<PAGE> 1
Preliminary Information Statement
Dated: September 19, 1996
HI, TIGER INTERNATIONAL, INC.
350 West 300 South
Salt Lake City, Utah 84101
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER __, 1996
TO THE SHAREHOLDERS OF HI, TIGER INTERNATIONAL, INC.:
A special meeting of the shareholders (the "Special Meeting") of Hi,
Tiger International, Inc. (the "Company"), will be held at the Company's
offices located at 350 West 300 South, Suite 201, Salt Lake City, Utah, on
October __, 1996, at 10:00 a.m., Mountain Time, to consider and vote on a
proposal (the "Merger Proposal") to authorize and approve the Acquisition
Agreement entered into between the Company and AvTel Communications, Inc.
("AvTel"), that provides for:
1. All the shares of AvTel Common Stock and all the shares of AvTel
Series A Preferred Stock to be exchanged for 4,171,845 shares of the Company's
Common Stock and 1,000,000 shares of newly authorized shares of the Company's
Series A Convertible Preferred Stock, which after giving effect to the share
exchange, the holders of AvTel Common Stock will own a controlling interest in
the issued and outstanding Common Stock of the Company;
2. Adopting Amended and Restated Articles of Incorporation providing
for (i) changing the name of the Company to "AvTel, Inc."; (ii) authorizing
5,000,000 shares of Preferred Stock; (iii) providing for the designation of
1,000,000 shares of Series A Convertible Preferred Stock; and (iv) eliminating
the liability of officers, directors, employees and agents of the Company for
monetary damage arising from breaches of their fiduciary duties to the maximum
extent permitted under the Utah Revised Business Corporation Act;
3. Adopting Amended and Restated Bylaws of the Corporation; and
4. Electing Anthony E. Papa, James P. Pisani and Barry Peters, nominees
of AvTel, as directors of the Company, to serve until the next annual meeting
of shareholders or until their successors are duly elected and qualified.
The approval of the Merger Proposal by the Shareholders will constitute
approval of each of the foregoing.
At the Special Meeting the shareholders will also transact such other
business as may properly come before the Special Meeting or any adjournment
thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE MERGER PROPOSAL
WHICH IS DESCRIBED IN MORE DETAIL IN THE ACCOMPANYING INFORMATION STATEMENT.
<PAGE>
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ONLY SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON SEPTEMBER 3,
1996 (THE "RECORD DATE"), ARE ENTITLED TO NOTICE OF AND TO VOTE AT THE SPECIAL
MEETING. MEMBERS OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS WHO, COLLECTIVELY
HOLD IN EXCESS OF 50% OF THE COMPANY'S ISSUED AND OUTSTANDING SHARES HAVE
INDICATED THEIR INTENTION TO VOTE IN FAVOR OF THE MERGER PROPOSAL. AS A
RESULT, THE MERGER PROPOSAL WILL BE APPROVED WITHOUT THE AFFIRMATIVE VOTE OF
ANY OTHER SHAREHOLDER. ALTHOUGH MANAGEMENT IS NOT ASKING FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY, SHAREHOLDERS MAY BE PRESENT AT THE
SPECIAL MEETING AND VOTE THEIR SHARES IN PERSON OR BY PROXY. MANAGEMENT DOES,
HOWEVER, ENCOURAGE ALL SHAREHOLDERS TO ATTEND THE SPECIAL MEETING IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
/S/Paul G. Begum, President
Salt Lake City, Utah
<PAGE>
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HI, TIGER INTERNATIONAL, INC.
350 West 300 South
Salt Lake City, Utah 84101
INFORMATION STATEMENT
This Information Statement is furnished to the shareholders of the
Company in connection with a Special Meeting to be held on October __, 1996,
at 10:00 a.m., Mountain Time, at the Company's offices located at 350 West 300
South, Suite 201, Salt Lake City, Utah, and at any adjournment(s) thereof.
At the Special Meeting, the shareholders will consider and vote on a
proposal (the "Merger Proposal") to authorize and approve the Acquisition
Agreement entered into between the Company and AvTel Communications, Inc., a
California corporation ("AvTel"), that provides for:
1. All the shares of AvTel Common Stock and all the shares of AvTel
Series A Preferred Stock to be exchanged for 4,171,845 shares of the Company's
Common Stock and 1,000,000 shares of newly authorized shares of the Company's
Series A Convertible Preferred Stock, which after giving effect to the share
exchange, the holders of AvTel Common Stock will own a controlling interest in
the issued and outstanding Common Stock of the Company;
2. Adopting Amended and Restated Articles of Incorporation providing
for (i) changing the name of the Company to "AvTel, Inc."; (ii) authorizing
5,000,000 shares of Preferred Stock; (iii) providing for the designation of
1,000,000 shares of Series A Convertible Preferred Stock; and (iv) eliminating
the liability of officers, directors, employees and agents of the Company for
monetary damage arising from breaches of their fiduciary duties to the maximum
extent permitted under the Utah Revised Business Corporation Act;
3. Adopting Amended and Restated Bylaws of the Corporation; and
4. Electing Anthony E. Papa, James P. Pisani and Barry Peters, nominees
of AvTel, as directors of the Company, to serve until the next annual meeting
of shareholders or until their successors are duly elected and qualified.
Approval of the Merger Proposal by the Shareholders will constitute
approval of each of the foregoing. At the Special Meeting the Shareholders
will also transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
MANAGEMENT IS NOT ASKING FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY, HOWEVER SHAREHOLDERS MAY BE PRESENT AT THE SPECIAL MEETING AND VOTE
THEIR SHARES IN PERSON OR BY PROXY. MANAGEMENT ENCOURAGE ALL SHAREHOLDERS TO
ATTEND THE SPECIAL MEETING IN PERSON.
THIS INFORMATION STATEMENT IS BEING MAILED ON OR ABOUT SEPTEMBER __, 1996 TO
ALL SHAREHOLDERS ENTITLED TO VOTE AT THE SPECIAL MEETING.
<PAGE> 4
Only holders of record of the 2,513,299 shares of Common Stock of the
Company outstanding as of September 3, 1996 (the "Record Date"), are entitled
to vote at the Special Meeting. Each shareholder has the right to one vote
for each share of the Company's common stock owned. Cumulative voting is not
provided for. Holders of more than 50% of the 2,513,299 shares issued and
outstanding must be represented at the Special Meeting to constitute a quorum
for conducting business. Approval of the proposals discussed above requires
the affirmative vote of a majority of the Company's issued and outstanding
shares of Common Stock.
The Company's officers, directors, and principal shareholders owning or
controlling, in the aggregate, greater than 50% of the issued and outstanding
shares of Common Stock on the Record Date have indicated their intention to
vote in favor of the Merger Proposal. Accordingly, the Merger Proposal will be
approved without the affirmative vote of any other shares.
<PAGE>
<PAGE> 5
THE MERGER PROPOSAL: APPROVAL OF THE ACQUISITION AGREEMENT
Terms of the Acquisition
- ------------------------
On August 30, 1996, The Company and AvTel entered into an Acquisition
Agreement, a copy of which is attached as Exhibit A to this Information
Statement (the "Acquisition Agreement"). The following discussion regarding
the terms of the Acquisition Agreement is subject to, and qualified in its
entirety by, the detailed provisions of the Acquisition Agreement and the
exhibits thereto.
Pursuant to the terms of the Acquisition Agreement, on the Effective
Date, as defined therein, all of the shares of AvTel Common Stock and all of
the shares of AvTel 8% Series A Preferred Stock then issued and outstanding
will be exchanged for 4,171,845 shares of common stock of the Company and
1,000,000 shares of preferred stock of the Company, respectively; and AvTel
will merge with and into a subsidiary established for the purpose of
facilitating the merger (the "Merger Subsidiary"), with AvTel being the
surviving entity. The merger of AvTel with and into Merger Subsidiary and the
exchange of the AvTel Common and Preferred stock are for the purpose of
effecting a "tax-free" reorganization pursuant to Section 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended.
AvTel will be merged with and into the Merger Subsidiary, the separate
corporate existence of Merger Subsidiary will cease and AvTel shall survive
the merger as the Surviving Corporation. The issued and outstanding shares of
common stock of AvTel (the "AvTel Common Stock"), shall be exchanged for
shares of the Company's common stock, par value $0.001 per share (the "Hi,
Tiger Exchanged Common Stock") and the issued and outstanding shares of Series
A Preferred Stock of AvTel, $1.00 par value per share (the "Series A
Preferred Stock"), shall be exchanged for newly authorized shares of Hi, Tiger
preferred stock, par value $1.00 per share, such shares having the rights,
preferences and privileges substantially the same as those set forth in the
Series A AvTel Preferred Stock (the "Hi, Tiger Exchanged Preferred Stock").
On the Effective Date each share of AvTel Common Stock outstanding shall
be converted into 1.0429612 shares of Hi, Tiger Exchanged Common Stock (the
"Exchange Ratio"), except that, any "Dissenting Shares" of AvTel Common Stock
shall receive payment from Hi, Tiger, upon the completion of the merger, in
accordance with the provisions of the California Corporations Code. The
Company will not issue any fractional shares or interests in the Hi, Tiger
Exchanged Common or Exchanged Preferred Stock in connection with the foregoing
conversion. If any holder of AvTel Common or Preferred Stock would otherwise
be entitled to a fractional share upon exchange thereof, the Company will
round the number of shares of Hi, Tiger Exchanged Common or Preferred Stock to
be issued to such stockholder to the nearest whole share.
After the Effective Date, each holder of shares of AvTel Common or Series
A Preferred Stock shall, upon the surrender of the certificate or certificates
representing such shares to the Company's registrar and transfer agent, be
entitled to receive a certificate or certificates evidencing shares of the Hi,
<PAGE> 6
Tiger Exchanged Common or Preferred Stock as in the Acquisition Agreement. On
the Effective Date, (i) each share of AvTel Common Stock issued and
outstanding immediately prior to the Effective Date will be canceled and
extinguished and automatically converted into the right to receive 1.0429612
shares of Hi, Tiger Exchanged Common Stock; and (ii) each share of AvTel
Series A Convertible Preferred Stock issued and outstanding immediately prior
to the Effective Date will be canceled and extinguished and automatically
converted into the right to receive one (1) share of Hi, Tiger Exchanged
Preferred Stock.
As a condition precedent to the consummation of the transactions
contemplated by the Acquisition Agreement, the shareholders of the Company are
to adopt and approve all required or necessary resolutions to adopt amended
and restated articles of incorporation that provide for the following:
(a) Changing the name of the Company to "AvTel, Inc.";
(b) Authorize 5,000,000 shares of preferred stock;
(c) Provide for the designation of 1,000,000 shares of 8% Series A
Convertible Preferred Stock with rights, preferences and privileges
substantially the same as those set forth in the AvTel Series A Convertible
Preferred Stock;
(d) Modify such other provisions of Hi, Tiger's Articles of
Incorporation as are requested by AvTel; and
(e) Eliminating the liability of officers, directors, employees and
agents of the Company for monetary damage arising from breaches of their
fiduciary duties to the maximum extent permitted under the Utah Revised
Business Corporation Act.
As further conditions to the transactions contemplated by the Acquisition
Agreement, the shareholders of the Company (i) adopt and approve amended and
restated Bylaws of the Company that include such revisions and modifications
requested by AvTel; and (ii) the election of Anthony E. Papa, James P. Pisani
and Barry Peters, nominees of AvTel to the Company's Board of Directors, to
replace the Company's current Board of Directors.
As soon as practicable following approval of the Merger Proposal by the
Company's shareholder, Certificates of Articles of Merger ("Certificates of
Merger") and such other documents as are required by the provisions of the
corporate statutes of the states of Utah and California to complete the merger
of AvTel and Merger Subsidiary are to be filed with the Secretaries of State
of Utah and California and a Designation of Determination with respect to the
Rights, Privileges, and Preferences of the Hi, Tiger Series A Convertible
Preferred Stock is to be filed with the Secretary of State of Utah. The
"Effective Date" of the merger shall be the date the filing of such
Certificates of Merger and other documents shall become effective.
<PAGE> 7
On the Effective Date of the merger, Merger Subsidiary shall cease to
exist separately, and Merger Subsidiary shall be merged with and into AvTel,
with AvTel being the surviving corporation, in accordance with the provisions
of the Acquisition Agreement, and the Certificates of Merger, and in
accordance with the provisions of and with the effect provided in the
corporation laws of the states of Utah and California.
A. Name Change
-----------
In connection with the acquisition of AvTel, the Company desires to
change the name of the Company to AvTel or such derivation thereof, as may be
acceptable to the Board of Directors available for use in the state of Utah
and the jurisdictions in which the activities of the Company would require the
Company to qualify to do business in those jurisdictions. Management of the
Company believes that the new name will reflect the Company's activities
following the acquisition.
B. Authorization of Preferred Stock and Designation of Series A Convertible
------------------------------------------------------------------------
Preferred
---------
Authorization of Preferred Stock
- --------------------------------
Under the terms of the Acquisition Agreement, the Company has agreed to
issued 1,000,000 shares of Series A Convertible Preferred Stock to the holders
of 1,000,000 shares of AvTel Series A Preferred Stock. The Company's current
articles of incorporation do not provided for the authorization to issue
shares of preferred stock. The Company desires to amend its articles of
incorporation to provide for the authorization to issue up to 5,000,000 shares
of preferred stock and to authorize the Company's Board of Directors to
designate, from time to time, series or classes of such preferred stock, the
number of shares comprising each series or class of preferred stock and the
rights, preferences and privileges of each series or class of preferred stock.
In connection with the Acquisition Agreement, the Board of Directors will
authorize and cause to be issued to the AvTel holders of the AvTel Series A
Preferred Stock, 1,000,000 shares of the Company's Series A Convertible
Preferred Stock, par value $1.00 per share, with rights, preferences and
privileges substantially the same as those set forth in the AvTel Series A
Preferred Stock.
The following description of the Company's Series A Convertible Preferred
Stock is subject to and is qualified in its entirety by, the detailed
provisions of the Designation of Rights, Privileges and Preferences of the
Series A Convertible Preferred Stock, a copy of which is included as Exhibit B
to this Information Statement.
<PAGE> 8
The holders of the Series A Convertible Preferred Stock shall be entitled
to receive cumulative dividends at the rate of eight percent (8.0%) of the par
value of the Series A Convertible Preferred Stock per annum per share. Such
dividends accrue from the issuance date whether or not earned so that no
dividends (other than those payable solely in Common Stock) shall be made with
respect to junior shares until cumulative dividends on the Series A
Convertible Preferred Stock for all past dividend periods and for the then
current six-month dividend period shall have been declared and paid or set
apart. The holders of at least 50% of the Series A Convertible Preferred
Stock may at any time by written consent waive payment of any accumulated but
unpaid dividends or eliminate any requirement to declare, pay, set apart or
accumulate any dividends. No dividend or other distribution (other than those
payable solely in Common Stock) shall be declared or paid with respect to
junior shares while any shares of Series A Convertible Preferred Stock are
outstanding without the vote or written consent by the holders of at least 50%
of the outstanding shares of Series A Convertible Preferred Stock.
In the event of any liquidation, dissolution or winding up of the
Company, the holders of the Series A Convertible Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Company to the holders of junior shares by
reason of their ownership of such stock, a liquidation preference of $1.00 for
each share of Series A Convertible Preferred Stock then held by them and, in
addition, all declared but unpaid dividends. If the assets and funds
distributed among the holders of the Series A Convertible Preferred Stock are
insufficient to permit the payment of the aggregate liquidation preference,
then the entire assets and funds of the Company available for distribution
shall be distributed among the holders of the Series A Convertible Preferred
Stock, pro rata according to the number of shares held by each such holder.
After payment to the holders of Series A Convertible Preferred Stock of the
liquidation preference the balance of the assets and funds of the Corporation,
if any, shall be distributed among the holders of the junior shares.
The Company may redeem all or any part of the outstanding Series A
Convertible Preferred Stock after the second anniversary of the issuance date.
Any redemption shall be made on a pro-rata basis in proportion to the shares
of Series A Convertible Preferred Stock then held by them. The Company may,
after the first anniversary of the issuance date, redeem all or any part, but
if less than all, not less than 25%, of the outstanding Series A Convertible
Preferred Stock immediately following any period of twenty (20) consecutive
trading days on which the current market price of the Company's Common Stock
is $2.00 per share or more. The Company may redeem shares of Series A
Convertible Preferred Stock for $1.00 per share.
Each share of Series A Convertible Preferred Stock shall be convertible,
at the option of the holder at any time after the first anniversary of the
issuance date, into one fully paid and nonassessable share of the Company's
Common Stock. Each share of Series A Convertible Preferred Stock shall
automatically be converted into the number of fully paid and nonassessable
shares of Common Stock upon the closing of a public offering pursuant to an
effective registration statement under the Securities Act of 1933, covering
the offer and sale of Common Stock to the public at a public offering price
<PAGE> 9
(prior to underwriters' discounts and expenses) equal to or exceeding $10.00
per share of Common Stock and the proceeds to the Company of not less than $15
million. In the event of such public offering, the holders shall not be deemed
to have converted such Series A Convertible Preferred Stock until the date of
the closing of such sale of Common Stock. The conversion price of shares of
Series A Convertible Preferred Stock shall be the lower of $1.00 per share or
a price determined by multiplying .80 times the issue price per share of the
Common Stock issued in the public offering.
Further, the Board of Directors considers it desirable and in the best
interests of its shareholders to have the additional 4,000,000 shares of
authorized preferred stock available to provide the Company with increased
flexibility in structuring possible future capital infusions and acquisitions,
meeting other corporate needs which may arise and accommodating the future
expansion and strategic alliance opportunities consistent with AvTel's
business plans and objectives. (See "Business of AvTel.")
The ability of the Board of Directors to issue preferred stock with
voting or other rights which might impede or discourage a takeover attempt may
make the Company a less attractive takeover candidate and deter takeover
attempts not approved by the board in which shareholders might receive for
some or all of their shares a substantial premium above market value at the
time the take over bid is made. However, the existence of these voting or
other rights in any series or class of preferred stock authorized by the Board
of Directors may also act to provide the Board of Directors with an
opportunity, in the face of a takeover attempt, to solicit competing offers or
pursue alternative strategies that would, under the circumstances, be more
advantageous to the shareholders.
Additionally, issuance of the preferred stock could result in a class of
securities outstanding that will have certain preferences with respect to
dividends and in liquidation over the Common Stock and may enjoy certain
voting rights, contingent or otherwise, in addition to that of the Common
Stock, and could result in the dilution of the voting rights, net income per
share, and net book value of the Common Stock. Issuance of additional Common
Stock pursuant to conversion rights may also result in dilution to the voting
right, net income per share, and net book value of the common stock.
C. Elimination of Officer and Director Liability
---------------------------------------------
Subsequent to the Company's incorporation, the state of Utah enacted a
statute limiting the liability of officers and directors of the Company and
its shareholders in certain circumstances. Management has determined that it
would be advantageous for the Company to amend its Articles of incorporation
to include the protections provided to officers and directors of the Company
pursuant to Section 16-10a-841 of the Utah Revised Business Corporation Act.
<PAGE 10>
The amendment to the Articles of Incorporation would eliminate the
personal liability of a director to the Company or its shareholders for
monetary damages for any action taken or any failure to take any action, as a
director, except liability for (a) the amount of a financial benefit received
by a director to which he is not entitled; (b) an intentional infliction of
harm on the corporation or the shareholders; (c) an unlawful distribution; or
(d) an intentional violation of a criminal law.
The Company is not aware of any pending or threatened claims which would
be covered by the proposed amendment to the Articles of Incorporation. It
should be noted that the provisions eliminating liability of directors limit
the remedies available to a shareholder dissatisfied with a broad decision
which is protected by the provision. An aggrieved shareholder's only remedy
in such a circumstance is to sue to stop the completion of the board's action.
In many situations, this remedy may not be effective. Shareholders, for
example, may not be aware of a transaction or an event until it is too late to
prevent it. In these cases, the shareholders and the Company could be injured
by a careless board decision and yet have no effective remedy.
Management believes that limiting director's liability is in the best
interest of the shareholders and the Company, as it should enhance the
Company's ability to attract and retain qualified individuals to serve as
directors of the Company by assuring directors ( and potential directors) that
their good faith decisions will not be second-guessed by a court evaluating
decisions with the benefit of hindsight. This is particularly applicable,
management believes, in the recruitment of outside directors who are not
employees of the Company and who may, therefore, bring additional objectivity
and experience to the Board of Directors. Management believes that the
diligence exercised by directors stems primarily from their desire to act in
the best interest of the Company and not from a fear of monetary damage
awards. Consequently, management believes that the level of scrutiny and care
exercised by directors will not be lessened by this provision of the Articles
of Incorporation.
The Company would also like to amend its Articles of Incorporation to
provide for written consent of its shareholders. Since the Company was
formed, the Utah Revised Business Corporation Act has been amended to provide
that any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if one
or more consents, in writing, setting forth the action taken, is signed by the
holders of the outstanding shares having not less than the minimum number of
votes that would be required to authorize or take the action at a meeting at
which all shares entitled to vote thereon were present and voted.
Further, unless the written consents of all shareholders entitled to vote
have been obtained, notice of any shareholder approval without a meeting shall
be given at least ten (10) days before the consummation of the action
authorized by the approval to: (i) those shareholders entitled to vote who
have not consented in writing; and (ii) those shareholders not entitled to
vote and to whom the Utah Revised Business Corporation Act requires notice to
be given.
<PAGE> 11
Notwithstanding the provisions discussed above, directors may not be
elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors.
The Company feels this provision will provide the Company more
flexibility and may save time and money by eliminating the need for a proxy
statement in the future. Although adopting the provision that provides for
the written majority consent of shareholders for certain actions taken without
a meeting could save time and money for the Company, it could also result in
shareholders effectively losing their ability to voice their concern at a
meeting of shareholders on an issue. This may or may not result in the
shareholders effectively losing their voting ability as it will still require
a majority of shareholders to approve any action.
If the acquisition of AvTel is accomplished, AvTel's shareholders will
own well over a majority of the issued and outstanding shares of Common Stock
of the Company effectively giving them control over all action requiring
shareholder vote. However, the exercise of such control by AvTel's
shareholders will be subject to certain restrictions including (a) the
statutory provisions referenced above requiring notice to shareholders and
unanimous written consent as to the election of directors, and (b) general
common law principles which, under certain circumstances, may impose certain
fiduciary duties on majority shareholders.
The foregoing discussion is subject to and qualified in its entirety by
the detailed provisions of the Amended and Restated Articles of Incorporation
of the Company, a copy of which is included as Exhibit C to this Information
Statement and Section 16-10a-704 of the Utah Revised Business Corporation Act.
D. Adoption of Amended and Restated Bylaws
---------------------------------------
In connection with the Merger Proposal, it is proposed that the Company
adopt amended and restated bylaws that will thereafter govern the corporate
affairs of the Company. Management believes that there are no material
differences between the bylaws of the Company as they are now constituted and
the proposed amended and restated bylaws. Copies of the current bylaws and
the proposed bylaws may be obtained by written request addressed to the
Company.
<PAGE> 12
E. Election of Board of Directors
------------------------------
The names of the Company's current executive officers and directors and
the positions held by each of them are set forth below:
Position with Director and/or
Name Age the Company Officer Since
- -------------------- --- --------------------- ------------------
Paul G. Begum 57 President and Chairman
of the Board October 1981
Kent D. Poole 50 Director March 1995
Scott W. Hunt 38 Director January 1994
Stacie Anderson 22 Secretary January 1994
The Company's officers and directors have served in such positions since
the dates indicated above. Such persons will not stand for re-election at the
Special Meeting. In connection with the proposed acquisition of AvTel,
Anthony E. Papa, James P. Pisani and Barry Peters, the directors of AvTel,
have been nominated for election as directors of the Company. Certain
biographical information with respect to each of such persons is set forth
herein below. Each director, if elected by the shareholders, will serve until
the next annual meeting and until his successor is duly elected and qualified.
Anthony E. Papa, age 34, is President and Chief Executive Officer of
AvTel. Mr. Papa is also one of the founders and a principal shareholder of
AvTel. Before commencing his efforts to form AvTel, Mr. Papa had served as
President of ICS Communications, Inc.("ICS") Richardson, Texas, a national
provider of cable television, wireless paging, local and long-distance
telephone services from December 1992 to March 1995. Before joining ICS, Mr.
Papa served as general manager for Spectradyne, Inc., the largest provider of
pay-per-view entertainment and interactive services to the hospitality
industry.
James P. Pisani, age 32, is Executive Vice-President, Chief Operating
Officer, Chief Financial Officer and Secretary of AvTel. Mr. Pisani is also
one of the founders of AvTel and, prior to founding AvTel served as Vice
President of Sales for ICS. While at ICS, Mr. Pisani was responsible for that
firm's business-to-business and consumer sales activities. Prior to joining
ICS, from June 1989 to June 1994, Mr. Pisani served as Vice-President of a
national mortgage banking firm serving, primarily, institutional accounts.
Mr. Pisani graduated from Princeton University in 1986, with a degree in
Economics.
<PAGE> 13
Barry Peters, age 35, is a director of AvTel, and is also one of its
principal shareholders. He is currently employed by You-Bet Corporation, as
Chief Financial Officer. Prior to joining You-Bet Corporation in 1995, Mr.
Peters was from March 1993 to February 1996, employed by ICS in various
financial capacities, including Chief Financial Officer. Prior to joining ICS,
Mr. Peters served for over two years as Financial Director of Field Operations
at Spectradyne, Inc. and, before joining Spectradyne, he had served as an
international consultant for a number of large technology companies. Mr.
Peters is a certified public accountant and is a certified management
accountant.
Set forth below is biographical information on each of the current directors
of the Company.
Paul G. Begum, age 57, has for the past five years been the President and
Chairman of the Board of Directors of the Company and President and Chief
Executive Officer of Klever Marketing, Inc., Salt Lake City, Utah.
Kent Poole, age 50, has for the past five years been the owner of
Mountain West Enterprises, Inc., Sandy, Utah, a multi-line manufacturers
representative specializing in ergonomics and loss prevention.
Scott W. Hunt, age 38, has since 1992 been employed by Enviro-Guard
Corporation, Salt Lake City, Utah, a manufacturer and distributor of
insecticides. Mr. Hunt is responsible for product design and development and
implementation of sales programs for both over-the-counter and commercial
markets. From 1986 to 1992, Mr. Hunt was co-owner of Western Pacific Media &
Marketing.
Dissenters' Rights
- ------------------
Although it is unclear whether shareholders have dissenters' rights in
Utah as a result of the proposed acquisition, the Company will offer
dissenters' rights to its shareholder. Shareholders who oppose the Merger
Proposal acquisition will have the right to receive payment for the value of
their shares as set forth in sections 16-10(a)-1301 et.seq. of the Utah
Revised Business Corporation Act. A copy of these sections is attached hereto
as Exhibit D to this Information Statement. The requirements for a
shareholder to properly exercise his or her rights under these provisions are
very technical in nature, and the following summary is qualified in its
entirety by the actual statutory provisions which should be carefully reviewed
by any shareholder wishing to assert such rights.
Under the Utah statutes, such dissenter's rights will be available only
to those shareholders of the Company who (i) object to the acquisition in
writing prior to or at the Special Meeting (a negative vote will not itself
constitute such a written objection); (ii) vote against the Merger Proposal at
the Special Meeting; (iii) file a written demand with the Company prior to the
Special Meeting requesting payment of the fair value of the shares of which
they hold; and (iv) meet the other requirements of the governing Utah
statutes.
<PAGE> 14
Within ten days after the effective date of the acquisition, the Company
must send to each shareholder who has satisfied all of the foregoing
conditions a written notice in which the Company must offer to pay dissenting
shareholders for their shares at a price deemed by the Company to be the fair
value of such shares and supply a form for dissenting shareholders to demand
payment. Shareholders will have sixty days to make their payment demands or
lose such rights. If the fair value of the shares is agreed on between the
dissenting shareholders and the Company within 60 days after the effective
date of the acquisition, the Company must make payment within 60 days after
the effective date on surrender of the certificates representing such shares.
If the dissenting shareholders of the Company do not agree on the fair
value of the shares within the 60 day period, then within 60 days after
receipt of written demand from any dissenting shareholders, the Company shall
initiate a judicial proceeding seeking determination of the fair value of such
shares. If the Company fails to institute such a proceeding, it must pay the
dissenting shareholders the amount demanded. All dissenting shareholders must
be a party to the proceeding, and all such shareholders will be entitled to
judgment against the Company for the amount of the fair value of their shares,
to be paid on surrender of the certificates representing such shares. The
judgment will include an allowance for interest (at a rate determined by the
court) from the date on which the vote was taken on the merger to the date of
payment.
Within 20 days after demanding payment, whether or not a judicial
proceeding is instituted, each shareholder demanding payment must submit the
certificates representing his or her shares to the Company for notation
thereon that such demand has been made. Failure to do so will permit the
Company to terminate the shareholder's valuation rights under the Utah statute
unless a court should otherwise direct.
The loss or forfeiture of appraisal rights simply means the loss of the
right to receive a cash payment from the Company in exchange for shares; in
such event the shareholder would still hold the appropriate number of shares
of the Utah Corporation.
In the event that shareholders holding more than three percent (3%) of
the issued and outstanding common stock on the Record Date properly and timely
exercise their statutory dissenter's rights, AvTel may, at its election
terminate the Acquisition, in which case the merger would not become
effective.
Recommendation of Management
- ----------------------------
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE TRANSACTIONS
CONTEMPLATED BY THE ACQUISITION AGREEMENT ARE DESIRABLE AND IN THE BEST
INTERESTS OF THE COMPANY'S SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" THE MERGER PROPOSAL. MANAGEMENT BELIEVES THAT ITS
SHAREHOLDERS WILL BENEFIT THROUGH THE STRENGTH, EXPERIENCE AND KNOWLEDGE OF
AVTEL'S SENIOR EXECUTIVE MANAGEMENT IN THE TELECOMMUNICATIONS FIELD AND THE
CAPITAL RESOURCES AVAILABLE TO AVTEL. (SEE "BUSINESS OF AVTEL.")
<PAGE> 15
AvTel's management has presented the Company's management with a business
plan that is focused on emerging opportunities in the areas of video,
telephony and data transport. AvTel's management intends to aggressively
pursue related business ventures and therefore the Company's shareholders may
be able to benefit from any related increased market activity in the Company's
Common Stock. There are, however, no assurances that AvTel's management will
be able to implement this business plan, to conduct profitable operations or
find other profitable business ventures, or that the Company's shareholders
will benefit from increased market activity in the Company's Common Stock.
The Board of Directors of the Company has not obtained an independent opinion
or other evaluation regarding the fairness of the terms of the Agreement due
to the substantial costs in obtaining such an opinion or evaluation.
Accounting Treatment
- --------------------
The proposed acquisition of AvTel by the Company will be accounted for
under the purchase method of accounting for business combinations.
No Legal Opinions or Tax Rulings
- --------------------------------
The proposed acquisition of AvTel by the Company is intended to qualify
as a tax-free reorganization under the Internal Revenue Code of 1986. If the
acquisition qualifies as a tax-free reorganization, no gain or loss will be
recognized for income tax purposes by either the Company or AvTel as a result
of the acquisition. However, neither the Company nor AvTel has requested a
tax ruling from the Internal Revenue Service or an opinion of legal counsel
with respect to the acquisition. Accordingly, no assurance can be given that
the acquisition will qualify as a tax-free reorganization.
The shares of the Hi, Tiger Exchanged Common Stock and Exchanged
Preferred Stock to be issued to the AvTel shareholders will not be registered
under the Securities Act of 1933, as amended (the "Act") in reliance on the
exemptions from such registration requirements provided by Sections 3(b) and
4(2) of the Act for certain small offerings and for transactions not involving
any public offering. In order to claim the availability of such exemptions,
the AvTel shareholders will be required to make representations to the Company
with respect to their acquisition of the Company's shares, such shares will be
restricted securities, and the certificates will bear legends restricting
their subsequent resale in the absence of registration under the Securities
Act or the availability of an exemption therefrom.
In connection with the acquisition, the Company will enter into certain
"piggyback" and/or demand registration rights with respect to the Hi, Tiger
Exchanged Common Stock and the Exchanged Preferred Stock received by the AvTel
shareholders.
<PAGE> 16
Vote Required
- -------------
The vote of a majority of the issued and outstanding shares of Common
Stock represented in person or by proxy at the Special Meeting is required to
approve the Merger Proposal. Members of management and other principal
shareholders holding or controlling the vote of in excess of fifty percent
(50%) of the issued and outstanding stock entitled to vote at the Special
Meeting have indicated their intention to vote in favor of the Merger
Proposal. Principal shareholders owning in aggregate more than fifty percent
(50%) of the issued and outstanding stock entitled to vote at the Special
Meeting have provided the Company and the principal shareholders of AvTel with
an irrevocable proxy to vote their shares against any agreement or any
amendment to the Articles of Incorporation or Bylaws or other proposal or
transaction that would in any manner impede, frustrate, prevent or nullify the
transactions contemplated under the Acquisition Agreement and related
agreements. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THE MERGER PROPOSAL.
Business of the Company
- -----------------------
The Company provides through its majority-owned subsidiary, The Friendly
Net, a Utah limited liability company ("TFN"), Internet access and marketing
services to individuals and companies and is a full Internet Service Provider
(ISP) offering the complete range of Internet connectivity from subscription
dial-up SLIP/PPP (serial line Internet protocol/point to point protocol)
accounts through full T-1 (high speed digital data line) and World Wide Web
(WWW) page publishing. Currently, Internet access is provided through the
Company's Ethernet network via TCP/IP protocol (transmission control
protocol/Internet protocol). The network is implemented utilizing multiple
Unix SPARC Servers running Solaris. Wide-area connectivity is provided via
multiple T-1 connections employing both PPP and Frame Relay (a wide-area
networking protocol) implemented via Cisco (a leading manufacturer of network
routers which are used to route data packets between wide-area
networks)routers, CSU/DSU's (high speed digital modem) and fiber optic
cabling. Access to the Internet is provided primarily along the Wasatch Front
(the geographic region of Northern Utah that extends from Brigham City in the
north to Spanish Fork in the south) with the ability to provide service
regionally. Individual accounts are serviced through high speed dial-up
modems connected to network port servers. On-going telephony services are
provided under individual subscription agreements with local telephony
vendors. The Company is currently able to provide dial-up service coverage
within Utah from Ogden to Provo.
The Company's Internet marketing services consists of creation of Web
pages coupled with consulting services that assist customers in developing a
successful Internet presence. Web page storage is also available to
customers. The Company utilizes turn-key hardware and software required to
establish WWW sites located at the customer's location.
<PAGE> 17
The Company's services are marketed to individuals and businesses via
common carrier telecommunications systems such as telephone lines. Customers
access the Internet by connecting to the Company's network, which is part of
the World Wide Internet.
The Company encounters competition from a variety of firms offering
Internet services in its market area. Many of these firms have long standing
customer relationships and are well staffed and financed. Management believes
that competition in the Internet service industry is based on competitive
pricing and availability of technical support. Management believes the
Company currently offers its services at competitive prices and offers the
highest level of technical support to its customers.
The Company's products do not require governmental approval. The ISP
market has grown out of and around the World Wide Internet. The Internet was
primarily funded and constructed by the U.S. Government.
Business of AvTel
- -----------------
AvTel is a privately held, development stage corporation which began
operations in March 1996, for the purpose of becoming a leading provider of
integrated broadband voice, data and video communications services to small
and mid-sized offices and select vertical markets. AvTel's business plan is to
provide, through expansion of the operations currently conducted by the
Company and strategic alliances to be formed in the future, a full suite of
internetworking and enhanced communications services including follow-me voice
and data routing, interactive voice mail, fax mail, e-mail, discounted long
distance, contact management, and high speed Internet access.
Since its inception, AvTel has had limited operations, after having
raised $1 million in gross offering proceeds from the private placement of 1
million shares of its Series A Preferred Stock.
All information with respect to AvTel's proposed business activities has
been provided by AvTel and is presented herein without independent
verification. AvTel has represented that the information is accurate and
complete in all material respects. Summary financial information regarding
AvTel has been provided in this Information Statement in the section titled
"Selected Financial Data" below.
Executive Compensation/Employment Agreements with AvTel Executives
- ------------------------------------------------------------------
AvTel has employment agreements in place with each of Messrs. Papa and
Pisani. Under these employment agreements, generally, each executive is
employed for a term commencing in August 1996 and expiring December 31, 1998
(the "Term"). The agreements are subject to three annual extensions which can
be exercised at the option of AvTel. Under the employment agreements, the
executives will be paid an initial base annual salary of $125,000. The
agreements provide that, assuming the transactions comtemplated by the
<PAGE> 18
Acquisition Agreement are completed by December 31, 1996, this base salary
will remain in effect until such time that the Company has either (a) obtained
additional debt or equity capital or (b) achieved monthly revenues exceeding
certain objectives. Thereafter, the agreements provide for increases in the
base annual salaries.
After December 1998, during any extension terms that may be exercised by
AvTel, base salary increases will be determined by the Board of Directors
based on AvTel's performance, individual contribution and other factors. The
agreements also provide for incentive bonuses based on the achievement of
performance objectives in each fiscal year, which performance objectives are
to be established by the Board of Directors at the beginning of each fiscal
year.
In addition, the terms of the employment agreements provide that they are
to be automatically assumed by the Company upon the effective date of the
acquisition. The employment agreements also provide that following the
acquisition, bonuses of $50,000 will be paid to each executive if, within
twelve (12) months following the acquisition, the Company completes a debt or
equity financing of not less than $2,000,000 and the Company's stock has
traded at a price equal to or greater than $1.25 per share.
Moreover, the employment agreements provide that, following consummation
of the acquisition, each of the executives will be entitled and eligible to
receive grants of stock options to acquire shares in the Company's common
stock. The amount, exercise price and vesting schedule of such stock options
will be determined on the basis of a stock option plan to be adopted by the
directors and to be submitted to and approved by the shareholders of the
Company, as soon as practicable following the completion of the acquisition.
While a definitive stock option plan has not been prepared, AvTel's
management currently anticipates that the plan, when, as and if adopted by the
Board of Directors and shareholders, will be a written plan, will reserve a
fixed number of shares of common stock that will be issuable upon exercise of
options and will have the following general characteristics:
Eligibility - Officers, directors, employees and consultants of the
Company and its subsidiaries would be eligible to receive option grants under
the plan.
Administration and Operation - It is intended that the plan will be
administered entirely by a committee of the Board of Directors composed of a
least two "non-employee directors". For purposes of the plan, a "non-employee
director" will have the definition set forth in Rule 16b-3 promulgated under
Section 16 of the Securities Exchange Act of 1934. Each grant or award of an
option would be approved in advance by such committee.
Non-Qualified and Incentive Stock Options - It is the intention of
AvTel's management that the option plan would provide for grants of stock
options as either Incentive Stock Options, within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended, or Non-Qualified Stock
Options which are not Incentive Stock Options. The exercise price of options
<PAGE> 19
granted under the plan would be not less than 100% of fair market value of the
Company's common stock on the date of grant. Options granted as Incentive
Stock Options would be subject to special statutory provisions. Particularly,
options granted to employees who own stock possessing more than ten percent
(10%) of the total voting power of all classes of stock of the Company, will
not be permitted to be granted as Incentive Stock Options unless the exercise
price is at least 110% of the fair market value of the Company's common stock
on the date of grant and the option is not exercisable after five (5) years
from the date of grant. After giving effect to the transactions contemplated
by the acquisition, each of Messrs. Papa and Pisani and Mr. Peters (assuming
he accepts the offer of employment made to him by AvTel) will hold in excess
of 10% of the voting power of the Company's common stock. Accordingly,
options granted to these individuals will be subject to the foregoing
limitations.
The foregoing description of certain elements of the stock option plan is
qualified in its entirety by the plan itself, when and as it is adopted by the
Company's Board of Directors and approved by its shareholders.
AvTel has also extended to Mr. Peters an offer to become employed by
AvTel as its Chief Financial Officer under terms and conditions substantially
similar to those described above with respect to Messrs. Papa and Pisani. The
offer has not been accepted by Mr. Peters and will expire if he has not
accepted the offer and become employed by January 1, 1997.
<PAGE> 20
Selected Financial Data of AvTel
- --------------------------------
The following selected financial data of AvTel have been provided by
management of AvTel and have not been prepared in accordance with generally
accepted accounting principals. AvTel has represented to the Company that
such financial information reflect the initial operations of AvTel and present
fairly, in all material respects, the financial condition of AvTel as at and
for the period ended.
Period from
January 1, 1996
through
August 29, 1996
---------------
Statement of Operations Data:
Revenues -
Total Expenses $ 38,175
Net (loss) $ (38,175)
Net (loss) per common share $ (0.01)
Issued and Outstanding
Common Shares 4,000,000
At August 29, 1996
------------------
Balance Sheet Data:
Current Assets $ 1,002,216
Total Assets $ 1,002,216
Current Liabilities $ 60,409
Total Liabilities $ 60,409
Work Capital $ 941,807
Long Term Liabilities $ -
Shareholders' Equity $ 941,807
<PAGE> 21
Market Price of the Company's Common Stock
- ------------------------------------------
The following table sets forth, for the respective periods indicated,
the prices of the Company's Common Stock in the over the counter market as
reported by a market maker on the NASD'S OTC Bulletin Board. Such over the
counter market quotations are based on inter-dealer bid prices, without
markup, markdown or commission, and may not necessarily represent actual
transactions. At September 16, 1996, the bid and ask quotations for the
Company's Common Stock as quoted on the OTC Bulletin Board were $0.875 and
$1.187 respectively.
Bid Quotation
-------------
Fiscal Year 1994 High Bid* Low Bid*
- ---------------- -------- -------
Quarter ended 12/31/93 $ N/A $ N/A
Quarter ended 3/31/94 $ N/A $ N/A
Quarter ended 6/30/94 $ N/A $ N/A
Quarter ended 9/30/94 $ 0.75 $ 0.625
Fiscal Year 1995 High Bid Low Bid
- ---------------- -------- -------
Quarter ended 12/31/94 $ 0.75 $ 0.625
Quarter ended 3/31/95 $ 0.6875 $ 0.0675
Quarter ended 6/30/95 $ 0.6875 $ 0.5625
Quarter ended 9/30/95 $ 0.50 $ 0.50
Fiscal Year 1996 High Bid Low Bid
- ---------------- -------- -------
Quarter ended 12/31/95 $0.50 $0.50
Quarter ended 3/31/96 $0.875 $0.50
Quarter ended 6/30/96 $1.437 $0.75
* To the best knowledge of management of the Company, there was no trading of
the Company's Common Stock for the first three quarters of the Company's 1994
fiscal year ended September 30, 1994.
The number of shareholders of record of the Company's Common Stock as of
September 3, 1996, was approximately 190.
The Company has not paid any cash dividends to date and does not
anticipate paying dividends in the foreseeable future. It is the present
intention of management to utilize all available funds for the development of
the Company's business.
<PAGE> 22
Selected Financial Data of the Company
- --------------------------------------
The year end financial data included in the table has been selected by
the Company and has been derived from the Company's financial statements
included in the Company's Registration Statement on Form 10-SB. All financial
statements for the two fiscal years have been examined by Robison, Hill &
Company, certified public accountants. The eleven month financial data has
been provided by the Company and is unaudited.
<TABLE>
<CAPTION> Eleven
Months Ended
August 31,
Year Ended September 30, 1996
1995 1994 (Unaudited)
---- ---- ---------
<S> <C> <C> <C>
Statement of
Operations Data:
Revenues $ 157,136 $ - $ 268,772
Cost of Sales $ 29,280 $ - $ 59,934
Operating Expenses $ 256,094 $ 21,675 $ 255,307
Net (loss) $ (127,234) $ (23,111) $ (52,636)
Net (loss)
per common share $ (0.06) $ (0.01) $ (0.02)
Weighted Average
Shares Outstanding 2,163,172 1,933,550 2,416,845
At
August 31,
Year Ended September 30, 1996
1995 1994 (Unaudited)
---- ---- ---------
<S> <C> <C> <C>
Balance Sheet Data:
Current Assets $ 91,913 $ 61,372 $ 44,699
Current Liabilities $ 201,886 $ 71,090 $ 81,752
Work Capital(Deficit) $ (109,973) $ (9,718) $ (37,053)
Property &
Equipment (net) $ 103,001 $ - $ 87,975
Total Assets $ 194,914 $ 61,372 $ 132,674
Long Term Liabilities $ 2,884 $ - $ -
Shareholders' Equity $ (26,040) $ (9,718) $ 31,423
</TABLE>
<PAGE> 23
Proforma Combined Financial Data
- --------------------------------
<TABLE>
<CAPTION>
HI, TIGER INTERNATIONAL, INC.
CONDENSED COMBINED PRO FORMA BALANCE SHEET
AUGUST 31, 1996
(Unaudited)
HI, TIGER AvTEL
INTERNATIONAL COMMUNICATIONS PRO FORMA PRO FORMA
INC. INC. ADJUSTMENTS BALANCE
------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash $ 30,825 $ 1,002,216 $ - $ 1,033,041
Receivable, Net 13,874 - - 13,874
Total Current Assets 44,699 1,002,216 - 1,046,915
Fixed Assets, Net of
Accumulated Depreciation 87,975 - - 87,975
Total Assets $ 132,674 $ 1,002,216 $ - $ 1,134,890
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 27,788 $ 55,201 $ - $ 82,989
Payroll Taxes Payable 4,407 2,000 - 6,407
Sales Tax Payable 1,576 - - 1,576
Lease Obligation 3,381 - - 3,381
Related Party Notes and Payables 44,600 3,208 - 47,808
Total Liabilities 81,752 60,409 - 142,161
Minority Interest 19,499 - - 19,499
Stockholders' Equity
Preferred Stock
Series A $ - $ 1,000,000 $(1,000,000)A
1,000,000.B $ 1,000,000
Common Stock 2,513 3,000 4,172.C
(3,000)D 6,685
Offering Costs - (23,018) 23,018.E -
Paid in Capital in Excess of Par
Value 520,149 - (4,172)C
3,000.D
(23,018)E
(38,175)F 457,784
Retained Deficit (491,239) (38,175) 38,175.F (491,239)
Total Stockholders' Equity 31,423 941,807 - 973,230
Total Liabilities and
Stockholders' Equity $ 132,674 $ 1,002,216 $ - $ 1,134,890
</TABLE>
[Notes to the Proforma Financial Information continue on the following page]
<PAGE> 24
<TABLE>
<CAPTION>
HI, TIGER INTERNATIONAL, INC.
CONSENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
AUGUST 31, 1996
(Unaudited)
HI, TIGER AvTEL
INTERNATIONAL COMMUNICATIONS PRO FORMA PRO FORMA
INC. INC. ADJUSTMENTS BALANCE
------------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
Sales $ 268,772 $ - $ - $ 268,772
Cost of Sales 59,934 - - 59,934
Gross Margin 208,838 - - 208,838
Operating Costs
General & Administrative 250,466 38,175 - 288,641
Bad Debt Expense 4,841 - - 4,841
Operating Loss (46,469) (38,175) - (84,644)
Other Income (Expense)
Misc. Income 867 - - 867
Interest, Net (3,714) - - (3,714)
Income (Loss) Before Taxes (49,316) (38,175) - (87,491)
Income Taxes (6) - - (6)
Minority Income (3,314) - - (3,314)
Net Income (Loss) (52,636) (38,175) - (90,811)
Weighted Average Shares
Outstanding 2,416,845 4,000,000 6,588,690
Loss Per Share $ (0.02) $ (0.01) $ (0.01)
</TABLE>
NOTES TO UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS (Unaudited)
- ---------------------------------------------------------------------------
NOTE 1 - GENERAL. The accompanying unaudited condensed pro forma Balance
Sheet has been prepared as if the merger took place on August 31, 1996. The
accompanying unaudited condensed proforma Statement of Operations has been
prepared as if the merger took place on September 1, 1995.
NOTE 2 - PRO FORMA ADJUSTMENTS. The adjustments to the accompanying unaudited
condensed pro forma financial statements as of August 31, 1996, are described
below:
<PAGE> 25
(A) Cancellation of all authorized, issued and outstanding shares of all
classes of AvTel Communications, Inc. preferred stock.
(B) Issuance of 1,000,000 shares of $1.00 par value preferred stock by the
new company in accordance with the acquisition agreement.
(C) Issuance of 4,171,845 shares of $.001 par value common stock by the new
company in accordance with the acquisition agreement.
(D) Cancellation of all authorized, issued and outstanding shares of all
classes of AvTel Communications, Inc. common stock.
(E) Elimination of offering costs of AvTel Communications, Inc.
(F) Elimination of current year earnings of AvTel Communications, Inc. from
Retained Deficit due to purchase accounting.
EXECUTIVE COMPENSATION
Summary Compensation Table
- --------------------------
The following tables set forth certain summary information concerning
the compensation paid or accrued for each of the Company's last two completed
fiscal years to the Company's chief executive officer and each of its other
executive officers that received compensation in excess of $100,000 during
such period (as determined at September 30, 1995) the end of the Company's
last completed fiscal year:
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Name and Principal Restricted
Position Bonus Other Annual Stock Options/ LTIP All Other
- ------------------ Year Salary ($) Compensation Awards SARs Payout Compensation
---- ------ ----- ------------ ---------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul G. Begum,
President & C.E.O. 1995 $-0- $-0- $ 27,000* $-0- $-0- $-0- $-0-
1994 $-0- $-0- $ -0- $-0- $-0- $-0- $-0-
</TABLE>
* Beginning January 1, 1995, the Company agreed to pay Paul G. Begum a
consulting fee of $3,000 per month. Certain portions of Mr. Begum's
consulting fees have been accrued so that at August 31, 1996, $44,600,
including interest was due Mr. Begum. This amount and certain other amounts
will be paid to Mr. Begum after the closing of the transactions contemplated
under the Acquisition Agreement. (See "Certain Relationships and Related
Party Transactions: Deferred Compensation Agreement.")
<PAGE> 26
Stock Options
- -------------
The following table sets forth the name of the optionee, the number of
options issued, the issue date, the exercise price and the expiration date for
all outstanding options to purchase the Company's Common Stock:
<TABLE>
<CAPTION> Number Exercise
of Options Date Price Expiration
Name of Optionee Issued Issued Per Share Date
- ---------------- ---------- ------ --------- ----------
<S> <C> <C> <C> <C>
Tree of Stars, Inc. 50,000 2/14/95 $0.75 12/31/96
Anthony Begum 25,000 2/14/95 $0.75 12/31/96
Jonathon Harrison 25,000 2/14/95 $0.75 12/31/96
Mark Geiger 10,000 3/22/95 $0.75 12/31/96
Pamela Geiger 10,000 3/22/95 $0.75 12/31/96
5,000 2/26/96 $0.60 2/26/99
Aaron Barnes 3,000 3/22/95 $0.75 12/31/96
Paul G. Begum 100,000 3/22/95 $0.25 3/22/98
44,444 2/26/96 $0.60 2/26/99
Jay Brummet 5,000 11/30/95 $0.75 11/10/98
10,000 1/10/96 $0.75 12/10/97
Stacie Anderson 5,000 3/25/96 $0.25 3/22/98
5,000 3/25/96 $0.60 2/26/99
Paul Smith 5,000 2/26/96 $0.60 2/26/99
Craig Poulton 50,000 3/28/96 $0.75 3/28/98
Kent Poole 10,000 7/03/96 $0.01 12/31/97
Scott Hunt 10,000 7/03/96 $0.01 12/31/97
---------
372,444
=========
</TABLE>
<PAGE>
<PAGE> 27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of September 3, 1996, the name and
address and the number of shares of the Company's Common Stock, par value
$0.001 per share, held of record or beneficially by each person who held of
record, or was known by the Company to own beneficially, more than 5% of the
2,513,299 shares of Common Stock issued and outstanding, and the name and
shareholdings of each director and of all officers and directors as a group.
The Company has reserved 372,444 shares of Common Stock for issuance pursuant
to outstanding options. The table also indicates the number of shares and
percent of class to be held following the reorganization by each person
nominated for election as a directors of the Company. All such persons are
directors of AvTel.
<TABLE>
<CAPTION> Prior to Reorganization After Reorganization
----------------------- --------------------
Number of Percent Number of Percent
Name and Address Shares Owned(1) of Class Shares Owned(1) of Class
- ------------------ --------------- -------- --------------- --------
<S> <C> <C> <C> <C>
Principal Shareholders:
Peter D. Olson 607,163 24.16 607,163 8.82
521 North Arden Dr.
Beverly Hills, CA 90310
Tree of Stars, Inc.(2) 626,332 24.92 626,332 9.10
350 West 300 South
Salt Lake City, UT 84101
Current Officers and Directors:
Paul G. Begum, President 700,499(3) 27.87 700,499 10.17
and Director
Kent Poole, Director 10,000 .40 10,000 .15
Scott Hunt, Director 10,000 .40 10,000 .15
Stacie Anderson, Secretary 5,000 .20 5,000 .07
--------- ----- --------- -----
All Officers and Directors
as a Group (4 Persons) 725,499 28.87 725,000 10.54
========= ===== ========= =====
Nominees for Election
of Directors:
Anthony E. Papa 20,000 .80 1,584,390 23.01
James P. Pisani - - 1,564,390 22.72
Barry Peters - - 1,043,065 15.15
--------- ----- --------- -----
All Nominees for Election
as a Group (3 Persons) 20,000 .80 4,191,845 60.88
========= ===== ========= =====
<PAGE> 28
<FN>
(1) Unless otherwise indicated, all shares are owned directly or
indirectly, beneficially and of record, and each record shareholder has sole
voting, investment and dispositive power. The number of shares owned and the
percent of ownership does not take into account shares of Common Stock
issuable upon exercise of outstanding options. (See "Executive Compensation:
Stock Options.")
(2) Tree of Stars, Inc. is a Nevada corporation, of which Paul G. Begum
is the President and a principal shareholder.
(3) Includes 626,322 shares owned of record by Tree of Stars, Inc.,
73,667 shares owned of record by Paul G. Begum, and 500 shares owned of record
by Paul G. Begum, Custodian for Gibran Paul Begum.
</FN>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
A. Compliance with Section 16(a) of the Securities Exchange Act of 1934
--------------------------------------------------------------------
The Company's Common Stock was recently registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and in connection therewith, directors, officers, and beneficial owners of
more than 10% of the Company's Common Stock are required to file on a timely
basis certain reports under Section 16 of the Exchange Act as to their
beneficial ownership of the Company's Common Stock. The following table sets
forth as of the September 3, 1996, the name and position of each person that
failed to file on a timely basis any reports required pursuant to Section 16
of the Exchange Act.
Report to
Name of Person Position be Filed (1)
- -------------- -------- ------------
Paul G. Begum President/Director Form 3/4
and 10% Beneficial
Ownership
Peter D. Olson 10% Beneficial Form 3/4
Ownership
Kent Poole Director Form 3/4
Scott Hunt Director Form 3/4
Stacie Anderson Secretary Form 3
<FN>
In connection with the Acquisition Agreement, the Company has represented and
agreed that its officers, directors and principal shareholders who are
required to filed reports under Section 16 of the Exchange Act will have filed
such reports prior to September 30, 1996, the Company's fiscal year end.
</FN>
<PAGE> 29
B. Shareholder Agreement
---------------------
In connection with the Acquisition Agreement Paul G. Begum ("Begum")and
Tree of Stars, Inc. ("TOSI"),have entered into an agreement (the "Shareholder
Agreement") with Anthony E. Papa, James P. Pisani and Barry Peters
(collectively the "AvTel Principal Shareholders"), AvTel and the Company,
wherein Begum and TOSI have agreed not to sell, during the 120 day period
following the Closing Date, more than an aggregate of 50,000 shares of the
Company's Common Stock directly or indirectly owned, beneficially or of
record, by Begum or TOSI, subject to (i) no more than 12,500 shares being sold
in any one transaction; (ii) no more than 12,500 shares being sold during any
consecutive 30 day period; and (iii) all sales are made in market transactions
in compliance with all federal and state securities laws. In addition, Begum
and TOSI have agreed not to sell any additional shares of the Company's Common
Stock owned by them, directly or indirectly, beneficially or of record, during
the one year period following the Closing Date, without the consent of the
Board of Directors of the Company, which consent will not be unreasonably
withheld. Both Begum and TOSI have granted to AvTel and the AvTel Principal
Shareholders a first right of refusal to purchase shares of the Company's
Common Stock directly or indirectly beneficially owned them, including the
50,000 shares described above and up to 144,444 shares of the Company's Common
Stock issuable pursuant to the exercise of outstanding options, during the 24
month period following the Closing Date.
C. Non-Competition, Proprietary Rights and Standstill Agreements
-------------------------------------------------------------
In connection with the Acquisition Agreement TOSI, Peter D. Olson, and
Paul G. Begum (the "Hi, Tiger Principal Shareholders") have agreed to certain
covenants regarding non-competition with the business of the Company, non
disclosure and non-use of certain confidential and proprietary information,
and have provided certain other undertakings to the effect, generally, that
they shall not (i) either separately or in combination with others and without
the prior written consent of the Board of Directors of the Company, offer or
propose to acquire shares of the Company's Common Stock, in excess of certain
limits, solicit, from other shareholders of the Company, proxies or written
consents to vote on matters upon which such shareholders may be entitled to
vote or otherwise seek to change or influence the management of the Company,
and (ii) offer to sell, negotiate, or solicit from others, offers to purchase
all or substantially all of the business and assets of the Company or any of
the Company Common Stock held by them.
D. Tree of Stars Agreement
-----------------------
In connection with the Acquisition Agreement, TOSI has granted to AvTel
an exclusive, transferable right of first refusal to acquire from TOSI the 20%
interest held by TOSI in TFN, and the Company has granted to TOSI an option to
acquire the name "Hi, Tiger" should the Company decide to abondon the use of
such name.
<PAGE> 30
E. Finder's Fee
--------------
In connection with the Acquisition Agreement the Company and AvTel have
agreed that following the Closing Date, the Company will issue 200,000 shares
of the Company's Common Stock to AMH Limited or its assignees as a finder's
fee. Prior to the issuance of the Common Stock, the Company and AvTel will
have obtained releases and discharges of any and all claims of AMH Limited or
such assignees arising from or in connection with the Acquisition Agreement
and the transactions contemplated therein.
F. Deferred Compensation Agreement
-------------------------------
The Company has agreed that following the Closing Date it will enter into
a deferred compensation agreement with Paul G. Begum or his assigns, wherein
the Company will agree to pay a monthly payment of $4,000 for a period of
twelve (12) months. Such payments are to made in connection with and as
consideration for Mr. Begum's waiver and release of any and all accrued but
unpaid compensation, including consulting fees, up to and including the
Closing Date. (See "Executive Compensation.")
G. Lease Amendment
---------------
The Company's majority owned subsidiary, The Friendly Net LLC ("Lessee")
and Tree of Stars/PDO, a partnership ("Lessor"), of which Paul G. Begum and
Peter D. Olson, principal shareholders of the Company are partners, agreed
that prior to the Closing Date, the Lessee and Lessor will enter into an
amendment, in such form and such terms and conditions as are acceptable to
AvTel, pursuant to which the lease of the premises occupied by the Company and
Lessee at 350 West 300 South, Salt Lake City, Utah, will be extended for
approximately seven (7) months, commencing on the Closing Date, at a monthly
rate of $1,000, subject however, to the Lessee's right to terminate at any
time, without liability on thirty (30) days notice.
H. Indemnification Agreement
-------------------------
Paul G. Begum has entered into an Indemnification Agreement under which
he has provided the Company and AvTel an indemnification against any damages
incurred by the Company or AvTel in connection with any breach of or any
inaccuracy in certain representations and warranties of the Company contained
in the Acquisition Agreement. The indemnification is subject to the
materiality and other conditions of those representations and warranties and
provides that in no event may any claim whatsoever under the Indemnification
Agreement be asserted against Mr. Begum after December 31, 1997.
<PAGE> 31
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
MERGER PROPOSAL.
SHAREHOLDER PROPOSALS
No proposals have been submitted by shareholders of the Company for
consideration at the Special Meeting. It is anticipated that the next annual
meeting of shareholders will be held during January 1996. Shareholders may
present proposals for inclusion in the Information Statement to be mailed in
connection with the next annual meeting of shareholders of the Company,
provided such proposals are received by the Company no later than 90 day prior
to such meeting, and are otherwise in compliance with applicable laws and
regulations and the governing provisions of the articles of incorporation and
bylaws of the Company.
OTHER MATTERS
Management does not know of any business other than referred to in the
Notice which may be considered at the meeting. If any other matters should
properly come before the Special Meeting, such matters will be properly
addressed and resolved and those in attendance will vote on such matters in
accordance with their best judgment.
HI, TIGER INTERNATIONAL, INC.
By order of the Board of Directors
/S/ Paul G. Begum
Salt Lake City, Utah
September __, 1996
</TABLE>
<PAGE> A-1
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT ("Agreement") is entered into this 30th day
of August, 1996, between and among HI, TIGER INTERNATIONAL, INC., a Utah
corporation ("Hi, Tiger"); AVTEL COMMUNICATIONS, INC., a Utah corporation
("Merger Subsidiary") and AVTEL COMMUNICATIONS, INC., a California corporation
("AvTel"), based on the following:
PREMISES
A. Hi, Tiger is a corporation existing under the laws of the state of
Utah, having been incorporated under the laws of the State of Utah on October
21, 1981.
B. AvTel is a corporation existing under the laws of the State of
California, having been incorporated under the laws of the State of California
on July 16, 1996.
C. Merger Subsidiary is a corporation existing under the laws of the State
of Utah, having been incorporated on March 14, 1996, and is a wholly owned
subsidiary of Hi, Tiger.
D. The parties have negotiated a transaction whereby, at the Effective
Date, as defined herein, all of the shares of AvTel common stock and all of
the shares of AvTel 8% Series A Preferred Stock then issued and outstanding
will be exchanged for 4,171,845 shares of common stock of Hi, Tiger; 1,000,000
shares of preferred stock of Hi, Tiger; and AvTel will merge with and into
Merger Subsidiary, with AvTel being the surviving entity. The merger of AvTel
with and into Merger Subsidiary and the exchange of the common and preferred
stock are for the purpose of effecting a "tax-free" reorganization pursuant to
Section 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as
amended (the "Code").
E. The parties have reached an agreement as to the business terms of the
transaction and desire to set forth in this Agreement the details thereof.
AGREEMENT
NOW, THEREFORE, on the stated premises, which are incorporated herein by
reference, and for and in consideration of the mutual covenants and agreements
hereinafter set forth, the mutual benefits to the parties to be derived
herefrom, and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, it is hereby agreed as follows:
<PAGE>
<PAGE> A-2
ARTICLE I
MERGER
Section 1.01 The Merger. AvTel will be merged with and into Merger
Subsidiary, the separate corporate existence of Merger Subsidiary will cease
and AvTel shall survive the merger as the Surviving Corporation. The issued
and outstanding shares of common stock of AvTel (the "AvTel Common Stock"),
shall be exchanged for shares of Hi, Tiger common stock, par value $0.001 per
share (the "Hi, Tiger Exchanged Common Stock") and the issued and outstanding
shares of Series A Preferred Stock of AvTel, $1.00 par value per share (the
"Series A Preferred Stock"), shall be exchanged for newly authorized shares
of Hi, Tiger preferred stock, par value $1.00 per share, and having the
rights, preferences and privileges described in Section 1.01(b)(i) hereof (the
"Hi, Tiger Exchanged Preferred Stock") as follows:
(a) On the Effective Date (as defined herein), each share of AvTel
Common Stock outstanding shall be converted into 1.0429612 shares of Hi, Tiger
Exchanged Common Stock (the "Exchange Ratio"), except that, any "Dissenting
Shares" of AvTel Common Stock shall receive payment from Hi, Tiger, upon the
completion of the merger, in accordance with the provisions of the California
Corporations Code. Dissenting shares means any shares of AvTel Common Stock
for which the holder thereof has timely exercised its dissenter's rights under
the California Corporations Code section 1300-1306.
(b) As a condition precedent to this Agreement and to the
consummation of the transactions contemplated herein, and prior to the Closing
(as defined herein), the board of directors and a majority of the holders of
issued and outstanding Hi Tiger Common Stock shall have adopted all required
or necessary resolutions to amend and restate Hi, Tiger's Articles of
Incorporation to (i) provide for a class of preferred stock, with rights,
preferences and privileges substantially the same as those set forth in the
Series A AvTel Preferred Stock and (ii) such other provisions as are set forth
in Section 1.02.
(c) Hi, Tiger shall not issue any fractional shares or interests in
the Hi, Tiger Exchanged Common or Exchanged Series A Preferred Stock in
connection with the foregoing conversion. If any holder of AvTel Common or
Preferred Stock would otherwise be entitled to a fractional share upon
exchange thereof, Hi, Tiger shall round the number of shares of Hi, Tiger
Exchanged Common or Preferred Stock to be issued to such stockholder to the
nearest whole share.
(d) After the Effective Date, each holder of shares of AvTel Common
or Series A Preferred Stock shall, upon the surrender of the certificate or
certificates representing such shares to the registrar and transfer agent of
Hi, Tiger, be entitled to receive a certificate or certificates evidencing
shares of the Hi, Tiger Exchanged Common or Preferred Stock as provided
herein. On the Effective Date,: (i) each share of AvTel Common Stock issued
and outstanding immediately prior to the Effective Date will be canceled and
extinguished and automatically converted into the right to receive 1.0429612
shares of Hi, Tiger Exchanged Common Stock; and (ii) each share of AvTel
Series A Preferred Stock issued and outstanding immediately prior to the
Effective Date will be canceled and extinguished and automatically converted
into the right to receive one (1) share of Hi, Tiger Exchanged Preferred
Stock.
<PAGE> A-3
Section 1.02 Amendment and Restatement of Hi, Tiger's Articles of
Incorporation. As a condition precedent to this Agreement and to the
consummation of the transactions contemplated hereunder and prior to the
Closing, the board of directors and the shareholders of Hi, Tiger shall have
adopted and approved all required or necessary resolutions to adopt an amended
and restated articles of incorporation that provides for the following:
(a) Changing the name of Hi, Tiger to "AvTel, Inc.";
(b) Authorize 5,000,000 shares of preferred stock;
(c) Provide for the designation of 1,000,000 shares of 8% Series A
Convertible Preferred Stock with rights, preferences and privileges
substantially the same as those set forth in the AvTel Series A Preferred
Stock;
(d) Modifying such other provisions of Hi, Tiger's Articles of
Incorporation as requested by AvTel; and
(e) Eliminating the liability of officers, directors, employees and
agents of Hi, Tiger for monetary damage arising from breaches of their
fiduciary duties to the maximum extent permitted under the Utah Revised
Business Corporation Act.
Section 1.03 Other Approvals of Hi, Tiger's Board and Shareholders. As a
condition to this Agreement and to the transactions contemplated herein, prior
to the Closing, the board of directors and shareholders of Hi, Tiger shall
have adopted and approved the following:
(a) an amendment and restatement of the Bylaws of Hi, Tiger
providing such revisions and modifications as are requested by AvTel;
(b) the appointment of Anthony E. Papa, James P. Pisani and Barry
Peters, nominees of AvTel to the board of directors of Hi, Tiger, whereupon
Hi, Tiger's current board will resign; and
(c) as to the board of directors of Hi, Tiger, the resolutions
unanimously adopted by such board of directors:
(i) approving this Agreement and each of the agreements and
transactions contemplated herein including but not limited to the Shareholder
Agreement, the AHM Release, the Assumption and Rights Agreement, the Rights
Agreement, and the Employment/Consulting Agreements, and
(ii) setting a record date for and noticing a special meeting of the
stockholders of Hi, Tiger for the purpose of voting upon the Shareholder
Proposals as contemplated under Section 4.03 hereof.
Section 1.04 Approval of Members of The Friendly Net LLC. As a condition
to this Agreement and to the transactions contemplated hereunder, Hi, Tiger
shall cause the members of The Friendly Net LLC, a Utah Limited Liability
Company ("TFN") to adopt, approve, execute and deliver such agreements,
covenants, amendments, instruments and documents, and to take such further
action as may be requested by AvTel or its counsel to give effect to the
transactions contemplated herein (collectively referred to as the "TFN
Proposals"), including:
(a) removal of the TFN managers;
<PAGE> A-4
(b) approval of the TOSI Agreement described in Section 5.07(f); and
(c) amendments to the TFN Operating Agreement.
Section 1.05 Closing. The closing ("Closing") of the transactions
contemplated by this Agreement shall be on a date ("Closing Date") and at
such time and place as the parties may agree within the twenty (20) day period
commencing with the last to occur of the following:
(a) The approval of the AvTel stockholders pursuant to Section 4.03
hereof of the matters set forth in Sections 1.02 and 1.03 hereof (the
"Shareholder Proposals");
(b) The approval by the members of TFN of the TFN Proposals;
(c) The final date prescribed by any state or federal regulatory
agency pursuant to any state or federal law, rule, or regulation prior to
which the transactions may not be effectuated; and
(d) The satisfaction or waiver of all the conditions set forth in
Articles V and VI.
Section 1.06 Closing Events.
(a) Hi, Tiger's Deliveries. Subject to fulfillment or waiver of the
conditions set forth in Article VI, Hi, Tiger shall deliver or cause to be
delivered to AvTel at Closing all the following:
(i) Certificates of good standing from the appropriate authorities,
issued as of a date within five days prior to the Closing Date, certifying
that Hi, Tiger, Merger Subsidiary, Hi, Tiger, Inc. (hereinafter "HTI") and TFN
(collectively the "HTI Subsidiaries") are in good standing as corporations (or
as a limited liability company in the case of TFN) in the state of Utah;
(ii) Incumbency and specimen signature certificates dated the
Closing Date with respect to the respective officers of Hi, Tiger and of those
HTI Subsidiaries executing this Agreement and any other document delivered
pursuant hereto on behalf of Hi, Tiger, the HTI Subsidiaries;
(iii) Copies of the resolutions of Hi, Tiger's and the HTI
Subsidiaries' respective board of directors and of shareholders (or members)
authorizing the execution and performance of this Agreement and the
contemplated transactions, certified by the respective secretaries or
assistant secretaries (or other comparable officer) of Hi, Tiger and the HTI
Subsidiaries as of the Closing Date;
(iv) The certificate contemplated by Section 5.01, dated the
Closing Date, duly executed by a duly authorized officer of Hi, Tiger;
(v) The certificate contemplated by Section 5.02, dated the Closing
Date, signed by the chief executive officer and principal accounting and
financial officer of Hi, Tiger;
(vi) The original minute books including minutes of all actions
taken by the Board of Directors or shareholders of Hi, Tiger, whether at
meeting or by written consent, the corporate seal of Hi, Tiger and all
documents, files, records and documents relating to the stock and stock
transfer documents held by Hi, Tiger.
<PAGE> A-5
In addition to the above deliveries, Hi, Tiger shall take all steps and
actions as AvTel may reasonably request or as may otherwise be necessary to
consummate the transactions contemplated hereby.
(b) AvTel's Deliveries. Subject to fulfillment or waiver of the
conditions set forth in Article V, AvTel shall deliver or cause to be
delivered to Hi, Tiger at Closing all the following:
(i) Certificate of good standing from the appropriate authority,
issued as of a date within five days prior to the Closing Date certifying that
AvTel is in good standing as a corporation in the state of California;
(ii) Incumbency and specimen signature certificates dated the
Closing Date with respect to the officers of AvTel executing this Agreement
and any other document delivered pursuant hereto on behalf of AvTel;
(iii) Copies of resolutions of the board of directors and of the
stockholders of AvTel authorizing the execution and performance of this
Agreement and the contemplated transactions, contemplated hereunder, certified
by the secretary or an assistant secretary of AvTel as of the Closing Date;
(iv) The certificate contemplated by Section 6.01, executed by a
duly authorized officer of AvTel; and
(v) The certificate contemplated by Section 6.02, dated the Closing
Date, signed by the chief executive officer and principal accounting and
financial officer of AvTel.
In addition to the above deliveries, AvTel shall take all steps and
actions as Hi, Tiger may reasonably request or as may otherwise be necessary
to consummate the transactions contemplated hereby.
Section 1.07 Effective Date. As soon as practicable following
consummation of the transactions contemplated hereby on the Closing Date,
Certificates of Articles of Merger ("Certificate of Merger") and such other
documents as are required by the provisions of the corporate statutes of the
states of Utah and California to complete the merger of AvTel and Merger
Subsidiary shall be filed with the Secretary of State of Utah and the
Secretary of State of California and a Designation of Determination with
respect to the Rights, Privileges, and Preferences of the Hi, Tiger Series A
Convertible Preferred Stock shall be filed with the Secretary of State of
Utah. The "Effective Date" of the merger shall be the date the filing of such
Certificate of Merger and other documents shall become effective.
Section 1.08 Effect of Merger. On the Effective Date of the merger,
Merger Subsidiary shall cease to exist separately, and Merger Subsidiary shall
be merged with and into AvTel, the surviving corporation, in accordance with
the provisions of this Agreement, and the Articles of Merger, and in
accordance with the provisions of and with the effect provided in the
corporation laws of the states of Utah and California. Without limiting the
generality of the foregoing, AvTel, as the surviving corporation, shall
possess all the rights, privileges, franchises, and trust and fiduciary
duties, powers, and obligations, of a private as well as of a public nature,
and be subject to all the restrictions, obligations, and duties of each of
Merger Subsidiary and AvTel; all property, real, personal, and mixed, and all
debts due to either of Merger Subsidiary or AvTel on whatever account, and all
other things belonging to each of Merger Subsidiary or AvTel shall be vested
in AvTel; all property, rights, privileges, powers, and franchises, and all
and every other interest shall be thereafter the property of AvTel as they
<PAGE> A-6
were of Merger Subsidiary and AvTel; the title to any real estate, whether
vested by deed or otherwise, in either Merger Subsidiary or AvTel shall not
revert or be in any way impaired by reason of the merger; provided, however,
that all rights of creditors and all liens on any property of either Merger
Subsidiary or AvTel shall be preserved unimpaired, and except as contemplated
under the Assumption and Rights Agreement, all debts, liabilities, and duties
of Merger Subsidiary and AvTel shall thenceforth attach to AvTel and may be
enforced against it to the same extent as if such debts, liabilities, and
duties had been incurred or contracted by AvTel.
Section 1.09 Termination
(a) This Agreement may be terminated by the board of directors of
either Hi, Tiger or AvTel at any time prior to the Effective Date if:
(i) there shall be any actual or threatened action or proceeding
before any court or any governmental body which shall seek to restrain,
prohibit, or invalidate the transactions contemplated by this Agreement and
which, in the judgment of such board of directors, made in good faith and
based upon the advice of its legal counsel, makes it inadvisable to proceed
with the merger and consolidation contemplated by this Agreement;
(ii) any of the transactions contemplated hereby are disapproved by
any regulatory authority whose approval is required to consummate such
transactions or in the judgment of such board of directors, made in good faith
and based on the advice of counsel, there is substantial likelihood that any
such approval will not be obtained or will be obtained only on a condition or
conditions which would be unduly burdensome, making it inadvisable to proceed
with the merger and exchange;
(iii) the merger shall not have become effective prior to October 31,
1996, or such later date as shall have been approved by the boards of
directors of Hi, Tiger and of AvTel.
In the event of termination pursuant to this paragraph (a) of Section
1.09, no obligation, right, or liability shall arise hereunder, and each party
shall bear all of the expenses incurred by it in connection with the
negotiation, preparation, and execution of this Agreement and the transactions
contemplated hereby.
(b) This Agreement may be terminated at any time prior to the Closing
Date by action of the board of directors of AvTel if either Hi, Tiger or
Merger Subsidiary or any of their Affiliates (as defined herein) shall fail to
comply in any material respect with any of their respective, joint or several
covenants or agreements contained in this Agreement or any other agreements
contemplated herein to be executed by them or to which they are parties, or if
any of their respective, joint or several representations or warranties
contained herein or therein shall be inaccurate. In the event of termination
pursuant to this paragraph (b) of this Section 1.09, no obligation, right,
remedy, or liability shall arise hereunder except (i) as provided in Sections
2.23, 4.08, 7.01; and (ii) for any non-compliance with a covenant or
agreement or inaccuracy to a representation or warranty that is caused by the
wilful misconduct or gross negligence of Hi, Tiger or Merger Subsidiary. Hi,
Tiger, each HTI Subsidiary, AvTel and their respective officers, directors and
Affiliates shall each bear their own costs incurred in connection with the
negotiation, preparation, and execution of this Agreement and the transactions
contemplated hereby.
<PAGE> A-7
(c) This Agreement may be terminated at any time prior to the Closing
Date by action of the board of directors of either Hi, Tiger or Merger
Subsidiary (i) if the holders of more than five percent (5%) of the issued
and outstanding shares of AvTel Common Stock timely perfect their dissenter's
rights under the California Corporations Code with respect to the approval of
this Agreement and the transactions contemplated hereby, or (ii) if AvTel
shall fail to comply in any material respect with any of its covenants or
agreements contained in this Agreement or if any of the representations or
warranties of AvTel contained herein shall be inaccurate in any material
respect or (iii) the majority of the holders of the issued and outstanding
Hi, Tiger Common Stock fail to approve the Shareholder Proposals set forth in
Sections 1.02 hereof. In the event of termination pursuant to this paragraph
(c) of this Section 1.09, no obligation, right, remedy, or liability shall
arise hereunder except, however, that the foregoing shall not be deemed a
release of any obligation, right, remedy or liability (I) with respect to the
parties' respective obligations under the immediately following sentence; (II)
with respect to the parties' respective obligations under Sections 4.07, 4.08
and 7.01 or the failure by Hi, Tiger to comply with the provisions of Section
4.03 hereof; (III) with respect to any breach or non-compliance by Hi, Tiger,
Merger Subsidiary or any of their Affiliates of the covenants and agreements
set forth in those agreements to be executed as set forth in Section 5.07; and
(IV) with respect to any non-compliance with a covenant or agreement to be
performed by AvTel that is caused by the willful misconduct or gross
negligence of AvTel. Hi, Tiger, Merger Subsidiary, AvTel, and their
respective officers directors, and Affiliates shall each bear their own costs
incurred in connection with the negotiation, preparation, and execution of
this Agreement and the transactions contemplated hereby. As used in this
Agreement, the term "Affiliate" shall mean, as to any specified Person, any
other Person who is controlled by, controls or is under common control with
such Person. The term "Control" means the power to direct the management and
policies of such person, whether through the ownership of voting securities,
by contract, or otherwise; and the terms "Controlling" and "Controlled" have
meaning correlative to the foregoing. The term "Person" shall mean a
corporation, association, trust, partnership, joint-venture, limited liability
company, individual or any government or any political subdivision, agency or
instrumentality thereof.
ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF
HI, TIGER AND HTI SUBSIDIARIES
In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business operations, results of operations or prospects of such
entity or group of entities. In this Agreement, any reference to a "Material
Adverse Effect" or "Material Adverse Change" with respect to any entity or
group of entities means any event, change or effect that is materially adverse
to the condition (financial or otherwise), properties, assets, liabilities,
business, operations, results of operations or prospects of such entity and
its subsidiaries, taken as a whole. As an inducement to, and to obtain the
reliance of, AvTel, except as disclosed in a document of even date herewith
and delivered by Hi, Tiger to AvTel prior to the execution and delivery of
this Agreement and referring to the representations and warranties in this
Agreement (the "Hi, Tiger Disclosure Schedule"), Hi, Tiger and Merger
Subsidiary jointly and severally represent and warrant on their own behalf and
on behalf of TFN as follows:
<PAGE> A-8
Section 2.01 Organization.
(a) Hi, Tiger is, and will be on the Closing Date, a corporation duly
organized, validly existing, and in good standing under the laws of the state
of Utah and has the corporate power and is and will be duly authorized,
qualified, franchised, and licensed under all applicable laws, regulations,
ordinances, and orders of public authorities to own all of its properties and
assets and to carry on its business in all material respects as it is now
being conducted, and there are no other jurisdictions in which it is not so
qualified in which the character and location of the assets owned by it or the
nature of the material business transacted by it requires qualification,
except where failure to do so would not have a Material Adverse Effect. The
execution and delivery of this Agreement and the agreements contemplated
hereunder to which Hi, Tiger is a party, do not, and the consummation of the
transactions contemplated herein and therein in accordance with the terms
hereof and thereof will not, violate any provision of Hi, Tiger's articles of
incorporation or bylaws, or other agreement to which it is a party or by
which it is bound.
(b) Each HTI Subsidiary is and will be on the Closing Date a
corporation (or in the case of TFN, a limited liability company) duly
organized, validly existing, and in good standing under the laws of the state
of Utah and each has the corporate power and is and will be duly authorized,
qualified, franchised, and licensed under all applicable laws, regulations,
ordinances, and orders of public authorities to own all their respective
properties and assets and to carry on their respective businesses in all
material respects as it is now being conducted, and there are no other
jurisdictions in which either is not so qualified in which the character and
location of the assets owned by it or the nature of the business transacted by
it requires qualification, except to the extent the failure to so qualify
would not materially and adversely affect its business, operations,
properties, assets or condition. The execution and delivery of this Agreement
and the other agreements contemplated hereunder to which any HTI Subsidiary is
a party do not, and the consummation of the transactions contemplated herein
and therein in accordance with the terms hereof and thereof will not, violate
any provision of their respective articles of incorporation, articles of
organization, operating agreements, or bylaws or of other agreement to which
it is a party or by which it is bound.
(c) Hi, Tiger is the owner of (i) all outstanding shares of capital
stock of Merger Subsidiary ("Sub Shares") and of HTI ("HTI Shares") and all
such shares are duly authorized, validly issued, fully paid and nonassessable;
(ii) all outstanding shares of capital stock of HTI ("HTI Shares") and all
such shares are duly authorized, validly issued, fully paid and nonassessable;
and (iii) 80% of the issued and outstanding membership interests (the "TFN
Interest") of TFN and such TFN Interest is duly authorized, validly issued,
fully paid and nonassessable. All of the Sub Shares, HTI Shares and all of
the TFN Interests are owned by Hi, Tiger free and clear of all liens, charges,
claims or encumbrances or rights of others. There are no outstanding
subscriptions, options, warrants, puts, calls, rights, exchangeable or
convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock, member interests or other
securities of the HTI Subsidiaries, or otherwise obligating Hi, Tiger or any
such HTI Subsidiaries to issue, transfer, sell, purchase, redeem or otherwise
acquire any such capital stock, membership interests or other securities.
Except for the Sub Shares, the HTI Shares and the TFN Interests, Hi, Tiger
does not directly or indirectly , beneficially or of record, own any capital
stock, equity or similar interest in, or any interest convertible or
exchangeable or exercisable for, any capital stock, equity or similar interest
<PAGE> A-9
in, any corporation, partnership, joint venture, limited liability company or
other business association or entity.
Section 2.02 Approval of Agreements, No Conflict. Hi, Tiger and the HTI
Subsidiaries each have full power, authority, and legal right and have taken,
or will have taken on or before the date hereof, all action required by law,
their respective articles of incorporation, operating agreements, articles of
organization, bylaws, and otherwise to execute and deliver this Agreement the
other agreements contemplated to be executed by them hereunder and to
consummate the transactions herein and therein contemplated. The boards of
directors of Hi, Tiger and Merger Subsidiary and the shareholder of Merger
Subsidiary have authorized and approved the execution, delivery, and
performance of this Agreement and the other agreements contemplated hereby to
which they are parties and the transactions contemplated hereby and thereby.
The members of TFN have authorized and approved the execution, delivery and
performance of the agreements contemplated herein to be executed by TFN and
the transactions contemplated thereby. This Agreement and the other
agreements contemplated hereby to which they are parties have been duly
executed and delivered by Hi, Tiger and Merger Subsidiary and constitutes the
valid and binding obligations of each. The execution, delivery and
performance of this Agreement and the other agreements contemplated hereby to
which it is a party, by Hi, Tiger do not, and the consummation of the
transactions contemplated hereby and thereby will not conflict with, or result
in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any provision
of the Articles of Incorporation or Bylaws of Hi, Tiger or any of its
subsidiaries, as amended, or (ii) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Hi, Tiger or any of the HTI Subsidiaries or any of their
properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Hi, Tiger or any of the HTI
Subsidiaries in connection with the execution and delivery of this Agreement
and the other agreements contemplated hereby to which they are parties or the
consummation of the transactions contemplated hereby and thereby, except for
(a) the filing of the Certificate of Merger as provided in Section 1.07, (b)
the filing with the Securities and Exchange Commission (the "SEC") and the
National Association of Securities Dealers, Inc. (the "NASD") of the
Information Statement relating to the Hi, Tiger Stockholders Meeting (as
described in Section 4.03), (c) such consents, approvals, order,
authorizations, registrations, declarations and filings as may be required
under applicable state securities laws and the securities laws of any foreign
country, and (d) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material
Adverse Effect on Hi, Tiger and would not prevent, alter or materially delay
any of the transactions contemplated by this Agreement or the other agreements
contemplated hereby to which it is a party. This Agreement and the other
agreements contemplated hereby to which it is a party have been duly
authorized, executed, and delivered by both Hi, Tiger and Merger Subsidiary
and are the legal, valid and binding obligations of each of Hi, Tiger and
Merger Subsidiary, enforceable in accordance with their terms, except as such
enforcement may be limited by bankruptcy, insolvency, or other laws affecting
enforcement of creditors' rights generally and by general principles of
equity.
<PAGE> A-10
Section 2.03 Capitalization. The authorized capitalization of Hi, Tiger
consists of 50,000,000 shares of Common Stock, $0.001 par value (the "Hi,
Tiger Common Stock"), of which 2,513,299 shares are issued and outstanding.
The authorized capitalization of Merger Subsidiary consists of 10,000 shares
of Common Stock, no par value, of which 1,000 shares are currently issued and
outstanding as of the date hereof. The authorized capitalization of HTI
consists of 100,000 shares of Common Stock, $0.10 par value, of which 78,000
shares are currently issued and outstanding as of the date hereof. The
authorized capitalization of TFN consists of membership interests of which 80%
is owned by HTI and 20% is owned by Tree of Stars, Inc., a Nevada corporation
("TOSI"). All issued and outstanding shares of Hi, Tiger and Merger
Subsidiary are duly authorized, legally issued, fully paid, and nonassessable
are free of any liens or encumbrances other than any liens or encumbrances
created or imposed upon the holders thereof and except as provided in Section
5.07(a) hereof, are not subject to any preemptive or other right of any Person
created by statute, the Articles of Incorporation or Bylaws of Hi, Tiger or
the Merger Subsidiary, as the case may be or any agreement to which Hi, Tiger
or Merger Subsidiary, as the case may be, is bound. There are no dividends or
other amounts due or payable with respect to any of the shares of capital
stock of either Hi, Tiger or Merger Subsidiary. All HTI Shares and TFN
Interests are duly authorized, legally issued, fully paid, and nonassessable
are free of any liens or encumbrances other than any liens or encumbrances
created or imposed upon the holders thereof and except as provided in Section
5.07(f) hereof, are not subject to any preemptive or other right of any person
created by statute, the Articles of Incorporation or Bylaws of HTI or the
Articles of Organization or Operating Agreement of TFN or any agreement to
which either HTI or TFN is bound. There are no dividends or other amounts due
or payable with respect to any of the HTI Shares or the TFN Interests.
Section 2.04 Subsidiaries. Except for the Sub Shares, HTI Shares, and the
TFN Interest, Hi, Tiger does not own, directly or indirectly, beneficially or
of record, any interest, whether in the form of common or preferred stock,
options, warrants or other rights convertible into or exchangeable for such
common or preferred stock, partnership or member's interest, joint venture or
other similar ownership interest in any other entity or enterprise. Neither
Hi, Tiger nor the HTI Subsidiaries have a "predecessor," as that term is
defined under generally accepted accounting principles or Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC").
Section 2.05 SEC Documents, Financial Statements.
(a) Hi, Tiger has furnished to AvTel a true and complete copy of each
statement, report, registration statement, and other filings filed with the
SEC by Hi, Tiger since October 1, 1993, and, prior to the Effective Date, Hi,
Tiger will have furnished AvTel with true and complete copies of any
additional documents filed with the SEC by Hi, Tiger prior to the Effective
Date (collectively, the "SEC Documents"). In addition, Hi, Tiger has made
available to AvTel all exhibits to the SEC Documents filed prior to the date
hereof, and will promptly make available to AvTel all exhibits to any
additional SEC Documents filed prior to the Effective Date. All documents
required to be filed as exhibits to the SEC Documents have been so filed, and
all material contracts so filed as exhibits are in full force and effect,
except those which have expired in accordance with the terms, and neither Hi,
Tiger nor any of its subsidiaries is in default thereunder. As of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Securities Act, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
<PAGE> A-11
statements made therein, in light of the circumstances in which they were
made, not misleading, except to the extent corrected by a subsequently filed
SEC Document. The financial statements of Hi, Tiger, including the notes
thereto, included in the SEC Documents together with (i) the independent
auditor's report of Robison, Hill & Co., accompanying the consolidated balance
sheets of Hi, Tiger and its subsidiaries, as of September 30, 1995, 1994 and
1993, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended; (ii) the
unaudited balance sheet of Hi, Tiger as of June 30, 1996, and the related
statements of operations, cash flows, and stockholders' equity for the three
and nine months ended June 30, 1996 and 1995; and (iii) the unaudited
consolidated balance sheet of Hi, Tiger as of August 31, 1996, and the related
statements of operations, cash flows and stockholders' equity for the eleven
months ended August 31, 1996; and representations by the principal accounting
and financial officer of Hi, Tiger to the effect that such financial
statements contain all adjustments (all of which are normal recurring
adjustments) necessary to present fairly the results of operations and
financial position for the periods and as of the dates indicated (the
"Financial Statements") were complete and accurate in all material respects as
of their respective dates and have been prepared in accordance with generally
accepted accounting principles consistently applied on a consistent basis
throughout the periods involved.
(b) The Hi, Tiger balance sheets included in such Financial
Statements present fairly, in all material respects, as of their respective
dates, the financial position of Hi, Tiger and its subsidiaries. Hi, Tiger
did not have, as of the date of any such balance sheets, except as and to the
extent reflected or reserved against therein, any liabilities or obligations
(absolute or contingent) which should be reflected in a balance sheet or the
notes thereto in accordance with generally accepted accounting principles
under which they were prepared, and all assets reflected therein present
fairly the assets of Hi, Tiger in accordance with generally accepted
accounting principles. The statements of operations, shareholders' equity and
cash flows contained in the Financial Statements present fairly the
consolidated financial position and results of operations of Hi, Tiger as of
their respective dates and for the respective periods covered thereby. Hi,
Tiger maintains and will continue to maintain a standard system of accounting
established and maintained in a manner permitting the preparation of financial
statements in accordance with generally accepted accounting principles.
(c) All such Financial Statements have been presented or prior to the
Effective Date and at Hi, Tigers cost and expense will be amended to be
presented in accordance with the requirements of Regulation S-X promulgated by
the SEC regarding the form and content of and requirements for financial
statements to be filed with the SEC and any such amendments will not result in
a Material Adverse Change to Hi, Tiger and the HTI Subsidiaries.
(d) The books and records, financial and otherwise, of Hi, Tiger and
its subsidiaries are in all material respects complete and correct and have
been maintained in accordance with sound business and bookkeeping practices so
as to accurately and fairly reflect, in reasonable detail, the transactions
and dispositions of the assets of Hi, Tiger and its subsidiaries. Hi, Tiger
and its subsidiaries have maintained a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions have been
and are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit the
preparation of financial statements in conformity with generally accepted
accounting principles or any other criteria applicable to such statements and
to maintain accountability for assets; (iii) access to assets is permitted
<PAGE> A-12
only in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals, and appropriate action is taken with respect
to any differences.
(e) Hi, Tiger and the HTI Subsidiaries have timely filed or will have
timely filed as of the Closing Date all Tax Returns required to be filed by
them from inception to the Closing Date and have paid all Taxes shown on such
Tax Returns to be due and have provided adequate accruals in the Financial
Statements for any Taxes that have not been paid. All such Tax Returns are
accurate and correct in all material respects. Neither Hi, Tiger nor its
subsidiaries has any liabilities with respect to the payment of any federal,
state, county, local, or other Taxes (including any deficiencies, interest, or
penalties) accrued for or applicable to the period ended on the date of the
most recent unaudited consolidated balance sheet of Hi, Tiger included in its
Report on Form 10-QSB for the quarter ended June 30, 1996, except to the
extent reflected on such balance sheet and adequately provided for, and all
such dates and years and periods prior thereto and for which Hi, Tiger or its
subsidiaries may at said date have been liable in its own right or as
transferee of the assets of, or as successor to, any other corporation or
entity, except for taxes accrued but not yet due and payable, and no
deficiency assessment or proposed adjustment of any such Tax Return is
pending, proposed or contemplated. Proper and accurate amounts of Taxes have
been withheld by or on behalf of Hi, Tiger with respect to all compensation
paid to employees and consultants of Hi, Tiger for all periods ending on or
before the date hereof, and all deposits required with respect to compensation
paid to such employees have been made, in complete compliance with the
provisions of all applicable federal, state, and local tax and other laws.
None of such Tax Returns has been examined or is currently being examined by
the Internal Revenue Service, and no deficiency assessment or proposed
adjustment of any such return is pending, proposed or contemplated. Neither
Hi, Tiger nor its subsidiaries have made any election pursuant to the
provisions of any applicable tax laws (other than elections that relate solely
to methods of accounting, depreciation, or amortization) that would have a
Material Adverse Effect on Hi, Tiger or its subsidiaries, their financial
condition, their business as presently conducted or proposed to be conducted,
or any of their respective properties or material assets. There are no tax
liens upon any of the assets of Hi, Tiger or its subsidiaries. There are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any Tax Return of Hi, Tiger or the HTI Subsidiaries. As used
herein, "Taxes" shall mean all taxes of any kind, including, without
limitation, those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, value added,
property or windfall profits taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any
governmental authority, domestic or foreign As used herein, "Tax Return"
shall mean any return, report or statement required to be filed with any
governmental authority with respect to Taxes.
Section 2.06 Information. The Financial Statements and information
concerning Hi, Tiger and the HTI Subsidiaries and their and Hi, Tiger's
respective Affiliates set forth in this Agreement; in the HTI Disclosure
Schedules delivered by Hi, Tiger pursuant hereto were, as of their respective
dates, complete and accurate in all material respects and did not contain any
untrue statement of a material fact or omit to state a material fact required
to make the statements made, in light of the circumstances under which they
were made, not misleading. Hi, Tiger shall cause the HTI Disclosure Schedules
<PAGE> A-13
delivered by it pursuant hereto and the instruments and data delivered to
AvTel hereunder to be updated after the date hereof up to and including the
Closing Date.
Section 2.07 Options or Warrants. Except as set forth in the HTI
Disclosure Schedules, there are no existing options, warrants, calls, rights,
agreements or commitments of any character relating to the authorized and
unissued capital stock of Hi, Tiger, HTI, Merger Subsidiary and TFN (as to
member's interests) as to which any of them is a party or by which either is
bound obligating any of them (a) to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock or member's interest, or (b) to grant, extend,
accelerate the vesting of, change the price of, or otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. Neither
Hi, Tiger nor any HTI Subsidiaries have adopted any employee's or director's
stock option plan except for the 1994 Non-Qualified Stock Option Plan dated
April 4, 1994 (the "1994 Plan"). No options, warrants, calls, rights or
agreements of any character have been granted or are outstanding under the
1994 Plan.
Section 2.08 Absence of Certain Changes or Events. Except as set forth in
this Agreement, since June 30, 1996 (the "Balance Sheet Date"):
(a) Hi, Tiger has conducted its business in the ordinary course and
there has not been (i) any change, event or condition in the business,
operations, properties, level of inventory, assets, or condition of Hi, Tiger
and the HTI Subsidiaries taken as a whole or (ii) any damage, destruction, or
loss to Hi, Tiger and the HTI Subsidiaries (whether or not covered by
insurance) that has resulted in or might reasonably expect to result in a
Material Adverse Effect on the business, operations, properties, assets, or
conditions of Hi, Tiger and its subsidiaries taken as a whole;
(b) Neither Hi, Tiger nor the HTI Subsidiaries have (i) amended their
respective articles of incorporation or bylaws; (ii) declared, set aside, or
made, or agreed to declare, set aside or make, any payment of dividends or
distributions of any assets of any kind whatsoever to stockholders or
purchased or redeemed, or agreed to purchase or redeem, any of its capital
stock; (iii) waived any rights of value which in the aggregate are
extraordinary or material considering the business of Hi, Tiger and the HTI
Subsidiaries; (iv) made any material change in their method of management,
operation, or accounting; (v) entered into any other material transactions;
(vi) made any accrual or arrangement for or payment of kind or any severance
or termination pay to any present or former officer, director or employee;
(vii) increased the rate of compensation payable or to become payable by it to
any of their respective officers or directors or any of their respective
employees whose monthly compensation exceeds $1,000; or (viii) made any
increase in any profit-sharing, bonus, deferred compensation, insurance,
pension, retirement, or other employee benefit plan, payment, or arrangement
made to, for, or with their officers, directors, or employees;
(c) Neither Hi, Tiger nor the HTI Subsidiaries have (i) granted or
agreed to grant any options, warrants, calls, commitments or other rights for
their respective capital stocks, bonds, member interests or other equity
interests of securities calling for the issuance thereof; (ii) borrowed or
agreed to borrow any funds or incurred, or become subject to, any material
obligation or liability (absolute or contingent) except liabilities incurred
in the ordinary course of business; (iii) paid any material obligation or
liability (absolute or contingent) other than current liabilities reflected on
or shown on the balance sheet contained in the Financial Statements as of the
<PAGE> A-14
Balance Sheet Date and current liabilities incurred since that date in the
ordinary course of business; (iv) sold or transferred, or agreed to sell or
transfer, any of their respective assets, properties, or rights (except
assets, properties, or rights not used or useful in their respective
businesses which, in the aggregate have a value of less than $5,000) or
canceled, or agreed to cancel, any debts or claims (except debts and claims
which in the aggregate are of a value of less than $5,000); (v) made or
permitted any amendment or termination of any contract, agreement, or license
to which it is a party if such amendment or termination is material,
considering the business of Hi, Tiger and its subsidiaries; (vi) issued,
delivered, or agreed to issue or deliver any capital stock, bonds, member
interests or other equity interests or securities including debentures
(whether authorized and unissued or held as treasury stock); or (vii) entered
into, amended, modified or changed any Affiliate Transaction (as defined in
Section 2.21) or paid, discharged, released, waived, transferred, assigned,
canceled or terminated any rights, duties, liabilities or obligations under
any Affiliate Transaction.
(d) Neither Hi, Tiger it nor the HTI Subsidiaries have, to the best
knowledge of Hi, Tiger, become subject to any law or regulation which
materially and adversely affects, or in the future may adversely affect, the
business, operations, properties, assets, or condition of Hi, Tiger and the
HTI Subsidiaries.
Section 2.09 Title and Related Matters. Hi, Tiger and the HTI
Subsidiaries have good and marketable title to all of their respective
properties, tangible and intangible, real or personal, inventory, interests in
properties, and assets, which are reflected in the consolidated balance sheet
contained in the Financial Statements as of the Balance Sheet Date and all
such properties, inventory, interests and assets acquired after that date (the
"Hi, Tiger Assets")(except those sold or otherwise disposed of since such date
in the ordinary course of business), free and clear of all mortgages, security
interests, royalties, liens, pledges, charges, or encumbrances, except (i)
statutory liens or claims not yet delinquent; and (ii) such imperfections of
title and easements as do not, and will not, materially detract from, or
interfere with, the present or proposed use of the properties subject thereto
or affected thereby or otherwise materially impair present business operations
on such properties. None of such Hi, Tiger Assets were not acquired from any
Person in any transaction or series of transactions (I) in which fair
consideration or reasonably equivalent value was not given, (II) in which such
Person was or, as a result of such transaction was rendered, insolvent or
(III) which would otherwise create, or might reasonably be expected to create,
a claim on the part of such Person or his or its successor in interest to
avoid or otherwise set aside the acquisition of any such Hi, Tiger Assets
under the provisions of Bankruptcy Code Sections 547 or 549 or any other
similar provisions under state and federal statutes or common law. All Hi,
Tiger Assets and all other tooling, furniture, fixtures, equipment, computer
and data processing devices held by Hi, Tiger or the HTI Subsidiaries under
equipment or general property lease and rental agreements, contracts and
agreements ("Leased Equipment") are adequate for the conduct of the business
currently conducted by each of them, suitable for the uses in which such Hi,
Tiger Assets and Leased Equipment are currently employed, in good and usable
condition, normal wear and tear excepted, and reasonably maintained in
accordance with the manufacturer's instructions, and not in need of renewal or
replacement, except for renewal or replacement in the ordinary course of
business. All lease, rental or similar contracts, agreements and
arrangements, oral or written, expressed or implied ("Equipment Leases") with
respect to Leased Equipment are listed or described in the HTI Disclosure
Schedules and all such Equipment Leases are in full force and effect. There
<PAGE> A-15
has not occurred, to the knowledge of Hi, Tiger and the HTI Subsidiaries, any
event of default under any Equipment Lease.
Section 2.10 Litigation and Proceedings. There are no actions, suits, or
administrative or other proceedings pending or, to the knowledge of Hi, Tiger
and the HTI subsidiaries, threatened by or against Hi, Tiger or the HTI
subsidiaries or affecting Hi, Tiger or the HTI Subsidiaries or their
respective properties or any of their respective officers, directors or
Affiliates, at law or in equity, before any court or other governmental agency
or instrumentality, domestic or foreign, or before any arbitrator of any kind.
Hi, Tiger does not have any knowledge of any default on the part of it or the
HTI Subsidiaries with respect to any judgment, order, writ, injunction,
decree, award, rule, or regulation of any court, arbitrator, or governmental
agency or instrumentality. There is no judgment, decree or order against Hi,
Tiger or any of the HTI Subsidiaries or, to the knowledge of Hi, Tiger, and
the HTI Subsidiaries, or any of their respective Affiliates, directors or
officers (in their capacities as such), that could prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement, or
that could reasonably be expected to have a Material Adverse Effect on Hi,
Tiger and the HTI Subsidiaries, taken as a whole.
Section 2.11 Contracts. Except as included or described in the HTI
Disclosure Schedules:
(a) There are no material contracts, agreements, franchises, license
agreements, or other commitments to which Hi, Tiger or the HTI Subsidiaries
are parties by which it or any HTI Subsidiaries or any of their respective
properties are bound;
(b) All contracts, agreements, franchises, license agreements, and
other commitments to which Hi, Tiger or the HTI Subsidiaries are a party or by
which their respective properties are bound and which are material to the
operations or financial condition of Hi, Tiger or any of the HTI Subsidiaries
are valid and enforceable by Hi, Tiger or the HTI Subsidiaries in all material
respects;
(c) Neither Hi, Tiger nor the HTI Subsidiaries are a party to or
bound by, and their respective properties are not subject to, any material
contract, agreement, other commitment or instrument; any charter or other
corporate restriction; or any judgment, order, writ, injunction, decree, or
award which materially and adversely affects, or in the future may (as far as
Hi, Tiger can now foresee) materially and adversely affect, the business,
operations, properties, assets, or condition of Hi, Tiger or the HTI
Subsidiaries; and
(d) Neither Hi, Tiger nor the HTI Subsidiaries are a party to any
oral or written
(i) contract for the employment of any officer, director, or
employee which is not terminable on 30 days (or less) notice;
(ii) profit-sharing, bonus, deferred compensation, stock option,
severance pay, pension benefit or retirement plan, agreement, or arrangement
whether or not covered by Title IV of the Employment Retirement Income
Security Act, as amended;
(iii) agreement, contract, or indenture relating to the borrowing of
money;
<PAGE> A-16
(iv) guarantee of any obligation, other than one on which Hi, Tiger
is a primary obligor, for the borrowing of money or otherwise, excluding
endorsements made for collection and other guarantees of obligations, which,
in the aggregate do not exceed $1,000;
(v) consulting or other similar contract with an unexpired term or
more than one year or providing for payments in excess of $1,000 in the
aggregate;
(vi) collective bargaining agreement;
(vii) agreement with any present or former officer or director of
Hi, Tiger or its subsidiaries; or (viii) contract, agreement, or other
commitment involving payments by it of more than $1,000 in the aggregate.
Section 2.12 Material Contract Defaults. Neither Hi, Tiger nor any of the
HTI Subsidiaries are in default under the terms of any outstanding contract,
agreement, lease, or other commitment which is material to the Hi, Tiger
Assets or to the business, operations or condition of Hi, Tiger and the HTI
Subsidiaries taken as a whole, and there is no event of default or other event
which, with notice or lapse of time or both, would constitute a default in any
material respect under any such contract, agreement, lease, or other
commitment in respect of which Hi, Tiger or the HTI Subsidiaries, as the case
may be, has not taken adequate steps to prevent such a default from occurring.
Section 2.13 Intellectual Property. All patents, patent applications,
trademarks, trade secrets, know-how, software and technical data (collectively
"Intellectual Property") owned by Hi, Tiger or the HTI Subsidiaries
constitutes all of the intellectual property, whether or not owned by Hi,
Tiger or the HTI Subsidiaries used by them to any material extent in the
conduct of the business in which they or any of them are presently engaged.
None of such Intellectual Property has been assigned, transferred or licensed
to or from any third party and the validity or enforceability of such
Intellectual Property as used in the conduct of such business has not been
challenged by others in any proceeding or dispute about which any of them has
received written notice in writing, nor is there any pending or, to the best
knowledge of any of them, threatened litigation or proceeding challenging any
of their right to use any such Intellectual Property. The consummation of the
transactions contemplated by this Agreement will not adversely affect their
rights to the Intellectual Property.
Section 2.14 Real Estate. The HTI Disclosure Schedules set forth a list
and summary description of all leases, subleases or other agreements (the
"Leases") under with Hi, Tiger and any of the HTI Subsidiaries hold, as
lessor, sublessor, landlord, lessee, sublessee, renter or otherwise of any
real property and all other interests in real property as the case may be.
Unless otherwise indicated in the HTI Disclosure Schedules, the Leases are in
full force and effect and neither Hi, Tiger nor any of the HTI Subsidiaries
has any knowledge of any event of default thereunder. The Leases under which
Hi, Tiger and the HTI Subsidiaries are the lessees are subject to no material
lien, claim, charge or other encumbrance.
Section 2.15 Governmental Authorizations. Hi, Tiger and the HTI
Subsidiaries have obtained all licenses, franchises, permits, and other
governmental authorizations that are legally required to enable them to
conduct their businesses in all material respects as conducted on the date of
this Agreement. Except for the satisfaction of requirements of federal and
state securities and corporation laws, as hereinafter provided, no
authorization, approval, consent, or order of, or registration, declaration,
<PAGE> A-17
or filing with, any court or other governmental body is required in connection
with the execution and delivery by Hi, Tiger or the HTI Subsidiaries of this
Agreement and the consummation by Hi, Tiger and the HTI Subsidiaries of the
transactions contemplated hereby.
Section 2.16 Compliance With Laws and Regulations. Hi, Tiger and the HTI
Subsidiaries have complied with and are not in violation of and have not
received any notices of violation with respect to all applicable statutes and
regulations of any federal, state, or other governmental entity or agency
thereof, except to the extent that noncompliance would not materially and
adversely affect the business, operations, properties, assets, or condition
of Hi, Tiger and the HTI Subsidiaries taken as a whole or except to the extent
that noncompliance would not result in the occurrence of any material
liability for Hi, Tiger and the HTI Subsidiaries.
Section 2.17 Compliance With Securities Laws and Regulations. Hi, Tiger
has complied with all applicable securities statutes and regulations of any
federal, state or other governmental entity or agency thereof, including the
filing of any required documents thereunder within the applicable time
limitations, for all sales of Hi, Tiger securities and the issuance of the Hi,
Tiger Exchanged Common and Preferred Stock as contemplated herein..
Section 2.18 Insurance. Hi, Tiger and each of the HTI Subsidiaries have
policies of insurance and bonds of the type and in the amounts customarily
carried by persons conducting businesses or owning assets similar to those of
Hi, Tiger and the HTI Subsidiaries. All of the insurable properties of Hi,
Tiger and the HTI Subsidiaries are insured for full replacement value (subject
to reasonable deductibles) against losses due to fire and other casualty, with
extended coverage, and other risks customarily insured against by persons
operating similar properties in the localities where such properties are
located and under valid and enforceable policies issued by insurers of
recognized responsibility. Such policy or policies containing substantially
equivalent coverage will be outstanding and in full force at the Closing Date,
as hereinafter defined. There is no material claim pending under any of the
policies or bonds referenced in this Section 2.18 as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have
been paid and Hi, Tiger and the HTI Subsidiaries are otherwise in material
compliance with the terms of such policies and bonds. Hi, Tiger has no
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
Section 2.19 Employee Relations. Hi, Tiger and the HTI Subsidiaries have
complied in all material respects with all applicable laws, rules, and
regulations that relate to salaries, wages, hours, harassment, disabled
access, overtime compensation, employee privacy rights, occupational health
and safety and discrimination in employment and collective bargaining and to
the operation of its business and is not liable for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing. Hi,
Tiger and its subsidiaries believe that their relations with their employees
are satisfactory.
2.20 Hazardous Substances. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in this
Agreement, shall have the same meanings as set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended,
42 U.S.C. section 9601, et seq. ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. no. 99-499 ("SARA"), the Hazardous
Materials Transportation Act, 49 U.S.C section 1801, et seq., the Resource
<PAGE A-18
Conservation and Recovery Act, 49 U.S.C. section 6901, et seq., or other
applicable state or federal laws, rules, or regulations relating to the
protection of human health, the environment or to emissions, discharges or
releases of pollutants, contaminants, hazardous substances or wastes into the
environment or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, hazardous substances or wastes or the clean-up or
other remediation thereof (herein "Environmental Laws"). Except as set forth
in the HTI Disclosure Schedules, during the period of Hi, Tiger's or any of
the HTI Subsidiaries ownership, use, or other occupancy of the properties of
Hi, Tiger or any of the HTI Subsidiaries, neither Hi, Tiger nor any of the HTI
Subsidiaries has (a) used, generated, manufactured, stored, treated, disposed
of, or released any hazardous waste or substance on, under, or about any of
the properties, except in compliance with Environmental Laws; and (b) had no
knowledge of, or reason to believe that there has been (i) any use,
generation, manufacture, storage, treatment, disposal, release, or threatened
release of any hazardous waste or substance by any prior owners or occupants
of any of the properties, except in compliance with Environmental Laws, or
(ii) any actual or threatened litigation or claims of any kind against Hi,
Tiger or the HTI Subsidiaries or any other person for whose conduct it is or
may be liable by any person relating to such matters.
Section 2.21 Affiliate Transactions. Except as disclosed in the HTI
Disclosure Schedules, as of August 31, 1996, there are no accrued liabilities
owed to any officer or director neither of Hi Tiger or the HTI Subsidiaries,
and neither Hi, Tiger nor any of the HTI Subsidiaries is indebted to any
director, officer, employee, agent or Affiliate of Hi, Tiger or any of the
HTI Subsidiaries (except for amounts due as normal salaries and bonuses and in
reimbursement of ordinary expenses), and no such person is indebted to Hi,
Tiger or any of its subsidiaries, and there have been no other transactions of
the type required to be disclosed pursuant to items 402 and 404 of Regulation
S-K under the Securities Act and the Exchange Act since June 30, 1996 (the
foregoing being referred to herein as "Affiliate Transactions").
Section 2.22 Minute Books. The minute books of Hi, Tiger and the HTI
Subsidiaries made available to AvTel contain a complete and accurate summary
of all meetings of directors and stockholders or actions by written consent
since the time of incorporation of Hi, Tiger and the respective HTI
Subsidiaries through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately in all material respects.
Section 2.23 Brokers' and Finders' Fees. Except as set forth in Section
7.01, Hi, Tiger has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or
investment bankers' fees or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
Section 2.24 Information Statement. The Information Statement to be sent
to the stockholders of Hi, Tiger pursuant to Section 4.03 shall not, on the
date the Information Statement is first mailed to Hi, Tiger's stockholders, at
the time of the Stockholders Meeting and at the Effective Date, contain any
statement which, at such time and in light of the circumstances under which it
is made, is false or misleading with respect to any material fact, or omit or
state any material fact necessary in order to make the statements made therein
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 Stockholders Meeting which has become false or
misleading. If at any time prior to the Effective Date any event or
information should be discovered by Hi, Tiger which should be set forth in an
<PAGE> A-19
amendment to the Information Statement, Hi, Tiger shall promptly inform AvTel.
Notwithstanding the foregoing, Hi, Tiger makes no representation, warranty or
covenant with respect to any information supplied by AvTel in writing which is
contained in the Information Statement.
Section 2.25 Vote Required. The affirmative vote of the holders of a
majority of the shares of Hi, Tiger Common Stock outstanding on the record
date set for the Stockholders Meeting is the only vote of the holders of any
Hi, Tiger's capital stock necessary to approve matters referred to in Sections
1.01 through 1.03 hereof.
Section 2.26 Board Approval. The Board of Directors of Hi, Tiger and
Merger Subsidiary and the members of TFN have unanimously (i) approved this
Agreement and the other agreements contemplated herein to which each is a
party and the Merger, (ii) in the case of Hi, Tiger, determined that the
Merger is in the best interests of its Stockholders and that the terms of this
Agreement and the other agreements contemplated hereunto to which it is a
party are fair to such stockholders and (iii) recommended that the
stockholders of Hi, Tiger approve the matters referred to in Sections 1.01
through 1.03 hereof.
Section 2.27 Representations Complete. None of the representations or
warranties made by Hi, Tiger herein or by Hi, Tiger, any of the HTI
Subsidiaries or any of their respective Affiliates in any agreement to which
any is a party as contemplated herein, by Hi, Tiger in the HTI Disclosure
Schedule or any certificate furnished by Hi, Tiger pursuant to this Agreement
or in the SEC Documents, when all such documents are read together in their
entirety, contains or will contain at the Effective Date any untrue statement
of a material fact, or omits or will omit at the Effective Date to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF AVTEL
As an inducement to, and to obtain the reliance of, Hi, Tiger and Merger
Subsidiary, except as disclosed in a document of even date herewith and
delivered by AvTel to Hi, Tiger prior to the execution and delivery of this
Agreement and referring to the representations and warranties in this
Agreement (the "AvTel Disclosure Schedules"), AvTel represents and warrants as
follows:
Section 3.01 Organization. AvTel is and will be on the Closing Date a
corporation duly organized, validly existing, and in good standing under the
laws of the state of California and has the corporate power to own all of its
properties and assets and to carry on its business in all material respects as
it is now being conducted, and there are no other jurisdictions in which it is
not so qualified in which the character and location of the assets owned by
it or the nature of the material business transacted by it requires
qualification, except where failure to do so would not have a Material Adverse
Effect on the business, operations, properties, assets, or condition of AvTel.
The execution and delivery of this Agreement and the agreements contemplated
hereunder to which AvTel, its officers, directors, and Affiliates are a party
do not, and the consummation of the transactions contemplated herein and
therein in accordance with the terms hereof and thereof will not, violate any
provision of AvTel's articles of incorporation or bylaws or other agreement to
which it is a party or by which it is bound.
<PAGE> A-20
Section 3.02 Approval of Agreements. AvTel has all requisite corporate
power and authority, to execute and deliver this Agreement and the other
agreements contemplated hereby to which it is a party and to consummate the
transactions herein contemplated. The execution, delivery, and performance by
AvTel of this Agreement and the other agreements contemplated hereby has been
duly authorized by all necessary corporate action on the part of AvTel. This
Agreement and the other agreements contemplated hereby have been duly
authorized, executed, and delivered by AvTel and is the legal, valid, and
binding obligation of AvTel enforceable in accordance with its terms except as
such enforcement may be limited by bankruptcy, insolvency, or other laws
affecting enforcement of creditor's rights generally and by general principles
of equity.
Section 3.03 Capitalization. The authorized capitalization of AvTel
consists of 5,000,000 shares of preferred stock ("AvTel Preferred Stock") of
which 1,000,000 shares, designated Series A Preferred Stock, $1.00 par value
per share are issued and outstanding, and 10,000,000 shares of Common Stock
("AvTel Common Stock"), of which 4,000,000 shares are issued and outstanding.
All issued and outstanding shares of AvTel are validly issued, fully paid, and
nonassessable and not issued in violation of the preemptive or other similar
rights of any person. Except for dividend accruals pursuant to the Series A
Preferred Stock, there are no dividends or other amounts due or payable with
respect to any of the shares of capital stock of AvTel.
Section 3.04 Subsidiaries or Predecessors. AvTel has no other
subsidiaries or predecessors as those terms are defined under generally
accepted accounting principles or regulation S-X promulgated by the SEC.
Section 3.05 Financial Statements
(a) AvTel has furnished to Hi, Tiger the unaudited balance sheets and
related statements of income, changes in stockholders equity and changes in
financial position of AvTel as at and for the month ended August 31, 1996 (the
"AvTel Financial Statements"). The AvTel Financial Statements are special
purpose financial statements which reflect the initial operations of AvTel and
present fairly, in all material respects, the financial condition of AvTel as
at and for the period then ended. The AvTel Financial Statements have not
been prepared in accordance with generally accepted accounting principles.
(b) The books and records, financial and otherwise, of AvTel are in
all material respects complete and correct and have been maintained in
accordance with sound business and bookkeeping practices so as to accurately
and fairly reflect, in reasonable detail, the transactions and dispositions of
the assets of AvTel.
(c) AvTel has not filed and will not have filed as of the Closing
Date any tax returns. Proper and accurate amounts of taxes have been withheld
by or on behalf of AvTel with respect to all compensation paid to employees
of AvTel for all periods ending on or before the date hereof, and all deposits
required with respect to compensation paid to such employees have been made,
in complete compliance with the provisions of all applicable federal, state,
and local tax and other laws. AvTel has not made any election pursuant to the
provisions of any applicable tax laws (other than elections that relate solely
to methods of accounting, depreciation, or amortization) that would have a
Material Adverse Effect on AvTel. There are no tax liens upon any of the
assets of AvTel. There are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any tax return of AvTel.
<PAGE> A-21
Section 3.06 Information. The AvTel Disclosure Schedules and the
information concerning AvTel set forth in this Agreement is complete and
accurate in all material respects and does not contain any untrue statement of
a material fact or omit to state a material fact required to make the
statements made, in light of the circumstances under which they were made,
not misleading. AvTel shall cause the AvTel Disclosure Schedules to be
updated after the date hereof up to and including the Closing Date.
Section 3.07 Options or Warrants. At the time of Closing, and except as
set forth in the AvTel Disclosure Schedules or as contemplated by the Series A
Preferred Stock, there will be no existing options, warrants, calls, or
commitments of any character relating to the authorized and unissued AvTel
common stock, except options, warrants, calls, or commitments, if any, to
which AvTel is not a party and by which it is not bound.
Section 3.08 Absence of Certain Changes or Events. Except as set forth or
as contemplated by the transactions described in this Agreement and the AvTel
Disclosure Schedules, since August 31, 1996 (the "AvTel Balance Sheet Date"):
(a) There has not been (i) any material adverse change in the
business, operations, properties, level of inventory, assets, or condition of
AvTel or (ii) any damage, destruction, or loss to AvTel (whether or not
covered by insurance) materially and adversely affecting the business,
operations, properties, assets, or conditions of AvTel;
(b) AvTel has not, except for the transactions contemplated by its
issuance of the Series A Preferred Stock (i) amended its articles of
incorporation or bylaws; (ii) declared or made, or agreed to declare or make,
any payment of dividends or distributions of any assets of any kind whatsoever
to stockholders or purchased or redeemed, or agreed to purchase or redeem,
any of its capital stock; (iii) waived any rights of value which in the
aggregate are extraordinary or material considering the business of AvTel;
(iv) made any material change in its method of management, operation, or
accounting which is material to AvTel; (v) entered into any other material
transactions; (vi) made any accrual or arrangement for or payment of bonuses
or special compensation of any kind or any severance or termination pay to any
present or former officer or employee; (vii) increased the rate of
compensation payable or to become payable by it to any of its officers or
directors or any of its employees whose monthly compensation exceeds $1,000;
or (viii) made any increase in any profit sharing, bonus, deferred
compensation, insurance, pension, retirement, or other employee benefit plan,
payment, or arrangement made to, for, or with its officers, directors, or
employees;
(c) AvTel has not, except for the transactions contemplated by its
issuance of the Series A Preferred Stock (i) granted or agreed to grant any
options, warrants, or other rights for its stocks, bonds, or other corporate
securities calling for the issuance thereof; (ii) borrowed or agreed to borrow
any funds or incurred, or become subject to, any material obligation or
liability (absolute or contingent) except liabilities incurred in the ordinary
course of business; (iii) paid any material obligation or liability (absolute
or contingent) other than current liabilities reflected in or shown on the
most recent AvTel consolidated balance sheet and current liabilities incurred
since that date in the ordinary course of business; (iv) sold or transferred,
or agreed to sell or transfer, any of its assets, properties, or rights
(except assets, properties, or rights not used or useful in its business
which, in the aggregate have a value of less than $5,000) or canceled, or
agreed to cancel, any debts or claims (except debts and claims which in the
aggregate are of a value of less than $5,000); (v) made or permitted any
<PAGE> A-22
amendment or termination of any contract, agreement, or license to which it is
a party if such amendment or termination is material, considering the business
of AvTel; or (vi) issued, delivered, or agreed to issue or deliver any stock,
bonds, or other corporate securities including debentures (whether authorized
and unissued or held as treasury stock); and
(d) To the best knowledge of AvTel, it has not become subject to any
law or regulation which materially and adversely affects, or in the future may
adversely affect, the business, operations, properties, assets, or condition
of AvTel.
Section 3.09 Title and Related Matters. Except as provided herein or
disclosed in the most recent AvTel balance sheet and the notes thereto, AvTel
has good and marketable title to all of its properties, inventory, interests
in properties, and assets, which are reflected in the AvTel Financial
Statements dated as of the AvTel Balance Sheet Date or acquired after that
date (except properties, interests in properties, and assets sold or
otherwise disposed of since such date in the ordinary course of business),
free and clear of all mortgages, liens, pledges, charges, or encumbrances,
except (i) statutory liens or claims not yet delinquent; and (ii) such
imperfections of title and easements as do not, and will not, materially
detract from, or interfere with, the present or proposed use of the properties
subject thereto or affected thereby or otherwise materially impair present
business operations on such properties.
Section 3.10 Litigation and Proceedings. There are no actions, suits, or
proceedings pending or, to the knowledge of AvTel, threatened by or against
AvTel or affecting AvTel, at law or in equity, before any court or other
governmental agency or instrumentality, domestic or foreign, or before any
arbitrator of any kind. AvTel does not have any knowledge of any default on
its part with respect to any judgment, order, writ, injunction, decree, award,
rule, or regulation of any court, arbitrator, or governmental agency or
instrumentality.
Section 3.11 Contracts. Except as contemplated by or disclosed pursuant
to this Agreement and the Series A Preferred Stock and except as included or
described in the AvTel Disclosure Schedules:
(a) There are no material contracts, agreements, franchises, license
agreements, or other commitments to which AvTel is a party by which it or any
of the properties of AvTel are bound;
(b) All contracts, agreements, franchises, license agreements, and
other commitments to which AvTel is a party or by which its properties are
bound and which are material to the operations or financial condition of AvTel
are valid and enforceable by AvTel in all material respects subject, however,
in the case of enforceability, to applicable bankruptcy, insolvency,
reorganization and similar laws affecting creditors' rights and remedies
generally, and for general principles of equity;
(c) AvTel is not a party to or bound by, and its properties are not
subject to, any material contract, agreement, other commitment or instrument;
any charter or other corporate restriction; or any judgment, order, writ,
injunction, decree, or award which materially and adversely affects, the
business, operations, properties, assets, or condition of AvTel; and
(d) Except as reflected in the AvTel Financial Statements or the
AvTel Disclosure Schedules, AvTel is not a party to any oral or written (i)
contract for the employment of any officer, director, or employee which is not
<PAGE> A-23
terminable on 30 days (or less) notice; (ii) profit-sharing, bonus, deferred
compensation, stock option, severance pay, pension benefit or retirement plan,
agreement, or arrangement covered by Title IV of the Employee Retirement
Income Security Act, as amended; (iii) agreement, contract, or indenture
relating to the borrowing of money; (iv) guarantee of any obligation, other
than one on which AvTel is a primary obligor, for the borrowing of money or
otherwise, excluding endorsements made for collection and other guarantees of
obligations, which, in the aggregate do not exceed $1,000; (v) consulting or
other similar contract with an unexpired term of more than one year or
providing for payments in excess of $1,000 in the aggregate; (vi) collective
bargaining agreement; (vii) agreement with any present or former officer or
director of AvTel or any subsidiary; or (viii) contract, agreement, or other
commitment involving payments by it of more than $1,000 in the aggregate.
Section 3.12 Material Contract Defaults. AvTel is not in default in any
material respect under the terms of any outstanding contract, agreement,
lease, or other commitment which is material to the business, operations,
properties, assets, or condition of AvTel, and there is no event of default or
other event which, with notice or lapse of time or both, would constitute a
default in any material respect under any such contract, agreement, lease, or
other commitment in respect of which AvTel has not taken adequate steps to
prevent such a default from occurring.
Section 3.13 No Conflict With Other Instruments. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any material indenture, mortgage, deed
of trust, or other material contract, agreement, or instrument to which AvTel
is a party or to which any of its properties or operations are subject.
Section 3.14 Governmental Authorizations. AvTel has all licenses,
franchises, permits, and other governmental authorizations that are legally
required to enable it to conduct its business in all material respects as
conducted on the date of this Agreement. Except for compliance with federal
and state securities and corporation laws, as hereinafter provided, no
authorization, approval, consent, or order of, or registration, declaration,
or filing with, any court or other governmental body is required in connection
with the execution and delivery by AvTel of this Agreement and the
consummation by AvTel of the transactions contemplated hereby.
Section 3.15 Compliance With Laws and Regulations. AvTel has complied
with all applicable statutes and regulations of any federal, state, or other
governmental entity or agency thereof, except to the extent that noncompliance
would not materially and adversely affect the business, operations,
properties, assets, or condition of AvTel or except to the extent that
noncompliance would not result in the occurrence of any material liability for
AvTel.
Section 3.16 Compliance With Securities Laws and Regulations. AvTel has
complied with all applicable securities laws and regulations of any federal,
state or other governmental entity or agency thereof, including the filing of
any required documents thereunder within the applicable time limitations, or,
otherwise, in such a manner and within such time as would not materially and
adversely effect AvTel's ability to avail itself of applicable exemptions from
the registration or qualification requirements of such securities laws and
regulations for all sales of AvTel Common Stock and AvTel Series A Preferred
Stock.
<PAGE> A-24
Section 3.17 Insurance. AvTel maintains one or more general
comprehensive liability insurance policies as required under the terms of its
lease of its principal executive offices. Such policy, or policies containing
substantially equivalent coverage, will be outstanding and in full force at
the Closing Date.
Section 3.18 Disclaimer. The representations and warranties set forth in
this Article III are the only representations and warranties made by or on
behalf of AvTel and no other representations or warranties, expressed, implied
or statutory have been made by or on behalf of AvTel with respect to this
Agreement, the Merger or the other agreements and transactions contemplated
herein and therein or with respect to AvTel or its business, financial
condition, prospects, technology or otherwise.
ARTICLE IV
SPECIAL COVENANTS TO BE SATISFIED PRIOR TO CLOSING
Section 4.01 Activities of Hi, Tiger, HTI Subsidiaries and AvTel
(a) From and after the date of this Agreement until the Closing Date
and except as set forth in the respective Disclosure Schedules to be delivered
by Hi, Tiger and AvTel pursuant hereto or as permitted or contemplated by this
Agreement, Hi, Tiger, Merger Subsidiary, and AvTel will each (and HTI will
cause TFN to):
(i) Carry on their respective businesses in substantially the same
manner as it has heretofore;
(ii) Maintain in full force and effect insurance comparable in
amount and in scope of coverage to that now maintained by it;
(iii) Perform in all material respects all of their respective
obligations under material contracts, leases, and instruments relating to or
affecting their respective assets, properties, and businesses;
(iv) Use reasonable best efforts to maintain and preserve their
respective business organizations intact, to retain their respective key
employees, and to maintain their respective relationships with material
suppliers and customers;
(v) duly and timely file for all taxable periods ending on or prior
to the Closing Date all Tax Returns required to be filed by or on behalf of
such entity or any of their respective subsidiaries or for which such entity
or any of their respective subsidiaries may be held responsible and shall pay,
or cause to pay, all Taxes required to be shown as due and payable on such
returns, as well as all installments of tax due and payable during the period
commencing on the date of this Agreement and ending on the Closing Date. All
such Tax Returns shall be prepared in a manner consistent with the preparation
of prior years' Tax Returns except as required by law or as agreed to by the
parties hereto prior to the filing thereof;
(vi) withhold from each payment made on or prior to the Closing Date
to each employee of such corporation the amount of all taxes required to be
withheld therefrom and will pay the same, before becoming delinquent, to the
proper tax receiving officers; and
<PAGE> A-25
(vii) fully comply with and perform in all material respects all
obligations and duties imposed on it by all federal, state, county and local
laws and all rules, regulations, and orders imposed by federal, state, county
and local governmental authorities.
(b) From and after the date of this Agreement and except as provided
herein until the Closing Date, Hi, Tiger, Merger Subsidiary, and AvTel will
not (and Hi, Tiger will cause TFN not to):
(i) make any change in its articles of incorporation, articles of
organization, operating agreement or bylaws;
(ii) take any action described in Section 2.08 in the case of Hi,
Tiger and Merger Subsidiary, or Section 3.08 in the case of AvTel;
(iii) enter into or amend any contract, agreement, or other
instrument of any of the types described in such party's schedules, except
that a party may enter into or amend any contract, agreement, or other
instrument in the ordinary course of business; and
(iv) enter into any agreement, waiver, or other arrangement
providing for an extension of time with respect to payment by, or assessment
against, such entity or any of its subsidiaries of any tax due and payable
with respect to the period commencing on the date of this Agreement and ending
on the Closing Date.
Section 4.02 AvTel Stockholder Approval. AvTel shall have obtained
approval of the stockholders of AvTel, in accordance with the applicable
provisions of the laws of the state of California and all applicable federal
and state securities laws of the transactions contemplated by this Agreement.
Section 4.03 Information Statement, Meeting of Hi, Tiger Shareholders. As
promptly as practicable after the execution of this Agreement, Hi, Tiger shall
prepare and file with the SEC, a preliminary information statement including
a notice of special meeting of its stockholders and related material (the
"Information Statement") relating to the approval of the Shareholder Proposals
by the stockholders of Hi, Tiger and, as promptly as practicable following
receipt of SEC comments thereon (or, should no SEC comments be forthcoming or
the lapse of the period of time during which SEC comments are required to be
furnished, promptly following a determination that no comments are forthcoming
or the lapse of such period), Hi, Tiger shall file with the SEC and mail to
its stockholders of record a definitive Information Statement relating to such
matters. The Information Statement shall set a date of record for all
shareholders entitled to vote on the Shareholder Proposals and shall include
the recommendation of the Board of Directors of Hi, Tiger in favor of such
matters. Hi, Tiger shall promptly after the date hereof take all action
necessary in accordance with the Utah Revised Business Corporation Act and its
Articles of Incorporation and Bylaws to convene the Hi, Tiger Stockholders
Meeting on or prior to October 31, 1996 or as soon thereafter as is
practicable. Hi, Tiger shall consult with AvTel with respect to the status of
the preliminary Information Statement, any comments with respect thereto that
may be received from the SEC (and provide copies of such comments and its
response thereto to AvTel) in connection with its review thereof, and shall
not postpone or adjourn (other than for the absence of a quorum) the same
without the consent of AvTel and shall use its best efforts, at its expense,
and shall take all other action necessary or advisable to secure the vote or
consent of stockholders required to effect the Shareholder Proposals.
<PAGE> A-26
Section 4.04 Additional Financial Information. To the extent required,
Hi, Tiger and AvTel shall utilize their best efforts and cooperate to provide
the information necessary to present the pro forma consolidated and
consolidating financial statements and pro forma consolidated and
consolidating summary information, including a pro forma consolidated and
consolidating balance sheet, pro forma consolidated and consolidating income
statements, pro forma summaries of earnings (with aggregate and per-share
earnings), and pro forma (combined basis) earnings data for all periods
required to be presented and in the form and manner required for use in the
Form 8-K and/or Information Statement or any other document required to be
filed with the SEC or state securities agency, requiring the presentation of
Hi, Tiger financial statements under generally accepted accounting principles.
Section 4.05 Access to Properties and Records. AvTel and each of Hi,
Tiger and the HTI Subsidiaries will afford to the officers and authorized
representatives of the other full access to the properties, books, and records
of AvTel and each of Hi, Tiger and the HTI Subsidiaries as the case may be in
order that the other may have full opportunity to make such reasonable
investigation as it shall desire to make of the affairs of the other and will
furnish the other with such additional financial and operating data and other
information as to the business and properties of as from time to time be
reasonably requested.
Section 4.06 Transactions With Affiliates. AvTel shall provide to Hi,
Tiger, for possible inclusion in SEC fillings, a description of every material
contract, agreement, or arrangement between AvTel and any person who is or has
ever been an officer of director of AvTel or person owning of record, or known
by AvTel to own beneficially, 5% or more of the issued and outstanding AvTel
Common Stock and which is to be performed in whole or in part after the date
hereof or was entered into within three years before the date hereof. AvTel
represents and warrants that, in all of such circumstances, the contract,
agreement, or arrangement was for a bona fide business purpose of AvTel and
the amount paid or received, whether in cash, in services, or in kind, is, has
been during the full term thereof, and is required to be during the unexpired
portion of the term thereof, no less favorable to AvTel than terms available
from otherwise unrelated parties in arm's-length transactions. Except as
disclosed in such description, no officer or director of AvTel, or 10%
shareholder of AvTel has, or has had during the preceding three years, any
interest, directly or indirectly, in any material transaction with AvTel. The
description shall also include a description of any commitment by AvTel,
whether written or oral, to lend any funds to, borrow any money from, or enter
into any other material transaction with, any such affiliated person.
Section 4.07 Indemnification by AvTel. AvTel will indemnify and hold
harmless Hi, Tiger and its directors and officers, and each person, if any,
who controls Hi, Tiger within the meaning of the Securities Act, from and
against any and all losses, claims, damages, expenses, liabilities, or actions
to which any of them may become subject under applicable law (including the
Securities Act and the Exchange Act) and will reimburse them for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any claims or actions, whether or not resulting in liability,
insofar as such losses, claims, damages, expenses, liabilities, or actions
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any application or statement filed
with a governmental body or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary in order to make the statements therein not misleading,
but only insofar as any such statement or omission was made in reliance upon
and in conformity with information furnished in writing by AvTel expressly for
<PAGE> A-27
use therein. AvTel agrees at any time upon the request of Hi, Tiger to
furnish to them a written letter or statement confirming the accuracy of the
information with respect to AvTel contained in any report or other application
or statement referred to in this Article IV, or in any draft of any such
documents, and confirming that the information with respect to AvTel contained
in such document or draft was furnished by AvTel, indicating the inaccuracies
or omissions contained in such document or draft or indicating the information
not furnished by AvTel expressly for use therein. The indemnity agreement
contained in this Section 4.07 shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of Hi, Tiger and
shall survive the consummation of the transactions contemplated by this
Agreement
Section 4.08 Indemnification by Hi, Tiger. Hi, Tiger will indemnify and
hold harmless AvTel, its directors and officers, and each person, if any, who
controls AvTel within the meaning of the Securities Act, from and against any
and all losses, claims, damages, expenses, liabilities, or actions to which
any of them may become subject under applicable law (including the Securities
Act and the Exchange Act) and will reimburse them for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any claims or actions, whether or not resulting in liability,
insofar as such losses, claims, damages, expenses, liabilities, or actions
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any application or statement filed
with a governmental body or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary in order to make the statements therein not misleading,
but only insofar as any such statement or omission was made in reliance upon
and in conformity with information furnished in writing by Hi, Tiger expressly
for use therein. Hi, Tiger agrees at any time upon the request of AvTel to
furnish to it a written letter or statement confirming the accuracy of the
information with respect to Hi, Tiger and its subsidiaries contained in any
information statement, report, or other application or statement referred to
in this Article IV, or in any draft of any such document, and confirming that
the information with respect to Hi, Tiger contained in such document or draft
was furnished by Hi, Tiger, indicating the inaccuracies or omissions contained
in such document or draft or indicating the information not furnished by Hi,
Tiger expressly for use therein. The indemnity agreement contained in this
Section 4.07 shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of AvTel and shall survive the
consummation of the transactions contemplated by this Agreement.
Section 4.09 The Acquisition of Hi, Tiger Exchanged Stock. The
consummation of this Agreement and the Merger contemplated herein, including
the issuance of the Hi, Tiger Exchanged Common and Preferred Stock to the
AvTel stockholders in exchange for all of the issued and outstanding AvTel
Common and Preferred Stock as contemplated hereby, constitutes the offer and
sale of securities under the Securities Act and applicable state statutes.
Such transactions shall be consummated in reliance on exemptions from the
registration and prospectus delivery requirements of such statutes which
depend, among other items, on the circumstances under which such securities
are acquired.
(a) In order to provide documentation for reliance upon exemptions
from the registration and prospectus delivery requirements for such
transactions, the approval by AvTel's stockholders and by Hi, Tiger's board of
directors of this Agreement and the transactions contemplated hereby and/or
the delivery of appropriate separate representations shall constitute the
parties' acceptance of, and concurrence in, the following representations and
<PAGE> A-28
warranties:
(i) AvTel stockholders acknowledge that neither the SEC nor the
securities commission of any state or other federal agency has made any
determination as to the merits of acquiring the Hi, Tiger Common or Preferred
Exchanged Stock, and that this transaction involves certain risks.
(ii) AvTel stockholders have such knowledge and experience in
business and financial matters that they are capable of evaluating Hi, Tiger
and AvTel and their business operations as the case may be.
(iii) All information which AvTel stockholders have provided to Hi,
Tiger or its agents or representatives concerning their suitability and intent
to hold shares in Hi, Tiger following the transactions contemplated hereby is
complete, accurate, and correct in all material respects.
(iv) Except as provided in the AvTel Disclosure Schedules, AvTel
stockholders have not offered or sold any securities of AvTel or interest in
this Agreement and have no present intention of dividing the Hi, Tiger Common
or Preferred Exchanged Stock to be received or the rights under this Agreement
with others or of reselling or otherwise disposing of any portion of such
stock or rights, either currently or after the passage of a fixed or
determinable period of time or on the occurrence or nonoccurrence of any
predetermined event or circumstance.
(v) AvTel stockholders understand that the Hi, Tiger Common or
Preferred Exchanged Stock has not been registered, but is being acquired by
reason of a specific exemption under the Securities Act as well as under
certain state statutes for transactions by an issuer not involving any public
offering and that any disposition of the subject Hi, Tiger Common or Preferred
Exchanged Stock may, under certain circumstances, be inconsistent with this
exemption and may make the undersigned an "underwriter" within the meaning of
the Securities Act. It is understood that the definition of "underwriter"
focuses upon the concept of "distribution" and that any subsequent disposition
of the subject Hi, Tiger Common or Preferred Exchanged Stock can only be
effected in transactions which are not considered distributions. Generally,
the term "distribution" is considered synonymous with "public offering" or
any other offer or sale involving general solicitation or general advertising.
Under present law, in determining whether a distribution occurs when
securities are sold into the public market, under certain circumstances one
must consider the availability of public information regarding the issuer, a
holding period for the securities sufficient to assure that the persons
desiring to sell the securities without registration first bear the economic
risk of their investment, and a limitation on the number of securities which
the stockholder is permitted to sell and on the manner of sale, thereby
reducing the potential impact of the sale on the trading markets. These
criteria are set forth specifically in rule 144 promulgated under the
Securities Act, which allows sales of securities in reliance upon rule 144
only in limited amounts in accordance with the terms and conditions of that
rule, after two years after the date the Hi, Tiger Common or Preferred
Exchanged Stock is acquired from Hi, Tiger or an affiliate of Hi, Tiger and
the Hi, Tiger Common or Preferred Exchange Stock is fully paid for, as
calculated in accordance with rule 144(d). After three years from the date
the securities acquired from Hi, Tiger or an affiliate of Hi, Tiger and are
fully paid for, as calculated in accordance with rule 144(d), they can
generally be sold without meeting those conditions, provided the holder is
not (and has not been for the preceding three months) an affiliate of the
issuer.
<PAGE> A-29
(vi) AvTel stockholders acknowledge that the shares of Hi, Tiger
Common or Preferred Exchanged Stock must be held and may not be sold,
transferred, or otherwise disposed of for value unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Hi, Tiger is under no obligation to register the Hi, Tiger Common
or Preferred Exchanged Stock under the Securities Act, except as may be
expressly agreed to by it in writing. If rule 144 is available (and no
assurance is given that it will be except as expressly set forth in this
Agreement), after two years and prior to three years following the date the
shares are fully paid for, only routine sales of such Hi, Tiger Common or
Preferred Exchanged Stock in limited amounts can be made in reliance upon Rule
144 in accordance with the terms and conditions of that rule. Hi, Tiger is
under no obligation to the parties to make rule 144 available, except as may
be expressly agreed to by it in writing in this Agreement, and in the event
Rule 144 is not available, compliance with Regulation A or some other
disclosure exemption may be required before AvTel stockholders can sell,
transfer, or otherwise dispose of such Hi, Tiger Common or Preferred Exchanged
Stock without registration under the Securities Act. Hi, Tiger registrar and
transfer agent will maintain a stop transfer order against the registration or
transfer of the Hi, Tiger Common or Preferred Exchanged Stock, and the
certificate representing the Hi, Tiger Common or Preferred Exchanged Stock
will bear a legend in substantially the following form so restricting the sale
of such securities:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND ARE
"RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER THE
SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE SOLD OR TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT.
(vii) Hi, Tiger may refuse to register further transfers, or resales
of the Hi, Tiger Common or Preferred Exchanged Stock in the absence of
compliance with rule 144 unless the undersigned furnishes the issuer with a
"no-action" or interpretive letter from the SEC or an opinion of counsel
reasonably acceptable to Hi, Tiger stating that the transfer is proper.
Further, unless such letter or opinion states that the shares of Hi, Tiger
Common or Preferred Exchanged Stock are free of any restrictions under the
Securities Act, Hi, Tiger may refuse to transfer the Hi, Tiger Common or
Preferred Exchanged Stock to any transferee who does not furnish in writing to
it the same representations and agree to the same conditions with respect to
such Hi, Tiger Common or Preferred Exchanged Stock as set forth herein. Hi,
Tiger may also refuse to transfer the Hi, Tiger Common or Preferred Exchanged
Stock if any circumstances are present reasonably indicating that the
transferee's representations are not accurate.
(b) In connection with the transaction contemplated by this Agreement,
AvTel and Hi, Tiger shall each file, with the assistance of the other and
their respective legal counsel, such notices, applications, reports, or other
instruments as may be deemed by them to be necessary or appropriate in an
effort to document reliance on such exemptions, including a notice on form D
to be filed with the SEC, and the appropriate regulatory authority in the
state where AvTel stockholders reside unless an exemption requiring no filing
is available in such jurisdiction, all to the extent and in the manner as may
be deemed by such parties to be appropriate.
(c) In order to more fully document reliance on the exemptions as
provided herein, AvTel shall execute and deliver to Hi, Tiger, at or prior to
the Closing, such further letters of representation, acknowledgment,
<PAGE> A-30
suitability, or the like, as Hi, Tiger and its counsel may reasonably request
in connection with reliance on exemptions from registration under such
securities laws.
(d) Hi, Tiger and AvTel acknowledge that the basis for relying on
exemptions from registration or qualifications are factual, depending on the
conduct of the various parties, and that no legal opinion or other assurance
will be required or given to the effect that the transactions contemplated
hereby are in fact exempt from registration or qualification.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF AVTEL
The obligations of AvTel under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 5.01 Accuracy of Representations. The representations and
warranties made by Hi, Tiger and the HTI Subsidiaries in this Agreement were
true when made and shall be true at the Closing Date with the same force and
affect as if such representations and warranties were made at and as of the
Closing Date (except for changes therein permitted by this Agreement), and
each of Hi, Tiger and the HTI Subsidiaries shall have performed or complied
with all covenants and conditions required by this Agreement to be performed
or complied with by them prior to or at the Closing. AvTel shall be furnished
with certificates, signed by duly authorized officers of Hi, Tiger and the HTI
Subsidiaries and dated the Closing Date, to the foregoing effect.
Section 5.02 Officer's Certificates. AvTel shall have been furnished with
certificates dated the Closing Date and signed by the duly authorized chief
executive officer and principal accounting and financial officer of Hi, Tiger
and each HTI Subsidiary to the effect that no litigation, proceeding,
investigation, or inquiry is pending or, to the best knowledge of Hi, Tiger
and each HTI Subsidiary, threatened, which might result in an action to enjoin
or prevent the consummation of the transactions contemplated by this
Agreement. Furthermore, based on certificates of good standing,
representations of government agencies and Hi, Tiger's and each HTI
Subsidiary's own documents, the certificate shall represent that:
(a) This Agreement and the other agreements contemplated hereunder to
which each is a party has been duly approved by Hi, Tiger's and each HTI
Subsidiary's respective board of directors (or, in the case of TFN, its
managers or members and has been duly executed and delivered in the name and
on behalf of Hi, Tiger and each HTI Subsidiary by its duly authorized officers
pursuant to, and in compliance with, authority granted by the board of
directors (or, in the case of TFN, its managers or members) of Hi, Tiger and
each HTI Subsidiary pursuant to a unanimous consent;
(b) The representations and warranties of Hi, Tiger and each HTI
Subsidiary set forth in this Agreement the HTI Disclosure Schedules and each
other agreement or document to be executed and delivered pursuant to this
Agreement are true and correct as of the date of the certificate;
(c) There have been no Material Adverse Changes in the business,
operations, properties, assets or financial condition of Hi, Tiger or either
of the HTI Subsidiaries up to and including the date of the certificate; and
<PAGE> A-31
(d) All conditions required by this Agreement to have been met,
satisfied, or performed by Hi, Tiger and each HTI Subsidiary have been met.
Section 5.03 No Material Adverse Change. Prior to the Closing Date, there
shall not have occurred any material adverse change in the financial
condition, business, or operations of Hi, Tiger or either HTI Subsidiary, nor
shall any event have occurred which, with the lapse of time or the giving of
notice, may cause or create any material adverse change in the financial
condition, business, or operations of Hi, Tiger or either HTI Subsidiary.
Section 5.04 Good Standings. AvTel shall have received certificates of
good standing from the appropriate authorities, dated as of a date within five
days prior to the Closing Date, certifying that Hi, Tiger and each HTI
Subsidiary are in good standing as corporations in the state of Utah.
Section 5.05 Other Items. AvTel shall have received such further
documents, certificates, or instruments relating to the transactions
contemplated hereby as AvTel may reasonably request.
Section 5.06 Opinions of Counsel. At the Closing Date, AvTel shall have
received an opinion from Taylor and Associates, Inc., counsel for Hi, Tiger,
in substantially the form and content as is set forth in Exhibit A attached to
this Agreement.
Section 5.07 Other Agreements. AvTel shall have entered into the
following agreements, between or among the persons indicated, in such form and
on such terms and conditions as are acceptable to AvTel:
(a) Shareholder Agreements. Concurrently with the execution of this
Agreement, Paul G. Begum and TOSI shall agree with Hi, Tiger and AvTel to a
lock-up agreement wherein they will agree not to sell, during the 120 day
period following the Closing Date, more than an aggregate of 50,000 shares of
Hi, Tiger Common Stock directly or indirectly beneficially owned by Mr. Begum
or Tree of Stars, Inc, subject to (i) no more than 12,500 shares being sold in
any one transaction; (ii) no more than 12,500 shares being sold during any
consecutive 30 day period; and (iii) all sales are made in market transactions
in compliance with all federal and state securities laws. In addition, Mr.
Begum and TOSI will agree not to sell any additional shares of Hi, Tiger
Common Stock owned by them, directly or indirectly, beneficially or of record,
during the one year period following the Closing Date, without the consent of
the board of directors of Hi, Tiger, which consent will not be unreasonably
withheld. Mr. Begum and TOSI will grant to AvTel agree to give a first right
of refusal to AvTel (which may be transferred or assigned) to purchase shares
of Hi, Tiger Common Stock directly or indirectly beneficially owned by Mr.
Begum or Tree of Stars, Inc. [including the 50,000 shares described in this
paragraph (a)] during the 24 month period following the Closing Date.
(b) Non-Competition, Proprietary Rights and Standstill Agreements.
Concurrently with the execution of this Agreement, TOSI, Peter D. Olson, and
Paul G. Begum (the "Principal Shareholder") of Hi, Tiger shall agree to
certain covenants regarding non-competition with the business of Hi, Tiger,
non-disclosure and non-use of certain confidential and proprietary
information, and shall provide certain other undertakings to the effect,
generally, that they shall not (i) either separately or in combination with
others and without the prior written consent of the Board of Directors of Hi,
Tiger offer or propose to acquire shares of the outstanding common stock of
Hi, Tiger in excess of certain limits, solicit, from other Hi, Tiger
shareholders, proxies or written consents to vote on matters upon which such
shareholders may be entitled to vote or otherwise seek to change or influence
<PAGE> A-32
the management of Hi, Tiger, and (ii) offer to sell, negotiate, or solicit
from others, offers to purchase all or substantially all of the business and
assets of Hi, Tiger or any Hi, Tiger capital stock held by them.
(c) AMH Release. In connection with the issuance of shares of Hi,
Tiger Common Stock to AMH Limited or its assignees as anticipated under
Section 7.01 hereof, prior to the Closing, AvTel and Hi, Tiger shall have
obtained releases and discharges in substantially the form attached as Exhibit
B, of any and all claims of AMH Limited or such assignees arising from or in
connection with this Agreement, the transactions contemplated herein and any
other expressed or implied finders, broker or similar arrangement involving
Hi, Tiger, the HTI Subsidiaries and AvTel.
(d) Other Releases. Concurrently with the execution of this
Agreement, AvTel and Hi, Tiger shall have obtained general releases, from such
former offices, directors and the Principal Shareholders (and their respective
affiliates) as AvTel shall, in its sole discretion, determine, of any and all
claims, liabilities, cost, expenses and the like, absolute or authorized,
expressed or implied, against AvTel, Hi, Tiger and the HTI Subsidiaries.
(e) Assumption and Rights Agreement. Prior to the Closing, AvTel,
Hi, Tiger and each of Antony E. Papa, James P. Pisani and Barry Peters,
principal shareholders of AvTel, will enter into the Assumption and Rights
Agreement in substantially the form attached as Exhibit C, pursuant to which
certain employment agreements and offers of employment between AvTel and each
of Messrs. Papa, Pisani and Peters will be assigned to and assumed by Hi,
Tiger as of this Effective Date and that Messrs. Papa, Pisani and Peters will
be granted certain "piggyback" registration rights with respect to shares of
Hi, Tiger Exchanged Common Stock received by each of them in connection with
the transactions contemplated by this Agreement.
(f) Tree of Stars Agreement. Concurrently with the execution of this
Agreement, TOSI will grant to AvTel an exclusive, transferable right of first
refusal to acquire from TOSI the 20% interest held by TOSI in TFN (the "TOSI
Interest") and Hi, Tiger shall grant to TOSI an option subject to certain
terms and conditions to acquire the name "Hi, Tiger".
(g) Rights Agreement - Preferred Stock. Prior to the Effective Date,
the holder(s) of Series A Preferred Stock and Hi, Tiger shall have entered
into the Rights Agreement in substantially the form attached as Exhibit D,
that Hi, Tiger will grant to such holder(s) in connection with the issuance of
the Hi, Tiger Series A Convertible Preferred Stock certain demand and
"piggyback" registration rights with respect to the Hi, Tiger Common Stock
issuable upon conversion thereof.
(h) Employment/Consulting Agreements. Prior to the Closing, Hi,
Tiger or TFN will have entered into such employment and/or consulting
agreement with such current employees or consultants of either Hi, Tiger or
TFN, as determined by AvTel, under such terms and conditions as are mutually
agreeable to AvTel and the employees and/or consultants.
(i) [Intentionally Omitted]
(j) Voting Agreement Concurrently with the execution and delivery of
this Agreement, AvTel, Hi, Tiger and the Principal Shareholders shall execute
and deliver a Voting Agreement in substantially the form attached as of
Exhibit E.
<PAGE> A-33
(k) Lease Amendment. Prior to the Closing, Hi, Tiger shall have
entered into an amendment, in such form and such terms and conditions as are
acceptable to AvTel, pursuant to which the lease of Hi, Tiger's sales office
facility at 350 West 300 South, Salt Lake City, Utah, shall be extended for
seven (7) months, commencing on the Closing Date, at a monthly rate of $1,000,
subject however, to the lessee's right to terminate at any time, without
liability on thirty (30) days notice.
(l) Indemnification Agreement. Prior to the Closing, Paul G. Begum
shall execute and deliver to AvTel an Indemnification in substantially the
form attached hereto as Exhibit F.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF HI, TIGER
AND MERGER SUBSIDIARY
The obligations of Hi, Tiger and Merger Subsidiary under this Agreement
are subject to the satisfaction, at or before the Closing Date, of the
following conditions:
Section 6.01 Accuracy of Representations. The representations and
warranties made by AvTel in this Agreement were true when made and shall be
true at the Closing Date with the same force and affect as if such
representations and warranties were made at and as of the Closing Date (except
for changes therein permitted by this Agreement), and AvTel shall have
performed or complied with all covenants and conditions required by this
Agreement to be performed or complied with by AvTel prior to or at the
Closing. Hi, Tiger shall be furnished with a certificate, signed by a duly
authorized officer of AvTel and dated the Closing Date, to the foregoing
effect.
Section 6.02 Officer's Certificates. Hi, Tiger shall have been furnished
with certificates dated the Closing Date and signed by a duly authorized chief
executive officer and principal accounting and financial officer of AvTel to
the effect that no litigation, proceeding, investigation, or inquiry is
pending or, to the best knowledge of AvTel, threatened, which might result in
an action to enjoin or prevent the consummation of the transactions
contemplated by this Agreement. Furthermore, based on certificates of good
standing, representations of government agencies, and AvTel's own documents,
the certificate shall represent that:
(a) This Agreement has been duly approved by AvTel's board of
directors and has been duly executed and delivered in the name and on behalf
of AvTel by its duly authorized officers pursuant to, and in compliance with,
authority granted by the board of directors of AvTel pursuant to a unanimous
consent and a majority written consent of its shareholders;
(b) The representations and warranties of AvTel set forth in this
Agreement are true and correct as of the date of the certificate;
(c) Except as provided or permitted herein, there have been no
Material Adverse Changes in AvTel up to and including the date of the
certificate;
(d) All conditions required by this Agreement to have, unless waived,
been met, satisfied, or performed.
<PAGE> A-34
Section 6.03 No Material Adverse Change. Except as provided or permitted
herein, prior to the Closing Date, there shall not have occurred any Material
Adverse Change in the financial condition, business, or operations of AvTel,
nor shall any event have occurred which, with the lapse of time or the giving
of notice, may cause or create any Material Adverse Change in the financial
condition, business, or operations of AvTel.
Section 6.04 Good Standing. Hi, Tiger shall have received a certificate
of good standing from the appropriate authority, dated as of a date within
five days prior to the Closing Date, certifying that AvTel is in good standing
as a corporation in the state of California.
Section 6.05 Stockholder Approval. The stockholders of AvTel shall have
approved this Agreement and the transaction contemplated in the manner
required by AvTel's articles of incorporation and bylaws and the California
Corporations Code.
Section 6.06 Other Items. Hi, Tiger shall have received such further
documents, certificates, or instruments relating to the transactions
contemplated hereby as Hi, Tiger may reasonably request.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Brokers. In connection with the proposed transaction, Hi,
Tiger and AvTel agree that 200,000 restricted shares of Hi, Tiger Common Stock
will be issued to AMH Limited (or if AMH elects to assign such shares, to its
assignees) as a finder's fee, subject however to Section 5.07(f) hereof.
Except as otherwise provided in this Section 7.01, Hi, Tiger and AvTel agree
that there were other finders or brokers involved in bringing the parties
together or who were instrumental in the negotiation, execution, or
consummation of this Agreement. Further, Hi, Tiger and AvTel each agree to
indemnify the other against any claim by any third person for any commission,
brokerage, or finder's fee or other payment with respect to this Agreement or
the transactions contemplated hereby based on any alleged agreement or
understanding between such party and such third person, whether express or
implied, from the actions of such party. The covenants set forth in this
section shall survive the Closing Date and the consummation of the
transactions herein contemplated.
Section 7.02 No Representation Regarding Tax Treatment. No representation
or warranty is being made by any party to any other regarding the treatment of
this transaction for federal or state income taxation. Although this
transaction has been structured in part in an effort to qualify for treatment
under section 368(a)(1)(A) and section 368(a)(2)(D) of the Code, there is no
assurance that any part of this transaction in fact meets the requirements for
such qualification. Each party has relied exclusively on its own legal,
accounting, and other tax adviser regarding the treatment of this transaction
for federal and state income taxes and on no representation, warranty, or
assurance from any other party or such other party's legal, accounting, or
other adviser.
Section 7.03 Governing Law. This Agreement shall be governed by, enforced
and construed under and in accordance with the laws of the United States of
America and, with respect to matters of state law, with the laws of the state
of Utah.
<PAGE> A-35
Section 7.06 Notices. All notices, demands, requests, or other
communications required or authorized hereunder shall be deemed given
sufficiently if in writing and if personally delivered; if sent by facsimile
transmission, confirmed with a written copy thereof sent by overnight express
delivery; if sent by registered mail or certified mail, return receipt
requested and postage prepaid; or if sent by overnight express delivery:
If to Hi, Tiger, to: HI, TIGER INTERNATIONAL, INC.
Attn.: Paul G. Begum
350 West 300 South
Salt Lake City, Utah 84101
Telecopy No.: (801) 332-1230
With a copy to: Elliott N. Taylor, Esq.
TAYLOR AND ASSOCIATES
3090 East 3300 South, Suite 400
Salt Lake City, Utah 84109
Telecopy No.: (801) 463-6085
If to AvTel, to: AVTEL COMMUNICATIONS, INC..
Attn.: James P. Pisani
6 Harbor Way, Suite 217
Santa Barbara, California 93109
Telecopy No.: (800) 270-0189
With a copy to: Raymond P. Le Blanc, Esq.
PRICE, POSTEL & PARMA
200 East Carrillo Street
Santa Barbara, California 93102-0099
Telecopy No.: (805) 965-3978
or such other addresses and facsimile numbers as shall be furnished by any
party in the manner for giving notices hereunder, and any such notice, demand,
request, or other communication shall be deemed to have been given as of the
date so delivered or sent by facsimile transmission, three days after the date
so mailed, or one day after the date so sent by overnight delivery.
Section 7.07 Attorneys' Fees. In the event that any party institutes any
action or suit to enforce this Agreement or to secure relief from any default
hereunder or breach hereof, the breaching party or parties shall reimburse the
non-breaching party or parties for all costs, including reasonable attorneys'
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
Section 7.08 Schedules; Knowledge. Whenever in any section of this
Agreement reference is made to information set forth in the Disclosure
Schedules provided by Hi, Tiger, Merger Subsidiary, or AvTel, such reference
is to information specifically set forth in such schedules and clearly marked
to identify the section of this Agreement to which the information relates.
Whenever any representation is made to the "knowledge" of any party, it shall
be deemed to be a representation that no officer or director of such party,
after reasonable investigation, has any knowledge of such matters.
Section 7.09 Third-Party Beneficiaries. This contract is solely between
Hi, Tiger, Merger Subsidiary, and AvTel, and, except as specifically provided,
no director, officer, stockholder, employee, agent, independent contractor, or
any other person or entity shall be deemed to be a third party beneficiary of
this Agreement.
<PAGE> A-36
Section 7.10 Entire Agreement. This Agreement represents the entire
agreement among the parties relating to the subject matter hereof. All
previous agreements between the parties, whether written or oral, have been
merged into this Agreement. This Agreement alone fully and completely
expresses the agreement of the parties relating to the subject matter hereof.
There are no other courses of dealing, understandings, agreements,
representations, or warranties, written or oral, except as set forth herein.
Section 7.11 Survival. The representations, warranties, and covenants of
the respective parties shall survive the Closing Date and the consummation of
the transactions herein contemplated.
Section 7.12 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
Section 7.13 Remedies Cumulative; Amendment or Waiver. Every right and
remedy provided herein shall be cumulative with every other right and remedy,
whether conferred herein, at law, or in equity, and such remedies may be
enforced concurrently, and no waiver by any party of the performance of any
obligation by the other shall be construed as a waiver of the same or any
other default then, theretofore, or thereafter occurring or existing. At any
time prior to the Closing Date, this Agreement may be amended by a writing
signed by all parties hereto, with respect to any of the terms contained
herein, and any term or condition of this Agreement may be waived or the time
for performance thereof may be extended by a writing signed by the party or
parties for whose benefit the provision is intended.
Section 7.14 Post-Effective Date Covenants of Hi, Tiger. Subject to and
conditioned upon approval by its Board of Directors and by it shareholders (at
the first annual meeting of shareholders of Hi, Tiger to be held following the
Effective Date) of the adoption of a stock option plan for the employees,
directors and consultants of Hi, Tiger (the "Option Plan"), Hi, Tiger
covenants and agrees that it will undertake all reasonable efforts to prepare
and file with the SEC and have declared effective a registration statement on
form S-8 with respect to the Option Plan and the stock options heretofore
granted by Hi, Tiger as set forth in the Hi, Tiger Disclosure Schedule.
IN WITNESS WHEREOF, the corporate parties hereto have caused this Agreement to
be executed by their respective officers, hereunto duly authorized, as of the
date first above written.
HI, TIGER INTERNATIONAL, INC.
A Utah Corporation
/S/Paul G. Begum
Its Duly Authorized Officer
AVTEL COMMUNICATIONS, INC.
A California Corporation
/S/ Anthony E. Papa
Its Duly Authorized Officer
AVTEL COMMUNICATIONS, INC.
A Utah corporation
/S/Paul G. Begum
Its Duly Authorized Officer
<PAGE> A-37
Exhibit "A"
TAYLOR & ASSOCIATES
3090 East 3300 South, Suite 400
Salt Lake City, Utah 84109
Phone No. 801\463-6080
Fax No. 801\463-6085
September __, 1996
AvTel Communications, Inc.
130 Cremona Drive
Goleta, CA 93117
Attention: Anthony E. Papa
President & Chief Executive Officer
Gentlemen:
We have acted as counsel for Hi, Tiger International, Inc., a Utah
corporation ("Hi, Tiger"), AvTel Communications, Inc., a Utah corporation and
wholly owned subsidiary of Hi, Tiger ("Merger Sub") Hi, Tiger, Inc., a Utah
corporation and wholly owned subsidiary of Hi, Tiger ("HTI") and The Friendly
Net, LLC, a Utah limited liability company ("TFN") (Merger Sub, HTI and TFN
being sometimes collectively referred to as the "HTI Subsidiaries")in
connection with the merger (the "Merger") of Merger Sub with and into AvTel
Communications, Inc., a California corporation ("AvTel") pursuant to an
Acquisition Agreement dated August __, 1996 (the "Acquisition Agreement") by
and among Hi, Tiger, Merger Sub and AvTel.
We have reviewed the Acquisition Agreement, the Certificate/Articles of
Merger of AvTel Communications, Inc., a Utah corporation, with and into AvTel
Communications, Inc., a California corporation, dated ____________, 1996
signed by AvTel and Merger Sub (the "Certificate of Merger"), the agreements
("Ancillary Agreements"), listed in Schedule A attached, (which, together with
the Acquisition Agreement are sometimes collectively referred to herein as the
"Acquisition Documents") and the combined form of Hi, Tiger's Notice of
Special Meeting of Shareholders and Information Statement dated September ___,
1996, together with the exhibits attached thereto, including the Amended and
Restated Articles of Incorporation of Hi, Tiger (the "Restated Articles") and
the Amended and Restated Bylaws of Hi, Tiger (the "Restated Bylaws")
(hereinafter collectively referred to as the "Information Statement").
Capitalized terms not otherwise defined herein shall have the same
meanings as those set forth in the Acquisition Agreement.
[A statement regarding the documents, representations, warranties and
certificates as to factual matters upon which the opinion giver is relying]
We call your attention to the fact that we have not represented Hi,
Tiger, HTI or TFN on a regular basis. Therefore, matters may exist of a legal
nature relating to these entities about which we have not been consulted.
Based upon the foregoing, we are of the opinion that:
1. Hi, Tiger, Merger Sub and HTI are corporations duly incorporated,
validly existing and in good standing under the laws of the State of Utah, and
each has all requisite corporate power and authority to own, lease and operate
its properties and assets and to conduct its business as now being conducted.
Each of Hi, Tiger, Merger Sub and HTI is duly qualified to do business and in
<PAGE> A-38
good standing in each jurisdiction in which the nature of its business or
character of its properties makes such qualification necessary, and the
failure to be so qualified would have a material adverse affect upon any of
them or their respective businesses, properties or assets.
2. Before giving effect to the transactions contemplated by the
Merger, Hi, Tiger's authorized capital consists of ______ shares of Common
Stock $.001 par value, ("Hi, Tiger Common Stock") of which ___________ shares
are issued and outstanding. All of the outstanding shares of Hi, Tiger Common
Stock are duly authorized, validly issued, fully paid and nonassessable. The
Hi, Tiger Common Stock is not subject to preemptive rights or other rights to
subscribe for additional shares of Hi, Tiger Common Stock, and no preemptive
or similar rights will arise as a result of the transactions contemplated by
the Agreement. To the best of our knowledge, except for the Voting Agreement
which is one of the Ancillary Agreements, there are no voting trusts, voting
agreements, irrevocable proxies or other agreements in effect relating to any
shares of Hi, Tiger Common Stock to which Hi, Tiger or any of the Principal
Shareholders is a party.
3. Other than as disclosed in the Acquisition Agreement and the Hi,
Tiger Disclosure Schedule attached thereto, Hi, Tiger does not have
outstanding any option, warrant or other right obligating it to issue, or
permitting others to purchase or convert any obligation into, Hi, Tiger Common
Stock or any other securities of Hi, Tiger.
4. TFN is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Utah and has all
requisite power and authority to own, lease and operate its properties and
assets and to conduct its business as now being conducted. TFN is duly
qualified to do business and in good standing in each jurisdiction in which
the nature of its business or character of its properties makes such
qualification necessary, and in which the failure to be so qualified would
have a material adverse affect upon TFN or its business, property or assets.
5. HTI has authorized capital consisting of ___________ shares of
capital stock, $_____ par value ("HTI Stock") of which ____________ shares are
issued and outstanding and owned beneficially and of record by Hi, Tiger. All
of the outstanding shares of HTI Stock are duly authorized, validly issued,
fully paid and nonassessable. To the best of our knowledge, there are no
voting trusts, voting agreements, irrevocable proxies or other agreements in
effect relating to any shares of HTI Stock. Hi, Tiger has good and marketable
title to all of the outstanding HTI Stock, free and clear of any mortgage,
pledge, lien, charge or encumbrance or other rights of third parties. HTI
does not have outstanding any option, warrant or other right obligating it to
issue, or permitting or requiring it or others to purchase or convert any
obligation into, securities of HTI.
6. Merger Sub has authorized capital consisting of ___________ shares
of capital stock, $_____ par value ("Sub Stock") of which ____________ shares
are issued and outstanding and owned beneficially and of record by Hi, Tiger.
All of the outstanding shares of Sub Stock are duly authorized, validly
issued, fully paid and nonassessable. To the best of our knowledge, there are
no voting trusts, voting agreements, irrevocable proxies or other agreements
in effect relating to any shares of Sub Stock. Hi, Tiger has good and
marketable title to all of the outstanding Sub Stock, free and clear of any
mortgage, pledge, lien, charge or encumbrance or other rights of third
parties. Merger Sub does not have outstanding any option, warrant or other
right obligating it to issue, or permitting or requiring it or others to
purchase or convert any obligation into, securities of Merger Sub.
<PAGE> A-39
7. [To be added - Opinion re capital structure of TFN]
8. Other than as disclosed in the Acquisition Agreement and the Hi,
Tiger Disclosure Schedule, to the best of our knowledge, there is no pending
or threatened legal, administrative, arbitration or governmental proceeding to
which Hi, Tiger or the HTI Subsidiaries or any officer, director of employee
of either Hi, Tiger of the HTI Subsidiaries, in his or her capacity as such,
is a party, or any investigation of which Hi, Tiger or the HTI Subsidiaries or
any officer, director or employee of either Hi, Tiger or the HTI Subsidiaries,
in his or her capacity as such, is the subject, which either individually or
in the aggregate would have any material adverse effect on the financial
condition, business or results of operations of Hi, Tiger or the HTI
Subsidiaries.
9. To the best of our knowledge, neither Hi, Tiger nor any of the HTI
Subsidiaries is in violation of or default under any term or provision of
their respective Articles of Incorporation or Bylaws or, as to TFN, under its
Articles of Organization or Operating Agreement.
10. The execution and delivery by Hi, Tiger and Merger Sub of the
Acquisition Agreement and the Certificate of Merger and the consummation by
Hi, Tiger and Merger Sub of the transactions contemplated thereby and by those
Ancillary Agreements to which they are parties or by which they are bound have
been duly approved by their respective Boards of Directors and, in the case of
Merger Sub, by Hi, Tiger, its sole shareholder, and no other corporate
approval or authorization is required for the execution and delivery, by Hi,
Tiger or Merger Sub, of the Acquisition Agreement and such Ancillary
Agreements. The Certificate of Merger and the Ancillary Agreements to which
Hi, Tiger or Merger Sub are parties or by which they are bound have been duly
authorized, executed and delivered on behalf of Hi, Tiger and Merger Sub and
constitute valid, binding and enforceable agreements in accordance with their
terms. Hi, Tiger and Merger Sub each have full corporate power and lawful
authority to consummate the transactions contemplated by the Acquisition
Agreement, the Certificate of Merger and the Ancillary Agreements to which Hi,
Tiger or Merger Sub are parties or by which they are bound on the terms and
conditions set forth therein, and no permit, consent, approval, authorization
or other order of or filing with any governmental authority is required in
connection with such authorization, execution, delivery and consummation.
11. The execution and delivery by TFN and the Principal Shareholders
of the Ancillary Agreements to which they are parties or by which they are
bound and the consummation of the transactions contemplated thereby have been
duly authorized by all requisite corporate or other action and constitute
valid, binding and enforceable agreements in accordance with their terms, and
no permit, consent, approval, authorization or other order of or filing with
any governmental authority is required in connection with such authorization,
execution, delivery and consummation other than as disclosed in the
Acquisition Agreement and the Hi, Tiger Disclosure Schedule.
12. The execution, delivery and performance by Hi, Tiger and Merger
Sub of the Acquisition Agreement and of the Ancillary Agreements to which they
are parties or by which they are bound will not (i) violate any provision of
their respective Articles of Incorporation or Bylaws or (ii) violate any
statute, rule or regulation, or, to the best of our knowledge, order or writ
applicable to Hi, Tiger or Merger Sub.
<PAGE> A-40
13. To the best of our knowledge, neither Hi, Tiger, the HTI
Subsidiaries, TFN nor any Principal Shareholder is subject to any order,
decree or injunction of a court or agency of competent jurisdiction which
prevents or delays the consummation of the transactions contemplated by the
Acquisition Agreement.
14. In the Merger, the issued and outstanding AvTel Common and
Preferred Stock may and will be validly converted into and exchanged for the
Hi, Tiger Exchanged Common and Preferred Stock, respectively, as provided in
the Acquisition Agreement and the shares of Hi, Tiger Exchanged Common and
Preferred Stock so issued will be duly authorized, validly issued, fully paid
and unassessable and, upon the filing of the Certificate of Merger with the
Utah Secretary of State, the merger will be duly and validly effected under
the Utah Revised Business Corporation Act.
15. The issuance by Hi, Tiger of Hi, Tiger Exchanged Common and
Preferred Stock in accordance with the Acquisition Agreement and in exchange
for the AvTel Common and Preferred Stock, respectively, complies with all
applicable securities statutes and regulations of any federal or state agency.
16. The execution and filing with the Secretary of State of Utah of
the Restated Articles and the execution and delivery of the Restated Bylaws
have been duly approved by the Board of Directors and shareholders of Hi,
Tiger.
In addition, we have participated in the preparation of the Information
Statement referred to in Section ____ of the Acquisition Agreement, and,
although we have not independently verified the accuracy and completeness of
the information contained therein, no facts have come to our attention which
would lead us to believe that the proxy statement, or any amendments or
supplements thereto (except as to financial statements and other financial
data contained therein as to which we express no opinion), contains any untrue
statement of a material fact or omits to state a fact necessary to make the
statements therein not materially misleading in light of the circumstances
under which they were made.
For purposes of furnishing opinion number 14 above, we have assumed with
your consent that the Acquisition Agreement, the Certificate of Merger and the
Ancillary Agreements to which AvTel is a party or by which it is bound have
each been duly executed by the officers of Hi, Tiger purporting to execute
such instruments and that the Certificate of Merger will have been filed with
the Secretary of State of the State of Utah and that, for purposes of Utah
law, the Merger will become effective upon the due and proper filing of the
appropriate instruments in Utah.
The foregoing opinions are subject to the following qualifications: (i)
the enforceability of any of the Acquisition Documents is limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and similar laws of general application affecting the rights and
remedies of creditors and by principles of equity (whether such enforcement is
sought in an action at law or equity); and (ii) the availability of the remedy
of specific performance or injunctive relief, or any other equitable remedy,
is subject to the discretion of the court before which any proceeding therefor
may be brought.
Very truly yours,
TAYLOR & ASSOCIATES
Elliott Taylor
<PAGE> A-41
SCHEDULE A
ANCILLARY AGREEMENTS
Non-Competition, Proprietary Rights and Standstill Agreement
Shareholder/Grantor Agreement
AMH Release and Waiver of Claims Agreement (AMH Limited)
Release and Waiver of Claims Agreement (Begum, et al)
Assumption and Rights Agreement
First Refusal Agreement (Tree of Stars)
Rights Agreement - Holders of Series A convertible Preferred Stock
Affiliate Agreement
Voting Agreement
<PAGE> A-42
Exhibit "B"
RELEASE AND WAIVER OF CLAIMS AGREEMENT
(AMH LIMITED)
This RELEASE AND WAIVER OF CLAIMS AGREEMENT("Agreement") is made as of
_____________, 1996, by and among AvTel Communications, Inc., a California
corporation ("AvTel"), Hi, Tiger International, Inc., a Utah corporation (the
"Company"), and each of the Persons listed in Schedule A attached
("Assignees").
RECITALS
A. The Company and AvTel have entered into that certain Acquisition
Agreement, dated August 30, 1996 (the "Acquisition Agreement");
B. The Company and AMH are parties to certain oral agreements and
understandings ("AMH Agreement") pursuant to which AMH agreed to provide
certain advisory, broker, commission, agent or finder's services on behalf of
Hi, Tiger or one or more of its Affiliates in connection with the transactions
contemplated by the Acquisition Agreement in consideration of the Company's
issuance to AMH of 200,000 shares (the "Shares") of the authorized but
unissued common stock of the Company;
C. The Assignees are principals, shareholders, affiliates, agents,
partners, representatives or otherwise associated with AMH;
D. Pursuant to that certain letter agreement dated as of _________, 1996,
AMH and the Company have agreed that AMH may assign, transfer and convey all
of its right, title and interest in the Shares to the Assignees in the amount
reflected in Schedule A attached hereto; provided, however, that the Company
and the Assignees enter this Agreement on or before the Closing Date of the
Acquisition Agreement; and
D. As a material inducement for AvTel and the Company entering into the
Acquisition Agreement, the Assignees, have agreed to enter into and execute
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows:
AGREEMENT
1. Consideration.
1.1 Issuance of Shares. Subject to the terms and conditions hereof,
Hi, Tiger will, as promptly as practicable following the Effective Date (as
defined in the Acquisition Agreement), deliver or cause to be delivered to the
Assignees stock certificates, in the amounts and registered in the name of
each Assignee listed in Schedule A, as a full, complete and final payment,
satisfaction and discharge of any and all contracts, agreements, arrangements,
plans, debts, obligations or liabilities, whether written or oral, expressed
or implied, with or involving AvTel or Hi, Tiger or any of their Affiliates in
connection with, arising from or relating, in any manner whatsoever, to: (a)
the Acquisition Agreement, the transactions contemplated therein and any other
agreement, representation, warranty, covenant, understanding, obligation,
covenant or contract, expressed or implied, written or oral, relating in any
manner whatsoever to the Acquisition Agreement, the other agreements to be
executed and transactions to be consummated in connection with the Acquisition
Agreement (the "Acquisition Transactions") and (b) the AMH Agreement and all
other sales, distribution, marketing, advertising, promotion, commission,
representation, broker, finder or other similar agreements, obligations,
<PAGE> A-43
duties and liabilities of whatsoever nature due or to become due to AMH from
the Released Parties (as defined herein) (collectively, the "Broker
Agreements").
1.2 AMH Receipt. Assignees hereby severally acknowledge receipt of
all payments of whatsoever nature due AMH or Assignees (with respect to any
obligation or duty owed to them in their capacity as partners, shareholders,
agents, representatives, officers or directors of AMH or otherwise in their
individual capacities) through the date hereof relating to or arising from the
Acquisition Transactions and the Broker Agreements, including, but not limited
to brokers', finders', advisory or other fees, payments, commissions or other
forms of compensation or remuneration.
1.3 Certain Definitions. Capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Acquisition Agreement.
As used herein, the term "Affiliates" shall mean as to any specified Person
any other Person who controls, is controlled by or is under common control
with such Person. As used herein, the term "controls" means the power to
direct the management policies of such Person, whether through the ownership
of voting securities, by contract and otherwise; and the terms "controlling",
"controlled" have meanings correlative to the foregoing. For purposes hereof,
an officer or director, shareholder or agent of AMH shall be deemed to be an
Affiliate.
1.4 Registration Rights. Within forty-five (45) days following the
Effective Date, the Company and Assignees shall enter into a Rights Agreement
pursuant to which Assignees will be granted certain "piggyback" registration
rights which will be on terms and conditions substantially similar to those
set forth in the Rights Agreement between the Company and the holders of the
Company's Series A Convertible Preferred Stock, a copy of which has been
furnished to AMH.
2. Release. Each Assignee on behalf of itself and each of its Affiliates
(herein "Releasors") hereby releases and forever discharges AvTel and Hi,
Tiger and each of their respective present or former Affiliates, officers,
directors, trustees, controlling persons, employees and agents and also each
of their respective successors, assigns, subsidiaries, affiliates, divisions,
partners and shareholders ("Released Parties") from each and every right,
claim, debt, demand, loss, action, cause of action, damage, penalty, suit and
proceedings of every kind (including without limitation any claims for
attorneys' fees and other costs and expenses related thereto), at law or in
equity, whether known or unknown (collectively, "Claims"), of, from and
against any and all other payments or performance obligations, duties or
liabilities of whatsoever nature (including, but not limited to, brokers',
finders', advisory or other fees, payments, commissions or other forms of
remuneration or compensation) which such Releasors ever had, now have or may
in the future have relating to the Acquisition Transactions and the Broker
Transactions.
Each Releasor hereby further agrees and acknowledges that the release granted
by the immediately preceding paragraph extends to all rights granted such
Releasor under any state or federal law or regulation limiting the effect of
such release, including, without limitation, the provisions of Section 1542 of
the California Civil Code, WHICH ARE HEREBY EXPRESSLY WAIVED. Said Section
1542 of the California Civil Code reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW
OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
<PAGE> A-44
Thus, notwithstanding the provisions of Section 1542, and for the purpose
of implementing a full and complete release and discharge of all claims, each
Releasor expressly acknowledges that the release of Claims provided by such
Releasor pursuant to this Section 2 is intended to include in its effect,
without limitation, all claims which such Releasor does not know or suspect to
exist in its favor at the time of execution hereof, and that such release
contemplates the extinguishment of any such Claims.
3. Termination of Broker Transactions. Releasors acknowledge and agree
that the Broker Transactions are terminated and canceled as of the date hereof
and from and after the date hereof shall be of no force or effect.
4. Indemnification. Notwithstanding the provisions of this Agreement, in
the event that any officer, director, shareholder, employee or Affiliate of an
Assignee alleges, threatens or commences any claim for payment, performance,
compensation, remuneration, damages, losses, expenses or other liability or
obligation against any Released Parties ("Indemnified Parties") in connection
with or relating to, in any manner whatsoever, the matters released hereby,
Assignee will indemnify, defend and save such indemnified party from and
against any and all such claims, losses, expenses and costs, including
attorneys' fees.
5. Representations. As a material inducement to the execution of this
Agreement by AvTel and Hi, Tiger, Assignee hereby represents and warrants to
each of them that (a) there are no losses, claims, damages or liabilities
pending or, to Assignee's knowledge, threatened against Assignee which would
be reasonably likely to constitute a claim against any Released Parties and
(b) to Assignee's actual knowledge, there is no basis for the assertion, by
any other party, of any losses, claims, damages or liabilities which would be
reasonably likely to constitute a claim against any Released Party.
6. Compliance with Securities Laws. The issuance of the Shares as
contemplated hereby constitutes the offer and sale of securities under the
Securities Act of 1933, as amended (the "Securities Act") and applicable state
statutes. Such transactions shall be consummated in reliance on exemptions
from the registration and prospectus delivery requirements of such statutes
which depend, among other items, on the circumstances under which such
securities are acquired.
(a) In order to provide documentation for reliance upon exemptions
from the registration and prospectus delivery requirements for the issuance of
the Shares in connection with the transactions contemplated hereby, the
parties agree as follows:
(i) Each Assignee acknowledges that neither the Securities and
Exchange Commission ("SEC") nor the securities commission of any state or
other federal agency has made any determination as to the merits of acquiring
the Shares, and that this transaction involves certain risks.
(ii) Each Assignee has such knowledge and experience in business
and financial matters that it is capable of evaluating Hi, Tiger and AvTel and
their business operations as the case may be.
(iii) All information which each Assignee has provided to Hi,
Tiger or its agents or representatives concerning their suitability and intent
to hold the Shares following the transactions contemplated hereby is complete,
accurate, and correct.
<PAGE> A-45
(iv) Each Assignee has not offered or sold any securities of Hi,
Tiger or interest in this Agreement and have no present intention of dividing
the Shares to be received or the rights under this Agreement with others or of
reselling or otherwise disposing of any portion of such stock or rights,
either currently or after the passage of a fixed or determinable period of
time or on the occurrence or nonoccurrence of any predetermined event or
circumstance.
(v) Each Assignee understands that the Shares have not been
registered, but are being acquired by reason of a specific exemption under the
Securities Act as well as under certain state statutes for transactions by an
issuer not involving any public offering and that any disposition of the
Shares may, under certain circumstances, be inconsistent with this exemption
and may make the undersigned an "underwriter" within the meaning of the
Securities Act. It is understood that the definition of "underwriter" focuses
upon the concept of "distribution" and that any subsequent disposition of the
Shares can only be effected in transactions which are not considered
distributions. Generally, the term "distribution" is considered synonymous
with "public offering" or any other offer or sale involving general
solicitation or general advertising. Under present law, in determining
whether a distribution occurs when securities are sold into the public market,
under certain circumstances one must consider the availability of public
information regarding the issuer, a holding period for the securities
sufficient to assure that the persons desiring to sell the securities without
registration first bear the economic risk of their investment, and a
limitation on the number of securities which the stockholder is permitted to
sell and on the manner of sale, thereby reducing the potential impact of the
sale on the trading markets. These criteria are set forth specifically in
rule 144 promulgated under the Securities Act, which allows sales of
securities in reliance upon rule 144 only in limited amounts in accordance
with the terms and conditions of that rule, after two years after the date the
Shares are acquired, fully paid for, as calculated in accordance with rule
144(d). After three years from the date the securities acquired from Hi,
Tiger are fully paid for, as calculated in accordance with rule 144(d), they
can generally be sold without meeting those conditions, provided the holder
is not (and has not been for the preceding three months) an affiliate of the
issuer.
(vi) Each Assignee acknowledges that the Shares must be held and
may not be sold, transferred, or otherwise disposed of for value unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. The Company is under no obligation to register the
Shares under the Securities Act, except as may be expressly agreed to by it in
writing. If Rule 144 is available (and no assurance is given that it will be
except as expressly set forth in this Agreement), after two years and prior to
three years following the date the Shares are fully paid for, only routine
sales of such Shares in limited amounts can be made in reliance upon Rule 144
in accordance with the terms and conditions of that rule. The Company is
under no obligation to the parties to make Rule 144 available, except as may
be expressly agreed to by it in writing in this Agreement, and in the event
Rule 144 is not available, compliance with Regulation A or some other
disclosure exemption may be required before Each Assignee can sell, transfer,
or otherwise dispose of such Shares without registration under the Securities
Act. The Company's registrar and transfer agent will maintain a stop
transfer order against the registration or transfer of the Shares and the
certificate representing the Shares will bear a legend in substantially the
following form so restricting the sale of such securities:
<PAGE> A-46
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND ARE
"RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER THE
SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE SOLD OR TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT.
(vii) The Company may refuse to register further transfers, or
resales of the Shares in the absence of compliance with Rule 144 unless the
undersigned furnishes the issuer with a "no-action" or interpretive letter
from the SEC or an opinion of counsel reasonably acceptable to the Company
stating that the transfer is proper. Further, unless such letter or opinion
states that the Shares are free of any restrictions under the Securities Act,
the Company may refuse to transfer the Shares to any transferee who does not
furnish in writing to it the same representations and agree to the same
conditions with respect to such as set forth herein. The Company may also
refuse to transfer the Shares if any circumstances are present reasonably
indicating that the transferee's representations are not accurate.
(b) In connection with the transaction contemplated by this
Agreement, and at the Company's request, the Company and each Assignee shall
each file, with the assistance of the other and their respective legal
counsel, such notices, applications, reports, or other instruments as may be
deemed by them to be necessary or appropriate in an effort to document
reliance on such exemptions, including a notice on Form D to be filed with the
SEC, and the appropriate regulatory authority in the state where Company
stockholders reside unless an exemption requiring no filing is available in
such jurisdiction, all to the extent and in the manner as may be deemed by
such parties to be appropriate.
(c) In order to more fully document reliance on the exemptions as
provided herein, each Assignee shall execute and deliver to the Company at or
prior to the Effective Date, such further letters of representation,
acknowledgment, suitability, or the like, the Company and its counsel may
reasonably request in connection with reliance on exemptions from registration
under such securities laws.
(d) The Company and each Assignee acknowledge that the basis for
relying on exemptions from registration or qualifications are factual,
dependent on the conduct of the various parties, and that no legal opinion or
other assurance will be required or given to the effect that the transactions
contemplated hereby are in fact exempt from registration or qualification.
7. Authorization, Etc. Each party hereto represents and warrants that it
has all requisite power and authority, corporate or otherwise, to execute and
deliver this Agreement and to grant the release of Claims provided herein, and
that the execution, delivery and performance of this Agreement by such party
has been duly authorized and approved. Each individual executing this
Agreement on behalf of a party hereto represents and warrants that such
individual has been duly authorized to execute and deliver this Agreement on
behalf of such party.
8. AvTel Reliance. Each Assignee expressly acknowledges that the releases
provided herein are intended as material inducements for AvTel entering into
the Acquisition Agreement and giving effect to the transactions contemplated
therein, that AvTel is relying upon the releases of each Assignee as set forth
herein and that it is intended that AvTel benefit from the releases provided
herein.
<PAGE> A-47
9. Governing Law. This Agreement shall be governed by, enforced and
construed under and in accordance with the laws of the United States of
America and, with respect to matters of state law, with the laws of the state
of Utah.
10. Notices. All notices, demands, requests, or other communications
required or authorized hereunder shall be deemed given sufficiently if in
writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy thereof sent by overnight express delivery; if
sent by registered mail or certified mail, return receipt requested and
postage prepaid; or if sent by overnight express delivery:
If to Hi, Tiger, to: HI, TIGER INTERNATIONAL, INC.
Attn.: Paul G. Begum
350 West 300 South
Salt Lake City, Utah 84101
Telecopy No.: (801) 332-1230
With a copy to: Elliott N. Taylor, Esq.
TAYLOR AND ASSOCIATES
3090 East 3300 South, Suite 400
Salt Lake City, Utah 84109
Telecopy No.: (801) 463-6085
If to AvTel, to: AVTEL COMMUNICATIONS, INC..
Attn.: James P. Pisani
6 Harbor Way, Suite 217
Santa Barbara, California 93109
Telecopy No.: (800) 270-0189
With a copy to: Raymond P. Le Blanc, Esq.
PRICE, POSTEL & PARMA
200 East Carrillo Street
Santa Barbara, California 93102-0099
Telecopy No.: (805) 965-3978
If to Each Assignee: The addresses as set forth in Schedule A
or such other addresses and facsimile numbers as shall be furnished by any
party in the manner for giving notices hereunder, and any such notice, demand,
request, or other communication shall be deemed to have been given as of the
date so delivered or sent by facsimile transmission, three days after the date
so mailed, or one day after the date so sent by overnight delivery.
11. Attorneys' Fees. In the event that any party institutes any action or
suit to enforce this Agreement or to secure relief from any default hereunder
or breach hereof, the breaching party or parties shall reimburse the non
breaching party or parties for all costs, including reasonable attorneys'
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
12. Third-Party Beneficiaries. This contract is solely among the Company,
Assignees and AvTel, and, except as specifically provided, no director,
officer, stockholder, employee, agent, independent contractor, or any other
person or entity shall be deemed to be a third party beneficiary of this
Agreement.
<PAGE> A-48
13. Entire Agreement. This Agreement represents the entire agreement
between the parties relating to the subject matter hereof. All previous
agreements between the parties, whether written or oral, have been merged
into this Agreement. This Agreement alone fully and completely expresses the
agreement of the parties relating to the subject matter hereof. There are no
other courses of dealing, understandings, agreements, representations, or
warranties, written or oral, except as set forth herein.
14. Survival; Termination. The representations, warranties, and covenants
of the respective parties shall survive the Effective Date and the
consummation of the transactions herein contemplated.
15. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
16. Amendment or Waiver. Every right and remedy provided herein shall be
cumulative with every other right and remedy, whether conferred herein, at
law, or in equity, and such remedies may be enforced concurrently, and no
waiver by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. At any time prior to the Closing Date, this
Agreement may be amended by a writing signed by all parties hereto, with
respect to any of the terms contained herein, and any term or condition of
this Agreement may be waived or the time for performance thereof may be
extended by a writing signed by the party or parties for whose benefit the
provision is intended.
17. Assignments. This Agreement and the rights, benefits, duties and
obligations hereunder may not be assigned by either party, except as expressly
provided herein. Either the Company or AvTel may assign and transfer its
rights, benefits, duties and obligations hereunder in connection with the sale
of all or substantially all business and assets or in connection with any
merger, consolidation or a combination of other similar transactions.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ASSIGNEES: HI, TIGER INTERNATIONAL, INC.
A Utah Corporation
- ------------------------------
------------------------------------
Its Duly Authorized Officer
- ------------------------------
AVTEL COMMUNICATIONS, INC.
- ------------------------------ A California Corporation
- ------------------------------ ------------------------------------
Its Duly Authorized Officer
<PAGE> A-49
Exhibit "C"
ASSUMPTION AND RIGHTS AGREEMENT
THIS ASSUMPTION AND RIGHTS AGREEMENT ("Agreement") is entered into this
___ day of August, 1996, by and among AvTel Communications, Inc., a California
corporation ("AvTel"), Hi, Tiger International, Inc., a Utah corporation (the
"Company"), Anthony E. Papa, James P. Pisani and Barry A. Peters(each an
"Executive" and, collectively, "Executives").
RECITALS
A. The Company and AvTel have entered into that certain Acquisition
Agreement of even date herewith (the "Acquisition Agreement") pursuant to
which, after giving effect to the transactions contemplated thereby, AvTel
will become a wholly owned subsidiary of the Company and the Executives, as
the shareholders of AvTel, will acquire the number of shares of the issued and
outstanding common stock of the Company set forth in Schedule A attached
hereto (collectively, the "Shares" and, as to each Executive, the "Executive's
Shares").
B. Each Executive is a party to certain employment agreements dated
_________, 1996, with AvTel (the "Employment Agreements") which provide, among
other things, that upon consummation of the transactions contemplated by the
Acquisition Agreement, said Employment Agreements will be assigned to and
assumed by the Company.
C. As a material inducement for AvTel and the Company entering into the
Acquisition Agreement and as a condition precedent to the consummation of the
transactions contemplated therein, the Company, AvTel and Executives have
agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the Company and AvTel entering into
the Acquisition Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Definitions. Capitalized terms not otherwise defined herein shall have
the same meanings as are ascribed to them in the Acquisition Agreement.
1.1 Commission shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
1.2 Common Stock shall mean the $.001 par value common stock of the
Company.
1.3 Exchange Act shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and
regulations thereunder, al as the same shall be in effect from time to time.
1.4 Holder shall mean any Person who holds Registrable Securities.
1.5 Other Stockholders shall mean Persons other than Executives who,
by virtue of agreements with the Company, are entitled to include their
securities in certain registrations hereunder.
1.6 Person shall mean a corporation, an association, a trust, a
partnership, a joint venture, an organization, a business, an individual, a
government or political subdivision thereof or a governmental body.
<PAGE> A-50
1.7 Registrable Securities shall mean (a) the Shares (or, as to each
Executive, the Executive's Shares) and (b) any Common Stock issued as a
dividend or stock split or in connection with a combination of share,
recapitalization, merger, reclassification or other distribution with respect
to or in exchange for or in replacement of the shares referenced in (a) above;
provided, however, that Registrable Securities shall not include any shares of
Common Stock which have previously been registered or which have been sold to
the public either pursuant to a registration statement or Rule 144, or which
have been sold in a private transaction in which the transferor's rights under
this Agreement are not assigned.
1.8 The terms register, registered and registration shall refer to a
registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
1.9 Registration Expenses shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company and
for the Selling Shareholder, blue sky fees and expenses of any regular or
special audits incident to or required by any such registration, but shall not
include Selling Expenses and the compensation of regular employees of the
Company, which shall be paid in any event by the Company.
1.10 Registration Statement shall mean a registration statement filed
by the Company on Form S-1, S-2, S-3 or 10-SB of the Securities Act.
1.11 Securities Act shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time
1.12 Selling Expenses shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable
Securities in an offering pursuant to this Agreement.
1.13 Selling Shareholders shall mean any Holder whose Registrable
Securities are being registered pursuant to Section 3 hereof.
2. Assignment and Assumption. Subject to the consummation of the
transactions contemplated by the Acquisition Agreement, as of the Effective
Date, AvTel hereby assigns to the company all of AvTel's right, title and
interest in, under and to the Employment Agreements and the Company hereby
assumes the Employment Agreements and agrees to become responsible for paying,
satisfying and performing all debts, liabilities and obligations of AvTel
thereunder. The Company agrees to indemnify and save harmless AvTel and the
Executives, severally, against all debts, liabilities and obligations of AvTel
relating to each Executive's Employment Agreement in the manner and to the
extent provided therein and this instrument and the covenants and agreements
herein contained shall bind the Company and its successors and assigns and
shall inure to the benefit of AvTel and its successors and assigns. Each
Executive hereby consents to the foregoing assignment and assumption of their
respective Employment Agreements.
3. Registration Rights.
<PAGE> A-51
3.1 Piggyback Registration Rights. If at any time the Company shall
determine to register any shares of its capital stock of the same class as the
Registrable Securities for its own account or for the account of any other
Stockholder, in an underwritten offering, the Holder shall be entitled to
include Registrable Securities in such registration (a "Piggyback Registration
Statement") on the following terms an conditions:
(a) Piggyback Notice. The Company shall promptly give written notice
of such determination to the Holders (a "Piggyback Notice") and Holder shall
have the right to request, by written notice ("Registration Notice") given to
the Company and to each other Holder not later than ten (10) days following
the date the Piggyback Notice is received from the Company, that a specific
number of Registrable Securities held by such Holder be included in the
Piggyback Registration Statement and related underwritten offering.
(b) Underwriting. The right of any Holder to registration pursuant
to this Section 3.1 shall be conditioned upon the participation in such
underwriting by Holders representing and the inclusion therein, of not less
than _____% of the then outstanding Registrable Securities in the underwriting
(unless otherwise mutually agreed by a majority in interest of the Holders and
such Holder with respect to such participation and inclusion) to the extent
provided herein. A Holder may elect to include in such underwriting all or a
part of the Registrable Securities he holds.
(c) Procedures. Each Holder must agree to sell such Holder's
Registrable Securities on the same basis provided in the underwriting
arrangements approved by the Company and to timely complete and execute all
questionnaires, powers of attorney, indemnities, "standstill", "lock-up" and
"holdback" agreements, underwriting agreements and other documents required
under the terms of such underwriting arrangements or by the Commission or
otherwise considered reasonable and appropriate under the circumstances by
counsel for the Company or the underwriters. If the managing underwriter for
any underwritten offering under the Piggyback Registration Statement
determines that inclusion of all or any portion of the Registrable Securities
would adversely affect the ability of the underwriter for such offering to
sell all of the securities requested to be included for sale in such offering,
the number of shares that may be sold in such offering shall be allocated
first to the Company (or, if the offering is being made principally for the
account of an Other Stockholder to such Other Stockholder) and thereafter pro
rata among the Selling Shareholders and to any Other Stockholders holding
applicable pre-existing contractual registration rights; provided, however,
that the allocated number of shares that may be sold in such offering by each
Selling Shareholder shall be determined by multiplying the total aggregate
number of Registrable Securities held by such Selling Shareholder as of the
date of his/her Registration Notice (the "Shareholder Total") by a fraction,
the numerator of which is the Shareholder Total and the denominator of which
is the total aggregate number of Registrable Securities specified in all
Registration Notices furnished to the Company pursuant to the Subparagraph
(a), above. Selling shareholders shall have the right to withdraw their
Registrable Securities from the Piggyback Registration Statement, but they may
only do so during the timer period and on terms agreed upon among the
underwriters. Notwithstanding anything to the contrary, no Piggyback
Registration shall be permitted with respect to any registration of securities
required as a condition to the closing of the transactions contemplated by the
Acquisition Agreement.
<PAGE> A-52
3.2 Expenses. All expenses incident to the Company's performance of
or compliance with this Agreement, including Registration Expenses shall be
borne by the Company. Selling shareholders shall be responsible for payment
of all Selling Expenses in connection with their participation in any offering
pursuant to this Rights Agreement and the sale of Registrable Securities in
any registered offering pursuant to this Rights Agreement.
3.3 Indemnification.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless each Holder of Registrable Securities who participates in
any registered offering pursuant to this Rights Agreement from and against any
and all losses, claims, damages and liabilities, joint or several (including
any investigation, legal or other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action suit or proceeding or
any claim asserted), to which such Holder may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, prospectus or preliminary prospectus or any amendment
or supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) any violation by the Company of the
Securities Act or the Exchange Act, or other federal or state law applicable
to the Company and relating to any action or inaction required by the Company
in connection with such registration; provided, however, that the Company
shall not be liable to any such holder in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any
alleged untrue statement or alleged omission made in such Registration
Statement, prospectus, preliminary prospectus or amendment or supplement in
reliance upon any information furnished to the Company by such Holder.
(b) Indemnification by Holders. Each Holder, by exercising the
registration rights hereunder, agrees to indemnify and hold harmless the
Company, its directors and each officer who signed such Registration Statement
under the same circumstances as the foregoing indemnity from the Company to
the Holders to the extent that such losses, claims, damages, liabilities or
actions arise out of or are based upon any alleged untrue statement of a
material fact or alleged omission of a material fact that was made in the
Registration Statement, the prospectus, the preliminary prospectus or any
amendment or supplement thereto, in reliance upon any information furnished to
the Company by Holders.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and (ii)
permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; provided, however,
that any Person entitled to indemnification hereunder shall have the right to
employ separate counsel and to participate in the defense of such claim, but
the fees and expenses of such counsel shall be at the expense of such Person
and not of the indemnifying party unless (x) the indemnifying party has agreed
to pay such fees or expenses, or (y) the indemnifying party shall have failed
to assure the defense of such claim or employ counsel reasonably satisfactory
to such Person, or (z) in the reasonable judgment of the Person to be
indemnified, a conflict of interest may exist between such Person and the
indemnifying party with respect to such claims (in which case, if the Person
<PAGE> A-53
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf
of such Person). If such defense is not assumed by the indemnifying party,
the indemnifying party will not be subject to any liability for any settlement
made without its consent (but such consent will not be unreasonably withheld).
No indemnified party will be required to consent to entry of any judgement or
enter into any settlement which does not include as an unconditional term
thereof the giving by all claimants or plaintiffs to such indemnified party of
a release from all liability in respect to such claim.
4. Restrictions and Limitations
4.1 Transferability and Nonnegotiability. The Executives' Shares may
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by each Holder and the transferee
of any Holder (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested
by the Company).
4.2 Compliance with Securities Laws. Each Executive hereby
acknowledges that the Executive's Shares are being acquired solely for the
Executive's own account and not as a nominee for any other party, and for
investment, and that the Executive will not offer, sell or otherwise dispose
of any such Shares except under circumstances that will not result in a
violation of the Securities Act or any state securities laws. Upon execution
of this Agreement, and from time to time thereafter, each Executive shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Shares are being acquired solely for the Executive's own
account and not as a nominee for any other party, for investment and not with
a view toward distribution or resale. This Agreement, the Executive's Shares
shall be stamped or imprinted with a legend in substantially the following
form (in addition to any legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER OR THEREUNDER
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE
PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO
THE SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY
5. Miscellaneous
5.1 Undertaking. AvTel, the Company and each Executive, severally,
hereby agrees to take whatever additional action and execute whatever
additional documents the Company may deem necessary or advisable in order to
carry out or effect one or more of the obligations or restrictions imposed on
either Executive or the Executive's Shares pursuant to the express provisions
of this Rights Agreement.
5.2 Agreement is Entire Contract. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof.
5.3 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Utah without resort to
that state's conflict-of-laws rules.
<PAGE> A-54
5.4 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together
shall constitute one and the same instrument.
5.5 Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Company, AvTel and their
respective successors and assigns and each Executive and each Executive's
legal representatives, heirs, legatees, distributees, assigns and transferees
by operation of law, whether or not any such Person shall have become a party
to this Agreement and have agreed in writing to join herein and be bound by
the terms and conditions hereof.
5.6 Survival of Warranties. The warranties, representations and
covenants of the parties contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing.
5.7 Notices. All notices, demands, requests, or other communications
required or authorized hereunder shall be deemed given sufficiently if in
writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy thereof sent by overnight express delivery; if
sent by registered mail or certified mail, return receipt requested and
postage prepaid; or if sent by overnight express delivery:
If to the Company, to: HI, TIGER INTERNATIONAL, INC.
Attn.: Paul G. Begum
350 West 300 South
Salt Lake City, Utah 84101
Telecopy No.: (801) 332-1230
With a copy to: Elliott N. Taylor, Esq.
TAYLOR AND ASSOCIATES
3090 East 3300 South, Suite 400
Salt Lake City, Utah 84109
Telecopy No.: (801) 463-6085
If to AvTel, to: AVTEL COMMUNICATIONS, INC..
Attn.: James P. Pisani
6 Harbor Way, Suite 217
Santa Barbara, California 93109
Telecopy No.: (800) 270-0189
With a copy to: Raymond P. Le Blanc
PRICE, POSTEL & PARMA
200 East Carrillo Street
Santa Barbara, California 93102-0099
Telecopy No.: (805) 965-3978
If to Executives to: Messrs. Anthony E. Papa, James P. Pisani and
Barry A. Peters
130 Cremona Way
Goleta, CA 93117
Telecopy No. 800\270-0189
or such other addresses and facsimile numbers as shall be furnished by any
party in the manner for giving notices hereunder, and any such notice, demand,
request, or other communication shall be deemed to have been given as of the
date so delivered or sent by facsimile transmission, three days after the date
so mailed, or one day after the date so sent by overnight delivery.
<PAGE> A-55
5.8 Attorneys' Fees. In the event of any litigation or other action
in connection with this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and disbursements from the other party
as costs of suit and not as damages.
IN WITNESS WHEREOF, the parties have executed this Rights Agreement on
the day and year first indicated above.
EXECUTIVES AvTEL COMMUNICATIONS, INC.
A California Corporation
ANTHONY E. PAPA
______________________________ ______________________________
Anthony E. Papa
HI, TIGER INTERNATIONAL, INC.
A Utah Corporation
JAMES P. PISANI
______________________________ ______________________________
James P. Pisani
BARRY A. PETERS
______________________________
Barry A. Peters
SCHEDULE A
No. of Shares of $.001 Par Value
Common Stock of
Executive Hi, Tiger International, Inc.
- --------- -----------------------------
Anthony E. Papa 1,499,950
James P. Pisani 1,499,950
Barry A. Peters 1,000,100
<PAGE> A-56
Exhibit "D"
RIGHTS AGREEMENT
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES AND ANY
SECURITIES OR SHARES ISSUED HEREUNDER OR THEREUNDER MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT.
THIS RIGHTS AGREEMENT ("Rights Agreement") is made and entered into as of
this ___ day of ________, 1996, by and between Hi, Tiger International, Inc.,
a Utah corporation (the "Company") and Tommy Lin (the "Investor").
RECITALS
A. Pursuant to the terms and conditions of that certain Acquisition
Agreement by and among AvTel Communications, Inc., a California corporation
("AvTel"), Hi, Tiger International, Inc., a Utah corporation (the "Company")
and AvTel Communications, Inc., a Utah corporation ("Merger's Sub"), the
holders of all the issued and outstanding common stock of AvTel are to receive
fifty-one percent (51%) of the issued and outstanding common stock of the
Company, after giving effect to the transactions contemplated by the
Acquisition Agreement and all of the holders of these Series A Preferred Stock
of AvTel (the "AvTel Preferred Stock") issued and outstanding prior to the
consummation of the transactions contemplated by the Acquisition Agreement,
are to receive, in connection with such transactions, shares of the Series A
convertible Preferred Stock of Hi, Tiger (the "Hi Tiger Preferred");
B. The Investor is the holder of the AvTel Preferred Stock and, pursuant
to the terms and conditions of the Acquisition Agreement, is to receive shares
of the Hi Tiger Preferred Stock upon consummation of the transactions
contemplated by the Acquisition Agreement;
C. It is an express condition precedent to the consummation of the
transactions contemplated by the Acquisition Agreement that the Company and
the Investor enter into this Rights Agreement in connection with the
Acquisition Agreement and the transactions contemplated therein.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
1. Registration Rights.
1.1 Definitions. Capitalized terms used in this Agreement shall, unless
otherwise defined herein, have the same meanings as are ascribed to them in
the Acquisition Agreement. As used in this Rights Agreement, the following
terms shall have the meanings set forth below:
(a) Commission shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
(b) Exchange Act shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
(c) Holder shall mean any Investor who holds Registrable Securities.
(d) Initiating Holders shall mean any Holder or Holders who in the
aggregate hold not less than fifty percent (50%) of the outstanding
Registrable Securities.
<PAGE> A-57
(e) Investor(s) shall mean persons who purchased Shares pursuant to
the Purchase Agreement.
(f) Other Stockholders shall mean persons other than Holders who, by
virtue of agreements with the Company, are entitled to include their
securities in certain registrations hereunder.
(g) Registrable Securities shall mean (i) shares of Common Stock
issued or issuable pursuant to the conversion of the Shares and (ii) any
Common Stock issued as a dividend or other distribution with respect to or in
exchange for or in replacement of the shares referenced in (i) above;
provided, however, that Registrable Securities shall not include any shares of
Common Stock which have previously been registered or which have been sold to
the public either pursuant to a registration statement or Rule 144, or which
have been sold in a private transaction in which the transferor's rights under
this Agreement are not assigned.
(h) The terms register, registered and registration shall refer to a
registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
(i) Registration Expenses shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company, blue
sky fees and expenses and expenses of any regular or special audits incident
to or required by any such registration, but shall not include Selling
Expenses, fees and disbursements of counsel for the Holders and the
compensation of regular employees of the Company, which shall be paid in any
event by the Company.
(j) Registration Statement shall mean a registration statement filed
by the Company on Form S-1, S-3 or 10-SB of the Securities Act.
(k) Securities Act shall mean the Securities Act of 1933, as amended,
or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
(l) Selling Expenses shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable
Securities and fees and disbursements of counsel for any Holder (other than
the fees and disbursements of counsel for any Holder (other than the fees and
disbursements of counsel included in Registration Expenses).
(m) Shares shall mean the Company's Series A Preferred Stock.
1.2 Demand Registration Rights. If the Company shall receive from
Initiating Holders at any time or times not earlier than the earlier of (i)
three (3) years after the Effective Date or (ii) one (1) year after the
effective date of the first Registration Statement filed by the Company
covering an underwritten offering of any of its securities to the general
public, a written request (the "Demand Notice") that the Company effect any
registration by filing a Registration Statement ("Demand Registration
Statement") with respect to all or a part of the Registrable Securities, the
Company will:
<PAGE> A-58
(a) promptly give written notice of the proposed registration to all
Other Stockholders; and
(b) as soon as practicable, use its best efforts to effect such
registration (including, without limitation, filing post-effective amendments,
appropriate qualifications under applicable blue sky or other state securities
laws, and appropriate compliance with the Securities Act) as would permit or
facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Other Stockholders joining
in such request as are specified in a written request received by the Company
from such Other Stockholders within twenty (20) days after such written notice
from the Company is mailed or delivered.
1.3 Limitations. The Company shall not be obligated to effect, or to take
any action to effect, any such registration pursuant to Section 1.2:
(a) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance, unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act;
(b) after the Company has initiated one such registration pursuant to
Section 1.2 (counting for these purposes only a registration which has been
declared or ordered effective and pursuant to which securities have been
sold);
(c) during the period starting the date sixty (60) days prior to the
Company's good faith estimate of the date of filing of, and ending on a date
one hundred eight (180) days after the effective date of, a Company-initiated
registration; provided that the Company is actively employing in good faith
all reasonable efforts to cause such registration statement to become
effective;
(d) if the Initiating Holders propose to dispose of shares of
Registrable Securities which may be immediately registered on Form S-3
pursuant to a request made under Section 1.4 hereof;
(e) if the Initiating Holders do not request that such offering be
firmly underwritten by underwriters selected by the Initiating Holders
(subject to the consent of the Company, which consent will not be unreasonably
withheld); or
(f) if the Company and the Initiating Holders are unable to obtain
the commitment of the underwriter described in clause (e) above to firmly
underwrite the offer.
Subject to the foregoing clauses (a) through (f), the Company shall file
a Registration Statement covering Registrable Securities so requested to be
registered as soon as practicable after receipt of the Demand Notice from the
Initiating Holders; provided, however, that if (i) in the good faith judgment
of the Board of Directors of the Company, such registration would be seriously
detrimental to the Company and the Board of Directors of the Company
concludes, as a result, that it is essential to defer the filing of such
Registration Statement at such time, and (ii) the Company shall furnish to
such Holders a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors of the Company, it would
be seriously detrimental to the Company for such registration statement to be
<PAGE> A-59
filed in the near future and that it is, therefore, essential to defer the
filing of such registration statement, then the Company shall have the right
to defer such filing (except as provided in clause (c) above) for a period of
not more than one hundred eighty (180) days after receipt of the Demand Notice
from the Initiating Holders, and, provided, further, that the Company shall
not defer its obligation in this manner more than twice in any twelve-month
period.
1.4 Piggyback Registration Rights. If at any time after the first
anniversary of the Issuance Date hereof, or from time to time thereafter, the
Company shall determine to register any shares of its capital stock of the
same class as the Registrable Securities for its own account or for the
account of any shareholder (other than any Holder) in an underwritten
offering, the Holder(s) shall be entitled to include Registrable Securities in
such registration (a "Piggyback Registration Statement") on the following
terms and conditions:
(a) Piggyback Notice. The Company shall promptly give written notice
of such determination to the Holders (a "Piggyback Notice") and the Holders
shall have the right to request, by written notice given to the Company not
later than ten (10) days following the date the Piggyback Notice is received
from the Company, that a specific number of Registrable Securities be included
in the Piggyback Registration Statement and related underwritten offering.
(b) Underwriting. The right of any Holder to registration pursuant
to this Section 1.4 shall be conditioned upon the participation in such
underwriting by Holder's representing and the inclusion therein, of not less
than 33 1/3% of the then outstanding Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in
such underwriting all or a part of the Registrable Securities he holds.
(c) Procedures. Each Holder must agree to sell such Holder's
Registrable Securities on the same basis provided in the underwriting
arrangements approved by the Company and to timely complete and execute all
questionnaires, powers of attorney, indemnities, "standstill", "lock-up" and
"holdback" agreements, underwriting agreements and other documents required
under the terms of such underwriting arrangements or by the Commission or
otherwise considered reasonable and appropriate under the circumstances by
counsel for the Company or the underwriters. If the managing underwriter for
any underwritten offering under the Piggyback Registration Statement
determines that inclusion of all or any portion of the Registrable Securities
in such offering would adversely affect the ability of the underwriter for
such offering to sell all of the securities requested to be included for sale
in such offering, the number of shares that may be sold in such offering shall
be allocated first to the Company (or, if the offering is being made
principally for the account of another Person, to such Person) and thereafter
pro rata among the Holders who have requested that Registrable Securities be
included in the underwriting ("Selling Shareholders") and to any other
shareholders holding applicable pre-existing contractual registration rights.
Selling Shareholders shall have the right to withdraw their Registrable
Securities from the Piggyback Registration Statement, but they may only do so
during the time period and on terms agreed upon among the underwriters.
Notwithstanding anything to the contrary, no Piggyback Registration shall be
permitted with respect to any registration of securities required as a
condition to the closing of the Hi, Tiger Merger.
<PAGE> A-60
1.5 Expenses. All expenses incident to the Company's performance of or
compliance with this Agreement, including Registration Expenses shall be borne
by the Company. Investor(s) shall be responsible for payment of all fees and
disbursements of their counsel and accountants, all other out of pocket
expenses of Investor(s) in connection with their participation in any offering
pursuant to this Rights Agreement and all Selling Expenses applicable to the
sale of Registrable Securities by Investor(s) in any registered offering
pursuant to this Rights Agreement.
1.6 Indemnification.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless each Holder of Registrable Securities who participates in
any registered offering pursuant to this Rights Agreement from and against any
and all losses, claims, damages and liabilities, joint or several (including
any investigation, legal or other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action suit or proceeding or
any claim asserted), to which such Holder may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, prospectus or preliminary prospectus or any amendment
or supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) any violation by the Company of the
Securities Act or the Exchange Act, or other federal or state law applicable
to the Company and relating to any action or inaction required by the Company
in connection with such registration; provided, however, that the Company
shall not be liable to any such holder in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any
alleged untrue statement or alleged omission made in such Registration
Statement, prospectus, preliminary prospectus or amendment or supplement in
reliance upon any information furnished to the Company by such Holder.
(b) Indemnification by Holders. Each Holder, by exercising the
registration rights hereunder, agrees to indemnify and hold harmless the
Company, its directors and each officer who signed such Registration Statement
under the same circumstances as the foregoing indemnity from the Company to
the Holders to the extent that such losses, claims, damages, liabilities or
actions arise out of or are based upon any alleged untrue statement of a
material fact or alleged omission of a material fact that was made in the
Registration Statement, the prospectus, the preliminary prospectus or any
amendment or supplement thereto, in reliance upon any information furnished to
the Company by Holders.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and (ii)
permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; provided, however,
that any Person entitled to indemnification hereunder shall have the right to
employ separate counsel and to participate in the defense of such claim, but
the fees and expenses of such counsel shall be at the expense of such Person
and not of the indemnifying party unless (x) the indemnifying party has agreed
to pay such fees or expenses, or (y) the indemnifying party shall have failed
to assure the defense of such claim or employ counsel reasonably satisfactory
to such Person, or (z) in the reasonable judgment of the Person to be
<PAGE> A-61
indemnified, a conflict of interest may exist between such Person and the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf
of such Person). If such defense is not assumed by the indemnifying party,
the indemnifying party will not be subject to any liability for any settlement
made without its consent (but such consent will not be unreasonably withheld).
No indemnified party will b e required to consent to entry of any judgement or
enter into any settlement which does not include as an unconditional term
thereof the giving by all claimants or plaintiffs to such indemnified party of
a release from all liability in respect to such claim.
2. Restrictions and Limitations
2.1 Transferability and Nonnegotiability. The Shares may not be
transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by each Investor and the
transferee of any Investor (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company).
2.2 Compliance with Securities Laws. Each Investor hereby acknowledges
that the Shares and any Common Stock to be issued upon conversion thereof are
being acquired solely for the Investor's own account and not as a nominee for
any other party, and for investment, and that the Investor will not offer,
sell or otherwise dispose of any Shares or any Common Stock to be issued upon
conversion thereof except under circumstances that will not result in a
violation of the Act or any state securities laws. Upon execution of this
Rights Agreement, and from time to time thereafter, each Investor shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Shares are being acquired solely for the Investor's own
account and not as a nominee for any other party, for investment and not with
a view toward distribution or resale. This Rights Agreement, the Shares and
all Common Stock issued upon conversion thereof shall be stamped or imprinted
with a legend in substantially the following form (in addition to any legend
required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER OR THEREUNDER
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT.
3. Covenants of the Company.
3.1 So long as any Shares remain outstanding, the Company shall not, and
shall not permit any Subsidiary to, without the vote or written consent of the
Holders of more than 50% of the then outstanding Shares, declare or pay any
dividends (other than stock dividends) on or declare or make any other
distribution, direct or indirect, on account of the Common Stock or set apart
any sum for any such purpose.
3.2 So long as any Shares remain outstanding, the Company covenants and
agrees in the Holders of the Shares that the Company will furnish the Holders
within forty-five (45) days of the end of each fiscal quarter, copies of the
Company's unaudited consolidated balance sheet, consolidated statement of
income and consolidated statement of cash flows, prepared in accordance with
generally accepted accounting principles and, within ninety (90) days of the
<PAGE> A-62
end of each fiscal year, copies of the Company's consolidated balance sheet,
consolidated statement of income and consolidated statement of cash flows
audited by an independent firm of certified public accountants; and within
ninety (90) days after the filing thereof, copies of any report, application
or documents which the Company may be required to file with the Securities and
Exchange Commission, or any state securities commission or other comparable
regulatory authority.
4. Miscellaneous
4.1 Investor Undertaking. Investor hereby agrees to take whatever
additional action and execute whatever additional documents the Company may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Investor or the Shares pursuant
to the express provisions of this Rights Agreement.
4.2 Agreement is Entire Contract. This Rights Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof.
4.3 Governing Law. This Rights Agreement shall be governed by, and
construed in accordance with, the laws of the State of Utah without resort to
that State's conflict-of-laws rules.
4.4 Counterparts. This Rights Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together
shall constitute one and the same instrument.
4.5 Successors and Assigns. The provisions of this Rights Agreement shall
inure to the benefit of, and be binding upon, the Company and its successors
and assigns and Investor and Investor's legal representatives, heirs,
legatees, distributees, assigns and transferees by operation of law, whether
or not any such Person shall have become a party to this Rights Agreement and
have agreed in writing to join herein and be bound by the terms and conditions
hereof.
4.6 Survival of Warranties. The warranties, representations and covenants
of the Company and the Investor(s) contained in or made pursuant to this
Rights Agreement shall survive the execution and delivery of this Rights
Agreement and the Closing.
4.7 Notices. Unless otherwise provided, all notices and other
communications required or permitted under this Rights Agreement shall be in
writing and shall be mailed by United States first class mail, postage
prepaid, sent by facsimile or delivered personally by hand or by nationally
recognized courier addressed to the party to be notified at the address or
facsimile number indicated for each Person on the signature page hereof, or at
such other address or facsimile number as such party may designate by ten (10)
days' advance written notice to the other parties hereto. All such notices
and other written communications shall be effective on the date of mailing,
facsimile transfer or delivery.
4.8 Finder's Fees. Each party represents that it neither is nor will be
obligated for any finder's fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of
a finder's fee (and the cost and expenses of defending against such liability
or asserted liability) for which the Investor or any of its officers,
partners, employees or representatives is responsible. The Company agrees to
<PAGE> A-63
indemnify and hold harmless each Investor from liability for any commission or
compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company
or any of its officer, employees or representatives is responsible.
4.9 Attorneys' Fees. In the event of any litigation or other action in
connection with this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and disbursements from the other party
as costs of suit and not as damages.
IN WITNESS WHEREOF, the parties have executed this Rights Agreement on
the day and year first indicated above.
INVESTOR HI, TIGER INTERNATIONAL, INC.
A Utah Corporation
______________________________ ______________________________
<PAGE> A-64
EXHIBIT "E"
VOTING AGREEMENT
This VOTING AGREEMENT dated as of August 30, 1996, is entered into by and
among AvTel Communications, Inc., a California corporation ("AvTel"), Hi,
Tiger International, Inc., a Utah corporation (the "Company") and the other
parties signatory hereto (each a "Stockholder").
RECITALS
A. Each Stockholder desires that AvTel, the Company and AvTel
Communications, Inc, a Utah corporation, and wholly owned subsidiary of the
Company ("Merger Sub"), enter into an Acquisition Agreement dated the date
hereof (as the same may be amended or supplemented the "Acquisition
Agreement") with respect to the merger of Merger Sub with and into AvTel (the
"Merger"); and
B. Each Stockholder is executing this Voting Agreement as an inducement to
AvTel to enter into and execute the Voting Agreement and it is a condition to
the consummation of the transactions contemplated by the Acquisition Agreement
that this Voting Agreement be executed.;
NOW, THEREFORE, in consideration of the execution and delivery by AvTel
of the Acquisition Agreement and the mutual covenants, conditions and
agreements contained herein and therein, the parties agree as follows:
1. Representations and Warranties. Each Stockholder severally represents
and warrants to AvTel as follows:
a. Such Stockholder is the record and beneficial owner of the number
of shares of Common Stock par value $.001 per share, of the Company (the
"Company Common Stock") set forth opposite such Stockholder's name in Schedule
A hereto (such Stockholder's "Shares"). Except for such Stockholder's Shares
and any other shares of Company Common Stock subject hereto, such Stockholder
is not the record or beneficial owner of either (i) any shares of Company
Common Stock or any rights, warrants, options or similar arrangements to
acquire any Company Common Stock or (ii) any debentures, indebtedness, rights,
agreements or other similar arrangements that are convertible into or
exchangeable for any Company Common Stock.
b. This Voting Agreement has been duly authorized, executed and
delivered by such Stockholder and constitutes the legal, valid and binding
obligation of such Stockholder, enforceable against such Stockholder in
accordance with its terms. Neither the execution and delivery of this Voting
Agreement nor the consummation by such Stockholder of the transactions
contemplated hereby will result in a violation of, or a default under, or
conflict with, any contract, trust, commitment, agreement, understanding,
arrangement or restriction of any kind to which such Stockholder is a party or
bound or to which such Stockholder's Shares are subject. No trust of which
such Stockholder is a trustee requires the consent of any beneficiary to the
execution and delivery of this Voting Agreement or to the consummation of the
transactions contemplated hereby. If such Stockholder is married and such
Stockholder's Shares constitute community property, this Voting Agreement has
been duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, such Stockholder's spouse, enforceable against such
person in accordance with its terms. Consummation by such Stockholder of the
transactions contemplated hereby will not violate, or require any consent,
approval or notice under, any provision of any judgment, order, decree,
statute, law, rule or regulation applicable to such Stockholder or such
Stockholder's Shares.
<PAGE> A-65
c. Such Stockholder's Shares and the certificates representing such
Shares are now and at all times during the term hereof will be held by such
Stockholder, or by a nominee or custodian for the benefit of such Stockholder,
free and clear of all liens, claims, security interests, proxies, voting
trusts or agreements, understandings or arrangement or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising hereunder or
under the existing terms of a trust of which such Stockholder is the trustee.
d. No broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated hereby based
upon arrangements made by or on behalf of such Stockholder.
e. Such Stockholder understands and acknowledges that AvTel is
entering into the Acquisition Agreement in reliance upon such Stockholder's
execution and delivery of this Voting Agreement. Such Stockholder
acknowledges that the irrevocable proxy set forth in Section 3 is granted in
consideration for the execution and delivery of the Acquisition Agreement by
AvTel.
2. Covenants. Each Stockholder severally agrees with, and covenants to,
AvTel and with respect to paragraph (b) below, each beneficiary of any
revocable trust for which any Stockholder serves as trustee, agrees with and
covenants to AvTel, as follows:
a. Such Stockholder shall not, except as contemplated by the terms of
this Voting Agreement (i) transfer (which term shall include, without
limitation, for the purposes of this Voting Agreement, any sale, gift, pledge
or other disposition) or consent to any transfer of, any or all of such
Stockholder's Shares of any interest therein, (ii) enter into any contract,
option or other agreement of understanding with respect to any transfer of any
or all of such Shares or any interest therein, (iii) grant any proxy, power of
attorney or other authorization in or with respect to such Shares, (iv)
deposit such Shares into a voting trust or enter into a voting agreement or
arrangement with respect to such Shares or (v) take any other action that
would in any way restrict, limit or interfere with the performance of its
obligations hereunder or the transactions contemplated hereby.
b. At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which their vote,
consent or other approval is sought, such Stockholder shall vote (or cause to
be voted) such Stockholder's Shares against (i) any merger agreement or merger
(other than the Acquisition Agreement), consolidation, combination, sale of
substantial assets, reorganization, joint venture, recapitalization,
dissolution, liquidation or winding up of or by the Company and (ii) other
than as contemplated by the Acquisition Agreement, any amendment of the
Company's Articles of Incorporation or Bylaws or other proposal or transaction
involving the Company or any of its subsidiaries which amendment or other
proposal or transaction would in any manner impede, frustrate, prevent or
nullify, or result in a breach of any covenant, representation or warranty or
any other obligation or agreement of the Company under or with respect to the
Merger, Acquisition Agreement or any of the other transactions contemplated by
the Acquisition Agreement (each of the foregoing in clauses (i) or (ii) above,
a "Competing Transaction").
<PAGE> A-66
3. Grant of Irrevocable Proxy; Appointment of Proxy.
a. Each Stockholder hereby irrevocably grants to, and appoints, AvTel
and Anthony E. Papa and James P. Pisani, in their respective capacities as
officers of AvTel and any individual who shall hereafter succeed to any such
office of AvTel, and each of them individually, such Stockholder's proxy and
attorney-in-fact (with full power of substitution) for and in the name, place
and stead of such Stockholder, to vote such Stockholder's Shares or grant a
consent or approval in respect of such Shares against any Competing
Transaction.
b. Such Stockholder represents that any proxies heretofore given in
respect of such Stockholder's Shares are not irrevocable, and that any such
proxies are hereby revoked.
c. Such Stockholder hereby affirms that the irrevocable proxy set
forth in this Section 3 is given in connection with the execution of the
Acquisition Agreement, and that such irrevocable proxy is given to secure the
performance of the duties of the Stockholder under this Acquisition Agreement.
Such Stockholder hereby further affirms that the irrevocable proxy is coupled
with an interest and may under no circumstances be revoked. Such Stockholder
hereby ratifies and confirms all that such irrevocable proxy may lawfully do
or cause to be done by virtue hereof. Such irrevocable proxy is executed and
intended to be irrevocable in accordance with the provisions of Section
16-10a.722 of the Utah Revised Business Corporation Act (the "RBCA").
4. Certain Events. Each Stockholder agrees that this Voting Agreement and
the obligations hereunder shall attach to such Stockholder's Shares and shall
be binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise, including,
without limitation, such Stockholder's heirs, guardians, administrators or
successors. In the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital structure of
the Company affecting the Company Common Stock, or the acquisition of
additional shares of Company Common Stock or other voting securities of the
Company by any Stockholder, the number of Shares listed in Schedule A beside
the name of such Stockholder shall be adjusted appropriately and this Voting
Agreement, the obligations hereunder and the proxy granted hereunder shall
attach to any additional shares of Company Common Stock or other voting
securities of the Company issued to or acquired by such Stockholder.
5. Legend, Transfer Agent Notification. Each Stockholder agrees that such
Stockholder will deliver to the Company or to its transfer agent and registrar
within five (5) business days after the date hereof, any and all certificates
representing such Stockholder's Shares in order that the Company may inscribe
upon such certificates the following legend:
THE SHARES OF COMMON STOCK $.001 PAR VALUE, OF HI, TIGER INTERNATIONAL, INC.
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING AGREEMENT DATED AS OF
AUGUST 30, 1996, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED, EXCEPT IN
ACCORDANCE THEREWITH. COPIES OF SUCH VOTING AGREEMENT MAY BE OBTAINED AT THE
PRINCIPAL EXECUTIVE OFFICES OF HI, TIGER INTERNATIONAL, INC.
Each Stockholder further authorizes and instructs the Company to provide, and
the Company hereby agrees to provide within five (5) business days after the
date hereof, to its transfer agent and registrar stop notices or other similar
instructions or notices to the effect that all Shares held of record or
beneficially by such Stockholders are subject to restrictions on transfer.
<PAGE> A-67
6. Stockholder Capacity. No person executing this Voting Agreement who
is, or becomes, during the term hereof, a director or officer of the Company
makes any agreement or understanding herein in his or her capacity as such
director or officer. Each Stockholder signs solely in his or her capacity as
the record holder and beneficial owner of, or the trustee of a trust, whose
beneficiaries are the beneficial owners of, such Stockholder's Shares and
nothing herein shall limit or affect any actions taken by a Stockholder in its
capacity as an officer or director of the Company to the extent specifically
permitted by the Voting Agreement.
7. Further Assurances. Each Stockholder shall, upon request of AvTel,
execute and deliver any additional documents and take such further actions as
may reasonably be deemed by AvTel to be necessary or desirable to carry out
the provisions hereof and to vest the power to vote such Stockholder's Shares
as contemplated by Section 3 in AvTel and the other irrevocable proxies
described therein.
8. Termination. This Voting Agreement and all rights and obligations of
the parties hereunder shall terminate upon the first to occur of (a) the
Effective Date of the Voting Agreement or (b) the date upon which the Voting
Agreement is terminated in accordance with its terms.
9. Miscellaneous.
a. Capitalized terms used and not otherwise defined in this Voting
Agreement shall have the respective meanings assigned such terms in the
Acquisition Agreement.
b. This Voting Agreement constitutes the entire contract between the
parties hereto with regard to the subject matter hereof.
c. This Voting Agreement shall be governed by, and construed in
accordance with, the laws of the State of Utah without resort to that state's
conflict-of-laws rules.
d. This Voting Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
e. The provisions of this Voting Agreement shall inure to the benefit
of, and be binding upon, the parties hereto and their respective successors
and assigns and each Stockholder and each Stockholder's legal representatives,
heirs, legatees, distributees, assigns and transferees by operation of law,
whether or not any such Person shall have become a party to this Voting
Agreement and have agreed in writing to join herein and be bound by the terms
and conditions hereof.
f. The warranties, representations and covenants of the parties
contained in or made pursuant to this Voting Agreement shall survive the
execution and delivery of this Voting Agreement and the Closing.
g. All notices, demands, requests, or other communications required
or authorized hereunder shall be deemed given sufficiently if in writing and
if personally delivered; if sent by facsimile transmission, confirmed with a
written copy thereof sent by overnight express delivery; if sent by registered
mail or certified mail, return receipt requested and postage prepaid; or if
sent by overnight express delivery:
<PAGE> A-68
If to the Company, to: HI, TIGER INTERNATIONAL, INC.
Attn.: Paul G. Begum
350 West 300 South
Salt Lake City, Utah 84101
Telecopy No.: (801) 332-1230
With a copy to: Elliott N. Taylor, Esq.
TAYLOR AND ASSOCIATES
3090 East 3300 South, Suite 400
Salt Lake City, Utah 84109
Telecopy No.: (801) 463-6085
If to AvTel, to: AVTEL COMMUNICATIONS, INC..
Attn.: James P. Pisani
6 Harbor Way, Suite 217
Santa Barbara, California 93109
Telecopy No.: (800) 270-0189
With a copy to: Raymond P. Le Blanc, Esq.
PRICE, POSTEL & PARMA
200 East Carrillo Street
Santa Barbara, California 93102-0099
Telecopy No.: (805) 965-3978
If to Stockholders, to: The Addresses Set Forth in Schedule A
or such other addresses and facsimile numbers as shall be furnished by any
party in the manner for giving notices hereunder, and any such notice, demand,
request, or other communication shall be deemed to have been given as of the
date so delivered or sent by facsimile transmission, three days after the date
so mailed, or one day after the date so sent by overnight delivery.
h. In the event of any litigation or other action in connection with
this Voting Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and disbursements from the other party as costs of
suit and not as damages.
i. If any term, provision, covenant or restriction herein, or the
application thereof to any circumstance, shall, to any extent, be held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions herein and the
application thereof to any other circumstances, shall remain in full force and
effect, shall not in any way be affected, impaired or invalidated, and shall
be enforced to the fullest extent permitted by law.
j. Each Stockholder agrees that irreparable damage would occur and
that AvTel would not have any adequate remedy at law in the event that any of
the provisions of this Voting Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed
that AvTel shall be entitled to an injunction or injunctions to prevent
breaches by any Stockholder of this Voting Agreement and to enforce
specifically the terms and provisions of this Voting Agreement in any court of
the United States located in the State of Utah or in Utah state court, this
being in addition to any other remedy to which they are entitled by law or in
equity. In addition, each of the parties hereto (i) consents to submit such
party to the personal jurisdiction of any Federal court located in the State
of Utah or any Utah state court in the event any dispute arises out of this
Voting Agreement or any of the transactions contemplated hereby, (ii) agrees
<PAGE> A-69
that such party will attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court and (iii) agrees that
such party will not bring any action relating to this Voting Agreement of any
of the transactions contemplated hereby in any court other than a Federal
court sitting in the State of Utah or a Utah state court.
IN WITNESS WHEREOF, AvTel, the Company and the Stockholders have caused
this Voting Agreement to be duly executed and delivered as of the date first
written above.
AVTEL COMMUNICATIONS, INC. STOCKHOLDERS:
- --------------------------------- -----------------------------------
Anthony E. Papa, President Paul G. Begum
and C.E.O.
HI, TIGER INTERNATIONAL, INC. -----------------------------------
Peter D. Olson
- ---------------------------------
Paul G. Begum, President -----------------------------------
Tree of Stars, Inc.
By: Paul G. Begum, President
SCHEDULE A
Stockholders Stockholders' Shares
- ------------ --------------------
Peter D. Olson 607,163
521 North Arden Drive
Beverly Hills, CA 90310
Paul G. Begum 74,167 (1)
P.O. Box 8045
Salt Lake City, UT 84158
Tree of Stars, Inc. (2) 626,332
P.O. Box 8045
Salt Lake City, UT 84158
(1) Includes 500 shares owned of record by Paul G. Begum, Custodian for
Gibran Paul Begum
(2) Paul G. Begum is the President and a principal shareholder of Tree of
Stars, Inc.
<PAGE> A-70
Exhibit "F"
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is entered into, this 30th
day of August, 1996, by and among AVTEL COMMUNICATIONS, INC., a California
corporation ("AVTEL"); HI, TIGER INTERNATIONAL, INC., a Utah corporation ("Hi,
Tiger"); and PAUL G. BEGUM ("Begum").
RECITALS:
A. AVTEL and Hi, Tiger have entered into that certain Acquisition
Agreement of even date herewith (the "Acquisition Agreement") pursuant to
which the shareholders of AVTEL will, after giving effect to the transactions
contemplated by the Acquisition Agreement, acquire a controlling interest in
the issued and outstanding common stock of Hi, Tiger.
B. Begum is presently President and Chief Executive Officer of Hi, Tiger
and therefore is the person who possess the most personal knowledge concerning
the accuracy of the representations and warranties made on behalf of Hi, Tiger
under the Acquisition Agreement. Begum is also the owner or directly or
indirectly, beneficially or of record, of approximately 30% of the currently
issued and outstanding common stock of Hi, Tiger.
C. As a material inducement for AVTEL entering into the Acquisition
Agreement, and as a condition precedent to the transactions contemplated
therein, Begum has agreed to indemnify, defend and hold harmless AVTEL and Hi,
Tiger from any claims or liability arising out of any breach of or inaccuracy
in certain of the representations and warranties of Hi, Tiger set forth in the
Acquisition Agreement, or in any other agreement, instrument or document to
which Begum is a party and which is furnished by Begum pursuant to the
Acquisition Agreement or the transactions contemplated therein.
NOW, THEREFORE, in consideration of AVTEL and Hi, Tiger entering into the
Acquisition Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Indemnification by Begum. Begum hereby agrees to indemnify, defend and
hold harmless AVTEL and Hi, Tiger and, except for Begum himself, their
respective officers, directors, employees, affiliates, stockholders, partners,
agents, representatives, successors and assigns ("Indemnified Party") for,
from and against any and all claims, demands, liabilities, costs, expenses,
damages, debts, obligations, fines, fees, penalties, interest, losses, cause
or causes of action and suit or suits of any nature whatsoever (collectively
"Damages") incurred by any Indemnified Party in connection only with any
breach of or any inaccuracy in any representation or warranty of Hi, Tiger set
forth in Sections 2.04 - 2.09 and 2.21 of the Acquisition Agreement. [In no
event may any claim for indemnification be asserted under this Agreement after
December 31, 1997.]
2. Indemnification Procedures.
2.1 Notice. Whenever any claim shall arise for indemnification under
this Agreement, the Indemnified Party shall notify Begum in writing In the
event of any such claim for indemnification hereunder resulting from or in
connection with any claim or legal proceedings by a third party, the notice
shall also specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. Such notice shall be given within thirty (30)
days after the Indemnified Party first acquires knowledge or information of
<PAGE> A-71
such claim. The Indemnified Party shall use the Indemnified Party's best
reasonable efforts to protect his, her or its and Begum's interests against
default pending notification to Begum of such claim.
2.2 Action by Begum. Upon receipt of such written notice of claim from
the Indemnified Party, Begum shall either (a) promptly thereafter discharge
and satisfy such claim, or (b) notify the Indemnified Party within five (5)
business days after Begum's receipt of the Indemnified Party's notice of
Begum's election to assume the defense of such claim.
If Begum assumes the defense of such claim, Begum shall select counsel
reasonably acceptable to the Indemnified Party to conduct the defense of such
claim and, at his sole cost and expense, Begum shall take all steps necessary
in the defense or settlement thereof. Begum shall not consent of a settlement
to, or the entry of any judgment arising from, such claim without the prior
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld or delayed). The Indemnified Party shall be entitled to
participate in the defense of such claim, with the Indemnified Party's own
counsel and at the Indemnified Party's own expense unless the Indemnified
Party has selected counsel to represent him,, her or it as a result of
circumstances in which an actual or potential conflict of interest is present
in which case the expense of Indemnified Party's counsel shall be borne by
Begum. If Begum does not notify the Indemnified Party within five (5)
business days after Begum's receipt of such notice of claim of Begum's
election to assume the defense of such claim, the Indemnified Party shall have
the right thereafter to discharge and satisfy such claim, or defend against
the same, in such manner as the Indemnified Party deems appropriate and the
indemnification liability of Begum to the Indemnified Party hereunder shall be
conclusively established as to the amount by the payment, settlement, judgment
and/or defense costs incurred or sustained by the Indemnified Party resulting
therefrom.
3. Limitation of Indemnification Liability. Except for (a) claims based
upon fraud or wilful misrepresentation, (b) claims for attorney's fees and
costs under Section 4.4 of this Agreement , and (c) claims for a breach of or
an inaccuracy in a representation or warranty made in Section 2.05 of the
Acquisition Agreement (with respect to all such claims there shall be no
liability cushion or basket), Begum shall have no obligation to indemnify any
Indemnified Party until the aggregate Damages exceed $5,000.00 in which event
such indemnity obligation shall be for all aggregate Damages, Begum hereby
waives any statutory or contractual claim which Begum may poses against Hi,
Tiger to himself be indemnified for any indemnification liability which he
incurs under this Agreement.
4. Miscellaneous.
4.1 Definitions. Capitalized terms not otherwise defined herein shall
have the same meanings as are ascribed to them in the Acquisition Agreement.
4.2 Governing Law. This Agreement shall be governed by, enforced and
construed under and in accordance with the laws of the United States of
America and, with respect to matters of state law, with the laws of the State
of Utah.
4.3 Notices. All notices, demands, requests, or other communications
required or authorized hereunder shall be deemed given sufficiently if in
writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy hereof sent by overnight express delivery' if
sent by registered mail or certified mail, return receipt requested and
<PAGE> A-72
postage prepaid; or if sent by overnight express delivery;
If to AVTEL, to: AVTEL COMMUNICATIONS, INC.
Attn: James P. Pisani
6 Harbor Way, Suite 217
Santa Barbara, CA 93109
Telecopy No.: (800) 270 0189
With a copy to: Raymond P. Le Blanc, Esq.
PRICE, POSTEL, & PARMA LLP
200 East Carrillo Street
Santa Barbara, CA 93101
Telecopy No.: (805) 965-3978
If to Hi, Tiger, to: Paul G. Begum
350 West 300 South
Salt Lake City, UT 84101
Telecopy No.: (801) 322-1221
With a copy to: Elliott Taylor, Esq.
3090 East 3300 South, Suite 400
Salt Lake City, Utah 84109
Telecopy No.: (801) 463-6080
If to Begum, to: Paul G. Begum
350 West 300 South
Salt Lake City, UT 84101
Telecopy No.: (801) 322-1221
4.4 Attorney's Fees. If any action at law or in equity, or any
arbitration or other proceeding is brought for the enforcement, interpretation
or a specific performance of the Agreement, or because of any alleged dispute,
breach, default or misrepresentation in connection with this Agreement, the
successful or prevailing party shall be entitled to recover actual attorney's
fees and other costs such party incurred in that action or proceeding
(including attorney's fees and costs incurred on appeal), and/or enforcing any
judgment, order or award granted therein, in addition to any other relief to
which such party may be entitled. Any judgment, order or award entered in
such action or proceeding shall contain a specific provision providing for the
recovery of attorney's fees and costs incurred in enforcing such judgment,
order or award.
4.5 Entire Agreement etc. This Agreement and the Acquisition Agreement
contain the entire agreement among the parties hereto regarding the subject
matter hereof, and supersede all other prior or contemporaneous agreements and
negotiations regarding such subject matter, whether written or oral. The
indemnification obligations contained in this Agreement shall survive without
limitation the Closing Date and the consummation of the transactions
contemplated in the Acquisition Agreement.
4.8 Amendment or Waiver. Every right and remedy provided herein shall be
cumulative with every other right and remedy, whether conferred herein, at
law, or in equity, and such remedies may be enforced concurrently, and no
waiver by any party of the performance of any obligations by the other shall
be construed as a waiver of the same or any other default then, theretofore,
or thereafter occurring or existing. At any time prior to the Closing Date,
this Agreement may be amended by ah writing signed by all parties hereto, with
respect to any of the terms contained herein, and any term or condition of
this Agreement maybe waived or the time for performance thereof may be
<PAGE> A-73
extended by a writing signed by the parties for whose benefit the provision is
intended.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AVTEL COMMUNICATIONS, INC., HI, TIGER INTERNATIONAL, INC.,
a California corporation a Utah corporation
By________________________ By___________________________
Anthony Papa Its___________________________
President & Chief Executive Officer
______________________________
Paul G. Begum
<PAGE> B-1 AVTEL COMMUNICATIONS, INC.
DESIGNATION OF RIGHTS, PRIVILEGES, AND PREFERENCES OF
SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to the provisions of Section 16-10a-602, of the Utah Revised
Business Corporation Act, the above corporation (the "Corporation") hereby
adopts the following Designation of Rights, Privileges, and Preferences of
Series A Convertible Preferred Stock (the "Designation"):
We, Anthony E. Papa and James P. Pisani hereby certify that:
1. We are the President and Chief Executive Officer and the Executive Vice
President, Secretary and Chief Financial Officer, respectively, of AvTel
Communications, Inc., a Utah corporation formerly called Hi, Tiger,
International, Inc., a Utah corporation.
2. The number of shares of Preferred Stock of this corporation is
5,000,000, none of which has been issued.
3. The Board of Directors duly adopted the following resolution:
WHEREAS, the Amended and Restated Articles of Incorporation authorize the
Preferred Stock of the corporation to be issued in series and authorize the
Board of Directors to determine the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued class or series of
Preferred Stock and to fix the number of shares and designation of any such
series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
establish a series of Preferred Stock as follows:
Section 1 Designation and Number of Shares
The shares of such preferred stock shall be designated AvTel
Communications, Inc. Series A Convertible Preferred Stock ("Series A
Convertible Preferred Stock"). The par value of each share of Series A
Convertible Preferred Stock shall be $1.00. The number of shares constituting
Series A Convertible Preferred Stock shall be 1,000,000.
Section 2 General Definitions. For purposes of designating the
preferences, privileges, restrictions and rights of the Series A Convertible
Preferred Stock, the following definitions shall apply:
2.1 Board of Directors shall mean the Board of Directors of the
Corporation.
2.2 Business Day shall mean any day other than Saturdays, Sundays or other
days on which commercial banks are authorized or required to close in Salt
Lake City, Utah.
2.3 Common Stock shall refer to the Common Stock of the Corporation.
2.4 Consideration shall mean in any issuance (other than a Non-Dilutive
Issuance) of securities, including but not limited to common stock or
Convertible Securities or Options (a "Transaction"), (a) in case of an
issuance of Common Stock for cash or property (i) the net amount of the cash
and the fair market value of the property received by the issuer for such
securities, or (b) in the case of Convertible Securities or Options, the price
at which the holders of such Convertible Securities or Options may, upon the
conversion, exchange or exercise thereof, acquire such Common Stock.
<PAGE> B-2
2.5 Convertible Securities shall mean any evidence of indebtedness, shares
(other than Common Stock) or other securities of the Corporation, convertible
into or exchangeable for Common Stock.
2.6 Corporation shall mean AvTel Communications, Inc., a Utah corporation.
2.7 Current Market Price of any security on any Trading Day shall be (a)
if such security is traded on a national securities exchange, its last sale
price on such Trading Day on such national securities exchange or, if there
was no sale on that day, the last Trading Day on which there was a sale or (b)
if the principal market for such security is the over-the-counter market, and
such security is quoted on the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), the last sale price reported on NASDAQ
on such Trading Day or, if such security is an issue for which last sale
prices are not reported on NASDAQ, the mean between the bid and ask quotation
on such day, but, in each of the preceding two cases, if the relevant NASDAQ
price or quotation did not exist on such day, then the price or quotation on
the preceding Trading Day in which there was such a price or quotation.
2.8 Distribution shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, or the purchase or
redemption of shares of this Corporation for cash or property, including any
such transfer, purchase or redemption by a Subsidiary of this Corporation.
2.9 Equivalent Shares shall mean common stock and shares of any new class
(a "New Class") of securities without fixed maximum dividends or which share
with such common stock in the residual value of the issuer on liquidation.
2.10 Issuance Date shall mean the first date upon which any shares of
Series A Convertible Preferred Stock are issued by the Corporation.
2.11 Issue Price shall mean the result determined by dividing the
Consideration received by the deemed number of Equivalent Shares issued in any
Transaction.
2.12 Junior Shares shall mean all Common Stock and any other shares of
this Corporation other than the Series A Convertible Preferred Stock.
2.13 Liquidation Preference shall mean the par value of each share of
Series A Convertible Preferred Stock, in addition to the aggregate amount of
any cumulative, unpaid dividends, for each share of Series A Convertible
Preferred Stock as determined in accordance with Section 3 below.
2.14 Non-Dilutive Issuances means (a) the issuance of any series of the
Corporation's preferred stock, (b) the issuance of Common Stock upon
conversion of any Series A Convertible Preferred Stock, (c) the issuance of
Options to purchase shares of Common Stock, or the issuance of Common Stock
upon the exercise of such Options, provided that (i) such Options are issued
to employees, officers, directors or consultants of the Corporation, (ii) such
Options are issued pursuant to one or more employee stock purchase or stock
option plans or long-term incentive plans or as part of bona fide reasonable
compensation arrangements in the ordinary course of business, (iii) in the
case of Options, the exercise price of such Options shall be substantially
equal to the then Current Market Price of the underlying Common Stock on the
date of grant unless issued pursuant to an employee stock purchase plan
intended to meet the requirements of Section 423 of the Internal Revenue Code
of 1986, or (e) issuances of any Common Stock or Options by the Corporation
pursuant to any strategic alliance which, for purposes hereof shall mean any
contract or agreement between the Corporation or one of its Subsidiaries and
<PAGE> B-3
one or more other parties involving an acquisition by the Corporation or one
or more of its Subsidiaries, of an ownership interest (whether partial or
whole and whether in the form of an acquisition of stock, voting or non-voting
securities, general or limited partnership interests, or similar equity
participation interests) in any other corporation, partnership, joint venture
or other business entity, or any such agreement or contract involving the
development, commercialization, marketing, sale, distribution, provisioning,
supply, licensing or production of any products or services by or for the
Corporation or one or more of its Subsidiaries.
2.15 Option shall mean rights, options or warrants to subscribe for,
purchase or otherwise acquire Common Stock or Convertible Securities.
2.16 Person means a corporation, an association, a trust, a partnership, a
joint venture, an organization, a business, an individual, a government or
political subdivision thereof or a governmental body.
2.17 Public Offering with respect to any securities means the registration
of such securities under the Securities Act, under a firm commitment
underwriting, for sale to the public.
2.18 Securities Act shall mean the Securities Act of 1933, as amended, or
any similar successor federal statute and the rules and regulations
thereunder, all as may be in effect from time to time.
2.19 Series A Convertible Preferred Stock shall refer to the Series A
Convertible Preferred Stock of this Corporation.
2.20 Subsidiary shall mean any corporation at least 50% of whose
outstanding voting shares shall at the time be owned by the Corporation or by
one or more of such subsidiaries.
2.21 Trading Day shall mean any day on which trading occurs on the New
York Stock Exchange.
Section 3. Dividend Rights of Preferred Stock. The holders of the Series
A Convertible Preferred Stock shall be entitled to receive, out of any funds
legally available therefor, cumulative dividends, on each outstanding share of
Series A Convertible Preferred Stock, at the rate of eight percent (8.0%) of
the par value of the Series A Convertible Preferred Stock per annum per share,
on each outstanding share of Series A Convertible Preferred Stock, and no
more, payable prior and in preference to any payment of any dividend on, or
other distribution with respect to, Junior Shares and payable semi-annually,
commencing one hundred eighty (180) days from the Issuance Date, from funds
legally available therefor. Such dividends shall accrue from the Issuance
Date whether or not earned so that no dividends (other than those payable
solely in Common Stock) shall be made with respect to Junior Shares until
cumulative dividends on the Series A Convertible Preferred Stock for all past
dividend periods and for the then current six-month dividend period shall have
been declared and paid or set apart. Such dividends shall be payable to
holders of record of shares of Series A Convertible Preferred Stock as of a
record date, determined by the Board of Directors, which shall be not more
than thirty (30) days prior to the dividend payment date. Other than with
respect to the dividends paid on the Series A Convertible Preferred Stock
which represent payment cumulative dividends thereon for all past dividend
periods and for the then current six-month dividend period, no dividend shall
be declared, paid on or set apart for the outstanding shares of Series A
Convertible Preferred Stock. The holders of at least 50% of the Series A
Convertible Preferred Stock may at any time by written consent waive payment
<PAGE> B-4
of any accumulated but unpaid dividends with respect to such Series A
Convertible Preferred Stock or eliminate any requirement to declare, pay, set
apart or accumulate any dividends with respect to such Series A Convertible
Preferred Stock.
Section 4. Restriction on Dividend Rights of Junior Shares. No dividend
or other Distribution (other than those payable solely in Common Stock) shall
be declared or paid with respect to Junior Shares while any shares of Series A
Convertible Preferred Stock are outstanding without the vote or written
consent by the holders of at least 50% of the outstanding shares of Series A
Convertible Preferred Stock.
Section 5. Liquidation Rights of Series A Convertible Preferred Stock. In
the event of any liquidation, dissolution or winding up of the Corporation,
either voluntary or involuntary, the holders of the Series A Convertible
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of Junior Shares by reason of their ownership of such stock, an amount
(the "Liquidation Preference") equal to the sum of $1.00 for each share of
Series A Convertible Preferred Stock then held by them and, in addition, an
amount equal to all declared but unpaid dividends, if any, on the Series A
Convertible Preferred Stock. If the assets and funds thus distributed among
the holders of the Series A Convertible Preferred Stock shall be insufficient
to permit the payment to such holders of the aggregate Liquidation Preference
payable to such holders, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed among the holders of
the Series A Convertible Preferred Stock, pro rata among the holders of such
Series A Convertible Preferred Stock according to the number of shares held by
each such holder. After payment to the holders of Series A Convertible
Preferred Stock of the Liquidation Preference as aforesaid, the entire assets
and funds of the Corporation legally available for distribution, if any, shall
be distributed among the holders of the Junior Shares.
Section 6. Redemption. The Corporation may, from funds legally available
therefore, redeem all or any part of the outstanding Series A Convertible
Preferred Stock as follows:
6.1 Redemption of Series A Convertible Preferred Stock After Second
Anniversary. After the second anniversary of the Issuance Date, the
Corporation may redeem, at any time, and from time to time, after the second
anniversary of the Issuance Date, all or any part, but if less than all, not
less than 25%, of the Series A Convertible Preferred Stock outstanding. Any
redemption effected pursuant to this Section 6 shall be made on a pro-rata
basis among the holders of Series A Convertible Preferred Stock in proportion
to the Shares of Series A Convertible Preferred Stock then held by them.
6.2 Redemption of Series A Convertible Preferred Stock Before First
Anniversary. The Corporation may, at any time, and from time to time, prior
to the first anniversary of the Issuance Date redeem all or any part, but if
less than all, not less than 25%, of the outstanding Series A Convertible
Preferred Stock immediately following any period of twenty (20) consecutive
Trading Days on which the Current Market Price of Common Stock was $2.00 per
share or more.
6.3 Redemption Price. The Corporation may redeem shares of Series A
Convertible Preferred Stock pursuant to either Section 6.1 or 6.2 above by
paying in cash therefore an amount (the "Redemption Price") equal to the
Liquidation Preference per share of Series A Convertible Preferred Stock.
<PAGE> B-5
6.4 Redemption Notice. In order to effect a redemption pursuant to
Section 6.1 or 6.2 above, the Corporation shall, by written notice (herein the
"Redemption Notice"), mailed first class postage prepaid, to each holder of
record (at the close of business on the Business Day immediately preceding the
day on which notice is given) of Series A Convertible Preferred Stock to be
redeemed, at the address shown on the records of the Corporation for such
holder, notify such holder of the redemption to be effected. Such Redemption
Notice shall specify the number of shares of Series A Convertible Preferred
Stock to be redeemed from such holder, the Redemption Price, the place at
which payment may be obtained and calling upon such holder to surrender to the
Corporation, in the manner and at the place designated, and a date (herein the
"Delivery Date") which shall not be less than forty-five (45) days nor more
than sixty (60) days following the date of such Redemption Notice, his
certificate or certificates representing the shares to be redeemed. On or
before the Delivery Date, each holder of Series A Convertible Preferred Stock
to be redeemed shall surrender to the Corporation a certificate or
certificates representing such shares, in the manner and at the place
designated in the Redemption Notice, and thereupon the Redemption Price of
such shares shall be payable to the order of the Person whose name appears on
such certificate or certificates as the owner thereof, any surrendered
certificate shall be canceled. In the event that less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
6.5 Continuing Rights of Holders of Series A Convertible Preferred Stock
Following Redemption. From and after the Delivery Date, unless there shall
have been a defaulted payment of the Redemption Price, all rights of the
holders of shares of Series A Convertible Preferred Stock designated for
redemption and the Redemption Notice as holders of Series A Convertible
Preferred Stock (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Corporation are legally available for
redemption of shares of Series A Convertible Preferred Stock on the Delivery
Date and are not sufficient to redeem the total number of shares of Series A
Convertible Preferred Stock deemed redeemed on such date, those funds which
are legally available will be used to redeem the maximum possible number of
such shares, ratably from the holders of such shares to be redeemed, based
upon their holdings of Series A Convertible Preferred Stock. The shares of
Series A Convertible Preferred Stock not redeemed shall remain outstanding and
entitled to the rights and preferences provided herein and shall no longer be
considered as having been designated for redemption in the relevant Redemption
Notice.
6.6 Deposit of Redemption Price. On or prior to each Delivery Date, the
Corporation shall deposit the Redemption Price of all shares of Series A
Convertible Preferred Stock designated for redemption in the Redemption Notice
and not yet redeemed with a bank or trust corporation having aggregate capital
and surplus in excess of $10,000,000 as a trust fund for the benefit of the
respective holders in shares designated for redemption and not yet redeemed,
with irrevocable instructions and authority to the bank or trust corporation
to pay the redemption price for such shares to the respective holders on or
after the Delivery Date on receipt of notification from the Corporation that
such holder has surrendered his or her share certificates to the Corporation
pursuant to Subsection 6.4 above. As of the Delivery Date, the deposit shall
constitute full payment of the shares to their holders, and from and after the
Delivery Date shares so called for redemption shall be redeemed and shall be
deemed to be no longer outstanding, and holders thereof shall cease to be
<PAGE> B-6
stockholders with respect to such shares and shall have no rights with respect
thereto, except for rights to receive a bank or trust corporation payment of
the Redemption Price of the shares, without interest, upon surrender of their
certificates therefore. Such instructions shall also provide that any monies
deposited by the Corporation pursuant to this Subsection 6.6 for the
redemption of shares thereafter converted into shares of Common Stock pursuant
to Section 8 hereof, prior to the Delivery Date, shall be returned to the
Corporation forthwith upon such conversion. The balance of any monies
deposited by the Corporation pursuant to this Subsection 6.6 remaining
unclaimed at the expiration of one (1) year following the Delivery Date shall
thereupon be returned to the Corporation upon its request as expressed in a
resolution adopted by its Board of Directors.
Section 8. Conversion Rights of Series A Convertible Preferred Stock. The
holders of the Series A Convertible Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
8.1 Right to Convert. Subject to the terms and conditions hereof, each
share of Series A Convertible Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the first anniversary of the
Issuance Date, into such number of fully paid and nonassessable shares of
Common Stock, as determined by dividing $1.00 by the Conversion Price
applicable to such share, determined as hereinafter provided, in effect on the
date the certificate is surrendered for conversion. The price at which shares
of Common Stock shall be deliverable upon conversion of shares of the Series A
Convertible Preferred Stock (the "Conversion Price") shall initially be $1.00
per share of Common Stock. The Conversion Price shall be subject to
adjustment as hereinafter provided in Section 8.4.
8.2 Automatic Conversion on Public Offering. Each share of Series A
Convertible Preferred Stock shall automatically be converted into the number
of fully paid and nonassessable shares of Common Stock upon the closing of a
Public Offering pursuant to an effective Registration Statement under the
Securities Act, covering the offer and sale of Common Stock to the public at a
public offering price (prior to underwriters' discounts and expenses) equal to
or exceeding $10.00 per share of Common Stock (as adjusted for stock
dividends, combinations or splits with respect to such shares) and the
proceeds to the Corporation of not less than $15 million (net only of
underwriters' commissions and expenses relating to the issuance, including
without limitation expenses of the Corporation's counsel). In the event of
such Public Offering, the person(s) entitled to receive the Common Stock
issuable upon such conversion of Series A Convertible Preferred Stock shall
not be deemed to have converted such Series A Convertible Preferred Stock
until the date of the closing of such sale of Common Stock. The Conversion
Price of shares of Series A Convertible Preferred Stock which are converted
pursuant to this Section 8.2 shall be the lower of $1.00 per share or a price
determined by multiplying .80 times the Issue Price per share of the Common
Stock issued in such Public Offering.
8.3 Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of Series A Convertible Preferred Stock. In
lieu of any fractional shares to which the holder would otherwise be entitled,
the Corporation shall pay cash equal to such fraction multiplied by a fair and
reasonable conversion price to be determined by the Board of Directors solely
for calculating payments due for fractional shares. No shares of Common Stock
will be issued in respect of accrued or declared and unpaid dividends on the
Series A Convertible Preferred Stock; however, except in the case of an
Automatic Conversion on a Public Offering as set forth in subparagraph 8.2
hereof, the Corporation shall remain liable after conversion of any Series A
<PAGE> B-7
Convertible Preferred Stock for cumulative unpaid dividends accrued on such
Series A Convertible Preferred Stock prior to the time of conversion. Before
any holder of Series A Convertible Preferred Stock shall be entitled to
convert the same into full shares of Common Stock, he shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation and, except for the Automatic Conversion pursuant to subparagraph
8.2 above, shall give written notice (the "Conversion Notice") to the
Corporation, at such office that he elects to convert the same. The
Corporation shall, as soon as practicable thereafter issue and deliver or
cause to be issued and delivered to such holder of Series A Convertible
Preferred Stock, at such office or at such other place as the holder shall
specify in the Conversion Notice, a certificate or certificates for the number
of shares of Common Stock, to which he shall be entitled as aforesaid,
registered in the name of such holder or in such other name as the holder
shall specify in the aforementioned written notice. Except as set forth in
subparagraph 8.2 above, such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of
the shares of Series A Convertible Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
8.4 Adjustments for Diluting Issues.
(a) Adjustment for Stock Splits and Combinations. If the Corporation
at any time or from time to time after the Issuance Date effects a subdivision
of the outstanding Common Stock (meaning to increase the number of shares of
Common Stock into which each share of Series A Convertible Preferred Stock is
convertible), the Conversion Price then in effect immediately before that
subdivision shall be proportionately increased, and conversely, if the
Corporation at any time or from time to time after the Issuance Date combines
the outstanding shares of Common Stock (meaning to decrease the number of
shares of Common Stock into which each share of Series A Convertible Preferred
Stock is convertible), the Conversion Price then in effect immediately before
the combination shall be proportionately increased. Any adjustment under this
subparagraph (a) shall become effective at the close of business on the date
the subdivision or combination becomes effective.
(b) Adjustment for Certain Dividends and Disbursements. In the event
the Corporation at any time, or from time to time, after the Issuance Date,
makes or fixes a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event, the Conversion Price then
in effect shall be decreased as of the time of such issuance or, in the event
such record date is fixed, as of the close of business on such record date, by
multiplying the Conversion Price then in effect by a fraction (a) the
numerator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date (but excluding shares of Common Stock previously
issued by the Corporation upon conversion of Series A Convertible Preferred
Stock) plus the number of shares of Common Stock issuable in payment of such
dividend or distribution, and (b) the denominator of which is the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date (but excluding
shares of Common Stock previously issued by the Corporation upon conversion of
Series A Convertible Preferred Stock); provided, however, that if such record
date is fixed and such dividend is not fully paid or if such distribution is
not fully made on the date fixed thereof, the Conversion Price shall be
recomputed accordingly as of the close of business on such record date and
<PAGE> B-8
thereafter the Conversion Price shall be adjusted such that the number of
shares of Common Stock into which each share of Series A Convertible Preferred
Stock is convertible pursuant to this subsection as of the time of actual
payment of such dividends or distributions.
(c) Adjustments for Other Dividends and Distributions. In the event
the Corporation at any time or from time to time after the Issuance Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then in each such event a
provision shall be made so that the holders of Series A Convertible Preferred
Stock shall receive upon conversion thereof, in addition to the number of
shares of Common Stock receivable thereupon, the amount of securities of the
Corporation which they would have received had their Series A Convertible
Preferred Stock been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of such event to and
including the date of conversion, retained such securities receivable by them
as aforesaid during such period, subject to all other adjustments called for
during such period under this Section 8 with respect to the rights of the
holders of the Series A Convertible Preferred Stock.
(d) Adjustment for Reclassification, Exchange and Substitution. If
the Common Stock issuable upon the conversion of the Series A Convertible
Preferred Stock is changed into the same or a different number of shares of
any class or classes of stock, whether by recapitalization, reclassification
or otherwise (other than a subdivision or combination of shares or stock
dividend or a reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 8) then and in any such event each
holder of Series A Convertible Preferred Stock shall have the right thereafter
to convert such stock into the kind and amount of stock and other securities
and property receivable upon such reorganization, reclassification or other
change, by holders of the number of shares of Common Stock into which such
shares of Series A Convertible Preferred Stock might have been converted
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(e) Reorganizations, Mergers, Consolidations or Sales of Assets. If
at any time or from time to time there is a capital reorganization of the
Common Stock (other than either a recapitalization, subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section
8) or a merger or consolidation of the Corporation with or into another
corporation, or the sale of all or substantially all of the Corporation's
properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Series A Convertible Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series A Convertible Preferred
Stock, the number of shares of stock or other securities or property of the
Corporation, or of the successor corporation resulting from such merger or
consolidation or sale, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, merger,
consolidation or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 8 with respect to the
rights of the holders of the Series A Convertible Preferred Stock after the
reorganization, merger, consolidation or sale to the end that the provisions
of this Section 8 (including adjustment of the Conversion Price then in
effect) shall be applicable after that event and be as nearly equivalent to
the provisions hereof as may be practicable.
<PAGE> B-9
8.5 No Impairment. The Corporation will not, by amendment of its Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Corporation but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 8 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Convertible Preferred Stock against dilution or other impairment.
8.6 Notices of Record Date. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, the Corporation shall mail to each
holder of Series A Convertible Preferred Stock at least twenty (20) days prior
to the date specified herein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
We, further certify, that the statements contained in the foregoing
resolution creating and designating the said Series of Preferred Stock and
fixing the number, powers, preferences and relative optional, participation,
and other special rights and the qualifications, limitations, restrictions,
and other distinguishing characteristics thereof shall, upon the effective
date of said Series, be deemed to be included in and be a part of the Articles
of Incorporation of the Corporation.
IN WITNESS WHEREOF, the foregoing Designation of Rights, Privileges, and
Preferences of Series A Preferred Stock of the Corporation has been executed
this ___ day of ____________, 1996.
ATTEST: AVTEL COMMUNICATIONS, INC.
- ------------------------------------ -----------------------------------
James P. Pisani, Secretary and Chief Anthony E. Papa, President and Chief
Financial Officer Executive Officer
<PAGE> C-1
AMENDED
AND RESTATED
ARTICLES OF INCORPORATION
OF
HI, TIGER INTERNATIONAL, INC.
The undersigned, the president and secretary of Hi, Tiger International,
Inc. (the "Corporation") whose original Articles of Incorporation were filed
with the state of Utah on October 27, 1981, do hereby certify that the
Corporation has set forth the Amended and Restated Articles of Incorporation,
as adopted by the board of directors of the Corporation and approved by the
shareholders of the Corporation as required pursuant to Section 16-10a-1003 of
the Utah Revised Business Corporation Act.
1. Article I of the Articles of Incorporation is amended to read:
ARTICLE I - NAME
The name of the corporation is AVTEL COMMUNICATIONS, INC., A UTAH CORPORATION.
2. Article II of the Articles of Incorporation is amended to read:
ARTICLE II - PURPOSE
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Utah Revised
Business Corporation Act other than the banking business, the trust company
business, or the practice of a profession permitted to be incorporated by the
Utah Revised Business Corporation Act.
3. Article III of the Articles of incorporation is amended to read:
ARTICLE III - SHARES
This Corporation is authorized to issue two classes of shares of stock,
to be designated common voting and preferred, respectively. The Corporation
is authorized to issue 50,000,000 shares of common stock and 5,000,000 shares
of preferred stock.
The Board of Directors may amend these Articles of Incorporation to do any of
the following:
(A) designate in whole or in part, the preferences, limitations and
relative rights, within the limits set forth in the Utah Revised Business
Corporation Act, of any class of shares, before the issuance of any shares of
that class;
(B) create one or more series within a class of shares, fix the
number of shares of each such series, and designate, in whole or part, the
preferences, limitations and relative rights of the series within the limits
set forth in the Utah Revised Business Corporation Act, all before the
issuance of any shares of that series;
(C) alter or revoke the preferences, limitations and relative rights
granted to or imposed upon any wholly unissued class of shares or any wholly
unissued series of any class of shares; or
(D) increase or decrease the number of shares constituting any
series, the number of shares of which was originally fixed by the board,
either before or after the issuance of shares of the series, provided that the
<PAGE> C-2
number may not be decreased below the number of shares of the series than
outstanding, or increased above the total number of authorized shares of the
applicable class of shares available for designation as a part of the series.
4. Article IV of the Articles of Incorporation is amended to read:
ARTICLE IV - LIABILITY
The liability of the Directors of the Corporation for monetary damages
shall be eliminated or limited to the fullest extent permissible under Utah
law.
5. Article V of the Articles of Incorporation is amended to read:
ARTICLE V - INDEMNITY
The Corporation is authorized to provide indemnification of officers,
employees, fiduciaries and agents for breach of duty to the Corporation and
its stockholders through Bylaw provisions or through agreements with such
officers, employees, fiduciaries and agents, or both, to the maximum allowable
by Section 16-10a-902 of the Utah Revised Business Corporation Act and any
other provisions of Utah law.
6. Article VI of the Articles of Incorporation is amended to read:
ARTICLE VII - SHAREHOLDER CONSENT
Shareholders of the Corporation shall be able to take shareholder action
through a consent of the holders of outstanding shares having not less than
the minimum number of votes that would be necessary to authorize or take the
action at a meeting at which all shares entitled to vote thereon where present
and voted as provided in Section 16-10a-704 of the Utah Revised Business
Corporation Act.
7. Article VII of the Articles of Incorporation is amended to read:
The name and address in the State of Utah of this Corporation's registered
agent for service of process is:
CT Corporation Systems
50 West Broadway, 8th Floor
Salt Lake City, Utah 84101
8. Article XI of the Articles of Incorporation is deleted.
9. The Amendments herein have been duly approved and recommended to the
shareholders by the board of directors.
10. The Amended and Restated Articles of Incorporation do not provide for
any exchange, reclassification or cancellation of issued shares.
11. The Amendments and Deletions herein have been duly approved by the
required shareholder vote in accordance with Section 16-10a-1003 of the Utah
Revised Business Corporation Act. At the time of the vote, the Corporation
had only one class of shares outstanding, and the number of outstanding shares
was . The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote required
for the approval of the amendments herein was more than fifty percent (50%).
<PAGE> C-3
IN WITNESS WHEREOF, the foregoing Amended and Restated Articles of
Incorporation have been executed this ___ day of __________, 1996.
---------------------------------
Anthony E. Papa, President of
Hi, Tiger International, Inc.
---------------------------------
James P. Pisani, Secretary of
Hi, Tiger International, Inc.
<PAGE> D-1
PART 13
DISSENTERS' RIGHTS
16-10a.1301. DEFINITIONS.
For purposes of Part 13:
(1)"Beneficial shareholder" means the person who is a
beneficial owner of shares held in a voting trust or by a
nominee as the record shareholder.
(2)"Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving or
acquiring corporation by merger or share exchange of that
issuer.
(3)"Dissenter" means a shareholder who is entitled to dissent
from corporate action under Section 16-10a-1302 and who
exercises that right when and in the manner required by
Sections 16-10a-1320 through 16-10a-1328.
(4)"Fair value" with respect to a dissenter's shares, means
the value of the shares immediately before the effectuation of
the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the
corporate action.
(5)"Interest" means interest from the effective date of the
corporate action until the date of payment, at the statutory
rate set forth in Section 15-1-1, compounded annually.
(6)"Record shareholder" means the person in whose name shares
are registered in the records of a corporation or the
beneficial owner of shares that are registered in the name of
a nominee to the extent the beneficial owner is recognized by
the corporation as the shareholder as provided in Section 16-
10a-723.
(7)"Shareholder" means the record share-holder or the
beneficial shareholder.
16.10a-1302. RIGHT TO DISSENT.
(1)A shareholder, whether or not entitled to vote, is
entitled to dissent from, and obtain payment of the fair value
of shares held by him in the event of, any of the following
corporate actions:
(a)consummation of a plan of merger to which the
corporation is a party if-
(i)shareholder approval is required for the
merger by Section 16-lOa-1103 or the articles
of incorporation; or
(ii)the corporation is a subsidiary that is
merged with its parent under Section 16-10a-1104;
(b)consummation of a plan of share exchange to which
the corporation is a party as the corporation whose shares
will be acquired;
<PAGE> D-2
(c)consummation of a sale, lease, exchange, or other
disposition of all, or substantially all, of the property
of the corporation for which a shareholder vote is
required under Subsection 16-10a-1202(l), but not
including a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will
be distributed to the shareholders within one year after
the date of sale; and
(d)consummation of a sale, lease, exchange, or other
disposition of all, or substantially all, of the property
of an entity controlled by the corporation if the
shareholders of the corporation were entitled to vote upon
the consent of the corporation to the disposition pursuant
to Subsection 16-10a-1202(2).
(2)A shareholder is entitled to dissent and obtain payment of
the fair value of his shares in the event of any other
corporate action to the extent the articles of incorporation,
bylaws, or a resolution of the board of directors so provides.
(3)Notwithstanding the other provisions of this part, except
to the extent otherwise provided in the articles of
incorporation, bylaws, or a resolution of the board of
directors, and subject to the limitations set forth in
Subsection (4), a shareholder is not entitled to dissent and
obtain payment under Subsection (1) of the fair value of the
shares of any class or series of shares which either were
listed on a national securities exchange registered under the
federal Securities Exchange Act of 1934, as amended, or on the
National Market System of the National Association of
Securities Dealers Automated Quotation System, or were held of
record by more than 2,000 shareholders, at the time of.
(a)the record date fixed under Section 16-10a-707 to
determine the shareholders entitled to receive notice of
the shareholders' meeting at which the corporate action is
submitted to a vote;
(b)the record date fixed under Section 16-10a-704 to
determine shareholders entitled to sign writings
consenting to the proposed corporate action; or
(c)the effective date of the corporate action if the
corporate action is authorized other than by a vote of
shareholders.
(4)The limitation set forth in Subsection (3) does not apply
if the shareholder will receive for his shares, pursuant to
the corporate action, anything except:
(a)shares of the corporation surviving the con-
summation of the plan of merger or share exchange;
(b)shares of a corporation which at the effective
date of the plan of merger or share exchange either will
be listed on a national securities exchange registered
under the federal Securities Exchange Act of 1934, as
amended, or on the National Market System of the National
Association of Securities Dealers Automated Quotation
System, or will be held of record by more than 2,000
shareholders;
(c)cash in lieu of fractional shares; or
(d)any combination of the shares described in
Subsection (4), or cash in lieu of fractional shares.
<PAGE> D-3
(5)A shareholder entitled to dissent and obtain payment for
his shares under this part may not challenge the corporate
action creating the entitlement unless the action is unlawful
or fraudulent with respect to him or to the corporation.
16-10a-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(1)A record shareholder may assert dissenters' rights as to
fewer than all the shares registered in his name only if the
shareholder dissents with respect to all shares beneficially
owned by any one person and causes the corporation to receive
written notice which states the dissent and the name and
address of each person on whose behalf dissenters' rights are
being asserted. The rights of a partial dissenter under this
subsection are determined as if the shares as to which the
shareholder dissents and the other shares held of record by
him were registered in the names of different shareholders.
(2)A beneficial shareholder may assert dissenters rights as
to shares held on his behalf only if.
(a)the beneficial shareholder causes the corporation
to receive the record shareholder's written consent to the
dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(b)the beneficial shareholder dissents with respect
to all shares of which he is the beneficial shareholder.
(3)The corporation may require that, when a record
shareholder dissents with respect to the shares held by any
one or more beneficial shareholders, each beneficial
shareholder must certify to the corporation that both he and
the record shareholders of all shares owned beneficially by
him have asserted, or will timely assert, dissenters' rights
as to all the shares unlimited on the ability to exercise
dissenters' rights. The certification requirement must be
stated in the dissenters' notice given pursuant to Section 16-
10a-1322.
16-10a-1320. NOTICE OF DISSENTERS' RIGHTS.
(1)If a proposed corporate action creating dissenters' rights
under Section 16-1Oa-1302 is submitted to a vote at a
shareholders' meeting, the meeting notice must be sent to all
shareholders of the corporation as of the applicable record
date, whether or not they are entitled to vote at the meeting.
The notice shall state that shareholders are or may be
entitled to assert dissenters' rights under this part. The
notice must be accompanied by a copy of this part and the
materials, if any, that under this chapter are required to be
given the shareholders entitled to vote on the proposed action
at the meeting. Failure to give notice as required by this
subsection does not affect any action taken at the
shareholders' meeting for which the notice was to have been
given.
(2)If a proposed corporate action creating dissenters' rights
under Section 16-10a-1302 is authorized without a meeting of
shareholders pursuant to Section 16-10a-704, any written or
oral solicitation of a shareholder to execute a written
<PAGE> D-4
consent to the action contemplated by Section 16-10a-704 must
be accompanied or preceded by a written notice stating that
shareholders are or may be entitled to assert dissenters'
rights under this part, by a copy of this part, and by the
materials, if any, that under this chapter would have been
required to be given to shareholders entitled to vote on the
proposed action if the proposed action were submitted to a
vote at a shareholders' meeting. Failure to give written
notice as provided by this subsection does not affect any ac-
tion taken pursuant to Section 16-10a-704 for which the notice
was to have been given.
16-10a-1321. DEMAND FOR PAYMENT - ELIGIBILITY AND NOTICE
OF INTENT.
(1) If a proposed corporate action creating dissenters' rights
under Section 16-10a-1302 is submitted to a vote at a
shareholders' meeting, a shareholder who wishes to assert
dissenters' rights:
(a)must cause the corporation to receive, before the
vote is taken, written notice of his intent to demand
payment for shares if the proposed action is effectuated;
and
(b)may not vote any of his shares in favor of the
proposed action.
(2)If a proposed corporate action creating dissenters' rights
under Section 16-10a-1302 is authorized without a meeting of
shareholders pursuant to Section 16-10a-704, a shareholder who
wishes to assert dissenters' rights may not execute a writing
consenting to the proposed corporate action.
(3)In order to be entitled to payment for shares under this
part, unless otherwise provided in the articles of
incorporation, bylaws, or a resolution adopted by the board of
directors, a shareholder must have been a shareholder with
respect to the shares for which payment is demanded as of the
date the proposed corporate action creating dissenters' rights
under Section 16-10a-1302 is approved by the shareholders, if
shareholder approval is required, or as of the effective date
of the corporate action if the corporate action is authorized
other than by a vote of shareholders.
(4)A shareholder who does not satisfy the requirements of
Subsections (1) through (3) is not entitled to payment for
shares under this part. 1992
16-1Oa-1322. DISSENTERS' NOTICE.
(1)If proposed corporate action creating dissenters' rights
under Section 16-10a-1302 is authorized, the corporation shall
give a written dissenters' notice to all shareholders who are
entitled to demand payment for their shares under this part.
(2)The dissenters' notice required by Subsection(1)must be
sent no later than ten days after the effective date of the
corporate action creating dissenters' rights under Section 16-
10a-1302, and shall:
<PAGE> D-5
(a)state that the corporate action was authorized and
the effective date or proposed effective date of the
corporate action;
(b)state an address at which the corporation will
receive payment demands and an address at which
certificates for certificated shares must be deposited;
(c)inform holders of uncertificated shares to what
extent transfer of the shares will be restricted after the
payment demand is received;
(d)supply a form for demanding payment, which form
requests a dissenter to state an address to which payment
is to be made;
(e)set a date by which the corporation must receive
the payment demand and by which certificates for
certificated shares must be deposited at the address
indicated in the dissenters' notice, which dates may not
be fewer than 30 nor more than 70 days after the date the
dissenters' notice required by Subsection (1) is given;
(f) state the requirement contemplated by Subsection 16-
1Oa-1303(3), if the requirement is imposed; and
(g)be accompanied by a copy of this part. 1992
16-1Oa-1323. PROCEDURE TO DEMAND PAYMENT.
(1)A shareholder who is given a dissenters' notice described
in Section 16-10a-1322, who meets the requirements of Section
16-1Oa-1321, and wishes to assert dissenters' rights must, in
accordance with the terms of the dissenters' notice:
(a)cause the corporation to receive a payment demand,
which may be the payment demand form contemplated in
Subsection 16-10a-1322(2)(d), duly completed, or may be
stated in another writing;
(b)deposit certificates for his certificated shares
in accordance with the terms of the dissenters' notice;
and
(c)if required by the corporation in the dissenters'
notice described in Section 16-1Oa-1322, as contemplated
by Section 16-10a-1327, certify in writing, in or with the
payment demand, whether or not he or the person on whose
behalf he asserts dissenters' rights acquired beneficial
ownership of the shares before the date of the first
announcement to news media or to shareholders of the terms
of the proposed corporate action creating dissenters'
rights under Section 16-10a-1302.
(2)A shareholder who demands payment in accordance with
Subsection (1) retains all rights of a shareholder except the
right to transfer the shares until the effective date of the
proposed corporate action giving rise to the exercise of
dissenters' rights and has only the right to receive payment
for the shares after the effective date of the corporate
action.
(3)A shareholder who does not demand payment and deposit
share certificates as required, by the date or dates set in
the dissenters' notice, is not entitled to payment for shares
under this part. 1992
<PAGE> D-6
16-10a-1324. UNCERTIFICATED SHARES.
(1)Upon receipt of a demand for payment under Section 16-10a-
1323 from a shareholder holding uncertificated shares, and in
lieu of the deposit of certificates representing the shares,
the corporation may restrict the transfer of the shares until
the proposed corporate action is taken or the restrictions are
released under Section 16-10a-1326.
(2)In all other respects, the provisions of Section 16-10a-
1323 apply to shareholders who own uncertificated shares. 1992
16-1Oa-1325. PAYMENT.
(1) Except as provided in Section 16-1Oa-1327, upon the later
of the effective date of the corporate action creating
dissenters' rights under Section 16-10a-1302, and receipt by
the corporation of each payment demand pursuant to Section 16-
1Oa-1323, the corporation shall pay the amount the corporation
estimates to be the fair value of the dissenter's shares, plus
interest to each dissenter who has complied with Section 16-
1Oa-1323, and who meets the requirements of Section 16-1Oa-
1321, and who has not yet received payment.
(2)Each payment made pursuant to Subsection (1) must be
accompanied by:
(a)(i) (A) the corporation's balance sheet as of the end
of its most recent fiscal year, or if not available,
a fiscal year ending not more than 16 months before the
date of payment; (B)an income statement for that year;
(C)a statement of changes in shareholders' equity for
that year and a statement of cash flow for that year,
if the corporation customarily provides such statements
to shareholders; and (D)the latest available interim
financial statements, if any;
(ii)the balance sheet and statements referred to in
Subsection (i) must be audited if the corporation
customarily provides audited financial statements to
shareholders;
(b) a statement of the corporation's estimate of the fair
value of the shares and the amount of interest payable
with respect to the shares;
(c) a statement of the dissenter's right to demand payment
under Section 16-10a-1328; and
(d) a copy of this part. 1992
16-10a-1326. FAILURE TO TAKE ACTION.
(1)If the effective date of the corporate action creating
dissenters' rights under Section 16-10a-1302 does not occur
within 60 days after the date set by the corporation as the
date by which the corporation must receive payment demands as
provided in Section 16-10a-1322, the corporation shall return
all deposited certificates and release the transfer restric-
tions imposed on uncertificated shares, and all shareholders
who submitted a demand for payment pursuant to Section 16-10a-
1323 shall thereafter have all rights of a shareholder as if
no demand for payment had been made.
<PAGE> D-7
(2)If the effective date of the corporate action creating
dissenters' rights under Section 16-10a-1302 occurs more than
60 days after the date set by the corporation as the date by
which the corporation must receive payment demands as provided
in Section 16-10a-1322, then the corporation shall send a new
dissenters' notice, as provided in Section 16-10a-1322, and the
provisions of Sections 16-10a-1323 through 16-10a-1328 shall
again be applicable. 1992
16-10a-1327. SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED
AFTER ANNOUNCEMENT OF PROPOSED CORPORATE ACTION.
(1)A corporation may, with the dissenters' notice given
pursuant to Section 16-1Oa-1322, state the date of the first
announcement to news media or to shareholders of the terms of
the proposed corporate action creating dissenters' rights
under Section 16-10a-1302 and state that a shareholder who
asserts dissenters' rights must certify in writing, in or with
the payment demand, whether or not he or the person on whose
behalf he asserts dissenters' rights acquired beneficial
ownership of the shares before that date. With respect to any
dissenter who does not certify in writing, in or with the
payment demand that he or the person on whose behalf the
dissenters' rights are being asserted, acquired beneficial
ownership of the shares before that date, the corporation may,
in lieu of making the payment provided in Section 16-10a-1325,
offer to make payment if the dissenter agrees to accept it in
full satisfaction of his demand.
(2)An offer to make payment under Subsection (1) shall
include or be accompanied by the information required by
Subsection 16-10a-1325(2). 1992
16-10a-1328. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT
OR OFFER.
(1) A dissenter who has not accepted an offer made by a
corporation under Section 16-1Oa-1327 may notify the
corporation in writing of his own estimate of the fair value of
his shares and demand payment of the estimated amount, plus
interest, less any payment made under Section 16-LOA-1325, if:
(a)the dissenter believes that the amount paid under
Section 16-10a-1325 or offered under Section 16-10a-1327
is less than the fair value of the shares;
(b)the corporation fails to make payment under
Section 16-10a-1325 within 60 days after the date set by
the corporation as the date by which it must receive the
payment demand; or
(c)the corporation, having failed to take the
proposed corporate action creating dissenters' rights,
does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares as
required by Section 16-10a-1326.
(2)A dissenter waives the right to demand payment under this
section unless he causes the corporation to receive the notice
required by Subsection (i) within 30 days after the
corporation made or offered payment for his shares. 1992
<PAGE> D-8
16-10a-1330. JUDICIAL APPRAISAL OF SHARES COURT ACTION.
(1)If a demand for payment under Section 16-1Oa-1328 remains
unresolved, the corporation shall commence a proceeding within
60 days after receiving the payment demand contemplated by
Section 16-10a-1328, and petition the court to determine the
fair value of the shares and the amount of interest. If the
corporation does not commence the proceeding within the 60-day
period, it shall pay each dissenter whose demand remains
unresolved the amount demanded.
(2)The corporation shall commence the proceeding described in
Subsection (1) in the district court of the county in this
state where the corporation's principal office, or if it has
no principal office in this state, the county where its
registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it
shall commence the proceeding in the county in this state
where the registered office of the domestic corporation merged
with, or whose shares were acquired by, the foreign corpo-
ration was located.
(3)The corporation shall make all dissenters who have
satisfied the requirements of Sections 16-10a-1321, 16-10a-
1323, and 16-10a-1328, whether or not they are residents of
this state whose demands remain unresolved, parties to the
proceeding commenced under Subsection (2) as an action against
their shares. All such dissenters who are named as parties
must be served with a copy of the petition. Service on each
dissenter may be by registered or certified mail to the
address stated in his payment demand made pursuant to Section
16-10a-1328. If no address is stated in the payment demand,
service may be made at the address stated in the payment
demand given pursuant to Section 16-10a-1323. If no address
is stated in the payment demand, service may be made at the
address shown on the corporation's current record of
shareholders for the record shareholder holding the
dissenter's shares. Service may also be made otherwise as
provided by law.
(4)The jurisdiction of the court in which the proceeding is
commenced under Subsection (2) is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive
evidence and recommend decision on the question of fair value.
The appraisers have the powers described in the order ap-
pointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other
civil proceedings.
(5)Each dissenter made a party to the proceeding commenced
under Subsection (2) is entitled to judgment:
(a)for the amount, if any, by which the court finds
that the fair value of his shares, plus interest, exceeds
the amount paid by the corporation pursuant to Section 16-
10a-1325; or
(b)for the fair value, plus interest, of the dis-
senter's after-acquired shares for which the corporation
elected to withhold payment under Section 16-10a-1327. 1992
<PAGE> D-9
16-10a-1331. COURT COSTS AND COUNSEL FEES.
(1)The court in an appraisal proceeding commenced under
Section 16-10a-1330 shall determine all costs of the
proceeding, including the reasonable compensation and expenses
of appraisers appointed by the court. The court shall assess
the costs against the corporation, except that the court may
assess costs against all or some of the dissenters, in amounts
the court finds equitable, to the extent the court finds that
the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under Section 16-10a-1328.
(2)The court may also assess the fees and expenses of counsel
and experts for the respective parties, in amounts the court
finds equitable:
(a)against the corporation and in favor of any or all
dissenters if the court finds the corporation did not
substantially comply with the requirements of Sections 16-
10a-1320 through 16-10a-1328; or
(b)against either the corporation or one or more
dissenters, in favor of any other party, if the court
finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in
good faith with respect to the rights provided by this
part.
(3) If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters
similarly situated, and that the fees for those services
should not be assessed against the corporation, the court may
award to those counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited. 1992
