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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________________ to ____________________
Commission File No. 0-28348
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DBS INDUSTRIES, INC.
(Name of small business issuer in its charter)
Delaware 84-1124675
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Shoreline Highway, Suite 190A Mill Valley, California 94941
(Address of principal executive (Zip Code)
offices)
Issuer's telephone number: (415) 380-8055
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $.0004 per share
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Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is contained herein, or will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $ -0-.
As of March 13, 2000, the aggregate market value for the 13,590,331
shares of the common stock, par value $.0004 per share, held by non-affiliates
was approximately $61,580,508.
The number of shares outstanding of registrant's only class of Common
Stock, as of March 13, 1999, was 14,376,187 shares of its common stock, par
value $.0004 per share.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain exhibits required by Item 13 have been incorporated by
reference from the Company's previous Form 10-KSBs, Form 8-Ks, and its
Registration Statement on Forms SB-2.
Information called for by Items 9 through 12 of Part III have been
incorporated by reference to the Company's Proxy Statement for its annual
meeting of shareholders to be filed within 120 days of its fiscal year end.
Exhibit Index is located at Page 28.
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PART I
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements, as that term is
defined in the Private Securities Litigation Reform Act of 1995, in the items
entitled "Business," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere. These statements relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks set
forth below under "Risk Factors," that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements after the date of this
report to conform these statements to actual results.
ITEM 1. BUSINESS
GENERAL
DBS Industries, Inc. ("DBSI" or "We" or the "Company") is a
telecommunications company dedicated to providing low-cost satellite-to-Internet
data messaging to and from remote locations. DBSI is the only company currently
licensed by the Federal Communications Commission (through the E-SAT license) to
provide commercial two-way data messaging using store-and-forward
satellite-based communications system using Code Division Multiple Access
technology and low-earth-orbiting satellites. We expect to begin providing our
data messaging services, currently marketed under the "NewStar" name, during
2002.
The Company is a Delaware corporation, formed in 1989, with principal
executive offices located in Mill Valley, California. The Company has conducted
its principal operations from its office in California since completing a share
exchange reorganization with DBS Network in 1992. Since 1994, our focus has been
to pursue business opportunities in satellite telecommunications. We began this
pursuit originally by purchasing interests in direct broadcast satellite
licensees. We had an interest in Direct Broadcast Satellite Corporation that was
subsequently acquired by EchoStar Communications Corporation ("EchoStar"). In
addition, we held an equitable interest in Continental Satellite Corporation.
During 1997, we sold our last indirect interest in a direct broadcast satellite
licensee and agreed to settle litigation involving our equitable interest in
another direct broadcast satellite licensee.
Prior to our decision to apply for the E-SAT license discussed
below, we were developing hardware and software to enhance data collection
and transmission for utility companies. In the course of this development, we
investigated the effectiveness and viability of low-earth-orbit satellites
for collecting and transmitting data from fixed meters. These satellites are
often called "Little LEO satellites - "LEO" is shorthand for low-earth-orbit
satellites, and "Little LEO" is shorthand for low-earth-orbit satellites
operating in this lower radio band. The success of these tests led us to
believe that this technology could offer utilities lower data collection
costs and enhanced energy management through two-way
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communications with utility meters.
As a result, we formed E-SAT, Inc., a Colorado corporation, in
partnership with EchoStar and on November 1994 applied for a Federal
Communications Commission ("FCC") license. On March 31, 1998, the FCC issued
a license to E-SAT to launch and operate a Little LEO satellite system. (See
"Regulatory Environment"). Pursuant to the initial formation agreement for
E-SAT, we hold 20% of the capital stock of E-SAT and EchoStar holds the
remaining 80%. In July 1999, we executed an agreement to acquire an
additional 60.1% from EchoStar, to bring our total ownership of E-SAT to
80.1% (See "Ownership in E-SAT"). This transfer is subject to the approval of
the FCC.
In addition to E-SAT, we established two other subsidiaries: NewStar
Ltd. and Global Energy Metering Service, Inc.
- We formed NewStar Ltd., a Bermuda corporation, in 1998. It is a
wholly owned subsidiary organized to participate in the
construction, operation and marketing of our system.
- We formed Global Energy Metering Service, Inc., a Delaware
corporation, in 1994. It is a wholly owned subsidiary organized to
provide us with early market studies and management support for
the NewStar System design. It is now inactive and does not engage
in any business activity.
BUSINESS STRATEGY
The key components of our business strategy include the following:
- PROVIDING A RELIABLE, WORLDWIDE TWO-WAY DATA COMMUNICATIONS
NETWORK BASED ON EXISTING TECHNOLOGY. We believe that, by
incorporating existing and proven technologies such as CDMA
communications technology and a store-and-forward design into the
NewStar System and by using six Little LEO satellites in polar
orbits, we will be able to provide reliable, global, two-way data
and messaging communications services. The distribution of our
satellite constellation in polar orbits is designed to provide us
access to all of the earth's populated land mass approximately
every hour with each satellite, reducing the potential risks
from the loss or outage of one or more satellites.
- OFFERING A LOW-COST SERVICE. We believe that the NewStar System's
relatively low cost to design, construct, launch and operate,
together with lower-powered, relatively inexpensive ground
transceivers, will allow us to provide data messaging services to
customers in hard-to-access or remote locations at substantially
lower rates than competing low-Earth orbit systems. We have
designed our system specifically for the two-way communication of
short messages, using fewer satellites than competing near-real
time low-Earth orbit systems. Our system should utilize less
complex and less expensive components than those required for
larger satellite systems designed to carry voice, video and
high-intensity data traffic. Competing Little LEO systems using
the older TDMA communications technology will require more
satellites and more gateway earth stations than the NewStar
System. Because we have relatively inexpensive satellites and a
relatively low-cost ground infrastructure, we believe that we will
be able to offer a more affordable service for our targeted
markets than competing systems.
- OFFERING A LOW-COST GROUND TRANSCEIVER. Using CDMA communications
technology and an Application Specific Integrated Circuit ("ASIC"
technology) is expected to allow us to produce smaller and
lower-cost ground transceivers than competing systems. We believe
that our ground transceivers will cost less than competing
systems' transceivers, providing us with a competitive advantage
in the marketplace.
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- CAPITALIZING ON NOT BEING THE FIRST TO MARKET. We believe we have
learned a great deal from earlier commercial satellite operators
whose services have not developed as they may have anticipated.
This experience has provided us with the ability to market what we
believe is a superior system using, among other things, the CDMA
technology and lower cost transceivers, to help differentiate our
services from those of our competitors.
- CAPITALIZING ON THE BARRIERS TO ENTRY INTO OUR MARKETPLACE. The
primary barrier to entry into the Little LEO satellite service
market in the U.S. is the acquisition of an operating license
from the FCC. Before the FCC issues any licenses to additional
entities, it must allocate an additional portion of the frequency
spectrum for use, which we do not expect to happen in the near
future.
- DIRECTLY MARKETING TO LARGE INDUSTRIAL CUSTOMERS AND GOVERNMENTAL
ENTITIES. We believe that marketing directly to large industrial
customers and governmental entities will ensure greater customer
service and support in each geographic region or targeted market
than will value-added resellers, and will reduce our selling and
administrative expenses for bringing the NewStar System to market.
Outside of the U.S., it will also aid us in securing any necessary
local regulatory and other approvals.
- CAPITALIZING ON THE COMMITMENT AND EXPERTISE OF OUR STRATEGIC
PARTNERS. We have successfully assembled a group of investors whom
we believe are highly qualified strategic partners. We negotiated
equity investments totaling $10 million: $5 million by Eurockot
Launch Services (our launch service provider), and Surrey
Satellite Technology Limited (our satellite manufacturer); and
an additional $5 million by Alcatel Space Industries, our
end-to-end system prime contractor, which is contingent on our
bringing into effect the prime contract effective date. Due
to delays in our financing, we did not meet the milestone
payment necessary to establish the "Effective Date of
Contract" and, as of March 27, 2000, we continue to be
overdue on this payment requirement (see "Development
Contract Commitments").
MILESTONES ACHIEVED
Since our inception, we have achieved the following milestones:
- DEVELOPMENT OF THE SYSTEM. We initially conducted research and
testing to develop our NewStar System design and were successful
in integrating our satellite transmitter and antenna completely
within a utility meter.
- COMPLETE PROOF-OF-CONCEPT TRIALS. In 1995, we successfully
completed our proof-of-concept demonstrations with 36 electric and
natural gas utilities.
- GRANTING OF FCC LICENSE. On March 31, 1998, E-SAT, Inc. was
issued a license by the FCC to provide Little LEO satellite
services in the U.S.
- COMMENCED CONSTRUCTION OF THE SATELLITES. On March 31, 1999, we
signed a contract with Surrey Satellite Technology Limited for the
construction of our constellation of six Little LEO satellites. We
have assigned this contract to our prime contractor, Alcatel Space
Industries.
- ENGAGED A LAUNCH SERVICE PROVIDER TO DELIVER OUR SATELLITES INTO
ORBIT. On March 31, 1999, we signed a contract with Eurockot
Launch Services GmbH, for two launches. Two launches are currently
expected to occur in 2002, each for a set of three satellites. The
total contract price for the two launches is $30.0 million.
- ACQUIRED CONTROLLING INTEREST, SUBJECT TO FCC APPROVAL, OF THE FCC
LICENSE. On July 31, 1999, we signed a contract with EchoStar DBS
Corporation which will increase our ownership in our subsidiary
E-Sat, Inc. to 80.1%. EchoStar will have the right to use 20% of
the NewStar System's communications capacity. (See "Risk
Factors - Transfer of Control of E-SAT, Inc. to Us is Subject
to FCC Approval").
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- ENTERED INTO AN AGREEMENT WITH AN END-TO-END PRIME CONTRACTOR FOR
THE NEWSTAR SYSTEM. On October 8, 1999, we signed a contract with
Alcatel Space Industries for the final design, construction and
delivery to the launch site of six Little LEO satellites. This
agreement also includes the final design, construction and
delivery of the ground infrastructure, including the gateway earth
station, mission center, satellite control center, ground
communications network and ground-based transceivers to be
installed into devices, like utility meters. Alcatel is also
responsible for providing in-orbit testing of the NewStar System.
The total contract price for the end-to-end system is $88.5
million. Either party has the right to terminate this agreement
under certain circumstances. We have paid $2 million in
construction payments to Alcatel, and have not yet made the
milestone payment necessary to establish the "Effective Date of
Contract." (See "Business Strategy" and "Risk Factors -
Development Contract Commitments")
- NEGOTIATED EQUITY INVESTMENTS IN US BY ALL OF OUR STRATEGIC
PARTNERS. We negotiated equity investments totaling $10 million
Alcatel Space Industries (the investment by Alcatel is still
pending, see "Risk Factors"), Eurockot Launch Services and Surrey
Satellite Technology Limited.
- ORGANIZED OUR RISK MANAGEMENT THROUGH INSURANCE. On July 14, 1999,
we engaged Frank Crystal and Co. and its subsidiary, International
Space Brokers ("ISB"), as our exclusive risk management advisors
and insurance brokers for both space and ground segments.
TARGET MARKETS
We have designed our system, called the NewStar System, to provide low
cost, two-way data messaging services to industrial customers throughout the
world who need regular, but not real-time, information. By focusing on the
non-real-time market (where data collection is not triggered by a real-time
event such as an emergency condition, and delay between data collection and
transmission to the customer has insignificant business consequence), we are
able to substantially lower the costs of our system, and therefore lower the
price to the customer. By focusing on collecting data that is in remote or
hard-to-access locations, we reduce our competition from terrestrial
technologies (e.g., cellular communications) who cannot justify the
infrastructure expense in each remote location, and we increase the value
offered to the customer as their costs are highest in these areas.
Two-way communication capabilities can substantially reduce customer
costs while enabling new customer applications such as initiating remote
diagnostics and remote turn-on/turn-off of electric meters. This market niche
represents over a billion potential units worldwide and a multi-billion dollar
market for DBSI.
Our initial focus is on energy meters in remote locations. One of the
Company's target markets is the U.S. 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. Our messaging
services can deliver benefits such as:
- The cost to gather data from hard-to-access meters is greatly
reduced. We expect to charge significantly less than the costs to
utility companies of sending meter reading personnel out to each
of those difficult to reach locations.
- Planning and decision-making is improved through greater and more
timely availability of their consumers' energy-related
information.
- Estimated billing is eliminated.
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- Service connects and disconnects can be scheduled and performed
automatically.
- Value added features are available such as meter diagnostics,
tamper detection, outage reporting, and power quality information.
In the U.S., the emergence of automatic meter reading ("AMR") as an
accepted technology and the deregulation of the utility industry in a number of
states - forcing utilities to focus on all aspects of cost of service and in
some cases to compete to retain the meter reading activity - has provided a
foundation for us to market our services. In the U.S. electric utility market
alone, there are over 160 million meters, of which over 13 million are in remote
locations.
A significant portion of our potential market for services is in
countries who do not broadly monitor energy consumption. For these countries,
implementing or expanding coverage of metering is of significant strategic and
economic benefit, as this is a critical component of implementing the energy
infrastructure that is important to many forms of foreign investment. By working
with these countries as they develop their services and providing them with a
low-cost alternative to traditional meter reading methods, we believe we can
succeed in becoming an integral part of their utility infrastructure.
Other significant markets segments for our non-real-time, low-cost,
two-way messaging services include:
- PROPANE TANKS: Propane tanks represent another AMR opportunity,
where metering fuel levels for replenishment benefit customer and
distributor alike. The distributor enjoys a paradigm shift. Under
the current approach, customers can be invoiced only on fuel
delivery. Metering enables monthly billing based on actual
consumption, which improves the distributor's cash flow and
creates an opportunity for fuel arbitrage. Since the consumer no
longer pays upon delivery, the distributor can fill customer tanks
in the summer, when fuel prices are at their lowest. The consumer
also avoids more than just the inconvenience of running out of
fuel; they also reduce the safety issues associated with
re-lighting the pilots on their appliances.
- OIL AND GAS WELLHEADS: In the energy sector, data from
particularly remote and hard-to-access oil and gas wellheads can
be collected electronically, providing material savings in costs
per read. Some of these wellheads are located in areas that are
not only extremely remote, but are also high-risk, where the
physical safety of the meter reader is a real concern. AMR, in
addition to eliminating the personal safety risk, also creates the
opportunity to aggregate data internationally - but only if the
service provider has global coverage.
- CATHODIC PROTECTION ALERTS: Monitoring for cathodic protection,
flow control and leakage from gas pipelines--is another
application requiring periodic data transmission from sensors that
are generally located in isolated areas. Most of the cathodic,
flow control and leakage sensors around the world are read
manually, which is a tedious process--frequently using
helicopters--for typical pipeline terrain. Given the cost of
product flowing through the pipeline and the ecological impact of
a pipeline failure, energy companies are keenly motivated to
quickly identify the source of the problem. Although the number of
sensors required per linear mile varies upon the specific
geography, an average of two sensors per mile is normal.
- VENDING MACHINES: Vending machines can use AMR for inventory and
cash control. By collecting data from each machine on a timely
basis, distributors can deliver the right product to the right
machine at the right time, thereby improving sales, the
productivity of their route personnel, and greatly simplifying the
cash reconciliation process. While it is important to
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recognize that most vending machines are not located in
hard-to-access places, a system that offers both ease-of-use and
complete geographic coverage offers significant benefits to the
distributor.
- ENVIRONMENTAL AND AGRICULTURE: The waste disposal industry, faced
with an increased public awareness of pollution problems, is
required by U.S. Federal, state, and local governments to closely
monitor air and water quality at all waste disposal sites. Reading
data from these locations and reporting it to both operating and
regulatory agencies is another service our system is capable of
performing. In addition, we believe that existing irrigation
systems can become far more efficient through timely monitoring of
usage data.
We are currently focusing our efforts on marketing directly to large
industrial customers and governmental entitities rather than through value-added
resellers. We believe this will ensure greater customer service and support in
each geographic region or targeted market and will reduce our selling and
administrative expenses for bringing the NewStar System to market. Outside of
the U.S., it will also aid us in securing any necessary local regulatory and
other approvals.
DESCRIPTION OF SYSTEM
In response to customer requirements, DBSI developed a technology to
meet the needs of this marketplace. Our system is designed to minimize
infrastructure investment and maximum spectral efficiency, including (1) a small
constellation of Low Earth Orbiting (LEO) satellites reaching markets beyond
terrestrial technologies; (2) Code Division Multiple Access (CDMA) technology,
which has superior noise tolerance and dramatically reduces power requirements
and cost; (3) store-and-forward communications technology to reduce the number
of ground stations; and (4) secure internet distribution of data to customers.
NEWSTAR SYSTEM
The radio terminal unit (RTU) attaches to the customer's meter device
and transmits data to orbiting Low Earth Orbit (LEO) satellites. From these
LEO's, the data is then transmitted to our Ground Station, which sorts the data
and transmits the final data files, via the Internet, to our customers.
Inversely, the two-way service also allows our customers to send instructions,
messages, and updates to their remote meters.
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1. SPACE SEGMENT
The initial constellation to be launched will consist of six
satellites. The Company plans 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, taking about 100 minutes per orbit.
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. These Little LEO
satellites, which will weigh about 110 kg each, 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. Based on the current design,
we estimate that each satellite will operate for a period of five years.
The satellites consist of two functional segments--the "Platform" and
the "Payload". Put simply, the platform is the structure part of the satellite.
The payload is the radio frequency equipment on board the satellite that allows
it to communicate with earth-based transceivers. The platform provides the
payload with the power and thermal control, allowing it to operate and perform
its mission. The platform provides the attitude control in order to keep the
payload antenna pointing towards the earth. Orbit determination and control is
performed by the platform in order to maintain the proper constellation
configuration.
We are licensed by the FCC to operate from the Earth to Space in the
148.0000 - 148.905 MHz band, from Space to the Earth in the 137.0725 - 137.9275
MHz band. The communications plan for our system will utilize Direct Sequence
Spread Spectrum Multiple Access (DS-SSMA) transmission for service and feeder
links. This modulation technique is designed to allow the communications to
disseminate between messages and the background noise emanating into space. We
are the only commercial LEO operator licensed in the U.S. to implement spread
spectrum CDMA into its communications protocol. CDMA technology reduces the
power requirement for the ground terminal and provides another competitive
advantage by its ability to operate within an inherently noisy VHF-band.
2. GROUND SEGMENT
Rather than using traditional "bent pipe" technology, transmitting the
data to a ground station as soon as it is received, the non-real-time nature of
our market allows us to use a store-and-forward design. That is, our satellites
are designed to receive the information from terminals on the ground, store it
in memory and hold all of the data until they pass over a "Gateway Earth
Station." This allows us to use fewer ground stations, reducing costs and radio
frequency licensing and coordination requirements. We currently intend to locate
our initial Gateway Earth Station (GES) on Svalbard Island in Spitzbergen,
Norway, and are evaluating certain sites in Alaska for additional service.
The Mission Control Center manages the collection and retrieval of
data. It will interface with the Gateway Earth Station via the Satellite Control
Center, which will provide overall operational control of the satellites. The
Mission Center location is currently in review; the Satellite Control Center is
currently planned to be located in the United Kingdom.
Secure Internet communication with customers is a crucial part of the
NewStar System. Data collected or delivered will utilize the Internet as a
global, cost-effective vehicle to disseminate data and maximally automate the
customer servicing system. Data will lack meaningful descriptors or customer
identification and so should have no meaning if intercepted, but may also be
encrypted.
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3. TERMINAL
Also on the ground, our remote terminal unit ("RTU" or "terminal") will
connect to a device such as an electric utility meter and allow that device to
send and receive signals to and from our system. The terminal provides the
communication link between the meter and our satellites. This particular
communications link is called the communications "Service Link". A relatively
low-cost terminal is a key success factor for this business plan. Therefore, we
will seek to strictly control the development and manufacturing of the terminal.
The complete terminal will consist of two parts, those being the "Core
Engine" and the "Fixed Asset Interface Module". The Core Engine is principally
comprised of a "Base Band" and a Radio Frequency section. The base-band section
utilizes a digital signal processor used to impose the Direct Sequence Spread
Spectrum CDMA modulation code to the incoming bit stream from the client device.
The Radio Frequency (RF) section is used to convert the base-band signal to the
carrier frequency allowing the signal to be transmitted via an antenna into
space within the parameters of the FCC license. The Core Engine will include a
programmable controller unit. We intend that the Core Engine will be
standardized and therefore the design and manufacturing of the engine will
incorporate the cost-saving benefits of "Application Specific Integrated
Circuitry" (ASIC). This silicon process allows us to manufacture the terminal
chip sets at the lowest cost to the client. The second component of the terminal
is the Fixed Asset Interface Module (FAIM) that will be optimized for the
specific application (i.e., electric-meter, vending machine, propane tank, etc.)
and will contain all the application-specific functions required to interface a
client device with the Core Engine. The FAIM will contain any necessary power
conditioning components to allow reliable communication between terminal and the
satellites.
During 1998, we worked with SAIT Radio Holland SA ("SAIT") to
perform studies on antennas for the proposed RTU, and to develop and test RTU
prototypes. Terminal development was included as a cost-plus item under our
Prime Contract with Alcatel in 1999. We have not yet identified a main
subcontractor for the engineering, development and provision of hardware and
software for terminals, or for the manufacture of terminals.
4. PROOF-OF-CONCEPT DEMONSTRATIONS
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. The commercial use of Little LEO satellites is in its development
stage.
To test our technology, we integrated the first satellite transmitter
and antenna completely within an electric utility meter and conducted
proof-of-concept demonstrations with 36 electric and natural gas utilities that
demonstrated LEO satellite technology as a viable method to collect data from
hard-to-access locations.
GEMS, a wholly owned DBSI subsidiary, was formed in December 1994 to
develop commercial service applications utilizing Little LEO satellite
technology. We 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. 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 (RTU's) 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").
These tests demonstrated the ability of Little LEO satellite
communications to communicate to electric
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utility meters.
5. IMPORTANCE OF 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 reliable communication systems. 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, we are
implementing Code Division Multiple Access/Direct Sequence Spread Spectrum
("CDMA/DSSS") modulation techniques. CDMA/DSSS is designed to enable our
system to provide high functionality in a noisy radio frequency environment
and achieve those particular data transmission objectives.
With most conventional modulation techniques, energy concentration is
maximized for a narrowband transmission channel. While narrowband solutions opt
for a single carrier channel, the transmitted signal must be strong enough to be
recognized over the background noise. Therefore, terminals operating in a
narrowband technique must have relatively high power capability. CDMA/DSSS
spreads the data signal over the entire band of operations reducing the power
required by a terminal to transmit data to a satellite. We are presently the
only commercial Little LEO system licensed in the U.S. to implement CDMA/DSSS in
its communications protocol. We believe CDMA/DSSS is a strategic advantage over
competing systems to effectively transmit data messages.
6. COST OF SYSTEM
We expect that the aggregate cost to construct and launch the NewStar
System into commercial service will be approximately $120 million, of which
approximately $12 million had been spent through 1999.
DEVELOPMENT STRATEGY
Our development strategy includes aligning ourselves with partners who
have (1) shown expertise in the development and delivery of data telemetry
systems and services to clients who may operate internationally; (2) are willing
to enter into fixed-cost agreements; and (3) who will demonstrate their
alignment with and commitment to our project through equity investment.
On March 31, 1999, the Company entered into a contract with Surrey
Satellite Technology Ltd. of the U.K. to design and construct the six
satellites for our system.
On October 8, 1999, we signed a contract with Alcatel for the final
design, construction, and delivery to the launch site of our constellation of
six LEO satellites, using Surrey Satellite as a subcontractor, and for the final
design, construction and delivery of the ground infrastructure, including the
gateway earth station, mission center, satellite control center, ground
communications network, and the ground-based transceivers to be installed into
fixed assets such as electric utility meters. The total contract price for the
end-to-end system is $88.5 million. (See "Business Strategy" and "Risk
Factors - Development Contract Commitments").
Currently, Alcatel is responsible for the final design, construction,
and delivery to the launch site of our constellation of six LEO satellites,
using Surrey Satellite as a subcontractor, and for the final design,
construction and delivery of the system infrastructure, including gateway earth
station, the ground communications network, the mission control center, and the
ground transceiver.
The Company entered into a launch reservation agreement with Eurocket
Launch Services GmbH ("Eurockot") during 1997. Under the terms of the launch
reservation agreement, Eurockot reserved for E-SAT a launch opportunity on a
launch vehicle at the Plesetzk, Russia launch site for two dedicated, triple
satellite
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launches. On March 31, 1999, the Company entered into a formal launch service
contract with Eurockot. The first three satellites, when constructed, are
expected to be launched on a single Eurockot launch vehicle in 2002.
OWNERSHIP INTEREST IN E-SAT
E-SAT was incorporated in 1994 and is owned 20% by the Company and
80% by EchoStar. E-SAT was formed for the purpose of acquiring an FCC license
to develop, construct and operate its E-SAT satellite system. In July 1999,
the Company and EchoStar agreed to restructure E-SAT in order to allow the
Company to acquire an additional 60.1%, to bring its total ownership of E-SAT
to 80.1%. In this agreement, EchoStar will have a 20% undivided interest in
the satellite transmission capacity associated with the FCC E-SAT license.
This acquisition of a majority interest in E-SAT is subject to FCC
approval as a "change of control." (See "Risk Factors - Transfer of Control
of E-Sat, Inc. to Us is Subject to FCC Approval").
REGULATORY ENVIRONMENT
1. U.S.
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.
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.
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. For its uplink, E-SAT is licensed to utilize 500 kHz of contiguous
spectrum in the 148-148.855 MHz band that is not shared with the other U.S.
licensees. However, some of this spectrum may be required to be operated
co-frequency with the French S-80 system, based on intergovernmental
agreements between the U.S. and France. E-SAT is licensed to utilize
148.855-148.905 MHz for feeder uplinks. E-SAT will operate in the other 355
kHz of the 148-148.905 MHz band on a co-frequency basis with the following
licensees: 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 order to maintain the validity of the 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
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requirements of the FCC license, E-SAT was required to commence construction
of the first two satellites by March 1999 and the remaining four satellites
by March 2001. On March 31, 1999, we, on E-SAT's behalf, entered into an
agreement with Surrey Satellite for the construction of the Little LEO
satellites, and we notified the FCC on April 8, 1999, that we had met the
first milestone of the license (commencement of satellite construction by
March, 1999). The FCC has neither confirmed nor denied our assertion. Because
of the competitive nature of the Little LEO market, the other U.S. licensees
may challenge in the future our timeliness or ability to meet the conditions
of the license. If the FCC or any competing licensee is successful in
challenging the conditions of the license, the FCC license could be
jeopardized. Further, although we intend to meet future milestone
requirements, no assurance can be given that these or any other requirements
and conditions of the FCC license can be met by E-SAT or us. In the event
that we cannot meet these milestone requirements, and the FCC does not waive
or modify such requirements, E-SAT will lose the FCC license. Such a loss
would have an immediate and significant adverse effect on our financial
position and results of operations. The terms of the FCC license also require
that construction, launch and operation of the NewStar System be accomplished
in accordance with the technical specifications set forth in the FCC
application, as amended, and consistent with the FCC's rules, unless
specifically waived. During the process of constructing the NewStar System,
there may be certain modifications to the design set forth in the FCC
application that may necessitate regulatory approval. No assurance can be
given that such modifications will be approved by the FCC.
Assuming continued compliance, the FCC license will remain effective
for ten years from the date on which we certify to the FCC that the 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.
In addition, the NewStar System's ground transceiver to be integrated
with the fixed devices must be approved by the FCC in a single authorization
that, if granted, would apply to all transceivers to be operated in the U.S.
2. INTERNATIONAL REGULATIONS
LANDING RIGHTS. In addition to the FCC license for operation of the
NewStar System in the U.S., we will be required to seek certain "landing
rights" in each country in which our ground transceivers will be located. The
Company intends to utilize international clients, partners or affiliates in
each country to obtain such authority. In the event we are unsuccessful in
obtaining a foreign license in a particular country, we will be able to offer
only one-way (broadcast from the satellite) NewStar System data and messaging
services in such country. Depending on the number of proposed ground
transceivers to be operating in a country, the inability to offer data
messaging services to such country may materially adversely affect our
business plan.
INTERNATIONAL TELECOMMUNICATIONS UNION COORDINATION. 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, 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 radio frequency interference from other
communication systems. This process, called "satellite coordination," takes
place under the auspices of the 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 NewStar System will successfully complete the international
coordination process, most countries seek to accommodate satellite
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systems of other countries and historically, virtually all coordination requests
have been ultimately successful. However, any delays in obtaining international
satellite coordination would result in delays in our offering messaging services
outside the U.S.
No assurance can be given that the FCC or any other international
organization will make any of the above approvals or licenses. (See "Regulatory
Risks").
COMPETITION
Competition in the communications industry is intense, fueled by rapid
and continuous technological advances and alliances between industry
participants seeking to use such advances on an international scale to capture
significant market share. At this time, Orbcomm Corp. has a Little LEO in
operation using TDMA "narrow band" communication protocols and a "bent pipe"
satellite system using thirty-eight satellites and numerous gateway earth
stations. In the future, we expect that potential competitors will include other
Little LEO systems, certain geosynchronous or geostationary orbit ("GEO")-based
systems, certain terrestrial-based communications systems, certain LEO satellite
systems operating above 1GHz (so-called "Big LEO" systems) and various
medium-earth orbit ("MEO") systems.
In addition to the license issued to our subsidiary, four other
entities have been licensed by the FCC to provide Little LEO satellite
services in the U.S., although no other entity has been issued a license to
use CDMA communication protocols AND "store-and-forward" system designs. In
1998, the FCC's International Bureau granted licenses to Leo One USA
Corporation, Final Analysis Communication Services and an additional license
to Orbcomm Corp. Further in 1998, the FCC granted a license to Volunteers in
Technical Assistance to transmit health, research and scientific data on a
delayed basis between developing countries and the U.S.
Based on published reports, other than Orbcomm's existing TDMA based
system, we do not believe that any of the other proposed Little LEO systems will
be commercially operational in the near term. We believe that we hold a
substantial advantage over these potential competitors by having obtained an FCC
license for the only CDMA based "store-and-forward" Little LEO system in the
U.S. and by achieving international coordination of our designated frequencies
through the ITU. Over the course of the next several years, we expect to obtain
further advantages over these potential competitors by demonstrating that a CDMA
"store-and-forward" system can offer service at lower cost than TDMA based or
"bent-pipe" systems offered by the competition.
Plans for Little LEO systems have been announced in Australia, Brazil,
France, Russia, South Korea, Tonga and Uganda, although we believe that, without
additional allocations of spectrum in the U.S., these systems will be unable to
offer services in the U.S. nor will they be able to coordinate the use of these
frequencies at the ITU.
In addition, we believe that we will compete in certain of our
market segments with existing operators and users of certain GEO-based
systems such as American Mobile and Qualcomm, and companies providing
services using the Inmarsat system. American Mobile offers SKYCELL mobile
data services, both satellite only and "dual-mode," i.e., satellite and
terrestrial, through a public data network that can reach both densely
populated urban areas and sparsely populated rural areas. In 1998, American
Mobile acquired Motorola's ARDIS two-way terrestrial-based wireless messaging
network, which complements American Mobile's existing satellite-based voice
and data communications services. This allows American Mobile to offer a
hybrid solution that has the ability, among other things, to serve urban
areas and to penetrate buildings. Qualcomm designs, manufactures, distributes
and operates the OmniTRACS(R) Communications System, a
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satellite-based, two-way mobile communications and tracking system that provides
messaging, position reporting and other services for transportation companies
and other mobile and fixed site customers using certain GEO satellites. In
addition, various companies using the Inmarsat system are providing fishing
vessel and other marine tracking applications. We believe that the NewStar
System will have certain advantages over these other systems including worldwide
coverage and lower equipment costs.
While we do not intend to compete in general with existing and planned
terrestrial-based communications systems, in certain of our market segments we
believe that we may compete with certain of these systems. SkyTel provides
messaging services in cities in the U.S. and is using its messaging network to
provide fixed location services, specifically utility meter reading in urban
areas. Because of the inherent coverage limitations of a terrestrial-based
communications system, we believe that the NewStar System will also complement
these systems, which provide cost-effective services primarily in metropolitan
areas where subscriber densities justify construction of radio towers. Such
systems generally do not have sufficient coverage outside metropolitan areas,
making them less attractive to certain market segments such as the
"hard-to-access" locations that we target. We believe that the NewStar System
will present an attractive complement to tower-based services because it can
provide geographic gap-filler service at affordable costs without the need for
additional infrastructure investment. The NewStar System's ability to serve as a
geographic gap-filler may be reduced, however, as terrestrial-based
communications systems expand their coverage.
The Big LEO and MEO systems are expected to provide real time,
uninterrupted service. These systems are designed primarily to provide two-way
voice services that require larger, more complex satellites than our satellites
and larger constellations to provide coverage. As a result, the cost of the Big
LEO and MEO systems is significantly greater than those of the NewStar System.
However, the marginal cost on a per-message basis of providing services similar
to those we will offer could be relatively low for a Big LEO or MEO system that
is unable to sell its capacity for voice services. For example, the satellite
system operated by Globalstar, L.P. is expected to utilize a multi-billion
dollar constellation of 48 satellites, as compared with our planned system of 6
satellites with an expected cost of approximately $120 million.
We may also face competition in the future from companies using new
technologies and new satellite systems. Our business could be adversely affected
if competitors begin operations or existing or new communications service
providers penetrate our targeted markets. A number of these new technologies,
even if they are not ultimately successful, could have an adverse effect on our
future financial condition and results of operations.
EMPLOYEES
As of December 31, 1999, the Company had 14 full-time employees. The
Company considers its relationship with its employees to be good.
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RISK FACTORS
DEVELOPMENT STAGE COMPANY
We are a development stage company and as of December 31, 1999, we had
no customers. Although we previously earned revenues through the sale of
interests in entities which own direct broadcast satellites licenses, we have
earned no significant operating revenues since our formation. Given our limited
operating history and lack of revenues, no assurances can be given that we will
be able to construct and implement the NewStar System, and, if implemented, to
develop a sufficiently large customer base to be profitable.
INCREASING EXPENSES AND LOSSES
We expect our operating expenses to significantly increase as the our
system reaches critical stages of development. We recorded operating losses of
approximately $2,996,000 for 1998 and approximately $6,029,000 for 1999, and do
not anticipate any revenues during the year 2000. We expect to continue to incur
substantial and increasing operating losses and negative net cash flow until our
system is developed, deployed and operating in a profitable manner.
NEED FOR FUTURE CAPITAL; ANTICIPATED RESTRICTIVE CONDITIONS
We currently estimate that we will require approximately $120 million
in capital related to the construction and launch costs associated with our
system. Given the risks in an undertaking of this nature, no assurances can be
given that actual cash requirements will not exceed our estimates. In
particular, additional capital, over and above amounts anticipated, will be
required in the event that we (i) incur unexpected costs in completing the
NewStar System design or encounter any unexpected technical or regulatory
difficulties; (ii) incur delays and additional expenses as the result of a
launch or satellite failure; (iii) are unable to enter into marketing agreements
with third parties or sell our metering services; or (iv) incur any significant
unanticipated expenses. The occurrence of any such events could adversely affect
the ability to meet our business objectives.
We anticipate that we will depend almost exclusively on long-term
debt and equity financings to pay for our system. No assurance can be given
that capital will be available to us to meet development costs or on terms
acceptable to us. The issuance of additional equity securities by us will
result in significant dilution of the equity interests of the current
stockholders. Selling debt securities such as bonds will increase our
liabilities and future cash commitments. Further it is anticipated that, in
the event of a significant bond placement, bondholders would require that all
of our assets, including our ownership interest in E-SAT, serve as security
for the repayment of the bonds. In the event of a default on such bonds, it
would be unlikely that there will be any assets remaining to be distributed
to equity holders. If we are unable to obtain financing sufficient amounts
necessary to complete our system and on commercially-acceptable terms, our
business and future success will be adversely affected.
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DEVELOPMENT CONTRACT COMMITMENTS
In order to comply with development milestones required by the FCC
license, we have entered into various development contracts including a
satellite construction contract and a satellite launch contract. Entering into
these and other development and service contracts are critical to the overall
development of the NewStar System. The satellite construction and launch
contracts require progress payments of approximately $60 million over the next
12 months. Failure to maintain these contracts would adversely affect our
ability to construct the NewStar System.
The contract with our Prime Contractor, Alcatel Space Industries,
required a payment at the end of 1999 of approximately $9.1 million in cash
and the equivalent of $5 million in common stock. This payment is necessary
for Alcatel to continue work and trigger an effective date for our full
system development schedule (the "Effective Date of Contract" or "EDC"). As
of March 24, 2000, this payment has not been made, and Alcatel therefore has
the right to consider this contract void. Although Alcatel has
verbally indicated that it does not intend to terminate the Prime Contract,
it therefore has the right to do so. Until EDC, we continue to have a direct
satellite construction contract with Surrey Satellite Technology Limited. At
EDC, this contract would be assigned to Alcatel. Any cancellation or
termination of these contracts could result in loss of the FCC license. (See
"Risk Factors--Need for Future Capital; Anticipated Restrictive Conditions").
TECHNOLOGICAL RISKS
The design and construction of the NewStar System are subject to risks
associated with a space-based communications system. Although we believe that
the NewStar System is based on sound technology, its design will contain certain
technology that has not been used in a commercial application. Although we will
engage contractors that are experienced in the satellite and communications
industry, we have no experience in developing, constructing, and operating a
data communications system. The failure of the NewStar 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 NewStar 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 or superior to the
products or services to be provided by us. Such technological advances could
also lower the costs of other products or services that may compete with the
NewStar System, resulting in pricing pressures on our products and services,
which could adversely affect our results of operations.
TRANSFER OF CONTROL OF E-SAT, INC. TO US IS SUBJECT TO FCC APPROVAL
E-SAT, Inc. has been granted an FCC license to construct, launch and
operate six Little LEO satellites to provide two-way, low-cost data and
messaging services in the United States. Currently, we hold a 20% interest in
E-SAT with EchoStar DBS Corporation ("EchoStar") holding the remaining 80%
interest. On July 30, 1999, we reached an agreement with EchoStar concerning
the transfer of control of the E-SAT license from EchoStar to us, subject to
regulatory approval. We intend to file an application with the FCC for their
consent to the transfer of control of E-SAT. As part of the application, we
may be required to demonstrate both technical and financial ability.
Financial ability consists of funding the construction and launch of two
satellites and the financial ability to operate the system for one year. We
do not at this time have the financial ability to complete the transfer of
control, if such financial ability is required. Assuming FCC approval of such
transfer of control, we will hold an 80.1% interest in E-SAT, and EchoStar
will hold the remaining 19.9%. In addition EchoStar will have a 20% undivided
interest in the satellite transmission capacity associated with the FCC
license. In the event that we are unable to obtain control of the FCC license
held by E-SAT, we may be unable to obtain the financing necessary to fulfill
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our business objectives. (See "Risk Factors - Need for Future Capital;
Anticipated Restrictive Conditions").
UNSCHEDULED DELAYS
Delays and related increases in costs in the construction, launch and
implementation of the NewStar System could result from a variety of causes,
including: (i) delays encountered in the construction, integration and testing
of the NewStar 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 our control; (iv) further modification of the design of
all or a portion of the NewStar System in the event of, among other things,
technical difficulties or changes in regulatory requirements; (v) our failure to
enter into agreements 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 NewStar System. There can be no assurance that the Little LEO
satellites or the data and messaging services of the NewStar System will be
available on a timely basis, or at all. A significant delay in the completion of
the NewStar System could erode our competitive position, could result in
cancellation of the FCC license, and could have a material adverse effect on our
financial condition and results of operations. (See "Risk Factors - Regulatory
Risks").
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 Little LEO
satellites. Consequently, an unsuccessful launch could adversely affect
one-half of our planned satellite constellation. We will be obtaining
insurance to cover our exposure to loss in this area, but there is no
assurance that the insurance will cover all incidents. (See "Risk Factors -
Limited Insurance").
We have entered into a launch services agreement with Eurockot Launch
Services GmbH, Breman, Germany ("Eurockot") providing for two payload launches
from a launch site in Plesetzk, Russia during specified periods. Eurockot has
limited experience in launching commercial satellites. Further, 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 be approved
by the Russian Federation or such launches will take place as planned.
POTENTIAL SATELLITE MALFUNCTION
A number of factors will affect the useful lives of the NewStar
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 NewStar System.
LIMITED INSURANCE
We expect to obtain launch insurance for each of our satellite launches
and have engaged Frank Crystal & Co. and its subsidiary, International Space
Brokers, Inc., Washington, D.C., to provide risk management counsel and
insurance coverage for our planned Little LEO satellite constellation. This
insurance would, in the event of a launch failure, provide funds for replacement
launch satellites. In addition, we expect to obtain satellite replacement
insurance, which would provide funds for rebuilding satellites damaged in
construction, shipment or launch. In the event a covered loss occurs prior to
the next event that would be
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subject to any such policy, we 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
no assurance can be given that launch or replacement insurance, or both, will be
available to us, or if available, will be available on terms acceptable to us.
We will continue to evaluate the insurance marketplace to determine the level of
risk we are willing and able to absorb internally versus the amount of risk to
be transferred to third parties.
REGULATORY RISKS
The Company's business is subject to both U.S. and international
regulations and licensing. The E-SAT license has several milestone conditions,
including (1) the completion of construction of the first two satellites by
March 2002 and the launch of those satellites by September 2002, and (2) the
construction and launch of the remaining four satellites by March 2004.
Furthermore, the Company will need to secure "landing rights" in various
countries where it hopes to do business. Failure to secure such foreign rights
would preclude the Company from offering its full services in such countries,
which would adversely affect the Company's anticipated results of operation. In
addition, if the FCC fails to approve our application for consent to transfer
control of the FCC license or if other technological or financial difficulties
arise, we may be unable to meet our obligations under our construction and
launch agreements. Any cancellation or termination of these contracts could
result in loss of one or more license. (See "Regulatory Environment").
UTILITY INDUSTRY ACCEPTANCE
Our success is largely dependent on whether utility and other
related companies will contract for services utilizing the NewStar System.
Although we have other proposed uses for the data messaging services, utility
companies, such as gas, electrical and water utility companies, remain the
primary focus of our marketing and development efforts. Although we have
demonstrated the ability of Little LEO satellites to read data from ground
transceivers located in meters in proof-of-concept trials with utility
companies, no assurance can be given that we will be successful in completing
the development and commercial implementation of automatic meter reading
("AMR") using the NewStar System. We must complete a number of technical
developments and continue to expand and upgrade NewStar's System capabilities
prior to implementing our 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, AMR 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 NewStar System is but one possible solution for
hard-to-access meter sites. No assurances can be given that we will be
successful in achieving the adoption of the NewStar System or to what extent
utilities will employ it. In the event that utility companies do not adopt our
technology, or do so less rapidly than expected, our future results, including
our ability to achieve profitability, will be materially and adversely affected.
The development of low-cost ground transceivers to collect and
transmit data from fixed devices such as meters will be important in the
development of a broad utility market for NewStar's data messaging services.
Ground transceivers must be manufactured and operated at a low cost in order
to make NewStar's data messaging services attractive to commercial users. It
is expected that the cost of ground transceivers will decline as the volume
of units produced increases. We believe that we can develop a low-cost ground
transceiver which requires less power to operate and will be attractive to
utility and other companies that may be interested in NewStar's data
messaging services. However, there can be no assurance that ground
transceivers can be developed at a cost and with the capabilities that will
attract a large enough commercial subscriber base for us to achieve
profitability.
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RELIANCE ON VENDORS AND CONSULTANTS
We have relied on and will continue to rely on vendors and consultants
that are not our employees to complete the design, construction and
implementation of the NewStar System, to market its data messaging services and
for representation on regulatory issues. While we believe that vendors and
consultants will continue to provide the expertise necessary to complete the
design and construction of the NewStar 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 us.
In addition, we rely and will continue to rely on outside parties to
manufacture parts and equipment for the NewStar System such as meters,
transceivers, antennas, and other Little LEO satellite related devices. No
assurances can be given that these manufacturers will be able to meet our needs
in a satisfactory and timely manner or that we 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 our 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 our deployment of
the NewStar System. Any such delay or increased costs could have a material
adverse effect on our business.
DEVELOPMENT OF BUSINESS AND MANAGEMENT GROWTH; KEY PERSONNEL
We expect to experience significant and rapid growth in the scope and
complexity of our business as we proceed with the development. We will need to
add staff to market our services, manage operations, control the operations of
the proposed satellites, handle sales and marketing efforts and perform finance
and accounting functions. We will be required to hire a broad range of
additional personnel before we begin commercial operations. This growth is
likely to place a strain on our 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 on our
business and financial condition.
Our performance is substantially dependent on the performance of our
executive officers and key personnel and on our ability to retain and motivate
high-quality personnel. The loss of any of our key personnel, particularly Fred
W. Thompson, President, could have a material adverse effect on our business,
financial condition, and operating results.
COMPETITION
We 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 our 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) experience than we do. 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 we believe that our technology is competitive and that the NewStar System
has been designed to provide a data transmission service at a cost lower than
our competitors' systems, no assurances can be given that such competitors, in
the future, will not succeed in developing better or more cost-effective data
transmission systems.
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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 our ability to form
and maintain agreements with utility companies and other customers. No
assurances can be given that we will be able to compete successfully against
current and future competitors, and any failure to do so would have a material
adverse effect on our business.
PENNY STOCK REGULATIONS
The Securities and Exchange Commission 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. Our 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 subscriber and receive the subscriber's
written agreement of the transaction prior to the sale. Consequently, the
rule may affect the ability of broker-dealers to sell our securities and
affect the ability of existing stockholders to sell their shares in the
secondary market.
CERTAIN ANTI-TAKEOVER PROVISIONS
Our Certificate of Incorporation contains a fair price provision that
requires a certain threshold approval by our board of directors in the event of
a merger, sale of assets or other types of business combinations. In addition,
our 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 in our management.
NO DIVIDENDS
We have not declared or paid any dividends on our Common Stock, and
do not anticipate paying any dividends for the foreseeable future. Further,
it is anticipated that if we obtain bond financing, we will be restricted in
our ability to declare dividends.
FLUCTUATION OF STOCK PRICE
Our Common Stock is quoted on the OTC Bulletin Board and is thinly
traded. In the past, our trading price has fluctuated widely, depending on many
factors that may have little to do with our operations or business prospects.
DILUTIVE EFFECTS FROM OUTSTANDING WARRANTS AND OPTIONS
The exercise of outstanding warrants and options will dilute existing
shareholders. As of December 31, 1999, there were outstanding warrants and
options to purchase an aggregate of 6,153,167 shares of Common Stock. The
majority of the options and warrants have exercise prices at less than the
current trading price of our Common Stock. Further, the outstanding options and
warrants may have a detrimental impact on the terms under which we may obtain
financing through a sale of our Common Stock in the future since they may hinder
our ability to raise capital at a higher market price due to the dilutive effect
to new investors. For these reasons, any evaluation of the favorability of
market conditions for a subsequent stock offering must take into account any
outstanding warrants and options.
21
<PAGE>
ITEM 2. PROPERTIES
We have leased 4,566 square feet at a monthly rate of $14,845, for our
principal offices at 100 Shoreline Highway, Suite 190A, Mill Valley, California,
on a three-year lease which expires on July 31, 2003. We also have office
locations in Paris and Toulouse in France on short-term leases.
ITEM 3. LEGAL PROCEEDINGS
The company 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 the Company's
president, alleging that the Bridge Group was promised shares of the Company's
common stock. The Company agreed to indemnify its president for any damages or
settlement related to this lawsuit. This case was settled during 1999 by issuing
63,239 shares of the Company's common stock and paying $15,000 to the Bridge
Group.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
22
<PAGE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The following table sets forth the high and low bids for the Company's
Common Stock during each quarter for the past two fiscal year ends as quoted on
the OTC Bulletin Board. The Company's trading symbol is "DBSS."
<TABLE>
<CAPTION>
Common Stock
------------
Quarter Ended High Low
- -------------
<S> <C> <C>
December 31, 1999 2.25 2.16
September 30, 1999 2.56 2.44
June 30, 1999 3.00 2.75
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
</TABLE>
These quotations reflect inter-dealer prices, without retail markup,
mark-down or commission, and may not represent actual transactions.
As of December 31, 1999, the Company had 14,354,911 shares of Common
Stock outstanding and approximately 443 stockholders of record. This number
does not include stockholders who hold the Company's securities in street
name.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on Common
Stock since its inception. The Company currently intends to retain future
earnings, if any, for use in the operation and expansion of the business. The
Company does not intend to pay any cash dividends on Common Stock in the
foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
We have historically recognized operating costs and expenses primarily
through our twenty percent (20%) interest in E-SAT. However, effective March 31,
1998, we began recognizing all of these costs and
23
<PAGE>
expenses, including expenditures for the development of the Newstar system,
within DBSI.
PLAN OF OPERATION
Throughout fiscal 2000, we plan to continue the deployment of the
E-SAT license and the construction of our system, subject to our success in
raising adequate financing (See "Risk Factors - Need For Future Capital;
Anticipated Restrictive Conditions.")
We established a dedicated marketing and sales group in 1999 and plan
to increase our marketing activities during fiscal 2000.
We seek to satisfy our fiscal 2000 cash requirements by raising new
equity and debt capital, as well as by seeking the exercise of previously issued
third-party warrants and stock options. Through March 24, 2000, we committed to
issue 20,833 shares of the Company's preferred stock in exchange for gross
proceeds of $624,990 in cash.
RESULTS OF OPERATIONS FOR FISCAL YEARS 1999, 1998 AND 1997
REVENUES
Our Company remains in the development stage and did not generate
revenues in the last three fiscal years ended December 31, 1999, December 31,
1998 or December 31, 1997.
OPERATING EXPENSES
Total operating expenses in 1999, 1998, and 1997 were $6,028,829,
$2,995,848, and $1,682,277 respectively. These costs are related to marketing
and sales expenses, general and administrative expenses, and research and
development expenses.
MARKETING AND SALES EXPENSES
Marketing and sales expenses primarily the costs of personnel
(including non-cash stock compensation) and travel. Marketing and sales expenses
for 1999 were $922,623 (15.3% of operating expenses). No marketing and sales
expenses were incurred in 1998 or 1997. This increase is due to the
establishment of our dedicated marketing and sales group in June, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES
General and Administrative expenses include the costs of finance,
legal, administrative and general management functions of DBSI. General and
administrative expenses for 1999, 1998, and 1997 were $4,060,910 (67.4% of
operating expenses), $2,198,701 (73.4% of operating expenses), and $1,472,162
(87.5% of operating expenses) respectively. The increase of $1,862,209 from 1998
to 1999 was primarily due to increased personnel costs arising from the
expansion of the management team, and from non-cash stock compensation of
approximately $760,000. The increase of $726,539 from 1997 to 1998 was primarily
due to approximately $350,000 in stock and cash as settlement of a lawsuit
against an officer of the Company, a compensation expense of $159,000 relating
to options for services provided by consultants, and the expansion of our
business interests in Europe and the U.S.
24
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses represent the costs incurred to
develop our system. Research and development expenses for 1999, 1998, and 1997
were, respectively, $1,045,296 (17.3% of total operating expenses), $797,147
(26.6% of total operating expenses), and $210,115 (12.5% of total operating
expenses). The increase of $248,149 in 1999 compared to 1998 is due to the
expansion of our research and development staff in Toulouse, France, and from
non-cash stock compensation of approximately $50,000. The increase of $587,032
from 1997 to 1998 was due primarily to the issuance of the E-SAT license in
April 1998 and the increased engineering and design costs not capitalized by the
Company and associated with meeting the terms of the FCC license and the
development of the satellite system.
NON-CASH STOCK COMPENSATION
In order to attract and retain personnel, we have granted options to
purchase 1,913,106 shares of Common Stock at exercise prices ranging from
$0.39 to $2.81 to several employees and service providers. Some of the
exercise prices were below the fair market value of the Common Stock at the
time of grant, resulting in deferred stock compensation of $2,490,337. This
amount is being amortized over the vesting periods of the granted options,
and as a result, $957,755 was recognized as non-cash stock compensation
expense during 1999 in the relevant expense category as described above. No
similar expenses were incurred during 1998 or 1997.
OTHER INCOME AND EXPENSES
We experienced a non-operating gain of $113,336, consisting solely of
net interest income, for the fiscal year ended December 31, 1999, an increase of
$80,915 over net interest earned of $32,421 for the year ended December 31,
1998. This gain was generated from investment income arising from substantial
fundraising activities during the year ended December 31, 1999. We recorded no
net loss of investees in 1999, as compared to a loss of $100,143 in 1998 and a
loss of $80,975 in 1997. We also recorded no gains or losses on sale of
investments in 1999, compared to a loss in 1998 of $228,323 arising from the
sale of Seimac, and a gain in 1997 of $5,221,063 arising from the sale of
marketable securities.
NET INCOME (LOSS)
Our net loss for the year ended December 31, 1999, was $5,915,493
compared to a net loss for the year ended December 31, 1998 of $3,293,493 and a
net income for the year ended December 31, 1997 of $3,068,917. The 1997 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 FOR FISCAL YEARS 1999 AND 1998
The Company has been in the development stage since its inception
and has not recognized any significant revenues. Our monthly expenses
averaged approximately $300,000 per month during calendar year 1999 for
operating, legal and consulting expenses. However, expenses will continue to
increase during fiscal 2000 with the demands of increased efforts in both
systems and business development. Additional capital will be necessary to
expand operations or continue current operations.
Traditionally, we have relied on equity and debt placements to finance
our operations. This financing was supplemented from the sale of our interest in
entities that held direct broadcast satellite licenses. We no longer have any
interest in direct broadcast satellite licensees.
25
<PAGE>
From January 1, 2000 through March 24, 2000, we committed to issue
20,833 shares of the Company's preferred stock in exchange for gross proceeds of
$624,990 in cash. Each share of preferred stock is convertible, at the election
of the holder, into ten shares of the Company's common stock at a conversion
price of three dollars per common share, or based upon the average trading price
of the common stock within a specified period if the common stock is trading at
less than $3.00 per share.
During 1999, we received proceeds from the sale of common stock
totaling approximately $15 million before stock issuance costs of
approximately $154,000. These transactions included a private placement of
500,000 units at $3.00 per unit for an aggregate amount of $1.5 million with
each unit consisting of one share of Common Stock, and one warrant to
purchase one share of Common Stock at $4.00 per share; a private placement of
50,000 units at $2.50 per unit for an aggregate amount of $125,000 with each
unit consisting of one share of Common Stock, and one warrant to purchase one
share of Common Stock at $3.50 per share; the sale of 1,666,667 shares of the
Company's common stock to two of our European contractors for a total of $5
million; proceeds in the amount of approximately $7.8 million from the
exercise of warrants in exchange for 2.818 million shares of the Company's
common stock; and proceeds in the amount of approximately $786,000 from the
exercise of 675,228 options. These proceeds were used primarily to fund our
satellite construction costs and investing activities.
During 1998, we 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 the Company
selling 2.4 million units for gross proceeds of $4.8 million before stock
issuance costs of $442,500.
We had cash and cash equivalents of $282,945 and $1,291,711 as of
December 31, 1999 and 1998 respectively. We had a negative working capital of
$941,527 as of December 31, 1999 and a positive working capital of $233,078 as
of December 31, 1998. Until we are able to develop, construct and operate the
NewStar System and derive revenues therefrom, we must continue to raise cash
from outside sources for operations and for the development of the NewStar
System.
Net cash used in operating activities for the year ended December 31,
1999 was $3,681,956. This resulted from a net loss of $5,915,493, offset
primarily by (1) non-cash stock compensation of $957,755, (2) the issuance of
options and warrants for services rendered in the amount of $774,298, (3) the
issuance of $324,391 of common stock (63,239 shares) in connection with a
litigation settlement (see "Legal Proceedings"); and (4) an increase in accounts
payable of $204,675 arising from increased marketing and general administrative
activities in the final quarter of 1999.
Net cash used in operating activities during 1998 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 we increased our level of
development activity relating to the NewStar System which included a $1,000,000
payment to Alcatel. 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, 1999, was $12,413,265. This was an increase of $10,928,307 over the same
period ended December 31, 1998. Approximately $10.8 million of the net cash
used in investing activities was related to satellite construction payments
made to our satellite contractors in Europe, and approximately $1.5 million
was paid to a consultant to negotiate the terms of an agreement with EchoStar
(see "Ownership Interest in E-SAT").
26
<PAGE>
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 cash advances to E-SAT
of $407,292 and approximately $1.3 million in progress payments relating to
satellite construction costs. Net cash provided by investing activities was
$4,183,565 in 1997 as we received proceeds of $3,573,677 in connection with the
divestiture of our interest in Continental Satellite Corporation.
Net cash provided by financing activities for the year ended
December 31, 1999, was $15,086,455 compared to $4,554,726 for the same period
ended December 31, 1998. Net cash provided by financing activities during
1999 was related primarily to the net proceeds from the sale of units of
common stock, the exercise of warrants by our stockholders and the sale of
common stock to two of our European contractors.
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 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 and
stockholder's loans of $149,750.
In 1996, we received milestone payments under the terms of a $1.2
million purchase order for 10,000 satellite radio units from ABB. Under this
agreement, the Company was eligible to receive up to $500,000 towards
development costs upon meeting the milestone requirements of the contract. We
met the first four milestones of the contract and have received $400,000 in
cash. The parties agreed to suspend all development under this agreement due
to the expiration of the Company'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
historical results, include, in addition to other factors identified in this
report, our ability to raise significant additional capital from outside
sources for the development of the NewStar System, the availability of
capital on commercially acceptable terms, the completion of a commercially
viable NewStar System, the dependence and uncertainty of utility companies or
other commercial customers to utilize such data messaging service, the
reliance on third parties for the advancement of the design, manufacturing
and marketing of the NewStar System, satisfying the milestones of E-SAT's FCC
license, the fulfillment of contract obligations by suppliers and other third
parties, the availability of qualified personnel and equipment, delays in the
receipt of or failure to receive necessary governmental approvals, obtaining
permits and licenses or renewals thereof, risks and uncertainties relating to
general economic and political conditions, both domestically and
internationally, changes in the law and regulations governing our activities
in the Little LEO satellite technology, results of the Company's financing
efforts and marketing conditions, and other risk factors related to our
business. Readers of this report 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 report, as well as other factors that generally
affect the market for stocks of development stage, high technology companies.
These factors could affect the price of the Company's stock and could cause such
stock prices to fluctuate over relatively short periods of time.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
27
<PAGE>
The response to this item is being submitted in a separate section of
this report beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 9-12.
The information called for in Items 9-12 is hereby incorporated by
reference into the Company's Proxy Statement for its annual meeting of
shareholders, to be filed in 120 days of our fiscal year end.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following Financial Statements pertaining to the Company are filed
as part of this report:
<TABLE>
<S> <C>
Report of Independent Accountants F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-10
Notes to Consolidated Financial Statements F-11
</TABLE>
EXHIBITS
The following Exhibits are filed with or incorporated by reference into
this report:
<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) Restated Certificate of Incorporation, effective May 28,
1997.
(3.1) Bylaws, effective February 19, 1999.
(3.2) Certificate of Amendment of Certificate of Incorporation,
effective April 28, 1999.
*(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.
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
*(4.2) Specimen Stock Certificate.
*(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.
*(10.20) AXION Royalty Agreement incorporated by reference to the
Company's Current 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, LP, High Peak Limited and Michael
Fitzsimmons.
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
***(10.44) Launch Services Agreement with Eurockot Launch Services
GmbH dated March 31, 1999. (Redacted per Confidential
Treatment Request)
***(10.45) Satellite Construction Agreement with Surrey Satellite
Technology Limited dated March 31, 1999. (Redacted per
Confidential Treatment Request)
(10.46) Amendment to Employment Agreement between Fred W. Thompson
and DBS Industries, Inc. dated September 1, 1999.
(10.47) Amendment to Employment Agreement between Gregory T. Leger
and DBS Industries, Inc., dated September 1, 1999.
(10.48) Employment Agreement between Frederick R. Skillman, Jr. and
DBS Industries, Inc., dated July 28, 1999.
(10.49) Amendment to Employment Agreement between Frederick R.
Skillman, Jr., and DBS Industries, Inc., dated September 1,
1999.
(10.50) Employment Agreement between H. Tate Holt and DBS
Industries, Inc., dated June 1, 1999.
(10.51) Employment Agreement between Stanton C. Lawson and DBS
Industries, Inc., dated October 18, 1999.
(10.52) Employment Agreement between Randy Stratt and DBS
Industries, Inc., dated November 8, 1999.
(10.53) Prime Contract for ESAT Communications System between DBS
Industries, Inc., and Alcatel Space Industries dated
October 8, 1999, and as amended on December 22, 1999.
(Redacted per Confidential Treatment Request)
(10.54) Share Purchase Agreement between EchoStar DBS Corporation,
and DBS Industries, Inc., dated July 30, 1999. (Redacted
per Confidential Treatment Request)
**(21.1) List of Subsidiaries of DBS Industries, Inc.
(27) Financial Data Schedule
</TABLE>
* 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, and December 31, 1996.
** 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
May 3, 1999.
REPORTS ON FORM 8-K
On October 8, 1999, the Company filed a Form 8-K documenting the
signing of a contract with Alcatel Space Industries for the final design,
construction and delivery of the Company's constellation of
30
<PAGE>
six LEO satellites.
31
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this Annual Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: March 30, 2000 DBS INDUSTRIES, INC.
By: /s/ Fred W. Thompson
--------------------
FRED W. THOMPSON, President
In accordance with the Securities Exchange Act of 1934, this Annual
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
FRED W. THOMPSON President, Chairman March 30, 2000
Fred W. Thompson Principal Executive Officer
MICHAEL T. SCHIEBER Director March 30, 2000
Michael T. Schieber
JEROME W. CARLSON Director March 30, 2000
Jerome W. Carlson
H. TATE HOLT Director March 30, 2000
H. Tate Holt
JESSIE J. KNIGHT, JR. Director March 30, 2000
Jessie J. Knight, Jr.
STANTON C. LAWSON Director March 30, 2000
Stanton C. Lawson Principal Financial Officer
ROY T. GRANT
Roy T. Grant Director March 30, 2000
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1999 and 1998, and the results of their operations and their cash flows for
the three years ended December 31, 1999 and for the period from April 25, 1990
(date of inception) to December 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States 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 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.
PricewaterhouseCoopers LLP
March 10, 2000, except for Note 13 as
to which the date is March 24, 2000
San Francisco, California
F-1
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 282,945 $1,291,711
Prepaid and other current assets 114,439 71,138
----------- ----------
Total current assets 397,384 1,362,849
----------- ----------
Furniture and equipment, net 48,211 22,527
Investments, advances and other 2,370,618 855,052
Satellite construction costs 12,072,873 1,272,083
Deferred stock offering costs 673,500 -
----------- ----------
15,165,202 2,149,662
----------- ----------
Total assets $ 15,562,586 $3,512,511
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 478,334 $ 240,240
Customer advances 400,000 400,000
Accrued liabilities 460,577 489,531
----------- ----------
Total current liabilities 1,338,911 1,129,771
----------- ----------
Commitments (Notes 4 and 7)
STOCKHOLDERS' EQUITY
Common stock, $0.0004 par value; 50,000,000 shares authorized;
14,354,911 and 8,581,117 issued and outstanding at
December 31, 1999 and 1998, respectively 5,762 3,452
Capital in excess of par value 26,968,174 8,511,410
Warrants 1,890,436 1,085,500
Note receivable from stockholder (60,000) -
Deferred stock-based compensation (1,532,582) -
Deficit accumulated during the development stage (13,048,115) (7,132,622)
Treasury stock (0 and 51,562 shares as of December 31,
1999 and 1998) - (85,000)
----------- ----------
Total stockholders' equity 14,223,675 2,382,740
----------- ----------
Total liabilities and stockholders' equity $ 15,562,586 $3,512,511
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 25,
1990
(INCEPTION)
TO
DECEMBER 31, DECEMBER 31,
-----------------------------------------
1999 1998 1997 1999
<S> <C> <C> <C> <C>
REVENUE $ - $ - $ - $ 161,420
--------- --------- --------- ----------
COST AND OPERATING EXPENSES
Cost of revenue - - - 127,580
Marketing and sales 922,623 - - 922,623
General and administrative 4,060,910 2,198,701 1,472,162 12,722,599
Research and development 1,045,296 797,147 210,115 4,012,014
--------- --------- --------- ----------
6,028,829 2,995,848 1,682,277 17,784,816
--------- --------- --------- ----------
Loss from operations (6,028,829) (2,995,848) (1,682,277) (17,623,396)
--------- --------- --------- ----------
OTHER INCOME (EXPENSE)
Interest, 113,336 32,421 (308,094) (596,123)
net
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)
--------- --------- --------- ----------
113,336 (296,045) 4,831,994 4,663,541
--------- --------- --------- ----------
Income (loss) before provision for income taxes
and minority interests (5,915,493) (3,291,893) 3,149,717 (12,959,855)
Provision for income taxes - (1,600) (80,800) (96,835)
--------- --------- --------- ----------
Income (loss) before minority interests (5,915,493) (3,293,493) 3,068,917 (13,056,690)
Minority interests in income of consolidated
subsidiaries - - - 8,575
--------- --------- --------- ----------
Net income (loss) $ (5,915,493) $ (3,293,493) $ 3,068,917 $(13,048,115)
========= ========= ========= ==========
Basic net income (loss) per share $ (0.45) $ (0.47) $ 0.52
========= ========= =========
Diluted net income (loss) per share $ (0.45) $ (0.47) $ 0.49
========= ========= =========
Weighted average number of shares of common
stock, basic 13,088,723 6,979,818 5,863,261
========= ========= =========
Weighted average number of shares of common
stock, diluted 13,088,723 6,979,818 6,235,144
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
------------------- CAPITAL IN
PAR EXCESS OF NOTES
SHARES VALUE PAR VALUE WARRANTS RECEIVABLE
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1990, of DBSN as restated
pursuant to the merger on December 2, 1992 301,000 $ 120 $ 46,375 $ - $ -
Issuance of common stock for professional services
at $1.01 to $2.14 per share 520,000 208 47,542 - -
Issuance of common stock for cash at $.01 to $1.00
per share 244,500 98 124,507 - -
Stock issue costs for the twelve months ended
December 31, 1991 - - (15,774) - -
Net loss for the twelve months ended December 31, 1991 - - - - -
--------- ------ --------- -------- -------
Balance at December 31, 1991 1,065,500 426 202,650 - -
Issuance of common stock for cash at $.01 to $1.00 -
per share 1,317,290 527 538,998 - -
Issuance of common stock for professional services at
$.01 to $.10 - per share 214,240 86 12,338 - -
Issuance of common stock in payment of stockholder loans:
June 1992 at $.01 per share 230,000 92 2,208 - -
Net loss for the seven months ended July 31, 1992 - - - - -
--------- ------ --------- -------- -------
Balance at July 31, 1992 2,827,030 1,131 756,194 - -
Shares of Fi-Tek IV, Inc. from August 3, 1989
(inception) through December 2, 1992 817,540 327 155,450 - -
Issuance of common stock for cash at $.01 to $3.20
per share 1,313,926 527 998,088 - -
Issuance of common stock for interest at $5.00 per share 10,000 4 4,996 - -
Issuance of common stock for JPS common stock on
September 11, 1992 at $.80 per share 61,447 24 49,134 - -
Issuance of common stock for professional services on
September 11, 1992 at $.10 per share 6,679 3 665 - -
Issuance of common stock in exchange for DBSC common
stock on October 9, 1992, at $2.00 per share 6,375 2 12,748 - -
Redemption of 97,450 common stock warrants on
October 2, 1992, at $8.00 per share - - (19,490) - -
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DEFERRED DURING THE TOTAL
STOCK-BASED DEVELOPMENT TREASURY STOCKHOLDERS'
COMPENSATION STAGE STOCK EQUITY
<S> <C> <C> <C> <C>
Balance at December 31, 1990, of DBSN as restated
pursuant to the merger on December 2, 1992 $ - $ (219,990) $ - $ (173,495)
Issuance of common stock for professional services
at $1.01 to $2.14 per share - - - 47,750
Issuance of common stock for cash at $.01 to $1.00
per share - - - 124,605
Stock issue costs for the twelve months ended
December 31, 1991 - - - (15,774)
Net loss for the twelve months ended December 31, 1991 - (115,339) - (115,339)
-------- --------- ---------- --------
Balance at December 31, 1991 - (335,329) - (132,253)
Issuance of common stock for cash at $.01 to $1.00 -
per share - - - 539,525
Issuance of common stock for professional services at
$.01 to $.10 - per share - - - 12,424
Issuance of common stock in payment of stockholder loans:
June 1992 at $.01 per share - - - 2,300
Net loss for the seven months ended July 31, 1992 - (90,750) - (90,750)
-------- --------- ---------- --------
Balance at July 31, 1992 - (426,079) - 331,246
Shares of Fi-Tek IV, Inc. from August 3, 1989
(inception) through December 2, 1992 - - - 155,777
Issuance of common stock for cash at $.01 to $3.20
per share - - - 998,615
Issuance of common stock for interest at $5.00 per share - - - 5,000
Issuance of common stock for JPS common stock on
September 11, 1992 at $.80 per share - - - 49,158
Issuance of common stock for professional services on
September 11, 1992 at $.10 per share - - - 668
Issuance of common stock in exchange for DBSC common
stock on October 9, 1992, at $2.00 per share - - - 12,750
Redemption of 97,450 common stock warrants on
October 2, 1992, at $8.00 per share - - - (19,490)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- CAPITAL IN
PAR EXCESS OF NOTES
SHARES VALUE PAR VALUE WARRANTS RECEIVABLE
<S> <C> <C> <C> <C> <C>
Issuance of common stock December 2, 1992, at closing
of acquisition of DBSN as a finder's fee at $.0004
per share 25,000 $ 10 $ - $ - $ -
Issuance of common stock for Axion common stock
during March 1993 at $1.60 per share 50,000 20 79,980 - -
Issuance of common stock for DBSC common stock
on July 2, 1993, at $1.60 per share 133,306 53 213,238 - -
Stock issue costs for the period from August 1, 1992
through July 31, 1993 - - (6,374) - -
Net loss for the twelve months ended July 31, 1993 - - - - -
--------- ------ --------- -------- -------
Balance at July 31, 1993 5,251,303 2,101 2,244,629 - -
Issuance of common stock for cash at $4.00 per share
(August 1993 through April 1994) 102,256 41 411,943 - -
Stock issued in exchange for 46% of JPS stock on
November 19, 1993 3,379 1 10,137 - -
Stock issued for professional services:
January 28, 1994, at $3.60 per share 5,331 2 19,188 - -
July 29, 1994, at $2.00 per share 3,833 2 7,663 - -
Stock issued due to exercise of warrants, at $2.00
per share (March and April 1994) 2,500 1 4,999 - -
Stock issued for interest on July 31, 1994, at $2.00
per share 1,000 - 2,000 - -
Purchase of shares of common stock on January 28, 1994,
at $3.20 per share (1,563) - - - -
Reacquisition of common stock pursuant to sale of
investment in Axion in May 1994, at $1.60 per share (50,000) - - - -
Net loss for the twelve months ended July 31, 1994 - - - - -
--------- ------ --------- -------- -------
Balance at July 31, 1994 5,318,039 2,148 2,700,559 - -
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DEFERRED DURING THE TOTAL
STOCK-BASED DEVELOPMENT TREASURY STOCKHOLDERS'
COMPENSATION STAGE STOCK EQUITY
<S> <C> <C> <C> <C>
Issuance of common stock December 2, 1992, at closing
of acquisition of DBSN as a finder's fee at $.0004
per share $ - $ - $ - $ 10
Issuance of common stock for Axion common stock
during March 1993 at $1.60 per share - - - 80,000
Issuance of common stock for DBSC common stock
on July 2, 1993, at $1.60 per share - - - 213,291
Stock issue costs for the period from August 1, 1992
through July 31, 1993 - - - (6,374)
Net loss for the twelve months ended July 31, 1993 - (755,040) - (755,040)
---------- -------- --------- ----------
Balance at July 31, 1993 - (1,181,119) - 1,065,611
Issuance of common stock for cash at $4.00 per share
(August 1993 through April 1994) - - - 411,984
Stock issued in exchange for 46% of JPS stock on
November 19, 1993 - - - 10,138
Stock issued for professional services:
January 28, 1994, at $3.60 per share - - - 19,190
July 29, 1994, at $2.00 per share - - - 7,665
Stock issued due to exercise of warrants, at $2.00
per share (March and April 1994) - - - 5,000
Stock issued for interest on July 31, 1994, at $2.00
per share - - - 2,000
Purchase of shares of common stock on January 28, 1994,
at $3.20 per share - - (5,000) (5,000)
Reacquisition of common stock pursuant to sale of
investment in Axion in May 1994, at $1.60 per share - - (80,000) (80,000)
Net loss for the twelve months ended July 31, 1994 - (26,909) - (26,909)
---------- -------- --------- ----------
Balance at July 31, 1994 - (1,208,028) (85,000) 1,409,679
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
------------------- CAPITAL IN
PAR EXCESS OF NOTES
SHARES VALUE PAR VALUE WARRANTS RECEIVABLE
<S> <C> <C> <C> <C> <C>
Stock issued for services:
November 30, 1994, at $1.88 per share 10,000 $ 4 $ 18,796 $ - $ -
May 15, 1995, at $2.00 per share 10,724 4 21,443 - -
July 15, 1995, at $1.60 per share 11,373 5 18,192 - -
Net loss for the twelve months ended July 31, 1995 - - - - -
--------- ------ --------- -------- -------
Balance at July 31, 1995 5,350,136 2,161 2,758,990 - -
Issuance of common stock for 1% JPS common stock
on September 21, 1995 at $1.20 per share 9,450 4 11,336 - -
Issuance of common stock for 20% Seimac Limited
common stock on December 13, 1995 at $4.00 per share 165,519 66 662,010 - -
Issuance of common stock for professional services at
$5.60 per share 2,934 1 16,427 - -
Net loss for the twelve months ended December 31, 1995 - - - - -
--------- ------ --------- -------- -------
Balance at December 31, 1995 5,528,039 2,232 3,448,763 - -
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 -
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 - -
February 15, 1996, at $5.20 per share, less noncash
issuance cost of $19,999 38,462 15 179,988 - -
Stock issued for services
January 1 - June 30, 1996, at $3.75 per share 22,743 9 85,277
August 15, 1996, at $4.80 per share 6,018 2 28,884
September 21, 1996, at $5.60 per share 4,821 2 26,996
July 1 - December 31, 1996, at $2.00 per share 7,605 3 15,207
Placement fee associated with January 15 and
February 15, 1996, issuances settled through 19,821 8 83,891
issuance of common stock
Net loss for the twelve months ended December 31, 1996 - - - - -
--------- ------ --------- -------- -------
Balance at December 31, 1996 5,827,509 2,351 4,605,026 112,500 -
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DEFERRED DURING THE TOTAL
STOCK-BASED DEVELOPMENT TREASURY STOCKHOLDERS'
COMPENSATION STAGE STOCK EQUITY
<S> <C> <C> <C> <C>
Stock issued for services:
November 30, 1994, at $1.88 per share $ - $ - $ - $ 18,800
May 15, 1995, at $2.00 per share - - - 21,447
July 15, 1995, at $1.60 per share - - - 18,197
Net loss for the twelve months ended July 31, 1995 - (1,284,558) - (1,284,558)
-------- --------- ---------- ---------
Balance at July 31, 1995 - (2,492,586) (85,000) 183,565
Issuance of common stock for 1% JPS common stock
on September 21, 1995 at $1.20 per share - - - 11,340
Issuance of common stock for 20% Seimac Limited
common stock on December 13, 1995 at $4.00 per share - - - 662,076
Issuance of common stock for professional services at
$5.60 per share - - - 16,428
Net loss for the twelve months ended December 31, 1995 - (662,877) - (662,877)
-------- --------- ---------- ---------
Balance at December 31, 1995 - (3,155,463) (85,000) 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
Issuance of common stock for cash
January 15, 1996, at $4.00 per share, less noncash
issuance cost of $63,900 - - - 736,100
February 15, 1996, at $5.20 per share, less noncash
issuance cost of $19,999 - - - 180,003
Stock issued for services
January 1 - June 30, 1996, at $3.75 per share 85,286
August 15, 1996, at $4.80 per share 28,886
September 21, 1996, at $5.60 per share 26,998
July 1 - December 31, 1996, at $2.00 per share 15,210
Placement fee associated with January 15 and
February 15, 1996, issuances settled through 83,899
issuance of common stock
Net loss for the twelve months ended December 31, 1996 - (3,752,583) - (3,752,583)
-------- --------- ---------- ---------
Balance at December 31, 1996 - (6,908,046) (85,000) (2,273,169)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
------------------- CAPITAL IN
PAR EXCESS OF NOTES
SHARES VALUE PAR VALUE WARRANTS RECEIVABLE
<S> <C> <C> <C> <C> <C>
Stock issued for services
January 31, 1997, at $1.69 per share 5,088 2 8,586
February 14, 1997, at $1.75 per share 4,701 2 8,225
February 28, 1997, at $2.00 per share 7,918 3 15,834
March 31, 1997, at $1.63 per share 302 - 491
April 10, 1997, at $2.00 per share 7,500 3 14,997
April 30, 1997, at $1.50 per share 332 - 498
June 30, 1997, at $1.13 per share 14,578 6 16,394
July 9, 1997, at $0.75 per share 15,000 6 11,244
Net income for the twelve months ended December 31, 1997 - - - - -
--------- ------ --------- -------- -------
Balance at December 31, 1997 5,882,928 2,373 4,681,295 112,500 -
Common stock issued for cash, on April 16, 1998,
at $2.00 per share 102,000 41 203,959 - -
Common stock issued upon exercise of options, on
June 11, 1998, at $1.44 per share 12,500 5 17,964
Common stock issued (voided) in connection with
services rendered
February 12, 1998, at $0.53 per share 26,209 10 13,906
April 1, 1998, at $3.25 per share 10,000 4 32,496
May 14, 1998, at $3.75 per share 13,646 6 51,168
May 14, 1998, at $3.75 per share (22,743) (9) (85,277)
Common stock issued for cash in August and September 1998
at $2.00 per share net of issuance costs of $485,826 2,800,000 1,120 5,113,054
Common stock issued upon exercise of options at $0.53
per share 17,202 6 9,128
Fair value of Common Stock warrants committed to
representing stock issuance costs (973,000) 973,000
Fair value of options granted in connection with
services rendered 159,000
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DEFERRED DURING THE TOTAL
STOCK-BASED DEVELOPMENT TREASURY STOCKHOLDERS'
COMPENSATION STAGE STOCK EQUITY
<S> <C> <C> <C> <C>
Stock issued for services
January 31, 1997, at $1.69 per share 8,588
February 14, 1997, at $1.75 per share 8,227
February 28, 1997, at $2.00 per share 15,837
March 31, 1997, at $1.63 per share 491
April 10, 1997, at $2.00 per share 15,000
April 30, 1997, at $1.50 per share 498
June 30, 1997, at $1.13 per share 16,400
July 9, 1997, at $0.75 per share 11,250
Net income for the twelve months ended December 31, 1997 - 3,068,917 - 3,068,917
-------- --------- ---------- ---------
Balance at December 31, 1997 - (3,839,129) (85,000) 872,039
Common stock issued for cash, on April 16, 1998,
at $2.00 per share - - - 204,000
Common stock issued upon exercise of options, on
June 11, 1998, at $1.44 per share 17,969
Common stock issued (voided) in connection with
services rendered
February 12, 1998, at $0.53 per share 13,916
April 1, 1998, at $3.25 per share 32,500
May 14, 1998, at $3.75 per share 51,174
May 14, 1998, at $3.75 per share (85,286)
Common stock issued for cash in August and September 1998
at $2.00 per share net of issuance costs of $485,826 5,114,174
Common stock issued upon exercise of options at $0.53
per share 9,134
Fair value of Common Stock warrants committed to
representing stock issuance costs -
Fair value of options granted in connection with
services rendered 159,000
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
------------------- CAPITAL IN
PAR EXCESS OF NOTES
SHARES VALUE PAR VALUE WARRANTS RECEIVABLE
<S> <C> <C> <C> <C> <C>
Common stock issued for exercise of options $0.60 per 37,500 15 22,485
share 10/1/98
Common stock returned to investees at $2.00 per share in
October 1998 (400,000) (160) (799,840)
Common stock issued upon exercise of options $0.531 per
share in October 1998 94,375 38 50,075
Common stock issued representing stock issuance costs 7,500 3 14,997
Net loss for the year ended December 31, 1998 - - - - -
--------- ------ --------- -------- -------
Balance at December 31, 1998 8,581,117 3,452 8,511,410 1,085,500 -
Common stock issued for cash
February 1999 at $2.50, net of issuance
costs of $2,104 50,000 20 122,876
February 1999 at $3.00, net of issuance
costs of $25,246 500,000 200 1,474,554
April 1999 at $3.00 per share 1,666,667 667 4,999,333
Common stock issued upon exercise of options
January, March, August, and December 1999
at $0.53 per share 195,227 78 103,557
February 1999 at $0.58 12,625 5 7,368
January and February 1999 at $0.60 26,667 11 15,990
February 1999 at $1.44 37,500 15 53,891
February and March 1999 at $1.45 200,000 80 289,920
January, February, and March 1999 at $1.50 195,084 78 292,548
January 1999 at $2.80 8,125 3 22,747
Common stock issued upon exercise of warrants
January 1999 at $0.50 per share 200,000 80 99,920
January 1999 at $1.44 per share 11,080 4 15,923
January and February 1999 at $1.50 per share 64,380 26 183,251 (86,707)
March 1999 at $2.00 per share 7,500 2 24,673 (9,675)
February and March 1999 at $2.10 per share 33,700 13 111,534 (40,777)
January - March 1999 at $3.00 per share,
net of issuance costs of $123,805 2,452,000 983 7,239,689 (8,475)
March 1999 at $3.50 per share
net of issuance costs of $3,344 50,000 20 172,035
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DEFERRED DURING THE TOTAL
STOCK-BASED DEVELOPMENT TREASURY STOCKHOLDERS'
COMPENSATION STAGE STOCK EQUITY
<S> <C> <C> <C> <C>
Common stock issued for exercise of options $0.60 per 22,500
share 10/1/98
Common stock returned to investees at $2.00 per share in
October 1998 (800,000)
Common stock issued upon exercise of options $0.531 per
share in October 1998 50,113
Common stock issued representing stock issuance costs 15,000
Net loss for the year ended December 31, 1998 - (3,293,493) - (3,293,493)
-------- --------- ---------- ---------
Balance at December 31, 1998 - (7,132,622) (85,000) 2,382,740
Common stock issued for cash
February 1999 at $2.50, net of issuance
costs of $2,104 122,896
February 1999 at $3.00, net of issuance
costs of $25,246 1,474,754
April 1999 at $3.00 per share 5,000,000
Common stock issued upon exercise of options
January, March, August, and December 1999
at $0.53 per share 103,635
February 1999 at $0.58 7,373
January and February 1999 at $0.60 16,001
February 1999 at $1.44 53,906
February and March 1999 at $1.45 290,000
January, February, and March 1999 at $1.50 292,626
January 1999 at $2.80 22,750
Common stock issued upon exercise of warrants
January 1999 at $0.50 per share 100,000
January 1999 at $1.44 per share 15,927
January and February 1999 at $1.50 per share 96,570
March 1999 at $2.00 per share 15,000
February and March 1999 at $2.10 per share 70,770
January - March 1999 at $3.00 per share,
net of issuance costs of $123,805 7,232,197
March 1999 at $3.50 per share
net of issuance costs of $3,344 172,055
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
------------------ CAPITAL IN
PAR EXCESS OF NOTES
SHARES VALUE PAR VALUE WARRANTS RECEIVABLE
<S> <C> <C> <C> <C> <C>
Expiration of warrants 15,730 (15,730)
Deferred stock compensation 2,490,337
Options issued in connection with
services rendered 751,497
Amortization of deferred stock compensation
Warrants issued in connection with services
rendered in November and December 1999 22,800
Issuance of common stock in connection with
Litigation settlement in March 1999
at $5.00 per share 63,239 25 324,391
Fair value of Common Stock warrants committed to
representing deferred stock issuance costs 673,500
in December 1999
Warrant issued in connection with stock issuance (270,000) 270,000
costs
Note Receivable from Stockholder (60,000)
Retirement of Treasury Stock (85,000)
Net loss for the year ended December 31, 1999
--------- ------ --------- -------- -------
Balance at December 31, 1999 14,354,911 $5,762 26,968,174 $1,890,436 $ (60,000)
--------- ------ --------- -------- -------
--------- ------ --------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DEFERRED DURING THE TOTAL
STOCK-BASED DEVELOPMENT TREASURY STOCKHOLDERS'
COMPENSATION STAGE STOCK EQUITY
<S> <C> <C> <C> <C>
Expiration of warrants
Deferred stock compensation (2,490,337) -
Options issued in connection with
services rendered 751,497
Amortization of deferred stock compensation 957,755 957,755
Warrants issued in connection with services
rendered in November and December 1999 22,800
Issuance of common stock in connection with
litigation settlement in March 1999
at $5.00 per share 324,416
Fair value of Common Stock warrants committed to
representing deferred stock issuance costs 673,500
in December 1999 -
Warrant issued in connection with stock issuance -
costs
Note Receivable from Stockholder (60,000)
Retirement of Treasury Stock 85,000 -
Net loss for the year ended December 31, 1999 (5,915,493) (5,915,493)
---------- ---------- ---------- ----------
Balance at December 31, 1999 $(1,532,582) $(13,048,115) $ - $14,223,675
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 25, 1990
(INCEPTION) TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
-------------------------------------
1999 1998 1997 1999
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
USED IN OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income (loss) $ (5,915,493) $(3,293,493) $3,068,917 $ (13,048,115)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 15,719 73,122 126,989 446,975
Minority interest's share of net loss - - - (8,575)
Noncash charges - 573,999 76,293 1,084,545
Amortization of stock-based compensation 957,755 - - 957,755
Issuance of options and warrants for services 774,298 - - 774,298
rendered
Issuance of common stock in connection
with litigation settlement 324,391 - - 324,391
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 (43,301) 48,127 (50,320) (95,235)
Increase (decrease) in accounts payable -
accrued liabilities 204,675 (108,264) (1,053,843) 609,915
Increase in customer advances - - - 400,000
------------- ----------- ---------- -----------
Net cash used in operating activities (3,681,956) (2,161,111) (2,972,152) (13,629,360)
------------- ----------- ---------- -----------
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 (34,394) (5,523) - (145,441)
Satellite construction payments (10,800,790) (1,272,083) - (12,072,873)
Organization costs - - - (28,526)
Advances to officer (60,000) - - (91,187)
Purchase of interest in Continental - - - (2,292,409)
Investments and advances (1,518,081) (407,292) 309,888 (2,726,807)
Net assets of purchased subsidiaries - - - (147,500)
Cash transferred from Fi-Tek IV, Inc. pursuant to -
the merger and reorganization - - - 156,648
Cash of divested subsidiary - - - (277)
Purchase of patents - - - (18,251)
Proceeds from repayment of advances to affiliate - - - 152,500
Restricted cash on credit line - - 300,000 300,000
------------- ----------- ---------- -----------
Net cash provided by (used in) investing (12,413,265) (1,484,958) 4,183,565 (12,240,506)
activities ------------- ----------- ---------- -----------
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 15,240,555 4,997,226 - 23,391,297
Redemption of common stock warrants - - - (19,490)
Stock issue costs (154,100) (442,500) - (653,835)
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 15,086,455 4,554,726 (1,230,944) 26,152,811
activities ------------- ----------- ---------- -----------
Net increase (decrease) in cash (1,008,766) 908,657 (19,531) 282,945
Cash and cash equivalents, beginning of period 1,291,711 383,054 402,588 -
------------- ----------- ---------- -----------
Cash and cash equivalents, end of period $ 282,945 $1,291,711 $ 383,057 $ 282,945
------------- ----------- ---------- -----------
------------- ----------- ---------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest $ 4,672 $ - $ 11,456 $ 24,892
------------- ----------- ---------- -----------
------------- ----------- ---------- -----------
Income taxes $ - $ - $ 1,600 $ -
------------- ----------- ---------- -----------
------------- ----------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-10
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
These consolidated financial statements include the accounts of DBS
Industries, Inc. (the "Company"), and its wholly-owned 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 data communication service
using a constellation of low earth orbit satellites and the internet. 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 consolidated 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 2000
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 1999, the Company raised approximately $15 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 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 was required to commence by April 1999 pursuant to the terms of
the Federal Communications Commission (FCC) license granted to E-SAT. The
Company notified the FCC that it has achieved this milestone by entering
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 has been the development of satellite and radio systems for use in
automating the control and distribution of gas and electric power by
utility companies. GEMS had no significant activity during fiscal 1999.
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.
F-11
<PAGE>
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. Such estimates include the
recoverability of satellite construction costs and the investment in
E-SAT. 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
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.
SATELLITE CONSTRUCTION COSTS
Satellite construction costs will be depreciated over the useful
economic lives of the satellites once they enter into service.
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of." The Company reviews
satellite construction costs and other long-lived assets for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. There was no
impact as of December 31, 1999.
GOODWILL
Goodwill is amortized using the straight-line method over five years.
Amortization expense charged to operations for the years ended December
31, 1999, 1998 and 1997, was $2,515, $5,564, 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.
F-12
<PAGE>
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 these 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 and warrants are excluded from the EPS
calculation in loss years due to their antidilutive effect. The
following table summarizes options and warrants outstanding:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Options and warrants (excluded
from) included in EPS calculation (6,153,167) (6,220,695) 1,748,938
Price range $0.40 - $5.60 $0.40 - $5.60 $0.39 - $5.60
</TABLE>
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.
SEGMENT REPORTING
Effective May 1, 1998, the Company adopted the Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires
that an enterprise report financial and description information about
its reportable operating segments. Generally, financial information is
required to be reported on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources
to segments. The Company has determined that they operate in a single
segment as defined by SFAS 131. Adoption of this standard does not
affect the Company's results of operations or financial position.
COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 established standards for reporting and display of
comprehensive income and its components and is effective for
F-13
<PAGE>
periods beginning after December 15, 1997. The Company's comprehensive
income approximated net income for all periods presented.
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.
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, INC. (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, and advances to, E-SAT were $851,490 as of December 31, 1999 and
1998. The investment is accounted for using the equity method. The
Company's equity in losses of E-SAT for the years ended December 31,
1999 and 1998, were $0 and $134,524, respectively.
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.
On April 8, 1999, the Company notified the FCC that it had entered into
a construction contract for the first two satellites of the E-SAT
system on March 31, 1999.
On July 30, 1999, the Company entered into an agreement with EchoStar
under which it will receive 60.1% of E-SAT's shares from EchoStar in
exchange for consideration, including the grant of rights to use up to
20% of the satellite capacity of the E-SAT system by EchoStar. As
F-14
<PAGE>
a result of this transaction, the Company will own 80.1% of the E-SAT
shares. This share purchase agreement is subject to approval by the
FCC. In connection with the negotiations of the share purchase
agreement with EchoStar, the Company paid $1,517,187 to a consultant
during 1999 and capitalized such costs in the E-SAT investment
account.
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 investments 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, 1999 and 1998.
This investment is accounted for using the equity method.
For the year ended December 31, 1998, the Company has recorded its
proportionate share of Seimac Limited's net income of $34,381.
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.
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 stockholder (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 rule 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.
F-15
<PAGE>
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.
4. SATELLITE CONSTRUCTION COSTS
During the construction of the System, the Company is capitalizing all
design, engineering, launch and construction costs. Such costs amounted to
approximately $12 million as of December 31, 1999.
On December 15, 1998, the Company and 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.
Upon signing of the MOU, the Company made a $1 million advance payment to
Alcatel.
In January and February 1999, the Company made additional payments to
Alcatel totaling $1 million.
On March 31, 1999, the Company signed construction and launch contracts
with Surrey Satellite Technology Limited ("Surrey") and Eurockot,
respectively, and made advance payments of $7.8 million in April 1999 and
$2.0 million in July 1999. Total payments under these cancelable contracts
will amount to approximately $47 million through January 2001. In July
1999, the Company, Surrey and Eurockot reached agreements under which $3.2
million of the required milestone payments due in July 1999 totaling $4.8
million were deferred to yet to be agreed upon dates.
On October 8, 1999, the Company and Alcatel entered into an agreement under
which Alcatel will serve as prime contractor for the construction of the
Company's low earth orbit satellite communications system. This agreement
becomes effective upon the Company's payment of $14.1 million to Alcatel.
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 when the
Argos System became unavailable. 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.
6. RETIREMENT OF CONVERTIBLE DEBENTURES
On August 29, 1997, the Company completed an agreement with EchoStar to
retire three convertible debentures in the principal amount of $4,640,000
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
F-16
<PAGE>
which represented the closing bid price on August 27, 1997, the date the
parties initially agreed to the terms of the transaction.
7. COMMITMENTS
OPERATING LEASES
The Company and its wholly-owned subsidiaries lease their facilities
under noncancelable operating leases which run concurrently and expire
in July 2003. Minimum future rental payments under the leases, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
<S> <C>
2000 $ 178,128
2001 178,128
2002 178,128
2003 103,908
-------------
$ 638,292
-------------
-------------
</TABLE>
Total rent expense was $150,084 and $82,615 for the years ended
December 31, 1999 and 1998, respectively.
OTHER
Refer to Note 4 for certain contract commitments.
8. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company's Certificate of Incorporation, as amended in 1999,
authorizes the issuance of 50,000,000 shares of common stock with a par
value of $0.0004 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 of the
election of directors is not permitted by the Certificate of
Incorporation.
PREFERRED STOCK
The Company's Certificate of Incorporation, as amended in 1999,
authorizes the issuance of 5,000,000 shares of preferred stock with par
value of $0.0004 per share. The Board of Directors of the Company is
authorized to issue preferred stock from time to time in series and is
further authorized to establish such series, to fix and determine the
variations in the relative rights and preferences as between the
series, and to allow for the conversion of preferred stock into common
stock. No preferred stock has been issued by the Company as of December
31, 1999.
F-17
<PAGE>
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, 1999, 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. These warrants were
exercised during 1999.
In April 1998, the Company granted options to two consulting firms to
purchase 400,000 and 233,334 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.
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.
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 $442,500, (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 offerings, the Company registered
such shares and warrants in November 1998.
In February 1999, the Company issued (a) 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, (b)
50,000 units consisting of a share of common stock at a price of $2.50
per share and a warrant to purchase a share of common stock at an
exercise price of $3.50. Sale of these units resulted in gross proceeds
to the Company of approximately $1.6 million. In connection with this
offering, the Company granted warrants
F-18
<PAGE>
to purchase 75,000 shares of the Company's common stock at an exercise
price of $3.75. Such grant represented stock issuance costs and
therefore, its fair value of $270,000 was recorded as an offset
against the proceeds of the offering.
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.
During April 1999, Surrey and Eurockot purchased 1,666,667 shares of
the Company's Common Stock for a total $5 million in cash.
During 1999, the Company granted options and warrants to purchase
347,273 shares of the Company's common stock at exercise prices ranging
from $0.79 to $2.75 to several service providers. The fair value of
such options and warrants, which amounted to approximately $774,000,
was recorded as an expense during 1999. The following variables were
used to determine the fair value of such instruments under the
Black-Scholes option pricing model: volatility of 100%, expected life
of 10 years for options and 2 to 3 years for warrants, risk free
interest of 5% to 6% and underlying stock prices equal to fair market
value at the time of grant.
In December 1999, the Company granted warrants to purchase 500,000
shares of the Company's common stock at an exercise price of $2.81 per
share to a financial institution as consideration for its efforts to
help raise capital. The fair value of such warrants of $674,000 was
recorded as a long term asset and will be offset against proceeds once
they are received. The fair value of the warrants was estimated on the
date of grant using the Black-Scholes model with volatility of 100%,
expected life of 3 years, risk-free interest rate of 5% and fair market
value of the common stock of $2.25 per share.
During 1999, the Company received proceeds of $598,526 from the
exercise of options to purchase 425,084 shares of the Company's Common
Stock, and proceeds of $320,768 from the exercise of warrants to
purchase 324,160 shares of the Company's common stock.
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 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 judgements 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% of the fair market value of the common stock on the date
of the grant of incentive stock options. Nonqualified and nonplan
options may be granted at a price lower than fair market value. 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
F-19
<PAGE>
(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.
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.
The Company has maintained the vesting schedule from the original
grants.
In addition, the Company granted non-plan options to certain employees
in connection with their employment agreements.
Information with respect to plan and non-plan activity is set forth
below:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------------------------
WEIGHTED
AVERAGE
NUMBER OF PRICE PER AGGREGATE EXERCISE
SHARES SHARE PRICE PRICE
<S> <C> <C> <C> <C>
Balance, December 31, 1997 1,418,233 $0.40 - $5.60 $ 1,271,648 0.90
Granted 787,500 $0.53 - $2.19 569,329 0.78
Exercised (161,577) $0.53 - $1.44 (99,722) 0.62
Terminated - - - -
---------- -----------
Balance, December 31, 1998 2,044,156 $0.40 - $5.60 1,741,255
Granted 2,149,700 $0.39 - $5.50 2,759,768 1.33
Exercised (280,144) $0.53 - $2.80 (203,695) 0.73
Terminated (10,340) $0.53 (5,491) 0.53
---------- -----------
Balance, December 31, 1999 3,903,372 $0.39 - $5.60 $ 4,291,837
---------- -----------
---------- -----------
</TABLE>
F-20
<PAGE>
The following table summarizes information with respect to stock
options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
------------------------------------ ------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$0.53 - $0.75 1,643,659 7.08 $ 0.57 1,384,517 $ 0.55
$1.08 - $1.67 2,038,501 9.41 1.31 638,084 1.32
$2.00 - $2.86 164,928 8.09 2.33 164,928 2.33
$5.50 - $5.60 56,284 8.13 5.51 56,284 5.51
---------- -----------
3,903,372 2,243,813
---------- -----------
---------- -----------
</TABLE>
The stock based compensation for the twelve months ended December 31,
1999 of $957,755 has been allocated across the relevant functional
expense categories within operating expense as follows:
<TABLE>
<S> <C>
Marketing and sales $ 153,324
General and administrative 756,035
Research and development 48,396
</TABLE>
The Company accounts for employee and board of director stock options
in accordance with the provisions of APB No. 25 and complies with the
disclosure provisions of SFAS No. 123.
Under APB No. 25, compensation expense is recognized based on the
amount by which the fair value of the underlying common stock exceeds
the exercise price of the stock options at the measurement date, which
in the case of employee stock options is typically the date of grant.
For financial reporting purposes, the Company has determined that the
deemed fair market value on the date of grant of certain employee stock
options was in excess of the exercise price of the options. This amount
is recorded as deferred compensation and is classified as a reduction
of stockholders' equity and is amortized as a charge to operations over
the vesting period of the applicable options. The vesting period is
generally four years. The fair value per share used to calculate
deferred compensation was derived by reference to the preferred stock
values and the Company's initial public offering price range.
Consequently, the Company recorded deferred stock compensation of $0
and $2,490,337 during the year ended December 31, 1998 and 1999,
respectively. Amortization recognized for the year ended December 31,
1998 and 1999 totaled $0 and $957,755, respectively.
F-21
<PAGE>
The weighted average fair value of the options granted or modified for
the years ended December 31, 1999 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:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Risk free interest rate 5.5% 5.7% 5.7%
Expected life 4 years 4 years 4 years
Volatility 100% 227% 80%
Dividend yield - - -
</TABLE>
The following pro forma net income (loss) information has been prepared
following the provisions of SFAS No. 123:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Net income (loss)
As reported $ (5,915,493) $ (3,293,493) $3,068,917
Pro forma $ (6,252,010) $ (3,713,942) $1,793,791
Net income (loss) per share
As reported $ (0.45) $ (0.47) $ 0.49
Pro forma $ (0.48) $ (0.53) $ 0.29
</TABLE>
9. 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
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.
Refer to Notes 3 and 6 for disclosures regarding related party
transactions with EchoStar.
10. INCOME TAXES
The provision for income taxes for all periods presented relates to current
minimum taxes.
F-22
<PAGE>
The estimated tax effect of significant temporary differences and
carryforwards that gave rise to deferred income tax assets as of December
31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------- ----------------------------
FEDERAL STATE FEDERAL STATE
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 3,439,000 $ 602,000 $ 1,785,000 $ 305,000
Research and development credit
carryforwards 147,000 - 115,000 -
Excess of tax over book basis of
investments, deferred
compensation, and other 64,000 12,000 10,000 1,500
----------- -------- ---------- --------
Deferred tax assets 3,650,000 614,000 1,910,000 306,500
Valuation allowance (3,650,000) (614,000) (1,910,000) (306,500)
----------- -------- ---------- --------
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 in the
valuation allowance was approximately $2,047,500 and $1,293,500 during the
years ended December 31, 1999 and 1998, 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, 1999, the Company has net operating loss carryforwards
of approximately $10,114,000 and $9,800,000 for federal income tax purposes
and California state franchise tax purposes, respectively. The Company also
has research and development credit carryforwards. Such carryforwards
expire in varying amounts between 2000 and 2020.
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.
11. RISKS AND UNCERTAINTIES
The Company periodically maintains cash balances at banks in excess of the
Federal Deposit Insurance Corporation insurance limit of $100,000.
12. SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES
During the years ended December 31, 1999, 1998 and 1997, the following
noncash activities occurred:
- 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.
F-23
<PAGE>
- 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.
- 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.
- 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.
- 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.
- The Company issued a warrant to purchase 500,000 shares of the
Company's common stock in exchange for efforts to help raise capital.
The fair value of the warrant of $673,000 was capitalized as a long
term asset and will be offset against proceeds, once they are
received.
- The Company issued a warrant to purchase 75,000 shares of the
Company's common stock to a financial institution as consideration for
its effort to help raise capital. The fair value of $270,000 was
offset against the proceeds from the issuance of stock.
13. SUBSEQUENT EVENT
As of March 24, 2000, the Company committed to issue 20,833 shares of the
Company's preferred stock in exchange for gross proceeds of $624,990 in
cash. Each share of preferred stock is convertible, at the election of the
holder, into ten shares of the Company's common stock at a conversion price
based upon a $3.00 per common share price, or the average trading price of
the common stock within a specified period if the common stock is trading
at less than $3.00 per share.
F-24
Deferred
Stock
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF DBS INDUSTRIES, INC.
(A Delaware Corporation)
DBS Industries, Inc., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
FIRST: The present name of the corporation is DBS Industries, Inc. DBS
Industries, Inc. was originally incorporated under the name FI-TEK IV, Inc., and
the original Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on August 3, 1989.
SECOND: The Certificate of Incorporation of the corporation is hereby amended at
paragraph 5.01 of Article V to reduce the authorized number of shares as set
forth in the Restated Certificate of Incorporation hereinafter provided.
THIRD: The provisions of the Certificate of Incorporation of the corporation as
heretofore amended and/or supplemented, and are hereby restated and integrated
into a single instrument which is hereinafter set forth, and which is entitled
Restated Certificate of Incorporation of DBS Industries, Inc. without any
further amendments other than the amendments herein certified and without any
discrepancy between the provisions of the Certificate of Incorporation as
heretofore amended and supplemented and the provisions of the single instrument
hereinafter set forth.
FOURTH: The amendments and the restatement of the corporation's Certificate of
Incorporation as set forth herein have been duly adopted by the stockholders in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
FIFTH: The Restated Certificate of Incorporation of the corporation, as amended
and restated herein, read in its entirety as follows:
ARTICLE I
NAME AND DURATION
The name of this corporation is DBS Industries, Inc. (the "Company"). It
shall have perpetual existence.
ARTICLE II
REGISTERED OFFICE AND AGENT
The location of the Company's registered office in the State of Delaware
is The Corporation Trust Center, 1209 Orange Street, City of Wilmington, County
of New Castle, Delaware 19801. The Company's Registered Agent at this address
is The Corporation Trust Company.
ARTICLE III
INCORPORATOR
The Incorporator's name is Ronald J. Miller and his mailing address is
501 South Cherry Street, Suite 500, Denver, Colorado 80222.
1
<PAGE>
ARTICLE IV
PURPOSE
The Company may engage in any lawful activities for which corporations may
be formed under the General Corporation Law of the State of Delaware and the
laws of any other state wherein the Company transacts business.
ARTICLE V
CAPITAL STOCK
5.01 Authorized Shares. The aggregate number of shares which the
Company shall have authority to issue is Twenty-Five Million (25,000,000).
Twenty Million (20,000,000) shares shall be designated "Common Stock" and shall
have a par value of $0.0004. Five Million (5,000,000) shares shall be
designated "Preferred Stock" and shall have a par value of $0.0004. All shares
of the Company shall be issued for such consideration, expressed in dollars, as
the Board of Directors may, from time to time, determine.
5.02 Consideration for Stock. Shares of Common and Preferred Stock
issued shall be fully paid and nonassessable if (a) the entire amount of
consideration has been received by the Company in the form of cash, services
rendered, personal property, real property, leases of real property, or a
combination thereof; or (b) not less than the amount of the consideration
determined to be capital pursuant to Section 154 of the General Corporation Law
of Delaware has been received by the Company in the form specified in clause (a)
and the Company has received a binding obligation of the subscriber to pay the
balance of the consideration due. The Board of Directors shall have sole
authority to determine the consideration to be received for the Company's stock
and treasury stock, which shall not be less than the par value thereof.
5.03 Common Stock. The Common Stock may be issued from time to time in
one or more classes or series in any manner permitted by law, as determined by
the Board of Directors and stated in the resolution or resolutions providing for
issuance thereof. Each class or series shall be appropriately designated, prior
to issuance of any shares thereof, by some distinguishing letter, number or
title. All shares of each class or series of Common Stock shall be alike in
every particular and shall be of equal rank and have the same power, preferences
and rights, and shall be subject to the same qualifications, limitations and
restrictions, if any. The Common Stock may have such voting powers (full,
limited, contingent or no voting powers), such designations, preferences and
relative, participating, optional or other special rights, and be subject to
such qualifications, limitations and restrictions, as the Board of Directors
shall determine by resolution or resolutions. Unless otherwise resolved by the
Board of Directors, each Common Stock share shall be of the same class and carry
such voting rights as elsewhere provided for in this Certificate of
Incorporation, without any designation, preference or relative, participating,
optional or other special rights, and subject to no qualification, limitation or
restriction.
5.04 Preferred Stock. The Preferred Stock may be issued from time to
time in series as determined by the Board of Directors and stated in the
resolution or resolutions providing for issuance thereof. The Board of
Directors is further authorized to fix and determine the variations in the
relative rights and preferences as between series. Each such series shall be
appropriately designated, prior to the issuance of any shares thereof, by some
distinguishing letter, number, or title. The Preferred Stock may have limited,
contingent or no voting powers, may have such designations, preferences, and
relative,
2
<PAGE>
participating, optional or other special rights, and be subject to such
qualifications, limitations and restrictions, as the Board of Directors shall
determine by resolution or resolutions. The Preferred Stock further may be made
subject to redemption by the Company at its option or at the options of the
holders thereof and may be convertible into Common Stock or exchangeable for
other securities of the Company.
5.05 Amendment of Stockholder Rights. So long as no shares of any
class or series established by resolution of the Board of Directors have been
issued, the voting rights, designations, preferences and relative, optional,
participating or other rights of these shares may be amended by resolution of
the Board of Directors.
5.06 Shares Re-acquired by the Company. Shares of the Company's Common
Stock or Preferred Stock redeemed or otherwise re-acquired by the Company shall
not be cancelled and retired, unless the Board of Directors specifically so
resolves at the time issuance thereof is authorized, but shall be given the
status of authorized and unissued shares.
5.07 Dividends. Dividends in cash, property or shares of the Company
may be paid upon the Preferred and Common Stock, as and when declared by the
Board of Directors, out of funds of the Company to the extent and in the manner
permitted by law. If at any time the Company has outstanding more than one
class of shares, it may pay dividends on its shares to the holders of any class
of shares, without the vote of stockholders of the class in which the payment is
to be made.
5.08 Voting Rights; Cumulative Voting. Each outstanding share of
Common Stock shall be entitled to one vote and each fractional share of Common
Stock shall be entitled to a corresponding fractional vote on each matter
submitted to a vote of stockholders. The voting rights of Preferred Stock, if
any, shall be established by the Board of Directors at the time such stock is
issued in series. Cumulative voting shall not be allowed in the election of
directors of the Company.
5.09 Voting Rights of Debt Holders. Holders of debentures, bonds or
other obligations of the Company may, at the time of issuance thereof, be given
the right to vote in the election of directors or other voting rights. Any such
voting rights may be fixed or contingent.
5.10 Denial of Preemptive Rights. No holder of any shares of the
Company, whether now or hereafter authorized, shall have any preemptive or
preferential right to acquire any shares or securities of the Company, including
shares or securities held in the treasury of the Company.
5.11 Distribution in Liquidation. Upon any liquidation, dissolution or
winding up of the Company, and after paying or adequately providing for the
payment of all its obligations, including any preferences granted to Preferred
Stock, the remainder of the Company or a portion of its assets may be
distributed, in cash or property, subject to the limitations contained in the
General Corporation Law of Delaware. Any such partial liquidation may be made
without the vote or approval of stockholders. The Company may also make
purchases of its Common or Preferred Stock, directly or indirectly, to the
extent of unreserved and unrestricted earned surplus available, without the vote
or approval of stockholders.
3
<PAGE>
ARTICLE VI
REGISTERED HOLDERS
The Company shall be entitled to treat the registered holder of any
shares of the Company as the owner of such shares, and shall not be bound to
recognize any equitable or other claim to, or interest in, such shares or rights
deriving from such shares, unless and until such purchaser, assignee, transferee
or other person becomes the registered holder of such shares, whether or not the
Company shall have either actual or constructive notice of the interests of such
purchaser, assignee, or transferee or other person. The purchaser, assignee, or
transferee of any of the shares of the Company shall not be entitled: to
receive notice of the meetings of the stockholders; to vote at such meetings; to
examine a list of the stockholders; to be paid dividends or other sums payable
to stockholders; or to own, enjoy and exercise any other property or rights
deriving from such shares against the Company, until such purchaser, assignee,
or transferee has become the registered holder of such shares.
ARTICLE VII
REVERSIONS
Cash, property or share dividends, shares issuable to stockholders in
connection with a reclassification of stock, and the redemption price of
redeemed shares, which are not claimed by the stockholders entitled thereto
within one year after the dividend or redemption price became payable or the
shares became issuable, despite reasonable efforts by the Company to pay the
dividend or redemption price or deliver the certificates for the share(s) to
such stockholders within such time, shall, at the expiration of such time,
revert in full ownership to the Company, and the Company's obligation to pay
such dividend or redemption price or issue such shares, as the case may be,
shall thereupon cease; provided, that the Board of Directors may, at any time,
for any reason satisfactory to it, but need not, authorize (i) payment of the
amount of any cash or property dividend or redemption price or (ii) issuance of
any shares, ownership of which has reverted to the Company pursuant to this
Article VII, to the person or entity who or which would be entitled thereto had
such reversion not occurred.
ARTICLE VIII
DIRECTORS
8.01 Initial Directors. The powers of the incorporator shall terminate
upon the filing of this Certificate of Incorporation. The number of directors
shall be as fixed in the Company's Bylaws; provided that, in the absence of such
provision in the Bylaws, the Company shall have one (1) director. The following
individuals shall serve as the Company's initial directors until the first
annual meeting of stockholders or until their successors are duly elected and
qualified. Directors shall be elected by plurality vote and need not be elected
by written ballot.
Frank L. Kramer, 12543-A East Pacific Circle, Aurora, Colorado 80014
8.02 Exclusion of Liability. As authorized by Section 102(b)(7) of the
General Corporation Law of Delaware, no director of the Company shall be
personally liable to the Company or any stockholder thereof for monetary damages
for breach of his fiduciary duty as a director, except for liability (i) for any
breach of a director's duty of loyalty to the Company or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) for acts in violation of Section 174 of the
General Corporation Law of Delaware, as it now exists or may
4
<PAGE>
hereafter be amended, or (iv) for any transaction from which a director derives
an improper personal benefit. This Article 8.02 shall apply to a person who has
ceased to be a director of the Company with respect to any breach of fiduciary
duty which occurred when such person was serving as a director. This Article
8.02 shall not be construed to limit or modify in any way any director's right
to indemnification or other right whatsoever under this Certificate of
Incorporation, the Company's Bylaws or the General Corporation Law of Delaware.
If the General Corporation Law of Delaware hereafter is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of the Company's directors, in addition to the limitation on personal
liability provided herein, shall be limited to the fullest extent permitted by
the General Corporation Law of Delaware as so amended. Any repeal or
modification of this Article 8.02 by the stockholders shall be prospective only
and shall not adversely affect any limitation on the personal liability of any
director existing at the time of such repeal or modification. The affirmative
vote of at least two-thirds (2/3) of the total voting power shall be required to
amend or repeal, or adopt any provision inconsistent with, this Article 8.02.
8.03 Corporate Opportunity. The officers, directors and other members
of management of the Company shall be subject to the doctrine of "corporate
opportunities" only insofar as it applies to any business opportunity in which
the Company has expressed an interest as determined from time to time by the
Company's Board of Directors as evidenced by resolutions appearing in the
Company's minutes. Once such areas of interest are delineated, all such
business opportunities within such areas of interest which come to the attention
of the officers, directors, and other members of management of the Company shall
be disclosed promptly to the Company and made available to it. The Board of
Directors may reject any business opportunity presented to it, and only
thereafter may any officer, director or other member of management avail himself
of such opportunity. Until such time as the Company, through its Board of
Directors, has designated an area of interest, the officers, directors and other
members of management of the Company shall be free to engage in such area of
interest on their own, and this doctrine shall not limit the rights of any
officer, director or other member of management of the Company to continue a
business existing prior to the time that such area of interest is designated by
the Company. This provision shall not be construed to release any employee of
the Company (other than an officer, director or member of management) from any
duties which he may have to the Company.
8.04 Staggered Board of Directors. The business and affairs of the
Company shall be managed by or under the direction of the Board of Directors.
The number of directors shall be determined from time to time by resolution
adopted by the affirmative vote of at least 75% of the Continuing Directors.
(a) If so provided at the annual meeting of stockholders to be held in
1996 and subject to applicable law, the directors shall be divided into three
(3) classes, each class to be as nearly equal in number as possible. The term
of office of directors of the first class shall expire at the annual meeting of
stockholders to be held in 1997 and until their respective successors are duly
elected and qualified. The term of office of directors of the second class
shall expire at the annual meeting to be held in 1998 and until their respective
successors are duly elected and qualified. The term of office of directors of
the third class shall expire at the annual meeting of stockholders to be held in
1999 and until their respective successors are duly elected and qualified.
Subject to the foregoing, at each annual meeting of stockholders, commencing at
the annual meeting to be held in 1997, the successors to the class of directors
whose term shall then expire shall be elected to hold office for a term expiring
at the third succeeding annual meeting and until their successors shall be duly
elected and qualified. Any vacancies in the Board of Directors for any reason,
and any newly created directorships resulting from any increase in the number of
directors, may be filled only by the Board of Directors, acting by vote of 75%
of the
5
<PAGE>
directors then in office, although less than quorum, and any directors so chosen
shall hold office until the next election of the class for which such directors
shall have been chosen and until their respective successor shall be duly
elected and qualified. No decrease in the number of directors shall shorten the
term of any incumbent director. Notwithstanding the foregoing, and except as
otherwise required by law, whenever the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a class, to elect one
or more directors of the Company, the terms of the director or directors elected
by such holders shall expire at the next succeeding annual meeting of
tockholders and vacancies created with respect to any directorship of the
directors so elected may be filled in the manner specified by such Preferred
Stock.
(b) Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the Company (and notwithstanding the fact that
some lesser percentage may be specified by law, this Certificate of
Incorporation or the Bylaws of the Company), any director or the entire Board of
Directors of the Company may be removed at any time, but only for cause and only
by either (1) majority of the Continuing Directors or (2) the affirmative vote,
at a meeting of the stockholders called for that purpose, as to all stock held
by the holders of 80% or more of the outstanding Voting Stock and the
affirmative vote of the holders of at least sixty-seven percent (67%) of the
outstanding shares of Voting Stock exclusive of the Voting Stock held by an
"Interested Stockholder."
(c) Notwithstanding the foregoing, and except as otherwise required by
law, whenever the holders of any one or more series of Preferred Stock shall
have the right, voting separately as a class, to elect one or more directors of
the Company, the provision of Section (b) shall not apply with respect to the
director or directors elected by such holders of Preferred Stock.
(d) For purposes of this Article VIII, the terms "Continuing
Directors" and "Voting Stock" shall have the same meanings as contained in
Article XIII of this Certificate of Incorporation.
(e) Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the Company (and notwithstanding the fact that
some lesser percentage may be specified by law, this Certificate of
Incorporation or the Bylaws of the Company), this Article VIII shall not be
amended, altered, changed or repealed without:
(1) The affirmative vote of 75% of the Continuing Directors,
and
(2) The affirmative vote as to all stock held by the holders of
80% or more of the outstanding Voting Stock and the affirmative vote of the
holders of at least sixty-seven percent (67%) of the outstanding shares of
Voting Stock exclusive of the Voting Stock held by an Interested Stockholder.
ARTICLE IX
STOCKHOLDERS
9.01 Definition. Whenever the term "total voting power" appears in
this Certificate of Incorporation, it shall mean all shares of the Company
entitled to vote on the question presented, and of every class or series of
shares entitled to vote by class or series. Whenever the term "voting power
present" appears in this Certificate of Incorporation, it shall mean that
portion of the total voting power (if less than 100%) which is present at a
legal meeting of the Company's stockholders, duly called and held, at which a
quorum is present.
6
<PAGE>
9.02 Quorum. One-third (1/3) of the total voting power, or where a
separate vote by class or series is required, one-third (1/3) of the shares of
each such class or series, represented in person or by proxy, shall constitute a
quorum at any meeting of the Company's stockholders.
9.03 Vote Required. Any action to be taken by the Company's
stockholders may be taken by a majority of the voting power present, in person
or by proxy, except where this Certificate of Incorporation or the Company's
Bylaws then in effect require a higher proportion of the voting power present, a
proportion of the total voting power, or both. Nothing contained in this
Article shall affect the voting rights of holders of any class or series of
shares entitled to vote as a class or by series.
9.04 Manner of Voting. The vote of stockholders may be taken at a
meeting by a show of hands or other method authorized by the Board of Directors.
Written ballots shall be used only upon authorization of the Board of Directors
or as provided in the Company's Bylaws.
9.05 Action Without Meeting. Notwithstanding any other provision of
this Certificate of Incorporation, any action by the stockholders may be taken
by written consent in lieu of a meeting, without prior notice or vote, of the
holders of that portion of the total voting power necessary to authorize such
action. The manner of obtaining any such written consent shall be governed by
the Company's Bylaws.
ARTICLE X
BYLAWS
The initial Bylaws of the Company shall be adopted by its Board of
Directors. The power to alter, amend or repeal the Bylaws or adopt new Bylaws
shall be vested in the Board of Directors, subject to the right of the
stockholders to alter, amend or repeal such Bylaws or adopt new Bylaws by the
affirmative vote of at least two-thirds (2/3) of the total voting power. The
Bylaws may contain any provisions for the regulation and management of the
affairs of the Company not inconsistent with law or this Certificate of
Incorporation.
ARTICLE XI
COMPROMISE AND REORGANIZATION
Whenever a compromise or arrangement is proposed between the Company and
its creditors or any class of them and/or between the Company and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the Company or
of any creditor or stockholder thereof or on the application of any receiver or
receivers appointed for the Company under Section 291 of the General Corporation
Law of Delaware or on the application of trustees in dissolution or of any
receiver or receivers appointed for the Company under Section 279 of the General
Corporation Law of Delaware order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the Company,
as the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing three fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Company, as the case may be, agree to any compromise or arrangement and to any
reorganization of the Company as consequence of such compromise or arrangement,
the said compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been made, be
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binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Company, as the case may be, and
also on the Company.
ARTICLE XII
INDEMNIFICATION
12.01. Actions, Suits or Proceedings Other Than by or in the Right of the
Company. The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company), by reason of the fact
that he is or was or has agreed to become a director or officer of the Company,
or is or was serving or has agreed to serve at the request of the Company as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, against costs, charges, expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company.
12.02. Actions or Suits by or in the Right of the Company. The Company
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was or has agreed to become a director or officer of the Company, or is or
was serving or has agreed to serve at the request of the Company as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, against costs, charges and expenses (including attorney's fees)
actually and reasonably incurred by him or on his behalf in connection with the
defense or settlement of such action or suit and any appeal therefrom, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of such liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such costs,
charges and expenses which the Court of Chancery or such other court shall deem
proper.
12.03. Indemnification for Costs, Charges and Expenses of Successful
Party. Notwithstanding the other provisions of this Article, to the extent that
a director or officer of the Company has been successful on the merits or
otherwise, including, without limitation, the dismissal of an action without
prejudice, in defense of any action, suit or proceeding referred to in Sections
12.01 and 12.02 of this Article, or in defense of any claim, issue or matter
therein, he shall be indemnified against all costs, charges and expenses
(including attorney's fees) actually and reasonably incurred by him or on his
behalf in connection therewith.
12.04. Determination of Right to Indemnification. Any indemnification
under Sections 12.01 and 12.02 of this Article (unless ordered by a court) shall
be paid by the Company unless a determination
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is made (i) by a disinterested majority of the Board of Directors who were not
parties to such action, suit or proceeding, or (ii) if such disinterested
majority of the Board of Directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders, that indemnification of the
director or officer is not proper in the circumstances because he has not met
the applicable standard of conduct set forth in Sections 12.01 and 12.02 of this
Article.
12.05. Advances of Costs, Charges and Expenses. Costs, charges and
expenses (including attorney's fees) incurred by a person referred to in
Sections 12.01 or 12.02 of this Article in defending a civil or criminal action,
suit or proceeding shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding; provided, however, that the
payment of such costs, charges and expenses incurred by a director or officer in
his capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer) in
advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such director or officer is not entitled to be indemnified by
the Company as authorized in this Article. Such costs, charges and expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the majority of the directors deems appropriate. The
majority of the directors may, in the manner set forth above, and upon approval
of such director, officer, employee or agent of the Company, authorize the
Company's counsel to represent such person, in any action, suit or proceeding,
whether or not the Company is a party to such action, suit or proceeding.
12.06 Procedure for Indemnification. Any indemnification under Sections
12.01, 12.02 and 12.03, or advance of costs, charges and expenses under Section
12.05 of this Article, shall be made promptly, and in any event within 60 days,
upon the written request of the director or officer. The right to
indemnification or advances as granted by this Article shall be enforceable by
the director or officer in any court of competent jurisdiction if the Company
denies such request, in whole or in part, or if no disposition thereof is made
within 60 days. Such person's costs and expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such action shall also be indemnified by the Company. It shall be a defense
to any such action (other than an action brought to enforce a claim for the
advance of costs, charges and expenses under Section 12.05 of this Article where
the required undertaking, if any, has been received by the Company) that the
claimant has not met the standard of conduct set forth in Sections 12.01 or
12.02 of this Article, but the burden of proving such defense shall be on the
Company. Neither the failure of the Company (including its Board of Directors,
its independent legal counsel and its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 12.01 or 12.02 of this Article, nor the fact that
there has been an actual determination by the Company (including its Board of
Directors, its independent legal counsel and its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
12.07 Settlement. If in any action, suit or proceeding, including any
appeal, within the scope of Sections 12.01 or 12.02 of this Article, the person
to be indemnified shall have unreasonably failed to enter into a settlement
thereof, then, notwithstanding any other provision hereof, the indemnification
obligation of the Company to such person in connection with such action, suit or
proceeding shall not exceed the total of the amount at which settlement could
have been made and the expenses by such person prior to the time such settlement
could reasonably have been effected.
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12.08 Other Rights; Continuation of Right to Indemnification. The
indemnification provided by this Article shall not be deemed exclusive of any
other rights to which any director, officer, employee or agent seeking
indemnification may be entitled under any law (common or statutory), agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
office or while employed by or acting as agent for the Company, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent, and shall inure to the benefit of the estate, heirs, executors and
administrators of such person. All rights to indemnification under this Article
shall be deemed to be a contract between the Company and each director or
officer of the Company who serves or served in such capacity at any time while
this Article is in effect. Any repeal or modification of this Article or any
repeal or modification of relevant provisions of the General Corporation Law of
Delaware or any other applicable laws shall not in any way diminish any rights
to indemnification of such director, officer, employee or agent or the
obligations of the Company arising hereunder. This Article shall be binding
upon any successor corporation to the Company, whether by way of acquisition,
merger, consolidation or otherwise.
12.09 Insurance. The Company may purchase and maintain insurance on
behalf of any person who is or was or has agreed to become a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him or on his behalf in any such capacity,
or arising out of his status as such, whether or not the Company would have the
power to indemnify him against such liability under the provisions of this
Article; provided, however, that such insurance is available on acceptable
terms, which determination shall be made by vote of a majority of the directors.
12.10 Saving Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company (i) shall nevertheless indemnify each director and officer of the
Company and (ii) may nevertheless indemnify each employee and agent of the
Company, as to any cost, charge and expense (including attorney's fees),
judgment, fine and amount paid in settlement with respect to any action, suit or
proceeding, whether civil, criminal, administrative or investigative, including
an action by or in the right of the Company, to the full extent permitted by any
applicable portion of this Article that shall not have been invalidated and to
the full extent permitted by applicable law.
12.11 Amendment. The affirmative vote of at least two-thirds (2/3) of
the total voting power shall be required to amend, repeal, or adopt any
provision inconsistent with, this Article. No amendment, termination or repeal
of this Article shall affect or impair in any way the rights of any director or
officer of the Company to indemnification under the provisions hereof with
respect to any action, suit or proceeding arising out of, or relating to, any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
12.12 Subsequent Legislation. If the General Corporation Law of
Delaware is amended after approval by the stockholders of this Article to
further expand the indemnification permitted to directors, officers, employees
or agents of the Company, then the Company shall indemnify such persons to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
ARTICLE XIII
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APPROVAL OF BUSINESS COMBINATIONS
The affirmative vote of the holders of at least eighty percent (80%) of
the outstanding shares of Voting Stock (as herein defined) and the affirmative
vote of the holders of at least sixty-seven percent (67%) of the outstanding
shares of Voting Stock exclusive of the Voting Stock held by an "Interested
Stockholder" (as herein defined) shall be required for the adoption or
authorization of any Business Combination (as herein defined), provided that
such eighty percent (80%) and sixty-seven percent (67%) voting requirements
shall not be applicable if all of the conditions specified in paragraph 13.02 of
this Article XIII are met.
13.01 Definitions. The following definitions shall apply for purposes
of this Article XIII:
(a) "Person" shall mean any individual, firm, corporation or other
entity.
(b) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934 provided, however, that the term
"registrant" as used in such definition of "Associate" shall mean the Company.
(c) "Subsidiary" shall mean any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the Company,
provided, however, that for the purposes of the definition of "Interested
Stockholder" set forth below, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Company.
(d) "Voting Stock" shall mean capital stock of the Company entitled to
vote generally in the election of directors.
(e) "Beneficial Owner" shall have the meaning set forth in Regulation
13D under the Securities Exchange Act of 1934, and includes any other person
with which such Beneficial Owner has any agreement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of Voting
Stock.
(f) "Interested Stockholder" shall mean, in respect of any Business
Combination, any person (other than the Company, any Subsidiary, any pension,
savings, or other employee benefit plan of employees of the Company or any
Subsidiary, or any one or a group of more than one Continuing Director) who or
which:
(i) is the Beneficial Owner, directly or indirectly, of ten
percent (10%) or more of the voting power of the outstanding Voting Stock; or
(ii) is an Affiliate of the Company and at any time within the
two-year period immediately prior to the date in question was the Beneficial
Owner, directly or indirectly, of ten percent (10%) or more of the voting power
of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period immediately
prior to the date in question beneficially owned by an Interested Stockholder,
if such assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering within the
meaning of the Securities
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Act of 1933 or any successor securities law.
(g) "Business Combination" shall mean any one or more of the following
transactions:
(i) Any merger or consolidation of the Company or any
Subsidiary with any Interested Stockholder or any Person (whether or not itself
an Interested Stockholder) which is, or after such merger or consolidation would
he, an Affiliate of an Interested Stockholder.
(ii) Any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or with
any Interested Stockholder, or any Affiliate of any Interested Stockholder or
any Person of substantially all the assets of the Company or any Subsidiary.
(iii) The issuance or transfer by the Company or any Subsidiary
(in one transaction or a series of transactions) of any securities of the
Company or any Subsidiary to any Interested Stockholder or any Affiliate of any
Interested Stockholder or any Person in exchange for cash, securities or other
property (or combination thereof) having an aggregate Fair Market Value of one
million dollars ($1,000,000) or more.
(iv) Any reclassification of securities (including any reverse
stock split), or recapitalization of the Company, or any merger or consolidation
of the Company with any of its Subsidiaries or any other transaction (whether or
not with or into or otherwise involving an Interested Stockholder) which has the
effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of the
Company or any Subsidiary which is directly or indirectly beneficially owned by
any Interested Stockholder or any Affiliate of any Interested Stockholder.
(h) "Continuing Director" shall mean any member of the Board of
Directors of the Company who: (i) is not an Interested Stockholder nor an
Affiliate of the Interested Stockholder and was a member of the Board of
Directors prior to the time that such Interested Stockholder became an
Interested Stockholder; or (ii) is a successor of a Continuing Director who is
not an Affiliate of the Interested Stockholder and who is recommended to succeed
a Continuing Director prior to his initial election or appointment to the
Company's Board of Directors by a two-thirds vote of the Continuing Directors
then on the Board of Directors.
(i) "Fair Market Value" shall mean:
(i) in the case of stock, the highest closing sale price of a
share of such stock during the thirty (30) day period immediately preceding the
date for which such Fair Market Value is being determined on the principal
United States securities exchange registered under the Securities Exchange Act
of 1934 or successor law on which such stock is listed, or if such stock is not
listed on any such exchange, the highest closing bid quotation with respect to a
share of such stock during the thirty (30) day period preceding the date for
which such Fair Market Value is being determined on the National Association of
Securities Dealers, Inc. Automated Quotation System or any system then in use,
or if no such quotations are available, the Fair Market Value of such stock as
determined in good faith by the Board of Directors; and
(ii) in the case of property other than cash or stock, the Fair
Market Value of such
12
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property determined by the Board of Directors in good faith for the date on
which such Fair Market Value is being determined.
13.02 Exception to 80% and 67% Vote Requirements. The eighty percent
(80%) and sixty-seven percent (67%) vote required by this Article XIII for
approval of certain Business Combinations shall not be applicable to a Business
Combination, and such Business Combination shall require only such affirmative
vote as required by law and any other provision of this Certificate of
Incorporation, if:
(a) Such Business Combination shall have been approved by a
seventy-five percent (75%) vote of the Continuing Directors, or
(b) All of the following conditions shall have been met with
respect to such Business Combination:
(i) The aggregate amount of cash and the Fair Market
Value as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of Common
Stock in such Business Combination shall be at least equal to the highest of the
following, adjusted to reflect subdivisions of stock and stock splits:
A. The highest per share price (including
brokerage commissions, transfer taxes and soliciting dealer's fees) paid by the
Interested Stockholder for the Company's Common Stock acquired by it (1) within
the two-year period immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement Date"), or (2) in the
transaction in which it became an Interested Stockholder, whichever is higher;
B. The Fair Market Value per share of the
Company's Common Stock (1) on the Announcement Date, or (2) on the date on which
the Interested Stockholder became an Interested Stockholder (the "Determination
Date"), whichever is higher; or
C. The Fair Market Value per share of the
Company's Common Stock determined pursuant to the immediately preceding
subparagraph B, multiplied by the ratio of (1) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealer's
fees) paid by the Interested Stockholder for any shares of Common Stock acquired
by it within the two-year period immediately prior to the Announcement Date, to
the (2) the Fair Market Value per share of such Common Stock on the first day in
such two-year period upon which the Interested Stockholder acquired any shares
of such Common Stock.
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(ii) The consideration to be received by holders of a particular
class of outstanding Voting Stock shall be in cash or in such form as the
holders of the Voting Stock may approve as a class.
(iii) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of consideration
other than cash to be received per share by holders of shares of any class or
series of outstanding Voting Stock, other than Common Stock, shall be at least
equal to the highest amount determined under clauses (A), (B) or (C) below.
A. The highest per share price (including any brokerage
commissions, transfer taxes, and soliciting dealers' fees) paid by or on behalf
of the Interested Stockholder for any share of such class or series of
beneficial ownership of shares of such class or series of Voting Stock (1)
within the two-year period immediately prior to the Announcement Date or (2) in
the transaction in which it became an Interested Stockholder, whichever is
higher;
B. The Fair Market Value per share of such class or
series of Voting Stock on the Announcement Date or on the Determination Date,
whichever is higher; and
C. The highest preferential amount per share to which
the holders of shares of such class or series of Voting Stock would be entitled,
if any, in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, regardless of whether the Business Combination to be
consummated constitutes such an event.
(iv) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination: (a)
there shall have been (1) no reduction in the annual rate of dividends paid on
the Common Stock (except as necessary to reflect any subdivision or split of the
Common Stock), except as approved by a seventy-five percent (75%) vote of the
Continuing Directors, and (2) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or similar transaction which has the effect of
reducing the number of outstanding shares of the Common Stock, unless the
failure to so increase such annual rate is approved by a seventy-five percent
(75%) vote of the Continuing Directors; and (b) such Interested Stockholder
shall not have become the Beneficial Owner of any newly issued shares of Voting
Stock except as part of the transaction which results in such Interested
Stockholder becoming an Interested Stockholder, and except as necessary to
reflect any subdivision or split of the Common Stock.
(v) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the benefit,
directly or indirectly (except proportionately as a stockholder), of any loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by the Company, whether in anticipation of or
in connection with a Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act or Rules) shall be mailed to stockholders of the
Company at least thirty (30) days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is required to
be mailed pursuant to such Act or subsequent provisions).
14
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13.03 Certain Determinations. The Continuing Directors, acting as a
committee, shall have the power and duty to determine for the purposes of this
Article XIII, on the basis of information known to them after reasonable
inquiry, (i) whether a person is an Interested Stockholder, (ii) the number of
shares of Voting Stock beneficially owned by any person, (iii) whether a person
is an Affiliate or Associate of another, and (iv) whether the assets which are
the subject of any Business Combination constitute substantially all the assets
of the Company or any Subsidiary, or the consideration to be received for the
issuance or transfer of securities by the Company or any Subsidiary in any
Business Combination has an aggregate Fair Market Value of one million dollars
($1,000,000) or more.
13.04 Fiduciary Obligations of Interested Stockholders. Nothing
contained in this Article XIII shall be construed to relieve any Interested
Stockholder from any fiduciary obligation imposed by law.
13.05 Amendment and Repeal. Notwithstanding any other provisions of
this Certificate of Incorporation or the Bylaws of the Company (and
notwithstanding the fact that a lesser percentage may be specified by law, this
Certificate of Incorporation or the Bylaws of the Company), the affirmative vote
of 75% of the Continuing Directors and the affirmative vote of the holders of at
least eighty percent (80%) of the outstanding shares of the Voting Stock and the
affirmative vote of the holders of at least 67% of the outstanding shares of
Voting Stock exclusive of the Voting Stock held by an Interested Stockholder
shall be required to amend, modify or repeal, or to adopt any provisions
inconsistent with this Article XIII of this Certificate of Incorporation;
provided, however, that this Article XIII may be amended, modified or repealed,
and any such new provision may be added, upon the affirmative vote of the
holders of not less than a majority of the total voting power of all outstanding
shares of the Voting Stock of the Company, if such amendment, modification,
repeal or addition shall first have been approved and recommended by a
resolution adopted by a seventy-five percent (75%) vote of the Continuing
Directors.
IN WITNESS WHEREOF, DBS Industries, Inc. has caused this Restated
Certificate of Incorporation to be signed by Fred W. Thompson, its President,
and Michael T. Schieber, its Secretary, this 28th day of May, 1997.
By:
----------------------------------------
Fred W. Thompson
President
Attest:
----------------------------------------
Michael T. Schieber
Secretary
15
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BYLAWS OF
DBS INDUSTRIES, INC.
<PAGE>
TABLE OF CONTENTS
TO THE BYLAWS
OF DBS INDUSTRIES, INC.
<TABLE>
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Page
<S> <C>
ARTICLE I - OFFICES...............................................................................................1
Section 1. Registered Office......................................................................1
Section 2. Principal Office.......................................................................1
Section 3. Other Offices..........................................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS.............................................................................1
Section 1. Place of Meetings......................................................................1
Section 2. Annual Meetings........................................................................1
Section 3. Special Meetings.......................................................................2
Section 4. Notice of Stockholders' Meetings.......................................................3
Section 5. Manner of Giving Notice; Affidavit of Notice...........................................3
Section 6. Adjourned Meetings and Notice Thereof..................................................4
Section 7. Voting at Meetings of Stockholders.....................................................4
Section 8. Record Date for Stockholder Notice.....................................................5
Section 9. Quorum.................................................................................6
Section 10. Waiver of Notice.......................................................................6
Section 11. Stockholder Action by Written Consent Without Meeting..................................6
Section 12. Proxies................................................................................7
Section 13. Voting Procedures and Inspectors of Election for Certain Corporations..................8
Section 14. List of Stockholders...................................................................9
ARTICLE III - DIRECTORS...........................................................................................9
Section 1. Powers.................................................................................9
Section 2. Number of Directors...................................................................10
Section 3. Election and Term of Office...........................................................10
Section 4. Vacancies.............................................................................11
Section 5. Removal of Directors..................................................................11
Section 6. Resignation of Director...............................................................11
Section 7. Place of Meeting......................................................................11
Section 8. Annual Meeting........................................................................12
Section 9. Special Meetings......................................................................12
Section 10. Adjournment...........................................................................12
Section 11. Notice of Adjournment.................................................................12
Section 12. Waiver of Notice......................................................................12
Section 13. Quorum and Voting.....................................................................13
Section 14. Fees and Compensation.................................................................13
Section 15. Action Without Meeting................................................................13
Section 16. Committees of Directors...............................................................13
</TABLE>
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ARTICLE IV - OFFICERS............................................................................................14
Section 1. Officers..............................................................................14
Section 2. Election..............................................................................14
Section 3. Subordinate Officers..................................................................14
Section 4. Removal and Resignation...............................................................14
Section 5. Vacancies.............................................................................15
Section 6. Chairman of the Board.................................................................15
Section 7. Chief Executive Officer...............................................................15
Section 8. President.............................................................................15
Section 9. Vice Presidents.......................................................................15
Section 10. Secretary.............................................................................16
Section 11. Assistant Secretaries.................................................................16
Section 12. Chief Financial Officer (Treasurer)...................................................16
Section 13. Assistant Financial Officers..........................................................17
Section 14. Salaries..............................................................................17
ARTICLE V - SHARES OF STOCK......................................................................................17
Section 1. Share Certificates....................................................................17
Section 2. Transfer of Shares....................................................................17
Section 3. Lost or Destroyed Certificate.........................................................18
ARTICLE VI - INDEMNIFICATION.....................................................................................18
Section 1. Indemnity of Officers, Directors, Employees and Other Agents..........................18
Section 2. Insurance.............................................................................18
Section 3. Non-Exclusivity.......................................................................18
ARTICLE VII - RECORDS AND REPORTS................................................................................19
Section 1. Maintenance and Stockholder Inspection of Corporate and
Stockholder Records...................................................................19
Section 2. Inspection by Directors...............................................................19
ARTICLE VIII - GENERAL PROVISIONS................................................................................19
Section 1. Dividends.............................................................................19
Section 2. Reserves..............................................................................20
Section 3. Annual Statement......................................................................20
ARTICLE IX - MISCELLANEOUS.......................................................................................20
Section 1. Checks, Drafts, Etc...................................................................20
Section 2. Contracts, Etc., How Executed.........................................................20
Section 3. Representation of Shares of Other Corporations........................................20
Section 4. Loans to Officers.....................................................................21
</TABLE>
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ARTICLE X - AMENDMENTS OF BYLAWS.................................................................................21
Section 1. Amendment by Stockholders.............................................................21
Section 2. Amendment by Directors................................................................21
</TABLE>
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<PAGE>
BYLAWS
OF
DBS INDUSTRIES, INC.
ARTICLE I - OFFICES
Section 1. REGISTERED OFFICE
The registered office of DBS Industries, Inc. (hereinafter called the
"Corporation") in the State of Delaware shall be in the City of Wilmington,
County of New Castle, and the name of the registered agent in charge thereof
shall be The Corporation Trust Center, at 1209 Orange Street, Wilmington,
Delaware 19801.
Section 2. PRINCIPAL OFFICE
The principal office for the transaction of the business of the
Corporation is hereby fixed and located at 100 Shoreline Highway, Suite 190A,
Mill Valley, California, 94946.
The board of directors is hereby granted full power and authority to
change said principal office from one location to another.
Section 3. OTHER OFFICES
The Corporation may also have an office or offices at such other place
or places, either within or outside of the State of Delaware, as the board may
from time to time determine or as the business of the Corporation may require.
Branch or subordinate offices may at any time be established by the board of
directors at any place or places where the Corporation is qualified to do
business.
ARTICLE II - MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS
All annual and all other meetings of stockholders shall be held at the
location designated by the board of directors pursuant to a resolution or as set
forth in a notice of the meeting, within or outside the state of Delaware. If no
such location is set forth in a resolution or in the notice of the meeting, the
meeting shall be held at the principal office of the Corporation.
Section 2. ANNUAL MEETINGS
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The annual meetings of stockholders shall be held on such date or time
as may be determined from time to time by the board of directors. At such
meetings, directors shall be elected, reports of the affairs of the Corporation
shall be considered, and any other business may be transacted which is within
the powers of the stockholders.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting business must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) or otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business of the 10th day following the
day on which such notice of the date of the annual meeting was mailed or such
public disclosure was made. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business, (c) the class and number of the shares
of the Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this Section 2.
The Chairman of the annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this Section 2, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Section 3. SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or purposes
whatsoever, may be called at any time by the President or by the board of
directors or the Chairman of the Board or by one or more stockholders holding
shares in the aggregate entitled to cast not less than ten percent (10%) of the
votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board, the President, the
Executive Vice President or the Secretary of the Corporation. The officer
receiving the request shall
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cause notice to be promptly given to the stockholders entitled to vote, in
accordance with the provisions of Sections 4 and 5 of this Article II, and the
notice shall set forth that a meeting will be held at the time requested by the
person or persons calling the meeting, not less than thirty-five (35) or more
than sixty (60) days after the receipt of the request. If the notice is not
given within twenty (20) days after receipt of the request, the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 3 shall be construed as limiting, fixing or affecting
the time when a meeting of stockholders called by action of the board of
directors may be held.
Section 4. NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise
given in accordance with Section 5 of this Article II not less than ten (10) nor
more than sixty (60) days before the date of the meeting to each stockholder
entitled to vote at the meeting. The notice shall specify the place, date and
hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called. The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
whom, at the time of the notice, the board of directors intends to present for
election.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Notice of any stockholders' meeting shall be given in writing and
either delivered personally or by first-class mail by, telegraph, facsimile or
other form of written communication, charges prepaid, sent to each stockholder
at the address of that stockholder appearing on the books of the Corporation or
given by the stockholder to the Corporation for the purpose of notice. If no
such address appears on the Corporation's books or has been so given, notice
shall be deemed to have been given if sent to that stockholder by first-class
mail, by telegraph, facsimile or other written communication to the principal
office of the Corporation, or if published at least once in a newspaper of
general circulation in the county where that office is located. Notice shall be
deemed to have been given at the time when delivered personally, deposited in
the mail, delivered to a common carrier for transmission to the recipient, or
actually transmitted by facsimile or other electronic means to the recipient by
the person giving the notice, or sent by other means of written communication.
Whenever notice is required to be given to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notice of meetings to such
person between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by First Class Mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the Corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any person shall deliver to the Corporation a written notice setting
forth his then current address, the requirement that notice be given to such
person shall be reinstated.
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An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting may be executed by the Secretary, Assistant Secretary, or
any transfer agent of the Corporation giving the notice, and filed and
maintained in the minute book of the Corporation.
Section 6. ADJOURNED MEETINGS AND NOTICE THEREOF
Any stockholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares, the holders of which are either present in person or represented by
proxy thereat, but in the absence of a quorum, no other business may be
transacted at such meeting except in the case of the withdrawal of a stockholder
from a quorum as provided in Section 9 of this Article II.
When any stockholders' meeting, either annual or special, is adjourned
to a different date, time or place, notice need not be given of the new date,
time or place if the new date, time or place is announced at the meeting before
adjournment. The board of directors may fix a new record date for the adjourned
meeting. If the meeting is adjourned for more than thirty (30) days, or if after
the adjournment a new record date is fixed for the adjourned meeting, notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting in accordance with the provisions of Sections 4
and 5 of this Article II. At any adjourned meetings the Corporation may transact
any business that might have been transacted at the regular meeting.
Section 7. VOTING AT MEETINGS OF STOCKHOLDERS
The stockholders entitled to vote at any meeting of the stockholders
shall be determined in accordance with the provisions of Section 8 of this
Article II.
Each stockholder shall, at each meeting of the stockholders, be
entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation having voting rights on the matter in question and
which shall have been held by him and registered in his name on the books of the
Corporation on the date fixed pursuant to Section 8 of these Bylaws as the
record date for the determination of stockholders entitled to notice of and to
vote at such meeting, or if no such record date shall have been so fixed, then
on the dates set forth in Section 8.
Shares of its own stock belonging to the Corporation or to another
Corporation, if a majority of the shares entitled to vote in the election of
directors in such other Corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity shall
be entitled to vote such stock. Persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the Corporation
he shall have expressly empowered the pledgee to vote thereon, in which case
only the pledgee, or his proxy, may represent such stock and vote thereon. Stock
having voting power standing of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants in common, tenants
by entirety or otherwise, or
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with respect to which two or more persons have the same fiduciary relationship,
shall be voted in accordance with the provisions of the General Corporation Law
of the State of Delaware.
Any such voting rights may be exercised by the stockholder entitled
thereto in person or by his proxy appointed by an instrument in writing,
subscribed by such stockholder or by his attorney thereunto authorized and
delivered to the Secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the Secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders all
matters, except as otherwise provided in the Certificate of Incorporation, in
these Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon, a quorum being present.
The vote at any meeting of the stockholders on any question need not be
by written ballot, unless so directed by the Chairman of the meeting; provided,
however, that any election of directors at any meeting must be conducted by
written ballot. On a vote by ballot each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and it shall state
the number of shares voted.
Except as otherwise required by the General Corporation Law for general
corporate action, or the Certificate of Incorporation of this Corporation, or
these Bylaws, the affirmative vote of the majority of shares present in person
or represented by proxy at the stockholders meeting, and entitled to vote on the
subject matter, is required.
Section 8. RECORD DATE FOR STOCKHOLDER NOTICE
For purposes of determining the stockholders entitled to notice of any
meeting or to vote, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days or less than ten (10) days before
the date of any such meeting, and in this event only stockholders of record at
the close of business on the date so fixed are entitled to notice and to vote,
notwithstanding any transfer of any shares on the books of the Corporation after
the record date, except as otherwise provided in the Delaware General
Corporation Law. If the board of directors does not so fix a record date, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the business day
next preceding the day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
For purposes of determining a record date with respect to a dividend,
distribution, allotment of any rights or to determine the stockholders entitled
to exercise any right with respect to any change, conversion or exchange of
stock, or for any other lawful action, the board of directors may fix a record
date subsequent to the date upon which the resolution fixing the date is
adopted, and which date is not more than sixty (60) days prior to the action for
which a record date is being
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established. In the event no record date is fixed, the record date for
determining stockholders for any such purpose is deemed to be the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of, or to vote at, a meeting of stockholders shall apply to any
adjournment of the meeting.
Section 9. QUORUM
One-third (1/3rd) of the total voting power, or where a separate vote
by class or series is required, one-third (1/3rd) of the shares of each such
class or series, represented in person or by proxy, shall constitute a quorum
for the transaction of business at any meeting of the Corporation's stockholders
or any adjournment thereof.
The stockholders present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum and by any greater number of shares otherwise
required to take such action by applicable law or in the Certificate of
Incorporation. In the absence of a quorum, any meeting of stockholders may be
adjourned from time to time by vote of a majority of the shares represented in
person or by proxy, or, in the absence therefrom, any officer entitled to
preside at, or to act as Secretary of, such meeting but no business may be
transacted except as hereinabove provided.
Section 10. WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
Delaware General Corporation Law or the Certificate of Incorporation or Bylaws,
a written waiver, signed by the person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice.
Attendance by a person at a meeting shall constitute a waiver of notice
of that meeting, except when the person objects to the Secretary, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters required by
law to be included in the notice of the meeting, but not so included, if that
objection is expressly made at the meeting.
Section 11. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT MEETING
Any action required to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such
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action at a meeting at which all shares entitled to vote thereon were present
and voted. If the action taken without a meeting is approved by less than
unanimous written consent, prompt notice of such action shall be given to those
stockholders who have not consented in writing.
If the Corporation has equity securities listed on the American Stock
Exchange, in accordance with the procedures contained in the American Stock
Exchange policies and rules, any corporate action to be taken by written consent
shall not be effective until, and the stockholders of the Corporation shall be
able to give or revoke written consents for, at least twenty (20) days from the
date of the commencement of a solicitation (as such term is defined in Rule
14a-l(l) promulgated under the Securities Exchange Act of 1934, as amended) of
consents, other than corporate action by written consent taken pursuant to
solicitations of not more than ten (10) persons. For purposes of this Section of
this Article II, a consent solicitation shall be deemed to have commenced when a
proxy statement or information statement containing the information required by
law is first furnished to the Corporation's stockholders.
Consents to corporate action shall be valid for a maximum of sixty (60)
days after the date of the earliest dated consent delivered to the Corporation
in the manner provided in Section 228(c) of the Delaware General Corporation
Law. Consents may be revoked by written notice (i) to the Corporation, (ii) to
the stockholder or stockholders soliciting consents or soliciting revocations in
opposition to action by consent proposed by the Corporation (the "Soliciting
Stockholders"), or (iii) to a proxy solicitor or other agent designated by the
Corporation or the Soliciting Stockholders.
Notwithstanding the foregoing, if independent counsel to the
Corporation delivers to the Corporation a written opinion stating, or a court of
competent jurisdiction determines, that this Section of this Article II, or any
portion thereof, is illegal with respect to any corporate action to be taken by
written consent for which a consent has theretofore been delivered to the
Corporation, in the manner provided in Section 228(c) of the Delaware General
Corporation Law, whether prior or subsequent to the date of the adoption of this
Section of this Article II, then this Section of this Article II, or such
portion thereof, as the case may be, shall after the date of such delivery of
such opinion or such determination be null and void and of no effect with
respect to any other corporate action to be taken by written consent.
Section 12. PROXIES
A stockholder may execute a writing authorizing another person or
persons to act for him as proxy. Execution may be accompanied by the stockholder
or his authorized officer, director, employee or agent signing such writing or
causing his signature to be affixed to such writing by any reasonable means
including, but not limited to, by facsimile signature. A stockholder may
authorize another person or persons to act for him as proxy by transmitting or
authorizing the transmission of a telegram, cablegram, or other means of
electronic transmission to the person who will be the holder of the proxy or to
a proxy solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
transmission, provided
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that any such telegram, cablegram or other means of electronic transmission must
either set forth or be submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission was
authorized by the stockholder. If it is determined that such telegram, cablegram
or other electronic transmission is valid, the inspectors, or, if there are no
inspectors, such other persons making that determination shall specify the
information upon which they relied.
Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to this section may be substituted
or used in lieu of the original writing or transmission for any and all purposes
for which the original writing or transmission could be used, provided that such
copy, facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
A validly executed proxy that does not state that it is irrevocable
shall continue in full force and effect unless (i) revoked by the person
executing it by a writing delivered to the Corporation prior to the meeting
stating that the proxy is revoked, or if in attendance at the meeting, by a
writing delivered to the Secretary of the meeting prior to the voting of the
proxy, or by a subsequent proxy executed by the same person and delivered to the
Corporation prior to the meeting or to the Secretary of the meeting prior to the
voting of the proxy; or (ii) written notice of the death or incapacity of the
maker of that proxy is received by the Corporation before the vote pursuant to
that proxy is counted; provided, however, that no proxy shall be valid after the
expiration of three (3) years from the date of the proxy, unless otherwise
provided in the proxy. A duly executed proxy shall be irrevocable if it states
that it is irrevocable and if, and only as levy as, it is coupled with an
interest sufficient in law to support an irrevocable power.
Section 13. VOTING PROCEDURES AND INSPECTORS OF ELECTION FOR CERTAIN
CORPORATIONS
If the Corporation is listed on a national securities exchange, is
authorized for quotation on an inter-dealer quotation system or has shares held
of record by more than 2,000 stockholders the following provisions shall apply:
(a) The Corporation shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of stockholders, the person presiding
at the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (ii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the
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performance of the duties of the inspectors.
(c) The date and time of the opening and the closing of the polls
for each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocation
thereof or changes thereto, shall be accepted by the inspectors after the
closing of the polls unless the Delaware Court of Chancery upon application by a
stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and
ballots, the inspectors shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, any information provided in accordance
with Section 212(c)(2) of the General Corporation Law of the State of Delaware,
ballots and the regular books and records of the Corporation, except that the
inspectors may consider other reliable information for the limited purpose of
reconciling proxies and ballots submitted by or on behalf of banks, brokers,
their nominees or similar persons which represent more votes than the holder of
a proxy is authorized by the record owner to cast or more votes than the
stockholder holds of record. If the inspectors consider other reliable
information for the limited purpose permitted herein, the inspectors at the time
they make their certification pursuant to subsection (b)(v) of this section
shall specify the precise information considered by them including the person or
persons from whom they obtained the information, when the information was
obtained, the means by which the information was obtained and the basis for the
inspectors' belief that such information is accurate and reliable.
Section 14. LIST OF STOCKHOLDERS
The Secretary of the corporation shall prepare and make, at least ten
(10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
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ARTICLE III - DIRECTORS
Section 1. POWERS
Subject to limitations of the Certificate of Incorporation, or the
Bylaws, and of the Delaware General Corporation Law as to action which shall be
authorized or approved by the stockholders, by the outstanding shares or by a
less than majority vote of a class or series of preferred shares, and subject to
the duties of directors as prescribed by the Bylaws, all corporate powers shall
be exercised by or under the authority of, and the business and affairs of the
Corporation shall be controlled by, the board of directors. The board of
directors may elect a Chairman of the Board from among the members of the board
of directors.
Section 2. NUMBER OF DIRECTORS
The number of directors of the Corporation which shall constitute the
whole board of directors shall be not less than one (1) nor more than nine (9)
with the exact number as the board shall from time to time fix by resolution
adopted by the affirmative vote of at least 75% of the continuing directors.
Directors need not be stockholders. Each of the directors of the Corporation
shall hold office until his successor shall have been duly qualified or until he
shall resign or shall have been removed in the manner hereinafter provided.
Section 3. ELECTION AND TERM OF OFFICE
As provided in the Corporation's Certificate of Incorporations, the
Board of Directors shall be divided into three classes, each class to be as
nearly equal in number as possible.
Only persons who are nominated in accordance with the procedures set
forth in this Section 3 shall be eligible for election as Directors. Nominations
of persons for election to the Board of Directors of the Corporation may be made
at a meeting of stockholders by or at the direction of the Board of Directors or
by any stockholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the notice procedures set forth in
this Section 3. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal office of the Corporation
not less than 60 days nor more than 90 days prior to the meeting; provided,
however, that in the event that less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a Director, (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person; (iii) the class and number of shares of the
Corporation which are beneficially owned by such person and (iv) any other
information relating to such person
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that is required to be disclosed in solicitations of proxies for election of
Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including without
limitation such persons' written consent to being named in the proxy statement
as a nominee and to serving as a Director if elected); and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on the
Corporation's books, of such stockholder and (ii) the class and number of shares
of the Corporation which are beneficially owned by such stockholder. At the
request of the Board of Directors any person nominated by the Board of Directors
for election as a Director shall furnish to the Secretary of the Corporation
that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a Director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 3. The Chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the Bylaws, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 4. VACANCIES
Any vacancies in the Board of Directors for any reason, and any newly
created directorships resulting from any increase in the Board of Directors for
any reason, and any newly created directorships resulting from any increase in
the number of directors, may be filled only by the Board of Directors, acting by
vote of 75% of the directors then in office, although less than a quorum, and
any directors so chosen shall hold office until the next election of the class
for which such directors shall have been chosen and until their respective
successor shall be duly elected and qualified. No decrease in the number of
directors shall shorten the term of any incumbent director. Notwithstanding the
foregoing, and except as otherwise required by law, whenever the holders of any
one or more series of Preferred Stock shall have the right, voting separately as
a class, to elect one or more directors of the Corporation, the terms of the
director or directors elected by such holders shall expire at the next
succeeding annual meeting of stockholders and vacancies created with respect to
any directorship of the directors so elected may be filled in the manner
specified by such Preferred Stock.
Section 5. REMOVAL OF DIRECTORS
Any director or the entire board of directors may be removed only as
provided in the Certificate of Incorporation.
Section 6. RESIGNATION OF DIRECTOR
Any director may resign effective upon giving written notice to the
Corporation (to a board member or to every board member), unless the notice
specifies a later time for the effectiveness of such resignation. If the
resignation is effective at a future date, a successor may be elected to take
office when the resignation becomes effective.
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Section 7. PLACE OF MEETING
Regular meetings of the board of directors shall be held at any place
within or outside the State of Delaware which has been designated from time to
time by resolution of the board or by written consent of all members of the
board. In the absence of such designation, regular meetings shall be held at the
principal office of the Corporation. Special meetings of the board may be held
either at a place so designated or at the principal office. Members of the board
may participate in a meeting through use of a conference telephone or similar
communication equipment, so long as all members participating in such meeting
can hear one another. Participation in a meeting by means of the above-described
procedure shall constitute presence in person at such meeting.
Section 8. ANNUAL MEETING
Immediately following each annual meeting of stockholders, the board of
directors shall hold a regular meeting for the purpose of organization, election
of officers and the transaction of other business. Notice of such meeting is
hereby dispensed with.
Section 9. SPECIAL MEETINGS
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the Chairman of the Board or the President or any
two directors.
Written notice of the date, time and place of special meetings shall be
delivered personally to each director or sent to each director by first-class
mail, by telegraph, facsimile or by other form of written communication, charges
prepaid, addressed to him at his address as it appears upon the records of the
Corporation or, if it is not so shown or is not readily ascertainable, at the
place in which the meetings of directors are regularly held. The notice need not
state the purpose of the meeting. In case such notice is mailed, it shall be
deposited in the United States mail in the place in which the principal office
of the Corporation is located at least five (5) days prior to the time of the
meeting. In case such notice is delivered personally, transmitted by facsimile
or other electronic means or telegraphed, it shall be so delivered or deposited
with the telegraph company or electronically transmitted at least forty-eight
(48) hours prior to the time of the meeting. Such mailing, delivery,
telegraphing or transmitting, as above provided, shall be due, legal and
personal notice to such director.
Section 10. ADJOURNMENT
A majority of the directors present, whether or not a quorum is
present, may adjourn any directors' meeting to another time and place.
Section 11. NOTICE OF ADJOURNMENT
12
<PAGE>
If a meeting is adjourned for more than twenty-four (24) hours, notice
of any adjournment to another time or place shall be given prior to the time of
the adjourned meeting to the directors who were not present at the time of
adjournment.
Section 12. WAIVER OF NOTICE
The transactions at any meeting of the board of directors, however
called and noticed, or wherever held, shall be as valid as though such
transactions had occurred at a meeting duly held after regular call and notice
if a quorum be present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice of or consent to holding
the meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. The waiver of notice need not state the purpose for
which the meeting is or was held.
Section 13. QUORUM AND VOTING
A majority of the authorized number of directors shall be necessary to
constitute a quorum for the transaction of business, except to adjourn as
hereinabove provided. Every act or decision done or made by a majority of the
directors at a meeting duly held at which a quorum is present shall be regarded
as an act of the board of directors unless a greater number be required by law
or by the Certificate of Incorporation. However, a meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
Section 14. FEES AND COMPENSATION
Directors shall not receive any stated salary for their services as
directors, but, by resolution of the board, a fixed fee, with or without
expenses of attendance, may be allowed to directors not receiving monthly
compensation for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity, as an officer, agent, employee or otherwise, from receiving
compensation therefor.
Section 15. ACTION WITHOUT MEETING
Any action required or permitted to be taken by the board of directors
under the Delaware General Corporation Law may be taken without a meeting if all
members of the board individually or collectively consent in writing to such
action. Such consent or consents shall be filed with the minutes of the meetings
of the board.
Section 16. COMMITTEES OF DIRECTORS
The board may, by resolution passed by a majority of the whole board,
designate one or more committees, each committee to consist of one (1) or more
of the directors of the Corporation. Any
13
<PAGE>
such committee, to the extent provided in the resolution of the board and except
as otherwise limited by law, shall have and may exercise all the powers and
authority of the board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it. Any such committee shall keep written minutes of
its meetings and report the same to the board at the next regular meeting of the
board. In the absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the board to act at the meeting in the place of any such absent or
disqualified member.
ARTICLE IV - OFFICERS
Section 1. OFFICERS
The officers of the Corporation shall be chosen by the board of
directors and shall be a Chief Executive Officer and/or a President, and a
Secretary and Chief Financial Officer (Treasurer). The board of directors may
also choose a Chairman of the Board, a Chief Operating Officer, one or more
Vice-Presidents, one or more Executive Vice Presidents and one or more Assistant
Secretaries and Assistant Treasurers and such other officers with such titles
and duties as may be appointed in accordance with the provisions of Section 3 of
this Article. Any number of offices may be held by the same person.
Section 2. ELECTION
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Section 3 or Section 5 of this
Article, shall be chosen annually by the board of directors, and each shall hold
his office until he shall resign or shall be removed or otherwise disqualified
to serve or his successor shall be elected and qualified.
Section 3. SUBORDINATE OFFICERS
The board of directors may appoint such other officers as the business
of the Corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the Bylaws or as
the board of directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION
Any officer may be removed, either with or without cause, by a majority
of the directors at the time in office, at any regular or special meeting of the
board, or, except in the case of an officer chosen by the board of directors, by
any officer upon whom such power of removal may be conferred by the board of
directors.
14
<PAGE>
Any officer may resign at any time by giving written notice to the
board of directors or to the Chief Executive Officer, President or to the
Secretary of the Corporation. Any such resignation shall take effect at the date
of the receipt of such notice or any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 5. VACANCIES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
the Bylaws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD
The Chairman of the Board, if there shall be such an officer, shall, if
present, preside at all meetings of the board of directors and stockholders and
exercise and perform all such other powers and duties as may from time to time
be assigned to him by the board of directors or prescribed by the Bylaws.
Section 7. CHIEF EXECUTIVE OFFICER
The Chief Executive Officer, if there shall be such an officer, shall
be the chief executive of the Corporation, shall preside at all meetings of the
stockholders and the board of directors in the absence of a Chairman of the
Board, and shall have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the board of
directors are carried into effect. The Chief Executive Officer shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
Corporation, except when required or permitted by law to be otherwise signed and
executed and except where the signing and execution thereof shall be expressly
delegated by the board of directors to some other officer or agent of the
Corporation.
Section 8. PRESIDENT
In the event a Chief Executive Officer is not elected, or in the event
that the Chief Executive Officer elected by the board of directors is unable to
act, or refuses to act, the President, if there shall be such an officer, shall
perform the duties of the Chief Executive Officer, and when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the Chief
Executive Officer. The President shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
Section 9. VICE PRESIDENTS
In the absence or disability of the President and the Chief Executive
Officer, the Executive Vice President or Vice Presidents in order of their rank
as fixed by the board of directors or, if not
15
<PAGE>
ranked, the Executive Vice President shall perform all the duties of the
President and, when so acting, shall have all the powers of and be subject to
all the restrictions upon the President and Chief Executive Officer. Each Vice
President shall have such other powers and shall perform such other duties as
from time to time may be prescribed for him by the board of directors or the
Bylaws, and the President or the Chief Executive Officer.
Section 10. SECRETARY
The Secretary shall keep, or cause to be kept, at the principal office
of the Corporation, or such other place as the board of directors may order, a
book of minutes of all meetings of directors and stockholders, with the time and
place of holding, whether regular or special and, if special, how authorized,
the notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at stockholders' meeting and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office
or at the office of the Corporation's transfer agent, a share register or a
duplicate share register showing the names of the stockholders and their
addresses, the number and classes of shares held by each, the number and the
date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the stockholders and of the board of directors required by the
Bylaws or by law to be given, shall keep the seal of the Corporation in safe
custody and shall have such other powers and shall perform such other duties as
from time to time may be prescribed by the board of directors, the Bylaws, or
the President or Chief Executive Officer.
Section 11. ASSISTANT SECRETARIES
In the absence or disability of the Secretary, the Assistant
secretaries in order of their rank as fixed by the board of directors or, if not
ranked, the Assistant Secretary designated by the board of directors shall
perform all the duties of the Secretary and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the Secretary. Each
Assistant Secretary shall have such other powers and shall perform such other
duties as from time to time may be prescribed by the board of directors or the
Bylaws.
Section 12. CHIEF FINANCIAL OFFICER (TREASURER)
The Chief Financial Officer shall be the Treasurer. The Treasurer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
accounts of the properties and business transactions of the Corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, surplus and shares.
The Treasurer shall deposit all moneys and other valuables in the name
and to the credit of
16
<PAGE>
the Corporation with such depositories as may be designated by the board of
directors. He shall be responsible for the proper disbursement of the funds of
the Corporation as may be ordered by the board of directors or the President or
Chief Executive Officer and shall render to the President or board of directors,
whenever they request it, an account of all of his transactions as Treasurer and
of the financial condition of the Corporation. The Treasurer shall prepare a
proper annual budget of income and expenses for each calendar year, revised
quarterly, for approval of or revision by the board of directors and shall be
responsible for the handling of finances in connection therewith. He shall have
such other powers and shall perform such other duties as may be prescribed by
the board of directors and the President or Chief Executive Officer. He shall
see that all officers signing checks are bonded in such amounts as may be fixed
from time to time by the board of directors.
Section 13. ASSISTANT FINANCIAL OFFICERS
In the absence of or disability of the Treasurer, the assistant
financial officers in order of their rank or, if not ranked, the assistant
financial officer designated by the board of directors shall perform all the
duties of the Treasurer and, when so acting, shall have the powers of and be
subject to all the restrictions upon the Treasurer. Each assistant financial
officer shall have such other powers and perform such other duties as from time
to time may be prescribed for him by the board of directors or the Bylaws and
the President or Chief Executive Officer.
Section 14. SALARIES
Salaries of officers and other stockholders employed by the Corporation
shall be fixed periodically by the board of directors or established under
agreement with the officers or stockholders approved by the board of directors.
No officer shall be prevented from receiving this salary because he is also a
director of the Corporation.
ARTICLE V - SHARES OF STOCK
Section 1. SHARE CERTIFICATES
The certificates of shares of the capital stock of the Corporation
shall be in such form consistent with the Certificate of Incorporation and the
laws of the State of Delaware as shall be approved by the board of directors. A
certificate or certificates for shares of the capital stock of the Corporation
shall be issued to each stockholder when any of these shares are fully paid, and
the board of directors may authorize the issuance of certificates or shares as
partly paid provided that these certificates shall state the amount of the
consideration to be paid for them and the amount paid. All such certificates
shall be signed by the Chairman of the Board or the President or a Vice
President, and by the Treasurer or an assistant financial officer or the
Secretary or any Assistant Secretary, certifying the number of shares and the
class or series of shares owned by the stockholder. Any or all of the signatures
on the certificate may be by facsimile.
17
<PAGE>
Section 2. TRANSFER OF SHARES
Subject to the provisions of law, upon the surrender to the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 3. LOST OR DESTROYED CERTIFICATE
The holder of any shares of stock of the Corporation shall immediately
notify the Corporation of any loss or destruction of the certificate therefor,
and the Corporation may issue a new certificate in the place of any certificate
theretofore issued by it alleged to have been lost or destroyed, upon approval
of the board of directors. The board may, in its discretion, as a condition to
authorizing the issue of such new certificate, require the owner of the lost or
destroyed certificate, or his legal representative, to make proof satisfactory
to the board of directors of the loss or destruction thereof and to give the
Corporation a bond or other security, in such amount and with such surety or
sureties as the board of directors may determine, as indemnity against any claim
that may be made against the Corporation on account of any such certificate so
alleged to have been lost or destroyed.
ARTICLE VI - INDEMNIFICATION
Section 1. INDEMNITY OF OFFICERS, DIRECTORS, EMPLOYEES AND OTHER AGENTS
The Corporation shall have power to indemnify each of its agents as
provided in the Corporation's Certificate of Incorporation. For purposes of this
Article, an "agent" of the Corporation includes any person who is or was a
director, officer, employee or other agent of the Corporation; or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise; or was a director, officer, employee or agent of a corporation which
was a predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation.
Section 2. INSURANCE
Upon resolution passed by the board, the Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or as a member of any
committee or similar body against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article or applicable law.
18
<PAGE>
Section 3. NON-EXCLUSIVITY
The right of indemnity and advancement of expenses provided herein
shall not be deemed exclusive of any other rights to which any person seeking
indemnification or advancement of expenses from the Corporation may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office. Any agreement for indemnification of
or advancement of expenses to any director, officer, employee or other person
may provide rights of indemnification or advancement of expenses which are
broader or otherwise different from those set forth herein.
ARTICLE VII - RECORDS AND REPORTS
Section 1. MAINTENANCE AND STOCKHOLDER INSPECTION OF CORPORATE AND
STOCKHOLDER RECORDS
The accounting books and records and minutes of proceedings of the
stockholders and the board of directors and any committee or committees of the
board of directors shall be kept at such place or places designated by the board
of directors, or, in the absence of such designation, at the principal executive
office of the Corporation. The minutes shall be kept in written form, and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form. The Corporation's stock
ledger, a list of its stockholders, and its other books and records shall be
open to inspection and to make copies or extracts therefrom, upon the written
demand of any stockholder of record or holder of a voting trust certificate,
under oath stating the purpose thereof at any reasonable time during usual
business hours. The inspection may be made in person or by an agent or attorney
and shall include the right to copy and make extracts. If the inspection is made
by an agent or attorney, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the stockholder at its principal office. Where the
stockholder seeks to inspect the Corporation's books and records other than its
stock ledger or list of stockholders, he shall first establish that (1) he has
complied with this section respecting the form and manner of making demand for
inspection of such documents, and (2) that the inspection he seeks is for a
proper purpose. The demand under oath shall be directed to the Corporation at
its registered office in Delaware or at its principal place of business.
Section 2. INSPECTION BY DIRECTORS
Any director shall have the right to examine during usual business
hours, the Corporation's stock ledger, a list of its stockholders and its other
books and records for a purpose reasonably related to his position as a
director.
ARTICLE VIII - GENERAL PROVISIONS
19
<PAGE>
Section 1. DIVIDENDS
Dividends upon the capital stock of the Corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
board of directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the Certificate of Incorporation.
Section 2. RESERVES
Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the board of
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the board of directors may modify or abolish any such reserve
in the manner in which it was created.
Section 3. ANNUAL STATEMENT
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the Corporation.
ARTICLE IX - MISCELLANEOUS
Section 1. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness, issued in the name of or payable to the Corporation,
shall be signed or endorsed by such person or persons and in such manner as from
time to time shall be determined by resolution of the board of directors.
Section 2. CONTRACTS, ETC., HOW EXECUTED
The board of directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances;
and, unless so authorized by the board of directors, no officer, agent or
employee shall have any power or authority to bind the Corporation by any
contract or engagement or to pledge its credit to render it liable for any
purpose or to any amount.
Section 3. REPRESENTATION OF SHARES OF OTHER CORPORATIONS
20
<PAGE>
The President or Chief Executive Officer or, in the event of his
absence or inability to serve, any Vice President and the Secretary or Assistant
Secretary of this Corporation are authorized to vote, represent and exercise, on
behalf of this Corporation, all rights incidental to any and all shares of any
other corporation standing in the name of this Corporation. The authority herein
granted to said officers to vote or represent on behalf of this Corporation any
and all shares held by this Corporation in any other corporation may be
exercised either by such officers in person or by any person authorized to do so
by proxy or power of attorney duly executed by said officers.
Section 4. LOANS TO OFFICERS
The board of directors alone is authorized to approve any loan or
guaranty to an officer of the Corporation, whether or not a director, or an
employee benefit plan authorizing such a loan or guaranty to an officer, by a
vote sufficient without counting the vote of any interested director or
directors if the board determines that such a loan or guaranty or plan may
reasonably be expected to benefit the Corporation.
ARTICLE X - AMENDMENTS OF BYLAWS
Section 1. AMENDMENT BY STOCKHOLDERS
New Bylaws may be adopted or these Bylaws may be amended or repealed by
the vote or written consent of at least two-thirds (2/3rds) of the total voting
power of the Corporation, except as otherwise provided by the Certificate of
Incorporation.
Section 2. AMENDMENT BY DIRECTORS
Subject to the rights of the stockholders as provided in Section 1 of
this Article X, Bylaws may be adopted, amended, or repealed by the board of
directors if such power is conferred upon the directors in the Certificate of
Incorporation.
21
<PAGE>
CERTIFICATION OF ADOPTION OF BYLAWS
I, Michael T. Schieber, hereby certify that:
1. I am the Secretary of DBS Industries, Inc., a Delaware
corporation (the "Corporation"); and
2. The foregoing Bylaws, consisting of twenty-one (21) pages, are
a true and correct copy of the Bylaws of the Corporation as duly adopted by
approval of the Board of Directors of the Corporation by Unanimous Written
Consent effective February __, 1999.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Corporation this ___ day of February, 1999.
-----------------------------------------
Michael T. Schieber, Secretary
22
<PAGE>
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF
DBS INDUSTRIES, INC.
A DELAWARE CORPORATION
DBS INDUSTRIES, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That, at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of the Corporation, declaring said amendment to be
advisable and submitting the matter to the vote of the stockholders of the
Corporation. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that Section 5.01 of DBS Industries, Inc.'s Certificate of
Incorporation is amended to read as follows:
The aggregate number of shares which the Company shall have authority
to issue is Fifty-Five Million (55,000,000). Fifty Million (50,000,000)
shares shall be designated "Common Stock" and shall have a par value of
$0.0004. Five Million (5,000,000) shares shall be designated "Preferred
Stock" and shall have a par value of $0.0004. All shares of the Company
shall be issued for such consideration, expressed in dollars, as the
Board of Directors, may, from time to time, determine.
SECOND: That the stockholders of the Corporation holding a majority of
the voting power of the Corporation, by written consent in accordance with
Section 228 of the General Corporation Law of Delaware, voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
-1-
<PAGE>
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by its authorized officer this ___ day of April, 1999.
DBS INDUSTRIES, INC.,
a Delaware Corporation
By:
---------------------------------
Fred Thompson, President
Attest:
---------------------------------
Michael T. Schieber, Secretary
-2-
<PAGE>
EXHIBIT 10.46
AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN
DBS INDUSTRIES, INC.
AND
FRED W. THOMPSON
Pursuant to the Employment Agreement (the "Agreement") dated April 18,
1996, by and between DBS Industries, Inc., a Delaware corporation (the
"Company") and Fred W. Thompson (the "Employee") collectively the "parties", the
terms and conditions are hereby amended as follows:
Article I, Section 1.1. EMPLOYMENT AND TERM: The Agreement is for a term of
five years effective July 1, 1999.
Article III, Section 3.1. ANNUAL BASE SALARY: The Company shall pay Employee
salary for the services to be rendered by him during the term of the Agreement
at the rate of two hundred fifty thousand dollars ($250,000) annually (prorated
for any portion of a year).
Article III, Section 3.3. STOCK OPTIONS: Employee shall be granted stock options
to purchase an additional one million (1,000,000) shares of DBSI's common stock
at a discounted exercise price of $1.3496 per share, as approved by the Board of
Directors on September 1, 1999. The options are subject to vesting; 250,000 of
which will vest immediately on September 1, 1999, and the remainder shall vest
as follows:
<TABLE>
<S> <C>
January 1, 2000 250,000
January 1, 2001 250,000
January 1, 2002 250,000
</TABLE>
The Stock Options are subject to (a) the terms and conditions set forth herein
and in the Stock Option Agreement attached hereto as Exhibit A, and (b)
Employee's execution of the Stock Option Agreement and all other documents
customarily required by the Company to effect the grant of stock options.
Article IV, Section 4.3. TERMINATION WITHOUT CAUSE: If Employee is terminated
without cause, the Employee shall continue to be paid an amount equal to his
then monthly base salary for the duration of his employment term as stated in
Article I, Section 1.1. above. If Employee is terminated without cause, he shall
be entitled to full vesting of all options granted by this Amendment.
<PAGE>
All other terms and conditions of the Employment Agreement shall remain as found
in the original Agreement dated April 18, 1996, except for revisions approved by
Board action.
IN WITNESS WHEREOF, the Parties have executed and delivered this
Agreement as of this 1st day of September, 1999.
EMPLOYER: DBS INDUSTRIES, INC.
BY:
---------------------------
MICHAEL T. SCHIEBER, SECRETARY
EMPLOYEE: BY:
---------------------------
FRED W. THOMPSON
<PAGE>
EXHIBIT 10.47
AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN
DBS INDUSTRIES, INC.
AND
GREGORY T. LEGER
Pursuant to the Employment Agreement (the "Agreement") dated March 1,
1998, by and between DBS Industries, Inc., a Delaware corporation (the
"Company") and Gregory T. Leger (the "Employee") collectively the "parties," the
terms and conditions are hereby amended as follows:
Article I, Section 1.1. EMPLOYMENT AND TERM: The term of this Agreement is
extended to July 1, 2002, effective July 1, 1999.
Article II, Section 2.4. LOCATION. Employee shall receive as a housing allowance
a lump sum payment of US$36,000 in lieu of housing differential. This housing
allowance is to assist Employee for a period of two (2) years from September 1,
1999 or until the termination of his current housing lease agreement, whichever
is later.
Employee shall receive a one-time car allowance of US$15,000 and will be
responsible for all future vehicle needs and any costs associated thereto as of
September 1, 1999.
Article III, Section 3.1. ANNUAL BASE SALARY: The Company shall pay Employee
salary for the services to be rendered by him during the term of the Agreement
at the rate of one hundred thirty-two thousand U.S. dollars ($132,000) annually
(prorated for any portion of a year).
Article III, Section 3.3. STOCK OPTIONS: Employee shall be granted stock options
to purchase an additional one hundred twenty-five thousand (125,000) shares of
DBSI's common stock at a discounted exercise price of $1.3496 per share as
approved by the Board of Directors on September 1, 1999. Stock options in the
amount of 31,250 shall vest immediately on September 1, 1999, and the remaining
93,750 DBSI shares shall vest as follows:
<TABLE>
<CAPTION>
VESTING DATE NUMBER OF VESTED SHARES
<S> <C>
July 1, 2000 31,250
July 1, 2001 31,250
July 1, 2002 31,250
</TABLE>
The DBSI Shares to be delivered to Employee will be subject to (a) the terms and
conditions set forth herein and in the Stock Option Agreement attached hereto as
EXHIBIT A, and (b) Employee's execution of the Stock Option Agreement and all
other documents customarily required by the Company to effect the grant of stock
options.
All other terms and conditions of the Employment Agreement shall remain as found
in the original Agreement dated March 1, 1998, except for revisions previously
approved by Board action.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement as of
this 1ST day of September, 1999.
EMPLOYER: DBS INDUSTRIES, INC.
BY:
--------------------------
FREDERICK R. SKILLMAN, JR.
VICE PRESIDENT-CHIEF OF STAFF
EMPLOYEE: BY:
--------------------------
GREGORY T. LEGER
<PAGE>
EXHIBIT 10.48
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated this 28th day of
July, 1999 is entered into by and between DBS Industries, Inc., a Delaware
corporation (the "Company") and Frederick R. Skillman, Jr. ("Employee"), in
consideration of the mutual promises and conditions made herein.
ARTICLE I
EMPLOYMENT AND TERM OF EMPLOYMENT
1.1. EMPLOYMENT AND TERM. The Company hereby employs Employee to render
full-time services to the Company on an exclusive basis, upon the terms and
conditions set forth below, from the date of this Agreement until the employment
relationship is terminated in accordance with the provisions of this Agreement.
This Agreement is for a term one (1) year (the "Stated Term") effective August
1, 1999, unless terminated earlier as provided for herein (the "Employment
Term").
1.2. ACCEPTANCE. Employee hereby accepts employment with the Company
and agrees to devote his full-time attention and best efforts exclusively to
rendering the services described below. The Employee shall accept and follow the
direction and authority of the Company's Chief Executive Officer in the
performance of his duties, and shall comply with all existing and future
regulations applicable to employees of the Company and to the Company's
business.
ARTICLE II
DUTIES OF EMPLOYEE
2.1. GENERAL DUTIES. Employee shall serve as the Vice President Chief
of Staff of the Company. In his capacity as Vice President Chief of Staff,
Employee shall do and perform all services, acts, or other things necessary or
advisable to manage and conduct the business of the Company, including, but not
limited to, the supervision, direction and control of the business and other
employees of the Company, subject to the policies and direction of the Board of
Directors (the "Board") and the President. Employee shall have all powers,
duties and responsibilities necessary to carry out his duties, and such other
powers and duties as the Board and President may prescribe.
2.2. EXCLUSIVE SERVICES. It is understood and agreed that Employee may
not engage in any other business activity during the term of his employment
hereunder, whether or not for profit or other remuneration, without the prior
written consent of the Company. Further, Employee shall not directly or
indirectly acquire any stock or interest in any corporation, partnership, or
other business entity that competes, directly or indirectly, with the business
of the Company.
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2.3. REPORTING OBLIGATIONS. In connection with the performance of his
duties hereunder, unless otherwise instructed by the Company's Board, the
Employee shall report directly to the company's President and Chief Executive
Officer of the Company.
ARTICLE III
COMPENSATION AND BENEFITS OF EMPLOYEE
3.1. ANNUAL BASE SALARY. The Company shall pay Employee salary for the
services to be rendered by him during the term of this Agreement at the rate of
one hundred thirty-five thousand dollars ($135,000) annually (prorated for any
portion of a year), subject to increases, if any, as the Compensation Committee
of the Board may determine in its sole discretion after annual review of the
Employee's performance of his duties hereunder. Such base salary shall be
payable in periodic installments in accordance with the terms of the Company's
regular payroll practices in effect from time to time during the term of this
Agreement, but in no event less frequently than once each month.
3.2. BONUSES. In addition to the base salary and other benefits
provided to Employee hereunder, Employee is eligible to receive bonuses based on
Company performance and Employee's attainment of objectives established by the
Compensation Committee of the Board annually. The Employee's total annual
compensation (exclusive of any stock options issued pursuant to Section 3.3)
shall not exceed three hundred percent (300%) of his annual base salary in any
given fiscal year.
3.3. INCENTIVE BONUS. Employee shall receive a bonus of twenty-seven
thousand dollars ($27,000), thirteen thousand five hundred dollars ($13,500) to
be paid in cash upon execution of this Agreement, and thirteen thousand five
hundred dollars ($13,500) to be paid in cash 90 days from the effective date of
this Agreement following Employee's attainment of certain objectives established
by the President and Chief Executive Officer.
3.4. STOCK OPTIONS. Employee shall be granted stock options to purchase
150,000 shares of DBSI's common stock at an exercise price determined by the
closing price of DBSI stock on July 30, 1999. The options are subject to
vesting, 75,000 of which shall vest immediately upon the execution of this
Agreement, and the remainder shall vest at the end of the Employment Term on
July 31, 2000. In addition, the stock options are subject to (a) further terms
and conditions set forth herein and in Stock Option Agreement attached hereto as
Exhibit A and (b) the Employee's execution of the Stock Option Agreement and all
documents customarily required by the Company to effect the grant of the
options.
In connection with the Company's intention to file a registration
statement to register shares of its common stock for an employee benefit plan on
Form S-8, the Company shall also use its best efforts to register the common
stock underlying the stock options granted to Employee pursuant to this Section
3.4.
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3.5. EXPENSES. The Company shall pay or reimburse Employee for all
reasonable, ordinary and necessary business expenses actually incurred or paid
by the Employee in the performance of Employee's services under this Agreement
in accordance with the expense reimbursement policies of the Company in effect
from time to time during the Employment Term, upon presentation of proper
expense statements or vouchers or such other written supporting documents as the
Company may reasonably require.
3.6. VACATION. Employee shall be entitled to six (6) weeks paid
vacation for each calendar year (prorated for any portion of a year, as
applicable), such vacation to accrue at the rate of twenty (20) hours per month.
Notwithstanding anything to the contrary in this Agreement, vacation time shall
cease to accrue beyond eight (8) weeks at any given time during the Employment
Term.
3.7. GENERAL EMPLOYMENT BENEFITS. Except where expressly provided for
herein, Employee shall be entitled to participate in, and to receive the
benefits under, any pension, health, life, accident and disability insurance
plans or programs and any other employee benefit or fringe benefit plans that
the Company makes available generally to its employees, as the same may be in
effect from time to time during the Employment Term.
3.8. INDEMNIFICATION. The Company shall indemnify and hold Employee
harmless for any actions taken or decisions made by him in good faith while
performing services in his capacity as Vice President Chief of Staff of the
Company during the Employment term. The Company agrees to indemnify and hold
Employee harmless to the extent provided in an indemnification agreement
attached hereto as Exhibit B and incorporated herein by reference.
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1. TERMINATION. This Agreement may be terminated earlier as provided
for in this Article IV, or extended by further written agreement of the parties.
4.2. TERMINATION FOR CAUSE. The Company reserves the right to terminate
this Agreement for cause upon: (a) Employee's willful and continued failure to
substantially perform his duties with the Company (other than such failure
resulting from his incapacity due to physical or mental illness); (b) Employee's
willful engagement in gross misconduct as determined by the Board which is
materially and demonstrably injurious to the Company; or (c ) Employee's
commission of a felony or an act of fraud against the Company or its affiliates.
Upon termination for cause, Employee shall not be entitled to any
severance benefits and all options which have not vested shall be cancelled.
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4.3. TERMINATION WITHOUT CAUSE. Notwithstanding anything to the
contrary in this Agreement, the Company reserves the right to terminate this
Agreement at any time without cause subject to the express terms and provisions
below.
If Employee is terminated without cause, the Company agrees to pay
Employee upon termination the lump sum amount equal to his then base salary of
one year (less tax and other deductions required by law) so long as Employee
does not compete with the Company (in the manner described below) and complies
with the provisions of Article V.
If Employee is terminated without cause, Employee shall be entitled to
full vesting of all options granted pursuant to this Agreement. The options must
be exercised within ten years after the date of such termination or such lesser
period specified in the option agreement (but in no event after the expiration
date of option).
It is expressly intended by the parties that if the "does not compete"
provision of this Section 4.3 of the Agreement is found to be unenforceable, the
Company's obligation to pay Employee's remaining salary is conditioned upon
compliance with the provisions of Article V.
For the purposes of this Agreement, the phrase "compete with the
Company," or the substantial equivalent thereof, means that Employee, either
alone or as a partner, member, director, employee, shareholder or agent of any
other business, or in any other individual or representative capacity, directly
or indirectly owns, manages, operates, controls, or participates in the
ownership, management, operation or control of, or works for or provides
consulting services to, or permits the use of his name by, or lends money to,
any business or activity which is or which becomes, at the time of the acts or
conduct in question, directly or indirectly competitive with the business of the
Company.
4.4. VOLUNTARY TERMINATION BY EMPLOYEE. Notwithstanding anything to the
contrary in this Agreement, Employee may terminate this Agreement at any time
upon sixty (60) days written notice to the Company.
If Employee voluntarily terminates employment, Employee shall not be
entitled to any severance benefits and all options which have not vested shall
be cancelled.
4.5. DISABILITY. If Employee becomes permanently and totally disabled,
this Agreement shall be terminated. Employee shall be deemed permanently and
totally disabled if he is unable to engage in the activities required by this
Agreement by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 3 months. Upon termination due
to disability, any further compensation and effect on any unvested options will
be treated as terminated without cause pursuant to Section 4.3.
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4.6. DEATH. If Employee dies during the term of this Agreement, this
Agreement shall be terminated on the last day of the calendar month of his death
subject to the express terms and provisions below.
Upon death all unvested options shall be vested as of the date of death
and may be exercised by the designated beneficiary, as provided in Section 6.8
below, the estate or Employee's personal representative in whole or in part at
any time within ten (10) years after the date of death or such lesser period
specified in the option agreement (in no event after the expiration date of
option).
Company shall provide Employee with life insurance, at Company's
expense, in an amount equal to two times the Employee's annual salary.
4.7. EFFECT OF TERMINATION. Except as expressly provided for in this
Agreement, the termination of employment shall not excuse any obligation that
accrued prior to termination, nor shall termination excuse the performance of
any obligation which is required or to be performed after termination. Any such
obligation shall survive the termination of employment and this Agreement.
ARTICLE V
COVENANTS AND REPRESENTATIONS OF EMPLOYEE
5.1. UNFAIR COMPETITION. Employee acknowledges that he will have access
at the highest level to, and the opportunity to acquire knowledge of, the
Company's customer lists, customer needs, business plans, trade secrets and
other confidential and proprietary information from which the Company may derive
economic or competitive advantage, and that he is entering into the covenants
and representations in this Article V in order to preserve the goodwill and
going concern value of the Company, and to induce the Company to enter into this
Agreement. Employee agrees not to engage in any unfair competition with
Employer.
5.2. CONFIDENTIAL INFORMATION. During the Employment Term and at all
times thereafter, the Employee agrees to keep secret and to retain in the
strictest confidence all confidential matters which relate to the Company or any
of its "affiliates" (as that term is defined in the Exchange Act, of 1934, as
amended ("the Exchange Act"), including, without limitation, customer lists,
client lists, trade secrets, pricing lists, business plans, financial
projections and reports, business strategies, internal operating procedures, and
other confidential business information from which the Company derives an
economic or competitive advantage, or from which the Company might derive such
advantage in its business, whether or not labeled "secret" or "confidential,"
and not to disclose any such information to anyone outside of the Company,
whether during or after the Employment Term, except as required in connection
with performing the services to the Company.
5.3. NON-SOLICITATION OF CUSTOMERS. During the Employment Term,
Employee will have access to confidential records and data pertaining to the
Company's customers,
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<PAGE>
their needs, and the relationship between the Company and its customers. Such
information is considered secret and is disclosed during the Employment Term in
confidence. Accordingly, during the Employment Term, Employee and any entity
controlled by him or with which he is associated (as the terms "control" and
"associate" are defined in the Exchange Act) shall not, directly or indirectly
(i) solicit for a competitive purpose, interfere with, induce or entice away any
person or entity that is or was a client, customer or agent of the Company or
its affiliates (as the term "affiliate" is defined in the Exchange. Act), or
(ii) in any manner persuade or attempt to persuade any such person or entity (A)
to discontinue its business relationship with the Company or its affiliates, or
(B) to enter into a business relationship with any other entity or person the
loss of which Employee should reasonably anticipate would be detrimental to the
Company or its affiliates in any respect.
5.4. NON-SOLICITATION OF OTHER EMPLOYEES. Employee and any entity
controlled by him or with which he is, associated (as the terms "control" and
"associate" are defined in the Exchange Act) shall not, during the Employment
Term, directly or indirectly solicit, interfere with, offer to hire or induce
any person who is or was an officer or employee of the Company or any affiliate
(as the term "affiliate" is defined in the Exchange Act) to discontinue his or
her relationship with the Company or an affiliate of the Company, in order to
accept employment by, or enter into a business relationship with, any other
entity or person. These acts are hereinafter referred to as the "prohibited acts
of solicitation."
5.5. RETURN OF PROPERTY. Upon termination of employment, and at the
request of the Company otherwise, the Employee agrees to promptly deliver to the
Company all Company or affiliate memoranda, notes, records, reports, manuals,
drawings, designs, computer files in any media, and other documents (including
extracts and copies thereof) relating to the Company or its affiliate, and all
other property of the Company.
5.6. INVENTIONS. All processes, inventions, patents, copyrights,
trademarks, and other intangible rights that may be conceived or developed by
the Employee, either alone or with others, during the Employment Term, whether
or not conceived or developed during Employee's working hours, and with respect
to which the equipment, supplies, facilities or trade secret information of the
Company was used, or that relate at the time of conception or reduction to
practice of the invention to the business of the Company or to the Company's
actual or demonstrably anticipated research or development, or that result from
any work performed by Employee for the Company, shall be the sole property of
the Employer. Employee shall disclose to the Company all inventions or ideas
conceived during the Employment Term, whether or not the property of Employer
under the terms of this provision, provided that such disclosure shall be
received by the Company in confidence. Employee shall execute all documents,
including patent applications and assignments, required by the Company to
establish the Company's rights under this provision.
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5.7. REPRESENTATIONS. The Employee represents and warrants to the
Company that he has full power to enter into this Agreement and perform his
duties hereunder, and that his execution and delivery of this Agreement and the
performance of his duties shall not result in a breach of, or constitute a
default under, any agreement or understanding, whether oral or written,
including, without limitation, any restrictive covenant or confidentiality
agreement, to which he is a party or by which he may be bound.
5.8. NON-PAYMENT UPON NON-COMPLIANCE. Should Employee breach any one of
the covenants set forth in this Article V, the Company shall have no obligation
to make the payments or to provide Employee the benefits described in sections
4.3 or 4.4 above, as applicable, in addition to all other rights and remedies
the Company may have available at law or in equity. The Company shall provide
written notice to Employee, ten (10) days prior to an expected payment, of the
breach of a covenant and the ensuing nonpayment thereof; provided, however, that
if the Company learns of the breach without sufficient time to provide ten (10)
days notice, the Company shall provide written notice as SOON thereafter as
practicable.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1. NOTICES. All notices to be given by either party to the other
shall be in writing and may be transmitted by personal delivery, facsimile
transmission, overnight courier or mail, registered or certified, postage
prepaid with return receipt requested; PROVIDED, HOWEVER, that notices of change
of address or telex or facsimile number shall be effective only upon actual
receipt by the other party. Notices shall be delivered at the following
addresses, unless changed as provided for herein.
To the Employee:
Frederick R. Skillman, Jr.
2093 Robb Road
Walnut Creek, California 94596
To the Company:
DBS Industries, Inc.
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
6.2. NO ASSIGNMENT. This Agreement, and the rights and obligations of
the parties, may not be assigned by either party without the prior written
consent of the other party.
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6.3. APPLICABLE LAW. This Agreement and the relationships of the
parties in connection with the subject matter of this Agreement shall be
governed by, and construed under, the laws of the State of California.
6.4. ENTIRE AGREEMENT. This Agreement and the Exhibits to this
Agreement supersede any and all other agreements or understandings of the
parties, either oral or written, with respect to this employment of Employee by
the Company, and contains the complete and final agreement and understanding of
the parties with respect thereto. Employee acknowledges that no representation,
inducements, promises, or agreements, oral or otherwise, have been made by the
Company or any of its officers, directors, employees or agents, which are not
expressed herein, and that no other agreement shall be valid or binding on the
Company.
6.5. WITHHOLDING TAXES. All amounts payable under this Agreement,
whether such payment is to be made in cash or other property, including without
limitation stock of the Company, shall be subject to withholding for Federal,
state and local income taxes, employment and payroll taxes, and other legally
required withholding taxes and contributions to the extent appropriate in the
determination of the Company, and the Employee agrees to report all such amounts
as ordinary income on his personal income tax returns and for all other
purposes, as called for.
At the election of Employee, Employee shall have the right to sell to
the Company any vested stock options (at the then fair market value of the
common stock less the exercise price) in order to meet any withholding
requirements.
6.6. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable by any judgment of a tribunal of competent
jurisdiction, the remaining provisions and terms of this Agreement shall not be
affected by such judgment, and this Agreement shall be carried out as nearly as
possible according to its original terms and intent and, to the full extent
permitted by law, any provision or restrictions found to be invalid shall be
amended with such modifications as may be necessary to cure such invalidity, and
such restrictions shall apply as so modified, or if such provisions cannot be
amended, they shall be deemed severable from the remaining provisions and the
remaining provisions shall be fully enforceable in accordance with law.
6.7. EFFECT OF WAIVER. The failure of either party to insist on strict
compliance with any provision of this Agreement by the other party shall not be
deemed a waiver of such of such provision, or a relinquishment of any right
thereunder, or to affect either the validity of this Agreement, and shall not
prevent enforcement of such provision, or any similar provision, at any time.
6.8. DESIGNATION OF BENEFICIARY. If the Employee shall die before
receipt of all payments and benefits to which he is entitled under this
Agreement, payment of such amounts or benefits in the manner provided herein
shall be made to such beneficiary as
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he shall have designated in writing filed with the Secretary of the Company
or, in the absence of such designation, to his estate or personal
representative.
6.9. ARBITRATION. Any controversy between Employer and Employee
involving the construction or application of any of the terms, provisions, or
conditions of this Agreement shall be submitted to arbitration. Arbitration
shall comply with and be governed by the provisions of the American Arbitration
Association.
6.10. ATTORNEYS FEES. In the event of any litigation arising out of
this Agreement, or the parties' performance as outlined herein, the prevailing
party shall be entitled to an award of costs, including an award of reasonable
attorney's fees.
6.11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
EMPLOYER: DBS INDUSTRIES, INC.
BY:
-----------------------
Fred W. Thompson, President
EMPLOYEE:
-----------------------
Frederick R. Skillman, Jr.
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EXHIBIT A
DATE OF GRANT: SEPTEMBER 1, 1999
DBS INDUSTRIES, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT is made by and between DBS Industries, a Delaware
corporation (the "Company") and Frederick R. Skillman, Jr. ("Optionee"),
effective as of September 1, 1999.
In consideration of the mutual covenants contained herein and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee, in the manner and
subject to the conditions hereinafter provided, the right, privilege and option
to purchase (the "Option") an aggregate of One Hundred Fifty Thousand (150,000)
shares of the Company's Common Stock, par value $.0004, (the "Shares").
2. TERM OF OPTION. Subject to the terms, conditions, and restrictions set forth
herein, the term of this Option shall be ten years from the date of grant (the
"Expiration Date"). Any portion of this Option not exercised prior to the
Expiration Date shall thereupon become null and void.
3. EXERCISE OF OPTION.
3.1. VESTING OF OPTION. This Option shall become exercisable as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES VESTING DATE
---------------- ------------
<S> <C>
75,000 September 1, 1999
75,000 July 31, 2000
</TABLE>
Each of the foregoing dates shall be referred to as a "Vesting Date"
for that portion of this Option vested on such date ("Vested Portion").
All or any portion of the shares underlying a Vested Portion of this
Option may be purchased during the term of this Option, but not as to less than
1,000 shares (unless the remaining shares then constituting the Vested Portion
of this Option is less than 1,000 shares) at any time.
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3.2. MANNER OF EXERCISE. The Vested Portion of this Option may be
exercised from time to time, in whole or in part, by presentation of a Request
to Exercise Form, substantially in the form attached hereto, to the Company at
its principal office, which Form must be duly executed by Optionee and
accompanied by payment, in cash, cash equivalent or form of obligation
acceptable to the Company, in the aggregate amount of the Exercise Price (as
defined below), multiplied by the number of Shares the Optionee is purchasing at
such time, subject to reduction for withholding for tax obligations as provided
in Section 13.
Upon receipt and acceptance by the Company of such Form accompanied by
the payment specified, the Optionee shall be deemed to be the record owner of
the Shares purchased, notwithstanding that the stock transfer books of the
Company may then be closed or that certificates representing the Shares
purchased under this Option may not then be actually delivered to the Optionee.
3.3. EXERCISE PRICE. The exercise price (the "Exercise Price") payable
upon exercise of this Option shall be $.7573 per share as determined by the
closing price of DBSI stock on September 1, 1999.
4. EXERCISE AFTER CERTAIN EVENTS.
4.1. TERMINATION OF EMPLOYMENT. If for any reason other than permanent
and total disability (as defined below) or death an Optionee ceases to be
employed by or to be a consultant or director of the Company, or a Subsidiary,
the Options shall be treated as follows:
a. TERMINATION FOR CAUSE: If Optionee is terminated for
cause, all options vested as of the date of termination may be exercised, in
whole or in part, at anytime within ten (10) years after the date of
termination or such lesser period specified in the Option Agreement. All
unvested options shall be cancelled.
b. TERMINATION WITHOUT CAUSE: If Optionee is terminated
without cause, all options shall immediately vest as of the date of termination
and may be exercised, in whole or in part, at any time within ten (10) years
after the date of termination or such lesser period specified in the Option
Agreement (in no event after the expiration date of the Option).
4.2. PERMANENT DISABILITY AND DEATH. If an Optionee becomes permanently
and totally disabled (within the meaning of Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended), or dies while employed by the Company, or
while acting as an officer, consultant or director of the Company, or a
Subsidiary, (or, if the Optionee dies within the period that the Option remains
exercisable after termination of employment or affiliation), Options then held
(to the extent then exercisable) may be exercised by the Optionee, the
Optionee's personal representative, or by the person to whom the Option is
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<PAGE>
transferred by will or the laws of descent and distribution, in whole or in
part, at any time within ten (10) years after the disability or death (but in no
event after the expiration date of the Option).
5. RESTRICTIONS ON TRANSFER OF OPTION. This Option is not transferable by
Optionee other than by will or the laws of descent and distribution or if the
Company's consent to a transfer, which consent will not unreasonably be
withheld.
6. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. The existence of this Option shall
not affect the Company's right to effect adjustments, recapitalizations,
reorganizations or other changes in its or any other corporation's capital
structure or business, any merger or consolidation, any issuance of bonds,
debentures, preferred or prior preference stock ahead of or affecting the
Shares, the dissolution or liquidation of the Company's or any other
corporation's assets or business or any other corporate act whether similar to
the events described above or otherwise. If the outstanding shares of the
Company's Common Stock are increased or decreased in number or changed into or
exchanged for a different number or kind of securities of the Company or any
other corporation by reason of a recapitalization, reclassification, stock
split, reverse stock split, combination of shares, stock dividend or other
similar event, an appropriate adjustment of the number and kind of securities
with respect to which this Option may be exercised and the exercise price at
which this Option may be exercised will be made.
7. DISSOLUTION, LIQUIDATION, MERGER.
7.1. COMPANY NOT THE SURVIVOR. In the event of a dissolution or
liquidation of the Company, a merger, consolidation, combination or
reorganization in which the Company is not the surviving corporation, or a sale
of substantially all of the assets of the Company (as determined in the sole
discretion of the Board of Directors), the Administrator, in its absolute
discretion, may cancel each outstanding Option upon payment in cash to the
Optionee of the amount by which any cash and the fair market value of any other
property which the Optionee would have received as consideration for the shares
of Stock covered by the Option if the Option had been exercised before such
liquidation, dissolution, merger, consolidation or sale exceeds the exercise
price of the Option. In addition to the foregoing, in the event of a dissolution
or liquidation of the Company, or a merger consolidation, combination or
reorganization, in which the Company is not the surviving corporation, the
Administrator, in its absolute discretion, may accelerate the time within which
each outstanding Option may be exercised.
7.2. COMPANY IS THE SURVIVOR. In the event of a merger, consolidation,
combination or reorganization in which the Company is the surviving corporation,
the Board of Directors shall determine the appropriate adjustment of the number
and kind of securities with respect to which outstanding Options may be
exercised, and the exercise price at which outstanding Options may be exercised.
The Board of Directors shall determine, in its sole and absolute discretion,
when the Company shall be deemed to survive for purposes of this Plan.
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<PAGE>
8. RESERVATION OF SHARES. The Company agrees that prior to the earlier of the
expiration of this Option or the exercise and purchase of the total in number of
Shares represented by this Option, there shall be reserved for issuance and
delivery upon exercise of this Option such number of the Company's authorized
and unissued Shares as shall be necessary to satisfy the terms and conditions of
this Agreement. However, see Section 15 with respect to the Company's obligation
to comply with the securities laws.
9. NO RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a shareholder
with respect to any Shares covered by this Option unless the Optionee shall have
exercised this Option, and then only with respect to the shares underlying the
portion of the Option exercised. The Optionee shall have no right to vote any
Shares, or to receive distributions of dividends or any assets or proceeds from
the sale of Company assets upon liquidation until Optionee has effectively
exercised this Option and fully paid for such Shares. Subject to Section 6, no
adjustment shall be made for dividends or other rights for which the record date
is prior to the date title to the Shares has been acquired by the Optionee.
10. NO RIGHTS TO EMPLOYMENT OR CONTINUED EMPLOYMENT. The grant of this Option
shall in no way be construed so as to confer on Optionee the rights to
employment or continued employment by the Company.
11. SUSPENSION AND TERMINATION. In the event the Board or the Administrator
reasonably believes that the Optionee has committed an act of misconduct
specified below, the Administrator may suspend the Optionee's right to exercise
any Option pending final determination by the Board or the Administrator, which
final determination shall be made within five (5) business days of such
suspension. If the Administrator determines that an Optionee has committed an
act of embezzlement, fraud, breach of fiduciary duty or deliberate disregard of
the Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his estate shall be entitled to
exercise any Option hereunder. In making such determination, the Board or the
Administrator shall act fairly and in good faith and shall give the Optionee an
opportunity to appear and present evidence on the Optionee's behalf.
12. PARTICIPATION IN OTHER OPTION PLANS. The grant of this Option shall not
prevent Optionee from participating or being granted other options in the same
or other plans provided, however, that the Optionee meets the eligibility
requirements, and such participation or grant does not prevent the other plan
from meeting the requirements of the Internal Revenue Code of 1986, as amended.
13. PAYMENT OF TAXES. The Optionee shall pay the Company in cash all local,
state and federal withholding taxes applicable, in the Administrator's absolute
discretion, to the
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<PAGE>
grant or exercise of this Option, or the transfer or other disposition of Shares
acquired upon exercise of this Option. Any such payment must be made promptly
when the amount of such obligation becomes determinable.
At the election of Employee, Employer shall have the right to sell to
the Company any vested stock options (at the fair market value of the common
stock less the exercise price) in order to meet any withholding requirements.
14. ISSUE AND TRANSFER TAX. The Company will pay all issuance taxes, if any,
attributable to the initial issuance of Shares upon the exercise of the Option;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue or
delivery of any certificates for Shares in a name other than that of the
Optionee.
15. COMPLIANCE WITH SECURITIES LAWS. The Company shall not be obligated to issue
any Shares upon exercise of this Option unless such Shares are at that time
effectively registered or exempt from registration under the federal securities
laws and the offer and sale of the Shares are otherwise in compliance with all
applicable securities laws. The Company intends to register the Shares under the
federal securities laws and to take whatever other steps may be necessary to
enable the Shares to be offered and sold under federal or other securities laws.
Upon exercising all or any portion of this Option, an Optionee may be required
to furnish representations or undertakings deemed appropriate by the Company to
enable the offer and sale of the Shares or subsequent transfers of any interest
in such Shares to comply with applicable securities laws. Evidences of ownership
of Shares acquired upon exercise of this Option shall bear any legend required
by, or useful for purposes of compliance with, applicable securities laws or
this Agreement.
16. ARBITRATION. Any controversy, dispute or claim arising out of or relating to
this Option which cannot be amicably settled including, but not limited to, the
suspension or termination of Optionee's right in accordance with Section 11
above, shall be settled by arbitration conducted in San Francisco County or such
other mutually agreed upon location. Said arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association at a time and place within the above-referenced location as selected
by the arbitrator(s).
16.1. INITIATION OF ARBITRATION. After seven (7) days prior written
notice to the other, either party hereto may formally initiate arbitration under
this Agreement by filing a written request therefor, and paying the appropriate
filing fees, if any.
16.2. HEARING AND DETERMINATION DATES. The hearing before the
arbitrator shall occur within thirty (30) days from the date the matter is
submitted to arbitration. Further, a determination by the arbitrator shall be
made within forty-five (45) days from the date the matter is submitted to
arbitration. Thereafter, the arbitrator shall have fifteen (15) days to provide
the parties with his or her decision in writing. However, any failure to meet
the deadlines in this section will not affect the validity of any decision or
award.
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16.3. BINDING NATURE OF DECISION. The decision of the arbitrator shall
be binding on the parties. Judgment thereon shall be entered in a court of
competent jurisdiction.
16.4. INJUNCTIVE ACTIONS. Nothing herein contained shall bar the right
of either party to seek to obtain injunctive relief or other provisional
remedies against threatened or actual conduct that will cause loss or damages
under the usual equity rules including the applicable rules for obtaining
preliminary injunctions and other provisional remedies.
16.5. COSTS. The cost of arbitration, including the fees of the
arbitrator, shall initially be borne equally by the parties; provided, the
prevailing party (as determined by the arbitrator in accordance with California
Code of Civil Procedure Section 1032) shall be entitled to recover such costs,
in addition to attorneys' fees and other costs, in accordance with Section 19 of
this Agreement.
17. NOTICES. All notices to be given by either party to the other shall be in
writing and may be transmitted by personal delivery, facsimile transmission,
overnight courier or mail, registered or certified, postage prepaid with return
receipt requested; PROVIDED, HOWEVER, that notices of change of address or telex
or facsimile number shall be effective only upon actual receipt by the other
party. Notices shall be delivered at the following addresses, unless changed as
provided for herein.
To the Optionee:
Frederick R. Skillman, Jr.
2093 Robb Road
Walnut Creek, CA 94596
To the Company:
DBS Industries, Inc.
100 Shoreline Highway, Suite 190A
Mill Valley, CA 9
18. APPLICABLE LAW. This Option and the relationship of the parties in
connection with its subject matter shall be governed by, and construed under,
the laws of the State of California.
19. ATTORNEYS FEES. In the event of any litigation, arbitration, or other
proceeding arising out of this Option the prevailing party shall be entitled to
an award of costs, including an award of reasonable attorneys' fees. Any
judgment, order, or award entered in any such proceeding shall designate a
specific sum as such an award of attorney's fees and costs incurred. This
attorneys' fee provision is intended to be severable from the other provisions
of this Agreement, shall survive any judgment or order entered in any proceeding
and shall not be deemed merged into any such judgment or order, so that such
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<PAGE>
further fees and costs as may be incurred in the enforcement of an award or
judgment or in defending it on appeal shall likewise be recoverable by further
order of a court or panel or in a separate action as may be appropriate.
20. BINDING EFFECT. This Agreement shall inure to the benefit of, and be binding
upon, the parties hereto and their respective heirs, executors, and successors.
21. COUNTERPARTS. This Option may be executed in one or more counterparts, each
of which when taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Option Agreement has been executed as of this 1st day
of September, 1999, at Mill Valley, California.
THE COMPANY: DBS Industries, Inc.
By:
----------------------
Fred W. Thompson, President
OPTIONEE
----------------------
Frederick R. Skillman, Jr.
16
<PAGE>
REQUEST TO EXERCISE FORM
Dated:
----------
The undersigned hereby irrevocably elects to exercise all or part, as
specified below, of the Vested Portion of the option ("Option") granted to him
pursuant to a certain stock option agreement ("Agreement") effective __________,
between the undersigned and DBS Industries, Inc. (the "Company") to purchase an
aggregate of _________________ shares of the Company's Common Stock, par value
$ ________, (the "Shares").
The undersigned hereby tenders cash, cash equivalent or a promissory note in
a form acceptable by the Company in the amount of $______ per share
multiplied by ___, the number of Shares he is purchasing at this time, for a
total of $______, which constitutes full payment of the total Exercise Price
thereof.
INSTRUCTIONS FOR REGISTRATION
OF SHARES IN COMPANY'S TRANSFER
BOOKS
Name:
---------------------------------------
(Please typewrite or print in block letters)
Address:
----------------------------------
Signature:
----------------------------------
Accepted by DBS Industries, Inc.:
By:
-----------------------------
Name:
----------------------------
Title:
---------------------------
17
<PAGE>
EXHIBIT B
AGREEMENT TO INDEMNIFY
FREDERICK R. SKILLMAN, JR.
BY
DBS INDUSTRIES, INC.
A DELAWARE CORPORATION
1
<PAGE>
AGREEMENT TO INDEMNIFY FREDERICK R. SKILLMAN, JR.
BY
DBS INDUSTRIES, INC.
THIS AGREEMENT is executed this day of ____________ 1999, by and
between DBS INDUSTRIES, INC., a Delaware corporation (hereinafter referred to as
"Corporation"), and Frederick R. Skillman, Jr. (hereinafter referred to as
"Indemnitee").
WHEREAS, Indemnitee has agreed to serve or continue to serve, as an
officer, director or key employee of the corporation or its subsidiary; and
WHEREAS, as an inducement for indemnitee to serve, or continue serving as
an employee of the Corporation, the Corporation desires to provide its employees
with indemnification to the greatest extent permissible under the law.
NOW THEREFORE, in consideration for the mutual promises, conditions, and
forebearances contained herein, and as an inducement for the Indemnitee's
continued service as an officer and director, the parties agree as follows:
1. DEFINITIONS.
a. "Expenses" shall mean any:
(1) With respect to any Indemnifiable Event, any expense,
liability, lien, cost, assessment, penalty, damage, tax, demand, or loss,
including attorneys' fees, judgments, fines, ERISA excise taxes and penalties,
and amounts paid or to be paid in settlement thereof;
(2) Any interest, assessments, or other charges imposed on any of
the items in part (1) above;
(3) Any federal, state, or local taxes and/or penalties imposed
as a result of the actual or deemed receipt of any payments under this
Agreement, and any Expense paid or incurred in connection with investigating,
defending, being a witness in, or participating in (including on appeal), or
preparing for any of the foregoing in, any Proceeding relating to any
Indemnifiable Event; and
(4) All claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest, penalties
and reasonable attorneys' fees that Indemnitee shall incur or suffer, which
arise, result from, or relate to any breach or inaccuracy of any of the
representations and warranties of Corporation or the failure of Corporation to
perform
2
<PAGE>
any of its covenants, agreements or obligations contained in this Agreement or
in any instrument or other document delivered hereunder or in connection
herewith.
b. "Indemnifiable Event" shall mean any event or occurrence that takes
place either before or after execution of this Agreement that is related to:
(1) The fact that Indemnitee is or was a director, officer,
employee or agent of Corporation, or while a director, officer or agent is or
was serving at the request of Corporation as a director, officer, employee,
trustee, agent, or fiduciary of another corporation, partnership, joint venture,
employment benefit plan, trust or other enterprise; or
(2) Anything done or not done by Indemnitee in any such capacity,
whether or not the basis of the Proceeding is an alleged action in an official
capacity as a director, officer, employee, or agent, or in any other capacity
while serving as a director, officer or agent of Corporation.
c. "Proceeding" shall mean any threatened, pending, or completed action,
claim, demand, suit, arbitration or proceeding, or any claim, demand, inquiry,
hearing, or investigation, whether conducted by Corporation or any other party,
that Indemnitee in good faith believes might lead to the institution of any such
action, suit, arbitration or proceeding, whether civil, criminal, in equity,
administrative, investigative or other.
2. INDEMNIFICATION OF INDEMNITEE. In the event Indemnitee was, is, or
becomes a participant in, or is threatened to be made a participant in, a
Proceeding by reason of (or arising in part out of) an Indemnifiable Event,
Corporation shall indemnify Indemnitee from and against any and all Expenses to
the fullest extent permitted by law, as the same exists or may hereafter be
amended or interpreted (but in the case of any such amendment or interpretation,
only to the extent that such amendment or interpretation permits corporation to
provide broader indemnification rights than were permitted prior thereto).
Corporation's obligation to indemnify Indemnitee shall apply whether or not
there is any allegation that Indemnitee was acting beyond or outside his scope
of authority as an officer, director or agent of Corporation. It is intended
that this covenant of indemnification shall be construed as broadly as possible
to include any claim, action, suit, proceeding or arbitration against Indemnitee
without regard to whether or not Indemnitee was at fault.
3. PAYMENT OF EXPENSES.
a. If so requested by Indemnitee, Corporation shall from time to
time, within ten (10) business days of such request, advance up to Fifty
Thousand Dollars ($50,000) in expenses to Indemnitee ("Expense Advance") for the
purpose of paying legal retainers and deposits against anticipated Expenses. The
provisions of this Section shall not in any way limit Corporation's obligation
to indemnify Indemnitee.
b. The Corporation shall promptly pay Indemnitee's Expenses
reasonably incurred within thirty (30) days from Indemnitee's tender of invoices
reflecting such Expenses.
3
<PAGE>
c. If Corporation fails to pay any such Expenses within thirty
(30) days, Corporation shall pay to Indemnitee a late fee of one and one-half
percent (1-1/2%) per month or part thereof until all such expenses are paid in
full, in addition to all other damage suffered by Indemnitee.
d. To the extent it is ultimately found that Indemnitee is not
entitled to indemnification under the terms of this Agreement, Corporation shall
be entitled to be reimbursed by Indemnitee for all such amounts (the "Reimbursed
Amounts"), and Indemnitee hereby agrees to reimburse corporation promptly for
the same. Indemnitee's obligation to reimburse Corporation for the Reimbursed
Amounts shall be unsecured and no interest shall be charged thereon.
4. NOTICE AND OPPORTUNITV TO DEFEND. Indemnitee shall receive
indemnification from corporation in accordance with this Agreement as soon as
practicable after Indemnitee has made written demand on Corporation for
indemnification. If any Proceeding is initiated, or any claim or demand is made,
against Indemnitee with respect to an Indemnifiable Event, then the Indemnitee
shall give prompt written notice of such Proceeding to Corporation. Corporation
shall, at its own expense and with its own counsel, if Indemnitee so chooses,
defend or settle such Proceeding; provided, however, that: i) Corporation shall
keep Indemnitee informed of all material developments and events relating to
such Proceeding; ii) Indemnitee shall have the right to participate, at his/her
own expense, provided that Indemnitee has requested that Corporation defend
Indemnitee, in the defense of such Proceeding, and shall cooperate as reasonably
requested by Corporation in the defense thereof; and iii) Corporation shall not
settle such Proceeding without the prior written consent of Indemnitee, which
consent shall not be unreasonably withheld. If Corporation defends Indemnitee
under a reservation of rights with respect to any Proceeding, under such
circumstances, the rights, duties and obligations of the parties and counsel
shall be governed by SAN DIEGO FEDERAL CREDIT UNION V. CUMIS INSURANCE SOCIETY,
INC. (1984) 162 Cal.App.3d 358 and California Civil Code Section 2778 and
Corporation shall provide to Indemnitee separate counsel paid for by
Corporation.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of
this Agreement to indemnification by Corporation for a portion of Expenses, but
not for the total amount of Expenses, Corporation shall indemnify Indemnitee for
the portion to which Indemnitee is entitled.
6. LIMITATION ON CORPORATION. Corporation shall not settle any Proceeding in
any manner that would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent. Indemnitee will not unreasonably withhold consent
to a proposed settlement.
7. LIMITATION ON INDEMNITEE. Indemnitee shall not settle any Proceeding in
any manner that would impose any penalty or limitation on Corporation without
Corporation's written consent. Corporation will not unreasonably withhold
consent to a proposed settlement.
4
<PAGE>
Corporation shall not be liable to indemnify Indemnitee under this
Agreement with regard to any judicial award if Corporation was not given a
reasonable and timely opportunity, at its expense, to participate in the defense
of such action.
8. NON-EXCLUSIVITY. The rights of Indemnitee under this Agreement shall be in
addition to any other indemnification rights Indemnitee may have under
Corporation's Articles of Incorporation, Bylaws, applicable law, or otherwise.
To the extent that a change in applicable law (whether by statute or judicial
decision) permits greater indemnification than afforded currently under
Corporation's Articles of Incorporation, Bylaws, applicable law, or this
Agreement, it is the intent of the parties that Indemnitee enjoy by this
Agreement the greater benefits afforded by such change.
9. INDEMNIFICATION NOT A WAIVER. Indemnitee's right to indemnification
pursuant to this Agreement shall not be deemed to be his exclusive remedy in
connection with or arising from any Indemnifiable Event or the failure of
Corporation to perform any of its covenants or obligations contained in this
Agreement; and the exercise by Indemnitee of his/her right to demand and receive
such indemnification shall not be deemed to prejudice, or to operate as a waiver
of, any remedy to which he may be entitled at law or equity.
10. LIABILITY INSURANCE. To the extent Corporation maintains an insurance
policy or policies providing directors' and officers' liability insurance, to
the extent that Indemnitee may be covered by such policy or policies, Indemnitee
shall be covered by such policy or policies, in accordance with its or their
terms, to the maximum extent of the coverage available for any corporate
director or officer.
11. SUBROGATION. In the event of payment under this Agreement, Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable Corporation effectively to bring suit to
enforce such rights.
12. NO DUPLICATION OF PAYMENTS. Corporation shall not be liable under this
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise received payment (under any
insurance policy, bylaw, or otherwise) of the amounts otherwise Indemnifiable
under this Agreement.
13. NO RIGHT TO SET-OFF. Corporation shall have no right to set off the amount
of any Expense with respect to which Indemnitee may be indemnified by
Corporation hereunder against the amount of any obligation of Indemnitee to
Corporation.
14. ACCOUNTING OF PROFITS UNDER SECTION 16(b). The Corporation shall not be
liable under this Agreement to make any payment in connection with any claim
made against Indemnitee for an accounting of profits made from the purchase or
sale by the Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and
Amendments thereto, or similar provisions of any state statute or common law.
5
<PAGE>
15. AUTHORIZATION; BINDING NATURE OF AGREEMENT. Corporation has all necessary
power and authority to enter into and perform its obligations under this
Agreement, and the execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of Corporation and its
officers, directors and shareholders. No authorization, consent or approval of
or filing with any governmental authority or any other person is required to be
obtained or made by Corporation in connection with the execution, delivery or
performance of this Agreement.
16. CONFIDENTIALITY. Unless otherwise required by law, Corporation agrees to,
and shall undertake all necessary action required to, keep confidential all
information which relates to any Indemnifiable Event, Expense or any other
transaction or defense or indemnity arising out of this Agreement which relates
to Indemnitee.
17. AMENDMENT OF THIS AGREEMENT. No supplement, modification, or amendment of
this Agreement shall be binding unless executed in writing by the parties
hereto. No waiver of any of the provisions of this Agreement shall operate as a
waiver of any other provisions hereof, nor shall such waiver constitute a
continuing waiver.
18. BINDING EFFECT. This Agreement shall be binding on and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation, or otherwise to all or substantially all of the business and/or
assets of the Corporation), assigns, spouses, heirs and personal and legal
representatives. Corporation shall require and cause its successor to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that Corporation would be required to perform if no such succession had
taken place.
The indemnification provided under this Agreement shall continue for
Indemnitee for any action taken or not taken while serving in an indemnified
capacity pertaining to an Indemnifiable Event even though Indemnitee may have
ceased to serve in such capacity at the time of any Proceeding.
19. MAINTENANCE OF OBLIGATION TO INDEMNIFY. Corporation hereby covenants and
agrees that it shall not permit the indemnification provided to Indemnitee as
set forth in this Agreement to be compromised, restricted, limited, or
eliminated in any manner, including by way of amendment of Corporation's bylaws
and other governing documents.
20. SEVERABILITY. If any portion of this Agreement shall be held by a court of
competent jurisdiction to be invalid, void, or otherwise unenforceable, the
remaining provisions shall remain enforceable to the fullest extent permitted by
law. Furthermore, to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, void or
unenforceable.
6
<PAGE>
21. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws, except that Delaware or California law,
whichever provides the broadest and most beneficial indemnity rights to
Indemnitee, shall be applied in determining the scope and extent of the phrase
"to the fullest extent permitted by law," in Section 2 of this Agreement.
22. FURTHER ASSURANCES. Each party shall execute such instruments and other
documents, and take such action as may be required, as the other party may
reasonably request, for the purpose of carrying out or evidencing the
transactions contemplated hereby.
23. ATTORNEYS' FEES. In the event of the bringing of any action, suit or
arbitration by a party hereto against another party hereunder by reason of any
breach of any of the covenants or agreements or any inaccuracies in any of the
representations and warranties on the part of any party arising out of this
Agreement, then in that event, the prevailing party in such action, suit,
arbitration or dispute, whether by final judgment, or out of court settlement
shall be entitled to have and recover of and from the other parties all costs
and expenses of suit, including actual attorneys' fees.
24. BINDING ARBITRATION. Any claim, dispute, or controversy arising out of
this Agreement, or breach thereof, shall be resolved by submission to binding
arbitration.
a. ARBITRATION NOTICE. The arbitration shall commence upon any party
sending to any other party to this Agreement a notice in writing (the
"Arbitration Notice") demanding arbitration and specifying the issue(s) to be
arbitrated and all relief sought (the "Arbitration Matter").
b. SELECTION OF ARBITRATORS. The arbitrators shall be chosen as follows:
The parties, or their legal representatives, may agree in writing upon a
sole arbitrator. In the event they cannot so agree each side shall, within
fifteen (15) days after the giving of the Arbitration Notice, exchange a list of
acceptable arbitrators consisting of attorneys at law, and from that list each
side may reject all but one arbitrator from each list. The acceptable
arbitrators shall constitute a new list and the process shall be repeated until
three (3) acceptable arbitrators are designated who shall constitute the
"Arbitration Panel." If three (3) acceptable arbitrators are not appointed
within thirty (30) days after giving the Arbitration Notice, Superior Court of
the State of California for the County of San Francisco shall, upon the filing
of a petition by any of the parties hereto pursuant to the provisions of
California Code of Civil Procedure Section 1281.6 (or any successor section),
and after a hearing at which all parties are afforded an opportunity to be
present and be heard, select a the neutral arbitrator from a list of five (5)
persons obtained by the court from the parties jointly or, if they cannot agree,
from the San Francisco County office of the American Arbitration Association.
c. BOOKS AND RECORDS. The parties agree to make available to the
Arbitration Panel all books, records, schedules, and other information requested
by it. Such matters are to be made
7
<PAGE>
available to the Arbitration Panel at such times as are deemed necessary by it
to make its decision as herein provided. The Arbitration panel shall have all
those powers set forth in Section 1282.6 of California Code of Civil Procedure
including, but not limited to, those powers relating to the production of books,
records, documents and other evidence.
d. DISCOVERY. The parties may conduct such discovery, and the
Arbitration Panel shall have such discovery powers, as are set forth in the
California Code of Civil Procedure Section 1283.05. The Arbitration Panel shall
be empowered to grant all provisional relief permitted by the California Code of
Civil Procedure. In addition to all other arbitration rights hereby provided,
the provisions of Sections 1282.2, 1282.4 and 1282.6 of the California Civil
Code shall apply. In addition to any and all arbitration rights hereby provided,
the arbitration proceedings and discovery shall be conducted pursuant to
Sections 1282 et seq. of California Code of Civil Procedure, including, without
limitation, the provisions of Sections 1282.2, 1282.4, 1283 and 1283.5.
e. ENFORCEMENT. Enforcement of the Arbitration Panel's award shall be
effected pursuant to California Civil Code Sections 1281 et seq. However, the
provisions of California Code of Civil Procedure Section 1281.8 shall not apply
and the Arbitration Panel shall be specifically empowered to grant all
provisional remedies permitted under the California Code of Civil Procedure.
f. LOCATION. The arbitration shall take place in the County of San
Francisco, State of California, at a time and place selected by the Arbitration
Panel. Notice in writing of such time and place shall be given by the
Arbitration Panel to each party at least thirty (30) days prior to the date so
fixed.
g. TIME PERIODS. The Arbitration Panel shall diligently, expeditiously,
and in good faith hear and decide Arbitration Matter under consideration, within
the limits and subject to the standards set forth in this Agreement. In any
event, such decision shall be rendered not later than thirty (30) days after the
arbitration hearing is conducted. If there is only one (1) arbitrator, his/her
decision shall be final and binding; if there are three (3) arbitrators, the
agreed decision of any two (2) of them shall be final and binding. If no two (2)
of the arbitrators are able to agree upon a decision, the decision of the
neutral third arbitrator shall be final and binding. The Arbitration Panel shall
prepare an award in writing which reflects the final decision of the Arbitration
Panel and a copy of same shall be delivered to each party hereto. Judicial
confirmation, correction, or vacation of the decision of the Arbitration Panel
shall be sought only in the Sacramento County Superior Court, which judgment may
be enforced and shall be accorded full faith and credit in any court of
competent jurisdiction, including any jurisdiction in which is located any real
property which is the subject matter of the dispute.
h. BINDING EFFECT. The arbitration award shall be final, conclusive and
binding on all parties thereto and shall be non-appealable. The costs of the
arbitrators shall be borne by the losing party.
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25. NOTICES. All notices, requests, demands, and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
on the date of service if served personally on the party to whom notice is to be
given, or on the third day after mailing if mailed to the party to whom notice
is to be given, by first class mail, registered or certified, postage prepaid,
and properly addressed as follows:
To Corporation: Fred Thompson, President
DBS Industries, Inc.
100 Shoreline Highway, Suite 190 A
Mill Valley, CA 94941
With a copy to: Daniel B. Eng, Esq.
Bartel Eng Linn & Schroder
300 Capitol Mall, suite 1100
Sacramento, Ca 95814
To Indemnitee: Frederick R. Skillman, Jr.
2093 Robb Road
Walnut Creek, CA 94596
26. EFFECTIVENESS. This Agreement shall immediately become effective upon
adoption by Corporation's Board of Directors. Notwithstanding the effectiveness
of this Agreement, Corporation shall use its best efforts to have its Board of
Directors approve this Agreement.
IN WITNESS WHEREOF, Corporation and Indemnitee have executed this
Agreement as of the date specified above.
CORPORATION:
DBS INDUSTRIES, INC.
BY:
------------------------
FRED THOMPSON, PRESIDENT
INDEMNITEE:
- ----------------------------
FREDERICK R. SKILLMAN, JR.
9
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EXHIBIT 10.49
AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN
DBS INDUSTRIES, INC.
AND
FREDERICK R. SKILLMAN, JR.
Pursuant to the Employment Agreement (the "Agreement") dated July 28,
1999, by and between DBS Industries, Inc., a Delaware corporation (the
"Company") and Frederick R, Skillman, Jr. (the "Employee") collectively the
"parties", the terms and conditions are hereby amended as follows:
Article III, Section 3.4. STOCK OPTIONS: Employee shall be granted
stock options to purchase 150,000 shares of DBSI's common stock at an
exercise price determined by the closing price of DBSI stock on
September 1, 1999 at a discounted exercise price of $.7573 per share as
approved by the Board of Directors on September 1, 1999. The options
are subject to vesting, 75,000 of which shall vest immediately at
September 1, 1999, and the remainder shall vest at the end of the
Employment Term on July 31, 2000. In addition, the stock options are
subject to (a) further terms and conditions set forth herein and in
Stock Option Agreement attached hereto as Exhibit A and (b) the
Employee's execution of the Stock Option Agreement and all documents
customarily required by the Company to effect the grant of the options.
In connection with the Company's intention to file a registration
statement to register shares of its common stock for an employee
benefit plan on Form S-8, the Company shall also use its best efforts
to register the common stock underlying the stock options granted to
Employee pursuant to this Section 3.4.
All other terms and conditions of the Employment Agreement shall remain
as found in the original Agreement dated July 28, 1999, except for revisions
approved by Board action.
IN WITNESS WHEREOF, the Parties have executed and delivered this
Agreement as of this 1st day of September, 1999.
EMPLOYER: DBS INDUSTRIES, INC.
BY:
-------------------------
FRED W. THOMPSON, PRESIDENT
EMPLOYEE: BY:
-------------------------
FREDERICK R. SKILLMAN, JR.
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EMPLOYMENT AGREEMENT
BETWEEN
DBS INDUSTRIES, INC.,
NEWSTAR LTD.
AND H. TATE HOLT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the
1st day of June, 1999, by and between DBS Industries, Inc., a Delaware
corporation (hereafter referred to as "Employer"), Newstar Ltd, a company
organized under the laws of Bermuda and a wholly owned subsidiary of Employer,
and H. Tate Holt, an individual (hereafter referred to as "Employee"), in
consideration of the mutual promises made herein. (the "Agreement"):
TERM OF EMPLOYMENT
SECTION 1.1. EMPLOYMENT AND TERM. Employer hereby employs Employee and
Employee hereby accepts employment with Employer, upon the terms and conditions
hereinafter set forth, from June 1, 1999 until June 1, 2000, and thereafter from
month to month or until the employment relationship is sooner terminated by
either party in accordance with the terms of this Agreement.
SECTION 1.2. "EMPLOYMENT TERM" DEFINED. As used in this Agreement, the
phrase "Employment Term" refers to the entire period of employment of Employee
by Employer hereunder.
DUTIES OF EMPLOYEE AS PRESIDENT AND CHIEF OPERATING OFFICER
SECTION 2.1. GENERAL DUTIES. Employee shall serve as the President and
Chief Executive Officer of Newstar. In his capacity as President and Chief
Executive Officer, Employee shall do and perform all services, acts, or other
things necessary or advisable to manage, conduct, and operate the business of
Newstar, including, but not limited to, the supervision, direction, and
control of the business and other employees of Newstar, subject at all times
to the policies and directions set by Employer's Board of Directors (the
"Board"). Employee shall also have such other powers, duties, and
responsibilities as may be prescribed by the Board and Newstar's corporate
charter. Finally, Employee shall serve as a director of Newstar, and serve on
the Executive Committee of Newstar, if one exists now or in the future, and
shall be nominated as a director on the Newstar's slate of directors from
year to year and subject only to the continued approval of the stockholders
of Newstar as required by law. As President and Chief Executive
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Officer of Newstar, Employee shall report directly to the Chief Executive
Officer of Employer.
SECTION 2.2. DEVOTION TO EMPLOYER'S BUSINESS. During the Employment Term,
Employee shall devote his full time, efforts and attention to the performance of
the duties specified in Section 2.1 above and to such other services as may be
reasonably requested by the Board. Employee shall not engage in any other
business duties or pursuits or directly render any services of a business,
commercial, or professional nature to any other person or organization, other
than serving as a director (but not an employee) of other companies, limited
business consulting relating to Employee's consulting practice, and passive
investments and endeavors provided hereinbelow, without obtaining the prior
consent of the Board. Notwithstanding the foregoing, activities by Employee
which do not materially interfere with the services required of Employee under
this Agreement shall not be deemed a breach of this Section 2.2 and shall not
require the prior consent of the Board.
SECTION 2.3. PASSIVE INVESTMENTS AND ENDEAVORS. This Agreement shall not be
interpreted to prohibit Employee from making passive personal investments or
conducting private business affairs if those activities do not materially
interfere with the services required of Employee under this Agreement. However,
Employee shall not directly or indirectly acquire, during the Employment Term, a
controlling interest in any business competing with the business of Employer
without the prior consent of the Board.
OBLIGATIONS OF EMPLOYER
SECTION 3.1. GENERAL OBLIGATIONS. Employer shall provide Employee with the
compensation, incentives, benefits, and business expense reimbursements
specified elsewhere in this Agreement. Employer shall also provide Employee with
an office located in Mill Valley, California, stenographic help, office
equipment, a cellular phone, supplies, and other facilities and services,
suitable to Employee's position and adequate for the performance of his duties.
Employer may not change the domicile of Employee's office without Employee's
prior consent.
SECTION 3.2. INDEMNIFICATION. Employer shall indemnify and hold Employee
harmless from and against any actions taken or decisions made by him in good
faith while performing services in his capacity as President and Chief Executive
Officer of Newstar during the Employment Term. To the extent permitted by law,
Employer shall pay, indemnify, and hold Employee harmless from any liability,
cost, or expense (including, without limitation, reasonable attorney's fees)
incurred by him in the defense of any claim, proceeding, or action arising out
of his performance of services for Employer or out of his status as an officer
and director of Newstar. Employer will use its best efforts to obtain coverage
for Employee under any insurance now in force or hereafter obtained during the
term of this Agreement covering any employee, officer or director of Employer or
Newstar. Notwithstanding the foregoing, Employer does not intend to and shall
not indemnify Employee against any act or omission by him constituting fraud,
willful misconduct or
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gross negligence.
COMPENSATION OF EMPLOYEE
SECTION 4.1. ANNUAL SALARY. As compensation for the services to be
performed hereunder Employee shall receive a salary at the rate of two
hundred thousand dollars ($200,000) per annum, payable not less frequently
than the regular payroll schedule of Employer during the Employment Term.
SECTION 4.2. ANNUAL BONUS. Employee shall be entitled to a annual bonus
based upon the performance by the Employee measured against performance criteria
mutually agreed upon between the Employee and the Employer. In this respect,
Employee shall propose performance criteria to the Chief Executive Officer of
Employer within sixty days from the date this Agreement is entered into by
Employee and Employer. Final performance criteria shall be agreed to by Employer
and Employee within thirty days from the date Employee submits Employee's
proposed performance criteria. The maximum amount of the annual bonus provided
for hereunder shall equal fifty percent (50%) of the Employee's annual salary
provided for in Section 4.1.
SECTION 4.3. SIGNING BONUS. Upon execution of this Agreement, Employer
shall pay Employee a signing bonus of fifty thousand dollars ($50,000).
SECTION 4.4. STOCK OPTIONS. Employer shall grant to Employee two hundred
thousand (200,000) options to purchase shares of Employer's common stock at
an exercise price based on the closing price of Employer's common stock on
September 1, 1999. The options shall expire ten years from the date of grant
and shall vest in accordance with the following schedule:
50,000 September 1, 1999
75,000 on the first anniversary of this Agreement
75,000 on the second anniversary of this Agreement
In the event of a "change of control" of the employer, all of Employee's stock
options shall immediately vest. For purposes of this Agreement, a "change in
control" of the Employer shall mean a merger, consolidation, or reorganization
wherein the shareholders of Employer immediately prior to the transaction hold
less than fifty one percent (51%) of the voting securities of the combined
entity after the transaction, a sale of substantially all of the assets of the
Employer, a new issuance, in one or more related transactions, of the voting
securities of the Employer in an amount greater than fifty percent (50%) of the
issued and outstanding shares of the Employer measured immediately after the
transaction, or a change in the majority of the Board of Directors in any one
year. For purposes of the definition of a "change in control," the calculation
of the total shares issued and outstanding shall be made on a fully diluted
basis using
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the rules provided for under generally accepted accounting principles.
SECTION 4.5. TAX WITHHOLDING. Employer shall have the right to deduct or
withhold from the compensation due to Employee hereunder any and all sums
required for federal income and Social Security taxes and all state or local
taxes now applicable or that may be enacted and become applicable in the future.
EMPLOYEE BENEFITS
SECTION 5.1. ANNUAL VACATION. Employee shall be entitled to fifteen (15)
days vacation time each year without loss of compensation. Accrued unused
vacation shall accumulate from year to year up to a maximum of thirty (30) days.
SECTION 5.2. ILLNESS. Employee shall be entitled to sick leave with full
pay in an amount equal to the accrual for senior executives of Employer.
SECTION 5.3. EMPLOYEE BENEFITS GENERALLY. During the Employment Term,
Employee shall be entitled to participate in and to receive benefits from all
present and future accident, disability, medical, dental, and similar plans,
pension plans, savings plans, profit sharing plans, stock option plans or other
similar employee benefit plans available generally to all other officers or
employees of Employer or Newstar. The amount and extent of these benefits,
including employee paid premiums, co-payments and deductibles, shall be governed
by the specific benefit plan, as it may be amended from time to time.
BUSINESS EXPENSES
SECTION 6.1. REIMBURSEMENT OF BUSINESS EXPENSES. Employer shall promptly
reimburse Employee for all reasonable business expenses incurred by Employee in
connection with the business of Employer. Employee shall furnish to Employer
adequate records and other documentary evidence required by federal and state
tax statutes and regulations for the substantiation of each such expenditure
prior to reimbursement.
TERMINATION OF EMPLOYMENT
SECTION 7.1. TERMINATION FOR CAUSE. Employer reserves the right to
terminate this Agreement upon: (a) Employee's willful and continued failure to
substantially perform his duties with Employer (other than such failure
resulting from his incapacity due to physical or mental illness) after there is
delivered to Employee by Employer's Chief Executive Officer, a written demand
for substantial performance which sets forth in detail the specific respects in
which the Employer believes Employee has not substantially performed his duties,
and giving Employee not less than thirty (30) days to correct the deficiencies
specified in the written demand, (b)
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Employee's willful engagement in gross misconduct as determined by the
Employer's Chief Executive Officer which is materially and demonstrably
injurious to Employer and/or Newstar, or (c) Employee's commission of a felony
or an act of fraud against Employer, Newstar or their affiliates. No act, or
failure to act, by Employee shall be considered "willful" if done, or omitted to
be done, by Employee in good faith and with the reasonable belief that the act
or omission was in the best interest of Employer, Newstar and/or required by
applicable law. Termination under this Section 7.1 shall be considered "for
cause" for the purposes of this Agreement.
SECTION 7.2. TERMINATION WITHOUT CAUSE. This Agreement shall terminate upon
the death of Employee. Employer reserves the right to terminate this Agreement
after three (3) continuous months of physical or mental disability suffered by
Employee that would prevent the performance of Employee's duties under this
Agreement. Such a termination shall be effected by giving thirty (30) days
written notice of termination to Employee. Notwithstanding anything else to the
contrary, physical or mental disability shall not include periods of bona fide
illness for which Employee is entitled to sick leave pursuant to Section 5.2 of
this Agreement. Other than on death or upon the physical or mental disability of
Employee, Employer reserves the right at any time to terminate this Agreement
upon thirty (30) days written notice to Employee and, in such an event, Employee
shall be paid his severance benefit hereinafter provided.
SECTION 7.3. TERMINATION BY EMPLOYEE. Employee may terminate this Agreement
at any time upon sixty (60) days written notice to Employer. Other than upon
Employee's termination of this Agreement pursuant to Section 7.5, Employer shall
not be obligated to pay any severance benefit if Employee terminates this
Agreement pursuant to this Section 7.3.
SECTION 7.4. SEVERANCE BENEFIT UPON TERMINATION WITHOUT CAUSE.
Notwithstanding any other provision of this Agreement, if Employer terminates
this Agreement prior to the first anniversary of this Agreement, other than for
cause as defined in Section 7.1, Employer shall pay Employee a lump sum cash
payment equal to the remainder of the annual salary and any accrued unpaid
bonuses to which Employee would be entitled under this Agreement for the period
up to and including May 31, 2000, as provided for in this Agreement. If this
Agreement is terminated by the Employer after May 31, 2000, Employee shall not
be entitled to a severance benefit under this Section 7.4.
GENERAL PROVISIONS
SECTION 8.1. NOTICES. Any notice to be given hereunder by either party to
the other shall be in writing and may be transmitted by personal delivery,
facsimile transmission, overnight courier or by mail, registered or certified,
postage prepaid with return receipt requested. Mailed notices shall be addressed
to the parties at the following addresses:
EMPLOYER DBS Industries, Inc
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100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
Attn: Fred W. Thompson, CEO
FAX No.: (415) 380-8199
EMPLOYEE H. Tate Holt
P.O. Box 1058
Lakespur, CA 94977-1058
(415) 464-9823
Any party may change the address at which notice is to be provided by providing
a written notice to the other party specifying a new address. Notices delivered
personally or by facsimile transmission shall be deemed communicated as of the
date of actual receipt; notices mailed shall be deemed communicated as of the
third day after mailing.
SECTION 8.2. ARBITRATION. Any controversy between Employer and Employee
involving the construction or application of any of the terms, provisions, or
conditions of this Agreement shall on the written request of either party
which is served on the other be submitted to arbitration. Arbitration shall
comply with and be governed by the provisions of the American Arbitration
Association. Employer and Employee shall each appoint one person who shall
then choose a third person, all three of which shall hear and determine the
dispute. The decision of the arbitrators shall be final and conclusive upon
both parties. Arbitration shall take place in the County of Marin, State of
California.
SECTION 8.3. ATTORNEYS' FEES AND COSTS. 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 necessary
disbursements in addition to any other relief to which that party may be
entitled.
SECTION 8.4. ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Employee by Employer and contains all of the covenants and
agreements between the parties with respect thereto. Each party to this
Agreement acknowledges that no representation, inducements, promises, or
agreements, orally or otherwise, have been made by any party, or anyone acting
on behalf of any party, which are not embodied herein, and that no other
agreement shall be valid or binding on either party.
SECTION 8.5. MODIFICATION. Any modification of this Agreement will be
effective only if it is in writing and signed by the party to be charged.
SECTION 8.6. EFFECT OF WAIVER. The failure of either party to insist on
strict compliance with
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any of the terms, covenants, or conditions, of this Agreement by the other party
shall not be deemed a waiver of that term, covenant, or condition, nor shall any
waiver or relinquishment of any right or power at any one time or times be
deemed a waiver or relinquishment of that right or power for all or any other
time.
SECTION 8.7. PARTIAL INVALIDITY. If any provision in this Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
SECTION 8.8. LAW GOVERNING AGREEMENT. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
SECTION 8.9. COUNTERPARTS AND SIGNATURES. This Agreement may be executed in
two or more counterparts, each of which shall be an original but all of which
together shall constitute one instrument. A signature of a party transmitted to
the other party via facsimile transmission shall have equal dignity with
original signatures.
IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement as of the day and year first above written.
EMPLOYER
DBS Industries, Inc.
/s/ Fred W. Thompson
--------------------------------------------
By: Fred W. Thompson
Its: Chief Executive Officer
EMPLOYEE
/s/ H. Tate Holt
--------------------------------------------
H. Tate Holt
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated this 18th day of
October, 1999 is entered into by and between DBS Industries, Inc., a Delaware
corporation (the "Company") and Stanton C. Lawson. ("Employee"), in
consideration of the mutual promises and conditions made herein.
ARTICLE I
EMPLOYMENT AND TERM OF EMPLOYMENT
1.1. EMPLOYMENT AND TERM. The Company hereby employs Employee to
render full-time services to the Company on an exclusive basis, upon the terms
and conditions set forth below, from the date of this Agreement until the
employment relationship is terminated in accordance with the provisions of this
Agreement. This Agreement is for a term of three (3) years (the "Stated Term")
effective October 18, 1999, unless terminated earlier as provided for herein
(the "Employment Term").
1.2. ACCEPTANCE. Employee hereby accepts employment with the Company
and agrees to devote his full-time attention and best efforts exclusively to
rendering the services described below. The Employee shall accept and follow the
direction and authority of the Company's President and Chief Executive Officer
in the performance of his duties, and shall comply with all existing and future
regulations applicable to employees of the Company and to the Company's
business.
ARTICLE II
DUTIES OF EMPLOYEE
2.1. GENERAL DUTIES. Employee shall serve as the Sr. Vice President of
Finance and Chief Financial Officer of the Company. In his capacity as Sr. Vice
President of Finance and Chief Financial Officer, Employee shall do and perform
all services, acts, or other things necessary or advisable to manage and conduct
the business of the Company, including, but not limited to, the supervision,
direction and control of the business and other employees of the Company,
subject to the policies and direction of the Board of Directors (the "Board")
and the President. Employee shall have all powers, duties and responsibilities
necessary to carry out his duties, and such other powers and duties as the Board
and President may prescribe.
2.2. EXCLUSIVE SERVICES. It is understood and agreed that Employee may
not engage in any other business activity during the term of his employment
hereunder, whether or not for profit or other remuneration, without the prior
written consent of the Company. Further, Employee shall not directly or
indirectly acquire any stock or interest in any corporation, partnership, or
other business entity that competes, directly or indirectly, with the business
of the Company.
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2.3. REPORTING OBLIGATIONS. In connection with the performance of his
duties hereunder, unless otherwise instructed by the Company's Board, the
Employee shall report directly to the company's President and Chief Executive
Officer of the Company.
ARTICLE III
COMPENSATION AND BENEFITS OF EMPLOYEE
3.1. ANNUAL BASE SALARY. The Company shall pay Employee salary for the
services to be rendered by him during the term of this Agreement at the rate of
one hundred eighty thousand dollars ($180,000) annually (prorated for any
portion of a year), subject to increases, if any, as the Compensation Committee
of the Board may determine in its sole discretion after annual review of the
Employee's performance of his duties hereunder. Such base salary shall be
payable in periodic installments in accordance with the terms of the Company's
regular payroll practices in effect from time to time during the term of this
Agreement, but in no event less frequently than once each month.
3.2. BONUSES. In addition to the base salary and other benefits
provided to Employee hereunder, Employee is eligible to receive bonuses based on
Company performance and Employee's attainment of objectives established by the
Compensation Committee of the Board annually. The Employee's total annual
compensation (exclusive of any stock options issued pursuant to Section 3.3)
shall not exceed three hundred percent (300%) of his annual base salary in any
given fiscal year.
3.3. STOCK OPTIONS. Employee shall be granted stock options to
purchase 180,000 shares of DBSI's common stock at an exercise price determined
by the closing price of DBSI stock on October 7, 1999, at a discounted exercise
price of $1.0952 per share. The options are subject to vesting as follows:
<TABLE>
<CAPTION>
SHARES VESTING DATE
------ ------------
<S> <C>
60,000 October 18, 1999
60,000 October 18, 2000
60,000 October 18, 2001
</TABLE>
In addition, the stock options are subject to (a) further terms and conditions
set forth herein and in Stock Option Agreement attached hereto as Exhibit A and
(b) the Employee's execution of the Stock Option Agreement and all documents
customarily required by the Company to effect the grant of the options.
In connection with the Company's intention to file a registration
statement to register shares of its common stock for an employee benefit plan
on Form S-8, the Company shall also use its best efforts to register the common
stock underlying the stock options granted to Employee pursuant to this Section
3.3.
3.4. EXPENSES. The Company shall pay or reimburse Employee for all
reasonable, ordinary and necessary business expenses actually incurred or paid
by the Employee in the performance of Employee's services under this Agreement
in
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accordance with the expense reimbursement policies of the Company in effect from
time to time during the Employment Term, upon presentation of proper expense
statements or vouchers or such other written supporting documents as the Company
may reasonably require.
3.5. VACATION. Employee shall be entitled to six (6) weeks paid
vacation for each calendar year (prorated for any portion of a year, as
applicable), such vacation to accrue at the rate of 2.5 days per month.
Notwithstanding anything to the contrary in this Agreement, vacation time shall
cease to accrue beyond eight (8) weeks at any given time during the Employment
Term.
3.6. GENERAL EMPLOYMENT BENEFITS. Except where expressly provided for
herein, Employee shall be entitled to participate in, and to receive the
benefits under, any pension, health, life, accident and disability insurance
plans or programs and any other employee benefit or fringe benefit plans that
the Company makes available generally to its employees, as the same may be in
effect from time to time during the Employment Term.
3.7. INDEMNIFICATION. The Company shall indemnify and hold Employee
harmless for any actions taken or decisions made by him in good faith while
performing services in his capacity as Sr. Vice President of Finance and Chief
Financial Officer of the Company during the Employment Term. The Company agrees
to indemnify and hold Employee harmless to the extent provided in an
indemnification agreement attached hereto as Exhibit B and incorporated herein
by reference.
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1. TERMINATION. This Agreement may be terminated earlier as provided
for in this Article IV, or extended by further written agreement of the parties.
4.2. TERMINATION FOR CAUSE. The Company reserves the right to
terminate this Agreement for cause upon: (a) Employee's willful and continued
failure to substantially perform his duties with the Company (other than such
failure resulting from his incapacity due to physical or mental illness); (b)
Employee's willful engagement in gross misconduct as determined by the Board
which is materially and demonstrably injurious to the Company; or (c )
Employee's commission of a felony or an act of fraud against the Company or its
affiliates.
Upon termination for cause, Employee shall not be entitled to any
severance benefits and all options which have not vested shall be cancelled.
4.3. TERMINATION WITHOUT CAUSE. Notwithstanding anything to the
contrary in this Agreement, the Company reserves the right to terminate this
Agreement at any time without cause subject to the express terms and provisions
below.
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If Employee is terminated without cause, the Company agrees to pay
Employee upon termination the lump sum amount equal to his then base salary of
one year (less tax and other deductions required by law) so long as Employee
does not compete with the Company (in the manner described below) and complies
with the provisions of Article V.
If Employee is terminated without cause, Employee shall be entitled to
full vesting of all options granted pursuant to this Agreement. The options must
be exercised within ten years after the date of such termination or such lesser
period specified in the option agreement (but in no event after the expiration
date of option).
It is expressly intended by the parties that if the "does not compete"
provision of this Section 4.3 of the Agreement is found to be unenforceable, the
Company's obligation to pay Employee's remaining salary is conditioned upon
compliance with the provisions of Article V.
For the purposes of this Agreement, the phrase "compete with the
Company," or the substantial equivalent thereof, means that Employee, either
alone or as a partner, member, director, employee, shareholder or agent of any
other business, or in any other individual or representative capacity, directly
or indirectly owns, manages, operates, controls, or participates in the
ownership, management, operation or control of, or works for or provides
consulting services to, or permits the use of his name by, or lends money to,
any business or activity which is or which becomes, at the time of the acts or
conduct in question, directly or indirectly competitive with the business of the
Company.
4.4. VOLUNTARY TERMINATION BY EMPLOYEE. Notwithstanding anything to
the contrary in this Agreement, Employee may terminate this Agreement at any
time upon sixty (60) days written notice to the Company.
If Employee voluntarily terminates employment, Employee shall not be
entitled to any severance benefits and all options which have not vested shall
be cancelled.
4.5. DISABILITY. If Employee becomes permanently and totally disabled,
this Agreement shall be terminated. Employee shall be deemed permanently and
totally disabled if he is unable to engage in the activities required by this
Agreement by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 3 months. Upon termination due
to disability, any further compensation and effect on any unvested options will
be treated as terminated without cause pursuant to Section 4.3.
4.6. DEATH. If Employee dies during the term of this Agreement, this
Agreement shall be terminated on the last day of the calendar month of his death
subject to the express terms and provisions below.
Upon death all unvested options shall be vested as of the date of
death and may be exercised by the designated beneficiary, as provided in Section
6.8 below, the estate or
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Employee's personal representative in whole or in part at any time within ten
(10) years after the date of death or such lesser period specified in the option
agreement (in no event after the expiration date of option).
Company shall provide Employee with life insurance, at Company's
expense, in an amount equal to two times the Employee's annual salary.
4.7. EFFECT OF TERMINATION. Except as expressly provided for in this
Agreement, the termination of employment shall not excuse any obligation that
accrued prior to termination, nor shall termination excuse the performance of
any obligation which is required or to be performed after termination. Any such
obligation shall survive the termination of employment and this Agreement.
ARTICLE V
COVENANTS AND REPRESENTATIONS OF EMPLOYEE
5.1. UNFAIR COMPETITION. Employee acknowledges that he will have
access at the highest level to, and the opportunity to acquire knowledge of, the
Company's customer lists, customer needs, business plans, trade secrets and
other confidential and proprietary information from which the Company may derive
economic or competitive advantage, and that he is entering into the covenants
and representations in this Article V in order to preserve the goodwill and
going concern value of the Company, and to induce the Company to enter into this
Agreement. Employee agrees not to engage in any unfair competition with
Employer, but not limited to the acts and conducts described.
5.2. CONFIDENTIAL INFORMATION. During the Employment Term and at all
times thereafter, the Employee agrees to keep secret and to retain in the
strictest confidence all confidential matters which relate to the Company or any
of its "affiliates" (as that term is defined in the Exchange Act, of 1934, as
amended ("the Exchange Act"), including, without limitation, customer lists,
client lists, trade secrets, pricing lists, business plans, financial
projections and reports, business strategies, internal operating procedures, and
other confidential business information from which the Company derives an
economic or competitive advantage, or from which the Company might derive such
advantage in its business, whether or not labeled "secret" or "confidential,"
and not to disclose any such information to anyone outside of the Company,
whether during or after the Employment Term, except as required in connection
with performing the services to the Company.
5.3. NON-SOLICITATION OF CUSTOMERS. During the Employment Term,
Employee will have access to confidential records and data pertaining to the
Company's customers, their needs, and the relationship between the Company and
its customers. Such information is considered secret and is disclosed during the
Employment Term in confidence. Accordingly, during the Employment Term, Employee
and any entity controlled by him or with which he is associated (as the terms
"control" and "associate" are defined in the Exchange Act) shall not, directly
or indirectly (i) solicit for a competitive purpose, interfere with, induce or
entice away any person or entity that is or was a client, customer or agent of
the Company or its affiliates (as the term "affiliate" is
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defined in the Exchange. Act), or (ii) in any manner persuade or attempt to
persuade any such person or entity (A) to discontinue its business relationship
with the Company or its affiliates, or (B) to enter into a business relationship
with any other entity or person the loss of which Employee should reasonably
anticipate would be detrimental to the Company or its affiliates in any respect.
5.4. NON-SOLICITATION OF OTHER EMPLOYEES. Employee and any entity
controlled by him or with which he is, associated (as the terms "control" and
"associate" are defined in the Exchange Act) shall not, during the Employment
Term, directly or indirectly solicit, interfere with, offer to hire or induce
any person who is or was an officer or employee of the Company or any affiliate
(as the term "affiliate" is defined in the Exchange Act) to discontinue his or
her relationship with the Company or an affiliate of the Company, in order to
accept employment by, or enter into a business relationship with, any other
entity or person. These acts are hereinafter referred to as the "prohibited acts
of solicitation."
5.5. RETURN OF PROPERTY. Upon termination of employment, and at the
request of the Company otherwise, the Employee agrees to promptly deliver to the
Company all Company or affiliate memoranda, notes, records, reports, manuals,
drawings, designs, computer files in any media, and other documents (including
extracts and copies thereof) relating to the Company or its affiliate, and all
other property of the Company.
5.6. INVENTIONS. All processes, inventions, patents, copyrights,
trademarks, and other intangible rights that may be conceived or developed by
the Employee, either alone or with others, during the Employment Term, whether
or not conceived or developed during Employee's working hours, and with respect
to which the equipment, supplies, facilities or trade secret information of the
Company was used, or that relate at the time of conception or reduction to
practice of the invention to the business of the Company or to the Company's
actual or demonstrably anticipated research or development, or that result from
any work performed by Employee for the Company, shall be the sole property of
the Employer. Employee shall disclose to the Company all inventions or ideas
conceived during the Employment Term, whether or not the property of Employer
under the terms of this provision, provided that such disclosure shall be
received by the Company in confidence. Employee shall execute all documents,
including patent applications and assignments, required by the Company to
establish the Company's rights under this provision.
5.7. REPRESENTATIONS. The Employee represents and warrants to the
Company that he has full power to enter into this Agreement and perform his
duties hereunder, and that his execution and delivery of this Agreement and the
performance of his duties shall not result in a breach of, or constitute a
default under, any agreement or understanding, whether oral or written,
including, without limitation, any restrictive covenant or confidentiality
agreement, to which he is a party or by which he may be bound.
5.8. NON-PAYMENT UPON NON-COMPLIANCE. Should Employee breach any one of
the covenants set forth in this Article V, the Company shall have no obligation
to make
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the payments or to provide Employee the benefits described in sections 4.3 or
4.4 above, as applicable, in addition to all other rights and remedies the
Company may have available at law or in equity. The Company shall provide
written notice to Employee, ten (10) days prior to an expected payment, of the
breach of a covenant and the ensuing nonpayment thereof; provided, however, that
if the Company learns of the breach without sufficient time to provide ten (10)
days notice, the Company shall provide written notice as SOON thereafter as
practicable.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1. NOTICES. All notices to be given by either party to the other
shall be in writing and may be transmitted by personal delivery, facsimile
transmission, overnight courier or mail, registered or certified, postage
prepaid with return receipt requested; PROVIDED, HOWEVER, that notices of change
of address or telex or facsimile number shall be effective only upon actual
receipt by the other party. Notices shall be delivered at the following
addresses, unless changed as provided for herein.
To the Employee:
Stanton C. Lawson
1702 Champagne Place
Petaluma, CA 94954
To the Company:
DBS Industries, Inc.
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
6.2. NO ASSIGNMENT. This Agreement, and the rights and obligations of
the parties, may not be assigned by either party without the prior written
consent of the other party.
6.3. APPLICABLE LAW. This Agreement and the relationships of the
parties in connection with the subject matter of this Agreement shall be
governed by, and construed under, the laws of the State of California.
6.4. ENTIRE AGREEMENT. This Agreement and the Exhibits to this
Agreement supersede any and all other agreements or understandings of the
parties, either oral or written, with respect to this employment of Employee by
the Company, and contains the complete and final agreement and understanding of
the parties with respect thereto. Employee acknowledges that no representation,
inducements, promises, or agreements, oral or otherwise, have been made by the
Company or any of its officers, directors, employees or agents, which are not
expressed herein, and that no other agreement shall be valid or binding on the
Company.
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<PAGE>
6.5. WITHHOLDING TAXES. All amounts payable under this Agreement,
whether such payment is to be made in cash or other property, including without
limitation stock of the Company, shall be subject to withholding for Federal,
state and local income taxes, employment and payroll taxes, and other legally
required withholding taxes and contributions to the extent appropriate in the
determination of the Company, and the Employee agrees to report all such amounts
as ordinary income on his personal income tax returns and for all other
purposes, as called for.
At the election of Employee, Employee shall have the right to sell to
the Company any vested stock options (at the then fair market value of the
common stock less the exercise price) in order to meet any withholding
requirements.
6.6. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable by any judgment of a tribunal of competent
jurisdiction, the remaining provisions and terms of this Agreement shall not be
affected by such judgment, and this Agreement shall be carried out as nearly as
possible according to its original terms and intent and, to the full extent
permitted by law, any provision or restrictions found to be invalid shall be
amended with such modifications as may be necessary to cure such invalidity, and
such restrictions shall apply as so modified, or if such provisions cannot be
amended, they shall be deemed severable from the remaining provisions and the
remaining provisions shall be fully enforceable in accordance with law.
6.7. EFFECT OF WAIVER. The failure of either party to insist on strict
compliance with any provision of this Agreement by the other party shall not be
deemed a waiver of such of such provision, or a relinquishment of any right
thereunder, or to affect either the validity of this Agreement, and shall not
prevent enforcement of such provision, or any similar provision, at any time.
6.8. DESIGNATION OF BENEFICIARY. If the Employee shall die before
receipt of all payments and benefits to which he is entitled under this
Agreement, payment of such amounts or benefits in the manner provided herein
shall be made to such beneficiary as he shall have designated in writing filed
with the Secretary of the Company or, in the absence of such designation, to his
estate or personal representative.
6.9. ARBITRATION. Any controversy between Employer and Employee
involving the construction or application of any of the terms, provisions, or
conditions of this Agreement shall be submitted to arbitration. Arbitration
shall comply with and be governed by the provisions of the American Arbitration
Association.
6.10. ATTORNEYS FEES. In the event of any litigation arising out of
this Agreement, or the parties' performance as outlined herein, the prevailing
party shall be entitled to an award of costs, including an award of reasonable
attorney's fees.
8
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6.11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
EMPLOYER: DBS INDUSTRIES, INC.
BY:
---------------------------
Fred W. Thompson, President
EMPLOYEE:
---------------------------
Stanton C. Lawson
9
<PAGE>
EXHIBIT A
DATE OF GRANT: OCTOBER 7, 1999
----------------
DBS INDUSTRIES, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT is made by and between DBS Industries, a Delaware
corporation (the "Company") and Stanton C. Lawson ("Optionee"), effective as of
October 7, 1999, contingent upon commencement of employment at the Company by
Optionee.
In consideration of the mutual covenants contained herein and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee, in the manner and
subject to the conditions hereinafter provided, the right, privilege and option
to purchase (the "Option") an aggregate of one hundred eighty thousand (180,000)
shares of the Company's Common Stock, par value $.0004, (the "Shares").
2. TERM OF OPTION. Subject to the terms, conditions, and restrictions set forth
herein, the term of this Option shall be ten (10) years from the date of grant
(the "Expiration Date"). Any portion of this Option not exercised prior to the
Expiration Date shall thereupon become null and void.
3. EXERCISE OF OPTION.
3.1. VESTING OF OPTION. This Option, shall become exercisable as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES VESTING DATE
<S> <C> <C>
60,000 October 18, 1999
60,000 October 18, 2000
60,000 October 18, 2001
</TABLE>
Each of the foregoing dates shall be referred to as a "Vesting Date"
for that portion of this Option vested on such date ("Vested Portion").
All or any portion of the shares underlying a Vested Portion of this
Option may be purchased during the term of this Option, but not as to less than
1,000 shares (unless the remaining shares then constituting the Vested Portion
of this Option is less than 1,000 shares) at any time.
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<PAGE>
3.2. MANNER OF EXERCISE. The Vested Portion of this Option may be
exercised from time to time, in whole or in part, by presentation of a Request
to Exercise Form, substantially in the form attached hereto, to the Company at
its principal office, which Form must be duly executed by Optionee and
accompanied by payment, in cash, cash equivalent or form of obligation
acceptable to the Company, in the aggregate amount of the Exercise Price (as
defined below), multiplied by the number of Shares the Optionee is purchasing at
such time, subject to reduction for withholding for tax obligations as provided
in Section 13.
Upon receipt and acceptance by the Company of such Form accompanied by
the payment specified, the Optionee shall be deemed to be the record owner of
the Shares purchased, notwithstanding that the stock transfer books of the
Company may then be closed or that certificates representing the Shares
purchased under this Option may not then be actually delivered to the Optionee.
3.3. EXERCISE PRICE. The exercise price (the "Exercise Price") payable
upon exercise of this Option shall be determined by the closing price of DBSI
stock on October 7, 1999, at a discounted exercise price of $1.0952 per share.
4. EXERCISE AFTER CERTAIN EVENTS.
4.1. TERMINATION OF EMPLOYMENT. If for any reason other than permanent
and total disability (as defined below) or death an Optionee ceases to be
employed by or to be a consultant or director of the Company, or a Subsidiary,
the Options shall be treated as follows:
a. TERMINATION FOR CAUSE: If Optionee is terminated for
cause, all options vested as of the date of termination may be exercised, in
whole or in part, at anytime within ten (10) years after the date of termination
or such lesser period specified in the Option Agreement. All unvested options
shall be cancelled.
b. TERMINATION WITHOUT CAUSE: If Optionee is terminated
without cause, all options shall immediately vest as of the date of termination
and may be exercised, in whole or in part, at any time within ten (10) years
after the date of termination or such lesser period specified in the Option
Agreement (in no event after the expiration date of the Option).
4.2. PERMANENT DISABILITY AND DEATH. If an Optionee becomes
permanently and totally disabled (within the meaning of Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended), or dies while employed by the
Company, or while acting as an officer, consultant or director of the Company,
or a Subsidiary, (or, if the Optionee dies within the period that the Option
remains exercisable after termination of employment or affiliation), Options
then held (to the extent then exercisable) may be exercised by the Optionee, the
Optionee's personal representative, or by the person to whom the Option is
transferred by will or the laws of descent and distribution, in whole or in
part, at any time
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<PAGE>
within ten (10) years after the disability or death (but in no event after the
expiration date of the Option).
5. RESTRICTIONS ON TRANSFER OF OPTION. This Option is not transferable by
Optionee other than by will or the laws of descent and distribution or if the
Company's consent to a transfer, which consent will not unreasonably be
withheld.
6. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. The existence of this Option shall
not affect the Company's right to effect adjustments, recapitalizations,
reorganizations or other changes in its or any other corporation's capital
structure or business, any merger or consolidation, any issuance of bonds,
debentures, preferred or prior preference stock ahead of or affecting the
Shares, the dissolution or liquidation of the Company's or any other
corporation's assets or business or any other corporate act whether similar to
the events described above or otherwise. If the outstanding shares of the
Company's Common Stock are increased or decreased in number or changed into or
exchanged for a different number or kind of securities of the Company or any
other corporation by reason of a recapitalization, reclassification, stock
split, reverse stock split, combination of shares, stock dividend or other
similar event, an appropriate adjustment of the number and kind of securities
with respect to which this Option may be exercised and the exercise price at
which this Option may be exercised will be made.
7. DISSOLUTION, LIQUIDATION, MERGER.
7.1. COMPANY NOT THE SURVIVOR. In the event of a dissolution or
liquidation of the Company, a merger, consolidation, combination or
reorganization in which the Company is not the surviving corporation, or a sale
of substantially all of the assets of the Company (as determined in the sole
discretion of the Board of Directors), the Administrator, in its absolute
discretion, may cancel each outstanding Option upon payment in cash to the
Optionee of the amount by which any cash and the fair market value of any other
property which the Optionee would have received as consideration for the shares
of Stock covered by the Option if the Option had been exercised before such
liquidation, dissolution, merger, consolidation or sale exceeds the exercise
price of the Option. In addition to the foregoing, in the event of a dissolution
or liquidation of the Company, or a merger consolidation, combination or
reorganization, in which the Company is not the surviving corporation, the
Administrator, in its absolute discretion, may accelerate the time within which
each outstanding Option may be exercised.
7.2. COMPANY IS THE SURVIVOR. In the event of a merger, consolidation,
combination or reorganization in which the Company is the surviving corporation,
the Board of Directors shall determine the appropriate adjustment of the number
and kind of securities with respect to which outstanding Options may be
exercised, and the exercise price at which outstanding Options may be exercised.
The Board of Directors shall determine, in its sole and absolute discretion,
when the Company shall be deemed to survive for purposes of this Plan.
12
<PAGE>
8. RESERVATION OF SHARES. The Company agrees that prior to the earlier of the
expiration of this Option or the exercise and purchase of the total in number of
Shares represented by this Option, there shall be reserved for issuance and
delivery upon exercise of this Option such number of the Company's authorized
and unissued Shares as shall be necessary to satisfy the terms and conditions of
this Agreement. However, see Section 15 with respect to the Company's obligation
to comply with the securities laws.
9. NO RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a shareholder
with respect to any Shares covered by this Option unless the Optionee shall have
exercised this Option, and then only with respect to the shares underlying the
portion of the Option exercised. The Optionee shall have no right to vote any
Shares, or to receive distributions of dividends or any assets or proceeds from
the sale of Company assets upon liquidation until Optionee has effectively
exercised this Option and fully paid for such Shares. Subject to Section 6, no
adjustment shall be made for dividends or other rights for which the record date
is prior to the date title to the Shares has been acquired by the Optionee.
10. NO RIGHTS TO EMPLOYMENT OR CONTINUED EMPLOYMENT. The grant of this Option
shall in no way be construed so as to confer on Optionee the rights to
employment or continued employment by the Company.
11. SUSPENSION AND TERMINATION. In the event the Board or the Administrator
reasonably believes that the Optionee has committed an act of misconduct
specified below, the Administrator may suspend the Optionee's right to exercise
any Option pending final determination by the Board or the Administrator, which
final determination shall be made within five (5) business days of such
suspension. If the Administrator determines that an Optionee has committed an
act of embezzlement, fraud, breach of fiduciary duty or deliberate disregard of
the Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his estate shall be entitled to
exercise any Option hereunder. In making such determination, the Board or the
Administrator shall act fairly and in good faith and shall give the Optionee an
opportunity to appear and present evidence on the Optionee's behalf.
12. PARTICIPATION IN OTHER OPTION PLANS. The grant of this Option shall not
prevent Optionee from participating or being granted other options in the same
or other plans provided, however, that the Optionee meets the eligibility
requirements, and such participation or grant does not prevent the other plan
from meeting the requirements of the Internal Revenue Code of 1986, as amended.
13. PAYMENT OF TAXES. The Optionee shall pay the Company in cash all local,
state and federal withholding taxes applicable, in the Administrator's absolute
discretion, to the grant or exercise of this Option, or the transfer or other
disposition of Shares acquired
13
<PAGE>
upon exercise of this Option. Any such payment must be made promptly when the
amount of such obligation becomes determinable.
At the election of Employee, Employer shall have the right to sell to
the Company any vested stock options (at the fair market value of the common
stock less the exercise price) in order to meet any withholding requirements.
14. ISSUE AND TRANSFER TAX. The Company will pay all issuance taxes, if any,
attributable to the initial issuance of Shares upon the exercise of the Option;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue or
delivery of any certificates for Shares in a name other than that of the
Optionee.
15. COMPLIANCE WITH SECURITIES LAWS. The Company shall not be obligated to issue
any Shares upon exercise of this Option unless such Shares are at that time
effectively registered or exempt from registration under the federal securities
laws and the offer and sale of the Shares are otherwise in compliance with all
applicable securities laws. The Company intends to register the Shares under the
federal securities laws and to take whatever other steps may be necessary to
enable the Shares to be offered and sold under federal or other securities laws.
Upon exercising all or any portion of this Option, an Optionee may be required
to furnish representations or undertakings deemed appropriate by the Company to
enable the offer and sale of the Shares or subsequent transfers of any interest
in such Shares to comply with applicable securities laws. Evidences of ownership
of Shares acquired upon exercise of this Option shall bear any legend required
by, or useful for purposes of compliance with, applicable securities laws or
this Agreement.
16. ARBITRATION. Any controversy, dispute or claim arising out of or relating to
this Option which cannot be amicably settled including, but not limited to, the
suspension or termination of Optionee's right in accordance with Section 11
above, shall be settled by arbitration conducted in San Francisco County or such
other mutually agreed upon location. Said arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association at a time and place within the above-referenced location as selected
by the arbitrator(s).
16.1. INITIATION OF ARBITRATION. After seven (7) days prior written
notice to the other, either party hereto may formally initiate arbitration under
this Agreement by filing a written request therefor, and paying the appropriate
filing fees, if any.
16.2. HEARING AND DETERMINATION DATES. The hearing before the
arbitrator shall occur within thirty (30) days from the date the matter is
submitted to arbitration. Further, a determination by the arbitrator shall be
made within forty-five (45) days from the date the matter is submitted to
arbitration. Thereafter, the arbitrator shall have fifteen (15) days to provide
the parties with his or her decision in writing. However, any failure to meet
the deadlines in this section will not affect the validity of any decision or
award.
14
<PAGE>
16.3. BINDING NATURE OF DECISION. The decision of the arbitrator shall
be binding on the parties. Judgment thereon shall be entered in a court of
competent jurisdiction.
16.4. INJUNCTIVE ACTIONS. Nothing herein contained shall bar the right
of either party to seek to obtain injunctive relief or other provisional
remedies against threatened or actual conduct that will cause loss or damages
under the usual equity rules including the applicable rules for obtaining
preliminary injunctions and other provisional remedies.
16.5. COSTS. The cost of arbitration, including the fees of the
arbitrator, shall initially be borne equally by the parties; provided, the
prevailing party (as determined by the arbitrator in accordance with California
Code of Civil Procedure Section 1032) shall be entitled to recover such costs,
in addition to attorneys' fees and other costs, in accordance with Section 19 of
this Agreement.
17. NOTICES. All notices to be given by either party to the other shall be in
writing and may be transmitted by personal delivery, facsimile transmission,
overnight courier or mail, registered or certified, postage prepaid with return
receipt requested; PROVIDED, HOWEVER, that notices of change of address or telex
or facsimile number shall be effective only upon actual receipt by the other
party. Notices shall be delivered at the following addresses, unless changed as
provided for herein.
To the Optionee:
Stanton C. Lawson
1702 Champagne Place
Petaluma, CA 94954
To the Company:
DBS Industries, Inc.
100 Shoreline Highway, Suite 190A
Mill Valley, CA 9
18. APPLICABLE LAW. This Option and the relationship of the parties in
connection with its subject matter shall be governed by, and construed under,
the laws of the State of California.
19. ATTORNEYS FEES. In the event of any litigation, arbitration, or other
proceeding arising out of this Option the prevailing party shall be entitled to
an award of costs, including an award of reasonable attorneys' fees. Any
judgment, order, or award entered in any such proceeding shall designate a
specific sum as such an award of attorney's fees and costs incurred. This
attorneys' fee provision is intended to be severable from the other provisions
of this Agreement, shall survive any judgment or order entered in any proceeding
and shall not be deemed merged into any such judgment or order, so that such
further fees and costs as may be incurred in the enforcement of an award or
judgment or
15
<PAGE>
in defending it on appeal shall likewise be recoverable by further order of a
court or panel or in a separate action as may be appropriate.
20. BINDING EFFECT. This Agreement shall inure to the benefit of, and be binding
upon, the parties hereto and their respective heirs, executors, and successors.
21. COUNTERPARTS. This Option may be executed in one or more counterparts, each
of which when taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Option Agreement has been executed as of this 18th day
of October, 1999, at Mill Valley, California.
THE COMPANY: DBS Industries, Inc.
By:
-------------------------------
Fred W. Thompson, President
OPTIONEE
-------------------------------
Stanton C. Lawson
16
<PAGE>
REQUEST TO EXERCISE FORM
Dated:________________
The undersigned hereby irrevocably elects to exercise all or part, as
specified below, of the Vested Portion of the option ("Option") granted to him
pursuant to a certain stock option agreement ("Agreement") effective
________________, between the undersigned and DBS Industries, Inc. (the
"Company") to purchase an aggregate of __________________________ shares of the
Company's Common Stock, par value $ ______________, (the "Shares").
The undersigned hereby tenders cash, cash equivalent or a promissory note in
a form acceptable by the Company in the amount of $ ______________ per share
multiplied by ___, the number of Shares he is purchasing at this time, for a
total of $ ____________________, which constitutes full payment of the total
Exercise Price thereof.
INSTRUCTIONS FOR REGISTRATION
OF SHARES IN COMPANY'S TRANSFER
BOOKS
Name:_______________________________________
(Please typewrite or print in block letters)
Address:____________________________________
Signature:__________________________________
Accepted by DBS Industries, Inc.:
By:_________________________________
Name:_______________________________
Title:______________________________
17
<PAGE>
EXHIBIT B
AGREEMENT TO INDEMNIFY
STANTON C. LAWSON
BY
DBS INDUSTRIES, INC.
A DELAWARE CORPORATION
18
<PAGE>
AGREEMENT TO INDEMNIFY STANTON C. LAWSON
BY
DBS INDUSTRIES, INC.
THIS AGREEMENT is executed this 18th day of October 1999, by and
between DBS INDUSTRIES, INC., a Delaware corporation (hereinafter referred to as
"Corporation"), and Stanton C. Lawson (hereinafter referred to as "Indemnitee").
WHEREAS, Indemnitee has agreed to serve or continue to serve, as an
officer, director or key employee of the corporation or its subsidiary; and
WHEREAS, as an inducement for indemnitee to serve, or continue serving
as an employee of the Corporation, the Corporation desires to provide its
employees with indemnification to the greatest extent permissible under the law.
NOW THEREFORE, in consideration for the mutual promises, conditions,
and forebearances contained herein, and as an inducement for the Indemnitee's
continued service as an officer and director, the parties agree as follows:
1. DEFINITIONS.
a. "Expenses" shall mean any:
(1) With respect to any Indemnifiable Event, any expense,
liability, lien, cost, assessment, penalty, damage, tax, demand, or loss,
including attorneys' fees, judgments, fines, ERISA excise taxes and penalties,
and amounts paid or to be paid in settlement thereof;
(2) Any interest, assessments, or other charges imposed on any
of the items in part (1) above;
(3) Any federal, state, or local taxes and/or penalties
imposed as a result of the actual or deemed receipt of any payments under this
Agreement, and any Expense paid or incurred in connection with investigating,
defending, being a witness in, or participating in (including on appeal), or
preparing for any of the foregoing in, any Proceeding relating to any
Indemnifiable Event; and
(4) All claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest, penalties
and reasonable attorneys' fees that Indemnitee shall incur or suffer, which
arise, result from, or relate to any breach or inaccuracy of any of the
representations and warranties of Corporation or the failure of Corporation to
perform any of its covenants, agreements or obligations
19
<PAGE>
contained in this Agreement or in any instrument or other document delivered
hereunder or in connection herewith.
b. "Indemnifiable Event" shall mean any event or occurrence that takes
place either before or after execution of this Agreement that is related to:
(1) The fact that Indemnitee is or was a director, officer,
employee or agent of Corporation, or while a director, officer or agent is or
was serving at the request of Corporation as a director, officer, employee,
trustee, agent, or fiduciary of another corporation, partnership, joint venture,
employment benefit plan, trust or other enterprise; or
(2) Anything done or not done by Indemnitee in any such
capacity, whether or not the basis of the Proceeding is an alleged action in an
official capacity as a director, officer, employee, or agent, or in any other
capacity while serving as a director, officer or agent of Corporation.
c. "Proceeding" shall mean any threatened, pending, or completed
action, claim, demand, suit, arbitration or proceeding, or any claim, demand,
inquiry, hearing, or investigation, whether conducted by Corporation or any
other party, that Indemnitee in good faith believes might lead to the
institution of any such action, suit, arbitration or proceeding, whether civil,
criminal, in equity, administrative, investigative or other.
2. INDEMNIFICATION OF INDEMNITEE. In the event Indemnitee was, is, or becomes a
participant in, or is threatened to be made a participant in, a Proceeding by
reason of (or arising in part out of) an Indemnifiable Event, Corporation shall
indemnify Indemnitee from and against any and all Expenses to the fullest extent
permitted by law, as the same exists or may hereafter be amended or interpreted
(but in the case of any such amendment or interpretation, only to the extent
that such amendment or interpretation permits corporation to provide broader
indemnification rights than were permitted prior thereto). Corporation's
obligation to indemnify Indemnitee shall apply whether or not there is any
allegation that Indemnitee was acting beyond or outside his scope of authority
as an officer, director or agent of Corporation. It is intended that this
covenant of indemnification shall be construed as broadly as possible to include
any claim, action, suit, proceeding or arbitration against Indemnitee without
regard to whether or not Indemnitee was at fault.
3. PAYMENT OF EXPENSES.
a. If so requested by Indemnitee, Corporation shall from time to time,
within ten (10) business days of such request, advance up to Fifty Thousand
Dollars ($50,000) in expenses to Indemnitee ("Expense Advance") for the purpose
of paying legal retainers and deposits against anticipated Expenses. The
provisions of this Section shall not in any way limit Corporation's obligation
to indemnify Indemnitee.
b. The Corporation shall promptly pay Indemnitee's Expenses reasonably
incurred within thirty (30) days from Indemnitee's tender of invoices reflecting
such Expenses.
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<PAGE>
c. If Corporation fails to pay any such Expenses within thirty (30)
days, Corporation shall pay to Indemnitee a late fee of one and one-half percent
(1-1/2%) per month or part thereof until all such expenses are paid in full, in
addition to all other damage suffered by Indemnitee.
d. To the extent it is ultimately found that Indemnitee is not entitled
to indemnification under the terms of this Agreement, Corporation shall be
entitled to be reimbursed by Indemnitee for all such amounts (the "Reimbursed
Amounts"), and Indemnitee hereby agrees to reimburse corporation promptly for
the same. Indemnitee's obligation to reimburse Corporation for the Reimbursed
Amounts shall be unsecured and no interest shall be charged thereon.
4. NOTICE AND OPPORTUNITV TO DEFEND. Indemnitee shall receive indemnification
from corporation in accordance with this Agreement as soon as practicable after
Indemnitee has made written demand on Corporation for indemnification. If any
Proceeding is initiated, or any claim or demand is made, against Indemnitee with
respect to an Indemnifiable Event, then the Indemnitee shall give prompt written
notice of such Proceeding to Corporation. Corporation shall, at its own expense
and with its own counsel, if Indemnitee so chooses, defend or settle such
Proceeding; provided, however, that: i) Corporation shall keep Indemnitee
informed of all material developments and events relating to such Proceeding;
ii) Indemnitee shall have the right to participate, at his/her own expense,
provided that Indemnitee has requested that Corporation defend Indemnitee, in
the defense of such Proceeding, and shall cooperate as reasonably requested by
Corporation in the defense thereof; and iii) Corporation shall not settle such
Proceeding without the prior written consent of Indemnitee, which consent shall
not be unreasonably withheld. If Corporation defends Indemnitee under a
reservation of rights with respect to any Proceeding, under such circumstances,
the rights, duties and obligations of the parties and counsel shall be governed
by SAN DIEGO FEDERAL CREDIT UNION V. CUMIS INSURANCE SOCIETY, INC. (1984) 162
Cal.App.3d 358 and California Civil Code Section 2778 and Corporation shall
provide to Indemnitee separate counsel paid for by Corporation.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of
this Agreement to indemnification by Corporation for a portion of Expenses, but
not for the total amount of Expenses, Corporation shall indemnify Indemnitee for
the portion to which Indemnitee is entitled.
6. LIMITATION ON CORPORATION. Corporation shall not settle any Proceeding in any
manner that would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent. Indemnitee will not unreasonably withhold consent
to a proposed settlement.
7. LIMITATION ON INDEMNITEE. Indemnitee shall not settle any Proceeding in any
manner that would impose any penalty or limitation on Corporation without
21
<PAGE>
Corporation's written consent. Corporation will not unreasonably withhold
consent to a proposed settlement.
Corporation shall not be liable to indemnify Indemnitee under this
Agreement with regard to any judicial award if Corporation was not given a
reasonable and timely opportunity, at its expense, to participate in the defense
of such action.
8. NON-EXCLUSIVITY. The rights of Indemnitee under this Agreement shall be in
addition to any other indemnification rights Indemnitee may have under
Corporation's Articles of Incorporation, Bylaws, applicable law, or otherwise.
To the extent that a change in applicable law (whether by statute or judicial
decision) permits greater indemnification than afforded currently under
Corporation's Articles of Incorporation, Bylaws, applicable law, or this
Agreement, it is the intent of the parties that Indemnitee enjoy by this
Agreement the greater benefits afforded by such change.
9. INDEMNIFICATION NOT A WAIVER. Indemnitee's right to indemnification pursuant
to this Agreement shall not be deemed to be his exclusive remedy in connection
with or arising from any Indemnifiable Event or the failure of Corporation to
perform any of its covenants or obligations contained in this Agreement; and the
exercise by Indemnitee of his/her right to demand and receive such
indemnification shall not be deemed to prejudice, or to operate as a waiver of,
any remedy to which he may be entitled at law or equity.
10. LIABILITY INSURANCE. To the extent Corporation maintains an insurance policy
or policies providing directors' and officers' liability insurance, to the
extent that Indemnitee may be covered by such policy or policies, Indemnitee
shall be covered by such policy or policies, in accordance with its or their
terms, to the maximum extent of the coverage available for any corporate
director or officer.
11. SUBROGATION. In the event of payment under this Agreement, Corporation shall
be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable Corporation effectively to bring suit to enforce
such rights.
12. NO DUPLICATION OF PAYMENTS. Corporation shall not be liable under this
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise received payment (under any
insurance policy, bylaw, or otherwise) of the amounts otherwise Indemnifiable
under this Agreement.
13. NO RIGHT TO SET-OFF. Corporation shall have no right to set off the amount
of any Expense with respect to which Indemnitee may be indemnified by
Corporation hereunder against the amount of any obligation of Indemnitee to
Corporation.
14. ACCOUNTING OF PROFITS UNDER SECTION 16(b). The Corporation shall not be
liable under this Agreement to make any payment in connection with any claim
made against
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Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of the Corporation within the meaning of Section 16(b)
of the Securities Exchange Act of 1934 and Amendments thereto, or similar
provisions of any state statute or common law.
15. AUTHORIZATION; BINDING NATURE OF AGREEMENT. Corporation has all necessary
power and authority to enter into and perform its obligations under this
Agreement, and the execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of Corporation and its
officers, directors and shareholders. No authorization, consent or approval of
or filing with any governmental authority or any other person is required to be
obtained or made by Corporation in connection with the execution, delivery or
performance of this Agreement.
16. CONFIDENTIALITY. Unless otherwise required by law, Corporation agrees to,
and shall undertake all necessary action required to, keep confidential all
information which relates to any Indemnifiable Event, Expense or any other
transaction or defense or indemnity arising out of this Agreement which relates
to Indemnitee.
17. AMENDMENT OF THIS AGREEMENT. No supplement, modification, or amendment of
this Agreement shall be binding unless executed in writing by the parties
hereto. No waiver of any of the provisions of this Agreement shall operate as a
waiver of any other provisions hereof, nor shall such waiver constitute a
continuing waiver.
18. BINDING EFFECT. This Agreement shall be binding on and inure to the benefit
of and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation,
or otherwise to all or substantially all of the business and/or assets of the
Corporation), assigns, spouses, heirs and personal and legal representatives.
Corporation shall require and cause its successor to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that
Corporation would be required to perform if no such succession had taken place.
The indemnification provided under this Agreement shall continue for
Indemnitee for any action taken or not taken while serving in an indemnified
capacity pertaining to an Indemnifiable Event even though Indemnitee may have
ceased to serve in such capacity at the time of any Proceeding.
19. MAINTENANCE OF OBLIGATION TO INDEMNIFY. Corporation hereby covenants and
agrees that it shall not permit the indemnification provided to Indemnitee as
set forth in this Agreement to be compromised, restricted, limited, or
eliminated in any manner, including by way of amendment of Corporation's bylaws
and other governing documents.
20. SEVERABILITY. If any portion of this Agreement shall be held by a court of
competent jurisdiction to be invalid, void, or otherwise unenforceable, the
remaining provisions shall remain enforceable to the fullest extent permitted by
law. Furthermore, to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each
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portion of this Agreement containing any provision held to be invalid, void or
otherwise unenforceable, that is not itself invalid, void or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, void or unenforceable.
21. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws, except that Delaware or California law,
whichever provides the broadest and most beneficial indemnity rights to
Indemnitee, shall be applied in determining the scope and extent of the phrase
"to the fullest extent permitted by law," in Section 2 of this Agreement.
22. FURTHER ASSURANCES. Each party shall execute such instruments and other
documents, and take such action as may be required, as the other party may
reasonably request, for the purpose of carrying out or evidencing the
transactions contemplated hereby.
23. ATTORNEYS' FEES. In the event of the bringing of any action, suit or
arbitration by a party hereto against another party hereunder by reason of any
breach of any of the covenants or agreements or any inaccuracies in any of the
representations and warranties on the part of any party arising out of this
Agreement, then in that event, the prevailing party in such action, suit,
arbitration or dispute, whether by final judgment, or out of court settlement
shall be entitled to have and recover of and from the other parties all costs
and expenses of suit, including actual attorneys' fees.
24. BINDING ARBITRATION. Any claim, dispute, or controversy arising out of this
Agreement, or breach thereof, shall be resolved by submission to binding
arbitration.
a. ARBITRATION NOTICE. The arbitration shall commence upon any party
sending to any other party to this Agreement a notice in writing (the
"Arbitration Notice") demanding arbitration and specifying the issue(s) to be
arbitrated and all relief sought (the "Arbitration Matter").
b. SELECTION OF ARBITRATORS. The arbitrators shall be chosen as
follows:
The parties, or their legal representatives, may agree in writing upon
a sole arbitrator. In the event they cannot so agree each side shall, within
fifteen (15) days after the giving of the Arbitration Notice, exchange a list of
acceptable arbitrators consisting of attorneys at law, and from that list each
side may reject all but one arbitrator from each list. The acceptable
arbitrators shall constitute a new list and the process shall be repeated until
three (3) acceptable arbitrators are designated who shall constitute the
"Arbitration Panel." If three (3) acceptable arbitrators are not appointed
within thirty (30) days after giving the Arbitration Notice, Superior Court of
the State of California for the County of San Francisco shall, upon the filing
of a petition by any of the parties hereto pursuant to the provisions of
California Code of Civil Procedure Section 1281.6 (or any successor section),
and after a hearing at which all parties are afforded an opportunity to be
present
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and be heard, select a the neutral arbitrator from a list of five (5) persons
obtained by the court from the parties jointly or, if they cannot agree, from
the San Francisco County office of the American Arbitration Association.
c. BOOKS AND RECORDS. The parties agree to make available to the
Arbitration Panel all books, records, schedules, and other information requested
by it. Such matters are to be made available to the Arbitration Panel at such
times as are deemed necessary by it to make its decision as herein provided. The
Arbitration panel shall have all those powers set forth in Section 1282.6 of
California Code of Civil Procedure including, but not limited to, those powers
relating to the production of books, records, documents and other evidence.
d. DISCOVERY. The parties may conduct such discovery, and the
Arbitration Panel shall have such discovery powers, as are set forth in the
California Code of Civil Procedure Section 1283.05. The Arbitration Panel shall
be empowered to grant all provisional relief permitted by the California Code of
Civil Procedure. In addition to all other arbitration rights hereby provided,
the provisions of Sections 1282.2, 1282.4 and 1282.6 of the California Civil
Code shall apply. In addition to any and all arbitration rights hereby provided,
the arbitration proceedings and discovery shall be conducted pursuant to
Sections 1282 et seq. of California Code of Civil Procedure, including, without
limitation, the provisions of Sections 1282.2, 1282.4, 1283 and 1283.5.
e. ENFORCEMENT. Enforcement of the Arbitration Panel's award shall be
effected pursuant to California Civil Code Sections 1281 et seq. However, the
provisions of California Code of Civil Procedure Section 1281.8 shall not apply
and the Arbitration Panel shall be specifically empowered to grant all
provisional remedies permitted under the California Code of Civil Procedure.
f. LOCATION. The arbitration shall take place in the County of San
Francisco, State of California, at a time and place selected by the Arbitration
Panel. Notice in writing of such time and place shall be given by the
Arbitration Panel to each party at least thirty (30) days prior to the date so
fixed.
g. TIME PERIODS. The Arbitration Panel shall diligently, expeditiously,
and in good faith hear and decide Arbitration Matter under consideration, within
the limits and subject to the standards set forth in this Agreement. In any
event, such decision shall be rendered not later than thirty (30) days after the
arbitration hearing is conducted. If there is only one (1) arbitrator, his/her
decision shall be final and binding; if there are three (3) arbitrators, the
agreed decision of any two (2) of them shall be final and binding. If no two (2)
of the arbitrators are able to agree upon a decision, the decision of the
neutral third arbitrator shall be final and binding. The Arbitration Panel shall
prepare an award in writing which reflects the final decision of the Arbitration
Panel and a copy of same shall be delivered to each party hereto. Judicial
confirmation, correction, or vacation of the decision of the Arbitration Panel
shall be sought only in the Sacramento County Superior Court, which judgment may
be enforced and shall be
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accorded full faith and credit in any court of competent jurisdiction, including
any jurisdiction in which is located any real property which is the subject
matter of the dispute.
h. BINDING EFFECT. The arbitration award shall be final, conclusive and
binding on all parties thereto and shall be non-appealable. The costs of the
arbitrators shall be borne by the losing party.
25. NOTICES. All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on the
date of service if served personally on the party to whom notice is to be given,
or on the third day after mailing if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid, and
properly addressed as follows:
To Corporation: Fred Thompson, President
DBS Industries, Inc.
100 Shoreline Highway, Suite 190 A
Mill Valley, CA 94941
With a copy to: Daniel B. Eng, Esq.
Bartel Eng Linn & Schroder
300 Capitol Mall, suite 1100
Sacramento, Ca 95814
To Indemnitee: Stanton C. Lawson
1702 Champagne Place
Petaluma, CA 94954
26. EFFECTIVENESS. This Agreement shall immediately become effective upon
adoption by Corporation's Board of Directors. Notwithstanding the effectiveness
of this Agreement, Corporation shall use its best efforts to have its Board of
Directors approve this Agreement.
IN WITNESS WHEREOF, Corporation and Indemnitee have executed this
Agreement as of the date specified above.
CORPORATION:
DBS INDUSTRIES, INC.
BY: _____________________
Fred Thompson, President
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INDEMNITEE:
___________________________
Stanton C. Lawson
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EXHIBIT 10.52
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated this 8th day of
November, 1999 is entered into by and between DBS Industries, Inc., a Delaware
corporation (the "Company") and Randy Stratt. ("Employee"), in consideration of
the mutual promises and conditions made herein.
ARTICLE I
EMPLOYMENT AND TERM OF EMPLOYMENT
1.1. EMPLOYMENT AND TERM. The Company hereby employs Employee to render
full-time services to the Company on an exclusive basis, upon the terms and
conditions set forth below, from the date of this Agreement until the employment
relationship is terminated in accordance with the provisions of this Agreement.
This Agreement is for a term of three (3) years (the "Stated Term") effective
November 8, 1999, unless terminated earlier as provided for herein (the
"Employment Term").
1.2. ACCEPTANCE. Employee hereby accepts employment with the Company
and agrees to devote his full-time attention and best efforts exclusively to
rendering the services described below. The Employee shall accept and follow the
direction and authority of the Company's President and Chief Executive Officer
in the performance of his duties, and shall comply with all existing and future
regulations applicable to employees of the Company and to the Company's
business.
ARTICLE II
DUTIES OF EMPLOYEE
2.1. GENERAL DUTIES. Employee shall serve as the Sr. Vice President -
General Counsel of the Company. In his capacity as Sr. Vice President - General
Counsel, Employee shall do and perform all services, acts, or other things
necessary or advisable to manage and conduct the business of the Company,
including, but not limited to, the supervision, direction and control of the
business and other employees of the Company, subject to the policies and
direction of the Board of Directors (the "Board") and the President. Employee
shall have all powers, duties and responsibilities necessary to carry out his
duties, and such other powers and duties as the Board and President may
prescribe.
2.2. EXCLUSIVE SERVICES. It is understood and agreed that Employee may
not engage in any other business activity during the term of his employment
hereunder, whether or not for profit or other remuneration, without the prior
written consent of the Company. Further, Employee shall not directly or
indirectly acquire any stock or interest in any corporation, partnership, or
other business entity that competes, directly or indirectly, with the business
of the Company.
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2.3. REPORTING OBLIGATIONS. In connection with the performance of his
duties hereunder, unless otherwise instructed by the Company's Board, the
Employee shall report directly to the company's Sr. Vice President of Finance
for the first six (6) months of employment and thereafter to the President and
Chief Executive Officer of the Company.
ARTICLE III
COMPENSATION AND BENEFITS OF EMPLOYEE
3.1. ANNUAL BASE SALARY. The Company shall pay Employee salary for the
services to be rendered by him during the term of this Agreement at the rate of
one hundred sixty-five thousand dollars ($165,000) annually (prorated for any
portion of a year), subject to increases, if any, as the Compensation Committee
of the Board may determine in its sole discretion after annual review of the
Employee's performance of his duties hereunder. Such base salary shall be
payable in periodic installments in accordance with the terms of the Company's
regular payroll practices in effect from time to time during the term of this
Agreement, but in no event less frequently than once each month.
3.2. BONUSES. In addition to the base salary and other benefits
provided to Employee hereunder, Employee is eligible to receive bonuses based on
Company performance and Employee's attainment of objectives established by the
Compensation Committee of the Board annually. The Employee's total annual
compensation (exclusive of any stock options issued pursuant to Section 3.3)
shall not exceed three hundred percent (300%) of his annual base salary in any
given fiscal year.
3.3. STOCK OPTIONS. Employee shall be granted stock options to purchase
160,000 shares of DBSI's common stock at an exercise price determined by the
closing price of DBSI stock on October 18, 1999, at a discounted exercise price
of $1.0797 per share. The options are subject to vesting as follows:
<TABLE>
<CAPTION>
SHARES VESTING DATE
------ ------------
<S> <C>
53,333 November 8, 1999
53,333 November 8, 2000
53,334 November 8, 2001
</TABLE>
In addition, the stock options are subject to (a) further terms and conditions
set forth herein and in Stock Option Agreement attached hereto as Exhibit A and
(b) the Employee's execution of the Stock Option Agreement and all documents
customarily required by the Company to effect the grant of the options.
In connection with the Company's intention to file a registration
statement to register shares of its common stock for an employee benefit plan on
Form S-8, the Company shall also use its best efforts to register the common
stock underlying the stock options granted to Employee pursuant to this Section
3.3.
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3.4. EXPENSES. The Company shall pay or reimburse Employee for all
reasonable, ordinary and necessary business expenses actually incurred or paid
by the Employee in the performance of Employee's services under this Agreement
in accordance with the expense reimbursement policies of the Company in effect
from time to time during the Employment Term, upon presentation of proper
expense statements or vouchers or such other written supporting documents as the
Company may reasonably require.
3.5. VACATION. Employee shall be entitled to six (6) weeks paid
vacation for each calendar year (prorated for any portion of a year, as
applicable), such vacation to accrue at the rate of 2.5 days per month.
Notwithstanding anything to the contrary in this Agreement, vacation time shall
cease to accrue beyond eight (8) weeks at any given time during the Employment
Term.
3.6. GENERAL EMPLOYMENT BENEFITS. Except where expressly provided for
herein, Employee shall be entitled to participate in, and to receive the
benefits under, any pension, health, life, accident and disability insurance
plans or programs and any other employee benefit or fringe benefit plans that
the Company makes available generally to its employees, as the same may be in
effect from time to time during the Employment Term.
3.7. INDEMNIFICATION. The Company shall indemnify and hold Employee
harmless for any actions taken or decisions made by him in good faith while
performing services in his capacity as Sr. Vice President - General Counsel of
the Company during the Employment Term. The Company agrees to indemnify and hold
Employee harmless to the extent provided in an indemnification agreement
attached hereto as Exhibit B and incorporated herein by reference.
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1. TERMINATION. This Agreement may be terminated earlier as provided
for in this Article IV, or extended by further written agreement of the parties.
4.2. TERMINATION FOR CAUSE. The Company reserves the right to terminate
this Agreement for cause upon: (a) Employee's willful and continued failure to
substantially perform his duties with the Company (other than such failure
resulting from his incapacity due to physical or mental illness); (b) Employee's
willful engagement in gross misconduct as determined by the Board which is
materially and demonstrably injurious to the Company; or (c ) Employee's
commission of a felony or an act of fraud against the Company or its affiliates.
Upon termination for cause, Employee shall not be entitled to any
severance benefits and all options which have not vested shall be cancelled.
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4.3. TERMINATION WITHOUT CAUSE. Notwithstanding anything to the
contrary in this Agreement, the Company reserves the right to terminate this
Agreement at any time without cause subject to the express terms and provisions
below.
If Employee is terminated without cause, each month for a period of
twelve (12) months following termination the Employee shall be paid an amount
equal to his then monthly base salary so long as Employee does not compete with
the Company (in the manner described below) and complies with the provisions of
Article V. Payments shall be made in accordance with Section 3.1. This
arrangement shall continue for a period of twelve (12) months beginning the next
month following the month in which termination occurred.
If Employee is terminated without cause, Employee shall be entitled to
full vesting of all options granted pursuant to this Agreement. The options must
be exercised within ten years after the date of such termination or such lesser
period specified in the option agreement (but in no event after the expiration
date of option).
It is expressly intended by the parties that if the "does not compete"
provision of this Section 4.3 of the Agreement is found to be unenforceable, the
Company's obligation to pay Employee's remaining salary is conditioned upon
compliance with the provisions of Article V.
For the purposes of this Agreement, the phrase "compete with the
Company," or the substantial equivalent thereof, means that Employee, either
alone or as a partner, member, director, employee, shareholder or agent of any
other business, or in any other individual or representative capacity, directly
or indirectly owns, manages, operates, controls, or participates in the
ownership, management, operation or control of, or works for or provides
consulting services to, or permits the use of his name by, or lends money to,
any business or activity which is or which becomes, at the time of the acts or
conduct in question, directly or indirectly competitive with the business of the
Company.
4.4. VOLUNTARY TERMINATION BY EMPLOYEE. Notwithstanding anything to the
contrary in this Agreement, Employee may terminate this Agreement at any time
upon sixty (60) days written notice to the Company.
If Employee voluntarily terminates employment, Employee shall not be
entitled to any severance benefits and all options which have not vested shall
be cancelled.
4.5. DISABILITY. If Employee becomes permanently and totally disabled,
this Agreement shall be terminated. Employee shall be deemed permanently and
totally disabled if he is unable to engage in the activities required by this
Agreement by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 3 months. Upon termination due
to disability, any further compensation and effect on any unvested options will
be treated as terminated without cause pursuant to Section 4.3.
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4.6. DEATH. If Employee dies during the term of this Agreement, this
Agreement shall be terminated on the last day of the calendar month of his death
subject to the express terms and provisions below.
Upon death all unvested options shall be vested as of the date of death
and may be exercised by the designated beneficiary, as provided in Section 6.8
below, the estate or Employee's personal representative in whole or in part at
any time within ten (10) years after the date of death or such lesser period
specified in the option agreement (in no event after the expiration date of
option).
Company shall provide Employee with life insurance, at Company's
expense, in an amount equal to two times the Employee's annual salary.
4.7. EFFECT OF TERMINATION. Except as expressly provided for in this
Agreement, the termination of employment shall not excuse any obligation that
accrued prior to termination, nor shall termination excuse the performance of
any obligation which is required or to be performed after termination. Any such
obligation shall survive the termination of employment and this Agreement.
ARTICLE V
COVENANTS AND REPRESENTATIONS OF EMPLOYEE
5.1. UNFAIR COMPETITION. Employee acknowledges that he will have access
at the highest level to, and the opportunity to acquire knowledge of, the
Company's customer lists, customer needs, business plans, trade secrets and
other confidential and proprietary information from which the Company may derive
economic or competitive advantage, and that he is entering into the covenants
and representations in this Article V in order to preserve the goodwill and
going concern value of the Company, and to induce the Company to enter into this
Agreement. Employee agrees not to engage in any unfair competition with
Employer, but not limited to the acts and conducts described.
5.2. CONFIDENTIAL INFORMATION. During the Employment Term and at all
times thereafter, the Employee agrees to keep secret and to retain in the
strictest confidence all confidential matters which relate to the Company or any
of its "affiliates" (as that term is defined in the Exchange Act, of 1934, as
amended ("the Exchange Act"), including, without limitation, customer lists,
client lists, trade secrets, pricing lists, business plans, financial
projections and reports, business strategies, internal operating procedures, and
other confidential business information from which the Company derives an
economic or competitive advantage, or from which the Company might derive such
advantage in its business, whether or not labeled "secret" or "confidential,"
and not to disclose any such information to anyone outside of the Company,
whether during or after the Employment Term, except as required in connection
with performing the services to the Company.
5.3. NON-SOLICITATION OF CUSTOMERS. During the Employment Term,
Employee will have access to confidential records and data pertaining to the
Company's customers,
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their needs, and the relationship between the Company and its customers. Such
information is considered secret and is disclosed during the Employment Term in
confidence. Accordingly, during the Employment Term, Employee and any entity
controlled by him or with which he is associated (as the terms "control" and
"associate" are defined in the Exchange Act) shall not, directly or indirectly
(i) solicit for a competitive purpose, interfere with, induce or entice away any
person or entity that is or was a client, customer or agent of the Company or
its affiliates (as the term "affiliate" is defined in the Exchange. Act), or
(ii) in any manner persuade or attempt to persuade any such person or entity (A)
to discontinue its business relationship with the Company or its affiliates, or
(B) to enter into a business relationship with any other entity or person the
loss of which Employee should reasonably anticipate would be detrimental to the
Company or its affiliates in any respect.
5.4. NON-SOLICITATION OF OTHER EMPLOYEES. Employee and any entity
controlled by him or with which he is, associated (as the terms "control" and
"associate" are defined in the Exchange Act) shall not, during the Employment
Term, directly or indirectly solicit, interfere with, offer to hire or induce
any person who is or was an officer or employee of the Company or any affiliate
(as the term "affiliate" is defined in the Exchange Act) to discontinue his or
her relationship with the Company or an affiliate of the Company, in order to
accept employment by, or enter into a business relationship with, any other
entity or person. These acts are hereinafter referred to as the "prohibited acts
of solicitation."
5.5. RETURN OF PROPERTY. Upon termination of employment, and at the
request of the Company otherwise, the Employee agrees to promptly deliver to the
Company all Company or affiliate memoranda, notes, records, reports, manuals,
drawings, designs, computer files in any media, and other documents (including
extracts and copies thereof) relating to the Company or its affiliate, and all
other property of the Company.
5.6. INVENTIONS. All processes, inventions, patents, copyrights,
trademarks, and other intangible rights that may be conceived or developed by
the Employee, either alone or with others, during the Employment Term, whether
or not conceived or developed during Employee's working hours, and with respect
to which the equipment, supplies, facilities or trade secret information of the
Company was used, or that relate at the time of conception or reduction to
practice of the invention to the business of the Company or to the Company's
actual or demonstrably anticipated research or development, or that result from
any work performed by Employee for the Company, shall be the sole property of
the Employer. Employee shall disclose to the Company all inventions or ideas
conceived during the Employment Term, whether or not the property of Employer
under the terms of this provision, provided that such disclosure shall be
received by the Company in confidence. Employee shall execute all documents,
including patent applications and assignments, required by the Company to
establish the Company's rights under this provision.
5.7. REPRESENTATIONS. The Employee represents and warrants to the
Company that he has full power to enter into this Agreement and perform his
duties hereunder, and
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that his execution and delivery of this Agreement and the performance of his
duties shall not result in a breach of, or constitute a default under, any
agreement or understanding, whether oral or written, including, without
limitation, any restrictive covenant or confidentiality agreement, to which he
is a party or by which he may be bound.
5.8. NON-PAYMENT UPON NON-COMPLIANCE. Should Employee breach any one of
the covenants set forth in this Article V, the Company shall have no obligation
to make the payments or to provide Employee the benefits described in sections
4.3 or 4.4 above, as applicable, in addition to all other rights and remedies
the Company may have available at law or in equity. The Company shall provide
written notice to Employee, ten (10) days prior to an expected payment, of the
breach of a covenant and the ensuing nonpayment thereof; provided, however, that
if the Company learns of the breach without sufficient time to provide ten (10)
days notice, the Company shall provide written notice as SOON thereafter as
practicable.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1. NOTICES. All notices to be given by either party to the other
shall be in writing and may be transmitted by personal delivery, facsimile
transmission, overnight courier or mail, registered or certified, postage
prepaid with return receipt requested; PROVIDED, HOWEVER, that notices of change
of address or telex or facsimile number shall be effective only upon actual
receipt by the other party. Notices shall be delivered at the following
addresses, unless changed as provided for herein.
To the Employee:
Randy Stratt
2894 Bush Street
San Francisco, CA 94115
To the Company:
DBS Industries, Inc.
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
6.2. NO ASSIGNMENT. This Agreement, and the rights and obligations of
the parties, may not be assigned by either party without the prior written
consent of the other party.
6.3. APPLICABLE LAW. This Agreement and the relationships of the
parties in connection with the subject matter of this Agreement shall be
governed by, and construed under, the laws of the State of California.
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6.4. ENTIRE AGREEMENT. This Agreement and the Exhibits to this
Agreement supersede any and all other agreements or understandings of the
parties, either oral or written, with respect to this employment of Employee by
the Company, and contains the complete and final agreement and understanding of
the parties with respect thereto. Employee acknowledges that no representation,
inducements, promises, or agreements, oral or otherwise, have been made by the
Company or any of its officers, directors, employees or agents, which are not
expressed herein, and that no other agreement shall be valid or binding on the
Company.
6.5. WITHHOLDING TAXES. All amounts payable under this Agreement,
whether such payment is to be made in cash or other property, including without
limitation stock of the Company, shall be subject to withholding for Federal,
state and local income taxes, employment and payroll taxes, and other legally
required withholding taxes and contributions to the extent appropriate in the
determination of the Company, and the Employee agrees to report all such amounts
as ordinary income on his personal income tax returns and for all other
purposes, as called for.
At the election of Employee, Employee shall have the right to sell to
the Company any vested stock options (at the then fair market value of the
common stock less the exercise price) in order to meet any withholding
requirements.
6.6. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable by any judgment of a tribunal of competent
jurisdiction, the remaining provisions and terms of this Agreement shall not be
affected by such judgment, and this Agreement shall be carried out as nearly as
possible according to its original terms and intent and, to the full extent
permitted by law, any provision or restrictions found to be invalid shall be
amended with such modifications as may be necessary to cure such invalidity, and
such restrictions shall apply as so modified, or if such provisions cannot be
amended, they shall be deemed severable from the remaining provisions and the
remaining provisions shall be fully enforceable in accordance with law.
6.7. EFFECT OF WAIVER. The failure of either party to insist on strict
compliance with any provision of this Agreement by the other party shall not be
deemed a waiver of such of such provision, or a relinquishment of any right
thereunder, or to affect either the validity of this Agreement, and shall not
prevent enforcement of such provision, or any similar provision, at any time.
6.8. DESIGNATION OF BENEFICIARY. If the Employee shall die before
receipt of all payments and benefits to which he is entitled under this
Agreement, payment of such amounts or benefits in the manner provided herein
shall be made to such beneficiary as he shall have designated in writing filed
with the Secretary of the Company or, in the absence of such designation, to his
estate or personal representative.
6.9. ARBITRATION. Any controversy between Employer and Employee
involving the construction or application of any of the terms, provisions, or
conditions of this
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Agreement shall be submitted to arbitration. Arbitration shall comply with and
be governed by the provisions of the American Arbitration Association.
6.10. ATTORNEYS FEES. In the event of any litigation arising out of
this Agreement, or the parties' performance as outlined herein, the prevailing
party shall be entitled to an award of costs, including an award of reasonable
attorney's fees.
6.11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
EMPLOYER: DBS INDUSTRIES, INC.
BY:
--------------------------
Fred W. Thompson, President
EMPLOYEE:
--------------------------
Randy Stratt
9
<PAGE>
EXHIBIT A
DATE OF GRANT: OCTOBER 18, 1999
DBS INDUSTRIES, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT is made by and between DBS Industries, a Delaware
corporation (the "Company") and Randy Stratt ("Optionee"), effective as of
October 18, 1999, contingent upon commencement of employment at the Company by
Optionee.
In consideration of the mutual covenants contained herein and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee, in the manner and
subject to the conditions hereinafter provided, the right, privilege and option
to purchase (the "Option") an aggregate of one hundred sixty thousand (160,000)
shares of the Company's Common Stock, par value $.0004, (the "Shares").
2. TERM OF OPTION. Subject to the terms, conditions, and restrictions set forth
herein, the term of this Option shall be ten (10) years from the date of grant
(the "Expiration Date"). Any portion of this Option not exercised prior to the
Expiration Date shall thereupon become null and void.
3. EXERCISE OF OPTION.
3.1. VESTING OF OPTION. This Option shall become exercisable as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES VESTING DATE
<S> <C>
53,333 November 8, 1999
53,333 November 8, 2000
53,334 November 8, 2001
</TABLE>
Each of the foregoing dates shall be referred to as a "Vesting Date"
for that portion of this Option vested on such date ("Vested Portion").
All or any portion of the shares underlying a Vested Portion of this
Option may be purchased during the term of this Option, but not as to less than
1,000 shares (unless the remaining shares then constituting the Vested Portion
of this Option is less than 1,000 shares) at any time.
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<PAGE>
3.2. MANNER OF EXERCISE. The Vested Portion of this Option may be
exercised from time to time, in whole or in part, by presentation of a Request
to Exercise Form, substantially in the form attached hereto, to the Company at
its principal office, which Form must be duly executed by Optionee and
accompanied by payment, in cash, cash equivalent or form of obligation
acceptable to the Company, in the aggregate amount of the Exercise Price (as
defined below), multiplied by the number of Shares the Optionee is purchasing at
such time, subject to reduction for withholding for tax obligations as provided
in Section 13.
Upon receipt and acceptance by the Company of such Form accompanied by
the payment specified, the Optionee shall be deemed to be the record owner of
the Shares purchased, notwithstanding that the stock transfer books of the
Company may then be closed or that certificates representing the Shares
purchased under this Option may not then be actually delivered to the Optionee.
3.3. EXERCISE PRICE. The exercise price (the "Exercise Price") payable
upon exercise of this Option shall be determined by the closing price of DBSI
stock on October 18, 1999, at a discounted exercise price of $1.0797 per share.
4. EXERCISE AFTER CERTAIN EVENTS.
4.1. TERMINATION OF EMPLOYMENT. If for any reason other than permanent
and total disability (as defined below) or death an Optionee ceases to be
employed by or to be a consultant or director of the Company, or a Subsidiary,
the Options shall be treated as follows:
a. TERMINATION FOR CAUSE: If Optionee is terminated for
cause, all options vested as of the date of termination may be exercised, in
whole or in part, at anytime within ten (10) years after the date of termination
or such lesser period specified in the Option Agreement. All unvested options
shall be cancelled.
b. TERMINATION WITHOUT CAUSE: If Optionee is terminated
without cause, all options shall immediately vest as of the date of termination
and may be exercised, in whole or in part, at any time within ten (10) years
after the date of termination or such lesser period specified in the Option
Agreement (in no event after the expiration date of the Option).
4.2. PERMANENT DISABILITY AND DEATH. If an Optionee becomes permanently
and totally disabled (within the meaning of Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended), or dies while employed by the Company, or
while acting as an officer, consultant or director of the Company, or a
Subsidiary, (or, if the Optionee dies within the period that the Option remains
exercisable after termination of employment or affiliation), Options then held
(to the extent then exercisable) may be exercised by the Optionee, the
Optionee's personal representative, or by the person to whom the Option is
transferred by will or the laws of descent and distribution, in whole or in
part, at any time
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<PAGE>
within ten (10) years after the disability or death (but in no event after the
expiration date of the Option).
5. RESTRICTIONS ON TRANSFER OF OPTION. This Option is not transferable by
Optionee other than by will or the laws of descent and distribution or if the
Company's consent to a transfer, which consent will not unreasonably be
withheld.
6. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. The existence of this Option shall
not affect the Company's right to effect adjustments, recapitalizations,
reorganizations or other changes in its or any other corporation's capital
structure or business, any merger or consolidation, any issuance of bonds,
debentures, preferred or prior preference stock ahead of or affecting the
Shares, the dissolution or liquidation of the Company's or any other
corporation's assets or business or any other corporate act whether similar to
the events described above or otherwise. If the outstanding shares of the
Company's Common Stock are increased or decreased in number or changed into or
exchanged for a different number or kind of securities of the Company or any
other corporation by reason of a recapitalization, reclassification, stock
split, reverse stock split, combination of shares, stock dividend or other
similar event, an appropriate adjustment of the number and kind of securities
with respect to which this Option may be exercised and the exercise price at
which this Option may be exercised will be made.
7. DISSOLUTION, LIQUIDATION, MERGER.
7.1. COMPANY NOT THE SURVIVOR. In the event of a dissolution or
liquidation of the Company, a merger, consolidation, combination or
reorganization in which the Company is not the surviving corporation, or a sale
of substantially all of the assets of the Company (as determined in the sole
discretion of the Board of Directors), the Administrator, in its absolute
discretion, may cancel each outstanding Option upon payment in cash to the
Optionee of the amount by which any cash and the fair market value of any other
property which the Optionee would have received as consideration for the shares
of Stock covered by the Option if the Option had been exercised before such
liquidation, dissolution, merger, consolidation or sale exceeds the exercise
price of the Option. In addition to the foregoing, in the event of a dissolution
or liquidation of the Company, or a merger consolidation, combination or
reorganization, in which the Company is not the surviving corporation, the
Administrator, in its absolute discretion, may accelerate the time within which
each outstanding Option may be exercised.
7.2. COMPANY IS THE SURVIVOR. In the event of a merger, consolidation,
combination or reorganization in which the Company is the surviving corporation,
the Board of Directors shall determine the appropriate adjustment of the number
and kind of securities with respect to which outstanding Options may be
exercised, and the exercise price at which outstanding Options may be exercised.
The Board of Directors shall determine, in its sole and absolute discretion,
when the Company shall be deemed to survive for purposes of this Plan.
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<PAGE>
8. RESERVATION OF SHARES. The Company agrees that prior to the earlier of the
expiration of this Option or the exercise and purchase of the total in number of
Shares represented by this Option, there shall be reserved for issuance and
delivery upon exercise of this Option such number of the Company's authorized
and unissued Shares as shall be necessary to satisfy the terms and conditions of
this Agreement. However, see Section 15 with respect to the Company's obligation
to comply with the securities laws.
9. NO RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a shareholder
with respect to any Shares covered by this Option unless the Optionee shall have
exercised this Option, and then only with respect to the shares underlying the
portion of the Option exercised. The Optionee shall have no right to vote any
Shares, or to receive distributions of dividends or any assets or proceeds from
the sale of Company assets upon liquidation until Optionee has effectively
exercised this Option and fully paid for such Shares. Subject to Section 6, no
adjustment shall be made for dividends or other rights for which the record date
is prior to the date title to the Shares has been acquired by the Optionee.
10. NO RIGHTS TO EMPLOYMENT OR CONTINUED EMPLOYMENT. The grant of this Option
shall in no way be construed so as to confer on Optionee the rights to
employment or continued employment by the Company.
11. SUSPENSION AND TERMINATION. In the event the Board or the Administrator
reasonably believes that the Optionee has committed an act of misconduct
specified below, the Administrator may suspend the Optionee's right to exercise
any Option pending final determination by the Board or the Administrator, which
final determination shall be made within five (5) business days of such
suspension. If the Administrator determines that an Optionee has committed an
act of embezzlement, fraud, breach of fiduciary duty or deliberate disregard of
the Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his estate shall be entitled to
exercise any Option hereunder. In making such determination, the Board or the
Administrator shall act fairly and in good faith and shall give the Optionee an
opportunity to appear and present evidence on the Optionee's behalf.
12. PARTICIPATION IN OTHER OPTION PLANS. The grant of this Option shall not
prevent Optionee from participating or being granted other options in the same
or other plans provided, however, that the Optionee meets the eligibility
requirements, and such participation or grant does not prevent the other plan
from meeting the requirements of the Internal Revenue Code of 1986, as amended.
13. PAYMENT OF TAXES. The Optionee shall pay the Company in cash all local,
state and federal withholding taxes applicable, in the Administrator's absolute
discretion, to the grant or exercise of this Option, or the transfer or other
disposition of Shares acquired
13
<PAGE>
upon exercise of this Option. Any such payment must be made promptly when the
amount of such obligation becomes determinable.
At the election of Employee, Employer shall have the right to sell to
the Company any vested stock options (at the fair market value of the common
stock less the exercise price) in order to meet any withholding requirements.
14. ISSUE AND TRANSFER TAX. The Company will pay all issuance taxes, if any,
attributable to the initial issuance of Shares upon the exercise of the Option;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue or
delivery of any certificates for Shares in a name other than that of the
Optionee.
15. COMPLIANCE WITH SECURITIES LAWS. The Company shall not be obligated to issue
any Shares upon exercise of this Option unless such Shares are at that time
effectively registered or exempt from registration under the federal securities
laws and the offer and sale of the Shares are otherwise in compliance with all
applicable securities laws. The Company intends to register the Shares under the
federal securities laws and to take whatever other steps may be necessary to
enable the Shares to be offered and sold under federal or other securities laws.
Upon exercising all or any portion of this Option, an Optionee may be required
to furnish representations or undertakings deemed appropriate by the Company to
enable the offer and sale of the Shares or subsequent transfers of any interest
in such Shares to comply with applicable securities laws. Evidences of ownership
of Shares acquired upon exercise of this Option shall bear any legend required
by, or useful for purposes of compliance with, applicable securities laws or
this Agreement.
16. ARBITRATION. Any controversy, dispute or claim arising out of or relating to
this Option which cannot be amicably settled including, but not limited to, the
suspension or termination of Optionee's right in accordance with Section 11
above, shall be settled by arbitration conducted in San Francisco County or such
other mutually agreed upon location. Said arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association at a time and place within the above-referenced location as selected
by the arbitrator(s).
16.1. INITIATION OF ARBITRATION. After seven (7) days prior written
notice to the other, either party hereto may formally initiate arbitration under
this Agreement by filing a written request therefor, and paying the appropriate
filing fees, if any.
16.2. HEARING AND DETERMINATION DATES. The hearing before the
arbitrator shall occur within thirty (30) days from the date the matter is
submitted to arbitration. Further, a determination by the arbitrator shall be
made within forty-five (45) days from the date the matter is submitted to
arbitration. Thereafter, the arbitrator shall have fifteen (15) days to provide
the parties with his or her decision in writing. However, any failure to meet
the deadlines in this section will not affect the validity of any decision or
award.
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<PAGE>
16.3. BINDING NATURE OF DECISION. The decision of the arbitrator shall
be binding on the parties. Judgment thereon shall be entered in a court of
competent jurisdiction.
16.4. INJUNCTIVE ACTIONS. Nothing herein contained shall bar the right
of either party to seek to obtain injunctive relief or other provisional
remedies against threatened or actual conduct that will cause loss or damages
under the usual equity rules including the applicable rules for obtaining
preliminary injunctions and other provisional remedies.
16.5. COSTS. The cost of arbitration, including the fees of the
arbitrator, shall initially be borne equally by the parties; provided, the
prevailing party (as determined by the arbitrator in accordance with California
Code of Civil Procedure Section 1032) shall be entitled to recover such costs,
in addition to attorneys' fees and other costs, in accordance with Section 19 of
this Agreement.
17. NOTICES. All notices to be given by either party to the other shall be in
writing and may be transmitted by personal delivery, facsimile transmission,
overnight courier or mail, registered or certified, postage prepaid with return
receipt requested; PROVIDED, HOWEVER, that notices of change of address or telex
or facsimile number shall be effective only upon actual receipt by the other
party. Notices shall be delivered at the following addresses, unless changed as
provided for herein.
To the Optionee:
Randy Stratt
2894 Bush Street
San Francisco, CA 94115
To the Company:
DBS Industries, Inc.
100 Shoreline Highway, Suite 190A
Mill Valley, CA 9
18. APPLICABLE LAW. This Option and the relationship of the parties in
connection with its subject matter shall be governed by, and construed under,
the laws of the State of California.
19. ATTORNEYS FEES. In the event of any litigation, arbitration, or other
proceeding arising out of this Option the prevailing party shall be entitled to
an award of costs, including an award of reasonable attorneys' fees. Any
judgment, order, or award entered in any such proceeding shall designate a
specific sum as such an award of attorney's fees and costs incurred. This
attorneys' fee provision is intended to be severable from the other provisions
of this Agreement, shall survive any judgment or order entered in any proceeding
and shall not be deemed merged into any such judgment or order, so that such
further fees and costs as may be incurred in the enforcement of an award or
judgment or
15
<PAGE>
in defending it on appeal shall likewise be recoverable by further order of a
court or panel or in a separate action as may be appropriate.
20. BINDING EFFECT. This Agreement shall inure to the benefit of, and be binding
upon, the parties hereto and their respective heirs, executors, and successors.
21. COUNTERPARTS. This Option may be executed in one or more counterparts, each
of which when taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Option Agreement has been executed as of this 8th day
of November, 1999, at Mill Valley, California.
THE COMPANY: DBS Industries, Inc.
By:_________________________________
Fred W. Thompson, President
OPTIONEE
_________________________________
Randy Stratt
16
<PAGE>
REQUEST TO EXERCISE FORM
Dated:______________
The undersigned hereby irrevocably elects to exercise all or part, as
specified below, of the Vested Portion of the option ("Option") granted to him
pursuant to a certain stock option agreement ("Agreement") effective
___________________________, between the undersigned and DBS Industries, Inc.
(the "Company") to purchase an aggregate of ______________________ shares of the
Company's Common Stock, par value $ _________, (the "Shares").
The undersigned hereby tenders cash, cash equivalent or a promissory note in
a form acceptable by the Company in the amount of $________ per share
multiplied by ___, the number of Shares he is purchasing at this time, for a
total of $__________ , which constitutes full payment of the total Exercise
Price thereof.
INSTRUCTIONS FOR REGISTRATION
OF SHARES IN COMPANY'S TRANSFER
BOOKS
Name:_______________________________________
(Please typewrite or print in block letters)
Address:____________________________________
Signature:__________________________________
Accepted by DBS Industries, Inc.:
By:___________________________________
Name:_________________________________
Title:________________________________
17
<PAGE>
EXHIBIT B
AGREEMENT TO INDEMNIFY
RANDY STRATT
BY
DBS INDUSTRIES, INC.
A DELAWARE CORPORATION
18
<PAGE>
AGREEMENT TO INDEMNIFY RANDY STRATT
BY
DBS INDUSTRIES, INC.
THIS AGREEMENT is executed this 8th day of November 1999, by and
between DBS INDUSTRIES, INC., a Delaware corporation (hereinafter referred to as
"Corporation"), and Randy Stratt (hereinafter referred to as "Indemnitee").
WHEREAS, Indemnitee has agreed to serve or continue to serve, as an
officer, director or key employee of the corporation or its subsidiary; and
WHEREAS, as an inducement for indemnitee to serve, or continue serving
as an employee of the Corporation, the Corporation desires to provide its
employees with indemnification to the greatest extent permissible under the law.
NOW THEREFORE, in consideration for the mutual promises, conditions,
and forebearances contained herein, and as an inducement for the Indemnitee's
continued service as an officer and director, the parties agree as follows:
1. DEFINITIONS.
a. "Expenses" shall mean any:
(1) With respect to any Indemnifiable Event, any expense,
liability, lien, cost, assessment, penalty, damage, tax, demand, or loss,
including attorneys' fees, judgments, fines, ERISA excise taxes and penalties,
and amounts paid or to be paid in settlement thereof;
(2) Any interest, assessments, or other charges imposed on any
of the items in part (1) above;
(3) Any federal, state, or local taxes and/or penalties
imposed as a result of the actual or deemed receipt of any payments under this
Agreement, and any Expense paid or incurred in connection with investigating,
defending, being a witness in, or participating in (including on appeal), or
preparing for any of the foregoing in, any Proceeding relating to any
Indemnifiable Event; and
(4) All claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest, penalties
and reasonable attorneys' fees that Indemnitee shall incur or suffer, which
arise, result from, or relate to any breach or inaccuracy of any of the
representations and warranties of Corporation or the failure of Corporation to
perform any of its covenants, agreements or obligations contained in this
Agreement or in any instrument or other document delivered hereunder or in
connection herewith.
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<PAGE>
b. "Indemnifiable Event" shall mean any event or occurrence that takes
place either before or after execution of this Agreement that is related to:
(1) The fact that Indemnitee is or was a director, officer,
employee or agent of Corporation, or while a director, officer or agent is or
was serving at the request of Corporation as a director, officer, employee,
trustee, agent, or fiduciary of another corporation, partnership, joint
venture, employment benefit plan, trust or other enterprise; or
(2) Anything done or not done by Indemnitee in any such
capacity, whether or not the basis of the Proceeding is an alleged action in an
official capacity as a director, officer, employee, or agent, or in any other
capacity while serving as a director, officer or agent of Corporation.
c. "Proceeding" shall mean any threatened, pending, or completed
action, claim, demand, suit, arbitration or proceeding, or any claim, demand,
inquiry, hearing, or investigation, whether conducted by Corporation or any
other party, that Indemnitee in good faith believes might lead to the
institution of any such action, suit, arbitration or proceeding, whether civil,
criminal, in equity, administrative, investigative or other.
2. INDEMNIFICATION OF INDEMNITEE. In the event Indemnitee was, is, or becomes a
participant in, or is threatened to be made a participant in, a Proceeding by
reason of (or arising in part out of) an Indemnifiable Event, Corporation shall
indemnify Indemnitee from and against any and all Expenses to the fullest extent
permitted by law, as the same exists or may hereafter be amended or interpreted
(but in the case of any such amendment or interpretation, only to the extent
that such amendment or interpretation permits corporation to provide broader
indemnification rights than were permitted prior thereto). Corporation's
obligation to indemnify Indemnitee shall apply whether or not there is any
allegation that Indemnitee was acting beyond or outside his scope of authority
as an officer, director or agent of Corporation. It is intended that this
covenant of indemnification shall be construed as broadly as possible to include
any claim, action, suit, proceeding or arbitration against Indemnitee without
regard to whether or not Indemnitee was at fault.
3. PAYMENT OF EXPENSES.
a. If so requested by Indemnitee, Corporation shall from time to time,
within ten (10) business days of such request, advance up to Fifty Thousand
Dollars ($50,000) in expenses to Indemnitee ("Expense Advance") for the purpose
of paying legal retainers and deposits against anticipated Expenses. The
provisions of this Section shall not in any way limit Corporation's obligation
to indemnify Indemnitee.
b. The Corporation shall promptly pay Indemnitee's Expenses reasonably
incurred within thirty (30) days from Indemnitee's tender of invoices reflecting
such Expenses.
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<PAGE>
c. If Corporation fails to pay any such Expenses within thirty (30)
days, Corporation shall pay to Indemnitee a late fee of one and one-half percent
(1-1/2%) per month or part thereof until all such expenses are paid in full, in
addition to all other damage suffered by Indemnitee.
d. To the extent it is ultimately found that Indemnitee is not entitled
to indemnification under the terms of this Agreement, Corporation shall be
entitled to be reimbursed by Indemnitee for all such amounts (the "Reimbursed
Amounts"), and Indemnitee hereby agrees to reimburse corporation promptly for
the same. Indemnitee's obligation to reimburse Corporation for the Reimbursed
Amounts shall be unsecured and no interest shall be charged thereon.
4. NOTICE AND OPPORTUNITV TO DEFEND. Indemnitee shall receive indemnification
from corporation in accordance with this Agreement as soon as practicable after
Indemnitee has made written demand on Corporation for indemnification. If any
Proceeding is initiated, or any claim or demand is made, against Indemnitee with
respect to an Indemnifiable Event, then the Indemnitee shall give prompt written
notice of such Proceeding to Corporation. Corporation shall, at its own expense
and with its own counsel, if Indemnitee so chooses, defend or settle such
Proceeding; provided, however, that: i) Corporation shall keep Indemnitee
informed of all material developments and events relating to such Proceeding;
ii) Indemnitee shall have the right to participate, at his/her own expense,
provided that Indemnitee has requested that Corporation defend Indemnitee, in
the defense of such Proceeding, and shall cooperate as reasonably requested by
Corporation in the defense thereof; and iii) Corporation shall not settle such
Proceeding without the prior written consent of Indemnitee, which consent shall
not be unreasonably withheld. If Corporation defends Indemnitee under a
reservation of rights with respect to any Proceeding, under such circumstances,
the rights, duties and obligations of the parties and counsel shall be governed
by SAN DIEGO FEDERAL CREDIT UNION V. CUMIS INSURANCE SOCIETY, INC. (1984) 162
Cal.App.3d 358 and California Civil Code Section 2778 and Corporation shall
provide to Indemnitee separate counsel paid for by Corporation.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of
this Agreement to indemnification by Corporation for a portion of Expenses, but
not for the total amount of Expenses, Corporation shall indemnify Indemnitee for
the portion to which Indemnitee is entitled.
6. LIMITATION ON CORPORATION. Corporation shall not settle any Proceeding in any
manner that would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent. Indemnitee will not unreasonably withhold consent
to a proposed settlement.
7. LIMITATION ON INDEMNITEE. Indemnitee shall not settle any Proceeding in any
manner that would impose any penalty or limitation on Corporation without
Corporation's written consent. Corporation will not unreasonably withhold
consent to a proposed settlement.
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<PAGE>
Corporation shall not be liable to indemnify Indemnitee under this
Agreement with regard to any judicial award if Corporation was not given a
reasonable and timely opportunity, at its expense, to participate in the defense
of such action.
8. NON-EXCLUSIVITY. The rights of Indemnitee under this Agreement shall be in
addition to any other indemnification rights Indemnitee may have under
Corporation's Articles of Incorporation, Bylaws, applicable law, or otherwise.
To the extent that a change in applicable law (whether by statute or judicial
decision) permits greater indemnification than afforded currently under
Corporation's Articles of Incorporation, Bylaws, applicable law, or this
Agreement, it is the intent of the parties that Indemnitee enjoy by this
Agreement the greater benefits afforded by such change.
9. INDEMNIFICATION NOT A WAIVER. Indemnitee's right to indemnification pursuant
to this Agreement shall not be deemed to be his exclusive remedy in connection
with or arising from any Indemnifiable Event or the failure of Corporation to
perform any of its covenants or obligations contained in this Agreement; and the
exercise by Indemnitee of his/her right to demand and receive such
indemnification shall not be deemed to prejudice, or to operate as a waiver of,
any remedy to which he may be entitled at law or equity.
10. LIABILITY INSURANCE. To the extent Corporation maintains an insurance policy
or policies providing directors' and officers' liability insurance, to the
extent that Indemnitee may be covered by such policy or policies, Indemnitee
shall be covered by such policy or policies, in accordance with its or their
terms, to the maximum extent of the coverage available for any corporate
director or officer.
11. SUBROGATION. In the event of payment under this Agreement, Corporation shall
be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable Corporation effectively to bring suit to enforce
such rights.
12. NO DUPLICATION OF PAYMENTS. Corporation shall not be liable under this
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise received payment (under any
insurance policy, bylaw, or otherwise) of the amounts otherwise Indemnifiable
under this Agreement.
13. NO RIGHT TO SET-OFF. Corporation shall have no right to set off the amount
of any Expense with respect to which Indemnitee may be indemnified by
Corporation hereunder against the amount of any obligation of Indemnitee to
Corporation.
14. ACCOUNTING OF PROFITS UNDER SECTION 16(B). The Corporation shall not be
liable under this Agreement to make any payment in connection with any claim
made against Indemnitee for an accounting of profits made from the purchase or
sale by the
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<PAGE>
Indemnitee of securities of the Corporation within the meaning of Section 16(b)
of the Securities Exchange Act of 1934 and Amendments thereto, or similar
provisions of any state statute or common law.
15. AUTHORIZATION; BINDING NATURE OF AGREEMENT. Corporation has all necessary
power and authority to enter into and perform its obligations under this
Agreement, and the execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of Corporation and its
officers, directors and shareholders. No authorization, consent or approval of
or filing with any governmental authority or any other person is required to be
obtained or made by Corporation in connection with the execution, delivery or
performance of this Agreement.
16. CONFIDENTIALITY. Unless otherwise required by law, Corporation agrees to,
and shall undertake all necessary action required to, keep confidential all
information which relates to any Indemnifiable Event, Expense or any other
transaction or defense or indemnity arising out of this Agreement which relates
to Indemnitee.
17. AMENDMENT OF THIS AGREEMENT. No supplement, modification, or amendment of
this Agreement shall be binding unless executed in writing by the parties
hereto. No waiver of any of the provisions of this Agreement shall operate as a
waiver of any other provisions hereof, nor shall such waiver constitute a
continuing waiver.
18. BINDING EFFECT. This Agreement shall be binding on and inure to the benefit
of and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation,
or otherwise to all or substantially all of the business and/or assets of the
Corporation), assigns, spouses, heirs and personal and legal representatives.
Corporation shall require and cause its successor to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that
Corporation would be required to perform if no such succession had taken place.
The indemnification provided under this Agreement shall continue for
Indemnitee for any action taken or not taken while serving in an indemnified
capacity pertaining to an Indemnifiable Event even though Indemnitee may have
ceased to serve in such capacity at the time of any Proceeding.
19. MAINTENANCE OF OBLIGATION TO INDEMNIFY. Corporation hereby covenants and
agrees that it shall not permit the indemnification provided to Indemnitee as
set forth in this Agreement to be compromised, restricted, limited, or
eliminated in any manner, including by way of amendment of Corporation's bylaws
and other governing documents.
20. SEVERABILITY. If any portion of this Agreement shall be held by a court of
competent jurisdiction to be invalid, void, or otherwise unenforceable, the
remaining provisions shall remain enforceable to the fullest extent permitted by
law. Furthermore, to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of this Agreement
containing any provision held to be invalid, void or otherwise
23
<PAGE>
unenforceable, that is not itself invalid, void or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, void or unenforceable.
21. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws, except that Delaware or California law,
whichever provides the broadest and most beneficial indemnity rights to
Indemnitee, shall be applied in determining the scope and extent of the phrase
"to the fullest extent permitted by law," in Section 2 of this Agreement.
22. FURTHER ASSURANCES. Each party shall execute such instruments and other
documents, and take such action as may be required, as the other party may
reasonably request, for the purpose of carrying out or evidencing the
transactions contemplated hereby.
23. ATTORNEYS' FEES. In the event of the bringing of any action, suit or
arbitration by a party hereto against another party hereunder by reason of any
breach of any of the covenants or agreements or any inaccuracies in any of the
representations and warranties on the part of any party arising out of this
Agreement, then in that event, the prevailing party in such action, suit,
arbitration or dispute, whether by final judgment, or out of court settlement
shall be entitled to have and recover of and from the other parties all costs
and expenses of suit, including actual attorneys' fees.
24. BINDING ARBITRATION. Any claim, dispute, or controversy arising out of this
Agreement, or breach thereof, shall be resolved by submission to binding
arbitration.
a. ARBITRATION NOTICE. The arbitration shall commence upon any party
sending to any other party to this Agreement a notice in writing (the
"Arbitration Notice") demanding arbitration and specifying the issue(s) to be
arbitrated and all relief sought (the "Arbitration Matter").
b. SELECTION OF ARBITRATORS. The arbitrators shall be chosen as
follows:
The parties, or their legal representatives, may agree in writing upon
a sole arbitrator. In the event they cannot so agree each side shall, within
fifteen (15) days after the giving of the Arbitration Notice, exchange a list of
acceptable arbitrators consisting of attorneys at law, and from that list each
side may reject all but one arbitrator from each list. The acceptable
arbitrators shall constitute a new list and the process shall be repeated until
three (3) acceptable arbitrators are designated who shall constitute the
"Arbitration Panel." If three (3) acceptable arbitrators are not appointed
within thirty (30) days after giving the Arbitration Notice, Superior Court of
the State of California for the County of San Francisco shall, upon the filing
of a petition by any of the parties hereto pursuant to the provisions of
California Code of Civil Procedure Section 1281.6 (or any successor section),
and after a hearing at which all parties are afforded an opportunity to be
present and be heard, select a the neutral arbitrator from a list of five (5)
persons obtained by the
24
<PAGE>
court from the parties jointly or, if they cannot agree, from the San Francisco
County office of the American Arbitration Association.
c. BOOKS AND RECORDS. The parties agree to make available to the
Arbitration Panel all books, records, schedules, and other information requested
by it. Such matters are to be made available to the Arbitration Panel at such
times as are deemed necessary by it to make its decision as herein provided. The
Arbitration panel shall have all those powers set forth in Section 1282.6 of
California Code of Civil Procedure including, but not limited to, those powers
relating to the production of books, records, documents and other evidence.
d. DISCOVERY. The parties may conduct such discovery, and the
Arbitration Panel shall have such discovery powers, as are set forth in the
California Code of Civil Procedure Section 1283.05. The Arbitration Panel shall
be empowered to grant all provisional relief permitted by the California Code of
Civil Procedure. In addition to all other arbitration rights hereby provided,
the provisions of Sections 1282.2, 1282.4 and 1282.6 of the California Civil
Code shall apply. In addition to any and all arbitration rights hereby provided,
the arbitration proceedings and discovery shall be conducted pursuant to
Sections 1282 et seq. of California Code of Civil Procedure, including, without
limitation, the provisions of Sections 1282.2, 1282.4, 1283 and 1283.5.
e. ENFORCEMENT. Enforcement of the Arbitration Panel's award shall be
effected pursuant to California Civil Code Sections 1281 et seq. However, the
provisions of California Code of Civil Procedure Section 1281.8 shall not apply
and the Arbitration Panel shall be specifically empowered to grant all
provisional remedies permitted under the California Code of Civil Procedure.
f. LOCATION. The arbitration shall take place in the County of San
Francisco, State of California, at a time and place selected by the Arbitration
Panel. Notice in writing of such time and place shall be given by the
Arbitration Panel to each party at least thirty (30) days prior to the date so
fixed.
g. TIME PERIODS. The Arbitration Panel shall diligently, expeditiously,
and in good faith hear and decide Arbitration Matter under consideration, within
the limits and subject to the standards set forth in this Agreement. In any
event, such decision shall be rendered not later than thirty (30) days after the
arbitration hearing is conducted. If there is only one (1) arbitrator, his/her
decision shall be final and binding; if there are three (3) arbitrators, the
agreed decision of any two (2) of them shall be final and binding. If no two (2)
of the arbitrators are able to agree upon a decision, the decision of the
neutral third arbitrator shall be final and binding. The Arbitration Panel shall
prepare an award in writing which reflects the final decision of the Arbitration
Panel and a copy of same shall be delivered to each party hereto. Judicial
confirmation, correction, or vacation of the decision of the Arbitration Panel
shall be sought only in the Sacramento County Superior Court, which judgment may
be enforced and shall be
25
<PAGE>
accorded full faith and credit in any court of competent jurisdiction, including
any jurisdiction in which is located any real property which is the subject
matter of the dispute.
h. BINDING EFFECT. The arbitration award shall be final, conclusive and
binding on all parties thereto and shall be non-appealable. The costs of the
arbitrators shall be borne by the losing party.
25. NOTICES. All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on the
date of service if served personally on the party to whom notice is to be given,
or on the third day after mailing if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid, and
properly addressed as follows:
To Corporation: Fred Thompson, President
DBS Industries, Inc.
100 Shoreline Highway, Suite 190 A
Mill Valley, CA 94941
With a copy to: Daniel B. Eng, Esq.
Bartel Eng Linn & Schroder
300 Capitol Mall, suite 1100
Sacramento, Ca 95814
To Indemnitee: Randy Stratt
2894 Bush Street
San Francisco, CA 94115
26. EFFECTIVENESS. This Agreement shall immediately become effective upon
adoption by Corporation's Board of Directors. Notwithstanding the effectiveness
of this Agreement, Corporation shall use its best efforts to have its Board of
Directors approve this Agreement.
IN WITNESS WHEREOF, Corporation and Indemnitee have executed this
Agreement as of the date specified above.
CORPORATION:
DBS INDUSTRIES, INC.
BY: __________________________________
FRED THOMPSON, PRESIDENT
26
<PAGE>
INDEMNITEE:
__________________________________
RANDY STRATT
27
<PAGE>
Page 1
ESAT-GTL-CT0098R
Prime Contract
for
ESAT Communications System
between
DBS Industries
and
Alcatel Space Industries
REDACTED VERSION
CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Page 2
TABLE OF CONTENTS
<TABLE>
<C> <C>
1. DEFINITIONS.............................................................4
2. SCOPE OF WORK...........................................................8
3. DBSI'S UNDERTAKINGS.....................................................9
4. PRICE..................................................................11
5. DELIVERY SCHEDULE......................................................14
6. PAYMENT................................................................15
7. INSPECTION AND ACCEPTANCE..............................................22
8. OPTIONS................................................................25
9. ACCESS TO WORK IN PROGRESS.............................................27
10. TRANSFER OF TITLE AND RISK.............................................28
11. RIGHTS IN DATA.........................................................29
12. PROPRIETARY AND/OR CONFIDENTIAL INFORMATION............................32
13. PUBLIC RELEASE OF INFORMATION..........................................33
14. LIMITATION OF LIABILITY................................................34
15. PATENTS, TRADEMARKS AND COPYRIGHTS.....................................35
16. EXTENSIONS FOR EXCUSABLE DELAYS........................................37
17. LIQUIDATED DAMAGES FOR LATE DELIVERY...................................39
18. TERMINATION FOR DEFAULT................................................41
19. TERMINATION FOR CONVENIENCE............................................44
20. OPPORTUNITY TO CURE A DEFECT...........................................46
21 THE CONTRACTOR'S RIGHT TO SUSPEND OR TERMINATE THE WORK................48
22. CHANGES................................................................50
23. SUBCONTRACTS...........................................................52
24. ASSIGNMENTS............................................................54
25. WARRANTY...............................................................55
26. INDEMNIFICATION........................................................56
27. APPLICABLE LAW AND ARBITRATION.........................................58
28. SPECIFIC PROVISIONS....................................................59
29. ENTIRE AGREEMENT.......................................................60
30. EFFECTIVE DATE.........................................................61
31. COMMUNICATION AND AUTHORITY............................................62
32. KEY PERSONNEL..........................................................64
</TABLE>
<PAGE>
Page 3
This Contract is made this 8th day of October 1999, as amended by the Parties on
December 22, 1999
Between:
Alcatel Space Industries, a corporation organized under the laws of
France having its principal place of business at 5 rue Noel Pons, 92737
Nanterre, Cedex, France (hereinafter "The Contractor")
and
DBS Industries Inc., a corporation organized under the laws of Delaware
USA having its principal place of business at 100 Shoreline Highway,
Suite 190A, Mill Valley, CA 94941, USA on its own behalf and on behalf
of its wholly owned subsidiary, Newstar Limited, organized under the
laws of Bermuda (hereinafter collectively "DBSI").
DBSI and the Contractor shall be referred to jointly as the "Parties".
WHEREAS:
DBSI, by and through its subsidiary E-SAT, Inc., is the holder of a
Non-Voice, Non-geostationary Mobil Satellite Service license ( < < LEO
License > > ) issued by the Federal Communications Commission of the
United States ( < < FCC > > ) on March, 31, 1998 and awarded to E-SAT, Inc.
( < < ESAT > > ) upon its November 15, 1994 application N// 26-SAT-P/LA-95 and
subsequent amendments.
DBSI plans to use the LEO License to construct, launch and operate the
Non-Voice, Non-geostationary < < Little LEO > > mobile Satellite system (the
< < E-SAT Program > > ).
Within such program, DBSI intends to develop, own, exploit and operate a global
satellite telecommunication system to provide commercial, worldwide, low cost
data collection services commonly referred to herein as the E-SAT Communication
System.
DBSI, for this purpose, has entered into two Subcontracts for the supply of the
Launch Services and the Satellite platform. The Satellite platform Subcontract
( < < Surrey Satellite Technology Limited (SSTL) Subcontract > > ) is assigned
by DBSI to the Contractor for the execution of the Prime Contract, at EDC, and
pursuant to the provisions of a separate Assignment Agreement.
DBSI intends to separately undertake the Launch Services and all insurance
related thereto and the In-Orbit operation of the Satellites of the E-SAT
Communication System.
DBSI desires to purchase and the Contractor desires to provide the ESAT
Communication System in accordance with the provisions of this Contract.
NOW THEREFORE IT IS HEREBY AGREED as follows :
<PAGE>
Page 4
1. DEFINITIONS
CONSTELLATION
Means six Fully Operational Satellites as more specifically provided
for in Article 7. (Inspection and Acceptance).
CONSTRUCTIVE TOTAL LOSS
Is deemed to have occurred when Satellite IOP is less than 0.5 (If such
definition in the Risk Management insurance policy differs from that
herein, the Parties agree to modify this definition to conform with the
definition used in the applicable Risk Management insurance policy).
CONTRACT PRICE
Means the Firm Fixed Price including the Performance Incentives as
provided for in Article 4 (Price) and Article 6 (Payment).
DAY
Means a calendar day.
DEFECT
Shall have the meaning as ascribed for in Article 20 (Opportunity to
Cure a Defect).
EFFECTIVE DATE OF CONTRACT OR "EDC"
Shall have the meaning ascribed to it in Article 30 (Effective Date).
ESAT COMMUNICATION SYSTEM
Means the aggregate of:
(1) 3 (three) Fully Operational Satellites at SPAR and 3 (three)
more Fully Operational Satellites at SFAR subject to Article 7
Inspection and Acceptance,
(2) THE GROUND CONTROL SEGMENT,
(3) THE GROUND COMMUNICATION NETWORK,
(4) THE TERMINAL SEGMENT AND
(5) THE COMMUNICATIONS CENTER
as such terms are defined in Exhibit A (Statement of Work) and in
Exhibit B, (ESAT Level A Requirements Specification, ESAT-BJT-SP0078).
The E-SAT Communication System is to be supplied to DBSI as part of the
Work.
GROUND SEGMENT
The Ground Segment means the aggregate of : (1) the Ground Control
Segment, (2) the
<PAGE>
Page 5
Communication Center, and (3) the Ground Communication Network, which
have the meaning ascribed to them in Exhibit B, (ESAT Level A
Requirements Specification, ESAT-BJT-SP0078). The Ground Segment is to
be supplied to DBSI as part of the Work.
FULLY OPERATIONAL SATELLITE
A < < Fully Operational Satellite > > or < < Fully Operational
Satellites > > shall mean one or more Satellites which meets the
Acceptance Criteria set forth in Exhibit C (E-SAT Acceptance Criteria)
relating to a Satellite to be manufactured by the Contractor under this
Contract.
GATEWAY MODE
When in gateway mode, the Satellite sends the stored inbound signals to
the gateway on the feeder downlink and receives the outbound messages
from the gateway on the feeder uplink.
INITIAL SET
Means the first set of three Fully Operational Satellites to be
manufactured, delivered on ground by the contractor under this Contract
as part of the Work .
LAUNCH
Means the intentional ignition of the first stage engines of the Launch
Vehicle, followed by Lift-off of the Launch Vehicle and refers to the
Launch of the Initial Set or the Second Set, as the case may be.
LAUNCH DATE
Means the date of Launch.
LAUNCH SERVICES
Shall mean the Launch Vehicle, payload dispenser system, Launch, Launch
phase mission planning and analysis provided by DBSI and more
particularly described in Exhibit A (Statement of Work).
LAUNCH VEHICLE AGENCY
Means the company selected by DBSI for the Launch of the Satellites
pursuant to the conditions of the Launch Services Agreement.
LAUNCH VEHICLE
Shall mean the Launch vehicle capable of placing the Satellites into
its designated orbit.
LEOP
Means Launch and Early Orbit Phase as described in Exhibit A (Statement
of Work) hereof.
<PAGE>
Page 6
LIBOR
Means the London Interbank Offered Rate.
LIFT-OFF
Means the intentional ignition and upward acceleration of the first
stage of the Launch Vehicle.
ORBITAL STORAGE
Means any period of time of intentional non-use by DBSI of a Launched
Satellite which is performing in accordance with Article 6 (Payment).
PARTIAL LOSS
Is deemed to have occurred when the Satellite IOP is greater than or
equal to 0.5 but less than 1.0. (If such definition in the Risk
Management insurance policy differs from that herein, the Parties
agree to modify this definition to conform with the definition used
in the applicable Risk Management insurance policy).
SATELLITE
Satellite means a satellite composed of a payload and a platform as
described in Exhibit B, (ESAT Level A Requirements Specification,
ESAT-BJT-SP0078) to be supplied to DBSI as part of the Work.
SATELLITE CONTROL CENTER
Shall have the meaning ascribed to it in Exhibit B, (ESAT Level A
Requirements Specification, ESAT-BJT-SP0078).
SECOND SET
Means the second set of 3 (three) Fully Operational Satellites to be
manufactured, delivered on ground by Contractor, under this Contract
as part of the Work.
SERVICE MODE
When in service mode, the Satellite formats and transmits outbound
messages to the terminals on the service downlink and stores inbound
signals received from the terminals via the service uplink in its
on-board memory.
SET
Means 3 (three) Fully Operational Satellites to be manufactured under
this Contract.
SUBCONTRACT(S)
Means any contract awarded by the Contractor to any third party for
the completion of the
<PAGE>
Page 7
Work ; Subcontracts include Major Subcontracts.
SUCCESSFUL INJECTION
Means the Satellites have been placed in the mission orbit within
3-sigma accuracy as specified in Exhibit B (ESAT Level A Requirements
Specification, ESAT-BJT SP0078D-September 10, 1999).
SPAR
Means the E-SAT Communication System Preliminary Acceptance Review
which happens after the completion of the Acceptance Tests as defined
in Article 7 (Inspection and Acceptance).
SFAR
Means the E-SAT Communication System Final Acceptance Review which
happens after the completion of the E-SAT Communication System
Preliminary Acceptance Review and Final Acceptance Tests as defined
in Article 7 (Inspection and Acceptance).
SPDR
Means the E-SAT Communications System Preliminary Design Review which
is scheduled to occur at EDC +4.
TOTAL CONTRACT PRICE
Means the Contract price and the Phase 2 Terminal Segment estimated
price as provided for in Article 4 (Price) and in Article 6 (Payment).
TOTAL LOSS
Is deemed to have occurred if a Launched Satellite is lost or
destroyed or its IOP is equal to 0. (If such definition in the Risk
Management insurance policy differs from that herein, the Parties
agree to modify this definition to conform with the definition used
in the applicable Risk Management insurance policy).
TOTAL PRIME CONTRACT PRICE
Means the sum of the Total Contract Price and the price SSTL
Subcontract as referred to in Article 4 (Price) and Article 6
(Payment).
WORK
Means the whole work described in the Contract and its Exhibits and
where the context so permits or requires < < Work > > includes any part
or parts of the Work.
<PAGE>
Page 8
2. SCOPE OF WORK
2.1. The Contractor shall provide the necessary personnel, material,
equipment, services, facilities and export licenses or authorizations
to perform the Work in accordance with the provisions of this Contract
including the Exhibits listed below, and to make delivery to DBSI as
set forth in Article 5 (Delivery Schedule). The following documents
constitute the > > Contract < < :
- These Terms and Conditions contained in the Articles 1 to 32
of this Contract :
- Exhibit A: Statement of Work for the ESAT Communication
System, ESAT-GTL-SW0097D-September 10, 1999.
- Exhibit B: ESAT Level A Requirements Specification,
ESAT-BJT-SP0078D-September 10, 1999.
- Exhibit C: ESAT Acceptance Criteria, ESAT-MLO-SP0112D-October
7, 1999.
- Exhibit D: Specimen of Certificate of Acceptance
- Exhibit E : Key Personnel
- Exhibit F: Specimen form of Stand-by Letter of Credit
2.2 In the event of any discrepancy or inconsistency between the terms and
conditions of this Contract and the Exhibits, or among the Exhibits,
such discrepancy or inconsistency shall be resolved according to the
order of precedence in which the documents are listed here above.
2.3 Any specifications, events or deliverables identified as "TBD" (meaning
to be determined) or "TBC" (meaning to be confirmed) in the Exhibits to
this Contract shall be replaced by definitive values before EDC +4,
unless mutually agreed otherwise by the Parties. The values will be
proposed by the responsible Party and are subject to the approval of
the other Party.
<PAGE>
Page 9
3. DBSI'S UNDERTAKINGS
3.1. General.
3.1.1. The undertakings of DBSI are enumerated in the Contract, in order to
allow the Contractor to define the limit of his own undertakings and
responsibilities. Within the framework of this Contract they constitute
an obligation for DBSI only insofar as they are necessary for the
successful and timely execution of the Contractor's tasks. The
undertakings of DBSI may be redefined in agreement with the Contractor.
3.1.2. Failure of DBSI to perform in due time its obligations under this
Contract may cause the Contractor to incur additional costs, other
damages and delay for the Contractor to complete its contractual
obligations. All costs incurred by the Contractor due to DBSI's failure
to fulfill its obligations for whatever reasons shall be borne by DBSI.
The Contractor shall use all reasonable endeavors to minimize the
amounts of such additional costs. Any delay incurred by the Contractor
due to DBSI's failure to fulfill its obligations for whatever reasons
shall be considered Excusable Delays as set forth in Article 16.
(Extensions for Excusable Delays) and the Contractor may terminate the
Contract as provided for in Article 21 (Contractor's right to
terminate).
3.1.3. The Contractor shall, within thirty (30) days, of DBSI's failure to
perform an obligation, notify DBSI of the Contractor's preliminary
assessment of the consequences of DBSI's failure to perform its
obligations.
3.2. DBSI's Undertakings and Responsibilities.
3.2.1. DBSI undertakes to fulfill all its obligations as defined in Exhibit A
(Statement of Work), such as but not limited to :
3.2.1.1. DBSI shall obtain, at its own expenses, all necessary authorizations
and approvals, such as but not limited to, for frequency coordination,
for the installation of the Gateway Earth Station at Spitzbergen
(Norway) and for the TTC station at Guildford (United Kingdom) and any
licenses required for the Contractor's performance under this contract
with the exception of (i) the licenses for importation in France of
items to be delivered to the Contractor by the Subcontractors, (ii) the
export licenses needed for export from France of the Deliverable Items
and (iii) the import licenses needed for importation to Norway of the
Gateway Earth Station.
3.2.1.2. DBSI shall provide the Launch Services, in accordance with and as
scheduled in Exhibit A (Statement of Work) and the separate Launch
Services Agreement between DBSI and Eurokot Launch Services GmBH dated
March 29, 1999.
3.2.1.3. DBSI shall, with the support of the Contractor, evaluate the Terminal
Subcontractor proposals according to Exhibit A in sufficient time to
proceed with the Contract.
3.2.2 DBSI shall purchase insurance against the risk of loss during the
launch and early orbit phase ("LEOP") and the initial in-orbit phase
("IOT") of a Satellite's operation. In this respect, DBSI undertakes to
acquire insurance prior to the transfer of risk provided for in Article
10.2
<PAGE>
Page 10
covering any loss of a Satellite during the period between the Launch
of a Satellite and the System Final Acceptance Review ("SFAR").
Notwithstanding anything else to the contrary, DBSI may purchase
additional insurance coverages for periods prior to SFAR or after SFAR,
as it may from time to time deem advisable.
3.2.3. Prior to EDC +4 months, DBSI shall provide the Contractor with a
stand-by letter of credit in an initial amount of $[Redacted] MUSD on
commercially reasonable terms and conditions substantially similar to
Exhibit F(Specimen Form of Standby Letter of Credit). DBSI shall
provide the Contractor with a preliminary draft of the stand-by letter
of credit to be issued by a bank acceptable to the Contractor prior to
EDC + 2.5 months.
<PAGE>
Page 11
4. PRICE
4.1. Total Prime Contract Price
Upon the full, satisfactory and timely performance of the Work by the
Contractor, DBSI shall pay to the Contractor the Total Prime Contract
Price of:
<TABLE>
<S> <C>
Contract Price: $[Redacted]
Phase 2 Terminal Segment (estimated) $[Redacted]
Total Contract Price: $[Redacted]
Platform Subcontract Price: $[Redacted]
Total Prime Contract Price: $88,632,233
</TABLE>
4.2. Contract Price Breakdown [Redacted]
<PAGE>
Page 12
<PAGE>
Page 13
4.3. Conditions
Except for the Phase 2 Terminal Segment estimated price, all prices are
Firm Fixed Prices including all taxes, levies, duties and other charges
of any nature, applicable or to become applicable in any country where
the work is performed with the exception of the Russian taxes and
duties on the Launch Services as well as in connection with the
importation and launch of the Satellites as provided for in the
Launches Services Agreement and of the items identified as VAT
applicable in Section 4.2 (Contract Price Breakdown) above. Items
identified as VAT applicable items are subject to Value Added Tax, at
the rate in force at the date of invoice of milestone 10, in France
which is due by DBSI in addition to the Contract Prices listed above.
Prices are binding on the Contractor and expressed in United States
Dollars.
4.4. Phase 2 Terminal Segment Price
The price of the Phase 2 Terminal Segment is estimated at
[Redacted]MUSD at the date of signature of this contract. The firm
fixed price of the Phase 2 Terminal Segment will be agreed by the
parties at the end of the phase 1 Terminal Segment at the latest (EDC +
7 months).
<PAGE>
Page 14
5. DELIVERY SCHEDULE
5.1. The System Preliminary Acceptance Review (SPAR) as described in Article
7 (Inspection and Acceptance) and in accordance with provisions of
Exhibit A (Statement of Work) shall occur not later than EDC+29 months,
subject to the provisions of Article 16 (Extensions for Excusable
Delays).
5.2 The ESAT Communication System Final Acceptance Review (SFAR), with the
Second Set of Satellites, as described in Article 7 (Inspection and
Acceptance) and in accordance with provisions of Exhibit A (Statement
of Work) shall occur not later than EDC+31.5 months, subject to the
provisions of Article 16 (Extensions for Excusable Delays).
5.3 Delivery of the Initial Set shall occur at the Launch Readiness Review
1 scheduled for EDC + 22.5 months. Delivery of the Second Set shall
occur at the Launch Readiness Review 2 scheduled for EDC + 26.5 months.
<PAGE>
Page 15
6. PAYMENT
The Total Prime Contract Price set forth in Article 4 (Price) shall be
paid by DBSI to the Contractor in accordance with the payment schedules
and the conditions set forth below :
6.1. Phase 2 Terminal Segment
[Redacted]
The schedule of payment of such Price will be the object of an
Amendment to the Contract pursuant to the provisions of Article 22
(Changes).
The conditions of payment of such Price will be the same as these
referred to in Article 6.2.3.
6.2. Milestone payment schedule and conditions.
6.2.1. Payment schedule for the Contract Price
[Redacted]
<PAGE>
Page 16
Each Milestone is deemed to be completed when the Review has been held
and the corresponding Certificate of Acceptance is signed by both
Parties, as provided for in Article 7 (Inspection and Acceptance).
6.2.2. Payment schedule for the SSTL Subcontract.
[Redacted]
6.2.3. Milestone payment conditions
The payments set forth in the payment schedule ( Article 6.2.1 above)
shall occur after
<PAGE>
Page 17
completion of the Milestone demonstrated by the Contractor at a review
in accordance with Article 7 (Inspection and Acceptance) except for
payment numbers 1 and 2 which shall be paid at EDC. Upon completion of
a Milestone, the following procedure shall apply:
a) The Contractor shall issue to DBSI, as provided for in Article
31. (Communication and Authority) herein, the Invoice, in two
(2) copies, accompanied with the Certificate of Acceptance, as
referred to in Article 7 (Inspection and Acceptance) duly
signed by both Parties (justification of Milestone completion)
for the payment associated with each Milestone (< < Milestone
Payment > > ) as identified in Article 6.2.1 (Payment Schedule
for the Contract Price).
b) If DBSI disputes part or all of the completion of the
Milestone, then the Contractor shall issue a revised invoice
in the amount of the undisputed portion of the Milestone
Payment amount, provided that such undisputed portion of the
Milestone is at least ninety percent (90%) of the related
Milestone.
c) Each Invoice, accompanied by a Certificate of Acceptance,
shall be sent by the Contractor to DBSI by telefax followed by
signed originals sent by registered courier services.
d) DBSI shall pay the invoice by wire transfer within fifteen
(15) days of the date DBSI receives the invoice.
6.2.4. SSTL Milestone payment conditions.
Upon completion of a Milestone, except for Payment numbers 3 and 4
which will be paid at EDC, the following procedure shall apply :
a) At the receipt of an invoice from SSTL, accompanied with
SSTL's evidence of achievement of the Milestone, as referred
to in the SSTL Subcontract, the Contractor will approve such
invoice and evidence.
b) The Contractor will issue an Invoice for such SSTL's Milestone
accompanied with approved SSTL's invoice and evidence of
achievement following 10 (ten) days of receipt of SSTL's
invoice.
c) Each Invoice together with SSTL's evidence of achievement of
the Milestone, shall be sent by the Contractor to DBSI by
telefax followed by signed originals sent by registered
courier services.
d) DBSI will pay the SSTL invoice by wire transfer within fifteen
(15) days from the date DBSI receives the invoice.
6.3. In-Orbit Performance Incentives.
6.3.1. Performance Incentives conditions.
As referred to in Article 6.2.1. above, the Contractor will receive
[Redacted]MUSD for having successfully achieved SPAR and an additional
[Redacted]MUSD for having successfully achieved SFAR.
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These amounts together with [Redacted]MUSD of the milestone 3.1 payment
represent the Performance Incentives amounts put at stake by the
Contractor and which will be definitively earned by the Contractor or
pay back to DBSI according to the Performance of the Set in orbit
during the Performance period.
The Performance period for the Satellites of the Initial Set is
determined as the five (5) years following the SPAR. One tenth of the
Performance Incentives shall be earned for each six (6) months period
for sixty consecutive months.
The Performance period for the Satellites of the Second Set is
determined as the five (5) years following the SFAR. One tenth of the
Performance Incentives shall be earned for each six (6) months period
for sixty consecutive months.
6.3.2. Performance measurement.
The Performance Incentives earned by the Contractor, will be, for each
Set, a function of the In-Orbit Performance (IOP) of each Satellite
measured as follows :
6.3.2.1. Measurement of the IOP.
1. Each Satellite has [Redacted] seconds of inbound message data
storage capacity. The measure of Satellite in-orbit Measured
Memory (MEM) ranges in value between 0 and 1 and is calculated
using the formula :
MEM = MEASURED MEMORY CAPACITY [SECONDS] DIVIDED BY [Redacted] SECONDS
2. Each Satellite operates in gateway mode for [Redacted] minutes
per day. The measure of Satellite in-orbit Gateway Mode
Performance (GMP) ranges in value between 0 and 1 and is
calculated using the formula :
GMP = MEASURED GATEWAY MODE PERFORMANCE [MINUTES] DIVIDED BY [Redacted] MINUTES
3. Each Satellite operates in Service mode for [Redacted] minutes
per day. The measure of Satellite in-orbit Service Mode
Performance (SMP) ranges in value between 0 and 1 and is
calculated using the formula:
SMP = MEASURED SERVICE MODE PERFORMANCE [MINUTES] DIVIDED BY [Redacted] MINUTES
4. Each Satellite In-Orbit Performance (IOP) ranges in value
between 0 and 1 and is calculated for each payload using the
formula :
IOP = MEM x GMP x SMP
a) For the Initial Set, the Satellite index (i) ranges
between 1 and 3.
b) For the Second Set, the Satellite index (i) ranges
between 4 and 6.
5. The system total In-Orbit Performance (IOP (total))
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a) For the Initial Set the IOP (total) ranges in value
between 0 and 1 and is equal to :
IOP (TOTAL1) = (IOP(1) + IOP(2) + IOP(3)) DIVIDED BY 3
b) For the Second Set the IOP total ranges in value
between 0 and 1 and is equal to :
IOP (TOTAL2) = (IOP(4) + IOP(5) + IOP(6)) DIVIDED BY 3
The relevant measures of Satellite IOP are made once a month,
evenly spaced, during the six months period and shall be
deemed to commence on the first month after SPAR or SFAR. The
IOP will be calculated as an average of these 6 (six)
measurements per Set as described in Article 6.3.2.
(Performance measurement) above.
6.3.2.2. Performance Incentives earning.
The Contractor shall definitively earn, for each six month period and
provided that IOP is equal to 1, for one Set of Satellite, MUSD
[Redacted].
6.3.2.3. Performance Incentives pay back.
Should IOP (TOTAL1) or IOP (TOTAL2) be less than 1 for any Set for a
six month period as calculated under Article 6.3.2.1., then the
Contractor shall pay back to DBSI an amount computed as follows:
PAYMENT FOR INITIAL SET = [(MUSD [Redacted]X [1 - IOP (TOTAL1)])
DIVIDED BY 10] X (1+LIBOR+0.5%)(N)
PAYMENT FOR SECOND SET = [(MUSD [Redacted]X [1 - IOP (TOTAL2)])
DIVIDED BY 10] X (1+LIBOR+0.5%)(N)
n : is the number of years or fraction of years counted from the SPAR
or the SFAR until the Performance Incentives due date.
6.3.3. Particular provisions.
6.3.3.1. Pay back conditions.
Upon completion of a six month period and the related Performance
measurement, any payment due to DBSI pursuant to this Article 6.3.
shall be paid by the Contractor within fifteen (15) days from the
Performance measurement as determined here above.
6.3.3.2. Survival of Contractor rights and obligations related to In-Orbit
Performance Incentives.
The Contractor's rights and obligations related to In-Orbit Performance
Incentives under this article for any Satellite that has been delivered
prior to termination of this Contract in accordance with Article 18
(Termination for default), Article 19 (Termination for convenience) or
Article 21 (The Contractor's right to terminate) shall survive such
termination.
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6.3.3.3. Exclusivity of remedies.
The payback of the Performance Incentives set forth in this article
shall be DBSI's exclusive remedies with respect to the Performance of
the Satellites, and shall be in lieu of any other remedies at law or in
equity. In no event shall the Contractor be liable for any incidental,
special, contingent, or consequential damages including lost profits.
6.3.3.4. Degradation or failures through no fault of the Contractor.
If at any time after Launch, through no fault of the Contractor, a
Satellite suffers a Partial Loss, Constructive Total Loss or Total
Loss, then Contractor shall not be liable for the pay back of any
Performance Incentives to DBSI attributable to such cause.
6.3.3.5. Disagreements
If the Contractor disagrees with any Performance measurement by DBSI,
and has evidence to the contrary, DBSI shall consider such evidence. If
any disagreement about any such measurement persists, the Parties may
mutually agree to submit it to a technical expert, or either party may
invoke Article 27 (Applicable law and arbitration) hereof. At the time
that Article 27 is invoked, the Contractor shall immediately place the
full disputed amount in an interest-bearing escrow account at a bank
acceptable to DBSI. Upon presentation of a certificate duly signed by
the authorised representatives of both Parties, or by the arbitrator if
one Party unreasonably refuses to sign the certificate, confirming that
the dispute has been settled, the bank shall distribute the funds in
accordance with the terms of the settlement, and the interest earned
shall be divided in direct proportion to such terms.
6.3.3.6. Financial Interest on Performance Incentives
Each amount of Performance Incentives to be paid by Contractor to DBSI
pursuant to Article 6.3.2.3 above shall bear financial interest, at a
rate equal to 0.5% (one half per cent) per annum over the LIBOR (one
month LIBOR), to be computed from the date of SPAR or SFAR of the ESAT
Communication System until the due date of Performance Incentives pay
back by the Contractor. Such interest shall be paid by the Contractor
to DBSI, in the same six month's instalments as provided for the
Performance payment.
6.3.3.7. Insurance.
It is expressly agreed that the Contractor shall not purchase any
insurance of any nature to protect against loss of Performance
Incentives payback as set forth in this Article 6.3. (In-Orbit
Performance Incentives).
6.4. Early Delivery Bonus
If after the first Launch Success there are a minimum of two Satellites
Performing in orbit, and should the Contractor enable DBSI to operate
on a commercial basis one of these Satellites at EDC + 25 months, the
Contractor will be awarded a [Redacted] (USD [Redacted]) bonus payment.
In the event that the Contractor achieves an early delivery pursuant to
this Article 6.4, the Contractor shall invoice DBSI at SPAR.
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6.5 Extended Life Performance payment.
Provided that DBSI elects to continue operating a Satellite beyond five
(5) years of operation in orbit and such Satellites are generating
revenues during the six (6) month period, then the Contractor shall be
entitled to earn additional Performance Incentives for each six (6)
month period of operation, based on the following formula:
Payment = [MUSD 0. [Redacted] DIVIDED BY 3) X IOP]
6.6. Late Payments Interest
DBSI shall pay an additional amount to the Contractor calculated at
LIBOR (one month LIBOR) + 3 % (three per cent) per year, as applied to
the amount of any undisputed invoices unpaid on their due date, such
amount to be computed on a daily basis commencing on the calendar day
following the payment due date.
6.7. Payment Delivery
All payments shall be made in full, free of any withholding tax and
shall be considered effective when the full related amount has been
received at the Contractor's Bank on the account referenced below :
[Redacted]
6.8 Pre-payment Option
At any time after SPDR, DBSI shall have the option to pre-pay the
entire Total Prime Contract Price, less any payments previously paid to
the Contractor, at a discount of [Redacted]of the total remaining
milestone payments.
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7. INSPECTION AND ACCEPTANCE
7.1. E-SAT Communication System Preliminary Acceptance
7.1.1. The E-SAT Communication System Preliminary Acceptance will be performed
by the Contractor using the Ground Communication Network, the
Communication Center, the Spitzbergen Gateway Earth station and a
minimum of two Satellites with the Satellite Control Center (SCC), the
Guildford TTC station, the UAS simulator and the Terminal simulator.
7.1.2. The E-SAT Communication System Preliminary Acceptance Review (SPAR)
shall occur when the Contractor establishes by tests, analysis and
documentary evidence that the E-SAT Communication System Acceptance
criteria have been met in accordance with the provisions of Exhibit C
(ESAT Acceptance Criteria).
DBSI shall be preliminary notified 10 calendar days prior to the
beginning of the Preliminary Acceptance Test activity, and will then
have the opportunity to decide upon its participation. The Contractor
shall pursue all Acceptance Tests activities which are to be conducted
by him with DBSI's personnel being present or not and subject to
previous information as above mentioned.
Within 5 (five) calendar days after successful completion of the
Preliminary Acceptance Test, the Contractor will deliver to DBSI the
Test Reports together with the Certificate of Acceptance.
7.1.3. At the receipt of the Certificate, DBSI shall have 10 (ten) Days
(Review period) to issue a notice either confirming E-SAT Communication
System Preliminary Acceptance (Certificate of Preliminary Acceptance)
or indicating the respects in which the E-SAT Communication System
Acceptance criteria have not been met.
In case of rejection by DBSI, the Contractor may either perform the
required corrective actions, or contest the decision and give DBSI
notice of objection.
DBSI shall within 5 (five) Days inform the Contractor of its final
decision.
In the event the Parties cannot agree on the results of the E-SAT
Communication System Preliminary Acceptance, then the provisions of
Article 27 (Applicable Law and Arbitration) will apply.
7.1.4. If, after the elapse of the Review period referred to above, no notice
confirming E-SAT Communication System Preliminary Acceptance has been
signed by DBSI or no rejection report has been issued by DBSI, the
Preliminary Acceptance Review of the E-SAT Communication System shall
be deemed to have occurred successfully on the basis of the Certificate
of Acceptance issued by the Contractor pursuant to Article 7.1.2.
7.1.5. If SPAR or SFAR cannot be achieved because of a Partial Loss,
Constructive Total Loss or Total Loss of a Satellite in orbit and,
within 120 (hundred and twenty) days of such event, DBSI has not placed
an order of Replacement Set of Satellite or additional Satellite
pursuant to Article 8 (Options) of this Contract, both SPAR and SFAR
will be deemed to have occurred successfully at the date as mentioned
in Article 5 (Delivery schedule).
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7.2. E-SAT Communication System Final Acceptance
7.2.1. The E-SAT Communication System Final Acceptance will be performed by
the Contractor using the E-SAT Communication System with a minimum of 4
(four) Satellites.
7.2.2. The E-SAT Communication System Final Acceptance Review (SFAR) shall
occur when the Contractor establishes by tests, analysis and
documentary evidence that the E-SAT Communication System Acceptance
criteria have been met in accordance with the provisions of Exhibit C
(ESAT Acceptance Criteria).
DBSI shall be preliminary notified 10 (ten) calendar days, prior to the
beginning of the Final Acceptance Tests activities, and will then have
the opportunity to decide upon its participation. The Contractor shall
pursue all Acceptance Tests activities which are to be conducted by him
with DBSI's personnel being present or not and subject to previous
information as above mentioned.
Within 5 (five) calendar days after successful completion of Final
Acceptance Test the Contractor will deliver to DBSI the Test Reports
together with the Certificate of compliance to the Acceptance Criteria
of this Contract.
7.2.3 At the receipt of the Certificate, DBSI shall have 10 (ten) Days
(Review period) to issue a notice either confirming E-SAT Communication
System Final Acceptance (Certificate of Final Acceptance) or indicating
the respects in which the E-SAT Communication System Acceptance
criteria have not been met.
In case of rejection by DBSI, the Contractor may either perform the
required corrective actions, or contest the decision and give DBSI
notice of objection.
DBSI shall within 5 (five) Days inform the Contractor of its final
decision.
In the event the Parties cannot agree on the results of the E-SAT
Communication System Final Acceptance, then the provisions of Article
27 (Applicable Law and Arbitration) will apply.
7.2.4. If, after the elapse of the Review period referred to above, no notice
confirming E-SAT Communication System Final Acceptance (Certificate of
Final Acceptance) has been signed by DBSI or no rejection report has
been issued by DBSI, the Final Acceptance Review of the E-SAT
Communication System shall be deemed to have occurred successfully on
the basis of the certificate issued by the Contractor pursuant to
Article 7.2.2..
7.3. Certificate of Acceptance
Any Review described in this Article and in Exhibit A (Statement of
Work), associated with a Milestone payment, will be deemed completed by
the signature by both Parties of a Certificate of Acceptance. This
Certificate must be signed at the completion of the Review or in a
maximum of 10 (ten) days following such completion. Following such 10
(ten) days, and provided that there is no disputes from DBSI, the
Acceptance Review is deemed to be successful and the Certificate of
Acceptance is deemed to be issued.
In the event DBSI disputes the signature of the Certificate of
Acceptance, DBSI shall so notify the Contractor in writing, within 10
(ten) days of completion of the Review.
If the Contractor and DBSI cannot enter in an agreement about the
disputed Certificate,
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Article 27 (Applicable law and arbitrage) shall apply.
7.4. DBSI, or its designated representatives, shall have the right to
witness and review the results of the acceptance testing of the ESAT
Communications System at the system level of the deliverable hardware
at the facilities of the Contractor. To allow DBSI to most effectively
schedule the monitoring stated above, the Contractor shall give DBSI
timely notification of the acceptance testing of the deliverable
hardware.
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8. OPTIONS
8.1. List of the options
<TABLE>
<CAPTION>
-------- ------------------------------------------------------- -------------- ------------------ --------------
No OPTION VALIDITY DATE TYPE OF PRICE PRICE IN MUSD
-------- ------------------------------------------------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C>
1 Replacement Set of Satellites SFAR Firm Fixed [Redacted]
-------------- ------------------ --------------
SFAR + 1
year Firm Fixed [Redacted]
-------- ------------------------------------------------------- -------------- ------------------ --------------
2 Additional Satellite SFAR Firm Fixed [Redacted]
-------------- ------------------ --------------
SFAR + 1
year Firm Fixed [Redacted]
-------- ------------------------------------------------------- -------------- ------------------ --------------
3 Second Gateway in Fairbanks January 1, Fixed [Redacted]
2002
-------- ------------------------------------------------------- -------------- ------------------ --------------
4 Civil work in Spitzbergen PDR Estimated [Redacted]
-------- ------------------------------------------------------- -------------- ------------------ --------------
5 Civil work in Fairbanks SFAR Estimated [Redacted]
-------- ------------------------------------------------------- -------------- ------------------ --------------
6 One recurring payload PCU, RFU, antenna and harness SPAR Estimated [Redacted]
-------- ------------------------------------------------------- -------------- ------------------ --------------
7 PCU & RFU (not space qualified) [Redacted]
-------- ------------------------------------------------------- -------------- ------------------ --------------
</TABLE>
8.2 Conditions of the options.
8.2.1. General
The provisions of this Contract apply to the exercise of an option
except as otherwise described hereunder.
8.2.2. Work.
The description of the Work concerning these options is made in the
Exhibit A (Statement of Work). For option n DEG. 1, 2 and 6, the design
and configuration would be identical to those procured under this
Contract.
8.2.3. Price and conditions.
The price of these options is fixed price except option 4, 5 & 6 which
are estimated prices. The estimated prices will be converted into firm
fixed prices at the exercise of the option.
Any exercise of these options shall be in writing and shall be made
within their validity dates.
Should the currency exchange rate between USD and Euro fluctuate by
more than 10% from the date of signature and the date of exercise of
the option the prices quoted in 8.1 will be
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adjusted accordingly.
8.2.4. Payment plan.
The payment plan for the options will be defined by mutual agreement at
the time of the exercise of the option.
There is no Performance payment associated to the options.
8.2.5. Schedule of delivery
Option no 1 : If the request of such option is given to the
Contractor no later than EDC+31.5 months (SFAR), the
Contractor shall deliver the Set of Satellite on
ground at the launch site mutually agreed between the
parties no later than 14 (fourteen) months after such
order and the receipt of the down payment associated.
In the case that the launch site designated by DBSI
is not the same as in this contract, the contractor
will be entitled to any additional costs attributable
to this change.
Option no 2 : If the request of such option is given to the
Contractor no later than EDC+31.5 months (SFAR), the
Contractor shall deliver the additional Satellite on
ground at the launch site mutually agreed between the
parties no later than 12 (twelve) months after such
order and the receipt of the down payment associated.
In the case that the launch site designated by DBSI
is not the same as in this contract, the contractor
will be entitled to any additional costs attributable
to this change.
Option no 3 : If the request of such option is given to the
Contractor before January 1, 2002, the Contractor
shall deliver the second Gateway at Fairbanks no
later than 12 (twelve) months after such order and
the receipt of the down payment associated.
Option no 4 : If the request of such option is given to the
Contractor no later than PDR, the Contractor shall
complete the civil work no later than 12 (twelve)
months after such order and the receipt of the down
payment associated.
Option no 5 : If the request of such option is given to the
Contractor no later than EDC+31.5 months (SFAR), the
Contractor shall complete no later than 12 (twelve)
months after such order and the receipt of the down
payment associated.
Option no 6 : If the request of such option is given to the
Contractor no later than EDC+29 months (SPAR), the
Contractor shall deliver the single payload on ground
no later than 12 (twelve) months after such order and
the receipt of the down payment associated.
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9. ACCESS TO WORK IN PROGRESS
9.1. DBSI shall be provided access to all Work, including technical data,
test data, drawings, documentation, tooling, and manufacturing
processes, testing, and hardware in progress, being performed at The
Contractor's facilities pursuant to this Contract at all times during
the period of Contract performance, provided that such access does not
interfere unreasonably with such Work. Subject to Article 11 (Rights in
Data) and Article12 (Proprietary and/or Confidential Information),
hereof, and solely in connection with the performance of this Contract,
the Contractor shall, at DBSI's request, within 20 (twenty) days,
deliver to DBSI copies of design test data and other data generated
under this Contract and reasonably necessary to determine compliance
with this Contract. Nothing in this paragraph is intended to nor shall
it create any independent right (other than as specifically set forth
in this Contract) in any third party to require production of such
design, test data or other data.
9.2. DBSI shall be provided access to all Work being performed pursuant to
this Contract in the Subcontractor's facilities to the extent the
Contractor obtains such access, subject to the advance notice has been
received by the Contractor in reasonable time by DBSI, the right of the
Contractor to accompany DBSI on any such visit and subject further to
the execution by DBSI of non-disclosure or similar agreements as may be
required by said Subcontractors. The Contractor shall make best efforts
to obtain access to the work being performed pursuant to this Contract
in its Subcontractor's facilities.
9.3. The rights of DBSI under any of the provisions of this Article shall be
subject to compliance with internal and national security rules and
regulations applicable to the Contractor and its Subcontractors.
9.4 DBSI will be given full access to any part of the work performed under
Section 4 (Terminal Segment) of Exhibit A (Statement of Work).
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10. TRANSFER OF TITLE AND RISK
10.1. Transfer of title
10.1.1 The title to each Satellite within the Initial Set shall pass to DBSI a
the Launch of the Initial Set together with all other deliverables
under this Contract except for the Second Set and the Documentation.
10.1.2. The title to each Satellite of the Second Set shall pass to DBSI at the
Launch of the Second Set.
10.1.3. Prior to the transfer of title as described above, DBSI has no property
interest in the work in progress.
10.2. Transfer of risk
10.2.1. Transfer of risk of loss of or damage to each Satellite of the Initial
Set shall pass to DBSI at Launch of the Initial Set together with the
risk of loss of all other deliverables under this Contract except for
the Second Set and the Documentation.
10.2.2. Transfer of risk of loss or damage to each Satellite of the Second Set
shall pass to DBSI at Launch of the Second Set.
10.3. The Contractor's responsibility for care of the Work shall exclude all
damage resulting from DBSI's acts or omissions, it is being understood
the aforesaid provisions do not constitute a deviation of Article 25
(Warranty).
10.4 Transfer of title and risk of loss to Documentation shall pass to DBSI
at the time of delivery as defined in Exhibit A (Statement of Work).
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11. RIGHTS IN DATA
11.1. Rights in Data
11.1.1. Definitions.
< < Technical Data > > means recorded information of a scientific or
technical nature regardless of form or the media on which it may be
recorded. The term includes computer software. The term does not
include information incidental to Subcontract administration, such as
financial or management information.
< < Foreground Data > > means Technical Data owned by the Contractor
which is produced and paid for under this Contract.
< < Background Data > > means Technical Data owned by the Contractor,
other than Foreground Data, which is directly used or applied in the
performance of this Contract, with respect to which the Contractor now
has or may hereafter acquire the right to authorize use by others in
the manner specified by this Article.
11.1.2. Rights in Foreground Data.
a) The Contractor hereby grants to DBSI an irrevocable, non
transferable and with no sublicensing rights, non exclusive,
royalty-free right to use and have used Foreground Data
throughout the world for ESAT Communication System purposes.
Subject to Article 12 (Proprietary and/or Confidential
Information), the Contractor hereby grants to DBSI the right
to disclose such Foreground Data to the Federal Communications
Commission where appropriate and required.
b) DBSI agrees, except under the authority of a) above, that it
shall not disclose Foreground Data to any other person for any
purpose, unless the Contractor consents in writing to such
disclosure.
c) The Contractor agrees that, for a period of four (4) years
from SFAR, it shall not use, or have or permit others to use,
the Foreground Data for the purpose of engaging in business
activity relating to the design or manufacture of a low earth
orbiting satellite system, or elements of a low earth orbiting
satellite system, that would be in direct and material
competition with the E-SAT Communications system in offering
non-voice, non-geostationary mobile satellite services.
However, this shall not be construed to restrict Contractor
from selling or providing goods at the equipment level and
related services to any third party.
11.1.3. Rights in Background Data
a) The Contractor shall, upon written application by DBSI grant
to DBSI an irrevocable, royalty-free, non-exclusive right to
use and have used Background Data throughout the world for
ESAT Communication System purposes to the extent reasonable
and necessary to use of Foreground Data or to the practice of
Subject Inventions.
b) DBSI agrees that it shall not disclose Background Data to any
third party for any purpose without the Contractor's consent
in writing to such disclosure.
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11.2. Rights in Inventions
11.2.1. Definitions
< < Subject Invention > > means any invention, discovery, improvement
or innovation of more than a trifling or routine nature, whether or not
patentable, conceived or first actually reduced to practice in the
performance of the Work and paid for under this Contract.
< < Background Invention > > means any invention, discovery,
improvement or innovation, other than a Subject Invention, whether or
not patentable, which invention is directly incorporated or utilized in
any work performed under this Contract.
11.2.2. Subject Inventions
The Contractor agrees to and does hereby grant to DBSI an irrevocable,
non transferable and with no sublicensing rights, royalty-free,
non-exclusive license to practice and have practiced Subject Inventions
and patents issued thereon for ESAT Communication System purposes only
throughout the world.
11.2.3. Background Inventions
The Contractor agrees to grant DBSI, upon its request, an irrevocable,
royalty-free, non-exclusive license, with right to practice and have
practice any Background Inventions and patents issued thereon to the
extent that such practice is reasonably necessary to enable DBSI to
practice any Subject Invention or Foreground Data for ESAT
Communication System purposes.
11.2.4. Filing of Patent Applications
Except as otherwise provide in this Article 11 (Rights in Data), the
Contractor shall have the exclusive right, worldwide, to file patent
applications on Subject Inventions. The Contractor shall, within 6
(six) months of its disclosure of a Subject Invention, file or cause to
be filed a patent application in due form. After each filing, The
Contractor shall promptly furnish to DBSI a copy of the patent
application, and shall thereafter promptly notify DBSI of the issuance
of each and every patent on a Subject Invention. Should The Contractor
elect not to file for patent protection of any Subject Invention, title
to such Subject Invention shall be assigned to DBSI at DBSI's request,
provided (i) DBSI agrees to file for patent protection of any Subject
Invention, (ii) DBSI shall grant to The Contractor a paid-up,
worldwide, non-exclusive, irrevocable license, with right of
sub-license, under such Subject Invention to use same in connection
with the performance of Contractor's obligations under this Contract
only, and (iii) the Contractor agrees not to use such Subject
Invention, or permit others to use such Subject Invention, in direct
competition on with the for ESAT Communication System. For that
purpose, The Contractor shall furnish to DBSI a written disclosure of
said Subject Invention, sufficiently complete in technical detail to
convey to one skilled in the art to which the Subject Invention
pertains a clear understanding of the nature, purpose, operation, and,
to the extent known, the physical, chemical or electrical
characteristics of the invention. A copy of the letter of transmittal
of such disclosure shall be simultaneously provided to the Contractor.
11.2.5. Lower-Tier Subcontracts
The Contractor shall use its best effort to include the substance of
this Article, granting license
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rights directly to DBSI as provided above, in all Subcontracts except
the assigned Subcontracts hereunder that involve research and
development effort.
11.2.6. User Terminal Licensing Rights
In the development of the User Terminal, Application Specific
Integrated Circuits (ASIC) will be required. The Contractor will
provide, to DBSI, ASIC licensing rights.
All information required to manufacture or modify any of the terminal
segment equipment will be transferred to DBSI. Furthermore, DBSI will
own the manufacturing rights to the mass production of the User
Terminals including all custom parts.
DBSI will own the work performed under Section 4 (Terminal Segment) of
Exhibit A (Statement of Work).
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12. PROPRIETARY AND/OR CONFIDENTIAL INFORMATION
12.1. To the extent that either Party discloses information to the other
which the disclosing Party considers Proprietary and/or Confidential,
said Party shall identify such information as proprietary when
disclosing it to the other Party by marking it clearly and
conspicuously as Proprietary and/or Confidential Information. Any
proprietary disclosure to either Party, if made orally, shall be
confirmed in a writing, delivered by the disclosing party within 21
(twenty one) days of initial disclosure and identified as Proprietary
and/or Confidential Information. Any such Proprietary and/or
Confidential Information disclosed under this Contract shall not be
disclosed to third parties and shall be used by the recipient thereof
only in its performance under this Contract. Neither Party shall be
liable for disclosure or use of such Proprietary and/or Confidential
Information which :
is or becomes available to the public domain without violation
of an obligation of confidence assumed hereunder ;
is lawfully obtained by the receiving Party from a third party
or parties ;
is known as evidenced by written proof to the receiving Party
prior to such disclosure ;
is at any time developed as demonstrated by written records by
the receiving Party completely independently of any such
disclosure or disclosures from the disclosing Party ; or
occurs more than 15 (fifteen) years after initially received.
12.2. Neither Party shall be liable for the disclosure pursuant to judicial
action or decree, or pursuant to any requirement of any Government or
any agency or department thereof, having jurisdiction over such Party
of any Proprietary and/or Confidential Information which it receives
under this Contract.
12.3. No license to the other Party, under any patents or copyrights, is
granted or implied by conveying Proprietary and/or Confidential
Information or other information to that party and none of such
information which may be transmitted or exchanged by the respective
Parties shall constitute any representation, warranty, assurance,
guaranty, or inducement by either Party to the other with respect to
the infringement of patents or other rights of others.
<PAGE>
Page 33
13. PUBLIC RELEASE OF INFORMATION
13.1. Except as required by law, no items of publicity of any kind shall be
released, including, without limitation, news releases, articles,
brochures, advertisements, prepared speeches, company reports or other
information releases related to the Work performed or to be performed
by the Contractor, a Subcontractor or an employee, consultant or an
agent of any Party, under this Contract, without DBSI's and the
Contractor's prior written consent, which consent shall not be
unreasonably withheld.
13.2. Neither Party shall be liable for :
(i) information that is publicly available from government
agencies and otherwise ;
(ii) information which had been required to be specified in
application for publication by securities filings and other
governmental, administration and judicial filings ;
(iii) publication which has been prohibited even for internal use
(non-public).
<PAGE>
Page 34
14. LIMITATION OF LIABILITY
14.1. Neither Party, their officers, directors, employees, agents or
consultants, shall be liable for any incidental or consequential
damages of any nature arising for any breach or default under this
Contract, including specifically but without limitation, loss or
profits or revenue, loss of full or partial use of any equipment,
losses by reason of operation of any deliverable Item at less than
capacity, delays, cost of replacements, cost of capital, loss of
goodwill, claims of customers, or other such damages. However, nothing
in this article shall be construed as to abrogate the provisions of
Articles 17 (Liquidated Damages for Late Delivery) and 25 (Warranty)
herein.
The Contractor makes no warranty or agreement, express or implied, to
or for the benefit of any person or entity other than DBSI concerning
the performance of the E-SAT Communication System or any other matters
relating to the Work hereunder. DBSI shall indemnify and hold harmless
the Contractor and its Affiliates and Subcontractors from and against
any loss, damage, liability or expense (including attorneys' fees and
other expenses of investigating or defending claims) resulting from (i)
any representation made by DBSI to any third party relating to the
Work; (ii) any claim of persons dealing with or through DBSI (including
customers or insurers) or any agency or other governmental authority of
DBSI's country ; or (iii) any other claims relating to the E-SAT
Communication System and arising after System Preliminary Acceptance
Review. DBSI shall obtain from its insurers waivers of any subrogation
rights against the Contractor or its affiliates or Subcontractors, and
shall provide evidence of such waivers to the Contractor prior to
delivery.
Except as specifically provided for in this Contract, the Contractor
makes no warranties, express or implied, with respect to the Contract
or the performance of the Contractor hereunder or the equipment or Work
furnished hereunder, whether arising under law or at equity. Any
implied warranty of merchantability or fitness for a particular purpose
is excluded. The express warranties of the Contractor contained in this
Contract are exclusive.
14.2. The total liability of either Party to the other with respect to all
claims of any kind, including without limitation liquidated damages,
whether as a result of breach of Contract, warranty, strict liability
or otherwise, and whether arising before or after delivery of any
deliverable item, for any loss from the Contract, or from the
performance or breach thereof, shall be limited to the remedies set
forth in the Contract.
14.3 The total liability of the Contractor under Articles 6.3, 17.1.3 and
17.1.4 shall be limited to [Redacted] of the Contract Price.
<PAGE>
Page 35
15. PATENTS, TRADEMARKS AND COPYRIGHTS
15.1. The Contractor, at its own expense, shall defend and hold harmless
DBSI, its officers, directors, employees, agents, consultants or
assignees against any claim or suit based on an allegation that the
manufacture of any item in the performance of this Contract, or the
use, lease or sale of any item delivered or to be delivered under this
Contract, or used in the performance of the Work infringes any third
party rights or breaches any confidence, including but without
limitation any trade secrets, intellectual property right and patent
rights, and shall pay any royalties and other costs related to the
settlement of such claim or suit and the costs and damages; provided
that :
(i) DBSI promptly but no later than twenty (20) Days after such
claim or suit notifies the Contractor in writing and,
(ii) DBSI gives the Contractor authority to defend or settle such
claim or suit and, at the Contractor's request, gives such
assistance and information as is reasonably necessary to
defend or settle such claim or suit provided that any
settlement limiting the use of the ESAT Communication System
shall require the prior consent of DBSI, such consent not to
be unreasonably withheld. Any such assistance or information
which is furnished by DBSI at the request of the Contractor is
to be at the Contractor's expense.
DBSI shall not by any act (admission, acknowledgment or omission)
prejudice the Contractor's defense.
15.2. If the manufacture of any item in the performance of this Contract or
the use, lease or sale of any item delivered or to be delivered under
the Contract, is enjoined as a result of a suit based on a claim of
infringement, the Contractor shall:
(i) resolve the matter so that the items are no longer subject to
such injunction, or
(ii) procure for DBSI the right to use the infringing item, or
(iii) replace the item with a functionally-equivalent,
non-infringing item satisfactory to DBSI.
If the Contractor, at its sole discretion determines that none of the
alternatives is available or feasible, The Contractor shall meet with
DBSI to address the matter and reach an equitable solution reasonably
acceptable to DBSI.
15.3. The provision provided under this Article :
(i) shall not apply to the Contractor's delivery of normally non
infringing items which are rendered infringing by DBSI's or
end user's modification of said items or by a combination of
said items with items not provided or approved for use by the
Contractor under this Contract, and without the Contractor's
prior written consent ;
(ii) does not extend to any Items being used in other than their
specified operating environment ;
(iii) does not extend to any infringement resulting from a change in
method of manufacture of an item to be delivered, ordered by
DBSI pursuant to the Article 22 (Changes), or the stipulation
by DBSI of the specific design of an item to be delivered ;
<PAGE>
Page 36
(iv) does not apply to the use of any items which were not provided
by the Contractor,
15.4. If the infringement results solely from DBSI's provision of designs,
specifications or instructions to The Contractor, DBSI will indemnify
and defend (including by way of settlement), at its expense, any such
suit against The Contractor, provided DBSI is promptly notified in
writing of the claim of infringement and given authority, information
and assistance by The Contractor, at DBSI's expense, for the defense or
settlement thereof.
15.5. The foregoing constitutes the Parties' entire obligation with respect
to claims for infringement.
<PAGE>
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16. EXTENSIONS FOR EXCUSABLE DELAYS
16.1. The Contractor shall be entitled to extensions of time beyond the
delivery dates set forth in Article 5 (Delivery Schedule) in accordance
with this Article.
16.2. Any delay in the performance of the Work caused by an event which is
beyond the reasonable control of the Contractor, or its Subcontractors
such as but not necessary limited to declarations of war or civil war,
earthquake, fire, flood, acts of God, national strikes, decisions of
any Government such as embargo, expropriation, government cancellation
of the required authorizations as a consequence of the introduction or
application of any laws, regulation or regulations, revocation of
approvals and/or licenses essential to the performance of either the
Contract or the Subcontracts, prohibition of required import licenses,
embargo on transportation of the Satellite or the launcher or any of
their components to the Launch site, prohibitions or limitations of any
kind, or any failure of DBSI to fulfill its undertakings under this
Contract, which delay could not have been avoided by the Contractor
through the exercise of reasonable foresight and precautions or which
could not or cannot be reasonably circumvented by the Contractor
through the use of alternate sources, work-around plans, or other
means, shall constitute an Excusable Delay.
16.3. The Contractor shall promptly and in any event not later than thirty
(30) Days after the occurrence of such event notify DBSI in writing of
event constituting an Excusable Delay. That notice :
(i) shall indicate the circumstances surrounding the Excusable
Delay ;
(ii) shall set forth the extent to which the Excusable Delay
prevents fulfillment of the contractual terms and conditions
within the time specified under the Contract ;
(iii) shall describe, if any, the details of any work-around plans,
alternate sources or other means the Contractor expects to
utilize to minimize the delay in the performance of the Work ;
and
(iv) subject to Article 16.4. below shall propose the appropriate
adjustments to the delivery dates to accommodate the Excusable
Delay.
16.4. In the event of an Excusable Delay, the Contractor shall be entitled to
such extensions of time and adjustment for delivery date as are
reasonable under the circumstances, but in no event shall the extension
of time for the Excusable Delay exceed one Day for each Day of the
Excusable Delay. In the event DBSI disputes the Excusable Delay, DBSI
shall inform the Contractor in writing within 15 (fifteen) Days from
the receipt of the written notice of the event constituting an
Excusable Delay. If the Parties have not resolved the dispute within 15
(fifteen) Days of the Contractor's receipt of that written notice from
DBSI, then the dispute shall be resolved pursuant to Article 27
(Applicable Law and Arbitration) below.
Should the Excusable Delay exceed 12 (twelve) months, the Parties may
terminate the contract pursuant to Article 19 (Termination for
Convenience), except, as far as DBSI is concerned, if such Excusable
Delay is due to DBSI's failure to fulfill its undertakings under this
Contract, then the provisions of Article 21 (Contractor's right to
terminate) shall apply. In
<PAGE>
Page 38
case of termination by DBSI under this Article , no penalty shall be
paid by DBSI except for the termination fees.
In any case the corresponding termination costs would not be higher
than the Termination Liability Schedule as provided in Article 19.2.
(Termination for convenience).
16.5. An extension of time granted under this Article shall be formalized by
the execution of an Amendment to the Contract pursuant to Article 22
(Changes) below, which Amendment shall establish new delivery dates for
the deliverables items affected by the Excusable Delay and
modifications, if appropriate, shall be made to the payment conditions
of this Contract.
<PAGE>
Page 39
17. LIQUIDATED DAMAGES FOR LATE DELIVERY
17.1. Liquidated damages for late delivery of the ESAT Communication System
17.1.1 The Parties agree that failure of the Contractor to meet the delivery
dates as defined in Article 5 (Delivery Schedule), may cause DBSI to
incur additional costs, loss of anticipated revenues and other damages.
Accordingly, the Contractor and DBSI agree to Liquidated Damages for
Late Delivery under this Contract as provided below, which damages are
intended to be compensatory and do not constitute a penalty.
17.1.2. Such Liquidated Damages shall be applicable if and to the extent such
delay is not due to a default of DBSI in respect of any of its
obligations pursuant to Article 3 (DBSI's Undertaking) or subject to an
extension of time pursuant to Article 16 (Extension for Excusable
Delays).
17.1.3. In case of delay of the SPAR or the SFAR, the amount of liquidated
damages for such delay shall be as follows :
a) ESAT Communication System Preliminary Acceptance Review :
[Redacted]% of the Contract Price for each Day of delay from
the delivery date as set forth in Article 5 (Delivery
Schedule) or in Article 7.1.5 (Inspection and Acceptance) if
these Articles are applied.
b) ESAT Communication System Final Acceptance Review :
[Redacted]% of the Contract Price for each Day of delay from
the delivery date as set forth in Article 5 (Delivery
Schedule) or in Article 7.1.5. (Inspection and Acceptance) if
these Articles are applied.
The maximum amount of the Liquidated Damages to be paid by the
Contractor under this Article 17.1.3. is [Redacted]% of the Contract
Price per day and an aggregate of [Redacted]% (ten percent) of the
Contract Price, subject to the provisions of Article 14.3 (Limitation
of Liability).
17.1.4. In all other situations involving a delay resulting from Defects in the
ESAT Communications System other than in the Satellites which is
discovered after the First Launch and for which the Parties cannot
develop a correction plan which corrects or offsets the effect such
Defect or Defectsthe amount of liquidated damages for such delay shall
be as follows :
a) ESAT Communication System Preliminary Acceptance Review : 0.
[Redacted]% of the Contract Price for each Day of delay from
the delivery date as set forth in Article 5 (Delivery
Schedule) or in Article 7.1.5 (Inspection and Acceptance) if
these Articles are applied
b) ESAT Communication System Final Acceptance Review : 0.
[Redacted]% of the Contract Price for each Day of delay from
the delivery date as set forth in Article 5 (Delivery
Schedule) or in Article 7.1.5. (Inspection and Acceptance) if
these Articles are applied.
The maximum amount of the Liquidated Damages to be paid by the
Contractor under this Article 17.1.4. is 0. [Redacted]% of the Contract
Price per day and an aggregate of [Redacted] ([Redacted]%) of the
Contract Price, subject to the provisions of
<PAGE>
Page 40
Article 14.3 (Limitation of Liability).
17.1.5 The liquidated damages due under this Article shall be the sole
compensation to which DBSI shall be entitled for late delivery under
this Contract and the Contractor shall not be subject to any
consequential, special collateral, indirect or incidental damages for
loss of revenues and profit and to any right to terminate the Contract
for default.
<PAGE>
Page 41
18. TERMINATION FOR DEFAULT
18.1.1 If, other than by reason of an Excusable Delay as per Article 16
(Extension for Excusable Delays), or any failure, omission, neglect,
undue delay or default by DBSI to perform its undertakings under this
Contract :
A. The Contractor has failed to complete the Launch Readiness
Review 1 by 1 (one) year after the delivery date mentioned in
Article 5 (Delivery Schedule) or has failed to complete the
Launch Readiness Review 2 by 1 (one) year after the delivery
date mentioned in Article 5 (Delivery Schedule), and provided
the Contractor has already paid the ceiling of Liquidated
Damages as stipulated in Article 17 (Liquidated Damages for
Late Delivery) above, as such date may be extended pursuant to
Article 16. (Extensions for Excusable Delays) and/or Article
22. (Changes) and/or Article 8 (Options) hereof;
B. Subject to the provisions of Article 20 (Opportunity to Cure a
Defect), the Contractor, has otherwise failed substantially to
perform the Work in accordance with the relevant provisions of
this Contract and has failed to take corrective actions within
sixty (60) Days from a written notice from DBSI; or
C. The Contractor has failed to cure a Defect as set forth in
Article 20 (Opportunity to Cure a Defect) within the time
periods set forth therein;
then DBSI may terminate this Contract totally (before LRR1) or
partially (between LRR1 and LRR2) by written notice of default.
18.1.2 After LRR 1 the provisions of Article 18.1.1 shall apply only to the
Second Set and DBSI's recourse for all other delivered items shall be
under Article 25 (Warranty).
18.1.3 After LRR 2 the provisions of Article 18.1.1 shall not apply and DBSI's
recourse shall be under Article 25 (Warranty).
18.2. In the event of a partial or complete termination by DBSI under this
Article, DBSI shall, subject to Articles 18.3.1. and 18.3.2., make its
best efforts to have the Work completed by another contractor.
For the purposes of having the Work completed by another contractor,
the Parties shall jointly select the companies capable of completing
the Work, and shall jointly analyze the results of any commercial
competition for the Work. With due consideration of the Contractor's
recommendation, DBSI shall select another contractor best ensuring the
use of the Work completed by the Contractor at the date of termination.
18.3.1. In the event that the < < Cost For Completion > > of the Work by
another contractor results in DBSI incurring direct additional costs or
expenses lower than or equal to 10% (ten per cent) of the Contract
Price, as it may have been adjusted, for the terminated Work, DBSI
shall be obliged to have the Work completed by such other contractor,
and the Contractor shall bear these additional costs.
18.3.2. If the Cost For Completion exceeds 10% (ten per cent) of the Contract
Price, as it may have been adjusted, for the terminated Work, DBSI
shall be obliged to offer the Contractor the option to pay such Cost
for Completion and if the Contractor agrees to reimburse such Cost
<PAGE>
Page 42
for Completion to DBSI, DBSI shall not be entitled to reject the
completion of the Work by such other contractor.
18.4. If the Work is completed by another contractor, DBSI shall receive the
Work generated under this Contract at its stage of completion on the
date of termination, subject to payment of the price for such Work by
DBSI to the Contractor. The difference between the total payments made
by DBSI to the Contractor at the date of termination and the amount for
the Work delivered to DBSI by the Contractor in accordance with the
previous sentence shall be refunded by the Contractor to DBSI.
18.5.1. Should the written notice of default mentioned in Article 18.1.1 occur
prior to LRR 1, and despite DBSI's best efforts to have the Work
completed by another contractor, no such other contractor is found or
if the Contractor refuses to pay the Cost for Completion in excess of
[Redacted] as referred to in Article 18.3.2., the Contractor shall
refund DBSI all payments made under this Contract for the terminated
work at the date of termination.
18.5.2. Should the written notice of default mentioned in Article 18.1.1 occur
after LRR 1 but before LRR 2, and despite DBSI's best efforts to have
the Work completed by another contractor, no such other contractor is
found or if the Contractor refuses to pay the Cost for Completion in
excess of [Redacted]% ([Redacted]) as referred to in Article 18.3.2.,
the Contractor shall refund to DBSI [Redacted] MUSD if the terminated
work covers the entire Second Set or [Redacted] MUSD per Satellite
terminated.
18.6. The Contractor shall take all necessary action for the protection and
preservation of the Work in possession of the Contractor, or its
Subcontractors in which DBSI has an interest under this Contract
pursuant to the provisions of Articles 18.4. above.
18.7. The Contractor shall retain title to and the risks associated with such
inventory generated under this Contract at the date of termination, for
which DBSI elects to receive a refund pursuant to Article 18.5. above.
18.8. In the event DBSI terminates the Contractor for default under the
provisions of this Article and it is subsequently determined by mutual
agreement or in accordance with the provisions of Article 27
(Applicable Law and Arbitration) below, that the Contractor was not in
default, said termination shall (i) either by mutual agreement of both
Parties be deemed to have been issued pursuant to Article 19
(Termination for Convenience) below, or ; (ii) by mutual agreement of
both Parties and upon complete consideration to the Contractor of all
associated costs, including actual direct damages but excluding
special, incidental, consequential, indirect damages, be deemed not to
be have been terminated and therefore this Contract shall continue in
full force and effect and shall be binding on the Parties in accordance
with revised price, schedule and other affected terms as mutually
agreed by the Parties, subject to the provisions of Article 5 (Delivery
Schedule) above.
18.9. This Article shall be the sole remedy to which DBSI is entitled in the
event of default of the Contractor provided that the provisions of
Articles 14 (Limitation of Liability), 17 (Liquidated Damages for late
Delivery) 25 (Warranty) and 26 (Indemnification) shall continue to
apply and DBSI shall be entitled to exercise all its rights, remedies
and powers under such Articles after termination and/or delivery in
accordance with the provisions of this Article 18. In no
<PAGE>
Page 43
event shall the Contractor be liable to DBSI for any incidental or
consequential damages of any nature including loss of profits or
revenue.
<PAGE>
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19. TERMINATION FOR CONVENIENCE
19.1. DBSI may, upon a 2 (two) months prior written notice sent by registered
letter with acknowledgment of receipt and without giving the reasons or
showing cause, terminate the Contract in whole before SPAR or in part
after SPAR, and the Contractor shall immediately cease work accordingly
and shall similarly direct its Subcontractors.
19.2. The amount payable by DBSI to the Contractor shall constitute a total
discharge of DBSI's liabilities to the Contractor for termination. In
no event will it exceed the termination liability schedule below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Termination Liability Schedule
- ----------------------------------------------------------------------------------------------------------
Termination or suspension notified between Maximum Termination Liability
- ----------------------------------------------------------------------------------------------------------
Start date Date payment received for: MUSD
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
EDC SPDR [Redacted]
- ----------------------------------------------------------------------------------------------------------
SPDR TPDR [Redacted]
- ----------------------------------------------------------------------------------------------------------
TPDR GCSCDR [Redacted]
- ----------------------------------------------------------------------------------------------------------
GCSCDR CDRPCU [Redacted]
- ----------------------------------------------------------------------------------------------------------
CDRPCU SCDR [Redacted]
- ----------------------------------------------------------------------------------------------------------
SCDR TMMR [Redacted]
- ----------------------------------------------------------------------------------------------------------
TMMR MCPAR [Redacted]
- ----------------------------------------------------------------------------------------------------------
MCPAR LRR1 [Redacted]
- ----------------------------------------------------------------------------------------------------------
LRR1 LRR2 [Redacted]
- ----------------------------------------------------------------------------------------------------------
LRR2 SPAR [Redacted]
- ----------------------------------------------------------------------------------------------------------
SPAR SFAR [Redacted]
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: DBSI shall be liable for any termination liability relating to
the SSTL Subcontract during this time period.
19.3. (a) In the event of termination under this Article, the Contractor,
shall submit its claim for the Work performed in connection with the
terminated portion of the Work, and for its termination costs. On the
basis of such claim, the Contractor shall invoice , subject to Article
19.5. below, for :
(i) actual costs incurred by the Contractor for Work
carried out prior to the termination, plus a
[Redacted]% ([Redacted]) profit on such costs;
(ii) actual costs incurred by the Contractor in completing
the termination process, plus a [Redacted]%
([Redacted]) profit on such costs;
(iii) actual costs incurred in settling claims of
Subcontractors in connection with the termination,
plus a [Redacted]% ([Redacted]) profit on such costs;
and
(iv) a termination fee of [Redacted]% ([Redacted]) of the
Contract Price associated with the Work not performed
due to termination.
(v) a payment of $[Redacted] MUSD without further
description.
(b) In the event DBSI terminates the Contract after 12 (twelve)
months of an Excusable Delay as set forth in Article 16
(Extensions for Excusable Delays), the [Redacted]% profit as
provided for in Article 19.3. (a) is not applicable.
<PAGE>
Page 45
(c) In the event DBSI terminates the whole Contract, the
termination costs calculated in accordance with Article 19.3(a) shall
be less all payments received by the Contractor from DBSI, provided
that where such amount is a negative number, the Contractor shall pay
such amount to DBSI within 30 (thirty) Days.
(d) The Contractor shall submit an invoice to DBSI within 60
(sixty) Days after the termination date which shall specify the amount
due to the Contractor from DBSI pursuant to this Article. The
Contractor shall be entitled to payment by DBSI of such amount within
30 (thirty) Days of receiving such invoice, unless DBSI notifies the
Contractor that it disputes such invoice pursuant to Article 27
(Applicable Law and Arbitration) below. In the event DBSI does not so
notify the Contractor that it disputes such invoice within 30 (thirty)
Days, DBSI shall be deemed to have accepted such invoice.
19.4. If the Contract is terminated as provided in this Article and payment
is made in accordance with this Article, then DBSI may require the
Contractor, subject to any governmental approval and the provisions of
Article 16, to transfer to DBSI, in the manner and to the extent
directed by DBSI, title to and possession of any items comprising all
or any part of the Work (including, without limitation, all
Work-in-progress and all inventories), and the Contractor shall, upon
the direction and at the expense of DBSI, protect and preserve property
in the possession of the Contractor or its Subcontractors in which DBSI
has an interest and shall facilitate access to and possession by DBSI
of items comprising all or any part of the Work. If DBSI has not taken
delivery of property in which it has such interest within 90 (ninety)
Days after termination, the Contractor shall have no further
responsibility therefor and shall be entitled to dispose of such
property.
19.5. In the event DBSI desires independent verification of the claim, DBSI
may require at its own expense to have an independent certified public
accountant(s) audit the costs incurred by the Contractor and report to
the Parties.
<PAGE>
Page 46
20. OPPORTUNITY TO CURE A DEFECT
20.1. (a) For purposes of this Article, "Defect" with regard to a Satellite,
including all components thereof, means any failure in design, material
or workmanship, or failure to perform in accordance with the
specifications and requirements set out or referred to in the Contract,
whether occurring as a result of shipping, installation or otherwise,
which may adversely affect the performance of such Satellite. "Defect"
with regard to all other deliverable items including documentation
shall mean failure to meet any specification or technical requirement
set forth in the Contract. With regard to services, "Defect" shall mean
a failure to conform with a high standard consistent with aerospace
industry practice.
(b) The Contractor, at its own expense, shall use best efforts to
correct promptly, any Defect which it or DBSI discovers during the
course of the Work. This shall apply notwithstanding that a payment may
have been made by DBSI in respect thereof and regardless of prior
reviews, inspections, approvals or acceptances. Where such equipment is
portable, the Contractor shall have the right to have any items
asserted by DBSI to contain a Defect returned to the Contractor's
facility, or to premises operated by the Contractor in the performance
of the Work, in order to verify such nonconformance or to correct the
Defect. All transportation costs such as packaging, shipping and
insurance shall be paid by the Contractor.
20.2. Notwithstanding any other provision of this Contract, the Contractor
shall advise DBSI immediately by telefax any event, circumstance or
development which materially threatens the delivery dates established
herein or the quality of any Satellite or component part thereof or of
any other item, service or documentation to be provided by the
Contractor.
20.3. Prior to termination of the Contract for the Contractor's default, the
Parties shall undertake to cure a Defect in the following manner:
(a) DBSI shall deliver to the Contractor a written demand for
correction and cure of the Defect setting forth the basis for
the claim. Said notice shall be sent to the Contractor within
30 (thirty) Days from the time DBSI knows of the Defect.
(b) Within 15 (fifteen) Days after receipt by the Contractor, of
DBSI's written notice or such longer time as may be mutually
agreed between the Parties, the Contractor shall submit to
DBSI a correction plan for curing the Defect, provided that no
correction plan shall ever result in a change to a delivery
date unless the Parties otherwise agree.
(c) If DBSI either accepts the correction plan or does not reject
the correction plan within 30 (thirty) Days after receipt, the
Contract shall be deemed modified in accordance with said
correction plan and the Defect shall be deemed cured, so long
as the Contractor complies with the terms of such correction
plan provided that, the provisions of this Article 20.3. shall
continue to apply to any continuing or further Defect not
cured by such correction plan.
20.4. In the event that :
(i) the Contractor does not submit a correction plan to DBSI
within 15 (fifteen) Days after
<PAGE>
Page 47
receipt of a written demand therefor, or
(ii) the Parties cannot develop a correction plan which corrects or
offsets the effect of the Defect or which otherwise is
satisfactory to both the Contractor and DBSI, within 20
(twenty) Days after the rejection of the proposed correction
plan,
then DBSI may elect to terminate the Contract in whole or in part
pursuant to Article 18 (Termination for Default) and the Contractor
shall forthwith notify DBSI of completed work and all work-in-progress
relating to the Work in respect of which DBSI exercises its rights.
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21 THE CONTRACTOR'S RIGHT TO SUSPEND OR TERMINATE THE WORK
21.1. The Contractor shall begin the Work when all amounts due and payable at
the EDC shall have been fully paid.
If, at any time, any portion of the Total Prime Contract Price due and
payable as a Milestone Payment shall not have been fully paid within 20
(twenty) days of the Invoice date on which such payment was due, the
Contractor shall be entitled to cease and suspend all Work (the
"Stoppage Date") until after all due and overdue amounts payable by
DBSI have been received, including interest payable under Article 6.6.
The Contractor shall be obligated to resume its Work no later than 15
(fifteen) Days after the date on which DBSI shall have paid all
outstanding amounts due or overdue and payable, provided that the
Contractor shall be entitled to an extension in the Delivery date for
all Milestones occurring after the Stoppage Date equal to one Day for
each Day on which any payment amount was overdue. In the event that any
portion of a Milestone Payment remains unpaid 60 (sixty) days after the
date on which such payment was due, the Contractor shall be entitled to
give notice of the exercise of its right to terminate under this
Article.
21.2. The Contractor may suspend working on the Work or terminate this
Contract by giving written notice to DBSI of termination if DBSI :
(i) fails to pay any undisputed Invoice within 20 (twenty) Days
from the date of Invoice as provided for in Article 6.
(Payment), or,
(ii) has not provided the stand-by letter of credit provided for by
Article 3.2.3, prior to EDC + 4 months.
(iii) DBSI refuses or fails to observe or perform any material duty
and obligation of the Contract and any of its undertakings
under this Contract and DBSI fails to remedy such default
within sixty (60) days of receipt of the Contractors written
notice, or,
(iv) DBSI has assigned or transferred the Contract in violation of
Article 24 (Assignments),
(v) the Excusable Delay, due to DBSI's failure to fulfill its
undertakings, exceeds 12 (twelve) months pursuant to Article
16. (Excusable Delay),
(vi) or has not made and Contractor has not received and accepted,
as of the date of written notice of termination, the Calendar
Payment No. 2.2 provided for in Article 6.2.1 and milestone
payment No. 4 provided for in Article 6.2.2 on or before 5:00
p.m. Pacific Standard Time January 31, 2000. . In case of
termination under this subsection (vi), termination will be
effective immediately upon written notice.
21.3. In the event of such termination by the Contractor, the Contractor
shall be entitled to take any or all of the following actions :
(i) treat the Contract as terminated as to all the items then
undelivered or services unperformed and cease or suspend
manufacture or supply of any of the items or services to be
supplied under the Contract,
(ii) withhold delivery of any of the items or services to be
supplied under the Contract until the Contractor has received
full payment of undisputed amounts,
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(iii) cease or suspend performance of any of the services to be
provided to DBSI under the Contract,
(iv) have the right to retain possession of and title to the Work,
(v) have right to sell Work or items without notice to or consent
of DBSI,
(vi) demand and promptly be paid all amounts born by the Contractor
in accordance with Articles 19.2 and 19.3. except 19.3. (b) ,
19.4. and 19.5. less the amounts already paid by DBSI at the
date of Termination.
21.4. This Article does not limit other rights to which otherwise the
Contractor may be entitled under applicable law.
21.5. Notwithstanding anything else to the contrary in this Agreement, if the
Contractor elects to terminate this Agreement after EDC under Article
21.2.(vi), the down payments represented by payments Nos. 1 and 2.1
provided for in Article 6.2.1 and milestone payment No. 3 provided for
in Article 6.2.2 shall become non-refundable payments. Contractor and
DBSI agree that, other than the non-refundable payments represented by
payments Nos. 1 and 2.1 provided for in Article 6.2.1 and milestone
payment No. 3 provided for in Article 6.2.2, the Parties shall have no
further liabilities for costs and expenses incurred under this. In
addition, in the event that DBSI attempts to terminate this Agreement
for convenience under Article 19 between EDC and the time DBSI has made
payment No. 2.2 provided for in Article 6.2.1 and payment No. 4
provided for in Article 6.2.2, then the Contractor may immediately
terminate this Agreement under Article 21.2(vi) and the Agreement shall
be deemed to have been terminated by the Contractor under Article
21.2(vi) and not by DBSI under Article 19.
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22. CHANGES
22.1. The Contract shall not be modified except by a written agreement signed
by duly authorized representatives of the Parties as identified in
accordance with the provisions of Article 31 (Communication and
Authority) hereof. Such written agreement shall state that it is an
Amendment to the Contract. No oral agreement or conversation with any
officer, agent or employee of DBSI or the Contractor, either before or
after execution of the Contract, shall affect or modify any of the
terms or obligations contained in the Contract. No purchase order,
acknowledgement, quotation, or other similar document issued by either
Party with respect to the subject matter of the Contract, nor any
directive of DBSI, shall be deemed to be a part of the Contract or to
modify the Contract in any respect relating to the Work unless executed
in conformance with this Article 22.
22.2. Changes requested by DBSI
At any time prior to System Final Acceptance under the Contract, DBSI
may, by written Contract Change Request, request the Contractor to (i)
make changes within the general scope of the Contract, such a change in
drawings, designs, specifications, method of shipment or packing,
delivery date(s) or place of delivery, (ii) request additional work
within the general scope of the Contract or (iii) request the deletion
of portions of the Work.
If any such Contract Change Request causes an increase or decrease in
Contractor' cost or in the time required to complete all or portions of
the Work, or change in the specifications of any Deliverable Item, the
Contractor will prepare within one month a Change Proposal describing
impacts on cost, deliverables and program schedule and submit it to
DBSI for approval. DBSI shall notify the Contractor in writing, within
15 (fifteen) days after receipt of such Change Proposal, whether or not
it agrees with and accepts the Contractor's Change Proposal. If DBSI
agrees, an Amendment to the Contract reflecting such change and price
adjustment or specifications and/or delivery date or schedule, if any,
shall be issued and the Contractor shall proceed with the performance
of the Contract as changed.
The Contractor shall not implement such variation, and DBSI shall not
be liable for any change in the Total Contract Price or delivery dates
pursuant to such variation, until and unless the Parties have entered
into a written Amendment to this Contract.
22.3. Changes requested by the Contractor.
Any Contract Change Request issued by the Contractor during the
performance of the Contract, which will add or delete Work, affect the
design of any Deliverable items, change the method of shipment or
packing, delivery date(s) or place of delivery, or will affect any
requirement of the Contract, shall be submitted to DBSI through a
Change Proposal one month prior to the proposed date of change, unless
otherwise agreed.
DBSI shall notify the Contractor in writing within 15 (fifteen) days
from receipt of the Change Proposal whether or not it agrees with and
accepts such change. If DBSI agrees, an Amendment to the Contract
reflecting such change and price adjustment or specifications and/or
delivery date or schedule, if any, shall be issued and the Contractor
shall proceed with the performance of the Contract as changed. The
Contractor shall not implement such
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variation, and DBSI shall not be liable for any change in the Total
Contract Price or delivery dates pursuant to such variation, until and
unless the Parties have entered into a written Amendment to this
Contract.
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23. SUBCONTRACTS
23.1. The Contractor will enter and maintain Subcontracts which are referred
to as < < Major Subcontracts > > .
< < Major Subcontracts > > are defined as those Subcontracts which are
important or critical in nature to the work and are listed below.
List of key Subcontracts:
- Platform and part of the Ground Control Segment : SSTL,
Guildford, United Kingdom
- Payload:
- - [Redacted]
- Terminal Subcontractors:
The Terminal Subcontractors shall be selected by mutual
agreement of the Parties prior to EDC+1. In the event that the
Parties are unable to agree on the selection of the Terminal
Subcontractors prior to EDC+1, then the selection of the
Terminal Subcontractor shall be made by the mutual agreement
of a senior executive from each party.
- Communications Center Subcontractor : [Redacted]
23.2. In the event that the Contractor needs to terminate or substitute a
Major Subcontractor, the Contractor shall consult with DBSI and shall
replace such a Major Subcontractor with an entity with substantially
equal qualifications and capabilities.
23.3. In the event that the Contractor or any Major Subcontractor has reason
to change in any manner the technical requirements or specifications of
the Work, such change shall require DBSI's prior approval after full
disclosure of the impact on price, performance and delivery under the
Contract and shall not become effective unless and until the Parties
agree to the change in a formal written Amendment to the Contract in
accordance with Article 22. (Changes).
23.4. Nothing in the Contract shall be construed as creating any contractual
relationship between DBSI and any Subcontractor. The Contractor is
fully responsible to DBSI for the acts and omissions of the
Subcontractors, and of all persons used by the Contractor or
Subcontractors in connection with the performance of the Work under the
Contract. Except as provided for in Article 16 (Extensions for
Excusable Delay), any failure by a Subcontractor to meet its
obligations to the Contractor shall not constitute a basis for
Excusable Delay, and shall not relieve the Contractor from meeting any
of its obligations under the Contract.
23.5. Unless otherwise agreed to in writing by DBSI, the Contractor shall use
its best efforts to ensure that :
(i) the Major Subcontracts include provisions under which the
Major Subcontractors agree not to assign or delegate the Major
Subcontracts or any of their rights, duties or obligations
thereunder without the prior written consent of the
Contractor, after consultation with DBSI, and that any
attempted assignment or delegation without such
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consent shall be void and without effect and,
(ii) that the Major Subcontracts will include provisions complying
with the provisions of Article 9 (Access to Work in Progress),
12 (Proprietary and/or Confidential Information) and 13
(Public Release of Information).
23.6. Platform Subcontract Assignment
The Purchase and Sale Contract between Surrey Satellite Technology
Limited and DBS Industries Incorporated, of March 31, 1999 as amended
is assigned by these parties to the Contractor as provided for in the
Assignment Agreement to be executed by these parties and the
Contractor.
The Satellite Platform Subcontract has been assigned to the Contractor
by DBSI and the Subcontractor pursuant to the Assignment Agreement
executed by all the parties.
The original Subcontract price, between DBSI and the Subcontractor
(SSTL), was [Redacted] MUSD. Only [Redacted] $ will be assigned to the
Contractor and [Redacted] $ will remain with DBSI to continue for the
Subcontractor to provide engineering support and will be handled with a
purchase order issued by DBSI. [Redacted] MUSD have already been paid
by DBSI to the Subcontractor.
In the event that the Contractor needs to terminate or substitute the
Satellite Platform Subcontract, the Contractor shall consult with DBSI
and, subject to DBSI's approval, which shall not be unreasonably
withheld or unduly delayed, shall replace such Subcontractor with an
entity with substantially equal qualifications and capabilities.
Notwithstanding anything else to the contrary, if Contractor elects to
terminate this Agreement pursuant to Article 21.2(vi), then the
Assignment Agreement for the Satellite Platform Subcontract shall
revert back to DBSI.
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24. ASSIGNMENTS
24.1. Prime Contract Assignment
Neither Party shall assign or delegate this Contract or any of its
rights, duties, or obligations hereunder to any third party or legal
entity, without the prior express written approval of the other Party,
which consent shall not be unreasonably withheld, except to any
successors of either Party by merger or consolidation provided such
successor or assignee shall comply with the rights and obligations of
such replaces Party as unchanged.
24.2. The Contractor hereby accepts that DBSI may assign this Contract to
DBSI's wholly owned subsidiaries < < Newstar > > , provided that DBSI
shall remain jointly and severally liable on the Contract and Newstar
shall comply with all rights and obligations of DBSI's set forth
herein. DBSI shall promptly notify the Contractor when DBSI desires to
have Newstar designated as the primary customer under the Contract.
<PAGE>
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25. WARRANTY
25.1. The Contractor warrants for the period specified herein below, that
items delivered under the Contract shall be free from any defects in
design, material or workmanship and shall conform to the requirements
of Exhibit A, and B (Statement of Work, Level A Specification,) and on
the basis and subject to the assumptions defined in Exhibit C (ESAT
Acceptance Criteria).
DBSI shall have the right, at any time during the period of this
warranty set forth herein to require that any Work not conforming in
any material respect to the Exhibits to the Contract be promptly
corrected or replaced (at The Contractor's expense) with conforming
Work.
25.2. For items other than the Satellites, the warranty period shall be two
(2) years after Launch. If the Launch is postponed through no fault of
the Contractor, the warranty period shall cease no later than EDC 46.5
months.
This warranty shall not apply to any item that :
- has been subjected to misuse, neglect, accident or abuse by
DBSI or end-user,
- has not been maintained in accordance with instructions
furnished by the Contractor,
- has been modified after delivery without the Contractor's
prior written consent,
The Contractor's warranty regarding software does not include
rectification of anomalies on software due to DBSI or a third party
having carried out modification on the software delivered by the
Contractor.
The Contractor shall warrant repaired or replaced items, under the same
conditions as above, for a period of time equal to the period during
which the items have been unavailable.
Labor costs (travels, board and lodging of personnel) relating to the
reinstallation under the Contractor's responsibility of equipment
repaired or replaced under the above warranty shall be borne by DBSI.
25.3. Any defect found on a Satellite that has been Launched shall be
corrected on other Satellite which have not been Launched.
25.4. The Contractor shall not, under any circumstances, under any warranty
(express, implied, or statutory) have any liability to DBSI or DBSI's
customers or to anyone else for any special, consequential and/or
incidental damages, whether or not foreseeable, including but not
limited to lost revenues or profits, resulting from any breach to this
Contract or with respect to any defect, non-conformance or deficiency
in any information, instructions, services or other things provided
pursuant to the Contract.
Except as is otherwise expressly provided in this Contract, no other
warranties, whether statutory, express or implied, including but not
limited to those of merchantability and fitness for any particular
purpose shall apply to the goods and services furnished hereunder.
25.5 Any defect effecting the Satellites not launched will be corrected by
the Contractor, at its own expense, during a one year period following
its flight readiness review as provided for in Exhibit A.
25.6. There will be no warranty on the Satellites after Launch.
<PAGE>
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26. INDEMNIFICATION
26.1. The Contractor shall indemnify and hold DBSI, its officers, directors
employees, agents, consultants, assignees and successors (< < the
Indemnities > >), harmless from any loss, damage, liability or expense,
including reasonable attorneys fees, resulting from any loss or damage
to property or injury, or death, arising from any occurrence associated
with the Work before the transfer of title and risk to DBSI in
accordance with the provisions of Article 10 (Transfer of Title and
Risk), to the extent caused by any act or omission of the Contractor,
its Subcontractors, or their employees, agents, and others arising out
of the performance of the Work except to the extent caused by the Gross
Negligence or willful misconduct of the Indemnities who suffered the
damage and subject to the stipulations of Article 26.5.
26.2. The Contractor shall at its sole expense defend any suits or other
proceedings, whether in law or equity, brought against said
Indemnities, on account thereof, and shall pay damages and costs
associated with settlements or judgments which may be incurred by or
rendered against them, or any of them, in connection therewith,
provided that DBSI notifies the Contractor within 15 (fifteen) calendar
days, in writing, after it receives notice of any suit or within 20
(twenty) calendar days of such claim and permits the Contractor to
answer the claim or suit and defend the same and gives the Contractor
authority and such assistance and information as is available to DBSI
for the defense of such claim or suit. Notwithstanding the foregoing,
in no event shall the Contractor have any indemnification liability
regarding any claims or suits of any customers of DBSI or third parties
asserting claims against DBSI, not related to the Work.
26.3. The Contractor shall take all reasonable measures to ensure at all
times the safety of DBSI's personnel upon the Contractor's or
Subcontractor's premises.
26.4. DBSI shall have a reciprocal obligation, subject to the same exceptions
and provisions applied mutatis mutandis, to indemnify and hold harmless
the Contractor, its Subcontractors, and the officers, employees,
agents, with respect to loss of or damage to property, or personal
injury or death, caused by any act or omission of DBSI, its officers,
directors employees, agents, consultants, assignees and successors,
arising out of the performance of the Work.
26.5. After Final Acceptance of the ESAT Communication System and subject to
the provisions of Article 14 (Limitation of Liability) above, the
following shall apply :
26.5.1. DBSI shall indemnify and hold harmless the Contractor and its
Subcontractors, their employees and/or representatives from any and all
liabilities which may arise from losses or damages of any kind suffered
by third parties including but not limited to those suffered by
employees, and representatives of such third parties and Customers of
DBSI in connection with the operation of the ESAT Communication System.
26.5.2. Any liability insurance or property insurance taken by DBSI to cover
its exposure hereunder shall include a waiver of subrogation against
the Contractor and its Subcontractors and their employees and/or
representatives.
DBSI shall indemnify the Contractor, its Subcontractors, their
employees and/or
<PAGE>
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representatives, as the case may be against the consequence of its
failure to include such a provision.
<PAGE>
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27. APPLICABLE LAW AND ARBITRATION
27.1. The Parties shall endeavor to amicably resolve any dispute arising out
of the performance of this Contract within 30 (thirty) Days of receipt
of a written notice from the claiming Party. If the Parties are unable
to resolve the dispute within a 30 (thirty) Day period, then they may
refer the dispute to an independent third party who will, within a
further 30 (thirty) Days, review the dispute and recommend a resolution
thereto. If the Parties cannot mutually agree on said third party, or
either Party disagrees with the recommendation of said third party,
then Article 27.2. below shall apply.
27.2. If the dispute is not resolved pursuant to the provisions of Article
27.1. above then the dispute shall be finally settled under the Rules
of Conciliation and Arbitration of the International Chamber of
Commerce (< < ICC > > ) by 3 (three) arbitrators appointed in
accordance with the Rules.
27.3. The arbitration proceedings shall take place in Paris, France and the
language of such proceedings, including arguments and briefs shall be
in English.
27.4. Each Party shall bear the costs of its legal representation, witnesses
produced by such Party, document production and other discovery
expenses.
27.5. This Contract shall be governed by and construed in accordance with
French Law.
27.6. The arbitral 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.
27.7 In the event that Contractor draws upon the stand-by letter of credit
provided for in Article 3.2.3 during a period in which the Parties are
resolving a dispute under this Article 27, then the Contractor shall
have the funds drawn on the stand-by letter of credit deposited
directly into a third party interest bearing escrow account where such
funds shall remain until the dispute is finally resolved in accordance
with this Article 27.
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28. SPECIFIC PROVISIONS
Regarding the ESAT Terminal, the Contractor liability is limited to the
delivery of prototypes in conformance with the provisions of this
Contract. The Contractor shall not incur any liability regarding the
design, manufacturing, sale, use, and production of the ESAT Terminal
which shall be subject to a separate agreement between the Parties or
between DBSI and such other third party manufacturer(s) as DBSI may
select.
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29. ENTIRE AGREEMENT
This Contract constitutes the entire agreement between the Parties and
supersedes all prior understandings, commitments and representations,
whether oral or written whether express or implied, between the Parties
with respect to the subject matter hereof. It may not be amended,
modified or terminated and none of its provisions may be waived, except
by a writing signed by an authorized representative of the Party
against which the amendment, modification, termination or waiver is
sought to be enforced. No addition to, deletion or deviation from the
provisions of this Contract shall be binding against any Party unless
agreed in writing and signed by the Parties.
The paragraph headings herein shall not be considered in interpreting
the text of this Contract.
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30. EFFECTIVE DATE
30.1. This Contract shall become effective on the Day all of the following
conditions have been met :
1. signature of this Contract by the Parties,
2. receipt by the Contractor of the Payment Nos. 1 and No 2.1
referred to in Article 6.2.1 (Payment), and Payment No 3
referred to in Article 6.2.2 by December 31, 1999.
Execution by the Parties of a Stock Purchase Agreement on or before December 24,
1999, wherein the Contractor agrees to purchase from DBSI a total of $5
MUSD of newly issued DBSI convertible preferred stock at the same price
and on such other terms as DBSI is generally making available to its
private placement investors in December 1999. 30.2. If this Contract
does not become effective by December 31, 1999, this Contract shall be
declared to be null and void unless the Parties otherwise agree in
writing.
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31. COMMUNICATION AND AUTHORITY
Any notice or other communication required or permitted under this
Contract, including invoices shall be made to the following persons :
31.1. In the case of DBSI to :
FRED THOMPSON for contractual and commercial matters as well as press
release notification
DBS Industries
100 Shoreline Highway, Suite 190A,
Mill Valley,
CA 94941, USA
Tel : 1 415 380 8055
Fax : 1 415 380 8199
GREGORY LEGER for technical and programmatic matters;
ESAT Project Office
8, esplanade Compans Caffarelli, BP 813
31080 TOULOUSE CEDEX 6
France
Tel: 05 62 30 50 10
Fax: 05 62 30 51 13
SCOTT BARTEL for legal matters
to
300 Capitol Mall, Suite 1100
SACRAMENTO, CA 95814, USA
Tel : 00 1 916 442 04 00
Fax : 00 1 016 442 34 42
With a carbon copy telefaxed to;
DBS Industries
100 Shoreline Highway, Suite 190A,
Mill Valley,
CA 94941, USA
Tel : 1 415 380 8055
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Fax : 1 415 380 8199
31.2. In the case of the Contractor to :
GERALD BAILLOT for contractual and commercial matters and public
release of information.
Tel : 5 34 35 53 77
Fax : 5 34 35 51 18
NOEL SUINOT for technical and programmatic matters
Tel : 5 34 35 61 04
Fax : 5 34 35 61 63
MARIE DROUSIE for invoices matters
Tel : 5 34 35 50 54
Fax : 5 34 35 60 94
THIERRY DELOYE for any public release of information
Tel : 5 34 35 60 80
Fax : 5 34 35 63 41
to
Alcatel Space Industries
26, avenue Jean-Francois Champollion
31037 TOULOUSE Cedex (France)
Excepted as provided in Article 6. (Payment), all notices, demands,
reports, orders and requests hereunder by one Party to the other
shall be in writing and deemed to be duly given on the same business
day if sent by electronic means (i.e., telex, electronic mail or
facsimile) or delivered by hand during the receiving Party's regular
business hours, or on the date of actual receipt if sent by pre-paid
overnight, registered or certified mail.
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32. KEY PERSONNEL
32.1. The Work related to this Contract shall be performed by such Key
Personnel as defined in Exhibit E (Prime Contractor Key Personnel),
such personnel to be available for the Work throughout this Contract.
32.3. Any replacement of such Key Personnel requires the prior written
information to DBSI mentioned in Article 31 (Communication and
Authority). Key Personal Replacement requests shall be accompanied by
a justification for the change and by a written comprehensive resume
of the qualifications of successor Key Personnel.
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IN WITNESS WHEREOF,
The Parties hereto have set their hands on
On behalf of: ALCATEL SPACE INDUSTRIES
Name:
On this day:
On behalf of: DBS INDUSTRIES INC.
Name:
On this day:
<PAGE>
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EXHIBIT A
STATEMENT OF WORK
FOR THE ESAT COMMUNICATION
SYSTEM
[Redacted]
<PAGE>
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EXHIBIT B
ESAT LEVEL A REQUIREMENT
SPECIFICATION
[Redacted]
<PAGE>
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EXHIBIT C
ESAT ACCEPTANCE CRITERIA
[Redacted]
<PAGE>
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EXHIBIT D
SPECIMEN OF CERTIFICATE OF
ACCEPTANCE
[Redacted]
<PAGE>
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EXHIBIT E
KEY PERSONNEL
[Redacted]
<PAGE>
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EXHIBIT F
SPECIMEN OF LETTER OF CREDIT
[Redacted]
<PAGE>
SHARE PURCHASE AGREEMENT
(Redacted Confidential Treatment Requested)
This Share Purchase Agreement (the "Agreement") is entered into as of
this __ day of July, 1999, by and among EchoStar DBS Corporation, a Colorado
corporation ("EchoStar"), DBS Industries, Inc., a Delaware corporation ("DBSI"),
E-Sat, Inc., a Colorado corporation ("E-Sat") and Newstar Limited, a Bermuda
corporation ("Newstar") (hereinafter individually referred to as a "Party" or
collectively referred to as the "Parties"; DBSI, E-Sat and Newstar, together
with any of their Affiliates, are hereinafter sometimes referred to as the "DBSI
Parties").
WITNESSETH:
WHEREAS, E-Sat is presently owned eighty percent (80%) by EchoStar and
twenty percent (20%) by DBSI; and
WHEREAS, the purpose of this Agreement is for DBSI to purchase shares
of E-Sat common stock owned by EchoStar sufficient in number such that after the
purchase DBSI will own eighty and one tenth percent (80.1%) of the equity
ownership of E-Sat and EchoStar will own nineteen and nine tenths percent
(19.9%) of the equity ownership of E-Sat, conditioned upon receiving all
required government approvals to transfer control of such shares from EchoStar
to DBSI, including, but not limited to, any approval of the Federal
Communications Commission ("FCC") necessary for the transfer of such shares, and
subject to the terms and conditions set forth herein; and
WHEREAS, provided that DBSI and EchoStar enter into this Agreement,
DBSI is willing to construct, launch and operate the satellites authorized to be
constructed by an order from the FCC issued to E-Sat for the construction,
launch and operation of non-voice, non-geostationary "Little LEO" mobile
satellite system, a copy of which is attached hereto and made a part hereof as
Exhibit "A" (together with any renewals, extensions and similar rights, and as
farther defined in Section 2.4.4 below, the "FCC License").
NOW THEREFORE, in consideration of the mutual covenants set forth
herein, and for other legal and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the Parties hereby agree as
follows:
1. PURCHASE AND SALE OF THE E-SAT SHARES; THE CLOSING;
CONSTRUCTION OF SATELLITES.
1.1. PURCHASE AND SALE OF THE SHARES. Effective on the date of this Agreement,
and subject to the conditions set forth in Sections 2 and 3 below, EchoStar
agrees to sell and DBSI agrees to purchase shares of E-Sat common stock owned by
EchoStar sufficient in number such that after the transfer, EchoStar shall own
nineteen and nine tenths percent (19.9%) of the equity ownership of E-Sat and
DBSI shall own eighty and
<PAGE>
one tenth percent (80.1%) of the equity ownership of E-Sat after the transaction
(the "Shares").
1.2. THE CLOSING. The transactions contemplated by this
Agreement shall close on the third business day after the Parties have received
all required governmental approvals to transfer control of the Shares from
EchoStar to DBSI contemplated by Section 3 of this Agreement. The Closing shall
take place at the offices of Bartel Eng Linn & Schroder, 300 Capitol Mall, Suite
1100, Sacramento, California, 95814, at 10:00 am, or at such other time and
place as mutually agreed upon by the Parties.
1.3 CONSTRUCTION OF SATELLITES. DBSI hereby covenants and
agrees to construct, launch and operate the satellites authorized to be
constructed by the FCC License, subject to DBSI receiving financing in an amount
sufficient to construct, launch and operate the satellites on terms and
conditions acceptable to DBSI.
2. CASH PAYMENT AND ASSIGNMENT, TRANSFER AND CONVEYANCE OF CERTAIN
RIGHTS.
2.1 Payments. Upon satisfaction of the conditions set forth in
Section 3 of this Agreement, DBSI shall pay to EchoStar [redacted] consideration
for the purchase of the Shares.. As additional consideration for the right to
purchase the Shares, the DBSI Parties shall fulfill the obligations, and provide
to EchoStar the additional rights, as provided in this Agreement.
2.2 Assignment, Transfer and Conveyance of Certain Rights.
Subject to FCC or any other governmental approvals required by law for purchase
of the E-Sat shares owned by EchoStar, contemporaneous with sale of the Shares
to DBSI the DBSI Parties, without need for any further action, irrevocably
assign, transfer and convey to EchoStar all right, title and interest (including
but not limited to sole and exclusive rights), at no cost to EchoStar, to twenty
percent (20%) of the total Capacity of the E- Sat System worldwide, including
but not limited to all satellites, and any and all revenues, proceeds, income,
assets or value relating directly or indirectly thereto (collectively, the
"EchoStar Capacity" - for the avoidance of doubt, the term "EchoStar Capacity"
is not intended by the Parties to include ownership of the actual satellites).
This assignment, transfer and conveyance includes any and all renewals and
extensions of that authority, and shall extend to any and all replacement or
additional LEO satellites utilized by the DBSI Parties worldwide, regardless of
the in-service date of such satellites. The DBSI Parties will provide, without
charge, all cooperation reasonably requested (not unduly burdensome to the DBSI
Parties) to enable EchoStar to exploit the EchoStar Capacity. The right to the
EchoStar Capacity shall continue for as long as the FCC License, the E-Sat
System or any Capacity exists, and may be utilized at any time and from time to
time by EchoStar during such term.
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EchoStar covenants and agrees that except as provided below, it will not
knowingly permit third parties to utilize any portion of the EchoStar Capacity
for the purpose of reading electrical meters in the United States, and shall
condition any sale of the EchoStar Capacity to others on their agreement to be
bound by this covenant. Notwithstanding the above, EchoStar and its Affiliates
shall not be prohibited from permitting third parries to utilize any or all of
the EchoStar Capacity for the purpose of reading electrical meters in the United
States if the third party at the time of reading has a relationship with
EchoStar or its Affiliates separate from the reading of electrical meters in the
United States (for example and not by limitation, if the third party is an agent
or retailer for DISH Network, or bundles its services with DISH Network
programming).using any or all of the EchoStar Capacity. Further, the limitation
on use above shall not be construed to prohibit EchoStar and its Affiliates from
using all or any portion of the EchoStar Capacity: 1) for the purpose of reading
electrical meters outside the United States; or 2) for the reading by EchoStar
or its Affiliates (as opposed to third parties) of electrical meters in the
United States.
2.3 Right To Utilize Messaging and Other Infrastructure.
Except as expressly set forth to the contrary below, the DBSI Parties shall be
solely responsible for the payment of any and all costs arising out of or
relating to the development and operation of the FCC License and E-Sat System,
including but not limited to the remaining pre-operational administrative and
development costs. At all times during which EchoStar desires to utilize all or
part of the EchoStar Capacity (directly or indirectly), the DBSI Parties agree
that EchoStar shall be entitled to use the infrastructure developed by the DBSI
Parties for the purpose of uplinking data to, and/or downlinking data from, the
E-Sat System; provided, that EchoStar agrees to pay the DBSI Parties direct
incremental costs, and only their direct incremental costs, associated with
EchoStar's use of the necessary infrastructure for such purpose(s). Direct
incremental costs shall, for example and not by way of limitation, not include
costs to design, manufacture or launch satellites or replacements thereof or to
purchase ground equipment required unless such ground equipment is used
exclusively to support EchoStar. Notwithstanding the foregoing, EchoStar shall
have the express right to develop and implement its own infrastructure that will
allow EchoStar, among other things, to uplink data to, and/or downlink data
from, the E-SAT System so long as such infrastructure does not unreasonably
interfere with the existing infrastructure of the DBSI Parties. The DBSI Parties
will offer reasonable assistance to EchoStar, without charge, in the development
and implementation of such infrastructure on the E-Sat System. EchoStar is
further hereby granted a royalty free license to utilize any intellectual
property that the DBSI Parties own or license in connection with the E-Sat
System, as EchoStar may reasonably request in order to exploit the EchoStar
Capacity. EchoStar is hereby further entitled, at EchoStar's option, to purchase
from the DBSI Parties, any and all transmission and any other equipment or
components reasonably needed, or as EchoStar may reasonably request, in order to
exploit the EchoStar Capacity, provided that EchoStar shall not be entitled to
obtain any equipment or
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components that the DBSI Parties can not reasonably obtain. The price for the
purchase of such equipment and components shall be the same price as the DBSI
Parties pay to any others for such equipment and components, without mark up. In
the event that the DBSI Parties produce any equipment or components, then the
price to EchoStar shall be equal to the DBSI Parties hard cost of production
(excluding for example but not by limitation, overhead, engineering and general
and administrative expenses).
2.4 Definitions. In addition to any other defined terms
in this Agreement and except as otherwise expressly provided for in this
Agreement, the following terms shall have the following meanings:
2.4.1 "Affiliate" shall mean, with respect to a particular person or
entity, any person or entity directly or indirectly controlling, controlled by
or under common control with such person or entity.
2.4.2 "Capacity" shall mean the usable communications capacity of the
E-Sat System, which, at the sole cation of EchoStar as it may elect from time to
time, shall be deemed the total usable communications capacity of the E-Sat
System worldwide at any given point in time, or at all points in time combined,
and shall be calculated taking into account coordination both with other U.S.
"Little LEO" licensees and with users of the spectrum outside the U.S. The
usable communications capacity of the E-Sat System will be computed based on the
data throughput available in each operational beam. The data throughput will be
computed taking into consideration U.S. and international regulations relating
to duty cycle as well as protection of other communications systems. In cases of
dispute regarding calculation of the usable communications capacity of the E-Sat
System, the Parties agree to utilize an external consulting engineer or
engineers with expertise in the field of satellite communications to assess and
quanta the usable communications capacity of the E-Sat System.
2.4.3 "E-Sat System" shall mean the FCC License, and the non-voice,
nongeostationary "Little LEO" mobile satellite system constructed, launched and
operated in connection with the FCC License together with any Little LEO system
rights obtained by the DBSI Parties from other sources.
2.4.4 "FCC License" shall mean the authorization issued to E-Sat by the
FCC on March 31, 1998 for the construction, launch and operation of a non-voice,
nongeostationary "Little LEO" mobile satellite system (a copy of which is
attached hereto as Exhibit A), and as further defined above.
3. CONDITIONS TO THE PURCHASE AND SALE OF THE E-SAT SHARES.
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DBSI's obligation to purchase the Shares and EchoStar's obligation to sell the
Shares provided for in Section 1 of this Agreement shall be conditioned upon
receiving all required governmental approvals to transfer control of the Shares
from EchoStar to DBSI, including, but not limited to, any approval of the FCC
necessary for the transfer of the Shares. By Monday, August 8, 1999, DBSI will
file an application with the FCC, at DBSI's sole cost and expense, for transfer
of control of the FCC License to DBSI. As soon as reasonably practicable after
the date first written above, DBSI will file applications for, and otherwise
diligently proceed towards securing, the FCC and any other governmental
approvals required by law. EchoStar shall take steps in cooperation with DBSI,
as DBSI may reasonably request and at DBSI'S sole cost and expense, in
connection with the processing of such applications.
In the event that, during the pendency of DBSI's application for transfer of
control of the FCC License, additional authorizations are required for ground
control stations in the United States, or for other facilities in the United
States, E-SAT shall submit, be a signatory to and prosecute the requisite
license applications and related filings in each instance in cooperation with,
and at the sole cost and expense of, the DBSI Parties and as the DBSI Parties
reasonably requests. The DBSI Parties agree to provide E-SAT with all assistance
necessary for E-SAT to preserve the FCC License and to comply with the FCC's
rules and regulations applicable to the E-SAT System (including without
limitation assisting E-SAT to obtain any FCC approvals necessary for E-SAT to
develop and operate the E-Sat System) The DBSI Parties agree to pay all costs of
preparing and prosecuting any licenses, applications, renewals, landing rights
applications and other regulatory approvals and of any other nature whatsoever
associated with the E-SAT System, including but not limited to all attorney and
engineering fees, all costs of applications and renewals, and all matters
described in this Section 3.
In the event that the FCC determines not to approve the transfer of control, or
any other required approval is withheld, EchoStar shall have the right to
develop and operate the E-Sat System itself, subject to receipt of any required
approvals from the FCC.
4. ADDITIONAL RIGHTS, OBLIGATIONS AND COVENANTS.
4.1. EchoStar's Right of First Refusal. Subsequent to the
transfer of the Shares to DBSI and for a period of three (3) years, commencing
on the date first set forth above, DBSI shall not sell, transfer, assign, pledge
or otherwise dispose of (a "Transfer") any of its E-Sat common stock except
pursuant to EchoStar's right of first refusal described in this Section 4.1.
DBSI will not consummate any Transfer until five (5) days after delivery to
EchoStar of the Offer Notice, as defined in this Section 4.1. At least ten (10)
days prior to DBSI making any Transfer of any E-Sat common stock, DBSI will
driver a written notice (the "Offer Notice") to EchoStar. The Offer Notice will
disclose in reasonable detail the proposed amount of E-Sat common stock to be
transferred and the proposed terms and conditions of the Transfer. EchoStar may
elect to purchase all (but not less than all) of the E-Sat common stock
specified in the Offer
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Notice at the price and on the terms specified therein by delivering written
notice of such election (the "Election Notice") to DBSI as soon as practical but
in any event within five (5) days after delivery of the Offer Notice. lf
EchoStar has elected to purchase the E- Sat common stock, the transfer of the
E-Sat common stock will be consummated as soon as practical after the delivery
of the Election Notice, but in any event within ten (10) days after expiration
of such five (5) day election period (the "Election Period"). To the extent
EchoStar has elected not to pursue to purchase all of DBSI'S E-Sat common stock
being offered, DBSI may, within ten (10) days after expiration of the Election
Period, transfer such E-Sat common stock to one or more third parties at a price
no less than the price per share specified in the Offer Notice and on other
terms no more favorable to the transferee than offered to EchoStar in the Offer
Notice.
4.2 DBSI's Right of First Refusal. Subsequent to the transfer
of the Shares to DBSI and for a period of three (3) years, commencing on the
date first set forth above, EchoStar shall not sell, transfer, assign, pledge or
otherwise dispose of (a "Transfer") any of its E-Sat common stock except
pursuant to DBSI's right of first refusal described in this Section 4.2.
EchoStar will not consummate any Transfer until five (5) days after delivery to
DBSI of the Offer Notice, as defined in this Section 4.2. At least ten (10) days
prior to EchoStar making any Transfer of any E-Sat common stock, EchoStar will
deliver a written notice (the "Offer Notice") to DBSI. The Offer Notice will
disclose in reasonable detail the proposed amount of E-Sat common stock to be
transferred and the proposed terms and conditions of the Transfer. DBSI may
elect to purchase all (but not less than all) of the E-Sat common stock
specified in the Offer Notice at the price and on the terms specified therein by
delivering written notice of such election (the "Election Notice") to EchoStar
as soon as practical but in any event within five (5) days after delivery of the
Offer Notice. If DBSI has elected to purchase the E-Sat common stock, the
transfer of the E-Sat common stock will be consummated as soon as practical
after the delivery of the Election Notice, but in any event within ten (10) days
after expiration of such five (5) day election period (the "Election Period").
To the extent DBSI has elected not to pursue to purchase all of the E-Sat common
stock being offered, EchoStar may, within ten (10) days after expiration of the
Election Period, transfer such E-Sat common stock to one or more third parties
at a price no less than the price per share specified in the Offer Notice and on
other terms no more favorable to the transferee than offered to DBSI in the
Offer Notice.
4.3 Board Representation. Subsequent to the transfer of the
Shares, EchoStar shall have the right to designate one (1) representative (the
"Representative") to be elected to the E-Sat Board of Directors (the "Board")
and, upon DBSI's receipt of written notice of EchoStar's designation of a
Representative, the DBSI Parties agree to use their best efforts to cause the
Representative to be elected to the Board. E-Sat's Articles of Incorporation
will be amended to include such right. The form of the amendment to be filed,
and a voting rights agreement between EchoStar and
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DBSI, each of which must be reasonably agreeable to both DBSI and EchoStar,
shall be attached as Exhibits to this Agreement as expeditiously as possible,
and in any event prior to consummation of sale of the Shares. In the event of
any disagreement with respect to appropriate wording, the Parties hereby agree
that the senior corporate law professor at the University of Denver (the
"Professor") shall be jointly retained by the Parties to prepare for the
Exhibits (and ultimately for signing and filing by the Parties) the language the
Professor, in his or her sole judgement, believes best reflects and implements
the intent of the Parties as summarized in this section. The judgement of the
Professor shall irrevocably bind the Parties. The Parties all agree to sign such
documentation as the Professor may request or require fully indemnifying the
Professor for his or her actions. The amendment shall be filed, and the voting
agreement shall be signed, contemporaneous with sale of the Shares from EchoStar
to DBSI. Prior to the designation of the Representative (and at any times that
EchoStar declines to place a Representative on the E-Sat Board of Directors),
EchoStar will be notified of all meetings of the Board and an individual,
selected by EchoStar, will be permitted to attend and observe all such meetings
("Observer Rights"). While exercising Observer Rights, EchoStar will not
disclose or otherwise disseminate to third parties any confidential information
gained as a result of attendance at any meetings or received as a result of
EchoStar's Observer Rights.
4.4 Issuance of Additional E-Sat Equity Securities. Subsequent
to the Transfer of the Shares to DBSI, in the event that E-Sat proposes to issue
any additional securities in the future, the DBSI Parties shall cause E-Sat to
take any and all action (including, but not limited to, issuing additional
shares of equity securities to EchoStar for no consideration) necessary to
maintain EchoStar's: (i) ownership of the total number of outstanding equity
securities of E-Sat (with respect to both voting power and economic benefit);
and (ii) control of the total voting power in E-Sat, in each case, equal to
19.9%. The Parties agree to cause E-Sat to amend its Articles of Incorporation
to reflect this right. . The form of the amendment to be filed, which must be
reasonably agreeable to both DBSI and EchoStar, shall be attached as an Exhibit
to this Agreement as expeditiously as possible, and in any event prior to
consummation of sale of the Shares. In the event of any disagreement with
respect to appropriate wording, the Parties hereby agree that the senior
corporate law professor at the University of Denver (the "Professor") shall be
jointly retained by the Parties to prepare for the Exhibits (and ultimately for
signing and fifing by the Parties) the language the Professor, in his or her
sole judgement, believes best reflects and implements the intent of the Parties
as summarized in this section. The judgement of the Professor shall irrevocably
bind the Parties. The Parties all agree to sign such documentation as the
Professor may request or require fully indemnifying the Professor for his or her
actions. The amendment shall be filed contemporaneous with sale of the Shares
from EchoStar to DBSI.
4.5 Piggyback Registration Rights. Subsequent to the transfer
of the Shares to DBSI, EchoStar shall have a one time right (a piggyback right)
to register
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its E-Sat equity securities if E-Sat determines to register any of its
securities for its own account or the account of others, other than a
registration relating solely to "employee benefit plans," an SEC Rule 145
transaction, or a registration that does not permit secondary sales. DBSI shall
cause E-Sat to give EchoStar written notice of its intention to register equity
securities not less than thirty (30) days prior to the anticipated time of
filing. The form of a formal registration rights agreement, which must be
reasonably agreeable to both DBSI and EchoStar, shall be attached as an Exhibit
to this Agreement as expeditiously as possible, and in any event prior to
consummation of sale of the Shares. In the event of any disagreement with
respect to appropriate wording, the Parties hereby agree that the senior
corporate law professor at the University of Denver (the "Professor") shall be
jointly retained by the Parties to prepare for the Exhibits (and ultimately for
signing and filing by the Parties) the language the Professor, in his or her
sole judgement, believes best reflects and implements the intent of the Parties
as summarized in this section. The judgement of the Professor shall irrevocably
bind the Parties. The Parties all agree to sign such documentation as the
Professor may request or require fully indemnifying the Professor for his or her
actions. The registration rights agreement shall be signed by DBSI, EchoStar and
E-Sat contemporaneous with sale of the Shares from EchoStar to DBSI.
4.6 Amendment to E-Sat Articles of Incorporation. EchoStar and
DBSI agree to cause E-Sat to amend its charter documents (Articles of
Incorporation and Bylaws) to require that greater than 80.1% of the outstanding
shares of E-Sat be required to approve Significant Corporate Actions, as defined
in Annex A attached hereto and incorporated herein by this reference. The form
of the amendments) which must be reasonably agreeable to both DBSI and EchoStar,
shall be attached as an Exhibit to this Agreement as expeditiously as possible,
and in any event prior to consummation of sale of the Shares. In the event of
any disagreement with respect to appropriate wording, the Parties hereby agree
that the senior corporate law professor at the University of Denver (the
"Professor") shall be jointly retained by the Parties to prepare for the
Exhibits (and ultimately for signing and filing by the Parties) the language the
Professor, in his or her sole judgement, believes best reflects and implements
the intent of the Parties as summarized in this section. The judgement of the
Professor shall irrevocably bind the Parties. The Parties all agree to sign such
documentation as the Professor may request or require fully indemnifying the
Professor for his or her actions. The amendments shall be filed and made
effective contemporaneous with sale of the Shares from EchoStar to DBSI.
5. MUTUAL RELEASES.
5.1. Release by DBSI.
(a) Regardless of whether or not the sale of the
Shares is ultimately consummated. The DBSI Parties and their Affiliates, for
themselves, their
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predecessors, successors, insurers, assigns, heirs, executors, administrators,
agents, officers, directors, employees, shareholders, members, attorneys, legal
representatives and Affiliates, hereby absolutely and forever release, forgive,
remise, and discharge
EchoStar and its Affiliates (as defined below, and including without limitation
E-Sat), and their predecessors, successors, insurers, assigns, heirs, executors,
administrators, agents, officers, directors, employees, shareholders, attorneys,
legal representatives and Affiliates, of and from any and all claims, demands,
damages, debts, obligations, liabilities, accounts, costs, expenses, liens,
actions, causes of action, and suits in equity, of any kind or nature
whatsoever, whether now known or unknown, patent or latent, suspected or
unsuspected, which they now have, own or hold, or could with the passage of time
have, own or hold, or at any time heretofore ever had owned or held, based on
any contract, tort, lien, liability, matter, fact, cause, thing, injury, act or
omission whatsoever, whether or not in any way relating or pertaining to the
E-Sat system.
(b) Nothing contained in this Agreement shall be
considered an admission of liability by or against EchoStar or any of its
Affiliates, or any of their predecessors, successors, insurers, assigns, heirs,
executors, administrators, agents, officers, directors, employees, shareholders,
attorneys, legal representatives or Affiliates, any such liability bang
expressly denied.
(c) The DBSI Parties and their Affiliates, for
themselves, their predecessors, successors, insurers, assigns, heirs, executors,
administrators, agents, officers, directors, employees, shareholders, members,
attorneys, legal representatives and Affiliates, hereby represent and warrant
that they have not assigned any portion of any claim being released in this
Section 5.1 to any other person or entity, and that the DBSI Parties and their
Affiliates, and their predecessors, successors, insurers, assigns, heirs,
executors, administrators, agents, officers, directors, employees, shareholders,
members, attorneys, legal representatives and Affiliates, are the sole and
exclusive owners of such claims.
(d) The release contained in this Section 5.1
shall also be deemed to be a covenant not to sue. Any breach of this covenant
not to sue shall entitle the party sued for anything released to recovery of its
attorney fees and expenses incurred in defending such suit.
(e) It is the intention of the DBSI Parties that
this Section 5.1 shall be effective as a full and final accord and satisfaction
and release of each and every matter released under this Section 5.1. In
furtherance of this intention, the DBSI Parties acknowledges that they are
familiar with this intention and with section 1542 of the Civil Code of the
State of California ("Section 1542"), which provides as follows:
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A general release does not extend to claims which the
creditor does not know or suspect to exist in his
favor at the time of executing the release, which if
known by him must have materially affected his
settlement with the debtor.
The DBSI Parties hereby waive and relinquish every right and benefit which they
have or may have under Section 1542 of the Civil Code of the State of
California, as well as any other statutes or common law principles of similar
effect, to the full extent that it may lawfully waive such rights and benefits
pertaining to the subject matter of this Agreement. Nothing in this Section 5.1
shall be construed to limit the scope or intent of Section 6.3 below or as an
acknowledgment or agreement by the Parties that section 1542, or any other
California statutory or common law, is controlling in any manner whatsoever with
respect to the relationship between the Parties, the same being expressly denied
by the Parties.
5.2 Release by EchoStar.
(a) Regardless of whether or not the sale of the
Shares is ultimately consummated, EchoStar and its Affiliates, for themselves,
their predecessors, successors, insurers, assigns, heirs, executors,
administrators, agents, officers, directors, employees, shareholders, members,
attorneys, legal representatives and Affiliates, hereby absolutely and forever
release, forgive, remise, and discharge the DBSI Parties and their Affiliates,
and their predecessors, successors, insurers, assigns, heirs, executors,
administrators, agents, officers, directors) employees, shareholders, attorneys,
legal representatives and Affiliates, of and from any and all claims, demands,
damages, debts, obligations, liabilities, accounts, costs, expenses, liens,
actions, causes of action, and suits in equity, of any kind or nature
whatsoever, whether now known or unknown, patent or latent, suspected or
unsuspected, which they now have, own or hold, or at any time heretofore ever
had owned or held, based on any contract, tort, lien, liability, matter, fact,
cause, thing, injury, act or omission whatsoever, whether or not in any way
relating or pertaining to the E-Sat system; provided, however, that such release
will not abrogate or otherwise effect the indemnification obligations of the
DBSI Parties provided pursuant to Section 5.3 below.
(b) Nothing contained in this Agreement shall be
considered an admission of liability by or against the DBSI Parties or any of
their Affiliates, or any of their predecessors, successors, insurers, assigns,
heirs, executors, administrators, agents, officers, directors, employees,
shareholders, attorneys, legal representatives or Affiliates, any such liability
being expressly denied.
(c) EchoStar and its Affiliates, for themselves,
their predecessors, successors, insurers, assigns, heirs, executors,
administrators, agents,
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officers, directors, employees, shareholders, members,
attorneys, legal representatives and Affiliates, hereby represent and warrant
that they have not assigned any portion of any claim being released in this
Section 5.2 to any other person or entity, and that EchoStar and its Affiliates,
and their predecessors, successors, insurers, assigns, heirs, executors)
administrators, agents, officers, directors, employees) shareholders, members,
attorneys, legal representatives and Affiliates, are the sole and exclusive
owners of such claims.
(d) The release contained in this Section 5.2
shall also be deemed to be a covenant not to sue. Any breach of this covenant
not to sue shall entitle the party sued for anything released to recovery of its
attorney fees and expenses incurred in defending such suit.
(e) It is the intention of EchoStar that this
Section 5.2 shall be effective as a full and final accord and satisfaction and
release of each and every matter released under this Section 5.2. In furtherance
of this intention, EchoStar acknowledges that it is familiar with this intention
and with section 1542 of the Civil Code of the State of California ("section
1542"), which provides as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his
favor at the time of executing the release, which if
known by him must have materially affected his
settlement with the debtor.
EchoStar hereby waives and relinquishes every right and benefit which it has or
may have under Section 1542 of the Civil Code of the State of California, as
well as any other statutes or common law principles of similar effect, to the
full extent that it may lawfully waive such rights and benefits pertaining to
the subject matter of this Agreement. Nothing in this Section 5.2 shall be
construed to limit the scope or intent of Section 6.3 below or as an
acknowledgment or agreement by the Parties that section 1542, or any other
California statutory or common law, is controlling in any manner whatsoever with
respect to the relationship between the Parties, the same being expressly denied
by the Parties.
The DBSI Parties hereby agree to indemnify, pursuant to Section 5.3 below,
EchoStar and its Affiliates against any commitments, duties, obligations or
liabilities that currently exist and may arise in the future as a direct or
indirect result of past or future activities of the DBSI Parties.
5.3 Indemnification. Regardless of whether or not the sale of the
Shares is ultimately consummated, the DBSI Parties and their successors and
permitted assigns
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(the "Newstar Parties") hereby jointly and severally indemnify, defend and hold
EchoStar and its Affiliates including without limitation E-Sat), and its and its
Affiliates' respective officers, directors, employees, agents and shareholders,
and their and their Affiliates' respective assigns, heirs, predecessors,
successors, legal representatives and insurers (the "EchoStar Indemnitees")
harmless from and against, any and all costs, losses, liabilities, damages,
lawsuits, judgments, claims, actions, penalties, fines and expenses (including,
without limitation, interest, penalties, reasonable attorneys' fees and
all monies paid in the investigation, defense or settlement of any or all of the
foregoing), that arise out of, or are incurred in connection with: (i) the
performance or failure of performance of any of the Newstar Parties or their
predecessors, successors, insurers, assigns, heirs, executors, administrators,
agents, officers, directors, employees, shareholders, members, attorneys, and
legal representatives (together "Any Newstar Parties") under this Agreement and
any direct or indirect results thereof, (ii) the lawful or unlawful acts,
misrepresentations of fact, unauthorized acts or omissions of Any Newstar
Parties (whether or not such acts are within the scope of employment of such
employees or agents); (iii) the breach or default of any duty, obligation,
covenant, representation or warranty herein by Any Newstar Parties; (iv) all
purchases, contracts, debts and/or obligations made by Any Newstar Parties'; (v)
the failure to comply with, or any actual or alleged violation of, any
applicable laws, statute, ordinance, governmental administrative order, rule or
regulation by Any Newstar Parties; (vi) the failure of Any Newstar Party to
comply with any provision of this Agreement; (vii) any claim brought by an
employee or agent of Any Newstar Party for compensation and/or damages arising
out of the expiration or termination of this Agreement; or(viii) any and all
liability arising from or relating to the development and/or operation of the
E-SAT System prior to, upon, or following the date first written above. Any
amounts owing to the E-SAT Indemnitees from the Newstar Parties under this
Section 5.3 shall be due and payable within ten days after the Newstar Parties'
receipt of the relevant invoice. The provisions of this Section 5.3 shall
survive expiration or termination of this Agreement indefinitely.
Notwithstanding the above, no claim for indemnification shall be based solely on
actions following purchase of the Shares taken in strict compliance with
approvals specifically provided by EchoStar in accordance with the Significant
Corporate Actions referenced in Section 4.7 above.
5.4 REGARDLESS OF WHETHER OR NOT THE SALE OF THE SHARES IS ULTIMATELY
CONSUMMATED, IN NO EVENT SHALL ANY PARTY OR ITS AFFILIATES BE LIABLE TO ANY
OTHER PARTY OR ITS AFFILIATES FOR ANY EXEMPLARY, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES TO THE DBSI PARTIES (INCLUDING WITHOUT LIMITATION, ANY
PAYMENT FOR LOST BUSINESS, FUTURE PROFITS, LOSS OF GOODWILL, REIMBURSEMENT FOR
EXPENDITURES OR INVESTMENTS MADE OR COMMITMENTS ENTERED INTO, CREATION OF
CLIENTELE, ADVERTISING COSTS, TERMINATION OF EMPLOYEES OR EMPLOYEES SALARIES,
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OVERHEAD OR FACILITIES INCURRED OR ACQUIRED BASED UPON THE BUSINESS DERIVED OR
ANTICIPATED UNDER THIS AGREEMENT), WHETHER FORESEEABLE OR NOT, FOR ANY CAUSE
WHATSOEVER, OTHER THAN GROSS NEGLIGENCE OR WILFUL MISCONDUCT; AND PROVIDED THIS
CLAUSE SHALL NOT BE CONSTRUED TO LIMIT IN ANY MANNER THE INDEMNIFICATION
OBLIGATIONS OF THE DBSI PARTIES PROVIDED PURSUANT TO SECTION 5.3 ABOVE. THE
PROVISIONS OF THIS SECTION SHALL SURVIVE EXPIRATION OR TERMINATION OF THIS
AGREEMENT INDEFINITELY.
6. MISCELLANEOUS
6.1 Waiver. The failure or delay of any party to exercise or
enforce any right or remedy hereunder or to insist upon strict performance of
any provision of this Agreement shall not be construed as a waiver of such right
or remedy or any subsequent breach or default of the same or similar nature. The
delay or failure of either Party to give notice of, or to terminate this
Agreement for, breach or default shall not be deemed to be a waiver of the right
to do so for that or any subsequent breach or default or for the persistence in
a breach or default of a continuing nature. All rights and remedies reserved to
either party shall be cumulative and shall not be in limitation of any other
right or remedy which such party may have at law or in equity.
6.2 Audit. EchoStar shall have the right, at its sole cost and
expense, to inspect and audit, with reasonable frequency and upon reasonable
prior written notice to the DBSI Parties, the books and records of the DBSI
Parties relating to this Agreement for the purpose of determining the DBSI
Parties compliance with their duties and obligations under this Agreement.
6.3 Successor Interests. This Agreement is binding upon the
heirs, legal representatives, successors and permitted assigns of the DBSI
Parties and EchoStar. EchoStar may assign this Agreement in whole or m part
(including without limitation the assignment of any of its rights to payments
hereunder in whole or in part or of its rights to (or with respect to) EchoStar
Capacity hereunder in whole or in part) at any time without the consent of the
DBSI Parties. This Agreement and any of the DBSI Parties rights and obligations
hereunder shall not be assigned or otherwise transferred by the DBSI Parties, in
whole or in part, to any person or entity that does not succeed to all of the
right, title and interest in and to all assets of the assignor necessary for
such person or entity to fulfill the obligations of the DBSI Parties under this
Agreement, and which does not specifically agree to assume and fulfill all such
obligations. No such assignment shall relieve the DBSI Parties of their
obligations under this Agreement. This section shall not be construed as
obligating an assignee to assume the Board seat, super majority voting or
anti-dilution provisions of this Agreement, except with respect to transfers of
the stock or assets of E-Sat.
13
<PAGE>
6.4 Governing Law.
6.4.1 The relationship between the Parties including all disputes and
claims, whether arising in contract, tort, or under statute, shall be governed
by and construed in accordance with the laws of the State of Colorado without
giving any effect to its conflict of law provisions. All Parties hereto for
themselves, their successors and assigns
14
<PAGE>
warrant and represent that they have had the advice of the counsel of their
choosing and that they have been informed of and understand the rights and
obligations contained within this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting Party shall not be employed in the interpretation of this Agreement or
any amendments or Exhibits hereto.
6.4.2 Any and all disputes arising out of, or in connection with, the
interpretation, performance or the nonperformance of this Agreement or any and
all disputes arising out of, or in connection with, transactions in any way
related to this Agreement and/or the relationship between the Parties (including
but not limited to the termination of this Agreement or the relationship and
each Party's rights thereunder or disputes under rights granted pursuant to
statutes or common law, including those in the state in which a particular Party
is located) shall be litigated solely and exclusively before the United States
District Court for the District of Colorado. The Parties consent to the in
personam jurisdiction of said court for the purposes of any such litigation, and
waive, fully and completely, any right to dismiss and/or transfer any action
pursuant to 28 U.S.C.S. 1404 or 1406 (or any successor statute). In the event
the United States District Court for the District of Colorado does not have
subject matter jurisdiction of said matter, then such matter shall be litigated
solely and exclusively before the appropriate state court of competent
jurisdiction located in Arapahoe County, State of Colorado.
6.5 Severability. The parties agree that each provision of
this Agreement shall be construed as separable and divisible from every other
provision and that the enforceability of any one provision shall not limit the
enforceability, in whole or in part, of any other provision hereof. In the event
that a court of competent jurisdiction determines that any term or provision
herein, or the application thereof to any person, entity, or circumstance, shall
to any extent be invalid or unenforceable, the remaining terms and provisions of
this Agreement shall not be affected thereby, and shall be interpreted as if the
invalid term or provision were not a part hereof.
6.6 Entire Agreement. This Agreement sets forth the entire,
final and complete understanding between the parties hereto relevant to the
subject matter of this Agreement, and it supersedes and replaces all prior and
contemporaneous understandings, representations and agreements, written, oral,
and implied, relevant to the subject matter of this Agreement. Except as
expressly provided by this Agreement, no waiver or modification of any of the
terms or conditions of this Agreement shall be effective unless in writing and
signed by both parties.
6.7 Survival. Any provision of this Agreement which logically
would be expected to survive termination or aspiration, shall survive for a
reasonable time period under the circumstances) whether or not specifically
provided in this Agreement.
15
<PAGE>
6.8 Compliance with Law. The parties dial) comply with, and
agree that this Agreement is subject to, all applicable federal, state, and
local laws, rules and regulations, and all amendments thereto, now enacted or
hereafter promulgated in force during the term of this Agreement.
6.9 Force Majeure. Notwithstanding anything to the contrary in
this Agreement, neither party shall be liable to the other for failure to
fulfill its obligations hereunder if such failure is caused by or arises out of
an act of force majeure including acts of God, war, riot, natural disaster, or
any other reason beyond the reasonable control of the party whose performance is
prevented during the period of such occurrence.
6.10 Remedies Cumulative. It is agreed that the rights and
remedies herein provided in case of default or breach by any party to this
Agreement are cumulative and shall not affect in any manner any other remedies
that any other party may have by reason of such default or breach. The exercise
of any right or remedy herein provided shall be without prejudice to the right
to exercise any other right or remedy provided herein, at law, or in equity.
6.11 Notice. Any notice to be given hereunder shall be in
writing and shall be sent by facsimile transmission, or by first class certified
mail, postage prepaid, or by overnight courier service, charges prepaid, to the
party notified, addressed to such party at the following address, or sent by
facsimile to the following tax number, or such other address or fax number as
such party may have substituted by written notice to the other parties. The
sending of such notice with confirmation of receipt thereof (in the case of
facsimile transmission) or receipt of such notice (in the case of delivery by
mail or by overnight courier service) shall constitute the giving thereof:
If to DBSI: DBS Industries, Inc.
100 Shoreline Highway, Suite 190A
Mill Valley, California 94941
ATTN: Fred W. Thompson
Fax No.: (415) 380-8199
With copies to: Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, CA 95814
ATTN: Scott E. Bartel, Esq.
Fax No.: (916)442-3442
If to EchoStar: EchoStar DBS Corporation
5701 S. Santa Fe Drive
16
<PAGE>
Littleton, Colorado 80120
ATTN: David K. Moskowitz
Fax No.: (303) 723-1699
6.12 Counterparts and Signatures. This Agreement may be
executed in one or more counterparts and each counterpart shall be deemed to be
an original hereof. The signature pages of each counterpart may be detached from
such counterpart and attached to a single document which shall for all purposes
be treated as an original. The Parties further agree that signatures transmitted
by facsimile or other electronic means shall have equal dignity with original
signatures.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers or representatives as of the date first
- -written above.
ECHOSTAR DBS CORPORATION
By: /s/ DAVID K. MOSKOWITZ
David K. Moskowitz
Senior Vice President and General Counsel
DBS INDUSTRIES, INC.
By: /s/ FRED W. THOMPSON
Fred W. Thompson
Title:
NEWSTAR LIMITED
By: /s/ FRED W. THOMPSON
Fred W. Thompson
Title:
E-SAT, INC.
By: /s/ FRED W. THOMPSON
Fred W. Thompson on behalf of DBS Industries, Inc., a shareholder, and as an
Executive Officer of E-Sat, Inc.
By: /s/ DAVID K. MOSKOWITZ
17
<PAGE>
David K. Moskowitz on behalf of EchoStar DBS Corporation, a shareholder, and as
an Executive Officer of E-Sat, Inc.
18
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<RECEIVABLES> 0
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<CURRENT-ASSETS> 397
<PP&E> 104
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<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 27,266
<TOTAL-LIABILITY-AND-EQUITY> 15,563
<SALES> 0
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