Document:

EXHIBIT 10.11

TO:       C. William Hosler

FROM:     Nelson C. Rising

DATE:     February 7, 2001

SUBJECT:  Memorandum of Understanding regarding Employment

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     This Memorandum of Understanding ("Memorandum") sets forth the terms of
your employment with Catellus Development Corporation (the "Company") or its
subsidiary. This Memorandum supersedes, in their entirety, all previous
agreements and understandings concerning your employment except the Indemnity
Agreement referenced in Section 8 below and any stock option agreements you have
with the Company; provided, however, that the provisions of this Memorandum
regarding vesting of stock options in the event of termination of your
employment shall supersede such provisions of your stock option agreements.

     Effective upon your execution of this Memorandum, the following provisions
shall govern your employment with the Company or a subsidiary:

1.   Title; Responsibilities and Duties. You are a full-time, regular employee
     -----------------------------------
of the Company with the title of Senior Vice President and Chief Financial
Officer of the Company, and you shall be expected to handle such
responsibilities and perform such duties as I shall assign from time to time
consistent with those you were handling and performing as of September 30, 2000.
If you become an employee of a subsidiary of the Company, the Company will
nevertheless be bound by the terms of this Memorandum.

2.   At-Will Employment. You acknowledge and agree that your employment is at-
     ------------------
will and that either the Company or you, at any time, with or without cause, may
terminate the employment relationship, including all compensation and benefits.
However, should your employment terminate, Section 10 below shall apply.

3.   Salary. Effective January 1, 2000, you shall be paid at the annualized
     ------
salary rate of at least $260,000. Your salary shall be payable in accordance
with the Company's normal payroll practices and subject to all applicable tax
withholding requirements. Your salary will be reviewed in the first quarter of
each year starting in 2001 and, if appropriate, it will be increased retroactive
to January 1 of that year. Your salary, as it may be increased from time to time
in the sole discretion of the Company, shall be referred to as your "Base
Salary."

4.   Bonuses. You are eligible to receive an annual maximum cash bonus for each
     -------
calendar year of employment of up to two hundred percent (200%) of your Base
Salary, subject to satisfaction of target performance criteria determined each
year by the Company. The
<PAGE>

C. William Hosler
Memorandum of Understanding regarding Employment
February 7, 2001
Page 2 of 14

performance criteria may relate to individual goals, Company or division goals,
or a combination thereof and shall be established and communicated to you within
the first 90 days after the start of each calendar year. Such bonuses shall be
paid no later than March 31 of the following year and are subject to all
applicable tax withholding requirements. Except as provided in Section 10, no
bonus shall be payable if your employment terminates or you resign prior to the
close of the calendar year to which such bonus relates.

5.   Stock Options.  Beginning in 2003, you may be entitled to receive
     -------------
additional stock options under the Company's 2000 Performance Award Plan based
on your and the Company's performance as determined by the Company in its sole
discretion.

6.   Benefits. You shall be entitled to receive paid vacation, medical coverage,
     --------
disability income replacement coverage, and other employee benefits, all to the
same extent that the Company provides these benefits to the Company's other
senior management employees.

7.   Expenses. You shall be entitled to reimbursement for reasonable and
     --------
properly documented expenses you incur in the conduct of the Company's business,
including a monthly automobile allowance in accordance with the Company's
Automobile Allowance Policy as well as payment or reimbursement for cellular
phone expenses.

8.   Indemnity.  Pursuant to that certain Indemnity Agreement, by and between
     ---------
the Company and you, dated as of July 12, 1999, the Company shall indemnify you,
and the Company shall maintain in full force and effect directors' and officers'
liability insurance for you in reasonable amounts from established and reputable
insurers. To the same extent, the Company shall pay and advance all expenses,
including, without limitation, attorneys' fees, disbursements and retainers,
accounting and witness fees, travel and deposition costs, expenses of
investigations, judicial or administrative proceedings and appeals, amounts paid
in settlement by you or on your behalf, actually incurred by you in connection
with any threatened, pending or completed claim, action, suit or proceeding,
formal or informal, whether brought before or after July 12, 1999, whether
brought in the right of the Company or otherwise and whether of a civil,
criminal, administrative or investigative nature, by reason of the fact that you
were a director, officer, employee or agent of the Company or were serving at
the Company's request as a director, officer, employee, or agent of another
corporation, limited liability company, partnership, joint venture, trust, or
other enterprise.

9.   Employee Handbook; Confidential Information.  As a condition of employment,
     -------------------------------------------
you acknowledge that you have reviewed the Company's current Employee Handbook,
executed the Handbook's Receipt and Acknowledgment (which is the last page of
the Handbook), and returned such Receipt and Acknowledgment and a completed W4
form to Jaime Gertmenian. You agree that during the term of your employment and
thereafter for a period of three years, you shall abide by the confidentiality
provisions of the current Employee Handbook.

10.  Termination of Employment. For definitions of capitalized terms used in
     -------------------------
this Section 10, see Appendix A attached to this Memorandum which is hereby
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incorporated by reference.
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C. William Hosler
Memorandum of Understanding regarding Employment
February 7, 2001
Page 3 of 14

     10.1 Right to Terminate.  The Company or you may terminate your employment
          ------------------
hereunder at any time by giving the other party prior written notice; provided,
that upon your death, your employment hereunder shall terminate automatically.
Immediately upon the termination of your employment hereunder for any reason,
you shall return promptly to the Company any property (including documents) in
your possession which is owned by the Company.

     10.2 Benefits upon Termination.
          -------------------------

          (a) Basic Payments upon Termination.  If your employment terminates
              -------------------------------
for any reason, the Company shall pay you your unpaid Base Salary for the period
through the Date of Termination and your unpaid salary with respect to any
vacation days accrued but not taken as of the Date of Termination (based upon
your Base Salary in effect at that time).  You shall also be entitled to other
payments or benefits to the extent provided in the Company's employee benefit
plans or arrangements.

          (b) Termination Other than for Cause, or for Death, Disability or Good
              ------------------------------------------------------------------
Reason.  If (i) you cease to be an employee of the Company on account of (A) the
------
Company's termination of your employment other than for Cause, (B) Disability or
(C) your death, or (ii) you resign your employment with the Company after giving
the Company notice of the occurrence of one or more events that constitute Good
Reason within a reasonable period (but not more than 90 days after such
occurrence) and the Company fails to correct such occurrence within a reasonable
time (but not more than 60 days) and your resignation occurs within 10 days
after the expiration of that cure period, then in addition to the amounts
payable under Section 10.2(a),

              (A) the stock options held by you shall become fully vested, and

              (B) the Company shall pay you, in monthly payments over a period
of 24 months from the Date of Termination, a monthly amount equal to one twenty-
fourth (1/24) of the amount that is two (2) times your Average Salary and Bonus.

     You shall not be required to mitigate the amount of any payment provided
for in this Section 10.2(b) by seeking other employment or otherwise.  The
Company shall not be entitled to set off against the amounts payable to you
under this Memorandum any amounts owed to the Company by you, any amounts earned
by you in other employment after termination of your employment with the
Company, or any amounts which might have been earned by you in other employment
had you sought such other employment.

          (c) Termination for Cause; Resignation.  If you cease to be an
              ----------------------------------
employee for any reason other than as set forth in Section 10.2(b), then the
Company shall have no obligation to make any payments to you for periods after
the Date of Termination, your unvested stock options shall terminate, and your
vested options must be exercised, if at all, within the time periods after the
Date of Termination specified in your stock option agreement(s).
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C. William Hosler
Memorandum of Understanding regarding Employment
February 7, 2001
Page 4 of 14

     10.3 Change of Control Payments. In the event that a Change of Control
          --------------------------
occurs while you are employed by the Company pursuant to the terms of this
Memorandum, and within 12 months after the occurrence of the Change of Control,
your employment by the Company or the Company's successor is terminated  by the
Company other than for Cause or you resign for one or more events that
constitute Good Reason, then you shall be entitled to receive from the Company
or such successor, in lieu of, and not in addition to, the amounts otherwise
payable to you pursuant to Section 10.2(b) hereof, the benefits provided below:

          (a) the Company shall pay to you (A) your Base Salary, when due,
through the Date of Termination at the rate in effect at the time the applicable
Notice of Termination is given, (B) the unpaid portion, if any, of any annual
bonus which has been earned by you but which has not been paid as of  the Date
of Termination, and (C) all other amounts to which you are entitled under any
compensation plan of the Company at the time such payments are due, and (D) any
unpaid salary with respect to any vacation days accrued but not taken as of the
Date of Termination (based upon your rate of Base Salary in effect at the time
the applicable Notice of Termination is given); and

          (b) all stock options or other equity awards held by you with respect
to the Company's Common Stock shall become fully vested; and

          (c) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay to you a lump sum
payment in an amount which is equal to three (3) times your Average Salary and
Bonus; and

          (d) you shall receive the benefits of the Tax Protection Policy
attached hereto as Appendix B, which is hereby incorporated by reference.
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11.  Severability. In case any one or more provisions of this Memorandum shall
     ------------
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions shall not be in any way be affected
or impaired.

12.  Arbitration. To the fullest extent allowed by law, any controversy or claim
     -----------
arising out of or relating to your employment with the Company (or termination
of your employment) shall be settled by binding and non-appealable arbitration
in the city or region in which your office is located by an arbitrator. Possible
disputes covered by the foregoing, include (but are not limited to) wage,
contract, discrimination, or other employment-related claims under laws known as
Title VII of the Civil Rights Act, California Fair Employment and Housing Act
and comparable statutes in other states if applicable, Americans with
Disabilities Act, Age Discrimination in Employment Act, and any other statutes
relating to an employee's relationship with his/her employer. However, claims
for workers' compensation benefits and unemployment insurance are not covered by
this arbitration agreement and such claims may be presented by you to the
appropriate court or state agency. You and the Company shall initially confer
and attempt to reach agreement on the individual to be appointed as such
arbitrator. If no agreement is reached, the parties shall request from the
Judicial Arbitration and Mediation Services ("JAMS") office in the city or
region where your office is located, a list of five retired judges affiliated
with
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C. William Hosler
Memorandum of Understanding regarding Employment
February 7, 2001
Page 5 of 14

JAMS. (If there is no JAMS office in the city or region where your office is
located, then an organization which is comparable to JAMS would be utilized.)
You and the Company shall each alternately strike names from such list until
only one name remains and such person shall thereby be selected as the
arbitrator. Except as otherwise provided for herein, such arbitration shall be
conducted in conformity with the procedures specified in the California
Arbitration Act (Cal. C.C.P. (S)(S) 1280 et seq.) (or the statute applicable in
                                         -- ---
the state in which your office is located). The arbitrator shall allow the
discovery authorized by California Code of Civil Procedure (S)1283.05 or any
other discovery required by law in arbitration proceedings. Also, to the extent
that anything in this Memorandum conflicts with any arbitration procedures
required by applicable law, the arbitration procedures required by applicable
law shall govern. The arbitrator shall issue a written award that sets forth the
essential findings and conclusions on which the award is based. The arbitrator
shall have the authority to award any relief authorized by law in connection
with the asserted claims or disputes. The arbitrator's award shall be subject to
correction, confirmation, or vacation, as provided by any applicable law setting
forth the standard of judicial review of arbitration awards. The parties shall
bear equally the arbitrator's fee and any other type of expense or cost that the
employee would not be required to bear if he or she were free to bring the
dispute or claim in court as well as any other expense or cost that is unique to
arbitration but exclusive of each party's attorneys' fees.  The parties intend
that this Section 12 shall be valid, binding, enforceable and irrevocable and
shall survive the termination of this Memorandum.  Any final decision of the
arbitrator so chosen may be enforced by a court of competent jurisdiction. You
are waiving your right to a jury trial and agree that the decision of the
arbitrator shall be final and binding. If either party is determined by the
arbitrator to be the prevailing party in the arbitration, then that party will
be entitled to reimbursement from the other party of all the reasonable fees
(including attorneys' fees) and expenses incurred in connection with such
arbitration.

13.  Attorneys' Fees.  The Company will pay your attorneys' fees in connection
     ---------------
with the preparation and negotiation of this Memorandum.

14.  Amendments.  No amendments to this Memorandum may be made except by
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writing signed by you and the Company.

15.  Governing Law.  This Memorandum shall be governed by the internal laws of
     -------------
the State of California.

CATELLUS DEVELOPMENT CORPORATION

By /s/ Nelson C. Rising
  -------------------------------
     Nelson C. Rising
     Chairman of the Board and
     Chief Executive Officer
<PAGE>

C. William Hosler
Memorandum of Understanding regarding Employment
February 7, 2001
Page 6 of 14

                                      ACCEPTED AND AGREED:

                                      /s/ C. William Hosler
                                      ----------------------------------------
                                        C. William Hosler

                                        Date signed:  February 15, 2001
<PAGE>

C. William Hosler
Memorandum of Understanding regarding Employment
February 7, 2001
Page 7 of 14

                                  Appendix A
                                  ----------

                                  Definitions
                                  -----------

     For purposes of this Memorandum, the following definitions are set forth
below:

          (i)   "Average Salary and Bonus" means the greater of (a) your annual
Base Salary and annual bonus, including any amounts deferred by you under the
Company's Profit Sharing and Savings Plan, Cafeteria Plan, and Executive
Deferred Compensation Plan and any other deferred compensation program now or
hereafter established by the Company, earned by you for the three  full calendar
years prior to termination of your employment (regardless of whether all of such
years occurred while this Memorandum was in effect and regardless of whether
those earned amounts were paid out on a current basis or deferred) or such
smaller number of full calendar years as you have been employed by the Company,
divided by the number of such full calendar years, or (b) your annual Base
Salary and annual bonus, including any amounts deferred by you under the
Company's Profit Sharing and Savings Plan, Cafeteria Plan, and Executive
Deferred Compensation Plan and any other deferred compensation program now or
hereafter established by the Company, earned by you for the three full calendar
years with respect to which annual bonuses have been determined prior to the
occurrence of the Change of Control (regardless of whether all of such years
occurred while this Memorandum was in effect and regardless of whether those
earned amounts were paid out on a current basis or deferred) or such smaller
number of full calendar years as you have been employed by the Company, divided
by the number of such full calendar years.

          (ii)  "Cause" means that the Company provides you with a Notice of
Termination for either of the following reasons: (a) the willful and continued
failure by you substantially to perform your material duties (other than any
such failure resulting from your incapacity due to physical or mental illness)
after written demand for substantial performance of such duties is delivered to
you by the Board of Directors, which demand identifies the manner in which the
Board of Directors believes that you have not substantially performed your
duties and you have been given a reasonable period of time (but in no event more
than 60 days) to correct your deficient performance; or (b) your engaging in
egregious misconduct involving serious moral turpitude to such an extent that,
in the reasonable judgment of the Board of Directors, such misconduct
substantially impairs your ability to perform your duties with the Company. For
purposes of clause (a) of this definition, no act, or failure to act, on your
part shall be deemed "willful" unless done, or omitted to be done, by you
without reasonable belief that your action or omission was in the best interest
of the Company.

          (iii) A "Change of Control" shall be deemed to have occurred upon the
happening of any of the following events:

                (a) the acquisition or holding of the Company, by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (an
"Acquiror") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the combined
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C. William Hosler
Memorandum of Understanding regarding Employment
February 7, 2001
Page 8 of 14

voting power of the then outstanding shares of Common Stock and other stock of
the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"), but excluding for this purpose any
such acquisition (or holding) by (i) the Company or any corporation controlled
by the Company; (ii) any employee benefit plan (or related trust) of the Company
or any corporation controlled by the Company; (iii) any acquisition or ownership
by an Acquiror of 25% of the Outstanding Company Voting Securities as a result
of an acquisition of common stock or voting securities by the Company which, by
reducing the number of shares of the Company's common stock or voting securities
outstanding, increases the proportionate number of shares beneficially owned by
such Acquiror to 25% or more of the Outstanding Company Voting Securities;
provided, however, that if an Acquiror shall become the beneficial owner of 25%
or more of the Outstanding Company Voting Securities by reason of a share
acquisition by the Company as described above and shall, after such share
acquisition by the Company, become the beneficial owner of any additional shares
of common stock or voting securities of the Company, then such acquisition shall
constitute a Change of Control; or (iv) any corporation with respect to which,
following such acquisition, more than 50% of, respectively, the then outstanding
shares of Common Stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Voting
Securities immediately prior to such acquisition in substantially the same
proportion as their ownership, immediately prior to such acquisition, of the
then Outstanding Company Voting Securities;

          (b) individuals who, as of the date hereof, constitute the Board of
Directors (the "Continuing Directors") cease for any reason to constitute at
least a majority of the Board, provided that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
stockholders of Company, was approved by a vote of at least a majority of the
persons then comprising the Continuing Directors shall be considered a
Continuing Director, but excluding, for this purpose, any such individual whose
initial election as a member of the Board is in connection with an actual or
threatened "election contest" relating to the election of the directors of the
Company (as such term is used in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act); or

          (c) consummation by the Company of (1) a reorganization, merger or
consolidation of the Company, with respect to which in each case all or
substantially all of the individuals and entities who were the respective
beneficial owners of the Outstanding Company Voting Securities immediately prior
to such reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly and
indirectly, more than 50% of, respectively, the then outstanding shares of
Common Stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors of the
corporation or other entity resulting from such reorganization, merger or
consolidation, or (2) a complete liquidation or dissolution of the Company, or
(3) the sale or other disposition of all or substantially all of the assets of
the Company.
<PAGE>

C. William Hosler
Memorandum of Understanding regarding Employment
February 7, 2001
Page 9 of 14

          (iv)  "Date of Termination" means the effective date specified in the
Notice of Termination as of which your employment terminates or, in the event of
termination of employment other than for Cause, the date as of which your
employment is to terminate pursuant to the provisions of Section 10.1 of this
Memorandum.

          (v)   "Disability" means that (i) you have a physical or mental
condition that renders you incapable, after reasonable accommodation, of
performing your duties; (ii) such condition is reasonably determined by the
Chief Executive Officer to be of a long-term nature; and (iii) you are eligible
for income replacement benefits under the Company's long-term disability plan
during such period of disability.

          (vi)  "Notice of Termination" means a notice of a proposed termination
by the Company with a written explanation to you of the grounds for such
proposed termination.

          (vii) "Good Reason" exists if, without your express written consent,
any of the following occurs:

                (A) the Company reduces your Base Salary as in effect from time
to time; or

                (B) an assigning of duties to you that are a reduction in any
substantial respect from your position, authority, or responsibilities as of
September 30, 2000; or

                (C) the Company's failure to fulfill the Company's obligations
under this Memorandum; or

                (D) the Company's intentional failure, without your consent, to
pay to you any portion of your Base Salary, earned bonus, or other current
compensation (if any), or to pay to you any portion of any installment of
deferred compensation under any deferred compensation program within ten
business days of the date such compensation is due or to issue shares of the
Company's Common Stock in accordance with the terms of stock options granted to
you upon valid exercise thereof; or

                (E) a relocation of your current place of employment or
requirement for you to be based anywhere other than the City of San Francisco;
or

                (F) the Company does not allow you to devote reasonable time to
activities other than those required under this Memorandum, including
supervision of personal investments and activities involving professional,
charitable, educational, political, religious and similar types of
organizations, speaking engagements, memberships of boards of directors of other
organizations and similar activities, provided that you shall not serve on the
board of directors of any other business or hold any other position with any
business without the consent of the Chief Executive Officer; or
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C. William Hosler
Memorandum of Understanding regarding Employment
February 7, 2001
Page 10 of 14

                (G) the failure of any successor entity in a Change of Control
to continue this Memorandum in effect and assume the Company's obligations and
responsibilities hereunder.
<PAGE>

C. William Hosler
Memorandum of Understanding regarding Employment
February 7, 2001
Page 11 of 14

                                  Appendix B
                                  ----------

                             Tax Protection Policy
                             ---------------------

          This Appendix shall apply if it is determined that any payment,
distribution or benefit provided (including, without limitation, the
acceleration of any payment, distribution or benefit, the provision of any
severance pay or benefits and the acceleration of exercisability of any stock
option) to you or for your benefit (whether paid or payable or distributed or
distributable) pursuant to the terms of this Memorandum or otherwise pursuant to
or by reason of any other agreement, policy, plan, program or arrangement,
including without limitation any stock option, stock appreciation right or
similar right, or the lapse or termination of any restriction on or the vesting
or exercisability of any of the foregoing (the "Payments") would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"),  by reason of being "contingent on a change in the
ownership or control" of the Company, within the meaning of Section 280G of the
Code or to any similar tax imposed by state or local law, or any interest or
penalties with respect to such excise tax (such tax or taxes, together with any
such interest or penalties, are collectively referred to as the "Excise Tax").
If the Payments are subject to the Excise Tax and it is determined that the
Parachute Value of the Payments  (as defined below) exceeds 110% of the Safe
Harbor Amount (as defined below), you shall be entitled to receive from the
Company an additional payment (the "Gross-Up Payment") in an amount such that
the net amount of the Payments and the Gross-Up Payment retained by you after
the calculation and deduction of all Excise Taxes (including any interest or
penalties imposed with respect to such taxes) on those Payments and all federal,
state and local income tax, employment tax and Excise Tax (including any
interest or penalties imposed with respect to such taxes) on the Gross-Up
Payment provided for in this Appendix B, and taking into account any lost or
                             ----------
reduced tax deductions you may incur on account of the Gross-Up Payment, shall
be equal to the Payments.  If it shall be determined that the Parachute Value of
the Payments does not exceed 110% of the Safe Harbor Amount, then no Gross-Up
Payment shall be made to you, and the amount of the Payments otherwise due you
shall be reduced to the extent necessary to assure that the Parachute Value of
the Payments as calculated for the Payments remaining after such reduction does
not exceed the greater of (i) the Safe Harbor Amount or (ii) the amount which
yields you the greatest after-tax amount of Payments after taking into account
any Excise Tax you must pay with respect to those Payments.  To the extent any
such reduction to your Payments becomes necessary by reason of the preceding
sentence, the reduction shall be applied against the portion of your Payments
based upon your Average Salary and Bonus.  For the purposes of this Appendix B,
                                                                    ----------
(a) "Parachute Value of the Payments" shall mean the present value as of the
date of the Change of Control for purposes of Section 280G of the Code of the
portion of such Payments that constitutes a "parachute payment" under Section
280G(b)(2), as determined by the Accountants (as defined below) for purposes of
determining whether and to what extent the Excise Tax will apply to such
Payments, and (b) "Safe Harbor Amount" shall mean the maximum Parachute Value of
the Payments that you can receive without any Payments being subject to the
Excise Tax.

               (i)  All determinations required to be made under this Appendix
                                                                      --------
B, including whether and when the Gross-Up Payment is required and the amount of
-
such Gross-
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C. William Hosler
Memorandum of Understanding regarding Employment
February 7, 2001
Page 12 of 14

Up Payment, and the assumptions to be utilized in arriving at such
determinations shall be made by the Accountants (as defined below) which shall
provide you and the Company with detailed supporting calculations with respect
to such Gross-Up Payment within fifteen (15) business days of the receipt of
notice from you or the Company that you have received or shall receive a
Payment. For purposes of making the determinations and calculations required
herein, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Section 280G and 4999 of the Code,
including (without limitation) the Proposed Treasury Regulations under Section
280G of the Code, provided that the Accountants' determinations must be made on
the basis of "substantial authority" (within the meaning of Section 6662 of the
Code).  For the purposes of this Appendix B, the "Accountants" shall mean the
                                 ----------
Company's independent certified public accountants serving immediately prior to
the Change of Control.  In the event that the Accountants are also serving as
accountant or auditor for the individual, entity or group effecting the Change
of Control, you may appoint another nationally recognized public accounting firm
to make the determinations required hereunder (which accounting firm shall then
be referred to as the Accountants hereunder).  All fees and expenses of the
Accountants shall be borne solely by the Company.

          (ii)  For the purposes of determining whether any of the Payments
shall be subject to the Excise Tax and the amount of such Excise Tax, such
Payments shall be treated as "parachute payments" within the meaning of Section
280G of the Code, and all "parachute payments" in excess of the "base amount"
(as defined under Section 280G(b)(3) of the Code) shall be treated as subject to
the Excise Tax, unless and except to the extent that in the opinion of the
Accountants such Payments (in whole or in part) either do not constitute
"parachute payments" or represent reasonable compensation for services actually
rendered (within the meaning of Section 280G(b)(4) of the Code) in excess of the
"base amount," or such "parachute payments" are otherwise not subject to such
Excise Tax.  For purposes of determining the amount of the Gross-Up Payment, you
shall be deemed to pay federal income taxes at the highest applicable marginal
rate of federal income taxation for the calendar year in which the Gross-Up
Payment is to be made and to pay any applicable state and local income taxes at
the highest applicable marginal rate of taxation for the calendar year in which
the Gross-Up Payment is to be made, net of the actual reduction in federal
income taxes which is reasonably expected to result from the deduction of such
state and local taxes if paid in such year (determined , however, with regard to
limitations on deductions based upon the amount of your adjusted gross income);.
To the extent practicable, any Gross-Up Payment with respect to any Payment
shall be paid by the Company at the time you are entitled to receive the Payment
and in no event shall any Gross-Up Payment be paid later than five days after
your receipt of the Accountant's determination.  Any determination by the
Accountants shall be binding upon the Company and you.

          (iii) As a result of uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accountants
hereunder, it is possible that the Gross-Up Payment made shall have been an
amount less than the Company should have paid pursuant to this Appendix B (the
                                                               ----------
"Underpayment"). Unless the Company elects to exhaust its remedies under clause
(v) with respect to the additional Excise Tax on your Payments, the
<PAGE>

C. William Hosler
Memorandum of Understanding regarding Employment
February 7, 2001
Page 13 of 14

Underpayment shall be promptly paid by the Company to or for your benefit at the
time you are required to pay the additional Excise Tax resulting in such
Underpayment.

          (iv) You and the Company shall each provide the Accountants access to
and copies of any books, records and documents in the Company's or your
possession, as the case may be, reasonably requested by the Accountants, and
otherwise cooperate with the Accountants in connection with the preparation and
issuance of the determination contemplated by this Appendix B.
                                                   ----------

          (v)  You shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment.  Such notification shall be given as soon as
practicable after you are informed in writing of such claim and shall apprise
the Company of the nature of such claim and the date on which such claim is
requested to be paid.  You shall not pay such claim prior to the expiration of
the 30-day period following the date on which you give such notice to the
Company (or such shorter period ending on the date that any payment of taxes,
interest and/or penalties with respect to such claim is due).  If the Company
were to notify you in writing prior to the expiration of such period that it
desires to contest such claim, you shall:

               (A) give the Company any information reasonably requested by the
Company relating to such claim;

               (B) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company and reasonably satisfactory to
you;

               (C) cooperate with the Company in good faith in order to
effectively contest such claim; and

               (D) permit the Company to participate in any proceedings relating
to such claim; provided, however, that the Company shall bear and pay directly
all additional Excise Taxes imposed upon you and all costs, legal fees and other
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify you for and hold you harmless from, on an
after-tax basis, any additional Excise Tax (including interest and penalties
with respect thereto) imposed upon you and any Excise Tax or income or
employment tax (including interest and penalties with respect thereto)
attributable to the Company's payment of that additional Excise Tax on your
behalf or imposed as a result of such representation and payment of all related
costs, legal fees and expenses. The amounts owed to you by reason of the
foregoing shall be paid to you or for your benefit as they become due and
payable. Without limiting the foregoing provisions of this paragraph, the
Company shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at the Company's sole option, either direct you to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner,
<PAGE>

C. William Hosler
Memorandum of Understanding regarding Employment
February 7, 2001
Page 14 of 14

and you agree to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, the Company shall determine; provided, however, that if the
Company were to direct you to pay such claim and sue for a refund, the Company
shall advance the amount of such payment to you, on an interest-free basis, and
shall indemnify you for and hold you harmless from, on an after-tax basis, any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance (including as a result of any forgiveness by the Company
of such advance); provided, further, that any extension of the statute of
limitations relating to the payment of taxes for your taxable year with respect
to which such contested amount is claimed to be due is attributable in whole or
in part to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and you shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.<PAGE>
                                                                    Exhibit 4.23

                          AVERY COMMUNICATIONS, INC.

                     _____________________________________

                           SERIES H PREFERRED STOCK
                              PURCHASE AGREEMENT

                               February 21, 2001

                     _____________________________________

<PAGE>

                               TABLE OF CONTENTS
                               -----------------

ARTICLE 1  AUTHORIZATION AND SALE OF SHARES................................   1
 Section 1.1  Authorization................................................   1
 Section 1.2  Purchase and Sale of Purchased Shares........................   1
   1.2.1  Purchased Shares.................................................   1
   1.2.2  The Closing......................................................   1
   1.2.3  Use of Proceeds..................................................   1

ARTICLE 2  REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
           PRINCIPAL SHAREHOLDER...........................................   2
 Section 2.1  Business; Organization, Corporate Power and Authority, etc...   2
 Section 2.1  Validity.....................................................   2
 Section 2.3  Capitalization; Status of Capital Stock......................   2
 Section 2.4  Taxes........................................................   3
 Section 2.5  No Violations................................................   4
 Section 2.6  Governmental Consents, etc...................................   4
 Section 2.7  Compliance with Law..........................................   4
 Section 2.8  Financial Statements.........................................   4
 Section 2.9  Absence of Undisclosed Liabilities...........................   5
 Section 2.10  Absence of Certain Changes or Events........................   5
 Section 2.11  Title to Assets.............................................   6
 Section 2.12  Compliance with Securities Laws.............................   6
 Section 2.13  Intellectual Property.......................................   6
   2.13.1  Intellectual Property Assets....................................   6
   2.13.2  Agreements......................................................   7
   2.13.3  Know-How Necessary for the Business.............................   7
   2.13.4  Patents.........................................................   7
   2.13.5  Trademarks......................................................   8
   2.13.6  Copyrights......................................................   8
   2.13.7  Trade Secrets...................................................   9
 Section 2.14  Minute Books................................................   9
 Section 2.15  Insurance...................................................   9
 Section 2.16  Offering of Preferred Stock.................................  10
 Section 2.17  Disclosure; Public Filings..................................  10

ARTICLE 3  REPRESENTATIONS AND WARRANTIES OF INVESTORS.....................  11
 Section 3.1  Validity.....................................................  11
 Section 3.2  Investment Intent............................................  11
 Section 3.3  Resale Restrictions..........................................  11
 Section 3.4  Diligence....................................................  12
 Section 3.5  Reliance.....................................................  12
 Section 3.6  Status.......................................................  12

ARTICLE 4  CONDITIONS OF PURCHASE..........................................  12
 Section 4.1  Investor Condition...........................................  12
   4.1.1  Certificate of Company...........................................  12

                                       i
<PAGE>

   4.1.2  Opinion of Counsel...............................................  13
   4.1.3  Authorization; Consents..........................................  13
   4.1.4  Articles of Incorporation........................................  13
   4.1.5  Registration Rights Agreement....................................  13
   4.1.6  Board of Directors...............................................  13
   4.1.7  All Proceedings Satisfactory.....................................  13
   4.1.8  Fees and Expenses................................................  13
 Section 4.2  Company's Conditions.........................................  14
   4.2.1  Certificate of Investor..........................................  14
   4.2.2  Full Purchase Price..............................................  14
   4.2.3  SBA Compliance...................................................  14

ARTICLE 5  COVENANTS OF THE COMPANY........................................  14
 Section 5.1  Financial Statements.........................................  14
 Section 5.2  Conduct of Business..........................................  15
 Section 5.3  Public Announcements.........................................  15
 Section 5.4  Insurance....................................................  15
 Section 5.5  Maintenance of Properties....................................  15
 Section 5.6  Affiliated Transactions......................................  15
 Section 5.7  Lock-Up for Certain Stockholders.............................  15
 Section 5.8  Board of Directors Meetings..................................  15
 Section 5.10  Loans and Advances..........................................  16
 Section 5.12  "C" Corporation.............................................  16
 Section 5.13  Maintenance of Intellectual Property Assets.................  16
 Section 5.14  Non-Contravention...........................................  16

ARTICLE 6  COVENANTS OF THE INVESTORS......................................  16
 Section 6.1  Right of First Offer.........................................  16
 Section 6.2  Confidentiality..............................................  16

ARTICLE 7  INDEMNIFICATION.................................................  17
 Section 7.1  Investor Indemnification.....................................  17
 Section 7.2  Company Indemnification......................................  17
 Section 7.3  Indemnification Generally....................................  17
 Section 7.4  Final Adjudication...........................................  18

ARTICLE 8  MISCELLANEOUS...................................................  18
 Section 8.1  Broker's Fee.................................................  18
 Section 8.2  SBA Compliance...............................................  18
 Section 8.3  Amendments And Waivers.......................................  18
 Section 8.4  Survival of Covenants; Assignability of Rights...............  18
 Section 8.5  Governing Law/Enforcement....................................  19
 Section 8.6  Jurisdiction and Venue.......................................  19
 Section 8.7  Section Headings.............................................  19
 Section 8.8  Counterparts.................................................  19
 Section 8.9  Notices and Demands..........................................  19
 Section 8.10  Severability................................................  19
 Section 8.11  Definitions of Terms........................................  20

                                      ii
<PAGE>

 Section 8.12  Expenses....................................................  21
 Section 8.13  Entire Agreement............................................  21

Exhibits
--------
Exhibit A    Amended and Restated Articles of Incorporation
Exhibit B    Opinion of Counsel
Exhibit C    Registration Rights Agreement
Exhibit D    Disbursement Statement

Disclosure Schedules
--------------------

                                      iii
<PAGE>

                           SERIES H PREFERRED STOCK
                              PURCHASE AGREEMENT

     THIS AGREEMENT is made as of this 21st day of February, 2001 by and among
AVERY COMMUNICATIONS, INC. (the "Company"), a Delaware corporation, with its
current principal place of business at 190 S. LaSalle Street, Suite 1710,
Chicago, IL 60603, WATERSIDE CAPITAL CORPORATION ("WSCC") and CAPITALSOUTH
PARTNERS FUND I, L.P. ("CapitalSouth" and collectively with WSCC, the
"Investors").

                                   ARTICLE 1

                       AUTHORIZATION AND SALE OF SHARES

     Section 1.1.  Authorization. The Company has authorized the issuance and
                   -------------
sale to the Investors of 1,600,000 shares (the "Purchased Shares") of its
authorized, but unissued shares of Series H Preferred Stock (the "Series H
Preferred Stock") having the designations, rights and preferences and other
terms and conditions as set forth in Certificate of Designation attached hereto
as Exhibit A (the "Certificate of Designation").
   ---------

     Section 1.2.  Purchase and Sale of Purchased Shares.
                   -------------------------------------

                   1.2.1.  Purchased Shares. On the terms and subject to the
                           ----------------
conditions set forth in this Agreement, the Company will issue and sell to the
Investors, and the Investors will buy from the Company the Purchased Shares at a
price of $1.00 per share for an aggregate purchase price of $1,600,000. Of the
purchase price, WSCC will pay $1,250,000 and receive 1,250,000 Purchased Shares
and CapitalSouth will pay $350,000 and receive 350,000 Purchased Shares.

                   1.2.2.  The Closing. The purchase and sale shall take place
                           -----------
at a closing (the "Closing") to be held at the office of Williams, Mullen, Clark
& Dobbins, P.C., 900 One Columbus Center, Virginia Beach, Virginia 23462 at
10:00 a.m. on the date of this Agreement or on such other date and at such time
as may be mutually agreed upon by the Company and the Investors (the "Closing
Date"). At the Closing, the Company will deliver to the Investors certificates
for the Purchased Shares against delivery to the Company of a receipt of wire
transfers, or of certified checks, in payment of the full purchase price
therefor.

                   1.2.3.  Use of Proceeds. The Company shall use the proceeds
                           ---------------
from the sale of the Purchased Shares for general working capital purposes, but
only to the extent permitted by the rules and regulations promulgated from time
to time by the Small Business Administration (the "SBA").
<PAGE>

                                   ARTICLE 2

          REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND PRINCIPAL
                                  SHAREHOLDER

     To induce the Investors to enter into this Agreement, except as disclosed
in SEC Documents filed and publicly available prior to the date of this
Agreement (the "Public Filings") or as set forth in the Disclosure Schedule
attached hereto, the Company represents and warrants that:

     Section 2.1.  Business; Organization, Corporate Power and Authority, etc.
                   ----------------------------------------------------------
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full corporate power
and authority to own and hold its properties and to carry on its business as
presently conducted. The Company is duly licensed or qualified and in good
standing as a foreign corporation authorized to do business in all jurisdictions
in which the character of property owned or leased, or the nature of the
activities conducted by it, makes such licensing or qualification necessary,
except where the failure to so qualify would not have a material adverse effect
on the business, assets or condition, financial or otherwise, or operations of
the Company ("Material Adverse Effect"). The Company has no Subsidiaries and
does not own of record or beneficially any shares of capital stock or securities
convertible into capital stock of, or any other proprietary interest in, any
Person.

     Section 2.2.  Validity. The Company has all necessary power and authority,
                   --------
and has taken all action required to execute, deliver and perform this Agreement
and the Registration Rights Agreement referred to in Section 4.1.5 hereof (the
"Registration Rights Agreement") and to issue, sell and deliver the Purchased
Shares, and to enter into and execute all other instruments, certificates and
documents evidencing the transactions contemplated herein (collectively, the
"Investment Documents"). The Investment Documents, when delivered, are and will
be duly authorized, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, subject to laws
of general application relating to bankruptcy, insolvency and the relief of
debtors; equitable principles limiting rights to specific performance; and, with
respect to the enforceability of the provisions set forth in the Registration
Rights Agreement, applicable federal securities law. Upon the issuance, sale and
delivery of the Purchased Shares in accordance with the terms hereof, the
Purchased Shares will be validly issued, fully paid and non-assessable and will
be free and clear of all liens, charges, restrictions, claims and encumbrances
of any kind, subject to restrictions on transfer under federal and state
securities laws, this Agreement, and the Company's Certificate of Incorporation

     Section 2.3.  Capitalization; Status of Capital Stock.  The Company has, or
                   ---------------------------------------
before the Closing will have, a total authorized capitalization consisting of
(i) 20,000,000 shares of Common Stock ("Common Stock"), of which (A) 10,062,076
shares are issued and outstanding, (B) 1,215,216 shares are held by the
Corporation as treasury shares, (C) 32,512 shares were issued in error and are
awaiting cancellation but are shown as outstanding on the records of the
Corporation's transfer agent, and (D) 68 shares are shown as outstanding on the
records of the Corporation's

                                       2
<PAGE>

transfer agent but cannot be allocated to a holder of record, and (ii)
20,000,000 shares of Preferred Stock ("Preferred Stock") of which (A)391,667
shares are authorized as Series A Junior Convertible Redeemable Preferred Stock,
all of which shares are issued and outstanding, (B) 390,000 shares are
authorized as Series B Junior Convertible Redeemable Preferred Stock, all of
which shares are issued and outstanding, (C) 40,000 shares are authorized as
Series C Junior Convertible Redeemable Preferred Stock, all of which shares are
issued and outstanding, (D) 1,500,000 shares are authorized as Series D Senior
Cumulative Convertible Redeemable Preferred Stock, all of which shares are
issued and outstanding, (E) 350,000 shares are authorized as Series E Junior
Convertible Redeemable Preferred Stock, all of which shares are issued and
outstanding, (F) 2,150,493 shares are authorized as Series G Junior
Participating Convertible Voting Preferred Stock, all of which shares are issued
and outstanding. All of the issued and outstanding shares of Common Stock have
been duly authorized and validly issued, are fully paid, and non-assessable, and
were issued in compliance with all applicable state and federal securities laws.
Other than as set forth in the Company's Public Filings, the Company has no
options or rights to purchase shares of its capital stock, or securities
convertible into shares of its capital stock, authorized, issued or outstanding,
nor is the Company obligated in any manner to issue shares of its capital stock
or securities convertible into or evidencing any right to acquire shares of its
capital stock, or to distribute to holders of any of its capital stock any
evidence of indebtedness or assets; (b) no Person has any preemptive right,
right of first refusal or similar right to acquire additional shares of capital
stock in connection with the sale and purchase of the Purchased Shares pursuant
to this Agreement or otherwise; (c) there are no restrictions on the transfer of
the shares of capital stock of the Company, other than those imposed by relevant
state and federal securities laws or the Company's Certificate of Incorporation;
(d) no Person has any right to cause the Company to effect the registration
under the Securities Act of 1933, as amended (the "1933 Act"), of any shares of
capital stock or any other securities (including debt securities) of the
Company; (e) the Company has no obligation to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein, or to pay any
dividend or make any other distribution in respect thereto; and (f) there are no
voting trusts, stockholders' agreements, or proxies relating to any securities
of the Company. The Company has heretofore delivered to the Investors true and
correct copies of its Certificate of Incorporation and Bylaws, each as amended
and in effect on the date hereof and certified by the Company's Secretary.

     Section 2.4.  Taxes.  The Company is a "C" corporation.  The Company has a
                   -----
fiscal year end of December 31 and has accurately prepared, to the best of its
knowledge, and timely filed, or has made provision for the timely filing of, all
federal, state and other tax returns that are required to be filed by it and has
paid or made provision for the payment of all taxes that have become due
pursuant to such returns and, to the best of the Company's knowledge, all other
taxes, assessments and governmental charges which have become due and payable,
including, without limitation, all taxes which the Company is obligated to
withhold from amounts owing to employees, creditors and third parties.  No
deficiency assessment with respect to or proposed adjustment of the Company's
federal, state, or other taxes is pending or threatened in writing.  There is no
tax lien, whether imposed by any Federal, state, or other taxing authority,
outstanding against the assets, properties or business of the Company.  Neither
the Company nor any of its stockholders has ever filed a consent pursuant to
Section 341(f) of the Code, relating to collapsible corporations.

                                       3
<PAGE>

     Section 2.5.  No Violations. The execution, delivery and performance of the
                   -------------
Investment Documents, the consummation of the transactions contemplated by the
Investment Documents (including the issuance, sale and delivery of the Purchased
Shares), and compliance with the provisions hereof, will not violate any
provision of law, the Certificate of Incorporation or Bylaws, as amended, of the
Company, any order of any court or other agency of government or indenture,
agreement or other instrument to which the Company is bound, or conflict with,
result in the breach of or constitute (with due notice or lapse of time or both)
a default under any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or assets of the
Company in each case which would have a Material Adverse Effect.

     Section 2.6.  Governmental Consents, etc. No consents, approvals or
                   --------------------------
authorizations of, or registrations, qualifications, designations, declarations
or filings with, any federal, state or local governmental authority on the part
of the Company are required as a condition precedent to the valid execution and
delivery of the Investment Documents or the valid offer, issue, sale and
delivery of the Purchased Shares.

     Section 2.7.  Compliance with Law. The Company is currently in compliance
                   -------------------
in all material respects with all federal and state laws, rules, regulations and
orders applicable to its business, operations, properties, assets, products and
services and has obtained all material licenses, permits, approvals and
authorizations necessary or required to conduct its business and affairs as
previously and currently conducted and as the Company intends to conduct it in
the future.

     Section 2.8.  Financial Statements. The Company has delivered to the
                   --------------------
Investors an audited balance sheet, statements of income and cash flows as of
December 31, 1999 and an unaudited balance sheet, statement of income for the
nine month(s) ended September 30, 2000 (the "Most Recent Fiscal Month End"),
copies of which financial statements are contained in the Disclosure Schedules
(the "Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles which have been applied
on a consistent basis throughout the periods indicated. The Financial Statements
fairly present the financial condition and operating results of the Company as
of the dates and during the periods indicated therein, are correct and complete
in all material respects, and are consistent with the books and records of the
Company (which books and records are correct and complete in all material
respects), subject to (in the case of the unaudited statements) normal recurring
year-end audit adjustments which are neither individually nor in the aggregate
material.

     Section 2.9.  Absence of Undisclosed Liabilities. Except as set forth on
                   ----------------------------------
the Financial Statements or in its Public Filings, the Company has no material
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business after the Most Recent Fiscal Month End and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under GAAP to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company.

                                       4
<PAGE>

     Section 2.10.  Absence of Certain Changes or Events. Since the Most Recent
                    ------------------------------------
Fiscal Month End, there has not been:

                   2.10.1.  any change in the consolidated assets, liabilities,
prospects, condition (financial or otherwise), affairs, earnings, business, or
operations of the Company from that reflected in the balance sheet as of the
Most Recent Fiscal Month End;

                   2.10.2.  any materially adverse change in the contingent
obligations of the Company by way of guaranty or any assurance of performance or
payment, endorsement, indemnity, warranty or otherwise, except changes in the
ordinary course of business which have not been, either in any case or in the
aggregate, materially adverse;

                   2.10.3.  any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties of the
Company, taken as whole;

                   2.10.4.  any waiver by the Company of a valuable right or of
a material debt owed to it;

                   2.10.5.  any loans made by the Company or the Company's
employees, officers or directors other than advances of expenses made in the
ordinary course of business or in connection with employee stock purchases;

                   2.10.6.  except for the Primal Spin-Off and the declaration
and payment of dividends on he Company's outstanding shares of its Preferred
Stock, any declaration or payment of any dividend or other distribution of the
assets of the Company or any direct or indirect redemption, purchase or
acquisition of any of the Company's securities;

                   2.10.7.  any labor organization activity or labor unrest;

                   2.10.8.  any increase in the compensation of any of the
Company's employees, officers or directors;

                   2.10.9.  any resignation or termination of employment of any
officer or Key Employee of the Company;

                   2.10.10.  any agreement entered into by the Company to do any
of the foregoing matters covered by Sections 2.10.1 through 2.10.9; or

                   2.10.11.  any other event or condition of any character which
has had a Material Adverse Effect (given in light of the disclosure contained in
the Public Filings, the Financial Statements and the Company's Business Plan).

     Section 2.11.  Title to Assets.  With the exception of those of its
                    ---------------
properties which are under lease, the Company has good title to, all of its
properties and assets of whatever nature used by the Company in the conduct of
its business and, except as set forth in Section 2.11 of the Disclosure
Schedules, there are no liens or other security interests outstanding against
any of these properties

                                       5
<PAGE>

and assets. All leases pursuant to which the Company leases real or personal
property are in good standing and are valid and effective in accordance with
their respective terms and there exists no default on the part of the Company or
other occurrence or condition which could result in a default or termination
thereof.

     Section 2.12.  Compliance with Securities Laws. Based in part on the
                    -------------------------------
representations of the Investors set forth in Section 3 below, the Company has
complied with all applicable United States federal and state securities laws in
connection with the offer, issuance and sale of the Purchased Shares.  The
Company has not either directly or through any agent, offered any securities to,
or otherwise approached, negotiated or communicated in respect of any securities
with, any Person so as thereby to require that the offer or sale of the
Purchased Shares be registered pursuant to the provisions of Section 5 of the
1933 Act.  Based in part on the representations of the Investors set forth in
Section 3 below, the offer, sale and issuance of the Purchased Shares in
conformity with the terms of this Agreement are exempt from the registration
requirements of Section 5 of the 1933 Act and all applicable state securities
laws.

     Section 2.13.  Intellectual Property.
                    ---------------------

                   2.13.1.  Intellectual Property Assets.  For purposes of this
                            ----------------------------
Agreement, the term "Intellectual Property Assets" includes:

                   2.13.1.1.  the name Avery Communications, Inc., HBS Billing
Services Company, Thurston Communications Corporation, and TCOM Marketing Corp.,
all fictional business names, trading names, registered and unregistered
trademarks, service marks, and applications (collectively, "Marks");

                   2.13.1.2.  all patents, patent applications, and inventions
and discoveries that may be patentable (collectively, "Patents"); 2.13.1.3. all
copyrights in both published works and unpublished works (collectively,
"Copyrights");

                   2.13.1.4.  all rights in mask works (collectively, "rights in
Mask Works");

                   2.13.1.5.  all know-how, trade secrets, confidential
information, customer lists, software, technical information, data, process
technology, plans, drawings, and blue prints (collectively, "Trade Secrets");
owned, used, or licensed by the Company as licensee or licensor.

               2.13.2.  Agreements. Section 2.13.2 of the Disclosure
                        ----------
Schedules contains a complete and accurate list and summary description of all
contracts or agreements relating to the Intellectual Property Assets to which
the Company is a party or by which the Company is bound, except for any license
implied by the sale of a product and perpetual, paid-up licenses for commonly
available software programs with a value of less than $10,000 under which the

                                       6
<PAGE>

Company is the licensee. There are no outstanding and, to the Company's
knowledge, no threatened disputes or disagreements with respect to the any such
agreement.

               2.13.3.  Know-How Necessary for the Business.
                        -----------------------------------

                   2.13.3.1.  The Company is the owner of all right, title, and
interest in and to each of the Intellectual Property Assets necessary for the
operation of the Company's business as it is currently conducted or as reflected
in the Business Plan given to the Investors free and clear of all liens,
security interests, charges, encumbrances, equities, and other adverse claims,
and has the right to use without payment to a third party all of the
Intellectual Property Assets.

                   2.13.3.2.  To the knowledge of the Company, no employee of
the Company has entered into any contract or agreement that restricts or limits
in any way the scope or type of work in which the employee may be engaged or
requires the employee to transfer, assign, or disclose information concerning
his work to anyone other than the Company.

               2.13.4.  Patents.
                        -------

                   2.13.4.1.  Section 2.13.4 of the Disclosure Schedules
contains a complete and accurate list and summary description of all Patents.
The Company is the owner of all right, title, and interest in and to each of the
Patents, free and clear of all liens, security interests, charges, encumbrances,
entities, and other adverse claims.

                   2.13.4.2.  All of the issued Patents are currently in
compliance with formal legal requirements (including payment of filing,
examination, and maintenance fees and proofs of working or use), are valid and
enforceable, and are not subject to any maintenance fees or taxes or actions
falling due within 90 days after the Closing Date.

                   2.13.4.3.  No Patent has been or is now involved in any
interference, reissue, reexamination, or opposition proceeding. To the Company's
knowledge, there is no potentially interfering patent or patent application of
any third party.

                   2.13.4.4.  No Patent is infringed or has been challenged or
threatened in any way. None of the products manufactured and sold, nor any
process or know-how used, by the Company infringes or is alleged to infringe any
patent or other proprietary right of any other Person.

                   2.13.4.5.  All products made, used, sold under the Patents
have been marked with the property patent notice.

                                       7
<PAGE>

               2.13.5.  Trademarks.
                        ----------

                   2.13.5.1.  Section 2.13.5 of the Disclosure Schedules
contains a complete and accurate list and summary description of all Marks. The
Company is the owner of all right, title, and interest in and to each of the
Marks, free and clear of all liens, security interests, charges, encumbrances,
requires, and other adverse claims.

                   2.13.5.2.  All Marks that have been registered with the
United States Patent and Trademark Office (which are listed on Section 2.13.5 of
the Disclosure Schedules) are currently in compliance with all formal legal
requirements (including the timely post registration filing of affidavits of use
and incontestability and renewal applications), are valid and enforceable, and
are not subject to any maintenance fee or taxes or actions falling due within 90
days after the Closing Date.

                   2.13.5.3.  No Mark has been or is now involved in any
opposition, invalidation, or cancellation nor, to the Company's knowledge, is
any such action threatened with respect to any of the Marks.

                   2.13.5.4.  To the Company's knowledge, there is no
potentially interfering trademark or trademark application of any third party.

                   2.13.5.5.  To the Company's knowledge, no Mark is infringed
or has been challenged or threatened in anyway. None of the Marks used by the
Company infringes or is alleged to infringe any trade name, trademark, or
service mark of any third party.

               2.13.6.  Copyrights.
                        ----------

                   2.13.6.1.  Section 2.13.6 of the Disclosure Schedules
contains a complete and accurate list and summary description of all Copyrights
which are material to the conduct of the Company's business. The Company is the
owner of all right, title, and interest in and to each of the Copyrights, free
and clear of all liens, security interests, charges, encumbrances, equities, and
other adverse claims.

                   2.13.6.2.  All the Copyrights which are material to the
conduct of the Company's business have been registered and are currently in
compliance with formal legal requirements, are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within
ninety (90) days after the Closing Date.

                   2.13.6.3.  No Copyrights which are material to the conduct of
the Company's business are infringed or, to the Company's knowledge, nor have
any such Copyrights been challenged or threatened in any way. None of the
subject matter of any of the Copyrights which are material to the conduct of the
Company's business infringes or is alleged to infringe any copyright of any
third party or is a derivative work based on the work of a third party.

                                       8
<PAGE>

                   2.13.6.4.  All works encompassed by the Copyrights which are
material to the conduct of the Company's business have been marked with the
property copyright notice.

               2.13.7.  Trade Secrets.
                        -------------

                    2.13.7.1.  With respect to each Trade Secret, the
documentation relating to such Trade Secret is current, accurate, and sufficient
in detail and content to identify and explain it and to allow its full and
proper use without reliance on the knowledge or memory of any individual.

                   2.13.7.2.  The Company has taken all reasonable precautions
to protect the secrecy, confidentiality, and value of its Trade Secrets.

                   2.13.7.3.  The Company has good title and an absolute (but
not necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are
not part of the public knowledge or literature, and, to the Company's knowledge,
have not been used, divulged, or appropriated either for the benefit of any
Person or to the detriment of the Company. No Trade Secret is subject to any
adverse claim or has been challenged or threatened in any way.

     Section 2.14.  Minute Books. The copy of the minute book of the Company
                    ------------
provided to the Investors counsel contains (a) minutes of all meetings of
directors and all actions by written consent without a meeting by the directors
since the date of incorporation (and accurately reflects all actions by the
directors and any committee of the directors and stockholders with respect to
all transactions referred to in such minutes in all material respects), and (b)
a complete and correct copy of the Company's Certificate of Incorporation,
Bylaws, and stock transfer ledger.

     Section 2.15.  Insurance. The Company has in full force and effect fire and
                    ---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace fully any of its
properties that might be damaged or destroyed.

     Section 2.16.  Offering of Preferred Stock. Neither the Company nor anyone
                    ---------------------------
acting on its behalf has offered the Purchased Shares or any similar securities
for sale to, or solicited any offer to buy any of the same from, or otherwise
approached or negotiated in respect thereof, with, any Person other than the
Investors.  Neither the Company nor anyone acting on its behalf has taken, or
will take, any action which would subject the issuance or sale of the Purchased
Shares to Section 5 of the 1933 Act, as amended, or the registration or
qualification provisions of the blue sky laws of any state.

     Section 2.17.  Disclosure; Public Filings.
                    --------------------------

                   2.17.1.  Neither this Agreement, the Public Filings, the
Financial Statements, the Business Plan, nor any certificate, list, exhibit,
letter or other written statement furnished by the Company to the Investors or
its special counsel in connection herewith contains any untrue statement of a
material fact or, when read together, omits to state any material fact

                                       9
<PAGE>

necessary in order to make the statements contained therein not misleading in
the light of the circumstances under which they are or were made. There exists
no fact or circumstances which has a Material Adverse Effect, or which in the
future, to the best of the Company's knowledge, has a reasonable possibility of
having a Material Adverse Effect, as the Company's business is presented
currently and as it is presented to be conducted in the future in the Public
Filings and the Business Plan, which has not been reflected in the Public
Filings, the Financial Statements or as set forth in this Agreement or the
Exhibits and Disclosure Schedules hereto or fully disclosed in a written
statement or certificate furnished to the Investors by the Company pursuant to
this Agreement.

                   2.17.2.  The projections contained in the Business Plan or
which have otherwise been delivered to the Investors for each of the fiscal
years ended 2000 and 2001, copies of which have been previously delivered to the
Investors, have been prepared in good faith by the principal financial officer
of the Company using reasonable financial planning assumptions which are
disclosed in sufficient detail. As of the date hereof, the Company has no reason
to believe that such projections are incorrect or misleading in any material
respect. No representation is made as to whether the forecasted results will in
fact be realized; the Company's actual results in the future can be expected,
notwithstanding the accuracy of the representations contained in the preceding
two sentences, to vary from those forecasted, and such variations may be
material.

                                   ARTICLE 3

                  REPRESENTATIONS AND WARRANTIES OF INVESTORS

     In order to induce the Company to enter into this Agreement, each Investor
represents and warrants to the Company that:

     Section 3.1.  Validity. This Agreement, the Registration Rights Agreement
                   --------
and all other documents and instruments executed by such Investor pursuant
hereto, have each been duly executed and delivered by such Investor and each is
a legal, valid and binding obligation of such Investor enforceable against such
Investor in accordance with its terms. All consents, approvals or authorizations
of any Person, and all qualifications, designations, declarations or filings
with any governmental authority, on the part of such Investor required as a
condition precedent to the valid execution and delivery of this Agreement and
the Registration Rights Agreement shall have been obtained or completed before,
and be effective as of, the Closing.

     Section 3.2.  Investment Intent. The Investor is acquiring the Purchased
                   -----------------
Shares for its own account, for investment, and not with a view to any
"distribution" thereof within the meaning of the 1933 Act nor with any present
intention of distributing or selling the same; and, except as contemplated by
this Agreement, the Registration Rights Agreement and all the documents and
instruments executed by the Investors pursuant hereto, such Investor has no
present or contemplated agreement, undertaking, arrangement, obligation,
indebtedness or commitment providing for the disposition thereof. The officers
of the Company have made available to such Investor any and all written
information which it has requested and have answered to such

                                       10
<PAGE>

Investor's satisfaction, all inquiries made by such Investor; the Investors have
adequate net worth and means of providing for its current needs and
contingencies to sustain a complete loss of its investment in the Company.
Nothing contained in this Section 3.2 shall be construed as a waiver of any
rights the Investors may have under this Agreement or otherwise.

     Section 3.3.  Resale Restrictions. The Investor understands that because
                   -------------------
the Purchased Shares have not been registered under the 1933 Act, it cannot
dispose of any or all of the Purchased Shares unless the Purchased Shares are
subsequently registered under the 1933 Act or exemptions from such registration
are available. The Investors acknowledges and understands that, except as
provided in the Registration Rights Agreement, it has no independent right to
require the Company to register the Purchased Shares under the 1933 Act or any
state securities law. The Investor understands that the Company may, as a
condition to the transfer of any of the Purchased Shares, require that the
request for transfer be accompanied by opinion of counsel the identity of which
is deemed reasonably acceptable to the Company, in form and substance
satisfactory to the Company, to the effect that the proposed transfer does not
result in violation of the 1933 Act, unless such transfer is covered by an
effective registration statement under the 1933 Act. The Investor understands
that each certificate representing the Purchased Shares will bear the following
legends or ones substantially similar thereto:

                These securities have not been registered under the Securities
                Act of 1933.  These securities have been acquired for investment
                and not with a view to distribution or resale, and may not be
                sold, mortgaged, pledged, hypothecated or otherwise transferred
                without an effective registration statement for such shares
                under the Securities Act of 1933, or an opinion of counsel for
                the corporation that registration is not required under such
                act.

     Section 3.4.  Diligence. The Investor has carefully reviewed the
                   ---------
representations concerning the Company contained in this Agreement, has read the
Business Plan, has made detailed inquiry concerning the Company, its business
and its personnel and is knowledgeable and experienced in the making of venture
capital investments, is able to bear the economic risk of loss of its investment
in the Company, has been granted the opportunity to make a thorough
investigation of the affairs of the Company, and has availed itself of such
opportunity to the extent it has deemed necessary, either directly or through
its authorized representative.

     Section 3.5.  Reliance. The Investor has been advised that the Purchased
                   --------
Shares delivered hereunder have not been and are not being registered under the
1933 Act and that the Company in issuing the Purchased Shares is relying upon,
and will rely upon, among other things, the representations and warranties of
the Investor contained in this Section 3 in concluding that each such issuance
is a private offering" and does not require compliance with the registration
provisions of the 1933 Act.

                                       11
<PAGE>

     Section 3.6.  Status. The Investor is an "accredited investor" as that
                   ------
term is defined in Rule 501 of Regulation D under the 1933 Act.

                                   ARTICLE 4

                            CONDITIONS OF PURCHASE

     Section 4.1.  Investors Condition. The Investors' obligations to purchase
                   -------------------
and pay for the Purchased Shares hereunder shall be subject to compliance, or
the waiver in writing by the Investors of compliance, by the Company in all
material respects with their agreements herein contained and to the fulfillment
on or before and at the Closing of the following conditions:

               4.1.1.  Certificate of Company. The representations and
                       ----------------------
warranties of the Company contained in this Agreement, including but not limited
to the representations and warranties made in Section 2 shall be true and
correct in all material respects with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date; the
Company shall not have suffered an event resulting in a Material Adverse Effect
before the Closing; the conditions hereafter specified in this Article 4 shall
have been satisfied and the Investors shall have received a duly executed
certificate of the Secretary of the Company, dated as of the Closing Date,
certifying such matters.

               4.1.2.  Opinion of Counsel. The Investors shall have received
                       ------------------
from special counsel for the Company, Winstead Sechrest & Minick P.C., their
favorable opinion, dated the Closing Date, substantially in the form attached as
Exhibit B.
---------

               4.1.3.  Authorization; Consents. The Board of Directors and
                       -----------------------
stockholders of the Company, to the extent necessary, shall have duly adopted
resolutions in form satisfactory to the Investors authorizing the Company to
consummate the transactions contemplated hereby to which it is a party in
accordance with the terms hereof, and the Investors shall have received a duly
executed certificate of the Secretary or an Assistant Secretary of the Company
dated the Closing Date setting forth a copy of such resolutions and such other
matters as may be requested by the Investors. The Company shall have obtained
any and all other consents, permits and waivers and made all filings necessary
or appropriate for consummation of the transactions contemplated by this
Agreement.

               4.1.4.  Certificate of Designation. The Amended and Restated
                       --------------------------
Certificate of Designation of the Company shall read as set forth in Exhibit A.
                                                                     ---------

               4.1.5.  Registration Rights Agreement. The Company and the
                       -----------------------------
Investors shall have executed and delivered a Registration Rights Agreement,
substantially in the form of Exhibit C.
                             ---------

               4.1.6.  Board of Directors. J. Alan Lindauer shall continue to
                       ------------------
be elected to the Company's Board of Directors as the representative of the
Investors.

                                       12
<PAGE>

               4.1.7.  All Proceedings Satisfactory. All corporate and other
                       ----------------------------
proceedings taken before or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to the Investors
and the Investors shall receive such copies thereof and other materials
(certified, if requested) as they may reasonably request in connection
therewith.

               4.1.8.  Fees and Expense. The Company shall have paid the
                       ----------------
Investors the $80,000 origination fee and sufficient funds as reimbursement for
the Investors' legal fees (and disbursements incurred by the Investors'
attorneys incurred in connection with this transaction) and the SBA compliance
review, as set forth on the Disbursement Statement attached as Exhibit D. Such
legal fees shall be paid by the Company whether or not the transaction
contemplated by this Agreement is consummated.

     Section 4.2.  Company's Conditions'. The Company's obligation to issue and
                   --------------------
sell the Purchased Shares hereunder shall be subject to compliance by the
Investors in all material respects with its agreements herein contained and to
the fulfillment on or before and at the Closing of the following conditions:

               4.2.1.  Certificate of Investors. The representations and
                       ------------------------
warranties of the Investors contained in this Agreement, including but not
limited to the representations and warranties made in Section 6, shall be true
and correct in all material respects with the same force and effect as those
such representations and warranties had been made on and as of the Closing Date.

               4.2.2.  Full Purchase Price. The Investors shall have delivered
                       -------------------
the entire amount of $1,600,000 in exchange for the Purchased Shares as provided
in this Agreement less applicable fees and expenses as set forth on the
Disbursement Statement attached as Exhibit D.
                                   ---------

               4.2.3.  SBA Compliance. The terms and conditions of this
                       --------------
Agreement shall be in compliance with all statutes and regulations governing the
Investors as small business investment companies.

                                   ARTICLE 5

                           COVENANTS OF THE COMPANY

          Until the later of such time as none of the Purchased Shares are held
by the Investors or their Permitted Transferees, or unless otherwise agreed by
the Investors, the Company shall comply with the following covenants:

     Section 5.1.  Financial Statements. The Company shall maintain a system of
                   --------------------
accounts in accordance with generally accepted accounting principles, keep full
and complete financial records and furnish to the Investors on behalf of the
Investors the following reports: (i) no later than four months after the end of
the Company's fiscal year, audited Financial Statements Certified by King
Griffin & Adamson LLP, independent public accountants (or such other independent
public

                                       13
<PAGE>

accountants of recognized national or regional standing as may be approved by
the Investors, such approval not to be unreasonably withheld) prepared in
accordance with generally accepted accounting principles and practices
consistently applied; (ii) by the end of the third week of each calendar month
in time for the Investors' monthly Board meetings, its internally prepared
Financial Statements which shall each be prepared in a manner consistent with
those prepared in the prior months and approved by the Company's Board.

     Section 5.2.  Conduct of Business. The Company will keep in full force and
                   -------------------
effect its corporate existence and will comply in all material respects with all
applicable laws and regulations in the conduct of its business.

     Section 5.3.  Public Announcements. The Company shall promptly deliver to
                   --------------------
the Investors for their review and comment and before its distribution, a draft
copy of any press release mentioning the Investors in any way and two copies of
any other press releases within five business days after the publication of such
release or filing of such press release or form.

     Section 5.4.  Insurance. The Company shall keep its insurable properties
                   ---------
insured by financially sound and reputable insurers against the perils of
liability, casualty, fire and extended coverage in amounts of coverage at least
equal to those customarily maintained by companies in the same or a similar
business of similar size.  The Company shall also maintain with such insurers
insurance against other hazards and risks and liability to persons and property,
to the extent and in the manner customary for corporations engaged in the same
or a similar business of similar size.

     Section 5.5.  Maintenance of Properties. The Company will maintain all
                   -------------------------
properties used or useful in the conduct of its business in good repair, working
order and condition as necessary to permit such business to be properly and
advantageously conducted in accordance with its Business Plan.

     Section 5.6.  Affiliated Transactions. All transactions between the
                   -----------------------
Company and any officer, Key Employee, director or stockholder of the Company or
Persons controlled by or affiliated with such officer, Key Employee, director or
stockholder, shall be conducted on an arm's-length basis, shall be on terms and
conditions no less favorable to the Company than could be obtained from
unrelated Persons and shall be approved in advance by a majority of
disinterested Directors of the Company after full disclosure of the terms
thereof.

     Section 5.7.  Lock-Up for Certain Stockholders.  The Company will cause any
                   --------------------------------
compensation benefit plan or contract, whether now existing or hereafter
created, under which offers and sales of securities of the Company are made to
officers, directors and Key Employees of the Company, to provide that in
connection with an underwritten public offering, upon the request of the Company
or the principal underwriter managing such public offering, resales of such
securities may not be sold without the prior written consent of the Company or
such underwriters, as the case may be, for at least 90 days or such other period
of time as the Company or the underwriters, as the case may be, may reasonably
require.

                                       14
<PAGE>

        Section 5.8.  Board of Directors Meetings. The Company shall cause one
                      ---------------------------
(1) nominee of the Investors, who shall initially be J. Alan Lindauer, to be
elected as directors at all meetings of stockholders, or consents in lieu
thereof, for such purpose. The Company will reimburse all direct out-of-pocket
expenses reasonably incurred by the directors of the Company who are the
nominees of the Investors in attending meetings of the Board of Directors or any
committee thereof.

        Section 5.9.

        Section 5.10.  Loans and Advances. The Company will not make any loan or
                       ------------------
advance to, or own any stock or other securities of, any Person except for
reasonable advances to employees in the ordinary course of business.

        Section 5.11.

        Section 5.12.  "C" Corporation. The Company shall remain a "C"
                       ---------------
Corporation.

        Section 5.13.  Maintenance of Intellectual Property Assets. At all
                       -------------------------------------------
times, the Company shall maintain in good standing and take all action that may
be required to maintain all rights in its Intellectual Property Assets,
including, but not limited to, Patents, Trademarks, Copyrights and Trade
Secrets.

        Section 5.14.  Non-Contravention. The Company shall remain in full
                       -----------------
compliance with this Agreement, the Registration Rights Agreement and all other
agreements that evidence the transactions described in this Agreement.

                                   ARTICLE 6

                           COVENANTS OF THE INVESTORS

        Section 6.1.  Right of First Offer. Neither Investor shall sell or
                      --------------------
transfer any Purchased Shares other than to any transferee who is an affiliate,
as that term is defined in the Investment Company Act of 1940, of such Investor
(including a shareholder of the Investor), unless such Investor first submits a
bona-fide written offer to the Company to purchase such Purchased Shares. An
Investor's offer to the Company shall remain open and irrevocable for 10
business days. During the 10 business day period commencing after the receipt of
such offer, the Company shall have the right to purchase all, but not less than
all, of such Purchased Shares upon such terms and conditions as are specified in
the offer. Promptly upon the expiration of such 10 business day period, any of
such Purchased Shares not so purchased by the Company may be sold by such
Investor to a third party at the same price and upon terms and conditions not
materially less favorable to the Investors (taken as a whole) than were offered
the Company, but may not otherwise be sold without again complying with this
Section for a period of 90 days after expiration of such 10 business day period.

        Section 6.2.  Confidentiality. The Investors will keep confidential and
                      ---------------
will not disclose or divulge (other than to their respective Boards of
Directors) any confidential, proprietary or secret

                                       15
<PAGE>

information which the Investors may obtain from the Company pursuant to
Financial Statements, reports, contracts and other materials submitted by the
Company to the Investors pursuant to this Agreement, or pursuant to visitation
or inspection rights granted under this Agreement unless such information is
known or until such information becomes known, to the public other than by
action of the Investors or their agents.

                                   ARTICLE 7

                                INDEMNIFICATION

        Section 7.1.  Investors Indemnification. The Company shall indemnify the
                      -------------------------
Investors against all claims, losses, damages and liabilities, including legal
and other expenses reasonably incurred in investigating or defending against the
same, arising out of any breach of any representation, warranty or covenant made
by the Company in Articles 2 and 5 hereof.

        Section 7.2.  Company Indemnification. The Investors shall indemnify the
                      -----------------------
Company against all claims, losses, damages and liabilities, including legal and
other expenses reasonably incurred in investigating or defending against the
same, arising out of any breach of any representation, warranty or covenant made
in Articles 3 and 6 by the Investors.

        Section 7.3.  Indemnification Generally. In case any investigation or
                      -------------------------
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
this Article 7, such Person (the "Indemnified Party") shall promptly notify the
Person against whom such indemnity may be sought (the "Indemnifying Party") in
writing. No indemnification provided for in Section 7.1 or 7.2 shall be
available to any party who shall fail to give notice as provided in this Section
7.3, but the failure to give such notice shall not relieve the Indemnify Party
or parties from any liability which it or they may have to the Indemnified Party
for contribution or otherwise on account of the provisions of Section 7.1 or
7.2. In case any such proceeding shall be brought against any Indemnified Party
and it shall notify the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such Indemnified Party and shall pay as incurred the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any Indemnified
Party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the Indemnifying Party shall pay as incurred the
fees and expenses of the counsel retained by the Indemnified Party in the event
(i) the Indemnifying Party and the Indemnified Party shall have mutually agreed
to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the Indemnifying Party
and the Indemnified Party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. The Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such consent
or if there be a final judgment for the plaintiff, the Indemnifying Party agrees
to indemnify the Indemnified Party from and against any loss or liability by
reason of such settlement or judgment.

                                       16
<PAGE>

        Section 7.4.  Final Adjudication. If indemnification arises as a result
                      ------------------
of a third party claim against the Indemnifying Party, no indemnification shall
be made effective pursuant to this Article 7 until such time as the Indemnifying
Party shall have been finally adjudicated or otherwise bound to be liable
hereunder to such third party.

                                   ARTICLE 8

                                 MISCELLANEOUS

        Section 8.1.  Broker's Fee. Each party will indemnify and hold harmless
                      ------------
the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.

        Section 8.2.  SBA Compliance. Should it be determined that any provision
                      --------------
of this Agreement is in violation of any statute or regulation governing small
business investment companies, the parties agree that any such offending
provision shall be modified or re-written as may be reasonably necessary to
comply with the applicable statute or regulation and effect the parties'
original intent under this Agreement.

        Section 8.3.  Amendments And Waivers. This Agreement may not be amended
                      ----------------------
or modified, and no provisions may be waived, without the written consent of the
Company and the Investors.

        Section 8.4.  Survival of Covenants; Assignability of Rights.
                      ----------------------------------------------

                      8.4.1.  All covenants, agreements, representations and
warranties of the Company made herein and in the certificates, lists, exhibits,
schedules or other written information delivered or furnished in connection
therewith and herewith shall be deemed to have been relied upon by the
Investors, and, except as provided otherwise in this Agreement, shall survive
the delivery of the Purchased Shares for a period of one year and shall bind the
Company's successors and assigns, whether so expressed or not, and, except as
provided otherwise in this Agreement, all such covenants, agreements,
representations and warranties shall inure to the benefit of the Investors'
successors and assigns and to permitted transferees of the Purchased Shares,
whether so expressed or not.

                      8.4.2.  All covenants, agreements, representations and
warranties of the Investors made herein shall be deemed to have been relied upon
by the Company, and, except as provided otherwise in this Agreement, shall
survive the delivery of the Purchased Shares and shall bind each of the
Investors' respective successors and assigns, whether so expressed or not and,
except as provided otherwise in this Agreement, all such covenants, agreements,
representations and warranties shall inure to the benefit of the Company's
successors and assigns whether so expressed or not.

                                       17
<PAGE>

        Section 8.5.  Governing Law/Enforcement. This Agreement shall be
                      -------------------------
governed by and construed in accordance with the substantive laws of the
Commonwealth of Virginia, without regard to conflicts of law provisions.

        Section 8.6.  Jurisdiction and Venue. The Company consents to the
                      ----------------------
jurisdiction of the Circuit Court of the City of Norfolk, Virginia and the
United States District Court for the Eastern District of Virginia, Norfolk
Division, for the purpose of any suit, action or other proceeding arising out of
any of its obligations arising under this Agreement or with respect to the
transactions contemplated hereby, and expressly waives any and all objections it
may have as to venue in such court.

        Section 8.7.  Section Headings. The descriptive headings in this
                      ----------------
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision hereof.

        Section 8.8.  Counterparts. This Agreement may be executed
                      ------------
simultaneously in any number of counterparts, each of which when so executed and
delivered shall be taken to be an original; but such counterparts shall together
constitute but one and the same document.

        Section 8.9.  Notices and Demands. Any notice or demand which, by any
                      -------------------
provision of this Agreement or any agreement, document or instrument executed
pursuant hereto or thereto, except as otherwise provided therein, is required or
provided to be given shall be deemed to have been sufficiently given or served
for all purposes three days after being sent by first class mail, postage and
charges prepaid to the following addresses: if to the Company, at its mailing
address set out above, or at any other address designated by the Company to the
Investors in writing; if to WSCC at its mailing address of 300 East Main Street,
Suite 1380, Norfolk, Virginia 23510, if to CapitalSouth, at its mailing address
of 1228 East Morehead Street, Suite 102, Charlotte, NC 28204, or at any other
addresses designated by the Investors to the Company in writing; and if to an
assignee of the Investors, to its address as designated to the Company in
writing. Any notice given by facsimile pursuant to this Section shall be
followed by written notice delivered by Federal Express or similar courier
service. Any documents, reports or other materials which are required to be
delivered to the Investors shall be deemed to have been delivered if delivered
to the Investors at the address indicated above.

        Section 8.10.  Severability. Whenever possible, each provision of this
                       ------------
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.

                                       18
<PAGE>

        Section 8.11.  Definitions of Terms
                       --------------------
<TABLE>
<CAPTION>
                                                                      Section
                                                                    ------------
                       <S>                                            <C>
                       1933 Act                                           2.3
                       Certificate of Designation                         1.1
                       Closing Date                                     1.2.2
                       Common Stock                                       2.2
                       Copyrights                                    2.13.1.3
                       Financial Statements                               2.8
                       Intellectual Property Assets                    2.13.1
                       Investment Documents                               2.2
                       Marks                                         2.13.1.1
                       Mask Works                                    2.13.1.4
                       Material Adverse Effect                            2.1
                       Patents                                       2.13.1.2
                       Preferred Stock                                    2.3
                       Purchased Shares                                   1.1
                       Registration Rights Agreement                      2.2
                       SBA                                              1.2.3
                       Series H Preferred Stock                           1.1
                       Trade Secrets                                 2.13.1.5
</TABLE>

     Best Knowledge.  The term "best knowledge", or similar terms when applied
     --------------
to the Company, means the actual knowledge of its respective Key Employees,
officers or directors having conducted a reasonable independent investigation.

     Business Plan.  The term "Business Plan" means all documents, projections
     -------------
and other related information provided and representations made to the Investors
in writing, including, without limitation, (1) the internally prepared profit
and loss statements for the period ending September 30, 2000, pro forma estimate
profit and loss statements for the three month period and year ending December
31, 2000 and the pro forma forecast profit and loss statements for the year
ending December 31, 2001 for HBS Billing Services Company and (2)
representations that the general and administrative expenses (to include
expenses for legal and accounting services, payroll for three executive
officers, travel and entertainment and miscellaneous expenses) of the Company
are forecasted to be $2,500,000 for the year ending December 31, 2001.

     Certified.  A Financial Statement shall be deemed to be "certified" only if
     ---------
the Person certifying it shall unqualifiedly express the opinion that it has
been prepared in accordance with generally accepted accounting principles and
that the balance sheet included therein fairly presents the financial position
of the Company as at the date thereof and that the statements of income and of
changes in financial position included therein fairly present the results of
operations of the Company for the period indicated.  If the person certifying is
an officer of the Company, the certificate shall also state that the Financial
Statements are true, correct and complete.  If the person

                                       19
<PAGE>

certifying is a member of an accounting firm, the certificate shall also state
that the examination included such tests of accounting records and such other
auditing procedures as the accountant considered necessary in the circumstances.

     Indebtedness.  The term "Indebtedness" shall mean with respect to any
     ------------
Person (i) all indebtedness or other obligations of such Person for borrowed
money or for the deferred purchase price of property or services, other than for
trade accounts payable incurred in the ordinary course of the Company's
business, (ii) all Indebtedness described in clause (i) of any other Person in
respect of which such Person is liable, contingently or otherwise, to pay or
advance money or property as guarantor, endorser or otherwise (except as
endorser for collection in the ordinary course of business), and (iii) all lease
obligations of such Person which are required, in accordance with generally
accepted accounting principles ("GAAP"), to be capitalized on the books of the
                                 ----
lessee.

     Key Employees.  The term "Key Employees" shall mean the "executive
     -------------
officers" of the Company, as such persons are identified from time to time by
the Company's board of directors.

     Permitted Transferee.  The term "Permitted Transferee" shall mean any
     --------------------
purchaser or transferee of Securities who at the time of transfer is an
affiliate, as that term is defined in the Investment Company Act of 1940, of an
Investor (including a shareholder of an Investor).  Each such transferee shall
be deemed to be an "Investor" for purposes of this Agreement.

     Person.  The term "Person" shall mean any corporation, association,
     ------
partnership, joint venture, organization, business or individual.

     Primal Spinoff. The term "Primal Spinoff" shall mean the Company's
     --------------
distribution of all its shares of the common stock of Primal Solutions, Inc. to
the Company's security holders on February 12, 2001.

     SEC Documents.  The term "SEC Documents" shall mean all required reports,
     -------------
schedules, forms, statements and other documents (including exhibits and all
other information incorporated therein) filed by the Company with the Securities
and Exchange Commission since August 1, 1998,

     Section 8.12.  Expenses. The Company shall pay all costs and expenses that
                    --------
it and the Company incur with respect to the negotiation, execution, delivery
and performance of this Agreement.

     Section 8.13.  Entire Agreement. This Agreement and the other documents
                    ----------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with respect to the subjects hereof and thereof.

                                       20
<PAGE>

     IN WITNESS, the undersigned have executed this Agreement as of the day and
year first above written.

                             COMPANY:

                             AVERY COMMUNICATIONS, INC.

                             By: /s/ SCOT MCCORMICK
                                ------------------------------------------
                                Scot McCormick, VP, CFO, and Secretary

                             INVESTORS:

                             WATERSIDE CAPITAL CORPORATION

                             By: /s/ MARTIN SPERONI
                                ------------------------------------------
                             Name:  Martin Speroni
                                  ----------------------------------------
                             Title:  Vice President
                                   ---------------------------------------

                             CAPITALSOUTH PARTNERS FUND I, L.P.

                             By: /s/ JOSEPH B. ALALA, III
                                ------------------------------------------
                                Joseph B. Alala, III, President

                                       21

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