UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required]For the fiscal year ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from
_______________________ to _____________________
Commission file number: 1-13088
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
(Name of small business issuer in its charter)
Delaware 65-0014636
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16910 Dallas Parkway, Suite 100, Dallas, Texas
75248 (Address of principal executive offices;
telephone number)
(972) 248-1922
(Issuer's telephone number)
Securities registered pursuant to Section 12 (b) of the
Exchange Act:
Title of each class: Name of exchange on which registered:
Common Stock American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Exchange Act: None
Check whether issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X ] No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The aggregate market value of the Common Stock held by non-affiliates
of the registrant as of September 25, 1996 was approximately $3,703,196 (based
upon the closing price of the registrant's Common Stock on such date). Revenues
for the year ended June 30, 1996 were $24,807,244.
As of September 25, 1996, the registrant had issued and outstanding
6,465,610 shares of Common Stock, par value $.0002 per share.
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TABLE OF CONTENTS
Item
Number Page
Part I
1. Description of Business 1
2. Description of Property 2
3. Legal Proceedings 2
4. Submission of Matters to a Vote of Security Holders 3
Part II
5. Market for the Company's Common Stock and Related
Stockholder Matters 4
6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 4
7. Index to Financial Statements 9
8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 10
Part III
9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 11
10. Executive Compensation 13
11. Security Ownership of Certain Beneficial Owners and
Management 16
12. Certain Relationships and Related Transactions 17
13. Exhibits and Reports on Form 8-K 17
-i-
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Digital Communications Technology Corporation (the "Company") is a Delaware
corporation doing business as MagneTech Corporation. The Company was
incorporated in the State of Delaware on November 12, 1987. The address of the
Company's principal executive office is 16910 Dallas Parkway, Suite 100, Dallas,
Texas 75248 and its telephone number is (972) 248-1922.
Products
The Company is an integrated video communications company which offers
video tape duplication and satellite communications services. The Company
duplicates a variety of video cassettes, including full-length movies, training,
music, promotional, sports, and educational programs. The Company offers its
reproduction services to entertainment companies and a wide range of industrial
customers, including advertising agencies, direct selling organizations and
educational groups throughout the United States, Canada and Latin America. The
Company's satellite operation consists of two mobile KU band units which are
capable of transmitting live or pre-recorded programming from any location to
commercial satellites. The Company's satellite customers include local, network
and cable television operators, primarily in the Southeastern United States.
Customers
During the year ended June 30, 1996, the Company's largest customer, Madacy
Entertainment Group, accounted for approximately 17.6% of its sales. During the
year ended June 30, 1995, two of the Company's largest customers, Madacy
Entertainment Group and Atlantic Recording Corporation, accounted for 16.3% and
12% respectively, of its sales.
Raw Materials and Manufacturing
The Company purchases bulk quantities of videotape ("pancake") and empty
video cassettes ("shells") for its reproduction business from several
manufacturers at market prices in the United States and the Pacific Rim. The
videotape and video cassettes are readily available on the open market. The
majority of the Company's video duplication equipment is manufactured by several
major manufacturers in Japan and purchased from domestic distributors.
The equipment utilized in the Company's satellite broadcasting business
includes two KU band broadcasting trucks, cameras, generators, telephonic
equipment and dual transmitters. The Company purchases its materials and
equipment from several major manufacturers and believes that the loss of any of
its suppliers or manufacturers would not have an adverse material effect on the
Company's business, financial condition and results of operations.
Properties
The Company duplicates video tapes at two facilities, one located in Ft.
Lauderdale, Florida and one located in Indianapolis, Indiana. The Ft. Lauderdale
facility, which is made up of two adjacent buildings and covers a total of
approximately 24,000 square feet, is a real-time duplication facility with the
capacity to duplicate an average of approximately 15,000 videos per day. The
Indianapolis facility, which covers approximately 66,000 square feet in adjacent
buildings, is an automated, state of the art high-speed duplication facility
with the capacity to duplicate 100,000 videos per day.
1
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Competition
The Company's industry is highly competitive. There are other commercial
video duplicating and satellite broadcasting companies which compete with the
Company and have greater financial resources and sales volume than the Company.
The Company depends upon its ability to provide quality services at competitive
prices to its customers in order to be competitive.
Employees
As of June 30, 1996, the Company had a total of approximately 200
employees, all of whom are full-time employees. None of the employees are
represented by a labor union. The Company believes that it has good relations
with its employees.
ITEM 2. DESCRIPTION OF PROPERTY
Set forth below is certain information with respect to the Company's
principal properties. The Company believes that all of these properties are
adequately insured, in good condition and suitable for the uses described below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Approximate Size Owned/ Lease Expiration
Location Primary Use (Square Feet) Leased Date
------------------- ---------------- ----------------------- ------------------ -------------------------
Ft. Lauderdale, Duplication & 12,000 Leased Month to Month (1)
Florida Office
Ft. Lauderdale, Warehouse 12,000 Owned (2)
Florida
Indianapolis, Duplication & 66,000 Leased June 1999
Indiana Warehouse
</TABLE>
(1) The Company's lease expired August 1996. Management is negotiating a lease
renewal for a term of four years at rate comparable to the current rate.
Management fully expects the lease to be renewed.
(2) The Company purchased this facility on March 31, 1992 for a purchase price
of $398,000.
ITEM 3. LEGAL PROCEEDINGS
The Company may from time to time be party to various legal actions arising
during the ordinary course of its business. In addition, the Company is
currently involved in the following litigation:
On March 4, 1996, Richard Abrons, allegedly on behalf of the Company,
and Adrian Jacoby, allegedly on behalf of an affiliate company, S.O.I.
Industries, Inc. ("SOI"), brought a purported shareholder derivative
lawsuit against the Company's board of directors - Kevin B. Halter, Kevin
B. Halter, Jr., Gary C. Evans and James Smith - Halter Capital Corporation
and Securities Transfer Corporation. In addition, the Company and SOI have
been joined as "nominal defendants." In the lawsuit, the Plaintiffs have
alleged breaches of fiduciary duty, fraud, and violations of state
securities laws. The Plaintiffs seek unspecified actual and exemplary
damages, a constructive trust against the assets of the Defendants and an
accounting of the affairs of the Defendants with respect to their dealings
with the Company and SOI. In addition, the Plaintiffs have requested a
temporary injunction and the appointment of a receiver for the Company and
SOI. The Plaintiffs have brought this lawsuit allegedly to vindicate the
wrongs that the Plaintiffs claim were done to the Company and SOI by the
individual Defendants and their affiliated companies, and if any damages
are ultimately awarded to the Plaintiffs, those damages will be on behalf
of, and for the benefit of, the Company and all of its shareholders. If
they are successful, the Plaintiffs may recover
2
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certain attorney's fees and costs. This case is entitled Richard Abrons et
al v. Kevin B. Halter et al, Cause no. 96-02169-G, in the 134th Judicial
District, Dallas County, Texas. Even though the Company is a nominal
defendant in the lawsuit, the Plaintiffs have not sought to recover any
damages against the Company. In this type of lawsuit, the Company is joined
as a procedural matter to make it a party to the lawsuit.
All of the Defendants have answered and denied the allegations
contained in the Plaintiffs' Petition. A certain amount of discovery has
been conducted by both Plaintiffs and Defendants. All of the Defendants
deny all of the material allegations and claims in the Petition, dispute
the Plaintiffs' contention that it is a proper shareholder derivative
action, deny that the Plaintiffs have the right to pursue this lawsuit on
behalf of the Company and SOI and are vigorously defending the lawsuit. In
addition, the Defendants have filed Counterclaims against the Plaintiffs
and third party actions against Blake Beckham, Attorney at Law, Beckham &
Thomas, L.L.P., Sanford Whitman, the former CFO of the Company and Jack D.
Brown, Jr., the former President of the Company, seeking damages in excess
of $50 million. In its Counterclaim, the Company has asserted that the
filing of this lawsuit and Temporary Restraining Order caused the Company
damages. However, the Company does not believe that the lawsuit will have
any further material impact on the operations or financial condition of the
Company.
The Company does not believe that it is currently involved in any
pending actions that will have a material adverse effect on its business,
financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth quarter of
the year ended June 30, 1996.
3
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company has been listed on the American Stock
Exchange ("AMEX") 1994 under the symbol "DCT." The following table sets forth
the high and low sales prices of the Common Stock on the AMEX for the periods
indicated.
High Low
Fiscal 1995:
First Quarter $3.94 $2.19
Second Quarter 3.94 2.19
Third Quarter 2.75 1.75
Fourth Quarter 2.25 1.25
Fiscal 1996:
First Quarter $1.79 $1.25
Second Quarter 1.56 1.00
Third Quarter 4.38 1.06
Fourth Quarter 3.94 1.81
On September 25, 1996, the closing price of the Common Stock was $1.50 per
share. On September 25, 1996, there were 590 stockholders of record of the
Common Stock. Additionally, the Company believes there are in excess of 1,900
additional beneficial holders of the Company's Common Stock held in brokerage
accounts.
The Company currently intends to retain all earnings, if any, to finance
the development and expansion of its operations. The Company does not anticipate
paying cash dividends on its shares of Common Stock in the foreseeable future.
The Company's future dividend policy will be determined by its Board of
Directors on the basis of various factors, including but not limited to the
Company's results of operations, financial condition, business opportunities and
capital requirements. The payment of dividends will also be subject to the
requirements of Delaware law, as well as restrictive financial covenants in the
Company's existing and future credit agreements.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The Company's sales continued to grow with a 19% increase over the previous
year. However, the Company experienced a decline in operating profits from
approximately $811,000 to $428,000 for the years ended June 30, 1995 and 1996,
respectively. Increased operating costs, primarily related to increased cost of
goods sold, caused the lower operating results. These increased operating costs
were partially offset by decreases in interest expense and income from the
discontinued operations of Tapes Unlimited, Inc. ("TU").
4
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Liquidity
The Company provided approximately $2,281,000 in cash from operating
activities for the year ended June 30, 1996 as compared to approximately
$109,000 in cash used by operating activities for the year ended June 30, 1995.
The change in the Company's operating cash position is due primarily to the
significant decrease in the level of inventory. In addition, net income of
approximately $223,000 during the year ended June 30, 1996 contributed to cash
as compared to the net loss generated in the year ended June 30, 1995 of
approximately $282,000. Other items that affected cash from operating activities
for the year ended June 30, 1996 were changes in accounts receivable, accounts
payable and prepaid expenses.
Overall inventory levels decreased approximately 29% from June 30, 1995 to
June 30, 1996. The raw materials component of inventory dropped by 37% while the
work-in-process and finished goods components remained relatively consistent.
The large decrease in raw materials is due to the focus of management to ensure
that the least amount of operating cash is invested in inventory by insisting
that shipments of raw materials are made on a just-in-time basis and by
minimizing the amount of raw materials purchased. In addition, during the fourth
quarter of fiscal year 1996, management decided to sell off an excess
accumulation of reworkable inventory in order to provide needed warehouse space
and improve operating cash flow in anticipation of peak season demand in the
fall. In the past, sufficient profit margins had existed which supported the
labor required to rework this product and restore it to its full, salable
condition. This decision had a negative impact on operating profits
(approximately 3%) since previous unit costs exceeded the resale market prices.
The decreased inventory level and the higher net sales contributed to an
improved inventory turnover rate that increased from 5.2 times for the year
ended June 30, 1995 to 5.9 times for the year ended June 30, 1996. Inventory
levels, particularly in the work-in-process and finished goods categories, will
fluctuate somewhat depending on the size and number of video tape duplicating
orders processed at any given time. Typically, the Company does not stock
significant quantities of finished products, shipping orders immediately upon
completion.
Accounts receivable decreased approximately $76,000 for the year ended June
30, 1996 as compared to an increase of approximately $891,000 for the year ended
June 30, 1995. The Company's accounts receivable collection period (measuring
how quickly, on average, the Company collects its accounts receivable) decreased
from approximately 74 days at June 30, 1995 to approximately 61 days at June 30,
1996. The decrease is due primarily to the write-off of significant accounts in
the current year that were previously reserved in the year ended June 30, 1995.
The above write-off, improved collection efforts, and the lack of any large
delinquent accounts allowed the Company to decrease its allowance for doubtful
accounts from approximately $1,065,000 to $414,000 as of June 30, 1995 and 1996,
respectively. Despite the improved collection periods, the Company continues to
receive competitive pressures from its customers to grant longer payment terms.
Management will continue to monitor collections and outstanding accounts
receivable to ensure timely collection.
Accounts payable increased approximately $867,000 for the year ended June
30, 1996 as compared to an increase of approximately $404,000 for the year ended
June 30, 1995. The increase is due primarily to the growth in sales volume that
has dictated additional raw material, equipment and supply purchases. In
addition, reductions in the outstanding balance on the revolving line of credit
have contributed to the increase.
Prepaid expenses and other current assets increased approximately $269,000
for the year ended June 30, 1996 as compared to an increase of approximately
$314,000 for the year ended June 30, 1995. The increase is primarily related to
income tax receivables based on anticipated refunds due to the Company's net
taxable loss in the current year.
5
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Approximately $34,000 was provided by investing activities for the year
ended June 30, 1996 as compared to the use of approximately $2,005,000 for the
year ended June 30, 1995. The primary sources of funds were an approximate
$188,000 decrease in loans receivable from affiliate companies and an
approximate $1,120,000 decrease in the Company's marketable securities
portfolio. In addition, proceeds from the sale of stock of one of the Company's
principal owners, SOI, provided approximately $113,000.
The Company utilized approximately $2,215,000 to reduce its indebtedness on
its credit line agreement during the year ended June 30, 1996 and repaid
approximately $778,000 in long term debt. In addition, approximately $79,000 in
cash was generated from issuances of Common Stock in connection with bonuses and
other employee compensation. On May 6, 1996 the Company generated $930,000 with
the sale of 100,000 shares of Series A Convertible Preferred Stock in a private
placement. The Series A Convertible Preferred Stock is convertible into the
Company's common stock at a 20% discount to the market price at the date of
conversion.
Management intends to selectively utilize its line of credit to fund
capital expenditures and inventory purchases when needed, and expects to reduce
the amount outstanding on the line of credit as collections on sales are
received. During the year ended June 30, 1996, the Company's cash needs were met
primarily through operations. Long-term liquidity needs are anticipated to be
met through sales growth and separate financing arrangements. Management
anticipates that it will continue to meet most obligations as they come due, and
no vendor/supplier problems are expected.
Capital Resources
The Company invested approximately $1,388,000 in equipment and leasehold
improvements for the year ended June 30, 1996. Expenditures during the year
consisted primarily of the following: a high speed video duplication system at
the Company's Fort Lauderdale facility (subsequently relocated to the
Indianapolis facility), and factory upgrades for all 9 high-speed duplicators
located in Indianapolis. These upgrade kits increased the output yield of the
equipment by 45%. These expenditures were financed through operations and
borrowings on the Company's line of credit.
The Company plans to continue to expand its current operating facilities at
both the Indianapolis and Fort Lauderdale facilities in order to continue to
meet the volume demands of its sales growth. Included in the planned capital
expansion is the acquisition of 482 real-time duplicators in the Fort Lauderdale
facility and the purchase of additional tape loading and high-speed automatic
packaging equipment at both facilities.
Subsequent to June 30, 1996 the Company signed a commitment letter, subject
to certain conditions, with Bank One, N.A. ("Bank") which would provide a new
credit facility to replace the existing facility with NBD Bank. The financing
consists of a revolving line of credit, term loans and a long term lease
agreement. Under the revolving line of credit, borrowings can be made up to
$5,000,000 based upon collateral values as determined under the agreement. The
term loans consist of a $2,500,000 secured term loan and a capital expenditure
term loan facility for up to $1,250,000, based upon 80% of the acquisition costs
of new machinery and equipment. The long term lease agreement is collateralized
with new equipment in excess of $700,000. All of the above agreements are
collateralized by accounts receivable, inventory and equipment. The facility has
a two year term and includes interest rates at .25% and .50% above the Bank's
base rate (closely related to the Bank's prime interest rate).
Results of Operations
Overall growth in the Company's target markets and overall growth in demand
for video tapes throughout the industry led to continued sales growth in the
current year. Net sales increased approximately 19% from $20,894,000 to
$24,807,000 for the years ended June 30, 1995 and 1996, respectively.
Significant sales increases, were experienced primarily in the Company's third
and fourth fiscal quarters. This sales growth is due to the expansion of the
Company's fulfillment services along with expanded orders from existing
customers as the Company's reputation for providing quality products has grown.
As in the prior fiscal years, management's focus on the retail sell through
market has also contributed to the overall sales growth.
6
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The Company's sales to the retail sell through market focuses on sales of
pre-recorded video tapes which are sold at the retail level. The most rapid
growth in video tapes sold to this market are those which are recorded on a
narrower band width (i.e. extended play mode) which allows more programming to
be recorded on less video tape at a lower cost. The Company's customer base has
become increasingly dominated by the companies which distribute these
pre-recorded videos to the retail sell through market, and through investment in
high-speed equipment optimally suited to the production of extended play
programming, management has positioned the Company to capitalize on this portion
of the video industry. Fulfillment services utilize the Company's ability to
prepare packages that include other promotional material and packaging, along
with the video tape. After assembly, these packages are then sent to multiple
consumer or retail destinations as stipulated by the Company's customers.
Management hopes to increase sales in this market segment by continuing to
reorganize the facilities and by building a reputation for quality and
reliability in the industry.
Operating profit did not keep pace with the increased sales, declining from
approximately $811,000 (3.9% of net sales) to $428,000 (1.7% of net sales) for
the years ended June 30, 1995 and 1996, respectively. The decline in operating
profit is due to increases in cost of goods sold.
Cost of goods sold as a percentage of sales increased to 82% for the year
ended June 30, 1996 as compared to 77% for the year ended June 30, 1995. The
increased cost of goods sold is related primarily to the sale of reworkable
inventory in the fourth fiscal quarter. Management decided to sell off an excess
accumulation of reworkable inventory in order to provide needed warehouse space
and improve operating cash flow in anticipation of peak season demand in the
fall. In the past, sufficient profit margins had existed which supported the
labor required to rework this product and restore it to its full, salable
condition. This decision had a negative impact on operating profits
(approximately 3%) since previous unit costs exceeded the resale market prices.
In addition, pricing pressures in the market have continued to restrict profit
margins. Management will continue to focus on cost containment, especially in
labor and overhead costs, to ensure more efficiency is obtained and thereby
reducing the cost per unit as sales volumes increase. Management is also
continuously exploring alternative sources for its raw materials in order to
reduce material costs.
General and administrative expenses decreased slightly for the year ended
June 30, 1996. As a percentage of net sales, these expenses decreased from
approximately 9% to 7% for the year ended June 30, 1995 and 1996, respectively.
This decrease is due primarily to the lack of a large provision for doubtful
accounts as experienced in the previous year. In addition, management fees
previously paid to SOI were discontinued in December 1995. The significant
decrease was offset in the current year by substantial increases in legal and
professional expenses and an increase in officers and management salaries. Legal
fees were incurred in connection with the shareholder derivative lawsuit (see
Legal Proceedings, Item 3) and other professional fees were incurred in
connection with the upgrade of the Company's existing computer system.
Selling expenses increased in direct proportion to the increase in net
sales for the year ended June 30, 1996. As a percentage of net sales, selling
costs remained consistent at approximately 4.9% for the years ended June 30,
1995 and 1996.
Interest expense decreased from approximately $700,000 to $640,000 for the
years ended June 30, 1995 and 1996, respectively. This decrease is due to
repayments made on the Company's line of credit. The reduction was partially
offset by margin interest paid in connection with the Company's marketable
securities portfolio.
The Company realized income from securities transactions of approximately
$361,000 for the year ended June 30, 1996 as compared to approximately $513,000
for the year ended June 30, 1995. The gains were from investment transactions
associated with the Company's marketable securities portfolio. The Company
invests funds in equity securities, mainly listed on the New York and American
Stock Exchanges and, by policy, limits the amount of exposure in any one equity
investment. At June 30, 1996, two equity investments accounted for approximately
67% of the total investments. Such investments are continually monitored to
reduce the risk of any adverse stock market volatility. Cash not invested in
securities is placed on account with brokerage firms, which is swept daily into
a federally insured money market account, or placed on account with a federally
insured national bank.
7
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During June 1995, the Company's management decided to discontinue the
operations of Tapes Unlimited, Inc. ("TU"). Management believed that the cost of
maintaining the TU subsidiary outweighed the benefits provided to the Company.
The effect on net income (loss) of the operations of TU is segregated on the
face of the income statement as discontinued operations, and totaled
approximately $132,000 and ($321,000) for the years ended June 30, 1996 and
1995, respectively. Although the operations of Tapes Unlimited, Inc. have
ceased, certain collection efforts, along with debt forgiveness resulting from
settlements with TU creditors, have resulted in recoveries which are reflected
in the income from discontinued operations for the year ended June 30, 1996.
Other Items
The costs of the Company's products are subject to inflationary pressures
and commodity price fluctuations. In addition, the Company from time to time
experiences increases in the costs of materials and labor, as well as other
manufacturing and operating expenses. The Company's ability to pass along such
increased costs through increased prices has been difficult due to competitive
pressures. The Company attempts to minimize any effects of inflation on its
operations by controlling these costs.
The Company's sales levels generally follow the retail sell through
markets, which typically peak in the fall and early winter months as retail
demand and holiday orders are met. The Company has attempted to mitigate this
seasonality by increasing sales efforts to lower volume, but higher margin,
customers such as those involved with corporate training video duplication and
the video rental market. Finally, management intends to focus its marketing
efforts toward the mass marketing advertising industry to help mitigate the
seasonality of the retail sell through markets. Even by utilizing these
techniques, sales levels are still expected to be lower in the spring and summer
months.
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," is effective for fiscal years beginning after December 15, 1995. This
statement requires that long lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The effect of this
pronouncement is not expected to have a material impact on the financial
position and results of operations of the Company.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" is effective for transactions entered into in fiscal
years that begin after December 15, 1995. This pronouncement established
financial accounting and reporting standards for stock-based employee
compensation plans. It encourages, but does not require companies to recognize
expense for grants of stock, stock options and other equity instruments to
employees based on fair value accounting rules. Companies that choose not to
adopt the new fair value accounting rules will be required to disclose pro forma
net income and earnings per share under the new method. The Company anticipates
adopting the disclosure provisions of SFAS No. 123, however, the effect of
adopting this pronouncement is not expected to have a material effect on the
financial position and results of operations of the Company.
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ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Financial Statements (Audited)
F-1 Report of Independent Accountants
F-2 Consolidated Balance Sheet as of June 30, 1996
F-3 Consolidated Statements of Operations for the Years Ended June 30, 1996
and 1995
F-4 Consolidated Statements of Shareholders' Equity for the Years Ended
June 30, 1996 and 1995
F-5 Consolidated Statements of Cash Flows for the Years Ended June 30,
1996 and 1995
F-7 Notes to Financial Statements
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
Digital Communications Technology Corporation
Dallas, Texas:
We have audited the accompanying consolidated balance sheet of Digital
Communications Technology Corporation and Subsidiaries as of June 30, 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the two years in the period ended June 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Digital
Communications Technology Corporation and Subsidiaries as of June 30, 1996, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended June 30, 1996 in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND
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COOPERS & LYBRAND L.L.P.
Miami, Florida
August 23, 1996
F-1
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DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet
June 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ASSETS 1996
Current assets:
Cash and cash equivalents $ 615,037
Marketable securities 1,900,050
Accounts receivable, net of allowance for doubtful accounts of $414,000 3,719,265
Inventories 2,862,911
Prepaid expenses and other current assets 614,210
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Total current assets 9,711,473
Property, plant and equipment, net 5,469,304
Other assets 81,343
Loans receivable, related parties 413,369
-------------
$ 15,675,489
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 1,625,325
Current portion of long-term debt 935,127
Accounts payable 3,032,236
Accrued liabilities 362,520
-------------
Total current liabilities 5,955,208
---------
Long-term debt, less current portion 1,666,063
---------
Deferred tax liability 157,216
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Commitments (Notes 8 and 14)
Shareholders' Equity:
Series A convertible preferred stock, 10,000,000 shares of $.0001 par value
per share authorized; 100,000 shares issued and
outstanding, $1,000,000 liquidation preference 10
Common stock, 25,000,000 shares of $.0002 par value per share
authorized; 6,332,116 shares issued, 6,125,162 shares
outstanding 1,266
Additional paid-in capital 8,479,318
Retained earnings 1,030,152
Investment in S.O.I. Industries, Inc. (1,084,983)
Net unrealized holding loss on securities (528,761)
-------------
Total shareholders' equity 7,897,002
-------------
$ 15,675,489
=============
The accompanying notes are an integral part of these financial statements
</TABLE>
F-2
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
for the years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Net sales $ 24,807,244 $ 20,894,025
-------------- -------------
Costs and expenses:
Cost of goods sold (exclusive of depreciation) 20,272,614 16,094,788
Selling expenses 1,215,082 1,040,280
General and administrative expenses 1,733,482 1,793,171
Depreciation and amortization 1,157,917 1,154,880
-------------- --------------
Total costs and expenses 24,379,095 20,083,119
-------------- --------------
Operating income 428,149 810,906
Interest expense (639,517) (700,251)
Realized gain on sales of marketable securities 360,512 512,971
Other income 51,166 142,208
-------------- --------------
Income from continuing operations before provision for
income taxes 200,310 765,834
Provision for income taxes 109,003 283,167
-------------- --------------
Income from continuing operations 91,307 482,667
Discontinued operations (Note 16):
Income (loss) from discontinued operations, net of related
income taxes 131,737 (321,140)
Loss on disposal of discontinued operations, net of related
income taxes 0 (443,400)
-------------- --------------
Net Income (loss) $ 223,044 $ (281,873)
============== ==============
Weighted average shares of common stock outstanding 5,553,415 5,264,773
================ ==============
Net (loss) income per common share:
Income from continuing operations $ 0.02 $ 0.09
Income (loss) from discontinued operations 0.02 (0.06)
Loss on disposal of discontinued operations 0 (0.08)
-------------- -------------
Net income (loss) per common share $ 0.04 $ (0.05)
============== =============
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
for the years ended June 30, 1996 and 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Additional Investment Net Unrealized
Paid-In Retained in S.O.I. Holding Loss
Shares Amount Shares Amount Capital Earnings Industries, Inc. on Securities
------ ------ ------ ------ ------- -------- ---------------- -------------
Balance, June 30, 1994,
as restated 0 $ 0 5,790,557 $ 1,158 $ 6,297,697 $ 2,315,369 $ (1,170,787) $ (517,238)
Purchase of S.O.I.
Industries, Inc. shares 0 0 0 0 0 0 (27,371) 0
Excess over book value of
amounts paid for shares of
S.O.I. Industries, Inc. 0 0 0 0 0 (322,629) 0 0
Exercise of options 0 0 142,705 28 179,377 0 0 0
Shares issued 0 0 27,926 6 89,988 0 0 0
Net depreciation of
securities 0 0 0 0 0 0 0 (96,751)
Net loss 0 0 0 0 0 (281,873) 0 0
-------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 0 $ 0 5,961,188 $ 1,192 6,567,062 $ 1,710,867 $ (1,198,158) $ (613,989)
Exercise of options 0 0 57,500 12 60,613 0 0 0
5% Stock dividend 0 0 301,253 60 903,699 (903,759) 0 0
Sale of preferred
stock 100,000 10 0 0 929,990 0 0 0
Shares Issued 0 0 12,175 2 17,954 0 0 0
Sale of S.O.I.
Industries, Inc.
shares 0 0 0 0 0 0 113,175 0
Net appreciation of
securities 0 0 0 0 0 0 0 85,228
Net income 0 0 0 0 0 223,044 0 0
-------------------------------------------------------------------------------------------------------------------
Balance,
June 30, 1996 100,000 $ 10 6,332,116 1,266 8,479,318 1,030,152 (1,084,983) $ (528,761)
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1996 1995
Cash flows from operating activities:
Net income (loss) $ 223,044 $ (281,873)
------------ ---------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization (including $74,068
in 1995 from discontinued operations) 1,157,917 1,228,948
Gain on sale of marketable securities (360,512) (512,971)
Loss on sale of property, plant and equipment 0 106,272
(Recovery) provision for bad debts (651,133) 745,776
Loss on disposal of subsidiary 0 530,637
Increase (decrease) deferred tax liability 148,824 (87,282)
Decrease (increase) in accounts receivable 75,557 (890,666)
Decrease (increase) in inventories 1,195,382 (842,355)
Increase in prepaid expenses and other assets (269,084) (313,772)
Increase in other assets (50,185) (13,798)
Increase in accounts payable 866,511 404,154
(Decrease) in accrued liabilities (55,856) (12,904)
(Decrease) in income taxes payable (0) (169,077)
--------------- ---------------
Net cash provided by (used in) operating activities 2,280,465 (108,911)
------------- ---------------
Cash flows from investing activities:
Change in marketable securities 1,120,316 (99,343)
Acquisition of property, plant and equipment (1,387,657) (1,226,568)
Proceeds from sales of property, plant and equipment 0 24,000
Net repayments (advances) to affiliates 188,367 (352,736)
Sale (purchase) of S.O. I. Industries, Inc. shares 113,175 (350,000)
--------------- ---------------
Net cash provided by (used in) investing activities 34,201 (2,004,647)
---------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
for the years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Cash flows from financing activities:
Borrowings from bank $ 0 $ 838,932
Repayment to bank (778,372) (625,790)
(Repayments) proceeds from revolving lines of credit, net (2,214,675) 1,290,433
Proceeds from sale of preferred stock 930,000 0
Proceeds from issuance of common stock 78,581 269,399
--------------- -------------
Net cash (used in) provided by financing activities
(1,984,466) 1,772,974
------------- -----------
Net increase (decrease) in cash and cash equivalents 330,200 (340,584)
Cash and cash equivalents, beginning of year 284,837 625,421
--------------- ---------------
Cash and cash equivalents, end of year $ 615,037 $ 284,837
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 691,677 $ 686,559
=============== ===============
Income taxes $ 252,243 $ 380,247
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Organization:
On April 29, 1994, the shareholders of MagneTech Corporation approved a
resolution to change the name of the Company to Digital Communications
Technology Corporation (the "Company"). The Company was incorporated on
November 12, 1987, under the laws of the State of Delaware, as a
wholly-owned subsidiary of S.O.I. Industries, Inc. ("S.O.I"). As of June
30, 1996, S.O.I. owned approximately 18% of the Company.
The Company is an integrated video communications company which offers
video tape duplication and satellite communications services. Sales for
the years ended June 30, 1996 and 1995 were generated from video tape
duplicating at the Fort Lauderdale and Indianapolis facilities, as well
as satellite broadcasting.
The Company duplicates a variety of video cassettes, including
full-length movies, training, music, promotional, sports and
educational programs. The Company offers its reproduction services to
entertainment companies and a wide range of industrial customers,
including advertising agencies, direct selling organizations and
educational groups. These customers are located throughout the United
States, Canada, and Latin America. Raw materials, primarily videotape
("pancake") and empty video cassettes ("shells") are purchased from
several manufacturers at market prices in the United States and the
Pacific Rim. The tape and video cassettes are readily available on the
open market. The majority of the Company's video duplication equipment
is manufactured by several major manufacturers in Japan and purchased
from domestic distributors.
The Company's satellite operation consists of two mobile KU band units
which are capable of transmitting live or pre-recorded programming from
any location to commercial satellites. DCT's satellite communications
customers include local, network and cable television operators,
primarily in the Southeastern United States. The equipment utilized in
the Company's satellite broadcasting business includes the two KU band
broadcasting trucks, cameras, generators, telephonic equipment and dual
transmitters. The Company purchases its materials and equipment from
several major manufacturers.
The costs of the Company's products are subject to inflationary
pressures and commodity price fluctuations. In addition, the Company
from time to time experiences increases in the costs of materials and
labor, as well as other manufacturing and operating expenses. The
Company's ability to pass along such increased costs through increased
prices has been difficult due to competitive pressures. The Company
attempts to minimize any effects of inflation on its operations by
controlling these costs.
2. Summary of Significant Accounting Policies:
Principles of Consolidation
The accompanying consolidated financial statements for the years ended
June 30, 1996 and 1995 include the accounts of Digital Communications
Technology Corporation, (D/B/A MagneTech Corporation) and its
wholly-owned subsidiaries, Tapes Unlimited, Inc. and DCT - Internet
Corporation. The operations of Tapes Unlimited, Inc. were discontinued
on June 9, 1995. All significant intercompany transactions have been
eliminated.
F-7
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2. Summary of Significant Accounting Policies, Continued:
Management's Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Marketable Securities
The Company accounts for marketable securities in accordance with the
provisions of Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities"
(SFAS 115).
Under SFAS 115, debt securities and equity securities that have readily
determinable fair values are to be classified in three categories:
Held to Maturity - the positive intent and ability to hold to
maturity. Amounts are reported at amortized cost, adjusted for
amortization of premiums and accretion of discounts.
Trading Securities - bought principally for purpose of selling
them in the near term. Amounts are reported at fair value,
with unrealized gains and losses included in earnings.
Available for Sale - not classified in one of the above
categories. Amounts are reported at fair value, with
unrealized gains and losses excluded from earnings and
reported separately as a component of shareholders' equity.
Marketable securities consist of listed common stocks with an aggregate
cost, based on specific identification, of $2,428,811 as of June 30,
1996. The gross unrealized holding losses as of June 30, 1996 were
$533,701, and the gross unrealized holding gains were $4,940. All of
the Company's securities are classified as available for sale
securities.
Gains or losses on dispositions of securities are based on the net
difference of the proceeds and the adjusted carrying amounts of the
securities sold, using the specific identification method.
Investment S.O.I.
The market value of the Company's investment in S.O.I. Industries,
Inc. is less than the carrying value (cost) of such investment by
approximately $600,000 at June 30, 1996. Management does not believe
that this investment has been permanently impaired. Subsequesnt to
June 30, 1996, the market vaule has increased by approximately
$360,000.
Inventories are valued at the lower of cost (weighted average) or
market value.
F-8
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2. Summary of Significant Accounting Policies, Continued:
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives
of the related assets, which range from 5 to 30 years. Costs of repairs
and maintenance are charged to operating expense as incurred;
improvements and betterments are capitalized; when items are retired or
otherwise disposed of, the related costs and accumulated depreciation
are removed from the accounts and any resulting gains or losses are
credited or charged to income.
Income Taxes
The Company uses the asset and liability method of accounting for
income taxes as prescribed by SFAS No. 109, "Accounting for Income
Taxes". Under this method, deferred income taxes are recognized for the
tax consequences in future years for differences between the tax basis
of assets and liabilities and their financial reporting amounts at each
year end based on enacted tax laws and statutory tax rates applicable
to the time period in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change
during the period in the deferred tax asset and liability.
Revenue Recognition
Revenues are recognized when a product is shipped or a service is
performed.
Net Income (Loss) Per Common Share
The net income (loss) per common share has been calculated using the
weighted average shares outstanding during each year. Such weighted
average shares have been reduced by the number of treasury shares owned
by the Company through its investment in S.O.I. The number of treasury
shares owned were approximately 207,000 and 659,400 at June 30, 1996
and 1995, respectively.
Change in Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," is effective for fiscal years beginning
after December 15, 1995. This statement requires that long lived assets
and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The effect of this
pronouncement is not expected to have a material impact on the
financial position and results of operations of the Company.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" is effective for transactions entered into in
fiscal years that begin after December 15, 1995. This pronouncement
established financial accounting and reporting standards for
stock-based employee compensation plans. It encourages, but does not
require companies to recognize expense for grants of stock, stock
options and other equity.
F-9
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2. Summary of Significant Accounting Policies, Continued:
instruments to employees based on fair value accounting rules.
Companies that choose not to adopt the new fair value accounting rules
will be required to disclose pro forma net income and earnings per
share under the new method. The Company anticipates adopting the
disclosure provisions of SFAS No. 123, although the impact of such
disclosure has not been determined.
Reclassifications
Certain amounts reflected in the 1995 consolidated financial statements
have been reclassified to conform to the 1996 presentation.
3. Inventory:
Inventories consist of the following at June 30:
1996 1995
Raw materials $ 1,891,393 $ 3,008,167
Work-in-process 769,254 885,976
Finished goods
202,264 164,150
------------- -------------
$ 2,862,911 $ 4,058,293
============= =============
4. Property, Plant and Equipment:
Property, plant and equipment consists of the following:
Land $ 73,000
Buildings and improvements 333,040
Machinery and equipment 8,779,665
Leasehold improvements 213,663
Furniture and fixtures 145,050
Transportation equipment 369,030
Computer equipment 319,122
-------------
10,232,570
Less accumulated depreciation (4,763,266)
Net property, plant and equipment $ 5,469,304
=============
Depreciation expense was $1,157,917 and $1,189,449 for the years ended June
30, 1996 and 1995, respectively.
F-10
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
5. Related Party Transactions:
Loans Receivable
These amounts represent advances to affiliates and are due on
demand. Advances are non-interest bearing.
Management Fees
The Company paid to S.O.I. $180,000 and $340,800 for administrative
services for the years ended June 30, 1996 and 1995, respectively.
Management fees payable to S.O.I were terminated December 31, 1995.
Employee Stock Ownership Plan
The Company participates in S.O.I.'s Employee Stock Ownership Plan
(ESOP). This Plan provides retirement benefits to substantially all
employees. The ESOP is a qualified employee benefits plan exempt from
taxation under the Internal Revenue Code of 1986, as amended. There are
90,291 shares of S.O.I common stock in the ESOP.
Effective July 1, 1996, the Board of Directors of S.O.I voted to
terminate the ESOP. The ESOP stock will therefore be distributed to
employees of SOI, DCT, and Tempo Lighting, Inc. who were eligible to
participate in the ESOP after a final allocation and accounting of the
ESOP is conducted.
6. Revolving Lines of Credit:
The Company has a revolving line of credit agreement for aggregate
borrowings of up to $4,000,000. Interest is payable on all outstanding cash
advances at the bank's prime lending rate plus 3/8% (8.625% at June 30,
1996). Any unpaid principal and accrued interest is due on demand, but no
later than August 1996. The line of credit is collateralized by accounts
receivable, inventory and equipment. The terms of the agreement require,
among other provisions, that the Company comply with requirements for
maintaining certain cash flow and other financial ratios and restricts the
payment of cash dividends. As of June 30, 1996, $1,625,000 has been drawn
upon the line of credit.
Average short-term borrowings under this revolving credit agreement were
$3,699,194, at an average interest rate of 8.87%.
Subsequent to June 30, 1996 the Company signed a commitment letter, subject
to certain conditions, with Bank One, N.A. ("Bank") which would provide a
new credit facility to replace the existing facility with NBD Bank, N.A..
The financing consists of a revolving line of credit, term loans and a long
term lease agreement. Under the revolving line of credit, borrowings can be
made up to $5,000,000 based upon collateral values as determined under the
agreement. The term loans consist of a $2,500,000 secured term loan and a
capital expenditure term loan facility for up to $1,250,000, based upon 80%
of the acquisition costs of new machinery and equipment. The long term
lease agreement is collateralized with new equipment in excess of $700,000.
All of the above agreements are collateralized by accounts receivable,
inventory and equipment. The facility has a two year term and includes
interest rates at .25% and .50% above the Bank's base rate (closely related
to the Bank's prime interest rate).
<TABLE>
<CAPTION>
F-11
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
7. Long-Term Debt:
Long-term debt as of June 30, 1996 consists of the following:
<S> <C> <C>
Loan payable to a bank in monthly installments of $3,198
including interest at 8.75%, maturing April 2007;
collateralized
by real estate. $ 269,899
Loan payable to a bank in monthly principal installments of
$7,440 plus interest at prime plus 1% (9.25% at June 30,
1996), maturing June 1997; collateralized by accounts
receivable, inventory, and equipment. The terms of the
agreement require, among other provisions, that the Company
comply with
requirements for maintaining certain cash flow and other
financial ratios. 297,619
Loans payable to a bank in monthly installments of $18,868
plus interest at prime plus 1/4% (8.5% at June 30, 1996),
maturing through June 2000; collateralized by the accounts
receivables, inventory and equipment. The terms of the
agreement require, among other provisions, that the Company
comply with requirements for maintaining certain cash flow and
other financial ratios. 813,810
Loan payable to a bank in monthly installments of $29,000 plus
interest at prime plus 1/4% (8.5% at June 30, 1996), maturing
December 1998; collateralized by accounts receivables,
inventory, and equipment. The terms of the agreement require,
among other provisions, that the Company comply with
requirements for
maintaining certain cash flow and other financial ratios. 847,125
Loan payable to a bank in monthly installments of $6,149
including interest at 7.63%, maturing January 2003;
collateralized by machinery and equipment; guaranteed by S.O.I. 372,737
----------------
2,601,190
Less current portion (935,127)
-----------------
$ 1,666,063
================
</TABLE>
The contractual maturities on long-term debt are as follows:
Years ending June 30,
---------------------
1997 $ 935,127
1998 641,786
1999 450,262
2000 212,633
2001 83,854
Thereafter 277,528
----------------
$ 2,601,190
================
F-12
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
8. Commitments:
The Company leases its office facilities under operating leases
expiring through May 1999. The leases provide for increases based on
real estate taxes and operating expenses. The Company also leases
facilities and equipment on a month-to-month basis.
Aggregate future minimum rental payments under the above leases are as
follows:
Year ending June 30,
--------------------
1997 $ 306,127
1998 297,852
1999 273,031
---------------
$ 877,010
===============
Rent expense under the above leases for the years ended June 30, 1996
and 1995 was $414,075 and $412,568, respectively.
9. Preferred Stock:
On May 6, 1996 the Company sold 100,000 shares of Class A Convertible
Preferred Stock ("Preferred Stock") in a private placement. The
Preferred Stock is convertible into Common Stock at the discretion of
the holder at the lesser of (i) 20% discount on the previous five day
average closing bid at conversion, or (ii) previous five day average
closing bid price at closing. The holder may convert up to 20% of the
Preferred Stock every 30 days beginning June 15. The Preferred Stock
is convertible for a term of three years, and accrues dividends at a
rate of 7% per annum (dividends are rescinded if the shares are
converted in the first year). The holders of the preferred shares do
not have any voting rights. As of June 30, 1996 no shares of Preferred
Stock were converted.
Through September 1996, 20,000 shares of Series A Preferred Stock had
been converted, pursuant to their original terms, into 133,494 shares
of Common Stock at an average per share conversion price of $ 1.57.
The terms of the Preferred Stock which provided for a lower conversion
price than the quoted market price of the Common Stock at the time of
conversion resulted in an aggregate difference of approximately $
7,825 related to the shares converted through September 1996. Such
terms take into account a number of factors affecting value, including
the ability to market a significant number of shares of the underlying
common stock which were negotiated at the time of the issuance of the
Preferred Stock. Accordingly, management believes that the value of
shares issued should be recorded at the carrying amount of the
Preferred Stock converted. If such treatment is ultimately determined
to be inappropriate, all or a portion of the difference could be
accounted for as a Preferred Stock dividend which although would not
impact the Company's statements of operations or total shareholders'
equity, would adversely impact the Company's earnings per share
calculations in periods of conversions. If these shares had been
converted at the beginning of fiscal year 1996, the net income per
share would have been $ 0.04.
F-13
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
10. Sales to Major Customers:
During the year ended June 30, 1996, one customer accounted for
approximately 17.6% of the Company's sales. During the year ended June
30, 1995, two customers accounted for approximately 28% of the
Company's sales.
11. Financial Instruments:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial
instruments. Fair value estimates discussed herein are based upon
certain market assumptions and pertinent other information available to
management as of June 30, 1996. Such amounts have not been
comprehensively reviewed or updated since that date and, therefore may
not represent current estimates of fair value. The fair value of debt
has been estimated using discounted cash flow models incorporating
discount rates based on current market interest rates for similar types
of instruments. At June 30, 1996, the difference between the fair value
and the carrying value of debt instruments was not material.
12. Stock Option Plan:
On January 22, 1990, the Board of Directors adopted the MagneTech
Corporation 1990 Employees' Stock Option Plan. As of June 30, 1996,
there were 9,370 shares reserved for future issuance at exercise prices
which range from $1.00 to $3.44 per share.
There was no compensation expense as of June 30, 1996 and June 30, 1995.
The following is a summary of all option transactions:
Shares Option Price
Outstanding July 1, 1994 244,375 $1.00 - $1.50
Granted 35,000 $2.25 - $3.44
Exercised (141,250) $1.00 - $1.50
Canceled (15,000) $1.50
--------------- ----------------
Outstanding June 30, 1995 123,125 $1.00 - $3.44
Granted 204,500 $1.00 - $1.50
Exercised (57,500 $1.00 - $2.25
--------------- ----------------
Outstanding June 30, 1996 270,125 $1.00 - $3.44
=============== ================
F-14
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
13. Income Taxes:
The provision for income taxes is as follows:
1996 1995
Current:
Federal $ 23,784 $ 294,762
State 21,109 76,724
-------------- --------------
44,893 371,486
-------------- --------------
Deferred:
Federal 54,395 (70,077)
State 9,715 (18,242)
-------------- --------------
64,110 (88,319)
-------------- --------------
$ 109,003 $ 283,167
============== ==============
Reconciliations of the differences between income taxes computed at
federal statutory tax rates and consolidated provisions for income
taxes are as follows:
1996 1995
Tax at federal statutory rate 34.0% 34.0 %
State income tax - net of federal
benefit 5.5% 8.8 %
Other 15.0% (4.9)%
----------- -----------
54.4% 37.9%
=========== ===========
The tax effects of temporary differences which comprise the deferred
tax assets and liabilities are as follows:
1996
Assets:
Allowance for doubtful accounts 163,596
Investments - unrealized holding losses 208,861
Loss and credit carryforwards 185,816
Reserve for inventory obsolesence 7,900
-------
566,173
Liabilities:
Property and equipment - depreciation (507,322)
Deferred state tax benefit (7,206)
Net asset 51,645
Less: Valuation allowance (208,861)
--------
Deferred tax liability $ (157,216)
=========
F-15
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
14. Employment Agreements:
The Company has entered into employment agreements with four of its
officers. The agreements range for terms of two to three years and
contain certain bonus provisions. The minimum annual salaries
(excluding bonus arrangements) for the years ending June 30, are as
follows:
1997 $ 478,000
1998 345,500
1999 191,700
---------------
$ 1,015,200
===============
15. Concentration of Credit Risk:
Financial instruments which potentially expose the Company to a
concentration of credit risk consist principally of cash investments,
and trade receivables. The Company places substantially all its cash
with major financial institutions, and by policy, limits the amount of
credit exposure to any one financial institution. The balances, at
times, may exceed federally insured limits. At June 30, 1996, the
Company exceeded the insured limit by approximately $388,600. At June
30, 1996 two equity investments accounted for approximately 67% of
total investments. Approximately 41% of the Company's accounts
receivable, before allowances, was due from three customers at June
30, 1996.
16. Discontinued Operations:
In June 1995, the Company discontinued the operations of Tapes
Unlimited, Inc. ("Tapes"). The results of operations of Tapes have been
reported separately as a discontinued operation in the Consolidated
Statements of Operations. Prior years consolidated financial statements
have been reclassified to conform with the current year presentation.
Summarized results of operations of the discontinued operations of
Tapes for 1996 and 1995 are as follows:
1996 1995
Net sales $ 0 $ 2,658,516
========== =============
Operating income (loss) $ 0 $ 37,926
========== =============
Loss before income taxes $ 230,511 $ (561,924)
Income tax benefit 98,774 (240,784)
---------- -------------
Gain (loss) from discontinued operation $ 131,737 $ (321,140)
========== =============
F-16
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
16. Discontinued Operations, Continued:
In connection with the shutdown of operations of Tapes, the Company
recorded a charge of $443,400, net of tax of $87,237, to write-off the
goodwill recorded in connection with the acquisition of tapes.
The assets and liabilities of Tapes, which have not been reclassified
on the consolidated balance sheets, are as follows:
1996 1995
Current assets, principally cash, accounts
receivable and inventories $ 16,649 $ 133,790
Plant and equipment - 3,839
---------- --------------
Total assets $ 16,649 $ 137,629
========== ==============
Accounts payable and accrued liabilities, net
of amounts due to the Company of $100,967
in 1996 and $40,700 in 1996 $ 71,856 $ 423,114
---------- --------------
Total liabilities $ 71,856 $ 423,114
========== ==============
17. Litigation:
The Company may from time to time be party to various legal actions
arising during the ordinary course of its business. In addition, the
Company is currently involved in the following litigation:
On March 4, 1996, Richard Abrons, allegedly on behalf of the Company,
and Adrian Jacoby, allegedly on behalf of an affiliate company, S.O.I.
Industries, Inc. ("SOI"), brought a purported shareholder derivative
lawsuit against the Company's board of directors - Kevin B. Halter,
Kevin B. Halter, Jr., Gary C. Evans and James Smith - Halter Capital
Corporation and Securities Transfer Corporation. In addition, the
Company and SOI have been joined as "nominal defendants." In the
lawsuit, the Plaintiffs have alleged breaches of fiduciary duty, fraud,
and violations of state securities laws. The Plaintiffs seek
unspecified actual and exemplary damages, a constructive trust against
the assets of the defendants and an accounting of the affairs of the
Defendants with respect to their dealings with the Company and SOI. In
addition, the Plaintiffs have requested a temporary injunction and the
appointment of a receiver for the Company and SOI. The Plaintiffs have
brought this lawsuit allegedly to vindicate the wrongs that the
Plaintiffs claim were done to the Company and SOI by the individual
defendants and their affiliated companies, and if any damages are
ultimately awarded to the Plaintiffs, those damages will be on behalf
of, and for the benefit of, the Company and all of its shareholders. If
they are successful, the Plaintiffs may recover certain attorney's fees
and costs. This case is entitled Richard Abrons et al v. Kevin B.
Halter et al, Cause no. 96-02169-G, in the 134th Judicial District,
Dallas County, Texas. Even though the Company is a nominal defendant in
the lawsuit, the Plaintiffs have not sought to recover any damages
against the Company. In this type of lawsuit, the Company is joined as
a procedural matter to make it a party to the lawsuit.
F-17
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
17. Litigation, Continued:
All of the Defendants have answered and denied the allegations
contained in the Plaintiffs' Petition. A certain amount of discovery
has been conducted by both Plaintiffs and Defendants. All of the
Defendants deny all of the material allegations and claims in the
Petition, dispute the Plaintiffs' contention that it is a proper
shareholder derivative action, deny that the Plaintiffs have the right
to pursue this lawsuit on behalf of the Company and SOI and are
vigorously defending the lawsuit. In addition, the defendants have
filed Counterclaims against the Plaintiffs and third party actions
against Blake Beckham, Attorney at Law, Beckham & Thomas, L.L.P.,
Sanford Whitman, the former CFO of the Company and Jack Brown, the
former president of the Company, seeking damages in excess of $50
million. In its Counterclaim, the Company has asserted that the filing
of this lawsuit and Temporary Restraining Order caused the Company
damages. However, the Company does not believe that the lawsuit will
have any further material impact on the operations or financial
condition of the Company.
The Company does not believe that it is currently involved in any
pending actions that will have a material adverse effect on its
business, financial condition and results of operations.
F-18
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
10
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16 (A) OF THE EXCHANGE ACT
The following table sets forth certain information about the executive officers
and directors of the Company.
Name Age Position
---- --- --------
Hugh C. Coppen 52 President and Chief Executive Officer,
Director
Kevin B. Halter 60 Chairman of the Board of Directors
Jim Weinberg 40 Chief Operating Officer
Douglas L. Miller 31 Vice President and Chief Financial Officer
Bob Byrne 35 Vice President/General Manager
Kevin B. Halter, Jr. 35 Vice President, Secretary and Director
Gary C. Evans 39 Director
James Smith 59 Director
Set forth below is a description of the backgrounds of the executive officers
and directors of the Company.
Hugh C. Coppen has served as President and Chief Executive Officer of the
Company since May 1996. In July 1996, Mr. Coppen was named as a Director of the
Company. Mr. Coppen has been in management in the video duplication business for
eight years. From 1988 to 1992, he served as the President of VTR Video, then
the leading video duplicator in Canada. From 1992 to 1993 , Mr. Coppen served as
the UK President and later Management Consultant to West Coast Video
Duplicating, the third largest video duplicator in the world. In 1994, Mr.
Coppen co-founded Quality Works Inc., a management consulting practice which
specialized in the implementation of Total Quality Management principles and
practices into manufacturing and service companies, including video duplication
companies. Most recently, Mr. Coppen has served as Vice President of
Manufacturing for Allied Digital Technologies, one of the largest video
duplicators in the United States.
Kevin B. Halter has served as Chairman of the Board of DCT since June 28,
1994 and as Vice Chairman of the Board of DCT from February 1994 to June 1994.
Mr. Halter served as Chief Executive Officer of DCT from June 1994 to May 1996.
Mr. Halter has served as President, Chief Executive Officer and Chairman of the
Board of SOI since June 28, 1994. Mr. Halter also served as Vice Chairman of the
Board of SOI from January 1994 to June 28, 1994. Mr. Halter also served as
Chairman of the Board of Directors of American Quality Manufacturing Corporation
until September 1996. In addition, Mr. Halter has served as Chairman of the
Board and Chief Executive Officer of Halter Capital Corporation ("HCC"), a
privately-held investment and consulting company, since 1987. From 1987 until
October 1992, Mr. Halter was a director and officer of Halter Venture
Corporation, a publicly-held company then based in Dallas, Texas. Mr. Halter is
the father of Kevin B. Halter, Jr.
Jim Weinberg was the co-founder of MagneTech and served as the Executive
Vice President of the Company from 1987 to March 1996. In April 1996, Mr.
Weinberg was named Chief Operating Officer of the Company. From 1978 to 1987,
Mr. Weinberg was the owner of Television Production Services, Inc., a video
production company specializing in national television commercials and sporting
events.
11
<PAGE>
Douglas L. Miller has served as Vice President and Chief Financial Officer
of the Company since February 1996. From 1991 to February 1996, Mr. Miller
served as the Controller of Independent National Distributors, Inc., a national
music distribution subsidiary of Alliance Entertainment Corporation, a
publicly-held company listed on the New York Stock Exchange. Prior to that, Mr.
Miller served with PMG Peat Marwick. Mr. Miller is a licensed CPA.
Robert A. Byrne, Jr. has served as general manager of the Indianapolis
facility since 1993 and was promoted to Vice President in April 1996 with
responsibilities for the overall production at both of the Company's facilities.
Prior to joining the Company, Mr. Byrne was the Director of Operations for West
Coast Video Duplicating from 1988 to 1993. Mr. Byrne also served as the
Operations Manager for High Speed Video Duplicating from 1986 to 1988.
Kevin B. Halter, Jr. has served as Vice President, Secretary and director
of the Company since January 1994. Mr. Halter has also served as Secretary,
Treasurer and director of SOI and AQM since February 1994. Mr. Halter is also
the President of Securities Transfer Corporation, a registered stock transfer
company, a position he has held since 1987. Mr. Halter is also Vice President
and Secretary of HCC. Mr. Halter is the son of Kevin B. Halter.
Gary C. Evans has served as a director of the Company since March 1995. Mr.
Evans has served as President and Chief Executive Officer of Magnum Petroleum,
Inc., a publicly-held company listed on the American Stock Exchange, since July
of 1995. Mr. Evans has served as Chairman of the Board, President and Chief
Executive Officer of Hunter Resources, Inc. (formerly Intramerican Corporation)
since September 1992, prior to it being acquired by Magnum Petroleum, Inc. Mr.
Evans also served as President, Chief Operating Officer and director of Hunter
Resources, Inc. from December 1990 to September 1992. Mr. Evans was President
and Chief Executive Officer of Sunbelt Energy, Inc. (the predecessor to Hunter
Resources, Inc.) and its subsidiaries from 1985 to December 1990. Mr. Evans is
President and Chief Executive Officer of Gruy Petroleum Management Co., Magnum
Hunter Production, Inc. and Hunter Gas Gathering, Inc., wholly-owned
subsidiaries of Magnum Petroleum, Inc. Mr. Evans was Vice President and Manager
of the Southwestern region of the Energy division of Mercantile Bank of Canada
for four years prior to forming Sunbelt Energy, Inc.
James Smith has served as a director of the Company since March 1995. Mr.
Smith has served as President of Pension Analysis Bureau, Inc., a consulting
firm specializing in the administration of company retirement and profit sharing
plans, since 1993. Mr. Smith also served as Vice President of Pension Analysis
Bureau, Inc. from 1988 to 1992.
All directors of the Company hold office until the next annual meeting of
stockholders or until their successors have been elected and qualified.
Executive officers are elected by the Company's Board of Directors to hold
office until their respective successors are elected and qualified.
The Company's Bylaws provide that directors may be paid their expenses, if
any, and may be paid a fixed sum for attendance of each Board of Directors
meeting.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has two committees, an Audit Committee and a
Compensation Committee, each composed of at least two independent directors. The
Audit Committee, composed of Kevin B. Halter, Gary C. Evans and James Smith,
recommends the annual appointment of the Company's auditors, with whom the Audit
Committee will review the scope of audit and non-audit assignments and related
fees, accounting principals used by the Company in financial reporting, internal
auditing procedures and the adequacy of the Company's internal control
procedures. The Compensation Committee, composed of Kevin B. Halter, Gary C.
Evans and James Smith, will administer the Company's ESOP and 1988 Employee
Stock Option Plan and make recommendations to the Board of Directors regarding
compensation for the Company's executive officers.
12
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely on the review of Form's 3, 4 and 5 and amendments thereto
provided to the Company pursuant to Rule 16a-3(e), no individuals have failed to
file on a timely basis reports required by Section 16(a) of the 1934 Act during
the period from the date that the Company's Common Stock was registered under
the Section 12 of the Securities Exchange Act of 1934, as amended to June 30,
1996.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation paid by
the Company to its Presidents and Chairman for the fiscal year ended June 30,
1996, 1995, and 1994. None of the Company's other executive officers and
directors received cash or non-cash compensation in excess of $100,000 for the
fiscal year ended June 30, 1996.
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------- -----------
Annual Compensation Awards Payout
----------------------------------- --------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted Securities All Other
and Compen- Stock Underlying LTIP Compen-sation
Principal sation Award(s) Options/ Payouts ($)
Position Year Salary($) Bonus($) ($) ($) SARs (#) ($)
- ---------------------- -------- ----------- ----------- ----------- ------------ -------------- ----------- ------------
Hugh C. Coppen
President & CEO <F1> 1996 $19,230 - - - - - -
1995 - - - - - - -
1994 - - - - - - -
Jack D. Brown, Jr.
President <F2> 1996 $67,019 $20,946 - - - - $17,981
1995 $85,000 - - - - - -
1994 $64,667 $50,000 $15,217 - - - -
Kevin B. Halter
Chairman 1996 $114,538 - - - - - -
1995 $72,000 - - - - - -
1994 $0 - - - - - -
<FN>
<F1> Mr. Coppen was named President and CEO of the Company on May 6,
1996. The salary listed reflects earnings from that date to the year ended
June 30, 1996.
<F2> Mr. Brown's employment was terminated April 12, 1996. The salary and
bonus listed reflects earnings from July 1, 1995 to that date. The "all
other compensation" represents the partial accrual of a six month severance
package provided to Mr. Brown upon his termination. These severance
payments were accrued weekly in amounts equal to his salary at the
termination date.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Individual Grants
------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities % of Total
Underlying Options/SAR's
Options/ Granted to
SAR's Employees In Exercise or Base
Name Granted (#) Fiscal Year Price ($/Sh) Expiration Date
---------------------- ------------------- ----------------- -------------------- --------------------
Hugh C. Coppen <F1> 100,000 23% $2.00/Share January 12, 2001
Kevin B. Halter 65,000 15% $1.31/Share July 1, 2002
<FN>
<F1> The Company granted Mr. Coppen options to purchase up to 100,000 shares
of the Company's Common Stock. The stock options are exercisable for a
period of five years and become vested and exercisable based upon the
Company's pre-tax operating profits for the year ending June 30, 1997. The
vesting schedule ranges from 100% of the stock options if certain goals are
met, to a minimum of 50%, regardless of the Company's pre-tax operating
profits.
</FN>
</TABLE>
In 1990 and 1993, the Company granted the former President, Jack D. Brown,
Jr., options to purchase up to 50,000 and 50,000 shares of Common Stock,
respectively. The stock options are presently fully vested. The 1990 stock
options were exercised in the prior year, and the 1993 options were
exercised in the current year at an exercise price of $1.00 per share.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options / SARs at Options / SARs at
FY-End (#) FY-End ($)
Shares Acquired Exercisable / Exercisable /
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
-------------------------------------------------------------------------------------------------------
Jack D. Brown 50,000 $78,000 -0- / -0- -0- / -0-
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Hugh C. Coppen and Kevin B.
Halter.
The agreement with Mr. Coppen is for a term of three years commencing May
6, 1996 and provides for a salary of $125,000 per annum. In addition, Mr. Coppen
receives the same benefits as other employees of the Company and reimbursement
for expenses incurred on behalf of the Company. The employment agreement also
contains, among other things, covenants by Mr. Coppen that in the event of
termination for cause, he will not associate with a business that competes with
the Company for a period of one year after cessation of employment. The
employment agreement also provides for a bonus arrangement based upon the
following formula: a bonus not
14
<PAGE>
to exceed 5% of the net operating profits before taxes and before any
income/loss arising from investments or extraordinary items.
The agreement with Mr. Halter is for a term of three years and expires on
December 31, 1998. The agreement provides a salary of $175,000 per annum. In
addition, Mr. Halter receives the same benefits as other employees of the
Company and reimbursement for expenses incurred on behalf of the Company. The
employment agreement also contains, among other things, covenants by Mr. Halter
that in the event of termination for cause, he will not associate with a
business that competes with the Company for a period of one year after cessation
of employment.
1990 EMPLOYEE STOCK OPTION PLAN
On January 25, 1990, the Company's Board of Directors adopted the 1990
Employee Stock Option Plan (the "Plan").
The administration of the Plan rests with the Compensation Committee (the
"Committee"). Subject to the express provisions of the Plan and the Board of
Directors, the Committee shall have complete authority in its discretion to
determine those employees to whom, and the price at which options shall be
granted, the option periods and the number of shares of Common Stock to be
subject to each option. The Committee shall also have the authority in its
discretion to prescribe the time or times at which the options may be exercised
and limitations upon the exercise of options (including limitations effective
upon the death or termination of employment of the optionee), and the
restrictions, if any, to be imposed upon the transferability of shares acquired
upon exercise of options. In making such determinations, the Committee may take
into account the nature of the services rendered by respective employees, their
present and potential contributions to the success of the Company or its
subsidiaries, and such other factors as the Committee in its discretion shall
deem relevant.
An option may be granted under the Plan only to an employee of the Company
or its subsidiaries. The Plan made available for option 800,000 shares (as
adjusted for a one for eight reverse split) of the Company's Common Stock.
The term of each option granted under the Plan will be for such period not
exceeding five years as the Committee shall determine. Each option granted under
the Plan will be exercisable on such date or dates and during such period and
for such number of shares as shall be determined pursuant to the provisions of
the option agreement evidencing such option. Subject to the express provisions
of the Plan, the Committee shall have complete authority, in its discretion, to
determine the extent, if any, and the conditions under which an option may be
exercised in the event of the death of the optionee or in the event the optionee
leaves the employ of the Company or has his employment terminated by the
Company. The purchase price for shares of Common Stock under each option shall
be determined by the Committee at the time of the option's issuance and may be
less than the fair market value of such shares on the date on which the options
are granted. The agreements evidencing the grant of options may contain other
terms and conditions, consistent with the Plan, that the Committee may approve.
EMPLOYEE STOCK OWNERSHIP PLAN
While an affiliate of SOI, the Company participated in the SOI Employee
Stock Ownership Plan ("ESOP"). The ESOP provided retirement benefits to
substantially all employees. The ESOP was a qualified employee benefit plan
exempt from taxation under the Internal Revenue Code of 1986, as amended. There
were 90,291 shares of SOI Common Stock in the ESOP.
Effective July 1, 1996, the Board of Directors of SOI voted to terminate
the ESOP. The ESOP stock will therefore be distributed to employees of the
Company who were eligible to participate in the ESOP after a final allocation
and accounting of the ESOP is conducted.
15
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 25, 1996
with regard to the beneficial ownership of the Common Stock by (i) each person
known to the Company to be the beneficial owner of 5% or more of its outstanding
Common Stock, (ii) by the officers, directors and key employees of the Company
individually and (iii) by the officers and directors as a group.
Name and Address of Number of Shares
Beneficial Owner Beneficially Owned Percent of Class
- ------------------------------------ ----------------------- -------------------
Halter Capital Corporation
P.O. Box 701629
Dallas, Texas 75370 1,765,505 27%
S.O.I. Industries
16910 Dallas Parkway, Suite 100
Dallas, Texas 75248 1,101,962 17%
Cameron Capital Ltd.
100 Cavedish Road
Hamilton HM 19, Bermuda 800,166 (1) 12%
Hugh C. Coppen - -
Kevin B. Halter 1,854,305 (2) 29%
Kevin B. Halter, Jr. 1,830,505 (2) 28%
Gary C. Evans 2,000 *
James Smith 236 *
Jim Weinberg 49,779 (3) *
Douglas L. Miller 50,000 (3) *
Robert A. Byrne, Jr. 15,000 (3) *
All directors and officers as a 2,036,320 (3) 32%
group (8 persons)
(1) Cameron Capital Ltd. is the holder of 133,494 shares of Common Stock
and an additional 80,000 shares of Series A Convertible Preferred Stock
("Preferred Stock"). The number of shares assumes conversion of all
remaining shares of the Preferred Stock (based upon the closing price of
the Company's Common Shares as of September 25, 1996). The Preferred Stock
is convertible into the Company's common stock at a 20% discount to the
market price at the date of conversion.
16
<PAGE>
(2) Kevin B. Halter and Kevin B. Halter, Jr. serve as directors and
officers of Halter Capital Corporation ("HCC"), and as a result may be
deemed to be the beneficial owners of the 1,765,505 shares of Common Stock
owned by HCC. However, pursuant to Rule 16a-3 promulgated under the
Exchange Act, they expressly disclaim that they are the beneficial owners,
for purposes of Section 16 of the Exchange Act, of any such stock, other
than those shares in which they have an economic interest. In addition, the
total number of shares includes 65,000 shares for which both Kevin B.
Halter and Kevin B. Halter, Jr. have the right to acquire from stock
options previously granted.
(3) The number of shares includes shares for which the directors and
officers have the right to acquire from stock options previously granted.
These options are fully vested and are exercisable within the next 60 days.
* Less than 1%.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No transactions have occurred during the last two years, or proposed
transactions, to which the Company was or is to be a party, in which any related
party had or is to have a direct or indirect material interest.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation, as amended *
3.2 Certificate of Amendment to Certificate of Incorporation of the Company
dated November 8, 1995
3.3 Bylaws*
4.1 Certificate of Designation of Convertible Series A Preferred Stock
10.1 Secured Credit Agreement with NBD Bank, N.A.**
10.2 Employment Agreement between the Registrant and Hugh C. Coppen
10.3 Lease Agreement for Indianapolis, Indiana facility *
10.4 Lease Agreement for Ft. Lauderdale facility *
10.5 Employment Agreement between the Registrant and Kevin B. Halter
21.0 Listing of Subsidiaries
* Previously filed with the Securities and Exchange Commission in
connection with the Registration Statement (including any amendments
thereto) on Form S-18 of the Registrant, No 33-27974-A.
** Previously filed with the Securities and Exchange Commission as
Exhibits to the Company's Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1994.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the last quarter of the year ended June
30, 1996.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf of the undersigned, thereunto duly authorized.
DIGITAL COMMUNICATIONS CORPORATION
/s/ Hugh C. Coppen
By: _____________________________ September 30, 1996
Hugh C. Coppen, President & CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the date indicated.
/s/ Hugh C. Coppen
______________________________ September 30, 1996
Hugh C. Coppen, President & CEO
(Principal Executive Officer) and
Director
/s/ Kevin B. Halter
______________________________ September 30, 1996
Kevin B. Halter, Chairman of
the Board
/s/ Jim Weinberg
______________________________ September 30, 1996
Jim Weinberg, Chief
Operating Officer
/s/ Douglas L. Miller
______________________________ September 30, 1996
Douglas L. Miller, Vice President
& Chief Financial Officer
/s/ Robert A. Byrne
______________________________ September 30, 1996
Robert A. Byrne, Vice President
General Manager
/s/ Kevin B. Halter, Jr.
______________________________ September 30, 1996
Kevin B. Halter, Jr., Vice
President, Secretary and Director
/s/ Gary C. Evans
______________________________ September 30, 1996
Gary C. Evans, Director
/s/ James Smith
______________________________ September 30, 1996
James Smith, Director
<PAGE>
EXHIBIT 3.2
<PAGE>
CETIFICATE OF AMENDMENT
TO CERTIFICATE OF INCORPORATION
OF DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
In accordance with Sections 242 and 103 of the Delaware General Corporation
Law, as amended, Digital Communications Technology Corporation, a Delaware
corporation, does hereby adopt the following amendments to its Certificate of
Incorporation:
FIRST: The first sentence of Article V of the Company's Certificate of
Incorporation will be amended to read as follows:
"The total number of shares of stock which the Corporation shall have the
authority to issue is 25,000,000 shares of Common Stock, wich par value of
$.0002, all of the same class and 10,000,000 shares of Preferred Stock,
with par value of $.00001.
A second paragraph to Article V of the Company's Certificate of
Incorporation has been added as follows:
"Preferred Stock may be issued in one or more series as may be determined
from time to time by the Board of Directors. All shares of any one series
of Preferred Stock will be identical except as to the date of issue and the
dates from which dividendson shares of the series issued on different dates
will cumulate, if cumulative. Authority is hereby expressly granted to the
Board of Directors to authorize the issuance of one or more series of
Preferred Stock, and to fix by resolution or resolutions providing for the
issue of each such series the voting powers, designations, preferences, and
relative, participating, optional, redemption, conversion, exchange or
other special rights, qualifications limitations or restrictions of such
series, and the number of shares in each series, to the full extent now or
hereafter permitted by law."
SECOND: The foregoing amendment was adopted by the Board of Directors. The
amendment was recommended to the stockholders by the Board of Directors. A
special meeding of the stockholders was held on October 13, 1995. The
stockholders approved the amendment in accordance with Section 242 of the
Delaware General Corporation Law.
EXECUTED as of the 8th day of November, 1995.
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
By: /s/ Kevin B. Halter
----------------------------------------
Kevin B. Halter, Chief Executive Officer
<PAGE>
EXHIBIT 4.1
<PAGE>
CERTIFICATE OF DESIGNATION
Series A Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Convertible Preferred Stock" (the "Convertible Preferred
Stock") and the number of shares constituting the Convertible Preferred Stock
shall be 100,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Convertible Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Convertible Preferred Stock.
Section 2. Conversion Rights.
------------------
a. Right to Convert. Each share of Convertible Preferred Stock may be
converted at the option of the holder thereof at the times set forth herein, and
without the payment of any additional consideration thereof, into the number of
fully paid, nonassessable shares of common stock $.0002 par value per share, of
the Corporation (the "Common Stock") as is determined by dividing the price paid
per share of Convertible Preferred Stock by the lesser of (i) 100% of the
average closing price as reported by the American Stock Exchange of the
Company's Common Stock (the "Closing Price") for the five (5) trading days
immediately prior to the original date of issuance of the shares of Convertible
Preferred Stock (the "Original Issuance Date") or (ii) 80% of the average
Closing Price for the five (5) trading days immediately prior to the Date of
Conversion, as defined below in Section 1.c. (such lesser value is hereinafter
referred to as the "Conversion Price").
b. Conversion Periods. Each original holder of share of Convertible
Preferred Stock shall have the option to convert: (i) 20% of its shares at any
time from and after the 40th day following the date of issuance, (ii) 40% of its
shares at any time from and after the 70th day following the date of issuance,
(iii) 60% of its shares at any time from and after the 100th day following the
date of issuance, (iv) 80% of its shares at any time from and after the 130th
day following the date of issuance an (v) 100% of its shares at any time from
and after the 160th day following the date of issuance. Should an original
holder transfer any of its shares of Convertible Preferred Stock prior to the
160th day following the date of issuance, the transferee shall be entitled to
convert such shares in accordance with the foregoing schedule.
c. Mechanics of Conversion. No fractional shares of Common Stock shall be
issued upon conversion of Convertible Preferred Stock. In lieu of any fractional
share to which the holder would otherwise be entitled, the Corporation shall
round up to the nearest whole share. In the case of a dispute as to the
calculation of the Conversion Price, the Corporation's calculations shall be
deemed conclusive absent manifest error. In order to convert Convertible
Preferred Stock into shares of Common Stock, the holder shall surrender the
certificate or certificates thereof, duly endorsed, either by overnight courier
or 2-day courier, to the office of
<PAGE>
the Corporation or of any transfer agent for the Convertible Preferred Stock,
and shall give written notice to the Corporation at such office that the holder
elects to convert the same, the number of shares of Convertible Preferred Stock
so converted and a calculation of the Conversion Price (with an advance copy of
the certificate(s) and the notice by facsimile); provided, however, that the
Corporation shall not be obligated to issue certificates evidencing shares of
Common Stock issuable upon such conversion unless certificates evidencing such
shares of Convertible Preferred Stock are delivered to the Corporation or its
transfer agent as provided above, or the holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to Corporation to indemnify the Corporation
from any loss incurred by it in connection with such certificates.
The Corporation shall use its best efforts to issue and deliver within
three (3) business days after delivery to the Corporation of such Convertible
Preferred Stock certificates, or after such agreement and indemnification, to
such holder of Convertible Preferred Stock at the address of the holder on the
stock books of the Corporation, a certificate or certificates for the number of
shares of Common Stock to which the holder shall be entitled as aforesaid. The
date on which notice of conversion is given (the "Date of Conversion") shall be
deemed to be the date set forth in such notice of conversion provided the
original shares of Convertible Preferred Stock to be converted are received by
the Corporation of the transfer agent, as the case may be, within three (3)
business days thereafter and the person or person entitled to receive the shares
of Common stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock on such date. If
the original shares of Convertible Preferred Stock to be converted are not
received by the transfer agent within three (3) business days after the Date of
Conversion, the notice of conversion shall become null and void.
Section 3. Corporate Events.
----------------
a. Notices of Record Date. In the event of (i) any declaration by the
Corporation of a record date of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or (ii) any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the Corporation and any other
entity or person, or any voluntary or involuntary dissolution liquidation or
winding up of the Corporation, the Corporation shall mail to each holder of
Convertible Preferred Stock at least 10 days prior to the record date specified
herein, a notice specifying (A) the date on which any such record date is to be
declared for the purpose of such dividend or distribution and a description of
such dividend or distribution, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (C) the time, if any, that is to
be fixed, as to when the holders of record of Common Stock (or other securities)
become eligible to receive securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution
or winding up.
b. Corporate Changes. The Closing Price used to determine the Conversion
Price shall be appropriately adjusted to reflect, as deemed equitable and
appropriate by the Corporation, any stock dividend, stock split or share
combination of the Common Stock. In the event of a
<PAGE>
merger, reorganization, recapitalization or similar event of or with respect to
the Corporation (a "Corporate Change") (other than a Corporation Change in which
all or substantially all of the consideration received by the holders of the
Company's equity securities upon such Corporate Change consists of cash or
assets other than securities issued by the acquiring entity or any affiliate
thereof), the Convertible Preferred Stock shall be assumed by the acquiring
entity and thereafter the Convertible Preferred Stock shall be convertible into
such class and type of securities as the Holder would have received had the
Holder converted the Convertible Preferred Stock immediately prior to such
Corporate Change, as appropriately adjusted to equitably reflect the Conversion
Price and any stock dividend, stock split or share combination of the Common
Stock after such corporate event.
Section 4. Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Convertible Preferred Stock, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all then
outstanding shares of Convertible Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall be sufficient to affect
the conversion of all then outstanding shares of the Convertible Preferred
Stock, the Corporation will take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
Section 5. Liquidation Preference.
-----------------------
a. In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of shares of
Convertible Preferred Stock shall be entitled to receive, immediately after
distributions of senior securities required by the Corporation's Certificate of
Incorporation, as amended, and prior and in preference to any distribution to
junior securities but in parity with any distribution to parity securities, an
amount per share equal to $10 (the "Original Convertible Issue Price"). If upon
the occurrence of such event the assets and funds thus distributed among the
holders of the Convertible Preferred Stock and parity securities shall be
insufficient to permit the payment to such holders of the full preferential
amounts due to the holders of the Convertible Preferred Stock and the parity
securities, respectively, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed among the holders of the
Convertible Preferred Stock and the parity securities, pro rata, based on the
respective liquidation amounts to which such series of stock is entitled by the
Corporation's Certificate or Incorporation and any certificate of designation of
preferences.
b. Upon the completion of the distribution required by subsection 6.a. if
assets remain in this Corporation, they shall be distributed to holders of
parity securities (unless holders of parity securities have received
distributions pursuant to subsection 6.a. above) and junior securities in
accordance with the Corporation's Certificate of Incorporation including any
duly adopted certificate(s) of designation of preference.
<PAGE>
c. A consolidation of merger of the Corporation with or into any other
corporation or corporations, or a sale, conveyance or distribution of all or
substantially all of the assets of the Corporation or the effectuation by the
Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, shall not be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 6, but shall instead be treated pursuant to Section 4 hereof.
Section 6. Voting Rights. The holders of Convertible Preferred Stock will
not have any voting rights except as set forth below or as otherwise from time
to time required by law. The affirmative vote or consent of the holders of at
least a majority of the outstanding shares of Convertible Preferred Stock,
voting separately as a class, will be required for an amendment, alteration or
repeal of the Corporation's Certificate of Incorporation (including any
certificate of designation of preferences) if, and only if, the amendment,
alteration or repeal adversely affects the powers, preferences or special rights
of the Convertible Preferred Stock.
To the extent that under Delaware law the vote of the holders of the
Convertible Preferred Stock, voting separately as a class, is required to
authorize a given action of the Corporation, the affirmative vote or consent of
the holders of at least a majority of the outstanding shares of the Convertible
Preferred Stock shall constitute the approval of such action by the class. To
the extent that under Delaware law the holders of the Convertible Preferred
Stock are entitled to vote on a matter with holders of Common Stock, voting
together as on class, each share of Convertible Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible using the record date for the taking of such vote
of stockholders as the date as of which the Conversion Price is calculated.
Holders of the Convertible Preferred Stock shall be entitled to notice of all
shareholders meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Corporation's
by-laws and applicable statutes.
Section 7. Protective Provisions. So long as shares of Convertible
Preferred Stock are outstanding, the Corporation shall not take any action that
would impair the rights of the holders of the Convertible Preferred Stock set
forth herein and shall not without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of at least a majority of
the then outstanding shares of Convertible Preferred Stock:
a. alter or change the rights, preferences or privileges of the shares of
the Convertible Preferred Stock or any other securities so as to affect
adversely the Convertible Preferred Stock;
b. create any new class or series of stock having a preference over, or
being on a parity with, the Convertible Preferred Stock with respect to
distributions pursuant to Section 6 above; or
c. do any act or thing which would result in taxation of the holders of
shares of the Convertible Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereinafter from time to time amended)
<PAGE>
/s/ Kevin B. Halter /s/ Kevin B. Halter
- -------------------------------- ----------------------------------
Chairman of the Board Corporate Secretary
Digital Communication Digital Communication
Technology Corporation Technology Corporation
Date: May 3, 1996 Date: May 3, 1996
----------- -----------
<PAGE>
EXHIBIT 10.2
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made and entered into as of April 2, 1996, by and between
Digital Communications Technology Corporation, a Delaware corporation (the
"Company"), and Hugh C. Coppen (the "Employee").
WHEREAS, the Company desires to retain the services of the Employee in the
capacity of its President and Chief Executive Officer;
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
Section 1. Employment. The Company agrees to employ the Employee and the
Employee agrees to accept the employment described in this Agreement.
Section 2. Duties. The Employee shall serve as President and Chief Executive
Officer of the Company with such duties as are customarily associated with such
positions. The Employee shall report to the Chairman of the Board or his
designee(s) and the Board of Directors of the Company.
Section 3. Extent of Services. The Employee shall devote his entire working
time, attention, and energies to the performance of his duties and shall not be
engaged in any other business activity, whether or not pursued for gain. The
Employee shall at all times faithfully and to the best of his ability perform
his duties under this Agreement. The duties shall be rendered at the Company's
offices in Dallas, Texas, Fort Lauderdale, Florida, Indianapolis, Indiana or at
such other place or places and at such times as the needs of the Company may
from time-to-time dictate.
Section 4. Term. The term of this Agreement shall begin on May 6, 1996
("Effective Date"), and shall continue until May 5, 1999. The parties presently
anticipate that the employment relationship may continue beyond this term. This
Agreement shall continue thereafter on a year to year basis if not earlier
terminated pursuant to Section 6 herein. Notwithstanding Section 6 of this
Agreement, either party may terminate this Agreement at the end of the base term
(May 5, 1999) or on any anniversary date thereafter by providing written notice
to the other party of its intention to terminate no later than December 31 of
the preceding year.
Section 5. Compensation.
5.1 Base Compensation. The Employee will receive a base salary of $125,000 per
year, payable in accordance with the Company's standard payroll procedures.
5.2 Bonus. The Employee shall receive a bonus of 5% of the net operating profits
of the Company's video tape duplication segment before taxes and any income/loss
arising from investments or extraordinary items. Such bonus is to be calculated
in addition to any salary paid the Employee for the fiscal year. Notwithstanding
the above, the Employee shall not be entitled to a bonus for the fiscal year
ending June 30, 1996, but such bonus shall be effective beginning
<PAGE>
in fiscal year 1997 and continuing thereafter. The bonus for fiscal year 1997
and continuing thereafter shall be payable semi-annually as follows: Within ten
days after the final calculation of the Company's net operating profits from its
video tape duplication segment before taxes and any income/loss arising from
investments or extraordinary items for the six months ended December 31 of each
fiscal year, the Company shall pay the Employee an amount equal to one half of
5% of such net operating profits. Within 10 days of the receipt of the Company's
audited financial statements for the year then ended, the Company shall pay the
Employee the balance of his bonus, if any, which he has earned but has not yet
been paid, for the fiscal year then ended.
5.3 Benefits. The Employee shall be entitled to receive such group benefits,
such as group medical insurance, as the Company may provide to its other
employees at comparable salaries and responsibilities to those of the Employee.
5.4 Expenses. The Company shall reimburse the Employee for reasonable
out-of-pocket expenses incurred by the Employee in fulfilling his duties under
the terms of this Agreement, promptly, and in no event more than five (5)
business days after submission, on a monthly basis, of a detailed statement of
such expenses and reasonable documentation.
5.5 Stock Option. The Employee shall also be granted a stock option to acquire
100,000 shares of the Company's common stock at an exercise price of $2.00 per
share which was the closing price of the Common Stock on April 2, 1996, as
reported by the AMEX. Except as provided in Section (vi) below, the stock option
shall be exercisable for a period of five years beginning on July 1, 1997, and
shall be exercisable as follows:
(i) 100% of the stock option shall vest and be exercisable if the Company's
net pre-tax profits for its video tape duplication segment for fiscal year
ending June 30, 1997, is equal to or greater than double the Company's net
pre-tax profits for its video tape duplication segment for the fiscal year
ending June 30, 1996;
(ii) 90% of the stock option shall vest and be exercisable if the Company's
net pre-tax profits for its video tape duplication segment for fiscal year
ending June 30, 1997, increases by 90% but less than 100% over the Company's net
pre-tax profits for its video tape duplication segment for the fiscal year
ending June 30, 1996;
(iii) 80% of the stock option shall vest and be exercisable if the
Company's net pre-tax profits for its video tape duplication segment for fiscal
year ending June 30, 1997, increases by 80% but less than 90% over the Company's
net pre-tax profits for its video tape duplication segment for the fiscal year
ending June 30, 1996;
(iv) 70% of the stock option shall vest and be exercisable if the Company's
net pre-tax profits for its video tape duplication segment for fiscal year
ending June 30, 1997, increases by 65% but less than 80% over the Company's net
pre-tax profits for its video tape duplication segment for the fiscal year
ending June 30, 1996; or
2
<PAGE>
(v) 60% of the stock option shall vest and be exercisable if the Company's
net pre-tax profits for its video tape duplication segment for fiscal year
ending June 30, 1997, increases by 50% but less than 65% over the Company's net
pre-tax profits for its video tape duplication segment for the fiscal year
ending June 30, 1996; or
(vi) 50% of the stock option shall vest and be exercisable immediately (a)
regardless of the Company's net pre-tax profits for its video tape duplication
segment for fiscal year ending June 30, 1997 and (b) notwithstanding the
condition that vesting occur on July 1, 1997.
In order to exercise this option with respect to all or any part of the
stock for which this option is at the time exercisable, Employee (or in the case
of exercise after Employee's death, the Employee's executor, administrator, heir
or legatee, as the case may be) must take the following actions:
(a) Execute and deliver to the Corporation a written document specifying
the number of shares to be purchased and including any investment
representations required by the Company.
(b) Pay the aggregate option price for the purchased shares in one or more
of the following alternative forms: (i) full payment, in cash or by certified
funds payable to the Company's order, of the option price for the stock being
purchased; or (ii) any other form which the Company may, in its discretion,
approve at the time of exercise.
As soon thereafter as practical after receipt of the above referenced
items, the Company shall mail or deliver to Employee a certificate or
certificates representing the shares of stock so purchased and paid for.
The existence of the option shall not affect in any way the right or power
of the Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the stock or the rights thereof, or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
The shares of stock with respect to which the option may be exercised
hereunder are shares of the common stock of the Company as presently
constituted, but if, and whenever, prior to the delivery of the Company of all
the shares of common stock which are subject to the option, the Company shall
effect a subdivision or consolidation of shares or other capital readjustment,
the payment of stock dividend or other increase or reduction of the number of
shares of the stock outstanding without receiving compensation therefor in
money, services or property, the number of shares of stock covered by the option
and the number of shares of stock with respect to which the option may
thereafter be exercised shall: (i) in the event of an increase in the number of
outstanding shares, be proportionately increased, and the cash consideration
3
<PAGE>
paid per share shall be proportionately reduced; and (ii) in the event of a
reduction in the number of outstanding shares, be proportionately reduced, and
the cash consideration payable per share shall be proportionately increased.
If the Company is reorganized or merged or consolidated with another
Company while shares remain exercisable under the option, there shall be
substituted for such shares an appropriate number of shares of each class of
common stock or other securities and consideration of the reorganized or merged
or consolidated Company which were distributed to the shareholders of the
Company in respect of such shares.
Except as expressly provided herein, the issue by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
for cash or property, or for labor or services, either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason therefor shall be made
with respect, to the number of shares of stock subject to the option.
Section 6. Termination.
6.1 For Cause. The Company may terminate the Employee's employment at any time
"for cause" with immediate effect upon delivering written notice to the
Employee. For purposes of this Agreement, "for cause" shall include: (a)
embezzlement, theft, larceny, material fraud, or other acts of dishonesty; (b)
material violation by Employee of any of his obligations under this Agreement,
including the failure of Employee to follow material instructions or material
policies established by the Company with respect to the operation of its
business and affairs or the Employee's failure, in any material respect, to
carry out the reasonable instructions of the Chairman of the Board of the
Company and the Employee's inability to correct such violation or failure within
60 days; (c) conviction of or entrance of a plea of guilty or nolo contendere to
a felony or other crime which has or may have a material adverse effect on the
Employee's ability to carry out his duties under this Agreement or upon the
reputation of the Company; and (d) conduct involving moral turpitude. Upon
termination for cause, the Company's sole and exclusive obligation will be to
pay the Employee his base salary plus bonuses earned to the date of termination,
and the Employee shall not be entitled to any compensation after the date of
termination.
6.2 Upon Death. In the event of the Employee's death during the term of this
Agreement, the Company's sole and exclusive obligation will be to pay to the
Employee's spouse, if living, or to his estate, if his spouse is not then living
or if the Employee is not married, the Employee's compensation earned through
the date of death.
6.3 Upon Disability. The Company may terminate the Employee's employment upon
the Employee's total disability. The Employee shall be deemed to be totally
disabled if he is unable to perform his duties under this Agreement by reason of
mental or physical illness or accident for a period of three consecutive months.
Upon termination by reason of the Employee's
4
<PAGE>
disability, the Company's sole and exclusive obligation will be to pay the
Employee his compensation earned through the date of termination.
Section 7. Covenant Not to Compete.
7.1 Competition During the Term of this Agreement. The Employee agrees that
during the term of this Agreement, neither he, nor any company controlled by the
Employee (an "Affiliate"), will directly or indirectly compete with the Company
in any way, and that he will not act as an officer, director, employee,
consultant, shareholder, lender, or agent of any entity which is engaged in any
business of the same nature as, or in competition with, the business in which
the Company is now engaged or other related business in which the Company
becomes engaged during the term of this Agreement; provided, however, that this
Section shall not prohibit the Employee or any Affiliate from purchasing or
holding an aggregate equity interest of up to 1%, so long as the Employee and
Affiliates combined do not purchase or hold an aggregate equity interest of more
than 5%, in any business in competition with the Company. Furthermore, the
Employee agrees that during the term of this Agreement, he will undertake no
planning for the organization of any business activity competitive with the work
he performs as an employee of the Company and the Employee will not combine or
conspire with any employees of the Company for the purpose of organization of
any such competitive business activity.
7.2 Competition Following Termination of this Agreement. The Employee agrees
that for a period of one year after the termination of this Agreement for any
reason, neither the Employee, nor any Affiliate, shall knowingly, directly or
indirectly, for itself or himself or on behalf of any other corporation, person,
firm, partnership, association, or any other entity (whether as an individual,
agent, servant, employee, employer, officer, director, shareholder, investor,
principal, consultant or in any other capacity):
(a) induce or attempt to influence any employee of Employer to
terminate his/her employment, or to hire any such employee, whether or not
so induced or influenced except that any such employee may be hired with
Employer's prior written consent or after six (6) months subsequent to the
end of employee's employment with Employer; or
(b) assist in providing compensation or financing for any person or
entity which competes with Employer.
Section 8. Severability. The covenants set forth in Section 7 above shall be
construed as a series of separate covenants, one for each county in each of the
states of the United States to which such restriction applies. If, in any
judicial proceeding, a court of competent jurisdiction shall refuse to enforce
any of the separate covenants deemed included in this Agreement, or shall find
that the term or geographic scope of one or more of the separate covenants is
unreasonably broad, the parties shall use their best good faith efforts to
attempt to agree on a valid provision which shall be a reasonable substitute for
the invalid provision. The reasonableness of the
5
<PAGE>
substitute provision shall be considered in light of the purpose of the
covenants and the reasonable protectable interests of the Company and the
Employee. The substitute provision shall be incorporated into this Agreement. If
the parties are unable to agree on a substitute provision, then the invalid or
unreasonably broad provision shall be deemed deleted or modified to the minimum
extent necessary to permit enforcement.
Section 9. Confidentiality. The Employee acknowledges that he will develop and
be exposed to information that is or will be confidential and proprietary to the
Company and its subsidiaries. The information includes customer lists, marketing
plans, pricing data, product plans, software, and other intangible information.
Such information shall be deemed confidential to the extent not generally known
within the trade. The Employee agrees to make use of such information only in
the performance of his duties under this Agreement, to maintain such information
in confidence and to disclose the information only to persons with a need to
know.
Section 10. Remedies. The Employee acknowledges that monetary damages would be
inadequate to compensate the Company for any breach by the Employee of the
covenants set forth in Section 7 above. The Employee agrees that, in addition to
other remedies which may be available, the Company shall be entitled to obtain
injunctive relief against the threatened breach of this Agreement or the
continuation of any breach, or both, without the necessity of proving actual
damages.
Section 11. Waiver. The waiver by the Company of the breach of any provision of
this Agreement by the Employee shall not operate or be construed as a waiver of
any subsequent breach by the Employee.
Section 12. Notices. Any notices permitted or required under this Agreement
shall be deemed given upon the date of personal delivery or forty-eight (48)
hours after deposit in the United States mail, postage fully prepaid, return
receipt requested, addressed to the Company at:
16910 Dallas Parkway, Suite 100
Dallas, Texas 75248
Attention: Kevin B. Halter
addressed to the Employee at:
1430 43rd Avenue
San Francisco, CA 94122
or at any other address as any party may, from time to time, designate by notice
given in compliance with this Section.
Section 13. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
6
<PAGE>
Section 14. Titles and Captions. All section titles or captions contained in
this Agreement are for convenience only and shall not be deemed part of the
context nor effect the interpretation of this Agreement.
Section 15. Entire Agreement. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement.
Section 16. Agreement Binding. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
Section 17. Attorney Fees. In the event an arbitration, suit or action is
brought by any party under this Agreement to enforce any of its terms, or in any
appeal therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or
appellate court.
Section 18. Arbitration. If at any time during the term of this Agreement any
dispute, difference, or disagreement shall arise upon or in respect of the
Agreement, and the meaning and construction hereof, every such dispute,
difference, and disagreement shall be referred to a single arbiter agreed upon
by the parties, or if no single arbiter can be agreed upon, an arbiter or
arbiters shall be selected in accordance with the rules of the American
Arbitration Association and such dispute, difference, or disagreement shall be
settled by arbitration in accordance with the then prevailing commercial rules
of the American Arbitration Association, and judgment upon the award rendered by
the arbiter may be entered in any court having jurisdiction thereof.
Section 19. Further Action. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purposes of the Agreement.
Section 20. Parties in Interest. Nothing herein shall be construed to be to the
benefit of any third party, nor is it intended that any provision shall be for
the benefit of any third party.
Section 21. Savings Clause. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
By: /s/ Kevin B. Halter
--------------------------
Kevin B. Halter, Chairman
/s/ Hugh C. Coppen
- ------------------------------
Hugh C. Coppen, Individually
7
<PAGE>
EXHIBIT 10.5
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Agreement (the "Agreement") is made and entered into as of the 15th
day of January 1996, by and between Digital Communications Technology
Corporation, a Delaware corporation, ("Employer") and Kevin B. Halter
("Employee").
WHEREAS, Employer desires to retain the services of Employee in the
capacity of its Chairman of the Board of Directors;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Employment. Employer hereby employs Employee and Employee hereby accepts
employment with Employer upon the terms and conditions hereinafter set forth.
2. Duties. Employee shall serve as Chairman of the Board of Employer, with
such duties customarily associated with such position. Employee shall report to
the Board of Directors of Employer; provided, however, that all duties assigned
to Employee hereunder shall be commensurate with the skill and experience of
Employee. Such duties shall be rendered at Employer's principal executive
offices in Dallas, Texas, or at such other place or places and at such times as
the needs of Employer may dictate from time to time.
3. Term. This Agreement shall become effective on January 15, 1996, and
shall continue, unless earlier terminated pursuant to Section 7 below, until
December 31, 1998 (the "Term").
4. Compensation. As compensation for his services rendered under this
Agreement, Employee shall be entitled to receive the following:
(a) Salary. During the Term, Employee shall be paid a base salary of
$175,000 per year (the "Salary"), payable in accordance with the Company's
standard payroll procedures.
(b) Expenses. Throughout the Term, Employer shall reimburse Employee
for all other reasonable and necessary out-of-pocket travel and other
expenses incurred by Employee in rendering services required under the
terms of this Agreement promptly after receipt of a detailed statement of
such expenses and reasonable documentation.
(c) Bonus. Employee is eligible for performance-based bonuses, but
there is no assurance or expectation that bonuses will be paid. Bonuses
will be paid, if at all, in the sole discretion of the Board of Directors.
<PAGE>
(d) Benefits. During the Term, Employee shall be entitled to receive
such group benefits as Employer may provide to its other employees at
comparable salaries and responsibilities to those of Employee.
The compensation set forth in this Section 4 will be the sole compensation
payable to Employee and no additional compensation or fee will be payable by
Employer to Employee by reason of any benefit gained by the Employer directly or
indirectly through Employee's efforts on Employer's behalf, nor shall Employer
be liable in any way for any additional compensation or fee unless Employer
shall have expressly agreed thereto in writing.
5. Confidentiality; Covenants Not-To-Compete.
(a) Acknowledgment of Proprietary Interest. Employee recognizes the
proprietary interest of Employer in any Trade Secrets (as hereinafter
defined) of Employer. Employee acknowledges and agrees that any and all
Trade Secrets of Employer, learned by Employee during the course of his
employment by Employer or otherwise, whether developed by Employee alone or
in conjunction with others or otherwise, shall be and is the property of
Employer. Employee further acknowledges and understands that his disclosure
of any Trade Secrets of Employer will result in irreparable injury and
damage to Employer. As used herein, "Trade Secrets" means all non-public
confidential and proprietary information of Employer including, without
limitation, information derived from reports, investigations, experiments,
research, work in progress, drawings, designs, plans, proposals, codes,
software, source codes, databases, marketing and sales programs, client
lists, client mailing lists, financial projections, cost summaries, pricing
formula, and all other materials, or information prepared or performed for
or by Employer. "Trade Secrets" also includes confidential information
related to the business, products or sales of Employer or Employer's
customers.
(b) Covenants Not-To-Divulge Trade Secrets. Employee acknowledges and
agrees that Employer is entitled to prevent the disclosure of Trade Secrets
of Employer. As a portion of the consideration for the employment of
Employee and for the compensation being paid to Employee by Employer,
Employee agrees at all times during the term of this Agreement and for one
year thereafter to hold in strictest confidence and not to disclose or
allow to be disclosed to any person, firm, or corporation, other than to
persons engaged by Employer to further the business of Employer, Trade
Secrets of Employer, without the prior written consent of Employer,
including Trade Secrets developed by Employee. Notwithstanding the
foregoing, Employee shall not be obligated to keep secret and not to
disclose or allow to be disclosed knowledge or information (a) which has
become generally known to the public through no wrongful act of Employee;
(b) which has been rightfully received by Employee from a third party which
to Employee's knowledge was received without restriction on disclosure and
not in violation of any confidentiality obligation of said third party, (c)
which has been approved for release without restriction as to use or
disclosure by written authorization of Employer,
2
<PAGE>
or (d) which has been disclosed pursuant to a requirement of a governmental
agency or of law without similar restrictions or other protections against
public disclosure, or which disclosure is required by operation of law.
Without limiting the generality of the foregoing, Employee agrees to
affirmatively take such precautions as Employer may reasonably request or
Employee reasonably believes are appropriate to prevent the disclosure,
copying or use of any of the computer software programs, data bases or
other such information now existing or hereafter developed to any person or
for any purpose not specifically authorized by Employer.
(c) Return of Materials at Termination. In the event of any
termination of this Agreement for any reason whatsoever, Employee will
promptly deliver to Employer all documents, data and other information
pertaining to Trade Secrets. Employee shall not take any documents or other
information, or any reproduction or excerpt thereof, containing or
pertaining to any Trade Secrets.
(d) Competition During the Term of this Agreement. Employee agrees
that during the term of this Agreement, neither he, nor any company
controlled by Employee (an "Affiliate"), will directly or indirectly
compete with Employer in any way, and that he will not act as an officer,
director, employee, consultant, shareholder, lender, or agent of any entity
which is engaged in any business of the same nature as, or in competition
with, the business in which Employer is now engaged or other related
business in which Employer becomes engaged during the term of this
Agreement; provided, however, that this Section 5(d) shall not prohibit
Employee or any Affiliate from purchasing or holding an aggregate equity
interest of up to 1%, so long as Employee and Affiliates combined do not
purchase or hold an aggregate equity interest of more than 5%, in any
business in competition with Employer. Furthermore, Employee agrees that
during the term of this Agreement, he will undertake no planning for the
organization of any business activity competitive with the work he performs
as an employee of Employer and Employee will not combine or conspire with
any employees of Employer for the purpose of organization of any such
competitive business activity.
(e) Competition Following Termination of this Agreement. In order to
protect Employer against the unauthorized use or the disclosure of any
Trade Secrets of Employer presently known or hereinafter obtained by
Employee during the term of this Agreement, Employee agrees that for a
period of one year after the termination of this Agreement for any reason
whatsoever, neither Employee, nor any Affiliate, shall knowingly, directly
or indirectly, for itself or himself or on behalf of any other corporation,
person, firm, partnership, association, or any other entity (whether as an
individual, agent, servant, employee, employer, officer, director,
shareholder, investor, principal, consultant or in any other capacity)
induce or attempt to influence any employee of Employer to terminate
his/her employment, or to hire any such employee, whether or not so induced
or influenced except that any such employee may be hired with Employer's
prior written consent.
3
<PAGE>
6. Prohibition of Disparaging Remarks. Employee shall, during the term of
this Agreement, refrain from making disparaging, negative or other similar
remarks concerning Employer, any of its subsidiaries or other affiliated
companies, to any third party that causes substantial harm to Employer, except
to the extent that Employee is required to make such remarks (a) by applicable
law or regulation or judicial or regulatory process or (b) in or in connection
with any pending or threatened litigation relating to this Agreement or any
transaction contemplated hereby or thereby. Similarly, Employer shall, during
the term of this Agreement, refrain from making disparaging, negative or other
similar remarks concerning Employee to any third party except to the extent that
Employer is required to make such remarks (a) by applicable law or regulation or
judicial or regulatory process or (b) in or in connection with any pending or
threatened litigation relating to this Agreement or any transaction contemplated
hereby or thereby. In view of the difficulty of determining the amount of
damages that may result to the parties hereto from the breach of the provision
of this Section 6, it is the intent of the parties hereto that, in addition to
monetary damages, any non-breaching party shall have the right to prevent any
such breach in equity or otherwise, including without limitation prevention by
means of injunctive relief.
7. Termination. This Agreement and the employment relationship created
hereby shall terminate upon the occurrence of any of the following events:
(a) The expiration of the Term as set forth in Section 3 above;
(b) The death of Employee;
(c) The "disability" (as hereinafter defined) of Employee;
(d) Written notice to Employee from Employer of termination for "just
cause" (as hereinafter defined); or
(e) 30 days write notice of termination to Employer from Employee
provided that a "change in control" (as hereinafter defined) of
the Employer has occurred.
For purposes of Section 7(c) above, the "disability" of Employee shall mean
his inability, because of mental or physical illness or incapacity, to perform
his duties under this Agreement for a continuous period of 120 days or for 120
days out of any 150-days period.
For purposes of Section 7(d) above, "just cause" shall mean (a) the failure
of Employee to diligently or effectively perform his duties under this
Agreement, (b) the commission by Employee of any act involving moral turpitude
or the commission by Employee of any act or the suffering by Employee of any
occurrence or state of facts which renders Employee incapable of performing his
duties under this Agreement, or adversely affects or could reasonably be
expected to adversely affect Employer's business reputation, (c) any breach by
Employee of any of the material terms of, or the failure to perform any material
covenant contained in, this Agreement, or (d) the violation by Employee of
material instructions or material policies
4
<PAGE>
established by Employer with respect to the operation of its business and
affairs or Employee's failure, in a material respect, to carry out the
reasonable instructions of the Board of Directors of Employer.
For purposes of Section 7(e) above, the term "change in control" of the
Employer shall mean a change in control of a nature that would be required to be
reported in response to Item 5(f) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended, as in effect on the date
of this Agreement; provided that, without limitation, such change in control
shall be deemed to have occurred if and when (a) any "person" (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended) is or becomes a beneficial owner, directly or indirectly, of securities
of the Employer representing 25% or more of the combined voting power of the
Employer's then outstanding securities or (b) during the Term, individuals who
at the beginning of such Term were directors of the Employer cease for any
reason to constitute at least a majority of the Board of the Directors of the
Employer.
Notwithstanding anything to the contrary in this Agreement, the provisions
of Sections 5 and 6 shall survive any termination, for whatever reason, of
Employee's employment under this Agreement. In the event of the termination of
Employee's employment for any reason specified in this Section 7 (other than the
reason set forth in Section 7(a) and 7(e)), Employee shall be entitled only to
the compensation, including, but not limited to any bonus or prorata portion
thereof, earned by him as of the date of termination.
In the event of the termination of Employee's employment for the reason
specified in this Section 7(e), Employee shall be immediately entitled to (i)
the compensation, including, but not limited to any bonus or prorata portion
thereof, earned by him as of the date of termination plus (ii) 100% of his
Salary for each and every year and portion of year remaining during the Term,
and such payment shall be paid in one lump sum to the Employee as of the date of
termination.
8. Remedies. Each party recognizes and acknowledges that in the event of
any default in, or breach of any of, the terms, conditions and provisions of
this Agreement (either actual or threatened) by the other party, then the
non-defaulting party's remedies at law shall be inadequate. Accordingly, each
party agrees that in such event, the non-defaulting party shall have the right
of specific performance and/or injunctive relief in addition to any and all
other remedies and rights at law or in equity, and such rights and remedies
shall be cumulative.
9. Acknowledgments. Employee acknowledges and recognizes that the
enforcement of any of the non-competition provisions set forth in Section 5
above by Employer will not interfere with Employee's ability to pursue a proper
livelihood. Employee further represents that he is capable of pursuing a career
in other industries to earn a proper livelihood. Employee recognizes and agrees
that the enforcement of this Agreement is necessary to ensure the preservation
and continuity of the business and good will of Employer. Employee agrees that
due to the nature of Employer's business, the non-competition restrictions set
forth in this Agreement are reasonable as to time and geographic area. Employer
and Employee hereby
5
<PAGE>
agree that notwithstanding any other provision of this Agreement, Employee shall
have all rights to products or information, or applications of such information,
which do not relate to Employer's business and were developed during the
non-employment hours and without utilizing any resources of Employer.
10. Notices. Any notices, consents, demands, requests, approvals and other
communications to be given under this Agreement by either party to the other
shall be deemed to have been duly given in writing personally delivered, by
facsimile or sent by mail, registered or certified, postage prepaid with return
receipt requested, as follows:
If to Employer: 16910 Dallas Parkway, Suite 100
Dallas, Texas 75248
Attn: Board of Directors
If to Employee: 1208 Whispering Oaks
Desoto, Texas 75115
Notices delivered personally shall be deemed communicated as of actual
receipt or receipt of facsimile; mailed notices shall be deemed communicated as
of three days after mailing.
11. Entire Agreement. This Agreement contains the entire agreement of the
parties hereto and supersedes all prior agreements and understandings, oral or
written between the parties hereto. No modification or amendment of any of the
terms, conditions or provisions herein may be made otherwise than by written
agreement signed by the parties hereto.
12. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO SHALL BE GOVERNED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS.
13. Parties Bound. This Agreement and the rights and obligations hereunder
shall be binding upon and inure to the benefit of Employer and Employee, and
their respective heirs, personal representatives, successors and assigns.
Employer shall have the right to assign this Agreement to any affiliate or to
its successors or assigns provided that such affiliate, successor or assign
agrees to be bound by the terms hereof. The terms "successors" and "assigns"
shall include any person, corporation, partnership or other entity that buys all
or substantially all of Employer's assets or all of its stock, or with which
Employer merges or consolidates. The rights, duties or benefits to Employee
hereunder are personal to him, and no such right or benefit may be assigned by
him.
14. Estate. If Employee dies prior to the payment of all sums owed, or to
be owed, to Employee pursuant to Section 4 above, then such sums, as they become
due, shall be paid to Employee's estate.
6
<PAGE>
15. Enforceability. If, for any reason, any provision contained in this
Agreement should be held invalid in part by a court of competent jurisdiction,
then it is the intent of each of the parties hereto that the balance of this
Agreement be enforced to the fullest extent permitted by applicable law. It is
the intent of each of the parties that the covenants not-to- compete contained
in Section 5 above be enforced to the fullest extent permitted by applicable
law. Accordingly, should a court of competent jurisdiction determine that the
scope of any covenant is too broad to be enforced as written, it is the intent
of each of the parties that the court should reform such covenant to such
narrower scope as it determines enforceable.
16. Waiver of Breach. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any party.
17. Captions. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
18. Costs. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which he or it may be entitled.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument, but only one of which need be produced.
Digital Communications Technology Corporation
By: /s/ Morgan F. Johnston
-----------------------
Title: General Counsel
/s/ Kevin B. Halter
- ------------------------------
Kevin B. Halter, Individually
7
<PAGE>
EXHIBIT 21.0
<PAGE>
Digital Communications Technology Corporation
List of Subsidiaries
Exhibit 21.0
DCT - Internet Corporation, a Delaware Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 615,037
<SECURITIES> 1,900,050
<RECEIVABLES> 4,133,265
<ALLOWANCES> 414,000
<INVENTORY> 2,862,911
<CURRENT-ASSETS> 9,894,257
<PP&E> 10,232,570
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<TOTAL-ASSETS> 15,858,273
<CURRENT-LIABILITIES> 5,955,208
<BONDS> 1,666,063
<COMMON> 1,266
10
0
<OTHER-SE> 7,895,726
<TOTAL-LIABILITY-AND-EQUITY> 15,858,273
<SALES> 24,807,244
<TOTAL-REVENUES> 24,807,244
<CGS> 20,272,614
<TOTAL-COSTS> 20,272,614
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<INTEREST-EXPENSE> 639,517
<INCOME-PRETAX> 200,310
<INCOME-TAX> 109,003
<INCOME-CONTINUING> 91,307
<DISCONTINUED> 131,737
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 223,044
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
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