-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DNp5MfxWYWopwSOBQVTk3wJQQ1q9AnTRJD0zkIGuSda5zWe6I/41bDd8FN0ejQuW 3/JWFwSiRgcMU3O5nPdhUA== 0001012895-96-000025.txt : 19960923 0001012895-96-000025.hdr.sgml : 19960923 ACCESSION NUMBER: 0001012895-96-000025 CONFORMED SUBMISSION TYPE: PREM14C PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19960920 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HI TIGER INTERNATIONAL INC CENTRAL INDEX KEY: 0001005974 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TELEPHONE INTERCONNECT SYSTEMS [7385] IRS NUMBER: 870378021 STATE OF INCORPORATION: UT FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: PREM14C SEC ACT: 1934 Act SEC FILE NUMBER: 000-27580 FILM NUMBER: 96632432 BUSINESS ADDRESS: STREET 1: 350 WEST 300 SOUTH CITY: SALT LAKE CITY STATE: UT ZIP: 84101 BUSINESS PHONE: 8013221221 MAIL ADDRESS: STREET 1: 350 WEST 300 SOUTH CITY: SALT LAKE CITY STATE: UT ZIP: 84101 PREM14C 1 1 Preliminary Information Statement Dated: September 19, 1996 HI, TIGER INTERNATIONAL, INC. 350 West 300 South Salt Lake City, Utah 84101 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD OCTOBER __, 1996 TO THE SHAREHOLDERS OF HI, TIGER INTERNATIONAL, INC.: A special meeting of the shareholders (the "Special Meeting") of Hi, Tiger International, Inc. (the "Company"), will be held at the Company's offices located at 350 West 300 South, Suite 201, Salt Lake City, Utah, on October __, 1996, at 10:00 a.m., Mountain Time, to consider and vote on a proposal (the "Merger Proposal") to authorize and approve the Acquisition Agreement entered into between the Company and AvTel Communications, Inc. ("AvTel"), that provides for: 1. All the shares of AvTel Common Stock and all the shares of AvTel Series A Preferred Stock to be exchanged for 4,171,845 shares of the Company's Common Stock and 1,000,000 shares of newly authorized shares of the Company's Series A Convertible Preferred Stock, which after giving effect to the share exchange, the holders of AvTel Common Stock will own a controlling interest in the issued and outstanding Common Stock of the Company; 2. Adopting Amended and Restated Articles of Incorporation providing for (i) changing the name of the Company to "AvTel, Inc."; (ii) authorizing 5,000,000 shares of Preferred Stock; (iii) providing for the designation of 1,000,000 shares of Series A Convertible Preferred Stock; and (iv) eliminating the liability of officers, directors, employees and agents of the Company for monetary damage arising from breaches of their fiduciary duties to the maximum extent permitted under the Utah Revised Business Corporation Act; 3. Adopting Amended and Restated Bylaws of the Corporation; and 4. Electing Anthony E. Papa, James P. Pisani and Barry Peters, nominees of AvTel, as directors of the Company, to serve until the next annual meeting of shareholders or until their successors are duly elected and qualified. The approval of the Merger Proposal by the Shareholders will constitute approval of each of the foregoing. At the Special Meeting the shareholders will also transact such other business as may properly come before the Special Meeting or any adjournment thereof. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE MERGER PROPOSAL WHICH IS DESCRIBED IN MORE DETAIL IN THE ACCOMPANYING INFORMATION STATEMENT. 2 ONLY SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON SEPTEMBER 3, 1996 (THE "RECORD DATE"), ARE ENTITLED TO NOTICE OF AND TO VOTE AT THE SPECIAL MEETING. MEMBERS OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS WHO, COLLECTIVELY HOLD IN EXCESS OF 50% OF THE COMPANY'S ISSUED AND OUTSTANDING SHARES HAVE INDICATED THEIR INTENTION TO VOTE IN FAVOR OF THE MERGER PROPOSAL. AS A RESULT, THE MERGER PROPOSAL WILL BE APPROVED WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER SHAREHOLDER. ALTHOUGH MANAGEMENT IS NOT ASKING FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY, SHAREHOLDERS MAY BE PRESENT AT THE SPECIAL MEETING AND VOTE THEIR SHARES IN PERSON OR BY PROXY. MANAGEMENT DOES, HOWEVER, ENCOURAGE ALL SHAREHOLDERS TO ATTEND THE SPECIAL MEETING IN PERSON. BY ORDER OF THE BOARD OF DIRECTORS /S/Paul G. Begum, President Salt Lake City, Utah 3 HI, TIGER INTERNATIONAL, INC. 350 West 300 South Salt Lake City, Utah 84101 INFORMATION STATEMENT This Information Statement is furnished to the shareholders of the Company in connection with a Special Meeting to be held on October __, 1996, at 10:00 a.m., Mountain Time, at the Company's offices located at 350 West 300 South, Suite 201, Salt Lake City, Utah, and at any adjournment(s) thereof. At the Special Meeting, the shareholders will consider and vote on a proposal (the "Merger Proposal") to authorize and approve the Acquisition Agreement entered into between the Company and AvTel Communications, Inc., a California corporation ("AvTel"), that provides for: 1. All the shares of AvTel Common Stock and all the shares of AvTel Series A Preferred Stock to be exchanged for 4,171,845 shares of the Company's Common Stock and 1,000,000 shares of newly authorized shares of the Company's Series A Convertible Preferred Stock, which after giving effect to the share exchange, the holders of AvTel Common Stock will own a controlling interest in the issued and outstanding Common Stock of the Company; 2. Adopting Amended and Restated Articles of Incorporation providing for (i) changing the name of the Company to "AvTel, Inc."; (ii) authorizing 5,000,000 shares of Preferred Stock; (iii) providing for the designation of 1,000,000 shares of Series A Convertible Preferred Stock; and (iv) eliminating the liability of officers, directors, employees and agents of the Company for monetary damage arising from breaches of their fiduciary duties to the maximum extent permitted under the Utah Revised Business Corporation Act; 3. Adopting Amended and Restated Bylaws of the Corporation; and 4. Electing Anthony E. Papa, James P. Pisani and Barry Peters, nominees of AvTel, as directors of the Company, to serve until the next annual meeting of shareholders or until their successors are duly elected and qualified. Approval of the Merger Proposal by the Shareholders will constitute approval of each of the foregoing. At the Special Meeting the Shareholders will also transact such other business as may properly come before the Special Meeting or any adjournment thereof. MANAGEMENT IS NOT ASKING FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY, HOWEVER SHAREHOLDERS MAY BE PRESENT AT THE SPECIAL MEETING AND VOTE THEIR SHARES IN PERSON OR BY PROXY. MANAGEMENT ENCOURAGE ALL SHAREHOLDERS TO ATTEND THE SPECIAL MEETING IN PERSON. THIS INFORMATION STATEMENT IS BEING MAILED ON OR ABOUT SEPTEMBER __, 1996 TO ALL SHAREHOLDERS ENTITLED TO VOTE AT THE SPECIAL MEETING. 4 Only holders of record of the 2,513,299 shares of Common Stock of the Company outstanding as of September 3, 1996 (the "Record Date"), are entitled to vote at the Special Meeting. Each shareholder has the right to one vote for each share of the Company's common stock owned. Cumulative voting is not provided for. Holders of more than 50% of the 2,513,299 shares issued and outstanding must be represented at the Special Meeting to constitute a quorum for conducting business. Approval of the proposals discussed above requires the affirmative vote of a majority of the Company's issued and outstanding shares of Common Stock. The Company's officers, directors, and principal shareholders owning or controlling, in the aggregate, greater than 50% of the issued and outstanding shares of Common Stock on the Record Date have indicated their intention to vote in favor of the Merger Proposal. Accordingly, the Merger Proposal will be approved without the affirmative vote of any other shares. 5 THE MERGER PROPOSAL: APPROVAL OF THE ACQUISITION AGREEMENT Terms of the Acquisition - ------------------------ On August 30, 1996, The Company and AvTel entered into an Acquisition Agreement, a copy of which is attached as Exhibit A to this Information Statement (the "Acquisition Agreement"). The following discussion regarding the terms of the Acquisition Agreement is subject to, and qualified in its entirety by, the detailed provisions of the Acquisition Agreement and the exhibits thereto. Pursuant to the terms of the Acquisition Agreement, on the Effective Date, as defined therein, all of the shares of AvTel Common Stock and all of the shares of AvTel 8% Series A Preferred Stock then issued and outstanding will be exchanged for 4,171,845 shares of common stock of the Company and 1,000,000 shares of preferred stock of the Company, respectively; and AvTel will merge with and into a subsidiary established for the purpose of facilitating the merger (the "Merger Subsidiary"), with AvTel being the surviving entity. The merger of AvTel with and into Merger Subsidiary and the exchange of the AvTel Common and Preferred stock are for the purpose of effecting a "tax-free" reorganization pursuant to Section 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended. AvTel will be merged with and into the Merger Subsidiary, the separate corporate existence of Merger Subsidiary will cease and AvTel shall survive the merger as the Surviving Corporation. The issued and outstanding shares of common stock of AvTel (the "AvTel Common Stock"), shall be exchanged for shares of the Company's common stock, par value $0.001 per share (the "Hi, Tiger Exchanged Common Stock") and the issued and outstanding shares of Series A Preferred Stock of AvTel, $1.00 par value per share (the "Series A Preferred Stock"), shall be exchanged for newly authorized shares of Hi, Tiger preferred stock, par value $1.00 per share, such shares having the rights, preferences and privileges substantially the same as those set forth in the Series A AvTel Preferred Stock (the "Hi, Tiger Exchanged Preferred Stock"). On the Effective Date each share of AvTel Common Stock outstanding shall be converted into 1.0429612 shares of Hi, Tiger Exchanged Common Stock (the "Exchange Ratio"), except that, any "Dissenting Shares" of AvTel Common Stock shall receive payment from Hi, Tiger, upon the completion of the merger, in accordance with the provisions of the California Corporations Code. The Company will not issue any fractional shares or interests in the Hi, Tiger Exchanged Common or Exchanged Preferred Stock in connection with the foregoing conversion. If any holder of AvTel Common or Preferred Stock would otherwise be entitled to a fractional share upon exchange thereof, the Company will round the number of shares of Hi, Tiger Exchanged Common or Preferred Stock to be issued to such stockholder to the nearest whole share. After the Effective Date, each holder of shares of AvTel Common or Series A Preferred Stock shall, upon the surrender of the certificate or certificates representing such shares to the Company's registrar and transfer agent, be entitled to receive a certificate or certificates evidencing shares of the Hi, 6 Tiger Exchanged Common or Preferred Stock as in the Acquisition Agreement. On the Effective Date, (i) each share of AvTel Common Stock issued and outstanding immediately prior to the Effective Date will be canceled and extinguished and automatically converted into the right to receive 1.0429612 shares of Hi, Tiger Exchanged Common Stock; and (ii) each share of AvTel Series A Convertible Preferred Stock issued and outstanding immediately prior to the Effective Date will be canceled and extinguished and automatically converted into the right to receive one (1) share of Hi, Tiger Exchanged Preferred Stock. As a condition precedent to the consummation of the transactions contemplated by the Acquisition Agreement, the shareholders of the Company are to adopt and approve all required or necessary resolutions to adopt amended and restated articles of incorporation that provide for the following: (a) Changing the name of the Company to "AvTel, Inc."; (b) Authorize 5,000,000 shares of preferred stock; (c) Provide for the designation of 1,000,000 shares of 8% Series A Convertible Preferred Stock with rights, preferences and privileges substantially the same as those set forth in the AvTel Series A Convertible Preferred Stock; (d) Modify such other provisions of Hi, Tiger's Articles of Incorporation as are requested by AvTel; and (e) Eliminating the liability of officers, directors, employees and agents of the Company for monetary damage arising from breaches of their fiduciary duties to the maximum extent permitted under the Utah Revised Business Corporation Act. As further conditions to the transactions contemplated by the Acquisition Agreement, the shareholders of the Company (i) adopt and approve amended and restated Bylaws of the Company that include such revisions and modifications requested by AvTel; and (ii) the election of Anthony E. Papa, James P. Pisani and Barry Peters, nominees of AvTel to the Company's Board of Directors, to replace the Company's current Board of Directors. As soon as practicable following approval of the Merger Proposal by the Company's shareholder, Certificates of Articles of Merger ("Certificates of Merger") and such other documents as are required by the provisions of the corporate statutes of the states of Utah and California to complete the merger of AvTel and Merger Subsidiary are to be filed with the Secretaries of State of Utah and California and a Designation of Determination with respect to the Rights, Privileges, and Preferences of the Hi, Tiger Series A Convertible Preferred Stock is to be filed with the Secretary of State of Utah. The "Effective Date" of the merger shall be the date the filing of such Certificates of Merger and other documents shall become effective. 7 On the Effective Date of the merger, Merger Subsidiary shall cease to exist separately, and Merger Subsidiary shall be merged with and into AvTel, with AvTel being the surviving corporation, in accordance with the provisions of the Acquisition Agreement, and the Certificates of Merger, and in accordance with the provisions of and with the effect provided in the corporation laws of the states of Utah and California. A. Name Change ----------- In connection with the acquisition of AvTel, the Company desires to change the name of the Company to AvTel or such derivation thereof, as may be acceptable to the Board of Directors available for use in the state of Utah and the jurisdictions in which the activities of the Company would require the Company to qualify to do business in those jurisdictions. Management of the Company believes that the new name will reflect the Company's activities following the acquisition. B. Authorization of Preferred Stock and Designation of Series A Convertible ------------------------------------------------------------------------ Preferred --------- Authorization of Preferred Stock - -------------------------------- Under the terms of the Acquisition Agreement, the Company has agreed to issued 1,000,000 shares of Series A Convertible Preferred Stock to the holders of 1,000,000 shares of AvTel Series A Preferred Stock. The Company's current articles of incorporation do not provided for the authorization to issue shares of preferred stock. The Company desires to amend its articles of incorporation to provide for the authorization to issue up to 5,000,000 shares of preferred stock and to authorize the Company's Board of Directors to designate, from time to time, series or classes of such preferred stock, the number of shares comprising each series or class of preferred stock and the rights, preferences and privileges of each series or class of preferred stock. In connection with the Acquisition Agreement, the Board of Directors will authorize and cause to be issued to the AvTel holders of the AvTel Series A Preferred Stock, 1,000,000 shares of the Company's Series A Convertible Preferred Stock, par value $1.00 per share, with rights, preferences and privileges substantially the same as those set forth in the AvTel Series A Preferred Stock. The following description of the Company's Series A Convertible Preferred Stock is subject to and is qualified in its entirety by, the detailed provisions of the Designation of Rights, Privileges and Preferences of the Series A Convertible Preferred Stock, a copy of which is included as Exhibit B to this Information Statement. 8 The holders of the Series A Convertible Preferred Stock shall be entitled to receive cumulative dividends at the rate of eight percent (8.0%) of the par value of the Series A Convertible Preferred Stock per annum per share. Such dividends accrue from the issuance date whether or not earned so that no dividends (other than those payable solely in Common Stock) shall be made with respect to junior shares until cumulative dividends on the Series A Convertible Preferred Stock for all past dividend periods and for the then current six-month dividend period shall have been declared and paid or set apart. The holders of at least 50% of the Series A Convertible Preferred Stock may at any time by written consent waive payment of any accumulated but unpaid dividends or eliminate any requirement to declare, pay, set apart or accumulate any dividends. No dividend or other distribution (other than those payable solely in Common Stock) shall be declared or paid with respect to junior shares while any shares of Series A Convertible Preferred Stock are outstanding without the vote or written consent by the holders of at least 50% of the outstanding shares of Series A Convertible Preferred Stock. In the event of any liquidation, dissolution or winding up of the Company, the holders of the Series A Convertible Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of junior shares by reason of their ownership of such stock, a liquidation preference of $1.00 for each share of Series A Convertible Preferred Stock then held by them and, in addition, all declared but unpaid dividends. If the assets and funds distributed among the holders of the Series A Convertible Preferred Stock are insufficient to permit the payment of the aggregate liquidation preference, then the entire assets and funds of the Company available for distribution shall be distributed among the holders of the Series A Convertible Preferred Stock, pro rata according to the number of shares held by each such holder. After payment to the holders of Series A Convertible Preferred Stock of the liquidation preference the balance of the assets and funds of the Corporation, if any, shall be distributed among the holders of the junior shares. The Company may redeem all or any part of the outstanding Series A Convertible Preferred Stock after the second anniversary of the issuance date. Any redemption shall be made on a pro-rata basis in proportion to the shares of Series A Convertible Preferred Stock then held by them. The Company may, after the first anniversary of the issuance date, redeem all or any part, but if less than all, not less than 25%, of the outstanding Series A Convertible Preferred Stock immediately following any period of twenty (20) consecutive trading days on which the current market price of the Company's Common Stock is $2.00 per share or more. The Company may redeem shares of Series A Convertible Preferred Stock for $1.00 per share. Each share of Series A Convertible Preferred Stock shall be convertible, at the option of the holder at any time after the first anniversary of the issuance date, into one fully paid and nonassessable share of the Company's Common Stock. Each share of Series A Convertible Preferred Stock shall automatically be converted into the number of fully paid and nonassessable shares of Common Stock upon the closing of a public offering pursuant to an effective registration statement under the Securities Act of 1933, covering the offer and sale of Common Stock to the public at a public offering price 9 (prior to underwriters' discounts and expenses) equal to or exceeding $10.00 per share of Common Stock and the proceeds to the Company of not less than $15 million. In the event of such public offering, the holders shall not be deemed to have converted such Series A Convertible Preferred Stock until the date of the closing of such sale of Common Stock. The conversion price of shares of Series A Convertible Preferred Stock shall be the lower of $1.00 per share or a price determined by multiplying .80 times the issue price per share of the Common Stock issued in the public offering. Further, the Board of Directors considers it desirable and in the best interests of its shareholders to have the additional 4,000,000 shares of authorized preferred stock available to provide the Company with increased flexibility in structuring possible future capital infusions and acquisitions, meeting other corporate needs which may arise and accommodating the future expansion and strategic alliance opportunities consistent with AvTel's business plans and objectives. (See "Business of AvTel.") The ability of the Board of Directors to issue preferred stock with voting or other rights which might impede or discourage a takeover attempt may make the Company a less attractive takeover candidate and deter takeover attempts not approved by the board in which shareholders might receive for some or all of their shares a substantial premium above market value at the time the take over bid is made. However, the existence of these voting or other rights in any series or class of preferred stock authorized by the Board of Directors may also act to provide the Board of Directors with an opportunity, in the face of a takeover attempt, to solicit competing offers or pursue alternative strategies that would, under the circumstances, be more advantageous to the shareholders. Additionally, issuance of the preferred stock could result in a class of securities outstanding that will have certain preferences with respect to dividends and in liquidation over the Common Stock and may enjoy certain voting rights, contingent or otherwise, in addition to that of the Common Stock, and could result in the dilution of the voting rights, net income per share, and net book value of the Common Stock. Issuance of additional Common Stock pursuant to conversion rights may also result in dilution to the voting right, net income per share, and net book value of the common stock. C. Elimination of Officer and Director Liability --------------------------------------------- Subsequent to the Company's incorporation, the state of Utah enacted a statute limiting the liability of officers and directors of the Company and its shareholders in certain circumstances. Management has determined that it would be advantageous for the Company to amend its Articles of incorporation to include the protections provided to officers and directors of the Company pursuant to Section 16-10a-841 of the Utah Revised Business Corporation Act. The amendment to the Articles of Incorporation would eliminate the personal liability of a director to the Company or its shareholders for monetary damages for any action taken or any failure to take any action, as a director, except liability for (a) the amount of a financial benefit received by a director to which he is not entitled; (b) an intentional infliction of harm on the corporation or the shareholders; (c) an unlawful distribution; or (d) an intentional violation of a criminal law. The Company is not aware of any pending or threatened claims which would be covered by the proposed amendment to the Articles of Incorporation. It should be noted that the provisions eliminating liability of directors limit the remedies available to a shareholder dissatisfied with a broad decision which is protected by the provision. An aggrieved shareholder's only remedy in such a circumstance is to sue to stop the completion of the board's action. In many situations, this remedy may not be effective. Shareholders, for example, may not be aware of a transaction or an event until it is too late to prevent it. In these cases, the shareholders and the Company could be injured by a careless board decision and yet have no effective remedy. Management believes that limiting director's liability is in the best interest of the shareholders and the Company, as it should enhance the Company's ability to attract and retain qualified individuals to serve as directors of the Company by assuring directors ( and potential directors) that their good faith decisions will not be second-guessed by a court evaluating decisions with the benefit of hindsight. This is particularly applicable, management believes, in the recruitment of outside directors who are not employees of the Company and who may, therefore, bring additional objectivity and experience to the Board of Directors. Management believes that the diligence exercised by directors stems primarily from their desire to act in the best interest of the Company and not from a fear of monetary damage awards. Consequently, management believes that the level of scrutiny and care exercised by directors will not be lessened by this provision of the Articles of Incorporation. The Company would also like to amend its Articles of Incorporation to provide for written consent of its shareholders. Since the Company was formed, the Utah Revised Business Corporation Act has been amended to provide that any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if one or more consents, in writing, setting forth the action taken, is signed by the holders of the outstanding shares having not less than the minimum number of votes that would be required to authorize or take the action at a meeting at which all shares entitled to vote thereon were present and voted. Further, unless the written consents of all shareholders entitled to vote have been obtained, notice of any shareholder approval without a meeting shall be given at least ten (10) days before the consummation of the action authorized by the approval to: (i) those shareholders entitled to vote who have not consented in writing; and (ii) those shareholders not entitled to vote and to whom the Utah Revised Business Corporation Act requires notice to be given. 11 Notwithstanding the provisions discussed above, directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. The Company feels this provision will provide the Company more flexibility and may save time and money by eliminating the need for a proxy statement in the future. Although adopting the provision that provides for the written majority consent of shareholders for certain actions taken without a meeting could save time and money for the Company, it could also result in shareholders effectively losing their ability to voice their concern at a meeting of shareholders on an issue. This may or may not result in the shareholders effectively losing their voting ability as it will still require a majority of shareholders to approve any action. If the acquisition of AvTel is accomplished, AvTel's shareholders will own well over a majority of the issued and outstanding shares of Common Stock of the Company effectively giving them control over all action requiring shareholder vote. However, the exercise of such control by AvTel's shareholders will be subject to certain restrictions including (a) the statutory provisions referenced above requiring notice to shareholders and unanimous written consent as to the election of directors, and (b) general common law principles which, under certain circumstances, may impose certain fiduciary duties on majority shareholders. The foregoing discussion is subject to and qualified in its entirety by the detailed provisions of the Amended and Restated Articles of Incorporation of the Company, a copy of which is included as Exhibit C to this Information Statement and Section 16-10a-704 of the Utah Revised Business Corporation Act. D. Adoption of Amended and Restated Bylaws --------------------------------------- In connection with the Merger Proposal, it is proposed that the Company adopt amended and restated bylaws that will thereafter govern the corporate affairs of the Company. Management believes that there are no material differences between the bylaws of the Company as they are now constituted and the proposed amended and restated bylaws. Copies of the current bylaws and the proposed bylaws may be obtained by written request addressed to the Company. 12 E. Election of Board of Directors ------------------------------ The names of the Company's current executive officers and directors and the positions held by each of them are set forth below: Position with Director and/or Name Age the Company Officer Since - -------------------- --- --------------------- ------------------ Paul G. Begum 57 President and Chairman of the Board October 1981 Kent D. Poole 50 Director March 1995 Scott W. Hunt 38 Director January 1994 Stacie Anderson 22 Secretary January 1994 The Company's officers and directors have served in such positions since the dates indicated above. Such persons will not stand for re-election at the Special Meeting. In connection with the proposed acquisition of AvTel, Anthony E. Papa, James P. Pisani and Barry Peters, the directors of AvTel, have been nominated for election as directors of the Company. Certain biographical information with respect to each of such persons is set forth herein below. Each director, if elected by the shareholders, will serve until the next annual meeting and until his successor is duly elected and qualified. Anthony E. Papa, age 34, is President and Chief Executive Officer of AvTel. Mr. Papa is also one of the founders and a principal shareholder of AvTel. Before commencing his efforts to form AvTel, Mr. Papa had served as President of ICS Communications, Inc.("ICS") Richardson, Texas, a national provider of cable television, wireless paging, local and long-distance telephone services from December 1992 to March 1995. Before joining ICS, Mr. Papa served as general manager for Spectradyne, Inc., the largest provider of pay-per-view entertainment and interactive services to the hospitality industry. James P. Pisani, age 32, is Executive Vice-President, Chief Operating Officer, Chief Financial Officer and Secretary of AvTel. Mr. Pisani is also one of the founders of AvTel and, prior to founding AvTel served as Vice President of Sales for ICS. While at ICS, Mr. Pisani was responsible for that firm's business-to-business and consumer sales activities. Prior to joining ICS, from June 1989 to June 1994, Mr. Pisani served as Vice-President of a national mortgage banking firm serving, primarily, institutional accounts. Mr. Pisani graduated from Princeton University in 1986, with a degree in Economics. 13 Barry Peters, age 35, is a director of AvTel, and is also one of its principal shareholders. He is currently employed by You-Bet Corporation, as Chief Financial Officer. Prior to joining You-Bet Corporation in 1995, Mr. Peters was from March 1993 to February 1996, employed by ICS in various financial capacities, including Chief Financial Officer. Prior to joining ICS, Mr. Peters served for over two years as Financial Director of Field Operations at Spectradyne, Inc. and, before joining Spectradyne, he had served as an international consultant for a number of large technology companies. Mr. Peters is a certified public accountant and is a certified management accountant. Set forth below is biographical information on each of the current directors of the Company. Paul G. Begum, age 57, has for the past five years been the President and Chairman of the Board of Directors of the Company and President and Chief Executive Officer of Klever Marketing, Inc., Salt Lake City, Utah. Kent Poole, age 50, has for the past five years been the owner of Mountain West Enterprises, Inc., Sandy, Utah, a multi-line manufacturers representative specializing in ergonomics and loss prevention. Scott W. Hunt, age 38, has since 1992 been employed by Enviro-Guard Corporation, Salt Lake City, Utah, a manufacturer and distributor of insecticides. Mr. Hunt is responsible for product design and development and implementation of sales programs for both over-the-counter and commercial markets. From 1986 to 1992, Mr. Hunt was co-owner of Western Pacific Media & Marketing. Dissenters' Rights - ------------------ Although it is unclear whether shareholders have dissenters' rights in Utah as a result of the proposed acquisition, the Company will offer dissenters' rights to its shareholder. Shareholders who oppose the Merger Proposal acquisition will have the right to receive payment for the value of their shares as set forth in sections 16-10(a)-1301 et.seq. of the Utah Revised Business Corporation Act. A copy of these sections is attached hereto as Exhibit D to this Information Statement. The requirements for a shareholder to properly exercise his or her rights under these provisions are very technical in nature, and the following summary is qualified in its entirety by the actual statutory provisions which should be carefully reviewed by any shareholder wishing to assert such rights. Under the Utah statutes, such dissenter's rights will be available only to those shareholders of the Company who (i) object to the acquisition in writing prior to or at the Special Meeting (a negative vote will not itself constitute such a written objection); (ii) vote against the Merger Proposal at the Special Meeting; (iii) file a written demand with the Company prior to the Special Meeting requesting payment of the fair value of the shares of which they hold; and (iv) meet the other requirements of the governing Utah statutes. 14 Within ten days after the effective date of the acquisition, the Company must send to each shareholder who has satisfied all of the foregoing conditions a written notice in which the Company must offer to pay dissenting shareholders for their shares at a price deemed by the Company to be the fair value of such shares and supply a form for dissenting shareholders to demand payment. Shareholders will have sixty days to make their payment demands or lose such rights. If the fair value of the shares is agreed on between the dissenting shareholders and the Company within 60 days after the effective date of the acquisition, the Company must make payment within 60 days after the effective date on surrender of the certificates representing such shares. If the dissenting shareholders of the Company do not agree on the fair value of the shares within the 60 day period, then within 60 days after receipt of written demand from any dissenting shareholders, the Company shall initiate a judicial proceeding seeking determination of the fair value of such shares. If the Company fails to institute such a proceeding, it must pay the dissenting shareholders the amount demanded. All dissenting shareholders must be a party to the proceeding, and all such shareholders will be entitled to judgment against the Company for the amount of the fair value of their shares, to be paid on surrender of the certificates representing such shares. The judgment will include an allowance for interest (at a rate determined by the court) from the date on which the vote was taken on the merger to the date of payment. Within 20 days after demanding payment, whether or not a judicial proceeding is instituted, each shareholder demanding payment must submit the certificates representing his or her shares to the Company for notation thereon that such demand has been made. Failure to do so will permit the Company to terminate the shareholder's valuation rights under the Utah statute unless a court should otherwise direct. The loss or forfeiture of appraisal rights simply means the loss of the right to receive a cash payment from the Company in exchange for shares; in such event the shareholder would still hold the appropriate number of shares of the Utah Corporation. In the event that shareholders holding more than three percent (3%) of the issued and outstanding common stock on the Record Date properly and timely exercise their statutory dissenter's rights, AvTel may, at its election terminate the Acquisition, in which case the merger would not become effective. Recommendation of Management - ---------------------------- THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE TRANSACTIONS CONTEMPLATED BY THE ACQUISITION AGREEMENT ARE DESIRABLE AND IN THE BEST INTERESTS OF THE COMPANY'S SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE MERGER PROPOSAL. MANAGEMENT BELIEVES THAT ITS SHAREHOLDERS WILL BENEFIT THROUGH THE STRENGTH, EXPERIENCE AND KNOWLEDGE OF AVTEL'S SENIOR EXECUTIVE MANAGEMENT IN THE TELECOMMUNICATIONS FIELD AND THE CAPITAL RESOURCES AVAILABLE TO AVTEL. (SEE "BUSINESS OF AVTEL.") 15 AvTel's management has presented the Company's management with a business plan that is focused on emerging opportunities in the areas of video, telephony and data transport. AvTel's management intends to aggressively pursue related business ventures and therefore the Company's shareholders may be able to benefit from any related increased market activity in the Company's Common Stock. There are, however, no assurances that AvTel's management will be able to implement this business plan, to conduct profitable operations or find other profitable business ventures, or that the Company's shareholders will benefit from increased market activity in the Company's Common Stock. The Board of Directors of the Company has not obtained an independent opinion or other evaluation regarding the fairness of the terms of the Agreement due to the substantial costs in obtaining such an opinion or evaluation. Accounting Treatment - -------------------- The proposed acquisition of AvTel by the Company will be accounted for under the purchase method of accounting for business combinations. No Legal Opinions or Tax Rulings - -------------------------------- The proposed acquisition of AvTel by the Company is intended to qualify as a tax-free reorganization under the Internal Revenue Code of 1986. If the acquisition qualifies as a tax-free reorganization, no gain or loss will be recognized for income tax purposes by either the Company or AvTel as a result of the acquisition. However, neither the Company nor AvTel has requested a tax ruling from the Internal Revenue Service or an opinion of legal counsel with respect to the acquisition. Accordingly, no assurance can be given that the acquisition will qualify as a tax-free reorganization. The shares of the Hi, Tiger Exchanged Common Stock and Exchanged Preferred Stock to be issued to the AvTel shareholders will not be registered under the Securities Act of 1933, as amended (the "Act") in reliance on the exemptions from such registration requirements provided by Sections 3(b) and 4(2) of the Act for certain small offerings and for transactions not involving any public offering. In order to claim the availability of such exemptions, the AvTel shareholders will be required to make representations to the Company with respect to their acquisition of the Company's shares, such shares will be restricted securities, and the certificates will bear legends restricting their subsequent resale in the absence of registration under the Securities Act or the availability of an exemption therefrom. In connection with the acquisition, the Company will enter into certain "piggyback" and/or demand registration rights with respect to the Hi, Tiger Exchanged Common Stock and the Exchanged Preferred Stock received by the AvTel shareholders. 16 Vote Required - ------------- The vote of a majority of the issued and outstanding shares of Common Stock represented in person or by proxy at the Special Meeting is required to approve the Merger Proposal. Members of management and other principal shareholders holding or controlling the vote of in excess of fifty percent (50%) of the issued and outstanding stock entitled to vote at the Special Meeting have indicated their intention to vote in favor of the Merger Proposal. Principal shareholders owning in aggregate more than fifty percent (50%) of the issued and outstanding stock entitled to vote at the Special Meeting have provided the Company and the principal shareholders of AvTel with an irrevocable proxy to vote their shares against any agreement or any amendment to the Articles of Incorporation or Bylaws or other proposal or transaction that would in any manner impede, frustrate, prevent or nullify the transactions contemplated under the Acquisition Agreement and related agreements. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE MERGER PROPOSAL. Business of the Company - ----------------------- The Company provides through its majority-owned subsidiary, The Friendly Net, a Utah limited liability company ("TFN"), Internet access and marketing services to individuals and companies and is a full Internet Service Provider (ISP) offering the complete range of Internet connectivity from subscription dial-up SLIP/PPP (serial line Internet protocol/point to point protocol) accounts through full T-1 (high speed digital data line) and World Wide Web (WWW) page publishing. Currently, Internet access is provided through the Company's Ethernet network via TCP/IP protocol (transmission control protocol/Internet protocol). The network is implemented utilizing multiple Unix SPARC Servers running Solaris. Wide-area connectivity is provided via multiple T-1 connections employing both PPP and Frame Relay (a wide-area networking protocol) implemented via Cisco (a leading manufacturer of network routers which are used to route data packets between wide-area networks)routers, CSU/DSU's (high speed digital modem) and fiber optic cabling. Access to the Internet is provided primarily along the Wasatch Front (the geographic region of Northern Utah that extends from Brigham City in the north to Spanish Fork in the south) with the ability to provide service regionally. Individual accounts are serviced through high speed dial-up modems connected to network port servers. On-going telephony services are provided under individual subscription agreements with local telephony vendors. The Company is currently able to provide dial-up service coverage within Utah from Ogden to Provo. The Company's Internet marketing services consists of creation of Web pages coupled with consulting services that assist customers in developing a successful Internet presence. Web page storage is also available to customers. The Company utilizes turn-key hardware and software required to establish WWW sites located at the customer's location. 17 The Company's services are marketed to individuals and businesses via common carrier telecommunications systems such as telephone lines. Customers access the Internet by connecting to the Company's network, which is part of the World Wide Internet. The Company encounters competition from a variety of firms offering Internet services in its market area. Many of these firms have long standing customer relationships and are well staffed and financed. Management believes that competition in the Internet service industry is based on competitive pricing and availability of technical support. Management believes the Company currently offers its services at competitive prices and offers the highest level of technical support to its customers. The Company's products do not require governmental approval. The ISP market has grown out of and around the World Wide Internet. The Internet was primarily funded and constructed by the U.S. Government. Business of AvTel - ----------------- AvTel is a privately held, development stage corporation which began operations in March 1996, for the purpose of becoming a leading provider of integrated broadband voice, data and video communications services to small and mid-sized offices and select vertical markets. AvTel's business plan is to provide, through expansion of the operations currently conducted by the Company and strategic alliances to be formed in the future, a full suite of internetworking and enhanced communications services including follow-me voice and data routing, interactive voice mail, fax mail, e-mail, discounted long distance, contact management, and high speed Internet access. Since its inception, AvTel has had limited operations, after having raised $1 million in gross offering proceeds from the private placement of 1 million shares of its Series A Preferred Stock. All information with respect to AvTel's proposed business activities has been provided by AvTel and is presented herein without independent verification. AvTel has represented that the information is accurate and complete in all material respects. Summary financial information regarding AvTel has been provided in this Information Statement in the section titled "Selected Financial Data" below. Executive Compensation/Employment Agreements with AvTel Executives - ------------------------------------------------------------------ AvTel has employment agreements in place with each of Messrs. Papa and Pisani. Under these employment agreements, generally, each executive is employed for a term commencing in August 1996 and expiring December 31, 1998 (the "Term"). The agreements are subject to three annual extensions which can be exercised at the option of AvTel. Under the employment agreements, the executives will be paid an initial base annual salary of $125,000. The agreements provide that, assuming the transactions comtemplated by the 18 Acquisition Agreement are completed by December 31, 1996, this base salary will remain in effect until such time that the Company has either (a) obtained additional debt or equity capital or (b) achieved monthly revenues exceeding certain objectives. Thereafter, the agreements provide for increases in the base annual salaries. After December 1998, during any extension terms that may be exercised by AvTel, base salary increases will be determined by the Board of Directors based on AvTel's performance, individual contribution and other factors. The agreements also provide for incentive bonuses based on the achievement of performance objectives in each fiscal year, which performance objectives are to be established by the Board of Directors at the beginning of each fiscal year. In addition, the terms of the employment agreements provide that they are to be automatically assumed by the Company upon the effective date of the acquisition. The employment agreements also provide that following the acquisition, bonuses of $50,000 will be paid to each executive if, within twelve (12) months following the acquisition, the Company completes a debt or equity financing of not less than $2,000,000 and the Company's stock has traded at a price equal to or greater than $1.25 per share. Moreover, the employment agreements provide that, following consummation of the acquisition, each of the executives will be entitled and eligible to receive grants of stock options to acquire shares in the Company's common stock. The amount, exercise price and vesting schedule of such stock options will be determined on the basis of a stock option plan to be adopted by the directors and to be submitted to and approved by the shareholders of the Company, as soon as practicable following the completion of the acquisition. While a definitive stock option plan has not been prepared, AvTel's management currently anticipates that the plan, when, as and if adopted by the Board of Directors and shareholders, will be a written plan, will reserve a fixed number of shares of common stock that will be issuable upon exercise of options and will have the following general characteristics: Eligibility - Officers, directors, employees and consultants of the Company and its subsidiaries would be eligible to receive option grants under the plan. Administration and Operation - It is intended that the plan will be administered entirely by a committee of the Board of Directors composed of a least two "non-employee directors". For purposes of the plan, a "non-employee director" will have the definition set forth in Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934. Each grant or award of an option would be approved in advance by such committee. Non-Qualified and Incentive Stock Options - It is the intention of AvTel's management that the option plan would provide for grants of stock options as either Incentive Stock Options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or Non-Qualified Stock Options which are not Incentive Stock Options. The exercise price of options 19 granted under the plan would be not less than 100% of fair market value of the Company's common stock on the date of grant. Options granted as Incentive Stock Options would be subject to special statutory provisions. Particularly, options granted to employees who own stock possessing more than ten percent (10%) of the total voting power of all classes of stock of the Company, will not be permitted to be granted as Incentive Stock Options unless the exercise price is at least 110% of the fair market value of the Company's common stock on the date of grant and the option is not exercisable after five (5) years from the date of grant. After giving effect to the transactions contemplated by the acquisition, each of Messrs. Papa and Pisani and Mr. Peters (assuming he accepts the offer of employment made to him by AvTel) will hold in excess of 10% of the voting power of the Company's common stock. Accordingly, options granted to these individuals will be subject to the foregoing limitations. The foregoing description of certain elements of the stock option plan is qualified in its entirety by the plan itself, when and as it is adopted by the Company's Board of Directors and approved by its shareholders. AvTel has also extended to Mr. Peters an offer to become employed by AvTel as its Chief Financial Officer under terms and conditions substantially similar to those described above with respect to Messrs. Papa and Pisani. The offer has not been accepted by Mr. Peters and will expire if he has not accepted the offer and become employed by January 1, 1997. 20 Selected Financial Data of AvTel - -------------------------------- The following selected financial data of AvTel have been provided by management of AvTel and have not been prepared in accordance with generally accepted accounting principals. AvTel has represented to the Company that such financial information reflect the initial operations of AvTel and present fairly, in all material respects, the financial condition of AvTel as at and for the period ended. Period from January 1, 1996 through August 29, 1996 --------------- Statement of Operations Data: Revenues - Total Expenses $ 38,175 Net (loss) $ (38,175) Net (loss) per common share $ (0.01) Issued and Outstanding Common Shares 4,000,000 At August 29, 1996 ------------------ Balance Sheet Data: Current Assets $ 1,002,216 Total Assets $ 1,002,216 Current Liabilities $ 60,409 Total Liabilities $ 60,409 Work Capital $ 941,807 Long Term Liabilities $ - Shareholders' Equity $ 941,807 21 Market Price of the Company's Common Stock - ------------------------------------------ The following table sets forth, for the respective periods indicated, the prices of the Company's Common Stock in the over the counter market as reported by a market maker on the NASD'S OTC Bulletin Board. Such over the counter market quotations are based on inter-dealer bid prices, without markup, markdown or commission, and may not necessarily represent actual transactions. At September 16, 1996, the bid and ask quotations for the Company's Common Stock as quoted on the OTC Bulletin Board were $0.875 and $1.187 respectively. Bid Quotation ------------- Fiscal Year 1994 High Bid* Low Bid* - ---------------- -------- ------- Quarter ended 12/31/93 $ N/A $ N/A Quarter ended 3/31/94 $ N/A $ N/A Quarter ended 6/30/94 $ N/A $ N/A Quarter ended 9/30/94 $ 0.75 $ 0.625 Fiscal Year 1995 High Bid Low Bid - ---------------- -------- ------- Quarter ended 12/31/94 $ 0.75 $ 0.625 Quarter ended 3/31/95 $ 0.6875 $ 0.0675 Quarter ended 6/30/95 $ 0.6875 $ 0.5625 Quarter ended 9/30/95 $ 0.50 $ 0.50 Fiscal Year 1996 High Bid Low Bid - ---------------- -------- ------- Quarter ended 12/31/95 $0.50 $0.50 Quarter ended 3/31/96 $0.875 $0.50 Quarter ended 6/30/96 $1.437 $0.75 * To the best knowledge of management of the Company, there was no trading of the Company's Common Stock for the first three quarters of the Company's 1994 fiscal year ended September 30, 1994. The number of shareholders of record of the Company's Common Stock as of September 3, 1996, was approximately 190. The Company has not paid any cash dividends to date and does not anticipate paying dividends in the foreseeable future. It is the present intention of management to utilize all available funds for the development of the Company's business. 22 Selected Financial Data of the Company - -------------------------------------- The year end financial data included in the table has been selected by the Company and has been derived from the Company's financial statements included in the Company's Registration Statement on Form 10-SB. All financial statements for the two fiscal years have been examined by Robison, Hill & Company, certified public accountants. The eleven month financial data has been provided by the Company and is unaudited.
Eleven Months Ended August 31, Year Ended September 30, 1996 1995 1994 (Unaudited) ---- ---- --------- Statement of Operations Data: Revenues $ 157,136 $ - $ 268,772 Cost of Sales $ 29,280 $ - $ 59,934 Operating Expenses $ 256,094 $ 21,675 $ 255,307 Net (loss) $ (127,234) $ (23,111) $ (52,636) Net (loss) per common share $ (0.06) $ (0.01) $ (0.02) Weighted Average Shares Outstanding 2,163,172 1,933,550 2,416,845 At August 31, Year Ended September 30, 1996 1995 1994 (Unaudited) ---- ---- --------- Balance Sheet Data: Current Assets $ 91,913 $ 61,372 $ 44,699 Current Liabilities $ 201,886 $ 71,090 $ 81,752 Work Capital(Deficit) $ (109,973) $ (9,718) $ (37,053) Property & Equipment (net) $ 103,001 $ - $ 87,975 Total Assets $ 194,914 $ 61,372 $ 132,674 Long Term Liabilities $ 2,884 $ - $ - Shareholders' Equity $ (26,040) $ (9,718) $ 31,423
23 Proforma Combined Financial Data - --------------------------------
HI, TIGER INTERNATIONAL, INC. CONDENSED COMBINED PRO FORMA BALANCE SHEET AUGUST 31, 1996 (Unaudited) HI, TIGER AvTEL INTERNATIONAL COMMUNICATIONS PRO FORMA PRO FORMA INC. INC. ADJUSTMENTS BALANCE ------------- -------------- ----------- ----------- ASSETS Current Assets Cash $ 30,825 $ 1,002,216 $ - $ 1,033,041 Receivable, Net 13,874 - - 13,874 Total Current Assets 44,699 1,002,216 - 1,046,915 Fixed Assets, Net of Accumulated Depreciation 87,975 - - 87,975 Total Assets $ 132,674 $ 1,002,216 $ - $ 1,134,890 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable $ 27,788 $ 55,201 $ - $ 82,989 Payroll Taxes Payable 4,407 2,000 - 6,407 Sales Tax Payable 1,576 - - 1,576 Lease Obligation 3,381 - - 3,381 Related Party Notes and Payables 44,600 3,208 - 47,808 Total Liabilities 81,752 60,409 - 142,161 Minority Interest 19,499 - - 19,499 Stockholders' Equity Preferred Stock Series A $ - $ 1,000,000 $(1,000,000)A 1,000,000.B $ 1,000,000 Common Stock 2,513 3,000 4,172.C (3,000)D 6,685 Offering Costs - (23,018) 23,018.E - Paid in Capital in Excess of Par Value 520,149 - (4,172)C 3,000.D (23,018)E (38,175)F 457,784 Retained Deficit (491,239) (38,175) 38,175.F (491,239) Total Stockholders' Equity 31,423 941,807 - 973,230 Total Liabilities and Stockholders' Equity $ 132,674 $ 1,002,216 $ - $ 1,134,890
[Notes to the Proforma Financial Information continue on the following page] 24
HI, TIGER INTERNATIONAL, INC. CONSENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS AUGUST 31, 1996 (Unaudited) HI, TIGER AvTEL INTERNATIONAL COMMUNICATIONS PRO FORMA PRO FORMA INC. INC. ADJUSTMENTS BALANCE ------------- -------------- ----------- ---------- Sales $ 268,772 $ - $ - $ 268,772 Cost of Sales 59,934 - - 59,934 Gross Margin 208,838 - - 208,838 Operating Costs General & Administrative 250,466 38,175 - 288,641 Bad Debt Expense 4,841 - - 4,841 Operating Loss (46,469) (38,175) - (84,644) Other Income (Expense) Misc. Income 867 - - 867 Interest, Net (3,714) - - (3,714) Income (Loss) Before Taxes (49,316) (38,175) - (87,491) Income Taxes (6) - - (6) Minority Income (3,314) - - (3,314) Net Income (Loss) (52,636) (38,175) - (90,811) Weighted Average Shares Outstanding 2,416,845 4,000,000 6,588,690 Loss Per Share $ (0.02) $ (0.01) $ (0.01)
NOTES TO UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS (Unaudited) - --------------------------------------------------------------------------- NOTE 1 - GENERAL. The accompanying unaudited condensed pro forma Balance Sheet has been prepared as if the merger took place on August 31, 1996. The accompanying unaudited condensed proforma Statement of Operations has been prepared as if the merger took place on September 1, 1995. NOTE 2 - PRO FORMA ADJUSTMENTS. The adjustments to the accompanying unaudited condensed pro forma financial statements as of August 31, 1996, are described below: 25 (A) Cancellation of all authorized, issued and outstanding shares of all classes of AvTel Communications, Inc. preferred stock. (B) Issuance of 1,000,000 shares of $1.00 par value preferred stock by the new company in accordance with the acquisition agreement. (C) Issuance of 4,171,845 shares of $.001 par value common stock by the new company in accordance with the acquisition agreement. (D) Cancellation of all authorized, issued and outstanding shares of all classes of AvTel Communications, Inc. common stock. (E) Elimination of offering costs of AvTel Communications, Inc. (F) Elimination of current year earnings of AvTel Communications, Inc. from Retained Deficit due to purchase accounting. EXECUTIVE COMPENSATION Summary Compensation Table - -------------------------- The following tables set forth certain summary information concerning the compensation paid or accrued for each of the Company's last two completed fiscal years to the Company's chief executive officer and each of its other executive officers that received compensation in excess of $100,000 during such period (as determined at September 30, 1995) the end of the Company's last completed fiscal year:
Long Term Compensation ---------------------- Annual Compensation Awards Payouts ------------------- ------ ------- Name and Principal Restricted Position Bonus Other Annual Stock Options/ LTIP All Other - ------------------ Year Salary ($) Compensation Awards SARs Payout Compensation ---- ------ ----- ------------ ---------- ------- ------ ------------ Paul G. Begum, President & C.E.O. 1995 $-0- $-0- $ 27,000* $-0- $-0- $-0- $-0- 1994 $-0- $-0- $ -0- $-0- $-0- $-0- $-0-
* Beginning January 1, 1995, the Company agreed to pay Paul G. Begum a consulting fee of $3,000 per month. Certain portions of Mr. Begum's consulting fees have been accrued so that at August 31, 1996, $44,600, including interest was due Mr. Begum. This amount and certain other amounts will be paid to Mr. Begum after the closing of the transactions contemplated under the Acquisition Agreement. (See "Certain Relationships and Related Party Transactions: Deferred Compensation Agreement.") 26 Stock Options - ------------- The following table sets forth the name of the optionee, the number of options issued, the issue date, the exercise price and the expiration date for all outstanding options to purchase the Company's Common Stock:
Number Exercise of Options Date Price Expiration Name of Optionee Issued Issued Per Share Date - ---------------- ---------- ------ --------- ---------- Tree of Stars, Inc. 50,000 2/14/95 $0.75 12/31/96 Anthony Begum 25,000 2/14/95 $0.75 12/31/96 Jonathon Harrison 25,000 2/14/95 $0.75 12/31/96 Mark Geiger 10,000 3/22/95 $0.75 12/31/96 Pamela Geiger 10,000 3/22/95 $0.75 12/31/96 5,000 2/26/96 $0.60 2/26/99 Aaron Barnes 3,000 3/22/95 $0.75 12/31/96 Paul G. Begum 100,000 3/22/95 $0.25 3/22/98 44,444 2/26/96 $0.60 2/26/99 Jay Brummet 5,000 11/30/95 $0.75 11/10/98 10,000 1/10/96 $0.75 12/10/97 Stacie Anderson 5,000 3/25/96 $0.25 3/22/98 5,000 3/25/96 $0.60 2/26/99 Paul Smith 5,000 2/26/96 $0.60 2/26/99 Craig Poulton 50,000 3/28/96 $0.75 3/28/98 Kent Poole 10,000 7/03/96 $0.01 12/31/97 Scott Hunt 10,000 7/03/96 $0.01 12/31/97 --------- 372,444 =========
27 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of September 3, 1996, the name and address and the number of shares of the Company's Common Stock, par value $0.001 per share, held of record or beneficially by each person who held of record, or was known by the Company to own beneficially, more than 5% of the 2,513,299 shares of Common Stock issued and outstanding, and the name and shareholdings of each director and of all officers and directors as a group. The Company has reserved 372,444 shares of Common Stock for issuance pursuant to outstanding options. The table also indicates the number of shares and percent of class to be held following the reorganization by each person nominated for election as a directors of the Company. All such persons are directors of AvTel.
Prior to Reorganization After Reorganization ----------------------- -------------------- Number of Percent Number of Percent Name and Address Shares Owned(1) of Class Shares Owned(1) of Class - ------------------ --------------- -------- --------------- -------- Principal Shareholders: Peter D. Olson 607,163 24.16 607,163 8.82 521 North Arden Dr. Beverly Hills, CA 90310 Tree of Stars, Inc.(2) 626,332 24.92 626,332 9.10 350 West 300 South Salt Lake City, UT 84101 Current Officers and Directors: Paul G. Begum, President 700,499(3) 27.87 700,499 10.17 and Director Kent Poole, Director 10,000 .40 10,000 .15 Scott Hunt, Director 10,000 .40 10,000 .15 Stacie Anderson, Secretary 5,000 .20 5,000 .07 --------- ----- --------- ----- All Officers and Directors as a Group (4 Persons) 725,499 28.87 725,000 10.54 ========= ===== ========= ===== Nominees for Election of Directors: Anthony E. Papa 20,000 .80 1,584,390 23.01 James P. Pisani - - 1,564,390 22.72 Barry Peters - - 1,043,065 15.15 --------- ----- --------- ----- All Nominees for Election as a Group (3 Persons) 20,000 .80 4,191,845 60.88 ========= ===== ========= ===== 28 (1) Unless otherwise indicated, all shares are owned directly or indirectly, beneficially and of record, and each record shareholder has sole voting, investment and dispositive power. The number of shares owned and the percent of ownership does not take into account shares of Common Stock issuable upon exercise of outstanding options. (See "Executive Compensation: Stock Options.") (2) Tree of Stars, Inc. is a Nevada corporation, of which Paul G. Begum is the President and a principal shareholder. (3) Includes 626,322 shares owned of record by Tree of Stars, Inc., 73,667 shares owned of record by Paul G. Begum, and 500 shares owned of record by Paul G. Begum, Custodian for Gibran Paul Begum. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS A. Compliance with Section 16(a) of the Securities Exchange Act of 1934 -------------------------------------------------------------------- The Company's Common Stock was recently registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in connection therewith, directors, officers, and beneficial owners of more than 10% of the Company's Common Stock are required to file on a timely basis certain reports under Section 16 of the Exchange Act as to their beneficial ownership of the Company's Common Stock. The following table sets forth as of the September 3, 1996, the name and position of each person that failed to file on a timely basis any reports required pursuant to Section 16 of the Exchange Act. Report to Name of Person Position be Filed (1) - -------------- -------- ------------ Paul G. Begum President/Director Form 3/4 and 10% Beneficial Ownership Peter D. Olson 10% Beneficial Form 3/4 Ownership Kent Poole Director Form 3/4 Scott Hunt Director Form 3/4 Stacie Anderson Secretary Form 3 In connection with the Acquisition Agreement, the Company has represented and agreed that its officers, directors and principal shareholders who are required to filed reports under Section 16 of the Exchange Act will have filed such reports prior to September 30, 1996, the Company's fiscal year end. 29 B. Shareholder Agreement --------------------- In connection with the Acquisition Agreement Paul G. Begum ("Begum")and Tree of Stars, Inc. ("TOSI"),have entered into an agreement (the "Shareholder Agreement") with Anthony E. Papa, James P. Pisani and Barry Peters (collectively the "AvTel Principal Shareholders"), AvTel and the Company, wherein Begum and TOSI have agreed not to sell, during the 120 day period following the Closing Date, more than an aggregate of 50,000 shares of the Company's Common Stock directly or indirectly owned, beneficially or of record, by Begum or TOSI, subject to (i) no more than 12,500 shares being sold in any one transaction; (ii) no more than 12,500 shares being sold during any consecutive 30 day period; and (iii) all sales are made in market transactions in compliance with all federal and state securities laws. In addition, Begum and TOSI have agreed not to sell any additional shares of the Company's Common Stock owned by them, directly or indirectly, beneficially or of record, during the one year period following the Closing Date, without the consent of the Board of Directors of the Company, which consent will not be unreasonably withheld. Both Begum and TOSI have granted to AvTel and the AvTel Principal Shareholders a first right of refusal to purchase shares of the Company's Common Stock directly or indirectly beneficially owned them, including the 50,000 shares described above and up to 144,444 shares of the Company's Common Stock issuable pursuant to the exercise of outstanding options, during the 24 month period following the Closing Date. C. Non-Competition, Proprietary Rights and Standstill Agreements ------------------------------------------------------------- In connection with the Acquisition Agreement TOSI, Peter D. Olson, and Paul G. Begum (the "Hi, Tiger Principal Shareholders") have agreed to certain covenants regarding non-competition with the business of the Company, non disclosure and non-use of certain confidential and proprietary information, and have provided certain other undertakings to the effect, generally, that they shall not (i) either separately or in combination with others and without the prior written consent of the Board of Directors of the Company, offer or propose to acquire shares of the Company's Common Stock, in excess of certain limits, solicit, from other shareholders of the Company, proxies or written consents to vote on matters upon which such shareholders may be entitled to vote or otherwise seek to change or influence the management of the Company, and (ii) offer to sell, negotiate, or solicit from others, offers to purchase all or substantially all of the business and assets of the Company or any of the Company Common Stock held by them. D. Tree of Stars Agreement ----------------------- In connection with the Acquisition Agreement, TOSI has granted to AvTel an exclusive, transferable right of first refusal to acquire from TOSI the 20% interest held by TOSI in TFN, and the Company has granted to TOSI an option to acquire the name "Hi, Tiger" should the Company decide to abondon the use of such name. 30 E. Finder's Fee -------------- In connection with the Acquisition Agreement the Company and AvTel have agreed that following the Closing Date, the Company will issue 200,000 shares of the Company's Common Stock to AMH Limited or its assignees as a finder's fee. Prior to the issuance of the Common Stock, the Company and AvTel will have obtained releases and discharges of any and all claims of AMH Limited or such assignees arising from or in connection with the Acquisition Agreement and the transactions contemplated therein. F. Deferred Compensation Agreement ------------------------------- The Company has agreed that following the Closing Date it will enter into a deferred compensation agreement with Paul G. Begum or his assigns, wherein the Company will agree to pay a monthly payment of $4,000 for a period of twelve (12) months. Such payments are to made in connection with and as consideration for Mr. Begum's waiver and release of any and all accrued but unpaid compensation, including consulting fees, up to and including the Closing Date. (See "Executive Compensation.") G. Lease Amendment --------------- The Company's majority owned subsidiary, The Friendly Net LLC ("Lessee") and Tree of Stars/PDO, a partnership ("Lessor"), of which Paul G. Begum and Peter D. Olson, principal shareholders of the Company are partners, agreed that prior to the Closing Date, the Lessee and Lessor will enter into an amendment, in such form and such terms and conditions as are acceptable to AvTel, pursuant to which the lease of the premises occupied by the Company and Lessee at 350 West 300 South, Salt Lake City, Utah, will be extended for approximately seven (7) months, commencing on the Closing Date, at a monthly rate of $1,000, subject however, to the Lessee's right to terminate at any time, without liability on thirty (30) days notice. H. Indemnification Agreement ------------------------- Paul G. Begum has entered into an Indemnification Agreement under which he has provided the Company and AvTel an indemnification against any damages incurred by the Company or AvTel in connection with any breach of or any inaccuracy in certain representations and warranties of the Company contained in the Acquisition Agreement. The indemnification is subject to the materiality and other conditions of those representations and warranties and provides that in no event may any claim whatsoever under the Indemnification Agreement be asserted against Mr. Begum after December 31, 1997. 31 THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE MERGER PROPOSAL. SHAREHOLDER PROPOSALS No proposals have been submitted by shareholders of the Company for consideration at the Special Meeting. It is anticipated that the next annual meeting of shareholders will be held during January 1996. Shareholders may present proposals for inclusion in the Information Statement to be mailed in connection with the next annual meeting of shareholders of the Company, provided such proposals are received by the Company no later than 90 day prior to such meeting, and are otherwise in compliance with applicable laws and regulations and the governing provisions of the articles of incorporation and bylaws of the Company. OTHER MATTERS Management does not know of any business other than referred to in the Notice which may be considered at the meeting. If any other matters should properly come before the Special Meeting, such matters will be properly addressed and resolved and those in attendance will vote on such matters in accordance with their best judgment. HI, TIGER INTERNATIONAL, INC. By order of the Board of Directors /S/ Paul G. Begum Salt Lake City, Utah September __, 1996
EX-1 2 A-1 ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT ("Agreement") is entered into this 30th day of August, 1996, between and among HI, TIGER INTERNATIONAL, INC., a Utah corporation ("Hi, Tiger"); AVTEL COMMUNICATIONS, INC., a Utah corporation ("Merger Subsidiary") and AVTEL COMMUNICATIONS, INC., a California corporation ("AvTel"), based on the following: PREMISES A. Hi, Tiger is a corporation existing under the laws of the state of Utah, having been incorporated under the laws of the State of Utah on October 21, 1981. B. AvTel is a corporation existing under the laws of the State of California, having been incorporated under the laws of the State of California on July 16, 1996. C. Merger Subsidiary is a corporation existing under the laws of the State of Utah, having been incorporated on March 14, 1996, and is a wholly owned subsidiary of Hi, Tiger. D. The parties have negotiated a transaction whereby, at the Effective Date, as defined herein, all of the shares of AvTel common stock and all of the shares of AvTel 8% Series A Preferred Stock then issued and outstanding will be exchanged for 4,171,845 shares of common stock of Hi, Tiger; 1,000,000 shares of preferred stock of Hi, Tiger; and AvTel will merge with and into Merger Subsidiary, with AvTel being the surviving entity. The merger of AvTel with and into Merger Subsidiary and the exchange of the common and preferred stock are for the purpose of effecting a "tax-free" reorganization pursuant to Section 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). E. The parties have reached an agreement as to the business terms of the transaction and desire to set forth in this Agreement the details thereof. AGREEMENT NOW, THEREFORE, on the stated premises, which are incorporated herein by reference, and for and in consideration of the mutual covenants and agreements hereinafter set forth, the mutual benefits to the parties to be derived herefrom, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, it is hereby agreed as follows: A-2 ARTICLE I MERGER Section 1.01 The Merger. AvTel will be merged with and into Merger Subsidiary, the separate corporate existence of Merger Subsidiary will cease and AvTel shall survive the merger as the Surviving Corporation. The issued and outstanding shares of common stock of AvTel (the "AvTel Common Stock"), shall be exchanged for shares of Hi, Tiger common stock, par value $0.001 per share (the "Hi, Tiger Exchanged Common Stock") and the issued and outstanding shares of Series A Preferred Stock of AvTel, $1.00 par value per share (the "Series A Preferred Stock"), shall be exchanged for newly authorized shares of Hi, Tiger preferred stock, par value $1.00 per share, and having the rights, preferences and privileges described in Section 1.01(b)(i) hereof (the "Hi, Tiger Exchanged Preferred Stock") as follows: (a) On the Effective Date (as defined herein), each share of AvTel Common Stock outstanding shall be converted into 1.0429612 shares of Hi, Tiger Exchanged Common Stock (the "Exchange Ratio"), except that, any "Dissenting Shares" of AvTel Common Stock shall receive payment from Hi, Tiger, upon the completion of the merger, in accordance with the provisions of the California Corporations Code. Dissenting shares means any shares of AvTel Common Stock for which the holder thereof has timely exercised its dissenter's rights under the California Corporations Code section 1300-1306. (b) As a condition precedent to this Agreement and to the consummation of the transactions contemplated herein, and prior to the Closing (as defined herein), the board of directors and a majority of the holders of issued and outstanding Hi Tiger Common Stock shall have adopted all required or necessary resolutions to amend and restate Hi, Tiger's Articles of Incorporation to (i) provide for a class of preferred stock, with rights, preferences and privileges substantially the same as those set forth in the Series A AvTel Preferred Stock and (ii) such other provisions as are set forth in Section 1.02. (c) Hi, Tiger shall not issue any fractional shares or interests in the Hi, Tiger Exchanged Common or Exchanged Series A Preferred Stock in connection with the foregoing conversion. If any holder of AvTel Common or Preferred Stock would otherwise be entitled to a fractional share upon exchange thereof, Hi, Tiger shall round the number of shares of Hi, Tiger Exchanged Common or Preferred Stock to be issued to such stockholder to the nearest whole share. (d) After the Effective Date, each holder of shares of AvTel Common or Series A Preferred Stock shall, upon the surrender of the certificate or certificates representing such shares to the registrar and transfer agent of Hi, Tiger, be entitled to receive a certificate or certificates evidencing shares of the Hi, Tiger Exchanged Common or Preferred Stock as provided herein. On the Effective Date,: (i) each share of AvTel Common Stock issued and outstanding immediately prior to the Effective Date will be canceled and extinguished and automatically converted into the right to receive 1.0429612 shares of Hi, Tiger Exchanged Common Stock; and (ii) each share of AvTel Series A Preferred Stock issued and outstanding immediately prior to the Effective Date will be canceled and extinguished and automatically converted into the right to receive one (1) share of Hi, Tiger Exchanged Preferred Stock. A-3 Section 1.02 Amendment and Restatement of Hi, Tiger's Articles of Incorporation. As a condition precedent to this Agreement and to the consummation of the transactions contemplated hereunder and prior to the Closing, the board of directors and the shareholders of Hi, Tiger shall have adopted and approved all required or necessary resolutions to adopt an amended and restated articles of incorporation that provides for the following: (a) Changing the name of Hi, Tiger to "AvTel, Inc."; (b) Authorize 5,000,000 shares of preferred stock; (c) Provide for the designation of 1,000,000 shares of 8% Series A Convertible Preferred Stock with rights, preferences and privileges substantially the same as those set forth in the AvTel Series A Preferred Stock; (d) Modifying such other provisions of Hi, Tiger's Articles of Incorporation as requested by AvTel; and (e) Eliminating the liability of officers, directors, employees and agents of Hi, Tiger for monetary damage arising from breaches of their fiduciary duties to the maximum extent permitted under the Utah Revised Business Corporation Act. Section 1.03 Other Approvals of Hi, Tiger's Board and Shareholders. As a condition to this Agreement and to the transactions contemplated herein, prior to the Closing, the board of directors and shareholders of Hi, Tiger shall have adopted and approved the following: (a) an amendment and restatement of the Bylaws of Hi, Tiger providing such revisions and modifications as are requested by AvTel; (b) the appointment of Anthony E. Papa, James P. Pisani and Barry Peters, nominees of AvTel to the board of directors of Hi, Tiger, whereupon Hi, Tiger's current board will resign; and (c) as to the board of directors of Hi, Tiger, the resolutions unanimously adopted by such board of directors: (i) approving this Agreement and each of the agreements and transactions contemplated herein including but not limited to the Shareholder Agreement, the AHM Release, the Assumption and Rights Agreement, the Rights Agreement, and the Employment/Consulting Agreements, and (ii) setting a record date for and noticing a special meeting of the stockholders of Hi, Tiger for the purpose of voting upon the Shareholder Proposals as contemplated under Section 4.03 hereof. Section 1.04 Approval of Members of The Friendly Net LLC. As a condition to this Agreement and to the transactions contemplated hereunder, Hi, Tiger shall cause the members of The Friendly Net LLC, a Utah Limited Liability Company ("TFN") to adopt, approve, execute and deliver such agreements, covenants, amendments, instruments and documents, and to take such further action as may be requested by AvTel or its counsel to give effect to the transactions contemplated herein (collectively referred to as the "TFN Proposals"), including: (a) removal of the TFN managers; A-4 (b) approval of the TOSI Agreement described in Section 5.07(f); and (c) amendments to the TFN Operating Agreement. Section 1.05 Closing. The closing ("Closing") of the transactions contemplated by this Agreement shall be on a date ("Closing Date") and at such time and place as the parties may agree within the twenty (20) day period commencing with the last to occur of the following: (a) The approval of the AvTel stockholders pursuant to Section 4.03 hereof of the matters set forth in Sections 1.02 and 1.03 hereof (the "Shareholder Proposals"); (b) The approval by the members of TFN of the TFN Proposals; (c) The final date prescribed by any state or federal regulatory agency pursuant to any state or federal law, rule, or regulation prior to which the transactions may not be effectuated; and (d) The satisfaction or waiver of all the conditions set forth in Articles V and VI. Section 1.06 Closing Events. (a) Hi, Tiger's Deliveries. Subject to fulfillment or waiver of the conditions set forth in Article VI, Hi, Tiger shall deliver or cause to be delivered to AvTel at Closing all the following: (i) Certificates of good standing from the appropriate authorities, issued as of a date within five days prior to the Closing Date, certifying that Hi, Tiger, Merger Subsidiary, Hi, Tiger, Inc. (hereinafter "HTI") and TFN (collectively the "HTI Subsidiaries") are in good standing as corporations (or as a limited liability company in the case of TFN) in the state of Utah; (ii) Incumbency and specimen signature certificates dated the Closing Date with respect to the respective officers of Hi, Tiger and of those HTI Subsidiaries executing this Agreement and any other document delivered pursuant hereto on behalf of Hi, Tiger, the HTI Subsidiaries; (iii) Copies of the resolutions of Hi, Tiger's and the HTI Subsidiaries' respective board of directors and of shareholders (or members) authorizing the execution and performance of this Agreement and the contemplated transactions, certified by the respective secretaries or assistant secretaries (or other comparable officer) of Hi, Tiger and the HTI Subsidiaries as of the Closing Date; (iv) The certificate contemplated by Section 5.01, dated the Closing Date, duly executed by a duly authorized officer of Hi, Tiger; (v) The certificate contemplated by Section 5.02, dated the Closing Date, signed by the chief executive officer and principal accounting and financial officer of Hi, Tiger; (vi) The original minute books including minutes of all actions taken by the Board of Directors or shareholders of Hi, Tiger, whether at meeting or by written consent, the corporate seal of Hi, Tiger and all documents, files, records and documents relating to the stock and stock transfer documents held by Hi, Tiger. A-5 In addition to the above deliveries, Hi, Tiger shall take all steps and actions as AvTel may reasonably request or as may otherwise be necessary to consummate the transactions contemplated hereby. (b) AvTel's Deliveries. Subject to fulfillment or waiver of the conditions set forth in Article V, AvTel shall deliver or cause to be delivered to Hi, Tiger at Closing all the following: (i) Certificate of good standing from the appropriate authority, issued as of a date within five days prior to the Closing Date certifying that AvTel is in good standing as a corporation in the state of California; (ii) Incumbency and specimen signature certificates dated the Closing Date with respect to the officers of AvTel executing this Agreement and any other document delivered pursuant hereto on behalf of AvTel; (iii) Copies of resolutions of the board of directors and of the stockholders of AvTel authorizing the execution and performance of this Agreement and the contemplated transactions, contemplated hereunder, certified by the secretary or an assistant secretary of AvTel as of the Closing Date; (iv) The certificate contemplated by Section 6.01, executed by a duly authorized officer of AvTel; and (v) The certificate contemplated by Section 6.02, dated the Closing Date, signed by the chief executive officer and principal accounting and financial officer of AvTel. In addition to the above deliveries, AvTel shall take all steps and actions as Hi, Tiger may reasonably request or as may otherwise be necessary to consummate the transactions contemplated hereby. Section 1.07 Effective Date. As soon as practicable following consummation of the transactions contemplated hereby on the Closing Date, Certificates of Articles of Merger ("Certificate of Merger") and such other documents as are required by the provisions of the corporate statutes of the states of Utah and California to complete the merger of AvTel and Merger Subsidiary shall be filed with the Secretary of State of Utah and the Secretary of State of California and a Designation of Determination with respect to the Rights, Privileges, and Preferences of the Hi, Tiger Series A Convertible Preferred Stock shall be filed with the Secretary of State of Utah. The "Effective Date" of the merger shall be the date the filing of such Certificate of Merger and other documents shall become effective. Section 1.08 Effect of Merger. On the Effective Date of the merger, Merger Subsidiary shall cease to exist separately, and Merger Subsidiary shall be merged with and into AvTel, the surviving corporation, in accordance with the provisions of this Agreement, and the Articles of Merger, and in accordance with the provisions of and with the effect provided in the corporation laws of the states of Utah and California. Without limiting the generality of the foregoing, AvTel, as the surviving corporation, shall possess all the rights, privileges, franchises, and trust and fiduciary duties, powers, and obligations, of a private as well as of a public nature, and be subject to all the restrictions, obligations, and duties of each of Merger Subsidiary and AvTel; all property, real, personal, and mixed, and all debts due to either of Merger Subsidiary or AvTel on whatever account, and all other things belonging to each of Merger Subsidiary or AvTel shall be vested in AvTel; all property, rights, privileges, powers, and franchises, and all and every other interest shall be thereafter the property of AvTel as they A-6 were of Merger Subsidiary and AvTel; the title to any real estate, whether vested by deed or otherwise, in either Merger Subsidiary or AvTel shall not revert or be in any way impaired by reason of the merger; provided, however, that all rights of creditors and all liens on any property of either Merger Subsidiary or AvTel shall be preserved unimpaired, and except as contemplated under the Assumption and Rights Agreement, all debts, liabilities, and duties of Merger Subsidiary and AvTel shall thenceforth attach to AvTel and may be enforced against it to the same extent as if such debts, liabilities, and duties had been incurred or contracted by AvTel. Section 1.09 Termination (a) This Agreement may be terminated by the board of directors of either Hi, Tiger or AvTel at any time prior to the Effective Date if: (i) there shall be any actual or threatened action or proceeding before any court or any governmental body which shall seek to restrain, prohibit, or invalidate the transactions contemplated by this Agreement and which, in the judgment of such board of directors, made in good faith and based upon the advice of its legal counsel, makes it inadvisable to proceed with the merger and consolidation contemplated by this Agreement; (ii) any of the transactions contemplated hereby are disapproved by any regulatory authority whose approval is required to consummate such transactions or in the judgment of such board of directors, made in good faith and based on the advice of counsel, there is substantial likelihood that any such approval will not be obtained or will be obtained only on a condition or conditions which would be unduly burdensome, making it inadvisable to proceed with the merger and exchange; (iii) the merger shall not have become effective prior to October 31, 1996, or such later date as shall have been approved by the boards of directors of Hi, Tiger and of AvTel. In the event of termination pursuant to this paragraph (a) of Section 1.09, no obligation, right, or liability shall arise hereunder, and each party shall bear all of the expenses incurred by it in connection with the negotiation, preparation, and execution of this Agreement and the transactions contemplated hereby. (b) This Agreement may be terminated at any time prior to the Closing Date by action of the board of directors of AvTel if either Hi, Tiger or Merger Subsidiary or any of their Affiliates (as defined herein) shall fail to comply in any material respect with any of their respective, joint or several covenants or agreements contained in this Agreement or any other agreements contemplated herein to be executed by them or to which they are parties, or if any of their respective, joint or several representations or warranties contained herein or therein shall be inaccurate. In the event of termination pursuant to this paragraph (b) of this Section 1.09, no obligation, right, remedy, or liability shall arise hereunder except (i) as provided in Sections 2.23, 4.08, 7.01; and (ii) for any non-compliance with a covenant or agreement or inaccuracy to a representation or warranty that is caused by the wilful misconduct or gross negligence of Hi, Tiger or Merger Subsidiary. Hi, Tiger, each HTI Subsidiary, AvTel and their respective officers, directors and Affiliates shall each bear their own costs incurred in connection with the negotiation, preparation, and execution of this Agreement and the transactions contemplated hereby. A-7 (c) This Agreement may be terminated at any time prior to the Closing Date by action of the board of directors of either Hi, Tiger or Merger Subsidiary (i) if the holders of more than five percent (5%) of the issued and outstanding shares of AvTel Common Stock timely perfect their dissenter's rights under the California Corporations Code with respect to the approval of this Agreement and the transactions contemplated hereby, or (ii) if AvTel shall fail to comply in any material respect with any of its covenants or agreements contained in this Agreement or if any of the representations or warranties of AvTel contained herein shall be inaccurate in any material respect or (iii) the majority of the holders of the issued and outstanding Hi, Tiger Common Stock fail to approve the Shareholder Proposals set forth in Sections 1.02 hereof. In the event of termination pursuant to this paragraph (c) of this Section 1.09, no obligation, right, remedy, or liability shall arise hereunder except, however, that the foregoing shall not be deemed a release of any obligation, right, remedy or liability (I) with respect to the parties' respective obligations under the immediately following sentence; (II) with respect to the parties' respective obligations under Sections 4.07, 4.08 and 7.01 or the failure by Hi, Tiger to comply with the provisions of Section 4.03 hereof; (III) with respect to any breach or non-compliance by Hi, Tiger, Merger Subsidiary or any of their Affiliates of the covenants and agreements set forth in those agreements to be executed as set forth in Section 5.07; and (IV) with respect to any non-compliance with a covenant or agreement to be performed by AvTel that is caused by the willful misconduct or gross negligence of AvTel. Hi, Tiger, Merger Subsidiary, AvTel, and their respective officers directors, and Affiliates shall each bear their own costs incurred in connection with the negotiation, preparation, and execution of this Agreement and the transactions contemplated hereby. As used in this Agreement, the term "Affiliate" shall mean, as to any specified Person, any other Person who is controlled by, controls or is under common control with such Person. The term "Control" means the power to direct the management and policies of such person, whether through the ownership of voting securities, by contract, or otherwise; and the terms "Controlling" and "Controlled" have meaning correlative to the foregoing. The term "Person" shall mean a corporation, association, trust, partnership, joint-venture, limited liability company, individual or any government or any political subdivision, agency or instrumentality thereof. ARTICLE II REPRESENTATIONS, COVENANTS, AND WARRANTIES OF HI, TIGER AND HTI SUBSIDIARIES In this Agreement, any reference to any event, change, condition or effect being "material" with respect to any entity or group of entities means any material event, change, condition or effect related to the condition (financial or otherwise), properties, assets (including intangible assets), liabilities, business operations, results of operations or prospects of such entity or group of entities. In this Agreement, any reference to a "Material Adverse Effect" or "Material Adverse Change" with respect to any entity or group of entities means any event, change or effect that is materially adverse to the condition (financial or otherwise), properties, assets, liabilities, business, operations, results of operations or prospects of such entity and its subsidiaries, taken as a whole. As an inducement to, and to obtain the reliance of, AvTel, except as disclosed in a document of even date herewith and delivered by Hi, Tiger to AvTel prior to the execution and delivery of this Agreement and referring to the representations and warranties in this Agreement (the "Hi, Tiger Disclosure Schedule"), Hi, Tiger and Merger Subsidiary jointly and severally represent and warrant on their own behalf and on behalf of TFN as follows: A-8 Section 2.01 Organization. (a) Hi, Tiger is, and will be on the Closing Date, a corporation duly organized, validly existing, and in good standing under the laws of the state of Utah and has the corporate power and is and will be duly authorized, qualified, franchised, and licensed under all applicable laws, regulations, ordinances, and orders of public authorities to own all of its properties and assets and to carry on its business in all material respects as it is now being conducted, and there are no other jurisdictions in which it is not so qualified in which the character and location of the assets owned by it or the nature of the material business transacted by it requires qualification, except where failure to do so would not have a Material Adverse Effect. The execution and delivery of this Agreement and the agreements contemplated hereunder to which Hi, Tiger is a party, do not, and the consummation of the transactions contemplated herein and therein in accordance with the terms hereof and thereof will not, violate any provision of Hi, Tiger's articles of incorporation or bylaws, or other agreement to which it is a party or by which it is bound. (b) Each HTI Subsidiary is and will be on the Closing Date a corporation (or in the case of TFN, a limited liability company) duly organized, validly existing, and in good standing under the laws of the state of Utah and each has the corporate power and is and will be duly authorized, qualified, franchised, and licensed under all applicable laws, regulations, ordinances, and orders of public authorities to own all their respective properties and assets and to carry on their respective businesses in all material respects as it is now being conducted, and there are no other jurisdictions in which either is not so qualified in which the character and location of the assets owned by it or the nature of the business transacted by it requires qualification, except to the extent the failure to so qualify would not materially and adversely affect its business, operations, properties, assets or condition. The execution and delivery of this Agreement and the other agreements contemplated hereunder to which any HTI Subsidiary is a party do not, and the consummation of the transactions contemplated herein and therein in accordance with the terms hereof and thereof will not, violate any provision of their respective articles of incorporation, articles of organization, operating agreements, or bylaws or of other agreement to which it is a party or by which it is bound. (c) Hi, Tiger is the owner of (i) all outstanding shares of capital stock of Merger Subsidiary ("Sub Shares") and of HTI ("HTI Shares") and all such shares are duly authorized, validly issued, fully paid and nonassessable; (ii) all outstanding shares of capital stock of HTI ("HTI Shares") and all such shares are duly authorized, validly issued, fully paid and nonassessable; and (iii) 80% of the issued and outstanding membership interests (the "TFN Interest") of TFN and such TFN Interest is duly authorized, validly issued, fully paid and nonassessable. All of the Sub Shares, HTI Shares and all of the TFN Interests are owned by Hi, Tiger free and clear of all liens, charges, claims or encumbrances or rights of others. There are no outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable or convertible securities or other commitments or agreements of any character relating to the issued or unissued capital stock, member interests or other securities of the HTI Subsidiaries, or otherwise obligating Hi, Tiger or any such HTI Subsidiaries to issue, transfer, sell, purchase, redeem or otherwise acquire any such capital stock, membership interests or other securities. Except for the Sub Shares, the HTI Shares and the TFN Interests, Hi, Tiger does not directly or indirectly , beneficially or of record, own any capital stock, equity or similar interest in, or any interest convertible or exchangeable or exercisable for, any capital stock, equity or similar interest A-9 in, any corporation, partnership, joint venture, limited liability company or other business association or entity. Section 2.02 Approval of Agreements, No Conflict. Hi, Tiger and the HTI Subsidiaries each have full power, authority, and legal right and have taken, or will have taken on or before the date hereof, all action required by law, their respective articles of incorporation, operating agreements, articles of organization, bylaws, and otherwise to execute and deliver this Agreement the other agreements contemplated to be executed by them hereunder and to consummate the transactions herein and therein contemplated. The boards of directors of Hi, Tiger and Merger Subsidiary and the shareholder of Merger Subsidiary have authorized and approved the execution, delivery, and performance of this Agreement and the other agreements contemplated hereby to which they are parties and the transactions contemplated hereby and thereby. The members of TFN have authorized and approved the execution, delivery and performance of the agreements contemplated herein to be executed by TFN and the transactions contemplated thereby. This Agreement and the other agreements contemplated hereby to which they are parties have been duly executed and delivered by Hi, Tiger and Merger Subsidiary and constitutes the valid and binding obligations of each. The execution, delivery and performance of this Agreement and the other agreements contemplated hereby to which it is a party, by Hi, Tiger do not, and the consummation of the transactions contemplated hereby and thereby will not conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (i) any provision of the Articles of Incorporation or Bylaws of Hi, Tiger or any of its subsidiaries, as amended, or (ii) any material mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Hi, Tiger or any of the HTI Subsidiaries or any of their properties or assets. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality ("Governmental Entity") is required by or with respect to Hi, Tiger or any of the HTI Subsidiaries in connection with the execution and delivery of this Agreement and the other agreements contemplated hereby to which they are parties or the consummation of the transactions contemplated hereby and thereby, except for (a) the filing of the Certificate of Merger as provided in Section 1.07, (b) the filing with the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers, Inc. (the "NASD") of the Information Statement relating to the Hi, Tiger Stockholders Meeting (as described in Section 4.03), (c) such consents, approvals, order, authorizations, registrations, declarations and filings as may be required under applicable state securities laws and the securities laws of any foreign country, and (d) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not have a Material Adverse Effect on Hi, Tiger and would not prevent, alter or materially delay any of the transactions contemplated by this Agreement or the other agreements contemplated hereby to which it is a party. This Agreement and the other agreements contemplated hereby to which it is a party have been duly authorized, executed, and delivered by both Hi, Tiger and Merger Subsidiary and are the legal, valid and binding obligations of each of Hi, Tiger and Merger Subsidiary, enforceable in accordance with their terms, except as such enforcement may be limited by bankruptcy, insolvency, or other laws affecting enforcement of creditors' rights generally and by general principles of equity. A-10 Section 2.03 Capitalization. The authorized capitalization of Hi, Tiger consists of 50,000,000 shares of Common Stock, $0.001 par value (the "Hi, Tiger Common Stock"), of which 2,513,299 shares are issued and outstanding. The authorized capitalization of Merger Subsidiary consists of 10,000 shares of Common Stock, no par value, of which 1,000 shares are currently issued and outstanding as of the date hereof. The authorized capitalization of HTI consists of 100,000 shares of Common Stock, $0.10 par value, of which 78,000 shares are currently issued and outstanding as of the date hereof. The authorized capitalization of TFN consists of membership interests of which 80% is owned by HTI and 20% is owned by Tree of Stars, Inc., a Nevada corporation ("TOSI"). All issued and outstanding shares of Hi, Tiger and Merger Subsidiary are duly authorized, legally issued, fully paid, and nonassessable are free of any liens or encumbrances other than any liens or encumbrances created or imposed upon the holders thereof and except as provided in Section 5.07(a) hereof, are not subject to any preemptive or other right of any Person created by statute, the Articles of Incorporation or Bylaws of Hi, Tiger or the Merger Subsidiary, as the case may be or any agreement to which Hi, Tiger or Merger Subsidiary, as the case may be, is bound. There are no dividends or other amounts due or payable with respect to any of the shares of capital stock of either Hi, Tiger or Merger Subsidiary. All HTI Shares and TFN Interests are duly authorized, legally issued, fully paid, and nonassessable are free of any liens or encumbrances other than any liens or encumbrances created or imposed upon the holders thereof and except as provided in Section 5.07(f) hereof, are not subject to any preemptive or other right of any person created by statute, the Articles of Incorporation or Bylaws of HTI or the Articles of Organization or Operating Agreement of TFN or any agreement to which either HTI or TFN is bound. There are no dividends or other amounts due or payable with respect to any of the HTI Shares or the TFN Interests. Section 2.04 Subsidiaries. Except for the Sub Shares, HTI Shares, and the TFN Interest, Hi, Tiger does not own, directly or indirectly, beneficially or of record, any interest, whether in the form of common or preferred stock, options, warrants or other rights convertible into or exchangeable for such common or preferred stock, partnership or member's interest, joint venture or other similar ownership interest in any other entity or enterprise. Neither Hi, Tiger nor the HTI Subsidiaries have a "predecessor," as that term is defined under generally accepted accounting principles or Regulation S-X promulgated by the Securities and Exchange Commission (the "SEC"). Section 2.05 SEC Documents, Financial Statements. (a) Hi, Tiger has furnished to AvTel a true and complete copy of each statement, report, registration statement, and other filings filed with the SEC by Hi, Tiger since October 1, 1993, and, prior to the Effective Date, Hi, Tiger will have furnished AvTel with true and complete copies of any additional documents filed with the SEC by Hi, Tiger prior to the Effective Date (collectively, the "SEC Documents"). In addition, Hi, Tiger has made available to AvTel all exhibits to the SEC Documents filed prior to the date hereof, and will promptly make available to AvTel all exhibits to any additional SEC Documents filed prior to the Effective Date. All documents required to be filed as exhibits to the SEC Documents have been so filed, and all material contracts so filed as exhibits are in full force and effect, except those which have expired in accordance with the terms, and neither Hi, Tiger nor any of its subsidiaries is in default thereunder. As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Securities Act, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the A-11 statements made therein, in light of the circumstances in which they were made, not misleading, except to the extent corrected by a subsequently filed SEC Document. The financial statements of Hi, Tiger, including the notes thereto, included in the SEC Documents together with (i) the independent auditor's report of Robison, Hill & Co., accompanying the consolidated balance sheets of Hi, Tiger and its subsidiaries, as of September 30, 1995, 1994 and 1993, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years then ended; (ii) the unaudited balance sheet of Hi, Tiger as of June 30, 1996, and the related statements of operations, cash flows, and stockholders' equity for the three and nine months ended June 30, 1996 and 1995; and (iii) the unaudited consolidated balance sheet of Hi, Tiger as of August 31, 1996, and the related statements of operations, cash flows and stockholders' equity for the eleven months ended August 31, 1996; and representations by the principal accounting and financial officer of Hi, Tiger to the effect that such financial statements contain all adjustments (all of which are normal recurring adjustments) necessary to present fairly the results of operations and financial position for the periods and as of the dates indicated (the "Financial Statements") were complete and accurate in all material respects as of their respective dates and have been prepared in accordance with generally accepted accounting principles consistently applied on a consistent basis throughout the periods involved. (b) The Hi, Tiger balance sheets included in such Financial Statements present fairly, in all material respects, as of their respective dates, the financial position of Hi, Tiger and its subsidiaries. Hi, Tiger did not have, as of the date of any such balance sheets, except as and to the extent reflected or reserved against therein, any liabilities or obligations (absolute or contingent) which should be reflected in a balance sheet or the notes thereto in accordance with generally accepted accounting principles under which they were prepared, and all assets reflected therein present fairly the assets of Hi, Tiger in accordance with generally accepted accounting principles. The statements of operations, shareholders' equity and cash flows contained in the Financial Statements present fairly the consolidated financial position and results of operations of Hi, Tiger as of their respective dates and for the respective periods covered thereby. Hi, Tiger maintains and will continue to maintain a standard system of accounting established and maintained in a manner permitting the preparation of financial statements in accordance with generally accepted accounting principles. (c) All such Financial Statements have been presented or prior to the Effective Date and at Hi, Tigers cost and expense will be amended to be presented in accordance with the requirements of Regulation S-X promulgated by the SEC regarding the form and content of and requirements for financial statements to be filed with the SEC and any such amendments will not result in a Material Adverse Change to Hi, Tiger and the HTI Subsidiaries. (d) The books and records, financial and otherwise, of Hi, Tiger and its subsidiaries are in all material respects complete and correct and have been maintained in accordance with sound business and bookkeeping practices so as to accurately and fairly reflect, in reasonable detail, the transactions and dispositions of the assets of Hi, Tiger and its subsidiaries. Hi, Tiger and its subsidiaries have maintained a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions have been and are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit the preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements and to maintain accountability for assets; (iii) access to assets is permitted A-12 only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals, and appropriate action is taken with respect to any differences. (e) Hi, Tiger and the HTI Subsidiaries have timely filed or will have timely filed as of the Closing Date all Tax Returns required to be filed by them from inception to the Closing Date and have paid all Taxes shown on such Tax Returns to be due and have provided adequate accruals in the Financial Statements for any Taxes that have not been paid. All such Tax Returns are accurate and correct in all material respects. Neither Hi, Tiger nor its subsidiaries has any liabilities with respect to the payment of any federal, state, county, local, or other Taxes (including any deficiencies, interest, or penalties) accrued for or applicable to the period ended on the date of the most recent unaudited consolidated balance sheet of Hi, Tiger included in its Report on Form 10-QSB for the quarter ended June 30, 1996, except to the extent reflected on such balance sheet and adequately provided for, and all such dates and years and periods prior thereto and for which Hi, Tiger or its subsidiaries may at said date have been liable in its own right or as transferee of the assets of, or as successor to, any other corporation or entity, except for taxes accrued but not yet due and payable, and no deficiency assessment or proposed adjustment of any such Tax Return is pending, proposed or contemplated. Proper and accurate amounts of Taxes have been withheld by or on behalf of Hi, Tiger with respect to all compensation paid to employees and consultants of Hi, Tiger for all periods ending on or before the date hereof, and all deposits required with respect to compensation paid to such employees have been made, in complete compliance with the provisions of all applicable federal, state, and local tax and other laws. None of such Tax Returns has been examined or is currently being examined by the Internal Revenue Service, and no deficiency assessment or proposed adjustment of any such return is pending, proposed or contemplated. Neither Hi, Tiger nor its subsidiaries have made any election pursuant to the provisions of any applicable tax laws (other than elections that relate solely to methods of accounting, depreciation, or amortization) that would have a Material Adverse Effect on Hi, Tiger or its subsidiaries, their financial condition, their business as presently conducted or proposed to be conducted, or any of their respective properties or material assets. There are no tax liens upon any of the assets of Hi, Tiger or its subsidiaries. There are no outstanding agreements or waivers extending the statutory period of limitation applicable to any Tax Return of Hi, Tiger or the HTI Subsidiaries. As used herein, "Taxes" shall mean all taxes of any kind, including, without limitation, those on or measured by or referred to as income, gross receipts, sales, use, ad valorem, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, value added, property or windfall profits taxes, customs, duties or similar fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any governmental authority, domestic or foreign As used herein, "Tax Return" shall mean any return, report or statement required to be filed with any governmental authority with respect to Taxes. Section 2.06 Information. The Financial Statements and information concerning Hi, Tiger and the HTI Subsidiaries and their and Hi, Tiger's respective Affiliates set forth in this Agreement; in the HTI Disclosure Schedules delivered by Hi, Tiger pursuant hereto were, as of their respective dates, complete and accurate in all material respects and did not contain any untrue statement of a material fact or omit to state a material fact required to make the statements made, in light of the circumstances under which they were made, not misleading. Hi, Tiger shall cause the HTI Disclosure Schedules A-13 delivered by it pursuant hereto and the instruments and data delivered to AvTel hereunder to be updated after the date hereof up to and including the Closing Date. Section 2.07 Options or Warrants. Except as set forth in the HTI Disclosure Schedules, there are no existing options, warrants, calls, rights, agreements or commitments of any character relating to the authorized and unissued capital stock of Hi, Tiger, HTI, Merger Subsidiary and TFN (as to member's interests) as to which any of them is a party or by which either is bound obligating any of them (a) to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of capital stock or member's interest, or (b) to grant, extend, accelerate the vesting of, change the price of, or otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. Neither Hi, Tiger nor any HTI Subsidiaries have adopted any employee's or director's stock option plan except for the 1994 Non-Qualified Stock Option Plan dated April 4, 1994 (the "1994 Plan"). No options, warrants, calls, rights or agreements of any character have been granted or are outstanding under the 1994 Plan. Section 2.08 Absence of Certain Changes or Events. Except as set forth in this Agreement, since June 30, 1996 (the "Balance Sheet Date"): (a) Hi, Tiger has conducted its business in the ordinary course and there has not been (i) any change, event or condition in the business, operations, properties, level of inventory, assets, or condition of Hi, Tiger and the HTI Subsidiaries taken as a whole or (ii) any damage, destruction, or loss to Hi, Tiger and the HTI Subsidiaries (whether or not covered by insurance) that has resulted in or might reasonably expect to result in a Material Adverse Effect on the business, operations, properties, assets, or conditions of Hi, Tiger and its subsidiaries taken as a whole; (b) Neither Hi, Tiger nor the HTI Subsidiaries have (i) amended their respective articles of incorporation or bylaws; (ii) declared, set aside, or made, or agreed to declare, set aside or make, any payment of dividends or distributions of any assets of any kind whatsoever to stockholders or purchased or redeemed, or agreed to purchase or redeem, any of its capital stock; (iii) waived any rights of value which in the aggregate are extraordinary or material considering the business of Hi, Tiger and the HTI Subsidiaries; (iv) made any material change in their method of management, operation, or accounting; (v) entered into any other material transactions; (vi) made any accrual or arrangement for or payment of kind or any severance or termination pay to any present or former officer, director or employee; (vii) increased the rate of compensation payable or to become payable by it to any of their respective officers or directors or any of their respective employees whose monthly compensation exceeds $1,000; or (viii) made any increase in any profit-sharing, bonus, deferred compensation, insurance, pension, retirement, or other employee benefit plan, payment, or arrangement made to, for, or with their officers, directors, or employees; (c) Neither Hi, Tiger nor the HTI Subsidiaries have (i) granted or agreed to grant any options, warrants, calls, commitments or other rights for their respective capital stocks, bonds, member interests or other equity interests of securities calling for the issuance thereof; (ii) borrowed or agreed to borrow any funds or incurred, or become subject to, any material obligation or liability (absolute or contingent) except liabilities incurred in the ordinary course of business; (iii) paid any material obligation or liability (absolute or contingent) other than current liabilities reflected on or shown on the balance sheet contained in the Financial Statements as of the A-14 Balance Sheet Date and current liabilities incurred since that date in the ordinary course of business; (iv) sold or transferred, or agreed to sell or transfer, any of their respective assets, properties, or rights (except assets, properties, or rights not used or useful in their respective businesses which, in the aggregate have a value of less than $5,000) or canceled, or agreed to cancel, any debts or claims (except debts and claims which in the aggregate are of a value of less than $5,000); (v) made or permitted any amendment or termination of any contract, agreement, or license to which it is a party if such amendment or termination is material, considering the business of Hi, Tiger and its subsidiaries; (vi) issued, delivered, or agreed to issue or deliver any capital stock, bonds, member interests or other equity interests or securities including debentures (whether authorized and unissued or held as treasury stock); or (vii) entered into, amended, modified or changed any Affiliate Transaction (as defined in Section 2.21) or paid, discharged, released, waived, transferred, assigned, canceled or terminated any rights, duties, liabilities or obligations under any Affiliate Transaction. (d) Neither Hi, Tiger it nor the HTI Subsidiaries have, to the best knowledge of Hi, Tiger, become subject to any law or regulation which materially and adversely affects, or in the future may adversely affect, the business, operations, properties, assets, or condition of Hi, Tiger and the HTI Subsidiaries. Section 2.09 Title and Related Matters. Hi, Tiger and the HTI Subsidiaries have good and marketable title to all of their respective properties, tangible and intangible, real or personal, inventory, interests in properties, and assets, which are reflected in the consolidated balance sheet contained in the Financial Statements as of the Balance Sheet Date and all such properties, inventory, interests and assets acquired after that date (the "Hi, Tiger Assets")(except those sold or otherwise disposed of since such date in the ordinary course of business), free and clear of all mortgages, security interests, royalties, liens, pledges, charges, or encumbrances, except (i) statutory liens or claims not yet delinquent; and (ii) such imperfections of title and easements as do not, and will not, materially detract from, or interfere with, the present or proposed use of the properties subject thereto or affected thereby or otherwise materially impair present business operations on such properties. None of such Hi, Tiger Assets were not acquired from any Person in any transaction or series of transactions (I) in which fair consideration or reasonably equivalent value was not given, (II) in which such Person was or, as a result of such transaction was rendered, insolvent or (III) which would otherwise create, or might reasonably be expected to create, a claim on the part of such Person or his or its successor in interest to avoid or otherwise set aside the acquisition of any such Hi, Tiger Assets under the provisions of Bankruptcy Code Sections 547 or 549 or any other similar provisions under state and federal statutes or common law. All Hi, Tiger Assets and all other tooling, furniture, fixtures, equipment, computer and data processing devices held by Hi, Tiger or the HTI Subsidiaries under equipment or general property lease and rental agreements, contracts and agreements ("Leased Equipment") are adequate for the conduct of the business currently conducted by each of them, suitable for the uses in which such Hi, Tiger Assets and Leased Equipment are currently employed, in good and usable condition, normal wear and tear excepted, and reasonably maintained in accordance with the manufacturer's instructions, and not in need of renewal or replacement, except for renewal or replacement in the ordinary course of business. All lease, rental or similar contracts, agreements and arrangements, oral or written, expressed or implied ("Equipment Leases") with respect to Leased Equipment are listed or described in the HTI Disclosure Schedules and all such Equipment Leases are in full force and effect. There A-15 has not occurred, to the knowledge of Hi, Tiger and the HTI Subsidiaries, any event of default under any Equipment Lease. Section 2.10 Litigation and Proceedings. There are no actions, suits, or administrative or other proceedings pending or, to the knowledge of Hi, Tiger and the HTI subsidiaries, threatened by or against Hi, Tiger or the HTI subsidiaries or affecting Hi, Tiger or the HTI Subsidiaries or their respective properties or any of their respective officers, directors or Affiliates, at law or in equity, before any court or other governmental agency or instrumentality, domestic or foreign, or before any arbitrator of any kind. Hi, Tiger does not have any knowledge of any default on the part of it or the HTI Subsidiaries with respect to any judgment, order, writ, injunction, decree, award, rule, or regulation of any court, arbitrator, or governmental agency or instrumentality. There is no judgment, decree or order against Hi, Tiger or any of the HTI Subsidiaries or, to the knowledge of Hi, Tiger, and the HTI Subsidiaries, or any of their respective Affiliates, directors or officers (in their capacities as such), that could prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement, or that could reasonably be expected to have a Material Adverse Effect on Hi, Tiger and the HTI Subsidiaries, taken as a whole. Section 2.11 Contracts. Except as included or described in the HTI Disclosure Schedules: (a) There are no material contracts, agreements, franchises, license agreements, or other commitments to which Hi, Tiger or the HTI Subsidiaries are parties by which it or any HTI Subsidiaries or any of their respective properties are bound; (b) All contracts, agreements, franchises, license agreements, and other commitments to which Hi, Tiger or the HTI Subsidiaries are a party or by which their respective properties are bound and which are material to the operations or financial condition of Hi, Tiger or any of the HTI Subsidiaries are valid and enforceable by Hi, Tiger or the HTI Subsidiaries in all material respects; (c) Neither Hi, Tiger nor the HTI Subsidiaries are a party to or bound by, and their respective properties are not subject to, any material contract, agreement, other commitment or instrument; any charter or other corporate restriction; or any judgment, order, writ, injunction, decree, or award which materially and adversely affects, or in the future may (as far as Hi, Tiger can now foresee) materially and adversely affect, the business, operations, properties, assets, or condition of Hi, Tiger or the HTI Subsidiaries; and (d) Neither Hi, Tiger nor the HTI Subsidiaries are a party to any oral or written (i) contract for the employment of any officer, director, or employee which is not terminable on 30 days (or less) notice; (ii) profit-sharing, bonus, deferred compensation, stock option, severance pay, pension benefit or retirement plan, agreement, or arrangement whether or not covered by Title IV of the Employment Retirement Income Security Act, as amended; (iii) agreement, contract, or indenture relating to the borrowing of money; A-16 (iv) guarantee of any obligation, other than one on which Hi, Tiger is a primary obligor, for the borrowing of money or otherwise, excluding endorsements made for collection and other guarantees of obligations, which, in the aggregate do not exceed $1,000; (v) consulting or other similar contract with an unexpired term or more than one year or providing for payments in excess of $1,000 in the aggregate; (vi) collective bargaining agreement; (vii) agreement with any present or former officer or director of Hi, Tiger or its subsidiaries; or (viii) contract, agreement, or other commitment involving payments by it of more than $1,000 in the aggregate. Section 2.12 Material Contract Defaults. Neither Hi, Tiger nor any of the HTI Subsidiaries are in default under the terms of any outstanding contract, agreement, lease, or other commitment which is material to the Hi, Tiger Assets or to the business, operations or condition of Hi, Tiger and the HTI Subsidiaries taken as a whole, and there is no event of default or other event which, with notice or lapse of time or both, would constitute a default in any material respect under any such contract, agreement, lease, or other commitment in respect of which Hi, Tiger or the HTI Subsidiaries, as the case may be, has not taken adequate steps to prevent such a default from occurring. Section 2.13 Intellectual Property. All patents, patent applications, trademarks, trade secrets, know-how, software and technical data (collectively "Intellectual Property") owned by Hi, Tiger or the HTI Subsidiaries constitutes all of the intellectual property, whether or not owned by Hi, Tiger or the HTI Subsidiaries used by them to any material extent in the conduct of the business in which they or any of them are presently engaged. None of such Intellectual Property has been assigned, transferred or licensed to or from any third party and the validity or enforceability of such Intellectual Property as used in the conduct of such business has not been challenged by others in any proceeding or dispute about which any of them has received written notice in writing, nor is there any pending or, to the best knowledge of any of them, threatened litigation or proceeding challenging any of their right to use any such Intellectual Property. The consummation of the transactions contemplated by this Agreement will not adversely affect their rights to the Intellectual Property. Section 2.14 Real Estate. The HTI Disclosure Schedules set forth a list and summary description of all leases, subleases or other agreements (the "Leases") under with Hi, Tiger and any of the HTI Subsidiaries hold, as lessor, sublessor, landlord, lessee, sublessee, renter or otherwise of any real property and all other interests in real property as the case may be. Unless otherwise indicated in the HTI Disclosure Schedules, the Leases are in full force and effect and neither Hi, Tiger nor any of the HTI Subsidiaries has any knowledge of any event of default thereunder. The Leases under which Hi, Tiger and the HTI Subsidiaries are the lessees are subject to no material lien, claim, charge or other encumbrance. Section 2.15 Governmental Authorizations. Hi, Tiger and the HTI Subsidiaries have obtained all licenses, franchises, permits, and other governmental authorizations that are legally required to enable them to conduct their businesses in all material respects as conducted on the date of this Agreement. Except for the satisfaction of requirements of federal and state securities and corporation laws, as hereinafter provided, no authorization, approval, consent, or order of, or registration, declaration, A-17 or filing with, any court or other governmental body is required in connection with the execution and delivery by Hi, Tiger or the HTI Subsidiaries of this Agreement and the consummation by Hi, Tiger and the HTI Subsidiaries of the transactions contemplated hereby. Section 2.16 Compliance With Laws and Regulations. Hi, Tiger and the HTI Subsidiaries have complied with and are not in violation of and have not received any notices of violation with respect to all applicable statutes and regulations of any federal, state, or other governmental entity or agency thereof, except to the extent that noncompliance would not materially and adversely affect the business, operations, properties, assets, or condition of Hi, Tiger and the HTI Subsidiaries taken as a whole or except to the extent that noncompliance would not result in the occurrence of any material liability for Hi, Tiger and the HTI Subsidiaries. Section 2.17 Compliance With Securities Laws and Regulations. Hi, Tiger has complied with all applicable securities statutes and regulations of any federal, state or other governmental entity or agency thereof, including the filing of any required documents thereunder within the applicable time limitations, for all sales of Hi, Tiger securities and the issuance of the Hi, Tiger Exchanged Common and Preferred Stock as contemplated herein.. Section 2.18 Insurance. Hi, Tiger and each of the HTI Subsidiaries have policies of insurance and bonds of the type and in the amounts customarily carried by persons conducting businesses or owning assets similar to those of Hi, Tiger and the HTI Subsidiaries. All of the insurable properties of Hi, Tiger and the HTI Subsidiaries are insured for full replacement value (subject to reasonable deductibles) against losses due to fire and other casualty, with extended coverage, and other risks customarily insured against by persons operating similar properties in the localities where such properties are located and under valid and enforceable policies issued by insurers of recognized responsibility. Such policy or policies containing substantially equivalent coverage will be outstanding and in full force at the Closing Date, as hereinafter defined. There is no material claim pending under any of the policies or bonds referenced in this Section 2.18 as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and Hi, Tiger and the HTI Subsidiaries are otherwise in material compliance with the terms of such policies and bonds. Hi, Tiger has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. Section 2.19 Employee Relations. Hi, Tiger and the HTI Subsidiaries have complied in all material respects with all applicable laws, rules, and regulations that relate to salaries, wages, hours, harassment, disabled access, overtime compensation, employee privacy rights, occupational health and safety and discrimination in employment and collective bargaining and to the operation of its business and is not liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. Hi, Tiger and its subsidiaries believe that their relations with their employees are satisfactory. 2.20 Hazardous Substances. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. no. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C section 1801, et seq., the Resource A-19 amendment to the Information Statement, Hi, Tiger shall promptly inform AvTel. Notwithstanding the foregoing, Hi, Tiger makes no representation, warranty or covenant with respect to any information supplied by AvTel in writing which is contained in the Information Statement. Section 2.25 Vote Required. The affirmative vote of the holders of a majority of the shares of Hi, Tiger Common Stock outstanding on the record date set for the Stockholders Meeting is the only vote of the holders of any Hi, Tiger's capital stock necessary to approve matters referred to in Sections 1.01 through 1.03 hereof. Section 2.26 Board Approval. The Board of Directors of Hi, Tiger and Merger Subsidiary and the members of TFN have unanimously (i) approved this Agreement and the other agreements contemplated herein to which each is a party and the Merger, (ii) in the case of Hi, Tiger, determined that the Merger is in the best interests of its Stockholders and that the terms of this Agreement and the other agreements contemplated hereunto to which it is a party are fair to such stockholders and (iii) recommended that the stockholders of Hi, Tiger approve the matters referred to in Sections 1.01 through 1.03 hereof. Section 2.27 Representations Complete. None of the representations or warranties made by Hi, Tiger herein or by Hi, Tiger, any of the HTI Subsidiaries or any of their respective Affiliates in any agreement to which any is a party as contemplated herein, by Hi, Tiger in the HTI Disclosure Schedule or any certificate furnished by Hi, Tiger pursuant to this Agreement or in the SEC Documents, when all such documents are read together in their entirety, contains or will contain at the Effective Date any untrue statement of a material fact, or omits or will omit at the Effective Date to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. ARTICLE III REPRESENTATIONS, COVENANTS, AND WARRANTIES OF AVTEL As an inducement to, and to obtain the reliance of, Hi, Tiger and Merger Subsidiary, except as disclosed in a document of even date herewith and delivered by AvTel to Hi, Tiger prior to the execution and delivery of this Agreement and referring to the representations and warranties in this Agreement (the "AvTel Disclosure Schedules"), AvTel represents and warrants as follows: Section 3.01 Organization. AvTel is and will be on the Closing Date a corporation duly organized, validly existing, and in good standing under the laws of the state of California and has the corporate power to own all of its properties and assets and to carry on its business in all material respects as it is now being conducted, and there are no other jurisdictions in which it is not so qualified in which the character and location of the assets owned by it or the nature of the material business transacted by it requires qualification, except where failure to do so would not have a Material Adverse Effect on the business, operations, properties, assets, or condition of AvTel. The execution and delivery of this Agreement and the agreements contemplated hereunder to which AvTel, its officers, directors, and Affiliates are a party do not, and the consummation of the transactions contemplated herein and therein in accordance with the terms hereof and thereof will not, violate any provision of AvTel's articles of incorporation or bylaws or other agreement to which it is a party or by which it is bound. A-20 Section 3.02 Approval of Agreements. AvTel has all requisite corporate power and authority, to execute and deliver this Agreement and the other agreements contemplated hereby to which it is a party and to consummate the transactions herein contemplated. The execution, delivery, and performance by AvTel of this Agreement and the other agreements contemplated hereby has been duly authorized by all necessary corporate action on the part of AvTel. This Agreement and the other agreements contemplated hereby have been duly authorized, executed, and delivered by AvTel and is the legal, valid, and binding obligation of AvTel enforceable in accordance with its terms except as such enforcement may be limited by bankruptcy, insolvency, or other laws affecting enforcement of creditor's rights generally and by general principles of equity. Section 3.03 Capitalization. The authorized capitalization of AvTel consists of 5,000,000 shares of preferred stock ("AvTel Preferred Stock") of which 1,000,000 shares, designated Series A Preferred Stock, $1.00 par value per share are issued and outstanding, and 10,000,000 shares of Common Stock ("AvTel Common Stock"), of which 4,000,000 shares are issued and outstanding. All issued and outstanding shares of AvTel are validly issued, fully paid, and nonassessable and not issued in violation of the preemptive or other similar rights of any person. Except for dividend accruals pursuant to the Series A Preferred Stock, there are no dividends or other amounts due or payable with respect to any of the shares of capital stock of AvTel. Section 3.04 Subsidiaries or Predecessors. AvTel has no other subsidiaries or predecessors as those terms are defined under generally accepted accounting principles or regulation S-X promulgated by the SEC. Section 3.05 Financial Statements (a) AvTel has furnished to Hi, Tiger the unaudited balance sheets and related statements of income, changes in stockholders equity and changes in financial position of AvTel as at and for the month ended August 31, 1996 (the "AvTel Financial Statements"). The AvTel Financial Statements are special purpose financial statements which reflect the initial operations of AvTel and present fairly, in all material respects, the financial condition of AvTel as at and for the period then ended. The AvTel Financial Statements have not been prepared in accordance with generally accepted accounting principles. (b) The books and records, financial and otherwise, of AvTel are in all material respects complete and correct and have been maintained in accordance with sound business and bookkeeping practices so as to accurately and fairly reflect, in reasonable detail, the transactions and dispositions of the assets of AvTel. (c) AvTel has not filed and will not have filed as of the Closing Date any tax returns. Proper and accurate amounts of taxes have been withheld by or on behalf of AvTel with respect to all compensation paid to employees of AvTel for all periods ending on or before the date hereof, and all deposits required with respect to compensation paid to such employees have been made, in complete compliance with the provisions of all applicable federal, state, and local tax and other laws. AvTel has not made any election pursuant to the provisions of any applicable tax laws (other than elections that relate solely to methods of accounting, depreciation, or amortization) that would have a Material Adverse Effect on AvTel. There are no tax liens upon any of the assets of AvTel. There are no outstanding agreements or waivers extending the statutory period of limitation applicable to any tax return of AvTel. A-21 Section 3.06 Information. The AvTel Disclosure Schedules and the information concerning AvTel set forth in this Agreement is complete and accurate in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact required to make the statements made, in light of the circumstances under which they were made, not misleading. AvTel shall cause the AvTel Disclosure Schedules to be updated after the date hereof up to and including the Closing Date. Section 3.07 Options or Warrants. At the time of Closing, and except as set forth in the AvTel Disclosure Schedules or as contemplated by the Series A Preferred Stock, there will be no existing options, warrants, calls, or commitments of any character relating to the authorized and unissued AvTel common stock, except options, warrants, calls, or commitments, if any, to which AvTel is not a party and by which it is not bound. Section 3.08 Absence of Certain Changes or Events. Except as set forth or as contemplated by the transactions described in this Agreement and the AvTel Disclosure Schedules, since August 31, 1996 (the "AvTel Balance Sheet Date"): (a) There has not been (i) any material adverse change in the business, operations, properties, level of inventory, assets, or condition of AvTel or (ii) any damage, destruction, or loss to AvTel (whether or not covered by insurance) materially and adversely affecting the business, operations, properties, assets, or conditions of AvTel; (b) AvTel has not, except for the transactions contemplated by its issuance of the Series A Preferred Stock (i) amended its articles of incorporation or bylaws; (ii) declared or made, or agreed to declare or make, any payment of dividends or distributions of any assets of any kind whatsoever to stockholders or purchased or redeemed, or agreed to purchase or redeem, any of its capital stock; (iii) waived any rights of value which in the aggregate are extraordinary or material considering the business of AvTel; (iv) made any material change in its method of management, operation, or accounting which is material to AvTel; (v) entered into any other material transactions; (vi) made any accrual or arrangement for or payment of bonuses or special compensation of any kind or any severance or termination pay to any present or former officer or employee; (vii) increased the rate of compensation payable or to become payable by it to any of its officers or directors or any of its employees whose monthly compensation exceeds $1,000; or (viii) made any increase in any profit sharing, bonus, deferred compensation, insurance, pension, retirement, or other employee benefit plan, payment, or arrangement made to, for, or with its officers, directors, or employees; (c) AvTel has not, except for the transactions contemplated by its issuance of the Series A Preferred Stock (i) granted or agreed to grant any options, warrants, or other rights for its stocks, bonds, or other corporate securities calling for the issuance thereof; (ii) borrowed or agreed to borrow any funds or incurred, or become subject to, any material obligation or liability (absolute or contingent) except liabilities incurred in the ordinary course of business; (iii) paid any material obligation or liability (absolute or contingent) other than current liabilities reflected in or shown on the most recent AvTel consolidated balance sheet and current liabilities incurred since that date in the ordinary course of business; (iv) sold or transferred, or agreed to sell or transfer, any of its assets, properties, or rights (except assets, properties, or rights not used or useful in its business which, in the aggregate have a value of less than $5,000) or canceled, or agreed to cancel, any debts or claims (except debts and claims which in the aggregate are of a value of less than $5,000); (v) made or permitted any A-22 amendment or termination of any contract, agreement, or license to which it is a party if such amendment or termination is material, considering the business of AvTel; or (vi) issued, delivered, or agreed to issue or deliver any stock, bonds, or other corporate securities including debentures (whether authorized and unissued or held as treasury stock); and (d) To the best knowledge of AvTel, it has not become subject to any law or regulation which materially and adversely affects, or in the future may adversely affect, the business, operations, properties, assets, or condition of AvTel. Section 3.09 Title and Related Matters. Except as provided herein or disclosed in the most recent AvTel balance sheet and the notes thereto, AvTel has good and marketable title to all of its properties, inventory, interests in properties, and assets, which are reflected in the AvTel Financial Statements dated as of the AvTel Balance Sheet Date or acquired after that date (except properties, interests in properties, and assets sold or otherwise disposed of since such date in the ordinary course of business), free and clear of all mortgages, liens, pledges, charges, or encumbrances, except (i) statutory liens or claims not yet delinquent; and (ii) such imperfections of title and easements as do not, and will not, materially detract from, or interfere with, the present or proposed use of the properties subject thereto or affected thereby or otherwise materially impair present business operations on such properties. Section 3.10 Litigation and Proceedings. There are no actions, suits, or proceedings pending or, to the knowledge of AvTel, threatened by or against AvTel or affecting AvTel, at law or in equity, before any court or other governmental agency or instrumentality, domestic or foreign, or before any arbitrator of any kind. AvTel does not have any knowledge of any default on its part with respect to any judgment, order, writ, injunction, decree, award, rule, or regulation of any court, arbitrator, or governmental agency or instrumentality. Section 3.11 Contracts. Except as contemplated by or disclosed pursuant to this Agreement and the Series A Preferred Stock and except as included or described in the AvTel Disclosure Schedules: (a) There are no material contracts, agreements, franchises, license agreements, or other commitments to which AvTel is a party by which it or any of the properties of AvTel are bound; (b) All contracts, agreements, franchises, license agreements, and other commitments to which AvTel is a party or by which its properties are bound and which are material to the operations or financial condition of AvTel are valid and enforceable by AvTel in all material respects subject, however, in the case of enforceability, to applicable bankruptcy, insolvency, reorganization and similar laws affecting creditors' rights and remedies generally, and for general principles of equity; (c) AvTel is not a party to or bound by, and its properties are not subject to, any material contract, agreement, other commitment or instrument; any charter or other corporate restriction; or any judgment, order, writ, injunction, decree, or award which materially and adversely affects, the business, operations, properties, assets, or condition of AvTel; and (d) Except as reflected in the AvTel Financial Statements or the AvTel Disclosure Schedules, AvTel is not a party to any oral or written (i) contract for the employment of any officer, director, or employee which is not A-23 terminable on 30 days (or less) notice; (ii) profit-sharing, bonus, deferred compensation, stock option, severance pay, pension benefit or retirement plan, agreement, or arrangement covered by Title IV of the Employee Retirement Income Security Act, as amended; (iii) agreement, contract, or indenture relating to the borrowing of money; (iv) guarantee of any obligation, other than one on which AvTel is a primary obligor, for the borrowing of money or otherwise, excluding endorsements made for collection and other guarantees of obligations, which, in the aggregate do not exceed $1,000; (v) consulting or other similar contract with an unexpired term of more than one year or providing for payments in excess of $1,000 in the aggregate; (vi) collective bargaining agreement; (vii) agreement with any present or former officer or director of AvTel or any subsidiary; or (viii) contract, agreement, or other commitment involving payments by it of more than $1,000 in the aggregate. Section 3.12 Material Contract Defaults. AvTel is not in default in any material respect under the terms of any outstanding contract, agreement, lease, or other commitment which is material to the business, operations, properties, assets, or condition of AvTel, and there is no event of default or other event which, with notice or lapse of time or both, would constitute a default in any material respect under any such contract, agreement, lease, or other commitment in respect of which AvTel has not taken adequate steps to prevent such a default from occurring. Section 3.13 No Conflict With Other Instruments. The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of, or constitute an event of default under, any material indenture, mortgage, deed of trust, or other material contract, agreement, or instrument to which AvTel is a party or to which any of its properties or operations are subject. Section 3.14 Governmental Authorizations. AvTel has all licenses, franchises, permits, and other governmental authorizations that are legally required to enable it to conduct its business in all material respects as conducted on the date of this Agreement. Except for compliance with federal and state securities and corporation laws, as hereinafter provided, no authorization, approval, consent, or order of, or registration, declaration, or filing with, any court or other governmental body is required in connection with the execution and delivery by AvTel of this Agreement and the consummation by AvTel of the transactions contemplated hereby. Section 3.15 Compliance With Laws and Regulations. AvTel has complied with all applicable statutes and regulations of any federal, state, or other governmental entity or agency thereof, except to the extent that noncompliance would not materially and adversely affect the business, operations, properties, assets, or condition of AvTel or except to the extent that noncompliance would not result in the occurrence of any material liability for AvTel. Section 3.16 Compliance With Securities Laws and Regulations. AvTel has complied with all applicable securities laws and regulations of any federal, state or other governmental entity or agency thereof, including the filing of any required documents thereunder within the applicable time limitations, or, otherwise, in such a manner and within such time as would not materially and adversely effect AvTel's ability to avail itself of applicable exemptions from the registration or qualification requirements of such securities laws and regulations for all sales of AvTel Common Stock and AvTel Series A Preferred Stock. A-24 Section 3.17 Insurance. AvTel maintains one or more general comprehensive liability insurance policies as required under the terms of its lease of its principal executive offices. Such policy, or policies containing substantially equivalent coverage, will be outstanding and in full force at the Closing Date. Section 3.18 Disclaimer. The representations and warranties set forth in this Article III are the only representations and warranties made by or on behalf of AvTel and no other representations or warranties, expressed, implied or statutory have been made by or on behalf of AvTel with respect to this Agreement, the Merger or the other agreements and transactions contemplated herein and therein or with respect to AvTel or its business, financial condition, prospects, technology or otherwise. ARTICLE IV SPECIAL COVENANTS TO BE SATISFIED PRIOR TO CLOSING Section 4.01 Activities of Hi, Tiger, HTI Subsidiaries and AvTel (a) From and after the date of this Agreement until the Closing Date and except as set forth in the respective Disclosure Schedules to be delivered by Hi, Tiger and AvTel pursuant hereto or as permitted or contemplated by this Agreement, Hi, Tiger, Merger Subsidiary, and AvTel will each (and HTI will cause TFN to): (i) Carry on their respective businesses in substantially the same manner as it has heretofore; (ii) Maintain in full force and effect insurance comparable in amount and in scope of coverage to that now maintained by it; (iii) Perform in all material respects all of their respective obligations under material contracts, leases, and instruments relating to or affecting their respective assets, properties, and businesses; (iv) Use reasonable best efforts to maintain and preserve their respective business organizations intact, to retain their respective key employees, and to maintain their respective relationships with material suppliers and customers; (v) duly and timely file for all taxable periods ending on or prior to the Closing Date all Tax Returns required to be filed by or on behalf of such entity or any of their respective subsidiaries or for which such entity or any of their respective subsidiaries may be held responsible and shall pay, or cause to pay, all Taxes required to be shown as due and payable on such returns, as well as all installments of tax due and payable during the period commencing on the date of this Agreement and ending on the Closing Date. All such Tax Returns shall be prepared in a manner consistent with the preparation of prior years' Tax Returns except as required by law or as agreed to by the parties hereto prior to the filing thereof; (vi) withhold from each payment made on or prior to the Closing Date to each employee of such corporation the amount of all taxes required to be withheld therefrom and will pay the same, before becoming delinquent, to the proper tax receiving officers; and A-25 (vii) fully comply with and perform in all material respects all obligations and duties imposed on it by all federal, state, county and local laws and all rules, regulations, and orders imposed by federal, state, county and local governmental authorities. (b) From and after the date of this Agreement and except as provided herein until the Closing Date, Hi, Tiger, Merger Subsidiary, and AvTel will not (and Hi, Tiger will cause TFN not to): (i) make any change in its articles of incorporation, articles of organization, operating agreement or bylaws; (ii) take any action described in Section 2.08 in the case of Hi, Tiger and Merger Subsidiary, or Section 3.08 in the case of AvTel; (iii) enter into or amend any contract, agreement, or other instrument of any of the types described in such party's schedules, except that a party may enter into or amend any contract, agreement, or other instrument in the ordinary course of business; and (iv) enter into any agreement, waiver, or other arrangement providing for an extension of time with respect to payment by, or assessment against, such entity or any of its subsidiaries of any tax due and payable with respect to the period commencing on the date of this Agreement and ending on the Closing Date. Section 4.02 AvTel Stockholder Approval. AvTel shall have obtained approval of the stockholders of AvTel, in accordance with the applicable provisions of the laws of the state of California and all applicable federal and state securities laws of the transactions contemplated by this Agreement. Section 4.03 Information Statement, Meeting of Hi, Tiger Shareholders. As promptly as practicable after the execution of this Agreement, Hi, Tiger shall prepare and file with the SEC, a preliminary information statement including a notice of special meeting of its stockholders and related material (the "Information Statement") relating to the approval of the Shareholder Proposals by the stockholders of Hi, Tiger and, as promptly as practicable following receipt of SEC comments thereon (or, should no SEC comments be forthcoming or the lapse of the period of time during which SEC comments are required to be furnished, promptly following a determination that no comments are forthcoming or the lapse of such period), Hi, Tiger shall file with the SEC and mail to its stockholders of record a definitive Information Statement relating to such matters. The Information Statement shall set a date of record for all shareholders entitled to vote on the Shareholder Proposals and shall include the recommendation of the Board of Directors of Hi, Tiger in favor of such matters. Hi, Tiger shall promptly after the date hereof take all action necessary in accordance with the Utah Revised Business Corporation Act and its Articles of Incorporation and Bylaws to convene the Hi, Tiger Stockholders Meeting on or prior to October 31, 1996 or as soon thereafter as is practicable. Hi, Tiger shall consult with AvTel with respect to the status of the preliminary Information Statement, any comments with respect thereto that may be received from the SEC (and provide copies of such comments and its response thereto to AvTel) in connection with its review thereof, and shall not postpone or adjourn (other than for the absence of a quorum) the same without the consent of AvTel and shall use its best efforts, at its expense, and shall take all other action necessary or advisable to secure the vote or consent of stockholders required to effect the Shareholder Proposals. A-26 Section 4.04 Additional Financial Information. To the extent required, Hi, Tiger and AvTel shall utilize their best efforts and cooperate to provide the information necessary to present the pro forma consolidated and consolidating financial statements and pro forma consolidated and consolidating summary information, including a pro forma consolidated and consolidating balance sheet, pro forma consolidated and consolidating income statements, pro forma summaries of earnings (with aggregate and per-share earnings), and pro forma (combined basis) earnings data for all periods required to be presented and in the form and manner required for use in the Form 8-K and/or Information Statement or any other document required to be filed with the SEC or state securities agency, requiring the presentation of Hi, Tiger financial statements under generally accepted accounting principles. Section 4.05 Access to Properties and Records. AvTel and each of Hi, Tiger and the HTI Subsidiaries will afford to the officers and authorized representatives of the other full access to the properties, books, and records of AvTel and each of Hi, Tiger and the HTI Subsidiaries as the case may be in order that the other may have full opportunity to make such reasonable investigation as it shall desire to make of the affairs of the other and will furnish the other with such additional financial and operating data and other information as to the business and properties of as from time to time be reasonably requested. Section 4.06 Transactions With Affiliates. AvTel shall provide to Hi, Tiger, for possible inclusion in SEC fillings, a description of every material contract, agreement, or arrangement between AvTel and any person who is or has ever been an officer of director of AvTel or person owning of record, or known by AvTel to own beneficially, 5% or more of the issued and outstanding AvTel Common Stock and which is to be performed in whole or in part after the date hereof or was entered into within three years before the date hereof. AvTel represents and warrants that, in all of such circumstances, the contract, agreement, or arrangement was for a bona fide business purpose of AvTel and the amount paid or received, whether in cash, in services, or in kind, is, has been during the full term thereof, and is required to be during the unexpired portion of the term thereof, no less favorable to AvTel than terms available from otherwise unrelated parties in arm's-length transactions. Except as disclosed in such description, no officer or director of AvTel, or 10% shareholder of AvTel has, or has had during the preceding three years, any interest, directly or indirectly, in any material transaction with AvTel. The description shall also include a description of any commitment by AvTel, whether written or oral, to lend any funds to, borrow any money from, or enter into any other material transaction with, any such affiliated person. Section 4.07 Indemnification by AvTel. AvTel will indemnify and hold harmless Hi, Tiger and its directors and officers, and each person, if any, who controls Hi, Tiger within the meaning of the Securities Act, from and against any and all losses, claims, damages, expenses, liabilities, or actions to which any of them may become subject under applicable law (including the Securities Act and the Exchange Act) and will reimburse them for any legal or other expenses reasonably incurred by them in connection with investigating or defending any claims or actions, whether or not resulting in liability, insofar as such losses, claims, damages, expenses, liabilities, or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any application or statement filed with a governmental body or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein, or necessary in order to make the statements therein not misleading, but only insofar as any such statement or omission was made in reliance upon and in conformity with information furnished in writing by AvTel expressly for A-27 use therein. AvTel agrees at any time upon the request of Hi, Tiger to furnish to them a written letter or statement confirming the accuracy of the information with respect to AvTel contained in any report or other application or statement referred to in this Article IV, or in any draft of any such documents, and confirming that the information with respect to AvTel contained in such document or draft was furnished by AvTel, indicating the inaccuracies or omissions contained in such document or draft or indicating the information not furnished by AvTel expressly for use therein. The indemnity agreement contained in this Section 4.07 shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of Hi, Tiger and shall survive the consummation of the transactions contemplated by this Agreement Section 4.08 Indemnification by Hi, Tiger. Hi, Tiger will indemnify and hold harmless AvTel, its directors and officers, and each person, if any, who controls AvTel within the meaning of the Securities Act, from and against any and all losses, claims, damages, expenses, liabilities, or actions to which any of them may become subject under applicable law (including the Securities Act and the Exchange Act) and will reimburse them for any legal or other expenses reasonably incurred by them in connection with investigating or defending any claims or actions, whether or not resulting in liability, insofar as such losses, claims, damages, expenses, liabilities, or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any application or statement filed with a governmental body or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein, or necessary in order to make the statements therein not misleading, but only insofar as any such statement or omission was made in reliance upon and in conformity with information furnished in writing by Hi, Tiger expressly for use therein. Hi, Tiger agrees at any time upon the request of AvTel to furnish to it a written letter or statement confirming the accuracy of the information with respect to Hi, Tiger and its subsidiaries contained in any information statement, report, or other application or statement referred to in this Article IV, or in any draft of any such document, and confirming that the information with respect to Hi, Tiger contained in such document or draft was furnished by Hi, Tiger, indicating the inaccuracies or omissions contained in such document or draft or indicating the information not furnished by Hi, Tiger expressly for use therein. The indemnity agreement contained in this Section 4.07 shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of AvTel and shall survive the consummation of the transactions contemplated by this Agreement. Section 4.09 The Acquisition of Hi, Tiger Exchanged Stock. The consummation of this Agreement and the Merger contemplated herein, including the issuance of the Hi, Tiger Exchanged Common and Preferred Stock to the AvTel stockholders in exchange for all of the issued and outstanding AvTel Common and Preferred Stock as contemplated hereby, constitutes the offer and sale of securities under the Securities Act and applicable state statutes. Such transactions shall be consummated in reliance on exemptions from the registration and prospectus delivery requirements of such statutes which depend, among other items, on the circumstances under which such securities are acquired. (a) In order to provide documentation for reliance upon exemptions from the registration and prospectus delivery requirements for such transactions, the approval by AvTel's stockholders and by Hi, Tiger's board of directors of this Agreement and the transactions contemplated hereby and/or the delivery of appropriate separate representations shall constitute the parties' acceptance of, and concurrence in, the following representations and A-28 warranties: (i) AvTel stockholders acknowledge that neither the SEC nor the securities commission of any state or other federal agency has made any determination as to the merits of acquiring the Hi, Tiger Common or Preferred Exchanged Stock, and that this transaction involves certain risks. (ii) AvTel stockholders have such knowledge and experience in business and financial matters that they are capable of evaluating Hi, Tiger and AvTel and their business operations as the case may be. (iii) All information which AvTel stockholders have provided to Hi, Tiger or its agents or representatives concerning their suitability and intent to hold shares in Hi, Tiger following the transactions contemplated hereby is complete, accurate, and correct in all material respects. (iv) Except as provided in the AvTel Disclosure Schedules, AvTel stockholders have not offered or sold any securities of AvTel or interest in this Agreement and have no present intention of dividing the Hi, Tiger Common or Preferred Exchanged Stock to be received or the rights under this Agreement with others or of reselling or otherwise disposing of any portion of such stock or rights, either currently or after the passage of a fixed or determinable period of time or on the occurrence or nonoccurrence of any predetermined event or circumstance. (v) AvTel stockholders understand that the Hi, Tiger Common or Preferred Exchanged Stock has not been registered, but is being acquired by reason of a specific exemption under the Securities Act as well as under certain state statutes for transactions by an issuer not involving any public offering and that any disposition of the subject Hi, Tiger Common or Preferred Exchanged Stock may, under certain circumstances, be inconsistent with this exemption and may make the undersigned an "underwriter" within the meaning of the Securities Act. It is understood that the definition of "underwriter" focuses upon the concept of "distribution" and that any subsequent disposition of the subject Hi, Tiger Common or Preferred Exchanged Stock can only be effected in transactions which are not considered distributions. Generally, the term "distribution" is considered synonymous with "public offering" or any other offer or sale involving general solicitation or general advertising. Under present law, in determining whether a distribution occurs when securities are sold into the public market, under certain circumstances one must consider the availability of public information regarding the issuer, a holding period for the securities sufficient to assure that the persons desiring to sell the securities without registration first bear the economic risk of their investment, and a limitation on the number of securities which the stockholder is permitted to sell and on the manner of sale, thereby reducing the potential impact of the sale on the trading markets. These criteria are set forth specifically in rule 144 promulgated under the Securities Act, which allows sales of securities in reliance upon rule 144 only in limited amounts in accordance with the terms and conditions of that rule, after two years after the date the Hi, Tiger Common or Preferred Exchanged Stock is acquired from Hi, Tiger or an affiliate of Hi, Tiger and the Hi, Tiger Common or Preferred Exchange Stock is fully paid for, as calculated in accordance with rule 144(d). After three years from the date the securities acquired from Hi, Tiger or an affiliate of Hi, Tiger and are fully paid for, as calculated in accordance with rule 144(d), they can generally be sold without meeting those conditions, provided the holder is not (and has not been for the preceding three months) an affiliate of the issuer. A-29 (vi) AvTel stockholders acknowledge that the shares of Hi, Tiger Common or Preferred Exchanged Stock must be held and may not be sold, transferred, or otherwise disposed of for value unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Hi, Tiger is under no obligation to register the Hi, Tiger Common or Preferred Exchanged Stock under the Securities Act, except as may be expressly agreed to by it in writing. If rule 144 is available (and no assurance is given that it will be except as expressly set forth in this Agreement), after two years and prior to three years following the date the shares are fully paid for, only routine sales of such Hi, Tiger Common or Preferred Exchanged Stock in limited amounts can be made in reliance upon Rule 144 in accordance with the terms and conditions of that rule. Hi, Tiger is under no obligation to the parties to make rule 144 available, except as may be expressly agreed to by it in writing in this Agreement, and in the event Rule 144 is not available, compliance with Regulation A or some other disclosure exemption may be required before AvTel stockholders can sell, transfer, or otherwise dispose of such Hi, Tiger Common or Preferred Exchanged Stock without registration under the Securities Act. Hi, Tiger registrar and transfer agent will maintain a stop transfer order against the registration or transfer of the Hi, Tiger Common or Preferred Exchanged Stock, and the certificate representing the Hi, Tiger Common or Preferred Exchanged Stock will bear a legend in substantially the following form so restricting the sale of such securities: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT. (vii) Hi, Tiger may refuse to register further transfers, or resales of the Hi, Tiger Common or Preferred Exchanged Stock in the absence of compliance with rule 144 unless the undersigned furnishes the issuer with a "no-action" or interpretive letter from the SEC or an opinion of counsel reasonably acceptable to Hi, Tiger stating that the transfer is proper. Further, unless such letter or opinion states that the shares of Hi, Tiger Common or Preferred Exchanged Stock are free of any restrictions under the Securities Act, Hi, Tiger may refuse to transfer the Hi, Tiger Common or Preferred Exchanged Stock to any transferee who does not furnish in writing to it the same representations and agree to the same conditions with respect to such Hi, Tiger Common or Preferred Exchanged Stock as set forth herein. Hi, Tiger may also refuse to transfer the Hi, Tiger Common or Preferred Exchanged Stock if any circumstances are present reasonably indicating that the transferee's representations are not accurate. (b) In connection with the transaction contemplated by this Agreement, AvTel and Hi, Tiger shall each file, with the assistance of the other and their respective legal counsel, such notices, applications, reports, or other instruments as may be deemed by them to be necessary or appropriate in an effort to document reliance on such exemptions, including a notice on form D to be filed with the SEC, and the appropriate regulatory authority in the state where AvTel stockholders reside unless an exemption requiring no filing is available in such jurisdiction, all to the extent and in the manner as may be deemed by such parties to be appropriate. (c) In order to more fully document reliance on the exemptions as provided herein, AvTel shall execute and deliver to Hi, Tiger, at or prior to the Closing, such further letters of representation, acknowledgment, A-30 suitability, or the like, as Hi, Tiger and its counsel may reasonably request in connection with reliance on exemptions from registration under such securities laws. (d) Hi, Tiger and AvTel acknowledge that the basis for relying on exemptions from registration or qualifications are factual, depending on the conduct of the various parties, and that no legal opinion or other assurance will be required or given to the effect that the transactions contemplated hereby are in fact exempt from registration or qualification. ARTICLE V CONDITIONS PRECEDENT TO OBLIGATIONS OF AVTEL The obligations of AvTel under this Agreement are subject to the satisfaction, at or before the Closing Date, of the following conditions: Section 5.01 Accuracy of Representations. The representations and warranties made by Hi, Tiger and the HTI Subsidiaries in this Agreement were true when made and shall be true at the Closing Date with the same force and affect as if such representations and warranties were made at and as of the Closing Date (except for changes therein permitted by this Agreement), and each of Hi, Tiger and the HTI Subsidiaries shall have performed or complied with all covenants and conditions required by this Agreement to be performed or complied with by them prior to or at the Closing. AvTel shall be furnished with certificates, signed by duly authorized officers of Hi, Tiger and the HTI Subsidiaries and dated the Closing Date, to the foregoing effect. Section 5.02 Officer's Certificates. AvTel shall have been furnished with certificates dated the Closing Date and signed by the duly authorized chief executive officer and principal accounting and financial officer of Hi, Tiger and each HTI Subsidiary to the effect that no litigation, proceeding, investigation, or inquiry is pending or, to the best knowledge of Hi, Tiger and each HTI Subsidiary, threatened, which might result in an action to enjoin or prevent the consummation of the transactions contemplated by this Agreement. Furthermore, based on certificates of good standing, representations of government agencies and Hi, Tiger's and each HTI Subsidiary's own documents, the certificate shall represent that: (a) This Agreement and the other agreements contemplated hereunder to which each is a party has been duly approved by Hi, Tiger's and each HTI Subsidiary's respective board of directors (or, in the case of TFN, its managers or members and has been duly executed and delivered in the name and on behalf of Hi, Tiger and each HTI Subsidiary by its duly authorized officers pursuant to, and in compliance with, authority granted by the board of directors (or, in the case of TFN, its managers or members) of Hi, Tiger and each HTI Subsidiary pursuant to a unanimous consent; (b) The representations and warranties of Hi, Tiger and each HTI Subsidiary set forth in this Agreement the HTI Disclosure Schedules and each other agreement or document to be executed and delivered pursuant to this Agreement are true and correct as of the date of the certificate; (c) There have been no Material Adverse Changes in the business, operations, properties, assets or financial condition of Hi, Tiger or either of the HTI Subsidiaries up to and including the date of the certificate; and A-31 (d) All conditions required by this Agreement to have been met, satisfied, or performed by Hi, Tiger and each HTI Subsidiary have been met. Section 5.03 No Material Adverse Change. Prior to the Closing Date, there shall not have occurred any material adverse change in the financial condition, business, or operations of Hi, Tiger or either HTI Subsidiary, nor shall any event have occurred which, with the lapse of time or the giving of notice, may cause or create any material adverse change in the financial condition, business, or operations of Hi, Tiger or either HTI Subsidiary. Section 5.04 Good Standings. AvTel shall have received certificates of good standing from the appropriate authorities, dated as of a date within five days prior to the Closing Date, certifying that Hi, Tiger and each HTI Subsidiary are in good standing as corporations in the state of Utah. Section 5.05 Other Items. AvTel shall have received such further documents, certificates, or instruments relating to the transactions contemplated hereby as AvTel may reasonably request. Section 5.06 Opinions of Counsel. At the Closing Date, AvTel shall have received an opinion from Taylor and Associates, Inc., counsel for Hi, Tiger, in substantially the form and content as is set forth in Exhibit A attached to this Agreement. Section 5.07 Other Agreements. AvTel shall have entered into the following agreements, between or among the persons indicated, in such form and on such terms and conditions as are acceptable to AvTel: (a) Shareholder Agreements. Concurrently with the execution of this Agreement, Paul G. Begum and TOSI shall agree with Hi, Tiger and AvTel to a lock-up agreement wherein they will agree not to sell, during the 120 day period following the Closing Date, more than an aggregate of 50,000 shares of Hi, Tiger Common Stock directly or indirectly beneficially owned by Mr. Begum or Tree of Stars, Inc, subject to (i) no more than 12,500 shares being sold in any one transaction; (ii) no more than 12,500 shares being sold during any consecutive 30 day period; and (iii) all sales are made in market transactions in compliance with all federal and state securities laws. In addition, Mr. Begum and TOSI will agree not to sell any additional shares of Hi, Tiger Common Stock owned by them, directly or indirectly, beneficially or of record, during the one year period following the Closing Date, without the consent of the board of directors of Hi, Tiger, which consent will not be unreasonably withheld. Mr. Begum and TOSI will grant to AvTel agree to give a first right of refusal to AvTel (which may be transferred or assigned) to purchase shares of Hi, Tiger Common Stock directly or indirectly beneficially owned by Mr. Begum or Tree of Stars, Inc. [including the 50,000 shares described in this paragraph (a)] during the 24 month period following the Closing Date. (b) Non-Competition, Proprietary Rights and Standstill Agreements. Concurrently with the execution of this Agreement, TOSI, Peter D. Olson, and Paul G. Begum (the "Principal Shareholder") of Hi, Tiger shall agree to certain covenants regarding non-competition with the business of Hi, Tiger, non-disclosure and non-use of certain confidential and proprietary information, and shall provide certain other undertakings to the effect, generally, that they shall not (i) either separately or in combination with others and without the prior written consent of the Board of Directors of Hi, Tiger offer or propose to acquire shares of the outstanding common stock of Hi, Tiger in excess of certain limits, solicit, from other Hi, Tiger shareholders, proxies or written consents to vote on matters upon which such shareholders may be entitled to vote or otherwise seek to change or influence A-32 the management of Hi, Tiger, and (ii) offer to sell, negotiate, or solicit from others, offers to purchase all or substantially all of the business and assets of Hi, Tiger or any Hi, Tiger capital stock held by them. (c) AMH Release. In connection with the issuance of shares of Hi, Tiger Common Stock to AMH Limited or its assignees as anticipated under Section 7.01 hereof, prior to the Closing, AvTel and Hi, Tiger shall have obtained releases and discharges in substantially the form attached as Exhibit B, of any and all claims of AMH Limited or such assignees arising from or in connection with this Agreement, the transactions contemplated herein and any other expressed or implied finders, broker or similar arrangement involving Hi, Tiger, the HTI Subsidiaries and AvTel. (d) Other Releases. Concurrently with the execution of this Agreement, AvTel and Hi, Tiger shall have obtained general releases, from such former offices, directors and the Principal Shareholders (and their respective affiliates) as AvTel shall, in its sole discretion, determine, of any and all claims, liabilities, cost, expenses and the like, absolute or authorized, expressed or implied, against AvTel, Hi, Tiger and the HTI Subsidiaries. (e) Assumption and Rights Agreement. Prior to the Closing, AvTel, Hi, Tiger and each of Antony E. Papa, James P. Pisani and Barry Peters, principal shareholders of AvTel, will enter into the Assumption and Rights Agreement in substantially the form attached as Exhibit C, pursuant to which certain employment agreements and offers of employment between AvTel and each of Messrs. Papa, Pisani and Peters will be assigned to and assumed by Hi, Tiger as of this Effective Date and that Messrs. Papa, Pisani and Peters will be granted certain "piggyback" registration rights with respect to shares of Hi, Tiger Exchanged Common Stock received by each of them in connection with the transactions contemplated by this Agreement. (f) Tree of Stars Agreement. Concurrently with the execution of this Agreement, TOSI will grant to AvTel an exclusive, transferable right of first refusal to acquire from TOSI the 20% interest held by TOSI in TFN (the "TOSI Interest") and Hi, Tiger shall grant to TOSI an option subject to certain terms and conditions to acquire the name "Hi, Tiger". (g) Rights Agreement - Preferred Stock. Prior to the Effective Date, the holder(s) of Series A Preferred Stock and Hi, Tiger shall have entered into the Rights Agreement in substantially the form attached as Exhibit D, that Hi, Tiger will grant to such holder(s) in connection with the issuance of the Hi, Tiger Series A Convertible Preferred Stock certain demand and "piggyback" registration rights with respect to the Hi, Tiger Common Stock issuable upon conversion thereof. (h) Employment/Consulting Agreements. Prior to the Closing, Hi, Tiger or TFN will have entered into such employment and/or consulting agreement with such current employees or consultants of either Hi, Tiger or TFN, as determined by AvTel, under such terms and conditions as are mutually agreeable to AvTel and the employees and/or consultants. (i) [Intentionally Omitted] (j) Voting Agreement Concurrently with the execution and delivery of this Agreement, AvTel, Hi, Tiger and the Principal Shareholders shall execute and deliver a Voting Agreement in substantially the form attached as of Exhibit E. A-33 (k) Lease Amendment. Prior to the Closing, Hi, Tiger shall have entered into an amendment, in such form and such terms and conditions as are acceptable to AvTel, pursuant to which the lease of Hi, Tiger's sales office facility at 350 West 300 South, Salt Lake City, Utah, shall be extended for seven (7) months, commencing on the Closing Date, at a monthly rate of $1,000, subject however, to the lessee's right to terminate at any time, without liability on thirty (30) days notice. (l) Indemnification Agreement. Prior to the Closing, Paul G. Begum shall execute and deliver to AvTel an Indemnification in substantially the form attached hereto as Exhibit F. ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF HI, TIGER AND MERGER SUBSIDIARY The obligations of Hi, Tiger and Merger Subsidiary under this Agreement are subject to the satisfaction, at or before the Closing Date, of the following conditions: Section 6.01 Accuracy of Representations. The representations and warranties made by AvTel in this Agreement were true when made and shall be true at the Closing Date with the same force and affect as if such representations and warranties were made at and as of the Closing Date (except for changes therein permitted by this Agreement), and AvTel shall have performed or complied with all covenants and conditions required by this Agreement to be performed or complied with by AvTel prior to or at the Closing. Hi, Tiger shall be furnished with a certificate, signed by a duly authorized officer of AvTel and dated the Closing Date, to the foregoing effect. Section 6.02 Officer's Certificates. Hi, Tiger shall have been furnished with certificates dated the Closing Date and signed by a duly authorized chief executive officer and principal accounting and financial officer of AvTel to the effect that no litigation, proceeding, investigation, or inquiry is pending or, to the best knowledge of AvTel, threatened, which might result in an action to enjoin or prevent the consummation of the transactions contemplated by this Agreement. Furthermore, based on certificates of good standing, representations of government agencies, and AvTel's own documents, the certificate shall represent that: (a) This Agreement has been duly approved by AvTel's board of directors and has been duly executed and delivered in the name and on behalf of AvTel by its duly authorized officers pursuant to, and in compliance with, authority granted by the board of directors of AvTel pursuant to a unanimous consent and a majority written consent of its shareholders; (b) The representations and warranties of AvTel set forth in this Agreement are true and correct as of the date of the certificate; (c) Except as provided or permitted herein, there have been no Material Adverse Changes in AvTel up to and including the date of the certificate; (d) All conditions required by this Agreement to have, unless waived, been met, satisfied, or performed. A-34 Section 6.03 No Material Adverse Change. Except as provided or permitted herein, prior to the Closing Date, there shall not have occurred any Material Adverse Change in the financial condition, business, or operations of AvTel, nor shall any event have occurred which, with the lapse of time or the giving of notice, may cause or create any Material Adverse Change in the financial condition, business, or operations of AvTel. Section 6.04 Good Standing. Hi, Tiger shall have received a certificate of good standing from the appropriate authority, dated as of a date within five days prior to the Closing Date, certifying that AvTel is in good standing as a corporation in the state of California. Section 6.05 Stockholder Approval. The stockholders of AvTel shall have approved this Agreement and the transaction contemplated in the manner required by AvTel's articles of incorporation and bylaws and the California Corporations Code. Section 6.06 Other Items. Hi, Tiger shall have received such further documents, certificates, or instruments relating to the transactions contemplated hereby as Hi, Tiger may reasonably request. ARTICLE VII MISCELLANEOUS Section 7.01 Brokers. In connection with the proposed transaction, Hi, Tiger and AvTel agree that 200,000 restricted shares of Hi, Tiger Common Stock will be issued to AMH Limited (or if AMH elects to assign such shares, to its assignees) as a finder's fee, subject however to Section 5.07(f) hereof. Except as otherwise provided in this Section 7.01, Hi, Tiger and AvTel agree that there were other finders or brokers involved in bringing the parties together or who were instrumental in the negotiation, execution, or consummation of this Agreement. Further, Hi, Tiger and AvTel each agree to indemnify the other against any claim by any third person for any commission, brokerage, or finder's fee or other payment with respect to this Agreement or the transactions contemplated hereby based on any alleged agreement or understanding between such party and such third person, whether express or implied, from the actions of such party. The covenants set forth in this section shall survive the Closing Date and the consummation of the transactions herein contemplated. Section 7.02 No Representation Regarding Tax Treatment. No representation or warranty is being made by any party to any other regarding the treatment of this transaction for federal or state income taxation. Although this transaction has been structured in part in an effort to qualify for treatment under section 368(a)(1)(A) and section 368(a)(2)(D) of the Code, there is no assurance that any part of this transaction in fact meets the requirements for such qualification. Each party has relied exclusively on its own legal, accounting, and other tax adviser regarding the treatment of this transaction for federal and state income taxes and on no representation, warranty, or assurance from any other party or such other party's legal, accounting, or other adviser. Section 7.03 Governing Law. This Agreement shall be governed by, enforced and construed under and in accordance with the laws of the United States of America and, with respect to matters of state law, with the laws of the state of Utah. A-35 Section 7.06 Notices. All notices, demands, requests, or other communications required or authorized hereunder shall be deemed given sufficiently if in writing and if personally delivered; if sent by facsimile transmission, confirmed with a written copy thereof sent by overnight express delivery; if sent by registered mail or certified mail, return receipt requested and postage prepaid; or if sent by overnight express delivery: If to Hi, Tiger, to: HI, TIGER INTERNATIONAL, INC. Attn.: Paul G. Begum 350 West 300 South Salt Lake City, Utah 84101 Telecopy No.: (801) 332-1230 With a copy to: Elliott N. Taylor, Esq. TAYLOR AND ASSOCIATES 3090 East 3300 South, Suite 400 Salt Lake City, Utah 84109 Telecopy No.: (801) 463-6085 If to AvTel, to: AVTEL COMMUNICATIONS, INC.. Attn.: James P. Pisani 6 Harbor Way, Suite 217 Santa Barbara, California 93109 Telecopy No.: (800) 270-0189 With a copy to: Raymond P. Le Blanc, Esq. PRICE, POSTEL & PARMA 200 East Carrillo Street Santa Barbara, California 93102-0099 Telecopy No.: (805) 965-3978 or such other addresses and facsimile numbers as shall be furnished by any party in the manner for giving notices hereunder, and any such notice, demand, request, or other communication shall be deemed to have been given as of the date so delivered or sent by facsimile transmission, three days after the date so mailed, or one day after the date so sent by overnight delivery. Section 7.07 Attorneys' Fees. In the event that any party institutes any action or suit to enforce this Agreement or to secure relief from any default hereunder or breach hereof, the breaching party or parties shall reimburse the non-breaching party or parties for all costs, including reasonable attorneys' fees, incurred in connection therewith and in enforcing or collecting any judgment rendered therein. Section 7.08 Schedules; Knowledge. Whenever in any section of this Agreement reference is made to information set forth in the Disclosure Schedules provided by Hi, Tiger, Merger Subsidiary, or AvTel, such reference is to information specifically set forth in such schedules and clearly marked to identify the section of this Agreement to which the information relates. Whenever any representation is made to the "knowledge" of any party, it shall be deemed to be a representation that no officer or director of such party, after reasonable investigation, has any knowledge of such matters. Section 7.09 Third-Party Beneficiaries. This contract is solely between Hi, Tiger, Merger Subsidiary, and AvTel, and, except as specifically provided, no director, officer, stockholder, employee, agent, independent contractor, or any other person or entity shall be deemed to be a third party beneficiary of this Agreement. A-36 Section 7.10 Entire Agreement. This Agreement represents the entire agreement among the parties relating to the subject matter hereof. All previous agreements between the parties, whether written or oral, have been merged into this Agreement. This Agreement alone fully and completely expresses the agreement of the parties relating to the subject matter hereof. There are no other courses of dealing, understandings, agreements, representations, or warranties, written or oral, except as set forth herein. Section 7.11 Survival. The representations, warranties, and covenants of the respective parties shall survive the Closing Date and the consummation of the transactions herein contemplated. Section 7.12 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall be but a single instrument. Section 7.13 Remedies Cumulative; Amendment or Waiver. Every right and remedy provided herein shall be cumulative with every other right and remedy, whether conferred herein, at law, or in equity, and such remedies may be enforced concurrently, and no waiver by any party of the performance of any obligation by the other shall be construed as a waiver of the same or any other default then, theretofore, or thereafter occurring or existing. At any time prior to the Closing Date, this Agreement may be amended by a writing signed by all parties hereto, with respect to any of the terms contained herein, and any term or condition of this Agreement may be waived or the time for performance thereof may be extended by a writing signed by the party or parties for whose benefit the provision is intended. Section 7.14 Post-Effective Date Covenants of Hi, Tiger. Subject to and conditioned upon approval by its Board of Directors and by it shareholders (at the first annual meeting of shareholders of Hi, Tiger to be held following the Effective Date) of the adoption of a stock option plan for the employees, directors and consultants of Hi, Tiger (the "Option Plan"), Hi, Tiger covenants and agrees that it will undertake all reasonable efforts to prepare and file with the SEC and have declared effective a registration statement on form S-8 with respect to the Option Plan and the stock options heretofore granted by Hi, Tiger as set forth in the Hi, Tiger Disclosure Schedule. IN WITNESS WHEREOF, the corporate parties hereto have caused this Agreement to be executed by their respective officers, hereunto duly authorized, as of the date first above written. HI, TIGER INTERNATIONAL, INC. A Utah Corporation /S/Paul G. Begum Its Duly Authorized Officer AVTEL COMMUNICATIONS, INC. A California Corporation /S/ Anthony E. Papa Its Duly Authorized Officer AVTEL COMMUNICATIONS, INC. A Utah corporation /S/Paul G. Begum Its Duly Authorized Officer A-37 Exhibit "A" TAYLOR & ASSOCIATES 3090 East 3300 South, Suite 400 Salt Lake City, Utah 84109 Phone No. 801\463-6080 Fax No. 801\463-6085 September __, 1996 AvTel Communications, Inc. 130 Cremona Drive Goleta, CA 93117 Attention: Anthony E. Papa President & Chief Executive Officer Gentlemen: We have acted as counsel for Hi, Tiger International, Inc., a Utah corporation ("Hi, Tiger"), AvTel Communications, Inc., a Utah corporation and wholly owned subsidiary of Hi, Tiger ("Merger Sub") Hi, Tiger, Inc., a Utah corporation and wholly owned subsidiary of Hi, Tiger ("HTI") and The Friendly Net, LLC, a Utah limited liability company ("TFN") (Merger Sub, HTI and TFN being sometimes collectively referred to as the "HTI Subsidiaries")in connection with the merger (the "Merger") of Merger Sub with and into AvTel Communications, Inc., a California corporation ("AvTel") pursuant to an Acquisition Agreement dated August __, 1996 (the "Acquisition Agreement") by and among Hi, Tiger, Merger Sub and AvTel. We have reviewed the Acquisition Agreement, the Certificate/Articles of Merger of AvTel Communications, Inc., a Utah corporation, with and into AvTel Communications, Inc., a California corporation, dated ____________, 1996 signed by AvTel and Merger Sub (the "Certificate of Merger"), the agreements ("Ancillary Agreements"), listed in Schedule A attached, (which, together with the Acquisition Agreement are sometimes collectively referred to herein as the "Acquisition Documents") and the combined form of Hi, Tiger's Notice of Special Meeting of Shareholders and Information Statement dated September ___, 1996, together with the exhibits attached thereto, including the Amended and Restated Articles of Incorporation of Hi, Tiger (the "Restated Articles") and the Amended and Restated Bylaws of Hi, Tiger (the "Restated Bylaws") (hereinafter collectively referred to as the "Information Statement"). Capitalized terms not otherwise defined herein shall have the same meanings as those set forth in the Acquisition Agreement. [A statement regarding the documents, representations, warranties and certificates as to factual matters upon which the opinion giver is relying] We call your attention to the fact that we have not represented Hi, Tiger, HTI or TFN on a regular basis. Therefore, matters may exist of a legal nature relating to these entities about which we have not been consulted. Based upon the foregoing, we are of the opinion that: 1. Hi, Tiger, Merger Sub and HTI are corporations duly incorporated, validly existing and in good standing under the laws of the State of Utah, and each has all requisite corporate power and authority to own, lease and operate its properties and assets and to conduct its business as now being conducted. Each of Hi, Tiger, Merger Sub and HTI is duly qualified to do business and in A-38 good standing in each jurisdiction in which the nature of its business or character of its properties makes such qualification necessary, and the failure to be so qualified would have a material adverse affect upon any of them or their respective businesses, properties or assets. 2. Before giving effect to the transactions contemplated by the Merger, Hi, Tiger's authorized capital consists of ______ shares of Common Stock $.001 par value, ("Hi, Tiger Common Stock") of which ___________ shares are issued and outstanding. All of the outstanding shares of Hi, Tiger Common Stock are duly authorized, validly issued, fully paid and nonassessable. The Hi, Tiger Common Stock is not subject to preemptive rights or other rights to subscribe for additional shares of Hi, Tiger Common Stock, and no preemptive or similar rights will arise as a result of the transactions contemplated by the Agreement. To the best of our knowledge, except for the Voting Agreement which is one of the Ancillary Agreements, there are no voting trusts, voting agreements, irrevocable proxies or other agreements in effect relating to any shares of Hi, Tiger Common Stock to which Hi, Tiger or any of the Principal Shareholders is a party. 3. Other than as disclosed in the Acquisition Agreement and the Hi, Tiger Disclosure Schedule attached thereto, Hi, Tiger does not have outstanding any option, warrant or other right obligating it to issue, or permitting others to purchase or convert any obligation into, Hi, Tiger Common Stock or any other securities of Hi, Tiger. 4. TFN is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Utah and has all requisite power and authority to own, lease and operate its properties and assets and to conduct its business as now being conducted. TFN is duly qualified to do business and in good standing in each jurisdiction in which the nature of its business or character of its properties makes such qualification necessary, and in which the failure to be so qualified would have a material adverse affect upon TFN or its business, property or assets. 5. HTI has authorized capital consisting of ___________ shares of capital stock, $_____ par value ("HTI Stock") of which ____________ shares are issued and outstanding and owned beneficially and of record by Hi, Tiger. All of the outstanding shares of HTI Stock are duly authorized, validly issued, fully paid and nonassessable. To the best of our knowledge, there are no voting trusts, voting agreements, irrevocable proxies or other agreements in effect relating to any shares of HTI Stock. Hi, Tiger has good and marketable title to all of the outstanding HTI Stock, free and clear of any mortgage, pledge, lien, charge or encumbrance or other rights of third parties. HTI does not have outstanding any option, warrant or other right obligating it to issue, or permitting or requiring it or others to purchase or convert any obligation into, securities of HTI. 6. Merger Sub has authorized capital consisting of ___________ shares of capital stock, $_____ par value ("Sub Stock") of which ____________ shares are issued and outstanding and owned beneficially and of record by Hi, Tiger. All of the outstanding shares of Sub Stock are duly authorized, validly issued, fully paid and nonassessable. To the best of our knowledge, there are no voting trusts, voting agreements, irrevocable proxies or other agreements in effect relating to any shares of Sub Stock. Hi, Tiger has good and marketable title to all of the outstanding Sub Stock, free and clear of any mortgage, pledge, lien, charge or encumbrance or other rights of third parties. Merger Sub does not have outstanding any option, warrant or other right obligating it to issue, or permitting or requiring it or others to purchase or convert any obligation into, securities of Merger Sub. A-39 7. [To be added - Opinion re capital structure of TFN] 8. Other than as disclosed in the Acquisition Agreement and the Hi, Tiger Disclosure Schedule, to the best of our knowledge, there is no pending or threatened legal, administrative, arbitration or governmental proceeding to which Hi, Tiger or the HTI Subsidiaries or any officer, director of employee of either Hi, Tiger of the HTI Subsidiaries, in his or her capacity as such, is a party, or any investigation of which Hi, Tiger or the HTI Subsidiaries or any officer, director or employee of either Hi, Tiger or the HTI Subsidiaries, in his or her capacity as such, is the subject, which either individually or in the aggregate would have any material adverse effect on the financial condition, business or results of operations of Hi, Tiger or the HTI Subsidiaries. 9. To the best of our knowledge, neither Hi, Tiger nor any of the HTI Subsidiaries is in violation of or default under any term or provision of their respective Articles of Incorporation or Bylaws or, as to TFN, under its Articles of Organization or Operating Agreement. 10. The execution and delivery by Hi, Tiger and Merger Sub of the Acquisition Agreement and the Certificate of Merger and the consummation by Hi, Tiger and Merger Sub of the transactions contemplated thereby and by those Ancillary Agreements to which they are parties or by which they are bound have been duly approved by their respective Boards of Directors and, in the case of Merger Sub, by Hi, Tiger, its sole shareholder, and no other corporate approval or authorization is required for the execution and delivery, by Hi, Tiger or Merger Sub, of the Acquisition Agreement and such Ancillary Agreements. The Certificate of Merger and the Ancillary Agreements to which Hi, Tiger or Merger Sub are parties or by which they are bound have been duly authorized, executed and delivered on behalf of Hi, Tiger and Merger Sub and constitute valid, binding and enforceable agreements in accordance with their terms. Hi, Tiger and Merger Sub each have full corporate power and lawful authority to consummate the transactions contemplated by the Acquisition Agreement, the Certificate of Merger and the Ancillary Agreements to which Hi, Tiger or Merger Sub are parties or by which they are bound on the terms and conditions set forth therein, and no permit, consent, approval, authorization or other order of or filing with any governmental authority is required in connection with such authorization, execution, delivery and consummation. 11. The execution and delivery by TFN and the Principal Shareholders of the Ancillary Agreements to which they are parties or by which they are bound and the consummation of the transactions contemplated thereby have been duly authorized by all requisite corporate or other action and constitute valid, binding and enforceable agreements in accordance with their terms, and no permit, consent, approval, authorization or other order of or filing with any governmental authority is required in connection with such authorization, execution, delivery and consummation other than as disclosed in the Acquisition Agreement and the Hi, Tiger Disclosure Schedule. 12. The execution, delivery and performance by Hi, Tiger and Merger Sub of the Acquisition Agreement and of the Ancillary Agreements to which they are parties or by which they are bound will not (i) violate any provision of their respective Articles of Incorporation or Bylaws or (ii) violate any statute, rule or regulation, or, to the best of our knowledge, order or writ applicable to Hi, Tiger or Merger Sub. A-40 13. To the best of our knowledge, neither Hi, Tiger, the HTI Subsidiaries, TFN nor any Principal Shareholder is subject to any order, decree or injunction of a court or agency of competent jurisdiction which prevents or delays the consummation of the transactions contemplated by the Acquisition Agreement. 14. In the Merger, the issued and outstanding AvTel Common and Preferred Stock may and will be validly converted into and exchanged for the Hi, Tiger Exchanged Common and Preferred Stock, respectively, as provided in the Acquisition Agreement and the shares of Hi, Tiger Exchanged Common and Preferred Stock so issued will be duly authorized, validly issued, fully paid and unassessable and, upon the filing of the Certificate of Merger with the Utah Secretary of State, the merger will be duly and validly effected under the Utah Revised Business Corporation Act. 15. The issuance by Hi, Tiger of Hi, Tiger Exchanged Common and Preferred Stock in accordance with the Acquisition Agreement and in exchange for the AvTel Common and Preferred Stock, respectively, complies with all applicable securities statutes and regulations of any federal or state agency. 16. The execution and filing with the Secretary of State of Utah of the Restated Articles and the execution and delivery of the Restated Bylaws have been duly approved by the Board of Directors and shareholders of Hi, Tiger. In addition, we have participated in the preparation of the Information Statement referred to in Section ____ of the Acquisition Agreement, and, although we have not independently verified the accuracy and completeness of the information contained therein, no facts have come to our attention which would lead us to believe that the proxy statement, or any amendments or supplements thereto (except as to financial statements and other financial data contained therein as to which we express no opinion), contains any untrue statement of a material fact or omits to state a fact necessary to make the statements therein not materially misleading in light of the circumstances under which they were made. For purposes of furnishing opinion number 14 above, we have assumed with your consent that the Acquisition Agreement, the Certificate of Merger and the Ancillary Agreements to which AvTel is a party or by which it is bound have each been duly executed by the officers of Hi, Tiger purporting to execute such instruments and that the Certificate of Merger will have been filed with the Secretary of State of the State of Utah and that, for purposes of Utah law, the Merger will become effective upon the due and proper filing of the appropriate instruments in Utah. The foregoing opinions are subject to the following qualifications: (i) the enforceability of any of the Acquisition Documents is limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and similar laws of general application affecting the rights and remedies of creditors and by principles of equity (whether such enforcement is sought in an action at law or equity); and (ii) the availability of the remedy of specific performance or injunctive relief, or any other equitable remedy, is subject to the discretion of the court before which any proceeding therefor may be brought. Very truly yours, TAYLOR & ASSOCIATES Elliott Taylor A-41 SCHEDULE A ANCILLARY AGREEMENTS Non-Competition, Proprietary Rights and Standstill Agreement Shareholder/Grantor Agreement AMH Release and Waiver of Claims Agreement (AMH Limited) Release and Waiver of Claims Agreement (Begum, et al) Assumption and Rights Agreement First Refusal Agreement (Tree of Stars) Rights Agreement - Holders of Series A convertible Preferred Stock Affiliate Agreement Voting Agreement A-42 Exhibit "B" RELEASE AND WAIVER OF CLAIMS AGREEMENT (AMH LIMITED) This RELEASE AND WAIVER OF CLAIMS AGREEMENT("Agreement") is made as of _____________, 1996, by and among AvTel Communications, Inc., a California corporation ("AvTel"), Hi, Tiger International, Inc., a Utah corporation (the "Company"), and each of the Persons listed in Schedule A attached ("Assignees"). RECITALS A. The Company and AvTel have entered into that certain Acquisition Agreement, dated August 30, 1996 (the "Acquisition Agreement"); B. The Company and AMH are parties to certain oral agreements and understandings ("AMH Agreement") pursuant to which AMH agreed to provide certain advisory, broker, commission, agent or finder's services on behalf of Hi, Tiger or one or more of its Affiliates in connection with the transactions contemplated by the Acquisition Agreement in consideration of the Company's issuance to AMH of 200,000 shares (the "Shares") of the authorized but unissued common stock of the Company; C. The Assignees are principals, shareholders, affiliates, agents, partners, representatives or otherwise associated with AMH; D. Pursuant to that certain letter agreement dated as of _________, 1996, AMH and the Company have agreed that AMH may assign, transfer and convey all of its right, title and interest in the Shares to the Assignees in the amount reflected in Schedule A attached hereto; provided, however, that the Company and the Assignees enter this Agreement on or before the Closing Date of the Acquisition Agreement; and D. As a material inducement for AvTel and the Company entering into the Acquisition Agreement, the Assignees, have agreed to enter into and execute this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the parties hereto agree as follows: AGREEMENT 1. Consideration. 1.1 Issuance of Shares. Subject to the terms and conditions hereof, Hi, Tiger will, as promptly as practicable following the Effective Date (as defined in the Acquisition Agreement), deliver or cause to be delivered to the Assignees stock certificates, in the amounts and registered in the name of each Assignee listed in Schedule A, as a full, complete and final payment, satisfaction and discharge of any and all contracts, agreements, arrangements, plans, debts, obligations or liabilities, whether written or oral, expressed or implied, with or involving AvTel or Hi, Tiger or any of their Affiliates in connection with, arising from or relating, in any manner whatsoever, to: (a) the Acquisition Agreement, the transactions contemplated therein and any other agreement, representation, warranty, covenant, understanding, obligation, covenant or contract, expressed or implied, written or oral, relating in any manner whatsoever to the Acquisition Agreement, the other agreements to be executed and transactions to be consummated in connection with the Acquisition Agreement (the "Acquisition Transactions") and (b) the AMH Agreement and all other sales, distribution, marketing, advertising, promotion, commission, representation, broker, finder or other similar agreements, obligations, A-43 duties and liabilities of whatsoever nature due or to become due to AMH from the Released Parties (as defined herein) (collectively, the "Broker Agreements"). 1.2 AMH Receipt. Assignees hereby severally acknowledge receipt of all payments of whatsoever nature due AMH or Assignees (with respect to any obligation or duty owed to them in their capacity as partners, shareholders, agents, representatives, officers or directors of AMH or otherwise in their individual capacities) through the date hereof relating to or arising from the Acquisition Transactions and the Broker Agreements, including, but not limited to brokers', finders', advisory or other fees, payments, commissions or other forms of compensation or remuneration. 1.3 Certain Definitions. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Acquisition Agreement. As used herein, the term "Affiliates" shall mean as to any specified Person any other Person who controls, is controlled by or is under common control with such Person. As used herein, the term "controls" means the power to direct the management policies of such Person, whether through the ownership of voting securities, by contract and otherwise; and the terms "controlling", "controlled" have meanings correlative to the foregoing. For purposes hereof, an officer or director, shareholder or agent of AMH shall be deemed to be an Affiliate. 1.4 Registration Rights. Within forty-five (45) days following the Effective Date, the Company and Assignees shall enter into a Rights Agreement pursuant to which Assignees will be granted certain "piggyback" registration rights which will be on terms and conditions substantially similar to those set forth in the Rights Agreement between the Company and the holders of the Company's Series A Convertible Preferred Stock, a copy of which has been furnished to AMH. 2. Release. Each Assignee on behalf of itself and each of its Affiliates (herein "Releasors") hereby releases and forever discharges AvTel and Hi, Tiger and each of their respective present or former Affiliates, officers, directors, trustees, controlling persons, employees and agents and also each of their respective successors, assigns, subsidiaries, affiliates, divisions, partners and shareholders ("Released Parties") from each and every right, claim, debt, demand, loss, action, cause of action, damage, penalty, suit and proceedings of every kind (including without limitation any claims for attorneys' fees and other costs and expenses related thereto), at law or in equity, whether known or unknown (collectively, "Claims"), of, from and against any and all other payments or performance obligations, duties or liabilities of whatsoever nature (including, but not limited to, brokers', finders', advisory or other fees, payments, commissions or other forms of remuneration or compensation) which such Releasors ever had, now have or may in the future have relating to the Acquisition Transactions and the Broker Transactions. Each Releasor hereby further agrees and acknowledges that the release granted by the immediately preceding paragraph extends to all rights granted such Releasor under any state or federal law or regulation limiting the effect of such release, including, without limitation, the provisions of Section 1542 of the California Civil Code, WHICH ARE HEREBY EXPRESSLY WAIVED. Said Section 1542 of the California Civil Code reads as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. A-44 Thus, notwithstanding the provisions of Section 1542, and for the purpose of implementing a full and complete release and discharge of all claims, each Releasor expressly acknowledges that the release of Claims provided by such Releasor pursuant to this Section 2 is intended to include in its effect, without limitation, all claims which such Releasor does not know or suspect to exist in its favor at the time of execution hereof, and that such release contemplates the extinguishment of any such Claims. 3. Termination of Broker Transactions. Releasors acknowledge and agree that the Broker Transactions are terminated and canceled as of the date hereof and from and after the date hereof shall be of no force or effect. 4. Indemnification. Notwithstanding the provisions of this Agreement, in the event that any officer, director, shareholder, employee or Affiliate of an Assignee alleges, threatens or commences any claim for payment, performance, compensation, remuneration, damages, losses, expenses or other liability or obligation against any Released Parties ("Indemnified Parties") in connection with or relating to, in any manner whatsoever, the matters released hereby, Assignee will indemnify, defend and save such indemnified party from and against any and all such claims, losses, expenses and costs, including attorneys' fees. 5. Representations. As a material inducement to the execution of this Agreement by AvTel and Hi, Tiger, Assignee hereby represents and warrants to each of them that (a) there are no losses, claims, damages or liabilities pending or, to Assignee's knowledge, threatened against Assignee which would be reasonably likely to constitute a claim against any Released Parties and (b) to Assignee's actual knowledge, there is no basis for the assertion, by any other party, of any losses, claims, damages or liabilities which would be reasonably likely to constitute a claim against any Released Party. 6. Compliance with Securities Laws. The issuance of the Shares as contemplated hereby constitutes the offer and sale of securities under the Securities Act of 1933, as amended (the "Securities Act") and applicable state statutes. Such transactions shall be consummated in reliance on exemptions from the registration and prospectus delivery requirements of such statutes which depend, among other items, on the circumstances under which such securities are acquired. (a) In order to provide documentation for reliance upon exemptions from the registration and prospectus delivery requirements for the issuance of the Shares in connection with the transactions contemplated hereby, the parties agree as follows: (i) Each Assignee acknowledges that neither the Securities and Exchange Commission ("SEC") nor the securities commission of any state or other federal agency has made any determination as to the merits of acquiring the Shares, and that this transaction involves certain risks. (ii) Each Assignee has such knowledge and experience in business and financial matters that it is capable of evaluating Hi, Tiger and AvTel and their business operations as the case may be. (iii) All information which each Assignee has provided to Hi, Tiger or its agents or representatives concerning their suitability and intent to hold the Shares following the transactions contemplated hereby is complete, accurate, and correct. A-45 (iv) Each Assignee has not offered or sold any securities of Hi, Tiger or interest in this Agreement and have no present intention of dividing the Shares to be received or the rights under this Agreement with others or of reselling or otherwise disposing of any portion of such stock or rights, either currently or after the passage of a fixed or determinable period of time or on the occurrence or nonoccurrence of any predetermined event or circumstance. (v) Each Assignee understands that the Shares have not been registered, but are being acquired by reason of a specific exemption under the Securities Act as well as under certain state statutes for transactions by an issuer not involving any public offering and that any disposition of the Shares may, under certain circumstances, be inconsistent with this exemption and may make the undersigned an "underwriter" within the meaning of the Securities Act. It is understood that the definition of "underwriter" focuses upon the concept of "distribution" and that any subsequent disposition of the Shares can only be effected in transactions which are not considered distributions. Generally, the term "distribution" is considered synonymous with "public offering" or any other offer or sale involving general solicitation or general advertising. Under present law, in determining whether a distribution occurs when securities are sold into the public market, under certain circumstances one must consider the availability of public information regarding the issuer, a holding period for the securities sufficient to assure that the persons desiring to sell the securities without registration first bear the economic risk of their investment, and a limitation on the number of securities which the stockholder is permitted to sell and on the manner of sale, thereby reducing the potential impact of the sale on the trading markets. These criteria are set forth specifically in rule 144 promulgated under the Securities Act, which allows sales of securities in reliance upon rule 144 only in limited amounts in accordance with the terms and conditions of that rule, after two years after the date the Shares are acquired, fully paid for, as calculated in accordance with rule 144(d). After three years from the date the securities acquired from Hi, Tiger are fully paid for, as calculated in accordance with rule 144(d), they can generally be sold without meeting those conditions, provided the holder is not (and has not been for the preceding three months) an affiliate of the issuer. (vi) Each Assignee acknowledges that the Shares must be held and may not be sold, transferred, or otherwise disposed of for value unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Company is under no obligation to register the Shares under the Securities Act, except as may be expressly agreed to by it in writing. If Rule 144 is available (and no assurance is given that it will be except as expressly set forth in this Agreement), after two years and prior to three years following the date the Shares are fully paid for, only routine sales of such Shares in limited amounts can be made in reliance upon Rule 144 in accordance with the terms and conditions of that rule. The Company is under no obligation to the parties to make Rule 144 available, except as may be expressly agreed to by it in writing in this Agreement, and in the event Rule 144 is not available, compliance with Regulation A or some other disclosure exemption may be required before Each Assignee can sell, transfer, or otherwise dispose of such Shares without registration under the Securities Act. The Company's registrar and transfer agent will maintain a stop transfer order against the registration or transfer of the Shares and the certificate representing the Shares will bear a legend in substantially the following form so restricting the sale of such securities: A-46 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT. (vii) The Company may refuse to register further transfers, or resales of the Shares in the absence of compliance with Rule 144 unless the undersigned furnishes the issuer with a "no-action" or interpretive letter from the SEC or an opinion of counsel reasonably acceptable to the Company stating that the transfer is proper. Further, unless such letter or opinion states that the Shares are free of any restrictions under the Securities Act, the Company may refuse to transfer the Shares to any transferee who does not furnish in writing to it the same representations and agree to the same conditions with respect to such as set forth herein. The Company may also refuse to transfer the Shares if any circumstances are present reasonably indicating that the transferee's representations are not accurate. (b) In connection with the transaction contemplated by this Agreement, and at the Company's request, the Company and each Assignee shall each file, with the assistance of the other and their respective legal counsel, such notices, applications, reports, or other instruments as may be deemed by them to be necessary or appropriate in an effort to document reliance on such exemptions, including a notice on Form D to be filed with the SEC, and the appropriate regulatory authority in the state where Company stockholders reside unless an exemption requiring no filing is available in such jurisdiction, all to the extent and in the manner as may be deemed by such parties to be appropriate. (c) In order to more fully document reliance on the exemptions as provided herein, each Assignee shall execute and deliver to the Company at or prior to the Effective Date, such further letters of representation, acknowledgment, suitability, or the like, the Company and its counsel may reasonably request in connection with reliance on exemptions from registration under such securities laws. (d) The Company and each Assignee acknowledge that the basis for relying on exemptions from registration or qualifications are factual, dependent on the conduct of the various parties, and that no legal opinion or other assurance will be required or given to the effect that the transactions contemplated hereby are in fact exempt from registration or qualification. 7. Authorization, Etc. Each party hereto represents and warrants that it has all requisite power and authority, corporate or otherwise, to execute and deliver this Agreement and to grant the release of Claims provided herein, and that the execution, delivery and performance of this Agreement by such party has been duly authorized and approved. Each individual executing this Agreement on behalf of a party hereto represents and warrants that such individual has been duly authorized to execute and deliver this Agreement on behalf of such party. 8. AvTel Reliance. Each Assignee expressly acknowledges that the releases provided herein are intended as material inducements for AvTel entering into the Acquisition Agreement and giving effect to the transactions contemplated therein, that AvTel is relying upon the releases of each Assignee as set forth herein and that it is intended that AvTel benefit from the releases provided herein. A-47 9. Governing Law. This Agreement shall be governed by, enforced and construed under and in accordance with the laws of the United States of America and, with respect to matters of state law, with the laws of the state of Utah. 10. Notices. All notices, demands, requests, or other communications required or authorized hereunder shall be deemed given sufficiently if in writing and if personally delivered; if sent by facsimile transmission, confirmed with a written copy thereof sent by overnight express delivery; if sent by registered mail or certified mail, return receipt requested and postage prepaid; or if sent by overnight express delivery: If to Hi, Tiger, to: HI, TIGER INTERNATIONAL, INC. Attn.: Paul G. Begum 350 West 300 South Salt Lake City, Utah 84101 Telecopy No.: (801) 332-1230 With a copy to: Elliott N. Taylor, Esq. TAYLOR AND ASSOCIATES 3090 East 3300 South, Suite 400 Salt Lake City, Utah 84109 Telecopy No.: (801) 463-6085 If to AvTel, to: AVTEL COMMUNICATIONS, INC.. Attn.: James P. Pisani 6 Harbor Way, Suite 217 Santa Barbara, California 93109 Telecopy No.: (800) 270-0189 With a copy to: Raymond P. Le Blanc, Esq. PRICE, POSTEL & PARMA 200 East Carrillo Street Santa Barbara, California 93102-0099 Telecopy No.: (805) 965-3978 If to Each Assignee: The addresses as set forth in Schedule A or such other addresses and facsimile numbers as shall be furnished by any party in the manner for giving notices hereunder, and any such notice, demand, request, or other communication shall be deemed to have been given as of the date so delivered or sent by facsimile transmission, three days after the date so mailed, or one day after the date so sent by overnight delivery. 11. Attorneys' Fees. In the event that any party institutes any action or suit to enforce this Agreement or to secure relief from any default hereunder or breach hereof, the breaching party or parties shall reimburse the non breaching party or parties for all costs, including reasonable attorneys' fees, incurred in connection therewith and in enforcing or collecting any judgment rendered therein. 12. Third-Party Beneficiaries. This contract is solely among the Company, Assignees and AvTel, and, except as specifically provided, no director, officer, stockholder, employee, agent, independent contractor, or any other person or entity shall be deemed to be a third party beneficiary of this Agreement. A-48 13. Entire Agreement. This Agreement represents the entire agreement between the parties relating to the subject matter hereof. All previous agreements between the parties, whether written or oral, have been merged into this Agreement. This Agreement alone fully and completely expresses the agreement of the parties relating to the subject matter hereof. There are no other courses of dealing, understandings, agreements, representations, or warranties, written or oral, except as set forth herein. 14. Survival; Termination. The representations, warranties, and covenants of the respective parties shall survive the Effective Date and the consummation of the transactions herein contemplated. 15. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall be but a single instrument. 16. Amendment or Waiver. Every right and remedy provided herein shall be cumulative with every other right and remedy, whether conferred herein, at law, or in equity, and such remedies may be enforced concurrently, and no waiver by any party of the performance of any obligation by the other shall be construed as a waiver of the same or any other default then, theretofore, or thereafter occurring or existing. At any time prior to the Closing Date, this Agreement may be amended by a writing signed by all parties hereto, with respect to any of the terms contained herein, and any term or condition of this Agreement may be waived or the time for performance thereof may be extended by a writing signed by the party or parties for whose benefit the provision is intended. 17. Assignments. This Agreement and the rights, benefits, duties and obligations hereunder may not be assigned by either party, except as expressly provided herein. Either the Company or AvTel may assign and transfer its rights, benefits, duties and obligations hereunder in connection with the sale of all or substantially all business and assets or in connection with any merger, consolidation or a combination of other similar transactions. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. ASSIGNEES: HI, TIGER INTERNATIONAL, INC. A Utah Corporation - ------------------------------ ------------------------------------ Its Duly Authorized Officer - ------------------------------ AVTEL COMMUNICATIONS, INC. - ------------------------------ A California Corporation - ------------------------------ ------------------------------------ Its Duly Authorized Officer A-49 Exhibit "C" ASSUMPTION AND RIGHTS AGREEMENT THIS ASSUMPTION AND RIGHTS AGREEMENT ("Agreement") is entered into this ___ day of August, 1996, by and among AvTel Communications, Inc., a California corporation ("AvTel"), Hi, Tiger International, Inc., a Utah corporation (the "Company"), Anthony E. Papa, James P. Pisani and Barry A. Peters(each an "Executive" and, collectively, "Executives"). RECITALS A. The Company and AvTel have entered into that certain Acquisition Agreement of even date herewith (the "Acquisition Agreement") pursuant to which, after giving effect to the transactions contemplated thereby, AvTel will become a wholly owned subsidiary of the Company and the Executives, as the shareholders of AvTel, will acquire the number of shares of the issued and outstanding common stock of the Company set forth in Schedule A attached hereto (collectively, the "Shares" and, as to each Executive, the "Executive's Shares"). B. Each Executive is a party to certain employment agreements dated _________, 1996, with AvTel (the "Employment Agreements") which provide, among other things, that upon consummation of the transactions contemplated by the Acquisition Agreement, said Employment Agreements will be assigned to and assumed by the Company. C. As a material inducement for AvTel and the Company entering into the Acquisition Agreement and as a condition precedent to the consummation of the transactions contemplated therein, the Company, AvTel and Executives have agreed to enter into this Agreement. NOW, THEREFORE, in consideration of the Company and AvTel entering into the Acquisition Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Definitions. Capitalized terms not otherwise defined herein shall have the same meanings as are ascribed to them in the Acquisition Agreement. 1.1 Commission shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. 1.2 Common Stock shall mean the $.001 par value common stock of the Company. 1.3 Exchange Act shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules and regulations thereunder, al as the same shall be in effect from time to time. 1.4 Holder shall mean any Person who holds Registrable Securities. 1.5 Other Stockholders shall mean Persons other than Executives who, by virtue of agreements with the Company, are entitled to include their securities in certain registrations hereunder. 1.6 Person shall mean a corporation, an association, a trust, a partnership, a joint venture, an organization, a business, an individual, a government or political subdivision thereof or a governmental body. A-50 1.7 Registrable Securities shall mean (a) the Shares (or, as to each Executive, the Executive's Shares) and (b) any Common Stock issued as a dividend or stock split or in connection with a combination of share, recapitalization, merger, reclassification or other distribution with respect to or in exchange for or in replacement of the shares referenced in (a) above; provided, however, that Registrable Securities shall not include any shares of Common Stock which have previously been registered or which have been sold to the public either pursuant to a registration statement or Rule 144, or which have been sold in a private transaction in which the transferor's rights under this Agreement are not assigned. 1.8 The terms register, registered and registration shall refer to a registration effected by preparing and filing a Registration Statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement. 1.9 Registration Expenses shall mean all expenses incurred in effecting any registration pursuant to this Agreement, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company and for the Selling Shareholder, blue sky fees and expenses of any regular or special audits incident to or required by any such registration, but shall not include Selling Expenses and the compensation of regular employees of the Company, which shall be paid in any event by the Company. 1.10 Registration Statement shall mean a registration statement filed by the Company on Form S-1, S-2, S-3 or 10-SB of the Securities Act. 1.11 Securities Act shall mean the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time 1.12 Selling Expenses shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities in an offering pursuant to this Agreement. 1.13 Selling Shareholders shall mean any Holder whose Registrable Securities are being registered pursuant to Section 3 hereof. 2. Assignment and Assumption. Subject to the consummation of the transactions contemplated by the Acquisition Agreement, as of the Effective Date, AvTel hereby assigns to the company all of AvTel's right, title and interest in, under and to the Employment Agreements and the Company hereby assumes the Employment Agreements and agrees to become responsible for paying, satisfying and performing all debts, liabilities and obligations of AvTel thereunder. The Company agrees to indemnify and save harmless AvTel and the Executives, severally, against all debts, liabilities and obligations of AvTel relating to each Executive's Employment Agreement in the manner and to the extent provided therein and this instrument and the covenants and agreements herein contained shall bind the Company and its successors and assigns and shall inure to the benefit of AvTel and its successors and assigns. Each Executive hereby consents to the foregoing assignment and assumption of their respective Employment Agreements. 3. Registration Rights. A-51 3.1 Piggyback Registration Rights. If at any time the Company shall determine to register any shares of its capital stock of the same class as the Registrable Securities for its own account or for the account of any other Stockholder, in an underwritten offering, the Holder shall be entitled to include Registrable Securities in such registration (a "Piggyback Registration Statement") on the following terms an conditions: (a) Piggyback Notice. The Company shall promptly give written notice of such determination to the Holders (a "Piggyback Notice") and Holder shall have the right to request, by written notice ("Registration Notice") given to the Company and to each other Holder not later than ten (10) days following the date the Piggyback Notice is received from the Company, that a specific number of Registrable Securities held by such Holder be included in the Piggyback Registration Statement and related underwritten offering. (b) Underwriting. The right of any Holder to registration pursuant to this Section 3.1 shall be conditioned upon the participation in such underwriting by Holders representing and the inclusion therein, of not less than _____% of the then outstanding Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Holders and such Holder with respect to such participation and inclusion) to the extent provided herein. A Holder may elect to include in such underwriting all or a part of the Registrable Securities he holds. (c) Procedures. Each Holder must agree to sell such Holder's Registrable Securities on the same basis provided in the underwriting arrangements approved by the Company and to timely complete and execute all questionnaires, powers of attorney, indemnities, "standstill", "lock-up" and "holdback" agreements, underwriting agreements and other documents required under the terms of such underwriting arrangements or by the Commission or otherwise considered reasonable and appropriate under the circumstances by counsel for the Company or the underwriters. If the managing underwriter for any underwritten offering under the Piggyback Registration Statement determines that inclusion of all or any portion of the Registrable Securities would adversely affect the ability of the underwriter for such offering to sell all of the securities requested to be included for sale in such offering, the number of shares that may be sold in such offering shall be allocated first to the Company (or, if the offering is being made principally for the account of an Other Stockholder to such Other Stockholder) and thereafter pro rata among the Selling Shareholders and to any Other Stockholders holding applicable pre-existing contractual registration rights; provided, however, that the allocated number of shares that may be sold in such offering by each Selling Shareholder shall be determined by multiplying the total aggregate number of Registrable Securities held by such Selling Shareholder as of the date of his/her Registration Notice (the "Shareholder Total") by a fraction, the numerator of which is the Shareholder Total and the denominator of which is the total aggregate number of Registrable Securities specified in all Registration Notices furnished to the Company pursuant to the Subparagraph (a), above. Selling shareholders shall have the right to withdraw their Registrable Securities from the Piggyback Registration Statement, but they may only do so during the timer period and on terms agreed upon among the underwriters. Notwithstanding anything to the contrary, no Piggyback Registration shall be permitted with respect to any registration of securities required as a condition to the closing of the transactions contemplated by the Acquisition Agreement. A-52 3.2 Expenses. All expenses incident to the Company's performance of or compliance with this Agreement, including Registration Expenses shall be borne by the Company. Selling shareholders shall be responsible for payment of all Selling Expenses in connection with their participation in any offering pursuant to this Rights Agreement and the sale of Registrable Securities in any registered offering pursuant to this Rights Agreement. 3.3 Indemnification. (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless each Holder of Registrable Securities who participates in any registered offering pursuant to this Rights Agreement from and against any and all losses, claims, damages and liabilities, joint or several (including any investigation, legal or other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action suit or proceeding or any claim asserted), to which such Holder may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, prospectus or preliminary prospectus or any amendment or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) any violation by the Company of the Securities Act or the Exchange Act, or other federal or state law applicable to the Company and relating to any action or inaction required by the Company in connection with such registration; provided, however, that the Company shall not be liable to any such holder in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any alleged untrue statement or alleged omission made in such Registration Statement, prospectus, preliminary prospectus or amendment or supplement in reliance upon any information furnished to the Company by such Holder. (b) Indemnification by Holders. Each Holder, by exercising the registration rights hereunder, agrees to indemnify and hold harmless the Company, its directors and each officer who signed such Registration Statement under the same circumstances as the foregoing indemnity from the Company to the Holders to the extent that such losses, claims, damages, liabilities or actions arise out of or are based upon any alleged untrue statement of a material fact or alleged omission of a material fact that was made in the Registration Statement, the prospectus, the preliminary prospectus or any amendment or supplement thereto, in reliance upon any information furnished to the Company by Holders. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person and not of the indemnifying party unless (x) the indemnifying party has agreed to pay such fees or expenses, or (y) the indemnifying party shall have failed to assure the defense of such claim or employ counsel reasonably satisfactory to such Person, or (z) in the reasonable judgment of the Person to be indemnified, a conflict of interest may exist between such Person and the indemnifying party with respect to such claims (in which case, if the Person A-53 notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnified party will be required to consent to entry of any judgement or enter into any settlement which does not include as an unconditional term thereof the giving by all claimants or plaintiffs to such indemnified party of a release from all liability in respect to such claim. 4. Restrictions and Limitations 4.1 Transferability and Nonnegotiability. The Executives' Shares may not be transferred or assigned in whole or in part without compliance with all applicable federal and state securities laws by each Holder and the transferee of any Holder (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if such are requested by the Company). 4.2 Compliance with Securities Laws. Each Executive hereby acknowledges that the Executive's Shares are being acquired solely for the Executive's own account and not as a nominee for any other party, and for investment, and that the Executive will not offer, sell or otherwise dispose of any such Shares except under circumstances that will not result in a violation of the Securities Act or any state securities laws. Upon execution of this Agreement, and from time to time thereafter, each Executive shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the Shares are being acquired solely for the Executive's own account and not as a nominee for any other party, for investment and not with a view toward distribution or resale. This Agreement, the Executive's Shares shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER OR THEREUNDER MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO THE SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY 5. Miscellaneous 5.1 Undertaking. AvTel, the Company and each Executive, severally, hereby agrees to take whatever additional action and execute whatever additional documents the Company may deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either Executive or the Executive's Shares pursuant to the express provisions of this Rights Agreement. 5.2 Agreement is Entire Contract. This Agreement constitutes the entire contract between the parties hereto with regard to the subject matter hereof. 5.3 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Utah without resort to that state's conflict-of-laws rules. A-54 5.4 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 5.5 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company, AvTel and their respective successors and assigns and each Executive and each Executive's legal representatives, heirs, legatees, distributees, assigns and transferees by operation of law, whether or not any such Person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms and conditions hereof. 5.6 Survival of Warranties. The warranties, representations and covenants of the parties contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing. 5.7 Notices. All notices, demands, requests, or other communications required or authorized hereunder shall be deemed given sufficiently if in writing and if personally delivered; if sent by facsimile transmission, confirmed with a written copy thereof sent by overnight express delivery; if sent by registered mail or certified mail, return receipt requested and postage prepaid; or if sent by overnight express delivery: If to the Company, to: HI, TIGER INTERNATIONAL, INC. Attn.: Paul G. Begum 350 West 300 South Salt Lake City, Utah 84101 Telecopy No.: (801) 332-1230 With a copy to: Elliott N. Taylor, Esq. TAYLOR AND ASSOCIATES 3090 East 3300 South, Suite 400 Salt Lake City, Utah 84109 Telecopy No.: (801) 463-6085 If to AvTel, to: AVTEL COMMUNICATIONS, INC.. Attn.: James P. Pisani 6 Harbor Way, Suite 217 Santa Barbara, California 93109 Telecopy No.: (800) 270-0189 With a copy to: Raymond P. Le Blanc PRICE, POSTEL & PARMA 200 East Carrillo Street Santa Barbara, California 93102-0099 Telecopy No.: (805) 965-3978 If to Executives to: Messrs. Anthony E. Papa, James P. Pisani and Barry A. Peters 130 Cremona Way Goleta, CA 93117 Telecopy No. 800\270-0189 or such other addresses and facsimile numbers as shall be furnished by any party in the manner for giving notices hereunder, and any such notice, demand, request, or other communication shall be deemed to have been given as of the date so delivered or sent by facsimile transmission, three days after the date so mailed, or one day after the date so sent by overnight delivery. A-55 5.8 Attorneys' Fees. In the event of any litigation or other action in connection with this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees and disbursements from the other party as costs of suit and not as damages. IN WITNESS WHEREOF, the parties have executed this Rights Agreement on the day and year first indicated above. EXECUTIVES AvTEL COMMUNICATIONS, INC. A California Corporation ANTHONY E. PAPA ______________________________ ______________________________ Anthony E. Papa HI, TIGER INTERNATIONAL, INC. A Utah Corporation JAMES P. PISANI ______________________________ ______________________________ James P. Pisani BARRY A. PETERS ______________________________ Barry A. Peters SCHEDULE A No. of Shares of $.001 Par Value Common Stock of Executive Hi, Tiger International, Inc. - --------- ----------------------------- Anthony E. Papa 1,499,950 James P. Pisani 1,499,950 Barry A. Peters 1,000,100 A-56 Exhibit "D" RIGHTS AGREEMENT THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER OR THEREUNDER MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. THIS RIGHTS AGREEMENT ("Rights Agreement") is made and entered into as of this ___ day of ________, 1996, by and between Hi, Tiger International, Inc., a Utah corporation (the "Company") and Tommy Lin (the "Investor"). RECITALS A. Pursuant to the terms and conditions of that certain Acquisition Agreement by and among AvTel Communications, Inc., a California corporation ("AvTel"), Hi, Tiger International, Inc., a Utah corporation (the "Company") and AvTel Communications, Inc., a Utah corporation ("Merger's Sub"), the holders of all the issued and outstanding common stock of AvTel are to receive fifty-one percent (51%) of the issued and outstanding common stock of the Company, after giving effect to the transactions contemplated by the Acquisition Agreement and all of the holders of these Series A Preferred Stock of AvTel (the "AvTel Preferred Stock") issued and outstanding prior to the consummation of the transactions contemplated by the Acquisition Agreement, are to receive, in connection with such transactions, shares of the Series A convertible Preferred Stock of Hi, Tiger (the "Hi Tiger Preferred"); B. The Investor is the holder of the AvTel Preferred Stock and, pursuant to the terms and conditions of the Acquisition Agreement, is to receive shares of the Hi Tiger Preferred Stock upon consummation of the transactions contemplated by the Acquisition Agreement; C. It is an express condition precedent to the consummation of the transactions contemplated by the Acquisition Agreement that the Company and the Investor enter into this Rights Agreement in connection with the Acquisition Agreement and the transactions contemplated therein. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows: 1. Registration Rights. 1.1 Definitions. Capitalized terms used in this Agreement shall, unless otherwise defined herein, have the same meanings as are ascribed to them in the Acquisition Agreement. As used in this Rights Agreement, the following terms shall have the meanings set forth below: (a) Commission shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. (b) Exchange Act shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time. (c) Holder shall mean any Investor who holds Registrable Securities. (d) Initiating Holders shall mean any Holder or Holders who in the aggregate hold not less than fifty percent (50%) of the outstanding Registrable Securities. A-57 (e) Investor(s) shall mean persons who purchased Shares pursuant to the Purchase Agreement. (f) Other Stockholders shall mean persons other than Holders who, by virtue of agreements with the Company, are entitled to include their securities in certain registrations hereunder. (g) Registrable Securities shall mean (i) shares of Common Stock issued or issuable pursuant to the conversion of the Shares and (ii) any Common Stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referenced in (i) above; provided, however, that Registrable Securities shall not include any shares of Common Stock which have previously been registered or which have been sold to the public either pursuant to a registration statement or Rule 144, or which have been sold in a private transaction in which the transferor's rights under this Agreement are not assigned. (h) The terms register, registered and registration shall refer to a registration effected by preparing and filing a Registration Statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement. (i) Registration Expenses shall mean all expenses incurred in effecting any registration pursuant to this Agreement, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses and expenses of any regular or special audits incident to or required by any such registration, but shall not include Selling Expenses, fees and disbursements of counsel for the Holders and the compensation of regular employees of the Company, which shall be paid in any event by the Company. (j) Registration Statement shall mean a registration statement filed by the Company on Form S-1, S-3 or 10-SB of the Securities Act. (k) Securities Act shall mean the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time. (l) Selling Expenses shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities and fees and disbursements of counsel for any Holder (other than the fees and disbursements of counsel for any Holder (other than the fees and disbursements of counsel included in Registration Expenses). (m) Shares shall mean the Company's Series A Preferred Stock. 1.2 Demand Registration Rights. If the Company shall receive from Initiating Holders at any time or times not earlier than the earlier of (i) three (3) years after the Effective Date or (ii) one (1) year after the effective date of the first Registration Statement filed by the Company covering an underwritten offering of any of its securities to the general public, a written request (the "Demand Notice") that the Company effect any registration by filing a Registration Statement ("Demand Registration Statement") with respect to all or a part of the Registrable Securities, the Company will: A-58 (a) promptly give written notice of the proposed registration to all Other Stockholders; and (b) as soon as practicable, use its best efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Other Stockholders joining in such request as are specified in a written request received by the Company from such Other Stockholders within twenty (20) days after such written notice from the Company is mailed or delivered. 1.3 Limitations. The Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to Section 1.2: (a) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (b) after the Company has initiated one such registration pursuant to Section 1.2 (counting for these purposes only a registration which has been declared or ordered effective and pursuant to which securities have been sold); (c) during the period starting the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date one hundred eight (180) days after the effective date of, a Company-initiated registration; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (d) if the Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 1.4 hereof; (e) if the Initiating Holders do not request that such offering be firmly underwritten by underwriters selected by the Initiating Holders (subject to the consent of the Company, which consent will not be unreasonably withheld); or (f) if the Company and the Initiating Holders are unable to obtain the commitment of the underwriter described in clause (e) above to firmly underwrite the offer. Subject to the foregoing clauses (a) through (f), the Company shall file a Registration Statement covering Registrable Securities so requested to be registered as soon as practicable after receipt of the Demand Notice from the Initiating Holders; provided, however, that if (i) in the good faith judgment of the Board of Directors of the Company, such registration would be seriously detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is essential to defer the filing of such Registration Statement at such time, and (ii) the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company for such registration statement to be A-59 filed in the near future and that it is, therefore, essential to defer the filing of such registration statement, then the Company shall have the right to defer such filing (except as provided in clause (c) above) for a period of not more than one hundred eighty (180) days after receipt of the Demand Notice from the Initiating Holders, and, provided, further, that the Company shall not defer its obligation in this manner more than twice in any twelve-month period. 1.4 Piggyback Registration Rights. If at any time after the first anniversary of the Issuance Date hereof, or from time to time thereafter, the Company shall determine to register any shares of its capital stock of the same class as the Registrable Securities for its own account or for the account of any shareholder (other than any Holder) in an underwritten offering, the Holder(s) shall be entitled to include Registrable Securities in such registration (a "Piggyback Registration Statement") on the following terms and conditions: (a) Piggyback Notice. The Company shall promptly give written notice of such determination to the Holders (a "Piggyback Notice") and the Holders shall have the right to request, by written notice given to the Company not later than ten (10) days following the date the Piggyback Notice is received from the Company, that a specific number of Registrable Securities be included in the Piggyback Registration Statement and related underwritten offering. (b) Underwriting. The right of any Holder to registration pursuant to this Section 1.4 shall be conditioned upon the participation in such underwriting by Holder's representing and the inclusion therein, of not less than 33 1/3% of the then outstanding Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder with respect to such participation and inclusion) to the extent provided herein. A Holder may elect to include in such underwriting all or a part of the Registrable Securities he holds. (c) Procedures. Each Holder must agree to sell such Holder's Registrable Securities on the same basis provided in the underwriting arrangements approved by the Company and to timely complete and execute all questionnaires, powers of attorney, indemnities, "standstill", "lock-up" and "holdback" agreements, underwriting agreements and other documents required under the terms of such underwriting arrangements or by the Commission or otherwise considered reasonable and appropriate under the circumstances by counsel for the Company or the underwriters. If the managing underwriter for any underwritten offering under the Piggyback Registration Statement determines that inclusion of all or any portion of the Registrable Securities in such offering would adversely affect the ability of the underwriter for such offering to sell all of the securities requested to be included for sale in such offering, the number of shares that may be sold in such offering shall be allocated first to the Company (or, if the offering is being made principally for the account of another Person, to such Person) and thereafter pro rata among the Holders who have requested that Registrable Securities be included in the underwriting ("Selling Shareholders") and to any other shareholders holding applicable pre-existing contractual registration rights. Selling Shareholders shall have the right to withdraw their Registrable Securities from the Piggyback Registration Statement, but they may only do so during the time period and on terms agreed upon among the underwriters. Notwithstanding anything to the contrary, no Piggyback Registration shall be permitted with respect to any registration of securities required as a condition to the closing of the Hi, Tiger Merger. A-60 1.5 Expenses. All expenses incident to the Company's performance of or compliance with this Agreement, including Registration Expenses shall be borne by the Company. Investor(s) shall be responsible for payment of all fees and disbursements of their counsel and accountants, all other out of pocket expenses of Investor(s) in connection with their participation in any offering pursuant to this Rights Agreement and all Selling Expenses applicable to the sale of Registrable Securities by Investor(s) in any registered offering pursuant to this Rights Agreement. 1.6 Indemnification. (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless each Holder of Registrable Securities who participates in any registered offering pursuant to this Rights Agreement from and against any and all losses, claims, damages and liabilities, joint or several (including any investigation, legal or other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action suit or proceeding or any claim asserted), to which such Holder may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, prospectus or preliminary prospectus or any amendment or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) any violation by the Company of the Securities Act or the Exchange Act, or other federal or state law applicable to the Company and relating to any action or inaction required by the Company in connection with such registration; provided, however, that the Company shall not be liable to any such holder in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any alleged untrue statement or alleged omission made in such Registration Statement, prospectus, preliminary prospectus or amendment or supplement in reliance upon any information furnished to the Company by such Holder. (b) Indemnification by Holders. Each Holder, by exercising the registration rights hereunder, agrees to indemnify and hold harmless the Company, its directors and each officer who signed such Registration Statement under the same circumstances as the foregoing indemnity from the Company to the Holders to the extent that such losses, claims, damages, liabilities or actions arise out of or are based upon any alleged untrue statement of a material fact or alleged omission of a material fact that was made in the Registration Statement, the prospectus, the preliminary prospectus or any amendment or supplement thereto, in reliance upon any information furnished to the Company by Holders. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person and not of the indemnifying party unless (x) the indemnifying party has agreed to pay such fees or expenses, or (y) the indemnifying party shall have failed to assure the defense of such claim or employ counsel reasonably satisfactory to such Person, or (z) in the reasonable judgment of the Person to be A-61 indemnified, a conflict of interest may exist between such Person and the indemnifying party with respect to such claims (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnified party will b e required to consent to entry of any judgement or enter into any settlement which does not include as an unconditional term thereof the giving by all claimants or plaintiffs to such indemnified party of a release from all liability in respect to such claim. 2. Restrictions and Limitations 2.1 Transferability and Nonnegotiability. The Shares may not be transferred or assigned in whole or in part without compliance with all applicable federal and state securities laws by each Investor and the transferee of any Investor (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if such are requested by the Company). 2.2 Compliance with Securities Laws. Each Investor hereby acknowledges that the Shares and any Common Stock to be issued upon conversion thereof are being acquired solely for the Investor's own account and not as a nominee for any other party, and for investment, and that the Investor will not offer, sell or otherwise dispose of any Shares or any Common Stock to be issued upon conversion thereof except under circumstances that will not result in a violation of the Act or any state securities laws. Upon execution of this Rights Agreement, and from time to time thereafter, each Investor shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the Shares are being acquired solely for the Investor's own account and not as a nominee for any other party, for investment and not with a view toward distribution or resale. This Rights Agreement, the Shares and all Common Stock issued upon conversion thereof shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER OR THEREUNDER MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. 3. Covenants of the Company. 3.1 So long as any Shares remain outstanding, the Company shall not, and shall not permit any Subsidiary to, without the vote or written consent of the Holders of more than 50% of the then outstanding Shares, declare or pay any dividends (other than stock dividends) on or declare or make any other distribution, direct or indirect, on account of the Common Stock or set apart any sum for any such purpose. 3.2 So long as any Shares remain outstanding, the Company covenants and agrees in the Holders of the Shares that the Company will furnish the Holders within forty-five (45) days of the end of each fiscal quarter, copies of the Company's unaudited consolidated balance sheet, consolidated statement of income and consolidated statement of cash flows, prepared in accordance with generally accepted accounting principles and, within ninety (90) days of the A-62 end of each fiscal year, copies of the Company's consolidated balance sheet, consolidated statement of income and consolidated statement of cash flows audited by an independent firm of certified public accountants; and within ninety (90) days after the filing thereof, copies of any report, application or documents which the Company may be required to file with the Securities and Exchange Commission, or any state securities commission or other comparable regulatory authority. 4. Miscellaneous 4.1 Investor Undertaking. Investor hereby agrees to take whatever additional action and execute whatever additional documents the Company may deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either Investor or the Shares pursuant to the express provisions of this Rights Agreement. 4.2 Agreement is Entire Contract. This Rights Agreement constitutes the entire contract between the parties hereto with regard to the subject matter hereof. 4.3 Governing Law. This Rights Agreement shall be governed by, and construed in accordance with, the laws of the State of Utah without resort to that State's conflict-of-laws rules. 4.4 Counterparts. This Rights Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 4.5 Successors and Assigns. The provisions of this Rights Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and Investor and Investor's legal representatives, heirs, legatees, distributees, assigns and transferees by operation of law, whether or not any such Person shall have become a party to this Rights Agreement and have agreed in writing to join herein and be bound by the terms and conditions hereof. 4.6 Survival of Warranties. The warranties, representations and covenants of the Company and the Investor(s) contained in or made pursuant to this Rights Agreement shall survive the execution and delivery of this Rights Agreement and the Closing. 4.7 Notices. Unless otherwise provided, all notices and other communications required or permitted under this Rights Agreement shall be in writing and shall be mailed by United States first class mail, postage prepaid, sent by facsimile or delivered personally by hand or by nationally recognized courier addressed to the party to be notified at the address or facsimile number indicated for each Person on the signature page hereof, or at such other address or facsimile number as such party may designate by ten (10) days' advance written notice to the other parties hereto. All such notices and other written communications shall be effective on the date of mailing, facsimile transfer or delivery. 4.8 Finder's Fees. Each party represents that it neither is nor will be obligated for any finder's fee or commission in connection with this transaction. Each Investor agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder's fee (and the cost and expenses of defending against such liability or asserted liability) for which the Investor or any of its officers, partners, employees or representatives is responsible. The Company agrees to A-63 indemnify and hold harmless each Investor from liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officer, employees or representatives is responsible. 4.9 Attorneys' Fees. In the event of any litigation or other action in connection with this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees and disbursements from the other party as costs of suit and not as damages. IN WITNESS WHEREOF, the parties have executed this Rights Agreement on the day and year first indicated above. INVESTOR HI, TIGER INTERNATIONAL, INC. A Utah Corporation ______________________________ ______________________________ A-64 EXHIBIT "E" VOTING AGREEMENT This VOTING AGREEMENT dated as of August 30, 1996, is entered into by and among AvTel Communications, Inc., a California corporation ("AvTel"), Hi, Tiger International, Inc., a Utah corporation (the "Company") and the other parties signatory hereto (each a "Stockholder"). RECITALS A. Each Stockholder desires that AvTel, the Company and AvTel Communications, Inc, a Utah corporation, and wholly owned subsidiary of the Company ("Merger Sub"), enter into an Acquisition Agreement dated the date hereof (as the same may be amended or supplemented the "Acquisition Agreement") with respect to the merger of Merger Sub with and into AvTel (the "Merger"); and B. Each Stockholder is executing this Voting Agreement as an inducement to AvTel to enter into and execute the Voting Agreement and it is a condition to the consummation of the transactions contemplated by the Acquisition Agreement that this Voting Agreement be executed.; NOW, THEREFORE, in consideration of the execution and delivery by AvTel of the Acquisition Agreement and the mutual covenants, conditions and agreements contained herein and therein, the parties agree as follows: 1. Representations and Warranties. Each Stockholder severally represents and warrants to AvTel as follows: a. Such Stockholder is the record and beneficial owner of the number of shares of Common Stock par value $.001 per share, of the Company (the "Company Common Stock") set forth opposite such Stockholder's name in Schedule A hereto (such Stockholder's "Shares"). Except for such Stockholder's Shares and any other shares of Company Common Stock subject hereto, such Stockholder is not the record or beneficial owner of either (i) any shares of Company Common Stock or any rights, warrants, options or similar arrangements to acquire any Company Common Stock or (ii) any debentures, indebtedness, rights, agreements or other similar arrangements that are convertible into or exchangeable for any Company Common Stock. b. This Voting Agreement has been duly authorized, executed and delivered by such Stockholder and constitutes the legal, valid and binding obligation of such Stockholder, enforceable against such Stockholder in accordance with its terms. Neither the execution and delivery of this Voting Agreement nor the consummation by such Stockholder of the transactions contemplated hereby will result in a violation of, or a default under, or conflict with, any contract, trust, commitment, agreement, understanding, arrangement or restriction of any kind to which such Stockholder is a party or bound or to which such Stockholder's Shares are subject. No trust of which such Stockholder is a trustee requires the consent of any beneficiary to the execution and delivery of this Voting Agreement or to the consummation of the transactions contemplated hereby. If such Stockholder is married and such Stockholder's Shares constitute community property, this Voting Agreement has been duly authorized, executed and delivered by, and constitutes a valid and binding agreement of, such Stockholder's spouse, enforceable against such person in accordance with its terms. Consummation by such Stockholder of the transactions contemplated hereby will not violate, or require any consent, approval or notice under, any provision of any judgment, order, decree, statute, law, rule or regulation applicable to such Stockholder or such Stockholder's Shares. A-65 c. Such Stockholder's Shares and the certificates representing such Shares are now and at all times during the term hereof will be held by such Stockholder, or by a nominee or custodian for the benefit of such Stockholder, free and clear of all liens, claims, security interests, proxies, voting trusts or agreements, understandings or arrangement or any other encumbrances whatsoever, except for any such encumbrances or proxies arising hereunder or under the existing terms of a trust of which such Stockholder is the trustee. d. No broker, investment banker, financial advisor or other person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of such Stockholder. e. Such Stockholder understands and acknowledges that AvTel is entering into the Acquisition Agreement in reliance upon such Stockholder's execution and delivery of this Voting Agreement. Such Stockholder acknowledges that the irrevocable proxy set forth in Section 3 is granted in consideration for the execution and delivery of the Acquisition Agreement by AvTel. 2. Covenants. Each Stockholder severally agrees with, and covenants to, AvTel and with respect to paragraph (b) below, each beneficiary of any revocable trust for which any Stockholder serves as trustee, agrees with and covenants to AvTel, as follows: a. Such Stockholder shall not, except as contemplated by the terms of this Voting Agreement (i) transfer (which term shall include, without limitation, for the purposes of this Voting Agreement, any sale, gift, pledge or other disposition) or consent to any transfer of, any or all of such Stockholder's Shares of any interest therein, (ii) enter into any contract, option or other agreement of understanding with respect to any transfer of any or all of such Shares or any interest therein, (iii) grant any proxy, power of attorney or other authorization in or with respect to such Shares, (iv) deposit such Shares into a voting trust or enter into a voting agreement or arrangement with respect to such Shares or (v) take any other action that would in any way restrict, limit or interfere with the performance of its obligations hereunder or the transactions contemplated hereby. b. At any meeting of stockholders of the Company or at any adjournment thereof or in any other circumstances upon which their vote, consent or other approval is sought, such Stockholder shall vote (or cause to be voted) such Stockholder's Shares against (i) any merger agreement or merger (other than the Acquisition Agreement), consolidation, combination, sale of substantial assets, reorganization, joint venture, recapitalization, dissolution, liquidation or winding up of or by the Company and (ii) other than as contemplated by the Acquisition Agreement, any amendment of the Company's Articles of Incorporation or Bylaws or other proposal or transaction involving the Company or any of its subsidiaries which amendment or other proposal or transaction would in any manner impede, frustrate, prevent or nullify, or result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under or with respect to the Merger, Acquisition Agreement or any of the other transactions contemplated by the Acquisition Agreement (each of the foregoing in clauses (i) or (ii) above, a "Competing Transaction"). A-66 3. Grant of Irrevocable Proxy; Appointment of Proxy. a. Each Stockholder hereby irrevocably grants to, and appoints, AvTel and Anthony E. Papa and James P. Pisani, in their respective capacities as officers of AvTel and any individual who shall hereafter succeed to any such office of AvTel, and each of them individually, such Stockholder's proxy and attorney-in-fact (with full power of substitution) for and in the name, place and stead of such Stockholder, to vote such Stockholder's Shares or grant a consent or approval in respect of such Shares against any Competing Transaction. b. Such Stockholder represents that any proxies heretofore given in respect of such Stockholder's Shares are not irrevocable, and that any such proxies are hereby revoked. c. Such Stockholder hereby affirms that the irrevocable proxy set forth in this Section 3 is given in connection with the execution of the Acquisition Agreement, and that such irrevocable proxy is given to secure the performance of the duties of the Stockholder under this Acquisition Agreement. Such Stockholder hereby further affirms that the irrevocable proxy is coupled with an interest and may under no circumstances be revoked. Such Stockholder hereby ratifies and confirms all that such irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is executed and intended to be irrevocable in accordance with the provisions of Section 16-10a.722 of the Utah Revised Business Corporation Act (the "RBCA"). 4. Certain Events. Each Stockholder agrees that this Voting Agreement and the obligations hereunder shall attach to such Stockholder's Shares and shall be binding upon any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including, without limitation, such Stockholder's heirs, guardians, administrators or successors. In the event of any stock split, stock dividend, merger, reorganization, recapitalization or other change in the capital structure of the Company affecting the Company Common Stock, or the acquisition of additional shares of Company Common Stock or other voting securities of the Company by any Stockholder, the number of Shares listed in Schedule A beside the name of such Stockholder shall be adjusted appropriately and this Voting Agreement, the obligations hereunder and the proxy granted hereunder shall attach to any additional shares of Company Common Stock or other voting securities of the Company issued to or acquired by such Stockholder. 5. Legend, Transfer Agent Notification. Each Stockholder agrees that such Stockholder will deliver to the Company or to its transfer agent and registrar within five (5) business days after the date hereof, any and all certificates representing such Stockholder's Shares in order that the Company may inscribe upon such certificates the following legend: THE SHARES OF COMMON STOCK $.001 PAR VALUE, OF HI, TIGER INTERNATIONAL, INC. REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING AGREEMENT DATED AS OF AUGUST 30, 1996, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED, EXCEPT IN ACCORDANCE THEREWITH. COPIES OF SUCH VOTING AGREEMENT MAY BE OBTAINED AT THE PRINCIPAL EXECUTIVE OFFICES OF HI, TIGER INTERNATIONAL, INC. Each Stockholder further authorizes and instructs the Company to provide, and the Company hereby agrees to provide within five (5) business days after the date hereof, to its transfer agent and registrar stop notices or other similar instructions or notices to the effect that all Shares held of record or beneficially by such Stockholders are subject to restrictions on transfer. A-67 6. Stockholder Capacity. No person executing this Voting Agreement who is, or becomes, during the term hereof, a director or officer of the Company makes any agreement or understanding herein in his or her capacity as such director or officer. Each Stockholder signs solely in his or her capacity as the record holder and beneficial owner of, or the trustee of a trust, whose beneficiaries are the beneficial owners of, such Stockholder's Shares and nothing herein shall limit or affect any actions taken by a Stockholder in its capacity as an officer or director of the Company to the extent specifically permitted by the Voting Agreement. 7. Further Assurances. Each Stockholder shall, upon request of AvTel, execute and deliver any additional documents and take such further actions as may reasonably be deemed by AvTel to be necessary or desirable to carry out the provisions hereof and to vest the power to vote such Stockholder's Shares as contemplated by Section 3 in AvTel and the other irrevocable proxies described therein. 8. Termination. This Voting Agreement and all rights and obligations of the parties hereunder shall terminate upon the first to occur of (a) the Effective Date of the Voting Agreement or (b) the date upon which the Voting Agreement is terminated in accordance with its terms. 9. Miscellaneous. a. Capitalized terms used and not otherwise defined in this Voting Agreement shall have the respective meanings assigned such terms in the Acquisition Agreement. b. This Voting Agreement constitutes the entire contract between the parties hereto with regard to the subject matter hereof. c. This Voting Agreement shall be governed by, and construed in accordance with, the laws of the State of Utah without resort to that state's conflict-of-laws rules. d. This Voting Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. e. The provisions of this Voting Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns and each Stockholder and each Stockholder's legal representatives, heirs, legatees, distributees, assigns and transferees by operation of law, whether or not any such Person shall have become a party to this Voting Agreement and have agreed in writing to join herein and be bound by the terms and conditions hereof. f. The warranties, representations and covenants of the parties contained in or made pursuant to this Voting Agreement shall survive the execution and delivery of this Voting Agreement and the Closing. g. All notices, demands, requests, or other communications required or authorized hereunder shall be deemed given sufficiently if in writing and if personally delivered; if sent by facsimile transmission, confirmed with a written copy thereof sent by overnight express delivery; if sent by registered mail or certified mail, return receipt requested and postage prepaid; or if sent by overnight express delivery: A-68 If to the Company, to: HI, TIGER INTERNATIONAL, INC. Attn.: Paul G. Begum 350 West 300 South Salt Lake City, Utah 84101 Telecopy No.: (801) 332-1230 With a copy to: Elliott N. Taylor, Esq. TAYLOR AND ASSOCIATES 3090 East 3300 South, Suite 400 Salt Lake City, Utah 84109 Telecopy No.: (801) 463-6085 If to AvTel, to: AVTEL COMMUNICATIONS, INC.. Attn.: James P. Pisani 6 Harbor Way, Suite 217 Santa Barbara, California 93109 Telecopy No.: (800) 270-0189 With a copy to: Raymond P. Le Blanc, Esq. PRICE, POSTEL & PARMA 200 East Carrillo Street Santa Barbara, California 93102-0099 Telecopy No.: (805) 965-3978 If to Stockholders, to: The Addresses Set Forth in Schedule A or such other addresses and facsimile numbers as shall be furnished by any party in the manner for giving notices hereunder, and any such notice, demand, request, or other communication shall be deemed to have been given as of the date so delivered or sent by facsimile transmission, three days after the date so mailed, or one day after the date so sent by overnight delivery. h. In the event of any litigation or other action in connection with this Voting Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees and disbursements from the other party as costs of suit and not as damages. i. If any term, provision, covenant or restriction herein, or the application thereof to any circumstance, shall, to any extent, be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions herein and the application thereof to any other circumstances, shall remain in full force and effect, shall not in any way be affected, impaired or invalidated, and shall be enforced to the fullest extent permitted by law. j. Each Stockholder agrees that irreparable damage would occur and that AvTel would not have any adequate remedy at law in the event that any of the provisions of this Voting Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that AvTel shall be entitled to an injunction or injunctions to prevent breaches by any Stockholder of this Voting Agreement and to enforce specifically the terms and provisions of this Voting Agreement in any court of the United States located in the State of Utah or in Utah state court, this being in addition to any other remedy to which they are entitled by law or in equity. In addition, each of the parties hereto (i) consents to submit such party to the personal jurisdiction of any Federal court located in the State of Utah or any Utah state court in the event any dispute arises out of this Voting Agreement or any of the transactions contemplated hereby, (ii) agrees A-69 that such party will attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (iii) agrees that such party will not bring any action relating to this Voting Agreement of any of the transactions contemplated hereby in any court other than a Federal court sitting in the State of Utah or a Utah state court. IN WITNESS WHEREOF, AvTel, the Company and the Stockholders have caused this Voting Agreement to be duly executed and delivered as of the date first written above. AVTEL COMMUNICATIONS, INC. STOCKHOLDERS: - --------------------------------- ----------------------------------- Anthony E. Papa, President Paul G. Begum and C.E.O. HI, TIGER INTERNATIONAL, INC. ----------------------------------- Peter D. Olson - --------------------------------- Paul G. Begum, President ----------------------------------- Tree of Stars, Inc. By: Paul G. Begum, President SCHEDULE A Stockholders Stockholders' Shares - ------------ -------------------- Peter D. Olson 607,163 521 North Arden Drive Beverly Hills, CA 90310 Paul G. Begum 74,167 (1) P.O. Box 8045 Salt Lake City, UT 84158 Tree of Stars, Inc. (2) 626,332 P.O. Box 8045 Salt Lake City, UT 84158 (1) Includes 500 shares owned of record by Paul G. Begum, Custodian for Gibran Paul Begum (2) Paul G. Begum is the President and a principal shareholder of Tree of Stars, Inc. A-70 Exhibit "F" INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT ("Agreement") is entered into, this 30th day of August, 1996, by and among AVTEL COMMUNICATIONS, INC., a California corporation ("AVTEL"); HI, TIGER INTERNATIONAL, INC., a Utah corporation ("Hi, Tiger"); and PAUL G. BEGUM ("Begum"). RECITALS: A. AVTEL and Hi, Tiger have entered into that certain Acquisition Agreement of even date herewith (the "Acquisition Agreement") pursuant to which the shareholders of AVTEL will, after giving effect to the transactions contemplated by the Acquisition Agreement, acquire a controlling interest in the issued and outstanding common stock of Hi, Tiger. B. Begum is presently President and Chief Executive Officer of Hi, Tiger and therefore is the person who possess the most personal knowledge concerning the accuracy of the representations and warranties made on behalf of Hi, Tiger under the Acquisition Agreement. Begum is also the owner or directly or indirectly, beneficially or of record, of approximately 30% of the currently issued and outstanding common stock of Hi, Tiger. C. As a material inducement for AVTEL entering into the Acquisition Agreement, and as a condition precedent to the transactions contemplated therein, Begum has agreed to indemnify, defend and hold harmless AVTEL and Hi, Tiger from any claims or liability arising out of any breach of or inaccuracy in certain of the representations and warranties of Hi, Tiger set forth in the Acquisition Agreement, or in any other agreement, instrument or document to which Begum is a party and which is furnished by Begum pursuant to the Acquisition Agreement or the transactions contemplated therein. NOW, THEREFORE, in consideration of AVTEL and Hi, Tiger entering into the Acquisition Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Indemnification by Begum. Begum hereby agrees to indemnify, defend and hold harmless AVTEL and Hi, Tiger and, except for Begum himself, their respective officers, directors, employees, affiliates, stockholders, partners, agents, representatives, successors and assigns ("Indemnified Party") for, from and against any and all claims, demands, liabilities, costs, expenses, damages, debts, obligations, fines, fees, penalties, interest, losses, cause or causes of action and suit or suits of any nature whatsoever (collectively "Damages") incurred by any Indemnified Party in connection only with any breach of or any inaccuracy in any representation or warranty of Hi, Tiger set forth in Sections 2.04 - 2.09 and 2.21 of the Acquisition Agreement. [In no event may any claim for indemnification be asserted under this Agreement after December 31, 1997.] 2. Indemnification Procedures. 2.1 Notice. Whenever any claim shall arise for indemnification under this Agreement, the Indemnified Party shall notify Begum in writing In the event of any such claim for indemnification hereunder resulting from or in connection with any claim or legal proceedings by a third party, the notice shall also specify, if known, the amount or an estimate of the amount of the liability arising therefrom. Such notice shall be given within thirty (30) days after the Indemnified Party first acquires knowledge or information of A-71 such claim. The Indemnified Party shall use the Indemnified Party's best reasonable efforts to protect his, her or its and Begum's interests against default pending notification to Begum of such claim. 2.2 Action by Begum. Upon receipt of such written notice of claim from the Indemnified Party, Begum shall either (a) promptly thereafter discharge and satisfy such claim, or (b) notify the Indemnified Party within five (5) business days after Begum's receipt of the Indemnified Party's notice of Begum's election to assume the defense of such claim. If Begum assumes the defense of such claim, Begum shall select counsel reasonably acceptable to the Indemnified Party to conduct the defense of such claim and, at his sole cost and expense, Begum shall take all steps necessary in the defense or settlement thereof. Begum shall not consent of a settlement to, or the entry of any judgment arising from, such claim without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed). The Indemnified Party shall be entitled to participate in the defense of such claim, with the Indemnified Party's own counsel and at the Indemnified Party's own expense unless the Indemnified Party has selected counsel to represent him,, her or it as a result of circumstances in which an actual or potential conflict of interest is present in which case the expense of Indemnified Party's counsel shall be borne by Begum. If Begum does not notify the Indemnified Party within five (5) business days after Begum's receipt of such notice of claim of Begum's election to assume the defense of such claim, the Indemnified Party shall have the right thereafter to discharge and satisfy such claim, or defend against the same, in such manner as the Indemnified Party deems appropriate and the indemnification liability of Begum to the Indemnified Party hereunder shall be conclusively established as to the amount by the payment, settlement, judgment and/or defense costs incurred or sustained by the Indemnified Party resulting therefrom. 3. Limitation of Indemnification Liability. Except for (a) claims based upon fraud or wilful misrepresentation, (b) claims for attorney's fees and costs under Section 4.4 of this Agreement , and (c) claims for a breach of or an inaccuracy in a representation or warranty made in Section 2.05 of the Acquisition Agreement (with respect to all such claims there shall be no liability cushion or basket), Begum shall have no obligation to indemnify any Indemnified Party until the aggregate Damages exceed $5,000.00 in which event such indemnity obligation shall be for all aggregate Damages, Begum hereby waives any statutory or contractual claim which Begum may poses against Hi, Tiger to himself be indemnified for any indemnification liability which he incurs under this Agreement. 4. Miscellaneous. 4.1 Definitions. Capitalized terms not otherwise defined herein shall have the same meanings as are ascribed to them in the Acquisition Agreement. 4.2 Governing Law. This Agreement shall be governed by, enforced and construed under and in accordance with the laws of the United States of America and, with respect to matters of state law, with the laws of the State of Utah. 4.3 Notices. All notices, demands, requests, or other communications required or authorized hereunder shall be deemed given sufficiently if in writing and if personally delivered; if sent by facsimile transmission, confirmed with a written copy hereof sent by overnight express delivery' if sent by registered mail or certified mail, return receipt requested and A-72 postage prepaid; or if sent by overnight express delivery; If to AVTEL, to: AVTEL COMMUNICATIONS, INC. Attn: James P. Pisani 6 Harbor Way, Suite 217 Santa Barbara, CA 93109 Telecopy No.: (800) 270 0189 With a copy to: Raymond P. Le Blanc, Esq. PRICE, POSTEL, & PARMA LLP 200 East Carrillo Street Santa Barbara, CA 93101 Telecopy No.: (805) 965-3978 If to Hi, Tiger, to: Paul G. Begum 350 West 300 South Salt Lake City, UT 84101 Telecopy No.: (801) 322-1221 With a copy to: Elliott Taylor, Esq. 3090 East 3300 South, Suite 400 Salt Lake City, Utah 84109 Telecopy No.: (801) 463-6080 If to Begum, to: Paul G. Begum 350 West 300 South Salt Lake City, UT 84101 Telecopy No.: (801) 322-1221 4.4 Attorney's Fees. If any action at law or in equity, or any arbitration or other proceeding is brought for the enforcement, interpretation or a specific performance of the Agreement, or because of any alleged dispute, breach, default or misrepresentation in connection with this Agreement, the successful or prevailing party shall be entitled to recover actual attorney's fees and other costs such party incurred in that action or proceeding (including attorney's fees and costs incurred on appeal), and/or enforcing any judgment, order or award granted therein, in addition to any other relief to which such party may be entitled. Any judgment, order or award entered in such action or proceeding shall contain a specific provision providing for the recovery of attorney's fees and costs incurred in enforcing such judgment, order or award. 4.5 Entire Agreement etc. This Agreement and the Acquisition Agreement contain the entire agreement among the parties hereto regarding the subject matter hereof, and supersede all other prior or contemporaneous agreements and negotiations regarding such subject matter, whether written or oral. The indemnification obligations contained in this Agreement shall survive without limitation the Closing Date and the consummation of the transactions contemplated in the Acquisition Agreement. 4.8 Amendment or Waiver. Every right and remedy provided herein shall be cumulative with every other right and remedy, whether conferred herein, at law, or in equity, and such remedies may be enforced concurrently, and no waiver by any party of the performance of any obligations by the other shall be construed as a waiver of the same or any other default then, theretofore, or thereafter occurring or existing. At any time prior to the Closing Date, this Agreement may be amended by ah writing signed by all parties hereto, with respect to any of the terms contained herein, and any term or condition of this Agreement maybe waived or the time for performance thereof may be A-73 extended by a writing signed by the parties for whose benefit the provision is intended. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. AVTEL COMMUNICATIONS, INC., HI, TIGER INTERNATIONAL, INC., a California corporation a Utah corporation By________________________ By___________________________ Anthony Papa Its___________________________ President & Chief Executive Officer ______________________________ Paul G. Begum EX-2 3 B-1 AVTEL COMMUNICATIONS, INC. DESIGNATION OF RIGHTS, PRIVILEGES, AND PREFERENCES OF SERIES A CONVERTIBLE PREFERRED STOCK Pursuant to the provisions of Section 16-10a-602, of the Utah Revised Business Corporation Act, the above corporation (the "Corporation") hereby adopts the following Designation of Rights, Privileges, and Preferences of Series A Convertible Preferred Stock (the "Designation"): We, Anthony E. Papa and James P. Pisani hereby certify that: 1. We are the President and Chief Executive Officer and the Executive Vice President, Secretary and Chief Financial Officer, respectively, of AvTel Communications, Inc., a Utah corporation formerly called Hi, Tiger, International, Inc., a Utah corporation. 2. The number of shares of Preferred Stock of this corporation is 5,000,000, none of which has been issued. 3. The Board of Directors duly adopted the following resolution: WHEREAS, the Amended and Restated Articles of Incorporation authorize the Preferred Stock of the corporation to be issued in series and authorize the Board of Directors to determine the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued class or series of Preferred Stock and to fix the number of shares and designation of any such series; NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby establish a series of Preferred Stock as follows: Section 1 Designation and Number of Shares The shares of such preferred stock shall be designated AvTel Communications, Inc. Series A Convertible Preferred Stock ("Series A Convertible Preferred Stock"). The par value of each share of Series A Convertible Preferred Stock shall be $1.00. The number of shares constituting Series A Convertible Preferred Stock shall be 1,000,000. Section 2 General Definitions. For purposes of designating the preferences, privileges, restrictions and rights of the Series A Convertible Preferred Stock, the following definitions shall apply: 2.1 Board of Directors shall mean the Board of Directors of the Corporation. 2.2 Business Day shall mean any day other than Saturdays, Sundays or other days on which commercial banks are authorized or required to close in Salt Lake City, Utah. 2.3 Common Stock shall refer to the Common Stock of the Corporation. 2.4 Consideration shall mean in any issuance (other than a Non-Dilutive Issuance) of securities, including but not limited to common stock or Convertible Securities or Options (a "Transaction"), (a) in case of an issuance of Common Stock for cash or property (i) the net amount of the cash and the fair market value of the property received by the issuer for such securities, or (b) in the case of Convertible Securities or Options, the price at which the holders of such Convertible Securities or Options may, upon the conversion, exchange or exercise thereof, acquire such Common Stock. B-2 2.5 Convertible Securities shall mean any evidence of indebtedness, shares (other than Common Stock) or other securities of the Corporation, convertible into or exchangeable for Common Stock. 2.6 Corporation shall mean AvTel Communications, Inc., a Utah corporation. 2.7 Current Market Price of any security on any Trading Day shall be (a) if such security is traded on a national securities exchange, its last sale price on such Trading Day on such national securities exchange or, if there was no sale on that day, the last Trading Day on which there was a sale or (b) if the principal market for such security is the over-the-counter market, and such security is quoted on the National Association of Securities Dealers Automated Quotations System ("NASDAQ"), the last sale price reported on NASDAQ on such Trading Day or, if such security is an issue for which last sale prices are not reported on NASDAQ, the mean between the bid and ask quotation on such day, but, in each of the preceding two cases, if the relevant NASDAQ price or quotation did not exist on such day, then the price or quotation on the preceding Trading Day in which there was such a price or quotation. 2.8 Distribution shall mean the transfer of cash or property without consideration, whether by way of dividend or otherwise, or the purchase or redemption of shares of this Corporation for cash or property, including any such transfer, purchase or redemption by a Subsidiary of this Corporation. 2.9 Equivalent Shares shall mean common stock and shares of any new class (a "New Class") of securities without fixed maximum dividends or which share with such common stock in the residual value of the issuer on liquidation. 2.10 Issuance Date shall mean the first date upon which any shares of Series A Convertible Preferred Stock are issued by the Corporation. 2.11 Issue Price shall mean the result determined by dividing the Consideration received by the deemed number of Equivalent Shares issued in any Transaction. 2.12 Junior Shares shall mean all Common Stock and any other shares of this Corporation other than the Series A Convertible Preferred Stock. 2.13 Liquidation Preference shall mean the par value of each share of Series A Convertible Preferred Stock, in addition to the aggregate amount of any cumulative, unpaid dividends, for each share of Series A Convertible Preferred Stock as determined in accordance with Section 3 below. 2.14 Non-Dilutive Issuances means (a) the issuance of any series of the Corporation's preferred stock, (b) the issuance of Common Stock upon conversion of any Series A Convertible Preferred Stock, (c) the issuance of Options to purchase shares of Common Stock, or the issuance of Common Stock upon the exercise of such Options, provided that (i) such Options are issued to employees, officers, directors or consultants of the Corporation, (ii) such Options are issued pursuant to one or more employee stock purchase or stock option plans or long-term incentive plans or as part of bona fide reasonable compensation arrangements in the ordinary course of business, (iii) in the case of Options, the exercise price of such Options shall be substantially equal to the then Current Market Price of the underlying Common Stock on the date of grant unless issued pursuant to an employee stock purchase plan intended to meet the requirements of Section 423 of the Internal Revenue Code of 1986, or (e) issuances of any Common Stock or Options by the Corporation pursuant to any strategic alliance which, for purposes hereof shall mean any contract or agreement between the Corporation or one of its Subsidiaries and B-3 one or more other parties involving an acquisition by the Corporation or one or more of its Subsidiaries, of an ownership interest (whether partial or whole and whether in the form of an acquisition of stock, voting or non-voting securities, general or limited partnership interests, or similar equity participation interests) in any other corporation, partnership, joint venture or other business entity, or any such agreement or contract involving the development, commercialization, marketing, sale, distribution, provisioning, supply, licensing or production of any products or services by or for the Corporation or one or more of its Subsidiaries. 2.15 Option shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities. 2.16 Person means a corporation, an association, a trust, a partnership, a joint venture, an organization, a business, an individual, a government or political subdivision thereof or a governmental body. 2.17 Public Offering with respect to any securities means the registration of such securities under the Securities Act, under a firm commitment underwriting, for sale to the public. 2.18 Securities Act shall mean the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as may be in effect from time to time. 2.19 Series A Convertible Preferred Stock shall refer to the Series A Convertible Preferred Stock of this Corporation. 2.20 Subsidiary shall mean any corporation at least 50% of whose outstanding voting shares shall at the time be owned by the Corporation or by one or more of such subsidiaries. 2.21 Trading Day shall mean any day on which trading occurs on the New York Stock Exchange. Section 3. Dividend Rights of Preferred Stock. The holders of the Series A Convertible Preferred Stock shall be entitled to receive, out of any funds legally available therefor, cumulative dividends, on each outstanding share of Series A Convertible Preferred Stock, at the rate of eight percent (8.0%) of the par value of the Series A Convertible Preferred Stock per annum per share, on each outstanding share of Series A Convertible Preferred Stock, and no more, payable prior and in preference to any payment of any dividend on, or other distribution with respect to, Junior Shares and payable semi-annually, commencing one hundred eighty (180) days from the Issuance Date, from funds legally available therefor. Such dividends shall accrue from the Issuance Date whether or not earned so that no dividends (other than those payable solely in Common Stock) shall be made with respect to Junior Shares until cumulative dividends on the Series A Convertible Preferred Stock for all past dividend periods and for the then current six-month dividend period shall have been declared and paid or set apart. Such dividends shall be payable to holders of record of shares of Series A Convertible Preferred Stock as of a record date, determined by the Board of Directors, which shall be not more than thirty (30) days prior to the dividend payment date. Other than with respect to the dividends paid on the Series A Convertible Preferred Stock which represent payment cumulative dividends thereon for all past dividend periods and for the then current six-month dividend period, no dividend shall be declared, paid on or set apart for the outstanding shares of Series A Convertible Preferred Stock. The holders of at least 50% of the Series A Convertible Preferred Stock may at any time by written consent waive payment B-4 of any accumulated but unpaid dividends with respect to such Series A Convertible Preferred Stock or eliminate any requirement to declare, pay, set apart or accumulate any dividends with respect to such Series A Convertible Preferred Stock. Section 4. Restriction on Dividend Rights of Junior Shares. No dividend or other Distribution (other than those payable solely in Common Stock) shall be declared or paid with respect to Junior Shares while any shares of Series A Convertible Preferred Stock are outstanding without the vote or written consent by the holders of at least 50% of the outstanding shares of Series A Convertible Preferred Stock. Section 5. Liquidation Rights of Series A Convertible Preferred Stock. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Convertible Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Junior Shares by reason of their ownership of such stock, an amount (the "Liquidation Preference") equal to the sum of $1.00 for each share of Series A Convertible Preferred Stock then held by them and, in addition, an amount equal to all declared but unpaid dividends, if any, on the Series A Convertible Preferred Stock. If the assets and funds thus distributed among the holders of the Series A Convertible Preferred Stock shall be insufficient to permit the payment to such holders of the aggregate Liquidation Preference payable to such holders, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series A Convertible Preferred Stock, pro rata among the holders of such Series A Convertible Preferred Stock according to the number of shares held by each such holder. After payment to the holders of Series A Convertible Preferred Stock of the Liquidation Preference as aforesaid, the entire assets and funds of the Corporation legally available for distribution, if any, shall be distributed among the holders of the Junior Shares. Section 6. Redemption. The Corporation may, from funds legally available therefore, redeem all or any part of the outstanding Series A Convertible Preferred Stock as follows: 6.1 Redemption of Series A Convertible Preferred Stock After Second Anniversary. After the second anniversary of the Issuance Date, the Corporation may redeem, at any time, and from time to time, after the second anniversary of the Issuance Date, all or any part, but if less than all, not less than 25%, of the Series A Convertible Preferred Stock outstanding. Any redemption effected pursuant to this Section 6 shall be made on a pro-rata basis among the holders of Series A Convertible Preferred Stock in proportion to the Shares of Series A Convertible Preferred Stock then held by them. 6.2 Redemption of Series A Convertible Preferred Stock Before First Anniversary. The Corporation may, at any time, and from time to time, prior to the first anniversary of the Issuance Date redeem all or any part, but if less than all, not less than 25%, of the outstanding Series A Convertible Preferred Stock immediately following any period of twenty (20) consecutive Trading Days on which the Current Market Price of Common Stock was $2.00 per share or more. 6.3 Redemption Price. The Corporation may redeem shares of Series A Convertible Preferred Stock pursuant to either Section 6.1 or 6.2 above by paying in cash therefore an amount (the "Redemption Price") equal to the Liquidation Preference per share of Series A Convertible Preferred Stock. B-5 6.4 Redemption Notice. In order to effect a redemption pursuant to Section 6.1 or 6.2 above, the Corporation shall, by written notice (herein the "Redemption Notice"), mailed first class postage prepaid, to each holder of record (at the close of business on the Business Day immediately preceding the day on which notice is given) of Series A Convertible Preferred Stock to be redeemed, at the address shown on the records of the Corporation for such holder, notify such holder of the redemption to be effected. Such Redemption Notice shall specify the number of shares of Series A Convertible Preferred Stock to be redeemed from such holder, the Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, and a date (herein the "Delivery Date") which shall not be less than forty-five (45) days nor more than sixty (60) days following the date of such Redemption Notice, his certificate or certificates representing the shares to be redeemed. On or before the Delivery Date, each holder of Series A Convertible Preferred Stock to be redeemed shall surrender to the Corporation a certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the Person whose name appears on such certificate or certificates as the owner thereof, any surrendered certificate shall be canceled. In the event that less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. 6.5 Continuing Rights of Holders of Series A Convertible Preferred Stock Following Redemption. From and after the Delivery Date, unless there shall have been a defaulted payment of the Redemption Price, all rights of the holders of shares of Series A Convertible Preferred Stock designated for redemption and the Redemption Notice as holders of Series A Convertible Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation are legally available for redemption of shares of Series A Convertible Preferred Stock on the Delivery Date and are not sufficient to redeem the total number of shares of Series A Convertible Preferred Stock deemed redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares, ratably from the holders of such shares to be redeemed, based upon their holdings of Series A Convertible Preferred Stock. The shares of Series A Convertible Preferred Stock not redeemed shall remain outstanding and entitled to the rights and preferences provided herein and shall no longer be considered as having been designated for redemption in the relevant Redemption Notice. 6.6 Deposit of Redemption Price. On or prior to each Delivery Date, the Corporation shall deposit the Redemption Price of all shares of Series A Convertible Preferred Stock designated for redemption in the Redemption Notice and not yet redeemed with a bank or trust corporation having aggregate capital and surplus in excess of $10,000,000 as a trust fund for the benefit of the respective holders in shares designated for redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust corporation to pay the redemption price for such shares to the respective holders on or after the Delivery Date on receipt of notification from the Corporation that such holder has surrendered his or her share certificates to the Corporation pursuant to Subsection 6.4 above. As of the Delivery Date, the deposit shall constitute full payment of the shares to their holders, and from and after the Delivery Date shares so called for redemption shall be redeemed and shall be deemed to be no longer outstanding, and holders thereof shall cease to be B-6 stockholders with respect to such shares and shall have no rights with respect thereto, except for rights to receive a bank or trust corporation payment of the Redemption Price of the shares, without interest, upon surrender of their certificates therefore. Such instructions shall also provide that any monies deposited by the Corporation pursuant to this Subsection 6.6 for the redemption of shares thereafter converted into shares of Common Stock pursuant to Section 8 hereof, prior to the Delivery Date, shall be returned to the Corporation forthwith upon such conversion. The balance of any monies deposited by the Corporation pursuant to this Subsection 6.6 remaining unclaimed at the expiration of one (1) year following the Delivery Date shall thereupon be returned to the Corporation upon its request as expressed in a resolution adopted by its Board of Directors. Section 8. Conversion Rights of Series A Convertible Preferred Stock. The holders of the Series A Convertible Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): 8.1 Right to Convert. Subject to the terms and conditions hereof, each share of Series A Convertible Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the first anniversary of the Issuance Date, into such number of fully paid and nonassessable shares of Common Stock, as determined by dividing $1.00 by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series A Convertible Preferred Stock (the "Conversion Price") shall initially be $1.00 per share of Common Stock. The Conversion Price shall be subject to adjustment as hereinafter provided in Section 8.4. 8.2 Automatic Conversion on Public Offering. Each share of Series A Convertible Preferred Stock shall automatically be converted into the number of fully paid and nonassessable shares of Common Stock upon the closing of a Public Offering pursuant to an effective Registration Statement under the Securities Act, covering the offer and sale of Common Stock to the public at a public offering price (prior to underwriters' discounts and expenses) equal to or exceeding $10.00 per share of Common Stock (as adjusted for stock dividends, combinations or splits with respect to such shares) and the proceeds to the Corporation of not less than $15 million (net only of underwriters' commissions and expenses relating to the issuance, including without limitation expenses of the Corporation's counsel). In the event of such Public Offering, the person(s) entitled to receive the Common Stock issuable upon such conversion of Series A Convertible Preferred Stock shall not be deemed to have converted such Series A Convertible Preferred Stock until the date of the closing of such sale of Common Stock. The Conversion Price of shares of Series A Convertible Preferred Stock which are converted pursuant to this Section 8.2 shall be the lower of $1.00 per share or a price determined by multiplying .80 times the Issue Price per share of the Common Stock issued in such Public Offering. 8.3 Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of Series A Convertible Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by a fair and reasonable conversion price to be determined by the Board of Directors solely for calculating payments due for fractional shares. No shares of Common Stock will be issued in respect of accrued or declared and unpaid dividends on the Series A Convertible Preferred Stock; however, except in the case of an Automatic Conversion on a Public Offering as set forth in subparagraph 8.2 hereof, the Corporation shall remain liable after conversion of any Series A B-7 Convertible Preferred Stock for cumulative unpaid dividends accrued on such Series A Convertible Preferred Stock prior to the time of conversion. Before any holder of Series A Convertible Preferred Stock shall be entitled to convert the same into full shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation and, except for the Automatic Conversion pursuant to subparagraph 8.2 above, shall give written notice (the "Conversion Notice") to the Corporation, at such office that he elects to convert the same. The Corporation shall, as soon as practicable thereafter issue and deliver or cause to be issued and delivered to such holder of Series A Convertible Preferred Stock, at such office or at such other place as the holder shall specify in the Conversion Notice, a certificate or certificates for the number of shares of Common Stock, to which he shall be entitled as aforesaid, registered in the name of such holder or in such other name as the holder shall specify in the aforementioned written notice. Except as set forth in subparagraph 8.2 above, such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Convertible Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. 8.4 Adjustments for Diluting Issues. (a) Adjustment for Stock Splits and Combinations. If the Corporation at any time or from time to time after the Issuance Date effects a subdivision of the outstanding Common Stock (meaning to increase the number of shares of Common Stock into which each share of Series A Convertible Preferred Stock is convertible), the Conversion Price then in effect immediately before that subdivision shall be proportionately increased, and conversely, if the Corporation at any time or from time to time after the Issuance Date combines the outstanding shares of Common Stock (meaning to decrease the number of shares of Common Stock into which each share of Series A Convertible Preferred Stock is convertible), the Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this subparagraph (a) shall become effective at the close of business on the date the subdivision or combination becomes effective. (b) Adjustment for Certain Dividends and Disbursements. In the event the Corporation at any time, or from time to time, after the Issuance Date, makes or fixes a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock, then and in each such event, the Conversion Price then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction (a) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date (but excluding shares of Common Stock previously issued by the Corporation upon conversion of Series A Convertible Preferred Stock) plus the number of shares of Common Stock issuable in payment of such dividend or distribution, and (b) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date (but excluding shares of Common Stock previously issued by the Corporation upon conversion of Series A Convertible Preferred Stock); provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed thereof, the Conversion Price shall be recomputed accordingly as of the close of business on such record date and B-8 thereafter the Conversion Price shall be adjusted such that the number of shares of Common Stock into which each share of Series A Convertible Preferred Stock is convertible pursuant to this subsection as of the time of actual payment of such dividends or distributions. (c) Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Issuance Date makes, or fixes a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then in each such event a provision shall be made so that the holders of Series A Convertible Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation which they would have received had their Series A Convertible Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 8 with respect to the rights of the holders of the Series A Convertible Preferred Stock. (d) Adjustment for Reclassification, Exchange and Substitution. If the Common Stock issuable upon the conversion of the Series A Convertible Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets, provided for elsewhere in this Section 8) then and in any such event each holder of Series A Convertible Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of Common Stock into which such shares of Series A Convertible Preferred Stock might have been converted immediately prior to such reorganization, reclassification or change, all subject to further adjustment as provided herein. (e) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time or from time to time there is a capital reorganization of the Common Stock (other than either a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 8) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all or substantially all of the Corporation's properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holders of the Series A Convertible Preferred Stock shall thereafter be entitled to receive upon conversion of the Series A Convertible Preferred Stock, the number of shares of stock or other securities or property of the Corporation, or of the successor corporation resulting from such merger or consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 8 with respect to the rights of the holders of the Series A Convertible Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this Section 8 (including adjustment of the Conversion Price then in effect) shall be applicable after that event and be as nearly equivalent to the provisions hereof as may be practicable. B-9 8.5 No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 8 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Convertible Preferred Stock against dilution or other impairment. 8.6 Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the Corporation shall mail to each holder of Series A Convertible Preferred Stock at least twenty (20) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution. We, further certify, that the statements contained in the foregoing resolution creating and designating the said Series of Preferred Stock and fixing the number, powers, preferences and relative optional, participation, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics thereof shall, upon the effective date of said Series, be deemed to be included in and be a part of the Articles of Incorporation of the Corporation. IN WITNESS WHEREOF, the foregoing Designation of Rights, Privileges, and Preferences of Series A Preferred Stock of the Corporation has been executed this ___ day of ____________, 1996. ATTEST: AVTEL COMMUNICATIONS, INC. - ------------------------------------ ----------------------------------- James P. Pisani, Secretary and Chief Anthony E. Papa, President and Chief Financial Officer Executive Officer EX-3 4 C-1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF HI, TIGER INTERNATIONAL, INC. The undersigned, the president and secretary of Hi, Tiger International, Inc. (the "Corporation") whose original Articles of Incorporation were filed with the state of Utah on October 27, 1981, do hereby certify that the Corporation has set forth the Amended and Restated Articles of Incorporation, as adopted by the board of directors of the Corporation and approved by the shareholders of the Corporation as required pursuant to Section 16-10a-1003 of the Utah Revised Business Corporation Act. 1. Article I of the Articles of Incorporation is amended to read: ARTICLE I - NAME The name of the corporation is AVTEL COMMUNICATIONS, INC., A UTAH CORPORATION. 2. Article II of the Articles of Incorporation is amended to read: ARTICLE II - PURPOSE The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the Utah Revised Business Corporation Act other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the Utah Revised Business Corporation Act. 3. Article III of the Articles of incorporation is amended to read: ARTICLE III - SHARES This Corporation is authorized to issue two classes of shares of stock, to be designated common voting and preferred, respectively. The Corporation is authorized to issue 50,000,000 shares of common stock and 5,000,000 shares of preferred stock. The Board of Directors may amend these Articles of Incorporation to do any of the following: (A) designate in whole or in part, the preferences, limitations and relative rights, within the limits set forth in the Utah Revised Business Corporation Act, of any class of shares, before the issuance of any shares of that class; (B) create one or more series within a class of shares, fix the number of shares of each such series, and designate, in whole or part, the preferences, limitations and relative rights of the series within the limits set forth in the Utah Revised Business Corporation Act, all before the issuance of any shares of that series; (C) alter or revoke the preferences, limitations and relative rights granted to or imposed upon any wholly unissued class of shares or any wholly unissued series of any class of shares; or (D) increase or decrease the number of shares constituting any series, the number of shares of which was originally fixed by the board, either before or after the issuance of shares of the series, provided that the C-2 number may not be decreased below the number of shares of the series than outstanding, or increased above the total number of authorized shares of the applicable class of shares available for designation as a part of the series. 4. Article IV of the Articles of Incorporation is amended to read: ARTICLE IV - LIABILITY The liability of the Directors of the Corporation for monetary damages shall be eliminated or limited to the fullest extent permissible under Utah law. 5. Article V of the Articles of Incorporation is amended to read: ARTICLE V - INDEMNITY The Corporation is authorized to provide indemnification of officers, employees, fiduciaries and agents for breach of duty to the Corporation and its stockholders through Bylaw provisions or through agreements with such officers, employees, fiduciaries and agents, or both, to the maximum allowable by Section 16-10a-902 of the Utah Revised Business Corporation Act and any other provisions of Utah law. 6. Article VI of the Articles of Incorporation is amended to read: ARTICLE VII - SHAREHOLDER CONSENT Shareholders of the Corporation shall be able to take shareholder action through a consent of the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote thereon where present and voted as provided in Section 16-10a-704 of the Utah Revised Business Corporation Act. 7. Article VII of the Articles of Incorporation is amended to read: The name and address in the State of Utah of this Corporation's registered agent for service of process is: CT Corporation Systems 50 West Broadway, 8th Floor Salt Lake City, Utah 84101 8. Article XI of the Articles of Incorporation is deleted. 9. The Amendments herein have been duly approved and recommended to the shareholders by the board of directors. 10. The Amended and Restated Articles of Incorporation do not provide for any exchange, reclassification or cancellation of issued shares. 11. The Amendments and Deletions herein have been duly approved by the required shareholder vote in accordance with Section 16-10a-1003 of the Utah Revised Business Corporation Act. At the time of the vote, the Corporation had only one class of shares outstanding, and the number of outstanding shares was . The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required for the approval of the amendments herein was more than fifty percent (50%). C-3 IN WITNESS WHEREOF, the foregoing Amended and Restated Articles of Incorporation have been executed this ___ day of __________, 1996. --------------------------------- Anthony E. Papa, President of Hi, Tiger International, Inc. --------------------------------- James P. Pisani, Secretary of Hi, Tiger International, Inc. EX-4 5 D-1 PART 13 DISSENTERS' RIGHTS 16-10a.1301. DEFINITIONS. For purposes of Part 13: (1)"Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2)"Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (3)"Dissenter" means a shareholder who is entitled to dissent from corporate action under Section 16-10a-1302 and who exercises that right when and in the manner required by Sections 16-10a-1320 through 16-10a-1328. (4)"Fair value" with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (5)"Interest" means interest from the effective date of the corporate action until the date of payment, at the statutory rate set forth in Section 15-1-1, compounded annually. (6)"Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares that are registered in the name of a nominee to the extent the beneficial owner is recognized by the corporation as the shareholder as provided in Section 16- 10a-723. (7)"Shareholder" means the record share-holder or the beneficial shareholder. 16.10a-1302. RIGHT TO DISSENT. (1)A shareholder, whether or not entitled to vote, is entitled to dissent from, and obtain payment of the fair value of shares held by him in the event of, any of the following corporate actions: (a)consummation of a plan of merger to which the corporation is a party if- (i)shareholder approval is required for the merger by Section 16-lOa-1103 or the articles of incorporation; or (ii)the corporation is a subsidiary that is merged with its parent under Section 16-10a-1104; (b)consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired; D-2 (c)consummation of a sale, lease, exchange, or other disposition of all, or substantially all, of the property of the corporation for which a shareholder vote is required under Subsection 16-10a-1202(l), but not including a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; and (d)consummation of a sale, lease, exchange, or other disposition of all, or substantially all, of the property of an entity controlled by the corporation if the shareholders of the corporation were entitled to vote upon the consent of the corporation to the disposition pursuant to Subsection 16-10a-1202(2). (2)A shareholder is entitled to dissent and obtain payment of the fair value of his shares in the event of any other corporate action to the extent the articles of incorporation, bylaws, or a resolution of the board of directors so provides. (3)Notwithstanding the other provisions of this part, except to the extent otherwise provided in the articles of incorporation, bylaws, or a resolution of the board of directors, and subject to the limitations set forth in Subsection (4), a shareholder is not entitled to dissent and obtain payment under Subsection (1) of the fair value of the shares of any class or series of shares which either were listed on a national securities exchange registered under the federal Securities Exchange Act of 1934, as amended, or on the National Market System of the National Association of Securities Dealers Automated Quotation System, or were held of record by more than 2,000 shareholders, at the time of. (a)the record date fixed under Section 16-10a-707 to determine the shareholders entitled to receive notice of the shareholders' meeting at which the corporate action is submitted to a vote; (b)the record date fixed under Section 16-10a-704 to determine shareholders entitled to sign writings consenting to the proposed corporate action; or (c)the effective date of the corporate action if the corporate action is authorized other than by a vote of shareholders. (4)The limitation set forth in Subsection (3) does not apply if the shareholder will receive for his shares, pursuant to the corporate action, anything except: (a)shares of the corporation surviving the con- summation of the plan of merger or share exchange; (b)shares of a corporation which at the effective date of the plan of merger or share exchange either will be listed on a national securities exchange registered under the federal Securities Exchange Act of 1934, as amended, or on the National Market System of the National Association of Securities Dealers Automated Quotation System, or will be held of record by more than 2,000 shareholders; (c)cash in lieu of fractional shares; or (d)any combination of the shares described in Subsection (4), or cash in lieu of fractional shares. D-3 (5)A shareholder entitled to dissent and obtain payment for his shares under this part may not challenge the corporate action creating the entitlement unless the action is unlawful or fraudulent with respect to him or to the corporation. 16-10a-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (1)A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if the shareholder dissents with respect to all shares beneficially owned by any one person and causes the corporation to receive written notice which states the dissent and the name and address of each person on whose behalf dissenters' rights are being asserted. The rights of a partial dissenter under this subsection are determined as if the shares as to which the shareholder dissents and the other shares held of record by him were registered in the names of different shareholders. (2)A beneficial shareholder may assert dissenters rights as to shares held on his behalf only if. (a)the beneficial shareholder causes the corporation to receive the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (b)the beneficial shareholder dissents with respect to all shares of which he is the beneficial shareholder. (3)The corporation may require that, when a record shareholder dissents with respect to the shares held by any one or more beneficial shareholders, each beneficial shareholder must certify to the corporation that both he and the record shareholders of all shares owned beneficially by him have asserted, or will timely assert, dissenters' rights as to all the shares unlimited on the ability to exercise dissenters' rights. The certification requirement must be stated in the dissenters' notice given pursuant to Section 16- 10a-1322. 16-10a-1320. NOTICE OF DISSENTERS' RIGHTS. (1)If a proposed corporate action creating dissenters' rights under Section 16-1Oa-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must be sent to all shareholders of the corporation as of the applicable record date, whether or not they are entitled to vote at the meeting. The notice shall state that shareholders are or may be entitled to assert dissenters' rights under this part. The notice must be accompanied by a copy of this part and the materials, if any, that under this chapter are required to be given the shareholders entitled to vote on the proposed action at the meeting. Failure to give notice as required by this subsection does not affect any action taken at the shareholders' meeting for which the notice was to have been given. (2)If a proposed corporate action creating dissenters' rights under Section 16-10a-1302 is authorized without a meeting of shareholders pursuant to Section 16-10a-704, any written or oral solicitation of a shareholder to execute a written D-4 consent to the action contemplated by Section 16-10a-704 must be accompanied or preceded by a written notice stating that shareholders are or may be entitled to assert dissenters' rights under this part, by a copy of this part, and by the materials, if any, that under this chapter would have been required to be given to shareholders entitled to vote on the proposed action if the proposed action were submitted to a vote at a shareholders' meeting. Failure to give written notice as provided by this subsection does not affect any ac- tion taken pursuant to Section 16-10a-704 for which the notice was to have been given. 16-10a-1321. DEMAND FOR PAYMENT - ELIGIBILITY AND NOTICE OF INTENT. (1) If a proposed corporate action creating dissenters' rights under Section 16-10a-1302 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (a)must cause the corporation to receive, before the vote is taken, written notice of his intent to demand payment for shares if the proposed action is effectuated; and (b)may not vote any of his shares in favor of the proposed action. (2)If a proposed corporate action creating dissenters' rights under Section 16-10a-1302 is authorized without a meeting of shareholders pursuant to Section 16-10a-704, a shareholder who wishes to assert dissenters' rights may not execute a writing consenting to the proposed corporate action. (3)In order to be entitled to payment for shares under this part, unless otherwise provided in the articles of incorporation, bylaws, or a resolution adopted by the board of directors, a shareholder must have been a shareholder with respect to the shares for which payment is demanded as of the date the proposed corporate action creating dissenters' rights under Section 16-10a-1302 is approved by the shareholders, if shareholder approval is required, or as of the effective date of the corporate action if the corporate action is authorized other than by a vote of shareholders. (4)A shareholder who does not satisfy the requirements of Subsections (1) through (3) is not entitled to payment for shares under this part. 1992 16-1Oa-1322. DISSENTERS' NOTICE. (1)If proposed corporate action creating dissenters' rights under Section 16-10a-1302 is authorized, the corporation shall give a written dissenters' notice to all shareholders who are entitled to demand payment for their shares under this part. (2)The dissenters' notice required by Subsection(1)must be sent no later than ten days after the effective date of the corporate action creating dissenters' rights under Section 16- 10a-1302, and shall: D-5 (a)state that the corporate action was authorized and the effective date or proposed effective date of the corporate action; (b)state an address at which the corporation will receive payment demands and an address at which certificates for certificated shares must be deposited; (c)inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (d)supply a form for demanding payment, which form requests a dissenter to state an address to which payment is to be made; (e)set a date by which the corporation must receive the payment demand and by which certificates for certificated shares must be deposited at the address indicated in the dissenters' notice, which dates may not be fewer than 30 nor more than 70 days after the date the dissenters' notice required by Subsection (1) is given; (f) state the requirement contemplated by Subsection 16- 1Oa-1303(3), if the requirement is imposed; and (g)be accompanied by a copy of this part. 1992 16-1Oa-1323. PROCEDURE TO DEMAND PAYMENT. (1)A shareholder who is given a dissenters' notice described in Section 16-10a-1322, who meets the requirements of Section 16-1Oa-1321, and wishes to assert dissenters' rights must, in accordance with the terms of the dissenters' notice: (a)cause the corporation to receive a payment demand, which may be the payment demand form contemplated in Subsection 16-10a-1322(2)(d), duly completed, or may be stated in another writing; (b)deposit certificates for his certificated shares in accordance with the terms of the dissenters' notice; and (c)if required by the corporation in the dissenters' notice described in Section 16-1Oa-1322, as contemplated by Section 16-10a-1327, certify in writing, in or with the payment demand, whether or not he or the person on whose behalf he asserts dissenters' rights acquired beneficial ownership of the shares before the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action creating dissenters' rights under Section 16-10a-1302. (2)A shareholder who demands payment in accordance with Subsection (1) retains all rights of a shareholder except the right to transfer the shares until the effective date of the proposed corporate action giving rise to the exercise of dissenters' rights and has only the right to receive payment for the shares after the effective date of the corporate action. (3)A shareholder who does not demand payment and deposit share certificates as required, by the date or dates set in the dissenters' notice, is not entitled to payment for shares under this part. 1992 D-6 16-10a-1324. UNCERTIFICATED SHARES. (1)Upon receipt of a demand for payment under Section 16-10a- 1323 from a shareholder holding uncertificated shares, and in lieu of the deposit of certificates representing the shares, the corporation may restrict the transfer of the shares until the proposed corporate action is taken or the restrictions are released under Section 16-10a-1326. (2)In all other respects, the provisions of Section 16-10a- 1323 apply to shareholders who own uncertificated shares. 1992 16-1Oa-1325. PAYMENT. (1) Except as provided in Section 16-1Oa-1327, upon the later of the effective date of the corporate action creating dissenters' rights under Section 16-10a-1302, and receipt by the corporation of each payment demand pursuant to Section 16- 1Oa-1323, the corporation shall pay the amount the corporation estimates to be the fair value of the dissenter's shares, plus interest to each dissenter who has complied with Section 16- 1Oa-1323, and who meets the requirements of Section 16-1Oa- 1321, and who has not yet received payment. (2)Each payment made pursuant to Subsection (1) must be accompanied by: (a)(i) (A) the corporation's balance sheet as of the end of its most recent fiscal year, or if not available, a fiscal year ending not more than 16 months before the date of payment; (B)an income statement for that year; (C)a statement of changes in shareholders' equity for that year and a statement of cash flow for that year, if the corporation customarily provides such statements to shareholders; and (D)the latest available interim financial statements, if any; (ii)the balance sheet and statements referred to in Subsection (i) must be audited if the corporation customarily provides audited financial statements to shareholders; (b) a statement of the corporation's estimate of the fair value of the shares and the amount of interest payable with respect to the shares; (c) a statement of the dissenter's right to demand payment under Section 16-10a-1328; and (d) a copy of this part. 1992 16-10a-1326. FAILURE TO TAKE ACTION. (1)If the effective date of the corporate action creating dissenters' rights under Section 16-10a-1302 does not occur within 60 days after the date set by the corporation as the date by which the corporation must receive payment demands as provided in Section 16-10a-1322, the corporation shall return all deposited certificates and release the transfer restric- tions imposed on uncertificated shares, and all shareholders who submitted a demand for payment pursuant to Section 16-10a- 1323 shall thereafter have all rights of a shareholder as if no demand for payment had been made. D-7 (2)If the effective date of the corporate action creating dissenters' rights under Section 16-10a-1302 occurs more than 60 days after the date set by the corporation as the date by which the corporation must receive payment demands as provided in Section 16-10a-1322, then the corporation shall send a new dissenters' notice, as provided in Section 16-10a-1322, and the provisions of Sections 16-10a-1323 through 16-10a-1328 shall again be applicable. 1992 16-10a-1327. SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER ANNOUNCEMENT OF PROPOSED CORPORATE ACTION. (1)A corporation may, with the dissenters' notice given pursuant to Section 16-1Oa-1322, state the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action creating dissenters' rights under Section 16-10a-1302 and state that a shareholder who asserts dissenters' rights must certify in writing, in or with the payment demand, whether or not he or the person on whose behalf he asserts dissenters' rights acquired beneficial ownership of the shares before that date. With respect to any dissenter who does not certify in writing, in or with the payment demand that he or the person on whose behalf the dissenters' rights are being asserted, acquired beneficial ownership of the shares before that date, the corporation may, in lieu of making the payment provided in Section 16-10a-1325, offer to make payment if the dissenter agrees to accept it in full satisfaction of his demand. (2)An offer to make payment under Subsection (1) shall include or be accompanied by the information required by Subsection 16-10a-1325(2). 1992 16-10a-1328. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (1) A dissenter who has not accepted an offer made by a corporation under Section 16-1Oa-1327 may notify the corporation in writing of his own estimate of the fair value of his shares and demand payment of the estimated amount, plus interest, less any payment made under Section 16-LOA-1325, if: (a)the dissenter believes that the amount paid under Section 16-10a-1325 or offered under Section 16-10a-1327 is less than the fair value of the shares; (b)the corporation fails to make payment under Section 16-10a-1325 within 60 days after the date set by the corporation as the date by which it must receive the payment demand; or (c)the corporation, having failed to take the proposed corporate action creating dissenters' rights, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares as required by Section 16-10a-1326. (2)A dissenter waives the right to demand payment under this section unless he causes the corporation to receive the notice required by Subsection (i) within 30 days after the corporation made or offered payment for his shares. 1992 D-8 16-10a-1330. JUDICIAL APPRAISAL OF SHARES COURT ACTION. (1)If a demand for payment under Section 16-1Oa-1328 remains unresolved, the corporation shall commence a proceeding within 60 days after receiving the payment demand contemplated by Section 16-10a-1328, and petition the court to determine the fair value of the shares and the amount of interest. If the corporation does not commence the proceeding within the 60-day period, it shall pay each dissenter whose demand remains unresolved the amount demanded. (2)The corporation shall commence the proceeding described in Subsection (1) in the district court of the county in this state where the corporation's principal office, or if it has no principal office in this state, the county where its registered office is located. If the corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with, or whose shares were acquired by, the foreign corpo- ration was located. (3)The corporation shall make all dissenters who have satisfied the requirements of Sections 16-10a-1321, 16-10a- 1323, and 16-10a-1328, whether or not they are residents of this state whose demands remain unresolved, parties to the proceeding commenced under Subsection (2) as an action against their shares. All such dissenters who are named as parties must be served with a copy of the petition. Service on each dissenter may be by registered or certified mail to the address stated in his payment demand made pursuant to Section 16-10a-1328. If no address is stated in the payment demand, service may be made at the address stated in the payment demand given pursuant to Section 16-10a-1323. If no address is stated in the payment demand, service may be made at the address shown on the corporation's current record of shareholders for the record shareholder holding the dissenter's shares. Service may also be made otherwise as provided by law. (4)The jurisdiction of the court in which the proceeding is commenced under Subsection (2) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order ap- pointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings. (5)Each dissenter made a party to the proceeding commenced under Subsection (2) is entitled to judgment: (a)for the amount, if any, by which the court finds that the fair value of his shares, plus interest, exceeds the amount paid by the corporation pursuant to Section 16- 10a-1325; or (b)for the fair value, plus interest, of the dis- senter's after-acquired shares for which the corporation elected to withhold payment under Section 16-10a-1327. 1992 D-9 16-10a-1331. COURT COSTS AND COUNSEL FEES. (1)The court in an appraisal proceeding commenced under Section 16-10a-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds that the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Section 16-10a-1328. (2)The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (a)against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Sections 16- 10a-1320 through 16-10a-1328; or (b)against either the corporation or one or more dissenters, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this part. (3) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to those counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 1992 -----END PRIVACY-ENHANCED MESSAGE-----