MAURICE J. BATES, L.L.C.
ATTORNEY AT LAW
8214 WESTCHESTER SUITE, 500
DALLAS, TEXAS 75225
Telephone (214) 692-3566
Fax (214) 987-2091
August 4, 1998
Richard K. Wulff, Chief,
Office of Small Business Policy
Securities and Exchange Commission
450 5th Street N. W.
Washington, DC. 20549
Re: Westower Corporation
File No. 333-32963
Post-Effective Amendment No. 1
Dear Mr. Wulff:
We transmit herewith Post-Effective Amendment No. 1 to the above
registration statement. The purpose of the Post-Effective Amendment is to
provide a current Prospectus to holders of the Company's outstanding Redeemable
Common Stock Purchase Warrants which the Company proposes to call for
redemption.
We spoke to you recently by telephone of the Company's issuance of
shares of Common Stock upon exercise of a number of Warrants at a time when the
Company did not deliver to the Warrant holders a current Prospectus and our plan
to include a rescission offer in the Prospectus covering the call for redemption
of the Warrants. The Company now proposes to call the Warrants as soon as the
Post-Effective amendment is ordered effective. Under the terms of the Warrant
agreement, Warrant holders have 30 days from the date of the Notice of
Redemption to exercise their Warrants. The rescission offer is included in the
Prospectus and offers the Warrant holders who exercised their Warrants without
benefit of a current Prospects the same 30 day period in which to accept the
rescission offer. The Company does not believe that it is likely that any
Warrant holders will accept the rescission offer because the exercise price of
the Warrants is $9.00 per share and the sale price of the Common Stock on the
American Stock Exchange is currently in the $35 per share range and was over $20
at the time of exercise.
Please direct any comments or questions to the undersigned.
Very truly yours,
Maurice J. Bates
<PAGE>
As filed with the Securities and Exchange Commission on August 1998
Registration No. 333-32963
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post effective Amendment No. 1
to
FORM SB-2
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
WESTOWER CORPORATION
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Washington 1623 91-1825860
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
Westower Corporation
7001 NE 40th Avenue
Vancouver, Washington 98661
(360) 750-9355
(Address and telephone number of principal
executive offices and principal place of business)
Calvin J. Payne
Westower Corporation
7001 NE 40th Avenue
Vancouver, Washington 98661
(360) 750-9355
(Name, address and telephone number of agent for service)
Copies of all communications to:
Maurice J. Bates, Esq.
Maurice J. Bates L.L.C.
8214 Westchester Drive, Suite 500
Dallas, Texas 75225
(214) 692-3566
(214) 987-2091 FAX
Approximate date of proposed sale to public: As soon as practicable
after the effective date of the Registration Statement.
shapeType1fFlipH0fFlipV0 If this Form is filed to register additional securities
for an offering pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering.
shapeType1fFlipH0fFlipV0If this Form is a post-effective amendment
filed pursuant to Rule 462(c) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
shapeType1fFlipH0fFlipV0If delivery of the prospectus is expected to be
made pursuant to Rule 434, please check the following box.
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED August , 1998
PROSPECTUS
Westower Corporation
1,380,000 Shares of Common Stock
This Prospectus relates to 1,380,000 shares of Common Stock (the
"Warrant Shares") underlying 1,380,000 Redeemable Common Stock Purchase Warrants
(the "Warrants") issued by the Company in a public offering of 1,380,000 Units,
each Unit consisting of one share of Common Stock and one Warrant, in October
1997 (the "Public Offering"). The Company intends to call the Warrants for
redemption on the effective date of this Prospectus pursuant to the terms of the
Warrant Agreement with American Stock Transfer & Trust Company (the "Warrant
Agent"). Warrant holders will have until the close of business on ________1998
(40 days from the date of this Prospectus) (the "Redemption Date") to exercise
their Warrants. Under the terms of the Warrant Agreement covering the Warrants,
after the Redemption Date, the Warrants shall cease to be exercisable and
thereafter represent only the right to receive the redemption price of $.05 per
share. See "Description of Securities."
This Prospectus also relates to 479,536 shares of Common Stock issued
to 37 Warrant holders who exercised their Warrants prior to the receipt of a
current Prospectus under the Securities Act of 1933, as amended (the "Securities
Act"). Pursuant to this Prospectus, the Company is offering such Warrant holders
the opportunity to rescind the exercise of their Warrants. See "Rescission
Offer."
The Common Stock and the Warrants are listed on the American Stock
Exchange under the trading symbols, WTW and WTW.WS, respectively. The last sale
prices of the Common Stock and the Warrants on the American Stock Exchange were
$35.13 per share of Common Stock and $26.25 per Warrant on July 22, 1998. See
"Price Range of Common Stock and Warrants."
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 6 HEREOF CONCERNING THE COMPANY AND THIS OFFERING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange act of 1934 (the "Exchange Act") and in accordance therewith, file
reports, proxy or information statements and other information with the
Securities and Exchange Commission (the "Commission). Such reports, statements
and other information may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N. W. , Washington,
D. C. 20549, and at the Commission's regional offices located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, new York, New York 10007; copies of such material may also be obtained
by mail from the Public Reference Section of the Commission at 450 Fifth Street,
N. W. , Washington, D. C. , 20049, at prescribed rates. This Prospectus omits
certain information contained in the Registration Statement which the Company
has filed with the Commission under the Securities Act of 1933, as amended (the
"Securities Act") and to which reference is hereby made for further information
with respect to the Company and the securities offered hereby.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2, (including any amendments
thereto, the "Registration Statement") under the Securities Act with respect to
the securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
securities, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements made in this Prospectus regarding the contents of
any contract or document filed as an exhibit to the Registration Statement are
not necessarily complete and, in each instance, reference is hereby made to the
copy of such contract or document so filed. Each such statement is qualified in
its entirety by such reference. The Registration Statement and the exhibits and
the schedules thereto filed with the Commission may be inspected, without
charge, at the office of the Commission at Judiciary Plaza, 450 Fifth Street,
NW, Washington, D.C. 20549. Copies of such materials may also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission at
http://www.se_Hlt386015968c_Hlt386015968.gov.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including notes thereto)
appearing elsewhere in this Prospectus. The Securities offered hereby involve a
high degree of risk. Investors should carefully consider the information set
forth under "Risk Factors."
The Company
Westower Corporation ("Westower" or the "Company") designs, builds and
maintains wireless communications transmitting and receiving facilities for
providers of wireless communication services, including U. S. Cellular, Western
Wireless, Cantel, AT&T, Sprint PCS and Microcell. These facilities are presently
constructed for use with microwave, cellular telephone, pager, and specialized
mobile radio technologies. Although bids for the installation or modification of
communications facilities are normally requested on a fixed price basis, the
Company will, if requested, provide such services on a time and materials basis.
A contract for the installation of cellular transmitting and receiving
facilities may require the Company to develop the location, including roads and
grading, to install the tower antennas and lines, assemble electronic components
and test the installation's equipment. In such instances, the Company
subcontracts road or concrete work required under the contract, performing the
balance of the work with its own employees. The service provider supplies most
of the material used in the installation process, and the Company's major cost
is the cost of its employees and subcontracted labor. Demand for the Company's
services often exceeds its ability to supply those services, and in such
situations the Company subcontracts with smaller enterprises to provide work
normally performed by the Company. Subcontracting permits the Company to
evaluate the subcontractor's quality and review the subcontractor as a potential
candidate for acquisition.
The Company commenced business in 1990 as Westower Communications Ltd.
and emphasized design, construction, maintenance and modification of microwave
and cellular towers for telephone, broadcast and utility companies. The Company
continues these activities, but with the advent of cellular telephones and
personal communication systems ("PCS"), now designs and installs rooftop and
other transmission and receiving facilities. A portion of the Company's revenues
is still derived from installation of microwave facilities and the installation
of related electronic equipment. However, the rapid growth of the use of
cellular telephones has resulted in the installation of cellular transmitting
and receiving facilities being an increasingly significant component of
revenues. The Company also owns communication towers which are leased to a
telephone company.
Since the Public Offering, the Company has acquired five compatible
businesses which operate in the Provinces of Alberta, Ontario and Quebec Canada.
As a result of these acquisitions, the Company expanded its presence in Alberta,
has fabrication capability and owns several additional communications towers,
space on which is leased to a telephone company and other users. The Company
also acquired MJA Communications Corp. ("MJA") in May 1998 which operates in the
Southeastern United States. MJA designs, engineers and constructs communications
towers. The Company intends to expand its ownership and leasing of
communications towers. See" Business-Recent Acquisitions."
The Company's strategy will be to capitalize on the demand for wireless
infrastructure building and implementation services by continuing to expand its
workforce and geographic presence in the marketplace. To accomplish these
objectives, the Company intends to (i) continue its geographic expansion by
opening new regional offices when demand for the Company's services or
acquisition opportunities make such expansion feasible, (ii) continue to enhance
its indigenous new employee hiring, training and retention programs as a method
for attracting, training and retaining new, highly skilled workers, and (iii)
continue to seek to acquire other companies engaged in the wireless
infrastructure building and implementation services and wireless infrastructure
electrical design and engineering services businesses that have good reputations
for quality service and highly skilled workers. The Company is also attempting
to increase the number of towers it leases to third parties by purchasing
existing towers and by building new towers.
The Company's principal operations are in Washington, Oregon, Idaho,
Florida, British Columbia, Alberta, Ontario, Quebec and Canada's Northern
Territories. The Company's headquarters are located at 7001 NE 40 Avenue,
Vancouver, Washington 98661. The telephone number at that location is (360)
750-9355, and its fax number is (360) 750-9354.
3
<PAGE>
The Offering
Securities offered hereby................... 1,380,000 Warrant Shares
Common Stock to be outstanding
after the Offering........................ 6,672,854 shares (1)(2)
Use of Proceeds............................. Acquisitions, working capital and
other general corporate purposes. See "Use of Proceeds."
Risk Factors................................ The Securities offered hereby are
speculative and involve a high degree of risk and should not be purchased by
investors who cannot afford the loss of their entire investment. See "Risk
Factors."
American Stock Exchange Symbols
Common Stock............................ "WTW"
Warrants................................ "WTW.WS"
- ---------------------
(1) Does not include 589,000 shares of Common Stock granted under the Company's
1997 Stock Option Plan (the "Stock Option Plan") and non-qualified options
granted outside the Stock Option Plan, 148,000 of which are immediately
exercisable. See "Management - Stock Option Plan."
(2) Does not include an aggregate of up to 240,000 shares issuable upon
exercise of Warrants granted to the Underwriters in the Company's Public
Offering or 639,281 shares of Common Stock underlying $15,000,000 of
Subordinated Debt..
Rescission Offer
On April 27, 1998, the Company notified the Warrant holders that it was calling
the Warrants for redemption pursuant to the terms of the Warrant Agreement and
that the Warrant holders would have until May 27, 1998 to exercise their
Warrants or submit them for the redemption price of $.05 per Warrant. Pursuant
to such notice and other exercises, Warrant holders tendered $4,315,824 for the
purchase of 479,536 Warrant Shares, of which 365,982 shares have been issued.
The Company subsequently determined that shares could be issued upon exercise of
the Warrants only pursuant to a current Prospectus under the Securities Act and
on May 25, 1998 notified the Warrant holders that no more Warrants would be
accepted for exercise and no additional shares would be issued. The funds
received upon exercise of the Warrants are held in a separate account and are
available for payment to any Warrant holder who accepts the Company's offer
hereunder to rescind his purchase and receive a refund of the purchase price
paid for the Common Stock upon exercise of his Warrants. The Company is
providing a copy of this Prospectus to all Warrant holders, including Warrant
holders who did not exercise their Warrants. A Warrant holder who wishes to
exercise his right of rescission should submit the Acceptance of Rescission
Offer included with this Prospectus on or before the close of business ________,
1998 (40 days from the date of this Prospectus) and return an executed copy to
the Warrant Agent, American Stock Transfer & Trust Company, 40 Broad Street, New
York, New York, 10004. The Rescission Offer will remain open during the 30 day
exercise period of the Warrants, ending on August , 1998.
4
<PAGE>
Selected Financial Information
The following selected financial data has been derived from the audited
balance sheet of the Company as of February 28, 1998, and audited income
statements for the two years ended February 28, 1998 and February 28, 1997 and
unaudited financial statements for the three months ended May 31, 1998 and 1997.
This selected financial data should be read in conjunction with the financial
statements of the Company and the related notes thereto included elsewhere in
this Prospectus. See "Financial Statements."
<TABLE>
<CAPTION>
Year Ended February 28 , Three Months Ended May 31,
<S> <C> <C> <C> <C>
1997 1998 1997 (1) 1998(1)
Operating Data:
Construction revenues $15,416,000 $23,183,000 $8,948,000 11,166,00
Costs of construction 11,415,000 17,287,000 6,654,000 8,599,000
General and administrative (2) 2,186,000 1,813,000 1,361,000 1,299,000
--------- --------- --------- ---------
Earnings before income tax 1,815,000 4,083,000 933,000 1,268,000
Income tax 636,000 1,633,000 349,000 444,000
------- --------- ------- -------
Net income $1,179,000 2,450,000 584,000 824,000
Earnings per share $0.31 $0.57 0.14 0.15
Diluted earnings per share $0.31 $0.53 0.14 0.13
</TABLE>
<TABLE>
<CAPTION>
May 31, May 31, 1998
1998 . As Adjusted (4)
------------------
<S> <C> <C>
Balance Sheet Data: (unaudited)
Working capital $ 24,465,000 $33,591,000
Current assets 34,380,000 43,506,000
Current liabilities 9,915,000 9,915,000
Total assets 41,541,000 50,667,000
Total liabilities 25,150,000 25,150,000
Common Stock subject to rescission 4,316,000 -
Shareholders equity 12,075,000 25,517,000
Shares outstanding 5,658,836 (4) 6,672,854 (4)
</TABLE>
- -------
(1) Financial information as of May 31, 1998 and 1997 includes the results
for MJA Communications Corporation, an aquisition using the pooling-of
interests method.
(2) Included in general and administrative expenses are management bonuses of
$956,000 in the fiscal year ended February 28, 1997 and none in 1998, which
were primarily determined for income tax planning purposes associated with
private companies and are not indicative of future operations.
(3) Adjusted to reflect the sale of the Warrant Shares offered by this
prospectus at an offering price of $9.00 per share and application of
the gross proceeds of $12,320,000.
(4) Does not include (i) 589,000 shares of Common Stock granted under the
Company's 1997 Stock Option Plan (the "Stock Option Plan") and
non-qualified options granted outside the Stock Option Plan, 148,000 of
which are immediately exercisable, (ii) up to 240,000 shares issuable upon
exercise of Underwriters' Warrants issued in connection with the Public
Offering, and (iii) 639,281 shares issuable upon conversion of $15,000,000
Subordinated Debt. See "Management - Stock Option Plan" and "MD&A-Liquidity
and Capital Resources."
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS IN ADDITION TO THE
OTHER INFORMATION SET FORTH IN THE PROSPECTUS BEFORE PURCHASING THE SECURITIES
OFFERED HEREBY.
Dependence On The Wireless Communications Industry
The Company is dependent on the continued growth, viability and
financial stability of its customers, which are in turn substantially dependent
on the continued growth, viability and financial stability of the wireless
communications industry. The wireless communications industry is highly
competitive and has been characterized by rapid technological and regulatory
change. Examples of recent technological changes include the advent or continued
rapid development of new or enhanced wireless communications technologies such
as PCS, Enhanced Specialized Mobile Radio and satellite-based wireless
communications technologies. These technological changes could reduce, delay or
make unnecessary the expansion or construction of new wireless communications
networks, which in turn could render the Company's products and services
obsolete or noncompetitive or otherwise reduce the demand for such products and
services. An example of regulatory changes affecting the industry include the
enactment of the Telecommunications Act of 1996 which is expected to cause
significant changes in existing regulation of the telecommunications industry
that are intended to promote the competitive development of new services, to
expand public availability of telecommunications services and to streamline
regulation of the industry. In addition, many of the Company's customers are
affected by general economic conditions. Any downturn or other disruption of the
wireless communications industry caused by adverse competitive developments,
technological changes, government regulation or other factors would have a
material adverse affect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Dependence Upon Key Personnel
The business of the Company is substantially dependent on the efforts of Calvin
J. Payne, its President and Chief Executive Officer, and S. Roy Jeffrey, its
Chief Operating Officer. The Company has three-year employment contracts with
Mr. Payne and Mr. Jeffrey but the loss of either would have a material adverse
effect on the Company's operations. Although the Company intends to obtain
key-man insurance in the face amount of $1,000,000 each on the lives of Mr.
Payne and Mr. Jeffrey, there can be no assurance that it will be able to obtain
such insurance or that such amount will be sufficient to compensate the Company
for the loss of either individual's services. See "Management."
Acquisitions
The Company plans to grow through acquisitions. The success of this
strategy is strongly affected by personnel in the acquired organization
satisfactorily continuing employment with the Company after the acquisition. The
Company plans to utilize employment agreements in connection with acquisitions.
However, there can be no assurance that employees of an acquired enterprise will
remain with the Company or perform satisfactorily as employees of the Company.
Although the Company is currently engaged in the negotiation of acquisitions
there is no assurance and no representation is made that the Company will be
successful in the negotiations of any acquisitions and, if so, on terms that
will be beneficial to the Company. Since the Public Offering, the Company has
acquired five businesses in the tower construction and leasing industry. There
can be no assurance that these acquisitions will prove profitable to the Company
. See "Business-Recent Acquisitions."
Recent Acquisition-Pooling of Interests
On May 31, 1998, the Company acquired MJA Communications Corp. ("MJA"),
a corporation engaged in the design and construction of communications towers in
the Southeastern United States. The Company accounted for the acquisition as a
pooling-of-interests, and accordingly, the Company's financial statements for
the three months ended May 31, 1998 and May 31, 1997 include the results of MJA
for those periods. Management is reevaluating the appropriateness of the use of
the pooling-of interests method. If the purchase method were used, net income
for the three months ended May 31, 1998 would be $57,000 less, and the Company,
in subsequent years, would record amortization of approximately $500,000 per
year, representing twenty-year straight line amortization of $10million. See
"Business-Recent Acquisitions."
6
<PAGE>
Employee Turnover
Employees of the Company travel extensively away from home. In
addition, the industry's work requires long hours and often requires working at
heights. These aspects of the industry's work environment contribute to a high
rate of employee turnover, particularly with inexperienced employees. The
Company is developing training programs and additional hiring procedures to
reduce employee turnover. Part of the Company's acquisition program is to
acquire similar businesses and retain their experienced work force that is
familiar with the nature of the industry's work environment. Because the
acquisitions referred to above were recently made, the Company is unable to
determine whether it will be able to retain the employees acquired with the
businesses. See "Business - Employees."
Mobile Communications Health Risk
Recently, certain consumers have alleged that serious health risks have
resulted from the use of portable mobile communications devices. Motorola and
other equipment manufacturers have made public announcements indicating their
belief that no health risks exist from using mobile communications devices and
Motorola has made public certain internal company studies supporting this
position. In addition, there has been recent litigation involving
electromagnetic radiation. However, there has been no convincing evidence to
support the contention that exposure to electromagnetic fields causes
demonstrable health risks. The actual or perceived health risk of mobile
communications devices could adversely affect mobile communications service
providers through reduced subscriber growth rate and reduced network usage per
subscriber, thus reducing the need for the Company's services.
Siting Moratoria
Some local and state regulators have opposed the construction of new
antenna sites citing alleged health risks associated with radio frequency,
aesthetics, or other reasons. Furthermore, some property owners have refused the
installation of antennas on their property because of the potential reaction of
tenants to alleged health risks. Industry sources estimate there are currently
500 proposed antenna sites which are delayed due to local or state moratoria or
delays. The Federal Communications Commission ("FCC") is expected to propose
guidelines in this regard. However, there is no assurance any FCC guidelines
will be effective in removing moratoria or eliminating delays. The moratoria and
delays could adversely affect wireless communication providers which would also
adversely affect the Company's growth.
Competition
Historically, the industry for wireless infrastructure building and
implementation services has been highly competitive but also highly fragmented.
As such, most participants in this industry have been relatively small firms of
three to fifty employees. However, the Company has also faced competition in the
market for wireless infrastructure building and implementation services from
wireless communications equipment manufacturers which provide such services in
conjunction with the sale of wireless communications equipment. While the
industry continues to be comprised predominately of these smaller firms, over
the past two years, the increased demand for wireless infrastructure building
and implementation services has motivated other competitors to enter the market.
These new competitors include, but are not limited to, traditional, non-wireless
engineering and construction companies and non-wireless subcontractors who have
begun to enter the market either alone or in conjunction with wireless equipment
manufacturers. In addition, the Company faces competition in the market for
wireless infrastructure electrical design and engineering services from
stand-alone electrical engineering and design firms, other providers of wireless
infrastructure building and implementation services and wireless communications
equipment manufacturers. Many of these new competitors as well as many of the
Company's historical competitors have significantly greater financial and other
resources than the Company. As demand for wireless infrastructure building and
implementation services increases, the Company expects that more non-traditional
competitors will enter the market and provide increased competition to the
Company. See "Business - Competitive Environment."
Government Regulation
The wireless communications industry is subject to regulation by state
regulatory agencies, the FCC, the Canadian Radio and Telecommunications
Commission, Congress, the courts and other governmental bodies. There can be no
assurance that any of these governmental bodies will not adopt or change
regulations or take other actions that would adversely affect the wireless
communications industry and the Company's business, financial condition and
results of operations.
7
<PAGE>
In addition, the Federal Telecommunications Act of 1996 is expected to
cause significant changes in existing regulation of the telecommunications
industry that are intended to promote the competitive development of new
services, to expand public availability of telecommunications services and to
streamline regulation of the industry. These changes include requirements that
local exchange carriers must: (i) permit other competitive carriers, which may
include many wireless communications service providers, to interconnect to their
networks; (ii) establish reciprocal compensation agreements with competitive
carriers to terminate traffic on each other's networks and (iii) offer resale of
their local loop facilities. The implementation of these requirements by the FCC
and state authorities potentially involves numerous changes in established rules
and policies that could adversely affect the wireless communications industry
and the Company's business, financial condition and results of operations.
In addition, the construction and installation of wireless transmitting
and receiving facilities are often subject of state or local zoning, land use
and other regulation. Such regulation may include zoning, environmental and
building permit approvals or other state or local certification. The
Telecommunications Act of 1996 provides that state and local authority over the
placement, construction and modification of personal wireless services
(including cellular, and other cellular mobile radio services ("CMRS") and
unlicensed wireless services) shall not prohibit or have the effect of
prohibiting personal wireless services or unreasonably discriminate among
providers of functionally equivalent services. Although state and local zoning
authorities retain their rights over land use, their actions cannot have the
effect of banning wireless services or discriminating among similar wireless
providers.
Changing Technology
Wireless telecommunications generally, and cellular telephone services
and personal communications systems in particular, are relatively new
technologies. Presently cellular telephones are predominately based on analog
technologies. Management expects a transition to digital cellular telephone
technologies will continue to be implemented in the near future. The Company
constructs facilities used in wireless communications, regardless of the
technology implemented, and plans to construct facilities for use in wireless
communications regardless of which new technology emerges. However, there can be
no assurance that the Company will adapt in the future as it has in the past to
new technologies, that any new technology will require the services of the
Company, or that any new technology will not reduce or adversely modify the
services that the Company is able to provide. In addition, new technologies may
require different disciplines or skills than those presently possessed by
existing employees and the costs and delay incurred in training or hiring new
employees may have a material adverse effect on the operations of the Company.
Business Concentration
The Company's customers are concentrated in the wireless communications
industry. Sales to 6 major customers approximated 61% and 52% of total sales for
the 1997 and 1998 fiscal years, respectively. The Company expects that sales to
relatively few customers will continue to account for a high percentage of its
net sales in the foreseeable future and believes that its financial results will
depend, in significant part, upon the success of these few customers. Although
the composition of the group comprising the Company's largest customers may vary
from period to period, the loss of a significant customer or any reduction in
orders by any significant customers, including reductions due to market,
economic or competitive conditions in the wireless communications industry, may
have a material adverse effect on the Company's business, financial condition
and results of operations.
Risk of Redemption of Warrants
Pursuant to this Prospectus the Company is calling the Warrants for
redemption at $.05 per Warrant, The Company has met the condition that the
closing sale price of the Common Stock on the American Stock Exchange has been
at least $15.00 for ten consecutive trading days ending within fifteen days of
the notice of redemption. Redemption of the Warrants will force the holders
thereof: (i) to exercise the Warrants and pay the exercise price at a time when
it may be disadvantageous or difficult for the holders to do so, (ii) to sell
the Warrants at the current market price when they might otherwise wish to hold
the Warrants, or (iii) to accept the redemption price, which is less than the
current market value of the Warrants. See "Description of Securities Warrants."
8
<PAGE>
Investors May Be Unable to Exercise Warrants
Any exercise of the Warrants must be made pursuant to a Prospectus
which is current at the time of exercise. The Company will use its best efforts
to maintain a current effective registration statement with the Commission
relating to the shares of Common Stock issuable upon exercise of the Warrants.
This Prospectus is intended to satisfy that requirement. If the Company is
unable to maintain a current registration statement the Warrant holders would be
unable to exercise the Warrants and the Warrants may become valueless. Although
the Warrants offered in the Public Offering were not knowingly sold to
purchasers in jurisdictions in which the Warrant Shares were not registered,
exempt from registration or otherwise qualified, investors may purchase Warrants
in the aftermarket in, or purchasers of the Warrants may relocate to,
jurisdictions in which the Warrant Shares are not so registered or qualified. In
such event, the Company would not permit such Warrants to be exercised and
Warrant holders in those states may have no choice but to either sell their
Warrants or let them expire. Because the Company's securities are listed on the
American Stock Exchange, the Warrant Shares are not required to be registered in
most jurisdictions because of exemptions available under most state securities
laws. See "Description of Securities - Warrants."
Payment of Dividends
The Company has never paid cash dividends on the Common Stock, and does
not anticipate that it will pay cash dividends in the foreseeable future. The
payment of dividends by the Company will depend on its earnings, financial
condition and such other factors as the Board of Directors of the Company may
consider relevant. The Company currently plans to retain any earnings to provide
for the development and growth of the Company. See "Dividend Policy."
Shares Eligible for Future Sale
Upon completion of this offering, assuming exercise of all of the
outstanding Warrants, the Company's officers and directors will own 2,575,470
shares of Common Stock, which will represent approximately 37.9% of the then
issued and outstanding shares of Common Stock. 2,452,470 of such restricted
securities have been held for more than two years and are eligible for resale
under Rule 144 under the Securities Act of 1933, as amended (the "Securities
Act"), subject to volume limitations. Sales of significant amounts of Common
Stock by current shareholders in the public market after this offering could
adversely affect the market price of the Common Stock. See "Shares Eligible for
Future Sale" and "Principal and Selling Shareholders."
Use of Proceeds for Unspecified Acquisitions
The Company intends to utilize substantially all of the net proceeds of
this offering for the purpose of acquisitions, joint ventures and other similar
business opportunities. Under Washington law, transactions of this nature do not
require shareholder approval except when accomplished through a merger or
consolidation. Accordingly, purchasers in this offering will necessarily rely to
a large degree upon the judgment of management of the Company in the utilization
of the net proceeds of this offering. The Company does not now have any
agreements or commitments with respect to any specific transactions, and
management has not established specific criteria to be used in making the
determination as to how to invest these proceeds. See "Use of Proceeds" and
"Business-Recent Developments."
Substantial Shares of Common Stock Reserved
As of the date of this Prospectus, the Company has outstanding options
to purchase 589,000 shares of Common Stock which were granted to key employees,
officers, directors and consultants pursuant to the Company's Stock Option Plan
and non-qualified options. 148,000 of such options are immediately exercisable.
The existence of these options and any other options or warrants may prove to be
a hindrance to future equity financing by the Company. Further, the holders of
such options may exercise them at a time when the Company would otherwise be
able to obtain additional equity capital on terms more favorable to the Company.
See " Management - Stock Option Plan."
Effect of Underwriters' Warrants.
Until October 14, 2002, the holders of the Underwriters' Warrants are
given an opportunity to profit from a rise in the market price of the Common
Stock, with a resulting dilution in the interests of the other shareholders. The
shares of Common Stock underlying the Underwriters' Warrants have certain
registration rights. Further, the terms on which the Company might obtain
additional financing during that period may be adversely affected by the
existence of the Underwriters' Warrants. The holders of the Underwriters'
Warrants may exercise their Warrants at a time when the Company might be able to
obtain additional capital through a new offering of securities on terms more
favorable than those provided herein. The Company has agreed that, under certain
circumstances, it will register under federal and state securities laws the
Underwriters' Warrants and/or the securities issuable thereunder. Exercise of
these registration rights could involve substantial expense to the Company at a
time when it could not afford such expenditures and may adversely affect the
terms upon which the Company may obtain financing. See "Description of
Securities."
9
<PAGE>
USE OF PROCEEDS
The net proceeds of this offering to the Company are anticipated to be
$12,320,000 after deducting $100,000 of expenses relating to the offering. The
Company intends to use the net proceeds as follows:
Amount %
Working capital $12,320,000 100%
--------------- ----
- ---------------
The Company intends to use the proceeds from this offering to take
advantage of future business opportunities as a part of its expansion plans,
although the Company has not identified any specific businesses it intends to
acquire and has not entered into negotiations with respect to any acquisitions.
Pending application of the net proceeds of this offering, the Company
may invest the net proceeds from this offering in interest-bearing savings
accounts, United States Government obligations, certificates of deposit or
short-term interest-bearing securities.
10
<PAGE>
PRICE RANGE OF UNITS, COMMON STOCK AND WARRANTS
The Company's Units, consisting of one share of Common Stock and one
Warrant, began trading on the American Stock Exchange on the effective date of
the Public Offering, October 14, 1997. The Units were separated on November 13,
1997, when the Common Stock and the Warrants began trading separately. The
following table sets forth the high and low sales prices of the Units, Common
Stock and Warrants as reported by the American Stock Exchange for the periods
indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Units
Period High Low
1997
4th Quarter(October 15, 1997
through November 12, 1997) (1) $10.13 $7.38
Common Stock
Period High Low
1997:
4th Quarter (beginning
November 13, 1997) (1) $13.75 $8.25
1998:
1st Quarter $26.75 $11.50
2nd Quarter $27.13 $22.13
3rd Quarter (through July 27, 1998) $35.63 $24.38
Warrants
Period High Low
1997:
4th Quarter (beginning
November 13, 1997) (1) $5.50 $2.38
1998:
1st Quarter $17.25 $3.38
2nd Quarter $18.00 $13.50
3rd Quarter (through July 27, 1998) $26.75 $15.63
</TABLE>
- ---------------
(1) The Units were separated on November 13, 1997, when the Common Stock and
the Warrants first traded separately.
DIVIDEND POLICY
The Company does not anticipate paying dividends on the Common Stock at
any time in the foreseeable future. The Company's Board of Directors currently
plans to retain earnings for the development and expansion of the Company's
business. Any future determination as to the payment of dividends will be at the
discretion of the Board of Directors of the Company and will depend on a number
of factors including future earnings, capital requirements, financial conditions
and such other factors as the Board of Directors may deem relevant.
11
<PAGE>
CAPITALIZATION
The following table sets forth the pro forma short-term debt and
capitalization of the Company as of May 31, 1998 and as adjusted to give effect
to the exercise of 1,380,000 Warrant Shares offered hereby and the application
of the estimated net proceeds therefrom. The table includes the issuance of
365,982 shares upon the exercise of Warrants during April and May 1998. See
"Prospectus Summary -Rescission Offer."
<TABLE>
<CAPTION>
May 31, 1998
Unaudited As Adjusted
<S> <C> <C>
Short-term debt:
Current portion of notes payable and
capital lease obligations .......................... $ 493,000 $ 493,000
--------------- ----------------
Long-term debt:
Notes payable and capital lease obligations ........ 187,000 187,000
Subordinated convertible notes..................................15,000,000 15,000,000
---------- ----------
Total long-term debt................................... 15,187,000 15,187,000
---------- -----------
Common Stock subject to rescission $ 4,316,000 -
Shareholder's equity:
Common Stock, $0.01 par value,
10,000,000 shares authorized, 5,658,836
shares issued and outstanding,
6,672,859 as adjusted (1) (2)..................... 7,706,000 21,148,000
Foreign currency translation adjustment............. (67,000) (67,000)
Retained earnings................................... 4,436,000 4,436,000
____________ _____________
Total shareholder's equity........................ 12,075,000 25,517,000
------------- -------------
Total capitalization ............................. $ 32,071,000 $ 41,197,000
============= =============
</TABLE>
(1) Does not include 589,000 shares of Common Stock reserved for issuance under
the Company's Stock Option Plan. See "Management - Stock Option Plan."
(2) Does not include an aggregate of up to 240,000 shares issuable upon
exercise of the Underwriters' Warrants issued in connection with the Public
Offering and 639,281 shares issuable upon conversion of $15,000,000
Subordinated Debt. See "MD & A-Liquidity and Capital Resources."
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in connection with the Company's
Consolidated Financial Statements, related notes and other financial information
included elsewhere in this Prospectus.
Results of Operations
Over the three years ended February 28, 1998, the Company increased net
revenues by 212% to $23.2 million from $7.4 million, decreased costs of revenues
as a percentage of revenues by 1.1% while selling and general and administrative
expenses as a percentage of revenues decreased from 14.9% to 8.3%. Until October
14, 1997, the Company was a private corporation and declared large bonuses to
management which were primarily income tax motivated.
The following table presents, as a percentage of net revenues, certain
financial data for the Company for the periods indicated:
<TABLE>
<CAPTION>
Years Ended February Three Months Ended May 31,
--------------------
1998 1997 1996 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Contract revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of revenues 74.6 74.0 75.7 77.0 74.4
Gross profit 25.4 26.0 24.3 23.0 25.6
Selling, general and
administrative expenses 8.3 13.7 14.9 12.1 14.9
Operating income 17.1 12.3 9.4 10.9 10.7
Other income (expense) .5 (.4) (1.2) .5 (.3)
Income taxes 7.0 4.1 2.1 4.0 3.9
Net income 10.6 7.6 6.1 7.4 6.5
</TABLE>
Comparison of the Three Months Periods Ended May 31, 1997 and 1998
Results for the three month periods ended May 31, 1997 and 1998,
include the results for Western telecom Construction, Ltd. and MJA
Communications Corp., both acquisitions accounted for using the
pooling-of-interests method.
Revenues for the first quarter increased $2,218,000 or 25% compared to
the first quarter in the previous year. Approximately 40% of the increase is
attributable to strong demand for the Company's services in some geographic
areas, including the Southeastern United States and Alberta, Canada, offset by
weaker demand in such areas as the Northwestern United States. Acquisitions
accounted for by the purchase method completed in late fiscal 1998, contributed
to approximately 60% of the increase.
Gross profit for the quarter ended May 31, 1998, increase $273,000 or
12% from the comparable quarter in 1997. The increase is attributable to the 25%
increase in sales partially offset by a decline in gross profit margins from
25.6% in 1997 to 23.0% in 1998. The decline in gross profit margin is
attributable to increased price competition in the Northwestern region of the
United States and Ontario, Canada.
Selling, general and administrative expenses for the quarter ended May
31, 1998 were approximately the same as in the comparable quarter in 1997. As a
percentage of sales, these expenses were 14.9% in 1997 and 12.1% in 1998. The
small increase of $22,000 reflects increased staffing to manage growth and to
enable the Company to own communications towers and lease space on these towers
to third parties, offset by a reduction in salaries and bonuses paid to
principal officers in prior years.
Operating income improved $251,000 or 26% in the quarter ended May 31,
1998 compared to the quarter ended May 31, 1997. The increase is attributable to
the increase in revenues offset somewhat by the decrease in gross profit
margins.
Net income increased 41% in the quarter ended May 31, 1998, to $824,000
from the comparable period in 1997. The increase is attributable to the increase
in sales and stable selling, general and administrative expenses, offset by
reduced gross profit margins.
During the three months ended May 31, 1998, the Company owned twelve
communications towers that are leased to a telephone company (currently 25
towers). Revenue and expenses associated with this activity have been included
in contract revenues and costs.
Comparison of Fiscal Years Ended February 28, 1998 and 1997.
13
<PAGE>
Revenues for the fiscal year ended February 28, 1998, revenues increased to
$23,183,000 from $15,416,000 for the fiscal year ended February 28, 1997, an
increase of $7,767,000 or approximately 50% over fiscal 1997. This increase is
primarily due to continued build up of PCS networks. The acquisitions of
National Tower Service Ltd., 501053 B. C. Ltd. and Ralph's Radio Inc. occurred
in late 1998 fiscal year and had minimal impact on 1998 results.
Gross profit for the fiscal year ended February 28, 1998 increased to
$5,896,000 from $4,001,000, an increase of $1,895,000 or approximately 47%. As a
percentage of sales, gross profit was 25.4% in fiscal 1998 and 26.0% in fiscal
1997. Management considers the small difference insignificant.
Selling general and administrative expenses ("SG&A")for the fiscal year
ended February 28, 1998 decreased to $1,916,000 from $2,113,000 in fiscal 1997,
a decrease of $197,000 or approximately 9%. As a percentage of sales, SG&A
expenses were 8.3% in fiscal 1998 and 13.7% in fiscal 1997. In fiscal 1997, tax
motivated bonuses of $956,000 were paid to management. No management bonuses
were paid in fiscal 1998. The decrease attributable to management bonuses was
largely offset by additional staff hired to mange and administer increased sales
volume.
Net earnings for the fiscal year ended February 28, 1998 increase to
$2,450,000 from $1,179,000 in fiscal 1997, an increase of $1,271,000 or
approximately 108%. The increase is due to increased sales, stable gross margin
and decreased SG&A expenses.
Comparison of the Years Ended February 29, 1997 and February 28, 1996
Net revenues in 1997 increased 107% or $7,975,000 from the previous
fiscal year. This increase is attributable to the buildup of PCS networks in
Oregon, Washington and British Columbia. This increase in net sales is directly
related to the growing demand for wireless communication.
Gross profit for 1997 increased 121% over 1996, reflecting the higher
sales volume in 1997. Gross profit margins increased from 24.3% in 1996 to 26.0%
in 1997. This modest increase is attributable to continued strong demand for the
Company's services.
Selling, general and administrative expenses excluding management
bonuses increased $167,000, or 16.9%, to $1,157,000 for the year ended February
28, 1997. This increase reflects additional expenditures made in personnel to
obtain and sustain higher sales levels in 1997.
Prior to the Public Offering, the Company was privately held. The
Company reduced income by declaring and paying bonuses to its principals. These
bonuses were primarily tax-motivated. Bonuses increased by $838,000 or 710% in
1997 compared to 1996, and are included in selling, general and administrative
expenses.
Interest expense decreased by 37.9% from $87,000 in 1996 to $54,000 in
1997, reflecting a decrease in notes payable and capital lease obligations in
1997 and the fact that the Company did not use its operating loan facilities in
1997.
Operating income before management bonuses was $2,790,000 in 1997, an
increase of $2,023,000 or 246% compared to 1996. The increase is due to the
increase in sales, the modest increase in gross profit percentage,
reduced by an increase in selling, general and administrative expenses.
Liquidity and Capital Resources
At May 31, 1998, the Company had cash of $21,569,000, an increase of
$19,676,000 from May 31, 1997.
During the year ended February 28, 1998, the Company sold 1,200,000
Units in its initial public offering of securities. Net cash generated from the
offering was approximately $7,459,000.
In May 1998, the Company sold $15,000,000 principal amount of 7%
subordinated convertible notes ("Subordinated Debt"). The notes are convertible
into 599,281 shares of Common Stock at $25.03 per share until April 30, 2007. In
connection with the Subordinated Debt, the Company granted warrants to purchase
40,000 shares of Common Stock at $23 per share until April 30, 2007. The Company
intends to use the proceeds to purchase and build communications towers for
lease to others. See "Business- Tower Ownership."
On April 9, 1998, the Company signed a credit commitment letter with
Bank Boston, N. A., whereby Bank Boston N. A. committed to provide $75,000,000
principal amount of senior secured revolving credit ("Bank Debt"). The Bank Debt
allows the Company to purchase or construct communications towers for use by
third parties. The Company's ability to utilize the Bank Debt is determined by,
among other criteria, its cash flow generated from operations and from tower
leasing. See "Business-Tower Ownership."
14
<PAGE>
The Company's future cash requirements for fiscal 1999 and beyond will
depend primarily upon the level of wireless infrastructure building and
implementation business conducted by the Company, the level of working capital
needed to generate the revenues associated with such business, and acquisition
opportunities. The Company believes that the revenues from operations, amounts
available under Subordinated Debt and the Bank Debt noted above and other
capital resources available to the Company will be adequate to satisfy its
working capital requirements for at least the next twelve months.
To date the Company has derived substantially all its revenues from
sales in the United States and Canada and inflation has not had a significant
effect on the Company's business. The Company does not currently expect
inflation to adversely affect the Company in the future unless it increases
significantly in the United States or Canada or inflation is significantly
higher than in the United States or Canada.
Year 2000 Compliance
The Company is aware of the issues associated with the year 2000 as it
relates to information systems. The Year 2000 is not expected to have a material
impact on the Company's current information systems because its current software
is either already year 2000 compliant or required changes are not expected to be
material. Based on the nature of the Company's business, the Company anticipates
that it is not likely to experience material business interruption due to the
impact of Year 2000 compliance on its customers and vendors. As a result, the
Company does not anticipate that incremental expenditures to address Year 2000
compliance will be material to the Company's liquidity, financial position or
results of operations over the next few years.
Accounting Standards
The Financial Accounting Standards Board ("FASB") periodically issues
statements of financial accounting standards. In February 1997, FASB issued
Statement of Financial Accounting Standards (SFAS) No. 128. The new standard
replaces primary and fully diluted earnings per share with basic and diluted
earnings per share. SFAS No. 128 was adopted by the Company in the fiscal year
ended February 28, 1998.
In June 1997, the FASB issued SFAS No. 130 and 131. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components. SFAS No. 131 establishes standards for reporting about operating
segments, products and services, geographic areas, and major customers. The
standards become effective for fiscal years beginning after December 15, 1997.
Management plans to adopt these standards in the year ending February 28, 1999.
Management believes that provisions of SFAS No. 130 and 131 will not have a
material effect on its financial condition or reported results of operation.
In February 1998, the Financial Accounting Standards Board issued SFAS
132, Employers Disclosures about Pensions and Other Postretirement Benefits-An
Amendment of FASB Statements No. 87,88 and 106. This Statement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. Rather, it
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
useful. This Statement becomes effective February 1998 for the Company, and the
Company believes it will not have a material effect on its financial condition
or results of operations.
15
<PAGE>
BUSINESS
General
The Company designs, builds and maintains wireless communications
transmitting and receiving facilities for providers of wireless communication
services, including U. S. Cellular, Western Wireless, Cantel, AT&T, Sprint PCS,
and Microcell. These facilities are presently constructed for use with
microwave, cellular telephone, pager, and specialized mobile radio technologies.
Although bids for the installation or modification of communications facilities
are normally requested on a fixed price basis, the Company will, if requested,
provide such services on a time and materials basis. A contract for the
installation of cellular transmitting and receiving facilities may require the
Company to develop the location, including roads and grading, to install the
tower antennas and lines, assemble electronic components and to test the
installation's equipment. In such instances, the Company subcontracts road or
concrete work required under the contract, performing the balance of the work
with its own employees. Approximately 50% of the Company's customers supply most
of the material used in the installation process, and the Company's major cost
is the cost of its employees and subcontracted labor. Demand for the Company's
services often exceeds its ability to supply those services, and in such
situations the Company subcontracts with smaller enterprises to provide work
normally performed by the Company. Subcontracting permits the Company to
evaluate the subcontractor's quality and review the subcontractor as a potential
candidate for acquisition.
The Company commenced business in 1990 as Westower Communications Ltd.
and emphasized design, construction, maintenance and modification of microwave
and cellular towers for telephone, broadcast and utility companies. The Company
continues these activities, but with the advent of cellular telephones and
personal communication systems ("PCS"), now designs and installs rooftop and
other transmission and receiving facilities. A portion of the Company's revenues
is still derived from installation of microwave facilities and the installation
of related electronic equipment. However, the rapid growth of the use of
cellular telephones has resulted in the installation of cellular transmitting
and receiving facilities being an increasingly significant component of
revenues. The Company also owns communication towers which are leased to a
telephone company.
The Company's principal operations are in Washington, Oregon, Idaho,
Florida, British Columbia, Alberta, Ontario and Canada's Northern Territories.
Management believes that the industry is highly fragmented with many companies
performing similar kinds of work throughout North America and that no single
company is dominant in the industry. The Company intends to increase its market
penetration by acquiring one or more of these businesses and to increase its
market penetration in the United States and Canada, ultimately having operations
throughout North America.
Tower Ownership
The Company currently owns 25 communications towers and leases space on
these towers to third parties such as wireless communications carriers and
paging companies. The Company's long-term strategy is to substantially increase
the number of towers it owns. The Company believes its engineering and
construction capabilities will enable it to build towers efficiently.
The Company sold $15,000,000 principal amount of 7% Subordinated Debt
and entered into an agreement with Bank Boston, N. A. to provide $75,000,000
principal amount as senior revolving credit. The Company intends to use the
proceeds from these financings to purchase and build towers.
Strategy
The Company's strategy will be to capitalize on the demand for wireless
infrastructure building and implementation services by continuing to expand its
workforce and geographic presence in the marketplace. To accomplish these
objectives, the Company intends to (i) continue its geographic expansion by
opening new regional offices when demand for the Company's services or
acquisition opportunities make such expansion feasible, (ii) continue to enhance
its indigenous new employee hiring, training and retention programs as a method
for attracting, training and retaining new, highly skilled workers, and (iii)
continue to seek to acquire other companies engaged in the wireless
infrastructure building and implementation services and wireless infrastructure
electrical design and engineering services businesses that have good reputations
for quality service and highly skilled workers. The Company will also seek to
acquire and build communications towers for lease to third parties.
16
<PAGE>
Recent Developments
Demand for the Company's services continues to be strong. The Company
has a current backlog of approximately $10,000,000.
The Company believes the growth in demand for wireless infrastructure
building and implementation services will continue as the wireless
communications industry continues to expand and develop, fueled in part by the
introduction of new and enhanced wireless communications technologies such as
PCS, ESMR and digita1 cellular. As an example, the Company anticipates that the
1995 and 1996 FCC auctions of the A-, B- and C- Block portions of the radio
spectrum allocated by the FCC for PCS licensees will result in the build out of
significant numbers of new PCS systems over the next five to ten years. This is
due in part to the fact that the FCC has mandated that recipients of PCS
licenses adhere to five-year and 10-year build out requirements. Under both
five- and 10-year build out requirements, all 30 MHZ PCS licensees (which
includes holders of all of the approximately 595 A-, Band C-Block PCS licenses
awarded as of September 1, 1996) must construct facilities necessary to provide
coverage to at least one-third of the population in their service areas within
five years from the date of initial license grants. Service must be provided to
two-thirds of the population within ten (10) years. Violations of these
regulations could result in license revocations, forfeitures or fines.
The Company also anticipates that implementation of new PCS systems may
create significant wireless infrastructure building activity as new PCS
licensees pay to alter or relocate certain existing communications facilities
operated by holders of fixed microwave licenses that currently operate within
the same frequency ranges as the new PCS licensees. This is because, in an
effort to balance the competing interests of existing microwave users and newly
authorized PCS licensees, the FCC has ruled that for a period of up to five
years after the grant of a PCS license, PCS licensees may be required to share
their radio spectrum with existing fixed microwave licensees operating on the
same frequencies as those of the new PCS licensees. In order to initiate service
within the required time frame, many of these new PCS licensees will arrange and
pay for the relocation of certain of these existing users to alternate spectrum
locations or transmission technologies.
Recent Acquisitions
On October 28, 1997, the Company acquired all of the issued and
outstanding stock of WTC Holding Inc. which holds all of the issued and
outstanding shares of Western Telecom Construction Ltd. ("WTC"), in exchange for
835,000 shares of the Company's Common Stock. WTC is an Alberta, Canada based
corporation which provides substantially the same services as the Company. The
acquisition was accounted for as a pooling of interests, and accordingly the
Company's financial statements for periods prior to the acquisition have been
restated to include the results of WTC for all periods presented.
On November 1, 1997, the Company acquired all of the issued and
outstanding stock of National Tower Services Ltd. ("National Tower"), an
Ontario, Canada based corporation for $312,000 cash and 98,709 shares of the
Company's Common Stock. National Tower erects communications towers and installs
transmitting and receiving equipment for unaffiliated third parties. This
acquisition was accounted for as a purchase.
On January 17, 1998, the Company acquired 501053 B. C. Ltd., a British Columbia,
Canada corporation based near Edmonton, Alberta, Canada for $350,000 in cash and
34,893 shares of the Company's Common Stock. 501053 B. C. Ltd. fabricates
communications towers and, before the acquisition was an unaffiliated supplier
to the Company. This acquisition was accounted for as a purchase.
On January 31, 1998, the Company acquired Ralph's Radio, Inc. and an
affiliated company, 344813 Alberta Ltd., both Alberta, Canada corporations for
$805,000 in cash. These companies own six communications towers, space on which
is leased to a telephone company and other users, and operated a modest
installation and erection business. These acquisitions were accounted for as
purchases.
On May 31, 1998, the Company acquired MJA Communications Corp. in
exchange for 397,000 shares of the Company's Common Stock. The acquisition was
accounted for as a pooling-of-interests and, accordingly the Company's financial
statements for the three months ended May 31, 1998 and 1997 have been restated
to include the results of MJA. Management is reevaluating the appropriateness of
the pooling-of-interests method. If the purchase method were used, net income
for the three months ended May 31, 1998, would be $57,000 less and the Company,
in subsequent years, would amortize approximately $10 million of goodwill ver 20
years, resulting in amortization of $500,000 per year. MJA has offices in Palm
Beach Gardens, Tampa and Orlando, Florida, Atlanta, Georgia and Charlotte, North
Carolina. MJA specializes in the design and construction of towers and
associated construction for the wireless communications industry and employs
more than 60 people.
On June 23, 1998, the Company acquired Jovin Communications, Inc. and
Acier Filteau, Inc., both Quebec, Canada corporations based near Montreal,
Quebec for 95,244 shares of the Company's Common Stock. These companies design,
fabricate and erect communications towers in Quebec and Eastern Canada and
occasionally in the Eastern United States. Both acquisitions were accounted for
as purchases.
17
<PAGE>
On July 10, 1998, the Company announced that it had agreed to acquire
Standby Services, Inc. ("Standby") for $13,250,000, payable in Common Stock of
the Company. Standby is based in Houston, Texas and operates in Texas and
contiguous states. Standby has provided electrical contracting, engineering,
tower construction and related services to telephone companies since 1989.
Standby has several opportunities to build towers and lease space on these
towers to others.
The Company is also in discussion with tower construction companies in
California and the Southwestern United States concerning acquisition by
Westower.
There is no assurance that the Company will be successful in closing
the Standby transaction or in concluding negotiations with other companies, or
that if the Company is successful, that the acquisitions will not be dilutive to
existing shareholders.
The Industry
The Company's success is tied to the development of wireless
communications. Originally the Company constructed microwave and cellular
transmission facilities, and later expanded to include the installation of
electronic lines and components as part of the Company's services. As microwave
technology evolved and matured, the Company performed a variety of construction
and installation services relating to those new technologies, some of which
still involved microwave technology. For example, the Company upgraded the
transmission devices to accept digital or single side band technology, often
returning to previously built facilities to upgrade the equipment. Although the
Company still performs work related to short and long haul microwave technology,
this technology has diminished in use with the installation of fiber optic
technology by long distance carriers.
Presently, cellular telephones in the United States and Canada rely
predominantly on analog technology. A cellular telephone transmits a radio
signal to the closest cellular communications facility, which contains an
antenna connected by wireline or short haul microwave to a nearby switching
office that processes signals for several cellular facilities. For transmission
to a telephone that is not a mobile phone, the switching office connects the
telephone signal to a local telephone exchange. For a phone call to another
mobile telephone, the switching office locates the receiving cellular
communication facility to which the receiving telephone is connected, and
transmits the signal to that facility, completing the connection. If one or both
of the cellular telephones is moving, such as a car phone, the local switching
station hands the signal off to a different facility as the phone moves from one
area to another.
The Company builds the communication facility and installs the
equipment to handle the radio wave from the cellular telephone to the facility
as well as the short haul microwave equipment connecting the facility to the
local cellular switching office.
Cellular telephones use radio frequencies to transmit to the
facilities. The number of frequencies that are available to transmit to a
facility is finite. In areas with heavy demand for cellular services, these
available frequencies become congested. To increase capacity, the number of
cells is increased, making each cell in the system smaller, covering a smaller
geographic area for the finite number of radio frequencies, but requiring
significantly more facilities.
The Personal Communications Industry Association estimates there are
approximately 44,000,000 cellular subscribers in the United States in 1997 with
projections of approximately 80,000,000 subscribers in the United States by
2001. Industry sources also estimate there is a current need for more than
100,000 new antenna sites in the United States.
Competitive Environment
Currently, the industry of constructing wireless and, more generally,
communications transmitting and receiving facilities is highly fragmented. The
industry consists of many small operators, often as few as three or four people
and commonly entailing a dozen or so. Most of the communications facilities in
the United States are installed by such businesses. While an individual provider
of wireless communications could easily develop its own ability to construct the
facilities, management of the Company believes that these enterprises would have
a difficult time establishing the ability on a cost effective basis.
Management believes that the most efficient manner in which to manage
its business in an expanding and maturing environment is to operate subsidiaries
with a large degree of autonomy. Employees in this industry travel away from
home regularly and extensively and can be moved from one subsidiary's area to
another as needed. Management believes that providers of wireless communications
are generally large and tend to take longer to make decisions. For this reason,
management believes it can provide its services to customers in a more
cost-effective manner than customers could perform the services themselves.
18
<PAGE>
The technology of wireless communications is shifting radically. The
recent history of electronic technology is marked by smaller, faster, less
expensive technologies replacing more cumbersome processes. According to RCR, a
weekly newspaper for the wireless communications industry, there are projections
that certain digital technologies will be up to 20 times more efficient than
existing analog cellular systems, providing superior services and quality such
as Personal Communications Services and Enhanced Specialized Mobile Radio. Some
of these technologies, however, require densely located receivers that may be
located on utility poles.
Proposed satellite technologies, however, could bypass a local radio
transmission device and enable a user to transmit directly to a satellite that
retransmits the signal directly to a user. While this technology could possibly
transmit directly to a satellite, such technology would be required to struggle
with limitations on the number of frequencies available to be transmitted to a
satellite. Management of the Company believes that this technology is not yet
sufficiently defined to assess its effect on the Company.
All of the existing wireless transmission and receiving technologies,
as well as wireless transmission and receiving technologies of which the Company
is aware are being considered in developing nations to supplement or supplant
existing wireline communications techniques. The technology that is implemented
and the method in which the technology is implemented could enhance or diminish
the Company's prospects in these nations, and the Company is uncertain whether
it can exploit the opportunities that are being presented to the Company.
While there are numerous competitors in a fragmented industry, the
demand for those services is presently growing rapidly. New technologies could
alter the way in which those services are delivered and adversely affect the
Company. Other technologies could bypass the need for the Company's services.
Because of the rapid development and evolution of wireless communications, the
future market and its competitive environment cannot be accurately viewed or
perhaps anticipated in a manner that would benefit the Company. These factors
could be replayed in a variety of manners in numerous countries. There are
potential competitors, either providers of the service or traditional
engineering firms, that possess significantly greater resources, either in terms
of personnel, technology, or financial resources, than those possessed by the
Company.
Government Regulation
The wireless communications industry is subject to regulation by state
regulatory agencies, the Federal Communications Commission (the "FCC"), the
Canadian Radio-Television and Telecommunications Commission, the United State
Congress, the courts and other governmental bodies. There can be no assurance
that any of these governmental bodies will not adopt or change regulations or
take other actions that would adversely affect the wireless communications
industry and the Company's business, financial condition and results of
operations.
In addition, the Telecommunications Act of 1996 is expected to continue
to cause significant changes in existing regulation of the telecommunications
industry that are intended to promote the competitive development of new
services, to expand public availability of telecommunications services and to
streamline regulation of the industry. These changes include requirements that
local exchange carriers must:
(i.) Permit other competitive carriers, which may include many wireless
communications service providers, to interconnect to their networks;
(ii.) Establish reciprocal compensation agreements with competitive
carriers to terminate traffic on each other's networks; and (iii.)
Offer resale of their local loop facilities.
The implementation of these requirements by the FCC and state
authorities potentially involves numerous changes in established rules and
policies that could adversely affect the wireless communications industry and
the Company's business, financial condition and results of operations.
The construction and installation of wireless transmitting and
receiving facilities are often subject to state or local zoning, land use and
other regulation. Such regulation may include zoning, environmental and building
permit approvals or other state or local certification. The Telecommunications
Act of 1996 provides that state and local authority over the placement,
construction and modification of personal wireless services (including cellular
and other CMRS and unlicensed wireless services), shall not prohibit or have the
effect of prohibiting personal wireless services or unreasonably discriminate
among providers of functionally equivalent services. Although state and local
zoning authorities retain their rights over land use, their actions cannot have
the effect of banning wireless services or picking and choosing among similar
wireless providers. However, according to the Personal Communications Industry
Association, 500 proposed antenna sites are currently delayed due to local or
state moratoria or other delays. See "Risk Factors - Siting Moratoria."
19
<PAGE>
Environmental Laws
Management believes environmental laws will have only a minimal impact
on the Company's operations. Changes in environmental laws, as they relate to
the Company's operations, have not had a significant impact since the Company
was founded seven years ago.
The Company, especially in remote and rural areas, follows regulations
concerning the discovery of native artifacts, disposal of fuel and other
substances, disturbing or destroying habitat of endangered or threatened
species, contaminating water bodies, spill recovery and trash removal.
Management is not aware of any environmental laws concerning health risks
allegedly connected to mobile communication devices, but is aware of those
public concerns. See "Risk Factors - Mobile Communications Health Risk."
Business Concentration
The Company's customers are concentrated in the wireless communications
industry. Sales to 6 major customers approximated 61% and 52% of total sales for
the years ended February 28, 1997 and 1998, respectively.
The Company expects that sales to relatively few customers will
continue to account for a high percentage of its net sales in the foreseeable
future and believes that its financial results depend in significant part upon
the success of these few customers. Although the composition of the group
comprising the Company's largest customers may vary from period to period, the
loss of a significant customer or any reduction in orders by any significant
customers, including reductions due to market, economic or competitive
conditions in the wireless communications industry, may have a material adverse
effect on the Company's business, financial condition and results of operations.
Employees
As of June 30, 1998, the Company had approximately 235 full time
employees. The Company considers its employee relations to be satisfactory. The
Company believes that additional staff will be required for increased marketing,
sales, development, and support functions. None of the Company's employees are
represented by a union.
Legal Proceedings
As of June 30, 1998, the Company was not a party to any material legal
proceedings.
Facilities
The Company owns five acres of land in Surrey, British Columbia, Canada
on which a 10,000 square foot shop and 5,000 square foot office building are
located. The Company also owns four acres of land near Montreal, Quebec, Canada
on which a 7,000 square foot shop is located. The Company leases office space in
Vancouver and Redmond, Washington, Palm Beach Gardens and Orlando, Florida,
Atlanta, Georgia, Charlotte, North Carolina, and Alberta, Ontario and Quebec,
Canada None of the leases exceed five years in duration.
21
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding the
Company's directors and executive officers:
Name Age Position
Calvin J. Payne 46 Chairman of the Board
and Chief Executive Officer
S. Roy Jeffrey 51 Chief Operating Officer and
Director
Michael J. Anderson 47 Senior Vice President and
Director
Peter Lucas 44 Chief Financial Officer and
Director
Ronald P. Erickson 53 Director
Robert A. Shuey, III 44 Director
Donald A. Harris 45 Director
Calvin J. Payne is a co-founder of the Company. Since inception in
1990, Mr. Payne has managed the Company's growth in his capacity as a director,
officer and chief engineer. Mr. Payne has 22 years of experience in all aspects
of the construction of steel communication towers. He was a construction worker
and rigger in 1975, a field engineer in 1978, a design engineer in 1979,
engineering manager in charge of a tower company's Australian operations in
1983, and chief engineer of the same company's domestic operations in 1988. Mr.
Payne has engineered over 600 towers, including a 1470 foot tower in Florida
designed to withstand hurricane winds. Mr. Payne won a design award for a steel
tower erected on a mountain top site near the Alaskan-Canadian border that was
totally enclosed in fiberglass to protect the tower and antenna from wind and
ice. Mr. Payne has assisted in the writing of design standards for communication
towers in the United States, Canada, and Australia. He is a professional
engineer registered in the United States, Canada and Australia. He received a
degree in civil engineering from the University of British Columbia in 1978 and
an MBA from the University of Western Australia in 1985.
S. Roy Jeffrey is a co-founder of the Company. Since inception in 1990,
Mr. Jeffrey has managed the Company's growth in his capacity as a director,
officer, and Chief Operating Officer. Mr. Jeffrey has 25 years experience in all
aspects of the supply and installation of communication towers and equipment.
Mr. Jeffrey was employed by a privately held communications company from 1972 to
1990, when he left to co-found the Company. He started as a high steel rigger,
was promoted to field supervisor and then promoted to branch manager where he
was responsible for as many as 36 office and field employees. Mr. Jeffrey
supervised or managed the supply and installation of towers in the United
States, Canada, the Caribbean, Australia, and Middle East. Mr. Jeffrey has
managed all aspects of communication site construction including permit
applications, surveys, road-building, foundations, and the supply and
installation of buildings, towers and antennas, and transmission lines. Mr.
Jeffrey has extensive experience in rigging tall towers.
Peter Lucas became Chief Financial Officer of the Company in April
1997. From August 1995 to April 1997, Mr. Lucas served as Chief Financial
Officer of Cotton Valley Resources Corporation, a Dallas based public oil and
gas company. From May 1992 to July 1995, he served as Chief Financial Officer of
Canmax Inc., a Dallas based public company that develops software for gas
stations and convenience stores. Mr. Lucas is a member of the Canadian Institute
of Chartered Accountants. He received his professional training at Coopers &
Lybrand, which he left in 1984 to form his own tax practice. Six years later,
Mr. Lucas's practice merged with Coopers & Lybrand, with whom he was a partner
until 1992. Mr. Lucas passed the AICPA reciprocity examination in 1993, and is
experienced in domestic taxation, accounting and securities matters. He received
a bachelor of commerce degree from the University of Alberta in 1978.
Ronald P. Erickson was appointed a director by the board in November 1997, upon
consummation of the public offering. Mr. Erickson is principal of GlobalVision,
LLC, an international strategic consulting and corporate finance company, where
he has been associated since 1994. From 1984 to 1994, he was a director of
Egghead Software, Inc., where he was an original investor. From 1990 to July
1995, Mr. Erickson was a principal of Rutkowski, Erickson and Scott, a
consulting firm which assisted small emerging growth companies. From 1990 to
July 1996, Mr. Erickson was Chairman of the Board of Directors of Digital Data
Networks, Inc. Mr. Erickson received his B. A. in history from Central
Washington University, his M. A. in American Studies from the University of
Wyoming and his J. D. from the University of Denver.
22
<PAGE>
Robert A. Shuey, III was also appointed a director by the Board in October 1997,
upon consummation of the public offering. Mr. Shuey is Chief Executive Officer
of Tejas Securities Group, Inc., the Representative of the underwriters in the
Company's public offering. Mr. Shuey has been associated with Tejas Securities
Group, Inc. since September 1997. He has been in the investment banking business
for more than the past five years, with National Securities Corporation from
September 1996 until August 1997; with La Jolla Securities Corporation from
April 1995 until August 1996, with Dillon Gage Securities Corporation from
January 1994 until April 1995 and Dickinson & Co. from March 1993 to December
1993. Mr. Shuey is a member of the Board of Directors of EuroMed, Inc., AutoBond
Corporation and Transnational Financial Corporation. Mr. Shuey is a graduate of
Babson with a degree in Economics and Finance.
Michael J. Anderson was appointed a director by the Board in May 1998, upon
consummation of the acquisition of MJA. Mr. Anderson founded M. J. Anderson
Construction Corp. in 1979. M. J. Anderson Construction Corp. is a multi-state
general contractor that designs and builds hotels, medical facilities and
general commercial structures. Mr. Anderson also founded MJA which was acquired
by the Company in May 1998. Mr. Anderson received a bachelors degree in
construction management from the University of Florida in 1974.
Donald A. Harris was appointed a director by the Board in January 1998. Mr.
Harris is currently the Chief Executive Officer of a company which will operate
a wireless communications system in conjunction with a major wireless carrier.
Mr. Harris was President of Comcast Cellular Communications, Inc., which
operates in Pennsylvania, New Jersey and Delaware. Previously, Mr. Harris was
Vice President and General Manager of Pactel Cellular. Mr. Harris began his
career in the cellular communications industry as a consultant with McKinsey &
Company. He is a graduate of the United States Military Academy at West Point
and holds a masters degree in business administration from Columbia University.
Directors of the Company are elected at each annual meeting of shareholders. The
officers of the Company are elected annually by the Board of Directors. Officers
and directors hold office until their respective successors are elected and
qualified or until their earlier resignation or removal. Compensation of
Directors
Directors who are employees of the Company will not receive any remuneration in
their capacity as directors. Outside directors will receive $12,000 annually,
and $500 per meeting attended and related travel expenses.
Indemnification and Limitation on Liability
If available at reasonable cost, the Company intends to maintain insurance
against any liability incurred by its officers and directors in defense of any
actions to which they are made parties by any reason of their positions as
officers and directors.
Executive Compensation
The following table sets forth the compensation paid to the Company's
President Calvin J. Payne and Peter Lucas, Chief Financial Officer (the "Named
Executive Officers") for services rendered to the Company in all capacities for
the fiscal years ended February 28, 1998, 1997, and 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Annual Compensation All Other
Principal Position Fiscal Year Salary Bonus Compensation
<S> <C> <C> <C> <C>
Peter Lucas February 28, 1998 $105,000 -0- -
Calvin J. Payne February 28, 1998 $75,000 -0- -
February 29, 1997 75,000 $437,780 -
February 28, 1996 70,000 92,530- -
</TABLE>
Prior to October 14, 1998, the Company was a privately held corporation
and distributed much of its income to shareholders by way of bonuses for income
tax planning purposes. In the future, the Company intends to compensate its
officers in accordance with the recommendations of a compensation committee
consisting entirely of outside directors.
Employment Agreements
In connection with the acquisition of MJA, the Company entered into an
employment agreement with Michael J. Anderson for a three year term ending May
2001. Pursuant to the terms of the Employment agreement, Mr. Anderson is to be
elected a Senior Vice President of Westower Corporation and Chairman and Chief
Executive Officer of MJA. Mr. Anderson will be paid a base salary of $150,000
per year and participate in the Company's bonus pool and incentive stock option
plan.
23
<PAGE>
Stock Option Plan
The 1997 Stock Option Plan, as amended (the "1997 Stock Option Plan")
provides for the grant to employees, officers, directors, and consultants to the
Company or any parent, subsidiary or affiliate of the Company of up to 400,000
shares of the Company's Common Stock, subject to adjustment in the event of any
subdivision, combination, or reclassification of shares. The Stock Option Plan
will terminate in 2004. The Stock Option Plan provides for the grant of
incentive stock options ("ISO's") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and non-qualified options at the
discretion of the Board of Directors or a committee of the Board of Directors
(the "Committee"). The exercise price of any option will not be less than the
fair market value of the shares at the time the option is granted. The options
granted are exercisable within the times or upon the events determined by the
Board or Committee set forth in the grant, but no option is exercisable beyond
ten years from the date of the grant. The Board of Directors or Committee
administering the Stock Option Plan will determine whether each option is to be
an ISO or non-qualified stock option, the number of shares, the exercise price,
the period during which the option may be exercised, and any other terms and
conditions of the option. The holder of an option may pay the option price in
(1) cash, (2) check, (3) other shares of the Company, (4) irrevocable
instructions to a broker to deliver to the Company the amount of sale or loan
proceeds required to pay the exercise price, (5) delivery of an irrevocable
subscription agreement for the shares which irrevocably obligates the option
holder to take and pay for shares not more than 12 months after the date of the
delivery of the subscription agreement, (6) any combination of the foregoing
methods of payment, or (7) other consideration or method of payment for the
issuance of shares as may be permitted under applicable law. The options are
nontransferable except by will or by the laws of descent and distribution. Upon
dissolution, liquidation, merger, sale of stock or sale of substantially all
assets, outstanding options, notwithstanding the terms of the grant, will become
exercisable in full at least 10 days prior to the transaction. The Stock Option
Plan is subject to amendment or termination at any time and from time to time,
subject to certain limitations.
The plan is administered by the Compensation Committee of the Board of
Directors, which is composed entirely of directors who are "disinterested
persons" as defined in Rule 16b-3 of the Securities Exchange Act of 1934, as
amended.
The following table sets forth information regarding exercised options
and the value of unexercised options held by the Named Executive Officers of the
Company as of June 30, 1998. No options were granted prior to March 1, 1997. In
June 1997 the Company granted 132,000 options at an exercise price of $8.25 and
24,000 options at an exercise price of $7.50 to certain key executives.
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Options at February 28, 1998 Value of
Shares Acquired Exercisable/ Exercisable
Name on Exercise Value Realized Unexercisable Options
<S> <C> <C> <C> <C>
Calvin J. Payne - - 39,000/68,000 $487,500
S. Roy Jeffrey - - 39,000/68,000 487,500
Peter Lucas - - 15,000/30,000 228,750
</TABLE>
The Company's Board of Directors has adopted, subject to shareholder approval, a
new stock option plan (the "1998 Plan") which will allow for the grant of
options to employees, officers and directors of, and consultants to, the Company
of a number of shares equal to 10% of the Company's outstanding shares, subject
to an overriding maximum of 1,000,000 shares. All other terms of the 1998 Plan
are in all material respects identical to the 1997 Stock Option Plan.
24
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership as of April 30, 1998 of the Common Stock by (a) each person
known by the Company to be a beneficial owner of more than 5% of the outstanding
shares of Common Stock, (b) each director of the Company, (c) each Named
Executive Officer, and (d) all directors and executive officers of the Company
as a group. Unless otherwise noted, each beneficial owner named below has sole
investment and voting power with respect to the Common Stock shown below as
beneficially owned by him.
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Prior to Offering After Offering
Name and Address of Number of Percent Number of Percent
Beneficial Owner Shares Owned Owned Shares Owned Owned
<S> <C> <C> <C> <C>
Calvin J. Payne (1) 1,096,500 19.24% 1,096,500 16.33%
5264 Drayton Harbour Road
Blaine, WA 98230
S. Roy Jeffrey (2) 1,096,500 19.24 1,096,500 16.33
18375 - 67 Avenue
Surrey, British Columbia V3S 8E7
Walter Friesen (3) 373,500 6.57 373,500 5.58
11208 N.E. 32 Avenue
Vancouver, WA 98686
Peter Jeffrey (4) 856,000 15.07 856,000 12.78
R R 2
Thorsby, Alberta, Canada TOC 2PO
Peter Lucas (5) 15,000 - 15,000 -
670 South Pekin Road
Woodland, Washington 98674
Valdis V. Rundans(6) 364,500 6.42 364,500 5.45
#14 - 26112 Township Road 511
Spruce Grove, Alberta T7Y 1B6
Ronald P. Erickson (7) 10,000 - 10,000 -
1520 Eastlake Avenue # 210
Seattle, Washington 98102
Robert A. Shuey, III (7) 10,000 - 10,000 -
8214 Westchester, Suite 500
Dallas, Texas 75225
Donald A. Harris (7) 10,000 - 10,000 -
130 Abrahams Lane
St. Davids, Pennsylvania 19087
Michael J. Anderson (8) 337,470 5.96 337,470 5.06
11382 Prospority Farms Road #130
Palm Beach Gardens, Florida 33410
Bruce E. Toll (9) 813,281 12.91 813,281 10.86
3101 Philmont Avenue
Hutington Valley, Pennsylvania 19006
All Executive Officers and Directors 2,575,470 44.54% 2,575,470 37.90%
as a group (7 persons)
</TABLE>
25
<PAGE>
- -----------
(1) Includes the following shares, beneficial ownership of which is
disclaimed: 66,250 shares held by Mr. Payne's spouse and 925,000 held
by the Calvin J. Payne Family Trust. Also includes 39,000 shares
subject to options which may be exercised within 60 days of the date of
this Prospectus.
(2) Includes the following shares, beneficial ownership of which is
disclaimed: 66,250 shares held by Mr. Jeffrey's spouse and 925,000 held
by the S. Roy Jeffrey Family Trust. Also includes 39,000 shares subject
to options which may be exercised within 60 days of the date of this
Prospectus.
(3) Includes 21,000 shares subject to options which may be exercised within
60 days from the date of this Prospectus.
(4) Includes the following shares, beneficial ownership of which is
disclaimed: 755,000 shares held by Peter Jeffrey Family Trust. Also
includes 21,000 shares subject to options which may be exercised within
60 days from the date of this Prospectus.
(5) Includes 15,000 shares subject to options which may be exercised within
60 days from the date of this Prospectus.
(6) Includes the following shares, beneficial ownership of which is
disclaimed: 68,750 shares held by Mr. Rundans' spouse and 215,000 held
by the Valdis V. Rundans Family Trust. Also includes 12,000 shares
subject to options which may be exercised within 60 days from the date
of this Prospectus.
(7) Includes 10,000 shares subject to options which may be exercised within
60 days from the date of this Prospectus.
(8) Includes 168,735 shares beneficially owned by Mr. Anderson's spouse.
(9) Includes the following shares beneficial ownership of which is
disclaimed: 639,281 shares held by BET Associates, L. P. and 10,000 shares held
by Bruce E. and Robbi S. Toll Foundation. Also includes 639,281 shares
underlying Senior Subordinated Convertible Notes.
26
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Approximately $555,437 of the proceeds of the Public Offering were used
to repay amounts due to Calvin J. Payne and his spouse, Walter Friesen, and a
corporation controlled by S. Roy Jeffrey. The amount due to Calvin Payne and his
spouse arose when amounts were distributed to them by the Company for tax
planning purposes and then loaned back to the Company in 1993. The amount due to
a corporation controlled by S. Roy Jeffrey was loaned to the Company to assist
the Company in purchasing land in 1993. The amount payable to Walter Friesen
arose in February 1997, when bonuses were distributed and a portion of the
bonuses loaned back to the Company.
In the past, the Company paid Westower Consulting, an enterprise under
common control with the Company, for services provided by the Company's
employees in an effort to defer income tax. Charges for these services were
approximately $126,000 in fiscal year 1998 and $94,000 in fiscal year 1997.
Amounts due to Westower Consulting were $39,000 at February 28, 1998. No charges
were incurred for such services following the Public Offering.
During January 1998, the Company advanced $119,000 to a corporation
owned by Messrs. Calvin J. Payne, S. Roy Jeffreys, Peter Jeffreys and Peter
Lucas, officers and directors of the Company. Proceeds were used by the borrower
corporation to purchase facilities leased by one of the Company's newly acquired
subsidiaries. The advances were unsecured, bear no interst and were repaid in
May 1998.
27
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 10,000,000 shares of Common Stock,
$0.01 par value. As of June 30, 1998, there were 5,658,836 shares of Common
Stock issued and 107 holders of record.
The holders of outstanding shares of all classes of Common Stock are
entitled to share ratably in any dividends paid on the Common Stock when, as and
if declared by the Board of Directors out of funds legally available. Each
holder of Common Stock is entitled to one vote for each share held of record.
The Common Stock is not entitled to cumulative voting or preemptive rights and
is not subject to redemption. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in the net
assets legally available for distribution. All outstanding shares of Common
Stock are fully paid and non-assessable. Warrants
The Warrants were issued in connection with the Public Offering in
registered form governed by the terms of Warrant Agreement between the Company
and American Stock Transfer & Trust Company as warrant agent (the "Warrant
Agent"). The following statements are brief summaries of certain provisions of
the Warrant Agreement. Copies of the Warrant Agreement may be obtained from the
Company or the Warrant Agent and have been filed with the Commission as an
exhibit to the Registration Statement pursuant to which the Warrants were
issued.
Each Warrant entitles the holder thereof to purchase at any time until
October 15, 2002 one share of Common Stock at an exercise price of $9.00 per
share. The right to exercise the Warrants will terminate at the close of
business on October 15, 2002, unless called for redemption earlier. The Warrants
contain provisions that protect the Warrant holders against dilution by
adjustment of the exercise price in certain events, including but not limited to
stock dividends, stock splits, reclassification or mergers. A Warrant holder
will not possess any rights as a shareholder of the Company. Shares of Common
Stock, when issued upon the exercise of the Warrants in accordance with the
terms thereof, will be fully paid and non-assessable.
The Company may redeem some or all of the Warrants at a call price of
$0.05 per Warrant, upon thirty (30) day's prior written notice if the closing
sale price of the Common Stock on the American Stock Exchange has equaled or
exceeded $15.00 for ten (10) consecutive days. The conditions to this redemption
have been met and the Company has called the Warrants for redemption on the
Redemption Date. In the event that a Warrant holder does not exercise his
Warrants before the Redemption Date, he may surrender his Warrants at the office
of the Warrant Agent and be paid the redemption price of $.05 per Warrant. After
the Redemption Date, the Warrants may not be exercised and a Warrant holder will
be entitled only to the Redemption Price. This Prospectus is being delivered to
all Warrant holders in connection with the redemption or exercise of the
Warrants. A transmittal letter for exercise of the Warrants is attached to this
Prospectus.
The Warrants may be exercised only if a current Prospectus relating to
the Warrant Shares is then in effect and only if the shares are qualified for
sale or exempt from registration under the securities laws of the state or
states in which the purchaser resides. So long as the Warrants are outstanding,
the Company has undertaken to file a post-effective amendment to the
Registration Statement required to be filed under the Securities Act, and to
take appropriate action under federal law and the securities laws of those
states where the Warrants were initially offered to permit the issuance and
resale of the Common Stock issuable upon exercise of the Warrants. This
Prospectus is intended to comply with this requirement. The Company may amend
the terms of the Warrants, but only by extending the termination date or
lowering the exercise price thereof. The Company has no present intention of
amending such terms.
As of June 30, 1998, there were 24 Warrant holders of record.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock and the Warrants
is American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005.
28
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, assuming all of the Warrants are
exercised, the Company will have 6,672,854 shares of Common Stock outstanding.
Of these shares, the 2,452,470 shares held by the Company's officers and
directors (the "Restricted Shares") are "restricted shares" within the meaning
of the Securities Act and may be publicly sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as those provided by Rule 144 under the Securities Act.
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) is entitled to sell Restricted Shares if at
least one year has passed since the later of the date such shares were acquired
from the Company or any affiliate of the Company. Rule 144 provides, however,
that within any three-month period such person may only sell up to the greater
of 1% of the then outstanding shares of the Company's Common Stock
(approximately 65,000 shares following the completion of this offering) or the
average weekly trading volume in the Company's Common Stock during the four
calendar weeks immediately preceding the date on which the notice of the sale is
filed with the Commission. Sales pursuant to Rule 144 also are subject to
certain other requirements relating to manner of sale, notice of sale and
availability of current public information. Any person who has not been an
affiliate of the Company for a period of 90 days preceding a sale of Restricted
Shares is entitled to sell such shares under Rule 144 without regard to such
limitations if at least two years have passed since the later of the date such
shares were acquired from the Company or any affiliate of the Company. Shares
held by persons who are deemed to be affiliated with the Company are subject to
such volume limitations regardless of how long they have been owned or how they
were acquired.
Without consideration of contractual restrictions described below, an
aggregate of 2,452,470 shares of Common Stock, representing approximately 37% of
the outstanding shares of the Common Stock after this offering, are eligible for
sale in the public market pursuant to Rule 144. The Company is unable to
estimate the number of shares that may be sold from time to time under Rule 144,
since such number will depend upon the market price and trading volume for the
Common Stock, the personal circumstances of the sellers and other factors.
In connection with the Public Offering, the Company's initial
shareholders and its officers and directors entered into an agreement with the
Underwriters providing that they will not sell or otherwise dispose of any
shares of Common Stock held by them until October 15, 1998 without the prior
written consent of the Underwriters.
The Company can make no prediction as to the effect, if any, that offer
or sale of these shares would have on the market price of the Common Stock.
Nevertheless, sales of significant amounts of Restricted Shares in the public
markets could adversely affect the fair market price of Common Stock, as well as
impair the ability of the Company to raise capital through the issuance of
additional equity securities.
29
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Maurice J. Bates L.L.C., Dallas, Texas.
EXPERTS
The financial statements as of February 28, 1998 and for each of the
two years in the period ended February 28, 1998 included in this Prospectus have
been so included in reliance on the report of Moss Adams LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
30
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants F-1
Consolidated Balance Sheet as of February 28, 1998 and 1997 F-2
Consolidated Statement of Income for the years
ended February 28, 1998, 1997 and 1996 F-3
Consolidated Statement of Stockholders' Equity for
the years ended February 28, 1998, 1997, and 1996 F-4
Consolidated Statement of Cash Flows for the years ended
February 28, 1998, 1997, and 1996 F-5
Notes to Consolidated Financial Statements F-6
Consolidated Balance Sheet as of
May 31, 1998 and 1997 (unaudited) F-21
Consolidated Statement of Income for the three months ended
May 31, 1998 and 1997 (unaudited) F-22
Consolidated Statement of Cash Flows for the three months
Ended May 31, 1998 and 1997(unaudited) F-23
Notes to Consolidated Financial Statements for the F-24
three months ended May 31, 1998 and 1997
31
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Westower Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Westower
Corporation and Subsidiaries as of February 28, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended February 28, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Westower Corporation and Subsidiaries as of February 28, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended February 28, 1998 in conformity with generally accepted accounting
principles.
MOSS ADAMS LLP
Bellingham, Washington
April 14, 1998, except for Note 16, as to which the date is May 28, 1998
F-1
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
February 28, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
1998 1997
CURRENT ASSETS
Cash $6,235,000 $763,000
Contracts receivable, net 3,763,000 2,374,000
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,324,000 375,000
Inventory 1,108,000 201,000
Advances to related parties 196,000 -
Prepaid Expenses 77,000 26,000
Total current assets 12,703,000 3,739,000
PROPERTY AND EQUIPMENT, net 3,570,000 2,034,000
GOODWILL 2,088,000 -
OTHER ASSETS 70,000 49,000
TOTAL ASSETS $18,431,000 $5,822,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $2,466,000 $1,519,000
Billings in excess of costs and estimated
uncompleted contracts 272,000 331,000
Other current liabilities 280,000 252,000
Income taxes payable 1,652,000 155,000
Deferred income taxes 534,000 580,000
Note payable to bank 147,000 -
Current portion of long-term debt 372,000 473,000
Total current liabilities 5,723,000 3,310,000
LONG-TERM DEBT, net of current portion 209,000 134,000
NOTES AND ADVANCES PAYABLE
TO RELATED PARTIES 173,000 672,000
DEFERRED INCOME TAXES 48,000 27,000
Total liabilities 6,153,000 4,143,000
MINORITY INTEREST - 40,000
REDEEMABLE PREFERRED STOCK - 450,000
STOCKHOLDERS' EQUITY
Common stock 8,733,000 -
Foreign currency translation adjustment (67,000) 27,000
Retained earnings 3,612,000 1,162,000
Total stockholders' equity 12,278,000 1,189,000
TOTAL LIABILITIES AND
EQUITY $18,431,000 $5,822,000
</TABLE>
See accompanying notes to these financial statements.
F-2
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Years Ended February 28, 1998, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
CONTRACT REVENUES
AND LICENSE FEES EARNED $23,183,000 $15,416,000 $7,441,000
COST OF REVENUES EARNED 17,287,000 11,415,000 5,630,000
Gross profit 5,896,000 4,001,000 1,811,000
SELLING, GENERAL AND
EXPENSES 1,916,000 2,113,000 1,108,000
OPERATING INCOME 3,980,000 1,888,000 703,000
OTHER INCOME (EXPENSE)
Gain on sale of assets 125,000 - -
Interest income 65,000 - -
Interest expense (87,000) (54,000) (87,000)
Total other income (expense) 103,000 (54,000) (87,000)
INCOME BEFORE MINORITY INTEREST
AND PROVISION FOR INCOME TAXES 4,083,000 1,834,000 616,000
MINORITY INTEREST - (19,000) (6,000)
INCOME BEFORE PROVISION
FOR INCOME TAXES 4,083,000 1,815,000 610,000
PROVISIONS FOR INCOME TAXES 1,633,000 636,000 155,000
NET INCOME $2,450,000 $1,179,000 $455,000
BASIC EARNINGS PER SHARE $0.57 $0.31 $0.11
DILUTED EARNINGS PER SHARE $0.53 $0.31 $0.11
</TABLE>
See accompanying notes to these financial statements.
F-3
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years Ended February 28, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Foreign
Retained Currency
Common Stock Earnings Translation
Shares Amount (Deficit) Adjustment Total
<S> <C> <C> <C> <C> <C>
BALANCE,
February 29, 1995 3,835,000 $- $(435,000) $29,000 $(406,000)
Net Income - - 455,000 - 455,000
Preferred stock dividend - - (39,000) - (39,000)
BALANCE,
February 29, 1996 3,835,000 - (19,000) 29,000 10,000
Net Income - - 1,179,000 - 1,179,000
Change in foreign currency
translation adjustment - - 2,000 (2,000) -
BALANCE,
February 28, 1997 3,835,000 - 1,162,000 27,000 1,189,000
Stock issuances 1,341,000 8,712,000 - - 8,712,000
Compensation under stock
option plan - 21,000 - - 21,000
Net Income - - 2,450,000 - 2,450,000
Change in foreign currency
Translation adjustment - - - (94,000) (94,000)
BALANCE,
February 28, 1998 5,176,000 $8,733,000 $3,612,000 $(67,000) $12,278,000
</TABLE>
See accompanying notes to these financial statements.
F-4
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended February 28, 1998, 1997 and 1996
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
CASH FROM OPERATING ACTIVITIES
Net income $2,450,000 $1,179,000 $455,000
Adjustments to reconcile net income to
net cash from operating activities
Depreciation and amortization 302,000 148,000 132,000
Stock Base Compensation 56,000 - -
Deferred income taxes (41,000) 433,000 97,000
Minority interest in net income of subsidiary - 19,000 6,000
Gain on sale of assets (125,000) - -
Changes in operating assets and liabilities
Accounts receivable (667,000) (1,984,000) 203,000
Costs and estimated earnings in excess of
billings on uncompleted contracts (944,000) (184,000) (82,000)
Other current assets (896,000) (133,000) (51,000)
Other assets 7,000 (86,000) (33,000)
Trade accounts payable 548,000 1,220,000 11,000
Billings in excess of costs and estimated
earnings on uncompleted contracts (59,000) 280,000 46,000
Other current liabilities 23,000 65,000 66,000
Income taxes payable 1,354,000 147,000 (44,000)
Net cash flows from operating activities 2,008,000 1,104,000 806,000
CASH FLOWS FROM INVESTING ACTIVITIES
Business acquisitions (1,467,000) - -
Sales of property and equipment 444,000 - 155,000
Purchase of property and equipment (1,442,000) (1,011,000) (89,000)
Advances to related parties (196,000) - -
Net cash flows from investing activities (2,661,000) (1,011,000) 66,000
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock issuances 7,493,000 - -
Redemption of preferred stock (450,000) - -
Principal payments on long-term debt (229,000) (319,000) (517,000)
Proceeds from debt incurred 10,000 465,000 66,000
Payments on payables to related parties, net (778,000) - (17,000)
Borrowing on line of credit, net 150,000 - -
DIVIDENDS PAID - - (39,000)
Net cash flows from financing activities 6,196,000 146,000 (507,000)
EFFECT OF CHANGES IN EXCHANGE RATES (71,000) - -
NET INCREASE IN CASH 5,472,000 239,000 365,000
CASH AND CASH EQUIVALENTS,
beginning of year 763,000 524,000 159,000
AND CASH EQUIVALENTS,
end of year $6,235,000 $763,000 $524,000
</TABLE>
See accompanying notes to these financial statements.
F-5
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
NOTE 1 - ORGANIZATION
Westower Corporation (the "Company") was incorporated in Washington state in
June 1997 for the purpose of acquiring Westower Holdings Ltd. and its
wholly-owned subsidiaries, Westower Communications Ltd. and Westower
Communications, Inc. In connection with an initial public offering on October
15, 1997, the Company raised approximately $7,459,000. Proceeds were used in
part to acquire the assets and operations of several other businesses.
The Company is successor to operations begun in 1990 by Westower Communication
Ltd. It designs, builds and maintains wireless communication transmitting and
receiving facilities for providers of wireless communication services. The
Company also owns and leases transmitting sites to wireless communication
providers. Principal operations are located in the Pacific Northwest, including
the Canadian provinces of British Columbia and Alberta, and extend throughout
the Western United States and into Eastern Canada.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation - The consolidated financial statements include
the accounts of Westower Corporation and its domestic and Canadian subsidiaries,
all of which are wholly-owned. All material intercompany accounts and
transactions have been eliminated in consolidation.
(b) Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements. Examples of estimates subject to possible revision based
upon the outcome of future events include costs and estimated earnings on
uncompleted contracts, depreciation of property and equipment, and accrued
income tax liabilities. Actual results could differ from those estimates.
(c)
Contract Revenue and Cost Recognition - Revenue from fixed-price construction
contracts is recognized using the percentage-of-completion method. Revenues from
contracts based upon time and materials are recognized based upon revenues
earned for hours worked and materials consumed. Most of the Company's contracts
are short-term and are completed in two to three months. Contract costs include
all direct material and labor costs and those indirect costs related to contract
performance. Selling, general and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Costs and estimated earnings in
excess of billings on uncompleted contracts represents revenues recognized in
excess of amounts billed. Billings in excess of costs and estimated earnings on
uncompleted contracts represents billings in excess of revenues earned.
Cash and Cash Equivalents - For purposes of cash flows reporting, cash and cash
equivalents consist of cash in banks and money market investments on deposit
with major Canadian and U.S. financial institutions.
(e) Inventory - Inventory consists of construction parts and supplies and is
stated at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method.
F-6
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
Note 2 - Summary Of Significant Accounting Policies (Continued)
Property and Equipment - Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method over estimated useful
lives of the assets. Estimated useful lives by major asset category are as
follows: buildings - 25 years; furniture, fixtures and equipment - 3 to 10
years; communication towers - 20 years; vehicles - 5 years.
(g) Goodwill - Goodwill represents costs in excess of net assets of businesses
acquired and is being amortized using the straight-line method over 20 years. At
February 28, 1998, accumulated amortization was $16,000.
(h) Valuation of Long-Lived Assets and Change in Accounting Policy - During
1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of. In accordance with the new standard, the Company
periodically reviews long-lived assets and certain identifiable intangibles
whenever events or changes in circumstance indicate that the carrying amount of
an asset may not be recoverable. Adoption of the new standard had no affect on
the Company's financial position or results of operations.
(i) Income Taxes - Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus the
change in deferred taxes. Deferred taxes are recognized for differences between
the basis of assets and liabilities for financial statement and income tax
purposes. Differences relate primarily to the timing and recognition of
depreciation on depreciable assets and profit on uncompleted contracts. Deferred
tax amounts represent the future tax consequences of those differences, which
will either be deductible or taxable when the assets and liabilities are
recovered or settled.
(j) Foreign Currency Translation - Asset and liabilities of Canadian operations
where the functional currency is the local currency are translated into U.S.
dollars at current exchange rates. Revenues and expenses are translated using
the average exchange rate during the period. Foreign currency translation
adjustments are reported as a component of stockholders' equity in the
consolidated balance sheet.
(k) Earnings Per Share and Change in Accounting Policy - During 1998, the
Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share. The new standard supersedes Accounting Principles Board
(APB) No. 15, Earnings Per Share and establishes standards for computing and
presenting earnings per share. Prior years have been restated to conform with
the new requirements. Basic earnings per share amounts are computed based on
weighted average number of shares outstanding during the period after giving
retroactive effect to stock dividends and stock splits. Diluted earnings per
share amounts are computed by determining the number of additional shares that
are deemed outstanding due to stock options and warrants using the treasury
stock method.
F-7
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
Note 2 - Summary Of Significant Accounting Policies (Continued)
(l)Stock-Based Compensation - Stock-based compensation is recognized using the
intrinsic value method. For disclosure purposes, pro-forma net income and
earnings per share are provided as if the fair value method had been applied.
(m) New Accounting Standards - In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) Nos. 130 and
131. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components. SFAS No. 131 establishes standards for
reporting about operating segments, products and services, geographic areas, and
major customers. The standards become effective for fiscal years beginning after
December 15, 1997. Management plans to adopt these standards in the year ending
February 28, 1999. Management believes that provisions of SFAS Nos. 130 and 131
will change certain financial statement disclosures but will not have a material
effect on its financial condition or results of operations.
In February 1998, the Financial Accounting Standards Board issued SFAS 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits--An
Amendment of FASB Statements No. 87, 88, and 106. This Statement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. Rather, it
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
useful. This Statement becomes effective February 1998, for the Company, and the
Company believes it will not have a material effect on its financial condition
or results of operations.
NOTE 3 - ACQUISITIONS
Westower Holdings Ltd.
Concurrent with its incorporation in June 1997, the Company completed a merger
with Westower Holdings Ltd. by issuing 3,000,000 shares of common stock in
exchange for all outstanding common stock of Westower Holdings Ltd. Westower
Holdings Ltd. is a Wyoming corporation that owns all outstanding common stock of
Westower Communications Ltd. and Westower Communications, Inc. The merger
qualified as a tax-free exchange and is accounted for similar to a pooling of
interests, since the two companies were under common control.
WTC Holdings, Inc. and Western Telecom Construction Ltd.
Effective October 28, 1997, the Company completed a merger with WTC Holdings,
Inc. (formerly 411677 Alberta Ltd.) and its wholly owned subsidiary, Western
Telecom Construction Ltd., (collectively, "Western Telecom"). WTC Holdings, Inc.
was wholly-owned by Peter Jeffrey prior to the merger. Roy Jeffrey, who is a
significant stockholder and a director of Westower corporation is Peter
Jeffrey's brother. WTC Holdings, Inc. is a Wyoming corporation, and Western
Telecom Construction Ltd. is a Canadian corporation. Western Telecom engages in
operations similar to those of the Company. The merger was effected by
exchanging 835,000 shares of common stock valued at $5.1 million for all
outstanding common stock of Western Telecom. The merger qualified as a tax-free
exchange and has been accounted for using
F-8
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
NOTE 3 - ACQUISITIONS (Continued)
the pooling of interests method for business combinations. Accordingly, the
1998, 1997 and 1996 consolidated financial statements have been restated to
include the combined financial position, results of operations, and cash flows
of Western Telecom.
Prior to the merger, Western Telecom had a fiscal year-end of January 31. In
recording the business combination, the 1997 financial statements have not been
restated to conform with Westower Corporation's fiscal year-end as the effect on
the consolidated financial statements is not material. Prior to the merger, the
Company and Western Telecom entered into various business transactions. All
intercompany transactions have been eliminated in restating the 1998, 1997 and
1996 consolidated financial statements.
Summarized results of operations for the separate companies and combined amounts
included in the consolidated financial statements, net of intercompany
transactions, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------
<S> <C> <C> <C>
Contract revenues and license fees earned
Westower Corporation and Subsidiaries $ 16,156,000 $ 10,415,000 $ 5,664,000
Western Telecom 7,027,000 5,001,000 1,777,000
---------------- ---------------- ----------------
$ 23,183,000 $ 15,416,000 $ 7,441,000
================ ================ ================
Net income
Westower Corporation and Subsidiaries $ 975,000 $ 815,000 $ 460,000
Western Telecom 1,475,000 364,000 (5,000)
---------------- ---------------- ----------------
$ 2,450,000 $ 1,179,000 $ 455,000
================ ================ ================
</TABLE>
Other Acquisitions
Effective on dates ranging between November 1, 1997 and January 17, 1998, the
Company acquired all outstanding shares of common stock of National Tower
Service Ltd., 344813 Alberta Ltd., Ralph's Radio, Inc., 501053 B.C. Ltd., and
the minority interest in WTC Leasing Ltd. all of which are Canadian corporations
with operations similar to those of the Company. Total purchase price of
$2,658,000 consisted of $1,467,000 in cash and the issuance of 133,600 shares of
common stock valued at $1,191,000. The acquisitions have been accounted for as
purchases. Accordingly, the operating results of the acquired companies have
been included in the Company's consolidated financial statements since the date
of acquisition. The aggregate purchase price exceeded the fair market value of
net assets acquired by $2,104,000 which is being amortized over 20 years.
The following summarized unaudited pro forma consolidated results of operations
includes the acquired companies assuming the acquisitions occurred on March 1,
1996:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
--------------- ----------
Contract revenues earned $ 26,629,000 $ 19,267,000
Net income $ 2,888,000 $ 1,246,000
Basic earnings per share $ 0.65 $ 0.31
Diluted earnings per share $ 0.61 $ 0.31
</TABLE>
F-9
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
NOTE 4 - UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings on uncompleted contracts are summarized
as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 5,666,000 $ 5,151,000
Estimated earnings 3,639,000 871,000
Less billings to date (8,253,000) (5,978,000)
--------------- ----------------
Total $ 1,052,000 $ 44,000
=============== ================
Presentation in the accompanying balance sheet:
Costs and estimated earnings in excess of billings
on uncompleted $ 1,324,000 $ 375,000
contracts
Billings in excess of costs and estimated earnings
on uncompleted (272,000) (331,000)
--------------- ----------------
contracts
Total $ 1,052,000 $ 44,000
=============== ================
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1998 1997
--------------- ----------
Buildings $ 1,204,000 $ 276,000
Vehicles 1,197,000 470,000
Equipment 634,000 279,000
Communication towers 620,000 387,000
Furniture and fixtures 312,000 173,000
Leasehold improvements 73,000 27,000
--------------- ----------------
4,040,000 1,612,000
Less accumulated depreciation (1,064,000) (400,000)
--------------- ----------------
2,976,000 1,212,000
Land 594,000 822,000
--------------- ----------------
$ 3,570,000 $ 2,034,000
=============== ================
</TABLE>
Depreciation expense on property and equipment in 1998, 1997 and 1996 was
$286,000, $143,000 and $132,000, respectively.
F-10
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
NOTE 6 - NOTE PAYABLE TO BANK AND LONG-TERM DEBT
Note Payable to Bank
The Company has a line of credit facility with a Canadian bank that allows for
borrowing up to $210,000 at the bank's prime rate plus .75%. The line is
collateralized by essentially all assets of Western Telecom Construction Ltd.
and is subject to renewal in May 1998.
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------
<S> <C> <C>
Notes payable to Canadian bank including note repaid in full during 1998, due on
demand or in monthly installments of $1,800 plus interest at the bank's prime
rate plus 1.0% through January 1999, collateralized by mortgage on land and
essentially all assets of Westower Holdings, Ltd.
$ 184,000 $ 325,000
Note payable to Canadian bank, due in monthly installments of $6,400 including
interest at 7.55% through December 2001, collateralized by essentially all
assets of WTC Leasing and an assignment of specified
license fee revenues. 79,000 155,000
Notes payable to Canadian bank, due on demand or in aggregate monthly
installments of $1,900 including interest at rates ranging from 9.0% to 11.0%
through July 1999, collateralized by equipment and essentially all
assets of Western Telecom Construction Ltd. and Ralph's Radio, Inc. 22,000 44,000
Notes payable to U.S. bank, due in aggregate monthly installments of
$2,600 including interest at rates ranging from 7.5% to 10.0% through September
1999, collateralized by vehicles of Westower Communications, Inc.
21,000 48,000
Vehicle purchase contracts with Canadian finance corporation, due in aggregate
monthly installment of $1,200 including interest at rates ranging from 0.0% to
3.9% through December 2001, collateralized by
vehicles. 65,000 -
Capital lease obligations to U.S. lessors, due in aggregate monthly
installments of $6,700 through December 2001, collateralized by leased
equipment. 210,000 35,000
--------------- ----------------
Total long-term debt 581,000 607,000
Less current portion (372,000) (473,000)
--------------- ----------------
Long-term portion $ 209,000 $ 134,000
=============== ================
</TABLE>
F-11
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
NOTE 6 - NOTE PAYABLE TO BANK AND LONG-TERM DEBT (Continued)
Long-term debt matures as follows:
Year Ending
February 28,
1999 $ 372,000
2000 86,000
2001 90,000
2002 33,000
2003 -
---------
$ 581,000
Capital lease obligations consist primarily of commitments under lease contracts
for trucks and certain other equipment. The obligations carry a weighted-average
imputed interest rate of 17%. At February 28, 1998, book value and accumulated
amortization of leased equipment are $275,000 and $62,000, respectively.
Several of the Company's loan agreements with banks contain restrictive
covenants in accordance with standard banking practice. The covenants are
applicable to individual subsidiaries entering into the agreements and not to
the consolidated entity.
NOTE 7 - INCOME TAXES
The provision for income taxes is comprised by the following:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current
U.S. federal and state $272,000 $133,000 $-
Canadian federal and provincial 1,402,000 70,000 59,000
1,674,000 203,000 59,000
Deferred
U.S. federal and state $- $(2,000) $-
Canadian federal and provincial (41,000) 435,000 96,000
(41,000) 433,000 96,000
Total $1,633,000 $636,000 $155,000
</TABLE>
F-12
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
NOTE 7 - INCOME TAXES (Continued)
The total tax provision differs from the amount computed using the U.S. and
Canadian federal statutory income tax rates as follows:
<TABLE>
<CAPTION>
Canadian U.S. Total
Income Income Income
<S> <C> <C> <C>
1998
Pretax net income $3,283,000 $800,000 $4,083,000
Statutory rates 45% 34% 43%
Tax at statutory rates 1,477,000 272,000 1,749,000
Benefit of graduated rates and tax credits (116,000) - (116,000)
Provision for income taxes 1,361,000 272,000 1,633,000
Effective tax rates 41% 34% 40%
1997
Pretax net income $1,457,000 $358,000 $1,815,000
Statutory rates 45% 34% 43%
Tax at statutory rates 656,000 121,000 777,000
Benefit of graduated rates and tax credits
(150,000) - (150,000)
U.S. state income taxes, net of
federal tax benefit - 9,000 9,000
Provision for income taxes 506,000 130,000 636,000
Effective tax rates 35% 36% 35%
1996
Pretax net income $533,000 $77,000 $610,000
Statutory rates 45% 34% 44%
Tax at statutory rates 240,000 26,000 266,000
Benefit of graduated rates and tax credits (85,000) - (85,000)
Effect of net operating loss carryover - (26,000) (26,000)
Provision for income taxes 155,000 - 155,000
Effective tax rates 29% 0% 25%
</TABLE>
Undistributed earnings of the Company's Canadian subsidiaries amounted to
approximately $5 million at February 28, 1998. Essentially all of those earnings
are considered to be indefinitely reinvested and, accordingly, no provision for
U.S. federal and state income taxes has been provided thereon. Upon distribution
of those earnings in the form of dividends or otherwise, the Company would be
subject to both U.S. income taxes, net of foreign tax credits, and withholding
taxes payable in Canada. In the event Canadian earnings were distributed,
estimated U.S. federal and state income taxes due, net of foreign tax credits,
would be approximately $1.5 million.
F-13
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
NOTE 7 - INCOME TAXES (Continued)
The tax effects of temporary differences that give rise to deferred tax
liabilities are as follows:
<TABLE>
<S> <C> <C>
1998 1997
Current
Deferred taxable income on uncompleted contracts $534,000 $580,000
Noncurent
Depreciation differences 48,000 27,000
------- -------
$582,000 $607,000
========= ========
</TABLE>
NOTE 8 - EARNINGS PER SHARE
The numerators and denominators of basic and fully diluted earnings per share
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator - Net income as reported $2,450,000 $1,179,000 $455,000
Dividends on preferred shares - - (39,000)
---------- ----------- ----------
$2,450,000 $1,179,000 $416,000
========== ========== ========
</TABLE>
Denominator - Weighted average number of shares outstanding
<TABLE>
<S> <C> <C> <C>
Basic earnings per share 4,323,000 3,835,000 3,835,000
Effect of dilutive stock options and warrants 331,000 - -
------- ---------- ---------
Diluted earnings per share 4,654,000 3,835,000 3,835,000
</TABLE>
NOTE 9 - STOCKHOLDERS' EQUITY
Preferred Stock
During 1998, the Company merged with WTC Holdings Ltd. and its wholly-owned
subsidiary, Western Telecom Construction Ltd. (collectively, "Western Telecom").
The merger has been accounted for as a pooling of interests and the 1997 and
1996 financial statements have been restated to include the accounts of Western
Telecom. In February 1994, Western Telecom issued 467 shares of Class A
redeemable preferred stock. The preferred stock ranks in priority to common
stock in the event of liquidation, dissolution or winding up of the affairs of
Western Telecom. The shares also contain stated redemption values and rights to
5% noncumulative dividends when declared by the Board of Directors. There were
no unpaid dividends at February 28, 1998 and 1997. The preferred stock has no
voting rights.
The shares have been reflected at their total redemption price of $450,000
in the February 28, 1997 balance sheet. During 1998, the Board of Directors
elected to redeem all outstanding shares.
F-14
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
NOTE 9 - STOCKHOLDERS' EQUITY (Continued)
Common Stock
The Company has a single class of $0.01 par value common stock. Authorized
shares total 10 million, of which 1,230,000 have been registered on Form SB-2
with the Securities and Exchange Commission under the 1933 Securities Act. A
total of 1,200,000 of the registered securities were sold in connection with an
initial public offering on October 15, 1997. Proceeds from the offering totaled
$7,459,000, net of $485,000 of underwriting costs. The registered securities
trade on the American Stock Exchange.
As disclosed in Note 3, an additional 3,968,600 shares were issued in connection
with various business combinations during fiscal 1998. Another 7,000 shares were
issued as stock awards to employees of the Company and acquired businesses as
incentive to remain in the employ of the Company. Of the total 5,176,000 shares
outstanding, 3,385,000 shares are held by five individuals, including 3,101,000
shares held by four members of management.
Stock Warrants
In connection with its initial public offering in October 1997, the Company
issued 1,380,000 stock warrants. The warrants are exercisable for $9.00 for one
share of Company common stock. Commencing six months following the offering, the
Company may call for redemption of the warrants for $0.05 each upon thirty days
prior written notice if the closing sales price of the Company's common stock
has equaled or exceeded $15.00 for ten consecutive days. Through February 28,
1998, 400 shares of common stock were issued pursuant to the terms of the
warrant agreements.
Stock Option Plan
The Company has established the 1997 Stock Option Plan (the Plan), as amended,
which provides for granting stock options to employees, officers, directors, and
consultants to the Company and its affiliates through the year 2004. The Plan
reserves 400,000 shares of the Company's common stock and provides for grants of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code and grants of non-qualified options at the discretion of the Board
of Directors.
In accordance with Statement of Financial Accounting Standards No 123,
Accounting for Stock-Based Compensation" ("FAS 123"), which was effective as of
January 1, 1996, the fair value of option grants is estimated on the date of
grant using the Black-Scholes option-pricing model for pro forma footnote
purposes with the following assumptions used for grants during the current year;
no dividend yield, risk-free interest rate of 6.25% and expected option life of
2.7 years. Expected volatility was assumed to range from 0% to 29%.
F-15
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
NOTE 9 - STOCKHOLDERS' EQUITY (Continued)
<TABLE>
<CAPTION>
Weighted-
Average of
Shares of Common Stock Exercise Price
Available for Under of Shares
Option/Award Plan Under Plan
<S> <C> <C> <C>
Balance, February 28, 1997 - $-
Authorized 400,000 -
Granted (589,000) 589,000 $7.78
---------- ---------
Balance, February 28, 1999 (189,000) $589,000
========== =========
</TABLE>
The Company has granted 189,000 options in excess of shares reserved. The
Company is in the process of amending its option plan in order to ratify the
options issued in excess of the amount reserved.
The following table summarizes information about stock options outstanding at
February 28, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted- Weighted Weighted
Range of Outstanding Average Average Average
Exercise February 28, Remaining Exercise Number Exercise
Prices 1998 Contractual Life Price Exercisable Price
------- ---- ---------------- ------ ------------ ------
<S> <C> <C> <C> <C> <C>
$13.40 15,000 9.9 years $13.40 - $-
7.50 to 8.25 559,500 9.6 years 7.82 105,000 8.07
1.00 4,500 9.4 years 1.00 - -
0.01 10,000 9.6 years 0.01 - -
</TABLE>
During fiscal 1998, the Company granted 39,500 nonqualified stock options to
employees. The difference between the market price at the date of grant and the
purchase price to be paid by the grantee is recognized ratably by the Company as
compensation expense over the vesting period. The expense for fiscal year 1998
was $21,000. During 1998, another $35,000 of compensation expense was recognized
for stock awards granted to employees.
Had the fair value method of accounting been applied to the Company's stock
option plan, the tax-effected impact would be as follows:
<TABLE>
<S> <C>
1998
Net income as reported $ 2,450,000
Estimated fair value of the year's option grants, net of tax (215,000)
-------------
Net income adjusted $ 2,235,000
=============
Basic earnings per share $ 0.52
========
Diluted earnings per share $ 0.48
========
</TABLE>
F-16
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Cash paid for interest $87,000 $54,000 $87,000
Cash paid for income taxes 177,000 77,000 90,000
Noncash transactions
Stock issuances for
acquisitions of businesses 1,184,000 - -
Equipment acquired under capital
lease obligations and seller financing
256,000 - -
</TABLE>
NOTE 11 - RETIREMENT PLAN
The Company's subsidiary, Westower Communications Inc., adopted a defined
contribution retirement plan, effective January 1, 1997. The plan contains
certain participation criteria and allows for both employee and employer
discretionary contributions. The total Company funded discretionary contribution
for 1998 and 1997 was $52,000 and $46,000, respectively.
NOTE 12 - RELATED PARTY TRANSACTIONS
Advance to Related Parties
During 1998, the Company advanced $119,000 to a Canadian corporation owned by
certain shareholders of Westower Corporation. Proceeds were used by the
Corporation to purchase facilities leased by one of the Company's newly acquired
subsidiaries, 501053 B.C Ltd. The Company also advanced $77,000 to several
stockholders during 1998. The advances are unsecured, bear no interest, are due
on demand and are denominated in Canadian dollars.
Management Services and Accounts Payable
The Company receives consulting services from Westower Consulting Ltd., a
Canadian corporation owned by a stockholder of Westower Corporation. Charges for
these services were $126,000 and $94,000 in 1998 and 1997, respectively.
Included in trade accounts payable at February 28, 1998 is $39,000 due to
Westower Consulting Ltd. Management expects that payments to this related
corporation will not continue in 1999, since the related services will be
performed by employees and officers of the Company.
F-17
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
Note 12 - Related Party Transactions (CONTINUED)
Notes and Advances Payable to Related Parties
Notes and advances payable to related parties consist of the following:
<TABLE>
<S> <C> <C>
1998 1997
Unsecured advances payable to officers
and stockholders, in Canadian dollars, with
no stated interest rate and no specific repayment terms. $173,000 $ -
Unsecured notes payable to officers and
stockholders, paid in full during 1998. - 672,000
$173,000 $672,000
</TABLE>
Facility Leases
Two subsidiaries acquired during the year, 501053 B.C. Ltd. and National Tower
Service Ltd., lease their operating facilities from Canadian corporations owned
by certain stockholders of Westower Corporation. The facilities are leased on a
month-to-month basis, and no significant lease payments were paid to related
parties during the period from the date of acquisition to February 28, 1998.
NOTE 13 - COMMITMENTS AND CONTINGENCY
Operating Leases
The Company leases operating facilities in Washington state under two
noncancelable operating lease agreements. Future minimum lease payments total
$68,000 in 1999 and $26,000 in 2000.
Rent expense for 1998, 1997 and 1996 was $26,000, $27,000 and $24,000,
respectively.
Year 2000 Compliance
The Company has not made an assessment of how the Year 2000 compliance issue may
affect its electronic data processing systems or those of its customers,
suppliers, banks and other outside parties. Accordingly, the Company has not
estimated the cost, if any, to update its data processing systems to assure
compliance, or the costs that may be incurred as a result of outside parties
Year 2000 problems.
NOTE 14 - CREDIT RISK AND BUSINESS CONCENTRATIONS
Financial instruments that potentially subject the Company to concentrations of
credit consist primarily of cash, cash equivalents and trade accounts
receivable. The Company places its temporary cash investments with major
financial institutions. At times, deposits with any one institution may exceed
federally insured limits. The Company extends credit to customers based on
evaluation of customer's financial condition and credit history. Collateral is
generally not required. Customers include large Canadian and U.S. companies
concentrated in the telecommunications industry. Sales to five major customers
accounted for 48% of total revenues in 1998. Amounts due from these customers
comprised 37% of trade accounts receivable at February 28, 1998. Sales to six
major customers accounted for 61% of total revenues in 1997. Amounts due from
these customers comprised 56% of trade accounts receivable at February 28, 1997.
F-18
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
Note 14 - Credit Risk and Business Concentrations (CONTINUED)
Management expects that sales to relatively few customers will continue to
account for a high percentage of its revenues into the foreseeable future and
believes the Company's financial results depend in significant part upon the
success of these customers. Although the composition of the group comprising the
Company's largest customers may vary from period to period, the loss of a
significant customer or reduction in orders by any significant customers,
including reductions due to market, economic or competitive conditions in the
wireless communications industry, may have an adverse effect on the Company's
business, financial condition and results of operations.
The following table summarizes sales and net income, and net assets related to
the geographic regions in which the Company operates.
1998
Total United States Canada
Sales 100 % 16 % 84 %
Net Income 100 % 5 % 95 %
Net Assets 100 % 61 % 39 %
1997
Total United States Canada
Sales 100 % 53 % 47 %
Net Income 100 % 19 % 81 %
Net Assets 100 % 49 % 51 %
1996
Total United States Canada
Sales 100 % 21 % 79 %
Net Income 100 % 17 % 83 %
NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash, Contracts Receivable, Trade Accounts Payable And Other Current Liabilities
- - At February 28, 1998, carrying amounts of these financial instruments
approximate fair value because of their short maturities.
Long-Term Debt - At February 28, 1998, estimated fair value of long-term debt
approximates the carrying amount of $581,000, based on current rates offered for
similar debt.
Advances to and from Related Parties - At February 28, 1998, the Company has
notes and advances to and from related parties in amounts of $196,000 and
$173,000, respectively. The carrying amount of advances to related parties
approximates fair value because of the short maturity of these instruments.
Advances from related parties bear no interest and have no specific repayment
terms. Based on an assumed interest rate of 8% and payment in full in February
2000, fair value is estimated to be $147,000.
F-19
<PAGE>
WESTOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, 1997 and 1996
NOTE 16 - SUBSEQUENT EVENTS
In March 1998, the Company tentatively agreed to acquire two Canadian companies
in exchange for 95,000 shares of Westower Corporation stock valued at $1.9
million. As part of the purchase agreement, the Company and three principals of
the acquired companies will enter into employment agreements which will
initially provide for annual compensation of $75,000 each plus rights to
purchase up to 12,733 (each) shares of common stock, vesting over a three-year
period, at an average exercise price of $1.72 per share. The acquired companies
fabricate and install communication towers in Eastern Canada. Annual sales for
the acquired companies are estimated at $5 million with net income of
approximately $600,000. Goodwill of approximately $1.3 million is expected to be
recorded as part of the purchase.
In May 1998, the Company made a tentative agreement to acquire a company doing
business in the southeastern United States. Under the proposed agreement the
Company will issue approximately 385,000 shares of common stock, valued at
approximately $10,000,000, to complete the acquisition. Final details and a
definitive purchase agreement are still under negotiation.
The Company is in other purchase negotiations with various businesses with
operations similar to that of the Company. No definitive agreements have been
reached in these negotiations.
Subsequent to year end, the Company received a commitment letter for the
purchase of $15,000,000 in 7% convertible senior subordinated debt and a warrant
to purchase 40,000 shares of common stock. The proposed terms of the purchase
agreement provide for payment of $14,850,000 to the Company, 99.9% of which is
to be allocated to the debt and 0.1% to be allocated to the warrant. The debt is
convertible at $25.03 per share of common stock, and the warrant provides for
purchase of the shares at $23.00 per share. The purchase agreement provides for
adjustment of the conversion amount for the subordinated debt and warrant
exercise price for any stock dividends, splits and other changes as defined in
the respective agreements, so as to preserve the purchaser's relative rights
inherent in the agreements. The Company will be subject to various affirmative
and negative covenants contained in the agreement and the agreement gives the
purchaser the right to conversion or to exercise the warrant rights at any time.
The agreement also requires the purchaser to consent to the subordination of the
debt obligation to senior bank indebtedness committed to the Company as
discussed below.
On April 9, 1998, the Company received a commitment for $75,000,000 of senior
bank notes, with lead funding to be provided by BankBoston. The obligation will
bear interest at an indexed variable rate plus an additional amount depending on
the degree of leverage maintained by the Company. The final terms are expected
to provide for interest-only payments for a two-year period, with amortization
to begin in year three and with a final due date at the end of year seven. The
proceeds from this funding facility and the convertible senior subordinated debt
are expected to be used to purchase communication and broadcast towers.
F-20
<PAGE>
WESTOWER CORPORATION
CONSOLIDATED BALANCE SHEETS
May 31, 1998 and 1997
<TABLE>
<CAPTION>
( Unaudited )
1998 1997
--------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 21,569,000 $ 1,893,000
Account receivable, net 9,035,000 5,016,000
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,649,000 1,641,000
Inventory (Note 2) 2,127,000 242,000
------------- -----------
Total Current Assets 34,380,000 8,792,000
PROPERTY AND EQUIPMENT, net 4,238,000 1,959,000
GOODWILL 2,064,000 -
OTHER ASSETS 859,000 64,000
-------------- -------------
TOTAL ASSETS $ 41,541,000 $ 10,815,000
============= =============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable $ 5,444,000 $ 3,657,000
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,348,000 2,415,000
Other current liabilities 280,000 245,000
Income taxes payable 1,816,000 137,000
Deferred income taxes 534,000 569,000
Note payable to bank 150,000 -
Current portion of long-term debt 343,000 257,000
-------
Total current liabilities 9,915,000 7,280,000
LONG-TERM DEBT, net of current portion 187,000 180,000
DEFERRED INCOME TAXES 48,000 -
SUBORDINATED CONVERTIBLE NOTES 15,000,000 -
ADVANCES FROM RELATED PARTIES - 1,594,000
--------------- -------------
Total liabilities 25,150,000 9,054,000
--------------- -------------
REDEEMABLE PREFERRED STOCK - 450,000
--------------- -------------
COMMON STOCK SUBJECT TO RECISSION 4,316,000 -
-------------- -------------
STOCKHOLDERS' EQUITY
Common stock 7,706,000 42,000
Foreign currency translation adjustments (67,000) -
Retained earnings 4,436,000 1,269,000
--------------- -------------
Total stockholders' equity 12,075,000 1,311,000
--------------- -------------
TOTAL LIABILITIES AND STOCK
HOLDERS' EQUITY $ 41,541,000 $ 10,815,000
============ =============
</TABLE>
F-21
<PAGE>
WESTOWER CORPORATION
CONSOLDIATED STAEMENTS OF INCOME
( Unaudited )
<TABLE>
<CAPTION>
For the Three Months Ended
May 31,
1998 1997
-------------------- --------
<S> <C> <C>
Revenues Earned $ 11,166,000 $ 8,948,000
Cost of Revenues Earned 8,599,000 6,654,000
------------- -------------
Gross Profit 2,567,000 2,294,000
Selling, General and Administrative
Expenses 1,357,000 1,335,000
----------- ----------
Operating Income $ 1,210,000 $ 959,000
Other Income ( Expense )
Interest expense (17,000) (26,000)
Interest income 75,000 -
-------------------- ----------
Income Before Income Taxes 1,268,000 933,000
Income Taxes 444,000 349,000
--------------- ----------
Net Income $ 824,000 $ 584,000
============ ============
Basic Earnings per Share $ .15 $ .14
=============== ===============
Diluted Earnings per Share $ .13 .14
=============== ===============
Weighted Average Common Shares 5,659,000 4,232,000
============== ==============
Weighted Average Common Shares
plus Dilutive Potential 6,587,000 4,232,000
</TABLE>
F-22
<PAGE>
WESTOWER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended May 31, 1997 and 1998 ( Unaudited )
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 824,000 $ 584,000
Depreciation and amortization 62,000 59,000
Net change in non-cash operating
assets and liabilities (3,243,000) 1,079,000
------------- -------------
Net cash flows from operating activities (2,357,000) 1,722,000
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITES
Purchase of property and equipment (435,000) (169,000)
------------- -------------
Net cash flows from investing activities (435,000) (169,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITES
Principal payments on long-term debt (51,000) (168,000)
Net proceeds on exercise of warrants 3,290,000 -
Net proceeds on sale of convertible
subordinated notes 14,850,000 -
------------- -------------
Net cash flows from financing activities 18,089,000 (168,000)
------------- -------------
NET INCREASE IN CASH 15,297,000 1,385,000
CASH - Beginning of Period 6,272,000 508,000
--------------- --------------
CASH - End of Period $ 21,569,000 $ 1,893,000
============= =============
SUPPLEMENTAL DISCLOSURE
Interest Paid $ 17,000 $ 11,000
Taxes Paid $ 280,000 $ 38,000
</TABLE>
F-23
<PAGE>
WESTOWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1998 and 1997
( Unaudited )
Note 1 - Basis of Presentation
The consolidated financial statements and notes thereto at May 31, 1998 and 1997
and for the three month periods ended May 31, 1998 and 1997 reflect the
acquisition of Western Telecom Construction Ltd., an Alberta corporation and the
acquisition of MJA Communications Corp., a Florida corporation. Both companies
design, fabricate and construct wireless transmitting and receiving facilities
and shelters for communications equipment. The Company issued 835,000 shares of
its common stock for all the common shares of Western Telecom Construction Ltd.
and 397,023 shares of its common stock for all of the common shares of MJA
Communications Corp. Both acquisitions were structured as mergers and accounted
for as pooling of interests. Accordingly, the consolidated financial statements
and notes thereto at May 31, 1998 and 1997, and for three month periods ended
May 31, 1997 and 1998 are presented as if the acquisition of Western Telecom
Construction Ltd. and MJA Communications Corp. had occurred at the at the
beginning of all periods presented.
The notes to the consolidated financial statements do not present all
disclosures required under generally accepted accounting principles, but
instead, as permitted by the Securities and Exchange Commission regulations,
presume that user of the interim financial statements have read or have access
to the February 28, 1998 audited consolidated financial statements and that the
adequacy of additional disclosure needed for a fair presentation may be
determined in that context. The financial information included herein reflects
all adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary to a fair presentation of the results for
interim periods. The results of operations for the three month periods ended May
31, 1997 and 1998 respectively are not necessarily indicative of the results to
be expected for the full year. Note 2 - Inventory
Inventory is stated at the lower of cost and estimated net realizable value
using the first-in, first-out method. Inventory consists of materials purchased
for future construction not associated with specific jobs.
Note 3 - Common Stock
On October 15, 1997, the Company issued 1,200,000 shares of common stock and
1,380,000 warrants to purchase common stock in a public offering. The Company
received proceeds, net of costs, of $7,524,585. During the three month ended May
31, 1998 , the Company received proceeds of $3,289,788 on the exercise of 365,
532 warrants.
F-24
<PAGE>
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the securities to which it relates or an
offer to sell or the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstance, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to the date hereof.
1,380,000 Shares of Common Stock
OFFERING PRICE
$9.00 per share
Westower
Corporation
TABLE OF CONTENTS
PAGE
Additional Information.................... 2
Prospectus Summary........................ 3
Risk Factors.............................. 6
Use of Proceeds........................... 10
Dividend Policy........................... 11
Capitalization............................ 12
Management's Discussion and
Analysis of Financial Condition
and Results of Operation................. 13
Business.................................. 16 Prospectus
Management................................ 22
Principal Shareholders.................... 25
Certain Relationships
and Related Transactions 27 August 06, 1998
Description of Securities................. 28
Shares Eligible For Future Sale........... 29
Legal Matters............................. 30
Experts................................... 30
Index to Financial Statements............. 31
.........Until ____ , 1998 (25 days from the
date of this Prospectus), all dealers effecting
transactions in the registered securities, whether
or not participating in this distribution, may be
required to deliver a Prospectus. This is in
addition to the obligations of dealers to deliver a
Prospectus when acting as Underwriters and with
respect to their unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Pursuant to Section 23B.08.500 of the Washington Business Corporation
Act, a corporation may indemnify an individual made a party to a proceeding
because the individual is or was a director against liability incurred in his
official capacity with the corporation including expenses and attorneys fees.
Article VII of the Bylaws provides that the Company may indemnify and hold
harmless to the full extent permitted by applicable law each person who was or
is made party to or is threatened to be made a party to or is involved in an
actual or threatened action, suit or other proceeding, civil or criminal, by
reason of the fact that he is or was a director, officer, employee or agent of
the Company against all expenses, liabilities and losses, including attorneys
fees, judgements, fines, and ERISA excise taxes or penalties, actually or
reasonably incurred or suffered by such person in connection with any such
action.
Article VI of Articles of Incorporation provides that any personal
liability of a director to the corporation or its shareholders for monetary
damages for conduct as a director is eliminated, except for any liability for
any acts or omissions that involve intentional misconduct by a director or a
knowing violation of a law by a director, for conduct violating RCW 23B.08.310,
for any transaction from which the director will personally receive a benefit in
money, property, or services to which the director is not legally entitled, or
for any act or omission occurring prior to the date when this Article becomes
effective. If after this Article becomes effective the Washington Business
Corporation Act is amended to authorize further elimination or limitation of
liability of a director, then, upon the effective date of the amendment, the
liability of a director shall be further eliminated and limited without further
act to the fullest extent so authorized. No amendment or repeal of these
Articles of Incorporation shall reduce the extent of any elimination or
limitation of liability of a director existing immediately prior to the
amendment or repeal.
Article VII of the Articles of Incorporation provides for
indemnification of the directors and officers as follows:
"ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
7.1 Right to Indemnification. EACH INDIVIDUAL (including an
individual's personal representative) who was or is made a party or is
threatened to be made a party to, or is otherwise involved (including, without
limitation, as a witness) in, any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, investigative or
by or in the right of the corporation, or otherwise (a "Proceeding") because
the individual or another individual of whom the individual is a personal
representative:
(a) is or was a director or officer of the corporation or any predecessor
entity, or (b) being or having been such a director or officer, is or was
serving at the request of the corporation or any predecessor entity as a
director, officer, partner, trustee, employee, agent, or in any other
relationship or capacity whatsoever, of any other foreign or domestic
corporation, partnership, joint venture, employee benefit plan or trust or other
trust, enterprise or other private or governmental entity, agency, board,
commission, body or other unit whatsoever ( (a) and (b) collectively, an
"Indemnitee")
SHALL BE INDEMNIFIED AND HELD HARMLESS by the corporation to the fullest extent
not prohibited by the Washington Business Corporation Act as the same exists or
may hereafter be amended (but, in the case or any amendment, only to the extent
that the amendment does not prohibit the corporation from providing broader
indemnification rights than prior to the amendment) If the Indemnitee acted in
good faith and reasonably believed the Indemnitee's conduct was in the
corporation's best interests (in the case of conduct in the Indemnitee's
official capacity with the corporation) and (in all other cases) was at least
not opposed to the corporation's best interests and is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances
("Corporation's Standards for Indemnification"), WITHOUT REGARD TO the
limitations in RCW 23B.08.510 through 23B.08.550, AND WHETHER OR NOT the
Indemnitee met the standard of conduct set forth in RCW 23B.08.510 or any other
standard of conduct set forth in RCW 23B.08.500 through RCW 23B.08.580, AGAINST
ALL DIRECT AND INDIRECT EXPENSES, LIABILITIES AND LOSSES (including but not
limited to attorney fees, judgments, settlements, penalties, fines, ERISA and
employee benefit plan and other excise taxes and other taxes and penalties,
environmental and remediation expenses, settlements, penalties and fines, and
other adverse effects) that are actually incurred or suffered by the Indemnitee
in connection with the Proceeding (whether or not the basis of the Proceeding is
alleged conduct, action or inaction in an official capacity as a director,
officer, partner, trustee, employee, agent, or in any other relationship or
capacity whatsoever).
II-1
<PAGE>
The indemnification granted in the Article is a contract right and
includes the right to payment by, and the right to receive reimbursement from,
the corporation of all the Indemnitee's expenses as they are incurred, including
advances in advance of final disposition of the Proceeding. The term "expenses"
as used in this Article includes without limitation all counsel and attorneys'
fees and costs. Notwithstanding the foregoing, an advance for expenses incurred
by an Indemnitee who is a party to a Proceeding because the Indemnitee is or was
a director of the corporation or any predecessor entity shall be made in advance
of final disposition of the Proceeding only upon receipt by the corporation of
(i) a written undertaking (hereinafter an "undertaking") executed personally or
on the Indemnitee's behalf to repay the advance if and to the extent it is
ultimately determined by order of a court having jurisdiction (which
determination shall become final upon expiration of all rights to appeal,
hereinafter a "final adjudication") that the Indemnittee is not entitled to be
indemnified for such expenses under this Article, and (ii) a written affirmation
by the Indemnitee of the Indemnitee's good faith belief that the Indemnitee has
net the Corporation's Standards for Indemnification as defined in this Article
for the amount claimed. The undertaking must be an unlimited general obligation
of the Indemnitee, unsecured and without reference to financial ability to make
repayment. 7.2 Court-Ordered Indemnification or Advance; Presumption. If any
claim for indemnification or advance of expenses under Section 7.1 of this
Article is not paid in full by the corporation within 30 days after a written
claim has been received by the corporation, the Indemnitee may at any time
thereafter apply for indemnification or advance of expenses to the court
conducting the Proceeding or to another court of competent jurisdiction. If the
Indemnitee is successful in whole or in part in any such application, the
corporation shall also pay to Indemnitee all the Indemnitee's expenses in
connection with the application. The Indemnitee shall be presumed to be entitled
to indemnification and advances of expenses under this Article upon the
corporation's receipt of Indemnitee's written claim (and in any application to a
court for indemnification or advance of expenses), and thereafter the
corporation shall have the burden of proof to overcome that presumption. Neither
the fact that the corporation (including its board of directors, special legal
counsel or its shareholders under RCW 23B.08.550, or otherwise) did, nor the
fact that the corporation (including its board of directors, special legal
counsel or its shareholders under RCW 23B.08.550, or otherwise) did not, make a
determination that the Indemnitee is or is not entitled to indemnification or
advance of expenses, shall be a defense to the application or create a
presumption that the Indemnitee is not so entitled. If the Indemnitee applies to
a court having jurisdiction for determination of the right to indemnity or
advance of expenses, or amount thereof, the court's determination shall become
final upon expiration of all rights to appeal, and such a final adjudication
shall supersede any other determination made in accordance with RCW 23B.08.550,
or otherwise. 7.3 Nonexclusivity of Rights, Severability. The right to
indemnification (including but not
limited to payment, reimbursement and advances of expenses) granted in this
Article is not exclusive of any other rights that any individual may have or
hereafter acquire under any statute, common law, provision of the Articles of
Incorporation or Bylaws of the corporation, agreement, vote or resolution of
shareholders or disinterested directors, or otherwise. Notwithstanding any
amendment to or repeal of this Article, any Indemnitee shall be entitled to
indemnification and advance of expenses in accordance with the provisions of
this Article with respect to any conduct, acts or omissions of the Indemnitee
occurring prior to the amendment or repeal. If any provision or term of this
Article is determined to be void or unenforceable for any reason, the
remaining provisions and terms shall remain in full force and effect.
7.4 Insurance, Contracts and Funding. The corporation may purchase and
maintain insurance, at its expense, to protect itself and any individual
(including an individual's personal representative) who is or was a director,
officer, employee or agent of the corporation or any predecessor entity or who
being or having been such a director or officer, is or was serving at the
request of the corporation or any predecessor entity as a director, officer,
partner, trustee, employee, agent, or in any other relationship or capacity
whatsoever, of any foreign or domestic corporation, partnership, joint venture,
employee benefit plan or trust or other trust, enterprise or other private or
governmental entity, agency, board, commission, body or other unit whatsoever,
against any expense, liability or loss, whether or not the corporation would
have power to indemnify the individual against the same expense, liability or
loss under the Washington Business Corporation Act, or RCW 23B.08.510 or
23B.08.520, or otherwise. The corporation may grant indemnity, and may enter
into contracts granting indemnity, to any such individual, whether or not in
furtherance of the provisions of this Article, and may create trust funds, grant
security interests and use other means (including, without limitation, letters
of credit) to secure and ensure the payment of indemnification amounts.
II-2
<PAGE>
7.5 Partial Indemnification. If an Indemnitee is entitled to
indemnification by the corporation for some or a portion of expenses,
liabilities or losses, but not for the total amount thereof, the corporation
shall nevertheless indemnify the Indemnitee for the portion of the expenses,
liabilities and losses to which the Indemnitee is entitled. 7.6 Successors and
Assigns. All obligations of the corporation to indemnify any Indemnitee: (i) are
binding upon all successors and assigns of the corporation (including any
transferee of all or substantially all of its assets and any successor by merger
or otherwise by operation of law), (ii) are binding on and inure to the benefit
of the spouse, heirs, personal representatives and estate of the Indemnitee, and
(iii) shall continue as to an Indemnitee who has ceased to be a director,
officer, partner, trustee, employee, or agent (or other relationship or
capacity) included in the definition of Indemnitee in Section 7.1 of this
Article. The corporation shall not effect any sale or other transfer of
substantially all of its assets, merger, consolidation or other reorganization
unless the purchaser, transferee, successor or surviving entity (as the case may
be) agrees in writing to assume all such obligations of the corporation." Item
25. Other Expenses of Issuance and Distribution Estimated expenses in connection
with the public offering by the Company of the securities offered hereunder are
as follows:
Securities and Exchange Commission Filing Fee $ 0
American Stock Exchange Application and Listing Fee* 10,000
Accounting Fees and Expenses* 30,000
Legal Fees and Expenses* 30,000
Printing* 20,000
Fees of Transfer Agents and Registrar* 5,000
Miscellaneous* 5,000
-----
Total* $100,000
- ----------------
* Estimated.
Item 26. Recent Sales of Unregistered Securities
The following is a summary of the only transaction by the Registrant
during the last three years involving the sale of securities which were not
registered under the Securities Act:
In June 1997, the Registrant issued 3,000,000 shares of its Common
Stock to the four shareholders of Westower Holdings Ltd. ("Ltd") in exchange for
all of the outstanding shares of Ltd. Three of the four shareholders of Ltd.
were officers and directors of that company and in the transaction became
officers and directors of the Registrant. The fourth shareholder continues as a
principal shareholder of the registrant as he was with Ltd. No underwriter was
involved in the transaction. The transaction was exempt from registration under
the Securities Act pursuant to Section 4 (2) thereunder as a transaction not
involving a public offering.
In October 1997, the Registrant issued 835,000 shares of its Common
Stock to the sole stockholder of Western Telecom Construction, Ltd. ("WTCL") in
exchange for all of the outstanding capital stock of WCTL. The sole shareholder
of WCTL was familiar with the operations of the Registrant, having done business
with the Registrant for several years, is the brother of an officer and director
of the Registrant and continues as an officer of WCTL as a subsidiary of the
Registrant. No underwriter was involved in the transaction. The sole stockholder
agreed to acquire the stock for investment and not with a view to distribution
and the certificates are stamped with a restrictive legend prohibiting transfer
in the absence of an effective registration statement or an exemption from
registration. The transaction was exempt from registration pursuant to Section
4(2) of the Securities Act.
In November 1997, the Registrant acquired all of the outstanding
capital stock of National Tower Services Ltd., a Canadian corporation
("National") in exchange for cash and 98,709 shares of its Common Stock. The
Registrant's shares were issued to two shareholders of National both of whom are
Canadian citizens. No underwriter was involved in the transaction. Both
stockholders agreed to acquire the stock for investment and not with a view to
distribution and the certificates are stamped with a restrictive legend
prohibiting transfer in the absence of an effective registration statement or an
exemption from registration. The transaction was exempt from registration
pursuant to Section 4(2) of the Securities Act and Regulation S thereunder.
II-3
<PAGE>
In January 1998, the Registrant acquired all of the outstanding capital
stock of 501053 B.C. Ltd., a Canadian corporation ("BC") in exchange for cash
and 34,893 shares of its Common Stock. The Registrant's shares were issued to
three shareholders of BC all of whom are Canadian citizens. No underwriter was
involved in the transaction. Both stockholders agreed to acquire the stock for
investment and not with a view to distribution and the certificates are stamped
with a restrictive legend prohibiting transfer in the absence of an effective
registration statement or an exemption from registration. The transaction was
exempt from registration pursuant to Section 4(2) of the Securities Act and
Regulation S thereunder.
In May 1998, the Registrant acquired all of the outstanding capital
stock of MJA Communications Corp. ("MJA") in exchange 397,000 shares of its
Common Stock. The Registrant's shares were issued to three shareholders of MJA.
No underwriter was involved in the transaction. All three shareholders agreed to
acquire the stock for investment and not with a view to distribution and the
certificates are stamped with a restrictive legend prohibiting transfer in the
absence of an effective registration statement or an exemption from
registration. The transaction was exempt from registration pursuant to Section
4(2) of the Securities Act.
On June 23, 1998, the Registrant acquired all of the outstanding
capital stock Jovin communications, Inc. and Acier Filteau, Inc. two Canadian
corporations in exchange for 95,244 shares of its Common Stock. The Registrant's
shares were issued to three shareholders, all of whom are Canadian citizens. No
underwriter was involved in the transaction. All stockholders agreed to acquire
the stock for investment and not with a view to distribution and the
certificates are stamped with a restrictive legend prohibiting transfer in the
absence of an effective registration statement or an exemption from
registration. The transaction was exempt from registration pursuant to Section
4(2) of the Securities Act and Regulation S thereunder.
Item 27. Exhibits
Exhibit No. Item
Exhibit 3.1 Articles of Incorporation. (3)
Exhibit 3.2 Bylaws of the Registrant. (3)
Exhibit 5.1 Opinion of Maurice J. Bates LLC. (1)
Exhibit 10.1 Form of Warrant Agreement. (3)
Exhibit 10.2 Notice to Warrant holders of call for redemption of
Warrants. (1)
Exhibit 10.3 Transmittal letter for rescission. (1)
Exhibit 10.4 Employment Agreement with Michael J. Anderson (4)
Exhibit 21.1 Subsidiaries of the Registrant. (1)
Exhibit 23.1 Consent of Moss Adams, LLP Certified Public Accountants. (1)
Exhibit 23.2 Consent of Maurice J. Bates LLC. is contained in his opinion
filed as Exhibit 5.1 to
this Post-Effective Amendment. (1)
Exhibit 27.1 Financial Data Schedule. (5)
- --------------
(1) Filed herewith (2) To be filed by amendment (3) Previously filed.
(4) Filed with Form 8K for May 1998 and incorporated by reference.
(5) Not required pursuant to Item 601(c)(1)(ii)
II-4
<PAGE>
Item 28. Undertakings
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(2) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to: (i) Include any Prospectus required by Section
10(a)(3) of the Securities Act; (ii) Reflect in the Prospectus
any facts or events which, individually or together,
represent a fundamental change in the information in
the Registration Statement Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation form the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424 (b) if, in the
aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(3) For determining any liability under the Securities Act, treat
each post-effective amendment that as a new Registration
Statement of the securities offered, and the offering of the
securities at that time to be deemed to be the initial bona
fide offering
(4) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering..
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised
that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy, as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
shares of the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(7) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the small
business issuer under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this Registration Statement as
of the time the Commission declared it effective.
(8) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of
prospectus s anew registration statement for the securities
offered in the registration statement, and that offering of
the securities at that time as the initial bona fide offering
of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this Post Effective
Amendment No1 to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Vancouver, State of
Washington on August 1998.
Westower Corporation.
By: /s/ Calvin J. Payne
Calvin J. Payne, Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Calvin J. Payne, S. Roy
Jeffrey, and Peter Lucas, and each for them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities (until revoked in writing), to sign any and all further amendments to
this Registration Statement (including post-effective amendments), and to file
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person thereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, or their substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Calvin J. Payne
Calvin J. Payne Chairman of the Board and August 06, 1998
Chief Executive Officer
(Principal Executive Officer)
/s/ S. Roy Jeffrey
S. Roy Jeffrey Director August 06, 1998
/s/ Michael J. Anderson_
Michael J. Anderson Director August 06, 1998
/s/ Peter Lucas
Peter Lucas Chief Financial Officer August 06, 1998
(Principal Financial
and Accounting Officer)
/s/ Ronald. P. Erickson Director August 06, 1998
- -----------------------
Ronald P. Erickson
/s/ Robert A. Shuey, III Director August 06, 1998
- ------------------------
Robert A. Shuey, III
/s/ Donald A. Harris Director August 06, 1998
- --------------------
Donald A. Harris
</TABLE>
II-6
MAURICE J. BATES, L.L.C.
ATTORNEY AT LAW
8214 WESTCHESTER SUITE, 500
DALLAS, TEXAS 75225
Telephone (214) 692-3566
Fax (214) 987-2091
August 06, 1998
Westower Corporation
7001 NE 40th Avenue
Vancouver, Washington 98661
Re: Post Effective Amendment to
Registration Statement on Form SB-2
Redemption of Warrants
Gentlemen:
I have acted as counsel to Westower Corporation, a Washington
corporation (the "Company"), in connection with the preparation and filing and
filing of a Post-Effective Amendment (the "Post-Effective Amendment") to the
Company's Registration Statement with respect to the redemption of 1,380,000
Redeemable Common Stock Purchase Warrants (the "Warrants") and the likely
issuance of shares of Common Stock underlying such Warrants (the "Underlying
Shares") upon the exercise of the Warrants.
A registration statement on Form SB-2 (SEC File No. 333-32963) covering
the Warrants and Underlying Shares was filed with the Securities and Exchange
Commission on August 6, 1997 (the "Registration Statement") and was ordered
effective October 14,1 997. The Company proposes to all the Warrants for
redemption pursuant to the terms of the Warrant agreement governing the terms of
the Warrants and it is likely that the Warrant holders will exercise some or all
of the Warrants upon receipt of the notice of call for redemption.
In connection with rendering this opinion I have examined executed
copies of the Registration Statement and all exhibits and Amendments thereto and
this Post-Effective Amendment and the exhibits thereto. I have also examined and
relied upon the original, or copies certified to my satisfaction, of (i) the
Articles of Incorporation and the By-laws of the Company, (ii) minutes and
records of the corporate proceedings of the Company with respect to the issuance
of the Warrants, and the Underlying Shares and related matters, (iii) the
Warrant agreement between the Company and American Stock Transfer & Trust
Company, the Warrant agent, and (iv) such other agreements and instruments
relating to the Company as I deemed necessary or appropriate for purposes of the
opinion expressed herein. In rendering such opinion, I have made such further
investigation and inquiries relevant to the transaction contemplated by the
Post-Effective Amendment as I have deemed necessary for the opinion expressed
herein, and I have relied, to the extent I deemed reasonable, on certificates
and certain other information provided to me by officers of the Company and
public officials as to matters of fact of which the maker of such certificate or
the person providing such other information had knowledge. Furthermore, in
rendering my opinion, I have assumed that the signatures on all documents
examined by me are genuine, that all documents and corporate record books
submitted to me as originals are accurate and complete, and that all documents
submitted to me are true, correct and complete copies of the originals thereof.
Based upon the foregoing, I am of the opinion that the Underlying
Shares issuable upon the exercise of the Warrants, to be issued by the Company
as described in the Post-Effective Amendment have been duly authorized for
issuance and sale and the Underlying Shares issuable upon exercise of the
Warrants, when issued by the Company, will be validly issued, fully paid and
nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Post-Effective Amendment.
Very truly yours,
Maurice J. Bates, L.L.C.
/S/ M.J.B.
----------------
By Maurice J. Bates
WESTOWER
CORPORATION
2653 151 First Place NE
Redmond, WA 98052
Phone: (425) 497-9700 Fax: (425) 497-072
August , 1998
Notice to All Holders of Westower Corporation Redeemable Series A Common Stock
Purchase Warrants (the "Warrants").
Pursuant to section 12 of the Warrant Agreement between Westower Corporation
("Westower" or the "Company") and American Stock Transfer and Trust Company, as
Warrant Agent (the "Warrant Agent"), notice is hereby given of the intention of
Westower to redeem all outstanding Warrants on September , 1998 (the "Redemption
Date").
The Redemption Price of $0.5 per Warrant will be due and payable on the
Redemption Date at the office of the Warrant Agent, listed below.
Because the current market price of the Common Stock of Westower is
substantially higher than the exercise price of the Warrants ($9.00 per share),
the Company anticipates that the holders of the Warrants will likely exercise
their Warrants. Section 5 of the Warrant Agreement provides, in pertinent part,
with respect to the exercise of the Warrants as follows:
Each warrant holder shall have the right to purchase from the Company the
number of fully paid and non assessable shares of Common Stock specified in
his Warrants upon surrender of his Warrants at the office of the Warrant
Agent, with the form of election to purchase on the reverse side of the
Warrant Certificate filled in and signed, and payment of the exercise
price.
Payment of the exercise price shall be made to the Warrant Agent for the
account of the Company for the number of shares of Common Stock being
purchased upon exercise of the Warrants. Payment shall be made in cash,
certified check or by bank cashiers check, payable in United States dollars
to the order of America Stock Transfer & Trust Company.
Upon surrender of the Warrants and payment of the exercise price, the
Company shall have issued and delivered to the registered holder, the
number of shares of Common Stock purchased upon exercise of the Warrants,
registered in the name or names as the registered holder may designate.
Warrant holders may exercise all or any portion of the Warrants they hold
on or before the Redemption Date.
The address of the Warrant Agent is: American Stock Transfer & Trust Company, 40
Wall Street. 46th Floor, New York, NY 10005.
A copy of the Company's current Prospectus with respect to issuance of the
shares of Common Stock underlying the Warrants is enclosed herewith.
In the event that you do not exercise your Warrants, you may surrender your
Warrants for redemption to the Warrant Agent at the above address together with
a completed and executed Form of Assignment of the Warrant, which is attached to
the back of your Warrant certificate. As soon as practicable after surrender of
your Warrant certificate, the Warrant Agent will forward payment of the
Redemption Price by first class mail, postage prepaid.
If you have any questions regarding the redemption or exercise of the Warrants,
please do not hesitate to contact the undersigned.
Very truly yours,
Peter Lucas
Chief Financial Officer
WESTOWER CORPORATION
RESCISSION OFFER
Westower Corporation (the "Company") issued a number of shares of
Common Stock upon the exercise of its Series A Redeemable Common Stock Purchase
Warrants (the "Warrants") at a time when it did not deliver to the Warrant
holders a current Prospectus as required by the Securities Act of 1933, as
amended, (the "Securities Act"). Accordingly, the Company hereby offers to
rescind (the "Rescission Offer") the purchase of all Common Stock upon the
exercise of its Warrants without the delivery of a current Prospectus. If you
purchased Common Stock of the Company upon the exercise of your Warrants, you
are entitled to the return of your purchase price upon the return of the shares
you purchased. If you wish to retain the Common Stock you purchased upon the
exercise of your Warrants, you may do so by executing and returning this
Rescission Offer. If you indicate hereon that you do not accept the Rescission
Offer, the Company will accept your prior purchase and retain the proceeds from
the exercise of your Warrants.
A copy of the Company's current Prospectus accompanies this Rescission
Offer. Please review it carefully and indicate your preference in the
appropriate space provided below and return this Rescission Offer to the Warrant
Agent in the envelope provided. If you did not purchase the Company's Common
Stock upon the exercise of your Warrants, you may do so now by completing the
ELECTION TO PURCHASE on the reverse of the Warrant Certificate and returning it
with a check for the purchase price of $9.00 per share.
The undersigned holder of the Company's Warrants who purchased Common Stock of
the Company upon the exercise of his Warrants before receiving a current
Prospectus
( ) accepts
( ) does not accept
the Company's Rescission Offer. The undersigned understands that the Company is
making the Rescission Offer to comply with the Securities Act in the sale of
Common Stock to Warrant holders upon the exercise of their Warrants pursuant to
the accompanying Prospectus.
Name and address of Warrant holder:
-------------------------- ---------------------------
Print Name Signature
Address
---------------------------
City, State, Zip Code
<TABLE>
<CAPTION>
Subsidiaries of the Registrant
Westower Corporation
State or Jurisdiction Other Jurisdictions in
Name of Incorporation Which Qualified DBA (1) Amount Owned
- ---- ---------------- --------------- ------ ------------
<S> <C> <C> <C>
Westower Holdings
Ltd. Wyoming None 100%
Westower
Communications,
Inc Washington California, Hawaii, Idaho, Oregon 100%
Westower
Communications
Ltd. British Columbia,
Canada Alberta, Saskatchewan, Canada 100%
Western Telecom
Construction, Ltd. Alberta, Canada None 100%
National Tower
Services, Ltd. Ontario, Canada None 100%
501053 B. C. British Columbia, None 100%
Canada
Ralph's Radio, Inc. Alberta, Canada None 100%
344813 Alberta, Ltd. Alberta, Canada None 100%
MJA Communications Florida Georgia, North Carolina, 100%
Corp. South Carolina
</TABLE>
- -----------------
(1) No assumed names.
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 333-32963 of Westower Corporation on Form SB-2 of our report dated
April 14, 1998, except for Note 16, as to which the date is May 28, 1998,
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the heading "Experts" in the
Prospectus.
/S/ MOSS ADAMS LLP
Bellingham, Washington
August 6, 1998
