<PAGE>
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 Section240.14a-11(c) or
Section240.14a-12
AVTEL COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(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 (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:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / 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:
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(4) Date Filed:
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<PAGE>
[LOGO]
April 21, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders on
Thursday, May 27, 1999 at 2:30 P.M. at the Hotel Santa Barbara, 533 State
Street, Santa Barbara, California.
In addition to the agenda items described in the Notice and Proxy Statement
accompanying this letter, there will be a report on operations and ample
opportunity for questions to be directed to executive officers regarding company
affairs.
It is important that your shares be represented. Please, therefore, sign and
return the enclosed proxy card in the envelope provided as soon as possible so
that your shares can be voted at the meeting in accordance with your
instructions.
We hope to see you at the meeting.
Very truly yours,
[SIGNATURE]
[SIGNATURE]
Anthony E. Papa
James P. Pisani
CHAIRMAN AND CHIEF
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
OPERATING OFFICER
<PAGE>
AVTEL COMMUNICATIONS, INC.
501 BATH STREET
SANTA BARBARA, CALIFORNIA 93101
------------------------
NOTICE OF ANNUAL MEETING
TO BE HELD MAY 27, 1999
------------------------
The Annual Meeting of Stockholders of AvTel Communications, Inc. ("AvTel")
will be held on Thursday, May 27, 1999 at 2:30 P.M., local time, at the Hotel
Santa Barbara, 533 State Street, Santa Barbara, California.
The items of business to be conducted at the meeting are:
1. Election of five directors for a term of one year.
2. Ratification of the appointment of auditors.
3. Such other matters as may properly come before the Annual Meeting.
It is not anticipated that any other business will come before the Annual
Meeting. If, however, such matters are presented, proxies will be voted thereon
as determined by a majority vote of the Board of Directors.
These items are more fully described in the attached Proxy Statement, which
is hereby made a part of this Notice. Only stockholders of record at the close
of business on April 6, 1999 are entitled to vote at the meeting and at any
adjournment thereof. STOCKHOLDERS ARE REMINDED THAT SHARES CANNOT BE VOTED
UNLESS THE STOCKHOLDER IS PRESENT, THE SIGNED PROXY CARD IS RETURNED OR OTHER
ARRANGEMENTS ARE MADE TO HAVE THE SHARES REPRESENTED AT THE MEETING.
By order of the
Board of Directors
[SIGNATURE]
James P. Pisani
SECRETARY
Santa Barbara, California
April 21, 1999
If you have not received the 1998 AvTel Communications, Inc. Annual Report
(which includes financial statements) along with these materials, kindly notify
AvTel Communications, Inc., 501 Bath Street, Santa Barbara, California 93101,
Telephone (805) 884-6300, Facsimile (805) 884-6311.
<PAGE>
AVTEL COMMUNICATIONS, INC.
501 BATH STREET
SANTA BARBARA, CALIFORNIA 93101
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 1999
------------------------
The enclosed proxies are solicited by the Board of Directors of AvTel
Communications, Inc., a Delaware corporation (the "Company" or "AvTel") for use
at the Annual Meeting of Stockholders of AvTel (the "Annual Meeting"), to be
held at 2:30 P.M. on Thursday, May 27, 1999 and at any adjournments or
postponements thereof. The purposes of the Annual Meeting are set forth in this
Proxy Statement and in the accompanying Notice of Annual Meeting of
Stockholders. The mailing address of the executive offices of AvTel is 501 Bath
Street, Santa Barbara, California 93101. This Proxy Statement and the
accompanying proxy materials are being mailed to stockholders on or about April
21, 1999.
PROCEDURAL MATTERS
Only holders of record of AvTel's Common Stock, $.01 par value (the "Common
Stock"), at the close of business on April 6, 1999 (the "Record Date") are
entitled to notice of and to vote at the Annual Meeting. On the Record Date,
there were 10,519,694 shares of AvTel's Common Stock issued and outstanding,
excluding treasury stock. The presence, in person or by proxy, of the holders of
a majority of the shares of Common Stock entitled to vote will constitute a
quorum for the transaction of business at the Annual Meeting.
Each share of Common Stock has one vote on all matters. Stockholders are not
entitled to cumulate their votes with respect to the election of directors. A
stockholder may revoke any proxy given pursuant to this solicitation by
attending the Annual Meeting and voting in person, or by delivering to AvTel's
Corporate Secretary at AvTel's executive office referred to above prior to such
meeting, a written notice of revocation or a duly executed proxy bearing a later
date.
The shares represented by a duly executed and unrevoked proxy in the form
accompanying this Proxy Statement will be voted in accordance with the
specifications contained therein. In the absence of specifications, a proxy will
be voted FOR the nominees for director named herein, and FOR the ratification of
auditors.
The Board of Directors is not aware of any business to be acted upon at the
Annual Meeting other than as described herein. If, however, other matters are
properly brought before the Annual Meeting, including any adjournment or
postponement thereof, the persons appointed as proxies will vote all shares
subject to proxies as determined by a majority vote of the Board of Directors.
AvTel will bear the cost of this solicitation. In addition, AvTel will
reimburse brokerage firms and other persons representing beneficial owners of
shares for their reasonable expenses in forwarding solicitation material to such
beneficial owners. Proxies may be solicited by certain of AvTel's directors,
officers and regular employees, without additional compensation, personally or
by mail, telephone or otherwise.
1
<PAGE>
STOCKHOLDER PROPOSALS
Stockholders of AvTel who intend to present proposals at AvTel's next Annual
Meeting of Stockholders must send such proposals to AvTel for receipt no later
than December 31, 1999 in order for such proposals to be considered for
inclusion in the Proxy Statement and form of proxy relating to that meeting.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
ELECTION OF DIRECTORS
AvTel's Bylaws currently permit the Board of Directors to specify the exact
number of authorized directors within the permitted range of five to nine.
Currently, the authorized number of directors is five. Each director is elected
to serve for a one-year term and until his or her respective successor is
elected and qualified.
The current members of the Board are being nominated for re-election. The
Company's Bylaws require that any nominations for election as a director, other
than nominations by the Board of Directors, must be received at least 90 days in
advance of the Annual Meeting, if such meeting is to be held on or after the
anniversary of the previous year's annual meeting. The Company has not received
any nominations for directors other than those individuals nominated by the
Board. Each director must be elected by a majority of the votes cast at the
Annual Meeting.
If any nominee is unable or declines to serve as a director at the time of
the Annual Meeting, the proxy holders will vote the shares which they represent
for a nominee designated by the present Board of Directors to fill the vacancy.
It is not presently expected that any nominee will be unable or will decline to
serve as a director. Holders of proxies solicited by this Proxy Statement will
vote the proxies received by them as directed on the proxy card, or if no
direction is made, for the election of the Board of Director's nominees named
below. Stockholders are not entitled to cumulative votes in the election of
directors.
NOMINEES FOR ELECTION AS DIRECTOR:
Information with respect to the nominees for director is set forth below:
ANTHONY E. PAPA, age 36, has been the Chairman of the Board and Chief
Executive Officer of the Company since October 1996. Mr. Papa was also President
of the Company from October 1996 until February 1998. Prior to October, 1996,
Mr. Papa had served as President of ICS Communications, Inc.("ICS"), Richardson,
Texas, a national provider of cable television, wireless paging, local and
long-distance telephone services from December 1992. Before joining ICS, Mr.
Papa served as general manager for Spectradyne, Inc., the largest provider of
pay-per-view entertainment and interactive services to the hospitality industry.
Mr. Papa is a director of International School of Information Management, Inc.,
an accredited university and an electronic publisher and provider of electronic
services, and a director of ABC-Clio, Inc., an international publisher of
historical reference materials for institutions of higher education. Mr. Papa
received a B.S. in Management from Iona College, in New Rochelle, New York.
JAMES P. PISANI, age 34, has been the President of the Company since
February 1998, and has served as Chief Operating Officer, Chief Financial
Officer and Secretary of the Company since October 1996. Mr. Pisani has also
served as Chief Accounting Officer of the Company since October 1998. From
October 1996 to February 1998, Mr. Pisani was the Executive Vice President of
the Company. Prior to October 1996, he served as Vice President of Sales and
National Accounts 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 with a degree in Economics.
2
<PAGE>
JOHN E. ALLEN, age 62, has been a director of the Company since December
1997. He is Vice Chairman of the Boards of Amli Residential Properties Trust and
Amli Commercial Properties Trust, and President of Amli Realty Co. ("AMLI"), a
commercial real estate firm, which he co-founded in 1980. Prior to co-founding
AMLI, he was a partner at the Chicago law firm of Mayer, Brown & Platt, with
which he had been associated since 1964. Mr. Allen is also a member of the Board
of Directors of Excell Global Services, an owner and operator of telephone call
centers. Mr. Allen received a B.S. in Business from Indiana University and a
J.D. from Indiana University School of Law.
JEFFREY J. JENSEN, age 40, has been a director of the Company since January
1998. He has been the President of Specialized Association Services, Ltd.
("SAS"), which provides marketing and administrative services to trade
associations, for more than five years. Between 1996 and July 1998, SAS was
known as CORE Marketing, Inc. and provided direct mail and telemarketing
facilities in addition to its other activities. Mr. Jensen has also been the
Vice President of United Group Service Centers, Inc., an employee leasing
company, for more than five years. In addition, from 1992 to 1995, Mr. Jensen
was a founding partner of Association Dental Plan, which provided discounted
dental services to 40,000 members. Mr. Jensen holds equity interests in several
Internet and technology companies. Mr. Jensen received B.A. degrees in Economics
and Philosophy from Cornell College, in Mount Vernon, Iowa and holds an M.S. in
Information Systems from the University of Texas at Arlington.
ANTHONY D. MARTIN, age 49, has been a director of the Company since April
1999. Mr. Martin is Managing Director of CrossHill Financial Group Inc., a
position he has held since March 1998. From January 1997 through July 1997, he
served as President and CEO of Nexus Communications, Inc., a start-up company
providing information services. From January 1994 to December 1996, he served as
Vice President, Business Development of MCI Metro, MCI Telecommunications,
Inc.'s local service initiative. Prior to that, he held several senior
management positions at MCI, including Vice President, Access Services Project
Management; Vice President, Systems Engineering and Support Operations; Vice
President, Carrier Marketing and Alliances; Vice President, Finance
Administration; and Vice President, Technical Planning. He received a B.S. from
the United States Naval Academy and an M.B.A. from the University of Detroit.
There are no family relationships between any directors or executive
officers of AvTel.
BOARD MEETINGS AND COMMITTEES
The Board of Directors met ten times in 1998. Each incumbent director
attended more than 75% of the total of all meetings of the Board of Directors
and the committees of the Board on which he served. In December 1997, the Board
delegated certain authority to standing committees to assist the Board in
carrying out its duties. The current committees, and their members, are set
forth below.
The Audit Committee meets with the auditors to discuss the scope and results
of audits and oversees internal accounting controls. This committee currently
consists of directors Allen, Jensen and Martin. The Audit Committee met once
during 1998.
The Compensation Committee reviews and makes recommendations to the Board
regarding the compensation of senior management and has overseen the award of
certain options under the Company's 1997 Stock Incentive Plan and 1998 Stock
Incentive Plan. This Committee currently consists of directors Allen, Jensen and
Martin. The Compensation Committee met twice during 1998.
There is no nominating committee or any committee performing that function.
The Company's Bylaws provide that nominations for the election of directors may
be made by the Board of Directors, a Committee thereof or by any stockholder
entitled to vote in the election of directors generally. However, a stockholder
may nominate one or more persons for election as directors only at a meeting of
stockholders and only if written notice (in the form required by the Bylaws) of
such stockholder's intent to make such nomination or nominations has been
received by the Secretary of the Company not later than the following
3
<PAGE>
dates: (i) with respect to an election to be held at an annual meeting of
stockholders, 60 days in advance of such meeting if such meeting is to be held
on a day which is within 30 days preceding the anniversary of the previous
year's annual meeting, or 90 days in advance of such meeting if such meeting is
to be held on or after the anniversary of the previous year's annual meeting;
and (ii) with respect to an election to be held at a special meeting of
stockholders for the election of directors, the close of business on the tenth
day following the date on which notice of such meeting is first given to
stockholders.
DIRECTORS FEES
During 1998, directors did not receive compensation for their membership on
the Board, although the Company did reimburse their reasonable expenses in
connection with attendance at board and committee meetings. The Company has
established a policy to pay non-employee directors a fee of $1,000, in addition
to reimbursement of expenses, for each Board or committee meeting they attend in
excess of four such meetings a year. Directors (including non-employee
directors) are also eligible to receive grants of stock options and restricted
stock under the Company's 1997 Stock Incentive Plan and 1998 Stock Incentive
Plan.
During 1998, Director John E. Allen received a grant of 60,000 shares of
restricted stock under the Company's 1997 Stock Incentive Plan. These shares are
subject to restrictions on transfer. These restrictions will lapse as to 30,000
of such shares on February 24, 2001, and as to the remaining 30,000 shares on
February 24, 2002. The lapse of these restrictions will be accelerated upon Mr.
Allen's retirement from the Board of Directors and upon certain other events set
forth in the 1997 Stock Incentive Plan.
In April 1999, Directors John E. Allen, Jeffrey J. Jensen and Anthony D.
Martin received grants of 25,000 options each under the Company's 1998 Stock
Incentive Plan. One-half of such options will become exercisable in April 2000,
and the remainder will become exercisable in April 2001. Unless exercised, the
options will expire in April 2004. The exercise price for Mr. Allen's and Mr.
Jensen's options is $4.88 per share. The exercise price for Mr. Martin's options
is $4.6875 per share.
STOCK OWNERSHIP
The following table reflects shares of AvTel's Common Stock beneficially
owned by each of the directors, and by all directors and officers as a group, as
of the Record Date.
<TABLE>
<CAPTION>
AMOUNT PERCENT OF
NAME BENEFICIALLY OWNED CLASS(1)
- ------------------------------------------------------------------------ ------------------ -------------
<S> <C> <C>
Jeffrey J. Jensen(2).................................................... 851,738 8.1%
Anthony E. Papa(3)...................................................... 778,588 7.4%
James P. Pisani(3)...................................................... 772,188 7.3%
John E. Allen(4)........................................................ 185,000 1.8%
Anthony D. Martin....................................................... -- *
All directors and executive officers as a group (8 persons)(5).......... 2,641,122 25.1%
</TABLE>
- ------------------------
* Represents less than 1%
(1) 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 the Company's Common Stock subject to options held by that person
that are exercisable within sixty (60) days following the Record Date are
deemed outstanding. However, such shares of Common Stock 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
persons and entities named in the table have sole voting and sole investment
power with respect to the shares set forth opposite such Company's name. The
percentages of beneficial ownership shares in this table are based upon
10,519,694 shares of the Common Stock outstanding.
4
<PAGE>
(2) Pursuant to the terms of the Registration Rights and Lockup Agreement dated
December 1, 1997 (the "Registration Rights and Lockup Agreement"), executed
in connection with the acquisition of Matrix Telecom, Inc. by the Company,
these shares may not be sold for two years after December 1, 1997.
(3) As to each of Mr. Papa and Mr. Pisani, includes 15,625 shares that may be
acquired under options that were exercisable within 60 days of the Record
Date. Pursuant to the terms of the Registration Rights and Lockup Agreement,
250,000 of the shares held by each of Mr. Papa and Mr. Pisani may not be
sold for two years after December 1, 1997.
(4) Includes 60,000 shares of restricted stock awarded to Mr. Allen under the
Company's 1997 Stock Incentive Plan. See "Directors Fees," above. Pursuant
to the terms of the Registration Rights and Lockup Agreement, 125,000 of the
shares held by Mr. Allen may not be sold for two years after December 1,
1997.
(5) Includes 31,250 shares that may be acquired under options that were
exercisable within 60 days of the Record Date.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE REELECTION OF
DIRECTORS PAPA, PISANI, ALLEN, JENSEN AND MARTIN TO AVTEL'S BOARD OF DIRECTORS.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's Chief
Executive Officer, each other executive officer of the Company whose total
annual salary and bonus exceeded $100,000 for the fiscal year ended December 31,
1998, and two individuals that ceased to be executive officers during such
fiscal year (the "Named Officers"). Titles shown are those held by the Named
Officers at December 31, 1998, or at the date they ceased to be executive
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
----------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION($) OPTIONS(#)
- ------------------------------------------- ----------- ---------- --------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Anthony E. Papa(1) ........................ 1998 $ 198,000 $ 50,000 -- --
Chairman and Chief 1997 158,459 -- -- 31,250
Executive Officer 1996 46,875 -- -- --
James P. Pisani(1) ........................ 1998 $ 180,000 $ 50,000 -- --
President, Chief Operating Officer, Chief 1997 152,500 -- -- 31,250
Financial Officer and Secretary 1996 46,875 -- -- --
D. Stephen DeWindt(2) ..................... 1998 $ 150,000 $ 40,000 $ 2,908(3) 6,250
President--Business Network Services 1997 127,083 15,556 -- 56,250
Division
Frank Dziuba(4) ........................... 1998 $ 100,000 -- -- 15,000
Senior Vice-President Software Development 1997 85,833 $ 39,300 -- 31,250
1996 7,500 -- -- 12,474
</TABLE>
- ------------------------
(1) Employed as of July 31, 1996.
(2) Employed as of January 27, 1997. Mr. DeWindt ceased to be employed with the
Company as of October 30, 1998.
5
<PAGE>
(3) Reflects sales commissions.
(4) Employed as of November 20, 1996. Mr. Dziuba ceased to be an executive
officer of the Company as of December 14, 1998. He continues as Senior Vice
President of the Company's Addictive Media Group.
The following table summarizes all option grants to the Named Officers
during the year ended December 31, 1998. No stock appreciation rights were
awarded during such year.
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(1)
OPTIONS EMPLOYEES IN EXERCISE --------------------
NAME GRANTED FISCAL YEAR PRICE EXPIRATION DATE 5% 10%
- --------------------------------- ----------- ------------- ----------- ---------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Anthony E. Papa.................. 0 0% -- -- -- --
James P. Pisani.................. 0 0% -- -- -- --
D. Stephen DeWindt............... 6,250 (2) .73 % $ 7.813 January 27, 2008 $ 30,710 $ 77,824
Frank Dziuba..................... 15,000 (3) 1.75 % $ 4.00 December 14, 2008 $ 37,734 $ 95,625
</TABLE>
- ------------------------
(1) The potential realizable portion of the foregoing table illustrates value
that might be realized upon exercise of options immediately prior to the
expiration of their term, assuming (for illustrative purposes only) the
specified compounded rates of appreciation of the price of the Common Stock
over the term of the respective option. These numbers do not take into
account provisions providing for the termination of the option following
termination of employment, nontransferability or difference in vesting
terms.
(2) Options vested six months after the grant date. Options terminated
unexercised 90 days after the termination of Mr. DeWindt's employment with
the Company.
(3) Options vest in annual increments of 25% over the four years after the grant
date.
6
<PAGE>
The following table provides information with respect to stock options
exercised by the Named Officers during the year ended December 31, 1998 and the
unexercised stock options held as of December 31, 1998 by the Named Officers.
OPTION EXERCISES DURING YEAR ENDED DECEMBER 31, 1998
AND OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(2)
SHARES ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Anthony E. Papa............. -- -- 7,813 23,437 $ 3,516 $ 10,547
James P. Pisani............. -- -- 7,813 23,437 $ 3,516 $ 10,547
D. Stephen DeWindt.......... 26,562 $ 93,450 -- -- -- --
Frank Dziuba................ -- -- 20,287 38,437 $ 5,860 $ 17,578
</TABLE>
- ------------------------
(1) Calculated on the basis of the fair market value of the Company's common
stock on the date of exercise, minus the exercise price of the options.
(2) Calculated on the basis of the fair market value of the Company's common
stock on December 31, 1998, minus the exercise price of the options. The
closing price of the Common Stock on The Nasdaq SmallCap Market-SM- on
December 31, 1998 was $3.75 per share.
EMPLOYMENT AGREEMENTS
Until December 1, 1997, the Company had employment agreements in place with
each of Messrs. Papa and Pisani. Under these employment agreements, generally,
each executive was to be employed for a term commencing in August 1996 and
expiring July 31, 1999, subject to certain extension rights. In connection with
the acquisition of Matrix Telecom, Inc. ("Matrix") by the Company, Messrs. Papa
and Pisani agreed that, upon the closing of the acquisition, their respective
employment agreements would be terminated. Accordingly, both employment
agreements terminated on December 1, 1997, and Messrs. Papa and Pisani now serve
on an "at-will" basis.
In connection with its acquisition of Silicon Beach Communications, Inc.
("SBC") on November 21, 1996, the Company entered into an employment agreement
with Mr. Dziuba pursuant to which he is employed for a three-year term ending
November 21, 1999 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 stock option grants and an "earn-out"
bonus paid to Mr. Dziuba upon satisfaction of certain operational performance
objectives. 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. The agreement does not call for any payments as a result of any change
in control of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the Compensation Committee consisted of Mr. Allen, Mr. Jensen
and, until his resignation from the Board of Directors on December 17, 1998,
Gregory T. Mutz. Mr. Martin was appointed to the Compensation Committee on April
9, 1999, to fill the vacancy caused by Mr. Mutz's resignation. None of such
Compensation Committee members was or has been an officer or employee of the
Company or any of its subsidiaries. Certain entities with which Mr. Jensen was
affiliated received payments from the Company during 1998. See "Certain
Relationships and Related Transactions."
7
<PAGE>
No executive officer of the Company served at any time during the year ended
December 31, 1998 as a member of the Board of Directors or Compensation
Committee of any entity that has one or more executive officers serving as a
member of the Company's Board or Compensation Committee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has overall responsibility for the Company's
executive compensation policies and practices. The Compensation Committee's
functions include:
- Determining the compensation of the Chief Executive Officer and the
President and Chief Operating Officer of the Company.
- Reviewing and approving all other executive officers' compensation,
including salary and bonuses, in each case based in part upon the
recommendations of the Chief Executive Officer and the President and Chief
Operating Officer of the Company.
- Granting awards under the Company's 1997 Stock Incentive Plan and 1998
Stock Incentive Plan.
The Compensation Committee bases its determinations of overall executive
compensation, which will include salary, bonus, certain benefits and stock
option and restricted stock awards and possibly other forms of equity-based
compensation, on subjective factors based upon consideration of, among other
factors, the annual and long-term financial performance of the Company,
including the creation of stockholder value, the historical financial
performance of the Company, the individual executive officer's contribution to
the achievement of operating goals and business objectives and levels of
compensation in comparable companies at similar stages of development, with
particular emphasis on those operating in the telecommunications industry. The
Compensation Committee also considers financial performance criteria, including
the price of the Company stock, in the context of the telecommunication industry
as well as the economy in general.
The Compensation Committee believes that the best way to attract and
maintain high caliber executives is to encourage equity ownership in the
Company. Each of Mr. Papa and Mr. Pisani own in excess of seven percent of the
Company's outstanding shares of Common Stock. In addition, each executive
officer of the Company has received substantial grants of stock options which
vest over time. As a result, such officers will benefit from a rise in the price
of the Common Stock on the same basis as other stockholders. The Compensation
Committee's compensation philosophy has been to couple this equity incentive
with salaries and bonuses that are competitive in the Company's industry.
The Compensation Committee believes that equity-based compensation is an
effective way of aligning executive compensation with increases in stockholder
value. The Compensation Committee believes that the Company's Stock Incentive
Plans increase the ability of the Company to tie executive interests to the
interests of the Company, thereby benefitting the Company and its stockholders.
The Compensation Committee believes equity compensation, in the form of stock
options and, potentially, restricted stock, is vital to the long-term success of
the Company. The Compensation Committee is committed to this policy, recognizing
the competitive market for talented executives and that the nature of the
Company's business may result in highly variable compensation for a particular
time period.
Each member of the Compensation Committee, except Mr. Jensen, meets the
definition of "non-employee director" under Rule 16b-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and is an "outside
director" within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the Code).
Section 162(m) of the Code limits the Company's deduction for compensation
paid to the Named Officers to $1 million unless certain requirements are met.
The policy of the Compensation Committee with respect to Section 162(m) has been
to establish and maintain a compensation program which will optimize the
deductibility of compensation. In that regard, no executive officer received
compensation in
8
<PAGE>
excess of $1 million during fiscal 1998. The Compensation Committee, however,
reserves the right to use its judgment, where merited by the Compensation
Committee's need for flexibility to respond to changing business conditions or
by an executive officer's individual performance, to authorize compensation
which may not, in a specific case, be fully deductible by the Company.
By the Compensation Committee
John E. Allen
Jeffrey J. Jensen
Anthony D. Martin
STOCK PERFORMANCE GRAPH
The following graph compares the total return on the Common Stock with the
cumulative total return on the Nasdaq Composite Index (a broad market index) and
the Nasdaq Telecommunications Index (an industry index) for the period from
March 16, 1996, the date upon which the Common Stock was registered pursuant to
Section 12 of the Exchange Act, through December 31, 1998. The comparison
reflects the investment of $100 on March 16, 1996, and the reinvestment of
dividends (if paid), in each of the Company's Common Stock (for which no
dividends have been paid), the Nasdaq Composite Index and the Nasdaq
Telecommunications Index. The Company's Common Stock traded under the name Hi,
Tiger International, Inc. from the date of registration under the Exchange Act
until October 23, 1996. The market price of the Company's Common Stock has been
significantly affected by two transactions that were accounted for as reverse
purchases, including the acquisition of AvTel Holdings, Inc. on October 23,
1996, and the acquisition of Matrix on December 1, 1997. The stock price
performance of the Company reflected in this comparison is not necessarily
indicative of the future stock price performance of the Company's Common Stock.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVTEL COMMUNICATIONS NASDAQ TELECOMMUNICATIONS INDEX NASDAQ COMPOSITE INDEX
<S> <C> <C> <C>
3/18/96 $100.00 $100.00 $100.00
6/30/96 $142.86 $103.38 $106.34
9/30/96 $114.29 $99.41 $110.09
12/30/96 $100.00 $99.23 $115.85
3/31/97 $89.43 $92.76 $109.63
6/30/97 $435.71 $114.30 $129.40
9/30/97 $542.86 $133.05 $151.26
12/31/97 $235.71 $140.91 $140.91
3/31/98 $214.29 $178.46 $164.72
6/30/98 $219.64 $189.77 $170.02
9/30/98 $67.86 $167.08 $151.99
12/31/98 $107.14 $230.22 $196.76
</TABLE>
9
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DEALINGS WITH UICI ORGANIZATIONS IN CONNECTION WITH MARKETING
SERVICES. Director Jeffrey J. Jensen, his father, Ronald L. Jensen, and his
adult siblings, own approximately 35% of UICI, a publicly-traded insurance and
financial services company. Until December 31, 1998, Director John E. Allen was
also a director of UICI. Among their other activities, UICI's marketing
organizations sell the Company's long distance and Internet products to their
customers. Matrix paid sales commissions and related payments to UICI, together
with certain other affiliated entities, of $140,187 in 1998. The Company
believes that it receives the foregoing services on terms no less favorable to
the Company than could be obtained from unrelated third parties.
LONG DISTANCE SERVICES. Matrix also provides long distance telephone
service to certain affiliates of Mr. Jensen, his father and his adult siblings,
including UICI. The Company received $2.4 million in 1998 from UICI and its
affiliates for such services. The Company believes that it provides the
foregoing services on terms no less favorable to the Company than could be
obtained from unrelated third parties.
EMPLOYEE LEASING. Until December 31, 1998, Matrix leased a substantial
portion of its employees from United Group Service Center ("UGSC"). Mr. Jensen
was the Vice President of UGSC, an entity affiliated with Mr. Jensen, his
immediate family and UICI. Matrix paid UGSC $5,581,428 for such employees'
services in 1998. Matrix terminated this employee leasing arrangement effective
December 31, 1998. The Company believes that it received the foregoing services
on terms no less favorable to the Company than could be obtained from unrelated
third parties
LOAN TO AFFILIATE. During 1997, Matrix made an interest-free loan to CORE
Marketing, Inc. ("CORE") in the total amount of $2,000,000 as an advance against
commissions to be incurred by Matrix for marketing services supplied by CORE.
Mr. Jensen was the President of CORE, and he and his adult siblings owned a
controlling interest in CORE. The loan was repaid in full during 1998.
POLICY ON RELATED PARTY TRANSACTIONS. In connection with its listing on The
Nasdaq SmallCap Market-SM-, the Company has undertaken to conduct an appropriate
review of all related party transactions on an ongoing basis and to utilize the
Audit Committee to review potential conflict of interest situations where
appropriate.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC. Officers, directors and greater
than ten-percent shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company, and on written representations that no Forms 5 were required, the
Company believes that during the year ended December 31, 1998, no officers,
director or greater than ten-percent shareholder failed to file on a timely
basis any report required under Section 16(a).
10
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information for the persons known to the
Company to be owners of more than five percent of its outstanding shares as of
the Record Date.
<TABLE>
<CAPTION>
AMOUNT PERCENT OF
NAME AND ADDRESS BENEFICIALLY OWNED CLASS(1)
- -------------------------------------------------------------- ------------------ -------------
<S> <C> <C>
Janet J. Jensen(2) ........................................... 961,939 9.1%
9003 Airport Freeway
Fort Worth, TX 76180
Jeffrey J. Jensen(2) ......................................... 851,738 8.1%
2121 Precinct Line Road
Hurst, TX 76054
James J. Jensen(2) ........................................... 851,738 8.1%
6304 Alexandria Circle
Atlanta, GA 30326
Jami J. Jensen(2) ............................................ 851,738 8.1%
1933 Swede Gulch
Golden, CO 80120
Julie J. Jensen(2) ........................................... 851,738 8.1%
Box 540, Kenwood Station
5257 River Road
Bethesda, MD 20816
Anthony E. Papa(3) ........................................... 778,588 7.4%
James P. Pisani(3) ........................................... 772,188 7.3%
Gladys J. Jensen(2) .......................................... 731,847 7.0%
c/o United Group Association, Inc.
4001 McEwen Drive, Suite 200
Dallas, TX 75244
</TABLE>
- ------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC"). In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, shares of the Company's Common Stock subject to options held by that
person that are exercisable within sixty (60) days following the Record Date
are deemed outstanding. However, such shares of Common Stock 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
persons and entities named in the table have sole voting and sole investment
power with respect to the shares set forth opposite such Company's name. The
percentages of beneficial ownership shares in this table are based upon
10,519,694 shares of the Common Stock outstanding.
(2) Information is derived from a Schedule 13D filed with the SEC on December
11, 1997 and a Schedule 13D/A filed with the SEC (by Gladys J. Jensen only)
on July 10, 1998 (the "Schedule 13D's"). Pursuant to the terms of the
Registration Rights and Lockup Agreement dated December 1, 1997, these
shares may not be sold for two years after December 1, 1997. The Schedule
13D's note that, because each of these stockholders agreed to the
restrictions contained in the Registration Rights and Lockup Agreement, such
persons may be considered to be a "group" within the meaning of Section 13
of the Securities Exchange Act of 1934, as amended. However, the Schedule
13D's state that each of such persons disclaims beneficial ownership of the
shares held by any other person.
11
<PAGE>
(3) As to each of Mr. Papa and Mr. Pisani, includes 15,625 shares that may be
acquired under options that were exercisable within 60 days of the Record
Date. Pursuant to the terms of the Registration Rights and Lockup Agreement,
250,000 of the shares held by each of Mr. Papa and Mr. Pisani may not be
sold for two years after December 1, 1997. The address of these stockholders
is c/o AvTel Communications, Inc., 501 Bath Street, Santa Barbara, CA 93101.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of KPMG LLP, as AvTel's
independent auditors for 1999. A representative of KPMG LLP is expected to be
present at the Annual Meeting. Such representative will have the opportunity to
make a statement if he or she desires to do so and will be available to respond
to appropriate questions. KPMG LLP audited the Company's financial statements
for the year ended December 31, 1998.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF KPMG LLP AS AVTEL'S INDEPENDENT AUDITORS FOR THE YEAR
1999.
OTHER BUSINESS
The Board does not intend to present any other business for action at the
Annual Meeting and does not know of other matters likely to be brought before
such meeting. If any other matters are introduced, the proxy holders named in
the enclosed proxies will vote shares they represent as the Board recommends.
BY ORDER OF THE BOARD OF DIRECTORS,
[SIGNATURE]
James P. Pisani
SECRETARY
Santa Barbara, California
April 21, 1999
12
<PAGE>
AVTEL COMMUNICATIONS, INC.
REVOCABLE PROXY
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Anthony E. Papa and James P. Pisani, and
each of them, as proxies with full power of substitution, to vote all shares of
Common Stock which the undersigned has power to vote at the Annual Meeting of
Stockholders (the "Annual Meeting") of AvTel Communications, Inc. (the
"Company") to be held on May 27, 1999 at 2:30p.m., local time, at the Hotel
Santa Barbara, 533 State Street, Santa Barbara, California, and at any
adjournment thereof, in accordance with the instructions set forth herein and
with the same effect as though the undersigned were present in person and voting
such shares. The proxies are authorized to vote upon such other business as may
properly come before the meeting in accordance with a majority vote of the Board
of Directors.
THE DIRECTORS RECOMMEND A VOTE "FOR" ITEMS 1 AND 2
1. ELECTION OF DIRECTORS. Election of the following individuals to serve as
directors for a term expiring at the 2000 annual meeting. John E.
Allen Jeffrey J. Jensen Anthony D. Martin Anthony E. Papa James P.
Pisani
/ / FOR all listed nominees / / WITHHOLD AUTHORITY to vote for all listed
nominees
/ / LISTED NOMINEES except the following: (Instruction: To withhold
authority to vote for any individual nominee, write the name of such
nominee(s) on the line below.)
- --------------------------------------------------------------------------------
<PAGE>
2. RATIFICATION OF APPOINTMENT OF AUDITORS. Approval of the selection of KPMG
LLP as the Company's independent auditors for the fiscal year ending
December 31, 1999.
/ / FOR / / AGAINST / / ABSTAIN
3. OTHER BUSINESS. Transaction of such other business as may properly come
before the Annual Meeting or any adjournment thereof.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement dated April 21, 1999.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS MADE, IT WILL BE VOTED
"FOR" ITEMS 1 AND 2.
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
Dated _____________, 1999
_________________________
Signature(s) of
Stockholder(s)
_________________________
Signature if held jointly
PLEASE SIGN exactly as
name appears above. Joint
owners should each sign.
Executors,
administrators, trustees,
etc. should so indicate
when signing. If signer
is a corporation, please
sign full name by duly
authorized officer.
