-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SRT1PTOuZQI2A1Psucx5iH3wSFbW+dWcje0iS2f8QueeNgZVIeTaSoHfqv649U3U YhEf+VtuKj0F7TACIyss+w== 0001000096-98-000019.txt : 19980114 0001000096-98-000019.hdr.sgml : 19980114 ACCESSION NUMBER: 0001000096-98-000019 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19980113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DCX INC CENTRAL INDEX KEY: 0000783284 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 840868815 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-14273 FILM NUMBER: 98506085 BUSINESS ADDRESS: STREET 1: 1597 COLE BLVD STREET 2: STE 300B CITY: GOLDEN STATE: CO ZIP: 80401 BUSINESS PHONE: 3032742700 MAIL ADDRESS: STREET 1: PO BOX 569 STREET 2: PO BOX 569 CITY: FRANKTOWN STATE: CO ZIP: 80116 FORMER COMPANY: FORMER CONFORMED NAME: DOUGLAS COUNTY INDUSTRIES INC DATE OF NAME CHANGE: 19860109 10KSB 1 FORM 10-KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB (MarkOne) [X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended September 30, 1997 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from to ------------ ------------- Commission file number 0-14273 DCX, INC. ----------------------------- (Name of small business issuer) Colorado 84-0868815 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1597 Cole Boulevard, Suite 300B, Golden, Colorado 80401 (Address of principal executive offices) (Zip code) Issuer's telephone number (303) 274-8708 Securities registered pursuant to Section 12(g) of the Exchange Act: Title of each class Common Stock, no par value Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] The issuer's revenues for its most recent fiscal year were $71,098.03. As of December 31, 1997, the aggregate market value of the shares of the issuer's voting stock held by non-affiliates of the issuer based on the average of closing bid and asked prices of the Common Stock as reported on the NASDAQ Small Cap Market sm, was approximately $5,485,775. As of December 31, 1997, the issuer had outstanding 9,010,776 shares of Common Stock. Transitional Small Business Disclosure Format: Yes [ ] ; No [ X ] Exhibit index begins on page 16 Total number of pages in this report is 47. PART I This annual report contains forward-looking statements that describe the business and prospects of DCX, Inc. (the "Company") and the expectations of the Company and management. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth. These risks and uncertainties include but are not limited to: the timing of and expense associated with, expansion and modification of the Company's operations in accordance with its business strategy or in response to competitive pressures or other factors arising in the future. All statements other than statements of historical fact included in this annual report, including without limitation, expected growth of the domestic and global geographical information systems markets, beliefs regarding the strength of the Company's market position with respect to new or contemplated business strategies and activities, expectations regarding availability and marketability of new digital imaging products, anticipated growth in the Company's revenue and profitability, cash operating costs and certain significant expenses, and potential acquisitions of, or strategic partnering with, other geographic information system providers, are forward-looking statements. Factors that could cause actual results to differ materially include, among others, the entry of new companies into the geographic information systems business, unanticipated competition from new strategic alliances in the industry, increased price competition from software manufacturers and affiliated vendors, decreased reliance on custom design software services, shifts in governmental policy on the availability of government-owned data and difficulties in hiring and retaining sufficient numbers of professional and other skilled personnel. All forward-looking statements included in this annual report are based on information available to the Company on the date hereof, and the Company assumes no obligation to update such statements. Although the Company believes that the assumptions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct or that the Company will take any actions that may presently be planned. Item 1 - DESCRIPTION OF BUSINESS (a) Business Development. DCX, Inc. (the "Company") was incorporated as a Colorado corporation on December 8, 1981. During the past three years the Company has been in the custom design and contract manufacture of aircraft related electronic interconnect assemblies, principally under contracts for Department of Defense acquisition programs or for military aircraft maintenance support. The Company has also sought to expand and diversify its business and as a result, on September 22, 1997 it acquired all the outstanding shares of PlanGraphics, Inc. a geographic information systems ("GIS") company headquartered in Frankfort, Kentucky. Subsequently, on October 8, 1997 the Company closed the sale of its defense electronics manufacturing assets which was effective September 30, 1997. Accordingly, as of the date of this report, the Company's principal business is carried out through its wholly owned subsidiary, PlanGraphics, Inc. ("PGI"). PGI's principal business is the design and implementation of geographic information systems for local, state and foreign governments, gas, electric and telephone utilities, and other commercial entities. PGI is a Maryland corporation and was originally incorporated in 1979. (b) Business of Issuer Discontinued operations. Until recently, the Company historically provided custom manufacturing services and products to the aerospace and commercial markets and was successful in increasing revenues and diversifying its customer base. The Company focused primarily on the engineering design, development, test and custom manufacture of medium technology electrical, electronic and electromechanical assemblies and systems. The Company also manufactured wire harnesses and cable assemblies for use by industrial, commercial, computer and communications industries and for the Federal Government. Ongoing operations. The Company specializes in the design and implementation of geographic information systems ("GIS"). GIS combines computer-based interactive map displays with database management software to analyze and display spatial data. The digital GIS files manipulated by software become powerful tools, which enable public and private sector users to save money and improve operating efficiencies. GIS is being adopted for an increasing range of commercial applications as computer technology costs decline. The Company is a fully integrated GIS implementer providing services in three areas: 2 1. Advisory services including strategic planning, feasibility studies, implementation planning and technology evaluation. 2. Implementation services including the procurement, installation, training, operation and development of GIS applications for clients. 3. Data integration services including quality control, custom database construction and maintenance, and data dissemination to facilitate the use of GIS data by technical and other users with a need for resulting information. GIS applications and services have become decision making tools for utilities, local and state government agencies, and land and resource management organizations in a wide range of applications, including land management, mineral exploration, crop management and forecasting, environmental remediation, military planning and surveillance, infrastructure development and construction, and business market analysis. The domestic GIS market is presently estimated in excess of $2 billion and the worldwide market in excess of $6 billion. The Company has three sales managers and also develops additional business and follow-on assignments through its account executive managers. In addition, the Company maintains strategic relationships with substantially all of the major software manufacturers in the GIS industry. The market for GIS services is divided into two broad categories--the government sector, which includes agencies at all levels and is presently the larger of the two categories, and the commercial sector. The GIS market is highly competitive and the Company competes with a number of companies engaged in offering similar services. Competition emanates from four principal sources: competing GIS services companies with financial ties to software vendors, the internal consulting practices of GIS software vendors, engineering firms, and small GIS specialty firms. Some of these competitors are better funded and some of them are small companies with much lower indirect costs. The Company believes it competes effectively on the basis of breadth and depth of expertise, independence, and sensitivity to the client's requirement for responsiveness and timeliness; however, there can be no assurance that the Company will be able to compete successfully in the future on these terms. The Company regards as proprietary certain of its developed software applications, and attempts to protect these with a combination of copyright, trademark and trade secret laws, employee and third party nondisclosure agreements, and other methods of protection. As in any attempt to protect proprietary matters, despite precautions it may be possible for unauthorized third parties to copy certain portions of the Company's products or reverse engineer or obtain and use information the Company regards as proprietary. There can be no assurance that the Company's intellectual property rights can be successfully asserted in the future or will not be invalidated, circumvented or challenged. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. Any misappropriation of the Company's intellectual property could have an adverse effect on the Company's business and results of operations. Furthermore, regardless of the degree of caution exercised by the Company, there can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to current or future products. Any such assertion could require the Company to enter into royalty arrangements or defend its proprietary rights. Historically PGI has had some concentration of revenue in certain customers. During the current fiscal year 25 percent of its sales were concentrated in one customer and during fiscal year 1996 35 percent of its sales were concentrated in that customer, the loss of which customer could have an adverse impact. Given the contract awards received subsequent to fiscal year end, management believes that no single customer will constitute more than 15 percent of revenue during fiscal year 1998. The Company has incurred only diminimis costs in complying with environmental laws. Presently the Company employs a total of 84 full time employees. Item 2 - DESCRIPTION OF PROPERTY The Company leases commercial property suitable for its purposes in several locations. The Company leases land and a building of approximately 20,500 square feet in Frankfort, Kentucky under a triple net capital lease. It also leases office space in Golden, Colorado of approximately 4,918 square feet and in Silver Spring, Maryland, of approximately 3,854 square feet. 3 The Company owns rental property, its former manufacturing facility, which is a 34,000 square foot facility located on a 9.45 acre site on State Highway 83, north of Franktown, Colorado, between Denver and Colorado Springs. The Company's property is subject to a mortgage as indicated in the financial statements included in this report. (See also Note Four to the Financial Statements) The facilities are leased to a third party through March, 1998 with options to extend and to an unrelated child care center operator through July, 1998. The third party has an option to buy the entire facility for $1.5 million through the earlier of October 31 of 1998 or 60 days following vacation of the portions occupied by the child care center. In addition, the third party has a right of first refusal to match any offer through June 30, 2000. Item 3 - LEGAL MATTERS The Company has appealed the Government's assessment of excessive reprocurement costs against the Company on a manufacturing contract terminated for default in 1988. The appeal of the default termination was unsuccessful. The Company has a reserve of approximately $521,000 for the effect of a possible loss of this assessment appeal. The trial was scheduled for March 3, 1998, but has been postponed to an unspecified date. (See Note Six to Financial Statements and Item 6, Management Discussion and Analysis). The Company is engaged in various other litigation matters from time to time in the ordinary course of business. The Company believes the outcome of any such litigation will not have a material effect on the Company. Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Since June 10, 1989, the Company's common stock has been traded on the National Association of Securities Dealers Automated Quotation ("NASDAQ") system where it now trades on the NASDAQ Small Cap Systemsm under the symbol DCXI. Such quotations reflect interdealer prices without retail markup, markdown, or commission, and may not necessarily represent actual transactions. The quarterly range of high and low bid prices per share for the past two fiscal years have been as follows: Bid Price ------------------------ Quarter Ended High Low ------------- ---- --- September 30, 1995 1.63 .72 December 31, 1995 1.59 1.13 March 31, 1996 1.04 .40 June 30, 1996 6.00 .56 September 30, 1996 3.40 1.24 December 31, 1996 2.56 .44 March 31, 1997 1.46 .48 June 30, 1997 1.56 1.16 September 30, 1997 2.24 1.20 As of December 31, 1997, the Company believes there are approximately 3,800 beneficial owners of the Company's stock of which 2,239 are registered with the transfer agent and the balance are held in street name. The Company has never paid a cash dividend on its common stock. The Company currently intends to retain any earnings for use in business development. 4 (b) During fiscal year 1997 the Company sold its Series A 6% cumulative Convertible Redeemable Preferred Stock par value $.001 ("Series A Preferred") in several private placements to offshore investors in order to restructure debt and to carry out its plans to move the Company forward. Terms of the Series A Preferred provide for cumulative dividends at a 6% annual interest rate payable payable in cash or, at the option of the Company, in additional shares of Series A Preferred at the rate of one share of Series A Preferred for each $1,000 of such dividend not paid in cash. The dividends are cumulative whether or not earned. The Series A Preferred has a stated value of $1,000 per share. The Series A Preferred do not have voting rights. (1) On November 12, 1996, the Company sold a total of 500 shares of Series A Preferred, pursuant to Regulation S. The total offering price was $500,000. First Capital Partners, Inc., Atlanta, GA, acted as the Company's placement agent for the transaction. The sale was made in a private offshore transaction to two non-US funds who represented to the Company that they were sophisticated investors. The Company paid a commission of ten percent of the total offering price, and also agreed to issue to First Capital Partners warrants to purchase 36,281 shares of the Company's no par value common stock. The warrants are exercisable until November 12, 1998, with an exercise price of $1.875 per share. The warrants were issued in a private offering exempt from registration under Section 4(2) of the Act based on the possession of relevant investment information by, and the investment intent of, the warrant recipient. The holders of the warrants, and the holders of the 500 shares of Series A Preferred which have since been converted into common stock each have a demand and piggy back registration right if necessary to permit the public sale of the underlying common stock. (2) On July 31, 1997, the Company sold a total of 650 shares of its Series A Preferred, pursuant to Regulation S. The total offering price was $650,000 and the sale was made in a private offshore transaction to two non-US entities who represented to the Company that they were sophisticated investors. Intercontinental Holding Corp., Atlanta, GA acted as the Company's placement agent for the transaction. The Company paid total commissions of 15% of the total offering price, and also agreed to issue to Intercontinental Holding Corp. warrants to purchase 97,500 shares of the Company's no par value common stock. The warrants are exercisable through August 1, 2000 with an exercise price of $1.875 per share. The warrants were issued in a private offering exempt from registration under Section 4(2) of the Act the possession of relevant investment information by, and the investment intent of, the warrant recipient. The holder of the warrants and the holders of the 650 shares of Series A Preferred, which has since been converted into common stock, each have a demand and piggy back registration right if necessary to permit the public sale of the underlying common stock. (3) On September 9, 1997, the Company sold a total of 800 shares of its Series A Preferred, pursuant to Regulation S. The total offering price was $800,000 and the sale was made in a private offshore transaction to two non-US entities who represented to the Company that they were sophisticated investors. LH Financial of New York, NY acted as the Company's placement agent for the transaction. The Company paid total commissions of 15% of the total offering price. The holders of the 650 shares of Series A Preferred, some of which has since been converted into common stock each have a demand and piggy back registration right if necessary to permit the public sale of the underlying common stock. (4) On September 18, 1997, the Company sold a total of 200 shares of its Series A Preferred, pursuant to Regulation S. The total offering price was $200,000 and the sale was made in a private offshore transaction to a non-US fund who represented to the Company that it was a sophisticated investor. LH Financial of New York, NY acted as the Company's placement agent for the transaction. The Company paid total commissions of 15% of the total offering price. The holders of the 200 shares of Series A Preferred, some of which has since been converted into common stock, each have a demand and piggy back registration right if necessary to permit the public sale of the underlying common stock. (5) On October 14, 1997, the Company sold a total of 250 shares of its Series A Preferred, pursuant to Regulation S. The total offering price was $250,000 and the sale was made in a private offshore transaction to two non US entities who represented to the Company that they were sophisticated investors. LH Financial of New York, NY acted as the Company's placement agent for the transaction. The Company paid total commissions of 15% of the total offering price. The holders of the 250 shares of Series A Preferred, some of which has since been converted into common stock, each have a demand and piggy back registration right if necessary to permit the public sale of the underlying common stock. 5 Shares of Series A Preferred Stock have the following conversion rights: (1) Each holder of shares of Series A Preferred Stock shall have the right at any time and from time to time after forty (40) days, or longer period which may have been agreed to, from the date on which a share of Series A Preferred Stock was issued, to convert some or all such share into fully paid and non-assessable shares of Common Stock of the Corporation determined in accordance with the Conversion Rate provided in Paragraph (b) below (the "Conversion Rate"). (2) The number of shares Common Stock issuable upon conversion of each share of Series A Preferred Stock shall equal (I) the sum of (A) the Stated Value per share and (B) accrued and unpaid dividends on such share, divided by (ii) the Conversion Price. The Conversion Price shall be equal to the lessor of: (I) the average of the Closing Bid Price (as hereinafter defined) of the Corporation's Common Stock for the five (5) trading days immediately preceding the date of issuance of the Series A Preferred Stock; and (ii) seventy five percent (75%) of the average of the Closing Bid Price for the five trading days immediately preceding the conversion of the Series A Preferred Stock. The Closing Bid Price shall mean the Closing bid price of the Corporations Common Stock as reported by NASDAQ (or if not reported by NASDAQ as reported by such other exchange or market where traded). The Series A Preferred is subject to mandatory conversion two years after the date of issue. The preceding private sales of the Series A Preferred were exempt from registration under Regulation S. The sales were made in offshore transactions to non US persons or entities, and the purchasers made representations to the Company regarding their status and actions necessary to comply with Regulation S. On September 22, 1997, the Company and PGI consummated the transaction whereby PGI became a wholly-owned subsidiary of the Company, pursuant to an agreement whereby the existing stockholders of PGI exchanged their shares of PGI common stock for shares of the common stock of the Company at an exchange ratio of 2.4476 shares of Company common stock for each share of outstanding PGI common stock. A total of 2,631,145 shares of Company common stock were issued to the former holders of PGI common stock in a Regulation D transaction exempt from registration under Section 3(b) of the Act. The Company has issued shares, and warrants and options to acquire shares, of its common stock to various persons and entities in connection with the payment by the Company of consulting fees and other accounts payable or Company debt. In each instance, the shares, or warrants or options and the underlying shares were offered by the Company in a private offering exempt from registration under Section 4(2) of the Act, based upon the possession by the recipient of relevant investment information regarding the Company, and the investment intent of the recipient. These shares, warrants and options consist of the following: 1. On February 20, 1997, warrants to Transition Partners Ltd. in connection with financial advisory services, to acquire up to 111,260 shares of the Company's common stock at an exercise price of $1.00 per share, exercisable in full as of the grant date for five years from the grant date. 2. On February 20, 1997, warrants to Copeland Consulting Group, Inc. in connection with financial advisory services, to acquire up to 111,260 shares of the Company's common stock at an exercise price of $1.00 per share, exercisable in full as of the grant date for five years from the grant date. 3. On June 19, 1997, warrants to Spencer Edwards, Inc. in connection with financial advisory services, to acquire up to 120,000 shares of the Company's common stock at an exercise price of $2.25 per share, exercisable through the earlier of June 30, 1999 or a change in control of the Company as defined in the warrant agreement. 4. On June 26, 1997, non-transferable options to Pension Fund of Steven R. Perles, P.C. in connection with legal services, to acquire up to 32,510 shares of the Company's common stock at an exercise price of $1.25 per share, exercisable in full as of the grant date for one year from the grant date. 5. On June 26, 1997, non-transferable options to RDD Enterprises, Inc. in connection with consulting services, to acquire up to 100,905 shares of the Company's common stock at an exercise price of $1.54 per share, exercisable in full as of the grant date for one year from the grant date. 6 6. On June 26, 1997, non-transferable options to Hamilton & Faatz, P.C. in connection with legal services, to acquire up to 24,235 shares of the Company's common stock at an exercise price of $1.54 per share, exercisable in full as of the grant date for one year from the grant date. 7. On June 26, 1997, warrants to SKB Corporation in connection with a trade payable, to acquire up to 74,033 shares of the Company's common stock at an exercise price of $1.3929 per share, exercisable through July 31, 1998. 8. On September 22, 1997, 170,531 shares of the Company's common stock to Black & Veatch Holding Company, a creditor and former shareholder of PGI, valued at the price of $1.70 per share. 11. On September 30, 1997, 100,000 shares of the Company's common stock to First Capital Partners, a financial advisor to the Company, valued at the price of $1.6875 per share. 12. On September 16, 1997, 32,895 shares of the Company's common stock to Transition Partners, Ltd. for acquisition success fees, valued at the price of $1.52 per share. 13. On September 16, 1997, 32,895 shares of the Company's common stock to Copeland Consulting Group, Inc. for acquisition success fees, valued at the price of $1.52 per share. 14. On October 15, 1997, anti-dilution warrants to Transition Partners Ltd. to acquire up to 193,064 shares of the Company's common stock at an exercise price of $1.00 per share, exercisable upon and to the extent of additional issuances of shares of common stock by the Company after January 1, 1997. 15. On October 15, 1997, anti-dilution warrants to Copeland Consulting Group, Inc. to acquire up to 193,064 shares of the Company's common stock at an exercise price of $1.00 per share, exercisable upon and to the extent of additional issuances of shares of common stock by the Company after January 1, 1997. Item 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition (Liquidity and Capital Resources) The following discussion of liquidity and capital resources addresses the combined requirements and sources of the Company and its subsidiary as of September 30, 1997. Liquidity At September 30, 1997, the Company had net working capital of ($413,041) and its current ratio was .91:1; cash balances available for use amounted to $582,326. Compare with net working capital in the prior year of $56,776 when the current ratio was 1.02:1 and cash balances available for use amounted to $209,637. The decrease in working capital is associated with the assumption of additional current liabilities in the acquisition of PGI. Changes in cash during fiscal year 1997 resulted in a net increase of $372,689 as compared to an increase during fiscal year 1996 of $83,793. The primary cause for the greater increase of cash was $1,838,000 provided by the sale of convertible preferred stock pursuant to Regulation S which was used to liquidate a Small Business Administration held note and to provide working capital for the new subsidiary. The Company also refinanced its real property in Franktown, Colorado and as a result realized approximately $195,000 of net proceeds that it used as working capital for cash needs of the Company. The Company has, at the end of FY 1997, capital lease payment commitments through 2002 of $1,850,000 which will require total annual payments of approximately $410,000 in fiscal year 1998. (See Note Eight to the Financial Statements) The Company considers its facilities adequate to support anticipated sales and operations for the next several years; accordingly, no commitments for additional facilities expansion have been entered into for the twelve months ending September 30, 1998. 7 In order to carry out its plans during fiscal year 1998, the Company believes it will need to raise additional funds through equity or debt placements in order to meet its cash needs until it can operate on internally generated cash flows. There is no guarantee the Company will be successful in raising such additional funds. The Company does not believe that its business has been significantly impacted during the past three years by cost inflation. As a result of SEC guidance issued in early 1997 with respect to beneficial conversion features in connection with the issuance of convertible preferred stock, the Company was deemed to recognize noncash preferred stock dividends totaling approximately $892,592 in fiscal year 1997. This amount is equivalent to the discount from the fair market value of the common stock given to the purchasers of the Preferred Stock calculated as of the date of sale of such stock. Going Concern Issues As a result of losses from operations (including cost of acquisitions and restructuring), a forthcoming required balloon payment related to the subsidiary's debt, and the deceleration in fourth quarter revenues, negative working capital and limited ability to convert certain portions of current assets into liquid assets, the report of the Company's independent certified accountant includes a comment concerning substantial doubt about the Company's ability to continue as a going concern. (See also, Note One to the Financial Statements). Management's plan to continue operation of the Company consists of the following: The Company has negotiated an agreement with a respected and prominent investment banking organization and anticipates signing an agreement in the near term to obtain a credit facility to support operating capital needs and additional acquisitions. Raise funds through the placement of additional debt or equity instruments, of which there can be no assurance. Expected increases in FY 1998 second quarter cashflows related to revenues resulting from $4.1 million of new contracts awarded during the first quarter of FY 1998. Capital Resources In order to fund its first successful acquisition as an asset purchase and to secure working capital required to implement the related business plan to support Company's capital resource needs, the Company previously took actions to increase its exposure to the investment banking community by apprising relevant principals of its diversification activities, acquisition program and other business development endeavors designed to result in new business. The Company then secured needed financing through the placement of equity pursuant to Regulation S, as noted supra. An additional placement of equity or debt or the successful negotiation of a working line of credit will be needed to meet projected cash demands, of which there can be no assurance. Results of Operations The following discussion of Results of Operations addresses the Company's operations in three sections in light of: (1) its acquisition of PlanGraphics, Inc. which constitutes its Continuing Operations, (2) the sale of its defense electronic manufacturing operations which were sold effective September 30, 1997, and therefore constitute its Discontinued Operations, and (3) the "Pro Forma" results of operations had the acquisition and the sale occurred at the beginning of the fiscal year. See also the forward looking statement disclaimer in Part I as it pertains to nonfactual and nonhistorical statements appearing within this section. 8 Continuing Operations--Fiscal Year 1997 compared to 1996 The financial statements have been presented to display the costs related to the administrative functions of the Company for both the current and prior year which are related to those activities continuing in operation and incorporate the eight days of subsidiary operations in September subsequent to the acquisition. Limited revenue of $71,098 was reported for the eight-day period from the closing date for the purchase of PlanGraphics, Inc. through September 30, 1997 while costs and expenses for the same period amounted to $164,550 and resulted in an operating loss of $93,452. There was no comparable revenue for the prior year. The increase in Costs and Expenses from FY 1996 to FY 1997 results primarily from two factors: (1) the effects of applying APB 25, Accounting for Stock Issued to Employees, which resulted in $612,205 of compensation expense related to stock options granted to PGI employees pursuant to the Acquisition Agreement and certain stock options granted to the Company's officers and directors which were below market value on the date of grant; and (2) the effects of applying FASB 123, Accounting for Stock-Based Compensation, which resulted in $439,106 of compensation expense for consulting services received by the company during the fiscal year over that of the prior year. These increases from the prior year were offset by decreases in administrative salaries, benefits and expenses during the current fiscal year for the discontinuation of activities and transfer of certain employees to the purchaser of the manufacturing operation. Other income increased significantly over the prior year as a result of the receipt of key man life insurance proceeds of $400,000 due to the death of the former Chairman of the Company. Concurrently, interest expense declined $29,494 as a result of less interest bearing debt during the year and forgiveness of debt was $278,069 due to the liquidation of the note held by the SBA, $195,243 higher than the similar type of gain recorded in the prior year. The loss on discontinued operations of $1,598,313 results from the difference between the purchase price paid for the manufacturing operations by the buyer and the net book value of inventories, work in process, capital and leased equipment given up in the transaction plus the write off of obsolete inventories and accounts receivable determined to be uncollectible. During the fourth quarter, the Company recorded approximately $679,000 of adjustments as delineated in Note 13 of the Financial Statements. Discontinued Operations--Fiscal Year 1997 Compared to 1996 Sales in the discontinued defense electronic manufacturing operation increased $717,545 or 16 percent from fiscal year 1996 to fiscal year 1997 reaching $5,128,137. Management believes the increase resulted from continued consolidation in the defense arena causing prime contractors to increase outsourcing of component subassemblies as a means of controlling and reducing their manufacturing costs. As of November 30, 1997 the Company had already sold the manufacturing operation and therefore had no open manufacturing contracts. At the same date a year prior, open contracts were valued at $7.6 million with $5.7 million of backlog still to be completed Cost of sales for fiscal year 1997 increased $892,240 over fiscal year 1996 to a total of $4,435,236 for fiscal year 1997. Considered as a percent of sales the level, 86.5%, increased slightly from the prior year's 80.3% of sales. The increase is attributable to work performed on engineering changes which had not been incorporated into contract changes and therefore did not result in additional revenue recognition. General and administrative expenses of $591,728 attributable to discontinued manufacturing operations reflect a significant decrease in excess of $700,000 from the fiscal year 1996 total of $1,329,002 as a result separating certain items into the continuing operations category. The prior year total included approximately $151,319 attributable to costs of attempted acquisitions. Litigation settlement and related expenses were not repeated and therefore resulted in a decrease of $446,674 from the prior year. Pro-Forma - Fiscal Year 1997 Compared to 1996 Following discussion addresses results of operations as presented in the pro-forma financial statements for the Company and its operating subsidiary, PlanGraphics. Revenue figures are based upon those of the subsidiary while the Company's former contract electronics manufacturing revenues are embedded within the caption for loss from discontinued operations. Readers of this report should 9 also consider that PGI financial statements represent 12 months of operations for FY 1997 and only nine months for FY 1996 as PGI changed their fiscal year end from December 31 to September 30. Revenue for fiscal year 1997 was $8,204,236 compared with $7,985,750 for the period ended September 30, 1996, an increase of $218,486 or 2.7% over the prior year. The limited increase in sales is associated with the winding down of a significant major contract and the unforeseen delay in the startup of replacement contract activity. Total costs and expenses was $8,796,964, or 107.2% of revenue or an increase of $1,576,493, or 21.8%, over the prior year cost of sales; the cause for this apparent increase in cost and expenses is two-fold; partially from 12 months of expenses which are, to a significant degree, fixed costs and the short nine month fiscal year for 1996. Marketing and proposal costs increased slightly to a current year cost of $332,077 as compared to $317,659 for an increase of 4.5% over the prior year. This increase was due to supporting a more focused marketing activity which has resulted in the award of $4.1 million of new contract work subsequent to the end of the fiscal year. Interest expense amounted to $425,923 during fiscal year 1997 as compared to $297,064 during the prior year. The reason for this 43.4% increase was a $107,000 increase in capital lease interest costs arising from the 12 month occupancy of the PGI Frankfort, KY facilities versus eight months of lease for the facility during the prior fiscal year. In addition, other interest costs reflect the differences caused by a 12 month fiscal year rather than nine months partially offset by a reduction in debt. Income tax for the year resulted in a benefit of $4,409 as compared to an expense of $176,469 in the prior year. The change was related to the decline in profitability. Primarily as a result of the reduction in accounts receivable from collections and the decelerated revenue generation, current assets decreased $416,641, or 18.0%, from $2,310,476 in the prior year to $1,893,835 in the current year. Operations Outlook. With the move into the GIS industry the Company believes it has entered into a global market, which is rapidly evolving and becoming the basis for a myriad of new applications creating additional markets. The Company believes the gross profit margins are much higher than manufacturing and plans to grow the GIS business base at rates up to 25 percent per year according to forward looking statements in its business plan, augmenting growth achieved through acquisitions. Subsequent to fiscal year end, the Company has received new contract and project awards of approximately $4.1 million bringing its backlog of uncompleted GIS contracts and awarded work to approximately $7.5 million. Management believes this is a result of a more focused marketing and sales program. As the same date in the prior year, the Company had approximately $6.3 Million of GIS backlog. Currently, the Company plans to expand through additional acquisitions. Tax Valuation Allowance - FY 1997 As discussed in Note Seven in the accompanying financial statements, the Company has net operating loss carry forwards for income tax purposes of approximately $2.7 million. The Company has established a 100 percent valuation allowance on the net deferred tax asset arising from the loss carry forwards in excess of the deferred tax liability. The valuation allowance has been recorded as the Company's management has not been able to determine that it is more likely than not that the deferred tax assets of the Company will be realized. Year 2000 Effect The Company presently believes that with planned modifications to existing software and anticipated conversions to new software, the Year 2000 problem will not pose significant operational problems for the Company's computer systems as so modified and converted. However, were such modifications and conversions not accomplished on a timely basis, the Year 2000 problem may have a material impact on the operations of the Company. 10 Effect of Recent Accounting Pronouncements. The recent issuance of five accounting pronouncements will affect the Company in FY 1998 (see the Financial Statements, Summary of Accounting Policies). The adoption of these pronouncements by the Company will occur in fiscal year 1998 and they are not expected to have a material effect on the consolidated financial statements. The pronouncements are: Statement of Financial Accounting Standard ("SFAS") No. 128, Earnings per Share. This pronouncement provides a different method of calculating earnings per share which requires the calculation of "Basic" and "Dilutive" earnings per share. SFAS 129, Disclosure of Information About an Entity's Capital Structure, establishes standards for disclosing information about an entity's capital structure. SFAS 130, Reporting Comprehensive Income, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income includes all changes in equity except those resulting from investments by owners and distributions to owners. SFAS 130 further requires that all items required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement displayed with the same prominence as other financial statements. SFAS 131, Disclosures about Segments of an Enterprise and Related Information, supersedes SFAS 14 and establishes the way public companies report information about operating segments in annual financial statements, requires reporting of selected information about operating segments in interim financial statements issued to the public, sets standards for disclosures regarding products and services, geographic areas and major customer. It further defines operating segments used to allocate resources and assess performance. Statement of Position 97-2, Software Revenue Recognition, provides guidance on when revenue should be recognized and in what amounts for licensing, selling, leasing or other marketing of computer software. Item 7 - FINANCIAL STATEMENTS The financial statements required by this item are included at the end of this Form 10-KSB. An index to such financial statements and applicable schedules is contained in that separate section. Item 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III Item 9 - DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The directors and executive officers of the Company are: Name Age Position ---- --- -------- Jeanne M. Anderson 46 Director John C. Antenucci 51 Vice Chairman, President and Director Frederick G. Beisser 55 Vice President - Finance and Administration, Secretary, Treasurer and Director Stephen Carreker 47 Chairman, CEO and Director Raymund E. O'Mara 56 Director J. Gary Reed 49 Director 11 NOTES: Ms. Jeanne M. Anderson is a former President and CEO of the Company. She served as President and Chief Executive Officer from October 1, 1991 through December 31, 1996. She was Chairman of the Board of Directors from January 1, 1997 through October 2, 1997 and has been a Director of the Company continuously since 1987. Mr. John C. Antenucci, President, is also founder, president and CEO of PlanGraphics, Inc. since 1979. He is a former president of AM/FM International, a professional association for utility industry users of GIS. He is also a former member of the National Academy of Sciences Advisory Committee for Mapping Sciences, an advisor to Ohio State University's Center for Mapping and editor of a leading textbook on geographic information systems. Mr. Antenucci holds an MS in Civil Engineering/Water Resources from Catholic University of America in Washington, DC and a Bachelor of Civil Engineering from the same institution. Mr. Frederick G. Beisser, Vice President - Finance and Administration, joined the Company as Chief Financial Officer in July, 1990 and was promoted to his present position on March 28, 1997. He was appointed to the Board of Directors in March, 1991, at which time he became Treasurer and was appointed Secretary on October 1, 1991. Mr. Beisser is a Colorado Certified Public Accountant. Previously he headed Budget & Cost Analysis for the Air Force Accounting & Finance Center in Denver, Colorado, from 1985 to 1989. He held Air Force budget management positions in Europe, and controller and accounting positions with the Air Force in the United States and abroad. Retired with the rank of Major in 1989, he holds a Ph.D. from American International University in Canoga Park, California, an MBA from Golden Gate University in San Francisco and a BS in Business Administration from the University of Southern Colorado at Pueblo, Colorado. In addition he has diplomas from the Air War College and the Air Command & Staff College. Mr. Stephen Carreker, Chairman and CEO, became a director of the Company on December 12, 1995. He was Director of Strategic Planning until he became President and Chief Executive Officer effective January 1, 1997. On October 2, 1997 he became Chairman and CEO. Prior to joining the Company he was manager of the geographic information systems department of IDS/IBM Manama, Bahrain; was Vice President, Geonex Corporation, Inc., and GIS Project Manager for Gwinnet County, Georgia. Mr. Carreker has over 20 years of domestic and international GIS experience. He holds a Bachelor of Landscape Architecture from the University of Georgia and was a Georgia-licensed landscape architect. Mr. Raymund E. O'Mara was appointed a director on November 3, 1997. He is a principal with Booz Allen & Hamilton, consultants since 1996. Prior to joining Booz Allen & Hamilton Mr. O' Mara was vice president of Mason and Hanger Company, Lexington, Kentucky from 1994 to 1996. Mr. O'Mara retired from the United States Air Force in 1994 with the rank of major general; from 1993 until his retirement he was Director, Defense Mapping Agency, Bethesda, Maryland and prior to that was Vice Commander in Chief, Atlantic Command, Norfolk, Virginia for two years. Mr. O'Mara holds a Master of Arts from State University of New York at Plattsburgh, NY and BS in Electrical Engineering from the New Jersey Institute of Technology at Newark. Mr. J. Gary Reed, Chief Operating Officer of PlanGraphics, Inc. has been employed with PlanGraphics in several capacities since 1995. Prior to joining them he held several executive positions during a 15 year career with Geonex Corporation and was named President of the corporation in 1994. Mr. Reed holds an MBA from the Keller Graduate School of Management in Chicago and a BS in Biology from Virginia Polytechnic Institute and State University in Blacksburg, Virginia. All directors hold office until the next annual meeting of shareholders and serve until their successors are duly elected and qualified or until their earlier death, resignation or removal. Compliance with Section 16(a) of the Exchange Act Based solely upon a review of Forms 3, 4 and 5 submitted to the Company during and with respect to its most recent fiscal year, the Company believes that with the exception of Mr. Antenucci, all directors, officers and any beneficial owner of more than 10 percent of its registered shares are in compliance with Section 16(a) of the Exchange Act. Mr. Antenucci's Form 3 was not timely filed with the Securities and Exchange Commission. 12 Item 10 - EXECUTIVE COMPENSATION The following table sets forth information concerning the cash compensation paid and accrued by the Company for services rendered during the fiscal year ending September 30, 1997, to the CEO and other executive officers of the Company who had aggregate compensation exceeding $100,000. Ms. Anderson was President and CEO through December 31, 1996 when Mr. Carreker became President and CEO on January 1, 1997. On November 3, 1997 the position of president was assumed by Mr. Antenucci while Mr. Carreker remained CEO and became Chairman of the Board of Directors. Eight days of compensation was paid to Mr. Antenucci as an employee of DCX, Inc. during fiscal year 1997 subsequent to the acquisition of PlanGraphics, Inc. although the table, below, reflects his entire compensation during the year.
SUMMARY COMPENSATION TABLE Long Term Compensation Annual Compensation Awards - ------------------------------------------------------------------ -------------------------------------------- Name and Other Restricted Stock All Other Principal Annual Comp- Stock Options Compen- Position Year Salary ($) Bonus ensation Awards (#) sation ($) ---------- ---- ---------- ----- ---------- ------ ------- ---------- Jeanne M. 1997 $ 48,317 - $58,000# - 111,000 $ 435 Anderson 1996 116,018 - - - - 1,740 1995 116,018 - - - 75,000 1,740 Stephen 1997 $ 106,958 - - - 660,622 - Carreker John C. Antenucci 1997 $114,500 - 20,407* - 531,851 2,361
# Amount of $58,000 Other Annual Compensation represents severance payment in connection with Ms. Anderson's resignation as President and CEO. * Amount of Other Annual Compensation represents payment of certain deferred compensation accrued in prior fiscal years for Mr. Antenucci. @ Amounts of All Other Compensation represents the Company's employer contribution to 401K Retirement Savings Accounts. The Company granted a total of 175,000 stock options to officers of the Company during fiscal year 1995 under the 1991 Stock Option Plan. None were granted in fiscal year 1996. A total of 30,000 stock options were issued to officers of the Company under the 1991 Stock Option Plan during fiscal year 1997. In addition, the Company granted incentive stock options in connection with officers' employment agreements amounting to 1,490,000 and 61,000 to a director during the fiscal year. As a result of antidilution provisions in employment agreements, 380,657 additional options were granted to officers of the Company during FY 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR Number of % of Total Securities Options/SARs Underlying Granted to Options/SARs Employees In Exercise or Base Expiration Name Granted Fiscal Year Price ($/Sh) Date - ----------------------------------------------------------------------------------------------------------- Jeanne M. 61,000 1.9% $1.125/Share March 27, 2002 Anderson 50,000 (3) 1.4% $ 0.71875/Share January 28, 1998 Stephen 30,000 0.8% $0.9375/Share January 6, 2002 Carreker 380,000 (1) 10.9% $1.125/Share March 28, 2002 280,622 (2) 8.0% $1.125/Share March 28, 2002 John C. Antenucci 525,000 (1) 15.0% $1.75/Share September 30, 2000 6,851 (2) 0.2% $1.75/Share September 30, 2000
13 1. Grants to Messrs. Carreker and Antenucci in connection with their employment agreements consist of fully vested options of 200,000 and 300,000 shares, respectively, which are immediately exercisable, and performance options of 180,000 and 225,000, respectively, for which attainment of certain management goals vests 35%, 35%, and 30% for each of the ensuing three fiscal years at which time they become exercisable. 2. In addition they became entitled to antidilution options of 280,622 and 6,851, respectively as of fiscal year end, fully vested or subject to performance vesting in proportion to the allocation of vested /performance shares in their original option. 3. Grant was an extension of a previous grant of 50,000.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES Number of Value of Unexercised Unexercised In-The-Money Stock Options Stock Options at FY-End (#) at FY-End ($) Shares acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized ($) Unexercisable Unexercisable - --------- --------------- ------------- ------------- ------------- Jeanne M. Anderson Former Presi- - - 125,000/61,000 (1) $ 320,188/69,625 Dent & CEO Stephen Carreker Chairman & CEO - - 510,622/180,000 $ 254,200/202,500- John C. Antenucci, Vice Chairman & President - - 306,851/225,000 $ -0-/-0-
1. Options for 50,000 shares of DCX common stock were granted under the Company's 1991 Stock Option Plan on May 15, 1992 at a price of $1.21875; additional options for 75,000 shares were granted on April 19, 1995 under the 1991 Plan at $.71875. Both grants were at fair market value; no options have been exercised to date. The grant from 1992 was extended to January 31, 1998. 2. Mr. Carreker was granted options for 30,000 shares of DCX common stock under the Company's 1991 Stock Option plan on January 2, 1997 at a price of $1.125. In connection with his employment agreement he received fully vested stock options for 200,000 shares of the Company's common stock awarded effective January 7, 1997. In addition Mr. Carreker is entitled to 280,622 antidilution options related to his employment agreement. 3. Mr. Antenucci received fully vested stock options for 300,000 of DCX common stock at a price of $1.75 in connection with his employment agreement on September 22, 1997. In addition, Mr. Antenucci is entitled to 6,851 antidilution options related to his employment agreement. The Company does not have a long term incentive plan or a defined benefit or actuarial form of pension plan. Employment Agreements. Messrs. Carreker and Antenucci entered into three year employment agreements effective January 2, 1997 and September 22, 1997, respectively, at salaries of $175,000 per year with provisions for bonuses of up to 21% of base salary if 14 certain goals are achieved. The executives received fully vested stock options of 200,000 for Mr. Carreker and 300,000 for Mr. Antenucci with additional options of 180,000 and 225,000 for Mr. Carreker and Antenucci, respectively, which vest upon attainment of certain performance goals. In addition, Mr. Antenucci received a one-time advance payment of $50,000 of his FY 1998 salary for entering into the agreement. The employment agreements renew automatically if the Company does not terminate the agreements by December 31, 1999 (Carreker) or June 30, 2000 (Antenucci) after which date the agreement will continue to have a remaining term of three years until the Company notifies the executive of termination. In addition, both are entitled to continued base compensation for three years following date of termination if not for death, disability, cause, voluntary resignation other than constructive termination or the expiration of the agreement's term; if termination is for one of these reasons then all benefits including salary are continued for 18 months. Mr. Antenucci is entitled to a three year consulting period at one half of average annual salary for the immediately preceding 36 month period should he exercise his option to terminate voluntarily after June 30, 2000. Director Compensation. Directors who are employees of the Company do not receive any additional compensation above their full time employment compensation. Nonemployee directors receive reimbursement of expenses incurred in carrying out their duties. During the fiscal year the Company did not have a standard compensation arrangement other than reimbursement of actual expenses for non-employee directors. Ms. Anderson, a non-employee director, received $6,800 for her services as a director during fiscal year 1997. Item 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Percentages of shares held by officers and directors of the Company, as well as those parties owning more than five (5) percent of the Company's common stock as of the date of this report, are as follows: Security ownership of certain beneficial owners: Based on Rule 13d-1 filings under the Exchange Act, the Company there is only one party other than management owning more than five percent of the common stock of the Company. Security ownership of certain beneficial owners:
Title of Name of Beneficial Amount & Nature of Percent Class (3) Owner (1) Beneficial Ownership - --------------------------------------------------------------------------------------------------------- Common Black & Veatch Holding Company 608,713 6.8 7500 Ward Parkway Kansas City, MO 64114 Security ownership of management: Title of Name of Beneficial Amount & Nature of Percent Class (3) Owner (1) Beneficial Ownership (2) - --------------------------------------------------------------------------------------------------------- Common Jeanne M. Anderson 114,000 1.5 Director Common John C. Antenucci 1,186,475 15.3 President and Director Common Stephen Carreker, Chairman of None Nil The Board of Directors and CEO Common Frederick G. Beisser 10,400 @ Chief Financial Officer, Secretary Treasurer, and Director Common J. Gary Reed None Nil Director Common Raymund E. O'Mara None Nil Director All Directors and Officers as a group (6 persons) 1,310,875 16.9% 15
NOTES: @ The number of shares constitutes less than one percent of outstanding shares. 1. The address for each of the directors of the company is "In Care Of DCX, Inc., 1597 Cole Boulevard, Suite 300B, Golden, CO 80401. 2. The number of shares beneficially owned does not include 2,035,118 shares which may be acquired under Non Qualified Stock Options held by Officers and Directors of the Company. Such shares and management personnel holding them are: Ms. Anderson, 186,000; Mr. Antenucci, 531,851 Mr. Carreker, 690,622; Mr. Beisser, 268,617 shares; Mr. O'Mara, 2,500 shares; and Mr. Reed, 355,528 shares. 3. If the options denoted in Note 2, above, were exercised, Directors and Officers would have the following percentages of outstanding common stock: Ms. Anderson, 3.1 percent; Mr. Antenucci 17.6 percent; Mr. Beisser, 2.9 percent; Mr. Carreker 7.1 percent; Mr. O'Mara, less than 1%; Mr. Reed, 3.6 percent and Officers and Directors as a group, 34.2 percent. Item 12- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Related party transaction. Mr. Antenucci is a minority partner in the organization which owns the facilities leased by PlanGraphics, Inc. in Frankfort, Kentucky, at an annual lease cost to PGI of approximately $320,000. PART IV Item 13- EXHIBITS AND REPORTS ON FORM 8-K (a) The following financial statements, schedules and exhibits are filed as a part of this report: 1. Financial Statements 2. Exhibit Index The following exhibits are filed as part of this Report:
Exhibit Number Exhibit Page - ------ ------- ---- Note 6 2.1a Acquisition Agreement between DCX, Inc. and PlanGraphics, Inc. Note 7 2.1b Asset Purchase Agreement between DCX, Inc. DCX-CHOL Enterprises, Inc. Note 8 3.1 Bylaws of DCX, Inc. Note 1 16 3.2a Amended and Restated Articles of Incorpor- ation of DCX, Inc., dated July 8, 1991. Note 2 3.2b Articles of Amendment to the Articles of Incorporation of DCX, Inc., dated November 6, 1996 Note 4 3.2c Articles of Amendment to the Articles of Incorporation of DCX, Inc., dated July 30, 1997 Note 9 4.1 Specimen Stock Certificate Note 1 4.2 DCX 1991 Stock Option Plan Note 5 4.3 DCX 1995 Stock Incentive Plan Note 5 4.4 DCX, Inc. Equity Incentive Plan Follows Financial Statements 4.4 Warrant, dated January 15, 1997 issued to Transition Partners Limited. Note 3 4.5 Warrant, dated October 15, 1997, issued to Transition Partners Limited. Note 3 4.6 Warrant, dated January 15, 1997, issued to Copeland Consulting Group, Inc. Note 3 4.7 Warrant, dated October 15, 1997, issued to Copeland Consulting Group, Inc. Note 3 4.8 Warrant, dated June 19, 1997, issued to Spencer Edwards, Inc. Note 3 4.9 Warrant, dated November 8, 1996, issued to Coretech, Ltd. Note 3 4.10 Warrant, dated October 10, 1997, issued to SKB Corporation. Note 3 4.11 Warrant, dated October 24, 1997, issued to Gerald Alexander. Note 3 4.12 Form of Option Agreement, dated July 31, 1997, between the Company and the Pension Fund of Steven R. Perles. Note 10 4.13 Form of Option Agreement, dated July 31, 1997, between the Company and Hamilton & Faatz, P.C. Note 10 10.1 Executive Employment Agreement dated March 28, 1997 between the Company and G. Stephen Carreker. Note 11 10.2 Executive Employment Agreement dated March 28, 1997 between the Company and Frederick G. Beisser. Note 11 10.3 Executive Employment Agreement dated March 28, 1997 between the Company and D. Scott McReynolds. Note 11 10.4 Executive Employment Agreement dated September 22, 1997 Follows between the Company and John c. Antenucci. Financial Statements 10.5 Executive Employment Agreement dated September 22, 1997 Follows between the Company and J. Gary Reed. Financial Statements 17 21.1 List of Subsidiaries Page 18 27.1 Financial Data Schedules Incorporated by reference from Edgar Filing on January 13, 1998
NOTE: 1. Incorporated by reference from Registration Statements on Form S-18, file no. 33-1484. 2. Incorporated by Reference from the definitive Proxy Statement, dated May 3, 1991 3. Incorporated by Reference from the Company's Registration Statement on Form S-3 (Registration No. 333-39775) filed with the Commission on November 7, 1997. 4. Incorporated by Reference from Form 8K, dated November 12, 1996. 5. Incorporated by Reference from Form S-8, dated September 29, 1996 6. Incorporated by Reference from Form 10-Q for June 30, 1996, dated August 1, 1996. The agreement was terminated prior to completion. 7. Incorporated by Reference from Form 8-K, dated September 22, 1997. 8. Incorporated by Reference from Form 8-K, dated October 8, 1997. 9. Incorporated by Reference from Form 8-K, dated July 31, 1997. 10. Incorporated by Reference from Form S-8 (Registration No. 333-35293) dated September 5, 1997. 11. Incorporated by Reference from Form 10-QSB for the Quarter ended March 31, 1997. (b) Reports on Form 8-K. Following reports were filed on Form 8-K by the Company during fourth quarter of the fiscal year covered by this annual report. 1. Current Report on Form 8-K, dated July 31, 1997 reporting sale of convertible preferred stock under Regulation S. 2. Current Report on Form 8-K, dated August 13, 1997 reporting definitive agreement between the Company and PlanGraphics, Inc. 3. Current Report on Form 8-K as, dated September 9, 1997, reporting sale of convertible preferred stock pursuant to Regulation S. 4. Current Report on Form 8-K as amended, dated September 22, 1997, reporting completion of an acquisition agreement between the Company and PlanGraphics, Inc. Reports filed on Form 8-K subsequent to the end of the fiscal year: 1. Current Report on Form 8-K as amended, dated October 8, 1997, reporting divestiture of certain manufacturing assets to DCX-CHOL Enterprises, Inc. 2. Current Report on Form 8-K, dated October 14, 1997, reporting sale of convertible preferred stock pursuant to Regulation S. 3. Current Report on Form 8-K, dated November 3, 1997, reporting appointment of additional members to the Company's Board of Directors. 4. Current Report on Form 8-K/A, dated September 22, 1997. 5. Current Report on Form 8-K/A, dated October 8, 1997. 18 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DCX, INC. Date: 1/13/98 By: /S/ Stephen Carreker ----------------------------- Chairman and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signatures below also constitute power of attorney for the Principal Accounting Officer of the Company with the advice of legal and accounting advisors to file amendments as required to insure full and complete disclosure of this form 10-KSB. Signature Title Date /S/Jeanne M. Anderson - ------------------- Jeanne M. Anderson Director 1/13/98 /S/Stephen Carreker - ------------------- Stephen Carreker Chairman, CEO & Director 1/13/98 /S/ Fred Beisser - -------------------- Frederick G. Beisser Vice President--Finance and 1/13/98 Administration, Secretary, Treasur- er, and Director and Principal Accounting Officer /S/ John C. Antenucci - -------------------- John C. Antenucci Vice Chairman, President 1/13/98 and Director /S/ J. Gary Reed - -------------------- J. Gary Reed Director 1/13/98 /S/Raymund E. O'Mara - --------------------- Director 1/13/98 Raymund E. O'Mara 19 List of Subsidiaries Registered Name State of Incorporation - --------------- ---------------------- PlanGraphics, Inc. Maryland 20 DCX, Inc. and Subsidiaries Index to Consolidated Financial Statements ================================================================================ Report of Independent Certified Public Accountants F-2 Consolidated Balance Sheet as of September 30, 1997 F-3 - F-4 Consolidated Statements of Operations for the Years Ended September 30, 1997 and 1996 F-5 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1997 and 1996 F-6 - F-7 Consolidated Statements of Cash Flows for the Years Ended September 30, 1997 and 1996 F-8 Summary of Accounting Policies F-9 - F-13 Notes to Consolidated Financial Statements F-14 - F-28 F-1 Report of Independent Certified Public Accountants The Board of Directors and Stockholders DCX, Inc. and Subsidiaries Golden, Colorado We have audited the accompanying consolidated balance sheet of DCX, Inc. and subsidiaries as of September 30, 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the two years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DCX, Inc. and subsidiaries as of September 30, 1997 and the results of their operations and their cash flows for each of the two years then ended, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has negative working capital, and may not be able to meet the payment of certain payables within the contractual terms of the agreements. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /S/ BDO SEIDMAN, LLP Denver, Colorado January 9, 1997 F-2 DCX, Inc. and Subsidiaries Consolidated Balance Sheet ================================================================================ September 30, 1997 - -------------------------------------------------------------------------------- Assets (Note 5) Current: Cash and cash equivalents $ 582,326 Accounts receivable, less allowance of $188,161 for possible losses (Notes 2 and 4) 2,236,568 Amount due from sale of assets (Note 3) 1,100,000 Prepaid expenses and other 201,932 - -------------------------------------------------------------------------------- Total current assets 4,120,826 - -------------------------------------------------------------------------------- Property and equipment (Note 5): Land and building under capital lease 1,866,667 Land and building held for rental (Note 12) 1,415,058 Equipment and furniture 447,003 Leased assets 183,512 - -------------------------------------------------------------------------------- Less accumulated depreciation 429,597 - -------------------------------------------------------------------------------- Net property and equipment 3,482,643 - -------------------------------------------------------------------------------- Other assets: Goodwill 5,517,872 Capitalized software 258,855 Other 190,604 - -------------------------------------------------------------------------------- Total other assets 5,967,331 - -------------------------------------------------------------------------------- $13,570,800 ================================================================================ See accompanying summary of accounting policies and notes to consolidated financial statements. F-3 DCX, Inc. and Subsidiaries Consolidated Balance Sheet ================================================================================ September 30, 1997 - -------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current: Checks written against future deposits $ 269,587 Accounts payable 1,351,484 Accrued expenses 1,054,660 Deferred revenue 189,354 Notes payable - current portion (Note 5) 854,060 Notes payable - related party (Note 5) 158,928 Obligations under capital leases - current (Note 8) 134,794 Accrued litigation settlement (Note 6) 521,000 - -------------------------------------------------------------------------------- Total current liabilities 4,533,867 Notes payable, less current maturities (Note 5) 576,000 Notes payable - related party - non-current (Note 5) 446,256 Obligations under capital leases (Note 8) 2,037,673 - -------------------------------------------------------------------------------- Total liabilities 7,593,796 - -------------------------------------------------------------------------------- Contingencies (Notes 1, 6 and 8) Stockholders' equity: Preferred stock, $.001 par value, 20,000,000 shares authorized, 1,650 shares issued or outstanding (Note 9) 2 Common stock, no par value, 2,000,000,000 shares authorized 7,736,380, shares issued and outstanding (Note 9) 9,741,501 Additional paid-in capital 3,550,869 Accumulated deficit (7,315,368) - -------------------------------------------------------------------------------- Total stockholders' equity 5,977,004 - -------------------------------------------------------------------------------- $ 13,570,800 ================================================================================ See accompanying summary of accounting policies and notes to consolidated financial statements. F-4 DCX, Inc. and Subsidiaries Consolidated Statements of Operations ================================================================================ Years Ended September 30, 1997 1996 - -------------------------------------------------------------------------------- Revenues (Note 2) $ 71,098 $ -- Cost and expenses: Salaries and employee benefits 779,934 140,934 Direct contract costs 16,032 -- Other operating expenses 799,556 491,548 - -------------------------------------------------------------------------------- Total costs and expenses 1,595,522 632,482 - -------------------------------------------------------------------------------- Operating loss (1,524,424) (632,482) Other income (expense): Other income (Note 5) 297,622 108,762 Interest expense (126,263) (155,757) Life insurance proceeds (Note 14) 400,000 -- - -------------------------------------------------------------------------------- Total other income (expense) 571,359 (46,995) - -------------------------------------------------------------------------------- Net loss from continuing operations (953,065) (679,477) Loss from discontinued operations (Note 3) (1,598,313) (374,177) - -------------------------------------------------------------------------------- Net loss $(2,551,378) $(1,053,654) - -------------------------------------------------------------------------------- Preferred stock dividends $ 9,674 $ -- Deemed preferred stock dividends $ 892,592 $ -- - -------------------------------------------------------------------------------- Net loss attributable to common stockholders $(3,453,644) $(1,053,654) Loss per common share: Loss from continuing operations $ (.20) $ (.16) Loss from discontinued operations $ (.33) $ (.09) Loss attributable to common stockholders $ (.72) $ (.25) - -------------------------------------------------------------------------------- Weighted average number of shares of common stock outstanding 4,772,020 4,287,437 ================================================================================ See accompanying summary of accounting policies and notes to consolidated financial statements. F-5
DCX, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity ==================================================================================== Series A Years ended Preferred Stock Common Stock September 30, ------------------------- ------------------------ 1997 and 1996 Shares Amount Shares Amount - ------------------------------------------------------------------------------------ Balance, October 1, 1995 -- -- 4,115,621 $ 4,765,540 Sale of stock through options exercised -- -- 85,000 61,094 Stock issued for services -- -- 233,488 233,723 Net loss for the year -- -- -- -- - ------------------------------------------------------------------------------------ Balance, September 30, 1996 -- -- 4,434,109 5,060,357 Sale of stock through options exercised -- -- 171,394 231,804 Issuance of preferred stock (net of offering costs of $312,000) 2,150 2 -- -- Conversion of preferred stock into common stock (500) -- 499,732 450,000 Stock issued in acquisition -- -- 2,631,145 3,999,340 Stock warrants issued for services -- -- -- -- Stock options issued for: Acquisitions -- -- -- -- Services -- -- -- -- Forgiveness of subscrip- tion receivable -- -- -- -- Deemed dividend on preferred stock -- -- -- -- Deemed dividend on warrants issued in connection with preferred stock -- -- -- -- Net loss for the year -- -- -- -- - ------------------------------------------------------------------------------------ Balance, September 30, 1997 1,650 $ 2 7,736,380 $ 9,741,501 ==================================================================================== See accompanying summary of accounting policies and notes to consolidated financial statements. F-6 DCX, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity Continued ====================================================================================== Additional Paid-in Subscriptions Accumulated Capital Receivable Deficit Total - -------------------------------------------------------------------------------------- Balance, October 1, 1995 $ 329,384 $ (179,000) $(2,808,070) $ 2,107,854 Sale of stock through options exercised -- -- -- 61,094 Stock issued for services -- -- -- 233,723 Net loss for the year -- -- (1,053,654) (1,053,654) - -------------------------------------------------------------------------------------- Balance, September 30, 1996 329,384 (179,000) (3,861,724) 1,349,017 Sale of stock through options exercised -- -- -- 231,804 Issuance of preferred stock (net of offering costs of $312,000) 1,837,998 -- -- 1,838,000 Conversion of preferred stock into common stock (450,000) -- -- -- Stock issued in acquisition -- -- -- 3,999,340 Stock warrants issued for services 198,464 -- -- 198,464 Stock options issued for: Acquisitions 296,177 -- -- 296,177 Services 436,580 -- -- 436,580 Forgiveness of subscrip- tion receivable -- 179,000 -- 179,000 Deemed dividend on preferred stock 9,674 -- (9,674) -- Deemed dividend on warrants issued in connection with preferred stock 892,592 -- (892,592) -- Net loss for the year -- -- (2,551,378) (2,551,378) - -------------------------------------------------------------------------------------- Balance, September 30, 1997 $ 3,550,869 $ -- $(7,315,368) $ 6,052,004 ====================================================================================== See accompanying summary of accounting policies and notes to consolidated financial statements. F-7
DCX, Inc. and Subsidiaries Consolidated Statements of Cash Flows ================================================================================ Increase (Decrease) In Cash And Cash Equivalents Years Ended September 30, 1997 1996 - -------------------------------------------------------------------------------- Operating activities: Net loss $(2,551,378) $(1,053,654) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 98,298 114,202 Asset writedowns 179,000 -- Provision for losses on accounts receivable 158,161 -- Forgiveness of debt (278,069) (82,826) Provision for litigation -- 521,000 Provision for losses on inventory -- 60,000 Stock issued for services -- 258,723 Stock options issued for acquisitions and services 635,044 -- Loss on sale of assets 1,261,168 -- Changes in operating assets and liabilities: Accounts receivable (709,755) 1,066,891 Inventories -- (352,750) Other assets 178,798 9,915 Accounts payable 95,803 (82,360) Accrued expenses 526,883 (275,291) Deferred revenue 156,701 -- - ------------------------------------------------------------------------------- Net cash provided by (used in) operating activities (249,346) 183,850 - ------------------------------------------------------------------------------- Investing activities: Payments for business acquisitions, net of cash acquired (689,735) -- Additions to capitalized software (2,564) -- Restricted cash -- 154,985 - ------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (692,299) 154,985 - ------------------------------------------------------------------------------- Financing activities: Proceeds from debt 576,000 325,000 Payments on debt (1,018,062) (641,136) Debt issue costs (101,226) -- Proceeds from the issuance of common stock 19,622 61,094 Proceeds from issuance of preferred stock net of offering costs 1,838,000 -- - ------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 1,314,334 (255,042) - ------------------------------------------------------------------------------- Net increase in cash 372,689 83,793 Cash and cash equivalents, beginning of year 209,637 125,844 - ------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 582,326 $ 209,637 =============================================================================== See accompanying summary of accounting policies and notes to consolidated financial statements. F-8 DCX, Inc. and Subsidiaries Summary of Accounting Policies ================================================================================ Organization and Business These consolidated financial statements include the accounts of DCX, Inc. and those of its inactive wholly-owned subsidiaries, GeoStars International, Inc. and GeoNova US, Inc. ("GeoNova"), d/b/a GeoNova International, Inc., and PlanGraphics, Inc. (collectively the "Company"). DCX, Inc. provided services and products to aerospace, aviation, military, and commercial industries. DCX, Inc. was engaged in the engineering design, development, testing, and manufacturing of electronic and electro- mechanical devices and assemblies for use in the missile and aerospace industries, as well as the manufacturing of wire harnesses and cable assemblies for use by commercial computer and communications industries and the U.S. Government. PlanGraphics, Inc. is an independent consulting firm specializing in the design and implementation of Geographic Information Systems ("GIS") as well as advisory services in the United States and foreign markets. The customer base consists primarily of utilities, government agencies, and land and resource management organizations. All intercompany balances and transactions have been eliminated in consolidation. Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Revenue and Cost Recognition Revenues are recognized as services are rendered. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as supplies, tools, repairs and depreciation costs. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Goodwill Goodwill represents the excess of the cost over the fair value of its net assets acquired at the date of acquisition and is being amortized on the straight-line method over fifteen years. Deferred Revenue Deferred revenue represents amounts received under certain contracts in excess of revenue recognized. F-9 DCX, Inc. and Subsidiaries Summary of Accounting Policies ================================================================================ Property, Equipment and Depreciation and Amortization Property and equipment are recorded at cost. Depreciation is provided on property and equipment by charging against earnings, amounts sufficient to amortize the costs of the assets over their estimated useful lives. The ranges of estimated useful lives in computing depreciation and amortization are as follows: ------------------------------------------------------- Building 31 years Leased assets Life of lease Furniture and equipment 5 to 7 years ------------------------------------------------------- Depreciation is computed principally on an accelerated method. Taxes on Income The Company accounts for income taxes under SFAS No. 109. Deferred income taxes result from temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Net Loss Per Share Net loss per common share is based on the weighted average number of shares outstanding during each period presented after preferred stock and deemed dividends. Options to purchase stock are included as common stock equivalents, when dilutive. Concentrations of Credit Risk The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalent balances in excess of the insurance provided by governmental insurance authorities. The Company's cash and cash equivalents are placed with financial institutions and are primarily in demand deposit accounts. Fair Value of Financial Instruments Unless otherwise specified, the Company believes the book value of financial instruments approximates their fair value. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-10 DCX, Inc. and Subsidiaries Summary of Accounting Policies ================================================================================ Capitalized Software Costs Costs incurred internally in creating software products for resale are charged to expense until technological feasibility has been established upon completion of a detail program design. Thereafter, all software development costs are capitalized until the point that the product is ready for sale and subsequently reported at the lower of amortized cost or net realizable value. In accordance with Statement of Financial Accounting Standard No. 86, the Company recognizes the greater amount of annual amortization of capitalized software costs under 1) the ratio of current year revenues by product, to the product's total estimated revenues method or 2) over the products estimated economic useful life by the straight-line method. Software Revenue Recognition Revenue from licensing of software products is recognized upon shipment. Revenue from support and update service agreements is deferred at the time the agreement is executed and recognized ratably over the contractual period. The Company recognizes revenues from customer training and consulting services when such services are provided. All costs associated with licensing of software products, support and update services, and training and consulting services are expensed as incurred. Long-Term Assets The Company applies SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets." Under SFAS No. 121, long-lived assets and certain intangibles are reported at the lower of the carrying amount or their estimated recoverable amounts. Stock Option Plans The Company applied APB Opinion 25, "Accounting for Stock Issued to Employees", and the related Interpretation in accounting for all stock option plans. Under APB Opinion 25, no compensation cost has been recognized for stock options issued to employees as the exercise price of the Company's stock options granted equals or exceeds the market price of the underlying common stock on the date of grant. SFAS No. 123, "Accounting for Stock-Based Compensation", requires the Company to provide pro forma information regarding net income as if compensation cost for the Company's stock options plans had been determined in accordance with the fair value based method prescribed in SFAS No. 123. To provide the required pro forma information, the Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model. F-11 DCX, Inc. and Subsidiaries Summary of Accounting Policies ================================================================================ Recent Accounting Pronouncements The Financial Accounting Standards Board ("FASB") recently issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128") and Statement of Financial Accounting Standards No. 129 "Disclosure of Information About an Entity's Capital Structure ("SFAS 129"). SFAS 128 provides a different method of calculating earnings per share than is currently used in accordance with Accounting Board Opinion ("ABP") No. 15, "Earnings Per Share." SFAS 128 provides for the calculation of "Basic" and "Diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted earnings per share. SFAS 129 establishes standards for disclosing information about an entity's capital structure. SFAS 128 and SFAS 129 are effective for financial statements issued for periods ending after December 15, 1997. Their implementation is not expected to have a material effect on the consolidated financial statements. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. F-12 DCX, Inc. and Subsidiaries Summary of Accounting Policies ================================================================================ Also, in June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 130 and 131 are effective for financial statements for periods beginning after December 15, 1997 and requires comparative information for earlier years to be restated. Because of the recent issuance of the standard, management has been unable to fully evaluate the impact, if any, the standard may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by implementation of the standard. In October 1997, Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), was issued. The SOP provides guidance on when revenue should be recognized and in what amounts licensing, selling, leasing, or otherwise marketing computer software. SOP 97-2 is effective for transactions entered into in fiscal years after December 15, 1997. Because of the recent issuance of the SOP, management has been unable to fully evaluate the impact, if any, the SOP may have on future financial statement disclosure. Reclassifications Certain items included in the prior year's financial statements have been reclassified to conform to the current presentation. F-13 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ 1. Going Concern and Continued Existence As reflected in the accompanying financial statements, the Company has a working capital deficit of $413,041 and the Company has incurred net losses from operations of $953,065 and $679,477 for the years ended September 30, 1997 and 1996. The Company also incurred net losses from discontinued operations of $1,598,313 and $374,177 for the years ended September 30, 1997 and 1996. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans include, among other items, actively pursuing additional funding in both the debt and equity markets in order to meet working capital requirements and to provide for additional acquisitions. Additionally, the Company is negotiating the timing of and payment of certain payables to help improve the working capital position. There are no assurances that any of these events will occur or that the Company's plan will be successful. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. 2. Business Acquisitions On September 22, 1997, the Company acquired all of the outstanding stock of PlanGraphics, Inc. for 2,631,145 shares of common stock at the agreed upon rate of $1.52 per share. The acquisition was accounted for under the purchase method of accounting. The results of operations of PlanGraphics, Inc. have been included in the accompanying statement of operations since the effective date of the acquisition. The total purchase price, including acquisition costs, was $5,517,872 and is recorded as goodwill. Unaudited proforma consolidated results of operations of the Company are shown in the following table as if the business was acquired as of the first day of each period presented, October, 1, 1995. This unaudited proforma information is based on the Company's accompanying Statements of Operations and the historical financial information of the acquired companies, and includes adjustments to income taxes, depreciation, and goodwill giving effect of the terms of the transaction as if the acquisitions had occurred on the first day presented. F-14 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ Unaudited proforma consolidated results of operations: September 30, 1997 1996 ------------------------------------------------------ Revenue $ 8,204,236 $ 7,985,750 Loss from operations (2,441,497) (178,905) Net loss (2,174,836) (509,811) Loss per common share before discontinued operations (0.46) (.07) ======================================================== The proforma information is not necessarily inductive of the combined results of operations that would have occurred had the acquisitions been completed for such periods. PlanGraphics has historically received greater than 10% of its revenues from one customer. The one customer accounted for 25% and 35% of revenues for the years ended September 30, 1997 and the nine month period ended September 30, 1996. 3. Discontinued Operations Effective September 30, 1997, the Company sold certain assets of its defense industry business unit to a third party for $1,100,000. The Company has subsequently collected this receivable. With the disposal of its defense industry business, the Company discontinued all of its operations in the defense industry. Therefore, it separately reported the losses from this business as discontinued operations for the years ended September 30, 1997 and 1996 as follows: September 30, 1997 1996 ------------------------------------------------------ Revenues from discontinued operations $ 5,186,936 $ 4,403,740 Loss from discontinued operations (337,145) (374,177) Loss on disposal (1,261,168) -- Net loss from discontinued operations $ (1,598,313) $ (374,177) ------------------------------------------------------ F-15 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ 4. Accounts Receivable The components of accounts receivable are as follows: September 30, 1997 ----------------------------------------------------- Contract receivables: Billed $ 1,228,389 Unbilled 1,196,340 ----------------------------------------------------- 2,424,729 ----------------------------------------------------- Less provision for losses 188,161 ----------------------------------------------------- Total accounts receivable $ 2,236,568 ===================================================== 5. Notes Payable September 30, 1997 ----------------------------------------------------- Note payable with interest of 14%, with monthly interest only payments, collateralized by a first lien on land and building held for rental and improvements, maturing on February 21, 2000 $ 576,000 Note payable to bank in monthly principal installments of $5,000, interest at 8.5% payable quarterly, collateralized by equipment, accounts receivable, a stock pledge agreement of shares at the PlanGraphics level, and an assignment of a $500,000 life insurance policy on an individual. Note matures on April 24, 1998 650,000 Line of credit with a bank, interest at 9.5% payable at maturity on August 7, 1997 collateralized by equipment and accounts of PlanGraphics and is guaranteed by a minority stockholder 180,000 Other 24,060 ---------------------------------------------------- 1,430,060 Less current maturities 854,060 ---------------------------------------------------- Notes payable - less current maturities $ 576,000 ==================================================== F-16 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ In June 1997, a discount of $278,019 was granted by the lender for full settlement of the outstanding balance. Final liquidation of the balance occurred during the Company's 4th quarter. In December 1995, a previously outstanding note payable was settled requiring a cash payment of $205,000. The settlement gain on forgiven debt of $82,826 was recorded in the year ended September 30, 1996. Notes Payable - Related Party The notes payable to a minority shareholder consist of an installment note and a promissory note. The installment note bears a fixed interest rate of 10% and is secured by a proxy on shares of Company stock owned by the former majority shareholder. The promissory note bears interest at 8.5%. The notes mature December 21, 1998 and are subject to covenants prohibiting further issuance of voting stock and other such agreements. Total amounts outstanding under these related party notes were $605,184 at September 30, 1997. The Company converted $289,902 of the related party note payable into 170,531 shares of common stock on October 10, 1997 Principal payments on all notes payable due subsequent to September 30, 1997 are as follows: Due September 30, 1997 ----------------------------------------------------- 1998 $ 1,012,989 1999 466,256 2000 576,000 ----------------------------------------------------- $ 2,035,245 ===================================================== 6. Litigation The Company had previously filed an appeal before the U.S. Court of Appeals for the Federal Circuit on a contract with the Defense Logistics Agency (DLA). The appeals court held for the DLA in the year ended September 30, 1996. As such, the Company has recorded a reserve for $521,000 for potential losses. F-17 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ The Company is engaged in various litigation matters from time to time in the ordinary course of business. In the opinion of management, the outcome of any such litigation will not materially affect the financial position or results of operations of the Company. 7. Taxes on Income The provision for income taxes consisted of the following: Year ended September 30, 1997 1995 ------------------------------------------------------ Deferred benefit: Federal $ 1,084,000 $ 301,000 State 104,000 29,000 ------------------------------------------------------ 1,188,000 330,000 Valuation allowance (1,188,000) (330,000) ------------------------------------------------------ $ -- $ -- ------------------------------------------------------ A reconciliation of the effective tax rates and the statutory U.S. federal income tax rates follows: 1997 1995 ------------------------------------------------------- U.S. federal statutory rates (34.0) % (34.0) % State income tax benefit, net of federal tax amount (3.3) (3.3) Increase in deferred tax asset valuation allowance 37.3 37.3 ------------------------------------------------------- Effective tax rate -- % -- % ------------------------------------------------------- F-18 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ Temporary differences that give rise to a significant portion of the deferred tax asset are as follows: 1997 ------------------------------------------------------- Net operating loss carryforward $ 1,472,000 Capital loss carryover 587,000 Compensation expense for common stock options 237,000 Accrued litigation 194,000 Vacation 159,000 Other 64,000 ------------------------------------------------------- Total gross deferred tax assets 2,713,000 Valuation allowance (2,713,000) ------------------------------------------------------- Net deferred tax asset $ -- ------------------------------------------------------- A valuation allowance equal to the net deferred tax asset has been recorded, as management of the Company has not been able to determine that it is more likely than not that the deferred tax assets will be realized. At September 30, 1997, the Company had net operating loss carryforwards of approximately $4,000,000 with expirations through 2013. The net operating losses are limited due to issuances of common stock. 8. Leases Obligation Under Capital Leases - Related Parties The Company leases an office facility from a related party, Capitol View Development, LLC, under a triple net commercial lease. An officer/shareholder owns approximately ten percent of Capitol View Development. The lease includes an annual base rent increasing over the term of the lease plus an adjustment based on Capitol View Development's rate of interest on its loan. The initial lease term is for a period of fifteen years with five renewal options for a term of one year each. Annual payments approximate $320,000 per year. F-19 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ The Company also leases certain equipment under capital leases from a related party. Original lease terms are for five years. The following is a schedule, by years, of future minimum payments required under these leases, together with their present value as of September 30, 1997. Land and September 30, Building Equipment Total ------------------------------------------------------- 1998 $ 327,261 $ 82,331 $ 409,592 1999 330,218 58,411 388,629 2000 335,635 32,523 368,158 2001 337,089 - 337,089 2002 338,133 - 338,133 Thereafter 2,500,429 - 2,500,429 ------------------------------------------------------- 4,168,765 173,265 4,342,030 Less: amount representing interest 2,155,571 13,992 2,169,563 ------------------------------------------------------- Present value of minimum lease payments 2,013,194 159,273 2,172,467 Less: current portion - - 134,794 ------------------------------------------------------- Obligations under capital leases after current portion $2,037,673 ======================================================= Operating Lease Commitments The Company leases certain office facilities and certain furniture and equipment under various operating leases. Lease terms range from one to five years. F-20 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ Rental expense for the years ending September 30, 1997 and 1996 totaled $10,000 and $0. Minimum annual operating lease commitments at September 30, 1997 are as follows: September 30, ------------------------------------------------------- 1998 $ 119,144 1999 102,365 2000 44,953 2001 12,956 ------------------------------------------------------- $ 279,418 ======================================================= 9. Equity Transactions Preferred Stock In November 1996, the Company amended its articles of incorporation to provide for a Series A 6% cumulative convertible redeemable preferred stock $.001 par value (Series A). The Company designated 1,000,000 shares Series A as part of the authorized class of preferred shares. The Company issued 500 shares of Series A with a stated value of $1,000 per share, with net proceeds to the Company of $450,000 in November 1996. The holders of these 500 shares of Series A converted the preferred into common stock at various times during the year in exchange for 499,732 shares of common stock. In August 1997, the Company sold 650 shares of its Series A with net proceeds of $547,500. In September 1997, the Company sold 1,000 shares of its Series A with net proceeds of $840,500. The Series A preferred stock and any accumulated and unpaid dividends are convertible at the option of the holder at the lesser of 75% of the average of the closing bid price per share of the Company's common stock for the 5 days prior to issuance or 75% of the average of the closing bid price per share of the Company's common stock for the five days preceding the date of conversion. Subsequent to September 30, 1997 holders of Series A converted 1,040 shares into 1,293,289 shares of common stock. Warrants issued to purchase 233,781 shares of common stock were issued in connection with the placement of the Series A. The warrants can be exercised at various prices from $1.6875 to $1.875 and expire from November 1998 to August 2000. The Company recognized deemed dividends of $175,925 in connection with issuing these warrants under the accounting provisions of SFAS 123. The Company also recognized $716,667 of deemed dividends due to the convertibility of the preferred stock at 75%. F-21 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ Subsequent to September 30, 1997, the Company sold 250 more shares of Series A with net proceeds of $212,500 in a continuation of the placement from September 1997. Common Stock During fiscal year 1997, the Company exchanged $212,182 in payables for the exercise price of 144,094 shares of common stock. Employees exercised options to purchase 27,300 shares with the Company recognizing proceeds of $19,622. The Company forgave the $179,000 subscription receivable in exchange for services rendered during the year ended September 30, 1997. During fiscal year 1996, as consideration for future service to be performed by the recipient of certain stock options, the exercise price on a portion of these stock options was below the fair market value of the stock on the date the options were granted. Accordingly, the Company recorded $148,750 in deferred charges for future services. In addition, the Company waived the exercise price on 224,000 shares under the stock option and recorded deferred charges for future services of $150,000. In March 1995, the Company issued options to purchase 250,000 shares to the same individual at an exercise price of $.75 per share and recorded $31,250 in deferred charges for future services. The options were exercised in April 1995. The Company amortized deferred compensation charges on a straight line basis over the service term. Amortization of approximately $97,000 and $118,000 was recorded during the years ended September 30, 1997 and 1996. At various times throughout the year ended September 30, 1996, options were exercised for a total of 85,000 shares for a total of $61,094. The Company issued 230,000 shares valued at fair market value of $231,215 to a financial advisor in exchange for services to be performed for a period of 12 months beginning in February 1996. F-22 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ Anti-dilution Provisions The Company has granted certain officers and consultants anti-dilution rights in employment and service agreements. The provision calls for the issuance of options at fixed prices at each date more stock is issued to enable the party to retain their ownership percentage. Under the accounting provisions of SFAS 123 and APB 25, the Company realized costs of approximately $406,000 for the 380,340 options and 164,298 warrants issued during the year. Stock Options ------------- The Company's Board of Directors have reserved 300,000 and 750,000 shares under two stock option plans (1991 and 1995 respectively). The Company grants options under the Plan in accordance with the determinations made by the Option Committee. The Option Committee will, at its discretion, determine individuals to be granted options, the time or times at which options shall be granted, the number of shares subject to each option and the manner in which options may be exercised. The option price shall be the fair market value on the date of the grant and expire five years subsequent to the date of grant. 1991 Plan --------- In May 1992, the Company issued options for the purchase of 140,000 shares at $1.22 per share. Of the total issued, 125,000 were issued to officers and directors. In February 1995, 20,000 options were cancelled. Options to purchase 175,000 shares at $.71875 were issued to officers of the Company in April 1995. The Company granted 30,000 options to purchase common stock at $.72 in the year ended September 30, 1997. To date, none of these options have been exercised. 1995 Plan --------- In April 1995, the Company issued options to purchase 269,000 shares at $.71875 per share, of the total issued, 60,000 were issued to an officer. Through September 30, 1996, options to purchase 85,000 shares were exercised resulting in proceeds to the Company of $61,094. The Company granted 169,789 options to purchase common stock at prices ranging from $.72 to $1.75. Options to purchase 46,589 shares were exercised during the year. F-23 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ FASB Statement 123, "Accounting for Stock-Based Compensation" (SFAS No. 123"), requires the Company to provide pro forma information regarding net income and net income per share as if compensation costs for the Company's stock option plans and other stock awards had been determined in accordance with the fair value based method prescribed in SFAS No. 123. The Company estimated the fair value of each stock award at the grant date by using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in the year ended September 30, 1997: dividend yield of 0 percent for all years; expected volatility of 45 percent; risk-free interest rates between 6 and 6.4 percent; and expected option lives of five years. The Company did not grant any options in 1996. Under the accounting provisions for SFAS No. 123, the Company's net loss and net loss per share would have been adjusted to the following pro forma amounts: Years Ended September 30, 1997 1996 ----------------------------------------------------- Net loss As reported $ (2,551,378) $ (1,053,654) Pro forma (3,908,402) (1,053,654) Net loss per share As reported $ (.72) $ (.25) Pro forma (.89) (.25) ===================================================== A summary of the status of the Company's stock option plans and outstanding options as of September 30, 1997 and 1996 and changes during the years ending on those dates is presented below: F-24 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ 1997 1996 ================================================================================ Weighted Weighted Average Average Range of Exercise Range of Exercise Shares Price Shares Price - -------------------------------------------------------------------------------- Outstanding, beginning of year 478,000 $ 0.84 564,000 $ 0.83 Granted 3,495,623 1.38 -- N/A Cancelled 312,000 0.81 1,000 0.72 Exercised 195,729 1.39 85,000 0.72 - -------------------------------------------------------------------------------- Outstanding, end of year 3,465,894 $ 1.36 478,000 $ 0.84 ================================================================================ Options exercisable, end of year 3,465,894 $ 1.36 478,000 $ 0.84 Weighted average fair value of options granted during the year 2,002,367 $ 0.72 N/A $ N/A ================================================================================ The following table summarizes information about stock options outstanding at September 30, 1997: F-25 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ Options Outstanding Options Exercisable -------------------------------------------------------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding Contractual Exercise Exercisable Exercise Prices at 9/30/97 Life Price at 9/30/97 Price -------------------------------------------------------------------- $0.58-1.00 836,603 3.41 $ 0.89 836,603 $ 0.89 1.13-1.39 1,243,658 4.27 1.15 1,013,658 1.16 1.63-4.25 1,385,633 4.76 1.83 1,160,633 1.97 --------------------------------------------------------------------- $0.58-4.25 3,465,894 4.22 $ 1.36 3,010,894 $ 1.35 ===================================================================== 10. Employee Benefit Plans 401(k) Plan DCX has a Section 401(k) profit sharing plan covering substantially all employees. Participants in the plan may contribute up to 15% of their compensation, subject to certain limitations. Under the plan, the Company makes matching contributions equal to 25% of the participants elected deferred contribution up to a maximum of 6% of compensation. Company matching contributions vest ratably over 5 years. Additional contributions may be made at the Company's discretion based upon the Company's performance. Total Company contributions under the plan were approximately $8,854 and $9,700 in 1997 and 1996. PlanGraphics has a qualified profit sharing plan with a 401(k) deferred compensation provision covering substantially all employees. The plan allows employees to defer up to 21% of their annual salary with a tiered matching contribution by the Company up to 1.75%. Additional contributions are at the Company's discretion. F-26 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ 11. Committments Self Insurance The Company is partially self insured for employee medical liabilities which covers risk up to $20,000 per individual covered under the plan. The Company has purchased excess medical liability coverage for individual claims in excess of $20,000 and approximately $250,000 in aggregate with a national medical insurance carrier. Premiums and claim expenses associated with the medical self insurance program are included in the accompanying statements of income. Employment Agreements The Company has entered into employment agreements that extend from December 31, 1999 through June 30, 2000 with four of its officers. The employment agreements set forth annual compensation to the four officers of between $60,000 and $175,000 each. 12. Lease Agreement of former Manufacturing Facility The buyer of the certain assets of the Company has agreed to lease the manufacturing facility for 6 months at a rate of $16,500 (for a total of $99,000 over the term). The buyer also holds options to renew the lease at terms similar to the original term for 32 months. The buyer also holds an option to purchase the buildings and real property for $1,500,000 during the original term or any extensions of the lease. 13. Significant Fourth Quarter Adjustments During the quarter ended September 30, 1997, the Company recorded an expense for the forgiveness of the subscription receivable in the amount of $179,000. The Company also recorded approximately $500,000 in expense for stock options granted throughout the year. During the quarter ended September 30, 1996, the Company recorded consulting fees expense of approximately $118,000 relating to the amortization of deferred marketing expense. 14. Life Insurance The Company recorded other income of $400,000 related to the proceeds of two company owned key man life insurance policies on a director of the Company during the year ended September 30, 1997. F-27 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ 15. Supplemental Schedule of Non-Cash Investing and Financing Activities 1997 1996 ------------------------------------------------------ Business acquired with common stock $ 3,999,340 $ - ====================================================== Preferred stock converted into common stock $ 450,000 $ - ====================================================== Common stock issued for services and debt $ 508,359 $ 233,723 ====================================================== Cash paid for interest $ 126,000 $ 114,000 ====================================================== F-28 EX-4.4 2 DCX, INC. EQUITY INCENTIVE PLAN DCX, Inc. EQUITY COMPENSATION PLAN ARTICLE I PURPOSE The purpose of the DCX, Inc. Equity Compensation Plan (the "Plan") is to attract and retain directors, officers, other employees and consultants of DCX, Inc. and its Subsidiaries and to provide such persons with incentives to continue in the long-term service of the Company and to create in such persons a more direct interest in the future success of the operations of the Company by relating incentive compensation to increases in stockholder value. ARTICLE II STRUCTURE OF THE PLAN The Plan is divided into three separate programs: A. The Discretionary Stock Option Grant Program under which eligible persons may, at the discretion of the Committee or the Board, be granted Stock Options; B. The Restricted Stock Program under which eligible persons may, at the discretion of the Committee or the Board, be granted rights to receive shares of Common Stock, subject to certain restrictions; and C. The Supplemental Bonus Program under which eligible persons may, at the discretion of the Committee or the Board, be granted a right to receive payment, in cash, shares of Common Stock, or a combination thereof, of a specified amount. ARTICLE III DEFINITIONS As used in this Plan: "10% Stockholder" shall mean any owner of stock (as determined under Section 424(d) of the Code) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Subsidiary. "Award" shall mean a grant made under this Plan in the form of Stock Options, Restricted Stock or Supplemental Bonuses. "Board" shall mean the Company's Board of Directors. "Change in Control" shall mean a change in ownership or control of the Company effected through any of the following transactions: (i) the acquisition, directly or indirectly by any person or group (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than thirty percent (30%) of the total combined voting power of the Company's outstanding securities; (ii) a change in the composition of the Board over a period of eighteen (18) consecutive months or less such that fifty percent (50%) or more of the Board members cease to be directors who either (A) have been directors continuously since the beginning of such period or (B) have been unanimously elected or nominated by the Board for election as directors during such period; (iii) a stockholder-approved merger or consolidation to which the Company is a party and in which (A) the Company is not the surviving entity or (B) securities possessing more than thirty percent (30%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction; or (iv) the sale, transfer or other disposition of all or substantially all of the Company's assets in complete liquidation or dissolution of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committee" shall mean the Employee Committee and/or the Incentive Plan Committee, as applicable. "Common Stock" shall mean the Company's common stock, no par value. "Company" shall mean DCX, Inc. "Date of Grant" shall mean the date specified by the Committee on which a grant of an Award shall become effective, which shall not be earlier than the date on which the Committee takes action with respect thereto. "Employee" shall mean an individual who is in the employ of the Company or any Subsidiary. 2 "Employee Committee" shall mean a committee composed of at least one member of the Board of Directors who may, but need not, be a Non-Employee Director. The Employee Committee is empowered hereunder to grant Awards to Eligible Employees who are not directors or "officers" of the Company as that term is defined in Rule 16a-1(f) of the Exchange Act nor "covered employees" under Section 162(m) of the Code, and to establish the terms of such Awards at the time of grant, but shall have no other authority with respect to the Plan or outstanding Awards except as expressly granted by the Plan. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "FairMarket Value" of a share of Common Stock on any relevant date shall be determined in accordance with the following provisions: (i) If the Common Stock is at the time listed on any stock exchange, or traded on the Nasdaq National Market, or any other securities trading market that reports daily the closing selling price per share of Common Stock, the Fair Market Value shall be deemed equal to the closing selling price per share of Common Stock on the date in question on the stock exchange or other securities trading market determined by the Committee to be the primary market for the Common Stock, as such price is officially quoted on such exchange or trading market. (ii) If there is no closing selling price for the Common Stock on the date in question, or if the Common Stock is neither listed on a stock exchange or traded on a securities trading market that reports daily the closing selling price per share of the Common Stock, then the Fair Market Value shall be deemed to be the average of the representative closing bid and asked prices on the date on question as reported by the Nasdaq Stock Market or other reporting entity selected by the Committee. (iii) In the event the Common Stock is not traded publicly, the Fair Market Value of a share of Common Stock shall be determined, in good faith, by the Committee after such consultation with outside legal, accounting and other experts as the Committee may deem advisable, and the Committee shall maintain a written record of its method of determining such value. "Incentive Plan Committee" shall mean a committee consisting entirely of Non-Employee Directors of the Board, who are empowered hereunder to take all action required in the administration of the Plan and the grant and administration of Awards hereunder. The Incentive Plan Committee shall be so constituted at all times as to permit the Plan to comply with Rule 16b-3 or any successor rule promulgated under the Exchange Act. Members of the Incentive Plan Committee shall be appointed from time to time by the Board, shall serve at the pleasure of the Board and may resign at any time upon written notice to the Board. Notwithstanding the foregoing, at any time that there are fewer than two Non-Employee Directors on the Board or when no Incentive Plan Committee has been appointed by the Board, all powers of the Incentive Plan Committee shall be vested in the Board. 3 "Incentive Stock Option" shall mean a Stock Option that (i) qualifies as an "incentive stock option" under Section 422 of the Code or any successor provision and (ii) is intended to be an incentive stock option. "Non-Employee Director" shall mean a director of the Company who meets the definition of (i) a "non-employee director" set forth in Rule 16b-3 under the Exchange Act, as amended, or any successor rule and (ii) an "outside director" set forth in Treasury Regulation 1.162-27, as amended, or any successor rule. "Non-Statutory Option" shall mean a Stock Option that (i) does not qualify as an "incentive stock option" under Section 422 of the Code or any successor provision or (ii) is not intended to be an incentive stock option. "Optionee" shall mean the person so designated in an agreement evidencing an outstanding Stock Option. "Option Price" shall mean the purchase price payable by a Participant upon the exercise of a Stock Option. "Participant" shall mean a person who is selected by the Committee to receive benefits under this Plan and (i) is at that time a director, officer or other Employee of the Company or any Subsidiary, (ii) is at that time a consultant or other independent advisor who provides services to the Company or a Subsidiary, or (iii) has agreed to commence serving in any capacity set forth in (i) or (ii) of this definition. "Plan" shall mean the Company's Equity Incentive Plan as set forth herein. "Plan Effective Date" shall mean October 31, 1997, the date on which this Plan was approved by the Company's Board of Directors. "Redemption Value" shall mean the amount, if any, by which the Fair Market Value of one share of Common Stock on the date on which the Stock Option is exercised exceeds the Option Price for such share. "Restricted Stock" shall mean shares of Common Stock granted under Article VII that are subject to restrictions imposed pursuant to said Article. "SEC" shall mean the U.S. Securities and Exchange Commission and any successor thereto. 4 "Stock Option" shall mean a right granted under the Plan to a Participant to purchase Common Stock at a stated price for a specified period of time. "Subsidiary" shall mean a corporation, partnership, joint venture, unincorporated association or other entity in which the Company has a direct or indirect ownership or other equity interest; provided, however, for purposes of determining whether any person may be a Participant for purposes of any grant of Incentive Stock Options, "Subsidiary" means any subsidiary corporation of the Company as defined in Section 424(f) of the Code. "Supplemental Bonus" shall mean the right to receive payment in cash of an amount determined pursuant to Article IX of this Plan. "Term" shall mean the length of time during which a Stock Option may be exercised. ARTICLE IV ADMINISTRATION OF THE PLAN A. Delegation to the Committee. This Plan shall be administered by the Incentive Plan Committee. References herein to the "Committee" shall mean the Employee Committee and/or the Incentive Plan Committee, as applicable. References herein to the Incentive Plan Committee refer solely to the Incentive Plan Committee. Members of the Incentive Plan Committee and the Employee Committee shall serve for such period of time as the Board may determine and may be removed by the Board at any time. The action of a majority of the members of the Incentive Plan Committee and the Employee Committee present at any meeting, or acts unanimously approved in writing, shall be the acts of the Incentive Plan Committee and the Employee Committee, respectively. B. Powers of the Committee. The Incentive Plan Committee shall have full power and authority, subject to the provisions of this Plan, to establish such rules and regulations as it may deem appropriate for proper administration of this Plan and to make such determinations under, and issue interpretations of, the provisions of this Plan and any outstanding Awards as it may deem necessary or advisable. In addition, the Incentive Plan Committee shall have full power and authority to administer and interpret the Plan and make modifications as it may deem appropriate to conform the Plan and all actions pursuant to the Plan to any regulation or to any change in any law or regulation applicable to this Plan. C. Actions of the Committee. All actions taken and all interpretations and determinations made by the Committee in good faith (including determinations of Fair Market Value) shall be final and binding upon all Participants, the Company and all other interested persons. No director or member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, and all directors and members of the Committee shall, in addition to their rights as directors, be fully protected by the Company with respect to any such action, determination or interpretation. 5 D. Awards to Officers and Directors. 1. All Awards to officers shall be determined by the Incentive Plan Committee. If the Incentive Plan Committee is not composed as prescribed in the definition of Incentive Plan Committee in Article III, the Board shall have the right to take such action with respect to any Award to an officer as it deems necessary or advisable to comply with Rule 16b-3 of the Exchange Act and any related rules, including but not limited to seeking stockholder ratification of such Award or restricting the sale of the Award or any shares of Common Stock underlying the Award for a period of six-months. 2. Discretionary awards to Non-Employee Directors, if any, shall be determined by the Board. ARTICLE V ELIGIBILITY A. Discretionary Stock Option Grant Program, Restricted Stock Program and Supplemental Bonus Program. The persons eligible to participate in the Discretionary Stock Option Grant Program, the Restricted Stock Program and the Supplemental Bonus Program are as follows: 1. Employees of the Company or a Subsidiary; 2. Members of the Board; and 3. Consultants and other independent advisors who provide services to the Company or a Subsidiary. B. Selection of Participants. The Committee shall from time to time determine the Participants to whom Awards shall be granted pursuant to the Discretionary Stock Option Grant Program, the Restricted Stock Program and the Supplemental Bonus Program. ARTICLE VI SHARES AVAILABLE UNDER THE PLAN A. Maximum Number. The number of shares of Common Stock issued or transferred and covered by outstanding awards granted under this Plan shall not in the aggregate exceed 4,000,000 shares of Common Stock, which may be Common Stock of original issuance or Common Stock held in treasury, or a combination thereof. This authorization shall be increased automatically on each succeeding annual anniversary of the Plan Effective Date by an amount equal to that number of shares equal to one-half of one percent of the Company's then issued and outstanding shares of Common Stock. The shares may be divided among the various 6 Plan components as the Incentive Plan Committee shall determine, except that no more than 3,500,000 Shares shall be issued in connection with the exercise of Incentive Stock Options under the Plan. Any portion of the shares added on each succeeding anniversary of the Plan Effective Date which are unused during the Plan year beginning on such anniversary date shall be carried forward and be available for grant and issuance in subsequent Plan years, while up to 100% of the shares to be added in the next succeeding Plan year (calculated on the basis of the current Plan year's allocation) may be borrowed for use in the current Plan year. Shares of Common Stock that may be issued upon the exercise of Stock Options shall be applied to reduce the maximum number of shares remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Stock Options are outstanding retain as authorized and unissued Common Stock, or as treasury Common Stock, at least the number of shares of Common Stock required under the provisions of this Plan, or otherwise assure itself of its ability to perform its obligations hereunder. B. Unused and Forfeited Stock. The following shares of Common Stock shall automatically become available for use under the Plan: (i) any shares of Common Stock that are subject to an Award under this Plan that are not used because the terms and conditions of the Award are not met, including any shares of Common Stock that are subject to a Stock Option that expires or is terminated for any reason, (ii) any shares of Common Stock with respect to which a Stock Option is exercised that are used for full or partial payment of the Option Price, and (iii) any shares of Common Stock withheld by the Company in satisfaction of the withholding taxes incurred in connection with the exercise of a Non-Statutory Option. C. Capital Changes. If any change is made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Company's receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the number and/or class of securities for which grants are subsequently to be made pursuant to Article VI of this Plan, and (iii) the number and/or class of securities then included in each Award outstanding hereunder and the Option Price per share in effect under each outstanding Stock Option under this Plan. Such adjustments to the outstanding Stock Options are to be effected in a manner that shall preclude the enlargement or dilution of rights and benefits under such Stock Options. The adjustments determined by the Committee shall be final, binding and conclusive. 7 ARTICLE VII DISCRETIONARY STOCK OPTION GRANT PROGRAM A. Discretionary Grant of Stock Options to Participants. The Committee may from time to time authorize grants to Participants of options to purchase shares of Common Stock upon such terms and conditions as the Committee may determine in accordance with the following provisions (in connection with any grants under this paragraph VII.A to Non-Employee Directors, "Committee" shall mean the entire Board of Directors): 1. Each grant shall specify the number of shares of Common Stock to which it pertains; 2. Each grant shall specify the Option Price per share; 3. Each grant shall specify the form of consideration to be paid in satisfaction of the Option Price and the manner of payment of such consideration, which may include (i) cash in the form of currency or check or other cash equivalent acceptable to the Company, (ii) shares of Common Stock that are already owned by the Optionee and have a Fair Market Value at the time of exercise that is equal to the Option Price, (iii) shares of Common Stock with respect to which a Stock Option is exercised, (iv) a recourse promissory note in favor of the Company, (v) any other legal consideration that the Committee may deem appropriate and (vi) any combination of the foregoing; 4. Any grant may provide for deferred payment of the Option Price from the proceeds of sale through a broker of some or all of the shares of Common Stock to which the exercise relates; 5. Any grant may provide that shares of Common Stock issuable upon the exercise of a Stock Option shall be subject to restrictions whereby the Company has the right or obligation to repurchase all ora portion of such shares if the Participant's service to the Company is terminated before a specified time, or if certain other events occur or conditions are not met; 6. Successive grants may be made to the same Participant regardless of whether any Stock Options previously granted to the Participant remain unexercised; 7. Each grant shall specify the conditions to be satisfied before the Stock Option or installments thereof shall become exercisable, which conditions may include a period or periods of continuous service by the Optionee to the Company or any Subsidiary, the attainment of specified performance goals and objectives, or the occurrence of specified events; as may be established by the Committee with respect to such grant; 8. All Stock Options that meet the requirements of the Code for incentive stock options shall be Incentive Stock Options unless (i) the option agreement clearly designates the Stock Options granted thereunder, or a specified portion thereof, as a Non-Statutory Option, or (ii) a grant of Incentive Stock Options to the Participant would be prohibited under the Code or other applicable law; 8 9. Each grant shall specify the Term of the Stock Option, which Term shall not be greater than 10 years from the Date of Grant; and 10. Each grant shall be evidenced by an agreement, which shall be executed on behalf of the Company by any officer thereof and delivered to and accepted by the Optionee and shall contain such terms and provisions as the Committee may determine consistent with this Plan. B. Special Terms Applicable to Incentive Stock Options. The following additional terms shall be applicable to all Incentive Stock Options granted pursuant to this Plan. Stock Options that are specifically designated as Non-Statutory Options shall not be subject to the terms of this paragraph VII.B. 1. Incentive Stock Options shall be granted only to Employees of the Company or a Subsidiary; 2. The Option Price per share shall not be less than the Fair Market Value per share of Common Stock on the Date of Grant; 3. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective Date(s) of Grant) with respect to which Incentive Stock Options granted to any Employee under the Plan (or any other plan of the Company or a Subsidiary) are exercisable for the first time during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such Stock Options that become exercisable for the first time in the same calendar year, the foregoing limitation on the treatment of such Stock Options as Incentive Stock Options shall be applied on the basis of the order in which such Stock Options are granted; and 4. If any Employee to whom an Incentive Stock Option is granted is a 10% Stockholder, then the Option Price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the Date of Grant, and the option Term shall not exceed five (5) years measured from the Date of Grant. 9 ARTICLE VIII RESTRICTED STOCK PROGRAM A. Awards Granted. Coincident with or following designation for participation in the Plan, a Participant may be granted one or more Restricted Stock Awards consisting of shares of Common Stock. The number of shares granted as a Restricted Stock Award shall be determined by the Committee. B. Restrictions. A Participant's right to retain a Restricted Stock Award granted to such Participant under Article VII.A shall be subject to such restrictions, including but not limited to his or her continuous employment by the Company for a restriction period specified by the Committee or the attainment of specified performance goals and objectives, or the occurrence of specified events, as may be established by the Committee with respect to such Award. The Committee may in its sole discretion require different periods of employment or different performance goals and objectives with respect to different Participants, to different Restricted Stock Awards or to separate, designated portions of the shares constituting a Restricted Stock Award. C. Privileges of a Stockholder, Transferability. A Participant shall have all voting, dividend, liquidation and other rights with respect to shares of Common Stock in accordance with its terms received by him or her as a Restricted Stock Award under this Article VIII upon his or her becoming the holder of record of such shares; provided, however, that the Participant's right to sell, encumber or otherwise transfer such shares shall be subject to the restrictions established by the Committee with respect to such Award. D. Enforcement of Restrictions. The Committee may in its sole discretion require a legend to be placed on the stock certificates referring to the restrictions referred to in paragraphs VIII.B and VIII.C., in order to enforce such restrictions. ARTICLE IX SUPPLEMENTAL BONUS PROGRAM A. Non-Statutory Stock Options. The Committee, at the time of grant or at any time prior to exercise of any Non-Statutory Option, may provide for a Supplemental Bonus from the Company or a Subsidiary in connection with a specified number of shares of Common Stock then purchasable, or which may become purchasable, under such Non-Statutory Option. Such Supplemental Bonus shall be payable in cash upon the exercise of the Non-Statutory Option with regard to which such Supplemental Bonus was granted. A Supplemental Bonus shall not exceed the amount necessary to reimburse the Participant for the income tax liability incurred by him or her upon the exercise of the Non-Statutory Option, calculated using the maximum combined federal and applicable state income tax rates then in effect and taking into account the tax liability arising from the Participant's receipt of the Supplemental Bonus. 10 B. Restricted Stock Awards. The Committee, either at such time as the restrictions with respect to a Restricted Stock Award lapse or a Section 83(b) election is made under the Code by the Participant with respect to shares issued in connection with a Restricted Stock Award, may provide for a Supplemental Bonus from the Company or a Subsidiary. Such Supplemental Bonus shall be payable in cash and shall not exceed the amount necessary to reimburse the Participant for the income tax liability incurred by him or her with respect to shares issued in connection with a Restricted Stock Award, calculated using the maximum combined federal and applicable state income tax rates then in effect and taking into account the tax liability arising from the Participant's receipt of the Supplemental Bonus. ARTICLE X TERMINATION OF SERVICE A. Incentive Stock Options. The following provisions shall govern the exercise of any Incentive Stock Options held by any Employee whose employment is terminated: 1. If the Optionee's employment with the Company is terminated for any reason other than such Optionee's death, disability or retirement, all Incentive Stock Options held by the Optionee shall terminate on the date and at the time the Optionee's employment terminates, unless the Committee expressly provides in the terms of the Optionee's Stock Option Agreement that such Stock Options shall remain exercisable, to the extent vested on such termination date, for a period of three (3) months following such termination of employment. 2. If the Optionee's employment with the Company is terminated because of such Optionee's death or disability within the meaning of Section 22(e)(3) of the Code, all Incentive Stock Options held by the Optionee shall become immediately exercisable and shall be exercisable for a period of twelve (12) months following such termination of employment. 3. In the event Optionee's employment is terminated due to retirement, all Incentive Stock Options held by the Optionee shall remain exercisable, to the extent such Stock Options were exercisable on the date the Optionee's employment terminated, for a period of three (3) months following such termination of employment. 4. In no event may any Incentive Stock Option remain exercisable after the expiration of the Term of the Stock Option. Upon the expiration of any three (3) or twelve (12) month exercise period, as applicable, or, if earlier, upon the expiration of the Term of the Stock Option, the Stock Option shall terminate and shall cease to be outstanding for any shares for which the Stock Option has not been exercised. B. Non-Statutory Options. The following provisions shall govern the exercise of any Non-Statutory Options: 11 1. If the Optionee's employment, service on the Board or consultancy is terminated for any reason other than such Optionee's death, disability or retirement, all Non-Statutory Options held by the Optionee shall terminate on the date of such termination, unless the Committee expressly provides in the terms of the Optionee's Stock Option Agreement, that such Stock Options shall remain exercisable, to the extent vested on such termination date, for a specified period following such termination. 2. If the Optionee's employment, service on the Board or consultancy is terminated because of such Optionee's death or disability, all Non-Statutory Options held by the Optionee shall become immediately exercisable and shall be exercisable until the expiration of the Term of such Stock Options. 3. If the Optionee's employment service on the Board or consultancy is terminated because of such Optionee's retirement, all Non-Statutory Options held by the Optionee shall remain exercisable, to the extent such Stock Options were exercisable on the date of such termination, until the expiration of the Term of such Stock Options. 4. In no event may any Non-Statutory Option remain exercisable after the expiration of the Term of the Stock Option. Upon the expiration of any specified exercise period following termination of Optionee's employment, service on the Board or consultancy, or, if earlier, upon the expiration of the Term of the Stock Option, the Stock Option shall terminate and shall cease to be outstanding for any shares for which the Stock Option has not been exercised. C. Restricted Stock Awards. In the event of the death or disability (within the meaning of Section 22(e) of the Internal Revenue Code) or retirement of a Participant, all employment period and other restrictions applicable to Restricted Stock Awards then held by him or her shall lapse, and such Awards shall become fully nonforfeitable. Subject to Articles X and XIV, in the event of a Participant's termination of employment for any other reason, any Restricted Stock Awards as to which the employment period or other restrictions have not been satisfied shall be forfeited. ARTICLE XI TRANSFERABILITY OF STOCK OPTIONS During the lifetime of the Optionee, Incentive Stock Options shall be exercisable only by the Optionee and shall not be assignable or transferable. In the event of the Optionee's death prior to the end of the Term, any Stock Option may be exercised by the personal representative of the Optionee's estate, or by the person(s) to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. Upon the prior written consent of the Board and subject to any conditions associated with such consent, a Non-Statutory Option may be assigned in whole or in part during the 12 Optionee's lifetime to one or more members of the Optionee's immediate family (as that term is defined in Rule 16a-1(e) of the Exchange Act) or to a trust established exclusively for one or more such family members. In addition, the Board, in its sole discretion, may allow a Non-Statutory Option to be assigned in other circumstances deemed appropriate. The terms applicable to the assigned portion shall be the same as those in effect for the Stock Option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Committee may deem appropriate. Notwithstanding any assignment or transfer of a Stock Option, in no event may any Stock Option remain exercisable after the expiration of the Term of the Stock Option. ARTICLE XII STOCKHOLDER RIGHTS The holder of a Stock Option shall have no stockholder rights with respect to the shares subject to the Stock Option until such person shall have exercised the Stock Option, paid the Option Price and become a holder of record of the purchased shares of Common Stock. ARTICLE XIII ACCELERATION OF VESTING The Committee may, at any time in its sole discretion, accelerate the vesting of any Award made pursuant to this Plan by giving written notice to the Participant. Upon receipt of such notice, the Participant and the Company shall amend the agreement relating to the Award to reflect the new vesting schedule. The acceleration of the exercise period of an Award shall not affect the expiration date of such Award. ARTICLE XIV CHANGE IN CONTROL In the event of a Change in Control of the Company, all Awards outstanding under the Plan as of the day before the consummation of such Change in Control shall automatically accelerate for all purposes under this Plan so that each Stock Option shall become fully exercisable with respect to the total number of shares subject to such Stock Option and may be exercised for any or all of those shares as fully-vested shares of Common Stock as of such date, without regard to the conditions expressed in the agreements relating to such Stock Option, and the restrictions on each Restricted Stock Award shall lapse and such shares of Restricted Stock shall no longer be subject to forfeiture. 13 ARTICLE XV CANCELLATION AND REGRANT OF OPTIONS The Committee shall have the authority, at any and from time to time, with the consent of the affected Optionees, to effect the cancellation of any or all outstanding Stock Options and/or any Restricted Stock Awards and grant in substitution new Stock Options and/or Restricted Stock Awards covering the same or different number of shares of Common Stock. In the case of such a regrant of a Stock Option, the Option Price shall be set in accordance with Article VII on the new Date of Grant. ARTICLE XVI FINANCING The Committee may, in its sole discretion, authorize the Company to make a loan to a Participant in connection with the exercise of a Stock Option, and may authorize the Company to arrange or guaranty loans to a Participant by a third party in connection with the exercise of a Stock Option. ARTICLE XVII TAX WITHHOLDING A. Tax Withholding. The Company's obligation to deliver shares of Common Stock upon the exercise of Stock Options under the Plan shall be subject to the satisfaction of all applicable federal, state and local income and employment tax withholding requirements. B. Surrender of Shares. The Committee may, in its discretion, provide any or all holders of Non-Statutory Options under the Discretionary Stock Option Grant Program with the right to use shares of Common Stock in satisfaction of all or part of the taxes incurred by such holders in connection with the exercise of such Stock Options. Such right may be provided to any such holder in either or both of the following formats: 1. The election to have the Company withhold, from the shares of Common Stock otherwise issuable upon the exercise of such Non-Statutory Option, a portion of those shares with an aggregate Fair Market Value less than or equal to the amount of taxes due as designated by such holder; or 2. The election to deliver to the Company, at the time the Non-Statutory Option is exercised, one or more shares of Common Stock previously acquired by such holder with an aggregate Fair Market Value less than or equal to the amount of taxes due as designated by such holder. 14 ARTICLE XVIII EFFECTIVE DATE AND TERM OF THE PLAN This Plan shall become effective on the Plan Effective Date. This Plan shall terminate upon the earliest of (i) ten (10) years after the Plan Effective Date or (ii) the termination of all outstanding Awards in connection with a Change in Control. Upon such plan termination, all outstanding Awards shall thereafter continue to have force and effect in accordance with the provisions of the documents evidencing such Awards. ARTICLE XIX AMENDMENT OF THE PLAN A. The Incentive Plan Committee shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects, unless stockholder approval of such amendments or modifications is required under applicable law. No such amendment or modification shall adversely affect the rights and obligations with respect to Awards outstanding under the Plan at the time of such amendment or modification, unless the Participant consents to such amendment or modification. B. Stock Options in excess of the number of shares of Common Stock then available for issuance may be granted under this Plan, provided any excess shares actually issued under this Plan shall be held in escrow until such further action, necessary to approve a sufficient increase in the number of shares available for issuance under the Plan, is taken. If such further action is not obtained within 12 months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding, and (ii) the Company shall promptly refund to the Optionees the exercise price paid for any excess shares issued under the Plan and held in escrow, together with interest for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding. If stockholder approval of a sufficient increase in the number of shares subject to the Plan does not occur within 12 months of the grant of any Stock Option intended to be an Incentive Stock Option which is granted pursuant to this Article XIX.B, such Stock Option shall be deemed to be a Non-Statutory Option. ARTICLE XX REGULATORY APPROVALS The implementation of the Plan, the granting of any Award under the Plan and the issuance of any shares of Common Stock under any Award shall be subject to the Company's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the Awards granted pursuant to the Plan and the shares of Common Stock issued pursuant to any Award under the Plan. No Stock Option shall be exercisable, no shares of Common Stock or other assets shall be issued or delivered under the Plan, and no transfer of any 15 Non-Statutory Option shall be approved by the Committee, unless and until there shall have been compliance with (i) all applicable requirements of Federal and state securities laws, if applicable, including the filing and effectiveness of a registration statement on Form S-8 under the Securities Act of 1933, as amended, covering the shares of Common Stock issuable under the Plan, and (ii) all applicable listing requirements of any stock exchange or securities market on which the shares of Common Stock are listed or traded. ARTICLE XXI NO EMPLOYMENT/SERVICE RIGHTS Nothing in this Plan shall confer upon any Participant any right to continue in service for any period or specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Subsidiary employing or retaining such person) or of the Participant, which rights are hereby expressly reserved by each, to terminate such person's service at any time for any reason, with or without Cause. 16 EX-10.4 3 EXECUTIVE EMPLOYMENT AGREEMENT - ANTENUCCI Addendum Executive Employment Agreement This addendum is a supplement to the Employment Contract between DCX, Inc. (the "Company") and John C. Antenucci (the "Executive") dated July 28, 1997. Pursuant to Paragraph 3 (a) Base Salary, the minimum annual base salary payable to the Executive upon commencement of this Agreement shall be $175,000. This addendum further stipulates that the Company will, within 5 business days of the effective date of the Articles of Merger make a single and non refundable payment of $50,000 to the Executive as an advance against the first year's compensation related to his duties as President and Vice-Chairman of the Company. The advance payment will be charged to the Company and the remainder of the first year's Base Salary will be paid by and charged against PlanGraphics, Inc., a subsidiary of the Company. The remainder payments will be made to the Executive pursuant to PlanGraphics' standard payroll practices compensating him for his duties as President and Chief Executive Officer. All other terms and conditions and conditions of the Employment are affirmed. Date: September 22, 1997 For DCX, Inc. Executive Stephen Carreker John C. Antenucci July 17, 1997 Executive Employment Agreement This agreement (the "Agreement") is made effective September 22, 1997, between DCX, Inc. ("DCXI" or the "Company") and John C. Antenucci (the "Executive"). A. Executive is to be employed as President and Vice-Chairman of DCXI and Chief Executive Officer and President of PlanGraphics, has previously rendered valuable services in operating PlanGraphics Inc., possesses valuable experience and has acquired valuable background in and knowledge of the Geographic Information System and related industries. B. DCXI desires to secure the service of Executive, and Executive desires to serve as President of DCXI and Vice-Chairman and as Chief Executive Officer and President of PlanGraphics or their respective successors. In consideration of the foregoing recitals and the agreements set forth herein, DCXI and Executive agree as follows: 1. TERM DCXI shall employ Executive and Executive accepts such employment for a term beginning on the date of this Agreement and ending June 30, 2000, upon the terms and conditions set forth herein, unless earlier terminated in accordance with the provisions herein. Notwithstanding the foregoing, if the Agreement shall not have been terminated in accordance with the provisions herein on or before June 30, 2000, the remaining term of the Agreement shall be extended such that at each and every moment of time thereafter, the remaining term shall be three years unless (a) the Agreement is terminated earlier in accordance with the provisions herein, or (b) on or after December 31, 1999, the Board of Directors notifies Executive in writing of its determination to have the date of this Agreement expire six months from the date of such notification. 2. DEFINITIONS For purposes of this Agreement, the following terms shall have the meaning set forth in this paragraph 2: a. "Base Compensation" shall mean an amount per annum equal to the sum of (i) the annual base salary in effect for Executive immediately preceding termination of employment (excluding any reduction in base salary made in breach of this Agreement, (ii) an amount equal to the product of (A) and (B), where (A) equals the cumulative cash bonus paid to Executive over the three most recently completed calendar years prior to termination (including any bonus amounts deferred by Executive under any DCXI deferred compensation plan or arrangement) divided by the cumulative base salary paid to Executive over the same three year period (including any base salary deferred by Executive and where (B) equals the amount set forth in 2.a. (i) above, (iii) continued participation in all basic and supplemental life, accident, disability, and other Company-sponsored insurance benefits provided to Executive immediately preceding termination (or, it continued participation in one or more of these benefits is not possible, benefits substantially similar to those which Executive would have been entitled to if he had continued as an employee of the Company at the same compensation level in effect immediately prior to termination), and (iv) continuance of vesting and benefit accrual under any Company-sponsored basic and supplemental retirement programs in effect for Executive immediately prior to termination (or, if continued participation in such programs is not possible, benefits substantially similar to those which executive would have been entitled to if he had continued as an employee of the Company at the same compensation level immediately prior to termination). b. "Board" means the Board of Directors of the Company. c. "Cause" shall mean (1) willful refusal by Executive to follow a lawful written demand of the Board, (ii) Executive's willful and continued failure to perform his duties under this Agreement (except due to Executive's incapacity due to physical or mental illness) after a written demand is delivered to Executive by the Board specifically identifying the manner in which the Board believes that Executive has failed to perform his duties, (iii) Executive's willful engagement in conduct materially injurious to the Company, or (iv) Executive's conviction for any felony involving moral turpitude. For purpose of clauses (I), (ii) or (iii) of this definition, no act, or failure to act on Executive's part shall be deemed "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's act, was in the best interests of the Company. d. "Constructive Termination" shall mean Executive's voluntary termination of employment within ninety (90) days following the occurrence of one or more of the following events, unless such event is approved in writing by Executive in advance of such event: (i) A failure by the Company to abide by any part of this Agreement that is not remedied within ten (10) business days of notification by Executive of such failure, including any violation of Executive's rights as described in Section 3 of this Agreement unless such rights are replaced by alternative rights of approximately equal value; (ii) A reduction in Executive's title or responsibilities below President of DCXI or its successors and Chief Operating Officer and President of PlanGraphics or its successors; and/or (iii) A relocation of Executive's primary place of business more than fifty (50) miles from its location as of the date of this Agreement. e. "Disability" shall be deemed to have occurred if Executive makes application for disability benefits under any Company-sponsored long-term disability program covering Executive and qualifies for such benefits. f. "Retirement" shall mean Executive's termination of service with the Company in accordance with the provisions of any Company retirement plan or the Company's 401K Retirement Savings Plan in which the Executive is eligible to participate. g. "[Exchange Value]" shall mean the bid price of DCXI stock on the date the PlanGraphics' Board of Directors recommends approval of the Exchange Agreement to the shareholders of PlanGraphics, Inc. 3. EXECUTIVE'S RIGHTS REGARDING BASE SALARY, BONUS AND OTHER BENEFITS WHILE EMPLOYED BY THE COMPANY a. Base Salary. The minimum annual base salary payable to Executive upon commencement of this Agreement shall be $175,000. The Board or its Executive Compensation Committee of the Board (if one is designated) will review the Executive's base salary at least annually to determine the amount of any increase. Upon any such increase in Executive's base salary, such increased rate shall hereafter constitute Executive's minimum annual base salary for all purposes of this Agreement, except that the Company may reduce Executive's annual base Salary during any year by not more than 10% below the base salary in effect at the beginning of the year as part of any general salary reduction which applies to all officers of the Company and its subsidiaries (if any). b. Incentive and Performance Bonus. In recognition of the considerable challenges accepted by him, Executive shall receive an Incentive Bonus consisting of a stock option grant of 300,000 shares of the Company's common stock fully vested and priced at the [Exchange Value]. In addition Executive shall receive a stock option grant of 225,000 shares of the Company's common stock also priced at the [Exchange Value], and vesting in accordance with the appropriate portions of the Performance Bonus schedule delineated below (the "Performance Options"). Executive shall, as provided herein, and subject to paragraph (i) and (ii), below, receive a Performance Bonus for: (i) The Company's fiscal year ending September 30, 1997, equal to: Five percent (5%) of base salary if PlanGraphics achieves net income of one hundred thousand dollars ($100,000) or more. Executive shall receive an additional bonus of ten percent (10%) of base salary if the average closing bid price for the last 20 business days on NASDAQ of DCXI ending September 30, 1997, is equal to or exceeds the [Exchange Value], plus $1.35. Further, if the revenue of PlanGraphics exceeds $15.0 million on September 30, 1997, or the annualized revenue of the Company considering acquisitions that may be made between the effective date of this Agreement and September 30, 1997 exceeds $15 million, the Executive shall receive an additional bonus equal to 0.75% of the amount of revenue which exceeds $15.0 million. (ii) The Company's fiscal years ending September 30, 1998 and later. An amount equal to 2.0% of that portion of the net income of the Company for each fiscal year in excess of the amount determined by multiplying stockholder's equity for each such fiscal year by .11. For purposes of these calculations of stockholders' equity under this Agreement, stockholder's equity for any fiscal year shall be the average of the four quarterly stockholders' equity figures reported by the Company for that fiscal year. An amount equal to 21% of base salary if the average closing bid price for the 20 business days on NASDAQ (or the closing price if listed on another SEC recognized stock exchange) ending September 30 of such fiscal year exceeds the previous year's 20 day average for the same period by 51% or more. Further, if the consolidated gross revenue of the Company exceeds $20 million by September 30, 1998, the Executive shall be deemed vested in 35 percent of the Performance Options; if in excess of $30 million by September 30, 1999, he will be vested in an additional 35 percent of the Performance Options, and if in excess of $40 million by September 30, 2000, he will be vested in the remaining 30% of the Performance Options. (iii) Each cash Performance Bonus shall be payable either 30 days following the date Company's audited consolidated financial statements for the fiscal year become available or on January 15 following the end of that fiscal year, whichever is later (the "Bonus Payment Date"). In the event that there shall be a combination of the Company with another company, or any other occurrence similar to a combination, and as a result thereof the amount or value of the bonuses payable pursuant to any of the formulae set forth above could reasonably be expected to be significantly affected thereby, appropriate changes will, at the request of either party, be negotiated to establish a substitute formula or formulae satisfactory to both parties. If an acceptable substitute formula(e) cannot be developed, they shall submit such matter to arbitration by a qualified investment banker with at least ten year's experience in corporate finance. Neither party shall have had dealings with such arbitrator during the preceding three years. Executive shall be entitled to receive the bonus provided for in the foregoing paragraphs for each fiscal year during which he is employed hereunder and, in addition, for the next eighteen (18) months after termination of his employment, except that said post-termination bonus coverage shall only extend for twelve (12) months after termination if Executive takes employment (other than as an independent consultant pursuant to paragraph 17) with another company in the same industry within twelve (12) months of termination and shall not apply if Executive has been discharged for cause. Bonus payments shall be in cash or a combination of cash and Restricted Stock or stock options at the discretion of the Executive. Executive shall participate in any key executive long-term incentive program or other executive bonus program which the Board or its Executive Compensation Committee (if any) may define. c. Registration of Performance and Incentive Stock Options. The Company agrees to register with the Securities and Exchange Commission the performance and incentive stock options granted under paragraph (b), above, within 125 days of executing this Agreement. d. Nondilution of Incentive and Performance Options. Options granted with respect to Section c, above, shall be granted to the Executive on a non-diluted basis, such that any increase or decrease in the number of shares of common stock of the Company which occurs during the option period (the time during which the Executive is an employee and the options remain unexercised for any reason) will cause the number of options to be proportionately increased or decreased, commensurate with the change in outstanding shares of the Company. e. Vacation. Executive shall receive four (4) weeks of vacation per year. Unused vacation at the expiration of the Agreement's initial three (3) year period will be paid in cash at a rate equal to the Base Compensation. f. Automobile Allowance. Executive shall receive an unaccountable automobile allowance of $400 per month. g. Relocation Allowance. Executive shall be entitled to certain relocation allowance as may be negotiated by the Company relative to his in the event his primary place of business is subsequently moved in excess of 50 miles from its present location. i. Executive shall be entitled to participate in all perquisites and health and welfare benefits generally available to other executive officers and employees of the Company but at no time shall these be less than the perquisites and health and welfare benefits enjoyed by the Executive on December 31, 1996 during his employment with PlanGraphics. j. Reimbursement. Reimbursement of all reasonable expenses incurred by Executive in connection with performance of his duties upon submission of vouchers. Reasonable expense shall include, but not be limited to, all reasonable out-of-pocket expenses for entertainment, automobile expenses, travel meals, lodging, professional fees, professional dues and the like incurred by Executive in the interest of the Company, subject to such guidelines and policies as may be promulgated by the Company for senior executives or employees. k. Life Insurance. In addition to any coverage required by the Company, Executive shall be provided with a life insurance policy in the amount of $500,000 (provided he can meet the medical conditions for such coverage), payable to such beneficiaries as he shall designate, with an additional $250,000 of accidental death coverage in. 4. EXECUTIVE'S RIGHTS UPON TERMINATION In the event that Executive's employment at DCXI is terminated for any reason other than (a) Death, (b) Disability, (c) Cause, (d) voluntary resignation by Executive not constituting Constructive Termination, or (e) the expiration of the term of his Agreement, DCXI will pay to Executive Base Compensation for a period continuing three (3) years after the date of termination. In addition, DCXI will fully vest all stock options and restricted stock awards previously granted by DCXI to Executive and fully vest and immediately pay to Executive any accrued award earned by Executive under the Performance Bonus Plan(s), above, or any other DCXI Executive incentive plans which may exist at the time of termination and in which the Executive is a participant. Base Compensation payments shall be made when payments would otherwise have been made to Executive if he were still employed by DCXI, except in such cases where a different payment schedule is provided for in other Company-sponsored plans or programs. In the event the Executive's employment at DCXI is terminated for Death, Disability, Cause, voluntary resignation not constituting Constructive Termination, or upon expiration of the term of this Agreement, Executive shall be entitled to all benefits under this Agreement, including base salary, performance and incentive bonuses for eighteen (18) months after such event. Stock options vested to date of termination may be exercised at any time during the eighteen (18) months period following termination and may be exercised by the estate of the Executive in the event of his death during the same time period. Should the Executive exercise his option to terminate his Executive Employment voluntarily after June 30, 2000, the Company shall continue to employ the Executive as an advisor and consultant ("Consulting Employment") for a period of five years. During the period of Consulting Employment, the Executive shall at all reasonable times, to the extent his physical and mental condition permits, be available to consult with and advise the Company's officers, directors, representatives and clients. In addition to all other forms of compensation otherwise conferred in this Agreement, the Company shall pay to the Executive during the period of Consulting Employment, a minimum annual compensation equal to one half of the average annual salary paid to him during the last thirty six month period of his Executive Employment subject to increase from time to time at the discretion of the Company. 5. DESIGNATION OF BENEFICIARIES If Executive should die while receiving Base Compensation payments pursuant to Paragraph 4, the remaining Base Compensation payments which would have been paid to Executive if he had lived shall be paid as designated by Executive on his Company Beneficiary Designation Form. Such payments shall be made at the same time and in the same manner as if the Executive were alive to receive the payments, except in such cases where a different payment schedule is provided, or in other company-sponsored plans or programs. The filing of a new Company Beneficiary Designation Form will cancel all designations previously filed. Any finalized divorce or marriage (other than a common-law marriage) of Executive subsequent to the date of filing of a beneficiary designation shall revoke such designation, unless: (a) In the case of divorce, the previous spouse was not designated as beneficiary, and (b) In the case of marriage, Executive's new spouse had previously been designated as beneficiary. The spouse of a married Executive shall join in any designation of a beneficiary other than the spouse. If Executive fails to designate a beneficiary as provided for above, or if the beneficiary designation is revoked by marriage, divorce, or otherwise without execution of a new designation, then the Company's Board (or its Compensation Comittee if one exists) shall direct the distribution of any benefits under this Agreement to Executive's estate. 6. DUTIES OF EXECUTIVE Executive is to be employed by DCXI as its President and as Vice-Chairman and Chief Executive Officer and President of its subsidiary corporation PlanGraphics. Executive agrees to devote substantially all of his time and energy to the performance of the duties of those positions so long as his employment in that position shall be continued by DCXI or its successors. Notwithstanding the above, Executive shall be permitted to serve as a Director or Trustee of other organizations, provided such service does not prevent Executive from performing his duties under this Agreement. The Company agrees to nominate Executive for election to the Board as a member of the management slate at each annual meeting of stockholders of the Company during his employment hereunder, or at which his class, if such class be designated, comes up for election and shall perform likewise for election to the Board of its subsidiary company, PlanGraphics. 7. MITIGATION AND OFFSET Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking employment or otherwise, nor to offset the amount of any payment provided for in this Agreement by amounts earned as a result of Executive's employment or self-employment during the period he is entitled to such payment. 8. TAX "GROSS-UP" PROVISION If any payments due Executive under this Agreement result in Executive's liability for an excise tax ("parachute tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company will pay to Executive, after deducting any Federal, state or local income tax imposed on the payment, an amount sufficient to fully satisfy the "parachute tax" liability. Such payment shall be made to Executive not later than thirty (30) days prior to the due date of the "parachute tax". 9. SUCCESSORS The rights and duties of a party hereunder shall not be assignable by that party; provided, however, that this Agreement shall be binding upon and insure to the benefit of any successor of DCXI, and any such successor shall be deemed substituted for DCXI under the terms of this Agreement. The term successor as used herein shall include any person, firm, corporation or other business entity which at any time, by merger, purchase or otherwise, acquires all or substantially all of the assets or business of DCXI. This Agreement shall also be binding upon and shall insure to the benefit of Executive, Executive's heirs, executors, administrators and beneficiaries. 10. ENTIRE AGREEMENT With respect to the matters specified herein, this Agreement contains the entire agreement between the parties and supersedes all prior oral and written agreements, understandings and commitments between the parties. This Agreement shall not affect the provisions of any other compensation, retirement or other benefits program of DCXI to which Executive is a party or of which he is a beneficiary. No amendments to this Agreement may be made except through a written document signed by both parties. 11. VALIDITY In the event that any provision of this Agreement is held to be invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of the Agreement. 12. PARAGRAPHS AND OTHER HEADINGS Paragraphs and other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 13. NOTICE Any notice or demand required or permitted to be given under this Agreement shall be made in writing and shall be deemed effective upon the personal delivery thereof is delivered or, if by express delivery service, 24 hours after placing in the control of the express delivery service; or if mailed, 48 hours after having been deposited in the United States mail, postage prepaid, and addressed in the case of DCXI to its then principal place of business, presently 3002 North State Highway 83, Franktown, CO 80116-0569, and in the case of Executive to: John C. Antenucci 112 E. Main Street Frankfort, Kentucky 40601 Either party may change the address to which such notices are to be addressed by giving the other party notice in the manner herein set forth. 14. ATTORNEYS' FEES In any action at law or in equity to enforce any of the provisions or rights under this Agreement, the unsuccessful party to such litigation, as determined by the Court in a final judgment or decree, shall pay the successful party or parties all costs, expenses and reasonable attorneys' fees incurred therein by such party or parties (including without limitation such costs, expenses and fees on any appeals), and if such successful party or parties shall recover judgment in any such action or proceeding, such costs, expenses and attorneys' fees shall be included a part of such judgment. Notwithstanding the foregoing provision, in no event shall the successful party or parties be entitled to recover any amount from the unsuccessful party for costs, expenses and attorneys' fees that exceed the unsuccessful party's costs, expenses and attorneys' fees in connection with the action or proceeding. 15. WITHHOLDING TAXES To the extent required by law, the Company shall withhold from any payments under this Agreement any applicable federal, state or local taxes. 16. INDEMNIFICATION So long as Executive is not found by a court of law to be guilty of a willful and material breach of this Agreement, or to be guilty of gross misconduct, he shall be indemnified form and against any and all losses, liability, claims and expenses, damages, or causes of action, proceeding or investigations, or threats thereof (including reasonable attorney fees and expenses of counsel satisfactory to and approved by Executive) incurred by Executive, arising out of, in connection with, or based upon Executive's services and the performance of his duties pursuant to this Employment Agreement, or any other matter contemplated by this Employment Agreement, whether or not resulting in any such liability subject to such limitations as are provided by the Colorado Business Corporations Act; and Executive shall be reimbursed by the Company as an when incurred for any reasonable legal and other damage, liability, action proceeding, investigation or threat thereof, or producing evidence, producing documents or taking any other action in respect thereto (whether or not Executive is a defendant in or target of such action, proceeding or investigation), subject to such limitations as are provided by the Colorado Business Corporations Act. 17. TRADE SECRETS AND CONFIDENTIAL INFORMATION As a material inducement to the Company to enter into this Agreement and to pay Executive the compensation and benefits stated in Section 3, Executive covenants and agrees that during his employment by the Company and for a period equal to any period thereafter for which he receives payments as contemplated in Section 4, above, Executive shall not, directly or indirectly, use, disseminate, or disclose for any purposes other than for the purposes of the Company's business, any of the Company's confidential information or trade secrets, unless such disclosure is compelled in a judicial proceeding. Upon termination of this employment, all documents, records, notebooks, and similar repositories of records containing information relating to any trade secrets or confidential information then in the Executive's possession or control, whether prepared by him or by others, shall be left with the Company or returned to the Company upon its request. This section shall not restrict the Executive from using his General Knowledge (the ideas, concepts, know-how and other industry information which is part of his common knowledge) from pursuit of livelihood subsequent to any termination of this Agreement. During the term of this Agreement and for a period of one (l) year following the termination of the Agreement, the Executive shall not pursue business opportunities with or serve as a Consultant or member of the staff in any capacity to any of the following firms: the Convergent Group, UGC Consulting, EMA, Berger Associates, firms generally known as "data conversion firms" and firms specializing in geographic information system software products and any other companies with whom the Company or PlanGraphics has had a prime or subcontractor role during the prior year of employment, without the prior written permission of the Company. For one year following termination of employment, the Executive confirms that he will not, without prior written consent, perform work that PlanGraphics holds in backlog or is pursing at the time of termination, whether by independent contract, through a competitor, or by direct employment with client or prospect. During the period of Consulting Employment, the Executive shall be permitted to engage in any business practice so long as such business practice is not in competition with the Company. The parties agree that the Executive's performance of services for his own account, his writing, teaching or consulting, his employment by any company other than a competitor and his employment by a government agency shall not be considered competition with the Company. This covenant of non-disclosure has been negotiated and agreed to by and between the Company and Executive with the full knowledge of and pursuant to the Colorado Trade Secrets Act and is deemed by both parties to be fair and reasonable. 18. APPLICABLE LAW AND DISPUTE RESOLUTION To the full extent controllable by stipulation of the parties, this Agreement shall be interpreted under Colorado law. All disputes arising out of this Agreement will be settled by binding arbitration in Denver, Colorado, with a representative of the American Arbitration Association. IN WITNESS THEREOF, DCX, INC., has caused this Agreement to be executed by its duly authorized representatives and Executive has affixed his signature, with effect from the date first above written. Date: For DCX, Inc. Executive Stephen Carreker President/CEO John C. Antenucci EX-10.5 4 EXECUTIVE EMPLOYMENT AGREEMENT - REED Executive Employment Agreement This agreement (the "Agreement") is made effective September 22, 1997, between DCX, Inc. ("DCXI" or the "Company") and J. Gary Reed (the "Executive"). A. Executive is to be employed as Chief Operating Officer of PlanGraphics, Inc. a subsidiary of the Company, has previously rendered valuable services in operating PlanGraphics Inc., possesses valuable experience and has acquired valuable background in and knowledge of the Geographic Information System and related industries. B. DCXI desires to secure the service of Executive, and Executive desires to serve as Chief Operating Officer of PlanGraphics or its respective successors. In consideration of the foregoing recitals and the agreements set forth herein, DCXI and Executive agree as follows: 1. TERM DCXI shall employ Executive and Executive accepts such employment for a term beginning on the date of this Agreement and ending June 30, 2000, upon the terms and conditions set forth herein, unless earlier terminated in accordance with the provisions herein. Notwithstanding the foregoing, if the Agreement shall not have been terminated in accordance with the provisions herein on or before June 30, 2000, the remaining term of the Agreement shall be extended such that at each and every moment of time thereafter, the remaining term shall be three years unless (a) the Agreement is terminated earlier in accordance with the provisions herein, or (b) on or after December 31, 1999, the Board of Directors notifies Executive in writing of its determination to have the date of this Agreement expire three months from the date of such notification. 2. DEFINITIONS For purposes of this Agreement, the following terms shall have the meaning set forth in this paragraph 2: a. "Base Compensation" shall mean an amount per annum equal to the sum of (i) the annual base salary in effect for Executive immediately preceding termination of employment (excluding any reduction in base salary made in breach of this Agreement, (ii) an amount equal to the product of (A) and (B), where (A) equals the cumulative cash bonus paid to Executive over the three most recently completed calendar years prior to termination (including any bonus amounts deferred by Executive under any DCXI deferred compensation plan or arrangement) divided by the cumulative base salary paid to Executive over the same three year period (including any base salary deferred by Executive and where (B) equals the amount set forth in 2.a. (i) above, (iii) continued participation in all basic and supplemental life, accident, disability, and other Company-sponsored insurance benefits provided to Executive immediately preceding termination (or, it continued participation in one or more of these benefits is not possible, benefits substantially similar to those which Executive would have been entitled to if he had continued as an employee of the Company at the same compensation level in effect immediately prior to termination), and (iv) continuance of vesting and benefit accrual under any Company-sponsored basic and supplemental retirement programs in effect for Executive immediately prior to termination (or, if continued participation in such programs is not possible, benefits substantially similar to those which executive would have been entitled to if he had continued as an employee of the Company at the same compensation level immediately prior to termination). b. "Board" means the Board of Directors of the Company. c. "Cause" shall mean (1) willful refusal by Executive to follow a lawful written demand of the Board, (ii) Executive's willful and continued failure to perform his duties under this Agreement (except due to Executive's incapacity due to physical or mental illness) after a written demand is delivered to Executive by the Board specifically identifying the manner in which the Board believes that Executive has failed to perform his duties, (iii) Executive's willful engagement in conduct materially injurious to the Company, or (iv) Executive's conviction for any felony involving moral turpitude. For purpose of clauses (I), (ii) or (iii) of this definition, no act, or failure to act on Executive's part shall be deemed "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's act, was in the best interests of the Company. d. "Constructive Termination" shall mean Executive's voluntary termination of employment within ninety (90) days following the occurrence of one or more of the following events, unless such event is approved in writing by Executive in advance of such event: (i) A failure by the Company to abide by any part of this Agreement that is not remedied within ten (10) business days of notification by Executive of such failure, including any violation of Executive's rights as described in Section 3 of this Agreement unless such rights are replaced by alternative rights of approximately equal value; (ii) A reduction in Executive's title or responsibilities Chief Operating Officer of PlanGraphics or its successors; and/or (iii) A relocation of Executive's primary place of business more than fifty (50) miles from its location as of the date of this Agreement. 2 e. "Disability" shall be deemed to have occurred if Executive makes application for disability benefits under any Company-sponsored long-term disability program covering Executive and qualifies for such benefits. b. "Retirement" shall mean Executive's termination of service with the Company in accordance with the provisions of any Company retirement plan or the Company's 401K Retirement Savings Plan in which the Executive is eligible to participate. f. "Retirement" shall mean Executive's termination of service with the Company in accordance with the provisions of any Company retirement plan or the Company's 401K Retirement Savings Plan in which the Executive is eligible to participate. g. "[Exchange Value]" shall mean the bid price of DCXI stock on the date the PlanGraphics' Board of Directors recommends approval of the Exchange Agreement to the shareholders of PlanGraphics, Inc. 3. EXECUTIVE'S RIGHTS REGARDING BASE SALARY, BONUS AND OTHER BENEFITS WHILE EMPLOYED BY THE COMPANY a. Base Salary. The minimum annual base salary payable to Executive upon commencement of this Agreement shall be $115,000. The Board or its Executive Compensation Committee of the Board (if one is designated) will review the Executive's base salary at least annually to determine the amount of any increase. Upon any such increase in Executive's base salary, such increased rate shall hereafter constitute Executive's minimum annual base salary for all purposes of this Agreement, except that the Company may reduce Executive's annual base Salary during any year by not more than 10% below the base salary in effect at the beginning of the year as part of any general salary reduction which applies to all officers of the Company and its subsidiaries (if any). b. Incentive and Performance Bonus. In recognition of the considerable challenges accepted by him, Executive shall receive an Incentive Bonus consisting of a stock option grant of 200,000 shares of the Company's common stock fully vested and priced at the [Exchange Value]. In addition Executive shall receive a stock option grant of 145,000 shares of the Company's common stock also priced at the [Exchange Value], and vesting in accordance with the appropriate portions of the Performance Bonus schedule delineated below (the "Performance Options"). Executive shall, as provided herein, and subject to paragraph (i) and (ii), below, receive a Performance Bonus for: (i) The Company's fiscal year ending September 30, 1997, equal to: Five percent (5%) of base salary if PlanGraphics achieves net income of one hundred thousand dollars ($100,000) or more. Executive shall receive an additional bonus of ten percent (10%) of base salary if the average closing bid price for the last 20 business days on NASDAQ of DCXI ending September 30, 1997, is equal to or exceeds the [Exchange Value], plus $1.35. 3 Further, if the revenue of PlanGraphics exceeds $10.0 million on September 30, 1997, or the annualized revenue of the Company considering acquisitions that may be made between the effective date of this Agreement and September 30, 1997 exceeds $10 million, the Executive shall receive an additional bonus equal to 0.75% of the amount of revenue which exceeds $10.0 million. (ii) The Company's fiscal years ending September 30, 1998 and later. An amount equal to 2.0% of that portion of the net income of the Company for each fiscal year in excess of the amount determined by multiplying stockholder's equity for each such fiscal year by .11. For purposes of these calculations of stockholders' equity under this Agreement, stockholder's equity for any fiscal year shall be the average of the four quarterly stockholders' equity figures reported by the Company for that fiscal year. An amount equal to 21% of base salary if the average closing bid price for the 20 business days on NASDAQ (or the closing price if listed on another SEC recognized stock exchange) ending September 30 of such fiscal year exceeds the previous year's 20 day average for the same period by 51% or more. Further, if the consolidated gross revenue of the Company exceeds $20 million by September 30, 1998 and the consolidated gross revenue of PlanGraphics exceeds 13.2 million, the Executive shall be deemed vested in 35 percent of the Performance Options; if the consolidated gross revenue of the Company exceeds $30 million by September 30, 1999 and the consolidated gross revenue of PlanGraphics exceeds 16.5 million, he will be vested in an additional 35 percent of the Performance Options, and if the consolidated gross revenue of the Company exceeds $40 million by September 30, 2000 and the consolidated gross revenue of PlanGraphics exceeds 20.6 million, he will be vested in the remaining 30% of the Performance Options. (iii) Each cash Performance Bonus shall be payable either 30 days following the date Company's audited consolidated financial statements for the fiscal year become available or on January 15 following the end of that fiscal year, whichever is later (the "Bonus Payment Date"). In the event that there shall be a combination of the Company with another company, or any other occurrence similar to a combination, and as a result thereof the amount or value of the bonuses payable pursuant to any of the formulae set forth above could reasonably be expected to be significantly affected thereby, appropriate changes will, at the request of either party, 4 be negotiated to establish a substitute formula or formulae satisfactory to both parties. If an acceptable substitute formula(e) cannot be developed, they shall submit such matter to arbitration by a qualified investment banker with at least ten year's experience in corporate finance. Neither party shall have had dealings with such arbitrator during the preceding three years. Executive shall be entitled to receive the bonus provided for in the foregoing paragraphs for each fiscal year during which he is employed hereunder and, in addition, for the next eighteen (18) months after termination of his employment, except that said post-termination bonus coverage shall only extend for twelve (12) months after termination if Executive takes employment (other than as an independent consultant pursuant to paragraph 17) with another company in the same industry within twelve (12) months of termination and shall not apply if Executive has been discharged for cause. Bonus payments shall be in cash or a combination of cash and Restricted Stock or stock options at the discretion of the Executive. Executive shall participate in any key executive long-term incentive program or other executive bonus program which the Board or its Executive Compensation Committee (if any) may define. c. Registration of Performance and Incentive Stock Options. The Company agrees to register with the Securities and Exchange Commission the performance and incentive stock options granted under paragraph b, above, within 125 days of executing this Agreement. d. Nondilution of Incentive and Performance Options. Options granted with respect to Section c, above, shall be granted to the Executive on a non-diluted basis, such that any increase or decrease in the number of shares of common stock of the Company which occurs during the option period (the time during which the Executive is an employee and the options remain unexercised for any reason) will cause the number of options to be proportionately increased or decreased, commensurate with the change in outstanding shares of the Company. e. Vacation. Executive shall receive an annual vacation consistent with the policies and practices of PlanGraphics, Inc. Unused vacation at the expiration of the Agreement's initial three (3) year period will be paid in cash at a rate equal to the Base Compensation. f. Automobile Allowance. Executive shall receive an unaccountable automobile allowance of $200 per month. g. Relocation Allowance. Executive shall be entitled to certain relocation allowance as may be negotiated by the Company relative to his in the event his primary place of business is subsequently moved in excess of 50 miles from its present location. 5 i. Executive shall be entitled to participate in all perquisites and health and welfare benefits generally available to other executive officers and employees of the Company but at no time shall these be less than the perquisites and health and welfare benefits enjoyed by the Executive on December 31, 1996 during his employment with PlanGraphics. j. Reimbursement. Reimbursement of all reasonable expenses incurred by Executive in connection with performance of his duties upon submission of vouchers. Reasonable expense shall include, but not be limited to, all reasonable out-of-pocket expenses for entertainment, automobile expenses, travel meals, lodging, professional fees, professional dues and the like incurred by Executive in the interest of the Company, subject to such guidelines and policies as may be promulgated by the Company for senior executives or employees. k. Life Insurance. In addition to any coverage required by the Company, Executive shall be provided with a life insurance policy in the amount of $250,000 (provided he can meet the medical conditions for such coverage), payable to such beneficiaries as he shall designate, with an additional $100,000 of accidental death coverage in. 4. EXECUTIVE'S RIGHTS UPON TERMINATION In the event that Executive's employment at DCXI is terminated for any reason other than (a) Death, (b) Disability, (c) Cause, (d) voluntary resignation by Executive not constituting Constructive Termination, or (e) the expiration of the term of his Agreement, DCXI will pay to Executive Base Compensation for a period continuing three (3) years after the date of termination. In addition, DCXI will fully vest all stock options and restricted stock awards previously granted by DCXI to Executive and fully vest and immediately pay to Executive any accrued award earned by Executive under the Performance Bonus Plan(s), above, or any other DCXI Executive incentive plans which may exist at the time of termination and in which the Executive is a participant. Base Compensation payments shall be made when payments would otherwise have been made to Executive if he were still employed by DCXI, except in such cases where a different payment schedule is provided for in other Company-sponsored plans or programs. In the event the Executive's employment at DCXI is terminated for Death, Disability, Cause, voluntary resignation not constituting Constructive Termination, or upon expiration of the term of this Agreement, Executive shall be entitled to all benefits under this Agreement, including base salary, performance and incentive bonuses for eighteen (18) months after such event. Stock options vested to date of termination may be exercised at any time during the eighteen (18) months period following termination and may be exercised by the estate of the Executive in the event of his death during the same time period. 6 Should the Executive exercise his option to terminate his Executive Employment voluntarily after June 30, 2000, the Company shall continue to employ the Executive as an advisor and consultant ("Consulting Employment") for a period of three years. During the period of Consulting Employment, the Executive shall at all reasonable times, to the extent his physical and mental condition permits, be available to consult with and advise the Company's officers, directors, representatives and clients. In addition to all other forms of compensation otherwise conferred in this Agreement, the Company shall pay to the Executive during the period of Consulting Employment, a minimum annual compensation equal to one half of the average annual salary paid to him during the last thirty six month period of his Executive Employment subject to increase from time to time at the discretion of the Company. 5. DESIGNATION OF BENEFICIARIES If Executive should die while receiving Base Compensation payments pursuant to Paragraph 4, the remaining Base Compensation payments which would have been paid to Executive if he had lived shall be paid as designated by Executive on his Company Beneficiary Designation Form. Such payments shall be made at the same time and in the same manner as if the Executive were alive to receive the payments, except in such cases where a different payment schedule is provided, or in other company-sponsored plans or programs. The filing of a new Company Beneficiary Designation Form will cancel all designations previously filed. Any finalized divorce or marriage (other than a common-law marriage) of Executive subsequent to the date of filing of a beneficiary designation shall revoke such designation, unless: (a) In the case of divorce, the previous spouse was not designated as beneficiary, and (b) In the case of marriage, Executive's new spouse had previously been designated as beneficiary. The spouse of a married Executive shall join in any designation of a beneficiary other than the spouse. If Executive fails to designate a beneficiary as provided for above, or if the beneficiary designation is revoked by marriage, divorce, or otherwise without execution of a new designation, then the Company's Board (or its Compensation Comittee if one exists) shall direct the distribution of any benefits under this Agreement to Executive's estate. 6. DUTIES OF EXECUTIVE Executive is to be employed by DCXI as the Chief Operating of its subsidiary corporation PlanGraphics. Executive agrees to devote substantially all of his time and energy to the performance of the duties of those positions so long as his employment in that position shall be continued by DCXI or its 7 successors. Notwithstanding the above, Executive shall be permitted to serve as a Director or Trustee of other organizations, provided such service does not prevent Executive from performing his duties under this Agreement. The Company agrees to nominate Executive for election to the Board as a member of the management slate at each annual meeting of stockholders of the Company during his employment hereunder, or at which his class, if such class be designated, comes up for election and shall perform likewise for election to the Board of its subsidiary company, PlanGraphics. 7. MITIGATION AND OFFSET Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking employment or otherwise, nor to offset the amount of any payment provided for in this Agreement by amounts earned as a result of Executive's employment or self-employment during the period he is entitled to such payment. 8. TAX "GROSS-UP" PROVISION If any payments due Executive under this Agreement result in Executive's liability for an excise tax ("parachute tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company will pay to Executive, after deducting any Federal, state or local income tax imposed on the payment, an amount sufficient to fully satisfy the "parachute tax" liability. Such payment shall be made to Executive not later than thirty (30) days prior to the due date of the "parachute tax". 9. SUCCESSORS The rights and duties of a party hereunder shall not be assignable by that party; provided, however, that this Agreement shall be binding upon and insure to the benefit of any successor of DCXI, and any such successor shall be deemed substituted for DCXI under the terms of this Agreement. The term successor as used herein shall include any person, firm, corporation or other business entity which at any time, by merger, purchase or otherwise, acquires all or substantially all of the assets or business of DCXI. This Agreement shall also be binding upon and shall insure to the benefit of Executive, Executive's heirs, executors, administrators and beneficiaries. 10. ENTIRE AGREEMENT With respect to the matters specified herein, this Agreement contains the entire agreement between the parties and supersedes all prior oral and written agreements, understandings and commitments between the parties. This Agreement shall not affect the provisions of any other compensation, retirement or other 8 benefits program of DCXI to which Executive is a party or of which he is a beneficiary. No amendments to this Agreement may be made except through a written document signed by both parties. 11. VALIDITY In the event that any provision of this Agreement is held to be invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of the Agreement. 12. PARAGRAPHS AND OTHER HEADINGS Paragraphs and other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 13. NOTICE Any notice or demand required or permitted to be given under this Agreement shall be made in writing and shall be deemed effective upon the personal delivery thereof is delivered or, if by express delivery service, 24 hours after placing in the control of the express delivery service; or if mailed, 48 hours after having been deposited in the United States mail, postage prepaid, and addressed in the case of DCXI to its then principal place of business, presently 3002 North State Highway 83, Franktown, CO 80116-0569, and in the case of Executive to: J. Gary Reed 112 E. Main Street Frankfort, Kentucky 40601 Either party may change the address to which such notices are to be addressed by giving the other party notice in the manner herein set forth. 14. ATTORNEYS' FEES In any action at law or in equity to enforce any of the provisions or rights under this Agreement, the unsuccessful party to such litigation, as determined by the Court in a final judgment or decree, shall pay the successful party or parties all costs, expenses and reasonable attorneys' fees incurred therein by such party or parties (including without limitation such costs, expenses and fees on any appeals), and if such successful party or parties shall recover judgment in any such action or proceeding, such costs, expenses and attorneys' fees shall be included a part of such judgment. Notwithstanding the foregoing provision, in no event shall the successful party or parties be entitled to recover any amount from the unsuccessful party for costs, expenses and attorneys' fees that exceed the unsuccessful party's costs, expenses and attorneys' fees in connection with the action or proceeding. 9 15. WITHHOLDING TAXES To the extent required by law, the Company shall withhold from any payments under this Agreement any applicable federal, state or local taxes. 16. INDEMNIFICATION So long as Executive is not found by a court of law to be guilty of a willful and material breach of this Agreement, or to be guilty of gross misconduct, he shall be indemnified form and against any and all losses, liability, claims and expenses, damages, or causes of action, proceeding or investigations, or threats thereof (including reasonable attorney fees and expenses of counsel satisfactory to and approved by Executive) incurred by Executive, arising out of, in connection with, or based upon Executive's services and the performance of his duties pursuant to this Employment Agreement, or any other matter contemplated by this Employment Agreement, whether or not resulting in any such liability subject to such limitations as are provided by the Colorado Business Corporations Act; and Executive shall be reimbursed by the Company as an when incurred for any reasonable legal and other damage, liability, action proceeding, investigation or threat thereof, or producing evidence, producing documents or taking any other action in respect thereto (whether or not Executive is a defendant in or target of such action, proceeding or investigation), subject to such limitations as are provided by the Colorado Business Corporations Act. 17. TRADE SECRETS AND CONFIDENTIAL INFORMATION As a material inducement to the Company to enter into this Agreement and to pay Executive the compensation and benefits stated in Section 3, Executive covenants and agrees that during his employment by the Company and for a period equal to any period thereafter for which he receives payments as contemplated in Section 4, above, Executive shall not, directly or indirectly, use, disseminate, or disclose for any purposes other than for the purposes of the Company's business, any of the Company's confidential information or trade secrets, unless such disclosure is compelled in a judicial proceeding. Upon termination of this employment, all documents, records, notebooks, and similar repositories of records containing information relating to any trade secrets or confidential information then in the Executive's possession or control, whether prepared by him or by others, shall be left with the Company or returned to the Company upon its request. This section shall not restrict the Executive from using his General Knowledge (the ideas, concepts, know-how and other industry information which is part of his common knowledge) from pursuit of livelihood subsequent to any termination of this Agreement. During the term of this Agreement and for a period of one (l) year following the termination of the Agreement, the Executive shall not pursue business opportunities with or serve as a Consultant or member of the staff in 10 any capacity to any of the following firms: the Convergent Group, UGC Consulting, EMA, Berger Associates, firms generally known as "data conversion firms" and firms specializing in geographic information system software products and any other companies with whom the Company or PlanGraphics has had a prime or subcontractor role during the prior year of employment, without the prior written permission of the Company. For one year following termination of employment, the Executive confirms that he will not, without prior written consent, perform work that PlanGraphics holds in backlog or is pursing at the time of termination, whether by independent contract, through a competitor, or by direct employment with client or prospect. During the period of Consulting Employment, the Executive shall be permitted to engage in any business practice so long as such business practice is not in competition with the Company. The parties agree that the Executive's performance of services for his own account, his writing, teaching or consulting, his employment by any company other than a competitor and his employment by a government agency shall not be considered competition with the Company. This covenant of non-disclosure has been negotiated and agreed to by and between the Company and Executive with the full knowledge of and pursuant to the Colorado Trade Secrets Act and is deemed by both parties to be fair and reasonable. 18. APPLICABLE LAW AND DISPUTE RESOLUTION To the full extent controllable by stipulation of the parties, this Agreement shall be interpreted under Colorado law. All disputes arising out of this Agreement will be settled by binding arbitration in Denver, Colorado, with a representative of the American Arbitration Association. IN WITNESS THEREOF, DCX, INC., has caused this Agreement to be executed by its duly authorized representatives and Executive has affixed his signature, with effect from the date first above written. Date: For DCX, Inc. Executive Stephen Carreker President/CEO J. Gary Reed 11 EX-27 5 FINANCIAL DATA SCHEDULE
5 12-MOS SEP-30-1997 SEP-30-1997 582,326 0 3,524,729 188,161 0 4,120,826 201,932 429,597 13,570,800 4,533,865 0 2 0 9,741,501 (3,764,497) 13,570,800 0 71,098 0 1,595,522 (571,359) 0 126,263 (953,065) 0 (953,065) (1,598,313) 0 0 (3,453,644) (.72) (.72) Includes parent Company full year expenses for administration, acquisitions, legal and audit, and investment banking. Includes $892,592 of "deemed" dividend expenses computed on possible conversion of convertible preferred stock.
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