REGISTRATION NO. 333-78963
Rule 424(b)(3)
PROSPECTUS
815,000 SHARES
AVTEL COMMUNICATIONS, INC.
COMMON STOCK
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The three selling stockholders named in this prospectus are offering and
selling up to 815,000 shares of the common stock. They may acquire up to 795,000
of those shares upon conversion of, or as dividends on, AvTel's series B
convertible preferred stock and 20,000 shares upon exercise of warrants.
The selling stockholders may offer the shares from time to time in public
or private transactions on or off The Nasdaq SmallCap Market, at prevailing
market prices or privately negotiated prices. They may make sales through
brokers, dealers or other agents who may receive compensation in the form of
commissions, discounts or concessions.
AvTel will not receive any proceeds from the sale of the common stock, but
AvTel will receive the exercise price of the warrants. AvTel will pay the cost
of registering the shares and various related expenses, but the selling
stockholders are responsible for all selling commissions, transfer taxes and
other such costs.
AvTel's common stock is quoted on The Nasdaq SmallCap Market under the
symbol "AVCO." On July 9, 1999, the closing sales price of AvTel's common stock
on The Nasdaq SmallCap Market was $4.50.
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Purchase of the common stock involves a high degree of risk. See "Risk Factors"
beginning on page 2.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is July 12, 1999
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AVTEL
AvTel is a provider of broadband network services integrating voice, data
and Internet solutions. AvTel sells and markets a broad range of
telecommunications and advanced network services through independent value added
resellers, affinity and agent organizations, and internal direct sales
professionals. AvTel targets mid-size corporations and resellers and
distributors of communications services. AvTel's principal executive offices are
located at 501 Bath Street, Santa Barbara, California 93101, and AvTel's
telephone number is (805) 884-6300.
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "believe," "intend," "anticipate,"
"estimate," "continue" or similar words. These statements discuss future
expectations, estimate the happening of future events or AvTel's financial
condition or state other "forward-looking" information. When considering such
forward-looking statements, you should keep in mind the risk factors and other
cautionary statements in this prospectus and the documents that AvTel
incorporates by reference. The risk factors noted in this prospectus, and other
risks and uncertainties, could cause AvTel's actual results to differ materially
from those contained in any forward-looking statement.
RISK FACTORS
Prospective investors should carefully consider the following factors,
together with other information contained or referenced in this prospectus, in
evaluating an investment in the common stock.
AvTel has experienced significant losses in each of the last four fiscal
quarters and expects to continue to experience losses for the foreseeable future
AvTel has had significant losses in each of its last four fiscal quarters.
AvTel expects that it will continue to lose money for the foreseeable future.
AvTel has not generated enough revenue to offset the substantial amounts that it
has spent to grow its business, and it plans to continue to incur significant
expenses.
Although the conversion feature of the series B convertible preferred stock
will not affect AvTel's net loss, it will increase AvTel's basic and
fully-diluted loss per share attributable to its common stock in the second
quarter of 1999. The loss used in the per share calculation will be increased by
the difference between the conversion price and the trading price of the common
stock on the date the series B convertible preferred stock first becomes
convertible multiplied by the number of shares issuable upon conversion at that
date.
AvTel will need to raise additional capital
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In the past, AvTel's cash flow from operations, together with its secured
borrowings, has been sufficient to meet its working capital and capital
expenditure requirements. AvTel does not expect to generate sufficient cash flow
to fully implement its business strategy without raising additional capital. As
of March 31, 1999, AvTel was in violation of one provision of its loan and
security agreement with Coast Business Credit that stipulates that AvTel must
maintain a net worth equal to or greater than two million dollars. AvTel's net
worth as of March 31, 1999 was $1,646,517. Coast Business Credit has waived its
right of acceleration of the obligation as it relates to AvTel not meeting the
net worth covenant through July 31, 1999, but retains its right of acceleration
if AvTel is in violation of the net worth covenant at any time after July 31,
1999. Accordingly, AvTel will need to raise additional capital to meet the net
worth covenant beginning August 1999 as required by Coast Business Credit.
Although AvTel recently entered into an equity line of credit agreement
with Cambois Finance, Inc. through which it may sell or "put" AvTel common stock
to Cambois Finance, the right to put common stock is subject to the satisfaction
of several conditions. If AvTel is unable to put common stock to Cambois Finance
pursuant to the equity line agreement and if it is unable to obtain other
financing in a timely manner and on acceptable terms, AvTel may be in default
under its agreement with Coast Business Credit. In that event, management has
developed and intends to implement a plan that would allow AvTel to continue to
operate through the first quarter of 2000. This plan would include reducing
AvTel's workforce, eliminating advertising expenditures, reducing professional
services and reducing or eliminating other discretionary expenditures, and
possibly the sale of assets. If AvTel implements this plan, its business could
be adversely affected, which may adversely affect its operating results and
financial condition.
AvTel's stock price is volatile
AvTel common stock has been traded on The Nasdaq SmallCap Market since May
28, 1998. Trading in its stock was halted by Nasdaq after the close of trading
on November 12, 1998, through the close of trading on November 13, 1998, as a
result of an unusual upsurge in its stock price and trading volume. The trading
volume of the common stock has been variable, but generally low. As a result,
relatively small trades may significantly affect the market price of the common
stock. The market price of the shares of common stock has been highly volatile
and may be significantly affected by factors such as actual or anticipated
fluctuations in AvTel's operating results, AvTel's announcement of potential
acquisitions, changes in regulations, activities of the largest domestic
providers, industry consolidation and mergers, conditions and trends in the
telecommunications market, adoption of new accounting standards affecting the
telecommunications industry, changes in recommendations and estimates by
securities analysts, general market conditions and other factors. In addition,
the stock market has from time to time experienced significant price and volume
fluctuations that have particularly affected the market prices for the shares of
emerging growth companies like AvTel. Many of these factors are beyond AvTel's
control.
AvTel is a defendant in a securities class action lawsuit; AvTel may be
adversely affected by an adverse outcome of this lawsuit or by the costs of
defending this lawsuit
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As noted above, on November 12, 1998, AvTel experienced an unusual upsurge
in its stock price and trading volume. This unusual event has triggered the
initiation of class action litigation under the federal securities laws. AvTel
believes that these claims are without merit and intends to defend vigorously
this litigation. However, it is not possible at this time for AvTel to predict
with certainty the outcome of this litigation. AvTel's operating results and
financial condition could be adversely affected by an adverse outcome of this
litigation. Even if AvTel prevails in the litigation, the expenses of the
defense could have a material adverse effect on AvTel's operating results and
financial condition.
AvTel may not be able to compete successfully
The telecommunications industry is intensely competitive and subject to
rapid change. AvTel's competitors include facilities-based and
non-facilities-based providers, many of which have substantially more resources
than AvTel. Providers compete on the basis of price, customer service,
transmission quality, breadth of service offerings and value-added services.
AvTel believes that competition will continue to increase, resulting in lower
prices. Lower prices could adversely affect AvTel's gross margins if AvTel is
not able to reduce its costs commensurate with price reductions.
AvTel must keep pace with technological change to remain competitive
The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of competitive product and service
offerings, such as the use of the Internet for international voice and data
communications. AvTel's future success depends, in part, on its ability to use
leading technologies effectively, to develop its technological expertise, to
enhance its existing services and to develop new services that meet changing
customer needs on a timely and cost-effective basis. AvTel is unable to predict
which technological development will challenge its competitive position or the
amount of expenditures that will be required to respond to a rapidly changing
technological environment. AvTel's failure to respond in a timely and effective
manner to new and evolving technologies could have a negative impact on its
operating results and financial condition.
AvTel is dependent on telecommunications carriers and other suppliers
AvTel relies on traditional telecommunications carriers to transmit its
traffic over local and long distance networks. These networks may experience
disruptions that are not easily remedied. In addition, AvTel depends on certain
suppliers of hardware and software. If AvTel's suppliers fail to provide it with
network services, equipment or software in the quantities, at the quality levels
or at the times AvTel requires, it will be difficult for AvTel to provide its
services. AvTel is currently negotiating with its major vendor for extended
payment terms with respect to invoices in the total amount of approximately $4.4
million.
Regulatory and legal uncertainties could harm AvTel's business
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AvTel's business is subject to various federal and state laws, regulations,
agency actions and court decisions, some of which impose prior certification,
notification, registration and/or tariff requirements on AvTel. Certificates of
authority can generally be conditioned, modified or revoked by state regulatory
authorities for failure to comply with state laws and regulations. Fines and
other penalties may be imposed. The loss of a certificate of authority or the
imposition of fines or other penalties could have a material effect on AvTel's
business, operating results and financial condition. In addition, future changes
in any of these sources of regulation could have a material adverse effect on
AvTel's business, operating results and financial condition.
AvTel's executive officers, directors and existing stockholders will have the
ability to exercise significant control over it
AvTel's executive officers, directors and members of their families
beneficially own, in the aggregate, approximately 70% of its common stock prior
to this offering. Although this percentage will decrease each time AvTel sells
common stock to Cambois Finance under the equity line agreement, these
stockholders will be able to exercise control over all matters requiring
approval by AvTel's stockholders, including the election of directors and the
approval of significant corporate transactions. In addition, effective May 18,
1999, the family members of Jeffrey J. Jensen, an AvTel director, entered into a
voting trust agreement. Although Mr. Jensen is not a party to the voting trust
agreement, and votes his shares independent of the voting trust, the voting
trust relates to approximately 43% of the AvTel common stock outstanding prior
to this offering. This concentration of ownership may also have the effect of
delaying or preventing a change of control of AvTel, which could negatively
affect AvTel's stock price.
Future sales of AvTel common stock may negatively affect its stock price
Following the offering, AvTel will have a large number of shares of common
stock outstanding and available for resale. In addition, 6,457,123 shares of
common stock that are held by executive officers and directors of AvTel, members
of their families and certain charitable foundations are, pursuant to a
registration rights and lockup agreement, currently unable to be sold by these
holders. As of December 1, 1999, these restrictions will no longer apply, making
these shares immediately available for resale, subject, in some cases, to volume
limitations imposed by Rule 144 of the Securities Act of 1933. AvTel is required
to register these shares for resale pursuant to the registration rights and
lockup agreement. The market price of AvTel common stock could decline as a
result of sales of a large number of shares of AvTel common stock in the market,
or the perception that such sales could occur. These sales might also make it
more difficult for AvTel to sell equity securities in the future at a time that
AvTel deems appropriate.
The issuance of shares under the equity line agreement and the conversion of
series B convertible preferred stock may dilute AvTel common stockholders and
adversely affect AvTel's stock price
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The outstanding shares of series B convertible preferred stock are
convertible into common stock at a floating rate that will be below the market
price of the common stock. As a result, the lower the stock price goes, the more
common stock the holder receives. The same is true of the equity line agreement.
Notwithstanding the conversion formulas, in order to comply with the listing
requirements of the Nasdaq SmallCap Market:
o the series B convertible preferred stock provides that
without the approval of AvTel's common stockholders, the
amount of AvTel common stock that may be issued upon
conversion of the series B convertible preferred stock may
not exceed 19.9% of the outstanding common stock on the
date of sale of the series B preferred stock, which amounts
to 2,093,419 shares of common stock and
o the equity line agreement provides that without a vote of
AvTel's common stockholders, AvTel may not issue more than
2,103,939 shares of common stock to Cambois Finance.
AvTel does not presently intend to seek stockholder approval to permit it
to issue more shares upon conversion of the series B convertible preferred stock
or to Cambois Finance in connection with the equity line. As a result, if AvTel
were to issue the maximum number of shares permitted, the ownership of AvTel by
existing stockholders would be diluted from 100% to 60.1% of AvTel's outstanding
common stock. If AvTel did obtain stockholder approval to issue additional
shares of common stock, the ownership of existing stockholders could be diluted
to virtually 0%.
To the extent that the holders of the series B convertible preferred stock
convert and then sell their common stock, the price of the common stock may
decrease due to the presence of additional shares in the market. This could
allow holders of the series B convertible preferred stock to convert their
preferred stock into greater amounts of common stock, subject to the 19.9% cap,
the sales of which could further depress AvTel's stock price.
The significant downward pressure on the price of the common stock as the
holders of the series B convertible preferred stock convert the preferred stock
into common stock and sell pursuant to this prospectus or sales by Cambois
Finance under the equity line agreement could encourage short sales. This could
exert further downward pressure on the price of AvTel common stock.
AvTel is dependent on its key management personnel for its future success
AvTel's success depends to a significant degree upon the efforts of senior
management personnel, in particular, Anthony E. Papa, AvTel's Chairman and Chief
Executive Officer, and James P. Pisani, AvTel's President and Chief Operating
Officer. The departure of any of AvTel's officers or key employees could
materially adversely affect its ability to implement its business plan.
AvTel may not be able to hire and retain qualified employees
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AvTel believes that its future success will depend in large part upon its
continuing ability to attract and retain highly skilled personnel. Competition
for qualified, high-level telecommunications personnel is intense and there can
be no assurance that AvTel will be successful in attracting and retaining
qualified personnel. AvTel's loss of the services of one or more of its key
individuals, or its failure to attract and retain other key personnel, could
materially adversely affect AvTel's business, operating results and financial
condition.
AvTel may not be able to successfully make acquisitions of other companies
An important component of AvTel's past growth has been to develop its
business through acquisitions. This growth strategy is dependent on the
continued availability of suitable acquisition candidates and subjects AvTel to
a number of risks. Acquisitions may place significant demands on AvTel's
financial and management resources, as the process for integrating acquired
operations presents a significant challenge to AvTel's management and may lead
to unanticipated costs or a diversion of management's attention from AvTel's
day-to-day operations. There can be no assurance that AvTel will be able to
successfully integrate into its operations any acquisitions it makes in the
future.
AvTel could lose revenues and incur significant costs if its systems or material
third party systems are not Year 2000 compliant
A significant percentage of the software that runs most of the computers in
the United States relies on two-digit date codes to perform computations and
decision-making functions. Beginning on January 1, 2000, these computer programs
may fail from an inability to interpret date codes properly, misinterpreting
"00" as the year 1900 rather than 2000. In association with Electronic Data
Systems Corporation, AvTel's principal software vendor for such Year 2000
deficient systems, AvTel is upgrading its billing, credit and call tracking
systems to become Year 2000 compliant, at a cost of up to approximately
$750,000. At the same time, a number of the computers of AvTel's vendors that
interface with AvTel's systems may run on programs that have Year 2000 problems,
which may disrupt AvTel's billing, credit and tracking systems. Failure of any
of the computer programs integral to AvTel's vendors could adversely affect
AvTel's business, operating results and financial condition. In addition, AvTel
is dependent upon the ability of its service providers to achieve Year 2000
compliance.
THE PRIVATE OFFERING
On April 13, 1999, AvTel sold 1,500 shares of its newly-designated series B
convertible preferred stock to AMRO International, S.A., an entity organized
under the laws of Panama, Austinvest Anstalt Balzers, an entity organized under
the laws of Liechtenstein, and Esquire Trade & Finance Inc., an entity organized
under the laws of the British Virgin Islands (the "selling stockholders"), for
an aggregate purchase price of $1,500,000.
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The series B preferred has a liquidation preference of $1,000 per share.
The series B preferred is entitled to an annual dividend of $30 per share,
payable quarterly in cash or common stock, at AvTel's option. The annual
dividend will increase to $60 per share if AvTel ever ceases to be listed on The
Nasdaq Stock Market or any national securities exchange.
The series B preferred is convertible into common stock at the option of
the selling stockholders at any time. The number of shares of common stock to be
received by a selling stockholder upon conversion will equal the liquidation
preference of the amount converted, divided by the conversion price. The
conversion price will be the lesser of (1) $6.875, or (2) 89% of the lowest
closing bid price for the common stock on The Nasdaq SmallCap Market during the
five consecutive trading days ending on the day prior to the date of conversion.
The conversion price will not be less than $3.00 prior to October 10, 1999.
Thereafter the conversion price will not be less than $2.00 as long as AvTel
meets certain requirements for revenue and earnings before interest, taxes,
depreciation and amortization. The conversion price will be not less than $2.00
if AvTel reports on its Form 10-Q or Form 10-K gross revenues for the applicable
quarter equal to or greater than:
o $10.0 million for the quarter ended June 30, 1999;
o $12.0 million for the quarter ended September 30, 1999; and
o $15.0 million for the quarter ended December 31, 1999;
and AvTel reports EBITDA for the month ending December 31, 1999 greater than or
equal to zero.
As a result, AvTel could issue up to 750,000 shares of common stock upon
conversion if all of the series B preferred were converted at the lowest
possible conversion price, assuming such revenue and earnings requirements
continue to be met. However, unless AvTel obtains the approval of its voting
stockholders in accordance with the rules of The Nasdaq Stock Market, AvTel will
not issue shares of common stock upon conversion of any shares of series B
preferred if such issuance of common stock, when added to the number of shares
of common stock previously issued by AvTel upon conversion of or as dividends on
shares of the series B preferred and the number of shares issued upon exercise
of the warrants described below, would exceed 19.9% of the number of shares of
common stock outstanding on April 13, 1999. This results in a limitation of
2,093,419 shares of common stock. AvTel will be required to pay converting
selling stockholders in cash for any excess over such amount. AvTel does not
currently plan to approach its stockholders for approval to issue shares in
excess of the 19.9% restriction.
Although the conversion feature of the series B preferred will not affect
AvTel's net loss, it will increase AvTel's basic and fully-diluted loss per
share attributable to its common stock in the second quarter of 1999. The loss
used in the per share calculation will be increased by the difference between
the conversion price and the trading price of the common stock on the date the
series B
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preferred first becomes convertible multiplied by the number of shares issuable
upon conversion at that date.
AvTel also issued the selling stockholders warrants to purchase up to
20,000 shares of common stock at an exercise price of $8.60 per share, subject
to adjustment in the event of stock dividends, stock splits and the like. The
warrants may be exercised beginning September 30, 1999, and terminate on March
31, 2002.
AvTel and the selling stockholders entered into a registration rights
agreement that requires AvTel to file, and obtain and maintain the effectiveness
of, the registration statement containing this prospectus with the Securities
and Exchange Commission in order to register the public resale of all shares of
the common stock acquired by the selling stockholders (a) upon conversion of the
series B preferred, (b) in payment of dividends on the series B preferred, and
(c) upon exercise of the warrants. AvTel will be subject to significant monetary
penalties if it fails to obtain or maintain the effectiveness of such
registration statement.
AvTel paid a financial advisor $60,000 as compensation for financial
advisory services in connection with the placement of the series B preferred.
The financial advisor conducted a financial analysis of AvTel and presented it
with a private placement structure. The financial advisor also provided AvTel
with several contacts with investors known to invest in the type of structure
proposed.
USE OF PROCEEDS
All of the shares are being offered for the account of the selling
stockholders. AvTel will not directly receive any proceeds from the sale of
these shares; however, AvTel could receive aggregate proceeds of up to $172,000
from the exercise of the warrants, if exercised in full. The actual amount
received, if any, will equal the number of shares purchased, multiplied by the
exercise price of the warrant ($8.60 per share). The warrants are exercisable by
the selling stockholders in their sole discretion. AvTel cannot predict whether
or when the selling stockholders will exercise the warrants. AvTel will use any
proceeds received from the exercise of the warrants for working capital and
general corporate purposes.
SELLING STOCKHOLDERS
The following table sets forth, as of the date of this prospectus, the name
of each of the selling stockholders, the number of shares of common stock
beneficially owned by each selling stockholder, the number of shares of common
stock that each may offer from time to time by this prospectus, and the number
of shares of common stock to be beneficially owned by each selling stockholder
upon completion of the offering. The selling stockholders may elect to sell
some, all or none of the shares offered hereby, in their sole discretion. AvTel
is unable to predict the actual number of shares which will be sold by the
selling stockholders. None of the selling stockholders
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has held any position or office or had a material relationship with AvTel or any
of its affiliates within the past three years other than as a result of the
ownership of AvTel's common stock.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock issuable to that person upon exercise of any option or
similar right (including conversion of the series B preferred) within sixty days
following the date of this prospectus are deemed outstanding. However, such
shares are not deemed outstanding for the purpose of computing the percentage
ownership of any other person. Unless otherwise indicated in the footnotes to
this table, the entities named in the table have sole voting and sole investment
power with respect to the shares set forth opposite such entity's name. The
percentages of beneficial ownership shares in this table are based upon
10,542,997 shares of the common stock outstanding.
This table assumes that the selling stockholders (a) convert all of the
shares of series B preferred, (b) exercise all of the warrants, and (c) sell all
of the common stock issuance upon such conversion and exercise.
<TABLE>
<CAPTION>
Shares Beneficially
Shares Beneficially Shares Owned After
Owned Offered by this Offering
Selling Stockholder Number (1) Percent Prospectus (2) Number Percent
------------------- --------- ------- ------------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
AMRO International, S.A. (3) 375,000 3.4% 385,000 0 0
Austinvest Anstalt Balzers (4) 175,000 1.6% 179,667 0 0
Esquire Trade & Finance Inc. (5) 200,000 1.9% 205,333 0 0
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</TABLE>
(1) Represents the number of shares of common stock into which the selling
stockholder's shares of series B preferred could be converted, based on an
assumed conversion price of $2.00 per share. This assumed conversion price
is substantially below the conversion price in effect at the date of this
prospectus. The actual conversion price will be the lesser of (1) $6.875,
or (2) 89% of the lowest closing bid price for the common stock on The
Nasdaq SmallCap Market during the five consecutive trading days ending on
the day prior to the date of conversion. The conversion price will not be
less than $3.00 prior to October 10, 1999. Thereafter the conversion price
will not be less than $2.00 as long as AvTel meets certain requirements for
revenue and earnings before interest, taxes, depreciation and amortization.
The warrants held by the selling stockholders are not exercisable until
September 30, 1999, and are not reflected in the amounts in this column.
(2) Represents the number of shares of common stock into which the selling
stockholder's shares of series B preferred could be converted, based on an
assumed conversion price of $2.00 per share, together with the number of
shares of common stock issuable upon exercise of the selling stockholder's
warrants. Does not reflect any shares of common stock that may be issued to
the selling stockholder as dividends on the series B preferred.
(3) AMRO International, S.A. holds 750 shares of the series B preferred and
10,000 of the warrants. AMRO is an investment account managed by Ultra
Finanz, a Swiss investment management company. The sole authorized
signatories at Ultra Finanz responsible for the AMRO account are H.U.
Bachofen and Michael Klee. Ultra Finanz and Messrs. Bachofen and Klee may
be deemed to be the beneficial owners of the shares held by
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AMRO. The address of the principal business office of AMRO is c/o Ultra
Finanz, Grossmunster Platz 6, Zurich CH 8022 Switzerland.
(4) Austinvest Anstalt Balzers holds 350 shares of the series B preferred and
4,667 of the warrants. Austinvest is an investment company organized under
the laws of Liechtenstein. Its directors are Walter Grill and Peter
Nackowitz. Messrs. Grill and Nackowitz may be deemed to be the beneficial
owners of the shares held by Austinvest. The address of the principal
business office of Austinvest is Landstrasse 938, 9494 Furstentums,
Balzers, Liechtenstein.
(5) Esquire Trade & Finance Inc. holds 400 shares of the series B preferred and
5,333 of the warrants. Esquire is an investment company organized under the
laws of the British Virgin Islands. Its sole director is Roland Winiger.
Mr. Winiger may be deemed to be the beneficial owner of the shares held by
Esquire. The address of the principal business office of Esquire is Trident
Chambers, P.O. Box 146, Road Town, Tortola, British Virgin Islands.
PLAN OF DISTRIBUTION
The common stock covered by this prospectus may be offered and sold from
time to time by the selling stockholders. The selling stockholders will act
independently of AvTel in making decisions with respect to the timing, manner
and size of each sale. The selling stockholders may sell the common stock being
offered hereby on The Nasdaq SmallCap Market, or otherwise, at prices and under
terms then prevailing or at prices related to the then current market price or
at negotiated prices. There can be no assurance that the selling stockholders
will sell all or any of the shares offered by this prospectus.
AvTel is registering the common stock for resale by the selling
stockholders in accordance with registration rights granted to the selling
stockholders. See "The Private Offering." AvTel will pay all expenses incident
to the offering and sale of the common stock to the public other than any
commissions and discounts of underwriters, dealers or agents, the fees and
disbursements of counsel representing the selling stockholders or any
underwriter or agent acting on behalf of a selling stockholder, and any transfer
taxes. In addition, AvTel has agreed to indemnify the selling stockholders, and
each person who controls the selling stockholders, against certain liabilities,
including liabilities under the Securities Act of 1933, in connection with the
offering. The selling stockholders have agreed to indemnify AvTel and its
directors and officers, as well as any person controlling AvTel, against certain
liabilities, including liabilities under the Securities Act of 1933.
The common stock may be sold by one or more of the following means of
distribution:
o a block trade in which the broker-dealer so engaged will attempt
to sell shares as agent, but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this prospectus;
o an over-the-counter distribution in accordance with the rules of
The Nasdaq SmallCap Market;
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o ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and
o in privately negotiated transactions.
To the extent required, this prospectus may be amended and supplemented from
time to time to describe a specific plan of distribution.
In connection with distributions of the common stock or otherwise, the
selling stockholders may enter into hedging transactions with broker-dealers or
other financial institutions. In connection with such transactions,
broker-dealers or other financial institutions may engage in short sales of
AvTel's common stock in the course of hedging the positions they assume with
selling stockholders. The selling stockholders may also sell AvTel's common
stock short and redeliver the shares to close out such short positions. The
selling stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions which require the delivery to
such broker-dealer or other financial institution of shares offered hereby,
which shares such broker-dealer or other financial institution may resell
pursuant to this prospectus (as supplemented or amended to reflect such
transaction). The selling stockholders may also pledge shares to a broker-dealer
or other financial institution, and, upon a default, such broker-dealer or other
financial institution, may effect sales of the pledged shares pursuant to this
prospectus (as supplemented or amended to reflect such transaction). In
addition, any shares that qualify for sale pursuant to Rule 144 may be sold
under Rule 144 rather than pursuant to this prospectus.
In effecting sales, brokers, dealers or agents engaged by the selling
stockholders may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
selling stockholders in amounts to be negotiated prior to the sale. Such brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with such sales, and any such commissions, discounts or concessions may be
deemed to be underwriting discounts or commissions under the Securities Act of
1933. The selling stockholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act of 1933.
In order to comply with the securities laws of certain states, if
applicable, the shares must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
AvTel has advised the selling stockholders that the anti-manipulation rules
of Regulation M under the Exchange Act of 1934 may apply to sales of common
stock in the market and to the activities of the selling stockholders and their
affiliates. In addition, AvTel will make copies of this prospectus available to
the selling stockholders and has informed them of the need for delivery of
copies of this prospectus to purchasers at or prior to the time of any sale of
the shares offered hereby.
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At the time a particular offer of shares is made, if required, a prospectus
supplement will be distributed that will set forth the number of shares being
offered and the terms of the offering, including the name of any underwriter,
dealer or agent, the purchase price paid by any underwriter, any discount,
commission and other item constituting compensation, any discount, commission or
concession allowed or reallowed or paid to any dealer, and the proposed selling
price to the public.
AvTel has agreed with certain of the selling stockholders to keep the
registration statement of which this prospectus constitutes a part effective
until all of the shares covered hereby have been sold or are eligible for sale
without restriction under Rule 144.
WHERE YOU CAN FIND MORE INFORMATION
AvTel is subject to the reporting requirements of the Securities Exchange
Act of 1934. Accordingly, AvTel files periodic reports, proxy statements and
other information with the Securities and Exchange Commission. You may inspect
or copy these materials at the Public Reference Room maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington D.C.
20549. You may obtain information concerning the operation of the Public
Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. AvTel's filings are also available to the public from the
Commission's website on the Internet at http.//www.sec.gov. AvTel distributes to
its stockholders annual reports containing audited financial statements. You may
also access information about AvTel electronically by means of its website at
http.//www.avtel.com.
AvTel has filed with the Securities and Exchange Commission a registration
statement on Form S-3 with respect to the shares offered by this prospectus.
This prospectus does not contain all of the information included in the
registration statement. Please refer to the registration statement and its
exhibits, and to the documents incorporated by reference into the registration
statement, for further information about AvTel and the shares offered by this
prospectus. You may obtain a copy of the registration statement through the
public reference facilities of the Securities and Exchange Commission described
above. You may also access a copy of the registration statement electronically
by means of the Securities and Exchange Commission's website at
http.//www.sec.gov.
The Securities and Exchange Commission allows AvTel to "incorporate by
reference" the documents AvTel files with it. This means that AvTel can disclose
important information to you by referring to those documents. The information
incorporated by reference is considered to be part of this prospectus. Documents
that AvTel files later with the Securities and Exchange Commission will
automatically update and supersede this information. AvTel incorporates by
reference the documents listed below:
(1) AvTel's Annual Report on Form 10-K for the year ended December 31,
1998, as amended by Amendment No. 1 to such Annual Report on Form
10-K/A;
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(2) AvTel's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999, as amended by Amendment No. 1 to such Quarterly Report on Form
10-Q/A;
(3) AvTel's Current Report on Form 8-K, filed with the Commission on May
5, 1999;
(4) The description of the common stock contained in AvTel's registration
statement on Form 10-SB, filed with the Securities and Exchange
Commission on January 16, 1996, as amended by the registration
statements on Form 10-SB/A filed on March 29 and May 28, 1996, and as
further amended by the definitive proxy statement on Schedule 14A,
filed with the Securities and Exchange Commission on October 30, 1997,
in connection with AvTel's reincorporation in Delaware.
(5) All reports and other documents AvTel files with the Securities and
Exchange Commission under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, after the date of this
prospectus and prior to the termination of this offering.
You may request a copy any document incorporated by reference into this
prospectus, at no cost, by writing or calling AvTel at:
AvTel Communications, Inc.
501 Bath Street, Santa Barbara, California 93101
Attention: Investor Relations
Telephone: (805) 884-6300.
This prospectus is part of a registration statement AvTel filed with the
Securities and Exchange Commission.
LEGAL MATTERS
The validity of the common stock offered hereby has been passed upon by
Seed, Mackall & Cole LLP, Santa Barbara, California, counsel to AvTel.
EXPERTS
The consolidated financial statements and financial statement schedule of
AvTel Communications, Inc. and subsidiaries at December 31, 1998 and 1997 and
for each of the years in the three-year period ended December 31, 1998, have
been incorporated by reference herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
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You should rely only on the information or representations provided in this
prospectus or to which AvTel has referred you. AvTel has not authorized anyone
to provide you with different information. The common stock will not be offered
in any state where an offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the cover of this prospectus.
TABLE OF CONTENTS
Page No.
AvTel ......................................................................2
Forward-Looking Statements ................................................. 2
Risk Factors ............................................................... 2
The Private Offering........................................................ 7
Use of Proceeds ............................................................ 9
Selling Stockholders ....................................................... 9
Plan of Distribution ...................................................... 11
Where You Can Find More Information........................................ 13
Legal Matters ............................................................. 14
Experts .................................................................. 14
AVTEL COMMUNICATIONS, INC.
815,000 SHARES
OF
Common Stock
------------------
PROSPECTUS
------------------
July 12, 1999
