STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT (this "Agreement") made this 29th day of
April, 1997, is by and between Matrix Telecom, Inc. ("Matrix") and AvTel
Communications, Inc.
("Avtel").
1. STOCK EXCHANGE
At Closing (as hereinafter defined), the stockholders of Matrix
listed on Schedule I (the "Stockholders") will deliver to Avtel
3,484,260 properly endorsed, unencumbered Matrix common shares
(the "Stock"), representing 100% of the outstanding Matrix common
stock, in exchange for 34,590,049 shares of common stock of Avtel
(such numbers to be adjusted to give effect to the Merger and
Reverse Stock Split (defined below)), which will not be registered
under the Securities Act of 1933, as amended.
2. EXCHANGE STATEMENT
Prior to the Closing, Matrix shall deliver to Avtel a duly
executed EXCHANGE STATEMENT from each Stockholder in the form
attached hereto as Exhibit A (each, an "Exchange Statement").
3. MATRIX NON-QUALIFIED STOCK OPTIONS
At Closing, Matrix will cancel all non-qualified stock options
(covering 9,000 Matrix shares) that it has granted and that remain
outstanding as of the date hereof, and Avtel will issue to the
beneficiaries thereof, 89,348 Avtel non-qualified stock options
(such numbers to be adjusted to give effect to the Merger and
Reverse Stock Split (defined below)) having the same exercise
period and exercise prices as currently apply to such Matrix
options all as set forth on Schedule II.
4. REGISTRATION RIGHTS AND LOCK-UP AGREEMENTS
At Closing, Avtel and Matrix, on behalf of the Stockholders, shall
enter into a REGISTRATION RIGHTS AND LOCK-UP AGREEMENT in the form
set forth on Exhibit B.
5. MATRIX OPERATIONS; INVESTMENT PURPOSES
Avtel will own Matrix and operate its business in the ordinary
course and has no intention of disposing of significant assets.
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6. POOLING OF INTERESTS
The parties intend that the transaction contemplated hereby will
be treated as a pooling of interests and agree to abide by the
restrictions contained in Accounting Series Release 135 ("ASR
135"). In this connection, no Stockholder will be allowed to sell
any Avtel shares prior to release of Avtel and Matrix combined
earnings covering a period of combined earnings of not less than
30 days in accordance with ASR 135.
7. INCOME TAX TREATMENT
The parties intend that the transaction will be treated as a
tax-free reorganization under IRC Section 368(a)(1)(B) and will
take no actions that will violate applicable requirements.
8. AVTEL SHAREHOLDERS' MEETING
Avtel shall, in accordance with applicable law, as soon as
practicable:
(a) duly call, give notice of, convene and hold a
special meeting of its stockholders (the
"Stockholders' Meeting") for the purpose of
considering and taking action upon this
Agreement;
(b) subject to the fiduciary duties of the Board of
Directors of Avtel under applicable law, include
in a proxy statement (the "Proxy Statement") to
be distributed to its stockholders the
recommendation of the Board of Directors of
Avtel that the stockholders of Avtel vote in
favor of the approval and adoption of this
Agreement and the transactions contemplated
hereby;
(c) provide Matrix with copies of the proposed Proxy
Statement and a reasonable opportunity to review
and comment upon such Proxy Statement before it
is mailed to Avtel's shareholders; and
(d) use its best efforts to (i) obtain and furnish
the information required to be included by it in
the Proxy Statement and respond promptly to any
comments made by the Securities and Exchange
Commission with respect to the Proxy Statement
and any preliminary version thereof and cause
the Proxy Statement to be mailed to its
stockholders at the earliest practicable time
and (ii) obtain the necessary approvals by its
stockholders of this Agreement and the
transactions contemplated hereby.
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9. AVTEL MERGER; REVERSE STOCK SPLIT
(a) Prior to the Closing hereunder, Avtel shall merge (the
"Merger") with and into a Delaware corporation,
whereupon the separate corporate existence of Avtel
shall cease and such Delaware corporation (hereinafter,
"Newco") shall continue as the surviving corporation.
The Merger shall have the effects set forth under the
laws of the State of Delaware. Without limiting the
generality of the foregoing, and subject thereto, all
the properties, rights, privileges, powers and
franchises of Avtel shall vest in Newco, and all debts,
liabilities and duties of Avtel shall become the debts,
liabilities and duties of Newco. The certificate of
incorporation and bylaws of Newco shall be the
certificate of incorporation and bylaws of the
pre-existing Delaware corporation, substantially in the
form agreed to prior to the Merger by Matrix and Avtel
and approved by the shareholders of Avtel at the
Stockholder's Meeting. Subject to clause (b) below, at
the effective time of the Merger, by virtue of the
Merger and without any action on the part of Avtel or
Newco or the stockholders of Avtel, each share of common
stock and preferred stock and each option of Avtel
issued and outstanding immediately prior to the
effective time of the Merger shall by virtue of the
Merger be canceled and extinguished and be converted
into the right to receive one share of the common stock
or preferred stock or an option to acquire one share of
common stock of Avtel, as applicable, of Newco.
(b) Subject to the approval of Avtel's stockholders at the
Stockholders' Meeting, prior to the Closing, Avtel shall
either (i) effect a reverse stock split pursuant to
which each share of Avtel common stock and preferred
stock and each option granted by Avtel to acquire Avtel
common stock shall be converted into the right to
receive such lesser amount of Avtel common stock,
preferred stock or an option to acquire a lesser amount
of Avtel common stock, as applicable, as Avtel and
Matrix shall agree or, (ii) reduce the number of common
stock, preferred stock or options to acquire Newco
common stock that will be issued to Avtel stockholders
in the Merger to such lesser number of shares of common
stock, preferred stock or options to acquire Newco
common stock as Avtel and Matrix shall agree (the
adjustment contemplated by clauses (i) or (ii) being
referred to herein as the "Reverse
Stock Split"). At such time as Avtel and Matrix shall
agree upon the details of the Reverse Stock Split, Avtel
and Matrix shall amend this Agreement to adjust the
number of shares of Avtel common stock issuable to the
stockholders of Matrix pursuant to this Section 1 and
the number of shares of Avtel common stock for
which Avtel is required to grant options to holders of
Matrix options pursuant to Section 3, in each case, in a
manner which is directly proportional to the
adjustments made to the Avtel common stock and options
to acquire Avtel common stock pursuant to the Reserve
Stock Split.
10. AVTEL TO SUPPLY INFORMATION
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Until the Closing Date (as hereinafter defined), Avtel shall give
Matrix full access during normal business hours, without
unreasonable interference with business operations, to all of its
the facilities, properties, books, contracts, commitments and
records and shall make its officers and employees available to
Matrix, as Matrix shall from time to time reasonably request.
Matrix and its representatives will be furnished all information
concerning Avtel that Matrix reasonably requests.
11. MATRIX TO SUPPLY INFORMATION
Until the Closing Date, Matrix shall give Avtel full access during
normal business hours, without unreasonable interference with
business operations, to all of its the facilities, properties,
books, contracts, commitments and records and shall make its
officers and employees available to Avtel, as Avtel shall from
time to time reasonably request. Avtel and its representatives
will be furnished all information concerning Matrix that Avtel
reasonably requests. Matrix shall provide to Avtel such
information as may be required by the Proxy Statement which
information shall be true and accurate in all material respects.
12. BRIDGE LOAN
Matrix agrees that following the execution of this Agreement,
Matrix will make a bridge loan available to Avtel in the maximum
principal amount of $500,000 on the following terms:
(a) Up to $250,000 may be drawn by Avtel any time
after the execution of this Agreement and prior
to the earlier to occur of (i) August 31, 1997
or (ii) the termination of this Agreement.
(b) Up to an additional $250,000 may be drawn by
Avtel at any time on or after July 1, 1997 and
prior to the earlier to occur of (i) August 31,
1997 or (ii) the termination of this Agreement.
(c) Disbursements shall be made on five days'
written notice to Matrix. No disbursements shall
be made after the termination of this Agreement.
(d) The loan shall be recourse and shall bear
interest at the rate of 8% per annum through
August 31, 1997, and thereafter at a rate of 12%
until maturity and, after maturity at a rate of
15%, in all cases subject to reduction to comply
with applicable usury laws. Interest shall be
payable monthly in arrears, based on a 360-day
year, and all principal and accrued interest
shall be due and payable on or before the
earlier of (i) 180 days after the termination of
this Agreement or (ii) December 1, 1997.
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(e) Avtel shall pay all expenses of documenting the
loan, including any necessary California usury
permit, if any.
13. MATRIX REPRESENTATIONS
Matrix represents to Avtel as follows:
(a) Schedule I is a complete and accurate list of all of the
shares of Matrix common stock owned by each of the
Stockholders. Schedule II is a complete and accurate list
of all Matrix options issued and outstanding.
(b) Matrix is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas
with all requisite corporate power and authority to own,
lease and operate its properties and to carry on its
business as now being conducted.
(c) Matrix has full power and authority to enter into this
Agreement and to carry out the transactions contemplated
hereby, and this Agreement has been duly and validly
executed and delivered by Matrix and constitutes the
legal, valid and binding obligation of Matrix,
enforceable in accordance with its terms. The execution,
delivery and performance of this Agreement and all other
transactions contemplated hereby will not cause any
material default or breach in any contract, loan
agreement or other instrument to which Matrix is a party
or violate any law or decree or judgment of any
government or governmental agency having jurisdiction
over Matrix.
(d) Matrix's authorized capital stock consists of 10,000,000
shares of common stock, no par value, of which 3,484,260
shares are issued and outstanding. Schedule II is a list
of all Matrix stock options existing as of the date
hereof together with a list of all stock options that
Matrix has agreed to issue but has not yet issued.
(e) The financial statements of Matrix listed on Schedule III
fairly present in all material respects Matrix's
financial position and assets and its results of
operation and changes in financial position with respect
to the respective dates thereof and the periods covered
thereby, in conformity with the United States generally
accepted accounting principles at the time in effect
("GAAP"), and Matrix's past ---- accounting practices,
consistently applied during such periods, and such
financial statements, including the notes thereto, make
full and adequate disclosure of, and provision for, all
of Matrix's material obligations and liabilities as of
the date thereof, whether accrued, absolute, contingent
or otherwise, to the extent required by GAAP. Since the
date of the last of such financial statements, there
have been no material adverse changes to the business or
condition of Matrix that have not been disclosed to
Avtel.
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(f) Schedule IV contains a list of all material contracts
between Matrix and any of its officers, directors or
shareholders, true, correct and complete copies of which
have been furnished to Avtel.
(g) Schedule V contains a true, correct and complete list of
all of Matrix's employee benefit plans and a list of each
employee of Matrix as of the date hereof, his/her current
position, annual salary and current bonus entitlement.
.
(h) Except as set forth in Schedule VI, Matrix is not a party
to and has not been threatened with any legal action,
governmental investigation or proceeding or any other
material claim or proceeding, including, without
limitation, any tax audit.
(i) Matrix has provided Avtel copies of the prior three
year's federal and state income tax returns and
represents that it believes such returns fairly reflect
Matrix's tax obligations for such periods and that no
adjustments for such periods have been proposed. All
federal, state, local and foreign tax returns required
to be filed by or with respect to Matrix through the
Closing Date have been or will be accurately prepared,
and have been or will be duly and timely filed, and all
taxes, interest, penalties, assessments and/or
deficiencies due with respect to any taxable period
ending on or before the Closing Date have been or will
be timely paid, or adequate provision for the payment
thereof has been or will be made on Matrix's financial
statements or books of account.
(j) Except as disclosed on Schedule VII, no notice to, filing
with, authorization of, exemption by, or consent of any
person, entity or public or governmental authority is
required in order for Matrix to consummate the
transactions contemplated hereby.
14. AVTEL REPRESENTATIONS
Avtel represents to Matrix as follows:
(a) Avtel is a corporation duly organized, validly existing
and in good standing under the laws of the State of Utah
with all requisite corporate power and authority to own,
lease and operate its properties and to carry on its
business as now being conducted.
(b) Avtel has full power and authority to enter into this
Agreement and to carry out the transactions contemplated
hereby, and this Agreement has been duly and validly
executed and delivered by Avtel, and constitutes the
legal, valid and binding obligation of Avtel, enforceable
in accordance with its terms. The execution, delivery and
performance of this Agreement and all other transactions
contemplated hereby will not cause any material default
or breach in any contract, loan agreement or other
instrument to which Avtel is a party or violate any law
or
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decree or judgement of any government or governmental agency
having jurisdiction over Avtel.
(c) Avtel's authorized capital stock consists of 50,000,000
shares of common stock, $.001 par value, per share, of
which 7,135,807 shares are issued and outstanding and
5,000,000 shares of preferred stock of which 1,000,000
shares designated, $1.00 par value Series A Convertible
Preferred Stock are issued and outstanding. All such
shares were held as of April 9, 1997 as set forth on
Schedule VIII. All of the issued shares of
the capital stock of Avtel have been duly and validly
authorized and issued, are fully paid and
non-assessable. The shares of common stock to be
delivered by Avtel to the Stockholders pursuant to this
Agreement have been duly and validly authorized and,
when issued and delivered as provided herein, will be
duly and validly issued and fully paid and
non-assessable. Schedule IX is a list of all Avtel stock
options existing as of the date hereof, together with a list
of all stock options Avtel has agreed to issue but has not
yet issued, and Avtel has not entered into any agreement to
issue additional stock options except as disclosed on
Schedule IX.
(d) The financial statements of Avtel listed on Schedule X
fairly present in all material respects Avtel's
financial position and assets and its results of
operation and changes in financial position with respect
to the respective dates thereof and the periods covered
thereby, in conformity with GAAP and Avtel's past
accounting practices, consistently applied during such
periods, and such financial statements, including the
notes thereto, make full and adequate disclosure of, and
provision for, all of Avtel's material obligations and
liabilities as of the date thereof, whether accrued,
absolute, contingent or otherwise, to the extent
required by GAAP. Since the date of the last of such
financial statements, there have been no material
adverse changes to the business or condition of Avtel
that have not been disclosed to Matrix.
(e) Schedule XI contains a list of all material contracts
between Avtel and any of its officers, directors or
shareholders, true, correct and complete copies of which
have been furnished to Matrix.
(f) Schedule XII contains a true, correct and complete list
of all of Avtel's employee benefit plans and a list of
each employee of Avtel and its subsidiaries as of the
date hereof, his/her current position, annual salary (and
proposed adjustments thereto for the next 6 months) and
current bonus entitlement.
.
(g) Except as set forth in Schedule XIII, Avtel is not a
party to and has not been threatened with any legal
action, governmental investigation or proceeding or any
other material claim or proceeding, including, without
limitation, any tax audit.
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(h) Avtel has provided Matrix copies of the prior three
year's federal and state income tax returns and
represents that it believes such returns fairly reflect
Avtel's tax obligations for such periods and that no
adjustments for such periods have been proposed. All
federal, state, local and foreign tax returns required
to be filed by or with respect to Avtel from January 1,
1993 through the Closing Date have been or will be
accurately prepared, and have been or will be duly and
timely filed, and all taxes, interest, penalties,
assessments and/or deficiencies due with respect to any
taxable period ending on or before the Closing Date have
been or will be timely paid, or adequate provision for
the payment thereof has been or will be made on Avtel's
financial statements or books of account.
(i) Except as disclosed on Schedule XIV, no notice to, filing
with, authorization of, exemption by, or consent of any
person, entity or public or governmental authority is
required in order for Avtel to consummate the
transactions contemplated hereby.
15. CONDITIONS PRECEDENT TO OBLIGATIONS OF MATRIX
(a) Avtel's representations and warranties contained herein
shall be true in all material respects on and as of the
date of this Agreement and shall also be true in all
material respects (except for such changes as are
contemplated by the terms of this Agreement) on and as of
the Closing Date with the same force and effect as though
made by Avtel on and as of the Closing Date.
(b) Avtel shall, in all material respects, have performed all
obligations and agreements and complied with all
covenants contained in this Agreement, to be performed
and complied with by it on or prior to the Closing Date;
and Avtel shall have delivered to Matrix a certificate,
dated as of the Closing Date, certifying as to its
compliance with Section 15(a) and Section 15(b).
(c) The Registration Rights Agreement shall have been
executed by the Avtel and delivered to Matrix.
(d) The shareholders of Avtel shall have approved this
Agreement and the transactions contemplated hereby.
(e) Any and all governmental and other consents required in
connection with this Agreement shall have been obtained.
(f) Each Stockholder shall have executed an Exchange Statement.
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16. CONDITIONS PRECEDENT TO OBLIGATIONS OF AVTEL
(a) Matrix's representations and warranties contained herein
shall be true in all material respects on and as of the
date of this Agreement and shall also be true in all
material respects (except for such changes as are
contemplated by the terms of this Agreement) on and as of
the Closing Date with the same force and effect as though
made by Matrix on and as of the Closing Date.
(b) Matrix shall, in all material respects, have performed
all obligations and agreements and complied with all
covenants contained in this Agreement to be performed and
complied with by it on or prior to the Closing Date and
Matrix shall have delivered to Avtel a certificate, dated
as of the Closing Date, certifying as to its compliance
with Section 16(a) and Section 16(b).
(c) The Registration Rights Agreement shall have been
executed by Matrix and the Exchange Statements shall have
ben executed by the Stockholders and such documents shall
have been delivered to Avtel.
(d) The shareholders of Avtel shall have approved this
Agreement and the transactions contemplated hereby.
(e) Any and all governmental consents required in connection
with this Agreement shall have been obtained.
17. CLOSING
The Closing (the "Closing") shall take place at such place as
Matrix and Avtel shall agree on the date that is three business
days after the conditions referred to in clauses (d) and (e) of
paragraphs 15 and 16 shall have been obtained or on such later
date to which the parties hereto otherwise shall agree (such date
being the "Closing Date").
18. SURVIVAL
The covenants, agreements, representations or warranties of the
parties hereto contained in this Agreement or in any certificate
or other writing delivered pursuant to, or in connection with,
this Agreement shall survive one year from the Closing Date.
19. TERMINATION
This Agreement may be terminated at any time on or prior to the
Closing Date:(i) with the mutual consent of Avtel and Matrix or
(ii) by Avtel or Matrix, if the Closing shall not have taken place
on or before July 1, 1997, or such later date as may be mutually
approved in writing by Avtel or Matrix. This Agreement shall
terminate automatically if
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the shareholders of Avtel do not approve this Agreement
or any of the transactions contemplated hereby.
20. MISCELLANEOUS
(a) This Agreement shall be governed by the laws of the State
of Texas, without regard to the conflict of law rules of
such state.
(b) This Agreement may be amended, modified or supplemented
but only in writing signed by all of the parties hereto.
(c) All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and
shall be deemed to have been duly given when delivered by
hand, or by confirmed facsimile transmission, or on two
business days following delivery to a commercial
overnight air courier service, or five days after being
mailed, first class postage prepaid, return receipt
requested.
If to Matrix, addressed as follows:
0000 Xxxxx X'Xxxxxx Xxxx.
Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
with a copy to:
Xxxxx, Xxxxx & Xxxxx
000 Xxxxx XxXxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxxx
Facsimile: (000) 000-0000
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If to Avtel, addressed as follows:
000 Xxxxxxx Xxxxx, Xxxxx X
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxx
Facsimile: (000) 000-0000
with a copy to:
Price, Xxxxxx & Parma LLP
000 X. Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx XxXxxxx
Facsimile: (000) 000-0000
or to such other individual or address as a party hereto
may designate for itself by notice given as herein
provided.
(d) The failure of a party hereto at any time or times to
require performance of any provision hereof shall in no
manner affect its right at a later time to enforce the
same. No waiver by a party of any condition or of any
breach of any term, covenant, representation or warranty
contained in this Agreement shall be effective unless in
writing, and no waiver in any one or more instances
shall be deemed to be a further or continuing waiver of
any such condition or breach in other instances or a
waiver of any other condition or breach of any other
term, covenant, representation or warranty.
(e) This Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the
same instrument.
(f) The Stockholders shall be deemed to be third party
beneficiaries of the rights of Matrix hereunder.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on the date first above written by their duly authorized
representatives.
MATRIX TELECOM, INC. AVTEL COMMUNICATIONS, INC.
By:_____________________________ By:_____________________________
-------------------------------- -------------------------------
(Print Name) (Print Name)
Its:_____________________________ Its:____________________________
(duly authorized) (duly authorized)
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