UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
DIGITAL TRANSMISSION SYSTEMS, INC.
(Name of Issuer)
Common Stock, par value $.01 per share
(Title of Class of Securities)
25387N 10 9
(CUSIP Number)
Dr. Hatim Zaghloul
WI-LAN Inc.
Suite 300, 801 Manning Road N.E.
Calgary, Alberta T2E 8J8
Canada
Tel: (403) 273-9133
(Name, Address and Telephone Number of
Person Authorized to Receive Notices
and Communications)
with a copy to
William Maslechko
Burnet, Duckworth & Palmer
First Canadian Centre
Suite 1400, 350 Seventh Avenue, S.W.
Calgary, Alberta T2P 3N9
Canada
Tel: (403) 260-0100
January 7, 2000
(Date of Event which Requires Filing of
this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject to this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purposes of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes.)
Continued on the following page(s)
Page 1 of 17 Pages
Exhibit Index: Page 17
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CUSIP No. 25387N 10 9 Page 2 of 17 Pages
SCHEDULE 13D
1 NAME OF REPORTING PERSON
Wi-LAN Inc.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |_|
(b) |X|
3 SEC USE ONLY
4 SOURCE OF FUNDS*
WC, OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Province of Alberta, Canada
7 SOLE VOTING POWER
NUMBER OF 8,755,107
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
EACH
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 8,755,107
WITH
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,755,107
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
75%
14 TYPE OF REPORTING PERSON*
CO
* SEE INSTRUCTIONS BEFORE FILLING OUT
<PAGE>
CUSIP No. 25387N 10 9 Page 3 of 17 Pages
Item 1. Security and Issuer.
This Statement on Schedule 13D relates to the Common Stock, par value
$.01 per share (the "Common Stock"), of Digital Transmission Systems, Inc., a
Delaware corporation (the "Company"), whose principal executive office is
located at 3000 Northwoods Parkway, Building 330, Norcross, Georgia 30071.
Item 2. Identity and Background.
(a), (b), (c) and (f). This Statement on Schedule 13D is being filed by
Wi-LAN Inc., a corporation organized under the laws of the Province of Alberta,
Canada ("Wi-LAN"). The principal business of Wi-LAN is in the high-speed
wireless data communications industry, developing wireless technology and
designing wireless access points, wireless Ethernet bridges and wireless modems.
The address of the principal business and principal offices of Wi-LAN
is Suite 300, 801 Manning Road N.E., Calgary, Alberta, T2E 8J8, Canada.
The name, business address, present principal occupation or employment
(and the name, principal business and address of any corporation or other
organization in which such employment is conducted) and the citizenship of each
executive officer and director of Wi-LAN is set forth on Schedule 1 hereto and
is incorporated herein in its entirety by reference.
(d) and (e). During the past five years, neither Wi-LAN nor, to the
best knowledge of Wi-LAN, any individual otherwise identified in response to
Item 2, has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or was a party to a civil proceeding of a
judicial or administrative
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CUSIP No. 25387N 10 9 Page 4 of 17 Pages
body of competent jurisdiction and as a result of which any such person was or
is subject to a judgment, decree or final order enjoining future violations of,
or prohibiting or mandating activities subject to, federal or state securities
laws or finding any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
Pursuant to the Convertible Debenture Purchase Agreement, dated
December 29, 1999 (the "Convertible Debenture Purchase Agreement"), between the
Company and Wi-LAN, the Company agreed to (x) issue to Wi-LAN convertible
debentures (the "First Convertible Debentures") in an aggregate principal amount
of $1,500,000 and (y) grant to Wi-LAN an option to purchase convertible
debentures issuable by the Company in an aggregate principal amount of up to
$1,500,000 (the "Convertible Debenture Option"). On January 7, 2000 (the
"Initial Closing Date"), the Company issued to Wi-LAN First Convertible
Debentures in an aggregate principal amount of $400,000 and granted to Wi-LAN
the Convertible Debenture Option. Pursuant to the Convertible Debenture Purchase
Agreement, additional First Convertible Debentures in an aggregate principal
amount of $1,100,000 will be purchased by Wi-LAN at three separate closings (the
"Additional Closings") which will occur on or prior to April 1, 2000. Copies of
the Convertible Debenture Purchase Agreement and the First Convertible Debenture
are attached hereto as Exhibits 1 and 2, respectively, and are hereby
incorporated in their entirety by reference. The form of the convertible
debentures issued upon exercise of the Convertible Debenture Option will be
substantially similar to the form of the First
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CUSIP No. 25387N 10 9 Page 5 of 17 Pages
Convertible Debentures, except that the convertible debentures issued upon
exercise of the Convertible Debenture Option shall be convertible into shares of
Common Stock at a conversion price that will be an amount equal to the average
weighted trading price of the shares of Common Stock over the last three trading
days prior to the exercise of the Convertible Debenture Option. In addition,
under the Convertible Debenture Option, Wi-LAN may elect to receive shares of
Common Stock in lieu of convertible debentures upon the exercise thereof, with
the number of shares of Common Stock issued upon exercise to be determined by
the average weighted trading price of the shares of Common Stock over the last
three trading days prior to such exercise.
The consideration paid by Wi-LAN for the First Convertible Debentures
purchased by Wi-LAN on the Initial Closing Date and the Convertible Debenture
Option consisted of $400,000 in cash, the source of which was the working
capital of Wi-LAN. Wi-LAN anticipates that the source of the up to an aggregate
of $2,600,000 in cash consideration that will be paid by Wi-LAN (i) at the
Additional Closings in connection with the purchase of the additional First
Convertible Debentures and (ii) in connection with the exercise of the
Convertible Debenture Option will be the working capital of Wi-LAN.
Pursuant to (i) the Purchase Agreement, dated December 29, 1999 (the
"Purchase Agreement"), between Finova Mezzanine Capital Inc., a Tennessee
corporation ("Finova"), and Wi-LAN and (ii) the Option Agreement, dated January
7, 2000 (the "Option Agreement"), between Finova and Wi-LAN, on January 7, 2000
Finova sold to Wi-LAN, among other things, (w) a convertible debenture issued by
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CUSIP No. 25387N 10 9 Page 6 of 17 Pages
the Company and held by Finova in an aggregate principal amount of $2,000,000
(the "Second Convertible Debenture"), (x) an option to acquire any or all of the
1,314,333 shares of Series A Convertible Preferred Stock, par value $0.01 per
share (the "Preferred Stock"), of the Company that are held by Finova (the
"Preferred Stock Option") and (y) warrants held by Finova exercisable into
702,615 shares of Common Stock of the Company (the "DTS Warrants"). Immediately
upon acquisition by Wi- LAN of the Second Convertible Debenture, Wi-LAN
converted $1,310,000 in aggregate principal amount of the Second Convertible
Debenture into 1,310,000 shares of Common Stock. Copies of the Purchase
Agreement, the Second Convertible Debenture, the Option Agreement, the
Certificate of Designation of the Preferred Stock (the "Certificate of
Designation") and the Form of DTS Warrants are attached hereto as Exhibits 3, 4,
5, 6 and 7, respectively, and are hereby incorporated in their entirety by
reference.
The consideration paid by Wi-LAN for the Second Convertible Debenture,
the Preferred Stock Option and the DTS Warrants consisted of 87,320 newly issued
common shares of Wi-LAN (the "Wi-LAN Common Shares"), which shares were
delivered to an escrow account pursuant to the terms of the Purchase Agreement.
Under certain circumstances set forth in the Purchase Agreement, on the date the
Wi-LAN Common Shares are released from the escrow account, based on the closing
price of the Wi-LAN Common Shares on last trading day prior to the release of
the Wi-LAN Common Shares from the escrow account, Wi-LAN could be required to
pay additional consideration, in cash, to Finova, or the number of Wi-LAN Common
Shares paid to Finova could be reduced, the amount of any such additional
<PAGE>
CUSIP No. 25387N 10 9 Page 7 of 17 Pages
consideration or reduction to be determined pursuant to the terms of the
Purchase Agreement. Wi-LAN anticipates that the source of the cash consideration
for the up to $1,314,333 payable upon exercise of the Preferred Stock Option and
any additional cash consideration payable as described in the preceding sentence
will be the working capital of Wi-LAN.
Pursuant to the Share Purchase Agreement, dated December 29, 1999 (the
"Share Purchase Agreement"), between Wi-LAN and MicroTel International, Inc., a
Delaware corporation ("MicroTel"), on January 7, 2000 MicroTel sold to Wi-LAN
1,738,159 shares of Common Stock of the Company. A copy of the Share Purchase
Agreement is attached as Exhibit 8 hereto and is hereby incorporated in its
entirety by reference. The consideration paid by Wi-LAN for the shares of Common
Stock purchased from MicroTel consisted of $520,000 in cash and 28,340 newly
issued Wi-LAN Common Shares. The source of the cash consideration paid by Wi-LAN
to MicroTel was the working capital of Wi-LAN.
Item 4. Purpose of Transaction.
Wi-LAN has purchased the First Convertible Debentures, the Convertible
Debenture Option, the Second Convertible Debenture, the Preferred Stock Option,
the DTS Warrants and the shares of Common Stock to enable Wi-LAN to acquire such
number of shares of Common Stock as would constitute a majority of the
outstanding voting stock of the Company.
Pursuant to the terms of the Convertible Debenture Purchase Agreement,
as of the Initial Closing Date the majority of the Board of Directors of
<PAGE>
CUSIP No. 25387N 10 9 Page 8 of 17 Pages
the Company was to be comprised of a majority of directors designated by Wi-LAN.
As of the Initial Closing Date, the Board of Directors was comprised of five
members, three of which were designated by Wi-LAN and elected in connection with
the initial closing of the transactions contemplated by the Convertible
Debenture Purchase Agreement. Each of the members of the Board of Directors of
the Company designated by Wi-LAN is an officer or director of Wi-LAN.
As described in Item 5 below, the voting power of the shares of Common
Stock held by Wi-LAN (assuming full exercise or conversion of the exercisable or
convertible securities described in this Schedule 13D) would allow Wi-LAN to
control any vote submitted to the shareholders of the Company (or any written
consent in lieu thereof) which requires the consent of a majority of holders of
shares of Common Stock. The combined effect of the presence of the directors
designated by Wi-LAN on the Board of Directors of the Company and the voting
power of Wi-LAN described in the preceding sentence may impede the acquisition
of control of the Company by another person.
Wi-LAN has no current intention to sell any of its holdings of the
shares of Common Stock or other securities it holds that are exercisable for or
convertible into shares of Common Stock. However, Wi-LAN intends to review its
equity interest in the Company on a continuing basis. Depending on Wi-LAN's
evaluation of the Company's business, financial condition and prospects, and
upon future developments (including, but not limited to, market prices of shares
of Common Stock, availability and alternative uses of funds, as well as
conditions in the securities markets and general economic and industry
conditions), and other factors
<PAGE>
CUSIP No. 25387N 10 9 Page 9 of 17 Pages
and conditions Wi-LAN deems appropriate, Wi-LAN may acquire additional shares of
Common Stock, dispose of the shares of Common Stock or the other securities it
holds that are exercisable for or convertible into shares of Common Stock, or
formulate other purposes, plans or proposals regarding the Company or any of its
securities to the extent deemed advisable by Wi-LAN.
Except as described in the Convertible Debenture Purchase Agreement,
the Share Purchase Agreement, the Purchase Agreement, the First Convertible
Debenture, the Second Convertible Debenture, the Option Agreement, the
Certificate of Designation or the DTS Warrants, and as otherwise set forth in
this Schedule 13D, neither Wi-LAN nor any individual otherwise identified in
Item 2 has any present plans or proposals which relate to or would result in:
(a) the acquisition by any person of additional securities of the Company, or
the disposition of securities of the Company; (b) an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving the
Company or any of its subsidiaries; (c) a sale or transfer of a material amount
of assets of the Company or of any of its subsidiaries; (d) any change in the
present board of directors or management of the Company, including any plans or
proposals to change the number or term of directors or to fill any existing
vacancies on the board; (e) any material change in the present capitalization or
dividend policy of the Company; (f) any other material change in the Company's
business or corporate structure; (g) changes in the Company's charter, bylaws or
instruments corresponding thereto or other actions which may impede the
acquisition of control of the Company by any person; (h) causing a class of
securities of the Company to be delisted from a national securities exchange or
to cease to be
<PAGE>
CUSIP No. 25387N 10 9 Page 10 of 17 Pages
authorized to be quoted in an inter-dealer quotation system of a registered
national securities association; (i) a class of equity securities of the Company
becoming eligible for termination of registration pursuant to Section 12(g)(4)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (j)
any action similar to any of those enumerated above.
Item 5. Interest in Securities of the Issuer.
(a) through (c) As set forth above, on January 7, 2000, Wi-LAN acquired
the First Convertible Debentures, the Convertible Debenture Option, the Second
Convertible Debenture, the Preferred Stock Option, the DTS Warrants and
3,048,159 shares of Common Stock of the Company. Assuming the purchase of all of
the First Convertible Debentures, the First Convertible Debentures are
convertible at any time into 1,500,000 shares of Common Stock, subject to
adjustment as described therein. Assuming that Wi-LAN exercises its option to
exercise the Convertible Debenture Option for shares of Common Stock, as
described in Item 4, and assuming that the average weighted trading price of the
shares of Common Stock for the last three trading days prior to the conversion
thereof is $1.00, the Convertible Debenture Option is exercisable at any time
into 1,500,000 shares of Common Stock. The Second Convertible Debenture is
convertible at any time into 690,000 shares of Common Stock, subject to
adjustment as described therein. The Preferred Stock Option is exercisable at
any time into up to 1,314,333 shares of Preferred Stock, and such shares of
Preferred Stock are convertible at any time into up to 1,314,333 shares of
Common Stock, subject to adjustment as described in the Certificate of
<PAGE>
CUSIP No. 25387N 10 9 Page 11 of 17 Pages
Designation. The DTS Warrants are exercisable at any time into 702,615 shares of
Common Stock, subject to adjustment as described therein.
Accordingly, as of January 7, 2000, Wi-LAN may be deemed to
beneficially own an aggregate of 8,755,107 shares of Common Stock, which, based
on calculations made in accordance with Rule 13d-3(d) promulgated under the
Exchange Act of 1934, and there being 4,646,221 shares of Common Stock
outstanding on December 29, 1999 as disclosed in the Convertible Debenture
Purchase Agreement, represents approximately 75% of the outstanding shares of
Common Stock on a diluted basis in accordance with Rule 13d-3(d) promulgated
under the Exchange Act.
Except as set forth above, neither Wi-LAN nor, to the best knowledge of
Wi-LAN, any person identified on Schedule 1, beneficially owns any shares of
Common Stock or has effected any transaction in shares of Common Stock during
the proceeding 60 days.
Paragraphs (d) and (e) of Item 5 of Schedule 13D are not applicable to
this filing.
Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to the Common
Stock of the Issuer.
The Company and Wi-LAN are parties to the Registration Rights
Agreement, dated January 7, 2000 (the "Registration Rights Agreement"), between
the Company and Wi-LAN, which gives Wi-LAN, among other things, the right, on
the terms and conditions set forth therein, to require the Company to register
for sale
<PAGE>
CUSIP No. 25387N 10 9 Page 12 of 17 Pages
to the public any shares of Common Stock held by Wi-LAN, including the shares of
Common Stock that may be issued upon exercise of the First Convertible
Debenture, the convertible debentures issued upon exercise of the Convertible
Debenture Option, the Second Convertible Debenture and the DTS Warrants or upon
conversion of the shares of Preferred Stock issued upon exercise of the
Preferred Stock Option. A copy of the Registration Rights Agreement is attached
as Exhibit 9 hereto and is hereby incorporated in its entirety by reference.
Except as described elsewhere in this Schedule 13D and as set forth in
the Convertible Debenture Purchase Agreement, the First Convertible Debenture,
the Purchase Agreement, the Second Convertible Debenture, the Option Agreement,
the Certificate of Designation, the DTS Warrants, the Share Purchase Agreement
and the Registration Rights Agreement, copies of which are attached hereto as
Exhibits 1, 2, 3, 4, 5, 6, 7, 8 and 9, respectively, and are incorporated herein
in their entirety by reference, to the best knowledge of Wi-LAN, there exist no
contracts, arrangements, understandings or relationships (legal or otherwise)
among the persons named in Item 2 and between such persons and any person with
respect to any securities of the Company, including but not limited to transfer
or voting of any securities of the Company, finder's fees, joint ventures, loan
or option arrangements, puts or calls, guarantees of profits, division of
profits or loss, or the giving or withholding of proxies.
<PAGE>
CUSIP No. 25387N 10 9 Page 13 of 17 Pages
Item 7. Material To Be Filed as Exhibits.
1. Convertible Debenture Purchase Agreement, dated December 29,
1999, between the Company and Wi-LAN.
2. First Convertible Debenture.
3. Purchase Agreement, dated December 29, 1999, between Finova and
Wi-LAN.
4. Second Convertible Debenture.
5. Option Agreement, dated January 7, 2000, between Wi-LAN and
Finova.
6. Certificate of Designation governing the shares of Preferred
Stock.
7. Form of DTS Warrants.
8. Share Purchase Agreement, dated December 29, 1999, between Wi-LAN
and MicroTel.
9. Registration Rights Agreement, dated January 7, 2000, between the
Company and Wi-LAN.
<PAGE>
CUSIP No. 25387N 10 9 Page 14 of 17 Pages
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief,
each of the undersigned certifies that the information set forth in this
statement is true, complete and correct.
Dated: January 18, 2000
WI-LAN INC.
By: /s/ Peter Kinash
-------------------------------
Name: Peter Kinash
Title: Chief Financial Officer
<PAGE>
CUSIP No. 25387N 10 9 Page 15 of 17 Pages
Schedule 1
Executive Officers and Directors of Wi-LAN
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Name/Title/Citizenship Principal Occupation Business Address
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dr. Hatim Zaghloul Chairman and Chief Executive WI-LAN Inc.
Chairman, Chief Executive Officer of Wi-LAN Suite 300, 801 Manning
Officer and a Director Road, N.E.
Canadian Calgary, Alberta T2E 8J8
Canada
- -------------------------------------------------------------------------------------------------------------
William Hews President and Chief Operating WI-LAN Inc.
President and Chief Operating Officer of Wi-LAN Suite 300, 801 Manning
Officer Road, N.E.
Canadian Calgary, Alberta T2E 8J8
Canada
- -------------------------------------------------------------------------------------------------------------
Peter Kinash Chief Financial Officer of WI-LAN Inc.
Chief Financial Officer Wi-LAN Suite 300, 801 Manning
Canadian Road, N.E.
Calgary, Alberta T2E 8J8
Canada
- -------------------------------------------------------------------------------------------------------------
Nico Roelofson Vice-President, Sales of Wi-LAN WI-LAN Inc.
Vice-President, Sales Suite 300, 801 Manning
Dutch Road, N.E.
Calgary, Alberta T2E 8J8
Canada
- -------------------------------------------------------------------------------------------------------------
Scott Campbell Vice-President, Product WI-LAN Inc.
Vice-President, Product Management of Wi-LAN Suite 300, 801 Manning
Management Road, N.E.
Canadian Calgary, Alberta T2E 8J8
Canada
- -------------------------------------------------------------------------------------------------------------
Serge Brache Principal of Serge Brache WI-LAN Inc.
Acting Vice-President, Consulting, a wireless data Suite 300, 801 Manning
Production engineering services, a sole Road, N.E.
Canadian proprietorship Calgary, Alberta T2E 8J8
Canada
</TABLE>
<PAGE>
CUSIP No. 25387N 10 9 Page 16 of 17 Pages
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wanda Posehn Vice-President, Marketing of WI-LAN Inc.
Vice-President, Marketing Wi-LAN Suite 300, 801 Manning
Canadian Road, N.E.
Calgary, Alberta T2E 8J8
Canada
- -------------------------------------------------------------------------------------------------------------
William A. Dunbar Principal of Alta-Bow Consulting Alta-Bow Consulting
Director Services, Inc., a Services, Inc.
Canadian telecommunications consulting P.O. Box 5038, Airdrie, AB
company T4B 2B2
- -------------------------------------------------------------------------------------------------------------
Charles N.D. Hotzel Partner, Kutz Hotzel, Barristers Kutz Hotzel
Director and Solicitors Barrister and Solicitor
Canadian 316, 1167 Kensington
Cres. N.W.
Calgary, Alberta
T2N 1X7
Canada
- -------------------------------------------------------------------------------------------------------------
Frank King President of Metropolitan Metropolitan Investment
Director Investment Corporation, a Corporation
Canadian financial services company 3rd Floor, 1422 Kensington
Rd., N.W.
Calgary, Alberta
T2N 3R1
Canada
- -------------------------------------------------------------------------------------------------------------
Dr. Robert Schulz Professor of Management, University of Calgary
Director University of Calgary 2500 University Dr. N.W.
American Calgary, Alberta
T2N 1N4
Canada
- -------------------------------------------------------------------------------------------------------------
Dan L. Baxter Partner, Macleod Dixon, Macleod Dixon
Director Barristers and Solicitors Barrister and Solicitor
Canadian 3700, 400 - 3rd Ave. S.W.
Calgary, Alberta T2P 4H2
Canada
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CUSIP No. 25387N 10 9 Page 17 of 17 Pages
EXHIBIT INDEX
1. Convertible Debenture Purchase Agreement, dated December 29, 1999,
between the Company and Wi-LAN.
2. First Convertible Debenture
3. Purchase Agreement, dated December 29, 1999, between Finova and Wi-LAN.
4. Second Convertible Debenture
5. Option Agreement, dated January 7, 2000, between Wi-LAN and Finova.
6. Certificate of Designation governing the shares of Preferred Stock.
7. Form of DTS Warrants
8. Share Purchase Agreement, dated December 29, 1999, between Wi-LAN and
MicroTel.
9. Registration Rights Agreement, dated January 7, 2000, between the
Company and Wi-LAN.
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT made the 29th day of December, 1999.
BETWEEN:
WI-LAN INC., a body corporate, incorporated pursuant to the laws of the
Province of Alberta (hereinafter referred to as "Wi-LAN")
OF THE FIRST PART
AND
DIGITAL TRANSMISSION SYSTEMS, INC., a body corporate, incorporated
pursuant to the laws of the State of Delaware (hereinafter referred to
as "DTS")
OF THE SECOND PART
WHEREAS DTS has agreed to create, sell and issue and Wi-LAN has agreed
to purchase and acquire, certain securities of DTS upon the terms and conditions
set forth herein;
AND WHEREAS DTS has agreed to grant to Wi-LAN an option to acquire
certain securities of DTS upon the terms and conditions set forth herein;
AND WHEREAS DTS has agreed to enter into this Agreement and provide
certain representations, warranties and covenants to Wi-LAN in support and in
furtherance of Wi-LAN's agreement to enter into the Related Agreements.
In consideration of the premises, covenants and agreements herein and
other good and valuable consideration (the receipt and sufficiency of which is
hereby acknowledged), the parties hereto covenant and agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Agreement, unless the context otherwise requires:
(a) "Agreement" means this agreement, including the recitals, as amended or
supplemented from time to time, and "hereby", "hereof", "herein",
"hereunder", "herewith", "hereto" and similar terms refer to this
Agreement and not to any particular provision of this Agreement;
(b) "business day" means a day, other than a Saturday, Sunday or statutory
holiday, when banks are generally open for the transaction of banking
business in the City of Calgary;
(c) "Closing" means the closing of the transactions contemplated herein;
(d) "Closing Time" means 2:00 p.m. (Calgary time), or such other time as
may be agreed upon by the parties hereto, on the Initial Issue Date,
the Second Issue Date, the Third Issue Date, the Fourth Issue Date and
any subsequent Issue Date;
(e) "Convertible Debenture" means a subordinated debenture of DTS
substantially in the form of the existing DTS debenture in the
principal amount of U.S.$2,000,000 owned by Finova Mezzanine Capital
Inc. excluding Section 1.2, Article 2, Article 3 and Article 4 thereof,
which subordinated debenture shall have a three year term, have an
interest rate of 10% per annum (15% after default) and the principal
and accrued interest of which shall be convertible into DTS Shares on
the basis of U.S.$1.00 per share;
<PAGE>
(f) "DTS Material Adverse Effect" means any change or effect that is
materially adverse to the condition (financial or otherwise), business,
assets or results of operations, of DTS and its Subsidiaries taken as a
whole or adversely affects the ability of DTS to consummate the
transactions contemplated by this Agreement in any material respect or
materially impairs or delays DTS's ability to perform its obligations
hereunder;
(g) "DTS Shares" means the common shares in the capital stock of the
Corporation, as constituted on the date hereof;
(h) "Encumbrance" includes, without limitation, any mortgage, pledge,
assignment, charge, lien, security interest, claim, trust, royalty,
carried, working, participation, net profits interest or other third
party interest and any agreement, option, right or privilege (whether
by law, contract or otherwise) capable of becoming any of the
foregoing;
(i) "Finova" means Finova Mezzanine Capital Inc., a body corporate,
incorporated pursuant to the laws of Tennessee;
(j) "Fourth Issue Date" means April 1, 2000 or such earlier or later date
as Wi-LAN and DTS may agree for the closing of the U.S.$300,000
principal amount of Convertible Debentures;
(k) "Initial Issue Date" means January 7, 2000, or such earlier or later
date or dates as Wi-LAN and DTS may agree for the closing of the first
U.S.$400,000 principal amount of Convertible Debentures, and "Issue
Date" means such date or dates as Wi-LAN may specify pursuant to the
exercise of the purchase option granted to it pursuant to section 2.2;
(l) "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance or right of another to or
adverse claim of any kind in respect of such asset;
(m) "MicroTel" means MicroTel International, Inc., a body corporate,
incorporated pursuant to the laws of the State of Delaware;
(n) "person" includes an individual, partnership, firm, trust, body
corporate, governmental authority, unincorporated body of persons or
association;
(o) "Promissory Note" means the DTS promissory note in the principal amount
of U.S.$400,000 and the related DTS security agreement in the form
attached as Schedule "C";
(p) "Related Agreement Closing Date" means January 7, 2000 or such later
date upon which the transactions contemplated by the Related Agreements
are completed;
(q) "Related Agreements" means the agreements of even date herewith entered
into between Wi-LAN and MicroTel and between Wi-LAN and Finova;
(r) "Second Issue Date" means February 1, 2000 or such earlier or later
date as Wi-LAN and DTS may agree for the closing of the second
U.S.$400,000 principal amount of Convertible Debentures;
(s) "Subsidiary" of any person means (i) any corporation or other entity of
which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons
performing similar functions are directly or indirectly owned by such
person, (ii) any
<PAGE>
3
partnership of which such person is a general partner and (iii) any
limited liability company of which such person owns a majority of the
membership interests in or is its managing member.
(t) "Third Issue Date" means March 1, 2000 or such earlier or later date as
Wi-LAN and DTS may agree for the closing of the third U.S.$400,000
principal amount of Convertible Debentures;
(u) "Wi-LAN Common Shares" means common shares of Wi-LAN as a class, as
constituted on the date hereof; and
(v) "Wi-LAN's Counsel" means Burnet, Duckworth & Palmer or such other legal
counsel as may be designated by Wi-LAN.
1.2 Schedules
The following Schedules form part of this Agreement:
Schedule A DTS Representations
Schedule B List of Intellectual Property owned by DTS
Schedule C Form of Promissory Note and Security Agreement
1.3 Headings
The division of this Agreement into articles, sections and paragraphs
and the insertion of headings are for convenience of reference only and shall
not affect in any way the meaning or interpretation of this Agreement.
1.4 Section References
Unless the context otherwise requires, references in this Agreement to
an article, section, paragraph, clause, subclause or schedule by number, letter
or otherwise refer to the article, section, subsection, paragraph, clause,
subclause or schedule, respectively, bearing that designation in this Agreement.
1.5 Gender, Plural
In this Agreement, unless the contrary intention appears, words
importing the singular include the plural and vice versa; words importing gender
shall include all genders.
1.6 Date for Actions
In the event that the date on which any action is required to be taken
hereunder by any of the parties is not a business day in the place where the
action is required to be taken, such action shall be required to be taken on the
next succeeding day which is a business day in such place.
1.7 Enforceability
All representations and warranties in or contemplated by this Agreement
as to the enforceability of any agreement or document are subject to
enforceability being limited by applicable bankruptcy, insolvency,
reorganization and other laws affecting creditors' rights generally and the
discretionary nature of certain remedies (including specific performance and
injunctive relief).
<PAGE>
4
ARTICLE 2
PURCHASE AND SALE; GRANT OF OPTION
2.1 Agreement to Purchase and Sell
(a) On the date of execution and delivery of this Agreement, DTS agrees to
create, sell and enter into with Wi-LAN or its nominee, and Wi-LAN or
its nominee agree to purchase and acquire from DTS the Promissory Note,
in consideration for the sum of U.S.$400,000, U.S.$50,000 of which has
already been advanced to DTS by Wi-LAN.
(b) On the Initial Issue Date, DTS agrees to create, sell and issue to
Wi-LAN or its nominee, and Wi-LAN or its nominee agree to purchase and
acquire from DTS, U.S.$400,000 principal amount of Convertible
Debentures.
(c) On the Second Issue Date, DTS agrees to create, sell and issue to
Wi-LAN or its nominee, and Wi-LAN or its nominee agree to purchase and
acquire from DTS, U.S.$400,000 principal amount of Convertible
Debentures.
(d) On the Third Issue Date, DTS agrees to create, sell and issue to Wi-LAN
or its nominee, and Wi-LAN or its nominee agree to purchase and acquire
from DTS, U.S.$400,000 principal amount of Convertible Debentures.
(e) On the Fourth Issue Date, DTS agrees to create, sell and issue to
Wi-LAN or its nominee, and Wi-LAN or its nominee agree to purchase and
acquire from DTS, U.S.$300,000 principal amount of Convertible
Debentures.
2.2 Option to Purchase Convertible Debentures / DTS Shares
DTS hereby grants to Wi-LAN or its nominee the right to purchase from
time to time at its election an aggregate of up to U.S.$1,500,000 principal
amount convertible debentures in addition to the purchases provided for in
Section 2.1 above, at a purchase price equal to the principal amount thereof.
The convertible debentures shall be identical to the form of the Convertible
Debenture with the exception that the convertible debentures shall be
convertible into DTS Shares at the average weighted trading price of the DTS
Shares over the last three trading days prior to the exercise of the option by
Wi-LAN. Any such election to purchase additional principal amount of convertible
debentures shall be exercised by written notice from Wi-LAN to DTS, given at any
time on or prior to the second anniversary of the Related Agreement Closing
Date, and setting forth the aggregate principal amount of convertible debentures
to be purchased and the date on which such convertible debentures are to be
delivered, as determined by Wi-LAN but in no event earlier than three nor later
than 20 business days after the date of such notice. Upon the furnishing of such
written notice, Wi-LAN shall be committed to purchase, and DTS shall be
obligated to issue and sell the principal amount of additional convertible
debentures therein indicated, the whole in accordance with and subject to the
provisions hereof. Wi-LAN shall have the further option to elect to purchase DTS
Shares at the average weighted trading price of the DTS Shares over the last
three trading days prior to the exercise of the option by Wi-LAN in lieu of
convertible debentures pursuant to the exercise of the option from time to time
granted pursuant to this section 2.2.
2.3 Execution of Purchase and Sale
At each Closing Time, Wi-LAN shall wire to DTS an amount equal to the
principal amount of convertible debentures to be purchased against delivery by
DTS to Wi-LAN of the equivalent principal amount of convertible debentures.
Notwithstanding the foregoing, DTS acknowledges that prior to the Initial Issue
Date it will have received from Wi-LAN the sum of U.S.$400,000 as an advance in
respect of Wi-LAN's obligations pursuant to paragraph 2.1(b) and accordingly
shall issue a Convertible Debenture in the principal
<PAGE>
5
amount of U.S.$400,000 pursuant to paragraph 2.1(b) against delivery by Wi-LAN
of the Promissory Note which shall thereafter be deemed to form part of the
U.S.$400,000 Convertible Debenture and be paid in full.
2.4 Non-Closing of Related Agreement Transactions
If the Related Agreement Closing Date shall not have occurred on or
before January 31, 2000, then, notwithstanding any other term of the Promissory
Note issued to Wi-LAN pursuant to paragraph 2.1(a), the principal amount of such
Promissory Note shall be reduced to U.S.$350,000 and shall be repayable by DTS
to Wi-LAN in 24 equal monthly instalments of U.S.$17,500 commencing March 1,
2000. If the Related Agreement Closing Date shall not have occurred on or before
January 31, 2000, then Wi-LAN shall have the option to convert the principal
amount of the Promissory Note and any accrued interest on the Promissory Note
into an equivalent principal amount of Convertible Debentures.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF DTS
3.1 Representations and Warranties of DTS
DTS makes the representations and warranties to Wi-LAN on the attached
Schedule "A".
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF Wi-LAN
4.1 Representations and Warranties of Wi-LAN
Wi-LAN represents and warrants to DTS that:
(a) Wi-LAN is duly organized and validly existing under the law of the
jurisdiction of its incorporation;
(b) Wi-LAN has all requisite power and authority to enter into this
Agreement and all documents to be delivered pursuant hereto and to
perform its obligations hereunder and thereunder;
(c) this Agreement has been duly authorized, executed and delivered by
Wi-LAN and all documents to be delivered by Wi-LAN pursuant hereto will
be duly executed and delivered and this Agreement does and such
documents will constitute legal, valid and binding obligations of
Wi-LAN enforceable in accordance with their respective terms.
ARTICLE 5
Wi-LAN'S CLOSING CONDITIONS
5.1 Conditions Precedent
The obligations of Wi-LAN to complete the transactions contemplated
herein at any Closing Time is subject to:
(a) Wi-LAN being satisfied in its sole discretion with its due diligence
review of DTS and its assets and operations including, without
limitation, the financial statements of DTS, the obligations and
liabilities of DTS, the products and revenue stream of DTS and the
material agreements of DTS;
(b) since December 20, 1999 DTS shall have carried on its business in the
ordinary course of business consistent with past practices and shall
not have engaged in any material transactions outside the ordinary
course of business (including increasing long-term debt) except as
disclosed to and approved by Wi-LAN in writing;
<PAGE>
6
(c) DTS's issued and outstanding share capital at Closing Time consisting
of an aggregate of 4,646,221 common shares, 1,314,333 preferred shares,
warrants entitling the holders thereof to acquire an aggregate of
2,433,315 common shares at exercise prices ranging from U.S. $0.12 to
U.S. $9.00 per share, options entitling the holders thereof to acquire
an aggregate of 1,019,880 common shares at exercise prices ranging from
U.S. $0.47 to U.S. $13.75 per share and a U.S. $2,000,000 convertible
debenture entitling the holder thereof to acquire 2,000,000 common
shares at an exercise price of U.S. $1.00 per share;
(d) since December 20, 1999 DTS shall not have declared or paid any
dividends or made any other distributions of any of its shares or
granted any further options or warrants or any right or privilege
capable of becoming an option or agreement in respect of its shares;
(e) the transactions contemplated by the Related Agreements shall have been
completed;
(f) the board of directors of DTS being comprised of a majority of Wi-LAN
representatives;
(g) all of the MicroTel representatives on the DTS board of directors shall
have resigned;
(h) Wi-LAN and DTS shall have entered into a registration rights agreement
with respect to the registration of all the DTS Shares and all of the
DTS Shares issuable upon exercise of the securities acquired by Wi-LAN
pursuant to this Agreement and the Related Agreements, which
registration rights agreement shall be satisfactory in form and
substance to Wi-LAN and Wi-LAN's Counsel;
(i) except as contemplated by this Agreement, there shall not have occurred
any material change, change of material fact or any development that
could result in a material change or change of a material fact in the
business, operations or affairs of DTS;
(j) DTS's employment agreements with its existing personnel shall remain in
existence, provided that Wi-LAN, in consultation with DTS, may select
up to three DTS employees with whom DTS shall enter into new or revised
employment agreements containing terms acceptable to Wi-LAN;
(k) DTS shall have entered into a license agreement providing for the
licensing of DTS's products and technology to Wi-LAN on terms
acceptable to Wi-LAN;
(l) there will be no actions, suits or proceedings, whether or not
purportedly on behalf of DTS, outstanding, pending or threatened by or
against DTS at law or in equity or before or by any federal,
provincial, municipal or other governmental department, commission,
bureau, agency or instrumentality;
(m) the representations and warranties made by DTS herein shall be true at
the Closing Time as if made at and as of such time and DTS shall have
complied with its covenants herein and Wi-LAN shall have received a
certificate signed by the Chief Executive Officer of DTS confirming
same;
(n) all proceedings taken in connection with the transactions contemplated
by this Agreement, and all documents necessary to the consummation
thereof, shall be satisfactory in form and substance to Wi-LAN and
Wi-LAN's Counsel;
(o) Wi-LAN shall have received the opinion of Sutherland, Asbill & Brennan,
LLP, counsel for DTS, dated the Related Agreement Closing Date,
addressed to Wi-LAN, in form and substance satisfactory to Wi-LAN's
Counsel;
(p) any consents or approvals required to be obtained from any third party,
including any holder of indebtedness or any outstanding security of the
company, and any amendments of agreements which shall be necessary to
permit the consummation of the transactions contemplated hereby shall
have been obtained and all such consents or amendments shall be
satisfactory in form and substance to Wi-LAN and Wi-LAN's Counsel.
<PAGE>
7
5.2 Waiver of Conditions
The conditions precedent set forth in Section 5.1 are for the benefit
of Wi-LAN and may be waived, in whole or in part, by Wi-LAN at any time. If any
of the said conditions precedent shall not be complied with or waived as
aforesaid on or before the date required for the fulfilment thereof, Wi-LAN may,
in addition to the other remedies it may have at law or in equity, rescind and
terminate this Agreement by notice to DTS.
ARTICLE 6
COVENANTS OF DTS
6.1 Conduct of DTS
Except as expressly contemplated by this Agreement, from the date
hereof until the Related Agreement Closing Date, DTS and its Subsidiaries shall
conduct their business in the ordinary course consistent with past practice and
shall use their best efforts to preserve intact their business organizations and
relationships with third parties and to keep available the services of their
present officers and key employees. Except as otherwise approved in writing by
Wi-LAN or as expressly contemplated by this Agreement, and without limiting the
generality of the foregoing, from the date hereof until the Related Agreement
Closing Date:
(a) DTS shall not, and shall not permit any of its Subsidiaries to, adopt
or propose any change in its Certificate of Incorporation or Bylaws or
comparable charter or other organization documents;
(b) DTS shall not, and shall not permit any of its Subsidiaries to, acquire
or agree to acquire, lease or manage (i) by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership, joint
venture, association or other business organization or division thereof
or (ii) any assets, other than assets that are immaterial to DTS and
its Subsidiaries taken as a whole and except for purchases in the
ordinary course of business consistent with past practice;
(c) DTS will not, and will not permit its Subsidiaries to, sell, lease,
license, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets, or stock or other
ownership interest in any of its properties or subsidiaries other than
(i) in the ordinary course of business consistent with past practice
(ii) pursuant to any agreements existing as of the date hereof, which
agreements have been disclosed in writing to Wi-LAN; (iii) any Liens
for taxes not yet due and payable or being contested in good faith by
appropriate proceedings for which adequate reserves have been provided
in the consolidated balance sheet of DTS at September 30, 1999 and (iv)
such mechanics and similar liens, if any, as do not materially detract
from the value of any of such properties, assets, stock or ownership
interests or materially interfere with the present use of any of such
properties or assets;
(d) DTS shall not declare, set aside, or pay any dividends or make any
distributions on DTS Shares;
(e) DTS shall not, and shall not permit any of its Subsidiaries to, (i)
issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any capital stock of DTS or any DTS Subsidiary Securities
(as herein defined), or any security convertible into or exercisable
for either of the foregoing other than the issuance of shares of DTS
Shares upon the exercise of outstanding rights to acquire DTS Shares
disclosed in Section 1.5 of Schedule "A"; (ii) split, combine or
reclassify any capital stock of DTS or any of its Subsidiaries or issue
or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of DTS or any of
its Subsidiaries; or (iii) except as required or permitted by this
Agreement, repurchase, redeem or otherwise acquire any shares of
<PAGE>
8
capital stock of DTS or any of its Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares
or other securities;
(f) except as otherwise expressly permitted hereby, DTS will not make any
commitment or enter into, or amend, modify, or terminate any contract
or agreement material to DTS and its Subsidiaries taken as a whole
except in the ordinary course of business consistent with past
practice;
(g) (i) DTS will not, and will not permit any of its Subsidiaries to, incur
any indebtedness for borrowed money or guarantee any such indebtedness
of another person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of DTS or any of its
Subsidiaries, guarantee any debt securities of another person, enter
into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement
having the economic effect of any of the foregoing, except for
borrowings under its line of credit for working capital purposes and
the endorsement of checks in the normal course of business; or (ii)
make any loans, advances or capital contributions to, or investments
in, any other person, other than any direct or indirect wholly owned
subsidiary of DTS and other than travel and entertainment advances to
employees in the ordinary course of business consistent with past
practice;
(h) DTS will not, and will not permit any of its Subsidiaries to, (i)
increase the compensation payable or to become payable to its officers,
directors or key employees, (ii) grant any severance or termination pay
to officers, directors or key employees; (iii) enter into any
employment, severance or consulting agreement with any current or
former director, officer or other employee of DTS or any Subsidiary, or
(iv) establish, adopt, enter into or amend, any collective bargaining,
bonus, profit sharing, thrift, compensation stock option, restricted
stock, pension, retirement, deferred compensation, employment
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any current or former director, officer
or employee;
(i) DTS will not, and will not permit its Subsidiaries to, (i) make any
payments or other distributions to its officers, directors or
affiliates except pursuant to existing compensation arrangements for
directors or officers of DTS or (ii) enter into any contracts,
agreements or understandings with its officers, directors or
affiliates;
(j) DTS will, and DTS will use its reasonable best efforts to ensure that
it and each of its Subsidiaries will, use its reasonable best efforts
to keep or cause to be kept its insurance policies (or substantial
equivalents) in such amounts duly in force until the Related Agreement
Closing Date and will give Wi-LAN notice of any material change in its
insurance policies;
(k) except in connection with the expenses incurred or to be incurred in
connection with this Agreement and the transactions contemplated hereby
or in connection with the payment of corporate administrative and
overhead expenses consistent with past practice, DTS will not, and will
not permit its Subsidiaries to, make any individual or series of
related expenditures (whether capital or otherwise) of over $5,000 or
enter into any contract that is not terminable by DTS without penalty
upon 30 days notice;
(l) DTS will not, and will not permit any of its Subsidiaries to, agree or
commit to do any of the foregoing; and
(m) DTS will not, and will not permit any of its Subsidiaries to, take or
agree to commit to take any action that would make any representation
and warranty of DTS hereunder inaccurate in any material respect at, or
as of any time prior to, the Related Agreement Closing Date or which is
reasonably likely to result in a delay in consummation of the
transactions contemplated hereby.
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9
6.2 Access to Information
From the date hereof until the Related Agreement Closing Date, DTS
shall give Wi-LAN, its counsel, financial advisors, auditors and other
authorized representatives reasonable access to the offices, properties, books
and records of DTS and its Subsidiaries, will furnish to Wi-LAN, its counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information as such persons may reasonably request
and will instruct DTS's employees, counsel and financial advisors to cooperate
with Wi-LAN in its investigation of the business of DTS and its Subsidiaries;
provided that no investigation pursuant to this section or paragraph 5.1(a)
shall affect any representation or warranty given by DTS to Wi-LAN hereunder.
All nonpublic information provided to, or obtained by, Wi-LAN in connection with
the transactions contemplated hereby shall be "Confidential Information" for
purposes of the Confidentiality Agreement previously executed by Wi-LAN and DTS
(the "Confidentiality Agreement").
6.3 Other Offers
From the date hereof until the Related Agreement Closing Date, DTS and
its Subsidiaries will not, and will use their reasonable best efforts to cause
their officers, directors, employees or other agents not to, directly or
indirectly, (i) take any action to solicit or initiate any DTS Acquisition
Proposal (as defined below) or (ii) unless otherwise required in accordance with
the fiduciary duties of the Board of Directors under applicable law as advised
by independent legal counsel to DTS, engage in negotiations with, or disclose
any nonpublic information relating to DTS or any of its Subsidiaries or afford
access to the properties, books or records of DTS or any of its Subsidiaries to,
any person that may be considering making, or has made, a DTS Acquisition
Proposal or has agreed to endorse any DTS Acquisition Proposal (other than the
transactions contemplated hereby ). DTS will promptly as reasonably practicable
notify Wi-LAN after receipt of any DTS Acquisition Proposal or any indication
that any person is considering making a DTS Acquisition Proposal or any request
for nonpublic information relating to DTS or any of its Subsidiaries or for
access to the properties, books or records of DTS or any of its Subsidiaries by
any person that may be considering making, or has made, a DTS Acquisition
Proposal or that DTS intends to engage in negotiations with, or to provide
information to any such person. DTS shall as promptly as reasonably practicable
provide Wi-LAN with the identity of such person and a reasonable description of
such DTS Acquisition Proposal. For purposes of this Agreement, "DTS Acquisition
Proposal" means any offer or proposal for, or any indication of interest in, (i)
a merger, share exchange or business combination or similar transaction, (ii)
any sale, lease, exchange, transfer or other disposition of 10% or more of the
assets of DTS and its Subsidiaries, taken as a whole, in a single transaction or
series of transactions (whether or not related) or (iii) any tender offer or
exchange offer for 10% or more of the outstanding shares of capital stock of DTS
involving DTS or any of its Subsidiaries or the acquisition of a substantial
portion of the assets of, DTS or any of its Subsidiaries, other than the
transactions contemplated by this Agreement. DTS shall immediately cease and
cause to be terminated, its existing solicitation, activity, discussions or
negotiations with any parties conducted heretofore by DTS or any of its
representatives with respect to a DTS Acquisition Proposal.
6.4 Notices of Certain Events
The Company shall promptly as reasonably practicable notify Wi-LAN of:
(i) any notice or other communication from any person alleging that the consent
of such person (or another person) is or may be required in connection with the
transactions contemplated by this Agreement or the Related Agreements; (ii) any
notice or other communication from any governmental or regulatory agency or
authority in connection with the transactions contemplated by this Agreement or
the Related Agreements; (iii) any actions, suits, claims, investigations or
proceedings commenced or, to the best of its knowledge threatened against,
relating to or involving or otherwise affecting DTS or any of its Subsidiaries
that, if pending on the date of this Agreement, would have been required to have
been disclosed pursuant to section 1.11 of Schedule "A" or which relate to the
consummation of the transactions contemplated by this Agreement or the Related
Agreements; and (iv) of any fact or occurrence between the date of this
Agreement and the Related Agreement Closing Date of which it becomes aware which
makes any of its representations contained in this Agreement untrue or causes
any breach of its obligations under this Agreement.
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10
ARTICLE 7
CLOSING
7.1 Place of Closing
Closing shall take place at the offices of Wi-LAN's Counsel at the
Closing Time, or at such other place as may be agreed upon by the parties
hereto.
ARTICLE 8
INDEMNITY
8.1 DTS Indemnity
(a) DTS shall indemnify and save Wi-LAN harmless against and from all
liabilities, claims, demands, losses, costs (including, without
limitation, legal fees and disbursements on a full indemnity basis),
damages and expenses to which Wi-LAN may be subject or which Wi-LAN may
suffer or incur, whether under the provisions of any statute or
otherwise, in any way caused by, or arising directly or indirectly from
or in consequence of any breach of, default under or non-compliance by
DTS with any representation, warranty, term, covenant or condition of
this agreement or in any certificate or other document delivered by or
on behalf of DTS hereunder or pursuant hereto.
(b) The rights and remedies of Wi-LAN set forth in paragraph 8.1(a) are to
the fullest extent possible in law cumulative and not alternative and
the election by Wi-LAN to exercise any such right or remedy shall not
be, and shall not be deemed to be, a waiver of any other rights and
remedies. Wi-LAN shall not be obligated to pursue any claim or remedy
against any third party including, without limitation, MicroTel or
Finova, before being entitled to obtain full indemnification from DTS
pursuant to paragraph 8.1(a).
ARTICLE 9
NOTICES
9.1 Notices
Any notice, consent, waiver, direction or other communication required
or permitted to be given under this Agreement by a party to any other party
shall be in writing and shall be delivered by hand delivery, facsimile
transmission or (provided that the mailing party does not know and should not
reasonably have known of any disruption or anticipated disruption of postal
service which might affect delivery of the mail) by registered mail (postage
prepaid), addressed to the party to whom the notice is to be given, at its
address for service herein. Any notice, consent, waiver, direction or other
communication aforesaid shall, if hand delivered or delivered by telex or
facsimile transmission, be deemed to have been given and received on the date on
which its was hand delivered or delivered by facsimile transmission to the
address provided herein (if a business day and, if not, the next succeeding
business day) and if sent by registered mail be deemed to have been given and
received on the third business day at the point of delivery following the date
on which it was so sent.
9.2 Address for Service
The address for service of each of the parties hereto shall be as
follows:
(a) if to Wi-LAN:
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11
Wi-LAN Inc.
Suite 300, 801 Manning Road N.E.
Calgary, Alberta
T2E 8J8
Attention: Hatim Zaghloul, Chairman and Chief Executive Officer
Telecopy: (403) 273-5100
(b) if to DTS:
Digital Transmission Systems, Inc.
300 Northwoods Parkway, Building 330
Norcross, Georgia 30071
Attention: Andres C. Salazar, Chief Executive Officer
Telecopy: (770) 798-1325
or such other address as may be designated by notice to the other parties
hereto.
ARTICLE 10
MISCELLANEOUS
10.1 Entire Agreement
This Agreement, together with documents to be delivered pursuant
hereto, constitutes the entire agreement between the parties hereto, and cancels
and supersedes all prior agreements and understandings between the parties
hereto, with respect to the subject matter hereof.
10.2 Further Assurances
Each party hereto shall, from time to time, and at all times hereafter,
at the request of the other party hereto, but without further consideration, do
all such further acts and execute and deliver all such further documents and
instruments as shall be reasonably required in order to fully perform and carry
out the terms and intent hereof.
10.3 Survival
The representations, warranties, covenants and agreements herein and in
any document delivered pursuant hereto shall survive the Closing and remain in
full force and effect provided that no party hereto shall be liable in respect
of any representation or warranty unless the party seeking to rely upon such
representation or warranty shall have given notice to the party who made such
representation or warranty of its intention to make such claim on or before the
date 24 months following the Issue Date.
10.4 Time
Time shall be of the essence in this Agreement.
10.5 Amendments
This Agreement may only be amended by a written instrument signed by
the parties hereto.
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12
10.6 Governing Law
This Agreement shall be governed by, and be construed in accordance
with, the laws of the Province of Alberta and applicable laws of Canada but the
reference to such laws shall not, by conflict of laws rules or otherwise,
require the application of the law of any jurisdiction other than the Province
of Alberta.
10.7 Attornment
Each party hereto hereby irrevocable attorns to the jurisdiction of the
Courts of the Province of Alberta in respect of all matters arising under or in
relation to this Agreement.
10.8 Severability
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any respect
in any jurisdiction, the remaining provisions or parts thereof contained herein
shall be and shall be conclusively deemed to be, as to such jurisdiction,
severable therefrom and:
(a) the validity, legality or enforceability of such remaining provisions
or parts thereof shall not in any way be affected or impaired by the
severance of the provisions or parts thereof severed; and
(b) the invalidity, illegality or unenforceability of any provision or
party thereof contained in this Agreement in any jurisdiction shall not
affect or impair such provision or part thereof or any other provisions
of this Agreement in any other jurisdiction.
10.9 Execution in Counterpart
This Agreement may be executed in any number of counterparts with the
same effect as if all signatures to the counterparts had signed one document,
all such counterparts shall together constitute, and be construed as, one
instrument and each of such counterparts shall, notwithstanding the date of its
execution, be deemed to bear the date first above written.
10.10 Waiver
No waiver by any party hereto shall be effective unless in writing and
any waiver shall affect only the matter, and the occurrence thereof,
specifically identified and shall not extend to any other matter or occurrence.
10.11 Enurement
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
10.12 Assignment
With DTS's permission, which permission shall not be unreasonably
withheld, this Agreement, the Convertible Debentures and the DTS Shares may be
endorsed, assigned and/or transferred in whole or in part by Wi-LAN, and any
such holder and/or assignee of the same shall succeed to and be possessed of the
rights and powers of Wi-LAN under all of the same to the extent transferred and
assigned. DTS shall not assign any of its rights nor delegate any of its duties
under this Agreement or any documents delivered pursuant hereto by operation of
law or otherwise without the prior express written consent of Wi-LAN, which may
be withheld in Wi-LAN's sole and unfettered discretion, and if DTS obtains such
consent, this Agreement and the other documents delivered pursuant hereto shall
be binding upon such assignee.
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10.13 Reliance
The parties hereto acknowledge and agree that they have entered into
this Agreement in reliance upon each of the representations, warranties,
covenants and agreements herein of the other party hereto.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
WI-LAN INC.
Per: /s/ Hatim Zaghloul
----------------------------------
Hatim Zaghloul
Chairman and Chief Executive Officer
DIGITAL TRANSMISSION SYSTEMS, INC.
Per: /s/ Andres C. Salazar
----------------------------------
Andres C. Salazar
Chief Executive Officer
<PAGE>
SCHEDULE "A"
REPRESENTATIONS AND WARRANTIES OF DTS
DTS represents and warrants to Wi-LAN that:
1.1 Corporate Existence and Power
DTS is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business substantially as now conducted, except where the failure
to do so would not have, individually or in the aggregate, a DTS Material
Adverse Effect. DTS is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so qualified
would not have, individually or in the aggregate, a DTS Material Adverse Effect.
1.2 Corporate Authorization
The execution, delivery and performance by DTS of this Agreement and
the consummation of the transactions contemplated hereby by DTS are within DTS's
corporate power and authority and, have been duly authorized by all necessary
corporate action on the part of DTS. This Agreement has been duly executed and
delivered by DTS and constitutes a legal, valid and binding agreement of DTS.
1.3 Governmental Authorization
The execution, delivery and performance by DTS of this Agreement and
the consummation of the transactions contemplated hereby by DTS do not require
any consent, approval, authorization or permit of or other action by, or filing
with, any governmental body, agency, official or authority.
1.4 Non-Contravention
The execution, delivery and performance by DTS of this Agreement and
the consummation of the transactions contemplated hereby by DTS and the
execution, delivery and performance by MicroTel and Finova of the Related
Agreements and the consummation of the transactions contemplated thereby by
MicroTel and Finova do not and will not (i) contravene or conflict with the
Certificate of Incorporation or By-Laws of DTS, (ii) contravene or conflict with
or constitute a violation of any provision of any law, rule, regulation,
judgment, injunction, order or decree binding upon or applicable to DTS or any
of its Subsidiaries, (iii) constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation or to the
loss of any benefit or material adverse modification of the effect (including an
increase in the price paid by, or cost to, DTS or any of its Subsidiaries) of,
or under any provision of any agreement or other instrument to which DTS is a
party or that is binding upon DTS or any of its Subsidiaries or their properties
or assets or any license, franchise, permit or other similar authorization held
by DTS or any of its Subsidiaries, or (iv) result in the creation or imposition
of any Lien on any asset of DTS or any of its Subsidiaries, except for any
occurrences or results referred to in clauses (ii), (iii), and (iv) that would
not have, individually or in the aggregate, a DTS Material Adverse Effect or
prevent or delay consummation of the transactions contemplated hereby or by the
Related Agreements.
1.5 Capitalization
(a) The authorized capital stock of DTS consists of (i) 15,000,000 shares
of Common Stock, of which, as of the date hereof, (A) 4,646,221 shares
were issued and outstanding, (B) 1,019,880 shares were reserved for
issuance upon exercise of options issued pursuant to DTS stock option
plans, (C) 1,314,333 shares were reserved for issuance upon exercise of
1,314,333 outstanding preferred shares, (D) 2,433,315 shares were
reserved for issuance upon exercise of outstanding warrants and
<PAGE>
2
(E) 2,000,000 shares were reserved for issuance upon conversion of a
U.S.$2,000,000 convertible debenture held by Finova, and (ii) 3,000,000
shares of preferred stock, of which at the date hereof 1,314,333 shares
were issued and outstanding. Except as described in this section 1.5,
as of the date of this Agreement, no shares of capital stock of DTS are
reserved for issuance for any purpose. Each of the issued shares of
capital stock of DTS is duly authorized, validly issued and fully paid
and nonassessable, and has not been issued in violation of (nor are any
of the authorized shares of capital stock subject to) any preemptive or
similar rights created by statute, the Certificate of Incorporation or
Bylaws of DTS, or any agreement to which DTS is a party or is bound.
(b) Except as set forth in paragraph (a) above, there are no options,
warrants or other rights, agreements, arrangements or commitments of
any character to which DTS is a party relating to the issued or
unissued capital stock of DTS or obligating DTS to grant, issue or sell
any shares of the capital stock of DTS. There are no obligations,
contingent or otherwise, of DTS to (i) repurchase, redeem or otherwise
acquire any shares of its capital stock, or the capital stock or other
equity interests of any Subsidiary of DTS; or (ii) (other than advances
to Subsidiaries in the ordinary course of business) provide material
funds to, or make any material investment in (in the form of a loan,
capital contribution or otherwise), or provide any guarantee with
respect to the obligations of, any Subsidiary of DTS or any other
person. There are no outstanding stock appreciation rights or similar
derivative securities or rights of DTS or any of its Subsidiaries.
There are no bonds, debentures, notes or other indebtedness of DTS
having the right, to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which
stockholders of DTS may vote.
(c) DTS has delivered to Wi-LAN complete and correct copies of all DTS
stock option plans and all forms of options issued pursuant to DTS
stock option plans, including all amendments thereto.
1.6 Subsidiaries
DTS does not have any Subsidiaries. Other than LinkaNet Labs, Inc., of
which DTS owns 19.5% of the outstanding shares, DTS does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
1.7 Reports
Since December 31, 1998, DTS and its Subsidiaries have timely filed (i)
all forms, reports, statements and other documents required to be filed with (A)
the SEC, including without limitation (1) all Annual Reports on Form 10-KSB, (2)
all Quarterly Reports on Form 10-Q, (3) all proxy statements relating to
meetings of stockholders (whether annual or special), (4) all Current Reports on
Form 8-K and (5) all other reports, schedules, registration statements or other
documents (collectively referred to as the "DTS SEC Reports"), and (B) any other
applicable state securities authorities and (ii) all forms, reports, statements
and other documents required to be filed with any other applicable federal or
state regulatory authorities, except where the failure to file any such forms,
reports, statements or other documents would not have a DTS Material Adverse
Effect (all such forms, reports, statements and other documents in clauses (i)
and (ii) of this Section 1.7 being referred to herein, collectively, as the "DTS
Reports"). DTS Reports (i) have been made available to Wi-LAN, (ii) were
prepared in all material respects in accordance with the requirements of
applicable law (including, with respect to DTS SEC Reports, the Securities Act
of 1933 and the rules and regulations promulgated thereunder (the "Securities
Act") or the Exchange Act, as the case may be) and (iii) did not at the time
they were filed contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
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3
1.8 Financial Statements
The audited consolidated financial statements and unaudited
consolidated interim financial statements of DTS and its consolidated
Subsidiaries included in DTS SEC Reports, including reports on Forms 10-K and
10-Q, comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be indicated in the
notes thereto), and fairly present the consolidated financial position of DTS
and its consolidated Subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended (subject, in the
case of any unaudited interim financial statements, to normal year-end
adjustments, none of which would have, individually or in the aggregate, a DTS
Material Adverse Effect).
1.9 Absence of Certain Changes
Since December 31, 1998 (a) except as described in any DTS SEC Report,
DTS and its Subsidiaries have conducted their business in all material respects
in the ordinary course consistent with past practices, (b) except as described
in any DTS SEC Report, there has not been any event or events having,
individually or in the aggregate, a DTS Material Adverse Effect, (c) there has
not been any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of DTS, or any
repurchase, redemption or other acquisition by DTS or any of its Subsidiaries of
any outstanding shares of capital stock or other securities of, or other
ownership interests in, DTS or any of its Subsidiaries or any split, combination
or reclassification of any of any of DTS's capital stock or issuance or
authorization relating to the issuance of any other securities in respect of, in
lieu of or in substitution for shares of DTS's capital stock, (d) there has not
been any amendment of any material term of any outstanding security of DTS or
any of its Subsidiaries, (e) except as reflected in DTS's SEC Reports, there has
not been any incurrence, assumption or guarantee by DTS or any of its
Subsidiaries, of any indebtedness for borrowed money or any other agreement or
arrangement entered into by DTS or any of its Subsidiaries having the economic
effect of any of the foregoing, except (i) accounts payable of DTS or any of its
Subsidiaries incurred in the ordinary course of business consistent with past
practice or (ii) pursuant to loan and other financing agreements disclosed in
the DTS SEC Reports; (f) there has not been any creation or assumption by DTS or
any of its Subsidiaries of any Lien on any material asset other than in the
ordinary course of business consistent with past practices (including the sale,
pledging or assignment of receivables) except in connection with indebtedness
referred to in clause (e); (g) there has not been any change in any method of
accounting or accounting practice by DTS or any of its Subsidiaries, except for
any such change required by reason of a concurrent change in generally accepted
accounting principles or to conform a Subsidiary's accounting policies and
practices to those of DTS; (h) except as disclosed in any DTS SEC Report, there
has not been any (i) grant of any severance or termination pay to any director,
executive officer or key employee of DTS or any of its Subsidiaries, (ii)
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director,
executive officer or key employee of DTS or any of its Subsidiaries, (iii)
increase in benefits payable under any existing severance or termination pay
policies or employment agreements with any director, executive officer or key
employee, or (iv) increase in compensation, bonus or other benefits payable to
directors, executive, officers or key employees of DTS or any of its
Subsidiaries; (i) there has not been any sale or transfer by DTS of any of the
assets of DTS (other than sales or transfers of immaterial assets in the
ordinary course of business), cancellation of any material debts or claims or
waiver of any material rights by DTS; (j) there has not been any amendment to
DTS's Certificate of Incorporation or Bylaws; (k) DTS has not made any loans,
advances or capital contributions to or investments in, any other person, other
than to any direct or indirect wholly-owned Subsidiary of DTS and other than
travel and entertainment advances to employees of DTS in the ordinary course of
business consistent with past practices; (l) except for this Agreement and any
other agreement executed and delivered pursuant to this Agreement, DTS has not
entered into any material transaction or incurred any material expenditure other
than in the ordinary course of business or permitted under other sections of
this Agreement or in connection with the transactions contemplated hereby; and
(m) there have not been any payments or other distributions by DTS or any of its
Subsidiaries or any of its officers, directors or affiliates, except for
compensation for service as a director or officer as disclosed in DTS SEC
Reports.
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1.10 Litigation
Except as described in any DTS SEC Report, there is no action, suit,
investigation or proceeding pending or, to the best of DTS's knowledge,
threatened against DTS or any of its Subsidiaries or to which any of their
respective properties, assets or rights are reasonably likely to be subject
before any court or arbitrator or any governmental body, agency or official
which would reasonably be expected to have, individually or in the aggregate, a
DTS Material Adverse Effect, nor is there any judgment, decree, injunction, rule
or order of any court or arbitrator or any governmental body, agency or official
outstanding against DTS or any of its Subsidiaries which would have,
individually or in the aggregate, a DTS Material Adverse Effect.
1.11 Certificate of Incorporation and Bylaws
DTS has heretofore furnished to Wi-LAN complete and correct copies of
the Certificates of Incorporation and the Bylaws or the equivalent
organizational documents, in each case as amended or restated, of DTS and each
of its Subsidiaries.
1.12 ERISA
(a) "Employee Plans" shall mean each "employee benefit plan," as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA"), which (i) is subject to any provision of ERISA and (ii) is
maintained, administered or contributed to by DTS or any affiliate (as
defined below) and covers any employee or former employee of DTS or any
affiliate or under which DTS or any affiliate has any liability. For
purposes of this Section and Section 4.13, "affiliate" of any person
means any other person which, together with such person, would be
treated as a single employer under Section 414 of the Internal Revenue
Code of 1986, as amended (the "Code").
(b) No Employee Plan constitutes a "multiemployer plan," as defined in
Section 3(37) of ERISA, and no Employee Plan is subject to Title IV of
ERISA. Neither DTS nor any of its affiliates has incurred, nor are they
reasonably likely to incur, any liability under Title IV of ERISA
arising in connection with the termination of, or complete or partial
withdrawal from, any plan previously covered by Title IV of ERISA that
would have, individually or in the aggregate, a DTS Material Adverse
Effect. No transaction or holding of any asset under or in connection
with any Employee Plan has or will make DTS or any of its Subsidiaries
or any officer or director of DTS or any of its Subsidiaries subject to
any liability under Section 502(i) of ERISA or liable for any tax
pursuant to Section 4975 of the Code that would have, individually or
in the aggregate, a DTS Material Adverse Effect.
(c) Except to the extent it would not have, individually or in the
aggregate, a DTS Material Adverse Effect, (i) each Employee Plan that
is intended to be qualified under Section 401(a) of the Code is the
subject of a favorable determination letter issued by the Internal
Revenue Service relating to its qualified status, and, to DTS's
knowledge, nothing has occurred that would adversely effect the
qualified status of any such plan, and (ii) each Employee Plan has been
maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, final rules and final
regulations, including but not limited to ERISA and the Code, which are
applicable to such Employee Plan.
(d) "Benefit Arrangement" shall mean each employment, severance or other
similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for compensation, bonus, profit-sharing,
stock option, or other stock related rights or other forms of incentive
or deferred compensation, which (i) is not an Employee Plan, (ii) is
entered into, maintained or contributed to, as the case may be, by DTS
or any of its affiliates, and (iii) covers any employee or former
employee of DTS or any of its affiliates. Except to the extent that it
would not have, individually or in the aggregate, a DTS Material
Adverse Effect, each Benefit Arrangement has been maintained in
compliance with its terms and with the requirements prescribed by any
and all statutes, orders, rules and regulations that are applicable to
such Benefit Arrangement.
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5
(e) With respect to each Employee Plan and Benefit Arrangement (where
applicable): DTS has made available to Wi-LAN complete and accurate
copies of the following: (i) all plan texts and agreements; (ii) all
material employee communications (including summary plan descriptions);
(iii) the most recent annual report; (iv) the most recent annual and
periodic accounting of plan assets; (v) the most recent determination
letter received from the IRS; and (vi) the most recent actuarial
valuation.
(f) The consummation of the transactions contemplated by this Agreement and
the Related Agreements will not (i) entitle any individual to severance
pay, (ii) accelerate the time of payment or vesting of, or increase the
amount of, compensation due to any individual or (iii) result in the
payment of an amount that will be taken into account in determining
whether there is an "excess parachute payment" under Section 280G(b)(l)
of the Code.
1.13 Taxes
Except for such matters that would not have, individually or in the
aggregate, a DTS Material Adverse Effect, (a) DTS and its Subsidiaries have
timely filed all returns and reports required to be filed by them with any
taxing authority with respect to taxes, taking into account any extension of
time to file granted to or obtained on behalf of DTS and its Subsidiaries, (b)
all taxes required to be paid with respect to the periods covered by such
returns or reports that are due prior to the Related Agreement Closing Date have
been paid or will be paid prior to the Related Agreement Closing Date, (c) no
deficiency for any material amount of tax has been asserted or assessed by a
taxing authority against DTS or any of its Subsidiaries and remains unpaid, (d)
all liability for taxes of DTS or any of its Subsidiaries that are or will
become due or payable with respect to periods covered by the financial
statements referred to in section 1.8 have been paid or adequately reserved for
on such financial statements in accordance with generally accepted accounting
principles and (e) DTS and its Subsidiaries have withheld and paid all taxes
required to have been withheld or paid in connection with amounts paid to any
employee, independent contractor, creditor, stockholder or other third party.
1.14 Finders and Investment Bankers
There is no investment banker, broker, finder or other intermediary
which has been retained by or is authorized to act on behalf of DTS or any of
its Subsidiaries who might be entitled to any fee or commission in connection
with the transactions contemplated by this Agreement or the Related Agreements.
Neither DTS nor any of its Subsidiaries has entered into any contract,
arrangement or understanding to pay any fee or commission to any investment
banker, broker, finder or other intermediary on behalf of any significant
stockholders of DTS including, without limitation Finova or MicroTel, in
connection with the transactions contemplated by this Agreement or the Related
Agreements.
1.15 Anti-takeover Plan; State Takeover Statutes
Neither DTS nor any Subsidiary has in effect any plan, scheme, device
or arrangement, commonly or colloquially known as a "poison pill" or
"anti-takeover" plan or any similar plan, scheme, device or arrangement. The
Board of Directors of DTS has approved the Related Agreements and this Agreement
and the transactions contemplated thereby and hereby. Such approval is
sufficient to render inapplicable to the Related Agreements and this Agreement
and the transactions contemplated by this Agreement and the Related Agreements
the provisions of Section 203 of Delaware Law. To the best of DTS's knowledge,
no other state takeover statute or similar statute or regulation applies or
purports to apply to the Related Agreements, this Agreement, or any of the
transactions contemplated by this Agreement or the Related Agreements.
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1.16 Environmental Matters
Except as set forth in DTS SEC Reports (including the notes to the
financial statements attached thereto), to the knowledge of DTS, (A) DTS and
each of its Subsidiaries has obtained and is in material compliance with the
terms and conditions of all permits, licenses and other authorizations required
under applicable Environmental Laws; (B) DTS and each of its Subsidiaries is in
material compliance with all applicable Environmental Laws; (C) none of DTS or
any of its Subsidiaries has received written notice of any past or present
events, conditions, circumstances, activities, practices or incidents that have
resulted in or threatened to result in any common law or legal liability of DTS
or, any Subsidiary or otherwise form the basis of any claim, action, suit or
proceeding, hearing or investigation against DTS or any Subsidiary under any
Environmental Laws; and (D) DTS has no liabilities and there are no
circumstances or events related to DTS or its properties, assets or business
that are reasonably likely to result in any such liability under any
Environmental Laws, except to the extent that any of the matters addressed in
clauses (A) through (D) above would not, individually or in the aggregate,
constitute a DTS Material Adverse Effect. As used herein, "Environmental Laws"
means all federal, state and local statutes, regulations and ordinances
concerning pollution and protection of the environment, including, without
limitation all those relating to the presence, use, production, distribution,
labeling, testing, processing, discharge, release, threatened release, control,
or cleanup of any hazardous materials, substances or wastes, as such statutes,
regulations and ordinances are enacted and in effect at or prior to the Related
Agreement Closing Date. DTS has made available to Wi-LAN true, complete and
correct copies of all environmental reports in its possession relating to DTS or
its properties or assets.
1.17 Title to Properties; Absence of Liens and Encumbrances; Leases;
Condition of Facilities
(a) Except as set forth in DTS SEC Reports, DTS and its Subsidiaries have
good and insurable title to all of their real properties and interests
in real properties (fee simple title as to real properties owned by DTS
or its Subsidiaries) and good title to all their other properties and
assets, tangible and intangible, including all of the buildings,
structures and other improvements located on such real properties, free
and clear of all claims, encumbrances and other title defects other
than (i) as specifically disclosed in the consolidated balance sheet of
DTS at September 30, 1999, (ii) any liens for taxes not yet due and
payable or being contested in good faith by appropriate proceedings for
which adequate reserves have been provided in the consolidated balance
sheet of DTS at September 30, 1999, and (iii) such imperfections of
title, covenants, restrictions, easements and other non-monetary
encumbrances, if any, as do not, individually or in the aggregate,
materially detract from the value or materially interfere with the
present use of any of the properties of DTS or any of its Subsidiaries
or otherwise would not have, individually or in the aggregate, a DTS
Material Adverse Effect.
(b) The leases pursuant to which DTS or any of its Subsidiaries leases any
real or personal property are (i) valid and binding on DTS or the
applicable Subsidiary and (ii), to the knowledge of DTS, valid and
binding on all other respective parties to such leases in accordance
with their respective terms. There are not under such leases any
existing breaches, defaults, events of default by DTS or a Subsidiary
or events which with notice and/or lapse of time would constitute a
breach, default or event of default by DTS or a Subsidiary, nor does
DTS know, nor has DTS received notice of, or made a claim with respect
to, any breach or default, the consequences of which would have,
individually or in the aggregate, a material adverse effect on the
aggregate value of the properties of DTS and its Subsidiaries or a DTS
Material Adverse Effect. None of the rights of DTS or its Subsidiaries
under any such leases is subject to termination or modification as a
result of the transactions contemplated hereby, except where such
modification or termination would not have, individually or in the
aggregate, a DTS Material Adverse Effect. DTS has provided Wi-LAN with
true, correct and complete copies of all of the leases, subleases,
licenses, overleases and other similar agreements (including all
modifications, amendments and supplements thereto) with respect to real
property leased by DTS or its Subsidiaries.
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7
(c) To the knowledge of DTS, each of the facilities owned, leased or
managed by DTS or its Subsidiaries (each such facility, a "Facility")
is in all material respects suitable for its current and intended use
and is in all material respects in proper condition for such use.
1.18 Compliance with Laws; Government Approvals
The business of DTS and its Subsidiaries has been operated in
compliance with all laws, ordinances, regulations and orders of all governmental
entities, except for violations which would not have, individually or in the
aggregate, a DTS Material Adverse Effect. DTS and its Subsidiaries have all
permits, certificates, licenses, approvals, consents and other authorizations of
all governmental agencies (collectively, "Government Approvals"), whether
Federal, state or local, required by law with respect to the operation of their
businesses, except those the absence of which would not have, individually or in
the aggregate, a DTS Material Adverse Effect or prevent or delay consummation of
the transactions contemplated hereby . All such Government Approvals are in full
force and effect, and DTS and its Subsidiaries are in compliance in all material
respects with all conditions and requirements of the Government Approvals and
with all rules and regulations relating thereto. DTS has not received any
notices of violations of any Federal, state and local laws, regulations and
ordinances relating to its business and operations, including the Occupational
Safety and Health Act, the Americans with Disabilities Act, any applicable
Medicare or Medicaid, statutes and regulations, and any applicable law for
reimbursement for assisted living care or other type of care provided at each
Facility, license, certificate of need, ordinance, or governmental or regulatory
rule or regulation, whether Federal, state, local or foreign, to which DTS's
business, operations, assets or properties is subject and no notice of any
pending inspection of or violation of any such law, regulation or ordinance has
been received by DTS which, in the case of any of the foregoing, if it were
determined that a violation had occurred, would have a DTS Material Adverse
Effect.
1.19 Undisclosed Liabilities
Except as and to the extent reflected, reserved against or otherwise
disclosed in DTS's consolidated balance sheet at September 30, 1999 (including
the notes thereto), neither DTS nor any of its Subsidiaries had, at September
30, 1999, any liabilities or obligations of any kind, whether accrued, absolute,
asserted or unasserted, contingent or otherwise, whether or not such liabilities
would have been required to be disclosed on a balance sheet prepared in
accordance with generally accepted accounting principles consistently applied,
which would have, individually or in the aggregate, a DTS Material Adverse
Effect.
1.20 Insurance
DTS maintains, and has maintained, without interruption, during its
existence, policies or binders of insurance covering such risk, and events,
including personal injury, property damage and general liability in amounts DTS
reasonably believes adequate for its business and operations and such policies
shall not terminate as a result of the consummation of the transactions
contemplated hereby or by the Related Agreements.
1.21 Absence of Sensitive Payments
To DTS's knowledge, none of DTS, or any Subsidiary or affiliate or any
officer or director of any of them acting alone or together, has performed any
of the following acts, except to the extent that such acts, individually or
collectively, would not have a DTS Material Adverse Effect: (i) the making of
any contribution, payment, remuneration, gift or other form of economic benefit
(a "Payment") to or for the private use of any governmental official, employee
or agent where the Payment or the purpose of the Payment was illegal under the
laws of the United States or the jurisdiction in which such payment wag made,
(ii) the establishment or maintenance of any unrecorded fund, asset or liability
for any purpose or the making of any false or artificial entries on its books,
(iii) the making of any Payment to any person or the receipt of any Payment with
the intention or understanding that any part of the Payment was to be used for
any purpose other than that described in the documents supporting the Payment,
or (iv) the giving of any Payment to, or
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8
the receipt of any Payment from, any person who was or could have been in a
position to help or hinder the business of DTS or any Subsidiary (or assist DTS
or any Subsidiary in connection with any actual or proposed transaction) which
(A) would reasonably have been expected to subject DTS or any Subsidiary to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, (B) if not given in the past, would have had a DTS Material Adverse
Effect or (C) if it had not continued in the future, would have had a DTS
Material Adverse Effect.
1.22 Affiliate Transactions
Except to the extent disclosed in any DTS SEC Report, there are no
transactions, agreements, arrangements or understandings between DTS or its
Subsidiaries, on the one hand, and DTS's officers or directors, MicroTel, Finova
or any officer or director of MicroTel or Finova, any spouse or child of any
such person, or any Affiliates (other than wholly-owned Subsidiaries of DTS) nor
is DTS or any other Subsidiary indebted, directly or indirectly, to any of such
persons, or to their respective spouses or children, nor are any of such persons
indebted to DTS or any Subsidiary. None of such persons have any direct or
indirect ownership interest in any firm or corporation with which DTS or any
Subsidiary is affiliated or which DTS or a Subsidiary has a business
relationship. Neither DTS nor any Subsidiary is a guarantor or indemnitor of any
indebtedness of any other person. For purposes of this Agreement, the term
"Affiliate," when used with respect to any person, means any other person
directly or indirectly controlling, controlled by, or under common control with
such person. As used in the definition of "Affiliate," the term "control" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a person, whether through the
ownership of voting securities, by contract or otherwise.
1.23 Contracts
There is no contract, agreement or understanding required to be
described in or filed as an exhibit to any DTS SEC Report that is not described
in or filed as required by the Securities Act or the Exchange Act, as the case
may be. Except as would not individually or in the aggregate have a DTS Material
Adverse Effect, all such contracts, agreements and understandings are valid and
binding and are in full force and effect and enforceable in accordance with
their respective terms other than contracts, agreements or understandings which
are by their terms no longer in force or effect. No approval or consent of, or
notice to, any person is needed in order that such contract, agreement or
understanding shall continue in full force and effect in accordance with its
terms without penalty, acceleration or rights of early termination following the
consummation of the transactions contemplated by this Agreement and the Related
Agreements. Except to the extent any of the following would not individually or
in the aggregate have a DTS Material Adverse Effect, DTS is not in violation or
breach of or default under any such contract, agreement or understanding, nor to
DTS's knowledge is any other party to any such contract, agreement or
understanding. Except as set forth in DTS SEC Reports, DTS is not a party to any
contracts, agreements or arrangements (including leases of real property) (i)
restricting the ability of DTS or any of its Subsidiaries to compete or engage
in business or guarantees of indebtedness of any person (other than a
Subsidiary) or (ii) with MicroTel or Finova or any of its officers, directors or
affiliates which are not terminable by DTS without penalty on no more than
30-days' written notice. Neither MicroTel nor Finova or their respective
affiliates provide any services or benefits to DTS and its Subsidiaries the
absence of which individually or in the aggregate would have a DTS Material
Adverse Effect.
1.24 Intellectual Property
(a) Except for items that would not constitute a DTS Material Adverse
Effect, to DTS's knowledge, the Company is the lawful owner or has a
valid right to use the proprietary information used in its business
including, without limitation, free and clear of any claim, right,
trademark, patent or copyright protection of any third party; provided,
however, that this paragraph (a) shall not be deemed to include any
representation regarding the absence of infringements or conflicts with
the rights of others, which representation is made only in paragraph
(c) hereof. As used herein,"proprietary information" includes without
limitation (i) any computer software and any documentation, inventions,
and technical and
<PAGE>
9
nontechnical data related thereto, and (ii) other documentation,
inventions and data related to patterns, plans, methods, techniques,
drawings, finances, customer lists, suppliers, products, special
pricing and cost information, designs, processes, procedures, formulas,
research data owned or used by DTS or any Subsidiary or marketing
studies conducted by DTS all of which DTS considers to be commercially
important and competitively sensitive and which generally has not been
disclosed to third parties other than customers in the ordinary course
of business.
(b) To DTS's knowledge, DTS has good and marketable title to or has a valid
right to use all patents, trademarks, trade names, service marks,
copyrights or other intangible property rights, and registrations or
applications for registration thereof, owned by DTS or any Subsidiary
or used or required by DTS or any Subsidiary in the operation of its
business as presently being conducted including, without limitation,
the trademarks set forth in Schedule "B" hereto; provided, however,
that this paragraph (b) shall not be deemed to include any
representation regarding the absence of infringements or conflicts with
the rights of others, which representation is made only in paragraph
(c) hereof.
(c) DTS has no knowledge of any infringements or conflicts with asserted
rights of others with respect to copyrights, patents, trademarks,
service marks, trade names, trade secrets or other intangible property
rights or know-how which could cause a DTS Material Adverse Effect. To
DTS's knowledge, no products or processes of DTS infringe or conflict
with any rights of patent or copyright, or any discovery, invention,
product or process, that is the subject of a patent or copyright
application or registration known to DTS. DTS follows such procedures
as DTS deems necessary or appropriate to provide reasonable protection
of DTS's trade secrets and proprietary rights in intellectual property
of all kinds. To the knowledge of DTS, no person employed by or
affiliated with DTS has employed or proposes to employ any trade secret
or any information or documentation proprietary to any former employer,
and to the knowledge of DTS, no person employed by or affiliated with
DTS has violated any confidential relationship that such person may
have had with any third person, in connection with the development,
manufacture or sale of any product or proposed product or the
development or sale of any service or proposed service of DTS.
1.25 Limited Offering
The offer, sale and issuance of the Convertible Debentures and DTS
Shares is exempt from the registration requirements of the Securities Act, and
neither DTS nor any authorized agent acting on its behalf has taken or will take
any action hereafter that would cause the loss of such exemption.
1.26 Registration Obligations
DTS is not under any obligation to register under the Securities Act or
the Trust Indenture Act of 1939, as amended, any of its presently outstanding
securities or any of its securities that are proposed to be subsequently issued.
1.27 Accounting Matters
DTS and each of its Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for the assets of DTS and each of its
Subsidiaries; (iii) access to the assets of DTS and each of its Subsidiaries is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets of DTS and each
of its Subsidiaries are compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
<PAGE>
10
1.28 Prior Sales
All offers and sales of DTS's capital stock prior to the date hereof
were at all relevant times (i) exempt from the registration requirements of the
Securities Act or were duly registered under the Securities Act, and (ii) were
duly registered or were the subject of an available exemption from the
registration requirements of all applicable state securities or Blue Sky laws.
1.29 Hart-Scott-Rodino Representation
As of the date hereof and as of the Closing Date, the annual net sales
and total assets of DTS, as determined in accordance with the regulations
promulgated under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, are
less than U.S.$25,000,000.
1.30 DTS Securities Acquired by Wi-LAN
(a) The DTS Shares acquired by Wi-LAN pursuant to the Related Agreements
are listed on the Nasdaq Over-The-Counter Market.
(b) The DTS Shares issuable upon conversion of the DTS securities acquired
by Wi-LAN pursuant to the Related Agreements have been authorized for
listing, subject to official notice of issuance, on the Nasdaq
Over-The-Counter Market.
(c) Other than unregistered securities trading restrictions under federal
and state laws of the United States and the U.S.$2,000,000 convertible
debenture which Wi-LAN is acquiring from Finova which may not be
transferred to a "competitor" of DTS without DTS's consent, the DTS
Shares and the DTS securities which Wi-LAN is acquiring pursuant to the
Related Agreements are transferrable, are freely exercisable by Wi-LAN
and no third party consent is required in connection with any such
exercise.
<PAGE>
SCHEDULE "B"
LIST OF INTELLECTUAL PROPERTY OWNED BY DTS
<PAGE>
SCHEDULE "C"
PROMISSORY NOTE
U.S.$400,000 Date: December 29, 1999
FOR VALUE RECEIVED, the undersigned, DIGITAL TRANSMISSION SYSTEMS, INC.,
("DTS"), a Delaware corporation, (the "Maker") promises to pay to the order of
WI-LAN, INC., ("Wi-LAN") an Alberta, Canada corporation, its successors and
assigns (the "Lender" or "Holder") with its principal place of business in
Calgary, Alberta, Canada, or elsewhere as directed from time to time in writing
by the Holder hereof, the principal sum of Four Hundred Thousand dollars
($400,000), together with interest thereon at the rate of ten percent (10%) per
annum, in lawful money of the United States of America, payable as follows:
Interest shall accrue from the period of December 29, 1999, until such time as
the entire principal sum herein is repaid in full, on the principal amount at an
annual rate of Ten Percent (10%); and a one-time payment of U.S.$400,000 and
accumulated interest due and payable on the closing date of the sale by DTS to
Wi-LAN of a U.S.$1,500,000 convertible debenture pursuant to that certain
convertible debenture purchase agreement executed by DTS and Wi-LAN on even date
herewith; and, should the Related Agreement Closing Date (as defined in the said
convertible debenture purchase agreement) not have occurred on or before January
31, 2000, the loan amount of U.S.$50,000 will be forgiven by the Holder and the
remaining principal amount of U.S.$350,000 will be payable in consecutive,
monthly installments of U.S.$17,500, commencing March 1, 2000 and continuing on
the first day of each successive month thereafter until the principal sum of
U.S.$350,000 and interest is paid in full.
Payment not received within five (5) days of the due date shall be deemed a
default under this Note. If the undersigned defaults in the payment hereunder,
the Note shall bear interest at the annual rate of 15% ("default rate") on the
amount then due and payable. Upon default for non-payment of the Note, the
entire principal balance of this obligation, together with accrued interest,
shall, at the Holder's election, become immediately due and payable.
As set forth in the convertible debenture purchase agreement executed by DTS and
Wi-LAN on even date herewith, Holder shall have the option to convert the
principal amount of the Note and any accrued interest on the Note into an
equivalent principal amount of Convertible Debentures (as defined in the said
convertible debenture purchase agreement) if the Related Agreement Closing Date
(as defined in the said convertible debenture purchase agreement) shall not have
occurred on or before January 31, 2000.
Maker shall provide Holder with copies of Maker's financial statements,
including balance sheets, income statements and cash flow projections, prepared
on a monthly basis, on or before the fifteenth (15th) of each month. Failure to
provide said financial statements may constitute a default under this Note, at
the sole discretion of Holder.
As security for the amount due herein, the Maker pledges as collateral, all of
the assets ("Assets") set forth in that certain security agreement executed by
the Maker and Holder on even date herewith. The rights or remedies of the Holder
as provided in this Note and said security agreement shall be cumulative and
concurrent, and may be pursued singularly, successively, or together against the
property described in the security agreement. The failure to exercise any such
right or remedy shall in no event be construed as a waiver or release of such
rights or remedies or the right to exercise them at any later time.
Maker shall have the privilege to prepay the indebtedness evidenced hereby, in
whole or in part at any time after February 15, 2000. Partial prepayments shall
first be applied against accrued interest then due and owing, and thereafter
against principal. Any partial prepayment shall not postpone the due date or
change the amount of any subsequent payment.
All persons or entities now or at anytime liable for payment of this Note hereby
waive presentment, protest, notice of protest and dishonor. The Maker and all
persons/entities liable hereunder expressly consent to any
<PAGE>
2
extensions or renewals, in whole or in part, and all delays in timely payment or
other performance which Holder may grant at any time and from time to time
without limitation and without any notice or further consent of the undersigned.
In the event this Note is placed in the hands of an attorney for collection by
civil action the prevailing party shall be entitled to an award of its
attorneys' fees and costs, including those on appeal.
This Note is to be construed and enforced according to the laws of the State of
Georgia or, if Holder elects the benefit thereof, applicable Federal pre-emption
laws. The venue for instigation of a lawsuit to collect any sum due herein shall
be Gwinnett County, Georgia.
DIGITAL TRANSMISSION SYSTEMS, INC.
Per:
----------------------------------
Andres C. Salazar
Chief Executive Officer
<PAGE>
3
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made this 29th of December, 1999, by
and between DIGITAL TRANSMISSION SYSTEMS, INC., ("DTS"), a Delaware corporation,
(the "Debtor"), and WI-LAN, INC., ("Wi-LAN") an Alberta, Canada corporation (the
"Secured Party"), collectively referred to as the "parties", who agree as
follows:
Debt and Collateral. The Debtor grants to the Secured Party a security interest
in the Collateral as described on the attached Exhibit "A", which are
collectively described as the "Assets" in the Promissory Note, dated on the even
date herewith with DTS, as MAKER, (the "Note"), together with all proceeds
thereof, until full payment of the sum of Four Hundred Thousand dollars
($400,000) in lawful money of the United States of America is made to the order
of the Secured Party. The Obligation for payment as described herein shall be
secured by the Collateral held by the Debtor or its licensee at any of its
places of business. Debtor agrees to execute any and all documents requested by
Secured Party to perfect its secured interest, including financing statements
and UCC-1 filings, and in default thereof appoints Secured Party
Attorney-in-Fact to execute such documents.
Risk of Loss. The Collateral is to remain in the possession of the Debtor or its
licensee, at all times, at the Debtor's risk of loss or destruction. The
possession by the Debtor or its licensee shall continue as long as the
provisions of this Security Agreement are observed.
Release of Debtor. No transfer, renewal, extension, or assignment of this
Security Agreement or any interest hereunder, and no loss, damage or destruction
of the Collateral, shall release the Debtor from the Obligations described
herein. Debtor shall be released from all security interests and corresponding
lien of the Secured Party upon complete satisfaction of the Obligation.
Use of Collateral. The Debtor or its licensee shall at all times keep the
Collateral free of all taxes, liens and encumbrances, and any sums of money that
may be paid by the Secured Party in release or discharge thereof shall be
payable on demand as an additional part of the Obligation secured hereby. The
Debtor or its licensee shall not use the collateral in any manner other than in
the ordinary course of business. The Debtor or its licensee shall not pledge,
loan, grant or create any other additional security interest in the Collateral
until the Obligations described herein have been discharged, and shall not
transfer or otherwise dispose of the Collateral except as provided in this
Agreement. The Secured Party shall have the right to inspect the Collateral at
any reasonable time or times during the continuance of this Agreement.
Sale or Licensing of Collateral in Ordinary Course of Business. Debtor may sell
or license the Collateral in the ordinary course of business; provided, however
that any and all proceeds generated by the sale or licensing of the Collateral,
in whatever form, shall be fully and faithfully accounted for.
Default. (a) Should Debtor default in the prompt payment of any Obligation or in
the due performance of or compliance with any of the terms, provisions or
conditions of this Agreement, the Note, or any other document executed in
connection therewith (collectively "Security Documents") or a proceeding in
bankruptcy, insolvency, receivership or reorganization is instituted by or
against the Debtor or its property or the business of the Debtor is in any way
liquidated, or the Secured Party reasonably deems itself insecure of the
Collateral or any part thereof is in danger of loss, misuse, seizure, or
confiscation, the Secured Party shall have all the rights and remedies provided
in the Uniform Commercial Code in force in the State of Florida at the date of
execution of this Security Agreement. The Secured Party or any Sheriff or other
officer of the law may take immediate possession of the Collateral, including
any attachments or accessories thereto, without demand or further notice and
without legal process. (b) Notwithstanding anything contained herein to the
contrary, payment for any principal and interest shall be due and payable in
accordance with the terms of the Note. Failure of Debtor to pay after the
applicable cure period to pay expires, pursuant to said terms, shall constitute
a material default hereunder and all rights and remedies accorded Secured Party
within this Agreement, at law and in equity shall be available.
<PAGE>
4
Attorney's Fees. In the event of repossession of the Collateral, the Secured
Party shall have such rights and remedies as provided and permitted by law for
the purpose of recovering and disposing of the Collateral. The Debtor shall pay
all attorneys fees and legal expenses incurred by the Secured Party in the event
repossession of the Collateral is required.
Governing Law/Venue. This Agreement shall be construed and governed in
accordance with the laws of the State of Florida and venue shall be in Gwinnett
County, Georgia.
Binding Effect. This Agreement shall be binding upon the parties, their heirs,
executors, personal representatives, successors or assigns, where permitted.
Entire Agreement. This Agreement is the entire agreement between Debtor and
Secured Party. No addition, alteration, modification hereto and no waiver of any
of the provisions hereof shall be valid unless made in writing and executed by
Debtor and Secured Party.
IN WITNESS WHEREOF, this Security Agreement was signed and executed on this 29th
day of December, 1999.
DIGITAL TRANSMISSION SYSTEMS, INC.
Per:
----------------------------------
Andres C. Salazar
Chief Executive Officer
WI-LAN INC.
Per:
----------------------------------
Hatim Zaghloul
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT "A"
The term "Assets" shall include:
Assets.
(a) All furniture, fixtures, equipment, inventory, stock in trade, accounts
receivable, contract rights, tangible or intangible property, including
without limitation all patents, trademarks, trade names, service marks,
copyrights or other intangible property rights, and registrations or
applications for registration thereof, and any other personal property
now or hereafter owned by Debtor.
(b) All accessions to, substitutions for, and all replacement of, products
and cash and non-cash proceeds of (a) above.
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY
NOT BE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR (ii) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED IN CONNECTION WITH SUCH TRANSFER.
DIGITAL TRANSMISSION SYSTEMS, INC.
11.50% Subordinated Debenture due September 25, 2002
No. ________ Atlanta, Georgia
$4,000,000.00 September 25, 1977
FOR VALUE RECEIVED, Digital Transmission Systems, Inc., a Delaware
corporation (the "Company"), promises to pay to the order of Sirrom Capital
Corporation d/b/a Tandem Capital, a Tennessee corporation ("Purchaser"),
pursuant to the Debenture Purchase Agreement (as hereinafter defined) at such
place as Purchaser may from time to time designate in writing, in lawful money
of the United States of America and in immediately available funds, by automatic
debit, the principal sum of Four Million Dollars ($4,000,000.00) and any accrued
but unpaid interest thereon.
This Debenture is referred to in and is execute and delivered pursuant
to, a Debenture Purchase Agreement dated of even date herewith between the
Company and Purchaser (the "Debenture Purchase Agreement"), to which reference
is hereby made for a statement of the terms and conditions under which this
Debenture may be repaid and accelerated. Capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Debenture Purchase
Agreement.
Interest shall accrue from the date of issue of this Debenture at the
rate of 11.50% per annum, payable quarterly by automatic debit on the first day
of each March, June, September and December, commencing December 1, 1997, and
ending at maturity, to mature on September 25, 2002.
Interest shall be computed on the basis of a 360-day year and the
actual number of days elapsed.
Any principal payment due under this Debenture not paid when due,
whether at stated maturity, by notice of repayment, by acceleration or
otherwise, and any accrued but unpaid interest shall, to the extent permitted by
applicable law, thereafter bear interest (compounded monthly and payable upon
demand) at an annual rate of 15% in respect of such principal and such unpaid
interest until such unpaid amounts have been paid in full (whether before or
after judgment).
<PAGE>
2
This Debenture is subject to (i) optional redemption by the Company
without penalty and as provided by Section 1.2 of the Debenture Purchase
Agreement, and (ii) mandatory redemption at the election of the holder and as
provided by Section 1.3 of the Debenture Purchase Agreement. All payments made
hereunder shall be applied first to interest and then to outstanding principal.
If payment hereunder becomes due and payable on a Saturday, Sunday, or
legal holiday, under the laws of the State of Tennessee, the due date thereof
shall be extended to the next succeeding business day.
Demand, presentment, protest, diligence, notice of dishonor, and any
other formality are hereby expressly waived by the Company and any endorser or
guarantor.
If there is any default under this Debenture, and this Debenture is
placed in the hands of an attorney for collection, or is collected through any
court, including any bankruptcy court, the Company promises to pay to the order
of the holder hereof such holder's reasonable attorneys' fees and court costs
actually incurred in collecting or attempting to collect or securing or
attempting to secure this Debenture or enforcing the holder's rights with
respect to the Collateral, to the extent allowed by the laws of the State of
Tennessee or any state in which any Collateral is situated.
THIS DEBENTURE HAS BEEN DELIVERED IN, AND SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF, THE STATE OF GEORGIA APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICTS OF
LAW PROVISIONS THEREOF.
The holder of this Debenture may, with or without notice to any party,
and without affecting the obligations of any maker, surety, guarantor, endorser,
accommodation party, or any other party to this Debenture (i) extend the time
for payment of either principal or interest from time to time, (ii) release or
discharge any one or more parties liable on the Debenture, (iii) suspend the
right to enforce this Debenture with respect to any persons, (iv) change,
exchange, or release any property in which the holder has any interest securing
this Debenture, (v) justifiably or otherwise, impair any of the Collateral or
suspend the right to enforce against any such Collateral, and (vi) at any time
it deems it necessary or proper, call for and, should it be made available,
accept, as additional security, the signature or signatures of additional
parties or a security interest in property of any kind or description or both.
This Debenture is subordinated to certain other indebtedness of the
Company to the extent and with the effect set forth in the Debenture Purchase
Agreement.
This Debenture is registered on the books of the Company and is
transferable only by surrendered thereof at the principal office of the Company
at
<PAGE>
3
3000 Northwoods Parkway, Building 330, Norcross, Georgia 30071, or such other
address as the Company shall have advised the holder of the Debenture in
writing, duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of this Debenture or its attorney duly
authorized in writing. Payment of or on account of principal, premium, if any,
and interest on this Debenture shall be made only to or upon the order in
writing of the registered holder thereof.
Any provision herein, or in the Debenture Purchase Agreement, or any
other document executed or delivered in connection herewith or therewith, or in
any other agreement or commitment, whether written or oral, expressed or
implied, to the contrary notwithstanding, neither the Purchaser nor any holder
hereof shall in any event be entitled to receive or collect, nor shall any
amounts received hereunder be credited, so that Purchaser or any holder hereof
shall be paid, as interest, a sum greater than the maximum amount permitted by
applicable law to be charged to the person primarily obligated to pay this
Debenture at the time in question. If any construction of this Debenture or the
Debenture Purchase Agreement, or any and all other papers, agreements or
commitments, indicate a different right given to Purchaser or any holder hereof
to ask for, demand, or receive any larger sum as interest, such is a mistake in
calculation or wording which this clause shall override and control, it being
the intention of the parties that this Debenture, the Debenture Purchase
Agreement, and all other documents executed or delivered in connection herewith
shall in all ways comply with applicable law and proper adjustments shall
automatically be made accordingly. If Purchaser or any holder hereof ever
receives, collects, or applies as interest, any sum in excess of the maximum
amount permitted by applicable law, if any, such excess amount shall be applied
to the reduction of the unpaid principal balance of this Debenture, and if this
Debenture is paid in full, any remaining excess shall be paid to the Company. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the maximum amount permitted by applicable law, if any, the
Company and any holder hereof shall, to the maximum extent permitted under
applicable law: (i) characterize any non-principal payment as an expense or fee
rather than as interest, and (ii) "spread" the total amount of interest
throughout the entire term of the Debenture.
[rest of page intentionally left blank]
<PAGE>
4
IN WITNESS WHEREOF, the Company has caused this Debenture to be
executed in its corporate name by the undersigned officer, thereunto duly
authorized.
DIGITAL TRANSMISSION SYSTEMS, INC.
By: /s/ Andres C. Salazar
-----------------------------
Name: Andres C. Salazar
-----------------------------
Title: President and CEO
-----------------------------
Pay to the order of WI-LAN INC.
without recourse
January 7, 2000
FINOVA MEZZANINE CAPITAL INC.
(f/k/a Sirrom Capital Corporation)
By: /s/ Donald F. Barrirkman
-----------------------------
Donald F. Barrirkman, Vice President
<PAGE>
5
THIRD AMENDMENT TO SUBORDINATED DEBENTURE
This Third Amendment to the Subordinated Debenture ("Amendment") is
made and entered into as of the 7th day of January, 2000, by and between DIGITAL
TRANSMISSION SYSTEMS, INC. (the "Company"), a Delaware corporation, and WI-LAN,
INC. (the "Transferee").
W I T N E S S E T H :
WHEREAS, Finova Mezzanine Capital Inc. ("Finova") and the Company
previously executed that 11.5% Subordinated Debenture due September 25, 2002, in
the original principal amount of $4,000,000, as amended by that First Amendment
to Subordinated Debenture dated as of October 21, 1998 and the Second Amendment
to the Subordinated Debenture dated as of February 5, 1999 (the "Debenture");
WHEREAS, effective the date hereof, Finova has transferred the
Debenture to Transferee and immediately upon such transfer Transferee exercised
its conversion rights with respect to $1,310,000 principal amount of the
Debenture;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are acknowledged, it is agreed as follows:
1. The Debenture is hereby amended so that the Principal Amount of the
Debenture shall be $690,000.
2. The Debenture remains in full effect, as amended hereby.
[The Remainder of this page is intentionally left blank]
<PAGE>
6
Executed as of the dated stated above.
DIGITAL TRANSMISSION SYSTEMS, INC.
By: /s/ Andres C. Salazar
-----------------------------
Title: Chief Executive Officer
-----------------------------
WI-LAN, INC.
By: [Signature Not Legible]
-----------------------------
Title: Chief Executive Officer
-----------------------------
PURCHASE AGREEMENT made the 29th day of December, 1999.
BETWEEN:
WI-LAN INC., a body corporate, incorporated pursuant to the laws of the
Province of Alberta (hereinafter referred to as the "Purchaser")
OF THE FIRST PART
AND
FINOVA MEZZANINE CAPITAL INC., a body corporate, incorporated pursuant
to the laws of the State of Tennessee (hereinafter referred to as the
"Vendor")
OF THE SECOND PART
WHEREAS the Vendor is the beneficial owner of the Debenture, the DTS
Preferred Shares, the DTS Warrants and the LinkaNet Warrants;
AND WHEREAS the Vendor has agreed to sell, transfer and assign and the
Purchaser has agreed to purchase and acquire, the Debenture, the DTS Warrants
and the LinkaNet Warrants and the Vendor has agreed to grant and the Purchaser
has agreed to acquire the Option with respect to the Vendor's DTS Preferred
Shares upon the terms and conditions set forth herein;
In consideration of the premises, covenants and agreements herein and
other good and valuable consideration (the receipt and sufficiency of which is
hereby acknowledged), the parties hereto covenant and agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Agreement, unless the context otherwise requires:
(a) "Agreement" means this agreement, including the recitals, as amended or
supplemented from time to time, and "hereby", "hereof", "herein",
"hereunder", "herewith", "hereto" and similar terms refer to this
Agreement and not to any particular provision of this Agreement;
(b) "business day" means a day, other than a Saturday, Sunday or statutory
holiday, when banks are generally open for the transaction of banking
business in the City of Calgary;
(c) "Closing" means the closing of the transactions contemplated herein;
(d) "Closing Date" means January 7, 2000 or such later date upon which the
transactions contemplated by the Related Agreements have been completed
or such other date as may be agreed upon by the parties hereto;
(e) "Closing Time" means 2:00 p.m. (Calgary time), or such other time as
may be agreed upon by the parties hereto, on the Closing Date;
(f) "Corporation" or "DTS" means Digital Transmission Systems, Inc., a body
corporate incorporated under the laws of the State of Delaware;
<PAGE>
2
(g) "Debenture" means the DTS debenture in the principal amount of U.S.
$2,000,000 which is convertible into 2,000,000 DTS Common Shares;
(h) "DTS Common Shares" means common shares in the capital stock of the
Corporation, as constituted on the date hereof;
(i) "DTS Preferred Shares" means 1,314,333 preferred shares in the capital
stock of the Corporation, as constituted on the date hereof;
(j) "DTS Warrants" means the Stock Purchase Warrant dated as of February 5,
1999 entitling the holder thereof to acquire 702,615 DTS Common Shares
at an exercise price of U.S. $1.00 per share until March 1, 2004;
(k) "Encumbrance" includes, without limitation, any mortgage, pledge,
assignment, charge, lien, security interest, claim, trust, royalty,
carried, working, participation, net profits interest or other third
party interest and any agreement, option, right or privilege (whether
by law, contract or otherwise) capable of becoming any of the
foregoing;
(l) "Escrow Agent" means Boult, Cummings, Conners & Berry PLC;
(m) "Escrow Release Date" means that date which is six months from the
Closing Date;
(n) "Exchange" means The Toronto Stock Exchange;
(o) "Floor Value" means the value of the Vendor's Wi-LAN Common Shares on a
certain date equal to:
the closing price of the Wi-LAN Common Shares on the Exchange on the
last trading day prior to the applicable valuation date X the United
States/Canadian currency base noon exchange rate at the Federal Reserve
Bank of New York on the last trading day prior to the applicable
valuation date
(p) "LinkaNet" means LinkaNet Labs, Inc., a body corporate incorporated
under the laws of Georgia;
(q) "LinkaNet Common Shares" means common shares in the capital stock of
LinkaNet, as constituted on the date hereof;
(r) "LinkaNet Warrants" means the Stock Purchase Warrant dated as of
February 5, 1999 entitling the holder thereof to acquire 538,461
LinkaNet Common Shares at an exercise price of 50% of the Fair Market
Value (as defined in the Stock Purchase Warrant) of the LinkaNet Common
Shares;
(s) "Option" means the option granted by the Vendor to the Purchaser at the
Closing Time which option will entitle the Purchaser to acquire from
the Vendor any or all of the DTS Preferred Shares owned by the Vendor
at an exercise price of U.S. $1.00 per share at any time and from time
to time for a term of two years from the Closing Date which option
shall, in addition, provide the Purchaser with a right of first refusal
to exercise the option in the event the Vendor wishes to sell or
convert all or some of the DTS Preferred Shares, and provide that the
Vendor agrees not to sell or convert the DTS Preferred Shares for a
period of one year from the Closing Date;
(t) "person" includes an individual, partnership, firm, trust, body
corporate, governmental authority, unincorporated body of persons or
association;
(u) "Public Record" means all information filed with the Securities
Commissions;
(v) "Purchaser" or "Wi-LAN" means Wi-LAN Inc., a body corporate
incorporated under the laws of the Province of Alberta;
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3
(w) "Purchaser's Counsel" means Burnet, Duckworth & Palmer or such other
legal counsel as may be designated by the Purchaser;
(x) "Related Agreements" means the agreements of even date herewith entered
into between the Purchaser and MicroTel International, Inc. and the
Purchaser and DTS;
(y) "Securities Commissions" means the securities commissions or similar
regulatory authority in the Provinces of Alberta, Manitoba and Ontario;
(z) "Vendor's Counsel" means Boult, Cummings, Conners & Berry PLC or such
other legal counsel as may be designated by the Vendor;
(aa) "Vendor's Wi-LAN Common Shares" means that number of Wi-LAN Common
Shares to be issued by the Purchaser to the Vendor at the Closing Time
equal to:
U.S. $2,000,000 + (0.10 X U.S. $2,000,000 per annum from February 5,
1999 until the Escrow Release Date) (the closing price of the Wi-LAN
Common Shares on the Exchange on the last trading day prior to the
Closing Date X the United States/Canadian currency base noon exchange
rate at the Federal Reserve Bank of New York on the last trading day
prior to the Closing Date)
(bb) "Wi-LAN Common Shares" means common shares of the Purchaser as a class,
as constituted on the date hereof.
1.2 Schedules
The following Schedules form part of this Agreement:
Schedule A Vendor's Representation Letter
Schedule B The Toronto Stock Exchange Private Placement
Questionnaire and Undertaking
Schedule C Purchaser's Representation Letter
1.3 Headings
The division of this Agreement into articles, sections and paragraphs
and the insertion of headings are for convenience of reference only and shall
not affect in any way the meaning or interpretation of this Agreement.
1.4 Section References
Unless the context otherwise requires, references in this Agreement to
an article, section, paragraph, clause, subclause or schedule by number, letter
or otherwise refer to the article, section, subsection, paragraph, clause,
subclause or schedule, respectively, bearing that designation in this Agreement.
1.5 Gender, Plural
In this Agreement, unless the contrary intention appears, words
importing the singular include the plural and vice versa; words importing gender
shall include all genders.
1.6 Date for Actions
In the event that the date on which any action is required to be taken
hereunder by any of the parties is not a business day in the place where the
action is required to be taken, such action shall be required to be taken on the
next succeeding day which is a business day in such place.
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4
1.7 Enforceability
All representations and warranties in or contemplated by this Agreement
as to the enforceability of any agreement or document are subject to
enforceability being limited by applicable bankruptcy, insolvency,
reorganization and other laws affecting creditors' rights generally and the
discretionary nature of certain remedies (including specific performance and
injunctive relief).
ARTICLE 2
PURCHASE AND SALE
2.1 Agreement to Purchase and Sell
At the Closing Time, the Vendor agrees to sell, transfer and assign to
the Purchaser or its nominee, and the Purchaser or its nominee agree to purchase
and acquire from the Vendor:
(a) the Debenture;
(b) the Option;
(c) the DTS Warrants; and
(d) the LinkaNet Warrants,
in exchange for the Vendor's Wi-LAN Common Shares.
2.2 Execution of Purchase and Sale
At the Closing Time, the Purchaser shall deliver to the Vendor a share
certificate representing the Vendor's Wi-LAN Common Shares against delivery by
the Vendor to the Purchaser of:
(a) the Debenture owned by the Vendor, duly endorsed in blank for transfer,
or accompanied by duly executed powers of attorney for transfer in
blank;
(b) a duly executed option agreement in respect of the Option in a form
satisfactory to the Purchaser and the Purchaser's Counsel;
(c) the DTS Warrants owned by the Vendor, duly endorsed in blank for
transfer, or accompanied by duly executed powers of attorney for
transfer in blank; and
(d) the LinkaNet Warrants owned by the Vendor, duly endorsed in blank for
transfer, or accompanied by duly executed powers of attorney for
transfer in blank.
2.3 Deposit of Wi-LAN Common Shares in Escrow
At the Closing Time, the Vendor shall deliver to the Escrow Agent the
share certificate representing the Vendor's Wi-LAN Common Shares issued by the
Purchaser which shares shall be held by the Escrow Agent in escrow and released
on the Escrow Release Date.
2.4 Purchase Price Protection
If the Floor Value of the Vendor's Wi-LAN Common Shares on the Escrow
Release Date is less than the Floor Value of the Vendor's Wi-LAN Common Shares
on the Closing Date, Wi-LAN shall pay the difference to Finova in U.S. cash on
the Escrow Release Date.
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2.5 Purchase Price Upside Limitation
If the Floor Value of the Vendor's Wi-LAN Common Shares on the Escrow
Release Date is greater than 125% of the Floor Value of the Vendor's Wi-LAN
Common Shares on the Closing Date Finova shall be entitled to retain the
increase up to 25% of the Floor Value of the Vendor's Wi-LAN Common Shares on
the Closing Date with the balance of the increase over this threshold being
retained by Wi-LAN. In the event this clause is applicable, the Escrow Agent
shall forthwith sell that number of the Vendor's Wi-LAN Common Shares to enable
the Escrow Agent to deliver to the Purchaser the proceeds representing any
increase over 25% of the Floor Value of the Vendor's Wi-LAN Common Shares on the
Closing Date.
2.6 Listing of Wi-LAN Common Shares
The Purchaser agrees to use its reasonable best efforts to ensure that
the Wi-LAN Common Shares will continue to be listed on the Exchange for a
minimum of nine months after the Closing Date to enable the Vendor to sell the
Vendor's Wi-LAN Common Shares under Regulation S of the Securities Act of 1933,
as amended.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE VENDOR
3.1 Representations and Warranties of the Vendor
The Vendor represents and warrants to the Purchaser that:
(a) the Vendor is duly and validly incorporated, organized and existing
under the laws of its jurisdiction of incorporation;
(b) the Vendor has all requisite power and authority to enter into this
Agreement and all documents to be delivered pursuant hereto and to
perform its obligations hereunder and thereunder;
(c) the Vendor owns the Debenture, the DTS Preferred Shares, the DTS
Warrants and the LinkaNet Warrants and has full power and authority to
transfer the Debenture, the DTS Warrants and the LinkaNet Warrants to
the Purchaser, to grant the Option to the Purchaser and to receive the
Wi-LAN Common Shares therefor and to agree to the terms, conditions and
provisions herein contained;
(d) all of the Debenture, the DTS Warrants and the LinkaNet Warrants
transferred hereunder are owned by the Vendor as the sole beneficial
owner with good, valid and marketable title and good, valid and
marketable title to such securities will vest in the Purchaser as a
result of the consummation of the transactions contemplated herein free
and clear of any Encumbrances, voting trusts, unanimous or other
shareholder agreements, proxies and other interests, claims or demands
of every kind or nature whatsoever (other than such as may be created
by or on account of the Purchaser);
(e) all of the DTS Preferred Shares which are the subject of the Option are
owned by the Vendor as the sole beneficial owner with good, valid and
marketable title and good, valid and marketable title to such
securities free and clear of any Encumbrances, voting trusts, unanimous
or other shareholder agreements, proxies and other interests, claims or
demands of every kind or nature whatsoever;
(f) except pursuant to this Agreement and the rights granted to the
Corporation in the documents being transferred, no person has any
agreement, option, right or privilege (including, without limitation,
whether by law, pre-emptive right, contract or otherwise) to purchase,
convert into, exchange for or otherwise acquire, nor any agreement,
option, right or privilege capable of becoming any such agreement,
option, right or privilege, any of the Vendor's Debenture, DTS
Preferred Shares, DTS Warrants or LinkaNet Warrants, or any interest
therein;
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6
(g) neither the Debenture, the DTS Preferred Shares, the DTS Warrants, the
LinkaNet Warrants nor the DTS Common Shares issuable upon conversion of
the Debenture, the DTS Preferred Shares and the DTS Warrants are
subject to any trading restrictions under federal or state laws in the
United States, other than those of general application to unregistered
securities;
(h) other than unregistered securities trading restrictions under federal
and state laws of the United States and the Debenture which may not be
transferred to a "competitor" of DTS without DTS's consent, the
Debenture, the DTS Preferred Shares, the DTS Warrants and the LinkaNet
Warrants are transferable, are freely exercisable by the Purchaser and
no third party consent is required in connection with any such
exercise;
(i) there are no actions, suits or proceedings commenced, pending or
threatened against the Vendor with respect to the Debenture, the DTS
Preferred Shares, the DTS Warrants or the LinkaNet Warrants;
(j) the execution and delivery of this Agreement does not and will not
result in a breach of, or constitute a default under, any term or
provision of any agreement or other documents to which the Vendor is a
party;
(k) the Vendor has not incurred any obligation or liability, contingent or
otherwise, for brokerage fees, finders' fees, agents' commission or
similar forms of compensation with respect to the transactions
contemplated herein;
(l) the Vendor will not resell the Wi-LAN Common Shares it receives
hereunder except in accordance with the provisions of applicable
securities legislation and the rules of the Exchange;
(m) the Vendor has executed this Agreement in the United States, and it has
concurrently executed and delivered the Representation Letter attached
as Schedule A to this Agreement;
(n) if required by applicable securities legislation, policy or order or by
any securities commission, stock exchange or other regulatory
authority, the Vendor will execute, deliver, file and otherwise assist
the Corporation in filing, such reports, undertakings and other
documents with respect to the issue of the Wi-LAN Common Shares to the
Vendor (including, without limitation, any undertaking required by the
Exchange in the form attached as Schedule B to this Agreement); and
(o) this Agreement has been duly executed and delivered by the Vendor and
all documents to be delivered by the Vendor pursuant hereto will be
duly executed and delivered and this Agreement does and such documents
will constitute legal, valid and binding obligations of the Vendor
enforceable in accordance with their respective terms.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.1 Representations and Warranties of the Purchaser
The Purchaser represents and warrants to the Vendor that:
(a) the Purchaser is validly and duly incorporated, organized and validly
existing under the law of the jurisdiction of its incorporation;
(b) the information and statements set forth in the Public Record, as it
relates to the Purchaser, were true, correct and complete and did not
contain any misrepresentation, as of the respective dates of such
information or statements and no material adverse change has occurred
in relation to the Purchaser which is not disclosed in the Public
Record;
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7
(c) at the Closing Time the Vendor's Wi-LAN Common Shares will be listed
and posted for trading on the Exchange and will be duly issued and
non-assessable and free and clear of any Encumbrances, voting trusts,
unanimous or other shareholder agreements, proxies and other interests,
claims or demands of every kind or nature whatsoever (other than such
as may be created by or on account of the Vendor);
(d) the Purchaser has all requisite power and authority to enter into this
Agreement and all documents to be delivered pursuant hereto and to
perform its obligations hereunder and thereunder;
(e) the execution and delivery of this Agreement does not and will not
result in a breach of, or constitute a default under, any term or
provision of any agreement or other documents to which the Purchaser is
a party;
(f) the Purchaser has executed this Agreement in Canada, and it has
concurrently executed and delivered the Representation Letter attached
as Schedule C to this Agreement;
(g) it acknowledges that the Vendor has made no representation or warranty
regarding the financial condition, assets, operation or prospects of
DTS or of LinkaNet to the Purchaser, which has performed its own due
diligence on these entities;
(h) assuming that the Vendor will not own any Wi-LAN Common Shares other
than the Vendor's Wi-LAN Common Shares to be issued at the Closing
Time, under current Canadian securities laws the Vendor's Wi-LAN Common
Shares will be freely tradeable by the Vendor on the Exchange on the
Escrow Release Date and no further registration, notice or filings on
the part of the Vendor are required pursuant to applicable Canadian
securities laws;
(i) the Purchaser will have full power and authority to issue the number of
Wi-LAN Common Shares in accordance with Article 2 hereof to the Vendor
upon receipt of the required regulatory approval, which the Purchaser
shall obtain by the Closing Time, and has full power and authority to
receive the consideration therefor and to agree to the terms,
conditions and provisions herein contained; and
(j) this Agreement has been duly authorized, executed and delivered by the
Purchaser and all documents to be delivered by the Purchaser pursuant
hereto will be duly executed and delivered and this Agreement does and
such documents will constitute legal, valid and binding obligations of
the Purchaser enforceable in accordance with their respective terms.
ARTICLE 5
VENDOR'S CLOSING CONDITIONS
5.1 Conditions Precedent
The obligations of the Vendor to complete the transactions contemplated
herein is subject to:
(a) the Vendor being satisfied in its sole discretion with its due
diligence review of the Purchaser and its assets and operations;
(b) the Vendor shall have received the opinion of Burnet, Duckworth &
Palmer, counsel for the Purchaser dated the Closing Date, addressed to
the Vendor, in form and substance satisfactory to the Vendor's Counsel;
(c) the Vendor, having completed, executed and delivered the Representation
Letter attached as Schedule C hereto;
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8
(d) except as contemplated by this Agreement, there shall not have occurred
any material change, change of material fact or any development that
could result in a material change or change of a material fact in the
business, operations or affairs of the Purchaser;
(e) there will be no actions, suits or proceedings, whether or not
purportedly on behalf of the Purchaser, outstanding, pending or
threatened by or against the Purchaser at law or in equity or before or
by any federal, provincial, municipal or other governmental department,
commission, bureau, agency or instrumentality;
(f) all necessary steps and proceedings shall have been taken to allow the
Vendor's Wi-LAN Common Shares to be duly transferred from the Purchaser
to the Vendor and to vest in the Vendor good and marketable title in
the Vendor's Wi-LAN Common Shares free and clear of any Encumbrances,
voting trusts, unanimous or other shareholder agreements, proxies and
other interests, claims or demands of every kind or nature whatsoever
(other than such as may be created by the Vendor);
(g) any consents or approvals required to be obtained from any third party,
including any holder of indebtedness or any outstanding security of the
Purchaser, and any amendments of agreements which shall be necessary to
permit the consummation of the transactions contemplated hereby shall
have been obtained and all such consents or amendments shall be
satisfactory in form and substance to the Vendor and the Vendor's
Counsel; and
(h) the representations and warranties made by the Purchaser herein shall
be true at the Closing Time as if made at and as of such time and the
Purchaser shall have complied with its covenants herein and the Vendor
shall have received a certificate signed by the Chief Executive Officer
of the Purchaser confirming same.
5.2 Waiver of Conditions
The conditions precedent set forth in Section 5.1 are for the benefit
of the Vendor and may be waived, in whole or in part, by the Vendor at any time.
If any of the said conditions precedent shall not be complied with or waived as
aforesaid on or before the date required for the fulfilment thereof, the Vendor
may, in addition to the other remedies it may have at law or in equity, rescind
and terminate this Agreement by notice to the other party.
ARTICLE 6
PURCHASER'S CLOSING CONDITIONS
6.1 Conditions Precedent
The obligations of the Purchaser to complete the transactions
contemplated herein is subject to:
(a) the Purchaser being satisfied in its sole discretion with its due
diligence review of DTS and its assets and operations including,
without limitation, the financial statements of DTS, the obligations
and liabilities of DTS, the products and revenue stream of DTS and the
material agreements of DTS;
(b) since December 20, 1999 DTS shall have carried on its business in the
ordinary course of business consistent with past practices and shall
not have engaged in any material transactions outside the ordinary
course of business (including increasing long-term debt) except as
disclosed to and approved by Wi-LAN in writing;
(c) DTS's issued and outstanding share capital at the Closing Time
consisting of an aggregate of 4,646,221 common shares, 1,314,333
preferred shares, warrants entitling the holders thereof to acquire an
aggregate of 2,433,315 common shares at exercise prices ranging from
U.S. $0.12 to U.S. $9.00 per share, options entitling the holders
thereof to acquire an aggregate of 1,019,880 common
<PAGE>
9
shares at exercise prices ranging from U.S. $0.47 to U.S. $13.75 per
share and a U.S. $2,000,000 convertible debenture entitling the holder
thereof to acquire 2,000,000 common shares at an exercise price of U.S.
$1.00 per share;
(d) since December 20, 1999 DTS shall not have declared or paid any
dividends or made any other distributions of any of its shares or
granted any further options or warrants or any right or privilege
capable of becoming an option or agreement in respect of its shares;
(e) the Purchaser having obtained all consents, approvals and
authorizations necessary or required in connection with the
transactions contemplated herein, including without limitation the
approval of The Toronto Stock Exchange on terms and conditions
reasonably satisfactory to the Purchaser on or before the Closing Time;
(f) the Purchaser shall have received the opinion of Boult, Cummings,
Conners & Berry PLC, counsel for the Vendor dated the Closing Date,
addressed to the Purchaser, in form and substance satisfactory to the
Purchaser's Counsel;
(g) the transactions contemplated by the Related Agreements shall have been
completed;
(h) the Vendor, having completed, executed and delivered the Representation
Letter attached as Schedule A hereto;
(i) the Vendor, having completed, executed and delivered The Toronto Stock
Exchange Private Placement Questionnaire and Undertaking attached as
Schedule B hereto in a form satisfactory to the Exchange;
(j) the board of directors of DTS being comprised of a majority of Wi-LAN
representatives at the Closing Time;
(k) except as contemplated by this Agreement, there shall not have occurred
any material change, change of material fact or any development that
could result in a material change or change of a material fact in the
business, operations or affairs of DTS;
(l) there will be no actions, suits or proceedings, whether or not
purportedly on behalf of DTS, outstanding, pending or threatened by or
against DTS at law or in equity or before or by any federal,
provincial, municipal or other governmental department, commission,
bureau, agency or instrumentality;
(m) all necessary steps and proceedings shall have been taken to allow the
DTS Shares to be duly transferred from the Vendor to the Purchaser and
to vest in the Purchaser good and marketable title in the DTS Shares
free and clear of any Encumbrances, voting trusts, unanimous or other
shareholder agreements, proxies and other interests, claims or demands
of every kind or nature whatsoever (other than such as may be created
by the Purchaser);
(n) any consents or approvals required to be obtained from any third party,
including any holder of indebtedness or any outstanding security of
DTS, and any amendments of agreements which shall be necessary to
permit the consummation of the transactions contemplated hereby shall
have been obtained and all such consents or amendments shall be
satisfactory in form and substance to the Purchaser and the Purchaser's
Counsel; and
(o) the representations and warranties made by the Vendor herein shall be
true at the Closing Time as if made at and as of such time and the
Vendor shall have complied with its covenants herein and the Purchaser
shall have received a certificate signed by a Vice-President of the
Vendor confirming same.
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6.2 Waiver of Conditions
The conditions precedent set forth in Section 6.1 are for the benefit
of the Purchaser and may be waived, in whole or in part, by the Purchaser at any
time. If any of the said conditions precedent shall not be complied with or
waived as aforesaid on or before the date required for the fulfilment thereof,
the Purchaser may, in addition to the other remedies it may have at law or in
equity, rescind and terminate this Agreement by notice to the other party.
ARTICLE 7
CLOSING
7.1 Place of Closing
Closing shall take place at the offices of the Purchaser's Counsel at
the Closing Time, or at such other place as may be agreed upon by the parties
hereto.
ARTICLE 8
INDEMNITIES
8.1 Vendor Indemnity
(a) The Vendor shall indemnify and save the Purchaser harmless against and
from all liabilities, claims, demands, losses, costs (including,
without limitation, legal fees and disbursements on a full indemnity
basis), damages and expenses to which the Purchaser may be subject or
which the Purchaser may suffer or incur, whether under the provisions
of any statute or otherwise, in any way caused by, or arising directly
or indirectly from or in consequence of any breach of, default under or
non-compliance by the Vendor with any representation, warranty, term,
covenant or condition of this Agreement or in any certificate or other
document delivered by or on behalf of the Vendor hereunder or pursuant
hereto.
(b) The rights and remedies of the Purchaser set forth in paragraph 8.1(a)
are to the fullest extent possible in law cumulative and not
alternative and the election by the Purchaser to exercise any such
right or remedy shall not be, and shall not be deemed to be, a waiver
of any other rights and remedies. The Purchaser shall not be obligated
to pursue any claim or remedy against any third party including,
without limitation, DTS or MicroTel International, Inc. before being
entitled to obtain full indemnification from the Vendor pursuant to
paragraph 8.1(a).
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11
(c) Any liability of the Vendor under paragraph 8.1(a) shall be limited to
U.S. $2,000,000.
8.2 Purchaser Indemnity
(a) The Purchaser shall indemnify and save the Vendor harmless against and
from all liabilities, claims, demands, losses, costs (including,
without limitation, legal fees and disbursements on a full indemnity
basis), damages and expenses to which the Vendor may be subject or
which the Vendor may suffer or incur, whether under the provisions of
any statute or otherwise, in any way caused by, or arising directly or
indirectly from or in consequence of any breach of, default under or
non-compliance by the Purchaser with any representation, warranty,
term, covenant or condition of this Agreement or in any certificate or
other document delivered by or on behalf of the Purchaser hereunder or
pursuant hereto.
(b) The rights and remedies of the Vendor set forth in paragraph 8.2(a) are
to the fullest extent possible in law cumulative and not alternative
and the election by the Vendor to exercise any such right or remedy
shall not be, and shall not be deemed to be, a waiver of any other
rights and remedies. The Vendor shall not be obligated to pursue any
claim or remedy against any third party before being entitled to obtain
full indemnification from the Purchaser pursuant to paragraph 8.2(a).
(c) Any liability of the Purchaser under paragraph 8.2(a) shall be limited
to U.S. $2,000,000.
ARTICLE 9
NOTICES
9.1 Notices
Any notice, consent, waiver, direction or other communication required
or permitted to be given under this Agreement by a party to any other party
shall be in writing and shall be delivered by hand delivery, facsimile
transmission or (provided that the mailing party does not know and should not
reasonably have known of any disruption or anticipated disruption of postal
service which might affect delivery of the mail) by registered mail (postage
prepaid), addressed to the party to whom the notice is to be given, at its
address for service herein. Any notice, consent, waiver, direction or other
communication aforesaid shall, if hand delivered or delivered by telex or
facsimile transmission, be deemed to have been given and received on the date on
which its was hand delivered or delivered by facsimile transmission to the
address provided herein (if a business day and, if not, the next succeeding
business day) and if sent by registered mail be deemed to have been given and
received on the third business day at the point of delivery following the date
on which it was so sent.
9.2 Address for Service
The address for service of each of the parties hereto shall be as
follows:
if to the Purchaser:
Wi-LAN Inc.
Suite 300, 801 Manning Road N.E.
Calgary, Alberta
T2E 8J8
Attention: Hatim Zaghloul, Chairman and Chief Executive Officer
Telecopy: (403) 273-5100
if to the Vendor:
Finova Mezzanine Capital Inc.
500 Church Street, Suite 200
Nashville, TN 37219
Attention: Donald F. Barrickman, Vice-President
Telecopy: (615) 242-0842
or such other address as may be designated by notice to the other parties
hereto.
ARTICLE 10
MISCELLANEOUS
10.1 Entire Agreement
This Agreement, together with documents to be delivered pursuant
hereto, constitutes the entire agreement between the parties hereto, and cancels
and supersedes all prior agreements and understandings between the parties
hereto, with respect to the subject matter hereof.
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10.2 Further Assurances
Each party hereto shall, from time to time, and at all times hereafter,
at the request of the other party hereto, but without further consideration, do
all such further acts and execute and deliver all such further documents and
instruments as shall be reasonably required in order to fully perform and carry
out the terms and intent hereof.
10.3 Survival
The representations, warranties, covenants and agreements herein and in
any document delivered pursuant hereto shall survive the Closing and remain in
full force and effect provided that no party hereto shall be liable in respect
of any representation or warranty unless the party seeking to rely upon such
representation or warranty shall have given notice to the party who made such
representation or warranty of its intention to make such claim on or before the
date 24 months following the Closing Date.
10.4 Time
Time shall be of the essence in this Agreement.
10.5 Amendments
This Agreement may only be amended by a written instrument signed by
the parties hereto.
10.6 Governing Law
This Agreement shall be governed by, and be construed in accordance
with, the laws of the Province of Alberta and applicable laws of Canada but the
reference to such laws shall not, by conflict of laws rules or otherwise,
require the application of the law of any jurisdiction other than the Province
of Alberta.
10.7 Attornment
Each party hereto hereby irrevocable attorns to the jurisdiction of the
Courts of the Province of Alberta in respect of all matters arising under or in
relation to this Agreement.
10.8 Severability
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any respect
in any jurisdiction, the remaining provisions or parts thereof contained herein
shall be and shall be conclusively deemed to be, as to such jurisdiction,
severable therefrom and:
(a) the validity, legality or enforceability of such remaining provisions
or parts thereof shall not in any way be affected or impaired by the
severance of the provisions or parts thereof severed; and
(b) the invalidity, illegality or unenforceability of any provision or
party thereof contained in this Agreement in any jurisdiction shall not
affect or impair such provision or part thereof or any other provisions
of this Agreement in any other jurisdiction.
10.9 Execution in Counterpart
This Agreement may be executed in any number of counterparts with the
same effect as if all signatures to the counterparts had signed one document,
all such counterparts shall together constitute, and be construed as, one
instrument and each of such counterparts shall, notwithstanding the date of its
execution, be deemed to bear the date first above written.
<PAGE>
10.10 Waiver
No waiver by any party hereto shall be effective unless in writing and
any waiver shall affect only the matter, and the occurrence thereof,
specifically identified and shall not extend to any other matter or occurrence.
10.11 Enurement
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
10.12 Assignment
This Agreement may not be assigned by any party hereto without the
prior consent of the other parties hereto.
<PAGE>
14
10.13 Reliance
The parties hereto acknowledge and agree that they have entered into
this Agreement in reliance upon each of the representations, warranties,
covenants and agreements herein of the other party hereto.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
WI-LAN INC.
Per: /s/ Hatim Zaghloul
----------------------------------
Hatim Zaghloul
Chairman and Chief Executive Officer
FINOVA MEZZANINE CAPITAL INC.
Per: /s/ Donald F. Barrickman
----------------------------------
Donald F. Barrickman
Vice-President
ACKNOWLEDGEMENT
DTS hereby (i) acknowledges that it is aware of the terms and
conditions of this Agreement and DTS is entering into the Convertible Debenture
Purchase Agreement dated December 29, 1999 between DTS and the Purchaser as
material consideration for and as an inducement to the Purchaser to enter into
this Agreement, (ii) agrees to afford the Vendor the visitation rights to the
board of directors of DTS on the terms set out in the Debenture until the Escrow
Release Date, and (iii) consents to all matters provided for in this Agreement
to the extent that such consent may be required under Section 12.4 of the
debenture purchase agreement executed by the Vendor and DTS with respect to the
Debenture or under any other provision of any agreement to which DTS is a party.
Digital Transmission Systems, Inc.
Per: /s/ Andres C. Salazar
----------------------------------
Andres C. Salazar
Chief Executive Officer
<PAGE>
SCHEDULE A
VENDOR'S REPRESENTATION LETTER
TO: Wi-LAN Inc. (the "Corporation").
In connection with the acquisition by Finova Mezzanine Capital Inc.
("Finova") of common shares (the "Common Shares") of the Corporation. Finova
hereby certifies and agrees for the benefit of the Corporation that:
1. it is authorized to consummate the purchase of the Common Shares;
2. it understands that the Common Shares have not been and will not be
registered under the Securities Act of 1933, as amended (the "U.S. Securities
Act") or under the securities ("blue sky") laws of any State of the United
States and that the sale contemplated hereunder is being made in reliance on a
private placement exemption to accredited investors;
3. it is purchasing the Common Shares for its own account and not with a view to
any resale, distribution or other disposition of the Common Shares, or any part
thereof in any transaction that would be in violation of the securities laws of
the United States or any State thereof, subject, nevertheless, to the
disposition of its property being at all times within its control;
4. it agrees that if it decides to offer, sell or otherwise transfer, pledge or
hypothecate all or any part of the Common Shares, it will not offer, sell or
otherwise transfer, pledge or hypothecate any or any part of such Common Shares
(other than pursuant to an effective registration statement under the U.S.
Securities Act and in compliance with any applicable State securities laws of
the United States), directly or indirectly unless:
a. the sale is to the Corporation; or
b. the sale is made outside the United States in accordance with the
requirements of Rule 904 of Regulation S under the U.S. Securities Act
and in compliance with applicable local rules and regulations; or
c. the sale is made pursuant to the exemption from registration under the
U.S. Securities Act provided by Rule 144 thereunder and local rules; or
d. the Common Shares or any part thereof are sold in a transaction that
does not require registration under the U.S. Securities Act or any
applicable United States state laws and regulations governing the offer
and sale of securities, and Finova has furnished to the Corporation an
opinion to that effect of counsel of recognized standing reasonably
satisfactory to the Corporation;
5. it understands and acknowledges that the Common Shares are "restricted
securities" as defined in Rule 144 under the U.S. Securities Act, and that upon
the original issuance thereof, and until such time as the same is no longer
required under applicable requirements of the U.S. Securities Act or state
securities laws, the certificates representing the Common Shares, and all
certificates issued in exchange therefor or in substitution thereof, shall bear
the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
ONLY: (A) TO THE CORPORATION; (B) OUTSIDE THE UNITED STATES
IN ACCORDANCE WITH RULE 904 AND, IF APPLICABLE, RULE 905 OF
REGULATION S UNDER THE SECURITIES ACT; (C) PURSUANT TO THE
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED
BY
<PAGE>
A-2
RULE 144 THEREUNDER AND IN COMPLIANCE WITH ANY APPLICABLE
STATE SECURITIES LAWS OF THE UNITED STATES; OR (D) PURSUANT
TO ANOTHER EXEMPTION FROM REGISTRATION AFTER PROVIDING A
SATISFACTORY LEGAL OPINION TO THE CORPORATION. DELIVERY OF
THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY" IN
SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A
NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH WILL
CONSTITUTE "GOOD DELIVERY" MAY BE OBTAINED FROM MONTREAL
TRUST COMPANY OF CANADA UPON DELIVERY OF THIS CERTIFICATE AND
A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO
MONTREAL TRUST COMPANY OF CANADA AND THE CORPORATION, TO THE
EFFECT THAT THE SALE OF THE SECURITIES REPRESENTED HEREBY IS
BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER
THE SECURITIES ACT;
provided that if the Corporation is a "foreign corporation" within the meaning
of Regulation S at the time of sale, and if the Common Shares or any part
thereof are being sold under paragraph 4(b) above, the legend may be removed by
providing a declaration to the transfer agent for the Common Shares to the
following effect (or as the Corporation may prescribe from time to time):
"Finova: (A) acknowledges that the sale of the securities to
which this declaration relates is being made in reliance on
Rule 904 of Regulation S under the United States Securities
Act of 1933, as amended; and (B) certifies that: (1) the
offer of such securities was not made to a person in the
United States and either: (a) at the time the buy order was
originated, the buyer was outside the United States, or the
seller and any person acting on its behalf reasonably
believes that the buyer was outside the United States; or (b)
the transaction was executed on or through the facilities of
The Toronto Stock Exchange and neither the seller nor any
person acting on its behalf knows that the transaction has
been prearranged with a buyer in the United States; (2)
neither the seller nor any person acting on its behalf
engaged in any directed selling efforts in connection with
the offer and sale of such securities; (3) the sale is bona
fide and not for the purpose of "washing off" the resale
restrictions imposed because the securities are "restricted
securities" (as such term is defined in Rule 144(a)(3) under
the 1933 Act); (4) the seller does not intend to replace the
securities sold in reliance on Rule 904 of the 1933 Act with
fungible unrestricted securities; and (5) the contemplated
sale is not a transaction, or part of a series of
transactions which, although in technical compliance with
Regulation S, is part of a plan or scheme to evade the
registration provisions of the 1933 Act. Terms used herein
have the meanings given to them by Regulation S";
provided, further, that if any such Common Shares are being sold pursuant to
Rule 144 of the U.S. Securities Act, the legend may be removed by delivery to
Montreal Trust Company of Canada of an opinion of counsel, of recognized
standing reasonably satisfactory to the Corporation, to the effect that such
legend is no longer required under applicable requirements of the U.S.
Securities Act or state securities laws;
6. it has been afforded the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Corporation
concerning the terms and conditions of the issuance of the Common Shares;
7. it is experienced in evaluating companies such as the Corporation, has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment in the Common Shares and has
the ability to suffer the total loss of its investment in the Common Shares;
8. it is an "accredited investor" within the meaning of Rule 501 of Regulation D
under the U.S. Securities Act;
<PAGE>
A-3
9. it has been independently advised as to restrictions with respect to trading
in the Common Shares imposed by applicable securities legislation in the
jurisdiction in which it resides, confirms that no representation has been made
to it by or on behalf of the Corporation with respect thereto, acknowledges that
it is aware of the characteristics of the Common Shares, the risks relating to
an investment therein and of the fact that it may not be able to resell the
Common Shares except in accordance with limited exemptions under applicable
securities legislation and regulatory policy until expiry of the applicable hold
period and compliance with the other requirements of applicable law;
10. it understands that the sale and delivery of the Common Shares is
conditional upon such sale being exempt from the requirements as to the filing
of a prospectus and as to the delivery of an offering memorandum or upon the
issuance of such orders, consents or approvals as may be required to permit such
sale without the requirement of filing a prospectus or delivering an offering
memorandum; and it has not received or been provided with, nor has it requested,
nor does it have any need to receive, any offering memorandum, or any other
document (other than financial statements, interim financial statements or any
other document the content of which is prescribed by statute or regulation)
describing the business and affairs of the Corporation which has been prepared
for delivery to, and review by, it in order to assist it in making an investment
decision in respect of the Common Shares and it has not become aware of any
advertisement in printed media of general and regular paid circulation, radio or
television with respect to the distribution of the Common Shares;
11. it has such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of an investment in the Common
Shares and it is able to bear the economic risk of loss of its entire
investment;
12. it is a resident of and was offered the Common Shares in Nashville,
Tennessee.
13. it is purchasing Common Shares having an aggregate acquisition cost of not
less than Cdn. $97,000 and if it is a corporation, syndicate, partnership or
other form of unincorporated organization, it pre-existed the acquisition of the
Common Shares and has a bona fide purpose other than investment in the Common
Shares having an aggregate acquisition cost of not less than Cdn. $97,000 or, if
created to permit such investment, the individual share of the aggregate
acquisition cost for each participant is not less than Cdn. $97,000;
14. it understands and acknowledges that the Corporation has the right to
instruct the transfer agent for the Common Shares not to record a transfer by
any person in the United States without first being notified by the Corporation
that it is satisfied that such transfer is exempt from or not subject to
registration under the U.S. Securities Act and any applicable state securities
laws;
15. it understands that the investment in the Common Shares may have tax
consequences under the laws of the United States and of Canada and that it is
the sole responsibility of Finova to determine and assess such tax consequences
as may apply to its particular circumstances;
16. it understands and acknowledges that the Corporation (i) is under no
obligation to be or to remain a "foreign issuer", (ii) may not, at the time we
sell the Common Shares or at any other time, be a "foreign issuer", and (iii)
may engage in one or more transactions which could cause the Corporation not to
be a "foreign issuer"; and
17. it agrees that the above representations, warranties and covenants will be
true and correct both as of the execution of this Agreement and as of the
Closing Time and will survive the completion of the issuance of the Common
Shares.
<PAGE>
A-4
18. The foregoing representations, warranties and covenants are made by Finova
with the intent that they be relied upon in determining its suitability as a
purchaser of Common Shares and Finova agrees to indemnify the Corporation
against all losses, claims, costs, expenses and damages or liabilities which it
may suffer or incur caused or arising from reliance thereon. Finova undertakes
to immediately notify the Corporation at Wi- LAN Inc., Suite 300, 801 Manning
Road N.E., Calgary, Alberta T2E 8J8, Attention: Hatim Zaghloul, Chairman and
Chief Executive Officer of any change in any statement or other information
relating to Finova set forth herein which takes place prior to the Closing Time.
Date: December _____, 1999 Finova Mezzanine Capital Inc.
-----------------------------
Print name of Purchaser
By: ______________________________
Donald F. Barrickman
Vice-President
<PAGE>
SCHEDULE B
THE TORONTO STOCK EXCHANGE
PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING
QUESTIONNAIRE
1. DESCRIPTION OF TRANSACTION
a. Name of Issuer of the Securities - Wi-LAN Inc.
b. Number and Class of Securities to be Purchased - __________ Common
Shares
c. Purchase Price: Deemed Price of U.S. $_______________ per Common Share
2. DETAILS OF PURCHASER
a. Name of Purchaser - Finova Mezzanine Capital Inc.
-----------------------------
b. Address -
500 Church Street, Suite 200
Nashville, TN 37219
______________________________________________________________
c. Names and addresses of persons having a greater than 10% beneficial
interest in the purchaser -
______________________________________________________________
______________________________________________________________
3. RELATIONSHIP TO ISSUER
a. Is the purchaser (or any person named in response to 2(c) above) an
insider of the issuer for the purposes of the Ontario Securities Act
(before giving effect to this private placement)? If so, state the
capacity in which the purchaser (or person named in response to 2(c))
qualifies as an insider -
______________________________________________________________
______________________________________________________________
______________________________________________________________
b. If the answer to (a) is "no", are the purchaser and the issuer
controlled by the same person or company? If so, give details.
______________________________________________________________
______________________________________________________________
4. DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER
Give details of all trading by the purchaser, as principal, in the
securities of the issuer (other than debt securities which are not
convertible into equity securities), directly or indirectly, within the
60 days preceding the date hereof -
______________________________________________________________
______________________________________________________________
______________________________________________________________
<PAGE>
B-2
UNDERTAKING
TO: The Toronto Stock Exchange
The undersigned has subscribed for and agreed to purchase, as principal, the
securities described in Item 1 of this Private Placement Questionnaire and
Undertaking.
The undersigned undertakes not to sell or otherwise dispose of any of the said
securities so purchased or any securities derived therefrom until either:
i. a period of six months from the date of the closing of the transaction
herein or for such period as is prescribed by applicable securities
legislation, whichever is longer; or
ii. a period ending on the date that a receipt for a final prospectus
relating to the said securities or any securities derived therefrom has
been issued by the Ontario Securities Commission,
without the prior consent of The Toronto Stock Exchange and any other regulatory
body having jurisdiction.
DATED AT Nashville, Tennessee Finova Mezzanine Capital Inc.
----------------------------------
this ____ day of December, 1999. (Name of Purchaser)
----------------------------------
(Authorized Signature)
Vice-President
----------------------------------
(Official Capacity)
Donald F. Barrickman
----------------------------------
(please print here name of individual
whose signature appears above, if
different from name of purchaser
printed above)
<PAGE>
SCHEDULE C
PURCHASER'S REPRESENTATION LETTER
To: Finova Mezzanine Capital Inc. ("Finova")
In connection with the acquisition by Wi-LAN Inc. ("Wi-LAN") of
securities issued by Digital Transmission Systems, Inc. and LinkaNet Labs, Inc.
(the "Corporations") (as described in that Purchase Agreement dated as of
December 29, 1999 between Wi-LAN and Finova) (herein the "Securities"), Wi-LAN
hereby certifies and agrees for the benefit of Finova that:
1. it is authorized to consummate the purchase of the Securities;
2. it understands that the sale of the Securities has not been and will not be
registered under the Securities Act of 1933, as amended (the "U.S. Securities
Act") or under the securities ("blue sky") laws of any State of the United
States and that the sale contemplated hereunder is being made in reliance on a
private placement exemption to accredited investors;
3. it is purchasing the Securities for its own account and not with a view to
any resale, distribution or other disposition of the Securities, or any part
thereof in any transaction that would be in violation of the securities laws of
the United States or any State thereof, subject, nevertheless, to the
disposition of its property being at all times within its control;
4. it agrees that if it decides to offer, sell or otherwise transfer, pledge or
hypothecate all or any part of the Securities, it will not offer, sell or
otherwise transfer, pledge or hypothecate any or any part of such Securities
(other than pursuant to an effective registration statement under the U.S.
Securities Act and in compliance with any applicable State securities laws of
the United States), directly or indirectly unless:
a. the sale is to the respective Corporation which issued the Securities
being sold; or
b. the sale is made outside the United States in accordance with the
requirements of Rule 904 of Regulation S under the U.S. Securities Act
and in compliance with applicable local rules and regulations; or
c. the sale is made pursuant to the exemption from registration under the
U.S. Securities Act provided by Rule 144 thereunder and local rules; or
d. the Securities or any part thereof are sold in a transaction that does
not require registration under the U.S. Securities Act or any
applicable United States state laws and regulations governing the offer
and sale of securities, and Wi-LAN has furnished to the Corporation
which issued the Securities being sold an opinion to that effect of
counsel of recognized standing reasonably satisfactory to such
Corporation;
5. it understands and acknowledges that the Securities are "restricted
securities" as defined in Rule 144 under the U.S. Securities Act, and that upon
the original issuance thereof, and until such time as the same is no longer
required under applicable requirements of the U.S. Securities Act or state
securities laws, the certificates representing the Securities, and all
certificates issued in exchange therefor or in substitution thereof, shall bear
the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT" ) OR THE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
ONLY: (A) TO THE CORPORATION; (B) OUTSIDE THE UNITED STATES
IN ACCORDANCE WITH RULE 904 AND, IF APPLICABLE, RULE 905 OF
REGULATION S UNDER THE SECURITIES ACT; (C) PURSUANT TO THE
EXEMPTION FROM REGISTRATION UNDER THE
<PAGE>
C-2
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER AND IN
COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OF THE
UNITED STATES; OR (D) PURSUANT TO ANOTHER EXEMPTION FROM
REGISTRATION AFTER PROVIDING A SATISFACTORY LEGAL OPINION TO
THE CORPORATION.
6. it has been afforded the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Corporations
concerning the terms and conditions of the issuance of the Securities and the
financial condition, results of operations and business prospects of the
Corporations;
7. it is experienced in evaluating companies such as the Corporations, has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment in the Securities and has the
ability to suffer the total loss of its Investment in the Securities;
8. it is an "accredited investor" within the meaning of Rule 501 of Regulation D
under the U.S. Securities Act;
9. it has been independently advised as to restrictions with respect to trading
in the Securities imposed by applicable securities legislation in the
jurisdiction in which it resides, confirms that no representation has been made
to it by or on behalf of the Corporations with respect thereto, acknowledges
that it is aware of the characteristics of the Securities, the risks relating to
an investment therein and of the fact that it may not be able to resell the
Securities except in accordance with limited exemptions under applicable
securities legislation and regulatory policy until expiry of the applicable hold
period and compliance with the other requirements of applicable law;
10. it understands that the sale and delivery of the Securities is conditional
upon such sale being exempt from the requirements as to the filing of a
prospectus and as to the delivery of an offering memorandum or upon the issuance
of such orders, consents or approvals as may be required to permit such sale
without the requirement of filing a prospectus or delivering an offering
memorandum; and it has not received or been provided with, nor has it requested,
nor does it have any need to receive, any offering memorandum, or any other
document describing the business and affairs of the Corporations which has been
prepared for delivery to, and review by, it in order to assist it in making an
investment decision in respect of the Securities and it has not become aware of
any advertisement in printed media of general and regular paid circulation,
radio or television with respect to the distribution of the Securities;
11. it has such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of an investment in the Securities
and it is able to bear the economic risk of loss of its entire Investment;
12. it is a resident of and was offered the Securities in the Province of
Alberta, Canada;
13. it understands and acknowledges that the Corporations have the right to
instruct the transfer agent for the Securities not to record a transfer by any
person in the United States without first being notified by the respective
Corporation that it is satisfied that such transfer is exempt from or not
subject to registration under the U.S. Securities Act and any applicable state
securities laws;
14. it understands that the investment in the Securities may have tax
consequences under the laws of the United States and of Canada and that it is
the sole responsibility of Wi-LAN to determine and assess such tax consequences
as may apply to its particular circumstances; and
15. it agrees that the above representations, warranties and covenants will be
true and correct both as of the execution of this Agreement and as of the
Closing Time and will survive the completion of the purchase of the Securities.
<PAGE>
C-3
16. The foregoing representations, warranties and covenants are made by Wi-LAN
with the intent that they be relied upon in determining its suitability as a
purchaser of Securities and Wi-LAN agrees to indemnify Finova against all
losses, claims, costs, expenses and damages or liabilities which Finova may
suffer or incur caused or arising from reliance thereon. Wi-LAN undertakes to
immediately notify Finova in writing of any change in any statement or other
information relating to Wi-LAN set forth herein which takes place prior to the
Closing Time.
Date: December _____, 1999 Wi-LAN Inc.
----------------------------------
Print name of Purchaser
By:
------------------------------
Hatim Zaghloul
Chairman and Chief Executive Officer
DIGITAL TRANSMISSION SYSTEMS, INC.
10.0% Subordinated Debenture
Due January 7, 2003
Principal Amount
$400,000.00
<PAGE>
Table of Contents
-----------------
Page #
------
1. PAYMENT TERMS .......................................................... 1
1.1 Interest .......................................................... 1
1.2 Payment; Default .................................................. 1
1.3 Mandatory Redemption .............................................. 3
1.4 Cancellation of Promissory Note ................................... 3
2. Covenants of Company ................................................... 3
2.1 Use of Proceeds ................................................... 3
2.2 Corporate Existence ............................................... 3
2.3 Maintenance of Properties, Etc. ................................... 4
2.4 Nature of Business ................................................ 4
2.5 Insurance ......................................................... 4
2.6 Taxes, Claims for Labor and Materials ............................. 4
2.7 Compliance with Laws, Agreements, Etc. ............................ 4
2.8 ERISA Matters ..................................................... 5
2.9 Books and Records; Rights of Inspection ........................... 5
2.10 Reports ........................................................... 5
2.11 Limitations on Debt and Obligations ............................... 6
2.12 Guaranties ........................................................ 7
2.13 Limitation on Liens ............................................... 7
2.14 Restricted Payments ............................................... 8
2.15 Investments ....................................................... 9
2.16 Mergers, Consolidations and Sales of Assets ....................... 9
2.17 Transactions with Affiliates ...................................... 11
2.18 Notice ............................................................ 11
2.19 Board of Directors: Observer Rights .............................. 12
2.20 Annual Plan ....................................................... 12
3. Subordination of This Debenture ........................................ 12
3.1 Subordination ..................................................... 12
3.2 Liquidation, Etc. ................................................. 12
3.3 Senior Indebtedness Default ....................................... 13
3.4 Subrogation ....................................................... 13
3.5 Company's Obligations Not Impaired ................................ 13
4. Conversion of This Debenture ........................................... 14
4.1 Conversion Privilege .............................................. 14
4.2 Reservation of Shares ............................................. 14
4.3 Conversion Procedure .............................................. 14
5. Restrictions on Transfer, Registration Rights .......................... 20
5.1 Legends; Restrictions on Transfer ................................. 20
5.2 Registration Rights ............................................... 20
<PAGE>
Page#
-----
6. Events of Default; Remedies ............................................ 20
6.1 Events of Default ................................................. 20
6.2 Remedies Upon Default ............................................. 22
6.3 Acceleration of Maturities ........................................ 22
7. Amendments, Waivers and Consents ....................................... 23
7.1 Consent Required .................................................. 23
7.2 Solicitation of Debenture Holders ................................. 23
7.3 Effect of Amendment or Waiver ..................................... 23
8. Interpretation of Debenture; Definitions ............................... 23
8.1 Definitions ....................................................... 23
8.2 Accounting Principles ............................................. 26
8.3 Directly or Indirectly ............................................ 26
9. Miscellaneous .......................................................... 26
9.1 Expenses, Stamp Tax Indemnity ..................................... 26
9.2 Powers and Rights Not Waived; Remedies Cumulative ................. 27
9.3 Notices ........................................................... 27
9.4 Assignments ....................................................... 28
9.5 Survival of Covenants ............................................. 28
9.6 Severability ...................................................... 28
9.7 Governing Law ..................................................... 28
9.8 Captions; Counterparts ............................................ 28
ii
<PAGE>
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY
NOT BE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR (ii) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED IN CONNECTION WITH SUCH TRANSFER.
DIGITAL TRANSMISSION SYSTEMS, INC.
10.0% Subordinated Debenture due January 7, 2003
No.__________ Atlanta, Georgia
$400,000.00 January 7, 2000
FOR VALUE RECEIVED, Digital Transmission Systems, Inc., a Delaware
corporation (the "Company"), promises to pay to the order of Wi-LAN, Inc., a
Province of Alberta, Canada corporation ("Purchaser"), pursuant to that certain
convertible debenture purchase agreement between the Company and Purchaser dated
December 29, 1999 (the "Debenture Purchase Agreement") at such place as
Purchaser may from time to time designate in writing, in lawful money of the
United States of America and in immediately available funds, by automatic debit,
the aggregate principal sum of Four Hundred Thousand Dollars ($4000,000.00) and
any accrued but unpaid interest thereon. Capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Debenture Purchase
Agreement.
1. PAYMENT TERMS
1.1 Interest. Interest shall accrue from the date of issue of
this Debenture at the rate of 10.0% per annum, payable quarterly by automatic
debit on the first day of each March, June, September and December, commencing
March 1, 2000, and ending at maturity, to mature on January 7, 2000. Interest
shall be computed on the basis of a 360-day year and the actual number of days
elapsed. Any principal payment due under this Debenture not paid when due,
whether at stated maturity, by notice of repayment, by acceleration or
otherwise, and any accrued but unpaid interest shall, to the extent permitted by
applicable law, thereafter bear interest (compounded monthly and payable upon
demand) at an annual rate of 15% in respect of such principal and such unpaid
interest until such unpaid amounts have been paid in full (whether before or
after judgment).
1.2 Payment; Default. (a) If payment hereunder becomes due and
payable on a Saturday, Sunday, or legal holiday, under the laws of the State of
Georgia, the due date thereof shall be extended to the next succeeding business
day. Demand,
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presentment, protest, diligence, notice of dishonor, and any other formality are
hereby expressly waived by the Company and any endorser or guarantor.
(b) If there is any default under this Debenture, and this
Debenture is placed in the hands of an attorney for collection, or is collected
through any Court, including any bankruptcy court, the Company promises to pay
to the order of the holder hereof such holder's reasonable attorneys' fees and
court costs actually incurred in collecting or attempting to collect or securing
or attempting to secure this Debenture or enforcing the holder's rights with
respect to the Collateral, to the extent allowed by the laws of the State of
Georgia or any state in which any collateral is situated.
(c) The holder of this Debenture may, with or without notice
to any party, and without affecting the obligations of any maker, surety,
guarantor, endorser, accommodation party, or any other party to this Debenture
(i) extend the time for payment of either principal or interest from time to
time, (ii) release or discharge any one or more parties liable on this
Debenture, (iii) suspend the right to enforce this Debenture with respect to any
persons, (iv) change, exchange, or increase any property in which the holder has
any interest securing this Debenture, (v) justifiably or otherwise, impair any
of the collateral or suspend the right to enforce against any such collateral,
and (vi) at any time it deems necessary or proper, call for and, should it be
made available, accept, as additional security, the signature or signatures of
additional parties or a security interest in property of any kind or description
or both.
(d) This Debenture is registered on the books of the Company
and is transferable only by surrender thereof at the principal office of the
Company at 3000 Northwoods Parkway, Building 330, Norcross, Georgia 30071, or
such other address as the Company shall have advised the holder of the Debenture
in writing, duly endorsed or accompanied by a written instrument of transfer
duty executed by the registered holder of this Debenture or its attorney duty
authorizing in writing. Payment of or on account of principal, premium, if any,
and interest on this Debenture shall be made only to or upon the order in
writing of the registered holder thereof.
(e) Any provision herein, or in the Debenture Purchase
Agreement, or any other document executed or delivered in connection herewith or
therewith, or in any other agreement or commitment whether written or oral,
expressed or implied, to the contrary notwithstanding, neither the Purchaser nor
any holder hereof shall in any event be entitled to receive or collect, nor
shall any amounts received hereunder be credited, so that Purchaser or any
holder hereof shall be paid, as Interest, a sum greater than the maximum amount
permitted by applicable law to be charged to the person primarily obligated to
pay this Debenture at the time in question. If any construction of this
Debenture or the Debenture Purchase Agreement, or arty and all other papers,
agreements or commitments, indicate a different right given to Purchaser or any
holder hereof to ask for, demand, or receive any larger sum as interest, such is
a mistake in calculation or wording which this clause shall override and
control, it being the intention of the parties that this Debenture, the
Debenture Purchase Agreement, and all other
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documents executed or delivered in connection herewith shall in all ways comply
with applicable law and proper adjustments shall automatically be made
accordingly. If Purchaser or any holder hereof ever receives, collects, or
applies as interest, any sum in excess of the maximum amount permitted by
applicable law, if any, such excess amount shall be applied to the reduction of
the unpaid principal balance of this Debenture, and if this Debenture is paid in
full, any remaining excess shall be paid to the Company. In determining whether
or not the interest paid or payable, under any specific contingency, exceeds the
maximum amount permitted by applicable law, if any, the Company and any holder
hereof shall, to the maximum extent permitted under applicable law: (i)
characterize any non-principal payment as an expense or fee rather than as
interest, and (ii) "spread" the total amount of interest throughout the entire
term of this Debenture.
1.3 Mandatory Redemption. Holders of this Debenture may at any
time require the Company to redeem part or all of this Debenture if (i) there
occurs a Change in Control (as defined in Section 8), (ii) the Company's Common
Stock is no longer trading on the NASDAQ over the counter bulletin board, or
(iii) the Company's Common Stock ceases to be publicly traded. In such case,
holders of this Debenture may give notice to the Company any of mandatory
redemption not less than 15 nor more than 30 days prior to the Redemption Date,
in each case specifying the Redemption Date, the aggregate principal amount of
this Debenture to be redeemed on such date, the principal amount of this
Debenture held by such holder to be redeemed on such date, and the Redemption
Price, which shall be equal to the sum of (A) the aggregate principal amount of
this Debenture tendered for redemption, plus (B) all accrued but unpaid interest
on such this Debenture, plus (C) interest on any principal payment not paid when
due and any accrued but unpaid interest at an annual rate of 15% in respect of
such principal and such unpaid interest, plus (D) any expenses or costs of
collection to which the holder of this Debenture is entitled pursuant to the
Debenture.
1.4 Cancellation of Promissory Note. Purchaser upon receipt of
this Debenture shall cancel and return to the Company as "paid in full" the
promissory note made by the Company to Purchaser in the principal amount of
$400,000 dated December 29, 1999.
2. Covenants of Company. From and after the Closing Date and
continuing so long as any amount remains unpaid on this Debenture.
2.1 Use of Proceeds. The Company shall use the proceeds of
this Debenture for general corporate purposes, including working capital and
debt repayment.
2.2 Corporate Existence. The Company will preserve and keep in
force and effect, and will cause each Subsidiary to preserve and keep in force
and effect, its corporate existence and good standing in the state of
incorporation thereof, its qualification and good standing as a foreign
corporation in each jurisdiction where such qualification is required by
applicable law except where the failure to so qualify would
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not have a Material Adverse Effect on the financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole, and all
licenses and permits necessary to the proper conduct of its business.
2.3 Maintenance of Properties, Etc. The Company will maintain,
preserve and keep, and will cause each Subsidiary to maintain, preserve and
keep, its properties and assets which are used or useful in the conduct of its
business (whether owned in fee or pursuant to a leasehold interest) in good
repair and working order and from time to time will make all necessary repairs,
replacements, renewals and additions required in the opinion of the Company to
maintain the efficiency thereof.
2.4 Nature of Business. Neither the Company nor any Subsidiary
will engage in any business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by the Company and
its Subsidiaries would be substantially changed from the general nature of the
business engaged in by the Company and its Subsidiaries on the date of this
Debenture
2.5 Insurance. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage with respect to their respective
properties arid business in such forms and amounts and against such risks,
casualties and contingencies as the Company believes are customary for
corporations of comparable size arid condition (financial and otherwise) engaged
in the same or a similar business and owning and operating similar properties.
2.6 Taxes, Claims for Labor and Materials. Except where
failure to do so does not and would not constitute a Material Adverse Event, the
Company will promptly pay and discharge, and will cause each Subsidiary promptly
to pay and discharge, (i) all lawful taxes, assessments and governmental charges
or levies imposed upon the property or business of the Company or such
Subsidiary, respectively, (ii) all trade accounts payable in accordance with
usual and customary business terms, and (iii) all claims for work, labor or
materials, which if unpaid might become a lien or charge upon any property of
the Company or such Subsidiary; provided the Company or such Subsidiary shall
not be required to pay any such tax, assessment, charge, levy, account payable
or claim if (i) the validity, applicability or amount thereof is being contested
in good faith by appropriate actions or proceedings which will prevent the
forfeiture or sale of any property of the Company or such Subsidiary or any
material interference with the use thereof by the Company or such Subsidiary,
and (ii) the Company or such Subsidiary shall set aside on its books, reserves
deemed by it to be adequate with respect thereto.
2.7 Compliance with Laws, Agreements, Etc. Except where
failure to do so does not and would not constitute a Material Adverse Event, the
Company shall maintain its business operations and property owned or used in
connection therewith in compliance with (i) all applicable federal, state and
local laws, regulations and ordinances, and such laws, regulations and
ordinances of foreign jurisdictions, governing
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such business operations and the use and ownership of such property, and (ii)
all agreements, licenses, franchises, indentures and mortgages to which the
Company is a party or by which the Company or any of its properties is bound,
2.8 ERISA Matters. If the Company has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of Title IV of
ERISA (a "Plan"), then the following covenants shall be applicable during such
period as any such Plan shall be in effect: (i) throughout the existence of the
Plan, the Company's contributions under the Plan will meet the minimum funding
standards required by ERISA and the Company will not institute a distress
termination of the Plan; and (ii) the Company will send to Purchaser a copy of
any notice of a reportable event (as defined in ERISA) required by ERISA to be
filed with the Labor Department or the PBGC at the time that such notice is so
filed.
2.9 Books and Records; Rights of Inspection. The Company will
keep, and will cause each Subsidiary to keep, proper books of record and account
in which entries will be made of all dealings or of or in relation to the
business and affairs of the Company or such Subsidiary, in accordance with GAAP
consistently maintained. The Company shall permit a representative of Purchaser
to visit any of its properties and inspect its corporate books and financial
record, and will discuss its accounts, affairs and finances with a
representative of Purchaser, during reasonable business hours, at all such times
as Purchaser may reasonably request, subject to Purchaser's duties of
confidentiality.
2.10 Reports. The Company will furnish to Purchaser the
following information, which information shall be subject to confidential
treatment by Purchaser:
(a) Monthly Statements. Within 30 days after the end of each
month, beginning the month of January 2000, monthly internal financial reports
which at a minimum shall consist of a balance sheet of the Company as of the
close of such month and related statements of income and cash flows for the
one-month period then ended, as well as any additional financial reports for
such period routinely prepared with respect to the Company and the Subsidiaries;
(b) Quarterly Statements. As soon as available and in any
event within 45 days after the end of each quarterly fiscal period (except the
last) of each fiscal year, copies of:
(i) consolidated balance sheets of the Company and
Subsidiaries as of the close of the three-month period then ended, setting forth
in comparative form the consolidated figures at the end of the preceding fiscal
year,
(ii) consolidated statements of income of the Company
and Subsidiaries for the three-month period then ended, setting forth in
comparative form the consolidated figures for the corresponding period of the
preceding fiscal year, and
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(iii) consolidated statements of cash flows of the
Company and Subsidiaries for the portion of the fiscal year ending with such
three-month period, setting forth in comparative form the consolidated figures
for the corresponding period of the preceding fiscal year, all in reasonable
detail and accompanied by a certificate of an authorized financial officer of
the Company that such financial statements fairly present the financial
condition and results of operations and cash flows of the Company at and for the
periods presented, subject to normal year-end adjustment:
(c) Annual Statement. As soon as available and in any event
within 90 days after the close of each Fiscal year of the Company, copies of:
(i) consolidated balance sheets of the Company and
Subsidiaries as of the close of such fiscal year, and
(ii) consolidated statements of income and
consolidated statements of changes ill stockholders, equity and cash flows of
tile Company and Subsidiaries for such fiscal year, in each case setting forth
in comparative form the consolidated figures for the preceding fiscal year, all
in reasonable detail and accompanied by an unqualified report thereon of a firm
of independent public accountants of recognized national standing:
(d) Special Audit Reports. Promptly upon receipt thereof, one
copy of each interim or special audit made by independent accountants of the
books of the Company or any Subsidiary;
(e) SEC and Other Reports. Promptly upon their becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by the Company to stockholders generally and of each periodic or
current report, and any registration statement or prospectus filed by the
Company to any Subsidiary with any securities exchange or the SEC or any
successor agency, and copies of any orders in any proceedings to which the
Company or any of its Subsidiaries is a party, issued by any governmental
agency, federal of state, having jurisdiction over the Company or any of its
Subsidiaries. The Company specifically covenants to timely file each such item
required to be filed with the SEC and each state requiring securities laws
filings; and
(f) Requested Information. With reasonable promptness, such
financial data and other information relating to the business of the Company as
Purchaser may from time to time reasonably request.
2.11 Limitations on Debt and Obligations. Except as to
(i) Indebtedness existing on the date hereof and
reflected on the Company's unaudited balance sheet as of September 30, 1999;
(ii) the Indebtedness incurred pursuant to this
Debenture;
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(iii) accounts payable and other trade payables
incurred in the ordinary course of business;
(iv) purchase money indebtedness incurred by the
Company in the purchase of equipment and other property used by the Company in
the ordinary course of business, such purchase money indebtedness not to exceed
an aggregate amount of principal and accrued interest thereon of $1,000,000 at
any time outstanding;
(v) obligations of the Company pursuant to
capitalized leases;
(vi) Indebtedness that refinances secured
Indebtedness under clause (i) above, provided that the collateral for such new
Indebtedness is the collateral for the refinanced secured Indebtedness and the
aggregate principal amount of such Indebtedness does not exceed the principal
amount Outstanding under the refinanced Indebtedness, and
(vii) Indebtedness incurred in connection with the
acquisition of a business (including the assets of a business), provided such
Indebtedness is secured solely by the assets of the business so acquired;
the Company and its Subsidiaries shall not, on a consolidated basis, incur
additional indebtedness which is senior to or pari passu with this Debenture in
excess of an aggregate amount of principal and interest of $1,500,000 at any
time outstanding without the prior written consent of Purchaser. Notwithstanding
the foregoing, the aggregate principal amount of any Indebtedness secured by the
accounts receivable and/or inventory of the Company and its Subsidiaries
(whether such Indebtedness is permitted under clause (i) or clause (vi)), may be
increased based upon the amount of the accounts receivable and/or inventory
eligible as collateral, so long as the ratio of the outstanding principal amount
of such Indebtedness to "eligible receivables" and/or "inventory" remains the
same (howsoever such terms are defined but provided such definitions remain
consistent).
2.12 Guaranties. Without the prior written consent of
Purchaser, the Company will not, and will not permit any Subsidiary to, become
or be liable in respect of any Guaranty except Guaranties by the Company which
are limited in maximum financial exposure to the amounts set forth in, and are
incurred in compliance with, the provisions of Section 2.11 of this Debenture.
2.13 Limitation on Liens. Without the prior written consent of
Purchaser, the Company will not, and will not permit any Subsidiary to, create
or incur, or suffer to be incurred or to exist, any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (collectively, "Liens") on its
or their property or assets, whether now owned or hereafter acquired or upon any
income or profits therefrom, or transfer any property for the purpose of
subjecting the same to the payment of obligations in priority to the payment of
its or their general creditors, or acquire or agree to acquire, or permit any
Subsidiary to acquire, any property or assets upon
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conditional sales agreement or other title retention devices, except those Liens
which exist as of the date hereof as set forth on Schedule 2.13, and except:
(a) purchase money liens on and security interests in
equipment hereafter acquired securing Indebtedness permitted by Section 2.11(iv)
of this Debenture, provided that such liens and security interests attach only
to the equipment so acquired and do not encumber any other properly of the
Company or any Subsidiary;
(b) liens for taxes (excluding federal and state income taxes)
not yet payable or being contested in good faith by appropriate proceedings and
for which adequate reserves have been provided on the books of the Company or a
Subsidiary;
(c) mechanics', materialmen's, warehousemen's, carriers' or
other like liens arising in the ordinary course of business of the Company or
any Subsidiary, if any, arising with respect to obligations which are not
overdue for a period longer than 90 days or which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
provided on the books of the Company or a Subsidiary;
(d) deposits or pledges to secure the performance of bids,
tenders, contracts, public or statutory obligations, surety or appeal bonds or
other deposits or pledges for purposes of a like general nature or given in the
ordinary course of business by the Company or any Subsidiary; and
(e) other encumbrances consisting of zoning restrictions,
casements, restrictions on the use of real property or minor irregularities in
the title thereto, which do not arise in connection with the borrowing of, or
any obligation for the payment of, money and which, in the aggregate, do riot
materially detract from the value of the premises or the business, properties or
assets of the Company or any Subsidiary.
2.14 Restricted Payments. Except as set forth on Schedule
2.14, the Company will not, without the prior written consent of Purchaser and
except as hereinafter provided:
(a) declare or pay any dividends, either in cash or property,
on any shares of its capital stock of any class except dividends or other
distributions payable solely in shares of Common Stock of the Company; or
(b) directly or indirectly, or through any Subsidiary,
purchase, redeem or retire any shares of its capital stock of any class or any
warrants, rights or options to purchase or acquire any shares of its capital
stock (other than in exchange for or out of the net proceeds to the Company from
the substantially concurrent issue or sale of other shares of capital stock of
the Company or warrants, rights or options to purchase or acquire any shares of
its capital stock); or
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(c) make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock, provided,
that distributions from a Subsidiary to the Company, or from a Subsidiary to
another Subsidiary, shall be permitted.
2.15 Investments. The Company will not, and will not permit
any Subsidiary to, make any Investments outside the ordinary course of business
of the Company or any Subsidiary, without the prior written consent of
Purchaser, except:
(a) Investments in direct obligations of the United States of
America, or any agency or instrumentality of the United States of America, the
payment or guaranty of which constitutes a full faith and credit obligation of
the United States of America, in either case maturing in twelve months or less
from the date of acquisition thereof;
(b) Investments in certificates of deposit maturing within one
year from the date of origin by a bank or trust company organized under the laws
of the United States, or any state thereof having capital, surplus and undivided
profits aggregating at least $100,000,000 and whose long-term certificates of
deposit are, at the time of acquisition thereof by Company or a Subsidiary,
rated AA or better by Standard & Poor's Corporation or AA or better by Moody's
investors Service, Inc.;
(c) Investments in commercial paper maturing in 270 days or
less from the date of issuance which, at the time of acquisition by the Company
or any Subsidiary, is accorded the highest rating by Standard & Poor's
Corporation, Moody's Investors Service, Inc. or another nationally recognized
credit rating agency of similar standing;
(d) loans or advances in the usual and ordinary course of
business to officers, directors and employees for expenses (including moving
expenses related to a transfer) incidental to carrying on the business of the
Company or any Subsidiary;
(e) receivables arising from the sate of goods and services in
the ordinary course of business of the Company and its Subsidiaries; and
(f) acquisitions, mergers, and consolidations permissible
under Section 2.16(a)(ii).
2.16 Mergers, Consolidations and Sales of Assets.
(a) Without the prior written consent of Purchaser, the
Company will not, and will nor permit any Subsidiary to (i) consolidate with or
be a party to a merger or share exchange with any other corporation, or (ii)
sell, lease or otherwise dispose of all or any substantial part (as defined in
paragraph (d) of this Section 2.16) of the assets of Company and its
Subsidiaries; provided, however, that
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(i) any Subsidiary may merge or consolidate with or
into the Company or any wholly-owned Subsidiary so long as in any merger or
consolidation involving the Company, the Company shall be the surviving or
continuing corporation; and
(ii) the Company may consolidate or merge with any
other corporation, or acquire all or a substantial portion of the assets of any
other entity, provided that such corporation or entity is engaged primarily in
the Company's general line of business on a consolidated basis as conducted on
the date hereof, and further provided that (A) Company shall be the surviving or
continuing corporation, (B) at the time of such consolidation or merger and
after giving effect thereto no Default or Event of Default shall have occurred
and be continuing, (C) such consolidation or merger shall be deemed in the good
faith estimate of the Board of Directors to be a consolidation or merger that
will be accretive to earnings per share in the fiscal year following the
consolidation or merger and (D) such consolidation or merger shall be approved
by the Company's Board of Directors, and
(iii) any Subsidiary may sell, lease or otherwise
dispose of all or any substantial part of its assets to the Company or any other
Wholly-owned Subsidiary.
(b) Without the prior written consent of Purchaser, the
Company will not permit any Subsidiary to issue or sell any shares of stock of
any class (Including as "stock" for the purposes of this Section 2.16, any
warrants, rights or options to purchase or otherwise acquire stock or other
securities exchangeable for or convertible into stock) of such Subsidiary to any
person other than the Company or a Wholly-owned Subsidiary, except for the
purpose of qualifying directors, or except in satisfaction of the validly
preexisting preemptive rights of minority shareholders in connection with the
simultaneous issuance of stock to the Company and/or a Subsidiary whereby the
Company and/or such Subsidiary maintain their same proportionate interest in
such Subsidiary,
(c) Without the prior written consent of Purchaser, the
Company will not sell, transfer or otherwise dispose of any shares of stock in
any Subsidiary (except to qualify directors) or any indebtedness of any
Subsidiary, and will not permit any Subsidiary to sell, transfer or otherwise
dispose of (except to the Company or a Wholly- owned Subsidiary) any shares of
stock or any indebtedness of any other Subsidiary, unless all of the following
conditions are met
(i) simultaneously with such sale, transfer or
disposition, all shares of stock and all indebtedness of such Subsidiary at the
time owned by the Company and by every other Subsidiary shall be sold,
transferred or disposed of as an entirety,
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(ii) the Board of Directors of the Company shall have
determined, as evidenced by a resolution thereof, that the retention of such
stock and indebtedness is no longer in the best interests of the Company;
(iii) such stock and Indebtedness is sold,
transferred or otherwise disposed of to a person, for a cash consideration and
on terms reasonably deemed by the Board of Directors to be adequate and
satisfactory;
(iv) the Subsidiary being disposed of shall not have
any continuing investment in the Company or any other Subsidiary not being
simultaneously disposed of; and
(v) such sale or other disposition does not involve a
substantial part (as hereinafter defined) of the assets of the Company and its
Subsidiaries taken as a whole.
(d) As used in this Section 2.16, a sale, lease or other
disposition of assets shall be deemed to be a "substantial part" of the assets
of the Company and its Subsidiaries only if the book value of such assets, when
added to the book value of all other assets sold, leased or otherwise disposed
of by the Company and its Subsidiaries (other than in the ordinary course of
business) during, the twelve month period ending on the date of such sale, lease
or other disposition, exceeds 50 percent of the consolidated net tangible assets
of the Company and its Subsidiaries determined as of the end of the immediately
preceding fiscal year.
2.17 Transactions with Affiliates. Except as set forth on
Schedule 2.17, without the prior written consent of Purchaser, the Company will
not and will not permit any Subsidiary to, enter into or be a party to any
transaction or arrangement with any officer, director or Affiliate (including,
without limitation, the purchase from, sale to, or exchange of property with, or
the rendering of any service by or for, any Affiliate), except in the ordinary
course of and pursuant to the reasonable requirements of the Company's or Such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than could be obtained in an arm's-length
transaction with a person other than an Affiliate, in each case as determined in
good faith by a majority of the disinterested directors of the Company.
2.18 Notice. The Company shall promptly upon the discovery
thereof give written notice to Purchaser of (i) the occurrence of any Default or
Event of Default, (ii) the occurrence of any material default or material event
of default under any other agreement providing for Indebtedness of the Company
or any Subsidiary or tinder a capitalized lease obligation, (iii) any material
actions, suits or proceedings instituted by any person against the Company or a
Subsidiary or affecting any of the assets of the Company or any Subsidiary, or
(iv) any investigation initiated by, or any dispute between and any governmental
regulatory body, on the one hand, and the Company or any Subsidiary, on the
other hand, which dispute might interfere with the normal operations
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of the Company or any Subsidiary; provided, however, that Purchaser shall not be
required by this Debenture to disclose any such information provided in (iii) or
(iv) above to any third party other than Purchaser's counsel and except to the
extent compelled by law or otherwise authorized by the Company.
2.19 Board of Directors: Observer Rights. As soon as
practicable, and in nu case later than 30 days after the Closing of the
transactions contemplated hereby, nominees of Purchaser shall be nominated to be
elected to hold a majority of the seats of the Board of Directors in accordance
with the Company's Articles of Incorporation and Bylaws and as reasonably
acceptable to the Company. Any nominee of Purchaser hereunder shall be
reimbursed for all reasonable expenses incurred as a director and shall be
entitled to receive such compensation as may be received by other non-employee
directors of the Company, including indemnity and advancement of expenses to the
fullest extent permitted under applicable law,
2.20 Annual Plan. The Board of Directors shall adopt no later
than the sixtieth day of each fiscal year, a financial plan for the Company,
which shall include at least a projection of income and expenses (including
capital expenditures) and a projected cash flows statement for each month in
such fiscal year, and a projected balance sheet as of the end of each month in
such fiscal year (the "Annual Plan"). The Annual Plan may only be amended or
revised, in any material manner, with the approval of the Board of Directors.
3. Subordination of This Debenture.
3.1 Subordination. The indebtedness evidenced by this
Debenture, including principal and interest, shall be Subordinate and junior to
the prior payment of the indebtedness of the Company for borrowed money only as
set forth on Schedule 3.1 (the "Senior Indebtedness"), and the indebtedness
evidenced by this Debenture shall be senior in right of payment to all other
Indebtedness of the Company which is expressly stated to be subordinate or
junior in any respect to other Indebtedness of the Company, including this
Debenture.
3.2 Liquidation, Etc.
(a) Upon any distribution of assets of the Company in
connection with any dissolution, winding up, liquidation or reorganization of
the Company (whether in bankruptcy, insolvency, or receivership proceedings or
upon an assignment for the benefit of creditors or otherwise), the holders of
all Senior Indebtedness shall first be entitled to receive payment in full of
the principal thereof, premium, if any, and interest due thereon, and all costs
and expenses (including attorneys' fees) related thereto, before the holders of
this Debenture shall be entitled to receive any payment on account of the
principal of or interest on or any other amount owing with respect to this
Debenture (other than payment in shares of capital stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan
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of reorganization or readjustment, which stock and securities are subordinated
to the payment of all Senior Indebtedness and securities received in lieu
thereof which may at tile time be outstanding). Under the circumstances provided
herein, the holders of the Senior Indebtedness shall have the right to receive
and collect any distributions made with respect to this Debenture until such
time as the Senior Indebtedness is paid in full, and shall have the further
right to take such actions as may be deemed necessary or required to so receive
and collect such distributions including making or filing any proofs of claim
relating thereto.
(b) Without in any way modifying the provisions of this
Section 3 or affecting the subordination effected hereby if such notice is not
given, the Company shall give prompt written notice to the Purchaser of any
contemplated dissolution, winding up, liquidation or reorganization of the
Company (whether in bankruptcy, insolvency or receivership proceedings or upon
an assignment for the benefit of creditors or otherwise).
3.3 Senior Indebtedness Default. The Company shall not declare
or pay any dividends or make any distributions to the holders of capital stock
of the Company, or Purchase or acquire for value, any of this Debenture if any
default has occurred and is continuing with respect to the payment of principal
of, premium if any, or interest on any Senior Indebtedness
3.4 Subrogation. Upon the prior payment in full of ail Senior
Indebtedness, the Purchaser shall be subrogated to the rights of the holders of
the Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness until all amounts owing on this
Debenture shall be paid in full, and for the purpose of such subrogation, no
payments or distributions to the Purchaser otherwise payable or distributable to
the holders of Senior Indebtedness shall, as between the Company, its creditors,
other than the holders of Senior Indebtedness and Purchaser, be deemed to be
payment by the Company to or on account of this Debenture, it being understood
that the provisions of this Section 3 are and are intended solely for the
purpose of defining the relative rights of Purchaser, on the one hand, and the
holders of the Senior Indebtedness, on the other hand.
3.5 Company's Obligations Not Impaired. Nothing contained in
this Section 3 is intended to or shall impair, as between the Company and
Purchaser, the obligation of the Company, which is absolute and unconditional,
to pay the Purchaser the principal of and interest on this Debenture as and when
the same shall become due and payable in accordance with the terms of this
Debenture, or is intended to or shall affect the relative rights of the
Purchaser other than with respect to the holders of the Senior Indebtedness,
nor, except as expressly provided in this Section 3, shall anything herein or
therein prevent the Purchaser from exercising all remedies otherwise permitted
by applicable law upon the occurrence of an Event of Default under this
Debenture.
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4. Conversion of This Debenture.
4.1 Conversion Privilege. This Debenture shall be convertible
at any time into shares of Common Stock at the Conversion Ratio. The initial
Conversion Price shall be $ 1.00 per share, so that immediately after the
Closing this Debenture shall be convertible into 400,000 shares of Common Stock.
Any portion of the outstanding principal balance of this Debenture may be
converted at the election of the holder of any Debenture into shares of Common
Stock at ally time and from time to time, at the Conversion Ratio and the
Conversion Price then in effect, from and after the Closing and until the
repayment in full of the principal amount, all accrued but unpaid interest
under, and all expenses and other costs required to be paid by the Company under
this Debenture. Upon such conversion, that portion of principal so converted
shall be deemed to be paid in full upon the delivery to the holder of this
Debenture of a certificate representing the proper number of shares of Common
Stock to be issued to such holder upon such conversion. Conversion of any
portion of the principal balance of this Debenture shall not relieve the Company
to pay any accrued but unpaid interest through the date of conversion on the
portion of the principal balance of this Debenture so converted. In no case
shall interest be convertible into Common Stock,
4.2 Reservation of Shares. The Company shall take all such
corporate action as may be required to validly reserve for issuance a sufficient
number of shares of Common Stock into which this Debenture may be converted.
4.3 Conversion Procedure.
(a) This Debenture shall be convertible into shares of Common
Stock at the Conversion Ratio at the option of the holder, in whole or in part,
at any time. The holder shall effect conversions by delivering to the Company a
written notice (the "Conversion Notice"), accompanied by the certificate
representing this Debenture to be converted. Each Conversion Notice shall
specify the principal amount of this Debenture to be converted and the date on
which such conversion is to be effected (the "Conversion Date"), which shall in
no event be earlier than the date such Conversion Notice is given in accordance
with Section 4.3(i) below. Each Conversion Notice, once given, shall be
irrevocable. If the holder is converting less than all this Debenture held by
such holder, the Company shall promptly deliver to the holder a certificate for
such number of this Debenture as have not been converted.
(b) Within ten trading days after the Conversion Date, the
Company shall deliver to the holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
then required by law), representing the number of shares of Common Stock being
acquired upon the conversion of this Debenture, and (ii) a certificate
representing the number of this Debenture not converted; provided, however, that
the Company shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon conversion of any this Debenture, until
certificates evidencing such this Debenture are either delivered to the Company
or
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any transfer agent for the Common Stock, or the holder notifies the Company that
such certificates have been lost, stolen or destroyed and provides a bond (or
other adequate security acceptable to the Company) satisfactory to the Company
to indemnify the Company from any loss incurred by it in connection therewith.
(c) (i) The initial Conversion Price shall be $1.00 per share.
(ii) If the Company, at any time while any this
Debenture is outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock payable in shares of
its capital stock (whether payable in shares of its Common Stock or of capital
stock of any class), (b) subdivide outstanding shares of Common Stock into
larger number of shares, (c) combine outstanding shares of Common Stock into a
smaller number of shares, or (d) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, the Conversion Price
designated in Section 4.3(c)(i) shall be multiplied by a fraction of which the
numerator shall be the number of shires of Common Stock of the Company
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 4.3(c)(ii) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(iii) If the Company, at any time while any of this
Debenture is outstanding, shall issue rights or warrants to all holders of
Common Stock entitling them to subscribe for or purchase shares of Common Stock
at a price per share less than the Per Share Market Value of Common Stock at the
record date mentioned below, the Conversion Price designated in Section
4.3(c)(i) shall be multiplied by a fraction, of which the denominator shall be
the number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase and of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such Per Share Market Value.
Such adjustment shall be made whenever such rights or warrants are issued and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Conversion Price pursuant to this Section
4.3(c)(iii), if such right or warrant shall expire and shall not have been
exercised, the Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section 4.3 after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights or warrants been made on the basis of
offering for subscription
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or purchase only that number of shares of Common Stock actually purchased upon
the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while any this
Debenture is outstanding, shall issue (A) options or warrants entitling the
holder to subscribe for or purchase shares of Common Stock at an exercise price
less than the Conversion Price, or (B) securities convertible into Common Stock
at a conversion price less than the Conversion Price, then the Conversion Price
designated in Section 4.3(c)(i) shall be automatically reset to such lower
conversion price, provided that the adjustment provided by this Section
4.3(c)(iv) shall not apply to issuance of securities pursuant to options,
warrants, or conversion rights outstanding on the Closing Date, and further,
shall not be applicable until the Company shall have issued options, warrants,
or convertible securities, exercisable or convertible into 400,000 shares of
Common Stock at an exercise or conversion price less than the Conversion Price,
provided that such exercise or conversion price is equal to or greater than the
Per Share Market Value on the date of issuance. Such adjustment shall be made
whenever such options, warrants or convertible securities are issued at an
exercise or conversion price less than the Conversion Price, and such adjustment
shall become effective immediately after the date on which such options,
warrants or convertible securities are issued at an exercise or conversion price
less than the Conversion Price.
(v) In case the Company, at any time while this
Debenture is outstanding, shall distribute to all holders of Common Stock (and
not to holders of this Debenture) evidences of its indebtedness, or assets or
rights or warrants, to subscribe for or purchase any security (excluding those
referred to in Section 4.3(c)(iii) above) then in each such case the Conversion
Price at which this Debenture shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect prior to the record
date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value of common Stock determined as of the record date mentioned above,
and of which the numerator shall be such Per Share Market Value of the Common
Stock on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of Common Stock as determined by the Board of Directors
of the Company in good faith; provided, however, that in the event of a
distribution exceeding ten percent of the net assets of the Company, then such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of this Debenture and
provided, further, that the Company, after receipt of the determination by such
Appraiser shall have the right to select an additional Appraiser, in which case
the fair market value shall be equal to the average of the determination by each
such Appraiser. In either case the adjustments shall be described in a statement
provided to all holders of this Debenture of the portion of assets or evidences
of indebtedness so distributed or such subscription rights applicable to one
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share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(vi) All calculations tinder this Section 4.3 shall
be made to the nearest cent or the nearest 1/100th of a share, as the case may
be.
(vii) Whenever the Conversion Price is adjusted
pursuant to Section 4.3(c)(ii), (iii), (iv) or (v), the Company shall promptly
mail to each holder of this Debenture, a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(viii) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
any sale or transfer of all or substantially all of the assets of the Company or
any compulsory share exchange pursuant to which share exchange the Common Stock
is converted into other securities, cash or property, then the holders of this
Debenture then outstanding shall have the right thereafter to convert such this
Debenture only into the kind and amount of shares of stock and other securities
and property receivable upon or decreed to be held following such
reclasification, consolidation, merger, sale, transfer or share exchange by a
holder of a number of shares of the Common Stock of the Company into which such
this Debenture could have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the holder of shares of this
Debenture the right to receive the securities or property set forth in this
Section 7.3(c)(viii) upon any conversion following such consolidation, merger,
sale, transfer or share exchange. This provision shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers of share
exchanges.
(ix) In case:
(A) the Company shall declare a dividend (or
any other distribution) on its Common Stock; or
(B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock; or
(C) the Company shall authorize the granting
to all holders of the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights; or
(D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common
Stock of the Company (other than a subdivision or combination of the outstanding
shares of Common Stock), any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the assets of the
Company, or any compulsory share
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exchange whereby the Common Stock is converted into other securities, cash or
property; or
(E) of the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Debenture, and shall cause to be mailed to the
holders of this Debenture at their last addresses as they shall appear upon the
stock books of the Company, at least 10 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (i) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is riot to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined, or (ii) the
date on which such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up (but no failure to mail such notice or any defect therein or in
the mailing thereof shall affect the validity of the corporate action required
to be specified in such notice).
(d) In case at any time conditions shall arise by reason of
action taken by the Company which in the opinion of the Board of Directors of
the Company are not adequately covered by the other provisions hereof and which
might materially and adversely affect the rights of the holders of this
Debenture (different than or distinguished from the effect generally on the
rights of holders of any indebtedness of the Company) or in case at any time any
such conditions are expected to arise in the opinion of the Board of Directors
of the Company by reason of any action contemplated by the Company, an Appraiser
selected by the holders of more than 50% of the principal amount of this
Debenture shall give its opinion as to the adjustment, if any (not inconsistent
with the standards established in this Section 4.3), of the Conversion Price
(including, if necessary, any adjustment as to the securities into which this
Debenture may thereafter be convertible) and any distribution which is or would
be required to preserve without diluting tile rights of the holders of this
Debenture; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case the adjustment shall be equal to the average of the
adjustments recommended by each such Appraiser. The Board of Directors of the
Company shall make the adjustment recommended forthwith upon the receipt of such
opinion or opinions or the taking of any such action contemplated, as the case
may be; provided, however, that no such adjustment of the Conversion Price shall
be made which in the opinion of the Appraiser(s) giving the aforesaid opinion or
opinions would result in an increase of the Conversion Price then in effect.
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(e) The Company covenants that it will at all times reserve
and keep available, out of its authorized and unissued Common Stock solely for
the purpose of issuance upon conversion of this Debenture as herein provided,
free from preemptive rights or any other actual contingent purchase rights of
persons other than the holders of this Debenture, such number of shares of
Common Stock as shall be Assumable (taking into account the adjustments and
restrictions of Section 4.3(c) hereof) upon the conversion of all outstanding
this Debenture. The Company covenants that all shares of Common Stock that shall
he so issuable shall, upon issue, be duly and validly issued and fully paid and
nonassessable.
(f) The Company shall not be required to issue stock
certificates representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the Per Share Market Value at such time.
(g) The issuance of certificates for shares of Common Stock on
conversion of this Debenture shall be made without charge to the holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate in a name other than that
of the holder of the shares of this Debenture converted and the Company shall
not be required to issue or deliver such certificates unless or until the person
or persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such Lax has been paid.
(h) For purposes of this Debenture,
(A) "Conversion Ratio" means, at any time, a fraction, of
which the numerator is the aggregate principal amount of this Debenture to be
converted into Common Stock, and of which the denominator is the Conversion
Price at such time.
(B) "Per Share Market Value" means on any particular date (i)
the last sale price per share of the Common Stock on such date on the Nasdaq
National Market or other stock exchange on which the Common Stock has been
listed or if there is no such price on such date, then the last price on such
exchange on the date nearest preceding such date, or (ii) if the Common Stock is
not listed on the Nasdaq National Market or any stock exchange, the average of
the bid and asked price for a share of Common Stock in the over- the-counter
market as reported by the Nasdaq SmallCap Market at the close of business on
such date, or (iii) if the Common Stock is not quoted on the Nasdaq SmallCap
Market, the average of the bid and asked price for a share of Common Stock in
the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), or (iv) if the Common Stock is no longer publicly traded the
fair market value of a share of Common Stock as determined by an Appraiser (as
defined in
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Section 4(c)(v) above) selected in good faith by the holders more than 50% of
the principal amount of this Debenture then outstanding; provided, however, that
the Company after receipt of the determination by such Appraiser, shall have the
tight to select an additional Appraiser, in which case, the fair market value
shall be equal to the average of the determinations by each such Appraiser.
(C) "Trading day" means (i) a day on which the Common Stock is
traded on the Nasdaq National Market or principal stock exchange on which the
Common Stock has been listed, or (ii) if the Common Stock is not listed on the
Nasdaq National Market or any stock exchange, a day on which the Common Stock is
traded on the Nasdaq SmallCap Market, or (iii) if the Common Stock is not quoted
on the Nasdaq SmallCap Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices).
(i) Each Conversion Notice shall be given by facsimile or by
mail, postage prepaid, addressed to the attention of the Chief Financial Officer
of the Company at the facsimile telephone number or address of the principal
place of business of the Company. Any such notice shall be deemed given and
effective upon the earliest to occur of (i) receipt of such facsimile at such
facsimile telephone number, (ii) three days after deposit in the United States
mail, or (iii) upon actual receipt by the party to whom such notice is required
to be given.
5. Restrictions on Transfer, Registration Rights.
5.1 Legends; Restrictions on Transfer. Neither this Debenture
nor the shares of Common Stock issuable upon conversion of this Debenture have
been registered under the Securities Act or any state securities laws.
5.2 Registration Rights. The Purchaser shall be entitled to
register Common Stock issuable upon conversion of this Debenture as provided in
the Registration Rights Agreement.
6. Events of Default; Remedies.
6.1 Events of Default. The occurrence of any one of the
following shall constitute an "Event of Default" under this Debenture:
(a) Default shall occur in the payment of interest on any
Debenture when the same shall have become due, provided, that any such default
shall be curable within two business days if the failure to make such payment
when due was caused by a financial institution's error in effecting an automatic
debit transaction against an account containing sufficient funds; or
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(b) Default shall occur in the making of any payment of the
principal of any Debenture or the premium, if any, by the Company thereon at the
expressed or any accelerated maturity date or at any date fixed by the Company
for prepayment, provided, that any such default shall be curable within two
business days if the failure to make such payment when due was caused by a
financial institution's error in effecting an automatic debit transaction
against an account containing sufficient funds; or
(c) Default shall be made in the payment of the principal of
or interest on any material Indebtedness (other than this Debenture) of the
Company or any Subsidiary and such default shall continue beyond the period of
grace if any, allowed with respect thereto; or
(d) Default or the happening of any event shall occur under
any contract, agreement, lease, indenture or other instrument under which any
material Indebtedness (other than this Debenture) of the Company or any
Subsidiary may be issued and such default or event shall continue for a period
or time sufficient to permit the acceleration of the maturity of any such
Indebtedness of the Company or any Subsidiary outstanding thereunder; or
(e) Default shall occur in the observance or performance of
any covenant or agreement contained in Sections 2.11 through 2.20 hereof which
is not remedied within 30 days of notice of such Default; or
(f) Default shall occur in the observance or performance of
any other provision of this Debenture which is not remedied within 30 days after
the earlier of (i) the date on which the Company first obtains knowledge of such
default, and (ii) the date on which written notice thereof is given to the
Company by the holder of any Debenture; or
(g) Any representation or warranty made by the Company herein,
or made by the Company in any statement or certificate furnished by the Company
in connection with the consummation of the issuance and delivery of this
Debenture or furnished by the Company pursuant hereto, is untrue in any material
respect as of the date of the issuance or making thereof and would have a
Material Adverse Effect, subject to the limitations on survival of Section 9.5;
or
(h) Final judgments for the payment of money aggregating in
excess of $100,000, are outstanding against the Company or any Subsidiary or
against any property or assets of either and any one of such judgments has
remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a
period of 30 days from the date of its entry; or
(i) The Company or arty Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Company or any Subsidiary
applies for or consents to the
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appointment of a custodian, trustee, liquidator, or receiver for the Company or
such Subsidiary or for the major part of the property of either; or
(j) A custodian, trustee, liquidator, or receiver is appointed
for the Company or any Subsidiary or for the major part of the property of
either and is not discharged within 60 days after such appointment; or
(k) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against the Company or
any Subsidiary and., if instituted against the Company or any Subsidiary, are
consented to or are riot dismissed within 60 days after such institution.
6.2 Remedies Upon Default.
(a) If an Event of Default (other than described by Section
6.1(a) or Section 6.1(b))) shall occur, and for so long as such Event of Default
continues, the interest rate on this Debenture shall increase by 2% per annum
until such Event of Default is cured.
(b) [Reserved]
(c) When any Event of Default has occurred or if the holder of
any Debenture or of any other evidence of indebtedness of the Company gives any
notice or takes any other action with respect to a claimed default, the Company
agrees to give notice within three Business Days of such event to all holders of
this Debenture then outstanding.
6.3 Acceleration of Maturities. When any Event of Default
described in paragraph (a), (b) or (c) of Section 6.1 has occurred and is
continuing, any holder of any Debenture may, and when any Event of Default
described in paragraphs (d) through (i), inclusive, of Section 6.1 has occurred
and is continuing, the holder or holders of 50% or more of the principal amount
of this Debenture at the time outstanding may, by notice to the Company, declare
the entire principal and all interest accrued on all this Debenture to be, and
all this Debenture shall thereupon become, forthwith due and payable, without
any presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived. When any Event of Default described in paragraph (j) or
(k) of Section 6.1 has occurred, then all outstanding this Debenture shall
immediately become due and payable without presentment, demand or notice of any
kind, all of which are hereby expressly waived. Upon this Debenture becoming due
and payable as a result of any Event of Default as aforesaid, the Company will
forthwith pay to the holders of this Debenture the entire principal and interest
accrued on this Debenture. No course of dealing on the pall of any Debenture
holder nor any delay or failure on the part of any Debenture holder to exercise
any right shall operate as a waiver of such right or otherwise prejudice such
holder's rights, powers and remedies. The
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Company further agrees, to the fullest extent permitted by law, to pay to the
holder or holders of this Debenture all costs and expenses, including reasonable
attorneys' fees, incurred by them in the collection of any this Debenture upon
any default hereunder or thereon.
7. Amendments, Waivers and Consents.
7.1 Consent Required. Any term, covenant, agreement or
condition of this Debenture may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), if the Company shall have obtained
the consent in writing of the holders of at least 50% in aggregate principal
amount of outstanding this Debenture; provided that without the written consent
of the holders of all of this Debenture then outstanding, no such waiver,
modification, alteration or amendment shall be effective (i) which will change
the time of payment of the principal of or the interest on any Debenture or
reduce the principal amount, thereof or change the rate of interest thereon,
(ii) which will change any of the provisions with respect to optional
prepayments, or (iii) which will change the percentage of holders of this
Debenture required to consent to any such amendment modification or waiver of
any of the provisions of Section 6 or Section 7.
7.2 Solicitation of Debenture Holders. The Company will not,
directly or indirectly, pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, to any holder of this
Debenture as consideration for or as an inducement to the entering into by any
holder of this Debenture of any waiver or amendment of any of the terms and
provisions of this Debenture unless such remuneration is concurrently paid, on
the same terms, ratably to the holders of all of this Debenture then
outstanding.
7.3 Effect of Amendment or Waiver. Any such amendment or
waiver shall apply equally to all of the holders of this Debenture and shall be
binding upon them, upon each future holder of any Debenture, and upon the
Company, whether or not such Debenture shall have been marked to indicate such
amendment or waiver. No such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right consequent
thereon.
8. Interpretation of Debenture; Definitions.
8.1 Definitions. As used herein,
"Affiliate" means any person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, the Company, (ii) which beneficially owns or holds 10% or
more of any class of the Voting Stock of the Company or (iii) 10% or more of the
Voting Stock (or in the case
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of a person which is not a corporation, 10% or more of the equity interest) of
which is beneficially owned or held by the Company or a Subsidiary.
"Business Day" means any day other than a Saturday, Sunday, or
other day on which banks in Georgia are authorized to close.
"Change in Control" means when any person or entity, including
a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, other than the Company or a wholly-owned subsidiary thereof or any
employee benefit plan of the Company or any of its Subsidiaries, becomes the
beneficial owner of the Company's securities having 50% or more of the combined
voting power of the then outstanding securities of the Company that may he cast
for the election of directors of the Company (other than as a result of an
issuance of securities initiated by the Company in the ordinary course of
business).
The term "control" (including the terms "controlling,"
"controlled by" and "under common control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of Voting Stock, by
contract, or otherwise.
"Default" means any event or condition, the occurrence of
which would, with the lapse of time or the giving of notice, or both, constitute
an Event of Default as defined in Section 6.1.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer any successor sections.
"Guaranties" by any person means all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (A) for the purchase or payment of such Indebtedness or obligation, (B) to
maintain working capital or other balance sheet condition or (C) otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation, or (iii) to lease property or to purchase securities or other
property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Debenture, a
Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be
24
<PAGE>
Indebtedness equal to the principal amount of such Indebtedness for borrowed
money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Indebtedness" of any pet-son means and includes all
obligations of such person which in accordance with GAAP shall be classified
upon a balance sheet of such person as liabilities of such person, and in any
event shall include all (i) obligations of such person for borrowed money or
which have been incurred in connection with the acquisition of property or
assets, (ii) obligations secured by any lien or other charge upon property or
assets owned by such person, even though such person has not assumed or become
liable for the payment of such obligations, (iii) obligations created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such person, notwithstanding the fact that the rights and
remedies of the seller, lender or lessor under such agreement in the case of
default are limited to repossession or sale or property, (iv) capitalized
rentals, and (v) Guaranties of obligations of others of the character referred
to in this definition
"Investments" means all investments, in cash or by delivery of
property made, directly or indirectly in any person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or securities or by
loan, advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
"Material Adverse Event" means any event or circumstance, or
set of events or circumstances, individually or collectively, that reasonably
could be expected to result in any (i) material adverse effect upon the validity
or enforceability of this Debenture, or (ii) material and adverse effect on the
financial condition or results of operations of the Company (a "Material Adverse
Effect"), or (iii) material default or potential material default under this
Debenture.
"Person" means an individual, partnership, corporation,
limited liability company, trust or unincorporated organization, and a
government or agency or political subdivision thereof.
"Plan" means a "pension plan," as such term is defined in
ERISA, established or maintained by the Company or any ERISA Affiliate or as to
which the Company or any ERISA Affiliate contributed or is a member or otherwise
may have any liability.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company and the Purchaser of even date herewith.
25
<PAGE>
"Security" shall have the same meaning as in Section 2(l) of
the Securities Act of 1933, as amended.
The term "subsidiary" means, as to any particular parent
corporation, any corporation of which more than 50% (by number of votes) of the
Voting Stock shall be owned by such parent corporation and/or one or more
corporations which are themselves subsidiaries of such parent corporation. The
term "Subsidiary" shall mean a subsidiary of the Company.
"Voting Stock" means securities of any class or classes the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or persons performing similar
functions).
"Wholly-owned" when used in connection with any Subsidiary
shall mean a Subsidiary of which all of the issued and outstanding shares of
stock (except shares required as directors' qualifying shares shall be owned by
the Company and/or one or more of its Subsidiaries.
8.2 Accounting Principles. Where the character or amount of
any asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made for
the purposes of this Debenture, the same shall be done in accordance with GAAP,
to the extent applicable, except where such principles are inconsistent with the
requirements of this Debenture.
8.3 Directly or Indirectly. Where any provision in this
Debenture refers to action to be taken by any person, or which such person is
prohibited from taking such provision shall be applicable whether the action in
question is taken directly or indirectly by such person.
9. Miscellaneous.
9.1 Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to pay
to Purchaser so long as Purchaser holds any of this Debenture, all such expenses
relating to any amendment, waiver or consent pursuant to the provisions hereof
(whether or not the same are actually executed and delivered), including,
without limitation, any amendments, waivers or consents resulting from any
work-out, restructuring or similar proceedings relating to the performance by
the Company of its obligations under this Debenture and this Debenture. The
Company also agrees that it will pay and hold Purchaser harmless against any and
all liability with respect to stamp and other taxes, if any, which may be
payable in connection with the execution and delivery of this Debenture or this
Debenture, whether or not any this Debenture are then outstanding. The Company
agrees to protect and indemnify Purchaser against any liability for any and all
brokerage fees and commissions payable or claim to be payable to any person as a
result of any actions
26
<PAGE>
of the Company or its agents in connection with the transactions contemplated by
this Debenture.
9.2 Powers and Rights Not Waived; Remedies Cumulative. No
delay or failure on the part of the holder of any Debenture in the exercise of
any power or right shall operate as a waiver thereof, nor shall any single or
partial exercise of the same preclude any other or further exercise thereof, or
the exercise of any other power or right. The rights and remedies of the holder
of any Debenture are cumulative to and are not exclusive of any rights or
remedies any such holder would otherwise have, and no waiver or consent, given
or extended hereunder, shall extend to or affect any obligation or right not
expressly waived or consented to.
9.3 Notices. All communications provided for hereunder shall
be in writing and shall be delivered personally, or mailed by registered mail or
by prepaid overnight air courier, or by facsimile communication, in each case
addressed:
If to Purchaser: Wi-LAN Inc.
Suite 300
801 Manning Road, N.E.
Calgary, Alberta 72E 8J8
Attention: Hatim Zaghloul
Facsimile No.: 403-273-5100
with a copy to: Fred Davidson
Burnet, Duckworth & Palmer
First Canadian Centre
1400, 350 - 7th Avenue, S.W.
Calgary, Canada
Facsimile No.: 403-260-0332
If to the Company: Digital Transmission Systems, Inc.
3000 Northwoods Parkway, Building 330
Norcross, Georgia 30071
Attention: Andres C. Salazar
Facsimile No.: 770-798-1325
with a copy to: Sutherland, Asbill & Brennan, L.L.P.
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attention: Mark D. Wasscrrnan
Facsimile No.: 404-853-8806
or such other address as Purchaser or the subsequent holder of any Debenture
initially issued to Purchaser may designate to the Company in writing, or such
other address as the Company may in writing designate to Purchaser or to a
subsequent holder of the
27
<PAGE>
Debenture initially issued to Purchaser, provided, however, that a notice sent
by overnight air courier shall only be effective if delivered at a street
address designated for such purpose by such person and a notice sent by
facsimile communication shall only be effective if made by confirmed
transmission at a telephone number designated for such purpose by such person
or, in either case, as Purchaser or a subsequent holder of any this Debenture
initially issued to Purchaser may designate to the Company in writing or at a
telephone number herein set forth.
9.4 Assignments. This Debenture may be endorsed, assigned
and/or transferred in whole or in part by Purchaser, and any such holder and/or
assignee of the same shall succeed to and be possessed of the rights and powers
of Purchaser under all of the same to the extent transferred and assigned;
provided, however, Purchaser shall not make any such transfer to a competitor of
the Company without the prior written consent of the Company. The Company shall
not assign any of its rights nor delegate any of its duties under this Debenture
by operation of law or otherwise without the prior express written consent of
Purchaser, which may be withheld in Purchaser's sole and unfettered discretion,
and if the Company obtains such consent, this Debenture shall be binding upon
such assignee.
9.5 Survival of Covenants. All covenants made by the Company
and the Purchaser herein and in any instruments or certificates delivered
pursuant hereto shall survive the closing and the delivery of this Debenture and
this Debenture, until the termination of the Debenture which shall terminate and
be of no further force or effect upon the payment in full of the principal
amount of, all accrued but unpaid interest under, and all expenses and other
costs required to be paid by the Company under, this Debenture,
9.6 Severability. Should any part of this Debenture for any
reason be declared invalid or unenforceable, such decision shall not affect the
validity of any remaining portion, which remaining portion shall remain in force
and effect as if this Debenture had been executed with the invalid or
unenforceable portion thereof eliminated and it is hereby declared the intention
of the parties hereto that they would have executed the remaining portion of
this Debenture without including therein any such part, parts or portion which
may for any reason, be hereafter declared invalid or unenforceable.
9.7 Governing Law. This Debenture issued and sold hereunder
shall be governed by and construed in accordance with Georgia law, without
regard to its conflicts of law rules.
9.8 Captions; Counterparts. The descriptive headings of the
various Sections or parts of this Debenture are for convenience only and shall
not affect the meaning or construction of any of the provisions hereof. This
Debenture may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
28
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be
executed in its corporate name by the undersigned officer, thereunto duly
authorized.
DIGITAL TRANSMISSION SYSTEMS, INC.
By: /s/ Andres Salazar
-------------------------------
Name: Andres Salazar
Title: Chief Executive Officer
29
OPTION AGREEMENT
This Option Agreement ("Agreement") is entered into as of the 7th day
of January, 2000, by and among WI-LAN INC. ("WLI"), a body corporate,
incorporated pursuant to the laws of the Canadian province of Alberta; and
FINOVA MEZZANINE CAPITAL INC. ("FINOVA"), a Tennessee corporation.
RECITALS:
WHEREAS, WLI and FINOVA have entered into that Purchase Agreement (the
"Purchase Agreement") dated December 29, 1999, providing for the sale and
purchase of certain property and pursuant to which FINOVA is to grant to WLI an
option with respect to one million three hundred fourteen thousand three hundred
thirty-three (1,314,333) shares of Series A Convertible Preferred Stock (the
"Stock") issued by Digital Transmission Systems, Inc. ("DTS"), a Delaware
corporation, which stock is presently evidenced by certificate number A-1 and is
presently owned and held by FINOVA;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are acknowledged, it is agreed as follows:
1. Grant of Option to Purchase. FINOVA hereby grants to WLI an
option to purchase some or all of the Stock from FINOVA at any time and from
time to time from the date hereof until two (2) years from the date hereof. The
price paid to FINOVA by WLI as to any Stock being purchased shall be One Dollar
(U.S. $1.00) per share. WLI may exercise this option by delivering written
notice to FINOVA along with a wire transfer or cashier's check drawn on a
national bank with offices in the State of Tennessee. The notice shall state the
number of shares as to which WLI wishes to exercise its right to purchase and
shall include a statement of WLI's calculation of the remaining number of shares
as to which the option may be exercised, taking into account the newly submitted
exercise and all previous purchases. Upon receipt of the notice and funds,
FINOVA shall immediately tender its stock certificate to DTS along with such
powers of attorney or other documents as may be reasonably necessary to effect
the transfer of the elected Stock to WLI and the issuance of appropriate
certificates to reflect the resulting ownership of the Stock by WLI and FINOVA.
2. Agreement Not to Sell or Convert. FINOVA agrees that it will
not sell any of the Stock (except pursuant to this Agreement) or elect to
convert any of the Stock to common stock of DTS for a period of one (1) year
from the date hereof.
<PAGE>
3. Right of First Refusal. FINOVA agrees that if, after the
expiration of the restricted period described in Section 2 above but before the
expiration of the option granted in Section 1 above, FINOVA wishes to sell or
exercise its right of conversion with respect to any of the Stock, FINOVA will
first give WLI written notice of its intention describing the intended activity
(sale or conversion) and the number of shares of Stock to which the intention
applies and allow WLI a period of five (5) days after receipt of such notice
within which WLI may exercise its option to purchase such Stock and preclude the
sale or conversion by FINOVA. If WLI fails to duly exercise its option with
respect to the proposed transaction, FINOVA shall be free to enter into the
proposed sale or conversion, free of any interest in favor of WLI as to the
shares sold or converted or their proceeds, within thirty (30) days after the
date on which FINOVA gave notice of the proposed transaction to WLI.
4. Securities Laws. The parties shall take all necessary actions
in order to assure that any transfer of Stock pursuant to this Agreement is made
in full compliance with all applicable securities laws. WLI warrants that it is
an accredited investor under the United States Securities and Exchange
Commission's Regulation D with respect to the Stock and agrees to enter into
such additional representations and warranties as FINOVA may reasonably require
in connection with the transfer of any Stock to WLI including, but not limited
to, representations similar to those provided by WLI to FINOVA pursuant to the
Purchase Agreement.
5. Notices. Any notification to be given with respect to this
Agreement shall be made in the matter set forth in the Purchase Agreement.
6. General Provisions. This Agreement shall inure to the benefit
of and shall be binding upon the parties hereto and their respective heirs,
executives, successors, administrators and assigns. If any provision of this
Agreement is held invalid or unenforceable for any reason, the remaining
provisions shall remain in full effect. This Agreement may be executed in
several counterpart originals. The validity and construction of this Agreement
shall be determined according to the substantive laws of the state of Tennessee,
and the parties consent to the jurisdiction of state and federal courts sitting
in Nashville, Tennessee and agree that such courts shall have exclusive venue
over any disputes arising under this Agreement. Any litigation regarding this
Agreement shall be conducted by a judge as to matter of both law and fact and
the parties hereto hereby knowingly, voluntarily and with benefit of counsel
waive the right to demand a trial by jury in any such proceeding.
[The remainder of this page is intentionally left blank]
2
<PAGE>
EXECUTED as of the date first written above.
WI-LAN INC.
By: [Signature illegible]
-------------------------
Title: [Signature illegible]
-------------------------
FINOVA MEZZANINE CAPITAL INC.
By: [Signature illegible]
-------------------------
Title:
-------------------------
3
CERTIFICATE OF DESIGNATIONS
---------------------------
OF
SERIES A CONVERTIBLE PREFERRED STOCK
------------------------------------
OF
DIGITAL TRANSMISSION SYSTEMS, INC.
----------------------------------
Digital Transmissions Systems, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), in accordance with the provisions of Section 151(g) thereof,
HEREBY CERTIFIES:
That, the Corporation's Board of Directors adopted by unanimous written
consent dated February 4, 1999, the following resolution creating a series of
Preferred Stock designated as Series A Convertible Preferred Stock:
RESOLVED, that pursuant to the authority granted to the Board of
Directors by Article FOURTH, of the Amended and Restated Certificate of
Incorporation of the Corporation (the "Certificate"), there is hereby created,
and the Corporation be, and it hereby is, authorized to issue, 1,314,333 shares
of a series of Preferred Stock which shall have the following designations,
powers, preferences, rights and restrictions:
1. Designation. The authorized shares of preferred stock shall be known
and designated as Series A Redeemable Convertible Preferred Stock (the "Series A
Preferred Stock"), without par value per share and shall consist of 1,314,333
shares.
2. Powers, Preferences and Rights. The powers, preferences and rights,
and the qualifications, limitations and restrictions of the Series A Preferred
Stock are as follows:
(a) Dividends. The holders of the Series A Preferred Stock
shall not be entitled to receive dividends on account of the Series A Preferred
Stock. No dividends may be paid on the common stock of the Corporation or on any
other class of stock as long as any Series A Preferred Stock remains
outstanding.
(b) Liquidation Preference. In the event of any voluntary or
involuntary sale of all or a substantial portion of the Corporation's capital
stock or all or a substantial portion of the Corporation's assets, or any merger
or consolidation of the Corporation with another entity, or any liquidation or
dissolution of the
<PAGE>
2
Corporation, voluntary or involuntary (such events to be hereinafter
collectively referred to as the "Liquidation Events"), then the holders of the
Series A Preferred Stock shall be entitled to receive, prior to the receipt of
any assets by holders of all other equity securities of the Corporation, a cash
amount equal to $1.00 for each share of Series A Preferred Stock held (adjusted
for any stock dividends, combinations or splits with respect to such shares)
(the "Redemption Price"). Such payment with respect to the Series A Preferred
Stock shall constitute the extent of the participation of the holders of the
Series A Preferred Stock with respect to their shares of Series A Preferred
Stock, in any and all present or future corporate distributions, or the stock,
securities, or assets to be received by holders of equity securities of the
Corporation, and the shares of the Series A Preferred Stock shall thereafter be
redeemed and canceled and shall be so reflected on the books of the Corporation.
(c) Voting Rights. Except as otherwise provided by applicable
law, the shares of Series A Preferred Stock shall not entitle their holders to
any voting rights as stockholders of the Corporation prior to conversion
pursuant to Section 4 hereof.
3. Redemption at the Option of the Corporation.
(a) Proportional Redemption. The Corporation may, at the
option of the Board of Directors, redeem up to all shares of the Series A
Preferred Stock by paying in cash therefor a sum equal to the Redemption Price.
Any redemption effected pursuant to this Subsection 3(a) shall be made on a pro
rata basis among the holders of the Series A Preferred Stock in proportion to
the number of shares of Series A Preferred Stock then held by them.
(b) Redemption Notice. At least fifteen (15) but not more than
thirty (30) days prior to the date on which the Corporation desires to redeem
shares of Series A Preferred Stock (a "Redemption Date"), written notice shall
be delivered via overnight courier to each holder of record (at the close of
business on the business day next preceding the day on which notice is given) of
the Series A Preferred Stock to be redeemed, at the address last shown on the
records of the Corporation for such holder, notifying such holder of the
redemption to be effected, specifying the number of shares to be redeemed from
such holder, the Redemption Date, the Redemption Price, the place at which
payment may be obtained and calling upon such holder to surrender to the
Corporation, in the manner and at the place designated, his, her or its
certificate or certificates representing the shares to be redeemed (the
"Redemption Notice"). Except as provided in Subsection 3(c), on or after the
Redemption Date, each holder of Series A Preferred Stock to be redeemed shall
surrender to the Corporation the certificate or certificates representing such
shares, in the manner and at the place designated in the Redemption Notice, and
thereupon the Redemption Price of such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the owner
thereof and
<PAGE>
3
each surrendered certificate shall be canceled. In the event less than all the
shares represented by any such certificate are referenced, a new certificate
shall be issued representing the unredeemed shares.
(c) Closing and Effect of Redemption. From and after the
Redemption Date and provided that on or prior to the Redemption Date the
Corporation shall have irrevocably deposited funds for such redemption in trust
for the holders of shares of Series A Preferred Stock to be redeemed, unless
there shall have been a default in payment of the Redemption Price, all rights
of the holders of shares of Series A Preferred Stock designated for redemption
in the Redemption Notice as holders of Series A Preferred Stock (except the
right to receive the Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever. If the funds of the
Corporation legally available for redemption of shares of Series A Preferred
Stock on any Redemption Date are insufficient to redeem the total number of
shares of Series A Preferred Stock to be redeemed on such date, those funds that
are legally available will be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed based upon their
holdings of Series A Preferred Stock. The shares of Series A Preferred Stock not
redeemed shall remain outstanding and entitled to all the rights and preferences
provided herein. At any time thereafter when additional funds of the Corporation
are legally available for the redemption of shares of Series A Preferred Stock,
such funds will immediately be used to redeem the balance of the shares which
the Corporation has become obliged to redeem on any Redemption Date but which it
has not redeemed.
4. Conversion. The holdings of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Conversion Right. At any time up to and including the
third day prior to the Redemption Date, if any, as may have been fixed in any
Redemption Notice with respect to the Series A Preferred Stock, a holder of
Series A Preferred Stock may convert any or all of such shares into such number
of fully paid and nonassessable shares of Common Stock as is determined by
dividing $1.00 for each share of Series A Preferred Stock (the "Original Series
A Issue Price") by the Conversion Price applicable to such share, determined as
hereafter provided, in effect on the date the certificate is surrendered for
conversion.
(b) Procedure for Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice to the Corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name
<PAGE>
4
or names in which the certificate or certificates for shares of Common Stock are
to be issued. The Corporation shall, as soon as practicable but not later than
fifteen (15) days thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offering of securities registered pursuant to
the Securities Act of 1933, as amended, the conversion may, at the option of any
holder tendering Series A Preferred Stock for conversion, be conditioned upon
the closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
issuable upon conversion of the Series A Preferred Stock shall not be deemed to
have converted such Series A Preferred Stock until immediately prior to the
closing of such sale of securities.
(c) Conversion Price. The Conversion Price of the Series A
Preferred Stock shall equal the greater of (i) one dollar ($1.00 per share), or
(ii) the average price paid by MicroTel International, Inc. for a 57% interest
in Common Stock of the Corporation which brings its total holdings to 100% of
the total outstanding shares of the Common Stock, should such acquisition occur;
provided, however, the Conversion Price shall not in any event exceed $3.00 per
share.
(d) Stock Adjustments. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Subsection 3(d)) provision shall be made so that the holders of the Series
A Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or other securities or
property of the Corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustments shall be made in the application of
the provisions of this Subsection 3(d) with respect to the rights of the holders
of the Series A Preferred Stock after the recapitalization to the end that the
provisions of this Subsection 3(d) (including adjustment of the Conversion Price
then in effect and the number of shares purchasable upon conversion of the
Series A Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
(e) No Impairment. The Corporation will not, by amendment of
its Charter or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the
<PAGE>
5
terms to be observed or performed hereunder by the Corporation, but will at all
times in good faith assist in the carrying out of all the provisions of this
Subsection 3(c) and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock again impairment.
(f) Certificates.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A Preferred Stock, and
the number of shares of Common Stock to be issued shall be rounded to
the nearest whole share.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series A Preferred Stock
pursuant to this Subsection 3(f)(ii), the Corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series
A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment
or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting
forth (A) such adjustment and readjustment, (B) the Conversion Price
for such series of Preferred Stock at the time in effect, and (C) the
number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a
share of Series A Preferred Stock.
5. Certain Notices. In the event of any taking by the Corporation of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to (A) receive any dividend (other than a
cash dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or (B) vote on any reclassification or
recapitalization of the outstanding shares of the Corporation's Common Stock or
merger or consolidation with or into any other corporation or business entity or
sale, lease or conveyance of all or a substantial portion of the Corporation's
property or business or liquidation, dissolution or winding up of the
Corporation, then the Corporation shall deliver by overnight courier to each
holder of Series A Preferred Stock, at least twenty (20) days prior to the
record date specified therein, a notice specifying the date on which any such
record is to be taken and a description of the amount and character of any such
dividend, distribution or right or a description of any such matter to be voted
upon, as applicable.
<PAGE>
6
6. Reservation of Shares. The Corporation shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the shares of the Series A
Preferred Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of the
Series A Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series A Preferred Stock, in addition to
such other remedies as shall be available to the holder of such Preferred Stock,
the Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to these articles.
7. Methods of Notice. Any notice required to be given to the holders of
shares of Series A Preferred Stock shall be deemed upon its actual delivery to
the holders of Series A Preferred Stock, by mail, overnight courier or other
means at each shareholder's address as last provided by such shareholders.
8. Protective Provisions. In addition to any other rights provided by
statute or common law, so long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of all of the then
outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the shares of Series A Preferred Stock so as to affect adversely the
shares;
(b) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series A Preferred
Stock or issue any additional shares of Series A Preferred Stock;
(c) authorize or issue, or obligate itself to authorize or
issue, any other equity security of any class or series, including any
other security convertible into or exercisable for any such equity
security having a preference over, or being on a parity with, the
Series A Preferred Stock with respect to voting, dividends,
distributions or upon liquidations;
(d) declare or pay any dividend (including a dividend payable
in stock of the Corporation), make any distribution with respect to,
redeem, purchase or otherwise acquire (or pay into or set aside for a
sinking fund for such purpose) any share or shares of Preferred Stock
or Common Stock except as specifically authorized with respect to the
Series A Preferred Stock; or
<PAGE>
7
(e) effect any liquidation, dissolution or winding up on the
Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by its duly authorized officers of the Corporation this 5th day of
February, 1999.
DIGITAL TRANSMISSION SYSTEMS, INC.
By: /s/ Andres Salazar
-----------------------------
Name: Andres Salazar
Title: President and Chief Executive Officer
Attest:
/s/ Clive Marsh
- ------------------------
Name: Clive Marsh
Title: Secretary
FORM OF
STOCK PURCHASE WARRANT
----------------------
This STOCK PURCHASE WARRANT ("Warrant") is issued as of the 5th day of
February, 1999, by DIGITAL TRANSMISSION SYSTEMS, INC., a Delaware corporation
(the "Company"), to WI-LAN INC., an Alberta corporation (WI- LAN INC. and any
subsequent assignee or transferee hereof are hereinafter referred to
collectively as "Holder" or "Holders").
AGREEMENT:
1. Issuance of Warrant; Term. For and in consideration of WI-LAN INC.
purchasing a stock purchase warrant of the Company from Finova Mezzanine Capital
Inc. ("Finova") pursuant to a certain Purchase Agreement between WI-LAN and
Finova (the "Purchase Agreement"), and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company hereby
grants to Holder the right to purchase 702,615 shares of the Company's common
stock (the "Common Stock"), which the Company represents to equal 10.0% of the
shares of capital stock outstanding on the date hereof, calculated on a fully
diluted basis and assuming exercise of this Warrant. The shares of Common Stock
issuable upon exercise of this Warrant are hereinafter referred to as the
"Shares." This Warrant shall be exercisable at any time and from time to time
from the date hereof until March 1, 2004 (the "Expiration Date").
2. Exercise Price. The exercise price (the "Exercise Price") per share
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be One Dollar ($1.00).
3. Exercise. This Warrant may be exercised by the Holder hereof (but
only on the conditions hereinafter set forth) in whole or in part, upon delivery
of written notice of intent to exercise to the Company in the manner at the
address of the Company set forth in Section 13 hereof, together with this
Warrant and payment to the Company of the aggregate Exercise Price of the Shares
so purchased. The Exercise Price shall be payable, at the option of the Holder,
(i) by certified or bank check, (ii) by the cancellation of all or a portion of
debt outstanding to the Holder from the Company having an outstanding principal
balance equal to the aggregate Exercise Price or (iii) by the surrender of a
portion of this warrant where the shares subject to the portion of this Warrant
that is surrendered have a fair market value equal to the aggregate Exercise
Price. In the absence of an established public market
<PAGE>
for the Common Stock, fair market value shall be established by the Company's
board of directors in a commercially reasonable manner. Upon exercise of this
Warrant as aforesaid, the Company shall as promptly as practicable, and in any
event within fifteen (15) days thereafter, execute and deliver to the Holder of
this Warrant a certificate or certificates for the total number of whole Shares
for which this Warrant is being exercised in such names and denominations as are
requested by such Holder. If this Warrant shall be exercised with respect to
less than all of the Shares, the Holder shall be entitled to receive a new
Warrant covering the number of Shares in respect of which this Warrant shall not
have been exercised, which new Warrant shall in all other respects be identical
to this Warrant. The Company covenants and agrees that it will pay when due any
and all state and federal issue taxes which may be payable in respect of the
issuance of this Warrant or the issuance of any Shares upon exercise of this
Warrant.
4. Covenants and Conditions. The above provisions are subject to the
following:
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended ("Securities Act"), or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for investment
purposes and not with a view to distribution or resale and may not be sold or
otherwise transferred without (i) an effective registration statement for such
Warrant under the Securities Act and such applicable Blue Sky Laws, or (ii) an
opinion of counsel, which opinion and counsel shall be reasonably satisfactory
to the Company and its counsel, that registration is not required under the
Securities Act or under any applicable Blue Sky Laws (the Company hereby
acknowledges that Burnet, Duckworth & Palmer is acceptable counsel). Transfer of
the Shares shall be restricted in the same manner and to the same extent as the
Warrant and the certificates representing such Shares shall bear substantially
the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW
AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN THE
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION
UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect the
2
<PAGE>
compliance of the issuance of this warrant and any shares of Common Stock issued
upon exercise hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all shares which may
be issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, liens, charges and preemptive rights, if
any, with respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of this Warrant
such number of authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of this Warrant.
(c) The Company covenants and agrees that it shall not sell
any shares of the Company's capital stock at a price per share below the fair
market value of such shares, without the prior written consent of the Holder
hereof. In the event that the Company sells shares of Common Stock at a price
per share below the fair market value of such shares (a "Below Market
Transaction"), without the prior written consent of the Holder hereof, the
Company covenants and agrees that the number of shares issuable upon exercise of
this Warrant shall be equal to the product obtained by multiplying the number of
shares issuable pursuant to this Warrant prior to the Below Market Transaction
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to consummation of the Below Market
Transaction plus the number of shares of Common Stock issued in the Below Market
Transaction, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to the Below Market Transaction plus
the number of shares of Common Stock that the aggregate consideration received
by the Company in the Below Market Transaction would purchase at fair market
value. For purposes of this subsection, Common Stock shall be deemed to include
that number of shares of Common Stock that would be obtained assuming (i) the
conversion of any securities of the Company which, by their terms, are
convertible into or exchangeable for Common Stock, and (ii) the exercise of all
options to purchase or rights to subscribe four Common Stock or securities
which, by their terms, are convertible into or exchangeable for Common Stock. In
the absence of an established public market for the securities sold by the
Company in a Below Market Transaction, fair market value shall be established by
the Company's board of directors in a commercially reasonable manner.
5. Transfer of Warrant. Subject to the provisions of Section 4 hereof,
this Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form hereof in the
name of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
3
<PAGE>
6. Warrant Holder Not Shareholder; Rights Offering; Preemptive Rights.
Except as otherwise provided herein, this Warrant does not confer upon the
Holder, as such, any right whatsoever as a shareholder of the Company.
Notwithstanding the foregoing, if the Company should offer to all of the
Company's shareholders the right to purchase any securities of the Company, then
all shares of Common Stock that are subject to this Warrant shall be deemed to
be outstanding and owned by the Holder and the Holder shall be entitled to
participate in such rights offering. The Company shall not grant any preemptive
rights with respect to any of its capital stock without the prior written
consent of the Holder.
7. Observation Rights. The Holder of this Warrant shall receive notice
of and be entitled to attend or may send a representative to attend all meetings
of the Company's Board of Directors in a non-voting observation capacity and
shall receive a copy of all correspondence and information delivered to the
Company's Board of Directors, from the date hereof until such time as all
indebtedness of the Company to the Holder has been paid in full.
8. Adjustment Upon changes in Stock.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization, combination of
shares of the Company, or other similar event, occurring after the date hereof,
then the Holder exercising this Warrant shall receive, for the aggregate
Exercise Price, the aggregate number and class of shares which such Holder would
have received if this Warrant had been exercised immediately prior to such stock
split, stock dividend, recapitalization, combination of shares, or other similar
event. If any adjustment under this Section 8(a), would create a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares subject to
this Warrant shall be the next higher number of shares, rounding all fractions
upward. Whenever there shall be an adjustment pursuant to this Section 8(a), the
Company shall forthwith notify the Holder or Holders of this Warrant of such
adjustment, setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares, separation,
reorganization or liquidation of the Company, or other similar event, occurring
after the date hereof, as a result of which shares of Common Stock shall be
changed into the same or a different number of shares of the same or another
class or classes of securities of the Company or another entity, or the holders
of Common Stock are entitled to receive cash or other property, then the Holder
exercising this Warrant shall receive, for the aggregate Exercise Price, the
aggregate number and class of shares, cash or other property which such Holder
would have received if this Warrant had been exercised immediately prior to such
merger, consolidation, exchange of
4
<PAGE>
shares, separation, reorganization or liquidation, or other similar event. If
any adjustment under this Section 8(b) would create a fractional share of Common
Stock or a right to acquire a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares subject to this Warrant
shall be the next higher number of shares, rounding all fractions upward.
Whenever there shall be an adjustment pursuant to this Section 8(b), the Company
shall forthwith notify the Holder or Holders of this Warrant of such adjustment,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated.
9. Put Agreement.
(a) The Company hereby irrevocably grants and issued to Holder
the right and option to sell to the Company (the "Put") this Warrant for a
period of thirty (30) days immediately prior to the Expiration Date, at a
purchase price (the "Put Price") equal to the Fair Market Value (as hereinafter
defined) of the shares of Common Stock issuable to Holder upon exercise of this
Warrants.
(b) Holder may exercise the Put by delivery of written notice
(the "Put Notice") of such exercise to the Company in the manner and at the
address of the Company set forth in Section 13 hereof. The Company shall pay to
Holder, in cash or by wire transfer of immediately available funds, the Put
Price within thirty (30) days of the receipt of the Put Notice.
(c) For purposes of this Section 9, the Fair Market Value of
the shares of Common Stock of the Company issuable pursuant to this Warrant
shall be determined as follows:
(i) The Company and the Holder shall each appoint an
independent, experienced appraiser who is a member of a recognized
professional association of business appraisers. The two appraisers
shall determine the value of the shares of Common Stock which would be
issued upon the exercise of the Warrant, assuming that the sale would
be between a willing buyer and a willing seller, both of whom have full
knowledge of the financial and other affairs of the Company, and
neither of whom is under any compulsion to sell or to buy.
(ii) If the higher of the two appraisals is not ten
percent (10%) greater and the lower of the appraisals, the Fair Market
Value shall be the average of the two appraisals. If the higher of the
two appraisals is equal to or greater than ten percent (10%) more than
the lower of the two appraisals, then a third appraiser shall be
appointed by the two appraisers, and if they cannot agree on a third
appraiser, the American Arbitration Association shall appoint the third
appraiser. The third appraiser, regardless of who
5
<PAGE>
appoints him or her, shall have the same qualifications as the first
two appraisers.
(iii) The Fair Market Value after the appointment of
the third appraiser shall be the mean of the three appraisals.
(iv) The fees and expenses of the appraisers shall be
paid one-half by the Company and one-half by the Holder.
10. Registration.
(a) The Company and the holders of the Shares agree that if at
any time after the date hereof the Company shall propose to file a registration
statement with respect to any of its Common Stock on a form suitable for a
secondary (including its initial public offering), it will give notice in
writing to such effect to the registered holder(s) of the Shares at least thirty
(30) days prior to such filing, and, at the written request of any such
registered holder, made within ten (10) days after he receipt of such notice,
will include therein at the Company's cost and expense (including the fees and
expenses of counsel to such holder(s), but excluding underwriting discounts,
commissions and filing fees attributable to the Shares included therein) such of
the Shares as such holder(s) shall request; provided, however, that if the
offering being registered by the Company is underwritten and if the
representative of the underwriters certifies in writing that the inclusion
therein of the Shares would materially and adversely affect the sale of the
securities to be sold by the Company thereunder, then the Company shall be
required to include in the offering only that number of securities, including
the Shares, which the underwriters determine in their sole discretion will not
jeopardize the success of the offering (the securities so included to be
apportioned pro rata among all selling shareholders according to the total
amount of securities entitled to be included therein owned by each selling
shareholder, but in no event shall the total amount of shares included in the
offering be less than the number of securities included in the offering by any
other single selling shareholder unless all of the Shares are included in the
offering).
(b) Whenever the Company undertakes to effect the registration
of any of the Shares, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement covering such
Shares and use its best efforts to cause such registration statement to
be declared effective by the Commission as expeditiously as possible
and to keep such registration effective until the earlier of (A) the
date when all Shares covered by the registration statement have been
sold or (B) one hundred eighty (180) days from the date of the
registration statement; provided, that before filing a registration
statement or prospectus or any amendment or supplements thereto,
6
<PAGE>
the company will furnish to each Holder of Shares covered by such
registration statement and the underwriters, if any, copies of all such
documents proposed to be filed (excluding exhibits, unless any such
person shall specifically request exhibits), which documents will be
subject to the review of such Holders and underwriters, and the Company
will not file such registration statement or any amendment thereto or
any prospectus or any supplement thereto (including any documents
incorporated by reference therein) with the Commission if (A) the
underwriters, if any, shall reasonably object to such filing or (B) if
information in such registration statement or prospectus concerning a
particular selling Holder has changed and such Holder or the
underwriters, if any, shall reasonably object.
(ii) Prepare and file with the Commissions such
amendments and post-effective amendments to such registration statement
as may be necessary to keep such registration statement effective
during the period referred to in Section 10(b)(i) and to comply with
the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement, and cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed with the Commission pursuant to Rule
424 under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers
of copies of such registration statement, each amendment thereto, the
prospectus included in such registration statement (including each
preliminary prospectus), each supplement thereto and such other
documents as they may reasonably request in order to facilitate the
disposition of the Shares owned by them.
(iv) Use its best efforts to register and qualify
under such other securities laws of such jurisdictions as shall be
reasonably requested by any selling Holder and do any and all other
acts and things which may be reasonably necessary or advisable to
enable such selling Holder to consummate the disposition of the Shares
owned by such Holder, in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a
condition thereto qualify to transact business or to file a general
consent to service of process in any such states or jurisdictions.
(v) Promptly notify each selling Holder of the
happening or any event as a result of which the prospectus included in
such registration statement contains an untrue statement of a material
fact or omits any fact necessary to make the statements therein not
misleading and, at the request of any such Holder, the Company will
prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Shares, such prospectus
will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading.
7
<PAGE>
(vi) Provide a transfer agent and registrar for all
such Shares not later than the effective date of such registration
statement.
(vii) Enter into such customary agreements (including
underwriting agreements in customary form for a primary offering) and
take all such other actions as the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such
Shares (including, without limitation, effecting a stock split or a
combination of shares).
(viii) Make available for inspection by any selling
Holder or any underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other agent
retained by any such selling Holder or underwriter, all financial and
other records, pertinent corporate documents and properties of the
Company, and cause the officers, directors, employees and independent
accountants of the Company to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement.
(ix) Promptly notify the selling Holder(s) and the
underwriters, if any, of the following events and (if requested by any
such person) confirm such notification in writing: (A) the filing of
the prospectus or any prospectus supplement and the registration
statement and any amendment or post-effective amendment thereto and,
with respect to the registration statement or any post-effective
amendment thereto, the declaration of the effectiveness of such
documents, (B) any requests by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information, (C) the issuance or threat of issuance by the
Commission of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for that
purpose and (D) the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale
in any jurisdiction or the initiation or threat of initiation of any
proceeding for such purposes.
(x) Make every reasonable effort to prevent the entry
of any order suspending the effectiveness of the registration statement
and obtain at the earliest possible moment the withdrawal of any such
order, if entered.
(xi) Cooperate with the selling Holder(s) and the
underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing the Shares to be sold and not bearing any
restrictive legends, and enable such Shares to be in such lots and
registered in such names as the underwriters may request at least two
(2) business days prior to any delivery of the Shares to the
underwriters.
8
<PAGE>
(xii) Provide a CUSIP number for all the Shares not
later than the effective date of the registration statement.
(xiii) Prior to the effectiveness of the registration
statement and any post-effective amendment thereto and at each closing
of an underwritten offering, (A) make such representations and
warranties to the selling Holder(s) and the underwriters, if any, with
respect to the Shares and the registration statement as are customarily
made by issuers in primary underwritten offerings; (B) use its best
efforts to obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the
selling Holders and the underwrites, if any, such letters to be in
customary form and covering matters of the type customarily covered in
"cold comfort" letters by underwriters in connection with primary
underwritten offerings; (C) deliver such documents and certificates as
may be reasonably requested (1) by the holders of a majority of the
Shares being sold, and (2) by the underwriters, if any, to evidence
compliance with clause (A) above and with any customary conditions
contained in the underwriting agreement or other agreement entered into
by the Company; and (D) obtain opinions of counsel to the Company and
updates thereof (which counsel and which opinions shall be reasonably
satisfactory to the underwriters, if any), covering the matters
customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by the selling
Holders and underwriters or their counsel. Such counsel shall also
state that no facts have come to the attention of such counsel which
cause them to believe that such registration statement, the prospectus
contained therein, or any amendment or supplement thereto, as of their
respective effective or issue dates, contains any untrue statement of
any material fact or omits to state any material fact necessary to make
the statements therein not misleading (except that no statement need be
made with respect to any financial statements, notes thereto or other
financial data or other expertized material contained therein). If for
any reason the Company's counsel is unable to give such opinion, the
Company shall so notify the Holders of the Shares and shall use its
best efforts to remove expeditiously all impediments to the rendering
of such opinion.
(xiv) Otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make
generally available to its security holders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act, no
later than forty-five (45) days after the end of any twelve-month
period (or ninety (90) days, if such period is a fiscal year) (A)
commending at the end of any fiscal quarter in which the Shares are
sold to underwriters in a firm or best efforts underwritten offering,
or (B) if not sold to underwrites in such an offering, beginning with
the first month of the first fiscal quarter of the Company commencing
after the effective date of the registration statement, which
statements shall cover such twelve-month periods.
9
<PAGE>
(c) After the date hereof, the Company shall not grant to any
holder of securities of the Company any registration rights which have a
priority greater than or equal to those granted to Holders pursuant to this
warrant without the prior written consent of the Holder(s).
(d) The Company's obligations under Section 10(a) above with
respect to each holder of Shares are expressly conditioned upon such holders'
furnishing to the Company in writing such information concerning such holder and
the terms of such holder's proposed offering as the Company shall reasonably
request for inclusion in the registration statement. If any registration
statement including any of the Shares is filed, then the Company shall indemnity
each holder thereof (and each underwriter for such holder and each person, if
any, who controls such underwriter within the meaning of the Securities Act)
from any loss, claim, damage or liability arising out of, based upon or in any
way relating to any untrue statement of a material fact contained in such
registration statement or any omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except for any such statements or omission based on information furnished in
writing by such holder of the Shares expressly for use in connection with such
registration statement; and such holder shall indemnify the Company (and each of
its officers and directors who has signed such registration statement, each
director, each person, if any, who controls the Company within the meaning of
the Securities Act, each underwriter for the Company and each person, if any,
who controls such underwriter within the meaning of the Securities Act) and each
other such holder against any loss, claim, damage or liability arising from any
such statement or omission which was made in reliance upon information furnished
in writing to the Company by such holder of the Shares expressly for use in
connection with such registration statement.
(e) For purposes of this Section 10, all of the Shares shall
be deemed to be issued and outstanding.
11. Certain Notices. In case at any time the Company shall propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in
stock or make any special dividend or other distribution to the holders of its
Common Stock;
(c) offer for subscription to the holders of any of its Common
Stock any additional shares of stock in any class or other rights;
10
<PAGE>
(d) reorganize, or reclassify the capital stock of the
Company, or consolidate, merge or otherwise combine with, or sell of all or
substantially all of its assets to, another corporation;
(e) voluntarily or involuntarily dissolve, liquidate or wind
up of the affairs of the Company; or
(f) redeem or purchase any shares of its capital stock or
securities convertible into its capital stock;
then, in any one or more of said cases, the Company shall give to the Holder of
the Warrant, by certified or registered mail, (i) at least twenty (20) days'
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place. Any notice required by clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
12. Article and Section Headings. Numbered and titled article and
section headings are for convenience only and shall not be construed as
amplifying or limiting any of the provisions of this Warrant.
13. Notice. Any and all notices, elections or demands permitted or
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, or sent by certified mail or overnight via nationally recognized
courier service (such as Federal Express), to the other party at the address set
forth below, or at such other address as may be supplied in writing and of which
receipt has been acknowledged in writing. The date of personal delivery or
telecopy or two (2) business days after the date of mailing (or the next
business day after delivery to such court service), as the case may be, shall be
the date of such notice, election or demand. For the purposes of this Warrant:
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<PAGE>
The Address of Holder is: Wi-LAN Inc.
Suite 300, 801 Manning Road, N.E.
Calgary, Alberta
T2E 818
Attention: Hatim Zaghloul
Telecopy No. 403/273-5100
with a copy to: Burnet, Duckworth & Palmer
First Canadian Center
1400, 350 7th Avenue, S.W.
Calgary, Alberta
T2P 3N9
Attention: Fred Davidson
Telecopy No. 403/260-0332
The Address of Company is: Digital Transmission Systems, Inc.
3000 Northwoods Parkway
Building 300
Norcross, Georgia 30071
Attention: Andrea C. Salazar
with a copy to: Sutherland, Asbill & Brennan, LLP
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attention: Mark D. Wasserman
14. Severability. If any provision(s) of this Warrant or the
application thereof to any person or circumstances shall be invalid or
unenforceable to any extent, the remainder of this Warrant and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
15. Entire Agreement. This Warrant between the Company and Holder
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
16. Governing Law and Amendments. This Warrant shall be construed and
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
17. Counterparts. This Warrant may be executed in any number of
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
12
<PAGE>
18. Consent to Jurisdiction; Exclusive Venue. The Company hereby
irrevocably consents to the jurisdiction of the United States District Court for
the Middle District of Tennessee and of all Tennessee state courts sitting in
Davidson County, Tennessee, for the purpose of any litigation to which Holder
may be a party and which concerns this Warrant. It is further agreed that venue
for any such action shall be exclusively with courts sitting in Davidson County,
Tennessee, unless Holder agrees to the contrary in writing.
19. Waiver of Trial in Jury. HOLDER AND THE COMPANY HEREBY KNOWINGLY
AND VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS,
PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR OTHERWISE,
AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS WARRANT.
20. Equity Participation. This Warrant is issued in connection with the
Debenture Purchase Agreement, as amended between the Company and Sirrom Capital
Corporation which was purchased by Wi-LAN as of January 7, 2000 (the "Loan
Agreement"). It is intended that this Warrant constitute an equity participation
under and pursuant to T.C.A. ss. 47-24-101, et seq., and that equity
participation be permitted under said statutes and not constitute interest on
the debt obligations of the Company to the Holder. If under any circumstances
whatsoever, fulfillment of any obligation of this Warrant, the Loan Agreement,
or any other agreement or document executed in connection with the Loan
Agreement, shall violate the lawful limit of any applicable usury statute or any
other applicable law with regard to obligations of like character and amount,
then the obligation to be fulfilled shall be reduced to such lawful limit, such
that in no event shall there occur, under this Warrant, the Loan Agreement, or
any other document or instrument executed in connection with the Loan Agreement,
any violation of such lawful limit, but such obligation shall be fulfilled to
the lawful limit. If any sum is collected in excess of the lawful limit, such
excess shall be applied to reduce the principal amount of the debt obligations
of the Company to the Holder.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
COMPANY:
-------
DIGITAL TRANSMISSION SYSTEMS, INC.,
a Tennessee corporation
By:_______________________________
Title:____________________________
13
<PAGE>
HOLDER:
------
WI-LAN INC.,
an Alberta corporation
By:_______________________________
Title:____________________________
14
SHARE PURCHASE AGREEMENT made the 29th day of December, 1999.
BETWEEN:
WI-LAN INC., a body corporate, incorporated pursuant to the laws of the
Province of Alberta (hereinafter referred to as the "Purchaser")
OF THE FIRST PART
AND
MICROTEL INTERNATIONAL, INC., a body corporate, incorporated pursuant
to the laws of the State of Delaware (hereinafter referred to as the
"Vendor")
OF THE SECOND PART
WHEREAS the Vendor is the beneficial owner of the DTS Shares;
AND WHEREAS the Vendor has agreed to sell, transfer and assign and the
Purchaser has agreed to purchase and acquire, the DTS Shares upon the terms and
conditions set forth herein;
In consideration of the premises, covenants and agreements herein and
other good and valuable consideration (the receipt and sufficiency of which is
hereby acknowledged), the parties hereto covenant and agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Agreement, unless the context otherwise requires:
a. "Agreement" means this agreement, including the recitals, as amended or
supplemented from time to time, and "hereby", "hereof", "herein",
"hereunder", "herewith", "hereto" and similar terms refer to this
Agreement and not to any particular provision of this Agreement;
b. "business day" means a day, other than a Saturday, Sunday or statutory
holiday, when banks are generally open for the transaction of banking
business in the City of Calgary;
c. "Closing" means the closing of the transactions contemplated herein;
d. "Closing Date" means January 7, 2000 or such later date upon which the
transactions contemplated by the Related Agreements have been completed
or such other date as may be agreed upon by the parties hereto;
e. "Closing Time" means 2:00 p.m. (Calgary time), or such other time as
may be agreed upon by the parties hereto, on the Closing Date;
f. "Corporation" or "DTS" means Digital Transmission Systems, Inc., a body
corporate incorporated under the laws of the State of Delaware;
g. "DTS Shares" means 1,738,159 common shares in the capital stock of the
Corporation, as constituted on the date hereof;
<PAGE>
2
h. "Encumbrance" includes, without limitation, any mortgage, pledge,
assignment, charge, lien, security interest, claim, trust, royalty,
carried, working, participation, net profits interest or other third
party interest and any agreement, option, right or privilege (whether
by law, contract or otherwise) capable of becoming any of the
foregoing;
i. "Exchange" means The Toronto Stock Exchange;
j. "person" includes an individual, partnership, firm, trust, body
corporate, governmental authority, unincorporated body of persons or
association;
k. "Purchaser" or "Wi-LAN" means Wi-LAN Inc., a body corporate
incorporated under the laws of the Province of Alberta;
l. "Purchaser's Counsel" means Burnet, Duckworth & Palmer or such other
legal counsel as may be designated by the Purchaser;
m. "Related Agreements" means the agreements of even date herewith entered
into between the Purchaser and Finova Mezzanine Capital Inc. and the
Purchaser and DTS; and
n. "Wi-LAN Common Shares" means common shares of the Purchaser as a class,
as constituted on the date hereof.
1.2 Schedules
The following Schedules form part of this Agreement:
Schedule A Representation Letter
Schedule B The Toronto Stock Exchange Private Placement
Questionnaire and Undertaking
1.3 Headings
The division of this Agreement into articles, sections and paragraphs
and the insertion of headings are for convenience of reference only and shall
not affect in any way the meaning or interpretation of this Agreement.
1.4 Section References
Unless the context otherwise requires, references in this Agreement to
an article, section, paragraph, clause, subclause or schedule by number, letter
or otherwise refer to the article, section, subsection, paragraph, clause,
subclause or schedule, respectively, bearing that designation in this Agreement.
1.5 Gender, Plural
In this Agreement, unless the contrary intention appears, words
importing the singular include the plural and vice versa; words importing gender
shall include all genders.
1.6 Date for Actions
In the event that the date on which any action is required to be taken
hereunder by any of the parties is not a business day in the place where the
action is required to be taken, such action shall be required to be taken on the
next succeeding day which is a business day in such place.
<PAGE>
3
1.7 Enforceability
All representations and warranties in or contemplated by this Agreement
as to the enforceability of any agreement or document are subject to
enforceability being limited by applicable bankruptcy, insolvency,
reorganization and other laws affecting creditors' rights generally and the
discretionary nature of certain remedies (including specific performance and
injunctive relief).
ARTICLE 2
PURCHASE AND SALE
2.1 Agreement to Purchase and Sell
At the Closing Time, the Vendor agrees to sell, transfer and assign to
the Purchaser or its nominee, and the Purchaser or its nominee agree to purchase
and acquire from the Vendor, the DTS Shares, in exchange for an aggregate of
U.S. $520,000 and 28,340 Wi-LAN Common Shares.
2.2 Execution of Purchase and Sale
At the Closing Time, the Purchaser shall deliver to the Vendor a
certified cheque or bank draft in the amount of U.S. $520,000 and a share
certificate representing 28,340 Wi-LAN Common Shares against delivery by the
Vendor to the Purchaser of share certificates representing the DTS Shares owned
by the Vendor, duly endorsed in blank for transfer, or accompanied by duly
executed powers of attorney for transfer in blank.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE VENDOR
3.1 Representations and Warranties of the Vendor
The Vendor represents and warrants to the Purchaser that:
a. the Vendor is duly and validly incorporated, organized and existing
under the laws of its jurisdiction of incorporation;
b. the Vendor has all requisite power and authority to enter into this
Agreement and all documents to be delivered pursuant hereto and to
perform its obligations hereunder and thereunder;
c. the Vendor owns the DTS Shares and has full power and authority to
transfer the DTS Shares to the Purchaser and to receive U.S. $520,000
and the Wi-LAN Common Shares therefor and to agree to the terms,
conditions and provisions herein contained;
d. all of the DTS Shares transferred hereunder are owned by the Vendor as
the sole beneficial owner with good, valid and marketable title and
good, valid and marketable title to such securities will vest in the
Purchaser as a result of the consummation of the transactions
contemplated herein free and clear of any Encumbrances, voting trusts,
unanimous or other shareholder agreements, proxies and other interests,
claims or demands of every kind or nature whatsoever (other than such
as may be created by the Purchaser);
e. except pursuant to this Agreement, no person has any agreement, option,
right or privilege (including, without limitation, whether by law,
pre-emptive right, contract or otherwise) to purchase, convert into,
exchange for or otherwise acquire, nor any agreement, option, right or
privilege capable of becoming any such agreement, option, right or
privilege, any of the Vendor's DTS Shares, or any interest therein;
<PAGE>
4
f. the DTS Shares are not subject to any trading restrictions under
federal or state laws in the United States;
g. the DTS shares are listed on the Nasdaq Over-The-Counter Market;
h. there are no actions, suits or proceedings commenced, pending or
threatened against the Vendor with respect to the DTS Shares;
i. the execution and delivery of this Agreement does not and will not
result in a breach of, or constitute a default under, any term or
provision of any agreement or other documents to which the Vendor is a
party;
j. the Vendor has not incurred any obligation or liability, contingent or
otherwise, for brokerage fees, finders' fees, agents' commission or
similar forms of compensation with respect to the transactions
contemplated herein;
k. the Vendor will not resell the Wi-LAN Common Shares it receives
hereunder except in accordance with the provisions of applicable
securities legislation and the rules of the Exchange;
l. the Vendor has executed this Agreement in the United States, and it has
concurrently executed and delivered the Representation Letter attached
as Schedule A to this Agreement;
m. if required by applicable securities legislation, policy or order or by
any securities commission, stock exchange or other regulatory
authority, the Vendor will execute, deliver, file and otherwise assist
the Corporation in filing, such reports, undertakings and other
documents with respect to the issue of the 28,340 Wi-LAN Common Shares
to the Vendor (including, without limitation, any undertaking required
by the Exchange in the form attached as Schedule B to this Agreement);
n. to the best of the Vendor's knowledge, information and belief, the
representations and warranties of the Corporation contained in the
Convertible Debenture Purchase Agreement dated December 28, 1999
between the Corporation and the Vendor are true and correct in all
material respects;
o. the Vendor has no information or knowledge of any fact relating to the
business of the Corporation or the DTS Shares which if known to the
Purchaser, might reasonably be expected to deter the Purchaser from
completing the transactions of purchase and sale contemplated herein;
and
p. this Agreement has been duly executed and delivered by the Vendor and
all documents to be delivered by the Vendor pursuant hereto will be
duly executed and delivered and this Agreement does and such documents
will constitute legal, valid and binding obligations of the Vendor
enforceable in accordance with their respective terms.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.1 Representations and Warranties of the Purchaser
The Purchaser represents and warrants to the Vendor that:
a. the Purchaser is duly organized and validly existing under the law of
the jurisdiction of its incorporation;
b. the Wi-LAN Common Shares are listed and posted for trading on the
Exchange;
c. the Purchaser has all requisite power and authority to enter into this
Agreement and all documents to be delivered pursuant hereto and to
perform its obligations hereunder and thereunder;
<PAGE>
5
d. the Purchaser will have full power and authority to pay U.S. $520,000
to the Vendor and to issue the 28,340 Wi-LAN Common Shares to the
Vendor upon receipt of the required regulatory approval and has full
power and authority to receive the DTS Shares therefor and to agree to
the terms, conditions and provisions herein contained; and
e. this Agreement has been duly authorized, executed and delivered by the
Purchaser and all documents to be delivered by the Purchaser pursuant
hereto will be duly executed and delivered and this Agreement does and
such documents will constitute legal, valid and binding obligations of
the Purchaser enforceable in accordance with their respective terms.
ARTICLE 5
PURCHASER'S CLOSING CONDITIONS
5.1 Conditions Precedent
The obligations of the Purchaser to complete the transactions
contemplated herein is subject to:
a. the Purchaser being satisfied in its sole discretion with its due
diligence review of DTS and its assets and operations including,
without limitation, the financial statements of DTS, the obligations
and liabilities of DTS, the products and revenue stream of DTS and the
material agreements of DTS;
b. since December 20, 1999 DTS shall have carried on its business in the
ordinary course of business consistent with past practices and shall
not have engaged in any material transactions outside the ordinary
course of business (including increasing long-term debt) except as
disclosed to and approved by Wi-LAN in writing;
c. DTS's issued and outstanding share capital at the Closing Time
consisting of an aggregate of 4,646,221 common shares, 1,314,333
preferred shares, warrants entitling the holders thereof to acquire an
aggregate of 2,433,315 common shares at exercise prices ranging from
U.S. $0.12 to U.S. $9.00 per share, options entitling the holders
thereof to acquire an aggregate of 1,019,880 common shares at exercise
prices ranging from U.S. $0.47 to U.S. $13.75 per share and a U.S.
$2,000,000 convertible debenture entitling the holder thereof to
acquire 2,000,000 common shares at an exercise price of U.S. $1.00 per
share;
d. since December 20, 1999 DTS shall not have declared or paid any
dividends or made any other distributions of any of its shares or
granted any further options or warrants or any right or privilege
capable of becoming an option or agreement in respect of its shares;
e. the Purchaser having obtained all consents, approvals and
authorizations necessary or required in connection with the
transactions contemplated herein, including without limitation the
approval of The Toronto Stock Exchange on terms and conditions
reasonably satisfactory to the Purchaser on or before the Closing Time;
f. the Purchaser shall have received the opinion of Gallager, Briody &
Butler, counsel for the Vendor dated the Closing Date, addressed to the
Purchaser, in form and substance satisfactory to the Purchaser's
Counsel;
g. the transactions contemplated by the Related Agreements shall have been
completed;
h. the Vendor, having completed, executed and delivered the Representation
Letter attached as Schedule A hereto;
<PAGE>
6
i. the Vendor, having completed, executed and delivered The Toronto Stock
Exchange Private Placement Questionnaire and Undertaking attached as
Schedule B hereto in a form satisfactory to the Exchange;
j. the board of directors of DTS being comprised of a majority of Wi-LAN
representatives at the Closing Time;
k. all MicroTel representatives resigning from the board of directors of
DTS at the Closing Time;
l. except as contemplated by this Agreement, there shall not have occurred
any material change, change of material fact or any development that
could result in a material change or change of a material fact in the
business, operations or affairs of DTS;
m. there will be no actions, suits or proceedings, whether or not
purportedly on behalf of DTS, outstanding, pending or threatened by or
against DTS at law or in equity or before or by any federal,
provincial, municipal or other governmental department, commission,
bureau, agency or instrumentality;
n. all necessary steps and proceedings shall have been taken to allow the
DTS Shares to be duly transferred from the Vendor to the Purchaser and
to vest in the Purchaser good and marketable title in the DTS Shares
free and clear of any Encumbrances, voting trusts, unanimous or other
shareholder agreements, proxies and other interests, claims or demands
of every kind or nature whatsoever (other than such as may be created
by the Purchaser);
o. any consents or approvals required to be obtained from any third party,
including any holder of indebtedness or any outstanding security of
DTS, and any amendments of agreements which shall be necessary to
permit the consummation of the transactions contemplated hereby shall
have been obtained and all such consents or amendments shall be
satisfactory in form and substance to the Purchaser and the Purchaser's
Counsel; and
p. the representations and warranties made by the Vendor herein shall be
true at the Closing Time as if made at and as of such time and the
Vendor shall have complied with its covenants herein and the Purchaser
shall have received a certificate signed by the President of the Vendor
confirming same.
5.2 Waiver of Conditions
The conditions precedent set forth in Section 5.1 are for the benefit
of the Purchaser and may be waived, in whole or in part, by the Purchaser at any
time. If any of the said conditions precedent shall not be complied with or
waived as aforesaid on or before the date required for the fulfilment thereof,
the Purchaser may, in addition to the other remedies it may have at law or in
equity, rescind and terminate this Agreement by notice to the other party.
ARTICLE 6
CLOSING
6.1 Place of Closing
Closing shall take place at the offices of the Purchaser's Counsel at
the Closing Time, or at such other place as may be agreed upon by the parties
hereto.
<PAGE>
7
ARTICLE 7
INDEMNITY
7.1 Vendor Indemnity
a. The Vendor shall indemnify and save the Purchaser harmless against and
from all liabilities, claims, demands, losses, costs (including,
without limitation, legal fees and disbursements on a full indemnity
basis), damages and expenses to which the Purchaser may be subject or
which the Purchaser may suffer or incur, whether under the provisions
of any statute or otherwise, in any way caused by, or arising directly
or indirectly from or in consequence of any breach of, default under or
non-compliance by the Vendor with any representation, warranty, term,
covenant or condition of this Agreement or in any certificate or other
document delivered by or on behalf of the Vendor hereunder or pursuant
hereto.
b. The rights and remedies of the Purchaser set forth in paragraph 7.1(a)
are to the fullest extent possible in law cumulative and not
alternative and the election by the Purchaser to exercise any such
right or remedy shall not be, and shall not be deemed to be, a waiver
of any other rights and remedies. The Purchaser shall not be obligated
to pursue any claim or remedy against any third party including,
without limitation, DTS or Finova Mezzanine Capital Inc. before being
entitled to obtain full indemnification from the Vendor pursuant to
paragraph 7.1(a).
c. Any liability of the Vendor under paragraph 7.1(a) shall be limited to
U.S. $1,000,000.
ARTICLE 8
NOTICES
8.1 Notices
Any notice, consent, waiver, direction or other communication required
or permitted to be given under this Agreement by a party to any other party
shall be in writing and shall be delivered by hand delivery, facsimile
transmission or (provided that the mailing party does not know and should not
reasonably have known of any disruption or anticipated disruption of postal
service which might affect delivery of the mail) by registered mail (postage
prepaid), addressed to the party to whom the notice is to be given, at its
address for service herein. Any notice, consent, waiver, direction or other
communication aforesaid shall, if hand delivered or delivered by telex or
facsimile transmission, be deemed to have been given and received on the date on
which its was hand delivered or delivered by facsimile transmission to the
address provided herein (if a business day and, if not, the next succeeding
business day) and if sent by registered mail be deemed to have been given and
received on the third business day at the point of delivery following the date
on which it was so sent.
8.2 Address for Service
The address for service of each of the parties hereto shall be as
follows:
if to the Purchaser:
Wi-LAN Inc.
Suite 300, 801 Manning Road N.E.
Calgary, Alberta
T2E 8J8
Attention: Hatim Zaghloul, Chairman and Chief Executive Officer
Telecopy: (403) 273-5100
<PAGE>
8
if to the Vendor:
MicroTel International, Inc.
4290 East Brickell Street
Ontario, CA 81761
Attention: Carmine T. Oliva, Chairman and Chief Executive Officer
Telecopy: (909) 297-2644
or such other address as may be designated by notice to the other parties
hereto.
ARTICLE 9
MISCELLANEOUS
9.1 Entire Agreement
This Agreement, together with documents to be delivered pursuant
hereto, constitutes the entire agreement between the parties hereto, and cancels
and supersedes all prior agreements and understandings between the parties
hereto, with respect to the subject matter hereof.
9.2 Further Assurances
Each party hereto shall, from time to time, and at all times hereafter,
at the request of the other party hereto, but without further consideration, do
all such further acts and execute and deliver all such further documents and
instruments as shall be reasonably required in order to fully perform and carry
out the terms and intent hereof.
9.3 Survival
The representations, warranties, covenants and agreements herein and in
any document delivered pursuant hereto shall survive the Closing and remain in
full force and effect provided that no party hereto shall be liable in respect
of any representation or warranty unless the party seeking to rely upon such
representation or warranty shall have given notice to the party who made such
representation or warranty of its intention to make such claim on or before the
date 24 months following the Closing Date.
9.4 Time
Time shall be of the essence in this Agreement.
9.5 Amendments
This Agreement may only be amended by a written instrument signed by
the parties hereto.
9.6 Governing Law
This Agreement shall be governed by, and be construed in accordance
with, the laws of the Province of Alberta and applicable laws of Canada but the
reference to such laws shall not, by conflict of laws rules or otherwise,
require the application of the law of any jurisdiction other than the Province
of Alberta.
<PAGE>
9
9.7 Attornment
Each party hereto hereby irrevocable attorns to the jurisdiction of the
Courts of the Province of Alberta in respect of all matters arising under or in
relation to this Agreement.
9.8 Severability
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any respect
in any jurisdiction, the remaining provisions or parts thereof contained herein
shall be and shall be conclusively deemed to be, as to such jurisdiction,
severable therefrom and:
a. the validity, legality or enforceability of such remaining provisions
or parts thereof shall not in any way be affected or impaired by the
severance of the provisions or parts thereof severed; and
b. the invalidity, illegality or unenforceability of any provision or
party thereof contained in this Agreement in any jurisdiction shall not
affect or impair such provision or part thereof or any other provisions
of this Agreement in any other jurisdiction.
9.9 Execution in Counterpart
This Agreement may be executed in any number of counterparts with the
same effect as if all signatures to the counterparts had signed one document,
all such counterparts shall together constitute, and be construed as, one
instrument and each of such counterparts shall, notwithstanding the date of its
execution, be deemed to bear the date first above written.
9.10 Waiver
No waiver by any party hereto shall be effective unless in writing and
any waiver shall affect only the matter, and the occurrence thereof,
specifically identified and shall not extend to any other matter or occurrence.
9.11 Enurement
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
9.12 Assignment
This Agreement may not be assigned by any party hereto without the
prior consent of the other parties hereto.
<PAGE>
10
9.13 Reliance
The parties hereto acknowledge and agree that they have entered into
this Agreement in reliance upon each of the representations, warranties,
covenants and agreements herein of the other party hereto.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
WI-LAN INC.
Per: /s/ Hatim Zaghloul
----------------------------------
Hatim Zaghloul
Chairman and Chief Executive Officer
MICROTEL INTERNATIONAL, INC.
Per: /s/ Carmine T. Oliva
----------------------------------
Carmine T. Oliva
Chairman and Chief Executive Officer
ACKNOWLEDGEMENT
DTS hereby acknowledges that it is aware of the terms and conditions of
this Agreement and DTS is entering into the Convertible Debenture Purchase
Agreement dated December 29, 1999 between DTS and the Purchaser as material
consideration for and as an inducement to the Purchaser to enter into this
Agreement.
Digital Transmission Systems, Inc.
Per: /s/ Andres C. Salazar
----------------------------------
Andres C. Salazar
Chief Executive Officer
<PAGE>
SCHEDULE A
REPRESENTATION LETTER
TO: Wi-LAN Inc. (the "Corporation").
In connection with the acquisition by MicroTel International, Inc.
("MicroTel") of 28,340 common shares (the "Common Shares") of the Corporation.
MicroTel hereby certifies and agrees for the benefit of the Corporation that:
1. it is authorized to consummate the purchase of the Common Shares;
2. it understands that the Common Shares have not been and will not be
registered under the Securities Act of 1933, as amended (the "U.S. Securities
Act") or under the securities ("blue sky") laws of any State of the United
States and that the sale contemplated hereunder is being made in reliance on a
private placement exemption to accredited investors;
3. it is purchasing the Common Shares for its own account and not with a view to
any resale, distribution or other disposition of the Common Shares, or any part
thereof in any transaction that would be in violation of the securities laws of
the United States or any State thereof, subject, nevertheless, to the
disposition of its property being at all times within its control;
4. it agrees that if it decides to offer, sell or otherwise transfer, pledge or
hypothecate all or any part of the Common Shares, it will not offer, sell or
otherwise transfer, pledge or hypothecate any or any part of such Common Shares
(other than pursuant to an effective registration statement under the U.S.
Securities Act and in compliance with any applicable State securities laws of
the United States), directly or indirectly unless:
a. the sale is to the Corporation; or
b. the sale is made outside the United States in accordance with the
requirements of Rule 904 of Regulation S under the U.S. Securities Act
and in compliance with applicable local rules and regulations; or
c. the sale is made pursuant to the exemption from registration under the
U.S. Securities Act provided by Rule 144 thereunder and local rules; or
d. the Common Shares or any part thereof are sold in a transaction that
does not require registration under the U.S. Securities Act or any
applicable United States state laws and regulations governing the offer
and sale of securities, and MicroTel has furnished to the Corporation
an opinion to that effect of counsel of recognized standing reasonably
satisfactory to the Corporation;
5. it understands and acknowledges that the Common Shares are "restricted
securities" as defined in Rule 144 under the U.S. Securities Act, and that upon
the original issuance thereof, and until such time as the same is no longer
required under applicable requirements of the U.S. Securities Act or state
securities laws, the certificates representing the Common Shares, and all
certificates issued in exchange therefor or in substitution thereof, shall bear
the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
ONLY: (A) TO THE CORPORATION; (B) OUTSIDE THE UNITED STATES
IN ACCORDANCE WITH RULE 904 AND, IF APPLICABLE, RULE 905 OF
REGULATION S UNDER THE SECURITIES ACT; (C) PURSUANT TO THE
<PAGE>
A-2
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED
BY RULE 144 THEREUNDER AND IN COMPLIANCE WITH ANY APPLICABLE
STATE SECURITIES LAWS OF THE UNITED STATES; OR (D) PURSUANT
TO ANOTHER EXEMPTION FROM REGISTRATION AFTER PROVIDING A
SATISFACTORY LEGAL OPINION TO THE CORPORATION. DELIVERY OF
THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY" IN
SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A
NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH WILL
CONSTITUTE "GOOD DELIVERY" MAY BE OBTAINED FROM MONTREAL
TRUST COMPANY OF CANADA UPON DELIVERY OF THIS CERTIFICATE AND
A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO
MONTREAL TRUST COMPANY OF CANADA AND THE CORPORATION, TO THE
EFFECT THAT THE SALE OF THE SECURITIES REPRESENTED HEREBY IS
BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER
THE SECURITIES ACT;
provided that if the Corporation is a "foreign corporation" within the meaning
of Regulation S at the time of sale, and if the Common Shares or any part
thereof are being sold under paragraph 4(b) above, the legend may be removed by
providing a declaration to the transfer agent for the Common Shares to the
following effect (or as the Corporation may prescribe from time to time):
"MicroTel: (A) acknowledges that the sale of the securities
to which this declaration relates is being made in reliance
on Rule 904 of Regulation S under the United States
Securities Act of 1933, as amended; and (B) certifies that:
(1) the offer of such securities was not made to a person in
the United States and either: (a) at the time the buy order
was originated, the buyer was outside the United States, or
the seller and any person acting on its behalf reasonably
believes that the buyer was outside the United States; or (b)
the transaction was executed on or through the facilities of
The Toronto Stock Exchange and neither the seller nor any
person acting on its behalf knows that the transaction has
been prearranged with a buyer in the United States; (2)
neither the seller nor any person acting on its behalf
engaged in any directed selling efforts in connection with
the offer and sale of such securities; (3) the sale is bona
fide and not for the purpose of "washing off" the resale
restrictions imposed because the securities are "restricted
securities" (as such term is defined in Rule 144(a)(3) under
the 1933 Act); (4) the seller does not intend to replace the
securities sold in reliance on Rule 904 of the 1933 Act with
fungible unrestricted securities; and (5) the contemplated
sale is not a transaction, or part of a series of
transactions which, although in technical compliance with
Regulation S, is part of a plan or scheme to evade the
registration provisions of the 1933 Act. Terms used herein
have the meanings given to them by Regulation S";
provided, further, that if any such Common Shares are being sold pursuant to
Rule 144 of the U.S. Securities Act, the legend may be removed by delivery to
Montreal Trust Company of Canada of an opinion of counsel, of recognized
standing reasonably satisfactory to the Corporation, to the effect that such
legend is no longer required under applicable requirements of the U.S.
Securities Act or state securities laws;
6. it has been afforded the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Corporation
concerning the terms and conditions of the issuance of the Common Shares;
7. it is experienced in evaluating companies such as the Corporation, has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment in the Common Shares and has
the ability to suffer the total loss of its investment in the Common Shares;
<PAGE>
A-3
8. it is an "accredited investor" within the meaning of Rule 501 of Regulation D
under the U.S. Securities Act;
9. it has been independently advised as to restrictions with respect to trading
in the Common Shares imposed by applicable securities legislation in the
jurisdiction in which it resides, confirms that no representation has been made
to it by or on behalf of the Corporation with respect thereto, acknowledges that
it is aware of the characteristics of the Common Shares, the risks relating to
an investment therein and of the fact that it may not be able to resell the
Common Shares except in accordance with limited exemptions under applicable
securities legislation and regulatory policy until expiry of the applicable hold
period and compliance with the other requirements of applicable law;
10. it understands that the sale and delivery of the Common Shares is
conditional upon such sale being exempt from the requirements as to the filing
of a prospectus and as to the delivery of an offering memorandum or upon the
issuance of such orders, consents or approvals as may be required to permit such
sale without the requirement of filing a prospectus or delivering an offering
memorandum; and it has not received or been provided with, nor has it requested,
nor does it have any need to receive, any offering memorandum, or any other
document (other than financial statements, interim financial statements or any
other document the content of which is prescribed by statute or regulation)
describing the business and affairs of the Corporation which has been prepared
for delivery to, and review by, it in order to assist it in making an investment
decision in respect of the Common Shares and it has not become aware of any
advertisement in printed media of general and regular paid circulation, radio or
television with respect to the distribution of the Common Shares;
11. it has relied solely upon the publicly available information relating to the
Corporation and not upon any verbal or written representation as to fact or
otherwise made by or on behalf of the Corporation;
12. it has such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of an investment in the Common
Shares and it is able to bear the economic risk of loss of its entire
investment;
13. it is a resident of and was offered the Common Shares in Ontario,
California;
14. it is purchasing Common Shares having an aggregate acquisition cost of not
less than Cdn. $97,000 and if it is a corporation, syndicate, partnership or
other form of unincorporated organization, it pre-existed the acquisition of the
Common Shares and has a bona fide purpose other than investment in the Common
Shares having an aggregate acquisition cost of not less than Cdn. $97,000 or, if
created to permit such investment, the individual share of the aggregate
acquisition cost for each participant is not less than Cdn. $97,000;
15. it understands and acknowledges that the Corporation has the right to
instruct the transfer agent for the Common Shares not to record a transfer by
any person in the United States without first being notified by the Corporation
that it is satisfied that such transfer is exempt from or not subject to
registration under the U.S. Securities Act and any applicable state securities
laws;
16. it understands that the investment in the Common Shares may have tax
consequences under the laws of the United States and of Canada and that it is
the sole responsibility of MicroTel to determine and assess such tax
consequences as may apply to its particular circumstances;
17. it understands and acknowledges that the Corporation (i) is under no
obligation to be or to remain a "foreign issuer", (ii) may not, at the time we
sell the Common Shares or at any other time, be a "foreign issuer", and (iii)
may engage in one or more transactions which could cause the Corporation not to
be a "foreign issuer"; and
<PAGE>
A-4
18. it agrees that the above representations, warranties and covenants will be
true and correct both as of the execution of this Agreement and as of the
Closing Time and will survive the completion of the issuance of the Common
Shares.
19. The foregoing representations, warranties and covenants are made by MicroTel
with the intent that they be relied upon in determining its suitability as a
purchaser of Common Shares and MicroTel agrees to indemnify the Corporation
against all losses, claims, costs, expenses and damages or liabilities which it
may suffer or incur caused or arising from reliance thereon. MicroTel undertakes
to immediately notify the Corporation at Wi-LAN Inc., Suite 300, 801 Manning
Road N.E., Calgary, Alberta T2E 8J8, Attention: Hatim Zaghloul, Chairman and
Chief Executive Officer of any change in any statement or other information
relating to MicroTel set forth herein which takes place prior to the Closing
Time.
Date: December ____, 1999 MicroTel International, Inc.
----------------------------------
Print name of Purchaser
By:_______________________________
Carmine T. Oliva
Chairman and Chief Executive Officer
<PAGE>
SCHEDULE B
THE TORONTO STOCK EXCHANGE
PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING
QUESTIONNAIRE
1. DESCRIPTION OF TRANSACTION
a. Name of Issuer of the Securities - Wi-LAN Inc.
b. Number and Class of Securities to be Purchased - 28,340 Common
Shares
c. Purchase Price: Deemed Price of U.S. $_____ per Common Share
2. DETAILS OF PURCHASER
a. Name of Purchaser - MicroTel International, Inc.
----------------------------
b. Address -
4290 East Brickell Street
Ontario, CA 81761
______________________________________________________________
c. Names and addresses of persons having a greater than 10%
beneficial interest in the purchaser -
______________________________________________________________
______________________________________________________________
3. RELATIONSHIP TO ISSUER
a. Is the purchaser (or any person named in response to 2(c)
above) an insider of the issuer for the purposes of the
Ontario Securities Act (before giving effect to this private
placement)? If so, state the capacity in which the purchaser
(or person named in response to 2(c)) qualifies as an insider
-
______________________________________________________________
______________________________________________________________
______________________________________________________________
b. If the answer to (a) is "no", are the purchaser and the issuer
controlled by the same person or company? If so, give details.
______________________________________________________________
______________________________________________________________
4. DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER
Give details of all trading by the purchaser, as principal, in the
securities of the issuer (other than debt securities which are not
convertible into equity securities), directly or indirectly, within the
60 days preceding the date hereof -
______________________________________________________________
______________________________________________________________
______________________________________________________________
<PAGE>
B-2
UNDERTAKING
TO: The Toronto Stock Exchange
The undersigned has subscribed for and agreed to purchase, as principal, the
securities described in Item 1 of this Private Placement Questionnaire and
Undertaking.
The undersigned undertakes not to sell or otherwise dispose of any of the said
securities so purchased or any securities derived therefrom until either:
i. a period of six months from the date of the closing of the transaction
herein or for such period as is prescribed by applicable securities
legislation, whichever is longer; or
ii. a period ending on the date that a receipt for a final prospectus
relating to the said securities or any securities derived therefrom has
been issued by the Ontario Securities Commission,
without the prior consent of The Toronto Stock Exchange and any other regulatory
body having jurisdiction.
DATED AT Ontario, California MicroTel International, Inc.
------------------------------------
this ____ day of December, 1999. (Name of Purchaser)
------------------------------------
(Authorized Signature)
------------------------------------
Chairman and Chief Executive Officer
(Official Capacity)
Carmine T. Oliva
------------------------------------
(please print here name of individual
whose signature appears above, if
different from name of purchaser
printed above)
REGISTRATION RIGHTS AGREEMENT
between
DIGITAL TRANSMISSION SYSTEMS, INC.
and
WI-LAN INC.
---------------------------------------
Dated: January 7, 2000
---------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. Background ............................................................. 1
2. Registration Under Securities Act, etc. ................................ 1
2.1 Registration on Request ........................................... 1
2.2 Piggyback Registration ............................................ 4
2.3 Shelf Registration ................................................ 5
2.4 Registration Procedures ........................................... 6
2.5 Underwritten Offerings ............................................ 9
2.6 Preparation; Reasonable Investigation ............................. 10
2.7 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants ............................................ 11
2.8 Indemnification ................................................... 11
3. Definitions ............................................................ 14
4. Rule 144 and Rule 144A ................................................. 17
5. Amendments and Waivers ................................................. 17
6. Nominees for Beneficial Owners ......................................... 18
7. Notices ................................................................ 18
8. Assignment ............................................................. 18
9. Calculation of Percentage Interests in Registrable Securities .......... 19
10. No Inconsistent Agreements ............................................. 19
11. Remedies ............................................................... 19
12. Certain Distributions .................................................. 19
13. Severability ........................................................... 19
14. Entire Agreement ....................................................... 20
15. Headings ............................................................... 20
16. GOVERNING LAW .......................................................... 20
17. Counterparts ........................................................... 20
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT, dated as of January 7, 2000, between
DIGITAL TRANSMISSION SYSTEMS, INC., a Delaware corporation (the "Company"), and
WI-LAN, INC., a corporation incorporated pursuant to the laws of the Province of
Alberta, Canada (the "Purchaser").
1. Background. Pursuant to (i) the Convertible Debenture Purchase
Agreement, dated December 29, 1999 (the "Convertible Debenture Purchase
Agreement"), between the Company and the Purchaser, the Purchaser has agreed to
purchase from the Company, and the Company has agreed to issue to the Purchaser,
(x) convertible debentures in an aggregate principal amount of U.S.$1,500,000
(the "First Convertible Debenture") and (y) an option to purchase convertible
debentures issued by the Company in an aggregate principal amount of up to U.S.
$1,500,000 (the "Convertible Debenture Option"); (ii) the Purchase Agreement,
dated December 29, 1999 (the "Purchase Agreement"), between Finova Mezzanine
Capital Inc., a Delaware corporation ("Finova"), and the Purchaser, the
Purchaser has agreed to purchase from Finova, and Finova has agreed to sell to
the Purchaser, (w) a convertible debenture issued by the Company and held by
Finova in an aggregate principal amount of U.S.$2,000,000 (the "Second
Convertible Debenture"), (x) an option to acquire any or all of the 1,314,333
shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), of
the Company that are held by Finova (the "Preferred Stock Option") and (y)
warrants exercisable into 702,615 shares of Common Stock of the Company (the
"DTS Warrants"); and (iii) the Share Purchase Agreement, dated December 29, 1999
(the "Share Purchase Agreement"), between the Purchaser and MicroTel
International, Inc., a Delaware corporation ("MicroTel"), the Purchaser has
agreed to purchase from MicroTel, and MicroTel has agreed to sell to the
Purchaser, 1,738,159 shares of Common Stock of the Company.
2. Registration Under Securities Act, etc.
2.1 Registration on Request.
(a) Request. At any time, or from time to time
following July 7, 2000, one or more holders (the "Initiating Holders") of 33% or
more of the Purchased Shares, may, upon written request, require the Company to
effect the registration under the Securities Act of any Registrable Securities
held by such Initiating Holders. The Company promptly will give written notice
of such requested registration to all other holders of Registrable Securities
who may join in such registration. The Company will use its best efforts to
effect, at the earliest possible date, the registration under the Securities
Act, including by means of an "evergreen" shelf registration on Form S-3 (or any
successor form) pursuant to Rule 415 under the Securities Act if so requested in
such request (but only if the Company is then eligible to use such a shelf
registration and if Form S-3 (or such successor form) is then available to the
Company), of
(i) the Registrable Securities that the
Company has been so requested to register by such Initiating Holders,
and
<PAGE>
2
(ii) all other Registrable Securities that
the Company has been requested to register by the holders thereof (such
holders together with the Initiating Holders hereinafter are referred
to as the "Selling Holders") by written request given to the Company
within 30 days after the giving of such written notice by the Company
of such registration, all to the extent requisite to permit the
disposition of the Registrable Securities so to be registered.
(b) Registration of Other Securities. Whenever the
Company shall effect a registration pursuant to this Section 2.1, except to the
extent required by agreements with the Company in effect as of the date hereof,
no securities other than Registrable Securities shall be included among the
securities covered by such registration unless the Selling Holders of not less
than 51% of all Registrable Securities to be covered by such registration shall
have consented in writing to the inclusion of such other securities.
(c) Registration Statement Form. Registrations under
this Section 2.1 shall be on such appropriate registration form of the
Commission as shall be reasonably selected by the Company.
(d) Effective Registration Statement. A registration
requested pursuant to this Section 2.1 shall not be deemed to have been
effected:
(i) unless a registration statement with
respect thereto has become effective and remained effective in
compliance with the provisions of the Securities Act with respect to
the disposition of all Registrable Securities covered by such
registration statement until the earlier of (x) such time as all of
such Registrable Securities have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof
set forth in such registration statement and (y) 180 days after the
effective date of such registration statement, except with respect to
any registration statement filed pursuant to Rule 415 under the
Securities Act, in which case the Company shall use its best efforts to
keep such registration statement effective until such time as all of
the Registrable Securities cease to be Registrable Securities,
(ii) if after it has become effective, such
registration is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or
court for any reason not attributable to the Selling Holders and has
not thereafter become effective, or
(iii) if the conditions to closing specified
in the underwriting agreement, if any, entered into in connection with
such registration are not satisfied or waived, other than by reason of
a failure on the part of the Selling Holders.
<PAGE>
3
(e) Selection of Underwriters. The underwriter or
underwriters of each underwritten offering of the Registrable Securities so to
be registered shall be selected by the Selling Holders of more than 50% of each
class of Registrable Securities to be included in such registration and shall be
reasonably acceptable to the Company.
(f) Priority in Requested Registration. If the
managing underwriter of any underwritten offering shall advise the Company in
writing (and the Company shall so advise each Selling Holder of Registrable
Securities requesting registration of such advice) that, in its opinion, the
number of securities requested to be included in such registration exceeds the
number that can be sold in such offering within a price range acceptable to the
Selling Holders of 66-2/3% of the Registrable Securities requested to be
included in such registration, the Company, except as provided in the following
sentence, will include in such registration, to the extent of the number and
type that the Company is so advised can be sold in such offering, Registrable
Securities requested to be included in such registration, pro rata among the
Selling Holders requesting such registration on the basis of the estimated gross
proceeds from the sale thereof. If the total number of Registrable Securities
requested to be included in such registration cannot be included as provided in
the preceding sentence, holders of Registrable Securities requesting
registration thereof pursuant to Section 2.1, representing not less than 33-1/3%
of the Registrable Securities with respect to which registration has been
requested and constituting not less than 66- 2/3% of the Initiating Holders,
shall have the right to withdraw the request for registration by giving written
notice to the Company within 20 days after receipt of such notice by the Company
and, in the event of such withdrawal, such request shall not be counted for
purposes of the requests for registration to which holders of Registrable
Securities are entitled pursuant to Section 2.1 hereof. In connection with any
such registration to which this Section 2.1(f) is applicable, no securities
other than Registrable Securities shall be covered by such registration.
(g) Limitations on Registration on Request.
Notwithstanding anything in this Section 2.1 to the contrary, in no event will
the Company be required to (i) effect, in the aggregate, more than four
registrations pursuant to this Section 2.1, (ii) effect a registration pursuant
to this Section 2.1 within the six-month period occurring immediately subsequent
to the effectiveness (within the meaning of Section 2.1(d)) of a registration
statement filed pursuant to this Section 2.1 or within the 45 day period
preceding the expected filing date of a registration statement pursuant to this
Section 2.1, (iii) effect a registration pursuant to this Section 2.1 if less
than 15% of the Registrable Securities are requested to be included in such
registration or (iv) effect a registration pursuant to this Section 2.1 during
such time as a Shelf Registration (as defined herein) has been declared, and
remains, effective.
<PAGE>
4
(h) Listing. The Company shall have the Registrable
Securities subject to Section 2.1(a) included or listed, as the case may be, on
the OTC Bulletin Board, the NASDAQ Small Cap Market or another of the national
securities exchanges or automated quotation system.
(i) Expenses. The Company will pay all Registration
Expenses (except for any underwriting commissions or discounts) in connection
with any registration requested pursuant to this Section 2.1, except if the
request for registration is withdrawn other than pursuant to Section 2.1(f).
2.2 Piggyback Registration.
(a) Right to Include Registrable Securities. If the
Company at any time proposes to register any shares of Common Stock or any
securities convertible into Common Stock under the Securities Act by
registration on any form other than Forms S-4 or S-8, whether or not for sale
for its own account, it will each such time give prompt written notice to all
holders of Registrable Securities of its intention to do so and of such holders'
rights under this Section 2.2. Upon the written request of any such holder (a
"Requesting Holder") made as promptly as practicable and in any event within 30
days after the receipt of any such notice, the Company will use its reasonable
best efforts to effect the registration under the Securities Act of all
Registrable Securities that the Company has been so requested to register by the
Requesting Holders thereof; provided, however, that prior to the effective date
of the registration statement filed in connection with such registration,
immediately upon notification to the Company from the managing underwriter of
the price at which such securities are to be sold, if such price is below the
price that any Requesting Holder shall have indicated to be acceptable to such
Requesting Holder, the Company shall so advise such Requesting Holder of such
price, and such Requesting Holder shall then have the right to withdraw its
request to have its Registrable Securities included in such registration
statement; provided further, that if, at any time after giving written notice of
its intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Requesting Holder of Registrable Securities and (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from any obligation of the Company to pay the Registration Expenses in
connection therewith), without prejudice, however, to the rights of any holder
or holders of Registrable Securities entitled to do so to cause such
registration to be effected as a registration under Section 2.1, and (ii) in the
case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in
registering such other securities. No registration effected under this Section
2.2 shall relieve the Company of its obligation to effect any registration upon
request under Section 2.1.
<PAGE>
5
(b) Priority in Piggyback Registrations. If the
managing underwriter of any underwritten offering shall inform the Company by
letter of its opinion that the number or type of Registrable Securities
requested to be included in such registration would materially adversely affect
such offering, and the Company has so advised the Requesting Holders in writing,
then the Company will include in such registration, to the extent of the number
and type that the Company is so advised can be sold in (or during the time of)
such offering, first, all securities proposed by the Company to be sold for its
own account, second such Registrable Securities requested to be included in such
registration pursuant to this Agreement, among such Requesting Holders and such
other Persons who have the right pursuant to agreements with the Company to
require that their securities be included in such registration, pro rata on the
basis of the estimated proceeds from the sale thereof and third, all other
securities proposed to be registered.
(c) Expenses. The Company will pay all Registration
Expenses in connection with any registration effected pursuant to this Section
2.2.
2.3 Shelf Registration.
(a) Filing and Effectiveness of Shelf Registration.
At the request of holders of 51% of the Registrable Securities, if the Company
is eligible to use Form S-3 (or such successor form) the Company shall file an
"evergreen" shelf registration statement solely with respect to the Registrable
Securities and pursuant to Rule 415 under the Securities Act (the "Shelf
Registration") on Form S-3 (or any successor form). The Company shall use its
best efforts to have the Shelf Registration declared effective as soon as
practicable after such filing, and shall, except at the request of holders of
51% of the Registrable Securities, use its best efforts to keep the Shelf
Registration effective and updated, from the date such Shelf Registration is
declared effective until such time as all of the Registrable Securities shall
cease to be Registrable Securities. The Company shall not be required to effect
a Shelf Registration if less than 15% of the Registrable Securities are
requested to be included in such registration or if the Company would be
required to have an additional audit completed in connection therewith.
(b) Supplements and Amendments; Expenses. The Company
shall supplement or amend, if necessary, the Shelf Registration, as required by
the instructions applicable to such registration form or by the Securities Act
and the Company shall furnish to the holders of the Registrable Securities to
which the Shelf Registration relates copies of any such supplement or amendment
prior to its being used and/or filed with the Commission. The Company shall pay
all Registration Expenses in connection with the Shelf Registration, whether or
not it becomes effective, and whether all, none or some of the Registrable
Securities are sold pursuant to the Shelf Registration. In no event shall the
Shelf Registration include securities other than Registrable Securities, unless
the holders of more than 66-2/3% of the Registrable Securities consent to such
inclusion.
<PAGE>
6
(c) Effective Shelf Registration Statement. A Shelf
Registration pursuant to this Section 2.3 shall not be deemed to have been
effected (i) unless a Shelf Registration has become effective and remained
effective in compliance with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities and until such time as all of
such Registrable Securities have been disposed of under the Shelf Registration
or (ii) if after it has become effective, the Shelf Registration is interfered
with by any stop order, injunction or other order or requirement of the
Commission or other governmental agency or court and has not thereafter become
effective.
2.4 Registration Procedures. If and whenever the Company is
required to effect the registration of any Registrable Securities under the
Securities Act as provided in Sections 2.1, 2.2, and 2.3, the Company will, as
expeditiously as possible:
(i) prepare and (within 90 days after the end
of the period within which requests for registration may be given to
the Company or in any event as soon thereafter as practicable) file
with the Commission the requisite registration statement to effect such
registration and thereafter use its best efforts to cause such
registration statement to become effective; provided, however, that the
Company may discontinue any registration of its securities that are not
Registrable Securities (and, under the circumstances specified in
Section 2.2(a), its securities that are Registrable Securities) at any
time prior to the effective date of the registration statement relating
thereto;
(ii) prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the provisions
of the Securities Act with respect to the disposition of all
Registrable Securities covered by such registration statement until the
earlier of (a) such time as all of such Registrable Securities have
been disposed of in accordance with the intended methods of disposition
by the seller or sellers thereof set forth in such registration
statement and (b) 120 days after the effective date of such
registration statement, except with respect to any registration
statement filed pursuant to Rule 415 under the Securities Act if the
Company is eligible to file a registration statement on Form S-3, in
which case the Company shall use its best efforts to keep the
registration statement effective and updated, from the date such
registration statement is declared effective until such time as all of
the Registrable Securities cease to be Registrable Securities;
(iii) furnish to each seller of Registrable
Securities covered by such registration statement, such number of
conformed copies of such registration statement and of each such
amendment and supplement
<PAGE>
7
thereto (in each case including all exhibits), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents,
as such seller may reasonably request;
(iv) use its best efforts (x) to register or
qualify all Registrable Securities and other securities covered by such
registration statement under such other securities or blue sky laws of
such States of the United States of America where an exemption is not
available and as the sellers of Registrable Securities covered by such
registration statement shall reasonably request, (y) to keep such
registration or qualification in effect for so long as such
registration statement remains in effect and (z) to take any other
action that may be reasonably necessary or advisable to enable such
sellers to consummate the disposition in such jurisdictions of the
securities to be sold by such sellers, except that the Company shall
not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this subdivision (iv) be obligated to
be so qualified or to consent to general service of process in any such
jurisdiction;
(v) use its best efforts to cause all
Registrable Securities covered by such registration statement to be
registered with or approved by such other federal or state governmental
agencies or authorities as may be necessary in the opinion of counsel
to the Company and counsel to the seller or sellers of Registrable
Securities to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(vi) in the case of an underwritten or "best
efforts" offering, furnish at the effective date of such registration
statement to each seller of Registrable Securities, and each such
seller's underwriters, if any, a signed counterpart of:
(x) an opinion of counsel for the
Company, dated the effective date of such registration
statement and, if applicable, the date of the closing under
the underwriting agreement, and
(y) a "comfort" letter signed by the
independent public accountants who have certified the
Company's financial statements included or incorporated by
reference in such registration statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of the
<PAGE>
8
accountants' comfort letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' comfort letters
delivered to the underwriters in underwritten public offerings of
securities and, in the case of the accountants' comfort letter, such
other financial matters, and, in the case of the legal opinion, such
other legal matters, as the underwriters may reasonably request;
(vii) cause representatives of the Company to
participate in any "road show" or "road shows" reasonably requested by
any underwriter of an underwritten or "best efforts" offering of any
Registrable Securities;
(viii) notify each seller of Registrable
Securities covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event
as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, in
the light of the circumstances under which they were made, and at the
request of any such seller promptly prepare and furnish to it a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made;
(ix) otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission, and, if
required, make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least
twelve months, but not more than eighteen months, beginning with the
first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 promulgated
thereunder, and promptly furnish to each such seller of Registrable
Securities a copy of any amendment or supplement to such registration
statement or prospectus;
(x) provide and cause to be maintained a
transfer agent and registrar (which, in each case, may be the Company)
for all Registrable Securities covered by such registration statement
from and after a date not later than the effective date of such
registration; and
<PAGE>
9
(xi) use its best efforts to have all
Registrable Securities covered by such registration statement included
or listed, as the case may be, on the OTC Bulletin Board, the NASDAQ
Small Cap Market or any national securities exchange on which
Registrable Securities of the same class covered by such registration
statement are then included or listed, as the case may be, and, if no
such Registrable Securities are so included or listed, on the OTC
Bulletin Board, the NASDAQ Small Cap Market or any national securities
exchange on which the Common Stock is then included or listed.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to promptly furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing; provided, that any such
information or questionnaires shall be given or made by a seller of Registrable
Securities without representation or warranty of any kind whatsoever except
representations with respect to the identity of such seller, such seller's
Registrable Securities and such seller's intended method of distribution or any
other representations required by applicable law.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (viii) of this
Section 2.4, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (viii) of this
Section 2.4 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
2.5 Underwritten Offerings.
(a) Requested Underwritten Offerings. If requested by
the underwriters for any underwritten offering by holders of Registrable
Securities pursuant to a registration requested under Section 2.1, the Company
will use its best efforts to enter into an underwriting agreement with such
underwriters for such offering, such agreement to be reasonably satisfactory in
substance and form to each such holder and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of that type, including, without limitation,
indemnities to the effect and to the extent provided in Section 2.8. The holders
of the Registrable Securities proposed to be sold by such underwriters will
reasonably cooperate with the Company in the negotiation of the underwriting
agreement. Such holders of Registrable Securities to be sold by such
underwriters shall be parties to such underwriting agreement and may, at their
option, require that any or all of the representations and warranties by,
<PAGE>
10 and the other agreements on the part of, the Company to and for the benefit
of such underwriters shall also be made to and for the benefit of such holders
of Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. No
holder of Registrable Securities shall be required to make any representations
or warranties to, or agreements with, the Company other than representations,
warranties or agreements regarding the identity of such holder, such holder's
Registrable Securities and such holder's intended method of distribution or any
other representations required by applicable law.
(b) Piggyback Underwritten Offerings. If the Company
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any
Requesting Holder of Registrable Securities, use its best efforts to arrange for
such underwriters to include all the Registrable Securities to be offered and
sold by such Requesting Holder among the securities of the Company to be
distributed by such underwriters, subject to the provisions of Section 2.2(b).
The holders of Registrable Securities to be distributed by such underwriters
shall be parties to the underwriting agreement between the Company and such
underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. No holder of Registrable Securities shall be
required to make any representations or warranties to, or agreements with, the
Company or the underwriters other than representations, warranties or agreements
regarding the identity of such holder, such holder's Registrable Securities and
such holder's intended method of distribution or any other representations
required by applicable law.
(c) Underwriting Discounts and Commission. The
holders of Registrable Securities sold in any offering pursuant to Section
2.5(a) or Section 2.5(b) shall pay all underwriting discounts and commissions of
the underwriter or underwriters with respect to the Registrable Securities sold
thereby.
(d) Holdback Arrangements. In connection with a
requested underwritten offering, the Holders shall agree to customary holdback
arrangements as may be reasonably requested by the underwriters of such
offering.
2.6 Preparation; Reasonable Investigation. In connection with
the preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, the Company will give the holders of Registrable
<PAGE>
11
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or supplement thereto, and
will give each of them such reasonable access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of such holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
2.7 Limitations, Conditions and Qualifications to Obligations
under Registration Covenants. The Company shall be entitled to postpone, for a
reasonable period of time (but not exceeding 100 days), the filing of any
registration statement otherwise required to be prepared and filed by it
pursuant to Section 2.1 if the Company determines, in its good faith judgment,
that such registration and offering would interfere with any material financing,
acquisition, corporate reorganization or other material transaction involving
the Company or any of its affiliates and promptly gives the holders of
Registrable Securities requesting registration thereof pursuant to Section 2.1
written notice of such determination, containing a general statement of the
reasons for such postponement and an approximation of the anticipated delay. If
the Company shall so postpone the filing of a registration statement, holders of
Registrable Securities requesting registration thereof pursuant to Section 2.1,
representing not less than 33-1/3% of the Registrable Securities with respect to
which registration has been requested and constituting not less than 66-2/3% of
the Initiating Holders, shall have the right to withdraw the request for
registration by giving written notice to the Company within 30 days after
receipt of the notice of postponement and, in the event of such withdrawal, such
request shall not be counted for purposes of the requests for registration to
which holders of Registrable Securities are entitled pursuant to Section 2.1
hereof.
2.8 Indemnification.
(a) Indemnification by the Company. The Company will,
and hereby does, indemnify and hold harmless, in the case of any registration
statement filed pursuant to Section 2.1, 2.2 or 2.3, each seller of any
Registrable Securities covered by such registration statement and each other
Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such seller or any such
underwriter within the meaning of the Securities Act, and their respective
directors, officers, partners, members, agents and affiliates against any
losses, claims, damages or liabilities, joint or several, to which such seller
or underwriter or any such director, officer, partner, member, agent, affiliate
or controlling person may become subject under the Securities Act or otherwise,
including, without limitation, the fees and expenses of legal counsel (including
those incurred in connection with any claim for indemnity hereunder), insofar as
such losses, claims, damages or liabilities (or actions or proceedings,
<PAGE>
12
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading,
and the Company will reimburse such seller or underwriter and each such
director, officer, partner, member, agent, affiliate and controlling Person for
any legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such seller or underwriter, as the case may be, specifically stating that it is
for use in the preparation thereof; and provided further, that the Company shall
not be liable to any Person who participates as an underwriter in the offering
or sale of Registrable Securi ties or any other Person, if any, who controls
such underwriter within the meaning of the Securities Act, in any such case to
the extent that any such loss, claim, damage, liability (or action or proceeding
in respect thereof) or expense arises out of such Person's failure to send or
give a copy of the final prospectus, as the same may have been supplemented or
amended, to the Person asserting an untrue statement or alleged untrue statement
or omission or alleged omission at or prior to the written confirmation of the
sale of Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller
or any such director, officer, partner, member, agent or controlling person and
shall survive the transfer of such securities by such seller.
(b) Indemnification by the Sellers. As a condition to
including any Registrable Securities in any registration statement, the Company
shall have received an undertaking satisfactory to it from the prospective
seller of such Registrable Securities, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in Section 2.8(a)) the Company,
and each director of the Company, each officer of the Company and each other
Person, if any, who participates as an underwriter in the offering or sale of
such securities and each other Person who controls the Company or any such
underwriter within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged
<PAGE>
13
omission was made in reliance upon and in conformity with written information
furnished to the Company by such seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided, however, that
the liability of such indemnifying party under this Section 2.8(b) shall be
limited to the amount of the net proceeds received by such indemnifying party in
the offering giving rise to such liability. Such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by
an indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 2.8(a) or (b), such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party,
give written notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 2.8, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it may
wish, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, that any indemnified party may, at
its own expense, retain separate counsel to participate in such defense.
Notwithstanding the foregoing, in any action or proceeding in which both the
Company and an indemnified party is, or is reasonably likely to become, a party,
such indemnified party shall have the right to employ separate counsel at the
Company's expense and to control its own defense of such action or proceeding
if, in the reasonable opinion of counsel to such indemnified party, (a) there
are or may be legal defenses available to such indemnified party or to other
indemnified parties that are different from or additional to those available to
the Company or (b) any conflict or potential conflict exists between the Company
and such indemnified party that would make such separate representation
advisable; provided, however, that in no event shall the Company be required to
pay fees and expenses under this Section 2.8 for more than one firm of attorneys
in any jurisdiction in any one legal action or group of related legal actions.
No indemnifying party shall be liable for any settlement of any action or
proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation or which requires action other than the
payment of money by the indemnifying party.
<PAGE>
14
(d) Contribution. If the indemnification provided for
in this Section 2.8 shall for any reason be held by a court to be unavailable to
an indemnified party under Section 2.8(a) or (b) hereof in respect of any loss,
claim, damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under Section 2.8(a) or (b), the indemnified party
and the indemnifying party under Section 2.8(a) or (b) shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating the same,
including those incurred in connection with any claim for indemnity hereunder),
(i) in such proportion as is appropriate to reflect the relative fault of the
Company and the prospective sellers of Registrable Securities covered by the
registration statement which resulted in such loss, claim, damage or liability,
or action or proceeding in respect thereof, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action or
proceeding in respect thereof, as well as any other relevant equitable
considerations or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as shall be appropriate to
reflect the relative benefits received by the Company and such prospective
sellers from the offering of the securities covered by such registration
statement; provided, however, that for purposes of this clause (ii), the
relative benefits received by the prospective sellers shall be deemed not to
exceed the amount of proceeds received by such prospective sellers. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation. Such prospective sellers'
obligations to contribute as provided in this Section 2.8(d) are several in
proportion to the relative value of their respective Registrable Securities
covered by such registration statement and not joint. In addition, no Person
shall be obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's consent, which
consent shall not be unreasonably withheld.
(e) Other Indemnification. Indemnification and
contribution similar to that specified in the preceding subdivisions of this
Section 2.8 (with appropriate modifications) shall be given by the Company and
each seller of Registrable Securities with respect to any required registration
or other qualification of securities under any federal or state law or
regulation of any governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and
contribution required by this Section 2.8 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred.
3. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
<PAGE>
15
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock, par value $.01 per share,
of the Company and each other class of capital stock of the Company into which
such stock is reclassified or reconstituted.
"Convertible Debenture Option" has the meaning set forth in the
recitals to this Agreement.
"Convertible Debenture Purchase Agreement" has the meaning set forth in
the recitals to this Agreement.
"DTS Warrants" has the meaning set forth in the recitals to this
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any other similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Securities Exchange Act of 1934, as amended,
shall include a reference to the comparable section, if any, of any such similar
Federal statute.
"Finova" has the meaning set forth in the recitals to this Agreement.
"First Convertible Debenture" has the meaning set forth in the recitals
to this Agreement.
"MicroTel" has the meaning set forth in the recitals to this Agreement.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind, and shall include any successor (by merger
or otherwise) of any such entity.
"Preferred Stock" has the meaning set forth in the recitals to this
Agreement.
"Preferred Stock Option" has the meaning set forth in the recitals to
this Agreement.
"Purchase Agreement" has the meaning set forth in the recitals to this
Agreement.
<PAGE>
16
"Purchased Shares" means the total number of shares of Common Stock
(assuming the conversion or exercise of all convertible or exercisable
securities) (i) purchased by the Purchaser pursuant to the Share Purchase
Agreement and (ii) issued or issuable upon conversion or exercise of the First
Convertible Debenture, the Second Convertible Debenture, the convertible
debentures, if any, issued upon exercise of the Convertible Debenture Option,
the shares of Preferred Stock, if any, issued upon exercise of the Preferred
Stock Option and the DTS Warrants.
"Registrable Securities" means (i) any shares of Common Stock purchased
by the Purchaser pursuant to the Share Purchase Agreement, (ii) any shares of
Common Stock issued or issuable upon conversion or exercise of the First
Convertible Debenture, the Second Convertible Debenture, the convertible
debentures, if any, issued upon exercise of the Convertible Debenture Option,
the shares of Preferred Stock, if any, issued upon exercise of the Preferred
Stock Option and the DTS Warrants, (iii) any Related Registrable Securities, and
(iv) any shares of Common Stock owned by the Purchaser. As to any particular
Registrable Securities, once issued, such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been sold as permitted by Rule 144 (or any
successor provision) under the Securities Act and the purchaser thereof does not
receive "restricted securities" as defined in Rule 144, (c) they shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent public distribution of them shall not, in the opinion of counsel for
the holders, require registration of them under the Securities Act or (d) they
shall have ceased to be outstanding. All references to percentages of
Registrable Securities shall be calculated pursuant to Section 9.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation, all
registration and filing fees, all fees of the OTC Bulletin Board, NASDAQ, other
national securities exchanges or the National Association of Securities Dealers,
Inc., all fees and expenses of complying with securities or blue sky laws, all
word processing, duplicating and printing expenses, messenger and delivery
expenses, the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of "cold comfort" letters
required by or incident to such performance and compliance, any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities (excluding any underwriting discounts or commissions with respect to
the Registrable Securities) and the reasonable fees and expenses of one counsel
to the Selling Holders (selected by Selling Holders representing at least 50% of
the Registrable Securities covered by such registration). Notwithstanding the
foregoing, in the event the Company shall determine, in accordance with Section
2.2(a) or Section 2.7, not to register any securities with respect to which it
had given written notice of its intention to so
<PAGE>
17
register to holders of Registrable Securities, all of the costs of the type (and
subject to any limitation to the extent) set forth in this definition and
incurred by Requesting Holders in connection with such registration on or prior
to the date the Company notifies the Requesting Holders of such determination
shall be deemed Registration Expenses.
"Related Registrable Securities" means, with respect to shares of
Common Stock issuable upon conversion or exercise of the First Convertible
Debenture, the Second Convertible Debenture, the convertible debentures issued
or issuable upon exercise of the Convertible Debenture Option, the shares of
Preferred Stock issued or issuable upon exercise of the Preferred Stock Option
and the DTS Warrants, any securities of the Company issued or issuable with
respect to such shares of Common Stock by way of a dividend or stock split or in
connection with a combina tion of shares, recapitalization, merger,
consolidation or other reorganization or otherwise.
"Second Convertible Debenture" has the meaning set forth in the
recitals to this Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
"Share Purchase Agreement" has the meaning set forth in the recitals to
this Agreement.
4. Rule 144 and Rule 144A. The Company shall take all actions
reasonably necessary to enable holders of Registrable Securities to sell such
securities without registration under the Securities Act within the limitation
of the provisions of (a) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, (b) Rule 144A under the Securities Act, as such Rule
may be amended from time to time, or (c) any similar rules or regulations
hereafter adopted by the Commission. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
5. Amendments and Waivers. This Agreement may be amended with the
consent of the Company and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, only if the
Company shall have obtained the written consent to such amendment, action or
omission to act, of the holder or holders of at least 50% of the Registrable
Securities affected by such amendment, action or omission to act. Each holder of
any Registrable Securities at the time or thereafter outstanding shall be bound
by any
<PAGE>
18
consent authorized by this Section 5, whether or not such Registrable Securities
shall have been marked to indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
shares of Registrable Securities held by any holder or holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
7. Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(i) if to the Purchaser, addressed to it in the manner set
forth in the Convertible Debenture Purchase Agreement, or at such other address
as it shall have furnished to the Company in writing in the manner set forth
herein;
(ii) if to any other holder of Registrable Securities, at the
address that such holder shall have furnished to the Company in writing in the
manner set forth herein, or, until any such other holder so furnishes to the
Company an address, then to and at the address of the last holder of such
Registrable Securities who has furnished an address to the Company; or
(iii) if to the Company, addressed to it in the manner set
forth in the Convertible Debenture Purchase Agreement, or at such other address
as the Company shall have furnished to each holder of Registrable Securities at
the time outstanding in the manner set forth herein.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered to a
courier, if delivered by overnight courier service; five Business Days after
being deposited in the mail, postage prepaid, if mailed; and when receipt is
acknowledged, if telecopied.
8. Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and, with respect to the
Company, its respective successors and permitted assigns and, with respect to
the Purchaser, any holder of any Registrable Securities, subject to the
provisions respecting the minimum numbers of percentages of shares of
Registrable Securities
<PAGE>
19
required in order to be entitled to certain rights, or take certain actions,
contained herein. Except by operation of law, this Agreement may not be assigned
by the Company without the prior written consent of the holders of a majority in
interest of the Registrable Securities outstanding at the time such consent is
requested.
9. Calculation of Percentage Interests in Registrable Securities. For
purposes of this Agreement, all references to a percentage of the Registrable
Securities shall be calculated based upon the number of shares of Registrable
Securities outstanding at the time such calculation is made, assuming the
conversion or exercise of all convertible securities, options or warrants into
shares of Common Stock.
10. No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the holders of Registrable Securities in this Agreement.
Without limiting the generality of the foregoing, the Company will not hereafter
enter into any agreement with respect to its securities that grants, or modify
any existing agreement with respect to its securities to grant, to the holder of
its securities in connection with an incidental registration of such securities
higher priority to the rights granted to the Purchasers under Section 2.2(b).
11. Remedies. Each holder of Registrable Securities, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
12. Certain Distributions. The Company shall not at any time make a
distribution on or with respect to the Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the resulting or surviving corporation and such Registrable
Securities are not changed or exchanged) of securities of another issuer if
holders of Registrable Securities are entitled to receive such securities in
such distribution as holders of Registrable Securities and any of the securities
so distributed are registered under the Securities Act, unless the securities to
be distributed to the holders of Registrable Securities are also registered
under the Securities Act.
13. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being
<PAGE>
20
intended that all of the rights and privileges of the Purchaser shall be
enforceable to the fullest extent permitted by law.
14. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
15. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed an original and all
of which taken together shall constitute one and the same instrument.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective representatives hereunto duly
authorized as of the date first above written.
DIGITAL TRANSMISSION SYSTEMS, INC.
By: /s/ Andres Salazar
-------------------------------
Name: Andres Salazar
Title: Chief Executive Officer
WI-LAN INC.
By: /s/ Hatim Zagloul
-------------------------------
Name: Hatim Zagloul
Title: Chairman and Chief Executive
