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) November 6, 1998.
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 5. Other Events
On November 6, 1998, DCI announced the signing of a definitive merger
agreement with Wavetech International a copy of which is enclosed.
The transaction must be approved by shareholders of both companies
and is expected to be ratified early in calendar year 1999.
Under the agreement, Wavetech will undertake a one for six reverse
split of its common stock which has already been approved by its
board of directors and shareholders. The shares between the two
companies will be exchanged on a one for one basis. After the merger,
the combined companies will have approximately 24.3 million shares
outstanding.
<PAGE>
MERGER AGREEMENT
by and between
WAVETECH INTERNATIONAL, INC.
AND
DCI TELECOMMUNICATIONS, INC.
Dated November 6, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I THE MERGER
1.1 THE MERGER
1.2 EFFECT OF THE MERGER
1.3 CONSUMMATION OF THE MERGER
1.4 ARTICLES OF INCORPORATION AND BYLAWS; OFFICERS
1.5 OTHER AGREEMENTS
1.6 CONVERSION OF SECURITIES
1.7 CLOSING OF COMPANY TRANSFER BOOKS
1.8 EXCHANGE OF CERTIFICATES
1.9 DISSENTING SHARES
1.10 TAX CONSEQUENCES; ACCOUNTING TREATMENT
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION
1.12 EMPLOYEE STOCK OPTIONS
1.13 WARRANTS
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ARTICLE II REPRESENTATIONS AND WARRANTIES OF WAVETECH
2.1 ORGANIZATION AND QUALIFICATION
2.2 AUTHORITY RELATIVE TO THIS AGREEMENT
2.3 CAPITALIZATION
2.4 SEC FILINGS
2.5 FINANCIAL STATEMENTS
2.6 SUBSIDIARIES
2.7 ABSENCE OF UNDISCLOSED LIABILITIES
2.8 NO MATERIAL ADVERSE CHANGES
2.9 ABSENCE OF CERTAIN DEVELOPMENTS
2.10 TITLE TO PROPERTIES
2.11 ACCOUNTS RECEIVABLE
2.12 INVENTORIES
2.13 TAX MATTERS
2.14 CONTRACTS AND COMMITMENTS
2.15 PROPRIETARY RIGHTS
2.16 LITIGATION
2.17 BROKERAGE
2.18 EMPLOYMENT MATTERS
2.19 EMPLOYEE BENEFIT PLANS
2.20 INSURANCE
2.21 AFFILIATE TRANSACTIONS
2.22 SUPPLIERS
2.23 OFFICERS AND DIRECTORS; BANK ACCOUNTS
2.24 COMPLIANCE WITH LAWS; PERMITS; CERTAIN OPERATIONS
2.25 DISCLOSURE
2.26 NON-CONTRAVENTION; CONSENTS
2.27 STOCKHOLDER VOTE REQUIRED
2.28 BOARD APPROVAL
2.29 OPINION OF FINANCIAL ADVISOR
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 ORGANIZATION AND QUALIFICATION
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT
3.3 CAPITALIZATION
3.4 SEC FILINGS
3.5 FINANCIAL STATEMENTS
3.6 SUBSIDIARIES
3.7 ABSENCE OF UNDISCLOSED LIABILITIES
3.8 NO MATERIAL ADVERSE CHANGES
3.9 ABSENCE OF CERTAIN DEVELOPMENTS
3.10 TITLE TO PROPERTIES
3.11 ACCOUNTS RECEIVABLE
3.12 INVENTORIES
3.13 TAX MATTERS
3.14 CONTRACTS AND COMMITMENTS
3.15 PROPRIETARY RIGHTS
3.16 LITIGATION
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3.17 BROKERAGE
3.18 EMPLOYMENT MATTERS
3.19 EMPLOYEE BENEFIT PLANS
3.20 INSURANCE
3.21 AFFILIATE TRANSACTIONS
3.22 SUPPLIERS
3.23 OFFICERS AND DIRECTORS; BANK ACCOUNTS
3.24 COMPLIANCE WITH LAWS; PERMITS; CERTAIN OPERATIONS
3.25 DISCLOSURE
3.26 NON-CONTRAVENTION; CONSENTS
3.27 STOCKHOLDER VOTE REQUIRED
3.28 BOARD APPROVAL
ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER
4.1 CONDUCT OF BUSINESS PENDING THE MERGER
4.2 NOTIFICATION; UPDATES TO DISCLOSURE SCHEDULE
4.3 SHAREHOLDER APPROVAL
ARTICLE V ADDITIONAL AGREEMENTS
5.1 JOINT PROXY STATEMENT; REGISTRATION STATEMENT
5.2 SHAREHOLDERS' MEETINGS
5.3 ACCOUNTANT COMFORT LETTERS
5.4 EXPENSES
5.5 ADDITIONAL AGREEMENTS
5.6 NO NEGOTIATIONS, ETC
5.7 NOTIFICATION OF CERTAIN MATTERS
5.8 ACCESS TO INFORMATION; CONFIDENTIALITY
5.9 SHAREHOLDER CLAIMS
5.10 CONSENTS
5.11 STATE SECURITIES LAW COMPLIANCE
5.12 AFFILIATE AGREEMENTS
5.15 COMMERCIALLY REASONABLE EFFORTS
5.16 TAX MATTERS
5.17 BOARD OF DIRECTORS
5.18 INDEMNIFICATION
5.19 NASDAQ LISTING
5.20 EMPLOYEES
ARTICLE VI CONDITIONS
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE
MERGER
6.2 ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF WAVETECH
<PAGE>
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION
7.2 TERMINATION PROCEDURES
7.3 EFFECT OF TERMINATION
ARTICLE VIII GENERAL PROVISIONS
8.1 AMENDMENT
8.2 WAIVER
8.3 PUBLIC STATEMENTS
8.4 NOTICES
8.5 INTERPRETATION
8.6 SEVERABILITY
8.7 MISCELLANEOUS
8.8 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.9 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; RIGHTS OF
OWNERSHIP
Exhibit 1 Form of Amended Articles of Incorporation
Exhibit 2 Form of Amended Bylaws
Exhibit 3 Form of Wavetech Warrant
Exhibit 4 Form of Affiliate Agreement (Company)
Exhibit 5 Form of Affiliate Agreement (Wavetech)
Exhibit 6 Affiliated Persons
Exhibit 7 Form of Representation Certificate (Wavetech)
Exhibit 8 Form of Representation Certificate (Company)
Exhibit 9 Form of Shareholder's Representation Certificate
Schedule A Wavetech Disclosure Letter
Schedule B DCI Disclosure Letter
<PAGE>
MERGER AGREEMENT
This MERGER AGREEMENT is dated November 6, 1998 (this
"Agreement"), by and between Wavetech International, Inc. a
Nevada corporation ("Wavetech"), and DCI Telecommunications,
Inc., a Colorado corporation (the "Company").
RECITALS
I. Wavetech and the Company have agreed to the merger
described in Article 1 (the "Merger").
II. The respective boards of directors of Wavetech and the
Company have determined that it is advisable to consummate the
Merger, as a result of which all of the outstanding common stock,
$.001 par value per share, of the Company ("Company Common
Stock") will be converted into shares of the common stock, $.001
par value per share, of Wavetech ("Wavetech Common Stock") and
the Company will be merged into Wavetech; all on the terms and
subject to the conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
THE MERGER
The respective boards of directors of Wavetech and the
Company have, by resolutions duly adopted, approved the following
provisions of this Article 1 as the plan of merger required by
the laws of the states of Colorado and Nevada in connection with
the Merger:
1.1 The Merger
. At the Effective Time (as defined in Section 1.3), in
accordance with this Agreement and applicable law, the Company
shall be merged with and into Wavetech, the separate existence of
the Company (except as may be continued by operation of law)
shall cease, and Wavetech shall continue as the surviving
corporation under the name "DCI Telecommunications, Inc." as
provided in the Amended Articles of Incorporation of Wavetech
pursuant to Section 1.4 of this Agreement. Wavetech, in its
capacity as the corporation surviving the Merger, sometimes is
referred to herein as the "Surviving Corporation."
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1.2 Effect of the Merger
. The Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public as well as of
a private nature, of each of Wavetech and the Company
(collectively, the "Constituent Corporations"); and all property,
real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, and all other choses in
action, and all and every other interest of or belonging to or
due to each of the Constituent Corporations, shall be taken and
deemed to be transferred to and vested in the Surviving
Corporation without further act or deed; and the Surviving
Corporation shall be responsible and liable for all liabilities
and obligations of each of the Constituent Corporations.
1.3 Consummation of the Merger
. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at such time, place
and date as mutually agreed upon by Wavetech and the Company,
which date shall be no later than the third business day after
the later of the Wavetech Shareholders' Meeting and the Company
Shareholders Meeting (each as hereinafter defined), unless
extended by mutual agreement of the parties hereto (the
"Scheduled Closing Time"). The date on which the Closing
actually takes place is referred to in this Agreement as the
"Closing Date." On the Closing Date, the parties hereto will
cause articles of merger relating to the Merger to be delivered
to the Secretaries of State of the states of Colorado and Nevada
in such form as required by, and executed in accordance with, the
relevant provisions of applicable law. The Merger shall be
effective at such time as such articles of merger are duly filed
with and accepted by the Secretaries of State of the states of
Colorado and Nevada in accordance with applicable law, unless a
later time is expressly provided for in such articles (the
"Effective Time").
1.4 Articles of Incorporation and Bylaws; Officers
(a)
The Articles of Incorporation and Bylaws of Wavetech, as in
effect immediately prior to the Effective Time, shall be the
Articles of Incorporation (except that such Articles of
Incorporation shall be amended as set forth in Exhibit 1 attached
hereto) and Bylaws (except that such Bylaws shall be amended as
set forth in Exhibit 2 attached hereto) of the Surviving
Corporation immediately after the Effective Time and shall
thereafter continue to be its Articles of Incorporation and
Bylaws until amended as provided therein and under the applicable
law.
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(b)
The officers of the Surviving Corporation from and after the
Effective Time shall be as follows: Joseph J. Murphy, President
and Chief Executive Officer; Larry Shatsoff, Vice President,
Secretary, and Chief Operating Officer; John J. Adams, Vice
President and Chief Marketing Officer; Russell B. Hintz, Vice
President, Treasurer and Chief Financial Officer; Daniel J.
Murphy, Vice President of Strategic Planning; Gerald Quinn,
Chairman of the Board of Directors.
1.5 Other Agreements
. At or prior to the Effective Time:
(a)
Wavetech shall take such actions as are reasonably necessary to
effect a one (1) for six (6) reverse stock split of its issued
and outstanding common stock (the "Reverse Stock Split").
(b)
The number of directors to serve on the Board of Directors of the
Surviving Corporation shall be increased to seven (7), five (5)
of whom shall be designated by the Company and the remaining two
(2) shall be designated by the present management of Wavetech,
provided, however, that at least one of Wavetech's designees and
one of the Company's designees shall not be a member of
management of the Surviving Corporation or own in excess of five
percent (5%) of the outstanding capital stock of the Surviving
Corporation.
1.6 Conversion of Securities
. Subject to Sections 1.8(b) and 1.9, at the Effective Time, by
virtue of the Merger and without any action on the part of
Wavetech, the Company or the holder of any of the following
securities:
(a)
Each share of Company Common Stock, and each option, warrant,
convertible preferred share and other right to receive a share of
Company Common Stock, issued or granted and outstanding
immediately prior to the Effective Time (and other than shares to
be canceled pursuant to Section 1.6(b)) shall automatically be
canceled and extinguished and be converted into and become a
right to receive one (1) share (the "Exchange Ratio") of Wavetech
Common Stock (after giving effect to the Reverse Stock Split),
<PAGE>
provided, however, that in the event Wavetech's unaudited balance
sheet dated as of the Closing Date (the "Closing Balance Sheet")
reflects aggregate cash and cash equivalents in an amount less
than One Million Eight Hundred Dollars ($1,800,000) but equal to
or greater than One Million Six Hundred Thousand Dollars
($1,600,000), the Exchange Ratio shall be adjusted pursuant to
the following formula: For each dollar or fraction thereof that
the Closing Balance Sheet reflects cash and cash equivalents in
an amount less than One Million Eight Hundred Thousand Dollars
($1,800,000), Wavetech shall issue an aggregate of 1.5888
additional shares of Wavetech Common Stock (the "Closing
Adjustment Shares"). All of the Closing Adjustment Shares to be
issued pursuant to this Section 1.6(a) shall be equally allocated
on a per share basis among all of the issued and outstanding
shares of Company Common Stock and then outstanding options,
warrants, convertible preferred stock and other rights to receive
shares of Company Common Stock. Notwithstanding anything in this
Agreement to the contrary, the expenses payable by Wavetech
pursuant to Section 5.4 hereof shall not be treated as paid prior
to the Closing Date solely for purposes of determining the
aggregate amount of cash and cash receivables reflected on the
Closing Balance Sheet to be delivered as contemplated by this
Section 1.6(a).
(b)
Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time and held in the treasury
of the Company or owned by Wavetech shall automatically be
canceled and extinguished and no payment shall be made with
respect thereto.
(c)
Each share of Wavetech Common Stock issued and outstanding
immediately prior to the Effective Time (after giving effect to
the Reverse Stock Split) shall automatically be entitled to
receive one Warrant to purchase .2099 of a share of Wavetech
Common Stock at a per share exercise price of $2.50 in the form
attached hereto as Exhibit 3 (the "Wavetech Warrants"). The
terms of such form of Wavetech Warrant shall include,
specifically, but without limitation, a three (3) year term,
exercisable only upon registration under the Securities Act of
1933, as amended (the "Securities Act"), of the shares underlying
the Wavetech Warrants (the Wavetech Shares"), demand registration
rights exercisable by the holders of a specified percentage of
Warrants (i.e., not less than 51%) commencing on or after the
first anniversary of the date of issuance of the Wavetech
Warrant, and piggy-back registration rights (such piggy-back
rights being subject to standard underwriter cut-backs).
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Notwithstanding anything in this Agreement to the contrary,
nothing in this Agreement shall be construed so as to require
that the Warrant Shares be included as part of the securities to
be registered in the Form S-4 (as defined herein).
(d)
If any shares of Company Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a
repurchase option, risk of forfeiture or other condition under
any applicable restricted stock purchase agreement or other
agreement with the Company, then the shares of Wavetech Common
Stock issued in exchange for such shares of Company Common Stock
will also be unvested and subject to the same repurchase option,
risk of forfeiture or other condition, and the certificates
representing such shares of Wavetech Common Stock may accordingly
be marked with appropriate legends.
1.7 Closing of Company Transfer Books
. At the Effective Time, holders of certificates representing
shares of Company Common Stock that were outstanding immediately
prior to the Effective Time shall cease to have any rights as
shareholders of the Company, and the stock transfer books of the
Company shall be closed and no transfer of shares of Company
Common Stock issued and outstanding immediately prior to the
Effective Time shall thereafter be made. If, after the Effective
Time, valid certificates previously representing such shares are
presented to the Surviving Corporation or the Disbursing Agent
(as defined in Section 1.8), they shall be exchanged as provided
in Section 1.8.
1.8 Exchange of Certificates
(a)
After the Effective Time, American Stock Transfer & Trust Company
shall act as disbursing agent (the "Disbursing Agent") in
effecting the exchange of Wavetech Common Stock for certificates
which, immediately prior to the Effective Time, represented
shares of Company Common Stock. As soon as practicable after the
Effective Time, the Disbursing Agent shall mail a transmittal
form to each holder of certificates theretofore representing such
shares advising such holder of the procedure for surrendering
such certificates to the Disbursing Agent. If a certificate for
Wavetech Common Stock issued pursuant to Section 1.6(a) is to be
issued in the name of a person other than the person in whose
name the certificates for shares surrendered for exchange are
registered, it shall be a condition of the exchange that the
<PAGE>
person requesting such exchange shall pay to the Disbursing Agent
any transfer or other taxes required by reason of the issuance of
such certificate in the name of a person other than the
registered owner of the certificates surrendered, or shall
establish to the satisfaction of the Disbursing Agent that such
tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Disbursing Agent nor any party hereto
shall be liable to a holder of certificates theretofore
representing shares of Company Common Stock for any amount paid
to a public official pursuant to any applicable abandoned
property, escheat or similar law. Upon the surrender and
exchange of a certificate theretofore representing shares of
Company Common Stock, the holder shall be issued a certificate
representing the number of shares of Wavetech Common Stock to
which such person is entitled pursuant to Section 1.6(a) and the
certificate theretofore representing shares of Company Common
Stock shall forthwith be canceled. Until so surrendered and
exchanged, each Certificate theretofore representing shares of
Company Common Stock shall represent solely the right to receive
the Wavetech Common Stock into which the shares it theretofore
represented shall have been converted pursuant to Section 1.6(a),
and the Surviving Corporation shall not be required to pay the
holder thereof the Wavetech Common Stock to which such holder
otherwise would be entitled; provided that procedures allowing
for payment against lost or destroyed certificates against
receipt of customary and appropriate certifications and
indemnities shall be provided.
(b)
No fractional shares of Wavetech Common Stock shall be issued in
connection with the Merger, and no certificates for any such
fractional shares shall be issued. In lieu of such fractional
shares, any fractional share interest in Wavetech Common Stock
which a holder of Company Common Stock would otherwise be
entitled to receive in the Merger (after aggregating all
fractional shares of Wavetech Common Stock that would otherwise
be issuable to such holder) shall be rounded up to the nearest
whole share if such fraction is 0.5 or greater and shall be
rounded down to the nearest whole share if such fraction is less
than 0.5.
1.9 Dissenting Shares
(a)
Notwithstanding anything to the contrary contained in this
Agreement, any shares of Company Common Stock that, as of the
Effective Time, are or may become "dissenter" shares within the
meaning of Article 113 of the Colorado Business Corporation Act
<PAGE>
(the "Colorado Law") shall not be converted into or represent the
right to receive Wavetech Common Stock in accordance with Section
1.6, and the holder or holders of such shares shall be entitled
only to such rights as may be granted to such holder or holders
under applicable Colorado Law; provided, however, that if the
status of any such shares as "dissenter" shares shall not be
perfected, or if any such shares shall lose their status as
"dissenting shares," then, as of the later of the Effective Time
or the time of the failure to perfect such status or the loss of
such status, such shares shall automatically be converted into
and shall represent only the right to receive (upon the surrender
of the certificate or certificates representing such shares)
Wavetech Common Stock in accordance with Section 1.6.
(b)
The Company shall give Wavetech prompt notice of any written
demand received by the Company prior to the Effective Time to
require the Company to purchase shares of capital stock of the
Company pursuant to Colorado Law and of any other demand, notice
or instrument delivered to the Company prior to the Effective
Time pursuant to the Colorado Law. The Company shall not make
any payment or settlement offer prior to the Effective Time with
respect to any such demand unless Wavetech shall have consented
in writing to such payment or settlement offer.
1.10 Tax Consequences; Accounting Treatment
. For federal income tax purposes, the Merger is intended to
constitute a reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code"). The
parties to this Agreement hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations. For
accounting purposes, the Merger is intended to be accounted for
as a purchase.
1.11 Taking of Necessary Action; Further Action
. Wavetech, on the one hand, and the Company, on the other hand,
shall use all reasonable efforts to take all such action
(including specifically, but without limitation, action to cause
the satisfaction of the conditions of the other to effect the
Merger) as may be necessary or appropriate in order to effectuate
the Merger as promptly as possible. If, at any time after the
Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the
Surviving Corporation with full possession of all the rights,
privileges, immunities and franchises of the Constituent
Corporations, the officers and directors of the Surviving
<PAGE>
Corporation are fully authorized in the name of the Constituent
Corporations or otherwise to take, and shall take, all such
actions.
1.12 Employee Stock Options
(a)
At the Effective Time, each option that is then outstanding under
the Company's 1995 Stock Option Plan (the "Stock Plan"), whether
vested or unvested (a "Company Option"), shall be assumed by
Wavetech in accordance with the terms (as in effect on the date
hereof) of the Stock Plan and the stock option agreement, if any,
by which such Company Option is evidenced. All rights with
respect to Company Common Stock under outstanding Company Options
shall thereupon be converted, subject to the provisions hereof,
into rights with respect to Wavetech Common Stock. From and
after the Effective Time, (i) each Company Option assumed by
Wavetech (collectively, the "Assumed Options") may be exercised
solely for shares of Wavetech Common Stock, (ii) the number of
shares of Wavetech Common Stock subject to each such Assumed
Option shall be equal to the number of shares of Wavetech Common
Stock which the holder of such Assumed Option would have received
pursuant to Section 1.6 in exchange for the shares of Company
Common Stock subject to such Assumed Option if such Assumed
Option had been exercised immediately prior to the Effective
Time, (iii) the per share exercise price for the Wavetech Common
Stock issuable upon exercise of each such Assumed Option shall be
determined by dividing the exercise price per share of Company
Common Stock subject to such Assumed Option, as in effect
immediately prior to the Effective Time, by a fraction the
numerator of which is the number of shares of Wavetech Common
Stock subject to such Assumed Option immediately after the
Effective Time and the denominator of which is the number of
shares of Company Common Stock subject to such Assumed Option
immediately prior to the Effective Time, and rounding the
resulting exercise price up to the nearest whole cent, and (iv)
all restrictions on the exercise of each such Assumed Option
shall continue in full force and effect and the term,
exercisability, vesting schedule, status as an incentive or
nonqualified option, and other provisions of such Company Option
shall otherwise remain unchanged; provided, however, that each
such Assumed Option shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock
split, reverse stock split, stock dividend, recapitalization or
other similar transaction effected by Wavetech after the
Effective Time. The Company and Wavetech shall take all action
that may be necessary (under the Stock Plan and otherwise) to
effectuate the provisions of this Section 1.12.
<PAGE>
(b)
Wavetech will use its best efforts to cause the Wavetech Common
Stock issuable upon exercise of the Assumed Options to be
registered under the Securities Act on Form S-8 promulgated by
the Securities and Exchange Commission (the "SEC"), to the extent
Wavetech is eligible to use such registration form at the time of
such registration, and to be registered or qualified (or to have
established that an exemption from such registration or
qualification is available) under the "blue sky" laws of all
states in which the holders of Company Options reside, within 30
business days after the Effective Time, and Wavetech shall use
its best efforts to maintain the effectiveness of such
registration statement or registration statements for so long as
such Assumed Options remain outstanding. With respect to any
Company employee or director who subsequent to the Merger will be
subject to the reporting requirements under Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
with respect to the securities of Wavetech beneficially owned by
such person, Wavetech shall administer the Assumed Options in a
manner that complies with the disinterested administration
requirements of Rule 16b-3 promulgated by the SEC under the
Exchange Act. At or prior to the Effective Time, Wavetech will
reserve a sufficient number of shares of Wavetech Common Stock
for issuance upon exercise of the Assumed Options.
1.13 Warrants
. At the Effective Time, each warrant to purchase shares of
Company Common Stock that is then outstanding (the "Company
Warrants") shall be assumed by Wavetech in accordance with the
terms (as in effect on the date hereof) of the agreement or
instrument by which such Company Warrant is evidenced. All
rights with respect to Company Common Stock under outstanding
Company Warrants shall thereupon be converted, subject to the
provisions hereof, into rights with respect to Wavetech Common
Stock. From and after the Effective Time, (i) each Company
Warrant assumed by Wavetech (collectively, the "Assumed
Warrants") may be exercised solely for shares of Wavetech Common
Stock, (ii) the number of shares of Wavetech Common Stock subject
to each such Assumed Warrant shall be equal to the number of
shares of Wavetech Common Stock which the holder of such Assumed
Warrant would have received pursuant to Section 1.6 in exchange
for the shares of Company Common Stock subject to such Assumed
Warrant if such Assumed Warrant had been exercised immediately
prior to the Effective Time, (iii) the per share exercise price
for the Wavetech Common Stock issuable upon exercise of each such
Assumed Warrant shall be determined by dividing the exercise
price per share of Company Common Stock subject to such Assumed
Warrant, as in effect immediately prior to the Effective Time, by
<PAGE>
a fraction the numerator of which is the number of shares of
Wavetech Common Stock subject to such Assumed Warrant immediately
after the Effective Time and the denominator of which is the
number of shares of Company Common Stock subject to such Assumed
Warrant immediately prior to the Effective Time, and rounding the
resulting exercise price up to the nearest whole cent, and (iv)
all restrictions on the exercise of each such Assumed Warrant
shall continue in full force and effect and the term,
exercisability, limitations, and other provisions of such Company
Warrant shall otherwise remain unchanged; provided, however, that
each such Assumed Warrant shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock
split, reverse stock split, stock dividend, recapitalization or
other similar transaction effected by Wavetech after the
Effective Time. The Company and Wavetech shall take all action
that may be necessary (under the agreements and instruments
evidencing the Assumed Warrants and otherwise) to effectuate the
provisions of this Section 1.13.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF WAVETECH
Wavetech hereby represents and warrants to the Company that,
except as otherwise disclosed in Wavetech's Annual Report on Form
10-KSB for the fiscal year ended August 31, 1997 ("Wavetech's
Latest 10-KSB") or Wavetech's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 31, 1998 ("Wavetech's Latest 10-
QSB"):
2.1 Organization and Qualification
. Wavetech is a corporation duly organized, validly existing and
in good standing under the laws of the state of Nevada, and has
the requisite corporate and other power and authority (including
all licenses, permits and authorizations) to own and operate its
properties and to carry on its business as now conducted and
presently proposed to be conducted and to perform its obligations
under all contracts, instruments, notes or other binding
commitments to which it is or may become a party or by which it
is or its assets are or may become bound. The copies of
Wavetech's Articles of Incorporation and Bylaws, which have been
furnished or made available by Wavetech to the Company prior to
the date of this Agreement, reflect all amendments made thereto
through the date hereof and are correct and complete in all
material respects. Wavetech is qualified to do business and is
in good standing as a foreign corporation in every jurisdiction
in which the nature of its business or its ownership of property
requires it to be qualified and which the failure to be so
qualified would have a material adverse effect on the financial
condition and operations of Wavetech, taken as a whole.
<PAGE>
2.2 Authority Relative to this Agreement
. Wavetech has the requisite corporate and other power and
authority to enter into and perform this Agreement and to carry
out its obligations hereunder (it being understood that
Wavetech's obligations hereunder to effect the Merger is subject
to the approval of its shareholders as set forth in this
Agreement). The execution and delivery of this Agreement by
Wavetech and the consummation by Wavetech of the transactions
contemplated hereby have been duly authorized by the Board of
Directors of Wavetech and, except for the approval of Wavetech's
shareholders, no other corporate proceedings on the part of
Wavetech are necessary to authorize this Agreement and such
transactions. This Agreement has been duly executed and
delivered by Wavetech and constitutes a valid and binding
obligation of Wavetech, enforceable in accordance with its terms,
except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization or similar laws relating
to the enforcement of creditors' rights generally and by general
principles of equity. Except as set forth in the Wavetech
Disclosure Letter attached hereto as Schedule A, Wavetech is not
subject to, or obligated under, any provision of (a) its Articles
of Incorporation or Bylaws, (b) any agreement, arrangement or
understanding, (c) any license, franchise or permit or (d)
subject to compliance with any of the statutes referred to in the
next sentence, any law, regulation, order, judgment or decree,
which would be breached or violated, or in respect of which a
right of termination or acceleration or any encumbrance on any of
its or any of its Subsidiaries' assets would be created, by its
execution, delivery and performance of this Agreement and the
consummation by it of the transactions contemplated hereby, and
Wavetech has not taken any action that is inconsistent in any
material respect with any resolution adopted by Wavetech, its
board of directors or any committee thereof. The books of
account, stock records, minute books and other records of
Wavetech are accurate, up-to-date and complete in all material
respects and have been maintained in accordance with prudent
business practices. Other than in connection with or in
compliance with the provisions of the Nevada Law, the Securities
Act and the Exchange Act, no authorization, consent or approval
of, or filing with, any public body, court or authority is
necessary on the part of Wavetech for the consummation by each of
the transactions contemplated by this Agreement.
2.3 Capitalization.
(a)
The authorized equity capitalization of Wavetech consists of
50,000,000 shares of Wavetech Common Stock, 17,151,137 shares of
<PAGE>
which are issued and outstanding as of the date hereof (2,858,523
of which will be issued and outstanding after giving effect to
the Reverse Stock Split), and 10,000,000 shares of preferred
stock, 600 shares of which have been designated as Series A
Convertible Preferred Stock, $.001 par value ("Wavetech
Preferred Stock"), and are issued and outstanding. All of the
issued and outstanding shares of Wavetech Common Stock and
Wavetech Preferred Stock are validly issued, fully paid and
nonassessable. Wavetech's capital structure as of the date
hereof is disclosed to the Company under the caption
"Capitalization" in the Wavetech Disclosure Letter.
(b)
As of the date of this Agreement, Wavetech has reserved 3,700,231
shares of Wavetech Common Stock for issuance under its 1997
Amended and Restated Stock Incentive Plan, of which vested and
unvested options to purchase 2,550,000 shares are outstanding as
of the date of this Agreement. The Wavetech Disclosure Letter,
under the caption "Wavetech Options," accurately sets forth, with
respect to each Wavetech Option that is outstanding as of the
date of this Agreement: (i) the name of the holder of such
Wavetech Option; (ii) the total number of shares of Wavetech
Common Stock that are subject to such Wavetech Option and the
number of shares of Wavetech Common Stock with respect to which
such Wavetech Option is immediately exercisable; (iii) the date
on which such Wavetech Option was granted and the term of such
Wavetech Option; (iv) the vesting schedule for such Wavetech
Option; (v) the exercise price per share of Wavetech Common Stock
purchasable under such Wavetech Option; and (vi) whether such
Wavetech Option has been designated an "incentive stock option"
as defined in Section 422 of the Code. The Wavetech Disclosure
Letter, under the caption "Wavetech Warrants," accurately sets
forth, with respect to each Wavetech Warrant that is outstanding
as of the date of this Agreement: (i) the name of the holder of
such Wavetech Warrant; (ii) the total number of shares of
Wavetech Common Stock that are subject to such Wavetech Warrant;
(iii) the date on which such Wavetech Warrant was granted and the
expiration date of such Wavetech Warrant; (iv) the exercise price
per share of Wavetech Common Stock subject to such Wavetech
Warrant; and (v) a description of any registration or other
rights granted to the holder of such Wavetech Warrant.
(c)
Except as specifically referred to in Sections 2.3(a) and (b)
above, or as set forth in the Wavetech Disclosure Letter, there
is no: (i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any
shares of the capital stock or other securities of Wavetech; (ii)
outstanding security, instrument or obligation that is or may
become convertible into or exchangeable for any shares of the
<PAGE>
capital stock or other securities of Wavetech; (iii) contract or
agreement under which Wavetech is or may become obligated to sell
or otherwise issue any shares or its capital stock or any other
securities; or (iv) condition or circumstance that may give rise
to or provide a basis for the assertion of a claim by any person
or entity to the effect that such person or entity is entitled to
acquire or receive any shares of capital stock or other
securities of Wavetech.
(d)
All outstanding shares of Wavetech Common Stock and all
outstanding Wavetech Options and Wavetech Warrants have been
issued and granted in compliance with (i) all applicable
securities laws and other applicable laws and regulations, and
(ii) all requirements set forth in applicable contracts and
agreements.
(e)
Except as set forth in the Wavetech Disclosure Letter under the
caption "Acquisition of Shares," Wavetech has never repurchased,
redeemed or otherwise reacquired shares of capital stock or other
securities of Wavetech. All securities so reacquired by Wavetech
were reacquired in compliance with (i) the applicable provisions
of the Nevada Law and all other applicable laws and regulations,
and (ii) all requirements set forth in applicable restricted
stock purchase agreements and other applicable contracts and
agreements.
(f)
Except as set forth in the Wavetech Disclosure Letter under the
caption "Registration Rights," the Company is not under any
obligation to register under the Securities Act any of its
presently outstanding securities or any securities that may be
subsequently issued, and no person or entity holds any right to
participate in new issuances of securities by Wavetech.
(g)
Except as set forth in the Wavetech Disclosure Letter under the
caption "Agreements Relating to Wavetech Common Stock," Wavetech
is not a party to or obligated under any agreement, arrangement
or understanding, contingent or otherwise, (i) involving the
repurchase or redemption of any amount of Wavetech Common Stock,
(ii) requiring Wavetech to issue any amount of Wavetech Common
Stock to any person at any time, or (iii) contemplating the
issuance at any time of shares of Wavetech Common Stock or other
consideration to any person as a guarantee by Wavetech of a
minimum market price for Wavetech Common Stock.
<PAGE>
(h)
Except as set forth in the Wavetech Disclosure Letter under the
caption "Derivative Securities Not Effected by the Reverse Stock
Split", all options, warrants, preferred stock and other rights
to acquire shares of Wavetech Common Stock shall, immediately
following effectuation of the Reverse Stock Split, represent an
option, warrant, preferred stock or other right to acquire one-
sixth the number of shares of Wavetech Common Stock covered
immediately prior to the Reverse Stock Split (except as may be
adjusted for fractional shares).
2.4 SEC Filings
. Wavetech has heretofore delivered or made available to the
Company copies of Wavetech's (a) Latest 10-KSB, (b) Latest
10-QSB, and (c) all other reports, registrations statements and
other documents filed by Wavetech with the SEC since January 1,
1995, in each case as filed with the SEC (collectively, the
"Wavetech SEC Filings"), and Wavetech has heretofore made
available to the Company all other reports, registration
statements and other documents filed by Wavetech with the SEC
under the Exchange Act or the Securities Act since Wavetech's
inception. Except as set forth in the Wavetech Disclosure
Letter, since January 1, 1995, Wavetech has timely filed all
reports, registration statements and other documents required to
be filed with the SEC under the rules and regulations of the SEC,
and all such reports, registration statements and other documents
complied as to form with the requirements of the Securities Act
or the Exchange Act, as the case may be. As of their respective
dates, the reports, statements and other documents referred to in
the immediately preceding sentence did not contain any untrue
statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
2.5 Financial Statements
. The audited financial statements and unaudited interim
financial statements of Wavetech and its Subsidiaries included
(or incorporated by reference) in the Wavetech SEC Filings have
been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto), are
accurate and complete in all material respects and fairly present
the consolidated financial position of Wavetech and its
Subsidiaries as of the dates thereof and the consolidated results
of their operations and the changes in their consolidated
financial position for the periods then ended, in the case of the
<PAGE>
unaudited interim financial statements subject to year-end audit
adjustments which will not, individually or in the aggregate, be
material in magnitude. Such unaudited interim financial
statements reflect all adjustments necessary to present a fair
statement of the results for the interim periods presented.
2.6 Subsidiaries
.
(a)
Except as set forth under the caption "Subsidiaries" in the
Wavetech Disclosure Letter, Wavetech does not own, beneficially
or otherwise, any stock or other equity interest, partnership
interest, joint venture interest, or any other security issued by
any other corporation, organization or entity, and Wavetech has
not agreed and is not obligated to make any future investment in
or capital contribution to any such corporation, organization or
entity. Except as set forth under the caption "Subsidiaries" in
the Wavetech Disclosure Letter, Wavetech owns all of the
outstanding capital stock of each Subsidiary, free and clear of
all liens, charges and encumbrances, and there are no
subscription rights, warrants, options, conversion rights or
agreements of any kind outstanding to purchase or otherwise
acquire any shares of capital stock of any Subsidiary or any
securities or obligations of any kind convertible into or
exchangeable for any such shares of capital stock. Each
Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of
incorporation, and has the requisite corporate and other power
and authority (including all authorizations, licenses and
permits) necessary to own and operate its properties and to carry
on its business as now conducted and presently proposed to be
conducted. The copies of the charter documents and bylaws of
each Subsidiary which have been furnished by Wavetech to the
Company prior to the date of this Agreement reflect all
amendments made thereto through the date hereof and are correct
and complete. Each Subsidiary is qualified to do business as a
foreign corporation and is in good standing in all jurisdictions
in which the nature of its business or its ownership of property
requires it to be qualified.
(b)
For purposes of this Article II, the term "Subsidiary" means any
corporation of which securities having a majority of the ordinary
voting power in electing directors are, at the time of
determination, owned by Wavetech directly or through another
Subsidiary.
<PAGE>
2.7 Absence of Undisclosed Liabilities
. Neither Wavetech nor any Subsidiary has any obligations or
liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise, whether due or to become due and regardless of when
asserted) arising out of transactions heretofore entered into, or
any action or inaction, or any state of facts existing, including
taxes with respect to or based upon transactions or events
heretofore occurring, except (a) obligations under contracts or
commitments described in the Wavetech Disclosure Letter under the
caption "Contracts," or under contracts and commitments which are
not required to be disclosed thereunder (but not liabilities for
breaches thereof), (b) liabilities reflected on the balance sheet
included in Wavetech's Latest 10-QSB, (c) liabilities which have
arisen after the date of the balance sheet included in Wavetech's
Latest 10-QSB in the ordinary course of business (none of which
is a material uninsured liability for breach of contract, breach
of warranty, tort, infringement, claim or lawsuit), and (d)
liabilities otherwise disclosed in the Wavetech Disclosure
Letter.
2.8 No Material Adverse Changes
. Except as set forth under the caption "Adverse Changes" in the
Disclosure Letter, since May 31, 1998, there has been no material
adverse change, and no event has occurred that will or that would
be reasonably be expected to result in a material adverse change,
in the consolidated assets, financial condition, operating
results, customer, employee, supplier or franchise relations,
business condition or prospects, or financing arrangements of
Wavetech and its Subsidiaries, taken as a whole. Each of the
parties to this Agreement hereby acknowledge and agree that the
de-listing of Wavetech Common Stock by the Nasdaq SmallCap Market
shall not constitute a Material Adverse Change for purposes of
this Agreement.
2.9 Absence of Certain Developments
. Except as set forth under the caption "Developments" in the
Wavetech Disclosure Letter, since May 31, 1998, Wavetech has not
and, since the date of acquisition by Wavetech, each Subsidiary
has not:
(a)
redeemed or purchased, directly or indirectly, any shares of its
capital stock, or declared, accrued, set aside or paid any
dividends or distributions with respect to any shares of its
capital stock;
<PAGE>
(b)
other than upon the exercise of outstanding warrants or options,
issued or sold any of its equity securities, securities
convertible into or exchangeable for its equity securities,
warrants, options or other rights to acquire its equity
securities, or its bonds or other securities; provided, however,
that the Company acknowledges and agrees that the issuance of the
Wavetech Warrants and the underlying Warrant Shares as
contemplated by Section 1.6(c) shall not constitute a breach of
this paragraph (b);
(c)
borrowed any amount or incurred, guaranteed or become subject to
any material liability, except current liabilities incurred in
the ordinary course of business;
(d)
discharged or satisfied any material lien or encumbrance or paid
any material liability, other than current liabilities paid in
the ordinary course of business;
(e)
mortgaged, pledged or subjected to, or otherwise permitted to
become subject to, any lien, charge or other encumbrance, any of
the assets of Wavetech or any Subsidiary with a fair market value
in excess of $50,000, except liens for current property taxes not
yet due and payable;
(f)
sold, assigned or transferred (including without limitation
transfers to any employees, shareholders or affiliates of
Wavetech or any Subsidiary) any tangible assets, except for fair
value in the ordinary course of business, or canceled any debts
or claims;
(g)
sold, assigned or transferred (including without limitation
transfers to any employees, shareholders or affiliates of
Wavetech or any Subsidiary) any patents, trademarks, trade names,
copyrights, trade secrets or other intangible assets, except for
fair value in the ordinary course of business, or disclosed any
proprietary confidential information to any person other than the
Company or such persons who have agreed to maintain the
confidentiality of such information;
<PAGE>
(h)
suffered any extraordinary loss or waived any rights of material
value, whether or not in the ordinary course of business or
consistent with past practice;
(i)
taken any other action or entered into any other transaction
other than in the ordinary course of business and in accordance
with past custom and practice, or entered into any transaction
with any Insider (as defined in Section 2.21);
(j)
suffered any material theft, damage, destruction or loss of or
to, or any material interruption in the use of, any property or
properties owned or used by it, whether or not covered by
insurance;
(k)
made or granted any bonus or any wage, salary or compensation
increase, or made or granted any increase in any employee benefit
plan or arrangement, or amended or terminated any existing
employee benefit plan or arrangement or adopted any new employee
benefit plan or arrangement, with respect to any director,
officer or consultant of Wavetech or, except in the ordinary
course of Wavetech's business and consistent with Wavetech's
historical compensation practices, any other employee or group of
employees;
(l)
amended or waived any of its rights under, or permitted the
acceleration of vesting under, (i) any provision of its Stock
Plan or (ii) any provision of any agreement evidencing any
outstanding Wavetech Option or Wavetech Warrant;
(m)
made any capital expenditures or commitments therefor (other than
any such expenditures or commitments made in the ordinary course
of business for leasehold improvements at, or the furnishing or
equipping of, the facilities operated by Wavetech as of the date
of this Agreement) that aggregate in excess of $60,000;
<PAGE>
(n)
made any loans or advances to, or guarantees for the benefit of,
any persons that aggregate in excess of $50,000;
(o)
effected or been a party to any acquisition transaction,
recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction (except that nothing
shall prohibit Wavetech from effecting the Reserve Stock Split as
contemplated by Section 1.5 hereof;
(p)
formed any subsidiary or acquired any equity interest or other
interest in any other entity;
(q)
written off as uncollectible, or established any reserve with
respect to, any account receivable or other indebtedness in
excess of a total of $50,000;
(r)
changed any of its methods of accounting or accounting practices
in any material respect;
(s)
made any tax election;
(t)
commenced or settled any legal proceeding;
(u)
waived or agreed to waive any applicable statute of limitations
or any similar statutory or judicial doctrine benefiting Wavetech
or any Subsidiary;
(v)
entered into any material transaction or taken any other material
action outside the ordinary course of business or inconsistent
with its past practices; or
<PAGE>
(w)
made charitable contributions or pledges which in the aggregate
exceed $10,000.
2.10 Title to Properties
.
(a)
Wavetech or one of the Subsidiaries owns good and marketable
title to each the tangible properties and tangible assets
reflected on the balance sheet included in Company's Latest 10-
QSB or acquired since the date thereof, free and clear of all
liens and encumbrances, except for (A) liens for current taxes
not yet due and payable, (B) liens set forth under the caption
"Real Estate" in the Wavetech Disclosure Letter, (C) the
equipment and properties subject to the leases set forth under
the caption "Leases" in the Wavetech Disclosure Letter, (D) liens
securing indebtedness of Wavetech under existing bank credit
facilities disclosed in the Wavetech SEC Filings and (E) assets
disposed of since the date of the balance sheet included in
Wavetech's Latest 10-QSB in the ordinary course of business
consistent with past practices.
(b)
(i) the real estate described under the caption "Real Estate" in
the Wavetech Disclosure Letter and the demised leases described
under the caption "Leases" in the Wavetech Disclosure Letter
constitutes all of the real estate used or occupied by the
Company and the Subsidiaries (the "Real Estate") and (ii) the
Real Estate has access, sufficient for the conduct of Wavetech's
and the Subsidiaries' businesses as now conducted or as presently
proposed to be conducted, to public roads and to all utilities,
including electricity, sanitary and storm sewer, potable water,
natural gas and other utilities, used in the operations of
Wavetech and the Subsidiaries.
(c)
The leases described under the caption "Leases" in the Wavetech
Disclosure Letter are in full force and effect, and Wavetech or
one of the Subsidiaries, as the case may be, has a valid and
existing leasehold interest under each such lease for the term
set forth therein. Wavetech has delivered to the Company complete
and accurate copies of each of the leases described under such
caption and none of such leases has been modified in any material
respect, except to the extent that such modifications are
<PAGE>
disclosed by the copies delivered to the Company. Neither
Wavetech nor any Subsidiary is in default, and no circumstances
exist which could result in such default, under any of such
leases; nor, to the best knowledge of Wavetech or any Subsidiary,
is any other party to any of such leases in default.
(d)
All of the buildings, machinery, equipment and other tangible
assets necessary for the conduct of Wavetech's and the
Subsidiaries' businesses are in good condition and repair (except
where the failure to be in such condition and repair, either
individually or in the aggregate, would not have a material
adverse effect on Wavetech or any Subsidiary and except for
ordinary wear and tear), and are usable in the ordinary course of
business. Wavetech and the Subsidiaries own, or lease under valid
leases which afford peaceful and undisturbed possession of the
subject matter of the lease, all buildings, machinery, equipment
and other tangible assets necessary for the conduct of their
businesses.
(e)
Neither Wavetech nor any of the Subsidiaries is in violation of
any applicable zoning ordinance or other law, regulation or
requirement relating to the operation of any properties used in
the operation of its business, including without limitation
applicable environmental protection and occupational health and
safety laws and regulations, and neither Wavetech nor any
Subsidiary has received any notice of any such violation, or of
the existence of any condemnation proceeding with respect to any
properties owned or leased by Wavetech or any Subsidiary.
2.11 Accounts Receivable
. Wavetech's and the Subsidiaries' notes and accounts receivable
recorded on the balance sheet included in Wavetech's Latest 10-
QSB and those arising since the date thereof are valid
receivables (subject to a reasonable allowance for doubtful
accounts as set forth in Wavetech's Latest 10-QSB) arising from
bona fide transactions entered into in the ordinary course of
business and are current and collectible in full in accordance
with their terms, subject to no valid counterclaims or setoffs.
2.12 Inventories
. Except as set forth under the caption "Inventory" in the
Disclosure Letter, the inventories of Wavetech and the
Subsidiaries recorded on the balance sheet included in Wavetech's
Latest 10-QSB, and the inventory created or purchased since the
<PAGE>
date thereof, consists of a quantity and quality usable and
salable in the ordinary course of business, is not slow-moving as
determined in accordance with past practices, obsolete or
damaged, is merchantable and fit for its particular use, and is
not defective.
2.13 Tax Matters
. Except as set forth under the caption "Tax Matters" in the
Wavetech Disclosure Letter,
(a)
Wavetech and the Subsidiaries have timely filed all returns that
are required to be filed by them with respect to any taxes, and
all such returns have been accurately and completely prepared in
compliance with all applicable legal requirements and are true,
correct, and complete; all taxes due and payable by Wavetech and
the Subsidiaries have been paid; Wavetech's and the Subsidiaries'
provisions for taxes on the balance sheet included in Wavetech's
Latest 10-KSB are sufficient for all accrued and unpaid taxes as
of the date of such balance sheet; Wavetech and the Subsidiaries
have paid all taxes due and payable by them or which they are
obligated to withhold from amounts owing to any employee,
creditor, or third party; neither Wavetech nor any Subsidiary has
waived any statute of limitations in respect of taxes relating to
any of their businesses or agreed to any extension of time with
respect to a tax assessment or deficiency relating to any of
their businesses; the assessment of any additional taxes relating
to their businesses for periods for which returns have been filed
is not expected, and no audit of Wavetech or any Subsidiary is
ongoing, threatened, or anticipated; and there are no unresolved
questions or claims concerning the tax liability of Wavetech or
any Subsidiary;
(b)
All material elections with respect to taxes of Wavetech and any
Subsidiary are set forth in the "Tax Matters" section of the
Wavetech Disclosure Letter; neither Wavetech nor any Subsidiary
(i) has consented at any time under 341(f) of the Code to have
the provisions of 341(f) apply to any disposition of assets of
Wavetech or any Subsidiary, (ii) has agreed, or is required, to
make any adjustment under 481(a) of the Code by reason of a
change in accounting method or otherwise that will affect the
liability of Wavetech or any Subsidiary for taxes, (iii) has made
an election, or is required, to treat any asset of Wavetech or
any Subsidiary as owned by another person pursuant to the
provisions of 168(f) of the Code or as tax-exempt bond financed
property or tax-exempt use property within the meaning of 168 of
<PAGE>
the Code, or (iv) has made any of the foregoing elections or
consents or is required to apply any of the foregoing rules under
any comparable state, county, local, or foreign tax provision.
(c)
Neither Wavetech nor any Subsidiary is or has ever been an
includible corporation in an affiliated group of corporations,
within the meaning of 1504 of the Code, other than in the
affiliated group of which Wavetech is the common Wavetech
corporation;
(d)
Neither Wavetech nor any Subsidiary is now or has ever been a
party to any tax-sharing agreements or similar arrangements;
(e)
Neither Wavetech nor any Subsidiary has made or become obligated
to make, or will, as a result of any event connected with the
Merger contemplated herein, make or become obligated to make, any
"excess parachute payment," as defined in 280G of the Code
(without regard to subsection (b)(4) thereof);
(f)
There are no liens for taxes (other than for current taxes that
are not yet due and payable or are being contested in good faith)
upon the assets of Wavetech or any Subsidiary;
(g)
All joint ventures, partnerships, or other arrangements or
contracts to which Wavetech or any Subsidiary is a party and that
could be treated as a partnership for federal income tax purposes
are set forth under the caption "Tax Matters" in the Wavetech
Disclosure Letter;
(h)
There are no outstanding balances of deferred gain or loss
accounts related to deferred intercompany transactions or
outstanding intercompany items related to intercompany
transactions (as each such term is defined in Treas. Reg. 1.1502-
13, as such regulation is or was applicable to Wavetech and the
Subsidiaries in each relevant taxable period) between Wavetech
and any Subsidiary or between any Subsidiaries; and
<PAGE>
(i)
There exists no excess loss account (as such item is defined in
Treas. Reg. 1.1502-19) with respect to the capital stock of
Wavetech or any Subsidiary.
For purposes of this Agreement, the terms "tax" and "taxes" shall
include income, gross receipts, excise, real and personal
property, sales, franchise, employment, and other taxes imposed
by any federal, foreign, state, county, municipal, local, or
other governmental agency, including interest and penalties
relating to taxes and assessments in the nature of taxes.
2.14 Contracts and Commitments
.
(a)
Except as set forth under the caption "Contracts" in the Wavetech
Disclosure Letter, neither Wavetech nor any Subsidiary is a party
to any: (i) collective bargaining agreement or contract with any
labor union; (ii) bonus, pension, profit sharing, retirement, or
other form of deferred compensation plan; (iii) hospitalization
insurance or similar plan or practice, whether formal or
informal; (iv) contract for the employment of any officer,
individual employee, or other person on a full-time or consulting
basis or relative to severance pay for any such person; (v)
agreement or indenture relating to the borrowing of money in
excess of $100,000 or to mortgaging, pledging or otherwise
placing a lien on any of the assets of Wavetech or any
Subsidiary; (vi) guaranty of any obligation for borrowed money or
otherwise, other than endorsements made for collection; (vii)
lease or agreement under which it is lessor of, or permits any
third party to hold or operate, any property, real or personal,
for an annual rental in excess of $100,000; (viii) contract or
group of related contracts with the same party for the purchase
of products or services, under which the undelivered balance of
such products and services has a purchase price in excess of
$50,000; (ix) contract or group of related contracts with the
same party for the sale of products or services under which the
undelivered balance of such products or services has a sales
price in excess of $50,000; (x) other contract or group of
related contracts with the same party continuing over a period of
more than six months from the date or dates thereof, either not
terminable by it on 30 days' or less notice without penalty or
involving more than $50,000; (xi) contract which prohibits either
Wavetech or any Subsidiary from freely engaging in business
anywhere in the world; (xii) contract relating to the
distribution of Wavetech's or any Subsidiary's products; (xiii)
<PAGE>
franchise agreement; (xiv) contract, agreement or understanding
with any shareholder who beneficially owns 5% or more of Wavetech
Common Stock or with any officer, director or employee (other
than for employment on customary terms); (xv) license agreement
or agreement providing for the payment or receipt of royalties or
other compensation by Wavetech or any Subsidiary in connection
with the proprietary rights listed under the caption "Proprietary
Rights" in the Wavetech Disclosure Letter; or (xvi) other
agreement material to Wavetech's or any Subsidiary's business or
not entered into in the ordinary course of business.
(b)
Except as specifically disclosed under the caption "Contracts" in
the Wavetech Disclosure Letter, (i) no contract or commitment
required to be disclosed under such caption has been breached or
canceled by the other party; (ii) since the date of the balance
sheet included in Wavetech's Latest 10-QSB, no customer or
supplier has indicated that it will stop or decrease the rate of
business done with Wavetech or any Subsidiary, except for changes
in the ordinary course of Wavetech's and the Subsidiaries'
businesses; (iii) Wavetech and the Subsidiaries have performed
all obligations required to be performed by them in connection
with the contracts or commitments required to be disclosed under
such caption and are not in receipt of any claim of default under
any contract or commitment required to be disclosed under such
caption; (iv) neither Wavetech nor any Subsidiary has any present
expectation or intention of not fully performing any obligation
pursuant to any contract or commitment or commitment set forth
under such caption; and (v) neither Wavetech nor any Subsidiary
has any knowledge of any breach or anticipated breach by any
other party to any contract or commitment set forth under such
caption.
(c)
Prior to the date of this Agreement, Wavetech has made available
to the Company a true and correct copy of each written contract
or commitment, and a written description of each oral contract or
commitment, referred to under the caption "Contracts" in the
Wavetech Disclosure Letter, together with all amendments, waivers
or other changes thereto.
2.15 Proprietary Rights
Except as set forth under the caption "Proprietary Rights" in
the Wavetech Disclosure Letter, there are no patents, patent
applications, trademarks, service marks, trade names, corporate
names, copyrights, trade secrets or other proprietary rights
owned by Wavetech or any Subsidiary or necessary to the conduct
<PAGE>
of Wavetech's or any Subsidiary's businesses as now conducted.
Wavetech or a Subsidiary owns and possesses all rights, titles
and interest, or a valid license, in and to the proprietary
rights set forth under such caption. The Wavetech Disclosure
Letter describes under such caption all proprietary rights that
have been licensed to third parties and all proprietary rights
which are licensed from third parties by Wavetech or any
Subsidiary. Wavetech and the Subsidiaries have taken all
necessary action to protect the proprietary rights set forth
under such caption. Neither Wavetech nor any Subsidiary has
received any notice of, nor is it aware of any facts which
indicate a likelihood of, any infringement, misappropriation, or
conflict from any third party with respect to the proprietary
rights which are listed under such caption; neither Wavetech nor
any Subsidiary has infringed, misappropriated or otherwise
conflicted with any proprietary rights of any third parties, nor
is it aware of any infringement, misappropriation or conflict
which will occur in the continued operation of Wavetech or any
Subsidiary; and no claim by any third party contesting the
validity of any proprietary rights listed under such caption has
been made, is currently outstanding, or to the best knowledge of
Wavetech or any Subsidiary is threatened.
2.16 Litigation
. Except as set forth under the caption "Litigation" in the
Wavetech Disclosure Letter, there are no actions, suits, claims,
proceedings, orders or investigations pending or threatened
against Wavetech or any Subsidiary or otherwise affecting any of
their respective properties or assets, or that challenges or may
have the effect of preventing, delaying, making illegal or
otherwise interfering with the Merger or any other transactions
contemplated by this Agreement, at law or in equity, or before or
by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or that could reasonably be expected to have
a material adverse effect on the business, properties, assets,
condition (financial or otherwise) or business prospects of
Wavetech and there is no basis known to Wavetech or any
Subsidiary for any of the foregoing. There is no order, writ,
injunction, judgment or decree:
(a)
to which Wavetech or any Subsidiary or any of the assets owned or
used by Wavetech or any Subsidiary is subject, or
<PAGE>
(b)
to which any officer or employee of Wavetech or any Subsidiary is
subject that prohibits such officer or employee from engaging in
or continuing any conduct, activity or practice relating to
Wavetech's or any Subsidiary's business. Except as set forth
under such caption, neither Wavetech nor any Subsidiary has
received any opinion or legal advice to the effect that Wavetech
or any Subsidiary is exposed from a legal standpoint to any
liability or disadvantage which may be material to it or its
prospects.
2.17 Brokerage
. Except as set forth under the caption "Brokerage Agreements,"
there are no claims for investment banking fees, brokerage
commissions, finders' fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of Wavetech or any
Subsidiary. In addition, Wavetech currently intends, however, to
enter into an agreement or arrangement with a qualified
investment banking or financial advisory firm regarding the study
of and the rendering of an opinion with respect to the fairness
of the Merger.
2.18 Employment Matters
. To the best knowledge of Wavetech and the Subsidiaries, (i) no
key executive employee of Wavetech or any Subsidiary, and no
group of Wavetech's or any subsidiary's employees, has any plans
to terminate his or its employment, (ii) Wavetech and the
Subsidiaries have complied with all laws relating to the
employment of labor, including provisions thereof relating to
wages, hours, equal opportunity, collective bargaining and the
payment of social security and other taxes, and (iii) Wavetech
and the Subsidiaries have no material labor relations problems
pending and their labor relations are satisfactory.
2.19 Employee Benefit Plans
With respect to the employee benefits provided to employees
and former employees of Wavetech and the Subsidiaries:
(a)
Wavetech and the Subsidiaries currently maintain only the
<PAGE>
employee pension benefit plans, as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), as are listed under the caption "Employee Benefits" in
the Disclosure Letter.
(b)
Wavetech and the Subsidiaries currently maintain only the
employee welfare benefit plans, as defined in Section 3(1) of
ERISA (including but not limited to, life insurance, medical,
hospitalization, holiday, vacation, disability dental and vision
plans) as are listed under the caption "Employee Benefits" in the
Wavetech Disclosure Letter (the "Welfare Plans").
(c)
Wavetech and the Subsidiaries currently maintain, or have entered
into, only the compensation programs and/or employment
arrangements, (including but not limited to, incentive
compensation, bonus, severance, sick pay, salary continuation,
deferred compensation, supplemental executive compensation plans,
and employment and consulting agreements) as are listed under the
caption "Employee Benefits" in the Wavetech Disclosure Letter
(the "Compensation Programs").
(d)
Wavetech and the Subsidiaries do not contribute, and have not
contributed within the last five years, to any multiemployer
plan, as defined by Section 3(37) of ERISA.
(e)
Each Pension Plan and Welfare Plan is in compliance with ERISA;
each Pension Plan which is intended to be qualified under Section
401(a) of the Code has been determined by the Internal Revenue
Service to be so qualified or a request for such determination
has been timely filed with the Internal Revenue Service (and to
Wavetech's best knowledge nothing has occurred between the date
of the last such determination and the Closing Date to cause the
Internal Revenue Service to revoke such determination).
(f)
Any Pension Plan or any Welfare Plan designed to satisfy the
requirements of Section 125, Section 401, Section 401(k), Section
409, Section 501(c)(9), Section 4975(e)(7), and/or Section 4980B
of the Code, satisfies such section.
<PAGE>
(g)
No accumulated funding deficiency, as defined in Section
302(a)(2) of ERISA, exists (whether or not waived) with respect
to any Pension Plan as of the date hereof.
(h)
All amounts required to be paid by Wavetech and or any Subsidiary
with respect to each Pension Plan, Welfare Plan and Compensation
Program on or before the Closing Date have been paid.
(i)
None of the Pension Plans or Wavetech or any party in interest or
disqualified person has engaged in any non-exempt "prohibited
transactions" as defined in Section 406 of ERISA or Section 4975
of the Code.
(j)
Except as disclosed under the caption "Employee Benefits" in the
Wavetech Disclosure Letter, no Pension Plan or Welfare Plan
provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or
former employees beyond their retirement or other termination of
service other than (i) coverage mandated by applicable law, (ii)
retirement benefits under a Pension Plan, (iii) death benefits
under a Welfare Plan, (iv) deferred compensation accrued on the
books of Wavetech or a Subsidiary, or (v) benefits the full cost
of which is borne by the current or former employee (or his or
her beneficiary).
(k)
No "leased employee," as that term is defined in Section 414(n)
of the Code, performs services for Wavetech or any Subsidiary.
(l)
No liability has been, or is expected by Wavetech or any
Subsidiary to be, incurred by Wavetech or a Subsidiary under
Section 4062 of ERISA with respect to any Pension Plan.
(m)
No reportable event within the meaning of Title IV of ERISA has
occurred with respect to any Pension Plan.
<PAGE>
(n)
Wavetech has furnished the Company with correct and complete
copies of each Pension Plan, Welfare Plan, and Compensation
Program, together with any trust agreements, summary plan
descriptions, employee informational material, financial
statements relating thereto and participant listings.
2.20 Insurance
. The Wavetech Disclosure Letter, under the caption "Insurance,"
lists and briefly describes (including name of insurer, agent,
coverage and expiration date) each insurance policy maintained
by, at the expense of or for the benefit of Wavetech or any of
the Subsidiaries with respect to its properties and assets and
describes any material claims made thereunder. All of such
insurance policies are in full force and effect and neither
Wavetech nor any Subsidiary is in default with respect to its
obligations under any of such insurance policies. Except as set
forth in the Wavetech Disclosure Letter under the caption
"Insurance," Wavetech is the sole beneficiary of each such
policy. The insurance coverage of Wavetech and the Subsidiaries
is customary for corporations of similar size engaged in similar
lines of businesses. Wavetech has not received any notice or
other communication regarding any actual or possible (a)
cancellation or invalidation of any insurance policy, (b) refusal
of any coverage or rejection of any claim under any insurance
policy or (c) material adjustment in the amount of premiums
payable with respect to any insurance policy.
2.21 Affiliate Transactions
. Except as set forth under the caption "Affiliate Transactions"
in the Wavetech Disclosure Letter, no officer or director of
Wavetech or any Subsidiary or any member of the immediate family
of any such officer or director, or any entity in which any of
such persons owns any beneficial interest (other than a
publicly-held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less
than 5% of the stock of which is beneficially owned by any of
such persons) (collectively "Insiders"), (a) has any agreement
with Wavetech or any Subsidiary (other than normal employment
arrangements) or any interest in any property, real, personal or
mixed, tangible or intangible, used in or pertaining to the
business of Wavetech or any Subsidiary, (b) has been indebted to
Wavetech in amounts in excess of $10,000 in the aggregate at any
time, (c) has at any time competed, directly or indirectly, with
Wavetech, or (d) has any claim or right against Wavetech (other
than rights under Wavetech Options and rights to receive
compensation for services performed as an employee of Wavetech).
<PAGE>
For purposes of the preceding sentence, the members of the
immediate family of an officer or director shall consist of the
spouse, Wavetech's, children, siblings, mothers- and
fathers-in-law, sons- and daughters-in-law, and brothers- and
sisters-in-law of such officer or director.
2.22 Suppliers
. The Wavetech Disclosure Letter, under the caption "Suppliers,"
lists the 10 largest suppliers of Wavetech and the Subsidiaries
(on a consolidated basis) for the fiscal year ended August 31,
1998, and sets forth opposite the name of each such supplier the
total amount of purchases from such supplier by Wavetech and the
Subsidiaries during such period.
2.23 Officers and Directors; Bank Accounts
. The Wavetech Disclosure Letter, under the caption "Officers
and Directors," lists all officers and directors of Wavetech and
the Subsidiaries and, under the caption "Bank Accounts," lists
all of Wavetech's and the Subsidiaries' accounts at any bank or
other financial institution (designating each authorized signer).
2.24 Compliance with Laws; Permits; Certain Operations
. Wavetech, each of the Subsidiaries and their respective
officers, directors, agents and employees have complied in all
respects, and currently are in compliance in all respects, with
all applicable laws and regulations of foreign, federal, state
and local governments and all agencies thereof which affect the
businesses or any owned or leased properties of Wavetech and the
Subsidiaries and to which Wavetech or any of the Subsidiaries may
be subject, and no claims have been filed against Wavetech or any
of the Subsidiaries alleging a violation of any such law or
regulation, except as set forth in the Wavetech Disclosure Letter
under the caption "Compliance." Neither Wavetech nor any
Subsidiary has given or agreed to give any money, gift or similar
benefit (other than incidental gifts of articles of nominal
value, gifts and prizes awarded pursuant to promotional programs
approved by Wavetech's management and non-extraordinary
entertainment expenditures) to any actual or potential customer,
supplier, foreign or domestic governmental employee or any other
person in a position to assist or hinder Wavetech or any of the
Subsidiaries in connection with any actual or proposed
transaction. Wavetech and the Subsidiaries hold all of the
permits, licenses, certificates and other authorizations of
foreign, federal, state and local governmental agencies required
for the conduct of their businesses. Without limiting the
generality of the foregoing, neither Wavetech nor any Subsidiary
has violated, or received a notice or charge asserting any
<PAGE>
violation of, the Occupational Safety and Health Act of 1970 or
any other state or federal acts or laws (including rules and
regulations thereunder) regulating or otherwise affecting
employee health and safety or the environment.
2.25 Disclosure
.
(a)
Neither this Agreement nor any other agreement or instrument
executed in connection with the transactions contemplated hereby
nor any of the attachments or exhibits hereto nor the Wavetech
Disclosure Letter contains any untrue statement of a material
fact or omits a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in
which they were made, not misleading, and there is no fact which
has not been disclosed in writing to Wavetech of which any
officer or director of Wavetech or any Subsidiary is aware which
materially affects adversely or could reasonably be anticipated
to materially affect adversely the business, including operating
results, assets, customer relations, employee relations and
business prospects, of Wavetech and the Subsidiaries, taken as a
whole.
(b)
None of the information supplied or to be supplied by Wavetech
for inclusion or incorporation by reference in the Form S-4 and
the Joint Prospectus/Proxy Statement will, at the time the S-4 is
declared effective, at the date the Joint Prospectus/Proxy
Statement is mailed to the shareholders of Wavetech or at the
time of the Wavetech Shareholders' Meeting, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein (in light of the circumstances under which they are made)
not misleading.
2.26 Non-Contravention; Consents
. Except as set forth under the caption "Consents" in the
Wavetech Disclosure Letter, neither (1) the execution, delivery
or performance of this Agreement or any of the other agreements
referred to in this Agreement, nor (2) the consummation of the
Merger or any of the other transactions contemplated by this
Agreement, will directly or indirectly (with or without notice or
lapse of time):
<PAGE>
(a)
contravene, conflict with or result in a violation of (i) any of
the provisions of Wavetech's or any Subsidiary's Articles of
Incorporation or Bylaws, or (ii) any resolution adopted by
Wavetech's or any Subsidiary's shareholders, Wavetech's or any
Subsidiary's board of directors or any committee of such board of
directors;
(b)
contravene, conflict with or result in a violation of, or give
any governmental authority or other person or entity the right to
challenge any of the transactions contemplated by this Agreement
or to exercise any remedy or obtain any relief under, any legal
requirement or any order, writ, injunction, judgment or decree to
which Wavetech or any Subsidiary, or any of the assets owned or
used by Wavetech or any Subsidiary, is subject;
(c)
contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any governmental authority the
right to revoke, withdraw, suspend, cancel, terminate or modify,
any governmental permit or authorization that is held by Wavetech
or any Subsidiary or that otherwise relates to Wavetech's
business or to any of the assets owned or used by Wavetech or any
Subsidiary;
(d)
contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any contract or
agreement to which Wavetech or any Subsidiary is a party, or give
any person or entity the right to (i) declare a default or
exercise any remedy under any such contract or agreement, (ii)
accelerate the maturity or performance of any such contract or
agreement, or (iii) cancel, terminate or modify any such contract
or agreement; or
(e)
result in the imposition or creation of any lien or other
encumbrance upon or with respect to any asset owned or used by
Wavetech or any Subsidiary (except for minor liens that will not,
in any case or in the aggregate, materially detract from the
value of the assets subject thereto or materially impair the
operations of Wavetech).
<PAGE>
Except as set forth under the caption "Consents" in the Wavetech
Disclosure Letter, Wavetech is not and will not be required to
make any filing with or give any notice to, or to obtain any
consent from, any person or entity in connection with (x) the
execution, delivery or performance of this Agreement or any of
the other agreements referred to in this Agreement, or (y) the
consummation of the Merger or any of the other transactions
contemplated by this Agreement.
2.27 Stockholder Vote Required
. To the extent the Wavetech Common Stock is listed on the
Nasdaq SmallCap Market, the affirmative vote of a majority of the
votes entitled to be cast by holders of the outstanding shares of
Wavetech Common Stock (voting as a class) are the only votes of
the holders of any class or series of Wavetech's capital stock
necessary to approve this Agreement and the Merger under the
rules of the Nasdaq SmallCap Market. In addition, to the extent
the Nevada Revised Statutes requires the affirmative vote of a
majority of the votes entitled to be cast by holders of the
outstanding shares of the Wavetech Common Stock (voting as a
class), are the only votes of the holders of any class or series
of Wavetech's Capital Stock necessary to approve the Merger.
2.28 Board Approval
. The board of directors of Wavetech has (i) approved the Merger
and the execution of this Agreement, (ii) determined that the
Merger is in the best interests of the shareholders of Wavetech
and is on terms that are fair to such shareholders, and (iii)
recommended that holders of Wavetech Common Stock vote in favor
of this Agreement and the Merger, to the extent such shareholder
approval is required under applicable law or under the rules of
the Nasdaq SmallCap Market.
2.29 Opinion of Financial Advisor
. Promptly following the execution of this Agreement, Wavetech
intends to seek an opinion of its financial advisor that, from a
financial point of view, the consideration to be offered to the
shareholders of Wavetech in the Merger contemplated hereby is
fair to Wavetech.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Wavetech that,
except as otherwise disclosed in the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998 (the
<PAGE>
"Company's Latest 10-K") or the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1998 (the
"Company's Latest 10-Q"):
3.1 Organization and Qualification
. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the state of Colorado, and
has the requisite corporate and other power and authority
(including all licenses, permits and authorizations) to own and
operate its properties and to carry on its business as now
conducted and presently proposed to be conducted and to perform
its obligations under all contracts, instruments, notes or other
binding commitments to which it is or may become a party or by
which it is or its assets are, or may become, bound. The copies
of the Company's Articles of Incorporation and Bylaws which have
been furnished by the Company to Wavetech prior to the date of
this Agreement reflect all amendments made thereto through the
date hereof and are correct and complete. The Company is
qualified to do business and is in good standing as a foreign
corporation in every jurisdiction in which the nature of its
business or its ownership of property requires it to be
qualified.
3.2 Authority Relative to this Agreement
. The Company has the requisite corporate and other power and
authority to enter into and perform this Agreement and to carry
out its obligations hereunder (it being understood that the
Company's obligations hereunder to effect the Merger is subject
to the approval of its shareholders as set forth in Section
3.27). The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by the Board of
Directors of the Company and, except for the approval of its
shareholders as set forth in Section 3.27, no other corporate
proceedings on the part of the Company are necessary to authorize
this Agreement and such transactions. This Agreement has been
duly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable in
accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization or
similar laws relating to the enforcement of creditors' rights
generally and by general principles of equity. Except as set
forth in the DCI Disclosure Letter, neither the Company nor any
of its Subsidiaries (as defined in Section 3.6(b)) is subject to,
or obligated under, any provision of (a) its Certificate of
Incorporation, Articles of Incorporation or Bylaws, (b) any
agreement, arrangement or understanding, (c) any license,
franchise or permit or (d) subject to compliance with any of the
<PAGE>
statutes referred to in the next sentence, any law, regulation,
order, judgment or decree, which would be breached or violated,
or in respect of which a right of termination or acceleration or
any encumbrance on any of its or any of its Subsidiaries' assets
would be created, by its execution, delivery and performance of
this Agreement and the consummation by it of the transactions
contemplated hereby, and the Company has not taken any action
that is inconsistent in any material respect with any resolution
adopted by the Company's shareholders, its board of directors or
any committee of its board of directors. The books of account,
stock records, minute books and other records of the Company are
accurate, up-to-date and complete in all material respects and
have been maintained in accordance with prudent business
practices. Other than in connection with or in compliance with
the provisions of the Colorado Law and the Exchange Act, no
authorization, consent or approval of, or filing with, any public
body, court or authority is necessary on the part of the Company
for the consummation by the Company of the transactions
contemplated by this Agreement.
3.3 Capitalization.
.
(a)
The authorized equity capitalization of the Company consists of
500,000,000 shares of Company Common Stock, 21,677,802 shares of
which are issued and outstanding as of the date hereof, and
5,000,000 shares of preferred stock, 3,000 of which are issued
and outstanding as of the date hereof. All of the issued and
outstanding shares of Company Common Stock are validly issued,
fully paid and nonassessable. The Company's capital structure as
of the date hereof is disclosed to Wavetech under the caption
"Capitalization" in the DCI Disclosure Letter.
(b)
The Company has reserved ________ shares of Company Common Stock
for issuance under the Stock Plan, of which vested and unvested
options to purchase 4,226,065 shares are outstanding as of the
date of this Agreement. The DCI Disclosure Letter, under the
caption "Company Options," accurately sets forth, with respect to
each Company Option that is outstanding as of the date of this
Agreement: (i) the name of the holder of such Company Option;
(ii) the total number of shares of Company Common Stock that are
subject to such Company Option and the number of shares of
Company Common Stock with respect to which such Company Option is
immediately exercisable; (iii) the date on which such Company
Option was granted and the term of such Company Option; (iv) the
vesting schedule for such Company Option; (v) the exercise price
per share of Company Common Stock purchasable under such Company
Option; and (vi) whether such Company Option has been designated
<PAGE>
an "incentive stock option" as defined in Section 422 of the
Code. The DCI Disclosure Letter, under the caption "Company
Warrants," accurately sets forth, with respect to each Company
Warrant that is outstanding as of the date of this Agreement: (i)
the name of the holder of such Company Warrant; (ii) the total
number of shares of Company Common Stock that are subject to such
Company Warrant; (iii) the date on which such Company Warrant was
granted and the expiration date of such Company Warrant; (iv) the
exercise price per share of Company Common Stock subject to such
Company Warrant; and (v) a description of any registration or
other rights granted to the holder of such Company Warrant.
(c)
Except as specifically referred to in Sections 3.3(a) and (b)
above, or as set forth in the DCI Disclosure Letter, there is no:
(i) outstanding subscription, option, call, warrant or right
(whether or not currently exercisable) to acquire any shares of
the capital stock or other securities of the Company; (ii)
outstanding security, instrument or obligation that is or may
become convertible into or exchangeable for any shares of the
capital stock or other securities of the Company; (iii) contract
or agreement under which the Company is or may become obligated
to sell or otherwise issue any shares or its capital stock or any
other securities; or (iv) condition or circumstance that may give
rise to or provide a basis for the assertion of a claim by any
person or entity to the effect that such person or entity is
entitled to acquire or receive any shares of capital stock or
other securities of the Company.
(d)
All outstanding shares of Company Common Stock and all
outstanding Company Options and Company Warrants have been issued
and granted in compliance with (i) all applicable securities laws
and other applicable laws and regulations, and (ii) all
requirements set forth in applicable contracts and agreements.
(e)
Except as set forth in the DCI Disclosure Letter under the
caption "Acquisition of Shares," the Company has never
repurchased, redeemed or otherwise reacquired shares of capital
stock or other securities of the Company. All securities so
reacquired by the Company were reacquired in compliance with (i)
the applicable provisions of the Colorado Law and all other
applicable laws and regulations, and (ii) all requirements set
forth in applicable restricted stock purchase agreements and
other applicable contracts and agreements.
<PAGE>
(f)
Except as set forth in the DCI Disclosure Letter under the
caption "Registration Rights," the Company is not under any
obligation to register under the Securities Act any of its
presently outstanding securities or any securities that may be
subsequently issued, and no person or entity holds any right to
participate in new issuances of securities by the Company.
(g)
Except as set forth in the DCI Disclosure Letter under the
caption "Agreements Relating to Company Common Stock," the
Company is not a party to or obligated under any agreement,
arrangement or understanding, contingent or otherwise, (i)
involving the repurchase or redemption of any amount of Company
Common Stock, (ii) requiring the Company to issue any amount of
Company Common Stock to any person at any time, or (iii)
contemplating the issuance at any time of shares of Company
Common Stock or other consideration to any person as a guarantee
by the Company of a minimum market price for Company Common
Stock.
3.4 SEC Filings
. The Company has heretofore delivered or made available to
Wavetech copies of the Company's (a) Latest 10-K, (b) Latest
10-Q, (c) definitive proxy statement relating to the Company's
1998 annual meeting of shareholders held on July 30, 1998, and
(e) all other reports, registrations statements and other
documents filed by the Company with the SEC since January 1,
1995, in each case as filed with the SEC (collectively, the
"Company SEC Filings"), and the Company has heretofore made
available to Wavetech all other reports, registration statements
and other documents filed by the Company with the SEC under the
Exchange Act or the Securities Act since the Company's inception.
Except as set forth in the Disclosure Letter, since January 1,
1995, the Company has timely filed all reports, registration
statements and other documents required to be filed with the SEC
under the rules and regulations of the SEC, and all such reports,
registration statements and other documents complied as to form
with the requirements of the Securities Act or the Exchange Act,
as the case may be. As of their respective dates, the reports,
statements and other documents referred to in the immediately
preceding sentence did not contain any untrue statement of
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading.
<PAGE>
3.5 Financial Statements
. The audited financial statements and unaudited interim
financial statements of the Company and its Subsidiaries included
(or incorporated by reference) in the Company SEC Filings have
been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto), are
accurate and complete in all material respects and fairly present
the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof and the consolidated results
of their operations and the changes in their consolidated
financial position for the periods then ended, in the case of the
unaudited interim financial statements subject to year-end audit
adjustments which will not, individually or in the aggregate, be
material in magnitude. Such unaudited interim financial
statements reflect all adjustments necessary to present a fair
statement of the results for the interim periods presented.
3.6 Subsidiaries
.
(a)
Except as set forth under the caption "Subsidiaries" in the
Disclosure Letter, the Company does not own, beneficially or
otherwise, any stock or other equity interest, partnership
interest, joint venture interest, or any other security issued by
any other corporation, organization or entity, and the Company
has not agreed and is not obligated to make any future investment
in or capital contribution to any such corporation, organization
or entity. Except as set forth under the caption "Subsidiaries"
in the DCI Disclosure Letter, the Company owns all of the
outstanding capital stock of each Subsidiary, free and clear of
all liens, charges and encumbrances, and there are no
subscription rights, warrants, options, conversion rights or
agreements of any kind outstanding to purchase or otherwise
acquire any shares of capital stock of any Subsidiary or any
securities or obligations of any kind convertible into or
exchangeable for any such shares of capital stock. Each
Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of
incorporation, and has the requisite corporate and other power
and authority (including all authorizations, licenses and
permits) necessary to own and operate its properties and to carry
on its business as now conducted and presently proposed to be
conducted. The copies of the charter documents and bylaws of
each Subsidiary which have been furnished by the Company to
Wavetech prior to the date of this Agreement reflect all
<PAGE>
amendments made thereto through the date hereof and are correct
and complete. Each Subsidiary is qualified to do business as a
foreign corporation and is in good standing in all jurisdictions
in which the nature of its business or its ownership of property
requires it to be qualified.
(b)
For purposes of this Agreement, the term "Subsidiary" means any
corporation of which securities having a majority of the ordinary
voting power in electing directors are, at the time of
determination, owned by the Company directly or through another
Subsidiary.
3.7 Absence of Undisclosed Liabilities
. Neither the Company nor any Subsidiary has any obligations or
liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise, whether due or to become due and regardless of when
asserted) arising out of transactions heretofore entered into, or
any action or inaction, or any state of facts existing, including
taxes with respect to or based upon transactions or events
heretofore occurring, except (a) obligations under contracts or
commitments described in the DCI Disclosure Letter under the
caption "Contracts," or under contracts and commitments which are
not required to be disclosed thereunder (but not liabilities for
breaches thereof), (b) liabilities reflected on the balance sheet
included in the Company's Latest 10-Q, (c) liabilities which have
arisen after the date of the balance sheet included in the
Company's Latest 10-Q in the ordinary course of business (none of
which is a material uninsured liability for breach of contract,
breach of warranty, tort, infringement, claim or lawsuit), and
(d) liabilities otherwise disclosed in the DCI Disclosure Letter.
3.8 No Material Adverse Changes
. Except as set forth under the caption "Adverse Changes" in the
DCI Disclosure Letter, since June 30, 1998, there has been no
Material Adverse Change, and no event has occurred that will or
that would reasonably be expected to result in a material adverse
change, in the consolidated assets, financial condition,
operating results, customer, employee, supplier or franchise
relations, business condition or prospects, or financing
arrangements of the Company and its Subsidiaries, taken as a
whole.
3.9 Absence of Certain Developments
. Except as set forth under the caption "Developments" in the
Disclosure Letter, since June 30, 1998, the Company has not and,
<PAGE>
since the date of acquisition by the Company, each Subsidiary has
not:
(a)
redeemed or purchased, directly or indirectly, any shares of its
capital stock, or declared, accrued, set aside or paid any
dividends or distributions with respect to any shares of its
capital stock;
(b)
other than upon the exercise of outstanding warrants or options,
issued or sold any of its equity securities, securities
convertible into or exchangeable for its equity securities,
warrants, options or other rights to acquire its equity
securities, or its bonds or other securities;
(c)
borrowed any amount or incurred, guaranteed or become subject to
any material liability, except current liabilities incurred in
the ordinary course of business;
(d)
discharged or satisfied any material lien or encumbrance or paid
any material liability, other than current liabilities paid in
the ordinary course of business;
(e)
mortgaged, pledged or subjected to, or otherwise permitted to
become subject to, any lien, charge or other encumbrance, any of
the assets of the Company or any Subsidiary with a fair market
value in excess of $500,000, except liens for current property
taxes not yet due and payable;
(f)
sold, assigned or transferred (including without limitation
transfers to any employees, shareholders or affiliates of the
Company or any Subsidiary) any tangible assets, except for fair
value in the ordinary course of business, or canceled any debts
or claims;
(g)
sold, assigned or transferred (including without limitation
transfers to any employees, shareholders or affiliates of the
<PAGE>
Company or any Subsidiary) any patents, trademarks, trade names,
copyrights, trade secrets or other intangible assets, except for
fair value in the ordinary course of business, or disclosed any
proprietary confidential information to any person other than
Wavetech or such persons who have agreed to maintain the
confidentiality of such information;
(h)
suffered any extraordinary loss or waived any rights of material
value, whether or not in the ordinary course of business or
consistent with past practice;
(i)
taken any other action or entered into any other transaction
other than in the ordinary course of business and in accordance
with past custom and practice, or entered into any transaction
with any Insider (as defined in Section 3.21);
(j)
suffered any material theft, damage, destruction or loss of or
to, or any material interruption in the use of, any property or
properties owned or used by it, whether or not covered by
insurance;
(k)
made or granted any bonus or any wage, salary or compensation
increase, or made or granted any increase in any employee benefit
plan or arrangement, or amended or terminated any existing
employee benefit plan or arrangement or adopted any new employee
benefit plan or arrangement, with respect to any director,
officer or consultant of the Company or, except in the ordinary
course of the Company's business and consistent with the
Company's historical compensation practices, any other employee
or group of employees;
(l)
amended or waived any of its rights under, or permitted the
acceleration of vesting under, (i) any provision of its Stock
Plan or (ii) any provision of any agreement evidencing any
outstanding Company Option or Company Warrant;
(m)
made any capital expenditures or commitments therefor (other than
any such expenditures or commitments made in the ordinary course
of business for leasehold improvements at, or the furnishing or
<PAGE>
equipping of, the facilities operated by the Company as of the
date of this Agreement) that aggregate in excess of $600,000;
(n)
made any loans or advances to, or guarantees for the benefit of,
any persons that aggregate in excess of $500,000;
(o)
effected or been a party to any acquisition transaction,
recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction;
(p)
formed any subsidiary or acquired any equity interest or other
interest in any other entity;
(q)
written off as uncollectible, or established any reserve with
respect to, any account receivable or other indebtedness which in
the aggregate exceed $500,000;
(r)
changed any of its methods of accounting or accounting practices
in any material respect;
(s)
made any tax election;
(t)
commenced or settled any legal proceeding;
(u)
waived or agreed to waive any applicable statute of limitations
or any similar statutory or judicial doctrine benefiting the
Company or any Subsidiary;
(v)
entered into any material transaction or taken any other material
action outside the ordinary course of business or inconsistent
with its past practices; or
<PAGE>
(w)
made charitable contributions or pledges which in the aggregate
exceed $100,000.
3.10 Title to Properties
.
(a)
The Company or one of the Subsidiaries owns good and marketable
title to each the tangible properties and tangible assets
reflected on the balance sheet included in the Company's Latest
10-Q or acquired since the date thereof, free and clear of all
liens and encumbrances, except for (A) liens for current taxes
not yet due and payable, (B) liens set forth under the caption
"Real Estate" in the DCI Disclosure Letter, (C) the properties
subject to the leases set forth under the caption "Leases" in the
DCI Disclosure Letter, (D) liens securing indebtedness of the
Company and (E) assets disposed of since the date of the balance
sheet included in the Company's Latest 10-Q in the ordinary
course of business consistent with past practices.
(b)
(i) the real estate described under the caption "Real Estate" in
the DCI Disclosure Letter and the demised leases described under
the caption "Leases" in the DCI Disclosure Letter constitutes all
of the real estate used or occupied by the Company and the
Subsidiaries (the "Real Estate") and (ii) the Real Estate has
access, sufficient for the conduct of the Company's and the
Subsidiaries' businesses as now conducted or as presently
proposed to be conducted, to public roads and to all utilities,
including electricity, sanitary and storm sewer, potable water,
natural gas and other utilities, used in the operations of the
Company and the Subsidiaries.
(c)
The leases described under the caption "Leases" in the DCI
Disclosure Letter are in full force and effect, and the Company
or one of the Subsidiaries, as the case may be, has a valid and
existing leasehold interest under each such lease for the term
set forth therein. The Company has delivered to Wavetech
complete and accurate copies of each of the leases described
under such caption and none of such leases has been modified in
any material respect, except to the extent that such
modifications are disclosed by the copies delivered to Wavetech.
Neither the Company nor any Subsidiary is in default, and no
<PAGE>
circumstances exist which could result in such default, under any
of such leases; nor, to the best knowledge of the Company or any
Subsidiary, is any other party to any of such leases in default.
(d)
All of the buildings, machinery, equipment and other tangible
assets necessary for the conduct of the Company's and the
Subsidiaries' businesses are in good condition and repair (except
where the failure to be in such condition and repair, either
individually or in the aggregate, would not have a material
adverse effect on the Company or any Subsidiary and except for
ordinary wear and tear), and are usable in the ordinary course of
business. The Company and the Subsidiaries own, or lease under
valid leases which afford peaceful and undisturbed possession of
the subject matter of the lease, all buildings, machinery,
equipment and other tangible assets necessary for the conduct of
their businesses.
(e)
Neither the Company nor any of the Subsidiaries is in violation
of any applicable zoning ordinance or other law, regulation or
requirement relating to the operation of any properties used in
the operation of its business, including without limitation
applicable environmental protection and occupational health and
safety laws and regulations, and neither the Company nor any
Subsidiary has received any notice of any such violation, or of
the existence of any condemnation proceeding with respect to any
properties owned or leased by the Company or any Subsidiary.
3.11 Accounts Receivable
. The Company's and the Subsidiaries' notes and accounts
receivable recorded on the balance sheet included in the
Company's Latest 10-Q and those arising since the date thereof
are valid receivables (subject to a reasonable allowance for
doubtful accounts as set forth in the Company's Latest 10-Q)
arising from bona fide transactions entered into in the ordinary
course of business and are current and collectible in full in
accordance with their terms, subject to no valid counterclaims or
setoffs.
3.12 Inventories
. Except as set forth under the caption "Inventory" in the DCI
Disclosure Letter, the inventories of the Company and the
Subsidiaries recorded on the balance sheet included in the
Company's Latest 10-Q, and the inventory created or purchased
since the date thereof, consists of a quantity and quality usable
<PAGE>
and salable in the ordinary course of business, is not
slow-moving as determined in accordance with past practices,
obsolete or damaged, is merchantable and fit for its particular
use, and is not defective.
3.13 Tax Matters
. Except as set forth under the caption "Tax Matters" in the DCI
Disclosure Letter,
(a)
the Company and the Subsidiaries have timely filed all returns
that are required to be filed by them with respect to any taxes,
and all such returns have been accurately and completely prepared
in compliance with all applicable legal requirements and are
true, correct, and complete; all taxes due and payable by the
Company and the Subsidiaries have been paid; the Company's and
the Subsidiaries' provisions for taxes on the balance sheet
included in the Company's Latest 10-K are sufficient for all
accrued and unpaid taxes as of the date of such balance sheet;
the Company and the Subsidiaries have paid all taxes due and
payable by them or which they are obligated to withhold from
amounts owing to any employee, creditor, or third party; neither
the Company nor any Subsidiary has waived any statute of
limitations in respect of taxes relating to any of their
businesses or agreed to any extension of time with respect to a
tax assessment or deficiency relating to any of their businesses;
the assessment of any additional taxes relating to their
businesses for periods for which returns have been filed is not
expected, and no audit of the Company or any Subsidiary is
ongoing, threatened, or anticipated; and there are no unresolved
questions or claims concerning the tax liability of the Company
or any Subsidiary;
(b)
All material elections with respect to taxes of the Company and
any Subsidiary are set forth in the "Tax Matters" section of the
DCI Disclosure Letter; neither the Company nor any Subsidiary (i)
has consented at any time under 341(f) of the Code to have the
provisions of 341(f) apply to any disposition of assets of the
Company or any Subsidiary, (ii) has agreed, or is required, to
make any adjustment under 481(a) of the Code by reason of a
change in accounting method or otherwise that will affect the
liability of the Company or any Subsidiary for taxes, (iii) has
made an election, or is required, to treat any asset of the
Company or any Subsidiary as owned by another person pursuant to
the provisions of 168(f) of the Code or as tax-exempt bond
financed property or tax-exempt use property within the meaning
<PAGE>
of 168 of the Code, or (iv) has made any of the foregoing
elections or consents or is required to apply any of the
foregoing rules under any comparable state, county, local, or
foreign tax provision.
(c)
Neither the Company nor any Subsidiary is or has ever been an
includible corporation in an affiliated group of corporations,
within the meaning of 1504 of the Code, other than in the
affiliated group of which the Company is the common Company
corporation;
(d)
Neither the Company nor any Subsidiary is now or has ever been a
party to any tax-sharing agreements or similar arrangements;
(e)
Neither the Company nor any Subsidiary has made or become
obligated to make, or will, as a result of any event connected
with the Merger contemplated herein, make or become obligated to
make, any "excess parachute payment," as defined in 280G of the
Code (without regard to subsection (b)(4) thereof);
(f)
There are no liens for taxes (other than for current taxes that
are not yet due and payable or are being contested in good faith)
upon the assets of the Company or any Subsidiary;
(g)
All joint ventures, partnerships, or other arrangements or
contracts to which the Company or any Subsidiary is a party and
that could be treated as a partnership for federal income tax
purposes are set forth under the caption "Tax Matters" in the DCI
Disclosure Letter;
(h)
There are no outstanding balances of deferred gain or loss
accounts related to deferred intercompany transactions or
outstanding intercompany items related to intercompany
transactions (as each such term is defined in Treas. Reg. 1.1502-
13, as such regulation is or was applicable to the Company and
the Subsidiaries in each relevant taxable period) between the
Company and any Subsidiary or between any Subsidiaries; and
<PAGE>
(i)
There exists no excess loss account (as such item is defined in
Treas. Reg. 1.1502-19) with respect to the capital stock of the
Company or any Subsidiary.
For purposes of this Agreement, the terms "tax" and "taxes" shall
include income, gross receipts, excise, real and personal
property, sales, franchise, employment, and other taxes imposed
by any federal, foreign, state, county, municipal, local, or
other governmental agency, including interest and penalties
relating to taxes and assessments in the nature of taxes.
3.14 Contracts and Commitments
.
(a)
Except as set forth under the caption "Contracts" in the DCI
Disclosure Letter, neither the Company nor any Subsidiary is a
party to any: (i) collective bargaining agreement or contract
with any labor union; (ii) bonus, pension, profit sharing,
retirement, or other form of deferred compensation plan; (iii)
hospitalization insurance or similar plan or practice, whether
formal or informal; (iv) contract for the employment of any
officer, individual employee, or other person on a full-time or
consulting basis or relative to severance pay for any such
person; (v) agreement or indenture relating to the borrowing of
money in excess of $1,000,000 or to mortgaging, pledging or
otherwise placing a lien on any of the assets of the Company or
any Subsidiary; (vi) guaranty of any obligation for borrowed
money or otherwise, other than endorsements made for collection;
(vii) lease or agreement under which it is lessor of, or permits
any third party to hold or operate, any property, real or
personal, for an annual rental in excess of $100,000; (viii)
contract or group of related contracts with the same party for
the purchase of products or services, under which the undelivered
balance of such products and services has a purchase price in
excess of $500,000; (ix) contract or group of related contracts
with the same party for the sale of products or services under
which the undelivered balance of such products or services has a
sales price in excess of $500,000; (x) other contract or group of
related contracts with the same party continuing over a period of
more than six months from the date or dates thereof, either not
terminable by it on 30 days' or less notice without penalty or
involving more than $500,000; (xi) contract which prohibits
either the Company or any Subsidiary from freely engaging in
business anywhere in the world; (xii) contract relating to the
distribution of the Company's or any Subsidiary's products;
<PAGE>
(xiii) franchise agreement; (xiv) contract, agreement or
understanding with any shareholder who beneficially owns 5% or
more of the Company Common Stock or with any officer, director or
employee (other than for employment on customary terms); (xv)
license agreement or agreement providing for the payment or
receipt of royalties or other compensation by the Company or any
Subsidiary in connection with the proprietary rights listed under
the caption "Proprietary Rights" in the DCI Disclosure Letter; or
(xvi) other agreement material to the Company's or any
Subsidiary's business or not entered into in the ordinary course
of business.
(b)
Except as specifically disclosed under the caption "Contracts" in
the DCI Disclosure Letter, (i) no contract or commitment required
to be disclosed under such caption has been breached or canceled
by the other party; (ii) since the date of the balance sheet
included in the Company's Latest 10-Q, no customer or supplier
has indicated that it will stop or decrease the rate of business
done with the Company or any Subsidiary, except for changes in
the ordinary course of the Company's and the Subsidiaries'
businesses; (iii) the Company and the Subsidiaries have performed
all obligations required to be performed by them in connection
with the contracts or commitments required to be disclosed under
such caption and are not in receipt of any claim of default under
any contract or commitment required to be disclosed under such
caption; (iv) neither the Company nor any Subsidiary has any
present expectation or intention of not fully performing any
obligation pursuant to any contract or commitment or commitment
set forth under such caption; and (v) neither the Company nor any
Subsidiary has any knowledge of any breach or anticipated breach
by any other party to any contract or commitment set forth under
such caption.
(c)
Prior to the date of this Agreement, Wavetech has been supplied
with a true and correct copy of each written contract or
commitment, and a written description of each oral contract or
commitment, referred to under the caption "Contracts" in the DCI
Disclosure Letter, together with all amendments, waivers or other
changes thereto.
3.15 Proprietary Rights
. Except as set forth under the caption "Proprietary Rights" in
the DCI Disclosure Letter, there are no patents, patent
applications, trademarks, service marks, trade names, corporate
names, copyrights, trade secrets or other proprietary rights
<PAGE>
owned by the Company or any Subsidiary or necessary to the
conduct of the Company's or any Subsidiary's businesses as now
conducted. The Company or a Subsidiary owns and possesses all
rights, titles and interest, or a valid license, in and to the
proprietary rights set forth under such caption. The DCI
Disclosure Letter describes under such caption all proprietary
rights which have been licensed to third parties and all
proprietary rights which are licensed from third parties by the
Company or any Subsidiary. The Company and the Subsidiaries have
taken all necessary action to protect the proprietary rights set
forth under such caption. Neither the Company nor any Subsidiary
has received any notice of, nor is it aware of any facts which
indicate a likelihood of, any infringement, misappropriation, or
conflict from any third party with respect to the proprietary
rights which are listed under such caption; neither the Company
nor any Subsidiary has infringed, misappropriated or otherwise
conflicted with any proprietary rights of any third parties, nor
is it aware of any infringement, misappropriation or conflict
which will occur in the continued operation of the Company or any
Subsidiary; and no claim by any third party contesting the
validity of any proprietary rights listed under such caption has
been made, is currently outstanding, or to the best knowledge of
the Company or any Subsidiary is threatened.
3.16 Litigation
. Except as set forth under the caption "Litigation" in the DCI
Disclosure Letter, there are no actions, suits, claims,
proceedings, orders or investigations pending or threatened
against the Company or any Subsidiary or otherwise affecting any
of their respective properties or assets, or that challenges or
may have the effect of preventing, delaying, making illegal or
otherwise interfering with the Merger or any other transactions
contemplated by this Agreement, at law or in equity, or before or
by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or that could reasonably be expected to have
a material adverse effect on the business, properties, assets,
condition (financial or otherwise) or business prospects of the
Company and there is no basis known to the Company or any
Subsidiary for any of the foregoing. There is no order, writ,
injunction, judgment or decree:
(a)
to which the Company or any Subsidiary or any of the assets owned
or used by the Company or any Subsidiary is subject, or
(b)
to which any officer or employee of the Company or any Subsidiary
<PAGE>
is subject that prohibits such officer or employee from engaging
in or continuing any conduct, activity or practice relating to
the Company's or any Subsidiary's business. Except as set forth
under such caption, neither the Company nor any Subsidiary has
received any opinion or legal advice to the effect that the
Company or any Subsidiary is exposed from a legal standpoint to
any liability or disadvantage which may be material to it or its
prospects.
3.17 Brokerage
. There are no claims for investment banking fees, brokerage
commissions, finders' fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of the Company or
any Subsidiary. The Company currently intends, however, to enter
into an agreement or arrangement with a qualified investment
banking or financial advisory firm regarding the study of and the
rendering of an opinion with respect to the fairness of the
Merger.
3.18 Employment Matters
. To the best knowledge of the Company and the Subsidiaries, (i)
no key executive employee of the Company or any Subsidiary, and
no group of the Company's or any subsidiary's employees, has any
plans to terminate his or its employment, (ii) the Company and
the Subsidiaries have complied with all laws relating to the
employment of labor, including provisions thereof relating to
wages, hours, equal opportunity, collective bargaining and the
payment of social security and other taxes, and (iii) the Company
and the Subsidiaries have no material labor relations problems
pending and their labor relations are satisfactory.
3.19 Employee Benefit Plans
. With respect to the employee benefits provided to employees
and former employees of the Company and the Subsidiaries:
(a)
The Company and the Subsidiaries currently maintain only the
employee pension benefit plans, as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), as are listed under the caption "Employee Benefits" in
the DCI Disclosure Letter.
<PAGE>
(b)
The Company and the Subsidiaries currently maintain only the
employee welfare benefit plans, as defined in Section 3(1) of
ERISA (including but not limited to, life insurance, medical,
hospitalization, holiday, vacation, disability dental and vision
plans) as are listed under the caption "Employee Benefits" in the
DCI Disclosure Letter (the "Welfare Plans").
(c)
The Company and the Subsidiaries currently maintain, or have
entered into, only the compensation programs and/or employment
arrangements, (including but not limited to, incentive
compensation, bonus, severance, sick pay, salary continuation,
deferred compensation, supplemental executive compensation plans,
and employment and consulting agreements) as are listed under the
caption "Employee Benefits" in the DCI Disclosure Letter (the
"Compensation Programs").
(d)
The Company and the Subsidiaries do not contribute, and have not
contributed within the last five years, to any multiemployer
plan, as defined by Section 3(37) of ERISA.
(e)
Each Pension Plan and Welfare Plan is in compliance with ERISA;
each Pension Plan which is intended to be qualified under Section
401(a) of the Code has been determined by the Internal Revenue
Service to be so qualified or a request for such determination
has been timely filed with the Internal Revenue Service (and to
Company's best knowledge nothing has occurred between the date of
the last such determination and the Closing Date to cause the
Internal Revenue Service to revoke such determination).
(f)
Any Pension Plan or any Welfare Plan designed to satisfy the
requirements of Section 125, Section 401, Section 401(k), Section
409, Section 501(c)(9), Section 4975(e)(7), and/or Section 4980B
of the Code, satisfies such section.
(g)
No accumulated funding deficiency, as defined in Section
302(a)(2) of ERISA, exists (whether or not waived) with respect
to any Pension Plan as of the date hereof.
<PAGE>
(h)
All amounts required to be paid by the Company and or any
Subsidiary with respect to each Pension Plan, Welfare Plan and
Compensation Program on or before the Closing Date have been
paid.
(i)
None of the Pension Plans or the Company or any party in interest
or disqualified person has engaged in any non-exempt "prohibited
transactions" as defined in Section 406 of ERISA or Section 4975
of the Code.
(j)
Except as disclosed under the caption "Employee Benefits" in the
DCI Disclosure Letter, no Pension Plan or Welfare Plan provides
benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former
employees beyond their retirement or other termination of service
other than (i) coverage mandated by applicable law, (ii)
retirement benefits under a Pension Plan, (iii) death benefits
under a Welfare Plan, (iv) deferred compensation accrued on the
books of the Company or a Subsidiary, or (v) benefits the full
cost of which is borne by the current or former employee (or his
or her beneficiary).
(k)
No "leased employee," as that term is defined in Section 414(n)
of the Code, performs services for the Company or any Subsidiary.
(l)
No liability has been, or is expected by the Company or any
Subsidiary to be, incurred by the Company or a Subsidiary under
Section 4062 of ERISA with respect to any Pension Plan.
(m)
No reportable event within the meaning of Title IV of ERISA has
occurred with respect to any Pension Plan.
(n)
The Company has furnished Wavetech with correct and complete
copies of each Pension Plan, Welfare Plan, and Compensation
Program, together with any trust agreements, summary plan
descriptions, employee informational material, financial
statements relating thereto and participant listings.
<PAGE>
3.20 Insurance
. The DCI Disclosure Letter, under the caption "Insurance,"
lists and briefly describes (including name of insurer, agent,
coverage and expiration date) each insurance policy maintained
by, at the expense of or for the benefit of the Company or any of
the Subsidiaries with respect to its properties and assets and
describes any material claims made thereunder. All of such
insurance policies are in full force and effect and neither the
Company nor any Subsidiary is in default with respect to its
obligations under any of such insurance policies. Except as set
forth in the DCI Disclosure Letter under the caption "Insurance,"
the Company is the sole beneficiary of each such policy. The
insurance coverage of the Company and the Subsidiaries is
customary for corporations of similar size engaged in similar
lines of businesses. The Company has not received any notice or
other communication regarding any actual or possible (a)
cancellation or invalidation of any insurance policy, (b) refusal
of any coverage or rejection of any claim under any insurance
policy or (c) material adjustment in the amount of premiums
payable with respect to any insurance policy.
3.21 Affiliate Transactions
. Except as set forth under the caption "Affiliate Transactions"
in the DCI Disclosure Letter, no officer or director of the
Company or any Subsidiary or any member of the immediate family
of any such officer or director, or any entity in which any of
such persons owns any beneficial interest (other than a
publicly-held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less
than 5% of the stock of which is beneficially owned by any of
such persons) (collectively "Insiders"), (a) has any agreement
with the Company or any Subsidiary (other than normal employment
arrangements) or any interest in any property, real, personal or
mixed, tangible or intangible, used in or pertaining to the
business of the Company or any Subsidiary, (b) has been indebted
to the Company in amounts in excess of $10,000 in the aggregate
at any time, (c) has at any time competed, directly or
indirectly, with the Company, or (d) has any claim or right
against the Company (other than rights under Company Options and
rights to receive compensation for services performed as an
employee of the Company). For purposes of the preceding
sentence, the members of the immediate family of an officer or
director shall consist of the spouse, Wavetech's, children,
siblings, mothers- and fathers-in-law, sons- and
daughters-in-law, and brothers- and sisters-in-law of such
officer or director.
<PAGE>
3.22 Suppliers
. The DCI Disclosure Letter, under the caption "Suppliers,"
lists the 10 largest suppliers of the Company and the
Subsidiaries (on a consolidated basis) for the fiscal year ended
March 31, 1998, and sets forth opposite the name of each such
supplier the total amount of purchases from such supplier by the
Company and the Subsidiaries during such period.
3.23 Officers and Directors; Bank Accounts
. The DCI Disclosure Letter, under the caption "Officers and
Directors," lists all officers and directors of the Company and
the Subsidiaries and, under the caption "Bank Accounts," lists
all of the Company's and the Subsidiaries' accounts at any bank
or other financial institution (designating each authorized
signer).
3.24 Compliance with Laws; Permits; Certain Operations
. The Company, each of the Subsidiaries and their respective
officers, directors, agents and employees have complied in all
respects, and currently are in compliance in all respects, with
all applicable laws and regulations of foreign, federal, state
and local governments and all agencies thereof which affect the
businesses or any owned or leased properties of the Company and
the Subsidiaries and to which the Company or any of the
Subsidiaries may be subject, and no claims have been filed
against the Company or any of the Subsidiaries alleging a
violation of any such law or regulation, except as set forth in
the DCI Disclosure Letter under the caption "Compliance."
Neither the Company nor any Subsidiary has given or agreed to
give any money, gift or similar benefit (other than incidental
gifts of articles of nominal value, gifts and prizes awarded
pursuant to promotional programs approved by the Company's
management and non-extraordinary entertainment expenditures) to
any actual or potential customer, supplier, foreign or domestic
governmental employee or any other person in a position to assist
or hinder the Company or any of the Subsidiaries in connection
with any actual or proposed transaction. The Company and the
Subsidiaries hold all of the permits, licenses, certificates and
other authorizations of foreign, federal, state and local
governmental agencies required for the conduct of their
businesses. Without limiting the generality of the foregoing,
neither the Company nor any Subsidiary has violated, or received
a notice or charge asserting any violation of, the Occupational
Safety and Health Act of 1970 or any other state or federal acts
or laws (including rules and regulations thereunder) regulating
or otherwise affecting employee health and safety or the
environment.
<PAGE>
3.25 Disclosure
.
(a)
Neither this Agreement nor any other agreement or instrument
executed in connection with the transactions contemplated hereby
nor any of the attachments or exhibits hereto nor the DCI
Disclosure Letter contains any untrue statement of a material
fact or omits a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in
which they were made, not misleading, and there is no fact which
has not been disclosed in writing to Wavetech of which any
officer or director of the Company or any Subsidiary is aware
which materially affects adversely or could reasonably be
anticipated to materially affect adversely the business,
including operating results, assets, customer relations, employee
relations and business prospects, of the Company and the
Subsidiaries, taken as a whole.
(b)
None of the information supplied or to be supplied by the Company
for inclusion or incorporation by reference in the Form S-4 and
the Joint Prospectus/Proxy Statement will, at the time the S-4 is
declared effective, at the date the Joint Prospectus/Proxy
Statement is mailed to the shareholders of the Company or at the
time of the Company Shareholders' Meeting, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein (in light of the circumstances under which they are made)
not misleading.
3.26 Non-Contravention; Consents
. Except as set forth under the caption "Consents" in the DCI
Disclosure Letter, neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements
referred to in this Agreement, nor (2) the consummation of the
Merger or any of the other transactions contemplated by this
Agreement, will directly or indirectly (with or without notice or
lapse of time):
(a)
contravene, conflict with or result in a violation of (i) any of
the provisions of the Company's or any Subsidiary's Articles of
Incorporation or Bylaws, or (ii) any resolution adopted by the
Company's or any Subsidiary's shareholders, the Company's or any
Subsidiary's board of directors or any committee of such board of
directors;
<PAGE>
(b)
contravene, conflict with or result in a violation of, or give
any governmental authority or other person or entity the right to
challenge any of the transactions contemplated by this Agreement
or to exercise any remedy or obtain any relief under, any legal
requirement or any order, writ, injunction, judgment or decree to
which the Company or any Subsidiary, or any of the assets owned
or used by the Company or any Subsidiary, is subject;
(c)
contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any governmental authority the
right to revoke, withdraw, suspend, cancel, terminate or modify,
any governmental permit or authorization that is held by the
Company or any Subsidiary or that otherwise relates to the
Company's business or to any of the assets owned or used by the
Company or any Subsidiary;
(d)
contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any contract or
agreement to which the Company or any Subsidiary is a party, or
give any person or entity the right to (i) declare a default or
exercise any remedy under any such contract or agreement, (ii)
accelerate the maturity or performance of any such contract or
agreement, or (iii) cancel, terminate or modify any such contract
or agreement; or
(e)
result in the imposition or creation of any lien or other
encumbrance upon or with respect to any asset owned or used by
the Company or any Subsidiary (except for minor liens that will
not, in any case or in the aggregate, materially detract from the
value of the assets subject thereto or materially impair the
operations of the Company).
Except as set forth under the caption "Consents" in the DCI
Disclosure Letter, the Company is not and will not be required to
make any filing with or give any notice to, or to obtain any
consent from, any person or entity in connection with (x) the
execution, delivery or performance of this Agreement or any of
the other agreements referred to in this Agreement, or (y) the
consummation of the Merger or any of the other transactions
contemplated by this Agreement.
<PAGE>
3.27 Stockholder Vote Required
. The affirmative vote of a majority of the votes entitled to be
cast by holders of the outstanding shares of Company Common Stock
(voting as a class) are the only votes of the holders of any
class or series of the Company's capital stock necessary to
approve this Agreement and the Merger under Colorado Law.
3.28 Board Approval
. The board of directors of the Company has (i) approved the
Merger and the execution of this Agreement, (ii) determined that
the Merger is in the best interests of the shareholders of the
Company and is on terms that are fair to such shareholders, and
(iii) recommended that holders of Company Common Stock vote in
favor of this Agreement and the Merger.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business Pending the Merger
.
(a)
Covenants of the Company. During the period from the date of
this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, the Company
agrees as to itself and its respective Subsidiaries (except to
the extent that Wavetech shall otherwise consent in writing,
which consent shall not be unreasonably withheld, or as otherwise
expressly contemplated or permitted by this Agreement) to carry
on its business in the usual, regular, and ordinary course in
substantially the same manner as previously conducted, to pay its
debts and taxes when due subject to good faith disputes over such
debts or taxes, to pay or perform other obligations when due,
and, to the extent consistent with such business, to use all
reasonable efforts consistent with its past practices and
policies to preserve intact its present business organization, to
keep available the services of its present officers and key
employees and preserve its relationships with customers,
suppliers, franchisees, distributors, licensors, licensees, and
others having business dealings with it, to the end that its
goodwill and ongoing businesses shall be unimpaired at the
Effective Time. The Company shall promptly notify Wavetech of
any event or occurrence not in the ordinary course of business of
the Company.
<PAGE>
(b)
Covenants of Wavetech. During the period from the date of this
Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, Wavetech agrees as to
itself and its respective Subsidiaries (except to the extent that
the Company shall otherwise consent in writing which consent
shall not be unreasonably withheld or otherwise expressly
contemplated or permitted by this Agreement), to carry on its
business in the usual, regular, and ordinary course in
substantially the same manner as previously conducted, to pay its
debts and taxes when due subject to good faith disputes over such
debts or taxes, to pay or perform other obligations when due,
and, to the extent consistent with such business, to use all
reasonable efforts consistent with past practices and policies to
preserve intact its present business organization, to keep
available the services of its present officers and key employees
and preserve its relationships with customers, suppliers,
franchisees, distributors, licensers, licensees, and others
having business dealings with it, to the end that its goodwill
and ongoing businesses shall be unimpaired at the Effective Time.
Wavetech shall promptly notify the Company of any event or
occurrence not in the ordinary course of business of Wavetech.
4.2 Delivery of Disclosure Letters
. No later than two (2) calendar weeks from the date of this
Agreement, DCI shall deliver the fully completed DCI Disclosure
Letter to Wavetech and Wavetech shall deliver the fully completed
Wavetech Disclosure Letter to DCI.
4.3 Notification; Updates to Disclosure Schedule
.
(a)
During the period subsequent to the execution of this Agreement
and prior to the Effective Time (the "Pre-Closing Period"), the
Company shall promptly notify Wavetech and Wavetech shall
promptly notify the Company in writing of:
(i)
the discovery by either of the parties hereto of any event,
condition, fact or circumstance that occurred or existed on or
prior to the date of this Agreement and that caused or
constitutes an inaccuracy in or breach of any representation or
warranty made by Wavetech in Article II or by the Company in
Article III in this Agreement;
<PAGE>
(ii)
any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or
warranty made by such party in this Agreement if (A) such
representation or warranty had been made as of the time of the
occurrence, existence or discovery of such event, condition, fact
or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the
date of this Agreement;
(iii)
any breach of any covenant or obligation of such party; and
(iv) any event, condition, fact or
circumstance that would make the timely satisfaction of
any of the conditions set forth in Sections 6.1, 6.2 or
6.3 impossible or unlikely.
(b)
If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 4.2(a) requires any change in
either the Wavetech Disclosure Letter or the DCI Disclosure
Letter, as the case may be or if any such event, condition, fact
or circumstance would require such a change assuming the Wavetech
Disclosure Letter or the DCI Disclosure Letter were dated as of
the date of the occurrence, existence or discovery of such event,
condition, fact or circumstance, then the Company or Wavetech, as
the case may be, shall promptly deliver to the other party an
update in writing to the Disclosure Letter specifying such change
and disclosing all material facts related thereto. No such
update shall be deemed to supplement or amend the respective
Disclosure Letter for the purpose of (i) determining the accuracy
of any of the representations and warranties made by the Company
in this Agreement, or (ii) determining whether any of the
conditions set forth in Sections 6.1, 6.2 or 6.3 has been
satisfied.
4.4 Shareholder Approval
(a)
The Company will call a meeting of its shareholders (the "Company
Shareholders' Meeting"), to be held after the Form S-4 shall have
been declared effective by the SEC, to submit this Agreement, the
Merger and related matters for the consideration and approval of
the Company's shareholders. Subject to the fiduciary obligations
of the Company's directors, the Form S-4 will include a statement
<PAGE>
to the effect that the Company's board of directors has
recommended that the Company's shareholders vote in favor of the
Merger. The Company Shareholders' Meeting will be called, held
and conducted, and any proxies will be solicited, in compliance
with applicable law. The Company shall, if and to the extent
requested by Wavetech, subject to the fiduciary obligations of
the directors of the Company as advised by counsel, use its best
efforts to solicit from shareholders of the Company proxies in
favor of such adoption and approval and shall take all other
action necessary or, in the opinion of Wavetech, helpful to
secure a vote of shareholders in favor of the Merger. At the
Company Shareholders' Meeting, the Company shall cause to be
voted all shares of Company Common Stock with respect to which
proxies in the form distributed by the Company shall have been
given in favor of the Merger.
(b)
To the extent required by applicable Nevada law or the rules of
the Nasdaq SmallCap Market (if such rules are applicable),
Wavetech will call a meeting of its shareholders (the "Wavetech
Shareholders' Meeting"), to be held after the Form S-4 shall have
been declared effective by the SEC, to submit this Agreement, the
Merger, the issuance of Wavetech Common Stock pursuant to the
Merger and related matters for the consideration and approval of
Wavetech's shareholders (the "Wavetech Voting Proposals"). The
Wavetech Shareholder Meeting will be called, held and conducted,
and any proxies will be solicited, in compliance with applicable
law. Wavetech shall, if and to the extent requested by the
Company, subject to the fiduciary obligations of the directors of
Wavetech as advised by counsel, use its best efforts to solicit
from shareholders of Wavetech proxies in favor of such adoption
and approval and shall take all other action necessary or, in the
opinion of Wavetech, helpful to secure a vote of shareholders in
favor of the Wavetech Voting Proposals. At the Wavetech
Shareholders' Meeting, Wavetech shall cause to be voted all
shares of Wavetech Common Stock with respect to which proxies in
the form distributed by Wavetech shall have been given in favor
of the Wavetech Voting Proposals.
<PAGE>
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Joint Proxy Statement; Registration Statement
(a)
As promptly as practical after the execution of this Agreement,
Wavetech and the Company shall prepare and file with the SEC a
joint proxy statement/prospectus to be sent to the shareholders
of Wavetech and the Company in connection with the Wavetech
Shareholders' Meeting and the Company Shareholders' Meeting to
consider the Merger (the "Joint Proxy Statement/Prospectus"), and
Wavetech shall prepare and file with the SEC a registration
statement on Form S-4 pursuant to which the issuance of the
shares of Wavetech Common Stock as a result of the Merger will be
registered with the SEC under the Securities Act (the
"Registration Statement"), in which the Joint Proxy
Statement/Prospectus will be included as a prospectus. Wavetech
and the Company shall use all reasonable efforts to cause the
Registration Statement to become effective as soon after such
filing as is practical. The Joint Proxy Statement/Prospectus
shall include the recommendation of the Board of Directors of the
Company in favor of this Agreement and the Merger and the
recommendation of the Board of Directors of Wavetech, in favor of
this Agreement, the Merger and the issuing of Wavetech Common
Stock in the Merger and such other proposals as are necessary to
carry out the intent of the transactions contemplated by this
Agreement (the "Wavetech Voting Proposals"), provided that the
Board of Directors of either the Company or Wavetech may withdraw
such recommendation if such Board of Directors shall have
determined in good faith, after consultation with its outside
legal counsel, that the withdrawal of such recommendation is
necessary for such Board of Directors to comply with its
fiduciary duties under applicable law. Wavetech and the Company
shall make all other necessary filings with respect to the Merger
under the Securities Act and Exchange Act and the rules and
regulations thereunder. Wavetech shall have the right in its
sole and absolute discretion to approve or disapprove of the
outside legal counsel selected by the Company for purposes of
this Section 5.1(a).
(b)
The Company shall take such action as may be necessary to insure
that (i) the information to be supplied by the Company for
inclusion in the Registration Statement shall not at the time the
<PAGE>
Registration Statement is declared effective by the SEC contain
any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement
or necessary in order to make the statements in the Registration
Statement, in light of the circumstances under which they were
made, not misleading, and (ii) the information supplied by the
Company for inclusion in the Joint Proxy Statement/Prospectus
shall not, on the date the Joint Proxy Statement/Prospectus is
first mailed to shareholders of the Company or Wavetech, at the
time of the Company Shareholders' Meeting and the Wavetech
Shareholders' Meeting, and at the Effective Time, contain any
statement which, at such time and in light of the circumstances
under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact
necessary in order to make the statements made in the Joint Proxy
Statement/Prospectus not false or misleading, or omit to state
any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies
for the Company Shareholders' Meeting or Wavetech Shareholders'
Meeting which has become false or misleading. If at any time
prior to the Effective Time any event relating to the Company or
any of its Affiliates, officers, or directors should be
discovered by the Company which should be set forth in an
amendment to the Registration Statement or a supplement to the
Joint Proxy Statement/Prospectus, the Company shall promptly so
inform Wavetech.
(c)
Wavetech shall take such action as may be necessary to insure
that (i) the information supplied by Wavetech for inclusion in
the Registration Statement shall not at the time the Registration
Statement is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact
required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in
light of the circumstances under which they were made, not
misleading, and (ii) the information supplied by Wavetech for
inclusion in the Joint Proxy Statement/Prospectus shall not on
the date the Joint Proxy Statement/Prospectus is first mailed to
shareholders of Wavetech or the Company, at the time of the
Wavetech Shareholders' Meeting and Company Shareholders' Meeting,
and at the Effective Time, contain any statement which, at such
time and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the
statements made in the Joint Proxy Statement/Prospectus not false
or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect
to the solicitation of proxies for the Wavetech Shareholders'
<PAGE>
Meeting or Company Shareholders' Meeting which has become false
or misleading. If at any time prior to the Effective Time any
event relating to Wavetech or any of its Affiliates, officers, or
directors should be discovered by Wavetech which should be set
forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/Prospectus, Wavetech
shall promptly so inform the Company.
5.2 Shareholders' Meetings
. To the extent required by applicable statutory law or the
rules of the Nasdaq SmallCap Market (if such rules are
applicable), Wavetech and the Company each shall call a meeting
of its respective shareholders to be held as promptly as
practicable for the purpose of voting, in the case of the
Company, upon this Agreement and the Merger and, in the case of
Wavetech, upon the Wavetech Voting Proposals. Subject to Section
5.1 hereof, Wavetech and the Company will, through their
respective Boards of Directors, recommend to their respective
shareholders approval of such matters and will coordinate and
cooperate with respect to the timing of such meetings and shall
use their best efforts to hold such meetings on the same day and
as soon as practicable after the date hereof. Subject to Section
5.1 hereof, each party shall use all reasonable efforts to
solicit from its shareholders proxies in favor of such matters.
5.3 Accountant Comfort Letters
.
(a)
Prior to the date of this Agreement, the Company has delivered to
Wavetech a letter from Schnitzer & Kondub, P.C. addressed to the
Company and Wavetech and dated a date not more than one day
(excluding Saturdays, Sundays and holidays) before the date of
this Agreement, confirming that they are independent accountants
within the meaning of the Exchange Act and the applicable
published rules and regulations thereunder and stating to the
effect that in their opinion the audited financial statements and
financial statement schedules included in the Company's Latest
10-KSB and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the
Exchange Act and the related published rules and regulations.
(b)
In addition, prior to the date (the "Mailing Date") the Proxy
Statement is mailed to the shareholders of the Company, the
Company shall deliver to Wavetech a letter from Schnitzer &
<PAGE>
Kondub, P.C. addressed to the Company and Wavetech and dated a
date not more than one day (excluding Saturdays, Sundays and
holidays) before the Mailing Date, confirming that they are
independent accountants within the meaning of the Exchange Act
and the applicable published rules and regulations thereunder and
stating to the effect that:
(i)
in their opinion the audited financial statements and financial
statement schedules included in the Joint Prospectus/Proxy
Statement and reported on by them comply as to form in all
material respects with the applicable accounting requirements of
the Exchange Act and the related published rules and regulations;
(ii)
on the basis of a reading of the amounts included in the Joint
Prospectus/Proxy Statement in response to Item 301 of Regulation
S-K and of the latest unaudited consolidated financial statements
made available by the Company and the Subsidiaries and the latest
unaudited financial statements included in the Joint
Prospectus/Proxy Statement relating to the Company and the
Subsidiaries; carrying out certain specified procedures (but not
an examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of
significance with respect to the comments set forth in such
letter; a reading of the minutes of the meetings of the
shareholders, directors and executive committees of the Company
and the Subsidiaries; and inquiries of certain officials of the
Company and the Subsidiaries who have responsibility for
financial and accounting matters of the Company and the
Subsidiaries as to transactions and events subsequent to the date
of the latest unaudited financial statements included in the
Joint Prospectus/Proxy Statement relating to the Company and the
Subsidiaries, nothing came to their attention which would cause
them to believe that:
(A)
the unaudited financial statements included in the Joint
Prospectus/Proxy Statement of the Company and the Subsidiaries do
not comply as to form in all material respects with applicable
accounting requirements of the Exchange Act and with the
published rules and regulations of the SEC with respect to proxy
statements; or that said unaudited financial statements are not
fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that
of the audited financial statements included in the Joint
Prospectus/Proxy Statement and reported on by them; or
<PAGE>
(B)
with respect to the period subsequent to the date of the latest
unaudited financial statements included in the Joint
Prospectus/Proxy Statement relating to the Company and the
Subsidiaries, there were any changes, at a specified date not
more than five days (excluding Saturdays, Sundays and holidays)
prior to the date of the letter, in the long-term debt of the
Company and the Subsidiaries or capital stock of the Company or
any decreases in the cash and cash equivalents, marketable
securities or shareholders' equity of the Company and the
Subsidiaries as compared with the amounts shown on the unaudited
consolidated balance sheet included in the Joint Prospectus/Proxy
Statement, or for the period from the date of the latest
unaudited financial statements included in the Joint
Prospectus/Proxy Statement relating to the Company and the
Subsidiaries, to such specified date there were any decreases, as
compared with the corresponding period in the preceding year, in
income (loss) before extraordinary items, or in total or per
share amounts of net income (loss), of the Company and the
Subsidiaries, except in all instances for changes or decreases
set forth in such letter, in which case the letter shall be
accompanied by an explanation by the Company as to the
significance thereof; and
(iii)
they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and the Subsidiaries)
set forth in the Joint Prospectus/Proxy Statement as reasonably
designated by Wavetech, insofar as it relates to the Company and
the Subsidiaries, agrees with the accounting records of the
Company and the Subsidiaries, excluding any legal interpretation.
5.4 Expenses
. In no event shall the aggregate costs and expenses incurred by
the Company and Wavetech in connection with this Agreement, the
Merger and the transactions contemplated thereby exceed $400,000.
The parties hereto acknowledge and agree that the expenses to be
paid by them according to this Section 5.4 shall include, but not
be limited to, all legal fees and expenses incurred in connection
with the negotiation and preparation of this Agreement, the Joint
Proxy/Prospectus and all matters contemplated thereby or related
thereto, accounting fees and expenses, SEC registration fees,
Nasdaq listing fees, "blue sky" fees and expenses, fees
associated with filings pursuant to the Hart-Scott-Rodino
<PAGE>
Antitrust Improvements Act of 1976, as amended (the "Hart-Scott
Act"), transfer agent fees, fairness opinions and investment
advisory services.
5.5 Additional Agreements
. Subject to the terms and conditions herein provided, each of
the parties hereto agrees to use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done,
all things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions
contemplated by this Agreement, including using reasonable
efforts to obtain all necessary waivers, consents and approvals
and to effect all necessary registrations and filings, including,
but not limited to, any required filings under the Hart-Scott Act
and submissions of information requested by governmental
authorities.
5.6 No Negotiations, etc
. The Company shall not (nor shall it permit any of the
Subsidiaries to), directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage
submission of any inquiry, proposal or offer from any person or
entity (including any of its or their officers or employees)
other than Wavetech relating to any liquidation, dissolution,
recapitalization, merger, consolidation or acquisition or
purchase of all or a material portion of the assets of, or any
equity interest in, the Company or any Subsidiary or other
similar transaction or business combination involving the Company
or any Subsidiary, or, unless the Company's Board of Directors
receives a written opinion from the Company's outside counsel
stating that there would be a material risk of liability on the
part of the members of the Company's Board of Directors to the
Company's shareholders for failure to do so, participate in any
discussions or negotiations regarding, or furnish to any other
person any information with respect to, or otherwise cooperate in
any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by, or consider, entertain or
accept any proposal or offer from, any other person or entity to
do or seek any of the foregoing. The Company shall promptly
notify Wavetech if any such proposal or offer, or any inquiry
from or contact with any person with respect thereto, is made and
shall promptly provide Wavetech with such information regarding
such proposal, offer, inquiry or contact as Wavetech may request.
5.7 Notification of Certain Matters
. Each party shall give prompt notice to each other party of (a)
the occurrence or failure to occur of any event, condition, fact
<PAGE>
or circumstance which occurrence or failure would be likely to
cause any representation or warranty on its part contained in
this Agreement to be untrue or inaccurate at, or at any time
prior to, the Effective Time, and (b) any material failure of
such party, or any officer, director, shareholder, employee or
agent thereof, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder.
5.8 Access to Information; Confidentiality
. (a) Wavetech and its attorneys, accountants, consultants and
representatives shall continue to have access to the books and
records of the Company and such other information pertaining to
the business and assets of the Company as Wavetech shall
reasonably request, and the Company and its attorneys,
accountants, consultants and representatives shall continue to
have access to the books and records of Wavetech and such other
information pertaining to the business and assets of Wavetech as
the Company shall reasonably request, and each of Wavetech and
the Company shall provide the other with reasonable access to its
officers and other personnel.
(b) Each party shall treat in confidence all
documents, materials, and other information which it has and
shall have obtained regarding the other party during the course
of the negotiations leading to the consummation of the
transactions contemplated by this Agreement (whether obtained
before or after the date of this Agreement) and the preparation
of this Agreement and other related documents. The obligation of
each party to treat such documents, materials and other
information in confidence shall not apply to any information
which (i) such party can demonstrate was already lawfully in its
possession prior to the disclosure thereof by the other party,
(ii) is known to the public and did not become so known through
any violation of a legal obligation, (iii) became known to the
public through no fault of such party, (iv) is later lawfully
acquired by such party from other sources, (v) is required to be
disclosed under the provisions of any Federal, state or local
statute or regulation issued by a duly authorized agency, board
or commission thereof, or (vi) is required to be disclosed by a
rule or order of any court of competent jurisdiction. Each party
agrees, if it breaches any of the terms of this Section 5.8(b),
it will consent to the issuance of a temporary and/or permanent
injunction by any court of competent jurisdiction enjoining such
party from continuing to breach the terms of this Section 5.8(b).
In the event that this Agreement shall be terminated for any
reason, the parties hereto shall, and shall cause their
respective officers, directors, employees and agents to, promptly
return any and all copies of all documents, materials and other
information which are confidential, proprietary or otherwise
<PAGE>
relate to a trade secret of the other party which was received in
connection with the negotiation of the transactions contemplated
by this Agreement.
5.9 Shareholder Claims
. The Company shall not settle or compromise any claim brought
by any present, former or purported holder or owner of any
securities of the Company in connection with the Merger without
the prior written consent of Wavetech.
5.10 Consents
. As promptly as practicable after the execution of this
Agreement, each party to this Agreement (a) shall make all
filings (if any) and give all notices (if any) required to be
made and given by such party in connection with the Merger and
the other transactions contemplated by this Agreement, and (b)
shall use all commercially reasonable efforts to obtain all
consents (if any) required to be obtained (pursuant to any
applicable law, regulation, contract or agreement, or otherwise)
by such party in connection with the Merger and the other
transactions contemplated by this Agreement. Wavetech shall (upon
request) promptly deliver to the Company a copy of each such
filing made, each such notice given and each such consent
obtained by Wavetech during the period subsequent to the date
hereof and prior to the Effective Time; and the Company shall
(upon request) promptly deliver to Wavetech a copy of each such
filing made, each such notice given and each such consent
obtained by the Company during the period subsequent to the date
hereof and prior to the Effective Time.
5.11 State Securities Law Compliance
. Wavetech shall use commercially reasonable efforts to (a)
qualify, prior to the Effective Time, the Wavetech Common Stock
to be issued pursuant to the Merger under state "blue sky" laws
of every jurisdiction of the United States in which (i) any
registered shareholder of the Company has an address on the
records of the Company as of the date of this agreement, and (ii)
an exemption from the qualification requirements under such laws
is unavailable with respect to the issuance of Wavetech Common
Stock in the Merger, and (b) qualify, prior to the Effective
Time, the Assumed Options and Assumed Warrants under the state
"blue sky" laws of every jurisdiction of the United States in
which (i) the records of the Company, as of the date of this
Agreement, indicate that a holder of such Assumed Options or
Assumed Warrants resides, and (ii) an exemption from the
qualification requirements under such laws is unavailable.
<PAGE>
5.12 Affiliate Agreements
. The Company shall use all commercially reasonable efforts to
cause each Company-Affiliated Person identified on Exhibit 4 (and
any other Person that Wavetech notifies the Company may
reasonably be deemed to be an "Affiliate" of the Company for
purposes of the Securities Act), to execute and deliver to
Wavetech, as promptly as practicable after the execution of this
Agreement, an Affiliate Agreement in the form of Exhibit 5, which
Affiliate Agreement shall include, specifically, but without
limitation, an agreement to vote such shares in favor of the
Merger and such other proposals to be voted upon at the Company
Shareholders' Meeting. Wavetech shall use all commercially
reasonable efforts to cause each Wavetech-Affiliated Person
listed on Exhibit 6 and each other Person that could reasonably
be deemed to be an "Affiliate" of Wavetech for purposes of the
Securities Act to execute and deliver to Wavetech, as promptly as
practical after execution of this Agreement, an Affiliate
Agreement in the form of Exhibit 5.
5.13 Commercially Reasonable Efforts
. During the Pre-Closing Period, (a) the Company shall use all
commercially reasonable efforts to cause the conditions set forth
in Sections 6.1 and 6.3 to be satisfied on a timely basis, and
(b) Wavetech shall use all commercially reasonable efforts to
cause the conditions set forth in Section 6.1 and 6.2 to be
satisfied on a timely basis.
5.14 Tax Matters
. Prior to the Closing, (a) Wavetech and the Company shall
execute and deliver to Squire, Sanders & Dempsey L.L.P.
Representation Certificates in substantially the forms of
Exhibits 7 and 8 (which shall be used in connection with any
legal opinion contemplated by this Agreement, and (b) each of the
Company-Affiliated Persons listed on Exhibit 5 shall execute and
deliver to Squire, Sanders & Dempsey L.L.P. a Shareholders'
Representation Certificate in the form of Exhibit 9.
5.15 Board of Directors
. Contemporaneously with the consummation of the Merger, persons
designated by the Company (the "Company Nominees") pursuant to
Section 1.5 shall be appointed to Wavetech's board of directors
to serve until the first annual meeting of shareholders of
Wavetech to occur following consummation of the Merger. The
Board of Directors of the Surviving Company shall agree, except
to the extent that they shall have a reasonable significant
objection at such time, to nominate and support the persons
<PAGE>
designated by Wavetech (the "Wavetech Nominees") pursuant to
Section 1.5 for election to the Surviving Corporation's board of
directors at the first annual meeting of shareholders of the
Surviving Corporation to occur following consummation of the
Merger. If the seat on the Surviving Corporation's board of
directors held by the Wavetech Nominees shall become vacant for
any reason during the period commencing upon consummation of the
Merger and ending on the date of the second annual meeting of
shareholders of the Surviving Corporation to occur following
consummation of the Merger, the Surviving Corporation's agrees,
except to the extent the Surviving Corporation shall have a
reasonable significant objection at such time, to appoint to the
Surviving Corporation's board of directors to serve the remaining
term of such Wavetech Nominees a person designated by the other
Wavetech Nominee.
5.16 Indemnification
.
(a)
The Articles of Incorporation and Bylaws of the Surviving
Corporation shall contain the same provisions with respect to
indemnification, advancement and director exculpation set forth
in the Articles of Incorporation and Bylaws of Wavetech on the
date of this Agreement, which provisions shall not be amended,
repealed or otherwise modified for a period of six (6) years
after the Effective Time in any manner that would adversely
affect the rights thereunder of persons who at any time prior to
the Effective Time were entitled to indemnification, advancement
or exculpation under the Articles of Incorporation or Bylaws of
Wavetech in respect of actions or omissions occurring at or prior
to the Effective Time.
(b)
From and after the Effective Time, the Surviving Corporation
shall indemnify, defend and hold harmless the present and former
officers, directors and employees of the Company (collectively,
the "Indemnified Parties") against all losses, expenses, claims,
damages, liabilities or amounts that are paid in settlement of
(with approval of Wavetech and the Surviving Corporation), or
otherwise in connection with, any claim, action, suit, proceeding
or investigation (a "Claim"), based in whole or in part on the
fact that such person is or was such a director, officer or
employee and arising out of actions or omissions occurring at or
prior to the Effective Time, in each case to the fullest extent
permitted under the Nevada law, (and shall pay expenses in
advance of the final disposition of any such action or proceeding
<PAGE>
to each Indemnified Party to the fullest extent permitted under
the Nevada law, upon receipt from the Indemnified Party to whom
expenses are advanced of the undertaking to repay such advances.
(c)
Any Indemnified Party wishing to claim indemnification under this
Section 5.18, upon learning of any such Claim, shall notify the
Surviving Corporation (although the failure so to notify the
Surviving Corporation shall not relieve the Surviving Corporation
from any liability that it may have under this Section 5.16,
except to the extent such failure materially prejudices such
party). Wavetech and the Surviving Corporation shall have the
right to assume the defense thereof and the Surviving
Corporation, including its affiliates, shall not be liable to
such Indemnified Parties for any legal expenses of other counsel
or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if
Wavetech and the Surviving Corporation elect not to assume such
defense or there is a conflict of interest between, or different
defenses exist for the Surviving Corporation and the Indemnified
Parties, the Indemnified Parties may retain counsel satisfactory
to them (and reasonably satisfactory to the Surviving
Corporation) and the Surviving Corporation shall pay all
reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; provided,
however, that (i) the Surviving Corporation, including its
affiliates, shall not, in connection with any one such action or
proceeding or separate but substantially similar actions or
proceedings arising out of the same general allegations, be
liable for the fees and expenses of more than one separate firm
of attorneys at any time for all Indemnified Parties except to
the extent that local counsel, in addition to such parties'
regular counsel, is necessary or desirable in order to
effectively defend against such action or proceeding, (ii) the
Surviving Corporation and the Indemnified Parties will cooperate
in the defense of any such matter, and (iii) the Surviving
Corporation, including its affiliates, shall not be liable for
any settlement effected without Wavetech's prior written consent,
which consent will not be unreasonably withheld or delayed, and
provided, further, however, that the Surviving Corporation,
including its affiliates, shall not have any obligation hereunder
to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination
shall have become final and not subject to further appeal, that
the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law. No
Indemnified Party shall consent to entry of judgment or enter
into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such
<PAGE>
Indemnified Party of a release, in form and substance reasonably
satisfactory to such Indemnified Party, from all liability in
respect of such claim or litigation for which such Indemnified
Party would be entitled to indemnification hereunder.
(d)
This Section 5.16 is intended to be for the benefit of, and shall
be enforceable by, the Indemnified Parties referred to herein,
their heirs and personal representatives and shall be binding on
the Surviving Corporation and their respective successors and
assigns.
5.17 Nasdaq Listing
. To the extent it is at the time eligible to do so, Wavetech
shall use all reasonable efforts to cause the shares of Wavetech
Common Stock to be issued in the Merger and the shares of
Wavetech Common Stock to be reserved for issuance under the
Assumed Options and the Assumed Warrants to be approved for
listing on the Nasdaq SmallCap Market, subject to official notice
of issuance, prior to the Closing Date. Notwithstanding anything
in this Agreement to the contrary, the de-listing of Wavetech
Common Stock subsequent to the date of this Agreement shall not
be deemed to be a breach of any representation, warranty or
covenant of Wavetech made in this Agreement and shall not be a
basis for the Company to terminate this Agreement.
5.18 Employees
. Following the Effective Time, the Surviving Corporation shall
honor in accordance with their terms all employee benefit plans
disclosed by the Company under the caption "Employee Benefit
Plans" under the DCI Disclosure Schedule, and all accrued
benefits vested thereunder. Wavetech agrees to provide, after
the Effective Time, or cause the Surviving Corporation to
provide, employees of the Company, not otherwise covered by
collective bargaining agreements, with employee benefits in the
aggregate substantially no less favorable than those benefits
provided to Wavetech's similarly situated employees for a period
ending on the second anniversary of the Effective Time.
ARTICLE VI
CONDITIONS
6.1 Conditions to Obligations of Each Party To Effect the
Merger
<PAGE>
The respective obligations of each party to effect the Merger
shall be subject to the fulfillment at or prior to the Effective
Time of the following conditions:
(a)
this Agreement (including without limitation the plan of merger
contained herein) and the Merger, and, in the case of Wavetech
only, the issuance of Wavetech Common Stock as a result of the
Merger, shall have been approved and adopted by the requisite
vote of the shareholders of Wavetech and the Company as may be
required by law, by the rules of the Nasdaq SmallCap Market, and
by any applicable provisions of their respective charter and
bylaws;
(b)
the Form S-4 shall have been declared effective by the SEC and no
order or other declaration suspending the effectiveness of the S-
4 shall have been issued or promulgated;
(c)
there shall not be threatened, instituted or pending any action
or proceeding, before any court or governmental authority or
agency, domestic or foreign, (i) challenging or seeking to make
illegal, or to delay or otherwise directly or indirectly to
restrain or prohibit, the consummation of the Merger, or seeking
to obtain material damages in connection with the Merger, (ii)
seeking to prohibit direct or indirect ownership or operation by
Wavetech of all or a material portion of the business or assets
of the Company and the Subsidiaries or of Wavetech and its
Subsidiaries, or to compel Wavetech or any of its Subsidiaries or
the Company or any of the Subsidiaries to dispose of or to hold
separately all or a material portion of the business or assets of
Wavetech and its subsidiaries or of the Company and the
Subsidiaries, as a result of the Merger, (iii) seeking to impose
or confirm limitations on the ability of Wavetech effectively to
exercise directly or indirectly full rights of ownership of any
shares of Company Common Stock on all matters properly presented
to the Company's shareholders, (iv) seeking to require direct or
indirect divestiture by Wavetech of any shares of Company Common
Stock or any shares of the Surviving Corporation to be issued in
the Merger, (v) seeking or causing any material diminution in the
direct or indirect benefits expected to be derived by Wavetech a
result of the transactions contemplated by this Agreement, (vi)
invalidating or rendering unenforceable any material provision of
this Agreement (including without limitation any of the exhibits
or attachments hereto), (vii) which otherwise might materially
adversely affect the Company and the Subsidiaries or Wavetech and
<PAGE>
its subsidiaries, or (viii) otherwise relating to the
transactions contemplated by this Agreement or the Merger;
(d)
there shall not have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the Nasdaq
SmallCap Market or the Nasdaq National Market, (ii) a declaration
of a banking moratorium or any suspension of payments in respect
of banks in the United States or any limitation by United States
authorities on the extension of credit by lending institutions,
(iii) a commencement of war, armed hostilities or other
international or national calamity directly or indirectly
involving the United States, (iv) any limitation by any
governmental authority on, or any other event which, in the sole
judgment of Wavetech, might affect the extension of credit by
banks or other lending institutions in the United States, or (v)
in the case of any of the foregoing existing at the date hereof,
a material acceleration or worsening thereof;
(e)
each of Wavetech, the Company and their respective Subsidiaries
shall have obtained each material consent and approval necessary
in order that the Merger and the transactions contemplated herein
not constitute a breach or violation of, or result in a right of
termination or acceleration or any encumbrance on any of their
respective assets pursuant to the provisions of, any agreement,
arrangement or understanding or any license, franchise or permit;
(f)
there shall have been no damage, destruction or loss of or to any
property or properties owned or used by the Company or any of the
Subsidiaries, whether or not covered by insurance, which in the
aggregate has a material adverse effect on the Company and the
Subsidiaries, taken as a whole;
(g)
the principal terms of this Agreement and the Merger shall have
been approved and adopted by the Company's shareholders in
accordance with all applicable laws and regulations and the
Company's Articles of Incorporation and By-Laws; and
(h)
no party hereto shall have terminated this Agreement as permitted
herein.
<PAGE>
6.2 Additional Conditions to Obligation of the Company
. The obligation of the Company to effect the Merger is also
subject to the following conditions:
(a)
the representations and warranties of Wavetech set forth in
Article 2 shall be true and correct in all material respects as
of the Effective Time as if made at and as of the Effective Time,
and Wavetech shall in all material respects have performed each
obligation and agreement and complied with each covenant to be
performed and complied with by it hereunder at or prior to the
Effective Time. A representation or warranty that is expressly
subject to a materiality limitation shall not be subject to a
further materiality limitation as a result of the use of the
phrase "in all material respects" in the preceding sentence;
(b)
Wavetech shall have furnished to the Company a certificate in
which Wavetech shall certify that Wavetech has no reason to
believe that the conditions set forth in Section 6.2(a) have not
been fulfilled;
(c)
Wavetech shall have furnished to the Company (i) a copy of the
text of the resolutions by which the corporate action on the part
of Wavetech necessary to approve this Agreement and the Merger
were taken, (iii) certificates executed on behalf of Wavetech by
its respective corporate secretary or assistant corporate
secretary certifying to the Company, in each case, that such copy
is a true, correct and complete copy of such resolutions and that
such resolutions were duly adopted and have not been amended or
rescinded, and (iii) an incumbency certificate executed on behalf
of Wavetech by its respective corporate secretary or assistant
corporate secretary certifying, in each case, the signature and
office of each officer executing this Agreement or any other
agreement, certificate or other instrument executed pursuant
hereto;
(d)
the Company shall have received a letter addressed to the Company
from Squire, Sanders & Dempsey L.L.P., based on customary
reliance and subject to customary qualifications, to the effect
that:
<PAGE>
(i)
Wavetech is a corporation validly existing and in good standing
under the laws of the State of Nevada.
(ii)
Wavetech has the corporate power to consummate the transactions
on its part contemplated by this Agreement. Wavetech has duly
taken all requisite corporate action to authorize this Agreement;
and this Agreement has been duly executed and delivered by
Wavetech and constitutes the valid and binding obligation of
Wavetech.
(iii)
The authorized capital of Wavetech consists of 50,000,000 shares
of capital stock, designated "Common Stock," having a par value
of $0.001 per share, of which the number of shares indicated in
such letter are outstanding, all of which were duly and validly
issued and are fully paid and non-assessable, and 10,000,000
shares of capital stock, designated "Preferred Stock," having a
par value of $.001 per share, of which the number of shares
indicated in such letter are outstanding, all of which were duly
and validly issued and are fully paid and non-assessable.
(iv)
Each of the Subsidiaries is a corporation validly existing and in
good standing under the laws of its jurisdiction of
incorporation.
(v)
Each of the Subsidiaries is a corporation validly existing and in
good standing under the laws of its jurisdiction of
incorporation.
(vi)
No actions are required to be taken in order to make the Merger
effective which have not been taken on or prior to the delivery
of such letter except the delivery of the articles of merger
contemplated in Section 1.3 to the Secretary of State of the
State of Nevada in accordance with Nevada Law; and
(e)
a letter from a qualified investment banking or financial
advisory firm confirming the fairness to the Company's
<PAGE>
shareholders from a financial point of view of the consideration
to be paid in the Merger (the form of which letter shall have
been received by the Company for inclusion in the Joint
Prospectus/Proxy Statement prior to the filing of the Joint
Prospectus/Proxy Statement with the SEC) shall have been
delivered to the Company's Board of Directors prior to the
Mailing Date and shall not have been subsequently withdrawn or
amended;
(f)
Wavetech's Closing Balance Sheet reflects aggregate cash and cash
equivalents of not less than One Million Six Hundred Thousand
($1,600,000) (without giving effect to the expenses payable by
Wavetech pursuant to Section 5.4); and
(g) The Reverse Stock Split shall have been effected.
6.3 Additional Conditions to Obligations of Wavetech
. The obligations of Wavetech to effect the Merger are also
subject to the following conditions:
(a)
the representations and warranties of the Company in this
Agreement shall be true and correct in all material respects as
of the Effective Time as if made at and as of the Effective Time,
and the Company shall in all material respects have performed
each obligation and agreement and complied with each covenant to
be performed and complied with by it hereunder at or prior to the
Effective Time. A representation or warranty that is expressly
subject to a materiality limitation shall not be subject to a
further materiality limitation as a result of the use of the
phrase "in all material respects" in the preceding sentence;
(b)
the Company shall have furnished to Wavetech a certificate in
which the Chief Executive Officer of the Company shall certify
that an appropriate inquiry has been made of the executive
officers and employees of the Company and the Subsidiaries having
principal responsibilities for the matters as to which
representations and warranties have been made by the Company in
this Agreement and for the performance of the covenants of the
Company set forth in this Agreement, and after completion of such
inquiry, neither the Company nor any of the Subsidiaries nor any
of the individuals executing such certificate has any reason to
believe that the conditions set forth in Section 6.3(a) have not
been fulfilled;
<PAGE>
(c)
the Company shall have furnished to Wavetech (i) a copy of the
text of the resolutions by which the board of Directors and
shareholders of the Company approved this Agreement (including,
without limitation, the plan of merger contained herein) and the
Merger; (ii) a certificate executed on behalf of the Company by
its corporate secretary certifying to Wavetech that such copy is
a true, correct and complete copy of such resolutions and that
such resolutions were duly adopted and have not been amended or
rescinded; and (iii) an incumbency certificate executed on behalf
of the Company by its corporate secretary certifying the
signature and office of each officer executing this Agreement or
any other agreement, certificate or other instrument executed
pursuant hereto;
(d)
Wavetech shall have received a letter addressed to Wavetech from
the law firm of Alfano & Baroff, based on customary reliance and
subject to customary qualifications, to the effect that:
(i)
The Company is a corporation validly existing and in good
standing under the laws of the State of Colorado.
(ii)
The authorized capital of the Company consists of 500,000,000
shares of capital stock, designated "Common Stock," having a par
value of $.0001 per share, of which the number of shares
indicated in such letter are outstanding, all of which were duly
and validly issued and are fully paid and non-assessable, and
5,000,000 shares of capital stock, designated "Preferred Stock,"
having a par value of $._____ per share, of which the number of
shares indicated in such letter are outstanding, all of which
were duly and validly issued and are fully paid and
non-assessable.
(iii)
Each of the Subsidiaries is a corporation validly existing and in
good standing under the laws of its jurisdiction of
incorporation.
(iv)
The Company owns all of the outstanding capital stock of each of
the Subsidiaries, free and clear of any lien, claim or
encumbrance.
<PAGE>
(v)
The Company has the corporate power to consummate the
transactions on its part contemplated by this Agreement; the
Company has duly taken all requisite corporate action to
authorize this Agreement and the articles of merger contemplated
in Section 1.3; and this Agreement and such articles of merger
have been duly executed and delivered by the Company and
constitute valid and binding obligations of the Company.
(vi)
No actions are required to be taken in order to make the Merger
effective which have not been taken on or prior to the delivery
of such letter except the delivery of the articles of merger
contemplated in Section 1.3 to the Secretary of State of the
State of Colorado in accordance with Colorado Law;
(e)
Wavetech shall have received a letter from Schnitzer & Kondub,
P.C., dated the date of the Effective Time "bringing down" to a
date not more than three days (excluding Saturdays, Sundays and
holidays) prior thereto the information specified in Section
5.3(b);
(f)
Wavetech shall not have discovered any fact or circumstance
existing as of the date of this Agreement which has not been
publicly disclosed by the Company as of the date of this
Agreement regarding the business, assets, properties, condition
(financial or otherwise), results of operations or prospects of
the Company and the Subsidiaries which is, individually or in the
aggregate with other such facts and circumstances, materially
adverse to the Company and the Subsidiaries taken as a whole, or
to the value of the shares of Company Common Stock; and
(g)
on the date of the Joint Proxy Statement/Prospectus the Board of
Directors of Wavetech shall have received from Wavetech's
financial advisor a written update, dated as of such date,
confirming the opinion referred to in Section 2.29 hereof.
<PAGE>
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination
. Subject to Section 7.4, this Agreement may be terminated prior
to the Effective Time:
(a)
by Wavetech if there has been a material breach by the Company of
any covenant or agreement of the Company set forth in this
Agreement or in any other agreement or instrument delivered to
Wavetech, which breach has not been cured within thirty (30) days
of the date on which written notice of such breach was first
given to the Company or which is not reasonably anticipated to be
cured by the Scheduled Closing Time;
(b)
by the Company if there has been a material breach by Wavetech of
any covenant or agreement of Wavetech in this Agreement, which
breach has not been cured within 30 days of the date on which
written notice of such breach was first given to Wavetech or
which is not reasonably anticipated to be cured by the Scheduled
Closing Time;
(c)
by Wavetech if Wavetech reasonably determines that the timely
satisfaction of any condition set forth in Section 6.1 or 6.3 by
the Scheduled Closing Time has become impossible (other than as a
result of any failure on the part of Wavetech to comply with or
perform any covenant or obligation of Wavetech set forth in this
Agreement);
(d)
by Wavetech at or after the Scheduled Closing Time if any
condition set forth in Section 6.1 or 6.3 has not been satisfied
by the Scheduled Closing Time (other than as a result of any
failure on the part of Wavetech to comply with or perform any
covenant or obligation of Wavetech set forth in this Agreement);
or
(e)
by Wavetech if the Closing has not taken place on or before the
Final Date (other than as a result of any failure on the part of
Wavetech to comply with or perform any covenant or obligation of
Wavetech set forth in this Agreement);
<PAGE>
(f)
by the Company if the Closing has not taken place on or before
the Final Date (other than as a failure on the part of the
Company or any of the Designated Persons to comply with or
perform any covenant or obligation set forth in this Agreement or
in any other agreement or instrument delivered to Wavetech);
(g)
by the Company if, on or prior to the end of the fifth business
day following receipt by the Company of the Wavetech Disclosure
Letter the Company delivers written notice to Wavetech that the
Wavetech Disclosure Letter discloses any material adverse change
that has occurred, that will or that would reasonably be expected
to result in a material adverse change in the consolidated
assets, financial condition, operating results, business
condition or prospects, or financing arrangements of Wavetech and
its Subsidiaries, taken as a whole, from that as reflected in
Wavetech's Latest 10-KSB and Wavetech's Latest 10-QSB.
(h) by Wavetech if, on or prior to the end of the fifth
business day following receipt by Wavetech of the DCI Disclosure
Letter, Wavetech delivers written notice to the Company that the
DCI Disclosure Letter discloses any material adverse change that
has occurred, that will or that would reasonably be expected to
result in a material adverse change in the consolidated assets,
financial condition, operating results, business condition or
prospects, or financing arrangements of the Company and its
Subsidiaries, taken as a whole, from that as reflected in the
Company's Latest 10-K and the Company's Latest 10-Q.
(i) by the mutual consent of Wavetech and the Company.
As used herein, the Final Date shall be August 31, 1999,
except that if a temporary, preliminary or permanent injunction
or other order by any Federal or state court that would prohibit
or otherwise restrain consummation of the Merger shall have been
issued and shall remain in effect on August 31, 1999, and such
injunction shall not have become final and nonappealable, either
party, by giving the other written notice thereof on or prior to
August 31, 1999, may extend the time for consummation of the
Merger up to and including the earlier of the date such
injunction shall become final and nonappealable or August 31,
1999, so long as such party shall, at its own expense, use its
best efforts to have such injunction dissolved.
<PAGE>
7.2 Termination Procedures
. If Wavetech wishes to terminate this Agreement pursuant to
Section 7.1(a), Section 7.1(c), Section 7.1(e) or Section 7.1(g),
Wavetech shall deliver to the Company a written notice stating
that Wavetech is terminating this Agreement and setting forth a
brief description of the basis on which Wavetech is terminating
this Agreement. If the Company wishes to terminate this
Agreement pursuant to Section 7.1(b), the Company shall deliver
to Wavetech a written notice stating that the Company is
terminating this Agreement and setting forth a brief description
of the basis on which the Company is terminating this Agreement.
7.3 Effect of Termination
. If this Agreement is terminated pursuant to Section 7.1, all
further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) neither the Company nor
Wavetech shall be relieved of any obligation or liability arising
from any prior breach by such party of any provision of this
Agreement or of any obligation or liability arising pursuant to
Section 7.4. If this Agreement is terminated pursuant to Section
7.1 as a result of the inaccuracy of any representation or
warranty of Wavetech set forth in Article 2 or the inaccuracy of
any representation or warranty of the Company set forth in
Article 3, the party making such inaccurate representation or
warranty shall be subject to liability for the termination of
this Agreement as a result thereof only if and to the extent that
any Responsible Officer (as defined below) of such party had
actual knowledge of such inaccuracy. For purposes hereof,
"Responsible Officer" of any party shall mean the chairman of the
board of directors, the chief executive officer, the chief
operating officer, the chief financial officer, any executive
vice president, the treasurer or the secretary of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Amendment
. This Agreement may not be amended except by an instrument in
writing approved by the parties to this Agreement and signed on
behalf of each of the parties hereto; provided, however, that,
after approval of the Merger by the shareholders of the Company
or Wavetech, no amendment may be made which changes the amount
into which each share of Company Common Stock will be converted
in the Merger or effects any change which would materially and
adversely affect the shareholders of the Company or Wavetech
without the further approval of the shareholders of the Company
or Wavetech, as the case may be.
<PAGE>
8.2 Waiver
. At any time prior to the Effective Time, any party hereto may
(a) extend the time for the performance of any of the obligations
or other acts of any other party hereto or (b) waive compliance
with any of the agreement of any other party or with any
conditions to its own obligations, in each case only to the
extent such obligations, agreements and conditions are intended
for its benefit. No failure on the part of any party hereto to
exercise any power, right, privilege or remedy under this
Agreement, and no delay on the part of any party hereto in
exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right,
privilege or remedy, and no single or partial exercise of any
such power, right, privilege or remedy shall preclude any other
or future exercise thereof or of any other power, right,
privilege or remedy. No party hereto shall be deemed to have
waived any claim arising out of this Agreement, or any power,
right, privilege or remedy under this Agreement, unless the
waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and
delivered on behalf of such party, and any such waiver shall not
be applicable or have any effect except in the specific instance
in which it was given.
8.3 Public Statements
. Except as required by applicable law, no party shall make any
public announcement or statement with respect to the Merger, this
Agreement or any related transaction without the approval of the
other party, which approval will not be unreasonably withheld or
delayed. Moreover, each party agrees to consult with the other
party prior to issuing any such public announcement or statement.
8.4 Notices
. All notices and other communications hereunder shall be in
writing and shall be sufficiently given if made by hand delivery,
by telex, by telecopier, or by registered or certified mail
(postage prepaid and return receipt requested) to the parties at
the following addresses (or at such other address for a party as
shall be specified by it by like notice):
If to Wavetech: Wavetech International, Inc.
5210 E. Williams Circle
Suite 200
Phoenix, Arizona 85711
Attn.: Gerald I. Quinn
<PAGE>
With a copy to: Squire, Sanders & Dempsey L.L.P.
40 N. Central Avenue, Suite 2700
Phoenix, Arizona 85004
Telecopy: (602) 253-8129
Attn: Christopher D. Johnson, Esq.
If to the Company or
the Surviving Corporation: DCI Telecommunications, Inc.
611 Access Road
Stratford, Connecticut 06497
Attn.: Joseph J. Murphy
With a copy to: Alfano & Baroff
814 Elm Street
Manchester, New Hampshire 03101
Attn.: Paul J. Alfano, Esq.
All such notices and other communications shall be deemed to
have been duly given: when delivered by hand, if personally
delivered; five business days after being deposited in the mail,
postage prepaid, if delivered by mail; when answered back, if
telexed; and when receipt acknowledged, if telecopied.
8.5 Interpretation
. When a reference is made in this Agreement to subsidiaries of
Wavetech, the word "subsidiary" means any "majority-owned
subsidiary" (as defined in Rule 12b-2 under the Exchange Act) of
Wavetech; provided, however, that the Company shall in no event
and at no time be considered a subsidiary of Wavetech for
purposes of this Agreement. The headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
References to Sections and Articles refer to sections and
articles of this Agreement unless otherwise stated. Words such
as "herein," "hereinafter," "hereof," "hereto," "hereby" and
"hereunder," and words of like import, unless the context
requires otherwise, refer to this Agreement (including the
exhibits and attachments hereto). As used in this Agreement, the
masculine, feminine and neuter genders shall be deemed to include
the others if the context requires.
8.6 Severability
. If term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions,
covenants, and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired
or invalidated and the parties shall negotiate in good faith to
<PAGE>
modify this Agreement to preserve each party's anticipated
benefits under this Agreement.
8.7 Miscellaneous
. This Agreement (together with all other documents and
instruments referred to herein): (a) constitutes the entire
agreement, and supersedes all other prior agreements and
undertakings, both written and oral, among the parties, with
respect to the subject matter hereof; (b) is not intended to
confer upon any other person any rights or remedies hereunder;
(c) shall not be assigned by operation of law or otherwise,
except that Wavetech may assign all or any portion of their
rights under this Agreement to any wholly owned subsidiary, but
no such assignment shall relieve Wavetech of its obligations
hereunder, and except that this Agreement may be assigned by
operation of law to any corporation with or into which Wavetech
may be merged; and (d) shall be governed in all respects,
including validity, interpretation and effect, by the internal
laws of the State of Arizona, without giving effect to the
principles of conflict of laws thereof. This Agreement may be
executed in two or more counterparts which together shall
constitute a single agreement.
8.8 Non-survival of Representations and Warranties
. The representations and warranties of the parties set forth
herein shall terminate as of the Effective Time.
8.9 Entire Agreement; No Third Party Beneficiaries; Rights
of Ownership
. This Agreement (including the documents and the instruments
referred to herein) (a) constitutes the entire agreement among
the parties all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter
hereof, other than any confidentiality agreement previously
entered into among the parties, which should survive the
execution and delivery of this Agreement and (b) except as
provided in Sections 5.18 and 5.20, is not intended to confer
upon any person other than the parties hereto any rights or
remedies hereunder. The parties acknowledge that no party shall
have the right to acquire or shall be deemed to have acquired
shares of common stock of the other party pursuant to the Merger
until consummation thereof.
[Remainder of Page Intentionally Left Blank.]
<PAGE>
MERGER AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, Wavetech and the Company have caused
this Agreement to be executed on the date first written above by
their respective officers thereunder duly authorized.
WAVETECH INTERNATIONAL, INC.
By:
Name:
Title:
DCI TELECOMMUNICATIONS, INC.
By:
Name:
Title:
<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 16, 1998
