United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period Ended December 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period
Commission file number 0-28472
DIGITAL VIDEO SYSTEMS, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 77-0333728
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
280 Hope Street
Mountain View, CA 94041
-------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(650) 625-8200
--------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
-------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
Class Outstanding at January 31, 1998
- ---------------------------------- -------------------------------
(Common Stock, $.0001 Par Value) 25,206,805
Digital Video Systems, Inc.
Index
Part I. Financial Information Page
- ----------------------------- ----
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets-
December 31, 1998 4
Condensed consolidated statements of operations-
Three and nine months ended December 31, 1998 and 1997 5
Condensed consolidated statements of cash flows-
Nine months ended December, 1998 and 1997 6
Notes to condensed consolidated financial statements-
December 31, 1998 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Part II. Other Information
- --------------------------
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of the Proceeds
None --
Item 3. Defaults upon Senior Securities
None --
Item 4. Submission of Matters to a Vote of Security Holders
None --
Item 5. Other Information --
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Item I. Financial Statements
Digital Video Systems, Inc.
Condensed Consolidated Balance Sheet
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Assets:
Current assets:
Cash and cash equivalents......................... $1,950
Restricted cash................................... 751
Accounts receivable, net.......................... 941
Inventories....................................... 6,098
Prepaid expenses and other current assets......... 1,445
------------
Total current assets 11,185
Property and equipment, net.......................... 2,132
Intangible assets.................................... 3,092
Other assets......................................... 135
------------
$16,544
============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.................................. $5,999
Short term loan payable........................... 1,500
Accrued liabilities............................... 4,648
------------
Total current liabilities...................... 12,147
Stockholders' equity:
Common stock......................................... 3
Preferred stock....................................... 2
Additional paid-in capital........................... 63,327
Accumulated deficit.................................. (58,803)
Accumulated other comprehensive income............... (132)
------------
Total stockholders' equity 4,397
------------
$16,544
============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Digital Video Systems, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ende Nine Months Ended
December 31, December 31,
------------------------------------
1998 1997 1998 1997
------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Product revenue...................... $4,927 $4,727 $10,324 $11,384
Development and services revenue..... 66 644 401 645
Component revenue.................... 189 -- 322 2,444
------------------------------------
Total revenue...................... 5,182 5,371 11,047 14,473
Cost of product revenue................ 4,468 4,221 8,972 10,121
Cost of development and
services revenue...................... 2 20 2
Cost of component revenue.............. 122 -- 265 2,400
------------------------------------
Gross margin........................... 592 1,148 1,790 1,950
Operating expenses:
Research and development............. 1,378 1,702 5,069 4,194
Sales and marketing.................. 650 1,394 2,319 2,880
General and administrative........... 1,525 2,805 5,978 5,973
Acquired in-process research
and development..................... -- -- 500 617
------------------------------------
Total operating expenses.......... 3,553 5,901 13,866 13,664
------------------------------------
Loss from operations.............. (2,961) (4,753) (12,076) (11,714)
Other income (expense), net............ (744) 178 (710) 921
Minority Interest -- (241) -- (241)
------------------------------------
Net loss............................... ($3,705) ($4,816)($12,786)($11,034)
====================================
Basic and Diluted net loss per share... ($0.22) ($0.39) ($0.84) ($0.91)
====================================
Shares used in the calculation of Basic
and Diluted net loss per share ....... 16,869 12,355 15,278 12,182
====================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Digital Video Systems, Inc.
Condensed Consolidated Statements Of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months End
December 31,
------------------------
1998 1997
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................. ($12,890) ($11,034)
Adjustments to reconcile net loss to net cash
used in operating activities:
Minority interest in consolidated joint venture... -- 241
Depreciation and amortization..................... 859 1,115
Purchased in-process research and development..... 500 617
Loss on disposal of fixed assets.................. (1,045) 0
Changes in operating assets and liabilities:
Increase in restricted cash....................... (751) --
Accounts receivable............................... 198 (5,131)
Inventories....................................... (920) (1,936)
Prepaid expenses and other current assets......... (761) (483)
Accounts payable.................................. 3,849 (658)
Accrued liabilities............................... 1,115 1,066
------------ ----------
Net cash provided in operating activities............. (9,846) (16,203)
Investing activities:
Acquisition of property and equipment................. (460) (863)
Acquisition of Digital Video Division of
Arris Interactive LLC............................... -- (1,642)
Acquisition of Synchrome Technology, Inc.............. -- (778)
Sale of short-term cash investments................... 1,033 --
Purchase of short term investments.................... -- (2,510)
Other investing activities............................ 405 (155)
------------ ----------
Net cash provided in investing activities............. 978 (5,948)
------------ ----------
Financing activities:
Proceeds from short-term loan ........................ 2,500 --
Conversion of short-term loan ......................... (1,000) --
Issuance of common stock.............................. 1,403 --
Issuance of preferred stock........................... 2,000
Proceeds from exercise of stock options............... -- 18
------------ ----------
Net cash provided by financing activities............. 4,903 18
------------ ----------
Net (decrease) in cash and cash equivalents.. (3,965) (22,133)
Cash and cash equivalents at beginning of period...... 5,915 32,221
------------ ----------
Cash and cash equivalents at end of period............ $1,950 $10,088
============ ==========
Supplemental disclosure of non cash transaction:
Issurance of stock to Hyundai for acquisition
of DVD-ROM asset...................................... $3,500 $ --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Digital Video Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1-Basis of Presentation
Digital Video Systems, Inc. (the "Company") is a digital versatile disk
(DVD) company, that uses this technology platform as the basis for its
product introductions. The Company is currently developing,
manufacturing, and marketing DVD-based products for the computer and
consumer product markets. These products include DVD-ROM drives, DVD
intelligent loaders, DVD players, DVD-RAM drives, and DVD video
engines. The Company commenced sales of its 5X DVD-ROM drives and video
engine 150 products in the current quarter. Previously developed
products from which the Company currently derives revenue include its
2X DVD-ROM drive, "Enterprise" ad-insertion product, video CD player,
video engine 100, 200, and 300 for commercial applications, and MX
video servers for education and corporate customers.
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the audited
financial statements included in the Company's Annual Report and Form
10-KSB for the fiscal year ended March 31, 1998.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements have been prepared on the same basis
as the audited financial statements and include all adjustments
(consisting of normal recurring adjustments) considered necessary for a
fair presentation of the interim periods presented. Operating results
for the nine-month and three-month period ended December 31, 1998 are
not necessarily indicative of the results that may be expected for any
other interim period or the full fiscal year ending March 31, 1999.
All significant inter-company balances and transactions have been
eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Significant estimates include
impairment write-downs of fixed assets and intangibles and the level of
accounts receivable and inventory reserves. Actual results could differ
from those estimates.
Effective November 1, 1998, the Company's Board of Directors voted
unanimously to activate an Executive Committee with the authority to
review all management decisions. The Executive Committee consists of
Cary Fitchey, Michael Chen, and Douglas Watson.
As a result of the Company's significant operating losses and the cost
of acquiring and funding its recent acquisitions, the Company's working
capital has been substantially reduced. The Company had as of December
31, 1998 negative working capital of $1.0 million and cash, cash
equivalents and short-term investments of $ 2.7 million compared with
$21.1 million of working capital and $12.6 million of cash and cash
equivalents as of December 31, 1997. The Company's accumulated deficit
was $59 million at December 31, 1998.
In October and November of 1998, Oregon Power Lending Insitution
("OPLI") invested $2.0 million (the "First Tranche") in the Company's
Series C Preferred Stock, pursuant to a binding letter agreement (the
"Letter Agreement"). The Letter Agreement calls for two additional $2.0
million ("Second Tranche" and "Third Tranche") investments by OPLI and
optional investments of up to $4 million, for an aggregate investment
of up to $10 million. All issuances of the Preferred Stock to OPLI
following the First Tranche are subject to prior approval of a majority
of the Company's Shareholders. The Preferred Stock is convertible into
the Company's common stock at a conversion price of $0.47 per share.
Thus, the $2.0 million worth of Preferred Stock sold in the First
Tranche is convertible into 4,255,319 shares of the Company's common
stock. In connection with its purchase of the First Tranche, OPLI also
received an option (the "Option") to purchase up to 2 million shares of
the Company's common stock at an exercise price of $0.75 per share. The
option has a term of 24 months. When OPLI makes its additional required
investment in the Company, it will receive an option to purchase an
additional 1 million shares of the Company's common stock, also at an
exercise price of $0.75 per share and with a term of 24 months.
The Company issued a $1 million convertible promissory note to OPLI on
November 12, 1998. Interest on the principal is accrued at a rate of
10% per annum. OPLI has the right to convert all or a portion of the
outstanding principal amount and accrued interest of the note to Series
C Convertible Preferred Stock. See Exhibit 10.3.
On December 31, 1998, the Company issued a $500,000 convertible
preferred note to OPLI. Interest on the principal is accrued at a rate
of 10% per annum. OPLI has the right to convert all or a portion of the
outstanding principal amount and accrued interest of the note to Series
C Convertible Preferred Stock. See Exhibit 10.4.
On January 21, 1999, the Company issued a $200,000 convertible
preferred note to OPLI. Interest on the principal is accrued at a rate
of 10% per annum. OPLI has the right to convert all or a portion of the
outstanding principal amount and accrued interest of the note to Series
C Convertible Preferred Stock. See exhibit 10.5.
On February 2, 1999, the Company issued a $100,000 convertible
preferred note to OPLI. Interest on the principal is accrued at a rate
of 10% per annum. OPLI has the right to convert all or a portion of the
outstanding principal amount and accrued interest of the note to Series
C Convertible Preferred Stock. See Exhibit 10.6.
On February 3, 1999, the Company issued a $186,000 convertible
preferred note to OPLI. Interest on the principal is accrued at a rate
of 10% per annum. OPLI has the right to convert all or a portion of the
outstanding principal amount and accrued interest of the note to Series
C Convertible Preferred Stock. See Exhibit 10.7.
On February 5, 1999, the Company issued a $100,000 convertible
preferred note to OPLI. Interest on the principal is accrued at a rate
of 10% per annum. OPLI has the right to convert all or a portion of the
outstanding principal amount and accrued interest of the note to Series
C Convertible Preferred Stock. See Exhibit 10.8.
On February 8, 1999, the Company issued a $100,000 convertible
preferred note to OPLI. Interest on the principal is accrued at a rate
of 10% per annum. OPLI has the right to convert all or a portion of the
outstanding principal amount and accrued interest of the note to Series
C Convertible Preferred Stock. See Exhibit 10.9.
On February 11, 1999, the Company issued a $433,326.40 convertible
preferred note to OPLI. Interest on the principal is accrued at a rate
of 10% per annum. OPLI has the right to convert all or a portion of the
outstanding principal amount and accrued interest of the note to Series
C Convertible Preferred Stock. See Exhibit 10.10.
In November, the Company's South Korean subsidiary entered into a one-
year agreement with Hana Bank to provide a Letter of Credit facility up
to $2.5 million. The line with Hana consists of $2.0 million for sight
letters of credit and $500,000 for usage letters of credit. In December
the Company's South Korean subsidiary entered into a one-year agreement
with Hanvit Bank to provide a Letter of Credit facility of $3.0 million
(sight letter of credit only). The Letter of Credit facility with
Hanvit Bank requires compensating balances of $500,000. These Letter of
Credit facilities allow the subsidiary to issue letters of credit to
suppliers to obtain delivery of key components for the production of
DVD-ROM drives. Under the terms of the agreement, the Letters of Credit
must be repaid upon delivery of the components. See Exhibits 10.11 and
10.12.
In January 1999, the Company's South Korean subsidiary entered an
agreement with Hyundai Capital Services, Inc. on the sale and lease-
back of certain of the subsidiary's fixed assets. The purchase price
for these assets was 986,867,235 Won. The lease carries an interest
rate of 3% plus the Korean Corporate Bond rate (8.48%). See Exhibit
10.13.
The Company will need to generate additional liquidity to fund any
significant future increase in revenues. The Company is actively
seeking additional financing to meet those needs. Management's plan to
meet these requirements is to raise additional funds from new and
existing investors, further reduce its operating costs, and generate
higher revenues from product sales. There can be no assurance that the
Company will obtain additional financing or product revenue necessary
to expand operations.
The Company's goal is to bring to market higher-margin products based
on the Company's DVD intellectual property portfolio, such as the DVD-
ROM, DVD player, DVD video engine, and DVD intelligent loader product
lines, and to provide adequate technical and marketing support for
currently marketed products. In addition, the Company intends to
convert its commercial Video CD ("video engine") product lines to DVD-
based product lines. To meet the Company's objectives, management plans
to streamline operations and eliminate lower-margin product lines or
other operations that are not essential to the Company's primary
products and markets. As part of this plan the Company has discontinued
the production of consumer Video CD players in China and, effective in
late September, the Company began the closure of its Panyu, China
facility. The Company had closed its offices in Tokyo, Japan, Panyu,
China and its New Media division in Atlanta, GA by December 31, 1998.
The Company will use its best efforts to license or sell the New Media
insertion product.
Note 2- Net Loss Per Share
In 1997 the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share ("FAS 128"). FAS 128 replaced the calculation
of primary and fully diluted net income (loss) per share with basic and
diluted net income (loss) per share. Unlike primary net income (loss)
per share, basic net income (loss) per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted net
income (loss) per share is very similar to the previously reported net
loss per share. Net loss per share amounts for all periods have been presented
and, where appropriate, restated to conform to the FAS 128 requirements.
Basic net loss per share is computed using the weighted average number
of common shares outstanding during the periods. Diluted net loss per
share is computed using the weighted average number of common and
potentially dilutive common shares during the periods, except those
that are anti-dilutive. Basic and diluted net loss per share is
calculated as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------
1998 1997
------------------
<S> <C> <C>
Net loss............................. ($3,705) ($4,816)
==================
Weighted average common shares
outstanding(1)..................... 16,869 12,355
------------------
Shares used in computing Basic and Diluted
net loss per share................. 16,869 12,355
==================
Basic and Diluted net loss per share.. ($0.22) ($0.39)
==================
</TABLE>
__________________
(1) Does not include 8,287,850 and 8,460,022 shares of escrow common
stock for the nine months ended December 31, 1998 and 1997,
respectively.
For three months ended December 31, 1998 and 1997, respectively,
4,274,187 and 4,003,695 options and 18,450 and 18,450 of warrants were
excluded from the calculation of diluted loss per share because their
effect would have been anti-dilutive.
Note 3 - Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," as of the first
quarter of fiscal year ended March 31, 1999 ("Fiscal 1999"). SFAS No. 130
establishes new rules for the reporting and display of comprehensive income
and its components, however it has no impact on the Company's net loss or
stockholders' equity.
The components of comprehensive income, net of tax, are as follows(in
thousands):
<TABLE>
<CAPTION>
Three months ended
December 31,
------------------
1998 1997
------------------
<S> <C> <C>
Net loss............................... ($3,705) ($4,575)
Cumulative foreign currency
translation adjustments............ (66) (90)
Deferred Compensation................ (65) (83)
------------------
Comprehensive loss................. ($3,836) ($4,748)
========= =========
</TABLE>
Accumulated other comprehensive loss presented on the accompanying
consolidated condensed balance sheets consists of the cumulative foreign
currency translation adjustments and deferred compensation.
Note 3 - Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30
1998
------------
<S> <C>
Inventories:
Raw materials $3,364
Work in process 783
Finished goods 1,951
------------
$6,098
============
</TABLE>
Note 4 - Other Related Party Transactions
The Company has an outstanding receivable balance of $2.9 million as of
December 31, 1998 with its former joint venture partner in the Peoples
Republic of China ("China"). The Company, on behalf of the Panyu Joint
Venture, retained a local CPA firm in China which performed an
investigative audit in regard to certain transactions with its former
joint venture partner and retained a Chinese Counsel to provide advice
on how to recover payment from the outstanding balance and is currently
investigating all available legal remedies. The balance, originally
reserved on March 31, 1998 remained fully reserved at December 31,
1998, as there can be no assurance that any amounts will be recovered
from its former joint venture partner.
At December 31, 1998, the Company had an outstanding account receivable
in the amount of approximately $0.54 million from Anhui Wanyan
Electronic Systems Co., Ltd. ("Wyan"), a related party located in
China, which was fully reserved. The Company owns less than 20% of
Wyan's equity.
Note 5 - Recent Accounting Pronouncements
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to
as derivatives) and for hedging activities. SFAS 133 will be effective for
the Company at the beginning of the June 2000 quarter for both annual and
interim reporting periods. The Company is evaluating the potential impact of
this accounting pronouncement on required disclosures and accounting practice.
Note 6 - Restricted Cash
As of December 31, 1998, the Company has approximately $750,900 of cash
reserved for letters of credit on inventory purchases in Korea and $500,000
offseting balance for the credit facility with Hanvit Bank.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This document contains forward-looking statements within the meaning of
the "safe-harbor" provisions of the Private Securities Litigation Act
of 1995 that involve risks and uncertainties, including, without
limitation, statements with respect to the Company's strategy, proposed
sales of the Company's products, markets, and the development of the
Company's products. The Company's actual results may differ materially
from those described in these forward-looking statements due to a
number of factors, including, but not limited to, the uncertainty of
market acceptance of DVD-ROM, DVD Intelligent Loaders, DVD Players,
Video CD players and other Company products, planned growth of the
Company's operations, dependence on a limited number of suppliers of
certain components used in the Company's operations, risks associated
with rapid technological change and obsolescence and product
development, conducting business in foreign countries, such as China
and South Korea, and the competitive market for the Company's products,
and other factors described in Exhibit 99.1 to the Form 10-KSB, or in
other documents the Company files from time-to-time with the Securities
and Exchange Commission. The following discussion should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto included herein the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1998 and the condensed consolidated
financial statements and notes thereto included herein for the three
months ended December 31, 1998.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED
TO THE THREE MONTHS ENDED DECEMBER 31, 1997
The following table sets forth for the periods indicated certain income
and expense items expressed as a percentage of the Company's total
revenues for the three months ended December 31, 1998 compared to the
three months ended December 31, 1997. See Consolidated Statements of
Operations.
<TABLE>
<CAPTION>
Percent of Revenue
------------------
Three Months Ended
December 31,
------------------
1998 1997
------------------
<S> <C> <C>
Revenues 100.0% 100.0%
Gross margin 11.4% 21.4%
Research and development 26.6% 31.7%
Sales and marketing 12.5% 26.0%
General and administration 29.4% 52.2%
Acquired in process R & D 0.0% 0.0%
Operating loss -57.1% -88.5%
Net loss -71.5% -85.2%
</TABLE>
<TABLE>
<CAPTION>
Three months ended
December 31,
------------------ %
1998 1997 Change
---------------------------
<S> <C> <C> <C>
Consolidated Revenue $5,182 $5,371 -3.5%
</TABLE>
Total revenue decreased $0.2 million for the three months ended
December 31, 1998 compared with the three months ended December 31,
1997 as a result of decreasing component revenue. The Company has discontinued
component sales because those sales usually had negative gross margins.
Product revenue increased slightly by $0.2 million for the three months
ended December 31, 1998 compared with the three months ended December
31, 1997. Product revenue for the three months ended December 31, 1998
included DVD-ROM drives, video engine 100, 150, 200 and 300, and
computer peripheral products. The Company recognized revenue from the
sale of digital ad insertion products and consumer video CD players
from existing inventories. The latter two product lines have been
discontinued by the Company. For the three months ended December 31,
1997, revenue was derived from the sale of video CD players and related
component kits, video engine 100, computer peripherals, and digital ad
insertion products.
For the three months ended December 31, 1998 development and services
revenue was negligible compared to $0.64 million development and
service revenue for the three month ended December 31, 1997.
There was $0.19 million component revenue in the three months ended
December 31, 1998 compared to no significant component revenue in the
three months ended December 31, 1997. Component revenue was derived
primarily from the liquidation of video CD inventory in Panyu. It is
anticipated that component revenue will continue to be insignificant in
absolute dollars and as percentage of total revenue in the future.
<TABLE>
<CAPTION>
Three months ended
December 31,
------------------ %
1998 1997 Change
---------------------------
<S> <C> <C> <C>
Gross margin $592 $1,148 -48.4%
as a percentage of revenue 11.4% 21.4%
</TABLE>
The decrease in the gross margin as a percentage of total revenue for
the three month period ended December 31, 1998 compared to the same
period in the last fiscal year was due to the liquidation of Consumer Video
CD and ad insertion inventories, which have substantial negative gross margins.
<TABLE>
<CAPTION>
Three months ended
December 31,
------------------ %
1998 1997 Change
---------------------------
<S> <C> <C> <C>
Research and Development $1,378 $1,702 -19.0%
as a percentage of revenue 26.6% 31.7%
</TABLE>
Research and development expenses consist primarily of personnel and
equipment prototype costs required for the Company's product
development efforts. Research and development expenses decreased
slightly during the three months ended December 31, 1998 compared with
the same period in Fiscal year 1998, the Company expects that the research
and development expenses will increase as the Company devotes more
resources to next generation DVD products.
<TABLE>
<CAPTION>
Three months ended
December 31,
------------------ %
1998 1997 Change
---------------------------
<S> <C> <C> <C>
Sales and Marketing $650 $1,394 -53.4%
as a percentage of revenue 12.5% 26.0%
</TABLE>
Sales and marketing expenses consist primarily of personnel and
consulting costs involved in the selling process and in the marketing
of the Company's products, sales commissions, and expenses of trade
shows and advertising. Sales and marketing expenses decreased for the
three month period ending December 31, 1998 compared with the
same period in the previous fiscal year. As the Company continues its
marketing efforts, sales and marketing expenses in dollar terms are
expected to increase.
<TABLE>
<CAPTION>
Three months ended
December 31,
------------------ %
1998 1997 Change
---------------------------
<S> <C> <C> <C>
General and Administrative $1,525 $2,805 -45.6%
as a percentage of revenue 29.4% 52.2%
</TABLE>
General and administrative expenses consist of administrative salaries
and benefits, insurance, facility, legal, accounting, investor
relations and other business support costs. These expenses decreased
dramatically for the three-month period ending December 31, 1998 when
compared to the same period from the previous fiscal year. The decrease
was due to the Company's restructuring efforts. The Company expects that
general and administrative costs will increase in dollar terms to the
extent the Company continues to expand its DVD business.
<TABLE>
<CAPTION>
Three months ended
December 31,
------------------ %
1998 1997 Change
---------------------------
<S> <C> <C> <C>
Other income (expense) ($744) $178 -518.0%
as a percentage of revenue -14.4% 3.3%
</TABLE>
The decrease in other income for the three month period ended September 30,1998
resulted from lower interest income due to declining cash balances and
short-term investment.
Liquidity And Capital Resources
As a result of the Company's significant operating losses and the cost
of acquiring and funding recent acquisitions, the Company's working
capital has been substantially reduced. As of December 31, 1998, the
Company had negative working capital of $1 million and cash, restricted
cash and short-term investments of $2.7 million, compared to working
capital of $21.09 million and cash, restricted cash, and short-term
investments of $12.6 million at December 31, 1997. In October and
November, Oregon Power Lending Institution ("OPLI") purchased $2.0
million (the "First Tranche") of the Company's Prefered Stock, pursuant
to an Investment Agreement (the "Letter Agreement"). The Letter
Agreement calls for potential additional investments of up to $10
million. All issuances of the Preferred Stock to OPLI following the
First Tranche are subject to prior approval of a majority of the
Company's Shareholders. The Preferred Stock is convertible into the
Company's common stock at a conversion price of $0.47 per share. The
proceeds from OPLI's investments in the Company will be used as working
capital to support the sale of DVD-ROM drives and for general corporate
purposes. This amount may be insufficient if demand for DVD-ROM drives
exceeds management's expectations.
The Company is actively seeking additional investments and debt
financing to meet its liquidity needs. Management's plan in continuing
the Company's operations include raising additional funds from new and
existing investors and financial institutions, and continuing to reduce
its operating costs by closing non-performing businesses and divisions.
The Company's goal is to bring to market higher-margin products based
on the Company's engineering capabilities, including DVD-ROM drives,
DVD intelligent loaders, and DVD players. In addition, the Company
intends to convert its Video engine product lines to DVD-based product
lines. To meet the Company's objectives and to conserve resources, the
Company has closed its New Media division, the manufacturing operations
in Panyu and the Company's office in Japan, and the operations at some
of the Company's other locations are being streamlined. For the three
months ended December 31, the one-time costs associated with
streamlining the Company's operations had a negative impact on the
Company's income statement. The Company wrote down fixed assets from New Media
Division, which comprised most of the loss on disposal of fixed assets
shown on the cash flow statement.
Net cash used in operating activities was $9.8 million for the nine
months ended December 31, 1998 compared to $16.2 million for the nine
months ended December 31, 1997. Substantially all of the net cash used
in operating activities in the nine months ended December 31, 1998
represented the net loss of $12.9 million adjusted for non-cash charges
for depreciation and amortization of $0.9 million, loss on disposal of
fixed assets of $1 million and net cash used to fund an increase in restricted
cash of $0.75 million, and an increase in accounts payable of $3.8 million
Substantially all the net cash used in operating activities for the
nine months ended December 31, 1997 represented the net loss of $11 million
represented the net loss of $11 million adjusted by non-cash charges for
depreciation and amortization of $1.1 million and net cash used to
fund increases in accounts receivable of $5.1 million and inventories
of $1.9 million.
Net cash provided by investing activities was $0.98 million for the
nine months ended December 31, 1998 compared to $5.95 million used in
investing activities for the nine months ended December 31, 1997.
Substantially all of the cash provided by investing activities for the
nine months ended December 31, 1998 consisted of the sale of short-term
investments of $1 million which was offset by the acquisition of
property and equipment of $0.5 million. Net cash used for the nine months
ended December 31, 1997 was primarily for purchase of short-term
investments and the acquisition of the New Media division from Arris
Interactive.
Net cash provided by financing activities for the nine months ended
December 31, 1998 was $4.9 million from the proceeds of short-term
loans and an equity investment by OPLI. Net cash provided by financing
activities was minimal for the nine months ended December 31, 1997.
The above activities resulted in a decrease in cash and cash
equivalents of $4.0 million for the nine months ended December 31, 1998
compared to a decrease in cash and cash equivalents of $22 million for
the nine months ended December 31, 1997.
Year 2000
The Company is taking appropriate steps to ensure that its computer
systems will properly recognize date sensitive information when the
year changes to 2000 or "00". Systems that do not properly recognize
such information could generate erroneous data or cause a system to
fail. The Company is in the process of evaluating its computer systems
to identify those that could be affected by this issue.
Product Liability. While the Company believes that most of its
currently developed and actively marketed products are Year 2000
compliant for significantly all functionality, these products could
contain errors or defects related to the Year 2000. Versions of the
Company's products which are not the most currently released or which
are not currently being developed may not be Year 2000 compliant. The
Company sells some of its older product lines, which are not being
actively developed and updated, as such these products are not
necessarily Year 2000 compliant.
Corporate Systems. The Company will start an assessment of its
computer systems and software and will modify or replace portions of
its software so that its operating systems will function properly with
respect to dates in the Year 2000 and thereafter. The Company will
evaluate system interfaces with third-party systems, such as those of
key suppliers, distributors and financial institutions, for Year 2000
functionality. The Year 2000 project cost is not expected to be material.
The Company believes that, with modifications to existing
software and conversions to new software, the Year 2000 issue will not
pose significant operational problems for its computer systems. Most
of the Company's servers use the Windows NT operating system. Microsoft
Corporation has stated that Windows NT is Year 2000 compliant or
compliant with minor issues. The Company plans to upgrade or replace
its operating systems to this platform. However, if such modifications
and conversions are not made, or are not completed in a timely manner,
the Year 2000 issue could have a material adverse impact on the
operations of the Company. Additionally, the systems of other
companies with which the Company does business may not address any Year
2000 problems on a timely basis, which could have an adverse affect on
the Company's systems or business transactions. The area of highest
risk to the Company related to the Year 2000 issue is noncompliance by
key suppliers. However, based upon publicly available information, the
Company believes that key suppliers, such as Matsushita, are Year 2000
compliant.
As testing of Year 2000 functionality of the Company's systems
must occur in a simulated environment, the Company will not be able to
test full system Year 2000 interfaces and capabilities prior to Year
2000.
Part II. Other Information.
Except as listed below, all information required by items in Part II is
omitted because the items are inapplicable or the answer is negative.
Item 1. Legal Proceedings
The Company is a defendant in an action brought by Adventures in
Advertising in small claims division of the Municipal Court of
California, Santa Clara County Judicial District. The plaintiff is
seeking to recover $2930.63 in overdue invoices. The Company intends to
settle this debt prior to trial.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith or incorporated by reference:
10.3 Convertible Promissory Note of $1,000,000 payable to Oregon Power
Lending Institution dated November 12, 1998.
10.4 Convertible Promissory Note of $500,000 payable to Oregon Power
Lending Institution dated December 31, 1998.
10.5 Convertible Promissory Note of $200,000 payable to Oregon Power
Lending Institution dated January 21, 1999.
10.6 Convertible Promissory Note of $100,000 payable to Oregon Power
Lending Institution dated February 2, 1999.
10.7 Convertible Promissory Note of $186,000 payable to Oregon Power
Lending Institution dated February 3, 1999.
10.8 Convertible Promissory Note of $100,000 payable to Oregon Power
Lending Institution dated February 5, 1999.
10.9 Convertible Promissory Note of $100,000 payable to Oregon Power
Lending Institution dated February 8, 1999.
10.10 Convertible Promissory Note of $433,326.40 payable to Oregon Power
Lending Institution dated February 11, 1999.
10.11 Agreement with Hana Bank dated November 16, 1998 for a $2,500,000
credit facility. (To be translated)
10.12 Agreement with Hanvit Bank dated December 17, 1998 for a
$3,000,000 credit facility. (To be translated)
10.13 Lease agreement with Hyundai Capital Services dated January 28, 1999
27. Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K, dated November 3, 1998, announcing the investment in
the Company by Oregon Power Lending Institution.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Digital Video Systems, Inc.
----------------------------------
(Registrant)
Date: February 22, 1999 /s/ Edward M. Miller, Jr.
- --------------------------- ------------------------------------
Edward M. Miller, Jr.
President and
Chief Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number
10.3 Convertible Promissory Note of $1,000,000 payable to Oregon Power
Lending Institution dated November 12, 1998.
10.4 Convertible Promissory Note of $500,000 payable to Oregon Power
Lending Institution dated December 31, 1998.
10.5 Convertible Promissory Note of $200,000 payable to Oregon Power
Lending Institution dated January 21, 1999.
10.6 Convertible Promissory Note of $100,000 payable to Oregon Power
Lending Institution dated February 2, 1999.
10.7 Convertible Promissory Note of $186,000 payable to Oregon Power
Lending Institution dated February 3, 1999.
10.8 Convertible Promissory Note of $100,000 payable to Oregon Power
Lending Institution dated February 5, 1999.
10.9 Convertible Promissory Note of $100,000 payable to Oregon Power
Lending Institution dated February 8, 1999.
10.10 Convertible Promissory Note of $433,326.40 payable to Oregon Power
Lending Institution dated February 11, 1999.
10.11 Agreement with Hana Bank dated November 16, 1998 for a $2,500,000
credit facility. (To be translated)
10.12 Agreement with Hanvit Bank dated December 17, 1998 for a
$3,000,000 credit facility. (To be translated)
10.13 Lease agreement with Hyundai Capital Services dated January 28, 1999
Exhibit 10.3
CONVERTIBLE PROMISSORY NOTE
DIGITAL VIDEO SYSTEMS, INC.
$1,000,000.00 Los Gatos, California
November 12, 1998
FOR VALUE RECEIVED, DIGITAL VIDEO SYSTEMS, INC., a Delaware
corporation ("Maker"), promises to pay to the order of Oregon Power
Lending Institution ("Payee"), or as directed by Payee, on demand, in
the manner and at the place hereinafter provided, the principal amount
of One Million Dollars ($1,000,000.00), together with interest thereon,
as hereafter described.
Maker also promises to pay interest on the outstanding principal
amount hereof from the date hereof at a rate of 10.0% per annum. All
computations of interest shall be made on the basis of a 360-day year
consisting of twelve thirty-day months. In no event shall the interest
payable on this Note exceed the maximum rate of interest permitted to
be charged under applicable law.
1. Payments. All payments of principal and interest in
respect of this Note shall be made at a location within, and in lawful
money of the United States of America by corporate check at 327 Castro
Street, Suite 2, Mountain View, California 94041 or at such other place
and in such other manner as shall be designated by Payee in a notice to
Maker.
2. Prepayments. This Note may be prepaid in whole or in part
at any time without penalty. Each prepayment made pursuant to this
Note shall be credited first on interest then due and the remainder on
the principal; and interest shall thereupon cease to accrue upon the
principal so credited. Upon prepayment of the entire principal amount
hereof and all accrued but unpaid interest thereon, all obligations of
Maker hereunder shall terminate, this Note shall be deemed canceled and
all interest shall cease to accrue. The prepayment of this Note in no
way impacts the terms of the Investment Agreement.
3. Conversion Rights. Payee shall have the right, at any
time, to convert all or any portion of the outstanding principal amount
under this Note, together with all accrued and unpaid interest thereon,
into fully paid and non-assessable shares of Maker's Series C
Convertible Preferred Stock at the Conversion Price. The issuance of
any such Series C Convertible Preferred Stock to Payee hereunder shall
be in lieu of an equivalent amount of Payee's Second Tranche investment
pursuant to Paragraph 2 of the Investment Agreement.
4. Exercise of Conversion Rights. Payee may exercise its
rights to convert all or any portion of the outstanding principal
amount under this Note, together with all accrued and unpaid interest
thereon, into shares of Series C Convertible Preferred Stock by
surrendering this Note to Maker, at its principal office or such other
office or agency maintained by Maker for that purpose, accompanied by a
written notice of election to convert outstanding amount under this
Note, or a specified portion of such amount (as provided in the
notice), executed by Payee, which notice shall specify a Conversion
Date. Notwithstanding the foregoing, this Note shall not be
convertible into Series C Convertible Preferred Stock to the extent
that upon such conversion, Payee will become the record owner (together
with Preferred Stock or Common Stock already owned by it) of Series C
Convertible Preferred Stock convertible in the aggregate into more than
20% of the Common Stock of Maker, until such time as the issuance of
such Series C Convertible Preferred Stock issuable upon such a
conversion is approved by the requisite number of shareholders of Maker
as required under Nasdaq corporate governance rules.
5. Conversion. As promptly as practicable after the surrender
as herein provided of this Note for conversion and delivery of the
written notice of election, Maker shall deliver or cause to be
delivered certificates representing the number of fully paid and non-
assessable shares of Series C Convertible Preferred Stock into which
the outstanding principal amount under this Note or such portion hereof
as may be subject to the written notice of election, together with all
accrued and unpaid interest thereon, may be converted in accordance
with the provisions hereof.
6. Number of Shares; Conversion Calculation. The number of
shares of Series C Convertible Preferred Stock shall be determined by
dividing the amount to be converted by the Conversion Price on the
applicable Conversion Date, calculated to the nearest share of Series C
Convertible Preferred Stock. For the purpose of such calculation,
fractions of less than 1/2 shall be disregarded and fractions of 1/2 or
greater shall be rounded up to the next full share. If only a portion
of the outstanding principal amount under the Note is used in such
conversion, Maker shall execute and deliver to or upon the order of
Payee, a new note evidencing the unused portion of the outstanding amount.
7. Conversion Record Date. Any conversion of the outstanding
principal and interest under this Note or any portion hereof shall be
deemed to have been made at the close of the Business Day on or
following the Conversion Date specified in the applicable written
notice of election, so that the rights of Payee shall cease at such
time and the person or persons entitled to receive any of the shares of
Series C Convertible Preferred Stock upon conversion shall be treated
for all purposes as having become the record holder or holders of such
shares of Series C Convertible Preferred Stock at such time.
8. Events of Default. The occurrence of the following shall
constitute an "Event of Default":
(a) failure of Maker to make any principal or interest payment
under this Note when due on written demand; or
(b) Maker shall file any petition or action for relief under
any bankruptcy, insolvency, reorganization, moratorium, creditor
composition law, or any other law for the relief of or relating to
debtors, or an involuntary petition shall be filed under the Bankruptcy
Code against Maker and such proceeding or case initiated by such
petition shall remain undismissed or unstayed and in effect for a
period of 60 days or more, or a custodian, receiver, trustee, assignee
for the benefit of creditors, or other similar official, shall be
appointed to take possession, custody or control of the properties of Maker.
9. Remedies. Upon the occurrence and during the continuance
of any Event of Default, Payee may (i) by notice to Maker, declare the
outstanding principal amount of this Note, together with accrued
interest thereon, to be due and payable, and the outstanding principal
amount of this Note, together with such interest, shall thereupon
immediately become due and payable without presentment, further notice,
protest or other requirements of any kind (all of which are hereby
expressly waived by Maker) or (ii) chose, without waiving its right of
acceleration, not to declare the outstanding principal amount of this
Note, together with accrued interest thereon, to be due and payable.
If this Note is not paid in accordance with the terms hereof, Maker
agrees to pay all costs and expenses of collection when incurred,
including, without limitation, reasonable attorneys' fees and expenses
and court costs.
10. Definitions. The following terms in this Note shall have
the following meanings (and any of such terms may be used in the
singular or the plural):
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy" as now and hereinafter in effect, or any
successor thereto.
"Business Day" means any day other than a Saturday, Sunday or
legal holiday under the laws of the State of California or any day on
which banking institutions located in such state are authorized or
required by law or other governmental action to close.
"Common Stock" means the Common Stock of Maker.
"Conversion Date" means the date specified in any written notice
of election to convert delivered by Payee, which date shall be no
earlier than the date of actual delivery of such notice.
"Conversion Price" means One Thousand Dollars ($1,000.00) per
share of Series C Convertible Preferred Stock.
"Investment Agreement" means a certain letter agreement dated as
of October 15, 1998 between Maker and Payee pertaining to Payee's
investment in securities of Maker.
"Preferred Stock" means the convertible Series C Convertible
Preferred Stock of Maker.
11. Notices. All notices, requests, demands, and other
communications under this Note shall be in writing and shall be deemed
to have been delivered when delivered personally or mailed in a general
or branch post office and enclosed in a registered or certified post-
paid envelope or when sent by overnight courier, delivered to a
telegraph company or when scanned graphically or otherwise by
telegraphic communications equipment of the sending party and, in such
case, addressed to the appropriate addresses stated below or to such
other changed addresses the parties may have fixed by notice as
provided herein:
If to Maker: Digital Video Systems, Inc.
160 Knowles Drive
Los Gatos, California 95032
Attn: Chief Executive Officer
Phone: (408) 625-8200
Fax: (408) 871-8220
And: Orrick, Herrington & Sutcliffe LLP
777 S. Figueroa Street, Suite 3200
Los Angeles, California 90017-5832
Attn: Blase P. Dillingham, Esq.
Phone: (213) 629-2020
Fax: (213) 612-2499
If to Payee: Oregon Power Lending Institution
327 Castro Street, Suite 2
Mountain View, California 94041
Attn: Donald Baker
Phone: (650) 962-8991
Fax: (650) 822-2907
12. Governing Law. This Note and the rights and obligation of
Maker and Payee hereunder shall be governed by, and construed in
accordance with, the internal laws of the State of California, without
regard to principals of conflicts of law.
13. Effect On Successors In Interest. This Note shall be
binding upon and shall inure to the benefit of Maker and Payee and
their respective successors and assigns.
IN WITNESS THEREOF, Maker has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and at the
place first written above.
DIGITAL VIDEO SYSTEMS, INC.
By: /s/ Edward M. Miller, Jr.
______________________________
Name: Edward M. Miller, Jr.
Title: President &
Chief Executive Officer
Exhibit 10.4
CONVERTIBLE PROMISSORY NOTE
DIGITAL VIDEO SYSTEMS, INC.
$500,000.00 Mountain View, California
December 31, 1998
FOR VALUE RECEIVED, DIGITAL VIDEO SYSTEMS, INC., a Delaware
corporation ("Maker"), promises to pay to the order of Oregon Power
Lending Institution ("Payee"), or as directed by Payee, on demand, in
the manner and at the place hereinafter provided, the principal amount
of Five Hundred Thousand Dollars ($500,000.00), together with interest
thereon, as hereafter described.
Maker also promises to pay interest on the outstanding principal
amount hereof from the date hereof at a rate of 10.0% per annum. All
computations of interest shall be made on the basis of a 360-day year
consisting of twelve thirty-day months. In no event shall the interest
payable on this Note exceed the maximum rate of interest permitted to
be charged under applicable law.
1. Payments. All payments of principal and interest in
respect of this Note shall be made at a location within, and in lawful
money of the United States of America by corporate check at 327 Castro
Street, Suite 2, Mountain View, California 94041 or at such other place
and in such other manner as shall be designated by Payee in a notice to
Maker.
2. Prepayments. This Note may be prepaid in whole or in part
at any time without penalty. Each prepayment made pursuant to this
Note shall be credited first on interest then due and the remainder on
the principal; and interest shall thereupon cease to accrue upon the
principal so credited. Upon prepayment of the entire principal amount
hereof and all accrued but unpaid interest thereon, all obligations of
Maker hereunder shall terminate, this Note shall be deemed canceled and
all interest shall cease to accrue. The prepayment of this Note in no
way impacts the terms of the Investment Agreement.
3. Conversion Rights. Payee shall have the right, at any
time, to convert all or any portion of the outstanding principal amount
under this Note, together with all accrued and unpaid interest thereon,
into fully paid and non-assessable shares of Maker's Series C
Convertible Preferred Stock at the Conversion Price. The issuance of
any such Series C Convertible Preferred Stock to Payee hereunder shall
be in lieu of an equivalent amount of Payee's Second Tranche investment
pursuant to Paragraph 2 of the Investment Agreement.
4. Exercise of Conversion Rights. Payee may exercise its
rights to convert all or any portion of the outstanding principal
amount under this Note, together with all accrued and unpaid interest
thereon, into shares of Series C Convertible Preferred Stock by
surrendering this Note to Maker, at its principal office or such other
office or agency maintained by Maker for that purpose, accompanied by a
written notice of election to convert outstanding amount under this
Note, or a specified portion of such amount (as provided in the
notice), executed by Payee, which notice shall specify a Conversion
Date. Notwithstanding the foregoing, this Note shall not be
convertible into Series C Convertible Preferred Stock to the extent
that upon such conversion, Payee will become the record owner (together
with Preferred Stock or Common Stock already owned by it) of Series C
Convertible Preferred Stock convertible in the aggregate into more than
20% of the Common Stock of Maker, until such time as the issuance of
such Series C Convertible Preferred Stock issuable upon such a
conversion is approved by the requisite number of shareholders of Maker
as required under Nasdaq corporate governance rules.
5. Conversion. As promptly as practicable after the surrender
as herein provided of this Note for conversion and delivery of the
written notice of election, Maker shall deliver or cause to be
delivered certificates representing the number of fully paid and non-
assessable shares of Series C Convertible Preferred Stock into which
the outstanding principal amount under this Note or such portion hereof
as may be subject to the written notice of election, together with all
accrued and unpaid interest thereon, may be converted in accordance
with the provisions hereof.
6. Number of Shares; Conversion Calculation. The number of
shares of Series C Convertible Preferred Stock shall be determined by
dividing the amount to be converted by the Conversion Price on the
applicable Conversion Date, calculated to the nearest share of Series C
Convertible Preferred Stock. For the purpose of such calculation,
fractions of less than 1/2 shall be disregarded and fractions of 1/2 or
greater shall be rounded up to the next full share. If only a portion
of the outstanding principal amount under the Note is used in such
conversion, Maker shall execute and deliver to or upon the order of
Payee, a new note evidencing the unused portion of the outstanding
amount.
7. Conversion Record Date. Any conversion of the outstanding
principal and interest under this Note or any portion hereof shall be
deemed to have been made at the close of the Business Day on or
following the Conversion Date specified in the applicable written
notice of election, so that the rights of Payee shall cease at such
time and the person or persons entitled to receive any of the shares of
Series C Convertible Preferred Stock upon conversion shall be treated
for all purposes as having become the record holder or holders of such
shares of Series C Convertible Preferred Stock at such time.
8. Events of Default. The occurrence of the following shall
constitute an "Event of Default":
(a) failure of Maker to make any principal or interest payment
under this Note when due on written demand; or
(b) Maker shall file any petition or action for relief under
any bankruptcy, insolvency, reorganization, moratorium, creditor
composition law, or any other law for the relief of or relating to
debtors, or an involuntary petition shall be filed under the Bankruptcy
Code against Maker and such proceeding or case initiated by such
petition shall remain undismissed or unstayed and in effect for a
period of 60 days or more, or a custodian, receiver, trustee, assignee
for the benefit of creditors, or other similar official, shall be
appointed to take possession, custody or control of the properties of
Maker.
9. Remedies. Upon the occurrence and during the continuance
of any Event of Default, Payee may (i) by notice to Maker, declare the
outstanding principal amount of this Note, together with accrued
interest thereon, to be due and payable, and the outstanding principal
amount of this Note, together with such interest, shall thereupon
immediately become due and payable without presentment, further notice,
protest or other requirements of any kind (all of which are hereby
expressly waived by Maker) or (ii) chose, without waiving its right of
acceleration, not to declare the outstanding principal amount of this
Note, together with accrued interest thereon, to be due and payable.
If this Note is not paid in accordance with the terms hereof, Maker
agrees to pay all costs and expenses of collection when incurred,
including, without limitation, reasonable attorneys' fees and expenses
and court costs.
10. Definitions. The following terms in this Note shall have
the following meanings (and any of such terms may be used in the
singular or the plural):
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy" as now and hereinafter in effect, or any
successor thereto.
"Business Day" means any day other than a Saturday, Sunday or
legal holiday under the laws of the State of California or any day on
which banking institutions located in such state are authorized or
required by law or other governmental action to close.
"Common Stock" means the Common Stock of Maker.
"Conversion Date" means the date specified in any written notice
of election to convert delivered by Payee, which date shall be no
earlier than the date of actual delivery of such notice.
"Conversion Price" means One Thousand Dollars ($1,000.00) per
share of Series C Convertible Preferred Stock.
"Investment Agreement" means a certain letter agreement dated as
of October 15, 1998 between Maker and Payee pertaining to Payee's
investment in securities of Maker.
"Preferred Stock" means the convertible Series C Convertible
Preferred Stock of Maker.
11. Notices. All notices, requests, demands, and other
communications under this Note shall be in writing and shall be deemed
to have been delivered when delivered personally or mailed in a general
or branch post office and enclosed in a registered or certified post-
paid envelope or when sent by overnight courier, delivered to a
telegraph company or when scanned graphically or otherwise by
telegraphic communications equipment of the sending party and, in such
case, addressed to the appropriate addresses stated below or to such
other changed addresses the parties may have fixed by notice as
provided herein:
If to Maker: Digital Video Systems, Inc.
280 Hope Street
Mountain View; California 94041
Attn: Chief Executive Officer
Phone: (650) 625-8200
Fax: (650) 564-9702
And: Orrick, Herrington & Sutcliffe LLP
777 S. Figueroa Street, Suite 3200
Los Angeles, California 90017-5832
Attn: Blase P. Dillingham, Esq.
Phone: (213) 629-2020
Fax: (213) 612-2499
If to Payee: Oregon Power Lending Institution
327 Castro Street, Suite 2
Mountain View, California 94041
Attn: Donald Baker
Phone: (650) 962-8991
Fax: (650) 822-2907
12. Governing Law. This Note and the rights and obligation of
Maker and Payee hereunder shall be governed by, and construed in
accordance with, the internal laws of the State of California, without
regard to principals of conflicts of law.
13. Effect On Successors In Interest. This Note shall be
binding upon and shall inure to the benefit of Maker and Payee and
their respective successors and assigns.
IN WITNESS THEREOF, Maker has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and at the
place first written above.
DIGITAL VIDEO SYSTEMS, INC.
By: /s/ John W. Smuda, Jr.
______________________________
Name: John W. Smuda, Jr.
Title: Chief Financial Officer
Exhibit 10.5
CONVERTIBLE PROMISSORY NOTE
DIGITAL VIDEO SYSTEMS, INC.
$200,000.00 Mountain View, California
January 21, 1999
FOR VALUE RECEIVED, DIGITAL VIDEO SYSTEMS, INC., a Delaware
corporation ("Maker"), promises to pay to the order of Oregon Power
Lending Institution ("Payee"), or as directed by Payee, on demand, in
the manner and at the place hereinafter provided, the principal amount
of Two Hundred Thousand Dollars ($200,000.00), together with interest
thereon, as hereafter described.
Maker also promises to pay interest on the outstanding principal
amount hereof from the date hereof at a rate of 10.0% per annum. All
computations of interest shall be made on the basis of a 360-day year
consisting of twelve thirty-day months. In no event shall the interest
payable on this Note exceed the maximum rate of interest permitted to
be charged under applicable law.
1. Payments. All payments of principal and interest in
respect of this Note shall be made at a location within, and in lawful
money of the United States of America by corporate check at 327 Castro
Street, Suite 2, Mountain View, California 94041 or at such other place
and in such other manner as shall be designated by Payee in a notice to
Maker.
2. Prepayments. This Note may be prepaid in whole or in part
at any time without penalty. Each prepayment made pursuant to this
Note shall be credited first on interest then due and the remainder on
the principal; and interest shall thereupon cease to accrue upon the
principal so credited. Upon prepayment of the entire principal amount
hereof and all accrued but unpaid interest thereon, all obligations of
Maker hereunder shall terminate, this Note shall be deemed canceled and
all interest shall cease to accrue. The prepayment of this Note in no
way impacts the terms of the Investment Agreement.
3. Conversion Rights. Payee shall have the right, at any
time, to convert all or any portion of the outstanding principal amount
under this Note, together with all accrued and unpaid interest thereon,
into fully paid and non-assessable shares of Maker's Series C
Convertible Preferred Stock at the Conversion Price. The issuance of
any such Series C Convertible Preferred Stock to Payee hereunder shall
be in lieu of an equivalent amount of Payee's Second Tranche investment
pursuant to Paragraph 2 of the Investment Agreement.
4. Exercise of Conversion Rights. Payee may exercise its
rights to convert all or any portion of the outstanding principal
amount under this Note, together with all accrued and unpaid interest
thereon, into shares of Series C Convertible Preferred Stock by
surrendering this Note to Maker, at its principal office or such other
office or agency maintained by Maker for that purpose, accompanied by a
written notice of election to convert outstanding amount under this
Note, or a specified portion of such amount (as provided in the
notice), executed by Payee, which notice shall specify a Conversion
Date. Notwithstanding the foregoing, this Note shall not be
convertible into Series C Convertible Preferred Stock to the extent
that upon such conversion, Payee will become the record owner (together
with Preferred Stock or Common Stock already owned by it) of Series C
Convertible Preferred Stock convertible in the aggregate into more than
20% of the Common Stock of Maker, until such time as the issuance of
such Series C Convertible Preferred Stock issuable upon such a
conversion is approved by the requisite number of shareholders of Maker
as required under Nasdaq corporate governance rules.
5. Conversion. As promptly as practicable after the surrender
as herein provided of this Note for conversion and delivery of the
written notice of election, Maker shall deliver or cause to be
delivered certificates representing the number of fully paid and non-
assessable shares of Series C Convertible Preferred Stock into which
the outstanding principal amount under this Note or such portion hereof
as may be subject to the written notice of election, together with all
accrued and unpaid interest thereon, may be converted in accordance
with the provisions hereof.
6. Number of Shares; Conversion Calculation. The number of
shares of Series C Convertible Preferred Stock shall be determined by
dividing the amount to be converted by the Conversion Price on the
applicable Conversion Date, calculated to the nearest share of Series C
Convertible Preferred Stock. For the purpose of such calculation,
fractions of less than 1/2 shall be disregarded and fractions of 1/2 or
greater shall be rounded up to the next full share. If only a portion
of the outstanding principal amount under the Note is used in such
conversion, Maker shall execute and deliver to or upon the order of
Payee, a new note evidencing the unused portion of the outstanding
amount.
7. Conversion Record Date. Any conversion of the outstanding
principal and interest under this Note or any portion hereof shall be
deemed to have been made at the close of the Business Day on or
following the Conversion Date specified in the applicable written
notice of election, so that the rights of Payee shall cease at such
time and the person or persons entitled to receive any of the shares of
Series C Convertible Preferred Stock upon conversion shall be treated
for all purposes as having become the record holder or holders of such
shares of Series C Convertible Preferred Stock at such time.
8. Events of Default. The occurrence of the following shall
constitute an "Event of Default":
(a) failure of Maker to make any principal or interest payment
under this Note when due on written demand; or
(b) Maker shall file any petition or action for relief under
any bankruptcy, insolvency, reorganization, moratorium, creditor
composition law, or any other law for the relief of or relating to
debtors, or an involuntary petition shall be filed under the Bankruptcy
Code against Maker and such proceeding or case initiated by such
petition shall remain undismissed or unstayed and in effect for a
period of 60 days or more, or a custodian, receiver, trustee, assignee
for the benefit of creditors, or other similar official, shall be
appointed to take possession, custody or control of the properties of
Maker.
9. Remedies. Upon the occurrence and during the continuance
of any Event of Default, Payee may (i) by notice to Maker, declare the
outstanding principal amount of this Note, together with accrued
interest thereon, to be due and payable, and the outstanding principal
amount of this Note, together with such interest, shall thereupon
immediately become due and payable without presentment, further notice,
protest or other requirements of any kind (all of which are hereby
expressly waived by Maker) or (ii) chose, without waiving its right of
acceleration, not to declare the outstanding principal amount of this
Note, together with accrued interest thereon, to be due and payable.
If this Note is not paid in accordance with the terms hereof, Maker
agrees to pay all costs and expenses of collection when incurred,
including, without limitation, reasonable attorneys' fees and expenses
and court costs.
10. Definitions. The following terms in this Note shall have
the following meanings (and any of such terms may be used in the
singular or the plural):
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy" as now and hereinafter in effect, or any
successor thereto.
"Business Day" means any day other than a Saturday, Sunday or
legal holiday under the laws of the State of California or any day on
which banking institutions located in such state are authorized or
required by law or other governmental action to close.
"Common Stock" means the Common Stock of Maker.
"Conversion Date" means the date specified in any written notice
of election to convert delivered by Payee, which date shall be no
earlier than the date of actual delivery of such notice.
"Conversion Price" means One Thousand Dollars ($1,000.00) per
share of Series C Convertible Preferred Stock.
"Investment Agreement" means a certain letter agreement dated as
of October 15, 1998 between Maker and Payee pertaining to Payee's
investment in securities of Maker.
"Preferred Stock" means the convertible Series C Convertible
Preferred Stock of Maker.
11. Notices. All notices, requests, demands, and other
communications under this Note shall be in writing and shall be deemed
to have been delivered when delivered personally or mailed in a general
or branch post office and enclosed in a registered or certified post-
paid envelope or when sent by overnight courier, delivered to a
telegraph company or when scanned graphically or otherwise by
telegraphic communications equipment of the sending party and, in such
case, addressed to the appropriate addresses stated below or to such
other changed addresses the parties may have fixed by notice as
provided herein:
If to Maker: Digital Video Systems, Inc.
280 Hope Street
Mountain View; California 94041
Attn: Chief Executive Officer
Phone: (650) 625-8200
Fax: (650) 564-9694
And: Orrick, Herrington & Sutcliffe LLP
777 S. Figueroa Street, Suite 3200
Los Angeles, California 90017-5832
Attn: Blase P. Dillingham, Esq.
Phone: (213) 629-2020
Fax: (213) 612-2499
If to Payee: Oregon Power Lending Institution
327 Castro Street, Suite 2
Mountain View, California 94041
Attn: Donald Baker
Phone: (650) 962-8991
Fax: (650) 822-2907
12. Governing Law. This Note and the rights and obligation of
Maker and Payee hereunder shall be governed by, and construed in
accordance with, the internal laws of the State of California, without
regard to principals of conflicts of law.
13. Effect On Successors In Interest. This Note shall be
binding upon and shall inure to the benefit of Maker and Payee and
their respective successors and assigns.
IN WITNESS THEREOF, Maker has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and at the
place first written above.
DIGITAL VIDEO SYSTEMS, INC.
By: /s/ Edward M. Miller, Jr.
______________________________
Name: Edward M. Miller, Jr.
Title: President & Chief Executive Officer
Exhibit 10.6
CONVERTIBLE PROMISSORY NOTE
DIGITAL VIDEO SYSTEMS, INC.
$100,000.00 Mountain View, California
February 2, 1999
FOR VALUE RECEIVED, DIGITAL VIDEO SYSTEMS, INC., a Delaware
corporation ("Maker"), promises to pay to the order of Oregon Power
Lending Institution ("Payee"), or as directed by Payee, on demand, in
the manner and at the place hereinafter provided, the principal amount
of One Hundred Thousand Dollars ($100,000.00), together with interest
thereon, as hereafter described.
Maker also promises to pay interest on the outstanding principal
amount hereof from the date hereof at a rate of 10.0% per annum. All
computations of interest shall be made on the basis of a 360-day year
consisting of twelve thirty-day months. In no event shall the interest
payable on this Note exceed the maximum rate of interest permitted to
be charged under applicable law.
1. Payments. All payments of principal and interest in
respect of this Note shall be made at a location within, and in lawful
money of the United States of America by corporate check at 327 Castro
Street, Suite 2, Mountain View, California 94041 or at such other place
and in such other manner as shall be designated by Payee in a notice to
Maker.
2. Prepayments. This Note may be prepaid in whole or in part
at any time without penalty. Each prepayment made pursuant to this
Note shall be credited first on interest then due and the remainder on
the principal; and interest shall thereupon cease to accrue upon the
principal so credited. Upon prepayment of the entire principal amount
hereof and all accrued but unpaid interest thereon, all obligations of
Maker hereunder shall terminate, this Note shall be deemed canceled and
all interest shall cease to accrue. The prepayment of this Note in no
way impacts the terms of the Investment Agreement.
3. Conversion Rights. Payee shall have the right, at any
time, to convert all or any portion of the outstanding principal amount
under this Note, together with all accrued and unpaid interest thereon,
into fully paid and non-assessable shares of Maker's Series C
Convertible Preferred Stock at the Conversion Price. The issuance of
any such Series C Convertible Preferred Stock to Payee hereunder shall
be in lieu of an equivalent amount of Payee's Second Tranche investment
pursuant to Paragraph 2 of the Investment Agreement.
4. Exercise of Conversion Rights. Payee may exercise its
rights to convert all or any portion of the outstanding principal
amount under this Note, together with all accrued and unpaid interest
thereon, into shares of Series C Convertible Preferred Stock by
surrendering this Note to Maker, at its principal office or such other
office or agency maintained by Maker for that purpose, accompanied by a
written notice of election to convert outstanding amount under this
Note, or a specified portion of such amount (as provided in the
notice), executed by Payee, which notice shall specify a Conversion
Date. Notwithstanding the foregoing, this Note shall not be
convertible into Series C Convertible Preferred Stock to the extent
that upon such conversion, Payee will become the record owner (together
with Preferred Stock or Common Stock already owned by it) of Series C
Convertible Preferred Stock convertible in the aggregate into more than
20% of the Common Stock of Maker, until such time as the issuance of
such Series C Convertible Preferred Stock issuable upon such a
conversion is approved by the requisite number of shareholders of Maker
as required under Nasdaq corporate governance rules.
5. Conversion. As promptly as practicable after the surrender
as herein provided of this Note for conversion and delivery of the
written notice of election, Maker shall deliver or cause to be
delivered certificates representing the number of fully paid and non-
assessable shares of Series C Convertible Preferred Stock into which
the outstanding principal amount under this Note or such portion hereof
as may be subject to the written notice of election, together with all
accrued and unpaid interest thereon, may be converted in accordance
with the provisions hereof.
6. Number of Shares; Conversion Calculation. The number of
shares of Series C Convertible Preferred Stock shall be determined by
dividing the amount to be converted by the Conversion Price on the
applicable Conversion Date, calculated to the nearest share of Series C
Convertible Preferred Stock. For the purpose of such calculation,
fractions of less than 1/2 shall be disregarded and fractions of 1/2 or
greater shall be rounded up to the next full share. If only a portion
of the outstanding principal amount under the Note is used in such
conversion, Maker shall execute and deliver to or upon the order of
Payee, a new note evidencing the unused portion of the outstanding
amount.
7. Conversion Record Date. Any conversion of the outstanding
principal and interest under this Note or any portion hereof shall be
deemed to have been made at the close of the Business Day on or
following the Conversion Date specified in the applicable written
notice of election, so that the rights of Payee shall cease at such
time and the person or persons entitled to receive any of the shares of
Series C Convertible Preferred Stock upon conversion shall be treated
for all purposes as having become the record holder or holders of such
shares of Series C Convertible Preferred Stock at such time.
8. Events of Default. The occurrence of the following shall
constitute an "Event of Default":
(a) failure of Maker to make any principal or interest payment
under this Note when due on written demand; or
(b) Maker shall file any petition or action for relief under
any bankruptcy, insolvency, reorganization, moratorium, creditor
composition law, or any other law for the relief of or relating to
debtors, or an involuntary petition shall be filed under the Bankruptcy
Code against Maker and such proceeding or case initiated by such
petition shall remain undismissed or unstayed and in effect for a
period of 60 days or more, or a custodian, receiver, trustee, assignee
for the benefit of creditors, or other similar official, shall be
appointed to take possession, custody or control of the properties of
Maker.
9. Remedies. Upon the occurrence and during the continuance
of any Event of Default, Payee may (i) by notice to Maker, declare the
outstanding principal amount of this Note, together with accrued
interest thereon, to be due and payable, and the outstanding principal
amount of this Note, together with such interest, shall thereupon
immediately become due and payable without presentment, further notice,
protest or other requirements of any kind (all of which are hereby
expressly waived by Maker) or (ii) chose, without waiving its right of
acceleration, not to declare the outstanding principal amount of this
Note, together with accrued interest thereon, to be due and payable.
If this Note is not paid in accordance with the terms hereof, Maker
agrees to pay all costs and expenses of collection when incurred,
including, without limitation, reasonable attorneys' fees and expenses
and court costs.
10. Definitions. The following terms in this Note shall have
the following meanings (and any of such terms may be used in the
singular or the plural):
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy" as now and hereinafter in effect, or any
successor thereto.
"Business Day" means any day other than a Saturday, Sunday or
legal holiday under the laws of the State of California or any day on
which banking institutions located in such state are authorized or
required by law or other governmental action to close.
"Common Stock" means the Common Stock of Maker.
"Conversion Date" means the date specified in any written notice
of election to convert delivered by Payee, which date shall be no
earlier than the date of actual delivery of such notice.
"Conversion Price" means One Thousand Dollars ($1,000.00) per
share of Series C Convertible Preferred Stock.
"Investment Agreement" means a certain letter agreement dated as
of October 15, 1998 between Maker and Payee pertaining to Payee's
investment in securities of Maker.
"Preferred Stock" means the convertible Series C Convertible
Preferred Stock of Maker.
11. Notices. All notices, requests, demands, and other
communications under this Note shall be in writing and shall be deemed
to have been delivered when delivered personally or mailed in a general
or branch post office and enclosed in a registered or certified post-
paid envelope or when sent by overnight courier, delivered to a
telegraph company or when scanned graphically or otherwise by
telegraphic communications equipment of the sending party and, in such
case, addressed to the appropriate addresses stated below or to such
other changed addresses the parties may have fixed by notice as
provided herein:
If to Maker: Digital Video Systems, Inc.
280 Hope Street
Mountain View; California 94041
Attn: Chief Executive Officer
Phone: (650) 625-8200
Fax: (650) 564-9694
And: Orrick, Herrington & Sutcliffe LLP
777 S. Figueroa Street, Suite 3200
Los Angeles, California 90017-5832
Attn: Blase P. Dillingham, Esq.
Phone: (213) 629-2020
Fax: (213) 612-2499
If to Payee: Oregon Power Lending Institution
327 Castro Street, Suite 2
Mountain View, California 94041
Attn: Donald Baker
Phone: (650) 962-8991
Fax: (650) 822-2907
12. Governing Law. This Note and the rights and obligation of
Maker and Payee hereunder shall be governed by, and construed in
accordance with, the internal laws of the State of California, without
regard to principals of conflicts of law.
13. Effect On Successors In Interest. This Note shall be
binding upon and shall inure to the benefit of Maker and Payee and
their respective successors and assigns.
IN WITNESS THEREOF, Maker has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and at the
place first written above.
DIGITAL VIDEO SYSTEMS, INC.
By: /s/ Edward M. Miller, Jr.
______________________________
Name: Edward M. Miller, Jr.
Title: President & Chief Executive Officer
Exhibit 10.7
CONVERTIBLE PROMISSORY NOTE
DIGITAL VIDEO SYSTEMS, INC.
$186,000.00 Mountain View, California
February 3, 1999
FOR VALUE RECEIVED, DIGITAL VIDEO SYSTEMS, INC., a Delaware
corporation ("Maker"), promises to pay to the order of Oregon Power
Lending Institution ("Payee"), or as directed by Payee, on demand, in
the manner and at the place hereinafter provided, the principal amount
of One Hundred Eighty Six Thousand Dollars ($186,000.00), together with
interest thereon, as hereafter described.
Maker also promises to pay interest on the outstanding principal
amount hereof from the date hereof at a rate of 10.0% per annum. All
computations of interest shall be made on the basis of a 360-day year
consisting of twelve thirty-day months. In no event shall the interest
payable on this Note exceed the maximum rate of interest permitted to
be charged under applicable law.
1. Payments. All payments of principal and interest in
respect of this Note shall be made at a location within, and in lawful
money of the United States of America by corporate check at 327 Castro
Street, Suite 2, Mountain View, California 94041 or at such other place
and in such other manner as shall be designated by Payee in a notice to
Maker.
2. Prepayments. This Note may be prepaid in whole or in part
at any time without penalty. Each prepayment made pursuant to this
Note shall be credited first on interest then due and the remainder on
the principal; and interest shall thereupon cease to accrue upon the
principal so credited. Upon prepayment of the entire principal amount
hereof and all accrued but unpaid interest thereon, all obligations of
Maker hereunder shall terminate, this Note shall be deemed canceled and
all interest shall cease to accrue. The prepayment of this Note in no
way impacts the terms of the Investment Agreement.
3. Conversion Rights. Payee shall have the right, at any
time, to convert all or any portion of the outstanding principal amount
under this Note, together with all accrued and unpaid interest thereon,
into fully paid and non-assessable shares of Maker's Series C
Convertible Preferred Stock at the Conversion Price. The issuance of
any such Series C Convertible Preferred Stock to Payee hereunder shall
be in lieu of an equivalent amount of Payee's Second Tranche investment
pursuant to Paragraph 2 of the Investment Agreement.
4. Exercise of Conversion Rights. Payee may exercise its
rights to convert all or any portion of the outstanding principal
amount under this Note, together with all accrued and unpaid interest
thereon, into shares of Series C Convertible Preferred Stock by
surrendering this Note to Maker, at its principal office or such other
office or agency maintained by Maker for that purpose, accompanied by a
written notice of election to convert outstanding amount under this
Note, or a specified portion of such amount (as provided in the
notice), executed by Payee, which notice shall specify a Conversion
Date. Notwithstanding the foregoing, this Note shall not be
convertible into Series C Convertible Preferred Stock to the extent
that upon such conversion, Payee will become the record owner (together
with Preferred Stock or Common Stock already owned by it) of Series C
Convertible Preferred Stock convertible in the aggregate into more than
20% of the Common Stock of Maker, until such time as the issuance of
such Series C Convertible Preferred Stock issuable upon such a
conversion is approved by the requisite number of shareholders of Maker
as required under Nasdaq corporate governance rules.
5. Conversion. As promptly as practicable after the surrender
as herein provided of this Note for conversion and delivery of the
written notice of election, Maker shall deliver or cause to be
delivered certificates representing the number of fully paid and non-
assessable shares of Series C Convertible Preferred Stock into which
the outstanding principal amount under this Note or such portion hereof
as may be subject to the written notice of election, together with all
accrued and unpaid interest thereon, may be converted in accordance
with the provisions hereof.
6. Number of Shares; Conversion Calculation. The number of
shares of Series C Convertible Preferred Stock shall be determined by
dividing the amount to be converted by the Conversion Price on the
applicable Conversion Date, calculated to the nearest share of Series C
Convertible Preferred Stock. For the purpose of such calculation,
fractions of less than 1/2 shall be disregarded and fractions of 1/2 or
greater shall be rounded up to the next full share. If only a portion
of the outstanding principal amount under the Note is used in such
conversion, Maker shall execute and deliver to or upon the order of
Payee, a new note evidencing the unused portion of the outstanding
amount.
7. Conversion Record Date. Any conversion of the outstanding
principal and interest under this Note or any portion hereof shall be
deemed to have been made at the close of the Business Day on or
following the Conversion Date specified in the applicable written
notice of election, so that the rights of Payee shall cease at such
time and the person or persons entitled to receive any of the shares of
Series C Convertible Preferred Stock upon conversion shall be treated
for all purposes as having become the record holder or holders of such
shares of Series C Convertible Preferred Stock at such time.
8. Events of Default. The occurrence of the following shall
constitute an "Event of Default":
(a) failure of Maker to make any principal or interest payment
under this Note when due on written demand; or
(b) Maker shall file any petition or action for relief under
any bankruptcy, insolvency, reorganization, moratorium, creditor
composition law, or any other law for the relief of or relating to
debtors, or an involuntary petition shall be filed under the Bankruptcy
Code against Maker and such proceeding or case initiated by such
petition shall remain undismissed or unstayed and in effect for a
period of 60 days or more, or a custodian, receiver, trustee, assignee
for the benefit of creditors, or other similar official, shall be
appointed to take possession, custody or control of the properties of
Maker.
9. Remedies. Upon the occurrence and during the continuance
of any Event of Default, Payee may (i) by notice to Maker, declare the
outstanding principal amount of this Note, together with accrued
interest thereon, to be due and payable, and the outstanding principal
amount of this Note, together with such interest, shall thereupon
immediately become due and payable without presentment, further notice,
protest or other requirements of any kind (all of which are hereby
expressly waived by Maker) or (ii) chose, without waiving its right of
acceleration, not to declare the outstanding principal amount of this
Note, together with accrued interest thereon, to be due and payable.
If this Note is not paid in accordance with the terms hereof, Maker
agrees to pay all costs and expenses of collection when incurred,
including, without limitation, reasonable attorneys' fees and expenses
and court costs.
10. Definitions. The following terms in this Note shall have
the following meanings (and any of such terms may be used in the
singular or the plural):
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy" as now and hereinafter in effect, or any
successor thereto.
"Business Day" means any day other than a Saturday, Sunday or
legal holiday under the laws of the State of California or any day on
which banking institutions located in such state are authorized or
required by law or other governmental action to close.
"Common Stock" means the Common Stock of Maker.
"Conversion Date" means the date specified in any written notice
of election to convert delivered by Payee, which date shall be no
earlier than the date of actual delivery of such notice.
"Conversion Price" means One Thousand Dollars ($1,000.00) per
share of Series C Convertible Preferred Stock.
"Investment Agreement" means a certain letter agreement dated as
of October 15, 1998 between Maker and Payee pertaining to Payee's
investment in securities of Maker.
"Preferred Stock" means the convertible Series C Convertible
Preferred Stock of Maker.
11. Notices. All notices, requests, demands, and other
communications under this Note shall be in writing and shall be deemed
to have been delivered when delivered personally or mailed in a general
or branch post office and enclosed in a registered or certified post-
paid envelope or when sent by overnight courier, delivered to a
telegraph company or when scanned graphically or otherwise by
telegraphic communications equipment of the sending party and, in such
case, addressed to the appropriate addresses stated below or to such
other changed addresses the parties may have fixed by notice as
provided herein:
If to Maker: Digital Video Systems, Inc.
280 Hope Street
Mountain View; California 94041
Attn: Chief Executive Officer
Phone: (650) 625-8200
Fax: (650) 564-9694
And: Orrick, Herrington & Sutcliffe LLP
777 S. Figueroa Street, Suite 3200
Los Angeles, California 90017-5832
Attn: Blase P. Dillingham, Esq.
Phone: (213) 629-2020
Fax: (213) 612-2499
If to Payee: Oregon Power Lending Institution
327 Castro Street, Suite 2
Mountain View, California 94041
Attn: Donald Baker
Phone: (650) 962-8991
Fax: (650) 822-2907
12. Governing Law. This Note and the rights and obligation of
Maker and Payee hereunder shall be governed by, and construed in
accordance with, the internal laws of the State of California, without
regard to principals of conflicts of law.
13. Effect On Successors In Interest. This Note shall be
binding upon and shall inure to the benefit of Maker and Payee and
their respective successors and assigns.
IN WITNESS THEREOF, Maker has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and at the
place first written above.
DIGITAL VIDEO SYSTEMS, INC.
By: /s/ Edward M. Miller, Jr.
______________________________
Name: Edward M. Miller, Jr.
Title: President & Chief Executive Officer
Exhibit 10.8
CONVERTIBLE PROMISSORY NOTE
DIGITAL VIDEO SYSTEMS, INC.
$100,000.00 Mountain View, California
February 5, 1999
FOR VALUE RECEIVED, DIGITAL VIDEO SYSTEMS, INC., a Delaware
corporation ("Maker"), promises to pay to the order of Oregon Power
Lending Institution ("Payee"), or as directed by Payee, on demand, in
the manner and at the place hereinafter provided, the principal amount
of One Hundred Thousand Dollars ($100,000.00), together with interest
thereon, as hereafter described.
Maker also promises to pay interest on the outstanding principal
amount hereof from the date hereof at a rate of 10.0% per annum. All
computations of interest shall be made on the basis of a 360-day year
consisting of twelve thirty-day months. In no event shall the interest
payable on this Note exceed the maximum rate of interest permitted to
be charged under applicable law.
1. Payments. All payments of principal and interest in
respect of this Note shall be made at a location within, and in lawful
money of the United States of America by corporate check at 327 Castro
Street, Suite 2, Mountain View, California 94041 or at such other place
and in such other manner as shall be designated by Payee in a notice to
Maker.
2. Prepayments. This Note may be prepaid in whole or in part
at any time without penalty. Each prepayment made pursuant to this
Note shall be credited first on interest then due and the remainder on
the principal; and interest shall thereupon cease to accrue upon the
principal so credited. Upon prepayment of the entire principal amount
hereof and all accrued but unpaid interest thereon, all obligations of
Maker hereunder shall terminate, this Note shall be deemed canceled and
all interest shall cease to accrue. The prepayment of this Note in no
way impacts the terms of the Investment Agreement.
3. Conversion Rights. Payee shall have the right, at any
time, to convert all or any portion of the outstanding principal amount
under this Note, together with all accrued and unpaid interest thereon,
into fully paid and non-assessable shares of Maker's Series C
Convertible Preferred Stock at the Conversion Price. The issuance of
any such Series C Convertible Preferred Stock to Payee hereunder shall
be in lieu of an equivalent amount of Payee's Second Tranche investment
pursuant to Paragraph 2 of the Investment Agreement.
4. Exercise of Conversion Rights. Payee may exercise its
rights to convert all or any portion of the outstanding principal
amount under this Note, together with all accrued and unpaid interest
thereon, into shares of Series C Convertible Preferred Stock by
surrendering this Note to Maker, at its principal office or such other
office or agency maintained by Maker for that purpose, accompanied by a
written notice of election to convert outstanding amount under this
Note, or a specified portion of such amount (as provided in the
notice), executed by Payee, which notice shall specify a Conversion
Date. Notwithstanding the foregoing, this Note shall not be
convertible into Series C Convertible Preferred Stock to the extent
that upon such conversion, Payee will become the record owner (together
with Preferred Stock or Common Stock already owned by it) of Series C
Convertible Preferred Stock convertible in the aggregate into more than
20% of the Common Stock of Maker, until such time as the issuance of
such Series C Convertible Preferred Stock issuable upon such a
conversion is approved by the requisite number of shareholders of Maker
as required under Nasdaq corporate governance rules.
5. Conversion. As promptly as practicable after the surrender
as herein provided of this Note for conversion and delivery of the
written notice of election, Maker shall deliver or cause to be
delivered certificates representing the number of fully paid and non-
assessable shares of Series C Convertible Preferred Stock into which
the outstanding principal amount under this Note or such portion hereof
as may be subject to the written notice of election, together with all
accrued and unpaid interest thereon, may be converted in accordance
with the provisions hereof.
6. Number of Shares; Conversion Calculation. The number of
shares of Series C Convertible Preferred Stock shall be determined by
dividing the amount to be converted by the Conversion Price on the
applicable Conversion Date, calculated to the nearest share of Series C
Convertible Preferred Stock. For the purpose of such calculation,
fractions of less than 1/2 shall be disregarded and fractions of 1/2 or
greater shall be rounded up to the next full share. If only a portion
of the outstanding principal amount under the Note is used in such
conversion, Maker shall execute and deliver to or upon the order of
Payee, a new note evidencing the unused portion of the outstanding
amount.
7. Conversion Record Date. Any conversion of the outstanding
principal and interest under this Note or any portion hereof shall be
deemed to have been made at the close of the Business Day on or
following the Conversion Date specified in the applicable written
notice of election, so that the rights of Payee shall cease at such
time and the person or persons entitled to receive any of the shares of
Series C Convertible Preferred Stock upon conversion shall be treated
for all purposes as having become the record holder or holders of such
shares of Series C Convertible Preferred Stock at such time.
8. Events of Default. The occurrence of the following shall
constitute an "Event of Default":
(a) failure of Maker to make any principal or interest payment
under this Note when due on written demand; or
(b) Maker shall file any petition or action for relief under
any bankruptcy, insolvency, reorganization, moratorium, creditor
composition law, or any other law for the relief of or relating to
debtors, or an involuntary petition shall be filed under the Bankruptcy
Code against Maker and such proceeding or case initiated by such
petition shall remain undismissed or unstayed and in effect for a
period of 60 days or more, or a custodian, receiver, trustee, assignee
for the benefit of creditors, or other similar official, shall be
appointed to take possession, custody or control of the properties of
Maker.
9. Remedies. Upon the occurrence and during the continuance
of any Event of Default, Payee may (i) by notice to Maker, declare the
outstanding principal amount of this Note, together with accrued
interest thereon, to be due and payable, and the outstanding principal
amount of this Note, together with such interest, shall thereupon
immediately become due and payable without presentment, further notice,
protest or other requirements of any kind (all of which are hereby
expressly waived by Maker) or (ii) chose, without waiving its right of
acceleration, not to declare the outstanding principal amount of this
Note, together with accrued interest thereon, to be due and payable.
If this Note is not paid in accordance with the terms hereof, Maker
agrees to pay all costs and expenses of collection when incurred,
including, without limitation, reasonable attorneys' fees and expenses
and court costs.
10. Definitions. The following terms in this Note shall have
the following meanings (and any of such terms may be used in the
singular or the plural):
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy" as now and hereinafter in effect, or any
successor thereto.
"Business Day" means any day other than a Saturday, Sunday or
legal holiday under the laws of the State of California or any day on
which banking institutions located in such state are authorized or
required by law or other governmental action to close.
"Common Stock" means the Common Stock of Maker.
"Conversion Date" means the date specified in any written notice
of election to convert delivered by Payee, which date shall be no
earlier than the date of actual delivery of such notice.
"Conversion Price" means One Thousand Dollars ($1,000.00) per
share of Series C Convertible Preferred Stock.
"Investment Agreement" means a certain letter agreement dated as
of October 15, 1998 between Maker and Payee pertaining to Payee's
investment in securities of Maker.
"Preferred Stock" means the convertible Series C Convertible
Preferred Stock of Maker.
11. Notices. All notices, requests, demands, and other
communications under this Note shall be in writing and shall be deemed
to have been delivered when delivered personally or mailed in a general
or branch post office and enclosed in a registered or certified post-
paid envelope or when sent by overnight courier, delivered to a
telegraph company or when scanned graphically or otherwise by
telegraphic communications equipment of the sending party and, in such
case, addressed to the appropriate addresses stated below or to such
other changed addresses the parties may have fixed by notice as
provided herein:
If to Maker: Digital Video Systems, Inc.
280 Hope Street
Mountain View; California 94041
Attn: Chief Executive Officer
Phone: (650) 625-8200
Fax: (650) 564-9694
And: Orrick, Herrington & Sutcliffe LLP
777 S. Figueroa Street, Suite 3200
Los Angeles, California 90017-5832
Attn: Blase P. Dillingham, Esq.
Phone: (213) 629-2020
Fax: (213) 612-2499
If to Payee: Oregon Power Lending Institution
327 Castro Street, Suite 2
Mountain View, California 94041
Attn: Donald Baker
Phone: (650) 962-8991
Fax: (650) 822-2907
12. Governing Law. This Note and the rights and obligation of
Maker and Payee hereunder shall be governed by, and construed in
accordance with, the internal laws of the State of California, without
regard to principals of conflicts of law.
13. Effect On Successors In Interest. This Note shall be
binding upon and shall inure to the benefit of Maker and Payee and
their respective successors and assigns.
IN WITNESS THEREOF, Maker has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and at the
place first written above.
DIGITAL VIDEO SYSTEMS, INC.
By: /s/ Edward M. Miller, Jr.
______________________________
Name: Edward M. Miller, Jr.
Title: President & Chief Executive Officer
Exhibit 10.9
CONVERTIBLE PROMISSORY NOTE
DIGITAL VIDEO SYSTEMS, INC.
$100,000.00 Mountain View, California
February 9, 1999
FOR VALUE RECEIVED, DIGITAL VIDEO SYSTEMS, INC., a Delaware
corporation ("Maker"), promises to pay to the order of Oregon Power
Lending Institution ("Payee"), or as directed by Payee, on demand, in
the manner and at the place hereinafter provided, the principal amount
of One Hundred Thousand Dollars ($100,000.00), together with interest
thereon, as hereafter described.
Maker also promises to pay interest on the outstanding principal
amount hereof from the date hereof at a rate of 10.0% per annum. All
computations of interest shall be made on the basis of a 360-day year
consisting of twelve thirty-day months. In no event shall the interest
payable on this Note exceed the maximum rate of interest permitted to
be charged under applicable law.
1. Payments. All payments of principal and interest in
respect of this Note shall be made at a location within, and in lawful
money of the United States of America by corporate check at 327 Castro
Street, Suite 2, Mountain View, California 94041 or at such other place
and in such other manner as shall be designated by Payee in a notice to
Maker.
2. Prepayments. This Note may be prepaid in whole or in part
at any time without penalty. Each prepayment made pursuant to this
Note shall be credited first on interest then due and the remainder on
the principal; and interest shall thereupon cease to accrue upon the
principal so credited. Upon prepayment of the entire principal amount
hereof and all accrued but unpaid interest thereon, all obligations of
Maker hereunder shall terminate, this Note shall be deemed canceled and
all interest shall cease to accrue. The prepayment of this Note in no
way impacts the terms of the Investment Agreement.
3. Conversion Rights. Payee shall have the right, at any
time, to convert all or any portion of the outstanding principal amount
under this Note, together with all accrued and unpaid interest thereon,
into fully paid and non-assessable shares of Maker's Series C
Convertible Preferred Stock at the Conversion Price. The issuance of
any such Series C Convertible Preferred Stock to Payee hereunder shall
be in lieu of an equivalent amount of Payee's Second Tranche investment
pursuant to Paragraph 2 of the Investment Agreement.
4. Exercise of Conversion Rights. Payee may exercise its
rights to convert all or any portion of the outstanding principal
amount under this Note, together with all accrued and unpaid interest
thereon, into shares of Series C Convertible Preferred Stock by
surrendering this Note to Maker, at its principal office or such other
office or agency maintained by Maker for that purpose, accompanied by a
written notice of election to convert outstanding amount under this
Note, or a specified portion of such amount (as provided in the
notice), executed by Payee, which notice shall specify a Conversion
Date. Notwithstanding the foregoing, this Note shall not be
convertible into Series C Convertible Preferred Stock to the extent
that upon such conversion, Payee will become the record owner (together
with Preferred Stock or Common Stock already owned by it) of Series C
Convertible Preferred Stock convertible in the aggregate into more than
20% of the Common Stock of Maker, until such time as the issuance of
such Series C Convertible Preferred Stock issuable upon such a
conversion is approved by the requisite number of shareholders of Maker
as required under Nasdaq corporate governance rules.
5. Conversion. As promptly as practicable after the surrender
as herein provided of this Note for conversion and delivery of the
written notice of election, Maker shall deliver or cause to be
delivered certificates representing the number of fully paid and non-
assessable shares of Series C Convertible Preferred Stock into which
the outstanding principal amount under this Note or such portion hereof
as may be subject to the written notice of election, together with all
accrued and unpaid interest thereon, may be converted in accordance
with the provisions hereof.
6. Number of Shares; Conversion Calculation. The number of
shares of Series C Convertible Preferred Stock shall be determined by
dividing the amount to be converted by the Conversion Price on the
applicable Conversion Date, calculated to the nearest share of Series C
Convertible Preferred Stock. For the purpose of such calculation,
fractions of less than 1/2 shall be disregarded and fractions of 1/2 or
greater shall be rounded up to the next full share. If only a portion
of the outstanding principal amount under the Note is used in such
conversion, Maker shall execute and deliver to or upon the order of
Payee, a new note evidencing the unused portion of the outstanding
amount.
7. Conversion Record Date. Any conversion of the outstanding
principal and interest under this Note or any portion hereof shall be
deemed to have been made at the close of the Business Day on or
following the Conversion Date specified in the applicable written
notice of election, so that the rights of Payee shall cease at such
time and the person or persons entitled to receive any of the shares of
Series C Convertible Preferred Stock upon conversion shall be treated
for all purposes as having become the record holder or holders of such
shares of Series C Convertible Preferred Stock at such time.
8. Events of Default. The occurrence of the following shall
constitute an "Event of Default":
(a) failure of Maker to make any principal or interest payment
under this Note when due on written demand; or
(b) Maker shall file any petition or action for relief under
any bankruptcy, insolvency, reorganization, moratorium, creditor
composition law, or any other law for the relief of or relating to
debtors, or an involuntary petition shall be filed under the Bankruptcy
Code against Maker and such proceeding or case initiated by such
petition shall remain undismissed or unstayed and in effect for a
period of 60 days or more, or a custodian, receiver, trustee, assignee
for the benefit of creditors, or other similar official, shall be
appointed to take possession, custody or control of the properties of
Maker.
9. Remedies. Upon the occurrence and during the continuance
of any Event of Default, Payee may (i) by notice to Maker, declare the
outstanding principal amount of this Note, together with accrued
interest thereon, to be due and payable, and the outstanding principal
amount of this Note, together with such interest, shall thereupon
immediately become due and payable without presentment, further notice,
protest or other requirements of any kind (all of which are hereby
expressly waived by Maker) or (ii) chose, without waiving its right of
acceleration, not to declare the outstanding principal amount of this
Note, together with accrued interest thereon, to be due and payable.
If this Note is not paid in accordance with the terms hereof, Maker
agrees to pay all costs and expenses of collection when incurred,
including, without limitation, reasonable attorneys' fees and expenses
and court costs.
10. Definitions. The following terms in this Note shall have
the following meanings (and any of such terms may be used in the
singular or the plural):
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy" as now and hereinafter in effect, or any
successor thereto.
"Business Day" means any day other than a Saturday, Sunday or
legal holiday under the laws of the State of California or any day on
which banking institutions located in such state are authorized or
required by law or other governmental action to close.
"Common Stock" means the Common Stock of Maker.
"Conversion Date" means the date specified in any written notice
of election to convert delivered by Payee, which date shall be no
earlier than the date of actual delivery of such notice.
"Conversion Price" means One Thousand Dollars ($1,000.00) per
share of Series C Convertible Preferred Stock.
"Investment Agreement" means a certain letter agreement dated as
of October 15, 1998 between Maker and Payee pertaining to Payee's
investment in securities of Maker.
"Preferred Stock" means the convertible Series C Convertible
Preferred Stock of Maker.
11. Notices. All notices, requests, demands, and other
communications under this Note shall be in writing and shall be deemed
to have been delivered when delivered personally or mailed in a general
or branch post office and enclosed in a registered or certified post-
paid envelope or when sent by overnight courier, delivered to a
telegraph company or when scanned graphically or otherwise by
telegraphic communications equipment of the sending party and, in such
case, addressed to the appropriate addresses stated below or to such
other changed addresses the parties may have fixed by notice as
provided herein:
If to Maker: Digital Video Systems, Inc.
280 Hope Street
Mountain View; California 94041
Attn: Chief Executive Officer
Phone: (650) 625-8200
Fax: (650) 564-9694
And: Orrick, Herrington & Sutcliffe LLP
777 S. Figueroa Street, Suite 3200
Los Angeles, California 90017-5832
Attn: Blase P. Dillingham, Esq.
Phone: (213) 629-2020
Fax: (213) 612-2499
If to Payee: Oregon Power Lending Institution
327 Castro Street, Suite 2
Mountain View, California 94041
Attn: Donald Baker
Phone: (650) 962-8991
Fax: (650) 822-2907
12. Governing Law. This Note and the rights and obligation of
Maker and Payee hereunder shall be governed by, and construed in
accordance with, the internal laws of the State of California, without
regard to principals of conflicts of law.
13. Effect On Successors In Interest. This Note shall be
binding upon and shall inure to the benefit of Maker and Payee and
their respective successors and assigns.
IN WITNESS THEREOF, Maker has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and at the
place first written above.
DIGITAL VIDEO SYSTEMS, INC.
By: /s/ Edward M. Miller, Jr.
______________________________
Name: Edward M. Miller, Jr.
Title: President & Chief Executive Officer
Exhibit 10.10
CONVERTIBLE PROMISSORY NOTE
DIGITAL VIDEO SYSTEMS, INC.
$433,326.40 Mountain View, California
February 11, 1999
FOR VALUE RECEIVED, DIGITAL VIDEO SYSTEMS, INC., a Delaware
corporation ("Maker"), promises to pay to the order of Oregon Power
Lending Institution ("Payee"), or as directed by Payee, on demand, in
the manner and at the place hereinafter provided, the principal amount
of Four Hundred Thirty Three Thousand Three Hundred Twenty Six Dollars
and 40 cents ($433,326.40), together with interest thereon, as
hereafter described.
Maker also promises to pay interest on the outstanding principal
amount hereof from the date hereof at a rate of 10.0% per annum. All
computations of interest shall be made on the basis of a 360-day year
consisting of twelve thirty-day months. In no event shall the interest
payable on this Note exceed the maximum rate of interest permitted to
be charged under applicable law.
1. Payments. All payments of principal and interest in
respect of this Note shall be made at a location within, and in lawful
money of the United States of America by corporate check at 327 Castro
Street, Suite 2, Mountain View, California 94041 or at such other place
and in such other manner as shall be designated by Payee in a notice to
Maker.
2. Prepayments. This Note may be prepaid in whole or in part
at any time without penalty. Each prepayment made pursuant to this
Note shall be credited first on interest then due and the remainder on
the principal; and interest shall thereupon cease to accrue upon the
principal so credited. Upon prepayment of the entire principal amount
hereof and all accrued but unpaid interest thereon, all obligations of
Maker hereunder shall terminate, this Note shall be deemed canceled and
all interest shall cease to accrue. The prepayment of this Note in no
way impacts the terms of the Investment Agreement.
3. Conversion Rights. Payee shall have the right, at any
time, to convert all or any portion of the outstanding principal amount
under this Note, together with all accrued and unpaid interest thereon,
into fully paid and non-assessable shares of Maker's Series C
Convertible Preferred Stock at the Conversion Price. The issuance of
any such Series C Convertible Preferred Stock to Payee hereunder shall
be in lieu of an equivalent amount of Payee's Second Tranche investment
pursuant to Paragraph 2 of the Investment Agreement.
4. Exercise of Conversion Rights. Payee may exercise its
rights to convert all or any portion of the outstanding principal
amount under this Note, together with all accrued and unpaid interest
thereon, into shares of Series C Convertible Preferred Stock by
surrendering this Note to Maker, at its principal office or such other
office or agency maintained by Maker for that purpose, accompanied by a
written notice of election to convert outstanding amount under this
Note, or a specified portion of such amount (as provided in the
notice), executed by Payee, which notice shall specify a Conversion
Date. Notwithstanding the foregoing, this Note shall not be
convertible into Series C Convertible Preferred Stock to the extent
that upon such conversion, Payee will become the record owner (together
with Preferred Stock or Common Stock already owned by it) of Series C
Convertible Preferred Stock convertible in the aggregate into more than
20% of the Common Stock of Maker, until such time as the issuance of
such Series C Convertible Preferred Stock issuable upon such a
conversion is approved by the requisite number of shareholders of Maker
as required under Nasdaq corporate governance rules.
5. Conversion. As promptly as practicable after the surrender
as herein provided of this Note for conversion and delivery of the
written notice of election, Maker shall deliver or cause to be
delivered certificates representing the number of fully paid and non-
assessable shares of Series C Convertible Preferred Stock into which
the outstanding principal amount under this Note or such portion hereof
as may be subject to the written notice of election, together with all
accrued and unpaid interest thereon, may be converted in accordance
with the provisions hereof.
6. Number of Shares; Conversion Calculation. The number of
shares of Series C Convertible Preferred Stock shall be determined by
dividing the amount to be converted by the Conversion Price on the
applicable Conversion Date, calculated to the nearest share of Series C
Convertible Preferred Stock. For the purpose of such calculation,
fractions of less than 1/2 shall be disregarded and fractions of 1/2 or
greater shall be rounded up to the next full share. If only a portion
of the outstanding principal amount under the Note is used in such
conversion, Maker shall execute and deliver to or upon the order of
Payee, a new note evidencing the unused portion of the outstanding
amount.
7. Conversion Record Date. Any conversion of the outstanding
principal and interest under this Note or any portion hereof shall be
deemed to have been made at the close of the Business Day on or
following the Conversion Date specified in the applicable written
notice of election, so that the rights of Payee shall cease at such
time and the person or persons entitled to receive any of the shares of
Series C Convertible Preferred Stock upon conversion shall be treated
for all purposes as having become the record holder or holders of such
shares of Series C Convertible Preferred Stock at such time.
8. Events of Default. The occurrence of the following shall
constitute an "Event of Default":
(a) failure of Maker to make any principal or interest payment
under this Note when due on written demand; or
(b) Maker shall file any petition or action for relief under
any bankruptcy, insolvency, reorganization, moratorium, creditor
composition law, or any other law for the relief of or relating to
debtors, or an involuntary petition shall be filed under the Bankruptcy
Code against Maker and such proceeding or case initiated by such
petition shall remain undismissed or unstayed and in effect for a
period of 60 days or more, or a custodian, receiver, trustee, assignee
for the benefit of creditors, or other similar official, shall be
appointed to take possession, custody or control of the properties of
Maker.
9. Remedies. Upon the occurrence and during the continuance
of any Event of Default, Payee may (i) by notice to Maker, declare the
outstanding principal amount of this Note, together with accrued
interest thereon, to be due and payable, and the outstanding principal
amount of this Note, together with such interest, shall thereupon
immediately become due and payable without presentment, further notice,
protest or other requirements of any kind (all of which are hereby
expressly waived by Maker) or (ii) chose, without waiving its right of
acceleration, not to declare the outstanding principal amount of this
Note, together with accrued interest thereon, to be due and payable.
If this Note is not paid in accordance with the terms hereof, Maker
agrees to pay all costs and expenses of collection when incurred,
including, without limitation, reasonable attorneys' fees and expenses
and court costs.
10. Definitions. The following terms in this Note shall have
the following meanings (and any of such terms may be used in the
singular or the plural):
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy" as now and hereinafter in effect, or any
successor thereto.
"Business Day" means any day other than a Saturday, Sunday or
legal holiday under the laws of the State of California or any day on
which banking institutions located in such state are authorized or
required by law or other governmental action to close.
"Common Stock" means the Common Stock of Maker.
"Conversion Date" means the date specified in any written notice
of election to convert delivered by Payee, which date shall be no
earlier than the date of actual delivery of such notice.
"Conversion Price" means One Thousand Dollars ($1,000.00) per
share of Series C Convertible Preferred Stock.
"Investment Agreement" means a certain letter agreement dated as
of October 15, 1998 between Maker and Payee pertaining to Payee's
investment in securities of Maker.
"Preferred Stock" means the convertible Series C Convertible
Preferred Stock of Maker.
11. Notices. All notices, requests, demands, and other
communications under this Note shall be in writing and shall be deemed
to have been delivered when delivered personally or mailed in a general
or branch post office and enclosed in a registered or certified post-
paid envelope or when sent by overnight courier, delivered to a
telegraph company or when scanned graphically or otherwise by
telegraphic communications equipment of the sending party and, in such
case, addressed to the appropriate addresses stated below or to such
other changed addresses the parties may have fixed by notice as
provided herein:
If to Maker: Digital Video Systems, Inc.
280 Hope Street
Mountain View; California 94041
Attn: Chief Executive Officer
Phone: (650) 625-8200
Fax: (650) 564-9694
And: Orrick, Herrington & Sutcliffe LLP
777 S. Figueroa Street, Suite 3200
Los Angeles, California 90017-5832
Attn: Blase P. Dillingham, Esq.
Phone: (213) 629-2020
Fax: (213) 612-2499
If to Payee: Oregon Power Lending Institution
327 Castro Street, Suite 2
Mountain View, California 94041
Attn: Donald Baker
Phone: (650) 962-8991
Fax: (650) 822-2907
12. Governing Law. This Note and the rights and obligation of
Maker and Payee hereunder shall be governed by, and construed in
accordance with, the internal laws of the State of California, without
regard to principals of conflicts of law.
13. Effect On Successors In Interest. This Note shall be
binding upon and shall inure to the benefit of Maker and Payee and
their respective successors and assigns.
IN WITNESS THEREOF, Maker has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and at the
place first written above.
DIGITAL VIDEO SYSTEMS, INC.
By: /s/ Edward M. Miller, Jr.
__________________________
Name: Edward M. Miller, Jr.
Title: President & Chief Executive Officer
Exhibit 10.13
Lease Agreement
Contract No. 99W10007-00
Date: January 28, 1999
Lessee
1. Physical Location
DVS Korea Co., LTD.
4th Fl. Dooin Bldg
16-6 Soonae-dong, Boondang-ku
Sungnam City, Kyungki-do, Korea
2. Rep. Officer
1) Name in Full: Lee, Sung Hee
2) ID No: 540804-1042425
3) Residing Address: same as above
Guarantor 1
1) Name in Full: Lee, Sung Hee
2) ID No: 540804-1042425
3) Current Address:
Hyundai Apt. 310-110
Kwangjin-dong, 484, Kwangjii-ku
Souel, Korea
Lessor
1) Current Address
Hyundai Capital Co. Ltd.
23-4 Yoioido-dong, Youngdeungpo-ku
Souel, Korea
2. Rep. Officer
Yoon, Myung Joong, Acting President
Article 1
LEASED ASSETS
The Lessor hereby agrees to lease to the Lessee and the Lessee agrees
to accept from the Lessor the leasing of assets and/or equipments which
shall hereinafter to referred to as the "Leased Assets". The phrase "Leased
Assets" shall also mean to include all replacements and renewalsas well as
equipment and additionss, either executed prior to or after endorsement of
this Lease Agreement.
Article 2
TERM
The period covered by the first period of the Lease agreed by both parties,
shall commence from the first day of issuance of a receipt, which shall
hereinafter be referred to as the "Acceptance Receipt" as set fourth in
Article 5 of this lease Agreement. Without prejudice to the Lessor'r right
to terminate the Lease Agreement and other applicable provisions of this
Lease Agreement, the Lease shall be irrevocable for the full term hereof.
Article 3
CANCELLATION OF A CONTRACT
As a general rule, cancellation of a contract is not allowed. In case
of cancellation of a contract, all of this procedure should be done by means
of formal document. All expenses (including fine etc.) should be paid under
mutual agreement between the Lesssee and the Lessor.
Article 4
RENEWAL OF LEASE AGREEMENT AND OPTION TO BUY LEASED ASSETS
In the event that the Lessee, within at least 2(two)months prior to the
expiration of the First Period of the Lease Agreement, submits a written
application to the Lessor for an extension of the Lease or to take the
available option to purchase the Leased Assets, and in the event that
since the date of the said application until the concludion of the First
Period, the Lessee is not found to be in violation of the terms and
conditions spelled out in the Lease Agreement, then the Lessee at its own
option may extend the lease period or purchase the Lease Assets.
Article 5
DELIVERY OF LEASED ASSETS
The Lessee, having concluded negotiations with a seller or a supplier,
who shall hereinafter be referred to as the "Seller or Supplier", shall
choose the assets to be leased and used by the Lessee. The Lessee does
hereby acknowledge and declare that the Lessor shall assume no responsibility
for any delay in delivery failure to make delivery, by the Seller or
supplier, and for any damage, the appropriatesness of a section of the
Leased Assets.
At the request of the Lessee, the Lessor may arrange delivery of the Leased
Assets, but the Lessee shall be responsible for and assume the costs of
such delivery.
Upon receipt of the Lease Assets from the Seller or Supplier or Lessor, the
Lessee shall inspect the Leased Assets as to their conditions and submit
to the Lessor the Acceptance Receipt, at the latest date on the date referred.
Subject to the agreement of or approved by both parties, then the Lessor shall
seek an approval from a Seller or Supplier for the delivery of the Leased
Assets on the desired date and the delivery date shall be stated. In the
event the Lessor is unable to obtain the aforementioned approval, then the
Lessor shall notify the same to the Lessee and negotiate with the Lessee on
a possible 14(fourteen)days extention effective as of the date of a notice
to the effect from the Lessor. In such an occurrence, each party reserves
the right to terminate the Lease Agreement and therfore, shall assume
responsibility for and shall not file any claim whatsoever against each other,
except for the fees referred to in Article 28 of the Lease Agreement which
shall be settled immediately by the Lessee, in full and upon presentation
a demand by the Lessor.
Article 6
LATE DELIVERY AND DEFECTS IN LEASE ASSETS
In the event that the Lessee suffers losses due to any delay in delivery or a
failure in delivery of or a defective Leased Assets or received an asset of
the wrong quality or is defective, while the Lessee has endorsed the
Acceptance Receipt referred to in Article 5 of the Lease Agreement, then the
Lessor agrees to transfer to the Lessee, with costs and expenses assumed by
the Lessee. The Lessor's rights to seek compensation for damages from the
Seller or Supplier or from another party, on the provision that the Lessor
shall not be held responsible for anyfailure in claiming for such damages.
Article 7
PURCHASE PRICE
The purchase price includes the original price of the asset lease, all
expenses incurred, interest and fees etc. Under this contract, only Korea
Won is used as a base currency, not US Dollar. When calculating total
amount of lease, a year means 365 days in use of Korea Won and 360 days is
used for US Dollar.
Article 8
ALERATION TO LEASED ASSETS
The Lease is herby prohibited from executing an addition, a change, a revision
to a work schedule, function or quality of the Leased Assets without the
prior written approval of the Lessor.
Every addition, improvement or change to the Leased Assets, with or without
the Lessor's consent, shall become part of or included in the Leased Assets.
Article 9
PAYMENT DATE AND METHOD
Total amount of lease is stated in the column(5). Under the lease agreement,
the interest rate is fixed. But, in case the modification is neede, a new
interest rate can be reached under mutual agreement. As stated in the column(8),
the Lessee will fulfill its duty on scheduled date. But, first payment
method is on by Korea Won not US Dollar under the contract.
Article 10
SECURITY DEPOSIT
In case of no security deposit rendered, this section can be disregarded.
Article 11
DEPOSIT AND PREPAID LEASE RENT
In the event that the Lessor established a certain security deposit on
leasing, the paid security deposit shall be assumed and duly adhered to by
the Lessee within the framework of implementing all the provisions, terms
and conditions of this Lease Agreement as well as of any revisions and
renewals thereto. The security deposit is non-interest bearing and cannot
be computed as the Lease Rent or portions thereof and is of the purchase
price referred to in Article 4 of the Lease Agreement.
SPECIAL PROVISIONS
1. Lease Interest Rate
The contract will quote the variable corporate-bond interest rate(8.48%)plus
3% for premium on the date of January 27, 1999 stated in the Korea Economic
Daily.
2. Balance Due
See attachment.
1) Asset Leased-Oscilloscope etc.
2) Lessee- DVS Korea Co., Ltd.
3)Physical Location
1)DVS Korea Co., Ltd. Sungnam City, Korea
2)DVS Korea Co., Ltd. Chunnan Cith, Korea
4)Purchase Price- Korea Won 986,867,235.00
5)Lease Rate- 24 pmts: KW 45,778,039(PER MONTH)
6)Lease Term- January 28, 1999--January 27, 2001 (24 mos.)
7)Security Deposit: None
8)Pmt date and method: 1st Pmt: January 28, 1999
9)After the expiration of this lease contract, the asset leased will be
returned to the Lessee.
10)Overdue interest Rate : 24%per annum
11)Type of Lease: Financial Lease
12)Planned Yr.
Year 1: KW 986,868
Year 2: KW 516,649
13)Collateral : Certificate of Deposit (Amt. of KW 103,254,794)
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSE
CONSOLIDATED BALANCE SHEETS, CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN IT
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,950
<SECURITIES> 0
<RECEIVABLES> 941
<ALLOWANCES> 0
<INVENTORY> 6,098
<CURRENT-ASSETS> 11,185
<PP&E> 3,632
<DEPRECIATION> 1,500
<TOTAL-ASSETS> 16,544
<CURRENT-LIABILITIES> 12,147
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 4,392
<TOTAL-LIABILITY-AND-EQUITY> 16,544
<SALES> 5,182
<TOTAL-REVENUES> 5,182
<CGS> 4,590
<TOTAL-COSTS> 4,590
<OTHER-EXPENSES> 3,553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,705)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,705)
<EPS-PRIMARY> ($0.22)
<EPS-DILUTED> ($0.22)
</TABLE>
