<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Digital Transmission Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
DIGITAL TRANSMISSION SYSTEMS, INC.
3000 Northwoods Parkway, Building 330
Norcross, Georgia 30071
(770) 798-1300
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 13, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Digital Transmission Systems, Inc. (the "Company") will be held at: 3000
Northwoods Parkway, Building 330, Norcross, Georgia, at 9:00 a.m., eastern
standard time, on Tuesday, April 13, 1999 (the "Meeting"), to consider and act
upon:
1. Election of two persons to serve as members of the
Company's Board of Directors;
2. Approval of an amendment to the Company's 1996 Stock
Incentive Plan to increase the number of shares of
Common Stock reserved for issuance by 400,000
shares;
3. Ratification of the selection of KPMG Peat Marwick
as independent public accountants for the Company's
current fiscal year; and
4. Such other business as may properly come before this
special Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 3,
1999 as the record date for the determination of shareholders entitled to
notice of, and to vote at, the meeting.
By Order of the Board of Directors:
/s/ Andres C. Salazar
President & CEO
March 15, 1999
Norcross, Georgia
IMPORTANT
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE MARK,
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE WHICH HAS BEEN
PROVIDED. NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED STATES. IN THE EVENT
YOU ARE ABLE TO ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR
SHARES IN PERSON.
<PAGE> 3
DIGITAL TRANSMISSION SYSTEMS, INC.
3000 Northwoods Parkway, Building 330
Norcross, Georgia 30071
----------------------------
PROXY STATEMENT
----------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
SHAREHOLDERS' MEETING
This Proxy Statement and the enclosed proxy are furnished on behalf of
the Board of Directors of DIGITAL TRANSMISSION SYSTEMS, INC., a Delaware
corporation (the "Company"), for use at the Annual Meeting of Shareholders to
be held on April 13, 1999 at 9:00 o'clock a.m. Eastern Standard Time, or at any
adjournment or postponement thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting. The Annual Meeting will be held at
3000 Northwoods Parkway, Building 330, Norcross, Georgia. This Proxy Statement
and the accompanying Proxy card were first mailed on or about March 17, 1999 to
all shareholders entitled to vote at the Annual Meeting.
SHAREHOLDERS ENTITLED TO VOTE
Only holders of record of Common Stock at the close of business on
March 3, 1999 will be entitled to notice of and to vote at the Annual Meeting.
At the close of business on March 3, 1999, the Company had outstanding and
entitled to vote 4,303,457 shares of Common Stock. Each holder of record of
Common Stock on such date will be entitled to one vote for each share held on
all matters to be voted upon at the Annual Meeting. Any shareholder who signs
and returns a Proxy has the power to revoke it at any time before it is
exercised by providing written notice of revocation to the Secretary of the
Company or by filing with the Secretary of the Company a Proxy bearing a later
date. The holders of a majority of the total shares of Common Stock outstanding
on the record date, whether present at the Annual Meeting in person or
represented by Proxy, will constitute a quorum for the transaction of business
at the Annual Meeting. The shares held by each shareholder who signs and
returns the enclosed form of Proxy will be counted for the purposes of
determining the presence of a quorum at the meeting, whether or not the
shareholder abstains on all or any matter to be acted on at the meeting.
Abstentions and broker non-votes both will be counted toward fulfillment of
quorum requirements. A broker non-vote occurs when a nominee holding shares for
a beneficial owner does not vote on a particular proposal because the nominee
does not have discretionary voting power with respect to that proposal and has
not received instructions from the beneficial owner.
COUNTING OF VOTES
The purpose of the Annual Meeting is to consider and act upon the
matters which are listed in the accompanying Notice of Annual Meeting and set
forth in this Proxy Statement. The enclosed form of Proxy provides a means for
a shareholder to vote for all of the matters listed in the accompanying Notice
of Annual Meeting and described in the Proxy Statement. The enclosed form of
Proxy also provides a means for a shareholder to vote for all of the nominees
for Director listed thereon or to withhold authority to vote for one or more of
such nominees. The two nominees receiving the highest number of votes will be
elected to the Board of Directors. Broker non-votes are not counted in the
election of directors.
1
<PAGE> 4
The accompanying form of Proxy also provides a means for a shareholder
to vote for, against or abstain from voting on each of the other matters to be
acted upon at the Annual Meeting. Each Proxy will be voted in accordance with
the shareholder's directions. The affirmative vote of a majority of the shares
of Common Stock present in person or represented by a Proxy and entitled to
vote on proposals one through four set forth in the accompanying Notice of
Annual Meeting is required for the approval of such proposal. Approval of any
other matters as may properly come before the meeting also will require the
affirmative vote of a majority of the shares of Common Stock present in person
or represented by a Proxy and entitled to vote at the meeting. Abstentions with
respect to proposals one through four will have the same effect as a vote
against these proposals. With respect to broker non-votes, the shares will not
be considered present at the meeting for the proposal to which authority was
withheld. Consequently, broker non-votes will not be counted with regard to the
proposal, but they will have the effect of reducing the number of affirmative
votes required to approve the proposal, because they reduce the number of
shares present or represented from which a majority is calculated.
PROXIES
The proxy accompanying this Proxy Statement is solicited by the Board
of Directors of the Company. Proxies may be solicited by officers, directors
and regular supervisory and executive employees of the Company, none of whom
will receive any additional compensation for their services. Also, Corporate
Investor Communications may solicit proxies at an approximate cost of $5,000
plus reasonable expenses. Such solicitations may be made personally, or by
mail, facsimile, telephone, telegraph, or messenger. The Company will pay
persons holding units in their names or in the names of nominees, as well as
brokerage houses, banks and other fiduciaries, for the expense of forwarding
solicitation materials to their principals. All of the costs of solicitation
will be paid by the Company.
When the enclosed Proxy is properly signed and returned, the shares
which it represents will be voted at the Annual Meeting in accordance with the
instructions noted thereon. In the absence of such instructions, the shares
represented by a signed Proxy will be voted in favor of the nominees for
election to the Board of Directors, and in favor of the approval of proposals 2
and 3.
2
<PAGE> 5
PROPOSAL 1
ELECTION OF DIRECTORS
INTRODUCTION
At the Annual Meeting on April 13, 1999, two directors are to be elected for
the terms described below. The Board of Directors of the Company is divided
into three classes serving staggered three-year terms. The current Board of
Directors include the following members: Mr. Salazar, President & CEO of the
Company; Mr. Kantor, Vice Chairman of Barington Capital Group, L.P.; and Mr.
Francis, Partner, Jefferson Partners, L.P. The terms of office of Mr. Salazar
will expire in October 2000, the terms of Mr. Kantor will expire in October
1999 and the term of Mr. Francis has expired and he has been serving and will
continue to serve as interim Board member until the Shareholder Meeting on
April 13, 1999 at which time he will retire as Board Member. Additionally, Mr.
Kantor has stated his intentions of retiring from the Board. The Board believes
that a concerted effort to interview and appoint "independent" or "outside"
Board members to replace Mr. Kantor and Mr. Francis should be taken up as soon
as possible after the Shareholder Meeting. The current Board has instructed Mr.
Salazar to nominate several Board member candidates by June 1, 1999 for
consideration by the then Board of Directors for appointment.
Tandem Capital, current debenture holder of the Company, and owner of 1,314,333
shares of preferred stock in the Company, under prior agreement, has visitation
and observer rights at every Board Meeting. Frequently, Mr. Don Barrickman
represents Tandem Capital at Board meetings as an observer with no voting rights
on any measure.
Officers of the Company serve at the discretion of the Board of Directors.
Shares represented by executed proxies will be voted, if authority to do so is
not withheld, for the election of the two nominees named below. In the event
that any nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as the Board of Directors may select. Each person nominated for election
has agreed to serve if elected, and management has no reason to believe that any
nominee will be unable to serve.
The Board of Directors recommends a vote FOR each named nominee.
The name and age, principal occupation or employment, and other data regarding
each nominee, based on information received from the respective nominees, are
set forth below:
For a term of three years:
Carmine T. Oliva, 56, has been Chairman of the Board, President and
Chief Executive Officer of MicroTel since March 26, 1997. Since
founding XIT in 1983, Mr. Oliva has been the Chairman, President and
Chief Executive Officer of XIT. From 1980 to 1983, he was Senior Vice
President and General Manager, ITT Asia Pacific Inc. Prior to that
position, Mr. Oliva held a number of executive positions with ITT
Corporation and its subsidiaries over an eleven-year period. Mr. Oliva
attained the rank of Captain in the United States Army and is a
veteran of the Vietnam War.
For a term of two years:
James P. Butler, 50, was appointed Chief Financial Officer of MicroTel
on August 18, 1997. From 1996 to such appointment in 1997, Mr. Butler
was the Chief Financial Officer and Chief Operating Officer of
Peritronics Medical, Inc., a publicly-traded provider of turnkey
clinical computer systems to hospitals. From 1995 through 1996, Mr.
Butler was the Chief Financial Officer of InnoServ Technologies, Inc.,
a publicly-traded supplier of products and services in the high-tech
diagnostic imaging marketplace. From 1994 to 1995, Mr. Butler was the
Chief Financial Officer of InnerSpace, Inc., a public company which
manufactured and distributed electronic monitoring devices to the
3
<PAGE> 6
hospital critical-care environment. From 1989 to 1994, Mr. Butler was
the Chief Financial Officer of Corus Medical Corporation, a provider
of specialty blood products and services. Mr. Butler has been a member
of the State Bar of California since 1986.
DIRECTOR COMPENSATION
Meetings of the Board of Directors are scheduled quarterly, but can be held on
an as-needed basis. All expenses, including travel and lodging, are reimbursed
by the Company for meeting attendance. Non-employee Board members are also
compensated with $1,000 in cash and an option grant of 1,000 shares of Common
Stock for every Board meeting attended in person. Board members are not
compensated for Board Meetings held by teleconference.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
The Board of Directors of the Company held a total of 4 meetings in person and
several meetings by teleconference during fiscal 1998. No director attended
fewer than 80% of the meetings of the Board of Directors and committees thereof,
if any, upon which such director served.
The Board of Directors has two standing committees: the Audit Committee and the
Compensation Committee.
Audit Committee. The Board of Directors has established an Audit
Committee composed of two (2) directors for the purpose of approving
the Company's independent auditors, reviewing the scope of their
engagement, consulting with such auditors, reviewing the results of any
audit examination, reviewing the disposition of recommendations made by
the independent auditors during the past year, acting as liaison
between the Board of Directors and the independent auditors and
reviewing various Company policies, including those related to
accounting and internal control matters. Currently, only Mr. Kantor
serves on the Audit Committee. Mr. Kantor was elected to the Audit
Committee on October 4, 1996.
Compensation Committee. The Board of Directors has established a
Compensation Committee consisting of two (2) directors to review and
approve executive compensation policies, practices, salary levels and
bonus programs. Currently only Mr. Francis serves on the Compensation
Committee since being appointed on October 4, 1996.
CERTAIN TRANSACTIONS
MicroTel International, Inc. Investment
On January 31, 1999, MicroTel International, Inc. exercised an option to acquire
1,738,159 shares of common stock of the Company. The shares were acquired from
an existing shareholder, Peregrine Ventures II, L.P., in a private transaction.
Included as Exhibit A to this Proxy Statement is relevant background information
on MicroTel International, Inc.
Sale of SouthTech, Inc., Wholly-Owned Subsidiary and Restructuring of
Convertible Debentures
On February 5, 1999, the Company sold its wholly-owned international subsidiary,
SouthTech, Inc., to Chapala Communications, a Georgia-based telecommunications
company. SouthTech, Inc. previously managed all international sales of the
Company's microwave spread spectrum radio products. The sale involved the
transfer of certain assets and liabilities of the Company to Chapala
Communications. In conjunction with the sale of the subsidiary, the Company
restructured its $4 million of Convertible Subordinated Debentures issued by the
Company on September 25, 1997 to Tandem Capital Corporation, a business unit of
Sirrom Capital Corporation. The restructuring of the Debentures transferred $1
million of the original notes to SouthTech, Inc. which was subsequently sold to
Chapala Communications. An additional $1 million principal amount of Debentures
plus accrued interest was converted into 1,314,333
4
<PAGE> 7
shares of DTS Series A Preferred Stock which is convertible into DTS common
stock at a dollar per share. The remaining $2 million principal amount of
Debentures, previously due on September 24, 2002, has been amended to realize
payments over five years and with deferred interest until February 5, 2000 and
is also convertible into DTS common stock at a dollar per share. As
consideration for the restructuring, Tandem Capital Corporation received a
warrant to purchase DTS common stock at a strike price of $1 per share. The
warrant has a three year term and represents 10% of the outstanding shares of
the Company, on a fully-diluted basis, on the closing date of the
restructuring. Upon the close of the transaction, the Company was able to
regain compliance with all covenants set forth in the Debenture agreement. The
Debentures will not be registered under the Securities Act of 1933, as amended,
and may not be offered or sold in the United States without registration or an
exemption from registration requirements.
Warrant Issuance to Silicon Valley Bank
During December 1998, the Company agreed to issue 250,000 two year warrants to
Silicon Valley Bank, the Company's primary lender, as consideration for an
amended agreement to allow the Company to regain compliance with certain
financial covenants imposed in the Line of Credit Agreement dated March 18,
1998. The warrants were issued at a strike price of $0.125, the closing price
of the Company's common stock on December 3, 1998.
Payment of Certain Obligations in Common Stock
On August 10, 1998, the Board of Directors of the Company approved a plan
whereby certain debts of the Company to employees and Board members are
satisfied through the issuance of common stock. Approximately 419,000 shares of
the Company's common stock will be issued to satisfy such obligations. The
shares will be issued at $0.125/share and will be restricted as to trade,
pledge, or sale for a one year period. The Company expects to issue such shares
by April 30, 1999.
5
<PAGE> 8
PROPOSAL 2
APPROVAL OF MODIFICATIONS TO THE COMPANY'S AMENDED AND RESTATED
1996 STOCK OPTION PLAN
Effective January 1996, the Board of Directors adopted the 1996 Stock
Incentive Plan (the "1996 Plan") which provides for the grant of stock options
for up to 200,000 shares of common stock. At the Shareholder Meeting of November
7, 1996, an additional 240,000 shares of common stock were authorized to
supplement the initial grant bringing the total available to 440,000 shares. The
1996 Plan also permits the Board of Directors to grant stock appreciation
rights, stock bonuses, and restricted stock awards in accordance with the
provisions of the Plan. The Plan remains in effect until January 2006 unless
sooner terminated by the Board of Directors.
Options granted under the 1996 Plan may be incentive stock options or
non-qualified stock options, as determined by the Board of Directors at the time
of grant. Incentive stock options are granted at a price not less than the fair
market value of the stock on the grant date, and non-qualified options are
granted at a price to be determined by the Board of Directors provided that such
exercise price is not less than 85% of the fair market value of the stock on the
grant date. Option vesting terms are established by the Board of Directors at
the time of grant, and presently range from three to five years. The expiration
date of options granted under the 1996 Plan is determined at the time of grant
and may not exceed ten years from the date of the grant. At March 3, 1999 there
were options outstanding to purchase 681,474 shares of the Company's common
stock, of which 205,444 shares were exercisable. There were 9,371 options
available for grant at March 3, 1999 under the 1996 Plan.
The Board of Directors believes that in order to attract and retain qualified
employees for the Company, it is necessary to continue to grant employees
options under the 1996 Plan. In light of the common stock dilution that has
occurred due to the restructuring of the Company's debentures with Tandem
Capital, private placement issuance of stock to settle certain debts and
issuance of warrants to Silicon Valley Bank, the Board of Directors further
believes that the remaining shares in the 1996 Plan are insufficient for such
purpose. The Board of Directors recommends a vote FOR the approval of
modifications to the 1996 Stock Incentive Plan to increase the number of shares
available for issuance from 440,000 to 840,000.
6
<PAGE> 9
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
In July 1996, the Board of Directors selected the accounting firm of
KPMG Peat Marwick LLP to serve as its independent auditor and recommends that
shareholders vote for ratification of such appointment. Representatives of KPMG
Peat Marwick LLP are expected to be present at the meeting. They will have an
opportunity to make a statement if they desire to do so and will be available
to respond to appropriate questions from shareholders.
The Board of Directors engaged KPMG Peat Marwick LLP, effective July
11, 1996. Prior thereto, the Company did not consult KPMG Peat Marwick LLP on
any matter that was the subject of a disagreement with the Company's former
accountants or a reportable event (as such terms are defined by Item
302(A)(1)(v) of Regulation S-K).
The Board of Directors recommends that the shareholders vote FOR
ratification of the selection of KPMG Peat Marwick as independent auditors.
7
<PAGE> 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the
Company regarding beneficial ownership of the Company's voting securities as of
March 3, 1999 by (i) each person who is known by the Company to beneficially
own more than five percent of the Company's Common Stock, (ii) each of the
Company's directors and each of the executive officers named in the table under
Executive Compensation, and (iii) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE
SHARES PERCENTAGE
BENEFICIALLY OF SHARES
NAME OWNED(1),(2) OWNED(3)
-------------------------------------------------------------------------
<S> <C> <C>
MicroTel International, Inc. (5) 1,738,159 40.2
Andres C. Salazar (6) 165,498 3.8
Jim Chamberlin (6) 133,490 3.1
Woodrow Cannon (6) 50,000 1.2
Richard Pfeister (6) 9,791 *
Jeff Hales (6) 8,010 *
Clive N. W. Marsh (6) 4,166 *
Carmine T. Oliva (7) 1,738,159 40.2
James P. Butler (7) 1,738,159 40.2
Robert D. Francis (8) 4,000 *
Edwin D. Kantor (9) 5,000 *
All executive officers and directors
as a group (10 persons) (10) 2,118,114 49.2
</TABLE>
* Less than 1%
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and investment power with respect to the shares
owned.
(2) Includes shares of Common Stock actually owned as follows: MicroTel
International, Inc. - 1,738,159, Mr. Salazar - 99,000, Mr. Chamberlin -
100,053, Mr. Kantor - 5,000, Mr. Francis 4,000.
(3) Does not reflect approximately 681,474 shares issuable upon exercise of
options granted under the Company's 1992 and 1996 Stock Incentive
Plans, of which options to purchase approximately 205,444 shares have
vested as of the effective date of this Proxy.
(5) The address of MicroTel International, Inc. is 4290 E. Brickell St.,
Ontario, CA. 91761
(6) The address of each of Mr. Salazar, Mr. Chamberlin, Mr. Cannon,
Mr. Pfeister, Mr. Hales and Mr. Marsh is c/o Digital Transmission
Systems, Inc., 3000 Northwoods Parkway, Suite 330, Norcross,
Georgia 30071.
(7) The address of each of Mr. Butler and Mr. Oliva is 4290 E. Brickell
St., Ontario, CA 91761. Includes 1,738,159 shares beneficially
owned by MicroTel International, Inc., with respect to which Messrs.
Butler and Oliva share investment and voting control.
(8) The address of Mr. Francis is c/o Jefferson Partners, The
Colorado Building, 1341 G Street, NW, Washington, DC 20005.
(9) The address of Mr. Kantor is c/o Barington Capital Group, L.P.,
888 Seventh Avenue, 17th Floor, New York, NY 10019.
(10) Includes 1,738,159 shares owned by MicroTel International, Inc. with
respect to which Messrs. Butler and Oliva share investment and voting
control.
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<PAGE> 11
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers and directors of the Company:
Andres C. Salazar 56 Chief Executive Officer; Director
Woodrow B. Cannon 52 Executive Vice President and General Manager
Richard Pfeister Jr. 48 Vice President, Sales
Jim Chamberlin 45 Assistant VP, Marketing
Clive N. W. Marsh 29 Controller and Corporate Secretary
Ed Kantor (1) 67 Director
Robert Francis(2) 61 Director
(1) Member of the Audit Committee of the Board of Directors
(2) Member of the Compensation Committee of the Board of Directors
Andres C. Salazar has been Chief Executive Officer and a member of
the Board of Directors of the Company since 1994. From 1991 to 1994,
Mr. Salazar was a Vice President and General Manager at AT&T Paradyne.
From 1989 to 1991, he was Senior Vice President of Operations for
Avanti Communications.
Woodrow B. Cannon was named Vice President of Marketing and
Engineering for the Company in August 1996. During August 1998, Mr.
Cannon was appointed the position of Executive Vice President and
General Manager. He was previously Vice President of Marketing for
BellSouth Communication Systems and served in several senior
marketing positions for the Motorola Information Systems Group from
1988 through 1995. Prior to Motorola, he had over five years of
management experience in several AT&T sales and marketing positions
and over thirteen years with IBM.
Richard L. Pfeister Jr. was named Vice President of Domestic Sales
for the Company in February 1997. He was previously Director of
Carrier Sales for NetLink, Inc. from 1995 through January 1997. Prior
to NetLink, Inc., Mr. Pfeister served in several sales and marketing
director positions for the Motorola Codex Corporation from 1987
through 1993.
Jim Chamberlin was named Assistant Vice President - Marketing for the
Company in January 1996. As one of the Company's founders, Mr.
Chamberlin has served the Company in various marketing and engineering
positions since February 1984. Prior to the inception of the Company,
Mr. Chamberlin served as Design Leader for Scientific Atlanta and as a
Design Engineer for the Harris Corporation.
Clive N. W. Marsh was named Controller for the Company in August 1998.
In January 1999 he was appointed Corporate Secretary of the Company.
Mr. Marsh previously served in various senior accounting and
consulting positions with Price Waterhouse LLP from 1991 through 1998.
Edwin Kantor was elected as a director of the Company in August, 1996.
Mr. Kantor is vice chairman of Barington Capital Group, L.P., a New
York city investment banking and brokerage firm and underwriters of
the Company's initial public offering which was completed in March,
1996. Prior to joining Barington Capital, Mr. Kantor had 37 years of
experience in the securities industry with Drexel Burnham Lambert Inc.
and its predecessor firms.
Robert D. Francis has been a director of the Company since 1995. From
1993 to the present, Mr. Francis has been a Managing Partner of
Milford Communications Partners, Ltd., an international sales
consulting firm, and a partner of Jefferson Partners, a Washington,
D.C. Merchant Bank. From 1990 to 1993 Mr. Francis was President of GDC
International, Inc.
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<PAGE> 12
EXECUTIVE COMPENSATION
Compensation Summary. The following table presents certain summary
information concerning compensation earned for services rendered to the Company
by Andres C. Salazar, the Company's President and Chief Executive Officer and
each of the other executive officers of the Company who received compensation
of at least $100,000 during 1998 (collectively the "Named Executive Officers"),
for the fiscal years ended June 30, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
---------------------- UNDERLYING COMPENSATION(1)
NAME AND PRINCIPAL POSITION FY SALARY($) BONUS($) OPTIONS/SARS(#) ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Andres C. Salazar 98 156,000 21,426 -- --
President and CEO 97 156,000 7,113 -- 65,528
96 140,167 -- 75,867 12,750
Woodrow B. Cannon (2) 98 121,085 28,449 -- --
Exec. V.P. and General Mgr. 97 111,120 6,616 -- --
96 -- -- -- --
Richard L. Pfeister, Jr. (3) 98 80,292 239,746 -- --
Vice President U.S. Sales 97 28,308 59,103 -- 1,200
96 -- -- -- --
</TABLE>
(1) Amounts set forth in this column represent certain relocation expenses.
(2) Mr. Cannon joined the Company in August 1996.
(3) Mr. Pfeister joined the Company in February 1997.
No other named Executive Officer had total compensation greater than $100,000
in the fiscal year ended June 30, 1998.
Grants of Stock Options. The following table contains information
concerning options granted to the Named Executive Officers during the calendar
year ended December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES OPTIONS GRANTED TO EXERCISE
UNDERLYING OPTIONS EMPLOYEES OR BASE PRICE EXPIRATION
NAME GRANTED(#) IN FISCAL YEAR ($/SH) DATE
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Andres C. Salazar 100,000 25% 0.75 8/10/08
Woodrow Cannon 75,000 19% 0.75 8/10/08
Richard Pfeister 32,500 8% 0.75 8/10/08
Clive N. W. Marsh 25,000 6% 0.75 8/10/08
Jim Chamberlin 20,000 5% 0.75 8/10/08
Jeff Hales 15,885 4% 0.75 8/10/08
</TABLE>
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<PAGE> 13
Aggregated Stock Option Exercises in Last Calendar Year and March 3, 1999 Option
Values. The following table sets forth certain information with respect to
options exercised during calendar year 1998 and presents the value of
unexercised stock options held by the named executive officers as of the record
date of this Proxy, March 3, 1999.
<TABLE>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS
SHARES ACQUIRED REALIZED MARCH 3, 1999 AT MARCH 3, 1999 ($)(1)
NAME ON EXERCISE (#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Andres C. Salazar -- -- 66,498/205,732 0/0
Woodrow B. Cannon -- -- 50,000/125,000 0/0
Jim Chamberlin 4,694 27 8,438/32,764 0/0
Richard Pfeister -- -- 9,791/50,000 0/0
Jeff Hales -- -- 8,010/25,885 0/0
Clive N. W. Marsh -- -- 4,166/25,000 0/0
</TABLE>
(1) Dollar values were calculated by determining the difference between the
December 31, 1998 fair market value of the Company's Common Stock and
the exercise price of such options before income taxes.
SECTION 16(A) REPORTING
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10%
of the Company's Common Stock, to file with the SEC initial reports of
ownership and reports of changes in ownership of the Common Stock and all other
equity securities of the Company beneficially owned by them. Directors,
executive officers and greater than 10% shareholders are required by regulation
to furnish the Company the copies of all Section 16(a) reports they file. To
the Company's knowledge, based solely on review of copies of such reports
furnished to the Company and written representations that no other reports were
required, during the fiscal year ended June 30, 1998, all Section 16(a) filing
requirements applicable to the directors, executive officers and greater than
10% beneficial owners were complied with by such persons.
OTHER MATTERS
Management of the Company is not aware of any other matter to be
presented for action at the Annual Meeting other than those mentioned in the
Notice of Special Meeting of Shareholders and referred to in this Proxy
Statement.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Andres C. Salazar
Andres C. Salazar,
President and Chief Executive Officer
11
<PAGE> 14
EXHIBIT A
TO DIGITAL TRANSMISSION SYSTEMS, INC. PROXY STATEMENT
FOR 1999 ANNUAL MEETING OF SHAREHOLDERS
Background Information on MicroTel International, Inc.
OVERVIEW
MicroTel International, Inc. (the "Company"), is a holding company
which, through its various direct and indirect operating subsidiaries,
designs, manufactures and distributes a wide range of electronics hardware
products and provides related services primarily to the telecommunications
industry. Approximately 60% of the Company's hardware sales are to telephone
carriers, including AT&T and the Regional Bell Operating Companies ("RBOCs")
domestically, and France Telecom in Europe. The remainder of its revenue is
derived from selling various information technology products for industrial,
medical, military and aerospace applications. The Company does not market the
products manufactured and distributed by its subsidiaries in connection with
the "MicroTel" name but rather such products are distributed under each
subsidiary's market-recognized brand-names.
The Company's objective is to become a leader in quality, cost
effective solutions to meet the global requirements of telecommunications and
information technology customers. The Company believes that it can achieve
this objective through customer-oriented product development, superior product
solutions, and excellence in local market service and support in North America,
Europe and Asia.
In 1984, MicroTel International, Inc. began operations as CXR Telcom
Corporation. In 1989, a holding company, CXR Corporation, a Delaware
corporation, was formed with two operating subsidiaries, CXR Telcom Corporation,
based in the United States, and CXR S.A., based in France (collectively, "CXR").
CXR manufactures and distributes telecommunications testing and transmission
equipment. In 1995, CXR Corporation changed its name to MicroTel International,
Inc.
On March 26, 1997, the Company consummated a merger pursuant to which
XIT Corporation became a wholly-owned subsidiary of the Company, with XIT as the
surviving subsidiary (the "Merger"). Because the Merger was accounted for as a
reverse acquisition, historical financial information of the Company shall refer
to the historical financial information of XIT.
Prior to 1991, XIT produced video display products, bare printed
circuit boards, digital switches, keyboards, keypads and other components
primarily for military and aerospace applications. In 1991, XIT began a
fundamental transition of its business operations by divesting $1.5 million in
unprofitable bare printed circuit board volume and $3.5 million in low margin
standard keyboards. During that year, XIT relocated its corporate headquarters,
its Digitran Division's input and display component business, and its circuit
division to Ontario and Monrovia, California from Pasadena, California and
focused its circuits manufacturing on low volume, high margin double-sided and
multi-layer circuit boards. Commencing in that year, XIT also began investing
heavily in research and development in order to diversify its information
technology product line and reduce its dependence on military and aerospace
sales.
Commencing in 1994, XIT began to implement a business strategy of
acquiring strategically complementary businesses and product lines. In July
1994, XIT acquired approximately 85% of HyComp, Inc. through a share exchange
with the majority shareholders. HyComp, formed in 1969, designs and
manufactures hybrid circuits, resistor networks, and thin film components.
HyComp's products are for high-reliability applications where they must
withstand extremes of temperature, humidity or environment. These products
have a variety of uses in communications electronics, military, aerospace,
medical, computer and industrial controls. Subsequently, XIT acquired an
additional approximate 7% of HyComp Common Stock through an exchange of XIT
common stock for HyComp common shares. As a result of the exercise of certain
HyComp stock options in 1997, the Company's ownership of the common shares
outstanding of HyComp was reduced to 88.5%.
A-1
<PAGE> 15
In May 1995, XIT acquired certain work in process from a bankrupt
printed circuit board and contract manufacturing company and established XCEL
Contract Manufacturing Division (XCMD) temporarily located in Philadelphia,
Pennsylvania. The Company continues to service certain of the XCMD customers
from its Ontario and Monrovia facilities, but has since closed its Philadelphia
operation.
In May 1995, XIT sold its Computron Display Systems Division
("Computron") based in Illinois, a manufacturer of higher cost custom color and
monochrome display monitors, for approximately $1.8 million. Computron was sold
based on XIT management's determination that the demand for its monochrome
product lines was declining and its custom color product was too high in cost.
In September 1995, through a newly established wholly-owned subsidiary
XCEL Arnold Circuits, Inc. ("XCEL Arnold"), XIT completed the acquisition of
Arnold Circuits, Inc., a La Habra, California manufacturer of complex
multi-layer, surface mount circuit boards used in sophisticated electronic
equipment for the communications, computer, instrumentation and industrial
controls industries. XCEL Arnold's circuit boards are currently used
principally in cellular telephone transmission products. Due to a decline in
its major customer's business, management decided to exit this business. On
April 9, 1998, the Company sold certain of the assets of XCEL Arnold to a
private corporation which also assumed certain liabilities.
In April 1996, XCEL Arnold completed the acquisition of Etch-Tek, Inc.
("Etch-Tek"), a manufacturer of quick turn and prototype quantities of double
sided and high multi-layer count printed circuit boards. Etch-Tek, located in
Concord, California, was originally established as a division of XCEL Arnold
and operated as XCEL Etch Tek Division of XCEL Arnold. The assets of Etch Tek
were not included in the sale of XCEL Arnold and, following such sale, Etch-Tek
operates as a division of XIT Corporation.
In September 1996, XCEL Corporation, Ltd. ("XCEL UK"), the Company's
United Kingdom subsidiary, acquired Abbott Electronics, Ltd. ("Abbott"). XCEL
UK operates Abbott as a wholly-owned subsidiary of XCEL UK trading as XCEL
Power Systems, Ltd ("XPS"). XPS designs and manufactures high and low voltage,
high specification, compact and micro-electronic power supplies to meet rugged
environmental and high tolerance electrical requirements.
In the fall of 1996, XIT began negotiations with MicroTel with respect
to the Merger. Management believe that the Merger enhanced the Company's
ability to service its telecommunications and information technology customers,
created additional marketing opportunities both geographically and across
product lines, and provided cost savings by the internal sourcing of components
by MicroTel's subsidiaries formerly purchased from third-party vendors.
In October 1997, the Company acquired all the capital stock of
Critical Communications Incorporated ("Critical"), a manufacturer of
telecommunication test instruments located in St. Charles, Illinois. The
Company has transferred manufacturing of Critical's product to its CXR Telcom
subsidiary in Fremont, California and has maintained the remaining operation
as a product engineering and development, customer service and mid-west sales
office where it previously lacked a presence.
A-2
<PAGE> 16
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Andres C. Salazar, with full power of
substitution, as Proxy, to represent and vote all the shares of Common Stock of
DIGITAL TRANSMISSION SYSTEMS, INC. held of record by the undersigned on March 3,
1999, at the annual meeting of shareholders to be held on April 13, 1999 or any
adjournment thereof, as designated on the reverse side hereof and in their
discretion as to other matters.
Please sign exactly as name appears on this card. When shares are held by
joint tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
The shares represented by this proxy will be voted as directed by the
stockholder. If no direction is given when the duly executed proxy is returned,
such shares will be voted "FOR" all nominees in Proposal 1, "FOR" Proposal 2,
and "FOR" Proposal 3.
[ ] PLAN TO ATTEND MEETING
(continued on other side)
DIGITAL TRANSMISSION SYSTEMS, INC. 3000 Northwoods Parkway, Building
330 Norcross, Georgia 30071
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES IN PROPOSAL 1,
"FOR" PROPOSAL 2, AND "FOR" PROPOSAL 3.
1. Election of the following Nominees as Directors for terms expiring as stated
below:
<TABLE>
<S> <C> <C> <C> <C>
For a term of three years expiring in 2002. Carmine T. Oliva
For a term of two years expiring in 2001. James P. Butler
[ ]
FOR all nominees [ ] WITHHELD for all Nominees
INSTRUCTIONS: WITHHOLD FOR THE FOLLOWING ONLY:
(WRITE THE NAME OF THE NOMINEE(S) IN THE SPACE BELOW.)
</TABLE>
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2. Approval of an amendment to the Company's 1996 Stock Incentive Plan to
increase the number of shares of Common Stock reserved for issuance by
400,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratification of the selection of KPMG Peat Marwick as independent public
accountants for the Company's current fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PLEASE MARK YOUR CHOICE LIKE THIS /X/ IN BLUE OR BLACK INK
<TABLE>
<S> <C> <C>
------------------------------ ------------------------------ ------------------------------
Date: Signature Signature if held jointly
</TABLE>
PLEASE MARK, DATE AND SIGN AS YOUR NAME APPEARS ON THE FRONT OF THIS CARD
AND RETURN IN THE ENCLOSED ENVELOPE.
