Exhibit 2.6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
July 22, 1998, between AVTEL COMMUNICATIONS, INC., a Delaware corporation
("AVTEL"), and the stockholders of REMOTE LOJIX/PCSI, INC., a New York
corporation ("RLI"), executing this Agreement (the "STOCKHOLDERS").
RECITALS
A. The Stockholders own the shares (the "STOCKHOLDER SHARES") of the
common stock, par value $.001 per share, of RLI ("RLI COMMON STOCK") in the
amounts set forth beside their respective names on Schedule 2.2 to this
Agreement.
B. RLI and its subsidiaries are engaged in the installation, service and
repair of computers and related equipment, accessories and supplies, the
maintenance of computer systems via maintenance contracts and the provision of
related consulting services (the "BUSINESS").
C. The Stockholders desire to sell, and AvTel desires to buy, the
Stockholder Shares on the terms and conditions set forth herein.
AGREEMENT
In consideration of the mutual promises contained herein and intending to
be legally bound the parties agree as follows:
1. PURCHASE AND SALE; CLOSING.
1.1 TRANSFER OF STOCKHOLDER SHARES BY THE STOCKHOLDERS. Subject to the
terms and conditions of this Agreement, the Stockholders agree to sell the
Stockholder Shares and deliver the certificates evidencing the Stockholder
Shares to AvTel at the Closing (as defined below). The certificates will be
properly endorsed for transfer to or accompanied by a duly executed stock power
in favor of AvTel or its affiliate, as AvTel may have directed prior to the
Closing Date (as defined below), and otherwise in a form acceptable for transfer
on the books of RLI. If any stock certificate to be delivered to AvTel by the
Stockholders at Closing shall have been lost, stolen or destroyed, AvTel may, in
its reasonable discretion, require the owner of such lost, stolen or destroyed
stock certificate to provide an appropriate affidavit of ownership and indemnity
or other document(s) evidencing ownership of such Stockholder Shares
satisfactory to AvTel. The Stockholders will pay any transfer Taxes (as defined
in Section 2.4) payable with respect to the transfer of the Stockholder Shares.
1.2 PURCHASE OF THE STOCKHOLDER SHARES BY AVTEL; PURCHASE PRICE. Subject
to the terms and conditions of this Agreement, AvTel agrees to purchase the
Stockholder Shares from the Stockholders. The purchase price for the Stockholder
Shares and for the Covenants not to Compete set forth in Section 5.1 hereof (the
"PURCHASE PRICE") shall be paid as set forth below.
1.2.1 INITIAL EXCHANGE SHARES. At the Closing, AvTel shall issue a
total of 350,000 shares (the "INITIAL EXCHANGE SHARES") of its Common Stock, par
value $.01 per share (the "AVTEL COMMON STOCK") to the Stockholders, to be
divided among the Stockholders in the same proportion that the number of
Stockholder Shares owned by each Stockholder (as set forth on Schedule 2.2)
represents to the total number of Shares. For purposes of calculating the number
of Initial Exchange Shares to be received by each Stockholder, the numbers shall
be rounded to the nearest whole share as required to avoid issuance of
fractional shares. As of the Closing Date, the Initial Exchange Shares will not
be registered under any federal or state securities laws. At the Closing,
Jeffrey P. Leventhal shall deposit 65,000 of his Initial Exchange Shares into an
escrow account pursuant to an Escrow Agreement substantially in the form
attached hereto as Exhibit A (the "ESCROW AGREEMENT").
1.2.2 EARNOUT SHARES. If, and only if, RLI has met the performance
standards set forth in Section 1.2.2(B) below during the twelve-month period
commencing on the first day of the month following the Closing Date and ending
on the last day of the twelfth month thereafter (the "EARNOUT DATE"), then as
soon as practicable, but in no event later than sixty days after the Earnout
Date, AvTel shall issue that number of shares of AvTel Common Stock as
calculated below (the "EARNOUT SHARES") to the Stockholders, to be divided among
the Stockholders in the same proportion as the Initial Exchange Shares. For
purposes of calculating the number of Earnout Shares to be received by each
Stockholder, the numbers shall be rounded to the nearest whole share as required
to avoid issuance of fractional shares. As of the Closing Date, the Earnout
Shares will not be registered under any federal or state securities laws.
1. The number of Earnout Shares to be issued, if any, shall be
as follows:
(1) The aggregate number of the Earnout Shares to be
issued, if any, upon satisfaction of the requirements contained in Section
1.2.2(B)(1) below shall be calculated by dividing the sum of $1,250,000 by the
Closing Share Price.
(2) The additional aggregate number of the Earnout
Shares to be issued, if any, if the requirements contained in Section
1.2.2(B)(2) below are satisfied shall be calculated by dividing the sum of
$250,000 by the Closing Share Price.
(3) The "CLOSING SHARE PRICE" shall mean the average
closing price as publicly reported by the Nasdaq Stock Market as of 4:00 p.m.
Eastern Time of AvTel Common Stock over the last sixty trading days ending with
(and including) the second business day prior to the Earnout Date.
2. The Earnout Shares shall be delivered only if the following
requirements are met:
(1) The Earnout Shares contemplated by Section
1.2.2(A)(1) shall be delivered if, and only if, during the twelve-month period
ending on the Earnout Date, RLI has had both (i) net revenues from operation of
not less than $6,500,000, and (ii) net income (net of non-recurring charges and
allocation of parent corporation overhead) greater than zero, in each case as
determined by AvTel's independent auditors (which shall be a
nationally-recognized accounting firm) in accordance with generally accepted
accounting principles ("GAAP"), and calculated prior to the effect of any other
acquisitions.
(2) The Earnout Shares contemplated by Section
1.2.2(A)(2) shall be delivered if, and only if, during the twelve-month period
ending on the Earnout Date, RLI has had both (i) net revenues from operation of
not less than $6,500,000, and (ii) net income (net of non-recurring charges and
allocation of parent corporation overhead) of at least $250,000, in each case as
determined by AvTel's independent auditors (which shall be a
nationally-recognized accounting firm) in accordance with GAAP, and calculated
prior to the effect of any other acquisitions.
1.2.3 PRO RATA REDUCTION. If the Stockholders who have signed this
Agreement by the Closing Date hold less than one hundred percent (100%) of the
shares of RLI Common Stock outstanding on the Closing Date, and AvTel waives the
condition precedent to its obligations to close contained in Section 6.2.14,
then the number of Initial Exchange Shares and Earnout Shares, if any, to be
delivered by AvTel shall be reduced pro rata.
1.2.4 RESTRICTIVE LEGEND. The Initial Exchange Shares and the
Earnout Shares, if any, to be issued pursuant to this Agreement shall be
characterized as "restricted securities" for purposes of Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act") and
each certificate representing any such shares shall bear a legend identical or
similar in effect to the following legend (together with any other legend or
legends required by applicable state securities laws or otherwise):
"THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
1.2.5 ALLOCATION TO COVENANT NOT TO COMPETE. The parties agree that
$10,000 of the Purchase Price shall be allocated to the Covenant not to Compete
set forth in Section 5.1 of this Agreement. Such allocation shall be for
financial accounting and tax purposes only and shall not affect or limit in any
way the liability of the Stockholders for breach of such Covenant not to
Compete.
1.3 THE CLOSING. The closing of the transfer of the Stockholder Shares
(the "Closing") will take place at the offices of Seed, Mackall & Cole LLP, 1332
Anacapa Street, Suite 200, Santa Barbara, California (or such other place as the
parties may mutually agree), at such date and time as the parties shall mutually
agree. Such date and time are referred to as the "Closing Date". At the Closing,
AvTel shall be entered on the records of RLI as the sole shareholder of RLI
having the right to vote on all matters which the shareholders of RLI are
entitled to vote pursuant to the Certificate of Incorporation and the Bylaws of
RLI and applicable law, the right to receive dividends and such other rights
generally accruing to shareholders of RLI.
1.4 STOCKHOLDER REPRESENTATIVE. Each of the Stockholders hereby
constitutes and appoints Jeffrey P. Leventhal (the "STOCKHOLDER REPRESENTATIVE")
to execute and deliver any instruments or other documents, and to make such
decisions and to take such other action on behalf of such Stockholder as may be
necessary or appropriate in connection with such Stockholder's rights and
obligations under this Agreement, and each such Stockholder hereby agrees to be
bound by any such instrument or other document executed and delivered by the
Stockholder Representative, and any such decision made or other action taken by
the Stockholder Representative, pursuant to the terms of this Agreement. The
Stockholder Representative shall not be liable to the Stockholders for any
action taken or omitted by him in connection with the performance of his duties
and obligations hereunder, except for his own gross negligence or willful
misconduct.
2. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. The Stockholders,
jointly and severally, hereby represent and warrant to AvTel, as of the
datehereof and as of the Closing Date, as follows:
2.1 ORGANIZATION AND RELATED MATTERS.
2.1.1 RLI. RLI is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York. Except as set forth in
Schedule 2.1 hereto, RLI is duly qualified or licensed to do business as a
foreign corporation in good standing in all jurisdictions in which the character
or the location of the assets owned or leased by it or the nature of the
Business conducted by it requires qualification or licensing. RLI's failure to
be qualified or licensed to do business in any jurisdiction or jurisdictions
where such qualification or licensing is required does not and will not have a
material adverse effect on RLI or the Business. A list of all jurisdictions
where RLI is qualified or licensed to do business is set forth in Schedule 2.1
hereto. RLI has all necessary corporate power and authority to own its
properties and assets and to carry on its Business as now conducted. Schedule
2.1 correctly lists the current directors and executive officers of RLI and sets
forth an organizational chart with respect to RLI's operations and employees.
True, correct and complete copies of the certificate of incorporation and bylaws
of RLI as in effect on the date hereof have been delivered to AvTel.
2.1.2 SUBSIDIARIES. Each of the direct and indirect subsidiaries of
RLI is set forth on Schedule 2.1 (the "SUBSIDIARIES"). Except for the
Subsidiaries, RLI has no subsidiaries, is not a partner or participant in any
partnerships or joint ventures, and does not own, directly or indirectly, any
interests in any other corporation, partnership, limited liability company or
other entity. Each of the Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction identified in
Schedule 2.1. Except as set forth in Schedule 2.1 hereto, each of the
Subsidiaries is duly qualified or licensed to do business as a foreign
corporation in good standing in all jurisdictions in which the character or the
location of the assets owned or leased by it or the nature of the Business
conducted by it requires qualification or licensing. A Subsidiary's failure to
be qualified or licensed to do business in any jurisdiction or jurisdictions
where such qualification or licensing is required does not and will not have a
material adverse effect on such Subsidiary or the Business. A list of all
jurisdictions where each Subsidiary is qualified or licensed to do business is
set forth in Schedule 2.1 hereto. Each of the Subsidiaries has all necessary
corporate power and authority to own its properties and assets and to carry on
its Business as now conducted. Schedule 2.1 correctly lists the current
directors and executive officers of each of the Subsidiaries and sets forth an
organizational chart with respect to each of the Subsidiaries's operations and
employees. True, correct and complete copies of the certificate or articles of
incorporation and bylaws of each of the Subsidiaries as in effect on the date
hereof have been delivered to AvTel. All references to RLI in this Agreement
shall be deemed to include RLI and its Subsidiaries.
2.1.3 THE STOCKHOLDERS. Each of the Stockholders is listed on
Schedule 2.1, together with such Stockholder's address and Social Security
Number or Tax Identification Number. Each of the Stockholders has all necessary
power and authority to execute, deliver and perform this Agreement and any
related agreements to which such Stockholder is a party.
2.2 CAPITAL STOCK.
2.2.1 OWNERSHIP OF STOCKHOLDER SHARES. The Stockholders own the
Stockholder Shares beneficially and of record in the amounts set forth on
Schedule 2.2. Except as set forth on Schedule 2.2, the Stockholder Shares are
owned free and clear of any claim, charge, easement, encumbrance, lease,
covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law (each an "Encumbrance"). At the Closing, AvTel will
acquire good and marketable title to and complete ownership of the Stockholder
Shares, free and clear of any Encumbrance. The representations of the
Stockholders in this Section 2.2.1 are made only as to the Stockholder Shares of
such Stockholder.
2.2.2 CAPITALIZATION. The authorized capital stock of RLI consists
of 10,000,000 shares of RLI Common Stock, of which 4,195,963 shares are issued
and outstanding on the date hereof. On the Closing Date, there will be 4,177,796
shares of RLI Common Stock issued and outstanding. The authorized, issued and
outstanding capital stock of each of the Subsidiaries is as set forth on
Schedule 2.2. RLI owns, beneficially and of record, of all of the capital stock
of each of the Subsidiaries, free and clear of any Encumbrances. Except as set
forth on Exhibit 2.2, there are no outstanding options, warrants or other rights
to subscribe for or purchase, or contracts or other obligations to issue or
grant any rights to ac quire, any stock or securities of RLI or the
Subsidiaries, or to restructure or recapitalize RLI or the Subsidiaries. On the
Closing Date, there will be no outstanding options, warrants or other rights to
subscribe for or purchase, or contracts or other obligations to issue or grant
any rights to acquire, any stock or securities of RLI or the Subsidiaries, or to
restructure or recapitalize RLI or the Subsidiaries. Except as set forth on
Schedule 2.2 hereto, there are no outstanding contracts of the Stockholders, RLI
or the Subsidiaries to repurchase, redeem or otherwise acquire any securities of
RLI or the Subsidiaries. The Stockholder Shares, and the shares of the capital
stock of each of the Subsidiaries, are duly authorized, validly issued and
outstanding and are fully paid and nonassessable and were issued in conformity
with applicable laws. There are no preemptive rights in respect of any equity
securities of RLI.
2.2.3 PCSI HOLDERS. The stock records of RLI reflect that, as of the
date hereof, 18,167 shares of the RLI Common Stock are held by unidentified
former shareholders of The Technical Services Group, Inc. ("PCSI"), a New York
corporation acquired by RLI as of January 1, 1997. Such holders are referred to
hereinafter as the "PCSI HOLDERS."
2.3 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.
2.3.1 FINANCIAL STATEMENTS.
1. The Stockholders have delivered to AvTel consolidated and
consolidating balance sheets for RLI and its Subsidiaries at December 31, 1997
and the related
consolidated and consolidating statements of operations, changes in
stockholder's equity and cash flow for the period then ended (the "Audited
Financial Statements"). The Audited Financial Statements have been audited by
Bloom & Company (the "Auditors") whose reports thereon are included with such
Audited Financial Statements. The Audited Financial Statements have been
prepared in conformity with GAAP. Such statements of operations and cash flow
present fairly the results of operations and cash flows of RLI and its
Subsidiaries for the respective periods covered, and the balance sheets present
fairly the financial condition of RLI and its Subsidiaries as of their
respective dates.
2. The Stockholders have delivered to AvTel consolidated and
consolidating balance sheets for RLI and its Subsidiaries at May 31, 1998 and
the related consolidated and consolidating statements of operations and cash
flows and changes in stockholder's equity for the period then ended (the
"INTERIM FINANCIAL STATEMENTS" and, together with the Audited Financial
Statements, the "RLI FINANCIAL STATEMENTS"). The Interim Financial Statements
have been certified by the chief executive officer of RLI. The Interim Financial
Statements have been prepared in conformity with GAAP applied on a basis
consistent with the Audited Financial Statements. The statements of operations
and cash flows present fairly the results of operations and cash flows of RLI
and its Subsidiaries for the period covered, and the balance sheets present
fairly the financial condition of RLI as of their date. The Interim Financial
Statements reflect all adjustments (which consist only of normal recurring
adjustments not material in amount and include but are not limited to estimated
provisions for year-end adjustments) necessary for a fair presentation.
3. At the dates of each such balance sheet, RLI had any no
material liability (actual, contingent or accrued) that, in accordance with GAAP
applied on a consistent basis, should have been shown or reflected therein but
was not. Since January 1, 1997, there has been no change in any of the
significant accounting policies, practices or procedures of RLI.
2.3.2 NO MATERIAL ADVERSE CHANGES. Except as set forth on Schedule
2.3, since January 1, 1998, whether or not in the ordinary course of business,
there has not been, occurred or arisen:
1. any change in or event affecting the Stockholders, RLI, the
Subsidiaries, the Business or the Stockholder Shares that has had or may
reasonably be expected to have a material adverse effect on the Stockholders,
RLI, the Business, or the Stockholder Shares,
2. any agreement, condition, action or omission which would be
pro scribed by (or require consent under) Section 4.3 had it existed, occurred
or arisen after the date of this Agreement,
3. any strike or other labor dispute, or
4. any casualty, loss, damage or destruction (whether or not
covered by insurance) of any material property of RLI that is material or that
has involved or may involve a loss to RLI in excess of applicable insurance
coverage.
2.3.3 NO OTHER LIABILITIES OR CONTINGENCIES. Neither RLI nor any of
the Subsidiaries has any liabilities of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, probable of assertion
or not, except liabilities that (i) are reflected or disclosed in the RLI
Financial Statements, (ii) were incurred after December 31, 1997, in the
ordinary course of business and in the aggregate do not exceed $10,000 or (iii)
are set forth in Schedule 2.3 hereto.
2.3.4 DIVIDENDS AND OTHER DISTRIBUTIONS. Except as set forth on
Schedule 2.3, there has been no dividend or other distribution of assets or
securities whether consisting of money, property or any other thing of value,
declared, issued or paid by RLI subsequent to December 31, 1997.
2.4 TAX AND OTHER RETURNS AND REPORTS. Except as set forth in Schedule
2.4, RLI has timely filed or will file prior to Closing all required Tax Returns
and has paid or will have paid by Closing all Taxes due for all periods ending
on or before the Closing Date. Adequate provision has been made in the books and
records of RLI, and to the extent required by GAAP, in the RLI Financial
Statements, for all Taxes whether or not due and payable and whether or not
disputed. Except as set forth on Schedule 2.4, RLI has withheld and paid all
Taxes required to be withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, customer, creditor, stockholder or
other third party. RLI has not elected to be treated as a consenting corporation
under Section 341(f) of the Internal Revenue Code of 1986, as amended (the
"Code"). Schedule 2.4 lists the date or dates through which the Internal Revenue
Service and any other government or any agency, bureau, board, commission,
court, department, official, political subdivision, tribunal or other
instrumentality of any government, whether federal, state or local, domestic or
foreign (a "GOVERNMENTAL ENTITY") have examined the United States federal income
Tax Returns and any other Tax Returns of RLI. All required Tax Returns,
including amendments to date, have been prepared in good faith without
negligence or willful misrepresentation and are complete and accurate in all
material respects. Except as set forth in the Schedule 2.4, no Governmental
Entity has, during the past three years, examined or is in the process of
examining any Tax Returns of RLI. Except as set forth on Schedule 2.4, no
Governmental Entity has proposed (tentatively or definitively), asserted or
assessed or, to the best knowledge of the Stockholders, threatened to propose or
assert, any deficiency, assessment or claim for Taxes and there would be no
basis for any such delinquency assessment or claim.
For the purposes of this Agreement, (i) "TAX" means any foreign,
federal, state, county or local income, sales and use, excise, franchise, real
and personal property, transfer, gross receipt, capital stock, production,
business and occupation, disability, employment, payroll, severance or
withholding tax or charge imposed by any Governmental Entity any interest and
penalties (civil or criminal) related thereto or to the nonpayment thereof, and
any losses or expenses in connection with the determination, settlement or
litigation of any
Tax liability, and (ii) "Tax Return" means a report, return or other information
required to be supplied to a Governmental Entity with respect to Taxes
including, where permitted or required, combined or consolidated returns for any
group of entities that includes RLI.
2.5 MATERIAL CONTRACTS. Schedule 2.5 lists each agreement, arrangement,
bond, commitment, franchise, indemnity, indenture, instrument, lease, license or
understanding, whether or not in writing (each a "Contract") to which RLI or any
of its Subsidiaries is a party or to which any of them or any of their
respective properties is subject or by which any thereof is bound that (a) after
December 31, 1997, obligates such party to pay an amount of $25,000 or more, (b)
has an unexpired term as of December 31, 1997 in excess of one year, (c)
represents a Contract upon which the Business is substantially dependent or
which is otherwise material to such Business, (d) provides for an extension of
credit other than consistent with normal credit terms, (e) limits or restricts
the ability of RLI or any of the Subsidiaries to compete or otherwise to conduct
its business in any manner or place, (f) provides for a guaranty or indemnity by
RLI or any of the Subsidiaries, (g) grants a power of attorney, agency or
similar authority to another person or entity, (h) contains a right of first
refusal, (i) related to the possession or use of any real property, or (j) was
not made in the ordinary course of business. Each of the Contracts listed on
Schedule 2.5 shall be deemed to be a "MATERIAL CONTRACT." True copies of the
Material Contracts, including all amendments and supplements, have been
delivered to AvTel. Each Material Contract is valid and binding obligation of
the parties thereto; RLI and the Subsidiaries have duly performed all their
obligations thereunder to the extent that such obligations to perform have
accrued; and no breach or default, alleged breach or default, or event which
would (with the passage of time, notice or both) constitute a breach or default
thereunder by RLI or any Subsidiary, or, to the best knowledge of the
Stockholders, any other party or obligor with respect thereto, has occurred or
as a result of this Agreement or performance will occur. Except as set forth in
Schedule 2.8 hereto, consummation of the transactions contemplated by this
Agreement will not (and will not give any person a right to) terminate or modify
any rights of, or accelerate or augment any obligation of, RLI or any
Subsidiary.
2.6 REAL AND PERSONAL PROPERTY; TITLE TO PROPERTY; LEASES. Neither RLI nor
any Subsidiary owns, directly or indirectly, any interest whatsoever in any real
property, other than leasehold interests pursuant to office leases included in
the Material Contracts. Schedule 2.6 lists all tangible personal property of RLI
and the Subsidiaries material to the Business and designates any leasehold
interests therein. Except as set forth in Schedule 2.6, RLI or the relevant
Subsidiary has good and marketable title to, or a valid leasehold interest in
(as designated in Schedule 2.6), all such items of tangible personal property,
free and clear of any Encumbrances. All material tangible properties of RLI and
the Subsidiaries (excluding any inventory) are in a good state of maintenance
and repair (except for ordinary wear and tear) and are adequate for the
Business. All material leasehold properties held by RLI or any Subsidiary as
lessee are held under valid, binding and enforceable leases, subject only to
such exceptions as are not, individually or in the aggregate, material to the
Business.
2.7 INTELLECTUAL PROPERTY. Schedule 2.7 lists any and all copyrights,
patents, service marks, trademarks, tradenames, and all registrations or
application for registration of any of the foregoing, used in the Business or in
which RLI or any Subsidiary has an interest and the nature of such interest,
including all licenses or other rights with respect to any of the foregoing. In
addition, RLI has previously provided in writing to AvTel descriptions of any
and all trade secrets or other confidential information or know-how used in the
Business or in which RLI or any Subsidiary has an interest. All of the foregoing
assets, properties and interests are referred to as the "Intellectual Property."
RLI has complete rights to and ownership of all Intellectual Property the
absence of which would have a material adverse effect on the Business. Neither
RLI nor any Subsidiary uses any Intellectual Property by consent of any other
person or is required to or makes any payments to others with respect thereto,
and, except as set forth in Schedule 2.7, the Intellectual Property of RLI and
the Subsidiaries is fully assignable free and clear of any Encumbrances. Neither
the Stockholders nor RLI nor any Subsidiary has received any notice to the
effect (or is otherwise aware) that the Intellectual Property or any use by RLI
or any Subsidiary of any such property conflicts with or allegedly conflicts
with or infringes the rights of any person or entity.
2.8 AUTHORIZATION; NO CONFLICTS. This Agreement and any related agreements
each constitutes the legally valid and binding obligation of the Stockholders,
enforceable against the Stockholders in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles relating to or
limiting creditors rights generally. The execution, delivery and performance of
this Agreement by the Stockholders and the execution, delivery and performance
of any related agreements or contemplated transactions by the Stockholders or
RLI will not violate, or constitute a breach or default (whether upon lapse of
time and/or the occurrence of any act or event or otherwise) under, the
certificate of incorporation or bylaws of RLI or any Contract of the
Stockholders, RLI or any Subsidiary, result in the imposition of any Encumbrance
against any material asset or properties of RLI or any Subsidiary, or violate
any statute or other law, rule, regulation, or interpretation of any
Governmental Entity (each a "LAW"). Schedule 2.8 lists all approvals,
authorizations, consents, qualifications or registrations, or any waivers of any
of the foregoing, required to be obtained from, or any notices, statements or
other communications required to be filed with or delivered to, any Governmental
Authority or any other person or entity ("APPROVALS") required to be obtained by
the Stockholders, RLI or any Subsidiary to consummate the transactions
contemplated by this Agreement. Except for matters identified in Schedule 2.8 as
requiring that certain actions be taken by or with respect to a third party or
Governmental Entity, the execution and delivery of this Agreement by the
Stockholders and the performance of this Agreement and any related or
contemplated transactions by the Stockholders or RLI will not require filing or
registration with, or the issuance of any Approval by, any other third party or
Governmental Entity.
2.9 LEGAL PROCEEDINGS. Except as set forth in Schedule 2.9, there is no
decree, injunction, judgment, order, ruling, assessment or writ (each an
"ORDER") or any action, complaint, petition, investiga tion, suit or other
proceeding, whether civil or criminal, in law or in equity, or before any
arbitrator or Governmental Entity (each an "ACTION") pending, or, to the best
knowledge of the Stockholders, threatened, against or affecting the
Stockholders, RLI, any Subsidiary or any of their respective properties or
assets that individually or when aggregated with one or more other Orders or
Actions has or might reasonably be expected to have a material adverse effect on
the Business, on the Stockholders's ability to perform this Agreement, or on any
aspect of the transactions contemplated by this Agreement. Schedule 2.9 lists
each Order and each Action that involves a claim or potential claim against, or
that enjoins or seeks to enjoin any activity by, RLI or any Subsidiary. Except
as set forth in Schedule 2.9, there is no matter as to which RLI or any
Subsidiary has received any notice, claim or assertion, or, to the best
knowledge of the Stockholders, which otherwise has been threatened or is
reasonably expected to be threatened or initiated, against or affecting any
director, officer, employee, agent or representative of RLI or any other person
or entity, nor to the best knowledge of the Stockholders is there any reasonable
basis therefor, in connection with which any such person or entity has or may
reasonably be expected to have any right to be indemnified by RLI.
2.10 MINUTE BOOKS. The minute books of RLI and the Subsidiaries provided
to AvTel accurately reflect all actions and proceedings taken to date by the
shareholders, board of directors and committees of RLI and the Subsidiaries. The
stock record books of RLI and the Subsidiaries reflect accurately all
transactions in the capital stock of RLI and the Subsidiaries.
2.11 ACCOUNTING RECORDS; INTERNAL CONTROLS.
2.11.1 ACCOUNTING RECORDS. Since January 1, 1997, RLI and its
Subsidiaries have maintained records that accurately and validly reflect their
transactions, and accounting controls sufficient to insure that such
transactions are (i) executed in accordance with management's general or
specific authorization and (ii) recorded in conformity with GAAP so as to
maintain accountability for assets.
2.11.2 DATA PROCESSING; ACCESS. Such records, to the extent they
contain important information that is not easily and readily available
elsewhere, have been duplicated, and such duplicates are stored safely and
securely pursuant to procedures and techniques utilized by companies of
comparable size in similar lines of business. The data processing equipment,
data transmission equipment, related peripheral equipment and software used by
RLI in the operation of the Business (including any disaster recovery facility)
to generate and retrieve such records are comparable in performance, condition
and capacity with those utilized by companies of comparable size in similar
lines of business.
2.11.3 YEAR 2000 COMPLIANCE. Except as set forth in Schedule 2.11,
all software and systems (i) utilized by RLI and its Subsidiaries, and (ii) sold
to or maintained for customers by RLI, are Year 2000 compliant, and will
continue to function in the ordinary course of business on and after January 1,
2000.
2.12 INSURANCE. RLI is, and at all times since inception has been,
insured with reputable insurers against all risks normally insured against by
companies in similar lines of business, and all of the insurance policies and
bonds maintained by RLI are in full force and effect. Schedule 2.12 lists all
insurance policies and bonds that are material to the Business. RLI is not in
default under any such policy or bond. RLI has timely filed claims with its
insurers with respect to all matters and occurrences for which it has coverage.
All insurance policies maintained by RLI will remain in full force and effect
and may reasonably be expected to be renewed on comparable terms following
consummation of the transactions contemplated by this Agreement (subject to
continuing compliance with the applicable terms thereof and any right of
insurers to terminate without cause), and RLI has received no notice or other
indication from any insurer or agent of any intent to cancel or not so renew any
of such insurance policies.
2.13 PERMITS. Except as set forth in Schedule 2.13, each of RLI and its
Subsidiaries holds all licenses, permits, franchises, certificates of authority,
or orders, or any waivers of the foregoing, required to be issued by any
Governmental Entity ("PERMITS") that are required by any Governmental Entity to
permit it to conduct its Business as now conducted, and the absence of which
would cause a material adverse effect on RLI, the relevant Subsidiary or its
Business. All such Permits are valid and in full force and effect and will
remain so upon consummation of the transactions contemplated by this Agreement.
No suspension, cancellation or termination of any of such Permits is threatened
or imminent.
2.14 COMPLIANCE WITH LAW. Each of RLI and its Subsidiaries conducts and
has conducted its business, in all material respects, in accordance with all
applicable Laws including, without limitation, those applicable to
discrimination in employment, the Americans with Disabilities Act, occupational
safety and health, trade practices, competition and pricing, employment,
retirement and labor relations. The forms, procedures and practices of RLI and
its Subsidiaries are in compliance with all such Laws, in all material respects.
2.15 EMPLOYEES. Schedule 2.15 contains a true and correct list of all
employees to whom RLI or any Subsidiary is paying compensation, including
bonuses and incentives for services rendered or otherwise, the annual salary,
average commission, or hourly wage compensation of each such employee, and any
bonus paid to each respective employee relating to services rendered during the
1997 fiscal year. AvTel has been provided a copy of all W-2 forms distributed to
each such employee in respect to compensation received from RLI or any
Subsidiary in the 1997 tax year. Since January 1, 1997, RLI has not experienced
any labor disputes, union organization attempts or any work stoppage due to
labor disagreements in connection with its business. There is no labor strike,
dispute, request for representation, slowdown or stoppage actually pending or
threatened against or affecting RLI or any of the Subsidiaries. All workers'
compensation and unemployment compensation insurance premiums due have been
fully paid or accrued in the RLI Financial Statements.
2.16 EMPLOYEE BENEFITS.
2.16.1 EMPLOYEE BENEFIT PLANS, COLLECTIVE BARGAINING AND EMPLOYEE
AGREEMENTS, AND SIMILAR ARRANGEMENTS.
1. Schedule 2.16 lists all employee benefit plans and
collective bargaining, employment or severance agreements or other similar
arrangements to which RLI or any Subsidiary is or ever has been a party or by
which it is or ever has been bound, legally or otherwise, including, without
limitation, (a) any profit-sharing, deferred compensation, bonus, stock option,
stock purchase, pension, retainer, consulting, retirement, severance, welfare or
incentive plan, agreement or arrangement, (b) any plan, agreement or arrangement
providing for "fringe benefits" or perquisites to employees, officers, directors
or agents, including but not limited to benefits relating to automobiles, clubs,
vacation, child care, parenting, sabbatical, sick leave, medical, dental,
hospitalization, life insurance and other types of insurance, (c) any employment
agreement or (d) any other "employee benefit plan" (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended,
and the related regulations and published interpretations ("ERISA")).
2. The Stockholders have delivered to AvTel true and complete
copies of all documents and summary plan descriptions with respect to such
plans, agreements and arrangements, or summary descriptions of any such plans,
agreements or arrangements not otherwise in writing.
3. There are no negotiations, demands or proposals that are
pending or have been made which concern matters now covered, or that would be
covered, by plans, agreements or arrangements of the type described in this
Section.
4. RLI is in full compliance with the applicable provisions of
ERISA (as amended through the date of this Agreement), the regulations and
published authorities thereunder, and all other Laws applicable with respect to
all such employee benefit plans, agreements and arrangements. RLI has performed
all of its obligations under all such plans, agreements and arrangements. To the
best knowledge of the Stockholders, there are no Actions (other than routine
claims for benefits) pending or threatened against such plans or their assets,
or arising out of such plans, agreements or arrangements, and, to the best
knowledge of the Stockholders, no facts exist which could give rise to any such
Actions.
5. Except as specified in Schedule 2.16, each of the plans,
agreements or arrangements can be terminated by RLI within a period of 30 days
following the Closing Date, without payment of any additional compensation or
amount or the additional vesting or acceleration of any such benefits.
2.16.2 QUALIFIED PLANS. No plan listed in Schedule 2.16 is a stock
bonus, pension or profit-sharing plan within the meaning of Section 401(a) of
the Code. No plan listed in Schedule 2.16 is a "MULTIEMPLOYER PLAN" (within the
meaning of Section 3(37) of ERISA). RLI has never contributed to or had an
obligation to contribute to any multiemployer plan.
2.16.3 HEALTH PLANS. All group health plans of RLI and any
Subsidiary or Affiliate (as defined in Section 2.17) have been operated in
compliance with the group health plan continuation coverage requirements of
Section 162(k) of the Code to the extent such requirements are applicable.
2.16.4 FINES AND PENALTIES. There has been no act or omission by RLI
or any Subsidiary or Affiliate that has given rise to or may give rise to fines,
penalties, taxes, or related charges under Section 502(c) or (k) or Section 4071
of ERISA or Chapter 43 of the Code.
2.17 AFFILIATE INTERESTS AND TRANSACTIONS. Neither the Stockholders nor
any Affiliate of the Stockholders, RLI or any Subsidiary nor any officer or
director of any thereof, nor Associate of any such individual, has any material
interest in any property used in or pertaining to the Business. Except as set
forth in Schedule 2.17, no such person or entity has engaged in any Transaction
or entered into any Contract with RLI or any Subsidiary. No such person or
entity is indebted or otherwise obligated to RLI or any Subsidiary; and RLI is
not indebted or otherwise obligated to any such person or entity, except for
amounts due under normal arrangements applicable to all employees generally as
to salary or reimbursement of ordinary business expenses not unusual in amount
or significance. The consummation of the transactions contemplated by this
Agreement will not (either alone, or upon the occurrence of any act or event, or
with the lapse of time, or both) result in any benefit or payment (severance or
other) arising or becoming due from RLI to any person or entity.
For the purposes of this Agreement, (i) "AFFILIATE" means a person
or entity that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, a specified
person or entity, and (ii) an "ASSOCIATE" of a person means: (x) a corporation
or organization (other than RLI or a Subsidiary) of which such person is an
officer or partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of equity securities; (ii) any trust or other estate in which
such person has a substantial beneficial interest or as to which such person
serves as trustee or in a similar capacity; and (iii) any relative or spouse of
such person or any relative of such spouse.
2.18 BANK ACCOUNTS, POWERS, ETC. Schedule 2.18 ("BANK LIST") lists each
bank, trust company, savings institution, brokerage firm, mutual fund or other
financial institution with which RLI or any Subsidiary has an account or safe
deposit box and the names and identification of all persons authorized to draw
thereon or to have access thereto, and lists the names of each person or entity
holding powers of attorney or agency authority from RLI or any Subsidiary and a
summary of the terms thereof.
2.19 NO BROKERS OR FINDERS. No agent, broker, finder, or investment or
commercial banker, or other person or firm engaged by or acting on behalf of the
Stockholders or RLI or any of their respective Affiliates in connection with the
negotiation, execution or performance of this Agreement or the transactions
contemplated by this Agreement, is or will be entitled to any brokerage or
finder's or similar fee or other commission as a result of this Agreement or
such transactions.
2.20 INVENTORIES. None of the inventories of RLI and its Subsidiaries
represent goods held on consignment, and such inventories are maintained on the
premises of RLI or its Subsidiaries. The Stockholders make no other
representations with respect to the inventories of RLI, which will be delivered
on an "as-is" basis.
2.21 RECEIVABLES. All receivables of RLI and its Subsidiaries, whether
reflected on the balance sheet or otherwise, represent sales actually made in
the ordinary course of business, and, to the best knowledge of the Stockholders,
are current and fully collectible net of any reserves shown on the balance sheet
(which reserves are adequate and were calculated on a basis consistent with GAAP
and past practices) within 120 days. The Stockholders have delivered to AvTel a
complete and accurate aging list of all receivables of RLI as of a date not more
than thirty days prior to the date hereof (and as of a date not more than thirty
days prior to the Closing Date).
2.22 CUSTOMERS AND SUPPLIERS. Schedule 2.22 lists the names of and
describes all Contracts with and the approximate percentage of Business
attributable to, the ten largest customers of and ten most significant suppliers
of the Business at the date of this Agreement, and any sole-source suppliers of
significant goods or services (other than electricity, gas, telephone or water)
to RLI with respect to which alternative sources of supply are not readily
available on comparable terms and conditions.
2.23 ENVIRONMENTAL COMPLIANCE. Except as set forth in Schedule 2.23
hereto, (i) RLI and its Subsidiaries have not generated, used, transported,
treated, stored, released or disposed of, and have not suffered or permitted
anyone else to generate, use, transport, treat, store, release or dispose of any
Hazardous Substance in violation of any Laws; (ii) there has not been any
generation, use, transportation, treatment, storage, release or disposal of any
Hazardous Substance in connection with the conduct of the Business of RLI or any
Subsidiary or the use of any property or facility of RLI or any Subsidiary or,
to the knowledge of the Stockholders, any nearby or adjacent properties or
facilities, which has created or might reasonably be expected to create any
liability under any Laws or which would require reporting to or notification of
any Governmental Entity; (iii) no asbestos or polychlorinated biphenyl or
underground storage tank is contained in or located at any facility of RLI or
any Subsidiary; and (iv) any Hazardous Substance handled or dealt with in any
way in connection with the Business of RLI, whether before or during the
Stockholders' ownership, has been and is being handled or dealt with in all
respects in compliance with applicable Laws.
For the purposes of this Agreement, "HAZARDOUS SUBSTANCE" means (but
shall not be limited to) substances that are defined or listed in, or otherwise
classified pursuant to, any applicable Laws as "hazardous substances,"
"hazardous materials," "hazardous wastes" or "toxic substances," or any other
formulation intended to define, list or classify substances by reason of
deleterious properties such as ignitibility, corrosivity, reactivity,
radioactivity, carcinogenicity, reproductive toxicity or "EP toxicity," and
petroleum and drilling fluids, produced waters and other wastes associated with
the exploration, development, or production of crude oil, natural gas or
geothermal energy.
2.24 ACCURACY OF INFORMATION. None of the information supplied or to be
supplied in writing by or on behalf of the Stockholders or RLI to AvTel, its
agents or representatives in connection with these transactions, this Agreement
or the negotiations leading up to this Agreement did contain, or at the
respective times such information is delivered, will contain any untrue
statement of a material fact, or omitted or will omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. If any of such information at any time subsequent to delivery and
prior to Closing becomes untrue or misleading, in any material respect, the
Stockholders will promptly notify AvTel in writing of such fact and the reason
for such change.
2.25 PURCHASE FOR OWN ACCOUNT. Each of the Stockholders are acquiring the
Initial Exchange Shares and the Earnout Shares, if any, for investment and for
their own account, and not with a view to or for sale in connection with any
distribution of any part thereof.
2.26 INVESTMENT EXPERIENCE. Each Stockholder has such knowledge and
experience in financial and business matters that such Stockholder is capable of
evaluating the risks of such Stockholder's proposed investment in the Initial
Exchange Shares and the Earnout Shares, if any, and is able to bear the economic
risk of its proposed investment.
2.27 INFORMATION CONCERNING AVTEL. The Stockholders have received copies
of AvTel's Annual Report on Form 10-K for the year ended December 31, 1997,
Quarterly Report on Form 10-Q for the quarter ending March 31, 1998, and Proxy
Statement for its 1998 Annual Meeting of Stockholders, each as filed with the
Securities and Exchange Commission (the "SEC"). The Stockholders have heretofore
discussed AvTel and its plans, operations and financial condition with AvTel's
officers and have heretofore received all such information as the Stockholders
have deemed necessary and appropriate to enable the Stockholders to evaluate the
financial risk inherent in making an investment in the Initial Exchange Shares
and the Earnout Shares, if any, and the Stockholders have received satisfactory
and complete information concerning the business and financial condition of
AvTel in response to all inquiries in respect thereof.
2.28 RESTRICTED SECURITIES. The Stockholders understand and acknowledge
that:
2.28.1 NO REGISTRATION. The AvTel Common Stock to be issued pursuant
to Section 1.2 has not been registered under the Securities Act of 1933, as
amended (the "Act"), or
any state securities laws and it must be held indefinitely unless such AvTel
Common Stock is subsequently registered under the Act and qualified under such
state laws or an exemption from such registration and qualification is available
and, except as set forth in Section 5.2, AvTel is under no obligation to
register any of such AvTel Common Stock.
2.28.2 LEGENDS. The share certificate representing such AvTel Common
Stock will be stamped with legends as set forth in Section 1.2.3.
2.28.3 STOP TRANSFER INSTRUCTIONS. AvTel will issue stop transfer
instructions in accordance with this Agreement to its transfer agent with
respect to such AvTel Common Stock.
3. REPRESENTATIONS AND WARRANTIES OF AVTEL. AvTel represents and warrants to
the Stockholders, as of the date hereof and as of the Closing Date, as follows:
3.1 ORGANIZATION AND RELATED MATTERS. AvTel is a corporation duly
organized, validly existing and in good standing under the laws of Delaware.
AvTel has all necessary corporate power and authority to carry on its business
as now being conducted. AvTel has the necessary corporate power and authority to
execute, deliver and perform this Agreement and any related agreements to which
it is a party. AvTel is duly qualified to transact business as a foreign
corporation in each jurisdiction where the failure to be so qualified would have
a material adverse effect on its business. AvTel's principal executive offices
are located in the State of California.
3.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement and any related agreements by AvTel has been duly and validly
authorized by all necessary corporate action on the part of AvTel. This
Agreement constitutes the legal, valid and binding obligation of AvTel,
enforceable against AvTel in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles relating to or
limiting creditors' rights generally.
3.3 NO CONFLICTS. Except as set forth on Schedule 3.3, the execution,
delivery and performance of this Agreement and any related agreements by AvTel
will not violate the provisions of, or constitute a breach or default whether
upon lapse of time and/or the occurrence of any act or event or otherwise under
(a) the certificate of incorporation or bylaws of AvTel, (b) any Law to which
AvTel is subject or (c) any Contract to which AvTel is a party that is material
to the financial condition, results of operations or conduct of the business of
AvTel.
3.4 VALID ISSUANCE OF AVTEL COMMON STOCK. Each of the Initial Exchange
Shares and the Earnout Shares, if any, when issued, sold and delivered in
accordance with the terms hereof, shall be duly and validly issued, fully paid
and nonassessable. The Initial Exchange Shares and the Earnout Shares, if any,
shall not be registered under the Securities Act of 1933, as amended.
3.5 NO BROKERS OR FINDERS. No agent, broker, finder or investment or
commercial banker, or other person or firms engaged by or acting on behalf of
AvTel or its Affiliates in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any broker's or finder's or similar fees or
other commissions as a result of this Agreement or such transactions.
3.6 LEGAL PROCEEDINGS. There is no Order or Action pending or to the best
knowledge of AvTel, threatened against AvTel that individually or when
aggregated with one or more other Actions has or might reasonably be expected to
have a material adverse effect on AvTel's ability to perform this Agreement.
3.7 NASDAQ LISTING. AvTel Common Stock is listed for trading on The Nasdaq
SmallCap MarketK of The Nasdaq Stock Market, Inc.
3.8 ACCURACY OF INFORMATION. None of the documents and reports filed by
AvTel with the SEC contained any untrue statement of material fact or omitted to
state any material fact necessary to make the information contained therein, in
light of the circumstances under which they were made, not misleading as of the
date of such document or report. None of the other information supplied or to be
supplied in writing by or on behalf of AvTel to the Stockholders, their agents
or representatives in connection with these transactions, this Agreement or the
negotiations leading up to this Agreement did contain, or at the respective
times such information is delivered, will contain any untrue statement of a
material fact, or omitted or will omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. If any of such
information at any time subsequent to delivery and prior to Closing becomes
untrue or misleading, in any material respect, AvTel will promptly notify the
Stockholders in writing of such fact and the reason for such change.
4. COVENANTS TO BE PERFORMED PRIOR TO CLOSING
4.1 ACCESS. The Stockholders shall cause RLI and the Subsidiaries to
authorize and permit AvTel and its representatives (which term shall be deemed
to include its independent accountants and counsel) to have reasonable access
during normal business hours, upon reasonable notice and in such manner as will
not unreasonably interfere with the conduct of the Business, to all of their
respective properties, books, records, operating instructions and procedures,
Tax Returns and all other information with respect to the Business as AvTel may
from time to time request, and to make copies of such books, records and other
documents and to discuss its Business with such other persons, including,
without limitation, its directors, officers, employees, accountants, counsel,
suppliers, customers, and creditors, as AvTel considers necessary or appropriate
for the purposes of familiarizing itself with the Business, obtaining any
necessary Approvals of or Permits for the transactions contemplated by this
Agreement and conducting an evaluation of the organization and Business of RLI
and its Subsidiaries. Without limiting the generality of the foregoing, AvTel
shall be entitled to conduct or cause to be conducted such physical inspections
as AvTel shall deem necessary or useful in connection with its acquisition of
the Stockholder Shares.
4.2 MATERIAL ADVERSE CHANGES; REPORTS; FINANCIAL STATEMENTS. The
Stockholders will promptly notify AvTel of any event of which the Stockholders
obtain knowledge which has had or might reasonably be expected to have a
material adverse effect on the Business or which if known as of the date hereof
would have been required to be disclosed to AvTel. The Stockholders will cause
RLI to prepare additional interim financial statements as soon as practicable
after the end of each month to provide copies of such financial statements
promptly to AvTel.
4.3 CONDUCT OF BUSINESS. The Stockholders agree with and for the benefit
of AvTel that RLI and it Subsidiaries shall not, without the prior consent in
writing of AvTel, which may be withheld for any reason:
4.3.1 conduct the Business in any manner except in the ordinary
course consistent with prudent industry practice; or
4.3.2 amend, terminate, fail to renew or renegotiate any Material
Contract or default (or take or omit to take any action that, with or without
the giving of notice or passage of time, would constitute a default) in any of
its obligations under any Material Contract or enter into any new Material
Contract or take any action that would jeopardize the continuance of its
material supplier or customer relationships; or
4.3.3 terminate, amend or fail to renew any existing insurance
coverage; or
4.3.4 terminate or fail to renew or preserve any Permits; or
4.3.5 except as contemplated by Section 4.10 or Section 4.12, incur
or agree to incur any obligation or liability (absolute or contingent) that
individually calls for payment by RLI or any Subsidiary of more than $5,000 in
any specific case or $25,000 in the aggregate; or
4.3.6 make any loan, guaranty or other extension of credit, or enter
into any commitment to make any loan, guaranty or other extension of credit, to
or for the benefit of any director, officer, employee, stockholder or any of
their respective associates or affiliates; or
4.3.7 grant any general or uniform increase in the rates of pay or
benefits to officers, directors or employees (or a class thereof) or any
increase in salary or benefits of any officer, director, employee or agent or
pay any bonus to any person, or enter into any new employment, collective
bargaining or severance agreement; or
4.3.8 sell, transfer, mortgage, encumber or otherwise dispose of any
assets or any liabilities, except in the ordinary course of business; or
4.3.9 except as contemplated by Section 4.12, issue, sell, redeem or
acquire for value, or agree to do so, any debt obligations or equity securities
of RLI or any of its Subsidiaries; or
4.3.10 except as contemplated by Section 4.12, declare, issue, make
or pay any dividend or other distribution of assets, whether consisting of
money, other personal property, real property or other thing of value, to its
shareholders, or split, combine, dividend, distribute or reclassify any shares
of its equity securities; or
4.3.11 change or amend its certificate of incorporation or bylaws;
or
4.3.12 make any capital expenditures or commitments with respect
thereto; or
4.3.13 except as contemplated by Section 4.10 or Section 4.12, make
special or extraordinary payments to any person; or
4.3.14 make any material investment, by purchase, contributions to
capital, property transfers, or otherwise, in any other person or entity; or
4.3.15 dispose of or permit to lapse any rights to the use of any
Intellectual Property or dispose of or disclose any Intellectual Property not a
matter of public knowledge; or
4.3.16 directly or indirectly terminate or reduce or commit to
terminate or reduce any bank line of credit or the availability of any funds
under any other agreement or understanding, other than through the use thereof
in the ordinary course; or
4.3.17 except as contemplated by Section 4.10, compromise or
otherwise settle any claims, or adjust any assertion or claim of a deficiency in
Taxes (or interest thereon or penalties in connection therewith) or make any Tax
election or make any change in any method or period of accounting or in any
accounting policy, practice or procedure; or
4.3.18 introduce any new method of management or operation in
respect of the Business; or
4.3.19 agree to or make any commitment to take any actions
prohibited by this Section 4.3.
4.4 NOTIFICATION OF CERTAIN MATTERS. The Stockholders shall give prompt
notice to AvTel, and AvTel shall give prompt notice to the Stockholder
Representative, of (i) the occurrence, or failure to occur, of any event that
would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date of this Agreement to the Closing Date and (ii) any failure of AvTel or
the Stockholders, as the case may be, to comply with or satisfy, in any material
respect, any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement.
No such notification shall affect the representations or warranties
of the parties or the conditions to their respective obligations hereunder.
4.5 PERMITS AND APPROVALS.
4.5.1 The Stockholders and AvTel each agree to cooperate and use
their best efforts to obtain (and will immediately prepare all registrations,
filings and applications, requests and notices preliminary to all) Approvals and
Permits that may be necessary or which may be reasonably requested by AvTel to
consummate the transactions contemplated by this Agreement.
4.5.2 To the extent that the Approval of a third party with respect
to any Contract is required in connection with the transactions contemplated by
this Agreement, the Stockholders shall use their best efforts (and shall cause
RLI to use its best efforts) to obtain such Approval prior to the Closing Date
(but without limitation on AvTel's rights under Section 6.2).
4.6 NO TRANSFER OF STOCKHOLDER SHARES. Each of the Stockholders agrees
that such Stockholder will not sell, transfer, pledge, hypothecate or otherwise
encumber or dispose of any of the Stockholder Shares. Each Stockholder will
comply will all applicable securities and other laws and regulations relating to
this Agreement or the transactions contemplated hereby.
4.7 PRESERVATION OF BUSINESS PRIOR TO CLOSING DATE. During the period
beginning on the date hereof and ending on the Closing Date, (a) the
Stockholders will use their best efforts to preserve the Business and to
preserve the goodwill of customers, suppliers and others having business
relations with RLI, and (b) the Stockholders and AvTel will consult with each
other concerning, and the Stockholders will cooperate to keep available to
AvTel, the services of the officers and employees of RLI that AvTel may wish to
have RLI retain. Nothing in this Section shall obligate AvTel or RLI after the
Closing to retain or offer employment to any officer or employee of RLI.
4.8 ELIMINATION OF AFFILIATE LIABILITIES. Prior to the Closing Date, the
Stockholders shall pur chase, cause to be repaid or (with respect to guarantees)
assume liability for (i) any and all loans or other extensions of credit made or
guaranteed by RLI or any Subsidiary to or for the benefit of any director,
officer, or employee of RLI, or any of their Associates and (ii) any and all
loans, guarantees or other extensions of credit of any amount made to or for the
benefit of the Stockholders or any Affiliate of the Stockholders, in each case
other than loans from RLI to Jeffrey P. Leventhal outstanding on the date hereof
and not in excess of $269,000 in the aggregate, including all accrued interest
thereon (the "LEVENTHAL ADVANCES"). Prior to the Closing, RLI will cancel the
obligation of Jeffrey P. Leventhal to repay the Leventhal Advances; provided,
however, that any Tax liability relating to such cancellation shall be borne
solely by Jeffrey P. Leventhal. At the Closing Date, neither AvTel nor RLI shall
have any continuing commitment, obligation or liability of any kind with respect
to the persons referred to in subsections (i) and (ii) above. The Stockholders
agree to indemnify AvTel and RLI for any Losses with respect to any such
commitment, obligation or liability not fully assumed or discharged as
contemplated, other than the Leventhal Advances. The Stockholders further
represent that the transactions contemplated by this Section will have no
adverse effect on the Business.
4.9 EXCLUSIVITY. Neither the Stockholders, RLI nor any of their respective
Affiliates shall, directly or indirectly, solicit, initiate or encourage any
offer or engage in any discussions or negotiations (other than with AvTel)
concerning any sale of the Stockholder Shares or of the Business or assets of
RLI or the Subsidiaries or any material part thereof, or any similar business
combination or transaction. Neither the Stockholders, RLI nor any of their
respective Affiliates shall furnish any information with respect to RLI or the
Business to any person in connection with any such offer or transaction. If the
Stockholders or RLI receive any offer or inquiry with respect to any of the
foregoing types of transactions, the Stockholders will promptly inform AvTel of
such offer or inquiry.
4.10 NEGOTIATION OF TAX LIABILITIES. RLI has outstanding certain Tax
liabilities to federal and state Tax authorities as set forth on the balance
sheet contained in the Interim Financial Statements and in Schedule 2.4 hereto.
Prior to Closing, the Stockholders hereby agree to cause RLI to use its best
efforts to negotiate with such Tax authorities for full and complete releases of
all such Taxes (together with all related interest, penalties and other claims
and charges), in form and substance satisfactory to AvTel (the "TAX RELEASES").
The payments to be made by RLI for the release of all federal Tax liabilities
shall not exceed $700,000 and shall
consist of (i) a down payment not in excess of $500,000, and (ii) additional
post-Closing installment payments not in excess of $200,000 subject to terms and
conditions approved in advance by AvTel (such installment payments being
referred to as the "IRS Installment Payments"). The payments to be made by RLI
for the release of all other tax liabilities shall not exceed $250,000.
4.11 LINE OF CREDIT NOTE. AvTel agrees to make available to RLI a loan of
up to $500,000 pursuant to the terms of the Secured Promissory Note in
substantially the form attached hereto as Exhibit B (the "LINE OF CREDIT NOTE").
The proceeds of the Line of Credit Note shall be used only for the purpose of
obtaining the Tax Releases, and any advance on the Line of Credit Note may only
be made after RLI has presented AvTel with evidence satisfactory to AvTel that
such advance will enable RLI to obtain a particular Tax Release on appropriately
discounted terms. All advances under the Line of Credit Note will be personally
guaranteed by Jeffrey P. Leventhal and will be secured by all of the assets of
RLI, with such personal guaranty and security agreement to be in the form
contemplated in the Line of Credit Note.
4.12 BUYOUT OF PCSI HOLDERS. On or prior to the Closing Date, the
Stockholders will purchase, or will cause RLI to repurchase or otherwise
reacquire, all shares of the RLI Common Stock reflected on RLI's stock records
as being held by the PCSI Holders for an aggregate purchase price of not less
than $35,000. If such shares are repurchased by RLI, the aggregate purchase
price shall not exceed $40,000.
4.13 REASONABLE EFFORTS. The Stockholders agree that from the date hereof
to the Closing Date, they shall use their reasonable efforts, and cause RLI to
use its reasonable efforts, to satisfy the conditions precedent to the Closing
to the extent that such conditions are to be satisfied by the Stockholders.
5. ADDITIONAL CONTINUING COVENANTS
5.1 COVENANT NOT TO COMPETE.
5.1.1 RESTRICTIONS ON COMPETITIVE ACTIVITIES. The Stockholders agree
that after the Closing AvTel and RLI shall be entitled to the goodwill and going
concern value of the Business and to protect and preserve the same to the
maximum extent permitted by law. The Stockholders also acknowledge that their
management contributions to the Business have been uniquely valuable and involve
proprietary information that would be competitively unfair to make available to
any competitor of RLI. For these and other reasons and as an inducement to AvTel
to enter into this Agreement, each of the Stockholders agrees that, for a period
of two years after the Closing Date, such Stockholder will not, directly or
indirectly, for its own benefit or as agent for another, carry on or participate
in the ownership, management or control of, or the financing of, or be employed
by, or consult for or otherwise render services to, or allow its name or
reputation to be used in or by any other present or future business enterprise
that is in competition with the Business as carried on by AvTel, RLI or any of
their present or future Affiliates. Subject to the two-year limitation set forth
above, this agreement of the Stockholders shall be effective in each separate
county and parish in each of the fifty states of the United States of America
(each a "Location") for so long as AvTel, RLI or any person entitled to or
acquiring ownership of the goodwill of the Business or the Stockholder Shares
through AvTel carries on a like business therein.
5.1.2 EXCEPTIONS. Nothing contained herein shall limit the right of
a Stockholder as an investor to hold and make investments in securities of any
corporation or limited partnership that is registered on a national securities
exchange or admitted to trading privileges thereon or actively traded in a
generally recognized over-the-counter market, provided the Stockholders's equity
interest therein does not exceed 5% of the outstanding shares or interests in
such corporation or partnership.
5.1.3 RESTRICTIONS ON SOLICITING EMPLOYEES. In addition, to protect
AvTel against any efforts by the Stockholders to cause employees of RLI to
terminate their employment, each of the Stockholders agrees that for a period of
two years following the Closing Date, the Stockholders will not directly or
indirectly (i) induce any employee of RLI or any Subsidiary (other than Steve
Leventhal and Richard Leventhal) to leave RLI or such Subsidiary or to accept
any other employment or position, or (ii) assist any other entity in hiring any
such employee.
5.1.4 SPECIAL REMEDIES AND ENFORCEMENT. The Stockholders recognize
and agree that a breach by a Stockholder of any of the covenants set forth in
this Section 5.1 could cause irreparable harm to AvTel, RLI and their respective
successors, that AvTel's remedies at law in the event of such breach would be
inadequate, and that, accordingly, in the event of such breach a restraining
order or injunction or both may be issued against the breaching Stockholder, in
addition to any other rights and remedies which are available to AvTel. If this
Section 5.1 is more restrictive than permitted by the Laws of the jurisdiction
in which AvTel seeks enforcement hereof, this Section 5.1 shall be limited to
the extent required to permit enforcement under such Laws. Without limiting the
generality of the foregoing, the parties intend that the covenants contained in
the preceding portions of this Section 5.1 shall be construed as a series of
separate covenants, one for each Location specified. Except for geographic
coverage, each such
separate covenant shall be deemed identical in terms. It is the desire and
intent of the parties hereto that the provisions of this Section 5.1 shall be
enforced to the fullest extent (both geographical and temporal) permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 5.1 is invalid
or unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified. If any particular provision or portion of
this Section 5.1 shall be adjudicated to be invalid or unenforceable, such
adjudication shall apply only with respect to the operation of this Section 5.1
in the particular jurisdiction in which such adjudication is made.
5.2 REGISTRATION RIGHTS
5.2.1 DEFINITIONS. For purposes of this Section 5.2, the terms
"register", "registered" and "registration" refer to a registration effected by
preparing and filing a registration statement or similar document in compliance
with the Securities Act, and the declaration or ordering of effectiveness of
such registration statement or document.
5.2.2 PIGGYBACK REGISTRATION. If at any time after the Closing Date
AvTel shall propose to register any of the AvTel Common Stock for sale or
disposition for its own account for cash under the Securities Act in a public
offering, other than a registration relating to stock options, employee benefit
plans (defined in accordance with SEC regulations) or acquisitions, AvTel shall:
1. Promptly give the Stockholder Representative at least
thirty (30) days' written notice prior to the filing thereof, which notice shall
include the proposed date on which the registration statement is to be filed,
the proposed price per share and a list of the jurisdictions in which AvTel
intends to attempt to qualify such securities under the applicable blue sky or
other state securities laws ("BLUE SKY LAWS"); and
2. Include in such registration (and any related qualification
under Blue Sky Laws), and in any underwriting involved therein, ten percent
(10%) of the Initial Exchange Shares and Earnout Shares, if any (the
"REGISTRABLE SHARES"), then held by each of the Stockholders which are specified
in a written request made by the Stockholder Representative within ten (10) days
after receipt of such written notice from AvTel by the Stockholder
Representative.
5.2.3 UNDERWRITING AGREEMENT. The right of the Stockholders to
registration pursuant to this Section 5.2 shall be conditioned upon the
Stockholders' participation in any underwriting relating to AvTel's registered
public offering. The Stockholders shall (together with AvTel) enter into an
underwriting agreement in customary form with the
underwriter or underwriters selected by AvTel. Notwithstanding any provision of
this Section 5.2, if the underwriter in its reasonable judgment determines that
marketing factors require a limitation of the number of securities to be
underwritten, the underwriter may exclude some or all of the Registrable Shares
for which the Stockholders seek registration from inclusion in the registration
and underwriting; provided, however, that if AvTel proposes to include in such
registration shares of capital stock held by shareholders of AvTel other than
the Stockholders ("Other Holders"), then the number of shares to be so excluded
shall be allocated among the Stockholders and the Other Holders pro rata based
upon the number of shares of capital stock proposed to be included in the
registration by each of them.
5.2.4 EXPENSES OF REGISTRATION. AvTel shall bear all registration
costs and expenses related to any registration and underwriting contemplated by
this Article 5.2, except that the selling Stockholders shall bear (i) all
underwriting commissions relating to the Registrable Shares registered and (ii)
the fees and expenses of legal counsel to the Stockholders.
5.3 NONDISCLOSURE OF PROPRIETARY DATA. Neither the Stockholders nor any of
their representatives shall, at any time prior to the second anniversary of the
Closing Date, make use of, divulge or otherwise disclose, directly or
indirectly, any trade secret or other proprietary data (including, but not
limited to, any customer list, record or financial information) concerning the
business or policies of RLI or its Subsidiaries that the Stockholders or any
representative of the Stockholders may have learned as a shareholder, employee,
officer or director of RLI. In addition, for two years after the Closing Date,
neither the Stockholders nor any of their representatives shall make use of,
divulge or otherwise disclose, directly or indirectly, to persons other than
AvTel, any confidential information concerning the business or policies of RLI
or its Subsidiaries which may have been learned in any such capacity. Nothing in
this Section shall prevent a Stockholder who is employed by RLI or its
Subsidiaries from using such information in the proper course of his or her
employment. The Stockholders recognize and agree that a breach by a Stockholder
of any of the covenants set forth in this Section 5.3 could cause irreparable
harm to AvTel, RLI and their respective successors, that AvTel's remedies at law
in the event of such breach would be inadequate, and that, accordingly, in the
event of such breach a restraining order or injunction or both may be issued
against the breaching Stockholder, in addition to any other rights and remedies
which are available to AvTel.
5.4 TAX RETURNS; RESPONSIBILITY FOR CERTAIN TAX MATTERS. The following
provisions shall govern the allocation of responsibility as between AvTel, RLI,
and the Stockholders for certain Tax matters following the Closing Date:
5.4.1 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. RLI shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for it for all Tax periods ending on or prior to the Closing Date which are
filed after the Closing Date. AvTel shall permit the Stockholder Representative
to review and comment on each such Tax Return described in the preceding
sentence prior to filing. The Stockholders shall reimburse AvTel for Taxes of
RLI with respect to such periods within fifteen (15) days after payment by AvTel
or RLI of such Taxes to the extent such Taxes are not reflected in the reserve
for Tax liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth or included on the face of the RLI Financial
Statements.
5.4.2 TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. RLI shall prepare or cause to be prepared and file or cause to be filed
any Tax Returns of RLI for Tax periods which begin before the Closing Date and
end after the Closing Date.
5.4.3 COOPERATION ON TAX MATTERS.
1. The Stockholders shall, and shall cause their Affiliates
to, cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns pursuant to this Section and
any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any such
audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder.
2. AvTel and the Stockholders agree (i) to retain all books
and records with respect to Tax matters pertinent to RLI relating to any taxable
period beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by AvTel or the Stockholder
Representative, any extensions thereof) of the respective taxable periods, and
to abide by all record retention agreements entered into with any taxing
authority, and (ii) to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the
other party so requests, RLI or the Stockholder Representative, as the case may
be, shall allow the other party to take possession of such books and records.
Any information obtained pursuant to this Section or pursuant to any other
Section hereof providing for the sharing of information or the review of any Tax
Return or other Schedule relating to Taxes shall be subject to Section 9.9.
3. AvTel and the Stockholders further agree, upon request, to
use their best efforts to obtain any certificate or other document from any
governmental authority or any other person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
5.5 SECURITIES LAWS MATTERS. Each of the Stockholders agrees not to sell,
transfer, convey or otherwise distribute shares of AvTel Common Stock received
pursuant to this Agreement over which such Stockholder has direct or indirect
control without registration under the Securities Act and applicable federal and
state securities laws, except pursuant to an exemption from registration
thereunder. Each of the Stockholders will comply in all respects with such laws.
5.6 PAYMENT OF IRS INSTALLMENTS. AvTel will cause RLI to make the IRS
Installment Payments on the terms approved by AvTel pursuant to Section 4.10.
6. CONDITIONS OF PURCHASE
6.1 GENERAL CONDITIONS. The obligations of the parties to effect the
Closing shall be subject to the following conditions unless waived in writing by
all parties:
6.1.1 NO ORDERS; LEGAL PROCEEDINGS. No Law or Order shall have been
enacted, entered, issued, promulgated or enforced by any Governmental Entity,
nor shall any Action have been instituted and remain pending at what would
otherwise be the Closing Date, which prohibits or restricts or would (if
successful) prohibit or restrict the transactions contemplated by this Agreement
or (with respect to obligations of AvTel only) which would not permit the
Business as presently conducted to continue unimpaired following the Closing
Date.
6.1.2 APPROVALS. All Permits and Approvals with respect to the
transactions contemplated hereby required to be obtained from any Governmental
Entity shall have been received or obtained on or prior to the Closing Date.
6.2 CONDITIONS TO OBLIGATIONS OF AVTEL. The obligations of AvTel to effect
the Closing shall be subject to the following additional conditions except to
the extent waived in writing by AvTel:
6.2.1 REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE
STOCKHOLDERS. The representations and warranties of the Stockholders herein
contained shall be true in all material respects at the Closing Date with the
same effect as though made at such time; the Stockholders shall have in all
material respects performed all obligations and complied with all covenants and
conditions required by this Agreement to be performed or complied with by them
at or prior to the Closing Date.
6.2.2 NO MATERIAL ADVERSE CHANGE. There shall not have been any
material adverse change in or affecting the Business subsequent to December 31,
1997.
6.2.3 LIMITATION ON TOTAL DEBT. As of the Closing Date, RLI and its
Subsidiaries shall not have outstanding more than an aggregate of $550,000 in
total debt, as determined in accordance with GAAP, excluding (i) the Line of
Credit Note to AvTel, (ii) the obligation to make the IRS Installment Payments,
and (iii) payment obligations to taxing authorities other than the Internal
Revenue Service of not more than $250,000.
6.2.4 REVENUES FOR INTERIM PERIOD. RLI and its Subsidiaries shall
have had net revenues for the period from January 1, 1998 to the Closing Date
greater than or equal to that amount which, if annualized on a proportional
basis for all of 1998, would equal $4,700,000.
6.2.5 CONSENTS. The Stockholders shall have obtained and provided to
AvTel all required Approvals and Permits listed on Schedule 2.8, each in form
and substance satisfactory to AvTel.
6.2.6 CERTIFICATE OF STOCKHOLDER REPRESENTATIVE. The Stockholder
Representative shall have delivered to AvTel a certificate dated the Closing
Date, on behalf of all of the Stockholders, in form and substance satisfactory
to AvTel, certifying that the conditions set forth in Sections 6.2.1, 6.2.2,
6.2.3, 6.2.4, 6.2.5, 6.2.12 and 6.2.13 have been fully satisfied..
6.2.7 OPINION OF COUNSEL. AvTel shall receive at the Closing from
Rosen & Tetelman, counsel to the Stockholders, an opinion dated the Closing
Date, in form and substance substantially as set forth in Exhibit C.
6.2.8 COMFORT LETTER. AvTel shall receive at the Closing from the
Auditors a comfort letter dated not more than five business days prior to the
Closing Date substantially in form of Exhibit D hereto and in substance
reasonably satisfactory to AvTel.
6.2.9 RESIGNATION OF DIRECTORS AND OFFICERS. The directors of RLI
and each of the Subsidiaries and the officers of RLI and Subsidiaries (other
than those designated in writing by AvTel) shall have submitted their
resignations in writing to RLI and AvTel. Such resignations of officers and
direc tors (in such capacity) shall be effective upon the Closing.
6.2.10 DUE DILIGENCE. AvTel shall not, in the course of its on-going
business investigation, have discovered information not previously disclosed by
the Stockholders, RLI or its Subsidiaries, which AvTel reasonably believes has
or is likely to have a materially adverse effect on the Business or is
materially inconsistent with information disclosed to AvTel prior to the date
hereof.
6.2.11 KEY EMPLOYEES. Jeffrey P. Leventhal shall have entered into
an employment agreement (the "EMPLOYMENT AGREEMENT") with RLI in a form
reasonably satisfactory to Jeffrey P. Leventhal and to AvTel, and containing the
terms set forth in of Exhibit E hereto. AvTel shall be reasonably satisfied that
the other significant employees of RLI and its Subsidiaries are willing to
remain employees of RLI or its Subsidiaries (or become employees of AvTel) on
terms reasonably satisfactory to AvTel following the consummation of the
transactions contemplated by this Agreement.
6.2.12 TAX RELEASES. RLI shall have obtained a Tax Release from the
Internal Revenue Service with respect to all federal Tax liabilities for
consideration consisting of a down payment not in excess of $500,000 and the IRS
Installment Payments not in excess of $200,000, on the terms contemplated by
Section 4.10 hereof.
6.2.13 BUYOUT OF PCSI HOLDERS. The Stockholders and/or RLI shall
have completed the acquisition of the shares of RLI Common Stock held by the
PCSI Holders on the terms contemplated by Section 4.11 hereof.
6.2.14 EXECUTION OF AGREEMENT BY STOCKHOLDERS. This Agreement shall
have been duly and validly executed by Stockholders holding one hundred percent
(100%) of the shares of RLI Common Stock outstanding as of the Closing.
6.3 CONDITIONS TO OBLIGATIONS OF THE STOCKHOLDERS. The obligations of the
Stockholders to effect the Closing shall be subject to the following conditions,
except to the extent waived in writing by the Stockholders:
6.3.1 REPRESENTATIONS AND WARRANTIES AND COVENANTS OF AVTEL. The
representations and warranties of AvTel herein contained shall be true in all
material respects at the Closing Date with the same effect as though made at
such time; AvTel shall have in all material respects performed all obligations
and complied with all covenants and conditions required by this Agreement to be
performed or complied with by it at or prior to the Closing Date, and AvTel
shall have delivered to the Stockholders an officers' certificate of AvTel in
form reasonably satisfactory to the Stockholders, dated the Closing Date, to
such effect.
6.3.2 CONSENTS. AvTel shall have obtained and provided to the
Stockholders all required Approvals and Permits listed on Schedule 3.3, each in
form and substance satisfactory to the Stockholders.
6.3.3 EMPLOYEE STOCK OPTIONS. Concurrently with the Closing, AvTel
shall have awarded 5,000 incentive stock options pursuant to its 1998 Stock
Incentive Plan (the "1998 PLAN") to each of Neil Brenner and Andy Denton, who
are employees of RLI or one or more of its Subsidiaries. Such options shall be
subject to all of the terms and conditions of the 1998 Plan and shall become
exercisable as to fifty percent (50%) of the shares to which they relate on the
first anniversary of the Closing Date, and shall be fully exercisable on the
second anniversary of
the Closing Date, provided that such individuals remain employed by AvTel or one
of its Affiliates.
6.3.4 OPINION OF COUNSEL. The Stockholder Representative shall
receive at the Closing from Seed, Mackall & Cole LLP, counsel to AvTel, an
opinion dated the Closing Date, in form and substance substantially as set forth
in Exhibit F.
6.3.5 RELEASE OF PERSONAL GUARANTIES. The parties shall have
obtained releases of Jeffrey P. Leventhal's material personal guaranties of
RLI's obligations, in each case on terms reasonably satisfactory to Jeffrey P.
Leventhal and AvTel.
7. TERMINATION OF OBLIGATIONS; SURVIVAL
7.1 TERMINATION OF AGREEMENT. Anything herein to the contrary
notwithstanding, this Agreement and the transactions contemplated by this
Agreement shall terminate if the Closing does not occur on or before midnight on
August 31, 1998, unless extended by mutual consent in writing of AvTel and the
Stockholders and otherwise may be terminated at any time before the Closing as
follows and in no other manner:
7.1.1 MUTUAL CONSENT. By mutual consent in writing of AvTel and the
Stockholders.
7.1.2 MATERIAL BREACH. By AvTel or the Stockholders if there has
been a material misrepresentation or other material breach by the other party
(or, in the case of AvTel, by the Stockholders or RLI) in its representations,
warranties and covenants set forth herein; provided, however, that if such
breach is susceptible to cure, the breaching party shall have ten business days
in which to cure such breach after receipt of notice from the other party of its
intention to terminate this Agreement if such breach continues.
7.2 EFFECT OF TERMINATION. In the event that this Agreement shall be
terminated pursuant to Section 7.1, all further obligations of the parties under
this Agreement shall terminate without further liability of any party to
another; provided that the obligations of the parties contained in Section 9.9
and Section 9.11 shall survive any such termination. A termination under Section
7.1.2 shall not relieve any party of any liability for a breach of, or for any
misrepresentation under this Agreement, or be deemed to constitute a waiver of
any available remedy (including specific performance if available) for any such
breach or misrepresentation.
7.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as set forth
herein, the representations and warranties of the parties contained in or made
pursuant to this Agreement shall survive the Closing, without regard to any
investigation made by the other party hereto, for a period of one year after the
Closing Date. All covenants and agreements of the parties contained in this
Agreement shall survive the Closing in accordance with their stated terms or, if
no term is stated, then one year from the Closing Date. Notwithstanding anything
to the contrary herein, (a) the representations and warranties contained in
Section 2.2 shall survive the Closing for a period of six years after the
Closing Date; and (b) the representations and warranties contained in Section
2.4 shall survive for the period of time equal to the applicable statute of
limitations in respect of claims relating thereto, plus 90 days.
8. INDEMNIFICATION
8.1 OBLIGATIONS OF THE STOCKHOLDERS. Each of the Stockholders, severally
but not jointly, agrees to indemnify and hold harmless AvTel, RLI and their
respective directors, officers, employees, Affiliates, agents and assigns (the
"AVTEL PARTIES") from and against such Stockholder's Allocable Portion (as
defined in below) of any and all actions, costs, damages, disbursements,
expenses, liabilities, losses, deficiencies, obligations, penalties or
settlements of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, legal,
accounting and other professional fees and expenses incurred in the
investigation, collection, prosecution and defense of claims and amounts paid in
settlement (collectively, "Losses"), that may be imposed on or otherwise
incurred or suffered by any of such persons or entities, directly or indirectly,
as a result of, or based upon or arising from:
8.1.1 any inaccuracy in or breach or nonperformance of any of the
representations, warranties, covenants or agreements made by the Stockholders in
or pursuant to this Agreement (without giving effect to any materiality
qualifications contained in any such representation or warranty); or
8.1.2 any transactions among or involving the Stockholders, RLI and
the PCSI Holders including, without limitation, the acquisition of the shares of
RLI Common Stock held by the PCSI Holders on the terms contemplated by Section
4.11 hereof; or
8.1.3 any Order or Action pending or threatened on or prior to the
Closing Date which is not set forth in Schedule 2.9; or
8.1.4 any Order or Action (i) set forth in Schedule 2.9 (other than
the litigation with Thomas J. Ferrara described therein), but only to the extent
that the Losses (excluding attorneys' fees and expenses relating thereto)
therefrom exceed $50,000; or (ii) relating to Thomas J. Ferrara but only to the
extent that Losses (excluding attorneys' fees and expenses relating thereto)
therefrom exceed the aggregate amount of salary and commission owing to Thomas
J. Ferrara on the date hereof (provided, however, that any settlement or
judgment that requires the issuance of not more than 40,000 shares of AvTel
Common Stock to
or on behalf of Thomas J. Ferrara shall be handled solely by means of the Escrow
Agreement); or
8.1.5 any indemnification required by Section 4.8.
The "Allocable Portion" of a Stockholder shall mean that fraction equal to the
number of Stockholder Shares held by such Stockholder on the Closing Date
divided by the total number of Stockholder Shares outstanding on the Closing
Date. Notwithstanding anything in this Agreement to the contrary, the
indemnification obligations of Jeffrey P. Leventhal under this Section 8 shall
be joint and several with the indemnification obligations of all of the
Stockholders as a group.
8.2 OBLIGATIONS OF AVTEL. AvTel agrees to indemnify and hold harmless the
Stockholders from and against any Losses of the Stockholders, directly or
indirectly, as a result of, or based upon or arising from, any inaccuracy in or
breach or nonperformance of any of the representations, warranties, covenants or
agreements made by AvTel in or pursuant to this Agreement (without giving effect
to any materiality qualifications contained in any such representation or
warranty).
8.3 CERTAIN TAX MATTERS.
8.3.1 THE STOCKHOLDERS INDEMNITY. The Stockholders agree to
indemnify, defend and hold harmless the AvTel Parties against (i) any Tax
payable by or on behalf of the Stockholders, RLI or any of their Affiliates for
any taxable period ending or treated by this Agreement as ending on or prior to
the Closing Date, (ii) any deficiencies in any Tax payable by or on behalf of
the Stockholders, RLI or any of their Affiliates arising from any audit by any
taxing agency or authority with respect to any period ending or treated by this
Agreement as ending on or prior to the Closing Date, (iii) any claim or demand
for reimbursement or indemnification resulting from any transfer by the
Stockholders or RLI prior to the Closing of any Tax benefits or credits to any
other person, or (iv) any transfer Tax liabilities arising out of the transfer
of the Stockholder Shares.
8.3.2 AUDIT MATTERS. AvTel shall have the responsibility for, and
the right to control, at its expense, the audit (and disposition thereof) of any
Tax Return of RLI relating to periods ending on or prior to the Closing Date.
The Stockholder Representative shall have the right directly or through its
designated representatives, to review in advance and comment upon all
submissions made in the course of audits or appeals thereof to any Governmental
Entity relating to periods ending or treated by this Agreement as ending on or
prior to the Closing Date.
8.4 LIMITATIONS ON INDEMNIFICATION.
8.4.1 WITH RESPECT TO STOCKHOLDERS' OBLIGATIONS. The Stockholders'
obligation to indemnify the AvTel Parties for Losses under Section 8.1.1 (i)
shall accrue only if the aggregate of all such Losses exceeds $50,000, and (ii)
shall be limited in the aggregate to an amount equal to the aggregate value of
the Purchase Price actually delivered by AvTel as measured on the date (or
dates) received. The limitations set forth in this Section 8.4.1 shall not apply
to the indemnification obligations of the Stockholders with respect to any
Losses that have resulted from (i) a breach of the representations and
warranties contained in Section 2.2, Section 2.4 or Section 2.23, or (ii) a
breach of the covenant contained in Section 5.5. The limitations set forth in
this Section 8.4.1 shall not apply to the indemnification obligations of the
Stockholders under Section 8.1.4 and Section 8.3 of this Agreement.
8.4.2 WITH RESPECT TO AVTEL'S OBLIGATIONS. AvTel's obligation to
indemnify the Stockholders for Losses under Section 8.2 (i) shall accrue only if
the aggregate of all such Losses exceeds $50,000, and (ii) shall be limited in
the aggregate to an amount equal to the value of the Purchase Price actually
delivered by AvTel.
8.4.3 FRAUD OR WILLFUL BREACH. The parties hereby agree that the
limitations set forth in Section 8.4.1 and Section 8.4.2 shall not apply to the
indemnification obligations of any party with respect to any Losses that have
resulted proximately from the fraud or willful breach of such party.
8.4.4 APPLICATION TO OTHER REMEDIES. The limitations contained in
this Section 8.4 shall apply to the parties' liability for indemnification or
otherwise. Nothing herein shall limit a party's ability to obtain injunctive or
equitable relief if otherwise authorized by this Agreement.
8.5 PROCEDURE.
8.5.1 NOTICE. Any party seeking indemnification with respect to any
Loss (the "INDEMNIFIED PARTY") shall give notice to the party required to
provide indemnity hereunder (the "INDEMNIFYING PARTY").
8.5.2 DEFENSE. If any claim, demand or liability is asserted by any
third party against any Indemnified Party, the Indemnifying Party shall upon the
written request of the Indemnified Party, defend any actions or proceedings
brought against the Indemnified Party in respect of matters embraced by the
indemnity, but the Indemnified Party shall have the right to conduct and control
the defense, compromise or settlement of any indemnifiable claim if the
Indemnified Party chooses to do so, on behalf of and for the account and risk of
the Indemnifying Party who shall be bound by the result so obtained to the
extent provided herein. If, after a request to defend any action or proceeding,
the Indemnifying Party neglects to defend the Indemnified Party, a recovery
against the latter suffered by it in good faith, is conclusive in its favor
against the Indemnifying Party, provided however that, if the Indemnifying Party
has not received reasonable notice of the action or proceeding against the
Indemnified Party, or is not allowed to control its defense, judgment against
the Indemnified Party is only presumptive
evidence against the Indemnifying Party. Each party hereto, to the extent that
it is or becomes an Indemnifying Party, hereby stipulates that a judgment
against the Indemnified Party shall be conclusive upon the Indemnifying Party.
The parties shall cooperate in the defense of all third party claims which may
give rise to indemnifiable claims hereunder.
8.5.3 TAX ADJUSTMENTS. Any amounts payable by the Indemnifying Party
to or on behalf of an Indemnified Party in respect of a Loss shall be adjusted
as follows:
1. If such Indemnified Party is liable for any additional
Taxes as a result of the payment of amounts in respect of an indemnifiable
claim, the Indemnifying Party will pay to the Indemnified Party in addition to
such amounts in respect of the Loss within 10 days after being notified by the
Indemnified Party of the payment of such liability (x) an amount equal to such
additional Taxes (the "TAX REIMBURSEMENT AMOUNT") plus (y) any additional
amounts required to pay additional Taxes imposed with respect to the Tax
Reimbursement Amount and with respect to amounts payable under this clause (y),
with the result that the Indemnified Party shall have received from the
Indemnifying Party, net of the payment of Taxes, an amount equal to the Loss.
2. The Indemnified Party shall reimburse the Indemnifying
Party an amount equal to the net reduction in any year in the liability for
Taxes (that are based upon or measured by income) of the Indemnified Party or
any member of a consolidated or combined tax group of which the Indemnified
Party is, or was at any time, part, which reduction is actually realized with
respect to any period after the Closing Date and which reduction would not have
been realized but for the amounts paid (or any audit adjustment or deficiency
with respect thereto, if applicable) in respect of a Loss, or amounts paid by
the Indemnified Party pursuant to this paragraph (a "NET TAX BENEFIT"). The
amount of any Net Tax Benefit shall be paid not later than 15 days after the
date on which such Net Tax Benefit shall be realized. Any expenses associated
with the realization of a Net Tax Benefit or any contest or proceeding with
respect to a Net Tax Benefit shall be deemed to reduce such Net Tax Benefit.
8.6 PAYMENTS BY STOCKHOLDERS. Subject to Section 8.9, if a Stockholder
owes any amount to AvTel pursuant to Section 8.1, such Stockholder may determine
to pay such amount either (i) in cash, or (ii) by delivery of shares of AvTel
Common Stock. If a Stockholder delivers shares of AvTel Common Stock, the value
of such shares shall be deemed to be equal to the average closing price as
publicly reported by the Nasdaq Stock Market as of 4:00 p.m. Eastern Time of
AvTel Common Stock over the last sixty trading days ending with (and including)
the second business day prior to the date such payment is to be made.
8.7 SURVIVAL. This Section 8 shall survive any termination of this
Agreement. Any matter as to which a claim has been asserted by notice to the
other party that is pending or unresolved at the end of the survival period of
the applicable representation, warranty or covenant (as set forth in Section
7.3) shall continue to be covered by this Section 8 notwithstanding the
termination of such survival period until such matter is finally terminated or
otherwise resolved by the parties under this Agreement and any amounts payable
hereunder are finally determined and paid.
8.8 NOTICE OF CLAIMS. The Stockholders agree to notify AvTel and AvTel
agrees to notify the Stockholder Representative of any liabilities, claims or
misrepresentations, breaches or other matters covered by this Section 8 upon
discovery or receipt of notice thereof (other than from the other party hereto),
whether before or after Closing.
8.9 OFFSET. If any matter as to which AvTel may be able to assert a claim
hereunder is pending or unresolved at the time that AvTel is otherwise required
to deliver any Earnout Shares to the Stockholders under this Agreement, AvTel
shall have the right, in addition to other rights and remedies (whether under
this Agreement or applicable Law), to withhold from such delivery that number of
Earnout Shares determined by dividing the amount of the claim (provided it is
then asserted in accordance with the provisions hereof) by the Closing Share
Price. If it is finally determined that all or a portion of such amount claimed
was not due AvTel under this Section 8, then AvTel shall promptly deliver to the
Stockholders the Earnout Shares (or portion thereof) improperly retained.
9. GENERAL
9.1 AMENDMENTS; WAIVERS. This Agreement and any schedule or exhibit
attached hereto may be amended only by agreement in writing of all parties. No
waiver of any provision nor consent to any exception to the terms of this
Agreement or any agreement contemplated hereby shall be effective unless in
writing and signed by the party to be bound and then only to the specific
purpose, extent and instance so provided.
9.2 SCHEDULES; EXHIBITS; INTEGRATION. Each schedule and exhibit delivered
pursuant to the terms of this Agreement shall be in writing and shall constitute
a part of this Agreement, although schedules need not be attached to each copy
of this Agreement. This Agreement, together with such schedules and exhibits,
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements and understandings of the
parties in connection therewith. If any matter is disclosed or described in one
schedule, and such disclosure or description would by its express terms serve as
sufficient disclosure of such matter for purposes of any other schedule in which
such matter is required to be disclosed, then such disclosure or description
shall automatically be deemed to have been disclosed or described in each such
other schedule.
9.3 BEST EFFORTS; FURTHER ASSURANCES.
9.3.1 STANDARD. Each party will use its best efforts to cause all
conditions to its obligations to be timely satisfied and to perform and fulfill
all obligations on its part to be performed and fulfilled under this Agreement,
to the end that the transactions contemplated by this Agreement shall be
effected substantially in accordance with its terms as soon as reasonably
practicable. The parties shall cooperate with each other in such actions and in
securing requisite Approvals.
9.3.2 LIMITATION. As used in this Agreement, the term "best efforts"
shall not mean efforts which require the performing party to do any act that is
unreasonable under the circumstances, to make any capital contribution or to
expend any funds other than reasonable out-of-pocket expenses incurred in
satisfying its obligations hereunder, including but not limited to the fees,
expenses and disbursements of its accountants, actuaries, counsel and other
professionals.
9.4 GOVERNING LAW. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of New York applicable to contracts made and performed in such State and
without regard to conflicts of law doctrines except to the extent that certain
matters are preempted by federal law.
9.5 NO ASSIGNMENT. Neither this Agreement nor any rights or obligations
under it are assignable except that AvTel may assign its rights hereunder
(including but not limited to its rights under Section 8) to any subsidiary or
affiliate of AvTel or to any post-Closing purchaser of the Stockholder Shares or
of a substantial part of the assets of RLI. AvTel shall give the Stockholder
Representative ten days prior written notice of any such assignment; provided,
however, that any failure to give such notice shall not affect the rights of
AvTel (or its assignee) or the obligations of the Stockholders hereunder.
9.6 HEADINGS. The descriptive headings of the Sections and subsections of
this Agreement are for convenience only and do not constitute a part of this
Agreement.
9.7 COUNTERPARTS; BINDING EFFECT. This Agreement and any amendment hereto
or any other agreement (or document) delivered pursuant hereto may be executed
in one or more counterparts and by different parties in separate counterparts.
All of such counterparts shall constitute one and the same agreement (or other
document) and shall become effective (unless otherwise provided therein) when
one or more counterparts have been signed by each party and delivered to the
other party. This Agreement shall be binding upon the signatories hereto when
executed by AvTel and at least one Stockholder. Additional Stockholders
executing this Agreement after the date hereof and on or prior to the Closing
Date shall be bound as if they had executed this Agreement on the date hereof.
9.8 PARTIES IN INTEREST. This Agreement shall be binding upon and inure to
the benefit of each party, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement. Nothing in this Agreement is
intended to relieve or discharge the obligation of any third person to (or to
confer any right of subrogation or action over against) any party to this
Agreement.
9.9 CONFIDENTIALITY; PUBLICITY.. Each party agrees to protect the
confidentiality of all information that is furnished by the other party and
designated in writing as confidential by such other party or its representatives
in connection with the transactions contemplated by this Agreement. If for any
reason such transactions are not consummated, the receiving party shall, on
request, return or destroy all such written information. This Section shall not
apply to any information (i) already known to the receiving party or its
representatives or to others not bound by a duty of confidentiality or which
becomes publicly available through no fault of the receiving party or its
representatives, (ii) the use of which is necessary or appropriate in making any
filing or obtaining any financing, consent or approval required for the
consummation of such transactions, or (iii) the furnishing or use of which is
required by, or necessary or appropriate in connection, with legal proceedings.
Except as necessary to obtain required third party consents, or to the extent
required by law, without the prior written consent of the other party, neither
AvTel nor the Stockholders will make (and each will direct its Affiliates and
representatives not to make) directly or indirectly, any public comment,
statement, or communication with respect to, or otherwise to disclose or to
permit the disclosure of the existence of this Agreement, the transactions
contemplated hereby, or any of the terms, conditions, or other aspects hereof.
9.10 NOTICES. Any notice or other communication hereunder must be given in
writing and either (a) delivered in person, (b) transmitted by telex, telefax or
telecommunications mechanism provided that any notice so given is also mailed as
provided in clause (c) or (c) mailed by first class mail, postage prepaid, as
follows:
If to AvTel addressed to: If to Stockholder Representative
addressed to:
AvTel Communications, Inc. Remote Lojix/PCSI, Inc.
501 Bath Street 38 East 32nd Street
Santa Barbara, CA 93101 New York, NY 10016
Attention: James P. Pisani Attention: Jeffrey P. Leventhal
Facsimile No. (805) 884-6311 Facsimile No.
With a copy to: With a copy to:
Seed, Mackall & Cole LLP Rosen & Tetelman
1332 Anacapa Street, Suite 200 501 Fifth Avenue, Suite 1404
Santa Barbara, CA 93101 New York, NY 10017
Attention: Thomas N. Harding, Attention: Ted D. Rosen, Esq.
Esq.
Facsimile No. (805) 962-1404 Facsimile No. (212) 972-3555
If to any individual Stockholder,
addressed to such Stockholder at
the address set forth for such
Stockholder in Schedule 2.1 hereto
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 9.10 and an appropriate answerback is received, (ii) if given by mail,
three days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when actually delivered at such address.
9.11 EXPENSES. The Stockholders and AvTel shall each pay their own
expenses incident to the negotiation, preparation and performance of this
Agreement and the transactions contemplated hereby, including but not limited to
the fees, expenses and disbursements of their respective counsel; provided that
RLI may pay not more than $25,000 of the expenses relating to the transactions
contemplated hereby.
9.12 WAIVER. No failure on the part of any party to exercise or delay in
exercising any right hereunder shall be deemed a waiver thereof, nor shall any
single or partial exercise preclude any further or other exercise of such or any
other right.
9.13 ATTORNEY FEES. In the event of any Action for the breach of this
Agreement or misrepresentation by any party, the prevailing party shall be
entitled to reasonable attorney's fees, costs and expenses incurred in
connection with such Action.
9.14 REPRESENTATION BY COUNSEL; INTERPRETATION. The Stockholders and AvTel
each acknowledge that each party to this Agreement has been represented by
counsel in connection with this Agreement and the transactions contemplated by
this Agreement. Each of the Stockholders further acknowledges that Rosen &
Tetelman has acted as counsel only for RLI and Jeffrey P. Leventhal, and that
each of the other Stockholders has access to counsel other than Rosen &
Tetelman. Accordingly, any rule of Law or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the party
that drafted it has no application and is expressly waived. The provisions of
this Agreement shall be interpreted in a reasonable manner to effect the intent
of AvTel and the Stockholders.
9.15 SEVERABILITY. If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Entity, the remaining
provisions of this Agreement shall remain in full force and effect provided that
the essential terms and conditions of this Agreement for both parties remain
valid, binding and enforceable
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first above written.
"AvTel"
AVTEL COMMUNICATIONS, INC.,
a Delaware corporation
By /S/ JAMES P. PISANI
-------------------
James P. Pisani
President
"STOCKHOLDERS"
/S/ MATTHEW BLUMENTHAL
-------------------
/S/ SARAH CHOI
-----------
/S/ KENNETH W. SCOTT
-----------------
/S/ MURRAY LEVRANT
---------------
/S/ SHEILA LEVRANT
---------------
/S/ JEFFREY LEVENTHAL
------------------
LEVENTHAL PAGET, LLC
By: /S/ JEFFREY LEVENTHAL
----------------------
Jeffrey Leventhal
/S/ RICHARD REICH
--------------
ROSEN & TETELMAN
By: /S/ TED D. ROSEN
------------------
Ted D. Rosen, Partner
/S/ NEIL BRENNER
-------------
/S/ ANDY DENTON
------------
/S/ ANTHONY TUREL
--------------
/S/ DANIEL M. MURPHY
-----------------
ALLIANCE CAPITAL INVESTMENTS
CORP.
By: /S/ STACIE GREENE
------------------
Stacie Greene, President
/S/ ELMER DUWAYNE CARLSON
----------------------
/S/ KENNETH A. BARTON
------------------
/S/ MARK SACKSTEIN
---------------
HST PARTNERS
BY: /S/ LISA DAVIS
-----------------
Lisa Davis, Partner
[Exhibits and Schedules omitted]