U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X]ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For Fiscal Year Ended: September 30, 1996
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-27580
AvTel Communications, Inc.
(Name of small business issuer in its charter)
(Formerly Hi Tiger, International, Inc.)
Utah 87-0378021
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
130 Cremona Drive, Suite C, Santa Barbara, CA 93117 (Address of
principal executive offices) (zip code)
Issuer's telephone number (805) 685-0355
Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act:
Common Stock Par Value $0.001
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X
No
Total pages: 40
Exhibit Index Page: 20
Form 10-KSB
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $ 299,315
As of December 27 1996, there were 7,100,807 shares of the Registrant's
common stock, par value $0.001, issued and outstanding. The aggregate market
value of the Registrant's voting stock held by non-affiliates of the
Registrant was approximately $2,382,887 computed at the average bid and asked
price as of December 20, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to
security holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (C) of the Securities Act of
1933 ("Securities Act"): The Registrant's combined form of Notice of Annual
Meeting of Shareholders and Proxy Statement for its Annual Meeting of
Shareholders on February 27, 1997 is incorporated herein by reference into
Part II, Item 8 and Part III, Item 9-12, inclusive of this Report on Form
10-KSB.
Transitional Small Business Disclosure Format (check one):
Yes ; NO X
<PAGE>
TABLE OF CONTENTS
Item Number and CaptionPage
PART I
1. Description of Business 4
2. Description of Property 14
3. Legal Proceedings 15
4. Submission of Matters to a Vote of Security Holders 15
PART II
5. Market for Common Equity and Related Stockholder Matters 16
6. Management's Discussion and Analysis or Plan of
Operations 16
7. Financial Statements 19
8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 19
PART III
9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 20
10. Executive Compensation 20
11. Security Ownership of Certain Beneficial Owners and
Management 20
12. Certain Relationships and Related Transactions 20
13. Exhibits and Reports on Form 8-K 20
PART I DESCRIPTION OF BUSINESS
GENERAL
AvTel Communications, Inc., a Utah corporation ("AvTel" or the "Company")
is a non-facilities based telecommunications carrier providing a comprehensive
array of broadband voice and data network services. The Company was
incorporated on October 27, 1981, and did not conduct any business operations
during the seven (7) year period ending September 30, 1993, following which it
became a development stage company, a status it maintained until February,
1995 when it acquired, through a subsidiary, The Friendly Net, LLC ("TFN") a
Utah limited liability company.
The acquisition of TFN, an Internet Service Provider ("ISP"), was part of
a general management strategy to evaluate and acquire business enterprises in
the telecommunications industry which, in the opinion of management,
represented opportunities for revenue growth and profitability.
The TFN acquisition was accomplished through an agreement, with the
Company's wholly owned subsidiary, Hi, Tiger, Inc., pursuant to which 260,000
shares of the Company's $.001 par value common stock ("Common Stock"), options
to purchase 75,000 shares of Common Stock and $21,000 in cash were exchanged
for an 80% interest in TFN. The remaining 20% interest is held by Tree of
Stars, Inc, a Nevada corporation, whose President and principal shareholder is
Paul G. Begum, a principal shareholder of the Company and its former President
and Chairman. TFN began operations in January, 1995 and, at the time the
Company acquired its interest, TFN had a value of $106,675, including computer
equipment and furniture and fixtures with a historical value of $106,675 on
the date of the exchanges. Pursuant to certain agreements entered into in
connection with the Company's acquisition of AvTel Holdings, Inc., a
California corporation, the Company acquired certain first refusal rights to
purchase the 20% interest in TFN held by Tree of Stars, Inc. See "Recent
Developments - Merger Transaction".
The TFN transaction was accounted for as a purchase between related
parties. Accordingly, assets and liabilities are reflected at their
historical values. Shareholder's equity has been restated to reflect shares
of Common Stock exchanged in the TFN acquisition as outstanding as of January
1, 1995, when TFN began operations, and income and expense have been presented
since that date.
Prior to October 23, 1996, the Company conducted operations under the
name "Hi, Tiger International, Inc.". The name change was effected in
connection with the Company's merger with AvTel Holdings, Inc., a California
corporation ("AHI"). See "Recent Developments - Merger Transaction".
The Company's principal offices are located at 130 Cremona Drive, Suite
C, Santa Barbara, California, 93117.
RECENT DEVELOPMENTS
Since September 30, 1996, the Company has merged with AvTel Holdings,
Inc., undergone a complete change in its board of directors and executive
management, pursued several acquisition and strategic alliances and begun
development of a sales and operational strategy to position the Company as a
non-facilities based telecommunications carrier providing a comprehensive
array of broad band voice and data network services.
MERGER TRANSACTION
On October 23, 1996, the Company completed a merger transaction (the
"Merger") in which it acquired 100% of the issued and outstanding capital
stock of AvTel Holdings, Inc. ("AHI"), a California corporation, formerly
called "AvTel Communications, Inc.", in exchange for 4,252,508 shares of the
Company's Common Stock, representing approximately 61% of the Company's issued
and outstanding Common Stock after giving effect to the Merger and 1,000,000
shares of newly authorized shares of the Company's Series A Convertible
Preferred Stock. The Merger, which was consummated in accordance with the
terms of an Acquisition Agreement dated August 30, 1996, was approved by the
Company's shareholders at a special meeting held October 23, 1996. The
transaction has been accounted for as a purchase. Assets and liabilities are
reflected at their fair market value.
In connection with the Merger, all previous members of the Company's
board of directors and executive management resigned and were replaced by new
directors and executive officers who have considerable previous management
experience in the telecommunications industry. The Merger allows the Company
to avail itself of these management skills, the capital resources available to
AHI and the customer base and industry relationships that had been established
and were under development by AHI prior to the merger.
Since the Merger, the Company has, under its current management team,
aggressively pursued selective acquisitions, strategic alliances and the
development and implementation of sales and marketing efforts.
ACQUISITIONS AND STRATEGIC ALLIANCES
In November, 1996, the Company acquired Silicon Beach Communications,
Inc. ("SBC"), a privately held California corporation, that serves as an
Internet Service Provider ("ISP") and provides software development services.
The acquisition was structured as a stock for stock transaction in which the
Company issued an aggregate of 115,000 shares of its Common Stock in exchange
for all the issued and outstanding capital stock of SBC.
In December, 1996, the Company's wholly owned subsidiary, Hi, Tiger, Inc.
("HTI"), entered into a letter of intent to acquire all the issued and
outstanding capital stock of WestNet Communications, Inc. ("WNI"), a Ventura,
California ISP. Following completion of the contemplated acquisition of WNI,
the Company intends to integrate the customer bases, network facilities and
other operations of SBC and WNI in order to achieve desired efficiencies and
economies of scale.
In December, 1996, the Company entered into a Master Service Agreement
with Electric Lightwave, Inc. ("ELI"), a subsidiary of Citizens Utilities.
Under this agreement, ELI will provide AvTel with Frame Relay facilities on a
national basis through the ELI network as well as through network to network
interfaces ("NNI's") with LCI and the Regional Bell Operating Companies. The
term of the agreement is three years, is non-exclusive and does not require
any minimum service commitments by the Company.
The Company is currently in negotiations with a MCI Communications,
whereby MCI will provide the Company with its international dedicated
leased-line facilities for the Company's resale. This transaction is intended
to provide revenue growth opportunities with attractive margins. However,
while certain operational installations have been completed in anticipation of
the execution of a definitive agreement, there are no assurances that this
transaction will be consummated or that, if completed, the revenue and
profitability objectives will be achieved.
SALES AND OPERATIONAL STRATEGY
Prior to the Merger, the Company's sales and operational strategy was
directed, primarily, at increasing revenues through expansion of the customer
base for the TFN ISP operations.
Following the Merger, the Company's new executive management team began
to develop and implement a comprehensive sales and marketing strategy designed
to position the Company as a leading provider of broad band network services,
providing complete inter-networking solutions for small- and mid-size business
and professional offices and certain personal applications.
This strategy is based on the assumption that network connectivity for
these market applications is becoming a critical element in the ability of
these business, professional and other organizations to improve productivity
and lower costs through the use of a variety of telecommunications services,
including branch office, remote office and telecommuter networking as well as
network access to customers, vendors, financial institutions and the
Internet. While management expects that these factors will result in an
increased market demand for these services, there are no assurances regarding
the size of such demand or that the Company will be selected to provide its
services in response to such demand. See "Industry and Market".
The implementation of this strategy involves the creation and marketing
of products and services designed for both business and personal applications,
namely Business Network Service and Personal Network Services, respectively.
The Company is developing two distinct sales channels to pursue these market
opportunities, a channel Sales Division and a Direct Sales Division. See "The
Company Sales Strategy"
While the Company believes that pursuit of this sales and marketing
strategy will result in monthly, recurring revenues from networking customers
under multi-year term agreements, this strategy is in its formative stages and
the Company is recruiting, hiring, training and developing the personnel
resources necessary to manage and staff the sales and marketing efforts.
Delays or other difficulties in these recruitment and other activities could
adversely affect the Company's ability to timely and effectively implement
these revenue-generating objectives.
INDUSTRY AND MARKET
Internetworking. At an increasing rate, business, professional and other
organizations are seeking to internetwork their LANs and WANs to share
information and computing resources for applications such as e-mail,
transaction processing, the sharing of databases, multi-site engineering and
product development and electronic image transfer. The communications traffic
of many organizations has grown steadily during the past two decades leading
to enterprise-wide networks facilitating rapid and efficient data
communications between work groups, departments and branch locations.
Additionally, a shift to enterprise-wide remote access has occurred due to
increased business mobility, increased telecommuting, reduced cost of WAN
services and widespread adoption of remote access standards. Internet and
remote access devices extend the organization network beyond the branch
office, bringing remote users closer to the enterprise and permitting
connection to the corporate LAN so users can work anywhere, any time. Users
can access e-mail, databases and servers as if they were in the corporate
office.
It is management's opinion that as a result of these shifts,
internetworking, the method used for interconnecting networks, has been
undergoing rapid growth over the past ten years. This has been reflected in
the significant growth in sales and distribution of routers, remote access
servers, intranet software and other various components that enable
internetworking.
As the computing paradigm migrates to client-server architectures,
enterprise-wide networks are the enablers that allow those technologies to be
implemented by organizations. However, many organizations are significantly
challenged to manage the multi-provider contacts for network planning, network
design, equipment deployment, WAN services, administration, billing, support
and maintenance. AvTel has recognized the opportunity to bridge the gap
between telecom and computer providers and simplify networking complexities by
becoming a single point of contact.
Network Provisioning. It is management's opinion that a fundamental
change is occurring in business technology applications. Communications
requirements such as bandwidth availability and network design are replacing
computer requirements such as processor speed, memory or operating systems as
the delimitating factors for business applications. Video conferencing,
remote patient diagnostics with medical imaging, tele-commuting are all
business applications in which the success of the deployment is defined by the
available bandwidth. The ultimate realization of this trend is the World-Wide
Web ("WWW") and WWW applications developed with Internet-specific tools such
as SUN Microsystems' Java. These Web applications are computer platform and
operating system independent but depend entirely upon connectivity and
bandwidth for successful deployment and execution.
As a result, connectivity is becoming one of the most important factors
in enhancing business productivity and customer service. Large corporations
have historically created private wide area networks through leased dedicated
data lines. However, dedicated point-to-point facilities have several
deficiencies:
Leased lines are very expensive
Remote offices and telecommuters are omitted
Leased lines are not suited for unscheduled and asynchronous
communications
As a result, small and medium size companies that have sought the
benefits of internetworking have been required to use modems and dial-up
telephone lines which are generally too slow to handle today's applications.
Growing demands for high-speed capabilities have given way to the
emergence of new carrier-based data communication services to overcome the
deficiencies of both dedicated leased and dial-up lines. WAN solutions vary
substantially depending on an organization's size and communications needs.
Traditionally, wideband digital transmission circuits (such as T1 and DS-1
were leased from public carriers to provide voice, fax and data communications
links between larger offices and low speed leased lines (such as DS-O) for
branch office connectivity. For some applications, however, this has proven
expensive and inefficient because the entire bandwidth capacity is dedicated
24 hours per day, whether or not it is used.
The birth of "packet" based services such as X.25 were developed to
address the issue of allocation and utilization. Today, "fast packet"
networking technologies such as Frame Relay and Asynchronous Transfer Mode
("ATM") have emerged as an integrated, cost-effective, flexible WAN solution.
These networks allow for "bandwidth on demand" between any two endpoints on a
WAN. While ATM is not generally available through public carriers, Frame
Relay services are now widely offered throughout the United States and are
increasing in demand.
THE COMPANY
Strategy. The Company intends to be a leading provider of broadband
network services, providing complete internetworking solutions for small to
mid-size offices. The Company 's services will be sold through a network of
value added resellers and a direct sales force focused on select vertical
markets.
Wide Area Network connectivity for small to medium size offices is fast
becoming a critical element in each organizations' infrastructure. These
enterprises require branch office, remote office and telecommuter networking
as well as network access to customers, vendors and the internet. As a
result, management believes that tremendous demand has been created for
flexible, cost-effective internetworking solutions. AvTel sees these primary
market trends in the internetworking arena:
Demand for WAN connectivity for small to medium size offices is
increasing
Capabilities of server integrated internetworking are increasing
Outsourcing of network services is increasing
Management believes that there are significant opportunities created by
all three trends in becoming an affordable, single source provider of
integrated voice and data internetworking solutions. The Company intends to
market a variety of products and services tailored around its PointStream
point-to-point facilities, FrameLink Frame Relay facilities, and internet
service through its subsidiaries, The Friendly Net and Silicon Beach,
providing customers with access through 1+, 0+, 800#, PPP, SLIP, frame relay,
T1, T3, ISDN and virtual network sharing.
Principal Sources of Revenues. Management anticipates that the Company's
sales strategy will generate recurring monthly revenues from the following
primary sources:
The sale of bandwidth under multi-year contracts;
The sale of network management services under multi-year
contracts;
The sale of internet access, and
The sale of value-added services such as data warehousing,
website publishing and hosting, and network design and consultation.
In addition, management believes that the Company revenues will be
generated from the sale of voice services such as long distance, 800 numbers,
calling cards and voicemail.
Management believes that it has developed a sound sales strategy and that
attractive market opportunities exist which should enable the Company to
generate, grow and sustain revenues through sales of its products and
services. However, these sales and marketing strategies have been developed
following the Merger in October, 1996 and have not yet been fully implemented
through, among other things, the recruitment, hiring and training of
additional management and other personnel necessary to staff the Company's
sales and marketing function and the negotiation and completion of additional
contracts and agreements with customers and vendors.
The Company's near term efforts in these areas will be focused on
"ramping up" its capabilities and resources in sales and marketing which
efforts will result in salary, recruitment and related expenses and other
expenses to establish suitable arrangements with agents, value-added resellers
and other resources for the sale and distribution of the Company's products
and services.
It is anticipated that the development and implementation of these sales
and marketing capabilities through both internal and external resources will
result in expenditures for salaries, recruitment expenses, technical support,
trade shows, advertising and other SG&A ("Sales, general and administrative")
items that will exceed, both in absolute terms and as a percentage of
revenues, similar expenses incurred by the Company in fiscal year 1996.
Moreover, management expects that much of this effort will take place before
the results, namely increased revenues, are recognized. Accordingly, the
Company will be operating at a loss for financial reporting purposes until
such time as the Company is recognizing revenues in sufficient volumes to
offset these and other expense items. There are no assurances that the
development and implementation of these sales and marketing capabilities will
be accomplished in sufficient time or with sufficient success to produce the
desired levels of revenues for the Company's products and services Further,
the execution of this strategy will require the Company to utilize its working
capital to fund this activity.
Management believes that the Company's existing sources of capital will
be adequate to support initial, limited implementation of its sales and
marketing strategy. However, the complete execution of this strategy is
likely to require additional capital resources and there are no assurances
that such resources will be available in sufficient amounts on a timely basis
and under terms and conditions acceptable to the Company. See "Management's
Discussion and Analysis - Liquidity and Capital Resources"
MARKETING STRATEGY
AvTel is focused on the business customer and will primarily target
small- to mid-size business "units" currently equipped with local area
networks and the small-office/home-office ("SOHO") workforce. To pursue these
groups, AvTel will utilize Direct Sales, Value Added Resellers and other
alternative sales channels. Marketing efforts will also include participation
in major telecommunications trade shows, advertising in trade journals, the
publishing of newsletters and technical articles, and seminars for AvTel's
non-direct sales channels. AvTel will market two distinct portfolios of
bundled services under the categories of Business Network and Personal Network
Services.
Direct Sales. AvTel will employ a direct sales force to target niche
industries that have specific internetworking needs. This group will be
deployed nationally and will be responsible for generating revenues on a
geographic basis.
Value Added Resellers. The computer industry today includes nearly
100,000 VARs. AvTel will specifically target those VARs that provide
network and internetworking services, predominantly in vertical markets. By
utilizing the relationship already developed between the VAR's and their
customers, AvTel seeks to gain an immediate foothold with those customers over
competing broadband service providers. AvTel will provide full training,
sales and technical support to its network of VARs. It is anticipated that
the VARs will receive discounts on AvTel products (for VAR markups) as well as
participation in the monthly recurring income AvTel receives from their
customers. This unique structure will provide a true partnership in growth
between AvTel and the VAR network.
Network Integrators. AvTel is pursuing relationships with network
integrators to provide turnkey network connectivity solutions to their
customers under its "Platinum Partnership" program.
Other Alternative Channels. AvTel will partner with vendors of software
applications such as medical billing, distance learning, corporate training
and financial services which require network connectivity. By partnering with
AvTel, software developers will be enabled to provide turnkey solutions for
their customers while AvTel gains a foothold in connectivity provisioning in
select vertical markets.
PRODUCTS. The Company has identified a suite of voice and data
communications products and services to provide its customers which include
bandwidth, internet access, data warehousing, network management services,
website creation and hosting, national and international long distance, 800
service, voice mail and calling cards. These services are intended to, among
other things, enable customers to enhance their internal computer networks and
access external computer networks and the Internet.
Bandwidth. Under its PointStream and FrameLink product lines, the
Company provides customers with frame relay and private line connectivity for
speeds ranging from 56kbps to full T1 and T3 for national and international
data traffic.
The Company's dedicated service is tailored around its PointStream
program which includes digital private line services using high capacity
digital circuits to carry voice, data and video transmissions from point to
point in flexible configurations. PointStream includes different standardized
transmission speeds and circuit capacities ranging from a DS-0 circuit
(64kbps) to a DS-3 circuit (44.736kbps). These varying speeds allow for a
private line digital channel for connecting various telecommunications
equipment such as personal computers and fax machines, or a more robust
connection for multiple data transmissions, access to the Internet and
interconnection of LAN's or linking customer locations to other customer
locations.
The Company's Frame Relay service is tailored around its FrameLink
program, which is designed to meet the requirements of high speed data
communications such as Client-Server, LAN-to-LAN and internet transport.
Frame Relay is a fast packet transport alternative to dedicated circuits which
allows flexible allocation and efficient utilization of bandwidth among
multiple network sites. It is best suited for "bursty" data applications,
versus those requiring a constant data stream. By providing bandwidth on
demand, frame relay improves utilization efficiency and supports a broader
range of communications applications. The Company offers customers data rates
ranging from 56 kbps to 1.536 kbps.
INTERNET SERVICES
Corporate and individual internet users are offered access through an
AvTel-owned ISP, newly-created AvTel POP or resale of a third-party
provisioner. AvTel's internet access offers the complete range of internet
connectivity ranging from subscription dial-up SLIP/PPP accounts through full
T1, T3, ISDN and frame relay.
DATA WAREHOUSING
AvTel currently provides data warehousing services for corporate and
individual users. Warehousing services, whether hosting a web page or
warehousing corporate databases, are offered based on individual needs.
Customer charges are determined by the amount of storage space and bandwidth
utilized during specific time intervals.
NETWORK MANAGEMENT SERVICES
The Company provides technical support for provisioning, billing,
monitoring and servicing the telecommunications networks it markets. The
Company intends to provide management and monitoring seven days a week,
24-hours a day, and to provide real-time alarm, status and performance
information for each circuit on the Company's network.
WEBSITE PUBLISHING
Website creation packages allow users to create personal and corporate
websites on the World Wide Web. The Company has developed a variety of
proprietary applications enabling immediate, user-friendly personal
development of website pages and applications for individual and corporate
use. Corporate users of the company's applications include news and media
companies, direct mail and on-line shopping organizations. AvTel additionally
employs a Website Development Group capable of developing advanced,
high-resolution websites and associated applications Internet and intranet
environments.
HARDWARE/SOFTWARE
The Company provides a complete line of hardware and software packages to
enable internetworking for its corporate customers. Additionally, high speed
modems and co-location servers are available to individual and corporate
users seeking to use the Company's Network Operation Center as a secure,
central processing location on an outsource basis.
NETWORK DESIGN
AvTel provides network design services for its corporate customers to
include voice, data and video applications across frame relay, dedicated and
dial-up networks. The Company builds and manages public and private Intranet,
WAN and GAN networks.
VOICE AND LONG DISTANCE SERVICES
AvTel offers voice transmission over frame relay products enabling
interoffice voice communications at significantly reduced costs to the user.
The Company intends to provide customers with discounted national and
international long distance services, cost-competitive 800 numbers for
corporate and individual accounts, and intends to offer a variety of advanced,
intelligent voice mail services.
COMPETITION
The broadband services marketplace is experiencing an evolution, both in
definition and participants. Technology advancements, telecommunications
reform and the commercialization of the Internet have all contributed to
transforming the once traditional telephone and cable arenas. Long distance
companies, Regional Bell Operating Companies ("RBOCs"), internet service
providers, competitive access providers (CAPs) and cable companies are
building, upgrading and acquiring network capacity to pursue and accommodate
projected demand. Each of these business groups represent additional
competition for the markets the Company pursues.
The Company operates in a highly competitive environment. In most
markets, the Company's principal competitors will be the RBOCs or GTE
Corporation and long distance carriers. The Company believes that these
companies generally benefit from their long-standing relationships with
customers, substantial technical and financial resources and federal and state
regulations that could provide them with increased pricing flexibility as
competition heightens. In addition, in many metropolitan areas, competitors
may include Competitive Local Exchange Carriers ("CLECs") and CAPs. National
internet providers such as UUNET and PSINet are also offering data
connectivity. Potential competitors could also include cable television
companies, utilities, and wireless communications providers. Consolidation of
the telecommunications companies and the formation of strategic alliances
within the telecommunications industry, as well as the development of new
technologies, could give rise to significant new competitors to the Company.
The RBOC's, GTE Corporation and many of the CLEC's, CAP's and other
participants in the telecommunications market have substantially greater
technical and financial resources than those available to the Company and as a
result these companies may from time to time represent a formidable
competitive presence.
The principal competitive factors in the markets for the Company's
products and services are price, quality, features, performance, reliability
and customer support. AvTel believes it presently competes favorably in all
of these areas.
EMPLOYEES
The Company currently has 25 full-time employees. The Company intends to
increase this number over the next 12 months. None of the employees are
employed pursuant to a collective bargaining agreement. The Company considers
its relationship with its employees good. In connection with its recent
strategic acquisitions, sales and marketing plans, the Company expects to
significantly increase its employment force in the near term and also expects
to implement certain Company-wide policies and practices regarding the
protection and value-enhancement attributes of intellectual property
interests. See - "Recent Developments"
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases facilities in three locations. The Company's
corporate location is approximately 1,500 square feet and is located at 130
Cremona Drive, Suite C, Santa Barbara, CA 93117. The Company leases these
facilities on a month-to-month basis for a monthly rent of $1.65 per square
foot. The Friendly Net L.L.C. office location is approximately 1,100 square
feet and is located at 350 West Broadway, Suite 111, Salt lake City, UT
84101. TFN's office lease is rented on a month-to-month basis at a monthly
rate of $1,000. Silicon Beach Communications, Inc., office location is
approximately 3,441 square feet and is located at 104 West Anapamu, Suite C,
Santa Barbara 93101. SBC leases this space under a 5 year lease at a monthly
rate of $4,645. In addition, the Company and its subsidiaries operate
Points-of-Presence (POPs) for the purpose of creating local access points to
its network backbone. Only one of these locations, Provo, Utah, requires
monthly rent in addition to what is listed above, with 20 square feet of space
at a monthly rate of $100.00.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently not a party to any legal proceedings, nor have
any legal proceedings been threatened against the Company or its properties
which may have a material or adverse effect on the Company's assets or
financial performance.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
Subsequent to September 30, 1996, the holders of the Company's $0.001 par
value common stock approved the Company's acquisition of 100% of the issued
and outstanding capital stock of AHI pursuant to an Acquisition Agreement
dated August 30, 1996. The transaction, described in the Company's
Information Statement dated October 3, 1996, was approved by the shareholders
at a special meeting on October 23, 1996.
PART II
ITEM 5.
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The stock is traded over-the-counter on the Electronic Bulletin Board
with the trading symbol "AVCO" (formerly "HITI"). The following high and low
bid information was provided by a market maker on the NASD'S OTC Bulletin
Board. The quotations provided reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
At December 20, 1996, the bid and ask quotations for the Company's Common
Stock as quoted on the OTC Bulletin Board were $0.50 and $0.875.
1995 HIGH BID LOW BID
First Quarter (12/31/94) $ 0.75 $ 0.625
Second Quarter (03/31/95) $ 0.6875 $ 0.6875
Third Quarter (06/30/95) $ 0.6875 $ 0.5625
Fourth Quarter (09/30/95) $ 0.5 $ 0.5
1996 HIGH BID LOW BID
First Quarter (12/31/95) $ 0.50 $ 0.50
Second Quarter (03/31/96) $ 0.875 $ 0.50
Third Quarter (06/30/96) $ 1.437 $ 0.75
Fourth Quarter (09/30/96) $ 1.00 $ 1.00
The number of shareholders of record of the Company's common stock as of
September 30, 1996 was approximately 180.
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.
ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS
General
The following discusses the financial position and results of operations
of the Company and its consolidated subsidiary, The Friendly Net (a Utah
Limited Liability Company), which have been combined and accounted for as a
purchase between related parties.
Liquidity and Capital Resources
In prior years, the Company generally has needed working capital
principally to fund its current operations and accounts receivable. Generally
the Company has had adequate funds for its activities and, from time to time
in the past, has relied on short-term borrowings and the issuance of
restricted common stock to fund current operations. Although there were no
formal commitments from banks or other lending sources for lines of credit or
similar short-term borrowings, the Company had been able to borrow any
additional working capital from a principal shareholder or other related
entities. The Company's current management does not anticipate using these
sources for the Company's future capital needs. Consistent with current
management's intentions to develop and execute AvTel's business, sales and
marketing strategies, it is anticipated that the Company's needs for capital
will, in the near term, exceed funds generated from operations. The Company
has, as a result of the Merger acquired access to the capital resources of AHI
and, while these funds will be employed to support some level of the business
and other strategies, other capital resources will be required by the Company.
Management is exploring a range of alternative solutions to these
expected capital needs, including secured and unsecured debt, capital
equipment leases to facilitate the anticipated growth in AvTel's sales,
marketing and technical support staff, issuance of the Company's debt or
equity securities, or any combination of the foregoing. There are no
assurances that the additional funds necessary to implement management's
objectives will be available or if available that they will be in sufficient
amounts and under terms and conditions acceptable to the Company. If these
funds are not available in sufficient amounts or at the times and under terms
acceptable to the Company, management would be required to significantly
curtail, restrict or delay the execution of some parts of this business
strategy and such actions could have a material adverse effect on the
Company's ability to execute its business plan and strategy.
The increase in liquidity and capital resources during the past two years
reflects the increases attributable to the acquisition of The Friendly Net and
the year and partial year of operations. The Company generates and uses cash
flows through three activities: operating, investing, and financing. During
the year ended September 30, 1996, operating activities used cash of $10,000
as compared to net cash used of $19,000 for 1995 and $18,000 for 1994. The
increase in cash used by operating activities in 1995 compared to 1994 is due
principally to the commencement of operations in The Friendly Net while in
previous years the Company was in the development stage.
The Company's merger with AHI and subsequent acquisition of Silicon Beach
Communications, Inc., have substantially increased current monthly revenues
and provided the Company with additional technical and other resources to
allow the Company to further expand future operations. The Company's
anticipated acquisition of WNI will further increase the Company's revenues
while the Company gains potential economies-of-scale through the integration
of WNI's customer base into Silicon Beach's operations.
Cash flows used in investing activities changed in 1996 primarily due to
the acquisition of $44,000 of computer equipment for The Friendly Net
Operations compared to $16,000 of computer equipment and $21,000 for the
acquisition of the Friendly Net LLC, in 1995.
Financing activities provided $46,000 in 1996, $62,000 in 1995 and used
$11,000 in 1994. The increase in cash flow from financing activities in 1996
and 1995 was primarily from the sale of restricted common stock while the
decrease in 1994 was primarily from the repayment of loans from related
parties.
Results of Operations
As of September 30, 1996, the Company has only been in operation since
January 1995 (twenty-one months). During 1996, customers with repeat business
accounted for a majority of the revenues generated. Although for the
Company's The Friendly Net (TFN) operations, TFN has performed work for it's
customers with repeat business, there is no assurance that such customers will
maintain or increase the level or volume of business of the Company. During
1996, general and administrative expenses decreased to 119% of gross revenues
as compared to 163% for 1995 resulting in a loss from operations of $49,000
for the year ended September 30, 1996, compared to 1995 with losses from
operations of $128,000 and 1994 prior to the acquisition of The Friendly Net
with losses from operations of $22,000. During fiscal 1995 the increased
general and administrative expenses was a result of increased activity in the
search for potential acquisition candidates and the expenses resulting from
staffing and training personnel for the operations of The Friendly Net, while
the volume of revenues generated had not reached a point where the gross
margin generated was sufficient to offset the cost of the initial start-up
expenses. During the Company's current fiscal year, management anticipates
that selling, general and administrative expenses as a percentage of revenues
and in absolute dollars, exceed comparable expenditures in fiscal 1996 as a
result of the implementation and execution of the Company's business, sales
and marketing strategy. See "The Company - Strategy" and "Principal Sources
of Revenues".
Inflation and Regulation
The Company's operations have not been, and in the near term are not
expected to be, materially affected by inflation or changing prices. 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 well financed. The Company believes
that competition in the Internet service industry is based on competitive
pricing, although the ability, reputation and technical support of a concern
is also significant. The Company does not believe that any recently enacted
or presently pending proposed legislation will have a material adverse effect
on its results of operations.
The Company believes that recent changes in telecommunications regulation
has favorably impacted the Company's business. The Company has initiated an
expansion of operations to include a variety of voice and data services
requiring certain federal and state licences and permits. The Company is in
the process of applying for various regulatory approvals and permits and
anticipates they will be granted on a timely basis. If they are not granted,
the Company may have to curtail or delay certain elements of this strategy.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company and supplementary data are
included beginning immediately following the signature page to this report.
See Item 14 for a list of financial statements and financial statement
schedules included.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There are not and have not been any disagreements between the Company and
its accountants on any matter of accounting principles, practices or financial
statements disclosure.
PART III
ITEM 9. DIRECTORS EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT
Included by reference - from the Company's Form of Notice of Annual meeting &
Proxy Statements for the Company's annual meeting on February 27, 1997.
ITEM 10. EXECUTIVE COMPENSATION
Included by Reference - from the Company's Form of Notice of Annual meeting &
Proxy Statements for the Company's annual meeting on February 27, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Included by Reference - from the Company's Form of Notice of Annual meeting &
Proxy Statements for the Company's annual meeting on February 27,
1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Included by reference - from the Company's Form of Notice of Annual meeting &
Proxy Statements for the Company's annual meeting on February 27, 1997.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements PAGE
Report of Robison, Hill & Co., Independent Certified
Public Accountants F-1
Consolidated Balance Sheets as of September 30, 1996 F-2
Consolidated Statements of Operations for the years ended
September 30, 1996 and 1995 F-4
Consolidated Statement of Stockholders' Equity for the years ended
September 30, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the years ended
September 30, 1996 and 1995 F-8
Notes to Consolidated Financial Statements F-10
2. Financial Statement Schedules
The following financial statement schedules required by Regulation S-X
are included herein.
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
3. Exhibits
The following exhibits are included as part of this report:
Exhibit Reference
Number Number Title of Document Location
Item 2. Plan of Acquisitions
2.01 2 Plan of Acquisition Incorporated
by reference
Item 3. Articles of Incorporation and Bylaws
3.01 3 Articles of Incorporation of AvTel
Communications, Inc., Inc. a Utah Incorporated
Corporation formerly known as by reference
Hi, Tiger International, Inc.
3.02 3 Bylaws Incorporated
by reference
Item 4. Instruments Defining the Rights of
Holders
4.01 4 Instruments defining the rights of holders Incorporated
Including indentures by reference
Item 9. Voting Tust Agreement
9.01 9 Noncompetition, Proprietary Rights and Incorporated
Standstill Agreement dated August 30, by reference
1996 between the Company, Hi, Tiger
International, Inc., Peter D. Olsen,
Paul g. Begum, and Tree of Stars, Inc.
9.02 9 Voting agreement dated August 30, 1996 Incorporated
between the Company, Hi, Tiger International, by reference
Inc., Peter D. Olsen, Paul G. Begum, and
Tree of Stars, Inc.
Item 10. Material Contracts
10.01 10 Employment agreements with Anthony E. Papa THIS FILING
and James P. Pisani
10.02 10 Letter Agreements dated as of December 13, THIS FILING
1996 with Barry A. Peters.
10.03 10 Acquisition agreement and related agreements Incorporated
dated as of August 30, 1996. by reference
10.04 10 Agreement and plan of reorganization between THIS FILING
the Company and Silicon Beach Communicatons, Inc.
Item 22. Published report regarding matters submitted to
vote
22.01 22 Published report regarding matters submitted Incorporated
to vote. by reference
Item 23. Consents of Experts and Counsel
23.01 23 Consent of Robison, Hill & Co. Incorporated
by reference
*Note: Items incorporated by reference were filed as exhibits to the Company's
Current Report on Form 8-K dated October 23, 1996.
SIGNATURES
In accordance with section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on it behalf by the
undersigned, thereunto duly authorized.
AVTEL COMMUNICATIONS, INC.
Dated: January 7, 1997 By /S/
Anthony E. Papa,
President and Chief Executive Officer
Dated: January 7, 1997 By /S/
James P. Pisani,
Chief Operating Officer and
Chief Financial Officer
(Principal Financial and Accounting Officers)
In Accordance with the Securities Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on this 7th day of January, 1997.
AVTEL COMMUNICATIONS, INC.
By /S/
Anthony E. Papa,
President and Chief Executive Officer
By /S/
James P. Pisani,
Chief Operating Officer and
Chief Financial Officer
(Principal Financial and Accounting Officers)
By /S/
Frank Dziuba,
Senior Vice President, Software
Development, and a Director
By /S/
Barry A. Peters,
Director
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Avtel Communications, Inc. and Subsidiaries
(Formerly Hi, Tiger International, Inc.)
Santa Barbara, California
Dear Members of the Board:
We have audited the accompanying consolidated balance sheet of Avtel
Communications, Inc. and Subsidiaries (formerly Hi, Tiger International,
Inc.), as of September 30, 1996, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the two years
in the period ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Avtel
Communications, Inc. and Subsidiaries (formerly Hi, Tiger International,
Inc.), as of September 30, 1996, and the results of its operations and its
cash flows for the two years in the period ended September 30, 1996 in
conformity with generally accepted accounting principles.
Respectfully submitted,
/S/ ROBISON, HILL & CO.
Certified Public Accountants
Salt Lake City, Utah
December 12, 1996
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,
ASSETS 1996
Current Assets
Cash $ 9,420
Accounts Receivable (Net of Allowance
for Doubtful Accounts of $4,841) 17,936
Total Current Assets 27,356
Fixed Assets
Equipment 159,306
Equipment Lease 21,280
Furniture & Fixtures 6,866
Less Accumulated Depreciation (84,426)
Net Fixed Assets 103,026
Total Assets $ 130,382
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
CONSOLIDATED BALANCE SHEET
(Continued)
SEPTEMBER 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996
Current Liabilities
Accounts Payable, Trade 25,269
Income Taxes Payable 200
Accrued Liabilities 6,266
Lease Obligation - Current Portion 6,120
Accounts Payable - Related Party 40,900
Total Current Liabilities 78,755
Long Term Liabilities
Lease Obligation - Long Term Portion 3,890
Total Long Term Liabilities 3,890
Total Liabilities 82,645
Minority Interest 18,911
Stockholders' Equity
Common Stock (Par Value $.001),
50,000,000 shares authorized.
2,513,299 shares
issued and outstanding
September 30, 1996 2,513
Paid in Capital in Excess of Par
Value 520,249
Retained Deficit (493,936)
Total Stockholders' Equity 28,826
Total Liabilities and
Stockholders' Equity $ 130,382
The accompanying notes are an integral part of these financial statements.
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended
September 30,
1996 1995
REVENUES
Sales $ 299,315 $ 157,136
Cost of Sales 67,034 29,280
Gross Margin 232,281 127,856
EXPENSES
General and Administrative 276,485 253,355
Bad Debt Expense 4,842 2,739
Total Operating Expense 281,327 256,094
Income (Loss) From Operations (49,046) (128,238)
Other Income (Expense)
Interest Income 2,450 5,148
Misc. Income 811 128
Interest Expense (6,999) (9,223)
Gain on Sale of Equipment 383 -
Net Other Income (Loss) (3,355) (3,947)
Income (Loss) Before Taxes (52,401) (132,185)
Income Taxes (206) (200)
Minority Income (2,727) 5,151
Net Income (Loss) $ (55,334) $ (127,234)
Weighted Average Shares
Outstanding 2,425,672 2,163,172
Loss Per Share $ (.02) $ (.06)
The accompanying notes are an integral part of these financial statements.
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock
Common Stock to be Capital in
Issued Excess of Earnings
Shares Amount Shares Par Value Par Value (Deficit)
Balance
September 30,
1994 1,947,300 $ 1,947 30,000 $ 30 $ 299,673 $ (311,368)
October 7, 1994 shares issued
to an individual for cash
at $.50
per share 30,000 30 (30,000) (30) - -
January 1, 1995 shares issued
to a related corporation and
individuals in exchange for
ownership units of a Limited
Liability Company at $.247
per share (includes options
to purchase 75,000 shares
at $.75 per share
(see NOTE 1 Purchase of
Subsidiary) 260,000 260 - - 64,080 -
April 25, 1995 shares issued
to an individual for cash
at $.50 per share subject to
a Repurchase Agreement
(See NOTE 6) 100,000 100 - - 49,900 -
May 31, 1995 shares issued
to a company for cash
at $.40
per share 49,999 50 - - 19,950 -
July 28, 1995 shares issued
to an individual in
exchange for services
at $.377
per share 5,000 5 - - 1,880 -
Compensation Expense on
Stock Options
(See NOTE 5) - - - - 49,687 -
Net Loss - - - - - (127,234)
Balance
September 30,
1995 2,392,299 2,392 - - 485,170 (438,602)
March 25, 1996 exercise of
Stock Options at $.50
per share 20,000 20 - - 9,980 -
March 25, 1996 shares issued
to an individual at
$.50 per share 5,000 5 - - 2,495 -
March 28, 1996 shares issued
to an individual at
$.75 per share 16,000 16 - - 11,984 -
July 30, 1996 exercise of
Stock Options by Directors
at $.01 per
share 50,000 50 - - 450 -
August 6, 1995 exercise of
Stock Options by Employees
at $.01
per share 10,000 10 - - 90 -
August 8, 1996 shares issued
to an individual at
$1.00 per
share 10,000 10 - - 9,990 -
September 3, 1996 exercise of
Stock Options by Director
at $.01
per share 10,000 10 - - 90 -
Net Loss - - - - - (55,334)
Balance
September 30,
1996 2,513,299 2,513 - - $ 520,249 $(493,936)
The accompanying notes are an integral part of these financial statements.
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended
September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (55,334) $ (127,234)
Adjustments Used to Reconcile
Net Loss to Net Cash
Minority Income 2,727 (5,151)
Provided by (Used In)
Operating Activities:
Compensation Expense from
Stock Options - 49,687
(Increase) Decrease in
Accounts Receivable 1,399 (19,336)
(Increase) Decrease in
Interest Receivable 9,310 (5,148)
Increase (Decrease) in
Payables 19,162 51,274
Increase (Decrease) in
Interest Payable (41,892) 6,960
Depreciation and Amortization 54,189 30,237
Net Adjustments 44,895 108,523
Net Cash Used In Operating
Activities (10,439) (18,711)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Equipment (43,664) (15,833)
Acquisition of Subsidiary - (21,000)
Net Cash Used by Investing Activities (43,664) (36,833)
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For the Year
Ended
September 30,
1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Capital Stock Issued $ 35,200 $ 70,000
Proceeds From Loans 46,000 -
Cash Payments on Notes Payable (26,900) (5,173)
Cash Payments on Capital Leases (8,044) (3,226)
Net Cash Provided by Financing
Activities 46,256 61,601
Net Increase (Decrease) in Cash
and Cash Equivalents (7,847) 6,057
Cash and Cash Equivalents at
Beginning of the Year 17,267 11,210
Cash and Cash Equivalents at
End of the Year $ 9,420 $ 17,267
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interst $ 48,891 $ 2,263
Income Taxes $ 200 $ 200
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On February 14, 1995 the Company issued 260,000 shares of stock in exchange
for an 80% ownership interest in a limited liability company.
On July 28, 1995 the Company issued 5,000 shares of stock in exchange for
services.
The accompanying notes are an integral part of these financial statements.
AVTEL COMMUNICATIONS, INC.AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
This summary of accounting policies for Avtel Communications, Inc. and
Subsidiaries (formerly Hi, Tiger International, Inc.) is presented to assist
in understanding the Company's financial statements. The accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Organization and Basis of Presentation
The Company was organized under the laws of the State of Utah on October
27, 1981. The Company was in the development stage as of September 30, 1994.
The Company commenced operations on January 1, 1995.
Nature of Business
The Company provides a comprehensive array of broadband network services,
focused primarily on the business customer. The Company's current management
consists of key executives from the telecommunications industry who are
developing and implementing a business strategy to integrate voice, data and
video internetworking solutions for small and mid-size offices and select
vertical markets. The Company has, since October 1, 1996, completed acquistions
and formed strategic alliances with companies that enable AvTel to offer a
broad spectrum of communications services.
Purchase of Subsidiary
On February 14, 1995, Hi, Tiger, Inc. a wholly owned subsidiary of the
Company, entered into an agreement whereby 260,000 shares of the Company's
common stock, and options to purchase 75,000 shares of common stock at an
exercise price of $.75 any time through December 31, 1996, and $21,000 cash
were exchanged for an 80% interest in The Friendly Net, a Utah Limited
Liability Company("TFN"). TFN, which began operations on January 1, 1995, had
total assets whith a historical cost value of $106,675, consisting of computer
equipment with historical value of $100,934 and office furniture and fixtures
with historical value of $5,741, and no liabilities on the date of the
exchange. This transaction has been accounted for as a purchase using the
recorded value of net assets of the seller due to the related party
relationship. Accordingly, assets and liabilities are reflected at their
historical values. Shareholders' equity has been restated to reflect shares
exchanged in the reorganization as outstanding as of January 1, 1995, and
income and expenses have been presented since January 1, 1995.
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (Continued)
Consolidation
The consolidated financial statements include the accounts of the Company
and Hi, Tiger, Inc. ("HTI") its wholly owned subsidiary and The Friendly Net
LLC., HTI's majority-owned (80%) subsidiary. The effect of all intercompany
balances and transactions have been eliminated in combination.
Cash Equivalents
For the purpose of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with maturity of three months or less to be
cash equivalents to the extent the funds are not being held for investment
purposes.
Loss per Common Share
Earnings per common share are based upon the weighted average number of
common shares outstanding during each year. Fully diluted earnings per share
are not presented because they are anti-dilutive.
Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated economic useful
lives of the related assets as follows:
Computer equipment 3 years
Office furniture and fixtures 5-10 years
Upon sale or other disposition of property and equipment, the cost and
related accumulated depreciation or amortization are removed from the accounts
and any gain or loss is included in the determination of income or loss.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major overhauls and betterments are capitalized and depreciated
over their estimated economic useful lives.
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (Continued)
Capital Lease
The Company is the lessee of computer equipment under a capital leases
expiring in 1997 and 1998. The assets and liabilities under capital leases
are recorded at the lower of the present value of the minimum lease payments
or the fair value of the asset. The assets are amortized over the lower of
the lease term or their estimated productive lives. Amortization of assets
under capital lease is included in depreciation expense for September 30, 1996
and 1995.
NOTE 2 - INCOME TAXES
The Company has accumulated tax losses estimated at $365,000 expiring in
years beginning 1998. Current tax laws limit the amount of loss available to
be offset against future taxable income when a substantial change in ownership
occurs. The amount of net operating loss carryforward available to offset
future taxable income will be limited if there is a substantial change in
ownership.
NOTE 3 - RELATED PARTY TRANSACTIONS
Various shareholders had loaned the Company $5,173; $13,000 and $13,900
respectively. The notes were payable on demand plus interest at 10% per
annum. The balance due as of September 30, 1996 and 1995 was $ 0 and $26,900
plus accrued interest of $ 0 and $41,892 respectively.
The Company had loaned $46,000 to an affiliated company. The note was
payable on demand plus interest at 10% per annum. The balance due as of
September 30, 1996 and 1995 was $ 0 and $46,000 plus accrued interest of $ 0
and $9,310 respectively.
The Friendly Net L.L.C. has entered into a lease agreement with an
affiliated company in the amount of $1,000 per month. (See Note 4)
Beginning January 1, 1995, the Company agreed to Pay Paul G. Begum,
former President and Chief Executive Officer of the Company and a principal
shareholder, a consulting fee of $3,000 per month. Certain portions of Mr.
Begum's consulting fees have been accrued so that at September 30, 1996,
$40,900, including interest was due Mr. Begum. Pursuant to the Merger (see
Note 7 - Subsequent Events)
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
on October 23, 1996, an agreement was entered into with Mr. Begum, $48,000
will, subject to certain setoff rights, be paid to Mr. Begum over a twelve
(12) month period beginning November, 1996 at $4,000 per month.
NOTE 4 - COMMITMENTS
As of September 30, 1996 and 1995 all activities of the Company have been
conducted by corporate officers from either their homes or business offices.
Currently, there are no outstanding debts owed by the Company for the use of
these facilities and there are no commitments for future use of the
facilities.
The Friendly Net L.L.C. has entered into a commercial lease of office
space with Tree of Stars, Inc./P.D.O. (an affiliated company). The lease
provides for rental payments of $1,000 per month and expires April 30, 1997.
The Friendly Net LLC. Has entered into a commercial lease of storage
space with Utah County association of Realtors. The lease provides for rental
payments of $100 per month and expires June 20, 1998.
NOTE 5 - STOCK OPTIONS
On March 22, 1995 the Company adopted stock option plans for specified
directors and employees pursuant to which 45,000 stock options at $.75 per
share were awarded to employees and 105,000 stock options at $.25 per share
were awarded to specified directors, and 5,000 stock options at $.75 were
awarded to a director. The outstanding and exercisable options expire on
periods of between two and three years from the dates of grant, which is
during the period September, 1997 through September, 1998.
Compensation expense charged to operations in 1995 was $49,687. The following
is a summary of transactions:
Shares Under Option
September 30,
1996 1995
Outstanding, beginning of year 270,000 -
Granted during the year 144,444 270,000
Cancelled during the year (22,000) -
Exercised during the year (90,000) -
Outstanding, end of year
(at prices ranging from $.25
to $.75 per share) 302,444 270,000
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
NOTE 5 - STOCK OPTIONS (Continued)
Shares Under Option
September 30,
1996 1995
Eligible, end of year for
exercise currently (at prices
ranging from $.25 to $.75
per share) 302,444 270,000
NOTE 6 - STOCK REPURCHASE AGREEMENT
On March 27, 1995 the Company entered into an agreement whereby at the
option of Peter D. Olsen, a principal shareholder of the Company, the Company
is to purchase 100,000 shares of its own stock from Mr. Olsen at $.75 per
share. The terms of the agreement provide that the option was to be exercised
by June 30, 1995 with full payment by July 31, 1995. The agreement also
provided Mr. Olsen the option to buy 20,000 shares at $.50 per share by March
31, 1996. On June 28, 1995 Mr. Olsen sent a letter to the Company exercising
the election to put the 100,000 shares back to the Company. On August 6, 1996
Mr. Olsen sent a letter to the Company rescinding the June 28, 1995 letter.
As of September 30, 1996, the option is considered null and void.
NOTE 7 - SUBSEQUENT EVENTS
On October 23, 1996, the Company completed a merger transaction (the
"Merger") in which it acquired 100% of the issued and outstanding capital
stock of Avtel Holdings, Inc., a California corporation in exchange for
4,252,508 shares of the Company's $.001 par value common stock, comprising
approximately 61% of the Company's issued and outstanding common stock after
giving effect to the Merger, and 1,000,000 shares of newly authorized shares
of the company's Series A Convertible Preferred Stock. The Merger, which was
consumated in accordance with the terms of an Acquisition Agreement dated
August 30, 1996, was approved by the Company's shareholders at a special
meeting held October 23, 1996. The transaction has been accounted for as a
purchase. Assets and liabilities are reflected at their fair market value.
In November, 1996, the Company acquired Silicon Beach Communications,
Inc. ("SBC"), a privately held California corporation, that serves an Internet
Service Provider ("ISP") and provides software development services. The
acquisition was structured as a stock for stock transaction in which the
Company issued an aggregate of 115,000 shares of its Common Stock in
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
NOTE 7 - SUBSEQUENT EVENTS (Continued)
exchange for all the issued and outstanding capital stock of SBC.
The following pro forma balance sheets and statements of operations give
effect to the above events as if they had occurred on October 1, 1995:
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
NOTE 7 - SUBSEQUENT EVENTS (Continued)
As
Reported Silicon
In The Avtel Beach
Accompanying Holdings Communi-
Financial Inc. cations Pro froma Pro Forma
Statements 10/31/96 10/31/96 Adjustments Balance
ASSETS (Unaudited) (Unaudited)
Current Assets
Cash $ 9,420 $ 959,943 $ 5,685 $ - $ 975,048
Accounts Receivable,
Net 17,936 13,324 26,926 - 58,186
Other Receivables - - 11,296 - 11,296
Prepaid Expenses - - 11,613 - 11,613
Total Current
Assets 27,356 973,267 55,520 - 1,056,143
Fixed Assets
Equipment 159,306 - 239,866 - 399,172
Equipment Lease 21,280 - - - 21,280
Furniture & Fixtures 6,866 - 3,963 - 10,829
Less Accumulated
Depreciation (84,426) - (5,630) - (90,056)
Net Fixed Assets 103,026 - 238,199 - 341,225
Other Assets
Due From Stockholder - - 6,722 - 6,722
Total Assets $ 130,382 $ 973,267 $300,441 $ - $1,404,090
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
NOTE 7 - SUBSEQUENT EVENTS (Continued)
As
Reported Silicon
In The Avtel Beach
Accompanying Holdings Communi-
Financial Inc. cations Pro froma Pro Forma
Statements 10/31/96 10/31/96 Adjustments Balance
LIABILITIES AND (Unaudited) (Unaudited)
STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable,
Trade $ 25,269 $ 62,047 $ 70,399 $ - $ 157,715
Income Taxes Payable 200 800 800 - 1,800
Accrued Liabilities 6,266 10,041 10,970 - 27,277
Advance Payments - - 15,201 - 15,201
Line of Credit - - 24,900 - 24,900
Lease Obligation,
Current Portion 6,120 - 32,823 - 38,943
Loans, Current Portion - - 60,220 - 60,220
Officer Payable 40,900 51,100 - - 92,000
Total Current
Liabilities 78,755 123,988 215,313 - 418,056
Long Term Liabilities
Lease Obligation, 3,890 - 77,662 - 81,552
Loans - - 3,930 - 3,930
Total Liabilities 82,645 123,988 296,905 - 503,538
Minority Interest 18,911 - - - 18,911
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
NOTE 7 - SUBSEQUENT EVENTS (Continued)
As
Reported Silicon
In The Avtel Beach
Accompanying Holdings Communi-
Financial Inc. cations Pro froma Pro Forma
Statements 10/31/96 10/31/96 Adjustments Balance
Stockholders' Equity (Unaudited) (Unaudited)
Common Stock 2,513 3,000 1,000 (3,000) A
(1,000) A
4,253 B
115 C 6,881
Preferred Stock - 1,000,000 - (1,000,000)A
1,000,000 D 1,000,000
Offering Costs - (6,709) - 6,709 E -
Paid in Capital in
Excess of Par Value 520,249 - 10,833 3,000 A
1,000 A
(4,253)B
(115)C
(6,709)E
(147,012)F
(8,297)G 368,696
Retained
Earnings (Deficit) (493,936) (147,012) (8,297) 147,012 F
8,297 G (493,936)
Total Stockholders'
Equity 28,826 849,279 3,536 - 881,641
Total Liabilities
and Stockholders'
Equity $ 130,382 $ 973,267 $300,441 $ - $1,404,090
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
NOTE 7 - SUBSEQUENT EVENTS (Continued) Silicon
Avtel Beach
Holdings Communi-
As Reported Inc. cations
In The From From
Accompanying Inception Inception
Financial To To Pro froma Pro Forma
Statements 10/31/96 10/31/96 Adjustments Balance
REVENUES
Sales $ 299,315 $ 13,197 $432,916 $ - $ 745,428
Cost of Sales 67,034 6,138 - - 73,172
Gross Margin 232,281 7,059 432,916 - 672,256
EXPENSES
General and
Administrative 276,485 159,137 441,213 - 876,835
Bad Debt Expense 4,842 - - - 4,842
Total Operating
Expense 281,327 159,137 441,213 - 881,677
Income (Loss)
From Operations (49,046) (152,078) (8,297) - (209,421)
Operating Loss
Per Share $ - $ (.09)
AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Hi, Tiger International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
NOTE 7 - SUBSEQUENT EVENTS (Continued)
The accompanying unaudited condensed pro forma Balance Sheet has been
prepared as if the mergertook place on October 1, 1996. The accompanying
unaudited condensed proforma Statement of Operations has been prepared as if
the merger took place on October 1, 1995.
PRO FORMA ADJUSTMENTS
The adjustments to the accompanying unaudited condensed pro forma
financial statements are described below:
(A) Cancellation of all authorized, issued and outstanding shares of all
classes of AvTel Holdings, Inc. and Silicon Beach Comunications, Inc. common
and preferred stock.
(B) Issuance of 4,252,508 shares of $.001 par value common stock of the
Company in accordance with the acquisition agreement to purchase of Avtel
Holdings, Inc.
(C) Issuance of 115,000 shares of $.001 par value common stock of the
Company in accordance with the acquisition agreement tp purchase Silicon Beach
Communications, Inc.
(D) Issuance of 1,000,000 shares of newly authorized shares of the
Company's Series A Convertible preferred stock in accordance with the
acquisition agreement to purchase Silicon Beach Communications, Inc..
(E) Elimination of offering costs of AvTel Holdings, Inc.
(F) Elimination of current period earnings of AvTel Holdings, Inc. from
Retained Deficit due to purchase accounting.
(G) Elimination of current period earnings of Silicon Beach
Communications, Inc. from Retained Deficit due to purchase accounting.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is executed this 1st day of
August, 1996, by AvTel Communications, Inc., a California corporation (the
"Company") and Anthony E. Papa ("Employee"), with reference to the following
facts and circumstances.
WHEREAS, the Company wishes to employ Employee, and Employee wishes to be
employed by the Company, on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1.Term and Locale
A.The Company hereby employs Employee for an initial term commencing on
August 1, 1996 ("Effective Date") and ending on July 31, 1999 (the "Term"),
unless otherwise earlier terminated as hereinafter set forth, and Employee
hereby accepts such employment upon the terms and conditions set forth herein.
B.The term may be extended for three (3) consecutive one (1) year terms
(each an "Extension Term"), at the sole option of the Company, by written
notice to Employee to be delivered no later than three (3) months prior to the
expiration of the Term, or any succeeding Extension Term, as the case may be.
C.During the Term and any Extension Term, Employee shall be based at the
Company's executive offices at such location as may be determined by the Board
of Directors; provided, however, that Employee will travel as reasonably
required in the performance of his duties hereunder (and as determined by the
Company's Chief Executive Officer and President) and consistent with
reasonable business practices.
2.Office, Title and Duties
A.During the Term and any Extension Term, Employee shall have the title
of President and Chief Executive Officer and, in such capacity, shall perform
such duties consistent therewith and as may be designated from time to time by
the Chairman of the Board and/or the Board of Directors of the Company.
Employee shall also serve in such other capacities as an officer or employee
of one or more subsidiaries or affiliates as may be determined by the Board of
Directors of the Company or of such subsidiary or affiliate.
B.Employee shall devote his best efforts and his business time, attention
and energies to the performance of his duties hereunder, except that nothing
contained herein shall prevent Employee from making personal investments or
from being a shareholder of, or partner in, or, subject to the prior approval
of the Board, from serving as director of, other corporations or entities
which are not engaged in the business of providing communications,
telecommunications, cable television, telephone, wireless satellite, cellular,
data, computer and television service ("Company Business"), subject to the
conditions set forth in Section 5 hereof and provided that such activities do
not interfere with Employee's obligations hereunder or represent a conflict of
interests with the Company. Employee shall perform his duties hereunder
faithfully, diligently and at least with such proficiency as is customary in
the industry. For purposes hereof, ownership of stock by Employee in any
corporation whose stock is listed for trading on a national securities
exchange or on the NASDAQ National market System shall not violate the
provisions of this Section 2.B so long as such stock is less than five percent
(5%) of the issued and outstanding voting securities of such corporation.
3.Salary and Benefits
A.Base Salary - Term. As compensation for the services to be rendered
by Employee pursuant to this Agreement, the Company shall pay Employee an
annual base compensation of $125,000 ("Salary") through December 31, 1996 and
for all subsequent years during the Term, as follows:
Period Salary
January 1, 1997-December 31, 1997 $198,000
January 1, 1998-December 31, 1998 $227,700
Employee's initial increase on January 1, 1997 is contingent on (a) the
Company's having completed the HTI Merger (as defined below) and, following
such HTI Merger, and subject to the terms of Section 6 hereof, HTI having
closed one or more transactions on or prior to such date in which it has
received not less than $2,000,000 in additional capital funds (debt or equity)
as outlined below or (b) achieved on or before such date, revenues greater
than $100,000 per month in two or more successive months.
Salary shall be paid in bi-monthly installments during the course of each
calendar year during the Term and shall be subject to such withholdings and
deductions as may be required by law or as otherwise may be in accordance with
the normal payroll practices of the Company.
B.Base Salary - Extension Terms. Employee's Salary during each Extension
Term shall be determined by the Board of Directors or its compensation
committee based on such factors as may be considered appropriate including
then prevailing practices for executive salaries in the Company and the
industry that it serves, the Company's overall performance and the performance
of the specific functions and operations over which the Employee has
management responsibility.
C.Bonuses. "The Board of Directors or, at its election, its
Compensation Committee, shall, from time to time, adopt and on or before such
date during each fiscal year as shall be determined by the Board or such
Committee, and approve a business plan with respect to financial, operating
and other performance expectations and objectives for each fiscal year
("Annual Plan'). The Annual Plan shall include minimum performance objectives
for such fiscal year. Promptly following the issuance of the Company's
audited financial statements for each fiscal year, the Board shall determine
whether and to what extent the performance objectives in the Annual Business
Plan have been achieved. If the minimum performance objectives have not been
achieved, no incentive bonus shall be payable. If the minimum performance
objectives have (a) been achieved, the Employee shall be entitled to receive a
bonus equal to 40% of his Salary in effect at the end of the applicable fiscal
year, or (b) been exceeded, the Employee shall be entitled to receive, in
addition to the bonus described in the preceding clause (a) such additional
bonus amounts (not exceeding an aggregate of 75% of such Salary) as may be
determined by the Board in its sole discretion. If, for any reason, the Board
of Directors or Compensation Committee has not fixed and established an Annual
Plan for any particular fiscal year, incentive bonuses shall nonetheless be
payable in substantially the same amounts as determined in accordance with the
preceding two sentences; provided, however, that the purpose of determining
whether any performance objectives have been achieved, reference shall be made
to the five year Business Plan adopted and approved for the Company. Bonus
payments shall be made not later than 120 days after the end of each fiscal
year and the determination of performance objectives shall be based on results
of operations set forth in the Company's annual audited financial statements
with appropriate accruals to reflect bonus-related expenses."
D.Initial Bonus. Employee shall be eligible to receive a one time
$50,000 bonus payment if HTI completes a private placement or secondary public
offering of its securities, including convertible debt or debentures("Capital
Infusion") within a twelve-month period from the HTI/AvTel Merger (as
described below). The Capital Infusion must be a minimum of $2,000,000 and
HTI's stock must be trading at a minimum of $1.25 per share regardless of the
number of shares outstanding.
E.Compensation Deferral. The Company and Employee may from time to time
agree to defer all or any part of Employee's Salary or bonuses. Any such
arrangements shall be the subject of a written agreement, in form and content
approved by the Board or its Compensation Committee, between Employee and the
Company.
F.Business Expense. The Company will reimburse Employee for such actual
and reasonable business, travel, automobile (mileage expenses but not car
allowance) and entertainment expenses as may be incurred by him from time to
time during the Term in the performance of his duties and responsibilities
hereunder and in accordance with applicable provisions of the Internal Revenue
Code. Such reimbursements will be made upon the presentation by Employee of
an itemized account of such expenditures, setting forth the date, the purpose
for which incurred, and the amounts thereof, together with such receipts
showing payment as may be required by the Company's policies.
G.Benefits. During the Term hereof, the Company shall reimburse Employee
for COBRA expenses from his previous employer until such time that the Company
can provide Employee with paid medical, dental and vision insurance,
substantially the same as provided to the other comparable employees of the
Company for the maximum period of time for which Employee is entitled to
continue under COBRA benefits.
H.Vacations, Sick Leave and Leave of Absence. Employee shall be entitled
to take three (3) weeks of paid vacation which shall accrue monthly during
each calendar year of the Term, and which vacation shall be taken at times
determined by Employee and acceptable to the Chairman, the Chief Executive
Officer and the President of the Company, which do not unreasonably interfere
with the performance of his duties hereunder.
I.Stock Options. Subject to the HTI Merger and, thereafter, subject to
adoption and approval by the Board of Directors and shareholders of HTI of
employee stock option plans on such terms and conditions as may be so adopted
and approved, Employee shall be eligible for a grant of stock options to
purchase, upon exercise of option, shares of authorized but unissued common
stock of HTI in such amounts and on such terms and prices as may be determined
by the Board of Directors of HTI or its Compensation Committee and subject to
the terms and conditions of such stock option plan.
4.Termination. Salary, and other consideration and benefits, and the
employment of Employee by the Company may be terminated by the Company as
provided in this Section 4 as follows:
A.Death. In the event of Employee's death, the Company shall pay to the
persons designated by Employee or, in the event Employee fails to designate
such persons, to Employee's estate any accrued, but unpaid, Base Salary to the
date of death and the Company shall pay for any accrued but unused vacation
through the date of death. This Agreement shall be deemed to terminate upon
the death of Employee as though it had expired by its own terms.
B.Cause. Employee's employment hereunder may be terminate by the Company
at any time during the Term or any Extension Term for Cause (as hereinafter
defined). For purposes hereof, the term "Cause" shall mean any of the
foregoing:
1.The failure of Employee to perform any of his material obligations
under this Agreement and such failure shall not be cured within 30 days of
notice to Employee;
2.Employee has been dishonest or has committed willful misconduct or
fraud in any matter materially affecting the Company; or
3.Employee has been intentionally misrepresented to the Company or
been convicted of a felony.
In this event, this Agreement is terminated for Cause, the Company shall
pay Employee any accrued but unpaid Salary to the date of termination and
shall pay Employee for any accrued but unused vacation through termination.
C.Disability. The Company may terminate this Agreement upon written
notice to Employee by reason of Employee's disability. For the purpose of
this Agreement, "Disability" shall be defined as inability by Employee, due to
illness (other than the use/abuse of illegal narcotics, alcohol or other
intoxicating substances), accident, mental deficiency or similar incapacity or
legal requirements, to render his regular duties for the Company required
pursuant to this Agreement for a period of one hundred twenty (120) days in
any twelve (12) month period. Any termination of employment pursuant to this
Section 4.C shall not be deemed to be for "Cause" within the meaning of
Section 4.B hereof. In the event that the Company exercises its right to
terminate Employee's employment pursuant to this Section 4.C, the Company
shall pay Employee any accrued but unpaid Salary through the date of
termination and shall pay Employee any accrued but unused vacation through the
date of termination. Any payments of Salary provided for hereunder shall be
proportionally reduced by any payments which Employee may be entitled to under
any existing disability insurance policy maintained by the Company. In the
event this Agreement is terminated in accordance with this Section 4.C, the
Company shall not be obligated to pay Employee any amounts, except as
expressly set forth in this Section 4.C or by law.
D.Expiration Term or Extension Terms. Upon expiration of the Term or any
Extension Term, any continued employment by the Employee shall be on an
"at-will" employment basis and either the Company or the Employee may
terminate the employment relationship with or without cause or notice.
5.Employee Covenants
A.Non-Competition and Non-Solicitation
1.During Employee's employment by the Company, Employee shall not own
or have any material interest directly in, or act as an officer, director,
agent or consultant of, or assist in any way or in any capacity, any person,
firm, association, partnership, corporation, or entity which shall be
competitive with the Company Business or any other business then engaged in by
the Company, in any area where the Company engages or plans to engage in
business.
2.Employee shall not, for a period of one (1) year from the
expiration of the Term, any Extension Term or earlier termination of this
Agreement, solicit any employees or customers of the Company.
B.Non-Disclosure of Confidential Information. Employee acknowledges that
any disclosure of certain confidential and proprietary information or trade
secrets of substantial value to the Company or its customers (collectively the
"Confidential Information") would do great harm to the Company and agrees as
follows:
1.Confidential Information. As used in this Agreement, the term
"Confidential Information" without limitation, refers to and includes any and
all (i) matters of a technical nature, including without limitation, trade
secrets, systems, software and hardware, features, specifications, techniques,
copyrighted matters, patented or patentable inventions, plans, methods,
drawings, data, tables, calculations, documents or other paperwork, computer
programs, narratives, flow charts, formulae and devices, and (ii) matters of a
business nature, including without limitation, business and marketing plans,
financial statements and projections, dealings and distribution arrangements,
objectives, locations, customer information, customer needs and formulations,
plans for future development, information about costs, profits, pricing
policies, markets or sales information reporting actual or prospective
strategic alliances, mergers, acquisitions, divestitures or other forms of
business combinations, new products or service introduction plans, information
concerning salaries, compensation and skills, experience and capabilities of
the Company's employees, and any other information of similar nature not
available to the public. This Agreement covers the Confidential Information
of the Company and its customers.
2.Use of Confidential Information. Employee acknowledges that any
disclosure or use by him of Confidential Information other than on behalf of
the Company will cause irreparable harm and injury to the Company and,
therefore, agrees that the Confidential Information will be used solely in
connection with the performance of Employee's duties under this Agreement,
will not be used by Employee for commercial purposes and will be kept
confidential by Employee. Without limiting the generality of the foregoing,
Employee will not utilize any Confidential Information in the rendering of
services to any other employer or person. Following the termination of
Employee's employment with the Company, Employee shall not solicit any
employee of the Company possessing Confidential Information regarding the
Company. The Company may, in its sole discretion, disclose to any subsequent
employer of Employee, or any person having a business relationship with
Employee, the contents of this Section 5.
3.Exclusions. The term "Confidential Information" does not include
any information which meets any of the following criteria: (i) at the time of
disclosure is a matter of public record or is available to or known by the
public other than as a result of a disclosure, directly or indirectly, by
Employee in violation of this Agreement), (ii) had been publicly disclosed by
the Company (other than as a result of a disclosure, directly or indirectly,
by Employee in violation of this Agreement) or (iii) has been independently
acquired or developed by Employee without violating any of Employee's
obligations under this Agreement or otherwise.
4.Invention Assignment and Other Agreements. The Employee agrees,
upon the request of the Company, and without further or additional
consideration, to execute and deliver to the Company such other agreements,
documents, disclosures and certificates as may be reasonably necessary or
appropriate as determined by the Company in its sole discretion exercised in
good faith to confirm the nondisclosure and non-use restrictions and
limitations imposed on Employee with respect to the Company's Confidential
Information and, with respect to any inventions conceived or reduced to
practice by Employee during the Term or any Extension Term, or otherwise
during the course and in the scope of the Employee's employment relationship
with the Company, to disclose such inventions to the Company and to assign,
transfer and convey to the Company any and all patent, trade secret,
copyright, maskrights or other intellectual or industrial property rights
associated therewith.
C.Delivery of Property. Upon termination of Employee's employment with
the Company, Employee shall deliver to the Company all books, records, lists
of customers and other property belonging to the Company or developed in
connection with the business of the Company and all copies thereof, whether or
not such constitutes Confidential Information.
D.Reasonableness. In the event any court shall finally hold that any
provision of this Section 5 constitutes an unreasonable restriction against
Employee, the provision hereof shall not be rendered void but shall apply as
to such provision to such extent as such court may judicially determine or
indicate constitutes a reasonable restriction under the circumstances
involved.
E.Survival. The provision of Section 5.B shall survive the termination
of this Agreement for a period of two (2) years from the date of termination
and shall run to and inure to the benefit of the Company, its successors and
assigns.
F.Company Policies. The Employee acknowledges to adhere to any and all
policies and procedures that are adopted from time to time by the Company by
action of its Board of Directors or senior executive officers with respect to
corporate governance and business conduct matters or otherwise required in
order to comply with applicable laws and regulations, including, for example,
not by way of limitation, policies and procedure with respect to compliance
with insider trading laws and regulations, employment and labor matters and
other similar regulatory or legal provisions.
6.HTI Merger. Employee acknowledges that the Company is engaged in
discussions with Hi, Tiger International, Inc., a Utah corporation ("HTI"),
concerning a proposed merger ("HTI Merger") of the Company with and into HTI
or a subsidiary of HTI. Upon consummation of the transactions contemplated by
the HTI Merger, Employee shall become an employee of HTI, subject to the terms
and conditions of this Agreement and obligations and duties of the Company
under this Agreement shall become the obligations and duties of HTI.
7.Indemnification and Insurance. The Company shall indemnify Employee to the
fullest extent permitted by applicable law for acts or omissions relating to
Employee's services to the Company, provided that Employee was acting in good
faith and in a manner he reasonably believed to be in the best interest of the
Company.
8.Miscellaneous
A.Succession. This Agreement shall inure to the benefit of and be
binding upon the Company, its successors and assigns, and inure to the benefit
of and be binding upon Employee and his heirs and personal representatives.
The Company shall have the right to assign this Agreement and to delegate all
rights, duties and obligations hereunder, in whole or in part, to any
subsidiary, subsidiary or parent company of the Company or to any other
persons, firm or corporation which acquires either the Company or any
subsidiary thereof, or a substantial part of its or their assets, or into
which the Company or any subsidiary may merge. The obligations and duties of
Employee hereunder are personal and not assignable.
B.California Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the state of California, without regard to choice
of law provisions.
C.Waiver. No failure or delay on the part of any party to this Agreement
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
right, power or remedy hereunder.
D.Notices. All notices and demands among the parties shall be in writing
and shall be served (i) in person, (ii) by registered or certified mail,
return receipt requested or (iii) by overnight courier service. All notice
and demands to the parties hereto shall, if mailed, be addressed to the
following addresses:
To the Company: AvTel Communications, Inc.
130 Cremona Drive
Goleta, CA 93117
Fax No. 805\685-9685
To Employee: Mr. Anthony E. Papa
240 Por La Mar Circle
Santa Barbara, CA 93103
Telephone: 805\966-2152
The parties may designate in writing, from time to time, such other place
or places that such notices and demands may be given.
E.Arbitration. The exclusive method for resolving any controversy or
claim concerning or arising out of, or related to, this Agreement, including,
without limitation, the interpretation thereof, any alleged breach thereof and
the enforcement thereof, shall be by arbitration in Los Angeles, California,
upon initiation by a party hereto by a written notice to the party demanding
arbitration and specifying the controversy or claim to be arbitrated. Any
controversy or claim shall be settled and finally determined by a single
arbitrator selected in accordance with the following procedure: Within five
(5) business days of the date of delivery of the foregoing notice, the parties
shall each provide the other with a list of ten (10) retired judges from the
Los Angeles County Superior Court in order of preference and if one or more
judge appears on each such lists, the parties shall designate the duplicated
judge who is highest in order of preference on both lists to settle and
finally determine the controversy or dispute arising hereunder. If no judge
is named on both of such lists, then the parties shall have a period of two
(2) business days to agree to the designation of a retired judge from the Los
Angeles County Superior Court (who shall not have any conflicts of interest
with respect to the subject matter of, or the parties to, such dispute), shall
be chosen by the Presiding Judge of the Superior Court of Los Angeles, State
of California. The judge ultimately selected to hear the controversy or
dispute hereunder is herein referred to as the "Arbitrator". The Arbitrator
shall have the power to award any and all remedies and relief whatsoever
deemed appropriate under the circumstances, including, without limitation,
money damages and equitable relief. The procedure whereby the evidence
(oral/written) relating to the controversy or claim is presented in the
arbitration shall be as agreed to by the Arbitrator. The written decision of
the Arbitrator shall be binding and conclusive on the parties thereto and
enforceable as provided by the laws of the State of California, and judgment
on such arbitration decision may be entered by any courts having jurisdiction
thereof.
F.Entire Agreement. This Agreement sets forth the entire understanding
between the parties with respect to the subject matter hereof, and there are
no terms, conditions, representations, warranties or covenants other than
those contained herein. This Agreement supersedes any previous agreements or
understandings between the parties with respect to the subject matter hereof,
whether written or oral.
G.Captions. The section captions inserted in this Agreement are for
convenience of reference and are not intended to be part of the Agreement.
H.Severability. If any term of provision of this Agreement or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application
of such term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby and
each term and provision of this Agreement shall be valid and be enforced to
the fullest extent permitted by law.
I.Amendment and Modification. No term or provision of this Agreement may
be amended, waived, released, discharged or modified in any respect except in
writing signed by the parties hereto.
J.Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
K.Cost of Enforcement. The prevailing party in any proceeding brought to
interpret or enforce any provision of this Agreement or to recover for breach
thereof shall be entitled to recover the reasonable fees, expenses and costs
of his counsel, plus all other costs and expenses of such proceeding. For
purposes of this Agreement, the prevailing party shall be considered to be the
party whose final written settlement offer shall be closest to the award of
the Arbitrator.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AVTEL COMMUNICATIONS, INC.
A California Corporation
By: ____________________________________
James P. Pisani
Executive Vice President and
Chief Operating Officer
_______________________________________
Anthony E. Papa, Employee
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is executed this 1st day of
August, 1996, by AvTel Communications, Inc., a California corporation (the
"Company") and James P. Pisani ("Employee"), with reference to the following
facts and circumstances.
WHEREAS, the Company wishes to employ Employee, and Employee wishes to be
employed by the Company, on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1.Term and Locale
A.The Company hereby employs Employee for an initial term commencing on
August 1, 1996 ("Effective Date") and ending on July 31, 1999 (the "Term"),
unless otherwise earlier terminated as hereinafter set forth, and Employee
hereby accepts such employment upon the terms and conditions set forth herein.
B.The term may be extended for three (3) consecutive one (1) year terms
(each an "Extension Term"), at the sole option of the Company, by written
notice to Employee to be delivered no later than three (3) months prior to the
expiration of the Term, or any succeeding Extension Term, as the case may be.
C.During the Term and any Extension Term, Employee shall be based at the
Company's executive offices at such location as may be determined by the Board
of Directors; provided, however, that Employee will travel as reasonably
required in the performance of his duties hereunder (and as determined by the
Company's Chief Executive Officer and President) and consistent with
reasonable business practices.
2.Office, Title and Duties
A.During the Term and any Extension Term, Employee shall have the title
of Chief Operating Officer and Executive Vice President and, in such capacity,
shall perform such duties consistent therewith and as may be designated from
time to time by the Chairman of the Board, the Chief Executive Officer, the
President and/or the Board of Directors of the Company. Employee shall also
serve in such other capacities as an officer or employee of one or more
subsidiaries or affiliates as may be determined by the Board of Directors of
the Company or of such subsidiary or affiliate.
B.Employee shall devote his best efforts and his business time, attention
and energies to the performance of his duties hereunder, except that nothing
contained herein shall prevent Employee from making personal investments or
from being a shareholder of, or partner in, or, subject to the prior approval
of the Board, from serving as director of, other corporations or entities
which are not engaged in the business of providing communications,
telecommunications, cable television, telephone, wireless satellite, cellular,
data, computer and television service ("Company Business"), subject to the
conditions set forth in Section 5 hereof and provided that such activities do
not interfere with Employee's obligations hereunder or represent a conflict of
interests with the Company. Employee shall perform his duties hereunder
faithfully, diligently and at least with such proficiency as is customary in
the industry. For purposes hereof, ownership of stock by Employee in any
corporation whose stock is listed for trading on a national securities
exchange or on the NASDAQ National Market System shall not violate the
provisions of this Section 2.B so long as such stock is less than five percent
(5%) of the issued and outstanding voting securities of such corporation.
3.Salary and Benefits
A.Base Salary - Term. As compensation for the services to be rendered
by Employee pursuant to this Agreement, the Company shall pay Employee an
annual base compensation of $125,000 ("Salary") through December 31, 1996 and
for all subsequent years during the Term, as follows:
Period Salary
January 1, 1997-December 31, 1997 $165,000
January 1, 1998-December 31, 1998 $189,750
Employee's initial increase on January 1, 1997 is contingent on (a) the
Company's having completed the Hi, Tiger Merger (as defined below) and,
following such Hi, Tiger Merger, and subject to the terms of Section 6 hereof,
Hi Tiger having closed one or more transactions on or prior to such date in
which it has received not less than $2,000,000 in additional capital funds
(debt or equity) as outlined below or (b) achieved on or before such date,
revenues greater than $100,000 per month in two or more successive months.
Salary shall be paid in bi-monthly installments during the course of each
calendar year during the Term and shall be subject to such withholdings and
deductions as may be required by law or as otherwise may be in accordance with
the normal payroll practices of the Company.
B.Base Salary - Extension Terms. Employee's Salary during each Extension
Term shall be determined by the Board of Directors or its Compensation
Committee based on such factors as may be considered appropriate including
then prevailing practices for executive salaries in the Company and the
industry that it serves, the Company's overall performance and the performance
of the specific functions and operations over which the Employee has
management responsibility.
C.Bonuses. "The Board of Directors or, at its election, its
Compensation Committee, shall, from time to time, and on or before such date
during each fiscal year as shall be determined by the Board or such Committee,
adopt and approve a business plan with respect to financial, operating and
other performance expectations and objectives for each fiscal year ("Annual
Plan'). The Annual Plan shall include minimum performance objectives for such
fiscal year. Promptly following the issuance of the Company's audited
financial statements for each fiscal year, the Board shall determine whether
and to what extent the performance objectives in the Annual Business Plan have
been achieved. If the minimum performance objectives have not been achieved,
no incentive bonus shall be payable. If the minimum performance objectives
have (a) been achieved, the Employee shall be entitled to receive a bonus
equal to 40% of his Salary in effect at the end of the applicable fiscal year,
or (b) been exceeded, the Employee shall be entitled to receive, in addition
to the bonus described in the preceding clause (a) such additional bonus
amounts (not exceeding an aggregate of 75% of such Salary) as may be
determined by the Board in its sole discretion. If, for any reason, the Board
of Directors or Compensation Committee has not fixed and established an Annual
Plan for any particular fiscal year, incentive bonuses shall nonetheless be
payable, in substantially the same amounts as determined in accordance with
the preceding two sentences; provided, however, that the purpose of
determining whether any performance objectives have been achieved, reference
shall be made to the five year Business Plan adopted and approved for the
Company. Bonus payments shall be made not later than 120 days after the end
of each fiscal year and the determination of performance objectives shall be
based on results of operations set forth in the Company's annual audited
financial statements with appropriate accruals to reflect bonus-related
expenses."
D.Initial Bonus. Employee shall be eligible to receive a one time
$50,000 bonus payment if HTI completes a private placement or secondary public
offering of its securities, including convertible debt or debentures ("Capital
Infusion") within a twelve-month period from the HTI/AvTel Merger (as
described below). The Capital Infusion must be a minimum of $2,000,000 and
HTI's stock must be trading at a minimum of $1.25 per share regardless of the
number of shares outstanding.
E.Compensation Deferral. The Company and Employee may from time to time
agree to defer all or any part of Employee's Salary or bonuses. Any such
arrangements shall be the subject of a written agreement, in form and content
approved by the Board or its Compensation Committee, between Employee and the
Company.
F.Business Expense. The Company will reimburse Employee for such actual
and reasonable business, travel, automobile (mileage expenses but not car
allowance) and entertainment expenses as may be incurred by him from time to
time during the Term in the performance of his duties and responsibilities
hereunder and in accordance with applicable provisions of the Internal Revenue
Code. Such reimbursements will be made upon the presentation by Employee of
an itemized account of such expenditures, setting forth the date, the purpose
for which incurred, and the amounts thereof, together with such receipts
showing payment as may be required by the Company's policies.
G.Benefits. During the Term hereof, the Company shall reimburse Employee
for COBRA expenses from his previous employer until such time that the Company
can provide Employee with paid medical, dental and vision insurance,
substantially the same as provided to the other comparable employees of the
Company for the maximum period of time for which Employee is entitled to
continue under COBRA benefits.
H.Vacations, Sick Leave and Leave of Absence. Employee shall be entitled
to take three (3) weeks of paid vacation which shall accrue monthly during
each calendar year of the Term, and which vacation shall be taken at times
determined by Employee and acceptable to the Chairman, the Chief Executive
Officer and the President of the Company, which do not unreasonably interfere
with the performance of his duties hereunder.
I.Stock Options. Subject to the HTI Merger and, thereafter, subject to
adoption and approval by the Board of Directors and shareholders of HTI of
employee stock option plans on such terms and conditions as may be so adopted
and approved, Employee shall be eligible for a grant of stock options to
purchase, upon exercise of option, shares of authorized but unissued common
stock of HTI in such amounts and on such terms and prices as may be determined
by the Board of Directors of HTI or its Compensation Committee and subject to
the terms and conditions of such stock option plan.
4.Termination. Salary, and other consideration and benefits, and the
employment of Employee by the Company may be terminated by the Company as
provided in this Section 4 as follows:
A.Death. In the event of Employee's death, the Company shall pay to the
persons designated by Employee or, in the event Employee fails to designate
such persons, to Employee's estate any accrued, but unpaid, Base Salary to the
date of death and the Company shall pay for any accrued but unused vacation
through the date of death. This Agreement shall be deemed to terminate upon
the death of Employee as though it had expired by its own terms.
B.Cause. Employee's employment hereunder may be terminate by the Company
at any time during the Term or any Extension Term for Cause (as hereinafter
defined). For purposes hereof, the term "Cause" shall mean any of the
foregoing:
1.The failure of Employee to perform any of his material obligations
under this Agreement and such failure shall not be cured within 30 days of
notice to Employee;
2.Employee has been dishonest or has committed willful misconduct or
fraud in any matter materially affecting the Company; or
3.Employee has been intentionally misrepresented to the Company or
been convicted of a felony.
In this event, this Agreement is terminated for Cause, the Company shall
pay Employee any accrued but unpaid Salary to the date of termination and
shall pay Employee for any accrued but unused vacation through termination.
C.Disability. The Company may terminate this Agreement upon written
notice to Employee by reason of Employee's disability. For the purpose of
this Agreement, "Disability" shall be defined as inability by Employee, due to
illness (other than the use/abuse of illegal narcotics, alcohol or other
intoxicating substances), accident, mental deficiency or similar incapacity or
legal requirements, to render his regular duties for the Company required
pursuant to this Agreement for a period of one hundred twenty (120) days in
any twelve (12) month period. Any termination of employment pursuant to this
Section 4.C shall not be deemed to be for "Cause" within the meaning of
Section 4.B hereof. In the event that the Company exercises its right to
terminate Employee's employment pursuant to this Section 4.C, the Company
shall pay Employee any accrued but unpaid Salary through the date of
termination and shall pay Employee any accrued but unused vacation through the
date of termination. Any payments of Salary provided for hereunder shall be
proportionally reduced by any payments which Employee may be entitled to under
any existing disability insurance policy maintained by the Company. In the
event this Agreement is terminated in accordance with this Section 4.C, the
Company shall not be obligated to pay Employee any amounts, except as
expressly set forth in this Section 4.C or by law.
D.Expiration Term or Extension Terms. Upon expiration of the Term or any
Extension Term, any continued employment by the Employee shall be on an
"at-will" employment basis and either the Company or the Employee may
terminate the employment relationship with or without cause or notice.
5.Employee Covenants
A.Non-Competition and Non-Solicitation
1.During Employee's employment by the Company, Employee shall not
own or have any material interest directly in, or act as an officer, director,
agent or consultant of, or assist in any way or in any capacity, any person,
firm, association, partnership, corporation, or entity which shall be
competitive with the Company Business or any other business then engaged in by
the Company, in any area where the Company engages or plans to engage in
business.
2.Employee shall not, for a period of one (1) year from the
expiration of the Term, any Extension Term or earlier termination of this
Agreement, solicit any employees or customers of the Company.
B.Non-Disclosure of Confidential Information. Employee acknowledges that
any disclosure of certain confidential and proprietary information or trade
secrets of substantial value to the Company or its customers (collectively the
"Confidential Information") would do great harm to the Company and agrees as
follows:
1.Confidential Information. As used in this Agreement, the term
"Confidential Information" without limitation, refers to and includes any and
all (i) matters of a technical nature, including without limitation, trade
secrets, systems, software and hardware, features, specifications, techniques,
copyrighted matters, patented or patentable inventions, plans, methods,
drawings, data, tables, calculations, documents or other paperwork, computer
programs, narratives, flow charts, formulae and devices, and (ii) matters of a
business nature, including without limitation, business and marketing plans,
financial statements and projections, dealings and distribution arrangements,
objectives, locations, customer information, customer needs and formulations,
plans for future development, information about costs, profits, pricing
policies, markets or sales information reporting actual or prospective
strategic alliances, mergers, acquisitions, divestitures or other forms of
business combinations, new products or service introduction plans, information
concerning salaries, compensation and skills, experience and capabilities of
the Company's employees, and any other information of similar nature not
available to the public. This Agreement covers the Confidential Information
of the Company and its customers.
2.Use of Confidential Information. Employee acknowledges that any
disclosure or use by him of Confidential Information other than on behalf of
the Company will cause irreparable harm and injury to the Company and,
therefore, agrees that the Confidential Information will be used solely in
connection with the performance of Employee's duties under this Agreement,
will not be used by Employee for commercial purposes and will be kept
confidential by Employee. Without limiting the generality of the foregoing,
Employee will not utilize any Confidential Information in the rendering of
services to any other employer or person. Following the termination of
Employee's employment with the Company, Employee shall not solicit any
employee of the Company possessing Confidential Information regarding the
Company. The Company may, in its sole discretion, disclose to any subsequent
employer of Employee, or any person having a business relationship with
Employee, the contents of this Section 5.
3.Exclusions. The term "Confidential Information" does not include
any information which meets any of the following criteria: (i) at the time of
disclosure is a matter of public record or is available to or known by the
public other than as a result of a disclosure, directly or indirectly, by
Employee in violation of this Agreement), (ii) had been publicly disclosed by
the Company (other than as a result of a disclosure, directly or indirectly,
by Employee in violation of this Agreement) or (iii) has been independently
acquired or developed by Employee without violating any of Employee's
obligations under this Agreement or otherwise.
4.Invention Assignment and Other Agreements. The Employee agrees,
upon the request of the Company, and without further or additional
consideration, to execute and deliver to the Company such other agreements,
documents, disclosures and certificates as may be reasonably necessary or
appropriate as determined by the Company in its sole discretion exercised in
good faith to confirm the nondisclosure and non-use restrictions and
limitations imposed on Employee with respect to the Company's Confidential
Information and, with respect to any inventions conceived or reduced to
practice by Employee during the Term or any Extension Term, or otherwise
during the course and in the scope of the Employee's employment relationship
with the Company, to disclose such inventions to the Company and to assign,
transfer and convey to the Company any and all patent, trade secret,
copyright, maskrights or other intellectual or industrial property rights
associated therewith.
C.Delivery of Property. Upon termination of Employee's employment with
the Company, Employee shall deliver to the Company all books, records, lists
of customers and other property belonging to the Company or developed in
connection with the business of the Company and all copies thereof, whether or
not such constitutes Confidential Information.
D.Reasonableness. In the event any court shall finally hold that any
provision of this Section 5 constitutes an unreasonable restriction against
Employee, the provision hereof shall not be rendered void but shall apply as
to such provision to such extent as such court may judicially determine or
indicate constitutes a reasonable restriction under the circumstances
involved.
E.Survival. The provision of Section 5.B shall survive the termination
of this Agreement for a period of two (2) years from the date of termination
and shall run to and inure to the benefit of the Company, its successors and
assigns.
F.Company Policies. The Employee acknowledges to adhere to any and all
policies and procedures that are adopted from time to time by the Company by
action of its Board of Directors or senior executive officers with respect to
corporate governance and business conduct matters or otherwise required in
order to comply with applicable laws and regulations, including, for example,
not by way of limitation, policies and procedure with respect to compliance
with insider trading laws and regulations, employment and labor matters and
other similar regulatory or legal provisions.
6.HTI Merger. Employee acknowledges that the Company is engaged in
discussions with Hi, Tiger International, Inc., a Utah corporation ("HTI"),
concerning a proposed merger ("HTI Merger") of the Company with and into HTI
or a subsidiary of HTI. Upon consummation of the transactions contemplated by
the HTI Merger, Employee shall become an employee of HTI, subject to the terms
and conditions of this Agreement and obligations and duties of the Company
under this Agreement shall become the obligations and duties of HTI.
7.Indemnification and Insurance. The Company shall indemnify Employee to the
fullest extent permitted by applicable law for acts or omissions relating to
Employee's services to the Company, provided that Employee was acting in good
faith and in a manner he reasonably believed to be in the best interest of the
Company.
8.Miscellaneous
A.Succession. This Agreement shall inure to the benefit of and be
binding upon the Company, its successors and assigns, and inure to the benefit
of and be binding upon Employee and his heirs and personal representatives.
The Company shall have the right to assign this Agreement and to delegate all
rights, duties and obligations hereunder, in whole or in part, to any
subsidiary, subsidiary or parent company of the Company or to any other
persons, firm or corporation which acquires either the Company or any
subsidiary thereof, or a substantial part of its or their assets, or into
which the Company or any subsidiary may merge. The obligations and duties of
Employee hereunder are personal and not assignable.
B.California Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the state of California, without regard to choice
of law provisions.
C.Waiver. No failure or delay on the part of any party to this Agreement
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
right, power or remedy hereunder.
D.Notices. All notices and demands among the parties shall be in writing
and shall be served (i) in person, (ii) by registered or certified mail,
return receipt requested or (iii) by overnight courier service. All notice
and demands to the parties hereto shall, if mailed, be addressed to the
following addresses:
To the Company: AvTel Communications, Inc.
130 Cremona Drive
Goleta, CA 93117
Fax No. 805\685-9685
To Employee: Mr. James Pisani
2643 Montrose
Santa Barbara, CA 93103
Fax No. 805\685-9685
The parties may designate in writing, from time to time, such other place
or places that such notices and demands may be given.
E.Arbitration. The exclusive method for resolving any controversy or
claim concerning or arising out of, or related to, this Agreement, including,
without limitation, the interpretation thereof, any alleged breach thereof and
the enforcement thereof, shall be by arbitration in Los Angeles, California,
upon initiation by a party hereto by a written notice to the party demanding
arbitration and specifying the controversy or claim to be arbitrated. Any
controversy or claim shall be settled and finally determined by a single
arbitrator selected in accordance with the following procedure: Within five
(5) business days of the date of delivery of the foregoing notice, the parties
shall each provide the other with a list of ten (10) retired judges from the
Los Angeles County Superior Court in order of preference and if one or more
judge appears on each such lists, the parties shall designate the duplicated
judge who is highest in order of preference on both lists to settle and
finally determine the controversy or dispute arising hereunder. If no judge
is named on both of such lists, then the parties shall have a period of two
(2) business days to agree to the designation of a retired judge from the Los
Angeles County Superior Court (who shall not have any conflicts of interest
with respect to the subject matter of, or the parties to, such dispute), shall
be chosen by the Presiding Judge of the Superior Court of Los Angeles, State
of California. The judge ultimately selected to hear the controversy or
dispute hereunder is herein referred to as the "Arbitrator". The Arbitrator
shall have the power to award any and all remedies and relief whatsoever
deemed appropriate under the circumstances, including, without limitation,
money damages and equitable relief. The procedure whereby the evidence
(oral/written) relating to the controversy or claim is presented in the
arbitration shall be as agreed to by the Arbitrator. The written decision of
the Arbitrator shall be binding and conclusive on the parties thereto and
enforceable as provided by the laws of the State of California, and judgment
on such arbitration decision may be entered by any courts having jurisdiction
thereof.
F.Entire Agreement. This Agreement sets forth the entire understanding
between the parties with respect to the subject matter hereof, and there are
no terms, conditions, representations, warranties or covenants other than
those contained herein. This Agreement supersedes any previous agreements or
understandings between the parties with respect to the subject matter hereof,
whether written or oral.
G.Captions. The section captions inserted in this Agreement are for
convenience of reference and are not intended to be part of the Agreement.
H.Severability. If any term of provision of this Agreement or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application
of such term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby and
each term and provision of this Agreement shall be valid and be enforced to
the fullest extent permitted by law.
I.Amendment and Modification. No term or provision of this Agreement may
be amended, waived, released, discharged or modified in any respect except in
writing signed by the parties hereto.
J.Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
K.Cost of Enforcement. The prevailing party in any proceeding brought to
interpret or enforce any provision of this Agreement or to recover for breach
thereof shall be entitled to recover the reasonable fees, expenses and costs
of his counsel, plus all other costs and expenses of such proceeding. For
purposes of this Agreement, the prevailing party shall be considered to be the
party whose final written settlement offer shall be closest to the award of
the Arbitrator.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AVTEL COMMUNICATIONS, INC.
A California Corporation
By: ____________________________________
Anthony E. Papa
Chief Executive Officer
_______________________________________
James P. Pisani, Employee
AvTel
Communications, Inc.
December 13, 1996
Mr. Barry Peters
4162 Sterlingview Drive
Moorpark, CA 93021
Re: AvTel Communications, Inc., a Utah corporation (the "Company")
Dear Barry:
This letter will serve as a letter agreement by and among you, the
Company, Anthony E. Papa and James P. Pisani with respect to the following:
1.Letter Agreement dated August 1, 1996 (the "Letter Agreement") between you
and AvTel Holdings, Inc., a California corporation, formerly called AvTel
Communications, Inc. ("AHI");
2.Assumption and Rights Agreement between you and the Company dated October
23, 1996 ("Assumption Agreement"); and
3.That certain Shareholders Agreement by and among you, the Company, Anthony
E. Papa ("Papa"), James P. Pisani ("Pisani"), Paul G. Begum ("Begum") and Tree
of Stars, Inc. ("TOSI") (the "Shareholders' Agreement")
Background Facts
Pursuant to the Letter Agreement, you have been issued an aggregate of
1,063,128 shares (the "Shares") of the Company's $.001 par value common stock
("Common Stock")
Pursuant to the Assumption Agreement: (a) the Company assumed and
agreed to perform the duties and obligations of AHI under the Letter
Agreement, as amended, and (b) the Company and Messrs. Papa and Pisani
acquired certain rights (the "Option") to purchase all or any part of the
Shares.
Effective as of or prior to the date hereof, Messrs. Papa and Pisani
have acquired rights under the Option to acquire, as to each of them, 431,564
of the Shares.
130 Cremona Drive - Goleta, CA - 93117 - Phone: (805) 685-0355 - Fax: (805)
685-9685
Pursuant to the Assumption and Shareholders' Agreements,
respectively, you acquired: (a) certain so-called "registration rights"
with respect to the Shares, and (b) certain rights of first refusal with
respect to shares of the Company's common stock owned, directly or indirectly,
by Begum and TOSI (the "First Refusal Rights").
You have not signed and returned the Employment Agreement (as that
term is defined in the Letter Agreement) to the Company on or before December
1, 1996, and have advised the Company's Board of Directors that you do not
intend to accept the Employment Agreement or otherwise to become employed by
the Company.
Based on the foregoing, you and the Company have agreed to enter into
this Letter Agreement with respect to various matters involving the Letter
Agreement, the Assumption Agreement and the Shareholders' Agreement.
Agreement
In consideration of the mutual covenants, agreements and promises
contained herein, you and the Company agree as follows:
1.Termination of Employment Offer. Any and all offers by the Company or any
of its officer, directors and employees to employ you, including, but not
necessarily limited to, those offers set forth or referred to in the Letter
Agreement, are hereby completely and irrevocably terminated, revoked and
withdrawn.
2.Partial Option Termination. The Option is partially terminated in that (a)
an aggregate of 863,128 Shares remain subject to the Option (exercisable by
Papa and Pisani) and (b) the remaining 200,000 Shares (the "Reserved Shares")
are, as of the date hereof, released from the Option.
3.Exercise of Option, Delivery and Issuance of Stock Certificates. You
acknowledge that the execution of this Letter Agreement by Pisani and Papa
constitutes notice of exercise of the Option assigned to the each of them.
Accordingly, promptly following execution and delivery of this Letter
Agreement and the other agreements contemplated herein, you will furnish, or
cause to be furnished, to the Company the stock certificate representing the
Shares previously issued to you, together with a properly endorsed stock power
whereupon such stock certificate will be canceled on the corporation's record
and the Company will issue or cause to be issued new stock certificates as
follows:
(a)a Reserved Stock Certificate representing 200,000 shares of Common
Stock registered in your name; and
(b)two stock certificates, each in the amount of 431,564 shares of Common
Stock, registered in the names of Papa and Pisani, respectively.
Mr. Barry Peters
Letter Agreement
Page 3
All such stock certificates shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN
STATES. THESE SECURITIES ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
Except as set forth herein, all of the terms and conditions of Section 1 of
the Letter Agreement with respect to the option remain in full force and
effect, have not been modified or changed in any manner whatsoever.
4.Securities Laws Matters. You confirm that you have been informed that the
Reserved Shares are restricted securities under the Securities Act of 1993, as
amended, they may not be resold or transferred unless first registered under
the Federal Securities Laws or unless an exemption from such registration is
available and the issuance of such Reserved Shares to you may be subject to
your providing written representations to the Company, as determined by it and
its counsel, to assure compliance with such laws. You further acknowledge
that you are prepared to hold the Reserved Shares for an indefinite period and
that you are aware that Rule 144 promulgated by the Securities and Exchange
Commission is not presently available to exempt the resale of Shares from the
registration requirements of the 1933 Act. In order to reflect these
restrictions, the stock certificates for the Reserved Shares shall be endorsed
with such restrictive legends as are considered necessary or appropriate by
the Company.
5.Shareholder and Assumption Agreements. You hereby assign, transfer, convey
and set over to the Company all of your right, title and interests under the
Shareholder Agreement, including, but not necessarily limited to, all of your
right, title and interest to exercise any Rights of First Refusal with respect
to shares of common stock held by Begum and TOSI, directly or indirectly,
beneficially or of record. You shall continue to have, as to the Reserved
Shares, the piggyback registration rights set forth in and subject to the
terms of the Assumption Agreement.
6.Service as Director. You agree to continue to serve as a member of the
Board of Directors of the Company, at the pleasure of the Company's
shareholders. You will also be entitled to be reimbursed for reasonable
travel and other related costs and expenses incurred by you in connection with
attending such meetings. You will be expected to dutifully and faithfully
perform your obligations as a member of the Board of Directors of the Company
and to comply with customary and usual obligations of a director of a publicly
traded company.
7.Confidentiality. You acknowledge and agree that during the course of and
incident to your affiliation and relationship with the Company as a member of
the Board of Directors, the Company has provided and will provide to you, that
you will be exposed to or have access to, Confidential Information (as defined
herein). For purposes hereof, "Confidential Information" shall mean all
proprietary and confidential information concerning or relating to the
business, products, prospects, properties and operations of AvTel and its
subsidiaries, including, without limitation, customer and supplier lists,
know-how, trade secrets, business and discoveries, improvements, models,
strategies, forecasts, projections, budgets, financial information, price
lists, costs, computer programs, source and object codes, algorithms, data,
logic flow diagrams and other original works of authorship, executive and
employee information and data (including salaries, performance history, skills
and experience), capital formation and financing plans and strategies, merger,
acquisition and strategic alliance transactions, licensing and other similar
plans and objectives including any information received from third parties and
held in confidence by AvTel or its subsidiaries. You will hold the
Confidential Information in the strictest confidence, will not disclose or
make use of (directly or indirectly) any Confidential Information or any
portion thereof to or on behalf of any third party, except as required in the
performance of your duties and obligations as a member of the Board of
Directors of the Company.
8.Release. You acknowledge and agree that duties and obligations and
entitlements provided to you herein by the Company, including, but not
necessarily limited to the issuance by the Company to you of the Reserved
Stock and the Warrants constitute a full, complete and final payment,
satisfaction and discharge of any and all debts, obligations or liabilities,
expressed or implied, absolute or contingent, involving the Company or any of
its Affiliates in connection with, arising from or relating to the Letter
Agreement, the Employment Agreement, the Assumption and Rights Agreement and
the Shareholders Agreement and all representations, warranties, covenants and
understandings contemplated thereunder ("Company Agreements"). On behalf of
yourself and each of your successors and assigns, you hereby release and
forever discharge the Company and its present and former affiliates, officers,
directors, trustees, controlling persons, employees and agents ("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, costs and expenses relating
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 you ever had, now have
or may in the future have relating to the Company transactions. You further
agree and acknowledge that this release extends to all rights you may have
under any state or federal law or regulation limiting the effect of such
release, including, without limitation, the provisions of §1542 in the
California Civil Code, which are hereby expressly waived. Said §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."
9.General Provisions.
9.1No Representation Regarding Tax Treatment. No representation or
warranty is being made by any party to any other regarding the treatment of
the transactions contemplated by this Letter Agreement for federal or state
income taxation. 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.
9.2Governing 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.
9.3Notices. 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 AvTel, to: AVTEL COMMUNICATIONS, INC..
Attn.: James P. Pisani
130 Cremona Drive
Goleta, California 93117
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 Barry Peters: Mr. Barry Peters
4162 Sterlingview Drive
Moorpark, CA 93021
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.
9.4Attorneys' 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.
9.5Third-Party Beneficiaries. This contract is solely between the
Company and Barry Peters, 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.
9.6Entire 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.
9.7Counterparts. 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.
9.8Amendment 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.
10.Legal Representation. You acknowledge and understand that the Company is
represented by Price, Postel & Parma, LLP and that you are free to seek
separate counsel to advise you independently, with respect to this letter
agreement and any and all agreements contemplated hereunder.
Very truly yours,
AVTEL COMMUNICATIONS, INC.
Anthony E. Papa
President & Chief Executive Officer
Acknowledged and Accepted this ___ day
of December, 1996:
________________________________
Barry A. Peters
NOTICE OF EXERCISE OF OPTION
The undersigned hereby provide notice of exercise of options to acquire
the number of Shares set forth opposite their names and each hereby tenders
payment in the amount set forth below:
_____________________________ __________ Shares @ $0.00094062 per
Share
Anthony E. Papa Total: $____________
____________________________ __________ Shares @ $0.00094062 per
Share
James P. Pisani Total: $____________
AVTEL
Communications, Inc.
December 13, 1996
Mr. Barry Peters
4162 Sterlingview Drive
Moorpark, CA 93021
Re: Amendment to Letter Agreement dated August 1, 1996 (the "Letter
Agreement")
Dear Mr. Peters:
Reference is made to the Letter Agreement and to that certain Assumption
and Rights Agreement dated as of October 23, 1996, by and among AvTel
Communications, Inc., a Utah corporation (formerly Hi, Tiger International,
Inc.) (the "Company"), AvTel Holdings, Inc., a California corporation
(formerly AvTel Communications, Inc.) ("AHI"), Anthony E. Papa ("Papa"), James
P. Pisani ("Pisani") and you (the "Assumption Agreement").
Pursuant to the terms and conditions of the Assumption Agreement, the
Company has assumed and agreed to perform all rights, obligations and duties
of AHI under the Letter Agreement. The rights under the Letter Agreement
include the option of the Company or its assignees to purchase from you, at
any time after the Effective Events (as defined in the Letter Agreement) to
acquire from you all or any part of the 1,063,128 shares (the "Shares") of the
Company's $.001 par value common stock ("Common Stock") that had been issued
to you in connection with the merger of the Company with AHI.
Based on certain determinations of the Board of Directors of the Company
(the "Board") and certain other considerations and factors, you and the
Company have agreed to enter into this letter agreement to amend and reform
the Letter Agreement. Accordingly, in consideration of the mutual covenants,
agreements and promises contained herein, you and the Company agree as
follows:
1.The right and option of the Company to purchase the Shares has been
partially assigned, transferred and set over to Anthony E. Papa and James P.
Pisani, each as to 431,564 shares.
130 Cremona Drive, Goleta, California, 93117 - Phone (805) 685-0355 - Fax
(805) 685-9685.
The Company retains the right, subject to the terms and conditions of a
separate agreement entered into between you and the Company of even date
herewith, to purchase 200,000 of the Shares.
3.The option exercise price is $0.00094062 per share.
4.Except as expressly set forth herein and as otherwise set forth in the
separate agreement referenced in paragraph 2 above, all other terms and
conditions of the Letter Agreement shall remain in full force and effect.
If you agree to the terms and conditions of this amendment to the Letter
Agreement, please sign in the space provided below and return a copy of this
to the Company.
Very truly yours,
AvTel Communications, Inc.
Anthony E. Papa
President & Chief Executive Officer
Acknowledged and accepted this _____ day
of December, 1996.
_____________________________________
Barry A. Peters
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") dated as of this
20th day of November, 1996, is entered into by and among Hi, Tiger, Inc., a
Utah corporation (the "Company" or "HTI"), Silicon Beach Communications, Inc.,
a California corporation ("SBC") and Frank Dziuba, an individual and the sole
shareholder of SBC ("Shareholder").
RECITALS
A.The respective boards of directors of HTI and of SBC, and the Shareholder,
as the holder of one hundred percent (100%) of the issued and outstanding
common stock of SBC, have approved the acquisition by the Company from the
Shareholder of all of the issued and outstanding capital stock of SBC upon the
terms and subject to the conditions set forth in this Agreement; and
B.Based upon the representations, warranties, covenants and agreements
contained herein, the parties have agreed that SBC will be acquired by HTI and
SBC will become a wholly owned subsidiary of the Company in a stock for stock
transaction intended to qualify as a tax-free reorganization under Section
368(a)(1)(C) of the Internal Revenue Code.
NOW, THEREFORE, in consideration of the agreements, representations,
warranties and covenants herein contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1Defined Terms. Capitalized terms not otherwise defined herein shall have
the following meanings.
Affiliate - with respect to any Person, any other Person ("Controlling
Person") that, directly or indirectly, controls such Person and any other
Person that is directly or indirectly controlled by such Controlling Person.
For purposes hereof, the term "control" shall mean the possession of voting
power in the form of ownership of stock or other participation interests,
other than upon events of default, sufficient to change or replace fifty
percent (50%) or more of the board of directors or other management authority
of such Person.
AvTel - AvTel Communications, Inc., a Utah Corporation and the sole
shareholder of the Company.
AvTel Credit Line - the credit agreement between AvTel and SBC set forth
in Exhibit A attached hereto
AvTel Shares - 105,000 shares of the $.001 common stock of AvTel
Balance Sheet Date - the meaning set forth in Section 3.3 hereof
Boardroom - Boardroom Consultants, a California general partnership
with principal offices at 101 S. Victoria Street, Santa Barbara,
California 93101
Boardroom Agreement - the Release and Waiver Agreement in substantially
the form of Exhibit B
Boardroom Shares - 10,000 shares of the $.001 common stock of AvTel
Closing - the meaning set forth in Section 2.3
Closing Balance Sheet - the meaning set forth in Section 8.5
Closing Date - the meaning set forth in Section 2.3
Commission - the Securities and Exchange Commission of the United
States
Employment Agreement - the employment agreement between AvTel and the
Shareholder, in substantially the form of Exhibit C
Financial Statements - the meaning given to such a term in Section 3.2
Intellectual Property - the meaning given such term in Section 3.19
Knowledge - with respect to SBC, the actual present knowledge of the
Shareholder and any of the officers and directors of SBC and shall include
SBC's or any of such director's or officer's (a) possession or review of a
written document or material or (b) awareness or knowledge of oral or written
information at the time of the execution of this Agreement and at the Closing
License Agreement - the License Agreement in substantially the form of
Exhibit D
Liens - any liens, charges, security interests, pledges, rights or claims
of others, restraints on transfer or other encumbrances
Material Adverse Effect - with respect to any Person, a material adverse
effect on the business, prospects, results of operations, financial condition
or assets of such Person and its Subsidiaries, if any, taken as a whole
Non-Competition Agreement - the non-competition agreement in
substantially the form of that attached as Exhibit E
Partner Kopcho Debt - the debt in the original principal amount of
$68,000 owed by SBC to Julieanne Kopcho, an individual, as described in that
certain Note secured by Security Agreement executed contemporaneously with
this Note dated May 16, 1996.
Kopcho Pledge - that certain Pledge Agreement dated May 16, 1996 made by
Shareholder as Pledgor and Julieanne Kopcho as Pledgee
Person - an individual, corporation, partnership, joint venture, trust,
governmental agency or other similar legal entity
SBC Disclosure Schedule - the meaning given such term in Article III
SBC Employees - the employees of SBC listed in the SBC Disclosure
Schedule
Securities Act - the Securities Act of 1933, as amended, and the rules
and regulations thereunder
Shareholder Obligations - the direct or indirect debt and repayment
obligations of SBC, as to which Shareholder has, prior to the date hereof,
personally guaranteed the full payment and performance, as listed in the SBC
Disclosure Schedule
Shares - the meaning given such term in Section 2.1
Subsidiary - with respect to any entity, any corporation of which
securities or other ownership interests having ordinary voting power to elect
a majority of the board of directors or other Persons performing similar
functions are directly or indirectly owned by such entity
Tax and Taxes - the meaning given such terms in Section 3.20
ARTICLE II
THE ACQUISITION
2.1The Acquisition. On the Closing Date and subject to and upon the terms of
this Agreement, in exchange for a certificate representing the AvTel Shares
registered in the name of and to be delivered to the Shareholder, the Company
shall acquire and purchase from the Shareholder and the Shareholder shall
sell, transfer and convey to the Company 1,000 shares of the issued and
outstanding SBC Stock (the "Shares"), constituting, after giving effect to the
transactions contemplated by this Agreement, one hundred percent (100%) of the
issued and outstanding capital stock of SBC. Following the acquisition, SBC
shall continue as a surviving corporation and as a wholly owned Subsidiary of
HTI.
2.2Closing. The Closing of the acquisition shall take place at 10:00 a.m.,
California time, at the offices of Price, Postel & Parma, LLP, 200 East
Carrillo Street, Suite 400, Santa Barbara, California, 93101, on November 20,
1996 (the "Closing Date") unless another time, date or place is agreed to by
the parties hereto, provided that in no event shall the Closing be delayed
beyond November 30, 1996 without HTI's written consent.
2.3[Intentionally Omitted]
2.4Other Approvals. As a condition to this Agreement and to the consummation
of the transactions contemplated herein, prior to the Closing: (a) the board
of directors and shareholders of SBC shall have adopted and approved this
Agreement and the transactions contemplated hereunder; and (b) the Company
shall have received all consents, waivers and releases from such Persons and
on such terms as it, in its sole discretion, considers advisable.
2.5Closing Events.
(a)Deliveries by SBC and Shareholder. SBC and Shareholder shall deliver
or cause to be delivered to HTI 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 SBC 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 respective officers of SBC executing this Agreement
and any other document delivered pursuant hereto on behalf of SBC;
(iii)Copies of the resolutions of SBC's board of directors and
shareholders authorizing the execution and performance of this Agreement and
the contemplated transactions, certified by the secretary or an assistant
secretary (or other comparable officer) of SBC as of the Closing Date;
(iv)The certificates contemplated by Sections 6.1 and 6.2, duly
executed by the chief executive officer and principal accounting and financial
officer of SBC;
(v)Stock certificate(s) representing the Shares, endorsed in blank
or accompanied by duly executed assignment documents, and irrevocable
instructions directing the cancellation hereof and issuance of new stock
certificates reflecting 1,000 shares of SBC's common stock registered in the
name of the Company; and
(vi)Resignations, in writing, of all officers and directors of SBC.
In addition to the above deliveries, SBC and Shareholder shall take all steps
and actions and execute and deliver such other Certifications and documents
as HTI may reasonably request or as may otherwise be necessary to consummate
the transactions contemplated hereby.
(b)Deliveries by HTI. Subject to fulfillment or waiver of the conditions
set forth in Article V and VI, HTI shall deliver or cause to be delivered 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
HTI is in good standing as a corporation in the state of Utah;
(ii)Incumbency and specimen signature certificates dated the Closing
Date with respect to the officers of HTI executing this Agreement and any
other document delivered pursuant hereto on behalf of HTI;
(iii)Copies of resolutions of the board of directors of HTI
authorizing the execution and performance of this Agreement and the
contemplated transactions, contemplated hereunder, certified by the secretary
or an assistant secretary of HTI as of the Closing Date; and
(iv)Stock certificates representing the Boardroom Shares and the
AvTel Shares.
In addition to the above deliveries, HTI shall take all steps and actions as
SBC or Shareholder may reasonably request or as may otherwise be necessary to
consummate the transactions contemplated hereby.
2.6Termination. This Agreement may be terminated by HTI at any time prior to
the Closing if:
(a)Legal Proceeding. There shall be any actual or threatened action or
proceeding to restrain, prohibit, or invalidate the transactions contemplated
by this Agreement and which, in the judgment of such board of directors, makes
it inadvisable to proceed with the transaction contemplated by this Agreement;
(b)Regulatory Disapproval. Any of the transactions contemplated hereby
are disapproved by the Commission, the California Commissioner of Corporations
or any other regulatory authority whose approval is required or advisable 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 Acquisition;
(c)Delay of Closing. The Closing shall not have occurred prior to
November 30, 1996, or such later date as shall have been approved by the board
of directors of HTI; or
(d)Non-Compliance. If either SBC or Shareholder shall fail to comply in
any material respect with any of their covenants or agreements contained in
this Agreement or if any of the representations or warranties of SBC or
Shareholder contained herein shall be inaccurate.
In the event of termination pursuant to paragraphs (a) through (c), above, 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. In the event of termination pursuant to paragraph (d) of this Section
2.6, HTI shall have no obligation or liability but shall be entitled to
recover from SBC and Shareholder all expenses, fees and costs incurred in
connection with the negotiation, preparation, and execution of this Agreement
and the transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS, COVENANTS AND WARRANTIES OF
SBC AND THE SHAREHOLDER
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 HTI, except as set forth in a disclosure schedule dated as of the
date hereof and delivered by SBC and Shareholder to HTI (the "SBC Disclosure
Schedule") SBC and Shareholder jointly and severally represent and warrant as
of the date hereof and as of the Closing Date, as follows:
3.1Organization. SBC 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 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.
3.2Capitalization. The authorized capitalization of SBC consists of 1,000,000
shares of Common Stock, no par value (the "SBC Stock"), of which 1,000 shares
are issued and outstanding, consisting of 1,000 shares registered in the name
of Shareholder. All issued and outstanding shares of SBC Stock are duly
authorized, legally issued, fully paid, and nonassessable, are not subject to
any preemptive or other right of any Person created by statute, the Articles
of Incorporation or Bylaws of SBC and, except for the Kopcho Pledge, are free
of any Liens. There are no dividends or other amounts due or payable with
respect to any of the shares of SBC Stock. SBC has no Subsidiaries.
3.3Financial Statements.
(a)The financial statements of SBC, including the notes thereto and
consisting of the unaudited balance sheets of SBC (the "SBC Balance Sheets"),
as of October 31, 1996 (the "Balance Sheet Date"), and the related unaudited
consolidated statements of operations, changes in stockholders' equity and
cash flows for the ten month period then ended (the "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. True and correct copies of
such Financial Statements have been furnished to HTI. Such Financial
Statements are complete and accurate in all material respects as of their
respective dates, fairly present the financial condition and results of
operations as of the date thereof, and have been prepared in accordance with
generally accepted accounting principles consistently applied on a consistent
basis throughout the periods involved.
(b)SBC did not have, as of the Balance Sheet Date except as and to the
extent reflected or reserved against therein, any liabilities or obligations
(absolute, contingent or otherwise) which should be reflected in a balance
sheet or the notes thereto prepared in accordance with generally accepted
accounting principles under which they were prepared, and all assets reflected
therein present fairly the assets of SBC in accordance with generally
accepted accounting principles under which they were prepared. The accounts
receivables reflected in the SBC Balance Sheets arose in the ordinary course,
are fully collectible and not subject to any claims of setoff or reduction.
The statements of operations, shareholders' equity and cash flows present
fairly the consolidated financial position and results of operations of HTI as
of their respective dates and for the respective periods covered thereby. HTI
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 under
which they were prepared.
(c)The Financial Statements have been presented or will be amended to be
presented in accordance with the requirements of Regulation S-X promulgated by
the Commission regarding the form and content of and requirements for
financial statements to be filed with the Commission
(d)The books and records, financial and otherwise, of HTI 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 the transactions and dispositions of the
assets and liabilities, actual, contingent or otherwise, of SBC.
3.4Information. The information concerning SBC and Shareholder set forth or
otherwise provided or furnished in connection with this Agreement; including
the SBC Disclosure Schedule, is complete and accurate in all material respects
and did not 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. True and
correct copies of the Kopcho Debt, the Kopcho Pledge, the Kopcho Security
Agreement and each of the written contracts, agreements and leases listed in
the SBC Disclosure Schedule have been delivered to the Company on or prior to
the Closing Date and there are no amendments, revisions or changes, oral or in
writing, to any of the foregoing.
3.5Options; Equity Interests. Except as set forth in the SBC Disclosure
Schedule, there are no existing options, warrants, calls, rights, agreements
or commitments of any character relating to the authorized and unissued
capital stock of or equity participation in SBC ("Equity Interest") and no
Person has such an Equity Interest . Neither SBC nor Shareholder is a party
to or obligated under any agreement, contract, understanding, commitment or
arrangement, expressed or implied, oral or in writing obligating them, jointly
or severally, to either (a) issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of
SBC Stock obligating or (b) grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such Equity Interest.
3.6Absence of Certain Changes or Events. Since the Balance Sheet Date:
(a)SBC 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 SBC or (ii) any
damage, destruction, or loss that has resulted in or might reasonably expect
to result in a Material Adverse Affect;
(b)SBC has not (i) amended its articles of incorporation or bylaws;
(ii) declared, set, made, or agreed to declare, or make any dividends or
distributions of any assets of any kind whatsoever or purchased or redeemed,
or agreed to purchase or redeem, any of its capital stock; (iii) waived any
rights; (iv) made any material change of management, operations, 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 employees; (viii) made any increase in any
profit-sharing, bonus, or other employee benefit plan; or employees; or (ix)
made any representations, agree to merit, promise or commitment of any nature
whatsoever, expressed or implied, on behalf of the Company or AvTel, with
respect to any of the matters referred in the preceding clauses (i) through
(viii).
(c)Neither SBC nor Shareholder has (i) granted or agreed to grant any
options, warrants, calls, commitments or other rights for the Shares, the SBC
Stock or any of the capital stock of either the Company or AvTel; (ii)
borrowed or agreed to borrow any funds or incurred, or become subject to, any
debt, obligation or liability (absolute or contingent) except liabilities
incurred in the ordinary course of business; (iii) loaned or advanced funds or
granted extensions of credit (or agreed to do any of the foregoing) to any
Person or guaranteed, directly or indirectly, in any manner whatsoever, the
payment or performance obligations, in whole or in part, of any other Person;
(iv) paid or prepaid any material obligation or liability (absolute or
contingent) other than current liabilities reflected on or shown on the SBC
Balance Sheets included in the Financial Statements; (v) sold or transferred,
or agreed to sell or transfer, any assets, properties, or rights or canceled,
or agreed to cancel, any debts or claims; (vi) made or permitted any amendment
or termination of any material contract, agreement, or license to which it is
a party; (vii) 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); (viii) entered into, amended,
modified or changed any Affiliate Transaction (as defined herein) or paid,
discharged, released, waived, transferred, assigned, canceled or terminated
any rights, duties liabilities or obligations under any Affiliate Transaction;
or (ix) made any representations, agreements, promises or commitments of any
nature whatsoever, expressed or implied, on behalf of the Company or AvTel,
with respect to any of the matters referred in the preceding clauses (i)
through (viii).
(d)Neither SBC nor Shareholder has 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 SBC.
3.7Title. SBC has good and marketable title to all of its properties,
inventory, interests in properties, Intellectual Property and assets in each
case, free and clear of all mortgages, security interests, royalties, liens,
pledges, charges, or encumbrances. Shareholder has good and marketable title
to the Shares free and clear of all mortgages, security interests, royalties,
Liens, pledges, charges or encumbrances.
3.8Litigation. There are no actions, suits, or administrative or other
proceedings pending or threatened by or against SBC or Shareholder or
affecting either of them or their respective properties, at law or in equity,
before any court or other governmental agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind. There is no judgment, decree
or order 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 Affect on SBC.
3.9Contracts. There are no material contracts, agreements, franchises,
leases, license agreements, or other commitments to which SBC is a party by
which any of its properties are bound. All contracts, agreements,
franchises, license agreements, and other commitments to which SBC is a party
or by which it is bound and which are material to its operations or financial
condition are valid and enforceable. Neither SBC nor Shareholder is a party
to or bound by any material contract, agreement, lease, other commitment or
instrument or any judgment, order, injunction, decree, or award which
materially and adversely affects, or in the future may materially and
adversely affect, the business, operations, properties, assets, or condition
of SBC. Neither SBC nor Shareholder is a party to any contract, agreement,
understanding, arrangement or commitment, oral or in writing, expressed or
implied (a) regarding or relating to the employment of any officer, director,
or employee which is not terminable on 30 days (or less) notice; (b) except
for the Kopcho Debt, relating to the borrowing of money; or (c) except for the
Shareholder Obligations, any guarantee of any obligation for the borrowing of
money or otherwise.
3.10Material Contract Defaults. Neither SBC nor Shareholder is in default
under the terms of any of the Shareholder Obligations or any other contract,
agreement, lease, or other commitment which is material to the business,
operations, properties, assets, or condition of SBC, and there is no event of
default or other event which, with notice or lapse of time or both, would
constitute a default under the Shareholder Obligations or any other contract,
agreement, lease, or other commitment.
3.11No Conflict With Other Instruments. The execution of this Agreement and
the consummation of the transactions contemplated by this Agreement will not
violate any provision of SBC's Articles of Incorporation or Bylaws and will
not result in the breach of any term or provision of, or constitute an event
of default under, any indenture, mortgage, deed of trust, or other contract,
agreement, or instrument, expressed or implied, oral or in writing, to which
SBC or Shareholder is a party or to which either of their properties, assets
or operations are subject.
3.12Governmental Authorizations. SBC has obtained all licenses, franchises,
permits, and other governmental authorizations that are legally required to
enable it to conduct its businesses as conducted on the date of this Agreement
and as of the Closing Date.
3.13Compliance With Laws and Regulations. SBC has complied with and is not in
violation of and has not received any notices of violation with respect to all
applicable statutes and regulations of any federal, state, or other
governmental entity, including, with respect to the Shares, all applicable
securities statutes and regulations.
3.14Insurance. SBC has 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 SBC. All of the insurable properties of SBC 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. Such
policies will be outstanding and in full force at the Closing Date. There is
no material claim pending under any of these policies or bonds and all
premiums due and payable under all such policies and bonds have been paid.
3.15Employee Relations. SBC has complied with all applicable laws, rules, and
regulations that relate to prices, wages, hours, harassment, disabled access,
and discrimination in employment and collective bargaining and to the
operation of its business and has duly paid or accrued and is not liable for
any arrears of wages or any payroll and other taxes or penalties for failure
to comply with any of the foregoing. There are no written employment
agreements in place or currently in effect for any of SBC's employees and all
such employees have been and are engaged as "at will" employees. No
representations, warranties, commitments or understandings of any nature
whatsoever, oral or in writing, expressed or implied, have been made, offered
or entered into by SBC or Shareholder to or with any person on behalf of the
Company or AvTel, or that might reasonably be expected to be on behalf of or
attributable to the Company or AvTel, with respect to the terms or conditions
of any employment relationship between such person and either the Company or
AvTel and any of their affiliates, including but not limited to duration,
wages, salaries, bonuses, stock options, benefits or other matters relating to
any such employment relationship.
3.16Interested Party Transactions. SBC is not indebted to Shareholder or to
any director, officer, Affiliate, employee or agent of SBC or any of its
Subsidiaries (except for amounts due as normal salaries and bonuses and in
reimbursement of ordinary expenses), and no such Person is indebted to SBC 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-B
under the Securities Act and the Exchange Act.
3.17Brokers' and Finders' Fees. Neither SBC nor Shareholder has 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.
3.18Board Approval. The Board of Directors of SBC has unanimously approved
this Agreement and determined that the Agreement is in the best interests of
SBC.
3.19Intellectual Property. SBC owns or has valid and enforceable, royalty
free, world-wide, transferable, unrestricted rights and licenses to use, in
the conduct of its business as presently conducted and as expected to be
conducted following the consummation of the transactions contemplated by this
Agreement, all (a) patents, patent applications and invention disclosures; (b)
copyrights and registrations and applications for registration thereof; (c)
masks, mask designs and mask works, and registrations and applications for
registration thereof; (d) computer software, passwords, codes and other data,
and documentation; (e) trade secrets (including ideas, formulas, compositions,
inventions, whether patentable or unpatentable and whether or not reduced to
practice), know-how, manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs,
plans, proposals, technical data and copyrightable works; and (f) registered
and common law trademarks, service marks, tradenames, trademark and service
mark applications and copies thereof and tangible embodiments thereof (in
whatever form or medium) (collectively, "Intellectual Property"). Shareholder
has transferred, conveyed and sold to SBC all of his right, title and interest
in and to all of such Intellectual Property free and clear of any liens. The
Intellectual Property constitute all of the intellectual property, whether or
not owned by SBC, used by it to any material extent in the conduct of the
business as presently conducted by SBC and as expected to be conducted
following the acquisition. None of such Intellectual Property has been
assigned, transferred or licensed to or from any third party and the validity
or enforceability as used in the conduct of the business as presently
conducted by SBC and as expected to be conducted following the consummation of
the transactions contemplated by this Agreement has not been challenged by
others in any proceeding or dispute about which SBC or Shareholder has
received notice in writing, nor is there any pending or, to the knowledge of
SBC or Shareholder, threatened litigation or proceeding challenging SBC's
right to use any of such Intellectual Property. SBC's use of the Intellectual
Property does not conflict with or constitute an infringement of the rights of
any other person. The consummation of the transactions contemplated by this
Agreement will not adversely affect SBC's rights to Intellectual Property.
3.20Taxes. The Financial Statements properly and accurately reflect all
accruals for all taxes, assessments or charges of a governmental nature,
whether state, federal, local or otherwise, and whether in the nature of
income, payroll, sales, value-added, ad-valorem, property or otherwise
("Taxes"). Neither SBC nor Shareholder has any Tax deficiency or claim
outstanding or assessed against it/him, or, to SBC's Knowledge, proposed
against it, and there is no basis for any such deficiency or claim, which is
reasonably likely to result in the imposition of any Lien, claim or
encumbrance on the business assets or properties of SBC. All Tax and
information returns and reports required to be filed by SBC have been duly and
timely filed and all Taxes which were required to be paid have been paid. The
SBC Disclosure Schedule constitutes a complete list of all real property and
personal property tax bills of SBC for the current and prior property tax
years, indicating whether or not SBC or Shareholder has Knowledge of any
proposal by any such taxing authority to change the assessed values or
assessment rate reflected in such bills.
3.21Representations Complete. None of the representations or warranties made
by SBC or Shareholder herein or the Disclosure Schedule or any certificate or
statement furnished pursuant to this Agreement or the transactions
contemplated hereunder contains or will contain at the Closing Date any untrue
statement of a material fact, or omits or will omit 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 IV
REPRESENTATIONS, COVENANTS AND WARRANTIES
OF THE COMPANY
As an inducement to, and to obtain the reliance of, SBC and Shareholder,
HTI represents and warrants as follows:
4.1Organization. HTI 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 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 Affect on the
business, operations, properties, assets, or condition of HTI. The AvTel
shares, when, if and as issued pursuant to this Agreement will be duly
authorized, fully paid and nonassessable.
4.2Approval of Agreements. HTI has all requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions herein contemplated. The execution, delivery, and performance of
this Agreement by HTI has been duly authorized by all necessary corporate
action on the part of HTI. This Agreement has been duly authorized, executed,
and delivered by HTI 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.
4.3DISCLAIMER. THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE
IV ARE THE ONLY REPRESENTATIONS AND WARRANTIES MADE BY OR ON BEHALF OF HTI AND
NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESSED, IMPLIED OR STATUTORY HAVE
BEEN MADE BY OR ON BEHALF OF HTI, ITS OFFICERS, DIRECTORS, AGENTS,
REPRESENTATIVES OR SHAREHOLDERS WITH RESPECT TO THIS AGREEMENT, OR THE OTHER
AGREEMENTS AND TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN OR WITH RESPECT TO
HTI OR ITS BUSINESS, FINANCIAL CONDITION, PROSPECTS, TECHNOLOGY OR OTHERWISE.
ARTICLE V
SPECIAL COVENANTS TO BE SATISFIED PRIOR TO CLOSING
5.1Activities of SBC and Shareholder
(a)From and after the date of this Agreement until the Closing Date SBC and
Shareholder will each:
(i)Carry on the business of SBC 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 SBC;
(iii)Perform in all material respects all obligations under SBC's
contracts, leases, and instruments relating to or affecting its assets,
properties, and business;
(iv)Maintain and preserve SBC's business organization
intact, retain its key employees, and to maintain its 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 and 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;
(vi)withhold from each payment made on or prior to the
Closing Date to each employee or consultant the amount of all Taxes required
to be withheld and pay the same, before becoming delinquent, to the proper tax
receiving officers; and
(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 until the Closing Date, SBC
and Shareholder will not:
(i)make any change in SBC's Articles of Incorporation or
bylaws;
(ii)enter into or amend any contract, agreement, or other
instrument, except in the ordinary course of business; and
(iii)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.
5.2Access to Properties and Records. SBC and Shareholder will afford to HTI's
officers and authorized representatives full access to the properties, books,
and records of SBC 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.
5.3Securities Laws Matters - AvTel Shares. The consummation of this
Agreement and the transactions contemplated herein, including the issuance of
the AvTel Shares, 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,
SBC and the Shareholder acknowledge and concur in, the following
representations and warranties:
(i)SBC and Shareholder acknowledge that neither the
Commission nor the securities commission of any state or other federal agency
has made any determination as to the merits of acquiring the AvTel Shares and
that this transaction involves certain risks.
(ii)SBC and Shareholder each has such knowledge and experience in
business and financial matters that they are capable of evaluating SBC, HTI
and AvTel and their business operations as the case may be.
(iii)All information which SBC and Shareholder have provided to HTI
or its agents or representatives concerning their suitability and intent to
hold the AvTel Shares following the transactions contemplated hereby is
complete, accurate, and correct.
(iv)Neither SBC nor Shareholder has offered or sold any AvTel Shares
or other securities of AvTel or interest in this Agreement and have no present
intention of dividing the AvTel 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)Shareholder understands that the AvTel 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
subject AvTel 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 subject AvTel 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 AvTel Shares are acquired, as calculated in accordance with Rule
144(d). After three years from the date the AvTel Shares acquired 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)Shareholder acknowledges that the AvTel 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. Neither HTI nor AvTel is under any obligation to
register the AvTel 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 AvTel Shares in limited amounts can be made in
reliance upon Rule 144 in accordance with the terms and conditions of that
rule. Neither HTI nor AvTel is under any obligation to make Rule 144
available, and in the event Rule 144 is not available, compliance with
regulation A or some other disclosure exemption may be required before
Shareholder can sell, transfer, or otherwise dispose of such AvTel Shares
without registration under the Securities Act. AvTel's registrar and transfer
agent will maintain a stop transfer order against the registration or transfer
of the AvTel Shares and the certificate representing the AvTel Shares 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, FOR THE
ACCOUNT OF THE REGISTERED HOLDER, 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)AvTel may refuse to register further transfers, or resales of
the AvTel Shares in the absence of compliance with Rule 144 unless
Shareholder furnishes the issuer with a "no-action" or interpretive letter
from the Commission or an opinion of counsel reasonably acceptable to AvTel
stating that the transfer is proper. Further, unless such letter or opinion
states that the shares of AvTel are free of any restrictions under the
Securities Act, AvTel may refuse to transfer the AvTel 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 AvTel Shares as set forth
herein. AvTel may also refuse to transfer the AvTel Shares if any
circumstances are present reasonably indicating that the transferee's
representations are not accurate.
(b)In connection with the transactions contemplated by this Agreement,
AvTel, HTI SBC and Shareholder 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 Commission, and the appropriate regulatory
authority in California 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, SBC and Shareholder shall execute and deliver to HTI and AvTel, at or
prior to the Closing, such further letters of representation, acknowledgment,
suitability, or the like, as AvTel and its counsel may reasonably request in
connection with reliance on exemptions from registration under such securities
laws.
(d)SBC and Shareholder 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.
(e)SBC AND SHAREHOLDER ACKNOWLEDGE THAT THE AVTEL SHARES INVOLVES A
NUMBER OF RISKS AND THAT, PRIOR TO THE CLOSING THEY HAVE RECEIVED AND
CONSIDERED ALL THE INFORMATION CONTAINED IN THE FOLLOWING MATERIALS: (i)
AVTEL COMMUNICATIONS, INC. RISK FACTORS DATED NOVEMBER 18, 1996; (ii) FORM 8-K
DATED NOVEMBER 7, 1996; (iii) AVTEL'S INFORMATION STATEMENT DATED OCTOBER 4,
1996 RELATING TO A SPECIAL MEETING OF AVTEL'S SHAREHOLDERS ON OCTOBER 23,
1996; (iv) AVTEL'S REPORT IN FORM 10-SB FOR THE FISCAL YEAR ENDED SEPTEMBER
30, 1995 (AS AMENDED); AND (v) AVTEL'S REPORT ON FORM 10-Q FOR THE QUARTER
ENDED JUNE 30, 1996.
5.4Standstill Agreement. The Shareholder agrees that he will not (a) either
separately or in combination with others and without the prior written consent
of HTI offer or propose to sell all or any part of the Shares or solicit, from
others, or seek to change or influence the management of SBC and (b) offer to
sell, negotiate, or solicit from others, offers to purchase all or
substantially all of the business and assets of SBC or any capital stock of
SBC.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF HTI
The obligations of HTI under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
6.1Accuracy of Representations. The representations and warranties made by
SBC and Shareholder 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 and SBC and Shareholder
shall have performed or complied with all covenants and conditions required by
this Agreement to be performed or complied with by SBC and Shareholder prior
to or at the Closing. HTI shall be furnished with certificates, signed by
Shareholder and by officers of SBC and dated the Closing Date, to the
foregoing effect.
6.2No 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 SBC, 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 SBC.
HTI shall be furnished with certificates, signed by Shareholder and by
officers of SBC and dated the Closing Date, to the foregoing effect.
6.3Good Standings. HTI 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 SBC is in good standing as a corporation in the
state of California.
6.4Other Agreements. HTI or AvTel shall have entered into on or before the
Closing, the following agreements, between or among the persons indicated, in
such form and on such terms and conditions as are acceptable to HTI or AvTel,
as the case may be:
(a)Employment and Non-Competition Agreements. The Shareholder shall have
entered into the Non-Competition and Employment Agreements.
(b)License Agreement. SBC, Shareholder and AvTel will have entered into
a License Agreement, pursuant to which AvTel will be granted a nonexclusive,
transferable, royalty-free, worldwide right and license to use SBC's
Intellectual Property.
(c)Employee Agreements. HTI, or its designee, shall have entered into
agreements regarding confidentiality, ownership of Intellectual Property and
other matters with each employee of SBC on such terms as are acceptable to
HTI.
(d)Boardroom Agreement. In connection with the issuance of the Boardroom
Shares, HTI, SBC and AvTel shall have entered into the Boardroom Agreement.
(e)Markel and Kopcho Obligations. HTI shall have received such
assurances as are satisfactory to it and its counsel to the effect that, as to
that certain promissory note obligation (the "Marked Obligation"), in the
original principal amount of $50,000 required by Shareholder and payable to
Dr. John D. Markel. The Markel Obligation has been (i) fully discharged and
paid; (ii) the payer has released all claims for payments there against SBC;
or (iii) Shareholder has agreed to fully and completely indemnify, defend and
hold SBC harmless from and against any claim for payment thereof (and such
indemnity is adequately served); and (iv) the Kopcho Debt shall have been
completely and fully discharged and satisfied all liens securing the repayment
and performance thereof shall have been released and discharged and the
Company shall have received releases and waiver from Kopcho, all to the
satisfaction of the Company as determined by it in its sole discretion.
ARTICLE VII
MISCELLANEOUS
7.1No Representation Regarding Tax Treatment; Legal Representation. 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. Each
party has relied exclusively on its own accounting, tax and other advisors
regarding the treatment of this transaction for federal and state income taxes
and no representation, warranty, or assurance from any other party or such
other party's legal, accounting, or other advisor. SBC and Shareholder have
utilized the services of Boardroom for business, financial, legal and other
professional advice in connection with this Agreement and the transactions
contemplated hereunder, and has otherwise had the opportunity to consult with
and has been represented by separate legal counsel in connection with this
Agreement and the transactions contemplated herein. HTI has been represented
by the law firm of Price, Postel & Parma LLP as its separate counsel in
connection with this Agreement and the transactions contemplated herein.
7.2Governing 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
California.
7.3Notices. 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 HTI or AvTel: AVTEL COMMUNICATIONS, INC.
Attn.: James P. Pisani
130 Cremona Drive
Goleta, CA 93117
Telecopier No. 805\685-9685
With a copy to: Raymond P. Le Blanc, Esq.
Price, Postel & Parma, LLP
200 East Carrillo Street, Suite 400
Santa Barbara, CA 93101
Telecopier No.: (805) 965-3978
If to SBC or Shareholder: Mr. Frank Dziuba
253 Daytona
Goleta, CA 93117
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.
7.4Attorneys' 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.
7.5Third-Party Beneficiaries. This contract is solely among HTI, Shareholder
and SBC, and, except as to AvTel and as otherwise 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.
7.6Entire 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.
7.7Counterparts. 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.
7.8Amendment 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.
7.9Press Releases and Announcements. No party hereto shall issue any press
release or announcement relating to the subject matter of this Agreement prior
to the Closing without the prior written approval of the other party;
provided, however, that any party may make any public disclosure it believes
in good faith, after receiving the advice of counsel, is required by law or
regulation (in which case the disclosing party will advise the other parties
prior to making the disclosure).
7.10Spousal Consent. The undersigned, being the spouse of the Shareholder has
read the foregoing Agreement in its entirety. Being fully convinced of the
wisdom and equity of the provisions of the Agreement, and in consideration of
the premises, hereby express my acceptance of the same and agree to abide by
its provisions. I clearly understand and agree to be bound by the provisions
of the foregoing Agreement. This instrument is not a transfer or release of
any rights which I may have in any of the community property of my marriage.
The signing of this Agreement by me is for the purpose of showing my consent
and approval of the foregoing Agreement and all of the terms and provisions
thereof, and my agreement to be bound hereby.
ARTICLE VIII
INDEMNIFICATION
8.1Survival. The representations, warranties, covenants and agreements of SBC
and Shareholder and of HTI shall survive the Closing without regard to any
investigations made by the SBC and Shareholder or HTI, as the case may be, or
any knowledge by either of any breach of any such representations, warranties,
covenants or agreements.
8.2Indemnification Provisions for Benefit of HTI. SBC and Shareholder hereby
agree, jointly and severally, to indemnify and to hold HTI and AvTel harmless
from and against any and all causes of action, demands, suits, claims, actual
or threatened (individually a "Claim" and together "Claims") (whether such
Claims are brought by HTI or AvTel or by any third party against HTI or AvTel)
for damages, assessments, losses, liabilities, costs and expenses (including
legal and accounting fees and costs and costs of defense or in enforcing any
of its rights hereunder and interest and penalties), together with interest
from the date on which a Claim hereunder shall be made (collectively,
"Damages"), which arise out of either (a) breaches of any representations,
warranties, covenants or agreements of SBC or Shareholder in this Agreement,
any other agreement contemplated hereunder to which SBC or Shareholder is a
party, or in any Exhibit, Schedule, certificate, list or other instrument
delivered pursuant hereto, or (b) the Markel Obligations (collectively, the
"Indemnification Events")
8.3Setoff Rights. Either AvTel or HTI may obtain, recover from and for any
and all Damages resulting from or arising out of any Indemnification Event
(collectively, "Claim Events") by setting off and withholding any amounts
payable under or pursuant to the Non-Competition and Employment Agreements.
The foregoing indemnification provisions are in addition to, and not in
derogation of, any statutory or common law remedy of HTI or AvTel for breach
of representation, warranty or covenant and shall in no way be deemed to limit
the indemnification rights of AvTel or HTI hereunder.
8.4Indemnification Provisions - Shareholder Obligations. Provided the
Shareholder is not in breach under any of the representations, warranties,
terms and conditions of this Agreement or any other agreement to which the
Shareholder is a party as contemplated herein, HTI hereby agrees to indemnify
and hold the Shareholder harmless from and against any claims threatened or
asserted against Shareholder as a result of or in connection with any breach
or default by SBC in the full and faithful performance of any of the
obligations which constitute Shareholder Obligations. Notwithstanding the
foregoing, in no event shall HTI have any obligations under the provisions of
this Section 8.4 to the extent that the aggregate amount of damages
(including, but not limited to, all claims for contract or lease payments,
special charges or assessments, penalties and costs and attorneys' fees)
claimed by any third parties under the Shareholder Obligations exceed $50,000
or to the extent that any claims or threatened claims with respect to any such
Shareholder Obligations are asserted or alleged after the second anniversary
of the Closing. In the event any such claims are threatened or asserted
against Shareholder, Shareholder shall promptly notify HTI thereof and shall
fully cooperate, at his expense, with HTI in the defense and settlement
thereof provided however that HTI shall have the sole and exclusive authority
to defend, settle and compromise any such claims on such terms and conditions
as it is in its sole discretion deems appropriate; provided, however, that,
unless otherwise agreed in writing by Shareholder, any settlement and
compromise of any such Claim shall include provisions for a full and complete
discharge and release of Shareholder as to the Shareholder Obligations in
question.
8.5Closing Balance Sheet. Within forty-five (45) days following the Closing
Date, the Company shall prepare, or cause SBC to prepare, a balance sheet of
SBC as of the Closing Date (the "Closing Balance Sheet") and shall furnish a
copy thereof to Shareholder. The Closing Balance Sheet shall be prepared in
accordance with generally accepted accounting principles consistently
applied. If the Closing Balance Sheet reflects total liabilities in excess of
$182,000, Shareholder shall pay to HTI, and HTI shall be entitled to receive,
the difference not later than thirty (30) days after receipt of the Closing
Balance Sheet from HTI. In no event shall Shareholder's maximum liability
under this Section 8.5 exceed the total aggregate amount of all cash payments
due or to become due to Shareholder under the Non-Competition and Employment
Agreements. The Company's rights and remedies hereunder are cumulative and in
addition to its other rights and remedies under this Agreement and the
transactions contemplated hereunder, including the setoff rights described
herein.
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 INC.
a Utah corporation
By:
Its Duly Authorized Officer
SILICON BEACH COMMUNICATIONS, INC.
A California Corporation
By:
Its Duly Authorized Officer
SHAREHOLDER
Frank Dziuba
SHAREHOLDER'S SPOUSE
By:
Lori Dziuba
TABLE OF CONTENTS
ARTICLE I DEFINITIONS 1
1.1Defined Terms 1
ARTICLE II THE ACQUISITION 3
2.1The Acquisition 3
2.2Closing 4
2.3Intentionally Omitted
2.4Other Approvals 4
2.5Closing Events 4
2.6Termination 5
ARTICLE III REPRESENTATIONS, COVENANTS AND WARRANTIES OF
SBC AND THE SHAREHOLDER 6
3.1Organization. 7
3.2Capitalization 7
3.3Financial Statements. 7
3.4Information 8
3.5Options; Equity Interests 8
3.6Absence of Certain Changes or Events 9
3.7Title 10
3.8Litigation 10
3.9Contracts 10
3.10Material Contract Defaults 10
3.11No Conflict With Other Instruments 10
3.12Governmental Authorizations 11
3.13Compliance With Laws and Regulations 11
3.14Insurance 11
3.15Employee Relations 11
3.16Interested Party Transactions 11
3.17Brokers' and Finders' Fees 11
3.18Board Approval 11
3.19Intellectual Property 12
3.20Taxes 12
3.21Representations Complete 13
ARTICLE IV REPRESENTATIONS, COVENANTS AND WARRANTIES
OF THE COMPANY 13
4.1Organization 13
4.2Approval of Agreements 13
4.3Disclaimer 13
ARTICLE V SPECIAL COVENANTS TO BE SATISFIED PRIOR
TO CLOSING 14
5.1Activities of SBC and Shareholder 14
5.2Access to Properties and Records 15
5.3Securities Laws Matters - AvTel Shares 15
5.4Standstill Agreement 18
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF HTI 18
6.1Accuracy of Representations 18
6.2No Material Adverse Change 19
6.3Good Standings 19
6.4Other Agreements 19
ARTICLE VII MISCELLANEOUS 20
7.1No Representation Regarding Tax Treatment; Legal Representation 20
7.2Governing Law 20
7.3Notices. 20
7.4Attorneys' Fees 21
7.5Third-Party Beneficiaries 21
7.6Entire Agreement 21
7.7Counterparts 21
7.8Amendment or Waiver 21
7.9Press Releases and Announcements 21
7.10Spousal Consent 21
ARTICLE VIII INDEMNIFICATION 22
8.1Survival 22
8.2Indemnification Provisions for Benefit of HTI 22
8.3Cash Escrow 22
8.4Indemnification Provisions - Shareholder Obligations 22
8.5Closing Balance Sheet 23
SBC DISCLOSURE SCHEDULE
EXHIBITS
Credit Agreement A
Boardroom Agreement B
Employment Agreement C
License Agreement D
Non-Competition Agreement E
SBC DISCLOSURE SCHEDULE
This SBC DISCLOSURE SCHEDULE, dated November , 1996 (the "Disclosure
Schedule") is made in connection with that certain Agreement and Plan of
Reorganization and dated November , 1996 ("Agreement"), by and among Hi,
tiger Inc., a Utah corporation ("Hi, Tiger"), Silicon Beach Communications,
Inc., a California corporation ("SBC") and Frank Dziuba ("Shareholder").
Unless otherwise provided, capitalized terms used herein shall have the same
meanings as are ascribed to them in the Acquisition Agreement. The section
references contained in this Disclosure Schedule correspond to the sections
under Article II of the Acquisition Agreement.
[Shareholder Obligations, Employees, Other Information to be provided by
SBC/Shareholder]
AGREEMENT AND PLAN OF REORGANIZATION
by and among
Hi, Tiger Inc., a Utah corporation,
Silicon Beach Communications, Inc., a California corporation
and Frank Dziuba
November 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF AVTEL COMMUNICATIONS, INC. AS OF SEPTEMBER 30, 1996 AND THE RELATED
STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE YEAR THEN ENDED AN IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 9420
<SECURITIES> 0
<RECEIVABLES> 22777
<ALLOWANCES> 4841
<INVENTORY> 0
<CURRENT-ASSETS> 27356
<PP&E> 187452
<DEPRECIATION> 84426
<TOTAL-ASSETS> 130382
<CURRENT-LIABILITIES> 78755
<BONDS> 0
0
0
<COMMON> 2513
<OTHER-SE> 26313
<TOTAL-LIABILITY-AND-EQUITY> 130382
<SALES> 299315
<TOTAL-REVENUES> 299315
<CGS> 67034
<TOTAL-COSTS> 281327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6999
<INCOME-PRETAX> (52401)
<INCOME-TAX> 206
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (55334)
<EPS-PRIMARY> (.02)
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</TABLE>
