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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-13272
SPECIALTY TELECONSTRUCTORS, INC.
(Name of small business issuer in its charter)
NEVADA 85-0421409
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12001 STATE HWY 14 NORTH
CEDAR CREST, NEW MEXICO 87008
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (505) 281-2197
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
TITLE OF CLASS
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COMMON STOCK, $.01 PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 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
/ /
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this Form 10-KSB, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. / /
The issuer's revenues for its most recent fiscal year were $65,626,800.
The approximate aggregate market value of voting stock held by non-affiliates,
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of September 5, 1997, was $17.125. The
number of shares of common stock outstanding as of September 5, 1997, was
7,882,754.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement relating to the
registrant's 1997 annual stockholders' meeting are incorporated by reference in
Part III of this Form 10-KSB.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Forward-Looking Statements
Statements contained in this Annual Report on Form 10-KSB that are not
historical facts are forward-looking statements ("forward-looking statements")
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created by those sections. In
addition, such forward-looking statements may be contained in filings made by
the Company with the Securities and Exchange Commission, or press releases or
oral statements made from time to time by or with the approval of an authorized
executive officer of the Company. Such forward-looking statements are
necessarily estimates reflecting the best judgment of the Company's management
based upon current information and involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such risks, uncertainties and other factors
include, but are not limited to, those set forth herein under the caption "ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Cautionary Statements" and appearing elsewhere in this Annual
Report and appearing from time to time in filings made by the Company with the
Securities and Exchange Commission. These risks, uncertainties and other factors
should not be construed as exhaustive and the Company does not undertake, and
specifically disclaims any obligation, to update any forward-looking statements
to reflect occurrences or unanticipated events or circumstances after the date
of such statements. See "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Cautionary Statements."
General
Specialty Teleconstructors, Inc., a Nevada corporation (together with its
wholly-owned subsidiaries, the "Company"), designs, builds, installs, modifies
and maintains (collectively, "wireless infrastructure building and
implementation services") land-based wireless communications transmitting and
receiving facilities located in the U.S. ("wireless communications facilities")
primarily for providers of wireless communications services. As part of
Company's wireless infrastructure building and implementation services business,
the Company also provides certain electrical engineering services, wireless
equipment testing services and site acquisition and evaluation services in
connection with the location and installation of wireless communications
facilities. During the fiscal years ended June 30, 1997 and June 30, 1996,
wireless infrastructure building and implementation services have accounted for
87% and 88%, respectively, of the Company's revenues.
The Company also manufactures and sells a line of fasteners and other mounting
components, waveguide bridge products, square support rail, tower lighting
systems, tower safety products and other hardware products (collectively,
"wireless infrastructure components") primarily used in connection with the
installation and maintenance of wireless communications facilities. The Company
markets certain of its wireless infrastructure components directly to end users
in conjunction with the Company's wireless infrastructure building and
implementation services. In addition, the Company markets certain of its
wireless infrastructure components through independent third party distributors
located principally in the U.S. who then resell these products to end users.
Finally, the Company manufactures certain wireless components on a private label
basis for
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sale to several large wireless communications equipment vendors who market these
products under their own brand names to end users. The Company believes that, to
date, the vast majority of the Company's wireless infrastructure components have
been sold to end users located in the U.S. During the fiscal years ended June
30, 1997 and June 30, 1996, sales of wireless components have accounted for 13%
and 12%, respectively, of the Company's revenues.
From approximately May 1995 until January 1997, the Company manufactured and
sold unmanned communications shelters ("unmanned communications shelters")
designed to be located adjacent to wireless communications facilities to house
electrical equipment associated with such facilities. The Company's unmanned
communications shelters were manufactured at a Company-leased manufacturing
facility located in Albuquerque, New Mexico. In January 1997, the Company
determined to cease manufacturing unmanned communications shelters and, instead,
to obtain unmanned communications shelters from unaffiliated third parties for
resale to the Company's customers. Sales of unmanned communications shelters
historically have not generated significant revenues or had a material effect on
the Company's results of operations. Cessation of manufacturing operations
related to these shelters has not had a material adverse impact on the Company's
business, results of operations or financial condition.
Company Structure
The Company conducts business primarily through its subsidiaries. The Company's
principal operating subsidiaries include Specialty Constructors, Inc., a New
Mexico corporation, Microwave Tower Service, Inc., an Oregon corporation, Novak
& Lackey Construction Co., Inc., an Oklahoma corporation, Specialty Combined
Resources, Inc., a Texas corporation, Specialty Management, Inc., a Nevada
corporation, Specialty Coatings, Inc., a Nevada corporation, Specialty Training,
Inc., a Nevada corporation, Specialty Financial, Inc., a Nevada corporation and
Specialty Fortress, Inc., a Nevada corporation. The Company's headquarters are
located in Cedar Crest, New Mexico, approximately seven miles from Albuquerque,
New Mexico. The Company also maintains regional offices in Birmingham, Alabama,
Phoenix, Arizona, Anaheim, California, Laguna Hills, California, Sacramento,
California, Denver, Colorado, Orlando, Florida, Crest Hill, Illinois (located
just outside Chicago, Illinois), Fairview Heights, Illinois (located just
outside St. Louis, Missouri), New Orleans, Louisiana, Somerdale, New Jersey,
Columbus, Ohio, Oklahoma City, Oklahoma, Salem, Oregon, Houston, Texas and Salt
Lake City, Utah.
History
The Company was incorporated in April 1994 for the purpose of acquiring all of
the issued and outstanding shares of capital stock of Michael R. Budagher
Specialty Constructors, Inc., a New Mexico corporation. Michael R. Budagher
Specialty Constructors, Inc. was incorporated in 1981 and substantially all the
Company's operations described herein as occurring prior to April 1994 were
conducted by this company. In 1995, Michael R. Budagher Specialty Constructors,
Inc. changed its corporate name to Specialty Constructors, Inc.
Originally, the Company's primary business was constructing, maintaining and
modifying wireless communications facilities predominantly for operators of
short- and long-distance microwave communications networks. Later, the Company
began installing electronic and other related equipment in connection with these
facilities. Following the initiation of the build-out of cellular telephone
networks in the United States, which began in 1983, the Company began to provide
wireless infrastructure building and implementation services in connection with
the implementation of cellular telephone and paging networks as well as
microwave
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communications networks. From approximately the mid-1980's and continuing until
the mid-1990's, the majority of the Company's growth and revenues were derived
from wireless infrastructure building and implementation services related to the
continuing build-out and expansion of cellular telephone and paging networks in
the U.S.
Recent Acquisitions
In the early 1990's, the Company began an effort to expand the scope of the
services offered by the Company and to expand its workforce and geographic
presence in the U.S. As a part of this effort, during the last two fiscal years,
the Company has made 9 acquisitions of assets or companies.
On July 1, 1995, the Company exchanged 92,308 shares of its common stock
("Common Stock") for all of the issued and outstanding capital stock of ST
Combined Resources, Inc., a provider of wireless infrastructure electrical
design and engineering services located in Laguna Hills, California. Following
the acquisition, ST Combined Resources, Inc. changed its corporate name to
Specialty Combined Resources, Inc. The acquisition of ST Combined Resources,
Inc. was accounted for as a pooling-of-interests and, accordingly, the Company's
financial statements for periods prior to the acquisition have been restated to
include the results of ST Combined Resources, Inc. for all periods presented.
On October 23, 1995, the Company acquired substantially all the assets of
Orlando Tower, Inc., an Orlando, Florida-based builder of wireless transmitting
and receiving facilities, for approximately $163,000 in cash. This acquisition
was accounted for as a purchase.
On July 2, 1996, the Company acquired substantially all the assets of East Coast
Tower, Inc., a Greensborough, North Carolina-based builder of wireless
transmitting and receiving facilities, for approximately $90,000 in cash. This
acquisition was accounted for as a purchase.
On October 30, 1996, the Company acquired substantially all the assets of Data
Cell Systems, Inc. ("Data Cell"), a builder of wireless transmitting and
receiving facilities located in Gilbert, Arizona (located just outside Phoenix,
Arizona), in exchange for $160,000 in cash and 93,400 shares of Common Stock.
The purchase price of the assets acquired from Data Cell is subject to increase
by an amount not to exceed $200,000 in the aggregate if certain pre-tax earnings
targets are achieved during the three fiscal years immediately following the
date of the acquisition and if certain other conditions are met. This
acquisition was accounted for as a purchase.
On May 14, 1997, the Company, through a wholly-owned subsidiary, merged (the
"N&L Merger") with Novak & Lackey Construction Co., Inc., an Oklahoma
corporation ("N&L"). N&L is based in Oklahoma City, Oklahoma and builds wireless
communications facilities and switching facilities primarily for providers of
wireless communications services in the Western half of the U.S. In connection
with the N&L Merger, the Company issued 400,000 shares of Common Stock for all
of the outstanding shares of N&L common stock. As a result of the N&L Merger,
N&L became a wholly-owned subsidiary of the Company. The N&L Merger was
accounted for as a pooling-of-interests and, accordingly, the Company's
financial statements for periods prior to the N&L Merger have been restated to
include the results of N&L for all periods presented.
On May 28, 1997, the Company acquired substantially all the assets of Paramount
Communication Systems, Inc., a builder of wireless transmitting and receiving
facilities located in Somerdale, New Jersey, in exchange for 186,047 shares of
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Common Stock. This acquisition was accounted for as a purchase.
On June 1, 1997, the Company acquired substantially all the assets of Specialty
Constructors Coatings, Inc. ("SCC"), a Cedar Crest, New Mexico-based provider of
lead abatement and other remediation and refinishing services for elevated metal
structures such as water towers, in exchange for 55,814 shares of Common Stock.
Until March 1, 1997, Michael R. Budagher, Chairman and Chief Executive Officer,
Treasurer and a director of the Company owned 50% of the common stock of SCC. On
March 1, 1997, Mr. Budagher sold his interest in SCC to two unaffiliated third
parties pursuant to the exercise of a warrant to purchase Mr. Budagher's SCC
stock granted by Mr. Budagher in 1996. The assets of SCC were acquired through a
wholly-owned subsidiary of the Company. After the acquisition, the subsidiary
changed its corporate name to Specialty Coatings, Inc. This acquisition was
accounted for as a purchase.
On June 30, 1997, the Company, through a wholly-owned subsidiary, merged (the
"MTS Merger") with Microwave Tower Service, Inc., an Oregon corporation ("MTS").
MTS is based in Salem, Oregon, and designs, engineers, constructs and installs
wireless communications facilities primarily for providers of wireless
communications services in the Western half of the U.S. In addition, MTS
manufactures and distributes a line of tower installation products used in the
implementation, installation and maintenance of wireless communications
facilities. In connection with the MTS Merger, the Company issued 2,380,000
shares of Common Stock for all of the outstanding shares of MTS common stock. As
a result of the MTS Merger, MTS became a wholly-owned subsidiary of the Company.
The MTS Merger was accounted for as a pooling-of-interests and, accordingly, the
Company's financial statements for periods prior to the MTS Merger have been
restated to include the results of MTS for all periods presented. See "ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Fiscal 1997 Acquisitions."
Redemption of Public Warrants; Exercise of Underwriters' Warrants
On February 20, 1997, the Company notified registered holders of its publicly
traded Warrants to Purchase Common Stock ("Public Warrants") that the Company
intended to redeem all unexercised Public Warrants on March 26, 1997 (the
"Redemption Date") for a redemption price of $.05 per Public Warrant. The
Public Warrants were issued in November 1994 in connection with the Company's
initial public offering. Each Public Warrant entitled the holder thereof to
purchase one (1) share of Common Stock at an exercise price of $6.00 per share.
The total number of Public Warrants issued was 500,000, none of which had been
exercised at February 20, 1997. Prior to the Redemption Date, approximately
499,670 Public Warrants were exercised resulting in the issuance by the Company
of approximately 499,670 shares of Common Stock. Following the Redemption Date,
the Company redeemed the remaining Public Warrants. In addition, during fiscal
1997, the underwriters of the Company's 1994 initial public offering exercised
all of the 50,000 Underwriters' Warrants ("Underwriters' Warrants") issued to
the underwriters in connection with the Company's 1994 initial public offering
resulting in the issuance by the Company of 150,000 shares of Common Stock. The
Company received approximately $3,607,000 in net proceeds in connection with the
exercise of the Public Warrants and the Underwriters' Warrants. See "ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Redemption of Public Warrants; Exercise of Underwriters'
Warrants."
Other Recent Developments
During the last two fiscal years, while the Company has continued to derive a
significant portion of its revenues from wireless infrastructure building and
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implementation services rendered in connection with the implementation,
expansion and enhancement of cellular telephone and microwave communications
networks, the Company has experienced increasing demand for its wireless
infrastructure building and implementation services and wireless infrastructure
components from providers of wireless communications services utilizing new or
enhanced wireless communications technologies such as personal communications
services or "PCS," specialized mobile radio or "SMR" services and enhanced
specialized mobile radio or "ESMR" services. See "ITEM 1. DESCRIPTION OF
BUSINESS -- The Wireless Communications Industry."
Beginning in late fiscal 1996 and continuing through most of fiscal 1997, demand
for the Company's wireless infrastructure building and implementation services
and wireless infrastructure components increased significantly from levels
experienced during fiscal 1995 and the first half of fiscal 1996. The Company
believes that much of this increased demand came from (i) winners of newly-
granted PCS licenses who moved during this period to implement new PCS networks
in many major metropolitan markets in the U.S., (ii) operators of wireless
communications networks utilizing ESMR technologies who increased their network
implementation activities during this period and (iii), operators of existing
cellular telephone networks who began to aggressively expand and/or enhance
their networks during this period primarily to upgrade the performance of their
networks in order to better compete with performance advantages claimed by
operators of new PCS networks.
The Company believes that, beginning in approximately the late Spring of 1997,
the pace of new wireless infrastructure development in the U.S. began to slow
down as compared to late fiscal 1996 and earlier in fiscal 1997. The Company
believes that this slow down in the pace of new wireless infrastructure
development in the U.S. has been caused by one or more of a number of different
factors including, but not limited to, (i) the completion in late 1996 and early
1997 of the initial phase of the build-out of the first PCS networks in many
major metropolitan markets in the U.S., (ii) economic uncertainty in the market
for voice wireless communications services created by vigorous price competition
among operators of existing cellular telephone networks and operators of new PCS
networks and ESMR networks, and (iii) the inability of certain holders of new
PCS licenses to obtain financing necessary to begin implementation of their PCS
networks. In addition, the Company believes that the availability of financing
for the implementation of new PCS networks in the U.S. decreased during this
time period due to, among other factors, concerns in the financial community
over (i) network implementation difficulties experienced by operators of certain
new PCS networks, (ii) difficulties experienced by Nextwave Telecom, Inc. (one
of the two top bidders in the C-block broadband PCS auction) in obtaining
financing necessary to implement their PCS networks, and (iii) financial
difficulties experienced by several current and prospective operators of new PCS
networks such as Pocket Communications, Inc. ("Pocket," formerly known as DCR
Communications, Inc.) (also one of the two top bidders in the C-block broadband
PCS auction) which announced in early April 1997 that it had filed for voluntary
protection under Chapter 11 of the U.S. Bankruptcy Code. The Company did not
perform services for Pocket during fiscal 1997 and has no receivables from, or
other business dealings with, Pocket.
The Company believes that demand for its wireless infrastructure building and
implementation services and wireless infrastructure components decreased
somewhat during the fourth quarter of fiscal 1997 from the levels experienced in
late fiscal 1996 and earlier in fiscal 1997, largely as a consequence of the
slow down in the pace of new wireless infrastructure development in the U.S.
(See "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Results of Operations -- Comparison of the Fiscal Years
Ended
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June 30, 1997 and 1996." The Company also believes that this slow down in the
pace of new wireless infrastructure development in the U.S. has continued into
the first quarter of fiscal 1998 and that demand for the Company's wireless
infrastructure building and implementation services and wireless infrastructure
components during the first quarter of fiscal 1998 continues to be somewhat
weaker than during late fiscal 1996 and earlier in fiscal 1997. However, at the
present time, the Company cannot accurately measure the degree to which the pace
of new wireless infrastructure development in the U.S. has slowed nor can the
Company accurately predict the extent to which this slow down and the relatively
lower levels of demand for the Company's wireless infrastructure building and
implementation services and wireless infrastructure components that have
resulted therefrom may adversely affect the Company's business, results of
operations or financial condition in future periods. There can be no assurance
that the current slow down in the pace of new wireless infrastructure
development in the U.S., regardless of its cause or duration, will not have a
material adverse effect on the Company's business, results of operations and
financial condition. See "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Cautionary Statements --
Dependence on the Wireless Communications Industry."
Although there can be no assurance the Company's belief is correct, the Company
believes the current slow down in the pace of new wireless infrastructure
development in the U.S. may be temporary. The Company also believes that,
notwithstanding the current slow down in the pace of new wireless infrastructure
development in the U.S. (i) underlying demand for new and enhanced wireless
communications services in the U.S. remains strong and should continue to grow
as the cost of wireless communications services to the end user declines as a
result of increased competition, (ii) certain operators of wireless
communications networks, including some of the Company's customers, have not
reduced the pace of their new wireless infrastructure development activities in
the U.S. from levels maintained in late fiscal 1996 and earlier in fiscal 1997
and currently do not plan to do so during the coming year, and (iii) at some
point, increasing demand for wireless communications services in the U.S. should
cause the pace of new wireless infrastructure development to increase.
The Company recently has taken steps designed to enhance its marketing
capabilities on a nationwide basis and to exploit the increased capabilities and
geographic presence which has resulted from the Company's internal growth and
acquisitions over the past two fiscal years. These steps include (i) the
creation of a national marketing team which has recently assumed responsibility
for marketing the Company's wireless infrastructure building and implementation
services on a nationwide basis, (ii) the inception of an effort to develop a
customer finance program designed to enable the Company to offer financing to
its customers as a method for obtaining future business, (iii) seeking to expand
its relationships with wireless communications equipment manufacturers and
vendors as a method for increasing its exposure to prospective new customers,
and (iv) the acceleration of the Company's efforts to exploit certain market
opportunities the Company believes may be available to the Company to perform
wireless infrastructure building and implementation services and sell wireless
infrastructure components in connection with the development of new wireless
communications networks outside the U.S. Although there can be no assurance in
this regard, the Company believes that these steps coupled with the Company's
presence in a relatively large number of geographic markets across the
continental U.S. may enable the Company to endure the current slow down in the
pace of new wireless infrastructure development in the U.S. better than some of
its competitors which may be less able than the Company to market their services
and products to potential customers in regions outside their traditional bases
of operation. See "ITEM 1. DESCRIPTION OF BUSINESS -- Sales and Marketing" and
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"Competition."
The Wireless Communications Industry
Overview. The demand for wireless communications services in the United States
has grown dramatically during the last six years. According to the Cellular
Telecommunications Industry Association ("CTIA"), the compound annual growth
rate of cellular subscribers exceeded 45% from 1990 through 1995. As of December
31, 1996 according to CTIA, there were over 44.0 million wireless subscribers in
the United States, representing a penetration rate of 17.0% and a growth rate of
30.4% from December 31, 1995. The wireless communications industry is
characterized by networks that use radio waves to transmit voice and data
signals. Typically, different technologies or applications use different
frequencies within the radio spectrum. Examples of wireless communications
technologies include paging services, which involve one-way or limited two-way
data transmission capability, and cellular, PCS services, SMR and ESMR services
and wireless local loop ("WLL") services, all of which involve two-way voice and
data transmission capabilities.
Cellular. Although SMR and other radio-based communications technologies have
been utilized commercially by taxi cabs, ambulance fleets and other fleet
dispatch services and by government entities such as police and fire departments
for many years, the widespread use of wireless communications technologies for
the general public began with the advent of the cellular telephone industry. The
cellular telephone industry began in 1983 when the FCC began granting licenses
to two licensees in each metropolitan statistical area ("MSA") and many rural
areas ("rural service areas") throughout the United States. Cellular licenses
were eventually awarded in 306 MSAs and 428 rural service areas. In 1986, the
FCC granted additional portions of the radio spectrum to each holder of a
cellular license. Cellular networks operate within a 50 MHz band located in the
800-900 MHz frequency range. Paging services also began to expand rapidly in the
1980's. Paging services utilize a different portion of the radio spectrum and,
while not offering two-way voice transmission capability, historically have
offered a lower-cost alternative for mobile communications than cellular
telephony.
PCS. During the late 1980's and early 1990's, advances in technology of
wireless communications gave rise to a new technology known as PCS. In 1993,
Congress enacted legislation directing the FCC to allocate a portion of the
radio spectrum for PCS via competitive bidding. In response, the FCC established
PCS service areas in the United States and began to hold auctions for portions
or "Blocks" of the radio spectrum designated for PCS services. Compared with
cellular, PCS will operate at higher frequencies within a 140 MHz band in the
1850-1990 MHz frequency range and in slightly different geographic coverage
areas. The geographic areas for PCS licenses are divided into 51 major trading
areas ("MTAs") for A- and B-Block licenses, and 493 basic trading areas ("BTAs")
for other PCS licenses, including the C-, D-, E- and F-Block licenses. MTAs and
BTAs are different than the metropolitan statistical areas and rural service
areas.
In March 1995, the FCC completed the A- and B-Block PCS auction, resulting in
the award of two 30 MHz licenses in each MTA. In May 1996, the FCC completed the
C-Block auction, resulting in the award of one 30 MHz license in each BTA. After
completion of the C-Block auction, the FCC reauctioned 18 C-Block licenses for
which the high bidders failed to make initial post-auction down payments. In
January, 1997, the FCC completed the auction for the D-, E- and F-Block
licenses, each block resulting in the award of one 10 MHz license in each BTA.
SMR and ESMR. As a result of advances in digital technology some providers of
wireless communications services have begun to design and deploy or modify
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networks that utilize SMR and ESMR technologies. ESMR technology increases the
capacity of SMR networks enabling more efficient use of the allocated frequency.
This increase coupled with additional advances in switching technologies are
intended to enable ESMR networks to compete effectively with cellular and PCS
networks. ESMR technology may offer certain cost advantages over cellular and
PCS technologies due in large part to the fact that, historically, licenses to
use part of the radio spectrum allocated for ESMR services have been available
at substantially lower costs than licenses to operate cellular or PCS systems in
the same geographic areas. Currently, ESMR technology is being used by Nextel
Communications to provide wireless telephone services in several large
metropolitan areas in the U.S. In addition, the Company believes that several
other smaller wireless communications service providers plan to use ESMR
technology to offer wireless telephone service in the U.S.
WLL. WLL systems provide non-mobile telecommunications services to users by
transmitting voice messages over radio waves from the public switched network to
the location of the fixed telephone. WLL systems are seen as an alternative to
traditional copper and fiber optic based fixed services with the potential to be
implemented more quickly and at lower cost than wireline services. The
installation of WLL systems minimizes the need to obtain right-of-ways and
excavate existing roads and infrastructure to lay copper or fiber cables in
order to install or upgrade a local telephone system serving non-mobile
telephones. At the present time, it is not possible to forecast the number of
WLL systems that might be implemented in the U.S. or to forecast the effect, if
any, such implementation will have on the demand for the Company's wireless
infrastructure building and implementation services and wireless infrastructure
components.
Other Wireless Communications Technologies. The FCC has proposed or adopted
final rules authorizing additional wireless communications services. For
example, the FCC has proposed to authorize the use of the 37 and 39 GHz bands
for the provision of fixed and mobile communications services. In May 1996, the
FCC adopted final rules to permit Interactive Video and Data Service licensees
to provide mobile two-way data services. Also in May 1996, the FCC authorized
local multipoint distribution service licensees to provide certain fixed and
mobile communications services. The FCC has proposed to reallocate former
federal government spectrum located at 4 GHz for a broad range of wireless fixed
and mobile services, and is expected to reallocate additional former federal
government spectrum for wireless mobile services in the future.
Several national and global mobile satellite or "MSS" based systems are
currently being implemented or have been proposed that are intended to compete
directly with land-based wireless communications networks. In theory, this
technology could create an alternative to land-based wireless networks that
might reduce or slow the growth in demand for new and enhanced land-based
wireless communications transmitting and receiving facilities, which in turn
could have a material adverse effect on the Company's business, results of
operations and financial condition. However, the Company believes that the cost
of wireless communications services planned to be offered by wireless
communications services providers using MSS technologies will be significantly
higher than the cost of most services offered by land-based wireless networks.
At the present time, while it is not possible to forecast the effect, if any,
that MSS or any other alternative technology will have on the demand for the
Company's wireless infrastructure building and implementation services and
wireless infrastructure components, the Company does not believe that MSS
technologies will adversely effect demand for the Company's services and
products in the foreseeable future.
Customers
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The Company has rendered wireless infrastructure building and implementation
services to providers of a broad range of wireless communications service
including paging services, analog and digital cellular telephone services, PCS
services, SMR services, ESMR services and microwave communications services.
Examples of the Company's customers include, Western Wireless Corporation, AT&T
Wireless Services Inc., Sprint Spectrum L.P., PCS PrimeCo L.P., BellSouth
Mobility, Inc. and Nextel Communications, Inc., among others. In fiscal 1997,
Western Wireless Corporation and AT&T Wireless Services Inc. accounted for
approximately 20% and 12%, respectively, of the Company's revenues and were the
only customers accounting for 10% or more of the Company's revenues.
Sales and Marketing
Although its customers include companies with international operations,
historically, the Company has marketed its wireless infrastructure building and
implementation services and wireless infrastructure components primarily to
providers of wireless communications services in the U.S. The Company's wireless
infrastructure building and implementation services are sold on a contract basis
and are marketed through either direct customer contact or via response to
competitive bids by a national marketing team led by four of the Company's top
regional managers. This national marketing team was formed in July 1997 to
exploit the increased capabilities and geographic presence which has resulted
from the Company's internal growth and acquisitions over the past two fiscal
years. Prior to that time, the majority of the Company's wireless
infrastructure building and implementation services were marketed on a regional
basis by its project managers to customers with current or proposed network
construction or modification projects in their regions. The Company generates
prospective new customers through referrals from existing customers, wireless
communications equipment manufacturers and vendors, through participation in
conferences and trade shows and from other sources. The Company is currently
seeking to expand its relationships with wireless communications equipment
manufacturers and vendors as a method for increasing its exposure to prospective
new customers. In addition, the Company is currently seeking to develop a
customer finance program designed to enable the Company to offer financing to
its customers as a method for obtaining future business. Although the structure
of this customer finance program has not been definitively established, the
Company currently intends to utilize a portion of its own financial resources
either alone or in conjunction with financial resources provided by third-party
financing sources. The Company does not use independent distributors or agents
in connection with the marketing of its wireless infrastructure building and
implementation services.
The Company markets its wireless infrastructure components (i) directly to end
users in conjunction with the Company's wireless infrastructure building and
implementation services and (ii) through independent third party distributors
located principally in the U.S. who then resell these products to end users. The
Company also manufactures certain wireless components on a private label basis
for sale to several large wireless communications equipment vendors who market
these products under their own brand names to end users. The Company believes
that, to date, the vast majority of the Company's wireless infrastructure
components have been sold to end users located in the U.S.
In addition to its traditional marketing activities, the creation of the
Company's national marketing team, and the inception of an effort to develop a
customer finance program as a method for obtaining future business, the Company
has recently increased its efforts to exploit certain market opportunities the
Company believes may be available to the Company to perform wireless
infrastructure building and implementation services and sell wireless
infrastructure components in connection with the development of new wireless
9
<PAGE>
communications networks outside the U.S. Although the Company has been
approached regarding the possibility of becoming involved in certain wireless
infrastructure development activities outside the U.S., the Company has reached
no agreements with respect to any such involvement and the Company has very
little experience in doing business outside the U.S. There can be no assurance
the Company's efforts to exploit business opportunities outside the U.S. will be
successful. See "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Cautionary Statements -- Risks Associated
with Potential Operations Outside the U.S."
Manufacturing and Product Assembly
The Company manufactures wireless infrastructure components by obtaining sheet
metal and other raw materials, standard parts and components from a variety of
vendors and specially fabricating and configuring these materials to produce the
Company's wireless infrastructure components. The Company also engages third-
party contract manufacturers and assemblers to produce certain of these
wireless infrastructure components based on the Company's specifications. With
the exception of wireless infrastructure components manufactured by third-party
contract manufacturers and assemblers, substantially all the Company's wireless
infrastructure components are manufactured or assembled at the Company's
manufacturing facilities in Salem, Oregon. The Company currently has 20
employees engaged in the manufacture and assembly of the Company's wireless
infrastructure components. Although the Company has historically obtained the
raw materials, standard parts and components used in the manufacture and
assembly of the Company's wireless infrastructure components from a limited
number of suppliers, to date, the Company generally has been able to obtain the
needed quantities of the items in a timely manner from these suppliers. In
addition, substantially all of these items are available from numerous other
suppliers.
Research and Development
Although the Company has designed many of its wireless infrastructure components
and has the capability to custom design wireless infrastructure components to
meet specific customer requirements, historically, the Company has not incurred
significant research and development expenses and the Company does not currently
anticipate making significant expenditures for research and development
activities in the foreseeable future.
Trademark
The Company markets certain of its wireless infrastructure components under the
ICECo(TM) brand name. The Company has filed for trademark protection for the
ICECo(TM) trademark. There can be no assurance that the Company will be
successful in obtaining this trademark or that this trademark will afford the
Company with any competitive advantages.
Competition
Historically, the market for wireless infrastructure building and implementation
services has been highly competitive but also highly fragmented. As such, most
participants in this market have been relatively small firms of between three
and fifty employees. While the Company believes that the industry continues to
be comprised predominately of these smaller firms, in recent years, as the
market for wireless infrastructure building and implementation services has
grown, several of the Company's historical competitors have grown substantially.
In addition, the Company has faced increasing competition from (i) wireless
communications equipment manufacturers which provide wireless infrastructure
10
<PAGE>
building and implementation services in conjunction with the sale of wireless
communications equipment, (ii) wireless and non-wireless engineering companies,
construction companies and construction management companies, and (iii) non-
wireless subcontractors. The Company believes that, historically, competition in
the market for wireless infrastructure building and implementation services has
been based primarily on price and the competitor's reputation for quality and
timely completion of work. In recent years, certain competitors, predominately
wireless communications equipment manufacturers, have increasingly offered
turnkey package solutions for the implementation of new wireless communications
networks such as PCS networks. These turnkey package solutions typically include
wireless communications equipment, radio frequency or "RF" engineering services,
wireless infrastructure building and implementation services and, in many cases,
financing for all or a significant portion of the build-out of the network.
Initially, many providers of wireless communications services found these
turnkey package solutions attractive because of perceived administrative
efficiencies of contracting with one party versus contracting separately for the
different products and services necessary to implement their networks.
Increasingly, however, current and prospective providers of wireless
communications services have become dependent on these turnkey package solutions
to implement their networks due largely to the availability of the financing
component.
The Company believes that many of the wireless communications equipment
manufacturers that offer these turnkey package solutions do not themselves have
the personnel necessary to perform the wireless infrastructure building and
implementation services included as a part of these turnkey package solutions.
Consequently, many wireless communications equipment manufacturers contract with
other companies to provide some or all of these wireless infrastructure building
and implementation services. From time to time, the Company has performed
wireless infrastructure building and implementation services in connection with
turnkey package solutions offered by certain of these wireless communications
equipment manufacturers. However, the Company believes that, in recent years,
several wireless communications equipment manufacturers have begun to acquire or
enhance their ability to perform wireless infrastructure building and
implementation services with their own personnel, thus competing directly with
the Company. In addition, the Company believes that many of the Company's other
competitors have either developed or are currently seeking to develop a customer
finance capability as a method for obtaining future business. As a consequence
of this trend, the Company believes that the ability to offer some element of
financing in conjunction with the sale of wireless infrastructure building and
implementation services is becoming an important competitive factor.
Historically, the Company has not provided any significant financing to its
customers in conjunction with the sale of the Company's wireless infrastructure
building and implementation services or wireless infrastructure components.
However, the Company is currently seeking to develop a customer finance program
designed to enable the Company to offer financing to its customers as a method
for obtaining future business. See "ITEM 1. DESCRIPTION OF BUSINESS -- Sales and
Marketing." There can be no assurance that the Company will be able to develop
or successfully implement a customer finance program. Furthermore, many of the
Company's competitors have substantially greater financial and other resources
than the Company, which may enable them to offer more favorable financing terms
to potential customers and thereby obtain a competitive advantage. The inability
to successfully develop and implement a competitive customer finance program
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Cautionary
Statements -- Risks Associated With Providing Financing to Customers."
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<PAGE>
Business Strategy
The Company's business strategy is centered around satisfying the demand for
wireless infrastructure building and implementation services and wireless
infrastructure components generated by the build-out of new wireless
communications facilities and the modification and maintenance of existing
wireless communications facilities. The Company believes that as wireless
communications networks proliferate in the U.S., current and prospective
operators of wireless communications networks will prefer to deal with companies
that offer a larger workforce and a presence in the geographic region in which
the operator's network exists or is planned for implementation. Accordingly, the
Company has sought to expand its physical presence by opening new regional
offices when demand for the Company's wireless infrastructure building and
implementation services, or acquisition opportunities, have made such expansion
feasible. The Company also has sought to enhance its indigenous new employee
hiring, training and retention programs as a method for attracting, training and
retaining new, highly skilled workers. Finally, the Company has sought to
acquire other companies engaged in the wireless infrastructure building and
implementation services business that have good reputations for quality service
and highly skilled workers. The Company intends to continue these strategies,
subject to the Company's assessment of the present or anticipated demand for the
Company's wireless infrastructure building and implementation services and
wireless infrastructure components. In addition, the Company intends to (i)
pursue development of a customer finance capability as a method for generating
new business, (ii) seek to expand its relationships with wireless communications
equipment manufacturers and vendors as a method for increasing its exposure to
prospective new customers, and (iii) increase its efforts to exploit certain
market opportunities the Company believes may be available to the Company to
perform wireless infrastructure building and implementation services and sell
wireless infrastructure components in connection with the development of new
wireless communications networks outside the U.S.
Employees
As of September 1, 1997, the Company employed 394 full-time employees, 284 in
wireless infrastructure building and implementation services, 20 in wireless
infrastructure component manufacture and assembly and the remainder in executive
and administrative positions. This is an increase of 238 employees from
September 1, 1996. This increase is primarily due to additional installation and
maintenance personnel and administrative personnel required to facilitate the
Company's growth and the Company's recent acquisitions. See "ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Fiscal 1997 Acquisitions." None of the Company's employees are
represented by a labor union and the Company considers its employee relations to
be good. The Company's future success is also dependent on its ability to
attract and retain experienced, highly qualified technical employees, project
managers and other key employees who perform and manage the wireless
infrastructure building and implementation services provided by the Company. See
"ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Cautionary Statements -- Dependence on Labor Force."
Government Regulation
The wireless communications industry is subject to regulation by state
regulatory agencies, the FCC, Congress, the courts and other governmental
bodies. There can be no assurance that any of these governmental bodies will not
adopt or change regulations or take other actions that would adversely affect
the wireless communications industry and the Company's business, results of
operations and
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<PAGE>
financial condition.
In addition, the Telecommunications Act of 1996 is expected to cause significant
changes in existing regulation of the telecommunications industry that are
intended to promote the competitive development of new services, to expand
public availability of telecommunications services and to streamline regulation
of the industry. These changes include requirements that local exchange carriers
must: (i) permit other competitive carriers, which may include many wireless
communications service providers, to interconnect to their networks, (ii)
establish reciprocal compensation agreements with competitive carriers to
terminate traffic on each other's networks, and (iii) offer resale of their
local loop facilities. The implementation of these requirements by the FCC and
state authorities potentially involves numerous changes in established rules and
policies that could adversely affect the wireless communications industry and
the Company's business, results of operations and financial condition.
In addition, the construction and installation of wireless transmitting and
receiving facilities are often subject to state or local zoning, land use and
other regulation. Such regulation may include zoning, environmental and
building permit approvals or other state or local certification. The
Telecommunications Act of 1996 provides that state and local authority over the
placement, construction and modification of personal wireless services
(including cellular and other cellular mobile radio services ("CMRS") and
unlicensed wireless services) shall not prohibit or have the effect of
prohibiting personal wireless services or unreasonably discriminate among
providers of functionally equivalent services. Although state and local zoning
authorities retain their rights over land use, their actions cannot have the
effect of banning wireless services or picking and choosing among similar
wireless providers.
ITEM 2. DESCRIPTION OF PROPERTY
The Company presently leases approximately 5,400 square feet of office space
from Michael R. Budagher, its Chairman of the Board, President, Chief Executive
Officer, Treasurer and a Director, for $16,800 annually. See "ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
The office space is located in a 6,400 square foot building in Cedar Crest, New
Mexico. This office serves as the Company's headquarters and as a regional
office for the Company's wireless infrastructure building and implementation.
The Company believes the Company's offices in Cedar Crest will be adequate to
meet the Company's needs for at least the next twelve months.
The Company maintains two regional offices in Illinois, two regional offices in
California and one each in Ohio, Colorado, Alabama, North Carolina, Louisiana,
Florida, Texas, Oregon, Oklahoma, New Jersey, Utah and Arizona, from which the
Company conducts primarily wireless infrastructure building and implementation
operations. The Company manufactures wireless infrastructure components in a
55,000 square foot manufacturing facility located adjacent to its regional
office in Salem, Oregon. In addition to the Company's headquarters facility in
Cedar Crest, New Mexico, the Company's electrical design and engineering
operations are conducted primarily from offices located in Laguna Hills,
California and Houston, Texas. Until January, 1997, the Company also maintained
a facility for the construction of shelters in Albuquerque, New Mexico. In
January, 1997, the Company ceased manufacturing these shelters and instead
intends to obtain shelters from unaffiliated third parties for resale to its
customers. With the exception of its regional offices and manufacturing
facilities located in Salem, Oregon and its regional office located in Oklahoma
City, Oklahoma, all of the Company's regional offices are leased pursuant to
operating leases that do not
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<PAGE>
exceed five years in duration.
ITEM 3. LEGAL PROCEEDINGS
The Company is, and from time to time may be, a party to routine legal
proceedings incidental to its business. The outcome of these legal proceedings
is not expected to have a material adverse effect on the Company's business,
results of operations or financial condition, based on the Company's current
understanding of the relevant facts and law. The Company maintains general
liability insurance against risks arising out of the normal course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the
fourth quarter of fiscal 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "SCTR" and on the Pacific Stock Exchange under the symbol "SPP". On
September 5, 1997, there were approximately 75 holders of record of the
Company's common stock. The following table sets forth the quarterly high and
low bid prices for the Company's common stock. These prices reflect inter-dealer
prices and do not include adjustments for retail mark-ups, mark-downs or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Year Ended
June 30, 1996: High Low
- ------------- ---- ---
<S> <C> <C>
Fiscal Quarter Ended 09/30 $3.875 $ 2.50
Fiscal Quarter Ended 12/31 $3.375 $ 2.00
Fiscal Quarter Ended 03/31 $5.75 $ 2.25
Fiscal Quarter Ended 06/30 $6.25 $ 3.625
Fiscal Year Ended
June 30, 1997: High Low
- ------------- ---- ---
Fiscal Quarter Ended 09/30 $ 9.625 $3.938
Fiscal Quarter Ended 12/31 $ 10.063 $6.75
Fiscal Quarter Ended 03/31 $ 16.25 $8.125
Fiscal Quarter Ended 06/30 $ 15.563 $8.75
</TABLE>
To date, the Company has not declared or paid any cash dividends on its common
stock, and the present policy of the Board of Directors is to retain any
earnings to provide for the Company's growth. Any future determination to pay
dividends will be at the discretion of the Board of Directors, and dependent
upon the Company's financial condition, results of operations, capital
requirements and such other factors as the Board of Directors deems relevant.
On October 30, 1996, the Company issued 93,400 shares of Common Stock to Data
Cell Systems, Inc. as part of the consideration for the acquisition of
substantially all the assets of Data Cell Systems, Inc.
In connection with the N&L Merger, on May 14, 1997, the Company issued 400,000
shares of Common Stock to the former shareholders of N&L in exchange for all of
the outstanding shares of N&L common stock.
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On May 28, 1997, the Company issued 186,047 shares of Common Stock to Paramount
Communication Systems, Inc. as consideration for the acquisition of
substantially all the assets of Paramount Communication Systems, Inc.
On June 1, 1997, the Company issued 55,814 shares of Common Stock to SCC as
consideration for the acquisition of substantially all the assets of SCC.
In connection with the MTS Merger, on June 30, 1997, the Company issued
2,380,000 shares of Common Stock to the former shareholder of MTS in exchange
for all of the outstanding shares of MTS common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Statements appearing in the following discussion that are not historical facts
are forward-looking statements ("forward-looking statements") within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created by those sections. Such forward-looking statements are
necessarily estimates reflecting the best judgment of the Company's management
based upon current information and involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such risks, uncertainties and other factors
include, but are not limited to, those set forth below under the caption
"Cautionary Statements" and appearing elsewhere in this Annual Report and
appearing from time to time in filings made by the Company with the Securities
and Exchange Commission. These risks, uncertainties and other factors should
not be construed as exhaustive and the Company does not undertake, and
specifically disclaims any obligation, to update any forward-looking statements
to reflect occurrences or unanticipated events or circumstances after the date
of such statements. See "ITEM 1. DESCRIPTION OF BUSINESS -- Forward-Looking
Statements."
In addition, the following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and the notes thereto and
the other financial data appearing elsewhere in this Annual Report.
Fiscal 1997 Acquisitions
During fiscal 1997, the Company completed six acquisitions.
On July 2, 1996, the Company acquired substantially all the assets of East Coast
Tower, Inc., a Greensborough, North Carolina-based builder of wireless
transmitting and receiving facilities, for approximately $90,000 in cash. This
acquisition was accounted for as a purchase.
On October 30, 1996, the Company acquired substantially all the assets of Data
Cell Systems, Inc., a builder of wireless transmitting and receiving facilities
located in Gilbert, Arizona (located just outside Phoenix, Arizona), in exchange
for $160,000 in cash and 93,400 shares of Common Stock. The purchase price of
the assets acquired from Data Cell Systems, Inc. is subject to increase by an
amount not to exceed $200,000 in the aggregate if certain pre-tax earnings
targets are achieved during the three fiscal years immediately following the
date of the acquisition and if certain other conditions are met. This
acquisition was accounted for as a purchase.
On May 14, 1997, the Company, through a wholly-owned subsidiary, merged (the
"N&L
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<PAGE>
Merger") with Novak & Lackey Construction Co., an Oklahoma corporation
("N&L"). N&L is based in Oklahoma City, Oklahoma and builds wireless
communications facilities and switching facilities primarily for providers of
wireless communications services in the Western half of the U.S. In connection
with the N&L Merger, the Company issued 400,000 shares of Common Stock for all
of the outstanding shares of N&L common stock. As a result of the N&L Merger,
N&L became a wholly-owned subsidiary of the Company. The N&L Merger was
accounted for as a pooling-of-interests and, accordingly, the Company's
financial statements for periods prior to the N&L Merger have been restated to
include the results of N&L for all periods presented.
On May 28, 1997, the Company acquired substantially all the assets of
Paramonut Communication Systems, Inc., a builder of wireless transmitting and
receiving facilities located in Somerdale, New Jersey, in exchange for 186,047
shares of Common Stock. This acquisition was accounted for as a purchase.
On June 1, 1997, the Company acquired substantially all the assets of Specialty
Constructors Coatings, Inc. ("SCC"), a Cedar Crest, New Mexico-based provider of
lead abatement and other remediation and refinishing services for elevated metal
structures such as water towers, in exchange for 55,814 shares of Common Stock.
Until March 1, 1997, Michael R. Budagher, Chairman and Chief Executive Officer,
Treasurer and a director of the Company owned 50% of the common stock of SCC. On
March 1, 1997, Mr. Budagher sold his interest in SCC to two unaffiliated third
parties pursuant to the exercise of an warrant to purchase Mr. Budagher's SCC
stock granted by Mr. Budagher in 1996. Following the acquisition of the assets
of SCC, the assets were transferred to Specialty Fortress, Inc., a Nevada
corporation ("Specialty Fortress") and a wholly-owned subsidiary of the Company.
Specialty Fortress subsequently changed its corporate name to Specialty
Constructors Coatings, Inc. This acquisition was accounted for as a purchase.
On June 30, 1997, the Company, through a wholly-owned subsidiary, merged (the
"MTS Merger") with Microwave Tower Service, Inc., an Oregon corporation ("MTS").
MTS is based in Salem, Oregon, and designs, engineers, constructs and installs
wireless communications facilities primarily for providers of wireless
communications services in the Western half of the U.S. In addition, MTS
manufactures and distributes a line of tower installation products used in the
implementation, installation and maintenance of wireless communications
facilities. In connection with the MTS Merger, the Company issued 2,380,000
shares of Common Stock for all of the outstanding shares of MTS common stock. As
a result of the MTS Merger, MTS became a wholly-owned subsidiary of the Company.
The MTS Merger was accounted for as a pooling-of-interests and, accordingly, the
Company's financial statements for periods prior to the MTS Merger have been
restated to include the results of MTS for all periods presented.
Results of Operations
Comparison of the Fiscal Years Ended June 30, 1997 and 1996
Revenues. For the fiscal year ended June 30, 1997, revenues increased to
$65,626,800 from $32,585,986 in the fiscal year ended June 30, 1996, which
represents an increase of $33,040,814 or 101% over fiscal 1996. This increase
in revenues resulted primarily from growth in the Company's wireless
infrastructure building and implementation services and wireless infrastructure
components businesses. During the fiscal year ended June 30, 1997, two
customers represented approximately 32% of the Company's revenues; Western
Wireless Corporation 20% and AT&T Wireless Systems, Inc. 12%.
Gross Profit. Gross profit for fiscal year ended June 30, 1997 increased
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<PAGE>
$5,231,735 or 75% from $6,983,515 in fiscal 1996 to $12,215,250 in fiscal 1997.
This increase resulted primarily from growth in the Company's wireless
infrastructure building and implementation services and wireless infrastructure
components businesses associated with the build-out of new PCS networks and the
expansion of existing cellular telephone networks. Gross profit as a percentage
of revenue decreased from 21% in fiscal 1996 to 19% in fiscal 1997, primarily
due to higher use of subcontract labor during fiscal 1997 and decreases in labor
efficiency resulting from relatively lower business activity experienced during
the Company's fourth fiscal quarter. See "ITEM 1. DESCRIPTION OF BUSINESS --
Other Recent Developments."
Selling, General and Administrative ("SG&A") Expenses. As a percentage of
revenues, SG&A expenses decreased from 10% of revenues in fiscal 1996 to 9% of
revenues in fiscal 1997. SG&A expenses increased $2,505,262 or 73% from
$3,410,546 in fiscal 1996 to $5,915,808 in fiscal 1997. The decrease in SG&A
expenses as a percentage of revenue was primarily attributable to increased
operating and administrative efficiencies realized during the fiscal year. The
increase in SG&A expenses resulted primarily from increased marketing and
administrative expenses associated with additional personnel added to
accommodate the Company's growth and costs incurred in connection with the
Company's acquisitions during the year.
Net Earnings. Net earnings increased $2,492,166 or 78% to $5,687,742 in the
fiscal year ended June 30, 1997 from $3,195,576 in the fiscal year ended June
30, 1996. This increase resulted primarily from growth in the Company's wireless
infrastructure building and implementation services and wireless infrastructure
components businesses associated with the build-out of new PCS networks and the
expansion of existing cellular telephone networks. As a percentage of revenue,
net earnings decreased from 10% in fiscal 1996 to 9% in fiscal 1997, primarily
due to (i) higher use of subcontract labor during fiscal 1997, (ii) decreases
in labor efficiency resulting from relatively lower business activity
experienced during the Company's fourth fiscal quarter, and (iii) costs incurred
in connection with the Company's acquisitions during the year. See "ITEM 1.
DESCRIPTION OF BUSINESS -- "Recent Acquisition's" and "Other Recent
Developments."
Redemption of Public Warrants; Exercise of Underwriters' Warrants
On February 20, 1997, the Company notified registered holders of its Public
Warrants that the Company intended to redeem all unexercised Public Warrants on
March 26, 1997 (the "Redemption Date") for a redemption price of $.05 per Public
Warrant. The Public Warrants were issued in November 1994 in connection with
the Company's initial public offering. Each Public Warrant entitled the holder
thereof to purchase one (1) share of Common Stock at an exercise price of $6.00
per share. The total number of Public Warrants issued was 500,000, none of which
had been exercised at February 20, 1997. Prior to the Redemption Date,
approximately 499,670 Public Warrants were exercised resulting in the issuance
by the Company of approximately 499,670 shares of Common Stock. Following the
Redemption Date, the Company redeemed the remaining Public Warrants. In
addition, during fiscal 1997, the underwriters of the Company's 1994 initial
public offering exercised all of the 50,000 Underwriters' Warrants
("Underwriters' Warrants") issued to the underwriters in connection with the
Company's 1994 initial public offering resulting in the issuance by the Company
of 150,000 shares of Common Stock. The Company received approximately
$3,607,000 in net proceeds in connection with the exercise of the Public
Warrants and the Underwriters' Warrants, substantially all of which were used
for additional vehicles, equipment and facilities used in the Company's wireless
infrastructure building and implementation services business.
Liquidity and Capital Resources
At June 30, 1997, the Company had cash and temporary investments totaling
$989,720, a decrease of $2,422,898 from June 30, 1996. In addition, at June 30,
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<PAGE>
1997, the Company had $769,850 of available for sale securities, an increase of
$473,815 from June 30, 1996. During the fiscal year ended June 30, 1997, cash
utilized for operating activities was $275,995. Net cash flow from operating
activities was impacted primarily by increases in accounts receivable associated
with increased revenues generated during fiscal 1997 as compared to fiscal 1996.
During fiscal 1997, the Company expended $3,609,094, primarily for additional
vehicles, equipment and facilities used in the Company's wireless infrastructure
building and implementation services business.
Net cash generated by financing activities during fiscal 1997 was $1,936,006,
consisting of short-term borrowings under the Company's existing lines of credit
and long-term borrowings for property and equipment, plus the net proceeds
received by the Company in connection with the exercise prior to redemption of
Public Warrants and the exercise of Underwriters' Warrants. At June 30, 1997,
approximately $1,115,000 of proceeds from the Company's initial public offering
remained, a decrease of approximately $2,065,000 from June 30, 1996. At
present, the Company intends to utilize the majority of the unexpended proceeds
to effect acquisitions and for working capital and other general corporate
needs.
At June 30, 1997, the Company had two available lines of credit for working
capital use. The first is for $6 million with Norwest Bank New Mexico, which is
secured by accounts receivable and other intangibles of subsidiary companies of
Speciality Teleconstructors, Inc., interest accrues at the prime rate plus 1/2%,
which totals 9% at June 30, 1997. At June 30, 1997, borrowings under the line
totaled $772,928, leaving $5,227,072 available for the future borrowings. The
final maturity date on this line is November 1997. The other line of credit
with Western Bank of Salem, Oregon is for Microwave Tower Service, Inc. in the
amount of $4 million, which is secured by a major stockholder of the Company.
Interest accrues at the prime rate plus 1%, which totals 9 1/2% at June 30,
1997. At June 30, 1997, borrowings under the line totaled $2,614,982, leaving
$1,385,018. Final maturity of this line is May 1988.
The Company's future cash requirements for fiscal 1998 and beyond will depend
primarily upon the level of wireless infrastructure building and implementation
business conducted by the Company, the level of working capital needed to
generate the revenues associated with such business and acquisition
opportunities. The Company believes that revenues from operations, amounts
available under the lines of credit noted above and other capital resources
available to the Company will be adequate to satisfy its working capital
requirements for at least the next twelve months.
To date, the Company has derived substantially all its revenues from sales
in the U.S. and inflation has not had a significant effect on the Company's
business. The Company does not currently expect inflation to adversely affect
the Company in the future unless it increases significantly in the U.S. or
unless the Company begins doing business outside the U.S. in countries in which
inflation is significantly higher than in the U.S. See "ITEM 6. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Cautionary Statements -- Risks Associated with Potential Operations Outside the
U.S."
New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards ("SFAS") 128, "Earnings Per Share." SFAS 128 establishes
new standards for computing and presenting earnings per share (EPS.
Specifically, SFAS 128 replaces the currently required presentation of primary
EPS with a presentation of basic EPS, requires dual presentation of basic and
diluted EPS
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on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997; earlier application is not permitted.
Management believes that the application of SFAS 128 will not have a material
effect on the Company's future financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income." SFAS 130 establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial statements.
Specifically, SFAS 130 requires that all items that meet the definition of
components of comprehensive income be reported in a financial statement for the
period in which they are recognized. However, SFAS 130 does not specify when to
recognize or how to measure the items that make up comprehensive income. SFAS
130 is effective for financial statements issued for periods ending after
December 15, 1997 and early application is permitted. Management believes that
the application of SFAS 130 will not have a material effect on the Company's
future financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Financial Reporting for Segments of Business Enterprise." SFAS 131 suprecedes
the "industry segment" concept of SFAS 14 with a "management approach" concept
as the basis for identifying reportable segments. SFAS 131 is effective for
financial statements issued for periods ending after December 15, 1997 and early
application is permitted. Management believes that the application of SFAS 131
will not have a material effect on the Company's future financial statements.
Cautionary Statements
Dependence on the Wireless Communications Industry
The Company is dependent on the continued growth, viability and financial
stability of its customers, which are in turn substantially dependent on the
continued growth, viability and financial stability of the wireless
communications industry. The wireless communications industry is highly
competitive and has been characterized by rapid technological and regulatory
change. Examples of recent technological changes include the advent or
continued rapid development of new or enhanced wireless communications
technologies such as PCS, ESMR and MSS-based wireless communications
technologies. These technological changes could reduce, delay or make
unnecessary the expansion or construction of new wireless communications
networks, which in turn could render the Company's products and services
obsolete or noncompetitive or otherwise reduce the demand for such products and
services. A recent example of regulatory changes affecting the industry is the
enactment of the Telecommunications Act of 1996 which is expected to cause
significant changes in existing regulation of the telecommunications industry
that are intended to promote the competitive development of new services, to
expand public availability of telecommunications services and to streamline
regulation of the industry. In addition, many of the Company's customers are
affected by general economic conditions. Any downturn or other disruption of
the wireless communications industry caused by adverse competitive developments,
technological changes, government regulation, lack of available financing or
other factors would have a material adverse effect on the Company's business,
results of operations and financial condition. See "ITEM 1. DESCRIPTION OF
BUSINESS -- Other Recent Developments."
Uncertainty and Fluctuations of Operating Results.
19
<PAGE>
The Company has experienced and may continue to experience fluctuations in
quarterly and annual operating results due to variations in the amount and
timing of revenues generated by its wireless infrastructure building and
implementation services business and wireless infrastructure components
business. There can be no assurance that the Company will sustain profitability
on a quarterly or annual basis in the future. The Company's future results will
depend in part on the continued deployment of new wireless communications
networks in the U.S. and the continued success of the Company's wireless
infrastructure building and implementation services business and the Company's
ability to successfully manufacture and sell commercial scale quantities of its
wireless infrastructure components on a timely and profitable basis.
Dependence on Key Personnel
The Company relies on the business and technical expertise of its senior
management personnel and certain other key employees. The Company's future
performance depends in substantial part upon the continued contributions of
these individuals. The loss of the services of any one of these individuals
could have a material adverse effect on the Company's business, results of
operations and financial condition. In particular, the Company's future
performance is highly dependent on the continued contributions of Mr. Michael R.
Budagher, a founder, director and the Company's Chairman of the Board,
President, Chief Executive Officer and Treasurer. The loss of the services of
Mr. Budagher would have a material adverse effect on the Company's business,
results of operations and financial condition. Mr. Budagher is not bound by an
employment agreement with the Company and no assurance can be given that his
services will be available at acceptable levels of compensation. The Company
currently maintains key-man life insurance in the amount of $7,000,000 on Mr.
Budagher. However, the Company believes that the proceeds from such insurance
would not be sufficient to compensate it for the loss of Mr. Budagher's
services.
Dependence on Labor Force
The Company's future success is also dependent on its ability to attract and
retain experienced, highly qualified technical employees, project managers and
other key employees who perform and manage the wireless infrastructure building
and implementation services provided by the Company. The Company believes there
is, and there will continue to be, intense competition for the services of these
individuals from competitors in the wireless infrastructure development and
implementation industry and from providers of wireless communications services.
The loss of significant numbers of the Company's current technical and project
management personnel or the inability to attract and retain sufficient numbers
of additional technical and project management personnel to support the
expansion of the Company's business would have a material adverse effect on the
Company's business, results of operations and financial condition. There can be
no assurance that the Company will be able to retain its key employees or that
it will be able to attract or retain other experienced, highly qualified
technical and project management personnel in the future. See "ITEM 1. BUSINESS
- --Employees."
Risks Associated with Providing Financing to Customers
There are a number of risks associated with the Company's plans to pursue
opportunities to provide financing to customers in return for new business. The
Company's ability to develop and implement a customer finance program will
depend on a number of factors, including the Company's capital structure, level
of available credit and ability to provide financing in conjunction with third-
party financing sources. There can be no assurance that the Company will be able
to
20
<PAGE>
arrange or provide such financing on terms and conditions, and in amounts, that
will be satisfactory to potential customers. Many of the Company's competitors
have substantially greater financial and other resources than the Company, which
may enable them to offer more favorable financing terms and thereby obtain a
competitive advantage. The inability to successfully develop and implement a
competitive customer finance program or to successfully compete for new business
could have a material adverse effect on the Company's business, results of
operations and financial condition.
In addition, in order to develop and implement a customer finance program, the
Company will be required to expose itself to significant project, market,
political and credit risks. Although the Company currently intends to seek to
have third parties assume a significant portion of the credit risk associated
with providing financing to the Company's customers, there can be no assurance
that the Company will be able to do so. There can be no assurance that the
Company will be able to provide such financing either alone or in conjunction
with third-party financing sources. There can be no assurance that the Company
will be able to obtain new business as a result of its efforts to provide
financing or that any new business obtained will be profitable. Providing
financing to customers will expose the Company to all the financial risks
inherent in the customer's business and there can be no assurance that the
customer will be able to repay or return the Company's investment within an
acceptable period of time or at all. The failure of a customer to repay or
return the Company's investment or otherwise fulfill its obligations with
respect to customer financing provided by or through the Company could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Risks Related to Acquisitions
As a key component of its business strategy, over the past two fiscal years, the
Company has made eight acquisitions of assets or companies. See "ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Fiscal 1997 Acquisitions." Execution of this component of its
business strategy requires the Company's management to, among other things, (i)
identify geographic markets in which the Company can successfully compete, (ii)
identify acquisition candidates who are willing to be acquired at prices and on
terms acceptable to the Company, and (iii) consummate identified acquisitions.
In addition, it is possible that future acquisitions will require the Company to
obtain additional financing either to consummate the acquisition or to provide
additional working capital to facilitate the increased level of business
activity caused by the acquisition. Certain risks are inherent in an
acquisition strategy, such as dilution of outstanding equity securities,
increased leverage and debt service requirements, the difficulty in combining
different company cultures and facilities and the possibility of significant
turnover among key employees of the acquired company following the acquisition,
any of which could materially adversely affect the Company's operating results
or the market price of the Common Stock prevailing from time to time. The
success of any completed acquisition will depend in part on the Company's
ability to effectively integrate the acquired business, which integration may
involve unforeseen difficulties and may require a disproportionate amount of
management's attention and the Company's financial and other resources.
The Company is currently considering several acquisitions of companies engaged
in the wireless infrastructure building and implementation services that the
Company believes can complement or expand the Company's current customer base
and ability to provide wireless infrastructure building and implementation
services to its customers. The Company has entered into a Letter of Intent to
acquire
21
<PAGE>
substantially all the assets of Ellis Tower Systems, Inc., a builder of wireless
transmitting and receiving facilities located in Ft. Lauderdale, Florida, in
exchange for a combination of cash and shares of Common Stock valued at
approximately $2.25 million. Consummation of this acquisition is subject to
negotiation and execution of definitive documentation among other conditions and
there can be no assurance that the acquisition will be consummated.
No other agreement, definitive or otherwise, with respect to any potential
acquisitions has been reached. From time to time the Company has, and in the
future may continue to, enter into negotiations with respect to potential
acquisitions for these purposes, some of which have resulted or may result in
preliminary agreements. In the course of these negotiations and/or due
diligence, these negotiations and/or preliminary agreements may be abandoned,
modified or terminated. No assurance can be given that the Company will
complete any of the acquisitions currently under consideration, that additional
suitable acquisition candidates will be identified, that such future
acquisitions, if any, will be made on terms acceptable to the Company, or that
future acquisitions, if completed, will be successful.
Possible Need for Additional Financing
During the past two fiscal years, the Company has made significant expenditures
for the acquisition of new equipment used primarily in the Company's wireless
infrastructure building and implementation services business and to make certain
of the Company's recent acquisitions. In addition, the Company has recently
begun an effort to develop a customer finance program designed to enable the
Company to provide financing to customers in return for new business. To the
extent that the Company's cash resources are insufficient to fund the Company's
activities, the Company will be required to raise additional funds. The Company
may, from time to time, seek additional funding through public or private
financing, including debt or equity financing. There can be no assurance that
adequate funding will be available as needed on terms acceptable to the Company,
or at all. If additional funds are raised by issuing equity or convertible debt
securities, existing stockholders may experience dilution. Insufficient funds
may inhibit future growth or require the Company to scale back or eliminate some
or a significant part of its business.
Competition
Competition in the wireless infrastructure building and implementation services
and wireless infrastructure components businesses is intense and many of the
Company's competitors have financial, technical, marketing, sales,
manufacturing, distribution and other resources substantially greater than those
of the Company. There can be no assurance that the Company will be able to
compete effectively or that future increases or changes in competition will not
have a material adverse effect on the Company's business, results of operations
and financial condition. See "ITEM 1. DESCRIPTION OF BUSINESS -- Competition."
Product Liability
The manufacturing, marketing and use of the Company's wireless infrastructure
components entail the risk of product liability. While the Company currently has
product liability insurance that it believes is adequate to protect against
product liability claims, no assurance can be given that the Company will be
able to continue to maintain such insurance at a reasonable cost or in
sufficient amounts to protect the Company against losses due to product
liability. An inability to maintain insurance at an acceptable cost or to
otherwise protect against potential product liability could prevent or inhibit
the Company's
22
<PAGE>
ability to market its wireless infrastructure components. In addition, a product
liability claim or recall could have a material adverse effect on the business,
results of operations and financial condition of the Company.
Risks Associated with Potential Operations Outside the U.S.
To date, the Company has derived substantially all its revenues from sales in
the U.S. Consequently, the Company has very little experience doing business
outside the U.S. However, recently the Company has increased its efforts to
exploit certain market opportunities the Company believes may be available to
the Company to perform wireless infrastructure building and implementation
services and sell wireless infrastructure components in connection with the
development of new wireless communications networks outside the U.S. as a method
for obtaining future business. Although the Company has been approached
regarding the possibility of becoming involved in certain wireless
infrastructure development activities outside the U.S., the Company has reached
no agreements with respect to any such involvement. There can be no assurance
the Company's efforts to exploit business opportunities outside the U.S. will be
successful or that any business so obtained will be profitable to the Company.
If the Company does begin to do business outside the U.S., the Company will be
subject to the risks of doing business internationally, including unexpected
changes in regulatory requirements; fluctuations in foreign currency exchange
rates; imposition of tariffs and other barriers and restrictions; the burdens of
complying with a variety of foreign laws; and general economic and geopolitical
conditions, including inflation and trade relationships. There can be no
assurance that currency fluctuations, changes in the rate of inflation or any of
the aforementioned factors will not have a material adverse effect on the
Company's business, results of operations and financial condition.
Government Regulation
The wireless communications industry is subject to regulation by state
regulatory agencies, the FCC, Congress, the courts and other governmental
bodies. There can be no assurance that any of these governmental bodies will not
adopt or change regulations or take other actions that would adversely affect
the wireless communications industry and the Company's business, results of
operations and financial condition.
The Telecommunications Act of 1996 is expected to cause significant changes in
existing regulation of the telecommunications industry that are intended to
promote the competitive development of new services, to expand public
availability of telecommunications services and to streamline regulation of the
industry. These changes include requirements that local exchange carriers must:
(i) permit other competitive carriers, which may include many wireless
communications service providers, to interconnect to their networks, (ii)
establish reciprocal compensation agreements with competitive carriers to
terminate traffic on each other's networks, and (iii) offer resale of their
local loop facilities. The implementation of these requirements by the FCC and
state authorities potentially involves numerous changes in established rules and
policies that could adversely affect the wireless communications industry and
the Company's business, results of operations and financial condition.
In addition, the construction and installation of wireless transmitting and
receiving facilities are often subject to state or local zoning, land use and
other regulation. Such regulation may include zoning, environmental and
building permit approvals or other state or local certification. The
Telecommunications Act of 1996 provides that state and local authority over the
placement, construction and modification of personal wireless services
(including CMRS and
23
<PAGE>
unlicenced wireless services) shall not prohibit or have the effect of
prohibiting personal wireless services or unreasonably discriminate among
providers of functionally equivalent services. Although state and local zoning
authorities retain their rights over land use, their actions cannot have the
effect of banning wireless services or picking and choosing among similar
wireless providers.
Alleged Health Risks Related to RF Emissions
Allegations have been raised that the use of cellular telephones and other
wireless communications devices may pose health risks to humans due to RF
emissions from the handsets. Studies performed by wireless telephone equipment
manufacturers dispute these allegations, and a major industry trade association
and certain governmental agencies have stated publicly that the use of such
phones poses no undue health risk. Regardless of the truth of these allegations,
they could have an adverse effect on the wireless communications industry which
in turn could have an adverse effect on the Company. In addition, digital
wireless telephones have been shown to cause interference to some electronic
devices, such as hearing aids and pacemakers.
Concerns over RF emissions also may have the effect of discouraging the use of
wireless communications. The FCC currently is conducting a rulemaking proceeding
to update the guidelines and methods used for evaluating RF emissions from radio
equipment, including wireless telephones. The FCC's proposal, if adopted, would
impose more restrictive standards on RF emissions from devices such as hand-held
cellular and PCS telephones. These concerns could have an adverse effect on the
wireless communications industry which in turn could have an adverse effect on
the Company.
Seasonality of Installation Activities
Historically, the rate at which contracts for the installation and retrofit of
wireless communications facilities are awarded has been lower during the period
from January 1 to March 31 of each year due to contracting practices of many
providers of wireless communications. In addition, cold weather and the limited
daylight hours in the winter months in certain markets have lowered the revenues
received from wireless infrastructure building and implementation services
during these months. Therefore, the Company may experience lower than average
revenues during the winter season.
Volatility of Stock Price
Historically, the Company's stock price has been volatile. The sales prices for
the Company's Common Stock have ranged from $3.938 to $16.25 during the fiscal
year ended June 30, 1997. See "ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS." Future announcements concerning the Company or its
competitors or the wireless communications industry, changes in recommendations
of securities analysts, government regulations or other events, may have a
significant impact on the market price of the Company's Common Stock. The
Company's future earnings and stock price may be subject to significant
volatility, particularly on a quarterly basis. Any shortfalls in revenues or
earnings from the levels expected by securities analysts could have an immediate
and significant adverse effect on the trading price of the Company's Common
Stock in any given period.
Transactions with Affiliates
The Company often enters into transactions with its affiliates and other persons
24
<PAGE>
or entities affiliated with the Company or its affiliates. There are numerous
conflicts of interest between the Company and its affiliates, particularly
between the Company and entities that are affiliated with individuals having
executive responsibility for the Company. Typically, these include the
possibility of channeling business to entities other than the Company that is
more appropriately business of the Company, the Company paying excessive prices
to affiliated entities, or the Company subsidizing the affiliated entity by
charging less than market rates. The Company has extensive experience in costing
the services it provides, and management of the Company believes that the
Company's costing to affiliated entities is consistent with its general costing.
Similarly, products or services received by the Company from affiliated entities
have been at substantially the same rates charged other enterprises. The
Company has compared these rates prior to engagement with independent quotes or
with rates charged by other entities. None of the agreements or arrangements
with affiliates are subject to adjustment.
While there has been no independent determination as to the fairness of the
Company's transactions with affiliated entities, the Company's Board of
Directors has reviewed these transactions and has found the terms of these
transactions to be fair and reasonable to the Company. Management of the Company
believes that the transactions with affiliated entities that occurred in the
past have been fair and reasonable to the Company and that practical measures
have been taken to assure that any such transactions in the future will be fair
and reasonable to the Company.
Outstanding Options; Risk of Further Dilution
As of June 30, 1997, the Company has outstanding options to purchase a total of
633,845 shares of Common Stock at a weighted average exercise price of $8.85 per
share including 395,000 options granted under the Company's Amended and Restated
1994 Stock Option Plan; 20,000 options granted under the Company's Outside
Directors' Stock Option Plan; and 218,000 shares granted under the Company's
1997 Stock Incentive Plan. Of these options, 405,845 are currently exercisable
including all the options granted under the Amended and Restated 1994 Stock
Option Plan and all the options granted to date under the Outside Directors'
Stock Option Plan. All of the options granted to date under the Company's 1997
Stock Incentive Plan were granted subject to ratification and approval of the
1997 Stock Incentive Plan by the Company's stockholders at the Company's Annual
Meeting for the fiscal year ended June 30, 1997. In the future, the price which
the Company would receive for its Common Stock upon exercise of such options
could be significantly less than the value of, or market price for, the Common
Stock at the time such options are exercised. While such options are
outstanding, the holders thereof are given, at little or no cost, the
opportunity to profit from a rise, if any, in the value of or market price (if
any) for the Common Stock without assuming the risk of ownership. To the extent
that any such options are exercised, the interests of the Company's stockholders
will be diluted proportionately.
No Intention to Pay Dividends
The Company has never declared or paid any cash dividends on the Common Stock
and does not anticipate paying dividends on the Common Stock at any time in the
near future. The current policy of the Company's Board of Directors is to
retain earnings, if any, to provide funds for operations and expansion of the
Company's business. Any future determination as to the payment of dividends
will be at the discretion of the Board of Directors of the Company and will
depend on the Company's earnings, capital requirements, and financial condition
and such other factors as the Board of Directors may deem relevant.
25
<PAGE>
Limitations on Director Liability
Section 78.751 of the General Corporation Law of Nevada ("NGCL") empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, except an action by or
in the right of the corporation, by reason of the fact that he or she is or was
a director, officer, employee or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit or proceeding if the person indemnified
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. In the case of any action by or in the right of the
corporation, no indemnification may be made in respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation or for amounts paid in settlement to the corporation unless and only
to the extent that the court in which such action or suit was brought or other
court of competent jurisdiction determines that in view of all the circumstances
of the case such person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. Section 78.751 of the NGCL further
provides that to the extent a director or officer of a corporation has been
successful in the defense of any action, suit or proceeding referred to above or
in the defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith.
The Company's Articles of Incorporation, as amended (the "Articles"), and
Restated By-Laws provide, in effect, that to the extent and under the
circumstances permitted by Section 78.751 of the NGCL and subject to certain
conditions, the Company shall indemnify any person who was or is a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding of the type described above by reason of the fact that he or she is
or was a director or officer of the Company or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation.
The indemnification provisions set forth in the Articles and the Company's By-
laws provide for broad indemnification under Nevada law with no express
exclusion for liabilities arising under or in connection with the Securities
Act. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. At present, there is no pending litigation or
proceeding involving a director or officer of the Company in which
indemnification is required or permitted, and the Company is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is included in the Company's
Consolidated Financial Statements and the notes thereto beginning on
page F-1 of this Annual Report.
26
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Reference is made to the information set forth under the caption "DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT" appearing in the Proxy Statement to be filed within 120
days after the end of the Company's fiscal year, which information is
incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption "EXECUTIVE
COMPENSATION" appearing in the Proxy Statement to be filed within 120 days after
the end of the Company's fiscal year, which information is incorporated herein
by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information set forth under the caption "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" appearing in the Proxy
Statement to be filed within 120 days after the end of the Company's fiscal
year, which information is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information set forth under the caption "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" appearing in the Proxy Statement to be
filed within 120 days after the end of the Company's fiscal year, which
information is incorporated herein by reference.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
2.1 Agreement and Plan of Merger, dated as of March 31,
1997 (the "Merger Agreement") among Novak & Lackey
Construction Co., Inc., an Oklahoma corporation, the
Frank D. Lackey Revocable Trust, the Jo LaVern Lackey
Revocable Trust, the Jay Christopher Lackey Trust,
Specialty Teleconstructors, Inc., a Nevada corporation
("STI") and N&L Acquisition, Inc., an Oklahoma
corporation and a wholly-owned subsidiary of STI (2)
2.2 Agreement and Plan of Merger dated as of June 30, 1997
among Microwave Tower Service, Inc., an Oregon
corporation ("MTS"), each of the stockholders listed on
Exhibit 1 to the Agreement and Plan of Merger,
Specialty Teleconstructors, Inc., a Nevada corporation
("STI") and MTS Acquisition, Inc., a wholly-owned
subsidiary of STI (3)
27
<PAGE>
3.1 Articles of Incorporation of the Registrant, as amended
(4)
3.2 Amendment No. 1 to the Articles of Incorporation of the
Registrant(4)
3.3 Restated By-laws of the Registrant(1)
4.1 Specimen Common Stock Certificate, par value $.01, of
the Registrant(5)
4.2 Specimen Redeemable Common Stock Purchase Warrant
Certificate of the Registrant(6)
4.3 Warrant Agreement, dated November 4, 1994, by and among
the Registrant, American Stock Transfer & Trust Company
and Thomas James & Associates, Inc.(6)
4.4 Underwriters' Warrant dated as of November 4, 1994
issued to Thomas James & Associates, Inc.(6)
4.5 Underwriters' Warrant dated as of November 4, 1994
issued to Dillon-Gage Securities, Inc.(6)
4.6 Form of Notice of Redemption of Redeemable Common Stock
Purchase Warrants (6)
10.1 Amended and Restated 1994 Stock Option Plan of
Specialty Teleconstructors, Inc. (4)
10.2 Outside Directors Stock Option Plan of Specialty
Teleconstructors, Inc. (5)
10.3 Specialty Teleconstructors, Inc. 1997 Stock Incentive
Plan (1)
10.4 Revolving Line of Credit Agreement, dated April 12,
1994 between the Registrant and First State Bank of
Albuquerque, New Mexico.(5)
10.5 Letter Agreement and Promissory Note, dated January 22,
1997, between the Registrant and Norwest Bank New
Mexico, N.A.(6)
10.6 Employment Agreement dated as of July 7, 1996, by and
between Dennis K. Hartnett and Specialty
Teleconstructors, Inc., a Nevada corporation (1)
10.7 Employment Agreement dated as of March 31, 1997, by and
between Novak & Lackey Construction Co., Inc., an
Oklahoma corporation, and Frank D. Lackey (2)
10.8 Asset Purchase Agreement dated as of May 28, 1997 among
Paramount Communications Systems, Inc., a New Jersey
corporation, Michael Moskowitz, the sole shareholder of
Paramount, Specialty
28
<PAGE>
Constructors, Inc., a New Mexico corporation and
Specialty Teleconstructors, Inc., a Nevada corporation
(7)
10.9 Employment Agreement dated as of June 30, 1997, by and
between Microwave Tower Services, Inc., an Oregon
corporation ("MTS"), and Ernie L. Carpenter (1)
21 Subsidiaries of the Registrant(1)
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule(1)
__________________
(1) Filed herewith
(2) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-QSB for
the Fiscal Quarter Ended March 31, 1997
(3) Filed as an to the Registrant's Current Report on Form 8-K filed on July
15, 1997
(4) Filed as an Exhibit to the Registrant's Registration Statement on Form S-8,
SEC File No. 333-18899
(5) Filed as an Exhibit to the Registrant's Registration Statement on Form SB-
2, SEC File No. 33-79998-D
(6) Filed as an Exhibit to the Registrant's Registration Statement on Form SB-
2, SEC File No. 333-21027
(7) Filed as an to the Registrant's Current Report on Form 8-K filed on July
30, 1997
(b) Reports on Form 8-K
The Registrant did not file any Current Reports on Form 8-K during the
fiscal year ended June 30, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: September 15, 1997
SPECIALTY TELECONSTRUCTORS, INC.
By: /s/ MICHAEL R. BUDAGHER
------------------------------------
Michael R. Budagher, Chairman of the
Board, President, Chief Executive
Officer and Treasurer
By: /s/ DENNIS K. HARTNETT
------------------------------------
Dennis K. Hartnett, Chief Accounting
Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Company and in
the capacities and on the dates indicated:
29
<PAGE>
By: /s/ MICHAEL R. BUDAGHER
------------------------------------
Date: September 15, 1997 Michael R. Budagher, Director
By: /s/ JOHN D. EMERY
------------------------------------
Date: September 15, 1997 John D. Emery, Director
By: /s/ TERRY D. FARMER
------------------------------------
Date: September 15, 1997 Terry D. Farmer, Director
By: /s/ JON D. WORD
------------------------------------
Date: September 15, 1997 Jon D. Word, Director
By: /s/ FRANK D. LACKEY
------------------------------------
Date: September 15, 1997 Frank D. Lackey, Director
By: /s/ERNIE L. CARPENTER
------------------------------------
Date: September 15, 1997 Ernie L. Carpenter, Director
30
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
June 30, 1997 and 1996
(With Independent Auditors' Reports Thereon)
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Specialty Teleconstructors, Inc.:
We have audited the accompanying consolidated balance sheets of Specialty
Teleconstructors, Inc. and subsidiaries, as of June 30, 1997 and 1996, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Novak & Lackey Construction Co., Inc.
(N&L), a wholly owned subsidiary as of June 30, 1996 and for the year then
ended. Those financial statements of N&L reflect total assets constituting 8.47
percent and total revenues constituting 19.24 percent, respectively, of the
related consolidated totals in 1996. Those financial statements of N&L were
audited by other auditors whose report was furnished to us, and our opinion,
insofar as it relates to the amounts included for N&L, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Specialty Teleconstructors, Inc.
and subsidiaries as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
August 29, 1997
F-2
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1997 and 1996
<TABLE>
<CAPTION>
Assets (Substantially Pledged) 1997 1996
------------------------------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 989,720 3,412,618
Available for sale securities 769,850 296,035
Contracts receivable, less allowance for doubtful accounts of
$355,000 in 1997 14,740,479 9,110,279
Costs and estimated earnings in excess of billings on
uncompleted contracts (note 3) 2,233,289 1,457,004
Finished goods inventory 2,664,239 689,757
Prepaid income taxes 407,477 62,751
Other current assets 283,760 197,669
----------- ----------
Total current assets 22,088,814 15,226,113
Property and equipment, net (note 4) 8,429,906 4,164,548
Other assets, net 1,844,544 198,438
----------- ----------
$32,363,264 19,589,099
=========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Trade accounts payable $ 4,021,694 2,737,469
Lines of credit (note 6) 3,387,910 2,132,000
Notes payable to stockholder (note 7) 2,000,000 500,000
Billings in excess of costs and estimated earnings on
uncompleted contracts (note 3) 597,939 242,580
Accrued expenses 790,975 1,228,636
Current installments of notes payable (note 8) 573,798 77,620
Current income taxes (note 11) - 578,200
Deferred income taxes (note 11) 384,600 297,800
----------- ----------
Total current liabilities 11,756,916 7,794,305
Deferred income taxes (note 11) 90,000 387,100
Notes payable, excluding current installments (note 8) 2,012,081 961,856
----------- ----------
Total liabilities 13,858,997 9,143,261
----------- ----------
Stockholders' equity:
Common stock, $.01 par value. Authorized 10,000,000 shares; issued
7,876,554 and 6,872,308 shares in 1997 and 1996 (notes 9, 10 and 16) 78,765 68,723
Additional paid-in capital 12,015,667 5,344,298
Retained earnings 6,409,835 5,032,817
----------- ----------
Total stockholders' equity 18,504,267 10,445,838
Commitments (notes 5, 14 and 16)
----------- ----------
$32,363,264 19,589,099
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenues earned:
Installation services $57,250,485 28,567,033
Component sales 8,376,315 4,018,953
----------- ----------
Total revenues earned 65,626,800 32,585,986
----------- ----------
Cost of revenues earned:
Cost of installation services 48,298,454 22,571,215
Cost of components 5,113,096 3,031,256
----------- ----------
Total cost of revenues earned 53,411,550 25,602,471
----------- ----------
Gross profit on revenues earned 12,215,250 6,983,515
Selling, general and administrative expenses 5,915,808 3,410,546
----------- ----------
Earnings from operations 6,299,442 3,572,969
----------- ----------
Other income (deductions):
Gain (loss) on sale of equipment 10,489 (5,112)
Interest income 181,516 275,397
Interest expense (429,615) (82,027)
Other, net (30,590) (851)
----------- ----------
(268,200) 187,407
----------- ----------
Earnings before income taxes 6,031,242 3,760,376
Income taxes 343,500 564,800
----------- ----------
Net earnings $ 5,687,742 3,195,576
=========== ==========
Net earnings per common and common equivalent share $.78 .46
=========== ==========
Pro forma information (note 12):
Net earnings $ 5,687,742 3,195,576
Pro forma adjustment for income taxes of acquired
entity previously filing as an S Corporation 2,140,500 891,300
----------- ----------
Pro forma net earnings after adjustment
for income taxes of acquired entity $ 3,547,242 2,304,276
=========== ==========
Pro forma net earnings per common and common
equivalent share $.49 .33
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Common stock paid-in Retained
------------
Shares Amount capital earnings Total
-------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995,
as previously reported 4,092,308 $40,923 4,166,359 1,516,134 5,723,416
Adjustment for Novak &
Lackey Construction Co., Inc.
pooling of interests (note 16) 400,000 4,000 - 1,171,857 1,175,857
Adjustment for Microwave
Tower Service, Inc. pooling
of interests (note 16) 2,380,000 23,800 1,177,939 - 1,201,739
--------- ------- ---------- ---------- ----------
Balance at June 30, 1995,
as restated 6,872,308 68,723 5,344,298 2,687,991 8,101,012
Distributions of prior S Corporation
earnings - - - (850,750) (850,750)
Net earnings - - - 3,195,576 3,195,576
--------- ------- ---------- ---------- ----------
Balance at June 30, 1996 6,872,308 68,723 5,344,298 5,032,817 10,445,838
Issuance of common stock
and warrants to acquire
common stock, net 668,985 6,690 3,686,003 - 3,692,693
Acquisitions (note 16):
Data Cell Systems, Inc. 93,400 934 664,576 - 665,510
Paramount Communication
Systems, Inc. 186,047 1,860 1,728,324 - 1,730,184
Specialty Constructors Coatings, Inc. 55,814 558 592,466 - 593,024
Distributions of prior S Corporation
earnings - - - (4,310,724) (4,310,724)
Net earnings - - - 5,687,742 5,687,742
--------- ------- ---------- ---------- ----------
Balance at June 30, 1997 7,876,554 $78,765 12,015,667 6,409,835 18,504,267
========= ======= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,687,742 3,195,576
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Provision for uncollectible receivables 355,000 -
Depreciation of property and equipment 1,496,830 540,083
Amortization 134,185 94,418
Loss (gain) on sale of equipment (10,489) 5,112
Changes in certain assets and liabilities:
Contracts receivable (4,636,796) (5,108,595)
Prepaid income taxes (344,726) 290,631
Costs and estimated earnings in excess of billings on
uncompleted contracts (945,959) (703,645)
Finished goods inventory (1,769,594) (433,727)
Trade accounts payable 808,416 2,033,040
Billings in excess of costs and estimated earnings on
uncompleted contracts 355,359 (61,740)
Accrued expenses (444,544) 693,592
Current income taxes (578,200) 577,187
Deferred income taxes (210,300) (286,737)
Other assets (172,919) (44,167)
----------- ----------
Net cash (used in) provided by operating activities (275,995) 791,028
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment, net (3,609,094) (3,252,856)
Purchases of available for sale securities, net (473,815) (4,082)
----------- ----------
Net cash used in investing activities (4,082,909) (3,256,938)
----------- ----------
Cash flows from financing activities:
Lines of credit, net 1,255,910 1,362,000
Borrowings from notes payable 661,500 888,979
Principal payments on notes payable (783,110) (125,686)
Borrowings from notes payable to stockholder 2,000,000 500,000
Principal payments on notes payable to stockholder (500,000) -
Proceeds from sale of common stock and warrants to acquire
common stock, net 3,692,693 -
Distributions of prior S Corporation earnings (4,310,724) (850,750)
Acquisitions, net of cash acquired (80,263) -
----------- ----------
Net cash provided by financing activities 1,936,006 1,774,543
----------- ----------
Net decrease in cash and cash equivalents (2,422,898) (691,367)
Cash and cash equivalents at beginning of year 3,412,618 4,103,985
----------- ----------
Cash and cash equivalents at end of year $ 989,720 3,412,618
=========== ==========
</TABLE>
(Continued)
F-6
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid $ 478,177 108,707
========== =========
Taxes paid $1,318,977 1,142,009
========== =========
Noncash investing and financing activities:
Acquisition of vehicles in exchange for notes payable $1,208,056 -
========== =========
</TABLE>
Acquisition of net assets of Paramount Communication Systems, Inc., Data Cell
Systems, Inc., and Specialty Constructors Coatings, Inc. in exchange
for common stock of the Company in the year ended June 30, 1997. Fair
value of assets acquired and liabilities assumed at the date of the
acquisition were as follows:
<TABLE>
<S> <C>
Contracts receivable $1,348,404
Costs and estimated earnings in excess of billings on
uncompleted contracts (169,674)
Finished goods inventory 204,888
Property and equipment 934,550
Goodwill 1,593,397
Other assets 100,066
Trade accounts payable (475,809)
Accrued expense (6,883)
Notes payable (459,957)
Common stock issued (2,988,719)
=========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997 and 1996
(1) Organization and Description of Business
----------------------------------------
Specialty Teleconstructors, Inc. (the Company) is headquartered in Cedar
Crest, New Mexico and was formed as a holding company to combine the
operations of its wholly owned subsidiaries, Specialty Constructors,
Inc., Specialty Acquisitions, Inc., Specialty Management, Inc., Specialty
Combined Resources, Inc., and Specialty Fortress, Inc. The Company
designs, builds, installs, modifies and maintains (collectively, wireless
infrastructure building and implementation services) wireless
communications transmitting and receiving facilities primarily for
providers of wireless communications services. In addition, the Company
provides electrical design, engineering, and testing services
(collectively, wireless infrastructure design and engineering services)
and site acquisition and evaluation services (site acquisition services)
in connection with the installation and relocation of wireless
communications facilities. The Company also manufactures and sells
components to the wireless communications industry. The Company's
customers are located throughout the country.
Effective March 31, 1997, the Company merged with Novak & Lackey
Construction Co., Inc. (N&L) and on June 30, 1997, the Company merged
with Microwave Tower Service, Inc. (MTS). Both transactions were
accounted for as pooling of interests business combinations. Accordingly,
the Company's consolidated financial statements prior to the combination
have been restated to reflect the combined operations (see note 16) for
all periods presented.
(2) Summary of Significant Accounting Policies
------------------------------------------
(a) Principles of Consolidation
---------------------------
The consolidated financial statements include the financial statements
of Specialty Teleconstructors, Inc. and its wholly owned
subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
(b) Revenue Recognition
-------------------
Revenues from fixed-price construction contracts are recognized on the
percentage-of-completion method. Contract costs include all direct
material and labor costs and those indirect costs related to
contract performance. Selling, general and administrative costs are
charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses
are determined.
(Continued)
F-8
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Costs and estimated earnings in excess of billings on uncompleted
contracts represents revenues recognized in excess of amounts
billed. Billings in excess of costs and estimated earnings on
uncompleted contracts represents billings in excess of revenues
recognized.
Revenues from the sale of components are recognized upon shipment to
the customer.
(c) Statements of Cash Flows
------------------------
For purposes of statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
(d) Available for Sale Securities
-----------------------------
Investment securities consist of stocks, municipal bonds and mutual
funds. In accordance with Statement of Financial Accounting Standard
(SFAS) No. 115, the Company's investments are classified as
available for sale. Available for sale securities are recorded at
fair value based on the market value as provided by brokers/dealers.
Unrealized holding gains and losses, net of the related tax effect,
are reported as a separate component of stockholders' equity.
Realized gains and losses from the sale of available for sale
securities are determined on a specific identification basis.
A decline in the market value of any available for sale security below
cost that is deemed to be other than temporary results in a
reduction in carrying amount to fair value. The impairment is
charged to earnings and a new cost basis for the security is
established. Premiums and discounts are amortized or accreted over
the life of the related security as an adjustment to yield using the
effective interest method. Dividend and interest income are
recognized when earned.
As of June 30, 1997 and 1996, the cost of the Company's available for
sale securities approximates market value.
(e) Finished Goods Inventory
------------------------
Finished goods inventory is stated at the lower of cost or market.
Cost is determined using the first-in, first-out method.
(Continued)
F-9
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(f) Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation on property
and equipment is provided on a straight-line basis over the
estimated useful lives of the assets. Leasehold improvements are
amortized on a straight line basis over the shorter of the lease
term or estimated useful life of the asset.
(g) Distributions
-------------
Distributions to the previous subchapter S Corporation stockholder
were made at the discretion of the Board of Directors.
(h) Goodwill
--------
The excess of purchase price over the fair value of net assets
acquired is included in other assets and is amortized on a straight-
line basis over the estimated benefit period from 5 to 15 years.
(i) Impairment of Long-lived Assets and Long-lived Assets to be Disposed Of
-----------------------------------------------------------------------
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on July 1, 1996. This statement requires that long-
lived assets and certain identifiable intangible assets be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell. Adoption of this statement did not have a material
impact on the Company's financial position, results of operations or
liquidity.
(Continued)
F-10
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(j) Income Taxes
------------
The Company uses the asset and liability method to account for income
taxes. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(k) Advertising Costs
-----------------
Advertising costs, all of which are nondirect response advertising,
are expensed as incurred. Advertising expense was approximately
$133,000 and $39,000 during the years ended June 30, 1997 and 1996,
respectively.
(l) Stock Option Plan
-----------------
Prior to July 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. On July 1, 1996,
the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures
for employee stock option grants made in fiscal 1996 and future
years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the
provisions of APB No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
(m) Uses of Estimates
-----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(Continued)
F-11
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(n) Earnings Per Common Share
-------------------------
Earnings per common and common equivalent share are computed by
dividing net income applicable to common stock by the total of the
weighted average number of common shares outstanding and the
additional dilutive effect of stock options during the period. The
dilutive effect of outstanding stock options is computed using the
average market price of the Company's common stock for the period.
The number of shares used in the earnings per share computation are as
follows at June 30:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Weighted average common shares outstanding 7,110,282 6,872,308
Weighted average common share equivalents 176,345 12,028
--------- ---------
7,286,627 6,884,336
========= =========
</TABLE>
(o) Financial Instruments
---------------------
SFAS No. 107, Disclosures About Fair Values of Financial Instruments,
requires the fair value of financial instruments be disclosed. In
addition to available for sale securities carried at fair value, the
Company's financial instruments are contracts receivable, accounts
payable, line of credit and notes payable. The carrying amounts of
these items, because of their nature, approximate fair value.
(p) Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to
current year presentation.
(3) Costs and Estimated Earnings on Uncompleted Contracts
-----------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 16,682,266 5,064,346
Estimated earnings 6,321,822 2,391,019
Less billings to date (21,368,738) (6,240,941)
------------ ----------
$ 1,635,350 1,214,424
============ ==========
</TABLE>
(Continued)
F-12
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1997 1996
------------- -----------
<S> <C> <C>
Included in the accompanying balance sheet:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 2,233,289 1,457,004
Billings in excess of costs and estimated
earnings on uncompleted contracts (597,939) (242,580)
----------- ----------
$ 1,635,350 1,214,424
=========== ==========
</TABLE>
(4) Property and Equipment
----------------------
Property and equipment consists of the following at June 30:
<TABLE>
<CAPTION>
Estimated
useful
lives (years) 1997 1996
------------- ---- ----
<S> <C> <C> <C>
Land $ 398,204 397,697
Buildings 15-40 1,812,275 1,052,833
Vehicles 3-7 5,103,442 2,550,022
Furniture and fixtures 3-10 1,468,646 882,684
Equipment 3-10 2,774,246 1,165,485
Leasehold improvements 5 58,827 36,347
----------- ----------
11,615,640 6,085,068
Less accumulated depreciation (3,185,734) (1,920,520)
----------- ----------
$ 8,429,906 4,164,548
=========== ==========
</TABLE>
(5) Leases
------
The Company leases its main office building from an executive officer,
and leases office space for several regional offices and various
equipment and vehicles from unrelated parties. These leases are
operating leases that expire over the next four years. The main
office building lease contains a renewal option for five years and
requires the Company to pay all executor costs such as maintenance
and insurance. Rental expense for operating leases was approximately
$365,000 and $218,000 for the years ending June 30, 1997 and 1996,
respectively.
(Continued)
F-13
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Future minimum lease payments under noncancelable operating leases
(see note 15) at June 30, 1997 are:
<TABLE>
<CAPTION>
Year ending June 30
-------------------
<S> <C>
1998 $245,685
1999 195,285
2000 65,391
2001 8,400
--------
Total minimum lease payments $514,761
========
</TABLE>
Additionally, the Company is required to pay $16,667 per month through
February 1998 for first priority in producing molded plastic
components for the Company, at commercially reasonable prices, under
the terms of an agreement with a supplier.
(6) Lines of Credit
---------------
The Company has an available bank line of credit arrangement of
$6,000,000, which matures in November 1997. Interest is payable
monthly at the prime rate plus .5 percent (9.0 percent at June 30,
1997). The Company had drawn $772,928 and $1,900,000 as of June 30,
1997 and 1996, respectively. The line of credit is secured by
contracts receivable and other intangibles of the Company.
Borrowings under the line of credit are limited to the lesser of
$6,000,000 or 75 percent of the accounts receivable balances of
several of the Company's wholly owned subsidiaries which are less
than 90 days. Additionally, under the line of credit, the Company is
required to maintain specific ratios and a minimum net worth of
$6,000,000. At June 30, 1997, the Company was in compliance with all
covenants.
Additionally, a wholly owned subsidiary of Company has an available
bank line of credit arrangement of $4,000,000 which matures in May
1998. Interest is payable monthly at the prime rate plus one percent
(9.50 percent at June 30, 1997). The subsidiary had drawn $2,614,982
and $232,000 as of June 30, 1997 and 1996, respectively. The line of
credit is secured by substantially all assets of the subsidiary and
is guaranteed by the Company. Borrowings under the line of credit
are limited to the lesser of $4,000,000 or 80 percent of the
subsidiaries accounts receivable and inventory balances.
(7) Notes Payable to Stockholder
----------------------------
The Company had notes payable to a stockholder of $2,000,000 and
$500,000 at June 30, 1997 and 1996, respectively. The notes are
payable in various installments through April 1998. Interest is
payable quarterly at 8.25 percent. The note payable is secured by
finished goods inventory of the Company.
(Continued)
F-14
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Notes Payable
-------------
Notes payable consist of the following at June 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
11% note payable in monthly installments of
approximately $29,795, including interest,
with the balance due at various dates in 2000;
secured by vehicles $ 835,968 -
8.5% note payable in monthly installments of
$12,068, including interest, with the balance
due July 1999; secured by vehicles 492,893 -
Note payable in monthly installments of $2,267,
including interest at U.S. Treasury Index plus
3.5% (9.125 % at June 30, 1997) with the balance
due March 2005; secured by a building and
guaranteed by a principal stockholder of the Company 784,436 788,656
Other 472,582 250,820
---------- ---------
Total notes payable 2,585,879 1,039,476
Less current installments 573,798 77,620
---------- ---------
Notes payable, excluding
current installments $2,012,081 961,856
========== =========
</TABLE>
The aggregate maturities of notes payable are as follows:
<TABLE>
<CAPTION>
Year ending June 30
-------------------
<S> <C>
1998 $ 573,798
1999 688,043
2000 579,179
2001 28,661
2002 22,444
Thereafter 693,754
----------
$2,585,879
==========
</TABLE>
(Continued)
F-15
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Stockholders' Equity
--------------------
In connection with its initial public offering in November 1994, the
Company issued 1,000,000 shares of common stock and warrants to acquire
500,000 shares of common stock. Warrants issued with the Company's
common stock were exercisable for $6.00 per share. Additionally, in
connection with the public offering, the Company issued warrants to the
underwriters to purchase 50,000 units, each consisting of two shares of
common stock and one warrant to acquire a share of common stock. The
exercise price was 120 percent of the initial public offering price of
$10.125 per unit, or $12.15 per unit. Pursuant to the warrant
agreements, the Company was entitled to redeem all outstanding warrants,
or repurchase those not redeemed at $.05 per share, upon the Company's
common stock market closing price reaching specified levels. These
levels were attained and, on February 20, 1997, the Company filed a
registration statement which included a notice of redemption to the
warrant holders of record. All but 330 of the outstanding warrants,
including all of the underwriter units, were redeemed. Proceeds to the
Company, net of issuance costs of approximately $289,000, were
$3,607,000.
(10) Stock Option Plans
------------------
In May 1995, the Company's Board of Directors resolved and the shareholders
approved an Incentive Stock Option Plan (the Plan) pursuant to which the
Company may grant stock options to officers and key employees. The Plan
may be terminated at any time by the Board of Directors, subject to
shareholder approval. Stock options are granted with an exercise price
equal to the stock's fair market value at the date of grant. All stock
options have 5-year terms and generally vest and become fully
exercisable after 3 years from the date of grant.
In May 1995, the Company's Board of Directors resolved and the shareholders
approved an Outside Directors' Stock Option Plan (Directors Plan)
pursuant to which the Company may grant stock options to nonemployee
directors of the Company. The Plan will terminate in May 2004. The Plan
authorizes grants of options to purchase up to 50,000 shares of
authorized but unissued common stock. Stock options are granted with an
exercise price equal to the stock's fair market value at the date of
grant. All stock options have 5-year terms and vest and become fully
exercisable after 3 years from the date of grant.
(Continued)
F-16
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At June 30, 1997, there were no additional shares available for grant under
the Plan and 20,000 additional shares available under the Directors
Plan. The per share weighted-average fair value of stock options granted
during 1997 and 1996 was $6.98 and $4.05 on the date of grant using the
Black Scholes option-pricing model with the following weighted-average
assumptions: 1997 - expected volatility of 82 percent, expected dividend
yield 0 percent, risk-free interest rate of 6.82 percent, and an
expected life of 3 years; 1996 - expected volatility of 200 percent,
expected dividend yield 0 percent, risk-free interest rate of 6.14
percent, and an expected life of 3 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net income would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C> <C>
Net income As reported $5,687,742 $3,195,576
Pro forma $4,212,742 $3,195,576
Earnings per common and
common equivalent share As reported $ .78 $ .46
Pro forma $ .58 $ .46
</TABLE>
Pro forma net income reflects only options granted in 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the
options' vesting period and compensation cost for options granted prior
to July 1, 1995 is not considered.
(Continued)
F-17
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Stock option activity for all plans during the periods indicated is as follows:
<TABLE>
<CAPTION>
Number of Weighted-average
shares exercise price
------ --------------
<S> <C> <C>
Balance at June 30, 1995 62,120 $ 3.06
Granted 261,525 4.39
Exercised - -
Forfeited - -
Expired - -
-------
Balance at June 30, 1996 323,645 4.14
Granted 337,500 12.96
Exercised (23,125) 3.71
Forfeited (4,175) 4.52
Expired - -
-------
Balance at June 30, 1997 633,845 $ 8.85
======= =======
</TABLE>
The following tables summarize information about fixed stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------------
Weighted-average
Number remaining Weighted-average
Range of exercise prices outstanding contractual life exercise price
------------------------ ----------- ---------------- ----------------
<S> <C> <C> <C>
$3.0625 to $4.5625 296,345 $ 3.60 $ 4.16
$6 to $9 49,000 4.19 7.16
$10 to $12.50 70,500 4.82 11.45
$14.75 218,000 5.00 14.75
-------
633,845 $ 8.85
======= ======
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
--------------------------------
Number Weighted-average
Range of exercise prices outstanding exercise price
------------------------ ----------- --------------
<S> <C> <C>
$3.0625 to $4.5625 296,345 $ 4.16
$6 to $9 49,000 7.16
$10 to $12.50 60,500 11.45
$14.75 - 14.75
-------
405,845 $ 8.85
======= =======
</TABLE>
(Continued)
F-18
<PAGE>
SPECIALITY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Income Taxes
------------
Income tax expense consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Year ended June 30, 1997:
U.S. Federal $411,500 (201,800) 209,700
State and local 98,700 35,100 133,800
-------- -------- -------
Total $510,200 (166,700) 343,500
======== ======== =======
Year ended June 30, 1996:
U.S. Federal $782,700 (263,600) 519,100
State and local 68,900 (23,200) 45,700
-------- -------- -------
Total $851,600 (286,800) 564,800
======== ======== =======
</TABLE>
Income tax expense differs from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to earnings before income taxes as
a result of the following factors:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Computed "expected" tax $ 2,050,600 1,278,500
Reduction for income taxable to Subchapter
S shareholder (MTS) (1,895,900) (757,600)
Deferred taxes established in connection with
acquisition of prior Subchapter S Corporation (MTS) 90,000 -
State income taxes, net of federal tax benefit 63,100 38,800
Other 35,700 5,100
----------- ---------
Total $ 343,500 564,800
=========== =========
</TABLE>
(Continued)
F-19
<PAGE>
SPECIALITY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June
30, 1997 and 1996 are primarily a result of the Company being a cash
basis taxpayer in prior years and are presented below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Adjustment for conversion from cash basis to
accrual basis tax reporting $(385,700) (583,600)
Amortization of goodwill for financial reporting
purposes in excess of tax amounts 21,400 15,600
Deferred taxes established in connection with
acquisition of prior Subchapter S Corporation (MTS) (90,000) -
Other (20,300) (116,900)
------- -------
Total deferred income tax liability $(474,600) (684,900)
======= =======
Current deferred income tax liability $(384,600) (297,800)
======= =======
Long-term deferred income tax $ (90,000) (387,100)
====== =======
</TABLE>
(12) Pro Forma Income Taxes
----------------------
For financial reporting purposes, a pro forma provision for income taxes
has been reflected in the consolidated statements of earnings to
present taxes on the results of operations of MTS for the years ended
June 30, 1997 and 1996 on the basis that is required upon their change
in tax status from S Corporation to a C Corporation. These amounts,
$2,140,500 and $891,300 in 1997 and 1996, respectively, are equal to
the required Federal and state income tax provisions that would have
been recorded if MTS had not elected S Corporation status and was
subject to and liable for Federal and state income taxes as a C
Corporation prior to its termination of S Corporation status. MTS
terminated its S Corporation status upon merging with the Company on
June 30, 1997.
(Continued)
F-20
<PAGE>
SPECIALITY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Business and Credit Concentrations
----------------------------------
Customers comprising 10 percent or greater of the Company's revenues earned
are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
AT&T 12% -
Western Wireless 20 12%
All others 68 88
==== ====
</TABLE>
The Company generally does not require collateral from its customers.
(14) Profit-sharing Plans
--------------------
In November, 1996, the Company established a profit sharing plan pursuant
to Section 401(k) of the Internal Revenue Code, whereby participants
may contribute a percentage of compensation, but not in excess of the
maximum allowed under the code. The plan provides for a matching
contribution by the Company, which amounted to approximately $9,000
for the year ended June 30, 1997.
Prior to November 1996, the Company had a defined contribution plan
covering substantially all of its employees. Contributions were
discretionary based on the operating results of the Company. No
contributions to the plan were made in the years ended June 30, 1997
and 1996.
In 1989, MTS, a wholly owned subsidiary, established a discretionary profit
sharing and money purchase pension plan. The plans cover all non-union
employees who have met certain service requirements. Contributions to
the profit sharing plan are discretionary and determined based on
operating results of the Company. The Company must contribute
approximately 8 percent of eligible compensation to the money purchase
pension plan annually. Contributions were approximately $173,000 and
$91,000 in 1997 and 1996, respectively.
(Continued)
F-21
<PAGE>
SPECIALITY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Related Party Transactions
--------------------------
(a) Leases
------
The Company leases its main office building from Michael R. Budagher
(a principal shareholder).
(b) Budagher's Nursery, Inc.
------------------------
The Company uses contract labor provided by Budagher's Nursery, Inc.,
a corporation which is wholly owned by Michael R. Budagher's
brother. The Company incurred $452,338 and $92,931 for contract
labor services provided by Budagher's Nursery, Inc. during the
years ended June 30, 1997 and 1996, respectively.
(c) Specialty Constructors Coatings, Inc.
-------------------------------------
The Company uses contract labor services provided by Specialty
Constructors Coatings, Inc. (SCC). SCC is a corporation which was
50 percent owned by Michael R. Budagher until March 1, 1997. On
May 31, 1997 the Company acquired SCC (note 16). The Company
incurred $606,304 and $401,587 for contract labor services
provided by SCC during the years ended June 30, 1997 and 1996,
respectively.
(d) Specialty Manufacturing, Inc.
-----------------------------
The Company purchases equipment from Specialty Manufacturing, Inc.
(SM) which is used in certain construction projects. SM is owned
50 percent by Michael R. Budagher's spouse and 50 percent by
Michael R. Budagher's brother. The Company purchases from SM
totaled $29,852 and $13,285 during the years ended June 30, 1997
and 1996, respectively.
(e) Wireless Components, Inc.
-------------------------
During the year ended June 30, 1996, the Company purchased $325,000 of
components from Wireless Components, Inc., an entity owned by
Thomas Carpenter, a principal stockholder of the Company.
(Continued)
F-22
<PAGE>
SPECIALITY TELECONSTRUCTORS, INC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) Acquisitions
------------
On July 1, 1995, the Company issued 92,308 shares of its restricted
common stock at a price of $2.75 per share, determined by the
closing price on or about July 1, 1995, in exchange for all of
the outstanding shares of Specialty Combined Resources, Inc.
(Specialty Combined). The source of the shares for the
transaction are unissued shares of the Company. Specialty
Combined, located in Laguna Hills, California, provides
engineering, design and coordination services of power, lighting
and control systems for communications, health care, petrochem,
institutional and commercial customers. The Company also entered
into a consulting and noncompete agreement with the former
principal of Specialty Combined for a period of thirty-six (36)
months from the date of the acquisition for $75,000.
Additionally, the Company entered into an employment agreement
with the former principal of Specialty Combined to provide
services to the Company for a period of thirty-six (36) months
from the date of the acquisition. The transaction was accounted
for as a pooling of interests. Accordingly, the Company's
consolidated financial statements were restated to include the
operations of Specialty Combined for all periods prior to the
acquisition.
On October 31, 1996, the Company paid $160,000 and issued 93,400
shares of restricted common stock of the Company at a price of
$7.125 per share, determined by the closing price on or about
October 31, 1996, in exchange for substantially all the assets
and liabilities of Data Cell Systems, Inc. (Data Cell). Data Cell
provides wireless infrastructure building services. The source of
the shares for the transaction are unissued shares of the
Company. The transaction was accounted for as a purchase.
Accordingly, the results of Data Cell's operations have been
combined with those of the Company since the date of acquisition.
Goodwill of approximately $259,000 recorded in connection with
the purchase will be amortized over a period of five years.
Additionally, pursuant to the purchase agreement, the Company may
be required to pay additional consideration, not to exceed
$200,000, based upon achieving specified levels of pre-tax
earnings during the three years immediately following the date of
acquisition.
On May 14, 1997, the Company issued 400,000 shares of restricted
common stock of the Company at a price of $9.25 per share,
determined by the closing price on or about March 31, 1997, in
exchange for all the outstanding shares of N&L. The source of the
shares for the transaction are unissued shares of the Company.
N&L, located in Oklahoma City, OK and southern California,
provides general contract services for wireless
telecommunications companies, health care and other commercial
customers. The transaction was accounted for as a pooling of
interests. Accordingly, the Company's consolidated financial
statements have been restated to include the operations of N&L
prior to the acquisition for all periods presented.
(Continued)
F-23
<PAGE>
SPECIALITY TELECONSTRUCTORS, INC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On May 28, 1997, the Company issued 186,047 shares of restricted
common stock of the Company at a price of $9.30 per share,
determined by the closing price on or about March 31, 1997, in
exchange for substantially all the assets and liabilities of
Paramount Communication Systems, Inc. (Paramount). The source of
the shares for the transaction are unissued shares of the
Company. Paramount, located in Somerdale, New Jersey, provides
wireless infrastructure building services. The transaction was
accounted for as a purchase. Accordingly, the results of
Paramount's operations have been combined with those of the
Company since the date of acquisition. Goodwill of approximately
$1,335,000 recorded in connection with the purchase will be
amortized over a period of five years. In connection with the
purchase, the Company entered into a note receivable with the
principal stockholder of Paramount. The note, in the amount of
$250,000, is due in three annual installments beginning May 2000.
Interest, at 9 percent, is payable quarterly. Under the terms of
the merger agreement, the Company is obligated to loan an
additional $250,000 to the stockholder in May 1998.
On June 1, 1997, the Company issued 55,814 shares of restricted
common stock of the Company at a price of $10.625 per share,
determined by the closing price on or about June 1, 1997, in
exchange for substantially all the assets and liabilities of
Specialty Constructors Coatings, Inc. (Coatings). Coatings was
originally 50 percent owned by Michael R. Budagher, but was sold
to the other shareholders on March 1, 1997. The source of the
shares for the transaction are unissued shares of the Company.
Coatings, located in Cedar Crest, New Mexico, provides wireless
infrastructure building services, primarily on water tank
facilities. The transaction was accounted for as a purchase.
Accordingly, the results of Coatings operations have been
combined with those of the Company since the date of acquisition.
No goodwill was recorded in connection with the purchase.
On June 30, 1997, the Company issued 2,380,000 shares of restricted
Common stock of the Company at a price of $11.625 per share,
determined by the closing price on or about June 8, 1997, in
exchange for all the outstanding shares of MTS. The source of the
shares for the transaction are unissued shares of the company.
MTS, located in Salem, Oregon; Salt Lake City, Utah; Phoenix,
Arizona; Denver, Colorado; and Sacramento, California, provides
wireless infrastructure building services and manufacturing,
distribution and sales of components for wireless infrastructure.
The transaction was accounted for as a pooling of interests.
Accordingly, the Company's consolidated financial statements have
been restated to include the operations of MTS prior to the
acquisition for all periods presented.
Fiscal years 1997 and 1996 also include other acquisitions which are
immaterial to the consolidated financial statements of the
Company.
(Continued)
F-24
<PAGE>
SPECIALITY TELECONSTRUCTORS, INC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Separate results of the combining entities, giving effect to the N&L and
MTS poolings of interests for periods prior to the combination are as follows
for the years ending June 30:
<TABLE>
<CAPTION>
1997 (1) 1996
-------- ----
As restated
(unaudited)
-----------
<S> <C> <C>
Revenues earned:
Specialty Teleconstructors $32,303,360 16,758,629
Novak & Lackey 10,303,550 6,270,979
Microwave Tower Service 23,019,890 9,556,378
----------- ----------
$65,626,800 32,585,986
=========== ==========
Net earnings (loss):
Specialty Teleconstructors $ (279,257) 804,355
Novak & Lackey 390,885 163,016
Microwave Tower Service 5,576,114 2,228,205
----------- ----------
$ 5,687,742 3,195,576
=========== ==========
Pro forma net earnings (loss) (see note 12):
Specialty Teleconstructors $ (279,257) 804,355
Novak & Lackey 390,885 163,016
Microwave Tower Service 3,435,614 1,336,905
----------- ----------
$ 3,547,242 2,304,276
=========== ==========
</TABLE>
(1) The Company's results for the twelve months ended June 30, 1997 include
the results of N&L for the period following the consummation of the
merger.
(Continued)
F-25
<PAGE>
SPECIALITY TELECONSTRUCTORS, INC
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following unaudited pro forma financial information presents the
combined results of operations of the Company, Paramount and Data Cell
as if the acquisitions had occurred as of the beginning of 1997 and
1996, after giving effect to certain adjustments, including
amortization of goodwill, additional depreciation expense and related
income tax effects. The pro forma financial information does not
necessarily reflect the operations that would have occurred had the
Company and the acquired entities constituted a single entity during
such periods nor is it an indication of future performance:
<TABLE>
<CAPTION>
Year ended June 30
------------------
1997 1996
---- ----
<S> <C> <C>
Revenues earned $69,108,000 39,335,000
=========== ==========
Net earnings $ 5,700,000 3,060,000
=========== ==========
Earnings per common and common
equivalent share $ .78 .44
=========== ==========
Pro forma net earnings (1) $ 3,559,000 2,168,000
=========== ==========
Pro forma earnings per common and
common equivalent share (1) $ .49 .31
=========== ==========
</TABLE>
(1) Pro forma net earnings and earnings per common and common equivalent
share are based on pooled results of the Company, giving effect to pro
forma income taxes for pooling with Subchapter S Corporation for the
years ended June 30, 1997 and 1996.
The effects of the Company's acquisition of Coatings is not material to the
combined results of operations of the Company for the years ended June
30, 1997 and 1996.
F-26
<PAGE>
EXHIBIT 3.3
RESTATED BY-LAWS OF
SPECIALTY TELECONSTRUCTORS, INC.
(A NEVADA CORPORATION)
ARTICLE I
OFFICES
SECTION 1.1. Principal Office. The principal offices of the corporation
shall be in Cedar Crest, New Mexico, or other location as the Board of Directors
may determine.
SECTION 1.2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Nevada as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
SECTION 2.1. Place of Meeting. All meetings of stockholders shall be held
at such place, either within or without the State of Nevada, as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting.
SECTION 2.2. Annual Meetings. The annual meeting of stockholders shall be
held at such date and time as shall be designated from time to time by the Board
of Directors and stated in the notice of the meeting.
SECTION 2.3. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation of the corporation, as amended (the "Articles of
Incorporation"), may be called by the Chairman of the Board, the President or by
the Board of Directors or by written order of a majority of the directors and
shall be called by the Chairman of the Board, the President or the Secretary at
the request in writing of stockholders owning a majority in amount of the entire
capital stock of the corporation issued and outstanding and entitled vote. Such
request shall state the purposes of the proposed meeting. The officers or
directors shall fix the time and any place, either within or without the State
of Nevada, as the place for holding such meeting.
SECTION 2.4. Notice of Meeting. Written notice of the annual and each
special meeting of stockholders, stating the time, place and purpose or purposes
thereof, shall be given to each stockholder entitled to vote thereat, not less
than 10 nor more than 60 days before the meeting and shall be signed by the
Chairman of the Board, the President or the Secretary of the Corporation.
SECTION 2.5. Business Conducted at Meetings. At a meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before a meeting, business
must be (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Chairman of the Board, the President or the Board
of Directors, or (b) otherwise properly brought before the meeting by a
stockholders. For business to be properly brought before a meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 60 days prior to the meeting. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes to
bring before the meeting (a) the reasons for conducting such business at the
meeting, (b) the name and
<PAGE>
address, as they appear on the corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in the by-laws to the
contrary, no business shall be conducted at a meeting except in accordance with
the procedures set forth in this Section 2.5. The Chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this Section 2.5, and, if he should so determine, he shall so declare to the
meeting, and any such business not properly brought before the meeting shall not
be transacted.
SECTION 2.6. Nomination of Directors. Nomination of candidates for election
as directors of the corporation at any meeting of stockholders called for
election of directors, in whole or in part (an "Election Meeting"), may be made
by the Board of Directors or by any stockholder entitled to vote at such
Election Meeting, in accordance with the following procedures:
2.6.1. Nominations made by the Board of Directors shall be made at a meeting of
the Board or by written consent of the directors in lieu of a meeting prior to
the date of the Election Meeting. At the request of the Secretary of the
corporation, each proposed nominee shall provide the corporation with such
information concerning himself as is required, under the rules of the Securities
and Exchange Commission ("SEC"), to be included in the corporation's proxy
statement soliciting proxies for his election as a director.
2.6.2. Not less than 60 days prior to the date of the Election Meeting, any
stockholder who intends to make a nomination at the Election Meeting shall
deliver a notice to the Secretary of the corporation setting forth (a) the name,
age, business address and the residence address of each nominee proposed in such
notice, (b) the principal occupation or employment of such nominee, (c) the
number of shares of capital stock of the corporation which are beneficially
owned by each such nominee, (d) such other information concerning each such
nominee as would be required, under the rules of the SEC, in a proxy statement
soliciting proxies for the election of such nominees. Such notice shall include
a signed consent to serve as a director of the corporation, if elected, of each
such nominee.
2.6.3. In the event that a person is validly designated as a nominee in
accordance with this Section 2.6 and shall thereafter become unable or willing
to stand for election to the Board of Directors, the Board of Directors or the
stockholder who proposed such nominee, as the case may be, may designate a
substitute nominee.
2.6.4. If the Chairman of the Election Meeting determines that a nomination was
not made in accordance with the foregoing procedures, such nomination shall be
void.
SECTION 2.7. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at any meeting of stockholders for the
transaction of business except when stockholders are required to vote by class,
in which event a majority of the issued and outstanding shares of the
appropriate class shall be present in person or by proxy, and except as
otherwise provided by statute or by the Articles of Incorporation.
Notwithstanding any other provision of the Articles of Incorporation or by these
by-laws, the holders of a majority of the shares of capital stock entitled to
vote thereat, present in person or represented by proxy, whether or not a quorum
is present, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified.
2
<PAGE>
SECTION 2.8. Voting. When a quorum is present at any meeting of the
stockholders, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of the statutes, of the Articles of Incorporation or of these by-laws,
a different vote is required, in which case such express provision shall govern
and control the decision of such question. Every stockholder having the right to
vote shall be entitled to vote in person, or by proxy appointed by an instrument
in writing subscribed by such stockholder or by his duly authorized attorney;
provided, however, that no such proxy shall be valid after the expiration of six
months from the date of its execution, unless coupled with an interest, or
unless the person executing it specifies therein the length of time for which it
is to continue in force, which in no case shall exceed seven years from the date
of its execution. If such instrument shall designate two or more persons to act
as proxies, unless such instrument shall provide the contrary, a majority of
such persons present at any meeting at which their powers thereunder are to be
exercised shall have and may exercise all the powers of voting or giving
consents thereby conferred, or if only one be present, then such powers may be
exercised by that one; or, if an even number attend and a majority do not agree
on any particular issue, each proxy so attending shall be entitled to exercise
such powers, in representing such shares. Unless required by statute or
determined by the Chairman of the meeting to be advisable, the vote on any
question need not be by written ballot. No shareholder shall have cumulative
voting rights.
SECTION 2.9. Consent of Stockholders. Whenever the vote of the stockholders at a
meeting thereof is required or permitted to be taken for or in connection with
any corporate action, the meeting and vote of stockholders may be dispensed with
if all the stockholders who would have been entitled to vote upon the action if
such meeting were held shall consent in writing to such corporate action being
taken; or if the Articles of Incorporation authorize the action to be taken with
the written consent of the holders of less than all the stock who would have
been entitled to vote upon the action if a meeting were held, then on the
written consent of the stockholders having not less than such percentage of the
number of votes as may be authorized in the Articles of Incorporation; provided,
that in no case shall the written consent be by the holders of stock having less
than the minimum percentage of the vote required by statute, and provided that
prompt notice must be given to all stockholders of the taking of corporate
action without a meeting and less than unanimous written consent.
SECTION 2.10. Voting of Stock of Certain Holders. Shares standing in the name of
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the by-laws of such corporation may prescribe, or in the absence of
such provision, as the Board of Directors of such corporation may determine.
Shares standing in the name of a deceased person may be voted by the executor or
administrator of such deceased person, either in person or by proxy. Shares
standing in the name of a guardian, conservator or trustee may be voted by such
fiduciary, either in person or by proxy, but no such fiduciary shall be entitled
to vote shares held in such fiduciary capacity without a transfer of such shares
into the name of such fiduciary. Shares outstanding in the name of a receiver
may be voted by such receiver. A stockholder whose shares are pledged shall be
entitled to vote such shares, unless in the transfer by the pledgor on the books
of the corporation, he has expressly empowered the pledgee to vote thereon, in
which case only the pledgee, or his proxy, may represent the stock and vote
thereon.
SECTION 2.11. Treasury Stock. The corporation shall not vote, directly or
indirectly, shares of its own stock owned by it; and such shares shall not be
counted in determining the total number outstanding shares.
SECTION 2.12. Fixing Record Date. The Board of Directors may fix in advance a
date, not exceeding 60 nor less than 10 days preceding the date of any meeting
of stockholders, or the date for payment of any dividend or distribution, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining a consent, as a record date for the determination of the stockholders
entitled to notice of, and to vote at any such meeting
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and any adjournment thereof, or entitled to receive payment of any such dividend
or distribution, or to receive any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of capital stock,
or to give such consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of and to vote at any such meeting and any adjournment
thereof, or to receive payment of such dividend or distribution, or to receive
such allotment of rights, or to exercise such rights, or to give such consent,
as the case may be, notwithstanding any transfer of any stock on the books of
the corporation after any such record date fixed as aforesaid.
ARTICLE 3
BOARD OF DIRECTORS
SECTION 3.1. Powers. The business and affairs of the corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these by-laws directed or required to be
exercised or done by the stockholders.
SECTION 3.2. Number, Election and Term. The number of directors which shall
constitute the whole board shall be not less than three and not more than nine.
Within the limits above specified, the number of the directors of the
corporation shall be determined by resolution of the Board of Directors. Except
as provided in Section 3.3, the directors shall be elected at the annual meeting
of stockholders and shall hold office until his successor is elected and
qualified. A minimum of two of the directors must be "outside" directors. The
term "outside" director shall mean a director who is not an employee, officer or
former officer of the corporation or a subsidiary or division thereof, or a
relative of a principal executive officer, or who is not an individual member of
an organization acting as an advisor, consultant, legal counsel, etc., receiving
compensation on a continuing basis from the corporation in addition to
director's fees. Directors need not be residents of the State of Nevada or
stockholders of the corporation.
SECTION 3.3. Vacancies, Additional Directors and Removal From Office. If any
vacancy occurs in the Board of Directors caused by death, resignation,
retirement, disqualification or removal from office of any director, or
otherwise, or if any new directorship is created by an increase in the
authorized number of directors, a majority of the directors then in office,
though less than a quorum, or a sole remaining director, may choose a successor
or fill the newly created directorship; any director so chosen shall hold office
until the next election of the class for which such director shall have been
chosen and until his successor shall be elected and qualified, unless sooner
displaced. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director. Notwithstanding any
other provisions of these by-laws or the fact that some lesser percentage may be
specified by law, any director or the entire Board of Directors may be removed
at any time, but only for cause or only by the affirmative vote of the holders
of 66-2/3% or more of the outstanding shares of the capital stock of this
Corporation entitled to vote generally in the election of directors (considered
for this purpose as one class) cast at a meeting of the stockholders called for
that purpose.
SECTION 3.4. Regular Meetings. A regular meeting of the Board of Directors shall
be held each year, without other notice than this by-law, at the place of, and
immediately following, the annual meeting of stockholders; and other regular
meetings of the Board of Directors shall be held during each year, at such time
and place as the Board of Directors may from time to time provide by resolution,
either within or without the State of Nevada, without other notice than such
resolution.
SECTION 3.5. Special Meeting. A special meeting of the Board of Directors may be
called by the Chairman of the Board or by the President and shall be called by
the Secretary on the written request of
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any two directors. The Chairman of the Board or President so calling, or the
directors so requesting, any such meeting shall fix the time and any place,
either within or without the State of Nevada, as the place for holding such
meeting.
SECTION 3.6. Notice of Special Meeting. Written notice of special meetings of
the Board of Directors shall be given to each director at least 48 hours prior
to the time of such meeting. Any director may waive notice of any meeting. The
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting solely for the purpose
of objecting to the transaction of any business because the meeting is not
lawful called or convened. Neither the business to be transacted at, nor the
purpose of, any special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting, except that notice shall be
given with respect to any matter where notice is required by statute.
SECTION 3.7. Quorum. A majority of the Board of Directors shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors,
and the act of a majority of the directors present at any meeting at which there
is quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Articles of Incorporation or by these
by-laws. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 3.8. Action Without Meeting. Unless otherwise restricted by the Articles
of Incorporation or these by-laws, any action required or permitted to be taken
at any meeting of the Board of Directors, or of any committee thereof as
provided in Article IV of these by-laws, may be taken without a meeting, if a
written consent thereto is signed by all members of the Board or of such
committee, as the case may be.
SECTION 3.9. Meeting by Telephone. Any action required or permitted to be taken
by the Board of Directors or any committee thereof may be taken by means of a
meeting by conference telephone network or similar communications method so long
as all persons participating in the meeting can hear each other. Any person
participating in such meeting shall be deemed to be present in person at such
meeting.
ARTICLE 4
COMMITTEES OF DIRECTORS
SECTION 4.1. Executive Committee. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate an Executive Committee of the
Board of Directors (the "Executive Committee"). If such a committee is
designated by the Board of Directors, it shall be composed of members who are
directors, and the members of the Executive Committee shall be designated by the
Board of Directors in the resolution appointing the Executive Committee.
Thereafter, the Board of Directors shall designate the members of the Executive
Committee on an annual basis at its first regular meeting held pursuant to
Section 3.4 of these by-laws after the annual meeting of stockholders or as soon
thereafter as conveniently possible. The Executive Committee shall have and may
exercise all of the powers of the Board of Directors during the period between
meetings of the Board of Directors except as reserved to the Board of Directors
or as delegated by these by-laws or by the Board of Directors to another
standing or special committee or as may be prohibited by law.
SECTION 4.2. Audit Committee. The Audit Committee of the Board of Directors (the
"Audit Committee") shall be designated annually by the Board of Directors at its
first regular meeting held pursuant to Section 3.4 of these by-laws after the
annual meeting of stockholders or as soon thereafter as conveniently possible.
The Audit Committee shall consist solely of directors who are independent of
management and who are
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free from any relationship that, in the opinion of the Board of Directors, would
interfere with the designated director's exercise of independent judgment as a
member of the Audit Committee.
SECTION 4.3. Compensation and Stock Option Committee. The Compensation and Stock
Option Committee of the Board of Directors (the "Compensation and Stock Option
Committee") shall consist of two or more directors to be designated annually by
the Board of Directors at its first regular meeting held pursuant to Section 3.4
of these by-laws after the annual meeting of stockholders or as soon thereafter
as conveniently possible. The Compensation and Stock Option Committee shall
consist of at least two "outside" directors.
SECTION 4.4. Other Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more additional special or
standing committees, each such additional committee to consist of one or more of
the directors of the corporation. Each such committee shall have and may
exercise such of the powers of the Board of Directors in the management of the
business and affairs of the corporation as may be provided in such resolution,
except as delegated by these by-laws or by the Board of Directors to another
standing or special committee or as may be prohibited by law.
SECTION 4.5. Committee Operations. A majority of a committee shall constitute a
quorum for the transaction of any committee business. Such committee or
committees shall have such name or names and such limitations of authority as
provided in these by-laws or as may be determined from time to time by
resolution adopted by the Board of Directors. The corporation shall pay all
expenses of committee operations. The Board of Directors may designate one or
more appropriate directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. In
the absence or disqualification of any members of such committee or committees,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another appropriate member of the Board of Directors to act at the meeting in
the place of any absent or disqualified member.
SECTION 4.6. Minutes. Each committee of directors shall keep regular minutes of
its proceedings and report the same to the Board of Directors when required. The
Secretary or any Assistant Secretary of the corporation shall (a) serve as the
Secretary of the special or standing committees of the Board of Directors of the
corporation, (b) keep regular minutes of standing or special committee
proceedings, (c) make available to the Board of Directors, as required, copies
of all resolutions adopted or minutes or reports of other actions recommended or
taken by any such standing or special committee and (d) otherwise as requested
keep the members of the Board of Directors apprised of the actions taken by such
standing or special committees.
SECTION 4.7. Compensation. Directors, as such may receive reasonable
compensation for their services which shall be set by the Board of Directors and
expenses of attendance at each regular or special meeting of the Board;
provided, however, that nothing herein contained shall be construed to preclude
any director from serving the corporation in any other capacity and receiving
additional compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
ARTICLE 5
NOTICE
SECTION 5.1. Methods of Giving Notice. Whenever under the provisions of the
statutes, the Articles of Incorporation or these by-laws, notice is required to
be given to any director, member of any committee or stockholder, personal
notice is not required but such notice may be given in writing and mailed to
such
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director, member or stockholder; provided that in the case of a director or a
member of any committee such notice may be given orally or by telephone or
telegram. If mailed, notice to a director, member of a committee or stockholder
shall be deemed to be given when deposited in the United States mail first class
in a sealed envelope, with postage thereon prepaid, addressed, in the case of a
stockholder, to the stockholder at the stockholder's address as it appears on
the records of the corporation or, in the case of a director or a member of a
committee to such person at his business address. If sent by telegraph, notice
to a director or member of a committee shall be deemed to be given when the
telegraph, so addressed, is delivered to the telegraph company.
SECTION 5.2. Written Waiver. Whenever any notice is required to be given by
statute, the Articles of Incorporation or these by-laws, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto.
SECTION 5.3. Consent. Whenever all parties entitled to vote at any meeting,
whether of directors or stockholders, consent, either by a writing on the
records of the meeting or filed with the secretary, or by presence at such
meeting and oral consent entered on the minutes, or by taking part in the
deliberations at such meeting without objection, the actions taken at such
meeting shall be as valid as if had at a meeting regularly called and noticed,
and at such meeting any business may be transacted which is not excepted from
the written consent or to the consideration of which no objection for lack of
notice is made at the time, and if any meeting be irregular for lack of notice
or such consent, provided a quorum was present at such meeting, the proceedings
of such meeting may be ratified and approved and rendered valid and the
irregularity or defect therein waived by a writing signed by all parties having
the right to vote thereat. Such consent or approval, if given by stockholders,
may be by proxy or attorney, but all such proxies and powers of attorney must be
in writing.
ARTICLE 6
OFFICERS
SECTION 6.1. Officers. The Board of Directors shall elect and appoint all. the
officers of the corporation. The officers of the corporation shall include,
without limitation, the Chairman of the Board, President, Secretary and
Treasurer and such other officers and agents, including, without limitation, one
or more Vice Presidents (any one or more of which may be designated Executive
Vice President or Senior Vice President), Assistant Vice Presidents, Assistant
Secretaries and Assistant Treasurers, as they deem necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as prescribed by the Board of Directors or Chairman of the Board. Any two
or more offices may be held by the same person. No officer shall execute,
acknowledge, verify or countersign any instrument on behalf of the corporation
in more than one capacity, if such instrument is required by law, by these by-
laws or by any act of the corporation to be executed, acknowledged, verified or
countersigned by two or more officers. The Chairman of the Board shall be
elected from among the directors. With the foregoing exception, none of the
other officers need be a director, and none of the officers need be a
stockholder of the corporation.
SECTION 6.2. Election and Term of Office. The officers of the corporation shall
be elected annually by the Board of Directors at its first regular meeting held
after the annual meeting of stockholders or as soon thereafter as conveniently
possible. Each officer shall hold office until his successor shall have been
chosen and shall have qualified or until his death or the effective date of this
resignation or removal, or until he shall cease to be a director in the case of
the Chairman of the Board.
SECTION 6.3. Removal and Resignation. Any officer or agent may be removed,
either with or without cause, by the affirmative vote of a majority of the Board
of Directors whenever, in its judgment, the best
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interests of the corporation shall be served thereby, but such removal shall be
without prejudice to the contractual rights, if any, of the person so removed.
Any executive officer or other officer or agent may resign at any time by giving
written notice to the corporation. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein, and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 6.4. Vacancies. Any vacancy occurring in any office of the corporation
by death, resignation, removal or otherwise, shall be filled by the Board of
Directors for the unexpired portion of the term.
SECTION 6.5. Salaries. The salary of the Chief Executive Officer shall be
determined by the Compensation and Stock Option Committee. Salaries of all other
officers of the corporation shall be determined by the Chief Executive Officer
in consultation with the Compensation and Stock Option Committee; and no officer
who is also a director shall be prevented from receiving such salary by reason
of his also being a director.
SECTION 6.6. Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the Board of Directors and of the stockholders of the
corporation. In the Chairman's absence, such duties shall be attended to by the
President. The Chairman of the Board shall hold the position of chief executive
officer of the corporation and shall perform shall duties as usually pertain to
the position of chief executive officer and such duties as may be prescribed by
the Board of Directors or the Executive Committee. The Chairman of the Board
shall formulate and submit to the Board of Directors or the Executive Committee
matters of general policy for the corporation and shall perform such other
duties as usually appertain to the office or as may be prescribed by the Board
of Directors. He may sign with the President or any other officer of the
corporation thereunto authorized by the Board of Directors certificates for
shares of the corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors, and any deeds or bonds, which the Board of
Directors or the Executive Committee has authorized to be executed, except in
cases where the signing and execution thereof has been expressly delegated or
reserved by these by-laws or by the Board of Directors or the Executive
Committee to some other officer or agent of the corporation, or shall be
required by law to be otherwise executed.
SECTION 6.7. President. The President, subject to the control of the Board of
Directors, the Executive Committee, and the Chairman of the Board, shall in
general supervise and control the business and affairs of the corporation. The
President shall keep the Board of Directors, the Executive Committee and the
Chairman of the Board fully informed as they or any of them shall request and
shall consult them concerning the business of the corporation. He may sign with
the Chairman of the Board or any other officer of the corporation thereunto
authorized by the Board of Directors, certificates for shares of capital stock
of the corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors, and any deeds, bonds, mortgages,
contracts, checks, notes, drafts or other instruments which the Board of
Directors or the Executive Committee has authorized to be executed, except in
cases where the signing and execution thereof has been expressly delegated by
these by-laws or by the Board of Directors or the Executive Committee to some
other officer or agent of the corporation, or shall be required by law to be
otherwise executed. In general he shall perform all other duties normally
incident to the office of the President, except any duties expressly delegated
to other persons by these by-laws, the Board of Directors, or the Executive
Committee, and such other duties as may be prescribed by the stockholders,
Chairman of the Board, the Board of Directors or the Executive Committee, from
time to time.
SECTION 6.8. Vice Presidents. In the absence of the President, or in the event
of his inability or refusal to act, the Executive Vice President (or in the
event there shall be or more than one Vice President designated Executive Vice
President, any Executive Vice President designated by the Board) shall perform
the duties an exercise the powers of the President. Any Vice President
authorized by resolution of the Board of Directors to do so, may sign with any
other officer of the corporation thereunto authorized by the Board of
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Directors, certificates for shares of capital stock of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors. The Vice Presidents shall perform such other duties as from time to
time may be assigned to them by the Chairman of the Board, the Board of
Directors or the Executive Committee.
SECTION 6.9. Secretary. The Secretary shall (a) keep the minutes of the meetings
of the stockholders, the Board of Directors and committees of directors; (b) see
that all notices are duly given in accordance with provisions of these by-laws
and as required by law; (c) be custodian of the corporate records and of the
seal of the corporation, and see that the seal of the corporation or a facsimile
thereof is affixed to all certificates for shares prior to the issuance thereof
and to all documents, the execution of which on behalf of the corporation under
its seal is duly authorized in accordance with the provisions of these by-laws;
(d) keep or cause to be kept a register of the post office address of each
stockholder which shall be furnished by such stockholder; (e) have general
charge of other stock transfer books of the corporation; and (f) in general,
perform all duties normally incident to the office of the Secretary and such
other duties as from time to time may be assigned to him by the Chairman of the
Board, the President, the Board of Directors or the Executive Committee.
SECTION 6.10. Treasurer. The Treasurer shall (a) have charge and custody of and
be responsible for all funds and securities of the corporation; receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Section 7.3 of these by-laws; (b) prepare, or cause to be
prepared, for submission at each regular meeting of the Board of Directors, at
each annual meeting of stockholders, and at such other times as may be required
by the Board of Directors, the Chairman of the Board, the President or the
Executive Committee, a statement of financial condition of the corporation in
such detail as may be required; and (c) in general, perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Chairman of the Board, the President, the Board of
Directors or the Executive Committee. If required by the Board of Directors or
the Executive Committee, the Treasurer shall give a bond for the faithful
discharge of his duties as such sum and with such surety or sureties as the
Board of Directors or the Executive Committee shall determine.
SECTION 6.11. Assistant Secretary or Treasurer. The Assistant Secretaries and
Assistant Treasurers shall, in general, perform such duties as shall be assigned
to them by the Secretary or the Treasurer, respectively, or by the Chairman of
the Board, the President, the Board of Directors or the Executive Committee. The
Assistant Secretaries or Assistant Treasurers shall, in the absence of the
Secretary or Treasurer, respectively, perform all functions and duties which
such absent officers may delegate, but such delegation shall not relieve the
absent officer from the responsibilities and liabilities of his office. The
Assistant Treasurers shall respectively, if required by the Board of Directors
or the Executive Committee, give bonds for the faithful discharge of their
duties in such sums with such sureties as the Board of Directors or the
Executive Committee shall determine.
ARTICLE 7
CONTRACTS, CHECKS AND DEPOSITS
SECTION 7.1. Contracts. Subject to the provisions of Section 6.1, the Board of
Directors or the Executive Committee may authorize any officer, officers, agent
or agents, to enter into any contract or execute and deliver an instrument in
the name of and on behalf of the corporation, and such authority may be general
or confined to specific instances.
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SECTION 7.2. Checks, etc. All checks, demands, 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 or such agent or
agents of the corporation, and in such manner, as shall be determined by the
Board of Directors or the Executive Committee.
SECTION 7.3. Deposits. 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 Chairman of the Board, the
President or the Treasurer may be empowered by the Board of Directors or the
Executive Committee to select or as the Board of Directors or the Executive
Committee may select.
ARTICLE 8
CERTIFICATE OF STOCK
SECTION 8.1. Issuance. Each stockholder of this corporation shall be entitled to
a certificate or certificates showing the number of shares of stock registered
in his name on the books of the corporation. The certificates shall be in such
form as may be determined by the Board of Directors or the Executive Committee,
shall be issued in numerical order and shall be entered in the books of the
corporation as they are issued. They shall exhibit the holder's name and the
number of shares and shall be signed by the Chairman of the Board and the
President or such other officers as may from time to time be authorized by
resolution of the Board of Directors. Any or all the signatures on the
certificate may be a facsimile. The seal of the corporation shall be impressed,
by original or by facsimile, printed or engraved, on all such certificates. In
case any officer who has signed or whose facsimile signature has been placed
upon any such certificate shall have ceased to be such officer before such
certificate is issued, such certificate may nevertheless be issued by the
corporation with the same effect as if such officer had not ceased to be such
officer at the date of its issue. If the corporation shall be authorized to
issue more than one class of stock or more than one series of any class, the
designation, preferences and relative, participating, option or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and rights shall be set forth in
full or summarized on the face or back of the certificate which the corporation
shall issue to represent such class of stock; provided that except as otherwise
provided by statute, in lieu of the foregoing requirements there may be set
forth on the face or back of the certificate which the corporation shall issue
to represent such class or series of stock, a statement that the corporation
will furnish to each stockholder who so requests the designations, preferences
and relative, participating, option or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and rights. All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
canceled, except that in the case of a lost, stolen, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and with such
indemnity, if any, to the corporation as the Board of Directors may prescribe.
In addition to the above, all certificates evidencing shares of the
corporation's stock or other securities issued by the corporation shall contain
such legend or legends as may from time to time be required by the Nevada
Revised Statutes then in effect.
SECTION 8.2. Lost Certificates. The Board of Directors may direct that a new
certificate or certificates be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require or to give the corporation a bond in such sum as it may
direct as
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indemnity against any claim that may be made against the corporation with
respect to the certificate or certificates alleged to have been lost, stolen or
destroyed, or both.
SECTION 8.3. Transfers. Upon surrender to the corporation or the transfer agent
of the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate and to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books. Transfers of shares shall be made only on the books of the corporation by
the registered holder thereof, or by his attorney thereunto authorized by power
of attorney and filed with the Secretary of the corporation or the transfer
agent.
SECTION 8.4. Registered Stockholders. The corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by laws of the State of Nevada.
SECTION 8.5. Uncertificated Shares. The Board of Directors may approve the
issuance of uncertificated shares of some or all of the shares of any or all of
its classes or series of capital stock.
ARTICLE 9
DIVIDENDS
SECTION 9.1. Declaration. Dividends upon the capital stock of the
corporation, subject to the provisions of the Articles of Incorporation, if any,
may be declared by the Board of Directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property or in shares of
capital stock, subject to the provisions of the Articles of Incorporation.
SECTION 9.2. Reserve. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
Board of Directors from time to time, in their absolute discretion, think proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the corporation, or for such other
purpose as the Board of Directors shall think conducive to the interests of the
corporation, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created.
ARTICLE 10
INDEMNIFICATION
SECTION 10.1. Third Party Actions. The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including amounts paid in settlement and attorneys' fees), judgments fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of
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nolo contendere or its equivalent, shall not, of itself create a presumption
that the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
SECTION 10.2. Actions by or in the Right of the Corporation. The corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation. No indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged by a court of competent jurisdiction to be liable to
the corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which such action or suit was brought or
other court of competent jurisdiction shall determine upon application that in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnify for such expenses as the court shall deem proper.
SECTION 10.3. Successful Defense. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections
10.1 and 10.2, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense.
SECTION 10.4. Determination of Conduct. Any indemnification under Section 10. 1
or 10.2 (unless ordered by a court or advanced pursuant to Section 10.5) shall
be made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances. Such determination shall be made (a) by the
stockholders, (b) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
(c) if a majority vote of a quorum consisting of directors who were not parties
to the act, suit or proceedings so orders, by independent legal counsel in a
written opinion, or (d) if a quorum consisting of directors who were not parties
to the act, suit or proceeding cannot be obtained, by independent legal counsel
in a written opinion.
SECTION 10.5. Payment of Expenses in Advance. Expenses incurred in defending a
civil or criminal action, suit or proceeding shall be paid by the corporation as
they are incurred and in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director or
officer, to repay such amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this Section 10.5 do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
SECTION 10.6. Indemnity Not Exclusive. The indemnification and advancement of
expenses authorized in or order by a court provided hereunder shall not exclude
any other rights to which a person seeking indemnification or advancement of
expenses may be entitled under the Articles of Incorporation, agreement, vote of
stockholders or disinterested directors or otherwise, for either an action in
his official capacity or an action in another capacity while holding his office,
except that indemnification, unless ordered by a court pursuant to Section 10.2
or for the advancement of expenses made pursuant to Section 10.5, may not be
made to or on behalf of any director or officer if a final adjudication
establishes that his
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acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action, and shall continue for a
person who has ceased to be a director, officer, employee or agent and insures
to the benefit of the heirs, executors and administrators of such a person.
SECTION 10.7. The Corporation. For purposes of this Article 10, references to
"the corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under and subject to the provisions of this
Article 10 (including, without limitation, the provisions of Section 10.4) with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1. Seal. The corporate seal shall have inscribed thereon the name of
the corporation, and the words "Corporate Seal, Nevada." The seal may be used by
causing it or a facsimile thereof to the impressed or affixed or otherwise
reproduced.
SECTION 11.2. Books. The books of the corporation may be kept within or without
the State of Nevada (subject to any provisions contained in the statutes) at
such place or places as may be designated from time to time by the Board of
Directors or the Executive Committee.
SECTION 11.3. Fiscal Year. The fiscal year of the corporation shall begin the
first day of July of each year or upon such other day as may be designated by
the Board of Directors.
SECTION 11.4. The provisions of Nevada Revised Statutes Sections 78.378 and
78.3793, inclusive, do not apply to any acquisition of a shares of Common Stock
by Tommie R. Carpenter in connection with that certain Agreement and Plan of
Merger dated as of June 30, 1997 (the "MTS Merger Agreement") by and among
Microwave Tower Service, Inc., an Oregon corporation ("MTS"), each of the
stockholders of MTS whose name, address and the number of Company Shares (as
defined in Section 4.1(a) of the MTS Merger Agreement) owned appears on Exhibit
1 to the MTS Merger Agreement and who, collectively, constitute the owners of
100% of the issued and outstanding shares of capital stock of MTS, Specialty
Teleconstructors, Inc., a Nevada corporation ("STI") and MTS Acquisition, Inc.,
an Oregon corporation and a wholly-owned subsidiary of STI.
ARTICLE 12
AMENDMENT
Subject to the provisions of the Articles of Incorporation, these by-laws may be
altered, amended, or repealed at any regular meeting of the stockholders (or at
any special meeting thereof duly called for the purpose) by a majority vote of
the shares represented and entitled to vote at such meeting. Subject to the laws
of the State of Nevada, the Board of Directors may, by majority vote of those
present at any meeting at which a quorum is present, amend these by-laws, or
enact such other by-laws as in their judgment may be advisable for the
regulation of the conduct of the affairs of the corporation.
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EXHIBIT 10.3
SPECIALTY TELECONSTRUCTORS, INC.
1997 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Incentive Plan is intended to promote the interests of Specialty
Teleconstructors, Inc., a Nevada corporation, by providing eligible persons with
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the attached
Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary), and
- the Automatic Option Grant Program under which eligible
nonemployee Board members shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to
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make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
E. Administration of the Automatic Option Grant Program shall be self
executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to any
option grants or stock issuances made under such program.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs are as follows:
(i) employees,
(ii) nonemployee members of the Board or the board of directors of
any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine, (i) with respect
to the option grants under the Discretionary Option Grant Program, which
eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a
Nonstatutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
to be paid for such shares.
C. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
D. The individuals who shall be eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals serving as
nonemployee Board members on the Plan Effective Date, (ii) those individuals who
first become nonemployee Board members on or after the Plan Effective Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as nonemployee
Board members at one or more Annual Stockholders Meetings held after the Plan
Effective Date.
V. STOCK SUBJECT TO THE PLAN
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A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
reserved for issuance over the term of the Plan shall not exceed 500,000 shares,
subject to certain changes in the Corporation's capital structure.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 200,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1997 calendar year.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original exercise or direct issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
shares subject to any options surrendered in connection with the stock
appreciation right provisions of the Plan shall not be available for reissuance.
Should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance.
D. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year, (iii) the number and/or
class of securities for which grants are subsequently to be made under the
Automatic Option Grant Program to new and continuing nonemployee Board members,
and (iv) the number and/or class of securities and the exercise price per share
in effect under each outstanding option under the Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
E. In the event of a restructuring of the Corporation in which the
Corporation is divested of one or more Subsidiaries, the Plan Administrator may,
in its sole discretion, make appropriate adjustments to the vesting schedule,
number and/or class of securities and the exercise price per share in effect
under each outstanding option under the Plan (i) held by an individual who is to
remain in the Corporation's Service following such divestiture or (ii) held by
an individual who is to provide services to the divested Subsidiary immediately
following the divestiture, which the Plan Administrator deems advisable in order
to reflect the effect of the divestiture on the Corporation's capital structure
and the fair market value of the Common Stock.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such
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document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the
Plan applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Five and
the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the Optionee
shall concurrently provide irrevocable instructions to (a) a Corporation
designated brokerage firm to effect the immediate sale of the purchased shares
and remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by reason of such
exercise and (b) the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such period of
time thereafter as shall be determined by the Plan Administrator and set forth
in the documents evidencing the option, but no such option shall be exercisable
after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the Optionee at
the time of death may be subsequently exercised by the personal representative
of the Optionee's estate or by the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with the laws of
descent and distribution.
(iii) During the applicable exercise period following termination of
Service, the option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable exercise
period or (if earlier)
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upon the expiration of the option term, the option shall terminate and cease to
be outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's cessation
of Service, terminate and cease to be outstanding to the extent the option is
not otherwise at that time exercisable for vested shares.
(iv) Should the Optionee's Service be terminated for Misconduct,
then all outstanding options held by the Optionee shall terminate immediately
and cease to be outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the limited
exercise period otherwise in effect for that option to such greater period
of time as the Plan Administrator shall deem appropriate, but in no event beyond
the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
Service exercise period following termination of service, not only with respect
to the number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also with
respect to one or more additional installments in which the Optionee would have
vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, any or
all of those unvested shares. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Nonstatutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Five shall be applicable to Incentive Options. Options
which are specifically designated as Nonstatutory Options when issued under the
Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee
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under the Plan (or any other option plan of the Corporation or any Parent or
Subsidiary) may for the first time become exercisable as Incentive Options
during any one calendar year shall not exceed the sum of One Hundred Thousand
Dollars ($100,000). To the extent the Employee holds two (2) or more such
options which become exercisable for the first time in the same calendar year,
the foregoing limitation on the exercisability of such options as Incentive
Options shall be applied on the basis of the order in which such options are
granted.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as fully
vested shares of Common Stock. However, an outstanding option shall not so
accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, to be assumed by the successor corporation (or parent
thereof), (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing at the time of the
Corporate Transaction on any shares for which the option is not otherwise at
that time exercisable and provides for subsequent payout in accordance with the
same exercise/vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically terminate, and
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent:
(i) those repurchase rights are to be assigned to the successor corporation (or
parent thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year.
E. The Plan Administrator shall have the discretionary authority to
provide for the automatic acceleration of one or more outstanding options under
the Discretionary Option Grant Program upon the occurrence of a Corporate
Transaction, whether or not those options are to be assumed in the Corporate
Transaction, so that each such option shall, immediately prior to the effect
date of such Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to that option and
may be exercised for any or all of those shares as fully vested shares of Common
Stock. In addition, the Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Discretionary Option Grant Program so that those rights shall not be
assignable in connection with such Corporate Transaction
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and shall accordingly terminate upon the consummation of such Corporate
Transaction, and the shares subject to those terminated rights shall thereupon
vest in full.
F. The Plan Administrator shall have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under the Discretionary Option Grant Program in the
event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those
options are assumed and do not otherwise accelerate. Any options so accelerated
shall remain exercisable for fully vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1) year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may provide that one or more of the Corporation's
outstanding repurchase rights with respect to shares held by the Optionee at the
time of such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
G. The Plan Administrator shall have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under the Discretionary Option Grant Program upon (i) a
Change in Control or (ii) the subsequent termination of the Optionee's Service
by reason of an Involuntary Termination within a designated period (not to
exceed eighteen (18) months) following the effective date of such Change in
Control. Each option so accelerated shall remain exercisable for fully vested
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1) year period measured from the effective date of
Optionee's cessation of Service. In addition, the Plan Administrator shall have
discretionary authority to structure one or more of the Corporation's
outstanding repurchase rights so that those repurchase rights shall immediately
terminate with respect to any shares held by the Optionee at the time of such
Change in Control or Involuntary Termination, and the shares subject to those
terminated rights shall accordingly vest in full.
H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per share
equal to the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have the authority to grant to
selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan
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Administrator may establish, to elect between the exercise of the underlying
option for shares Common Stock and the surrender of that option in exchange for
a distribution from the Corporation in an amount equal to the excess of (a) the
Fair Market Value (on the option surrender date) of the number of shares in
which the Optionee is at the time vested under the surrendered option (or
surrendered portion) over (b) the aggregate exercise price payable for those
shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual option
surrender or at any earlier time. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled may be made in shares of
Common Stock valued at Fair Market Value on the option surrender date, in cash,
or partly in shares and partly in cash, as the Plan Administrator shall in its
sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion) on the option surrender
date and may exercise such rights at any time prior to the later of (a) five (5)
business days after the receipt of the rejection notice or (b) the last day on
which the option is otherwise exercisable in accordance with the terms of the
documents evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Takeover, each individual
holding one or more options with such a limited stock appreciation right shall
have the unconditional right (exercisable for a thirty (30) day period following
such Hostile Takeover) to surrender each such option to the Corporation, to the
extent the option is at the time exercisable for vested shares of Common Stock.
In return for the surrendered option, the Optionee shall receive a cash
distribution from the Corporation in an amount equal to the excess of (A) the
Takeover Price of the shares of Common Stock which are at the time vested under
each surrendered option (or surrendered portion) over (B) the aggregate exercise
price payable for those shares. Such cash distribution shall be paid within
five (5) days following the option surrender date.
(iii) The Plan Administrator shall preapprove, at the time the
limited right is granted, the subsequent exercise of that right in accordance
with the terms of the grant and the provisions of this Section V. No additional
approval of the Plan Administrator or the Board shall be required at the time of
the actual option surrender and cash distribution.
(iv) The balance of the option (if any) shall remain outstanding
and exercisable in accordance with the documents evidencing such option.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. PURCHASE PRICE.
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1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Five, shares of
Common Stock may be issued under the Stock Issuance Program for any combination
of the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with respect
to any shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant's interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect to one
or more such unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the Participant
shall have no further stockholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the Participant's
purchase money indebtedness), the Corporation shall repay to the Participant the
cash consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase money note of the Participant
attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender
and cancellation of one or more unvested shares of Common Stock which would
otherwise occur upon the cessation of the Participant's Service or the non
attainment of the performance objectives applicable to those shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares as to which the waiver applies. Such waiver may be effected at any time,
whether before or after the Participant's cessation of Service or the attainment
or non attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the Stock
Issuance Program shall
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terminate automatically, and all the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent (i) those repurchase rights are to be assigned
to the successor corporation (or parent thereof) in connection with such
Corporate Transaction or (ii) such accelerated vesting is precluded by other
limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued under the Stock
Issuance Program or any time while the Corporation's repurchase rights with
respect to those shares remain outstanding, to structure one or more of those
repurchase rights so that such rights shall not be assignable in connection with
a Corporate Transaction and shall accordingly terminate upon the consummation of
such Corporate Transaction, and the shares subject to those terminated
repurchase rights shall thereupon vest in full.
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
D. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding under the Stock Issuance Program, to structure one or more of those
repurchase rights so that such rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, upon (i) a Change in Control or (ii) the subsequent
termination of the Participant's Service by reason of an involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of such Change in Control or Involuntary Termination.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
ARTICLE FOUR
AUTOMATIC OPTION PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified below:
1. Each individual serving as a nonemployee Board member on the
Plan Effective Date shall automatically be granted at that time a Nonstatutory
Option to purchase 6,000 shares of Common Stock, provided that individual has
not previously been in the employ of the Corporation or any Parent or
Subsidiary.
2. Each individual who is first elected or appointed as a
nonemployee Board member on or after the Plan Effective Date shall automatically
be granted, on the date of such initial election or appointment, a Nonstatutory
Option to purchase 6,000 shares of Common Stock, provided that individual has
not previously been in the employ of the Corporation or any Parent or
Subsidiary.
3. On the date of each Annual Stockholders Meeting, beginning with
the 1998 Annual
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Stockholders Meeting, each individual who is to continue to serve as an Eligible
Director, whether or not that individual is standing for reelection to the Board
at that particular Annual Meeting, shall automatically be granted a Nonstatutory
Option to purchase 3,000 shares of Common Stock, provided such individual has
served as a nonemployee Board member for at least six (6) months. There shall be
no limit on the number of such 3,000 share option grants any one Eligible
Director may receive over his or her period of Board service, and nonemployee
Board members who have previously been in the employ of the Corporation (or any
Parent or Subsidiary) shall be eligible to receive one or more such annual
option grants over their period of continued Board service.
Stockholder approval of the Plan on the Plan Effective Date will
constitute preapproval of each option granted pursuant to the express terms of
this Automatic Option Grant Program and the subsequent exercise of that option
in accordance with its terms.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years measured
from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each initial 6,000 share option
grant shall be immediately exercisable for any or all of the option shares,
3,000 of which shall be fully vested shares of Common Stock, and all of which
shall remain so exercisable until the expiration or sooner termination of the
option term. The remaining 3,000 of the shares of Common Stock purchased under
such initial 6,000 share grant shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's cessation
of Board service prior to vesting in those shares. The unvested portion of the
initial 6,000 share grant shall vest, and the Corporation's repurchase right
shall lapse, in two (2) successive equal annual installments (the first of which
shall be for 2,000 of the 3,000 unvested shares and the second of which shall be
for the remaining 1,000 of the 3,000 unvested shares), upon the Optionee's
completion of each year of Board service over the two (2) year period measured
from the date of the initial grant. Each annual 3,000 share grant shall also be
immediately exercisable for any or all of the option shares. However, 2,000 of
the shares of Common Stock purchased under each annual 3,000 share grant shall
be subject to repurchase by the Corporation, at the exercise price paid per
share, upon the Optionee's cessation of Board service prior to vesting in those
shares. The unvested portion of each annual 3,000 share grant shall vest, and
the Corporation's repurchase right shall lapse, in a series of two (2)
successive equal annual installments upon the Optionee's completion of each year
of Board service over the two (2) year period measured from the automatic grant
date.
E. TERMINATION OF BOARD SERVICE. The following provisions shall govern
the exercise of any options held by the Optionee at the time the Optionee ceases
to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution) shall have a twelve (12) month period
following the date of such cessation of Board service in which to exercise each
such option.
(ii) During the twelve (12) month exercise period, the option may
not be exercised in the aggregate for more than the number of vested shares of
Common Stock for which the option is exercisable at the time of the Optionee's
cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by reason
of death or Permanent Disability, then all shares at the time subject to the
option shall immediately vest so that such option may, during the twelve (12)
month exercise period following such cessation of Board service, be exercised
for all or any portion of those shares as fully vested shares of Common Stock.
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(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve (12) month
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares for
which the option has not been exercised. However, the option shall, immediately
upon the Optionee's cessation of Board service for any reason other than death
or Permanent Disability, terminate and cease to be outstanding to the extent the
option is not otherwise at that time exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKEOVER
A. The shares of Common Stock subject to each option outstanding under
this Article Four at the time of a Corporate Transaction but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of those shares as fully
vested shares of Common Stock. Immediately following the consummation of the
Corporate Transaction, each automatic option grant shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. The shares of Common Stock subject to each option outstanding under
this Article Four at the time of a Change in Control but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully vested shares of
Common Stock. Each such option shall remain exercisable for such fully vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Takeover.
C. All outstanding repurchase rights under the Automatic Option Grant
Program shall automatically terminate, and the unvested shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
of any Corporate Transaction or Change in Control.
D. Upon the occurrence of a Hostile Takeover, the Optionee shall have a
thirty (30) day period in which to surrender to the Corporation each of his or
her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Takeover Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. Stockholder approval
of the Plan on the Plan Effective Date shall constitute preapproval of the grant
of each such option surrender right under this Automatic Option Grant Program
and the subsequent exercise of such right in accordance with the terms and
provisions of this Section II.D. No additional approval or consent of the Plan
Administrator or the Board shall be required at the time of the actual option
surrender and cash distribution.
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
F. The grant of options under the Automatic Option Grant Program shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
III. REMAINING TERMS
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The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
ARTICLE FIVE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
those shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Nonstatutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold, from
the shares of Common Stock otherwise issuable upon the exercise of such
Nonstatutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at the
time the Nonstatutory Option is exercised or the shares vest, one or more shares
of Common Stock previously acquired by such holder (other than in connection
with the option exercise or share vesting triggering the Taxes) with an
aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed
one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board as of June 30, 1997 and shall become
effective upon approval by the Corporation's stockholders at the 1997 Annual
Meeting held on the Plan Effective Date.
B. The Plan shall terminate upon the earliest to occur of (i) 12, 2007,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as fully vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such plan
termination, all outstanding option grants and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing those grants or issuances.
IV. AMENDMENT OF THE PLAN
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A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option under
the Plan and the issuance of any shares of Common Stock (i) upon the exercise of
any granted option or (ii) under the Stock Issuance Program shall be subject to
the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of the Nasdaq National Market or any stock exchange on which Common Stock is
then listed for trading, if applicable.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the Optionee or
the Participant, which rights are hereby expressly reserved by each, to
terminate such person's Service at any time for any reason, with or without
cause.
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.
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B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the Board
members ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been elected
or nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in office
at the time the Board approved such election or nomination.
D. COMMON STOCK shall mean the Corporation's Common Stock, which shall be
registered under Section 12(g) of the 1934 Act and shall be entitled to one (1)
vote per share on all matters subject to stockholder approval.
E. CODE shall mean the Internal Revenue Code of 1986, as amended.
F. CORPORATE TRANSACTION shall mean either of the following stockholder
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
G. CORPORATION shall mean Specialty Teleconstructors, Inc., a Nevada
corporation, and its successors.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option
grant program in effect under the Plan.
I. ELIGIBLE DIRECTOR shall mean a nonemployee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
J. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
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(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be deemed equal to the closing
selling price per share of Common Stock on the date in question, as such price
is reported on the Nasdaq National Market or any successor system. If there is
no closing selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.
(ii) If the Common Stock is at the time listed on the Nasdaq
National Market or any Stock Exchange, then the Fair Market Value shall be
deemed equal to the closing selling price per share of Common stock on the date
in question on the Nasdaq National Market or the Stock Exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on the Nasdaq
National Market or such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.
M. HOSTILE TAKEOVER shall mean the acquisition, directly or indirectly,
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
N. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change
in his or her position with the Corporation which materially reduces his or her
duties and responsibilities or the level of management to which he or she
reports, (B) a reduction in his or her level of compensation (including base
salary, fringe benefits and participation in any corporate performance based
bonus or incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is effected by
the Corporation without the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NONSTATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.
T. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations
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ending with the Corporation, provided each corporation in the unbroken chain
(other than the Corporation) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
U. PARTICIPANT shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more. However, solely for purposes of the Automatic Option Grant Program,
Permanent Disability or Permanently Disabled shall mean the inability of the
nonemployee Board member to perform his or her usual duties as a Board member by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
W. PLAN shall mean the Corporation's 1997 Stock Incentive Plan, as set
forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Y. PLAN EFFECTIVE DATE shall mean the date of the 1997 Annual
Stockholders Meeting at which the Plan is approved by the Corporation's
stockholders.
Z. PRIMARY COMMITTEE shall mean the committee of two (2) or more
nonemployee Board members appointed by the Board to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to Section 16 Insiders.
AA. SECONDARY COMMITTEE shall mean a committee of one (1) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
AB. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short swing profit liabilities of Section 16 of the
1934 Act.
AC. SERVICE shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an employee, a
nonemployee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
AD. STOCK EXCHANGE shall mean the Pacific Stock Exchange or such national
stock exchange, if any, on which the Common Stock is then listed for trading.
AE. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
AF. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect
under the Plan.
AG. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total
17
<PAGE>
combined voting power of all classes of stock in one of the other corporations
in such chain.
AH. TAKEOVER PRICE shall mean the greater of (i) the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
in connection with a Hostile Takeover or (ii) the highest reported price per
share of Common Stock paid by the tender offeror in effecting such Hostile
Takeover. However, if the surrendered option is an Incentive Option, the
Takeover Price shall not exceed the clause (i) price per share.
AI. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Nonstatutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
AJ. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
18
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") dated June 20, 1996, between
SPECIALTY MANAGEMENT, INC., a Nevada corporation (together with its assigns, the
"Employer") and a wholly-owned direct subsidiary of SPECIALITY TELECONSTRUCTORS,
INC., a Nevada corporation, ("STI") and Keith Hartnett (the "Employee").
1. DEFINITIONS.
-----------
(a) "Confidential Information" means all information of any kind, type
------------------------
or nature (written or oral) that at any time during the employment of the
Employee by the Employer is devised, developed, discovered or otherwise
learned of by the Employee to the extent that such information relates to
the Employer or its corporate parent any of its subsidiaries or its
corporate parent's subsidiaries, or any of their respective business,
products, processes, properties or their assets, customers, markets,
marketing strategies, management, employees, technology, know-how, trade
secrets, financial conditions or prospects.
(b) "Person" means any individual, corporation, partnership, trust,
------
government or regulatory authority, or other entity.
2. EMPLOYMENT. The Employer intends to employ the Employee and the
----------
Employee accepts such employment, all upon the terms and conditions of this
Agreement.
3. TERM. The term of this Agreement shall begin on June 20, 1996 (the
----
"Effective Date") and shall continue until terminated by either party hereto by
written notice. By signing this Agreement, the Employee acknowledges and
understands that his/her employment by the Employer is AT WILL and may be
terminated at any time for any reason, with or without cause, by the Employer.
If the Employee is notified that his/her employment will be terminated, the
Employee, if requested by the Employer, shall continue to render his/her
services to the Employer, and shall be paid his/her regular compensation up to
the date of termination. In addition to any earned but unpaid salary, on the
date of termination, the Employee shall be paid a severance allowance equal to
two weeks' salary, less all amounts required to be withheld and deducted
therefrom in accordance with this Agreement and applicable law.
4. COMPENSATION.
------------
(a) Salary. The Employer shall pay the Employee for all services
------
rendered to or on behalf of the Employer a salary of $75,000 per year,
payable in equal semi-montly installments. Federal and state income tax
withholding, social security contributions and any other taxes, deductions
or assessments required by applicable law to be withheld from the
Employee's salary will be withheld from salary payments. Salary increases,
if any, are at the sole discretion of the Employer.
1
<PAGE>
5. FRINGE BENEFITS. The Employee shall be entitled to participate with
---------------
other Emplouees of the Employer in all sick pay, fringe benefits or deferred
compensation plans as may be authorized and adopted from time to time by the
Employer, subject to any applicable limitations of the service/plan provider,
plan documents and/or government rules and regulations.
6. DUTIES. The Employee shall serve as a Chief Accounting Officer of the
------
Employer and his duties shall include all duties incident to the management of
said department, which shall include but not limited to __________________ and
any other responsibilities as directed by the Employer. The Board of Directors
or the Chief Executive Officer of the Employer may, at any time and from time to
time, make such reasonable changes in the Employee's job title and/or job
description and add to or subtract from the Employee's duties hereunder as
theBoard of Directors or the Chief Executive Officer shall determine.
7. EXTENT OF SERVICES. The Employee shall devote his/her full time and
------------------
attention to the Employer's business.
8. WORK FACILITIES. The Employer will provide to the Employee tools and
---------------
equipment suitable and necessary to his/her position and appropriate for the
performance of his/her duties all of which tools must be returned to the
Employer upon severance or termination of the Employee's employment with the
Employer.
9. DISCLOSURE OF CONFIDENTIAL INFORMATION; NON-COMPETITION. The Employee
-------------------------------------------------------
shall not, at any time from and after the Effective Date and throughout
perpetuity, directly or indirectly, disclose or reveal all or any portion of the
Confidential Information to any Person without the prior written consent of the
Employer, except to Persons designated or employed by the employer; and the
Employee shall not, directly or indirectly, use or exploit the Confidential
Information at any time from and after the Effective Date and throughout
perpetuity for any purpose other than in connection with Employee's employment
duties and obligations; provided, however, that the foregoing commitments
relating to disclosure shall not extend to any portion of the Confidential
Information that is now or hereafter becomes, through no act or failure to act
on the part of Employee, generally known to the industry on a non-confidential
basis. The Employee acknowledges and recognizes that the Employer is engaged in
a highly competitive industry that relies heavily on its employees for its
continued viability; the Employee could, after training by and experience with
the Employer, and after receiving some of the Employer's trade secrets and/or
confidential information and gaining the goodwill of its customers, become a
competitor and divert the business and goodwill of the Employer's customers.
The Employee acknowledges and recognizes that the Employee will, in the course
of the Employee's employment, be personally entrusted with and exposed to the
Employer's trade secrets and confidential information and that the Employer will
suffer great loss if the Employee's employment were to terminate and the
Employee thereafter, directly or indirectly, enters into competition with the
Employer. Therefore, the Employee covenants and agrees that, at all times
during his/her employment with the Employer, the Employee will not, directly or
indirectly, engage or participate in any business or other activities that would
directly conflict or compete with the best interests of the Employer with
respect to business activities or opportunities within the United States
2
<PAGE>
and that for a period of two (2) years immediately following the termination of
the Employee's employment, unless such termination is occasioned by the
Employer, for no reason or for any reason other than a breach by the Employee
prior to such termination of the provisions of Section 7 or Section 9 of this
Agreement, the Employee will not, directly or indirectly or on behalf of or in
conjunction with any Person, call upon any customer or customers of the
Employer, or anyone who had been a customer of the Employer within two (2) years
of the Employee's termination, for the purpose of soliciting, selling, or both,
or supplying in any way to any of said customers, any products or services
similar to the products or services sold, provided, distributed, designed or
developed by the Employer. The Employee agrees that at no time during the term
of his/her employment with the Employer, or for a period of two (2) years
immediately following the termination of the Employee's employment, whether said
termination is occasioned by the Employer, the Employee, or the mutual agreement
of said parties, will the Employee for the Employee, whether directly or
indirectly, or on behalf of or in conjunction with any other Person, solicit for
employment or employ any Person employed by the Employer at any time during the
twelve-month (12-month) period immediately preceding such solicitation of
employment.
The parties hereto, recognizing that irreparable injury will result to the
Employer, its business and property, in the event of a breach of the provisions
of this Agreement by the Employee, and that the Employee's employment is based
primarily on this Agreement, hereby agree that in the event or any actual or
threatened breach of the provisions of this paragraph by the Employee, the
Employer shall be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation thereof by the Employee,
the Employee's partners, agents, servants, employers, business associates,
employees, and all persons acting for or with the Employee. The Employee
represents and acknowledges that, in the event of termination of the Employee's
employment for any cause whatsoever, the Employee's experiences and capabilities
are such that the Employee can obtain employment in business engaged in other
lines and/or of a different nature and that the enforcement of a remedy by an
injunction will not prevent the Employee's earning a livelihood.
10. EXPENSES. The Employee may incur reasonable expenses in conducting
--------
and promoting the Employer's business, including expenses for travel and similar
items. The Employer will reimburse the Employee for all such expenses upon the
Employee's presentation of an itemized account of such expenditures and
sufficient detail and evidence or documentation of such expenditures as may be
required by applicable federal and state tax laws or regulations in order for
the Employer to deduct such expenditures for income tax purposes.
11. VACATIONS. The Employee shall be entitled to ten (10) days of paid
---------
vacation per year until the Employee shall have been continuously employed by
the Employer for five (5) full years, after which time the Employee shall be
entitled to an additional (5) days of paid vacation, thus having fifteen (15)
total days of paid vacation per year. Vacation time must be used during the
year in which it accrues and may not be carried over from one year to the next.
3
<PAGE>
12. DEATH OF EMPLOYEE. In the event of the Employee's death, this
-----------------
Agreement shall terminate immediately, and the Employee's estate shall be
entitled to receive any earned but unpaid salary and Bonus due the Employee at
the time of his/her death.
13. DISABILITY OF EMPLOYEE. In the event the Employee becomes disabled
----------------------
during his/her employment with the Employer, which disability, in the opinion of
the Employer, renders the Employee unable to perform the essential functions of
the job for which he/she was hired for a period of more than thirty (30)
consecutive days or more than sixty (60) cumulative days in any fiscal year of
the Employer, then upon request from the Employee, the Employer may, but shall
not be required to, investigate reasonable accommodations that may allow the
Employee to continue performing his/her duties pursuant to this Agreement. If
the Employer elects to not undertake such investigation or if, in the Employer's
sole opinion, such investigation reveals that such reasonable accommodations can
be made or that no such reasonable accommodations can be made without undue
economic hardship to the Employer, then, unless applicable law requires
otherwise, this Agreement shall terminate immediately upon written notice of
such events to the Employee. Upon termination of this Agreement under this
paragraph, the Employee shall be entitled to receive any earned but unpaid
salary due the Employee through the date such notice is mailed to Employee. It
is the intention of the Employer to comply with any laws or governmental
regulations applicable to its relationship with its employees. Consequently,
any provisions of such applicable laws or regulations that require the Employer
take actions in respect of the Employee in the event of said Employee's becoming
disabled during his/her employment with the Employer, shall be given effect
notwithstanding the terms of this paragraph.
14. ARBITRATION. Any controversy or claim arising out of or relating to
-----------
this Agreement shall be settled by arbitration in accordance with the then
governing rules of the American Arbitration Association for commercial matters
and the Uniform Arbitration Act, if any, then in effect in the state in which
the Employee resides (with the right of discovery for all parties as provided in
the Rules of Civil Procedure applicable to actions commenced in the state courts
of said state). Judgment upon the award rendered be entered and enforced in any
court of competent jurisdiction. The arbitrator shall apply the rules of law.
15. NOTICES. Any notice required or desired to be given under this
-------
Agreement shall be in writing sent by certified mail to the Employee's last
known residence as shown in the records of Employer, or to the Employer's
principal office, as the case may be and shall be deemed to have been received
by the party to which it is sent on the third day after which it was mailed,
postage prepaid, return receipt requested.
16. WAIVER OF BREACH. The Employer's waiver of a breach of any provision
----------------
of this Agreement by the Employee shall not operate or be construed as a waiver
of any subsequent breach by the Employee. No such waiver shall be valid unless
in writing and signed by an authorized officer of the Employer.
4
<PAGE>
17. ASSIGNMENT. The Employee acknowledges that his services are unique
----------
and personal. Accordingly, the Employee may not assign his rights and delegate
his duties or obligations under this Agreement. The Employer's rights and
obligations under this Agreement shall inure to the benefit of and shall be
binding upon the Employer's successors and assigns.
18. ENTIRE AGREEMENT. This Agreement (and the Option Agreement and the
----------------
Plan to the extent those documents are referred to herein) contain the entire
understanding of the parties. This Agreement may not be waived, changed,
modified, extended or discharged except by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought. The Employer specifically acknowledges that any present or
future employee manuals, guidelines or handbooks are for Employee's information
only and do not form a part of this Agreement unless such additional present or
future employee manuals, guidelines or handbooks are specifically incorporated
herein by reference pursuant to a written amendment to this Agreement.
19. READINGS. Headings in this Agreement are for convenience only and
--------
shall not be used to interpret or construe its provisions.
20. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
21. GOVERNING LAW. This Agreement and any actions related to this
-------------
Agreement shall be governed by the laws of the State of New Mexico.
22. STOCK OPTION. Subject to approval of the stockholders of STI of an
------------
amendment (the "Amendment") to the STI Incentive Stock Option Plan (the "Plan")
to increase the number of shares of STI Common Stock (the "Common Stock")
available thereunder to permit the grant of the Incentive Stock Options ("ISOs")
contemplated in this Agreement, the Employer agrees to cause STI to grant to the
Employee ISOs to acquire 30,000 shares of Common Stock subject to the terms of
the Plan and an Option Agreement (the "Option Agreement"), the form of which is
attached as EXHIBIT A to this Agreement, and this Agreement. Subject to the
terms of the Plan, the date of the grant of the ISOs contemplated hereby shall
be July 1, 1996. The Employer represents and warrants to the Employee that the
Board of Directors of STI has passed a resolution to adopt the Amendment,
subject only to the condition of approval of the Amendment by its stockholders,
and that the Board of Directors of STI, or the appropriate committee thereof,
has granted the ISOs contemplated hereby, subject only to said approval.
In addition to the approval of the Amendment by STI's stockholders, the
Employee's right to acquire the shares of Common Stock granted pursuant to the
Option Agreement shall be subject to the following vesting schedule. 10,000 of
said ISOs will become exercisable on the later of (i) the July 1, 1996 and (ii)
the approval of the Amendment by STI's stockholders, and an additional 20,000 of
the ISOs will become exercisable on July 1, 1997.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
SPECIALTY CONSTRUCTORS, INC.,
a New Mexico corporation
/s/ Keith Hartnett By:/s/ Michael R. Budagher
------------------------------ --------------------------------------------
Keith Hartnett Michael R. Budagher, Chief Executive Officer
6
<PAGE>
EXHIBIT A
OPTION AGREEMENT
OPTION AGREEMENT made this 20th day of June, 1996, between SPECIALTY
TELECONSTRUCTORS, INC., a Nevada corporation, (the "Company") and Keith Hartnett
(the "Employee"), an employee of SPECIALTY MANAGEMENT, INC., a New Mexico
corporation (the "Employer") and a wholly-owned direct subsidiary of the
Company.
In consideration of the Employee's employment with the Employer, and in
further consideration of the Employee devoting his time, energy, and skill to
the service of the Employer, it is agreed:
1. OPTION. The Company hereby grants to the Employee the option (the
"Option" or the "Options") to purchase up to a total of 30,000 shares of the
common stock of the Company (hereinafter referred to as the "Option Shares") on
the terms hereinafter set forth. The Option set forth herein is specifically
made pursuant to and is subject to all of the terms and conditions set forth in
the 1994 Incentive Stock Option Plan of the Company, as amended (the "Plan") and
such Plan is specifically incorporated herein by reference.
2. PURCHASE PRICE. The purchase price payable for the Option Shares
shall be the price per share as quoted on the NASDAQ last trade on July 1, 1996,
payable in cash, by certified check or in stock of the Company. Payment of the
purchase price and delivery of the Option Shares shall take place at the offices
of the Company in Cedar Crest, New Mexico, within five (5) days after receipt by
the Company of written notice of the exercise, in whole or in part, of the
Options.
3. VESTING; EXERCISE OF OPTION. This Option to purchase shall be
exercisable by the Employee only pursuant to PARAGRAPH 7 of the Plan and shall
not be exercisable after the expiration of ten (10) years from May 15, 1996.
Subject to the foregoing limitation, 10,000 of said Options will become
exercisable on the later of (i) the July 1, 1996 and (ii) the approval of the
Amendment (as defined in that certain Employment Agreement dated June 20, 1996
(the "Employment Agreement")) by the Company's stockholders, and an additional
20,000 of the Options will become exercisable on July 1, 1997. To the extent
that the Employee exercises his rights during the period of this Option
Agreement to purchase less than the total amount of Option Shares offered
hereunder, the number of Option Shares offered thereafter shall be accordingly
reduced. However, in the case of an employee who owns (at the date the Option
is granted) more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or of one or more of its subsidiary
corporations, then this Option shall be exercisable by the Employee within a
period of five (5) years from July 1, 1996. The Option shall be exercisable in
writing by registered or certified mail to the Company.
In the event the Employee ceases to be an Employee of the Employer, other
than by death or disability or following a Change in Control (as defined in the
Plan), except then, as otherwise set
7
<PAGE>
forth herein or in the Plan, the right to exercise this Option shall immediately
cease on the day of such termination. Notwithstanding anything to the contrary
contained herein or in the Employment Agreement or the Plan, unless the Employee
shall have ceased to be employed by the Employer prior to the occurrence of a
Change in Control, the Employee shall continue to have the right to exercise
this Option for a period of the longer of (i) the period otherwise provided in
accordance with the Plan and (ii) ninety (90) days following the occurrence of
said Change in Control.
4. SEQUENTIAL EXERCISE. This Option is not exercisable while there is
outstanding any incentive stock option which was granted before the granting of
this stock option to the Employee to purchase stock in the Company.
5. TRANSFERABILITY. This Option shall not be transferable by the
Employee other than by will or by the laws of descent or distribution, and is
exercisable during his lifetime only by him.
6. REPRESENTATION. The Company represents the following:
(a) During the term of this Option, it will erserve from its
authorized and unissued common stock a sufficient number of shares to provide
for delivery of stock pursuant to the exercise of this Option.
(b) If, at any time prior to the complete exercise of this Option by
the holder hereof, the Company offers any shares of common stock to the common
stockholders as a class for subscription, in accordance with the preemptive of
stockholders otherwise, the holder hereof shall be entitled to subscribe for the
same number of shares of common stock or securities convertible into common
stock as he would have been entitled to purchase had he fully exercised this
Option.
7. STOCKHOLDERS' RIGHTS. Except as provided in Paragraph 6(b), until the
valid exercise of this Option, a Employee shall not be entitled to any rights of
a stockholder in respect of the shares offered hereunder, but immediately upon
the exercise of this Option and upon payment as provided herein, he shall be
deemed a record holder of such stock.
8. REPRESENTATION OF EMPLOYEE. The Employee understands that the shares
to be issued pursuant to this Option Agreement may not be registered under the
Securities Act of 1933, and agrees and represents that he will acquire such
shares for investment and not with a view to their sale or distribution in such
a manner as would require registration thereof under said Act, and that
certificates representing said shares may have imprinted thereon such
restrictive legends as the Company and its counsel may determine are necessary
for compliance with said Act.
8
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of June 20,
1996.
SPECIALTY TELECONSTRUCTORS, INC.,
a Nevada corporation
By: /s/ Michael R. Budagher
--------------------------------------------
Michael R. Budagher, Chief Executive Officer
/s/ Keith Hartnett
--------------------------------------------
Keith Hartnett
9
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") dated as of June 30, 1997,
between MICROWAVE TOWER SERVICE, INC., an Oregon corporation (together with its
assigns, "MTS") and a wholly-owned subsidiary of SPECIALTY TELECONSTRUCTORS,
INC., a Nevada corporation, ("Parent") and Ernie L. Carpenter ("Employee").
1. Definitions.
(a) "Confidential Information" means all information of any kind, type
------------------------
or nature (written or oral) that at any time during the employment of
Employee by MTS, either before or after the date hereof, is devised,
developed, discovered or otherwise learned of by Employee to the extent
that such information relates to MTS or its corporate parent or any of its
subsidiaries or its corporate parent's subsidiaries, or any of their
respective businesses, products, processes, properties, assets, customers,
markets, marketing strategies, management, employees, technology, know-how,
trade secrets, financial conditions or prospects.
(b) "Person" means any individual, corporation, partnership, trust,
------
government or regulatory authority, or other entity.
2. Employment. MTS currently employs Employee. Subject to consummation of
----------
the merger (the "Merger") between Microwave Tower Service, Inc. and MTS
Acquisition, Inc., an Oregon corporation and a wholly-owned subsidiary of
Parent, from and after the Effective Date (as defined below), MTS intends to
continue to employ Employee on terms described herein, and Employee accepts
employment, upon the terms and conditions of this Agreement.
3. Term. The term of this Agreement shall begin on the later of (i) the date
----
the Merger is consummated and (ii) June 30, 1997 (the "Effective Date") and
shall continue for a period of three (3) years, unless sooner terminated
pursuant to the provisions of Section 4 herein.
4. Termination. This Agreement shall terminate automatically upon the
-----------
expiration of its term or upon the death of the Employee (provided that
Employee's estate shall be entitled to receive any earned but unpaid salary and
Bonus due Employee at the time of his/her death) or under circumstances
described in Section 13 herein. In addition, this Agreement may be terminated
by MTS or the Employee under the following circumstances:
(a) By MTS.
------
(i) Termination for Cause. MTS may, in its sole discretion,
---------------------
terminate this Agreement at any time and without notice for cause.
For purposes of this Section 4 (a)(i), "cause" shall mean: (1)
Employee's conviction for any felony or crime of moral turpitude; (2)
dishonesty or disloyalty by Employee in performance of his or her
duties hereunder; (3) insubordination by Employee; (4) conduct by
Employee which jeopardizes MTS's right or ability to operate its
business; (5) Employee breach of any provision of Section 10 of this
Agreement; (6) Employee's material breach of any provision of this
Agreement other than Section 10; (7) the failure or inability of
Employee to perform his duties in a manner which is reasonably
acceptable to MTS; or (8) gross neglect of duty.
(ii) Termination Without Cause. MTS may, in its sole discretion,
-------------------------
without any cause whatsoever, terminate this Agreement at any time by
providing Employee with 30 days' written notice and, at MTS's
election, may relieve Employee of his or her duties and
responsibilities immediately or at any time thereafter and without any
further notice whatsoever if MTS provides
<PAGE>
Employee with pay until the expiration of 30 days after the date on
which MTS first gave Employee notice of MTS's intent to terminate
Employee's employment.
(b) By Employee. Employee may, in his or her sole discretion,
-----------
without any cause whatsoever, terminate this Agreement at any time by
providing MTS with 30 days' written notice. If Employee notifies MTS of
his or her intent to terminate this Agreement pursuant to this Section
4(b), then, notwithstanding such notice, if MTS's so requests, Employee
shall continue to provide his or services to MTS pursuant to this Agreement
for a period of up to 30 days following the date on which Employee first
notified MTS of his or her intent to terminate his or her employment (or
such shorter period as MTS shall determine) and MTS will continue to
compensate Employee during such period at the rate provided herein.
5. Compensation.
------------
(a) Salary. MTS shall pay Employee for all services rendered to or
------
on behalf of MTS a salary of $150,000 per year, payable in equal semi-
monthly installments. Federal and state income tax withholding, social
security contributions and any other taxes, deductions or assessments
required by applicable law to be withheld from Employee's salary will be
withheld from salary payments. Salary increases, if any, are at the sole
discretion of MTS.
(b) Bonus. In addition to Employee's salary, at MTS's sole
-----
discretion, Employee shall be eligible to receive a bonus (a "Bonus") for
each fiscal year commencing from and after July 1, 1997 during which
Employee was continuously employed by MTS for the entire fiscal year (each
such fiscal year is referred to herein as a "Bonus Eligible Year").
Employee acknowledges that, notwithstanding anything to the contrary
contained herein, he or she will become entitled to receive a Bonus in
respect of any Bonus Eligible Year only if, as and when he or she receives
written notice thereof from MTS.
6. Employee Benefits. Employee shall be entitled to participate with other
-----------------
employees of MTS in all sick pay, fringe benefit or deferred compensation plans
(other than stock option or bonus plans) as may be authorized and adopted from
time to time by MTS, subject to any applicable limitations of the service/plan
provider, plan documents and/or government rules and regulations. In addition,
Employee shall be entitled to participate with other employees of MTS and Parent
or any of its subsidiaries in all sick pay, fringe benefit or deferred
compensation plans (other than stock option plans) as may be authorized and
adopted from time to time by Parent or any of its subsidiaries for the benefit
of or participation of all employees of Parent and its subsidiaries (other than
MTS), subject to any applicable limitations of the service/plan provider, plan
documents and/or government rules and regulations.
7. Duties. Employee shall serve as President of MTS and his duties shall
------
include all duties incident to the management of said position, unless otherwise
directed by MTS's Board of Directors. MTS's Board of Directors may, at any time
and from time to time, make such changes in Employee's job title and/or job
description and add to or subtract from Employee's duties hereunder as MTS's
Board of Directors shall determine.
8. Extent of Services. Employee shall devote his/her full time and attention
------------------
to MTS's business.
9. Work Facilities. MTS will provide to Employee tools and equipment suitable
---------------
and necessary to his/her position and appropriate for the performance of his/her
duties all of which tools must be returned to MTS upon severance or termination
of Employee's employment with MTS.
10. Disclosure of Confidential Information; Non-competition . Employee shall
--------------------------------------------------------
not, at any time from and after the Effective Date and throughout perpetuity,
directly or indirectly, disclose or reveal all or any portion of the
Confidential Information to any Person without the prior written consent of MTS,
except to Persons designated or employed by MTS or Parent or any of their
respective subsidiaries; and Employee shall not, directly or indirectly, use or
exploit the Confidential Information at any time from and after the Effective
Date and throughout perpetuity
2
<PAGE>
for any purpose other than in connection with Employee's employment duties and
obligations; provided, however, that the foregoing commitments relating to
disclosure shall not extend to any portion of the Confidential Information that
is now or hereafter becomes, through no act or failure to act on the part of
Employee, generally known to the industry on a non-confidential basis. Employee
acknowledges and recognizes that, MTS is engaged in a highly competitive
industry that relies heavily on its employees for its continued viability;
Employee could, after training by and experience with MTS, and after receiving
some of MTS's trade secrets and/or confidential information and gaining the
goodwill of its customers, become a competitor and divert the business and
goodwill of MTS's customers. Employee acknowledges and recognizes that Employee
will, in the course of employment, be personally entrusted with and exposed to
MTS's trade secrets and other Confidential Information and that MTS will suffer
great loss if Employee's employment were to terminate and Employee thereafter,
directly or indirectly, enters into competition with MTS. Therefore, Employee
covenants and agrees that at all times during his/her employment with MTS, and
for a period of two (2) years immediately following the termination of
Employee's employment, provided that such termination has not been by MTS
without cause, Employee will not (a) directly or indirectly, engage or
participate in any business or other activities that would directly conflict or
compete with the best interests of MTS with respect to business activities or
opportunities within the United States, (b) directly or indirectly or on behalf
of or in conjunction with any Person, call upon any customer or customers of
MTS, or anyone who had been a customer of MTS within two (2) years of Employee's
termination, for the purpose of soliciting, selling, or both, or supplying in
any way to any of said customers, any products or services similar to the
products or services sold, provided, distributed, designed or developed by MTS
or Parent or any of their respective subsidiaries. Employee agrees that at no
time during the term of his/her employment with MTS, or for a period of two (2)
years immediately following the termination of Employee's employment, whether
said termination is occasioned by MTS, Employee, or the mutual agreement of said
parties, will Employee directly or indirectly, or on behalf of or in conjunction
with any other Person, solicit for employment or employ any Person employed by
MTS or Parent or any of their respective subsidiaries at any time during the
twelve-month (12-month) period immediately preceding such solicitation of
employment.
The parties hereto, recognizing that irreparable injury will result to MTS,
its business and property, in the event of a breach of the provisions of this
Section 10 by Employee, and that Employee's employment is based primarily on
this Agreement, hereby agree that in the event of any actual or threatened
breach of the provisions of this Section 10 by Employee, MTS shall be entitled,
in addition to any other remedies and damages available, to an injunction to
restrain the violation thereof by Employee, Employee's partners, agents,
servants, employers, business associates, employees, and all persons acting for
or with Employee. Employee represents and acknowledges that, in the event of
termination of Employee's employment where the aforementioned restrictions
apply, Employee's experiences and capabilities are such that Employee can obtain
employment in business engaged in other lines and/or of a different nature and
that the enforcement of a remedy by an injunction will not prevent Employee from
earning a livelihood.
11. Expenses. Employee may incur reasonable expenses in conducting and
--------
promoting MTS's business, including expenses for travel, and similar items. MTS
will reimburse Employee for all such expenses upon Employee's presentation of an
itemized account of such expenditures and sufficient detail and evidence or
documentation of such expenditures as may be required by applicable federal and
state tax laws or regulations in order for MTS to deduct such expenditures for
income tax purposes.
12. Vacations. Except as may be required by applicable law, Employee shall not
---------
be eligible for paid vacation time until after he/she completes three hundred
sixty-five (365) calendar days of continuous employment with MTS (which period
of continuous employment shall include Employee's continuous employment with MTS
prior to the Merger), at which time he/she shall be eligible for five (5) days
of paid vacation per year until Employee shall have been continuously employed
by MTS for two (2) full years. From and after two (2) years of continuous
employment and until Employee shall have been continuously employed by MTS for
seven (7) full years, Employee shall be entitled to an additional (5) days of
paid vacation, thus having ten (10) total days of paid vacation per year. From
and after seven (7) years of continuous employment, Employee shall be entitled
to an additional five (5) days
3
<PAGE>
of paid vacation thus having fifteen (15) total days per year of paid vacation.
Vacation time must be used during the year in which it accrues and may not be
carried over from one year to the next.
13. Disability of Employee. In the event Employee becomes disabled during
----------------------
his/her employment with MTS, which disability, in the opinion of MTS, renders
Employee unable to perform the essential functions of the job for which he/she
was hired for a period of more than thirty (30) consecutive days or more than
sixty (60) cumulative days in any fiscal year of MTS, then upon request from
Employee, MTS may, but shall not be required to, investigate reasonable
accommodations that may allow Employee to continue performing his/her duties
pursuant to this Agreement. If MTS elects to not undertake such investigation
or if, in MTS's sole opinion, such investigation reveals that such reasonable
accommodations cannot be made or that no such reasonable accommodations can be
made without undue economic hardship to MTS, then, unless applicable law
requires otherwise, this Agreement shall terminate immediately upon written
notice of such events to Employee. Upon termination of this Agreement under
this paragraph, Employee shall be entitled to receive any earned but unpaid
salary due Employee through the date such notice is mailed to Employee. It is
the intention of MTS to comply with any laws or governmental regulations
applicable to its relationship with its employees. Consequently, any provisions
of such applicable laws or regulations that require MTS take actions in respect
of Employee in the event of Employee's becoming disabled during his/her
employment with MTS, shall be given effect notwithstanding the terms of this
Section 13.
14. Arbitration. Any controversy or claim arising out of or relating to this
-----------
Agreement, shall be settled by arbitration in accordance with the then governing
rules of the American Arbitration Association for commercial matters and the
Uniform Arbitration Act, if any, then in effect in the state in which Employee
resides (with the right of discovery for all parties as provided in the Rules of
Civil Procedure applicable to actions commenced in the state courts of said
state). Judgment upon the award rendered by be entered and enforced in any
court of competent jurisdiction. The arbitrator shall apply the rules of law.
15. Notices. Any notice required or desired to be given under this Agreement
-------
shall be in writing sent by certified mail to Employee's last known residence as
shown in the records of MTS, or to MTS's principal office, as the case may be
and shall be deemed to have been received by the party to which it is sent on
the third day after which it was mailed, postage prepaid, return receipt
requested.
16. Waiver of Breach. MTS's waiver of a breach of any provision of this
----------------
Agreement by Employee shall not operate or be construed as a waiver of any
subsequent breach by Employee. No such waiver shall be valid unless in writing
and signed by an authorized officer of MTS.
17. Assignment. Employee acknowledges that his services are unique and
----------
personal. Accordingly, Employee may not assign his rights and delegate his
duties or obligations under this Agreement. MTS's rights and obligations under
this Agreement shall inure to the benefit of and shall be binding upon MTS's
successors and assigns.
18. Entire Agreement. This Agreement contains the entire understanding of the
----------------
parties. This Agreement may not be waived, changed, modified, extended or
discharged except by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought. MTS specifically acknowledges that any present or future employee
manuals, guidelines or handbooks are for Employee's information only and do not
form a part of this Agreement unless such additional present or future employee
manuals, guidelines or handbooks are specifically incorporated herein by
reference pursuant to a written amendment to this Agreement.
19. Headings. Headings in this Agreement are for convenience only and shall
--------
not be used to interpret or construe its provisions.
20. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
4
<PAGE>
21. Governing Law. This Agreement and any actions related to this Agreement
-------------
shall be governed by the laws of the State of New Mexico.
22. Survival. Notwithstanding anything to the contrary contained herein, this
--------
Section 22 and the agreements of the parties contained in Sections 10, 14, and
21 shall survive the termination or expiration of this Agreement.
23. Severability. The provisions of this Agreement shall be deemed severable
------------
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability or the other provisions hereof. If any provision of
this Agreement, or the application thereof to any Person or any circumstance, is
invalid or unenforceable, (a) a suitable and equitable provision shall be
substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such provision to
other Persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
EMPLOYEE MICROWAVE TOWER SERVICE, INC.,
an Oregon corporation
/s/ Ernie L. Carpenter By /s/ Ernie L. Carpenter
- ------------------------------ ------------------------------------
Ernie L. Carpenter Ernie L. Carpenter, President
5
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Percentage
of Voting
Securities
Name Address Incorporation Owned
---- ------- ------------- ----------
<S> <C> <C> <C>
Speciality Constructors, Inc. Cedar Crest, NM NM 100%
Speciality Management, Inc. Cedar Crest, NM NV 100%
Speciality Coatings, Inc. Cedar Crest, NM NV 100%
Speciality Combined Resources, Inc. Laguna Hills, CA TX 100%
Speciality Fortress, Inc. Cedar Crest, NM NV 100%
Speciality Training, Inc. Cedar Crest, NM NV 100%
Speciality Constructors East, Inc. Cedar Crest, NM NV 100%
Microwave Tower Service, Inc. Salem, Oregon OR 100%
Novak & Lackey Construction Co., Inc. Oklahoma City, Oklahoma OK 100%
</TABLE>
<PAGE>
EXHIBIT 23.1
The Board of Directors
Specialty Teleconstructors, Inc.
We consent to incorporation by reference in the registration statement (No. 333-
18899) on Form S-8 of Specialty Teleconstructors, Inc. of our report dated
August 29, 1997, relating to the consolidated balance sheets of Specialty
Teleconstructors, Inc. and Subsidiaries as of June 30, 1997, and 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for the years then ended, which report appears in the June 30, 1997,
annual report on Form 10-KSB of Specialty Teleconstructors, Inc.
/s/ KPMG Peat Marwick LLP
Albuquerque, New Mexico
September 12, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE REGISTRANT'S
ANNUAL REPORT ON SEC FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1997<F1> JUN-30-1996
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 989,720 3,412,618
<SECURITIES> 769,850 296,035
<RECEIVABLES> 15,095,479 9,110,279
<ALLOWANCES> 355,000 0
<INVENTORY> 2,664,239 689,757
<CURRENT-ASSETS> 22,088,814 15,226,113
<PP&E> 11,615,640 6,085,068
<DEPRECIATION> 3,185,734 1,920,520
<TOTAL-ASSETS> 32,363,264 19,589,099
<CURRENT-LIABILITIES> 11,756,916 7,794,305
<BONDS> 0 0
0 0
0 0
<COMMON> 78,765 68,273
<OTHER-SE> 18,425,502 10,377,115
<TOTAL-LIABILITY-AND-EQUITY> 32,363,264 19,589,099
<SALES> 65,626,800 32,585,986
<TOTAL-REVENUES> 65,818,805 32,861,383
<CGS> 53,411,550 25,602,471
<TOTAL-COSTS> 58,972,358 29,013,017
<OTHER-EXPENSES> 30,590 5,963
<LOSS-PROVISION> 355,000 0
<INTEREST-EXPENSE> 429,615 82,027
<INCOME-PRETAX> 6,031,242 3,760,376
<INCOME-TAX> 2,484,000 1,456,100
<INCOME-CONTINUING> 3,547,242 2,304,276
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,547,242 2,304,276
<EPS-PRIMARY> .49 .33
<EPS-DILUTED> .49 .33
<FN>
<F1>THE SUMMARY FINANCIAL INFORMATION CONTAINED IN THIS SCHEDULE HAS BEEN RESTATED
TO REFLECT THE ACQUISTIONS DURING THE FISCAL YEAR ENDED JUNE 30, 1997 OF NOVAK
& LACKEY CONSTRUCTION CO., INC. AND MICROWAVE TOWER SERVICE, INC. WHICH WERE
ACCOUNTED FOR AS POOLINGS OF INTERESTS.
</FN>
</TABLE>
