) The Company does not have any Employee Benefit Plan, as
defined in the Employee Retirement Income Security Act of 1974.
2.16. Absence of Certain Changes or Events. Since September 30, 1998,
the Company has not:
(a) suffered any material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in the
results of operations, of the Company, whether as a result of any revocation of
a license or right to do business, fire, explosion, accident, casualty,
<PAGE>
labor trouble, flood, drought, riot, storm, condemnation, or other public force
or, to the knowledge of the Company, as a result of any legislative or
regulatory change or other events or circumstances;
(b) experienced any change in the assets or liabilities, or in
the business or condition, financial or otherwise, or in the results of
operations, of the Company except (i) in the ordinary course of business or (ii)
resulting from the private placement of the Company's securities, as set forth
on Exhibit C hereto, for cash/or services;
(c) suffered any physical damage, physical destruction or
physical loss, whether or not covered by insurance, in an aggregate amount in
excess of One Hundred Thousand Dollars ($100,000);
(d) granted or agreed to make any increase in the compensation
payable or to become payable by the Company to its officers or employees, except
those occurring in the ordinary course of business or approved by the Company's
Compensation Committee;
(e) declared, set aside, or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of the Company
or declared any direct or indirect redemption, retirement, purchase, or other
acquisition by the Company of such shares;
(f) issued any shares of capital stock of the Company, or any
warrants, rights, options other than those set forth on Exhibit B and Exhibit C
hereto or entered into any commitment relating to the shares of the Company;
(g) made any change in the accounting methods or practices it
follows, whether for general financial or tax purposes, or any change in
depreciation or amortization policies or rates adopted therein;
(h) sold, leased, abandoned, or otherwise disposed of any real
property or any machinery, equipment, or other operating property other than in
the ordinary course of business;
(i) sold, assigned, transferred, licensed, or otherwise disposed
of any patent, trademark, trade name, brand name, copyright (or pending
application for any patent, trademark, or copyright), invention, work of
authorship, process, know-how, formula, or trade-secret or interest thereunder
or other intangible asset except in the ordinary course of business;
(j) suffered any dispute, to the knowledge of the Company,
involving any employee that would have a Material Adverse Effect;
(k) engaged in any activity or entered into any material
commitment or transaction (including without limitation any borrowing or capital
expenditure), in either case, other than in the ordinary course of business;
<PAGE>
(l) to the knowledge of the Company, incurred any liabilities
absolute or contingent except for accounts payable or accrued salaries that have
been incurred in the ordinary course of business and consistent with past
practices;
(m) permitted or allowed any of its material property or assets
to be subjected to any mortgage, deed of trust, pledge, lien, security interest,
or other encumbrance of any kind, other than any purchase money security
interests incurred in the ordinary course of business;
(n) [intentionally left blank];
(o) paid, loaned, or advanced any amount to, or sold,
transferred, or leased any properties or assets to, or entered into any
agreement or arrangement with any of its affiliates, officers, directors, or
shareholders or any affiliate or associate of any of the foregoing except for
transactions which are normal and customary in employment agreements relating to
relocation expenses;
(p) agreed to take any action described in this Section 2.16 or
outside of its ordinary course of business or which would constitute a breach of
any of the representations contained in this Agreement.
2.17. Title and Related Matters. The Company has good and marketable
title to all the properties, interests in properties or assets, real and
personal, reflected in the September 1998 Balance Sheet (except the properties,
interests in properties, and assets sold or otherwise disposed of since the date
of the September 1998 Balance Sheet in the ordinary course of business), free
and clear of all mortgages, liens, and pledges, charges, encumbrances of any
kind or character, except the lien of current taxes not yet due and payable and
except for liens which in the aggregate do not secure more than Ten Thousand
Dollars ($10,000) in liabilities. To the knowledge of the Company, the equipment
of the Company and its Subsidiaries used in the operation of their respective
businesses is in good operating condition and repair, normal wear and tear
excepted. All real or personal property leases to which the Company and/or its
Subsidiaries are a party are valid, binding, enforceable, and effective in
accordance with their respective terms, subject to (a) laws of general
application relating to bankruptcy, insolvency, and the relief of debtors, and
(b) rules of law governing specific performance, injunctive relief, and other
equitable remedies. To the knowledge of the Company, there is not under any of
such leases any existing material default by the Company or its Subsidiaries, or
to the knowledge of the Company, any other event of default or event which, with
notice or lapse of time or both, would constitute a material default by any
other party to such leases.
2.18. Intellectual Property. The Company has sufficient title and
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights, and processes necessary for its
business as now conducted without, to the knowledge of the Company, any conflict
with or infringement of the rights of others. The Company has not received any
communications alleging that it has violated or, by conducting its business as
proposed, would
<PAGE>
violate any of the patents, trademarks, service marks, trade names, copyrights,
or trade secrets or other proprietary rights of any other person or entity. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants, or commitments of any nature) or other
agreement, or subject to any judgment, decree, or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company, or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement or any other agreement or instrument contemplated
hereunder, nor the carrying on of the Company's business by its employees, nor
the conduct of its business as proposed, will, to the best of the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. The Company does
not believe that it is or will be necessary to utilize any inventions of any of
its respective employees (or people it currently intends to hire) made prior to
their employment by the Company.
2.19. Negotiations. A Memorandum of Understanding that had recently been
entered into between DBSI and MATRA Marconi Space France has now been terminated
without liability, and no negotiations are ongoing between the parties. Another
Memorandum of Understanding that had recently been entered into between DBSI and
SAIT Radio Holland has also been terminated without liability; however, the
parties are continuing to negotiate with respect to SAIT Radio Holland's
construction of data messaging transmitters for use in connection with DBSI's
proposed automated meter reading service. DBSI is involved in ongoing
negotiations with Enron Corporation with respect to a possible equity
investment. DBSI recently entered into an Authorization to Proceed with Alcatel
Space Industries, Paris ("Alcatel") to commence construction activities relating
to the E-SAT satellite system. Concurrent with the Authorization to Proceed,
DBSI and Alcatel also signed a Memorandum of Understanding under which the
parties are to negotiate in good faith until March 15, 1999, in an effort to
agree upon a definitive end-to-end space craft contract to construct, launch,
and operate six LEO satellites for the E-SAT network which would satisfy E-SAT's
FCC requirements with respect to the commencement of construction of two
satellites by April 1999. The proposed contract would include a combination of
fixed price and cost-plus incentive components valued at approximately $111
million. DBSI has entered into negotiations with Nations Bank/Montgomery
Securities with respect to the financing in this amount for the satellite
construction. No assurance can be given that any agreement for financing will be
reached with Nations Bank/Montgomery Securities. Moreover, execution of the
proposed contract is subject to a number of conditions including, but not
limited to, approval by each party's board of directors and completion of a due
diligence review of DBSI by Alcatel. No assurance can be given that DBSI will be
able to enter into any space craft agreement. DBSI has also entered into a
launch reservation agreement with Eurockot Launch Services GmbH ("Eurockot"), a
joint venture between Daimler- Benz Aerospace AG and Khrunichev State Research
and Production Space Service, whereby Eurockot has reserved a launch opportunity
on the launch vehicle Rockot at the launch site Plesetzk, Russia during a
specific period. It is anticipated that any launch will require approval by a
governmental agency of the Russian Federation. No assurance can be given that
DBSI and Eurockot will enter into a Launch Services Agreement to provide for a
launch vehicle for E-SAT's LEO
<PAGE>
satellites or that such launch will be approved by the Russian Federation. DBSI
will use its best efforts to successfully conclude all of its ongoing
negotiations.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser represents and warrants that:
3.1. Authorization. All action on the part of the Purchaser, and if the
Purchaser is a corporation, its officers, directors, and stockholders, necessary
for the purchase of the DBSI Common Stock and DBSI Warrants pursuant hereto and
the performance of the Purchaser's obligations hereunder, has been taken.
3.2. Purchase Entirely for Own Account. This Agreement is made with the
Purchaser in reliance upon such Purchaser's representation to the Company, which
by the Purchaser's execution of this Agreement the Purchaser hereby confirms,
that the Securities to be purchased by the Purchaser are being acquired for
investment purposes for the Purchaser's own account and not with a view to the
resale or distribution of any part thereof except in accordance with applicable
federal and state securities laws.
3.3. Reliance Upon Purchaser's Representations. The Purchaser
understands that the Securities have not been registered under the Securities
Act on the grounds that the transactions contemplated by this Agreement and the
issuance of the DBSI Common Stock and DBSI Warrants hereunder are exempt from
registration under the Securities Act pursuant to Section 4(2) thereof, and
Regulation D promulgated thereunder, and that the Company's reliance on such
exemption is predicated on the Purchaser's representations set forth herein.
3.4. Receipt of Information. The Purchaser has received all the
information, including, but not limited to, the Company's Registration
Statement, Form 10-KSB for the year ended December 31, 1997, Form 10-QSB for the
nine months ended September 30, 1998, and the Company's proxy statement for its
1998 annual meeting of stockholders, as well as all other information it
considers necessary or appropriate for deciding whether to purchase the DBSI
Common Stock and DBSI Warrants. The Purchaser further represents that it has had
the opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the DBSI Common Stock and the DBSI
Warrants hereby, and the business, properties, prospects, and financial
condition of the Company and to obtain additional information (to the extent the
Company possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information furnished
to the Purchaser or to which the Purchaser has access. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
Section 2 hereof or the right of the Purchaser to rely thereon.
3.5. Investment Experience. The Purchaser represents that it is
experienced in evaluating and investing in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of the investment, and has such knowledge and
<PAGE>
experience in financial and business matters that it is capable of evaluating
the merits and risks of the investment in the DBSI Common Stock and the DBSI
Warrants. The Purchaser further represents that it has not been organized solely
for the purpose of acquiring the DBSI Common Stock and the DBSI Warrants.
3.6. Accredited Investor. The Purchaser represents that it is an
"accredited investor" as that term is defined in SEC Rule 501(a) of
Regulation D, 17 C.F.R. 230.501(a).
3.7. Restricted Securities. The Purchaser understands that the
Securities issued, or to be issued, hereunder may not be sold, transferred, or
otherwise disposed of without registration under the Securities Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering the Securities, or an available exemption from registration
under the Securities Act, the Securities must be held indefinitely. In
particular, the Purchaser is aware that the Securities may not be sold pursuant
to SEC Rule 144, 17 C.F.R. 230.144 ("Rule 144"), unless all of the conditions of
that Rule are met.
3.8. Legends. To the extent applicable, each certificate or other
document evidencing the Securities shall be endorsed with the legend set forth
in Section 4.2 herein.
4. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH
SECURITIES ACT; REGISTRATION RIGHTS
4.1. Restrictions on Transferability. The Securities shall not be
transferable, except upon the conditions specified in this Section 4. The
Purchaser will cause any successor or proposed transferee of their Securities to
agree to take and hold such Securities subject to the conditions specified in
this Section 4. The Purchaser acknowledges the restrictions upon its right to
transfer the Securities set forth in this Section 4.
4.2. Restrictive Legend. Each certificate representing the Securities
shall (unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
<PAGE>
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO (i) A REGISTRATION
STATEMENT RELATING TO THE SECURITIES WHICH IS EFFECTIVE UNDER THE
SECURITIES ACT, (ii) RULE 144 PROMULGATED UNDER THE SECURITIES ACT OR
(iii) AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES
LAWS IS AVAILABLE."
Each certificate evidencing the Securities which have been
transferred pursuant to Section 4.3 below shall be stamped or otherwise
imprinted with the legend set forth above unless the Company receives a written
opinion of legal counsel or other evidence reasonably satisfactory to the
Company to the effect that such legend is not required in order to ensure
compliance with any provision of the Securities Act or applicable state
securities laws.
4.3. Notice of Proposed Transfer. Prior to any proposed transfer of any
of the Securities (other than under circumstances described in Sections 4.1 or
4.2 hereof), the Holder (as such term is hereinafter defined) thereof shall give
written notice to the Company of such Holder's intention to effect such
transfer. "Holder" shall mean the Purchaser and/or any Person who (a) is (i) an
affiliate of the Purchaser or (ii) is not an affiliate of the Purchaser but the
transfer to whom is consented in writing by the Company, (b) who is a transferee
and holder of record of Securities, and (c) who agrees to be bound by the terms
of this Agreement. Each such notice shall describe the manner and circumstances
of the proposed transfer in sufficient detail. Upon reasonable request by the
Company, the Holder shall deliver a written opinion (the "Opinion") of legal
counsel, addressed to the Company and reasonably satisfactory in form and
substance to the Company and the Company's counsel, to the effect that the
proposed transfer of the Securities may be effected without registration under
the Securities Act. The Holder of such Securities shall be entitled to transfer
such Securities, subject to the restrictions contained in this Agreement, in
accordance with the terms of the notice delivered by the holder to the Company.
4.4. Registration.
4.4.1. Registration.
(a) By the Company. On or before July 31, 1999, the
Company will prepare and file with the SEC a registration statement with respect
to the Registrable Securities (as such term is hereinafter defined) and use its
reasonable best efforts to effect the registration under the Securities Act of
the Registrable Securities. "Registrable Securities" shall mean (i) the DBSI
Common Stock owned by the Holder on the Closing Date, (ii) the DBSI Warrants
owned by the
<PAGE>
Holder on the Closing Date, (iii) the Warrant Shares, and (iv) any securities of
the Company issued or distributed after the Closing Date to a Holder in respect
of the DBSI Common Stock, the DBSI Warrants, or the Warrant Shares by way of
stock dividend or stock split or other distribution, recapitalization or
reclassification and any securities of the Company acquired by a Holder upon
exercise or conversion of any such securities. As to any particular Registrable
Security, such Registrable Security shall cease to be a Registrable Security
when (x) it shall have been sold, transferred, or otherwise disposed of or
exchanged pursuant to a registration statement under the Securities Act, (y) it
shall have been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, or (z) it shall have been sold,
transferred, or otherwise disposed of in violation of this Agreement.
(b) Registration Requested by Holders. In the event
the Company fails to satisfy the requirements of Sections 4.4.1(a) and 4.4.1(d)
hereunder, then upon the written request of the Holders of the majority of
Registrable Securities which are not subject to an effective registration
statement that the Company effect the registration under the Securities Act of
all or part of such Registrable Securities specifying the amount and the
intended method of disposition thereof (the "Demand"), the Company will promptly
give notice of such requested registration to all other Holders of Registrable
Securities and, as expeditiously as possible, use its reasonable best efforts,
as provided in Section 4.4.3 hereof, to effect the registration under the
Securities Act of the Registrable Securities which the Company has been so
requested to register; provided, however, that the Company shall not be required
to effect more than one registration pursuant to this Section 4.4.1(b).
(c) Registration Statement Form. If any registration
pursuant to this Section 4.4.1 which is proposed by the Company to be effected
by the filing of a registration statement on Form SB-2 (or any successor or
similar short-form registration statement) shall be in connection with an
underwritten public offering, and if the managing underwriter or underwriters
shall advise the Company in writing that, in the opinion of such underwriter or
underwriters, the use of another form of registration statement or the inclusion
in such form of public information concerning the Company not required by such
form is of material importance to the success of such proposed offering, then
such registration shall be effected on such other form and such other
information shall be used or included.
(d) Registration Statement Deemed Effected. A
registration pursuant to this Section 4.4.1 will not be deemed to have been
effected unless it has become effective under the Securities Act and has
remained effective for 180 days or such shorter period as all the Registrable
Securities included in such registration have actually been sold thereunder. In
addition, if within 180 days after a registration has become effective, the
intended method of distribution of Registrable Securities pursuant to such
registration is materially interfered with by any stop order, injunction, or
other order or requirement of the SEC or other governmental agency or court, or
any threat thereof, or by any notice given by the Company pursuant to Section
4.4.3(a)(vi) hereof, such registration will be deemed not to have been effected
for purposes of Section 4.4.1(a).
<PAGE>
(e) Priority in Requested Registrations. Any registration under Section 4.4.1(a)
or Section 4.4.1(b) may include securities of the Company held by Persons other
than the Holders, and the Company shall have the right to include securities for
its own account. If a registration pursuant to Section 4.4.1(a) or Section
4.4.1(b) involves an underwritten offering and the managing underwriter or
underwriters in good faith advise the Holders and the Company in writing that,
in their opinion, the number of shares of Common Stock and/or Warrants
(collectively, the "Equity Securities") requested to be included in such
registration (including Equity Securities which are not Registrable Securities)
exceeds the largest number of Equity Securities which can be sold in such
offering without having an adverse effect on such offering (including the price
at which such Equity Securities can be sold) (the "Adverse Effect"), then the
Company will include in such registration (i) first, 100% of the Registrable
Securities to be registered pursuant to Section 4.4.1(a) or Section 4.4.1(b)
hereof (provided that if the number of Registrable Securities to be registered
pursuant to Section 4.4.1(a) or Section 4.4.1(b) hereof exceeds the number which
the Holders and the Company have been advised can be sold in such offering
without having the Adverse Effect, the number of such Registrable Securities to
be included in such registration by the Holders shall be allocated pro rata
among such Holders on the basis of the relative number of Registrable Securities
of each such Holder to be included in such registration); (ii) second, to the
extent the number of Registrable Securities to be registered pursuant to Section
4.4.1(a) or Section 4.4.1(b) hereof is less than the number of Equity Securities
which such Holders and the Company have been advised can be sold in such
offering without having the Adverse Effect, such number of Equity Securities
that are required to be included in such registration pursuant to a valid and
enforceable agreement with the Company (the "Priority Securities") prior to the
inclusion of any Equity Securities that the Company requests to be included in
such registration; (iii) third, to the extent that the number of Registrable
Securities and Priority Securities to be registered pursuant to Section 4.4.1(a)
or Section 4.4.1(b) hereof is less than the number of Equity Securities which
such Holders and the Company have been advised can be sold in such offering
without having the Adverse Effect, such number of Equity Securities the Company
requests to be included in such registration; and (iv) fourth, to the extent
that the number of Registrable Securities requested to be included in such
registration pursuant to Section 4.4.1(a) or Section 4.4.1(b) hereof, Priority
Securities and the Equity Securities which the Company proposes to sell for its
own account are, in the aggregate, less than the number of Equity Securities
which such Holders and the Company have been advised can be sold in such
offering without having the Adverse Effect referred to above, such number of
other Equity Securities proposed to be sold by any other Person which, in the
opinion of such managing underwriter or underwriters, can be sold without having
the Adverse Effect (provided that if the number of such Equity Securities of
such other Persons requested to be registered exceeds the number which such
Holders and the Company have been advised can be sold in such offering without
having the Adverse Effect, the number of such Equity Securities to be included
in such registration pursuant to this Section 4.4.1(e) shall be allocated pro
rata among all such other Persons on the basis of the relative number of Equity
Securities each such Person has requested to be included in such registration).
<PAGE>
4.4.2. Incidental Registrations.
(a) Right to Include Registrable Securities. Each time
the Company shall determine to file a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of Equity
Securities by it or by any holders of Equity Securities, the Company will give
prompt written notice of its determination to each Holder and of such Holder's
rights under this Section 4.4.2 at least 21 days prior to the anticipated filing
date of such registration statement; provided, however, that no such notice
shall be required if the form of registration statement and the rules of the SEC
would not permit sales of Registrable Securities by the Holders pursuant to the
registration statement. Upon the written request of each Holder made at any time
within 14 days from the date of receipt of the written notice provided for
herein (which request shall specify the number of Registrable Securities
intended to be disposed of by such Holder), the Company will use its reasonable
best efforts, as provided in Section 4.4.3 hereof, to effect the registration
under the Securities Act of all Registrable Securities which the Company has
been so requested to register by the Holders thereof and which are not subject
to an effective registration statement; provided, however, that (i) if, at any
time after giving written notice of its intention to register the sale of Equity
Securities and prior to the effective date of the registration statement filed
in connection with such registration and relating to a proposed offer and sale
of its Equity Securities by the Company, the Company shall determine for any
reason not to proceed with the proposed registration of the Equity Securities to
be sold by it, the Company may, at its election, give written notice of such
determination to each Holder of Registrable Securities and thereupon shall be
relieved of its obligation hereunder to register any Registrable Securities in
connection with such registration, and (ii) if such registration involves an
underwritten offering for the registration of the issuance and sale of Equity
Securities by the Company, all Holders of Registrable Securities requesting to
be included in the Company's registration must sell their Registrable Securities
to the underwriters on the same terms and conditions as apply to the Company,
with such differences, including any with respect to indemnification and
liability insurance, as may be customary or appropriate in combined primary and
secondary offerings. No registration effected under this Section 4.4.2 shall
relieve the Company of its obligations to effect the Initial Registration or any
registration upon demand under Section 4.4.1 hereof. Moreover, the Company shall
not be required to effect more than one actual registration pursuant to this
Section 4.4.2(a).
(b) Priority in Incidental Registrations. If a
registration pursuant to this Section 4.4.2 involves an underwritten offering
and the managing underwriter or underwriters in good faith advise the Company in
writing that, in their opinion, the number of Equity Securities which the
Company, the Holders, and any other Persons intend to include in such
registration exceeds the largest number of such Equity Securities which can be
sold in such offering without having an Adverse Effect on such offering, then
the Company will include in such registration (i) first, if the registration
pursuant to this Section 4.4.2 was initiated by any Person holding Equity
Securities exercising demand registration rights, 100% of the Equity Securities
such other Person proposes to sell (except to the extent the terms of such other
Person's registration rights provide otherwise); (ii) second, to the extent that
the number of Equity Securities which such other Persons exercising demand
registration rights and/or piggyback registration rights propose to sell is less
than
<PAGE>
the number of Equity Securities which the Company has been advised can be sold
in such offering without having the Adverse Effect referred to above, then 100%
of the Registrable Securities which the Holders have requested to be in such
registration; and (iii) third, to the extent that the number of Equity
Securities which such other Persons exercising demand registration rights and
the Holders of Registrable Securities propose to sell is less than the number of
Equity Securities which the Company has been advised can be sold in such
offering without having the Adverse Effect referred to above, such number of
Equity Securities the Company proposes to sell for its own account; and such
number of Equity Securities which other Persons have requested to be included in
such registration and which, in the opinion of such managing underwriter or
underwriters, can be sold without having the Adverse Effect, such number of the
Company's Equity Securities to be included on a pro rata basis among the Company
and other Persons on the basis of the relative number of shares of Common Stock
beneficially owned (as such term is used in Rule 13d-3 of the Exchange Act) by
the Company and other Persons. For purposes of this Section 4.4.2(b),
Registrable Securities shall include all Equity Securities of the Company
subject to, or covered by, a valid and enforceable agreement with the Company to
include such securities in the registration.
4.4.3. Registration Procedures.
(a) The Company shall as expeditiously as possible:
i. prepare and file with the SEC a registration statement with respect to such
Registrable Securities as soon as reasonably possible and use its
reasonable best efforts to cause such registration statement to become
effective;
ii. prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period
not less than 180 days and to comply with the provisions of the Exchange
Act, and the rules and regulations promulgated thereunder, with respect to
the disposition of all the Registrable Securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the Holders thereof set forth in such
registration statement; provided, that (A) before filing a registration
statement (including an -------- initial filing) or prospectus, or any
amendments or supplements thereto, the Company will furnish to counsel
selected by the Holder of the Registrable Securities covered by such
registration statement copies of all documents proposed to be filed, which
documents will be subject to the review and comment of such counsel, and
(B) the Company will notify each Holder of Registrable Securities covered
by such registration statement of any stop order issued or threatened by
the SEC, any other order suspending the use of any preliminary
<PAGE>
prospectus or of the suspension of the qualification of the
registration statement for offering or sale in any jurisdiction, and take
all reasonable actions required to prevent the entry of such stop order,
other order or suspension or to remove it if entered;
iii. furnish to each Holder of Registrable Securities covered by such
registration statement such number of copies of the registration statement
and of each amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and summary
prospectus) in conformity with the requirements of the Securities Act, and
such other documents as each Holder of Registrable Securities covered by
such registration statement may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Holder;
iv. use its reasonable best efforts to register or qualify such Registrable
Securities covered by such registration statement under the state
securities or blue sky laws of such jurisdictions as each Holder of
Registrable Securities covered by such registration statement and, if
applicable, each underwriter, may reasonably request, and do any and all
other acts and things which may be reasonably necessary to consummate the
disposition in such jurisdictions of the Registrable Securities owned by
such Holder, except that the Company shall not for any purpose be required
to qualify generally to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this clause (iv), it would
not be obligated to be so qualified;
v. use its reasonable best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to
enable the Holders thereof to consummate the disposition of such
Registrable Securities;
vi. if, at any time when a prospectus relating to the Registrable Securities is
required to be delivered under the Securities Act, any event shall have
occurred as the result of which any such prospectus as then in effect would
include an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, immediately give written notice thereof
to each Holder and the managing underwriter or underwriters, if any, of
such Registrable Securities and prepare and furnish to each such Holder a
reasonable number of copies of an
<PAGE>
amended or supplemental prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of material fact or omit
to state a material fact required to be stated therein or necessar
to make the statements therein not misleading;
vii. use its reasonable best efforts to list such Registrable Securities on any
securities exchange on which similar securities of the Company are then
listed, and enter into custom ary agreements including a listing
application and indemnification agreement in customary form, provided that
the applicable listing requirements are satisfied, and provide a transfer
agent and registrar for such Registrable Securities covered by such
registration statement not later than the effective date of such
registration statement;
viii.enter into such customary agreements (including an underwriting
agreement in customary form) and take such other actions as each
Holder of Registrable Securities being sold reasonably request in
order to expedite or facilitate the disposition of such
Registrable Securities, including customary indemnification and
opinions;
ix. use its reasonable best efforts to obtain all "comfort" letters
and consents from the Company's independent public accountants
and all legal opinions and consents from the Company's legal
counsel and the cooperation of other experts, all in customary
form and covering matters of the type customarily covered by such
letters, opinions, and experts as such Holders or the
underwriters retained by such Holders shall reasonably request;
x. make available for inspection by representatives of any Holder of
Registrable Securities covered by such registration statement,
and by any attorney, accountant, or other agent retained by any
such Holder, all financial and other records, pertinent corporate
documents and properties of the Company and its Subsidiaries, and
cause all of the Company's and its Subsidiaries' officers,
directors, and employees to supply all information and respond to
all inquiries reasonably requested by any such Holder or
representative, in connection with such registration statement
and to participate in any reasonable marketing "road show"
presentations which any such Holder or the underwriters retained
by any Holder may request; and
xi. notify counsel for each Holder of Registrable Securities included
in such registration statement and the managing underwriter or
<PAGE>
underwriters, if any, immediately, and confirm the
notice in writing, (A) when the registration
statement, or any post-effective amendment to the
registration statement, shall have become
effective, or any supplement to the prospectus or
any amendment prospectus shall have been filed, (B)
of the receipt of any comments from the SEC and (C)
of any request of the SEC to amend the registration
statement or amend or supplement the prospectus or
for additional information.
(b) Each Holder of Registrable Securities hereby agrees
that, upon receipt of any notice from the Company of the happening of any event
of the type described in Section 4.4.3(a)(vi) hereof, such Holder shall
forthwith discontinue disposition of such Registrable Securities covered by such
registration statement or related prospectus until such Holder's receipt of the
copies of the supplemental or amended prospectus contemplated by Section
4.4.3(a)(vi) hereof, and, if so directed by the Company, such Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Securities at the time of receipt of such notice. In
the event the Company shall give any such notice, the period mentioned in
Section 4.4.3(a)(ii) hereof shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 4.4.3(a)(vi) hereof and including the date when such Holder shall have
received the copies of the supplemental or amended prospectus contemplated by
Section 4.4.3(a)(vi) hereof. If for any other reason the effectiveness of any
registration statement filed pursuant to Section 4.4.1 hereof is suspended or
interrupted prior to the expiration of the time period regarding the maintenance
of the effectiveness of such registration statement required by Section
4.4.3(a)(ii) hereof so that Registrable Securities may not be sold pursuant
thereto, the applicable time period shall be extended by the number of days
equal to the number of days during the period beginning with the date of such
suspension or interruption to and ending with the date when the sale of
Registrable Securities pursuant to such registration statement may be
recommended.
(c) Each Holder hereby agrees to provide the Company, upon
receipt of its request, with such information about such Holder to enable the
Company to comply with the requirements of Securities Act and to execute such
certificates as the Company may reasonably request in connection with such
information and otherwise to satisfy any requirements of law.
4.4.4. [Intentionally Left Blank]
4.4.5. Expenses.
(a) The Registration Expenses (as hereinafter defined)
for the registration effected pursuant to Sections 4.4.1 hereof shall be borne
by the Company, except any underwriting discounts or commissions or transfer
taxes, if any, attributable to the sale of Registrable Securities by the
Holders.
<PAGE>
(b) The Registration Expenses shall include, without
limitation, all out-of-pocket expenses incident to the Company's performance of
or compliance with this Agreement and the Warrant Agreement, including, without
limitation, all SEC and stock exchange registration filing fees and expenses,
printing expenses, the fees and expenses incurred in connection with the listing
of Equity Securities to be registered on each securities exchange or national
market system on which Equity Securities issued by the Company are then listed,
all fees and disbursements of counsel for the Company and all independent
certified public accountants (including the expenses of any special audit and
"cold comfort" letters required by or incident to such performance and
compliance), securities laws liability insurance (if the Company decides to
obtain such insurance and the Holders are named insureds of such insurance), the
fees and disbursements of the underwriters (including, without limitation,
expenses relating to "road shows" and other marketing activities), the
reasonable fees and expenses of any special experts and other Persons retained
by the Company in connection with such registration, and the reasonable fees of
counsel retained by Holders in connection with each such registration.
4.4.6. Modification Upon Issuance or Distribution of Other Equity
Securities. If, after the date of this Agreement, the Company issues or
distributes any equity security other than DBSI Common Stock and/or DBSI
Warrants by way of stock dividend or stock split or other distribution,
recapitalization, or reclassification, the Company and Purchaser shall agree
upon appropriate additions to and modifications of this Agreement to (a)
preserve to Purchaser all of the benefits of this Agreement and the Warrant
Agreement and (b) extend to Purchaser similar rights with respect to such other
securities as are provided in this Agreement and the Warrant Agreement to
Purchaser with respect to the Equity Securities if the Company registers shares
of such other security.
4.4.7. No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its Common Stock or Warrants which is
inconsistent with the rights granted to the Holders in this Section 4.4.
4.5. Indemnification and Contribution.
(a) The Company will indemnify the Holders, their successors, and
each of the Holder's officers, directors, and partners, and each Person
controlling the Holders, and its or their successors, officers, directors, and
partners with respect to which registration, qualification, or compliance has
been effected pursuant to this Section 4, against all claims, losses, damages,
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular, or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse the Holders,
<PAGE>
their successors and each of their officers, directors, and partners, and each
Person controlling the Holders, and its or their successors, officers,
directors, and partners for any legal and any other expenses reasonably incurred
in connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable to any Holder
in any such case to the extent that such Holder's claim, loss, damage,
liability, or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by the Holders,
and stated to be specifically for use therein.
(b) Each Holder and its successors will, if Registrable
Securities held by them are included in the securities as to which such
registration, qualification, or compliance is being effected, indemnify the
Company against all claims, losses, damages, and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and its directors and officers for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by any Holder (or
the Holder's successors) and stated to be specifically for use therein;
provided, however, that the obligations of the Holders (or the Holders'
successors) hereunder shall be limited to an amount equal to the net proceeds to
the Holders (or their successors) of Registrable Securities sold or to be sold
in such registration.
(c) Each party entitled to indemnification under this Section 4.5
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld or delayed), and the Indemnified Party may participate
in such defense at its own expense (except in the event such Indemnified Party
may not be represented by the counsel retained by the Indemnifying Party due to
a conflict of interest, in which case the Indemnifying Party shall pay the
counsel fees incurred by the Indemnified Party), and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 4. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation alleged
by such claimant or plaintiff. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as
<PAGE>
an Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with defense of such claim and litigation
resulting therefrom.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Party or any officer, director or controlling person
of such Indemnified Party and will survive the transfer of Registrable
Securities. The Indemnifying Party also agrees to make such provisions, as are
reasonably requested by an Indemnified Party, for contribution to such party in
the event the Indemnifying Party's indemnification is unavailable for any
reason.
4.6. Information by the Purchaser. If Registrable Securities of a Holder
(or its successors) are included in any registration, the Holder (or its
successor) shall furnish to the Company such information regarding the Holder
(or its successor) and the distribution proposed by it as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this Section
4.
4.7. Rule 144. The Company will file in a timely manner the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations promulgated thereunder. If the Company is not required to
file such reports, it will, upon the request of any Holder of Registrable
Securities, make publicly available such information. In addition, the Company
will take such further action as any Holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of any
Holder of Registrable Securities, the Company will deliver to such Holder a
written statement as to whether it has complied with such requirements.
5. MISCELLANEOUS
5.1. Entire Agreement. This Agreement, including the Warrant Agreement,
constitutes the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth therein.
5.2. Survival of Warranties. The warranties, representations, and
covenants of the Company and the Purchaser, jointly and severally, contained in
or made pursuant to this Agreement shall survive the execution and delivery of
this Agreement.
5.3. Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the Company and the
Purchaser. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the Company or the Purchaser, or their
<PAGE>
respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
5.4. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
5.5. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
5.6. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.7. Notices. All notices or other communications required or permitted
hereunder shall be in writing (except as otherwise provided herein) and shall be
deemed duly given when received by delivery in person, by facsimile, telex or
telegram or by an overnight courier service or three (3) days after deposit in
the U.S. Mail, certified with postage prepaid, addressed as follows:
If to Company: DBS Industries, Inc.
100 Shoreline Highway, Suite 190A
Mill Valley, California 94941
Attn: Fred W. Thompson
with copies to: Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, California 95814
Attn: Scott E. Bartel, Esq.
If to Purchaser: Lodestone Capital Fund, LLC
31 Davies Street, 5th Floor
London, England W1Y 1FN
Attn: Michael Fitzsimmons
Michael Fitzsimmons
c/o Lodestone Capital Fund, LLC
31 Davies Street, 5th Floor
London, England W1Y 1FN
Fourteen Hill Capital, LP
and
High Peak Limited
1700 Montgomery, Suite 250
San Francisco, CA 94911
Attn: Alan Perper
<PAGE>
with copies to: Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attn: Laurie Humphrey, Esq.
or to such other addresses as a party may designate by five (5) days' prior
written notice to the other party.
5.8. [Intentionally Left Blank]
5.9. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
5.10. Amendments and Waivers. This Agreement may not be amended,
modified or supplemented and no waivers of or consents to departures from the
provisions hereof may be given unless consented to in writing by the Company and
the Holders of a majority of the Registrable Securities.
5.11. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
5.12. Defaults. A default by any Holder in such Holder's compliance with
any of the conditions or covenants hereof or performance of any of the
obligations of such Holder hereunder shall not constitute a default by any other
Holder.
5.13. Non-Disclosure. The Company agrees not to disclose the terms and
conditions of this Agreement and the Warrant Agreement, including the identity
of the Purchaser, except as required by the Securities Act, the Exchange Act or
other applicable law, rule or regulation.
5.14 Counterparts. This Purchase Agreement may be executed through the
use of separate signature pages (including by facsimile transmission) or in any
number of counterparts, and each of such counterparts shall, for all purposes,
constitute one agreement binding on all the parties, notwithstanding that all
parties are not signatories to the same counterpart.
[remainder of page intentionally left blank -- signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
DBS Industries, Inc.
By:
Fred W. Thompson,
President
PURCHASER:
Lodestone Capital Fund, LLC
By:
Michael Fitzsimmons,
Member of Manager
Fourteen Hill Capital, LP
By:________________________________
Allan B. Perper,
President of Sole Member of
General Partner
High Peak Limited
By:_____________________________
S.E. Sandbar,
Its:
Michael Fitzsimmons, an individual
--------------------------------
Launch Services Agreement
This Launch Services Agreement is entered into by and between
DBS Industries, Inc., a Delaware corporation with principal offices
located at:
100 Shoreline HWY, STE 190A, Mill Valley, CA 94941
USA
- hereinafter referred to as Customer -
and
EUROCKOT Launch Services GmbH, a company organized under German Law with
principal offices located at:
Hunefeldstrasse 1 - 5
D - 28199 BREMEN
Germany
- hereinafter referred to as EUROCKOT -
<PAGE>
TABLE OF CONTENTS
-----------------
Pages
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ARTICLE 1 DEFINITIONS 3
ARTICLE 2 SERVICES TO BE PROVIDED 6
ARTICLE 3 CUSTOMER'S RESPONSIBILITIES 7
ARTICLE 4 COORDINATION BETWEEN THE PARTIES 8
ARTICLE 5 LAUNCH SCHEDULE 9
ARTICLE 6 PRICE 10
ARTICLE 7 PAYMENT TERMS 11
ARTICLE 8 LAUNCH POSTPONEMENTS 13
ARTICLE 9 LAUNCH SERVICE PERFORMANCE FAILURE 15
ARTICLE 10 RELAUNCH SERVICES 16
ARTICLE 11 (RESERVED) 17
ARTICLE 12 ALLOCATION OF RISKS 18
ARTICLE 13 LIMITATION OF LIABILITY 21
ARTICLE 14 INSURANCE 22
ARTICLE 15 PERMITS AND AUTHORIZATIONS 23
ARTICLE 16 RIGHT OF OWNERSHIP AND CUSTODY 24
ARTICLE 17 RIGHTS TO INTELLECTUAL PROPERTY 25
ARTICLE 18 FORCE MAJEURE 26
ARTICLE 19 CONFIDENTIALITY 27
ARTICLE 20 TERMINATION 29
ARTICLE 21 APPLICABLE LAW 30
ARTICLE 22 ARBITRATION 31
ARTICLE 23 MISCELLANEOUS 32
ANNEX 1 LAUNCH TECHNICAL SPECIFICATIONS
ANNEX 2 LAUNCH SERVICES STATEMENT OF WORK
ANNEX 3 CUSTOMER'S RESPONSIBILITIES DOCUMENT
ANNEX 4 INTERFACE CONTROL DOCUMENT
<PAGE>
ARTICLE 1
DEFINITIONS
-----------
In this Agreement, capitalized terms used and not otherwise set forth
herein shall have the following meanings, such terms being equally
applicable to the singular and plural forms.
Ancillary Equipment shall mean all equipment, devices and software to be
provided by the Customer at the Launch Site in order to prepare the
Payload for the performance of Launch Services.
Associated Services shall mean the services other than Launch Services,
to be provided by the EUROCKOT as specified in Annex 2.
Confidential Data shall have the meaning as set forth in Article 19.1 of
this Agreement.
Customer's Responsibilities Document shall mean as set forth in Annex 3,
"Customer's Responsibilities Document," hereto and made
a part hereof.
Force Majeure Event shall have the meaning as set forth in Article 18.1
of this Agreement.
Intellectual Property shall mean any inventions, software, designs,
patents, trademarks, registered designs, copyrights, trade secrets and
other proprietary information of a Party.
Intentional Ignition shall mean the moment in time when the command is
sent to open the valves of the first stage fuel and oxidiser tanks.
Interface Control Document shall have the meaning as set forth in Annex
3, "Interface Control Document," hereto and made a part hereof.
L shall mean the first day of the most recently agreed Launch Period.
Launch or Launching shall mean the intentional ignition of the first
stage engines of the Launch Vehicle followed by Lift-off of the Launch
Vehicle.
Launch Attempt shall mean the commencement of the launch sequence
of the Launch Vehicle up to and including the intentional
<PAGE>
ignition of any of the first stage engines, provided, however,
Lift-off does not occur.
Launch Day or D shall mean a calendar day (established as date for the
Launch pursuant to this Agreement) during which the Launch Window is
open.
Launch Failure shall have the meaning as set forth in Article 9.
Launch Period shall mean a period of four (4) consecutive calendar
months.
Launch Services shall mean those services to be performed by the
EUROCKOT as specified in Article 2 of this Agreement
Launch Services Statement of Work shall have the meaning as set forth in
Annex 1, "Launch Services Statement of Work", hereto and made a part
hereof.
Launch Site shall mean the physical location at Plesetzk, Russia, for
the Launch, including the associated installations and equipment used by
EUROCKOT in connection with the Launch Services and Associated Services.
Launch Slot shall mean a period of one calendar month within a Launch
Period with daily launch Window possibilities.
Launch Success shall be deemed to be accomplished if a Launch
Failure did not arise
Launch System shall mean the launch assembly complex consisting of the
Launch Vehicle; the Launch Pad, and the Payload Preparation Complex.
Launch Technical Specification shall have the meaning as set forth in
Annex 1 herto and made part hereof.
Launch Time shall mean the instant, within the Launch Window, that the
intentional ignition of the first stage engines is scheduled to take
place, definded in hours, minutes and seconds (GMT Universal Time). The
initial Launch Time occurs at the first second of the opening of the
Launch Window.
Launch Vehicle Mission or Launch Mission shall mean the mission assigned
to the Launch Vehicle as defined in Annex 1 to this Agreement.
Launch Vehicle shall mean the ROCKOT launch vehicle including the
payload dispenser system
Launch Window shall mean a time period during the Launch Day, within
which the Launch may take place.
<PAGE>
Lift-off shall mean the intentional ignition and upward acceleration of
the first stage of the Launch vehicle.
Partial Failure shall have the meaning as set forth in Article 9.1.3 of
this Agreement.
Party shall mean Customer or EUROCKOT or both according to the context.
Payload shall mean all property, including the spacecraft, as described
in Annex 3, to be flown aboard the Launch Vehicle, that is provided by
the Customer, meeting the requirements set forth in Annex 4.
Postlaunch Services shall mean the reports and range services as
defined in Paragraphs ( ) of Annex 1 to this Agreement
that are to be provided to Customer by EUROCKOT after theLaunch.
Related Participants shall mean all persons, other than the Parties and
any Third Parties, in direct or indirect contractual privity with or
having a beneficial interest in either Party, acting directly or
indirectly to perform this Agreement, including without limitation, the
contractors, sub-contractors at any tier (and suppliers of any kind) and
the respective officers, directors and agents of each of the foregoing,
or any of them. For the purpose of Article 12, Allocation of Risks,
only, Related Participants shall include any person with any right,
title or interest in the Payload.
Third Party shall mean any person or legal entity other than the Parties
and the Related Participants.
<PAGE>
ARTICLE 2
SERVICES TO BE PROVIDED
-----------------------
2.1 EUROCKOT, in consideration for the payment to be made by the
Customer under this Agreement, and in accordance with the terms and
conditions of this Agreement, shall provide two Launch Services and the
Associated Services for the purpose of launching the Customer's Payloads
into orbit from the Launch Site, utilizing the Launch Vehicle in
accordance with the documents of para. 2.3.
2.2 The obligations of the EUROCKOT with respect to the provision of
Launch Services and Associated Services for the Launch shall be deemed
to be fulfilled upon Launch, except for the provision of post launch
data described in the Statement of Work (Annex 2) and for the provision
of Relaunch Services as specified in Article 10 of this Agreement.
2.3 All Annexes and documents referred to herein are hereby incorporated
into this Agreement and shall form an integral part hereof. The Articles
of this Agreement and all Annexes hereto shall be read so as to be
consistent to the extent practicable. In the event of any ambiguity,
conflict or inconsistency among or between the various parts of this
Agreement, such ambiguity, conflict or inconsistency shall be resolved
by giving precedence to this Agreement followed by the Annexes without
any presendence among the Annexes as set forth below:
A. Launch Services Agreement, Article 1 through 23
B. Annex 1, Launch Technical Specification
C. Annex 2, Launch Services Statement of Work
D. Annex 3, Customer's Responsibilities Document
E. Annex 4, Interface Control Document
F. Any documents incorporated into Annex 1 through 4 by
reference
<PAGE>
ARTICLE 3
CUSTOMER'S RESPONSIBILITIES
---------------------------
The Customer shall, on a timely basis, perform its obligations under this
Agreement and as set forth in the Interface Control Document and the Customer's
Responsibilities Document including, without limitation, the timely delivery, at
its expense, of the Payload and the Ancillary Equipment to the Port of entry
into Russia (presently International airport Moscow) in order to meet the Launch
schedule set forth in Article 5 and the requirements for integration specified
in Interface Control Document (Annex 4).
<PAGE>
ARTICLE 4
COORDINATION BETWEEN THE PARTIES
--------------------------------
4.1 The Customer and EUROCKOT shall each designate a project coordinator
immediately following the effective date of this Agreement.
4.2 The project coordinators shall supervise and coordinate the
performance of the Launch Services and Associated Services and the
technical commitments of the respective Parties under this Agreement.
4.3 The project coordinators shall have sufficient powers to be able to
settle any technical issues that may arise during the performance of
this Agreement as well as any daily administration issues.
4.4 Either Party may replace its project coordinator by prior written
notice to the other Party, signed by an authorized representative,
indicating the effective date of designation of the new project
coordinator.
4.5 The project coordinators shall not be authorized to direct work
contrary to the requirements of or to make modifications to this
Agreement. Modifications to this Agreement shall only be made in
accordance with Article 23.4 Amendments.
<PAGE>
ARTICLE 5
LAUNCH SCHEDULE
---------------
5.1. The first Launch of three Satellites shall take place in the
following Launch Period of four (4) months:
November 2000 to February 2001
5.2 The second Launch of three Satellites shall take place in the
following Launch Period of four (4) months:
March 2001 to June 2001.
5.3 No later than six (6) months prior to the first day of those Launch
Periods, a Launch Slot of one (1) month duration shall be determined
within the Launch Period by mutual agreement of the Parties.
5.4. The Launch Day within the Launch Slot shall be determined by mutual
agreement between the Parties, no later than four (4) months prior to
the first date of the launch period.
5.5 The Launch Window shall be determined by mutual agreement between
the Parties, no later than the Final Mission Analysis Review.
<PAGE>
ARTICLE 6
PRICE
-----
6.1 The Customer shall pay EUROCKOT the price for the two Launch
Services and Associated Services to be provided under this Agreement as
follows:
6.2 The price set forth in Article 6.1 is a firm and fixed price for the
cost of the Launch Services and the Associated Services, including the
cost of third party liability insurance specified in Article 14, as any
Russian taxes and duties on the Launch Services as well as in connection
with the importation and launch of the Payload, and is not subject to
escalation of any kind, but does not include any amounts payable by the
Customer pursuant to Article 8, Launch Postponements, as well as any
additional cost arising from change requests of the Customer to the
Statement of Work, all of which amounts shall be in addition to the
price set forth in Article 6.1.
<PAGE>
ARTICLE 7
PAYMENT TERMS
-------------
7.1 Payment schedule
The Customer shall pay the price set forth in Article 6 in US
Dollars, in accordance with the following payment schedule:
% of Price % of Price % of Total
Payment date Launch 1 Launch 2 Price
------------ -------- ---------- ----------
Contract sign. 20 10 15
(3/99)
July 1, 1999 10 10 10
October 1, 10 10 10
1999
January 1, 20 10 15
2000
April 1, 2000 10 10 10
July 1, 2000 20 10 15
Nov. 2000 10 10 10
(Launch 1)
January 1, 20 10
2001
April 10 5
-
2001(Launch 2) 100
7.2 Terms and conditions of payment
7.2.1 Payments by Customer shall be made at the specific dates set forth
in this Agreement or within thirty (30) days of Customer's receipt of
the corresponding EUROCKOT invoice, whichever is later, except for the
first payment which shall be made at Agreement signature.
<PAGE>
7.2.2 The last payment of 10 % upon Launch 1 as well as upon Launch 2
shall be subject to Launch Success, and in case of a Launch Failure
shall be paid out to EUROCKOT upon successful Relaunch. In case of
Launch Failure of Launch 1, each of the remaining milestone payments of
Launch 2 shall be deferred for a period of time equal to the duration of
the Launch Failure investigation, or up to flight autorisation,
whichever is later.
7.2.3 Payments shall be made to the account designated on the relevant
invoice by telegraphic bank transfer, free of charge for EUROCKOT, with
telex notice from the issuing bank to the receiving bank, clearly
stating the value date to be applied.
7.2.4 Customer's payments shall be in the amounts invoiced by EUROCKOT
and shall be made net, free and clear of any and all taxes and duties
that may be imposed.
7.2.5 The Customer hereby irrevocably waives any right to defer,
withhold or set-off by counterclaim or other legal or equitable claim,
any or any portion of an amount payable under this Agreement.
7.2.6 In the event the Customer fails to pay any amount payable
hereunder when due (a "Payment Default"), the Customer shall pay
EUROCKOT, in addition to the amount payable, interest on such overdue
amount for the period from the due date to the date of payment in full
of such amount at a rate equal to the highest Short Term Prime Rate as
announced by primary commercial banks in Frankfurt on the date payment
is due plus two (2) percent per annum, provided, however, that if such
Payment Default is due to any Force Majeure Event, no late payment
interest shall be due during such time as any Force Majeure Event
continues.
<PAGE>
ARTICLE 8
LAUNCH POSTPONEMENTS
8.1 Each postponement, for whatever reason, of the Launch Period, Launch
Slot or the Launch Day requested by either Party shall be governed
solely by the terms and conditions set forth in this Article 8. The
Parties hereto expressly waive, renounce and exclude any and all rights
and remedies that may arise at law or in equity with respect to
postponements that are not stated in this Article 8 or elsewhere in this
Agreement.
8.2 Postponement requested by Customer
8.2.1 The Customer shall have the right, for any reason whatsoever, to
postpone the Launch Period, Launch Slot or Launch day of either Launch
without cost or penalty, except as provided for in Article 8.2.2 and
8.2.3 below.
The Customer shall give written notice to EUROCKOT of any desired
postponement as soon as possible together with a proposal for a new
Launch Period, Launch Slot or Launch Day, as the case may be. Within
fifteen (15) days of receipt of the written request for postponement,
EUROCKOT shall inform the Customer if the proposed Launch Period, Launch
Slot or Launch Day is acceptable or will propose a new Launch Period,
Launch Slot or Launch Day. The Customer shall have fifteen (15) days
following receipt of EUROCKOT's proposal to consent thereto in writing.
In the event that EUROCKOT does not agree with the Customer's proposal
or does not propose a new Launch Period, Launch Slot or Launch Day, the
Customer shall propose an alternative Launch Period, Launch Slot or
Launch Day. The procedure, as described above, shall be followed until
agreement is reached between the Customer and EUROCKOT.
8.2.2 In the event of a corresponding request by the Customer after
erection of the launch vehicle on the launch pad the Customer shall bear
all cost arising for deintegration of launch vehicle and Payload
(,,destack"), defueling, restack and refueling, but not more than
<PAGE>
8.2.3 In the event that any postponement of a Launch by the Customer
under this Article 8 exceeds twelve (12) months (either consecutively or
in the aggregate), the price and terms for the Launch Services and the
Associated Services, including postponement fees, shall be subject to
renegotiation by the Parties.
8.2.4 Postponement fees payable by the Customer hereunder shall be paid
to EUROCKOT within 30 days of the request for a postponement.
8.2.5 The payment schedule as stated in Article 7 shall not be affected
by postponements requested by the Customer.
8.3 Postponement requested by EUROCKOT
8.3.1 EUROCKOT shall have the right to postpone the Launch Period,
Launch Slot or Launch Day for the following reasons without cost or
penalty.
8.3.1.1 If technical or logistical problems encountered by EUROCKOT or
its Related Participants prevent the Launch from taking place under
satisfactory conditions.
8.3.1.2 If priority launches to which EUROCKOT is contractually
committed require an adjustment of the Launch Schedule.
Those priority launches are:
- relaunches and replacement launches
- launches of scientific satellites with a mandatory
launch Period/Slot.
8.3.2 If EUROCKOT has to postpone a Launch Period or Launch day under
this Article 8.3, EUROCKOT shall use all reasonable efforts to
reschedule the launch as near as possible to the former Launch Period
or Launch Day. The procedure for the determination of a new Launch
Period or Launch Day shall be as set forth in Article 8.2.1.
8.3.3 In the event that any postponement of a Launch by EUROCKOT under
Article 8.3 exceeds 6 months (either consecutively or in the
aggregate), the Customer shall have the right to terminate the Launch
Services in accordance with Article 20.1 hereof.
8.3.5 Postponement fees payable by EUROCKOT hereunder shall be paid to
the Customer within 30 days of the request for a postponement.
<PAGE>
8.3.6 The payment schedule as stated in Article 7 shall be amended in
accordance with postponements requested by EUROCKOT.
8.4 Notwithstanding any provision in this Article 8, no postponement
fee shall be payable by either party for a postponement caused by a
Force Majeure Event.
<PAGE>
ARTICLE 9
LAUNCH SERVICE PERFORMANCE FAILURE
----------------------------------
9.1 Launch Failure:
The performance of the Launch Services hereunder shall be
considered to be a Total Failure, a Constructive Total Failure or a
Partial Failure in the event that loss of or damage to one, two or all
three satellites is caused solely and directly by Launch Vehicle
failure or Launch Vehicle- induced conditions more severe than those
specified in the Interface Control Document.
9.1.1 Total Failure:
The performance of the Launch Services will be deemed to be a total
failure if all three satellites is/are completely destroyed or
permanently lost at any time before physical separation from the Launch
Vehicle or if all three satellites cannot be physically separated from
the Launch Vehicle, resulting in the total loss of the satellite(s).
9.1.2 Constructive Total Failure:
The performance of the Launch Services will be deemed to be a
constructive total failure if:
9.1.2.1 the operational capacity or nominal lifetime of all three
satellites is reduced by more than fifty (50) percent as a direct
result of the performance or non-performance of the Launch Vehicle, as
determined from the Launch Vehicle flight data;
9.1.2.2 after physical separation from the Launch Vehicle, as a direct
result of the performance or non-performance of the Launch Vehicle, as
determined from the Launch Vehicle flight data, the attitude and
orbital conditions of all three satellites are such that any corrective
action required to place the Payload into its nominal operating orbit
would result in a reduction by more than fifty (50) percent of its
nominal lifetime or a reduction by more than fifty (50) percent of its
nominal operational capacity.
9.1.3 Partial Failure
<PAGE>
The performance of the Launch Services will be deemed a Partial
Failure if only one or two satellites are totally lost or damaged in
accordance with 9.1.2.
9.2 Launch Failure Review
Customer shall be entitled to participate with a reasonable number
of observers in EUROCKOT'S Launch Failure Review.
<PAGE>
ARTICLE 10
RELAUNCH SERVICES
-----------------
10.1 For each of the two Launches the Customer is hereby granted a
single free Relaunch Services in the event that the performance of the
Launch Services results in a Launch Failure pursuant Article 9.
10.2 The Launch Period for the Relaunch Services shall be scheduled to
commence no later than three (3) months after the conclusion of the
investigation by EUROCKOT's failure review board unless the Parties
agree to an earlier or later Launch Period, however, not later than 8
months after notification by both Parties that the Launch Services
resulted in a Launch Failure. Notwithstanding the foregoing sentence, in
no event shall EUROCKOT be required to schedule a Relaunch at any time
before launch facilities required for the Relaunch Services are
available or all corrective or safety actions with respect to the Launch
Vehicle have been completed to the satisfaction of EUROCKOT.
10.3 The Relaunch Services shall in no event include the replacement of
or replacement value of the Payload.
10.4 The Relaunch Services shall be governed by the terms and conditions
of this Agreement, provided that such Relaunch Services shall not
include any relaunch thereof in the event the performance of the
Relaunch Services results in a Launch Failure.
10.5 The payload for the Relaunch Services shall be in accordance with
the Interface Control Document applicable to the Payload. If the payload
for the Relaunch Services has different interface requirements or
otherwise differs from the Payload such that EUROCKOT shall be required
to modify the Launch Vehicle, then the Parties shall negotiate in good
faith any changes and additional payments to be made by the Customer for
such differences. If less than three satellites are to be relaunched,
EUROCKOT, in mutual agreement with the Customer, may accommodate
secondary payloads on such Relaunch Services.
<PAGE>
10.6 In the event of two Partial Launch Failures resulting, however, in
the successful launch of four satellites, EUROCKOT shall be obliged to
only one free Relaunch.
<PAGE>
ARTICLE 11
(RESERVED)
<PAGE>
ARTICLE 12
ALLOCATION OF RISKS
-------------------
12.1 Inter-participant Waiver of Liability
12.1.1 Except as otherwise expressly provided in this Agreement, in view
of the particular nature of the services to be performed hereunder, the
Customer and EUROCKOT irrevocably agree to a no-fault, no-subrogation,
inter- participant waiver of liability pursuant to which each Party
agrees to assume the risk of and to absorb the financial and any other
consequences, whether direct or indirect, of any property damage or loss
it sustains or for any bodily injury to, death of, or property damage or
loss sustained by its own employees directly or indirectly arising out
of, relating to or resulting from any and all activities carried out
under this Agreement and each Party agrees that it will not make any
claim or institute any administrative, arbitral or judicial proceedings
against the other Party or against the Related Participants of the other
Party, for any such property damage or bodily injury, including death.
Such waiver of claims shall also extend to any indirect damages,
consequential damages or other loss of revenue or economic loss
resulting from any damage to the Payload whether before, during or after
Launch or from the failure of the Payload to reach its planned orbit
after Launch.
12.1.2 Each Party shall take all necessary and reasonable steps to
foreclose all claims for property damage or loss or bodily injury to,
death of or property damage or loss sustained by the employees of its
Related Participants directly or indirectly arising out of, relating to
or resulting from any and all activities carried out under this
Agreement. In furtherance of the foregoing, the Parties shall require
their Related Participants that may suffer any loss or damage in
connection with the performance of this Agreement to agree to be
responsible for and to make no claims against the other Party and its
Related Participants for any property damage or loss they sustain or for
any bodily injury to, death of, or property damage or loss sustained by
their own employees directly or indirectly arising out of, relating to
or resulting from any and all such activities carried out under this
Agreement.
12.1.3 The inter-participant waiver of liability described in Article
12.1.1 shall apply regardless of whether any damage
<PAGE>
or injury results from the acts or omissions, whether negligent or
otherwise of either Party or the Related Participants of either Party,
except in the case of the willful or intentional misconduct or gross
negligence of either Party or the leading personnel of the Related
Participants of either Party.
12.1.4 In the event that any Related Participant of a Party makes any
claim or demand or institutes any proceeding (whether administrative,
arbitral, judicial or otherwise) against the other Party or any of the
other Party's Related Participants on account of any loss, damage or
bodily injury, including death, or for any consequences thereof, except
in the case of the other Party's or the leading personnel's of the other
Party's Related Participants willful or intentional misconduct or gross
negligence, the first Party shall indemnify, hold harmless, dispose of
such claims, demands or proceedings and defend the other Party and its
Related Participants, as the case may be, from and against such claim,
demand or proceeding, and shall pay all expenses, including attorney
fees, and satisfy all judgments that may be incurred by or rendered
against such indemnitee arising from such claim, demand or proceeding.
This indemnification obligation shall be in addition to indemnification
obligations otherwise established by this Agreement.
12.1.5 The inter-participant waiver provisions of this Article 12.1
shall inure to the benefit of, and be binding upon, the successors and
permitted assigns of each Party.
12.2 Infringement of Intellectual Property Rights
12.2.1 EUROCKOT shall defend, hold harmless and indemnify the Customer
and its Related Participants from and against any and all claims
resulting from any infringement, or claim of infringement, of the
Intellectual Property rights of a Third Party, that may arise from the
Customer's use of EUROCKOT's Launch Services and Associated Services.
<PAGE>
12.2.2 The Customer shall defend, hold harmless and indemnify EUROCKOT
and its Related Participants from and against any and all claims
resulting from any infringement, or claim of infringement, of the
Intellectual Property rights of a Third Party, that may arise from the
design, manufacture or operation of the Payload or the Ancillary
Equipment or by EUROCKOT's compliance with specifications furnished by
the Customer with respect to the Launch Services or the Associated
Services.
12.3 Rights and Obligations - The right to indemnification provided
under this Article 12, shall be subject to the following conditions:
12.3.1 the Party seeking indemnification shall promptly advise the other
Party of the filing of any suit, or of any written or oral claim against
it alleging an infringement of any Third Party's rights, upon receipt
thereof; and shall provide the indemnitor, at the indemnitor's request
and expense, with copies of all relevant documentation;
12.3.2 the Party seeking indemnification shall not make any admission
nor shall it reach a compromise or settlement nor take any steps in a
dispute with any Third Party without prior written approval of the other
Party, which approval shall not be unreasonably withheld or delayed;
12.3.3 the Party required to hold the other harmless shall have the
right and the obligation to defend any claim or suit and/or settlement
thereof, when not contrary to the governing rules of procedure, shall
pay all reasonable litigation and administrative costs and expenses
incurred in connection with the defense of any such suit, including fees
and expenses of legal counsel, shall satisfy any arbitral awards or
judgments rendered by a court of competent jurisdiction in such suits,
and shall make all settlement payments; and
12.3.4 in the event that a Third Party claims against EUROCKOT and the
Customer for the same alleged infringement of patent rights or other
intellectual property rights pursuant to Article 12.2 hereof, EUROCKOT
and the Customer shall jointly undertake the defense and shall bear the
damages, costs and expenses in proportion according to their respective
share of liability. The proportion shared by each Party shall be
determined through good faith negotiation or final judgment of a court
of competent jurisdiction.
<PAGE>
ARTICLE 13
LIMITATION OF LIABILITY
13.1 EUROCKOT HAS NOT MADE NOR DOES IT MAKE ANY REPRESENTATION OR
WARRANTY, WHETHER WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OF DESIGN, OPERATION, CONDITION,
QUALITY, SUITABILITY OR MERCHANTABILITY OR OF FITNESS FOR USE OR FOR A
PARTICULAR PURPOSE, ABSENCE OF LATENT OR OTHER DEFECTS WHETHER OR NOT
DISCOVERABLE, WITH REGARD TO THE SUCCESS OF ANY LAUNCH OR THE
PERFORMANCE OF ANY LAUNCH SERVICES OR ASSOCIATED SERVICES HEREUNDER.
13.2 WITHOUT LIMITING THE GENERALITY OF THE INTER- PARTICIPANT WAIVER OF
LIABILITY SET FORTH IN ARTICLE 12.1, IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER AND TO PERSONS CLAIMING BY OR THROUGH SUCH PARTY
UNDER ANY THEORY OF TORT, CONTRACT, STRICT LIABILITY, NEGLIGENCE OR
UNDER ANY OTHER LEGAL OR EQUITABLE THEORY FOR INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUEN-TIAL DAMAGES, INCLUDING WITHOUT LIMITATION,
COSTS OF EFFECTING COVER, LOST PROFITS, LOST REVENUES OR COSTS OF
RECOVERING A PAYLOAD. IN NO EVENT SHALL EUROCKOT'S LIABILITY TO THE
CUSTOMER FOR ANY CLAIM ARISING OUT OF THE PERFORMANCE OF LAUNCH SERVICES
OR ASSOCIATED SERVICES INCLUDING, WITHOUT LIMITATION, ANY CLAIM FOR
TERMINATION PURSUANT TO ARTICLE 20.1.4, EXCEED THE PRICE OF THE LAUNCH
SERVICES AS SET FORTH IN ARTICLE 6.
<PAGE>
ARTICLE 14
INSURANCE
---------
14.1 EUROCKOT shall procure and maintain, at no cost to the Customer, an
occurrence basis type policy of insurance against legal liability for
bodily injury, including death, and loss of or damage to property of
Third Parties that is sustained by either Party or the Related
Participants of either Party. Such insurance shall be in the amount of
US Dollars 100 Million minimum per Launch and in the aggregate, and
shall provide for the payment of claims arising in connection with the
Launch Services provided under this Agreement commencing with Lift-off
of the Launch Vehicle for a period of twelve (12) months after Lift-off.
14.2 The third party liability insurance referred to in Article 14.1
shall be on terms and conditions and with exclusions as are customary in
the insurance marketplace and shall name as named insured EUROCKOT and
as additional insureds the Customer and the respective Related
Participants of the Parties identified by each Party and the Government
of Russia and its agencies involved in Launch Services. Such insurance
shall provide that the insurers shall waive all rights of subrogation
that may arise by contract or at law against any named insured or
additional insured.
14.3 If the Customer so requests, EUROCKOT shall reasonably assist the
Customer in connection with the purchase by the Customer of launch
insurance by furnishing to the Customer and prospective insurers
information regarding the Launch Vehicle and the Launch Services as may
be reasonably requested by the Customer and such insurers, subject to
confidentiality restrictions acceptable to EUROCKOT, and attendance at
underwriting presentations.
<PAGE>
ARTICLE 15
PERMITS AND AUTHORIZATIONS
--------------------------
15.1 Pursuant to the Convention on Registration of Objects Launched into
Outer Space of 1974, EUROCKOT shall undertake to register the Launch
Vehicle with the Government of Russia as launching state. EUROCKOT shall
further be responsible for obtaining all necessary government licenses,
permits, approvals and other documentation from the Government of Russia
for the performance of the Launch Services and the Associated Services
as well for the importation of the payloads and the Ancilliary Equipment
into Russia.
15.2 Not later than 4 months prior to launch the Customer shall furnish
to EUROCKOT an appropriate document certifying the safety of the Payload
and the Ancilliary Equipment, so that EUROCKOT can obtain all necessary
approvals, permits and licenses from the Government of Russia.
15.3 The Customer shall be responsible for obtaining all necessary
government licenses, permits, approvals and other documentation
regarding the exchange of technical information and data necessary for
the performance by EUROCKOT of the Launch Services and regarding the
export of the Payload and the Ancillary Equipment from its country of
origin to thePort of Entry into Russia, including the availability of
Payload's ground stations. The Customer shall also be responsible for
obtaining all permits, authorizations and notices of non-opposition from
all national and international, public and private authorities having
jurisdiction over the construction, launch, operation and maintenance of
the Payload. The Customer shall further be responsible to ensure that
the Payload is properly registered by a state of registry in accordance
with the Convention on Registration of Objects Launched into Outer Space
of 1974.
15.4 The Parties acknowledge and agree that, in the event a Payload
inserted into a non-notified or non-coordinated orbital location
interferes with any other satellite already in orbit, operation of the
Payload may be ceased or stopped in accordance with the International
Frequency Register Board. The Customer shall be fully responsible for
providing all necessary notification and coordination of the orbital
location of the Payload.
15.5 Each Party shall be solely responsible for any expenses incurred in
obtaining the licenses, permits, approvals, authorizations, notices and
other documentation it is required to obtain under this Article 15,
provided that each
<PAGE>
Party agrees to provide reasonable assistance to the other Party, at its
own expense, in obtaining such documentation.
15.6 For simplifying the administrative matters related to the
importation into Russia of the Payloads and the Ancilliary Equipment the
Customer shall do its best to obtain a corresponding diplomatic note
from its Government. Contractor agrees to assist and support the
Customer, free of charge, with such administrative matters, including
storage and possible repatriation of the Payloads as well the entry,
stay, and departure of the Customer.
<PAGE>
ARTICLE 16
RIGHT OF OWNERSHIP AND CUSTODY
------------------------------
16.1 The Customer hereby acknowledges and agrees that at no time shall
it obtain title to or ownership of or any other legal or equitable right
or interest in any part of the Launch Vehicle, or in any other tangible
or intangible property or hardware of EUROCKOT or its Related
Participants including, without limitation, any Intellectual Property
rights used or furnished in providing Launch Services and Associated
Services under this Agreement. Such property shall be considered the
sole and exclusive property of EUROCKOT.
6.2 EUROCKOT hereby acknowledges and agrees that at no time shall it
obtain title to or any ownership of or any other legal or equitable
right or interest in any part of the Payload or the Ancillary Equipment,
or in any other tangible or intangible property or hardware of the
Customer or its Related Participants including, without limitation, any
Intellectual Property rights with respect to the Payload or the
Ancillary Equipment. Such property shall be considered to be the sole
and exclusive property of the Customer.
16.3 EUROCKOT shall have the right, in its sole and absolute discretion,
to intentionally destroy or cause any other person to intentionally
destroy, the Launch Vehicle and the Payload, without any liability to
the Customer, in the event that, following the ignition of any engines
of the Launch Vehicle, such action shall prove necessary or advisable to
limit or avoid any actual or perceived loss of or damage to property or
bodily injury, including death, to any person. In such event, the
Customer agrees not to assert and hereby irrevocably waives any claim
against EUROCKOT or any of EUROCKOT's Related Participants or against
any Russian government authority for loss of or damage to property or
bodily injury, including death, to any person or any related damages.
<PAGE>
ARTICLE 17
RIGHTS TO INTELLECTUAL PROPERTY
-------------------------------
17.1 Each Party acknowledges and agrees that at no time shall it have
any ownership rights or any other rights or license to any Intellectual
Property of the other Party or of the other Party's Related Participants
including, without limitation, any Intellectual Property conceived and
first actually induced to practice in the course of the performance of
this Agreement by such Party. Notwithstanding the foregoing sentence,
EUROCKOT hereby grants to the Customer for the duration of its
performance under this Agreement the right to duplicate, disclose and
use interface and integration data necessary for performance of this
Agreement.
17.2 The Parties agree that, subject to Article 19, Confidentiality,
neither the execution nor the performance by either Party of this
Agreement shall grant any rights to or under any of either Party's or of
any of its Related Participant's respective Intellectual Property rights
to the other or to any of its Related Participants or any other person
unless such grant is expressly recited in a separate written document
duly executed by or on behalf of the granting Party.
<PAGE>
ARTICLE 18
FORCE MAJEURE
-------------
18.1 Neither the Customer nor EUROCKOT shall be liable to the other in
the event of a failure or delay in the performance of their respective
obligations or commitments hereunder in the event the failure or delay
was unforeseeable and due to a cause beyond the Customer's or EUROCKOT's
control, as the case may be, and not due to that Party's fault or
negligence. Such causes include, without limitation, the following: acts
of God, acts of any governmental authority, wars (declared or
undeclared), riots or social uprisings, revolutions, fires, floods,
typhoons, earthquakes, freight embargoes, strikes, lock-outs or other
labor disturbances, adverse weather or declared launch safety conditions
that do not permit launching ("Force Majeure Events").
18.2 Upon the occurrence of a Force Majeure Event, the Party so affected
shall promptly inform the other Party in writing of the date, nature,
extent of the occurrence and, in the event of a delay, its expected
length. The Party so affected shall use its good faith best efforts and
all means reasonably available to it to overcome such occurrence. Both
Parties shall consult as soon as possible after the occurrence of a
Force Majeure Event to find an appropriate solution. Such efforts shall
include, without limitation, the expediting of materials and the
provision of additional labor notwithstanding that such efforts may
result in additional expense to the affected Party, provided such
additional expense is reasonable.
18.3 The schedule for the Launch Services affected by a Force Majeure
Event causing a delay may be postponed, if required, for the period of
the Force Majeure Event. In such a case, payment milestones shall be
deferred by the duration of the period of the Farce Majeure event.
18.4 In the event that any postponement of a Launch by EUROCKOT because
of Force Majeure exceeds 6 months (either consecutive or in the
aggregate) The Customer shall have the right to terminate the Launch
Services in accordance with Article 20.1 hereof.
<PAGE>
ARTICLE 19
CONFIDENTIALITY
---------------
19.1 In the performance of its obligations hereunder, each Party and its
Related Participants may disclose information, data and physical
materials of a technical and financial nature considered by it to be
proprietary and confidential, including information originated by or
available only from the disclosing Party or its Related Participant or
by a Third Party with respect to which the disclosing party has limited
disclosure rights and that the disclosing party desires to protect
against disclosure to others ("Confidential Data"). Such Confidential
Data shall be marked prominently as confidential or proprietary before
its disclosure.
19.2 A Party receiving Confidential Data that has been identified as
such shall take all reasonable precautions to prevent its publication or
disclosure to Third Parties. Such Party shall only use the Confidential
Data solely in the performance of its obligations under this Agreement.
The Parties shall be deemed to have discharged their entire obligation
to maintain confidentiality of Confidential Data hereunder, if they
exercise the same degree of care to preserve and safeguard the other
Party's Confidential Data as they use to preserve and safeguard their
own. A Party may disclose Confidential Data it receives to its Related
Participants to the extent necessary for the performance of this
Agreement, provided such Related Participants first agree to be bound by
the nondisclosure and use restrictions contained herein.
19.3 Neither Party shall be liable for disclosure or use of any
Confidential Data furnished by the other Party:
o in the public domain, by publication or otherwise, at the time
of receipt or that comes into the public domain thereafter
through no act of the receiving Party in breach of this
Agreement; or
o known to the receiving Party or legally in the
receiving Party's possession before disclosure by the
disclosing Party; or
o disclosed with the prior written approval of the
disclosing Party; or
o independently developed by the receiving Party; or
<PAGE>
o lawfully disclosed to the receiving Party by a Third
Party under conditions permitting such disclosure; or
o not properly marked as confidential or proprietary; or
o required, but only to the extent necessary, to be
disclosed pursuant to governmental or judicial order in which
event the Party concerned shall notify the other Party of any
such requirement before such disclosure and shall take all
reasonable actions to protect the confidentiality of such
Confidential Data; or
o required in connection with the financing of this
Agreement or of the Payload or in connection with the procurement
of insurance or the presentation of any insurance claim, provided
any recipient shall have first agreed to be bound by the
nondisclosure and use restrictions contained herein, provided the
disclosing Party has been informed of such request of disclosure.
19.4 Upon termination or completion of this Agreement, and upon request,
each Party agrees to return all Confidential Data (including all copies
thereof) received from the other Party or provide written certification
that all such Confidential Data has been destroyed, except that each
Party may retain one legal file copy thereof. The confidentiality
provisions of this Article 19 shall survive three (3) years after the
termination or completion of this Agreement.
19.5 If the Confidential Data disclosed is verbal, such verbal
Confidential Data shall be identified as confidential and proprietary
before disclosure and shall be reduced to writing promptly, but in no
event later than twenty (20) days, properly marked as confidential or
proprietary and delivered to the receiving Party in accordance with this
Article 19.
19.6 Title to all Confidential Data and any other information, data or
physical materials owned by one Party or its Related Participants and
delivered to the other Party or its Related Participants pursuant to
this Agreement shall remain exclusively with such person.
19.7 The parties agree that this launch Services Agreement shall be kept
strictly confidential. Furthermore, each Party shall
<PAGE>
obtain the written approval of the other Party concerning the content
and timing of news releases, articles, brochures, advertisements,
prepared speeches and other information releases to be made by the Party
or any of its Related Participants concerning this Agreement. Such
approval shall not be unreasonably withheld.
<PAGE>
ARTICLE 20
TERMINATION
-----------
20.1 This Agreement and the performance of work hereunder may be
terminated for cause by either Party upon the occurrence of any one of
the following events:
20.1.1 the other Party files a voluntary petition in bankruptcy, makes
a general assignment, arrangement or composition with or for the
benefit of its creditors, suffers or permits the appointment of a
receiver for its business assets, becomes subject to involuntary
proceedings under any bankruptcy or insolvency law (which proceedings
remain pending for more than thirty (30) days), or is wound up or
liquidated;
20.1.2 the other Party breaches any material covenant in this
Agreement, which breach remains uncured for a period of time equal to
the earlier to occur of: (a) thirty (30) days following receipt of
written notice of such breach from the non-breaching Party or, (b) five
(5) days following receipt of written notice of such breach from the
non-breaching Party if such breach occurs within thirty (30) days
before Launch, provided that, EUROCKOT shall not be required to perform
the Launch if the Customer has not cured the breach of any material
covenant before the Launch and provided further that, if such breach is
not curable using reasonable efforts within the time periods specified
in (a) and (b) of this Article 20.1.2 and the Launch is not scheduled
to occur before such time, such longer period, not exceeding ninety
(90) days, provided the breach can be cured within such longer period
and the breaching Party has commenced and is diligently proceeding with
the cure; or
20.1.3 the postponements of the Launch Services by EUROCKOT in
accordance with Article 8.3 exceed the period provided in Article
8.3.3.
20.1.4 the postponements of the Launch Services by EUROCKOT because of
Force Majeure exceeds the period of 6 months.
20.1.5 the first Launch as well as the Relaunch have been proven to be
both a Total Launch Failure.
20.2 If the Customer terminates this Agreement pursuant to Article
20.1, it shall be entitled to be reimbursed any amounts previously paid
to EUROCKOT hereunder. If EUROCKOT
<PAGE>
terminates this Agreement pursuant to Article 20.1, it shall be
entitled to retain all payments made by the Customer to EUROCKOT
hereunder.
20.3 The Customer may terminate this Agreement for its own convenience,
at any time before Launch, in which case EUROCKOT shall be entitled to
retain all payments made by the Customer to EUROCKOT hereunder.
<PAGE>
ARTICLE 21
APPLICABLE LAW
--------------
The relationship between the Parties as to the subject of this Agreement shall
be governed by this Agreement. To the extent the Parties have failed to address
any question arising herunder, or in the event of the need for any
interpretation of any term of this AgreementSwiss law shall be applied, unless
it is contrary to the explicit terms or the underlying common intentions of the
Parties to this Agreement.
<PAGE>
ARTICLE 22
ARBITRATION
-----------
22.1 All disputes, controversies or claims between the Parties hereto,
arising under, out of, or in any way relating to this Agreement
including without limitation, the execution, delivery, validity,
enforceability, performance, breach, discharge, interpretation or
construction of this Agreement, that are not settled within thirty (30)
days (or such longer period as may be mutually agreed upon) from the
date that either Party notifies the other in writing that such dispute
or disagreement exists shall be finally settled under the existing rules
of Conciliation and Arbitration of the International Chamber of Commerce
by three arbitrators appointed and acting in accordance with said rules
and this Article, whose award shall be the sole and exclusive remedy
regarding any and all claims and counterclaims.
22.2 Each party may select one arbitrator, and the two selected
arbitrators shall choose a third arbitrator. If either Party fails to
select an arbitrator within ten (10) days after the arbitration is
sought, or the two arbitrators fail to select a third arbitrator within
ten (10) days after they both are appointed, International Chamber of
Commerce shall make the selection.
22.3 The third arbitrator to be appointed pursuant to this Article shall
have no interest in this Agreement or either of the Parties, and need
not be a resident of country of the Parties or among those individuals
on the list of any commercial arbitration association.
22.4 The cost of any arbitration conducted pursuant to this Article,
including the costs of the International Chamber of Commerce, shall be
borne equally by the Parties, provided, however, that each Party shall
pay its own attorney's fees.
22.5 During the period in which resolution of the dispute is pending,
EUROCKOT may, but shall not be required to, continue to perform its
obligations under this Agreement, unless otherwise instructed by the
Customer in writing.
22.6 The arbitral resolution shall be final and binding upon the Parties
and neither Party shall seek recourse to a court of law or to other
authorities to appeal or request revision of the award. Judgment upon
the award returned by the arbitrators may be entered and enforced in any
court having jurisdiction over the Parties.
<PAGE>
22.7 The arbitration committee shall apply the substantive laws of
Switzerland and shall take into account usages, customs and practices in
the commercial launch transportation industry.
22.8 The arbitration proceeding shall take place inLausanne,
Switzerland, and shall be conducted in the English language.
22.9 The Parties agree that the United Nations Convention for the
International Sales of Goods shall not be applicable to this Agreement.
<PAGE>
ARTICLE 23
MISCELLANEOUS
-------------
23.1 Notices and Language
23.1.1 All notices and communications between the Parties given under
this Agreement shall be in writing and shall be delivered in person or
sent by reliable international air courier, registered mail, postage
prepaid or by telefax to the other Party at the address listed below or
to such other address as shall be given in writing by either Party to
the other in accordance with this paragraph 23.1.1:
Notice to the Customer:
DBS Industries, Inc.
100 Shoreline HWY, STE 190A
Mill Valley, CA 94941 USA
Telephone: +1.415.380.8055
Telefax: +1.415.380.8199
Notice to EUROCKOT:
EUROCKOT Launch Services GmbH
Hunefeldstr. 1-5
D - 28199 Bremen
Germany
Telephone: +49 421 539 6501
Telefax: +49 421 539 6500
23.1.2 Documentation, notices, reports, correspondence and other
communications furnished by one Party to the other under this Agreement
shall be in the English language.
23.2. Headings
The headings and sub-headings used in this Agreement are provided
solely for convenience of reference. They shall not prevail over the
content of the Articles of this Agreement.
23.3 Waiver of Breach
The failure of a Party at any time to require performance by the
other Party of any provision of this Agreement shall in no way affect
its right to require such performance at any time thereafter. The waiver
by a Party of a breach of any provision of this Agreement shall not
constitute a waiver of
<PAGE>
any succeeding breach of the same or any other provision, nor shall it
constitute a waiver of the provision itself.
23.4 Amendments
This Agreement may be amended only in writing, signed by duly
authorized representatives of both Parties.
23.5 AssignmentError! Bookmark not defined.
This Agreement shall not be transferred or assigned by either
Party without the prior written consent of the other Party. EUROCKOT
herewith gives its consent to a potential assignment by the Customer to
a Prime Contractor appointed by the Customer. This Agreement shall be
binding on and inure to the benefit of any successor and permitted
assignee.
23.6. Entire Agreement
This Agreement, including all its Exhibits, constitutes the
entire understanding and agreement between the Parties and supersedes
all prior or contemporaneous correspondence, representations, proposals,
negotiations, understandings or agreements of the Parties, whether oral
or written in connection with the subject matter hereof. The Parties
hereby acknowledge that there are no collateral agreements between them
with respect to the subject matter hereof.
23.7 This Agreement shall become effective upon signature by duly
authorized representatives of both Parties.
Executed in two (2) originals
.............................. , .............. 1999
DBS Industries, Inc. EUROCKOT Launch
Services GmbH
COMMERCIAL IN CONFIDENCE
March 31, 1999 ESAT-GTL-CT0034
Between :
Surrey Satellite Technology Limited (SSTL),
University of Surrey, Guildford - Surrey GU25XH, United Kingdom
hereinafter referred to as SSTL
and : DBS Industries Inc,
100 Shoreline Hwy, STE 190A, Mill Valley CA 94941 USA
on its own behalf and on behalf of its wholly owned subsidiary Newstar Limited,
registered in Bermuda
hereinafter collectively referred to as DBSI
JOINTLY REFERRED TO AS The Parties.
<PAGE>
I N D E X
1. SCOPE OF WORK 4
2. CONTRACT DOCUMENTS 5
3. DELIVERY CONDITIONS AND SCHEDULE 7
4. CONTRACT PRICE 10
5. PAYMENT CONDITIONS 12
6. WORK IN PROGRESS INSURANCE 14
7. INSPECTION AND ACCESS TO WORK 15
8. ON SITE PERSONNEL 16
9. KEY PERSONNEL 17
10. COMMUNICATIONS 18
11. ACCEPTANCE PROCEDURE AND INCOMING INSPECTION 19
12. WARRANTY 21
13. CHANGES 25
14. COST ANALYSIS 30
15. SUBCONTRACT 31
16. DELAYS 32
17. UNDERTAKING OF DBSI 34
18. TECHNICAL DIRECTIVES 35
19. PATENT INFRINGEMENT 36
<PAGE>
20. PROPRIETARY RIGHTS 37
21. FORCE MAJEURE 40
22. TRANSFER OF TITLE AND RISKS 41
23. LIABILITIES 42
24. TERMINATION 43
25. GOVERNMENTAL AUTHORISATIONS 45
26. PUBLICITY 46
27. LANGUAGE 47
28. APPLICABLE LAW AND ARBITRATION 48
29. ASSIGNMENT 49
30. SATELLITE STORAGE 50
31. STOP WORK ORDER 51
32. COMING INTO FORCE 52
<PAGE>
REVIEW OF CONTRACT AMENDMENTS
- -------------------------------------------------------------------------------
AMENDMENT DATE MODIFIED SUBJECT
OR NEW
PAGES
- -------------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<PAGE>
This Purchase and Sale Contract (hereinafter referred to as the `Contract') is
made this 31st day of March, 1999
BETWEEN:
(a) SURREY SATELLITE TECHNOLOGY LIMITED (hereinafter referred to as `SSTL') a
company incorporated in England and whose registered office is: Surrey
Space Centre, University of Surrey, Guildford, Surrey GU2 5XH, England; and
(b) DBS Industries Inc on its own behalf and on behalf of its wholly owned
subsidiary Newstar Limited, registered in Bermuda (hereinafter referred to
as `DBSI') located at 100 Shoreline HWY, STE 190A, Mill Valley CA 94941
USA.
WHEREAS:
(A) DBSI has requested and, SSTL has agreed to provide or procure the provision
of certain microsatellite equipment and services (hereinafter referred to
both separately and collectively, unless the context shall otherwise
provide, as the `Products'); and
(B) The programme will comprise:
Design, develop, manufacture, test, supply, launch support and initial
operations support of the ESAT Satellite Project
(C) SSTL has agreed to provide and/or procure the provision of the Products on
the terms and conditions set out in this Agreement and the attached
Appendices.
(D) In addition, if requested by DBSI, SSTL will endeavour to assist DBSI to
obtain suitable launch services and launch insurance although these
services will only be provided under the terms of a separate agreement.
NOW THEREFORE IT IS HEREBY AGREED as follows:
<PAGE>
DEFINITIONS
"E-SAT Project" Shall mean the E-SAT Communications Satellite Project.
"E-SAT Payload" Means a Payload built and integrated by DBSI to be part
of the E-SAT Satellite
"E-SAT Platform" Means a Spacecraft to be supplied to DBSI to be part of
the E-SAT Satellite System
"Intentional Ignition" Means the time in the ignition process, for
the purpose of Launch, when the command signal sent
from the launch control console is received by the
Launch Vehicle to commence Launch.
"Launch" Means the intentional ignition of any first stage
engine of the Launch Vehicle that has been integrated
with an ESAT Platform supplied by SSTL.
"Subcontractors/
Subcontracts" "Subcontracts" mean where the context so requires all
agreements entered into by SSTL and third parties to
this Contract, including but not limited to Major
Subcontracts, necessary for the performance of the Work.
"Subcontractors" shall refer to such third parties.
<PAGE>
1. SCOPE OF WORK
1.1 This Contract covers the work to be performed by SSTL for :
- Design, construction, test and delivery of the ESAT Platform , for
DBSI.
- Support for E-SAT micro satellite integration at DBSI premises.
- Support for launch and post-launch phases, as defined in Appendix 1,
Statement Of Work
- Product Assurance as defined in Appendix 3.
- Technical assistance of E-SAT project team in DBSI premises as
defined in Appendix 1, Statement of Work.
- Recovery of breakdowns according to the terms of SSTL warranty.
- Delivery of E-SAT Electrical Ground Support Equipment (EGSE) as
defined in Appendix 1 Statement of Work.
1.2 The Parties hereby agree that SSTL shall be entitled to subcontract part
or parts of the work to be performed under this Contract to
subcontractors in accordance with Clause 15.
1.3 Some obligations necessary to the proper performance of this Contract
other than those mentioned above will be borne by DBSI in accordance with
Clause 17 : UNDERTAKINGS OF DBSI.
<PAGE>
2. CONTRACT DOCUMENTS
2.1 The Contract consists of the following documents:
These Terms and Conditions including Clauses 1 to 32.
The following Appendices:
Appendix 1
Appendix 1 :
Statement of Work for the Satellite
Ref. : ESAT-BJT-SW-0033
Appendix 2
Appendix 2 :
E-SAT Satellite Technical Requirements
Ref. : ESAT-BJT-SW-0032
Appendix 3
Appendix 3
SSTL Product Assurance Plan for the E-SAT Program
2.2 Any modification to the terms of this Contract shall be made only in
writing after mutual agreement between the Parties through a CONTRACT
AMENDMENT completing or replacing the relevant text of this Contract.
Its content will be as follows :
- front page bearing the Contract Amendment number, - modified and/or new
pages bearing the Contract Amendment number, - update of the "Review of
Contract Amendment", - signature page.
These pages shall cancel and replace the previously applicable pages to
become an integral part of the Contract.
2.3 In case of contradiction between the present text and any of its
Appendices, the present text shall prevail. In case of contradiction
between Appendices, the order of precedence shall be the numerical order
given in Clause 2.1 above. Said order shall also apply to all applicable
documents attached to Appendices.
<PAGE>
3. DELIVERY CONDITIONS AND SCHEDULE
3.1 Equipment Delivery Schedule
All equipment under this Contract shall be delivered "CIP Toulouse
Blagnac Airport" or subsequent destination to be agreed, according to
Conditions of INCOTERMS 1990, by SSTL :
- -----------------------------------------------------------------------------
ITEM QTY DESCRIPTION DELIVERY DATE
- ------------------------------------------------------------------------------
1 1 RF Model OPTIONAL
- ------------------------------------------------------------------------------
2 1 DSS Engineering Model OPTIONAL
- ------------------------------------------------------------------------------
3 1 EGSE # 1 FOR AIT QFM1
- ------------------------------------------------------------------------------
4 1 EGSE # 2 FOR AIT FM2
- ------------------------------------------------------------------------------
5 1 EGSE # 3 FOR AIT FM3
- ------------------------------------------------------------------------------
6 1 QFM1 platform September, 2000
- ------------------------------------------------------------------------------
7 1 FM2 platform October, 2000
- ------------------------------------------------------------------------------
8 2 FM3 Platform October, 2000
- ------------------------------------------------------------------------------
9 1 FM4 Platform April, 2001
- -----------------------------------------------------------------------------
10 1 FM5 Platform April, 2001
- -----------------------------------------------------------------------------
11 1 FM6 Platform April, 2001
- -----------------------------------------------------------------------------
12 1 LEOP # 1 Q1, 2001
- -----------------------------------------------------------------------------
13 1 LEOP # 2 Q3, 2001
- -----------------------------------------------------------------------------
14 3 Shipping containers For EVT Platforms QFM1,FM2,FM3
- -----------------------------------------------------------------------------
15 1 SCC TBD
- ------------------------------------------------------------------------------
16 3 MGSE For AIT Platforms QFM1,FM2,FM3
- -----------------------------------------------------------------------------
17 3 Mass Models TBD
- ------------------------------------------------------------------------------
<PAGE>
3.2 Documentation
The list of Deliverable Documents (Documentation Requirement List) as
well as associated requested delivery dates are provided in Appendix 2 :
Statement of Work.
3.3 Delivery procedure
3.3.1 Documentation
Documentation is to be sent to DBSI as specified in Clause 10
3.3.2 Equipment
Notification of shipment
In order to secure the proper delivery of the equipment, SSTL is required
to fax basic shipment data to DBSI as soon as they become available.
Said data shall be limited to :
- Ref of airway bill - Flight n(degree), departure and arrival time -
Contract n(degree), - ref of equipment
and shall be sent to :
DBSI as per Clause 10
Address of delivery
In accordance with the CIP Toulouse Blagnac Airport or subsequent
destination to be agreed, the Items subject of this Contract, shall be
delivered by SSTL to the following address (consignee) :
address
The following address shall be systematically indicated on each parcel :
FINAL DESTINATION
DBSI
To the attention of G T Leger
3.4 Should it become obvious to SSTL that it will not be able to comply with
the delivery dates indicated in Clause 3.1. and in Appendix 1, it shall
notify DBSI according to the provisions of Clause 10.
<PAGE>
4. CONTRACT PRICE
4.1 For the full, satisfactory and timely performance of the Work by SSTL,
DBSI shall pay to SSTL the Firm Fixed Price of :
4.1.1 Nature of Price
The above price is :
The prices include all packaging and shipping and delivery of all the work
o Based on CIP Toulouse Blagnac Airport according to INCOTERMS 1990
subsequent destination to be agreed o Firm and Fixed o Free of VAT (Value
Added Tax) and free of all present taxes, levies, duties and other charges
of any nature, applicable in SSTL's country for the performance of this
Contract, which will be entirely borne by SSTL.
o For the avoidance of doubt, DBSI shall be entirely responsible for all
other taxes, levies, duties and other charges of any nature arising or
applicable in any other countries than the United Kingdom
4.2 Detailed Contract Price
All prices are stated and payments made in US Dollars.
Detailed prices are given in Table 1 below.
<PAGE>
Notes :
[1] Item 1: Non Recurring Costs include some of the project setting up,
overhead and management charges
[2] Item 2: Proto-Flight Model (PFM) includes environmental test programme
(excluding payload antenna)
[3] Item 3: Flight Models includes partial environmental test programme
[4] Item 7: Support to Launch Campaign comprises 2 SSTL personnel
[5] Item 8: Increased height of spacecraft to 700mm
[6] Item 9: Additional Electrical Ground Support Equipment (EGSE) brings total
to three sets 3 EGSE
[7] Item 10: Mass models, geometric version of which is to be suitable for
display purposes
[8] Item 11: support to launch agency includes requirements for working with
EuRockot and providing interface
[9] Item 12: system support comprises continuation of measurement campaign,
additional support to DBSI for frequency management and system support.
<PAGE>
5. PAYMENT CONDITIONS
Payments due under this Contract by DBSI to SSTL shall be made in
accordance with the Payment Plan hereafter.
5.1 Payment Plan
5.2 Invoicing
Invoices are to be submitted for each milestone, 30 days in advance and
sent in accordance with Clause 10.
Each invoice shall contain the following elements :
o name of the Program
o identification number of the Contract ;
o identification of the required payment (milestone definition, number, date
and amount) o name and address of the Bank to be credited together with the
relevant Bank account number.
Any invoice submitted without the above information or not complying with the
above requirements shall be sent back to SSTL for correction and resubmission.
5.3 Payments
Payments shall be made upon satisfaction of both Calendar and Milestone
completion conditions.
DBSI guarantees that the time span between the date of receipt of the invoice
and the order of swift credit transfer in favour of SSTL shall not exceed 30
(thirty) calendar days, providing both calendar and milestones conditions have
been met.
Written evidence supporting achievement of each milestone shall be submitted by
SSTL along with the corresponding invoice.
<PAGE>
6. WORK IN PROGRESS INSURANCE
SSTL shall provide adequate insurance and shall ensure that its insurance is
sufficient for the value of the work on the Contract from commencement until the
delivery of the platforms in accordance with Clause 3.1. SSTL shall provide to
DBSI a copy of the certificate of insurance before the beginning of Assembly,
Integration and Test (AIT).
<PAGE>
7. INSPECTION AND ACCESS TO WORK
7.1 SSTL shall provide representatives of DBSI access to its premises where
work under this Contract is being performed, and shall assist them in
exercising their rights under the present Clause 7.
7.2 DBSI shall have the right to monitor the progress of the work which must
be carried out in accordance with the terms and conditions of the present
Contract, and shall have access to the data and documentation generated
under this Contract by SSTL as required to complete the Contract
satisfactorily.
7.3 With regard to administrative procedures, internal rules and regulations
of SSTL shall be applicable to the DBSI personnel.
7.4 During the performance of the Contract, when it has been established that
materials or semi-finished or finished hardware parts do not comply with
the requirements of this Contract :
DBSIwill be entitled to refuse the use or incorporation of these parts
in a deliverable hardware under this Contract
The suspended or rejected parts shall be corrected, improved or replaced
as agreed by both Parties.
7.5 The performance of any inspection under the present Clause 7 shall in no
way affect the responsibility of SSTL nor does it restrict the right of
DBSI or the inspecting authority acting on its behalf :
to reject deliverable hardware offered for acceptance
to enforce the warranty clause after acceptance
<PAGE>
8. ON SITE PERSONNEL
8.1 If so requested and upon reasonable advance notice SSTL shall make the
effort to accommodate DBSI representatives at SSTLs premises.
The number of representatives shall be determined on a case by case
basis. The above applies in case SSTL's representatives are necessary
in the DBSI premises
8.2 The representatives of DBSI shall be entitled to use all of SSTL's normal
communications systems, i.e. telephone, fax etc, on a free of charge
basis for the purpose of the present Contract.
If necessary SSTL will facilitate all administrative steps of the above
mentioned representatives during the period of their stay.
The above applies in case SSTL's representative are necessary in the DBSI
premises.
<PAGE>
9. KEY PERSONNEL
9.1 It is agree that the following employees are considered key personnel for
the performance of this Contract :
M. Losekoot Platform Programme Manager
J. Paffet Ground Segment, Operations & Frequency coordination manager
J. Lorenzi Project Manager
M. Allery Director of Projects
The availability of M. Losekoot to DBSI for the ESAT project shall be not
less than 50%.
9.2 SSTL agrees that the following rules apply to key personnel :
the work related to this Contract shall be executed by such key personnel
as defined above, such personnel to be fully available to the practical
extent possible throughout the Contract for the work allocated to them by
SSTL.
SSTL shall be entitled to carry out replacement of key personnel or
part-time assignment to other tasks if it can demonstrate it has been
compelled to do so.
In that case, the SSTL shall inform DBSI in due time of its intentions
and provide supporting arguments along with a resume of the proposed
replacement personnel.
Replacement personnel must be approved by DBSI within (7) days and
approval shall not be unreasonably withheld.
<PAGE>
10. COMMUNICATIONS
Any notice, invoice or correspondence between DBSI and SSTL in relation
to this Contract shall be sent by the appropriate means to :
10.1 In the case of DBSI :
DBSI
address
Main Office :
Fred Thompson DBS Industries Inc, 100 shoreline HWY, STE 190A,
Mill Valley, CA 94941 USA Tel +1 415 380
8055 Fax +1 415 380 8199
Project Office :
Gregory T. Leger, 3, allee Traquet Patre, 31320 Vigoulet-Auzil France
Tel +33 6 03 42 5101 Fax +33 5 61 733153
One hard copy to the main office, two hard copies to the project office
together with a labeled disk or disks, with microsoft office compatible
format, of identical content
or such other persons at such address as DBSI may from time to time
direct in writing for specific purposes.
In the case of SSTL :
Surrey Satellite Technology Limited (SSTL)
University of Surrey
Guildford - Surrey GU25XH
UNITED KINGDOM
o For technical matters to M. ALLERY
Tel : (44) 1 483 259 278 - Fax: (44) 1 483 259 503
o For Contractual matters to S.A. MILLAR
Tel : (44) 1 483 259 278 - Fax: (44) 1 483 259 503
or to any other address that SSTL might notify in writing to DBSI
<PAGE>
11. ACCEPTANCE PROCEDURE AND INCOMING INSPECTION
11.1 General All Deliverable Hardware and Software shall be subject to
Preliminary Acceptance prior to delivery and Final Acceptance.
The Preliminary Acceptance activities shall take place at SSTL's premises, under
SSTL's responsibility and shall be performed in accordance with the stipulations
of Appendix 1 : STATEMENT OF WORK.
11.2 Preliminary Acceptance procedure
11.2.1 Acceptance Tests
One (1) month prior to the beginning of the Acceptance Tests, SSTL shall provide
for DBSI's approval the test procedure to be used for the performance of the
Acceptance proceedings. Should DBSI not reject this test procedure within five
(5) calendar days, then it shall be deemed to have been approved.
DBSI shall be notified at least fifteen (15) calendar days and confirmed three
(3) working days prior to the beginning of the Acceptance tests, and shall then
have the opportunity to decide upon its participation. If DBSI decides not to
participate, SSTL shall proceed with acceptance testing in order not to delay
the work.
The test report shall be sent by SSTL to DBSI by express mail within seven (7)
calendar days following completion of the above tests. Failure to deliver said
documentation shall postpone the customer acceptance described in Appendix 3.
11.3 Incoming Inspection and Final Acceptance
11.3.1 All delivered hardware shall be subject to an incoming inspection at
DBSI's premises upon their receipt, except for the Ground Stations for which
incoming inspection will take place at the designated site ;
Incoming inspection consists solely in visual inspection for damages in
shipping. The conclusions of the incoming inspection shall be notified by DBSI
to SSTL within five (5) calendar days following receipt of the item by DBSI. For
Platform, Final Acceptance shall be deemed to have occurred after delivery,
acceptance and assembly of the complete Platform Flight Model. For the Ground
Stations Final Acceptance shall occur after the on site delivery and tests.
11.3.2 Rejection
Any Item rejected according to the above terms and conditions shall be
considered as a non delivery and shall be returned to SSTL's address at SSTL's
risk and expense after due notification by DBSI, SSTL shall be able to propose
preferred transportation methods.
11.3.3 Redelivery
Any Item which is returned to SSTL for repair of modification shall be
subject to the above acceptance procedures upon delivery.
<PAGE>
12. WARRANTY
12.1 Duration
12.1.1 Ground Station and EGSE
The warranty period of the Ground Station and EGSE shall start from its on
site installation and Final Acceptance until a period of twelve (12) months have
elapsed.
12.1.2 Platform
The warranty period of Platform shall start from its Final Acceptance and
end 12 (twelve) months after or at Intentional Ignition where this Platform is
embodied whichever is the earlier.
12.1.3 Software
The warranty on uploaded Platform software and Ground Station software
shall be valid from its Final Acceptance and run until the Satisfactory
Completion of the In Orbit Test of the E-SAT Satellite have occurred. The
warranty applies only under nominal operation of the Satellite.
12.1.4
With respect to any defective Item that is corrected or replaced, the
warranty period shall be extended for the same period of time during which said
Item was not available for operational use.
12.2 Subject of Warranty
SSTL warrants that the Items designed and manufactured under the Contract
is in conformity with the specifications and with the requirements of the
Contract, and is free from defects in design, materials and workmanship.
SSTL shall not be liable for defects caused through mishandling or misuse
by DBSI. The warranty contained herein is in addition to any other rights DBSI
may have at law.
12.3 Remedies
12.3.1 Platform
Concerning the Platform, the warranty shall cover the cost of removal,
replacement or repair and of testing as well as the cost of reinstallation of
those parts and components which have been found defective within the scope of
this Clause for design or manufacturing faults, but specifically excluding any
faults that occur as a result of de-stacking / dismantling of the Platform after
delivery and acceptance. The warranty shall also cover all travel expenses,
packing and transport charges incurred in connection with the execution of this
Clause. SSTL will have the possibility to arrange such transport and packing,
provided the proposed arrangements do not delay the performance of SSTL's
warranty obligations.
DBSI shall be entitled to request SSTL to replace the defective Item, when
a replacement Item is available in the event that a repair is more costly in
time than a replacement.
As far as software is concerned, the warranty shall cover the
identification of defaults, installation procedure and testing of corrected
versions and associated documentation.
12.3.2 EGSE
Concerning the EGSE the warranty shall cover the cost of removal,
replacement or repair and of retesting as well as the cost of reinstallation of
those parts and components which have been found defective within the scope of
this Clause, for design or manufacturing faults, but specifically excluding any
faults that occur as a result of misuse or dismantling after acceptance on
delivery. The warranty shall also cover all travel expenses, packing and
transport charges incurred in connection with the execution of this Clause. SSTL
will have the possibility to arrange such transport and packing, provided the
proposed arrangements do not delay the performance of SSTL's warranty
obligations.
DBSI shall be entitled to request SSTL to replace the defective Item, when
a replacement Item is available in the event that a repair is more costly in
time than a replacement.
As far as software is concerned, the warranty shall cover the
identification of defaults, installation procedure and testing of corrected
versions as far as associated documentation.
12.4 Warranty administration
In case of alleged defect, DBSI shall notify SSTL as soon as possible
through a warranty claim containing the followings :
o Item designation (hardware), Software designation,
o Serial number,
o Contract Number,
o Date of initial delivery,
o Failure analysis (hardware) or anomaly report (software).
SSTL shall acknowledge receipt by fax of said warranty claim within 2
working days.
12.4.1 Platform, relevant Ground Support Equipment (GSE)
During the Warranty period, SSTL guarantees that the maximum repair Turn
Around Time (T.A.T.) for Platform, GSE expressed in calendar days between
receipt of a defective Item under warranty at SSTL's facilities and shipment of
the repaired Item from SSTL's facilities shall not exceed 15 (fifteen) calendar
days for minor adjustments.
For major adjustments, the T.A.T., as defined above, shall be agreed on a
case by case basis between the Parties, respecting the current E-SAT Schedule
constraints. SSTL shall show that the best efforts have been made to optimize
the T.A.T.
If SSTL fails to repair or replace defective Item after written
notification of non compliance due to a defective material within said T.A.T.,
DBSI shall have the right to correct or replace such defective Item at SSTL's
expense. Such expense shall not exceed that portion of the Contract Price
attributable to the defective Item.
The provisions of Clause 16-1 shall apply to any Platform, GSE Item not
repaired within said T.A.T, starting from the first day in excess, this
provision shall not be unreasonably applied.
In the event that SSTL foresees that a defective Item cannot be repaired
and shipped from SSTL's facilities within the time guaranteed above SSTL may
elect to provide an interchangeable, serviceable, replacement Item within such
time. Any defective Item which has been returned to SSTL and has been replaced
by SSTL whether under warranty or not shall become the property of SSTL.
For an Item repaired or replaced under Warranty, SSTL shall specify
separately on the documents for customs purpose :
o The same Item value as indicated on DBSI's documents
o The repair cost, (if applicable).
12.4.2 Software
For what concerns platform software, the warranty service will start
after receipt at SSTL premises of a documented anomaly report.
The warranty service will consist in :
o anomaly complementary identification (if needed) through telephone call with
operators,
o software modification to correct the trouble origin,
o delivery through express mail of the updated software version on floppy
disk with associated installation procedure,
o telephone support to operators for new software version installation,
SSTL shall use its reasonable efforts to ensure that the anomaly report
will start to be analysed for trouble investigation within three (3) working
days following receipt of anomaly report at its premises. SSTL shall use its
reasonable efforts to minimize the impact of the potential software modification
on the availability.
12.5 Repairs or replacements not covered by the Warranty
12.5.1 Repairs or replacements performed during the Warranty period (hardware).
Any repair not covered by the warranty and chargeable to DBSI shall be
subject to a financial proposal, as per procedure defined in Clause 13, to be
approved by written consent of DBSI before the work is performed.
12.5.2 Repair or replacements performed after expiration of the Warranty period
After expiration of the warranty period SSTL shall maintain the necessary
technical know how in order to provide in a timely manner to DBSI corrections or
replacements of the delivered Item up to 3 (three) years after the Platform
Final Acceptance. SSTL shall assure the ability to remake flight software for 3
(three) years after launch. Any repair chargeable to DBSI shall be subject to a
financial proposal, as per procedure defined in Clause 13, to be approved by
written consent of DBSI before the work is performed.
<PAGE>
13. CHANGES
13.1 General
DBSI may at any time, by a written notice introduce changes to the
provisions of the Contract and its Appendices and the scope of the work to be
performed or items to be supplied under this Contract.
DBSI may also accept changes proposed by SSTL on its own initiative or on
behalf of its Subcontractors/Suppliers
Said changes shall be implemented through the modification procedure
described in Clause 13.2
13.2 Change procedure
13.2.1 Changes initiated by DBSI
13.2.1.1 Any request for a Contractual change initiated by DBSI shall be
supported by a Change Request Form.
A sample of this form is provided in Clause 13.3 hereafter. Within fifteen
(15) Calendar Days or otherwise agreed by the Parties following receipt of a
Change Request issued by DBSI, SSTL shall provide DBSI with a proposal
containing the following :
o Change Proposal completed with all required information,
o All additional information which may be required by DBSI to support
SSTL's proposal.
13.2.1.2 Upon agreement of both Parties on the content of the Change, the
Contract shall be amended by means of a Contract Amendment.
Signature of said Contract Amendment by both Parties shall render the
Change enforceable thus allowing incorporation of the modification.
No activities on a proposed change shall be started prior to the signature
of the relevant Contract Amendment. Neither party shall be liable for any change
unless and until the Parties have entered into a Contract Amendment.
Under exceptional circumstances, and for mandatory modifications whose
immediate implementation is required to meet the Delivery Dates, DBSI may direct
anticipation of the Work through an Authorization To Proceed (ATP) providing
SSTL has proposed price not to exceed and schedule for implementation of such
change.
13.2.2 Changes proposed by SSTL
Any Change Proposal initiated by SSTL shall be supported by a Change
Proposal Form. A sample of this form is provided in Clause 13.4 hereafter.
Within fifteen (15) calendar Days following receipt of a Change Proposal sent by
SSTL, DBSI shall inform SSTL of its position regarding said Change Proposal. If
applicable, implementation of the Change shall be handled according to the terms
and conditions of Clause 13.2.1.2.
13.2.3 Miscellaneous
SSTL shall be responsible for any impact on the provisions of this Contract
resulting from any Contractual Change implemented through the above procedures.
SSTL shall make its reasonable endeavours to implement any change in such a way
as to preserve proper achievement of the schedule. DBSI Representatives shall be
entitled to attend any meeting related to changes.
<PAGE>
13.3 Forms
E-SAT
DBSI CONTRACT DATE :
ESAT-GTL-CO-0034
CHANGE REQUEST C. R n(degree) :
- ------------------------------------------------------------------------------
SSTL is requested to submit a proposal to implement this change.
The proposal shall include a list of all items affected (including Contract,
technical Contractual documents and hardware) and the detailed changes proposed
for each item.
The request does not imply an intention to proceed and no work should be
undertaken to implement the change.
This proposal including planning and pricing should be submitted according to
the provisions of the Contract.
- -------------------------------------------------------------------------------
Sub- system : Equipment :
- -------------------------------------------------------------------------------
TITLE :
- ------------------------------------------------------------------------------
REASON FOR CHANGE
DESCRIPTION OF REQUESTED CHANGE :
- ------------------------------------------------------------------------------
AUTHORITY ORIGINATOR CONTRACT PROJECT
MANAGER MANAGER
- ------------------------------------------------------------------------------
DBSI :
- -NAME:
- -DATE :
- -SIGNATURE :
- ------------------------------------------------------------------------------
Sheet of
- -------------------------------------------------------------------------------
<PAGE>
SSTL DATE :
CHANGE PROPOSAL C. P n(degree) :
Rev :
- ------------------------------------------------------------------------------
REF. OF THE CHANGE REQUEST : SUB SYSTEM :
EQUIPMENT :
MODEL :
- ------------------------------------------------------------------------------
CONTRACT n(degree)
- -------------------------------------------------------------------------------
TITLE :
- ------------------------------------------------------------------------------
RECOMMENDED INTRODUCTION DATE :
- -----------------------------------------------------------------------------
DESCRIPTION OF CHANGE :
- ------------------------------------------------------------------------------
DOCUMENTS AFFECTED (USE ADDITIONAL SHEETS WHEN REQUIRED)
- ------------------------------------------------------------------------------
TITLE N(degree) ISSUE/REV DATE
- ------------------------------------------------------------------------------
OTHER IMPACTS TO BE DOCUMENTED ON PAGE 2/2
- -----------------------------------------------------------------------------
NEED FOR CHANGE :
- ------------------------------------------------------------------------------
SCHEDULE IMPACT (S)
- -----------------------------------------------------------------------------
COST/SAVING TO BE DETAILED ACCORDING TO CONTRACT STIPULATIONS
SHEET 1/2
- -------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
SSTL DATE :
CHANGE PROPOSAL C.P n(degree) :
Rev :
- ------------------------------------------------------------------------------
CHANGE HAS IMPACT ON : SEE ATTACHMENT :
NO YES
----- ------
CONTRACT PRICE OR FEE
----- ------ ------------------------------------------------------------
----- ------
SCHEDULE
----- ------ -----------------------------------------------------------
PERFORMANCE
----- ------ -----------------------------------------------------------
RELIABILITY
----- ------ -----------------------------------------------------------
SAFETY
----- ------ ------------------------------------------------------------
QUALITY ASSURANCE
----- ------ ------------------------------------------------------------
PARTS, MATERIALS, PROCESSES
----- ------ -------------------------------------------------------------
MAINTENANCE AND REPAIR
----- ------ ---------------------------------------------------------
TEST
----- ------ -------------------------------------------------------
MASS, BALANCE, MOI
----- ------ -----------------------------------------------------------
INTERFACE CHARACTERISTICS
----- ------ ----------------------------------------------------------
POWER DISSIPATION OR CONSUMPTION
----- ------ ------------------------------------------------------------
EMC
----- ------ -----------------------------------------------------------
INTERCHANGEABILITY
----- ------ -----------------------------------------------------------
COMPUTERS PROGRAMS
----- ------ ----------------------------------------------------------
OPERATIONS
----- ------ -------------------------------------------------------
EGSE
----- ------ -------------------------------------------------------
MGSE
----- ------ -----------------------------------------------------------
HANDLING, STORAGE, TRANSPORTATION
----- ------ -----------------------------------------------------------
SPARES
----- ------ -----------------------------------------------------------
DOCUMENTATION
----- ------ -----------------------------------------------------------
FOLLOW ON PROGRAMS
----- ------ -----------------------------------------------------------
ALREADY MANUFACTURED HARDWARE
----- ------ ---------------------------------------------------
POSSIBLE IMPACT ON OTHER HARDWARE
----- ------ ---------------------------------------------------------
OTHER
- -------------------------------------------------------------------------------
REMARKS :
- ------------------------------------------------------------------------------
AUTHORITY ORIGINATOR CONTRACT PROJECT
MANAGER MANAGER
- -------------------------------------------------------------------------------
NAME :
SSTL : DATE :
SIGNATURE
- ------------------------------------------------------------------------------
PAGE 2/2
- ------------------------------------------------------------------------------
<PAGE>
14. COST ANALYSIS
14.1 For all proposals of Modifications, or repair of equipment submitted by
SSTL and in case of termination of this Contract according respectively
to the provisions of Clause 13 : Change, Clause 12.5 Repair and Clause 24
Termination, DBSI will be allowed to carry out detailed cost analysis at
SSTL's facilities.
For this purpose, SSTL will put at DBSI's specialists disposal :
production drawings
production process sheets
provisioning order
Hourly rates
parts and process list
or any other elements reasonably required for the verification of SSTL's
prices.
14.2 DBSI undertakes to consider and maintain as secret and confidential all
data and documents made available to it for the exercise of the rights
granted by the above conditions.
<PAGE>
15. SUBCONTRACT
15.1 In performance of the Work, it is necessary for SSTL to enter into
Subcontracts. "Major Subcontractors" are defined as those
Subcontractors;
o accounting for more than 850,000 [USD] set at January 1999
Economic-Conditions or,
o supplying critical items or work or,
o which are subject to specific export license constraints or
procedures, etc..
Major Subcontractors selected by SSTL are listed below with their names,
addresses, and the scope of the work to be subcontracted.
Major Subcontractors Location Description of Work
POLYFLEX Ltd UK Cold Gas Propulsion
- -------------------------------------------------------------------------------
EEV Ltd UK GaAs Solar Arrays
- ------------------------------------------------------------------------------
15.2 SSTL shall permit DBSI to communicate with its Subcontractors, should
DBSI deem it necessary to do so, provided that DBSI gives reasonable
prior notice of such contact to SSTL, and SSTL will be permitted to
attend any meeting resulting from these communications.
15.3 List of Subcontractors
The final list of subcontractors shall be defined at the CDR
<PAGE>
16. DELAYS
16.1 Penalties for late delivery
The present Clause applies to all Equipment subject of this Contract.
16.1.1 Without prejudice to SSTL's obligations under the Contract SSTL shall
notify DBSI immediately by fax of any known or anticipated delay in the
performance of its obligations stating :
(a) the anticipated period of the delay,
(b) the reasons for the delay : and
(c) what action is being taken by SSTL to overcome such delay.
16.1.2 Should SSTL fail to meet the delivery schedule specified in the Contract
then DBSI reserves the right to either :
(a)instruct SSTL to send the consignment by other than its normal means
of transport, and/or to a destination other than shown in the
Contract; or
(b)make necessary and reasonable arrangements for collection of
the consignment.
SSTL shall be liable for such costs as may be incurred by SSTL(case (a)
above) or by DBSI (case (b) above) as a result of DBSI exercising these
rights, such costs may be agreed by the Parties in advance.
16.1.3 SSTL shall not be liable for delays in delivery which are due to a case
of "Force Majeure" such as defined in Clause 21 : FORCE MAJEURE, provided
that in such cases SSTL exercises due diligence in promptly notifying
DBSI in writing of any known or anticipated delay and recommences
performance of SSTLs obligations immediately after cessation of the
delay.
In such a case, delivery stated in Clause 3 : DELIVERY CONDITIONS AND
DELIVERY SCHEDULE will be extended by the number of necessary days to
overcome the causes of the delay.
16.1.4 If delivery is delayed or is anticipated to be delayed due to any of the
excusable delay provisions described in Clause 16.1.3 above, the delivery
schedule in the Contract shall be extended for such period as may be
agreed between DBSI and SSTL provided that if delivery is delayed or
anticipated to be delayed for more than five (5) months DBSI shall be
entitled to cancel the Contract in whole or in part, in accordance with
the provisions of Clause 24.1
16.1.5 Failure to meet one or several dates of the delivery schedule given in
Clause 3 shall without prejudice to DBSI's right of termination, render
SSTL liable to a deduction from the Contract Price.
The value of this deduction will be calculated as follows for each day of
delay :
- 0.3 per thousand of the total Contract Price from the first to the 40th
day inclusive,
- 0.5 per thousand of the total Contract Price from the 40th day to the
90th day inclusive,
- 0.1% of the total Contract Price for each subsequent day.
Total cumulated penalty shall not exceed 3% of the total Contract price.
Nothing contained in this Clause shall affect any right or remedy
available to DBSI under this Contract or by law for the consequences of
any delay to contractual delivery dates.
16.2 Payment of penalties
Penalties due according to the above provisions shall be invoiced by DBSI
and paid by SSTL within 30 days of the tenth of the month following the
date of receipt of the invoice.
<PAGE>
17. UNDERTAKING OF DBSI
17.1 For performance of this Contract DBSI shall deliver to SSTL CIP (LONDON
Heathrow International Airport) according to INCOTERMS 1990 at no cost
the Equipment, supplies and technical documents referenced below in good
condition and at the time stipulated below :
- Dummy payload to be provided at a precise date to be defined by the
Parties during the Deliverable Status meeting .
The undertakings of DBSI given in this Clause constitute an obligation
for DBSI only insofar as they are necessary for the successful and timely
execution of SSTL's tasks. The cost of any additional requirement by SSTL
shall be borne by the latter unless otherwise agreed.
17.2 During the period of time where the equipment is in the custody of SSTL,
the latter shall take over the associated insurance maintenance contracts
and expenditures.
17.3 Any failure of DBSI to execute its undertakings under the present Clause
shall be notified by SSTL to DBSI within fifteen (15) calendar days.
After these (15) fifteen calendar days, SSTL shall be entitled to relief
or compensation through implementation of the change procedure given in
Clause 13 : CHANGES
<PAGE>
18. TECHNICAL DIRECTIVES
18.1 DBSI shall have the right to issue Technical Directives to SSTL. The
Technical Directives shall serve to explain in more details the task
descriptions contained within the Appendices, to set down guidelines for
SSTL concerning the continuation or intensification of certain tasks or
to promote the implementation of the contractual performance
requirements.
To ensure the effectiveness of the Technical Directives it is necessary
that they
a) are issued by DBSI's project manager or its authorised representative
b) are given in writing referring to this Clause
c) inform SSTL by telephone
d) are jointly agreed by the parties
18.2 SSTL shall acknowledge receipt of the Technical Directive within five (5)
working days stating its position regarding its acceptance and developing
all relevant comments.
18.3 Where applicable and prior agreed, these Technical Directives shall be
issued according to the Change procedure in Clause 13.
<PAGE>
19. PATENT INFRINGEMENT
19.1 To the best of its knowledge SSTL represents that there are no actual or
threatened claims by third Parties for infringement of patents, or other
proprietary information by the Equipment on the date of coming into force
of this Contract.
19.2 Should a claim or a suit arise against DBSI by a third party for alleged
infringement of patent rights in force relating to the Equipment, DBSI
shall inform SSTL of such a claim, without delay. SSTL shall defend DBSI
and bear all expenses relevant to the resulting lawsuit providing it has
been given the opportunity to conduct the action and /or proceedings at
its own convenience, for an aggregate value for the Contract of 1,000,000
GBP under the cover of SSTL's product liability insurance policy.
Should a court or an arbitrator finally establish that there has been a
patent infringement or should SSTL consider that the equipment it has
delivered could be the subject of a claim or suit for infringement, then
SSTL shall use its reasonable endeavours to obtain the right, at its own
expense, for DBSI to continue the use of the delivered equipment.
<PAGE>
20. PROPRIETARY RIGHTS
20.1 Definitions
Foreground Inventions shall mean any new improvement or discovery
which is patentable subject matter that is first developed under this
Contract.
Foreground Information shall mean new information of any kind,
including designs, process information, methods of manufacture and
software (both source and object form) first developed under this
Contract.
Background Technology shall mean all SSTL's owned information,
improvements or discoveries, whether or not patented by SSTL to be used
for the E-SAT program, which are not Foreground Inventions or Foreground
Information.
20.2 Rights on Background Technology
DBSI shall have a free of charge, non exclusive right to use the
background technology that relates to the E-SAT program and then only for
the contracted E-SAT Program.. Any other rights to use background
technology associated with the E-SAT program and transmit it to a third
party shall be treated in accordance with Clause 20.5.
20.3 Rights on Foreground Inventions and Foreground Information
Foreground Inventions and Foreground Information shall be the property of
SSTL. SSTL can communicate Foreground Invention and Foreground
Information to a third Party after informing DBSI and reserving DBSI's
rights in case of commercial use.
SSTL shall be entitled to protect Foreground Inventions by patent or
other similar form of legal protection.
Within two months of the filing, in any country whatsoever, of any
application for a patent or other similar form of legal protection in
respect of an invention as referred to above, SSTL shall notify DBSI of
the reference number and date of the application, the name of the
applicant and the name of the inventor and the reference number and
subject of the relevant Contract, and subject to its national
legislation, shall supply it with a copy of a description and drawings
filed with the application.
DBSI shall treat these documents as confidential. Except with the
agreement of SSTL these documents shall not be disclosed as long as the
patent or similar form of legal protection or the application for it has
not been officially published, this restriction being limited to a period
of 18 months following the filing of the application.
In addition SSTL shall, within nine (9) months following the initial
filing of a patent application, provide DBSI with a list of the other
countries in which it has filed, or intends to file corresponding patent
applications, and upon request it shall allow DBSI to file applications
in those countries in which it does not do so itself.
If SSTL makes an invention during the E-SAT Program which it does not
wish to patent, it shall immediately inform DBSI accordingly and shall
transfer the rights, free of charge, to DBSI so that the latter may,
after consulting SSTL, take action in its stead.
Employees of SSTL who have conceived Foreground Inventions not to be
patented by SSTL will be requested to sign all documents in accordance
with the patent's formalities in order to enable DBSI to file the related
patent application under its name and at its expense.
DBSI shall be entitled to maintain, for its own benefit, any patent or
patent application that SSTL intends to abandon. SSTL shall notify DBSI
of its intentions at least three months in advance to enable it to comply
with the necessary formalities. In respect of any patent secured by DBSI
under the terms of this paragraph SSTL shall be entitled to receive, free
of charge, an irrevocable exclusive license, with the right to grant
sub-licenses, on condition of informing DBSI.
For a period of ten years, with effect from the delivery of the platform,
SSTL shall inform DBSI at its request, of improvements incorporated into
equipment then currently available from SSTL whose application could be
considered for incorporation into or with the equipment delivered under
the Contract.
In respect of any Foreground Invention and Foreground Information, SSTL
grants, free of charge, an exclusive irrevocable license to DBSI. This
license authorizes DBSI to make use or have made use of the Foreground
Inventions and Foreground Information for their own requirements in the
field of space research and technology and their space applications, with
the right to grant sub-licenses on condition of informing SSTL and
receipt of SSTL's written agreement.
<PAGE>
20.4 Rights of Reproduction
For the purpose of the Contract the right of reproduction is defined as
the right to manufacture or have manufactured Foreground Invention and
Foreground Information or part thereof, or any modifications or
derivatives thereof that do not substantially alter their identity.
SSTL agrees that DBSI shall have the right of reproduction in respect of
any Foreground Invention and Foreground Information with the right to
grant sub-licenses on condition of informing SSTL and receipt of SSTL's
written agreement.
SSTL must take all reasonable steps with the holders of the rights of
Foreground Industrial property to enable the exercise of the right to
reproduce and avoid the limitation of such right. If the right of
reproduction is impaired, SSTL must upon formal notice take all
reasonable measures to eliminate the trouble.
20.5 Royalties
Subject to an agreement based on fair and reasonable terms to be
negotiated , DBSI may purchase the right for their own requirements in
the field of space research and technology to :
- use the Background Technology in connection with the E-SAT program,
allow this Background Technology to be used by a third party.
<PAGE>
21. FORCE MAJEURE
21.1 Notwithstanding any other provisions of the Contract neither Party shall
be deemed to be in default of any of its contractual obligations if and
to the extent such obligation is affected temporarily or permanently by
an event or cause of Force Majeure as hereinafter defined.
21.2 Force Majeure means any circumstance whether or not of the class or kind
specifically named hereunder, which is not within the reasonable control
of the Party affected and which despite the exercise of reasonable
diligence could not be avoided or prevented.
The following events given by means of example will be qualified as Force
Majeure in any case:
acts of God,
expropriation, confiscation or requisitioning of facilities. Compliance
with any order directive or request of any competent governmental
authority or persons purporting to act therefore, which affects to a
degree not presently existing, the supply, availability or use of
materials or labor,
acts or inaction on the part of any government authority or person
purporting to act therefore,
acts of war or the public enemy whether war be declared or not,
public disorders, insurrection, rebellion, sabotage, riot,
explosions, fire, floods of great lightning, inclement weather conditions
or other natural calamity,
general strikes
21.3 Upon the occurrence of any such event or cause as aforesaid the Party
affected shall immediately notify the other Party in writing as soon as
possible of the alleged beginning of Force Majeure and shall give
reasonable evidence of the said event or cause of Force Majeure.
21.4 The parties shall thereupon consult with one another concerning the
effect of the Force Majeure and shall in any case agree upon an extension
of the time schedule of the Contract which will not be less than the
duration of the effects of the Force Majeure.
21.5 If the Force Majeure effect exceeds a period of five (5) months or any
agreed extension thereof, either Party may terminate the Contract.
However, should the Contract be terminated by DBSI on this account the
stipulations of Clause 24.1 shall apply
<PAGE>
22. TRANSFER OF TITLE AND RISKS
22.1 For all items to be delivered under this Contract risk of loss or damage
shall pass to DBSI in accordance with the provisions of the CIP Incoterms
1990.
for sake of clarity, the delivery points are the following :
For platforms, EGSE, software and containers : "CIP Toulouse Blagnac
Airport" or subsequent destination to be agreed.
22.2 For all items to be delivered under this Contract title shall pass to
DBSI at final acceptance and receipt, by SSTL, of full and complete
payment of such items
<PAGE>
23. LIABILITIES
23.1 The liability of each of the Parties arising out of any property damage
or personal injury occurring during the performance of this Contract
shall be limited to the amount they receive from their insurers.
23.2 Compensation for damage to any property used under this Contract shall be
borne by the Party who has the item under its custody at the time of
occurrence of the damage.
<PAGE>
24. TERMINATION
24.1 Termination without default of SSTL
DBSI may at any time terminate unilaterally in whole or in part its
obligations under the Contract by notifying SSTL with one month notice of
its decision and shall further be relieved from accepting any undelivered
Items.
24.1.1 SSTL undertakes that, upon receipt of such notification, it will cease
all related work on the Contract as soon as possible and comply with any
reasonable directions with regard to items which may be given by DBSI.
SSTL shall further ensure that its own Subcontractors likewise cease work
and comply with any such reasonable direction.
24.1.2 SSTL shall produce a termination inventory in a suitable form prescribed
by DBSI and send it as soon as possible following said notification to
DBSI who reserves the right to request completion of any equipment
according to the terms of the Contract.
24.1.3 SSTL will be entitled to receive termination costs and cancellation fees
including a 10% profit margin that would not amount to a total higher
than would have been due to it had the Contract been completed.
24.1.4 Following receipt of payment therefor, DBSI, as owner henceforth of the
termination inventory shall give SSTL proper instructions for delivery or
other disposition of the termination supplies.
The value of the items stipulated above shall be calculated either on the
basis of the Contract Price or for items in course of manufacture at a
fair and reasonable price in terms of their degree of completion at the
termination date.
Where in any instance disposal instructions are given by DBSI to SSTL,
the latter shall credit DBSI with the proceeds of any disposal less costs
incurred.
24.1.5 DBSI shall have the option to purchase at fair and reasonable prices such
technical data and tooling not already paid for under the terms of the
Contract.
24.2 Termination for default of SSTL
24.2.1 In the event of a material breach or non observance by SSTL of any one or
more conditions of the Contract and if SSTL fails to remedy such breach
or non observance within 30 days after receipt of notice from DBSI, DBSI
shall have the right to give SSTL written notice forthwith terminating
the whole or any part of the Contract without prejudice however to
existing rights and remedies already accrued to DBSI.
24.2.2 DBSI shall also be entitled to give notice terminating the Contract if
SSTL shall cease or threaten to cease carrying on its business or shall
become insolvent or if its financial position is such that a legal action
leading towards bankruptcy may be taken against it by its creditors, or
if SSTL resorts to fraudulent practices in connection with this Contract.
24.2.3 In the event of any termination by virtue of this Clause 24.2, DBSI shall
have the right, at SSTL's expense, to manufacture the items or to have
the items manufactured by a third party using any technical data and
tools, stocks and parts completed or in the course of manufacture under
the terms of the Contract by SSTL without prejudice to DBSI's right to
claim compensation for damages.
24.2.4 If the Contract is terminated as provided in this Clause 24.2. DBSI in
addition to any other rights provided in these conditions may require
SSTL to deliver to DBSI in the manner and to the extent directed by DBSI
any completed supplies and subject to receipt of payment transfer title
thereto. Payment for completed supplies delivered to and accepted by DBSI
shall be at the Contract Price.
24.2.5 The Parties will try to establish by mutual agreement a liquidation
settlement; failing such an agreement the provisions of Clause 30 : LAW
AND ARBITRATION shall apply.
24.3 SSTL shall advise DBSI of all proposed settlements with Subcontractors in
the event of termination and SSTL agrees not to enter into any binding
settlement until DBSI has approved the proposed settlements or 30 days
have elapsed from the date when such advice was given to DBSI.
<PAGE>
25. GOVERNMENTAL AUTHORISATIONS
Each Party shall be responsible for obtaining its own government
authorisations necessary for the due performance of this Contract
(including the performance of subcontracted work).
DBSI shall be responsible for providing SSTL with a guarantee that
meets the requirements of the third party liability as required by
the Outer Space Act 1986 Chapter 38. Proof of the guarantee must be
provided to SSTL in time for this to be supplied to the British
National Space Centre and the satellite thus be authorised to leave
the UK.
<PAGE>
26. PUBLICITY
Within a reasonable time before the issue of any news, release, article,
brochure, advertisement, prepared speech and other information concerning the
Contract status and/or the work performed under this Contract , SSTL shall
obtain the written approval of DBSI concerning the content and timing of such
release.
SSTL shall be informed of DBSI's decision within 24 hours and DBSI's approval
shall not be unreasonably withheld.
Within a reasonable time before the issue of any news, release, article,
brochure, advertisement, prepared speech and other information concerning the
Contract status and/or the work performed under this Contract , DBSI shall
obtain the written approval of SSTL concerning the content and timing of such
release.
DBSI shall be informed of SSTL's decision within 24 hours and SSTL's approval
shall not be unreasonably withheld.
<PAGE>
27. LANGUAGE
The Contract is written in the English Language
All correspondence related to this Contract shall be made in English
language.
<PAGE>
28. APPLICABLE LAW AND ARBITRATION
28.1 Any disputes arising out of or in connection with this Contract which are
not amicably resolved between the Parties shall be finally settled
according to the rules of Arbitration and conciliation of the
International Chamber of Commerce by arbitrators appointed according to
the rules. The arbitration will take place in LONDON (UK)
The arbitration award shall be final and binding on the Parties and
judgement may be entered thereon, upon the application of either Party,
by any court having jurisdiction.
28.2 This Contract shall be governed construed and performance thereof shall
be determined in accordance with the laws of England and the parties
shall submit to the exclusive jurisdiction of the English Courts.
<PAGE>
29. ASSIGNMENT
29.1 Neither this Contract nor any of the rights, duties or obligations of
either Party may be assigned without the prior written consent of the
other Party, which shall not be unreasonably withheld.
29.2 The Parties hereto shall have the right to assign all of their rights,
title and interest in and to this Contract to a qualified successor in
case of merger, consolidation or reorganization or transfer of all or
substantially all of their assets.
<PAGE>
30. SATELLITE STORAGE
In the event of platform storage upon the request of DBSI, SSTL shall
provide periodic testing, necessary equipment, and environmental
maintenance suitable for prevention of deterioration to the Platform
during the period of storage. The cost for such services shall be subject
to Clause 13, changes , and shall be negotiated upon the request of
such services by DBSI. Unless such environmental services are requested
by DBSI, any deterioration to a Platform while in storage shall be at
DBSI's risk and shall be corrected at DBSI's expense, unless such
deterioration is to be corrected by SSTL under Clause 12, Warranty.
If environmental services are provided by SSTL, correction of such
deterioration resulting from such services shall be at SSTL's expense.
<PAGE>
31. STOP WORK ORDER
31.1 DBSI may, at any time, by written order to SSTL, require SSTL to stop all
or any part, of the work called for by this Contract, for a maximum
period of ninety (90) calendar days after the order is delivered to SSTL,
and for any further period to which the Parties may agree by written
notice.
Any such order shall be specifically identified as a stop work order
issued pursuant to this Clause. Upon receipt of such an order, SSTL shall
as soon as reasonably possible comply with its terms and take all
reasonable steps to minimize the occurrence of costs allocable to the
work covered by this Contract during the period of work stoppage. Within
the stop order period or within any extension of that period to which the
Parties shall have agreed, DBSI shall either
o cancel the stop work order or any extension thereof, or,
o terminate the work covered by the Contract as provided in the
Termination without Default Clause 24 of the present Contract
31.2 If a stop work order or any extension thereof issued under this Clause is
canceled or the period of the order or any extension thereof expires,
SSTL shall resume work. An equitable adjustment shall be made in the
delivery schedule or Contract Price, or both, and the Contract shall be
modified in writing accordingly, if the stop work order results in an
increase in the time required for, and/or in the Contract Price, and/or,
SSTL asserts, based on certified proofs and written evidence a claim for
such adjustment within thirty (30) calendar days after the end of the
effective period of work stoppage. Nevertheless, DBSI upon reasonable
justification may decide to receive and act upon any such claim asserted
prior to the above period.
31.3 If a stop work order is not canceled and the work covered by the present
Contract is terminated for the convenience of DBSI, the reasonable costs
resulting from the stop work order shall be allowed in arriving at the
termination settlement.
<PAGE>
32. COMING INTO FORCE
This Contract shall come into force upon its signature by the parties
and receipt of payment of the first milestone by SSTL.
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF,
The Parties hereto have set their hands on
On behalf of : Surrey Satellite Technology Limited
Name :
On this day :
On behalf of : DBSI and its wholly owned subsidiary Newstar Limited
Name :
On this day :
We consent to the inclusion in the registration statement of Form SB-2 of our
report dated February 5, 1999, execept for Note 14 as to which the date is
April 8, 1999, on our audits of the financial statements of DBS Industries, Inc.
and Subsidiaries. We also consent to the reference to our firm under caption
"Experts".
San Francisco, California
April 30, 1999
May 3, 1999
Board of Directors
DBS Industries, Inc.
100 Shoreline Highway, Suite 190A
Mill Valley, California 94941
Re: Common Stock of DBS Industries, Inc.
Registered on Form SB-2 filed April , 1999
Gentlemen:
We act as counsel to DBS Industries, Inc. (the "Company"), a
Delaware corporation, in connection with the registration under the Securities
Act of 1933, as amended (the "Securities Act"), of 2,924,906 shares of the
Company's Common Stock (the "Shares"), of which up to 2,329,906 may be resold by
certain Selling Stockholders and 595,000 may be issued upon the exercise of
Warrants and resold, all as further described in a registration statement on
Form SB-2 filed under the Securities Act (the "Registration Statement") on May
3, 1999.
For the purpose of rendering this opinion, we examined originals
or photostatic copies of such documents as we deemed to be relevant. In
conducting our examination, we assumed, without investigation, the genuineness
of all signatures, the correctness of all certificates, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies, and the accuracy and completeness
of all records made available to us by the Company. In addition, in rendering
this opinion, we assumed that the Shares will be offered in the manner and on
the terms identified or referred to in the prospectus, including all amendments
thereto.
Our opinion is limited solely to matters set forth herein.
Attorneys practicing in this firm are admitted to practice in the State of
California and we express no opinion as to the laws of any other jurisdiction
other than the laws of the State of Delaware and the laws of the United States.
Based upon and subject to the foregoing, after giving due regard
to such issues of law as we deemed relevant, and assuming that (i) the
Registration Statement becomes and remains
<PAGE>
May 3, 1999
Page 2
effective, and the prospectus which is part thereof (the "Prospectus"), and the
Prospectus delivery procedures with respect thereto, fulfill all of the
requirements of the Securities Act, throughout all periods relevant to the
opinion, and (ii) all offers and sales of the Shares have been and will be made
in compliance with the securities laws of the states, having jurisdiction
thereof, we are of the opinion that the Shares, offered by the Selling
Shareholders have been, and the Shares to be issued upon the exercise of
Warrants for adequate consideration will be, validly issued, fully paid, and
non-assessable.
We hereby consent in writing to the use of our opinion as an
exhibit to the Registration Statement and any amendment thereto.
Sincerely yours,
BARTEL ENG LINN & SCHRODER
/s/ ROGER D. LINN
------------------------------
Roger D. Linn
