UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
BREDA TELEPHONE CORP.
(Name of Small Business Issuer in its Charter)
Iowa 42-0895882
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Highway 217 East, P.O. Box 190, Breda, Iowa 51436
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (712) 673-2311
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
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PART I
Item 1. Description of Business.
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General.
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Breda Telephone Corp. is an Iowa corporation with its principal offices in
Breda, Iowa. Breda was incorporated in 1964 to provide local telephone
services to Breda, Iowa and the surrounding rural area.
Breda's principal business is still providing telephone services. Telephone
services are also now provided by two of Breda's wholly owned subsidiaries,
Prairie Telephone Company, Inc. and Westside Independent Telephone Company.
A total of seven Iowa towns and their surrounding rural areas currently
receive telephone services from Breda, Prairie Telephone or Westside
Independent.
Prairie Telephone is an Iowa corporation that was incorporated in 1968.
Westside Independent is an Iowa corporation that was incorporated in 1957.
Breda acquired the stock of Westside Independent in June, 1998. Breda's
acquisition of Westside Independent is discussed below.
Another of Breda's wholly owned subsidiaries, Tele-Services, Ltd., provides
cable television services to sixteen towns in Iowa and one town in
Nebraska. Tele-Services is an Iowa corporation. It was incorporated in
1983. Westside Communications, Inc. is a wholly owned subsidiary of
Tele-Services. Westside Communications provides cable television services
to two Iowa towns. Tele-Services acquired the stock of Westside
Communications in June, 1998. Tele-Services' acquisition of Westside
Communications is discussed below.
Breda's and its subsidiaries' telephone and cable television businesses are
discussed in more detail below. Some of the other miscellaneous business
operations of Breda and its subsidiaries are also briefly discussed below.
Telephone Services.
-------------------
Breda, Prairie Telephone and Westside Independent provide telephone
services to the following seven Iowa towns and their surrounding rural
areas:
o Breda, Iowa o Pacific Junction, Iowa
o Lidderdale, Iowa o Yale, Iowa
o Macedonia, Iowa o Westside, Iowa.
o Farragut, Iowa
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Breda provides services to Breda, Lidderdale and Macedonia. Prairie
Telephone provides services to Farragut, Pacific Junction and Yale.
Westside Independent provides services to Westside. The surrounding rural
areas that are served are those within approximately a ten mile to fifteen
mile radius of each of the towns.
All of the towns are in central and southern Iowa.
The primary services provided by Breda, Prairie Telephone and Westside
Independent are providing their subscribers with basic local telephone
service and access services for long distance or other calls outside the
local calling area. As of June 30, 1999, they were serving approximately
2,558 telephone numbers and related access lines. Breda, Prairie Telephone
and Westside Independent derive their principal revenues from providing
these services.
They also provide other telephone related services. For example, they sell
and lease telephone equipment to their subscribers, provide inside wiring
and other installation, maintenance and repair services to their
subscribers, and provide custom calling services to their subscribers. They
also derive revenues from providing billing and collection services for
some long distance carriers for the long distance calls made by their
subscribers.
Breda, Prairie Telephone and Westside Independent are all subject to
regulation by the Iowa Utilities Board. They operate their telephone
businesses pursuant to certificates and various rules and regulations
promulgated by the IUB. Although not anticipated to occur, the IUB could
terminate their right to provide services if they fail to comply with those
rules and regulations.
As indicated above, the IUB regulates or has the authority to regulate many
aspects of Breda's, Prairie Telephone's and Westside Independent's
telephone business. The material areas of regulation are as follows:
o Breda, Prairie Telephone and Westside Independent are treated as
"service regulated" telephone companies by the IUB, which means
that they must comply with the IUB's rules and regulations
regarding the quality of services and facilities provided to
subscribers. The regulations establish minimum standards of
quality for the services and facilities provided by Breda,
Prairie Telephone and Westside Independent. Their existing
services and facilities meet those standards. The regulations
also require them to maintain and repair their existing
facilities as necessary in order to continue to meet at least
those minimum standards. The regulations also establish time
frames within which Breda, Prairie Telephone and Westside
Independent must respond to requests for services from their
subscribers. The regulations can be amended
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to increase the minimum standards or to require that additional
services be made available to subscribers. Past amendments have
not, however, caused any material difficulties for Breda, Prairie
Telephone or West Independent.
o The IUB must approve of any expansion in the telephone service
areas currently served by Breda, Prairie Telephone and Westside
Independent. The primary factors that will be considered by the
IUB in the event of a request for an expansion will be the
managerial, financial and technical abilities of Breda, Prairie
Telephone or Westside Independent, as the case may be. Although
they do not anticipate material difficulties in the event of any
proposed expansion, there is no assurance that any future
proposed expansion in the service areas of Breda, Prairie
Telephone or Westside Independent will be approved.
o The IUB has certified Breda, Prairie Telephone and Westside
Independent as "eligible carriers." This certification allows
them to receive universal services funding under a program
administered by the Federal Communications Commission. Breda,
Prairie Telephone and Westside Independent were able to obtain
the certification because they are rural telephone providers.
They do not anticipate any loss of that certification, but the
loss of the certification would result in them no longer
receiving universal services funding under the referenced FCC
program. Although also not anticipated to occur, they will also
lose the right to receive universal services funding if they do
not provide the services supported by the universal service fund.
Those services are, however, only the basic local telephone
services provided by Breda, Prairie Telephone and Westside
Independent. This certification therefore does not materially
affect the operation of their businesses, and the certification
was obtained solely because it was necessary in order to be
eligible to receive universal services funding. They received, in
the aggregate, approximately $131,071 in universal services
funding in 1998. They estimate they will receive, in the
aggregate, approximately $77,286 in universal services funding in
1999.
o Breda, Prairie Telephone and Westside Independent are currently
treated as rural telephone companies under the Telecommunications
Act of 1996, which generally means that they may be exempted from
some of the duties imposed on other telephone companies that make
it easier for potential competitors to compete. The IUB may
withhold this exemption, however, if it finds that a request by a
potential competitor for interconnection with Breda's, Prairie
Telephone's or Westside Independent's networks is not unduly
economically burdensome, is not technically unfeasible, and would
not affect the provisions of universal service. It is not
possible to accurately predict whether a competitor will ever
request interconnection or whether the request would be
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granted by the IUB. If a request is made and the IUB withholds this
exemption, however, Breda, Prairie Telephone and Westside Independent
would face competition in providing telephone services that they have
not faced in the past.
Breda, Prairie Telephone and Westside Independent are also subject to
regulation by the Federal Communications Commission. The material areas of
regulation by the FCC are as follows:
o The FCC regulates the amount of access charges that can be
charged by Breda, Prairie Telephone and Westside Independent for
long distance calls. The National Exchange Carrier Association
has been delegated some authority by the FCC regarding the
regulation of access charges rates, but all changes proposed by
NECA must be approved by the FCC. The regulation of access
changes is an area of particular concern to Breda, Prairie
Telephone and Westside Independent, and is discussed below and in
Item 2.
o The FCC must approve of any expansion in the telephone service
areas currently served by Breda, Prairie Telephone and Westside
Independent. The primary factors that will be considered by the
FCC in the event of a request for an expansion will be the
managerial, financial and technical abilities of Breda, Prairie
Telephone or Westside Independent, as the case may be, and the
antitrust implications of the expansion. Although they do not
anticipate any material difficulties in the event of any proposed
expansion, there is no guarantee that any future proposed
expansion in the service areas of Breda, Prairie Telephone or
Westside Independent will be approved.
o The FCC regulates the amount of universal services funding that
will be received by Breda, Prairie Telephone and Westside
Independent. The FCC does so primarily by targeting how the
universal services funding will be allocated among the various
possible recipients of the funding. The allocation may vary from
year to year depending on the FCC's determination. For example,
the most recent allocation targeted a larger percentage than in
the past to schools and libraries because of the FCC's
determination of a need by those entities for expansion of lines
for computers and internet access. It is not possible to
accurately predict how the FCC will allocate the universal
services funding in any year, and although Breda, Prairie
Telephone and Westside Independent currently contemplate being
recipients of the funding in every year, it is possible that the
amount of universal services funding received by them may vary
from year to year. They do not believe, however, that any
variance will materially affect their businesses.
The regulation of access charges is an area of particular concern to Breda,
Prairie Telephone and Westside Independent because they derive a
substantial amount of their overall revenues from access charges. They
receive access charges from long distance carriers (sometimes referred to
in the industry as "inter-exchange carriers" or "IXCs") for
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providing intrastate and interstate exchange services to those long
distance carriers. In more basic terms, they receive access charges for
originating and terminating long distance calls made by their subscribers.
The amount of access charges that can be charged for interstate long
distance calls is determined by rates established by the FCC. The FCC can
change those rates at any time, and recent changes have lowered access
rates. Since access charges constitute a substantial portion of Breda's,
Prairie Telephone's and Westside Independent's total revenues, this is an
area of material risk to them. A further discussion of this issue is found
on pages 12 to 14 in this registration statement.
Breda, Prairie Telephone and Westside Independent each have agreements with
Iowa Network Services. Under those agreements, Iowa Network Services
provides Breda, Prairie Telephone and Westside Independent with the lines
and services necessary for them to provide their subscribers with, among
other things, caller ID services and what is sometimes referred to in the
industry as "centralized equal access." As a practical matter, that access
is what allows their subscribers to choose long distance carriers, which
right is required to be given to subscribers by law. Breda's, Prairie
Telephone's and Westside Independent's telephone systems are tied into Iowa
Network Services' fiber optic network and switches. Although it is not
anticipated to occur, if their agreements with Iowa Network Services were
terminated, it would be difficult for them to find a replacement for Iowa
Network Services, and it would be costly for them to internalize all of
those services. Prairie Telephone and Westside Independent are each
shareholders of Iowa Network Services. Prairie Telephone and Westside
Independent own, respectively, .67% and .45% of Iowa Network Services
outstanding stock.
Telephone services providers like Breda, Prairie Telephone and Westside
Independent are subject to competition from other providers. As a result of
the Telecommunications Act of 1996, telephone companies are no longer
afforded exclusive franchise service areas. Under that Act, competitors can
now offer telephone services to Breda's, Prairie Telephone's and Westside
Independent's subscribers, and also request access to their lines and
network facilities. The Act contemplates that various regulations will be
promulgated to implement various parts of the Act, such as regulations
setting out the procedures and methods for implementing and promoting
competition in the telephone industry, and standards for wholesale pricing,
interconnection rates and for local network rates. Those regulations had
not been finalized at the time of this registration statement, and some
legal and court actions have been taken by other regulators and others in
the industry challenging some aspects of the proposed regulations and
procedures. Until those regulations are finalized, it is not possible to
predict how the Telecommunications Act of 1996 may affect Breda, Prairie
Telephone, Westside Independent and their telephone businesses. The
regulations could, however, have a material adverse effect, and the Act
does open up Breda, Prairie Telephone and Westside Independent to
competition that they were not subject to in the past.
Although competition is permitted, Breda, Prairie Telephone and Westside
Independent currently do not have direct competition in providing basic
local telephone service in their
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existing service areas. They do, however, experience competition in
providing access services and other services to long distance carriers. For
example, they experience competition in providing access services for long
distance when their subscribers use private line transport, switched voice
and data services, microwave, or cellular service. In those cases, the
subscriber is not using their networks or switches, so they cannot charge
access charges to the long distance carrier. They also experience
competition in providing billing and collection services to long distance
carriers. The competition is from third parties who provide similar
services. The long distance carriers are also starting to provide their own
billing and collection services, rather than contracting for those services
with others like Breda, Prairie Telephone and Westside Independent.
Directory advertising is also subject to competition because they can no
longer require exclusive listings in their phone books due to the adoption
of the Telecommunications Act of 1996.
Cable Services.
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Tele-Services owns and operates the cable television systems in the
following sixteen Iowa towns:
o Auburn o Grand o Oakland
o Bayard Junction o Riverton
o Breda o Hamburg o Sidney
o Churdan o Lohrville o Tabor
o Farragut o Malvern o Thurman
o Neola o Treynor
Tele-Services also owns and operates the cable television system for the
town of Beaverlake, Nebraska.
Westside Communications owns and operates the cable television system for
the towns of Westside, Iowa and Arcadia, Iowa.
As of June 30, 1999, Tele-Services and Westside Communications were
providing cable television services to approximately 3,612 subscribers.
Tele-Services and Westside Communications derive their principal revenues
from monthly fees charged to their cable subscribers for basic and premium
cable services provided to those subscribers.
They provide cable services to each of the towns pursuant to franchises or
agreements with each of those towns. Those various franchises or agreements
will expire by their terms in the following months:
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o Arcadia - June, 2009 o Lohrville - March, 2008
o Auburn - January, 2004 o Malvern - October, 2001
o Bayard - May, 2008 o Neola - September, 2002
o Beaverlake - December, 2008 o Oakland - July, 2001
o Breda - Year-to-Year Basis* o Riverton - February, 2013
o Churdan - June, 2008 o Sidney - February, 2005
o Farragut - January, 2009 o Tabor - September, 2001
o Grand Junction - May, 2008 o Thurman - February, 2013
o Hamburg - Year-to-Year o Treynor - October, 2022
Basis* o Westside - June, 2009
* These agreements are in the process of being renewed and are currently
continued on a year-to-year basis.
Tele-Services and Westside Communications do not anticipate that any of
their franchises or agreements will be terminated before the above normal
expiration dates. They also hope to be able to renew or extend their
franchises or agreements before they expire, but no assurance can be given
that any franchises or agreements can or will be renewed.
The termination of a franchise or agreement would allow that town to deny
Tele-Services or Westside Communications, as the case may be, access to its
cables for maintenance and services purposes. This would create
difficulties for them in properly serving their subscribers, and, in
general, providing cable services to that town.
The franchises or agreements with the towns require the giving of notice to
the towns before Tele-Services or Westside Communications can change their
cable services rates, and some of those franchises or agreements may
require the approval of the town for any increases in those rates. Although
Tele-Services and Westside Communications do not anticipate any material
difficulties with any future proposed rate increases, there can be no
guarantee that future proposed increases can be implemented in all of the
towns.
Tele-Services' and Westside Communications' franchises or agreements with
the towns do not grant Tele-Services and Westside Communications the
exclusive right to provide cable services in the towns, and other cable
service providers can provide cable services in the towns. There currently
are not, however, any other cable service providers in any of the towns.
Although difficult to predict, Tele-Services and Westside Independent
currently do not contemplate any competitor cable service providers coming
into the towns given, among other things, the smaller size of the towns and
the costs to expand into them.
As indicated, although cable services providers like Tele-Services and
Westside Communications are subject to competition from other providers,
they currently do not
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have direct competition from other cable providers in the towns they now
service. There is, however, competition in other forms. For example, they
experience strong competition from wireless and satellite dish providers.
Various other competitors and forms of competition are also likely to arise
in the future as technological advances occur in the telecommunications and
cable industries.
Tele-Services and Westside Communications are regulated by the FCC. The
rules and regulations of the FCC primarily relate to general operational
and technical issues, and they do not affect rates or expansions of service
areas. As discussed above, Tele-Services' and Westside Communication's
cable services are also regulated in the sense that those services are
provided pursuant to franchises or agreements with each of the towns they
now provide services in.
Miscellaneous Businesses.
-------------------------
Breda and some of its subsidiaries are also engaged in other miscellaneous
businesses.
For example, Breda, Prairie Telephone and Westside Independent also provide
internet access through their telephone lines to subscribers desiring that
access. They were providing internet access to approximately 384
subscribers as of June 30, 1999. Internet access is also provided by BTC,
Inc. in some areas which are outside of the telephone exchange areas
currently served by Breda, Prairie Telephone and Westside Independent. The
area served by BTC is currently limited to Carroll, Iowa and various
communities surrounding Carroll, Iowa. BTC provided internet access to
approximately 942 subscribers as of June 30, 1999. BTC is a wholly owned
subsidiary of Prairie Telephone. It is an Iowa corporation that was
incorporated in 1997.
BTC was organized primarily to explore the possibility of becoming a
competitive local exchange carrier in some Iowa communities which are not
served by Breda, Prairie Telephone or Westside Independent. No firm
decision has been made as to whether BTC will ever attempt to provide
telephone services in the state of Iowa, however, and BTC cannot provide
any telephone services in the state of Iowa without first filing
satisfactory tariff information with the IUB and the filing and giving of
various required notices.
Pacific Junction Telemarketing Center, Inc. is a wholly-owned subsidiary of
Prairie Telephone. Pacific Junction provides general telemarketing services
from its offices in Breda, Iowa. Although Pacific Junction can provide
telemarketing services to various customers, it currently receives
primarily all of its revenues from one customer. Pacific Junction is an
Iowa corporation that was incorporated in 1987. It had approximately
thirty-five full-time employees as of June 30, 1999. It currently has no
collective bargaining or labor agreements with any of its employees.
Revenues are also generated from sales of cellular phones and related
service packages
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and from investments in other entities providing cellular phone services or
which invest in other cellular phone ventures. For example, investments
have been made by Prairie Telephone in RSA #1, Ltd. and RSA #7, Ltd., and
by Breda in RSA #8, Ltd. and RSA #9, Ltd. Westside Independent also has an
investment in RSA #8, Ltd. All of those entities are Iowa limited
partnerships which provide cellular telephone services in rural areas in
central and south central Iowa. An investment has also been made by Prairie
Telephone in Central Iowa Cellular, Inc., which is an Iowa corporation.
Central Iowa Cellular, Inc. is an investor in the Des Moines, Iowa
metropolitan cellular telephone service area.
Breda and its subsidiaries also have various other miscellaneous
investments. Those investments are described in the financial statements
included with this registration statement.
Employees.
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As of June 30, 1999, Breda had 22 full time employees. Breda employs all of
those employees, but those employees also provide the labor and services
for Prairie Telephone, Westside Independent, Tele-Services, BTC and
Westside Communications. The salaries and other costs and expenses of the
employees are allocated among Breda and its subsidiaries based on time
sheet allocations. There currently are not any collective bargaining or
other labor agreements with any of Breda's employees, and only two of
Breda's employees have written employment agreements. Those employment
agreements are with the manager and the co-manager of Breda.
Breda also utilizes part-time employees on an as needed basis.
Acquisitions.
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As indicated above, Breda acquired all of the issued and outstanding stock
of Westside Independent on June 1, 1998. Westside Independent was serving
approximately 342 telephone numbers and related access lines at that time.
The total purchase price paid by Breda was $2,010,038. Westside Independent
also redeemed some of its shares of outstanding stock as part of the
transaction. The aggregate redemption price paid by Westside Independent
for those shares was $918,875.17. The purchase price (excluding the
redemption amount paid by Westside Independent) exceeded the fair value of
the net assets of Westside Independent, as shown on Westside Independent's
financial statements, by $1,178,472. The excess was recorded as goodwill
and is being amortized on a straight line basis over a period of fifteen
years. As discussed above, Westside Independent provides telephone services
to subscribers in Westside, Iowa and its surrounding rural areas.
In a related transaction, Tele-Services acquired all of the issued and
outstanding stock of
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Westside Communications, Inc. on June 1, 1998. Westside Communications,
Inc. owns and operates the cable television systems in Westside, Iowa, and
Arcadia, Iowa. The number of subscribers for cable television services in
those towns at that time was approximately 297. The total cost of the
acquisition was $254,289, which exceeded the fair value of the net assets
of Westside Communications, Inc., as shown on its financial statements, by
$157,611. The excess was recorded as goodwill and is being amortized on a
straight line basis over a period of fifteen years.
On October 31, 1998, Tele-Services purchased the Auburn, Iowa cable
television system from NewPath Communications, L.C. The number of cable
subscribers in Auburn, Iowa at that time was approximately 91. The purchase
price was $64,610. Tele-Services also assumed the obligations and
liabilities of NewPath Communications, L.C. which were to arise after the
closing:
o under its franchise with the city of Auburn and under certain
leases; and
o for the performance and delivery of services to subscribers to
the cable system.
Each of the above transactions was treated as a business combination
accounted for as a purchase.
Sale of Direct Broadcast Satellite Operation.
---------------------------------------------
On January 11, 1999, Breda sold substantially all of its assets comprising
its direct broadcast satellite operation. The purchase price received by
Breda was $8,274,689. The sale resulted in a pre-tax gain of $7,436,415,
which was included in Breda's operations during the first quarter of 1999.
The buyer also assumed:
o Breda's obligations to its direct broadcast satellite services
subscribers for refundable deposits and advance payments made by
those subscribers; and
o Breda's obligations otherwise arising after the closing date of
the sale under Breda's various licenses and contracts related to
its direct broadcast satellite business and assets.
Breda also executed a noncompetition agreement as part of the transaction.
Breda's direct broadcast satellite operation included its licenses to
provide direct broadcast satellite services in five Iowa counties and four
counties in Nebraska. At the time of the sale, Breda was providing direct
broadcast satellite services to approximately 4048 subscribers.
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One factor which caused Breda to sell the direct broadcast satellite
operation was Breda's determination that the purchase price offered by the
buyer was quite favorable. Breda had also determined that the cash
available from the sale would provide it with funds for possible
acquisition of additional telephone lines in areas that Breda knew were
going to become available from GTE and US West after the closing of the
sale. Breda believed that the sale of the direct broadcast satellite
operation would also be beneficial to Breda because it would allow Breda to
focus on its core business of providing telephone services. Another factor
contributing to the sale was the consolidation occurring in the direct
broadcast satellite industry, which Breda believed would make it more
difficult for Breda to efficiently compete in the industry. Breda's
original contract for its direct broadcast satellite operation was also
nearing renewal, and there was some uncertainty concerning its renewal.
This uncertainty also contributed to the decision to sell the operation.
Item 2. Management's Discussion and Analysis or Plan of Operation.
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This item and other items in this registration statement may contain
certain forward looking statements that involve and are subject to various
risks, uncertainties and assumptions. Forward looking statements include,
but are not limited to, statements with respect to anticipated future
trends in revenues and net income, projections concerning operations and
cash flow, growth and acquisition opportunities, management's plans and
intentions for the future, and other similar forecasts and statements of
expectation. Words such as "expects," "estimates," "plans," "anticipates,"
"contemplates," "predicts," "intends," "believes," "seeks," "should" and
other similar expressions or variations thereof are intended to identify
forward looking statements. Forward looking statements made by Breda and
its management are based on estimates, projections, beliefs and assumptions
made or existing at the time of such statements and are not guarantees of
future results or performance. Breda disclaims any obligation to update or
revise any forward looking statements based on the occurrence of future
events, the receipt of new information, or otherwise.
Actual future performance, outcomes and results may differ materially from
those expressed in forward looking statements as a result of a number of
risks, uncertainties and assumptions. The risks, uncertainties and
assumptions affecting forward looking statements include, but are not
limited to:
o the possible adverse effects to Breda and its subsidiaries which
may arise under the regulations which will be promulgated under
the Telecommunications Act of 1996, including increased
competition;
o adverse changes by the FCC in the rates of the access charges
that can be charged by Breda and its subsidiaries to long
distance carriers;
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o technological advances in the telecommunications and cable
industries which may replace or otherwise adversely affect in a
material way the existing technologies utilized by Breda and its
subsidiaries;
o potential adverse effects resulting from Year 2000 compliance
issues;
o general industry and economic conditions;
o acts or omissions of third parties which are beyond the control
of Breda;
o changes in or further governmental regulations and policies; and
o continued availability of financing.
The discussions of Breda's financial condition and results of operations
should also be read in conjunction with the financial statements and
related notes included in Part F/S of this registration statement.
Overview.
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Breda's primary source of revenues on a consolidated basis with its
subsidiaries is from the telephone services provided by Breda, Prairie
Telephone and Westside Independent. The operating revenues from their
telephone services are primarily derived from the following types of fees
and charges:
o Flat monthly fees charged to subscribers for basic local
telephone services. As of June 30, 1999, those fees varied from
approximately $11.50 to $35.00 per month. The monthly fee is
higher for subscribers who elect to have additional services and
features, such as custom features.
o Access charges payable by long distance carriers for intrastate
and interstate exchange services provided to those long distance
carriers. Access charges may be at a flat, fixed rate or may
depend upon usage. As discussed above in Item 1 of this
registration statement, access rates are subject to regulation by
the FCC. Access charges constitute a substantial part of Breda's,
Prairie Telephone's and Westside Independent's revenues, and a
material risk to them arises from the regulation of access
charges rates by the FCC. A recent change in the FCC's
regulations led to a reduction in the access charges received by
Breda, Prairie Telephone and Westside Independent, and is
discussed in the next paragraph.
The amount of access charges payable to telephone companies like
Breda, Prairie Telephone and Westside Independent who utilize the
"average
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schedule" basis for receiving access charges is based on, among
other things, the number of miles of their cable over which they
transfer long distance calls made by their subscribers. The FCC
approved some changes proposed by NECA regarding this practice
effective in July, 1998. Under the changes, Breda, Prairie
Telephone and Westside Independent now receive a substantially
lower access charge rate for any miles of cable over 100 miles.
The access charge rate for any miles of cable over 100 miles
became approximately $.05 per mile under the changes, rather than
the rate of approximately $1.00 per mile which previously applied
and which still currently applies to miles of cable up to 100
miles. These reductions did not have a material adverse effect,
however, given that total access revenues have been increasing in
recent years. Breda believes those increases are, however,
attributable to increased numbers of subscribers, increased
calling patterns and technological advances. There is no
assurance that these trends will continue, and it is unlikely
that there will be any further material increases in the number
of subscribers without the acquisition of additional calling
areas by Breda, Prairie Telephone or Westside Independent. As
discussed below, however, they currently do not foresee the
possibility of any such acquisitions.
As indicated above, Breda, Prairie Telephone and Westside
Independent utilize the "average schedule" basis for receiving
access charges. This is the approach taken by most smaller
telephone companies. The only other approach currently available
for receiving access charges is the "cost" approach. The cost
approach is currently used by most larger telephone companies.
Telephone companies make filings with the FCC which set forth
their costs of providing long distance services. Under the
average schedule approach, access charges are based upon, in
general, the average of all of those costs and certain other
factors intended to take into account the size of the particular
telephone company in question.
It is difficult to predict what, if any, future changes will be
made by the FCC in its regulations governing access charges
rates, other than that if future changes are made, they will
likely have the result of lowering Breda's, Prairie Telephone's
and Westside Independent's total access charges revenue. Breda
believes that future adverse changes may occur. If future adverse
changes occur, one option Breda may consider is changing from the
average schedule basis to the cost basis for receiving access
charges. If Breda determines to consider this option, it
contemplates utilizing the services of third parties who have
experience in studying these two options and advising as to what
option is the best approach for the telephone company in
question. There is no guarantee, however, that a change from the
average schedule to the cost basis will offset any adverse
changes in the regulations of the FCC governing access charges
rates, or that even if this change is beneficial at one time,
that
13
<PAGE>
subsequent changes in the FCC's regulations will not cause the
average schedule basis to once again be more favorable to Breda,
Prairie Telephone and Westside Independent. If Breda, Prairie
Telephone and Westside Independent ever elect to change to the
cost basis, however, the FCC's current regulations would not
allow them to change back to the average schedule basis because
the FCC currently treats this change as a one time, permanent
election.
o Revenue from the sale and lease of customer premises telephone
equipment and other similar items and other miscellaneous
customer services, such as custom calling services.
o Fees from long distance providers for billing and collection
services for long distance calls made by subscribers. Breda,
Prairie Telephone and Westside Independent are experiencing
increased competition in this area. As discussed in Item 1 above,
their competitors include other third parties providing these
services, and competition from the long distance providers
themselves since some providers have determined to handle their
own billing and collection.
Breda, Prairie Telephone, Westside Independent and BTC each generate
revenues from providing internet access and from sales and leases of
other equipment and facilities for private line data transmission,
such as local area networks, virtual private networks and wide area
networks.
Breda's other primary source of revenue on a consolidated basis with
its subsidiaries is generated from Tele-Services' and Westside
Communication's cable television businesses. Their operating revenues
arise primarily from monthly fees for basic and premium cable services
provided to their cable subscribers.
Other revenues arise from the telemarketing activities of Pacific
Junction and investments in various cellular limited partnerships and
cellular corporations. Those sources of revenue are briefly discussed
above in Item 1 of this registration statement. Other miscellaneous
sources of revenue are also discussed in the financial statements
found at Part F/S of this registration statement.
The following table reflects, on a consolidated basis for Breda and
its subsidiaries, the percentage of revenue derived from Breda's and
its subsidiaries' various businesses and investments as of the close
of the past two years:
14
<PAGE>
1998 1997
---- ----
Local Network(1) 6.1% 5.8%
Network Access(2) 37.8% 38.4%
Billing and Collection(3) 1.5% 2.7%
Cable and Direct Broadcast
Satellite Services(4) 33.1% 33.0%
Telemarketing Services(5) 8.9% 9.1%
Miscellaneous(6) 12.6% 11.0%
---- ----
Total 100% 100%
(1) Includes flat monthly fees charged to subscribers by Breda, Prairie
Telephone and Westside Independent for basic local telephone services.
(2) Includes universal services funding amounts and access charges payable
by long distance carriers for intrastate and interstate exchange
services provided to those long distance carriers.
(3) Includes fees from long distance providers for billing and collection
services for long distance calls made by subscribers.
(4) Includes monthly fees charged for basic and premium cable services,
and direct broadcast satellite services.
(5) Includes revenues from telemarketing services.
(6) Includes monthly fees charged for internet services, cellular
commissions, advertising fees, and miscellaneous revenues.
Year ended December 31, 1998 compared to year ended December 31, 1997.
----------------------------------------------------------------------
Breda's financial statements and information are prepared and
presented on a consolidated basis, and include Breda; Westside
Independent; Tele-Services; Prairie Telephone; Prairie Telephone's two
wholly-owned subsidiaries, Pacific Junction and BTC; and
Tele-Services' wholly-owned subsidiary, Westside Communications.
Breda's operating revenues, on a consolidated basis with its
subsidiaries, was $6,527,481 for the 1998 fiscal year, which surpassed
Breda's operating revenues for the 1997 fiscal year by $518,916, or
8.6%. Revenue from local network services increased in 1998 by
$51,744, or 14.9%, due mainly to an increase in telephone subscribers
through the acquisition of Westside Independent in June of 1998.
Revenue from access charges increased in 1998 by $161,051, or 7.0%,
due to continued growth of interstate and intrastate access minutes of
use and additional telephone subscribers acquired through the
acquisition of Westside Independent in June of 1998. Revenues from
billing and collection services decreased in 1998 by $63,027, or
38.5%. The decrease arose primarily from certain long distance
carriers taking back the billing and collection function and from the
fact that revenues from billing and collection services in 1997
included a one time fee of $49,500. Direct broadcast satellite
services and cable services revenues together increased by $179,052,
or 9.0%, due primarily to increases in the number of subscribers.
15
<PAGE>
Operating expenses increased in 1998 by $1,024,153, or 25.5%. Plant
operations and expenses increased in 1998 by $403,788, or 43.5%. This
increase was attributable primarily to higher maintenance expenses,
additional payroll and benefits, and the increased use of consultants
(mainly engineers) providing facility expertise. Depreciation and
amortization increased in 1998 by $85,716, or 10.5%, due to increases
in property, plant and equipment, and the recording of goodwill
associated with the acquisitions during 1998 and the related
write-offs. Corporate operations expenses increased in 1998 by
$278,309, or 76.7%, due primarily to increased use of attorneys and
consultants in negotiating and completing the acquisitions that
occurred during 1998 and the disposition of Breda's direct broadcast
satellite operation in January of 1999. Additional employees were
hired in 1998 in an attempt to enhance the internal management group,
which also added to the increase in corporate operations expenses.
Customer operations expenses decreased by $84,326, or 9.4%, primarily
due to a one person staff reduction and the internalization of the
carrier access billing process which had been previously done by an
outside vendor.
Other income increased in 1998 by $206,407, or 106.1%. Included in
this amount was an increase in dividend and interest income of
$92,732, or 85%. Interest expense also increased in 1998, however, by
$102,758, or 26.7%, due to the refinancing of all of Breda's and some
of its subsidiaries' debt as well as the incurrence of an additional
outstanding debt at December 31, 1998. The latter debt was assumed in
order to facilitate the acquisitions completed in 1998. Income from
cellular settlements of $409,212 was also received in 1998, while no
such income was received in 1997.
As a result, over all income before taxes decreased in 1998 by
$298,830, or 16.6%. Income taxes deceased $93,548, or 13.6%, in 1998.
This decease is due to the increase in operating expenses and the
overall decrease in net income. Net income decreased by $205,282, or
18.5%, and the earnings per share decreased by $4.61.
Three months ended June 30, 1999 compared to three months ended June
----------------------------------------------------------------------
30, 1998.
---------
There was a decrease in total operating revenues for the three month
period ended June 30, 1999, when compared to the same period in 1998,
of $269,732, or 16.3%. The decrease resulted primarily from the fact
that Breda no longer received any revenues from its direct broadcast
satellite operation after the January 11, 1999 sale of that operation.
The three month period ended June 30, 1999 showed zero direct
broadcast satellite revenues, while the same three month period in
1998 showed direct broadcast satellite revenues of $330,802. Another
important component of the decrease in total operating revenues was
the decrease in the telemarketing revenues generated by Pacific
Junction. Pacific Junction's telemarketing revenues were down because
Pacific Junction experienced some calling number unavailability, which
resulted in some down time.
There was an increase in local network services revenue of $26,125, or
25.8%, during the three month period ended June 30, 1999, when
compared to the same period in 1998.
16
<PAGE>
This increase was due primarily to an increase of 340 telephone
subscribers, which resulted from the purchase of Westside Independent
in June of 1998. The increased telephone subscriber base resulting
from that acquisition also resulted in an increase in access charges
revenue of $17,398, or 2.86%, when comparing the two periods. There
was also an increase in cable television revenues of $22,401, or 9.0%,
when comparing the two periods. This increase resulted primarily from
three factors. One was a rate increase that was effective April 1,
1999. The second was the addition of 90 cable subscribers from Auburn,
Iowa as of November 1, 1998. The third was the addition of 301
additional cable subscribers resulting from the acquisition of
Westside Communications in June, 1998.
There was a decrease in total operating expenses for the three month
period ended June 30, 1999, when compared to the same period in 1998,
of $43,466, or 3.7%. Programming expenses declined by $228,632 when
comparing these two periods because of the sale of the direct
broadcast satellite operation. Plant operations expenses increased by
$52,167, or 18.2%, when comparing the two periods. This increase
primarily reflects wage increases and additional expenditures incurred
with updating switches in two of the telephone exchange service areas.
There were also additional expenses incurred during the three month
period ended June 30, 1999 with equipment updates to add cable
television channels in most of the 19 towns served by Tele-Services
and Westside Communications. Corporate operations expenses increased
by $102,162, or 63.5%, when comparing the two periods. This increase
reflects wage increases, additional staff, and legal, accounting and
other expenses related to the need for Breda to become a reporting
company under the Securities Exchange Act of 1934. The upgrading of
switch equipment and other capital improvements resulted in an
increase in depreciation expense of $35,919, or 17.3%, again when
comparing the two periods.
Non-operating income before income taxes increased by $4,365, or 6.7%,
during the three month period ended June 30, 1999, when compared to
the same period in 1998. Losses on the disposal of a switch and
additional interest expenses were offset by the increase in dividend
and interest income from the proceeds invested from the sale of the
direct broadcast satellite operation.
Income taxes decreased by $19,173 for the three month period ended
June 30, 1999, when compared to the same period in 1998. This resulted
primarily from the $221,901 decrease in overall income before income
taxes.
As a result, net income decreased $202,728 during the three month
period ended June 30, 1999, when compared to the same period in 1998.
Six months ended June 30, 1999 compared to six months ended June 30,
----------------------------------------------------------------------
1998.
-----
There was a decrease in total operating revenues for the six month
period ended June 30,
17
<PAGE>
1999, when compared to the same period in 1998, of $531,563, or 16.4%.
One factor contributing to the decrease was the fact that no direct
broadcast service revenues were received after the January 11, 1999
sale of the direct broadcast satellite operation. For example, during
the six month period ended June 30, 1998, direct broadcast service
revenues represented 20.6% of total operating revenues. Two other
important components of the decrease in total operating revenues were
the decreases in the revenues from Pacific Junction's telemarketing
services and in access charges. Pacific Junction's telemarketing
revenues were down because Pacific Junction experienced some calling
number unavailability, which resulted in down time. Access charges
revenues decreased because of a reduction of the reimbursement rate
for interstate access charges.
There was an increase in local network services revenue of $41,997, or
21.0%, during the six month period ended June 30, 1999, when compared
to the same period in 1998. This increase was due primarily to an
increase of 340 telephone subscribers, which resulted from the
purchase of Westside Independent in June of 1998. Network access
charges decreased by $54,648, or 4.4%, when comparing the two periods.
This decrease was caused primarily by a decrease in telemarketing
revenues of $59,187, or 21.1%, which occurred because of calling
number unavailability. Telemarketing services also results in a major
source of access charges revenue. There was also an increase in cable
television revenues of $55,978, or 12.0%, when comparing the two
periods. This increase resulted primarily from three factors. One was
a rate increase that was effective on April 1, 1999. The second was
the addition of 90 cable subscribers from Auburn, Iowa, as of November
1, 1998. The third was the addition of 301 additional cable
subscribers resulting from the acquisition of Westside Communications
in June, 1998.
There was a decrease in total operating expenses of $63,319, or 2.8%,
for the six month period ended June 30, 1999, when compared to the
same period in 1998. Programming expenses declined by $423,762 when
comparing the two periods because of the sale of the direct broadcast
satellite operation. The remaining programming expenses are
attributable to Tele-Services' and Westside Communications' cable
television operations. Plant operations expenses increased by
$154,816, or 32.7%, when comparing the two periods. This increase
primarily reflects wage and price increases and additional
expenditures incurred with updating switches in two of the telephone
exchange service areas. There were also additional expenses incurred
during the six month period ended June 30, 1999 with equipment updates
to add cable television channels in most of the 19 towns served by
Tele-Services and Westside Communications. Corporate operations
expenses increased by $164,726, or 54.8%, when comparing the two
periods. This increase relates to wage increases, additional staff,
and legal, accounting and other expenses incurred with respect to
Breda becoming a reporting company under Securities Exchange Act of
1934. The upgrading of switch equipment and other capital improvements
resulted in an increase in depreciation expense of $88,429, or 22.4%,
again when comparing the two periods.
18
<PAGE>
Non-operating income before income taxes increased by $7,559,583, or
4118.7%, during the six month period ended June 30, 1999, when
compared to the same period in 1998. Most of this increase was the
result of the $7,436,415 gain on the sale of the direct broadcast
satellite operation and the additional interest income on the funds
invested from that sale.
Income taxes increased by $2,667,745 for the six month period ended
June 30, 1999, when compared to the same period in 1998. The increase
resulted primarily from taxes on the gain on the sale of the direct
broadcast satellite operation.
Net income increased by $4,423,594 for the six month period ended June
30, 1999, when compared to the same period in 1998. The increase was
attributable mainly to the sale of the direct broadcast satellite
operation.
Liquidity and Capital Resources at Year Ended 1998.
---------------------------------------------------
Breda's net working capital was a negative $425,522 as of the close of
December, 1998. This represents a decrease of $448,561 in net working
capital from year-end 1997. The negative net working capital at
year-end 1998 was due primarily to timing on the movement of cash. A
$750,000 line of credit advance was taken from the Rural Telephone
Finance Cooperative in December of 1998, and paid back on January 12,
1999.
Other contributing factors in the net worth change between 1998 and
1997 included increased current debt payments brought about by
borrowing funds from the Rural Telephone Finance Cooperative for the
purchase of Westside Independent and Westside Communications, Inc. in
June of 1998.
Liquidity and Capital Resources at Six Months Ended June 30, 1999.
------------------------------------------------------------------
Breda had a decrease in cash and cash equivalents of $382,061 during
the six month period ended June 30, 1999, when compared to the same
period in 1998. This resulted in a balance of $400,898 as of June 30,
1999. Breda's investments increased, however, by $5,463,780. The
increase in the overall cash and investments resulted primarily from
the proceeds received from the sale of the direct broadcast satellite
operation.
Breda's net working capital was a negative $631,658 at June 30, 1999.
The negative working capital results from the timing of income tax
payments required to be made on the direct broadcast satellite
operation sale for the remainder of the year. The funds to pay these
taxes are available from other noncurrent assets.
Other Activities.
-----------------
A final balloon payment of $79,382 is due in October of 1999 under the
real estate
19
<PAGE>
contract entered into by Tele-Services for the building utilized by
Breda and Prairie Telephone as their office and headquarters.
The sale of Breda's direct broadcast satellite operation in January of
1999 generated $8,200,000, before taxes. The after tax amount is
estimated to be approximately $5,200,000.
Breda and its subsidiaries operate in capital-intensive industries.
Their primary source of working capital continues to be revenues from
operating activities. The sale of Breda's direct broadcast satellite
division in January of 1999, however, also provided a significant
source of working capital and funding for potential future expansions.
Breda and its subsidiaries have and will continue to incur capital
expenditures in connection with their two-year project of upgrading
their telephone, cable, and other equipment and systems for Year 2000
compliance and related FCC requirements.
Breda and its subsidiaries have broken down their assessment,
conversion and remediation, and testing procedures and activities for
Year 2000 compliance into the following three general categories:
o Network systems, which are those systems, components and
software directly affecting telecommunications, transmission
or reception. Network systems includes switching equipment,
internet routers, generators, fiber terminals, receivers,
modulators, de-scramblers, dialers, amplifiers and other
telephone and cable equipment and systems.
o Support systems, which are operations and administrative
support systems. Support systems includes billing and
accounting and related computer hardware and software.
o Auxiliary systems, which are internal processes such as
payroll and human resources. Auxiliary systems includes
telephone, security and alarm control, environmental
control, and equipment such as postage machine, faxes and
copiers.
Breda and its subsidiaries had not completed their assessment of their
Year 2000 risks at the time of this registration statement. Breda
estimates that all remaining assessment activities will, however, be
completed by October 1, 1999. The approximate percentage of assessment
activities for each of the above categories which had been completed
at the time of this registration statement were as follows:
20
<PAGE>
o Breda o Prairie Telephone
o Network systems - 90% complete o Network systems - 90% complete
o Support systems - 75% complete o Support systems - 75% complete
o Auxiliary systems - 25% complete o Auxiliary systems - 25%
o Westside Independent o Tele-Services and Westside
Communications
o Network systems - 90% complete o Network systems - 90% complete
o Support systems - 75% complete o Support systems - 75% complete
o Auxiliary systems - 25% complete o Auxiliary systems - 25%
o BTC o Pacific Junction
o Network systems - 90% complete o Network systems - 20% complete
o Support systems - 75% complete o Support systems - 75% complete
o Auxiliary systems - 25% complete o Auxiliary systems - 20%
As shown by the above percentages, the assessment activities for the
network systems has been substantially completed, with the exception
of Pacific Junction. Pacific Junction's assessment activities for
network services was not as advanced on the date of this registration
statement because contract negotiations for those activities had not
yet been finalized. The assessment activities for the support systems
are ongoing, but are nearing completion. The assessment activities for
the auxiliary systems are still in the beginning stages. More focus
has been placed on the network systems and the support systems to date
because those areas are more material areas of concern for Breda and
its subsidiaries. As indicated above, Breda estimates that all
remaining assessment activities will be completed by October 1, 1999.
Breda's and its subsidiaries' assessment activities also include
assessing the Year 2000 compliance and associated risks of all third
parties and subscribers who are material to their businesses. Breda
believes they have identified all applicable third parties for this
purpose. Breda has obtained written compliance statements from many of
the third parties and is pursuing obtaining statements from the
others. Based on the compliance statements already received from some
of the third parties and from discussions with the other third
parties, Breda believes that all material third parties will timely
achieve Year 2000 compliance with respect to matters affecting Breda's
and its subsidiaries' businesses.
Breda and its subsidiaries do not anticipate any loss of any
subscribers due to Year 2000 issues or risks. Breda also does not
believe that the loss of any particular subscriber, other than Pacific
Junction, would have a material adverse affect on Breda or its
subsidiaries. Pacific Junction's telemarketing services create a major
source of access charges revenue.
21
<PAGE>
Breda and its subsidiaries had not completed all necessary conversion
and remediation activities at the time of this registration statement.
Breda estimates that all remaining conversion and remediation
activities will, however, be completed by October 1, 1999. The
approximate percentage of conversion and remediation activities which
had been completed for the network systems and the support systems at
the time of this registration statement were as follows:
o Breda - 75% complete o Prairie Telephone - 75% complete
o Westside Independent - 50% complete o Tele-Services and Westside
o Pacific Junction - 20% complete Communications - 90% complete
o BTC - 90% complete
The conversion and remediation activities for the auxiliary systems
had not been started at the time of this registration statement
because the assessment activities for the auxiliary systems were not
yet complete. As noted above, attention has been focused primarily
upon the network systems and the support systems to date because those
areas are more material areas of concern to Breda and its
subsidiaries. Pacific Junction's conversion and remediation activities
were not as advanced on the date of this registration statement
because contract negotiations for those activities had not yet been
finalized. As indicated above, Breda estimates that all remaining
conversion and remediation activities will be completed by October 1,
1999.
Breda does not believe that any detailed testing of Breda's and its
subsidiaries' network systems is possible given the nature of those
systems and their interplay with the systems of other third parties.
Breda has, however, been advised by the manufacturer of its telephone
switches that the switches that have been recently installed are all
Year 2000 compliant. As of the date of this registration statement all
switches have been replaced except for one. The remaining switch will
be replaced before the end of 1999. As discussed above, however, Breda
has materially completed its assessment of its' and its subsidiaries'
Year 2000 issues and risks for their network systems, and Breda
believes that all remaining assessment, conversion and remediation
activities regarding their network systems will be completed by
October 1, 1999.
The testing of the support systems is an ongoing process, with testing
occurring as the various conversion and remediation processes are
completed. Any replacement components for the support systems are
tested when acquired. The results of all testing of the support
systems to date has been satisfactory to Breda.
The testing on auxiliary systems will be done following the completion
of the assessment, conversion and remediation activities for the
auxiliary systems.
Breda estimates that all remaining testing activities will be
completed by October 1, 1999.
22
<PAGE>
Breda estimates that the aggregate cost for its and its subsidiaries
Year 2000 compliance activities will be approximately $2,000,000 when
completed. It has incurred approximately $1,515,387 to date in
conducting its Year 2000 activities.
Neither Breda nor any of its subsidiaries have any written contingency
plans regarding any Year 2000 issues or problems that may not be
properly remediated. They are in the process of formulating
contingency plans, but they had not been finalized on the date of this
registration statement.
Based on the above information, however, Breda does not anticipate
that Year 2000 issues will have a material adverse effect on Breda,
its subsidiaries or their consolidated financial position, results of
operations or cash flows because it believes that its and its
subsidiaries' equipment, software and other internal computer systems,
and those of the third parties with which they have material dealings,
will achieve Year 2000 compliance before Year 2000 issues will begin
to potentially have an adverse effect. There can be no assurance,
however, that Breda's or its subsidiaries' Year 2000 remediation
efforts, or those of any third parties with which they may deal, will
be properly and timely completed. The failure to do so could have a
material adverse effect on Breda and its subsidiaries.
Breda's primary capital investment activity will currently continue to
be additions to property, plant and equipment. For example, Breda
continues to make investments in state-of-the-art technology in order
to try to offer subscribers the best possible service. Capital
expenditures for 1999 are expected to be over $1,061,000.
Breda believes that the funds from the sale of its direct broadcast
satellite division, along with its anticipated normal operating
revenues, will generate sufficient working capital for Breda and its
subsidiaries to meet their current operating needs and maintain
historical fixed asset addition levels.
Breda also plans to continue to consider expanding its core business
of providing telephone services by looking at any opportunities which
may arise to acquire additional telephone lines. For example, Breda
considered and pursued the acquisition of the telephone lines recently
sold by GTE and US West. Those telephone lines were, however, acquired
by other telephone companies. One of the purchasers of some of the
telephone lines of US West was Iowa Network Services. As discussed
elsewhere, Iowa Network Services provides various services to
telephone companies, including Breda, Prairie Telephone and Westside
Independent. Although no definite plans exist, it is possible that
Iowa Network Services may consider selling some of those telephone
lines in the next two to five years. If that occurs, Breda, Prairie
Telephone and Westside Independent will consider pursuing the
acquisition of those telephone lines. There is no assurance, however,
that Iowa Network Services will ever sell any of the telephone lines,
or if it does, that Breda, Prairie Telephone or Westside Independent
will determine to
23
<PAGE>
pursue those acquisitions or will be successful in acquiring any lines
even if they determine to pursue them. Breda also has an interest in
Alpine Communications, L.C., which was formed by several independent
telephone companies. Alpine Communications, L.C. has purchased former
US West telephone properties in Iowa. Given the recent acquisitions of
the GTE and US West telephone lines by other telephone companies,
Breda currently does not foresee the possibility of the acquisition of
any additional telephone lines, other than perhaps from Iowa Network
Services as discussed above.
Breda, Prairie Telephone and Westside Independent currently have no
definite plans to provide any material additional or improved services
to their subscribers. This determination may change quickly, however,
given the rapidly changing technology in the telecommunications and
cable industries.
There are also no current plans to expand the cable services areas of,
or the cable services provided by, Tele-Services and Westside
Communications.
Some of Breda's other existing investments are discussed in the notes
to the financial statements included in Part F/S of this registration
statement.
Item 3. Description of Property.
- --------------------------------
Breda and some of its subsidiaries own or lease various real estate.
The following paragraphs briefly describe that real estate and how the
real estate is currently used.
Breda owns or leases the following real estate:
o Breda's corporate offices are located at Highway 217 East,
Breda, Iowa. The real estate and building are leased by
Breda and Prairie Telephone from Tele-Services. The
aggregate monthly rental payable by both Breda and Prairie
Telephone under the lease is $1,000. They also pay utilities
and insurance. The lease has a one year term, and
automatically renews for additional one year terms. The
building has approximately 4,560 square feet. Breda and
Prairie Telephone utilize the entire building.
o Breda owns certain real estate and a warehouse which is also
located at Highway 217 East, Breda, Iowa. The warehouse has
approximately 6,720 square feet, and is used primarily for
storage of inventory and various equipment (trucks,
generators, trailers, plows, etc.).
o Breda owns certain real estate and a building located just
east of Breda, Iowa. The building houses equipment used to
switch, record and transmit telephone calls. This type of
equipment is sometimes referred to in the industry as
"central office equipment." The equipment is used in
providing telephone services to
24
<PAGE>
Breda and the surrounding rural area. The building has
approximately 960 square feet.
o Breda owns the real estate and building located at 109 West
Second Street, Lidderdale, Iowa. The building houses
equipment used to switch, record and transmit telephone
calls. The equipment is used in providing telephone services
to Lidderdale and the surrounding rural area. The building
has approximately 600 square feet.
o Breda owns the real estate and building located at 310 Main
Street, Macedonia, Iowa. The building houses equipment used
to switch, record and transmit telephone calls. The
equipment is used in providing telephone services to
Macedonia and the surrounding rural area. The building has
approximately 600 square feet.
Prairie Telephone owns or leases the following real estate:
o Prairie Telephone's corporate offices are located at Highway
217 East, Breda, Iowa. The real estate and building are
leased by Prairie Telephone and Breda from Tele-Services, as
described above.
o Prairie Telephone owns the real estate and building located
at 508 Dupont Street, Farragut, Iowa. The building houses
equipment used to switch, record and transmit telephone
calls. The equipment is used in providing telephone services
to Farragut and the surrounding rural area. The building has
approximately 2,400 square feet.
o Prairie Telephone owns a warehouse which is also located at
508 Dupont Street, Farragut, Iowa. The warehouse has
approximately 2,600 square feet, and is used for storage of
inventory and equipment (trucks, generators, trailers,
plans, etc.).
o Prairie Telephone owns the real estate and building located
at 707 Phillips Street, Farragut, Iowa. The building was
formerly used to house equipment used in providing telephone
services, but is currently vacant.
o Prairie Telephone owns the real estate and building located
at 804 Washington Avenue, Pacific Junction, Iowa. The
building houses equipment used to switch, record and
transmit telephone calls. The equipment is used in providing
telephone services to Pacific Junction and the surrounding
rural area. The building has approximately 2,000 square
feet.
o Prairie Telephone owns the real estate and building located
at 600 Washington
25
<PAGE>
Street, Pacific Junction, Iowa. The building was formerly
used to house equipment used in providing telephone
services, but is currently vacant.
o Prairie Telephone owns the real estate and building located
at 226 Main, Yale, Iowa. The building houses equipment used
to switch, record and transmit telephone calls. The
equipment is used in providing telephone services to Yale
and the surrounding rural area. The building has
approximately 1,125 square feet.
Pacific Junction's (Prairie Telephone's wholly-owned subsidiary)
offices are located at 120 Main, Breda, Iowa. The real estate and
building are leased by Pacific Junction. The aggregate monthly rental
payable by Pacific Junction under the lease is $500. Pacific Junction
also pays real estate taxes, utilities and all other expenses. The
term of the lease runs until March 31, 2001. The building has
approximately 1,679 square feet. Pacific Junction utilizes all of the
building.
BTC owns the real estate and building located at 526 N. Carroll
Street, Carroll, Iowa. The building houses some equipment used by BTC
in providing Internet services, but was acquired and is being held
primarily for potential future use by BTC if and when BTC provides any
telephone services. The building has approximately 1,804 square feet.
Westside Independent owns the real estate and building located at 131
South Main Street, Westside, Iowa. The building is used for Westside's
corporate offices, and also houses equipment used to switch, record
and transmit telephone calls. The equipment is used in providing
telephone services to Westside and the surrounding rural area. The
building also houses some equipment used by Tele-Services in its cable
business. The building has approximately 1,600 square feet.
Tele-Services owns the following real estate:
o Tele-Services owns certain real estate and a building
located at Highway 217 East, Breda, Iowa. This property
serves as the corporate offices of Breda and Prairie
Telephone, and is leased to them by Tele-Services. The lease
is briefly described above in the description of Breda's
properties. The real estate is being purchased by
Tele-Services under a real estate contract dated November
18, 1994. The aggregate purchase price payable under the
real estate contract is $150,000, and the remaining balance
of the purchase price ($79,382) is payable by Tele-Services
on October 1, 1999. Upon that payment, Tele-Services is to
receive a warranty deed from the sellers.
o Tele-Services also owns buildings located in sixteen
different towns which house some equipment used to receive,
descramble and transmit television signals. This type of
equipment is sometimes referred to in the industry as
26
<PAGE>
"head-end equipment." The buildings each have approximately
150 square feet. The buildings are located on real estate in
each of the sixteen towns, which is generally made available
to Tele-Services under its franchise agreement with those
towns. Some of the real estate is owned by the towns.
Tele-Services pays a very nominal consideration for the use
of the real estate, and in some cases is not required to pay
any consideration. Tele-Services' use of some of the real
estate is pursuant to an oral agreement. Tele-Services does
not believe it will be difficult or cost prohibitive to
obtain other real estate for the buildings or the equipment,
if that became necessary for some reason.
Westside Communications owns buildings located in the two towns in
which it provides cable services. Those buildings house head-end
equipment. The buildings each have approximately 150 square feet. The
buildings are located on real estate in each of those towns, which is
made available to Westside Communications under its franchise
agreement with those towns. Westside Communications pays a very
nominal consideration for the use of the real estate. Westside
Communications does not believe it will be difficult or cost
prohibitive to obtain other real estate for the buildings or the
equipment, if that became necessary for some reason.
All of the real estate and substantially all of the other assets of
Breda, Prairie Telephone and Tele-Services are subject to mortgages
and security agreements given by those corporations to the Rural
Telephone Finance Cooperative to stand as security and collateral for
the loans made by the Rural Telephone Finance Cooperative to Breda,
Prairie Telephone and Tele-Services. The loans are also each evidenced
by a loan agreement and a secured promissory note. The loan agreements
establish lines of credit in the amounts of $2,421,053 and $2,361,153
for Breda, and a line of credit of $1,444,545 for Prairie Telephone,
and of $2,040,000 for Tele-Services.
Tele-Services cannot, however, request any further advances under its
loan agreement, and the aggregate principal amount outstanding under
Tele-Services' loan agreement and secured promissory note as of June
30, 1999 was $1,084,567.
The loan agreement given by both Breda and Prairie Telephone was given
for the purpose of repaying their existing lines of credit with the
Rural Telephone Finance Cooperative and consolidating their other
outstanding loans, and the aggregate amount outstanding under that
loan agreement as of June 30, 1999 was $2,263,317 for Breda, and
$1,384,689 for Prairie Telephone.
Breda's other loan agreement allowed it to borrow funds for purposes
of the purchase of Westside Independent by Breda and the purchase of
Westside Communications, Inc. by Tele-Services. The aggregate amount
outstanding under that loan agreement as of June 30, 1999 was
$2,320,735.
27
<PAGE>
Breda's mortgages and security agreements also secure a 1993 loan from
the Rural Telephone Finance Cooperative in the aggregate principal
amount of $722,252. The loan was granted for Breda to finance the
purchase of its former direct broadcast satellite operation. The
aggregate amount outstanding under that loan as of June 30, 1999 was
$394,853.
Prairie Telephone and Breda also have lines of credit available from
the Rural Telephone Finance Cooperative in the amounts of,
respectively, $250,000 and $750,000. Those lines of credit are subject
to renewal on an annual basis, and will currently expire in January of
2000. The lines of credit are also secured by the mortgages and
security interests discussed above.
The Rural Telephone Finance Cooperative required Westside Independent
to execute a guaranty of the loan made by the Rural Telephone Finance
Cooperative to Breda to finance the purchase of Westside Independent
by Breda and the purchase of Westside Communications by Tele-Services.
Westside Independent's guaranty is secured by a mortgage and security
agreement which covers its real estate and substantially all of its
other assets. Westside Communications also executed that guaranty and
the mortgage and security agreement, so its real estate and assets
also secure the loan.
Breda believes that its real estate, buildings and other improvements
and the real estate, buildings and other improvements of its
subsidiaries are adequate to conduct their business as conducted or
proposed to be conducted on the effective date of this registration
statement. Breda also believes that its' and its subsidiaries'
buildings and improvements have been maintained in good repair and
condition, ordinary wear and tear and depreciation excepted.
Breda, Prairie Telephone and Westside Independent also each own
various equipment used to switch, record and transmit telephone calls
in the areas serviced by them. BTC also owns certain equipment. This
equipment is all housed in buildings owned or leased by them, as
discussed above. Breda believes that the normal and ordinary useful
life of this type of equipment is approximately 5-12 years. The
current equipment was purchased at various times over the period of
1986 to 1998. Breda believes the equipment is now in good operating
condition and repair, considering ordinary wear and tear and
depreciation. Breda, Prairie Telephone, Westside Independent and BTC
also own miscellaneous lines, cables and other equipment used to
provide telephone and internet services.
Tele-Services and Westside Communications own various equipment used
to receive, descramble and transmit cable signals, including various
electronic receiving equipment and electronic conductors and devices.
The equipment is sometimes called "head end" equipment. The equipment
is located in various towns as discussed above. Tele-Services and
Westside Communications also own other miscellaneous cables and
equipment used
28
<PAGE>
in their business.
Breda, Prairie Telephone, Westside Independent, Tele-Services,
Westside Communications and BTC also hold various easements for their
various telephone and cable lines and other property. Some of those
easements are on or across real estate of the cities or other
governmental authorities whose areas are being served, and others are
on or across private property.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
Breda is only authorized to issue common stock.
The following table sets forth some information on the percentage
ownership of Breda's common stock as of June 30, 1999 by:
o each person known by Breda to be the beneficial owner of
more than 5% of Breda's common stock;
o each of Breda's directors;
o each of Breda's officers;
o the person employed by Breda as its manager; and
o all directors and officers of Breda and the manager of Breda
as a group.
Security Ownership Table
Name and Address of
Beneficial Owner Number of Shares Percentage Ownership
------------------- ---------------- --------------------
Dean Schettler 30 .08%
16326 120th St
Breda, Iowa 51436
Clifford Neumayer 197* .52%
11846 Ivy Avenue
Breda, Iowa 51436
Larry Daniel 2 .005%
15731 Robin Avenue
Glidden, Iowa 51433
29
<PAGE>
Dave Hundling 108 .29%
12245 Birch Avenue
Breda, Iowa 51436
John Wenck 6 .02%
23909 140th St
Carroll, Iowa 51401
Scott Bailey 20 .05%
12424 120th Street
Breda, Iowa 51436
Dave Grabner 54 .14%
11098 130th Street
Breda, Iowa 51436
Robert Boeckman 30 .08%
23678 150th Street
Carroll, Iowa 51401
All directors and officers 447 1.18%
and the manager as a group
(8 persons)
* Fifteen of these shares are held by Kevin Neumayer, and one of
these shares is held by Neumayer Farms. Kevin Neumayer is Mr.
Neumayer's son and Neumayer Farms is an Iowa partnership in which
Mr. Neumayer is one of the partners. Those shares are included
because they may be deemed to be beneficially owned by Mr.
Neumayer for reporting purposes under this Item.
To Breda's knowledge, no person is the beneficial owner of more than
5% of Breda's common stock.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
-------------------------------------------------------------
The directors and executive officers of Breda are as follows:
Name Age Position(s)
---- --- -----------
Dean Schettler 47 President and
Director
Clifford Neumayer 50 Vice-President and
Director
30
<PAGE>
Larry Daniel 57 Secretary and
Director
Scott Bailey 36 Treasurer and
Director
Dave Hundling 51 Director
John Wenck 60 Director
Dave Grabner 50 Director
Dean Schettler has been the President and a director of Breda since
April, 1997. His current term as a director will end in April, 2000.
He has also held each of those positions with each of Breda's
subsidiaries since April, 1997. Mr. Schettler has been employed by
Pella Corporation, Pella, Iowa, since August, 1986. He was a moulder
technician until August, 1997. Since that time he has been a
production coordinator. Pella Corporation is a window and door
manufacturer.
Clifford Neumayer has been the Vice-President and a director of Breda
since April, 1996. His current term as a director of Breda will end in
April, 2002. He has also held each of those positions with each of
Breda's subsidiaries since April, 1996. Mr. Neumayer has been self
employed as a farmer since 1970.
Larry Daniel has been the Secretary and a director of Breda since
April, 1995. His current term as a director of Breda will end in
April, 2001. He has also held each of those positions with each of
Breda's subsidiaries since April, 1995. Mr. Daniel is a self employed
farmer, and has been for at least the last five years.
Scott Bailey has been a director of Breda since April, 1998. His
current term as a director of Breda will end in April, 2001. He has
also served as a director of each of Breda's subsidiaries since April,
1998. He has been Breda's treasurer, and the treasurer of Breda's
subsidiaries since April, 1999. Mr. Bailey was the finance manager of
marketing and sales for Pella Corporation, Pella, Iowa, from August,
1993, to September, 1995. He has been a controller for Pella
Corporation since September, 1995 to the present. Pella Corporation is
a window and door manufacturer.
Dave Hundling has been a director of Breda since April, 1997. His
current term as a director of Breda will end in April, 2000. He has
also served as a director of each of Breda's subsidiaries since April,
1997. Mr. Hundling is also a self employed farmer, and has been for at
least the last five years.
John Wenck has been a director of Breda since April, 1997. His current
term as a
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<PAGE>
director of Breda will end in April, 2000. He has also served as a
director of each of Breda's subsidiaries since April, 1997. Mr. Wenck
is currently self employed as a farmer. He was also previously
employed by the United Parcel Service as a delivery driver.
Dave Grabner has been a director of Breda since April, 1999. His
current term as a director of Breda will end in April, 2002. He has
also served as a director of each of Breda's subsidiaries since April,
1999. Mr. Grabner is currently self employed as an electrician, and
has been for at least the last five years. He was also previously
self-employed as a farmer.
The number of directors for Breda is currently fixed at seven. Each of
Breda's directors is elected to a three year term and until his or her
successor is elected. The terms of the directors of Breda are
staggered, so that approximately one-third of the directors are
elected each year. If a person has served for three consecutive terms
as a director, that person must be off the board for at least one year
before the person can again be elected as a director. Each director of
Breda must also be a shareholder of Breda, and a director shall
automatically cease to be a director if he or she sells or transfers
all of his or her common stock in Breda. Each director must also be at
least 18 years of age.
The officers of Breda are elected annually by the board of directors
at its annual meeting, and hold office until the next annual meeting
of the board of directors and until their successor is chosen.
Officers may also be removed by the board of directors at any time,
with or without cause. Each officer must also be a director and a
shareholder of Breda.
Breda believes that two of its employees are and will continue to make
a significant contribution to its business. Those employees are as
follows:
Name Age Position
---- --- --------
Robert J. Boeckman 38 Manager
Jane A. Morlok 45 Co-Manager
Both Mr. Boeckman and Ms. Morlok are employed pursuant to employment
agreements with Breda. Those employment agreements are discussed in
Item 6 below.
Mr. Boeckman has been employed by Breda in various capacities since
May, 1982. Prior to January, 1995, he was Breda's assistant manager.
He has been the manager since January, 1995, and he was also given the
title of chief operating officer in March, 1998.
Ms. Morlok has been the co-manager of Breda since March 30, 1998. Ms.
Morlok was the assistant administrator/CFO of Manning Regional
Healthcare Center in Manning,
32
<PAGE>
Iowa from July of 1987 until March 20, 1998. Her responsibilities in
that position included budgeting, reimbursement and rate setting for
the hospital and nursing home run by the Manning Regional Healthcare
Center, as well as daily general ledger operations and IRS filings.
She also provided similar services to several other affiliated
corporations.
Item 6. Executive Compensation.
-----------------------
Summary Compensation Table.
---------------------------
The following summary compensation table shows the compensation paid
by Breda to its manager in the 1996, 1997 and 1998 fiscal years:
Summary Compensation Table
--------------------------
Name and Other Annual All Other
Position Year Salary(1) Bonus Compensation(2) Compensation(3)
-------- ---- --------- ----- --------------- ---------------
Robert J. Boeckman, 1996 $64,701 $ 2,000 $ 1,894 $12,631
Manager 1997 $67,142 $ 2,000 $ 3,015 $13,157
1998 $70,700 $ 2,000 $ 4,737 $13,951
(1) This amount includes a contribution by Mr. Boeckman of 3% of his
annual gross salary pursuant to Breda's defined benefit
retirement and security program, which is sponsored by the
National Telephone Cooperative Association. As a condition of
participation in that program, Mr. Boeckman must contribute a
minimum of 3% of his annual gross salary. See also the "All Other
Compensation" column above.
(2) This amount includes payments to Mr. Boeckman by Breda from a
fund established by Breda based upon sales of cell phones. The
fund is allocated equally among the employees employed at Breda's
and Westside Independent's offices. All employees share in the
fund even if they are not involved in the sale of cell phones.
Mr. Boeckman is not involved in those sales. The amount also
includes a yearly clothing allowance and the estimated yearly
value of services provided to Mr. Boeckman by Breda or its
subsidiaries at no cost. Those services are local telephone
service, basic cable service, internet service, and cellular
phone service.
(3) This amount represents contributions by Breda on behalf of Mr.
Boeckman to Breda's defined benefit retirement and security
program, which is sponsored by the National Telephone Cooperative
Association. The program requires Breda to contribute an amount
equal to 8.6% of Mr. Boeckman's annual gross salary. See also
footnote 1 above regarding Mr. Boeckman's contributions to the
program. This amount also includes a long term disability
contribution of 1.02% of salary and employer-paid premiums on
health, life and accidental death and dismemberment insurance.
Dean Schettler is the president of Breda. No information is provided
for Mr. Schettler in the summary compensation table because he does
not receive compensation in his capacity as the president of Breda.
Mr. Schettler does receive compensation for his services as a director
of Breda. The compensation payable to directors is discussed below.
33
<PAGE>
No officer's or employee's total annual salary, bonus and other annual
compensation exceeded $100,000 during any of the 1996, 1997 or 1998
fiscal years.
Director Compensation.
----------------------
All of Breda's directors currently receive $100 for each regular,
special and conference call meeting of the board of directors. The
vice-president, secretary and treasurer of Breda also currently
receive an additional $25 for each regular, special and conference
call meeting of the board of directors, and the president of Breda
receives an additional $50 per meeting. Those payments are made to
those individuals in their capacities as directors, and are based upon
their additional duties at the meetings of the board of directors.
Breda's directors received the same amounts in 1998, except that the
vice-president of Breda did not receive an additional $25 per meeting
in 1998.
All of Breda's directors currently receive $125 per day for all day
meetings of the board of directors, and for each outside meeting of
the board of directors lasting over three hours. The directors receive
one-half of their regular meeting rate for each outside meeting of the
board of directors which lasts less than three hours. The directors
received $125 per day for all day meetings of the board of directors
in 1998. Examples of outside meetings include conventions and city
council meetings.
Breda's directors are also reimbursed for mileage and for any expenses
paid by them on account of attendance at any meeting of the board of
directors or other meetings attended by them in their capacity as a
director of Breda.
Directors may also receive internet services from Breda or its
subsidiaries at no cost. The current estimated yearly value of
internet services is $315. They were also entitled to receive internet
services in 1998.
Employment Agreements.
----------------------
Breda has entered into employment agreements with Robert Boeckman,
Breda's manager, and with Jane Morlok, Breda's co-manager.
Mr. Boeckman. Mr. Boeckman is responsible for the day-to-day
---------------
operations of Breda under his employment agreement. The term of the
employment agreement will currently end on December 31, 2001. The
employment agreement will automatically extend for successive one year
periods, however, unless Breda or Mr. Boeckman provides the other with
written notice prior to April 1 in any year of their desire to
terminate the employment agreement at the end of that year. Breda may
also terminate the employment agreement for any reason, including a
breach or default by Mr. Boeckman, by giving Mr. Boeckman at least
ninety days notice of his last day of employment with Breda.
34
<PAGE>
Mr. Boeckman's salary is increased under the employment agreement
effective January 1 of each year to an amount equal to the previous
year's salary, plus 3 1/2% of the previous year's salary, and the
additional amount determined by multiplying the previous year's salary
by the percentage increase as shown in the U.S. Department of Labor
cost of living index for the previous year. In other words, Mr.
Boeckman's yearly salary is increased by 3 1/2% percent plus a cost of
living increase based on any increase in the U.S. Department of
Labor's cost of living index.
If Mr. Boeckman becomes totally disabled, he will continue to receive
his then current salary until benefits under Breda's disability
program become payable to him.
If he dies while employed, Mr. Boeckman's estate or other designated
beneficiary will receive his salary up to the date of death, and an
additional six months of salary at the rate at the time of death and
the salary equivalent of all accrued unused vacation time at the date
of death.
If Breda terminates Mr. Boeckman's employment without cause, Mr.
Boeckman will receive a payment from Breda of an amount equal to the
remaining salary that would have been paid to him up to the then
expiration date of the employment agreement.
Mr. Boeckman may terminate his employment with Breda if there is a
change in the majority ownership of Breda. In that event, Mr. Boeckman
will be entitled to receive a payment from Breda of an amount equal to
the remaining salary that would have been paid to him up to the then
expiration date of the employment agreement.
Mr. Boeckman is also reimbursed by Breda under the employment
agreement for all necessary and reasonable expenses incurred by him in
performing services for Breda.
Mr. Boeckman is also entitled to the same benefits and under the same
conditions as are available to other full time employees of Breda.
Some of those benefits include life insurance and disability
insurance, and participation in Breda's defined benefit retirement and
security program. Breda contributes an amount equal to 8.6% of Mr.
Boeckman's annual gross salary under that program.
Mr. Boeckman may also receive an annual bonus in the discretion of
Breda's board of directors. He received a $2,000 bonus in each of
1996, 1997 and 1998.
Ms. Morlok. Ms. Morlok is employed as Breda's co-manager under her
------------
employment agreement. The term of the employment agreement will end on
March 30, 2000. Breda may terminate Ms. Morlok's employment before
that time for any reason by giving her thirty days prior written
notice, but in that case, Breda must pay Ms. Morlok an amount equal to
the remaining salary that would have been paid to her through March
30, 2000, the normal termination date of the employment agreement.
Breda may also terminate the
35
<PAGE>
employment agreement on five days prior written notice if the
termination is for cause. The employment agreement will also terminate
thirteen weeks after Ms. Morlok is determined to be totally disabled.
Ms. Morlok's annual salary under the employment agreement is $55,000.
Her salary is reviewed every six months.
She also receives various other benefits under the employment
agreement, such as three weeks paid vacation per year; health,
disability and life insurance; a death benefit; participation in
Breda's defined benefit retirement and security program; a clothing
allowance; and free local telephone and basic cable services.
Breda does not have any written employment agreements with any
officers or any other employees.
Item 7. Certain Relationships and Related Transactions.
-----------------------------------------------
Breda has not been a party to any transaction during the last two
years, or proposed transaction, of the type required to be disclosed
under this Item. The transactions to which this Item applies are
transactions involving Breda or any of its subsidiaries and in which
any of the following types of persons has a direct or indirect
material interest:
o directors or officers of Breda,
o nominees for election as a director of Breda,
o any beneficial owner of more than 5% of Breda's common stock, or
o any member of the immediate family of any person referred to
above.
Item 8. Description of Securities.
--------------------------
Breda is authorized to issue 5,000,000 shares of common stock. The
common stock has no par value. As of June 30, 1999, there were 37,722
shares of common stock issued and outstanding, which were held by 668
different shareholders.
The common stock can only be issued to:
o residents of the Breda or Lidderdale telephone exchange areas
served by Breda who subscribe to Breda's telephone services, and
o entities which have their principal place of business in the
Breda or Lidderdale telephone exchange areas served by Breda and
which subscribe to Breda's
36
<PAGE>
telephone services.
As indicated, only residents of the Breda and Lidderdale telephone
exchange service areas served by Breda are eligible to purchase stock.
Although Breda also provides telephone services to Macedonia, Iowa and
the surrounding area, residents of Macedonia, Iowa and the surrounding
rural area cannot acquire any shares of common stock of Breda even if
they are receiving telephone services from Breda. Subscribers to any
services from any of Breda's subsidiaries also cannot buy common stock
of Breda.
Since approximately January 1, 1996, no person has been allowed to
purchase more than thirty shares of common stock from Breda. A
shareholder can own more than thirty shares, subject to the 1%
limitation discussed in the following paragraph, but only thirty
shares can be acquired through issuance of the shares by Breda.
No shareholder may own more than 1% of the total issued and
outstanding common stock of Breda, unless:
o the shareholder already exceeded that percentage on February 28,
1995, or
o the shareholder goes over 1% as a result of Breda redeeming
shares of its common stock from other shareholders.
In either of those cases, the shareholder may not increase the
percentage of shares owned by the shareholder. If a shareholder owns
5% or more of the ownership interests of an entity which owns shares
of Breda's common stock, the shares of Breda's common stock held by
that entity and by the shareholder will be added together for
determining whether the 1% limitation is exceeded.
There can only be one shareholder for each telephone number served by
Breda. There can also only be one shareholder for each household
receiving telephone services from Breda, even if the household has
more than one telephone number.
Shareholders do not have any preemptive or other rights to acquire any
shares which are issued by Breda. No shares of common stock are
convertible into any other securities.
There are no outstanding warrants, options or other rights to purchase
shares of common stock of Breda, and there are no outstanding
securities of Breda which are convertible into common stock of Breda.
Breda's board of directors determines the purchase price payable for
newly-issued shares of Breda's common stock. The board of directors
has historically required subscribers to pay a purchase price equal to
approximately 75% of the book value of Breda. The board of directors
has historically made this determination at or around the annual
meeting of
37
<PAGE>
the board, which is generally held in April, based upon Breda's then
most recent year-end audited financial statements. Breda's fiscal year
ends on December 31. The purchase price so determined by the board of
directors then applies until the board of directors makes a new
determination at or around the next annual meeting of the board. Under
this approach, the purchase price determined by the board of directors
at or around its annual meeting in 1995, 1996, 1997 and 1998 was,
respectively, $27, $31, $41 and $64. The current purchase price
determined by the board of directors at or around its 1999 annual
meeting was $82. Breda estimates that the purchase price under this
approach if it was determined as of June 30, 1999, would be
approximately $172. The increase is attributable mainly to the
proceeds from the sale of Breda's direct broadcast satellite
operation. The sale was not included in Breda's books until the first
quarter of 1999, and was therefore not included in the 1998 year end
financial statements utilized by the board of directors in
establishing the current $82 purchase price. Breda does not anticipate
a change in this approach in the foreseeable future, but the board of
directors does have the right to change the purchase price payable for
shares of common stock at any time, in its discretion.
Breda has advised its shareholders that it currently does not
contemplate issuing any additional shares of stock, but Breda has the
right to do so and Breda may change its current view at any time.
All outstanding shares of common stock are fully paid and
nonassessable.
Each shareholder is entitled to only one vote on each matter presented
for the vote of shareholders, regardless of the number of shares of
common stock held by the shareholder. There are, however, two
exceptions. One is that shareholders who are not receiving services
from Breda do not have any voting rights. A person can be a
shareholder without receiving services from Breda if the person was
already a shareholder on February 28, 1995, or is a family member of
such a shareholder, as described below. As of June 30, 1999, there
were approximately 118 shareholders with no voting rights because of
the fact they were not receiving services from Breda. The other
exception is that each shareholder who previously held Class A stock
of Breda will get one vote for each share of Class A stock held by the
shareholder on February 28, 1995, and until one of the following
occurs:
o the shareholder no longer receives services from Breda,
o the shareholder no longer resides in the Breda or Lidderdale
telephone exchange areas served by Breda,
o the shareholder dies, or
o the shareholder transfers the shareholder's shares to someone
else.
38
<PAGE>
As of June 30, 1999, there were 23 shareholders with multiple voting
rights arising from their prior ownership of Class A stock, and they
have one vote for each share of the former Class A Stock previously
held by them. Each share of the prior Class A stock was converted into
two shares of the current common stock at the time of the filing of
Breda's Amended and Restated Articles of Incorporation in March of
1995.
Any number of the shareholders of Breda present in person or
represented by proxy constitutes a quorum for any meeting of the
shareholders. In other words, a meeting of the shareholders of Breda
can be held and conducted with however many shareholders come to the
meeting, even if the shareholders at the meeting constitute a very
small percentage of the total number of shareholders. This is a
potentially material issue for a shareholder because only the vote of
a majority of the shareholders present or represented at a meeting is
all that is generally necessary for the shareholders of Breda to
approve or take any action submitted to the shareholders. Breda has,
however, established a practice of mailing ballots to the shareholders
on all matters that will be presented for the vote of the
shareholders, and allowing the shareholders to return those ballots by
mail.
As just indicated, the vote of a majority of the shareholders present
or represented at a meeting is necessary to approve any matter
submitted to the shareholders, except that the directors of Breda are
elected by a plurality of the votes cast, and the vote of at least
two-thirds of all of the shareholders of Breda is necessary to:
o approve of the sale of Breda, the merger of Breda into another
corporation, the dissolution of Breda, or the sale of all or
substantially all of Breda's assets, and
o amend Article VIII of Breda's Restated Articles of Incorporation.
Article VII sets forth the requirement for the two-thirds vote of
the shareholders referred to immediately above.
There is no cumulative voting for directors.
Shareholders will only receive dividends if and when they are declared
by Breda's board of directors out of funds legally available for
dividends. Breda has only paid dividends on one occasion since it was
incorporated in 1964 . The dividend was declared in April, 1999, and
was in the amount of $3.00 per share.
In the event of the dissolution, liquidation or winding up of Breda,
the shareholders are entitled to their proportionate share, based on
the number of shares held by them, of the net assets of Breda
remaining after the payment of all debts and liabilities of Breda.
Breda may, at the election of its board of directors, but is not
required to, redeem a
39
<PAGE>
shareholder's shares if:
o the shareholder is no longer receiving services from Breda,
unless the shareholder already was not receiving services from
Breda on February 28, 1995;
o the shareholder no longer resides in the Breda or Lidderdale
telephone exchange areas served by Breda, unless the shareholder
already resided outside those areas on February 28, 1995; or
o the shareholder dies, unless the heir of the shares of Breda
stock meets the eligibility requirements for ownership of Breda's
stock.
The redemption price will be the fair value of the shares, as
determined in the sole discretion of Breda's board of directors. The
board of directors has historically redeemed shares at approximately
75% of Breda's book value. The board of directors has historically
made this determination at or around the annual meeting of the board,
which is generally held in April, based upon Breda's then most recent
year-end audited financial statements. Breda's fiscal year ends on
December 31. The redemption price so determined by the board of
directors then applies until the board of directors makes a new
determination at or around the next annual meeting of the board. Under
this approach, the redemption price determined by the board of
directors at or around its annual meeting in 1995, 1996, 1997 and 1998
was, respectively, $27, $31, $41 and $64. The current redemption price
determined by the board of directors at or around its 1999 annual
meeting was $82. Breda estimates that the redemption price under this
approach if it was determined as of June 30, 1999, would be
approximately $172. The increase is attributable mainly to the
proceeds from the sale of Breda's direct broadcast satellite
operation. The sale was not included in Breda's books until the first
quarter of 1999, and was therefore not included in the 1998 year end
financial statements utilized by the board in establishing the current
$82 redemption price. The board of directors may change any or all of
these practices, however, at any time and in its discretion.
In any of the above circumstances, a shareholder may, with the consent
of Breda's board of directors, transfer the shareholder's shares to
another person who is eligible to be a shareholder by reason of the
fact that the person is receiving services from Breda and is residing
in the Breda or Lidderdale telephone exchange areas served by Breda.
No shareholder can sell or transfer any of his or her shares of Breda
to any person who is not eligible to be a shareholder in Breda by
reason of the fact that the person is receiving services from Breda
and is residing in the Breda or Lidderdale telephone exchange areas
served by Breda, with one exception. The exception is that a person
who was a shareholder on July 20, 1995, may make a one time transfer
of the shares held by the person on that date to a family member of
the shareholder (which means a
40
<PAGE>
spouse, natural born or adopted child, grandchild, parent,
grandparent, or sibling) even if the family member is not receiving
services from Breda and is not residing in the Breda or Lidderdale
telephone exchange areas served by Breda. These transfers are not
subject to Breda's right of first refusal described in the following
paragraph. Any family member receiving shares by this process does not
have the same right, however, and can only sell or transfer the shares
in accordance with the Restated Articles of Incorporation of Breda.
Any shareholder who wants to sell or transfer his or her shares in
Breda to another shareholder or person who is eligible to be a
shareholder must first give Breda the right to purchase the shares. In
this case, the shareholder must give Breda at least sixty days prior
written notice of the proposed sale, including a copy of the written
offer to purchase the shares. Breda may elect to purchase the shares
for the same price offered to the shareholder at any time within sixty
days after it receives the notice from the shareholder. If Breda
elects to buy the shares, it must pay the purchase price in full upon
the shareholder surrendering the stock certificates for the shares to
Breda.
Breda's bylaws may also contain provisions restricting the transfer of
shares. The current bylaws do not contain any restrictions other than
some of those described in this registration statement, but the bylaws
can be amended by the directors or shareholders at any time.
Breda has determined to facilitate an auction of its shares of common
stock among its shareholders, and has generally advised its
shareholders of this fact. Although Breda hopes the auction can be
held in September or October, no firm date has been set for the
auction because the board of directors is still considering what
procedures and guidelines should be established for the auction.
Each director of Breda is elected for a three year term, and the terms
of office of the directors of Breda are staggered so that
approximately one third of the directors terms expire each year. This
structure could delay or defer a change in control of Breda which is
attempted to be effected through a change in the control of the board
of directors of Breda. Each director must also be a shareholder of
Breda.
PART II
Item 1. Market Price of and Dividends on Registrant's Common Equity and other
------------------------------------------------------------------------
Shareholder Matters.
--------------------
As of June 30, 1999, there were approximately 668 holders of record of
Breda's common stock.
Breda's common stock is not listed on any exchange, and there is no
public trading market
41
<PAGE>
for Breda's common stock. An investment in Breda's common stock is
also not a liquid investment because the Restated Articles of
Incorporation of Breda establish various restrictions on the transfer
of shares of its common stock. Those restrictions are summarized in
Part I, Item 8, of this registration statement.
Some of the restrictions on the transfers of Breda's common stock
allow Breda to redeem or repurchase shares of its common stock from
its shareholders in various circumstances. Since there is no public
trading market or any other principal market for Breda's common stock,
repurchases of the common stock by Breda currently is the primary
method for a shareholder to be able to sell his or her shares. As
discussed in Item 8 of Part I of this registration statement, Breda
has historically redeemed its common stock at approximately 75% of
Breda's book value as of the close of the most recent fiscal year
ending before the redemption.
Over the period of January 1, 1996 through June 24, 1996, Breda
repurchased four hundred and twenty-four shares of its common stock
from two shareholders, at a purchase price of $27 per share. Over the
period of June 25, 1996 through February 20, 1997, Breda repurchased
seven hundred and eighty-nine shares from nine different shareholders,
at a purchase price of $31 per share. Over the period of February 21,
1997 through March 1, 1998, Breda repurchased one thousand nine
hundred and ninety-six shares of its common stock from fourteen
different shareholders, at a purchase price of $41 per share. Over the
period of March 2, 1998 through December 31, 1998, Breda repurchased
three hundred and fifty-eight shares of its common stock from five
different shareholders, at a purchase price of $64 per share. No
shares were repurchased by Breda during the period of December 31,
1998 through June 30, 1999.
There may have been transfers among the shareholders of Breda during
the above periods for which Breda did not exercise its right of first
refusal.
Breda has not agreed to register any of its shares of common stock
under any federal or state securities laws. After Breda has been
subject to the reporting requirements of the Securities Exchange Act
of 1934 for a period of ninety days, Rule 144 under the Securities Act
of 1933 will be available to permit the resale of shares of common
stock by shareholders, subject to certain restrictions contained in
Rule 144, including the requirement that the shareholder has held his
or her shares for a period of one year prior to the date of resale.
Once a shareholder (other than a shareholder who is an officer or
director of Breda) has held his or her shares of common stock for a
period of two years, the shareholder will be able to resell the shares
without restriction under Rule 144.
As discussed in Item 8 in Part I of this registration statement, Breda
contemplates facilitating an auction of its shares of common stock
among its shareholders, but no firm date has been set for the auction.
42
<PAGE>
Breda has only declared and paid one dividend to its shareholders
since Breda was incorporated in 1964. The dividend was declared on
April 21, 1999. It was in the amount of $3.00 per share, for an
aggregate dividend of $113,166. Breda currently contemplates retaining
any future earnings for use in its business, and Breda does not
anticipate paying any other dividends in the foreseeable future.
Payment of dividends is within the discretion of Breda's board of
directors, and out of funds legally available therefore as provided in
the Iowa Business Corporation Act.
Item 2. Legal Proceedings.
------------------
Breda currently is not aware of any pending legal proceeding to which
Breda is a party or to which any of Breda's property is subject, other
than routine litigation that is incidental to its business. Breda
currently is also not aware that any governmental authority is
contemplating any legal proceeding against Breda or its property.
Item 3. Changes in and Disagreements with Accountants.
----------------------------------------------
Breda has not had any change in its accountants during the last three
years, or any disagreements with its accountants during that period
which are of the type required to be disclosed under this Item.
Anderson and Company, in Emmetsburg, Iowa, has served as Breda's
accounting firm for over 20 years. Anderson and Company was merged
into Kiesling Associates LLP, effective as of June 1, 1999. Kiesling
Associates LLP's principal offices are located in Madison, Wisconsin.
It also has offices in other cities, including Des Moines, Iowa, and
Emmetsburg, Iowa. The merger of Anderson and Company into Kiesling
Associates LLP did not arise from any disagreements with Breda and was
otherwise unrelated to Breda, and Breda has engaged Kiesling
Associates LLP as Breda's accounting firm.
Item 4. Recent Sales of Unregistered Securities.
----------------------------------------
Breda sold a total of five hundred fifty shares of its common stock in
1996 to forty-five different subscribers. Twenty-eight shares were
sold to one subscriber on January 1, 1996, for a purchase price of $27
per share. Two hundred and thirty-nine shares were issued on January
19, 1996 to a total of fourteen different subscribers, for a purchase
price of $27 per share. Two hundred and twelve shares of common stock
were issued on February 20, 1996 to a total of twenty different
subscribers, at a purchase price of $27 per share. Thirty-three shares
of common stock were issued on May 24, 1996 to four different
subscribers, at a purchase price of $27 per share. Thirty-one shares
of common stock were issued on June 28, 1996 to two different
subscribers, at a purchase price of $31 per share. Five shares of
common stock were issued on July 5, 1996 to two different subscribers,
at a purchase price of $31 per share. Two shares of common stock were
43
<PAGE>
issued on November 4, 1996 to two different subscribers, at a purchase
price of $31 per share.
A total of nine shares of common stock were issued in 1997 to two
different subscribers, at a purchase price of $31 per share.
Eighty-eight shares of common stock were issued on January 13, 1998 to
three different subscribers, at a purchase price of $41 per share.
Twenty shares were issued on February 9, 1998 to one subscriber, at a
purchase price of $41 per share. Sixteen shares of common stock were
issued on April 1, 1998 to one subscriber, at a purchase price of $41
per share. Thirty shares of common stock were issued on November 11,
1998 to one subscriber, at a purchase price of $64 per share.
No shares of common stock were issued by Breda in 1999, through June
30, 1999.
Breda has advised its shareholders that it currently does not
contemplate issuing any additional shares of stock, but Breda has the
right to do so and Breda may change its current view at any time.
The purchase price paid by the subscribers in the above sales was
approximately 75% of Breda's book value as of the close of the most
recent fiscal year ending before the sale, as determined by the board
of directors from Breda's year-end audited financial statements.
All of the above-referenced sales of common stock were made pursuant
to available exemptions under the Securities Act of 1933, including,
without limitation, Rule 504.
Item 5. Indemnification of Directors and Officers.
------------------------------------------
Section 1 of Article IV of the Amended and Restated Articles of
Incorporation of Breda provides that a director shall not be
personally liable to Breda or its shareholders for monetary damages
for breach of fiduciary duty as a director, except for liability:
o for any breach of the director's duty of loyalty to Breda or
its shareholders,
o for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law,
o for a transaction from which the director derived an
improper personal benefit, or
o under Section 490.833 of the Iowa Business Corporation Act.
44
<PAGE>
Section 490.833 imposes liability upon a director who votes for or
assents to a distribution by Breda which was made in violation of the
Iowa Business Corporation Act or Breda's articles of incorporation,
but only if the director did not comply with the standard of conduct
required under the Iowa Business Corporation Act. The liability of a
director in this circumstance is to Breda and is limited to the amount
of the distribution that exceeds what could have been distributed by
Breda without violating the Iowa Business Corporation Act or Breda's
articles of incorporation. Breda's Amended and Restated Articles of
Incorporation do not, however, impose any requirements for or
limitations on distributions by Breda.
Section 1 of Article IV also provides that if Iowa law is changed to
permit further elimination or limitation of the liability of
directors, then the liability of Breda's directors will automatically
be eliminated or limited to full extent then permitted.
Breda is required to indemnify its directors and officers who are
wholly successful, on the merits or otherwise, in the defense of any
proceeding to which the director or officer was a party because the
director is or was a director of Breda or the officer is or was an
officer of Breda, as the case may be, against reasonable expenses
incurred in connection with the proceeding.
Section 2 of Article IV of the Amended and Restated Articles of
Incorporation of Breda and Section 8.1 of the Amended and Restated
Bylaws of Breda also provide that each individual who is or was a
director of Breda (and the heirs, executors, personal representatives
or administrators of the individual) shall be indemnified and held
harmless by Breda to the full extent permitted by applicable law.
Accordingly, Breda will indemnify an individual who is made a party to
a proceeding because the individual is or was a director of Breda
against liability incurred in the proceeding if all of the following
apply:
o the individual acted in good faith,
o the individual reasonably believed:
o in the case of conduct in the individual's official
capacity with Breda, that the individual's conduct was
in Breda's best interests, and
o in all other cases, that the individual's conduct was
at least not opposed to Breda's best interest; and
o in the case of any criminal proceeding, the individual had
no reasonable cause to believe the individual's conduct was
unlawful.
Breda cannot, however, indemnify a director in either of the following
circumstances:
45
<PAGE>
o in connection with a proceeding by or in the right of Breda
in which the director was adjudged liable to Breda, or
o in connection with any other proceeding charging improper
personal benefit to the director, whether or not involving
action in the director's official capacity, in which the
director was adjudged liable on the basis that personal
benefit was improperly received by the director.
Also, indemnification in connection with a proceeding by or in the
right of Breda is limited to reasonable expenses incurred with the
proceeding.
Breda will also pay for or reimburse the reasonable expenses incurred
by a director who is a party to a proceeding in advance of final
disposition of the proceeding if any of the following applies:
o the director furnishes Breda a written affirmation of the
director's good faith belief that the director has met the
applicable standard of conduct described in the Iowa
Business Corporation Act,
o the director furnishes Breda a written undertaking, executed
personally or on the director's behalf, to repay the advance
if it is ultimately determined that the director did not
meet that standard of conduct, or
o a determination is made that the facts then known to those
making the determination would not preclude indemnification
under the Iowa Business Corporation Act.
Breda's Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws also provide that the indemnification to be provided
by Breda will be to the full extent permitted by applicable law, as
the law may later be amended. Accordingly, if applicable Iowa law is
later amended to authorize further indemnification of directors,
Breda's directors will automatically be entitled to indemnification to
the full extent then permitted.
Breda may also indemnify its officers, employees and agents to such
extent and such effect as Breda's board of directors shall determine
to be appropriate and authorized by applicable law.
Any repeal or amendment by the shareholders of any of the
indemnification provisions of Breda's Amended and Restated Articles of
Incorporation or Amended and Restated Bylaws will not adversely affect
any right or protection of a director or officer existing at the time
of such repeal or amendment. The indemnification rights in Breda's
Amended
46
<PAGE>
and Restated Articles of Incorporation and Amended and Restated Bylaws
are not exclusive of any other right which any person may have or
later acquire under any statute, agreement, vote of shareholders or
disinterested directors, or otherwise.
A director or officer of Breda who is a party to a proceeding may also
apply for indemnification to the court conducting the proceeding. The
court may order indemnification if it determines that either of the
following applies:
o the director or officer is entitled to mandatory
indemnification under the Iowa Business Corporation Act, in
which case the court shall also order Breda to pay the
director's and officer's reasonable expenses incurred to
obtain the court ordered indemnification, or
o the director or officer is fairly and reasonably entitled to
indemnification in view of all relevant circumstances,
whether or not the director or officer met the applicable
standard of conduct or was adjudged liable in the
proceeding.
In the latter event, however, if the director or officer was adjudged
liable, indemnification is limited to reasonable expenses incurred.
Breda does carry insurance covering its potential indemnification
obligations, but there is no guaranty that the insurance will be
sufficient to fully cover any indemnification obligation of Breda.
PART F/S
Breda's financial statements begin on page F-1 to this registration
statement.
The financial statements included with this filing are as follows:
o Condensed Consolidated Financial Statements for the Three
and Six Month Periods Ended June 30, 1999 and 1998 and the
Year Ended December 31, 1998.
o Financial Statements for the Years Ended December 31, 1998
and 1997.
47
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
BREDA, IOWA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
AND THE YEAR ENDED DECEMBER 31, 1998
F-1
<PAGE>
BREDA TELEPHONE CORPORATION
BREDA, IOWA
Contents
Page
----
Condensed Consolidated Financial Statements:
Balance Sheets F3 - F4
Statements of Income F5
Statements of Stockholders' Equity F6
Statements of Cash Flows F7 - F8
Notes to Condensed Consolidated Financial Statements F9 - F11
F-2
<PAGE>
BREDA TELEPHONE CORPORATION
BREDA, IOWA
Condensed Consolidated Balance Sheets
June 30,
1999 December 31,
ASSETS (Unaudited) 1998
------ ----------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 400,898 $ 782,959
Current portion of investments 302,756 114,550
Accounts receivable 527,298 649,044
Interest receivable 109,839 21,455
Inventories 89,869 80,279
Other 80,941 69,263
----------- -----------
1,511,601 1,717,550
----------- -----------
OTHER NONCURRENT ASSETS
Investments, less current portion 6,801,750 1,530,045
Other investments 2,471,891 2,468,022
Intangibles, net of accumulated
amortization 1,239,547 1,753,447
Other, net 10,495 21,390
----------- -----------
10,523,683 5,772,904
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 6,169,225 6,185,874
----------- -----------
TOTAL ASSETS $18,204,509 $13,676,328
=========== ===========
The accompanying notes are an integral part of
these financial statements.
F-3
<PAGE>
BREDA TELEPHONE CORPORATION
BREDA, IOWA
Condensed Consolidated Balance Sheets
June 30,
1999 December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 1998
------------------------------------ ----------- ------------
CURRENT LIABILITIES
Accounts payable $ 217,276 $ 465,150
Line of credit -- 750,000
Current portion of long-term debt 655,072 655,072
Accrued taxes 1,160,816 177,033
Other 110,095 95,817
----------- -----------
2,143,259 2,143,072
----------- -----------
LONG-TERM DEBT, less current portion 6,866,114 7,156,342
----------- -----------
DEFERRED INCOME TAXES 257,885 268,888
----------- -----------
STOCKHOLDERS' EQUITY
Common stock - no par value, 5,000,000
shares authorized 37,722 shares
issued and outstanding at $82 and $64
stated value, respectively 3,093,204 2,414,208
Retained earnings 5,844,047 1,693,818
----------- -----------
8,937,251 4,108,026
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,204,509 $13,676,328
=========== ===========
The accompanying notes are an integral part of
these financial statements.
F-4
<PAGE>
BREDA TELEPHONE CORPORATION
BREDA, IOWA
Unaudited Condensed Consolidated Statements of Income
For the Three and the Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES
Local network services $ 127,115 $ 100,990 $ 241,378 $ 199,381
Network access services 625,478 608,080 1,179,955 1,234,603
Cable television services 269,002 246,601 523,943 467,965
Telemarketing services 103,997 146,800 220,921 280,108
Internet services 96,662 55,556 181,816 101,431
Direct broadcast services (DBS) -- 330,802 -- 666,806
Billing and collection services 18,422 32,410 43,506 55,908
Miscellaneous 147,945 137,114 315,429 232,309
----------- ----------- ----------- -----------
1,388,621 1,658,353 2,706,948 3,238,511
----------- ----------- ----------- -----------
OPERATING EXPENSES
Plant specific operations 318,805 251,430 627,500 472,684
Plant nonspecific operations 20,384 35,592 45,314 54,146
Cost of programming 73,246 301,878 135,251 559,013
Depreciation and amortization 243,569 207,650 482,707 394,278
Customer operations 180,668 206,361 352,477 392,519
Corporate operations 262,877 160,715 465,108 300,382
General taxes 29,362 8,751 64,829 63,483
----------- ----------- ----------- -----------
1,128,911 1,172,377 2,173,186 2,236,505
----------- ----------- ----------- -----------
OPERATING INCOME 259,710 485,976 533,762 1,002,006
----------- ----------- ----------- -----------
NON-OPERATING INCOME (EXPENSE)
Interest and dividend income 91,439 35,879 213,788 78,883
Gain (loss) on sale of investments (5,766) 3,452 (6,119) 3,452
Gain on sale of DBS investment -- -- 7,436,415 --
Loss on disposal of switch (23,287) -- (23,287) --
Loss on extinguishment of debt -- -- -- (66,913)
Interest expense (121,865) (111,602) (247,794) (205,639)
Other income (expense) (1,213) 7,214 3,039 6,676
----------- ----------- ----------- -----------
(60,692) (65,057) 7,376,042 (183,541)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 199,018 420,919 7,909,804 818,465
----------- ----------- ----------- -----------
INCOME TAXES 102,054 121,227 2,967,413 299,668
----------- ----------- ----------- -----------
NET INCOME $ 96,964 $ 299,692 $ 4,942,391 $ 518,797
=========== =========== =========== ===========
NET INCOME PER SHARE (Note 2) $ 2.57 $ 7.88 $ 131.02 $ 13.76
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-5
<PAGE>
BREDA TELEPHONE CORPORATION
BREDA, IOWA
Unaudited Condensed Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Retained
Shares Amount Earnings Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 37,928 $ 1,555,048 $ 1,666,332 $ 3,221,380
Total comprehensive income:
Net income 902,636 902,636
Stock value adjustment 875,150 (875,150)
Common stock redeemed, net (206) (15,990) (15,990)
----------- ----------- ----------- -----------
Balance at December 31, 1998 37,722 2,414,208 1,693,818 4,108,026
Total comprehensive income:
Net income 4,942,391 4,942,391
Stock value adjustment 678,996 (678,996)
Dividends paid ($3/share) (113,166) (113,166)
----------- ----------- ----------- -----------
Balance at June 30, 1999 37,722 $ 3,093,204 $ 5,844,047 $ 8,937,251
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-6
<PAGE>
BREDA TELEPHONE CORPORATION
BREDA, IOWA
Unaudited Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 4,942,391 $ 518,797
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 483,854 394,742
Amortization of investment tax credits (4,884) (4,885)
Deferred income taxes (6,119) --
Gain on sale of DBS investment (7,436,415) --
Changes in operating assets and liabilities:
(Increase) Decrease in assets 12,094 13,364
Increase (Decrease) in liabilities 750,187 (73,812)
----------- -----------
Net cash provided by (used in) operating
activities (1,258,892) 848,206
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (554,869) (570,281)
Salvage, net of cost of removal 10,677 3,032
Purchase of investments (5,459,911) (229,797)
(Increase) decrease in other investments (3,869) 20,218
Additions to start-up costs -- (90,247)
Proceeds from sale of DBS investment 8,038,197 --
----------- -----------
Net cash provided by (used in) investing
activities 2,030,225 (867,075)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of capital stock -- (12,022)
Proceeds from long-term debt -- 3,650,050
Repayment of long-term debt (1,040,228) (3,679,655)
Dividends paid (113,166) --
----------- -----------
Net cash used in financing activities (1,153,394) (41,627)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (382,061) (60,496)
----------- -----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 782,959 612,885
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 400,898 $ 552,389
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-7
<PAGE>
BREDA TELEPHONE CORPORATION
BREDA, IOWA
Unaudited Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest $ 247,794 $ 205,639
Income taxes $ 1,990,528 $ 447,500
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Other investments acquired through debt financing $ -- $ 191,321
=========== ===========
During 1998, the Company purchased all of the capital stock of Westside
Independent Telephone Company and Westside Communications, Inc. for
$2,264,327. The following is a summary of the purchase which was entirely
debt financed
Fair value of telephone plant $ 638,724
Fair value of CATV plant 212,560
Current Assets 38,675
Other Investments 404,472
Goodwill 1,336,083
Current Liabilities (40,759)
Deferred Credits (325,428)
-----------
$ 2,264,327
===========
</TABLE>
F-8
<PAGE>
BREDA TELEPHONE CORPORATION
BREDA, IOWA
Notes to Unaudited Condensed Consolidated Financial Statements
1. CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of
only normal recurring items) necessary to present fairly the financial
position as of June 30, 1999 and December 31, 1998 and the results of
operations and changes in cash flows for the three and six months ended
June 30, 1999 and 1998.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 1998
audited financial statements. The results of operations for the period
ending June 30, 1999 are not necessarily indicative of the operating
results of the entire year.
2. OPERATING SEGMENTS
Breda Telephone Corporation organizes its business into two reportable
segments: local exchange carrier (LEC) services and broadcast services. The
LEC services segment provides telephone and data services to customers in
local exchanges located in Central Iowa. The broadcast services segment
provides cable television to customers in Iowa and Nebraska. Breda
Telephone Corporation also has operations in internet and telemarketing
services that do not meet the quantitative thresholds for reportable
segments.
<TABLE>
<CAPTION>
Local
Exchange
Carriers Broadcast Other Total
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Six months ended June 30, 1999
------------------------------
Revenues and sales
External customers $1,830,736 $ 523,943 $ 352,269 $2,706,948
Intersegment -- -- -- --
Segment profit (loss) 351,004 4,621,333 (29,946) 4,942,391
Six months ended June 30, 1998
------------------------------
Revenues and sales
External customers $1,755,245 $1,134,771 $ 348,495 $3,238,511
Intersegment -- -- -- --
Segment profit (loss) 465,533 46,479 6,785 518,797
</TABLE>
F-9
<PAGE>
BREDA TELEPHONE CORPORATION
BREDA, IOWA
Notes to Unaudited Condensed Consolidated Financial Statements
2. OPERATING SEGMENTS, (Continued)
<TABLE>
<CAPTION>
Local
Exchange
Carriers Broadcast Other Total
-------- --------- ----- -----
<S> <C> <C> <C> <C>
Three months ended June 30, 1999
--------------------------------
Revenues and sales
External customers $ 944,767 $ 268,789 $ 175,065 $1,388,621
Intersegment -- -- -- --
Segment profit (loss) 141,751 (35,394) (9,393) 96,964
Three months ended June 30, 1998
--------------------------------
Revenues and sales
External customers $ 865,798 $ 608,332 $ 184,223 $1,658.353
Intersegment -- -- -- --
Segment profit (loss) 297,804 3,541 (1,653) 299,692
</TABLE>
<TABLE>
<CAPTION>
Three months ended Six months ended
Reconciliation of Segment Information
-------------------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES AND SALES:
Total revenues and sales for reportable
segments $1,213,556 $1,474,130 $2,354,679 $2,890,016
Other revenues 175,065 184,223 352,269 348,495
Elimination of intersegment revenues
and sales -- -- -- --
---------- ---------- ---------- ----------
Consolidated Revenues $1,388,621 $1,658,353 $2,706,948 $3,238,511
========== ========== ========== ==========
PROFIT:
Total profit for reportable segments $ 96,964 $ 299,692 $4,942,391 $ 518,797
Other profit (loss) -- -- -- --
Non-operating segment -- -- -- --
Minority interest -- -- -- --
---------- ---------- ---------- ----------
Net Income $ 96,964 $ 299,692 $4,942,391 $ 518,797
========== ========== ========== ==========
</TABLE>
F-10
<PAGE>
BREDA TELEPHONE CORPORATION
BREDA, IOWA
Notes to Unaudited Condensed Consolidated Financial Statements
3. NET INCOME PER COMMON STOCK
Net income per common share for 1999 and 1998 was computed by dividing the
weighted average number of shares of common stock outstanding into the net
income. The weighted average number of shares of common stock outstanding
for the three and six month periods ended June 30, 1999 and 1998 are 37,722
and 37,722 and 38,010 and 37,914, respectively.
4. DISPOSITION OF DBS INVESTMENT
On January 11, 1999, the Company sold substantially all of its assets and
liabilities of their Direct Broadcast Satellite (DBS) investment. The
Company received cash of $8,274,689; however, $230,000 was paid as a
commission and $6,492 was held in an escrow account until final sale
adjustments were completed. The transaction resulted in a gain of
$7,436,415, which was included in operations during the first quarter of
1999.
5. RECLASSIFICATION
Certain amounts previously reported for the prior year have been
reclassified to conform to the 1999 presentation.
F-11
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
BREDA, IOWA
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
F-12
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Breda, Iowa
Contents
Page
----
Independent Auditor's Report F-14
Consolidated Financial Statements:
Balance Sheets F-15 - F-16
Statements of Income F-17 - F-18
Statements of Stockholders' Equity F-19
Statements of Cash Flows F-20 - F-22
Notes to Consolidated Financial Statements F-23 - F-51
F-13
<PAGE>
To the Board of Directors
Breda Telephone Corporation
Independent Auditor's Report
We have audited the accompanying consolidated balance sheets of Breda Telephone
Corporation (an Iowa Corporation) and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for the years then ended. 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 audits 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 financial position of Breda Telephone
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Anderson and Company
/s/ Jeffrey R. Naig
- -----------------------
Emmetsburg, Iowa
March 11, 1999
F-14
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
ASSETS 1998 1997
------ ---- ----
CURRENT ASSETS:
Cash $ 782,959 $ 612,885
Cash - RUS construction fund -- 6,535
Current portion of investments (Note 3) 114,550 50,555
Due from customers 70,268 110,189
Unbilled access revenue 159,085 148,712
Other accounts receivable (Note 4) 419,691 454,470
Interest receivable 21,455 26,049
Materials and supplies 51,929 31,118
Merchandise held for resale 28,350 57,782
Deposit 365 5,000
Prepayments 68,898 51,201
----------- -----------
1,717,550 1,554,496
----------- -----------
NONCURRENT ASSETS:
Investments, less current portion (Note 3) 1,530,045 1,716,965
Other investments (Note 5) 2,468,022 1,651,245
Nonregulated investments (Note 6):
Net telemarketing plant 578 70,579
Net CATV plant 2,007,612 1,840,266
Net nonregulated land and equipment 193,557 449,989
Net DBS distribution rights 469,342 512,010
Net nonregulated telephone plant 487,254 --
Net business start-up costs -- 49,115
Net goodwill 1,284,105 --
Other, net 21,390 49,467
Unamortized debt expense, net -- 6,847
----------- -----------
8,461,905 6,346,483
----------- -----------
PROPERTY, PLANT AND EQUIPMENT (Note 7):
Telephone plant 6,985,718 6,111,241
Less: Reserve for depreciation 3,758,790 4,039,849
----------- -----------
3,226,928 2,071,392
Acquisition adjustment, net 4,058 5,566
Telephone plant under construction 265,887 --
----------- -----------
3,496,873 2,076,958
----------- -----------
TOTAL ASSETS $13,676,328 $ 9,977,937
=========== ===========
The accompanying notes are an integral part of
these financial statements.
F-15
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------------------------------ ---- ----
<S> <C> <C>
CURRENT AND ACCRUED LIABILITIES:
Current maturities of long-term debt (Note 8) $ 655,072 $ 423,862
Accounts payable 443,669 658,785
Line of credit (Note 8) 750,000 --
Note payable -- 393
Customer deposits 28,989 27,799
Accrued interest 400 13,492
Accrued taxes 177,033 340,474
Other current liabilities 87,909 66,652
----------- -----------
2,143,072 1,531,457
----------- -----------
LONG-TERM DEBT (Note 8):
RTFC mortgage notes, less current maturities 7,156,342 1,627,164
RTB mortgage notes, less current maturities -- 2,025,663
RUS mortgage notes, less current maturities -- 1,393,438
Building mortgage note, less current maturities -- 79,382
----------- -----------
7,156,342 5,125,647
----------- -----------
DEFERRED CREDITS (Note 9):
Unamortized investment tax credits 63,317 73,086
Deferred income taxes 205,571 26,367
----------- -----------
268,888 99,453
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock - no par value, authorized 5,000,000 shares,
issued and outstanding at $64 stated value, 37,722 shares,
and issued and outstanding at $41 stated value, 37,928
shares, respectively 2,414,208 1,555,048
Retained earnings 1,693,818 1,666,332
----------- -----------
4,108,026 3,221,380
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $13,676,328 $ 9,977,937
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-16
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
OPERATING REVENUES:
Local network services $ 398,215 $ 346,471
Network access services 2,465,833 2,304,782
Direct broadcast services 1,191,897 1,128,002
Telemarketing services 581,437 551,170
Internet services 222,176 99,820
Cable television services 969,691 854,534
Billing and collection services 100,570 163,597
Miscellaneous 597,662 560,189
----------- -----------
6,527,481 6,008,565
----------- -----------
OPERATING EXPENSES:
Plant specific operations 1,178,753 865,271
Plant nonspecific operations 153,418 63,112
Cost of programming 1,214,420 895,530
Depreciation and amortization (Note 11) 898,496 812,780
Customer operations 813,645 897,971
Corporate operations 640,938 362,629
General taxes 143,628 121,852
----------- -----------
5,043,298 4,019,145
----------- -----------
OPERATING INCOME 1,484,183 1,989,420
----------- -----------
OTHER INCOME (EXPENSE):
Interest and dividend income 202,245 109,513
Interest expense (487,486) (384,728)
Gain on sale of investments 8,500 --
Loss on disposal of property (118,443) --
Loss on extinguishment of debt (66,913) --
Other expense (29,463) 6,666
Loss from joint venture (15,702) --
Income from cellular partnership 109,973 74,065
Income from cellular settlements 409,212 --
----------- -----------
11,923 (194,484)
----------- -----------
INCOME BEFORE INCOME TAXES $ 1,496,106 $ 1,794,936
----------- -----------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-17
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
INCOME BEFORE INCOME TAXES $1,496,106 $1,794,936
---------- ----------
INCOME TAXES 593,470 687,018
---------- ----------
NET INCOME $ 902,636 $1,107,918
========== ==========
EARNINGS PER SHARE based on average shares
of 37,831 and 38,915 shares, respectively $ 23.86 $ 28.47
========== ==========
The accompanying notes are an integral part of
these financial statements.
F-18
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Retained
Shares Amount Earnings Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 39,913 $ 1,237,303 $ 957,656 $ 2,194,959
Total comprehensive income:
Net income 1,107,918 1,107,918
Common stock redeemed, net (1,985) (81,445) (52) (81,497)
Stock value adjustment (Note 15) 399,190 (399,190)
----------- ----------- ----------- -----------
Balance, December 31, 1997 37,928 1,555,048 1,666,332 3,221,380
Total comprehensive income:
Net income 902,636 902,636
Common stock redeemed, net (206) (15,990) (15,990)
Stock value adjustment (Note 15) 875,150 (875,150)
----------- ----------- ----------- -----------
Balance, December 31, 1998 37,722 $ 2,414,208 $ 1,693,818 $ 4,108,026
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-19
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 902,636 $ 1,107,918
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation (Note 11) 775,293 738,735
Amortization 132,624 75,656
Deferred income taxes, net of effects from purchase
of Westside Independent Telephone Company
and Westside Communications, Inc. (146,224) (22,101)
Amortization of investment tax credits (9,769) (9,769)
Change in method of accounting 49,115 --
(Increase) decrease in current assets, net of effects
from purchase of Westside Independent Telephone
Company and Westside Communications, Inc.:
Cash - RUS construction fund 6,535 52,677
Due from customers 40,929 400
Unbilled access revenue (10,373) (7,877)
Other accounts receivable 64,409 (106,169)
Interest receivable 4,594 (16,809)
Materials and supplies (18,681) (2,194)
Merchandise held for resale 29,432 (3,276)
Deposits 4,635 11,940
Prepayments (11,790) (18,315)
Increase (decrease) in current liabilities, net of
effects from purchase of Westside Independent
Telephone Company and Westside Communications,
Inc.:
Current maturities of long-term debt 231,210 35,880
Accounts payable (244,699) 502,416
Note payable (393) (4,641)
Accrued interest (13,092) (435)
Accrued taxes (172,137) 53,909
Other current liabilities 20,157 (9,707)
----------- -----------
Net Cash provided by Operating Activities $ 1,634,411 $ 2,378,238
----------- -----------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-20
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to telephone plant $(1,258,653) $ (348,209)
Salvage, less cost of removal 280,820 33,064
Additions to CATV plant (96,896) (32,146)
Acquisition of CATV plant (64,610) --
Additions to nonregulated land and equipment (44,524) (61,047)
Additions to nonregulated telephone plant (491,282) --
(Increase) decrease in investments 122,925 (1,767,520)
(Increase) decrease in other investments (99,961) 20,025
Additions to start-up costs -- (50,809)
Decrease in notes receivable -- 276,000
----------- -----------
Net Cash used in Investing Activities (1,652,181) (1,930,642)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in customer deposits (160) 511
Proceeds from line of credit 750,000 --
Proceeds from long-term debt 3,650,050 27,966
Payments and reclassifications of long-term debt (4,196,056) (424,443)
Purchases of stock in excess of par -- (52)
Redemption of common stock, net (15,990) (81,445)
----------- -----------
Net Cash provided by (used in) Financing Activities 187,844 (477,463)
----------- -----------
Net increase (decrease) in cash 170,074 (29,867)
Cash at beginning of year 612,885 642,752
----------- -----------
Cash at end of year $ 782,959 $ 612,885
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 480,639 $ 380,172
Income taxes $ 981,473 $ 651,078
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-21
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Other investments acquired through debt financing $ 191,321 $ --
=========== ======
During 1998, the Company purchased all of the capital stock of Westside
Independent Telephone Company and Westside Communications, Inc. for
$2,264,327. The following is a summary of the purchase which was entirely
debt financed.
Fair value of telephone plant $ 638,724
Fair value of CATV plant 212,560
Current Assets 38,675
Other Investments 404,472
Goodwill 1,336,083
Current Liabilities (40,759)
Deferred Credits (325,428)
-----------
$ 2,264,327
===========
The accompanying notes are an integral part of
these financial statements.
F-22
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING GUIDELINES
The accounting policies of Breda Telephone Corporation and subsidiaries
conform to generally accepted accounting principles applicable to
nonregulated telephone utilities. The accounting records of the Company are
maintained in accordance with Part 32-Uniform System of Accounts for Class
A Telephone Companies as prescribed by the Federal Communications
Commission (FCC) with additional guidance and interpretations from the Iowa
Utilities Board (IUB).
The accounting records for the Company's subsidiary CATV operations are
maintained in accordance with the Uniform System of Accounts for CATV
companies as prescribed by the National Association of Regulatory Utility
Commissioners.
NATURE OF BUSINESS OPERATIONS
The Company offers telephone services to customers in seven communities
within West Central Iowa. They also provide Direct Broadcast Service
("DBS") to cabled and noncabled residences in nine counties located in Iowa
and Nebraska, as well as cable television services to customers in nineteen
communities in West Central Iowa and Nebraska. In addition, Prairie
Telephone Company, Inc., a wholly-owned subsidiary of Breda Telephone
Corporation, offers telemarketing services through their affiliate, Pacific
Junction Telemarketing Center, Inc. Overall, the telephone services are the
predominate line of business, based on earnings.
BASIS OF ACCOUNTING
The accrual basis of accounting is followed for the recording of revenues
and expenses. Income is recorded when earned and expenses are recorded as
soon as they result in liabilities for benefits received.
CONSOLIDATION
The consolidated financial statements include the accounts of Breda
Telephone Corporation and its wholly-owned subsidiaries, Prairie Telephone
Company, Inc., Westside Independent Telephone Company, and Tele-Services,
Ltd. All assets and liabilities of the subsidiaries are consolidated with
the assets and liabilities of the Company using the purchase method of
accounting. All significant intercompany accounts and transactions were
eliminated upon consolidation.
F-23
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
ACCOUNTING FOR INVESTMENTS
Investments in companies in which the Company has less than a 20% interest
are carried at cost. Dividends received from those companies are included
in other income. Dividends received in excess of the Company's
proportionate share of accumulated earnings are applied as a reduction of
the cost of the investment.
Investments of 20% or greater are carried at cost, adjusted for the
Company's proportionate share of their undistributed earnings or losses.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing consolidated
financial statements in accordance with generally accepted accounting
principles. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities
and the reported revenues and expenses. Actual results could vary from the
estimates that were assumed in preparing the consolidated financial
statements.
CASH AND CASH EQUIVALENTS
For purposes of the Statement of Cash Flows, the Company considers all
demand deposits and certificates of deposit with original maturities of
three months or less to be cash equivalents.
In addition, the Company has on deposit at a local bank an amount exceeding
the insurable limits by approximately $65,000.
INVENTORIES
Materials and supplies and merchandise held for resale by the utility are
valued at the lower of cost or market. Inventories are reported on the
first-in first-out method.
F-24
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
PROPERTY, PLANT AND EQUIPMENT
The Company, including their subsidiaries Prairie Telephone Company, Inc.
and Westside Independent Telephone Company, follows the accounting policies
with respect to maintenance, repairs, renewals, betterments and retirements
as outlined in the Uniform System of Accounts for Telephone Companies
prescribed by the Federal Communications Commission (FCC). Additions,
replacements and renewals of property determined to be units of property
are charged to telephone plant accounts. Property retirements are charged
in total to the accumulated depreciation reserve accounts and no gain or
loss is recognized at the time properties are retired or otherwise
disposed. However, vehicles, tools, other work equipment, computers,
furniture and office equipment are accounted for on a unit basis and,
therefore, when retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in income. Repairs and renewals of minor items of
property are included in plant specific operations or maintenance expense
accounts.
With the exception of vehicles, tools, other work equipment, computers,
furniture and office equipment which are depreciated on the unit,
straight-line basis, the Company provides for depreciation for financial
reporting purposes on the straight-line basis by the application of rates,
based on the estimated service lives of the various classes of depreciable
property.
The subsidiary companies, excluding Prairie Telephone Company, Inc. and
Westside Independent Telephone Company, record property, plant and
equipment at cost. Expenditures for major renewals and betterments are
capitalized and expenditures for maintenance and repairs are charged to
expense as incurred. When property is retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts and
any resulting gain or loss is reflected in income. Depreciation is recorded
on the straight-line basis.
LONG-LIVED ASSETS, INCLUDING INTANGIBLES
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting For the Impairment of Long-Lived Assets and For Long-Lived
Assets to be Disposed of," the Company would record impairment losses on
long-lived assets, including intangibles used in operations, when
indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets'
carrying amount. Based on current estimates, management does not believe
any of its long-lived assets are impaired.
F-25
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
ACQUISITION ADJUSTMENT
The acquisition adjustment included in property, plant and equipment
represents the excess of purchase price over fair value assigned to
telephone plant acquired. The acquisition adjustment is being amortized
over a 15-year period and has less than three years remaining before being
fully amortized.
REVENUE RECOGNITION
The Company recognizes revenues when earned regardless of the period in
which they are billed. The Company is required to provide telephone service
to subscribers within its defined service territory.
Local network service, internet, direct broadcast and cable television
services are recognized over the period a subscriber is connected to the
network.
Network access revenues are derived from charges for access to the
Company's local exchange network. The interstate portion of network access
revenues are received through pooling arrangements administered by the
National Exchange Carrier Association (NECA) based on average schedule
formulas. The intrastate portion of network access revenues are billed
based upon the Company's tariff for access charges filed with the IUB. The
charges developed from these tariffs are used to bill the connecting long
distance provider and revenues are recognized in the period the traffic is
transported based on the minutes of traffic carried.
Other revenues include contractually determined arrangements for the
provision of billing and collecting and telemarketing services and are
recognized in the period when the services are performed.
The Company utilizes the reserve method to recognize uncollectible customer
accounts.
F-26
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
INCOME TAXES
The Company follows the practice of recording investment tax credits as
deferred income, to be amortized over the life of the assets providing the
credit as required by the Public Service Commission.
Both the Company and the subsidiaries account for deferred taxes using the
asset and liability method. The objective of the asset and liability method
is to establish deferred tax assets and liabilities for the temporary
differences between the financial reporting basis and the tax reporting
basis of the entities assets and liabilities at enacted tax rates expected
to be in effect when such amounts are realized or settled.
Deferred income taxes result from transactions which enter into the
determination of taxable income in different periods than that recorded for
the financial reporting process. The principal sources of deferred income
taxes are accelerated tax depreciation on property, plant and equipment and
partnership profits and losses.
2. ASSETS PLEDGED
Substantially, all assets are pledged as security for the long-term debt to
the RTFC.
F-27
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
3. INVESTMENTS
Investments include marketable debt and equity securities. They are
classified into three separate categories which are given specific
accounting treatment as follows:
Classification Accounting Treatment
------------------------------------ -------------------------------------
Held-to-maturity Amortized cost
Debt securities with the intent
and ability to hold to maturity
Trading securities Fair value, with unrealized holding
Debt and equity securities bought gains and losses included in earnings
primarily for sale in the near and held
term
Available-for-sale Fair value, with unrealized holding
Debt and equity securities not gains and losses excluded from
classified as held-to-maturity or earnings and reported as a separate
trading component of stockholders' equity
Listed below are the investments as of December 31, 1998 and 1997:
Gross
Amortized Unrealized Market
December 31, 1998 Cost Gain (Loss) Value
----------------- ---------- ----------- ----------
Held-to-Maturity:
Municipal Bonds $1,520,186 $ 15,279 $1,535,465
U.S. Treasury Notes 35,000 2,088 37,088
Government Securities 50,000 547 50,547
Available for sale:
Common and Preferred Stock 39,409 39,409
---------- ---------- ----------
$1,644,595 $ 17,914 $1,662,509
========== ========== ==========
F-28
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
3. INVESTMENTS, (Continued)
Gross
Amortized Unrealized Market
December 31, 1997 Cost Gain (Loss) Value
- ----------------- ---------- ---------- ----------
Held-to-Maturity:
Municipal Bonds $1,696,458 $ 14,433 $1,710,891
U.S. Treasury Notes 71,062 1,447 72,509
---------- ---------- ----------
$1,767,520 $ 15,880 $1,783,400
========== ========== ==========
The carrying value of the investments and presentation in the accompanying
balance sheets is as follows:
1998 1997
---- ----
Current:
Held-to-Maturity $ 75,141 $ 50,555
Available-for-sale 39,409 --
---------- ----------
114,550 50,555
---------- ----------
Noncurrent:
Held-to-Maturity 1,530,045 1,716,965
---------- ----------
Total Investments $1,644,595 $1,767,520
========== ==========
Investments classified as held-to-maturity at December 31, 1998, are
summarized by contractual maturity date below:
Due in one year or less $ 75,141
Due after one year through five years 708,662
Due after five years 821,383
----------
$1,605,186
==========
The Company had realized gains of $8,500 in 1998. The specific
identification method was used to determine cost when calculating realized
gains and losses.
F-29
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
4. OTHER ACCOUNTS RECEIVABLE
Listed below are the other accounts receivable as of December 31, 1998 and
1997:
1998 1997
---- ----
NECA Settlements $ 48,349 $190,842
Telemarketing 101,769 118,435
Cellular Commissions 75,050 75,625
Long Distance Carriers 189,275 59,162
Miscellaneous 5,248 10,406
-------- --------
$419,691 $454,470
======== ========
5. OTHER INVESTMENTS
Other investments at December 31, 1998 and 1997, consist of nonmarketable
equity securities and certificates carried at cost which approximates
market, capital contributions to partnerships and various memberships as
shown below:
1998 1997
---- ----
Alpine Communications, L.C $ 600,000 $ 600,000
Rural Telephone Finance Cooperative - certificates 538,422 247,831
RSA #1, Ltd. 348,542 221,588
RSA #7, Ltd. 144,049 144,049
RSA #8, Ltd. 210,129 29,897
Central Iowa Cellular, Inc. 206,770 206,770
Rural Telephone Bank - stock 162,806 156,966
Quad County Communications 152,057 --
Iowa Network Services - stock 78,705 30,563
Telephone Acquisition Group, L.L.C 15,000 --
Breda Country Club - stock 10,000 10,000
Rural Telephone Finance Cooperative - membership 1,000 1,000
Co Bank - stock 507 2,581
Miscellaneous 35 --
---------- ----------
$2,468,022 $1,651,245
========== ==========
F-30
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
5. OTHER INVESTMENTS, (Continued)
During 1998, the Company became involved in a new investment, Telephone
Acquisition Group, L.L.C. (TAG). The Company purchased one unit of the TAG
limited liability company. The TAG group includes several Independent
Telephone Companies whom have formed an entity in order to bid on GTE
properties.
The Company continues to have 13.32% interest in Alpine Communications,
L.C. (Alpine). The Alpine group includes several Independent Telephone
Companies whom have formed an entity and have purchased U.S. West telephone
properties in Iowa.
The Company's percentage interests in RSA #1, Ltd., RSA #7, Ltd., RSA #8,
Ltd. and Central Iowa Cellular, Inc. (Des Moines MSA) partnerships are
9.0%, 7.1%, 11.7% and 4.0%, respectively at December 31, 1998. In addition,
the Company owns a 16.7% interest in RSA #9, Ltd. partnership of which they
have no original cash investment.
During 1998, the Company extinguished its debt with the Rural Telephone
Bank (RTB), an entity of the United States Government, and converted their
Class B stock into Class C stock. The value of the Class C stock at
December 31, 1998 was $1,170,000. The Company continued to hold $147,231 of
Class B stock at December 31, 1998. The Class C stock pays a yearly cash
dividend. As of December 31, 1997, all stock held was Class B stock. Thus,
included within the above investments are $1,317,231 and $1,128,964 at
December 31, 1998 and 1997, respectively, in stock of RTB combined Class C
and B. In accordance with industry practice, the Class C stock representing
patronage refunds is recorded at par, as stated above, with an offsetting
credit for dividends received in a subaccount which is $1,154,425 and
$971,998 as of December 31, 1998 and 1997, respectively. The Company
understands redemption of the stock arising from RTB patronage dividends
will not become available unless and until the RTB is privatized by the
Federal Government. The Company has currently evaluated the likelihood of
this event as remote, accordingly the amounts associated with the patronage
refunds will be accounted for as income in the year of redemption for cash.
In addition, Westside Independent Telephone Company, a wholly-owned
subsidiary of Breda Telephone Corporation, has a 33.33% ownership interest
in Quad County Communications. This joint venture has built a fiber optic
network from Odebolt to Denison. Transactions with Quad County
Communications are conducted on the basis of normal commercial
relationships, at prevailing market prices.
F-31
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
5. OTHER INVESTMENTS, (Continued)
The following is condensed financial data for Quad County Communications as
of December 31, 1998:
1998
----
Ordinary Loss $ (47,190)
Interest income 85
Net loss (47,105)
Current assets $ 5,625
Non-current assets 461,729
Current liabilities 11,184
Non-current liabilities 0
The investment in Quad County Communications is being accounted for on the
equity method. The remaining investments are accounted for on the cost
method.
6. NONREGULATED INVESTMENTS
Below are the nonregulated investments as of December 31, 1998 and 1997,
and the related explanations of their treatment.
F-32
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
6. NONREGULATED INVESTMENTS, (Continued)
TELEMARKETING PLANT
Listed below are the major classes of the telemarketing plant as of
December 31, 1998 and 1997:
1998 1997
---- ----
Computer Equipment $223,906 $223,906
Office Furniture and Equipment 8,661 8,661
-------- --------
Telemarketing Equipment 232,567 232,567
Less: Reserve for Depreciation 231,989 231,824
-------- --------
578 743
-------- --------
Telemarketing Building -- 91,664
Less: Reserve for Depreciation -- 22,328
-------- --------
-- 69,336
-------- --------
Telemarketing Land -- 500
-------- --------
Total Telemarketing Plant $ 578 $ 70,579
======== ========
Both the building and land were sold during 1998 for a loss of
approximately $68,500. All of the remaining plant was fully depreciated as
of December 31, 1998, with the exception of an office copy machine which is
being depreciated over ten years. The depreciation provision as a
percentage of the average balance of telemarketing plant in service was
13.9 percent in 1997.
The offering of telemarketing services does not involve the joint or shared
use of assets in the provision of regulated and nonregulated services.
F-33
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
6. NONREGULATED INVESTMENTS, (Continued)
CATV PLANT
Listed below are the major classes of the CATV plant as of December 31,
1998 and 1997:
1998 1997
---- ----
Franchise $ 32,992 $ 28,048
Land 8,586 7,586
Buildings 237,557 234,699
Towers and Antennas 244,194 220,005
Electronic Receiving Equipment 1,202,591 1,036,720
Other Head End Equipment 11,691 6,691
Electronic Conductors and Devices 1,341,369 1,272,201
Services 146,988 72,523
Installations on Customer Premises 49,455 27,820
Office Furniture and Equipment 55,093 55,093
Vehicles 126,115 126,115
Tools and Other Work Equipment 26,284 21,348
---------- ----------
CATV Plant 3,482,915 3,108,849
Less: Reserve for Depreciation 1,475,303 1,268,583
---------- ----------
$2,007,612 $1,840,266
========== ==========
The depreciation provision as a percentage of the average balance of CATV
plant in service was 6.3 and 5.2 percent in 1998 and 1997, respectively.
Individual plant depreciation rates range as follows:
Buildings 4.0 - 20.0%
Towers and Antennas 4.0 - 20.0%
Electronic Receiving Equipment 4.0 - 20.0%
Other Head End Equipment 4.0 - 20.0%
Electronic Conductors and Devices 4.0 - 20.0%
Services 4.0 - 20.0%
Installations on Customer Premises 4.0 - 20.0%
Office Furniture and Equipment 10.0%
Vehicles 15.0%
Tools and Other Work Equipment 10.0 - 20.0%
The offering of CATV service does not involve the joint or shared use of
assets in the provision of regulated and nonregulated services.
F-34
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
6. NONREGULATED INVESTMENTS, (Continued)
NONREGULATED LAND AND EQUIPMENT
Listed below are the major classes of nonregulated land and equipment as of
December 31, 1998 and 1997:
1998 1997
---- ----
Land $ 8,523 $ 8,523
-------- --------
DBS Leased Dishes 319,940 711,590
Less: Reserve for Depreciation 206,197 306,178
-------- --------
113,743 405,412
-------- --------
Nonregulated Customer Premise
Equipment - Leased 387,365 384,569
Less: Reserve for Depreciation 385,107 384,569
-------- --------
2,258 --
-------- --------
Internet Equipment 77,054 34,992
Less: Reserve for Depreciation 14,704 3,499
-------- --------
62,350 31,493
-------- --------
Payphone Equipment 9,482 8,757
Less: Reserve for Depreciation 8,588 8,056
-------- --------
894 701
-------- --------
Paging Equipment 7,022 4,560
Less: Reserve for Depreciation 1,233 700
-------- --------
5,789 3,860
-------- --------
Total Nonregulated Land and Equipment $193,557 $449,989
======== ========
The leasing of nonregulated land and equipment does not involve the joint
or shared use of assets in the provision of regulated and nonregulated
services.
F-35
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
6. NONREGULATED INVESTMENTS, (Continued)
DBS DISTRIBUTION RIGHTS
The Company entered into an agreement with the National Rural
Telecommunications Cooperative ("NRTC") on July 20, 1992. Over the years
1992 through 1994, the Company paid the NRTC total payments of $640,012 for
distribution and marketing rights. The NRTC grants the Company the
exclusive right to market and sell Direct Broadcast Service ("DBS") to all
noncabled residences in the nine Iowa and Nebraska counties of Carroll,
Sac, Greene, Crawford, Fremont, Cass, Otoe, Richardson and Nemaha, as well
as to cabled residences in the Iowa counties of Sac and Fremont and the
Nebraska county of Cass. The DBS services to be marketed and sold consist
of various programming packages. The service commencement date was July
1994. The agreement remains in effect for ten years from the service
commencement date or until the satellite is removed, whichever occurs
earlier. The DBS distribution rights are being amortized on a straight-line
basis over fifteen years. Amortization expense for both 1998 and 1997 was
$42,668. In the event the satellite is removed prior to the ten year term,
the Company shall receive a refund of its member payment in accordance with
the agreement. Distribution rights as of December 31, 1998 and 1997 consist
of the following:
1998 1997
---- ----
DBS Distribution Rights $640,012 $640,012
Less: Accumulated Amortization 170,670 128,002
-------- --------
$469,342 $512,010
======== ========
NONREGULATED TELEPHONE PLANT
Listed below are the major classes of nonregulated telephone plant as of
December 31, 1998:
1998
----
Buildings $145,000
Less: Reserve for Depreciation 4,028
--------
140,972
Telephone plant under construction 346,282
--------
$487,254
========
F-36
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
6. NONREGULATED INVESTMENTS, (Continued)
Individual plant depreciation rates for the nonregulated telephone plant
are as follows:
Buildings 3.0%
The nonregulated telephone plant has been engineered and built with the
intentions of providing competitive telecommunication services in the
neighboring community of Carroll. As of December 31, 1998, the plant was
not fully operational and was not yet providing any services.
The offering of nonregulated telephone service does not involve the joint
or shared use of assets in the provision of regulated and nonregulated
services.
BUSINESS START-UP COSTS
During 1998, the Company changed its method of accounting for the reporting
of business start-up costs to conform with new requirements of the
Financial Accounting Standards Board. The start-up costs originally
capitalized by the Company are on the books of BTC, Inc, a wholly-owned
subsidiary of Prairie Telephone Company, Inc. The effect of this change was
to decrease subsidiary net income for 1998 by $49,115. Financial statements
for 1997 have not been restated, and the cumulative effect of the change of
$49,115 is shown as a one-time charge to income on BTC, Inc.'s 1998 income
statement.
GOODWILL
On June 1, 1998, the Company acquired 100% ownership of Westside
Independent Telephone Company. The total cost of the acquisition exceeded
the fair value of the net assets of Westside Independent Telephone Company
by $1,178,472. This excess was recorded as goodwill and is being amortized
on the straight-line basis over fifteen years. Amortization expense and
accumulated amortization recorded in 1998 was $45,848.
As of June 1, 1998, Tele-Services, Ltd., a wholly-owned subsidiary of Breda
Telephone Corporation, acquired 100% ownership of Westside Communications,
Inc. The total cost of the acquisition exceeded the fair value of the net
assets of Westside Communications, Inc. by $157,611. This excess was
recorded as goodwill and is being amortized on the straight-line basis over
fifteen years. Amortization expense and accumulated amortization recorded
in 1998 was $6,130.
F-37
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
7. PROPERTY, PLANT AND EQUIPMENT
Listed below are the major classes of the telephone plant as of December
31, 1998 and 1997:
1998 1997
---- ----
Organization $ 803 $ 803
Franchise 3,167 3,167
Land 30,484 20,843
Vehicles 208,692 136,759
Tools and Other Work Equipment 319,708 307,768
Furniture and Office Equipment 144,300 136,558
Computer Equipment 207,665 186,806
Buildings 542,544 482,577
Central Office Equipment 1,981,455 1,774,424
Buried Cable 3,546,900 3,061,536
---------- ----------
Telephone Plant $6,985,718 $6,111,241
========== ==========
The depreciation provision as a percentage of the average balance of
telephone plant in service was 6.7 percent in both 1998 and 1997.
Individual plant depreciation rates range as follows:
Vehicles 15.0 - 25.0%
Tools and Other Work Equipment 10.0 - 20.0%
Furniture and Office Equipment 10.0 - 40.0%
Computer Equipment 20.0%
Buildings 3.0 - 15.0%
Central Office Equipment 10.0 - 25.0%
Buried Cable 5.0 - 15.0%
F-38
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
8. LONG-TERM DEBT
During 1998, the Company refinanced the mortgage notes payable to the Rural
Utilities Service (RUS) and the Rural Telephone Bank (RTB) with new
mortgage notes payable to the Rural Telephone Finance Cooperative (RTFC).
The Company continues to have the original mortgage notes payable to the
RTFC and a building mortgage note with the Tiefenthalers. Following is a
summary of outstanding debt as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Rural Telephone Finance Cooperative
6.40% (Variable Rate) Note due October 28, 2005 $ 459,342 $ 574,200
6.15% (Variable Rate) Note due February 17, 2005 1,172,817 1,343,345
6.10% (Variable Rate) Note due May 26, 2013 1,415,110 --
6.10% (Variable Rate) Note due May 26, 2013 2,313,042 --
7.35% (Fixed Rate) Note due May 26, 2013 2,371,721 --
Building Mortgage Note - Cyril and Ethel
Tiefenthaler
7.00% Note due October 1, 1999 79,382 91,367
Rural Utilities Service
2.00% Note due September 9, 2002 -- 140,118
2.00% Note due May 31, 2004 -- 56,716
2.00% Note due June 10, 2004 -- 66,386
2.00% Note due July 11, 2010 -- 60,394
5.00% Note due July 17, 2010 -- 177,533
5.00% Note due July 28, 2021 -- 771,442
5.00% Note due September 27, 2022 -- 190,695
Rural Telephone Bank --
7.00% Note due December 11, 2013 -- 729,293
8.00% Note due December 21, 2013 -- 123,610
8.50% Note due July 28, 2021 -- 1,040,302
10.75% Note due May 12, 2016 -- 184,108
----------- -----------
7,811,414 5,549,509
Less: Current Maturities (655,072) (423,862)
----------- -----------
$ 7,156,342 $ 5,125,647
=========== ===========
</TABLE>
F-39
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
8. LONG-TERM DEBT, (Continued)
The Breda Telephone Corporation has an outstanding line of credit with the
RTFC for $750,000. The principal and interest, at a rate of 6.7%, are
payable in full on January 28, 1999.
In addition, Prairie Telephone Company, a wholly-owned subsidiary of Breda
Telephone Corporation, received approval on a line of credit from the RTFC
for $250,000. The approved line of credit was available until January 28,
1999 at a rate of 6.7%. The Company had not drawn down any funds as of
December 31, 1998.
All the RTFC loans are repayable in equal quarterly installments covering
principal and interest. The final balloon payment on the building mortgage
note with Cyril and Ethel Tiefenthaler is due on October 1, 1999. Principal
payments due during the years subsequent to December 31, 1998 on notes
outstanding are as follows:
Building
Mortgage
RTFC Note
---------- -----------
1999 $ 575,690 $ 79,382
2000 608,412
2001 643,059
2002 579,166
2003 561,770
Thereafter 4,763,935
F-40
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
9. INCOME TAXES
Income taxes reflected in the Consolidated Statements of Income consist of
the following:
1998 1997
---- ----
Federal income taxes -
Current tax expense $ 562,083 $ 555,951
Deferred tax expense (benefit) (109,668) (17,018)
Amortization of investment tax credits (9,769) (9,769)
State income taxes -
Current tax expense 187,380 162,937
Deferred tax expense (benefit) (36,556) (5,083)
--------- ---------
Total income tax expense $ 593,470 $ 687,018
--------- ---------
The following is a reconciliation of the statutory federal income tax rate
of 34% to Breda Telephone Corporation's effective income tax rate
December 31,
1998 1997
---- ----
Statutory federal income tax rate 34.0% 34.0 %
State income taxes, net of federal benefit 6.4 5.7
Amortization of investment tax credits (1.2) (1.4)
Amortization of goodwill .5 --
Other -- --
--------- ---------
Effective income tax rate 39.7% 38.3 %
--------- ---------
F-41
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
9. INCOME TAXES, (Continued)
Deferred federal and state tax liabilities and assets comprise the
following:
1998 1997
---- ----
Deferred tax liability:
Accelerated depreciation $318,518 $ 40,337
Other 8,770 19,787
-------- --------
Total deferred tax liabilities 327,288 60,124
-------- --------
Deferred tax asset:
Partnership interests 85,009 29,618
Startup expenses 32,879 --
Other 3,829 4,139
-------- --------
Total deferred tax assets 121,717 33,757
Less: valuation allowance 0 0
-------- --------
Net deferred tax assets 121,717 0
-------- --------
Net deferred tax benefit (liability) $205,571 $ 26,367
======== ========
Current portion $ -- $ --
Long-term portion 205,571 26,367
-------- --------
Net deferred tax benefit (liability) $205,571 $ 26,367
======== ========
The tax provision differs from the expense that would result from applying the
federal statutory rates to income before taxes because of state income taxes and
the amortization of investment tax credits.
Breda Telephone Corporation files a consolidated tax return including its
wholly-owned subsidiaries, Prairie Telephone Company, Inc., Westside Independent
Telephone Company and Tele-Services, Ltd.
F-42
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
10. OPERATING SEGMENTS INFORMATION
Breda Telephone Corporation organizes its business into two reportable
segments: local exchange carrier (LEC) services and broadcast services. The
LEC services segment provides telephone, data and other services to
customers in local exchanges. The broadcast services segment provides DBS
and cable television to customers in Iowa and Nebraska. Breda Telephone
Corporation also has operations in internet and telemarketing services that
do not meet the quantitative thresholds for reportable segments.
Breda Telephone Corporation's reportable business segments are strategic
business units that offer different products and services. Each reportable
segment is managed separately primarily because of different products,
services and regulatory environments. LEC segments have been aggregated
because of their similar characteristics.
The segment's accounting policies are the same as those described in the
summary of significant accounting policies.
<TABLE>
<CAPTION>
Local
Exchange
1998 Carriers Broadcast Other Total
---- -------- --------- ----- -----
<S> <C> <C> <C> <C>
Revenues and sales $ 3,635,090 $ 2,161,588 $ 730,803 $ 6,527,481
Intersegment revenue and sales -- -- -- --
Interest revenue 180,710 19,966 1,569 202,245
Interest expense 396,234 91,252 -- 487,486
Depreciation and amortization 496,858 386,241 15,397 898,496
Segment profit (loss) 1,080,635 (136,905) (41,094) 902,636
Segment assets 10,128,218 2,963,322 708,829 13,800,369
Expenditures for segment assets 1,258,653 206,030 491,282 1,955,965
</TABLE>
F-43
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
10. OPERATING SEGMENTS INFORMATION, (Continued)
<TABLE>
<CAPTION>
Local
Exchange
1997 Carriers Broadcast Other Total
---- -------- --------- ----- -----
<S> <C> <C> <C> <C>
Revenues and sales $ 3,415,695 $ 1,982,536 $ 610,334 $ 6,008,565
Intersegment revenue and sales -- -- -- --
Interest revenue 89,848 19,665 -- 109,513
Interest expense 282,904 101,824 -- 384,728
Depreciation and amortization 428,629 346,641 37,510 812,780
Segment profit (loss) 1,131,536 (31,371) 7,753 1,107,918
Segment assets 6,808,958 3,134,624 212,618 10,156,200
Expenditures for segment assets 348,209 93,193 -- 441,402
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Segment Information 1998 1997
- ------------------------------------- ---- ----
<S> <C> <C>
REVENUES AND SALES:
Total revenues and sales for reportable segments $ 5,796,678 $ 5,398,231
Other revenues 730,803 610,334
----------- -----------
Consolidated Revenues $ 6,527,481 $ 6,008,565
=========== ===========
PROFIT:
Total profit for reportable segments $ 943,730 $ 1,100,165
Other profit (loss) (41,094) 7,753
----------- -----------
Net Income $ 902,636 $ 1,107,918
=========== ===========
</TABLE>
F-44
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
10. OPERATING SEGMENTS INFORMATION, (Continued)
1998 1997
---- ----
ASSETS:
Total assets for reportable segments $ 13,091,540 $ 9,943,582
Other assets 708,829 212,618
Elimination of intercompany receivables (124,041) (178,263)
------------ ------------
Consolidated assets $ 13,676,328 $ 9,977,937
============ ============
11. DEPRECIATION
The provision for depreciation for the years ended December 31, 1998 and
1997, was $775,293 and $738,735, respectively, which was distributed as
follows:
1998 1997
---- ----
Operating Expenses:
Telephone $421,425 $399,044
Telemarketing 165 32,317
CLEC 15,232 3,499
CATV 205,174 160,454
DBS 130,723 142,127
Miscellaneous 2,574 1,294
-------- --------
$775,293 $738,735
======== ========
12. EMPLOYEE BENEFIT PLAN
The Company adopted for its employees who have met certain eligibility
requirements, a Defined Benefit Retirement and Security Program sponsored
by the National Telephone Cooperative Association. The plan calls for the
Company to contribute 8.6% of each enrolled employee's annual gross salary.
As a condition of participation, each participating employee must also
contribute a minimum 3% of their annual gross salary. Contributions made by
the Company totaled $63,045 and $49,756 for the years ended December 31,
1998 and 1997, respectively.
F-45
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
13. EMPLOYMENT CONTRACTS
On January 1, 1995, the Company extended an employment contract with its
General Manager to December 31, 1999. The contract provides for a beginning
salary for the 1995 year of approximately $59,000, plus an adjustment each
subsequent year equal to the previous years salary plus 3 1/2%, plus the
percentage increase as shown by the Consumer Price Index for the previous
year. The contract provides for the payment of an annual bonus at the sole
discretion of the Board of Directors. The General Manager is also entitled
to the same benefits and under the same conditions as are available to
other full-time employees of the Breda Telephone Corporation.
The employment contract includes additional covenants regarding the
disability or death of the General Manager during the contract period, as
well as a covenant covering the majority change in ownership of the
Company. There is an extension or renewal clause in the contract for
additional periods of one year subsequent to December 31, 1999. The
contract automatically renews unless the Company notifies the General
Manager in writing prior to April 1,1999 of its intention to terminate the
agreement. The agreement is extended for additional periods of one calendar
year.
Additionally, on March 30, 1998, the Company extended an employment
contract with its Chief Financial Officer to March 30, 2000. The contract
provides for a beginning salary for the 1998/1999 year of $55,000. The
contract also provides for a performance and salary review after the first
six months of employment. The Chief Financial Officer is also entitled to
the same benefits and under the same conditions as are available to other
full-time employees of the Breda Telephone Corporation. The employment
contract also includes a covenant regarding the disability of the Chief
Financial Officer during the contract period. There are termination clauses
which allow termination without cause upon a thirty day written notice and
with cause upon a five day written notice. The without cause termination
would provide for the contract to be paid in full.
The aggregate commitment for future salaries at December 31, 1998,
excluding bonuses, was approximately $131,000.
F-46
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
14. MAJOR CUSTOMER
Pacific Junction Telemarketing Center, Inc., wholly-owned subsidiary of
Prairie Telephone Company, Inc., received nearly all of its telemarketing
service revenues from one customer during both 1998 and 1997. For the years
ended December 31, 1998 and 1997, the telemarketing service revenues from
the major customer were $579,836 and $528,700, respectively. At December
31, 1998 and 1997, the amount due from this customer, included in other
accounts receivable on the balance sheet, was $101,676 and $106,671,
respectively.
15. STOCK VALUE ADJUSTMENT
During June of 1998, the Board of Directors authorized an additional $23.00
increase in the stated value of each share of common stock from $41.00 to
$64.00. There were 38,050 shares outstanding at the time of the value
adjustment which reduced retained earnings by $875,150.
The June of 1997 authorized increase was $10.00 and increased the stated
value of each share of common stock from $31.00 to $41.00. There were
39,919 shares outstanding at the time of the value adjustment which reduced
retained earnings by $399,190.
16. STOCK RESTRICTIONS
The Company has one class of common stock. Each stockholder is entitled to
one vote regardless of the number of shares owned. Restrictions on the
stock include the following:
o Individuals purchasing new shares of stock must be living within the
service area of the Company and subscribe to the Company's telephone
services. In addition, new stockholders are limited to purchasing no
more than thirty shares of stock directly from the Company.
o Stockholders are limited to ownership of not more than one percent of
the outstanding shares o stock unless ownership was prior to the
restated Article of Incorporation.
o Stockholders shall not sell any shares of stock owned unless the
Company has been given first right of refusal.
o In households with multiple individuals, only one person must be
deemed the subscriber of Company services.
o A one-time stock transfer to a family member (spouse, child,
grandchild, parent, grandparent, or sibling) is allowed even if such
transferee resides outside of the telephone exchange service area and
is not a subscriber of the Company's telephone services.
F-47
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
16. STOCK RESTRICTIONS (Continued)
o Stock transfers require the consent of the Board of Directors.
The Company may adopt bylaws which may further restrict the transfer or
ownership of capital stock of the Company.
17. INVESTMENT IN SUBSIDIARIES
Breda Telephone Corporation includes a wholly-owned subsidiary, Prairie
Telephone Company, Inc. The costs in purchasing this subsidiary included
value of consideration given and all direct and incremental costs relating
to its acquisition. The total unamortizable cost is $115,420. The Company
purchased $29,000 of stock.
Prairie Telephone Company, Inc. then formed a wholly-owned subsidiary,
Pacific Junction Telemarketing Center, Inc., for its telemarketing
business. The Company purchased $10,000 of stock and $50,000 has been
contributed as additional paid-in capital. During 1997, Prairie Telephone
Company formed an additional wholly-owned subsidiary, BTC, Inc. This entity
was formed for its competitive local exchange carrier (CLEC) operations.
Prairie Telephone Company purchased $20,000 in stock and during 1998
contributed $600,000 as additional paid-in capital.
Breda Telephone Corporation also includes a wholly-owned subsidiary,
Westside Independent Telephone Company. The Company purchased $2,010,038 of
stock.
Breda Telephone Corporation also formed a wholly-owned subsidiary,
Tele-Services, Ltd., for its community antenna television (CATV) utility
business. The Company purchased $75,000 of stock and $1,124,160 has been
contributed as additional paid-in capital.
18. RELATED PARTY TRANSACTIONS
On September 22, 1975, Breda Telephone Corporation entered into an
agreement for operation and maintenance with its wholly-owned subsidiary,
Prairie Telephone Company, Inc. The agreement was amended effective October
1, 1981, to provide for operation, maintenance and management services
billed at actual cost to cover day to day operational expenses and
maintenance, as well as the income tax implications. As of December 31,
1998 and 1997, Breda Telephone Corporation has accounts receivable from
Prairie Telephone Company, Inc. for $139,188 and $137,545, respectively.
F-48
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
18. RELATED PARTY TRANSACTIONS, (Continued)
Breda Telephone Corporation also has an agreement with its wholly-owned
subsidiary, Tele-Services, Ltd., to provide for the operation and
maintenance of the various CATV systems. The fees paid by Tele-Services,
Ltd. are based on actual costs for the day to day operations and
maintenance, as well as the related income tax implications. As of December
31, 1998 and 1997, Breda Telephone Corporation has recorded an accounts
receivable from Tele-Services, Ltd. of $18,467 and $171,668, respectively.
Breda Telephone Corporation has recorded a payable to Westside Independent
Telephone Company, wholly-owned subsidiary, of $52,592 as of December 31,
1998.
In addition, Breda Telephone Corporation has recorded an accounts
receivable as of December 31, 1998 and 1997 from Pacific Junction
Telemarketing Center, Inc. of $91,705 and $82,562, respectively, and an
accounts receivable from BTC, Inc. of $20,080 and $33,004, respectively.
Both are wholly-owned subsidiaries of Prairie Telephone Company, Inc.
Prairie Telephone Company, Inc. has recorded an accounts receivable as of
December 31, 1998 and 1997 from Pacific Junction Telemarketing Center, Inc.
of $17,639 and $27,493, respectively, and an accounts receivable from BTC,
Inc. of $10,740 and $210, respectively. Pacific Junction Telemarketing
Center, Inc. and BTC, Inc. are wholly-owned subsidiaries of Prairie
Telephone Company.
Tele-Services, Ltd. has accounts payable at December 31, 1997, of $151,810
to Prairie Telephone Company, Inc. Both are wholly-owned subsidiaries of
Breda Telephone Corporation.
F-49
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
19. ACQUISITION
On June 1, 1998, Breda Telephone Corporation acquired Westside Independent
Telephone Company in a business combination accounted for as a purchase.
The Company purchased stock and the purchase price was then allocated to
the respective assets acquired in the transaction based on fair value.
Westside Independent Telephone Company owns and provides the telephone
service in Westside, Iowa. The operations of Westside Independent Telephone
Company are included in the accompanying financial statements since the
date of acquisition. The total cost of the acquisition was $2,010,038,
which exceeded the fair value of the net assets of Westside Independent
Telephone Company by $1,178,472. The excess was recorded as goodwill and is
being amortized on the straight-line basis over fifteen years.
Additionally on June 1, 1998 in a related transaction, Tele-Services, Ltd.,
a wholly-owned subsidiary of Breda Telephone Corporation, acquired Westside
Communications, Inc. in a business combination also accounted for as a
purchase. Tele-Services, Ltd. also purchased stock and the purchase price
was then allocated to the respective assets acquired in the transaction
based on fair value. Westside Communications, Inc. owned and operated the
cable television systems in Westside and Arcadia, Iowa. The operations of
Westside Communications, Inc. are included in the accompanying financial
statements since the date of acquisition, as well. The total cost of the
acquisition was $254,289, which exceeded the fair value of the net assets
of Westside Communications, Inc. by $157,611. The excess was recorded as
goodwill and is being amortized on the straight-line basis over fifteen
years.
The total cost of both acquisitions was $2,264,327 and the total goodwill
recorded was $1,336,083. See footnote number six for additional details
regarding both transactions.
Also on October 31, 1998, Tele-Services, Ltd. purchased the Auburn cable
television system from New Path Communications, L.C. This business
combination was also accounted for as a purchase. The purchase price of
$64,610 was allocated to the respective assets purchased and two months of
operations were recorded as of December 31, 1998.
Assuming these acquisitions had occurred on January 1, 1997 unaudited pro
forma consolidated revenues would have been $6,713,000 and $6,519,000 for
1998 and 1997 respectively. After considering pro forma adjustments, such
as additional amortization expense as a result of good will and certain
other acquisition related transactions related consolidated pro forma
income and earnings per share would not have been materially different from
the reported amounts for 1998 and 1997. The unaudited pro forma amounts are
not indicative of what the actual consolidated results of operations might
have been if the acquisitions had been effective at the beginning of 1997.
F-50
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
20. SUBSEQUENT EVENT
On January 11, 1999, the Company sold substantially all of its assets and
liabilities of their Direct Broadcast Satellite (DBS) segment. The Company
received cash of $8,274,689. The transaction resulted in a gain of
$7,436,415, which will be included in operations during the first quarter
of 1999.
F-51
<PAGE>
PART III
Index to Exhibits.
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
2.1 Stock Purchase Agreement dated May 22, 1998, by and E-1
between Arthur Zerwas and Mary Zerwas, Westside
Independent Telephone Company, and Breda Telephone
Corporation, along with the Amendment to the Stock
Purchase Agreement dated May 22, 1998. Exhibits A and B to
the Stock Purchase Agreement are not included with this
filing. Exhibit A lists the names and locations of all
banks in which Westside Independent Telephone Company had
accounts and the names of all persons authorized to draw
thereon, and Exhibit B sets forth the covenants not to
compete required to be executed by Arthur Zerwas and Mary
Zerwas.
2.2 Stock Purchase Agreement dated May 22, 1998, by and E-12
between Arthur Zerwas and Mary Zerwas, and Breda
Tele-Services, Ltd., along with the Amendment to the Stock
Purchase Agreement dated May 22, 1998. Exhibits A and B to
the Stock Purchase Agreement are not included with this
filing. Exhibit A lists the names and locations of all
banks in which Westside Communications, Inc. had accounts
and the names of all persons authorized to draw thereon,
and Exhibit B sets forth the covenants not to compete
required to be executed by Arthur Zerwas and Mary Zerwas.
2.3 Asset Purchase Agreement dated October 6, 1998, by and E-22
between NewPath Communications, L.C. and Tele-Services,
Ltd. The following schedules to the Asset Purchase
Agreement are not included with this filing.
o Schedule 1 - Franchise from the City of
Auburn, Iowa.
o Schedule 2 - List of Real and Personal
Property (None).
o Schedule 3 - List of Contracts (None, except
for Headend Lease).
o Schedule 4 - Subscriber and Customer List.
o Schedule 5 - Complimentary Services (Same as
Schedule 4).
o Schedule 6 - List of Subscriber Rates.
<PAGE>
o Schedule 7 - List of Television Broadcast
Signals and Programming.
2.4 Asset Purchase Agreement by and between Golden Sky E-36
Systems, Inc. and Breda Telephone Corporation dated as of
November 30, 1998, along with the Amendment of Asset
Purchase Agreement dated as of January 11, 1999. The
following exhibits and schedules to the Asset Purchase
Agreement are not included with this filing:
o Schedule 1.4 - Business
o Schedule 1.9 - Equipment
o Schedule 1.13 - Inventory
o Schedule 1.21 - Seller Contracts
o Schedule 3.5 - Allocation of Consideration
o Schedule 4.2 - Excluded Assets
o Schedule 5.4 - Required Consents
o Schedule 5.5 - Encumbrances
o Schedule 5.9 - Patents, Trademarks and Copyrights
o Schedule 5.10 - Financial Statements
o Schedule 5.11 - Legal Proceedings
o Exhibit A - Earnest Money Escrow Agreement
o Exhibit B - Indemnity Escrow Agreement
o Exhibit C - Bill of Sale
o Exhibit D - Assignment and Assumption of
Contracts Agreement
o Exhibit E - Assignment and Assumption of
Equipment Rental Agreements
o Exhibit F-1 - Seller Non-Competition Agreement
o Exhibit F-2 - Buyer Non-Competition Agreement
o Exhibit G - Opinion Letter of Seller's Counsel
3.1 Amended and Restated Articles of Incorporation of Breda E-69
Telephone Corp.
*3.2 Amended and Restated Bylaws of Breda Telephone Corp. E-1
10.1 Employment Contract between Breda and Robert Boeckman E-92
10.2 Employment Agreement between Breda and Jane Morlok E-95
21 List of Subsidiaries E-99
*27 Financial Data Schedule E-17
* Included with this filing.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this Amendment No. 1 to registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: September 17, 1999
BREDA TELEPHONE CORP.
By: /s/Dean Schettler
--------------------------
Dean Schettler, President
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
BREDA TELEPHONE CORP.
(an Iowa Corporation)
(hereinafter referred to as "Corporation")
ARTICLE I
PRINCIPAL OFFICE
The principal office of the Corporation shall be located in Breda, Carroll
County, Iowa or as identified in the most recent annual report filed by the
Corporation with the Iowa Secretary of State.
ARTICLE 2
NUMBER OF DIRECTORS
The number of directors shall be such number as the board of directors
shall at the time have designated. In the absence of any such designation, such
number shall be seven (7) persons.
ARTICLE 3
MEETINGS OF SHAREHOLDERS
Section 3.1 Annual Meeting. The annual meeting of the shareholders shall be
held during the months of March, April, or May of each year at such time, place,
and date as the board of directors may select and which shall be designated in
the notice of the meeting to the shareholders, for the purpose of electing board
members, passing upon reports for the previous fiscal year and transacting such
other business as may come before the meeting.
Section 3.2 Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by the Iowa Business
Corporation Act or the Articles of Incorporation, may be called by the President
or the board of directors, and shall be called by the board of directors upon
the written demand, signed, dated and delivered to the Secretary, of the holders
of at least ten percent of all the votes entitled to be cast on any issue
proposed to be
E-1
<PAGE>
considered at the meeting. Such written demand shall state the purpose or
purposes for which such meeting is to be called. The time, date and place of any
special meeting shall be determined by the board of directors, or, at its
direction, by the President.
Section 3.3 Notice of Meetings. Notice of (i) the place, date and time of
all meetings of shareholders; (ii) the initial authorization or issuance,
subsequent to the next preceding shareholders meeting, of shares for promissory
notes or promises to render services in the future; (iii) any indemnification of
a director required by law to be reported to shareholders; and, (iv) in the case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be delivered not less than ten (10) days nor more than sixty (60) days
before the date of the meeting to each shareholder entitled to vote at such
meeting and to such other shareholders as are required by law to be given such
notice. The board of directors may establish a record date for the determination
of shareholders entitled to notice, as provided in Section 6.9 of these bylaws.
Notice of adjourned meetings need only be given if required by law or Section
3.6 of these bylaws.
Section 3.4 Waiver of Notice.
(a) A written waiver of notice of any meeting of the shareholders signed by
any shareholder entitled to such notice, whether before or after the time stated
in such notice for the holding of such meeting, shall be equivalent to the
giving of such notice to such shareholder in due time as required by law and
these bylaws.
(b) A shareholder's attendance at any shareholders meeting, in person or by
proxy, waives (i) giving of notice of such meeting and irregularities in any
notice given, unless the shareholder at the beginning of the meeting or promptly
upon the shareholder's arrival objects to holding the meeting or transacting
business at the meeting, and (ii) waives objection to consideration of a
particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder objects to considering
the matter when it is presented.
Section 3.5 Voting List. After fixing a record date for a meeting, the
Secretary shall be responsible for the preparation of an alphabetical list of
the names of all shareholders who are entitled to notice of the shareholders
meeting. The list must be arranged by voting group and within each voting group
by class or series of shares, and show the address of and number of shares held
by each shareholder. The shareholders list must be available for inspection by
any shareholder beginning two business days after notice of the meeting is given
for which the list was prepared and continuing through the meeting, at the
Corporation's principal office or at a place identified in the meeting notice in
the city where the meeting will be held. A shareholder, or a shareholder's agent
or attorney, is entitled on written demand to inspect and, subject to the
requirements of law, to copy the list, during regular business hours and at the
person's expense, during the period it is available for inspection. The
Corporation shall make the shareholders list available at the meeting, and any
shareholder, or a shareholder's agent or attorney, is entitled to inspect the
list at any time during the meeting or any adjournment.
E-2
<PAGE>
Section 3.6 Quorum.
(a) At any meeting of the shareholders, any number of the shareholders of
the Corporation present in person or represented by proxy shall constitute a
quorum for the transaction of business, unless the representation of a different
number is required by law, and in that case, the representation of the number so
required shall constitute a quorum.
(b) When a meeting is adjourned to another place, date or time, notice need
not be given of the adjourned meeting if the place, date and time thereof are
announced at the meeting at which the adjournment is taken; provided, however,
that if the date of any adjourned meeting is more than one hundred twenty (120)
days after the date for which the meeting was originally noticed, or if a new
record date is fixed for the adjourned meeting, notice of the place, date and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 3.7 Organization.
(a) The President shall call meetings of the shareholders to order and
shall act as chairperson of such meetings, but in the absence of the President
at any meeting of the shareholders, the board of directors shall designate such
chairperson.
(b) The Secretary of the Corporation shall act as Secretary at all meetings
of the shareholders, but in the absence of the Secretary at any meeting of the
shareholders, the presiding officer may appoint any person to act as Secretary
of the meeting.
Section 3.8 Voting of Shares.
(a) Except as otherwise provided by law, each shareholder shall be entitled
to one vote on each matter submitted to a vote at a meeting of shareholders,
regardless of the number of shares held by that shareholder. Unless otherwise
provided by law, at each meeting for the election of directors, each shareholder
entitled to vote shall be entitled to one vote for as many persons as there are
directors to be elected and for whose election such shareholder has a right to
vote, and directors shall be elected by a plurality of the votes cast.
(b) Notwithstanding anything to the contrary herein, those shareholders
holding more than one (1) share of the former Class A stock of the Corporation
at the time of the filing of the Amended and Restated Articles of Incorporation
on March 14, 1995 shall be treated as a separate shareholder with respect to
each share of former Class A stock so held, and shall be entitled to one (1)
vote in each of his or her capacities as a shareholder on each issue presented
for a vote of the shareholders. The right of a shareholder under this section to
be treated as a separate shareholder with respect to each share of former Class
A stock shall terminate upon (i) termination of the shareholder's service from
the Corporation, (ii) removal of the shareholder from the telephone exchange
area served by the
E-3
<PAGE>
Corporation, (iii) the death of the shareholder, or (iv) transfer of the
shareholder's shares to another person or entity.
(c) The shareholders having the right to vote shares at any meeting shall
only be those of record on the stock books of the Corporation, on the record
date fixed pursuant to the provisions of Section 6.9 of these bylaws or by law.
(d) Absent special circumstances, the shares of the Corporation held by
another corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation is held by the Corporation,
shall not be voted at any meeting.
(e) Voting by shareholders on any question or in any election shall be by
written ballot as provided herein. All ballots for any actions to be taken by
shareholders shall be mailed by regular mail to all shareholders. All ballots
shall be accompanied by a self-addressed stamped envelope. For the purposes of
this Section, the board of directors shall obtain a post office box at the
Carroll, Iowa post office. All envelopes shall be addressed to the post office
box, and shareholders will be requested to vote by mail to that post office box.
All ballots dropped off at the telephone office will be promptly delivered to
that post office box. Accompanying the ballot shall be an explanation to the
shareholders that ballots shall be mailed to the post office box. The ballots
for the election of directors shall not designate which director is an
incumbent.
(f) If a quorum exists, action on a matter, other than the election of
directors, by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless a
greater number is required by law or the Articles of Incorporation.
Section 3.9 Voting by Proxy or Representative.
(a) A shareholder entitled to vote may vote by proxy appointed in writing.
No proxy shall be valid after eleven months from the date of its execution,
unless otherwise provided in the proxy.
(b) Shares held by an administrator, executor, guardian, conservator,
receiver, trustee, pledgee, or another corporation may be voted as provided by
law.
Section 3.10 Ballot Committee. A Ballot Committee created by the board of
directors shall be in charge of counting all ballots at any special meeting or
annual meeting of shareholders. The Ballot Committee shall consist of six
people--two shareholders appointed by the board of directors on an annual basis;
an accountant for the CPA firm doing the annual audit; legal counsel as
appointed by the board of directors; and two shareholders appointed by a
shareholder committee. These two shareholders shall designate their replacements
and a designation of new replacements shall be done on an annual basis by the
previously appointed shareholders. The Ballot Committee shall have sole control
of the post office box and the ballots. This Committee shall jointly agree on
how and when the ballots shall be removed from the post office box, and how and
when the ballots shall be counted.
E-4
<PAGE>
Section 3.11 Consent of Shareholders in Lieu of Meeting. Any action
required or permitted by law to be taken at a meeting of the shareholders, may
be taken without a meeting if a consent in writing setting forth the action so
taken shall be signed by the holders of outstanding shares having not less than
ninety percent of the votes entitled to be cast at a meeting at which all shares
entitled to vote on the action were present and voted, and are delivered to the
Corporation for inclusion in the minutes.
Section 3.12 Conduct of Business. The chairperson of any meeting of
shareholders shall determine the order of business and procedure at the meeting,
including such regulation of the manner of voting and the conduct of business as
seem to him or her to be in order.
Section 3.13 Rights and Liabilities of Shareholders. Any provisions
relating to the rights and liabilities of a shareholder of the Corporation shall
apply equally with respect to the holders of jointly issued shares. Without
limiting the generality of the foregoing, the effect of actions by holders of
jointly owned shares shall be as follows:
(1) The presence at a meeting of either or both shall be regarded as the
presence of one shareholder and shall constitute a joint waiver of
notice of the meeting;
(2) The vote of either separately or both jointly shall constitute one
joint vote;
(3) A waiver of notice signed by either or both shall constitute a joint
waiver;
(4) Notice to either shall constitute notice to both;
(5) The disqualification of either from eligibility to own shares in the
Corporation shall disqualify both;
(6) Either, but not both, may be elected or appointed as an officer or
board member if individually qualified;
(7) Upon the death of either natural person, or the dissolution of either
corporation, partnership, cooperative association, or trust, that is a
joint owner of the stock, the stock shall be reissued in the name of
the survivor. However, the estate of the deceased or the dissolved
entity shall not be released from any debts due the Corporation.
E-5
<PAGE>
ARTICLE 4
BOARD OF DIRECTORS
Section 4.1 General Powers and Qualifications. The business and affairs of
the Corporation shall be managed by the board of directors. Each director must
be a shareholder in order to qualify for the office. If any director shall sell
or transfer his or her shares in the Corporation, that person shall at once
cease to be a director. All directors must be at least eighteen (18) years of
age. The board of directors may authorize any officer or officers, agent or
agents, to enter into any contract or to execute and deliver any instrument in
the name and on behalf of the Corporation, and such authority may be general or
confined to specific instances.
Section 4.2 Increase in Number of Directors. In case the number of
directors is increased by thirty percent or less of the number of directors last
approved by the shareholders, by amendment to these bylaws by the board of
directors or by resolution of the board of directors, the directorships to be
filled by reason thereof may be filled by the affirmative vote of a majority of
the directors, though less than a quorum of the board of directors. Any director
so elected shall serve only until the next election of directors by the
shareholders.
Section 4.3 Tenure: Staggered Terms. Each director shall hold office for a
period of three (3) years and until his or her successor shall have been elected
and qualifies, or until his or her death, resignation, or removal. The terms of
the directors shall be staggered, with approximately one-third of the directors'
terms expiring each year.
Section 4.4 Quorum and Manner of Acting. A majority of the number of
directors then holding office shall constitute a quorum for the transaction of
business; but if at any meeting of the board there be less than a quorum
present, a majority of the directors present may adjourn the meeting from time
to time until a quorum shall be present. Notice of any adjourned meeting need
not be given. At all meetings of directors, a quorum being present, the act of
the majority of the directors present at the meeting shall be the act of the
board of directors.
Section 4.5 Resignation. Any director of the Corporation may resign at any
time by giving written notice to the board of directors, its chairperson or the
Corporation. The resignation of any director shall take effect upon delivery of
notice thereof or at such later date as shall be specified in such notice; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 4.6 Removal. A director shall be subject to removal, with or
without cause, at a meeting of the shareholders called for that purpose in the
manner prescribed by law.
Section 4.7 Vacancies. Any vacancy occurring on the board of directors
through death, resignation, removal or any other cause may be filled by the
affirmative vote of a majority of the
E-6
<PAGE>
remaining directors, though less than a quorum of the board of directors. A
director elected to fill a vacancy shall be elected only until the next election
of directors by the shareholders, at which time the shareholders shall elect a
director to serve for the remainder of the three-year term of the vacant
directorship.
Section 4.8 Compensation of Directors. The directors shall be entitled to
be reimbursed for any expenses paid by them on account of attendance at any
regular or special meeting of the board of directors and the board may fix the
compensation of directors from time to time by resolution of the board.
Section 4.9 Place of Meetings, etc. The board of directors may hold its
meetings and keep the books and records of the Corporation (except that the
record of its shareholders must also be kept at the places described in Section
3.5 of these bylaws) at such place or places within or without the State of
Iowa, as the board may from time to time determine. A director may participate
in any meeting by any means of communication, including, but not limited to
telephone conference call, by which all directors participating may
simultaneously hear each other during the meeting.
Section 4. 10 Annual Meeting. At the next regular meeting of the board of
directors, the board of directors shall meet for the purpose of organization,
the election of officers and the transaction of other business. Such meeting may
be held at any other time as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors or in a consent and
waiver of notice thereof signed by all the directors, at which meeting the same
matters shall be acted upon as is above provided.
Section 4.11 Regular Meetings. Regular meetings of the board of directors
shall be held at such place and at such times as the board of directors shall by
resolution fix and determine from time to time. No notice shall be required for
any such regular meeting of the board.
Section 4.12 Special Meetings; Notice.
(a) Special meetings of the board shall be held whenever called by
direction of the President, or three (3) of the directors.
(b) Notice of each such meeting shall be delivered to each director, at
least two (2) days before the date on which the meeting is to be held, by mail,
telegraph, cable, facsimile transmission, radio or other wireless communication,
or personally or by telephone. Each notice shall state the time and place of the
meeting. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting. At any meeting at which every director
shall be present, even without any notice, any business may be transacted.
Section 4.13 Substitutes for Notice. A written waiver of notice signed by a
director, whether before or after the time of the meeting stated therein, shall
be equivalent to the giving of such notice
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in due time as required by these bylaws. Attendance of a director at or
participation in a meeting shall constitute a waiver of notice of such meeting,
unless the director at the beginning of the meeting or promptly upon arrival
objects to holding the meeting or transacting business at the meeting and does
not thereafter vote for or assent to action taken at the meeting.
Section 4.14 Director's Assent Presumed. A director of the Corporation who
is present at a meeting of its board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless the director's dissent shall be entered in the minutes of the meeting or
unless the director shall file a written dissent to such action with the person
acting as the Secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered or certified mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 4.15 Order of Business.
(a) At meetings of the board of directors, business shall be transacted in
such order as, from time to time, the board of directors may determine by
resolution.
(b) At all meetings of the board, the President, or in the President's
absence the most senior Vice President present, or otherwise the person
designated by the vote of a majority of the directors present shall preside.
Section 4.16 Action Without Meeting. Any action required or permitted by
law to be taken at any meeting of the board of directors may be taken without a
meeting if the action is taken by all members of the board and if one or more
consents in writing setting forth the action so taken shall be signed by all of
the directors then in office and included in the minutes.
Section 4.17 Committees.
(a) The board of directors, by resolution adopted by the affirmative vote
of a majority of the number of directors then in office, may establish one or
more committees, including an executive committee, each committee to consist of
two (2) or more directors appointed by the board of directors. Any such
committee shall serve at the will of the board of directors. Each such committee
shall have the powers and duties delegated to it by the board of directors. The
board of directors may elect one or more of its members as alternate members of
any such committee who may take the place of any absent member or members at any
meeting of such committee, upon request by the President or the chairperson of
such committee. Each such committee shall fix its own rules governing the
conduct of its activities as the board of directors may request.
(b) A committee of the board shall not: (i) authorize distributions by the
Corporation; (ii) approve or propose to shareholders of the Corporation action
that the law requires be approved by shareholders; (iii) fill vacancies on the
board of directors of the Corporation or on any of its
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committees; (iv) amend the articles of incorporation of the Corporation; (v)
adopt, amend or repeal bylaws of the Corporation; (vi) approve a plan of merger
not requiring shareholder approval; (vii) authorize or approve reacquisition of
shares by the Corporation, except according to a formula or method prescribed by
the board of directors; or (viii) authorize or approve the issuance or sale or
contract for sale of shares, or determine the designation and relative rights,
preferences and limitations of a class or series of shares, except that the
board of directors may authorize a committee or a senior executive officer of
the Corporation to do so within limits specifically prescribed by the board of
directors.
ARTICLE 5
OFFICERS
Section 5.1 Generally. The officers of the Corporation shall be a
President, one or more Vice Presidents (the number thereof to be determined by
the board of directors), a Secretary, a Treasurer and such other officers as may
from time to time be appointed by the board of directors. One person may hold
the offices and perform the duties of Secretary and Treasurer. The officers must
be directors of the Corporation. All of the officers shall be shareholders of
the Corporation. In its discretion, the board of directors may delegate the
powers or duties of any officer to any other officer or agents, notwithstanding
any provision of these bylaws, and the board of directors may leave unfilled for
any such period as it may fix, any office except those of President, Treasurer
and Secretary. The officers of the Corporation shall be elected annually by the
board of directors at the next regular directors' meeting after the annual
meeting of shareholders. Each such officer shall hold office until the next
succeeding annual meeting of the board of directors following the annual meeting
of shareholders and until his or her successor shall have been duly chosen and
shall qualify or until his or her death or until he or she shall resign or shall
have been removed.
Section 5.2 Removal. Any officer may be removed by the board of directors,
with or without cause, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
Section 5.3 Powers and Duties of the President. The President shall be the
principal executive officer of the Corporation. Subject to the provisions of
these bylaws and to the direction of the board of directors, he or she shall
have the responsibility for the general management and control of the business
and affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the office of chief executive or which are
delegated to him or her by the board of directors. He or she shall have power to
sign all stock certificates, contracts and other instruments of the Corporation
which are authorized by the Board of Directors and shall have general
supervision and direction of all of the other officers, employees and agents of
the Corporation.
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Section 5.4 Powers and Duties of the Vice President(s). In the absence of
the President or in the event of the death, inability or refusal to act of the
President, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated at the time of their
election, or in the absence of any designation, the senior Vice President in
length of service) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Any Vice President may sign, with the Secretary or Assistant
Secretary, certificates for shares of the Corporation; and shall perform such
other duties and have such authority as from time to time may be assigned to
such Vice President by the President or by the board of directors.
Section 5.5 Powers and Duties of the Secretary. The Secretary shall be
responsible for: (a) keeping minutes of all meetings of the shareholders and of
the board of directors; (b) authentication of records of the Corporation and
attend to giving and serving all notices of the Corporation as provided by these
bylaws or as required by law; (c) being custodian of the corporate seal (if
any), the stock certificate books and such other books, records and papers as
the board of directors may direct, and see that the corporate seal is affixed to
all stock certificates and to all documents, the execution of which on behalf of
the Corporation under its seal is duly authorized; (d) keeping a stock record
showing the names of all persons who are shareholders of the Corporation, their
post office addresses as furnished by each such shareholder and the number of
shares of each class of stock held by them respectively and, at least ten (10)
days before each shareholders meeting, prepare a complete list of shareholders
entitled to vote at such meeting arranged in alphabetical order; (e) signing
with the President or a Vice President certificates for shares of the
Corporation, the issuance of which shall have been duly authorized; and (f) in
general, performing all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to the Secretary by the
President or the board of directors.
Section 5.6 Powers and Duties of the Treasurer. The Treasurer shall be
responsible for: (a) custody of all moneys and securities of the Corporation,
maintaining full and accurate records and accounts in books belonging to the
Corporation, showing the transactions of the Corporation, its accounts,
liabilities and financial condition and determining that all expenditures are
duly authorized and are evidenced by proper receipts and vouchers; (b)
depositing in the name of the Corporation in such depository or depositories as
are approved by the directors, all moneys that may come into the Treasurer's
hands for the Corporation's account; (c) rendering an account of the financial
condition of the Corporation at least annually; and (d) in general, performing
such duties as may from time to time be assigned to the Treasurer by the
President or by the board of directors.
Section 5.7 Assistants. There shall be such number of Assistant Secretaries
and Assistant Treasurers as the board of directors may from time to time
authorize and appoint. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties as shall be assigned to them by the
Secretary, or the Treasurer, respectively, or by the President or the board of
directors. The board of directors shall have the power to appoint any person to
act as assistant to any other officer, or to perform the duties of any other
officer whenever for any reason it is impracticable for such
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<PAGE>
officer to act personally, and such assistant or acting officer so appointed
shall have the power to perform all the duties of the office to which he or she
is so appointed to be assistant, or as to which he or she is so appointed to
act, except as such power may be otherwise defined or restricted by the board of
directors.
Section 5.8 Salaries. If the officers are to receive salaries, the amounts
thereof shall be fixed from time to time by the board of directors, and no
officer shall be prevented from receiving such salary by reason of the fact that
he or she is also a director of the Corporation.
ARTICLE 6
SHARES, THEIR ISSUANCE AND TRANSFER
Section 6.1 Consideration for Shares. The board of directors may authorize
shares to be issued for consideration consisting of any tangible or intangible
property or benefit to the Corporation, including cash, promissory notes,
services performed, contracts for services to be performed, or other securities
of the Corporation. Before the Corporation issues shares, the board of directors
must determine that the consideration received or to be received for shares to
be issued is adequate. If the Corporation issues or authorizes the issuance of
shares for promissory notes or for promises to render services in the future,
the Corporation shall report in writing to the shareholders the number of shares
authorized or issued and the consideration received by the Corporation with or
before the notice of the next shareholders meeting.
Section 6.2 Certificates for Shares. Every shareholder of the Corporation
shall be entitled to a certificate or certificates, to be in such form as the
board of directors shall prescribe, certifying the number and class of shares of
the Corporation owned by such shareholder.
Section 6.3 Execution of Certificates. The certificates for shares of stock
shall be numbered in the order in which they shall be issued and shall be signed
by the President or a Vice President and the Secretary of the Corporation, and
may be sealed with the seal of the Corporation or a facsimile thereof. In case
any officer or other authorized person who has signed such certificate for the
Corporation shall have ceased to be such officer or employee or agent before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he or she were such officer or employee or agent at the date of its
issue.
Section 6.4 Share Record. A record shall be kept by the Secretary, or by
any other officer, employee or agent designated by the board of directors, of
the names and addresses of all shareholders and the number and class of shares
held by each represented by such certificates and the respective dates thereof
and in case of cancellation, the respective dates of cancellation.
Section 6.5 Cancellation. Every certificate surrendered to the Corporation
for exchange or transfer shall be cancelled, and no new certificate or
certificates shall be issued in exchange for any
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existing certificate until such existing certificate shall have been so
cancelled, except in cases provided in Section 6.8 of these bylaws.
Section 6.6 Transfers of Stock. Transfers of shares of the capital stock of
the Corporation shall be made only on the books of the Corporation by the record
holder thereof, or by his or her attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender of the certificate or certificates for such shares properly endorsed.
The person in whose name shares of stock stand on the books of the Corporation
shall be deemed the owner thereof for all purposes as regards the Corporation.
Notwithstanding anything to the contrary in the Articles of Incorporation of the
Corporation, the Corporation shall permit a shareholder who is a shareholder of
record on the date these Bylaws are adopted to make a one-time transfer of his
or her shares to a family member who resides outside of the telephone exchange
area served by the Corporation, but the transferee of such shares shall have no
such right to transfer the shares to another person or entity who resides
outside of the Corporation's telephone exchange area. For purposes of this
Section 6.6, "family member" shall mean the child, grandchild, parent,
grandparent, sibling, or spouse of the shareholder. Child shall mean any natural
born and adopted child. Also for purposes of this Section 6.6, and as used in
the Articles of Incorporation of the Corporation, "telephone exchange area"
shall mean the Breda and Lidderdale exchange areas served by the Corporation,
but not any other exchange areas owned or served by the Corporation.
Section 6.7 Regulations. The board of directors may make such other rules
and regulations as it may deem expedient, not inconsistent with law, concerning
the issue, transfer and registration of certificates for shares of the stock of
the Corporation.
Section 6.8 Lost, Destroyed, or Mutilated Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the board of directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 6.9 Record Date. The board may fix, in advance, a date as the
record date for any determination of shareholders for any purpose, such date in
every case to be not more than seventy (70) days prior to the date on which the
particular action or meeting, requiring such determination of shareholders, is
to be taken or held. If no record date is so fixed for the determination of
shareholders, the close of business on the day before the date on which the
first notice of a shareholder meeting is delivered or the date on which the
resolution of the board of directors declaring a share dividend or distribution
(other than in connection with a repurchase or reacquisition of shares) is
adopted, as the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the board of
directors selects a new record date or unless a new record date is required by
law.
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<PAGE>
Section 6.10 Dividends. The directors may from time to time declare, and
the Corporation may pay, dividends on its outstanding shares in the manner and
upon the terms and conditions provided by law.
Section 6.11 Qualifying Shares. Any person who is elected to serve as a
director of the Corporation must own a share of stock in the Corporation.
ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.1 Corporate Seal. The board of directors may by resolution
provide for a corporate seal which, if provided, shall be circular in form and
shall bear the name of the Corporation and the words "Corporate Seal" and
"Iowa". The Secretary shall be custodian of any such seal. The board of
directors may also authorize a duplicate seal to be kept and used by any other
officer.
Section 7.2 Fiscal Year. The fiscal year of the Corporation shall begin on
the first day in January in each year, and end at the close of business on the
last day of December of each year.
Section 7.3 Voting of Stocks Owned by the Corporation. In the absence of a
resolution of the board of directors to the contrary, the President of the
Corporation or any Vice President acting within the scope of his or her
authority as provided in Section 5.4 of these bylaws is authorized and empowered
on behalf of the Corporation to attend, vote, grant discretionary proxies to be
used at any meeting of shareholders of any corporation in which this Corporation
holds or owns shares of stock, and in that connection, on behalf of this
Corporation, to execute a waiver of notice of any such meeting. The board of
directors shall have authority to designate any officer or person as a proxy or
attorney-in-fact to vote shares of stock in any other corporation in which this
Corporation may own or hold shares of stock.
Section 7.4 Shareholders' Right to Information.
(a) A shareholder of the Corporation is entitled to inspect and copy,
during regular business hours at the Corporation's principal office, any of the
following records of the Corporation, if the shareholder gives the Corporation
written notice of the shareholder's demand at least five business days before
the date on which the shareholder wishes to inspect and copy:
(1) Articles or Restated Articles of Incorporation and all amendments
currently in effect;
(2) Bylaws or Restated Bylaws and all amendments currently in effect;
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<PAGE>
(3) Resolutions adopted by the board of directors creating one or more
classes or series of shares and fixing their relative rights,
preferences and limitations, if shares issued pursuant to those
resolutions are outstanding;
(4) Minutes of all shareholders meetings and records of all action taken
by shareholders without a meeting for the past three years;
(5) All written communications to shareholders generally within the past
three years, including the financial statements furnished for the past
three years;
(6) A list of the names and business addresses of the Corporation's
current directors and officers; and
(7) The Corporation's most recent annual report delivered to the Iowa
Secretary of State.
(b) If (i) a shareholder makes a demand in good faith and for a proper
purpose, (ii) the shareholder describes with reasonable particularity the
shareholder's purpose and the records the shareholder desires to inspect, and
(iii) the record requested is directly connected with the shareholder's stated
purpose, the shareholder shall also be entitled to inspect and copy, during
regular business hours at a reasonable location specified by the Corporation,
any of the following records of the Corporation provided the shareholder gives
the Corporation written notice of the shareholder's demand at least five
business days before the date on which the shareholder wishes to inspect and
copy any of the following:
(1) Excerpts from minutes of any meeting of the board of directors,
records of any actions of a committee of the board of directors while
acting as authorized by the board of directors on behalf of the
Corporation, minutes of any meeting of the shareholders, and records
of action taken by the shareholders or the board of directors without
a meeting to the extent not subject to inspection under the preceding
subparagraph;
(2) Accounting records of the Corporation; and
(3) The record of shareholders of the Corporation.
Section 7.5 Contracts, Loans, Checks and Deposits.
(a) The directors may authorize any officer or officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the Corporation. Such authority may be general or confined to
specific instances.
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<PAGE>
(b) No loans shall be contracted on behalf of the Corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the directors. Such authority may be general or confined to
specific instances.
(c) All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the Corporation shall be
signed by such officer or officers, agent or agents of the Corporation and in
such manner as shall from time to time be determined by resolution of the
directors.
(d) All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies or other depositories as the directors may select.
Section 7.6 Policies, Rules, and Regulations. The board shall have the
power to make and adopt such policies, rules, and regulations, not inconsistent
with the law, the Articles of Incorporation, or these Bylaws, as it may deem
advisable for the management of the business and affairs of the Corporation.
Section 7.7 Accounting System and Reports. The board shall cause to be
established and maintained a complete accounting system which, among other
things, shall be subject to applicable laws and rules and regulations of all
Federal and State regulatory bodies. The board shall also cause to be made by a
certified public accountant a full and complete annual audit of the accounts,
books, and financial condition of the Corporation.
ARTICLE 8
INDEMNIFICATION OF DIRECTORS
Section 8.1 Mandatory Indemnity. Each individual who is or was a director
of the Corporation (and the heirs, executors, personal representatives or
administrators of such individual) who was or is made a party to, or is involved
in any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person is or was a director of the Corporation or is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise ("Indemnitee"), shall be indemnified and held
harmless by the Corporation to the fullest extent permitted by applicable law,
as the same exists or may hereafter be amended. In addition to the
indemnification conferred in this Article, the Indemnitee shall also be entitled
to have paid directly by the Corporation the expenses reasonably incurred in
defending any such proceeding against such Indemnitee in advance of its final
disposition, to the fullest extent authorized by applicable law, as the same
exists or may hereafter be amended. The right to indemnification conferred in
this Article shall be a contract right.
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<PAGE>
Section 8.2 Non-Exclusivity of Rights. The rights to indemnification
conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Corporation's
Articles of Incorporation or any agreement, vote of shareholders or
disinterested directors or otherwise.
ARTICLE 9
AMENDMENTS TO BYLAWS
These bylaws may be amended or repealed by the board of directors or by the
shareholders; provided, however, that the shareholders may from time to time
specify particular provisions of the bylaws which shall not be amended or
repealed by the board of directors.
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Breda
Telephone Corporation's financial statements for the second quarter ended June
30, 1999 and the year ended December 31, 1998, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 JUN-30-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 782,959 400,898
<SECURITIES> 1,644,595 7,104,506
<RECEIVABLES> 670,499 637,137
<ALLOWANCES> 0 0
<INVENTORY> 80,279 89,869
<CURRENT-ASSETS> 1,717,550 1,511,601
<PP&E> 6,185,874 6,169,225
<DEPRECIATION> 775,293 482,707
<TOTAL-ASSETS> 13,676,328 18,204,509
<CURRENT-LIABILITIES> 2,143,072 2,143,259
<BONDS> 0 0
0 0
0 0
<COMMON> 2,414,208 3,093,204
<OTHER-SE> 1,693,818 5,844,047
<TOTAL-LIABILITY-AND-EQUITY> 13,676,328 18,204,509
<SALES> 0 0
<TOTAL-REVENUES> 2,998,767 2,706,948
<CGS> 0 0
<TOTAL-COSTS> 1,956,397 2,173,186
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 396,234 247,794
<INCOME-PRETAX> 1,515,505 7,909,804
<INCOME-TAX> 612,869 2,967,413
<INCOME-CONTINUING> 902,636 4,942,391
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 902,636 4,942,391
<EPS-BASIC> 5.79 131.02
<EPS-DILUTED> 5.79 131.02
</TABLE>
