<PAGE> 1
Definitive Information Statement
Dated: October 4, 1996
HI, TIGER INTERNATIONAL, INC.
350 West 300 South
Salt Lake City, Utah 84101
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 23, 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 23, 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, 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 4,252,508 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>
<PAGE> 2
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>
<PAGE> 3
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 23, 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 4,252,508 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 OCTOBER 3, 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 4,252,508 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 (each a "Dissenting Shareholder" and, together, the "Dissenting
Shareholders") 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. Dissenting Shareholders will have 60 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 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 Shareholder, 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 Dissenting 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 Dissenting 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
<PAGE> 15
AVTEL'S SENIOR EXECUTIVE MANAGEMENT IN THE TELECOMMUNICATIONS FIELD AND THE
CAPITAL RESOURCES AVAILABLE TO AVTEL. (SEE "BUSINESS OF AVTEL.")
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 July 31, 1999 (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 July 1999, 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, in the case of an equity
financing, the transaction is based on a price equal to or greater than $1.25
per share of Common Stock.
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 at
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
<PAGE> 19
Options which are not Incentive Stock Options. The exercise price of
Incentive Stock options 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, as and if 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.
<TABLE>
<CAPTION> Bid Quotation
-------------
Fiscal Year 1994 High Bid* Low Bid*
- ---------------- -------- -------
<S> <C> <C>
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
</TABLE>
* 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 with respect to its
Common Stock and does not anticipate paying dividends on such Common Stock 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>
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 4,252.C
(3,000)D 6,765
Offering Costs - (23,018) 23,018.E -
Paid in Capital in Excess of Par
Value 520,149 - (4,252)C
3,000.D
(23,018)E
(38,175)F 457,704
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>
CONDENSED 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 Combined Pro Forma
Balance Sheet has been prepared as if the merger took place on August 31,
1996. The accompanying unaudited Condensed Combined Pro Forma 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 Combined 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, 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 4,252,508 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, Inc. common stock.
(E) Elimination of offering costs of AvTel, Inc.
(F) Elimination of current year earnings of AvTel, 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 8.71
521 North Arden Dr.
Beverly Hills, CA 90310
Tree of Stars, Inc.(2) 626,332 24.92 626,332 8.99
350 West 300 South
Salt Lake City, UT 84101
Current Officers and Directors:
Paul G. Begum, President 700,499(3) 27.87 700,499 10.05
and Director
Kent Poole, Director 10,000 .40 10,000 .14
Scott Hunt, Director 10,000 .40 10,000 .14
Stacie Anderson, Secretary 10,000 .40 10,000 .14
--------- ----- --------- -----
All Officers and Directors
as a Group (4 Persons) 730,499 29.07 730,000 10.47
========= ===== ========= =====
Nominees for Election
of Directors:
Anthony E. Papa 20,000 .80 1,614,690 23.18
James P. Pisani - - 1,594,690 22.89
Barry Peters - - 1,063,128 15.26
--------- ----- --------- -----
All Nominees for Election
as a Group (3 Persons) 20,000 .80 4,272,508 61.33
========= ===== ========= =====
<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/Tree President/Director Form 3/4
of Stars, Inc. 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 3/4
<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 1997. Shareholders may
present proposals for inclusion in the Information Statement or Proxy
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 days 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
October 4, 1996
</TABLE>
