EXHIBIT 2
MERGER AGREEMENT
by and between
WAVETECH INTERNATIONAL, INC.
AND
DCI TELECOMMUNICATIONS, INC.
Dated November 6, 1998
TABLE OF CONTENTS
Page
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ARTICLE I THE MERGER
1.1 The Merger............................................................. 1
1.2 Effect of the Merger................................................... 1
1.3 Consummation of the Merger............................................. 2
1.4 Articles of Incorporation and Bylaws; Officers......................... 2
1.5 Other Agreements....................................................... 2
1.6 Conversion of Securities............................................... 3
1.7 Closing of Company Transfer Books...................................... 4
1.8 Exchange of Certificates............................................... 4
1.9 Dissenting Shares...................................................... 5
1.10 Tax Consequences; Accounting Treatment................................. 5
1.11 Taking of Necessary Action; Further Action............................. 5
1.12 Employee Stock Options................................................. 6
1.13 Warrants............................................................... 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF WAVETECH
2.1 Organization and Qualification......................................... 8
2.2 Authority Relative to this Agreement................................... 8
2.3 Capitalization......................................................... 9
2.4 SEC Filings............................................................10
2.5 Financial Statements...................................................11
2.6 Subsidiaries...........................................................11
2.7 Absence of Undisclosed Liabilities.....................................11
2.8 No Material Adverse Changes............................................12
2.9 Absence of Certain Developments........................................12
2.10 Title to Properties....................................................14
2.11 Accounts Receivable....................................................15
2.12 Inventories............................................................15
2.13 Tax Matters............................................................16
2.14 Contracts and Commitments..............................................17
2.15 Proprietary Rights.....................................................18
2.16 Litigation.............................................................19
2.17 Brokerage..............................................................19
2.18 Employment Matters.....................................................19
2.19 Employee Benefit Plans.................................................19
2.20 Insurance..............................................................21
2.21 Affiliate Transactions.................................................21
2.22 Suppliers..............................................................22
2.23 Officers and Directors; Bank Accounts..................................22
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2.24 Compliance with Laws; Permits; Certain Operations......................22
2.25 Disclosure.............................................................22
2.26 Non-Contravention; Consents............................................23
2.27 Stockholder Vote Required..............................................24
2.28 Board Approval.........................................................24
2.29 Opinion of Financial Advisor...........................................24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Organization and Qualification.........................................24
3.2 Authority Relative to this Agreement...................................25
3.3 Capitalization.........................................................25
3.4 SEC Filings............................................................27
3.5 Financial Statements...................................................27
3.6 Subsidiaries...........................................................28
3.7 Absence of Undisclosed Liabilities.....................................28
3.8 No Material Adverse Changes............................................28
3.9 Absence of Certain Developments........................................29
3.10 Title to Properties....................................................31
3.11 Accounts Receivable....................................................32
3.12 Inventories............................................................32
3.13 Tax Matters............................................................32
3.14 Contracts and Commitments..............................................33
3.15 Proprietary Rights.....................................................35
3.16 Litigation.............................................................35
3.17 Brokerage..............................................................36
3.18 Employment Matters.....................................................36
3.19 Employee Benefit Plans.................................................36
3.20 Insurance..............................................................37
3.21 Affiliate Transactions.................................................38
3.22 Suppliers..............................................................38
3.23 Officers and Directors; Bank Accounts..................................38
3.24 Compliance with Laws; Permits; Certain Operations......................38
3.25 Disclosure.............................................................39
3.26 Non-Contravention; Consents............................................39
3.27 Stockholder Vote Required..............................................40
3.28 Board Approval.........................................................40
ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business Pending the Merger.................................41
4.2 Delivery of Disclosure Letters.........................................41
4.3 Notification; Updates to Disclosure Schedule...........................42
4.4 Shareholder Approval...................................................42
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ARTICLE V ADDITIONAL AGREEMENTS
5.1 Joint Proxy Statement; Registration Statement..........................43
5.2 Shareholders' Meetings.................................................45
5.3 Accountant Comfort Letters.............................................45
5.4 Expenses...............................................................46
5.5 Additional Agreements..................................................47
5.6 No Negotiations, etc...................................................47
5.7 Notification of Certain Matters........................................47
5.8 Access to Information; Confidentiality.................................47
5.9 Shareholder Claims.....................................................48
5.10 Consents...............................................................48
5.11 State Securities Law Compliance........................................49
5.12 Affiliate Agreements...................................................49
5.13 Commercially Reasonable Efforts........................................49
5.14 Tax Matters............................................................49
5.15 Board of Directors.....................................................49
5.16 Indemnification........................................................50
5.17 Nasdaq Listing.........................................................51
5.18 Employees..............................................................51
ARTICLE VI CONDITIONS
6.1 Conditions to Obligations of Each Party To Effect the Merger...........52
6.2 Additional Conditions to Obligation of the Company.....................53
6.3 Additional Conditions to Obligations of Wavetech.......................55
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER
7.1 Termination............................................................56
7.2 Termination Procedures.................................................58
7.3 Effect of Termination..................................................58
ARTICLE VIII GENERAL PROVISIONS
8.1 Amendment..............................................................58
8.2 Waiver.................................................................59
8.3 Public Statements......................................................59
8.4 Notices................................................................59
8.5 Interpretation.........................................................60
8.6 Severability...........................................................60
8.7 Miscellaneous..........................................................60
8.8 Non-survival of Representations and Warranties.........................61
8.9 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership....61
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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
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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."
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.
(b) The officers of the Surviving Corporation from and after the
Effective Time shall be as follows: Xxxxxx X. Xxxxxx, President and Chief
Executive Officer; Xxxxx Xxxxxxxx, Vice President, Secretary, and Chief
Operating Officer; Xxxx X. Xxxxx, Vice President and Chief Marketing Officer;
Xxxxxxx X. Xxxxx, Vice President, Treasurer and Chief Financial Officer; Xxxxxx
X. Xxxxxx, Vice President of Strategic Planning; Xxxxxx Xxxxx, 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.
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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), 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).
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).
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(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 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
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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 (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
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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 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.
(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
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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 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"):
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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 my 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.
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.
8
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 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 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
9
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.
(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
10
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 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.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Wavetech nor any
Subsidiary has any obligations or liabilities (whether accrued, absolute,
11
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;
(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
12
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;
(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;
(n) made any loans or advances to, or guarantees for the benefit of,
any persons that aggregate in excess of $50,000;
13
(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
(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
14
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 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 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.
15
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
Section 341(f) of the Code to have the provisions of Section 341(f) apply to any
disposition of assets of Wavetech or any Subsidiary, (ii) has agreed, or is
required, to make any adjustment under Section 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 Section 168(f) of the Code or as tax-exempt
bond financed property or tax-exempt use property within the meaning of Section
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 Wavetech nor any Subsidiary is or has ever been an
includible corporation in an affiliated group of corporations, within the
meaning of Section 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 Section 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;
16
(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. Section 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
(i) There exists no excess loss account (as such item is defined in
Treas. Reg. Section 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) 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)
17
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 Wavetec 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' 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 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.
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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
(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
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.
19
(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.
(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)
20
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.
(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). For purposes of
21
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 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
22
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):
(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).
23
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 "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 m 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
24
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 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.
25
(b) The Company has reserved 10,000,000 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 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.
(f) Except as set forth in the DCI Disclosure Letter under the
caption "Registration Rights," the Company is not under any obligation to
26
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.
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.
27
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 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
28
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, 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 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);
29
(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 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
30
(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 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
31
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 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 Section 341(f) of the Code to have the provisions of Section 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 Section 481(a) of the Code by
32
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 Section 168(f) of the Code
or as tax-exempt bond financed property or tax-exempt use property within the
meaning of Section 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 Section 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 Section 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. Section 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
(i) There exists no excess loss account (as such item is defined in
Treas. Reg. Section 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)
33
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; (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 Compan 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
34
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 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
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.
35
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.
(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).
36
(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.
(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.
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
37
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.
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
38
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.
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;
39
(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.
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.
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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.
(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.
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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;
(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 to the effect that the Company's board of directors has recommended
42
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.
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
43
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 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
44
statement in any earlier communication with respect to the solicitation of
proxies for the Wavetech Shareholders' 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 & 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
45
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
(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
46
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
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the
"Xxxx-Xxxxx 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 Xxxx-Xxxxx 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 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
47
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 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.
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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.
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, Xxxxxxx & Xxxxxxx 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, Xxxxxxx & Xxxxxxx 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 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
49
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 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
50
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
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.
51
ARTICLE VI
CONDITIONS
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. 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 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
52
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.
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
53
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, Xxxxxxx & Xxxxxxx L.L.P., based on customary reliance and subject
to customary qualifications, to the effect that:
(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 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
54
(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;
(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 Xxxxxx & Xxxxxx, 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 $.0001 per share, of which the number
55
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.
(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.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. Subject to Section 7.4, this Agreement may be terminated
prior to the Effective Time:
56
(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);
(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,
57
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.
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
58
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.
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.
0000 X. Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attn.: Xxxxxx X. Xxxxx
With a copy to: Squire, Xxxxxxx & Xxxxxxx L.L.P.
00 X. Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Telecopy: (000) 000-0000
Attn: Xxxxxxxxxxx X. Xxxxxxx, Esq.
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If to the Company or
the Surviving Corporation: DCI Telecommunications, Inc.
000 Xxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxxx 00000
Attn.: Xxxxxx X. Xxxxxx
With a copy to: Xxxxxx & Xxxxxx
000 Xxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxxxxxxx 00000
Attn.: Xxxx X. Xxxxxx, 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 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
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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.]
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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: /s/ Xxxxxx X. Xxxxx
-------------------------------------
Name: Xxxxxx X. Xxxxx
-----------------------------------
Title: President & CEO
----------------------------------
DCI TELECOMMUNICATIONS, INC.
By: /s/ Xxxxxx X. Xxxxxx
-------------------------------------
Name: Xxxxxx X. Xxxxxx
-----------------------------------
Title: President; CEO
----------------------------------
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