<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
{X} QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
{ }TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____to____
--------------------
Commission File Number 1-14198
DIGITAL TRANSMISSION SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 58-2037949
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3000 NORTHWOODS PARKWAY, BUILDING 330, NORCROSS, GA 30071
(Address of principal executive office) (Zip Code)
(770) 798-1300
(Issuer's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the proceeding
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 { }
The number of shares outstanding of the registrant's common stock as of March
31, 1999 was 4,250,609.
Transitional Small Business Disclosure Format (check one): Yes { } No {x}
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DIGITAL TRANSMISSION SYSTEMS INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 1999
and June 30, 1998 (Unaudited) 3
Condensed Consolidated Statements of Operations for the Three
Months ended March 31, 1999 and 1998 (Unaudited) 4
Condensed Consolidated Statements of Operations for the Nine
Months ended March 31, 1999 and 1998 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 1999 and 1998 (Unaudited) 6
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Items 1 - 5 Not applicable 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibit 27.0 Financial Data Schedule (SEC use only) 21
</TABLE>
Page 2
<PAGE> 3
DIGITAL TRANSMISSION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31,
1999
(Unaudited) June 30, 1998
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 150 $ 91
Trade accounts receivable, net of allowances for
returns and doubtful accounts of $1,145 and $767 at
March 31, 1999 and June 30, 1998, respectively 1,335 2,283
Inventories 1,359 2,469
Prepaid expenses 208 105
----------- -------------
Total current assets 3,052 4,948
----------- -------------
Property and equipment, net of accumulated
depreciation and amortization 466 886
Note receivable 900 --
Intangible assets, net 419 1,045
Other assets 411 329
----------- -------------
Total assets $ 5,248 $ 7,208
=========== =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Line of credit $ 1,379 $ 1,329
Accounts payable and accrued liabilities 3,568 4,581
Accrued payroll and benefits 101 248
Convertible debentures - current portion -- 4,000
Warranty reserve 200 618
----------- -------------
Total current liabilities 5,248 10,776
----------- -------------
Convertible debentures - non-current portion 2,000 --
Deferred gain on sale of subsidiary 900 --
----------- -------------
Total liabilities
8,148 10,776
Shareholders' deficit:
Series A convertible Preferred stock; 3,000,000 shares
authorized; 1,314,333 shares issued and outstanding at
March 31, 1999 1,314 --
Common stock -- $.01 par value; 15,000,000 shares authorized;
4,250,609 and 4,191,460 issued and outstanding at March 31, 1999
and June 30, 1998, respectively 42 42
Additional paid-in capital 11,644 11,462
Deferred compensation (8) (56)
Notes receivable from stock sales (63) (63)
Accumulated deficit (15,829) (14,953)
----------- -------------
Total shareholders' deficit (2,900) (3,568)
Commitments and contingencies -- --
----------- -------------
Total liabilities and shareholders' deficit $ 5,248 $ 7,208
=========== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3
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DIGITAL TRANSMISSION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
1999 1998
Unaudited Unaudited
---------- ----------
<S> <C> <C>
Net sales $ 1,922 $ 6,111
Cost of sales 972 4,125
---------- ----------
Gross profit 950 1,986
---------- ----------
Selling, general and administrative 658 1,772
Product development 281 604
---------- ----------
Total operating expenses 939 2,376
---------- ----------
Operating income (loss) 11 (390)
Interest expense, net (164) (202)
Gain on sale of subsidiary 1,100 --
---------- ----------
Income (loss) before income tax expense 947 (592)
Income tax benefit (expense) -- --
---------- ----------
Income (loss) before extraordinary items 947 (592)
---------- ----------
Extraordinary gain on settlement of trade 165 --
payables
---------- ----------
Net income (loss) $ 1,112 $ (592)
========== ==========
Net income (loss) per share - basic and diluted:
Income (loss) per share before extraordinary items $ 0.22 $ (0.14)
Extraordinary gain on settlement of trade payables 0.04 --
---------- ----------
Net income (loss) per share - basic and diluted $ 0.26 $ (0.14)
========== ==========
Weighted average shares outstanding - basic and diluted 4,250 4,158
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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DIGITAL TRANSMISSION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31
--------------------------
1999 1998
Unaudited Unaudited
----------- ----------
<S> <C> <C>
Net sales $ 4,846 $ 12,687
Cost of sales 3,045 9,013
---------- ----------
Gross profit 1,801 3,674
---------- ----------
Selling, general and administrative 2,241 4,695
Product development
1,203 1,620
---------- ----------
Total operating expenses 3,444 6,315
---------- ----------
Operating loss (1,643) (2,641)
Interest expense, net (498) (409)
Gain on sale of subsidiary 1,100 --
---------- ----------
Loss before income tax expense (1,041) (3,050)
Income tax benefit (expense) -- --
---------- ----------
Loss before extraordinary items: (1,041) (3,050)
Extraordinary gain on settlement of trade
payables 165 --
---------- ----------
Net loss $ (876) $ (3,050)
========== ==========
Net income (loss) per share - basic and diluted:
Income (loss) per share before extraordinary items $ (0.25) $ (0.74)
Extraordinary gain on settlement of trade payables 0.04 --
---------- ----------
Net income (loss) per share - basic and diluted $ (0.21) $ (0.74)
========== ==========
Weighted average shares outstanding - basic and diluted 4,250 4,140
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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DIGITAL TRANSMISSION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31
--------------------------
1999 1998
Unaudited Unaudited
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (876) $ (3,050)
Adjustments to reconcile net loss
to net cash used in (provided by) operating activities:
Depreciation and amortization 703 1,179
Amortization of deferred compensation expense 48 52
Extraordinary gain on trade payable settlements (165) --
Gain on sale of subsidiary (1,100) --
Changes in assets and liabilities:
Trade and other accounts receivable 740 (146)
Inventories 846 (1,299)
Prepaid expenses and other current assets (103) (118)
Accounts payable and other accrued expenses (5) 802
Warranty accrual (13) 80
---------- ----------
Net cash provided by (used in) operating activities 75 (2,500)
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (62) (576)
Additions to capitalized product development costs (98) (540)
Decrease (increase) in other non-current assets and liabilities 94 --
---------- ----------
Net cash used in investing activities (66) (1,116)
---------- ----------
Cash flows from financing activities:
Net borrowings under line of credit agreement 50 (337)
Proceeds from sale of convertible debentures -- 4,000
Proceeds from exercise of stock options -- 60
---------- ----------
Net cash provided by financing activities 50 3,723
---------- ----------
Net increase in cash and cash equivalents 59 107
Cash and cash equivalents at beginning of period 91 712
========== ==========
Cash and cash equivalents at end of period $ 150 $ 819
========== ==========
Supplemental disclosure of cash paid for:
Interest $ 119 $ 184
========== ==========
Supplemental disclosures of non-cash operating and financing activities:
Issuance of Note Receivable in conjunction with a subsidiary liability $ 900 $ --
========== ==========
Conversion of $1,000 of convertible debentures plus accrued
interest to Series A convertible Preferred Stock $ 1,314 $ --
========== ==========
Issuance of warrants relating to conversion of debentures $ 182 $ --
========== ==========
Sale of subsidiary:
Assets disposed of $ 981 $ --
Liabilities disposed of (2,081) --
---------- ----------
Gain on sale of subsidiary $ 1,100 $ --
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 6
<PAGE> 7
DIGITAL TRANSMISSION SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
MARCH 31, 1999 (UNAUDITED)
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Digital Transmission Systems, Inc. (the "Company") designs, manufactures,
markets and services a broad range of products for the telecommunications
industry. The Company's primary customers are long distance carriers and
wireless service providers. The Company's products, consisting of proprietary
software and hardware modules, facilitate the control, monitoring and efficient
transmission of high-speed digital information through public or private
telecommunications networks.
The accompanying condensed consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
incurred significant losses in recent periods. The Company has a net capital
deficit of $2,900,000 as of March 31, 1999. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern for
a reasonable period of time.
The condensed consolidated financial statements do not include any adjustments
relating to the recoverability and classification of assets and liabilities that
might be necessary should the Company be unable to continue as a going concern.
The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
comply with the terms of its financing agreements, to obtain additional
financing or refinancing as may be required, and ultimately to attain
profitability. The Company is actively pursuing additional equity financing
through discussions with potential investors, and is also pursuing potential
merger or acquisition candidates.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The financial
information included herein is unaudited; however, the information reflects all
adjustments (consisting solely of normal recurring adjustments) that are, in the
opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods.
Operating results for the nine months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ended June 30, 1999.
For further information, refer to the financial statements and footnotes thereto
included in the Company's Form 10-KSB for the year ended June 30, 1998.
There have been no changes to the accounting policies of the Company during the
periods presented. For a description of these policies, see Note 1 of the Notes
to Financial Statements in the Company's Annual Report on Form 10-KSB.
2. INCOME (LOSS) PER COMMON SHARE
The Company has presented earnings (loss) per share in accordance with the
provisions of SFAS No. 128, Earnings Per Share ("SFAS 128"), which requires
companies that have publicly held common stock or potential common stock to
present both basic and diluted earnings (loss) per share (EPS) on the face of
the income statement. Basic EPS is calculated as income (loss) available to
common shareholders divided by the weighted-average number of common shares
outstanding during the period. Diluted EPS is calculated as income (loss)
available to common shareholders divided by the weighted-average number of
common shares outstanding during the period plus any dilutive potential common
shares, such as convertible debt or stock options. The Company has restated its
earnings (loss) per share for all periods presented to conform to the provisions
of SFAS 128.
Page 7
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3. LEGAL MATTERS
In August 1998, a vendor of the Company filed suit against the Company alleging
nonpayment of account. Total damages alleged are in excess of $400,000 in unpaid
invoices, plus pre-judgment and post-judgment interest on principal amounts
outstanding and court costs. The Company is disputing the validity and accuracy
of the billed amounts.
The Company has asserted a counterclaim, believes that it has meritorious
defenses to the plaintiff's claims, and intends to continue a vigorous defense
in this matter. While management disputes plaintiffs' claims, no assurance can
be given as to the ultimate outcome with respect to such lawsuit and the amount,
if any, which may be paid in excess of amounts already accrued.
The Company is also involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations, or liquidity.
4. GAIN ON SALE OF SUBSIDIARY; RESTRUCTURING OF CONVERTIBLE DEBENTURE;
AMENDMENT TO BANK AGREEMENT
During the third quarter of fiscal 1999 (quarter ended March 31, 1999), the
Company recognized a gain on the sale of its international subsidiary,
SouthTech, Inc. Additionally, the Company restructured its Convertible Debenture
agreement with Sirrom Capital and reached an amended agreement with its primary
lender, Silicon Valley Bank. These items are fully disclosed and discussed in
detail in the accompanying Management Discussion and Analysis of Financial
Condition and Results of Operations.
Page 8
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Digital Transmission Systems, Inc., a Delaware corporation ("DTS" or the
"Company"), designs, manufactures, and markets a broad range of products for the
telecommunications industry. The Company's primary customers are domestic
wireless service providers, including those offering cellular telephone services
and Personal Communications Services ("PCS") and domestic and international
resellers who sell to and service end users with telecom equipment. Customers
include Nextel, Alltel, AirTouch, and GTE Mobilnet.
The Company's products, consisting of proprietary software and hardware modules,
facilitate the control, monitoring and efficient transmission of high-speed
digital information through public or private telecommunications networks. The
Company's network access products enable telecommunications service providers to
give their customers economical, high-quality access to public and private
networks and various telecommunications services. These services include voice
and high-speed data transmission, the Internet and video and desktop
conferencing. Important product requirements in these market segments include
high feature density, modularity, quality performance and compactness. The
Company's products meet these requirements and are suitable for both wireline
and wireless service environments.
DTS markets its products through a direct sales force and several reseller
channels. Domestically, wireless service providers, including cellular,
Specialized Mobile Radio ("SMR") and PCS service companies, are targeted as
prospective customers directly by the Company's sales force. DTS utilizes
telecommunications equipment resellers in the United States to market to public
and private network customers.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
The following table sets forth certain financial data derived from the Company's
statement of operations for the three months ended March 31, 1999 and March 31,
1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
$ % OF SALES $ % OF SALES
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 1,922 100 6,111 100
Gross profit 950 49 1,986 32
Product development 281 15 604 10
Selling, general and administrative 658 34 1,772 29
Net income (loss) 1,112 58 (592) (10)
</TABLE>
Page 9
<PAGE> 10
NET SALES. Net sales decreased by 69%, to $1,922,000 for the three months ended
March 31, 1999 from $6,111,000 for the three months ended March 31, 1998. The
sales mix, and the corresponding percentage of total sales of the Company's
products, is set forth in the chart below:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
--------- ---------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Flex T1/E1 $1,472 $4,466 77 73
SKYPLEX 383 1,555 20 25
Other products 67 90 3 2
------ ------ ------ ------
Totals $1,922 $6,111 100 100
====== ====== ====== ======
</TABLE>
For the three months ended March 31, 1999, revenues from the Company's FlexT1/E1
product line decreased 67% from $4,466,000 for the three months ended March 31,
1998 to $1,472,000 for the three months ended March 31, 1999. The decrease is
attributable to a reduction in shipments to customers due to working capital
restraints. Revenues from sales of the Company's SKYPLEX product decreased 75%
to $383,000 for the three months ended March 31, 1999 from $1,555,000 for the
three months ended March 31, 1998 reflecting an overall decrease in sales to
markets in Asia and Latin America, continued product quality problems associated
with the Company's international radio products and the overall decrease in
international sales as a result of the sale of the Company's international
subsidiary on February 5, 1999.
The Company expects sales for the 4th quarter of fiscal 1999 to be less than
sales for the 4th quarter of fiscal 1998 and the Company expects sales for
fiscal 1999 to be less than 1998.
GROSS PROFIT. Cost of sales consists of component costs, compensation costs and
the overhead costs related to the production and shipping of the Company's
products, along with the support and warranty expense associated with such
products. Gross profit decreased 52% from $1,986,000 for the three month period
ended March 31, 1998 to $950,000 for the three month period ended March 31, 1999
primarily due to the accompanying decrease in sales noted for the same period.
As a percentage of sales, gross profit increased 17% from 32% of sales to 49% of
sales for the three month period ended March 31, 1999. The increase is primarily
attributable to reduced compensation and overhead costs related to production
and shipping of the Company's products. Additionally, the Company recorded
$138,000 as a reduction of cost of sales for the three month period ended March
31, 1999, thereby improving the overall gross profit margin for the period. The
offset was recorded due to a change in estimate of amounts payable to one of the
Company's primary product suppliers at March 31, 1999.
PRODUCT DEVELOPMENT. Product development expense consists of personnel costs,
consulting, supplies and prototyping expenses. Product development expenses
decreased 53%, to $281,000 for the three months ended March 31, 1999 from
$604,000 for the three months ended March 31, 1998. The decrease in product
development expense for the three month period ended March 31, 1999 is primarily
due to reduced spending on new development projects and reduction in overall
research and development charges following the sale of the Company's
international subsidiary, SouthTech, Inc., on February 5, 1999. Approximately
$4,000 of development costs related to new projects were capitalized for the
three month period ended March 31, 1999 as compared to $246,000 for the three
month period ended March 31, 1998. As a percentage of sales, product development
costs were 15% for the three months ended March 31, 1999 and 10% for the three
months ended March 31, 1998.
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SELLING, GENERAL AND ADMINISTRATIVE. Selling expense consists primarily of
compensation costs for sales and marketing personnel, travel, consulting, trade
show and advertising expenses. General and administrative expense consists
primarily of occupancy costs and compensation expenses for administrative and
finance personnel, as well as accounting, legal and consulting fees. Selling,
general and administrative expense decreased by 63%, to $658,000 for the three
months ended March 31, 1999 from $1,772,000 for the three months ended March 31,
1998. Total selling, general and administrative costs were 34% of total sales
for the three months ended March 31, 1999 as compared to 29% of sales for the
three months ended March 31, 1998 . The overall decrease in selling, general and
administrative expenses is primarily due to the Company's reduction in personnel
compensation and other administrative costs due to several cost reduction plans
instituted by management during the fourth quarter of fiscal 1998 and the first
and second quarters of fiscal 1999. Additionally, the Company experienced an
overall reduction in selling, general, and administrative expenses following the
sale of the Company's international subsidiary on February 5, 1999. As of March
31, 1999 the Company had approximately 29 full-time employees reflecting a
decrease in overall headcount of 30, from 59 full-time employees as of March 31,
1998. Selling expense decreased by 72%, to $274,000 for the three months ended
March 31, 1999 from $991,000 for the three months ended March 31, 1998. This
decrease was due to lower sales personnel compensation costs and sales
commission costs associated with the decreased sales level for the three months
ended March 31, 1999 as compared to the three months ended March 31, 1998.
Marketing expenditures decreased by 69% from $285,000 to $88,000 due to reduced
advertising efforts and a reduction in tradeshow participation during the three
month period ended March 31, 1999. General and administrative expenses decreased
by 40%, to $296,000 for the three months ended March 31, 1999 from $496,000 for
the three months ended March 31, 1998. This decrease is primarily a result of
the overall decrease in headcount at March 31, 1999 as compared to March 31,
1998.
NET INCOME/LOSS. Net income for the three month period ended March 31, 1999 of
$1,112,000 reflects an overall increase of $1,704,000 as compared to the net
loss of $592,000 reported for the three month period ended March 31, 1998. The
increase is primarily attributable to a recorded gain of $1,100,000 resulting
from the sale of the Company's international subsidiary and an extraordinary
gain resulting from troubled debt restructurings of certain payables.
Additionally, the increase reflects the substantially lower operating costs of
the Company. The reduction in overall operating costs is due to (1) the
institution of cost reduction plans during early fiscal 1999, (2) the overall
decrease in headcount as of March 31, 1999 as compared to March 31, 1998, and
(3) the sale of the Company's international subsidiary on February 5, 1999.
NINE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
The following table sets forth certain financial data derived from the Company's
statement of operations for the nine months ended March 31, 1999 and March 31,
1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
$ % OF SALES $ % OF SALES
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales 4,846 100 12,687 100
Gross Profit 1,801 37 3,674 29
Product development 1,203 25 1,620 13
Selling, general and administrative 2,241 46 4,695 37
Net income (loss) (876) (18) (3,050) (24)
</TABLE>
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<PAGE> 12
NET SALES. Net sales decreased by 62%, to $4,846,000 for the nine months ended
March 31, 1999 from $12,687,000 for the nine months ended March 31, 1998. The
sales mix, and the corresponding percentage of total sales of the Company's
products, is set forth in the chart below:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NINE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998 1999 1998
------ ------- ------- -------
<S> <C> <C> <C> <C>
Flex T1/E1 $3,284 $ 8,011 68 63
SKYPLEX 1,399 4,369 29 34
Other products 163 307 3 3
------ ------- ------- -------
Totals $4,846 $12,687 100 100
====== ======= ======= =======
</TABLE>
For the nine months ended March 31, 1999, revenues from the Company's FlexT1/E1
product line decreased 59% from $8,011,000 for the nine months ended March 31,
1998 to $3,284,000 for the nine months ended March 31, 1999. The decrease is
primarily attributable to reduced shipments to customers due to working capital
constraints. Revenues from sales of the Company's SKYPLEX product decreased 68%
to $1,399,000 for the nine months ended March 31, 1999 from $4,369,000 for the
nine months ended March 31, 1998 reflecting an overall decrease in sales to
markets in Asia and Latin America, continued product quality problems associated
with the Company's international radio products and the overall decrease in
international sales as a result of the sale of the Company's international
subsidiary on February 5, 1999.
The Company expects sales for the 4th quarter of fiscal 1999 to be less than
sales for the 4th quarter of fiscal 1998 and the Company expects sales for
fiscal 1999 to be less than 1998.
GROSS PROFIT. Cost of sales consists of component costs, compensation costs and
the overhead costs related to the production and shipping of the Company's
products, along with the support and warranty expense associated with such
products. Gross profit decreased 51% from $3,674,000 for the nine month period
ended March 31, 1998 to $1,801,000 for the nine month period ended March 31,
1999 primarily due to the accompanying decrease in sales noted for the same
period. As a percentage of sales, gross profit increased from 29% of sales for
the nine months ended March 31, 1998 to 37% of sales for the nine months ended
March 31, 1999. The increase is primarily attributable to a reduction in the
Company's overhead costs as a result of specific cost reduction plans that were
instituted by management during late fourth quarter of fiscal 1998 and the first
quarter of fiscal 1999 coupled with an increased sales mix of the Company's
higher margin products (Flex T1/E1).
PRODUCT DEVELOPMENT. Product development expense consists of personnel costs,
consulting, supplies and prototyping expenses. Product development expenses
decreased 26%, to $1,203,000 for the nine months ended March 31, 1999 from
$1,620,000 for the nine months ended March 31, 1998. The decrease in product
development expense for the nine month period ended March 31, 1999 is primarily
due to reduced spending on new development projects and the overall reduction in
research and development charges following the sale of the Company's
international subsidiary on February 5, 1999. Approximately $98,000 of
development costs related to new projects were capitalized for the nine month
period ended March 31, 1999 as compared to $540,000 for the nine month period
ended March 31, 1998. As a percentage of sales, product development costs were
25% for the nine months ended March 31, 1999 and 13% for the nine months ended
March 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling expense consists primarily of
compensation costs for sales and marketing personnel, travel, consulting, trade
show and advertising expenses. General and administrative expense consists
primarily of occupancy costs and compensation expenses for administrative and
finance personnel, as well as accounting, legal and consulting fees. Selling,
Page 12
<PAGE> 13
general and administrative expense decreased by 52%, to $2,241,000 for the nine
months ended March 31, 1999 from $4,695,000 for the nine months ended March 31,
1998. Total selling, general and administrative costs were 46% of total sales
for the nine months ended March 31, 1999, as compared to 37% of sales for the
nine months ended March 31, 1998. The overall decrease in selling, general and
administrative expenses is primarily due to the Company's reduction in personnel
compensation and other administrative costs due to several cost reduction plans
instituted by management during the fourth quarter of fiscal 1998 and the first
and second quarters of fiscal 1999. As of March 31, 1999, the Company had
approximately 29 full-time employees reflecting a decrease in overall headcount
of 30, from 59 full-time employees as of March 31, 1998. Selling expense
decreased by 64%, to $909,000 for the nine months ended March 31, 1999 from
$2,549,000 for the nine months ended March 31, 1998. This decrease was due to
lower sales personnel compensation costs and sales commission costs associated
with the decreased sales level for the nine months ended March 31, 1999 as
compared to the nine months ended March 31, 1998. Marketing expenditures
decreased by 58% from $837,000 to $354,000 due to reduced advertising efforts
and a reduction in tradeshow participation during the nine month period ended
March 31, 1999. General and administrative expenses decreased by 25%, to
$978,000 for the nine months ended March 31, 1999 from $1,309,000 for the nine
months ended March 31, 1998. This decrease is primarily a result of the overall
decrease in headcount at March 31, 1999 as compared to March 31, 1998 and the
reduced operating expenses of the Company as a result of the sale of the
Company's international subsidiary on February 5, 1999.
NET LOSS. The net loss decreased to $876,000 for the nine months ended March 31,
1999, from $3,050,000 for the nine months ended March 31, 1998. The decrease is
primarily attributable to a recorded gain of $1,100,000 resulting from the sale
of the Company's international subsidiary during the 3rd quarter of fiscal 1999
and a recorded extraordinary gain from debt restructuring of certain payables.
Additionally, the decrease reflects the substantially lower operating costs of
the Company. The reduction in overall operating costs is due to (1) the
institution of cost reduction plans during early fiscal 1999, (2) the overall
decrease in headcount as of March 31, 1999 as compared to March 31, 1998, and
(3) the sale of the Company's international subsidiary on February 5, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The accompanying condensed consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
incurred significant losses in recent periods and has previously been in
violation of its debt covenants. However, through the sale of its international
subsidiary, SouthTech, Inc., on February 5, 1999, and the amendment of its bank
line with Silicon Valley Bank and its debenture agreement with Tandem Capital,
the Company is currently in compliance with all loan covenants and its net
capital deficit has been reduced to $2,900,000 as of March 31, 1999. Although
these accomplishments and the profitability of the fiscal quarter ended March
31, 1999 have improved the Company's financial condition from December 31, 1998,
the Company's access to additional working capital and current cash condition
still raise doubt about the Company's ability to continue as a going concern for
a reasonable period of time.
The condensed consolidated financial statements do not include any adjustments
relating to the recoverability and classification of assets and liabilities that
might be necessary should the Company be unable to continue as a going concern.
The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
comply with the terms of its financing agreements, to obtain additional
financing or refinancing as may be required, and ultimately to attain
profitability. The Company is pursuing additional equity financing through
discussions with potential investors and is pursuing potential merger or
acquisition candidates.
On October 14, 1998, NASDAQ delisted the Company because the Company did not
meet its listing requirement of minimum net assets. The Company's securities are
currently traded on the OTC Bulletin Board. The delisting action has hampered
the Company's efforts to raise capital through a private placement of its stock
with qualified investors. However, the Company has employed several programs in
an effort to help the Company preserve cash which, in the first and second
fiscal quarters of 1999, was being used to fund severance costs of terminated
employees, to fund payroll and essential expenses and the purchase of supplies
from critical vendors. First, a group of employees and affiliates volunteered to
forego or delay salary, commission and other compensation payments through a
restricted stock for cash program offered by Board resolution on August 10,
1998. Under that program a
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total of approximately 395,612 common shares were approved by the Board to
compensate those employees and affiliates in return for cancellation of salary
or other compensation payments totaling $52,320 and a delay of payment of
another $62,206. These shares cannot be pledged, sold or traded until November
30, 1999 at which time, under Rule 144, they will have the restricted legend
removed from their certificates and are freely tradable. Secondly, another
program to preserve cash has been to work out extended payment terms with
certain key material suppliers for overdue amounts payable. The Company has been
able to complete formal negotiations with three critical suppliers and establish
extended payment terms (over a 12 month period) for overdue amounts payable.
Third, non-critical suppliers have been offered settlements in the form of
uniform terms and reduced but immediate cash payments for cancellation of long
standing past due amounts. A total of $208,000 of amounts payable have been
settled for a reduced amount under these conditions. The Company has recorded an
extraordinary gain of $165,000 to reflect the settlement transactions closed
during the third quarter of fiscal 1999 and is included in the accompanying
financial statements.
On April 10, 1997, the Company established a bank line of credit agreement with
Silicon Valley Bank which makes available $2,500,000 in borrowings with
availability based on the Company's accounts receivable. The loan was amended on
March 18, 1998 to increase the maximum eligible borrowing to the lesser of
$4,000,000 or 80% eligible receivables plus 30% of eligible inventory, as
defined, through the maturity date of April 10, 2000. The loan is secured by the
Company's assets and bears interest at the rate of prime plus 2.25%. A net worth
covenant was amended on March 16, 1998, requiring the Company to have a net
worth of $1,000,000. In September 1998, the Company agreed to a UCC filing
whereby all assets of the Company become collateral under the Agreement. The
loan requires a monthly monitoring fee of $1,000 and a commitment fee of 0.125%
due monthly on the unused portion of the facility. The agreement term is two
years with an automatic renewal each year unless written notice of termination
is given by one of the parties. The Company issued 60,000 two year warrants to
Silicon Valley Bank at a strike price of $5.25 each as consideration for the
amended agreement. On February 25, 1999 the Company signed an amendment to the
loan agreement with Silicon Valley Bank which modified previous loan covenants.
The revised covenants are primarily based upon minimum monthly and quarterly
revenue levels. As consideration for the amended agreement, the Company issued
250,000 two year warrants for common stock of the Company at $0.119 per share
which represents the market price of the Company's common stock at the close of
business on December 2, 1998 when a new agreement was reached. The financial and
accounting value of the warrants issued is immaterial to the Company's financial
statements and has not been recorded as of March 31, 1999. Under the revised
agreement the maximum borrowing has been reduced to $1,500,000 and bears
interest at prime plus 2 1/4 (10% at March 31, 1999). The Company was in
compliance with all covenants in the revised bank agreement as of March 31,
1999.
During fiscal 1998, the Company issued $4 million of 11.5% subordinated
debentures to Sirrom Capital of Nashville, Tennessee. During March 1999, The
FINOVA Group consummated its previously announced acquisition of Sirrom Capital
Corporation. Sirrom Capital will begin operating as FINOVA Mezzanine Capital, a
specialty finance company headquartered in Nashville, Tennessee. The
aforementioned debentures were issued on September 25, 1997 with a contractual
due date of September 25, 2002. The Debenture Purchase Agreement contains
numerous rights, privileges, and conditions in favor of the lender, only certain
of which have been included herein. The debentures are convertible at any time
by the lender into common stock of the Company at a conversion price of $10.25
per share, subject to adjustment in certain events. The conversion price changes
to $8.00 per share if the Company's common stock is trading for less than that
amount on September 25, 1998. The debentures are redeemable by the Company after
September 1999 provided that (a) the Company pays the lender additional interest
such that the lender would receive an effective compounded 20% interest rate
from inception of the loan or (b) the 20-day average bid price for the Company's
stock exceeds $15.00 per share.
The debentures may be required to be redeemed by the Company at the option of
the lender at any time prior to maturity if (a) there is a change in control, as
defined in the Debenture Agreement, (b) the Company's common stock is delisted
from NASDAQ, or (c) the Company's common stock ceases to be publicly traded at
the sum of the principal amount of the debentures tendered for redemption, plus
any accrued and/or unpaid interest outstanding related to the debentures, plus
15% interest on outstanding principal and interest amounts due, plus any expense
or costs owed to the lender as set forth in the Debenture Agreement. Due to
continued noncompliance with debt covenants and the NASDAQ listing criteria, the
Company was delisted as of October 14, 1998. However, accompanying the sale of
the Company's international subsidiary, SouthTech, Inc., Sirrom Capital agreed
to restructure the $4,000,000 debenture with the Company by transferring
$1,000,000 to SouthTech, Inc. as it was sold to Chapala Communications. In
addition, Sirrom Capital agreed to convert $1,000,000 along with accrued but
unpaid interest of $314,333 into Series A convertible preferred stock which
bears no dividends and is convertible into common stock at $1.00 per share. The
remaining $2,000,000 debenture, convertible now at $1.00 per share and bearing
interest at 10% per annum, requires an interest payment of $200,000 on February
5, 2000.
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After February 5, 2000, interest under the debenture is to be paid (i) on each
June 1, September 1, December 1, and February 1 until and including February 1,
2002 (ii) on the first day of each month commencing March 1, 2002 and (iii) on
the final maturity date of February 5, 2004. Monthly interest payments shall be
accompanied by payments of principal on the first day of each month (i)
beginning on February 1, 2002, in the amount of $55,555 each, and (ii) beginning
on February 1, 2003 in the amount of $111,111 each, and (iii) all remaining
principal shall become due on February 5, 2004. As consideration for the
restructuring of the convertible debenture by Sirrom Capital, the Company
granted 702,615 warrants to Sirrom Capital with a strike price of $1.00 per
share. The warrants were valued at $182,000 and has been allocated to Other
Assets within the accompanying balance sheet. The warrant value will be
amortized over the life of the amended debenture agreement which approximates 5
years.
On December 31, 1998 an option to purchase 1,738,159 common shares of DTS stock
was granted to MicroTel International ("MicroTel") by Peregrine Ventures, a
California based limited partnership and shareholder of DTS, in consideration
for a certain amount of MicroTel common stock. On the same date, the two DTS
Board members representing Peregrine Ventures interests, tendered their
resignations effective immediately. The option, due to expire on January 31,
1999, was exercised by MicroTel and thus became DTS' largest single shareholder,
holding approximately 40% of the then outstanding stock. Two MicroTel
representatives were elected to the DTS Board of Directors at the DTS
Shareholders Meeting held on April 13, 1999. MicroTel is a Delaware corporation
whose stock is publicly traded in the NASDAQ exchange under the ticker symbol
MCTLC. In addition to various subsidiaries whose principal business is to
manufacture and market power supplies, keypads, video displays, circuit boards
and other electronic assemblies to a variety of aerospace and communications
clients MicroTel also owns two CXR subsidiaries - CXR Telcom and CXR S.A. -
which manufacture and market telecommunications products to telco and private
network users.
At March 31, 1999, the Company had approximately $150,000 in cash and cash
equivalents. For the nine months ended March 31, 1999, $75,000 was provided by
operations as compared to $2,500,000 used in operations for the same period
ending March 31, 1998. The net loss for the nine month period ended March 31,
1999 of $876,000 includes non-cash depreciation and amortization charges of
$757,000, a non-cash recorded gain of $1,100,000 recognized upon the sale of the
Company's international subsidiary, SouthTech, Inc. and an additional non-cash
recorded gain of $165,000 recognized in conjunction with certain debt
restructuring. Exclusive of the non-cash charges, cash was provided for
operations primarily through a decrease in accounts receivable of $740,000 and a
decrease in inventory of $846,000.
The Company purchased $62,000 and $576,000 of property, plant and equipment
during the nine months ended March 31, 1999 and 1998, respectively. In addition,
the Company capitalized certain product development expenses paid to outside
contractors. During the nine months ended March 31, 1999, the Company
capitalized $98,000 of such costs as compared to capitalized costs of $540,000
for the nine months ended March 31, 1998.
CREATION AND SALE OF SOUTHTECH, INC.
In fiscal 1998 the DTS Board of Directors directed the creation of a wholly
owned subsidiary - SouthTech, Inc. ("SouthTech"), a Georgia corporation - to
which certain assets and liabilities will pertain and whose business purpose is
the administration and growth of the Company's international business. The
SKYPLEX and DIV product lines and associated intellectual property together with
the payables and receivables pertaining to the sales realized from those product
lines form part of the assets and liabilities transferred. Since its creation,
investment capital had been sought for the subsidiary in order to fund its
operating losses which have been substantial in the past for the Company's
international business. Cash resources of the Company had been used for the
purposes of developing the SKYPLEX I product line, a set of microwave radio
products utilizing spread spectrum technology, and developing sales distribution
channels in Latin America, Asia Pacific and the Mid-East global sectors.
The Company entertained an offer from a private group of investors to buy
SouthTech, Inc. in the latter part of 1998 but the offer was later withdrawn on
November 10, 1998. In late November 1998, Chapala Communications, Inc.
("Chapala"), a Georgia based company, offered to purchase the stock of
SouthTech. The sale involved the transfer of certain assets and liabilities of
SouthTech, Inc. to Chapala. The transaction resulted in approximately $981,000
of assets and $2,081,000 of liabilities being transferred to Chapala. As
additional consideration for the sale, the Company received 19.5% of Chapala
stock ownership. The Company has valued their interest in Chapala at $0 within
the accompanying financial statements and has no obligations to fund the
Company's future operations or present liabilities. The transaction was closed
on February 5, 1999.
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In conjunction with the sale of SouthTech, Inc., the Company was issued a note
from Chapala Communications in the amount of $900,000 on February 5, 1999. The
note represents the portion of a significant vendor liability that Chapala will
be assuming upon the Company obtaining formal waivers and consents from the
vendor. The liability represents approximately $900,000 and is recorded within
the accompanying balance sheet as of March 31, 1999. In lieu of the formal
consent or novation from the vendor on February 5, 1999, the Company accepted
the $900,000 note from Chapala and has deferred $900,000 of the gain associated
with the transaction. The Company expects to receive a formal consent from the
vendor with respect to transfer of a portion of the $900,000 liability during
the 4th quarter of fiscal 1999. Upon receipt of such a consent, the Company will
recognize an additional gain to the extent of the liability transfer.
Accompanying the sale of SouthTech, the Company completed the restructuring of
the Sirrom Capital convertible debenture originally issued September 25, 1997
(as discussed within Liquidity and Capital Resources above).
ELECTION OF BOARD MEMBERS & SHAREHOLDER MEETING - APRIL 13, 1999
On December 31, 1998, Frank LaHaye (first elected in 1993) and Gene Miller
(first elected in 1990), two DTS Board members representing Peregrine Ventures,
a venture capital firm and the Company's largest single shareholder, tendered
their resignations effective the same day. The Board of Directors accepted their
resignations and subsequently proposed two replacement candidates for election
to the DTS Board of Directors at the Shareholder Meeting scheduled for Tuesday,
April 13, 1999 at the Company headquarters. The candidates were nominated by
representatives from MicroTel International. With 90% of the shares outstanding
voting in the affirmative, the two candidates from MicroTel - Carmine T. Oliva
and Jim Butler - were elected to the DTS Board of Directors at the April 13,
1999 Shareholders Meeting. Further, Mr. Oliva was elected Chairman of the Board
at a DTS Board meeting held April 13, 1999. The term for Mr. Robert Francis
(appointed in 1995 and elected for a two year term in October 1996) expired in
October 1998, however, Mr. Francis continued to serve on the Board until April
12, 1999 with the consent of the other Board Members. The current Board of
Directors of the Company consists of Mr. Carmine T. Oliva (Chairman and CEO,
MicroTel International, Inc.), Chairman; Mr. Jim Butler (CFO, MicroTel
International, Inc.); Mr. Andres C. Salazar (CEO, DTS); and Mr. Edwin Kantor
(Vice Chairman, Barrington Capital).
Two other proposals were voted on at the April 13, 1999 Shareholder Meeting with
both being voted in the affirmative by a substantial margin from the ballots
received by the Company. One proposal concerned the increase of stock options
for employees and affiliates as a amendment to the Company's 1996 Stock
Incentive Plan. An additional 400,000 options were added to the current option
pool of that Plan. The remaining proposal requested that KPMG LLP be approved
and retained as the Company's independent auditors. The firm has been providing
auditing services to the Company since July 1996.
MANAGEMENT CHANGES AND EMPLOYMENT AGREEMENTS WITH CERTAIN EMPLOYEES
At the Board Meeting held on April 13, 1999, a resolution was passed that
approved certain management changes and accompanying employment agreements. Mr.
Andres C. Salazar, then DTS President and CEO was re-appointed CEO and granted
an employment agreement for one year, renewable annually. Simultaneously, Mr.
Salazar was appointed Senior Vice President and Group Executive for MicroTel
International by the MicroTel Board of Directors. In that role, Mr. Salazar is
expected to perform strategic planning services for MicroTel. His advisory
services, expected to take up approximately 60% of his time, and expenses
incurred on behalf of MicroTel will be reimbursed to DTS by MicroTel. Mr.
Woodrow B. Cannon, then DTS Vice President and General Manager, was appointed
DTS President and Chief Operating Officer and granted an employment agreement
for two years, renewable annually for one year after the first two years. Copies
of both of these agreements can be found in adjunct SEC filings by the Company.
SEASONALITY
The Company's sales have been subject to quarterly fluctuations mainly due to
the purchasing cycle of the Company's major customers. Other fluctuations occur
due to increased buildout of the telecommunications infrastructure during the
summer months. The Company's business plan is to continue the diversification of
its product offerings, further develop its distribution channels and further
expand its customer base. The Company believes that the implementation of this
plan will decrease the seasonality of its sales. The Company operates with a
moderate level of backlog for each product line due to advance purchase
commitments and production lead times.
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YEAR 2000 (Y2K) IMPACT ON COMPANY'S INFORMATION TECHNOLOGY
The Company operates an Enterprise Resource Planning ("ERP") software system
which has modules supporting order entry, planning, inventory management,
operations, and general ledger functions. The vendor of this information system
has sent the Company a letter indicating the ERP system is Y2K compliant. The
hardware platform vendor, through its web presence, also indicates that the
system is Y2K compliant.
Most of the desktop computing systems used at the Company were manufactured
after 1995. They use operating system and document preparation software from
Microsoft Corporation. These systems are generally compliant with the Year 2000
requirements. The Company does operate older PC's in its manufacturing and
engineering organizations, but they are not used in time or date critical
operations.
The Company's products are designed to be Year 2000 compliant and have been
adequately tested as to conformance with Year 2000 date processing. All products
tested passed the conformance test and have been appropriately certified as Year
2000 compliant by the Company. The Company did not incur and does not expect to
incur any material costs to address Year 2000 compliance issues. The Company is
in the process of developing a contingency plan to address any instances of Year
2000 non-compliance and expects to complete such a contingency plan by September
1999. The Company has a number of material relationships with third parties and
is aware of the risks involved and is currently analyzing the potential impact
on future operations. The Company is, however, aware of the risk that third
parties, including vendors and customers of the Company, will not adequately
address the Year 2000 problem and the resultant potential adverse impact on the
Company.
Notwithstanding the above, there can be no assurance that the Company's internal
systems or products will operate beyond 1999 or that major business disruptions
will not occur in mission critical systems and processes.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected financial information about operating
segments in interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS 131 is effective for fiscal years beginning after December 15, 1997, and
therefore the Company will adopt the new requirements in the annual report as of
June 30, 1999.
In October 1997, the Accounting Standards Executive Committee issued Statement
of Position 97-2, Software Revenue Recognition ("SOP 97-2"). SOP 97-2 is
effective for financial statements for fiscal years beginning after December 15,
1997. The Company does not expect that adoption of SOP 97-2 will significantly
affect its results of operations because the Company does not believe that SOP
97-2 applies to most sales. However, if the Company's products become subject to
the provisions of SOP 97-2, the adoption of SOP 97-2 could significantly
negatively affect its results of operations.
IMPORTANT CONSIDERATIONS RELATED TO FORWARD-LOOKING STATEMENTS
Certain statements contained in this filing which are not statements of
historical fact constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act (the Act). In addition, certain
statements in future filings by the Company with the Securities and Exchange
Commission, in press releases, and in oral and written statements made by or
with the approval of the Company which are not statements of historical fact
constitute forward-looking statements within the meaning of the Act. Examples of
forward-looking statements include, but are not limited to: (i) projections of
revenue, income or loss, earnings or loss per share, the payment or nonpayment
of dividends, capital structure and other financial items; (ii) statements of
plans and objectives of the company's management or Board of Directors,
including those relating to products or services; (iii) statements of future
economic performance; and (iv) statements of assumptions underlying such
statements. Words such as "believes," "anticipates," "expects," "intends,"
"targeted," and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such statements.
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Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those in such statements. Factors that
could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to: (I) the strength of the U.S. economy
in general and relevant foreign economies; (ii) the Company's performance under
current and future contracts; (iii) inflation and interest rate fluctuations;
(iv) timely and successful implementation of processing systems to provide new
products, improved functionality and increased efficiencies; (v) technological
changes; (vi) acquisitions; (vii) the ability to increase market share and
control expenses; (viii) changes in laws or regulations or other industry
standards affecting the Company's business which require significant product
redevelopment efforts; (ix) the effect of changes in accounting policies and
practices as may be adopted by the Financial Accounting Standards Board; (x)
changes in the Company's organization, compensation and benefit plans; (xi) the
costs and effects of litigation and of unexpected or adverse outcomes in such
litigation; (xii) failure to successfully implement the Company's Year 2000
modification plans substantially as scheduled and budgeted; and (xiii) the
success of the Company at managing the risks involved in the foregoing.
Such forward-looking statements speak only as of the date on which statements
are made, and the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statement is made to reflect to occurrence of unanticipated events.
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PART II. OTHER INFORMATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ITEMS 1 - 5 ARE NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<S> <C> <C>
(A) EXHIBITS
Exhibit
Number Description of Exhibits
10.25 Second Amendment to Debenture Purchase Agreement between Sirrom Capital and the
Company.
10.26 Second Amendment to Subordinated Debenture Agreement between Sirrom Capital and
the Company.
10.27 Stock Purchase Warrant Agreement between Sirrom Capital and the Company.
10.28 Shareholders' Agreement with respect to shares of Chapala Communications, Inc. and the
Company.
10.29 Pledge and Security Agreement between MicroTel International, Inc. and Sirrom Capital.
10.30 Promissory Note between SouthTech, Inc. and the Company.
10.31 Security Agreement between SouthTech, Inc. and the Company.
10.32* Stock Purchase Agreement between Chapala Communications, Inc. and the Company.
10.33** Employment Agreement between Woodrow B. Cannon and the Company.
10.34** Employment Agreement between Andres C. Salazar and the Company.
27.0 Financial Data Schedule (for SEC use only)
(B) REPORTS ON FORM 8-K
Form 8-K dated February 5, 1999, filed with the Securities and Exchange
Commission on February 22, 1999, as amended by Form 8-K/A filed with
the Securities and Exchange Commission on February 23, 1999.
</TABLE>
* Incorporated by reference to the corresponding exhibit of the Registrant's
Form 8-K filed February 22, 1999.
** Constitutes a management contract or compensatory plan or arrangement
required to be filed.
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SIGNATURES
Pursuant to the requirements 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.
Digital Transmission Systems, Inc.
Date: May 15, 1999 By: /s/ Andres C. Salazar
-------------------------------
Andres C. Salazar, President and
Chief Executive Officer
Date: May 15, 1999 By: /s/ Clive N. W. Marsh
-------------------------------
Clive N. W. Marsh, Controller
(Principal Accounting Officer)
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<PAGE> 1
EXHIBIT 10.25
SECOND AMENDMENT TO DEBENTURE PURCHASE AGREEMENT
This Second Amendment to Debenture Purchase Agreement ("Amendment") is
made and entered into as of the 5th day of February, 1999, by and between
DIGITAL TRANSMISSION SYSTEMS, INC. (the "Company"), a Delaware corporation, and
SIRROM CAPITAL CORPORATION d/b/a Tandem Capital (the "Purchaser"), a Tennessee
corporation.
WITNESSETH:
WHEREAS, the Purchaser and the Company have previously executed that
Debenture Purchase Agreement dated September 25, 1997, as amended by that First
Amendment to Debenture Purchase Agreement dated as of October 21, 1998 (the
"Purchase Agreement"; capitalized terms used in this Amendment have the meanings
assigned in the Purchase Agreement if not otherwise defined herein);
WHEREAS, the Purchaser and the Company wish to further amend the
Purchase Agreement;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are acknowledged, it is agreed as follows:
1. Concurrently with the effectiveness of this Amendment, the
principal amount of the Debenture shall be reduced, without penalty or premium,
(i) by $1,000,000 in connection with the Company's sale of the stock of
SouthTech, Inc., a wholly-owned subsidiary of the Company, to Chapala
Communications, Inc., a Georgia corporation, and (ii) by an additional
$1,000,000 through the conversion of that amount of principal debt into the
Company's Series A Convertible Preferred Stock at an exchange rate of $1.00 of
debt for one share of stock. As so reduced, the Debenture shall have a remaining
outstanding principal balance of $2,000,000. All accrued and unpaid interest as
of the effective date hereof, which totals $314,333.32 as of February 5, 1999,
shall further be converted into the Company's Series A Convertible Preferred
Stock at an exchange rate of $1.00 of debt for one share of stock. The
conversion of the total $1,314,333.32 of debt for 1,314,333 shares of Series A
Convertible Preferred Stock shall occur by the operation of this Amendment
and the issuance of the stock certificate to the Purchaser, and no additional
documents or actions shall be necessary to give effect to this conversion.
2. The Purchase Agreement is hereby amended to provide that the
"Conversion Price," as defined therein, shall be the "Conversion Price," as
defined in the [charter amendment or declaration] establishing the rights and
preferences of the Series A Convertible Preferred Stock issued to the Company
pursuant to Section 1 above.
3. The Debenture has been amended in certain respects by that Second
Amendment to Subordinated Debenture executed by the Company and the Purchaser
dated as of the date hereof, which amendments include the change of interest
rate and payment terms including, but not limited to, the amendment of the final
maturity thereof to February 5, 2004.
<PAGE> 2
4. Section 1.1 of the Purchase Agreement is hereby amended to
include the following as a final sentence thereof.
Notwithstanding the foregoing, upon and after February 5, 1999, the
Debentures shall bear interest and be payable as provided therein as
amended by that Second Amendment to Subordinated Debenture between the
Company and the Purchaser dated February 5, 1999.
5. The Purchaser hereby consents to the acquisition by MicroTel
International, Inc. of up to 100% of the common stock of the Company and to the
sale of all of the issued and outstanding stock of SouthTech, Inc., a
wholly-owned subsidiary of the Company, to Chapala Communications, Inc., a
Georgia corporation.
6. The obligations of the Company under the Debenture and under the
Purchase Agreement, as they are amended, continue to be secured by that Security
Agreement dated October 21, 1998, executed by the Company and the Purchaser. To
further evidence this security interest as to certain types of property, the
Company shall enter into an Intellectual Property Security Agreement in favor of
the Purchaser concurrently with the execution of this Amendment.
7. Section 1.2 of the Purchase Agreement is hereby amended by
deleting the exiting language and replacing it in full with the following:
1.2 Optional Redemption. The Debentures may be redeemed at the option
of the Company at any time at the same price provided for under Section
1.3 hereof respecting mandatory redemptions.
8. The Purchase Agreement is hereby amended to include an additional
Section 5.22 thereof, providing in full as follows:
5.22 Cash Flow Projections. No later than thirty (30) days prior to
each February 5, the Company shall deliver to the Purchaser
comprehensive cash flow projections for at least the next following
twelve month period, which shall be in form acceptable to the
Purchaser, in its reasonable discretion. The projections shall include
projections of the Company's "EBITDA," defined as net income plus
expenses taken in the relevant period for interest, income taxes,
depreciation and amortization. If the Company fails to achieve, for any
fiscal quarter ending on or before March 31, 2001, an amount of EBITDA
that is less than 90% of the EBITDA so projected, the Company shall be
obligated to redeem the Debenture as a mandatory redemption in the
manner provided in Section 1.3 of the Purchase Agreement.
9. The Company hereby represents and warrants to the Purchaser that
all of the representations made in Section 3 of the Purchase Agreement are true
and correct as of the date
-2-
<PAGE> 3
hereof, except as modified or supplemented by Schedule A attached hereto and
incorporated herein by this reference. Without limiting the foregoing, the
Company specifically warrants and represents that it has no capital stock
outstanding and has no warrants or options for the purchase of its stock
outstanding (except in favor of the Purchaser) other than as set forth in the
Purchase Agreement, as supplemented by Schedule A hereto.
10. The effectiveness of this Amendment are subject to the
requirements that the Purchaser receive each of the following documents, in form
and substance acceptable to the purchaser:
(a) Second Amendment to Subordinated Debenture.
(b) Stock Purchase Warrant respecting the issuance of ten
percent (10%) of the Company's common stock.
(c) Certificate evidencing the preferred stock to be issued
pursuant to Section 1 hereof.
(d) Registration Rights Agreement.
(e) Co-Sale Rights Agreement executed by MicroTel International
Inc.
(f) Evidence satisfactory to the Purchaser that MicroTel
International, Inc. will acquire at least a 43% interest in the
Company's common stock concurrently with the effectiveness of this
Amendment.
(g) The Company's cash flow projections for the succeeding
twelve month period in form and substance acceptable to the Purchaser.
(h) Pledge Agreement granting to the Purchaser a first
priority perfected security interest in the stock of the Company owned
by Microtel International, Inc. together with stock powers and
irrevocable proxies.
(i) An opinion of the Company's counsel, in form and substance
satisfactory to Lender's counsel.
(j) An Intellectual Property Security Agreement.
(k) an Authorization Agreement for Pre-Authorized Payments
(Debit).
(1) Closing Statement evidencing the disbursement of funds.
(m) Evidence satisfactory to the Purchaser that the related
transaction with Chapala Communications, Inc. has closed and funded to
provide the $1,000,000 payment described in Section 1 above.
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<PAGE> 4
11. The Company warrants and represents that its execution, delivery
and performance hereof and of all documents required herein have been duly
authorized by all necessary corporate action and do not (i) violate or conflict
with the Company's corporate charter or bylaws, (ii) violate any applicable law
or regulation, (iii) violate any order, writ, judgment or decree by which the
Company or any of its assets are bound, or (iv) violate, constitute a breach of,
or occasion any rights or remedies under any other loan agreement, lease,
indenture or other agreement by which the Company or any of its assets are
bound.
12. The Company warrants and represents that the Debenture, the
Purchase Agreement and all related documents executed in favor of the Purchaser
with respect thereto (a) are valid, binding and enforceable against the Company
according to their terms, subject to principles of equity and laws applicable to
the rights of creditors generally, including bankruptcy laws, and (b) are not
subject to any counterclaim, defense or right of setoff, and the Company hereby
releases Lender from any claim, known or unknown, that the Company may have
against Lender as of the execution of this Amendment.
13. This Amendment and the other written documents between the
parties evidence their entire agreement and may be amended only by written
instrument signed by the parties. This Amendment shall be governed by, and
construed and interpreted in accordance with, the internal laws of the State of
Georgia.
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-4-
<PAGE> 5
Executed as of the date stated above.
DIGITAL TRANSMISSION SYSTEMS, INC.
By: /s/
-----------------------------------------
Title: /s/
--------------------------------------
SIRROM CAPITAL CORPORATION
d/b/a Tandem Capital
By: /s/
-----------------------------------------
Title: Vice President
--------------------------------------
-5-
<PAGE> 6
Schedule A
Rights To Acquire DTS stock
Warrants were issued during IPO - March 5, 1996 - see Prospectus
Registration rights held by Peregrine Ventures II LP, James W. Chamberlain and 2
other stockholders - see Prospectus
Warrants issued (60,000) to Silicon Valley Bank - March 16, 1998
The Company's Board of Director's have resolved to pay certain fiscal year 1999
employee and Board of Director compensation with DTS stock. Total amount of
stock to be issued in conjunction with this agreement approximates 419,000
shares.
Stock options granted to employees of the Company. Total options outstanding
under these agreements approximates 746,000 shares.
<PAGE> 1
EXHIBIT 10.26
SECOND AMENDMENT TO SUBORDINATED DEBENTURE
This Second Amendment to Subordinated Debenture ("Amendment") is made
and entered into as of the 5th day of February, 1999, by and between DIGITAL
TRANSMISSION SYSTEMS, INC. (the "Company"), a Delaware corporation, and SIRROM
CAPITAL CORPORATION d/b/a Tandem Capital (the "Purchaser"), a Tennessee
corporation.
W I T N E S S E T H:
WHEREAS, the Purchaser and the Company have previously executed that
11.5% Subordinated Debenture due September 25, 2002, in the original principal
amount of $4,000,000, as amended by that First Amendment to Subordinated
Debenture dated as of October 21, 1998 (the "Debenture");
WHEREAS, the Purchaser and the Company wish to further amend the
Debenture;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are acknowledged, it is agreed as follows:
1. The Debenture is hereby amended by deleting the third paragraph
thereof and substituting therefor the following language:
Interest shall accrue on the outstanding principal balance of this
Debenture at the rate often percent (10%) per annum. Interest shall be
paid in arrears (i) on February 1, 2000, (ii) on each June 1, September
1, December 1 and February 1 until and including February 1, 2002,
(iii) on the first day of each month commencing March 1, 2002, and (iv)
on the final maturity date, February 5, 2004. Monthly interest payments
shall be accompanied by payments of principal on the first day of each
month (i) beginning on February 1, 2002, in the amount of $55,555.55
each, and (ii) beginning on February 1, 2003, in the amount of
$111,111.11 each, and (iii) all remaining principal shall become due
on February 5, 2004. All payments shall be made by automatic bank
draft.
2. The Debenture remains in full effect, as amended hereby.
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<PAGE> 2
Executed as of the date stated above.
DIGITAL TRANSMISSION SYSTEMS, INC.
By: /s/
--------------------------------------
Title: President and CEO
-----------------------------------
SIRROM CAPITAL CORPORATION
d/b/a Tandem Capital
By: /s/
--------------------------------------
Title: Vice President
-----------------------------------
-2-
<PAGE> 1
EXHIBIT 10.27
STOCK PURCHASE WARRANT
This STOCK PURCHASE WARRANT ("Warrant") is issued as of the 5th day of
February, 1999, by DIGITAL TRANSMISSION SYSTEMS, INC., a Delaware corporation
(the "Company"), to SIRROM CAPITAL CORPORATION, a Tennessee corporation (SIRROM
CAPITAL CORPORATION and any subsequent assignee or transferee hereof are
hereinafter referred to collectively as "Holder" or "Holders").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. For and in consideration of SIRROM
CAPITAL CORPORATION entering into that Second Amendment to Debenture Purchase
Agreement with the Company dated as of the date hereof, which amends that
Debenture Purchase Agreement dated September 25, 1997, as previously amended by
that First Amendment to Debenture Purchase Agreement dated as of October 21,
1998 (the "Loan Agreement"), and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company hereby
grants to Holder the right to purchase 702,615 shares of the Company's common
stock (the "Common Stock"), which the Company represents to equal 10.0% of the
shares of capital stock outstanding on the date hereof, calculated on a fully
diluted basis and assuming exercise of this Warrant. The shares of Common Stock
issuable upon exercise of this Warrant are hereinafter referred to as the
"Shares." This Warrant shall be exercisable at any time and from time to time
from the date hereof until March 1, 2004 (the "Expiration Date").
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per
share for which all or any of the Shares may be purchased pursuant to the terms
of this Warrant shall be One Dollar ($1.00).
3. EXERCISE. This Warrant may be exercised by the Holder hereof (but
only on the conditions hereinafter set forth) in whole or in part, upon delivery
of written notice of intent to exercise to the Company in the manner at the
address of the Company set forth in Section 13 hereof, together with this
Warrant and payment to the Company of the aggregate Exercise Price of the
Shares so purchased. The Exercise Price shall be payable, at the option of the
Holder, (i) by certified or bank check, (ii) by the cancellation of all or a
portion of debt outstanding to the Holder from the Company having an outstanding
principal balance equal to the aggregate Exercise Price or (iii) by the
surrender of a portion of this Warrant where the Shares subject to the portion
of this Warrant that is surrendered have a fair market value equal to the
aggregate Exercise Price. In the absence of an established public market for the
Common Stock, fair market value shall be established by the Company's board of
directors in a commercially reasonable manner. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any
<PAGE> 2
event within fifteen (15) days thereafter, execute and deliver to the Holder of
this Warrant a certificate or certificates for the total number of whole Shares
for which this Warrant is being exercised in such names and denominations as are
requested by such Holder. If this Warrant shall be exercised with respect to
less than all of the Shares, the Holder shall be entitled to receive a new
Warrant covering the number of Shares in respect of which this Warrant shall not
have been exercised, which new Warrant shall in all other respects be identical
to this Warrant. The Company covenants and agrees that it will pay when due any
and all state and federal issue taxes which may be payable in respect of the
issuance of this Warrant or the issuance of any Shares upon exercise of this
Warrant.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
following:
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended ("Securities Act"), or any
state securities laws ("Blue Sky Laws"). This Warrant has been
acquired for investment purposes and not with a view to distribution or
resale and may not be sold or otherwise transferred without (i) an
effective registration statement for such Warrant under the Securities
Act and such applicable Blue Sky Laws, or (ii) an opinion of counsel,
which opinion and counsel shall be reasonably satisfactory to the
Company and its counsel, that registration is not required under the
Securities Act or under any applicable Blue Sky Laws (the Company
hereby acknowledges that Boult, Cummings, Conners & Berry, PLC is
acceptable counsel). Transfer of the Shares shall be restricted in the
same manner and to the same extent as the Warrant and the certificates
representing such Shares shall bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT
BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE ACT
AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (II) IN THE OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH SECURITIES
ACTS AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other
documents and instruments as counsel for the Company reasonably deems
necessary to effect the compliance of the issuance of this Warrant and
any shares of Common Stock issued upon exercise hereof with applicable
federal and state securities laws.
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<PAGE> 3
(b) The Company covenants and agrees that all Shares which may
be issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, liens, charges and preemptive
rights, if any, with respect thereto or to the issuance thereof. The
Company shall at all times reserve and keep available for issuance upon
the exercise of this Warrant such number of authorized but unissued
shares of Common Stock as will be sufficient to permit the exercise in
full of this Warrant.
(c) The Company covenants and agrees that it shall not sell
any shares of the Company's capital stock at a price per share below
the fair market value of such shares, without the prior written
consent of the Holder hereof. In the event that the Company sells
shares of Common Stock at a price per share below the fair market
value of such shares (a "Below Market Transaction"), without the prior
written consent of the Holder hereof, the Company covenants and agrees
that the number of shares issuable upon exercise of this Warrant shall
be equal to the product obtained by multiplying the number of shares
issuable pursuant to this Warrant prior to the Below Market
Transaction by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to
consummation of the Below Market Transaction plus the number of shares
of Common Stock issued in the Below Market Transaction, and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to the Below Market Transaction plus the
number of shares of Common Stock that the aggregate consideration
received by the Company in the Below Market Transaction would purchase
at fair market value. For purposes of this subsection, Common Stock
shall be deemed to include that number of shares of Common Stock that
would be obtained assuming (i) the conversion of any securities of the
Company which, by their terms, are convertible into or exchangeable
for Common Stock, and (ii) the exercise of all options to purchase or
rights to subscribe four Common Stock or securities which, by their
terms, are convertible into or exchangeable for Common Stock. In the
absence of an established public market for the securities sold by the
Company in a Below Market Transaction, fair market value shall be
established by the Company's board of directors in a commercially
reasonable manner.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4
hereof, this Warrant may be transferred, in whole or in part, to any person or
business entity, by presentation of the Warrant to the Company with written
instructions for such transfer. Upon such presentation for transfer, the Company
shall promptly execute and deliver a new Warrant or Warrants in the form hereof
in the name of the assignee or assignees and in the denominations specified in
such instructions. The Company shall pay all expenses incurred by it in
connection with the preparation, issuance and delivery of Warrants under this
Section.
6. WARRANT HOLDER NOT SHAREHOLDER; RIGHTS OFFERING; PREEMPTIVE
RIGHTS. Except as otherwise provided herein, this Warrant does not confer upon
the Holder, as such, any right whatsoever as a shareholder of the Company.
Notwithstanding the foregoing, if the Company
3
<PAGE> 4
should offer to all of the Company's shareholders the right to purchase any
securities of the Company, then all shares of Common Stock that are subject to
this Warrant shall be deemed to be outstanding and owned by the Holder and the
Holder shall be entitled to participate in such rights offering. The Company
shall not grant any preemptive rights with respect to any of its capital stock
without the prior written consent of the Holder.
7. OBSERVATION RIGHTS. The Holder of this Warrant shall receive
notice of and be entitled to attend or may send a representative to attend all
meetings of the Company's Board of Directors in a non-voting observation
capacity and shall receive a copy of all correspondence and information
delivered to the Company's Board of Directors, from the date hereof until such
time as all indebtedness of the Company to the Holder has been paid in full.
8. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization,
combination of shares of the Company, or other similar event, occurring
after the date hereof, then the Holder exercising this Warrant shall
receive, for the aggregate Exercise Price, the aggregate number and
class of shares which such Holder would have received if this Warrant
had been exercised immediately prior to such stock split, stock
dividend, recapitalization, combination of shares, or other similar
event. If any adjustment under this Section 8(a), would create a
fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and
the number of shares subject to this Warrant shall be the next higher
number of shares, rounding all fractions upward. Whenever there shall
be an adjustment pursuant to this Section 8(a), the Company shall
forthwith notify the Holder or Holders of this Warrant of such
adjustment, setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares,
separation, reorganization or liquidation of the Company, or other
similar event, occurring after the date hereof, as a result of which
shares of Common Stock shall be changed into the same or a different
number of shares of the same or another class or classes of securities
of the Company or another entity, or the holders of Common Stock are
entitled to receive cash or other property, then the Holder exercising
this Warrant shall receive, for the aggregate Exercise Price, the
aggregate number and class of shares, cash or other property which such
Holder would have received if this Warrant had been exercised
immediately prior to such merger, consolidation, exchange of shares,
separation, reorganization or liquidation, or other similar event. If
any adjustment under this Section 8(b) would create a fractional share
of Common Stock or a right to acquire a fractional share of Common
Stock, such fractional share shall be disregarded and the number of
shares subject to this Warrant shall be the next higher number of
shares, rounding all fractions upward. Whenever there shall be an
adjustment pursuant to this Section 8(b),
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<PAGE> 5
the Company shall forthwith notify the Holder or Holders of this
Warrant of such adjustment, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment
was calculated.
9. PUT AGREEMENT.
(a) The Company hereby irrevocably grants and issues to Holder
the right and option to sell to the Company (the "Put") this Warrant
for a period of thirty (30) days immediately prior to the Expiration
Date, at a purchase price (the "Put Price") equal to the Fair Market
Value (as hereinafter defined) of the shares of Common Stock issuable
to Holder upon exercise of this Warrant.
(b) Holder may exercise the Put by delivery of written notice
(the "Put Notice") of such exercise to the Company in the manner and at
the address of the Company set forth in Section 13 hereof. The Company
shall pay to Holder, in cash or by wire transfer of immediately
available funds, the Put Price within thirty (30) days of the receipt
of the Put Notice.
(c) For purposes of this Section 9, the Fair Market Value of the
shares of Common Stock of the Company issuable pursuant to this Warrant
shall be determined as follows:
(i) The Company and the Holder shall each appoint an
independent, experienced appraiser who is a member of a
recognized professional association of business appraisers. The
two appraisers shall determine the value of the shares of Common
Stock which would be issued upon the exercise of the Warrant,
assuming that the sale would be between a willing buyer and a
willing seller, both of whom have full knowledge of the financial
and other affairs of the Company, and neither of whom is under
any compulsion to sell or to buy.
(ii) If the higher of the two appraisals is not ten
percent (10%) greater than the lower of the appraisals, the Fair
Market Value shall be the average of the two appraisals. If the
higher of the two appraisals is equal to or greater than ten
percent (10%) more than the lower of the two appraisals, then a
third appraiser shall be appointed by the two appraisers, and if
they cannot agree on a third appraiser, the American Arbitration
Association shall appoint the third appraiser. The third
appraiser, regardless of who appoints him or her, shall have the
same qualifications as the first two appraisers.
(iii) The Fair Market Value after the appointment of the
third appraiser shall be the mean of the three appraisals.
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<PAGE> 6
(iv) The fees and expenses of the appraisers shall be paid
one-half by the Company and one-half by the Holder.
10. REGISTRATION.
(a) The Company and the holders of the Shares agree that if at
any time after the date hereof the Company shall propose to file a
registration statement with respect to any of its Common Stock on a
form suitable for a secondary offering (including its initial public
offering), it will give notice in writing to such effect to the
registered holder(s) of the Shares at least thirty (30) days prior to
such filing, and, at the written request of any such registered holder,
made within ten (10) days after the receipt of such notice, will
include therein at the Company's cost and expense (including the fees
and expenses of counsel to such holder(s), but excluding underwriting
discounts, commissions and filing fees attributable to the Shares
included therein) such of the Shares as such holder(s) shall request;
provided, however, that if the offering being registered by the Company
is underwritten and if the representative of the underwriters certifies
in writing that the inclusion therein of the Shares would materially
and adversely affect the sale of the securities to be sold by the
Company thereunder, then the Company shall be required to include in
the offering only that number of securities, including the Shares,
which the underwriters determine in their sole discretion will not
jeopardize the success of the offering (the securities so included to
be apportioned pro rata among all selling shareholders according to the
total amount of securities entitled to be included therein owned by
each selling shareholder, but in no event shall the total amount of
Shares included in the offering be less than the number of securities
included in the offering by any other single selling shareholder unless
all of the Shares are included in the offering).
(b) Whenever the Company undertakes to effect the registration
of any of the Shares, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement covering
such Shares and use its best efforts to cause such registration
statement to be declared effective by the Commission as
expeditiously as possible and to keep such registration effective
until the earlier of (A) the date when all Shares covered by the
registration statement have been sold or (B) one hundred eighty
(180) days from the effective date of the registration statement;
provided, that before filing a registration statement or
prospectus or any amendment or supplements thereto, the Company
will furnish to each Holder of Shares covered by such
registration statement and the underwriters, if any, copies of
all such documents proposed to be filed (excluding exhibits,
unless any such person shall specifically request exhibits),
which documents will be subject to the review of such Holders and
underwriters, and the Company will not file such registration
statement or any amendment thereto or any prospectus or any
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<PAGE> 7
supplement thereto (including any documents incorporated by
reference therein) with the Commission if (A) the underwriters,
if any, shall reasonably object to such filing or (B) if
information in such registration statement or prospectus
concerning a particular selling Holder has changed and such
Holder or the underwriters, if any, shall reasonably object.
(ii) Prepare and file with the Commission such
amendments and post-effective amendments to such registration
statement as may be necessary to keep such registration statement
effective during the period referred to in Section 10(b)(i) and
to comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration
statement, and cause the prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be
filed with the Commission pursuant to Rule 424 under the
Securities Act.
(iii) Furnish to the selling Holder(s) such numbers of
copies of such registration statement, each amendment thereto,
the prospectus included in such registration statement (including
each preliminary prospectus), each supplement thereto and such
other documents as they may reasonably request in order to
facilitate the disposition of the Shares owned by them.
(iv) Use its best efforts to register and qualify under
such other securities laws of such jurisdictions as shall be
reasonably requested by any selling Holder and do any and all
other acts and things which may be reasonably necessary or
advisable to enable such selling Holder to consummate the
disposition of the Shares owned by such Holder, in such
jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to
qualify to transact business or to file a general consent to
service of process in any such states or jurisdictions.
(v) Promptly notify each selling Holder of the
happening of any event as a result of which the prospectus
included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make
the statements therein not misleading and, at the request of any
such Holder, the Company will prepare a supplement or amendment
to such prospectus so that, as thereafter delivered to the
purchasers of such Shares, such prospectus will not contain an
untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading.
(vi) Provide a transfer agent and registrar for all
such Shares not later than the effective date of such
registration statement.
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<PAGE> 8
(vii) Enter into such customary agreements (including
underwriting agreements in customary form for a primary offering)
and take all such other actions as the underwriters, if any,
reasonably request in order to expedite or facilitate the
disposition of such Shares (including, without limitation,
effecting a stock split or a combination of shares).
(viii) Make available for inspection by any selling
Holder or any underwriter participating in any disposition
pursuant to such registration statement and any attorney,
accountant or other agent retained by any such selling Holder or
underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the officers,
directors, employees and independent accountants of the Company
to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection
with such registration statement.
(ix) Promptly notify the selling Holder(s) and the
underwriters, if any, of the following events and (if requested
by any such person) confirm such notification in writing: (A) the
filing of the prospectus or any prospectus supplement and the
registration statement and any amendment or post-effective
amendment thereto and, with respect to the registration statement
or any post-effective amendment thereto, the declaration of the
effectiveness of such documents, (B) any requests by the
Commission for amendments or supplements to the registration
statement or the prospectus or for additional information, (C)
the issuance or threat of issuance by the Commission of any stop
order suspending the effectiveness of the registration statement
or the initiation of any proceedings for that purpose and (D) the
receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threat of initiation of any
proceeding for such purposes.
(x) Make every reasonable effort to prevent the entry
of any order suspending the effectiveness of the registration
statement and obtain at the earliest possible moment the
withdrawal of any such order, if entered.
(xi) Cooperate with the selling Holder(s) and the
underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing the Shares to be sold and
not bearing any restrictive legends, and enable such Shares to be
in such lots and registered in such names as the underwriters may
request at least two (2) business days prior to any delivery of
the Shares to the underwriters.
(xii) Provide a CUSIP number for all the Shares not
later than the effective date of the registration statement.
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<PAGE> 9
(xiii) Prior to the effectiveness of the registration
statement and any post-effective amendment thereto and at each
closing of an underwritten offering, (A) make such
representations and warranties to the selling Holder(s) and the
underwriters, if any, with respect to the Shares and the
registration statement as are customarily made by issuers in
primary underwritten offerings; (B) use its best efforts to
obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to
the selling Holders and the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily
covered in "cold comfort" letters by underwriters in connection
with primary underwritten offerings; (C) deliver such documents
and certificates as may be reasonably requested (1) by the
holders of a majority of the Shares being sold, and (2) by the
underwriters, if any, to evidence compliance with clause (A)
above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the
Company; and (D) obtain opinions of counsel to the Company and
updates thereof (which counsel and which opinions shall be
reasonably satisfactory to the underwriters, if any), covering
the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be
reasonably requested by the selling Holders and underwriters or
their counsel. Such counsel shall also state that no facts have
come to the attention of such counsel which cause them to believe
that such registration statement, the prospectus contained
therein, or any amendment or supplement thereto, as of their
respective effective or issue dates, contains any untrue
statement of any material fact or omits to state any material
fact necessary to make the statements therein not misleading
(except that no statement need be made with respect to any
financial statements, notes thereto or other financial data or
other expertized material contained therein). If for any reason
the Company's counsel is unable to give such opinion, the Company
shall so notify the Holders of the Shares and shall use its best
efforts to remove expeditiously all impediments to the rendering
of such opinion.
(xiv) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
generally available to its security holders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act,
no later than forty-five (45) days after the end of any
twelve-month period (or ninety (90) days, if such period is a
fiscal year) (A) commencing at the end of any fiscal quarter in
which the Shares are sold to underwriters in a firm or best
efforts underwritten offering, or (B) if not sold to underwriters
in such an offering, beginning with the first month of the first
fiscal quarter of the Company commencing after the effective date
of the registration statement, which statements shall cover such
twelve-month periods.
(c) After the date hereof, the Company shall not grant to any
holder of securities of the Company any registration rights which have
a priority greater than or equal to those
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<PAGE> 10
granted to Holders pursuant to this Warrant without the prior written
consent of the Holder(s).
(d) The Company's obligations under Section 10(a) above with
respect to each holder of Shares are expressly conditioned upon such
holder's furnishing to the Company in writing such information
concerning such holder and the terms of such holder's proposed offering
as the Company shall reasonably request for inclusion in the
registration statement. If any registration statement including any of
the Shares is filed, then the Company shall indemnify each holder
thereof (and each underwriter for such holder and each person, if any,
who controls such underwriter within the meaning of the Securities Act)
from any loss, claim, damage or liability arising out of, based upon or
in any way relating to any untrue statement of a material fact
contained in such registration statement or any omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except for any such
statement or omission based on information furnished in writing by such
holder of the Shares expressly for use in connection with such
registration statement; and such holder shall indemnify the Company
(and each of its officers and directors who has signed such
registration statement, each director, each person, if any, who
controls the Company within the meaning of the Securities Act, each
underwriter for the Company and each person, if any, who controls such
underwriter within the meaning of the Securities Act) and each other
such holder against any loss, claim, damage or liability arising from
any such statement or omission which was made in reliance upon
information furnished in writing to the Company by such holder of the
Shares expressly for use in connection with such registration
statement.
(e) For purposes of this Section 10, all of the Shares shall be
deemed to be issued and outstanding.
11. CERTAIN NOTICES. In case at any time the Company shall propose
to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in stock
or make any special dividend or other distribution to the holders of
its Common Stock;
(c) offer for subscription to the holders of any of its Common
Stock any additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the Company,
or consolidate, merge or otherwise combine with, or sell of all or
substantially all of its assets to, another corporation;
10
<PAGE> 11
(e) voluntarily or involuntarily dissolve, liquidate or wind
up of the affairs of the Company; or
(f) redeem or purchase any shares of its capital stock or
securities convertible into its capital stock;
then, in any one or more of said cases, the Company shall give to the
Holder of the Warrant, by certified or registered mail, (i) at least
twenty (20) days' prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights
to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up,
and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least twenty (20) days' prior written notice of the date when the same
shall take place. Any notice required by clause (i) shall also specify,
in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled
thereto, and any notice required by clause (ii) shall specify the date
on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be.
12. ARTICLE AND SECTION HEADINGS. Numbered and titled article and
section headings are for convenience only and shall not be construed as
amplifying or limiting any of the provisions of this Warrant.
13. NOTICE. Any and all notices, elections or demands permitted or
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, or sent by certified mail or overnight via nationally recognized
courier service (such as Federal Express), to the other party at the address set
forth below, or at such other address as may be supplied in writing and of which
receipt has been acknowledged in writing. The date of personal delivery or
telecopy or two (2) business days after the date of mailing (or the next
business day after delivery to such courier service), as the case may be, shall
be the date of such notice, election or demand. For the purposes of this
Warrant:
The Address of Holder is: Sirrom Capital Corporation
Suite 200
500 Church Street
Nashville, TN 37219
Attention: Donald F. Barrickman
Telecopy No. 615/726-1208
11
<PAGE> 12
with a copy to: Boult, Cummings, Conners & Berry, PLC
414 Union Street
Suite 1600
Nashville, TN 37219
Attention: John E. Murdock III
Telecopy No. 615/252-6359
The Address of Company is: Digital Transmission Systems, Inc.
3000 Northwoods Parkway
Building 300
Norcross, Georgia 30071
Attention: Andres C. Salazar
with a copy to: Sutherland, Asbill & Brennan, LLP
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attention: Mark D. Wasserman
14. SEVERABILITY. If any provisions(s) of this Warrant or the
application thereof to any person or circumstances shall be invalid or
unenforceable to any extent, the remainder of this Warrant and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
15. ENTIRE AGREEMENT. This Warrant between the Company and Holder
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
16. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
17. COUNTERPARTS. This Warrant may be executed in any number of
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
18. CONSENT TO JURISDICTION; EXCLUSIVE VENUE. The Company hereby
irrevocably consents to the jurisdiction of the United States District Court for
the Middle District of Tennessee and of all Tennessee state courts sitting in
Davidson County, Tennessee, for the purpose of any litigation to which Holder
may be a party and which concerns this Warrant. It is further agreed that
12
<PAGE> 13
venue for any such action shall lie exclusively with courts sitting in Davidson
County, Tennessee, unless Holder agrees to the contrary in writing.
19. WAIVER OF TRIAL BY JURY. HOLDER AND THE COMPANY HEREBY KNOWINGLY
AND VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS,
PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR OTHERWISE,
AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS WARRANT.
20. EQUITY PARTICIPATION. This Warrant is issued in connection with
the Loan Agreement. It is intended that this Warrant constitute an equity
participation under and pursuant to T.C.A. ss.47-24-101, et seq. and that equity
participation be permitted under said statutes and not constitute interest on
the debt obligations of the Company to the Holder. If under any circumstances
whatsoever, fulfillment of any obligation of this Warrant, the Loan Agreement,
or any other agreement or document executed in connection with the Loan
Agreement, shall violate the lawful limit of any applicable usury statute or any
other applicable law with regard to obligations of like character and amount,
then the obligation to be fulfilled shall be reduced to such lawful limit, such
that in no event shall there occur, under this Warrant, the Loan Agreement, or
any other document or instrument executed in connection with the Loan Agreement,
any violation of such lawful limit, but such obligation shall be fulfilled to
the lawful limit. If any sum is collected in excess of the lawful limit, such
excess shall be applied to reduce the principal amount of the debt obligations
of the Company to the Holder.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
COMPANY:
DIGITAL TRANSMISSION SYSTEMS, INC.,
a Tennessee corporation
By: /s/
-----------------------------------
Title: President and CEO
------------------------------
HOLDER:
SIRROM CAPITAL CORPORATION,
a Tennessee corporation
By: /s/
-----------------------------------
Title: Vice President
------------------------------
13
<PAGE> 1
EXHIBIT 10.28
SHAREHOLDERS' AGREEMENT
WITH RESPECT TO
SHARES OF
CHAPALA COMMUNICATIONS, INC.
OWNED BY
MIXBAAL, S.A. DE C.V.
AND
DIGITAL TRANSMISSION SYSTEMS, INC.
Dated as of February 5, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C> <C>
ARTICLE 1:
- ----------
BACKGROUND AND APPLICABILITY ............................................ 1
1.1 Background ........................................................ 1
1.2 Applicability ..................................................... 1
1.3 Rights of a Shareholder to Maintain Percentage Interest in the
Company ......................................................... 1
1.4 Warrant Issued to Sirrom Capital Corporation ...................... 1
ARTICLE 2:
- ----------
RESTRICTIONS ON SHARE TRANSFERS: RIGHT OF REFUSAL ....................... 2
2.1 Restrictions on Share Transfer .................................... 2
2.2 Right of Refusal .................................................. 2
(a) Notice of Intended Transfer; Option to Purchase ............. 2
(b) Company's Notice of Election to Purchase .................... 3
(c) Assignment of Company's Rights .............................. 3
(d) Notice of Shareholder's Election to Purchase ................ 3
(e) Purchase and Sale ........................................... 4
2.3 Permitted Transfer by the Proposed Transferor ..................... 4
2.4 Purchase Price .................................................... 5
2.5 Price ............................................................. 5
(a) General ..................................................... 5
(b) Purchase Price Per Share .................................... 5
(c) Alternative - Appraisal ..................................... 6
2.6 Waiver ............................................................ 6
2.7 Exception to Right of First Refusal ............................... 6
ARTICLE 3:
- ----------
REPRESENTATION ON THE BOARD OF DIRECTORS ................................ 6
3.1 Number of Directors; Bylaws ....................................... 6
3.2 Election of Directors ............................................. 7
3.3 Shareholders' Obligations; Covenant to Vote ....................... 7
3.4 Company's Obligations ............................................. 7
(a) Stock Issuances, Etc. ....................................... 7
(b) Stock Redemptions, Etc. ..................................... 7
(c) Articles and Bylaws ......................................... 7
(d) Dissolutions, Etc. .......................................... 7
(e) Dividends, Etc. ............................................. 7
(f) Mergers ..................................................... 7
(g) Asset Sales ................................................. 8
(h) Certain Investments ......................................... 8
(i) Certain Liabilities ......................................... 8
(j) Compensation ................................................ 8
(k) Authority to Enter Contracts ................................ 8
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ARTICLE 4:
- ----------
CERTAIN AGREEMENTS INVOLVING THE COMPANY'S SALE........................ 8
4.1 Go-Along Obligations............................................. 8
4.2 Take-Along Rights................................................ 9
4.3 Registration Rights.............................................. 9
ARTICLE 5:
- ----------
GENERAL PROVISIONS..................................................... 9
5.1 No Recognition of Transfers Not Made in Accordance with this
Agreement........................................................ 9
5.2 Successors and Assigns........................................... 9
(a) As to Shares............................................... 9
(b) As to Parties.............................................. 9
(c) Definition of Shareholder.................................. 9
(d) Joint Action Required......................................10
5.3 Prohibitions Against Distributions; Exercise of Option or Right
of the Company...................................................10
5.4 Specific Performance.............................................10
5.5 Liabilities......................................................11
ARTICLE 6:
- ----------
LEGEND ON SHARE CERTIFICATES...........................................11
6.1 Legend on Share Certificates.....................................11
6.2 Modification.....................................................11
ARTICLE 7:
- ----------
TERMINATION............................................................11
7.1 General..........................................................11
7.2 Other Termination Events.........................................11
ARTICLE 8:
- ----------
MISCELLANEOUS..........................................................12
8.1 Good Faith Efforts; Further Assurances; Cooperation..............12
8.2 No Partnership Created...........................................12
8.3 Other Restrictions...............................................12
8.4 Notices..........................................................12
8.5 Time is of the Essence; Computation of Time......................13
8.6 Certain Definitions..............................................13
8.7 Rules of Construction............................................14
8.8 Severability.....................................................14
8.9 Remedies Cumulative..............................................14
8.10 Integration; Amendment; Waiver...................................14
8.11 Controlling Law..................................................15
8.12 Counterparts.....................................................15
</TABLE>
* * *
(ii)
<PAGE> 4
THIS IS A SHAREHOLDERS AGREEMENT by and among Digital Transmission
Systems, Inc., a Delaware corporation, ("DTS"), Mixbaal, S.A. de C.V., a
Mexican corporation ("Mixbaal") (DTS and Mixbaal being sometimes each referred
to individually as a "Shareholder" and collectively as the "Shareholders"), and
Chapala Communications, Inc. a Georgia corporation (the "Company"), dated as of
February 5, 1999, and by which such parties, for the reasons specified in
Section 1.1 and the mutual promises contained in this Agreement (the mutuality,
adequacy and sufficiency of which are hereby acknowledged), agree as follows:
ARTICLE 1:
BACKGROUND AND APPLICABILITY
1.1 Background. Currently Mixbaal and DTS are the Company's only
shareholders, each currently owning the following number and percentage
(calculated on a fully diluted basis) of the Company's issued and outstanding
capital stock, including the Company's $.001 par value common shares and $.001
par value preferred shares:
<TABLE>
<S> <C> <C> <C>
Mixbaal: 4,128,205 common shares 80.5 percent (80.5%)
0 preferred shares
DTS: 0 common shares 19.5 percent (19.5%)
1,000,000 preferred shares
</TABLE>
Mixbaal, DTS and the Company consider it to be in their respective best
interests to set forth in writing certain agreements with respect to the
Company shares that each of Mixbaal and DTS own in order to assure harmony and
continuity in the Company's management and for their mutual benefit and
protection.
1.2 Applicability. This Agreement applies to: (a) all of the Company
capital stock owned by a Shareholder at the time this Agreement is executed and
delivered; and (b) all of the Company capital stock subsequently acquired for
any reason and on any basis by a Shareholder (the capital stock described in
the foregoing clauses (a) and (b) being referred to collectively as the
"Shares").
1.3 Rights of a Shareholder to Maintain Percentage Interest in the
Company. Except as set forth in Section 1.4 below, the Company shall not issue
any shares of its capital stock that would result in a reduction of any
Shareholder's aggregate equity interest in the Company, computed on a fully
diluted basis, unless the Company has first provided such Shareholder with a
reasonable opportunity (which opportunity shall include a period of no less
than sixty (60) days in which such Shareholder can exercise its rights) to
purchase additional Company stock on terms and conditions no less favorable to
such Shareholder than those of the issuance giving rise to this right.
1.4 Warrant Issued to Sirrom Capital Corporation.
(a) Notwithstanding any provision in this Agreement to the
contrary, in the event Sirrom Capital Corporation ("Sirrom") exercises its
Warrant dated of even date herewith (the "Sirrom Warrant") to purchase shares
of the Company's Common Stock (the "Sirrom Warrant
<PAGE> 5
Warrant Shares, DTS shall give back to the Company such number of shares of
Common Stock used by it at no cost to the Company (or Preferred Stock, if not
yet converted into Common Stock) in that DTS will own an aggregate of 9.0% of
the Company's capital stock, on a fully-diluted basis, following such exercise.
In the event Sirrom exercises its put right contained in the Sirrom Warrant (the
"Put"), the Company shall purchase the Warrant in accordance with the Warrant
and DTS, without any further action required by the Company, shall either (i)
give back to the Company such number of shares of Common Stock (or Preferred
Stock, if not yet converted into Common Stock) owned by it, at no cost to the
Company, so that DTS will own an aggregate of 9.0% of the Company's capital
stock, on a fully diluted basis, following such exercise or (ii) pay to the
Company the Put Price (as defined in the Sirrom Warrant.
(b) The terms and provisions of this Agreement shall be subordinate
to the rights of Sirrom granted pursuant to Loan Agreement executed of even
date herewith between Sirrom and the Company.
ARTICLE 2:
RESTRICTIONS ON SHARE TRANSFERS: RIGHT OF REFUSAL
2.1 Restrictions on Share Transfer. No Shareholder may transfer
any or all of his or its Shares, or any interest in them, except in accordance
with this Article 2. Nothing in this Article 2 grants any person the right to
have his or its Shares redeemed; and without limiting the foregoing, the
procedures contemplated by this Article 2 cannot be initiated by an offer to
the Company.
2.2 Right of Refusal. If a Shareholder (a "Proposed Transferor")
desires to transfer any or all of his Shares, or any interest in them:
(a) Notice of Intended Transfer; Option to Purchase. The
Proposed Transferor shall first give notice of such desire contemporaneously to
the Company and the other Shareholders (the "Notice of Intended Transfer"). The
Company shall promptly notify the other Shareholders of the date of its receipt
of the Notice of Intended Transfer. The Notice of Intended Transfer will not
be effective unless it is accompanied by:
(i) a copy of a written offer to the Proposed
Transferor or if an offer is not involved, as in the case of a gift,
a complete description of the proposed transfer (a written offer or
complete description, as appropriate, being a condition of any transfer
of the Shares); provided, however, that if the proposed transfer
(either singly or as part of a series of transfers) involves one
percent (1%) or more of the Company's issued and outstanding stock,
then the terms of the proposed transfer must include an offer by the
transferee to purchase all of the Shares of the other Shareholders on
terms and conditions no less favorable than those applicable to the
purchase of the Shares of the Proposed Transferor (including payments
or other benefits under ancillary agreements or arrangements).
(ii) to the extent not specified in the written offer
or general description, the name and address of the proposed
transferee, the number of Shares affected by the
2
<PAGE> 6
(ii) to the extent not specified in the written offer or
general description, the name and address of the proposed transferee, the
number of Shares affected by the proposed transfer, and the terms and
conditions of the proposed transfer (including, if applicable, the per
share price);
(iii) a signed statement of the Proposed Transferor and
the proposed transferee that the proposed transfer is a bona fide
transaction (a bona fide transaction being a condition to the rights of
the Proposed Transferor under this Article 2); and
(iv) a signed agreement of the proposed transferee in
favor of the Company and the other Shareholders providing that he, and the
Shares transferred to him, shall be bound by this Agreement.
The Company shall have the right to purchase any or all of the Shares specified
in the Notice of Intended Transfer, and the other Shareholders shall have the
right to purchase, in proportion to their respective stock ownership
(regardless of the class of stock owned by any Shareholder), any or all of the
Shares specified in the Notice of Intended Transfer that the Company does not
elect to purchase, each at the price and on the terms specified in Section 2.4
and as otherwise provided in this Article 2. Neither the foregoing nor any
other provision of this Agreement permits a Shareholder to compel the Company
to offer to purchase his Shares pursuant to the foregoing solely by reason of
such Shareholder's offer to sell his Shares to the Company.
(b) Company's Notice of Election to Purchase. The Company's
election to purchase shall be exercised by giving notice (a "Company's Notice
of Election to Purchase") of such election to the Proposed Transferor and the
other Shareholders within 30 days following the Company's receipt of the Notice
of Intended Transfer, and the Company's Notice of Election to Purchase shall
specify the number of Shares covered by the Notice of Intended Transfer that
the Company elects to purchase.
(c) Assignment of Company's Rights. The Company may assign
all or any part of its rights under this Article 2 to any person at any time
during the first ten (10) days of such 30-day period. In such event the
assignee shall have such assigned rights of the Company under this Article 2
(such assignment relieving the Company as the primary obligor, but not
extending the time periods, under this Article 2), and all references to the
Company in this Article 2 shall thereafter be deemed references to the Company
or such assignee or some combination of them, as appropriate. Notice of any
such assignment shall be given to the Proposed Transferor and the other
Shareholders.
(d) Notice of Shareholder's Election to Purchase. If within
30 days following the receipt of the Notice of Intended Transfer, the Company
does not elect to purchase all of the Shares covered by the Notice of Intended
Transfer, then within 45 days of the Company's receipt of the Notice of
Intended Transfer, the other Shareholders may elect to purchase by giving
notice (the "Other Shareholders' Notice of Election to Purchase") to the
Proposed Transferor and the Company. The Other Shareholders' Notice of Election
to Purchase shall specify the number of Shares covered by the Notice of
Intended Transfer, but not covered by the Company's Notice of Election to
Purchase, that each other Shareholder elects to purchase. The other
Shareholders' election to
3
<PAGE> 7
purchase such Shares is on a pro rata basis (based on the respective stock
ownership of the Shareholders but without regard for the class of shares held
by each Shareholder), unless a Shareholder agrees with another Shareholder for
such other Shareholder to purchase some or all of the other Shareholder's
pro rata portion.
(e) Purchase and Sale. The Proposed Transferor shall sell to
the Company the Shares specified in the Company's Notice of Election to Purchase
and shall sell to the other Shareholders the Shares specified in the Other
Shareholders' Notice of Election to Purchase, but only if the Company or the
other Shareholders or some combination of them have elected to purchase all of
the Shares specified in the Notice of Intended Transfer on the terms and
conditions set forth in Section 2.2(a). Any purchase and sale of Shares by the
Company, the other Shareholders, or any combination of them pursuant to this
Article 2 shall be at the price specified in Section 2.4 and shall be closed on
or before 75 days after the Company's receipt of the Notice of Intended
Transfer. The Company, if it is purchasing Shares, shall select the date, time
and place of closing in the Atlanta, Georgia metropolitan area (at which
closing, any purchase of Shares by the other Shareholders will take place) and
shall give the Proposed Transferor and the other Shareholders notice of such
date, time and place at least 10 days prior to closing. If the Company fails to
make such election (or is not purchasing Shares), then the other Shareholders
shall make such selection and give notice of such date, time and place to the
Company and the Proposed Transferor, as appropriate, at least 5 days prior to
closing.
2.3 Permitted Transfer by the Proposed Transferor. During the
60-day period (the "Sixty-day Period") beginning on the earliest to occur of
the following:
(i) the date the Proposed Transferor receives from the
Company and the other Shareholders waivers of their rights to purchase
under Section 2.2 with respect to the proposed transfer; or
(ii) the expiration of 60 days after the Notice of
Intended Transfer has been received by the Company without the Company,
the other Shareholders or some combination of them having, within that
time, elected to purchase all of the Shares specified in the Notice of
Intended Transfer; or
(iii) the expiration of the time prescribed for closing in
this Article 2 if the Company, the other Shareholders, or some
combination of them have not purchased the Shares specified in the
Notices of Election to Purchase,
the Proposed Transferor may transfer the Shares specified in the Notice of
Intended Transfer, but only to the prospective transferee named in such notice
and only in strict compliance with the general terms stated in it. Any
attempted transfer after the Sixty-day Period or not otherwise in accordance
with the preceding sentence or other provisions of this Agreement shall be void
ab initio and of no force and effect whatsoever, unless the Proposed Transferor
shall first have again complied with this Article 2. Upon such transfer of the
Shares, or any interest in them, to any transferee, such Shares shall continue
to be subject to this Agreement, and no transferee may transfer any or all of
such Shares, or any interest in them, except in accordance with this Agreement.
Notwithstanding
4
<PAGE> 8
anything to the contrary contained in this Section 2.3, no Shareholder shall be
permitted to transfer any of its shares to a prospective transferee if such
transferee is a competitor of the Company unless such proposed transfer is
agreed upon by unanimous consent of the Company's Shareholders.
2.4 Purchase Price. The purchase price per Share shall be the price
per Share stated in the Notice of Intended Transfer, provided, however, that if
the proposed transfer does not involve a purchase (or another transaction) in
which the price is determined in good faith in arm's length negotiations with
an independent third party, then the purchase price shall be determined in
accordance with Section 2.5 below. The purchase price shall be payable on terms
no less favorable to the Proposed Transferor than those set forth in the Notice
of Intended Transfer, except that if the purchase price is determined pursuant
to Section 2.5, it shall be payable as provided in that Section and the
references in such Section to the Affected Shareholder shall be references to
the Proposed Transferor.
2.5 Price.
(a) General. The purchase price for the Affected Shareholder's
Shares purchased pursuant to this Section 2.5 shall be the product of (i) the
number of Shares to be purchased from the Affected Shareholder and (ii) the
price per share determined pursuant to Subsections (b) or (c) below, as
appropriate.
(b) Purchase Price Per Share. The purchase price per share of the
Shares shall be the Company's book value (as defined below) on the last day of
its fiscal year ended immediately prior to the event giving rise to the purchase
and sale obligation under this Agreement (or such later date on which an audit
of the Company's financial statements has been performed by the Company's
independent auditors at the request of a Shareholder in connection with the
proposed sale, and such audit shall be solely at the Shareholder's expense)
divided by the number of shares of common stock of the Company on a fully-
diluted basis outstanding on such date. Book value is the Company's book value
reflected on its financial statements, adjusted as follows:
(i) Add the excess of accumulated depreciation on depreciable
property over the amount of depreciation that would have been accumulated
on such property had the straight line method been used and add or deduct,
as appropriate, the federal and state income tax effects of such adjustment
to shareholders' equity on such financial statements;
(ii) Deduct the excess of life insurance proceeds paid to the Company
by reason of the death of any shareholder reflected in such shareholders'
equity over the cash surrender value, if any, of such life insurance at the
next preceding year end;
(iii) Deduct any goodwill reflected on such financial statements; and
(iv) Add the value of any consideration received by the Company for
shares issued between the end of the most recent fiscal year and the date
of the event giving rise to the purchase and sale obligation under this
Agreement and subtract the fair value, as determined on the date of
payment, of any consideration paid for shares purchased or redeemed by the
5
<PAGE> 9
Company between the end of the most recent fiscal year and the date of the
event giving rise to the purchase and sale obligation under this Agreement.
Except as provided in subsection (c) below, the computation of purchase price
per share on the basis described above shall be made by the Company's regularly
employed accountants or accounting firm and shall be binding and conclusive upon
the parties.
(c) Alternative--Appraisal. Either the Company or the Affected
Shareholder may, by notice to the other (including any assignee of the Company)
until the last ten (10) days of the 180-day period, give notice of objection to
the determination of the purchase price pursuant to Section 2.5(b) above (the
"Objection Notice") and demand that the purchase price be determined by
appraisal. Such Objection Notice shall designate an appraiser. Within 30 days
after the receipt of such Objection Notice, the recipient may object to the
appraiser designated in the Objection Notice and designate another appraiser,
and failure to designate an appraiser within the time specified shall constitute
acceptance by the recipient of the appraiser designated in the Objection Notice.
If the Company or its assignee, or some combination of them, as appropriate, or
the Other Shareholders designate an appraiser, then the appraiser so designated
and the appraiser designated by the Affected Shareholder or his personal
representative shall select a third appraiser. The appraiser or appraisers, as
the case may be, shall determine the purchase price of the Shares to be
purchased and sold in accordance with this Article 2, and its (or their)
decision shall be binding and conclusive upon the parties. The Company shall pay
the appraisal costs, except that if the purchase price resulting from the
appraisal is not at least ten percent (10%) higher than the price established
pursuant to subsection (b) above, then the person requesting the appraisal shall
pay all of the appraisal costs.
2.6 Waiver. Any or all of the restrictions of this Article 2 may be
waived from time to time by the Shareholders, including permitting a pledge
agreement that provides that the pledgee may sell the pledged shares free from
any of the restrictions of this Agreement and that a purchaser pursuant to a
sale in accordance with such a pledge agreement shall not hold such shares
subject to this Agreement. Such waiver may be on such terms and conditions as
the waiving Shareholders determine.
2.7 Exception to Right of First Refusal. Notwithstanding any
provision contained in this Agreement to the contrary, the parties hereby agree
that Sirrom, upon becoming a party to this Agreement, shall have the right to
sell any or all of its shares of the Company's Common Stock to DTS, Mixbaal or
the Company for a purchase price determined by the parties to such sale
transaction.
ARTICLE 3:
REPRESENTATION ON THE BOARD OF DIRECTORS
3.1 Number of Directors; Bylaws. The Company's Board of Directors
shall at all times during the term of this Agreement consist of at least three
(3) members, and the Company's bylaws shall so provide.
6
<PAGE> 10
3.2 Election of Directors. DTS shall designate one (1) director
which shall be approved by Mixbaal S.A. de C.V. and shall have the right to
remove and fill any vacancy with respect to such director. Mixbaal shall, in the
aggregate, designate the remaining members of the board of directors and shall
have the right to remove and fill vacancies with respect to such directors.
3.3 Shareholders' Obligations; Covenant to Vote. Each Shareholder
shall take, or cause the directors designated by it or him to take, such actions
as may be necessary or appropriate to effect the election and removal as a
director of the persons designated by the other Shareholders, all in accordance
with this Article 3. Without limiting the foregoing, each Shareholder (a) shall
use its or his best efforts to take all actions necessary to call, or cause the
Company and the appropriate officers and directors of the Company to call, a
special or annual meeting of the Company shareholders and to vote all Shares
owned or held of record by such Shareholder at any such annual or special
meeting in a manner appropriate to effect this Article 3 and (b) shall sign any
written consent in lieu of a meeting that effects this Article 3.
3.4 Company's Obligations. The Company shall take all actions within
its power so that the Shareholders can effect the foregoing agreements.
3.5 Certain Corporate Actions. In addition to any requirements of
the Company's articles of incorporation, bylaws or applicable law, the following
require the affirmative vote of eighty-five percent (85%) of the Shares:
(a) Stock Issuances, Etc. Any issuance, grant, pledge,
conveyance or other disposition or encumbrance of the Company's capital stock,
or warrants, options or other rights to acquire such stock (including securities
convertible into such stock).
(b) Stock Redemptions, Etc. Any purchase, redemption or
other acquisition or retirement by the Company of any of the then outstanding
shares of its capital stock.
(c) Articles and Bylaws. Any amendment to, modification of
or repeal of any provision of the Company's articles of incorporation or bylaws.
(d) Dissolutions, Etc. The dissolution of the Company; the
adoption of a plan of liquidation of the Company; any motion by the Company to
commence any suit, proceeding or other action (i) under any existing or future
law of any jurisdiction relating to bankruptcy, insolvency, reorganization or
relief of debtors seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it, or (ii) seeking appointment of a
receiver, trustee, custodian or other similar official for the Company or for
all or any substantial part of its assets, or making a general assignment for
the benefit of its creditors.
(e) Dividends, Etc. Any declaration of any dividend or other
distribution by the Company of any of its cash, stock or other assets with
respect to the Company's capital stock.
(f) Mergers. Any merger or consolidation involving the
Company.
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<PAGE> 11
(g) Asset Sales. Any sale, lease, exchange, transfer or other
disposition, directly or indirectly, in a single transaction or series of
related transactions, of all or substantially all, or a substantial part, of the
Company's assets.
(h) Certain Investments. Any purchase, lease, exchange or
other acquisition of assets (including securities) by the Company, in a single
transaction or a series of related transactions, if such assets constitute or
would constitute substantial assets, except purchases of inventories, supplies
and equipment made in the ordinary and usual course of business. For purposes of
subsection (g) above and this subsection (h), the term "substantial assets"
means the greater of (i) $100,000 or (ii) assets having an estimated fair market
value equal to one-half of the assets of the Company as shown on the Company's
latest quarterly financial statements.
(i) Certain Liabilities. The Company's incurrence (or the
agreement to do so) of any indebtedness for borrowed money (other than trade
payables in the ordinary course and other than pursuant to agreements in effect
on or as of the date of this Agreement), reimbursement agreement or guaranty if
the value of the liability represented thereby exceeds the greater of (i)
$100,000 or (ii) one-half of the estimated fair market value of the assets of
the Company as shown on the Company's latest quarterly financial statements.
(j) Compensation. The compensation of management and senior
level executives of the Company that exceeds by at least 10% the compensation
guidelines set forth in the American Electronics Handbook.
(k) Authority to Enter Contracts. The approval of any
contracts, including any subcontracts, to be entered into by the Company with
consideration, either to be paid by or to be paid to the Company, in excess of
the greater of (i) $100,000 or (ii) one-half of the estimated fair market value
of the assets of the Company as shown on the Company's latest quarterly
financial statements.
ARTICLE 4:
CERTAIN AGREEMENTS INVOLVING THE COMPANY'S SALE
4.1 Go-Along Obligations. If the Board of Directors of the Company
and the Company shareholders having a majority interest determine that it is in
the best interests of the Company shareholders to sell (with "sell" for these
purposes including taxable and non-taxable transactions of whatever form) all or
substantially all of their Company shares to a certain person, otherwise
directly or indirectly consolidate or merge the Company with another person or
engage in any other transaction having a similar result or effect (whether by
transfer of assets or otherwise), then the Shareholders shall: (a) sell or
exchange the Shares or otherwise participate in such transaction on terms and
conditions no less favorable to such Shareholders than the terms and conditions
applicable to other Company shares of the same class and/or series as the Shares
and not dissent therefrom; and (b) amend or cancel the restrictions of this
Agreement in a manner to permit such sale, exchange or participation.
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<PAGE> 12
4.2 Take-Along Rights. The Company will not engage in any
transaction by which it directly or indirectly consolidates or merges with
another person or engages in any other transaction having a similar result or
effect (whether by transfer or assets or otherwise) and no Shareholder shall
sell (with "sell" for these purposes including taxable and non-taxable
transactions in whatever form) all or substantially all of his Shares unless, as
appropriate, either the Company obtains an agreement from the person into which
the Company is consolidating, merging or otherwise combining or engaging in such
other transaction, or such Shareholder proposing to sell obtains an agreement
from the person who is acquiring such shares of such Shareholder proposing to
sell, that obligates such person to permit the other Shareholders to participate
in such transactions or to acquire the Shares of the other Shareholders on terms
and conditions no less favorable to the other Shareholders than the terms and
conditions applicable to other shares of the Company of the same class and/or
series as the Shares. The parties shall amend or cancel the restrictions of this
Agreement in a manner to permit such sale, exchange or participation.
4.3 Registration Rights. In the event the Company undertakes a
public offering of its capital stock, the Shareholders shall have the right to
sell their shares in such offering notwithstanding any other provisions in the
Agreement to the contrary.
ARTICLE 4:
GENERAL PROVISIONS
5.1 No Recognition of Transfers Not Made in Accordance with this
Agreement. The Company shall not at any time permit any transfer to be made on
its books or records of Shares, and shall refuse to recognize any claims of
ownership of any purported transferee of such Shares, that is not made in
accordance with this Agreement.
5.2 Successors and Assigns.
(a) As to Shares. Shares, or any interest in them, transferred to
any person shall continue to be subject to this Agreement without any
requirement that a transferee execute this Agreement or otherwise consent to its
imposition on him and/or his Shares.
(b) As to Parties. This Agreement (i) is binding upon the parties
and their respective legal representatives, heirs, devisees, legatees,
beneficiaries and successors and assigns and (ii) inures to the benefit of the
parties and their respective permitted legal representatives, heirs, devisees,
legatees, beneficiaries and other permitted successors and assigns (and to or
for the benefit of no other person whatsoever), if any.
(c) Definition of Shareholder. Each transferee of any Shares is
considered a Shareholder under this Agreement. If a successor or assign is
already a Shareholder, he is not considered a separate Shareholder for purposes
of this Agreement. Any reference to a Shareholder means each or all of the
Shareholders, each permitted successor and assign of such a Shareholder, and
when appropriate to effect the binding nature of this Agreement for the benefit
of another Shareholder or the Company, any other successor or assign.
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<PAGE> 13
(d) Joint Action Required. If there is more than one
successor and assign to Shares of a person who originally executed and
delivered this Agreement as a Shareholder, then the successors and assigns (and
if he is still a shareholder, the Shareholder) must act jointly as a single
person in exercising their rights as successors and assigns of a Shareholder
(resolving disputes among them by a majority in interest as to the Shares they
own).
5.3 Prohibitions Against Distributions; Exercise of Option or Right
of the Company. If the Company may not lawfully purchase Shares of a
Shareholder as provided in this Agreement (whether pursuant to the Georgia
Business Corporation Act or otherwise), then the Shareholder whose shares are
being purchased (or his personal representative) and the other Shareholders
shall (to the extent practicable)(a) promptly take any and all necessary
measures to vote their respective holdings of the Company shares in favor of any
motion presented at any meeting of the Company's shareholders (or to execute a
unanimous written consent of shareholder) for the purpose of (i) reducing the
Company's stated capital, permitting the Company to purchase its shares out of
capital surplus or taking such other legally permissible corporate actions as
may be necessary or appropriate in order to eliminate or reduce the effect of
any limitation upon the Company's ability to purchase such Shares and (ii)
authorizing all other actions necessary or appropriate to enable the Company to
satisfy such obligations and effect the contemplated transactions and (b) cause
the members of the Board of Directors designated by such Shareholder to take any
necessary or appropriate related actions. If the Company is to take certain
actions or is given certain options or rights under this Agreement and the
Shareholders are the Company's only shareholders, then the Shareholder whose
Shares are not subject to being purchased or to such option or right shall have
the right (as director, officer, shareholder or otherwise) to determine whether
or not the Company will take such actions or exercise such option or right and
shall have the sole right to take such action as an act of the Company,
notwithstanding any provision to the contrary contained in the Company's
articles of incorporation or bylaws. If at the time the Company is to take such
actions or is given such an option or right the Shareholders are not the
Company's only shareholders, then the Shareholder whose Shares are not subject
to being purchased or to such option or right shall have all of the rights of
the Shareholder whose Shares are being purchased (as director, officer,
shareholder or otherwise) to determine whether or not the Company will take such
actions or exercise such option or right, notwithstanding any provision to the
contrary contained in the Company's articles of incorporation or the bylaws. The
Shareholder whose Shares are subject to such rights or options shall cooperate
in every reasonable respect with the taking of such actions or the exercise of
such options or rights.
5.4 Specific Performance. The parties hereby acknowledge that it
is impossible to measure in money the damages that will accrue to a party by
reason of the failure or refusal of any other party to perform any of the
obligations under this Agreement. Because the parties agree that the
obligations under this Agreement are of a special, unique and extraordinary
character and that the remedy at law for any breach of any such obligation will
be inadequate, a party injured by the breach of any such obligation shall be
entitled, in addition to all remedies otherwise available at law or in equity,
to institute an action or proceeding to enforce specifically the provisions of
this Agreement, and the party against whom such action is brought agrees not to
urge in such action or proceeding the claim or defense that a remedy at law
exists.
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<PAGE> 14
5.5 Liabilities. If the Company or any Shareholder obtains from a
Shareholder all of his Shares pursuant to this Agreement, then the acquiror
shall in good faith undertake to obtain the release of such Shareholder from all
contingent liabilities incurred in connection with the Company's business,
including liabilities of such Shareholder as guarantor of, or surety upon, the
Company's obligations.
ARTICLE 6:
LEGEND ON SHARE CERTIFICATES
6.1 Legend on Share Certificates. All share certificates
representing the Shares shall have written on their face or back a legend in
substantially the following form as long as Articles 2 through 5 are in effect:
Certain rights, obligations and restrictions are imposed on
the shares represented by this certificate by an agreement by
and among Mixbaal, S.A. de C.V., Digital Transmission
Systems, Inc. and Chapala Communications, Inc. and any
amendments to it, copies of which are in the records of
Chapala Communications, Inc. The transfer, encumbrance or
other disposition of such shares in contravention of such
agreement is void. Any transferee of such shares shall be
bound by such agreement and any amendments.
6.2 Modification. It is intended that the foregoing legend conform
to the provisions of the Uniform Commercial Act of Georgia and the Georgia
Business Corporation Act, and such legend shall be modified from time to time to
conform to any amendments to applicable sections of such Uniform Commercial Act
or the Georgia Business Corporation Act or to this Agreement.
ARTICLE 7:
TERMINATION
7.1 General. The restrictions and obligations in Articles 2 through
6 shall terminate upon the occurrence of either of the following events:
(a) The voluntary agreement to terminate of all persons who
are then bound by this Agreement.
(b) If 100% of the issued and outstanding Shares are owned
by one person.
(c) If the Company consummates a public offering of its
capital stock.
7.2 Other Termination Events. Notwithstanding the foregoing: (a)
the provisions of this Agreement as to the voting of Shares shall expire on the
twentieth (20th) anniversary of the date of this Agreement; and (b) if this
Agreement is not sooner terminated, the other provisions of this Agreement shall
terminate on December 31, 2038. The parties express their intention, and to the
11
<PAGE> 15
extent permitted by applicable law agree, to renew the aspects of this
Agreement relating to voting on or before the twentieth (20th) anniversary of
this Agreement. The termination of restrictions and obligations in Articles 2
through 6 shall not affect rights perfected or obligations incurred under this
Agreement prior to such termination. Upon such termination, each Shareholder
shall surrender to the Company the share certificates representing his Shares,
and the Company shall issue to each of them new share certificates for an equal
number of shares without the legend set forth in Section 7.1.
ARTICLE 8:
MISCELLANEOUS
8.1 Good Faith Efforts; Further Assurances; Cooperation. The
parties shall in good faith undertake to perform their agreements in this
Agreement and cause the purposes of this Agreement to be accomplished promptly
in accordance with the terms hereof. Each party shall do such things as may be
reasonably requested by the other party in order more effectively to accomplish
the purposes of this Agreement. The parties shall cooperate with each other and
their respective counsel and other designees in connection with any steps
required to be taken as part of their rights and obligations under this
Agreement.
8.2 No Partnership Created. The parties do not intend to create by
this Agreement a partnership or a partnership relationship among them, and it is
expressly agreed by the parties: (a) that no such partnership, partnership
arrangement or other agency relationship is, or shall be deemed to have been,
created by this Agreement; and (b) that except as expressly set forth in this
Agreement, no party by reason of this Agreement (i) has the power or authority
to bind any other party contractually or otherwise or (ii) is responsible or
liable for the actions or omissions of any other party, whether acting pursuant
to this Agreement or otherwise.
8.3 Other Restrictions. The provisions of this Agreement shall be
in addition to and not in lieu of any and all restrictions on the transfer of
Company common stock that arise from applicable laws and any other restrictions
on transfers agreed to by or among the parties.
8.4 Notices. Each notice, communication and delivery under this
Agreement: (a) shall be made in writing and signed by the party giving it; (b)
unless delivered in person, shall be given at the address specified below, with
copies as specified below; (c) shall specify the section of this Agreement
pursuant to which given; (d) shall be deemed to be given (i) if delivered in
person, on the date delivered, (ii) if sent by telecopier, on the date of
telephonic confirmation of receipt, or (iii) if mailed first class, by
registered or certified mail, return receipt requested (with postage and other
fees prepaid), on the date mailed; and (e) shall be deemed received (i) if
delivered in person, on the date of personal delivery, (ii) if telecopied, on
the first (1st) business day after transmitted (if the party giving the notice,
or its employee or agent, has no reason to believe that the transmission was not
made or received), or (iii) if so mailed, on the third business day after
mailing. The addresses are as follows:
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<PAGE> 16
If to Mixbaal, to:
Mixbaal, S.A. de C.V.
Blvd. Jose Guadalupe Zuno No. 48-MIX
Los Belenes, Zapopan
Jalisco, MEXICO 45101
Telecopier No.: 52-3-656-3639
Confirmation No.: 52-3-656-6504
If to DTS, to:
Digital Transmission Systems, Inc.
3000 Northwoods Parkway, Bldg. 330
Norcross, Georgia 30071
Telecopier No: 770-798-1325
Confirmation No: 770-798-1300
If to the Company, to:
Mr. Juan Milton Garduno
President
Chapala Communications, Inc.
3000 Northwoods Parkway, Bldg. 330
Norcross, Georgia 30071
Telecopier No: 770-798-1325
Confirmation No: 770-798-1300
Such notice shall be given at such other address or to such other representative
as a party may furnish pursuant to this Section 8.4 to the other parties. If
notice is given pursuant to this Section 8.4 of a permitted successor or assign
of a party, then notice shall thereafter be given as set forth above also to
such successor or assign.
8.5 Time is of the Essence; Computation of Time. Time is of the
essence of each and every provision of this Agreement. If the last day for the
exercise of any privilege or the discharge of any duty under this Agreement
falls upon Saturday, Sunday or any public or legal holiday, whether federal or
of a state in which the person having such privilege or duty resides or has its
principal place of business, then the person having such privilege or duty has
until 5:00 p.m. on the next succeeding regular business day to exercise such
privilege or to discharge such duty.
8.6 Certain Definitions. The parties agree that (whether or not
capitalized or underlined): (a) "applicable law" means each provision of any
constitution, statute, law, rule, regulation, decision, order, decree, judgment,
release, license, permit, stipulation or other official pronouncement enacted,
promulgated or issued by any governmental authority, arbitrator or arbitration
panel; (b)
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<PAGE> 17
"governmental authority" means any legislative, executive, judicial,
quasi-judicial or other public authority, agency, department, bureau, division,
unit, court or other public body or person; (c) "party", "parties", and
variations of such terms mean each or all, as appropriate, of the persons who
have executed and delivered this Agreement, each permitted successor or assign
of such a party, and when appropriate to effect the binding nature of this
Agreement for the benefit of another party, any other successor or assign of
such a party; (d) "person" means any individual, sole proprietorship,
partnership, corporation, joint venture, limited liability company, estate,
trust, unincorporated organization, association, institution, or other entity or
governmental authority; (e) "this Agreement" includes any amendments or other
modifications and supplements, and all exhibits, schedules and other
attachments, to it; and (f) "transfer" and variations of it means (i) any sale,
assignment, conveyance, exchange, pledge, hypothecation, gift, disposition or
other parting with any indicia or aspect of title, ownership or possession
(including voting rights), whether for consideration or gratuitously,
voluntarily, involuntarily or otherwise, of,in or to any or all of the Shares
or any interest in them and/or (ii) any granting, whether for consideration or
gratuitously, voluntarily, involuntarily or otherwise, of a security interest in
any or all of the Shares or any interest in them.
8.8 Rules of Construction. The parties agree that: (a) "including"
and any other words or phrases of inclusion shall not be construed as terms of
limitation, so that references to "included" matters shall be regarded as
non-exclusive, non-characterizing illustrations; (b) when "Section,"
"Subsection" or "Exhibit" is capitalized in this Agreement, such term refers to
such item in or attached to this Agreement; (c) titles and captions of or in
this Agreement and the cover sheet and table of contents of this Agreement are
inserted only as a matter of convenience and in no way define, limit, extend or
describe the scope of this Agreement or the intent of any of its provisions; (d)
whenever the context so requires, the singular includes the plural and the
plural includes the singular, and the gender of any pronoun includes the other
genders; (e) each exhibit and schedule referred to in this Agreement and each
attachment to any of them or to this Agreement is hereby incorporated by
reference into this Agreement and is made a part of this Agreement as if set out
in full in the first place that reference is made to it; and (f) acknowledging
that the parties have participated jointly in the negotiation and drafting of
this Agreement, if an ambiguity or question of intent or interpretation arises
as to any aspect of this Agreement, then it shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring any party by virtue of the authorship of any provision of this
Agreement.
8.8 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
8.9 Remedies Cumulative. The rights and remedies specified in any
provision of this Agreement shall be in addition to all other rights and
remedies a party may have under any other agreement or applicable law, including
any right to equitable relief and any right to sue for damages as a result of a
breach of this Agreement (whether or not such party elects to terminate this
Agreement), and all such rights and remedies shall be cumulative.
8.10 Integration; Amendment; Waiver. This Agreement and the other
agreements contemplated by this Agreement: (a) supersede all prior negotiations,
agreements and undertakings
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<PAGE> 18
between the parties with respect to the subject matter; (b) constitute the
entire agreement between the parties with respect to the subject matter; and (c)
may not be altered or amended except in writing signed by the parties. The
failure of any party at any time or times to require performance of any
provision of this Agreement shall in no manner affect the right to enforce the
same. No waiver by any party to this Agreement of any provision (or of a breach
of any provision) of this Agreement, whether by conduct or otherwise, in any one
of more instances shall be deemed or construed either as a further or continuing
waiver of any such provision or breach or as a waiver of any other provision (or
of a breach of any other provision) of this Agreement.
8.11 Controlling Law. This Agreement is governed by, and shall be
construed and enforced in accordance with, the laws of the State of Georgia.
8.12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or its terms to account for more
than one of such counterparts. This Agreement may be executed by each party upon
a separate copy, and one or more execution pages may be detached from one copy
of this Agreement and attached to another copy in order to form one or more
counterparts.
DULY EXECUTED AND DELIVERED on February 5, 1999.
-----------
The Shareholders:
MIXBAAL, S.A. DE C.V.
By: JR. JUAN MILTON GARDINO
-----------------------
Name:
-----------------------
Title: President
-----------------------
DIGITAL TRANSMISSION SYSTEMS, INC.
By: ANDRES C. SALAZAQ
-------------------------
NAME: Andres C. Salazaq
-------------------------
Title: Pres CEO
-------------------------
CHAPALA COMMUNICATIONS, INC.
By: JG
-------------------------
Name: Juan Milton Gardino
-------------------------
Title: President
-------------------------
* * *
15
<PAGE> 1
EXHIBIT 10.29
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT ("Agreement"), dated as of February
5, 1999, is made by and between MICROTEL INTERNATIONAL, INC., a Delaware
corporation, ("Pledgor"), and SIRROM CAPITAL CORPORATION, a Tennessee
corporation, with its principal office and place of business in Nashville,
Tennessee ("Lender").
RECITALS:
WHEREAS, pursuant to that certain Debenture Purchase Agreement dated
September 25, 1997, as amended, by and between Digital Transmission Systems,
Inc., a Delaware corporation ("Borrower"), and Lender, as amended, modified or
extended from time to time (the "Loan Agreement"), Lender has made a loan to
Borrower in the present principal amount of $2,000,000.00 (the "Loan"). The Loan
is evidenced by the "Debenture," as defined in the Loan Agreement (herein
referred to, together with any extensions, modifications, renewals and/or
replacements thereof, as the "Note"); and
WHEREAS, it is a condition of Lender's agreement to amend the Loan to
Borrower that Pledgor execute and deliver this Agreement to Lender; and
WHEREAS, Pledgor desires to execute and deliver this Agreement to
Lender in order to induce Lender to make the Loan, which will be to the direct
interest, advantage and benefit of Pledgor, which is a shareholder of Borrower.
AGREEMENT:
NOW THEREFORE, in consideration of the foregoing, and to enable Pledgor
to obtain the Loan and to induce Lender to make the Loan and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, Pledgor and Lender hereby agree as follows:
1. Pledge. As collateral security for the payment and performance in
full of the obligations of Borrower under the Loan Agreement and the Note
(collectively the "Obligations"), Pledgor hereby pledges, hypothecates, assigns,
transfers, sets over and delivers unto Lender, and hereby grants to Lender a
security interest in, all common stock of Digital Transmission Systems, Inc., a
Delaware corporation, or its successor, which Pledgor may now or hereafter own,
including, but not limited to, the presently owned stock described in Schedule I
hereto, together with the proceeds thereof and all cash, additional securities
or other property at any time and from time to time receivable or otherwise
distributable in respect of, in exchange for, or in substitution for any and all
such pledged securities (all such pledged securities, the proceeds thereof,
cash, dividends, additional securities and other property now or hereafter
pledged hereunder are hereinafter collectively referred to as the "Pledged
Securities");
<PAGE> 2
TO HAVE AND TO HOLD the Pledged Securities, together with all rights,
titles, interests, powers, privileges and preferences pertaining or incidental
thereto, unto Lender, its successors and assigns, subject to the terms,
covenants and conditions hereinafter set forth.
Upon delivery to Lender, the Pledged Securities shall be accompanied by
executed stock powers in blank and by such other instruments or documents as
Lender or its counsel may reasonably request. Each delivery of certificates for
such Pledged Securities shall be accompanied by a schedule showing the number of
shares and the numbers of the certificates theretofore and then pledged
hereunder, which schedule shall be attached hereto as Schedule A and made a part
hereof. Each schedule so delivered shall supersede any prior schedule so
delivered. In the event that additional securities of the issuer listed on
Schedule 1 are issued to Pledgor, Pledgor agrees to promptly deliver the
certificates representing such securities together with stock powers endorsed in
blank, to Lender as part of the collateral pledged hereunder and such securities
shall constitute part of the Pledged Securities. Pledgor agrees that any stock
of Digital Transmission Systems, Inc. or its successor over which Pledgor may
now or hereafter acquire through a subsidiary or otherwise shall be subject to
this Agreement and shall become part of the Pledged Securities hereunder.
2. Obligations Secured. This Agreement is made, and the security
interest created hereby is granted to Lender, to secure prompt payment and
performance of the Obligations.
3. Representations and Warranties. Pledgor hereby represents and
warrants to Lender (a) that Pledgor is the legal and equitable owner of the
Pledged Securities, (b) that Pledgor has the complete and unconditional
authority to pledge the Pledged Securities being pledged by it, and holds the
same free and clear of all liens, charges, encumbrances and security interests
of every kind and nature, (c) that any consent or approval of any governmental
body or regulatory authority, or of any other party, that was or is necessary to
the validity of this pledge, has been obtained, and (d) that the Pledged
Securities are not subject to any limitations, restrictions, or obligations
pursuant to any shareholder agreement, voting trust agreement or similar
instrument.
4. Registration in Nominee Name; Denominations. Upon the occurrence and
continuation of an Event of Default under the Loan Agreement, Lender shall have
the right (in its sole and absolute discretion) to hold the certificates
representing the Pledged Securities in its own name or in the name of the
Pledgor, endorsed or assigned in blank or in favor of Lender. Upon request and
delivery of certificates representing the Pledged Securities to the issuer of
the Pledged Securities, Lender may have such Pledged Securities registered in
the name of Lender or any nominee or nominees of Lender. Lender shall at all
times have the right to exchange the certificates representing Pledged
Securities for certificates of smaller or larger denominations for any purpose
consistent with this Agreement.
5. Remedies Upon Default. Upon the occurrence of an Event of Default
under and as defined in the Loan Agreement, then, and in any such event, Lender
shall have all of the rights, privileges and remedies of a secured party under
the Uniform Commercial Code as in effect in the State of Tennessee, and without
limiting the foregoing, Lender may (a) collect any and all amounts
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<PAGE> 3
payable in respect of the Pledged Securities and exercise any and all rights,
privileges, options and remedies of the holder and owner thereof, and (b) sell,
transfer and/or negotiate the Pledged Securities, or any part thereof, at public
or private sale, for cash, upon credit or for future delivery as Lender shall
deem appropriate, including without limitation, at Lender's option, the purchase
of all or any part of said securities at any public sale by Lender. Upon
consummation of any sale, Lender shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Pledged Securities so sold.
Each such purchaser at any such sale shall hold the property sold absolutely,
free from any claim or right on the part of the Pledgor, and the Pledgor hereby
waives (to the extent permitted by law) all rights of redemption, stay or
appraisal that Pledgor now has or may at any time in the future have under any
rule of law or statute now existing or hereinafter enacted. Pledgor hereby
expressly waives notice to redeem and notice of the time, place and manner of
such sale.
6. Application of Proceeds. The proceeds of the sale of Pledged
Securities sold pursuant to Section 5 hereof, and the proceeds of the exercise
of any of Lender's other remedies hereunder, shall be applied by Lender in the
manner set forth in the Loan Agreement.
7. Reimbursement of Lender. Pledgor agrees to reimburse Lender, upon
demand, for all expenses, including without limitation reasonable attorneys'
fees, incurred by it in connection with the enforcement of this Agreement, and
agrees to indemnify Lender and hold it harmless from and against any and all
liability incurred by it in the enforcement hereof against Pledgor, unless such
liability shall be due to willful misconduct or gross negligence on the part of
Lender.
8. No Waiver. No failure on the part of Lender to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy by Lender preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. All remedies are cumulative and
are not exclusive of any other remedies provided by law.
9. [This Section intentionally left blank].
10. Binding Agreement. This Agreement and the terms, covenants and
conditions hereof shall be binding upon and inure to the benefit of the parties
hereto and to all holders of the Obligations and their respective successors and
assigns.
11. Governing Law; Amendments. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of Tennessee
applicable to contracts to be wholly performed in such state. This Agreement may
not be amended or modified, nor may any of the Pledged Securities be released
except in a writing signed by the parties hereto. Time is of the essence with
respect to the obligations of Pledgor pursuant to this Agreement.
12. Further Assurances. Pledgor agrees to do such further acts and
things, and to execute and deliver such additional conveyances, assignments,
agreements and instruments, as Lender may
3
<PAGE> 4
at any time request in connection with the administration and enforcement of
this Agreement or relative to the Pledged Securities or any part thereof or in
order to better assure and confirm unto Lender its rights and remedies
hereunder.
13. Headings. Section numbers and headings used herein are for
convenience only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
14. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
15. Voting. As long as no Event of Default shall have occurred and be
continuing, the Pledgor shall be entitled to exercise all voting and consensual
powers with respect to the Pledged Securities. Immediately and without further
notice to the Pledgor, upon the occurrence of any Event of Default, Lender shall
have the right, at its election, to exercise all voting and consensual rights
with respect to the Pledged Securities, and the Pledgor shall exercise and
deliver to Lender such proxies as shall be necessary to permit Lender's exercise
of such voting and consensual rights.
16. Consent to Jurisdiction; Exclusive Venue. Borrower hereby
irrevocably consents to the Jurisdiction of the United States District Court for
the Middle District of Tennessee and of all Tennessee state courts sitting in
Davidson County, Tennessee, for the purpose of any litigation to which Lender
may be a party and which concerns this Agreement or the Obligations. It is
further agreed that venue for any such action shall lie exclusively with courts
sitting in Davidson County, Tennessee, unless Lender agrees to the contrary in
writing.
17. Waiver of Trial by Jury. LENDER AND BORROWER HEREBY KNOWINGLY AND
VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS,
PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR OTHERWISE,
AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT OR
THE LOAN DOCUMENTS.
18. Unconditional Obligations of Pledgor. The obligations of Pledgor
under this Agreement are absolute and unconditional. The validity of this
Agreement shall not be impaired by any event whatsoever, including, but not
limited to, (a) the merger, consolidation, dissolution, cessation of business or
liquidation of Borrower, (b) the financial decline or bankruptcy of Borrower,
(c) the failure of any other party to guarantee or to pledge collateral as
security for the Obligations, (d) Lender's compromise or settlement with or
without release of Borrower or any other party liable for the Obligations, (e)
Lender's release of any collateral for the Obligations, (e) Lender's failure to
file suit against Borrower (regardless of whether the Borrower is becoming
insolvent, is about to leave the state, or any other circumstance), (g) Lender's
failure to give Pledgor notice of default by Borrower, (h) the unenforceability
of the Obligations against Borrower due to bankruptcy discharge, counterclaim or
for any other reason, (i) Lender's acceleration of the Obligations at any time,
(j) the
4
<PAGE> 5
extension, modification or renewal of the Obligations, (k) Lender's failure to
undertake or exercise diligence in collection efforts against any party or
property, (1) the termination of any relationship of Pledgor with any Borrower,
(m) any Borrower's change of name or use of any name other than the name used to
identify Borrower in this Agreement, or (n) Borrower's use of the credit
extended for any purpose whatsoever.
18. Impairment of Collateral; Release of Liable Parties. Lender may, in
its sole discretion and with or without consideration, release any collateral
securing the Obligations or release any party liable therefor. The defenses of
impairment of collateral and impairment of recourse and any requirement of
diligence on Lender's part in collecting the Obligations are hereby waived.
19. Pledge as Assurance of Payment. This Agreement encumbers the
Pledged Securities to secure the payment and performance of the Obligations and
not merely to secure the collection thereof. Accordingly, Lender may enforce
this Agreement against the Pledged Securities without first instituting
collection proceedings against Borrower.
[The remainder of this page is intentionally left blank]
5
<PAGE> 6
IN WITNESS WHEREOF, Pledgor and Lender have executed this Agreement, or
have caused this Agreement to be duly executed by a duly authorized officer, all
as of the day first above written.
WITNESS: PLEDGOR:
- ------------------------- MICROTEL INTERNATIONAL, INC.
By: /s/ J.P. Butler
-------------------------
Title: CFO
----------------------
LENDER:
By: /s/
-------------------------
Title: Vice President
----------------------
The undersigned hereby acknowledges and confirms that the necessary
changes and registrations on the books of the undersigned have been made to
reflect the pledge of the Pledged Securities under the Pledge Agreement. In
particular, the undersigned acknowledges and confirms that Lender has been
designated as the only registered pledgee of the Pledged Securities.
DIGITAL TRANSMISSION SYSTEMS, INC.
By:
-------------------------------
Title: Pres & CEO
----------------------------
6
<PAGE> 7
SCHEDULE 1
PLEDGED SECURITIES
<TABLE>
<CAPTION>
No. of
Issuer Shares Class Certificate Nos.
- --------------------------- --------------- ---------- ------------------
<S> <C> <C> <C>
Digital Transmission
Systems, Inc.
</TABLE>
<PAGE> 8
STOCK POWER
-----------
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer unto
_______________________ the capital stock owned by the undersigned in Digital
Transmission Systems, Inc., a Delaware corporation (the "Company") standing in
the name of the undersigned on the books of the Company, now or hereafter owned
by the undersigned and does hereby irrevocably constitute and appoint
_______________________ as attorney-in-fact for the undersigned to transfer
said stock on the books of the Company with full power of substitution on the
premises.
This Stock Power may be delivered only upon the occurrence and continuation
of an Event of Default under that Debenture Purchase Agreement dated September
25, 1997, as amended, by and between Digital Transmission Systems, Inc., a
Delaware corporation, and Sirrom Capital Corporation, d/b/a Tandem Capital.
Dated this 12th day of February, 1999
MICROTEL INTERNATIONAL, INC.
By: /s/ J.P. Butler
-------------------------
Title: CFO
----------------------
<PAGE> 9
IRREVOCABLE PROXY
February 5, 1999
Sirrom Capital Corporation
500 Church Street
Suite 200
Nashville, TN 37219
Ladies and Gentlemen:
Reference is made to that certain Pledge and Security Agreement (the
"Pledge Agreement"), of even date herewith, between the undersigned ("Pledgor")
and Sirrom Capital Corporation ("Lender") pursuant to which Pledgor has pledged
to you certain of its voting shares (the "Shares") in Digital Transmission
Systems, Inc. (the "Borrower") as security for obligations of Borrower to Lender
under that certain "Loan Agreement," as defined in that certain Pledge and
Security Agreement of even date herewith, between Lender and Borrower (the
"Agreement"). Defined terms used herein which are not otherwise defined shall
have the meaning set forth in the Agreement.
At all times after the occurrence and during the continuance of an
Event of Default, the undersigned hereby irrevocably appoints Lender as attorney
and proxy, with full power of substitution, to vote or express written consent
or dissent in such manner as such attorney and proxy, or its substitute, shall,
in its sole discretion, deem proper and otherwise act (including pursuant to any
action taken by the shareholders of Borrower in writing without a meeting) with
respect to all of the Shares which the undersigned is entitled to vote at any
meeting of shareholders (whether annual or special and whether or not an
adjourned meeting) of Borrower, or pursuant to written action taken in lieu of
any such meeting or otherwise.
THIS PROXY IS IRREVOCABLE, IS COUPLED WITH AN INTEREST SUFFICIENT IN
LAW TO SUPPORT AN IRREVOCABLE PROXY UNTIL ALL OBLIGATIONS HAVE BEEN PAID IN FULL
and is granted in consideration of and as an inducement to cause Lender to enter
into the transactions contemplated by the Agreement. This proxy shall revoke any
other proxy granted by Pledgor at any time with respect to the Shares and no
subsequent proxies will be given with respect thereto by Pledgor. In addition,
if subsequent to the date hereof and after the occurrence and during the
continuance of an Event of Default under the Agreement, Pledgor is entitled to
vote the Shares for any purpose, Pledgor shall take all actions necessary to
vote the Shares pursuant to instructions received from Lender.
<PAGE> 10
This irrevocable proxy shall continue in full force and effect until all
Obligations have been fully and indefeasibly paid and or satisfied, at which
time all rights under this proxy shall immediately terminate without further
action of any kind.
MICROTEL INTERNATIONAL, INC.
By: /s/ J.P. Butler
-------------------------
Title: CFO
----------------------
<PAGE> 1
EXHIBIT 10.30
PROMISSORY NOTE
$900,000 Date: February 5, 1999
FOR VALUE RECEIVED, the undersigned, SOUTH TECH, INC, a Georgia corporation,
(the "Maker") promises to pay to the order of DIGITAL TRANSMISSION SYSTEMS,
INC., a Delaware corporation, its successors and assigns (the "Lender" or
"Holder") with its principal place of business in Norcross, GA, or elsewhere as
directed from time to time in writing by the Holder hereof, the principal sum
of Nine Hundred Thousand dollars ($900,000).
South Tech and DTS acknowledge that this Note is made in recognition of a debt
from DTS to P-Com in the amount of $900,000, and that South Tech desires to
source product and service Return Material Authorization's ("RMA's") from DTS
for Skyplex II sales through the current or a future OEM supply contract
between DTS and P-Com which is approved in writing by South Tech.
Payments toward the principal sum of this Note shall be made on a monthly basis
in one or any combination of the following form(s):
(a) the value of credit given to DTS by P-Com for product sales in the
manner prescribed in a letter dated October 8, 1998 by Steven Goldberg,
general manager of P-Com addressed to Andy Salazar, a copy of which is attached
hereto as Exhibit A, or any subsequent agreement between DTS and P-Com which is
approved in writing by South Tech;
(b) cash payments to DTS; or
(c) the value of credit from equipment returned to P-Com by DTS on
behalf of South Tech.
Such payments shall be equal in value to at least (i) for the first two months
of the Note, the current backlog schedule of P-Com as supplied by P-Com as of
the date of this Note; and (ii) thereafter, the total cumulative payments must
be equal to $10,000 multiplied by the total number of full months elapsed since
the date of the Note.
DTS and South Tech hereby agree to renegotiate the terms of this Note in the
event (i) orders of product by DTS are not confirmed by P-Com within 90 days of
the placement of the order; (ii) confirmed orders of product are not shipped by
P-Com within 90 days of the stated confirmation date; or (iii) unpaid products
under RMA's are not repaired by P-Com within 90 days of the date P-Com receives
such returned products.
If the undersigned defaults in the payment hereunder and such default remains
uncured following fifteen (15) days written notice by DTS, the Note shall bear
interest at the rate of 15% ("default rate") on the amount then due and
payable. Upon default for non-payment of the Note, the entire
<PAGE> 2
principal balance of this obligation, together with accrued interest, shall, at
the Holder's election, become immediately due and payable.
Maker shall provide Holder with copies of Maker's financial statements,
including balance sheets, income statements and cash flow projections, prepared
on a monthly basis, on or before the fifteenth (15th) of each month. After a
cure period of fifteen (15) days, failure to provide said financial statements
may constitute a default under this Note, at the sole discretion of Holder.
As security for the amount due herein, the Maker pledges as collateral, all of
the assets ("Assets") set forth in that certain security agreement executed by
the Maker and Holder on even date herewith. The rights or remedies of the
Holder as provided in this Note and said security agreement shall be cumulative
and concurrent, and may be pursued singly, successively, or together against
the property described in the security agreement. The failure to exercise any
such right or remedy shall in no event be construed as a waiver or release of
such rights or remedies or the right to exercise them at any later time.
Maker shall have the privilege to prepay the indebtedness evidenced hereby, in
whole or in part at any time. Partial prepayments shall first be applied
against accrued interest then due and owing, and thereafter against principal.
Any partial prepayment shall not postpone the due date or change the amount of
any subsequent payment.
All persons or entities now or at anytime liable for payment of this Note
hereby waive presentment, protest, notice of protest and dishonor. The Maker
and all persons/entities liable hereunder expressly consent to any extensions
or renewals, in whole or in part, and all delays in timely payment or other
performance which Holder may grant at any time and from time to time without
limitation and without any notice or further consent of the undersigned.
In the event this Note is placed in the hands of an attorney for collection by
civil action the prevailing party shall be entitled to an award of its
attorneys' fees and costs, including those on appeal.
This Promissory Note is to be construed and enforced according to the laws of
the State of Georgia or, if Holder elects the benefit thereof, applicable
Federal pre-emption laws. The venue for instigation of a lawsuit to collect any
sum due herein shall be Gwinnett County, Georgia.
By: /s/ Andres C. Salazar
-------------------------------
Name Andres C. Salazar
------------------------------
Title President & CEO
-----------------------------
<PAGE> 1
EXHIBIT 10.31
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made effective as of the 5th of
February, 1999, by and between DIGITAL TRANSMISSION SYSTEMS, INC., a Delaware
corporation, (the "Secured Party"), and SOUTHTECH, INC., a Georgia corporation
(the "Debtor"), collectively referred to as the "parties', who agree as follows:
DEBT AND COLLATERAL. The Debtor grants to the Secured Party a security interest
in the Collateral as described on the attached Exhibit "A", which are
collectively described as the "Assets" in the Promissory Note, dated on the even
date herewith with SOUTHTECH, INC, as MAKER, ("the Note"), together with all
proceeds thereof, until full payment of the Promissory Note is made to the order
of the Secured Party. The Obligation for payment as described herein shall be
secured by the Collateral held by the Debtor or its licensee at any of its
places of business. Debtor agrees to execute any and all documents requested by
Secured Party to perfect its secured interest, including financing statements
and UCC-I filings, and in default thereof appoints Secured Party
Attorney-in-Fact to execute such documents.
RISK OF LOSS. The Collateral is to remain in the possession of the Debtor or its
licensee, at all times, at the Debtor's risk of loss or destruction. The
possession by the Debtor or its licensee shall continue as long as the
provisions of this Security Agreement are observed.
RELEASE OF DEBTOR. No transfer, renewal, extension, or assignment of this
Security Agreement or any interest hereunder, and no loss, damage or destruction
of the Collateral, shall release the Debtor from the Obligations described
herein. Debtor shall be released from all security interests and corresponding
lien of the Secured Party upon complete satisfaction of the Obligation.
USE OF COLLATERAL. The Debtor or its licensee shall at all times keep the
Collateral free of all taxes, liens and encumbrances, and any sums of money that
may be paid by the Secured Party in release or discharge thereof shall be
payable on demand as an additional part of the Obligation secured hereby. The
Debtor or its licensee shall not use the collateral in any manner other than in
the ordinary course of business. The Debtor or its licensee shall not pledge,
loan, grant or create any other additional security interest in the Collateral
until the Obligations described herein have been discharged, and shall not
transfer or otherwise dispose of the Collateral except as provided in this
Agreement. The Secured Party shall have the right to inspect the Collateral at
any reasonable time or times during the continuance of this Agreement.
SALE OR LICENSING OF COLLATERAL IN ORDINARY COURSE OF BUSINESS. Debtor may sell
or license the Collateral in the ordinary course of business; provided, however
that any and all proceeds generated by the sale or licensing of the Collateral,
in whatever form, shall be fully and faithfully accounted for.
<PAGE> 2
DEFAULT. (a) Should Debtor default in the prompt payment of any Obligation or
in the due performance of or compliance with any of the terms, provisions or
conditions of this Agreement, the Note, or any other document executed in
connection therewith (collectively "Security Documents") or a proceeding in
bankruptcy, insolvency, receivership or reorganization is instituted by or
against the Debtor or its property or the business of the Debtor is in any way
liquidated, or the Secured Party reasonably deems itself insecure of the
Collateral or any part thereof is in danger of loss, misuse, seizure, or
confiscation, the Secured Party shall have all the rights and remedies provided
in the Uniform Commercial Code in force in the State of Georgia at the date of
execution of this Security Agreement. The Secured Party or any Sheriff or other
officer of the law may take immediate possession of the Collateral, including
any attachments or accessories thereto, without demand or further notice and
without legal process. (b) Notwithstanding anything contained herein to the
contrary, payment for any principal and interest shall be due and payable in
accordance with the terms of the Note. Failure of Debtor to pay after the
applicable cure period to pay expires, pursuant to said terms, shall constitute
a material default hereunder and all rights and remedies accorded Secured Party
within this Agreement, at law and in equity shall be available.
ATTORNEYS FEES. In the event of repossession of the Collateral, the Secured
Party shall have such rights and remedies as provided and permitted by law for
the purpose of recovering and disposing of the Collateral. The Debtor shall pay
all attorneys fees and legal expenses incurred by the Secured Party in the
event repossession of the Collateral is required.
GOVERNING LAW/VENUE. This Agreement shall be construed and governed in
accordance with the laws of the State of Georgia and venue shall be in Gwinnett
County, Georgia.
BINDING EFFECT This Agreement shall be binding upon the parties, their heirs,
executors, personal representatives, successors or assigns, where permitted.
ENTIRE AGREEMENT. This Agreement is the entire agreement between Debtor and
Secured Party. No addition, alteration, modification hereto and no waiver of
any of the provisions hereof shall be valid unless made in writing and executed
by Debtor and Secured Party.
<PAGE> 3
IN WITNESS WHEREOF, this Security Agreement was signed and executed on this
12th day of February, 1999.
Attest: DIGITAL TRANSMISSION SYSTEMS, INC
A Delaware corporation
/s/
---------------------------
Secretary (Seal)
/s/
-------------------------------------
President & CEO
Attest: SOUTHTECH, INC,
A Georgia corporation
/s/
---------------------------
Secretary( (Seal)
/s/
--------------------------------------
President
<PAGE> 4
EXHIBIT "A"
The term "Assets" shall include:
Assets.
(a) All furniture, fixtures, equipment, inventory, stock in trade, accounts
receivable, contract rights and any other personal property owned by
Debtor, tangible or intangible.
(b) All accessions to, substitutions for, and all replacement of, products and
cash and non-cash proceeds of (a) above.
<PAGE> 1
EXHIBIT 10.33
PERSONAL AND CONFIDENTIAL
EMPLOYMENT AGREEMENT
This Agreement is made April 13, 1999, by and between Digital Transmission
Systems, Inc., a Delaware corporation with offices at 3000 Northwoods Parkway,
Bldg 330, Norcross, GA 30071, ("DTS") and Woodrow Cannon (the "Employee") who
resides at 125 Steeple Gate Lane, Roswell, GA 30076.
WITNESSETH
WHEREAS, the Employee desires to be employed by DTS ("the Employer") and the
Employer desire(s) to employ the Employee upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual promises,
covenants and agreements hereinafter contained the parties hereto agree as
follows:
I. EMPLOYMENT
1.1 Employment. Subject to the provisions for termination as hereinafter
provided, the terms of this Agreement shall begin on the date first
written above and shall terminate on April 12, 2001 (the "Employment
Period"). The date of termination of employment whether initiated by
Employee or Employer is hereinafter designated "Date of Termination." The
time between the Date of Termination and the point at which the terminated
Employee receives no more compensation, aside from vacation pay or other
insurance or medical benefits, from the Employer as provided herein is
hereinafter designated the "Severance Period". Compensation payments
during the Severance Period will be referred to herein as "Severance
Payments."
1.2 Renewal. Subject to the provisions for termination as hereinafter
provided, this Agreement shall be automatically renewed for two (2)
successive one (1) year terms commencing on April 13, 2001 (the "Renewal
Periods") unless, during the following periods, either party to this
Agreement shall notify the other party, the Employee being one of the
parties, in writing of its desire not to renew this Agreement; provided,
however, any action required to be taken with respect to this Employment
Agreement by the Employer shall only be taken after the Compensation
Committee(s) of the Employer approves such action, and provided that a
notice period of sixty (60) days is required in order to prevent an
automatic renewal of this Agreement.
1.3 Duties.
Subject to Section 1.4, the Employee hereby promises to perform and
discharge well and favorably the duties of DTS PRESIDENT & CHIEF OPERATING
OFFICER ("President") and to perform services in such additional
capacities as may be directed by the DTS CEO and/or the DTS Board of
Directors. As DTS President, the Employee's duties shall consist of the
usual and customary duties of his position and he shall be subject to the
direction of the DTS
page 1
<PAGE> 2
CEO or the DTS Board of Directors, and shall at all times have the
authority as shall reasonably be required to enable him to discharge
such duties in an efficient manner.
1.4 Redesignation. The Employer may, in its discretion, elect or appoint the
Employee to offices or positions at DTS other than, or in addition to DTS
President, (hereinafter the "Redesignation") by providing the Employee with
prompt written notice of the Redesignation. If any Redesignation and
related addition to and/or reduction of Employee's duties results in a
substantial net change in the scope of the Employee's responsibilities, the
Employee may elect, in his sole discretion, not to accept such
Redesignation and to resign upon providing written notice of his
resignation to the Employer not less than thirty (30) days after the
Employee has been provided with written notice of the Redesignation. In
such event, if such termination of employment occurs following a
Redesignation during the Employment Period, the Employer shall pay the
Employee his total monthly compensation rate, as provided herein, for
twelve (12) months following the effective date of such resignation or
until March 1, 2001, whichever is longer. In the event that the
Redesignation shall occur at any time after the Employment Period, and
during one of the Renewal Periods, the Employer shall pay the Employee his
total monthly compensation rate, as provided herein, for twelve (12) months
following the effective date of such resignation. All sums owing hereunder
in the event of a Redesignation and a subsequent resignation by the
Employee shall be paid on regular payroll periods of the Employer following
the effective date of such resignation.
1.5 Other Business Activities. The Employee shall devote his full time
attention and energies to the business of the Employer and shall not, so
long as he remains in the employ of the Employer, be engaged in any other
employment or business of substantial nature, whether or not such business
activity is pursued for gain and profit, without the written consent of the
Employer. Nothing contained herein, however, shall be construed as
preventing the Employee from (i) making passive investments of his assets
in such form or manner as he desires, providing such investments: (a) do
not require the Employee to render services in the operations or affairs of
the firms, corporations or other entities in which such investments are
made, and (b) are not made in any business directly or indirectly competing
with the Employer or its (their) subsidiaries or affiliated corporations,
if any, unless the stock of such company is listed on a national stock
exchange and the Employee owns less than three percent (3%) of the
outstanding voting securities, or (ii) becoming a member of the Board of
Directors of any other corporation that the Employee desires, provided that
the corporation upon whose Board the Employee is a member of is not, in the
sole discretion of the Employer's Board of Directors, in competition with
the business of the Employer.
II. COMPENSATION
2.1 Annual Salary. The Employer shall pay to the Employee in compensation for
Employee's services hereunder to Employer, in aggregate, a Base Salary for
the Employment Period at an annualized rate of One Hundred and Sixty
Thousand Dollars ($160,000) payable in equal periodic installments in
accordance with the customary payroll policy of the Employer.
page 2
<PAGE> 3
Should this Agreement be renewed per Section 1.2, the Employee will have a
performance review and a compensation review on an annual basis. On the
basis of these reviews, the Employee's total compensation package - base
salary, bonus amount and stock option grants - will be revised, if
warranted, to provide continuing incentives and recognize and reward
performance in leadership commensurate with the position held by the
Employee. In addition, the Employee will also be eligible for an Executive
Bonus under the Management Bonus Program approved annually by the Employer
whereby both the Employer and the Employee meet mutually agreeable goals.
An accelerator of 2X, i.e., twice the bonus for achieving the same goals
again, will apply for performance "above plan" or above the mutually
agreeable goals. The Compensation Committee of the Employer will review
the amount of the Employee's bonus for each fiscal year and may increase
the bonus amount. The sum of the annual base salary plus the sum of the
last four quarters of Executive Bonus earned divided by twelve are defined
as the total "monthly compensation rate" in this Agreement.
2.2 Expenses. The Employer agrees to promptly reimburse the Employee against
his receipts for all reasonable business expenses incurred by him during
the Employment Period or Renewal Periods in connection with the
performances of his services hereunder.
2.3 Stock Options and Other Incentive Plans. As part of this Agreement the
Employee will be granted options on an additional One Hundred Thousand DTS
common shares at the market price of the date of this Agreement and which
shall vest quarterly over a period of three years. The Employee shall also
continue to be eligible to participate in any Incentive Stock Option or
Non-Qualified Stock Option Plan or other incentive plans duly approved by
the Board of Directors for implementation within DTS and based on mutually
agreeable goals.
2.5 Additional Benefits. In accordance with DTS Policy while an employee of
DTS, the Employee shall continue to be entitled to four weeks vacation
annually, medical insurance, and other fringe benefits made available to
the respective Employer's employees generally.
III. TERMINATION OF EMPLOYMENT
3.1 Termination Due To Death. If during the Employment Period or Renewals
thereof, Employee shall die, this Agreement shall terminate, except that
the monthly compensation rate or other amounts payable hereunder, to or for
the benefit of Employee shall be paid for one (1) year following the death
of the Employee to such person or persons as Employee may designate by
notice to the Employer from time to time or, in the absence of such
designation, to his legal representatives.
3.2 Termination Due To Disability. If during the Employment Period, or
Renewals thereof, Employee shall become physically or mentally disabled,
whether totally or partially, so that he is unable substantially to
perform his services hereunder (i) for a period of 120
page 3
<PAGE> 4
consecutive days, or (ii) for shorter periods aggregating 180 days during
any period of twelve consecutive months, the Employer may at any time after
the last day of the 120 consecutive days of disability or the day on which
the shorter periods of disability shall have equaled an aggregate of 180
days, by 10 days written notice to Employee (but before Employee has
recovered from such disability), terminate this Agreement. Notwithstanding
such disability, the Employer shall continue to pay Employee compensation
or other amounts payable hereunder, to or for the benefit of Employee up to
and including the date twelve months after the effective date of such
termination.
3.3 Termination for Cause. The Employer may at any time during the Employment
Period and any Renewals thereof, by notice, terminate this Agreement and
discharge the Employee for cause, whereupon the Employer's obligation to
pay any compensation, severance allowance, or other amounts payable
hereunder to or for the benefit of Employee shall terminate on the date of
such discharge, notwithstanding anything herein contained to the contrary.
As used herein, the term "for cause" shall be deemed to mean and include
chronic substance abuse; misappropriation of any money or other assets or
properties of the Employer or its subsidiaries; willful violation of
specific and lawful written directions from his superiors or from the Board
of Directors of the Employer; willful failure or refusal to perform the
services required of Employee under this Agreement; other breaches of the
covenants contained herein; willful disclosure of trade secrets or other
confidential information resulting in substantial detriment to the Employer
as documented by the Employer under oath or affirmation; conviction in a
court of competent jurisdiction of any crime involving the funds or assets
of the Employer including, but not limited to, embezzlement and larceny;
any civil or criminal conduct or personal misbehavior including sexual
harassment which is detrimental to the image, reputation, welfare or
security of the Employer where such misconduct or misbehavior and judgment
have been documented by the Employer under oath or affirmation; and any
other acts or omissions that constitute grounds for cause under the laws of
the states of Georgia, Delaware, California, Massachusetts or Illinois, or
such other states or locations wherein the Employer may have operations.
3.4 Termination Without Cause. The Employer may terminate this Agreement
"without cause" at any time upon sixty (60) days written notice to the
Employee. In the event the Employer does terminate this Agreement without
it being for cause, the Employee, if requested in writing by the Employer,
shall continue to render services at full compensation until the effective
date of such termination; but in no case shorter than sixty (60) and longer
than ninety (90) days. Thereafter, during the Employment Period, Employee
shall be paid at his total monthly compensation rate for twelve (12) months
following the effective date of such termination, or until April 12, 2001,
whichever is the longer period, constituting the Severance Period under
this Section. In the event such termination pursuant to this Section 3.4
occurs during any of the Renewal Periods after April 12, 2001, the Employee
shall be paid his total monthly compensation rate for twelve (12) months
following the date of termination, constituting the Severance Period under
this Section, as well as all other amounts payable hereunder. Termination
"without cause" shall include: the ceasing of
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operations due to bankruptcy, and/or the general inability of the Employer
to meet the Employer's obligations as they become due, or upon non-renewal
of this Agreement.
3.5 Termination Without Cause Following a Change in Control. This Agreement
may be terminated by Employer, or successor to Employer, upon sixty (60)
days written notice to Employee upon the happening of any of the following
events:
a. Sale by Employer of substantially all of its assets;
b. Sale, exchange or other disposition of two-thirds or more of the
outstanding capital stock of the Employer;
c. Merger or reorganization in which shareholders of the Employer
immediately prior to such merger or reorganization receive less than
fifty percent (50%) of the outstanding voting shares of the successor
corporation.
d. Change in Employer Board of Directors membership of more than fifty
percent.
In the event that the Employee's employment is terminated without cause
within two years following a change of control, the Employer or successor
to Employer shall:
a. Pay to Employee, in installments, the Employee's total compensation
rate for twelve (12) months and all other amounts payable hereunder
following the effective date of such termination or until April 12,
2001, whichever is the longer period, constituting the Severance Period
under this Section.
b. In the event such termination occurs during any of the Renewal Periods,
pay to Employee his monthly compensation rate for twelve (12) months or
until the end of the renewal period, whichever is longer plus all other
amounts payable hereunder, constituting the Severance Period under this
Section.
c. Pay to Employee any Executive Bonus awarded but not yet paid.
d. Continue Employee's coverage in all benefit programs in which he was
participating on the date of his termination of employment until the
earlier of (a) the date he receives equivalent coverage and benefits
under plans and programs of a subsequent employer, or (b) if
termination occurs during the term of this Agreement, a date twelve
months after the date of termination.
e. Accelerate vesting of stock options by two (2) years.
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3.6. Employee Resignation. The Employee has the right at any time to
voluntarily resign his employment, by giving sixty (60) days written
notice to the Employer. All compensation payable under this Agreement can
be paid in a lump sum within thirty (30) days of the Date of Termination,
solely at the option of the Employee. In the event of voluntary
resignation, the Employee will be bound by Section IV and Section V of
this Agreement.
3.7. Status during Severance Period. If the Employee is terminated without
cause as defined in Section 3.4 or 3.5, whatever vacation compensation due
Employee on the Date of Termination will be added to compensation due
Employee during the Severance Period. If Employee breaches any covenant
contained in this Agreement, inclusive of those contained in Section IV
and V, any benefits (including stock option vesting) and payments
otherwise due under the terms of this Agreement shall cease and Employer
shall have no further liability for such payments. Stock Options held by
Employee at Date of Termination will continue to vest during the Severance
Period. All compensation payable during the Severance Period may be paid
in a lump sum within thirty (30) days of the Date of Termination, solely
at the option of the Employee by giving written notice to Employer within
ten (10) days of the Date of Termination.
3.8. Waiver and Mutual Release upon Termination. Should Employee receive
compensation and/or benefits, during a Severance Period, for termination
without cause as defined in Section 3.4 or 3.5, and excepting for the set
of benefits and compensation stated herein due Employee during such
Severance Period, effective as of the Date of Termination the Employer and
the Employee will otherwise completely, mutually and reciprocally release,
discharge, acquit each other from all other claims, contracts, actions,
suits, demands, agreements, liabilities, and proceedings of every nature
and description both at law and in equity that either party has or may
have against the other, arising from the beginning of time to the date of
termination, including but not necessarily limited to any incident or
claim resulting from employment with Employer.
IV. COVENANTS NOT TO COMPETE
4.1 The Employee agrees that (i) during the term of this Agreement, or in the
event of a termination pursuant to Section 3.3 and, thereafter for a
period of twelve (12) months or (ii) in the event of a termination
pursuant to Sections 3.4 or 3.5 or 3.6 or upon resignation upon
Redesignation for the Interim Period as defined in Section 1.4, and for
the period from the effective date of such termination until the
expiration of a period of twelve months following the termination of
employment, he will not act as a principal, agent, Employee, employer,
consultant, control person, stockholder, director or co-partner of any
person, firm, business entity other than the Employer, or in any
individual representative capacity whatsoever, directly or indirectly,
with up to five companies, including their wholly owned subsidiaries or
divisions, specified by the Employer in Schedule A and may be modified
from time to time at the option of the Employer. The employee will not:
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a) engage or participate or be employed in any of these five companies
whose products or services are competitive with those of the
Employer anywhere in the United States of America; provided,
however, that the ownership by the Employee of not more than three
percent (3%) of a corporation or similar business venture shall not
be deemed to be a violation of this covenant as long as the Employee
does not become a controlling person or actively involved in the
management of such corporation or business venture;
b) approach, solicit business from, or otherwise do business or deal
with any customer of the Employer in connection with any product or
service from one of these five companies competitive with any
provided by the Employer; provided, however, the Employee may
approach, solicit business from, or otherwise do business or deal
with any subsidiary or division of any customer of the Employer
provided that such customer's division or subsidiary does not
provide a product or service competitive with any provided by the
Employer.
c) approach, counsel, solicit, assist to solicit or attempt to induce
any person who is then in the employ of the Employer, its affiliates
or subsidiaries to leave the employ of the Employer, or employ, or
attempt to employ on behalf of any person or entity any such person
or persons who at any time during the preceding six months was in
the employ of the Employer;
d) aid or counsel any other person, firm, corporation or business
entity to do any of the above.
e) For purposes of this Section 4.1, the term "customer" shall mean (i)
any person or entity who was a customer of the Employer at any time
during the last two months of the Employee's employment by the
Employer; (ii) any prospective customer to whom the Employer had
made a presentation, or similar offering of product(s) during the
last year of the Employee's employment by the Employer.
f) The Employee acknowledges (i) that his position with the Employer
requires performance of services which are special, unique,
extraordinary and intellectual in character and places him in a
position of confidence and trust with the customers and employees of
the Employer, through which, among other things, he shall obtain
knowledge of such organization's "technical information" and "know
how" and become acquainted with their customers, in which matters
such organizations have substantial proprietary interests, (ii) that
the restrictive covenants set forth above are necessary in order to
protect and maintain such proprietary interests and other legitimate
business interests of the Employer, and (iii) that the Employer
would not have entered into this Agreement unless such covenants
were included herein.
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g) The Employee also acknowledges that the business of the Employer
presently extends throughout the world, that he has personally
supervised or engaged in such business on behalf of the Employer, or
will do so pursuant to the terms of this Agreement, and,
accordingly, it is reasonable that the restrictive covenants set
forth above are not more limited as to geographic area than is set
forth therein. The Employee also represents to the Employer that the
enforcement of such covenants will not prevent the Employee from
earning a livelihood.
If any of the provisions of this Section, or any part thereof, is
hereinafter construed to be invalid or unenforceable, the same shall not
affect the remainder of such provision or provisions, which shall be given
full effect, without regard to the invalid portions. If any of the
provisions of this Section, or any part thereof, is held to be
unenforceable because of the duration of such provision, the area covered
thereby or the type of conduct restricted therein, the parties agree that
the court making such determination shall have the power to modify the
duration, geographic area and/or other terms of such provision and, as so
modified, said provision shall then be enforceable. In the event that the
courts of any one or more jurisdictions shall hold such provisions wholly
or partially unenforceable by reason of the scope thereof or otherwise, it
is the intention of the parties hereto that such determination not bar or
in any way affect the Employer's right to the relief provided for herein
in the courts of any other jurisdictions as to breaches or threatened
breaches of such provisions in such other jurisdictions, the above
provisions as they relate to each jurisdiction being, for this purpose,
separable into diverse and independent covenants.
V. CONFIDENTIAL INFORMATION
5.1 Disclosure of Information. The Employee recognizes and acknowledges that
the financial information, trade secrets, technical information, and
confidential or proprietary information of the Employer, including such
information as may exist from time to time, and information as to the
identity of customers or prospective customers of the Employer and other
similar items, are valuable, special and unique assets of the Employer's
business, access to and knowledge of which are essential to the
performance of the duties of the Employee hereunder. Unless compelled by
court order or other legal process including legal claims by Employee of
breach of this Agreement by Employer, the Employee will not, during or
after the term hereof, in whole or in part, disclose such secrets or
confidential, technical or proprietary information to any person, firm,
corporation, association or other entity for any reason or purpose
whatsoever, nor shall the Employee make use of any such property or
information for his own purpose or for the benefit of any person, firm,
corporation or other entity (except the Employer) under any circumstances,
during or after the term hereof, provided that after the term hereof these
restrictions shall not apply to such secrets or information which are then
in the public domain (provided that the Employee was not responsible,
directly or indirectly, for such secrets or information entering the
public domain without the consent of the Employer).
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5.2 Ownership of Inventions. All of the Employee's right, title and interest
in all developments or improvements devised or conceived by the Employee,
alone or with others, during his working hours, as well as in all
developments or improvements devised or conceived by the Employee, alone
or with others, which relate to any business in which the Employer is then
engaged or contemplating engaging in, regardless of when devised or
conceived, is the exclusive property of the Employer. The Employee shall
promptly disclose all such developments and improvements to the Employer.
The Employee shall not use or disclose any such developments or
improvements, other than in furtherance of the Employer's business,
without the Employer's prior written consent
5.3 Return Memoranda. Employee hereby agrees to deliver to the Employer within
five days of the date of termination of his employment, or at any other
time the Employer may so request, all keys, credit cards issued by the
Employer to the Employee, equipment including calculators, personal
computers, organizers, cellular telephones, memoranda, notes, records,
reports, manuals, drawings and other documents (and all copies thereof)
relating to the Employer's business and all property associated therewith,
which he may then possess or have under his control.
5.4 Confidentiality of this Agreement. Employee hereby agrees to not disclose,
directly or indirectly, either the amount or terms of this Agreement to
any person other than Employee's immediate family, attorney and
accountant, unless compelled to do so by court order or other lawful
process including claims by Employee of breach of contract by Employer.
5.5 Non-disparagement. Except in legal claims by Employee of breach of
contract by Employer, Employee agrees not to: (a) encourage, support, or
solicit claims against the Employer; (b)criticize, denigrate, or otherwise
speak adversely regarding the Employer, its policies and practices and/or
its personnel, officers, or directors.
VI. INJUNCTIVE RELIEF
6.1 The Employee acknowledges that the remedy at law for any breach or
threatened breach of Articles IV and V hereof by the Employee will be
inadequate, and that, accordingly, the Employer shall, in addition to all
other available remedies (including the immediate termination of any
compensation and/or benefits during the Severance Period and without
limitation , seeking such damages as it can be shown it has sustained by
reason of such breach), be entitled to injunctive relief without being
required to post bond or other security, and without having to prove the
inadequacy of the available remedies at law. The Employee agrees not to
plead or defend on grounds of adequate remedy at law or any similar
defense in any action by the Employer against him, or injunctive relief,
or for specific performance of any of his obligations pursuant to Articles
IV and V hereof. Nothing herein shall be construed as prohibiting the
Employer from pursuing any other remedies for such breach or threatened
breach.
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VII. MISCELLANEOUS PROVISIONS
7.1 Notices and Communications. All notices and communications hereunder shall
be in writing and shall be hand-delivered or sent postage prepaid by
registered or certified mail, return receipt requested, to the address
first above written or to such other address of which notice shall have
been given in the manner herein provided.
7.2 Entire Agreement. All prior or contemporaneous agreements and
understandings between the parties with respect to the subject matter of
this Agreement are superseded by this Agreement, and this Agreement
constitutes the entire understanding between the parties. This Agreement
may not be modified, amended, changed or discharged except when executed
in writing and signed by both parties hereto, and then only to the extent
therein set forth.
7.3 Assignment. This Agreement may be assigned by the Employer and shall be
binding upon and inure to the benefit of the Employer's assigns and
successors. The services to be performed by the Employee pursuant to this
Agreement may not be assigned by the Employee.
7.4 Waiver. No waiver of any breach of this Agreement or of any objection to
any act or omission connected herewith shall be implied or claimed by any
party, or be deemed to constitute a consent to any continuation of such
breach, act or omission, unless in a writing signed by the party against
whom enforcement of such waiver or consent is sought, and then only to the
extent therein set forth.
7.5 Indemnification. The Employer will indemnify Employee, to the maximum
extent permitted by applicable law and the By-laws of the Employer,
against all costs, charges and expenses incurred or sustained by him in
connection with any action, suit or other reason of his being an officer,
director or employee of the Employer or any subsidiary or affiliate
thereof subject to applicable law.
7.6 Section Headings. The Section headings of this Agreement are solely for
the purpose of convenience and shall neither be deemed a part of this
Agreement nor used in any interpretation thereof.
7.7 Governing Law. This Agreement and the relationship of the parties shall be
governed by, and construed in accordance with, the laws of the state of
Delaware, or until such time as the Employer's state of incorporation may
be changed to another state within the United States, at which point the
relationship of the parties would then be governed by, and construed in
accordance with, the laws of the new state of incorporation.
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7.8 Cooperating In Pending or Future Litigation. Except in legal claims by
Employee of breach of contract by Employer, Employee, as a former employee
and/or officer, agrees and warrants that he shall cooperate fully in the
defense of the Employer, its parent, subsidiary, or affiliated companies,
or its present or former directors, officers, employees, or agents in any
litigation or controversy now existing or which may arise in the future in
which Employee has knowledge of the facts or circumstances. Employee
agrees and warrants that his cooperation concerning pending, future, or
threatened litigation is not the result of any payments made to the
Employee pursuant to this Agreement and release.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of
the day and year first above written.
DIGITAL TRANSMISSION SYSTEMS, INC.
Dated: Dated:
---------------------- ----------------------
- ---------------------------- ----------------------------
Woodrow Cannon Andres C. Salazar
President and COO CEO
Dated
-----------------------
- ---------------------------
Carmine Oliva
DTS Chairman of the Board
Seal:
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SCHEDULE A
Competitors to DTS
ADC
Premisys Communications
CAC (Carrier Access Corporation)
Paragon Networks, International
Verilink
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EXHIBIT 10.34
EMPLOYMENT AGREEMENT
This Agreement is made April 13, 1999, by and between Digital Transmission
Systems, Inc., a Delaware corporation with offices at 3000 Northwoods Parkway,
Bldg 330, Norcross, GA 30071, ("DTS") and Andres C. Salazar (the "Employee")
who resides at 6225 Cherokee Way, Suwanee, GA 30024.
WITNESSETH
WHEREAS, the Employee desires to be employed by DTS (the "Employer") and the
Employer desire to employ the Employee upon the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual promises,
covenants and agreements hereinafter contained the parties hereto agree as
follows:
I. EMPLOYMENT
1.1 Employment. Subject to the provisions for termination as hereinafter
provided, the terms of this Agreement shall begin on the date first
written above and shall terminate on March 1, 2000 (the "Employment
Period"). The date of termination of employment whether initiated by
Employee or Employer is hereinafter designated "Date of Termination." The
time between the Date of Termination and the point at which the terminated
Employee receives no more compensation, aside from vacation pay or other
insurance or medical benefits, from the Employer as provided herein is
hereinafter designated the "Severance Period". Compensation payments
during the Severance Period will be referred to herein as "Severance
Payments."
1.2 Renewal. Subject to the provisions for termination as hereinafter
provided, this Agreement shall be automatically renewed for two (2)
successive one (1) year terms commencing on March 2, 2000 (the "Renewal
Periods") unless, during the following periods, either party to this
Agreement shall notify the other party, the Employee being one of the
parties, in writing of its desire not to renew this Agreement; provided,
however, any action required to be taken with respect to this Employment
Agreement by the Employer shall only be taken after the Compensation
Committee of the Employer approves such action, and provided that a notice
period of sixty (60) days is required in order to prevent an automatic
renewal of this Agreement.
1.3 Duties.
(a) DTS. Subject to Section 1.4, the Employee hereby promises to perform
and discharge well and favorably the duties of DTS CHIEF EXECUTIVE OFFICER
(CEO) and to perform services in such additional capacities as may be
directed by the DTS Board of Directors. As
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DTS CEO, the Employee's duties shall consist of the usual and customary
duties of his position and he shall be subject to the direction of the DTS
Board of Directors, and shall at all times have the authority as shall
reasonably be required to enable him to discharge such duties in an
efficient manner. (b) Microtel. Also subject to Section 1.4 and to the
approval to the Board of Directors of DTS, the Employee hereby promises to
perform and discharge well and favorably the duties of SENIOR VICE
PRESIDENT, GROUP EXECUTIVE (SVP - Microtel) of Microtel International,
Inc. ("Microtel") under the direction of Carmine Oliva, President and CEO
of Microtel. As SVP - Microtel, the Employee's duties shall consist of:
(i) a group level supervision of DTS and CXR Telcom, Inc., (ii) Chairman
of the Microtel Strategy and Action Board (SAB) and (iii) Product Line
Manager of all telecommunications products in Microtel and its affiliated
companies. (c) Role Development. During the course of performing his
duties under (a) and (b) of this Section Employee may be alerted to a
situation in which a conflict of interest may exist. The parties to this
Agreement agree that the Employee's role in such a situation will conform
to the advice given by Employer corporate counsel(s) (or if such advice is
contradictory, the advice of his personal counsel). Further, if Employee's
role is contrary to direction of Employer, Employee will not be penalized
in any way by any term or condition of this Agreement.
1.4 Redesignation. The Employer may, in its discretion, elect or appoint the
Employee to offices or positions at DTS or at Microtel other than, or in
addition to DTS CEO, (hereinafter the "Redesignation") by providing the
Employee with prompt written notice of the Redesignation. If any
Redesignation and related addition to and/or reduction of Employee's duties
results in a substantial net change in the scope of the Employee's
responsibilities, the Employee may elect, in his sole discretion, not to
accept such Redesignation and to resign upon providing written notice of
his resignation to the Employer not less than thirty (30) days after the
Employee has been provided with written notice of the Redesignation. In
such event, if such termination of employment occurs following a
Redesignation during the Employment Period, the Employer shall pay the
Employee his total monthly compensation rate, as provided herein, for
twelve (12) months following the effective date of such resignation or
until March 1, 2000, whichever is longer. In the event that the
Redesignation shall occur at any time after the Employment Period, and
during one of the Renewal Periods, the Employer shall pay the Employee his
total monthly compensation rate, as provided herein, for twelve (12) months
following the effective date of such resignation. All sums owing hereunder
in the event of a Redesignation and a subsequent resignation by the
Employee shall be paid on regular payroll periods of the Employer following
the effective date of such resignation.
1.5 Other Business Activities. The Employee shall devote his full time
attention and energies to the business of the Employer and shall not, so
long as he remains in the employ of the Employer, be engaged in any other
employment or business of substantial nature, whether or not such business
activity is pursued for gain and profit, without the written consent of the
Employer. Nothing contained herein, however, shall be construed as
preventing the
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Employee from (i) making passive investments of his assets in such form or
manner as he desires, providing such investments: (a) do not require the
Employee to render services in the operations or affairs of the firms,
corporations or other entities in which such investments are made, and (b)
are not made in any business directly or indirectly competing with the
Employer or its subsidiaries or affiliated corporations, if any, unless
the stock of such company is listed on a national stock exchange and the
Employee owns less than three percent (3%) of the outstanding voting
securities, or (ii) becoming a member of the Board of Directors of any
other corporation that the Employee desires, provided that the corporation
upon whose Board the Employee is a member of is not, in the sole
discretion of the Employer's Board of Directors, in competition with the
business of the Employer.
1.6 Voluntary Resignation. The Employee has the right at any time to
voluntarily resign his employment by giving sixty (60) days written notice
to the Employer. In the event of voluntary resignation, the Employee will
have the right to be paid within sixty (60) days of date of termination
for unused vacation and any bonuses earned, but not yet paid. In the event
of voluntary resignation, the Employee will be bound by Section IV and
Section V of this Agreement.
II. COMPENSATION
2.1 Annual Salary. The Employer shall pay to the Employee in compensation for
Employee's services hereunder to Employer, in aggregate, a "Base Salary"
for the Employment Period at an annualized rate of One Hundred and Eighty
Five Thousand Dollars ($185,000) payable in equal periodic installments in
accordance with the customary payroll policy of the Employer. Should this
Agreement be renewed per Section 1.2 the Employee will have a performance
review and a compensation review on an annual basis. On the basis of these
reviews, the Employee's total compensation package - base salary, bonus
amount and stock option grants - will be revised, if warranted, to provide
continuing incentives and recognize and reward performance in leadership
commensurate with the position held by the Employee. In addition, the
Employee will also be eligible for an Executive Bonus under the Management
Bonus Program approved annually by the Employer whereby both the Employer
and the Employee meet mutually agreeable goals. The sum of the annual base
salary plus the sum of the last four quarters of Executive Bonus earned
divided by twelve are defined as the total "monthly compensation rate" in
this Agreement. Salary and any bonus amount will be paid by DTS as long as
Employee remains a DTS employee with reimbursement to DTS by Microtel for
that part of Employee's compensation which is earned for work performed
for Microtel. Initially, the compensation will be partitioned 60% due to
work performed for Microtel and 40% due to work performed for DTS. This
"ratio" will be visited every six months by DTS and Microtel and adjusted
accordingly. Should Employee assume a role for Microtel for which
employment termination at DTS is justified, at that point Employee's
compensation will be borne 100% by Microtel.
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2.2 Expenses. The Employer agree to promptly reimburse the Employee against his
receipts for all reasonable business expenses incurred by him during the
Employment Period or Renewal Periods in connection with the performances of
his services hereunder. Business expenses incurred by Employee for services
performed for Microtel will be paid by Microtel whereas expenses incurred
by Employee for services performed for DTS will be paid by DTS.
2.3 Bonuses. The Employer agrees that the Employee will be entitled to
participate in any bonus or similar plan approved by the Employer's Board
of Directors as described in Section 2.1.
2.4 Stock Options and Other Incentive Plans. As a part of this Agreement's
initiation and pending Employer Board of Director approval, the Employee
will be granted one hundred and fifty thousand (150,000) options for DTSX
common stock shares at the market closing price as of the date of this
Agreement which shall vest quarterly over a period of no more than three
years. The Employee shall also continue to be eligible to participate in
any Incentive Stock Option or Non-Qualified Stock Option Plan or other
incentive plans duly approved by the Board of Directors for implementation
within DTS.
2.5 Additional Benefits. The Employee shall continue to be entitled to four
weeks vacation annually, medical insurance, and other fringe benefits made
available to the Employer's employees generally and a $500 per month car
allowance.
III. TERMINATION OF EMPLOYMENT
3.1 Termination Due To Death. If during the Employment Period or Renewals
thereof, Employee shall die, this Agreement shall terminate, except that
the monthly compensation rate or other amounts payable hereunder, to or for
the benefit of Employee shall be paid for one (1) year following the death
of the Employee to such person or persons as Employee may designate by
notice to the Employer from time to time or, in the absence of such
designation, to his legal representatives.
3.2 Termination Due To Disability. If during the Employment Period, or Renewals
thereof, Employee shall become physically or mentally disabled, whether
totally or partially, so that he is unable substantially to perform his
services hereunder (i) for a period of 120 consecutive days, or (ii) for
shorter periods aggregating 180 days during any period of eighteen
consecutive months, the Employer may at any time after the last day of the
120 consecutive days of disability or the day on which the shorter periods
of disability shall have equaled an aggregate of 180 days, by 10 days
written notice to Employee (but before Employee has recovered from such
disability), terminate this Agreement. Notwithstanding such disability, the
Employer shall continue to pay Employee compensation or other amounts
payable hereunder, to or for the benefit of Employee up to and including
the date twelve months after the effective date of such termination.
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3.3 Termination for Cause. The Employer may at any time during the Employment
Period and any Renewals thereof, by notice, terminate this Agreement and
discharge the Employee for cause, whereupon the Employer's obligation to
pay any compensation, severance allowance, or other amounts payable
hereunder to or for the benefit of Employee shall terminate on the date of
such discharge, notwithstanding anything herein contained to the contrary.
As used herein, the term "for cause" shall be deemed to mean and include
chronic substance abuse; misappropriation of any money or other assets or
properties of the Employer or its subsidiaries; willful violation of
specific and lawful written directions from his superiors or from the
Board of Directors of the Employer; willful failure or refusal to perform
the services required of Employee under this Agreement; other breaches of
the covenants contained herein; willful disclosure of trade secrets or
other confidential information resulting in substantial detriment to the
Employer as documented by the Employer under oath or affirmation;
conviction in a court of competent jurisdiction of any crime involving the
funds or assets of the Employer including, but not limited to,
embezzlement and larceny; any civil or criminal conduct or personal
misbehavior including sexual harassment which is detrimental to the image,
reputation, welfare or security of the Employer where such misconduct or
misbehavior and judgment have been documented by the Employer under oath
or affirmation; and any other acts or omissions that constitute grounds
for cause under the laws of the states of Georgia, Delaware, California,
Massachusetts or Illinois, or such other states or locations wherein the
Employer may have operations.
3.4 Termination Without Cause. The Employer may terminate this Agreement
"without cause" at any time upon sixty (60) days written notice to the
Employee. In the event the Employer does terminate this Agreement without
it being for cause, the Employee, if requested in writing by the Employer,
shall continue to render services at full compensation until the effective
date of such termination; but in no case shorter than sixty (60) and
longer than ninety (90) days. Thereafter, during the Employment Period,
Employee shall be paid at his total monthly compensation rate for twelve
(12) months following the effective date of such termination, or until
April 12, 2000, whichever is the longer period, constituting the Severance
Period under this Section. In the event such termination pursuant to this
Section 3.4 occurs during any of the Renewal Periods after April 12, 2000,
the Employee shall be paid his total monthly compensation rate for twelve
(12) months following the date of termination, constituting the Severance
Period under this Section, as well as all other amounts payable hereunder.
Termination "without cause" shall include: the ceasing of operations due
to bankruptcy, and/or the general inability of the Employer to meet the
Employer's obligations as they become due, or upon non-renewal of this
Agreement.
3.5 Termination Without Cause Following a Change in Control. This Agreement
may be terminated by Employer, or successor to Employer, upon sixty (60)
days written notice to Employee upon the happening of any of the following
events:
a. Sale by Employer of substantially all of its assets;
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<PAGE> 6
b. Sale, exchange or other disposition of two-thirds or more of the
outstanding capital stock of the Employer;
c. Merger or reorganization in which shareholders of the Employer
immediately prior to such merger or reorganization receive less than
fifty percent (50%) of the outstanding voting shares of the successor
corporation.
d. Change in Employer Board of Directors membership of more than fifty
percent.
In the event that the Employee's employment is terminated without cause
within two years following a change of control, the Employer or successor
to Employer shall:
a. Pay to Employee, in installments, the Employee's total compensation
rate for twelve (12) months and all other amounts payable hereunder
following the effective date of such termination or until April 12,
2000, whichever is the longer period, constituting the Severance Period
under this Section.
b. In the event such termination occurs during any of the Renewal Periods,
pay to Employee his monthly compensation rate for twelve (12) months or
until the end of the renewal period, whichever is longer plus all other
amounts payable hereunder, constituting the Severance Period under this
Section.
c. Pay to Employee any Executive Bonus awarded but not yet paid.
d. Continue Employee's coverage in all benefit programs in which he was
participating on the date of his termination of employment until the
earlier of (a) the date he receives equivalent coverage and benefits
under plans and programs of a subsequent employer, or (b) if
termination occurs during the term of this Agreement, a date twelve
months after the Date of Termination.
e. Accelerate vesting of stock options by two (2) years.
3.6. Status during Severance Period. If the Employee is terminated without
cause as defined in Section 3.4 or 3.5, whatever vacation compensation due
Employee on the Date of Termination will not add to but be part of the
compensation awarded during the Severance Period. Severance payments under
this Agreement will end 14 days after full time employment of Employee in
any similar corporate position with monthly income equal to or greater
than 80% of the monthly compensation rate as defined in Section 2.1. This
clause is not designed to eliminate termination benefits in the event of a
non-profit, public service or volunteer position, even though the position
may require forty hours a week or more to fulfill. Severance Payments will
be allowed if the employee chooses to set up a new business totally
unrelated to any business of Employer and that is not expected to produce
significant earnings (less than 80% of the monthly compensation rate as
defined in Section
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<PAGE> 7
2.1) for the length of the Severance Period. If Employee breaches any
covenant contained in this Agreement, inclusive of those contained in
Section IV and V, any benefits (including stock option vesting) and
payments otherwise due under the terms of this Agreement shall cease and
Employer shall have no further liability for such payments. Stock Options
held by Employee at Date of Termination will continue to vest during the
Severance Period.
3.7. Waiver and Mutual Release upon Termination. Should Employee receive
compensation and/or benefits, during a Severance Period, for termination
without cause as defined in Section 3.4 or 3.5, and excepting for the set
of benefits and compensation stated herein due Employee during such
Severance Period, effective as of the Date of Termination, the Employer
and the Employee will otherwise completely, mutually and reciprocally
release, discharge, acquit each other from all other claims, contracts,
actions, suits, demands, agreements, liabilities, and proceedings of every
nature and description both at law and in equity that either party has or
may have against the other, arising from the beginning of time to the date
of termination, including but not necessarily limited to any incident or
claim resulting from employment with Employer.
IV. COVENANTS NOT TO COMPETE
4.1 The Employee agrees that during the term of this Agreement, or (i) in the
event of a termination pursuant to Section 3.3, 3.4, 3.5 or (ii) in the
event of a resignation upon Redesignation for the Interim Period as
defined in Section 1.4 or (iii) in the event of a resignation under
Section 1.6, and, thereafter for a period of twelve (12) months he will
not act as a principal, agent, Employee, employer, consultant, control
person, stockholder, director or co-partner of any person, firm, business
entity other than the Employer, or in any individual representative
capacity whatsoever, directly or indirectly, with up to five companies,
including their wholly owned subsidiaries or divisions, specified by the
Employer in Schedule A and which may be modified from time to time at the
Employer's option. The employee will not:
a) engage or participate or be employed in any of these five companies
whose products or services are competitive with those of the
Employer anywhere in the United States of America; provided,
however, that the ownership by the Employee of not more than three
percent (3%) of a corporation or similar business venture shall not
be deemed to be a violation of this covenant as long as the Employee
does not become a controlling person or actively involved in the
management of such corporation or business venture;
b) approach, solicit business from, or otherwise do business or deal
with any customer of the Employer in connection with any product or
service from one of these five companies competitive with any
provided by the Employer; provided, however, the Employee may
approach, solicit business from, or otherwise do business or deal
with any subsidiary or division of any customer of the Employer
provided that such customer's division or
page 7
<PAGE> 8
subsidiary does not provide a product or service competitive with
any provided by the Employer.
c) approach, counsel, solicit, assist to solicit or attempt to induce
any person who is then in the employ of the Employer, its affiliates
or subsidiaries to leave the employ of the Employer, or employ, or
attempt to employ on behalf of any person or entity any such person
or persons who at any time during the preceding six months was in
the employ of the Employer;
d) aid or counsel any other person, firm, corporation or business
entity to do any of the above.
e) For purposes of this Section 4.1, the term "customer" shall mean (i)
any person or entity who was a customer of the Employer at any time
during the last two months of the Employee's employment by the
Employer; (ii) any prospective customer to whom the Employer had
made a presentation, or similar offering of product(s) during the
last year of the Employee's employment by the Employer.
f) The Employee acknowledges (i) that his position with the Employer
requires performance of services which are special, unique,
extraordinary and intellectual in character and places him in a
position of confidence and trust with the customers and employees of
the Employer, through which, among other things, he shall obtain
knowledge of such organization's "technical information" and "know
how" and become acquainted with their customers, in which matters
such organizations have substantial proprietary interests, (ii) that
the restrictive covenants set forth above are necessary in order to
protect and maintain such proprietary interests and other legitimate
business interests of the Employer, and (iii) that the Employer
would not have entered into this Agreement unless such covenants
were included herein.
g) The Employee also acknowledges that the business of the Employer
presently extends throughout the world, that he has personally
supervised or engaged in such business on behalf of the Employer, or
will do so pursuant to the terms of this Agreement, and,
accordingly, it is reasonable that the restrictive covenants set
forth above are not more limited as to geographic area than is set
forth therein. The Employee also represents to the Employer that the
enforcement of such covenants will not prevent the Employee from
earning a livelihood.
If any of the provisions of this Section, or any part thereof, is
hereinafter construed to be invalid or unenforceable, the same shall not
affect the remainder of such provision or provisions, which shall be given
full effect, without regard to the invalid portions. If any of the
provisions of this Section, or any part thereof, is held to be
unenforceable because of the duration of such provision, the area covered
thereby or the type of conduct restricted therein, the parties agree that
the court making such determination shall have the power to modify
page 8
<PAGE> 9
the duration, geographic area and/or other terms of such provision and, as
so modified, said provision shall then be enforceable. In the event that
the courts of any one or more jurisdictions shall hold such provisions
wholly or partially unenforceable by reason of the scope thereof or
otherwise, it is the intention of the parties hereto that such
determination not bar or in any way affect the Employer's right to the
relief provided for herein in the courts of any other jurisdictions as to
breaches or threatened breaches of such provisions in such other
jurisdictions, the above provisions as they relate to each jurisdiction
being, for this purpose, separable into diverse and independent covenants.
V. CONFIDENTIAL INFORMATION
5.1 Disclosure of Information. The Employee recognizes and acknowledges that
the financial information, trade secrets, technical information, and
confidential or proprietary information of the Employer, including such
information as may exist from time to time, and information as to the
identity of customers or prospective customers of the Employer and other
similar items, are valuable, special and unique assets of the Employer's
business, access to and knowledge of which are essential to the
performance of the duties of the Employee hereunder. Unless compelled by
court order or other legal process including legal claims by Employee of
breach of this Agreement by Employer, the Employee will not, during or
after the term hereof, in whole or in part, disclose such secrets or
confidential, technical or proprietary information to any person, firm,
corporation, association or other entity for any reason or purpose
whatsoever, nor shall the Employee make use of any such property or
information for his own purpose or for the benefit of any person, firm,
corporation or other entity (except the Employer) under any circumstances,
during or after the term hereof, provided that after the term hereof these
restrictions shall not apply to such secrets or information which are then
in the public domain (provided that the Employee was not responsible,
directly or indirectly, for such secrets or information entering the
public domain without the consent of the Employer).
5.2 Ownership of Inventions. All of the Employee's right, title and interest
in all developments or improvements devised or conceived by the Employee,
alone or with others, during his working hours, as well as in all
developments or improvements devised or conceived by the Employee, alone
or with others, which relate to any business in which the Employer is then
engaged or contemplating engaging in, regardless of when devised or
conceived, is the exclusive property of the Employer. The Employee shall
promptly disclose all such developments and improvements to the Employer.
The Employee shall not use or disclose any such developments or
improvements, other than in furtherance of the Employer's business,
without the Employer's prior written consent
5.3 Return Memoranda. Employee hereby agrees to deliver to the Employer within
five days of the date of termination of his employment, or at any other
time the Employer may so request, all keys, credit cards issued by the
Employer to the Employee, equipment including calculators, personal
computers, organizers, cellular telephones, memoranda, notes, records,
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<PAGE> 10
reports, manuals, drawings and other documents (and all copies thereof)
relating to the Employer's business and all property associated therewith,
which he may then possess or have under his control.
5.4 Confidentiality of this Agreement. Employee hereby agrees to not disclose,
directly or indirectly, either the amount or terms of this Agreement to
any person other than Employee's immediate family, attorney and
accountant, unless compelled to do so by court order or other lawful
process including claims by Employee of breach of contract by Employer.
5.5 Non-disparagement. Except in legal claims by Employee of breach of
contract by Employer, Employee agrees not to: (a) encourage, support, or
solicit claims against the Employer); (b)criticize, denigrate, or
otherwise speak adversely regarding the Employer, its (their) policies and
practices and/or its (their) personnel, officers, or directors.
VI. INJUNCTIVE RELIEF
6.1 The Employee acknowledges that the remedy at law for any breach or
threatened breach of Articles IV and V hereof by the Employee will be
inadequate, and that, accordingly, the Employer shall, in addition to all
other available remedies (including the immediate termination of any
compensation and/or benefits during the Severance Period and without
limitation , seeking such damages as it can be shown it has sustained by
reason of such breach), be entitled to injunctive relief without being
required to post bond or other security, and without having to prove the
inadequacy of the available remedies at law. The Employee agrees not to
plead or defend on grounds of adequate remedy at law or any similar
defense in any action by the Employer against him, or injunctive relief,
or for specific performance of any of his obligations pursuant to Articles
IV and V hereof. Nothing herein shall be construed as prohibiting the
Employer from pursuing any other remedies for such breach or threatened
breach.
VII. MISCELLANEOUS PROVISIONS
7.1 Notices and Communications. All notices and communications hereunder shall
be in writing and shall be hand-delivered or sent postage prepaid by
registered or certified mail, return receipt requested, to the address
first above written or to such other address of which notice shall have
been given in the manner herein provided.
7.2 Entire Agreement. All prior or contemporaneous agreements and
understandings between the parties with respect to the subject matter of
this Agreement are superseded by this Agreement, and this Agreement
constitutes the entire understanding between the parties. This Agreement
may not be modified, amended, changed or discharged except when executed
in writing and signed by both parties hereto, and then only to the extent
therein set forth.
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<PAGE> 11
7.3 Assignment. This Agreement may be assigned by the Employer and shall be
binding upon and inure to the benefit of the Employer's assigns and
successors. The services to be performed by the Employee pursuant to this
Agreement may not be assigned by the Employee.
7.4 Waiver. No waiver of any breach of this Agreement or of any objection to
any act or omission connected herewith shall be implied or claimed by any
party, or be deemed to constitute a consent to any continuation of such
breach, act or omission, unless in a writing signed by the party against
whom enforcement of such waiver or consent is sought, and then only to the
extent therein set forth.
7.5 Indemnification. The Employer will indemnify Employee, to the maximum
extent permitted by applicable law and the By-laws of the Employer,
against all costs, charges and expenses incurred or sustained by him in
connection with any action, suit or other reason of his being an officer,
director or employee of the Employer or any subsidiary or affiliate
thereof subject to applicable law.
7.6 Section Headings. The Section headings of this Agreement are solely for
the purpose of convenience and shall neither be deemed a part of this
Agreement nor used in any interpretation thereof.
7.7 Governing Law. This Agreement and the relationship of the parties shall be
governed by, and construed in accordance with, the laws of the state of
Delaware, or until such time as the Employer's state of incorporation may
be changed to another state within the United States, at which point the
relationship of the parties would then be governed by, and construed in
accordance with, the laws of the new state of incorporation.
7.8 Cooperating In Pending or Future Litigation. Except in legal claims by
Employee of breach of contract by Employer, Employee, as a former employee
and/or officer, agrees and warrants that he shall cooperate fully in the
defense of the Employer, its parent, subsidiary, or affiliated companies,
or its present or former directors, officers, employees, or agents in any
litigation or controversy now existing or which may arise in the future in
which Employee has knowledge of the facts or circumstances. Employee
agrees and warrants that his cooperation concerning pending, future, or
threatened litigation is not the result of any payments made to the
Employee pursuant to this Agreement and release.
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<PAGE> 12
PERSONAL AND CONFIDENTIAL
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of
the day and year first above written.
DIGITAL TRANSMISSION SYSTEMS, INC.
Dated: Dated:
---------------------- ----------------------
- ---------------------------- ----------------------------
Carmine Oliva Andres C. Salazar
DTS Chairman of the Board CEO
Dated:
---------------------
- ---------------------------
Ed Kantor
DTS Board of Directors
page 12
<PAGE> 13
SCHEDULE A
Competitors to DTS
ADC
Premisys Communications
CAC (Carrier Access Corporation)
Paragon Networks, International
Verilink
page 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DIGITAL TRANSMISSION SYSTEMS, INC. FOR THE NINE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 150
<SECURITIES> 0
<RECEIVABLES> 2,480
<ALLOWANCES> 1,145
<INVENTORY> 1,359
<CURRENT-ASSETS> 3,052
<PP&E> 2,882
<DEPRECIATION> 2,416
<TOTAL-ASSETS> 5,248
<CURRENT-LIABILITIES> 5,248
<BONDS> 0
0
1,314
<COMMON> 42
<OTHER-SE> (4,256)
<TOTAL-LIABILITY-AND-EQUITY> 5,248
<SALES> 4,846
<TOTAL-REVENUES> 4,846
<CGS> 3,045
<TOTAL-COSTS> 3,444
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 378
<INTEREST-EXPENSE> 498
<INCOME-PRETAX> (1,041)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 165
<CHANGES> 0
<NET-INCOME> (876)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> 0
</TABLE>
