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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential for use of the commission Only [as permitted by Rule
14a-6(e)(2)]
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
AVTEL COMMUNICATIONS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
RAYMOND P. LE BLANC, ESQ.
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
[_] $125 per Exchange Act Rule 0-11(c)(i)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: $.001 Par
Value Common Stock
(2) Aggregate number of securities to which transaction applies: _______________
___________________________
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:(1) (Set forth the amount on which the filing
fee is calculated and state how it was determined). _______________________
____________________________________________________________________________
(4) Proposed maximum aggregate value of transaction: ___________________________
(5) Total fee paid:
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid: _____________________
(2) Form, schedule or registration statement no. ____________
(3) Filing party: __________________________________________
(4) Date filed: _____________________________________________
<PAGE>
[LETTERHEAD OF AVTEL
COMMUNICATIONS, INC.]
January 8, 1997
To The Stockholders of AvTel Communications, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of
AvTel Communications, Inc. to be held at 4:00 p.m., local time, on February 27,
1997, at the Company's offices at 130 Cremona Drive, Suite C, Goleta,
California. A copy of the Notice of Annual Meeting of Stockholders, Proxy
Statement and proxy are enclosed. At the Meeting, in addition to electing
directors for the next year and ratifying the appointment of Ernst & Young, LLP
as the Company's independent public accountants, you will also be asked to
approve the proposed 1997 Stock Incentive Plan.
WHETHER YOU PLAN TO ATTEND THE ANNUAL MEETING OR NOT, YOU ARE REQUESTED TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE IN ORDER THAT
AS MANY SHARES AS POSSIBLE MAY BE REPRESENTED AT THE ANNUAL MEETING.
AVTEL COMMUNICATIONS, INC.
Sincerely,
/s/ Anthony E. Papa
Anthony E. Papa
President & Chief Executive Officer
<PAGE>
[LETTERHEAD OF AVTEL COMMUNICATIONS, INC.]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To The Stockholders:
The Annual Meeting of Stockholders of AvTel Communications, Inc. (the
"Company") will be held at 130 Cremona Drive, Suite C, Goleta, California, on
Thursday, February 27, 1997 at 4:00 p.m., local time, for the following
purposes:
1. To elect four directors of the Company to serve for the ensuing year and
until their successors have been elected and qualified;
2. To consider and vote upon a proposal to approve the 1997 Stock Incentive
Plan;
3. To ratify the selection of Ernst & Young, LLP, independent certified public
accountants, as auditors for the Company for the year ending September 30,
1997; and
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The Board of Directors has determined that only holders of Common Stock of
record at the close of business on December 30, 1996, will be entitled to
receive notice of, and to vote at, the Annual Meeting or any adjournment
thereof.
/s/ James P. Pisani
JAMES P. PISANI
Executive Vice President, Chief Operating Officer &
Secretary
Santa Barbara, California
January 8, 1997
YOUR VOTE IS IMPORTANT
Please immediately date, sign, and return your proxy in the enclosed envelope.
If you attend the meeting, you may withdraw your proxy and vote in person.
THANK YOU FOR ACTING PROMPTLY
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[LETTERHEAD OF AVTEL COMMUNICATIONS, INC.]
PROXY STATEMENT
INFORMATION CONCERNING VOTING AND PROXY SOLICITATION
GENERAL
The enclosed Proxy Statement is solicited on behalf of the Board of Directors
of AvTel Communications, Inc. (the "Company" or "AvTel") for use at the Annual
Meeting of Stockholders to be held February 27, 1997, at the Company's principal
office, at 4:00 p.m., local time, and at any adjournments thereof. The
Company's principal offices are located at 130 Cremona Drive, Suite C, Goleta,
California and its telephone number is (805) 685-0355.
These proxy solicitation materials are to be mailed on or about January 10,
1997 to all stockholders entitled to vote at the meeting.
REVOCABILITY
A stockholder giving a proxy has the power to revoke it at any time before it
is exercised by filing with the Secretary of the Company an instrument revoking
it or a duly executed proxy bearing a later date or by personal attendance and
voting at the Annual Meeting. Subject to such revocation, all shares represented
by each properly executed proxy received by the Company will be voted in
accordance with the instructions indicated thereon, and if instructions are not
indicated, will be voted for the election of the nominees for director named in
this Proxy Statement and in favor of the proposals to approve the 1997 Stock
Incentive Plan and to ratify the selection of independent certified public
accountants.
RECORD DATE AND OUTSTANDING SHARES
As of December 30, 1996 (the ''Record Date''), the outstanding voting
securities of the Company consisted of 7,100,807 shares of $.001 par value
Common Stock. Each stockholder of record at the close of business on the Record
Date is entitled to one vote for each share held on each matter submitted to a
vote of stockholders. The presence in person or by proxy of holders of a
majority of the issued and outstanding Common Stock will constitute a quorum for
the transaction of such business as shall properly come before the meeting.
VOTING AND SOLICITATION
Each share of Common Stock has one vote on all matters. Stockholders do not
have the right to cumulate their votes in the election of directors.
The cost of soliciting proxies will be borne by the Company. The Company
expects to reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation, in
person or by telephone or telegram. Anthony E. Papa, James P. Pisani and Frank
Dziuba, directors and executive officers of the Company, and Barry A. Peters, a
director, own, collectively, an aggregate of 4,377,508 shares, representing 62%,
of the issued and outstanding Common Stock of the Company as of the record date,
December 30, 1996. As directors, Messrs. Papa, Pisani, Dziuba and Peters have
unanimously recommended approval by the shareholders of the proposals set forth
in this Proxy Statement and have indicated their intentions to vote in favor of
the adoption and approval of such proposals. In addition, certain
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other shareholders who together own, beneficially or of record, an aggregate of
1,307,662 or 18% of the issued and outstanding Common Stock as of the Record
Date, are parties to certain agreements in which they have agreed not to vote
their shares in opposition to the matters recommended by the Company's Board of
Directors (See "Security Ownership of Certain Beneficial Owners and
Management"). Accordingly, there will be sufficient votes for approval and
adoption of the proposals submitted for approval without the affirmative vote of
any other shareholders besides Messrs. Papa, Pisani, Dziuba and Peters.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES FOR DIRECTOR
Four directors, constituting the entire Board of Directors, are to be elected
at the Annual Meeting to hold office until the next Annual Meeting and until
their successors are elected and qualified. Unless otherwise instructed, the
proxy holders intend to vote the proxies received by them for the election of
the nominees named below, all of whom are now members of the Board. It is not
anticipated that any of the nominees will decline or be unable to serve as a
director. If, however, that should occur, the proxy holders will vote the
proxies in their discretion for any nominee designated to fill the vacancy by
the present Board of Directors.
The following table sets forth certain information concerning each person
nominated for election as a director:
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE PRINCIPAL OCCUPATION & DIRECTORSHIPS
---- --- ---------------- --------------------------------------
<S> <C> <C> <C>
Anthony E. Papa 34 1996 Director, President and Chief Executive Officer of the
Company
James P. Pisani 32 1996 Director, Executive Vice President and Chief
Operating Officer
Barry A. Peters 35 1996 Director of the Company, Chief Financial Officer of
You Bet Corporation
Frank Dziuba 38 1996 Director and Senior Vice President Software Development
</TABLE>
Messrs. Papa, Pisani and Peters were each elected to the Board of Directors of
the Company at a special meeting of its stockholders held October 23, 1996, at
which the stockholders approved a merger (the "Merger") between the Company
(formerly named "Hi, Tiger International, Inc.") and AvTel Holdings, Inc., a
California corporation ("AHI") as described in the Company's Information
Statement and Notice of Special Meeting dated October 4, 1996 and in the
Acquisition Agreement dated August 30, 1996 between the Company and AHI.
Pursuant to the Merger, among other things, the Company acquired all of the
issued and outstanding capital stock of AHI, Messrs. Papa, Pisani and Peters,
the holders of all the issued and outstanding common stock of AHI, acquired,
after giving effect to the Merger, a controlling interest in the issued and
outstanding common stock of the Company, the Company's name was changed to
"AvTel Communications, Inc." and all previous officers and directors of the
Company resigned. All references in this Proxy Statement to the Merger shall be
deemed to be the Merger as approved by the Company's stockholders on October 23,
1996.
Anthony E. Papa is President and Chief Executive Officer of the Company. Mr.
Papa is also one of the founders and a principal shareholder of AHI. Before
commencing his efforts to form AHI, Mr. Papa had served from December, 1992 to
March, 1996, as President of ICS Communications, Inc.("ICS") Richardson, Texas,
a national provider of cable television, wireless paging, local and long-
distance telephone services. Before joining ICS, Mr. Papa served as general
manager for Spectradyne, Inc., a provider of pay-per-view entertainment and
interactive services to the hospitality industry.
James P. Pisani is Executive Vice-President, Chief Operating Officer, Chief
Financial Officer and Secretary of the Company. Mr. Pisani was also one of the
founders and principal shareholders of AHI and, prior to founding AHI
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served as Vice President of Sales for ICS. While at ICS, Mr. Pisani was
responsible for that firm's business-to-business and consumer sales activities.
Prior to joining ICS, from June 1989 to June 1994, Mr. Pisani served as Vice-
President of a national mortgage banking firm serving, primarily, institutional
accounts. Mr. Pisani graduated from Princeton University in 1986, with a degree
in Economics.
Barry Peters is a director of AvTel. He is currently employed by You-Bet
Corporation, as Chief Financial Officer. Prior to joining You-Bet Corporation in
1995, Mr. Peters was, from March 1993 to February 1996, employed by ICS in
various financial capacities, including Chief Financial Officer. Prior to
joining ICS, Mr. Peters served for over two years as Financial Director of Field
Operations at Spectradyne, Inc. and, before joining Spectradyne, he had served
as an international consultant for a number of large technology companies. Mr.
Peters is a certified public accountant and is a certified management
accountant.
Frank Dziuba was appointed as a Director and as Senior Vice President,
Software Development of the Company in November, 1996, in connection with the
Company's acquisition of Silicon Beach Communications, Inc., an internet service
provider and software developer which Mr. Dziuba founded in 1995 and as to which
he was the sole shareholder. Prior to 1995, Mr. Dziuba served as senior
engineer at various software development firms where he had management
responsibility for design and development of several complex software and
telecommunications products. Mr. Dziuba was also co-founder and a principal
shareholder of one or more of these firms.
VOTE REQUIRED
The four nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them shall be elected
as directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
While there is no definitive statutory authority in Utah as to the proper
treatment of abstentions in the election of directors, the Company believes that
abstentions should be counted for purposes of determining whether a quorum is
present at the Annual Meeting for the transaction of business. In the absence of
controlling precedent to the contrary, the Company intends to treat abstentions
with respect to the election of directors in this manner.
SPECIAL COMMITTEES AND ATTENDANCE AT MEETINGS
The Board of Directors does not have compensation, audit or nominating
committees but intends to establish a compensation committee during the fiscal
year ended September 30, 1997 (See "Proposal No. 2 Approval of 1997 Stock
Incentive Plan").
During fiscal year 1996, the Board met seven (7) times and each director
attended at least 75% of the meetings held during such fiscal year. None of the
incumbent directors served as directors of the Company or attended meetings of
the Board during fiscal year 1996.
REMUNERATION OF DIRECTORS
The Directors do not receive any compensation for services as Board members.
If the 1997 Stock Incentive Plan (the "1997 Plan") is approved by shareholders,
Messrs. Papa, Pisani and Dziuba, as executive officers of the Company, and Mr.
Peters, as a director of the Company, would each be eligible for grants of stock
options and restricted stock under the 1997 Plan. In addition, in connection
with its acquisition of Silicon Beach, the Company entered into certain
agreements with Mr. Dziuba pursuant to which it agreed to grant him options to
acquire an aggregate of 87,500 shares of the Common Stock, subject to approval
by the stockholders of the 1997 Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has employment agreements in place with each of Messrs. Papa and
Pisani. Under these employment agreements, generally, each executive is employed
for a term commencing in August 1996 and expiring July 31, 1999 (the "Term").
Thereafter, the agreements are subject to three annual extensions which can be
exercised at the option of the Company. Under the employment agreements, the
executives will be paid an initial
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base annual salary of $125,000. The agreements provide that this base salary
will remain in effect until such time that the Company has either (a) obtained
additional debt or equity capital in certain amounts and under certain terms or
(b) achieved monthly revenues exceeding certain objectives.
After July, 1999, during any extension terms that may be exercised by the
Company, base salary increases will be determined by the Board of Directors
based on the Company's performance, individual contribution and other factors.
The agreements also provide for incentive bonuses based on the achievement of
performance objectives in each fiscal year, which performance objectives are to
be established by the Board of Directors at the beginning of each fiscal year.
The employment agreements also provide that bonuses of $50,000 will be paid to
each executive if, within twelve (12) months following the Merger, the Company
completes a debt or equity financing in certain amounts and under certain terms.
Moreover, the employment agreements provide that each of the executives will
be eligible to receive grants of stock options to acquire shares of Common
Stock. The amount, exercise price and vesting schedule of such stock options
will be determined on the basis of a stock option plan, such as the 1997 Plan,
to be adopted by the directors and to be submitted to and approved by the
shareholders of the Company.
AvTel had also extended to Mr. Peters an offer to become employed by AvTel as
its Chief Financial Officer under terms and conditions substantially similar to
those described above with respect to Messrs. Papa and Pisani. The Company and
Messrs. Papa, Pisani and Peters were also parties to an agreement to the effect,
generally, that if Mr. Peters declined to accept the employment, his shares of
Common Stock would be subject to certain purchase rights held by the other
parties. In December, 1996, Mr. Peters informed the Company that he declined to
accept the offer due to personal and professional reasons. As a consequence,
the Company and Mr. Peters entered into an agreement pursuant to which he will
continue to serve, without compensation, as a non-employee member of the Board
and Messrs. Papa an Pisani have exercised rights to purchase an aggregate of
863,128 shares of Common Stock previously held by Mr. Peters. Accordingly,
Messrs Papa and Pisani each hold, as of the record date an aggregate of
2,046,254 and 2,026,254, respectively, or 29% of the issued and outstanding
Common Stock of the Company. In connection with this agreement, Mr. Peters also
granted certain releases to the Company and transferred certain first refusal
rights that he had to acquire shares of Common Stock from another large
shareholder. See "Certain Relationships and Related Party Transactions -
Shareholder Agreement".
In connection with its acquisition of Silicon Beach Communications, Inc.
("SBC"), the Company entered into an employment agreement with Mr. Dziuba
pursuant to which he will be employed for a three (3) year term commencing
November 21, 1996 at an initial base annual salary of $80,000, subject to
increase, if any, as may be determined by the Board of Directors. This
agreement also provides, among other things, for Mr. Dziuba to serve as
President of SBC, for stock option grants under the 1997 Plan for an aggregate
of 87,500 shares of Common Stock (subject to approval of the 1997 Plan by the
Stockholders) and an "earn-out" bonus, not exceeding $375,00 in the aggregate,
which would be paid to Mr. Dziuba if certain operational performance objectives
are satisfied. The amounts, if any, due under the special performance bonus,
are subject to certain set-off rights of the Company in the event of a breach of
certain representations, warranties and agreements relating to its acquisition
of SBC.
PROPOSAL NO. 2
APPROVAL OF AVTEL COMMUNICATIONS, INC.
1997 STOCK INCENTIVE PLAN
On December 3, 1996 the Board of Directors adopted, subject to stockholder
approval, the AvTel Communications, Inc. 1997 Stock Incentive Plan (the "1997
Plan"). At the Annual Meeting, the stockholders will be asked to approve the
1997 Plan.
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GENERAL
Under the 1997 Plan, 1,000,000 shares of Common Stock are reserved for
issuance upon the exercise of options which may be granted from time-to-time to
officers, directors and certain employees and consultants of the Company or its
subsidiaries. The 1997 Plan permits the award of both Non-Qualified and
Incentive Stock Options. Under the 1997 Plan, an additional 500,000 shares of
Common Stock are reserved for issuance in the form of Restricted Stock Grants.
The purpose of the 1997 Plan is to attract and retain executives and certain
other employees and consultants and to secure for the Company the benefits of
the incentive inherent in equity ownership by persons who are responsible for
the continuing growth and success of the Company. AvTel believes that equity
based compensation arrangements such as stock Options and Restricted Stock
Grants enhance the Company's ability to attract and retain key technical,
engineering and management personnel who can make significant contributions to
the Company's future success.
The Company has considered prevailing compensation practices in the industry
in which it competes for these people and, particularly, compensation and
benefits being offered by companies that, like AvTel, are emerging enterprises
with financial resource limitations and significant growth opportunities. The
Company believes that stock Options and Restricted Stock Grants are important
compensation elements, particularly during start-up and development periods,
when traditional forms of salary and cash bonus compensation are limited by
working capital constraints. Moreover, this form of compensation closely aligns
employees' interests in the Company's success and growth with similar interests
of its stockholders.
The Company has agreed to grant Options representing an aggregate of up to
380,000 shares to certain current or prospective officers, employees and
consultants in connection with recently concluded or pending executive
recruitment efforts and certain strategic alliances and acquisitions. In
connection with these matters, the Company has also proposed to award an
aggregate of up to 125,000 shares as Restricted Stock under the 1997 Plan to a
candidate for an executive position. No other Options or Restricted Stock have
been granted or authorized under the 1997 Plan as of the date of this Proxy
Statement and the Company does not intend to grant or authorize any such options
or awards unless and until the 1997 Plan is approved by the Company's
stockholders.
No determinations have been made by the Board of Directors as to the number of
options to be granted to any current executive officer or employees of the
Company, either individually or as a group, except for Mr. Dziuba, Senior Vice
President, Software Development. On November 19, 1996, the Company and Mr.
Dziuba entered into an agreement pursuant to which, among other things, the
Company agreed to grant to Mr. Dziuba options to purchase an aggregate of 87,500
shares of Common Stock subject, however, to the adoption and approval of one or
more stock option plans by the Company's stockholders and to his continued
employment with the Company.
If the 1997 Plan is approved by the stockholders, the Company will, in
accordance with the terms of, and at the times specified in, its agreement with
Mr. Dziuba, grant to him options to purchase an aggregate of 87,500 shares of
Common Stock. The exercise price of these options, when and if granted to Mr.
Dziuba, will be $2.00, $3.00 and $5.00 per share. If the 1997 Plan is approved,
such approval will also authorize the grant, under the 1997 Plan, of Options to
acquire up to 125,000 shares of Common Stock and an award of up to 125,000
shares of Restricted Stock, with performance criteria and objectives to be
determined by the Board, to a candidate for an executive position with the
Company.
Prior to the Merger, the Company's previous Board of Directors had authorized
and approved the grant of several stock options to certain officers, directors,
employees and consultants of the Company. These option grants, which were not
made pursuant to a formal plan submitted for approval by the Company's
shareholders, were for various amounts and at varying prices (See "Executive
Compensation - Stock Options").
The following description summarizes certain provisions of the 1997 Plan. This
description is subject to, and is qualified in its entirety by, the full text of
the 1997 Plan, a copy of which is attached to this Proxy Statement as Exhibit A.
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TERM
The 1997 Plan will become effective after approval by the Company's
stockholders and will continue in effect until terminated by the Company's Board
of Directors. However, in accordance with the requirements of federal tax law,
no Incentive Stock Options will be granted under the 1997 Plan more than ten
years following its effective date.
ADMINISTRATION AND OPERATION OF THE 1997 PLAN
The Plan provides that grants of Options and Restricted Stock awards and other
determinations under the 1997 Plan shall be made by (i) the Board or (ii) a
Compensation Committee to be designated by the Board (the "Committee") which, in
the case of grants of awards to employees who are officers or directors of the
Company, will be constituted in a manner to permit the grants and related
transactions under the Plan to be exempt from Section 16(b) of the Exchange Act
in accordance with Rule 16b-3 of the Securities and Exchange Commission and
which, in the case of grants to "covered employees", is intended to constitute
performance-based compensation and will be made up solely of two or more
"nonemployee or outside directors" as such terms are defined under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). In
addition, the Board has authority to perform all functions of the Committee.
ELIGIBILITY
Employees of the Company and its subsidiaries (approximately 30 people as of
November 30, 1996) are eligible to receive Option grants under the 1997 Plan.
Options may also be granted to certain independent contractors and consultants
who are retained by the Company to provide valuable services to it or its
subsidiaries. Options may be granted to those persons whose performance the
Committee determines can have a significant effect on the success of the
Company. The Committee has the discretion to designate which persons shall be
granted Options under the 1997 Plan, to determine whether Options will be
granted as Nonqualified or Incentive Stock Options and to determine the terms of
the Options. The Committee also has the discretion, under the 1997 Plan, to
designate those persons to whom Restricted Stock awards will be made, the number
of shares subject to such awards and the performance objectives to be achieved
for purposes of removing the restrictions.
The 1997 Plan authorizes the grant of Options and Restricted Stock to
officers, executives, key employees and certain consultants of the Company and
its subsidiaries. The Committee will determine which officers, executives, key
employees and consultants(''Participants'') are eligible to participate in the
1997 Plan. Selections for participation in the 1997 Plan and the amount of
options to be granted will be determined on the basis of the Committee's belief
as to the individual contribution to the growth of the Company that those
persons have made in the past and can make in the future, based on their
abilities and positions within the Company.
PERFORMANCE BASED COMPENSATION
Section 162(m) of the Code limits to $1 million annually the income tax
deduction a public corporation may claim for compensation paid to any of its top
five executive officers, except in limited circumstances. One such exception is
for "performance based compensation", which is defined as compensation paid
solely on account of the attainment of one or more performance goals, but only
(1) if the goals are determined by a compensation committee of the Board of
Directors comprised of two or more outside directors, (2) the performance goals
are disclosed to stockholders and approved by a majority vote before the
remuneration is paid, and (3) before the remuneration is paid, the compensation
committee certifies that the performance goals and any other material terms were
in fact satisfied.
Internal Revenue Service regulations provide that compensation attributable to
a stock option will be deemed to satisfy the requirement that performance goals
be pre-established if the grant of the award is made by a properly appointed
compensation committee appointed by the Board of Directors. Moreover, the plan
under which the award is granted states the maximum number of shares with
respect to which options may be granted during a specified period to any
employee, and, under the terms of the option or award, the amount of
compensation the employee could receive is based solely on an increase in the
value of the stock after the date of the grant or award. In the case
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of all other types of awards, the performance criteria must be established
within 90 days after the commencement of the period of service to which the
performance goal relates, and the performance goal must be objective and capable
of determination by a third party having knowledge of the relevant facts.
The 1997 Plan includes features intended to permit Options and Restricted
Stock awards to employees to qualify as performance-based compensation. The
1997 Plan limits the number of shares with respect to which Incentive Stock
Options and Non-Qualified Stock Options in any one fiscal year to any one
participant to 500,000 shares. The 1997 Plan further provides that in the case
of Restricted Stock awards, the maximum value of any Restricted Stock award
intended to qualify as performance-based compensation granted to any employee in
any fiscal year of the Company is limited to $2 million, based upon the value of
the Restricted Stock award, assuming performance goals were met on the date of
grant. The 1997 Plan provides that the Committee may condition exercise of a
Restricted Stock award on attainment of an objective performance goal or goals
based on one or more of the following performance criteria: cash flow, earnings
per share, capital formation, expenses, gross or net margin, increase in stock
price, inventory turnover, market share, net income (before or after taxes), net
operating income, personal management objectives, return on assets, return on
equity, return on investment, return on sales, revenue, unit sales and total
stockholder return. In establishing such performance goals, the Committee may
apply the performance criteria as a measure of the performance of any, all or
any combination of the Company, any subsidiary, any division, group or other
unit of the Company or a subsidiary, or any product category or categories.
Partial achievement of goals may result in payment or vesting corresponding to
the degree of achievement. The Committee may, in its discretion, reduce the
amount of a settlement otherwise to be made in connection with an award intended
to qualify as performance-based compensation, but may not exercise discretion to
increase the award.
STOCK AVAILABLE FOR AWARD
The aggregate number of shares of Common Stock reserved for issuance upon
exercise of Options granted or to be granted and for Restricted Stock Grants
awarded or to be awarded under the 1997 Plan shall not exceed 1,500,000 shares.
NONQUALIFIED AND INCENTIVE STOCK OPTIONS
Stock Options may be granted under the 1997 Plan as either Incentive Stock
Options (within the meaning of Section 422 of the Code) or Nonqualified Stock
Options (i.e., stock Options which are not Incentive Stock Options).
The exercise price of Options is set by the Compensation Committee and stated
in the option agreement. The exercise price may not be less than 100% of the
fair market value of the Common Stock on the date of the grant. The bid price of
the Common Stock on December 20, 1996 was $.875.
The exercise price may be paid in cash or by delivery of a cashier's or
certified check or, at the discretion of the Compensation Committee, by delivery
of shares of the Company's Common Stock already owned by the Optionee; or any
combination of the foregoing. Options granted under the 1997 Plan will expire
not later than 10 years after the date of grant.
Incentive Stock Options are subject to special statutory provisions. Incentive
Stock Options granted to any employee owning stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company may not
have an exercise price less than 110% of the fair market value on the grant date
and may not be exercisable more than 5 years from the date of grant. Also,
options continue to qualify as Incentive Stock Options only to the extent that
the aggregate fair market value of stock (as of the date of grant) with respect
to which such options are exercisable for the first time by the Optionee during
any calendar year does not exceed $100,000.
RESTRICTED STOCK GRANTS
Under the 1997 Plan, the Committee may also grant shares of Common Stock
subject to specified restrictions ("Restricted Stock") to officers or employees
but not consultants. Grants of Restricted Stock are subject to forfeiture if
(i) the grantee does not continue as an employee of the Company or a subsidiary
or affiliate for such a period as
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may be specified by the Committee, or (ii) until performance criteria specified
by the Committee are met, except that in the event of a grantee's death, the
grantee's heirs or the grantee will be entitled to the shares of Common Stock.
In the case of a grantee whose employment terminates for any other reason before
the end of the restricted period, the Committee, taking into account the purpose
of the 1997 Plan and such other factors as in its sole discretion it deems
appropriate, may waive the forfeiture of all or a portion of those shares of
Restricted Stock. During the restricted period, shares of restricted stock have
all the attributes of outstanding shares of Common Stock, except that
certificates for such shares of Common Stock and dividends thereon are delivered
to and held by the Company for the grantee's account and such shares may not be
transferred, encumbered or sold. As and to the extent that shares of Restricted
Stock are no longer subject to forfeiture, certificates therefor and any
dividends related thereto withheld by the Company, together with interest
thereon as determined by the Board of Directors of the Company, are delivered to
the grantee.
EXERCISE OF STOCK OPTIONS
An Option will be exercisable at such times as are determined by the Committee
at the date of grant. In the absence of such determination, the options are
exercisable in cumulative annual installments of 25% of the number of options
subject to grant, commencing on the first anniversary following the date of
grant. The exercise price of an Option is payable in full at the time of
exercise of such Option.
If the optionee is an employee and ceases to be employed by the Company for
any reason other than death or Disability (as such term is defined in the 1997
Plan), the right to exercise the Option shall expire 90 days following the date
such employment is terminated. However, in the event of termination of
employment as a result of the death or Disability of the optionee while employed
by the Company all outstanding, unexercised options which were exercisable at
the time of such termination or which become exercisable within one year
thereafter may be exercised at any time during such one year period (subject to
the expiration of the option) by the optionee or by his or her estate or other
person who acquired the right to exercise by bequest or inheritance. Options
granted under the 1997 Plan will not be transferable except as expressly
permitted by action of the Board of Directors in the form of an amendment to
the 1997 Plan by the Board to permit such transferability on such terms and
conditions as the Board may permit. Otherwise, Options are nontransferable and,
except in the case of death, may be exercised only by the optionee. Provided
the Board of Directors has not on or before a Change in Control determined that
all or a portion of the outstanding options shall become fully and immediately
exercisable, if, within one year following such Change in Control, the
optionee's employment is terminated (i) involuntarily for any reason or (ii)
voluntarily after a material lessening of his or her duties or a material
reduction in his or her base salary, all outstanding options held by such
optionee shall become immediately and fully exercisable.
If the optionee is a consultant, the 1997 Plan provides that the Board will
make such determinations as it deems appropriate regarding exercisability and
termination.
TAX MATTERS
The following is a brief summary of generally applicable Federal income tax
consequences of benefits under the 1997 Plan under present law and regulations:
INCENTIVE STOCK OPTIONS. The grant of an Incentive Stock Option will not
result in any immediate tax consequences to the Company or the optionee. An
optionee will not realize taxable income, and the Company will not be entitled
to any deduction, upon the timely exercise of an Incentive Stock Option, but the
excess of the fair market value of the shares of Common Stock acquired over the
option price will be includable in the optionee's "alternative minimum taxable
income" for purposes of the alternative minimum tax. If the optionee does not
dispose of the shares of Common Stock acquired within one (1) year after their
receipt (and within two years after the option was granted), gain or loss
realized on the subsequent disposition of the shares of Common Stock will be
treated as long-term capital gain or loss. Capital losses of individuals are
deductible only against capital gains and a limited amount of ordinary income.
In the event of an earlier disposition, the optionee will realize ordinary
income in an amount equal to the lesser of (i) the excess of the fair market
value of the shares of Common Stock on the date of exercise over the option
price or (ii) if the disposition is a taxable sale or exchange, the amount of
any gain realized. Upon such a disqualifying disposition, the Company will be
entitled to a deduction in the same amount and at the same time as the optionee
realizes such ordinary income.
9
<PAGE>
NONQUALIFIED STOCK OPTIONS. The grant of a Nonqualified Stock Option will not
result in any immediate tax consequences to the Company or the optionee. Upon
the exercise of a Nonqualified Stock Option, the optionee will realize ordinary
income, and the Company will be entitled to a deduction, equal to the difference
between the option price and the fair market value of the shares of Common Stock
acquired at the time of exercise.
RESTRICTED STOCK. An employee normally will not realize taxable income upon
an award of Restricted Stock, and the Company will not be entitled to a
deduction, until the termination of the restrictions. Upon such termination,
the employee will realize ordinary income in an amount equal to the fair market
value of the shares of Common Stock at that time, plus the amount of the
dividends and interest thereon to which the employee then becomes entitled.
However, an employee may elect to realize taxable ordinary income in the year
the Restricted Stock is awarded in an amount equal to its fair market value at
that time, determined without regard to the restrictions. The Company will be
entitled to a deduction in the same amount and at the same time as the employee
realizes income.
ADJUSTMENT OF SHARES
The 1997 Plan provides for adjustments to the number of shares subject to the
1997 Plan and the number of shares and the price per share of stock subject to
outstanding Options and Restricted Stock Awards in the event of any stock
dividend, recapitalization, split-up, combination or exchange of the Common
Stock. In the event of liquidation or dissolution, or a corporate reorganization
in which the Company is not the survivor, the Options terminate, except that the
Board may accelerate the ability to exercise the options. If Options expire or
terminate without having been exercised in full, the unpurchased shares shall
again be available for issuance under the 1997 Plan. Similarly, if shares
representing Restricted Stock grants are forfeited for any reason, they shall be
available for subsequent Restricted Stock Awards under the 1997 Plan. No
additional Options will be granted and no Restricted Stock Awards will be made
under the 1997 Plan after expiration of 10 years following the effective date of
the 1997 Plan.
VOTE REQUIRED
Affirmative votes constituting a majority of the Company's issued and
outstanding shares of Common Stock represented at the meeting, either in person
or by proxy, will be required to approve the 1997 Plan. Votes that are cast
against the proposal are counted for purposes of determining the presence or
absence of a quorum for the transaction of business. While there is no
definitive statutory authority in Utah as to the proper treatment of abstentions
in the counting of votes with respect to a proposal such as the approval of the
1997 Plan, the Company believes that abstentions should be counted for purposes
of determining both the presence or absence of a quorum for the transaction of
business. In the absence of controlling precedent to the contrary, the Company
intends to treat abstentions on this proposal in this manner.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE 1997 PLAN.
PROPOSAL NO. 3
SELECTION OF AUDITORS
The Board of Directors of the Company has appointed Ernst & Young, LLP
independent certified public accountants as auditors of the Company for the year
ending September 30, 1997, and has further directed that management submit the
selection of auditors for ratification by the stockholders at the Annual
Meeting. The firm of Robison, Hill & Co. has audited the Company's financial
statements for the past two (2) years. In considering the future growth and
expansion opportunities for the Company, management's objectives to expand the
products and services offered by AvTel and other matters, the Board has
determined that it would be in the best interest of the Company and its
shareholders to change its auditors. It is not expected that representatives of
Robison, Hill & Co. or at Ernst & Young, LLP will be present at the Annual
Meeting. The reports of Robison, Hill & Co. on the Company's financial
statements for the Company's fiscal years ended September 30, 1995 and 1996, did
not contain adverse opinions or disclaimers of opinions, nor were such reports
modified as to uncertainty, audit scope or accounting principles. Moreover,
there have not been any disagreements with Robison, Hill & Co. on any matter of
accounting principles or practices, financial
10
<PAGE>
statement disclosure or auditory scope or procedure which, if not resolved to
that firm's satisfaction, would have caused Robison, Hill & Co. to refer to such
disagreements in their reports.
VOTE REQUIRED
Affirmative votes constituting a majority of the issued and outstanding shares
of Common Stock represented at the meeting, either in person or by proxy, will
be required to approve the ratification of Ernst & Young, LLP as the Company's
independent accountants for the fiscal year ending September 30, 1997. Votes
that are cast against the proposal are counted for purposes of determining
the presence or absence of a quorum for the transaction of business. While
there is no definitive statutory or case law authority as to the proper
treatment of abstentions in the counting of votes with respect to a proposal
such as the ratification of selection of auditors, the Company believes that
abstentions should be counted for purposes of determining both the presence or
absence of a quorum for the transaction of business. In the absence of
controlling precedent to the contrary, the Company intends to treat abstentions
on this proposal in this manner.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF ERNST & YOUNG, LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR
THE FISCAL YEAR ENDING SEPTEMBER 30, 1997.
EXECUTIVE COMPENSATION
None of the Company's current directors or executive officers received any
compensation from the Company during the fiscal year ended September 30, 1996
nor did any of such persons participate in the review, approval or authorization
of any compensation arrangements (including, but not limited to, salaries,
bonuses, stock options or other arrangements) with respect to any of the
Company's officers, directors or employees during the year ended September 30,
1996. Pursuant to the Merger of the Company with AHI in accordance with an
Acquisition Agreement dated August 30, 1996, which Merger became effective
October 23, 1996, a number of transactions were entered into with certain former
directors or executives of the Company and principal shareholders of the
Company. (See "Certain Relationships and Related Party Transactions")
SUMMARY COMPENSATION TABLE
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Company's last two completed fiscal
years to the Company's chief executive officer and each of its other executive
officers that received compensation in excess of $100,000 during such period (as
determined at September 30, 1996) the end of the Company's last completed fiscal
year:
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
--------- ---------
Restricted
Name and Principal Bonus Other Annual Stock Options/ LTIP All Other
Position Year Salary ($) Compensation Awards SARs Payout Compensation
- ------------------ ---- ------ ----- ------------ ---------- -------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul G. Begum,
President & C.E.O. 1995 $-0- $-0- $27,000* $-0- $-0- $-0- $-0-
1994 $-0- $-0- $ -0- $-0- $-0- $-0- $-0-
</TABLE>
* Beginning January 1, 1995, the Company agreed to pay Paul G. Begum, former
President and Chief Executive Officer of the Company and a principal
shareholder, a consulting fee of $3,000 per month. Certain portions of Mr.
Begum's consulting fees had been accrued so that at August 31, 1996, $44,600,
including interest was due Mr. Begum. Pursuant to the Merger, an agreement was
entered into with Mr. Begum pursuant to which this amount and certain other
amounts will, subject to certain setoff rights, be paid to Mr. Begum over a
twelve (12) month period beginning November, 1996 (See "Certain Relationships
and Related Party Transactions - Deferred Compensation Agreement.").
11
<PAGE>
STOCK OPTION GRANTS TO EXECUTIVE OFFICERS
The following tables set forth the stock options granted to the Company's
executive officers, during the fiscal year ended September 30, 1996. No Stock
Appreciation Rights were issued by the Company to, and no options were exercised
by, the executive officers during the fiscal year.
<TABLE>
<CAPTION>
Number Exercise
of Options Date Price Expiration % of Total Options Granted to
Name of Optionee Issued Issued Per Share Date Employees During Fiscal Year
- ---------------- ---------- ------ --------- ---------- ------------------------------
<S> <C> <C> <C> <C> <C>
Tree of Stars, Inc./(1)/ 50,000 2/14/95 $0.75 12/31/96 13%
Paul G. Begum/(1)/ 100,000 3/22/95 $0.25 03/22/98)
) 39%
44,444 2/26/96 $0.60 02/26/99)
Stacie Anderson/(2)/ 5,000 3/25/96 $0.25 03/22/98)
) 3%
5,000 3/25/96 $0.60 02/26/99)
</TABLE>
/(1)/ Tree of Stars is a Nevada corporation whose president and principal
shareholder is Paul G. Begum, a principal shareholder and former Chief
Executive Officer of the Company; does not include options to purchase
25,000 shares granted to one of Mr. Begum's sons who is not an
employee of the Company.
/(2)/ Ms. Anderson , who is not an employee, is the former Secretary of the
Company and also serves as Secretary of Klever Marketing, Inc., a
corporation as to which Mr. Paul G. Begum is the President and principal
shareholder
12
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of November 30, 1996, the name and
address and the number of shares of the Company's Common Stock, par value $0.001
per share, held of record or beneficially by each person who held of record, or
was known by the Company to own beneficially, more than 5% of the shares of
Common Stock issued and outstanding, and the name and shareholdings of each
director and of all officers and directors as a group. The Company has reserved
372,444 shares of Common Stock for issuance pursuant to outstanding options
granted prior to the Merger and, subject to shareholder approval of the 1997
Plan, will reserve an additional 1,500,000 shares for issuance as Restricted
Stock awards made or to be made, or Options granted or to be granted, pursuant
to the 1997 Plan.
<TABLE>
<CAPTION>
Number of Percent
Name and Address Shares Owned/(1)/ of Class
- ---------------- ----------------- --------
<S> <C> <C>
PRINCIPAL SHAREHOLDERS: 607,163 9%
Peter D. Olson
521 North Arden Dr.
Beverly Hills, CA 90310
Tree of Stars, Inc./(2)/ 626,332 9%
350 West 300 South
Salt Lake City, UT 84101
Paul G. Begum, former President 74,167 1%
and Director of the Company /(3)/
c/o Klever Marketing, Inc.
350 West 300 South
Salt Lake City, UT 84101
OFFICERS AND DIRECTORS:
Anthony E. Papa 2,046,254 29%
James P. Pisani 2,026,254 29%
Barry Peters 200,000 3%
Frank Dziuba/(4)/ 105,000 1%
--------- ---
All Officers and Directors
as a Group (4 Persons) 4,377,508 62%
========= ===
</TABLE>
(1) Unless otherwise indicated, all shares are owned directly or indirectly,
beneficially or of record, and each record shareholder has sole voting,
investment and dispositive power. The number of shares owned and the
percent of ownership does not take into account shares of Common Stock
issuable upon exercise of outstanding options. (See "Executive
Compensation: Stock Options.")
(2) Tree of Stars, Inc. is a Nevada corporation, of which Paul G. Begum is the
President and a principal shareholder.
(3) Does not include 626,322 shares owned of record by Tree of Stars, Inc. or
options to acquire an aggregate of 194,444 shares held by Tree of Stars,
Inc. or Mr. Begum (See "Stock Options") Includes 500 shares owned of
record by Paul G. Begum, Custodian for Gibran Paul Begum.
(4) Does not include options to acquire up to 87,500 shares of Common Stock
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
At a special meeting of the shareholders on October 23, 1996, the Company's
Stockholders approved a merger (the "Merger") between the Company (formerly
named "Hi, Tiger International, Inc.") and AvTel Holdings, Inc. , a California
corporation ("Holdings"), as described in the Company's Information Statement
and Notice of Special Meeting dated October 4, 1996 and in the Acquisition
Agreement ("Acquisition Agreement") dated August 30, 1996, as amended, between
the Company and Holdings. As a result of the Merger, the Company acquired all
the issued and outstanding capital stock of Holdings, the Company changed its
name to "AvTel Communications, Inc.", all previous officers and directors of the
Company, including Paul G. Begum, a principal shareholder and former President
and Chairman of the Board, resigned their positions. The following information
relates to certain transactions by and among the Company, Mr. Begum and certain
other related parties that were entered into in connection with the Merger.
13
<PAGE>
OTHER INFORMATION
SHAREHOLDER AGREEMENT. In connection with the Acquisition Agreement, Mr. Begum
and Tree of Stars, Inc. ("TOSI"), a Nevada corporation of which Mr. Begum is
President and a principal shareholder, entered into an agreement (the
"Shareholder Agreement") with Anthony E. Papa, James P. Pisani and Barry Peters
(collectively the "Holdings Principal Shareholders"), Holdings and the Company,
wherein Begum and TOSI have agreed not to sell, during the 120 day period
following the Closing Date (as specified in the Acquisition Agreement), more
than an aggregate of 50,000 shares of the Company's Common Stock directly or
indirectly owned, beneficially or of record, by Begum or TOSI, subject to (i) no
more than 12,500 shares being sold in any one transaction; (ii) no more than
12,500 shares being sold during any consecutive 30 day period; and (iii) all
sales are made to market transactions in compliance with all federal and state
securities laws. In addition, Begum and TOSI have agreed not to sell any
additional shares of the Company's Common Stock owned by them, directly or
indirectly, beneficially or of record, during the one year period following the
Closing Date, without the consent of the Board of Directors of the Company,
which consent will not be unreasonably withheld. Both Begum and TOSI have
granted to Holdings and Holdings' Principal Shareholders a first right of
refusal to purchase shares of the Company's Common Stock directly or indirectly
beneficially owned them, including the 50,000 shares described above and up to
144,444 shares of the Company's Common Stock issuable pursuant to the exercise
of outstanding options, during the 24 month period following the Closing Date.
NON-COMPETITION, PROPRIETARY RIGHTS AND STANDSTILL AGREEMENTS. In connection
with the Acquisition Agreement TOSI, Peter D. Olson, and Paul G. Begum (the "Hi,
Tiger Principal Shareholders") agreed to certain covenants regarding non-
competition with the business of the Company, non disclosure and non-use of
certain confidential and proprietary information, and have provided certain
other undertakings to the effect, generally, that they shall not (i) either
separately or in combination with others and without the prior written consent
of the Board of Directors of the Company, offer or propose to acquire shares of
the Company's Common Stock in excess of certain limits, solicit, from other
shareholders of the Company, proxies or written consents to vote on matters upon
which such shareholders may be entitled to vote or otherwise seek to change or
influence the management of the Company, and (ii) offer to sell, negotiate, or
solicit from others, offers to purchase all or substantially all of the business
and assets of the Company or any of the Company Common Stock held by them.
TREE OF STARS AGREEMENT. In connection with the Acquisition Agreement, TOSI has
granted to AvTel an exclusive, transferable right of first refusal to acquire
from TOSI the 20% interest held by TOSI in TFN, and the Company has granted to
TOSI an option to acquire the name "Hi, Tiger" should the Company decide to
abandon the use of such name.
DEFERRED COMPENSATION AGREEMENT - PAUL BEGUM. In connection with the Merger,
the Company and Mr. Begum entered into a deferred compensation agreement wherein
the Company will pay a monthly payment of $4,000 for a period of twelve (12)
months following Closing. Such payments were made in connection with and as
consideration for Mr. Begum's waiver and release of any and all accrued but
unpaid compensation, including consulting fees, up to and including the Closing
Date. (See "Executive Compensation.") In addition, the amounts payable to Mr.
Begum under this arrangement are subject to certain setoff rights of the
Company to the extent it is entitled to recover damages from Mr. Begum in
connection with his indemnification obligations.
LEASE AMENDMENT. The Company's majority owned subsidiary, The Friendly Net LLC
("Lessee") and Tree of Stars/PDO, a partnership ("Lessor"), of which Paul G.
Begum and Peter D. Olson, principal shareholders of the Company are partners,
agreed to an amendment to a lease arrangement, pursuant to which the lease of
the premises occupied by the Company and Lessee at 350 West 300 South, Salt Lake
City, Utah, will be extended for approximately seven (7) months, commencing on
the Closing Date, at a monthly rate of $1,000, subject however, to the Lessee's
right to terminate at any time, without liability on thirty (30) days notice.
INDEMNIFICATION AGREEMENT. Paul G. Begum has entered into an Indemnification
Agreement under which he has provided the Company and AvTel an indemnification
against any damages incurred by the Company or AvTel in connection with any
breach of or any inaccuracy in certain representations and warranties of the
Company contained
14
<PAGE>
in the Acquisition Agreement. The indemnification is subject to the materiality
and other conditions of those representations and warranties and provides that
in no event may any claim whatsoever under the Indemnification Agreement be
asserted against Mr. Begum after December 31, 1997.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS. In connection with the Merger, the Company entered into certain
agreements with Paul G. Begum, former President and Chief Executive Officer,
which provide for certain compensatory arrangements relating to the termination
of Mr. Begum's employment relationship with the Company and the acquisition, by
the Shareholders of AHI, of a controlling interest in the Company's issued and
outstanding Common Stock. See "Certain Relationships and Related Party
Transactions".
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company's Common Stock was recently registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
connection therewith, directors, officers, and beneficial owners of more than
10% of the Company's Common Stock are required to file on a timely basis certain
reports under Section 16 of the Exchange Act as to their beneficial ownership of
the Company's Common Stock. The following table sets forth as of the September
30 1996, the name and position of each person that failed to file on a timely
basis any reports required pursuant to Section 16 of the Exchange Act.
<TABLE>
<CAPTION>
Report to
Name of Person Position be Filed (1)
- -------------- -------------------- ------------
<S> <C> <C>
Paul G. Begum President/Director Form 3/4
and 10% Beneficial
Ownership
Peter D. Olson 10% beneficial Form 3/4
Ownership
Kent Poole Director Form 3/4
Scott Hunt Director Form 3/4
Stacie Anderson Secretary Form 3
</TABLE>
SHAREHOLDER PROPOSALS
No proposals have been submitted by shareholders of the Company for
consideration at the Special Meeting. It is anticipated that the next annual
meeting of shareholders will be held during January 1998. Shareholders may
present proposals for inclusion in the Information Statement to be mailed in
connection with the next annual meeting of shareholders of the Company, provided
such proposals are received by the Company no later than 90 day prior to such
meeting, and are otherwise in compliance with applicable laws and regulations
and the governing provisions of the articles of incorporation and bylaws of the
Company.
The Company knows of no other matters to be brought before the Annual Meeting.
However, if any other matters are properly presented for action, the persons
named in the accompanying proxy intend to vote on such matters in their
discretion.
/s/ James P. Pisani
James P. Pisani
Secretary
15
<PAGE>
AVTEL COMMUNICATIONS, INC.
1997 STOCK INCENTIVE PLAN
1. PURPOSE. The purpose of the 1997 Stock Incentive Plan (the "Plan") is to
-------
advance the interests of AvTel Communications, Inc., a Utah corporation
(the "Company") and its shareholders by awarding equity based, long-term
incentives which will enable the Company to attract and retain officers,
directors and key employees who are and will be largely responsible for the
future growth and continuing success of the Company and to compensate
certain independent contractors and consultants who provide personal
services of substantial benefit or value to the Company. It is intended
that this purpose will be effected through the granting of Options and
Restricted Stock (as defined herein) in accordance with the terms of the
Plan.
2. DEFINITIONS. In addition to other capitalized terms which are defined in
-----------
the Plan, the following terms shall have the following definitions:
2.1 "BOARD" - the Board of Directors of the Company.
2.2 "CHANGE OF CONTROL" - (a) an acquisition of the Company by means of a
merger or consolidation of the Company with or into another
corporation or a purchase of substantially all of the Company's
assets, following which a majority of the Board of Directors of the
successor or acquiring corporation is not comprised of individuals who
constituted a majority of the Company's Board immediately prior to the
merger, consolidation or purchase of assets, or (b) a change in the
composition of a majority of the members of the Company's Board
effected by the vote of a person who has acquired a number of voting
securities of the Company sufficient to elect a majority of the Board.
As used in this definition, the term "person" shall include two or
more persons acting as a partnership, limited partnership, syndicate
or other group for the purpose of acquiring, holding or disposing of
the voting securities of the Company.
2.3 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
2.4 "COMMON STOCK" - the Company's $.001 par value Common Stock.
2.5 "COMPENSATION COMMITTEE" or "COMMITTEE" shall mean the Compensation
Committee of the Board, provided that the Compensation Committee shall
at all times consist of two or more directors of the Company each of
whom is not (a) currently an officer of (or currently employed by) the
Company or any parent or Subsidiary of the Company, (b) receiving
compensation, directly or indirectly, as a consultant, advisor or
independent contractor (except for an amount which does not exceed
$60,000), or have an interest in a transaction requiring
1
EXHIBIT A
<PAGE>
disclosure under 404(a) of Regulation S-B under the Exchange Act, or
(c) be engaged in a business relationship which would require
disclosure under Item 404(b) of Regulation S-B under the Exchange Act.
2.6 "CONSULTANT" shall mean a consultant, independent contractor or other
person or entity who or which has been engaged to provide advisory,
professional or other personal services to the Company or a Subsidiary
pursuant to a written agreement approved by the Board or the
Compensation Committee.
2.7 "DATE OF GRANT" shall mean the date on which the Committee grants an
Option or awards Restricted Stock under the Plan.
2.8 "DISABILITY" shall mean the inability, as determined by the
Compensation Committee based on advice of a licensed physician, of a
Participant to engage in any substantial gainful employment by reason
of any medically determinable physical or mental impairment which can
reasonably be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than 12
months.
2.9 "EMPLOYEE" shall mean an employee of the Company or any Subsidiary.
2.10 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934.
2.11 "FAIR MARKET VALUE" shall mean the fair market value of a share of
Common Stock, determined as follows: (a) if Common Stock is traded on
a stock exchange or in the NASDAQ National Market System
("NASDAQ/NMS"), the fair market value of a share on a particular date
shall be the quoted selling price per share of Common Stock on such
exchange or NASDAQ/NMS on that date; (b) if Common Stock is otherwise
traded in the over-the-counter market, the fair market value of a
share of Common Stock on a particular date shall be the mean between
the closing bid and asked quotations per share of the Common Stock on
that date; or (c) if Common Stock is not traded on a stock exchange,
NASDAQ/NMS or in the over-the-counter market or, if traded, there are
no transactions on that date, the fair market value shall be
determined in good faith by the Committee by applying the rules and
principles of valuation set forth in Section 10.20312-2 of the
Treasury Regulations (relating to the valuation of stocks and bonds
for purposes of Code Section 2031).
2.12 "GRANT AMOUNT" - the number of shares of Restricted Stock granted to a
Participant under the Plan at the time such Restricted Stock is first
issued by the Company.
2
<PAGE>
2.13 "OPTION AMOUNT" shall mean the number of shares subject to an Option
granted to an Optionee under the Plan.
2.14 "INCENTIVE STOCK OPTION" shall mean an Option which is intended to
quality as an "incentive stock option" within the meaning of Code
Section 422.
2.15 "NONQUALIFIED OPTION" shall mean an option which is not intended to
qualify as an Incentive Stock Option.
2.16 "OPTION" shall mean an option to purchase shares of Common Stock
granted under the Plan, which may be either an Incentive Stock Option
or a Nonqualified Option.
2.17 "OPTION PRICE" shall mean the purchase price per share of Common Stock
as determined in accordance with the provisions of Section 9.2 hereof.
2.18 "PARTICIPANT" - an officer, director, Employee or Consultant of the
Company or a Subsidiary to whom an Option or Restricted Stock is
granted under this Plan.
2.19 "PERFORMANCE OBJECTIVES" - The performance objectives for each grant
of Restricted Stock under the Plan that must be achieved in order for
some or all of such Restricted Stock to become Vested, as determined
by the Compensation Committee at or before the Date of Grant. Such
performance objectives may be expressed in terms of (a) the lapse of
time during which a Participant remains employed by, or in the service
of the Company, (b) any quantifiable, financial, technical, economic
or operational performance criteria for the Company, any Subsidiary or
any business unit, division or function within the Company or any
Subsidiary, cash flow, earnings per share, capital formation,
expenses, gross or net margin, increase in stock price, inventory
turnover, market share, net income (before or after taxes), net
operating income, personal management objectives, return on assets,
return on equity, return on investment, return on sales, revenue and
total stockholder return, including, but not limited to, or (c) any
combination of some or all of the foregoing.
2.20 "REORGANIZATION" - a sale or transfer of all or substantially all the
Company's assets, a merger, reorganization, or consolidation of the
Company with another corporation in which the Company is not the
surviving corporation, or liquidation or dissolution of the Company.
2.21 "RESTRICTED STOCK" - shares of Common Stock awarded under the Plan
which remain outstanding and as to which Restrictions have not expired
or otherwise been removed in accordance with the terms of this Plan.
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2.22 "RESTRICTED STOCK AWARD" or "AWARD" - any grant of Restricted Stock
made to a Participant under the Plan.
2.23 "RESTRICTIONS" - the restrictions imposed on the sale, transfer,
assignment or other disposition of Common Stock as set forth in
Section 7 hereof.
2.24 "RETIREMENT" - a Participant's voluntary termination of employment by
delivery of formal written notice thereof to the Company at any time
after he or she has reached sixty (60) years of age and shall have
accrued fifteen (15) years of service as an employee of the Company
(including its present or former Subsidiaries).
2.25 "SUBSIDIARY" - any corporation of which not less than fifty-one
percent (51%) of the shares of the voting stock (representing the
right, other than as affected by events of default, to vote for the
election of directors or other managing authority) are now or
hereafter during the term of this Plan owned or controlled directly or
indirectly by the Company.
2.26 "TERMINATION FOR CAUSE" shall mean any involuntary termination of a
Participant's employment by the Company or any Subsidiary if the
termination is a result of or in connection with such Participant's
(a) engaging in any business that is competitive with that of the
Company while an Employee, (b) committing any material act of
dishonesty, including but not necessarily limited to theft or
embezzlement of funds or property of the Company, or perpetrating a
fraud on or affecting the Company, (c) engaging in any gross
negligence or willful misconduct with respect to his or her duties and
responsibilities as an Employee or acts in any other way that has a
direct, substantial and adverse effect on the Company's reputation,
including but not necessarily limited to willful or grossly negligent
disregard for the Company's obligation to comply with laws,
regulations and the like applicable to the Company, its properties,
assets or business, or (d) conviction of a felony.
2.27 "VESTING" or "VESTED" shall mean the removal of Restrictions as to any
Restricted Stock awarded under the Plan.
2.28 "VESTING DATE" - the date on which Vesting shall be determined as set
by the Compensation Committee.
3. SHARES SUBJECT TO THE PLAN.
--------------------------
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3.1 The shares reserved for issuance as Options and as Restricted Stock
under the Plan shall not exceed 1,000,000 and 500,000 shares,
respectively, of Common Stock, subject to adjustment as provided in
Section 3.2 hereof.
3.2 In the event of changes in outstanding Common Stock by reason of stock
dividends, recapitalization, split-ups, combination, merger (including
reincorporation effected by means of a merger), reclassification, or
exchanges of shares, and the like, appropriate adjustments shall be
made by the Board in the number and kind of Options and Restricted
Stock which may be issued, including adjustments of the limitations
set forth in Section 3.1 on the maximum number of and kind of shares
which may be issued as Options or Restricted Stock.
3.3 Any shares of Restricted Stock forfeited to the Company pursuant to
the terms of the Plan may, subsequently, be issued as Restricted Stock
hereunder.
4. EFFECTIVE DATE. The Plan has been adopted by the Board as of December 3,
--------------
1996 (the "Effective Date"), subject to approval, prior to September 30,
1997, by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock present in person or by proxy at a
meeting of the Company's shareholders.
5. ADMINISTRATION. Grants of Options and Restricted Stock Awards and other
--------------
determinations under the Plan shall be made by (a) the Board or (b) the
Compensation Committee. In addition, the Board has authority to perform
all functions of the Committee.
6. ISSUANCE OF RESTRICTED STOCK, DETERMINATION OF PERFORMANCE OBJECTIVES AND
-------------------------------------------------------------------------
ACHIEVEMENT OF PERFORMANCE OBJECTIVES
-------------------------------------
6.1 The Compensation Committee may, from time to time:
A. determine the Participants, if any, to whom Restricted Stock Awards
are to be issued;
B. establish the Grant Amount, if any, to be awarded to each such
Participant and determine that the value to the Company of the past
services of such Participant is at least equal to the aggregate par
value of the Grant Amount;
C. establish Performance Objectives; and
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D. determine whether and to what extent, if any, the Performance
Objectives for any previously awarded Restricted Stock, if any,
have been achieved and, on the basis of such determination,
establish the portion, if any, of a Grant Amount that is to be
Vested.
6.2 Performance Objectives may not be changed, altered or adjusted,
provided, however, that the Board may make such changes as it deems
appropriate to reflect the effects on the performance of the Company
of an acquisition of a company or business, the divestiture of a
subsidiary or division or other transactions or events outside the
ordinary course of business which for financial reporting purposes as
determined in accordance with Generally Accepted Accounting
Principles.
6.3 Upon a determination in accordance with Section 6.1D hereof, that any
Restricted Stock is to be Vested, the removal of such Restrictions
shall be effective with respect to such Grant Amount, or portion
thereof, as of the Vesting Date.
6.4 Participants to whom Restricted Stock Awards are made under the Plan
shall not be required to make any monetary payment to the Company.
However, all such Awards shall be subject to the Restrictions and all
certificates representing Restricted Stock shall be issued with a
restrictive legend, stamped, imprinted or otherwise inscribed thereon
referencing such Restrictions. All share certificates representing
such Restricted Stock shall be registered in the name of the
Participant to whom the Restricted Stock is issued and may, in
accordance with instructions established by the Committee, be
delivered to the Company's Secretary or such other person as the
Company may appoint to retain physical custody until the Restrictions
imposed thereon have expired or shall have been removed.
6.5 Each Restricted Stock Award issued under the Plan shall be evidenced
by a written agreement, in form approved by the Committee, specifying
the number of shares covered by the Award and such other provisions,
consistent with the Plan, as may be deemed appropriate by the
Committee and by the issuance of one or more stock certificates
pursuant to Section 6.4.
7. RESTRICTIONS. No shares issued as Restricted Stock Awards hereunder may be
------------
sold, assigned, transferred, pledged, hypothecated, or encumbered until the
Vesting of the Restricted Stock in accordance with the terms of the Plan.
8. EXPIRATION AND REMOVAL OF RESTRICTIONS
--------------------------------------
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8.1 Unless sooner removed in accordance with the terms of the Plan, all
Restrictions applicable to each Award shall automatically expire and
terminate ten (10) years following the Date of Grant.
8.2 If a Participant's employment is terminated voluntarily or
involuntarily (except for any reason other than death, Disability,
Retirement, the events referred to in Sections 8.3 through 8.6 hereof,
or in connection with a Reorganization in which the Participant
becomes employed by a successor corporation or business entity) all
Restricted Stock held by him shall immediately and automatically be
forfeited to the Company and Participant shall thereupon have no
further right, title or interest in such Restricted Stock; provided,
however, that any Restricted Stock that have Vested shall not be
forfeited.
8.3 If a Participant's employment with the Company is terminated as a
result of death or Disability, all Restricted Stock shall be Vested as
of the date of death or, in the case of Disability, as of the date of
the determination of such Disability by the Board or Committee as the
case may be.
8.4 In the case of termination of employment for Retirement, a pro rata
portion of the shares of Restricted Stock held by the retiring
Participant, less the number of shares which have previously Vested,
will be Vested immediately, calculated on the basis of a five year
vesting schedule beginning on the Date of Grant and ending on the
effective date of such Retirement. For example, if a Participant
retires two years after the Date of Grant, Restricted Stock would Vest
as to forty percent (40%) of the Grant Amount, and all remaining
shares of Restricted Stock held by the Participant would be forfeited.
8.5 If within twelve (12) months following a Change in Control there
should occur, without a Participant's consent, a material lessening of
his duties and responsibilities as an executive or key management
employee of the Company or a material reduction in his base salary
from the rate in effect as of the Date of Grant and, if, within ninety
(90) days following such material lessening of duties or
responsibilities or a material reduction in his base salary, the
Participant shall, by providing written notice to the Company,
voluntarily terminate his employment relationship with the Company,
all Restricted Stock held by such Participant shall become Vested.
8.6 If within twelve (12) months following a Change in Control, a
Participant's employment should be terminated involuntarily, other
than a Termination for Cause by the Company (or any successor to the
Company by reason of such Change in Control), all Restricted Stock
held by such Participant which have not theretofore Vested shall be
forfeited.
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8.7 In the event of a Reorganization, the Board, in its sole discretion,
may Vest all or any part of the issued and outstanding Restricted
Stock prior to or contemporaneously with the effective date of such
Reorganization. In the event of any Reorganization in which holders of
Restricted Stock receive securities (herein "Exchange Securities") of
another corporation or business entity in respect of Restricted Stock
held by them, such Exchange Securities shall be subject to the
Restrictions and to removal or expiration thereof in accordance with
the terms of this Plan if the Board, for any reason, elects not to
accelerate the removal of Restrictions prior to or contemporaneously
with the effective date of the Reorganization.
8.8 Upon Vesting of Restricted Stock in accordance with the terms of the
Plan, all Restrictions imposed by Section 7 hereof shall be deemed
removed and terminated with respect to the applicable Restricted Stock
grants and the Company shall issue such instructions to the Transfer
Agent or Registrar and take such other actions as may be appropriate
in order to cause the removal, cancellation or rescission of all
legends, stamps or other inscriptions referencing the restrictions on
share certificates representing Restricted Stock which have Vested.
9. RIGHTS AS STOCKHOLDERS. Upon the issuance of the shares of Restricted
----------------------
Stock pursuant to Section 6.5, the Participant shall, subject to the
Restrictions, have all the rights of a stockholder with respect to said
shares, including the right to vote the shares and to receive all dividends
and other distributions paid or made with respect to the shares.
10. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
10.1 ELIGIBILITY. Options may be granted to Employees, executives or
directors whose performance for or contribution to the Company is
considered by the Committee to have a significant effect on the
success of the Company and to Consultants whose retention by the
Company involves the performance of personal services that, as
determined by the Committee, are of significant value or benefit to
the Company. The adoption of this Plan shall not be deemed to give any
Employee or other person any right to be awarded an Option. No
Incentive Stock Option shall be granted under the Plan to a
Consultant.
10.2 OPTION GRANTS. Each Option shall be evidenced by a written agreement
(a "Stock Option Agreement") in a form approved and authorized by the
Committee, which shall be executed by the Company and the Participant
receiving the Option. All Options shall be subject to the following
terms and conditions and such additional terms and conditions, not
inconsistent with the Plan, as the Committee shall deem necessary or
appropriate:
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<PAGE>
A. The Option shall be designated as either an Incentive Stock Option
or a Nonqualified Stock Option. However, notwithstanding such
designation, to the extent that the aggregate Fair Market Value of
Shares subject to Options designated as Incentive Stock Options
which become exercisable for the first time by a Grantee during any
calendar year (under all plans of the Company or any Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares
covered thereby in excess of the foregoing limitation, shall be
treated as Nonqualified Stock Options. For this purpose, Incentive
Stock Options shall be taken into account in the order in which
they were granted and the Fair Market Value of the shares shall be
determined as of the Date of Grant.
B. The exercise or purchase price, if any, for an Option shall be as
follows:
(i) In the case of an Incentive Stock Option:
a. granted to a Participant who, at the time of the grant of
such Incentive Stock Option owns stock representing ore than
ten percent (10%) of the voting power of all classes of
stock of the Company or any Subsidiary, the per share
exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value per share of Common
Stock on the Date of Grant;
b. granted to Participant other than a Participant described in
the preceding clause, the per Share exercise price shall be
not less than one hundred percent (100%) of the Fair Market
Value per Share on the date of grant.
(ii) In the case of a Nonqualified Stock Option, the per Share
exercise price shall be not less than one hundred percent
(100%) of the Fair Market Value per Share on the date of grant
unless otherwise determined by the Committee.
C. The period during which each Option may be exercised shall be fixed
by the Committee. Unless the Committee shall designate when an
Option granted pursuant to the Plan is exercisable, Options shall
be exercisable as follows: (i) at any time after the first
anniversary following the Date of Grant, the Option shall be
exercisable as to 25 percent of the shares covered thereby; (ii) at
any time after the expiration of two years following the Date of
Grant, the Option shall be exercisable, cumulatively, as to an
additional 25 percent of the shares covered
9
<PAGE>
thereby; (iii) at any time after the expiration of three years
following the Date of Grant, the Option shall be exercisable,
cumulative, as to an additional 25 percent of the shares covered
thereby; and (iv) at any time after the expiration of four years
following the Date of Grant, the Option shall be exercisable as to
all the shares covered thereby which have not theretofore been
exercised pursuant to the provisions of (i) through (iii) above.
The Committee may, after an Option is granted and on such terms and
conditions as it considers appropriate, accelerate the times at
which the Option may be exercised.
D. Unless otherwise determined by the Committee, Options granted
pursuant to the Plan shall expire and cease to be exercisable upon
the first to occur of any one of the following: (i) the expiration
of 10 years following the Date of Grant; (ii) 90 days following the
date when an Participant ceases to be an Employee, except in the
case of a Termination for Cause, Retirement, or a termination by
reason of the Participant's death or Disability while an Employee;
(iii) if the Participant dies while an Employee or ceases to be an
Employee by reason of the Participant's Disability while an
Employee, one year following such death or termination of
employment, whichever occurs first; or (iv) the Participant's
Termination for Cause. Notwithstanding anything to the contrary
contained herein, in no event may an Option be exercised after the
expiration of 10 years following the Date of Grant. Further, the
term of an Incentive Stock Option shall be no more than ten (10)
years from the date of grant thereof and, in the case of an
Incentive Stock Option granted to a Participant who, at the time
the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the
Company or any Subsidiary, the term of the Incentive Stock Option
shall be five (5) years from the Date of Grant thereof or such
shorter term as may be provided in the Stock Option Agreement.
E. The shares covered by an Option may be purchased and the Option may
be exercised in whole or in part at any time during the period
defined in Section 10.2C above and prior to the expiration of such
Option. Such exercise shall be in the manner fixed by the Committee
by giving written notice of exercise to the Company specifying the
number of shares to be purchased; provided, however, that an Option
may not be exercised with respect to less than 50 shares subject to
an Option unless there are less than 50 shares remaining subject to
the Option.
F. The notice of exercise of Option, whether the exercise is to be in
whole or in part, shall be accompanied by delivery to the Company
of (i) a
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<PAGE>
certified or cashier's check(s); (ii) a check issued by a broker-
dealer that is a member firm of the New York Stock Exchange, Inc.
for 100 percent of the Option Price for the shares to be purchased;
(iii) at the discretion of, and upon such terms and conditions as
may be established by, the Committee, delivery of Common Stock
already owned by the Participant for at least six months; or (iv)
any combination of the foregoing. In the event that the Option
Price is paid by a check issued by a broker-dealer, an executed
copy of the notice of exercise shall be delivered to the broker-
dealer, the notice of exercise shall instruct the Company to
deliver certificates for the shares to be purchased to the broker-
dealer and the Company shall confirm that it will deliver such
certificates to the broker-dealer. No shares shall be issued upon
exercise of any Option until full payment therefor has been made to
and received by the Company.
G. No Option granted under the Plan shall be transferable either
voluntarily or by operation of law except by will or by the laws of
descent and distribution and, during the lifetime of the
Participant, such Option shall be exercisable only by him or her;
provided, however, that Incentive Stock Options granted hereunder
may be transferred on such terms and conditions, if any, as the
Committee may, in its discretion, deem appropriate by amendment to
this Plan. If the Participant dies while an Employee or terminates
his or her Employee status because of a Disability, without having
fully exercised his or Option, all shares covered by such
Participant's Option which were exercisable at the date of his or
her death or termination of Employee status because of a Disability
and which becomes exercisable, in accordance with the terms of such
Option, within 12 months thereafter shall be exercisable within
such 12 month period when and as such shares becomes exercisable by
such Participant (in the case of Disability) or, in the case of
death, by his or her estate or any other person who acquired the
right to exercise the Option by bequest of inheritance or by reason
of death of the Participant and such estate or other person shall
have the right to purchase by exercise of said Option all or any
portion of such shares; provided, however, that no Option may be
exercised at any time after the expiration date thereof. If the
Option is exercised by a person other than the Participant, the
Committee may require appropriate proof of such other person's
right to exercise said Options.
H. If a Participant ceases to be an Employee for any reason (other
than Termination for Cause, death or Disability while an Employee
or Retirement) his or her Option shall remain exercisable for a
period of 90 days thereafter to the extent, and only to the extent,
such option was
11
<PAGE>
exercisable, by its terms, as of the effective date of his or her
cessation of Employee status. Upon Retirement of an Participant,
all shares covered by such Participant's Option shall continue to
be exercisable by such Participant in accordance with the terms of
such Option; provided, however, that if, and to the extent that, an
Incentive Stock Option is exercised more than 90 days after the
Retirement date, such Option will be treated as a Nonqualified
Option. No Option may be exercised at any time after the expiration
date thereof.
I. If a Participant ceases to be an Employee and such termination was
a Termination for Cause, all Options shall immediately expire and
cease to be exercisable.
J. No fractional shares will be issued pursuant to the exercise of any
Option nor will any cash payment be made in lieu of fractional
shares.
K. In the event that, within 12 months following a Change in Control
there should occur, without an Participant's consent, a material
lessening of his or her duties and responsibilities as an Employee
or a material reduction in his or her base salary from the rate in
effect as of the Date of Grant and if, within ninety (90) days
following such material lessening of duties or responsibilities or
a material reduction in his or her base salary, the Participant
shall, by providing written notice to the Company, voluntarily
terminate his or her Employee status, unless the Board has prior to
such Change in Control, in its sole discretion determined that all
or a portion of the outstanding Options held by such Participant
shall become immediately and fully exercisable upon or immediately
following such Change in Control, all shares covered by such
Participant's Options shall become immediately and fully
exercisable and such Participant shall have the right to purchase,
by exercise of such Option, all or any portion of the shares
covered by such Option; provided, however, that in no event may any
Option be exercised after the expiration date thereof.
L. If (i) within 12 months following a Change in Control, a
Participant's Employee status should be terminated involuntarily by
the Company (or any successor to the Company by reason of such
Change in Control) and such termination is not a Termination for
Cause, and (ii) the Board has not prior to such Change in Control,
in its sole discretion, determined that all or a portion of the
outstanding Options held by such Participant shall become
immediately and fully exercisable upon or immediately following
such Change in Control, then all shares covered by such
Participant's Options shall become immediately and fully
exercisable and
12
<PAGE>
such Participant shall have the right to purchase by exercise of
such Option, all or any portion of the shares covered by such
Option; provided, however, that in no event may an Option be
exercised after the expiration date thereof.
M. In the event of any Reorganization, all rights of the person or
persons entitled to exercise then outstanding Options granted under
the Plan and such Options shall wholly and completely terminate at
the time of any such Reorganization, except to the extent that any
agreement or undertaking of any party to any such Reorganization
shall make specific provision with respect to such Option and the
rights of such Participants. Notwithstanding the foregoing, the
Board may determine that each Participant shall have the right
immediately prior to such Reorganization to exercise such
Participant's Option with respect to any or all of the shares
remaining subject to such Option, whether or not such shares are
then otherwise purchasable by said Participant. To the extent that
any such exercise relates to shares which are not otherwise
purchasable by the Participant at such time, such exercise shall be
contingent upon the consummation of such Reorganization.
N. The Committee reserves the right and shall determine the
expiration, terms, termination, exercisability and other conditions
relating to Options, if any, granted to Consultants.
11. ADMINISTRATION AND OPERATION
----------------------------
11.1 GOVERNMENT REGULATIONS. The Plan and the operation thereof shall be
----------------------
subject to all applicable federal and state laws, rules and
regulations, and to such approvals by any regulatory or governmental
agency as may be required, including, but not necessarily limited to,
the obtaining of necessary permits and authorizations from applicable
state securities commissions and agencies, if required, and
registration of the securities subject to this Plan with the
Securities and Exchange Commissions. In addition, the Company may
cause an appropriate legend to be affixed to any stock certificate
representing Common Stock issued under the Plan in accordance with all
applicable federal and state securities laws, rules and regulations.
11.2 LIMITS. The maximum aggregate number of Shares with respect to which
------
Options may be granted to any Employee in any fiscal year of the
Company shall be five hundred thousand (500,000) Shares. The foregoing
limitation shall be adjusted proportionately in connection with any
change in the Company's capitalization. The maximum value of any
Restricted Stock Award granted to any Employee in any fiscal year of
the Company and intended to qualify as Performance-Based Compensation
shall be two million dollars ($2,000,000),
13
<PAGE>
calculated based upon the value of the Restricted Stock Award assuming
the performance goal was met on the Date of Grant of the Award. This
Section is intended to comply with the requirements for the award
of Performance-Based Compensation applicable to Awards other than
stock options and stock appreciation rights and shall be construed in
accordance with the requirements of (S)162(m) of the Code and the
regulations thereunder.
11.3 WITHHOLDING. Whenever, under the code and applicable regulations,
-----------
the issuance of shares of Common Stock upon the exercise of Options or
the Vesting of Restricted Stock will result in any requirement that
the Participant pay or otherwise satisfy any federal, state or local
payroll withholding amounts, including taxes, FICA and the like, it
shall be a condition to the issuance (or Vesting) of such Common Stock
that the Participants shall have made arrangements satisfactory to the
Company, as determined in accordance with rules established by the
Committee, with respect to the payment or satisfaction of such
withholding amounts. In lieu of paying in cash additional sums which
may be required to satisfy such withholding amounts, if any, the
Committee may permit Participants to elect to deliver to the Company
shares of Common Stock held by such Participant or a portion of the
shares of Common Stock subject to the Option then being exercised by
such Participant (or to be Vested in the case of Restricted Stock) as
payment or in partial payment of the withholding amount requirement
subject, however, to such rules as may be adopted by the Committee.
11.4 AMENDMENTS. The Board may at any time and from time to time modify,
----------
amend, suspend or discontinue the Plan in any respect, except that,
without stockholder approval, the Board may not increase the number of
shares reserved under the Plan (other than increases due to changes in
capitalization), permit the issuance of Common Stock upon exercise of
an Option before payment therefor in full, make any change in the
eligibility requirements hereunder, or extend the period within which
Incentive Stock Options may be granted. Approval by the stockholders
means approval by the holders of requisite number of shares of Common
Stock either (a) at a meeting at which shareholders are present or
represented by proxy and and which is duly held or (b) by written
consent of shareholders, in each case in accordance with the
applicable laws of the state of Utah. The modification or amendment of
the Plan shall not, without the consent of a Participant, adversely
affect his or her rights under Options or Restricted Stock previously
issued to him or her.
11.5 EMPLOYMENT RELATIONSHIP. Neither the Plan nor any Option or
-----------------------
Restricted Stock granted hereunder shall confer upon any Participant
any right to continued employment by the Company or any Subsidiary, or
shall interfere in any way with the right of the Company or any
Subsidiary to terminate his or her employment at any time with or
without notice or cause.
14
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11.6 LISTING ON EXCHANGE. The Company shall not be required to issue or
-------------------
deliver any certificates for shares of Common Stock under the Plan
prior to: (a) the listing of such shares on any stock exchange on
which the Common Stock may then be listed; and (b) the completion of
any registration or qualification of such shares under any federal or
state securities laws, or any rulings or regulation of any
governmental body, which the Committee shall in its sole discretion,
determine to be necessary or advisable.
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12. GENERAL PROVISIONS
------------------
12.1 No Participant and no beneficiary or other person claiming under
or through such Participant shall have any rights as a
stockholder of the Company with respect to any shares of Common
Stock allocated or reserved under the Plan and subject to any
Option or Restricted Stock Award except as to such shares of
Common Stock, if any, that have been issued or transferred to
such Participant free of Restrictions.
12.2 The Plan and all determinations made and actions taken pursuant
thereto shall be governed by the laws of the State of California
and construed in accordance therewith.
12.3 Continuance of the Plan with respect to the grant of Incentive
Stock Options and grants to Employees shall be subject to
approval by the stockholders of the Company within twelve (12)
months before or after the date the Plan is adopted, and such
stockholder approval shall be a condition to the right of a
Covered Employee to receive Performance-Based Compensation
hereunder. Such stockholder approval shall be obtained in the
degree and manner required under applicable laws.
This AvTel Communications, Inc. 1997 Stock Incentive Plan was adopted by
the Board on __________________, 19__, and approved by the stockholders on
________________, 19__.
AVTEL COMMUNICATIONS, INC.
By: _________________________ By: _________________________
Anthony E. Papa James P. Pisani
President & Chief Executive Officer Executive Vice President &
Chief Operating Officer
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AVTEL COMMUNICATIONS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
The undersigned stockholder of AvTel Communications, Inc., a Utah corporation
(the "Company"), hereby appoints Anthony E. Papa and James P. Pisani each of
them, each with full power of substitution, as proxy for the undersigned to vote
and otherwise represent all the shares registered in the name of the undersigned
at the Annual Meeting of Stockholders of the Company to be held on Friday,
February 27, 1997, at 4:00 p.m. at 130 Cremona Drive, Suite C, Santa Barbara,
California, and at any adjournment thereof, with the same effect as if the
undersigned were present and voting such shares, on the following matters and in
he following manner as further described in the accompanying Proxy Statement.
Either of such proxies and attorneys-in-fact, or their substitutes, as shall
be present and shall act at said meeting or any adjournment or adjournments
thereof shall have and may exercise all the powers of said proxies and
attorneys-in-fact thereunder.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders, the Proxy Statement and the Company's 1996 Annual Report to
Stockholders.
The election of the following persons as Directors of the Company to serve
until the next Annual Meeting of Stockholders and until their successors shall
be duly elected and qualified:
1. Election of Directors
Nominees: Anthony E. Papa, James P. Pisani, Barry A. Peters and Frank Dziuba
FOR [_] AGAINST [_] ABSTAIN [_]
----------------------------------------
[_] FOR all nominees except those listed on the line above
2. Approval of the AvTel Communications, Inc. 1997 Stock Incentive Plan
FOR [_] AGAINST [_] ABSTAIN [_]
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
3. Approval of the selection of Ernst & Young LLP as independent certified
public accountants for the Company for the fiscal year ending September 30,
1997.
FOR [_] AGAINST [_] ABSTAIN [_]
The Shares represented by the proxy will be voted in accordance with the
specification made. If no specification is made, the Shares represented by this
proxy will be voted for each of the nominees and proposals and, in the
discretion of the proxy holders, on any other matters that may properly come
before the meeting or any adjournment thereof.
The proxies are authorized to vote
and otherwise represent the shares
of the undersigned on any other
matters which may property come
before the meeting of any
adjournment, according to their
decision and in their discretion.
If the shares are held jointly,
each holder should sign. If
signing for estates, trusts,
partnerships or corporations,
title or capacity should be
stated. Sign exactly as the
name(s) appear on the stock
certificate(s).
Dated:_____________________, 1997
(Signature)______________________
(Signature)______________________
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
