U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number: 0-26525
BREDA TELEPHONE CORP.
(Exact name of small business issuer as specified in its charter)
Iowa 42-0895882
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Highway 217 East, P.O. Box 190, Breda, Iowa 51436
(Address of principal executive offices)
(712) 673-2311
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes _X_ No __
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 37,682 shares of common stock,
no par value, at March 31, 2000.
Transitional Small Business Disclosure Format (check one): Yes __ No _X_
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
BREDA, IOWA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months
Ended March 31, 2000 and 1999
and the year ended December 31, 1999
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
BREDA, IOWA
Contents
Page
----
Condensed Consolidated Financial Statements:
Balance Sheets 3 - 4
Statements of Income 5
Statements of Stockholders' Equity 6
Statements of Cash Flows 7
Notes to Condensed Consolidated Financial Statements 8 - 9
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<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
BREDA, IOWA
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
2000 December 31,
(Unaudited) 1999
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 516,460 $ 411,341
Current portion of investments 109,700 94,810
Accounts receivable 620,926 681,675
Income taxes refundable 508,610 542,330
Interest receivable 73,361 67,580
Inventories 88,380 88,479
Other 74,781 77,527
----------- -----------
1,992,218 1,963,742
----------- -----------
OTHER NONCURRENT ASSETS
Investments, less current portion 4,480,428 4,417,624
Other investments 2,678,581 2,725,488
Intangibles, net of accumulated amortization 1,199,373 1,222,372
Deferred income taxes 34,050 11,360
----------- -----------
8,392,432 8,376,844
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 6,263,751 6,340,193
----------- -----------
TOTAL ASSETS $16,648,401 $16,680,779
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSDIARIES
BREDA, IOWA
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
2000 December 31,
(Unaudited) 1999
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 608,412 $ 608,412
Accounts payable 286,818 239,787
Dividends payable 113,046 --
Accrued taxes 92,433 125,643
Other 125,486 104,258
----------- -----------
1,226,195 1,078,100
----------- -----------
LONG-TERM DEBT, less current portion 6,398,969 6,547,930
----------- -----------
STOCKHOLDERS' EQUITY
Common stock - no par value, 5,000,000 shares
authorized and 37,682 shares issued and
outstanding at $149 stated value 5,614,618 5,614,618
Retained earnings 3,408,619 3,440,131
----------- -----------
9,023,237 9,054,749
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,648,401 $16,680,779
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
- 4 -
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
BREDA, IOWA
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2000 and 1999
2000 1999
----------- -----------
OPERATING REVENUES
Local network services $ 136,322 $ 113,998
Network access services 563,289 554,477
Cable television services 265,349 255,154
Telemarketing services 53,801 116,924
Internet services 144,719 85,171
Billing and collection services 26,008 25,084
Miscellaneous 173,772 173,517
----------- -----------
1,363,260 1,324,325
----------- -----------
OPERATING EXPENSES
Plant specific operations 419,893 308,125
Plant nonspecific operations 21,355 24,930
Cost of programming 72,321 62,005
Depreciation and amortization 259,751 239,708
Customer operations 186,834 173,309
Corporate operations 236,389 206,730
General taxes 33,606 35,467
----------- -----------
1,230,149 1,050,274
----------- -----------
OPERATING INCOME 133,111 274,051
----------- -----------
NON-OPERATING INCOME (EXPENSE)
Interest and dividend income 71,725 122,349
Gain on sale of DBS investment -- 7,436,415
Interest expense (130,791) (125,928)
Income from Alpine partnership 23,508 --
Other income (expense) (4,990) 3,898
----------- -----------
(40,548) 7,436,734
----------- -----------
INCOME BEFORE INCOME TAXES 92,563 7,710,785
----------- -----------
INCOME TAXES 11,029 3,069,466
----------- -----------
NET INCOME $ 81,534 $ 4,641,319
=========== ===========
NET INCOME PER SHARE (Note 3) $ 2.16 $ 122.71
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
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, 1998 37,722 $ 2,414,208 $ 1,693,818 $ 4,108,026
Total comprehensive income:
Net income 5,065,849 5,065,849
Dividends paid (113,166) (113,166)
Common stock redeemed, net (40) (5,960) (5,960)
Stock value adjustment 3,206,370 (3,206,370)
----------- ----------- ----------- -----------
Balance at December 31, 1999 37,682 5,614,618 3,440,131 9,054,749
Total comprehensive income:
Net income 81,534 81,534
Dividends declared (113,046) (113,046)
----------- ----------- ----------- -----------
Balance at March 31, 2000 37,682 $ 5,614,618 $ 3,408,619 $ 9,023,237
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
- 6 -
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
BREDA, IOWA
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 81,534 $ 4,641,319
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 259,751 239,708
Amortization of investment tax credits (2,443) (2,443)
Deferred income taxes (20,247) (23,164)
Gain on sale of DBS investment -- (7,436,415)
Changes in operating assets and liabilities:
Decrease in assets 91,533 17,791
Increase in liabilities 35,049 2,735,816
----------- -----------
Net cash provided by operating activities 445,177 172,612
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (160,310) (230,803)
Salvage, net of removal cost -- 3,159
Purchase of investments (89,347) (5,799,047)
Sale of investments 11,653 33,183
Decrease in other investments 46,907 21,553
Proceeds from sale of DBS investment -- 8,038,197
----------- -----------
Net cash provided by (used in) investing activities (191,097) 2,066,242
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of line of credit -- (750,000)
Repayment of long-term debt (148,961) (144,102)
----------- -----------
Net cash used in financing activities (148,961) (894,102)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 105,119 1,344,752
----------- -----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 411,341 782,959
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 516,460 $ 2,127,711
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest $ 130,791 $ 125,928
Income taxes $ -- $ 65,000
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
- 7 -
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
BREDA, IOWA
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. CONDENSED 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 March 31, 2000 and December 31, 1999 and the
results of operations and changes in cash flows for the three months
ended March 31, 2000 and 1999.
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, 1999 audited financial statements. The results of
operations for the period ending March 31, 2000 are not necessarily
indicative of the operating results of the entire year.
NOTE 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>
Three months ended March 31, 2000
---------------------------------
Revenues and sales
External customers $ 899,391 $ 265,349 $ 198,520 $ 1,363,260
Intersegment -- -- -- --
Segment profit (loss) 209,221 (15,916) (111,771) 81,534
Three months ended March 31, 1999
---------------------------------
Revenues and sales
External customers $ 867,076 $ 255,154 $ 202,095 $ 1,324,325
Intersegment -- -- -- --
Segment profit (loss) 231,648 4,470,817 (61,146) 4,641,319
</TABLE>
- 8 -
<PAGE>
BREDA TELEPHONE CORPORATION
AND SUBSIDIARIES
BREDA, IOWA
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. OPERATING SEGMENTS, (Continued)
Reconciliation of Segment Information
Three months ended
March 31, March 31,
2000 1999
---------- ----------
REVENUES AND SALES:
Total revenues and sales for
reportable segments $1,164,740 $1,122,230
Other revenues 198,520 202,095
Elimination of intersegment
revenues and sales -- --
---------- ----------
Consolidated Revenues $1,363,260 $1,324,325
========== ==========
PROFIT:
Total profit for reportable segments $ 193,305 $4,702,465
Other profit (loss) (111,771) (61,146)
Non-operating segment -- --
Minority interest -- --
---------- ----------
Net Income $ 81,534 $4,641,319
========== ==========
NOTE 3. NET INCOME PER COMMON STOCK
Net income per common share for March 31, 2000 and 1999 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 months ended March 31, 2000
and 1999 are 37,722 and 37,824, respectively.
NOTE 4. DISPOSITION OF DBS INVESTMENT
On January 11, 1999, the Company sold substantially all of its assets
and liabilities related to the Direct Broadcast Satellite (DBS)
investment. The Company received cash of $8,038,197 and the
transaction resulted in a gain of $7,436,415, which was included in
operations during the first quarter of 1999.
NOTE 5. SUBSEQUENT EVENT
The Company and all other stockholders of Central Iowa Cellular, Inc.
(CIC) have reached a tentative agreement with a qualified purchaser to
sell all of the outstanding shares of CIC stock. The transaction,
which requires various regulatory approvals, is expected to close
during the second quarter of 2000. The sale will be a cash
transaction, resulting in an estimated after tax gain of $3,500,000.
- 9 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Three Months Ended March 31, 2000 Compared to Three Months Ended March
31, 1999.
There was an increase in total operating revenue for the three month
period ended March 31, 2000, when compared to the same period in 1999,
of $38,935, or 2.9%. One factor contributing to the increase was the
revenue generated from additional calling features that are now
offered because of switch upgrades completed in 1999. This revenue is
included in local network services which showed a $22,324 increase, or
19.6%, for the period ended March 31, 2000, when compared to the same
period in 1999. Another factor in the local network services increase
was the increase in the number of customers subscribing for a second
phone line for internet service. Two other factors significantly
affected total operating revenue. One factor was the $59,548, or
69.9%, increase in internet services revenue. This resulted from a
20.9% increase in the internet customer base. The other factor was the
decrease of $63,123, or 54%, in telemarketing revenue for the period
ended March 31, 2000, as compared to the same period in 1999. This
decrease resulted from the quality of the available calling lists.
Many of the callings lists received by Pacific Junction had already
been called, and the lower sales per hour resulted in less revenue
since revenue received is based on the obtained sales per hour. Cable
television services revenue increased $10,195, or 4%, for the period
ended March 31, 2000, when compared to the same period in 1999. This
increase was attributable to a rate increase that was effective April
1, 1999. The remaining revenue sources under operating revenue, which
are network access services, billing and collections services, and
miscellaneous revenue, all showed increases of less than 4% for the
period ended March 31, 2000, when compared to the same period in 1999.
There was an increase in total operating expenses of $179,875, or
17.1%, for the three month period ended March 31, 2000, when compared
to the same period in 1999. The combined plant specific and plant
nonspecific operation expenses increased by $108,193, or 32.4%, when
comparing the two periods. Cable television operations generated
$21,319 of this increase due to increased labor for cable plowing and
repairs and maintenance on the systems that was allowed by the mild
winter. Internet operations generated $52,012 of the increase because
of increased fees to exchange carriers for additional facilities to
accommodate the additional internet subscribers,
-10-
<PAGE>
There was a 20.9% increase in internet subscribers during the three
month period ended March 31, 2000. Operations expenses increased
approximately $13,000 as additional staff were hired and trained in
anticipation of opening a retail store in Carroll, Iowa on April 3,
2000. Other costs affecting the increase in plant specific and plant
nonspecific operations expenses were wages and benefit increases which
took effect January 1, 2000, as well as increased expenditures for
education and training.
Cost of programming expenses increased by $10,316, or 16.6%, during
the three month period ended March 31, 2000, when compared to the same
period in 1999. The subscriber base remained almost static during this
three month period, and the increase was due to rate increases
implemented by the programming suppliers.
Depreciation and amortization expenses increased by $20,043, or 8.4%,
for the three month period ended March 31, 2000, when compared to the
same period in 1999, primarily because of the four upgraded switches
which were placed in service after March 31, 1999.
Customer operations expenses increased $13,525, or 7.8%, for the three
month period ended March 31, 2000, when compared to the same period in
1999. This increase resulted primarily from increased wage and benefit
rates which became effective January 1, 2000, and from increased
advertising expenditures.
Corporate operation expenses increased $29,659, or 14.3%, for the
three month period ended March 31, 2000, when compared to the same
period in 1999. This increase was caused by wage and benefit rate
increases which became effective January 1, 2000, and by increased
accounting and consultant fees as Breda explored the feasibility of
new ventures and continued to comply with the reporting requirements
of the Securities Exchange Act of 1934.
The net effect of the 2.9% increase in operating revenue and the 17.1%
increase in operating expenses for the three months ended March 31,
2000, when compared to the same three month period in 1999, was a
decrease of $140,940, or 51.4%, in operating income.
Non-operating income before income taxes decreased by $7,477,282
during the three month period ended March 31, 2000, when compared to
the same period in 1999. Almost all of this decrease is attributable
to the fact that the comparable three month period in 1999 included
the $7,436,415 gain on the sale of the direct broadcast satellite
operation. The sale of that operation was an unusual, one time event
that was reported in January 1999, and for which there is no
comparable event during the first three months of 2000. During the
three months ended March 31, 2000, there was also a decrease of
$50,624, or 41.3%, in interest
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<PAGE>
and dividend income. This decrease was caused by lower investment
interest rates and by the decrease in investment funds because some of
those funds were used for income tax payments made during the
remainder of the 1999 year with respect to the sale of the direct
broadcast satellite operation.
Income taxes decreased by $3,058,437 for the three month period ended
March 31, 2000, when compared to the same period in 1999. The decrease
also resulted from the fact that the comparable three month period in
1999 included the taxable gain on the sale of the direct broadcast
satellite operation which occurred during that prior three month
period.
Net income decreased by $4,559,785 for the three month period ended
March 31, 2000, when compared to the same period in 1999. The decrease
was also primarily attributable to the fact that the comparable three
month period in 1999 included the income from the sale of the direct
broadcast satellite operation. The other primary contributing factors
to the decrease in net income are discussed above.
Liquidity and Capital Resources at Year Ended 1999.
Breda's net working capital was a positive $885,642 at December 31,
1999. Estimated income tax payments were funded from non-current
assets during this time period and prepaid income taxes of $542,330
were reflected in current assets as of December 31, 1999. Those
prepaid taxes will be used to offset the first Year 2000
-12-
<PAGE>
estimated income tax installment due in April 2000. Breda has a
$750,000 line of credit with Rural Telephone Finance Cooperative and
Prairie Telephone has a line of credit with Rural Telephone Finance
Cooperative for $250,000. It is anticipated that these options will be
investigated for quarterly income tax payments in lieu of redeeming
held-to-maturity investments. Overall current liabilities decreased by
$1,064,972 for the twelve months ended December 31, 1999. Accounts
payable decreased by $225,363, mainly due to the fact that there were
no outstanding direct broadcast satellite programming fees for the
last month of the fiscal year, given the sale of the direct broadcast
satellite operation on January 11, 1999. There was also a zero balance
for the line of credit as of December 31, 1999, as compared to
$750,000 on December 31, 1998. Other investments increased by $257,466
for the twelve-month period ending December 31, 1999. This increase
resulted from increased investments in cellular partnerships.
Liquidity and Capital Resources at Three Months Ended March 31, 2000.
Breda had an increase of $28,476 in current assets during the three
month period ended March 31, 2000, when compared to the year ended
December 31, 1999. This resulted from an increase of $105,119 in cash
and cash equivalents, a $14,890 increase in the current portion of
investments and a $5,781 increase in interest receivables. These
increases were partially offset by a decrease of $60,749 in accounts
receivable. This decrease resulted primarily from the sale of the
direct broadcast satellite operation in the first quarter of 1999,
because that sale in turn led to there being no direct broadcast
satellite accounts receivable on hand as of March 31, 2000. Another
decrease offsetting the increases in current assets was the $33,000
decrease in income taxes refundable.
Noncurrent assets, which mainly consist of longer term investments,
increased $15,588 during the three months ended March 31, 2000, when
compared to year end December 31, 1999.
Breda's net working capital was $766,023 at March 31, 2000, as
compared to $855,642 at December 31, 1999. The $89,619 decrease in
working capital between the two time periods occurred primarily
because of Breda's declaration of an aggregate dividend of $113,046 on
March 13, 2000, to shareholders of record on March 13, 2000. The
dividend will be paid to the shareholders on or before Breda's annual
meeting on May 17, 2000.
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<PAGE>
Other Activities
Breda's board of directors determines the purchase price payable for
newly-issued shares of Breda's common stock. Breda's board of
directors also determines the redemption price that will be paid by
Breda if it elects to redeem a shareholder's shares in any of the
various circumstances in which Breda has the right to purchase those
shares. The board of directors has historically established the
issuance price and the redemption price on an annual basis, and at
approximately 75% of the book value of Breda, with the determination
of book value being based upon Breda's then most recent year-end
audited financial statements. Breda's board of directors made this
determination at the board of directors meeting held on March 13,
2000, at which time the board of directors approved a resolution
fixing the issuance price and redemption price to be $180 per share,
such price to become effective at the May 17, 2000 annual meeting of
the shareholders of Breda. The determination was based on Breda's 1999
audited financial statements. This issuance price and redemption price
will continue until a new determination is made by the board of
directors, which, based on historical practices, will be made within
the first four months of 2001.
Breda's board of directors declared a dividend on March 13, 2000. The
dividend was in the amount of $3.00 per share, for an aggregate
dividend of $113,046. The dividend will be payable to the shareholders
on or before the May 17, 2000 annual meeting of the shareholders of
Breda.
Prairie Telephone Company, Inc. ("Prairie Telephone") is one of
Breda's wholly-owned subsidiaries. Prairie Telephone's primary
business is providing telephone services to subscribers in Farragut,
Iowa, Pacific Junction, Iowa, Yale, Iowa, and the surrounding rural
areas that are within approximately a ten to fifteen mile radius of
those towns. Prairie Telephone also has investments in other entities
which provide cellular phone services or which invest in other
cellular phone or telecommunications ventures.
One of those investments is in the common stock of Central Iowa
Cellular, Inc. Central Iowa Cellular, Inc. is an Iowa corporation that
was incorporated in December of 1983. Central Iowa Cellular, Inc. was
organized by Prairie Telephone and some other Iowa based independent
telephone companies. Prairie Telephone owns 3,000 shares of common
stock of Central Iowa Cellular, Inc. Those 3,000 shares constitute 20%
of the total issued and outstanding shares of stock of Central Iowa
Cellular, Inc.
Central Iowa Cellular, Inc. was organized for the purpose of becoming
a partner in Des Moines MSA General Partnership. Des Moines MSA
General Partnership is an Iowa partnership which provides cellular
telephone services to customers within the Des Moines, Iowa
metropolitan area. Central Iowa Cellular, Inc. owns 24% of the
partnership interests in Des Moines MSA General Partnership. The
remaining 76%
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<PAGE>
of the partnership interests in Des Moines MSA General Partnership are
owned by AirTouch Iowa, LLC, a Delaware limited liability company.
On March 29, 2000, AirTouch Iowa, LLC, Central Iowa Cellular, Inc.,
Prairie Telephone, and the other shareholders of Central Iowa
Cellular, Inc. entered into a Stock Purchase Agreement whereby
AirTouch Iowa, LLC will, subject to the satisfaction of the various
conditions set forth in the Stock Purchase Agreement, acquire all of
the issued and outstanding shares of stock of Central Iowa Cellular,
Inc. from all of its shareholders, including Prairie Telephone. After
the closing of the Stock Purchase Agreement, AirTouch Iowa, LLC will
own all of the issued and outstanding shares of stock of Central Iowa
Cellular, Inc., and will thereby acquire the 24% of the partnership
interests of Des Moines MSA General Partnership which are owned by
Central Iowa Cellular, Inc.
Under the Stock Purchase Agreement, Prairie Telephone will sell all of
its 3,000 shares of common stock in Central Iowa Cellular, Inc. to
AirTouch Iowa, LLC for $5,100,000. The purchase price was a negotiated
price that Prairie Telephone and Breda believe is representative of
the fair value of Prairie Telephone's shares of stock in Central Iowa
Cellular, Inc., and no formula or other fixed or identifiable
principles were utilized in establishing the purchase price. The
purchase price will be payable to Prairie Telephone in full at the
closing of the Stock Purchase Agreement, by wire transfer of
immediately available funds.
The closing is to occur on the later to occur of:
o five business days after the satisfaction of all conditions set
forth in the Stock Purchase Agreement, and
o the earlier of (i) five business days after the date of the Stage
I Closing, as that term is defined in the U.S. Wireless Alliance
Agreement dated September 21, 1999 by and between Bell Atlantic
Corporation and Vodafone AirTouch, Plc, and (ii) April 30, 2000.
The obligation of AirTouch Iowa, LLC, Prairie Telephone and the other
shareholders of Central Iowa Cellular, Inc. to close the sale of stock
contemplated by the Stock Purchase Agreement is subject to various
conditions, including satisfaction of all of the filing and other
requirements under the Hart-Scott-Rodino Act. The Stock Purchase
Agreement is subject to termination if any of those conditions
precedent are not satisfied, and there can be no guarantee that all of
the conditions precedent will be satisfied. Breda and Prairie
Telephone currently contemplate, however, that all of the conditions
precedent will be satisfied, and that the transactions contemplated by
the Stock Purchase Agreement will close within approximately 4 to 6
weeks of the date of the execution of the Stock Purchase Agreement.
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<PAGE>
The purchase price payable for Prairie Telephone's shares will be
reduced by the amount of Prairie Telephone's pro rata portion of the
Hart-Scott-Rodino Act filing fees. The Stock Purchase Agreement
provides in this regard that AirTouch Iowa, LLC has the right to
reduce the total purchase price payable by it for all of the shares of
the issued and outstanding stock of Central Iowa Cellular, Inc. in an
amount equal to 24% of such filing fees, but not including legal fees.
Prairie Telephone will be responsible for 20% of that amount. Prairie
Telephone does not contemplate that the amount will be material.
Prairie Telephone is also responsible for any transfer taxes or fees
as may be due in connection with the sale of its shares of common
stock in Central Iowa Cellular, Inc. to AirTouch Iowa, LLC. Prairie
Telephone does not contemplate that any of those taxes or fees will be
material in amount.
Some of the various representations, warranties and covenants given
and made by Central Iowa Cellular, Inc. and the shareholders of
Central Iowa Cellular, Inc. in the Stock Purchase Agreement are made
jointly and severally, so Prairie Telephone may have liability for a
breach of the Stock Purchase Agreement by Central Iowa Cellular, Inc.
or any one or more of the other shareholders of Central Iowa Cellular,
Inc.
Prairie Telephone also entered into a Des Moines Tower Proceeds
Agreement dated as of March 29, 2000, in connection with the Stock
Purchase Agreement. The parties to the Des Moines Tower Proceeds
Agreement are Prairie Telephone, the other shareholders of Central
Iowa Cellular, Inc., and AirTouch Communications, Inc. The Des Moines
Tower Proceeds Agreement has two primary purposes.
One is to address the August 6, 1999 sublease agreement that was
entered into by Des Moines MSA General Partnership with AirTouch
Communications, Inc., American Tower Corporation and American Tower
L.P. Under that sublease agreement, American Tower L.P. is obligated,
subject to the satisfaction of certain conditions, to pay Des Moines
MSA General Partnership for subleases on certain wireless
communication towers. Under the Des Moines Tower Proceeds Agreement,
AirTouch Communications, Inc. agrees that it will pay to each
shareholder of Central Iowa Cellular, Inc. its proportionate share of
the Tower Net Proceeds received by AirTouch Communications, Inc. from
American Tower L.P. under the sublease agreement for the towers listed
in the Des Moines Tower Proceeds Agreement. The term "Tower Net
Proceeds" is defined to mean 24% of the gross cash proceeds received
by AirTouch Communications, Inc. under the sublease agreement, minus
24% of certain fees. Prairie Telephone's proportionate share of the
Tower Net Proceeds will be 20% of those proceeds. Prairie Telephone
estimates that it will receive approximately $438,857 in Tower Net
Proceeds payments.
The second primary purpose of the Des Moines Tower Proceeds Agreement
is to address the repurchase of the warrants to purchase stock of
American Tower Corporation that are currently held by Des Moines MSA
General Partnership. The
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<PAGE>
aggregate purchase price payable for the warrants will be the
monetization value multiplied by 343 for each of the towers listed in
the Des Moines Tower Proceeds Agreement. The term "monetization value"
means the average closing price of American Tower Corporation's stock,
as quoted on the principal stock exchange or National Market System
upon which such stock is traded, for the five trading days immediately
preceding the closing date of the Stock Purchase Agreement, minus $22.
Prairie Telephone's proportionate share of these payments will be 20%,
which is, again, based upon its 20% ownership of the total issued and
outstanding shares of stock of Central Iowa Cellular, Inc. It is
difficult to predict the amount of payments that will be received by
Prairie Telephone given that the method of determining the
monetization value depends upon the average closing price of American
Tower Corporation's stock over the five trading days immediately
preceding the closing date of the Stock Purchase Agreement, and the
closing date may not occur for at least up to four to six weeks from
the date of the execution of the Stock Purchase Agreement on March 29,
2000. Prairie Telephone estimates, however, that the aggregate payment
to be received by it in this regard may range anywhere from $25,000 to
$35,000.
The closing of the Des Moines Tower Proceeds Agreement is also subject
to various conditions, and it is likely that the transactions
contemplated by the Des Moines Tower Proceeds Agreement will not close
unless and until the closing of the transactions contemplated by the
Stock Purchase Agreement.
The negotiations for the sale of the issued and outstanding shares of
stock in Central Iowa Cellular, Inc. initially began and arose out of
the proposed assignment and transfer by AirTouch Iowa, LLC of its
interest in Des Moines MSA General Partnership to another entity.
Prairie Telephone and the other shareholders of Central Iowa Cellular,
Inc. took the position that the proposed assignment granted them a
right of first refusal and possibly other rights under their agreement
with AirTouch Iowa, LLC. Prairie Telephone and the other shareholders
of Central Iowa Cellular, Inc. determined, however, after
negotiations, to sell their shares of stock in Central Iowa Cellular,
Inc. to AirTouch Iowa, LLC rather than attempting to enforce their
rights of first refusal. The primary factor which caused Prairie
Telephone to reach this determination was Prairie Telephone's and
Breda's determination that the purchase price offered by AirTouch
Iowa, LLC was favorable.
Breda's primary ongoing 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 were $1,249,414, and are
currently expected to be approximately $528,000 in 2000.
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Breda anticipates that substantial expenditures will need to be made
for software upgrades that will become necessary in order for Breda,
Prairie Telephone and Westside Independent Telephone Company to become
compliant with the requirements of the Communications Assistance for
Law Enforcement Act ("CALEA"). CALEA was passed in 1994 in response to
rapid advances in telecommunications technology, such as the
implementation of digital technology and wireless services, that have
threatened the ability of law enforcement officials to conduct
authorized electronic surveillance. CALEA requires telecommunications
carriers to modify their equipment, facilities, and services to ensure
that they are able to comply with authorized electronic surveillance.
These modifications were originally scheduled to be completed by
October 25, 1998, but in accord with an extension granted by the FCC,
must now generally be completed by June 30, 2000. However, for
wireline, cellular, and broadband personal communications service
carriers, implementation of a packet-mode capability and six
Department of Justice/Federal Bureau of Investigation "punch list"
capabilities must be completed by September 30, 2001. Breda is
currently seeking estimates for the cost to upgrade Breda's, Prairie
Telephone's and Westside Independent Telephone Company's software as
necessary to become compliant with CALEA, but, as indicated, Breda
anticipates substantial expenditures will be necessary, and that those
expenditures may be as much as approximately $200,000. Breda does,
however, intend to attempt to seek an extension of the time period in
which Breda, Prairie Telephone and Westside Independent Telephone
Company must become compliant with CALEA, so that the software
upgrades necessary to become compliant with CALEA can be made over an
extended basis and as part of the software enhancements that will be
necessary as part of Breda's, Prairie Telephone's and Westside
Independent Telephone Company's normal operations. If Breda were
granted that extension, it is estimated that the extension would be
for a one-year period.
As of March 31, 2000, Breda and its subsidiaries had approximately
$7,007,381 in outstanding loans with the Rural Telephone Finance
Cooperative (the "RTFC"). Of the outstanding debt with the RTFC on
that date, approximately $2,241,034 was at a fixed interest rate of
7.35% per annum, and carried a ten year term. The variable rates on
the remaining RTFC debt exceed that fixed rate and could affect future
borrowing decisions and the allocation of outstanding debt between
fixed and variable rates.
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 sold by
GTE and US West in 1999. Those telephone lines were, however, acquired
by other telephone companies. One of the purchasers of some of the
telephone lines of GTE was Iowa Network Services, Inc. Iowa Network
Services, Inc. provides various services to telephone companies,
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including Breda, Prairie Telephone and Westside Independent Telephone
Company. Although no definite plans exist, it is possible that Iowa
Network Services, Inc. may consider selling some of those telephone
lines in the next two to five years. If that occurs, Breda, Prairie
Telephone and Westside Independent Telephone Company will consider
pursuing the acquisition of those telephone lines. There is no
assurance, however, that Iowa Network Services, Inc. will ever sell
any of the telephone lines, or if it does, that Breda, Prairie
Telephone or Westside Independent Telephone Company will determine to
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, Inc. as discussed above.
Breda, Prairie Telephone and Westside Independent Telephone Company
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 no current plans to expand the cable services areas of, or
the cable services provided by, Tele-Services. Tele-Services does
anticipate, however, that it will need to upgrade its plant, equipment
and cables in order to add more channel line-ups so that it can stay
competitive and continue to be able to obtain programming licenses.
The cost of those upgrades in the next twelve months, however, is
estimated to be less than $50,000.
Breda and its subsidiaries have and will continue to incur capital
expenditures in connection with upgrading their telephone, cable and
other equipment and systems.
Breda believes that the funds from the sale of its direct broadcast
satellite operation in January of 1999, 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. This belief will
be further strengthened if the sale of Prairie Telephone's stock in
Central Iowa Cellular, Inc. is completed, as discussed above, because
that transaction will result in Prairie Telephone receiving, in the
aggregate, approximately $5,593,000, before taxes, and approximately
$3,525,000 after taxes.
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<PAGE>
Cautionary Statement on Forward Looking Statements.
This item and other items in this quarterly report contain 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," "thinks," "objectives" 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
numerous risks, uncertainties and assumptions, nearly all of which are
beyond the control of Breda and its management. 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 Federal Communications Commission in
the rates of the access charges that can be charged by Breda
and its subsidiaries to long distance carriers;
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 employee relations;
o management's business strategies;
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<PAGE>
o general industry conditions, including consolidations in the
telecommunications and cable industries;
o general economic conditions at the national, regional and
local levels;
o acts or omissions of competitors and other third parties;
o changes in or more governmental regulations and policies;
and
o continued availability of financing, and on favorable terms.
The discussion of Breda's financial condition and results of
operations should also be read in conjunction with the financial
statements and related notes included in Item 1 of this quarterly
report.
PART II - OTHER INFORMATION
Item 1. 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 not aware that any governmental authority is
contemplating any legal proceeding against Breda or any of its
property.
Item 2. Changes in Securities and Use of Proceeds.
No material modifications, limitations or qualifications were made to
or placed upon the terms of Breda's shares of common stock during the
period of January 1, 2000 through March 31, 2000.
Breda did not issue any shares of its common stock during the period
of January 1, 2000 through March 31, 2000.
Item 3. Defaults Upon Senior Securities.
There has been no material default or any material arrearage or
delinquency by Breda of the type required to be reported under this
item.
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<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the shareholders of Breda
during the period of January 1, 2000 through March 31, 2000.
Item 5. Other Information.
Breda believes that two of its employees are making, and will continue
to make, a significant contribution to its business. Those employees
are Robert J. Boeckman and Jane A. Morlok. Mr. Boeckman has been the
manager of Breda 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.
Breda has entered into a new employment agreement with both Mr.
Boeckman and Ms. Morlok. The employment agreements were both made
effective as of April 1, 2000. Ms. Morlok's prior employment agreement
with Breda had terminated on March 30, 2000. Mr. Boeckman's prior
employment agreement with Breda would not have terminated until
December 31, 2001, but the board of directors of Breda believed it was
appropriate to enter into a new employment agreement with Mr. Boeckman
at this time.
Under the terms of Mr. Boeckman's employment agreement, he is employed
in the capacity of chief operations officer and co-chief executive
officer of Breda. Mr. Boeckman is responsible for the day-to-day
operations of Breda under his employment agreement.
Mr. Boeckman's employment agreement will terminate on March 31, 2001.
The employment agreement will also terminate 13 weeks after Mr.
Boeckman is determined to be totally disabled. The employment
agreement may also be terminated by Breda at any time, without cause,
by giving 30 days prior written notice to Mr. Boeckman, but in that
circumstance Mr. Boeckman shall be paid on the date of termination a
severance allowance equal to the amount remaining to be paid to him
under the employment agreement. Mr. Boeckman may also terminate the
employment agreement at any time, by giving 60 days notice to Breda.
The employment agreement may also be terminated by Breda, for cause,
upon five days written notice to Mr. Boeckman.
Mr. Boeckman's annual salary under the employment agreement is
$80,000. Mr. Boeckman will also receive various other benefits under
the employment agreement, including health insurance, life insurance,
disability insurance, a clothing allowance, free local telephone
service and free basic cable service. Breda will also contribute an
amount equal to 8.6% of Mr. Boeckman's annual gross salary to the
defined benefit retirement and security program which is sponsored by
the National Telephone Cooperative Association. Breda will also
provide Mr. Boeckman with the
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<PAGE>
pre-retirement death benefit that is available through the National
Telephone Cooperative Association. Mr. Boeckman is also reimbursed for
all reasonable and necessary expenses incurred in carrying out his
duties under the employment agreement. The employment agreement also
contemplates that Mr. Boeckman may receive bonuses based upon his
performance rating as determined by the board of directors of Breda.
Ms. Morlok's employment agreement is similar to Mr. Boeckman's
employment agreement. The primary differences between Ms. Morlok's
employment agreement and Mr. Boeckman's employment agreement are as
follows:
o Ms. Morlok's capacities under her employment agreement are
chief financial officer and co-chief executive officer.
o Ms. Morlok's annual salary under her employment agreement is
$70,500.
o Ms. Morlok is not entitled to receive a severance payment in
the event her employment under the employment agreement is
terminated by Breda without cause.
o Ms. Morlok's employment agreement does not provide that she
may terminate the employment agreement at any time, by
giving 60 days notice to Breda.
Item 6. Exhibits and Reports on Form 8-K.
(a) A list of the exhibits included as part of this quarterly report
is set forth in the Exhibit Index which immediately precedes such
exhibits and is incorporated by reference herein.
The following exhibits became effective during the reporting period
covered by this quarterly report.
Exhibit No. Description of Exhibit
10.1 Employment Agreement effective April 1, 2000 between
Breda and Robert Boeckman
10.2 Employment Agreement effective April 1, 2000 between
Breda and Jane Morlok
27 Financial Data Schedule
(b) The following report on Form 8-K was filed during the quarter
ended March 31, 2000:
Breda filed a report on Form 8-K with the Securities and Exchange
Commission on April 12, 2000. The date of the Form 8-K was March 29,
2000. The items reported in that Form 8-K were the March 29, 2000
Stock Purchase Agreement and the March 29, 2000 Des Moines Tower
Proceeds Agreement that were entered into by Prairie
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Telephone Company, Inc., a wholly-owned subsidiary of Breda. Those
agreements and the transactions to be effectuated by those agreements
are discussed above in the "Other Activities" section in Item 2 of
this quarterly report.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BREDA TELEPHONE CORP.
Date: May 12, 2000. By: /s/ Dean Schettler
-------------------------
Dean Schettler, President
Date: May 12, 2000. By: /s/ Scott Bailey
-------------------------
Scott Bailey, Treasurer
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<PAGE>
EXHIBIT INDEX
Exhibits to Form 10-QSB
Three Months Ended March 31, 2000
BREDA TELEPHONE CORP.
Description of Exhibit Page Number
2. Plan of Acquisition, Disposition,
Reorganization, Arrangement,
Liquidation or Succession
(a) Stock Purchase Agreement dated May 22, 1998,
by and 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. (Filed as Exhibit 2.1 to
Breda's Registration Statement on Form 10-SB,
File No. 0-26525, and incorporated herein by
this reference.)
(b) Stock Purchase Agreement dated May 22, 1998,
by and between Arthur Zerwas and Mary Zerwas,
and Breda Tele-Services, Ltd., along with the
Amendment to the Stock Purchase Agreement
dated May 22, 1998. (Filed as Exhibit 2.2 to
Breda's Registration Statement on Form 10-SB,
File No. 0-26525, and incorporated herein by
this reference.)
(c) Asset Purchase Agreement dated October 6,
1998, by and between NewPath Communications,
L.C. and Tele-Services, Ltd. (Filed as
Exhibit 2.3 to Breda's Registration Statement
on Form 10-SB, File No. 0-26525, and
incorporated herein by this reference.)
(d) Asset Purchase Agreement by and between
Golden Sky 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.
(Filed as Exhibit 2.4 to Breda's Registration
Statement on Form 10-SB, File No. 0-26525,
and incorporated herein by this reference.)
(e) Stock Purchase Agreement dated March 29,
2000, by and among AirTouch Iowa, LLC,
Central Iowa Cellular, Inc., Prairie
Telephone Company, Inc., Panora Tele-
communications, Inc., Walnut Creek
Communications, Inc.,
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<PAGE>
Minburn Telephone Company, and Interstate
Enterprises, Ltd. (Filed as Exhibit 2.1 to
Breda's Form 8-K dated March 29, 2000 and
filed April 12, 2000, File No. 0-26525, and
incorporated herein by this reference.)
(f) Des Moines Tower Proceeds Agreement dated as
of March 29, 2000, by and among AirTouch Com-
munications, Inc., Panora Telecommunications,
Inc., Walnut Creek Communications, Inc.,
Minburn Telephone Company, Interstate
Enterprises, Ltd. and Prairie Telephone
Company, Inc., along with Exhibits A and B
thereto. (Filed as Exhibit 2.2 to Breda's
Form 8-K dated March 29, 2000 and filed April
12, 2000, File No. 0-26525, and incorporated
herein by this reference.)
3. Articles of Incorporation and Bylaws
(a) Amended and Restated Articles of
Incorporation of Breda Telephone Corp. (Filed
as Exhibit 3.1 to Breda's Registration
Statement on Form 10-SB, File No. 0-26525,
and incorporated herein by this reference.)
(b) Amended and Restated Bylaws of Breda
Telephone Corp. (Filed as Exhibit 3.2 to
Amendment No. 1 to Breda's Registration
Statement on Form 10-SB, File No. 0-26525,
and incorporated herein by this reference.)
10. Material Contracts
*(a) Exhibit 10.1 - Employment Agreement effective
April 1, 2000 between Breda and Robert
Boeckman E-1
*(b) Exhibit 10.2 - Employment Agreement effective
April 1, 2000 between Breda and Jane Morlok E-5
*27. Financial Data Schedule
* Included with this filing
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is effective April 1, 2000, by and between Breda Telephone
Corp., an Iowa Corporation, hereinafter referred to as "Breda", and Bob
Boeckman, the Chief Operations Officer and Co-Chief Executive Officer,
hereinafter referred to as "Bob".
Breda desires to employ Bob to devote full time to the business of the
corporation, and Bob desires to be so employed.
The parties agree as follows:
1. Employment. Breda agrees to employ Bob, and Bob agrees to be employed in
the capacity of Chief Operations Officer and Co-Chief Executive Officer.
Employment shall be for a term of one year effective as of April 1, 2000, and
terminating March 31, 2001.
2. Time and Efforts. Bob shall diligently and conscientiously devote his
full and exclusive time and attentions and best efforts in discharging his
duties.
3. Board of Directors. Bob shall, and all times, discharge his duties in
consultation with and under the supervision of the Board of Directors of Breda
Telephone Corp. In performance of his duties, Bob shall make his principal
office in such place that the Board of Directors and Bob may, from time to time,
agree.
4. Compensation. Breda shall pay to Bob as compensation for his services,
the sum of Six Thousand Six Hundred Sixty-six Dollars and Sixty-six Cents
($6,666.66) per month.
5. Additional Compensation. Bob may be entitled to a bonus based upon his
performance rating as determined by the Board of Directors in April of 2000. If
Bob is entitled to a bonus, said bonus will be paid in the month of May, 2000.
Bob may also be entitled to a bonus based upon his performance rating as
determined by the Board of Directors in April of 2001. If Bob is entitled to a
bonus, said bonus will be paid in the month of May, 2001.
6. Benefits. Breda shall provide the following benefits to Bob:
a. Health Insurance. 80/20 coverage with 100% hospitalization
coverage. Breda will pay the premium for family insurance
coverage. Bob will be responsible for paying the $250.00
deductible and $100.00 deductible for dental care, eye care, and
drug card.
E-1
<PAGE>
b. Life Insurance. Breda will provide life insurance coverage in an
amount equal to one times Bob's yearly salary.
c. Disability Insurance. Breda will provide long term disability
coverage as outlined by NTCA.
d. Retirement. Contributions to a retirement fund will be made by
Breda in an amount equal to 8.6% of Bob's yearly salary, and Bob
will contribute 3.0% of her yearly salary to said fund.
e. Pre-Retirement Death Benefit. Breda will provide Pre-Retirement
Death Benefit to Bob as contained in the NTCA package.
f. Clothing Allowance. Breda will provide Bob with a $300.00
clothing allowance during her first year of employment with the
company, and $150.00 per year for every year of employment
thereafter.
g. Free local telephone service.
h. Free basic cable service if living in a town served by Breda.
7. Expenses. Breda shall reimburse Bob for all reasonable and necessary
expenses incurred in carrying out his duties under this agreement. Bob shall
present to Breda, from time to time, an itemized account of such expenses in the
form required by Breda.
8. Disability. In the event any illness or accident renders Bob totally
disabled, Breda's obligation under this agreement shall terminate thirteen (13)
weeks after the determination of total disability.
9. Non-Compete. During the term of his employment, Bob shall not engage in
any business activities which would or could compete with those of Breda,
without prior written consent from the Board of Directors.
10. Confidential Information. Bob further agrees not to publish, disclose
or use, on his own behalf or on the behalf of any third party, any confidential
information or trade secrets related to Breda's business, without prior
authorization of the Board of Directors.
Upon termination of his employment with Breda, Bob shall return to Breda
all data, records, drawings, customer and product lists, specifications, notes,
correspondence, or any other documents or copies thereof, which came into Bob's
possession and are related to Breda's business.
E-2
<PAGE>
11. Termination Without Cause. Breda may terminate this agreement at any
time, without cause, by giving thirty (30) days written notice to Bob. In that
event, if requested by Breda, Bob shall continue to render his services and
shall be paid his regular compensation up to the date of termination. In
addition, Bob shall be paid on the date of termination the severance allowance
equal to the amount remaining to be paid under this contract.
Bob may terminate this agreement, at any time, by giving sixty (60) days
notice to Breda. In that event, Breda shall pay Bob his compensation up to the
date of termination. Bob shall not be entitled to any severance payment and will
not be considered for any performance upon his voluntary termination.
12. Termination for Cause. Breda may terminate this agreement for cause
upon five (5) days written notice to Bob stating the reason for said
termination. Matters which would be considered terminable for cause would
include, but not be limited to:
a. Fraud or theft;
b. Falsifying records;
c. Refusal to carry out a specific order of the Board of Directors;
d. Abuse, discrimination, or harassment of another employee;
e. Unauthorized dissemination of records or information;
f. Divulging confidential information;
g. Possession of illegal drugs or weapons while on Breda property;
h. Conviction of a crime, the nature of which would be calculated to
render an employee undesirable as a co-manager and detrimental to
the best interest of the company; and
i. Using or possessing intoxicants or narcotics of any kind while on
company premises or being at work under the influence of such
substances.
13. Arbitration. Any and all claims, disputes, or controversies arising out
of, or related to this agreement, or the breach thereof, shall be resolved by
arbitration in accordance with the rules of the state of Iowa. Such arbitration
shall be conducted by a single arbitrator.
The determination or award rendered therein shall be binding and conclusive
upon the parties, and judgment may be entered thereon in accordance with the
applicable law in any court having jurisdiction.
14. Notices. Any notice required or desired to be given hereunder, shall be
deemed given if in writing and sent by certified mail, return receipt requested,
to Bob's residence, or to the residence of the President of the Board of
Directors, as the case may be.
15. Assignment. Bob acknowledges that his services are unique and personal.
Accordingly, Bob may not assign his rights or delegate his duties or obligations
hereunder. Breda's rights and obligations under this agreement shall inure to
the benefit of, and shall be binding upon
E-3
<PAGE>
Breda's successor's and assigns.
16. Entire Agreement. This agreement, including the attachments hereto,
represents the full and complete agreement between Breda and Bob as to his
compensation and obligations.
17. Amending Agreement. This agreement may only be amended in writing,
signed by the parties against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
18. Severability and Governing Law. If any portion of this agreement shall
be found to be void or unenforceable, it shall in no way affect the validity or
enforceability of other portions thereof. This agreement shall be interpreted
according to the laws of the state of Iowa.
IN WITNESS WHEREOF, the parties have executed this agreement on the day,
month and year first above provided by Breda Telephone Corp.'s President, and by
Bob Boeckman.
/s/ Bob Boeckman
--------------------------------
Bob Boeckman
BREDA TELEPHONE CORP.
/s/ Dean Schettler
--------------------------------
By Dean Schettler, President
E-4
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is effective April 1, 2000, by and between Breda Telephone
Corp., an Iowa Corporation, hereinafter referred to as "Breda", and Jane Morlok,
the Chief Financial Officer and Co-Chief Executive Officer, hereinafter referred
to as "Jane".
Breda desires to employ Jane to devote full time to the business of the
corporation, and Jane desires to be so employed.
The parties agree as follows:
1. Employment. Breda agrees to employ Jane, and Jane agrees to be
employed in the capacity of Chief Financial Officer and Co-Chief Executive
Officer. Employment shall be for a term of one year, effective as of April 1,
2000, and terminating March 31, 2001.
2. Time and Efforts. Jane shall diligently and conscientiously devote her
full and exclusive time and attentions and best efforts in discharging her
duties.
3. Board of Directors. Jane shall, and all times, discharge her duties in
consultation with and under the supervision of the Board of Directors of Breda
Telephone Corp. In performance of her duties, Jane shall make her principal
office in such place that the Board of Directors and Jane may, from time to
time, agree.
4. Compensation. Breda shall pay to Jane as compensation for her services,
the sum of Five Thousand Eight Hundred and Seventy-five Dollars ($5,875.00) per
month.
5. Additional Compensation. If Jane is with Breda through May 15, 2000, she
may be entitled to a bonus based upon her performance rating as determined by
the Board of Directors. If Jane is entitled to a bonus, said bonus will be paid
during the month of May, 2000. If Jane is still with Breda on May 15, 2001, Jane
may be entitled to a bonus based upon her performance rating as determined by
the Board of Directors. If Jane is entitled to a bonus, said bonus shall be paid
during the month of May, 2001.
6. Benefits. As long as Jane is employed by Breda, Breda shall provide the
following benefits to her:
a. Health Insurance. 80/20 coverage with 100% hospitalization
coverage. Breda will pay the premium for family insurance
coverage. Jane will be responsible for paying the $250.00
deductible and $100.00 deductible for
E-5
<PAGE>
dental care, eye care, and drug card.
b. Life Insurance. Breda will provide life insurance coverage in an
amount equal to one times Jane's yearly salary.
c. Disability Insurance. Breda will provide long term disability
coverage as outlined by NTCA.
d. Retirement. Contributions to a retirement fund will be made by
Breda in an amount equal to 8.6% of Jane's yearly salary, and
Jane will contribute 3.0% of her yearly salary to said fund.
e. Pre-Retirement Death Benefit. Breda will provide Pre-Retirement
Death Benefit to Jane as contained in the NTCA package.
f. Clothing Allowance. Breda will provide Jane with a $300.00
clothing allowance during her first year of employment with the
company, and $150.00 per year for every year of employment
thereafter.
g. Free local telephone service.
h. Free basic cable service if living in a town served by Breda.
7. Expenses. Breda shall reimburse Jane for all reasonable and necessary
expenses incurred in carrying out her duties under this agreement. Jane shall
present to Breda, from time to time, an itemized account of such expenses in the
form required by Breda.
8. Disability. In the event any illness or accident renders Jane totally
disabled, Breda's obligation under this agreement shall terminate thirteen (13)
weeks after the determination of total disability.
9. Non-Compete. During the term of her employment, Jane shall not engage in
any business activities which would or could compete with those of Breda,
without prior written consent from the Board of Directors.
10. Confidential Information. Jane further agrees not to publish, disclose
or use, on her own behalf or on the behalf of any third party, any confidential
information or trade secrets related to Breda's business, without prior
authorization of the Board of Directors.
Upon termination of her employment with Breda, Jane shall return to Breda
all data, records, drawings, customer and product lists, specifications, notes,
correspondence, or any other documents or copies thereof, which came into Jane's
possession and are related to Breda's business.
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<PAGE>
11. Termination Without Cause. Breda may terminate this agreement at any
time, without cause, by giving thirty (30) days written notice to Jane. In that
event, if requested by Breda, Jane shall continue to render her services and
shall be paid her regular compensation up to the date of termination.
12. Termination for Cause. Breda may terminate this agreement for cause
upon five (5) days written notice to Jane stating the reason for said
termination. Matters which would be considered terminable for cause would
include, but not be limited to:
a. Fraud or theft;
b. Falsifying records;
c. Refusal to carry out a specific order of the Board of Directors;
d. Abuse, discrimination, or harassment of another employee;
e. Unauthorized dissemination of records or information;
f. Divulging confidential information;
g. Possession of illegal drugs or weapons while on Breda property;
h. Conviction of a crime, the nature of which would be calculated to
render an employee undesirable as a co-manager and detrimental to
the best interest of the company; and
i. Using or possessing intoxicants or narcotics of any kind while on
company premises or being at work under the influence of such
substances.
13. Arbitration. Any and all claims, disputes, or controversies arising out
of, or related to this agreement, or the breach thereof, shall be resolved by
arbitration in accordance with the rules of the state of Iowa. Such arbitration
shall be conducted by a single arbitrator.
The determination or award rendered therein shall be binding and conclusive
upon the parties, and judgment may be entered thereon in accordance with the
applicable law in any court having jurisdiction.
14. Notices. Any notice required or desired to be given hereunder, shall be
deemed given if in writing and sent by certified mail, return receipt requested,
to Jane's residence, or to the residence of the President of the Board of
Directors, as the case may be.
15. Assignment. Jane acknowledges that her services are unique and
personal. Accordingly, Jane may not assign her rights or delegate her duties or
obligations hereunder. Breda's rights and obligations under this agreement shall
inure to the benefit of, and shall be binding upon Breda's successor's and
assigns.
16. Entire Agreement. This agreement, including the attachments hereto,
represents the full and complete agreement between Breda and Jane as to her
compensation and obligations.
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<PAGE>
17. Amending Agreement. This agreement may only be amended in writing,
signed by the parties against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
18. Severability and Governing Law. If any portion of this agreement shall
be found to be void or unenforceable, it shall in no way affect the validity or
enforceability of other portions thereof. This agreement shall be interpreted
according to the laws of the state of Iowa.
IN WITNESS WHEREOF, the parties have executed this agreement on the day,
month and year first above provided by Breda Telephone Corp.'s President, and by
Jane Morlok.
/s/ Jane Morlok
----------------------------
Jane Morlok
BREDA TELEPHONE CORP.
/s/ Dean Schettler
----------------------------
By Dean Schettler, President
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Breda
Telephone Corp's financial statements for the first quarter ended March 31, 2000
and the year ended December 31, 1999, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-2000
<PERIOD-END> DEC-31-1999 MAR-31-2000
<CASH> 411,341 516,460
<SECURITIES> 4,512,434 4,590,128
<RECEIVABLES> 1,291,585 1,202,897
<ALLOWANCES> 0 0
<INVENTORY> 88,479 88,380
<CURRENT-ASSETS> 1,963,742 1,992,218
<PP&E> 6,340,193 6,263,751
<DEPRECIATION> 1,012,964 259,751
<TOTAL-ASSETS> 16,680,779 16,648,401
<CURRENT-LIABILITIES> 1,078,100 1,226,195
<BONDS> 0 0
0 0
0 0
<COMMON> 5,614,618 5,614,618
<OTHER-SE> 3,440,131 3,408,619
<TOTAL-LIABILITY-AND-EQUITY> 16,680,779 16,648,401
<SALES> 0 0
<TOTAL-REVENUES> 5,290,546 1,363,260
<CGS> 0 0
<TOTAL-COSTS> 4,508,613 1,230,149
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 503,302 130,791
<INCOME-PRETAX> 8,173,583 92,563
<INCOME-TAX> 3,107,734 11,029
<INCOME-CONTINUING> 5,065,849 81,534
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,065,849 81,534
<EPS-BASIC> 134.44 2.16
<EPS-DILUTED> 134.44 2.16
</TABLE>
