<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Digital Transmission Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
DIGITAL TRANSMISSION SYSTEMS, INC.
3000 Northwoods Parkway, Building 330
Norcross, Georgia 30071
(770) 798-1300
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 15, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Digital
Transmission Systems, Inc. (the "Company") will be held at: 3000 Northwoods
Parkway, Building 330, Norcross, Georgia, at 7:00 P.M., eastern standard time,
on Thursday, June 15, 2000 (the "Meeting"), to consider and act upon:
1. Election of four persons to serve as members of the Company's
Board of Directors;
2. Approval of the proposed amendment to the Company's 1996 Stock
Incentive Plan to increase the number of shares of Common
Stock reserved for issuance by 850,000 shares;
3. Ratification of the selection of KPMG LLP as independent
public accountants for the Company's current fiscal year;
4. Approval of the proposed amendment to the Company's Restated
and Amended Certificate of Incorporation to increase
authorized common shares, par value of $0.01, available for
issuance from 15,000,000 to 50,000,000;
5. Approval of the proposed amendment to the Company's Restated
and Amended Certificate of Incorporation to increase
authorized Company preferred shares, par value of $0.01,
available for issuance from 3,000,000 to 10,000,000;
6. Ratification of the merger agreement entered into with Telcor
Communications, Inc. as executed on March 31, 2000;
7. Such other business as may properly come before this Annual
Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 21,
2000 as the record date for the determination of shareholders entitled to notice
of, and to vote at, the meeting.
By Order of the Board of Directors:
/s/ Andres C. Salazar
Chief Executive Officer
May 1, 2000
Norcross, Georgia
<PAGE> 3
IMPORTANT
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE MARK,
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE WHICH HAS BEEN
PROVIDED. NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED STATES. IN THE EVENT
YOU ARE ABLE TO ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR
SHARES IN PERSON.
<PAGE> 4
DIGITAL TRANSMISSION SYSTEMS, INC.
3000 Northwoods Parkway, Building 330
Norcross, Georgia 30071
----------------------------
PROXY STATEMENT
----------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
SHAREHOLDERS' MEETING
This Proxy Statement and the enclosed proxy are furnished on behalf of
the Board of Directors of DIGITAL TRANSMISSION SYSTEMS, INC., a Delaware
corporation (the "Company"), for use at the Annual Meeting of Shareholders to be
held on June 15, 2000 at 7:00 P.M. Eastern Standard Time, or at any adjournment
or postponement thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting. The Annual Meeting will be held at 3000
Northwoods Parkway, Building 330, Norcross, Georgia. This Proxy Statement and
the accompanying Proxy card were first mailed on or about April 21, 2000 to all
shareholders entitled to vote at the Annual Meeting.
SHAREHOLDERS ENTITLED TO VOTE
Only holders of record of Common Stock at the close of business on
April 21, 2000 will be entitled to notice of and to vote at the Annual Meeting.
At the close of business on April 21, 2000, the Company had outstanding and
entitled to vote 7,206,128 shares of Common Stock. Each holder of record of
Common Stock on such date will be entitled to one vote for each share held on
all matters to be voted upon at the Annual Meeting. Any shareholder who signs
and returns a Proxy has the power to revoke it at any time before it is
exercised by providing written notice of revocation to the Secretary of the
Company or by filing with the Secretary of the Company a Proxy bearing a later
date. The holders of a majority of the total shares of Common Stock outstanding
on the record date, whether present at the Annual Meeting in person or
represented by Proxy, will constitute a quorum for the transaction of business
at the Annual Meeting. The shares held by each shareholder who signs and returns
the enclosed form of Proxy will be counted for the purposes of determining the
presence of a quorum at the meeting, whether or not the shareholder abstains on
all or any matter to be acted on at the meeting. Abstentions and broker
non-votes both will be counted toward fulfillment of quorum requirements. A
broker non-vote occurs when a nominee holding shares for a beneficial owner does
not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to that proposal and has not received
instructions from the beneficial owner.
COUNTING OF VOTES
The purpose of the Annual Meeting is to consider and act upon the
matters which are listed in the accompanying Notice of Annual Meeting and set
forth in this Proxy Statement. The enclosed form of Proxy provides a means for a
shareholder to vote for all of the matters listed in the accompanying Notice of
Annual Meeting and described in the Proxy Statement. The enclosed form of Proxy
also provides a means for a shareholder to vote for all of the nominees for
Director listed thereon or to withhold authority to vote for one or more of such
nominees. The four nominees receiving the highest number of votes will be
elected to the Board of Directors. Broker non-votes are not counted in the
election of directors.
<PAGE> 5
The accompanying form of Proxy also provides a means for a shareholder
to vote for, against or abstain from voting on each of the other matters to be
acted upon at the Annual Meeting. Each Proxy will be voted in accordance with
the shareholder's directions. The affirmative vote of a majority of the shares
of Common Stock present in person or represented by a Proxy and entitled to vote
on proposals one through six set forth in the accompanying Notice of Annual
Meeting is required for the approval of such proposal. Approval of any other
matters as may properly come before the meeting also will require the
affirmative vote of a majority of the shares of Common Stock present in person
or represented by a Proxy and entitled to vote at the meeting. Abstentions with
respect to proposals one through four will have the same effect as a vote
against these proposals. With respect to broker non-votes, the shares will not
be considered present at the meeting for the proposal to which authority was
withheld. Consequently, broker non-votes will not be counted with regard to the
proposal, but they will have the effect of reducing the number of affirmative
votes required to approve the proposal, because they reduce the number of shares
present or represented from which a majority is calculated.
PROXIES
The proxy accompanying this Proxy Statement is solicited by the Board
of Directors of the Company. Proxies may be solicited by officers, directors and
regular supervisory and executive employees of the Company, none of whom will
receive any additional compensation for their services. Also, Corporate Investor
Communications may solicit proxies at an approximate cost of $5,000 plus
reasonable expenses. Such solicitations may be made personally, or by mail,
facsimile, telephone, telegraph, or messenger. The Company will pay persons
holding securities in their names or in the names of nominees, as well as
brokerage houses, banks and other fiduciaries, for the expense of forwarding
solicitation materials to their principals. All of the costs of solicitation
will be paid by the Company.
When the enclosed Proxy is properly signed and returned, the shares
which it represents will be voted at the Annual Meeting in accordance with the
instructions noted thereon. In the absence of such instructions, the shares
represented by a signed Proxy will be voted in favor of the nominees for
election to the Board of Directors, and in favor of the approval of proposals 2,
3, 4, 5, and 6.
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PROPOSAL 1
ELECTION OF DIRECTORS
INTRODUCTION
At the Annual Meeting on June 15, 2000, four directors are to be elected for the
terms described below. The Board of Directors of the Company is divided into
three classes serving staggered three-year terms. The term of office of Mr.
Salazar, CEO of the Company expires on the date of the next annual shareholder
meeting. The terms of office of Mr. Kantor and Mr. Zaghloul, if elected, will
expire in 2003; the term of office of Mr. Kinash, if elected, will expire in
2002 and the term of office of Mr. Hews, if elected, will expire in 2001.
FINOVA Mezzanine Capital, current holder of 1,314,333 shares of Series A
Preferred Stock of the Company, under prior agreement, has visitation and
observer rights at every Board Meeting. Frequently, Mr. Don Barrickman
represents FINOVA Mezzanine Capital at Board meetings as an observer with no
voting rights on any measure.
Officers of the Company serve at the discretion of the Board of Directors.
Shares represented by executed proxies will be voted, if authority to do so is
not withheld, for the election of the four nominees named below. In the event
that any nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as the Board of Directors may select. Each person nominated for election
has agreed to serve if elected, and management has no reason to believe that any
nominee will be unable to serve.
The Board of Directors recommends a vote FOR each named nominee.
The name and age, principal occupation or employment, and other data regarding
each nominee, based on information received from the respective nominees, are
set forth below:
For a term of three years:
Dr. Hatim Zaghloul, 43 - Dr. Zaghloul serves as the Chairman and Chief Executive
Officer of Wi-LAN, Inc. Dr. Zaghloul co-invented the novel wide band spread
spectrum technology, an equalizer useful over fading channels, and an efficient
signal compression algorithm. Dr. Zaghloul holds a B.Sc. in Electrical
Engineering from Cairo University, Egypt, and an M.Sc. and a Ph.D. in Physics
from the University of Calgary. Previously, Dr. Zaghloul served as a Senior
Researcher at AGT, Ltd. where he initiated, executed and completed a number of
digital wireless communications projects. He was the Vice-President of
Engineering of Wi-LAN since its inception in 1992 until January 1994, when he
became President and Chief Executive Officer. Dr. Zaghloul also serves as a
director of Cell-Loc.
Mr. Ed Kantor, 68 - Mr. Kantor was elected as a director of the Company in
August 1996. Mr. Kantor is co- chairman of HCFP Brenner Securities, a New York
city investment banking and brokerage firm. Prior to joining HCFP Brenner
Securities, Mr. Kantor served as vice chairman of Barington Capital and held
various positions with Drexel Burnham Lambert Inc. and its predecessor firms.
For a term of two years:
Mr. Peter Kinash, 44 - Mr. Kinash is the Chief Financial Officer of Wi-LAN, Inc.
He is a chartered
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accountant with 20 years of experience in advising growing high-tech companies
to maturity. Prior to joining Wi-LAN, Inc., he led KPMG's Information,
Communication and Entertainment practice in Calgary. Mr. Kinash has lectured and
written about his experience with corporate financing, securities filings, and
mergers and acquisitions to educational facilities and high-tech companies.
For a term of one year:
Mr. Bill Hews, 45 - Mr. Hews is the President and Chief Operating Officer of
Wi-LAN, Inc. Prior to joining Wi-LAN, Inc., Mr. Hews spent more than 20 years at
Nortel Networks Corporation where he developed a strong operations background in
the communications industry. From November 1998 until joining Wi-LAN he served
as Vice-President - Supply Chain Operations, Enterprise Networks where he led
the drive to improve the group's global supply chain processes. Mr. Hews
obtained his B.A. in Industrial Engineering from the University of Toronto and
holds a MBA from the University of Western Ontario.
DIRECTOR COMPENSATION
Meetings of the Board of Directors are scheduled quarterly, but can be held on
an as-needed basis. All expenses, including travel and lodging, are reimbursed
by the Company for meeting attendance. Non-employee Board members are also
compensated with $1,000 in cash and an option grant of 1,000 shares of Common
Stock for every Board meeting attended in person. Board members are not
compensated for Board Meetings held by teleconference.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
The Board of Directors of the Company held a total of two meetings in person and
numerous meetings by teleconference during fiscal 1999. No director attended
fewer than 80% of the meetings of the Board of Directors and committees thereof,
if any, upon which such director served.
The Board of Directors has two standing committees: the Audit Committee and the
Compensation Committee.
Audit Committee. The Board of Directors has established an Audit
Committee composed of two (2) directors for the purpose of approving
the Company's independent auditors, reviewing the scope of their
engagement, consulting with such auditors, reviewing the results of any
audit examination, reviewing the disposition of recommendations made by
the independent auditors during the past year, acting as liaison
between the Board of Directors and the independent auditors and
reviewing various Company policies, including those related to
accounting and internal control matters. Currently, only Mr. Kantor
serves on the Audit Committee. Mr. Kantor was elected to the Audit
Committee on October 4, 1996. The Company will add an additional member
to the Audit Committee once directors of the Company are successfully
elected.
Compensation Committee. The Board of Directors has established a
Compensation Committee consisting of two (2) directors to review and
approve executive compensation policies, practices, salary levels and
bonus programs. Currently only Mr. Kantor serves on the Compensation
Committee since being appointed on October 4, 1996. The Company will
add an additional member to the Compensation Committee once directors
of the Company are successfully elected.
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<PAGE> 8
CERTAIN TRANSACTIONS
A SUMMARY OF MATERIAL TRANSACTIONS NOT DESCRIBED ELSEWHERE WITHIN THIS STATEMENT
Wi-LAN, Inc. Investments
On January 7, 2000, Wi-LAN, Inc., ("Wi-LAN") a leading innovator in the field of
high-speed wireless data communications based in Calgary, Canada, acquired the
following security positions in the Company: 1,738,159 common shares of the
Company from MicroTel International, Inc. in consideration for $520,000 and
28,340 Wi-LAN common shares; a $2,000,000 debenture of the Company acquired from
FINOVA Mezzanine Capital, Inc. ("FINOVA") convertible into the Company's common
shares at an exercise price of $1.00 per share; an option to acquire 1,314,333
DTS preferred shares as held by FINOVA at an exercise price of $1.00 per share
(convertible into 1,314,333 DTS common shares for no additional consideration);
DTS warrants exercisable into 702,615 DTS common shares at an exercise price of
$1.00 per share and warrants to acquire 538,461 common shares of LinkaNet Labs,
Inc. In consideration, Wi-LAN issued 87,320 Wi-LAN common shares to FINOVA. Upon
closing of the transaction, Wi-LAN converted $1,310,000 of the acquired
debenture into 1,310,000 DTS common shares. These DTS common shares combined
with the 1,738,159 common shares which Wi-LAN acquired from MicroTel represented
51% of the issued and outstanding DTS common shares at closing. During January
through April 2000, Wi-LAN also acquired an aggregate of $1,500,000 principal
amount of debentures from the Company. These debentures are convertible into DTS
common shares on the basis of $1.00 per share. In addition, the Company granted
Wi-LAN the option to purchase up to $1,500,000 principal amount of additional
convertible debentures at any time on or prior to the second anniversary of the
closing date of the transactions, which debentures will be convertible into DTS
common shares at the average weighted trading price of the DTS common shares
over the last three trading days prior to the exercise of the option to purchase
the additional convertible debentures by Wi-LAN. Wi-LAN has the option to elect
to purchase DTS common shares in lieu of purchasing additional convertible
debentures.
On March 31, 2000, Wi-LAN purchased $3,000,000 of the Company's Preferred Stock
with such stock convertible into common shares at $7.125 per share, the market
closing price on March 30, 2000. Additionally, Wi-LAN converted part of a
debenture from DTS purchased on January 7, 2000 into 400,000 and 300,000 common
shares on March 31, 2000 and April 16, 2000, respectively. As of April 21, 2000,
the record date of this Proxy Statement, Wi-LAN, Inc. holds 3,748,159 shares of
common stock of the Company. Such shares represent approximately 52% of the
outstanding common stock of the Company.
Payment of Certain Obligations in Common Stock
On January 25, 2000, the Board of Directors of the Company approved a plan
whereby certain debts of the Company to employees and Board members are
satisfied through the issuance of restricted common stock. Approximately 30,083
shares of the Company's common stock will be issued to satisfy such obligations.
The shares will be issued at $3.56/share (25% discount from the market closing
price on January 25, 2000) and will be restricted as to trade, pledge, or sale
until January 25, 2001. The Company expects to issue such shares by May 5, 2000.
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PROPOSAL 2
APPROVAL OF MODIFICATIONS TO THE COMPANY'S AMENDED AND RESTATED
1996 STOCK OPTION PLAN
Effective January 1996, the Board of Directors adopted the 1996 Stock
Incentive Plan (the "1996 Plan") which provides for the grant of stock options
for up to 200,000 shares of common stock. At the Shareholder Meetings of
November 7, 1996 and April 13, 1999, an additional 240,000 and 400,000 shares of
common stock, respectively, were authorized to supplement the initial option
reserve bringing the total available to 840,000 shares. The 1996 Plan also
permits the Board of Directors to grant stock appreciation rights, stock
bonuses, and restricted stock awards in accordance with the provisions of the
Plan. The Plan remains in effect until January 2006 unless sooner terminated by
the Board of Directors.
Options granted under the 1996 Plan may be incentive stock options or
non-qualified stock options, as determined by the Board of Directors at the time
of grant. Incentive stock options are granted at a price not less than the fair
market value of the stock on the grant date, and non-qualified options are
granted at a price to be determined by the Board of Directors provided that such
exercise price is not less than 85% of the fair market value of the stock on the
grant date. Option vesting terms are established by the Board of Directors at
the time of grant, and presently range from three to five years. The expiration
date of options granted under the 1996 Plan is determined at the time of grant
and may not exceed ten years from the date of the grant. At April 21, 2000 there
were options outstanding to purchase 830,407 shares of the Company's common
stock, of which 396,255 shares were exercisable. There were 9,593 options
available for grant at April 21, 2000 under the 1996 Plan.
The Board of Directors believes that in order to attract and retain qualified
employees for the Company, it is necessary to continue to grant employees
options under the 1996 Plan. In light of the recent merger agreement with Telcor
Communications, Inc. that significantly increases the Company's employee base
from approximately 30 to over 120 employees, the Board of Directors further
believes that the remaining shares in the 1996 Plan are insufficient for such
purpose. The Board of Directors recommends a vote FOR the approval of
modifications to the 1996 Stock Incentive Plan to increase the number of shares
available for issuance from 840,000 to 1,690,000, representing approximately 13%
of the Company's outstanding common stock on a fully-diluted basis.
6
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PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
In July 1996, the Board of Directors selected the accounting firm of
KPMG LLP to serve as its independent auditor and recommends that shareholders
vote for ratification of such appointment. Representatives of KPMG LLP are
expected to be present at the meeting. They will have an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions from shareholders.
The Board of Directors engaged KPMG LLP, effective July 11, 1996. Prior
thereto, the Company did not consult KPMG LLP on any matter that was the subject
of a disagreement with the Company's former accountants or a reportable event
(as such terms are defined by Item 302(A)(1)(v) of Regulation S-K).
The Board of Directors recommends that the shareholders vote FOR
ratification of the selection of KPMG LLP as independent auditors.
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PROPOSALS 4 & 5
PROPOSED AMENDMENT TO THE COMPANY'S RESTATED AND AMENDED CERTIFICATE OF
INCORPORATION TO INCREASE AUTHORIZED SHARES OF COMMON AND PREFERRED STOCK.
Description of Amendment
The Board of Directors has determined that it is advisable to amend the Restated
and Amended Certificate of Incorporation of the Company and has recommended that
the shareholders approve an amendment to Article Four of the Restated and
Amended Certificate of Incorporation (the "Amendment") to increase the
authorized number of shares of Common Stock, par value $0.01, from 15,000,000 to
50,000,000 and to increase the authorized number of shares of Preferred Stock,
par value $0.01, from 3,000,000 to 10,000,000 in order to provide the Company
flexibility to meet future needs for unreserved common and preferred stock. The
full text of the Amendment is attached to this Proxy Statement as Exhibit B. The
Board has directed that the Amendment be submitted to the shareholders for their
consideration.
Reasons for Proposed Amendment
The Board of Directors believes that it is prudent to increase the number of
authorized shares of Common and Preferred Stock to the proposed level in order
to provide for a reserve of shares available for issuance in connection with
possible future actions. Such actions may include, but are not limited to,
equity financings, business acquisitions, corporate mergers, establishing
strategic relationships with corporate partners, funding employee benefit plans,
stock splits or stock dividends, and other general corporate purposes. Currently
there are no plans, agreements or arrangements in place requiring the
utilization of these additional shares for any such purposes. However, having
such additional authorized Common and Preferred Stock available for issuance
would allow the Board of Directors to issue shares of Common Stock in the future
without the delay and expense associated with seeking stockholder approval at
such time. Elimination of the delays and expense occasioned by the necessity of
obtaining stockholder approval will better enable the Company, among other
things, to engage in financing transactions and acquisitions as well as to take
advantage of changing market and financial conditions on a more competitive
basis, as determined by the Board of Directors. Adoption of the proposed
Amendment and the future issuance of the Common and Preferred Stock would not
affect the rights of the holders of currently outstanding Common and Preferred
Stock of the Company, except for effects incidental to increases in the number
of outstanding shares of the Company's Common Stock at the time of any such
issuances.
Possible Effects of the Amendment
If the proposed Amendment is approved, there will be a larger number of
authorized shares which the Board of Directors may issue without further vote of
the stockholders of the Company, except as may be required by applicable laws or
under the rules of any particular national securities exchange on which shares
of Common Stock of the Company are then listed.
Effective Date
If approved by the shareholders, the proposed amendment will become effective
upon the filing of a Certificate of Amendment with the Secretary of State of
Delaware amending the Company's Restated Certificate of Incorporation, which
will occur as soon as reasonably practicable.
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PROPOSAL 6
RATIFICATION OF ACQUISITION OF TELCOR COMMUNICATIONS, INC.
ITEM A: INFORMATION ABOUT THE TRANSACTION
(i) The Companies
Telcor Communications, Inc.
Founded in 1992 by Lance and Margaret Weller, Telcor Communications, Inc,
("Telcor") has based its business strategy on providing systems solutions on a
timely basis to wireless and wireline telecom service providers. Tactically,
Telcor has succeeded in becoming a significant reseller of new or refurbished
wireless telecom equipment from top tier manufacturers such as Lucent, Nortel,
Ericsson and Nokia. The solution from Telcor may entail the acquisition or
replacement or repair of an entire rack, bay or room full of telecom equipment.
With over 200 active customers Telcor has been able to achieve a high retention
rate of its client base by offering competitive pricing, quality products and
services and technically experienced employees.
- - ONE STOP SHOPPING - Telcor offers a large selection of remanufactured
equipment available in the secondary market, including an extensive
inventory of manufacturer discontinued products. New and refurbished
equipment alternatives are typically available immediately from its
stocked 170,000 square foot facility in Atlanta;
- - COMMITMENT TO TOTAL QUALITY - Remanufactured equipment as reliable as
new, backed by a 100% guarantee and 2 year warranty;
- - SAME DAY & NEXT DAY DELIVERY - Such delivery options are available on
most product lines including spares, emergency order support, and
advanced exchanges. Telcor's technical support includes customized
repair services, engineering, installation and configuration support;
- - IMMEDIATE INFORMATION - Up-to-the-minute information on pricing and
availability is available through Telcor's dedicated Account
Representatives.
- - FLEXIBILITY - Buy-back, trade-in, and individualized asset management
programs are always available at Telcor.
Telcor's principal executive offices are located at 3400 River Green Court,
Duluth, GA 30096, and its telephone number is (770)-622-1200.
Digital Transmission Systems, Inc.
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 Communications, Alltel, AirTouch Cellular, 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
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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.
DTS's principal executive offices are located at 3000 Northwoods Parkway,
Norcross, GA 30071, and its telephone number is (770)-798-1300. Additional
information regarding DTS is contained in DTS's filings with the Securities and
Exchange Commission.
(ii) Material Features of the Transaction
Background and Transaction Terms
The Company had entered into informal discussions regarding a business
combination with Telcor during November 1999. The Company's interest in a
business combination stemmed from the Company's interest in expanding its sales
distribution channels. Telcor had recently focused on selling de-installed
telecommunications equipment to domestically based wireless carriers. The sales
and marketing staff at Telcor had established equipment supply relationships
with a significant number of wireless service providers, a prime customer target
for DTS. Hence, a merger with Telcor would enable DTS to greatly expand the
sales and marketing coverage for the Company's Flex and microFlex products. In
addition, Telcor's net tangible asset base would greatly enhance DTS' balance
sheet after the merger. Telcor's revenue level in calendar 1999 was over $50
million in net sales giving the combined company revenue of over $60 million in
1999 on a proforma basis.
On March 31, 2000 the Company consummated the merger of Telcor into a
wholly-owned subsidiary of the Company. The merger consideration payable to the
shareholders of Telcor is $25 million in a combination of the Company's common
stock and cash. The amount of $5 million of the consideration was paid at
closing with $2.5 million in cash and $2.5 million in common stock valued at
$7.375 per share (the closing prce of DTS common stock on February 23, 2000). A
total of 338,983 shares of DTS common stock were paid in connection with the
closing on March 31, 2000. The remaining consideration of $20 million is due and
payable on or before October 30, 2000 with a commitment from the Company to use
best efforts to tender to the former shareholders of Telcor at least $10 million
in cash before June 30, 2000. Refer to the merger agreement as attached as
Exhibit D for specific details of the consideration payable to Telcor. The
Company intends to close on a private placement of stock and/or a public
offering of stock to generate the cash portion of the consideration.
The Merger Agreement and related terms is attached as Exhibit D to this proxy
statement. It is the principal document governing the merger.
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Rights of Security Holders
As a result of the aforementioned transaction, it is not anticipated that the
rights of the security holders of Digital Transmission Systems, Inc. will
materially change.
Accounting Treatment
The acquisition will be accounted for using the purchase method of accounting
with DTS, Inc. being deemed to have acquired Telcor Communications, Inc.
Material U.S. Federal Income Tax Consequences to DTS, Inc. Shareholders
None.
Board of Directors' Recommendation
The DTS board of directors determined that the merger and the merger agreement
are advisable, fair to and in the best interests of DTS and its shareholders.
The transaction did not require shareholder approval of the Company, but the
Board is seeking ratification of the transaction and recommends that DTS
shareholders vote FOR the ratification of the merger agreement.
Fairness Opinions of Financial Advisors
In deciding to adopt the merger agreement, the DTS board of directors considered
the opinion dated March 30, 2000 of its financial advisor, Wachovia Securities,
Inc. that, as of that date, the consideration to be paid to the owners of Telcor
Communications, Inc. was fair, from a financial point of view, to DTS. This
opinion is attached as Exhibit C to this proxy statement.
ITEM B: SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL DATA
The following selected unaudited pro forma condensed combined financial data of
Digital Transmission Systems, Inc. ("DTS") and Telcor Communications, Inc.
("Telcor") combine the consolidated financial information of DTS for year ended
June 30, 1999 and at or for the six month period ended December 31, 1999, with
the consolidated financial information of Telcor for the year ended June 30,
1999 and at or for the six month period ended December 31, 1999. We have
prepared the unaudited pro forma information using the purchase method of
accounting. The pro forma information does not give effect to any restructuring
costs or to any potential cost savings or other operating efficiencies that
could result from the merger.
The unaudited pro forma condensed combined financial information does not
purport to represent what the combined company's financial position or results
of operations would have been had the merger occurred at the beginning of the
earliest period presented or to project the combined financial position or
results of operations for any future date or period.
11
<PAGE> 15
CONDENSED COMBINED STATEMENT OF OPERATIONS - YEAR ENDED JUNE 30, 1999 (000'S
OMITTED)
<TABLE>
<CAPTION>
Proforma Proforma
DTS Telcor Sub-Total Adjustments Total
--- ------ --------- ----------- -----
<S> <C> <C> <C> <C>
Revenues $ 7,538 $ 55,318 $ 62,856 -- $ 62,856
Cost of Goods Sold $ 4,764 $ 40,688 $ 45,452 -- $ 45,452
------- -------- -------- ------ --------
Gross Profit $ 2,774 $ 14,630 $ 17,404 -- $ 17,404
Operating Expenses $ 4,367 $ 12,684 $ 17,051 $3,456 (4) $ 20,507
------- -------- -------- ------ --------
Net Operating Income $(1,593) $ 1,946 $ 353 $3,456 $ (3,103)
Gain on sale of subsidiary $ 1,461 -- $ 1,461 -- $ 1,461
Other Income/(Expense) $ (651) $ (411) $ (1,062) -- $ (1,062)
------- -------- -------- ------ --------
Income (loss) before taxes and
Extraordinary items $ (783) $ 1,535 $ 752 $3,456 $ (2,704)
Income taxes -- -- -- -- --
------- -------- -------- ------ --------
Income (loss) before
extraordinary items $ (783) $ 1,535 $ 752 $3,456 $ (2,704)
------- -------- -------- ------ --------
Extraordinary items $ 359 -- $ 359 -- $ 359
Net income (loss) $ (424) $ 1,535 $ 1,111 $3,456 $ (2,345)
------- -------- -------- ------ --------
</TABLE>
CONDENSED COMBINED STATEMENT OF OPERATIONS - SIX MONTHS ENDED DECEMBER 31, 1999
(000'S OMITTED)
<TABLE>
<CAPTION>
Proforma Proforma
DTS Telcor Sub-Total Adjustments Total
--- ------ --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 3,742 $ 34,811 $ 38,553 -- $ 38,553
Cost of Goods Sold $ 2,332 $ 24,878 $ 27,210 -- $ 27,210
------- -------- -------- ------ --------
Gross Profit $ 1,410 $ 9,933 $ 11,343 -- $ 11,343
Operating Expenses $ 1,457 $ 7,992 $ 9,449 $1,728 (5) $ 11,177
------- -------- -------- ------ --------
Net Operating Income $ (47) $ 1,941 $ 1,894 $1,728 $ 166
Other Income/(Expense) $ (210) $ (515) $ (725) -- $ (725)
------- -------- -------- ------ --------
Income (loss) before taxes $ (257) 1,426 $ 1,169 $1,728 $ (559)
Income taxes -- -- -- -- --
------- -------- -------- ------ --------
Net income (loss) $ (257) $ 1,426 $ 1,169 $1,728 $ (559)
------- -------- -------- ------ --------
</TABLE>
12
<PAGE> 16
CONDENSED COMBINED BALANCE SHEET - DECEMBER 31, 1999 (000'S OMITTED)
<TABLE>
<CAPTION>
Proforma Proforma
DTS Telcor Sub-Total Adjustments Total
-------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Cash 335 67 402 -- 402
Accounts receivable 400 10,963 11,363 -- 11,363
Inventory 737 11,871 12,608 -- 12,608
Other current assets -- 2,467 2,467 -- 2,467
-------- ------- -------- -------- --------
Current Assets $ 1,472 $25,368 $ 26,840 -- $ 26,840
-------- ------- -------- -------- --------
Property, Plant and Equipment $ 275 $ 4,357 $ 4,632 -- $ 4,632
Intangible assets (goodwill) $ 439 -- $ 439 $ 19,761(2) $ 20,200
Other assets $ 687 $ 255 $ 942 -- $ 942
-------- ------- -------- -------- --------
Total Assets $ 2,873 $29,980 $ 32,853 $ 19,761 $ 52,614
-------- ------- -------- -------- --------
Notes payable to bank 658 11,411 12,069 -- 12,069
A/P and Accruals 2,773 12,698 15,471 -- 15,471
Acquisition payable -- -- -- 20,000(3) 20,000
Current liabilities $ 3,431 $24,109 $ 27,540 20,000 $ 47,540
Long-term debt $ 2,000 $ 72 $ 2,072 -- $ 2,072
Other liabilities $ 127 -- $ 127 $ 560 (3A) $ 687
-------- ------- -------- -------- --------
Total liabilities 5,558 24,281 29,739 20,560 50,299
-------- ------- -------- -------- --------
Retained earnings (15,634) 5,748 (9,886) (5,748) (15,634)
Other shareholder's equity 12,949 51 13,000 4,949 17,949
-------- ------- -------- -------- --------
Shareholder's equity $ (2,685) $ 5,799 $ 3,114 $ (799)(3) $ 2,315
-------- ------- -------- -------- --------
Total liabilities and equity $ 2,873 $29,980 $ 32,853 $ 19,761 $ 52,614
-------- ------- -------- -------- --------
</TABLE>
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(1) The unaudited pro forma financial data do not give effect to any
restructuring costs or to any potential cost savings or other operating
efficiencies that could result from the merger. DTS is in the process
of developing its plan to integrate the operations of Telcor. The
unaudited pro forma financial data are not necessarily indicative of
the operating results or financial position that would have occurred
had the merger been completed at the dates indicated, nor are they
necessarily indicative of future operating results or financial
position. The purchase accounting adjustments made in connection with
the development of the unaudited pro forma condensed combined financial
statements are preliminary and have been made solely for purposes of
developing such pro forma financial information. Additionally, no
provision for income taxes has been made in the accompanying pro forma
statements as the Company believes there is no material tax liability
with respect to the periods presented.
13
<PAGE> 17
(2) This adjustment reflects the excess of consideration over net assets
acquired. The following is a calculation (in thousands):
<TABLE>
<S> <C>
Total consideration: $ 25,000
Estimated transaction costs: $ 560
Fair value at December 31, 1999 of Telcor net assets acquired: $ (5,799)
---------
Excess of consideration over net assets acquired: $ 19,761
---------
</TABLE>
The excess consideration over the fair value of Telcor's net assets acquired has
been preliminarily allocated to goodwill and other intangible assets as
highlighted below.
The composition of the recorded intangibles in connection with the acquisition
is as follows (in thousands):
<TABLE>
<CAPTION>
Amount Estimated
(000's) Life
------------------------
<S> <C> <C>
Telcor workforce in place $ 1,300 5 years
Trade name $ 5,200 5 years
Customer list acquired $ 7,000 10 years
Covenants not to compete $ 2,800 2 years
Goodwill $ 3,461 10 years
-------
Total $19,761
-------
</TABLE>
(3) Adjustment represents the issuance of:
- $3,000,000 of Series B Preferred Stock, the proceeds of which
are to be used to pay $2,500,000 of cash at the acquisition
closing on March 31, 2000;
- Issuance of approximately 338,983 shares of DTS par value $.01
common stock at $7.375 per share for consideration payment of
$2,500,000;
- $20,000,000 recorded as current liability for the remaining
consideration to be settled in cash or stock.
Adjustment further reflects the net assets of Telcor acquired of
$5,799,000.
Summary of change in equity:
Preferred Series B (placed for cash): $ 2,500,000
Common Stock at $.01 par value: $ 3,389
Additional Paid in Capital: $ 2,496,611
Net assets acquired: $ (5,799,000)
------------
Change in Equity per Pro Forma: $ (799,000)
------------
14
<PAGE> 18
(3A) Adjustment reflects estimated costs of the acquisition such as legal,
accounting and investment banker (fairness opinion) fees.
(4) Adjustment reflects the annual adjustment to amortization expense for
the effect of the excess of consideration over net assets acquired in
the merger. For purposes of the Pro Forma statements presented, the
excess consideration (i.e goodwill) has been assigned estimated lives
as shown in (2) above. Offset against this amount are contractural
reductions in the salary of Lance Weller, previous owner of Telcor
Communications, Inc. Mr. Weller's base salary has been contractually
reduced from $540,000 annually to $250,000. However, a guaranteed
annual bonus of $150,000 through March 31, 2000 is also part of Mr.
Weller's compensation. This annual adjustment marked as (4) also
reflects the effect of such a base salary reduction.
(5) Adjustment reflects the semi-annual adjustment to amortization expense
for the effect of the excess of consideration over net assets acquired
in the merger. For purposes of the Pro Forma statements presented, the
excess consideration (i.e goodwill) has been assigned estimated lives
as shown in (2) above. Offset against this amount are contractural
reductions in the salary of Lance Weller, previous owner of Telcor
Communications, Inc. Mr. Weller's salary has been contractually reduced
from $540,000 annually to $250,000. However, a guaranteed annual bonus
of $150,000 through March 31, 2000 is also part of Mr. Weller's
compensation. The semi-annual adjustment marked as (5) also reflects
the effect of such a base salary reduction.
15
<PAGE> 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's voting securities as of April
21, 2000 by (i) each person who is known by the Company to beneficially own more
than five percent of the Company's Common Stock, (ii) each of the Company's
directors and each of the executive officers named in the table under Executive
Compensation, and (iii) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE
SHARES PERCENTAGE
BENEFICIALLY OF SHARES
NAME OWNED (1), (2) BENEFICIALLY OWNED (3)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Wi-LAN, Inc. (5) 3,748,159 52.0
Andres C. Salazar (6) 403,183 5.6
Woodrow Cannon (6) 217,061 3.0
Jim Chamberlin (6) 117,489 1.6
Richard Pfeister (6) 84,167 1.1
Clive N. W. Marsh (6) 20,583 *
Hatim Zaghloul (7) 3,748,159 52.0
Peter Kinash (7) 3,748,159 52.0
Bill Hews (7) 3,748,159 52.0
Edwin D. Kantor (8) 7,000 *
All executive officers and directors
as a group (10 persons) (9) 4,597,642 63.8
</TABLE>
* Less than 1%
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and investment power with respect to the shares
owned.
(2) Includes shares of Common Stock actually owned as follows: Wi-LAN, Inc.
- 3,748,159, Mr. Salazar - 332,000, Mr. Chamberlin - 100,053, Mr.
Cannon - 146,228, Mr. Pfeister - 84,167, Mr. Kantor - 7,000.
(3) Does not reflect approximately 775,939 shares issuable upon exercise of
options granted under the Company's 1992 and 1996 Stock Incentive
Plans, of which options to purchase approximately 328,384 shares have
vested as of the effective date of this Proxy.
(5) The address of Wi-LAN, Inc. is 300,801 Manning Road, N.E., Calgary,
Alberta, Canada T2E 8J5.
(6) The address of each of Mr. Salazar, Mr. Chamberlin, Mr. Cannon, Mr.
Pfeister, and Mr. Marsh is c/o Digital Transmission Systems, Inc., 3000
Northwoods Parkway, Suite 330, Norcross, Georgia 30071.
(7) The address of each of Mr. Zaghloul, Mr. Kinash and Mr. Hews is 300,801
Manning Road, N.E., Calgary, Alberta, Canada T2E 8J5. Includes
3,748,159 shares beneficially owned by Wi-LAN, Inc., with respect to
which Messrs. Zaghloul, Kinash and Hews share investment and voting
control.
(8) The address of Mr. Kantor is c/o HCFP Brenner Securities, 888 Seventh
Avenue, New York, N.Y. 10019.
(9) Includes 3,748,159 shares owned by Wi-LAN, Inc. with respect to which
Messrs. Zaghloul, Kinash and Hews share investment and voting control.
16
<PAGE> 20
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers and directors of the Company:
Andres C. Salazar 57 Chief Executive Officer; Director
Woodrow B. Cannon 53 President
Richard Pfeister, Jr. 49 Vice President, Sales
Jim Chamberlin 46 Vice President, Marketing
Clive N. W. Marsh 30 V.P. Finance and Administration and Corporate
Secretary
Ed Kantor (1), (2) 68 Director
(1) Member of the Audit Committee of the Board of Directors
(2) Member of the Compensation Committee of the Board of Directors
Andres C. Salazar has been Chief Executive Officer and a member of the
Board of Directors of the Company since 1994. From 1991 to 1994, Mr.
Salazar was a Vice President and General Manager at AT&T Paradyne. From
1989 to 1991, he was Senior Vice President of Operations for Avanti
Communications.
Woodrow B. Cannon was named Vice President of Marketing and Engineering
for the Company in August 1996. During April 1999, Mr. Cannon was
appointed to the position of President of the Company. He was
previously Vice President of Marketing for BellSouth Communication
Systems and served in several senior marketing positions for the
Motorola Information Systems Group from 1988 through 1995. Prior to
Motorola, he had over five years of management experience in several
AT&T sales and marketing positions and over thirteen years with IBM.
Richard L. Pfeister Jr. was named Vice President of Domestic Sales for
the Company in February 1997. He was previously Director of Carrier
Sales for NetLink, Inc. from 1995 through January 1997. Prior to
NetLink, Inc., Mr. Pfeister served in several sales and marketing
director positions for the Motorola Codex Corporation from 1987 through
1993.
Jim Chamberlin was named Assistant Vice President - Marketing for the
Company in January 1996. Mr. Chamberlin was named Vice President -
Marketing for the Company during January 2000. As one of the Company's
founders, Mr. Chamberlin has served the Company in various marketing
and engineering positions since February 1984. Prior to the inception
of the Company, Mr. Chamberlin served as Design Leader for Scientific
Atlanta and as a Design Engineer for the Harris Corporation.
Clive N. W. Marsh was named Controller for the Company in August 1998.
In January 1999 he was appointed Corporate Secretary of the Company. In
January 2000, Mr. Marsh was appointed Vice President of Finance and
Administration for the Company. Mr. Marsh previously served in various
senior accounting and consulting positions with Price Waterhouse LLP
from 1991 through 1998.
17
<PAGE> 21
Edwin Kantor was elected as a director of the Company in August 1996.
Mr. Kantor is co-chairman of HCFP Brenner Securities, a New York
investment banking firm. Mr. Kantor was previously Vice Chairman of
Barington Capital, a New York investment banking and brokerage firm and
underwriters of the Company's initial public offering which was
completed in March, 1996. Prior to joining Barington Capital, Mr.
Kantor had 37 years of experience in the securities industry with
Drexel Burnham Lambert Inc. and its predecessor firms.
EXECUTIVE COMPENSATION
Compensation Summary. The following table presents certain summary
information concerning compensation earned for services rendered to the Company
by Andres C. Salazar, the Company's President and Chief Executive Officer and
each of the other executive officers of the Company who received compensation of
at least $100,000 during fiscal 1999 (collectively the "Named Executive
Officers"), for the fiscal years ended June 30, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
------------------------ UNDERLYING COMPENSATION (1)
NAME AND PRINCIPAL POSITION FY SALARY ($) BONUS ($) OPTIONS/SARS (#) ($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Andres C. Salazar 99 133,250 4,048 - -
CEO 98 156,000 21,426 - -
97 156,000 7,113 - 65,528
Woodrow B. Cannon 99 121,680 4,048 - -
President 98 121,085 28,449 - -
97 111,120 6,616 - -
Richard L. Pfeister, Jr. (2) 99 91,750 89,087 - -
Vice President U.S. Sales 98 80,292 239,746 - -
97 28,308 59,103 - 1,200
</TABLE>
(1) Amounts set forth in this column represent certain relocation expenses.
(2) Mr. Pfeister joined the Company in February 1997.
No other named Executive Officer had total compensation greater than $100,000 in
the fiscal year ended June 30, 1999.
18
<PAGE> 22
Grants of Stock Options. The following table contains information
concerning options granted to the Named Executive Officers during the calendar
year ended December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED TO EXERCISE
UNDERLYING OPTIONS EMPLOYEES OR BASE PRICE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Andres C. Salazar 150,000 45% 0.47 3/02/09
Woodrow Cannon 100,000 30% 0.47 3/02/09
Richard Pfeister 50,000 15% 0.47 3/02/09
Clive N. W. Marsh 10,000 3% 0.47 3/02/09
Jim Chamberlin 10,000 3% 0.47 3/02/09
</TABLE>
Aggregated Stock Option Exercises in Last Calendar Year and April 21, 2000
Option Values. The following table sets forth certain information with respect
to options exercised during calendar year 1999 and presents the value of
unexercised stock options held by the named executive officers as of the record
date of this Proxy, April 21, 2000.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
VALUE OPTIONS/SARS AT IN-THE-MONEY OPTIONS
SHARES ACQUIRED REALIZED APRIL 21, 2000 AT APRIL 21, 2000 ($) (1)
NAME ON EXERCISE (#) ($) (1) EXERCISABLE : UNEXERCISABLE EXERCISABLE : UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Andres C. Salazar - - 71,183 : 206,340 97,877 : 283,717
Woodrow B. Cannon - - 70,833 : 129,167 99,728 : 196,272
Jim Chamberlin - - 17,436 : 20,771 24,907 : 30,426
Richard Pfeister - - 0 : 55,833 0 : 86,103
Clive N. W. Marsh - - 2,083 : 36,417 1,145 : 33,034
</TABLE>
(1) Dollar values were calculated by determining the difference between the
December 31, 1999 fair market value of the Company's Common Stock
(closing price) and the exercise price of such options before income
taxes.
SECTION 16(A) REPORTING
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
the Company's Common Stock, to file with the SEC initial reports of ownership
and reports of changes in ownership of the Common Stock and all other equity
securities of the Company beneficially owned by them. Directors, executive
officers and greater than 10% shareholders are required by regulation to furnish
the Company the copies of all Section 16(a) reports they file. To the Company's
knowledge, based solely on review of copies of such reports furnished to the
Company and written representations that no other reports were required, during
the fiscal year ended June 30, 1999, all Section 16(a) filing requirements
applicable to the directors, executive officers and greater than 10% beneficial
owners were complied with by such persons.
19
<PAGE> 23
OTHER MATTERS
Management of the Company is not aware of any other matter to be presented
for action at the Annual Meeting other than those mentioned in the Notice of
Special Meeting of Shareholders and referred to in this Proxy Statement.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Andres C. Salazar
Andres C. Salazar,
Chief Executive Officer
20
<PAGE> 24
EXHIBIT A
TO DIGITAL TRANSMISSION SYSTEMS, INC. PROXY STATEMENT
FOR 2000 ANNUAL MEETING OF SHAREHOLDERS
Background Information on Wi-LAN, Inc.
About Wi-LAN, Inc.
Wi-LAN Inc. ("Wi-LAN" or the "Corporation") is in the high-speed wireless data
communications industry, developing and licensing wireless technology and
designing wireless access points, wireless Ethernet bridges and wireless modems.
Wi-LAN believes that the Wireless Local Loop (WLL) and the wireless Wide Area
Network (WAN) markets are poised to experience rapid growth and has therefore
positioned itself in a strong technology position based on its control of two
patented developments in radio technology: Wide-band Orthogonal Frequency
Division Multiplexing (W-OFDM) and Multicode Direct Sequence Spread Spectrum
(MC-DSSS). In addition, Wi-LAN delivers high-speed wireless data communication
products to these markets at lower costs than traditional wire-based networking
alternatives. I.WiLL, Wi-LAN's 30 Mbps wireless access point based on the
Corporation's W-OFDM technology, was launched in June 1999. The Corporation's
Hopper Plus Ethernet bridges and Hopper modems have been sold in more than 50
countries on six continents.
Wi-LAN's key target market is installers and operators of large integrated
networks and wireless communications infrastructures. Wi-LAN believes that its
wireless networking products will enable developed and developing nations to
avoid costly wire-based telecommunication infrastructures. The Corporation is
currently supplying products and providing technical support to several
installers and operators that are in the process of establishing wireless
communication networks. Wi-LAN intends to lever growth off its patented W-OFDM
technology, its technology licensing agreement with Philips Semiconductors Inc.
("Philips"), its current product lines and its contracts with Telia GlobalCast
Internetworking AB ("Telia GlobalCast") of Sweden and Tele2 U.K. Limited
("Tele2") of the United Kingdom to exploit high-speed wireless data growth
opportunities. The Corporation's goals are to be the technological and product
leader of the high-speed wireless data industry. The Corporation's strategies to
achieve such objectives are set forth below.
MAINTAIN AND EXTEND TECHNOLOGICAL LEADERSHIP IN WIRELESS TRANSMISSION
TECHNOLOGIES Wi-LAN believes that the ability to introduce new technologies and
products ahead of competitors is critical in developing and maintaining its
market leadership role. Wi-LAN has been a pioneer in the field of high-speed
wireless data communications as demonstrated by the initial development of
W-OFDM as a viable technology in 1991 and the production of the industry's first
30 Mbps access point in 1999. Wi-LAN intends to continue to make significant
investments in the design and development of products using W-OFDM technology
and in research and development of new high-speed wireless technologies.
EXPLOIT PATENTED TECHNOLOGIES
Wi-LAN believes its competitive edge in wireless data communications is based on
its control of two patented developments in radio technology: W-OFDM and
MC-DSSS. The unanimous approval by the Institute of Electrical and Electronics
Engineers (IEEE) of the IEEE 802.11a draft standard in July 1999 is evidence of
preliminary industry adoption of the OFDM technology. The IEEE is the global
standards body for the development and dissemination of voluntary,
consensus-based industry standards involving leading-edge technology. This draft
standard governs 6-54 Mbps wireless LAN devices operating in 5 GHz radio bands.
Wi-LAN holds a United States patent on W-OFDM technology which covers this draft
standard. Pursuant to a technology licensing agreement between Wi-LAN and
Philips dated
A-1
<PAGE> 25
September 13, 1999 (the "Philips Agreement") Wi-LAN granted to Philips a
worldwide, perpetual, non-exclusive, non-transferrable, royalty bearing,
non-sublicenseable license to make, have integrated, use and sell integrated
circuit products incorporating, based on, derived from or developed using
Wi-LAN's patented W-OFDM technology. Pursuant to the Philips Agreement, Philips
has agreed to pay Wi-LAN's certain one-time licensing fees, and future royalty
payments until September 13, 2009. Subject to the exclusivity provisions
contained in the Philips Agreement, Wi-LAN intends to license its patented
W-OFDM technology to chip and equipment manufacturers.
CAPITALIZE ON SUCCESS IN THE WLL MARKET
Wi-LAN will continue to focus on developing high-speed wireless data
communications products. The Corporation intends to lever growth off its current
product lines and its contracts with Telia GlobalCast and Tele2. These contracts
have showcased the networking capability of the Corporation's products in Sweden
and the United Kingdom.
ATTRACT AND RETAIN KEY PEOPLE
The Corporation has assembled a talented and experienced wireless data team and
believes that competition for people is as important as competition for
technological leadership. Wi-LAN selects people based on their experience,
ability and attitude, with the objective of building a highly productive team.
PURSUE AND FOSTER STRATEGIC TECHNOLOGY ALLIANCES
Wi-LAN is focused on developing and bringing to market its core patented W-OFDM
technology. As complementary opportunities arise for the application of its
advanced technologies, the Corporation intends to form relationships with
original equipment manufacturers (OEMs) through strategic alliances. Wi-LAN will
review opportunities to license its patented technologies to OEMs in exchange
for royalties and/or equity consideration.
PURSUE SELECTED STRATEGIC ACQUISITIONS
Wi-LAN believes that internal growth and market entry can be accelerated by
acquisitions. The Corporation will continue to pursue acquisition opportunities
which offer product line diversification, emerging technologies and accelerated
geographic or market segment entry.
A-2
<PAGE> 26
EXHIBIT B
TO DIGITAL TRANSMISSION SYSTEMS, INC. PROXY STATEMENT
FOR 2000 ANNUAL MEETING OF SHAREHOLDERS
Form of Amendment to Company's Amended and Restated Certificate of
Incorporation
Digital Transmission Systems, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation") hereby certifies as
follows:
That the text of the FOURTH article of the Corporation's Certificate of
Incorporation is hereby amended as follows:
Current Text:
FOURTH: The total number of shares of stock which the Corporation is
authorized to issue is Eighteen Million (18,000,000) shares, of which
Fifteen Million (15,000,000) shares of the par value of $.01 are Common
Stock (the "Common Stock") and Three Million (3,000,000) shares of the
par value $.01 each are Preferred Stock (the "Preferred Stock").
The above text of the FOURTH article of the Corporation's Certificate of
Incorporation shall be amended and replaced in its entirety with the following
text:
FOURTH: The total number of shares of stock which the Corporation is
authorized to issue is Sixty Million (60,000,000) shares, of which
Fifty Million (50,000,000) shares of the par value of $.01 are Common
Stock (the "Common Stock") and Ten Million (10,000,000) shares of the
par value $.01 each are Preferred Stock (the "Preferred Stock").
All other text within the Corporation's Certificate of Incorporation shall
remain unchanged.
<PAGE> 27
EXHIBIT C
FAIRNESS OPINION - WACHOVIA SECURITIES, INC.
IN CONNECTION WITH ACQUISITION OF TELCOR COMMUNICATIONS, INC.
(see attached)
<PAGE> 28
(WACHOVIA LOGO)
________________________________________________________________________________
Wachovia Securities, Inc.
Resurgens Plaza
945 East Paces Ferry Road
Atlanta, Georgia 30326
March 30, 2000
Board of Directors
Digital Transmission Systems, Inc.
3000 Northwoods Parkway
Building 330
Norcross, Georgia 30071
Gentlemen:
The Board of Directors of Digital Transmission Systems, Inc. ("DTS" or the
"Company"), has requested our opinion as to the fairness, from a financial
point of view, to the public shareholders of DTS of the consideration to be
paid in connection with the merger (the "Merger") by and among DTS and Telcor
Communications, Inc. ("Telcor"). The merger agreement among DTS, ICT
Acquisition Corp., a wholly-owned subsidiary of DTS (the "Merger Sub"), the
shareholders of Telcor and Telcor, to be dated as of March 31, 2000 (the
"Merger Agreement"), provides for the merger of Telcor with and into the Merger
Sub (the "Transaction"). Certain following capitalized terms not otherwise
defined shall have the meaning set forth in the Merger Agreement.
Under the terms of the Merger Agreement, the shareholders of Telcor, will
receive consideration equal to the sum of the following items as set forth in
the Merger Agreement: (i) on the Closing Date $2.5 million in cash and 338,983
shares of DTS Common Stock; (ii) 3 months following the Closing Date, $20
million which is payable, at the option of DTS, in DTS Common Stock or cash or
a combination of cash and DTS Common Stock; and (iii) 3 months following the
Closing Date, Additional Merger Consideration with a value of up to $6 million
(collectively defined as the "Merger Consideration").
In arriving at our opinion, we, among other things, (i) reviewed the most recent
draft of the Merger Agreement attached hereto as Exhibit A; (ii) held
discussions with various members of management and representatives of DTS and
Telcor concerning historical and current operations, financial condition and
future prospects; (iii) reviewed historical consolidated financial and operating
data that was publicly available or furnished to us by DTS and Telcor; (iii)
reviewed the annual audited financial statements of Telcor for the fiscal year
ended December 31, 1998 and unaudited annual financial statements of Telcor for
the fiscal year ended December 31, 1999; (iv) reviewed the Company's quarterly
report on Form 10Q for the fiscal quarter ended December 31, 1999; (v) reviewed
internal financial analyses, financial and operating forecasts, reports and
other information prepared by officers and representatives of DTS and Telcor;
(vi) reviewed certain publicly available information with respect to certain
other companies that we believe to be comparable to Telcor and the trading
markets for such other companies' securities; (viii) analyzed the value of
projected cash flows of Telcor; and (ix) reviewed certain publicly available
information concerning the terms of certain other transactions that we deemed
relevant to our inquiry.
Member NYSE
<PAGE> 29
Board of Directors
Digital Transmission Systems, Inc.
Page Two
In rendering this opinion, we have relied, without independent investigation,
upon the accuracy and completeness of all financial and other information
furnished to us by or on behalf of the DTS and Telcor and of all other
information, including, but not limited to, published information, considered by
us in our review or used by us in arriving at our opinion. We were not requested
to and have not undertaken to verify independently the accuracy or completeness
of such information. We have assumed and relied upon the reasonableness of all
projected financial information and assumptions to the projections provided to
us by the managements of DTS and Telcor and have assumed that such information
was prepared and such assumptions were derived in accordance with accepted
practice on bases reflecting the best currently available estimates and good
faith judgments of each Company's management. We have not independently verified
any such information or assumptions. Our opinion herein is based upon the
circumstances, existing and known to us as of the date hereof, and we have
assumed that there have been no material changes in the assets, financial
condition, results of operations, business or prospects of the Company or Telcor
since the date of the most recent financial statements made available to us. In
particular, without limiting the generality of the foregoing, (i) we are aware
that KMPG LLP is currently performing an audit of the financial statements of
Telcor for the fiscal year ended December 31, 1999 (the "1999 Audit"), (ii) we
have not reviewed the 1999 Audit; (iii) we have assumed that the 1999 Audit will
contain an unqualified opinion of KMPG LLP (including, without limitation, the
absence of any going concern qualification) and that the financial condition and
results of operation of Telcor as reflected in the 1999 Audit will not differ
materially from the financial condition and results of operations of Telcor as
reflected in the financial statements made available to us. We have also assumed
that any failure of Telcor to perform any of its obligations under the terms of
its contract with HK Telecom will not result in any liability of Telecor to HK
Telecom or any other person. We have not made or considered any independent
evaluations or appraisals of the assets or liabilities, contingent or otherwise,
of the Company, nor were we furnished with any such evaluations or appraisals.
Consequently, we do not express any opinion regarding the value of any of the
Company's specific individual assets. We were not requested to, and therefore
did not, participate in the structuring or negotiating of the Merger.
Wachovia Securities, Inc., as part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Pursuant to our
engagement as financial advisor to the Board of Directors, we will receive fees
for our services, including a fee for the delivery of our opinion, and
reimbursement of our expenses. In addition, the Company has agreed to indemnify
us for certain liabilities which may arise out of our engagement.
The opinion expressed herein is provided to the Board of Directors and does not
constitute a recommendation to any stockholder of the Company regarding the
Merger. The opinion, and any supporting analysis or other material supplied by
us, may not be quoted, referred to, summarized or used in any public filing or
in any written document without the prior written approval of Wachovia
Securities, Inc., provided that we hereby consent to the inclusion of this
letter in its entirety in the proxy statement to be filed by DTS with the
Securities and Exchange Commission and submitted to DTS shareholders in
connection with the Merger.
<PAGE> 30
Based upon the foregoing considerations and assumptions, and upon our review and
analysis, it is our opinion that as of the date hereof, the consideration to be
paid in connection with the Transaction is fair, from a financial point of
view, to the public stockholders of the Company.
Sincerely,
/s/
WACHOVIA SECURITIES, INC.
<PAGE> 31
EXHIBIT D
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 31, 2000
BETWEEN
DIGITAL TRANSMISSION SYSTEMS, INC.
AND
TELCOR COMMUNICATIONS, INC.
(see attached)
<PAGE> 32
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TELCOR COMMUNICATIONS, INC.,
ICT ACQUISITION CORP.
AND
DIGITAL TRANSMISSION SYSTEMS, INC.
DATED
FEBRUARY 29, 2000
<PAGE> 33
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
ARTICLE I DEFINITIONS; CONSTRUCTION.......................................................................1
1.1 Definitions.............................................................................1
1.2 Construction............................................................................5
ARTICLE II THE BUSINESS COMBINATION.......................................................................6
2.1 The Merger..............................................................................6
2.2 Closing.................................................................................6
2.3 Effective Time of the Merger............................................................6
2.4 Certificate of Incorporation; Bylaws....................................................6
2.5 Directors and Officers of the Surviving Corporation.....................................6
ARTICLE III CONVERSION AND EXCHANGE OF SHARES; ADDITIONAL ACTION..........................................7
3.1 Conversion of Shares....................................................................7
(a) The Company Shares.............................................................7
(b) Treasury Shares................................................................7
(c) Buyer Common Stock.............................................................7
3.2 Merger Consideration....................................................................7
3.3 Payment of Merger Consideration.........................................................7
3.4 Additional Merger Consideration.........................................................7
3.5 No Fractional Shares....................................................................7
3.6 Stock Transfer Books....................................................................7
3.7 Surrender and Exchange of Certificates Representing the Company Shares..................7
(a) Surrender of Certificates......................................................7
(b) Dividends on DTS Shares........................................................8
3.8 Certain Consents........................................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE COMPANY......................................9
4.1 Organization and Authority..............................................................9
4.2 Authorization; Enforceability...........................................................9
4.3 Company Shares; Capitalization..........................................................9
4.4 No Violation of Laws or Agreements; Consents...........................................10
4.5 Financial Information..................................................................11
(a) Records.......................................................................11
(b) Financial Statements..........................................................11
4.6 Undisclosed Liabilities................................................................11
4.7 No Changes.............................................................................11
4.8 Taxes..................................................................................12
(a) Tax Returns; Payment..........................................................12
(b) Withholding...................................................................13
4.9 Inventory..............................................................................13
4.10 Receivables............................................................................13
4.11 Condition of Assets; Business; Title...................................................13
</TABLE>
i
<PAGE> 34
<TABLE>
<S> <C> <C> <C> <C>
(a) Condition of Assets; Business.................................................14
(b) Title.........................................................................14
4.12 No Pending Litigation or Proceedings...................................................14
4.13 Contracts; Compliance..................................................................14
4.14 Permits; Compliance With Law...........................................................15
4.15 Real Property..........................................................................15
4.16 Transactions With Related Parties......................................................16
4.17 Labor Relations........................................................................16
4.18 Products Liability; Warranties.........................................................17
4.19 Insurance..............................................................................17
4.20 Intellectual Property Rights...........................................................17
4.21 Employee Benefits......................................................................18
(a) Benefit Plans; Company Plans..................................................18
(b) Company Group Matters; Funding................................................18
(c) Compliance....................................................................18
(d) Qualified Plans...............................................................19
(e) No Defined Benefit Plans......................................................19
(f) Multiemployer Plans...........................................................19
(g) Prohibited Transactions; Fiduciary Duties; Post-Retirement Benefits...........19
4.22 Environmental Matters..................................................................19
(a) Compliance; No Liability......................................................19
(b) Notices; Existing Claims; Certain Regulated Materials; Storage Tanks..........19
4.23 Customer Relations.....................................................................20
4.24 Finders' Fees..........................................................................20
4.25 Bank Accounts..........................................................................20
4.26 Millennium Compliance..................................................................20
(a) Scope of Compliance...........................................................20
(b) Fact of Compliance............................................................20
(c) Remedial Work.................................................................21
(d) Transmission of Information...................................................21
4.27 Disclosure.............................................................................21
ARTICLE V ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLERS.......................................21
5.1 Securities Act Compliance..............................................................21
5.2 Access to Information..................................................................21
5.3 Experience; Investment.................................................................21
5.4 No Prior Convictions...................................................................22
5.5 Tax Advice.............................................................................22
5.6 Sellers' Additional Representations....................................................22
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER AND DTS...............................................23
6.1 Organization...........................................................................23
6.2 Authorization; Enforceability..........................................................23
6.3 No Violation of Laws; Consents.........................................................23
6.4 No Pending Litigation or Proceedings...................................................24
6.5 Capitalization.........................................................................24
</TABLE>
ii
<PAGE> 35
<TABLE>
<S> <C> <C> <C> <C>
6.6 Finders' Fees..........................................................................24
6.7 Continuation of Company Business.......................................................24
6.8 Public Filings.........................................................................24
6.9 No Material Adverse Change.............................................................25
6.10 Lease Guarantee........................................................................25
ARTICLE VII CERTAIN COVENANTS............................................................................25
7.1 Conduct of Business Pending Closing....................................................25
(a) Ordinary Course; Compliance...................................................25
(b) Transactions..................................................................25
7.2 Access, Information and Documents......................................................26
7.3 Certain Tax Matters....................................................................27
(a) Tax Returns...................................................................27
(b) Short Period Election.........................................................27
(c) Contest.......................................................................27
(d) Assistance....................................................................28
(e) Carrybacks....................................................................28
7.4 Publicity..............................................................................28
7.5 Fulfillment of Agreements..............................................................28
7.6 Assistance.............................................................................28
7.7 Salary; Severance and Termination Payments.............................................28
7.8 Employees of the Company...............................................................29
7.9 Covenant Not to Compete................................................................29
(a) Restriction...................................................................29
(b) No Interference with Restricted Customers.....................................29
(c) No Interference With Employees................................................30
(d) Enforcement...................................................................30
7.10 Indebtedness to Sellers................................................................30
7.11 Meeting of Company Shareholders........................................................30
7.12 Seller Letters.........................................................................30
7.13 No Solicitation........................................................................30
7.14 Termination of Shareholders Agreements.................................................31
ARTICLE VIII CONDITIONS TO CLOSING; TERMINATION..........................................................31
8.1 Conditions Precedent to Obligation of Buyer............................................31
(a) Bringdown of Representations and Warranties; Covenants........................31
(b) Litigation....................................................................32
(c) No Material Adverse Change....................................................32
(d) Closing Certificate; Closing Documents........................................32
(e) Private Placement.............................................................32
(f) Estoppel Certificates.........................................................32
(g) Consents......................................................................33
(h) HSR Filings...................................................................33
(i) Satisfaction of Hong Kong Obligations.........................................33
(j) Audit Opinion.................................................................33
(k) JD Edwards System.............................................................33
(l) Non-Managed Trade Payables....................................................33
</TABLE>
iii
<PAGE> 36
<TABLE>
<S> <C> <C> <C> <C>
(m) Seller Letters................................................................33
(n) DTS Consents..................................................................34
(o) Board Position................................................................34
(p) Company Approval..............................................................34
(q) Exclusive Remedy..............................................................34
8.2 Conditions Precedent to Obligation of Sellers..........................................34
(a) Bringdown of Representations and Warranties; Covenants........................35
(b) Litigation....................................................................35
(c) Closing Certificate...........................................................35
(d) Closing Documents.............................................................36
(e) Buyer and DTS Approval........................................................36
(f) No Material Adverse Change....................................................36
(g) DTS Consents..................................................................36
(h) Board Position................................................................36
(i) Comfort Letter................................................................36
(j) Exclusive Remedy..............................................................37
8.3 Deliveries at the Closing by Sellers...................................................37
8.4 Deliveries at the Closing by Buyer and DTS.............................................38
8.5 Termination............................................................................39
(a) Termination...................................................................39
(b) Casualty Damage...............................................................39
8.6 Investment Advisor.....................................................................39
8.7 Amendment of Schedules.................................................................39
ARTICLE IX SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION..................................................40
9.1 Survival of Representations............................................................40
9.2 Indemnification by Sellers.............................................................40
9.3 Indemnification by Buyer and DTS.......................................................41
9.4 Limitation of Liability................................................................41
(a) Floor.........................................................................41
(b) Ceiling.......................................................................42
(c) Time Period...................................................................42
(d) Fraud; Intentional Misrepresentation..........................................42
9.5 Notice of Claims.......................................................................42
9.6 Third Party Claims.....................................................................42
9.7 Escrow.................................................................................43
9.8 Payment................................................................................43
9.9 Appointment of Representative..........................................................43
9.10 No Circular Recovery...................................................................43
9.11 Liability for Indemnification..........................................................43
ARTICLE X MISCELLANEOUS..................................................................................43
10.1 Costs and Expenses.....................................................................43
10.2 Further Assurances.....................................................................44
10.3 Notices................................................................................44
10.4 Currency...............................................................................45
10.5 Offset; Assignment; Governing Law......................................................45
</TABLE>
iv
<PAGE> 37
<TABLE>
<S> <C> <C> <C> <C>
10.6 Mediation..............................................................................45
10.7 Binding Arbitration....................................................................45
10.8 Amendment and Waiver; Cumulative Effect................................................45
10.9 Entire Agreement; No Third Party Beneficiaries.........................................46
10.10 Severability...........................................................................46
10.11 Counterparts...........................................................................46
10.12 Effect of Non-Payment..................................................................46
</TABLE>
v
<PAGE> 38
AGREEMENT AND PLAN OF MERGER (the
"AGREEMENT"), dated as of the 29th
day of February, 2000, by and among
DIGITAL TRANSMISSION SYSTEMS, INC.,
a Delaware corporation ("DTS"),
through its wholly-owned subsidiary,
ICT ACQUISITION CORP., a Nevada
corporation ("BUYER"), TELCOR
COMMUNICATIONS, INC., a Nevada
corporation (the "COMPANY") and
LANCE WELLER, an individual and
resident of the State of Colorado,
and MARGARET WELLER, an individual
and resident of the State of Georgia
(each, a "SELLER" and together, the
"SELLERS").
DTS, Buyer and the Company desire to effect a business combination of
the Company and Buyer, pursuant to which the Company will merge with and into
Buyer, and the holders of the Company Shares, in exchange for those shares, will
receive DTS Shares among other Merger Consideration (as defined in Section 1.1
below), par value $.01, as provided in this Agreement (the "MERGER"). The Merger
is intended to be a reorganization under Section 368(a) of the Code. The Board
of Directors of the Company has approved this Agreement and the Merger and
directed that this Agreement be submitted to the shareholders of the Company for
their approval. In consideration of the mutual representations, warranties,
covenants and agreements contained herein, the Company, Sellers, DTS and Buyer,
each intending to be legally bound hereby, agree as set forth below:
ARTICLE I
DEFINITIONS; CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms
have the meanings specified in this Section 1.1. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP.
"ADJUSTED CLOSING BALANCE SHEET" has the meaning given that term in
Section 3.5(a).
"AFFILIATE" means, with respect to any Person, any other Person who,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with such Person.
"AGREEMENT" means this Agreement and Plan of Merger, as it may be
amended from time to time.
"BENEFIT PLAN" has the meaning given that term in Section 4.21(a).
"BUSINESS" means the telecommunications equipment business conducted by
the Company.
"BUYER" means ICT Acquisition Corp., a Nevada corporation and a
wholly-owned subsidiary of DTS.
"BUYER DAMAGES" has the meaning given that term in Section 9.2.
1
<PAGE> 39
"BUYER INDEMNITEES" has the meaning given that term in Section 9.2.
"CERCLIS" means the United States Comprehensive Environmental Response
Compensation Liability Information System List pursuant to Superfund.
"CLOSING" has the meaning given that term in Section 2.2.
"CLOSING DATE" has the meaning given that term in Section 2.2.
"CODE" means the United States Internal Revenue Code of 1986, as
amended, and the applicable rulings and regulations thereunder.
"COMPANY" means Telcor Communications, Inc., a Nevada corporation, and
any and all Subsidiaries thereof.
"COMPANY GROUP" has the meaning given that term in Section 4.21(b).
"COMPANY PLAN" has the meaning given that term in Section 4.21(a).
"COMPANY SHARES" has the meaning given that term in Section 4.3.
"CONTRACT" and "CONTRACTS" have the respective meanings given those
terms in Section 4.13.
"DEFINED BENEFIT PLAN" has the meaning given that term in Section
4.21(e).
"DTS" means Digital Transmission Systems, Inc., a Delaware corporation.
"DTS AVERAGE SHARE VALUE" means $7.375.
"DTS COMMON STOCK" means DTS common stock, par value $.01 per share.
"DTS SHARES" has the meaning given that term in Section 3.3.
"EFFECTIVE TIME" has the meaning given that term in Section 2.3.
"ENCUMBRANCE" means any liability, debt, mortgage, deed of trust,
pledge, security interest, encumbrance, option, right of first refusal,
agreement of sale, adverse claim, easement, lien, assessment, restrictive
covenant, encroachment, burden or charge of any kind or nature whatsoever or any
item similar or related to the foregoing.
"ENVIRONMENTAL LAW" means any applicable Law relating to public health
and safety or protection of the environment, including common law nuisance,
property damage and similar common law theories.
"ERISA" means the United States Employee Retirement Income Security Act
of 1974, as amended, and the applicable rulings and regulations thereunder.
"ESCROW" has the meaning given that term in Section 3.2.
2
<PAGE> 40
"ESCROW SHARES" has the meaning given that term in Section 9.8.
"FASB" means the United States Financial Accounting Standards Board or
its successor.
"FINANCIAL STATEMENTS" has the meaning given that term in Section
4.5(b).
"GAAP" means United States generally accepted accounting principles in
effect for the relevant time period.
"GOVERNING DOCUMENTS" means, with respect to any Person who is not a
natural Person, the certificate or articles of incorporation, bylaws, deed of
trust, formation or governing agreement and other charter documents or
organizational or governing documents or instruments of such Person.
"GOVERNMENTAL BODY" means any court, government (federal, state, local
or foreign), department, commission, board, bureau, agency, official or other
regulatory, administrative or governmental authority or instrumentality.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the regulations promulgated thereunder.
"INDEMNIFIED PARTY" has the meaning given that term in Section 9.5.
"INDEMNIFYING PARTY" has the meaning given that term in Section 9.5.
"INTELLECTUAL PROPERTY" has the meaning given that term in Section
4.20.
"IRS" means the United States Internal Revenue Service.
"LAW" means any applicable federal, state, municipal, local or foreign
statute, law, ordinance, rule, regulation or order of any kind or nature
whatsoever, including any public policy, judgment or order of any Governmental
Body or principle of common law.
"LIABILITIES" with respect to any Person, means all debts, liabilities
and obligations of such Person of any nature or kind whatsoever, whether or not
due or to become due, accrued, fixed, absolute, matured, determined,
determinable or contingent, whether or not incurred directly by such Person or
by any predecessor of such Person, and whether or not arising out of any act,
omission, transaction, circumstance, sale of goods or service or otherwise.
"LITIGATION" has the meaning given that term in Section 4.12.
"MERGER" has the meaning given that term in the introduction to this
Agreement.
"MERGER CONSIDERATION" has the meaning given that term in Section 3.1.
"MERGER CONSIDERATION ADJUSTMENT" has the meaning given that term in
Section 3.4.
"MULTIEMPLOYER PLAN" has the meaning given that term in Section
4.21(f).
3
<PAGE> 41
"NBCA" means the Nevada Business Corporation Act.
"NEVADA ARTICLES OF MERGER" has the meaning given that term in Section
2.3.
"OTHER AGREEMENT" means each other agreement or document contemplated
hereby to be executed and delivered in connection with the transactions
contemplated by this Agreement at or before the Effective Time.
"PBGC" means the United States Pension Benefit Guaranty Corporation.
"PCBS" means polychlorinated biphenyls.
"PERMIT" and "PERMITS" have the respective meanings given those terms
in Section 4.14.
"PERMITTED ENCUMBRANCES" means (i) Liens in favor of PNC National Bank
and First Union National Bank (collectively, the "LENDERS") under those
agreements referenced in Schedule 4.4; (ii) Liens for taxes, assessments or
other governmental charges not delinquent or being contested in good faith and
by appropriate proceedings and with respect to which proper reserves have been
taken; (iii) Liens disclosed in the Financial Statements of the Company; (iv)
deposits or pledges to secure obligations under worker's compensation, social
security or similar laws, or under unemployment insurance; (v) deposits or
pledges to secure bids, tender, contracts (other than contracts for the payment
of money), leases statutory obligations, surety and appeal bonds, and other
obligations of like nature arising in the ordinary course of the Company's
business; (vi) judgment Liens that have been stayed or bonded and mechanics',
workers', materialmen's or other like Liens arising in the ordinary course of
the Company's business with respect to obligations which are not due or which
are being contested in good faith; (vii) Liens placed upon fixed assets
hereafter acquired or leased to secure a portion of the purchase price or the
lease payments thereunder.
"PERSON" means and includes a natural person, a corporation, an
association, a partnership, a limited liability company, a trust, a joint
venture, an unincorporated organization, a business, any other legal entity and
a Governmental Body.
"QUALIFIED PLAN" has the meaning given that term in Section 4.21(d).
"REAL PROPERTY" has the meaning given that term in Section 4.15.
"RECEIVABLES" means all trade and other accounts receivable of the
Company.
"REGULATED MATERIAL" means any pollutant, contaminant, waste or
chemical or any toxic, radioactive, ignitable, corrosive, reactive or otherwise
hazardous substance as defined by any Environmental Law and any other substance,
waste or material regulated by any applicable Environmental Law, including
petroleum, petroleum-related material, crude oil or any fraction thereof, PCBs
and friable asbestos.
"RELATED PARTY" means (i) any Affiliate of the Company, including the
Sellers, (ii) any officer or director of the Company or any Person identified in
clause (i) preceding, and (iii) any
4
<PAGE> 42
spouse, sibling, ancestor or lineal descendant of any natural Person identified
in any one of the preceding clauses.
"REPRESENTATIVE" has the meaning given that term in Section 9.9.
"RESTRICTED CUSTOMER" means (i) any actual customer to whom goods or
services were provided by the Company during the 12-month period prior to the
Effective Time and (ii) any potential customer that the Company solicited in the
operation of the Business during the 12-month period prior to the Effective
Time.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the United States Securities Act of 1933, as
amended.
"SECURITY RIGHT" means, with respect to any security, any option,
warrant, subscription right, preemptive right, other right, proxy, put, call,
demand, plan, commitment, agreement, understanding or arrangement of any kind
relating to such security, whether issued or unissued, or any other security
convertible into or exchangeable for any such security. "Security Right"
includes any right relating to issuance, sale, assignment, transfer, purchase,
redemption, conversion, exchange, registration or voting and includes rights
conferred by statute, by the issuer's Governing Documents or by agreement.
"SELLER DAMAGES" has the meaning given that term in Section 9.3.
"SELLER INDEMNITEES" has the meaning given that term in Section 9.3.
"SUBSIDIARY" means any corporation, partnership, joint venture or other
entity of which the Company owns, directly or indirectly, more than 20% of the
outstanding voting securities or equity interests.
"SUPERFUND" means the United States Comprehensive Environmental
Response Compensation and Liability Act of 1980, 42 U.S.C. Sections 6901 et
seq., as amended.
"SURVIVING CORPORATION" has the meaning given that term in Section 2.1.
"TAX" means any tax, levy, customs duty, impost, fee or other
assessment, including without limitation all net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, estimated, severance, stamp,
occupation, property or other charge of any kind whatsoever, including any
interest or penalty thereon or addition thereto, whether disputed or not,
imposed by any Governmental Body, whether federal, state, county, local or
foreign.
"TAX RETURN" means any return, declaration, report, estimate, claim for
refund or information return or statement relating to any Tax, including any
schedule or attachment thereto, and including any amendment thereof.
1.2 CONSTRUCTION. As used herein, unless the context otherwise
requires: (i) references to "Article" or "Section" are to an article or section
hereof; (ii) references to
5
<PAGE> 43
"Exhibits" and "Schedules" herein are to Exhibits and Schedules attached hereto
and are incorporated herein by reference and made a part hereof; (iii)
"include," "includes" and "including" are deemed to be followed by "without
limitation" whether or not they are in fact followed by such words or words of
like import; and (iv) the headings of the various articles, sections and other
subdivisions hereof are for convenience of reference only and shall not modify,
define or limit any of the terms or provisions hereof.
ARTICLE II
THE BUSINESS COMBINATION
2.1 THE MERGER. At the Effective Time, the Company shall be merged
with and into Buyer in accordance with the provisions of this Agreement and the
NBCA, and the separate existence of the Company shall thereupon cease. Buyer, as
the surviving corporation in the Merger (the "SURVIVING CORPORATION"), shall
continue its corporate existence under the laws of the State of Nevada as a
wholly-owned subsidiary of DTS. The Merger shall have the effects provided under
the applicable laws of the State of Nevada including, but not limited to,
Section 92A.250 of the NBCA.
2.2 CLOSING. The consummation of the Merger and the other
transactions contemplated by this Agreement (the "CLOSING") shall take place at
the offices of Sutherland Asbill & Brennan, 999 Peachtree Street, Atlanta,
Georgia 30309 at 10:00 a.m. on the first business day after all of the
conditions set forth in Article VIII (other than the delivery of certificates,
opinions and other instruments and documents to be delivered at the Closing)
have been satisfied or waived in writing, or at such other time and place as the
parties may mutually agree, but, in any event, no later than March 31, 2000 (the
"CLOSING DATE").
2.3 EFFECTIVE TIME OF THE MERGER. If all the conditions set forth
in Article VIII shall have been fulfilled or waived in accordance with this
Agreement and provided that this Agreement has not been terminated pursuant to
Article VIII, on the Closing Date the parties shall cause the articles of merger
attached hereto as Exhibit A (the "NEVADA ARTICLES OF MERGER") to be executed,
delivered and filed with the Secretary of State of Nevada in accordance with the
provisions of the NBCA. The Merger shall become effective at the time of such
filing unless a different effective time is specified in the Nevada Articles of
Merger, pursuant to the NBCA (the "EFFECTIVE TIME").
2.4 ARTICLES OF INCORPORATION; BYLAWS. The Articles of
Incorporation and Bylaws of Buyer in effect immediately prior to the Effective
Time shall be the Articles of Incorporation and Bylaws of the Surviving
Corporation, until duly amended in accordance with applicable law.
2.5 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. At the
Effective Time, the persons who are serving as directors and officers of Buyer
shall become the directors and officers of the Surviving Corporation, serving
until such time as they may be replaced in accordance with the Bylaws of the
Surviving Corporation.
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ARTICLE III
CONVERSION AND EXCHANGE OF SHARES; ADDITIONAL ACTION
3.1 CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of any party hereto:
(A) THE COMPANY SHARES. Each issued and outstanding
Company Share (excluding any of the Company Shares held by DTS or its
Subsidiaries) shall automatically be canceled and extinguished and shall
thereafter be converted into the right to receive on a pro rata basis the
consideration for the Merger set forth in Sections 3.2 and 3.4 (the "MERGER
CONSIDERATION").
(B) TREASURY SHARES. Each Company Share held in the
treasury of the Company shall be automatically canceled and extinguished, and no
payment shall be made in respect thereof.
(C) BUYER COMMON STOCK. Each issued and outstanding share
of Buyer common stock at the Effective Time shall thereafter be cancelled and
extinguished.
3.2 MERGER CONSIDERATION. The aggregate Merger Consideration to be
paid for the Company Shares shall be as described on Schedule 3.2 (the "Merger
Consideration") subject to adjustment as provided in Section 3.4.
3.3 PAYMENT OF MERGER CONSIDERATION. At the Effective Time, the
Merger Consideration shall be paid by DTS and the Surviving Corporation, jointly
and severally, as described in Schedule 3.2.
3.4 ADDITIONAL MERGER CONSIDERATION. DTS and Surviving
Corporation, jointly and severally, shall pay Additional Merger Consideration as
set forth on Schedule 3.4, such amount to be paid within five business days
after determination.
3.5 NO FRACTIONAL SHARES. No scrip or fractional DTS Shares shall
be issued in the Merger upon conversion of the Company Shares as provided in
Sections 3.1 and 3.3. Each holder of the Company Shares who would otherwise have
been entitled to receive a fraction of a DTS Share upon conversion of his
Company Shares shall be entitled to receive a cash payment with respect to such
fractional share in an amount equal to the product of the DTS Average Share
Value multiplied by such fractional share.
3.6 STOCK TRANSFER BOOKS. From and after the Effective Time, no
transfer of the Company Shares outstanding prior to the Effective Time shall be
registered on the stock transfer books of the Surviving Corporation. If, after
the Effective Time, certificates for the Company Shares are presented to the
Surviving Corporation for transfer, such certificates shall be cancelled and
exchanged for the consideration described in Sections 3.1, 3.2 and 3.3.
3.7 SURRENDER AND EXCHANGE OF CERTIFICATES REPRESENTING THE
COMPANY SHARES.
(A) SURRENDER OF CERTIFICATES. At the Effective Time, the
holders of certificates representing shares of the Company common stock shall
cease to have any rights as
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shareholders of the Company except such rights as they may have pursuant to this
Agreement. After the Effective Time, each Seller shall be entitled to receive,
upon surrender to Buyer of a certificate or certificates representing such
Seller's shares of the Company common stock (accompanied by a duly completed and
executed stock transfer power), the Merger Consideration for each share of the
Company common stock represented by such certificate or certificates; provided,
however, that the Escrow Shares shall be delivered to the Escrow Agent for the
Escrow established pursuant to Section 9.7. If certificates for outstanding
shares of the Company common stock are not surrendered to Buyer within one year
after the Effective Time, the unclaimed Merger Consideration shall, to the
extent permitted by applicable law, become the property of the Surviving
Corporation free and clear of any claims or interests of any person previously
entitled thereto. No interest shall be paid or accrued on any portion of the
Merger Consideration.
(B) DIVIDENDS ON DTS SHARES. No holder of a certificate
representing shares of the Company common stock shall be entitled to receive any
dividend or other distribution from DTS declared with a record date after the
Effective Time until surrender of such holder's certificate pursuant to this
Section 3.7. Upon such surrender, DTS shall pay to the holder the amount of any
dividends or other distributions (without interest) that theretofore became
payable but were not paid by reason of the foregoing with respect to the number
of DTS Shares represented by the certificate or certificates issued upon such
surrender. From and after the Effective Time, DTS shall be entitled to treat any
certificate representing shares of the Company common stock that has not yet
been surrendered for exchange as evidencing the ownership of the aggregate
Merger Consideration into which the Company Shares represented by such
certificate shall have been converted, notwithstanding any failure to surrender
such certificate.
3.8 CERTAIN CONSENTS. In order to provide the Surviving
Corporation with the full realization and value of every contract, agreement,
Permit, franchise and claim requiring consent of the other party thereto in
connection with the transactions contemplated herein, Sellers agree that at and
after the Effective Time, they will, at the request and under the direction of
Buyer or the Surviving Corporation, in the names of Sellers or otherwise as
Buyer or the Surviving Corporation shall specify, take all reasonable action
(including without limitation the appointment of the Surviving Corporation as
attorney-in-fact for Sellers) and do or cause to be done all such reasonable
things as shall in the opinion of Buyer or the Surviving Corporation or the
counsel for either be necessary or proper, at no material expense to Sellers (i)
to assure that the rights of Sellers or the Company under such contracts,
agreements, Permits, franchises and claims shall be preserved for the benefit of
the Surviving Corporation and (ii) to facilitate receipt of the consideration to
be received by the Company or Sellers in and under every such contract,
agreement, Permit, franchise and claim, which consideration shall be held for
the benefit of, and shall be delivered to, the Surviving Corporation. Nothing in
this Section shall in any way diminish Sellers' and the Company's obligations
hereunder to obtain all consents and approvals and to take all such other
actions prior to or at the Effective Time as are reasonably necessary to enable
Sellers or the Company to convey or assign valid title to the assets of the
Company.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SELLERS AND THE COMPANY
As an inducement to Buyer and DTS to enter into this Agreement and
consummate the transactions contemplated hereby, each of Sellers and the Company
jointly and severally represent and warrant to Buyer and DTS, as of the date of
execution of this Agreement and again as of the Effective Time, subject to the
schedules contained in the Sellers' Disclosure Letter delivered to Buyer and
DTS, as follows:
4.1 ORGANIZATION AND AUTHORITY. Each of Sellers has the power and
authority to enter into this Agreement and the Other Agreements to which he or
it is or is to become a party and perform his or its obligations hereunder and
thereunder. The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization and has the
corporate power and authority to own or lease its properties and carry on the
Business as now conducted. The Company is duly qualified to do business and is
in good standing in the jurisdictions shown on Schedule 4.1, which are all the
jurisdictions in which the character of the properties owned or leased by the
Company or the nature of the activities conducted by it make such qualification
and good standing necessary, and where such failure would not have a material
adverse effect. Copies of the Articles of Incorporation and Bylaws of the
Company, as amended to date, have been delivered to Buyer, and such copies are
complete and correct and in full force and effect. Copies of the minutes of the
meetings of the board of directors and shareholders of the Company have been
provided to Buyer and reflect accurately and in reasonable detail the actions
taken at such meetings.
4.2 AUTHORIZATION; ENFORCEABILITY. This Agreement has been duly
executed and delivered by and constitute the legal, valid and binding
obligations of the Company or such Seller, enforceable against it or him in
accordance with their respective terms. Each Other Agreement to which the
Company or any Seller is to become a party pursuant to the provisions hereof,
when executed and delivered by the Company or such Seller, will constitute the
legal, valid and binding obligation of the Company or such Seller, enforceable
against it or him in accordance with the terms of such Other Agreement. All
actions contemplated by this Section and this Agreement have been duly and
validly authorized by all necessary proceedings by Sellers and the Company.
4.3 COMPANY SHARES; CAPITALIZATION. The authorized capital stock
of the Company consists solely of 30,000 shares of common stock, US$1.00 par
value per share, represented by 25,000 shares of Voting Stock and 5,000 shares
of Non-Voting Stock, of which 85 Voting Shares and 15 Non-Voting Shares are
issued and outstanding (the "COMPANY SHARES"). The Company Shares constitute all
of the issued and outstanding shares of capital stock of the Company. All of the
Company Shares are owned of record, legally and beneficially by Sellers. The
Company Shares are free and clear of any and all Encumbrances. All rights and
powers to vote the Company Shares are held exclusively by Sellers. All of the
Company Shares are validly issued, fully paid and nonassessable, are free of
preemptive rights (except as set forth in the Governing Documents of Seller, and
as otherwise provided in that certain Settlement Agreement (the "Settlement
Agreement"), dated November 18, 1999, between Lance Weller and Margaret Weller,
a copy of which is disclosed in Schedule 4.3), were not issued in violation of
the terms of
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any agreement or other understanding, and were issued in compliance with all
applicable federal and state securities or "blue sky" laws and regulations.
Except as otherwise provided by the Settlement Agreement, there are no
restrictions of any kind on the transfer of the Shares, except those imposed by
federal and state securities laws. The Company does not have any commitment to
issue or sell any shares of its capital stock or any securities or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire from it, any shares of its capital stock, and no such
securities or obligations evidencing any such rights are outstanding. The
Company has no liability to any former owner of any of its shares by reason of
any failure by it to comply with any Laws. Except as disclosed on Schedule 4.3,
the Company does not own, nor has it ever owned, any shares of capital stock of
or other equity interest in any corporation, partnership, joint venture or other
entity.
4.4 NO VIOLATION OF LAWS OR AGREEMENTS; CONSENTS. Except as
disclosed on Schedule 4.4, neither the execution and delivery of this Agreement
or any Other Agreement to which the Company or any Seller is or is to become a
party, the consummation of the transactions contemplated hereby or thereby nor
the compliance with or fulfillment of the terms, conditions or provisions hereof
or thereof by Sellers or the Company, or any of them, will:
(a) contravene any provision of the Governing Documents
of the Company;
(b) conflict with, result in a breach of, constitute a
default or an event of default (or an event that might, with the passage of time
or the giving of notice or both, constitute a default or event of default) under
any of the terms of, result in the termination of, result in the loss of any
right under, or give to any other Person the right to cause such a termination
of or loss under, any asset of Sellers (relating to the Business) or the
Company, including any Permit, Intellectual Property, license, franchise,
indenture, mortgage or any other contract, agreement or instrument to which the
Company or any Seller is a party or by which any of the assets of the Company or
any Seller (relating to the Business) may be bound or affected;
(c) result in the creation, maturation or acceleration of
any Liability or obligation of the Company (or give to any other Person the
right to cause such a creation, maturation or acceleration);
(d) violate any Law or violate any judgment or order of
any Governmental Body to which the Company or any Seller is subject or by which
any of the assets of the Company or any Seller (relating to the Business) may be
bound or affected;
(e) result in the creation or imposition of any
Encumbrance upon any of the Company Shares or any asset of any Seller (relating
to the Business) or the Company or give to any other Person any interest or
right therein; or
(f) provided that this Merger is recognized as a Code
Section 368(a) reorganization, cause Buyer or the Company to become subject to,
or liable for, the payment of any Tax other than customary corporate filing
fees.
Except as set forth on Schedule 4.4 and except for filings with applicable
federal and state securities or "blue sky" laws and regulations, or with the
Secretary of State of Nevada and with states of qualification in connection with
the consummation of the Merger, no consent, approval
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or authorization of, or registration or filing with, any Person is required in
connection with the execution or delivery by Sellers or the Company, or any of
them, of this Agreement or any of the Other Agreements to which any of them is
or is to become a party pursuant to the provisions hereof or in connection with
the consummation by Sellers or the Company, or any of them, of the transactions
contemplated hereby or thereby.
4.5 FINANCIAL INFORMATION.
(A) RECORDS. The books of account and related records of
the Company reflect accurately and in appropriate detail its assets,
liabilities, revenues, expenses and other transactions.
(B) FINANCIAL STATEMENTS. The audited balance sheets,
income statements and statements of cash flows for the Company at December 31,
1997, and December 31, 1998 and for the years then ended and the unaudited
balance sheets, income statements and statements of cash flows for the Company
at December 31, 1999 and for the periods then ended (collectively, the
"FINANCIAL STATEMENTS") have been delivered to Buyer, and a copy of the December
31, 1999 balance sheet of the Company is attached hereto as Exhibit B. The
Financial Statements (i) were derived from the books of account and records of
the Company, (ii) have been prepared in accordance with GAAP on a consistent
basis throughout the indicated periods, except that the interim financial
statements contain no footnotes or year-end adjustments and (iii) present fairly
in all material respects the financial condition, assets, Liabilities and
results of operations of the Company at the dates and for the relevant periods
indicated.
4.6 UNDISCLOSED LIABILITIES. The Company does not have any
Liabilities, except: (i) those reflected or reserved against on the Financial
Statements in the amounts shown therein; (ii) those not required under GAAP to
be reflected or reserved against in the Financial Statements; (iii) those
disclosed on Schedule 4.6 attached hereto; and (iv) those of the same nature as
those set forth on the Financial Statements that have arisen in the ordinary
course of business of the Company after the date of the latest Financial
Statements (and that shall be included on the Closing Balance Sheet) and through
the date hereof, all of which have been consistent in amount and character with
past practice and experience, and none of which, individually or in the
aggregate, has had or will have a material adverse effect on the business or
financial condition of the Company.
4.7 NO CHANGES. Except as set forth on Schedule 4.7, since the
date of the latest Financial Statements, the Company has conducted the Business
only in the ordinary course. Without limiting the generality of the foregoing
sentence, since the date of the latest Financial Statements, there has not been
any:
(a) material adverse change in the financial condition,
assets or Liabilities of the Company;
(b) material damage or destruction to any asset of the
Company not covered by insurance;
(c) strike or other material labor trouble;
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(d) creation of any Encumbrance on any asset of the
Company not in the ordinary course of business;
(e) declaration or payment of any dividend or other
distribution on or with respect to or redemption or purchase by the Company of
any shares of its capital stock, including any of the Company Shares; provided,
however, for so long as the Company is a Subchapter S corporation for federal
income tax purposes, the Company may make distributions to Shareholders for
payment of taxes;
(f) change in the salary, wage or bonus of any employee
of the Company, or increase in the number of employees, other than in the
ordinary course of business consistent with past practices;
(g) asset acquisition or expenditure (including capital
expenditure) in excess of US$75,000, in the aggregate, other than the purchase
of inventory in the ordinary course of business;
(h) change in any Company Plan;
(i) change in any method of accounting;
(j) payment to or transaction with any Related Party,
which payment or transaction is not specifically disclosed on Schedule 4.16;
(k) disposition of any assets (other than inventory in
the ordinary course of business) for more than $75,000 individually or in the
aggregate, or for less than fair market value;
(l) payment, prepayment or discharge of any Liability
other than in the ordinary course of business pursuant to an agreed-upon payment
plan disclosed to DTS
(m) material write-offs or write-downs of any assets of
the Company except for those recommended by the Company's auditors or its
lender(s) and disclosed to DTS;
(n) creation, termination or amendment of, or waiver of
any material right under, any material agreement of the Company or any material
agreement affecting the assets of the Company, which creation, termination,
amendment or waiver could reasonably be expected to have an adverse financial
impact; or
(o) agreement or commitment to do any of the foregoing.
4.8 TAXES.
(A) TAX RETURNS; PAYMENT. Sellers and the Company have
filed or caused to be filed on a timely basis, or will file or cause to be filed
on a timely basis, all Tax Returns that are required to be filed by the Company
prior to or at the Effective Time with respect to the Company or any Seller's
interest therein, pursuant to the Law of each governmental authority with taxing
power over the Company or such Seller. All such Tax Returns were or will be, as
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the case may be, correct and complete. Sellers and the Company have paid or will
timely pay all Taxes that have or will become due prior to or at the Effective
Time as shown on such Tax Returns or pursuant to any assessment received as an
adjustment to such Tax Returns, except such Taxes, if any, as are being
contested in good faith and disclosed on Schedule 4.8. Sellers and the Company
have established on the Financial Statements reserves that are adequate for the
payment of all Taxes that are accrued but are not yet due as of such date (and
will continue to establish such reserves on the Financial Statements until the
Effective Time). Except as disclosed on Schedule 4.8, neither the Company nor
any Seller has requested or is currently the beneficiary of any extension of
time within which to file any Tax Return. No claim has been made by a taxing
authority of a jurisdiction where the Company does not file a Tax Return that
the Company is or may be subject to taxation in that jurisdiction. No deficiency
for any Tax has been proposed, asserted or assessed against the Company that has
not been resolved or paid in full. Except as disclosed on Schedule 4.8, no power
of attorney has been granted by the Company with respect to any matters related
to Taxes that is currently in force. Except as set forth on Schedule 4.8 or as
contemplated and referenced in Section 4.7(e), no special elections regarding
Taxes have been filed by the Company or any Seller with any taxing authority.
Neither the Company nor any Seller has waived or been requested to waive any
statute of limitations in respect of Taxes. Without limiting the foregoing, the
Company has no Liability for any Tax except (i) Taxes disclosed on Schedule 4.8,
(ii) Taxes fully reserved on the most recent Financial Statements and (iii)
Taxes accrued after the date of the most recent Financial Statements.
(B) WITHHOLDING. The Company has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
third party.
4.9 INVENTORY. All of the inventory of the Company is valued on
the books and records of the Company and in the Financial Statements at the
lower of cost or market, the cost thereof being determined on an unaudited basis
in accordance with GAAP. All of the finished goods inventory of the Company is
in good, merchantable and usable condition and is saleable in the ordinary
course of business. Except to the extent of applicable reserves, none of the
Company's inventory is obsolete and, except as set forth on Schedule 4.9, none
of the Company's inventory has been consigned to others or is on consignment
from others.
4.10 RECEIVABLES. Schedule 4.10 discloses substantially all
Receivables outstanding as of December 31, 1999, presented on an aged basis, and
separately identifies the name of each account debtor and the total amount of
each related Receivable. All Receivables, whether reflected on the Financial
Statements, disclosed on Schedule 4.10 hereto or created after the date of the
Financial Statements, arose from bona fide sale transactions of the Company, and
to the knowledge of the Sellers and the Company, no portion of any Receivable is
subject to counterclaim, defense or set-off or, except as set forth on Schedule
4.10, is otherwise in dispute. Except to the extent of the recorded reserve for
doubtful accounts, and except as set forth on Schedule 4.10, all of the
Receivables are collectible in the ordinary course of business and the Company
will endeavor to collect the Receivables using commercially reasonable efforts.
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4.11 CONDITION OF ASSETS; BUSINESS; TITLE.
(A) CONDITION OF ASSETS; BUSINESS. The buildings,
fixtures, improvements, machinery, equipment, tools, furniture, improvements and
tangible personal property of the Company are in good operating condition and
repair, ordinary wear and tear excepted, and are suitable for the purposes for
which they are used in the Business. None of the assets owned by the Company are
subject to any impairment or Encumbrance, other than Permitted Encumbrances,
whether due to their condition, utility, collectability or otherwise. Except as
set forth on Schedule 4.11, all of the Company's assets are reflected on the
Financial Statements or, under GAAP, are not required to be reflected thereon,
and include all assets that are necessary for use in and operation of the
Business. The Company is engaged in the Business and no other business.
(B) TITLE. Except as set forth on Schedule 4.11, the
Company has good, marketable and exclusive title to all of its assets, free and
clear of all of Encumbrances other than Permitted Encumbrances.
4.12 NO PENDING LITIGATION OR PROCEEDINGS. Except as described on
Schedule 4.12, no action, suit, investigation, claim or proceeding of any nature
or kind whatsoever, whether civil, criminal or administrative, by or before any
Governmental Body or arbitrator ("LITIGATION") is pending or, to the knowledge
of Sellers or the Company, threatened against or affecting the Company, Sellers
(in connection with the Company or the Business), the Business, any of the
Company's assets, any of the Company Shares, or any of the transactions
contemplated by this Agreement or any Other Agreement, and to the knowledge of
the Sellers, there is no basis for any such Litigation. Except as described on
Schedule 4.12, the Company has not been a party to any other Litigation during
the past three (3) years. There is presently no outstanding judgment, decree or
order of any Governmental Body against or affecting the Company, Sellers (in
connection with the Company or the Business), the Business, any of the Company's
assets, any of the Company Shares, or any of the transactions contemplated by
this Agreement or any Other Agreement. Except as set forth on Schedule 4.12, the
Company does not have pending any Litigation against any third party.
4.13 CONTRACTS; COMPLIANCE. Disclosed on Schedule 4.13(a), 4.15,
4.16, 4.20, 4.21 or 4.24 is a brief description of each contract, lease,
indenture, mortgage, instrument, commitment or other agreement, arrangement or
understanding, oral or written, to which the Company is a party or by which it
or its assets may be affected, and that
(a) is material to the Business, individually or in the
aggregate;
(b) involves the purchase, sale or lease of any asset,
materials, supplies, inventory or services in excess of US $75,000 per year;
(c) has an unexpired term of more than six (6) months
from the date hereof, taking into account the effect of any renewal options,
that cannot be terminated without penalty upon 30 days' notice;
(d) relates to the borrowing or lending of any money or
guarantee of any obligation;
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(e) limits the right of any Seller or the Company (or
after the Effective Time, the Surviving Corporation) to compete in any line of
business or otherwise restricts any right any Seller or the Company (or after
the Effective Time, the Surviving Corporation) may have;
(f) is an employment or consulting contract involving
payment of compensation or benefits;
(g) involves sales, distribution or similar disposition
and provides for payments in excess of $20,000 per year;
(h) forms any partnership, joint venture or other similar
agreement or arrangement;
(i) grants any option, license, franchise or similar
agreement;
(j) relates to any Intellectual Property; or
(k) was not entered into in the ordinary course (each
item described in Section 4.13(a) through (k) hereunder individually a
"CONTRACT" and collectively, the "CONTRACTS").
Each Contract is a legal, valid and binding obligation of the
Company and is in full force and effect. The Company and, to the knowledge of
Sellers and the Company, each other party to each Contract, has performed all
material obligations required to be performed by it thereunder and is not in
breach or default and is not alleged to be in breach or default in any respect
thereunder. No event has occurred, and to the knowledge of Sellers or the
Company, no condition or state of facts exists (or would exist upon the giving
of notice or the lapse of time or both) that would become or cause a breach,
default or event of default thereunder, that would give to any Person the right
to cause such a termination or that would cause an acceleration of any
obligation thereunder. Except for the contracts with Hong Kong Telecom and
SingTel, referenced in Schedule 4.13(a), neither the Company nor any Seller is
currently renegotiating any Contract, nor has the Company or any Seller received
any notice of non-renewal or price increase or sales or production allocation
with respect to any Contract.
4.14 PERMITS; COMPLIANCE WITH LAW. The Company holds all permits,
certificates, licenses, franchises, privileges, approvals, registrations and
authorizations required under any applicable Law in connection with the
operation of its assets and the Business (each, a "PERMIT" and collectively,
"PERMITS"). Each Permit is valid, subsisting and in full force and effect. The
Company is in compliance with and has fulfilled and performed its obligations
under each Permit, and no event or condition or state of facts exists (or would
exist upon the giving of notice or lapse of time or both) that could constitute
a breach or default under any Permit. The Company has not received any notice of
non-renewal of any Permit. The Company has received no notice of any violation
of Law, and the Company is not currently in violation of any Law. To the
knowledge of Sellers and the Company, no event has occurred or condition or
state of facts exists that could give rise to any such violation of Law.
4.15 REAL PROPERTY. Schedule 4.15 discloses and summarizes all real
properties currently owned, used or leased by the Company or in which the
Company or any Seller has an interest in connection with the Business
(collectively, the "REAL PROPERTY") and identifies the
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record title holder of each parcel of the Real Property. The Company has good
and marketable fee simple title to all Real Property shown as owned by it on
Schedule 4.15, free and clear of all Encumbrances other than (i) easements,
covenants, rights-of-way and other encumbrances or restrictions of record, (ii)
zoning restrictions, and (iii) liens for current taxes not yet due. The Company
has the right to quiet enjoyment (subject to any mortgagee rights or applicable
laws) of all Real Property in which it holds a leasehold interest for the full
term, including all renewal rights, of the lease or similar agreement relating
thereto. Copies of all title insurance policies written in favor of the Company
relating to the Real Property owned or leased by the Company in the Company's
possession have been delivered to Buyer. Neither the Company nor any Seller has
received any written or oral notice of assessments for public improvements
against any Real Property or any written or oral notice or order by any
Governmental Body, any insurance company that has issued a policy with respect
to any of such properties or any board of fire underwriters or other body
exercising similar functions that relates to violations of building, safety or
fire ordinances or regulations, claims any defect or deficiency with respect to
any of such properties or requests the performance of any repairs, alterations
or other work to or in any of such properties or in the streets bounding the
same. To the knowledge of the Sellers, there is no pending condemnation,
expropriation, eminent domain or similar proceeding affecting all or any portion
of the Real Property. All public utilities (including water, gas, electric,
storm and sanitary sewage and telephone utilities) required to operate the
facilities of the Company are available to such facilities, and such utilities
enter the boundaries of such facilities through adjoining public streets,
easements or rights-of-way of record in favor of a Seller or the Company.
Neither the Company nor any Seller has received any written notice of any
proposed, planned or actual curtailment of service of any utility supplied to
any facility of the Company.
4.16 TRANSACTIONS WITH RELATED PARTIES. No Related Party is or has
been since January 1, 1998 a party to any transaction, agreement or
understanding with the Company except pursuant to arrangements disclosed on
Schedule 4.16. No Related Party uses any assets of the Company except directly
in connection with the Business, and no Related Party owns any asset used in the
Business. Except as set forth on Schedule 4.16, no Related Party has any claim
of any nature, including any inchoate claim, against the Company or any assets
of the Company, and the Company has no claim of any nature, including any
inchoate claim, against any Related Party. Except as otherwise expressly
provided hereby or by any Other Agreement or as otherwise may be mutually agreed
after the Effective Time, (i) no Related Party will at any time after the
Effective Time for any reason, directly or indirectly, be or become entitled to
receive any payment or transfer of money or other property of any kind from the
Company except for accrued but unpaid wages, employment benefits and
non-discretionary bonuses, and (ii) neither Buyer nor the Company will at any
time after the Effective Time for any reason, directly or indirectly, be or
become subject to any obligation to any Related Party, except to pay accrued but
unpaid wages, employment benefits and non-discretionary bonuses.
4.17 LABOR RELATIONS. Schedule 4.17 sets forth a true and complete
list of the names, titles, annual salaries and other compensation of all
employees of the Company. The relations of the Company with its employees are
generally good. Except as set forth on Schedule 4.17, no employee of the Company
is represented by any union or other labor organization. No labor
representation, labor election, labor arbitration proceeding, labor grievance,
labor strike, labor dispute, labor slowdown, labor stoppage or similar labor
trouble is pending or, to the knowledge of Sellers or the Company, threatened
against, involving, affecting or potentially affecting the
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Company. No complaint against the Company is pending or, to the knowledge of
Sellers or the Company, threatened before the National Labor Relations Board,
the Equal Employment Opportunity Commission or any similar state or local
agency, by or on behalf of any employee of the Company. Except as set forth on
Schedule 4.17, the Company has no material Liability for sick leave, vacation
time, severance pay or any similar item not reserved on the Financial
Statements. Except as set forth in Schedule 4.17, neither the execution and
delivery of this Agreement, the performance of the provisions hereof nor the
consummation of the Merger will trigger any severance pay obligation under any
contract or under any Law.
4.18 PRODUCTS LIABILITY; WARRANTIES. Except for Liabilities arising
from any implied or express warranties given in the connection with the sale of
goods or services in the ordinary course of business, the Company shall have no
Liability after the Effective Time not fully covered by insurance relating to
any work or services performed by or for the Company, or its subcontractors or
agents ("WORK"), any materials, equipment or other items utilized by the Company
or its subcontractors or agents in performing Work ("MATERIALS"), or any
Materials installed, manufactured, distributed, sold or provided by the Company
prior to the Effective Time, whether or not such Liability relates to Materials
that are defective, improperly designed or manufactured or in breach of any
express or implied product warranty. Schedule 4.18 discloses and describes the
terms of all express warranties under which the Company may have liability after
the Effective Time. All of the Work performed and Materials provided or sold in
connection with the Business is, and at all times up to and including the
Effective Time has been, (i) in compliance with all applicable federal, state,
local and foreign laws and regulations, (ii) fit for the ordinary purposes for
which it is intended to be used and (iii) in conformance with any promises or
affirmations of fact made in connection with its sale.
4.19 INSURANCE. Schedule 4.19 discloses all insurance policies with
respect to which the Company is the owner, insured or beneficiary or under which
any assets of the Company are insured. Except as otherwise disclosed in Schedule
4.19, there is no claim pending under any of the Company's policies as to which
coverage has been questioned, denied or disputed.
4.20 INTELLECTUAL PROPERTY RIGHTS. Schedule 4.20 discloses all of
the trademark and service mark rights, applications and registrations, trade
names, fictitious names, service marks, logos and brand names, copyrights,
copyright applications, letters patent, patent applications and licenses of any
of the foregoing owned or used by the Company or any Seller in, or applicable
to, the Business. To the knowledge of the Sellers and the Company, the Company
has the entire right, title and interest in and to, or has the exclusive
perpetual royalty-free right to use, the intellectual property rights disclosed
on Schedule 4.20 and all other processes, know-how, show-how, formulae, trade
secrets, inventions, discoveries, improvements, blueprints, specifications,
drawings, designs, and other proprietary rights necessary or applicable to or
advisable for use in the Business ("INTELLECTUAL PROPERTY"), free and clear of
all Encumbrances other than the Liens of PNC Bank. Schedule 4.20 separately
discloses all Intellectual Property under license. To the knowledge of the
Sellers and the Company, the Intellectual Property is valid and not the subject
of any interference, opposition, reexamination or cancellation. To the knowledge
of Sellers or the Company, no Person is infringing upon nor has any Person
misappropriated any Intellectual Property and the Company is not infringing upon
the intellectual property rights of any other Person. The consummation of the
transactions contemplated hereunder will not alter or impair
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the Company's rights, or after the Effective Time, the Surviving Corporation's
rights, to the Intellectual Property.
4.21 EMPLOYEE BENEFITS.
(A) BENEFIT PLANS; COMPANY PLANS. Schedule 4.21 discloses
all written and unwritten "employee benefit plans" within the meaning of Section
3(3) of ERISA, and any other written and unwritten profit sharing, pension,
savings, deferred compensation, fringe benefit, insurance, medical, medical
reimbursement, life, disability, accident, post-retirement health or welfare
benefit, stock option, stock purchase, sick pay, vacation, employment,
severance, termination or other plan, agreement, contract, policy, trust fund or
arrangement (each, a "BENEFIT PLAN"), whether or not funded and whether or not
terminated, (i) maintained or sponsored by the Company, or (ii) with respect to
which the Company (or Sellers with respect to the Company) has or may have
Liability or is obligated to contribute, or (iii) that otherwise covers any of
the current or former employees of the Company or their beneficiaries, or (iv)
as to which any current or former employees of the Company or their
beneficiaries participated or were entitled to participate or accrue or have
accrued any rights thereunder (each, a "COMPANY PLAN"). No Company Plan covers
any employees of any member of the Company Group in any foreign country or
territory. With the exception of the requirements of Section 4980B of the Code,
no post-retirement benefits are provided under any Company Plan that is a
welfare benefit plan as described in ERISA Section 3(1).
(B) COMPANY GROUP MATTERS; FUNDING. Neither the Company
nor any corporation that may be aggregated with the Company under Sections
414(b), (c), (m) or (o) of the Code (the "COMPANY GROUP") has any obligation to
contribute to or any direct or indirect Liability under or with respect to any
Benefit Plan of the type described in Sections 4063 and 4064 of ERISA or Section
413(c) of the Code. The Company does not have any Liability, and after the
Effective Time the Surviving Corporation will not have any Liability (other than
obligations to pay benefits pursuant to the terms of the Benefit Plans) with
respect to any Benefit Plan of any other member of the Company Group, whether as
a result of delinquent contributions, distress terminations, fraudulent
transfers, failure to pay premiums to the PBGC, withdrawal Liability or
otherwise. No accumulated funding deficiency (as defined in Section 302 of ERISA
and Section 412 of the Code) exists nor has any funding waiver from the IRS been
received or requested with respect to any Company Plan or any Benefit Plan of
any member of the Company Group, and no excise or other Tax is due or owing
because of any failure to comply with the minimum funding standards of the Code
or ERISA with respect to any of such plans. No Company Plan covers any employees
of any member of the Company Group in any foreign country or territory.
(C) COMPLIANCE. Each of the Company Plans and all related
trusts, insurance contracts and funds have been created, maintained, funded and
administered in all respects in compliance with all applicable Laws and in
compliance with the plan document, trust agreement, insurance policy or other
writing creating the same or applicable thereto. No Company Plan is or is
proposed to be under audit or investigation, and no completed audit of any
Company Plan has resulted in the imposition of any Tax, fine or penalty.
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(D) QUALIFIED PLANS. Schedule 4.21 discloses each Company
Plan that purports to be a qualified plan under Section 401(a) of the Code and
exempt from United States federal income tax under Section 501(a) of the Code (a
"QUALIFIED PLAN"). Except as set forth in Schedule 4.21, with respect to each
Qualified Plan, a determination letter (or opinion or notification letter, if
applicable) has been received from the IRS that such plan is qualified under
Section 401(a) of the Code and exempt from federal income tax under Section
501(a) of the Code. No Qualified Plan has been amended since the date of the
most recent such letter. No member of the Company Group, nor any fiduciary of
any Qualified Plan, nor any agent of any of the foregoing, has done or failed to
do anything that would adversely affect the qualified status of a Qualified Plan
or the qualified status of any related trust.
(E) NO DEFINED BENEFIT PLANS. No Company Plan is a
defined benefit plan within the meaning of Section 3(35) of ERISA (a "DEFINED
BENEFIT PLAN"). No Defined Benefit Plan sponsored or maintained by any member of
the Company Group has been terminated or partially terminated after September 1,
1974, except as set forth on Schedule 4.21. Each Defined Benefit Plan identified
as terminated on Schedule 4.21 has met the requirement for standard termination
of single-employer plans contained in Section 4041(b) of ERISA. During the five
(5) year period ending at the Effective Time, no member of the Company Group has
transferred, in whole or in part, a Defined Benefit Plan to a corporation that
was not, at the time of transfer, related to the transferor in any manner
described in Sections 414(b), (c), (m) or (o) of the Code.
(F) MULTIEMPLOYER PLANS. No Company Plan is a
multiemployer plan within the meaning of Section 3(37) or Section 4001(a)(3) of
ERISA (a "MULTIEMPLOYER PLAN"). No member of the Company Group has withdrawn
from any Multiemployer Plan or incurred any withdrawal Liability to or under any
Multiemployer Plan.
(G) PROHIBITED TRANSACTIONS; FIDUCIARY DUTIES;
POST-RETIREMENT BENEFITS. No prohibited transaction (within the meaning of
Section 406 of ERISA and Section 4975 of the Code) with respect to any Company
Plan exists or has occurred that could subject the Company to any Liability or
Tax under Part 5 of Title I of ERISA or Section 4975 of the Code. No member of
the Company Group, nor, to the best of knowledge, any administrator or fiduciary
of any Company Plan, nor, to the best of knowledge, any agent of any of the
foregoing, has engaged in any transaction or acted or failed to act in a manner
that will subject the Company to any Liability for a breach of fiduciary or
other duty under ERISA or any other applicable Law. With the exception of the
requirements of Section 4980B of the Code, no post-retirement benefits are
provided under any Company Plan that is a welfare benefit plan as described in
ERISA Section 3(1).
4.22 ENVIRONMENTAL MATTERS.
(A) COMPLIANCE; NO LIABILITY. The Company has operated
the Business and each parcel of Real Property, and any real property previously
owned, used or leased by the Company, in compliance with all applicable
Environmental Laws.
(B) NOTICES; EXISTING CLAIMS; CERTAIN REGULATED
MATERIALS; STORAGE TANKS. Neither the Company nor any Seller has received any
request for information, notice of claim, demand or other notification that it
or he is or may be potentially responsible with respect
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to any investigation, abatement or cleanup of any threatened or actual release
of any Regulated Material. Neither the Company nor any Seller is required to
place any notice or restriction relating to the presence of any Regulated
Material at any Real Property or in any deed to any Real Property. The Company
has provided to Buyer a list of all sites to which the Company has transported
any Regulated Material for recycling, treatment, disposal, handling or
otherwise. There has been no past, and there is no pending or contemplated,
claim by or against the Company or any Seller under any Environmental Law or
Laws based on actions of others that may have impacted on the Real Property, and
the Company has not entered into any agreement with any Person regarding any
Environmental Law, remedial action or other environmental Liability or expense.
All storage tanks located on the Real Property, whether underground or
aboveground, are disclosed on Schedule 4.22, and all such tanks and associated
piping are in sound condition, are not leaking and have not leaked.
4.23 CUSTOMER RELATIONS. Except as set forth on Schedule 4.23,
there exists no condition or state of facts or circumstances involving the
Company's customers, suppliers, distributors or sales representatives that the
Company or Sellers can reasonably foresee could adversely affect the Business
after the Effective Time.
4.24 FINDERS' FEES. Except as disclosed on Schedule 4.24, neither
Sellers or the Company nor any of the respective officers, directors or
employees or any of them has employed any broker or finder or incurred any
liability for any brokerage fee, commission or finders' fee in connection with
any of the transactions contemplated hereby or by any Other Agreement.
4.25 BANK ACCOUNTS. Schedule 4.25 lists all bank, money market,
savings and similar accounts and safe deposit boxes of the Company, specifying
the account numbers and the authorized signatories or persons having access to
such accounts or safe deposit boxes
4.26 MILLENNIUM COMPLIANCE.
(A) SCOPE OF COMPLIANCE. For purposes of this Agreement,
"Millennium Compliance" means that the Company's computer and other systems are
capable of the following functions before, during and/or after January 1, 2000:
(i) handling date information involving all and any dates
before, during and/or after January 1, 2000, including, without limitation,
accepting input, providing output and performing date calculations in whole or
in part;
(ii) operating accurately without interruption on and in
respect of any and all dates before, during and/or after January 1, 2000 and
without any change in performance;
(iii) responding to and processing two digit year input
without creating any ambiguity as to the century; and
(iv) storing and providing date input information without
creating any ambiguity as to the century.
(B) FACT OF COMPLIANCE. To the knowledge of Sellers and
the Company, the Company's computer and other systems are Millennium Compliant.
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(C) REMEDIAL WORK. To the knowledge of Sellers and the
Company, the Company's computer and other systems will not require any material
remedial work and/or material replacement to enable each of them to continue
functioning accurately after January 1, 2000 in the manner referred to in
subparagraph (a) above.
(D) TRANSMISSION OF INFORMATION. To the knowledge of
Sellers and the Company, the Company's computer and other systems, and each
element of them, process and transmit, and will continue to, materially process
and transmit, date information between each other (and any third parties'
computer and other systems with which they routinely communicate) in a way that
does not and will not create material inaccuracies, errors or problems after
January 1, 2000.
4.27 DISCLOSURE. None of the representations or warranties of
Sellers and the Company contained herein and none of the information contained
in the Schedules referred to in Article IV is false or misleading in any
material respect. All of such representations and warranties of Sellers and the
Company, disregarding all qualifications and exceptions contained therein
relating to materiality, are true and correct with only such exceptions as would
not in the aggregate reasonably be expected to have a material adverse effect on
the Business.
ARTICLE V
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLERS
To induce the Buyer to enter into this Agreement, each Seller hereby
represents and warrants to the Buyer, severally, as follows:
5.1 SECURITIES ACT COMPLIANCE. Such Seller acknowledges that none
of the shares of DTS Common Stock to be delivered to the Seller pursuant to this
Agreement will, at the time of delivery, be registered under the Securities Act
or any State Acts (collectively the "SECURITIES LAWS"). Such Seller represents
and warrants that he is acquiring the DTS Common Stock for investment, and not
with a view toward, or for resale in connection with, a distribution of DTS
Common Stock. Such Seller acknowledges that DTS Common Stock may be sold,
pledged, hypothecated, disposed of, or otherwise transferred or distributed only
(i) pursuant to an effective registration statement covering the DTS Common
Stock under the Securities Laws, or (ii) pursuant to an exemption from the
registration requirements of the Securities Laws.
5.2 ACCESS TO INFORMATION. Such Seller has had access to the books
and records of DTS and has otherwise had access to sufficient information about
DTS upon which to analyze the transactions contemplated by this Agreement. Such
Seller has been given the opportunity to ask questions and receive answers from
the officers of DTS concerning the terms and conditions of the transactions
contemplated by this Agreement and the business and financial condition of DTS.
Such Seller has had the opportunity to obtain any additional information he
deems necessary to verify the accuracy and completeness of information provided
by DTS in connection with this Agreement and the transactions contemplated
hereby.
5.3 EXPERIENCE; INVESTMENT. Such Seller has such knowledge and
experience in financial and business matters as to enable such Seller (a) to
utilize the information made available to such Seller in connection with the
transactions contemplated by this Agreement, (b)
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to evaluate the merits and risks associated with the acquisition of Merger
Consideration pursuant hereto, and (c) to make an informed decision with respect
thereto. Such Seller's business and financial experience is such that DTS could
reasonably assume such Seller has the capacity to protect its own interests in
connection with the offer, sale and issuance of the Merger Consideration. Such
Seller (i) is financially capable of bearing the risk of loss of any and all
consideration surrendered in exchange for the DTS Common Stock, and (ii)
acknowledges that an investment in the DTS Common Stock involves a high degree
of risk, including a possible total loss of investment, and that the Merger
Consideration may not be indicative of the future value of the securities.
Unless otherwise specified on Schedule 5.3, such Seller represents that because
of one or more of the following criteria, such Seller is an "accredited
investor" within the meaning of Regulation D promulgated by the Commission under
the Securities Act, by reason of: (i) the Seller is a natural person who has a
net worth or joint net worth with the Seller's spouse exceeding $1,000,000 at
the time of purchase; (ii) the Seller is a natural person who had an individual
income in excess of $200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in each of those years
and who reasonably expects to reach the same income level in the current year;
(iii) the Seller is a corporation, partnership or trust with total assets in
excess of $5,000,000; or (iv) all of the Seller's Sellers, partners or members,
as the case may be, are "accredited investors". Such Seller understands that the
officers, directors, attorneys and other advisors of DTS will rely upon the
representations and warranties made by such Seller in this Agreement in order to
establish any necessary exemption from the registration provisions of the
Securities Laws.
5.4 NO PRIOR CONVICTIONS. Such Seller has not been convicted of,
arrested for, or has any action pending for, a crime involving fraud,
embezzlement or theft or any similar crime.
5.5 TAX ADVICE. Such Seller has reviewed with his tax advisor the
United States federal, state, local and foreign tax consequences of an
investment in the DTS Common Stock and the transactions contemplated by this
Agreement. Such Seller is relying solely on such advisor and not on any
statements or representations of DTS or any of its or their agents, and
understands that he (and not DTS or any other person or entity) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
5.6 SELLERS' ADDITIONAL REPRESENTATIONS. To induce DTS and the
Buyer to enter into this Agreement, each Seller also represents and warrants to
the Buyer and DTS as follows:
(a) The Seller owns, of record and beneficially, valid
title to the number of Company Shares set opposite the name of such Seller in
Schedule 5.6, and such shares are free and clear of all Liens (as defined below)
and encumbrances. Other than the Company Shares owned by the Seller, the Seller
does not own, beneficially or of record, or have any right to acquire, now or in
the future, any shares of stock or other securities of any kind of the Company.
Except as otherwise disclosed in Schedule 5.6, the Seller has not granted nor is
the Seller bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements calling for the transfer, purchase, subscription or
issuance of any shares of capital stock of the Company or any securities
representing the right to purchase, subscribe or otherwise receive any shares of
such capital stock or any securities convertible into any such shares, and there
are no agreements or understandings with respect to voting any such shares. The
execution, delivery and
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performance of this Agreement by the Seller does not require the Authorization
of any third party or governmental agency or authority which has not been
obtained.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER AND DTS
As an inducement to Sellers and the Company to enter into this
Agreement and consummate the transactions contemplated hereby, Buyer and DTS
jointly and severally represent and warrant to Sellers and the Company, as of
the date of execution of this Agreement and again as of the Effective Time,
subject to the Schedules contained in the Buyer's Disclosure Letter delivered to
Sellers, as follows:
6.1 ORGANIZATION. Each of DTS and Buyer is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation, and has the corporate power and authority to own or lease its
properties, carry on its business, enter into this Agreement and the Other
Agreements to which it is or is to become a party and perform its obligations
hereunder and thereunder. Copies of the Articles of Incorporation and Bylaws of
DTS, as amended to date, have been delivered to Seller and the Company, and such
copies are correct and complete and in full force and effect.
6.2 AUTHORIZATION; ENFORCEABILITY. This Agreement has been duly
executed and delivered by and constitute the legal, valid and binding
obligations of Buyer and DTS enforceable against each in accordance with their
respective terms. Each Other Agreement to which Buyer or DTS is to become a
party pursuant to the provisions hereof, when executed and delivered by Buyer or
DTS, will constitute its legal, valid and binding obligation upon Buyer or DTS,
enforceable against it in accordance with the terms of such Other Agreement. All
actions contemplated by this Section and this Agreement have been duly and
validly authorized by all necessary proceedings by Buyer and DTS.
6.3 NO VIOLATION OF LAWS; CONSENTS. Except as otherwise set forth
in Schedule 6.3, neither the execution and delivery of this Agreement or any
Other Agreement to which Buyer or DTS is or is to become a party, the
consummation of the transactions contemplated hereby or thereby nor the
compliance with or fulfillment of the terms, conditions or provisions hereof or
thereof by Buyer or DTS, or any of them, will: (i) contravene any provision of
the Governing Documents of Buyer or DTS, (ii) violate any Law or any judgment or
order of any Governmental Body to which Buyer or DTS is subject or by which any
of the assets of either may be bound or affected; (iii) conflict with, result in
a breach of, constitute a default or an event of default (or an event that
might, with the passage of time or the giving of notice or both, constitute a
default or event of default) under any of the terms of, result in the
termination of, result in the loss of any right under, or give to any other
Person the right to cause such a termination of or loss under, any material
asset of Buyer or DTS, including any Permit, Intellectual Property, license,
franchise, indenture, mortgage or any other material contract, agreement or
instrument to which Buyer or DTS is a party or by which any of the assets of
Buyer or DTS may be bound or affected; (iv) result in the creation, maturation
or acceleration of any material Liability or obligation of Buyer or DTS (or give
to any other Person the right to cause such a creation, maturation or
acceleration); or (v) result in the creation or imposition of any Encumbrance
upon any of the shares of Buyer or DTS or any material asset of Buyer or DTS or
give to any other Person any
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interest or right therein. Except for filings with the Secretary of State of
Nevada in connection with the consummation of the Merger and filings in foreign
states of qualification, and except for approval of the transactions
contemplated hereby by the board of directors of Buyer and DTS, no consent,
approval or authorization of, or registration or filing with, any Person is
required in connection with the execution or delivery by Buyer or DTS of this
Agreement or any of the Other Agreements to which Buyer or DTS is or is to
become a party pursuant to the provisions hereof or in connection with the
consummation by Buyer or DTS of the transactions contemplated hereby or thereby.
6.4 NO PENDING LITIGATION OR PROCEEDINGS. Except as otherwise
disclosed in Schedule 6.4, no Litigation is pending or, to the knowledge of
Buyer or DTS, threatened against or affecting Buyer or its assets, in connection
with any of the transactions contemplated by this Agreement or any Other
Agreement to which Buyer is or is to become a party. There is presently no
outstanding judgment, decree or order of any Governmental Body against or
affecting Buyer or DTS or their assets in connection with the transactions
contemplated by this Agreement or any Other Agreement to which Buyer or DTS is
or is to become a party. Except as otherwise disclosed in Schedule 6.4, Buyer
and DTS do not have pending any Litigation against a third party.
6.5 CAPITALIZATION. The authorized capital stock of DTS consists
of (i) 15,000,000 shares of DTS Common Stock, $.01 par value, of which 4,646,221
were issued and outstanding as of December 31, 1999 and (ii) 3,000,000 shares of
Preferred Stock, $.01 par value, 1,314,333 of which were issued and outstanding.
On the Closing Date, all issued and outstanding shares of DTS Common Stock will
be duly authorized, validly issued, fully paid and nonassessable. The DTS Shares
to be issued to Sellers or placed into escrow pursuant to this Agreement will be
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, DTS' Certificate of Incorporation or
By-Laws or any agreement to which DTS is a party or is bound, and were not
issued in violation of the terms of any agreement or other understanding and
were issued in compliance with all applicable federal and state securities or
"blue sky" laws and regulations. The DTS Shares will be free and clear of any
and all Encumbrances. Except as otherwise disclosed in Schedule 6.5, DTS does
not have any commitment to issue or sell any shares of its capital stock or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire from it, any shares of its capital
stock, and no such securities or obligations evidencing any such rights are
outstanding.
6.6 FINDERS' FEES. Neither Buyer, DTS nor any of their officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fee, commission or finders' fee in connection with
any of the transactions contemplated hereby.
6.7 CONTINUATION OF COMPANY BUSINESS. It is the present intention
of DTS to continue at least one significant historic business line of the
Company or to use at least a significant portion of the Company's historic
business assets in a business, in each case, within the meaning of the United
States Treasury Regulation ss.1.368-1(d).
6.8 PUBLIC FILINGS. DTS has timely made all necessary filings
required to be made with the SEC since the date of its last quarterly filing on
Form 10-Q.
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6.9 NO MATERIAL ADVERSE CHANGE. Since the date of DTS' most recent
SEC filings, there has been no material adverse change in the business,
financial condition or results of operations of DTS that would require
disclosure to the SEC.
6.10 LEASE GUARANTEE. DTS hereby agrees to guarantee the payment
and performance of Telcor Communications, Inc. pursuant to that certain
Commercial Lease, dated September 1, 1998, between A. William Bennett, not
Individually, but solely as Trustee for, the Weller Irrevocable Trust No. 2, as
Landlord, and Telcor Communications, Inc., as Tenant, for certain premises known
as 3400 Rivergreen Court, Duluth, Georgia, with the guaranty in the form of
Exhibit C.
6.11 ACCESS, INFORMATION AND DOCUMENTS. DTS shall give Sellers,
Company, and Company's employees and representatives (including accountants,
actuaries, attorneys, environmental consultants and engineers) access during
normal business hours to all of the properties, books, Tax Returns, contracts,
commitments, records, officers, personnel and accountants (including independent
public accountants and their audit workpapers concerning its business) of its
business and shall furnish to the same all such documents and copies of
documents and all information with respect to the properties, Liabilities and
affairs of the business of DTS as the same may reasonably request.
ARTICLE VII
CERTAIN COVENANTS
7.1 CONDUCT OF BUSINESS PENDING CLOSING. From and after the date
hereof and until the Effective Time, unless Buyer shall otherwise consent in
writing, such consent not to be unreasonably withheld, the Company shall, and
Sellers shall cause the Company to, conduct the affairs of the Business as
follows:
(A) ORDINARY COURSE; COMPLIANCE. The Business shall be
conducted only in the ordinary course and consistent with past practice except
that the Company may terminate or revoke its Subchapter S election. Sellers and
the Company shall maintain the Business, its property, equipment and other
assets consistent with past practice and shall use its best efforts to comply in
a timely fashion with the provisions of all Contracts and Permits and all other
agreements and commitments. The Company and each of the Sellers shall use its
best efforts to keep the Business organization intact, keep available the
services of its present employees and preserve the goodwill of its suppliers,
customers and others having business relations with it. The Company shall
maintain in full force and effect its policies of insurance disclosed on
Schedule 4.19, subject only to variations required by the ordinary operations of
the Business, or else shall obtain, prior to the lapse of any such policy,
substantially similar coverage with insurers of recognized standing.
(B) TRANSACTIONS. Except as set forth on Schedule 7.1(b),
the Company shall not:
(i) amend any of its Governing Documents;
(ii) change its authorized or issued capital stock or
issue any Security Rights with respect to shares of its capital stock;
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(iii) enter into any contract or commitment the performance
of which may extend beyond the Effective Time, except those made in the ordinary
course of business, the terms of which are consistent with past practice;
(iv) enter into any employment or consulting contract or
arrangement that is not terminable at will and without penalty or continuing
obligation except, without consent, the Company may enter into an employment or
consulting contract or arrangement with a Person who shall serve as the national
sales manager of the Company, upon such terms other than the foregoing;
(v) fail to pay any Tax or any other Liability or charge
when due, other than Liabilities and Tax Liabilities contested in good faith by
appropriate proceedings;
(vi) incur any Liability other than current Liabilities
incurred in the ordinary and usual course of business or pay any Liability of
any kind other than current Liabilities and current maturities of long term
debt;
(vii) mortgage, pledge or otherwise encumber any property
or asset, except in the ordinary and usual course of the Business;
(viii) sell, lease, transfer or dispose of any of its
properties or assets, except in the ordinary course of business (other than
inventory) or as set forth on Schedule 7.1(b);
(ix) take any action that is reasonably likely to result
in the occurrence of any event described in Section 4.7;
(x) take any action or omit to take any action that will
cause a breach or termination of any Permit or Contract, other than termination
by fulfillment of the terms thereunder;
(xi) make, change or revoke any Tax election (except that
the Sellers and the Company may elect, without the consent of Buyer, to revoke
the Subchapter S election) or make any agreement or settlement with any taxing
authority;
(xii) increase any managerial employee's salary, wage,
benefits or bonus, or increase the number of employees of the Company; or
(xiii) enter into any agreement to do any of the things
described in clauses (i) through (xii).
7.2 ACCESS, INFORMATION AND DOCUMENTS. Sellers and the Company
shall give to Buyer and to Buyer's employees and representatives (including
accountants, actuaries, attorneys, environmental consultants and engineers)
access during normal business hours to all of the properties, books, Tax
Returns, contracts, commitments, records, officers, personnel and accountants
(including independent public accountants and their audit workpapers concerning
the Business) of the Business and shall furnish to Buyer all such documents and
copies of documents and all information with respect to the properties,
Liabilities and affairs of the Business as Buyer may reasonably request.
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7.3 CERTAIN TAX MATTERS.
(A) TAX RETURNS. The Sellers shall prepare and file all
Tax Returns of the Company (including any amendments thereto) with respect to
any taxable period ending at or prior to the Effective Time, and shall pay all
Taxes for which the Company is liable for any such period. The Company shall
make a distribution to the Sellers for income taxes owed with respect to income
of the Company in 2000 prior to the Closing while the Company was a Subchapter S
corporation. Buyer will cooperate with Sellers in the preparation and filing of
such Tax Returns and shall grant Sellers full access to any applicable records
and workpapers of the Company necessary for preparation of the Tax Returns. At
least thirty (30) days prior to the due date (including extensions) of any such
Return, the Return shall be delivered to Buyer and DTS for review, and the
Sellers shall thereafter cause such Return to be filed in a timely manner, as
prepared, unless Buyer or DTS shall deliver an opinion of its accounting or law
firm that there is not a reasonable basis for any position taken on such return.
If any disagreement concerning the position is not resolved between the parties
within thirty (30) days following the receipt of the return, Buyer and the
Representative shall promptly engage, on standard terms and conditions for a
matter of such nature, a nationally recognized firm of independent accountants
to resolve such dispute. The firm of independent accountants shall be proposed
in writing by Buyer to the Representative. In the absence of prompt agreement on
the identity of the independent accountants, the Atlanta, Georgia office of the
accounting firm of Crisp Hughes Evans, LLP, shall be engaged by the parties. The
engagement agreement with the independent accountants shall require the
independent accountants to make their determination with respect to the items in
dispute within ninety (90) days following the engagement and acceptance of the
same. Buyer and the Representative shall each pay one-half of the estimated fees
and expenses of such independent accountants at the time of acceptance of the
engagement. The resolution by the independent accountants of any dispute
concerning the disputed items shall be final, binding and conclusive upon the
parties and shall be the parties' sole and exclusive remedy regarding any
dispute under this Section. Except as otherwise permitted under Section 7.1(xi),
no new elections or any changes in current elections with respect to Taxes of
the Company or affecting the Company shall be made after the date of this
Agreement without the prior written consent of Buyer.
(B) SHORT PERIOD ELECTION. For purposes of this
Agreement, if, for any federal, state or local income tax purpose, a taxable
period of the Company does not terminate at the Effective Time, the Company
shall, to the extent permitted by applicable law, elect with the relevant taxing
authority to treat such taxable period for all purposes as a short taxable
period ending at the Effective Time, and such short taxable period shall be
treated as provided in subsection (a) above. In any case where applicable law
does not permit such election to be made, then, for purposes of this Agreement,
the taxable income of the Company for the entire taxable period shall be
allocated as agreed by Buyer and Sellers between the period prior to the
Effective Time and the remainder of the taxable period using an
interim-closing-of-the-books method. In no event shall taxable income arising
from events following the Effective Time be allocated to a period prior to the
Effective Time.
(C) CONTEST. The Sellers shall have the right, at their
own expense, to control any audit or determination by any authority, initiate
any claim for refund, amend any Return, or contest, resolve and defend against
any assessment, notice of deficiency or other adjustment or
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proposed adjustment of income Taxes for any period prior to the Effective Time;
provided, however, that the Sellers shall not agree to any assessment,
deficiency, settlement or other adjustment or proposed adjustment that would
have an adverse effect on the Business, the Surviving Corporation or Company
without written consent, which consent shall not be unreasonably withheld. DTS
or Buyer shall have the right to review any such Return of Company or to
otherwise participate in such contest, at its expense, for any such taxable
period.
(D) ASSISTANCE. After the Effective Time, Buyer and the
Sellers shall provide each other with such assistance as may be reasonably
requested in connection with the preparation of any income tax return, audit or
other examination by any taxing authority, or any judicial or administrative
proceeding relating to liability for Taxes of the Business. The party requesting
assistance hereunder shall reimburse the other party for reasonable
out-of-pocket expenses incurred in providing such assistance. No party shall
request an income tax audit of the Company.
(E) CARRYBACKS. If the Company is required to carry back
any item of loss, deduction or credit that arises in any taxable period ending
after the Effective Time to a Tax Return of Sellers for any taxable period
ending on or before the Effective Time, Buyer or the Company, as the case may
be, will be entitled to an amount equal to the refund or credit of Taxes
realized as a result thereof.
7.4 PUBLICITY. The Company and DTS are bound by a confidentiality
agreement signed by the parties prior to this Agreement, to which the Sellers
and Buyer, by their signatures below, hereby agree to become parties thereto in
all respects. All notices to third parties, press releases and other publicity
concerning the transactions contemplated by this Agreement and the Other
Agreements shall be jointly planned by Lance Weller, the Company, DTS, and
Buyer. Neither of the parties hereto shall act unilaterally in this regard,
except as may be required by law, or except that disclosure of this Agreement
may be made to an agent or advisor to a party to this Agreement. This Section
shall expire on the 10th day following the Effective Time.
7.5 FULFILLMENT OF AGREEMENTS. Each party hereto shall use its
best efforts to cause all of those conditions to the obligations of the other
under Article VIII that are not beyond its reasonable control to be satisfied on
or prior to the Effective Time and shall use its best efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
7.6 ASSISTANCE. Sellers and the Company shall cooperate with and
assist Buyer and DTS and their authorized representatives in order to provide,
to the extent reasonably requested by Buyer or DTS, an efficient transfer of the
Business and to avoid any undue interruption in the activities and operations of
the Business following the Effective Time.
7.7 SALARY; SEVERANCE AND TERMINATION PAYMENTS. Sellers agree to
pay, perform and discharge any and all severance payments and other Liabilities
with respect to employees of the Business that result from any written or oral
agreements of Sellers or the Company and that are triggered by the Merger
hereunder, and indemnify and hold harmless Buyer and its directors, officers and
Affiliates from and against any and all losses, Liabilities, damages, costs and
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expenses, including reasonable legal fees and disbursements, that any of the
aforesaid may suffer or incur by reason of or relating to any Liabilities
referred to in this Section 7.7. All salaries, wages and severance benefits, if
any, to be paid to officers, directors or employees of the Company shall have
been paid in full prior to the Closing, other than hourly wages, if any, payable
to the Company's employees in arrears in the ordinary course of business since
the most recently completed pay period (all of which shall be reflected on the
Closing Balance Sheet).
7.8 EMPLOYEES OF THE COMPANY. Except as contemplated by Section
7.1(b)(iv) or written employment agreements signed by Buyer on or before the
date hereof, the Surviving Corporation shall have the right, but not the
obligation, to continue to employ any or all of the employees of the Business
after the Effective Time.
7.9 COVENANT NOT TO COMPETE.
(A) RESTRICTION. From and after the Effective Time, no
Seller shall, directly or indirectly, own, manage, operate, join, control or
participate in the ownership, management, operation or control of, or be
connected as an officer, employee, stockholder, partner or otherwise with, any
entity conducting business under any name similar to the name of the Company,
Buyer or DTS (other than the Company, Buyer or DTS). For a period of two (2)
years from the Effective Time, no Seller shall, directly or indirectly, own,
manage, operate, join, control or participate in the ownership, management,
operation or control of, or be employed or otherwise connected as an officer,
employee, stockholder, partner or otherwise with, any business that at any
relevant time during such period directly or indirectly engages in the Business
in each of the states in the United States and worldwide. Ownership of not more
than 2% of the outstanding stock of any publicly traded company shall not be a
violation of this Section. Nothing contained herein shall prevent Lance Weller
from maintaining or expanding his interest in Protostar Wireless Solutions, LLC
("Protostar"), or from providing it with such counsel, advice, and other
assistance as may be beneficial to its smooth operation and growth in the
following business activities which the parties acknowledge do not compete,
directly or indirectly, with the Business of Company: (i) radio frequency
engineering services, (ii) cell tower site acquisition, design, and
construction, (iii) customer financing with respect to (i), (ii) and (iv), (iv)
cell tower maintenance, (v) project management with respect to (i), (ii), (iii)
and (iv) above, and (vi) equipment procurement with respect to (i), (ii), (iii)
and (iv) above. Buyer and DTS acknowledge that their interests are aligned with
those of Protostar by virtue of DTS' preferred vendor status with Protostar and
by virtue of the fact that DTS has an option from Lance Weller to acquire up to
a 10% interest in Protostar.
(B) NO INTERFERENCE WITH RESTRICTED CUSTOMERS. Each
Seller agrees that for a period of two (2) years from the Effective Time, he
will not, directly or indirectly, either:
(i) solicit, divert, take away or accept, or attempt to
solicit, divert, take away or accept, from DTS or the Surviving Corporation the
business of any Restricted Customer for any product or service of the Business
sold (or offered for sale or proposed in writing to be offered for sale) during
the 12-month period prior to the Effective Time; or
(ii) attempt or seek to cause any Restricted Customer to
refrain, in any respect, from acquiring from or through DTS or the Surviving
Corporation any product or service of the
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Business sold (or offered for sale or proposed in writing to be offered for
sale) during the 12-month period prior to the Effective Time.
(C) NO INTERFERENCE WITH EMPLOYEES. Each Seller agrees
that for a period of three (3) years from the Effective Time, he or she will
not, directly or indirectly, request or induce any employee of DTS, Buyer or the
Surviving Corporation to terminate his employment with DTS, Buyer or the
Surviving Corporation.
(D) ENFORCEMENT. The restrictive covenants contained in this
Section are independent of any other provisions of this Agreement, and the
existence of any claim that Sellers may allege against any other party to this
Agreement, whether based on this Agreement or otherwise, shall not prevent the
enforcement of this covenant. Sellers agree that the remedies of Buyer and DTS
at law for any breach or threat of breach by the Sellers of the provisions of
this Section will be inadequate and that Buyer and DTS shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this Section
and to enforce specifically the terms and provisions hereof, in addition to any
other remedy to which Buyer or DTS may be entitled at law or in equity. In the
event of litigation regarding these covenants not to compete, the prevailing
party in such litigation shall, in addition to any other remedies the prevailing
party may obtain in such litigation, be entitled to recover from the other party
its reasonable legal fees and out of pocket costs incurred in enforcing or
defending its rights hereunder. The length of time for which these covenants not
to compete shall be in force shall not include any period of violation or any
other period required for litigation during which Buyer or DTS seeks to enforce
these covenants, if Buyer or DTS is the prevailing party in such litigation.
Should any provision of this Section be adjudged to any extent invalid by any
competent tribunal, such provision shall be deemed modified to the extent
necessary to make it enforceable.
7.10 INDEBTEDNESS TO SELLERS. Except as set forth on Schedule 7.10,
all loans or other obligations due to or from Sellers in connection with the
Business shall be repaid in full, or canceled, prior to or at the Effective
Time.
7.11 MEETING OF COMPANY SHAREHOLDERS. The Company covenants and
agrees, and the Sellers shall ensure, that the Company's Board of Directors
shall (i) cause a Company shareholders meeting to be duly called and held in
accordance with the Company's articles of incorporation, its bylaws and
applicable law as soon as reasonably practicable to consider and vote upon this
Agreement; (ii) recommend approval of this Agreement to the holders of the
Company Shares; and (iii) use its best efforts to cause such meeting to take
place and to obtain the approval by the holders of the Company Shares of the
Merger and other transactions contemplated by this Agreement in accordance with
its Articles of Incorporation, Bylaws, and the NBCA.
7.12 SELLER LETTERS. Each Seller shall deliver to Buyer prior to
the Effective Time a written agreement (a "SELLER LETTER"), substantially in the
form of Exhibit D hereto. Buyer shall not be required to deliver any
certificates evidencing DTS Shares to any Seller from whom a Seller Letter has
not been received.
7.13 NO SOLICITATION. Until such time, if any, as this Agreement is
terminated pursuant to Article VIII, or by mutual agreement, Sellers will not,
and will cause the Company and each
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of its representatives not to, directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any nonpublic information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Buyer or DTS) relating to
any transactions involving the sale of the Business, assets (other than in the
ordinary course of business), or any of the capital stock of the Company or any
merger, consolidation, business combination, or similar transaction involving
the Company.
7.14 TERMINATION OF SHAREHOLDERS AGREEMENTS. Each Seller agrees
that prior to Closing, any existing shareholders agreements between such Seller
and the Company or among all of the shareholders of the Company and the Company
shall be terminated and no longer of any force or effect and unconditionally and
irrevocably forever releases and discharges the Company, its subsidiaries and
assigns from all obligations and liabilities of the Company to such Seller and
any claims or causes of action against the Company relating to such agreements
or arising therefrom.
ARTICLE VIII
CONDITIONS TO CLOSING; TERMINATION
8.1 CONDITIONS PRECEDENT TO OBLIGATION OF BUYER. The obligation of
Buyer and DTS to proceed with the Merger under this Agreement is subject to the
fulfillment prior to or at the Effective Time of the following conditions, any
one or more of which may be waived in whole or in part by Buyer and DTS at the
sole option of such parties:
(A) BRINGDOWN OF REPRESENTATIONS AND WARRANTIES;
COVENANTS. Each of the representations and warranties of the Sellers and the
Company contained in this Agreement that are qualified as to materiality shall
be true and correct, and all such representations and warranties that are not
qualified as to materiality shall be true and correct in all material respects
on and as of the Effective Time, with the same force and effect as though such
representations and warranties had been made on, as of and with reference to the
Effective Time. Each of Sellers and the Company shall have performed in all
material respects all of the covenants and complied with all of the provisions
required by this Agreement to be performed or complied with by them at or before
the Effective Time. Subject to the rights of Sellers under Section 8.7, in the
event this condition to closing has not been met by Sellers and the Company
before the Closing Date, and the underlying breach did not arise from a
representation or warranty made with actual knowledge that it contained an
untrue statement of fact or from a covenant which was knowingly breached, then
in such events, Buyer and DTS shall have the right either (i) to terminate this
Agreement, but, upon such termination, no break up fees will be owed by any
party; or (ii) proceed to Closing with any such breach handled pursuant to the
indemnification provisions set forth in Section 9.2. Conversely, in the event
this condition to closing has not bee met by Sellers and the Company before the
Closing Date and the underlying breach did arise from a representation or
warranty made with actual knowledge that it contained an untrue statement of
fact or from a covenant which was knowingly breached, then in such events, Buyer
and DTS shall have the right to terminate this Agreement, and, upon termination,
Sellers and the Company shall be jointly and severally liable to DTS and Buyer
for a break-up fee of Two Hundred Fifty Thousand Dollars ($250,000).
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(B) LITIGATION. No statute, regulation or order of any
Governmental Body shall be in effect that restrains or prohibits the
transactions contemplated hereby or that would limit or adversely affect the
Surviving Corporation's ownership of the Business, and there shall not have been
threatened, nor shall there be pending, any action or proceeding by or before
any Governmental Body challenging the lawfulness of or seeking to prevent or
delay any of the transactions contemplated by this Agreement or any of the Other
Agreements or seeking monetary or other relief by reason of the consummation of
any of such transactions. In the event this condition to closing has not been
met before the Closing Date, Buyer and DTS shall have the right to terminate
this Agreement, but upon such termination no break-up fees will be owed by any
party.
(C) NO MATERIAL ADVERSE CHANGE. Between the date hereof
and the Effective Time, there shall have been no material adverse change,
regardless of insurance coverage therefor, in the Business or any of the assets,
results of operations, Liabilities, or condition, financial or otherwise, of the
Company. In the event this condition to closing has not been met before the
Closing Date, Buyer and DTS shall have the right to terminate this Agreement,
but upon such termination no break-up fees will be owed by any party.
(D) CLOSING CERTIFICATE; CLOSING DOCUMENTS. Sellers and
the Company shall have delivered a certificate, dated the Closing Date, in such
reasonable detail as Buyer shall request, certifying to the fulfillment of the
conditions set forth in subparagraph (a) of this Section 8.1. Such certificate
shall constitute a representation and warranty of Sellers and the Company,
specified herein with regard to the matters therein for purposes of this
Agreement. Buyer shall have received the other documents referred to in Section
8.3. All agreements, certificates, opinions and other documents delivered by
Sellers or the Company to Buyer hereunder shall be, unless specified herein by
exhibit, in form and substance reasonably satisfactory to counsel for Buyer, in
the exercise of such counsel's reasonable professional judgment. In the event
this condition to closing has not been met by Sellers and the Company before the
Closing Date, Buyer and DTS shall have the right to terminate this Agreement
and, upon termination, Sellers and the Company shall be jointly and severally
liable to DTS for a break-up fee of Two Hundred Fifty Thousand Dollars
($250,000).
(E) PRIVATE PLACEMENT. Buyer shall be satisfied that
there shall be a valid private placement of the DTS Shares included in the
Purchase Price and to be delivered pursuant to Article III hereof under the
Securities Act and any applicable state securities laws, including receipt, if
applicable, of representations or questionnaires, or both, from the Sellers to
the effect that he or it is an accredited investor under the Securities Act and
has such knowledge and experience in financial and business matters as would
permit him to be capable of evaluating the merits and risks of an investment in
the DTS Shares.
(F) ESTOPPEL CERTIFICATES. Buyer shall have received
estoppel certificates from each lessor of a leasehold estate included in the
Business, in substantially the form of Exhibit E. In the event this condition to
closing has not been met before the Closing Date, Buyer and DTS shall have the
right to terminate this Agreement, but upon such termination no break-up fees
will be owed by any party unless such failure to meet this condition was caused
by the actions of an Affiliate.
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(G) CONSENTS. Sellers or the Company shall have received
the consents, approvals and actions of the Persons referred to in Section 4.4.
In the event this condition to closing has not been met by Sellers and the
Company before the Closing Date, Buyer and DTS shall have the right to terminate
this Agreement but, upon such termination, no break-up fees will be owed by any
party unless such failure to meet this condition was caused by the actions of an
Affiliate.
(H) HSR FILINGS. The parties hereto shall have made all
required filings under the HSR Act and the waiting period thereunder shall have
expired or been terminated. In the event this condition to closing has not been
met by Sellers and the Company before the Closing Date, Buyer and DTS shall have
the right to terminate this Agreement but, upon such termination, no break-up
fees will be owed by any party unless such failure to meet this condition was
caused by the actions of an Affiliate.
(I) SATISFACTION OF HONG KONG OBLIGATIONS. Sellers and
Buyer shall have reached an agreement on terms for satisfaction of the Hong Kong
obligations of the Company. In the event this condition to closing has not been
met by Sellers and the Company before the Closing Date, Buyer and DTS shall have
the right to terminate this Agreement but, upon such termination, no break-up
fees will be owed by any party unless such failure to meet this condition was
caused by the actions of an Affiliate.
(J) AUDIT OPINION. Sellers and the Company shall have
obtained and delivered to DTS and Buyer a clean audit opinion issued by a Big
Five independent accounting firm with respect to the Company's financial
statements for the period ending December 31, 1999. In the event this condition
to closing has not been met by Sellers and the Company before the Closing Date,
Buyer and DTS shall have the right to terminate this Agreement but, upon such
termination, no break-up fees will be owed by any party unless such failure to
meet this condition was caused by the actions of an Affiliate.
(K) JD EDWARDS SYSTEM. The Company shall have
successfully implemented, to wit, 90% on-line, the JD Edwards system. In the
event this condition to closing has not been met by Sellers and the Company
before the Closing Date, Buyer and DTS shall have the right to terminate this
Agreement but, upon such termination, no break-up fees will be owed by any party
unless such failure to meet this condition was caused by the actions of an
Affiliate.
(L) NON-MANAGED TRADE PAYABLES. The Company shall have
reduced the balance of the over 90 days past due non-managed trade accounts
payable to $1,500,000. In the event this condition to closing has not been met
by Sellers and the Company before the Closing Date, Buyer and DTS shall have the
right to terminate this Agreement but, upon such termination, no break-up fees
will be owed by any party unless such failure to meet this condition was caused
by the actions of an Affiliate.
(M) SELLER LETTERS. Each Seller shall have executed and
delivered to DTS a Seller Letter. In the event this condition to closing has not
been met by Sellers and the Company before the Closing Date, Buyer and DTS shall
have the right to terminate this Agreement but,
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upon such termination, no break-up fees will be owed by any party unless such
failure to meet this condition was caused by the actions of an Affiliate.
(N) DTS CONSENTS. DTS and Buyer shall have received on or
before March 10, 2000, from Wi-LAN, Inc. ("Wi-LAN") and delivered to Sellers the
following: (i) its duly authorized, written consent and approval to the
transactions contemplated by this Agreement and the Other Agreements; (ii) its
duly authorized, written waiver of its rights pursuant to Section 2.16 of that
certain 10.0% Subordinated Debenture (together, with any other debentures, the
"DEBENTURES") from DTS to Wi-LAN, Inc., due January 7, 2003 in the Principal
Amount $400,000, to declare default by reason of the foregoing; and (iii) its
duly authorized, written agreement, as a shareholder of DTS, to vote
unconditionally in favor of the transactions contemplated by this Agreement and
the Other Agreements. In the event this condition to closing has not been met
before the date set forth immediately above, the Agreement shall terminate and
no break-up fee will be owed by any party.
(O) BOARD POSITION. DTS and Buyer shall have received a
commitment from Wi-LAN that if at any time Wi-LAN's ownership of the common
stock of DTS falls below fifty percent of all shares outstanding on a fully
diluted basis, Wi-LAN shall relinquish its controlling position on the DTS Board
of Directors.
(P) COMPANY APPROVAL. The Board of Directors and
shareholders of the Company shall have approved the consummation of the Merger
and the other transactions contemplated by this Agreement and the Other
Agreements in accordance with applicable law. In the event this condition to
closing has not been met by Sellers and the Company before the Closing Date,
Buyer and DTS shall have the right to terminate this Agreement and, upon such
termination, Sellers and the Company shall be jointly and severally liable to
DTS for a break-up fee of Two-Hundred Fifty Thousand Dollars ($250,000).
(Q) EXCLUSIVE REMEDY. Immediately upon payment by a party
of the break-up fee of Two Hundred Fifty Thousand Dollars ($250,000) pursuant to
this Section 8.1 which is intended to cover costs and expenses incurred in
connection with the transactions contemplated herein, this Agreement will be
null and void, and the parties shall have no further rights or obligations
hereunder, except for any right or obligation under this Agreement which by its
own terms survives any termination of this Agreement. The parties hereto
acknowledge that it is difficult or impossible to estimate accurately the
damages that might be suffered upon default, and that the break-up fee is the
parties' best estimate of such damages. The break-up fee is intended not as a
penalty but as full liquidated damages pursuant to Official Code of Ga. Ann.
Section 13-6-7. Any break-up fee shall be paid within thirty (30) days after
notice of termination. Acceptance of the break-up fee shall be deemed a release
and waiver of any and all claims by DTS and Buyer and the Company against the
Sellers and the Company.
8.2 CONDITIONS PRECEDENT TO OBLIGATION OF SELLERS. The obligation
of Sellers and the Company to proceed with the Merger under this Agreement is
subject to the fulfillment prior to or at the Effective Time of the following
conditions, any one or more of which may be waived in whole or in part by
Sellers and the Company at sole option of such parties:
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(A) BRINGDOWN OF REPRESENTATIONS AND WARRANTIES;
COVENANTS. Each of the representations and warranties of Buyer contained in this
Agreement that are qualified as to materiality shall be true and correct, and
all such representations and warranties that are not qualified as to materiality
shall be true and correct in all material respects at and as of the Effective
Time, with the same force and effect as though such representations and
warranties had been made at, as of and with reference to the Effective Time.
Buyer and DTS shall have performed all of the covenants and complied in all
material respects with all of the provisions required by this Agreement to be
performed or complied with by them at or before the Effective Time. In the event
this condition to closing has not been met by Buyer and DTS before the Closing
Date, and the underlying breach did not arise from a representation or warranty
made with actual knowledge that it contained an untrue statement of fact or from
a covenant which was knowingly breached, then in such events, Sellers and the
Company shall have the right either (i) to terminate this Agreement, but, upon
such termination, no break-up fees will be owed by any party; or (ii) to proceed
to Closing with any such breach handled pursuant to the indemnification
provisions set forth in Section 9.3. Conversely, in the event this condition to
closing has not been met by Buyer and DTS before the Closing Date, and the
underlying breach did arise from a representation or warranty made with actual
knowledge that it contained an untrue statement of fact or from a covenant which
was knowingly breached, then in such events, Sellers and the Company shall have
the right to terminate this Agreement, and, upon termination, Buyer and DTS
shall be jointly and severally liable to Sellers and the Company for a break-up
fee of Two Hundred Fifty Thousand Dollars ($250,000).
(B) LITIGATION. No statute, regulation or order of any
Governmental Body shall be in effect that restrains or prohibits the
transactions contemplated hereby, and there shall not have been threatened, nor
shall there be pending, any action or proceeding (by Persons other than Sellers
for the Company) by or before any Governmental Body challenging the lawfulness
of or seeking to prevent or delay any of the transactions contemplated by this
Agreement or any of the Other Agreements or seeking monetary or other relief by
reason of the consummation of any of such transactions. In the event that this
condition to closing has not been met before the Closing Date, Sellers and the
Company shall have the right to terminate this Agreement, but upon such
termination no break-up fees will be owed by any party.
(C) CLOSING CERTIFICATE. Buyer and DTS shall have
delivered a certificate, dated the Closing Date, in such detail as Sellers and
the Company shall reasonably request, certifying to the fulfillment of the
conditions set forth in subparagraph (a) of this Section 8.2. Such certificate
shall constitute a representation and warranty of Buyer and DTS with regard to
the matters therein for purposes of this Agreement. Seller shall have received
the other documents referred to in Section 8.4. All agreements, certificates,
opinions and other documents delivered by Buyer or DTS to the Company and
Sellers hereunder shall be, unless specified herein by exhibit, in form and
substance satisfactory to counsel for Sellers, in the exercise of such counsel's
reasonable professional judgment. In the event this condition to closing has not
been met by Buyer and DTS before the Closing Date, the Company and the Sellers
shall have the right to terminate this Agreement and, upon termination, Buyer
and DTS shall be jointly and severally liable to Sellers and the Company for a
break-up fee of Two Hundred Fifty Thousand Dollars ($250,000).
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(D) CLOSING DOCUMENTS. Sellers and the Company shall also
have received the other documents referred to in Section 8.4. All agreements,
certificates, opinions and other documents delivered by Buyer to Sellers
hereunder shall be in form and substance satisfactory to counsel for Sellers, in
the exercise of such counsel's reasonable professional judgment. In the event
this condition to closing has not been met by Buyer and DTS before the Closing
Date, the Sellers and the Company shall have the right to terminate this
Agreement and, upon termination, Buyers and DTS shall be jointly and severally
liable to Sellers and the Company for a break-up fee of Two Hundred Fifty
Thousand Dollars ($250,000).
(E) BUYER AND DTS APPROVAL. The Board of Directors and
shareholders of Buyer and DTS shall have approved the consummation of the Merger
and the other transactions contemplated by this Agreement and the Other
Agreements in accordance with applicable Law. In the event this condition to
closing has not been met by Buyer and DTS before the Closing Date, the Sellers
and the Company shall have the right to terminate this Agreement and, upon
termination, Buyer and DTS shall be jointly and severally liable to Sellers and
the Company for a break-up fee of Two Hundred Fifty Thousand Dollars ($250,000).
(F) NO MATERIAL ADVERSE CHANGE. Between the date hereof
and the Effective Time, there shall have been no material adverse change,
regardless of insurance coverage therefor, in DTS' business, or any of the
assets, results of operations, Liabilities, or condition, financial or
otherwise, of DTS. In the event this condition to closing has not been met
before the Closing Date, the Sellers and the Company shall have the right to
terminate this Agreement, but upon such termination no break-up fees will be
owed by any party.
(G) DTS CONSENTS. DTS and Buyer shall have received on or
before March 10, 2000, from Wi-LAN, Inc. ("Wi-LAN") and delivered to Sellers the
following: (i) its duly authorized, written consent and approval to the
transactions contemplated by this Agreement and the Other Agreements; (ii) its
duly authorized, written waiver of its rights pursuant to Section 2.16 of that
certain 10.0% Subordinated Debenture (together, with any other debentures, the
"DEBENTURES") from DTS to Wi-LAN, Inc., due January 7, 2003 in the Principal
Amount $400,000, to declare default by reason of the foregoing; and (iii) its
duly authorized, written agreement, as a shareholder of DTS, to vote
unconditionally in favor of the transactions contemplated by this Agreement and
the Other Agreements. In the event this condition to closing has not been met
before the date set forth immediately above, the Agreement shall terminate and
no break-up fee will be owed by any party.
(H) BOARD POSITION. DTS and Buyer shall have received a
commitment from Wi-LAN that if at any time Wi-LAN's ownership of the common
stock of DTS falls below fifty percent of all shares outstanding on a fully
diluted basis, Wi-LAN shall relinquish its controlling position on the DTS Board
of Directors.
(I) HSR FILINGS. The parties hereto shall have made all
required filings under the HSR Act and the waiting period thereunder shall have
expired or been terminated.
(J) COMFORT LETTER. DTS and Buyer shall have obtained and
delivered to Sellers a written opinion from a reputable investment banker or
other financier, who DTS or Buyer intends to use at the time in conjunction with
this transaction, that, subject to certain
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reasonable assumptions, said person is highly confident or its substantial
equivalent that DTS or Buyer can raise no less than $10,000,000 by open market
sale or private placement of DTS shares by the Resolution Date. In the event
this condition to closing has not been met by Buyer and DTS before the Closing
Date, the Sellers and the Company shall have the right to terminate this
Agreement and, upon termination, Buyer and DTS shall be jointly and severally
liable to Sellers and the Company for a break-up fee of Two Hundred Fifty
Thousand Dollars ($250,000).
(K) EXCLUSIVE REMEDY. Immediately upon payment by a party
of the break-up fee of Two Hundred Fifty Thousand Dollars ($250,000) pursuant to
this Section 8.2 which is intended to cover costs and expenses incurred in
connection with the transactions contemplated herein, this Agreement will be
null and void, and the parties shall have no further rights or obligations
hereunder, except for any right or obligation under this Agreement which by its
own terms survives any termination of this Agreement. The parties hereto
acknowledge that it is difficult or impossible to estimate accurately the
damages that might be suffered upon default, and that the break-up fee is the
parties' best estimate of such damages. The break-up fee is intended not as a
penalty but as full liquidated damages pursuant to Official Code of Ga. Ann.
Section 13-6-7. Any break-up fee shall be paid within thirty (30) days after
notice of termination. Acceptance of the break-up fee shall be deemed a release
and waiver of any and all claims by Sellers and the Company against Buyer and
DTS.
8.3 DELIVERIES AT THE CLOSING BY SELLERS. Sellers and the Company
shall deliver or cause to be delivered to Buyer at the Closing:
(a) Certificates representing the Company Shares duly
endorsed in negotiable form or accompanied by stock powers duly executed by the
record holders thereof, in blank.
(b) Certificate of the appropriate public official to the
effect that the Company is a validly existing corporation in good standing in
its state of incorporation as of a date not more than ten (10) days prior to the
Effective Time.
(c) Incumbency and specimen signature certificate dated
the Closing Date, signed by the officers of the Company and certified by its
Secretary.
(d) True and correct copies of (i) the Governing
Documents (other than the bylaws) of the Company as of a date not more than ten
(10) days prior to the Effective Time, certified by the Secretary of State of
the state of incorporation of the Company and (ii) the bylaws of the Company as
of the Effective Time, certified by its Secretary.
(e) Certificate of the Secretary of the Company (i)
setting forth all resolutions of the Board of Directors and stockholders of the
Company, authorizing the execution and delivery of this Agreement and the
performance by the Company of the transactions contemplated hereby, and (ii) to
the effect that the Governing Documents of the Company, delivered pursuant to
Section 8.3(e) were in effect at the date of adoption of such resolutions, the
date of execution of this Agreement and the Effective Time.
(f) General releases executed by all officers and
directors of the Company and by each Seller releasing all Liability of the
Company to them and any claim that they or any
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of them may have against the Company (exclusive of pension obligations) and
except for rights of contribution and indemnification from claims by third
parties.
(g) The minute books, stock ledgers and corporate seal of
the Company.
(h) The opinion of Schweber, Izenson & Anderson, LLP,
legal counsel to Sellers and the Company, in substantially the form of Exhibit
F.
(i) Resignations of the officers and directors of the
Company effective at the Effective Time, other than Lance Weller who shall be
appointed President of the Buyer on the same date.
(j) Seller Letters, duly executed and delivered by each
of the Sellers.
(k) Nevada Articles of Merger.
(l) Accredited Investor Certificate, duly executed and
delivered by each Seller or a letter from an Investment Advisor as described in
Section 8.6.
(m) Employment Agreement for Lance Weller, executed by
Lance Weller and in the form of Exhibit G.
(n) Protostar Option Agreement, executed by Protostar
Wireless Solutions, LLC and providing for an option of 10%, with the term of the
option being one year from the Closing Date, and upon such other terms as are
agreed to by the parties.
(o) Such other agreements and documents as counsel for
Buyer may request, in the exercise of such counsel's reasonable professional
judgment, and that are customary in this type of transaction.
8.4 DELIVERIES AT THE CLOSING BY BUYER AND DTS. Buyer and DTS
shall deliver or cause to be delivered to Sellers at the Closing:
(a) The Merger Consideration.
(b) Certificates of the appropriate public officials to
the effect that each of Buyer and DTS is a validly existing corporation in its
jurisdiction of incorporation as of a date not more than ten (10) days prior to
the Effective Time.
(c) Certificate of the Secretary or Assistant Secretary
of Buyer (A) setting forth all resolutions of the Board of Directors and
shareholders of the Company authorizing the execution and delivery of this
Agreement and the performance by the Company of the transactions contemplated
hereby, certified by the Secretary of the Company.
(d) Subject to Section 9.8, the delivery to the Sellers,
pro rata, of the DTS Shares.
(e) Nevada Articles of Merger.
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(f) Employment Agreement for Lance Weller, executed by
DTS and in the form of Exhibit G.
(g) Protostar Option Agreement, executed by DTS and
providing for an option of 10%, with the term of the option being one year from
the Closing Date, and upon such terms as are agreed to by the parties.
(h) Such other agreements and documents as Sellers may
reasonably request.
8.5 TERMINATION.
(A) TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time by: (i) mutual consent of Buyer, DTS, Sellers
and the Company; (ii) Buyer, if any of the conditions specified in Section 8.1
hereof shall not have been fulfilled by the Closing Date, and shall not have
been waived by Buyer; (iii) Sellers, if any of the conditions specified in
Section 8.2 hereof shall not have been fulfilled by the Closing Date, and shall
not have been waived by Sellers.
(B) CASUALTY DAMAGE. Notwithstanding anything else herein
to the contrary, if prior to the Effective Time the Business (or any portion
thereof) is damaged by fire or any other cause, for which the reasonable
estimate of repair is more than One Million Dollars ($1,000,000) after netting
out applicable insurance payments, Buyer at its option, which may be exercised
by written notice given to Sellers within thirty (30) business days after
Buyer's receipt of notice of such loss, may declare this Agreement null and
void, or Buyer may close subject to reduction of the Purchase Price by the
amount of any applicable insurance deductible which shall be paid by DTS, Buyer
or the Surviving Corporation and assignment to DTS, Buyer or the Surviving
Corporation of the proceeds from any insurance carried by Sellers or the Company
covering such loss. If prior to the Effective Time the Business is damaged by
fire or any other cause, for which the reasonable estimate of the repair is less
than One Million Dollars ($1,000,000) after netting out applicable insurance
payments, such event shall not excuse Buyer from its obligations under this
Agreement, but the Purchase Price shall be reduced by the amount of such loss
plus the amount of the applicable insurance deductible paid by DTS minus the
amount of the proceeds from any insurance carried by Sellers or the Company,
with assignment to DTS, Buyer or the Surviving Corporation of the such proceeds.
8.6 INVESTMENT ADVISOR. In the event that Sellers are not
"accredited investors" or "qualified investors" pursuant to the Securities Act,
(a) Sellers, or any one or more of them, may select and retain an investment
advisor or representative of their choosing to assist them at such Sellers' sole
cost and expense or (b) Sellers may select an investment advisor or
representative provided by Buyer, with the fees and costs associated with the
employment of such investment advisor paid by Sellers.
8.7 AMENDMENT OF SCHEDULES. The Sellers may, from time to time on
or prior to the Closing, by notice in accordance with the terms of this
Agreement, supplement, amend or create any Schedule to reflect the status of the
Company as of such time. No such supplemental, amended or additional Schedule
shall be evidence, in and of itself, that the representations and warranties in
the corresponding section of this Agreement are no longer true and correct in
all
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material respects. It is specifically agreed that such Schedules may be amended
to add a material, as well as immaterial, item thereto. No such supplemental,
amended or additional schedule shall be deemed to cure any inaccuracy or breach
of any representation or warranty for purposes of Section 9.2, provided,
however, that any supplemental, amended or additional schedule related solely to
Sections 4.4, 4.6, 4.7, 4.12 and 4.13 which is not material and which is made
for the purpose of updating such schedules for changes in the ordinary course of
business and updating shall not be deemed to create any inaccuracy or breach of
such representation or warranty for purposes of Sections 8.1(a) and 9.2. If,
however, the changes reflected on such supplemental, amended or additional
Schedules are material, Buyer shall have the right within 10 days of receipt of
such Schedule to terminate this Agreement. If Buyer chooses not to terminate
this Agreement and the Closing occurs, any such supplement, amendment or
addition will be effective to cure and correct for all other purposes any breach
of any representation, warranty or covenant which would have existed if the
Seller had not made such supplement, amendment or addition, and all references
to any Schedule hereto which is supplemented or amended as provided in this
Section 8.7 shall for all purposes after the Closing be deemed to be a reference
to such Schedule as so supplemented or amended. In the event the Seller delivers
to the Purchaser any supplemental, amended or additional Schedule, the Purchaser
shall have the right to delay the Closing until a date that is not more than 5
business days after the date the Purchaser receives such supplemental, amended
or additional Schedules; provided, that if such 5 business day period would
extend the Closing Date beyond the date after which this Agreement may be
terminated by the Purchaser or the Seller pursuant to Section 8.5, the date in
Section 8.5 shall be deemed to be the business day following the expiration of
such 5 business day period provided in this Section 8.7.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
9.1 SURVIVAL OF REPRESENTATIONS. All representations, warranties
and agreements made by any party in this Agreement or pursuant hereto shall
survive the Effective Time, but all claims for damages made by virtue of such
representations, warranties and agreements shall be made under, and subject to
the limitations set forth in, this Article IX. The representations and
warranties set forth in Articles V and VI are cumulative, and any limitation or
qualification set forth in any one representation and warranty therein shall not
limit or qualify any other representation and warranty therein. After the
Effective Time, the Surviving Corporation shall have no liability to Sellers for
any breach of any representation or warranty made by Sellers or the Company to
Buyer in this Agreement, in any certificate or document furnished pursuant
hereto by Sellers or the Company or any Other Agreement to which Sellers or the
Company, or any of them, is or is to become a party.
9.2 INDEMNIFICATION BY SELLERS. Notwithstanding any term in this
Agreement to the contrary, in the event of Closing, Sellers shall indemnify,
defend, save and hold harmless Buyer and DTS and the officers, directors,
employees, agents and Affiliates of both (including, after the Effective Time,
the Surviving Corporation; collectively, "BUYER INDEMNITEES") from and against
all demands, claims, allegations, assertions, actions or causes of action,
assessments, losses, damages, deficiencies, liabilities, costs and expenses
(including reasonable legal fees, interest, penalties, and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing,
whether or not the underlying demands, claims, allegations, etc., of third
parties are
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meritorious; collectively, "BUYER DAMAGES") asserted against, imposed upon,
resulting to, required to be paid or incurred by, any Buyer Indemnitees,
directly or indirectly, in connection with, arising out of, which could result
in, or which would not have occurred but for
(a) a breach of any representation or warranty made by
Sellers or the Company in this Agreement, in any certificate or document
furnished by Sellers or the Company pursuant hereto or pursuant to any Other
Agreement to which Sellers or the Company, or any of them, is or is to become a
party,
(b) a breach or nonfulfillment of any covenant or
agreement made by Sellers or the Company in or pursuant to this Agreement or in
any Other Agreement to which Sellers or the Company, or any of them, is or is to
become a party,
(c) claims arising from that certain letter of intent
between the Company and Flagship Partners, Inc. disclosed on Schedule 4.24, and
(d) claims in excess of $160,000 due under that certain
agreement between the Company and Breckenridge Group, Inc. disclosed on Schedule
4.24.
9.3 INDEMNIFICATION BY BUYER AND DTS. Notwithstanding any term in
this Agreement to the contrary, in the event of Closing, Buyer and DTS shall
indemnify, defend, save and hold harmless Sellers and their agents,
representatives, successors and permitted assigns (collectively, "SELLER
INDEMNITEES") from and against any and all allegations, assertions, demands,
claims, actions or causes of action, assessments, losses, damages, deficiencies,
liabilities, costs and expenses (including reasonable legal fees, interest,
penalties, and all reasonable amounts paid in investigation, defense or
settlement of any of the foregoing, whether or not the underlying demands,
claims, allegations, etc., of third parties are meritorious; collectively,
"SELLER DAMAGES") asserted against, imposed upon, resulting to, required to be
paid by or incurred by any Seller Indemnitees, directly or indirectly, in
connection with, arising out of, which could result in, or which would not have
occurred but for, (i) a breach of any representation or warranty made by Buyer
in this Agreement or in any certificate or document furnished by Buyer pursuant
hereto or pursuant to any Other Agreement to which Buyer is a party and (ii) a
breach or nonfulfillment of any covenant or agreement made by Buyer in or
pursuant to this Agreement and in any Other Agreement to which Buyer is a party.
Buyer and DTS shall be responsible for the indemnification provided for herein
jointly and severally.
9.4 LIMITATION OF LIABILITY. Notwithstanding the foregoing, the
indemnification obligations of the parties pursuant to this Article IX shall be
subject to all of the following limitations:
(A) FLOOR. No indemnification shall be made under Section
9.2(a), Section 9.2(b) (but as to Section 9.2(b), only with respect to breaches
of Sections 7.1(b)) or Section 9.3 until Damages in the aggregate reach the sum
of One Hundred Thousand Dollars ($100,000), in which event the Indemnifying
Party shall indemnify to the full amount of such Damages in excess of such
amount, subject to Section 9.4(b) or as otherwise provided for hereinbelow.
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(B) CEILING. The aggregate indemnification made under
Section 9.2(a), Section 9.2(b) (but only with respect to breaches of Section
7.1) or Section 9.3 shall not exceed 75% of the Purchase Price received by
Sellers.
(C) TIME PERIOD. An Indemnifying Party shall be obligated
to indemnify an Indemnified Party by virtue of Section 9.2(a), Section 9.2(b)
(but only with respect to Section 7.1) or Section 9.3 only for those Damages as
to which the Indemnified Party has given the Indemnifying Party written notice
thereof within 12 months after the Effective Time; provided, however, that with
respect to any claim for Damages sustained by reason of (i) fraud, (ii) the
breach of any representation or warranty contained in Article IV herein if such
representation or warranty was made with actual knowledge that it contained an
untrue statement of fact, (iii) a breach of any representation or warranty
relating to those matters governed by Sections 4.1, 4.2, 4.3, 4.8, 4.11(b), 4.15
(as to title), 4.16 and 4.22 , (vi) the matters disclosed on Schedule 4.12,
Sellers' liability shall be limited only by applicable statutes of limitations.
(D) FRAUD; INTENTIONAL MISREPRESENTATION. The limitation
set forth in Sections 9.4(a) and (b) shall not apply to Damages arising out of
(i) fraud, (ii) the breach of any representation or warranty contained herein or
pursuant hereto if such representation or warranty was made with actual
knowledge that it contained an untrue statement of a fact, (iii) the breach by
the Company or the Sellers of the representations and warranties set out in
Sections 4.1, 4.2, 4.3, 4.8, 4.11(b), 4.15 (as to title), 4.16 and 4.22, or (vi)
the matters disclosed on Schedule 4.12.
9.5 NOTICE OF CLAIMS. If any Buyer Indemnitee or Seller Indemnitee
(an "INDEMNIFIED PARTY") believes that it has suffered or incurred or will
suffer or incur any Damages for which it is entitled to indemnification under
this Article IX, such Indemnified Party shall so notify the party or parties
from whom indemnification is being claimed (the "INDEMNIFYING PARTY") with
reasonable promptness and reasonable particularity in light of the circumstances
then existing. If any action at law or suit in equity is instituted by or
against a third party with respect to which any Indemnified Party intends to
claim any Damages, such Indemnified Party shall promptly notify the Indemnifying
Party of such action or suit. The failure of an Indemnified Party to give any
notice required by this Section shall not affect any of such party's rights
under this Article IX or otherwise except and to the extent that such failure is
actually prejudicial to the rights or obligations of the Indemnifying Party.
9.6 THIRD PARTY CLAIMS. The Indemnifying Party shall have the
right to conduct and control, through counsel of its choosing, the defense of
any third party claim, action or suit that it agrees in writing is subject to
indemnification pursuant to the terms of this Article IX, and the Indemnifying
Party may compromise or settle the same, provided that the Indemnifying Party
shall give the Indemnified Party advance notice of any proposed compromise or
settlement. The Indemnifying Party shall permit the Indemnified Party to
participate in the defense of any such action or suit through counsel chosen by
the Indemnified Party, provided that the fees and expenses of such counsel shall
be borne by the Indemnified Party. If the Indemnifying Party undertakes to
conduct and control the conduct and settlement of such action or suit, (i) the
Indemnifying Party shall not thereby permit to exist any Encumbrance upon any
asset of the Indemnified Party; (ii) the Indemnifying Party shall not consent to
any settlement that does not include as an unconditional term thereof the giving
of a complete release from liability with respect to such action or suit to the
Indemnified Party; and (iii) the Indemnifying Party shall not
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consent to any settlement for any amount greater than the total amount that
would be available to the Indemnified Party pursuant to a valid claim for
indemnification under the terms of this Agreement. To the extent the
Indemnifying Party does not agree in writing to conduct or control the conduct
and defense of any third party claim, action or suit within a reasonable period
of time following receipt of notice thereof or in any event within five (5) days
after receipt of such notice and the Indemnified Party defends against or
otherwise deals with such proceeding, the Indemnified Party may retain counsel
and control, defend against, negotiate, settle or otherwise deal with such
proceeding, claim or demand. The costs of the Indemnified Party in undertaking
such actions shall be included in the indemnification obligation of the
Indemnifying Party.
9.7 ESCROW. The Escrow Shares shall be held by DTS. The Escrow
Shares shall be maintained by DTS in trust for a period beginning at the
Effective Time and ending three months from the Effective Time as an escrow (the
"ESCROW") available to satisfy the indemnification rights of the Buyer
Indemnitees set forth in Section 8.2.
9.8 PAYMENT. Without limiting the obligations of Sellers
hereunder, all indemnification payments under this Article IX shall be made
first by distributions from Escrow as provided herein, and any indemnification
payments under this Article IX not covered by the Escrow shall be made promptly
in cash.
9.9 APPOINTMENT OF REPRESENTATIVE. Lance Weller has been appointed
by the Company and Sellers as their representative (the "REPRESENTATIVE") under
this Agreement and the escrow agreement, and in such capacity, the
Representative shall have the authority to take all actions and make the
decisions required to be made by the Company or the Sellers hereunder and
pursuant to the provisions of the escrow agreement.
9.10 NO CIRCULAR RECOVERY. Sellers shall not make any claim for
indemnification against the Surviving Corporation or any of its Affiliates by
reason of the fact that Sellers were controlling persons, directors, officers,
employees, agents or other representatives of the Company with respect to any
claim brought by Buyer or DTS against Sellers relating to this Agreement.
9.11 LIABILITY FOR INDEMNIFICATION. Notwithstanding any term in
this Article to the contrary, Lance Weller shall be solely responsible, to the
full amount of all Damages, for all indemnification obligations of the Sellers
with the exception of indemnification obligations relating to Margaret Weller's
representations and warranties pursuant to Article V.
ARTICLE X
MISCELLANEOUS
10.1 COSTS AND EXPENSES. Buyer, DTS and Sellers shall each pay
their respective expenses, brokers' fees and commissions, and the parties hereby
agree that the expenses of the Company incurred in connection with this
Agreement and the transactions contemplated hereby prior to the Effective Time,
including all accounting, legal and appraisal fees and settlement charges, shall
be paid by the Company up to a maximum amount of $275,000; provided, however,
that regular audit expenses in the ordinary course consistent with past practice
shall be paid by the Company without regard to the foregoing maximum amount.
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10.2 FURTHER ASSURANCES. Sellers shall, at any time and from time
to time at and after the Effective Time, upon request by Buyer and without
further consideration, take or cause to be taken such actions and execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
such instruments, documents, transfers, conveyances and assurances as may be
required or desirable for the better conveying, transferring, assigning,
delivering, assuring and confirming the assets of the Company.
10.3 NOTICES. All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given or made (i) the second business day after the date of mailing, if
delivered by registered or certified mail, postage prepaid; (ii) upon delivery,
if sent by hand delivery; (iii) upon delivery, if sent by prepaid courier, with
a record of receipt; or (iv) the next day after the date of dispatch, if sent by
cable, telegram, facsimile or telecopy (with a copy simultaneously sent by
registered or certified mail, postage prepaid, return receipt requested), to the
parties at the following addresses:
(a) if to Buyer or DTS (or after the Effective Time,
the Surviving Corporation), to:
Digital Transmission Systems, Inc.
3000 Northwoods Parkway
Building 330
Norcross, Georgia 30071
Attention: President
Telecopy: (770) 798-1325
with a required copy to
Sutherland Asbill & Brennan
999 Peachtree Street
Atlanta, Georgia 30309
Attention: Mark D. Wasserman
Telecopy: (404) 853-8806
(b) if to Sellers, to:
Telcor Communications, Inc.
Attention: Lance Weller
Attention: Margaret Weller
3400 Rivergreen Court
Duluth, Georgia 30096
Telecopy: (770) 622-2038
with a required copy to:
Schweber, Izenson & Anderson, LLP
Suite 275 Lenox Plaza
3384 Peachtree Road, N.E.
Atlanta, Georgia 30326-1106
Attention: Mark Izenson
Telecopy: (404) 812-5801
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Notices to the Company shall be addressed in care of Sellers before the
Effective Time and in care of Buyer after the Effective Time. Any party hereto
may change the address to which notice to it, or copies thereof, shall be
addressed, by giving notice thereof to the other parties hereto in conformity
with the foregoing.
10.4 CURRENCY. All currency references herein are to United States
dollars.
10.5 OFFSET; ASSIGNMENT; GOVERNING LAW. Buyer and DTS shall be
entitled to offset against or recoup from any amounts due to Sellers from Buyer
or DTS hereunder or under any Other Agreement any obligations of Sellers to
Buyer or DTS hereunder or under any Other Agreement. This Agreement and all the
rights and powers granted hereby shall bind and inure to the benefit of the
parties hereto and their respective permitted successors and assigns. This
Agreement and the rights, interests and obligations hereunder may not be
assigned by any party hereto without the prior written consent of the other
parties hereto, except that Buyer or DTS may make assignments to any Affiliate
provided that Buyer or DTS, as applicable, remains liable hereunder. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Georgia without regard to its conflict of law doctrines.
10.6 MEDIATION. Except as otherwise provided in Section 7.3(a), if
a dispute arises out of or relates to this Merger Agreement or any claimed
breach thereof, the parties agree to first attempt to resolve their dispute
through mediation by submitting their dispute to a mutually agreed upon
mediator. If the parties cannot agree upon selection of a mediator, the
mediation shall be administered by the American Arbitration Association ("AAA")
under its Commercial Mediation Rules. Unless the parties mutually agree
otherwise, the situs of the mediation shall be Atlanta, Georgia. Each party
shall bear its own expenses and an equal share of the expenses of the mediation.
The parties, their representatives, other participants, and the mediator shall
hold the existence, content and result of the mediation in confidence.
10.7 BINDING ARBITRATION. Except as otherwise provided in Section
7.3(a), if any dispute between the parties cannot be resolved by mediation, the
parties agree that such dispute shall be resolved by arbitration before a
mutually agreed upon arbitrator or arbitration panel. Such matter shall be
submitted to arbitration within thirty (30) days from the date that either
Sellers or Buyer declares that any matter in dispute cannot be amicably
resolved. The decision of the arbitrator or arbitrators shall be final and
binding on the parties. If the parties cannot agree upon selection of an
arbitrator or arbitrators, the arbitration shall be administered by the AAA
under its Commercial Arbitration Rules. The situs of the arbitration shall be
Atlanta, Georgia. Judgment on the arbitration award may be entered in any court
of competent jurisdiction and shall be paid within thirty (30) days. Each party
shall bear its own expenses and an equal share of the expenses of the
arbitration. The parties, their representatives, other participants, and the
arbitrator shall hold the existence, content and result of the arbitration in
confidence.
10.8 AMENDMENT AND WAIVER; CUMULATIVE EFFECT. To be effective, any
amendment or waiver under this Agreement must be in writing and signed by the
party against whom enforcement of the same is sought. Neither the failure of any
party hereto to exercise any right, power or remedy provided under this
Agreement or to insist upon compliance by any other party with its obligations
hereunder, nor any custom or practice of the parties at variance with the terms
hereof shall constitute a waiver by such party of its right to exercise any such
right, power
45
<PAGE> 83
or remedy or to demand such compliance. The rights and remedies of the parties
hereto are cumulative and not exclusive of the rights and remedies that such
parties otherwise might have now or hereafter, at law, in equity, by statute or
otherwise.
10.9 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the Schedules and Exhibits hereto set forth all of the promises, covenants,
agreements, conditions and undertakings between the parties hereto with respect
to the subject matter hereof, and supersede all prior or contemporaneous
agreements and understandings, negotiations, inducements or conditions, express
or implied, oral or written. This Agreement is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder, except
the provisions of Sections 9.2 and 9.3 relating to Buyer Indemnitees and Seller
Indemnitees.
10.10 SEVERABILITY. If any term or other provision of this Agreement
is held by a court of competent jurisdiction to be invalid, illegal or incapable
of being enforced under any rule of Law in any particular respect or under any
particular circumstances, such term or provision shall nevertheless remain in
full force and effect in all other respects and under all other circumstances,
and all other terms, conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the fullest
extent possible.
10.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall be deemed one and the same instrument.
10.12 EFFECT OF NON-PAYMENT. Time is of the essence with respect to
payment of the Merger Consideration required under this Agreement. If the Merger
Consideration is not paid in a timely fashion by Buyer or DTS pursuant to the
terms of this Agreement, then all post-termination obligations of Sellers under
this Merger Agreement, including without limitation all covenants not to
compete, shall be null and void.
46
<PAGE> 84
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SELLERS:
/s/
-------------------------------------------
Lance Weller
/s/
-------------------------------------------
Margaret Weller
DTS:
DIGITAL TRANSMISSION SYSTEMS, INC.
By: /s/
-------------------------------------------
Name: Andres C. Salazar
Title: Chief Executive Officer
BUYER:
ICT ACQUISITION CORP.
By: /s/
-------------------------------------------
Name: Andres C. Salazar
Title: President
<PAGE> 85
THE COMPANY:
TELCOR COMMUNICATIONS, INC.
By: /s/
-------------------------------------------
Name: Lance Weller
Title: President
<PAGE> 86
SCHEDULE 3.2
The Merger Consideration shall be $25 million payable as follows:
I. At Closing:
$2.5 million in immediately available funds payable by wire transfer
plus 338,983 shares of DTS Common Stock. For purposes of Section 9.7, the term
"Escrow Shares" shall refer strictly to the 338,983 shares of DTS Common Stock
referenced in the prior sentence.
II. 3 months following the Closing Date:
$20 million in DTS Common Stock or such amounts of cash described below
plus the Additional Merger Consideration, if any, earned pursuant to Schedule
3.4 as explained below:
DTS shall establish an escrow account (the "Resolution Escrow") with
SunTrust Bank in Atlanta.
Between the Closing the Date and the Resolution Date (3 months from the
Closing Date) DTS will use all commercially reasonable efforts to engage in an
equity offering designed to raise $20 million actual cash to be contributed to
the Resolution Escrow. However, upon completion of the open market sale or
private placement described in Section 8.2 of the Merger Agreement, at least $10
million of actual cash from the proceeds of said private placement shall be
contributed to the Resolution Escrow as an initial portion of said $20 million
escrow obligation.
Promptly following the Resolution Date, but in no event later than 5
days thereafter, Sellers shall receive all of the cash in the Resolution Escrow.
If that cash amount is less than $20 million, Sellers shall receive from DTS
shares of DTS common stock in an amount valued at 125% of the difference between
$20 million and the cash amount received from the Resolution Escrow. The price
per share of DTS stock used for this calculation shall be the Average Share
Price (defined in Schedule 3.4); however, the aggregate number of shares issued
to the Sellers under sections I and II of this Schedule 3.2 shall in no event
exceed 60% of the fully diluted stock of DTS outstanding at the Resolution Date
(computed after the issuance to Sellers).
All Resolution Escrow cash, if applicable, in excess of $20 million
that is not distributed as provided above or used to pay Additional Merger
Consideration as provided in Schedule 3.4, shall be returned to the DTS
treasury.
<PAGE> 87
Prior to the issuance of any additional shares, DTS shall grant Wi LAN
a right of first refusal to purchase such shares at the Average Share Price with
the proceeds to be used to satisfy the DTS obligation to the Sellers.
If at any time Wi LAN's ownership of DTS Common Stock falls below 50%
of all shares outstanding on a fully diluted basis, Wi Lan shall relinquish its
controlling position on the DTS Board.
All DTS stock issued to Sellers hereunder shall carry demand
registration rights and piggyback registration rights pursuant to the terms of a
Registration Rights Agreement to be entered into by and between DTS and Sellers.
<PAGE> 88
SCHEDULE 3.4
ADDITIONAL MERGER CONSIDERATION
Sellers shall receive Additional Merger Consideration up to a maximum of $6
million, as set forth below:
The Additional Merger Consideration to be received by the Sellers, if
any, shall equal the Potential Additional Merger Consideration
multiplied by a fraction, the denominator of which is 130 and the
numerator of which equals the number of points earned by the Sellers as
of the Resolution Date as set forth on the attached Exhibit X. The
Potential Additional Merger Consideration shall be equal to the amount,
if any, by which the Resolution Date Value of the DTS shares held in
the Escrow is greater than the Closing Date Value of the DTS Shares
held in the Escrow, up to a maximum of $6 million.*
- ------------------
* Closing Date Value equals the number of shares in the Escrow multiplied by
7.375 (closing market price on February 23, 2000). Resolution Date Value equals
the number of shares in the Escrow multiplied by the "Average Share Price" which
is defined as the average of the closing price for the DTS Shares as reported on
the OTC (or NASDAQ if applicable), weighted by trading volume for each of the
ten (10) consecutive trading days ending on the 5th day preceding the Resolution
Date (3 months from the Closing Date).
<PAGE> 89
EXHIBIT X
POINTS TO BE EARNED
<TABLE>
<CAPTION>
Required PTS Earned
Minimum PTS Earned Maximum for
Required Action or Result Action for Minimum Action Maximum
------------------------- -------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Current Ratio as of 5/31/00 1.20 12 1.35 15
Debt to Equity Ratio as of 5/31/00(1) 2.3 16 2.2 20
Total Current Debt as of 5/31/00(1) $16,500,000 20 $ 15,000,000 25
Trade A/P (non-managed) over 90 $ 500,000 20 $ 250,000 25
days as of 5/31/00
Successful JD Edwards 90% online 8 100% online 10
implementation as of 5/31/00
Net Sales: Jan-May 2000 (ytd) $16,960,000 16 $ 21,200,000 20
Reduction of Gross Inventory since $ 1,600,000 12 $ 2,000,000 15
1/31/00 and as of 5/31/00(2)
</TABLE>
For results between the Required Minimum Action and the Maximum Action, the
Points earned by the Sellers will be computed on a pro rata basis. For example,
if total current debt is reduced to $15,750,000, Sellers would receive 22.5
points.
- -----------------
(1) Not to include any additional, subordinated debt specifically incurred
to manage the Hong Kong liability.
(2) Without regard to receipt of Hong Kong Inventory.
<PAGE> 90
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
The undersigned hereby agree to amend that certain Agreement and Plan
of Merger (the "Agreement") dated as of the 29th day of February, 2000, by and
among DIGITAL TRANSMISSION SYSTEMS, INC., a Delaware corporation ("DTS"),
through its wholly-owned subsidiary, ICT ACQUISITION CORP., a Nevada corporation
("Buyer"), TELCOR COMMUNICATIONS, INC., a Nevada corporation (the "Company") and
Lance Weller and Margaret Weller, as follows:
Schedule 3.2 to the Agreement shall be deleted in its entirety and
replaced by the amended Schedule 3.2 attached as Exhibit A to this
amendment.
IN WITNESS WHEREOF, the parties hereto have executed this amendment as
of March 31, 2000.
SELLERS:
/s/ Lance Weller
/s/ Margaret Weller
DTS:
DIGITAL TRANSMISSION SYSTEMS, INC.
By: /s/ Andres C. Salazar
Chief Executive Officer
BUYER:
ICT ACQUISITION CORP.
By: /s/ Andres C. Salazar
President
<PAGE> 91
THE COMPANY:
TELCOR COMMUNICATIONS, INC.
By: /s/ Lance Weller
President
<PAGE> 92
SCHEDULE 3.2
The Merger Consideration shall be $25 million payable as follows:
I. At Closing:
$2.5 million in immediately available funds payable by wire transfer
plus 338,983 shares of DTS Common Stock. For purposes of Section 9.7, the term
"Escrow Shares" shall refer strictly to the 338,983 shares of DTS Common Stock
referenced in the prior sentence.
II. Following the Closing Date:
$20 million in DTS Common Stock or such amounts of cash described below
plus the Additional Merger Consideration, if any, earned pursuant to Schedule
3.4 as explained below:
DTS shall establish an escrow account (the "Resolution Escrow") with
SunTrust Bank in Atlanta.
Between the Closing Date and June 30, 2000 DTS will use all
commercially reasonable efforts to engage in an equity offering designed to
raise $10 million actual cash to be contributed to the Resolution Escrow which
$10 million would be, promptly paid to the Sellers on June 30, 2000 or promptly
thereafter upon receipt. For any offering after June 30, 2000, DTS shall pay to
the Sellers as much of the proceeds from such offering (up to the amount
remaining to be paid to the Sellers) as permitted or approved by the underwriter
or placement agent involved in such offering.
The "Resolution Date" shall be 7 months from the Closing Date. Promptly
following the Resolution Date, but in no event later than 5 days thereafter,
Sellers shall receive all of the cash in the Resolution Escrow. If that cash
amount (plus any cash distributed to Sellers from the Resolution Escrow or
otherwise prior to the Resolution Date) is less than $20 million, Sellers shall
receive from DTS shares of DTS common stock in an amount valued at 125% of the
difference between $20 million and the cash amount received from the Resolution
Escrow. The price per share of DTS stock used for this calculation shall be the
Average Share Price (defined in Schedule 3.4); however, the aggregate number of
shares issued to the Sellers under sections I and II of this Schedule 3.2 shall
in no event exceed 60% of the fully diluted stock of DTS outstanding at the
Resolution Date (computed after the issuance to Sellers).
All Resolution Escrow cash, if applicable, in excess of $20 million
that is not distributed as provided above or used to pay Additional Merger
Consideration as provided in Schedule 3.4, shall be returned to the DTS
treasury.
<PAGE> 93
Prior to the issuance of any additional shares, DTS shall grant Wi-LAN
a right of first refusal to purchase such shares at the Average Share Price with
the proceeds to be used to satisfy the DTS obligation to the Sellers.
If at any time Wi LAN's ownership of DTS Common Stock falls below 50%
of all shares outstanding on a fully diluted basis, Wi Lan shall relinquish its
controlling position on the DTS Board.
All DTS stock issued to Sellers hereunder shall carry demand
registration rights and piggyback registration rights pursuant to the terms of a
Registration Rights Agreement to be entered into by and between DTS and Sellers.
<PAGE> 94
SCHEDULE 3.4
ADDITIONAL MERGER CONSIDERATION
Sellers shall receive Additional Merger Consideration up to a maximum of $6
million, as set forth below:
The Additional Merger Consideration to be received by the Sellers, if
any, shall equal the Potential Additional Merger Consideration
multiplied by a fraction, the denominator of which is 130 and the
numerator of which equals the number of points earned by the Sellers as
of the Resolution Date as set forth on the attached Exhibit X. The
Potential Additional Merger Consideration shall be equal to the amount,
if any, by which the Resolution Date Value of the DTS shares held in
the Escrow is greater than the Closing Date Value of the DTS Shares
held in the Escrow, up to a maximum of $6 million.*
- ------------------
* Closing Date Value equals the number of shares in the Escrow multiplied by
7.375 (closing market price on February 23, 2000). Resolution Date Value equals
the number of shares in the Escrow multiplied by the "Average Share Price" which
is defined as the average of the closing price for the DTS Shares as reported on
the OTC (or NASDAQ if applicable), weighted by trading volume for each of the
ten (10) consecutive trading days ending on the 5th day preceding the Resolution
Date (7 months from the Closing Date).
<PAGE> 95
EXHIBIT X
POINTS TO BE EARNED
<TABLE>
<CAPTION>
Required PTS Earned
Minimum PTS Earned Maximum for
Required Action or Result Action for Minimum Action Maximum
------------------------- -------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Current Ratio as of 5/31/00 1.20 12 1.35 15
Debt to Equity Ratio as of 5/31/00(1) 2.3 16 2.2 20
Total Current Debt as of 5/31/00(1) $16,500,000 20 $15,000,000 25
Trade A/P (non-managed) over 90 $ 500,000 20 $ 250,000 25
days as of 5/31/00
Successful JD Edwards 90% online 8 100% online 10
implementation as of 5/31/00
Net Sales: Jan-May 2000 (ytd) $16,960,000 16 $21,200,000 20
Reduction of Gross Inventory since $ 1,600,000 12 $ 2,000,000 15
1/31/00 and as of 5/31/00(2)
</TABLE>
For results between the Required Minimum Action and the Maximum Action, the
Points earned by the Sellers will be computed on a pro rata basis. For example,
if total current debt is reduced to $15,750,000, Sellers would receive 22.5
points.
- ------------------
(1) Not to include any additional, subordinated debt specifically incurred
to manage the Hong Kong liability.
(1) Without regard to receipt of Hong Kong Inventory.
<PAGE> 96
SCHWEBER, IZENSON & ANDERSON, LLP
ATTORNEYS AT LAW
SUITE 275 LENOX PLAZA
3384 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326-1106
(404) 812-5800
FACSIMILE (404) 812-5801
March 31, 2000
BY HAND DELIVERY
Digital Transmission Systems, Inc.
Attention: Andy Salazar
Building 330 3000 Northwoods Parkway
Norcross, Georgia 30071
Re: Agreement and Plan of Merger by and among Digital Transmission
Systems, Inc., ICT Acquisition Corp., Telcor Communications,
Inc., and Lance Weller and Margaret Weller (collectively, the
"Sellers") dated February 29, 2000 (the "Agreement")
Ladies and Gentlemen:
We have acted as counsel to Telcor Communications, Inc., a Nevada
corporation, and its Subsidiaries, Telcor International, Inc., a Georgia
corporation, Tellogic Communications, Inc., a Georgia corporation, and
International Cryptologic Inc., a Delaware corporation (collectively, the
"Company") in connection with the preparation of that certain Agreement and Plan
of Merger (the "Agreement"), dated February 29, 2000, by and among Digital
Transmission Systems, Inc., a Delaware corporation, through its wholly-owned
subsidiary, ICT Acquisition Corp., a Nevada corporation, Telcor Communications,
Inc., and Lance Weller, an individual and resident of the State of Colorado, and
Margaret Weller, an individual and resident of the State of Georgia (each a
"Seller" and together, the "Sellers"), as well as the Other Agreements to which
the Sellers are parties.
This opinion letter is issued pursuant to the Agreement. This opinion
letter is limited by, and is in accordance with, the January 1, 1992 edition of
the Interpretive Standards applicable to Legal Opinions to Third Parties in
Corporate Transactions adopted by the Legal Opinion Committee of the Corporate
and Banking Law Section of the State Bar of Georgia, which Interpretative
Standards are incorporated in this opinion letter by this reference. Capitalized
terms used in this opinion letter and not otherwise defined herein shall have
the meanings assigned to such terms in the Interpretive Standards and the
Agreement, as applicable.
In the capacity described above, we have considered such matters of law
and of fact, including the examination of originals or copies, certified or
otherwise identified to our satisfaction, of such records and documents of the
Sellers, certificates of officers and
<PAGE> 97
representatives of the Sellers, certificates of public officials and such other
documents, as we have deemed appropriate as a basis for the opinions hereinafter
set forth.
Notwithstanding anything to the contrary contained below, the opinions
set forth herein are limited to the laws of the State of Georgia and applicable
federal laws. Furthermore, we give no opinion on as to whether the Agreement or
Other Agreements comply with applicable federal and state securities and "blue
sky" laws and regulations.
Based upon and in reliance of the foregoing, it is our opinion that:
1. Each of the Sellers has all requisite power and authority to execute
and deliver the Agreement and the Other Agreements and to perform his
or her obligations thereunder.
2. The Company is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation. The Company
has all requisite power and authority to own or lease its properties,
carry on the Business as now conducted, execute and deliver the
Agreement and the Other Agreements and perform its obligations
thereunder. The Merger Agreement has been duly adopted by the Board of
Directors of the Company and duly approved by the shareholders of the
Company under the NBCA.
3. The execution and delivery of the Agreement and the Other Agreements to
which either Seller or the Company, or any of them, is or is to become
a party, and the consummation of the transactions contemplated thereby,
have been duly and validly authorized by all requisite action on the
part of the Sellers and the Company, and are or will be when executed
and delivered by the Sellers or the Company, legal, valid and binding
obligations of such parties, enforceable against each such party in
accordance with their respective terms.
4. To our knowledge, there is no mortgage, pledge, lease, lien, security
interest, charge, title, retention or other security arrangement or any
other Encumbrance upon or affecting the Company Shares, except as
disclosed in, or set forth on, the Schedules attached to the Agreement
or any of the Other Agreements.
5. Except as may otherwise be disclosed in the Agreement or in any of the
Other Agreements, or the Schedules or Exhibits thereto, neither the
execution, delivery and performance by the Sellers and the Company of
the Agreement and the Other Agreements, the consummation of the
transactions contemplated thereunder, nor the compliance with or
fulfillment of the terms, conditions or provisions thereof by the
Sellers or the Company will result in a violation of (a) any of the
articles of incorporation or bylaws of the Company, (b) any applicable
Law to which the Company or its assets are subject or (c) any judgment,
order or decree of any Governmental Body of which we have knowledge,
or, result in a breach or termination of, constitute a default or an
event of default (or an event that might, with the passage of time or
the giving of notice or both, constitute a default or an event of
default) under the terms of any material written contract, agreement or
instrument (of which we have knowledge) to which the Sellers or the
Company is a party or by which any of the Company Shares may be bound
or affected, result, to our knowledge, in the creation, maturation or
acceleration of any Liability of the Sellers (relating to the Business)
or the Company, result, to our knowledge, in the creation or imposition
of any Encumbrance on the Company Shares or give to any other Person an
interest or right therein.
<PAGE> 98
6. The authorized capital stock of the Company consists of 25,000 shares
of voting common stock, $1.00 par value, and 5,000 shares of non-voting
common stock, $1.00 par value (collectively, the "Company Shares"), of
which 85 voting shares and 15 non-voting shares are duly authorized,
validly issued and outstanding, fully paid and non-assessable. Except
as otherwise provided in the Settlement Agreement and the articles of
incorporation (as amended) of the Company, all of the Company Shares
are free of preemptive rights, and were issued in compliance with all
applicable federal and state securities and/or "blue sky" laws and
regulations. The Company does not have any commitment to issue or sell
any shares of its capital stock or any securities or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire from it, any shares of its capital stock, and
no such securities or obligations evidencing any such rights are
outstanding. The registered owners of the issued and outstanding
Company Shares are as follows:
<TABLE>
<CAPTION>
Name Number of Shares Ownership Percentage
---- ---------------- --------------------
<S> <C> <C>
Lance Weller 85 voting shares 85%
Margaret Weller 15 non-voting shares 15%
</TABLE>
7. Except for any fillings related to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended and the regulations promulgated
thereunder, which may or may not be applicable here, we are unaware of
any consent, approval, or authorization of, or other action by, or
filing with, any third party that is required to be made or obtained by
the Sellers or the Company and no consent, approval, or authorization
of, or other action by, or filing with, any Governmental Body, arising
under the laws of any state or the United States of America, is
required to be made or obtained by the Sellers or the Company, in
connection with the execution and delivery of the Agreement or any of
the Other Agreements, or the consummation of the transactions
contemplated thereby, except as disclosed in or set forth on the
Schedules attached to the Agreement.
8. We are unaware of any action or proceeding against either of the
Sellers or the Company, pending or overtly threatened in writing,
before any court, governmental agency or arbitrator, which seeks to
affect the enforceability of the Agreement or any Other Agreement,
except to the extent described in Schedule 4.12, which comes within the
matters described in Section 4.12 of the Agreement.
9. The Merger was duly approved by the Board of Directors and shareholders
of the Company, by unanimous written consent, prescribed by the NBCA.
Upon the filing of the Nevada Certificate of Merger with the Secretary
of State of Nevada in accordance with the Agreement and the NBCA, the
Merger shall become effective in the State of Nevada pursuant to the
NBCA.
<PAGE> 99
This opinion letter is provided to you for your exclusive use solely in
connection with the Agreement and the Other Agreements and may not be relied
upon by any other person or for any other purpose without our prior written
consent.
Sincerely,
/s/ SCHWEBER, IZENSON & ANDERSON, LLP
<PAGE> 100
ARTICLES OF MERGER
OF
TELCOR COMMUNICATIONS, INC. (A NEVADA CORPORATION)
WITH AND INTO
ICT ACQUISITION CORP. (A NEVADA CORPORATION)
FIRST: The name of the surviving constituent entity is ICT Acquisition
Corp. (the "Surviving Entity"), and its jurisdiction of organization is Nevada.
The name of the constituent entity being merged into the surviving constituent
entity is Telcor Communications, Inc., and its jurisdiction of organization is
Nevada.
SECOND: A plan of merger was adopted by each constituent entity that is
a party to this merger.
THIRD: The plan of merger was approved by unanimous consent of the
owners of each constituent entity.
FOURTH: The complete executed plan of merger is on file at the place of
business of ICT Acquisition Corp. located at 3000 Northwoods Parkway, Bldg. 330,
Norcross, Georgia 30071 and a copy of the plan will be furnished by ICT
Acquisition Corp., on request and without cost, to any owner of any constituent
entity which is a party to this merger.
ICT ACQUISITION CORP.,
a Nevada corporation
By: /s/ Andres C. Salazar
President
By: /s/ Clive Marsh
Secretary
State of Georgia
County of Fulton
On March 31, 2000, personally appeared before me, a Notary Public,
Andres Salazar and Clive Marsh, who acknowledged that he executed the above
instrument.
/s/ Margaret T. James
Signature of Notary Public
[NOTARY STAMP OR SEAL]
<PAGE> 101
TELCOR COMMUNICATIONS, INC.
a Nevada corporation
By: /s/ Lance Weller
President
By: /s/ Penny Steinmetz
Assistant Secretary
State of Colorado
County of Eagle
On March 31, 2000, personally appeared before me, a Notary Public,
Lance Weller who acknowledged that he executed the above instrument.
/s/ Holli G. Shellhaas
Signature of Notary Public
[NOTARY STAMP OR SEAL]
<PAGE> 102
March 31, 2000
Digital Transmission Systems, Inc.
3000 Northwoods Parkway
Building 330
Norcross, Georgia 30071
Ladies and Gentlemen:
I have been advised that as of the date hereof, I may be deemed to be
an "affiliate" of Telcor Communications, Inc., a Nevada corporation (the
"Company"), as that term is defined for purposes of paragraphs (c) and (d) of
Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the U.S. Securities
Act of 1933 (the "Act").
Pursuant to the terms of the Agreement and Plan of Merger, dated as of
February 29, 2000 (the "Agreement"), by and among the Company, the shareholders
of the Company, ICT Acquisition Corp., a Nevada corporation ("Buyer"), and
Digital Transmission Systems, Inc., a Delaware corporation ("DTS"), providing
for the merger of the Company with and into Buyer (the "Merger"), and as a
result of the Merger, I shall receive shares of common stock of DTS, par value
$.01 per share (the "DTS Common Stock"), in exchange for the shares of the
common stock of the Company, $1.00 par value (the "Company Common Stock") owned
by me at the Effective Time of the Merger as determined pursuant to the
Agreement. As used herein, the term "DTS Common Stock" means and includes those
shares of DTS Common Stock issued to me as a result of the Merger.
I represent and warrant to Buyer and DTS that in such event:
A. I shall not make any sale, transfer or other
disposition of the DTS Common Stock in violation of the Act or the
Rules and Regulations.
B. I have carefully read this letter and the Agreement
and have discussed the requirements and other applicable limitations
upon my ability to sell, transfer or otherwise dispose of the DTS
Common Stock, to the extent I felt necessary, with my counsel or
counsel for the Company.
C. I have been advised that the issuance of the DTS
Common Stock to me pursuant to the Merger has not been registered with
the Commission under the Act. I have been advised that since I may be
deemed to be an affiliate of the Company immediately prior to the
Effective Time of the Merger, even if the DTS Common Stock is
subsequently registered with the Commission under the Act, the DTS
Common Stock must be held by me indefinitely unless (i) any
distribution by me of the DTS Common Stock has been registered under
the Act, (ii) a sale of the DTS Common Stock is made in conformity with
the volume and other limitations of Rule 145 promulgated by the
Commission under the Act, or (iii) in the opinion of counsel reasonably
acceptable to DTS, some other exemption from registration is available
with respect to any such proposed sale, transfer or other disposition
of the DTS Common Stock.
<PAGE> 103
D. I understand that DTS is under no obligation to
register the sale, transfer or other disposition of the DTS Common
Stock by me or on my behalf (except as provided in that certain
Registration Rights Agreement dated the date hereof) or to take any
other action necessary in order to make compliance with an exemption
from registration available.
E. I also understand that stop transfer instructions
will be given to DTS transfer agents with respect to the DTS Common
Stock and that there will be placed on the certificates for the DTS
Common Stock, or any substitutions therefor, a legend stating in
substance:
The shares represented by this certificate were
issued in a transaction to which Rule 145 promulgated
under the U.S. Securities Act of 1933 applies. The
shares represented by this certificate may only be
transferred in accordance with the terms of an
agreement dated March 31, 2000, between the
registered holder hereof and the Company, a copy of
which agreement is on file at the principal offices
of the Company.
F. Furthermore, I understand that unless the transfer by
me of my DTS Common Stock has been registered under the Act or a sale
is made in conformity with the provisions of Rule 145, DTS reserves the
right to put the following legend on the certificate(s) issued to my
transferee:
The shares represented by this certificate have not
been registered under the U.S. Securities Act of 1933
and were acquired from a person who received such
shares in a transaction to which Rule 145 promulgated
under the U.S. Securities Act of 1933 applies. The
shares have been acquired by the holder not with a
view to, or for resale in connection with, any
distribution of such shares, and such shares may not
be sold or otherwise transferred except in accordance
with an exemption from the registration requirements
of the U.S. Securities Act of 1933.
It is understood and agreed that the legends set forth in paragraphs E
and F above shall be removed by delivery of substitute certificates without such
legend if the undersigned shall have delivered to DTS a copy of a letter from
the staff of the Commission, or an opinion of counsel in form and substance
reasonably satisfactory to DTS, to the effect that such legend is not required
for purposes of the Act.
Very truly yours,
/s/ Lance Weller
Accepted this 31st day of March, 2000.
DIGITAL TRANSMISSION SYSTEMS, INC.
By: /s/ Andres C. Salazar
Chief Executive Officer
