FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Date of Report (Date of earliest event reported) October 28, 1997.
DCI Telecommunications, Inc.
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(Exact name of registrant as specified in its charter)
Colorado 2-96976-D 84-1155041
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation) Number)
611 Access Road, Stratford, CT 06497
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(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 380-0910
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(Former name or former address, if changed since last report.)
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Item 2. Acquisition or Disposition of Assets
On October 28,1997, DCI Telecommunications, Inc. signed a definitive
agreement with SmarTalk Teleservices, Inc. to sell its prepaid phone card
distribution contract with D Services, a wholly owned subsidiary of W.H.
Smith, for $9,000,000. DCI will receive $1,000,000 in cash at the closing
and shares of SmarTalk common stock worth $8,000,000 based on the price of
SmarTalk stock on the closing date. SmarTalk is listed on the NASDAQ.
The distribution contract was initially owned by CardCall UK, a wholly-
owned subsidiary of DCI, and will grant SmarTalk the exclusive right to
market and distribute prepaid phone cards through W.H. Smith's wholesale
and retail outlets throughout the United Kingdom (UK). W.H. Smith is the
UK's largest wholesaler and distributor of newspapers, magazines, books and
stationery items with some 55,000 retail outlets.
A non-compete clause in the agreement will preclude DCI or its
subsidiaries from engaging in the prepaid phone card products business in
the UK for a period of seven years.
The gain on the transaction is estimated at $3,300,000, after the
write-off of goodwill associated with the CardCall acquisition.
There was no material relationship between SmarTalk Teleservices and
the Registrant, or its affiliates, directors or officers.
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Item 7. Financial Statements and Exhibits
AGREEMENT
Dated as of October 28, 1997
among
SMARTALK TELESERVICES, INC.
a California corporation
"SMARTALK."
SMARTALK TELESERVICES (U.K.) LIMITED
a corporation organized under the laws of the United Kingdom
"SMTK U.K. LIMITED."
and
DCI TELECOMMUNICATIONS, INC.
a Colorado corporation
"DCI"
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AGREEMENT
THIS AGREEMENT, dated as of October 28, 1997 (this "Agreement'),
is by and among SmarTalk TeleServices, Inc., a California Corporation
("SmarTalk"), SmarTalk TeleServices (U.K.), Limited, a corporation
organized under the laws of the United Kingdom ("SMTK U.K. Limited') and a
wholly owned subsidiary of SmarTalk and DCI Telecommunications, Inc., a
Colorado corporation ("DCI," which term "DCI" shall include DCI and any of
its direct or indirect subsidiaries engaged in the WH Smith Business (as
hereinafter defined), unless the context otherwise requires).
WHEREAS, DCI, directly and through its direct and indirect
subsidiaries, is engaged in the business of providing prepaid phone card
services (including, without limitation, long distance and enhanced
services) to WH Smith Limited, a company organized under the laws of the
United Kingdom ("WH Smith"), pursuant to a contract, dated February 23,
1996, between WH Smith and D Services, a corporation organized under the
laws of the United Kingdom and a subsidiary of DCI (the "WH Smith
Contract") attached hereto as Exhibit A (all of which shall be deemed the
"WH Smith Business"); and
WHEREAS, DCI desires to assign the WH Smith Contract to SmarTalk
or SMTK U.K. Limited and either SmarTalk or SMTK U.K. Limited desires to
assume the obligations under the WH Smith Contract.
NOW, THEREFORE, for and in consideration of the foregoing
premises, the representations, warranties, covenants and agreements herein
contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1. ASSIGNMENT AND PURCHASE PRICE
Section 1.1 Assignment. In reliance on the representations,
warranties and covenants contained herein and subject to the terms and
conditions hereof, on the Closing Date (as hereinafter defined), DCI will
assign the WH Smith Contract to SmarTalk or SMTK U.K. Limited or their
assigns (which shall be determined by SmarTalk and/or SMTK U.K. Limited in
writing prior to the Closing (as defined herein)) and waive any and all
rights in respect of any obligations owed to it for contractual services
performed on and after the Closing Date under or in connection with the WH
Smith Contract or the WH Smith Business. Upon such assignment, SmarTalk or
SMTK U.K. Limited or their assigns shall assume the obligations to be
performed under the WH Smith Contract that accrue on and after the Closing
Date.
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Section 1.2 Purchase Price. The purchase price ("Purchase
Price") to be paid on the Closing Date by SmarTalk or SMTK U.K. Limited or
their assigns, as the case may be, to DCI for entering into this agreement
shall be:
(a) One million Dollars ($1,000,000), in immediately available funds
(cash, certified check or wire transfer to such bank account or accounts as
DCI shall have theretofore designated in writing to SMTK U.K. Limited at
least two (2) business days prior to the Closing Date); and
(b) common stock certificates representing that number of shares of
common stock, no par value, of SmarTalk (the "SmarTalk Common Stock"),
equal to $8,000,000, as of the Closing Date.
DCI may at the Closing accept SmarTalk's or SMTK U.K. Limited's promise to
deliver the shares of SmarTalk Common Stock upon lapse of the fifteen (15)
day notification period referenced in Section 6.8 hereof in order to
accomplish Closing before the expiration of said notification period.
ARTICLE II. THE CLOSING
The closing (the "Closing") of the transactions contemplated by
this Agreement shall take place at the offices of Dewey Ballantine, 333
South Hope Street, Suite 3000, Los Angeles, California 90071, or at such
other place, time and manner as the parties may agree, on the day all of
the conditions to each parties' obligations under Articles VI and VII have
been satisfied or waived, or at each date, time and place as shall be
mutually agreed to by the parties (the "Closing Date").
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF DCI
DCI hereby represents and warrants to SMTK U.K. Limited as follows:
Section 3.1 Organization; Authority; Execution; Delivery. DCI is
a corporation, duly organized, validly existing and in good standing under
the laws of Colorado. DCI has full power and authority to enter into this
Agreement, including all Schedules and Exhibits hereto, and the other
agreements, instruments, certificates and documents required or
contemplated hereby or thereby to be executed or delivered by it, and to
assign the WH Smith Contract in accordance with the terms hereof. The
execution, delivery and performance of this Agreement by DCI have been duly
and effectively authorized by all necessary corporate or other
organizational action. No other corporate or other organizational
proceedings on the part of DCI are necessary to authorize this Agreement
and the transactions contemplated hereby. This Agreement has been duly
executed and delivered by DCI and constitutes (and any other agreements
contemplated hereby when duly executed and delivered by DCI will
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constitute) the legal, valid and binding obligations of DCI, enforceable
against DCI in accordance with their respective terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, or other
similar laws affecting the enforcement of creditors rights in general,
moratorium laws or by general principles of equity (the "Enforceability
Limitations").
Section 3.2 Consents; No Violation, Etc. (a) No authorization,
consent, approval, license, exemption by filing or registration with any
court, arbitrator or governmental, administrative or self-regulatory
authority, is or will be necessary in connection with the entry into,
execution, delivery and performance of this Agreement or any of the
documents relating to the transactions contemplated hereunder by DCI, or
for the consummation of the transactions contemplated hereby and thereby.
(b) Neither the execution and delivery of this Agreement, the
other agreements contemplated hereby, if any, the consummation of the
transactions contemplated herein or therein, nor compliance by DCI with any
of the provisions hereof or thereof will (with or without the giving of
notice or the passage of time) (i) violate, conflict with, result in a
breach of, constitute a default under, any of the terms, conditions or
provisions of (A) the certificate of incorporation and bylaws of DCI, (B)
any note, bond, mortgage, indenture, deed of trust, or any license,
agreement, or any other instrument or obligation to which DCI is a
party, or by which DCI or any of DCI's assets or properties may be bound or
affected, (ii) violate any judgment, order, writ, injunction, decree,
statute, law, rule or regulation applicable to DCI or any of DCI's assets
or properties or (iii) require the consent, approval, permission or other
authorization of or by or filing or qualification with any court,
arbitrator or governmental, administrative, or self-regulatory authority.
Section 3.3 No Other Agreements to Assign. DCI has no legal
obligation, absolute or contingent, to any other person or firm to assign
the WH Smith Contract.
Section 3.4 Absence of Undisclosed Liabilities and Obligations.
There are no liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) under or in connection with the WH Smith
Contract or the WH Smith Business, for which SmarTalk or SMTK U.K. Limited
could be liable or obligated. There are no outstanding pre-paid phone
cards or other inventory under or in connection with the WH Smith Contract
or the WH Smith Business.
Section 3.5 WH Smith Contract, WH Smith Business. Since February
23, 1996, DCI has (i) strictly complied with all terms and provisions of
the WH Smith Contract, (ii) operated the WH Smith Business in the ordinary
course so as to preserve the WH Smith Business intact and to preserve for
SmarTalk and SMTK U.K. Limited the goodwill of the WH Smith Business, and
(iii) not been in default under any provision of the WH Smith Contract.
Presently DCI does not know of or have any reason to believe that the
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relationship between DCI and WH Smith has been threatened, damaged or
impaired in any respect.
Section 3.6 Taxes. (a) For purposes of this Agreement, the term
"Tax" means any net or gross income, gross receipts, sales, use, rental,
value added, ad valorem, transfer, turnover, franchise, profits, license,
withholding, payroll, employment, excise, capital, severance, stamp,
occupation, premium, property or windfall profits tax, alternative or add-
on minimum tax, customs, duty or other tax, fee, assessment or charge of
any kind whatsoever, together with any interest and any penalty, title,
addition to tax or additional amount imposed by any governmental
department, court or other authority, whether domestic or foreign.
(b) For purposes of this Agreement, the term "Tax Return" means
any report, return, declaration, statement, form, extension or other
document filed or required to be filed with any federal, state, local or
other governmental department, court or other authority in respect of
Taxes.
(c) Except as set forth on Schedule 3.6(c), all Tax Returns
required to be filed on or before the Closing Date by or on behalf of DCI
have been or will be timely filed on or before the Closing Date. All such
Tax Returns were (or to the extent not yet filed will be) true, complete
and correct in all material respects and filed on a timely basis.
(d) DCI has, within the time frame and the manner prescribed by
law, paid (and until the Closing Date will pay within the time and in the
manner prescribed by law) all Taxes required to be paid by it, whether or
not shown (or required to be shown) on a Tax Return.
(e) DCI has complied (and until the Closing Date will comply) in
all material respects with the provisions of the Code relating to the
payment and withholding of Taxes, including without limitation, the
withholding and reporting requirements under Sections 1441 through 1464,
3401 through 3406, and 6041 and 6049 of the Code, as well as similar
provisions under any other laws, and has, within the time and in the manner
prescribed by law, withheld from employee wages and paid over to the proper
governmental authorities all amounts required to be so paid.
(f) DCI has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment
or deficiency and there are no outstanding deficiencies, assessments, or
written proposals for the assessment of any amount of Taxes proposed,
asserted or assessed against DCI. All deficiencies proposed as a result of
any audit currently being conducted with respect to DCI have been paid,
reserved against, settled, or as described in Schedule 3.6(t), are being
contested in good faith by appropriate proceedings.
(g) DCI has established (and until the Closing Date will
maintain) on its books and records reserves adequate to pay all Taxes
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attributable to periods or portions thereof ending on or prior to the
Closing Date and not yet due and payable in accordance with GAAP.
(h) There are no security interests on the WH Smith Contract
that arose in connection with any failure (or alleged failure) to pay any
Taxes and there are, no liens for any Tax upon the Contract.
(i) DCI is not a party to any agreement (other than this
Agreement) providing for the guaranty, indemnification or sharing of Taxes
with respect to any Taxable Period.
(j) DCI is not a party to any joint venture, partnership or
other arrangement or contract (including, without limitation, the WH Smith
Contract) that could be treated as a partnership or other entity for
federal income Tax purposes.
Section 3.7 Copies of Documents. Attached hereto as Exhibit A is
a full and complete copy of the WH Smith Contract as in effect as of the
date hereof.
Section 3.8 Litigation. There is neither (a) any litigation,
proceeding, arbitral action or government investigation pending or
threatened against, relating to or affecting the WH Smith Contract. There
are no decrees, injunctions or orders of any court or governmental
department or agency outstanding against DCI with respect to the WH Smith
Business.
Section 3.9 Compliance with Laws. DCI has complied in all
material respects with all applicable statutes, regulations, rules, orders,
ordinances and other laws ("Laws") of the United Kingdom, all local and
foreign governments and other governmental bodies and authorities, and
agencies of any of the foregoing ("Governmental Authority") to which they
are subject with respect to regulatory matters with regard to the WH Smith
Contract. DCI has maintained all records required to be maintained by all
Governmental Authorities and there are no presently existing circumstances
known to DCI after due inquiry which would result or would be likely to
result in violations of any such Laws.
Section 3.10 No Brokers. DCI has not entered into and will not
enter into any agreement, arrangement or understanding with any person or
firm which will result in the obligation of SmarTalk or SMTK U.K. Limited
to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby or any other
transaction.
Section 3.11 Records. The Records of DCI relating to the WH
Smith Contract and the WH Smith Business have been maintained in all
material respects in accordance with good business practices.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES
OF SMARTALK AND SMTK U.K. LIMITED
SMTK U.K. Limited hereby represents and warrants to DCI as follows:
Section 4.1 Organizations; Authority; Execution and Delivery.
SmarTalk is duly organized, validly existing and in good standing under the
laws of the state of California. SMTK U.K. Limited is duly organized,
validly existing and in good standing under the laws of the United Kingdom.
Each of SmarTalk and SMTK U.K. Limited has full corporate power and
authority to enter into this Agreement, in accordance with the terms
hereof. The execution, delivery and performance of this Agreement and the
other agreements contemplated hereby by each of SmarTalk and SMTK U.K.
Limited, has been duly and effectively authorized by the Board of Directors
of SmarTalk and SMTK U.K. Limited, as the case may be. No other corporate
proceedings on the part of SmarTalk and SMTK U.K. Limited are necessary to
authorize this Agreement and the transactions contemplated herein or
therein. This Agreement has been duly executed and delivered by each of
SmarTalk and SMTK U.K. Limited and constitutes (and the other agreements
when duly executed and delivered or contemplated hereby will constitute)
the legal, valid and binding obligations of each of SmarTalk and SMTK U.K.
Limited, enforceable against each of them, in accordance with their
respective terms, except as enforcement thereof may be limited by the
Enforceability Limitations.
Section 4.2 No Brokers. Each of SmarTalk and SMTK U.K. Limited
has not entered into and will not enter into any agreement, arrangement or
understanding with any person or firm which will result in the obligation
of DCI to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby. SmarTalk
acknowledges that DCI will not be responsible for payment of any commission
or fee to George Rebensdorf.
Section 4.3 Consents. No Conflicts; Etc. Except as set forth on
Schedule 4.3, neither the execution and delivery of this Agreement, the
consummation by each of SmarTalk and SMTK U.K. Limited of the transactions
contemplated herein nor compliance by SmarTalk or SMTK U.K. Limited, as the
case may be, with any of the provisions hereof will (with or without the
giving of notice or the passage of time) (i) violate or conflict with any
provision of the certificate of incorporation or by-laws or similar
organizational documents of SmarTalk or SMTK U.K. Limited, as the case may
be, (ii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to SmarTalk or SMTK U.K. Limited, as the case may be
or any of their respective assets or properties or (iii) require the
consent, approval, permission or other authorization of or by or filing or
qualification with any court, arbitrator or governmental, administrative,
or self-regulatory authority.
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ARTICLE V. CERTAIN COVENANTS AND AGREEMENTS
Section 5.1 Non-Competition. In consideration of the benefits to
DCI hereunder and in order to induce SmarTalk and SMTK U.K. Limited to
enter into this Agreement, DCI will not, for a period of seven (7) years
from the Closing Date (the "Non-Competition Period"), directly or
indirectly, (i) engage or hold an interest in any business (whether by
ownership of debt or equity) providing prepaid phone card products or
services to WH Smith or its customers (collectively, the "Proscribed
Business") or, (ii) have any interest in, own, manage, operate, control,
direct, be connected with as a stockholder (other than as a stockholder of
less than five percent (5 %) of the issued and outstanding stock of a
publicly held corporation), joint venture, partner or consultant, or
otherwise engage or invest or participate in any business engaged in the
Proscribed Business, (iii) hire any person employed or otherwise retained
by, or solicit or encourage any person to leave the employ of, SmarTalk or
SMTK U.K. Limited (including employees of DCI working in the WH Smith
Business as of the date of this Agreement or as of the Closing Date),
except as agreed to in writing by SmarTalk and SMTK U.K. Limited, or (iv)
deal in a competitive manner in the Proscribed Business at any time during
the Non-Competition Period. DCI acknowledges and agrees that the
geographic scope of the non-competition provisions hereof shall be limited
to the United Kingdom and that such geographic scope is reasonable.
Section 5.2 Non-Disclosure. Other than pursuant to Article XII
DCI shall not at any time from and after the date of this Agreement
divulge, furnish or make accessible to anyone any knowledge or information
with respect to confidential or secret aspects of the WH Smith Business or
any financial or other information about SmarTalk or SMTK U.K. Limited.
Any information, which at or prior to the time of disclosure was generally
available to the public through no breach of this covenant, shall not be
deemed confidential information for purposes hereof, and the undertakings
in this covenant with respect to confidential information shall not apply
thereto. Notwithstanding the foregoing, such information may be disclosed
to an appropriate party, upon prior written notice to SmarTalk and SMTK
U.K. Limited, if DCI, on the advice of counsel, is legally required to
disclose (including by oral questions, interrogatories, requests for
information or documents subpoena or similar process) such information, or
if required to disclose such information by the Securities and Exchange
Commission or a stock exchange.
Section 5.3 Further Assurances. From and after the Closing Date,
from time to time, at SmarTalk's or SMTK U.K. Limited's request and without
further consideration, DCI will execute and deliver or cause to be executed
and delivered such other instruments and take such other actions as
SmarTalk or SMTK U.K. Limited or their counsel may reasonably request to
more effectively consummate the transactions contemplated by this
Agreement.
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Section 5.4 Conduct of the WH Smith Business. DCI shall, from
the date hereof up to and including the Closing Date, conduct the WH Smith
Business only in the ordinary course, consistent with past practice, and
shall not do, or cause to be done, anything which is represented and
warranted not to have been done in this Agreement, except as otherwise
expressly contemplated hereby. In addition, DCI shall, from and after the
date hereof up to and including the Closing Date, cause the WH Smith
Business to: (a) be conducted only in the ordinary course of business and
consistent with past practice; (b) promptly advise SmarTalk and SMTK U.K.
Limited, in writing of any material adverse change in the condition
(financial or otherwise) of the assets, liabilities, earnings, business or
prospects of the WH Smith Business, (c) maintain in full force and effect
all licenses and perform in all material respects all obligations under any
contracts; (d) not permit (to the extent within the control of DCI) to
occur any of the events or occurrences described in Section 3.5 of this
Agreement; (e) use its best efforts to preserve the WH Smith Contract
intact and to preserve for SMTK U.K. Limited the goodwill of WH Smith; (f)
not take any action that would prevent DCI from consummating the
transactions contemplated by this Agreement or (g) not make any change in
Tax practice or make, revoke or change any election with respect to Taxes.
Section 5.5 Changes in Representations and Warranties. Between
the date of this Agreement and the Closing Date, DCI shall not enter into
any transaction, take any action, or by inaction permit an event to occur,
which would result in any of the representations and warranties of DCI
herein contained not being true and correct at and as of (a) the time
immediately following the occurrence of such transaction or event or (b)
the Closing Date, DCI shall promptly give written notice to SmarTalk and
SMTK U.K. Limited upon becoming aware of (i) any fact which, if known on
the date hereof, would have been required to be set forth or disclosed
pursuant to this Agreement and (ii) any impending or threatened breach in
any material respect of any of the representations and warranties contained
in this Agreement and with respect to the latter shall use all reasonable
efforts to remedy same. To the extent that any information required to be
disclosed by DCI pursuant to clause (i) or (ii) of this Section 5.5 causes
any schedule hereto to be inaccurate or incomplete, DCI shall in each case
promptly supplement or amend the relevant portion of the applicable
schedule hereto and provide such supplemented or amended schedule to
SmarTalk and SMTK U.K. Limited; provided, however, that each amended or
supplemented schedule shall not be taken into account for purposes of
determining compliance with Section 6.1 hereof.
Section 5.6 Mutual Cooperation. The parties hereto will cooperate
with each other and will use all reasonable efforts to cause the
fulfillment of the conditions to the parties' obligations hereunder and to
obtain as promptly as possible all consents, authorizations, orders or
approvals from each and every third party, whether private or governmental,
required in connection with the transactions contemplated by this
Agreement. DCI agrees to provide any necessary services and support that
may be required to operate the WH Smith Business in the ordinary course,
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due to a failure to obtain at or prior to Closing any necessary
governmental or regulatory licenses, permits, clearances, franchises,
approvals, authorizations, certificates and pending application thereunder
required to conduct the WH Smith Business. Any such services and support
shall be provided at DCI's cost (including reasonable and customary general
and administrative and overhead expenses) and for a period not to exceed
six (6) months from the Closing Date. For services rendered pursuant to
this Section, (i) DCI shall provide SMTK U.K. Limited with a written
statement covering each applicable 30-day period following the Closing
Date, indicating in detail the nature of the services provided and the
costs associated therewith and (ii) SMTK U.K. Limited shall pay to DCI the
specified amount within fifteen (15) days after receipt of the statement by
SMTK U.K. Limited (less any disputed amount which SMTK U.K. Limited and DCI
shall diligently cooperate to resolve as soon as possible).
Section 5.7 Registration of Securities. SmarTalk agrees at its
own expense to file a registration statement on Form S-3 or the appropriate
form upon request from DCI at any time after March 30, 1998 with respect to
the SmarTalk Common Stock acquired by DCI hereunder, and to obtain such
approvals or file such notices as may be required by applicable law in
connection with the issuance, registration or listing of such SmarTalk
Common Stock.
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF SMARTALK AND SMTK U.K. LIMITED
The obligations of SmarTalk and SMTK U.K. Limited to consummate
the transactions contemplated by this Agreement shall be subject to the
fulfillment, or the waiver by SmarTalk and SMTK U.K. Limited, on or prior
to the Closing Date, of the following conditions:
Section 6.1 Representations and Warranties True at the Closing
Date. The representations and warranties of DCI contained in this
Agreement or in any other document delivered by DCI pursuant hereto shall
be deemed to have been made on and as of the Closing Date and shall then be
true and correct in all material respects (except those representations and
warranties that are qualified by materiality and those representations and
warranties set forth in Section 3.9, which shall be true and correct in all
respects), and on the Closing Date DCI shall have delivered to SMTK U.K.
Limited an officer's certificate to such effect.
Section 6.2 DCI's Performance. Each of the obligations of DCI
to be performed on or before the Closing Date, pursuant to the terms of
this Agreement, shall have been duly performed by the Closing Date, and on
the Closing Date DCI shall have delivered to SMTK U.K. Limited an officer's
certificate to such effect.
Section 6.3 The WH Smith Contract. The WH Smith Contract shall
have been assigned to SmarTalk or SMTK U.K. Limited or their assigns (as
determined by SmarTalk and/or SMTK U.K. Limited prior to the Closing) and
SmarTalk or SMTK U.K. Limited shall have entered into a new contract with D
Services for the business of WH Smith (the "New WH Smith Contract"), which
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New WH Smith Contract is in form and substance satisfactory to SMTK U.K.
Limited.
Section 6.4 Material Adverse Change. There shall not have occurred
any event or condition which has had or is reasonably likely to have a
material adverse effect on the WH Smith Business, the condition (financial
or otherwise), the earnings or prospects of the WH Smith Business, taken as
a whole (a "Material Adverse Effect"), including, without limitation, any
change in applicable federal or state laws, regulations or practices which
would have a Material Adverse Effect.
Section 6.5 Litigation. No claim, action, suit, investigation or
other proceeding shall be pending or threatened by any third party
(including any governmental agency) before any court or administrative
agency challenging or otherwise relating to the transactions provided for
herein or which may affect SmarTalk, SMTK U.K. Limited or DCI in a manner
which is materially adverse.
Section 6.6 No Change in Law. There shall not have been any
action taken or any statute enacted by any governmental authority which
would render the parties unable to consummate the transactions contemplated
herein or make the transactions contemplated herein illegal or prohibit,
restrict or substantially delay the consummation of the transactions
contemplated herein.
Section 6.7 Documents. DCI shall have furnished SMTK U.K. Limited
with all other documents, certificates and other instruments reasonably
requested to be furnished to SMTK U.K. Limited pursuant to the terms
hereof.
Section 6.8 Nasdaq Notification. SmarTalk shall have made the
proper filing with Nasdaq of the notice of additional issuance of
securities as required by Nasdaq, and the fifteen (15) day notification
period to Nasdaq shall have lapsed, provided however, that the Closing may
occur prior to the lapse of the fifteen (15) day notification period if DCI
accepts SmarTalk's or SMTK U.K. Limited's promise to deliver shares of
SmarTalk Common Stock after the Closing as set forth in Section 1.2 hereof.
Section 6.9 Certain Tax Forms. At the Closing, DCI shall deliver
to SmarTalk and SMTK U.K. Limited, a satisfactory affidavit stating, under
penalty of perjury, its United States taxpayer identification number and
that it is not a foreign person (which affidavit shall comply with Section
1445 of the Internal Revenue Code of 1996, as amended, and the regulations
promulgated thereunder).
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF DCI
The obligation of DCI to consummate the transactions contemplated
hereby shall be subject to the fulfillment, or the waiver by DCI, on or
prior to the Closing Date, of the following conditions:
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Section 7.1 Representations and Warranties True at the Closing
Date. The representations and warranties of SmarTalk and SMTK U.K. Limited
contained in this Agreement or in any other document delivered by SmarTalk
or SMTK U.K. Limited, as the case may be, pursuant hereto shall be deemed
to have been made at and as of the Closing Date and shall then be true and
correct in all material respects (except those representations and
warranties that are qualified by materiality, which shall be true and
correct in all respects), and on the Closing Date SMTK U.K. Limited shall
have delivered to DCI an officer's certificate to such effect.
Section 7.2 SMTK U.K. Limited's Performance. SmarTalk or SMTK
U.K. Limited or their assigns shall, on the Closing Date, pay to DCI the
Purchase Price, in accordance with Section 1.2 above.
Section 7.3 Litigation. No claim, action, suit, investigation or
other proceeding shall be pending or threatened by any third party
(including any governmental agency) before any court or administrative
agency challenging or otherwise relating to the transactions provided for
herein or which may affect SmarTalk, SMTK U.K. Limited or DCI in a manner
which is materially adverse.
Section 7.4 No Change in Law. There shall not have been any
action taken or any statute enacted by any governmental authority which
would (i) render the parties unable to consummate the transactions
contemplated herein; (ii) make the transactions contemplated herein illegal
or (iii) prohibit, restrict or substantially delay the consummation of the
transactions contemplated herein.
Section 7.5 Documents. SMTK U.K. Limited shall have furnished
DCI with all documents, certificates and other instruments reasonably
requested to be furnished to it pursuant to the terms hereof.
ARTICLE VIII. NATURE AND SURVIVAL OF REPRESENTATIONS
AND WARRANTIES, ETC.
All statements contained in any Exhibit, Schedule or Annex hereto
or in any Certificate or instrument of conveyance delivered by or on behalf
of the parties pursuant to this Agreement or in connection with the
transactions contemplated hereby shall be deemed representations and
warranties by the parties hereunder.
Section 8.1 Survival of Representations, Warranties, Etc. Except
as otherwise provided herein, the representations and warranties contained
in Articles III and IV of this Agreement shall survive the Closing for a
period of three (3) years after the Closing Date. Notwithstanding, any
other provision of this Agreement, all representations and warranties
contained herein with respect to Taxes shall survive the Closing
indefinitely.
Section 8.2 DCI Agreement to Indemnify. (a) DCI shall fully
<PAGE>
indemnify, defend and hold harmless SmarTalk and SMTK U.K. Limited, their
respective officers, directors, employees, agents, representatives, and
affiliates and their successors and assigns against and in respect of any
and all liabilities, losses, damages, clams, penalties, actions, fines,
deficiencies, costs, taxes, loss of deductions or expenses or basis
(including, without limitation, the reasonable fees, expenses and
disbursements of counsel) (collectively, "Losses") regardless of whether an
action has been filed or asserted against SmarTalk or SMTK U.K. Limited, as
the case may be, after the Closing Date, arising from, in connection with
or resulting from (i) any misrepresentation, inaccuracy or breach of
misrepresentation, warranty, covenant or agreement by DCI made in this
Agreement (including, without limitation, the Schedules, Exhibits and
Annexes hereto and the certificates delivered hereunder) or as provided
herein, (ii) DCI's conduct of the WH Smith Business or performance of the
WH Smith Contract at any time prior to the Closing Date, and (iii) any and
all Losses arising from any pre-paid phone cards or any inventory issued
prior to the Closing Date under or in connection with the WH Smith Contract
or the WH Smith Business.
(b) In addition to the foregoing provisions of Section 8.2(a)
above and without limiting the generality of such provisions, DCI agrees to
fully indemnify and hold harmless SmarTalk and SMTK U.K. Limited and their
respective parent corporations and subsidiaries and all other members, if
any, of any group of which SmarTalk or SMTK U.K. Limited, as the case may
be, is a member for Tax purposes (any subsequent reference to SMTK U.K.
Limited in this clause shall mean either SMTK U.K. Limited individually or
one or more of its affiliates as described herein, as appropriate and any
subsequent reference to "SmarTalk" in this clause shall mean either
SmarTalk individually or one or more of its affiliates as described herein,
as appropriate) against and in respect of and, on demand, will reimburse
SmarTalk and SMTK U.K. Limited for, any and all liability whatsoever, and
however imposed (including any claim asserted or deficiency assessed
against or collected from or paid by SmarTalk or SMTK U.K. Limited, as the
case may be), in respect of any Taxes arising by reason of becoming an
assignee of the WH Smith Contract for any and all periods through and
including the Closing Date.
Section 8.3 SMTK U.K. Limited's Agreement to Indemnify. SMTK
U.K. Limited shall fully indemnify, defend and hold harmless DCI, and its
officers, directors, employees and affiliates against and in respect of any
and all Losses resulting from (i) any misrepresentations or breach of any
representation, warranty, covenant or agreement by SMTK U.K. Limited in
this Agreement (including, without limitation, the Schedules and Exhibits
hereto and certificates delivered hereunder) or as provided herein; and
(ii) any and all liabilities accruing under either the WH Smith Contract or
the New WH Smith Contract on and after the Closing Date.
Section 8.4 Procedures Relating to Indemnification. Promptly
after the receipt by any party hereto of notice of any claim, action, suit
or proceeding of any third party which is subject to indemnification
<PAGE>
hereunder, such party or parties (the "Indemnified Party") shall give
written notice of such claim (a "Notice of Claim") to the party or parties
obligated to provide indemnification hereunder (collectively, the
"Indemnifying Party"), stating the nature and basis of such claim and the
amount thereof, to the extent known. The failure of the Indemnified Party
to so notify the Indemnifying Party shall not impair the Indemnified
Party's ability to seek indemnification from the Indemnifying Party. The
Indemnifying Party shall be entitled to participate in the defense or
settlement of such matter and the parties agree to cooperate in any such
defense or settlement and to give each other full access to all information
relevant thereto. The Indemnifying Party shall not be obligated to
indemnify an Indemnified Party hereunder for any settlement entered into
without the Indemnifying Party's prior written consent, which consent shall
not be unreasonably withheld, conditioned or delayed. If any Notice of
Claim relates to a claim by a person or persons (other than by federal,
state or local income tax authorities or by SMTK U.K. Limited), and the
amount of such claim is acknowledged by DCI to be fully covered by the
foregoing indemnity, as limited herein, DCI may elect to defend against
such claim at its expense, in lieu of SMTK U.K. Limited assuming such
defense; provided, that SMTK U.K. Limited shall be entitled to participate
in or monitor such defense at its expense and DCI will fully cooperate with
SMTK U.K. Limited and its counsel with respect thereto. If DCI or any
other persons as provided above elect to assume such defense, they shall
retain counsel reasonably satisfactory to SMTK U.K. Limited. No compromise
or settlement of such claim may be effected by either party without the
other party's consent (which shall not be unreasonably withheld) unless (i)
there is no finding or admission of any violation of law and no effect on
any other claims that may be made against such other party and (ii) the
sole relief provided is monetary damages that are paid in full by the party
seeking the settlement.
Section 8.5 Payment. All amounts payable by one party to the
other pursuant to the provisions of this Article VIII shall be payable
within five (5) business days after a final determination thereof in
accordance with the provisions hereof. Any payment by one party to another
pursuant to the provisions of this Article VIII shall be in an amount
which, after reduction by an amount equal to the Taxes required to be paid
by the Indemnified Party in respect of the receipt or accrual of such
amount (add after giving effect to any current Tax benefits actually
realized by the Indemnified Party as a result of the event giving rise to
such payment as a reduction in Taxes), shall be equal to the payment
otherwise required hereunder.
<PAGE>
ARTICLE IX. WAIVER
This Agreement shall not be released, discharged, abandoned,
changed or modified in any manner, except by an instrument in writing
executed by the parties hereto. The failure of any party to enforce at any
time any of the provisions of this Agreement shall in no way be construed
to be a waiver of any such provision, nor in any way to affect the validity
of this Agreement or any part hereof or the right of any party thereafter
to enforce each and every such provision. No waiver of any breach of this
Agreement shall be held to be a waiver of any other or subsequent breach.
ARTICLE X. NOTICES, ETC.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given, if
delivered in person or by courier, telegraphed, telexed or by facsimile
transmission or mailed by certified or registered mail, postage prepaid:
If to DCI: DCI Telecommunications, Inc.
611 Access Road
Stratford, Connecticut 06497
Telephone: (203) 380-0910
Telecopy: (203) 380-0915
Attention: Joseph J. Murphy
with a copy to: Whitman, Breed, Abbott & Morgan LLP
100 Field Point Road
Greenwich, Connecticut 06830
Telephone: (203) 862-2458
Telecopy: (203) 869-1951
Attention: Anthony M. Macleod
If to SmarTalk or SMTK
U.K. Limited: SmarTalk Teleservices, Inc.
1640 South Sepulveda, Suite 500
Los Angeles, California 90025
Telephone: (310) 444-8800
Telecopy: (310) 479-3297
Attention: David A. Hamburger, General Counsel
with a copy to: Dewey Ballantine LLP
333 South Hope Street
Los Angeles, California 90071
Telephone: (213) 626-3399
Telecopy: (213) 625-0562
Attention: Robert M. Smith
Any party may, by written notice to the other, change the address to which
notices to such party are to be delivered or mailed.
<PAGE>
ARTICLE XI. ENTIRE AGREEMENT; AMENDMENT
This Agreement and the other agreements referred to herein and
entered into in connection herewith set forth the entire agreement and
understanding of the parties in respect of the transactions contemplated
hereby and supersede all prior agreements, arrangements and understandings
relating to the subject matter hereof including all such agreements,
arrangements and understandings between DCI, SmarTalk or SMTK U.K. Limited.
No representation, promise, inducement or statement of intention has been
made by DCI, SmarTalk or SMTK U.K. Limited that is not embodied in this
Agreement or the other agreements referred to herein and entered into in
connection herewith, the Annexes, Schedules or Exhibits hereto, or the
written statements, certificates or other documents delivered pursuant
hereto. This Agreement may be amended or modified only by a written
instrument executed by the parties hereto or by their successors and
assigns.
ARTICLE XII. PRESS RELEASES
No party hereto shall issue any press releases or make any public
announcements of this Agreement or any of the transactions contemplated by
this Agreement; provided however, that notwithstanding the foregoing, (i)
subject to the approval of DCI, SmarTalk and/or SMTK U.K. Limited shall be
permitted to issue a press release and (ii) DCI and SMTK U.K. Limited shall
be permitted, upon prior notice to the other party, to make such
disclosures to the public or governmental authorities as their respective,
counsel, pursuant to a written opinion of such counsel, shall deem
necessary to maintain compliance with, or to prevent violation of,
applicable laws.
ARTICLE XIII. GENERAL
This Agreement: (a) shall be construed and enforced in accordance with
the laws of the State of New York without giving effect to the choice of
law principles thereof; (b) shall inure to the benefit of and be binding
upon the successors and assigns of the parties hereto, nothing in the
Agreement, expressed or implied, being intended to confer upon any other
person any rights or remedies hereunder; and (c) may be executed in two or
more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument. The Section
and other headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
<PAGE>
ARTICLE XIV. SEVERABILITY
To the extent that any provision of this Agreement shall be
invalid or unenforceable, it shall be considered deleted herefrom and the
remainder of such prevision and of this Agreement shall be unaffected and
shall continue in full force and effect. In furtherance and not in
limitation of the foregoing, if the duration or geographic extent of, or
business activity covered by, any provision of this Agreement shall be in
excess of that which 's enforceable under applicable law, then such
provision shall be construed to cover only that duration, extent or
activities which may be. validly and enforceably covered.
ARTICLE XV. TERMINATION
Section 15.1 Termination. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to Closing by
written notice delivered by DCI to SmarTalk, and SMTK U.K. Limited or by
SmarTalk and SMTK U.K. Limited to DCI, as the case may be, in the following
instances:
(a) By SmarTalk and SMTK U.K. Limited if there has been a
material misrepresentation, a material breach of warranty or a material
failure to comply on the part of DCI with respect to any of the
representations, warranties, covenants or provisions set forth herein (or
delivered in any other document pursuant hereto), including, without
limitation any material misrepresentation, material breach or material
failure to comply that is evidenced in any Schedule delivered by DCI, or
which is discovered in SmarTalk's SMTK U.K. Limited's due diligence
investigation of DCI and the WH Smith Business, and such
misrepresentations, breach or failure to comply has or is reasonably likely
to have a Material Adverse Effect on the performance or condition
(financial or otherwise), of the WH Smith Contract in the hands of SMTK
U.K. Limited and has not been cured, if capable of cure, in full within
twenty (20) days of receipt by DCI of notice from SMTK U.K. Limited.
(b) By DCI if there has been a material misrepresentation, a
material breach of warrant or a material failure to comply with any
covenant on the part of SMTK U.K. Limited with respect to the
representations, warranties or covenants set forth herein (or delivered in
any other document pursuant hereto) and such misrepresentation, breach or
failure to comply has not been cured, if capable of cure, within twenty
(20) days of receipt by SMTK U.K. Limited of notice from DCI.
(c) At any time prior to Closing by the mutual consent in
writing of DCI, SmarTalk and SMTK U.K. Limited
ARTICLE XVI. ASSIGNMENT
Neither this Agreement nor any interest herein may directly or
indirectly be transferred or assigned by any party, in whole or in part,
without the written consent of the other parties, except that SmarTalk and
SMTK U.K. Limited may effect any such assignment to any affiliated company,
<PAGE>
but any such assignment shall not relieve SmarTalk or SMTK U.K. Limited of
their duties and obligations contained in this Agreement.
ARTICLE XVII. NO THIRD PARTY BENEFICIARY
This Agreement is for the benefit of, and may be enforced only by , DCI,
SmarTalk and SMTK U.K. Limited and their respective successors and
transferees and assignees, and is not for the benefit of, and may not be
enforced by, any third party.
ARTICLE XVIII. REMEDIES
The parties agree that, for the transactions provided for in this
Agreement, the sole and exclusive remedy shall be for breaches of the
express terms herein.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
the day and year first above written.
SMARTALK TELESERVICES, INC.
By: /s/ David Hamburger
-----------------------------------
Name: David Hamburger
Title: General Counsel
SMARTALK TELESERVICES (U.K.), LIMITED
By: /s/ David Hamburger
---------------------------------
Name: David Hamburger
Title: Secretary
DCI TELECOMMUNICATIONS, INC.
By: /s/ Joseph J. Murphy
-----------------------------------------
Name: Joseph J. Murphy
Title: President & CEO
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
DCI Telecommunications, Inc.
Joseph J. Murphy
__________________________
Joseph J. Murphy
President
Date: November 4, 1997
