SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[x] Preliminary Information Statement [ ] Confidential, for use of the
Commission Only (as permit-
[ ] Definitive Information Statement ted by Rule 14c-5(d)(2))
SPECIALTY TELECONSTRUCTORS, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.
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4) Proposed maximum aggregate value of transaction:
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5) Total Fee Paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration number, or
the Form or Schedule and the date of its filing.
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SPECIALTY TELECONSTRUCTORS, INC.
12001 State Highway 14 North
Cedar Crest, New Mexico 87008
(505) 281-2197
To all Stockholders of SPECIALTY TELECONSTRUCTORS, INC.:
The accompanying Information Statement relates to the reincorporation (the
"Reincorporation") of Specialty Teleconstructors, Inc., a Nevada corporation
(the "Company"), in Delaware through the merger (the "Merger") of the Company
with and into OmniAmerica, Inc., a Delaware corporation and a wholly owned
subsidiary of the Company formed solely for the purpose of the Merger
("OmniAmerica"), pursuant to the provisions of that certain Agreement and Plan
of Merger dated as of July 24, 1998 by and between the Company and OmniAmerica
(the "Merger Agreement"). At the effective time of the Merger, the corporate
existence of the Company shall cease and, without any action on the part of the
holder thereof, each share of common stock, par value $0.01 per share, of the
Company (the "Company Common Stock") issued and outstanding immediately prior to
the Merger shall be converted into one share of common stock, par value $0.01
per share, of OmniAmerica (the "OmniAmerica Common Stock") and each outstanding
option to purchase Company Common Stock under the Company's stock option plans
shall be converted into an option to purchase the same number of shares of
OmniAmerica Common Stock. From and after the effective time of the Merger: (i)
the name of the surviving corporation shall be "OmniAmerica, Inc."; (ii)
OmniAmerica shall conduct business as presently conducted by the Company; (iii)
the charter and bylaws of OmniAmerica in effect immediately prior to the Merger
shall be the charter and bylaws of the surviving corporation; and (iv) the
directors and officers of the Company immediately prior to the Merger shall be
the directors and officers of OmniAmerica. Following the consummation of the
Merger and the resulting change of the Company's name to "OmniAmerica, Inc.,"
the OmniAmerica Common Stock will be identified by CUSIP number 68211J 10 0 and
will trade on The Nasdaq Stock Market under the symbol "XMIT."
PLEASE DO NOT SEND IN ANY OF YOUR STOCK CERTIFICATES REPRESENTING COMPANY
COMMON STOCK. FROM AND AFTER THE EFFECTIVE TIME OF THE MERGER AND WITHOUT ANY
ACTION ON THE PART OF THE HOLDER THEREOF, EACH CERTIFICATE REPRESENTING SHARES
OF COMPANY COMMON STOCK OUTSTANDING IMMEDIATELY PRIOR TO THE EFFECTIVE TIME OF
THE MERGER SHALL REPRESENT THE SAME NUMBER OF SHARES OF OMNIAMERICA COMMON STOCK
AND, ACCORDINGLY, DELIVERY OF STOCK CERTIFICATES REPRESENTING COMPANY COMMON
STOCK WILL CONSTITUTE DELIVERY FOR TRANSACTIONS IN SHARES OF OMNIAMERICA COMMON
STOCK AFTER THE EFFECTIVE DATE OF THE MERGER. FOLLOWING CONSUMMATION OF THE
MERGER, POSITIONS IN SHARES OF COMPANY COMMON STOCK HELD WITH THE DEPOSITORY
TRUST COMPANY WILL BE TRANSFERRED AUTOMATICALLY TO POSITIONS IN THE SAME NUMBER
OF SHARES OF OMNIAMERICA COMMON STOCK.
The accompanying Information Statement also relates to the adoption by the
Company of a new stock option plan (the "1998 Stock Option Plan") that shall
become effective immediately prior to the Merger. The Company's existing stock
option plans and the 1998 Stock Option Plan shall become option plans of
OmniAmerica by operation of law in connection with the Merger.
The Board of Directors of the Company has approved and adopted the Merger
Agreement and the 1998 Stock Option Plan by unanimous written consent in lieu of
a meeting of the Board. The holders of approximately 59.3% of the Company Common
Stock have approved the Merger Agreement and the 1998 Stock Option Plan by
written consent in lieu of a meeting of the stockholders.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
Sincerely,
SPECIALTY TELECONSTRUCTORS, INC.
August __, 1998
<PAGE>
As filed with the Securities Exchange Commission on August 13, 1998.
PRELIMINARY INFORMATION STATEMENT
SPECIALTY TELECONSTRUCTORS, INC.
12001 State Highway 14 North
Cedar Crest, New Mexico 87008
(505) 281-2197
-----------
INFORMATION STATEMENT
-----------
August __, 1998
-----------
This Information Statement is being furnished by the Board of Directors
(hereinafter the "Board of Directors" or the "Board") of Specialty
Teleconstructors, Inc., a Nevada corporation (the "Company"), to all holders of
the outstanding shares of common stock, par value $.01 per share, of the Company
(the "Company Common Stock") in connection with the reincorporation of the
Company in Delaware (the "Reincorporation") and its related name change to
"OmniAmerica, Inc." The Reincorporation will be effected by merging (the
"Merger") the Company with and into OmniAmerica, Inc., a Delaware corporation
and a wholly owned subsidiary of the Company formed solely for the purpose of
the Merger ("OmniAmerica"), pursuant to the provisions of that certain Agreement
and Plan of Merger dated as of July 24, 1998 by and between the Company and
OmniAmerica (the "Merger Agreement"), a copy of which is attached hereto as
Exhibit A. At the effective time of the Merger, the corporate existence of the
Company shall cease and, without any action on the part of the holder thereof,
each share of Company Common Stock issued and outstanding immediately prior to
the Merger shall be converted into one share of common stock, par value $0.01
per share, of OmniAmerica (the "OmniAmerica Common Stock") and each outstanding
option to purchase Company Common Stock under the Company's stock option plans
shall be converted into an option to purchase the same number of shares of
OmniAmerica Common Stock. From and after the effective time of the Merger: (i)
the name of the surviving corporation shall be "OmniAmerica, Inc."; (ii)
OmniAmerica shall conduct business as presently conducted by the Company; (iii)
the charter and bylaws of OmniAmerica in effect immediately prior to the Merger
shall be the charter and bylaws of the surviving corporation; and (iv) the
directors and officers of the Company immediately prior to the Merger shall be
the directors and officers of OmniAmerica. Following the consummation of the
Merger and the resulting change of the Company's name to "OmniAmerica, Inc.,"
the OmniAmerica Common Stock will be identified by CUSIP number 68211J 10 0 and
will trade on The Nasdaq Stock Market (the "Nasdaq") under the symbol "XMIT."
This Information Statement is also being furnished by the Board of
Directors to holders of outstanding shares of Company Common Stock in connection
with the adoption by the Company, effective immediately prior to the Merger, of
a new stock option plan (the "1998 Stock Option Plan"), a copy of which is
attached hereto as Exhibit B. Pursuant to a unanimous written consent dated as
of July 24, 1998, the Board amended, effective such date, each of the Company's
Amended and Restated 1994 Stock Option Plan, Outside Director's Plan and 1997
Stock Incentive Plan (collectively, the "Existing Stock Option Plans") so that
no further grants may be made thereunder. All prior grants of options under the
Existing Stock Option Plans, whether vested or unvested, shall remain in full
force and effect and shall not be effected in any way as a result of such
amendment. New options shall be granted solely under the 1998 Stock Option Plan.
The Existing Stock Option Plans and the 1998 Stock Option Plan shall become
option plans of OmniAmerica by operation of law in connection with the Merger.
The Board has approved and adopted the Merger Agreement and the 1998 Stock
Option Plan by unanimous written consent dated as of July 24, 1998 in lieu of a
meeting of the Board. The holders of approximately 59.3% of the Company Common
Stock (the "Majority Holders") have approved the Merger Agreement and the 1998
Stock Option Plan by written consent dated as of July 24, 1998 in lieu of a
meeting of the stockholders. SUCH WRITTEN CONSENTS PROVIDE THAT THE MERGER
AGREEMENT AND THE 1998 STOCK OPTION PLAN SHALL BECOME EFFECTIVE NO EARLIER THAN
20 CALENDAR DAYS AFTER THIS INFORMATION STATEMENT IS FIRST MAILED TO
STOCKHOLDERS OF THE COMPANY. THE COMPANY ANTICIPATES THAT THE EFFECTIVE DATE OF
THE MERGER AND THE 1998 STOCK OPTION PLAN SHALL BE ON OR ABOUT SEPTEMBER __,
1998.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. PLEASE DO NOT SEND IN ANY OF YOUR STOCK CERTIFICATES.
This Information Statement is first being mailed to stockholders on or about
August __, 1998.
<PAGE>
TABLE OF CONTENTS
Page
GENERAL.................................................................... 3
THE REINCORPORATION........................................................ 5
1998 STOCK OPTION PLAN..................................................... 11
INTERESTS OF CERTAIN PERSONS............................................... 17
MARKET PRICE AND DIVIDENDS................................................. 17
EXECUTIVE COMPENSATION..................................................... 18
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT................... 21
AVAILABLE INFORMATION...................................................... 22
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 22
MISCELLANEOUS.............................................................. 23
EXHIBIT A - Agreement and Plan of Merger ................................. A-1
EXHIBIT B - 1998 Stock Option Plan........................................ B-1
EXHIBIT C - Certificate of Incorporation of OmniAmerica, Inc.............. C-1
EXHIBIT D - Bylaws of OmniAmerica, Inc.................................... D-1
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GENERAL
This Information Statement is being furnished by the Board of Directors to
all outstanding holders of Company Common Stock in connection with the
Reincorporation and the 1998 Stock Option Plan. Stockholders are urged to read
this Information Statement and the Exhibits hereto in their entirety.
The Companies Party to the Reincorporation
The Company. The Company is a Nevada corporation with its principal
executive offices located at 12001 State Highway 14 North, Cedar Crest, New
Mexico, 87008; telephone number (505) 281-2197. The Company is a leading
provider of broadcast and wireless communications tower services to the United
States communications industry. See "-- Description of Business." The Company
Common Stock currently is quoted on the Nasdaq under the symbol "SCTR," but as a
result of the Merger, the Company Common Stock will be converted into
OmniAmerica Common Stock, which will be quoted on the Nasdaq under the symbol
"XMIT."
OmniAmerica. OmniAmerica is a Delaware corporation with its principal
executive offices located at 12001 State Highway 14 North, Cedar Crest, New
Mexico, 87008; telephone number (505) 281-2197. OmniAmerica is a wholly owned
subsidiary of the Company organized to effect the Reincorporation and has not
conducted any unrelated activities since its incorporation. Following the
Merger, OmniAmerica will conduct the same business as is currently conducted by
the Company. From and after the effective time of the Merger, the OmniAmerica
Common Stock will be quoted on the Nasdaq under the symbol "XMIT" and will be
identified by CUSIP number 68211J 10 0.
Description of Business
Statements appearing in the following discussion and elsewhere in this
Information Statement 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 (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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 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 in the Company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 1997 under the caption "ITEM 6,
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Cautionary Statements" and elsewhere therein 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.
General. The Company is a leading provider of wireless communications and
broadcast tower services to the United States communications industry. Since
1981, the Company has built wireless communications and broadcast sites and
towers for third parties throughout the United States. As a result of its April
1998 merger (the "April Merger") with OmniAmerica Holdings Corporation, a
Delaware corporation ("OmniAmerica Holdings"), and subsequent acquisitions, the
Company now also owns and is acquiring over 200 wireless and broadcast sites and
towers providing leased space to third parties and, in addition, is conducting
site acquisition or construction related activities with respect to over 600 new
wireless and broadcast sites and towers.
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Strategically, management intends to position the Company to take
advantage of increasing demand from wireless providers and broadcasters for
tower space by expanding its network of owned sites and towers and leasing space
to multiple tenants, thereby taking advantage of fixed costs to provide a
churn-resistant recurring revenue stream. Concurrently, the Company will
continue to capitalize on its reputation for quality, on-time construction and
implementation services by building towers for third-party owners. During the
nine months ended March 31, 1998, on a pro forma basis assuming that the April
Merger had occurred on July 1, 1997, the Company's revenues were approximately
$49.7 million, with wireless infrastructure building and implementation services
accounting for approximately 80.2% and tower ownership and leasing services
accounting for approximately 9.3%, respectively, of the Company's revenues.
Increased Industry Demand for Tower Space. The wireless communications
industry has changed dramatically in the last decade, as the rapid development
of technological advances, including the advent of digital technology, and
increased licensing of band space by the Federal Communications Commission
("FCC") have resulted in a proliferation of cellular telephones, paging devices
and similar equipment for business and personal use. This burgeoning use of
wireless communications has resulted in an increased demand for transmission
antennas, which generally results in additional demand for transmission towers.
Meanwhile, local authorities are increasingly seeking by zoning restrictions and
other means to limit the number of towers erected, particularly in densely
populated areas, augmenting a trend toward co-location of multiple tenants on
transmission towers.
Many wireless carriers, which traditionally have owned and operated their
own transmission tower assets, are responding to industry changes by evaluating
the benefits of entering into "build-to-suit" arrangements, in which an
independent tower company builds a group of tower sites which are then leased to
the wireless carrier. The independent tower company owns, leases and operates
the wireless tower infrastructure, often with multiple carriers as tenants on a
given tower. The build-to-suit program offers an end-to-end solution to wireless
carriers and is designed to reduce carriers' capital expenditures and overhead
associated with the traditional methods of acquiring and owning wireless
networks. In addition, by entering into a build-to-suit program involving
co-location, a wireless carrier can be perceived as responding to community
concerns regarding tower proliferation, thus improving its community image.
Currently, several wireless carriers have either entered into, or are
negotiating toward entering into, build-to-suit agreements with the Company.
Wireless carriers also are considering the benefits of outsourcing their
wireless infrastructure in order to improve capital and operating leverage and
to take advantage of co-location arrangements. As a result of its acquisition of
the towers and site management business of Arch Communications Group, Inc., the
Company acquired 49 outsourced towers with an option to acquire approximately
100 additional towers. The Company intends to continue to pursue additional
opportunities to acquire outsourced towers.
In addition to experiencing many of the same industry developments as
wireless providers, many broadcasters face an FCC mandate requiring the
introduction of high-definition television, which requires digital technology,
beginning in 1999. In order to comply, station owners under the mandate must
install new equipment capable of transmitting digital signals, while maintaining
existing analog-related structures and services. The digital equipment will
generally require more tower space than the existing analog transmission
equipment and, in some instances, stronger and taller towers will be required.
As a result, broadcasters owning their own towers may require that their tower
tenants relocate. Alternatively, broadcasters may seek to place digital
transmission equipment on leased tower space. As a result of the April Merger,
the Company owns 33.3% of Kline Iron & Steel Co., Inc., a diversified steel
fabricator that also fabricates broadcasting towers. It is anticipated that the
erection, modification and replacement of broadcast towers will accelerate in
response to demand from broadcasters that are required to install digital
television transmission equipment. The Company is working with broadcasters to
outsource their tower projects, therefore offering broadcasters an end-to-end
solution designed to reduce capital expenditures, while allowing them to conform
to government mandates to
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deploy digital television signals on a timely basis. However, it is possible
that technological advances in antenna design may mitigate the need for new
transmission towers in the future.
The Company currently intends to continue its business of constructing
transmission towers for third-party owners. However, there can be no assurance
that the Company will successfully enter into additional significant
build-to-suit agreements with any wireless carrier or that it will be able to
reach definitive agreements with the owners of attractive sites or develop the
sites in a cost-effective manner. In addition, as the Company focuses on its
strategy of expanding its network of owned sites and towers and leasing space to
wireless providers and broadcasters, revenues and earnings from its third-party
construction operations are likely to decline. Management believes that the
decline in revenues and earnings from its construction operations will be
mitigated over time by the recurring revenue stream expected from tower
ownership, particularly from towers constructed by the Company for its own
account.
Company Structure. The Company's headquarters are located in Cedar Crest,
New Mexico. The Company also maintains 26 strategically-placed regional offices
dispersed throughout the United States and has 543 full-time employees.
Recent Acquisitions. During the last three years, the Company has made
eight acquisitions of assets or companies, the largest and most strategically
important of which was the April Merger. In addition, prior to the April Merger,
OmniAmerica Holdings and its subsidiaries had consummated eight acquisitions of
assets or companies.
On April 23, 1998, the Company consummated the transactions contemplated
by the Amended and Restated Agreement and Plan of Merger among the Company, OAI
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the
Company ("Acquisition"), OmniAmerica Holdings, OmniAmerica, Inc. (subsequently
renamed OmniAmerica Towers, Inc.), a Delaware corporation and wholly-owned
subsidiary of OmniAmerica Holdings, Omni/HSW Acquisition, Inc., a Delaware
corporation ("Omni/HSW"), and HMTF/Omni Partners, L.P., a Delaware limited
partnership ("OmniPartners"). At the time of the April Merger, Omni/HSW was
merged into OmniAmerica Holdings, with OmniAmerica Holdings surviving, and
immediately thereafter, Acquisition was merged into OmniAmerica Holdings, with
OmniAmerica Holdings surviving as a wholly-owned subsidiary of the Company.
At the consummation of the April Merger, the Company issued 6,750,000
shares of Company Common Stock to OmniPartners, the former stockholder of
OmniAmerica Holdings. OmniPartners is an affiliate of the Dallas-based
investment firm of Hicks, Muse, Tate & Furst Incorporated.
Management will continue to aggressively pursue acquisition opportunities
for existing wireless and broadcast communications sites and towers that meet
its geographical and economic requirements. The Company is in various stages of
negotiation with owners of sites and towers that meet its criteria. However, the
tower industry is consolidating rapidly, and it is likely that other tower
operators will compete for existing assets in prime areas.
THE REINCORPORATION
The following discussion summarizes certain aspects of the
Reincorporation. This summary is not intended to be complete and is subject to,
and qualified in its entirety by reference to, the Nevada Revised Statutes (the
"NRS"), the General Corporation Law of the State of Delaware (the "DGCL"), the
Merger Agreement, a copy of which is attached hereto as Exhibit A, the Restated
Articles of Incorporation of the Company (the "Nevada Charter"), the Certificate
of Incorporation of OmniAmerica (the "Delaware Charter"), a copy of which is
attached hereto as Exhibit C, the Bylaws of the Company (the "Nevada Bylaws")
and the Bylaws of OmniAmerica (the "Delaware Bylaws"), a copy of which is
attached hereto as Exhibit D. Copies of
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the Nevada Charter and the Nevada Bylaws are available from the sources
specified under the caption "Available Information" and from the Company at no
charge upon written request.
Purpose of the Reincorporation
The primary reason for the Board's recommendation of the Reincorporation
is the well-developed case law interpreting the DGCL, which the Board believes
will allow it to more effectively perform its duties. Although the provisions of
the NRS are relatively similar to those of the DGCL, there is a lack of
predictability under Nevada law resulting from the limited body of case law
interpreting the NRS. The DGCL and the court decisions construing it are widely
regarded as the most extensive and well-defined body of corporate law in the
United States. Delaware has a long-established policy of encouraging companies
to incorporate in that state. In furtherance of that policy, Delaware has been a
leader in adopting comprehensive, modern and flexible corporate laws which are
periodically updated and revised to meet changing business needs. As a result,
many major corporations have initially chosen Delaware for their domicile or
have subsequently reincorporated in Delaware in a manner similar to that
proposed by the Company. Following from these conditions, Delaware's courts have
developed considerable expertise in dealing with corporate issues and a
substantial body of case law has developed construing Delaware law and
establishing public policies with respect to corporate legal issues. The Board
therefore believes that the overall effect of the Reincorporation will be to
enhance the Board's ability to consider all appropriate courses of action with
respect to significant transactions, along with more general corporate matters,
for the benefit of all stockholders. Moreover, the Board believes that enhanced
certainty with respect to the duties of directors could be an important factor
in attracting and retaining quality persons to serve on the Board of Directors.
Mechanics of the Reincorporation
The Reincorporation will be effected by merging the Company with and into
OmniAmerica, a Delaware corporation and a wholly owned subsidiary of the Company
formed solely for the purpose of the Merger, pursuant to the provisions of the
Merger Agreement. At the effective time of the Merger, the corporate existence
of the Company shall cease and, without any action on the part of the holder
thereof, each share of Company Common Stock issued and outstanding immediately
prior to the Merger shall be converted into one share of OmniAmerica Common
Stock and each outstanding option to purchase Company Common Stock under the
Company's Existing Stock Option Plans shall be converted into an option to
purchase the same number of shares of OmniAmerica Common Stock. From and after
the effective time of the Merger: (i) the name of the surviving corporation
shall be "OmniAmerica, Inc."; (ii) OmniAmerica shall conduct business as
presently conducted by the Company; (iii) the charter and bylaws of OmniAmerica
in effect immediately prior to the Merger shall be the charter and bylaws of the
surviving corporation; and (iv) the directors and officers of the Company
immediately prior to the Merger shall be the directors and officers of
OmniAmerica. Following the consummation of the Merger and the resulting change
of the Company's name to "OmniAmerica, Inc.," the OmniAmerica Common Stock will
be identified by CUSIP number 68211J 10 0 and will trade on the Nasdaq under the
symbol "XMIT." The Merger may be abandoned by the Boards of Directors of the
Company and OmniAmerica at any time prior to the effective time of the Merger.
In addition, the Boards of Directors of the Company and OmniAmerica may amend
the Merger Agreement at any time prior to the effective time of the Merger,
provided that the Majority Holders consent to such amendment if such amendment
would adversely affect the holders of Company Common Stock.
Required Stockholders Vote; Written Consent in Lieu of Meeting
The Board of Directors has approved and adopted the Merger and the Merger
Agreement by unanimous written consent dated as of July 24, 1998. Under Nevada
law, the Merger and the Merger Agreement must be approved by the affirmative
vote of the holders of a majority of the outstanding shares of Company Common
Stock. The Majority Holders own a sufficient number of shares of Company Common
Stock in order for the Merger and the Merger Agreement to be approved without
the concurrence of any other holders of shares of
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Company Common Stock. The Majority Holders executed and delivered to the Company
a written consent dated as of July 24, 1998 in lieu of a meeting of stockholders
that approves the Merger and the Merger Agreement.
In accordance with Rule 14c-2(b) under the Exchange Act, the
above-referenced consent specifies that the Merger shall become effective no
earlier than 20 calendar days after this Information Statement is first mailed
to stockholders of the Company.
No Dissenters Right in Respect of the Merger
Under Nevada law, there is no right of dissent with respect to a plan of
merger in favor of stockholders of any class or series that is listed on a
national securities exchange, included in the national market system by the
National Association of Security Dealers, Inc. or held of record by at least
2,000 stockholders, unless the consideration to be received in such merger is
something other than cash, shares of capital stock of the surviving corporation,
or shares of capital stock of another entity that are listed on a national
securities exchange, included in the national market system by the National
Association of Security Dealers, Inc. or held of record by at least 2,000
stockholders. The Company's stockholders have no right of dissent in connection
with the Merger as the Company Common Stock is listed on the Nasdaq and all
stockholders of the Company will receive shares of capital stock of the
surviving corporation in the Merger by virtue of the conversion of the Company
Common Stock into OmniAmerica Common Stock. From and after the Merger, the
shares of OmniAmerica Common Stock will be listed on the Nasdaq. The Board of
Directors of OmniAmerica has no present intention to take any action to delist
the OmniAmerica Common Stock.
Conversion of Company Common Stock
By virtue of the Merger, each share of Company Common Stock will be
converted, without any action on the part of the holder thereof, into one share
of OmniAmerica Common Stock.
PLEASE DO NOT SEND IN ANY OF YOUR STOCK CERTIFICATES REPRESENTING SHARES
OF COMPANY COMMON STOCK. BECAUSE EACH SHARE OF COMPANY COMMON STOCK WILL BE
CONVERTED INTO ONE SHARE OF OMNIAMERICA COMMON STOCK IN THE MERGER, DELIVERY OF
STOCK CERTIFICATES REPRESENTING COMPANY COMMON STOCK WILL CONSTITUTE DELIVERY
FOR TRANSACTIONS IN SHARES OF OMNIAMERICA COMMON STOCK AFTER THE EFFECTIVE DATE
OF THE MERGER. FOLLOWING CONSUMMATION OF THE MERGER, POSITIONS IN SHARES OF
COMPANY COMMON STOCK HELD WITH THE DEPOSITORY TRUST COMPANY WILL BE TRANSFERRED
AUTOMATICALLY TO POSITIONS IN THE SAME NUMBER OF SHARES OF OMNIAMERICA COMMON
STOCK.
Approvals
A Certificate of Merger must be filed with the State of Delaware and
Articles of Merger must be filed with the State of Nevada to effect the Merger.
Except for these filings, no federal or state regulatory requirements must be
complied with and no approvals must be obtained in connection with the Merger.
Comparison of Rights of Company Stockholders and OmniAmerica Stockholders
General. The following is a summary of the material differences between
the rights of Company stockholders and the rights of OmniAmerica stockholders.
These differences arise from differences between Nevada and Delaware corporate
law and variations in the provisions of the Nevada Charter and Nevada Bylaws and
the Delaware Charter and Delaware Bylaws.
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Authorized Capital Stock. The Delaware Charter authorizes the issuance of
110,000,000 shares of capital stock (100,000,000 of OmniAmerica Common Stock and
10,000,000 of preferred stock, par value $0.01 per share (the "OmniAmerica
Preferred Stock")), whereas the Nevada Charter authorizes 22,000,000 shares of
capital stock (20,000,000 million shares of Company Common Stock and 2,000,000
shares of preferred stock, par value $0.01 per share (the "Company Preferred
Stock")). As of July 24, 1998, there were 15,063,385 shares of Company Common
Stock and no shares of Company Preferred Stock outstanding. As of July 24, 1998,
there were 1,000 shares of OmniAmerica Common Stock and no shares of OmniAmerica
Preferred Stock outstanding. As a result of the Merger and assuming the
consummation of the Merger on July 24, 1998, there will be (i) 15,063,385 shares
of OmniAmerica Common Stock outstanding, (ii) 654,526 shares of OmniAmerica
Common Stock reserved for issuance upon the exercise from time to time of
outstanding options under the Existing Stock Option Plans, (iii) 675,000 shares
of OmniAmerica Common Stock reserved for issuance with respect to options which
may be granted under the 1998 Stock Option Plan and (iv) 83,607,089 unissued and
unreserved shares of OmniAmerica Common Stock. No shares of OmniAmerica
Preferred Stock will be issued in connection with the Merger. Shares of
OmniAmerica Common Stock may be issued for cash, property, services rendered or
cancellation of indebtedness, or any combination thereof, and at such price or
prices and on such terms as the Board of Directors determines to be reasonable
under the circumstances and consistent with Delaware law. Such shares may
generally be issued by the Board of Directors without authorization from
OmniAmerica's stockholders (although Delaware law could require the holders of a
majority of the OmniAmerica Common Stock present in person or by proxy at a
meeting called for that purpose to approve certain stock issuances and
OmniAmerica's listing agreement with the Nasdaq requires approval of certain
stock issuances by a majority of the votes cast on a proposal in person or by
proxy, provided that the total votes cast on the proposal represents over 50% in
interest of all securities entitled to vote on the proposal). As of the date of
this Information Statement, other than with respect to the Merger, there are no
plans to authorize the issuance of any shares of OmniAmerica capital stock,
although acquisition and financing opportunities will continue to be evaluated.
Stockholders should note that certain disadvantages may result from the
authorization of a greater number of shares of capital stock. For example, the
issuance of a significant amount of OmniAmerica Common Stock could result in a
substantial dilution of the beneficial ownership and/or voting power of the
holders of OmniAmerica Common Stock as such holders have no preemptive rights
and, therefore, would not be entitled to preferential rights to purchase any
additional shares of OmniAmerica Common Stock. In addition, the increase in
authorized capital stock of OmniAmerica Common Stock or OmniAmerica Preferred
Stock could have an anti-takeover effect because the Board of Directors would
have the ability to issue a significant number of shares of OmniAmerica Common
Stock and/or OmniAmerica Preferred Stock as a defense to an attempted takeover.
Although the Board of Directors is required to make any determination to issue
such stock based on its judgment as to the best interests of the stockholders of
OmniAmerica, the Board of Directors could act in a manner that would discourage
an acquisition attempt or other transaction that a majority of the stockholders
might believe to be in their best interests or in which stockholders might
receive a premium for their stock over the then market price of such stock.
Amendments to Charter and Bylaws. To amend a Nevada or a Delaware
corporate charter, each of the NRS and the DGCL requires the affirmative
recommendation of the board of directors and the approval of at least a majority
of all outstanding shares entitled to vote therefor unless a greater number is
required by the charter. Unlike the Delaware Charter, which is silent on this
issue and thus defaults to Delaware law, the Nevada Charter provides that the
provisions thereof may only be amended or repealed by the affirmative vote of
the holders of at least two-thirds of the then outstanding Company Common Stock
and outstanding shares of Company Preferred Stock entitled to vote, voting
separately, or by a majority of the Continuing Directors (as defined in the
Nevada Charter) and holders of 50% of the then outstanding Company Common Stock
and Company Preferred Stock entitled to vote, voting separately. The Nevada
Charter and Nevada Bylaws provide that the Board of Directors has the power to
adopt, amend or repeal the Nevada Bylaws, subject to approval by a majority of
the Continuing Directors (as defined in the Nevada Charter), and the
stockholders have the power to adopt, amend or repeal the Bylaws by the
affirmative vote of the holders of not less than two-thirds of the outstanding
shares entitled to vote thereon. The Delaware Charter and the Delaware Bylaws
provide that the Board of Directors has the power to adopt, amend and repeal the
Delaware Bylaws.
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Dividends. Under the DGCL, unless otherwise provided in the certificate of
incorporation, a corporation may declare and pay dividends out of surplus, or,
if no surplus exists, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year (provided that the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets). In addition, the DGCL provides that a corporation may
redeem or repurchase its shares only out of surplus. The NRS provides that no
distribution (including dividends on, or redemption or repurchases of, shares of
capital stock) may be made if, after giving effect to such distribution, the
corporation would not be able to pay its debts as they become due in the usual
course of business, or the corporation's total assets would be less than the sum
of its total liabilities plus the amount that would be needed, if the
corporation were to be dissolved at the time of distribution, to satisfy the
preferential rights of stockholders whose preferential rights are superior to
those receiving the distribution. As of the date of this Information Statement,
neither the Company nor OmniAmerica intends to pay dividends or make any other
distribution on its capital stock. Nevertheless, the difference between the DGCL
and the NRS with respect to amounts available for dividends or other
distributions could conceivably affect future dividends or other distributions,
if any are declared.
Examination of Books and Records. Under Nevada law, any person who has
been a stockholder of record of a corporation for at least 6 months immediately
preceding his demand, or any person holding, or thereunto authorized in writing
by the holders of, at least five percent of all of its outstanding shares, upon
at least five days written demand is entitled to inspect in person or by agent
or attorney the corporation's stock ledger; provided that such inspection may be
denied to a stockholder or other person upon his refusal to furnish to the
corporation an affidavit that the inspection is not desired for a purpose which
is in the interest of a business or object other than the business of the
corporation and that he has not at any time sold or offered for sale any list of
stockholders of any domestic or foreign corporation or aided or abetted any
person in procuring any record of stockholders for any such purpose. In
addition, a person must be the holder of record of, or the holder of record of
voting trust certificates for, or have been authorized in writing by the holders
of, at least fifteen percent of all outstanding shares of a corporation in order
to examine the books of account and all financial records of a corporation.
Under Delaware law, any stockholder of a corporation, regardless of his
percentage of ownership, has the right to inspect the corporation's stock
ledger, list of stockholders and its other books and records, upon a written
demand under oath in which the stockholder states a "proper purpose," as
determined under Delaware law, for such inspection.
Tender Offer and Business Combination Statutes. Delaware law regulates
hostile takeovers by providing that, with respect to a corporation electing to
be governed by Section 203 of the DGCL, an "interested stockholder," defined as
a stockholder owning 15% or more of the corporation's voting stock or an
affiliate or associate thereof, may not engage in a "business combination"
transaction, defined to include a merger, consolidation or a variety of
self-dealing transactions, with the corporation for a period of three years from
the date on which such stockholder became an "interested stockholder" unless (i)
prior to such date the corporation's board of directors approved either the
"business combination" transaction or the transaction in which the stockholder
became an "interested stockholder", (ii) the stockholder, in a single
transaction in which he became an "interested stockholder," acquires at least
85% of the voting stock outstanding at the time the transaction commenced
(excluding shares owned by certain employee stock plans and persons who are
directors and also officers of the corporation) or (iii) on or subsequent to
such date, the "business combination" transaction is approved by the
corporation's board of directors and authorized at an annual or special meeting
of the corporation's stockholders, by the affirmative vote of at least
two-thirds of the outstanding voting stock not owned by the "interested
stockholder." OmniAmerica has not elected to be governed by Section 203 of the
DGCL.
Nevada law regulates hostile takeovers of publicly traded corporations by
providing that an "interested stockholder," defined as a stockholder owning 10%
or more of the corporation's voting stock or an affiliate or associate thereof,
may not engage in a "business combination" with the corporation for a period of
three years
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from the date on which such stockholder became an "interested stockholder"
unless (i) prior to such date the corporation's board of directors approved
either the "business combination" transaction or the transaction in which the
stockholder became an "interested stockholder" or (ii) no earlier than three
years after such stockholder became an "interested stockholder" the majority of
the outstanding voting power approves the "business combination." Nevada law
further regulates tender offers and business combinations involving Nevada
corporations by providing that any acquisition by a person, either directly or
indirectly, of ownership of, or the power to direct the voting of, 20% or more
("Control Shares") of the outstanding voting securities of a corporation is a
"Control Share Acquisition." A Control Share Acquisition must be approved by a
majority of each class of outstanding voting securities of such corporation
excluding the shares held or controlled by the person seeking approval before
the Control Shares may be voted. A special meeting of stockholders must be held
by the corporation to approve a Control Share Acquisition within 50 days after a
request for such meeting is submitted by the person seeking to acquire control.
If the Control Shares are accorded full voting rights and the acquiring person
has acquired Control Shares with a majority or more of the voting power of the
Corporation, all stockholders who have not voted in favor of granting full
voting rights to the Control Shares shall have dissenter's rights as provided by
applicable Nevada law. Nevada law provides that a corporation may opt out of the
Control Share protections by expressly specifying so in its articles or bylaws.
The Nevada Bylaws specify that such protections do not apply to certain
transactions.
Indemnification of Directors and Officers and Advancement of Expenses. The
DGCL and the NRS have nearly identical provisions regarding indemnification by a
corporation of its officers, directors, employees and agents, except that the
NRS provides broader indemnification in connection with stockholder derivative
lawsuits. Delaware and Nevada law differ in their provisions for advancement of
expenses incurred by an officer or director in defending a civil or criminal
action, suit or proceeding. The DGCL provides that expenses incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of the action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay the amount
if it is ultimately determined that he is not entitled to be indemnified by the
corporation. Thus, a corporation has the discretion to decide whether or not to
advance expenses. Under the NRS, a corporation's articles or bylaws or an
agreement made by the corporation may provide that the corporation must pay
expenses in advance of the final disposition of the action, suit or proceeding
upon receipt of an undertaking by or on behalf of the director or officer to
repay the amount if it is ultimately determined that he is not entitled to be
indemnified by the corporation. Thus, a corporation may have no discretion to
decide whether or not to advance expenses.
Personal Liability of Directors. Under Delaware law, directors are jointly
and severally liable to a corporation for violations of statutory provisions
relating to the purchase or redemption of a corporation's own shares or the
payment of dividends, for a period of six years from the date of such unlawful
act. A director who was either absent or dissented from the taking of such
action may exonerate himself from liability by causing his dissent to be entered
in the corporation's minutes. Under Nevada law, directors are jointly and
severally liable to the corporation for violations of statutory provisions
relating to the purchase of a corporation's own shares, the payment of
dividends, the distribution of assets in liquidation or any loans or guarantees
made to a director, until the repayment thereof. Under Nevada law, absent
directors are not liable as long as they did not vote for or assent to any of
the illegal acts and, unlike Delaware law, Nevada law allows a director who was
present at a meeting which approved an illegal act to avoid liability, even if
he did not register his dissent in the minutes of the meeting, by voting against
the illegal act and registering his dissent at a later time in a separate
writing filed with the secretary of the meeting.
Under Delaware law, Delaware corporations are permitted to adopt charter
provisions limiting, or even eliminating, the liability of a director to a
company and its stockholders for monetary damages for breach of fiduciary duty
as a director, provided that such liability does not arise from certain
proscribed conduct, including breach of the duty of loyalty, acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law or liability to the corporation based on unlawful dividends or
distributions or improper personal benefit. While Nevada law has similar
provisions permitting the adoption of
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charter provisions limiting personal liability, it differs from Delaware law in
two respects. First, the applicable NRS provisions apply to both directors and
officers. Second, while the applicable DGCL provisions except from limitation on
liability a breach of the duty of loyalty, the Nevada counterpart does not
contain this exception. The Delaware Charter, like the Nevada Charter, contains
a provision limiting the personal liability of directors. However, unlike the
Delaware Charter, the Nevada Charter also limits the liability of officers.
Under the laws of either state, the charter provisions will not have any effect
on the availability of equitable remedies such as an injunction or recision
based upon a breach of the duty of care, or on liabilities which arise under
certain federal statutes such as the securities laws.
Dissenters' Rights. Both Delaware law and Nevada law provide that
stockholders have the right, in some circumstances, to dissent from certain
corporate reorganizations and to instead demand payment of the fair cash value
of their shares. Under both Delaware and Nevada law, unless a corporation's
charter provides otherwise, dissenters do not have appraisal rights with respect
to a merger or consolidation by a corporation, the shares of which are either
listed on a national securities exchange, included in the national market system
by the National Association of Securities Dealers, Inc. or held of record by at
least 2,000 stockholders, unless the stockholders are required to accept in
exchange for their shares anything other than cash, shares in the surviving
corporation, shares in another entity which are listed on a national securities
exchange, included in the national market system by the National Association of
Securities Dealers, Inc. or held of record by at least 2,000 stockholders, or
any combination of cash or shares as so described. No stockholder of the Company
has rights of dissent in connection with the Merger as the Company Common Stock
is listed on the Nasdaq and all stockholders of the Company will receive shares
of capital stock of the surviving corporation by virtue of the conversion of the
Company Common Stock into OmniAmerica Common Stock. From and after the Merger,
the shares of OmniAmerica Common Stock will be listed on the Nasdaq. The Board
of Directors of OmniAmerica has no present intention to take any action to
delist the OmniAmerica Common Stock.
Certain Federal Income Tax Consequences of the Reincorporation
For federal income tax purposes (i) the Merger will constitute a
reorganization within the meaning of 368(a) of the Code, (ii) no gain or loss
will be recognized by Company stockholders as a consequence of the Merger, (iii)
a stockholder's aggregate tax basis in OmniAmerica Common Stock from and after
the Merger will be the same as such holder's aggregate tax basis in the shares
of Company Common Stock immediately prior to the Merger, (iv) a stockholder's
holding period in OmniAmerica Common Stock received in the Merger will include
the period in which the Company Common Stock was held, provided the Company
Common Stock was held as a capital asset at the time of the Merger, and (v) no
gain or loss will be recognized by the Company or OmniAmerica as a consequence
of the Merger.
1998 STOCK OPTION PLAN
Background and Purpose
Prior to the adoption of the 1998 Stock Option Plan by the Board of
Directors on July 24, 1998, only 17,163 shares of Company Common Stock remained
available for grant under the three Existing Stock Option Plans. In order to
provide for a sufficient number of available options to attract, retain and
motivate key employees and certain non-employees, the Board determined it was
necessary to create a new stock option plan. Because the 1998 Stock Option Plan
provides the flexibility to grant various types of awards to both key employees
and non-employees and due to the relatively few number of shares remaining
available under the Existing Stock Option Plans, simultaneously with the
adoption of the 1998 Stock Option Plan, the Board of Directors approved
amendments to the Existing Stock Option Plans providing that no further grants
may be made thereunder. All options granted under the Existing Stock Option
Plans prior to such amendments, whether or not then vested, will remain in full
force and effect and will not be affected as a result of such amendments.
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As a result of the Merger, the 1998 Stock Option Plan and the Existing Stock
Option Plans, as amended, will become plans of OmniAmerica by operation of law.
Required Stockholders Vote; Written Consent in Lieu of Meeting
The Board of Directors adopted the 1998 Stock Option Plan by unanimous
written consent dated as of July 24, 1998 and directed that the 1998 Stock
Option Plan be submitted to the stockholders of the Company for their approval.
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations promulgated thereunder require stockholder approval, in
accordance with state law, of the 1998 Stock Option Plan with respect to
incentive stock options granted thereunder within twelve months of the adoption
of the 1998 Stock Option Plan by the Board of Directors. Under Nevada law, the
approval of the 1998 Stock Option Plan requires the affirmative vote of the
holders of a majority of the outstanding shares of Company Common Stock. The
Majority Holders own a sufficient number of shares of Company Common Stock in
order for the 1998 Stock Option Plan to be approved without the concurrence of
any other holder of shares of Company Common Stock. The Majority Holders
executed and delivered to the Company a written consent dated as July 24, 1998
in lieu of a meeting of stockholders that approves the 1998 Stock Option Plan.
In accordance with Rule 14c-2(b) under the Exchange Act, the
above-referenced consent specifies that the 1998 Stock Option Plan shall become
effective no earlier than 20 calendar days after this Information Statement is
first mailed to stockholders of the Company.
Summary of 1998 Stock Option Plan
The following summary of the 1998 Stock Option Plan is qualified in its
entirety by reference to the full text of the 1998 Stock Option Plan, a copy of
which is attached hereto as Exhibit B.
Eligibility. The 1998 Stock Option Plan is intended to motivate certain
key employees (including officers and directors) and eligible non-employees to
put forth maximum efforts toward the growth, profitability and success of the
Company or its related entities by providing incentives to such persons through
the ownership and performance of the Company Common Stock. All employees
(including officers and directors) of the Company or its related entities, and
certain eligible non-employees rendering services to the Company or its related
entities, who have been designated as having a direct and significant effect on
the performance of the Company or its related entities by the Committee (as
defined below) or Board of Directors of the Company, as the case may be, will be
eligible to participate in and receive stock options under the 1998 Stock Option
Plan.
Administration. The 1998 Stock Option Plan will be administered by the
Compensation Committee of the Board of Directors (the "Committee"); provided,
that the entire Board of Directors of the Company may act as the Committee if it
chooses to do so; and provided further, that for purposes of designating any
Performance-Based Options (as defined below) applicable to key employees who
constitute "covered employees" within the meaning of Section 162(m) of the Code,
"Committee" shall mean the members of the Compensation Committee who qualify as
"outside directors" within the meaning of Section 162(m) of the Code and, for so
long as the Company is subject to the reporting requirements of the Exchange
Act, as "Non-Employee Directors" within the meaning of Rule 16b-3 ("Rule 16b-3")
under the Exchange Act; provided, that, alternatively, for purposes of granting
options other than Performance-Based Options thereunder, the Board of Directors
may authorize such grants and may take any other actions permitted pursuant to
Section 162(m) of the Code, Rule 16b-3 and applicable law and regulations. The
Committee will have the plenary authority to control, operate, manage and
administer the 1998 Stock Option Plan in accordance with its terms.
Shares Available Under the 1998 Stock Option Plan. The aggregate number of
shares of Company Common Stock available for grants of stock options under the
1998 Stock Option Plan during its term will be 675,000 shares. Shares of Company
Common Stock available for issuance under the 1998 Stock Option Plan may be
either authorized but unissued shares or shares of issued stock held in the
Company's treasury. Any
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shares of Company Common Stock underlying stock options which terminate by
expiration, forfeiture or otherwise without the issuance of such shares will
again be available for grants of stock options under the 1998 Stock Option Plan.
Shares issued upon exercise of options granted under the 1998 Stock Option Plan
will be "restricted securities" as defined in Rule 144 under the Securities Act
until such time as the Company determines in its discretion, if at all, to
register such shares under the Securities Act.
Maximum Individual Grants. The maximum aggregate number of shares of
Company Common Stock underlying all stock options that may be granted to any
employee during the term of the 1998 Stock Option Plan is 250,000 shares.
Stock Options. The Committee will, in its sole discretion, determine the
key employees and eligible non-employees who will receive stock options and the
number of shares of Common Stock underlying each stock option. The Committee may
grant "incentive stock options" (as such options are described under Section 422
of the Code); provided, that such options will be granted only to key employees
of the Company or its related entities, or it may grant stock options which are
not incentive stock options ("non-qualified stock options") to all participants.
Each stock option will be subject to such terms and conditions consistent with
the 1998 Stock Option Plan as the Committee may impose from time to time. In
addition, incentive stock options are subject to certain restrictions imposed by
the Code.
Stock Option Exercise Price. The Committee will determine the exercise
price of each stock option; provided, that in the case of an incentive stock
option, the exercise price will not be lower than the fair market value per
share of the Company Common Stock on the date of grant; and provided, further,
that in the case of an incentive stock option granted to a participant who, at
the time such incentive option is granted, possesses 10% of the total combined
voting power of all classes of shares of the Company or any of its related
entities, the option exercise price shall not be less than 110% of the fair
market value per share of the Company Common Stock on the date of grant. Stock
options granted under the 1998 Stock Option Plan cannot be exercised after the
tenth anniversary of the date of grant; provided, that no incentive option
granted to a participant who, at the time of such option is granted, owns stock
of the Company or any of its related entities possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any of its
related entities will not be exercisable after the expiration of five years from
the date such option is granted; and provided, further, that non-qualified stock
options may be exercised after the tenth anniversary of the date of grant if
such option expressly so provides.
Vesting of Stock Options. Unless otherwise determined by the Committee at
the time of grant, stock options will vest in annual one-third increments
commencing on the first anniversary of the date of grant. Stock options granted
under the 1998 Stock Option Plan may also be subject to such other terms and
conditions as determined by the Committee.
Payment of Stock Option Exercise Price. The stock option exercise price
may be paid in cash. The Committee may prescribe any other method of payment of
the exercise price that it determines to be consistent with applicable law and
the purposes of the 1998 Stock Option Plan, including (i) the delivery of shares
of Company Common Stock then owned by the participant, (ii) the withholding of
shares of Company Common Stock for which a stock option is exercisable or (iii)
a combination of (i) and (ii); provided, that incentive stock options will be
subject to certain limitations; and provided further, that no such procedure
will be available if there is an opinion of the Company's independent accounting
firm that the use of such a procedure could negatively affect the financial
statements of the Company or its related entities.
Termination of Employment. If a participant's employment is terminated due
to death or disability, all non-vested portions of stock options held by the
participant will be forfeited and all vested portions of stock options held by
the participant will remain exercisable until the earlier of (i) the end of the
180-day period following the date of death or termination of employment (unless
a longer or shorter period is expressly provided by such option or established
by the Committee) or (ii) the date the stock option would otherwise
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expire; provided, that in the case of an incentive stock option, the vested
portion of such option must be exercised within one year after termination of
the participant's employment due to his or her disability. If the Company or any
of its related entities terminates a participant's employment for good cause or
a non-employee participant voluntarily terminates service, the participant will
forfeit all stock options, whether vested or non-vested (except as to shares of
stock already purchased thereunder), unless such participant's stock options
expressly provide otherwise. If a participant's employment or retention is
terminated for any reason other than for good cause or due to such participant's
death or disability, all non-vested portions of stock options held by the
participant will be forfeited and, with the approval of the Board of Directors,
all vested portions of stock options held by the participant will remain
exercisable until the earlier of (i) the end of the 30-day period following the
date of the termination of employment (unless a longer or shorter period is
expressly provided by such option or established by the Committee) or (ii) the
date the stock option would otherwise expire; provided, that no incentive stock
option will be exercisable more than three months after such termination of
employment; and provided, further, that the Committee may, in its sole
discretion, extend the exercise date of any option upon termination of
employment or retention for a period not to exceed six months plus one day (but
in no event after the expiration date of the option) if the Committee determines
that the stated exercise date will have an inequitable result under Section
16(b) of the Exchange Act.
Performance-Based Options. The Committee, in its sole discretion, may
designate and design stock options granted under the 1998 Stock Option Plan as
"Performance-Based Options" if it determines that compensation attributable to
such options might not otherwise be tax deductible by the Company due to the
deduction limitation imposed by Section 162(m) of the Code. Accordingly, stock
options granted under the 1998 Stock Option Plan may be granted in such a manner
that the compensation attributable to such options is intended by the Committee
to qualify as "performance-based compensation" as such term is used in Section
162(m) of the Code and the regulations promulgated thereunder and thus be exempt
from the deduction limitation imposed by Section 162(m) of the Code.
Performance-Based Options will be granted with an exercise price that is not
less than fair market value on the date of grant or, if less than fair market
value on the date of grant, the granting or vesting of such options is subject
to the achievement of a performance goals or goals based on one or more of the
following performance measures, either individually or in combination: net
sales; pre-tax income before allocation of corporate overhead and bonus; budget;
cash flow; earnings per share; net income; division, group or corporate
financial goals; return on stockholders' equity; return on assets; attainment of
strategic and operational initiatives; appreciation in and/or maintenance of the
price of the Common Stock or any other publicly-traded securities of the
Company; market share; gross profits; earnings before interest and taxes;
earnings before interest, taxes, depreciation and amortization; economic
value-added models; comparisons with various stock market indices; increase in
number of customers; and/or reductions in costs. Performance goals established
as described above will be submitted to the stockholders of the Company for
approval and, as required by Section 162(m) of the Code, will be disclosed to
and reapproved by the Company's stockholders no later than the first stockholder
meeting that occurs in the fifth year following the year in which the Company's
stockholders previously approved such performance goals.
Change of Control. If there is a Change of Control of the Company (as
defined in the 1998 Stock Option Plan) or the Company enters into an agreement
providing for a Change of Control, the Committee may accelerate the vesting date
of all stock options outstanding under the 1998 Stock Option Plan.
Adjustment of Shares. If there is any change in the Company Common Stock,
such as due to a merger, consolidation, liquidation, recapitalization, stock
dividend, stock split, split-up, split-off, spin-off, combination of shares,
exchange of shares or other like change in capital structure of the Company
(collectively, an "Adjustment Event"), the 1998 Stock Option Plan provides for
appropriate adjustments to be made to outstanding stock options thereunder. In
the event that the Company is not a surviving entity of an Adjustment Event and,
following such Adjustment Event, stock options issued pursuant to the 1998 Stock
Option Plan have not been exercised, cancelled or terminated in connection
therewith, the Company will cause such options to be assumed, or cancelled and
replacement stock options issued, by the surviving entity or a related entity.
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Termination and Amendment of 1998 Stock Option Plan. The Board of
Directors may amend, modify, suspend or terminate the 1998 Stock Option Plan at
any time, provided that such action does not materially impair the value of any
outstanding stock options without the participant's consent. No amendment of the
1998 Stock Option Plan will, without the approval of the stockholders of the
Company, increase the total number of shares which may be issued and sold under
the 1998 Stock Option Plan, decrease the minimum option exercise price in the
case of an incentive stock option, or modify the requirements as to eligibility
for incentive stock options. The Board of Directors may amend the 1998 Stock
Option Plan and the stock options granted thereunder to cause the plan and stock
options to (i) qualify as "incentive stock options" within the meaning of
Section 422 of the Code, (ii) comply with Rule 16b-3 under the Exchange Act and
the regulations promulgated thereunder, or (iii) comply with Section 162(m) of
the Code and the regulations promulgated thereunder.
Miscellaneous. By acceptance of the stock option, the participant is
deemed to (i) agree to reimburse the Company or its related entity by which the
participant is employed for any taxes required by any governmental regulatory
authority to be withheld or otherwise deducted and paid by such corporation in
respect of the participant's exercise of all or a portion of the stock option,
(ii) authorize the Company or its related entity by which the participant is
employed to withhold from any cash compensation paid to the participant or in
the participant's behalf the amount of such taxes which otherwise has not been
reimbursed by the participant, and (iii) agree that the Company may hold the
stock certificate as to which the participant is entitled upon exercise of the
stock option as security for payment of such taxes. Except as expressly provided
in any non-qualified stock option, stock options granted under the 1998 Stock
Option Plan are not transferable except by will or the laws of descent and
distribution, and stock options are exercisable, during the participant's
lifetime, only by the participant.
Certain Federal Income Tax Consequences
The statements in the following paragraphs are based on statutory
authority and judicial and administrative interpretations, as of the date of
this Information Statement, which authorities and interpretations are subject to
change at any time (possibly with retroactive effect). The law is technical and
complex and the discussion below represents only a general summary.
Incentive Stock Options. Incentive stock options ("ISOs") granted under
the 1998 Stock Option Plan are intended to meet the definitional requirements
of Section 422(b) of the Code for "incentive stock options."
An employee who receives an ISO does not recognize any taxable income upon
the grant of such ISO. Similarly, the exercise of an ISO generally does not give
rise to federal income tax to the employee, provided that (i) the federal
"alternative minimum tax," which depends on the employee's particular tax
situation, does not apply and (ii) the employee is employed by the Company or
its related entities from the date of grant of the option until three months
prior to the exercise thereof, except where such employment terminates by reason
of disability (where the three-month period is extended to one year) or death
(where this requirement does not apply). If an employee exercises an ISO after
these requisite periods, the ISO will be treated as a NSO (as defined below) and
will be subject to the rules set forth below under the caption "Non-Qualified
Stock Options."
Further, if after exercising an ISO, an employee disposes of the Company
Common Stock so acquired more than two years from the date of grant and more
than one year from the date of transfer of the Company Common Stock pursuant to
the exercise of such ISO (the "applicable holding period"), the employee will
generally recognize a capital gain or loss equal to the difference, if any,
between the amount received for the shares and the exercise price. If, however,
an employee does not hold the shares so acquired for the applicable holding
period, thereby making a "disqualifying disposition," the employee will
recognize ordinary income equal to the excess of the fair market value of the
shares at the time the ISO was exercised over the exercise price and the
balance, if any, of the gain would be capital gain (provided the employee held
such shares as a capital asset at such time). Under present law, capital gains
are generally eligible for a maximum federal income tax rate of 20% if the
holder's holding period exceeds twelve months. If the disqualifying disposition
is
15
<PAGE>
a sale or exchange, and the sales proceeds are less than the fair market value
of the shares on the date of exercise, the employee's ordinary income therefrom
would be limited to the gain (if any) realized on the sale.
An employee who exercises an ISO by delivering Company Common Stock
previously acquired pursuant to the exercise of another ISO is treated as making
a "disqualifying disposition" of such Company Common Stock if such shares are
delivered before the expiration of their applicable holding period. Upon the
exercise of an ISO with previously-acquired shares as to which no disqualifying
disposition occurs, despite some uncertainty, it appears that the employee would
not recognize gain or loss with respect to such previously acquired shares.
The Company will not be allowed a federal income tax deduction upon the
grant or exercise of an ISO or the disposition, after the applicable holding
period, of the Company Common Stock acquired upon exercise of an ISO. In the
event of a disqualifying disposition, the Company generally will be entitled to
a deduction in an amount equal to the ordinary income recognized by the
employee, provided that such amount constitutes an ordinary and necessary
business expense to the Company and is reasonable and the limitations of
Sections 280G and 162(m) of the Code (discussed below) do not apply.
Non-Qualified Stock Options. Non-qualified stock options ("NSOs") granted
under the 1998 Stock Option Plan are stock options that do not qualify as ISOs.
A participant who receives a NSO will not recognize any taxable income upon the
grant of such NSO. However, the participant generally will recognize ordinary
income upon exercise of a NSO in an amount equal to the excess of (i) the fair
market value of the shares of Company Common Stock at the time of exercise over
(ii) the exercise price.
As a result of Section 16(b) of the Exchange Act, under certain
circumstances, the timing of income recognition may be deferred (generally for
up to six months following the exercise of a NSO (i.e., the "Deferral Period"))
for any participant who is an officer or director of the Company or its related
entity or a beneficial owner of more than ten percent (10%) of any class of
equity securities of the Company or its related entity. Absent a written
election pursuant to Section 83(b) of the Code filed with the Internal Revenue
Service within 30 days after the date of transfer of such shares, recognition of
income by the participant will be deferred until the expiration of the Deferral
Period, if any.
The ordinary income recognized with respect to the receipt of shares upon
exercise of a NSO will be subject to both wage withholding and other employment
taxes. In addition to the customary methods of satisfying the withholding tax
liabilities that arise upon the exercise of a NSO, the Company may satisfy the
liability in whole or in part by withholding shares of Company Common Stock from
those that otherwise would be issuable to the participant or by the participant
tendering other shares owned, valued at their fair market value as of the date
that the tax withholding obligation arises.
A federal income tax deduction generally will be allowed to the Company in
an amount equal to the ordinary income recognized by the participant with
respect to a NSO, provided that such amount constitutes an ordinary and
necessary business expense to the Company and is reasonable and the limitations
of Sections 280G and 162(m) of the Code do not apply.
If a participant exercises a NSO by delivering shares of Company Common
Stock to the Company, other than shares previously acquired pursuant to the
exercise of an ISO which is treated as a "disqualifying disposition" as
described above, the participant will not recognize gain or loss with respect to
the exchange of such shares, even if their then fair market value is different
from the participant's tax basis. The participant, however, will be taxed as
described above with respect to the exercise of the NSO as if the participant
had paid the exercise price in cash, and the Company likewise generally will be
entitled to an equivalent tax deduction.
Change in Control. In general, if the total amount of payments to a
participant that are contingent upon a "change in control" of the Company (as
defined in Section 280G of the Code), including payments under
16
<PAGE>
the 1998 Stock Option Plan that vest upon a "change in control," equals or
exceeds three times the participant's "base amount" (generally, such
participant's average annual compensation for the five calendar years preceding
the change in control), then, subject to certain exceptions, the payments may be
treated as "excess parachute payments" under the Code, in which case a portion
of such payments would be non-deductible to the Company and the participant
would be subject to a 20% excise tax on such portion of the payments.
Certain Limitations on Deductibility of Executive Compensation. With
certain exceptions, Section 162(m) of the Code denies a deduction to
publicly-held corporations for compensation paid to certain executive officers
in excess of $1 million per executive per taxable year (including any deduction
with respect to the exercise of a NSO or the disqualifying disposition of stock
purchased pursuant to an ISO). One such exception applies to certain
performance-based compensation, provided that such compensation has been
approved by stockholders in a separate vote and certain other requirements are
met. In general, the Company intends for stock options granted under the 1998
Stock Option Plan to qualify for the performance-based compensation exception to
Section 162(m) of the Code.
INTERESTS OF CERTAIN PERSONS
No officer or director or any associate thereof has a personal interest in
the Reincorporation. Officers and directors of the Company are eligible to
receive option grants under the 1998 Stock Option Plan.
MARKET PRICE AND DIVIDENDS
The Company Common Stock currently is quoted on the Nasdaq under the
symbol "SCTR." On July 23, 1998, the day preceding the date on which the Merger
Agreement and the written consents approving the Reincorporation and the 1998
Stock Option Plan were executed, the high and low bid prices of the Company
Common Stock were $42 3/4 and $41 7/8, respectively. 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.
As a result of the Merger, each outstanding share of Company Common Stock
will be converted into one share of OmniAmerica Common Stock, which will be
quoted on the Nasdaq under the symbol "XMIT" and which will be identified by
CUSIP number 68211J 10 0.
To date, the Company has not declared or paid any cash dividends on the
Company Common Stock and the present policy of the Board of Directors is to
retain any earnings to provide for the Company's growth. The Credit Agreement
dated as of June 30, 1998 among the Company, the lenders party thereto, The
Chase Manhattan Bank, as administrative agent, issuing lender and swingline
lender, Bankers Trust Company, as documentation agent, and BankBoston, N.A., as
syndication agent, contains covenants that restrict the Company's ability to pay
dividends. Further, future determination to pay dividends will be at the
discretion of the Board of Directors and in light of the Company's financial
condition, results of operations, capital requirements and such other factors as
the Board of Directors deems relevant.
17
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during each of the
three years in the period ended June 30, 1998 to the following individuals (the
"Named Executive Officers"): (i) the Chief Executive Officer and each other
individual who was serving as an executive officer of the Company at June 30,
1998 whose total annual salary and bonus for the fiscal year ended June 30, 1998
was in excess of $100,000 and (ii) Michael R. Budagher, who served as Chief
Executive Officer of the Company prior to the April Merger and who was serving
as the Vice Chairman and Chief Operating Officer of the Company at June 30,
1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Securities All
---------------------------- Underlying Other
Name and Principal Position Year Salary($) Bonus($) Options Compensation
- --------------------------- ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Carl E. Hirsch............... 1998(1) 273,500 - - -
President and Chief Executive 1997 - - - -
Officer (since April 23, 1998) 1996 - - - -
Anthony S. Ocepek............ 1998(1) 232,944 - - -
Executive Vice President and 1997 - - - -
Chief Financial Officer 1996 - - - -
(since April 23, 1998)
Ernie L. Carpenter........... 1998 150,000 - 60,000 -
President and Chief Executive 1997 116,667 110,000 - -
Officer of Microwave Tower 1996 50,000 35,000 - -
Service, Inc.
F. Howard Mandel............. 1998(1) 116,667 - - -
Vice President and General 1997 - - - -
Counsel (since April 23, 1998) 1996 - - - -
Michael R. Budagher.......... 1998 70,833 - - -
Vice Chairman and Chief Operating 1997 85,000 - - -
Officer (since April 23, 1998) 1996 85,000 - - -
and Chief Executive Officer
(until April 23, 1998)
- ----------
<FN>
(1) Amounts for the fiscal year ended June 30, 1998 for Messrs. Hirsch, Ocepek
and Mandel include compensation paid to such individuals as executive
officers of OmniAmerica Holdings Corporation and its subsidiaries prior to
the April Merger. OmniAmerica Holdings Corporation and its subsidiaries
had no operations prior to July 1, 1997.
(2) Reflects employer contributions under the Specialty Constructors, Inc.
Profit Sharing Plan.
</FN>
</TABLE>
18
<PAGE>
The following table summarizes option grants made during the fiscal year
ended June 30, 1998 to the Named Executive Officers. Other than as set forth
below, no stock options, SARs or awards under any long-term incentive plan were
granted to any Named Executive Officer in the fiscal year ended June 30, 1998.
Options Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------
Number of Potential Realizable Value
Securities Percent of at Assumed Annual Rates
Underlying Total Options of Stock Price
Options Granted to Exercise or Appreciation for Option
Granted Employees in Base Price Expiration Term(2)
(#)(1) Fiscal Year ($/sh) Date 5%($) 10%($)
--------- ------------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Ernie L. Carpenter...... 60,000 19.8% $12.50 12/3/07 471,671 1,195,307
- ---------------
<FN>
(1) The options to purchase Company Common Stock were granted under the
Company's 1997 Stock Incentive Plan and become exercisable in three equal
annual installments commencing on January 1, 1999.
(2) The potential realizable value portion of the foregoing table illustrates
the value that might be realized upon exercise of the options immediately
prior to the expiration of their term, assuming the specified compound
rates of appreciation of Company Common Stock over the term of the
options. These amounts represent certain assumed rates of appreciation
only, assuming a fair market value on the date of grant of $12.50 per
share. Actual gains on the exercise of options are dependent on the future
performance of Company Common Stock. There can be no assurance that the
potential values reflected in this table will be achieved. All amounts
have been rounded to the nearest whole dollar amount.
</FN>
</TABLE>
The following table summarizes the value of options to acquire Company
Common Stock held by the Named Executive Officers as of June 30, 1998. Other
than as set forth below, at June 30, 1998, no Named Executive Officer held any
unexercised stock options or SARs.
Aggregated Option Exercises in last Fiscal Year and
Fiscal Year Ended Option Values(1)
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year In-the-Money Options at
End(#) Fiscal Year End($)(2)
------------------------- -------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
------------------------- -------------------------
<S> <C> <C>
Ernie L. Carpenter...................... 0/60,000 0/1,470,000
- ---------------
<FN>
(1) No options were exercised by a Named Executive Officer in fiscal 1998.
(2) Reflects a market value of the underlying securities of $37.00 per share,
the closing price on The Nasdaq Stock Market on June 30, 1998, less the
exercise price.
</FN>
</TABLE>
19
<PAGE>
Employment Agreements
Executive Employment Agreements with Messrs. Hirsch, Budagher and Ocepek.
Each of Messrs. Hirsch, Budagher and Ocepek entered into Executive Employment
Agreements with the Company effective April 23, 1998 with terms ending on April
23, 2000; provided that the term of each such employment agreement shall be
extended for successive one year terms unless either party shall give notice
that the term shall not be so extended at least 120 days prior to the end of the
initial term or annual extension, as the case may be. The employment agreements
provide that Messrs. Hirsch, Budagher and Ocepek shall serve as the President
and Chief Executive Officer, Vice Chairman and Chief Operating Officer, and
Executive Vice President and Chief Financial Officer, respectively, of the
Company. The employment agreements further provide that Messrs. Hirsch, Budagher
and Ocepek shall receive an annual base salary of $295,000, $245,000 and
$245,000, respectively, subject to increase as determined in the sole discretion
of the Board of Directors of the Company, and that each such executive officer
shall be eligible for annual bonuses based on budgeted earnings before income
tax, depreciation and amortization and other criteria established by the Board
of Directors at the beginning of each fiscal year. The employment agreements
also provide that Messrs. Hirsch, Budagher and Ocepek will be entitled to other
customary benefits generally made available to other executives of the Company.
The employment agreements provide for a severance payment equal to twelve months
base salary in the event of termination of employment by the executive for Good
Reason (as defined) or by the Company other than for Cause (as defined),
Financial Cause (as defined) or the executive's death, permanent disability or
retirement and for severance payments equal to six months base salary in the
event of termination by the Company for Financial Cause. Pursuant to the
employment agreements, Messrs. Hirsch, Budagher and Ocepek have agreed that,
subject to certain exceptions, during the term of their respective agreements
and for one year thereafter, they will not (i) solicit, entice, persuade or
induce any employee of the Company or its subsidiaries to terminate his
employment with the Company or its subsidiaries or become employed by any other
person and (ii) compete with the Company through any person or other business
enterprise having or operating transmission towers within any of the same
markets as the Company or any of its subsidiaries.
Executive Employment Agreement with Mr. Carpenter. Mr. Carpenter entered
into an Employment Agreement with Microwave Tower Service, Inc., a wholly owned
subsidiary of the Company ("MTS"), on June 30, 1997 for a term of three years
pursuant to which Mr. Carpenter serves as President and Chief Executive Officer
of MTS. The employment agreement provides that Mr. Carpenter shall receive an
annual salary of $150,000 and shall be eligible for a bonus for each fiscal year
during which Mr. Carpenter is continuously employed by MTS. The employment
agreement also provides that Mr. Carpenter will be entitled to such benefits as
are customarily provided to other employees of MTS. Pursuant to his employment
agreement, Mr. Carpenter has agreed that he will not, during the term of his
employment and for two years thereafter, (i) directly or indirectly, engage or
participate in any business or other activities in competition with MTS in the
United States, (ii) directly or indirectly, call upon any customer of MTS, the
Company or their respective subsidiaries for the purpose or selling to or
supplying such customer with products or services similar to the products and
services provided by MTS, the Company or their respective subsidiaries and (iii)
directly or indirectly, solicit or employ any person employed by MTS, the
Company or their respective subsidiaries.
Compensation of Directors
Prior to the April Merger, Directors received $500 for each Board of
Directors meeting attended and reimbursement for expenses incurred in attending
such meetings. In addition, Directors who served on committees received $100 per
hour for time spent attending meetings of such committees. The Company has not
adopted a formal policy regarding the compensation of Directors following the
April Merger. The Company anticipates that Directors will be compensated in
accordance with the policy in effect prior to the April Merger until such time
as a new policy has been adopted.
20
<PAGE>
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
As of July 24, 1998, there were 15,063,385 shares of Company Common Stock
issued and outstanding. The following table sets forth certain information, as
of July 24, 1998, with respect to the beneficial ownership of shares of Company
Common Stock by (i) all persons known by the Company to be the beneficial owners
of more than 5% of the outstanding shares of Company Common Stock (as derived
solely from the Company's review of Schedules 13D and 13G on file with the
Commission and from correspondence received from or telephone conversations with
certain stockholders of the Company), (ii) each director of the Company, (iii)
each Named Executive Officer, and (iv) all executive officers and directors of
the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership of
Name and Address of Beneficial Owner Company Common Stock(1) Percent of Class
- ------------------------------------ ----------------------- ----------------
<S> <C> <C>
Thomas O. Hicks 6,678,429(2) 44.3%
200 Crescent Court, Suite 1600
Dallas, Texas 75201-6950
HMTF/Omni Partners, L.P. 6,651,141(3) 44.2%
200 Crescent Court, Suite 1600
Dallas, Texas 75201-6950
Tommie R. Carpenter 2,280,000(4) 15.1%
888 Coburn St. South
Salem, Oregon 97302
Michael R. Budagher 2,155,000(5) 14.3%
12001 Hwy 14 North
Cedar Crest, New Mexico 87001
John D. Emery 12,000(6) *
Jack D. Furst 17,604 *
Carl E. Hirsch 17,000(7) *
Jeffrey A. Howard 137,500(8) *
Lawrence D. Stuart, Jr. 5,065 *
Ernie L. Carpenter ____ ____
J. Otis Winters ____ ____
Anthony S. Ocepek ____(7) ____
F. Howard Mandel ____(7) ____
All executive officers and directors as a group 2,344,169 15.5%
(11 persons)
- ----------------------
<FN>
* Less than 1%.
(1)Based upon information supplied or confirmed by officers, directors and the
principal stockholders. The percentage of class assumes the exercise of all
options and warrants held by the named individual that are exercisable on
July 24, 1998, or within sixty days thereafter, but not the exercise of any
other options or warrants that are outstanding.
(2)Includes (i) 24,412 shares owned of record by Mr. Hicks, (ii) 2,876 shares
owned of record by six trusts of which Mr. Hicks serves as trustee and (iii)
6,651,141 shares owned of record by HMTF/Omni Partners, L.P., a limited
partnership of which the sole general partner is HM3/OmniAmerica Partners,
LLC, a limited liability company of which the sole member is HM3 Coinvestors,
L.P., a limited partnership of which the sole general partner is Hicks, Muse
GP Partners III, L.P., a limited partnership of which the sole general
partner is Hicks, Muse Fund III Incorporated, a corporation of which Mr.
Hicks is the sole director, Chairman of the Board, Chief Executive Officer,
Secretary and sole stockholder. Mr. Hicks expressly disclaims (i) the
existence of any group and (ii) beneficial ownership with respect to any
shares of Company Common Stock not owned of record by him.
(3)See footnote (2) above.
21
<PAGE>
(4)Includes (i) 348,600 shares owned of record by Mr. Carpenter and (ii)
1,931,400 shares owned by Carpenter Family Investments LLC (the "Carpenter
LLC"), of which Mr. Carpenter and his wife are the sole members.
(5)Consists entirely of shares owned by the Budagher Family LLC (the "Budagher
LLC"), of which Mr. Budagher is the general manager.
(6)Consists entirely of shares that are deemed beneficially owned by Mr. Emery
by virtue of options held by him that are exercisable within 60 days of July
24, 1998.
(7)Messrs. Hirsch, Ocepek and Mandel are each limited partners of HMTF/Omni
Partners, L.P. The percentage ownership represented by Messrs. Hirsch's,
Ocepek's and Mandel's limited partnership interests are equivalent to
487,847, 487,847, and 71,118 shares, respectively, of the shares of Company
Common Stock owned by HMTF/Omni Partners, L.P.
(8)Includes (i) 50,000 shares owned of record by Mr. Howard and (ii) 87,500
shares that are deemed beneficially owned by Mr. Howard by virtue of options
held by him that are exercisable within 60 days of July 24, 1998.
</FN>
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the informational filing requirements of the
Exchange Act. In accordance therewith, the Company filed periodic reports, proxy
statements and other information with the Commission under the Exchange Act
relating to its business, financial condition and other matters. Such reports,
proxy statements and other information may be inspected and copied at the
Commission's office at 450 Fifth Street, N.W., Washington, D.C. 20459, and at
the regional offices of the Commission located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material may
also be obtained upon payment of the Commission's prescribed fees by writing to
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
regarding registrants, such as the Company, that file electronically with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange Commission
are incorporated into this Information Statement by reference:
(1) The Company's Annual Report on Form 10-KSB for the year ended June 30,
1997;
(2) The Company's Quarterly Report on From 10-QSB for the quarter ended
September 30, 1997;
(3) The Company's Quarterly Report on Form 10-QSB for the quarter ended
December 31, 1997;
(4) The Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1998; and
(5) The Company's Current Report on Form 8-K dated April 23, 1998, as
amended by the Company's Form 8-KA filed on July 7, 1998, including
(a) the audited historical financial statements for (i) OmniAmerica
Holdings Corporation ("Holdings") as of December 31, 1997 and for the
period from inception (October 15, 1997) through December 31, 1997,
(ii) HSW Associates, Inc. ("HSW") as of December 31, 1997 and for each
of the two years in the period then ended, (iii) TowerCom, Limited
("TowerCom") as of December 31, 1997 and December 31, 1996 and for the
years then ended, (iv) Miller Transmission Tower Company, Limited
("Miller") as of December 31, 1997 and December 31, 1996 and for the
years then ended and (v) Kline Iron & Steel Company, Inc. ("Kline") as
of September 30, 1997 and September 30, 1996 and for the years then
ended and (b) with respect to the Company, Holdings, HSW, TowerCom,
Miller and Kline, the pro forma combined income statement for the year
ended June 30, 1997, the pro forma combined balance sheet as of March
31, 1998 and the pro forma combined income statement for the
nine-month period ended March 31, 1998.
22
<PAGE>
The Company will provide, without charge, to each person to whom this
Information Statement is delivered, upon written or oral request of such person
and by first class mail or other equally prompt means within one business day of
receipt of such request, a copy of any and all of the information that has been
incorporated by reference in this Information Statement. Requests should be
directed to the Company at the following address: 12001 State Highway 14 North,
Cedar Crest, New Mexico 87008, Attention: Keith Hartnett; telephone number (505)
281-2197.
MISCELLANEOUS
The Company requests brokers, custodians, nominees and fiduciaries to
forward this Information Statement to the beneficial owners of Company Common
Stock and the Company will reimburse such holders for their reasonable expenses
in connection therewith. Additional copies of this Information Statement may be
obtained at no charge from the Company by writing to it at the following
address: 12001 State Highway 14 North, Cedar Crest, New Mexico, 87008,
Attention: Keith Hartnett.
23
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
July 24, 1998, by and between Specialty Teleconstructors, Inc., a Nevada
corporation ("STI"), having its principal place of business at 12001 State
Highway 14 North, Cedar Crest, New Mexico 87008, and OmniAmerica, Inc., a
Delaware corporation and a wholly owned subsidiary of STI ("OmniAmerica"),
having its principal place of business at 12001 State Highway 14 North, Cedar
Crest, New Mexico 87008.
RECITALS
WHEREAS, STI shall merge ("the Merger") with and into OmniAmerica, with
OmniAmerica surviving as a Delaware corporation (as such, the "Surviving
Corporation"); and
WHEREAS, in connection with the Merger each outstanding share of STI
common stock, par value $0.01 per share ("STI Common Stock"), shall be converted
into one share of common stock, par value $0.01 per share, of OmniAmerica
("OmniAmerica Common Stock") set forth herein; and
WHEREAS, the Board of Directors and the stockholders of STI and the Board
of Directors and sole stockholder of OmniAmerica have approved and adopted this
Agreement and the transactions contemplated thereby in accordance with the
Nevada Revised Statutes (the "NRS") and the General Corporation Law of the State
of Delaware (the "DGCL"), respectively;
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the provisions of the NRS and the DGCL, STI shall
be merged with and into OmniAmerica. Following the Merger, the separate
existence of STI shall cease, and OmniAmerica shall continue as the Surviving
Corporation under the laws of the State of Delaware and shall continue under the
name "OmniAmerica, Inc."
SECTION 1.2. Effective Time of the Merger. The Merger shall become
effective upon the filing of the later of the certificate of merger (the
"Certificate of Merger") to be filed pursuant to Section 252(c) of the DGCL with
the Secretary of State of the State of Delaware and the articles of merger (the
"Articles of Merger") to be filed pursuant to Section 92A.200 of the NRS with
the Secretary of State of the State of Nevada (the "Effective Time").
SECTION 1.3. Closing. Subject to the satisfaction or waiver of all
conditions to the consummation of the transactions contemplated hereby, the
closing of the Merger (the "Closing")
A-1
<PAGE>
shall take place at the offices of Weil, Gotshal & Manges LLP, 100 Crescent
Court, Suite 1300, Dallas, Texas 75201, at such date and time as is agreed to by
the parties hereto. The date and time on which the Closing shall occur is
referred to herein as the "Closing Date".
SECTION 1.4. Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the NRS and the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, except
as otherwise provided herein, all the property, rights, privileges, powers and
franchises of STI and OmniAmerica shall vest in the Surviving Corporation, and
all debts, liabilities and duties of STI and OmniAmerica shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 1.5. Certificate of Incorporation of the Surviving Corporation. At
the Effective Time and without any further action on the part of the parties
hereto, the Certificate of Incorporation of OmniAmerica shall be the Certificate
of Incorporation of the Surviving Corporation.
SECTION 1.6. Bylaws of the Surviving Corporation. At the Effective Time
and without any further action on the part of the parties hereto, the Bylaws of
OmniAmerica shall be the Bylaws of the Surviving Corporation.
SECTION 1.7. Board of Directors and Officers of the Surviving Corporation.
Each of the directors of STI immediately prior to the Effective Time shall be,
from and after the Effective Time, a director of the Surviving Corporation in
the class designated below. Each such director shall serve as such until his
respective successor is duly elected and qualified, or his earlier death,
resignation or removal.
Class I Class II Class III
- ------- -------- ---------
Jeffrey A. Howard Ernie L. Carpenter Michael R. Budagher
Carl E. Hirsch Lawrence D. Stuart Jack D. Furst
John D. Emery J. Otis Winters
Each of the officers of STI immediately prior to the Effective Time shall be,
from and after the Effective Time, an officer of the Surviving Corporation,
holding the same office he held with STI, until his respective successor is duly
elected and qualified, or his earlier death, resignation or removal.
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1. Conversion of Outstanding Shares of STI Common Stock. At the
Effective Time, by virtue of the Merger and without any action on the part of
the parties hereto, (i) each issued and outstanding share of STI Common Stock
outstanding immediately prior to the Effective Time shall be converted into one
share of OmniAmerica Common Stock and (ii) each certificate
A-2
<PAGE>
representing shares of STI Common Stock outstanding immediately prior to the
Effective Time shall represent the same number of shares of OmniAmerica Common
Stock.
SECTION 2.2. Conversion of Outstanding Options to Purchase STI Common
Stock. At the Effective Time, by virtue of the Merger and without any action on
the part of the parties hereto, each outstanding option to purchase STI Common
Stock under a Plan (as hereinafter defined) shall be converted into an option to
purchase an equal number of shares of OmniAmerica Common Stock pursuant to the
terms and conditions set forth in the related option agreement and Plan.
SECTION 2.3. Cancellation of Outstanding Shares of OmniAmerica Common
Stock. At the Effective Time, by virtue of the Merger and without any action on
the part of the parties hereto, each issued and outstanding share of OmniAmerica
Common Stock outstanding immediately prior to the Effective Time shall be
cancelled and shall cease to exist and no consideration shall be deliverable in
exchange therefor.
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF STI
STI represents and warrants to OmniAmerica as set forth below:
SECTION 3.1. Organization and Qualification. STI is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with all requisite corporate power and authority
to own, operate and lease its properties and to carry on its business as it is
now being conducted, and is qualified or licensed to do business and is in good
standing in every jurisdiction where the nature of the business conducted by it
or the properties owned or leased by it requires qualification.
SECTION 3.2. Authorization. STI has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the
performance by STI of its obligations hereunder, and the consummation by it of
the transactions contemplated hereby and thereby, have been duly authorized by
the Board of Directors and stockholders of STI. No other corporate action on the
part of STI is necessary to authorize the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by STI and, assuming
this Agreement constitutes a valid and binding obligation of OmniAmerica, shall
constitute a valid and binding obligation of STI enforceable against it in
accordance with its terms, except to the extent that such enforcement may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally, and the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
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SECTION 3.3. No Violation. Neither the execution and delivery of this
Agreement, the performance by STI of its obligations hereunder nor the
consummation by STI of the transactions contemplated hereby or thereby will (a)
violate, conflict with or result in any breach of any provision of the Articles
of Incorporation or Bylaws of STI or any of its subsidiaries, (b) violate,
conflict with or result in a violation or breach of, or constitute a default
(with or without due notice or lapse of time or both) under, or permit the
termination of, or require the consent of any other party to, or result in the
acceleration of, or entitle any party to accelerate (whether as a result of a
change in control of STI or otherwise) any obligation, or result in the loss of
any benefit, or give rise to the creation of any lien, charge, security interest
or encumbrance upon any of the properties or assets of STI or any of its
subsidiaries under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture or deed of trust, or any material license, lease, agreement
or other instrument or obligation to which STI or any of its subsidiaries is a
party or by which it or any of its properties or assets may be bound or
affected, or (c) violate any order, writ, judgment, injunction, decree, statute,
rule or regulation, of any court or governmental authority applicable to STI or
any of its subsidiaries or any of their respective properties or assets.
SECTION 3.4. Capitalization of STI. The authorized capital stock of STI
consists of 20,000,000 shares of STI Common Stock and 2,000,000 shares of
preferred stock, par value $0.1 per share (the "STI Preferred Stock"). As of the
date hereof, STI has 15,063,385 shares of STI Common Stock outstanding, all of
which have been validly issued, are fully paid and non-assessable and were not
issued in violation of any preemptive rights, and 654,526 shares of STI Common
Stock reserved for issuance upon the exercise from time to time of outstanding
options (the "Old Plan Options") under the Company's Amended and Restated 1994
Stock Option Plan, Outside Directors' Stock Option Plan and the 1997 Stock
Incentive Plan (each a "Plan" and collectively, the "Plans"). As of the date
hereof, no shares of STI Preferred Stock are outstanding.
SECTION 3.5. Consents and Approvals. Other than the filing of a
certificate of merger pursuant to the DGCL and articles of merger pursuant to
the NRS and requirements of federal and state securities laws, no filing or
registration with, no notice to and no permit, authorization, consent or
approval of any governmental authority is necessary for the consummation by STI
of the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF OMNIAMERICA
OmniAmerica hereby represents and warrants to STI that:
SECTION 4.1. Organization and Qualification. OmniAmerica is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with all requisite power and authority to
own, lease and operate its properties and to carry on its businesses as now
being conducted, and is qualified or licensed to do business and is in good
standing in each jurisdiction in which the ownership or leasing of property by
it or the conduct of its business requires such licensing or qualification.
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SECTION 4.2. Authorization. OmniAmerica has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by OmniAmerica, the performance by OmniAmerica of its obligations hereunder and
the consummation by OmniAmerica of the transactions contemplated hereby have
been duly authorized by the Board of Directors and the sole stockholder of
OmniAmerica. No other corporate proceeding on the part of OmniAmerica is
necessary to authorize the execution and delivery of this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by OmniAmerica and, assuming this Agreement
constitutes a valid and binding obligation of STI, shall constitute a valid and
binding obligation of OmniAmerica, enforceable against it in accordance with its
terms, except to the extent that such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally, and the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
SECTION 4.3. No Violation. Neither the execution and delivery of this
Agreement by OmniAmerica and the performance by OmniAmerica of its obligations
hereunder or thereunder nor the consummation by OmniAmerica of the transactions
contemplated hereby or thereby will (a) violate, conflict with or result in any
breach of any provision of the Certificate of Incorporation or Bylaws of
OmniAmerica, (b) violate, conflict with or result in a violation or breach of,
or constitute a default (with or without due notice or lapse of time or both)
under, or permit the termination of, or require the consent of any other party
to, or result in the acceleration of, or entitle any party to accelerate any
obligation or result in the loss of a benefit or give rise to the creation of
any lien, charge, security interest or encumbrance upon any of the respective
properties or assets of OmniAmerica under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which OmniAmerica is a
party or by which they or any of their respective properties or assets may be
bound or affected or (c) violate any order, writ, judgment, injunction, decree,
statute, rule or regulation of any court or domestic or foreign governmental
authority applicable to OmniAmerica or any of its respective properties or
assets.
SECTION 4.4. Capitalization of OmniAmerica. The total number of shares of
stock which the Corporation has authority to issue is 110,000,000 shares of
capital stock, classified as (i) 10,000,000 shares of preferred stock, par value
$0.01 per share, and (ii) 100,000,000 shares of OmniAmerica Common Stock. As of
the date hereof, 1,000 shares of OmniAmerica Common Stock are issued and
outstanding.
SECTION 4.5. Consents and Approvals. Other than the filing of a
certificate of merger pursuant to the DGCL and articles of merger pursuant to
the NRS and requirements of federal and state securities laws, no filing or
registration with, no notice to and no permit, authorization, consent or
approval of any third party or any public or governmental body or authority is
necessary for the consummation by OmniAmerica of the transactions contemplated
by this Agreement.
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ARTICLE V
COVENANTS
SECTION 5.1. Consents and Approvals. The parties hereto each shall
cooperate with one another and use all reasonable efforts to prepare all
necessary documentation to effect promptly all necessary filings and to obtain
all necessary permits, consents, approvals, orders and authorizations of or any
exemptions by, all third parties and governmental bodies necessary to consummate
the transactions contemplated by this Agreement.
ARTICLE VI
CLOSING CONDITION
SECTION 6.1. Condition to Each Party's Obligations under this Agreement.
The respective obligations of each party under this Agreement shall be subject
to the fulfillment at or prior to the Effective Time of the following condition:
all permits, consents, waivers, clearances, approvals and authorizations of all
third parties and governmental bodies necessary or advisable in connection with
the consummation of the Merger shall have been obtained.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. Amendment and Modification. This Agreement may be amended by
a written instrument signed by the parties hereto and, as applicable, approved
by action taken by their respective boards of directors, at any time, but no
amendment shall be made which by law requires further approval by the
stockholders of any of the parties hereto without such further approval.
SECTION 7.2. Waiver of Compliance; Consents. Any failure by the other
party hereto to comply with any obligation, covenant, agreement or condition
contained herein may be waived in writing by STI and OmniAmerica, as applicable,
but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any other failure.
SECTION 7.3. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 7.4. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given upon the earlier of delivery thereof if
by hand or upon receipt if sent by mail (registered or certified mail, postage
prepaid, return receipt requested) or on the second next business day after
deposit if sent by a recognized overnight delivery service or upon transmission
if sent by telecopy or facsimile transmission (with request of assurance of
receipt in a manner customary for communication of such type) as follows:
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(a) If to STI, to: (b) If to OmniAmerica, to:
Specialty Teleconstructors, Inc. OmniAmerica, Inc.
12001 State Highway 14 North 12001 State Highway 14 North
Cedar Crest, New Mexico 87008 Cedar Crest, New Mexico 87008
Attention: F. Howard Mandel Attention: F. Howard Mandel
Facsimile No.: 216/447-4450 Facsimile No.: 216/447-4450
and and
Weil, Gotshal & Manges LLP Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300 100 Crescent Court, Suite 1300
Dallas, Texas 75201 Dallas, Texas 75201
Attention: Mary R. Korby, Esq. Attention: Mary R. Korby, Esq.
Facsimile No.: 214/746-7777 Facsimile No.: 214/746-7777
SECTION 7.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas and where
applicable, the DGCL and the NRS, without regard to the conflicts-of-laws rules
thereof.
SECTION 7.6. 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 agreement.
SECTION 7.7. Headings. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect in any way the meaning or interpretation of
this Agreement.
SECTION 7.8. Entire Agreement. This Agreement embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein or therein. There are no agreements, representations,
warranties or covenants other than those expressly set forth herein or therein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
SECTION 7.9. Assignment. This Agreement shall not be assigned by operation
of law or otherwise.
SECTION 7.10. Termination of Representations and Warranties. None of the
representations and warranties of OmniAmerica and STI shall survive the
Effective Time. Notwithstanding any of the terms or provisions of this
Agreement, STI and OmniAmerica agree that neither it nor any person acting on
its behalf may assert any claims or cause of action against any officer or
director of the other party or any stockholder of such other party in connection
with or arising out of this Agreement.
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SECTION 7.11. Severability. The parties agree that if one or more
provisions contained in this Agreement shall be deemed or held to be invalid,
illegal or unenforceable in any respect under any applicable law, this Agreement
shall be construed with the invalid, illegal or unenforceable provision deleted,
and the validity, legality and enforceability of the remaining provisions
contained herein shall not be affected or impaired thereby.
SECTION 7.12. Abandonment of Merger. This Agreement may be terminated by
the board of directors of the parties hereto prior to the filing of the Articles
of Merger and Certificate of Merger notwithstanding approval of this Agreement
by the stockholders thereof.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed on its behalf by its duly authorized officers, all as of
the day and year first above written.
SPECIALTY TELECONSTRUCTORS, INC.
a Nevada corporation
By: /s/ F. Howard Mandel
Name: F. Howard Mandel
Title: Vice President
OMNIAMERICA, INC.
a Delaware corporation
By: /s/ Daniel S. Dross
Name: Daniel S. Dross
Title: President
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EXHIBIT B
SPECIALTY TELECONSTRUCTORS, INC.
1998 STOCK OPTION PLAN
1. Purpose.
Specialty Teleconstructors, Inc., a Nevada corporation (herein, together
with its successors, referred to as the "Company"), by means of this 1998 Stock
Option Plan (the "Plan"), desires to afford certain key employees employed by,
and certain persons performing services for the Company and any direct or
indirect subsidiary or parent corporation thereof now existing or hereafter
formed or acquired (such corporations sometimes referred to herein as "Related
Entities") who are responsible for the continued growth of the Company an
opportunity to acquire a proprietary interest in the Company, and thus to create
in such persons an increased interest in and a greater concern for the welfare
of the Company and any Related Entities. Certain definitions used herein are
defined in Section 18 of this Plan.
The stock options described in Sections 6 and 7 (the "Options"), and the
shares of Common Stock (as hereinafter defined) acquired pursuant to the
exercise of such Options are a matter of separate inducement and are not in lieu
of any salary or other compensation for services. As used in the Plan, the terms
"parent corporation" and "subsidiary corporation" shall have the meanings
contained in Sections 424(e) and 424(f), respectively, of the Internal Revenue
Code of 1986, as amended (the "Code").
2. Administration.
The Plan shall be administered by the Compensation Committee of the Board
of Directors of the Company or by any other committee appointed by the Board of
Directors of the Company to administer this Plan (the "Committee"); provided,
that the entire Board of Directors of the Company (the "Board of Directors") may
act as the Committee if it chooses to do so; and provided, further, that (i) for
purposes of determining any Performance-Based Options (as hereinafter defined)
applicable to Key Employees (as hereinafter defined) who constitute "covered
employees" within the meaning of Section 162(m) of the Code, "Committee" shall
mean the members of the Compensation Committee of the Board of Directors who
qualify as "outside directors" within the meaning of Section 162(m) of the Code,
and such Performance-Based Options shall be subject to ratification by unanimous
approval of the members of the Board of Directors, and (ii) for so long as the
Company is subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), the Committee shall be composed solely
of two or more "Non-Employee Directors" as defined in Rule 16b-3, as amended
("Rule 16b-3"), promulgated thereunder; provided, that, alternatively, for
purposes of granting Options other than Performance-Based Options hereunder, the
Board of Directors may authorize such grants and may take any other action
permitted pursuant to Section 162(m) of the Code, Rule 16b-3 and applicable law
and regulations.
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The number of individuals that shall constitute the Committee shall be
determined from time to time by a majority of all the members of the Board of
Directors, and, unless that majority of the Board of Directors determines
otherwise, shall be no less than two individuals. A majority of the Committee
shall constitute a quorum (or if the Committee consists of only two members,
then both members shall constitute a quorum), and subject to the provisions of
Section 5, the acts of a majority of the members present at any meeting at which
a quorum is present, or acts approved in writing by all members of the
Committee, shall be the acts of the Committee. The Committee shall administer
the Plan so as (i) to comply at all times with the Exchange Act, and (ii) to
ensure that compensation attributable to Options granted under the Plan to Key
Employees who constitute "covered employees" within the meaning of Section
162(m) of the Code shall (A) meet the deduction limitation imposed by Section
162(m) of the Code, or (B) qualify as "performance-based compensation" as such
term is used in Section 162(m) of the Code and the regulations promulgated
thereunder and thus be exempt from the deduction limitation imposed by Section
162(m) of the Code.
The members of the Committee shall serve at the pleasure of the Board of
Directors, which shall have the power, at any time and from time to time, to
remove members from or add members to the Committee. Removal from the Committee
may be with or without cause. Any individual serving as a member of the
Committee shall have the right to resign from membership in the Committee by
written notice to the Board of Directors. The Board of Directors, and not the
remaining members of the Committee, shall have the power and authority to fill
vacancies on the Committee, however caused. The Board of Directors shall
promptly fill any vacancy that causes the number of members of the Committee to
be below two or any other number that Rule 16b-3 or other applicable rules under
Section 16(b) of the Exchange Act, Section 162(m) of the Code, or any successor
or analogous rules or laws may require from time to time.
3. Shares Available and Maximum Individual Grants.
Subject to the adjustments provided in Section 10, the maximum aggregate
number of shares of common stock, par value $0.01 per share, of the Company
("Common Stock") in respect of which Options may be granted for all purposes
under the Plan shall be 675,000 shares. If, for any reason, any shares as to
which Options have been granted cease to be subject to purchase thereunder,
including the expiration of such Option, the termination of such Option prior to
exercise, or the forfeiture of such Option, such shares shall thereafter be
available for grants under the Plan. Options granted under the Plan may be
fulfilled in accordance with the terms of the Plan with (i) authorized and
unissued shares of the Common Stock, or (ii) issued shares of such Common Stock
held in the Company's treasury.
The maximum aggregate number of shares of Common Stock underlying all
Options that may be granted to any single Key Employee (as hereinafter defined),
including any Options that may have been granted to such Key Employee as an
Eligible Non-Employee (as hereinafter defined), during the Term (as hereinafter
defined) of the Plan shall be 250,000 shares, subject to the adjustments
provided in Section 10. For purposes of the preceding sentence, such Options
that are cancelled or repriced shall continue to be counted in determining such
maximum aggregate number of shares of Common
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Stock that may be granted to any single Key Employee, including any Options that
may have been granted to such Key Employee as an Eligible Non-Employee, during
the Term of the Plan.
4. Eligibility and Bases of Participation.
Grants of Incentive Options (as hereinafter defined) and Non-Qualified
Options (as hereinafter defined) may be made under the Plan, subject to and in
accordance with Section 6, to Key Employees. As used herein, the term "Key
Employee" shall mean any employee of the Company or any Related Entity,
including officers and directors of the Company or any Related Entity who are
also employees of the Company or any Related Entity, who are regularly employed
on a salaried basis and who are so employed on the date of such grant, whom the
Committee identifies as having a direct and significant effect on the
performance of the Company or any Related Entity.
Grants of Non-Qualified Options may be made, subject to and in accordance
with Section 7, to any Eligible Non-Employee. As used herein, the term "Eligible
Non-Employee" shall mean any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a trust, or other entity (collectively, a "Person"), that the
Committee designates as eligible for a grant of Options pursuant to this Plan
because such Person performs bona fide consulting, advisory, or other services
for the Company or any Related Entity (other than services in connection with
the offer or sale of securities in a capital-raising transaction) and the Board
of Directors or the Committee determines that the Person has a direct and
significant effect on the performance of the Company or any Related Entity.
The adoption of this Plan shall not be deemed to give any Person a right
to be granted any Options.
5. Authority of Committee.
Subject to and not inconsistent with the express provisions of the Plan,
the Code and, if applicable, Rule 16b-3 and Section 162(m) of the Code, the
Committee shall have plenary authority to:
a. determine the Key Employees and Eligible Non-Employees to whom Options
shall be granted, the time when such Options shall be granted, the
number of Options, the purchase price or exercise price of each
Option, the period(s) during which such Options shall be exercisable
(whether in whole or in part, including whether such Options shall
become immediately exercisable upon the consummation of a Change of
Control), the restrictions to be applicable to Options and all other
terms and provisions thereof (which need not be identical);
b. require, as a condition to the granting of any Option, that the Person
receiving such Option agree not to sell or otherwise dispose of such
Option, any Common Stock acquired pursuant to such Option, or any
other "derivative security" (as defined by Rule 16a-1(c) under the
Exchange Act) of the Company for a period of six months
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following the later of (i) the date of the grant of such Option or
(ii) the date when the exercise price of such Option is fixed if such
exercise price is not fixed at the date of grant of such Option, or
for such other period as the Committee may determine;
c. provide an arrangement through registered broker-dealers whereby
temporary financing may be made available to an optionee by the
broker-dealer, under the rules and regulations of the Board of
Governors of the Federal Reserve, for the purpose of assisting the
optionee in the exercise of an Option, such authority to include the
payment by the Company of the commissions of the broker-dealer;
d. provide the establishment of procedures for an optionee (i) to have
withheld from the total number of shares of Common Stock to be
acquired upon the exercise of an Option that number of shares having a
Fair Market Value which, together with such cash as shall be paid in
respect of fractional shares, shall equal the aggregate exercise price
under such Option for the number of shares then being acquired
(including the shares to be so withheld), and (ii) to exercise a
portion of an Option by delivering that number of shares of Common
Stock already owned by such optionee having an aggregate Fair Market
Value which shall equal the partial Option exercise price and to
deliver the shares thus acquired by such optionee in payment of shares
to be received pursuant to the exercise of additional portions of such
Option, the effect of which shall be that such optionee can in
sequence utilize such newly acquired shares in payment of the exercise
price of the entire Option, together with such cash as shall be paid
in respect of fractional shares; provided, however, that (i) in the
case of an -------- ------- Incentive Option, no shares shall be used
to pay the exercise price under this paragraph unless (A) such shares
were not acquired through the exercise of an Incentive Option, or (B)
if so acquired, (x) such shares have been held for more than two years
since the grant of such Incentive Option and for more than one year
since the exercise of such Incentive Option (the "Holding Period"), or
(y) if such shares do -------------- not meet the Holding Period, the
optionee elects in writing to use such shares to pay the exercise
price under this paragraph, and (ii) no such procedure shall be
available if there is an opinion of the Company's independent
accounting firm that the use of such a procedure could negatively
affect the financial statements of the Company or a Related Entity;
e. provide (in accordance with Section 13 or otherwise) the establishment
of a procedure whereby a number of shares of Common Stock or other
securities may be withheld from the total number of shares of Common
Stock or other securities to be issued upon exercise of an Option to
meet the obligation of withholding for income, social security and
other taxes incurred by an optionee upon such exercise or required to
be withheld by the Company or a Related Entity in connection with such
exercise unless, as determined by the Committee in the exercise of its
discretion, such procedure is not permitted by applicable law or would
result in a charge to earnings that otherwise would not have occurred;
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f. prescribe, amend, modify and rescind rules and regulations relating to
the Plan; and
g. make all determinations permitted or deemed necessary, appropriate or
advisable for the administration of the Plan, interpret any Plan or
Option provision, perform all other acts, exercise all other powers,
and establish any other procedures determined by the Committee to be
necessary, appropriate, or advisable in administering the Plan or for
the conduct of the Committee's business. Any act of the Committee,
including interpretations of the provisions of the Plan or any Option
and determinations under the Plan or any Option shall be final,
conclusive and binding on all parties.
The Committee may delegate to one or more of its members, or to one or
more agents, such administrative duties as it may deem advisable, and the
Committee or any Person to whom it has delegated duties as aforesaid may employ
one or more Persons to render advice with respect to any responsibility the
Committee or such Person may have under the Plan; provided, however, that any
such delegation shall be in writing; and provided, however, that, any
determination of Performance-Based Options (as hereinafter defined) applicable
to Key Employees who constitute "covered employees" within the meaning of
Section 162(m) of the Code may not be delegated to a member of the Board of
Directors who, if elected to serve on the Committee, would not qualify as an
"outside director" within the meaning of Section 162(m) of the Code. The
Committee may employ attorneys, consultants, accountants, or other Persons and
the Committee, the Company, and its officers and directors shall be entitled to
rely upon the advice, opinions, or valuations of any such Persons. No member or
agent of the Committee shall be personally liable for any action, determination
or interpretation made in good faith with respect to the Plan and all members
and agents of the Committee shall be fully protected by the Company in respect
of any such action, determination or interpretation.
6. Stock Option Grants to Key Employees.
Subject to the express provisions of this Plan, the Committee shall have
the authority to grant incentive stock options pursuant to Section 422 of the
Code ("Incentive Options"), to grant non-qualified stock options (options which
do not qualify under Section 422 of the Code) ("Non-Qualified Options"), and to
grant both types of Options to Key Employees. No Incentive Option shall be
granted pursuant to this Plan after the earlier of ten years from the date of
adoption of the Plan or ten years from the date of approval of the Plan by the
stockholders of the Company. Incentive Options may be granted only to Key
Employees. The terms and conditions of the Options granted under this Section 6
shall be determined from time to time by the Committee; provided, however, that
the Options granted under this Section 6 shall be subject to all terms and
provisions of the Plan (other than Section 7), including the following:
a. Option Exercise Price. Subject to Section 4, the Committee shall
establish the Option exercise price at the time any Option is granted
to a Key Employee at such amount as the Committee shall determine;
provided, that, in the case of an Incentive Option, such price shall
not be less than the Fair Market Value per share of Common Stock at
the date the Option is granted; and provided, further, that in the
case of an Incentive
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Option granted to a person who, at the time such Incentive Option is
granted, owns shares of the Company or any Related Entity which
possess more than 10% of the total combined voting power of all
classes of shares of the Company or of any Related Entity, the option
exercise price shall not be less than 110% of the Fair Market Value
per share of Common Stock at the date the Option is granted. The
Option exercise price shall be subject to adjustment in accordance
with the provisions of Section 10 of the Plan.
b. Payment. The price per share of Common Stock with respect to each
Option exercise by a Key Employee shall be payable at the time of such
exercise. Such price shall be payable in cash or by any other means
acceptable to the Committee, including delivery to the Company of
shares of Common Stock owned by the optionee or by the delivery or
withholding of shares pursuant to a procedure created pursuant to
subsection 5(d) of the Plan (but, with respect to Incentive Options,
subject to the limitations described in such subsection 5(d)). Shares
delivered to or withheld by the Company in payment of the Option
exercise price shall be valued at the Fair Market Value of the Common
Stock on the day preceding the date of the exercise of the Option.
c. Exercisability of Stock Option. Unless otherwise determined by the
Committee at the time of grant, and subject to the provisions of
subsections 6(d), (e), (f), (g) and (i) below, stock options granted
to Key Employees hereunder shall vest and become exercisable according
to the vesting schedule set forth below:
o one-third of the shares of Common Stock underlying the stock
option grant shall vest and become exercisable on the first
anniversary of the date of grant and remain exercisable until the
stock option expires; and
o an additional one-third of the shares of Common Stock underlying
the stock option grant shall vest and become exercisable on the
second anniversary of the date of grant and remain exercisable
until the stock option expires; and
o the final one-third of the shares of Common Stock underlying the
stock option grant shall vest and become exercisable on the third
anniversary of the date of grant and remain exercisable until the
stock option expires.
No Option by its terms shall be exercisable after the expiration of
ten years from the date of grant of the Option, unless, as to any
Non-Qualified Option, otherwise expressly provided in such Option;
provided, however, that no Incentive Option granted to a person who,
at the time such Option is granted, owns stock of the Company, or any
Related Entity, possessing more than 10% of the total combined voting
power of all classes of stock of the Company, or any Related Entity,
shall be exercisable after the expiration of five years from the date
such Option is granted.
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<PAGE>
d. Death. If any optionee's employment with the Company or a Related
Entity terminates due to the death of such optionee, the estate of
such optionee, or a Person who acquired the right to exercise such
Option by bequest or inheritance or by reason of the death of the
optionee, shall have the right to exercise the vested portion of such
Option in accordance with its terms at any time and from time to time
within 180 days after the date of death unless a longer or shorter
period is expressly provided in such Option or established by the
Committee pursuant to Section 9 (but in no event after the expiration
date of such Option), and thereafter such Option shall lapse and no
longer be exercisable.
e. Disability. If the employment of any optionee terminates because of
his or her Disability (as defined in Section 18), such optionee or his
or her legal representative shall have the right to exercise the
vested portion of such Option in accordance with its terms at any time
and from time to time within 180 days after the date of such
termination unless a longer or shorter period is expressly provided in
such Option or established by the Committee pursuant to Section 9 (but
in no event after the expiration date of the Option), and thereafter
such Option shall lapse and no longer be exercisable; provided,
however, that in the case of an Incentive Option, the optionee or his
or her legal representative shall in any event be required to exercise
the vested portion of such Incentive Option within one year after
termination of the optionee's employment due to his or her Disability.
f. Termination for Cause. Unless an optionee's Option expressly provides
otherwise, such optionee shall immediately forfeit all rights under
his or her Option, except as to the shares of stock already purchased
thereunder, if the employment of such optionee with the Company or a
Related Entity is terminated by the Company or any Related Entity for
Good Cause (as defined below). The determination that there exists
Good Cause for termination shall be made by the Committee (unless
otherwise agreed to in writing by the Company and the optionee) and
any decision in respect thereof by the Committee shall be final and
binding on all parties in interest.
g. Other Termination of Employment. If the employment of an optionee with
the Company or a Related Entity terminates for any reason (including
if such optionee voluntarily terminates employment with or without the
consent of the Company or any Related Entity) other than those
specified in subsections 6(d), (e) or (f) above, then with the
approval of the Board of Directors, such optionee shall have the right
to exercise the vested portion of his or her Option in accordance with
its terms, within 30 days after the date of such termination, unless a
longer or shorter period is expressly provided in such Option or
established by the Committee pursuant to Section 9 (but in no event
after the expiration date of the Option), and thereafter such Option
shall lapse and no longer be exercisable; provided, that (i) no
Incentive Option shall be exercisable more than three months after
such termination, and (ii) the Committee may, in the exercise of its
discretion, extend the exercise date of any Option upon termination of
employment for a period not to exceed six months plus
B-7
<PAGE>
one day (but in no event after the expiration date of the Option) if
the Committee determines that the stated exercise date will have an
inequitable result under Section 16(b) of the Exchange Act.
h. Maximum Exercise. To the extent that the aggregate Fair Market Value
of Common Stock (determined at the time of the grant of the Option)
with respect to which Incentive Options are exercisable for the first
time by an optionee during any calendar year under all plans of the
Company and any Related Entity exceeds $100,000, such Incentive
Options shall be treated as Non-Qualified Options.
i. Continuation of Employment. Each Incentive Option shall require the
optionee to remain in the continuous employ of the Company or any
Related Entity from the date of grant of the Incentive Option until at
least three months prior to the date of exercise of the Incentive
Option.
j. Interpretation of Plan. Any termination of employment of an Optionee
with the Company or any Related Entity shall in no way change or amend
the Company's at-will termination policy.
7. Stock Option Grants to Eligible Non-Employees.
Subject to the express provisions of this Plan, the Committee shall have
the authority to grant Non-Qualified Options (and not Incentive Options) to
Eligible Non-Employees; provided, however, that no Eligible Non-Employee then
serving on the Committee (or such other committee then administering the Plan)
shall be granted Options hereunder if the grant of such Options would cause such
Eligible Non-Employee to no longer be a "Non-Employee Director" as set forth in
Section 2 hereof. The terms and conditions of the Options granted under this
Section 7 shall be determined from time to time by the Committee; provided,
however, that the Options granted under this Section 7 shall be subject to all
terms and provisions of the Plan (other than Section 6), including the
following:
a. Option Exercise Price. Subject to Section 4, the Committee shall
establish the Option exercise price at the time any Non-Qualified
Option is granted to an Eligible Non-Employee at such amount as the
Committee shall determine. The Option exercise price shall be subject
to adjustment in accordance with the provisions of Section 10 of the
Plan.
b. Payment. The price per share of Common Stock with respect to each
Option exercise by an Eligible Non-Employee shall be payable at the
time of such exercise. Such price shall be payable in cash or by any
other means acceptable to the Committee, including delivery to the
Company of shares of Common Stock owned by the optionee or by the
delivery or withholding of shares pursuant to a procedure created
pursuant to subsection 5(d) of the Plan. Shares delivered to or
withheld by the Company in
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<PAGE>
payment of the Option exercise price shall be valued at the Fair
Market Value of the Common Stock on the day preceding the date of the
exercise of the Option.
c. Exercisability of Stock Option. Unless otherwise determined by the
Committee at the time of grant and subject to the provisions of
subsections 7(d), (e), (f), (g) and (i) below, stock options granted
to Eligible Non-Employees hereunder shall vest and become exercisable
according to the vesting schedule set forth below:
o one-third of the shares of Common Stock underlying the stock
option grant shall vest and become exercisable on the first
anniversary of the date of grant and remain exercisable until the
stock option expires; and
o an additional one-third of the shares of Common Stock underlying
the stock option grant shall vest and become exercisable on the
second anniversary of the date of grant and remain exercisable
until the stock option expires; and
o the final one-third of the shares of Common Stock underlying the
stock option grant shall vest and become exercisable on the third
anniversary of the date of grant and remain exercisable until the
stock option expires.
No Option shall be exercisable after the expiration of ten years from
the date of grant of the Option, unless otherwise expressly provided
in such Option.
d. Death. If the retention by the Company or any Related Entity of the
services of any Eligible Non-Employee that is a natural person
terminates because of his or her death, the estate of such optionee,
or a Person who acquired the right to exercise such Option by bequest
or inheritance or by reason of the death of the optionee, shall have
the right to exercise the vested portion of such Option in accordance
with its terms, at any time and from time to time within 180 days
after the date of death unless a longer or shorter period is expressly
provided in such Option or established by the Committee pursuant to
Section 9 (but in no event after the expiration date of such Option),
and thereafter such Option shall lapse and no longer be exercisable.
e. Disability. If the retention by the Company or any Related Entity of
the services of any Eligible Non-Employee that is a natural person
terminates because of his or her Disability (as defined in Section
18), such optionee or his or her legal representative shall have the
right to exercise the vested portion of such Option in accordance with
its terms at any time and from time to time within 180 days after the
date of the optionee's termination unless a longer or shorter period
is expressly provided in such Option or established by the Committee
pursuant to Section 9 (but in no event after the expiration of the
Option), and thereafter such Option shall lapse and no longer be
exercisable.
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<PAGE>
f. Termination for Cause; Voluntary Termination. If the retention by the
Company or any Related Entity of the services of any Eligible
Non-Employee is terminated (i) for Good Cause, (ii) as a result of
removal of the optionee from office as a director of the Company or of
any Related Entity for cause by action of the stockholders of the
Company or such Related Entity in accordance with the certificate of
incorporation or the by-laws of the Company or such Related Entity, as
applicable, and the corporate law of the jurisdiction of incorporation
of the Company or such Related Entity, or (iii) as a result of the
voluntary termination by such optionee of the optionee's service, then
such optionee shall immediately forfeit his, her or its rights under
such Option except as to the shares of stock already purchased. The
determination that there exists Good Cause for termination shall be
made by the Committee (unless otherwise agreed to in writing by the
Company and the optionee) and any decision in respect thereof by the
Committee shall be final and binding on all parties in interest.
g. Other Termination of Relationship. If the retention by the Company or
any Related Entity of the services of any Eligible Non-Employee
terminates for any reason other than those specified in subsections
7(d), (e) or (f) above, then with the approval of the Board of
Directors, such optionee shall have the right to exercise the vested
portion of his, her or its Option in accordance with its terms within
30 days after the date of such termination, unless a longer or shorter
period is expressly provided in such Option or established by the
Committee pursuant to Section 9 (but in no event after the expiration
date of the Option), and thereafter such Option shall lapse and no
longer be exercisable; provided, that the Committee may, in the
exercise of its discretion, extend the exercise date of any Option
upon termination of retention of an Eligible Non-Employee's services
for a period not to exceed six months plus one day (but in no event
after the expiration date of the Option) if the Committee determines
that the stated exercise date will have an inequitable result under
Section 16(b) of the Exchange Act.
8. Performance-Based Options.
The Committee, in its sole discretion, may designate and design Options
granted under the Plan as Performance-Based Options (as hereinafter defined) if
it determines that compensation attributable to such Options might not otherwise
be tax deductible by the Company due to the deduction limitation imposed by
Section 162(m) of the Code. Accordingly, Options granted under the Plan may be
granted in such a manner that the compensation attributable to such Options is
intended by the Committee to qualify as "performance-based compensation" as such
term is used in Section 162(m) of the Code and the regulations promulgated
thereunder and thus be exempt from the deduction limitation imposed by Section
162(m) of the Code ("Performance-Based Options").
Options granted under the Plan to Key Employees who constitute "covered
employees" within the meaning of Section 162(m) of the Code shall be deemed to
qualify as Performance-Based Options only if:
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<PAGE>
a. The Option exercise price is not less than the Fair Market Value per
share of Common Stock at the date the Option is granted; provided,
that in the case of an Incentive Option, such price is subject to the
limitations described in subsection 6(a); provided, further, that the
Option exercise price shall be subject to adjustment in accordance
with the provisions of Section 10 of the Plan; or
b. With respect a Non-Qualified Option granted at an exercise price that
is below the Fair Market Value per share of the Common Stock on the
date of grant, such Option satisfies the following requirements:
(i) the granting or vesting of such Non-Qualified Option is subject
to the achievement of a performance goal or goals based on one or
more of the following performance measures (either individually
or in any combination): net sales; pre-tax income before
allocation of corporate overhead and bonus; budget; cash flow;
earnings per share; net income; division, group or corporate
financial goals; return on stockholders' equity; return on
assets; attainment of strategic and operational initiatives;
appreciation in and/or maintenance of the price of the Common
Stock or any other publicly-traded securities of the Company;
market share; gross profits; earnings before interest and taxes;
earnings before interest, taxes, depreciation and amortization;
economic value-added models; comparisons with various stock
market indices; increase in number of customers; and/or
reductions in costs;
(ii) the Committee establishes in writing (A) the objective
performance-based goals applicable to a given performance period,
and (B) the individual employees or class of employees to which
such performance-based goals apply no later than ninety days
after the commencement of such performance period (but in no
event after twenty-five percent of such performance period has
elapsed);
(iii)no compensation attributable to Performance-Based Options will
be paid to or otherwise received by a Key Employee who
constitutes a "covered employee" within the meaning of Section
162(m) of the Code until the Committee certifies in writing that
the performance goal or goals (and any other material terms)
applicable to such performance period have been satisfied;
(iv) after the establishment of a performance goal, the Committee
shall not revise such performance goal (unless such revision will
not disqualify compensation attributable to the Performance-Based
Options as "performance-based compensation" under Section 162(m)
of the Code) or increase the amount of compensation payable with
respect to such Performance-Based Options upon the attainment of
such performance goal; and
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<PAGE>
(v) as required by the regulations promulgated under Section 162(m)
of the Code, the material terms of performance goals as described
in subsection 8(b)(i) shall be disclosed to and reapproved by the
Company's stockholders no later than the first stockholder
meeting that occurs in the fifth year following the year in which
the Company stockholders previously approved such performance
goals.
9. Change of Control.
If (i) a Change of Control shall occur, or (ii) the Company shall enter
into an agreement providing for a Change of Control, then the Committee may
declare any or all Options outstanding under the Plan to be exercisable in full
at such time or times as the Committee shall determine, notwithstanding the
express provisions of such Options. Each Option accelerated by the Committee
pursuant to the preceding sentence shall terminate, notwithstanding any express
provision thereof or any other provision of the Plan, on such date (not later
than the stated exercise date) as the Committee shall determine.
10. Adjustment of Shares.
Except as otherwise contemplated in Section 9, and unless otherwise
expressly provided in a particular Option, in the event that, by reason of any
merger, consolidation, combination, liquidation, recapitalization, stock
dividend, stock split, split-up, split-off, spin-off, combination of shares,
exchange of shares or other like change in capital structure of the Company
(collectively, an "Adjustment Event"), the Common Stock is substituted,
combined, or changed into any cash, property, or other securities, or the shares
of Common Stock are changed into a greater or lesser number of shares of Common
Stock, the number and/or kind of shares and/or interests subject to an Option
and the per share price or value thereof shall be appropriately adjusted by the
Committee to give appropriate effect to such Adjustment Event. Any fractional
shares or interests resulting from such adjustment shall be eliminated.
Notwithstanding the foregoing, (i) each such adjustment with respect to an
Incentive Option shall comply with the rules of Section 424(a) of the Code to an
Incentive Option, and (ii) in no event shall any adjustment be made which would
render any Incentive Option granted hereunder other than an "incentive stock
option" for purposes of Section 422 of the Code.
In the event the Company is not the surviving entity of an Adjustment
Event and, following such Adjustment Event, any optionee will hold Options
issued pursuant to this Plan which have not been exercised, cancelled, or
terminated in connection therewith, the Company shall cause such Options to be
assumed (or cancelled and replacement Options issued) by the surviving entity or
a Related Entity. In the event of any perceived conflict between the provisions
of Section 9 and this Section 10, the Committee's determinations under Section 9
shall control.
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<PAGE>
11. Assignment or Transfer.
Except as otherwise expressly provided in any Non-Qualified Option, no
Option granted under the Plan or any rights or interests therein shall be
assignable or transferable by an optionee except by will or the laws of descent
and distribution, and during the lifetime of an optionee, Options granted to him
or her hereunder shall be exercisable only by the optionee or, in the event that
a legal representative has been appointed in connection with the Disability of
an optionee, such legal representative.
12. Compliance with Securities Laws.
The Company shall not in any event be obligated to file any registration
statement under the Securities Act of 1933, as amended (the "Securities Act") or
any applicable state securities law to permit exercise of any Option or to issue
any Common Stock in violation of the Securities Act or any applicable state
securities law. Each optionee (or, in the event of his or her death or, in the
event a legal representative has been appointed in connection with his or her
Disability, the Person exercising the Option) shall, as a condition to his or
her right to exercise any Option, deliver to the Company an agreement or
certificate containing such representations, warranties and covenants as the
Company may deem necessary or appropriate to ensure that the issuance of shares
of Common Stock pursuant to such exercise is not required to be registered under
the Securities Act or any applicable state securities law.
Certificates for shares of Common Stock, when issued, may have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD,
PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER
HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE
DISCRETION OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER
OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE
LAWS.
This legend shall not be required for shares of Common Stock issued
pursuant to an effective registration statement under the Securities Act and in
accordance with applicable state securities laws.
13. Withholding Taxes.
By acceptance of the Option, the optionee will be deemed to (i) agree to
reimburse the Company or Related Entity by which the optionee is employed for
any federal, state, or local taxes
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<PAGE>
required by any government to be withheld or otherwise deducted by such
corporation in respect of the optionee's exercise of all or a portion of the
Option; (ii) authorize the Company or any Related Entity by which the optionee
is employed to withhold from any cash compensation paid to the optionee or in
the optionee's behalf, an amount sufficient to discharge any federal, state, and
local taxes imposed on the Company, or the Related Entity by which the optionee
is employed, and which otherwise has not been reimbursed by the optionee, in
respect of the optionee's exercise of all or a portion of the Option; and (iii)
agree that the Company may, in its discretion, hold the stock certificate to
which the optionee is entitled upon exercise of the Option as security for the
payment of the aforementioned withholding tax liability, until cash sufficient
to pay that liability has been accumulated, and may, in its discretion, effect
such withholding by retaining shares issuable upon the exercise of the Option
having a Fair Market Value on the date of exercise which is equal to the amount
to be withheld.
14. Costs and Expenses.
The costs and expenses of administering the Plan shall be borne by the
Company and shall not be charged against any Option nor to any employee
receiving an Option.
15. Funding of Plan.
The Plan shall be unfunded. The Company shall not be required to make any
segregation of assets to assure the payment of any Option under the Plan.
16. Other Incentive Plans.
The adoption of the Plan does not preclude the adoption by appropriate
means of any other incentive plan for employees.
17. Effect on Employment.
Nothing contained in the Plan or any agreement related hereto or referred
to herein shall affect, or be construed as affecting, the terms of employment of
any Key Employee except to the extent specifically provided herein or therein.
Nothing contained in the Plan or any agreement related hereto or referred to
herein shall impose, or be construed as imposing, an obligation on (i) the
Company or any Related Entity to continue the employment of any Key Employee,
and (ii) any Key Employee to remain in the employ of the Company or any Related
Entity.
18. Definitions.
In addition to the terms specifically defined elsewhere in the Plan, as
used in the Plan, the following terms shall have the respective meanings
indicated:
"Adjustment Event" shall have the meaning set forth in Section 10 hereof.
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<PAGE>
"Affiliate" shall mean, as to any Person, a Person that directly, or
indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, such Person.
"Board of Directors" shall have the meaning set forth in Section 2 hereof.
"Change of Control" shall mean the first to occur of the following events:
(i) any sale, lease, exchange, or other transfer (in one transaction or
series of related transactions) of all or substantially all of the assets
of the Company to any Person or group of related Persons as determined
pursuant to Section 13(d) of the Exchange Act and the regulations and
interpretations thereunder (a "Group") other than one or more members of
the HMC Group, (ii) a majority of the Board of Directors of the Company
shall consist of Persons who are not Continuing Directors; or (iii) the
acquisition by any Person or Group other than one or more members of the
HMC Group of the power, directly or indirectly, to vote or direct the
voting of securities having more than 50% of the ordinary voting power for
the election of directors of the Company.
"Code" shall have the meaning set forth in Section 1 hereof.
"Committee" shall have the meaning set forth in Section 2 hereof.
"Common Stock" shall have the meaning set forth in Section 3 hereof.
"Company" shall have the meaning set forth in Section 1 hereof.
"Continuing Director" shall mean, as of the date of determination, any
Person who (i) was a member of the Board of Directors of the Company on
the date of adoption of this Plan, or (ii) was nominated for election or
elected to the Board of Directors of the Company with the affirmative vote
of a majority of the Continuing Directors who were members of such Board
of Directors at the time of such nomination or election.
"Disability" shall mean permanent disability as defined under the
appropriate provisions of the applicable long-term disability plan
maintained for the benefit of employees of the Company or any Related
Entity who are regularly employed on a salaried basis unless another
meaning shall be agreed to in writing by the Committee and the optionee;
provided, however, that, in the case of an Incentive Option, "disability"
shall have the meaning specified in Section 22(e)(3) of the Code.
"Eligible Non-Employee" shall have the meaning set forth in Section 4
hereof.
"Exchange Act" shall have the meaning set forth in Section 2 hereof.
"Fair Market Value" shall, as it relates to the Common Stock, mean the
average of the high and low prices of such Common Stock as reported on the
principal national securities
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exchange on which the shares of Common Stock are then listed or the NASDAQ
National Market, as applicable, on the date specified herein for such a
determination; or, if there were no sales on such date, on the next
preceding day on which there were sales; or, if such Common Stock is not
listed on a national securities exchange, the last reported bid price in
the over-the-counter market; or, if such shares are not traded in the
over-the-counter market, the per share cash price for which all of the
outstanding Common Stock could be sold to a willing purchaser in an arms
length transaction (without regard to minority discount, absence of
liquidity, or transfer restrictions imposed by any applicable law or
agreement) at the date of the event giving rise to a need for a
determination. Except as may be otherwise expressly provided in a
particular Option, Fair Market Value shall be determined in good faith by
the Committee.
"Good Cause", with respect to any Key Employee, shall mean (unless another
definition is agreed to in writing by the Company and the optionee)
termination by action of the Board of Directors because of: (A) the
optionee's conviction of, or plea of nolo contendere to, a felony or a
crime involving moral turpitude; (B) the optionee's personal dishonesty,
willful misconduct, willful violation of any law, rule, or regulation
(other than minor traffic violations or similar offenses) or breach of
fiduciary duty which involves personal profit; (C) the optionee's willful
commission of material mismanagement in the conduct of his or her duties
as assigned to him by the Board of Directors or the optionee's supervising
officer or officers of the Company; (D) the optionee's willful failure to
execute or comply with the policies of the Company or his or her stated
duties as established by the Board of Directors or the optionee's
supervising officer or officers of the Company, or the optionee's
intentional failure to perform the optionee's stated duties; or (E)
substance abuse or addiction on the part of the optionee. "Good Cause",
with respect to any Eligible Non-Employee, shall mean (unless another
definition is agreed to in writing by the Company and the optionee)
termination by action of the Board of Directors because of: (A) the
optionee's conviction of, or plea of nolo contendere to, a felony or a
crime involving moral turpitude; (B) the optionee's personal dishonesty,
willful misconduct, willful violation of any law, rule, or regulation
(other than minor traffic violations or similar offenses) or breach of
fiduciary duty which involves personal profit; (C) the optionee's willful
commission of material mismanagement in providing services to the Company
or any Related Entity; (D) the optionee's willful failure to comply with
the policies of the Company in providing services to the Company or any
Related Entity, or the optionee's intentional failure to perform the
services for which the optionee has been engaged; (E) substance abuse or
addiction on the part of the optionee; or (F) the optionee's willfully
making any material misrepresentation or willfully omitting to disclose
any material fact to the board of directors of the Company or any Related
Entity with respect to the business of the Company or any Related Entity.
"HMC Group" shall mean Hicks, Muse, Tate & Furst Incorporated, its
Affiliates, and their respective employees, officers, partners and
directors (and members of their respective families and trusts for the
primary benefit of such family members).
"Holding Period" shall have the meaning set forth in subsection 5(d)
hereof.
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<PAGE>
"Incentive Options" shall have the meaning set forth in Section 6 hereof.
The term "including" when used herein shall mean "including, but not
limited to".
"Key Employee" shall have the meaning set forth in Section 4 hereof.
"Non-Qualified Options" shall have the meaning set forth in Section 6
hereof.
"Options" shall have the meaning set forth in Section 1 hereof.
"Performance-Based Options" shall have the meaning set forth in Section 8
hereof.
"Person" shall have the meaning set forth in Section 4 hereof.
"Plan" shall have the meaning set forth in Section 1 hereof.
"Related Entities" shall have the meaning set forth in Section 1 hereof.
"Rule 16b-3" shall have the meaning set forth in Section 2 hereof.
"Securities Act" shall have the meaning set forth in Section 11 hereof.
"Term" shall have the meaning set forth in Section 20 hereof.
19. Amendment of Plan.
The Board of Directors shall have the right to amend, modify, suspend or
terminate the Plan at any time; provided, that no amendment shall be made which
shall increase the total number of shares of the Common Stock which may be
issued and sold pursuant to Options granted under the Plan or decrease the
minimum Option exercise price in the case of an Incentive Option, or modify the
provisions of the Plan relating to eligibility with respect to Incentive Options
unless such amendment is made by or with the approval of the stockholders. The
Board of Directors shall be authorized to amend the Plan and the Options granted
thereunder, without the consent or joinder of any optionee or other Person, in
such manner as may be deemed necessary or appropriate by the Board of Directors
in order to cause the Plan and the Options granted thereunder (i) to qualify as
"incentive stock options" within the meaning of Section 422 of the Code or (ii)
to comply with Rule 16b-3 (or any successor rule) under the Exchange Act (or any
successor law) and the regulations (including any temporary regulations)
promulgated thereunder or (iii) to comply with Section 162(m) of the Code (or
any successor section) and any regulations (including any temporary regulations)
promulgated thereunder. Except as provided above, no amendment, modification,
suspension or termination of the Plan shall materially impair the value of any
Options previously granted under the Plan, without the consent of the holder
thereof.
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20. Effective Date and Term.
The Plan shall be effective as of August __, 1998, and shall be void
retroactively as to any Incentive Option if not approved by the stockholders of
the Company within twelve months thereafter. The Plan shall terminate on the
tenth anniversary of the date of adoption of the Plan or the date of approval of
the Plan by the stockholders of the Company, whichever is earlier, unless sooner
terminated by the Board of Directors (the "Term").
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<PAGE>
EXHIBIT C
CERTIFICATE OF INCORPORATION
OF
OMNIAMERICA, INC.
------------------------------------------------------------------------------
I, the undersigned natural person acting as an incorporator of a
corporation (hereinafter called the "Corporation") under the General Corporation
Law of the State of Delaware, do hereby adopt the following Certificate of
Incorporation for the Corporation:
FIRST: The name of the Corporation is OmniAmerica, Inc.
SECOND: The registered office of the Corporation in the State of Delaware
is located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
THIRD: The purpose for which the Corporation is organized is to engage in
any and all lawful acts and activity for which corporations may be organized
under the General Corporation Law of Delaware. The Corporation will have
perpetual existence.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 110,000,000 shares of capital stock, classified as
(i) 10,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock"), and (ii) 100,000,000 shares of common stock, par value $.01 per share
("Common Stock").
The designations and the powers, preferences, rights, qualifications,
limitations, and restrictions of the Preferred Stock and Common Stock are as
follows:
1. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time in one or more
classes or series, the shares of each class or series to have such designations
and powers, preferences, and rights, and qualifications, limitations, and
restrictions thereof, as are stated and expressed herein and in the resolution
or resolutions providing for the issue of such class or series adopted by the
Board of Directors of the Corporation as hereafter prescribed.
(b) Authority is hereby expressly granted to and vested in the Board of
Directors of the Corporation to authorize the issuance of the Preferred Stock
from time to time in one or more classes or series, and with respect to each
class or series of the Preferred Stock, to fix and state by
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the resolution or resolutions from time to time adopted providing for the
issuance thereof the following:
(i) whether or not the class or series is to have voting rights, full,
special, or limited, or is to be without voting rights, and whether or not
such class or series is to be entitled to vote as a separate class either
alone or together with the holders of one or more other classes or series
of stock;
(ii) the number of shares to constitute the class or series and the
designations thereof;
(iii) the preferences, and relative, participating, optional, or other
special rights, if any, and the qualifications, limitations, or
restrictions thereof, if any, with respect to any class or series;
(iv) whether or not the shares of any class or series shall be
redeemable at the option of the Corporation or the holders thereof or upon
the happening of any specified event, and, if redeemable, the redemption
price or prices (which may be payable in the form of cash, notes,
securities, or other property), and the time or times at which, and the
terms and conditions upon which, such shares shall be redeemable and the
manner of redemption;
(v) whether or not the shares of a class or series shall be subject to
the operation of retirement or sinking funds to be applied to the purchase
or redemption of such shares for retirement, and, if such retirement or
sinking fund or funds are to be established, the annual amount thereof, and
the terms and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in cash, stock
of the Corporation, or other property, the conditions upon which and the
times when such dividends are payable, the preference to or the relation to
the payment of dividends payable on any other class or classes or series of
stock, whether or not such dividends shall be cumulative or noncumulative,
and if cumulative, the date or dates from which such dividends shall
accumulate;
(vii) the preferences, if any, and the amounts thereof which the
holders of any class or series thereof shall be entitled to receive upon
the voluntary or involuntary dissolution of, or upon any distribution of
the assets of, the Corporation;
(viii) whether or not the shares of any class or series, at the option
of the Corporation or the holder thereof or upon the happening of any
specified event, shall be convertible into or exchangeable for, the shares
of any other class or classes or of any other series of the same or any
other class or classes of stock, securities, or other property of the
Corporation and the conversion price or prices or ratio or ratios or the
rate or rates at which such exchange may be made, with such adjustments, if
any, as shall be stated and expressed or provided for in such resolution or
resolutions; and
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(ix) such other special rights and protective provisions with respect
to any class or series as may to the Board of Directors of the Corporation
seem advisable.
(c) The shares of each class or series of the Preferred Stock may vary from
the shares of any other class or series thereof in any or all of the foregoing
respects. The Board of Directors of the Corporation may increase the number of
shares of the Preferred Stock designated for any existing class or series by a
resolution adding to such class or series authorized and unissued shares of the
Preferred Stock not designated for any other class or series. The Board of
Directors of the Corporation may decrease the number of shares of the Preferred
Stock designated for any existing class or series by a resolution subtracting
from such class or series authorized and unissued shares of the Preferred Stock
designated for such existing class or series, and the shares so subtracted shall
become authorized, unissued, and undesignated shares of the Preferred Stock.
2. Provisions Relating to the Common Stock.
(a) Each share of Common Stock of the Corporation shall have identical
rights and privileges in every respect. The holders of shares of Common Stock
shall be entitled to vote upon all matters submitted to a vote of the
stockholders of the Corporation and shall be entitled to one vote for each share
of Common Stock held.
(b) Subject to the prior rights and preferences, if any, applicable to
shares of the Preferred Stock or any series thereof, the holders of shares of
the Common Stock shall be entitled to receive such dividends (payable in cash,
stock, or otherwise) as may be declared thereon by the board of directors at any
time and from time to time out of any funds of the Corporation legally available
therefor.
(c) In the event of any voluntary or involuntary liquidation, dissolution,
or winding-up of the Corporation, after distribution in full of the preferential
amounts, if any, to be distributed to the holders of shares of the Preferred
Stock or any series thereof, the holders of shares of the Common Stock shall be
entitled to receive all of the remaining assets of the Corporation available for
distribution to its stockholders, ratably in proportion to the number of shares
of the Common Stock held by them. A liquidation, dissolution, or winding-up of
the Corporation, as such terms are used in this Paragraph (c), shall not be
deemed to be occasioned by or to include any consolidation or merger of the
Corporation with or into any other corporation or corporations or other entity
or a sale, lease, exchange, or conveyance of all or a part of the assets of the
Corporation.
3. General.
(a) Subject to the foregoing provisions of this Certificate of
Incorporation, the Corporation may issue shares of its Preferred Stock and
Common Stock from time to time for such consideration (not less than the par
value thereof) as may be fixed by the board of directors of the Corporation,
which is expressly authorized to fix the same in its absolute and uncontrolled
discretion subject to the foregoing conditions. Shares so issued for which the
consideration shall have been paid or delivered to the Corporation shall be
deemed fully paid stock and shall not be liable to any further
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call or assessment thereon, and the holders of such shares shall not be liable
for any further payments in respect of such shares.
(b) The Corporation shall have authority to create and issue rights and
options entitling their holders to purchase shares of the Corporation's capital
stock of any class or series or other securities of the Corporation, and such
rights and options shall be evidenced by instrument(s) approved by the Board of
Directors of the Corporation, or any duly authorized committee thereof. The
Board of Directors of the Corporation, or any duly authorized committee thereof,
shall be empowered to set the exercise price, duration, times for exercise, and
other terms of such options or rights; provided, however, that the consideration
to be received for any shares of capital stock subject thereto shall not be less
than the par value thereof.
FIFTH: The name of the incorporator of the Corporation is Daniel S. Dross,
and the mailing address of such incorporator is 200 Crescent Court, Suite
1600, Dallas, Texas 75201-6950.
SIXTH: The composition of the Board of Directors of the Corporation shall
be as follows:
1. Three Classes of Directors.
The Board of Directors of the Corporation shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall consist as
nearly as possible of one-third (1/3) of the total number of directors making up
the entire Board of Directors of the Corporation. The term of office of the
initial Class I directors shall expire at the 1998 annual meeting of
stockholders, the term of office of the initial Class II directors shall expire
at the 1999 annual meeting of stockholders and the term of office of the initial
Class III directors shall expire at the 2000 annual meeting of stockholders,
with each director to hold office until his or her successor shall have been
duly elected and qualified. At each annual meeting of stockholders, commencing
with the 1998 annual meeting, directors elected to succeed those directors whose
terms then expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible, but in no case will a decrease in the
number of directors shorten the term of any incumbent director.
2. New Directorship or Vacancy.
The term of a director elected to fill a newly created directorship or
other vacancy shall expire at the same time as the terms of the other directors
of the class for which the new directorship is created or in which the vacancy
occurred.
3. Directors Elected by Preferred Stockholders.
Notwithstanding Paragraphs 1 and 2 of this Article Sixth, whenever the
holders of any one or more classes or series of Preferred Stock shall have the
right, voting separately by class or
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series, to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Certificate of
Incorporation or the resolutions adopted by the Board of Directors of the
Corporation pursuant to Paragraph 1 of Article Fourth hereof, and such directors
so elected shall not be divided into classes pursuant to Paragraph 1 of this
Article Sixth unless expressly provided by such terms.
SEVENTH: Directors of the Corporation need not be elected by written ballot
unless the bylaws of the Corporation otherwise provide.
EIGHTH: The Board of Directors of the Corporation shall have the power to
adopt, amend, and repeal the bylaws of the Corporation.
NINTH: No contract or transaction between the Corporation and one or more
of its directors, officers, or stockholders or between the Corporation and any
person (as used herein "person" means other corporation, partnership,
association, firm, trust, joint venture, political subdivision, or
instrumentality) or other organization in which one or more of its directors,
officers, or stockholders are directors, officers, or stockholders, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee which authorizes the contract or transaction, or solely
because his, her, or their votes are counted for such purpose, if: (i) the
material facts as to his or her relationship or interest and as to the contract
or transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (iii) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved, or ratified by the Board of Directors of the Corporation, a committee
thereof, or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
TENTH: The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by reason
of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the Delaware General Corporation Law, as the same
exists or may hereafter be amended. Such right shall be a contract right and as
such shall run to the benefit of any director or officer who is elected and
accepts the position of director or officer of the Corporation or elects to
continue to serve as a director or officer of the Corporation while this Article
Tenth is in effect. Any repeal or amendment of this Article Tenth shall be
prospective only and shall not limit the rights of any such director or officer
or the obligations of the Corporation with respect to any claim arising
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from or related to the services of such director or officer in any of the
foregoing capacities prior to any such repeal or amendment to this Article
Tenth. Such right shall include the right to be paid by the Corporation expenses
incurred in defending any such proceeding in advance of its final disposition to
the maximum extent permitted under the Delaware General Corporation Law, as the
same exists or may hereafter be amended. If a claim for indemnification or
advancement of expenses hereunder is not paid in full by the Corporation within
sixty (60) days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim, and if successful in whole or in part,
the claimant shall also be entitled to be paid the expenses of prosecuting such
claim. It shall be a defense to any such action that such indemnification or
advancement of costs of defense are not permitted under the Delaware General
Corporation Law, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors or any committee thereof, independent legal counsel, or stockholders)
to have made its determination prior to the commencement of such action that
indemnification of, or advancement of costs of defense to, the claimant is
permissible in the circumstances nor an actual determination by the Corporation
(including its Board of Directors or any committee thereof, independent legal
counsel, or stockholders) that such indemnification or advancement is not
permissible shall be a defense to the action or create a presumption that such
indemnification or advancement is not permissible. In the event of the death of
any person having a right of indemnification under the foregoing provisions,
such right shall inure to the benefit of his or her heirs, executors,
administrators, and personal representatives. The rights conferred above shall
not be exclusive of any other right which any person may have or hereafter
acquire under any statute, bylaw, resolution of stockholders or directors,
agreement, or otherwise.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
ELEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. Any repeal or amendment of this Article Eleventh by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of the
Corporation is not personally liable as set forth in the foregoing provisions of
this Article Eleventh, a director shall not be liable to the Corporation or its
stockholders to such further extent as permitted by any law hereafter enacted,
including without limitation any subsequent amendment to the Delaware General
Corporation Law.
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I, the undersigned, for the purpose of forming the Corporation under the
laws of the State of Delaware, do make, file, and record this Certificate of
Incorporation and do certify that this is my act and deed and that the facts
stated herein are true and, accordingly, I do hereunto set my hand on this ____
day of July, 1998.
/s/ Daniel S. Dross
---------------------------
Daniel S. Dross
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EXHIBIT D
BYLAWS
OF
OMNIAMERICA, INC.
A Delaware Corporation
PREAMBLE
These bylaws are subject to, and governed by, the General Corporation Law
of the State of Delaware (the "Delaware General Corporation Law") and the
certificate of incorporation of OmniAmerica, Inc., a Delaware corporation (the
"Corporation"). In the event of a direct conflict between the provisions of
these bylaws and the mandatory provisions of the Delaware General Corporation
Law or the provisions of the certificate of incorporation of the Corporation,
such provisions of the Delaware General Corporation Law or the certificate of
incorporation of the Corporation, as the case may be, will be controlling.
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
the State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the board of directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the Corporation
shall be held each calendar year on such date and at such time as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting or in a duly executed waiver of notice of such meeting. At such
meeting, the stockholders shall elect directors and transact such other business
as may properly be brought before the meeting.
2.2 Special Meeting. A special meeting of the stockholders may be called
at any time by the Chairman of the Board, the Chief Executive Officer or the
board of directors. Further, a special meeting of the stockholders shall be
called by the Chief Executive Officer or the Secretary at the request in writing
of the stockholders of record of not less than a majority of all shares entitled
to vote at such meeting or as otherwise provided by the certificate of
incorporation of the Corporation.
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A special meeting shall be held on such date and at such time as shall be
designated by the person(s) calling the meeting and stated in the notice of the
meeting or in a duly executed waiver of notice of such meeting. Only such
business shall be transacted at a special meeting as may be stated or indicated
in the notice of such meeting or in a duly executed waiver of notice of such
meeting.
2.3 Place of Meetings. An annual meeting of stockholders may be held at
any place within or without the State of Delaware designated by the board of
directors. A special meeting of stockholders may be held at any place within or
without the State of Delaware designated in the notice of the meeting or a duly
executed waiver of notice of such meeting. Meetings of stockholders shall be
held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.
2.4 Notice. Written or printed notice stating the place, day, and time of
each meeting of the stockholders and, in case of a special meeting, the purpose
or purposes for which the meeting is called shall be delivered not less than ten
nor more than 60 days before the date of the meeting, either personally or by
mail, by or at the direction of the Chief Executive Officer, the Secretary, or
the officer or person(s) calling the meeting, to each stockholder of record
entitled to vote at such meeting. If such notice is to be sent by mail, notice
is given when deposited in the United States mail, postage prepaid, directed to
such stockholder at his address as it appears on the records of the Corporation,
unless he shall have filed with the Secretary of the Corporation a written
request that notices to him be mailed to some other address, in which case it
shall be directed to him at such other address. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy and shall not, at the beginning of
such meeting, object to the transaction of any business because the meeting is
not lawfully called or convened, or who shall, either before or after the
meeting, submit a signed waiver of notice, in person or by proxy.
2.5 Voting List. At least ten days before each meeting of stockholders,
the Secretary or other officer of the Corporation who has charge of the
Corporation's stock ledger, either directly or through another officer appointed
by him or through a transfer agent appointed by the board of directors, shall
prepare and make a complete list of stockholders entitled to vote thereat,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. For a period of
at least ten days prior to such meeting, such list shall be kept on file at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of meeting or a duly executed waiver of notice of such
meeting or, if not so specified, at the place where the meeting is to be held
and shall be open to examination by any stockholder, for any purpose germane to
the meeting, during ordinary business hours. Such list shall also be produced at
such meeting and kept at the meeting at all times during such meeting and may be
inspected by any stockholder who is present.
2.6 Quorum. The holders of a majority of the outstanding shares entitled
to vote on a matter, present in person or by proxy, shall constitute a quorum at
any meeting of stockholders, except as otherwise provided by law, the
certificate of incorporation of the Corporation, or these by-laws. If a quorum
shall not be present, in person or by proxy, at any meeting of stockholders, the
stockholders entitled to vote thereat who are present, in person or by proxy,
or, if no stockholder entitled to vote is present, any officer of the
Corporation may adjourn the meeting from time to time, without notice other than
announcement at the meeting (unless the board of directors, after such
adjournment, fixes a new record date for the adjourned meeting), until a quorum
shall be present, in
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person or by proxy. At any adjourned meeting at which a quorum shall be present,
in person or by proxy, any business may be transacted which may have been
transacted at the original meeting had a quorum been present; provided that, 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
adjourned meeting.
2.7 Required Vote; Withdrawal of Quorum. When a quorum is present at any
meeting, the vote of the holders of at least a majority of the outstanding
shares entitled to vote who are present, in person or by proxy, shall decide any
question brought before such meeting, unless the question is one on which, by
express provision of statute, the certificate of incorporation of the
Corporation or any amendment(s) thereto, or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question. The stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
2.8 Method of Voting; Proxies. Except as otherwise provided in the
certificate of incorporation of the Corporation or by law, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. Elections of directors need
not be by written ballot. At any meeting of stockholders, every stockholder
having the right to vote may vote either in person or by a proxy executed in
writing by the stockholder or by another person or persons duly authorized under
Section 212 of the Delaware General Corporation Law to act for him as proxy.
Each such proxy shall be filed with the Secretary of the Corporation before or
at the time of the meeting. No proxy shall be valid after three years from the
date of its execution, unless otherwise provided in the proxy. If no date is
stated in a proxy, such proxy shall be presumed to have been executed on the
date of the meeting at which it is to be voted. Each proxy shall be revocable
unless expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power or unless otherwise made
irrevocable by law.
2.9 Record Date. (a) For the purpose of determining stockholders entitled
to notice of or to vote at any meeting of stockholders, or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the board of directors, and which record date shall not be more than 60 days
and not less than ten days prior to such meeting or other action. If no record
date is fixed:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day next preceding the
day on which the meeting is held.
(ii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
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(iii) A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a
new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by law or these bylaws, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
in the State of Delaware, principal place of business, or such officer or agent
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the board of directors and prior action by
the board of directors is required by law or these bylaws, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
board of directors adopts the resolution taking such prior action.
2.10 Conduct of Meeting. The Chairman of the Board, if such office has
been filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the Chief Executive Officer shall preside at all meetings of
stockholders. The Secretary shall keep the records of each meeting of
stockholders. In the absence or inability to act of any such officer, such
officer's duties shall be performed by the officer given the authority to act
for such absent or non-acting officer under these bylaws or by some person
appointed by the meeting.
2.11 Inspectors. The board of directors may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting and make a
written report thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, and the validity and
effect of proxies and ballots and shall receive votes, ballots, or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots, or consents, determine the
results, determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by them, certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. The inspector(s) shall
perform his duties in accordance with Section 231 of the Delaware General
Corporation Laws. On request of the chairman of the meeting, the inspectors
shall make a report in writing of any challenge, request, or matter determined
by them and
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shall execute a certificate of any fact found by them. No director or candidate
for the office of director shall act as an inspector of an election of
directors. Inspectors need not be stockholders.
ARTICLE THREE: DIRECTORS
3.1 Management. The business and affairs of the Corporation shall be
managed by the board of directors. Subject to the restrictions imposed by law,
the certificate of incorporation of the Corporation, or these bylaws, the board
of directors may exercise all the powers of the Corporation.
3.2 Number; Qualification; Election; Term. The number of directors which
shall constitute the entire board of directors shall be not less than one. The
first board of directors shall consist of the number of directors, if any, named
in the certificate of incorporation of the Corporation, in which case a change
in the number of directors shall be made only by amendment of the certificate.
If no directors are named in the certificate of incorporation, the first board
of directors shall consist of the number of directors elected by the
incorporator(s) at an organizational meeting or by unanimous written consent in
lieu thereof. Thereafter, within the limits above specified, the number of
directors which shall constitute the entire board of directors shall be
determined by resolution of the board of directors or by resolution of the
stockholders at the annual meeting thereof or at a special meeting thereof
called for that purpose. Except as otherwise required by law, the certificate of
incorporation of the Corporation, or these bylaws, the directors shall be
elected at an annual meeting of stockholders at which a quorum is present.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy and entitled to vote on the election of
directors. Each director so chosen shall hold office until the first annual
meeting of stockholders held after his election and until his successor is
elected and qualified or, if earlier, until his death, resignation, or removal
from office. None of the directors need be a stockholder of the Corporation or a
resident of the State of Delaware. Each director must have attained the age of
majority.
3.3 Change in Number. No decrease in the number of directors constituting
the entire board of directors shall have the effect of shortening the term of
any incumbent director.
3.4 Removal. Except as otherwise provided in the certificate of
incorporation of the Corporation or these bylaws, at any meeting of stockholders
called expressly for that purpose, any director or the entire board of directors
may be removed, with or without cause, by a vote of the holders of a majority of
the shares then entitled to vote on the election of directors; provided,
however, that so long as stockholders have the right to cumulate votes in the
election of directors pursuant to the certificate of incorporation of the
Corporation, if less than the entire board of directors is to be removed, no one
of the directors may be removed without cause if the votes cast against his
removal would be sufficient to elect him if then cumulatively voted at an
election of the entire board of directors.
3.5 Vacancies. Vacancies and newly-created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by the
sole remaining director, and each director so chosen shall hold office until the
first annual meeting of stockholders held after his election and until his
successor is elected and qualified or, if
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earlier, until his death, resignation, or removal from office. If there are no
directors in office, an election of directors may be held in the manner provided
by statute. If, at the time of filling any vacancy or any newly-created
directorship, the directors then in office shall constitute less than a majority
of the whole board of directors (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least 10% of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly-created directorships,
or to replace the directors chosen by the directors then in office. Except as
otherwise provided in these bylaws, when one or more directors shall resign from
the board of directors, effective at a future date, a majority of the directors
then in office, including those who have so resigned, shall have the power to
fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in these bylaws with respect to the filling of
other vacancies.
3.6 Meetings of Directors. The directors may hold their meetings and may
have an office and keep the books of the Corporation, except as otherwise
provided by statute, in such place or places within or without the State of
Delaware as the board of directors may from time to time determine or as shall
be specified in the notice of such meeting or duly executed waiver of notice of
such meeting.
3.7 First Meeting. Each newly elected board of directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of stockholders, and no notice of such meeting shall be necessary.
3.8 Election of Officers. At the first meeting of the board of directors
after each annual meeting of stockholders at which a quorum shall be present,
the board of directors shall elect the officers of the Corporation.
3.9 Regular Meetings. Regular meetings of the board of directors shall be
held at such times and places as shall be designated from time to time by
resolution of the board of directors.
Notice of such regular meetings shall not be required.
3.10 Special Meetings. Special meetings of the board of directors shall be
held whenever called by the Chairman of the Board, the Chief Executive Officer,
or any director.
3.11 Notice. The Secretary shall give notice of each special meeting to
each director at least 24 hours before the meeting. Notice of any such meeting
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice to him. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting.
3.12 Quorum; Majority Vote. At all meetings of the board of directors, a
majority of the directors fixed in the manner provided in these bylaws shall
constitute a quorum for the transaction of business. If at any meeting of the
board of directors there be less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to time
without
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further notice. Unless the act of a greater number is required by law, the
certificate of incorporation of the Corporation, or these bylaws, the act of a
majority of the directors present at a meeting at which a quorum is in
attendance shall be the act of the board of directors. At any time that the
certificate of incorporation of the Corporation provides that directors elected
by the holders of a class or series of stock shall have more or less than one
vote per director on any matter, every reference in these bylaws to a majority
or other proportion of directors shall refer to a majority or other proportion
of the votes of such directors.
3.13 Procedure. At meetings of the board of directors, business shall be
transacted in such order as from time to time the board of directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise unable to act, the
Chief Executive Officer shall preside at all meetings of the board of directors.
In the absence or inability to act of either such officer, a chairman shall be
chosen by the board of directors from among the directors present. The Secretary
of the Corporation shall act as the secretary of each meeting of the board of
directors unless the board of directors appoints another person to act as
secretary of the meeting. The board of directors shall keep regular minutes of
its proceedings which shall be placed in the minute book of the Corporation.
3.14 Presumption of Assent. A director of the Corporation who is present
at the meeting of the board of directors at which action on any corporate matter
is taken shall be presumed to have assented to the action unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward any dissent by certified
or registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
3.15 Compensation. The board of directors shall have the authority to fix
the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
ARTICLE FOUR: COMMITTEES
4.1 Designation. The board of directors may, by resolution adopted by a
majority of the entire board of directors, designate one or more committees.
4.2 Number; Qualification; Term. Each committee shall consist of one or
more directors appointed by resolution adopted by a majority of the entire board
of directors. The number of committee members may be increased or decreased from
time to time by resolution adopted by a majority of the entire board of
directors. Each committee member shall serve as such until the earliest of (i)
the expiration of his term as director, (ii) his resignation as a committee
member or as a director, or (iii) his removal as a committee member or as a
director.
4.3 Authority. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
powers and authority of the board
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of directors in the management of the business and affairs of the Corporation
except to the extent expressly restricted by law, the certificate of
incorporation of the Corporation, or these bylaws.
4.4 Committee Changes. The board of directors shall have the power at any
time to fill vacancies in, to change the membership of, and to discharge any
committee.
4.5 Alternate Members of Committees. The board of directors may designate
one or more directors as alternate members of any committee. Any such alternate
member may replace any absent or disqualified member at any meeting of the
committee. If no alternate committee members have been so appointed to a
committee or each such alternate committee member is absent or disqualified, the
member or members of such committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member.
4.6 Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.7 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least two days before such special meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting of any committee need be
specified in the notice or waiver of notice of any special meeting.
4.8 Quorum; Majority Vote. At meetings of any committee, a majority of the
number of members designated by the board of directors shall constitute a quorum
for the transaction of business. If a quorum is not present at a meeting of any
committee, a majority of the members present may adjourn the meeting from time
to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the certificate of incorporation of
the Corporation, or these bylaws.
4.9 Minutes. Each committee shall cause minutes of its proceedings to be
prepared and shall report the same to the board of directors upon the request of
the board of directors. The minutes of the proceedings of each committee shall
be delivered to the Secretary of the Corporation for placement in the minute
books of the Corporation.
4.10 Compensation. Committee members may, by resolution of the board of
directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.11 Responsibility. The designation of any committee and the delegation
of authority to it shall not operate to relieve the board of directors or any
director of any responsibility imposed upon it or such director by law.
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ARTICLE FIVE: NOTICE
5.1 Method. Whenever by statute, the certificate of incorporation of the
Corporation, or these bylaws, notice is required to be given to any committee
member, director, or stockholder and no provision is made as to how such notice
shall be given, personal notice shall not be required and any such notice may be
given (a) in writing, by mail, postage prepaid, addressed to such committee
member, director, or stockholder at his address as it appears on the books or
(in the case of a stockholder) the stock transfer records of the Corporation, or
(b) by any other method permitted by law (including but not limited to overnight
courier service, telegram, telex, or telefax). Any notice required or permitted
to be given by mail shall be deemed to be delivered and given at the time when
the same is deposited in the United States mail as aforesaid. Any notice
required or permitted to be given by overnight courier service shall be deemed
to be delivered and given at the time delivered to such service with all charges
prepaid and addressed as aforesaid. Any notice required or permitted to be given
by telegram, telex, or telefax shall be deemed to be delivered and given at the
time transmitted with all charges prepaid and addressed as aforesaid.
5.2 Waiver. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a stockholder, director, or committee
member at a meeting shall constitute a waiver of notice of such meeting, except
where such person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office. The officers of the Corporation shall
be a Chief Executive Officer, a President, a Secretary, and such other officers
as the board of directors may from time to time elect or appoint, including a
Chairman of the Board, one or more Vice Presidents (with each Vice President to
have such descriptive title, if any, as the board of directors shall determine),
and a Treasurer. Each officer shall hold office until his successor shall have
been duly elected and shall have qualified, until his death, or until he shall
resign or shall have been removed in the manner hereinafter provided. Any two or
more offices may be held by the same person. None of the officers need be a
stockholder or a director of the Corporation or a resident of the State of
Delaware.
6.2 Removal. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.3 Vacancies. Any vacancy occurring in any office of the Corporation (by
death, resignation, removal, or otherwise) may be filled by the board of
directors.
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6.4 Authority. Officers shall have such authority and perform such duties
in the management of the Corporation as are provided in these bylaws or as may
be determined by resolution of the board of directors not inconsistent with
these bylaws.
6.5 Compensation. The compensation, if any, of officers and agents shall
be fixed from time to time by the board of directors; provided, however, that
the board of directors may delegate the power to determine the compensation of
any officer and agent (other than the officer to whom such power is delegated)
to the Chairman of the Board or the Chief Executive Officer.
6.6 Chairman of the Board. The Chairman of the Board, if elected by the
board of directors, shall have such powers and duties as may be prescribed by
the board of directors. Such officer shall preside at all meetings of the
stockholders and of the board of directors. Such officer may sign all
certificates for shares of stock of the Corporation.
6.7 Chief Executive Officer. The Chief Executive Officer shall have
general executive charge, management, and control of the properties and
operations of the Corporation in the ordinary course of its business, with all
such powers with respect to such properties and operations as may be reasonably
incident to such responsibilities. If the board of directors has not elected a
Chairman of the Board or in the absence or inability to act of the Chairman of
the Board, the Chief Executive Officer shall exercise all of the powers and
discharge all of the duties of the Chairman of the Board. As between the
Corporation and third parties, any action taken by the Chief Executive Officer
in the performance of the duties of the Chairman of the Board shall be
conclusive evidence that there is no Chairman of the Board or that the Chairman
of the Board is absent or unable to act.
6.8 President. The President shall have such powers and duties as may be
assigned to him by the board of directors, the Chairman of the Board or the
Chief Executive Officer. In the absence or inability to act of the Chief
Executive Officer, the President shall exercise all of the powers and discharge
all of the duties of the Chief Executive Officer. As between the Corporation and
third parties, any action taken by the President in the performance of the
duties of the Chief Executive Officer shall be conclusive evidence that there is
no Chief Executive Officer or that the Chief Executive Officer is absent or
unable to act.
6.9 Vice Presidents. Each Vice President shall have such powers and duties
as may be assigned to him by the board of directors, the Chairman of the Board,
the Chief Executive Officer, or the President and (in order of their seniority
as determined by the board of directors or, in the absence of such
determination, as determined by the length of time they have held the office of
Vice President) shall exercise the powers of the President during that officer's
absence or inability to act. As between the Corporation and third parties, any
action taken by a Vice President in the performance of the duties of the
President shall be conclusive evidence of the absence or inability to act of the
President at the time such action was taken.
6.10 Treasurer. The Treasurer shall have custody of the Corporation's
funds and securities, shall keep full and accurate account of receipts and
disbursements, shall deposit all monies and valuable effects in the name and to
the credit of the Corporation in such depository or depositories as may be
designated by the board of directors, and shall perform such other duties as may
be prescribed by the board of directors, the Chairman of the Board, or the Chief
Executive Officer.
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6.11 Assistant Treasurers. Each Assistant Treasurer shall have such powers
and duties as may be assigned to him by the board of directors, the Chairman of
the Board, or the Chief Executive Officer. The Assistant Treasurers (in the
order of their seniority as determined by the board of directors or, in the
absence of such a determination, as determined by the length of time they have
held the office of Assistant Treasurer) shall exercise the powers of the
Treasurer during that officer's absence or inability to act.
6.12 Secretary. Except as otherwise provided in these bylaws, the
Secretary shall keep the minutes of all meetings of the board of directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board or the Chief Executive Officer, in the name of the Corporation, all
contracts of the Corporation and affix the seal of the Corporation thereto. He
may sign with the Chairman of the Board or the Chief Executive Officer all
certificates for shares of stock of the Corporation, and he shall have charge of
the certificate books, transfer books, and stock papers as the board of
directors may direct, all of which shall at all reasonable times be open to
inspection by any director upon application at the office of the Corporation
during business hours. He shall in general perform all duties incident to the
office of the Secretary, subject to the control of the board of directors, the
Chairman of the Board, and the Chief Executive Officer.
6.13 Assistant Secretaries. Each Assistant Secretary shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or the Chief Executive Officer. The Assistant Secretaries
(in the order of their seniority as determined by the board of directors or, in
the absence of such a determination, as determined by the length of time they
have held the office of Assistant Secretary) shall exercise the powers of the
Secretary during that officer's absence or inability to act.
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.1 Certificates for Shares. Certificates for shares of stock of the
Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board or the
President or a Vice President and also by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any and all signatures
on the certificate may be a facsimile and may be sealed with the seal of the
Corporation or a facsimile thereof. If any officer, transfer agent, or registrar
who has signed, or whose facsimile signature has been placed upon, a certificate
has ceased to be such officer, transfer agent, or registrar before such
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if he were such officer, transfer agent, or registrar at the
date of issue. The certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued and shall exhibit the
holder's name and the number of shares.
7.2 Replacement of Lost, Stolen, or Destroyed Certificates. The board of
directors may direct a new certificate or certificates to be issued in place of
a certificate or certificates theretofore issued by the Corporation and alleged
to have been lost, stolen, or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate or certificates representing shares
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
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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
and/or to give the Corporation a bond with a surety or sureties satisfactory to
the Corporation in such sum as it may direct as indemnity against any claim, or
expense resulting from a claim, that may be made against the Corporation with
respect to the certificate or certificates alleged to have been lost, stolen, or
destroyed.
7.3 Transfer of Shares. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
7.4 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 law.
7.5 Regulations. The board of directors shall have the power and authority
to make all such rules and regulations as they may deem expedient concerning the
issue, transfer, and registration or the replacement of certificates for shares
of stock of the Corporation.
7.6 Legends. The board of directors shall have the power and authority to
provide that certificates representing shares of stock bear such legends as the
board of directors deems appropriate to assure that the Corporation does not
become liable for violations of federal or state securities laws or other
applicable law.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends. Subject to provisions of law and the certificate of
incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and payment
shall be at the discretion of the board of directors.
8.2 Reserves. There may be created by the board of directors out of funds
of the Corporation legally available therefor such reserve or reserves as the
directors from time to time, in their discretion, consider proper to provide for
contingencies, to equalize dividends, or to repair or maintain any property of
the Corporation, or for such other purpose as the board of directors shall
consider beneficial to the Corporation, and the board of directors may modify or
abolish any such reserve in the manner in which it was created.
8.3 Books and Records. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
stockholders and board of directors and shall keep at its registered office or
principal place of business, or at the office of its transfer
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agent or registrar, a record of its stockholders, giving the names and addresses
of all stockholders and the number and class of the shares held by each.
8.4 Fiscal Year. The fiscal year of the Corporation shall be fixed by the
board of directors; provided, that if such fiscal year is not fixed by the board
of directors and the selection of the fiscal year is not expressly deferred by
the board of directors, the fiscal year shall be the calendar year.
8.5 Seal. The seal of the Corporation shall be such as from time to time
may be approved by the board of directors.
8.6 Resignations. Any director, committee member, or officer may resign by
so stating at any meeting of the board of directors or by giving written notice
to the board of directors, the Chairman of the Board, the Chief Executive
Officer, or the Secretary. Such resignation shall take effect at the time
specified therein or, if no time is specified therein, immediately upon its
receipt. Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
8.7 Securities of Other Corporations. The Chairman of the Board, the Chief
Executive Officer, the President or any Vice President of the Corporation shall
have the power and authority to transfer, endorse for transfer, vote, consent,
or take any other action with respect to any securities of another issuer which
may be held or owned by the Corporation and to make, execute, and deliver any
waiver, proxy, or consent with respect to any such securities.
8.8 Telephone Meetings. Stockholders (acting for themselves or through a
proxy), members of the board of directors, and members of a committee of the
board of directors may participate in and hold a meeting of such stockholders,
board of directors, or committee by means of a conference telephone or similar
communications equipment by means of which persons participating in the meeting
can hear each other, and participation in a meeting pursuant to this section
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
8.9 Action Without a Meeting. (a) Unless otherwise provided in the
certificate of incorporation of the Corporation, any action required by the
Delaware General Corporation Law to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders (acting for themselves or
through a proxy) of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which the holders of all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Every written consent of stockholders
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty days of the earliest dated consent delivered in the
manner required by this Section 8.9(a) to the Corporation, written consents
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signed by a sufficient number of holders to take action are delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office, principal place
of business, or such officer or agent shall be by hand or by certified or
registered mail, return receipt requested.
(b) Unless otherwise restricted by the certificate of incorporation of the
Corporation or by these bylaws, any action required or permitted to be taken at
a meeting of the board of directors, or of any committee of the board of
directors, may be taken without a meeting if a consent or consents in writing,
setting forth the action so taken, shall be signed by all the directors or all
the committee members, as the case may be, entitled to vote with respect to the
subject matter thereof, and such consent shall have the same force and effect as
a vote of such directors or committee members, as the case may be, and may be
stated as such in any certificate or document filed with the Secretary of State
of the State of Delaware or in any certificate delivered to any person. Such
consent or consents shall be filed with the minutes of proceedings of the board
or committee, as the case may be.
8.10 Invalid Provisions. If any part of these bylaws shall be held invalid
or inoperative for any reason, the remaining parts, so far as it is possible and
reasonable, shall remain valid and operative.
8.11 Mortgages, etc. With respect to any deed, deed of trust, mortgage, or
other instrument executed by the Corporation through its duly authorized officer
or officers, the attestation to such execution by the Secretary of the
Corporation shall not be necessary to constitute such deed, deed of trust,
mortgage, or other instrument a valid and binding obligation against the
Corporation unless the resolutions, if any, of the board of directors
authorizing such execution expressly state that such attestation is necessary.
8.12 Headings. The headings used in these bylaws have been inserted for
administrative convenience only and do not constitute matter to be construed in
interpretation.
8.13 References. Whenever herein the singular number is used, the same
shall include the plural where appropriate, and words of any gender should
include each other gender where appropriate.
8.14 Amendments. These bylaws may be altered, amended, or repealed or new
bylaws may be adopted by the stockholders or by the board of directors at any
regular meeting of the stockholders or the board of directors or at any special
meeting of the stockholders or the board of directors; provided, that in the
case of a special meeting of stockholders, notice of such alteration, amendment,
repeal, or adoption of new bylaws be contained in the notice of such special
meeting.
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The undersigned, the Incorporator of the Corporation, hereby certifies
that the foregoing bylaws were adopted by written consent of the sole
incorporator of the Corporation as of July 23, 1998.
/s/ Daniel S. Dross
----------------------------
Daniel S. Dross
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EXHIBIT 99.1
================================================================================
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
------------------- -------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
TITLE OF CLASS
--------------
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
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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
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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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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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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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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.
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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
EXHIBIT 99.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ______________
COMMISSION FILE NUMBER 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
incorporation or organization) Identification No.)
12001 STATE HWY 14 NORTH
CEDAR CREST, NEW MEXICO 87008
(Address of principal executive offices) (Zip Code)
(505) 281-2197
(Issuer's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report.)
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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 7,907,590 on October 21, 1997
Transitional Small Business Disclosure Format (check one): Yes [ ] No [x]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
INDEX
-----
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 1997 and
September 30, 1996 (unaudited) 3
Consolidated Statements of Earnings for the three-month
periods ended September 30, 1997 and September 30, 1996
(unaudited) 4
Consolidated Statements of Cash Flows for the three-month
periods ended September 30, 1997 and September 30, 1996
(unaudited) 5
Consolidated Statements of Changes in Stockholders' Equity
for the three-month periods ended September 30, 1997
and September 30, 1996 (unaudited) 6
Notes to the Consolidated Financial Statements as of
September 30, 1997 and September 30, 1996 (unaudited) 6
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 7
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS 8
ITEM 2. - CHANGES IN SECURITIES 8
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES 8
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8
ITEM 5. - OTHER INFORMATION 8
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 9
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Balance Sheets
September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Assets
1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 472,455 $ 2,325,153
Available for sale securities 702,793 292,258
Contracts receivable, net of
allowance for doubtful accounts 11,933,750 8,548,347
Costs and estimated earnings in
excess of billings on
uncompleted contracts 3,953,024 2,411,795
Finished goods inventory 2,836,803 1,157,610
Prepaid income taxes 214,368 62,751
Other 337,078 375,016
----------- -----------
Total current assets 20,450,271 15,172,930
Property and equipment, net 8,168,037 4,188,672
Other assets 1,882,411 246,712
----------- -----------
$30,500,719 $19,608,314
=========== ===========
<CAPTION>
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 3,817,854 $ 2,558,529
Lines of credit 1,430,158 1,137,540
Note payable to stockholder 1,594,000 500,000
Billings in excess of costs and
estimated earnings on
uncompleted contracts 537,153 951,428
Accrued expenses 704,049 1,013,594
Current installments of notes payable 573,798 62,711
Current income taxes payable 305,076 92,607
Deferred income taxes 333,814 337,977
----------- -----------
Total current liabilities 9,295,902 6,654,386
Deferred income taxes 90,000 326,907
Notes payable to banks, excluding
current installments 1,732,774 1,538,747
----------- -----------
Total liabilities 11,118,676 8,520,040
----------- -----------
Stockholders' equity:
Common Stock, $0.01 par value 79,050 68,723
Additional paid-in-capital 12,105,061 5,344,298
Retained earnings 7,197,932 5,675,253
----------- -----------
Total stockholders' equity 19,382,043 11,088,274
----------- -----------
$30,500,719 $19,608,314
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Statements of Earnings
For the three-month periods ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenues earned:
Installation services $11,466,225 $12,181,104
Component sales 1,333,731 1,855,413
----------- -----------
Total revenues earned 12,799,956 14,036,517
----------- -----------
Cost of revenues earned:
Installation services 9,309,024 10,131,436
Component sales 973,679 1,430,367
Total cost of revenues earned 10,282,703 11,561,803
----------- -----------
Gross profit 2,517,253 2,474,714
Selling, general and administrative
expenses 1,210,376 1,358,756
----------- -----------
Earnings from
operations 1,306,877 1,115,958
----------- -----------
Other income (deductions):
Interest income 17,344 40,459
Interest expense (78,695) (63,257)
Other, net 51,471 12,058
----------- -----------
(9,880) (10,740)
----------- -----------
Earnings before income taxes 1,296,997 1,105,218
Income taxes 508,900 242,782
----------- -----------
Net earnings $ 788,097 $ 862,436
=========== ===========
Earnings per common share and
common equivalent shares:
Net earnings $ .10 $ .13
=========== ===========
Weighted average common shares
outstanding 8,081,354 6,881,336
=========== ===========
Pro-forma information:
Net earnings $ 788,097 $ 862,436
Pro-forma adjustment for income
taxes of acquired entity previously
filing as an S Corporation - (205,000)
----------- -----------
Pro-forma net earnings after
adjustment for income taxes of
acquired entity $ 788,097 $ 657,436
----------- -----------
Pro-forma net earnings per
common share and common
equivalent share $ 0.10 $ 0.10
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Statements of Cash Flows
For the three-month periods ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 788,097 $ 862,436
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation of property and equipment 415,864 227,914
Amortization of intangibles 48,923 23,739
Changes in certain assets and liabilities:
Available for sale securities 67,057 3,777
Contracts receivable 2,806,729 561,932
Costs and estimated earnings in excess
of billings on uncompleted contracts (1,719,735) (954,791)
Finished goods inventory (172,564) (467,853)
Prepaid income taxes 193,109 -
Other assets (140,108) (240,477)
Trade accounts payable (203,840) (178,940)
Billings in excess of costs and
estimated earnings on uncompleted
contracts (60,786) 708,848
Accrued expenses (86,926) (223,925)
Current income taxes 305,076 (445,416)
Deferred income taxes (50,786) (60,193)
----------- -----------
Net cash provided by operating activities $ 2,190,110 $ (182,949)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment $ (153,995) $ (252,038)
----------- -----------
Net cash used in investing activities $ (153,995) $ (252,038)
----------- -----------
Cash flows from financing activities:
Lines of credit, net $(1,957,752) $ (994,460)
Principal repayment on note payable
to stockholder (406,000) -
Borrowings on notes payable to banks - 585,799
Distributions of prior S Corporation
earnings - (220,000)
Proceeds from sale of common stock 89,679 -
Principal payments on notes payable to banks (279,307) (23,817)
----------- -----------
Net cash used in financing activities $(2,553,380) $ (652,478)
----------- -----------
Net decrease in cash and cash equivalents $ (517,265) $(1,087,465)
Cash and cash equivalents:
Beginning of period $ 989,720 $ 3,412,618
----------- -----------
End of period $ 472,455 $ 4,023,237
=========== ===========
Supplemental disclosure of cash flow
information:
Interest paid $ 36,117 $ 84,363
=========== ===========
Taxes paid $ 78,695 $ 748,693
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SPECIALTY TELECONSTRUCTORS,INC.
Consolidated Statements of Changes in Stockholders' Equity
For the three-month periods ended September 30, 1996 and 1997
(unaudited)
<TABLE>
<CAPTION>
Common Stock
------------
Additional Retained
Shares Amount Paid-in-capital earnings Total
------ ------ --------------- -------- -----
<S> <C> <C> <C> <C> <C>
Balances at
June 30, 1996 6,872,308 $ 68,723 $ 5,344,298 $5,032,817 $10,445,838
Distributions of
prior S Corporation
earnings - $ - $ - $ (220,000) $ (220,000)
Net earnings - $ - $ - $ 862,436 $ 862,436
--------- -------- ----------- ---------- -----------
Balances at
September 30, 1996 6,872,308 $ 68,723 $ 5,344,298 $5,675,253 $11,088,274
========= ======== =========== ========== ===========
Balances at
June 30, 1997 7,876,554 $ 78,765 $12,015,667 $6,409,835 $18,504,267
Issuance of
common stock 28,455 $ 285 $ 89,394 $ - $ 89,679
Net earnings - $ - $ - $ 788,097 $ 788,097
--------- -------- ----------- ---------- -----------
Balances at
September 30, 1997 7,905,009 $ 79,050 $12,105,061 $7,197,932 $19,382,043
========= ======== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
SPECIALTY TELECONSTRUCTORS, INC.
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
(Unaudited)
Note 1: Basis of Presentation
The consolidated financial statements and notes thereto at September 30, 1997
and for the three-month periods ended September 30, 1997 and 1996 are unaudited
and are presented in accordance with the requirements of Form 10-QSB and
consequently do not include all disclosures normally required by generally
accepted accounting principles or those normally reflected in the Company's
Annual Report on Form 10-KSB. Accordingly, the consolidated financial statements
and notes thereto contained herein should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Company's
Form 10-KSB for the fiscal year ended June 30, 1997.
The consolidated financial statements and notes thereto at September 30, 1997
and for the three-month periods ended September 30, 1997 and 1996 reflect (i)
the acquisition of Novak & Lackey Construction Co., Inc., an Oklahoma
corporation ("Novak & Lackey") which was effected as of March 31, 1997 through a
merger between Novak & Lackey and a wholly-owned subsidiary of the Company, of
which Novak & Lackey was the surviving corporation, and (i) the acquisition of
Microwave Tower Service, Inc., an Oregon corporation ("MTS") which was effected
as of June 30, 1997 through a merger between MTS and a wholly-owned subsidiary
of the Company, of which MTS was
6
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
the surviving corporation. The acquisitions of Novak & Lackey and MTS were
accounted for as poolings of interests. Accordingly, the consolidated financial
statements and notes thereto at September 30, 1997 for the three-month periods
ended September 30, 1997 and 1996 are presented as if the acquisitions of Novak
& Lackey and MTS had occurred at the beginning of all periods presented.
For financial reporting purposes, a pro forma provision for income taxes has
been reflected in the consolidated statements of earnings for the three-month
period ended September 30, 1996 to present taxes on the results of operations of
MTS for the three-month period ended September 30, 1996 on the basis that is
required upon their change in tax status from S Corporation to a C Corporation.
This amount, $205,000, is approximately 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 a wholly-owned subsidiary
of the Company on June 30, 1997.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary to a fair presentation of the results for interim periods. The
results of operations for the three-month period ended September 30, 1997 are
not necessarily indicative of the results to be expected for the full year.
Note 2: Acquisition
As of October 7, 1997, a wholly-owned subsidiary of the Company, purchased
substantially all the assets of Ellis Tower Co., Inc., a Florida corporation in
exchange for $449,404 in cash and the delivery of 120,848 newly issued shares of
common stock of the Company. The transaction was accounted for by the Company as
a purchase.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
Statements contained in herein 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
in the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30,
1997 under the caption "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Cautionary Statements" and
elsewhere therein 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.
7
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
Results of Operations
For the Three-Month Periods Ended September 30, 1997 and 1996
Revenues. The Company's revenues for the three-month period ended September 30,
1997, decreased approximately 9% to $12,799,956 from $14,036,517 for the same
three-month period in the prior year. Management believes the decrease in
revenues was due primarily to comparatively lower levels of wireless
infrastructure building and implementation activity in the U.S. during the
three-month period ended September 30, 1997 as compared to the same period last
year.
Gross Profit. Gross profit for the three-month period ended September 30, 1997
increased approximately 2% to $2,517,253 from $2,474,714 for the same three-
month period in the prior year. Gross profit as a percentage of revenue
increased to 20% for the three-month period ended September 30, 1997 from 18%
for the three-month period ended September 30, 1996. Management believes the
increases in gross profit and in gross profit as a percentage of revenue
resulted primarily from improved operating margins realized by the Company's
wireless infrastructure building and implementation services business offset by
somewhat lower levels of wireless infrastructure component sales.
Selling, General and Administrative ("SG&A) Expenses. SG&A expenses for the
three-month period ended September 30, 1997 decreased to $1,210,376 from
$1,358,756 for the same three-month period in the prior year. As a percentage
of revenues, SG&A expenses decreased from 10% for the three-month period ended
September 30, 1996 to 9% for the three-month period ended September 30, 1997.
This decrease resulted from the decrease in SG&A expenses as compared to the
same period a year ago and to operational efficiencies realized as a result of
the increase in the Company's revenues.
Net Earnings. Net earnings for the three-month period ended September 30, 1997
increased approximately 20% to $788,097 compared to $657,436 for the same three-
month period in the prior year. As a percentage of revenue, net earnings
increased to 6.2% from 4.7% in the prior year. The increases in net earnings and
in net earnings as a percentage of revenue resulted primarily from improved
operating margins realized by the Company's wireless infrastructure building and
implementation services business offset by somewhat lower levels of wireless
infrastructure component sales and certain non-recurring expenses incurred in
connection with the Company's recent acquisitions.
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS.
None.
ITEM 2. - CHANGES IN SECURITIES.
None.
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. - OTHER INFORMATION.
None.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
On July 15, 1997, the Company filed a Form 8-K and reported that
it had completed the acquisition of Microwave Tower Service, Inc., an
Oregon corporation ("MTS"), which became a wholly-owned subsidiary of
the Company pursuant to the terms of an Agreement and Plan of Merger
dated as of June 30, 1997 among MTS, each of the stockholders listed
on Exhibit 1 to the Agreement and Plan of Merger, the Company and MTS
Acquisition, Inc., a wholly-owned subsidiary of the Company. A copy of
the Agreement and Plan of Merger was filed as an Exhibit to the 8-K.
On July 30, 1997, the Company filed a Form 8-K and reported that
it had completed the acquisition of substantially all the assets of
Paramount Communication Systems, Inc., a New Jersey corporation
("Paramount") and waived a valuation condition establishing the
purchase price of the assets acquired. A copy of the Asset Purchase
Agreement dated as of May 28, 1997 among Paramount, Michael Moskowitz,
the sole shareholder of Paramount, Specialty Constructors, Inc. and
the Company was filed as an Exhibit to the 8-K.
On September 15, 1997, the Company filed a Form 8-K/A which
amended the 8-K filed on July 15, 1997 by including the audited
financial statements of Microwave Tower Service, Inc. at June 30, 1997
and 1996 for the fiscal years then ended and by incorporating by
reference to the Company's Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1997, the Company's consolidated financial
statements at June 30, 1997 and 1996 and for the fiscal years then
ended which financial statements had been restated to reflect the MTS
merger as if such transaction had taken place at the beginning of all
periods presented, consistent with the accounting treatment for a
pooling-of-interests.
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: October 24, 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
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 472,455
<SECURITIES> 702,793
<RECEIVABLES> 12,288,750
<ALLOWANCES> 355,000
<INVENTORY> 2,836,803
<CURRENT-ASSETS> 20,450,271
<PP&E> 11,688,153
<DEPRECIATION> 3,500,116
<TOTAL-ASSETS> 30,500,719
<CURRENT-LIABILITIES> 9,295,902
<BONDS> 0
0
0
<COMMON> 79,050
<OTHER-SE> 19,302,993<F1>
<TOTAL-LIABILITY-AND-EQUITY> 30,500,719
<SALES> 12,799,956
<TOTAL-REVENUES> 12,868,771
<CGS> 10,282,703
<TOTAL-COSTS> 11,493,709
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,695
<INCOME-PRETAX> 1,296,997
<INCOME-TAX> 508,900
<INCOME-CONTINUING> 788,097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 788,097
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
<FN>
<F1>OTHER EQUITY OF $19,302,993 IS COMPRISED OF ADDITIONAL PAID-IN CAPITAL OF
$12,105,061 AND RETAINED EARNINGS OF $7,197,932.
</FN>
</TABLE>
EXHIBIT 99.3
================================================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________________ to ______________
COMMISSION FILE NUMBER 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
incorporation or organization) Identification No.)
12001 STATE HWY 14 NORTH
CEDAR CREST, NEW MEXICO 87008
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (505) 281-2197
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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 7,997,926 on February 17,
1998
The Index to Exhibits appears on page 14
================================================================================
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
INDEX
-----
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 1997 and
1996 (unaudited) 3
Consolidated Statements of Earnings for the three and six-month
periods ended December 31, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows for the six-month
periods ended December 31, 1997 and 1996 (unaudited) 5
Consolidated Statements of Changes in Stockholders' Equity
for the six-month periods ended December 31, 1997 and
1996 (unaudited) 7
Notes to the Consolidated Financial Statements as of
December 31, 1997 and 1996 (unaudited) 8
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 8
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS 12
ITEM 2. - CHANGES IN SECURITIES 12
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. - OTHER INFORMATION 14
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 14
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Balance Sheets
December 31, 1997 and 1996
(Unaudited)
Assets
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,131,793 $ 960,968
Available for sale securities $ 50,000 $ 293,300
Contracts Receivable, net of $15,741,654 $13,585,469
allowance for doubtful
accounts
Costs and estimated earnings in
excess of billings on
uncompleted contracts $ 2,505,487 $ 2,883,325
Finished goods inventory $ 3,339,147 $ 537,628
Prepaid income taxes $ 261,775 $ 55,730
Other $ 220,437 $ 537,785
----------- -----------
Total current assets $24,250,293 $18,854,205
Property and equipment, net $ 9,021,486 $ 6,112,515
Other assets, net $ 3,571,861 $ 453,433
----------- -----------
$36,843,640 $25,420,153
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 4,441,278 $ 5,304,810
Lines of credit $ 3,964,828 $ 1,703,253
Notes payable to stockholder $ 1,324,000 $ 500,000
Billings in excess of costs and
estimated earnings on uncompleted
contracts $ 606,442 $ 391,844
Accrued expenses $ 842,873 $ 916,736
Current installments of notes
payable $ 613,827 $ 79,443
Current income taxes payable $ 1,009,317 $ 250,232
Deferred income taxes $ 333,814 $ 231,645
----------- -----------
Total current liabilities $13,136,379 $ 9,377,963
Deferred income taxes $ 90,000 $ 277,537
Notes payable to banks, excluding
current installments $ 2,065,211 $ 1,982,207
----------- -----------
Total Liabilities $15,291,590 $11,637,707
----------- -----------
Stockholders' equity:
Common Stock $ 80,689 $ 69,657
Additional paid-in-capital $14,080,222 $ 6,008,874
Treasury stock, 100,000 shares
in 1997 and none in 1996,
respectively $(1,387,500) $ -
Retained earnings $ 8,778,639 $ 7,703,915
----------- -----------
Total stockholders' equity $21,552,050 $13,782,446
----------- -----------
$36,843,640 $25,420,153
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Statements of Earnings
For the three and six months ended December 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Three months ended
---------------------------- -----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues earned:
Installation services $26,051,645 $28,414,887 $14,585,420 $16,233,783
Component sales $ 3,523,635 $ 4,748,030 $ 2,189,904 $ 2,892,617
----------- ----------- ----------- -----------
Total revenues earned $29,575,280 $33,162,917 $16,775,324 $19,126,400
----------- ----------- ----------- -----------
Cost of revenues earned:
Installation services $21,479,825 $23,117,299 $12,170,801 $12,985,863
Component sales $ 2,047,508 $ 3,533,610 $ 1,073,829 $ 2,103,243
----------- ----------- ----------- -----------
Total cost of revenues earned $23,527,333 $26,650,909 $13,244,630 $15,089,106
----------- ----------- ----------- -----------
Gross profit on revenues
earned $ 6,047,947 $ 6,512,008 $ 3,530,694 $ 4,037,294
Selling, general and administrative
expenses $ 2,158,899 $ 2,742,335 $ 948,523 $ 1,383,579
----------- ----------- ----------- -----------
Earnings from
operations $ 3,889,048 $ 3,769,673 $ 2,582,171 $ 2,653,715
----------- ----------- ----------- -----------
Other income (deductions):
Interest income $ 61,956 $ 63,267 $ 44,612 $ 22,808
Interest expense $ (150,563) $ (128,883) $ (71,868) $ (65,626)
Other, net $ 61,712 $ 11,823 $ 10,241 $ (235)
----------- ----------- ----------- -----------
$ (26,895) $ (53,793) $ (17,015) $ (43,053)
----------- ----------- ----------- -----------
Earnings before income taxes $ 3,862,153 $ 3,715,880 $ 2,565,156 $ 2,610,662
Income taxes $ 1,493,349 $ 609,282 $ 984,449 $ 366,500
----------- ----------- ----------- -----------
Net earnings $ 2,368,804 $ 3,106,598 $ 1,580,707 $ 2,244,162
Basic earnings per share:
Net earnings $ 0.30 $ 0.45 $ 0.20 $ 0.32
----------- ----------- ----------- -----------
Weighted average common shares
outstanding 7,928,928 6,903,274 7,966,140 6,934,240
----------- ----------- ----------- -----------
Diluted earnings per share:
Net earnings $ 0.29 $ 0.44 $ 0.19 $ 0.28
----------- ----------- ----------- -----------
Weighted average common shares
outstanding plus dilutive
potential common shares $ 8,129,458 $ 7,113,156 $ 8,150,936 $ 7,233,828
----------- ----------- ----------- -----------
Pro forma information:
Net earnings $ 2,368,804 $ 3,106,598 $ 1,580,707 $ 2,244,162
Pro forma adjustment for income
taxes of acquired entity
previously filing as an S
Corporation $ - $ (871,000) $ - $ (666,000)
----------- ----------- ----------- -----------
Pro forma net earnings after
adjustment for income taxes
of acquired entity $ 2,368,804 $ 2,235,598 $ 1,580,707 $ 1,578,162
----------- ----------- ----------- -----------
Pro forma basic earnings per
common share outstanding $ 0.30 $ 0.32 $ 0.20 $ 0.23
----------- ----------- ----------- -----------
Pro forma diluted earnings per
common share outstanding $ 0.29 $ 0.31 $ 0.19 $ 0.22
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Statements of Cash Flows
For the six months ended December 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,368,804 $ 3,106,598
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation $ 878,277 $ 592,067
Amortization of goodwill $ 134,277 $ 63,729
Changes in certain assets
and liabilities:
Available for sale securities $ 719,850 $ 12,661
Contracts receivable $ (135,256) $(4,275,190)
Costs and estimated earnings in
excess of billings on
uncompleted contracts $ (272,198) $(1,426,321)
Finished goods inventory $ (588,696) $ 152,129
Prepaid income taxes $ 145,702 $ 7,021
Other assets $ (35,067) $ (300,330)
Trade accounts payable $ 36,258 $ 2,567,341
Billings in excess of costs and
estimated earnings on uncompleted
contracts $ (488,228) $ 149,264
Accrued expenses $ 44,027 $ (321,826)
Current income taxes $ 1,009,316 $ (394,123)
Deferred income taxes $ (50,786) $ (109,563)
----------- -----------
Net cash provided (used)by
operating activities $ 3,766,280 $ (176,543)
----------- -----------
Cash flows from investing activities:
Purchases of property
and equipment $ (561,081) $(1,686,568)
Cash expended in acquisition
of Data Cell Systems, Inc. $ - $ (160,000)
Cash expended in acquisition of
Ellis Tower Company, Inc., net
of cash of $151,701 acquired in
acquisition $ (297,704) $ -
----------- -----------
Net cash used in
investing activities $ (858,785) $(1,846,568)
----------- -----------
Cash flows from financing activities:
Line of credit with bank, net $ 576,918 $ 71,253
Principal repayment on note
payable to stockholder $ (676,000) $ -
Acquisition of treasury stock $(1,387,500) $ -
Distributions of prior S Corporation
earnings $ - $ (435,500)
Proceeds from sale of common stock $ 268,862 $ -
Principal payments on
notes payable to banks $ (547,702) $ (64,292)
----------- -----------
Net cash used in financing
activities $(1,765,422) $ (428,539)
----------- -----------
Net increase (decrease)in cash
and cash equivalents $ 1,142,073 $(2,451,650)
Cash and cash equivalents
Beginning of period $ 989,720 $ 3,412,618
----------- -----------
End of period $ 2,131,793 $ 960,968
=========== ===========
</TABLE>
5
<PAGE>
(Continued)
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Statements of Cash Flows
For the six months ended December 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Supplemental disclosure
of cash flow information:
Interest paid $ 150,563 $ 152,205
---------- ----------
Taxes paid $ 262,800 $1,113,270
========== ==========
Noncash transactions - acquisition
of vehicles in exchange for debt $ 640,861 $ 586,466
========== ==========
Ellis Tower Company, Inc. Acquisition
in fiscal year 1998 and Data Cell
Systems, Inc. in fiscal year 1997:
Cash $ 151,701 $ -
Contracts receivable $ 865,919 $ 200,000
Finished goods inventory $ 86,212 $ -
Other current assets $ 33,924 $ 100,000
Property and equipment $ 267,915 $ 267,000
Goodwill $1,729,280 $ 258,510
Trade accounts payable $ (383,326) $ -
Billings in excess of costs and
estimated earnings on uncompleted
contracts $ (496,731) $ -
Accrued expenses $ (7,871) $ -
---------- -----------
$2,247,023 $ 825,510
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
SPECIALTY TELECONSTRUCTORS,INC.
Consolidated Statements of Changes in Stockholders' Equity
For the six months ended December 31, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
Common Stock
----------------- Additional
Paid-in Retained Treasury
Shares Amount capital earnings Stock Total
------ ------ ---------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balances at
June 30, 1996 6,872,308 $68,723 $ 5,344,298 $5,032,817 $ - $10,445,838
Distributions
of prior S
Corporation
earnings - $ - $ - $ (435,500) $ - $ (435,500)
Issuance of common
shares to acquire
Data Cell Systems,
Inc. 93,405 $ 934 $ 664,576 $ - $ - $ 665,510
Net earnings - $ - $ - $3,106,598 $ - $ 3,106,598
--------- ------- ----------- ---------- ----------- -----------
Balances as of
December 31,
1996 6,965,713 $69,657 $ 6,008,874 $7,703,915 $ - $13,782,446
========= ======= =========== ========== =========== ===========
<CAPTION>
Common Stock
----------------- Additional
Paid-in Retained Treasury
Shares Amount capital earnings Stock Total
------ ------ ---------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balances as of
June 30, 1997 7,876,554 $78,765 $12,015,667 $6,409,835 $ - $18,504,267
Issuance of
common stock 71,554 $ 716 $ 268,145 $ - $ - $ 268,861
Issuance of common
shares to acquire
Ellis Tower
Company, Inc. 120,848 $ 1,208 $ 1,796,410 $ - $ - $ 1,797,618
Acquisition of
100,000 shares
for treasury
stock - $ - $ - $ - $(1,387,500) $(1,387,500)
Net earnings $ $ - $2,368,804 $ - $ 2,368,804
--------- ------- ----------- ---------- ----------- -----------
Balances as of
December 31, 1997 8,068,956 $80,689 $14,080,222 $8,778,639 $(1,387,500) $21,552,050
========= ======= =========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Unaudited)
Note 1: Basis of Presentation
The consolidated financial statements and notes thereto at December 31, 1997 and
for the three and six-month periods ended December 31, 1997 and 1996 are
unaudited and are presented in accordance with the requirements of Form 10-QSB
and consequently do not include all disclosures normally required by generally
accepted accounting principles or those normally reflected in the Company's
Annual Report on Form 10-KSB. Accordingly, the consolidated financial statements
and notes thereto contained herein should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Company's
Form 10-KSB for the fiscal year ended June 30, 1997.
The consolidated financial statements and notes thereto at December 31, 1997 and
for the three and six-month periods ended December 31, 1997 and 1996 reflect (i)
the acquisition of Novak & Lackey Construction Co., Inc., an Oklahoma
corporation ("Novak & Lackey") which was effected as of March 31, 1997 through a
merger between Novak & Lackey and a wholly-owned subsidiary of the Company of
which Novak & Lackey was the surviving corporation, and (i) the acquisition of
Microwave Tower Service, Inc., an Oregon corporation ("MTS") which was effected
as of June 30, 1997 through a merger between MTS and a wholly-owned subsidiary
of the Company, of which MTS was the surviving corporation. The acquisitions of
Novak & Lackey and MTS were accounted for as poolings of interests.
Accordingly, the consolidated financial statements and notes thereto at December
31, 1997 for the three and six-month periods ended December 31, 1997 and 1996
are presented as if the acquisitions of Novak & Lackey and MTS had occurred at
the beginning of all periods presented.
For financial reporting purposes, a pro forma provision for income taxes has
been reflected in the consolidated statements of earnings for the three and six-
month periods ended December 31, 1996 to present taxes on the results of
operations of MTS for the three and six-month periods ended December 31, 1996 on
the basis that is required upon its change in tax status from S Corporation to a
C Corporation. This amount is approximately 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 a wholly-owned subsidiary
of the Company on June 30, 1997.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary to a fair presentation of the results for interim periods. The
results of operations for the three and six-month periods ended December 31,
1997 are not necessarily indicative of the results to be expected for the full
year.
Note 2: Acquisition
As of October 7, 1997, a wholly-owned subsidiary of the Company, purchased
substantially all the assets of Ellis Tower Co., Inc., a Florida corporation, in
exchange for $449,404 in cash and the delivery of 120,849 newly issued shares of
common stock of the Company. The transaction was accounted for by the Company as
a purchase.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
Statements contained in herein 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
8
<PAGE>
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 in the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1997 under the caption "ITEM 6. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Cautionary Statements" and elsewhere therein 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.
Results of Operations
For the Three-Month Periods Ended December 31, 1997 and 1996
Revenues. The Company's revenues for the three-month period ended December 31,
1997, decreased approximately 12% to $16,775,324 from $19,126,400 for the same
three-month period in the prior year. Management believes the decrease in
revenues was due primarily to unusually strong demand for the Company's wireless
infrastructure components in the comparative quarter last year and to
Management's decision to concentrate its efforts on improving operating
efficiency by, among other methods, reducing the number of projects it
undertakes using primarily subcontracted labor.
Gross Profit. Gross profit for the three-month period ended December 31, 1997
decreased approximately 13% to $3,530,694 from $4,037,294 for the same three-
month period in the prior year. Gross profit as a percentage of revenue held
constant at 21% for the three-month period ended December 31, 1997 compared with
the same three-month period in the prior year. Management believes the decrease
in gross profit was due primarily to the decrease in revenues, unusually strong
demand for the Company's wireless infrastructure components in the comparative
quarter last year and to Management's decision to concentrate its efforts on
improving operating efficiency by, among other methods, reducing the number of
projects it undertakes using primarily subcontracted labor, partially offset by
increases in operating efficiency resulting from the continued integration of
the Company's acquisitions effected during the quarter and the last half of
fiscal 1997.
Selling, General and Administrative ("SG&A") Expenses. SG&A expenses for the
three-month period ended December 31, 1997 decreased to $948,523 from $1,383,579
for the same three-month period in the prior year. As a percentage of revenues,
SG&A expenses decreased from 7% for the three-month period ended December 31,
1996 to 6% for the three-month period ended December 31, 1997. The decreases in
SG&A expenses and in SG&A expenses as a percentage of revenue resulted
from the decrease in revenues, increased administrative efficiencies resulting
from the continued integration of the Company's acquisitions effected during the
quarter and the last half of fiscal 1997, partially offset by certain non-
recurring expenses (primarily legal and accounting expenses) incurred during the
period in connection with the recent acquisitions of Novak & Lackey Construction
Co., Inc., Microwave Tower Services, Inc. and Ellis Tower Co., Inc.
Net Earnings. Net earnings for the three-month period ended December 31, 1997
were $1,580,707 compared to $1,578,162 for the same three-month period in the
prior year. As a percentage of revenue, net earnings increased to 9% from 8% in
the prior year. The slight increase in net earnings and the increase in net
earnings as a percentage of revenue resulted primarily from improved operating
margins realized by the Company's wireless infrastructure building and
implementation services business and increased administrative efficiencies
resulting from the continued integration of the Company's acquisitions,
partially offset by the decrease in revenues and by certain non-recurring
expenses (primarily legal and accounting expenses) incurred in connection with
the Company's recent acquisitions. In addition, net earnings per share were
negatively impacted by the higher number of shares outstanding during the period
versus the comparative period last year. Net earnings for the prior periods are
stated on a pro-forma basis to adjust for income taxes attributable to net
income realized by
9
<PAGE>
Microwave Tower Services, Inc. which was an S-corporation prior to its
acquisition by the Company in June, 1997.
For the Six-Month Periods Ended December 31, 1997 and 1996
Revenues. The Company's revenues for the six-month period ended December 31,
1997, decreased approximately 11% to $29,575,280 from $33,162,917 for the same
period in the prior year. Management believes the decrease in revenues was due
in part to unusually strong demand for the Company's wireless infrastructure
components in the comparative period last year and to Management's decision to
concentrate its efforts on improving operating efficiency by, among other
methods, reducing the number of projects it undertakes using primarily
subcontracted labor and in part to comparatively lower levels of wireless
infrastructure building and implementation activity in the U.S. experienced
primarily during the first half of the period.
Gross Profit. Gross profit for the six-month period ended December 31, 1997
decreased approximately 7% to $6,047,947 from $6,512,008 for the same six-month
period in the prior year. Gross profit as a percentage of revenue held constant
at 20% for the six-month period ended December 31, 1997 compared with the same
six-month period in the prior year. Management believes the decrease in gross
profit was due primarily to the decrease in revenues, unusually strong demand
for the Company's wireless infrastructure components in the comparative period
last year and to Management's decision to concentrate its efforts on improving
operating efficiency by, among other methods, reducing the number of projects it
undertakes using primarily subcontracted labor, partially offset by increases in
operating efficiency resulting from the continued integration of the Company's
acquisitions effected during the period and the last half of fiscal 1997.
Selling, General and Administrative Expenses. SG&A expenses for the six-month
period ended December 31, 1997 decreased to $2,158,899 from $2,742,335 for the
same six-month period in the prior year. As a percentage of revenues, SG&A
expenses decreased from 8% for the six-month period ended December 31, 1996 to
7% for the six-month period ended December 31, 1997. The decreases in SG&A
expenses and in SG&A expenses as a percentage of revenue resulted from the
decrease in revenues, increased administrative efficiencies resulting from the
continued integration of the Company's acquisitions effected during the period
and the last half of fiscal 1997, partially offset by approximately $140,000 in
non-recurring expenses (primarily legal and accounting expenses) incurred during
the period in connection with the Company's recent acquisitions of Novak &
Lackey Construction Co., Inc., Microwave Tower Services, Inc. and Ellis Tower
Co., Inc.
Net Earnings. Net earnings for the six-month period ended December 31, 1997
increased approximately 6% to $2,368,804 compared to $2,235,598 for the same
six-month period in the prior year. As a percentage of revenue, net earnings
increased to 8% from 7% in the same period in the prior year. The increases in
net earnings and in net earnings as a percentage of revenue resulted from
improved operating margins realized by the Company's wireless infrastructure
building and implementation services business and increased administrative
efficiencies resulting from the continued integration of the Company's
acquisitions, partially offset by the decrease in revenues, and by certain non-
recurring expenses (primarily legal and accounting expenses) incurred in
connection with the Company's recent acquisitions. In addition, net earnings per
share were negatively impacted by the higher number of shares outstanding during
the period versus the comparative period last year. Net earnings for the prior
periods are stated on a pro-forma basis to adjust for income taxes attributable
to net income realized by Microwave Tower Services, Inc. which was an S-
corporation prior to its acquisition by the Company in June, 1997.
10
<PAGE>
Earnings Per Share Disclosures:
The following is the reconciliation of the numerators and denominators of the
basic and diluted EPS computations for net income and other related disclosures
required by Statement of Financial Accounting Standards No. 128, Earnings Per
Share
<TABLE>
<CAPTION>
For the six-month period ended December 31, 1997
------------------------------------------------
Income Shares Per Share
Numerator (Denominator) Amount
--------- ----------- ---------
<S> <C> <C> <C>
Basic Earnings Per Share
Income available to common stockholders $2,389,804 7,928,928 $ 0.30
-----------
Effect of Dilutive Shares
Options $ 200,530
---------- ---------
Dilutive Earnings Per Share
Income available to common stockholders
plus assumed conversions $2,389,804 8,129,458 $ 0.29
---------- --------- -----------
</TABLE>
Options to purchase 15,000 shares of common stock at exercise price of $15.50
per share were outstanding during the above period but were not included in the
computation of EPS shares. The options which expire on October 7, 2002, were
still outstanding as of December 31, 1997.
<TABLE>
<CAPTION>
For the three-month period ended December 31, 1997
--------------------------------------------------
Income Shares Per Share
Numerator (Denominator) Amount
--------- ------------- ---------
<S> <C> <C> <C>
Basic Earnings Per Share $1,580,707 7,966,140 $ 0.20
Income available to common stockholders -----------
Effect of Dilutive Shares
Options $ - 184,796
---------- ---------
Dilutive Earnings Per Share
Income available to common stockholders
plus assumed conversions $1,580,707 8,150,936 $ 0.19
========== ========= ===========
</TABLE>
Options to purchase 233,000 shares of common stock at exercise price of $14.75
to $15.50 per share were outstanding during the above period but were not
included in the computation of EPS because the options' exercise price was
greater than the average market price of the common shares. The options, which
expire between June 30, 2002 to October 7, 2002, were still outstanding as of
December 31, 1997.
<TABLE>
<CAPTION>
For the six-month period ended December 31, 1996
------------------------------------------------
Income Shares Per Share
Numerator (Denominator) Amount
--------- ------------- ---------
<S> <C> <C> <C>
Basic Earnings Per Share
Income available to common stockholders $3,106,598 6,903,274 $ 0.45
---------
Effect of Dilutive Shares
Warrants $ - 73,763
Options $ - 136,119
---------- ---------
Dilutive Earnings Per Share
Income available to common stockholders
plus assumed conversions $3,106,598 7,113,156 $ 0.44
========== ========= ========
Pro forma earnings per share:
Basic $ .32
========
Dilutive $ .31
========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
For the three-month period ended December 31, 1996
--------------------------------------------------
Income Shares Per Share
Numerator (Denominator) Amount
--------- ------------- ------
<S> <C> <C> <C>
Basic Earnings Per Share
Income available to common stockholders $ 2,244,162 6,934,240 $ 0.32
----------
Effect of Dilutive Shares
Warrants $ - 133,685
Options $ - 165,903
------------ ---------
Dilutive Earnings Per Share
Income available to common stockholders
plus assumed conversions $ 2,244,162 7,233,828 $ 0.28
============ ========= ==========
Pro forma Earnings Per Share:
Basic $ .23
==========
Dilutive $ .22
==========
</TABLE>
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS.
None.
ITEM 2. - CHANGES IN SECURITIES.
None.
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders was held on November 21, 1997. All of the
proposals presented for Stockholder consideration at the Annual Meeting were
approved. The following is a tabulation of the voting on each proposal presented
at the Annual Meeting.
Proposal 1 -- Proposal to amend the Corporation's Articles of
Incorporation to provide for a staggered Board of Directors
<TABLE>
<CAPTION>
Number of Votes Cast
For Against Abstain
--- ------- -------
<S> <C> <C>
5,599,772 367,000 2,485
</TABLE>
Proposal 2 -- Proposal to amend the Corporation's Articles of
Incorporation to give the Board of Directors the authority, without further
action by the stockholders, to issue up to 2,000,000 shares of Preferred Stock
<TABLE>
<CAPTION>
Number of Votes Cast
For Against Abstain
--- ------- -------
<S> <C> <C>
5,574,486 370,046 24,725
</TABLE>
Proposal 3 -- Proposal to amend the Corporation's Articles of
Incorporation to increase the number of shares of Common Stock that may be
issued by the Company from 10,000,000 to 20,000,000 .
<TABLE>
<CAPTION>
Number of Votes Cast
For Against Abstain
--- ------- -------
<S> <C> <C>
5,966,611 1,846 800
</TABLE>
12
<PAGE>
Proposal 4 -- Proposal to amend the Corporation's Articles of
Incorporation to require a supermajority vote of two-thirds of the stockholders
to either amend or repeal provisions contained in the Articles of Incorporation.
<TABLE>
<CAPTION>
Number of Votes Cast
For Against Abstain
--- ------- -------
<S> <C> <C>
5,596,811 369,496 2,950
</TABLE>
Proposal 5 -- Election of Directors.
<TABLE>
<CAPTION>
Number of Votes Cast
Class Name of Director For Against Abstain
----- ---------------- --- ------- -------
<C> <S> <C> <C> <C>
1 Terry D. Farmer 5,966,502 550 2,205
1 Frank D. Lackey 5,966,502 550 2,205
2 John D. Emery 5,966,502 550 2,205
2 Jon D. Word 5,966,502 550 2,205
3 Michael R. Budagher 5,966,502 550 2,205
3 Ernie L. Carpenter 5,966,502 550 2,205
</TABLE>
Proposal 6 -- Proposal to approve and ratify the Corporation's 1997 Stock
Incentive Plan.
<TABLE>
<CAPTION>
Number of Votes Cast
For Against Abstain
--- ------- -------
<S> <C> <C>
5,960,907 7,050 1,300
</TABLE>
Proposal 7 -- Proposal to approve and ratify certain stock options
granted under the Company's 1997 Stock Incentive Plan to employees of the
Corporation or its subsidiaries in connection with certain recent acquisitions.
<TABLE>
<CAPTION>
Number of Votes Cast
For Against Abstain
--- ------- -------
<S> <C> <C>
5,955,707 7,350 6,200
</TABLE>
Proposal 8 -- Proposal to ratify the appointment of KPMG Peat Marwick LLP
as the Corporation's independent auditors for the fiscal year ending June 30,
1998.
<TABLE>
<CAPTION>
Number of Votes Cast
For Against Abstain
--- ------- -------
<S> <C> <C>
5,968,157 400 700
</TABLE>
ITEM 5. - OTHER INFORMATION.
Agreement to Acquire OmniAmerica Holdings Corporation
On February 16, 1998, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with OmniAmerica, Inc., a Delaware corporation,
OmniAmerica Holdings Corporation, a Delaware corporation ("OmniAmerica")
HMTF/Omni Partners, L.P., a Texas limited partnership ("OmniPartners"), and OAI
Acquisition Corp., a Delaware corporation and a wholly-
13
<PAGE>
owned subsidiary of the Company ("Merger Sub").
OmniAmerica owns, manages and operates broadcast towers and wireless
communication sites throughout the United States. OmniAmerica, formed in 1997
by Carl E. Hirsch and Anthony S. Ocepek in partnership with Hicks, Muse, Tate &
Furst Incorporated ("Hicks, Muse"), is privately held.
Under the terms of the Merger Agreement, Merger Sub will be merged with and into
OmniAmerica with OmniAmerica being the surviving corporation and a wholly-owned
subsidiary of the Company. The transaction is structured as a tax-free exchange
in which the owners of OmniAmerica will receive 5.26 million shares of newly
issued Company common stock in exchange for all the issued and outstanding
equity of OmniAmerica. The Merger Agreement also provides that the following
persons initially will hold the following offices within the Company: Carl
Hirsch -- Chief Executive Officer, Michael Budagher -- Chief Operating Officer,
Anthony Ocepek -- Chief Financial Officer. Hicks, Muse, OmniPartners and certain
of their affiliates have agreed to limit their collective ownership prior to
closing to no greater than 49.9% of the outstanding common stock of the Company
(the "Standstill Agreement"). In addition, at the closing of the Merger
Agreement the parties will enter into a related agreement pursuant to which the
Company may acquire additional wireless communications towers from an affiliate
of OmniPartners in exchange for 1.49 million additional shares of Company common
stock.
At the closing of the Merger Agreement, the Company, OmniPartners and certain
other significant stockholders would enter into a Stockholders Agreement
providing for, among other things: (i) certain registration rights in favor of
OmniPartners and such stockholders, (ii) increasing the Board's size to eight
directors (four of which would be designated by Hicks,Muse and four of which
would be designated by Michael Budagher), (iii) approval of certain
extraordinary transactions and the annual budget of the Company by a majority of
both the Hicks, Muse and Budagher designees to the Board of directors and (iv)
the continuance of the Standstill Agreement.
The Merger is subject to several closing conditions and is currently expected to
be consummated by the end of the current quarter.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Employment Agreement, dated December 6, 1997 by and between
the Registrant and Jeffrey A. Howard.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
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: February 18, 1998
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
14
EXHIBIT 99.4
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to _____________
COMMISSION FILE NUMBER 1-13272
SPECIALTY TELECONSTRUCTORS, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 85-0421409
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12001 STATE HWY 14 NORTH 87008
CEDAR CREST, NEW MEXICO (Zip Code)
(Address of principal executive offices)
(505) 281-2197
(Issuer's telephone number,
including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes /x/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 14,969,559 on May 12, 1998
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1.
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Balance Sheets
March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Assets
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 1,405,400 $ 5,442,623
Available for sale securities ........................... 50,000 283,374
Contracts receivable, net of allowance for doubtful
accounts .............................................. 14,431,737 14,285,134
Costs and estimated earnings in excess of billings on
uncompleted contracts ................................. 3,220,249 2,825,762
Finished goods inventory ................................ 3,523,546 1,270,314
Prepaid income taxes .................................... 261,775 56,465
Other ................................................... 402,318 607,896
------------ ------------
Total current assets ................................ $ 23,295,025 $ 24,771,568
Property and equipment, net ............................... $ 9,405,468 $ 8,007,925
Other assets, net ......................................... $ 3,831,889 $ 422,650
------------ ------------
Total assets ........................................ $ 38,532,382 $ 33,202,143
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable .................................. $ 4,589,709 $ 4,079,574
Lines of credit ......................................... 3,031,171 4,544,481
Notes payable to stockholder ............................ 999,000 2,000,000
Billings in excess of costs and estimated earnings
on uncompleted contracts .............................. 469,497 401,508
Accrued expenses ........................................ 616,535 658,589
Current installments of notes payable ................... 570,998 408,651
Current income taxes payable ............................ 1,142,848 310,879
Deferred income taxes ................................... 372,469 231,645
------------ ------------
Total current liabilities ........................... $ 11,792,227 $ 12,635,327
Deferred income taxes ..................................... $ 90,000 $ 199,292
Notes payable to banks, excluding current installments .... $ 2,404,760 $ 1,974,940
------------ ------------
Total liabilities ................................... $ 14,286,987 $ 14,809,559
------------ ------------
Stockholders' Equity:
Common stock ............................................ $ 81,555 $ 76,607
Additional paid-in capital .............................. 14,528,644 8,963,341
Treasury stock, 100,000 in 1998 and none in 1997,
respectively, at cost ................................. (1,387,500) --
Retained earnings ....................................... 9,022,696 9,352,636
------------ ------------
Total stockholders' equity .......................... 22,245,395 18,392,584
------------ ------------
Total liabilities and stockholders' equity .......... $ 36,532,382 $ 33,202,143
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Statements of Earnings
For the three and nine months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months
ended ended
March 31, March 31,
----------------------- ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues earned:
Installation services...................... $39,835,298 $44,484,161 $13,783,853 $16,069,274
Component sales............................ 5,191,456 6,700,530 1,667,821 1,952,500
----------- ----------- ----------- -----------
Total revenues earned.................. $45,026,754 $51,184,691 $15,451,474 $18,021,774
----------- ----------- ----------- -----------
Cost of revenues earned:
Installation services...................... 34,422,763 36,355,200 12,942,938 13,237,901
Component sales............................ 3,222,544 4,676,400 1,175,036 1,142,790
----------- ----------- ----------- -----------
Total cost of revenues earned........... $37,645,307 $41,031,600 $14,117,974 $14,380,691
----------- ----------- ----------- -----------
Gross profit on revenues earned......... $ 7,381,447 $10,153,091 $ 1,333,500 $ 3,641,083
----------- ----------- ----------- -----------
Selling, general and administrative expenses. $ 2,978,303 $ 3,680,383 $ 819,404 $ 938,048
----------- ----------- ----------- -----------
Earnings from operations................... $ 4,403,144 $ 6,472,708 $ 514,096 $ 2,703,035
----------- ----------- ----------- -----------
Other income (deductions):
Interest income............................ $ 87,068 $ 73,773 $ 25,112 $ 10,506
Interest expense........................... (375,688) (227,195) (225,125) (98,312)
Other, net................................. 122,337 (2,119) 60,625 (13,942)
----------- ----------- ----------- -----------
$ (166,283)$ (155,541) $ (139,388) $ (101,748)
----------- ----------- ----------- -----------
Earnings before income taxes............... $ 4,236,861 $ 6,317,167 $ 374,708 $ 2,601,287
Income taxes................................. $ 1,624,000 $ 797,675 $ 130,651 $ 188,393
----------- ----------- ----------- -----------
Net earnings............................... $ 2,612,861 $ 5,519,492 $ 244,057 $ 2,412,894
=========== =========== =========== ===========
Basic earnings per common share:
Net earnings............................... $ 0.33 $ 0.80 $ 0.03 $ 0.35
----------- ----------- ----------- -----------
Weighted average common shares outstanding. 7,939,998 6,927,149 8,008,454 6,975,959
=========== =========== =========== ===========
Diluted earnings per share:
Net earnings............................... $ 0.32 $ 0.77 $ 0.03 $ 0.33
Weighted average common shares outstanding
plus dilutive potential common shares.... 8,061,835 7,155,560 8,163,360 7,317,587
=========== =========== =========== ===========
Pro forma information:
Net earnings............................... $ 2,612,861 $ 5,519,492 $ 244,057 $ 2,412,894
Pro forma adjustment for income taxes of
acquired entity previously filing as
an S Corporation......................... $ -- $(1,712,000) $ -- $ (841,000)
=========== ============ =========== ===========
Pro forma net earnings after adjustment for
income taxes of acquired entity.......... $ 2,612,861 $ 3,807,492 $ 244,057 $ 1,571,894
=========== ============ =========== ===========
Pro forma basic earnings per common
share outstanding........................ $ 0.33 $ 0.55 $ 0.03 $ 0.23
Pro forma diluted earnings per common
share outstanding........................ $ 0.32 $ 0.53 $ 0.03 $ 0.21
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Statements of Cash Flows
For the nine months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
-------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings ....................................... $ 2,612,861 $ 5,519,492
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation ....................................... 1,417,516 971,282
Amortization of goodwill ........................... 233,933 98,594
Changes in certain assets and liabilities:
Available for sale securities .................... 719,850 12,661
Contracts receivable ............................. (557,177) (5,241,855)
Costs and estimated earnings in excess of billings
on uncompleted contracts ....................... (986,960) (1,368,758)
Finished goods inventory ......................... (773,095) (580,557)
Prepaid income taxes ............................. 145,702 6,286
Other assets ..................................... (610,507) (374,523)
Trade accounts payable ........................... 951,341 1,342,105
Billings in excess of costs and estimated earnings
on uncompleted contracts ....................... 368,289 158,928
Accrued expenses ................................. (182,311) (570,047)
Current income taxes ............................. 1,142,848 (333,476)
Deferred income taxes ............................ $ (12,131) $ (187,808)
----------- -----------
Net cash provided (used) by operating
activities ................................... $ 4,470,159 $ (547,676)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment ................ $(1,013,818) $(2,747,656)
Cash expended in acquisition of Data
Cell Systems, Inc. ............................... -- (160,000)
Cash expended in acquisition of Ellis Tower
Company, Inc., net of cash of $151,701
acquired in acquisition .......................... (297,704) --
----------- -----------
Net cash used in investing activities ............ $(1,311,522) $(2,907,656)
----------- -----------
Cash flows from financing activities:
Line of credit with bank, net ...................... $ (356,739) $ 2,412,481
Principal repayment on note payable to
stockholder, net ................................. (1,001,000) 1,500,000
Acquisition of treasury stock ...................... (1,387,500) --
Distributions of prior S Corporation earnings ...... -- (1,199,673)
Proceeds from sale of common stock, net ............ 718,148 2,961,417
Principal payments on notes payable to banks ....... (715,866) (188,888)
----------- -----------
Net cash provided (used) by financing activities ... $(2,742,957) $ 5,485,337
----------- -----------
Net increase in cash and cash equivalents .......... $ 415,680 $ 2,030,005
Cash and cash equivalents:
Beginning of period ................................ $ 989,720 $ 3,412,618
----------- -----------
End of period ...................................... $ 1,405,400 $ 5,442,623
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Statements of Cash Flows
For the nine months ended March 31, 1998 and 1997
(Unaudited)
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Interest paid ......................................... $ 375,688 $ 154,179
========== ==========
Taxes paid ............................................ 311,689 1,132,919
========== ==========
Noncash transactions - acquisition of vehicles
in exchange for debt ................................ 1,108,545 1,533,003
========== ==========
Ellis Tower Company, Inc. acquisition in fiscal
year 1998 and Data Cell Systems, Inc. in
fiscal year 1997:
Cash .............................................. 151,701 --
Contracts receivable .............................. 865,919 200,000
Finished goods inventory .......................... 86,212 --
Other current assets .............................. 33,924 100,000
Property and equipment ............................ 267,915 267,000
Goodwill .......................................... 1,729,280 258,510
Trade accounts payable ............................ (383,326) --
Billings in excess of costs and estimated earnings
on uncompleted contracts ...................... (496,731) --
Accrued expenses .................................. (7,871) --
---------- ---------
$ 2,247,023 $ 825,510
=========== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Statements of Changes in Stockholders' Equity
For the nine months ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Additional
----------------- paid-In Retained Treasury
Shares Amount capital earnings stock Total
--------- ------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1996 ........ 6,672,308 $68,723 $ 5,344,298 $ 5,032,817 $ -- $10,445,838
Distributions of prior
S Corporation earnings.......... -- -- -- $(1,199,673) -- $(1,199,673)
Issuance of common stock and warrants
to acquire common stock, net..... 694,987 $ 6,950 $ 2,954,467 -- -- $ 2,961,417
Issuance of common shares to acquire
Data Cell Systems, Inc. ........ 93,405 $ 934 $ 664,576 -- -- $ 665,510
Net earnings ..................... -- -- -- $ 5,519,492 -- $ 5,519,492
--------- ------- ----------- ----------- ----------- -----------
Balances as of March 31, 1997 .... 7,660,700 $76,607 $ 8,963,341 $ 9,352,636 $ -- $18,392,584
========= ======= =========== =========== =========== ===========
Balances at June 30, 1997 ........ 7,876,554 $78,765 $12,015,667 $ 6,409,835 $ -- $18,504,267
Exercise of stock options ........ 158,050 $ 1,581 $ 716,567 -- -- $ 718,148
Issuance of common shares to
acquire Ellis Tower Company,
Inc. ........................... 120,848 $ 1,209 $ 1,796,410 -- -- $ 1,797,619
Acquisition of 100,000 shares of
common stock for treasury
stock .......................... -- -- -- -- $(1,387,500) $(1,387,500)
Net earnings ..................... -- -- -- $ 2,612,861 $ -- $ 2,612,861
--------- ------- ----------- ----------- ----------- -----------
Balances at March 31, 1998 ....... 8,155,452 $81,555 $14,528,644 $ 9,022,696 $(1,387,500) $22,245,395
========= ======= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
(Unaudited)
Note 1: Basis of Presentation
The consolidated financial statements and notes thereto at March 31, 1998 and
for the three and nine-month periods ended March 31, 1998 and 1997 are unaudited
and are presented in accordance with the requirements of Form 10-QSB and
consequently do not include all disclosures normally required by generally
accepted accounting principles or those normally reflected in the Company's
Annual Report on Form 10-KSB. Accordingly, the consolidated financial statements
and notes thereto contained herein should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Form 10-KSB
of Specialty Teleconstructors, Inc. (the "Company") for the fiscal year ended
June 30, 1997.
The consolidated financial statements and notes thereto at March 31, 1998 and
for the three and nine-month periods ended March 31, 1998 and 1997 reflect (i)
the acquisition of Novak & Lackey Construction Co., Inc., an Oklahoma
corporation ("Novak & Lackey"), which was effected as of March 31, 1997 through
a merger of Novak & Lackey and a wholly-owned subsidiary of the Company, with
Novak & Lackey as the surviving corporation, and (ii) the acquisition of
Microwave Tower Service, Inc., an Oregon corporation ("MTS"), which was effected
as of June 30, 1997 through a merger of MTS and a wholly-owned subsidiary of the
Company, with MTS as the surviving corporation. The acquisitions of Novak &
Lackey and MTS were accounted for as poolings of interests. Accordingly, the
consolidated financial statements and notes thereto at March 31, 1998 and for
the three and nine-month periods ended March 31, 1998 and 1997 are presented as
if the acquisitions of Novak & Lackey and MTS had occurred at the beginning of
all periods presented.
For financial reporting purposes, a pro forma provision for income taxes has
been reflected in the consolidated statements of earnings for the three and
nine-month periods ended March 31, 1997 to present taxes on the results of
operations of MTS for the three and nine-month periods ended March 31, 1997 on
the basis that is required upon its change in tax status from an S Corporation
to a C Corporation. The pro forma provision for income taxes is approximately
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 a wholly-owned subsidiary of the Company on June 30, 1997.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary to a fair presentation of the results for interim periods. The results
of operations for the three and nine-month periods ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full fiscal year.
Note 2: Acquisitions
As of October 7, 1997, a wholly-owned subsidiary of the Company purchased
substantially all the assets of Ellis Tower Co., Inc., a Florida corporation, in
exchange for $449,405 in cash and the delivery of 120,848 shares of common stock
of the Company. The transaction was accounted for by the Company as a purchase.
Note 3: Subsequent Events
On April 23, 1998, the Company consummated the transactions contemplated by that
certain Amended and Restated Agreement and Plan of Merger, dated as of February
16, 1998 and amended and restated as of April 22, 1998 (the "Merger
7
<PAGE>
Agreement"), among the Company, OAI Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of the Company ("Acquisition"), OmniAmerica Holdings
Corporation, a Delaware corporation ("OmniAmerica Holdings"), OmniAmerica, Inc.,
a Delaware corporation and wholly-owned subsidiary of Holdings, Omni/HSW
Acquisition, Inc., which, prior to its merger with and into OmniAmerica Holdings
immediately prior to the Merger (as hereinafter defined) was a Delaware
corporation ("Omni/HSW"), and HMTF/Omni Partners, L.P., a Delaware limited
partnership ("OmniPartners"). On April 23, 1998, (i) Omni/HSW was merged (the
"HSW Merger") with and into OmniAmerica Holdings, with OmniAmerica Holdings
being the surviving corporation of the HSW Merger and (ii) immediately
thereafter, Acquisition was merged (the "Merger") with and into OmniAmerica
Holdings, with OmniAmerica Holdings being the surviving corporation of the
Merger and, as a result of the Merger, a wholly-owned subsidiary of the Company.
At the effective time of the Merger, each share of common stock of OmniAmerica
Holdings outstanding immediately prior to the effective time was converted into
the right to receive 0.09109398 shares of common stock of the Company. At the
consummation of the Merger, the Company issued 6,750,000 shares of common stock
to OmniPartners, the former stockholder of OmniAmerica Holdings.
The aggregate consideration paid to acquire OmniAmerica Holdings and its
subsidiaries pursuant to the Merger Agreement was determined as the result of
arm's length negotiations between the Company and OmniAmerica Holdings. Prior to
the consummation of the Merger, OmniAmerica Holdings and its subsidiaries owned
assets consisting of real estate, equipment and other physical property used in
the operation of the wireless communications and broadcast transmission tower
business and, subject to any dispositions that may be agreed upon in the future,
such assets will continue to be utilized by the Company for such purposes.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
Statements contained herein 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
in the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30,
1997 under the caption "ITEM 6, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statements" and
elsewhere therein 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.
Plan of Operations
Management believes that wireless carriers, which have traditionally owned and
operated their own transmission tower assets, have been evaluating the new
opportunities of outsourcing the ownership and operation of their wireless
infrastructure. Many carriers are considering the benefits of entering into
"build-to-suit" arrangements, in which an independent tower company builds a
8
<PAGE>
group of tower sites for a wireless carrier. The third-party provider owns,
leases and operates the wireless infrastructure, often with multiple carriers as
tenants on a given tower. The build-to-suit program offers an end-to-end
solution to wireless carriers and is designed to reduce carriers' capital
expenditures and overhead associated with the traditional methods of acquiring
and owning their wireless networks. Strategically, management has sought to
capitalize on carrier build-to-suit demand, due primarily to the lower cost
advantages anticipated, as the Company can use internal labor and components in
fulfilling build-to-suit agreements. Thus late in the second fiscal quarter,
certain senior management personnel began focusing on opportunities to provide
build-to-suit services to wireless carriers. As of March 31, 1998, approximately
16 sites were under written/oral commitments from five wireless carriers. As of
May 14, 1998, an additional 42 were under written/oral commitment status. The
Company currently intends to continue its businesses of constructing
transmission towers for third parties and the fabrication of tower components.
There can be no assurance that the Company will successfully enter into
significant build-to-suit agreements with any wireless carrier or group of
carriers or that it will be able to reach definitive agreements with the owners
of sites not currently under written contract or develop the sites in a
cost-effective manner. As the Company focuses its resources on tower ownership,
revenues from its construction operations are likely to decline. Management
believes that the decline in revenues from its construction operations will be
mitigated over time by the recurrent revenue stream expected from tower
ownership, including revenues from the transmission towers acquired in the
OmniAmerica Holdings Merger on April 23, 1998, as discussed in "Note 3.
Subsequent Events" to the Company's Consolidated Financial Statements set forth
above.
Results of Operations
For the Three-Month Periods Ended March 31, 1998 and 1997:
Revenues. The Company's revenues for the three-month period ended March 31, 1998
decreased approximately 14% to $15,451,474 from $18,021,774 for the same
three-month period in the prior year. Management believes the decrease in
revenues is principally attributable to a slower rollout of the wireless
infrastructure building and implementation activity in the U.S. compared to the
same period in 1997, as the wireless carrier industry evaluated the new
opportunities for build-to-suit services noted above, and the Company's focus on
obtaining and developing sites for ownership.
Gross Profit. Gross profit as a percentage of revenues decreased from
approximately 20% for the three-month period ended March 31, 1997 to
approximately 9% for the period ended March 31, 1998. Gross profit for the
three-month period ended March 31, 1998 decreased approximately 63% to
$1,333,500 from $3,641,083 for the same three-month period in the prior year.
The decrease resulted from a conscious decision by management to retain the
current workforce in anticipation of the rollout expected for build-to-suit
programs. Field personnel were mobilized throughout the nation to meet regional
workloads, despite the additional costs to be incurred. In addition, management
directed the efforts of certain senior management personnel to focus on the
development of sites for the Company's own account, incurring substantial costs
and change in focus, thus impacting current operations. These actions resulted
in less efficient labor utilization and costs.
Selling, General and Administrative Expenses ("SG&A"). SG&A expenses as a
percentage of revenue was maintained at 5% for both the three-month period ended
March 31, 1998 and 1997. SG&A for the three-month period ended March 31, 1998
decreased approximately 13% to $819,404 compared to $938,048 for the same
three-month period in the prior year, principally due to increased
administrative efficiencies resulting from the continued integration of the
Company's acquisitions effected since the last half of fiscal year 1997.
Net Earnings. Net earnings for the three-month period ended March 31, 1998
decreased to $244,057, compared to pro forma net earnings of $1,571,894 for the
same three-month period in 1997, adjusted to give effect to income taxes on the
earnings of Microwave Tower Service, Inc., which, prior to its acquisition by
the Company, had been an S Corporation tax payer. As a
9
<PAGE>
percentage of revenue, net earnings decreased to 2% from 9% (pro forma) in the
prior year. The decrease is principally the result of management's conscious
decision to retain the current workforce in anticipation of the rollout expected
with the build-to-suit programs implemented by the Company in the third fiscal
quarter and the extra costs incurred to mobilize field personnel to meet
regional workloads and senior management to develop the build-to-suit
opportunities.
For the Nine-Month Periods Ended March 31, 1998 and 1997:
Revenues. The Company's revenues for the nine-month period ended March 31, 1998
decreased approximately 12% to $45,026,754 from $51,184,691 for the same
nine-month period in the prior year. Management believes the decrease in
revenues is principally attributable to a slower rollout of the wireless
infrastructure building and implementation activity in the U.S. compared to the
same period in 1997, as the wireless carrier industry evaluated the new
opportunities for build-to-suit services noted above, and the Company's focus on
obtaining and developing sites for its own account.
Gross Profit. Gross profit as a percentage of revenues decreased to 16% for the
nine-month period ended March 31, 1998 compared to 20% for the same period in
the prior year. Gross profit for the nine-month period ended March 31, 1998
decreased approximately 27% to $7,381,447 from $10,153,091 for the same
nine-month period in the prior year. The decrease resulted from a conscious
effort by management to retain the current workforce in anticipation of the
rollout expected for build-to-suit programs. Field personnel were mobilized
throughout the nation to meet regional workloads, despite the additional costs
to be incurred. In addition, management directed certain senior management
personnel to focus on the development of sites for the Company's own account,
incurring substantial costs and change in focus, thus impacting current
operations. These actions resulted in less efficient labor utilization and
costs.
SG&A Expenses. SG&A expenses as a percentage of revenue were maintained at 7%
for both the nine-month periods ended March 31, 1998 and 1997. SG&A for the
nine-month period ended March 31, 1998 decreased to $2,978,303 compared to
$3,680,383 for the same nine-month period in the prior year. The decrease is
principally due to increased administrative efficiencies resulting from the
continued integration of the Company's acquisitions effected since the last half
of fiscal year 1997, offset by one-time expenses of additional audit and legal
fees incurred for the acquisitions of Novak & Lackey Construction Company, Inc.,
Ellis Tower Company, Inc. and Microwave Tower Service, Inc. Such one time
expenses totaled approximately $140,000 along with the administrative fees to
transition these entities in the Company.
Net Earnings. Net earnings for the nine-month period ended March 31, 1998
decreased to $2,612,861, compared to pro forma net earnings of $3,807,492 for
the nine-month period ended March 31, 1997, adjusted to give effect to income
taxes on the earnings of Microwave Tower Service, Inc., which, prior to its
acquisition by the Company, had been an S Corporation tax payer. As a percentage
of revenue, net earnings decreased to 6% for the nine-month period ended March
31, 1998 from 7% (pro forma) for the same nine-month period in the prior year.
The decrease is principally the result of management's conscious decision to
retain the current workforce in anticipation of the rollout expected with the
build-to-suit programs implemented by the Company in the third quarter and the
extra costs incurred to mobilize field personnel to meet regional workloads and
senior management to develop the build-to-suit opportunities.
Earnings Per Share ("EPS") Disclosures:
The following is the reconciliation of the numerators and denominators of the
basic and diluted EPS computations for net income and other related disclosures
required by Statement of Financial Accounting Standards No. 128, Earnings Per
Share.
10
<PAGE>
<TABLE>
<CAPTION>
For the Nine-Month
Period Ended March 31, 1998
----------------------------------
Per-
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders... $2,612,861 7,939,998 $0.33
Effect of Dilutive Shares
Options .................................. -- 121,837
Dilutive EPS
Income available to common stockholders
plus assumed conversions ............... $2,612,861 8,061,835 $0.32
========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
For the Three-Month Period
Ended March 31, 1998
----------------------------------
Per-
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders .. $ 244,057 8,008,454 $0.03
Effect of Dilutive Shares
Options .................................. -- 154,906
Dilutive EPS
Income available to common stockholders
plus assumed conversions ............... $ 244,057 8,163,360 $0.03
========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
For the Nine-Month
Period Ended March 31, 1997
----------------------------------
Per-
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders .. $5,519,492 6,927,149 $0.80
Effect of Dilutive Shares
Warrants ................................. -- 153,179
Options .................................. -- 75,232
Dilutive EPS
Income available to common stockholders
plus assumed conversions ............... $5,519,492 7,155,560 $0.77
========== ========= =====
Pro forma earnings per share:
Basic .................................... $0.55
Dilutive ................................. $0.53
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
For the Three-Month Period
Ended March 31, 1997
----------------------------------
Per-
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic Earnings Per Share
Income available to common stockholders .. $2,412,894 6,975,969 $0.35
Effect of Dilutive Shares
Warrants ................................. -- 247,475
Options .................................. -- 94,153
Dilutive Earnings Per Share
Income available to common stockholders
plus assumed conversions ............... $2,412,894 7,317,587 $0.33
========== ========= =====
Pro forma earnings per share:
Basic .................................... $0.23
Dilutive ................................. $0.21
</TABLE>
12
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities.
The information set forth under "Note 3. Subsequent Events" in Part I of
this Form 10-QSB is hereby incorporated by reference into this Part II. The
common stock of the Company issued to OmniPartners was not registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to the
exemption from registration provided under Section 4(2) of the Securities Act,
and rules and regulations promulgated thereunder, as a transaction by the issuer
not involving any public offering.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation of Specialty
Teleconstructors, Inc.*
3.2 Amended and Restated Bylaws of Specialty Teleconstructors, Inc.*
10.1 Executive Employment Agreement, dated February 16, 1998,
effective as of April 23, 1998, between the Company and Michael
R. Budagher (Incorporated by reference to the Company's Form 8-K
filed on May 7, 1998)
10.2 Executive Employment Agreement, dated February 16, 1998,
effective as of April 23, 1998, between the Company and Carl E.
Hirsch (Incorporated by reference to the Company's Form 8-K filed
on May 7, 1998)
10.3 Executive Employment Agreement, dated February 16, 1998,
effective as of April 23, 1998, between the Company and Anthony
S. Ocepek (Incorporated by reference to the Company's Form 8-K
filed on May 7, 1998)
27.1 Financial Data Schedule*
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
for which this report is filed. The Company filed a Report on Form 8-K
on May 7, 1998 in respect of the OmniAmerica Holdings Merger. No
financial statements were filed with such Report on Form 8-K.
- ----------------
* Filed herewith.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SPECIALTY TELECONSTRUCTORS, INC.
(Registrant)
Date: May 14, 1998 By: /s/ Anthony S. Ocepek
----------------------------------------
Name: Anthony S. Ocepek
Title: Chief Financial Officer
(Principal Financial and Accounting
Officer of the Registrant, thereunto
duly authorized)
14
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 23, 1998
SPECIALTY TELECONSTRUCTORS, INC.
(Exact name of Registrant as specified in charter)
Nevada 1-13272 85-0421409
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
12001 State Highway 14 North 87008
Cedar Crest, New Mexico (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (505) 281-2197
1
<PAGE>
ITEM 2. Acquisition or Disposition of Assets.
On April 23, 1998, Specialty Teleconstructors, Inc., a Nevada corporation
("STI" and, together with its subsidiaries, the "Company"), consummated the
transactions contemplated by that certain Amended and Restated Agreement and
Plan of Merger, dated as of February 16, 1998 and amended and restated as of
April 22, 1998 (the "Merger Agreement"), among STI, OAI Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of STI ("Acquisition"),
OmniAmerica Holdings Corporation, a Delaware corporation ("Holdings"),
OmniAmerica, Inc., a Delaware corporation and wholly-owned subsidiary of
Holdings, Omni/HSW Acquisition, Inc., which, prior to its merger with and into
Holdings immediately prior to the Merger (as hereinafter defined) was a Delaware
corporation ("Omni/HSW"), and HMTF/Omni Partners, L.P., a Delaware limited
partnership ("OmniPartners"). On April 23, 1998, (i) Omni/HSW was merged (the
"HSW Merger") with and into Holdings, with Holdings being the surviving
corporation of the HSW Merger and (ii) immediately thereafter, Acquisition was
merged (the "Merger") with and into Holdings, with Holdings being the surviving
corporation of the Merger and, as a result of the Merger, a wholly-owned
subsidiary of STI.
At the effective time of the Merger (the "Effective Time"), each share of
common stock, par value $.01 per share, of Holdings outstanding immediately
prior to the Effective Time was converted into the right to receive 0.09109398
shares of common stock, par value $.01 per share, of STI ("STI Common Stock").
At the consummation of the Merger, STI issued 6,750,000 shares of STI Common
Stock to OmniPartners, the former stockholder of Holdings.
The aggregate consideration paid to acquire Holdings and its subsidiaries
pursuant to the Merger Agreement was determined as the result of arm's length
negotiations between STI and Holdings. Prior to the consummation of the Merger,
Holdings and its subsidiaries owned assets constituting real estate, equipment
and other physical property used in the operation of the wireless communications
and broadcast transmission tower business and, subject to any dispositions that
may be agreed upon in the future, such assets will continue to be utilized by
the Company for such purposes.
Pursuant to the Merger Agreement, effective as of the Effective Time, three
of STI's directors, Terry D. Farmer, Frank D. Lackey and Jon D. Word, resigned
from the Board of Directors of STI. Simultaneously therewith, the remaining
members of the Board of Directors of STI increased the size of the Board of
Directors to eight directors and elected one director designated by certain
existing stockholders of STI, Jeffrey A. Howard, and three directors designated
by Hicks, Muse, Tate & Furst Incorporated, a Texas corporation that is an
affiliate of OmniPartners ("HMTF"), Jack D. Furst, Carl E. Hirsch and Lawrence
D. Stuart, Jr., with one additional director to be designated by HMTF subsequent
thereto, to fill
2
<PAGE>
the vacancies created by the increase in size of the Board of Directors of STI.
The Restated Articles of Incorporation of STI provide for a classified Board of
Directors. The members of the Board of Directors of STI are classified as
follows:
Class I Directors
Jeffrey A. Howard
Lawrence D. Stuart, Jr.
Class II Directors
John D. Emery
Carl E. Hirsch
Class III Directors
Michael R. Budagher
Ernie L. Carpenter
Jack D. Furst
Each Class I director will hold office until the 1998 annual meeting of
stockholders of STI, each Class II director will hold office until the 1999
annual meeting of stockholders of STI and each Class III director will hold
office until the 2000 annual meeting of stockholders of STI and, in each case,
until his successor is duly elected or appointed and qualified in the manner
provided in the Restated Articles of Incorporation of STI or Amended and
Restated By-Laws of STI, or as otherwise provided by applicable law.
At the Effective Time, pursuant to the Merger Agreement, the following
individuals were elected as officers of STI:
Carl E. Hirsch -- President and Chief Executive Officer
Michael R. Budagher -- Chief Operating Officer and Vice Chairman
Anthony S. Ocepek -- Chief Financial Officer
Jeffrey A. Howard -- Vice President -- Corporate Development
F. Howard Mandel -- Vice President and General Counsel
Steven M. Smith -- Vice President -- Finance
In connection with the consummation of the Merger, STI and certain
stockholders of STI entered into that certain Post-Merger Stockholders Agreement
(the
3
<PAGE>
"Stockholders Agreement"), dated as of April 23, 1998. Pursuant to the
Stockholders Agreement, HMTF is entitled to designate up to four directors of
the Board of Directors of STI, dependent upon the percentage of the STI Common
Stock owned by OmniPartners and its affiliates. Also pursuant to the terms of
the Stockholders Agreement, STI has the right of first offer upon the proposed
transfer of certain shares of STI Common Stock that are subject to the
Stockholders Agreement. In addition, OmniPartners and certain of its affiliates
have agreed that prior to the termination of the Stockholders Agreement, none of
them will purchase or otherwise acquire, directly or indirectly, more than 49.9%
of the outstanding shares of STI Common Stock. Furthermore, none of such parties
will take certain actions, including, without limitation, soliciting proxies,
encouraging the formation of voting trusts or commencing other actions in order
to seek control of the Board of Directors of STI.
The description of the Merger Agreement contained herein is
qualified in its entirety by reference to the definitive agreement, which is
filed herewith as Exhibit 2.1 and the description of the Stockholders Agreement
contained herein is qualified in its entirety by reference to the definitive
agreement, which is filed herewith as Exhibit 4.1.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
Historical financial statements for OmniAmerica Holdings
Corporation and its subsidiaries required by this Item 7(a) will be provided by
amendment to this Current Report on Form 8-K. Such statements will be filed
pursuant to Item 7(a)(4) of Form 8-K as soon as practicable, but not later than
July 7, 1998, the first business day 60 days after the due date of this Current
Report on Form 8-K.
(b) Pro Forma Financial Information.
It is impracticable to file the pro forma financial
information required by this Item 7(b) at this time because such information is
not available. Such information will be filed pursuant to Item 7(b)(2) of Form
8-K as soon as practicable, but not later than July 7, 1998, the first business
day 60 days after the due date of this Current Report on Form 8-K.
(c) Exhibits.
Exhibit 2.1 - Amended and Restated Agreement and Plan of
Merger, dated April 22, 1998, among Specialty
Teleconstructors, Inc., OAI Acquisition Corp., OmniAmerica
Holdings Corporation, OmniAmerica, Inc., Omni/HSW Acquisition,
Inc. and HMTF/Omni Partners, L.P.
4
<PAGE>
Exhibit 4.1 - Post-Merger Stockholders Agreement, dated April 23,
1998, among Specialty Teleconstructors, Inc. and the stockholders
of Specialty Teleconstructors, Inc. party thereto.
Exhibit 10.1 - Executive Employment Agreement, dated February 16,
1998, effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Michael R. Budagher.
Exhibit 10.2 - Executive Employment Agreement, dated February 16,
1998, effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Carl E. Hirsch.
Exhibit 10.3 - First Amendment to Employment Agreement, dated
April 22, 1998, effective as of the Effective Time, between
Specialty Teleconstructors, Inc. and Jeffrey A. Howard.
Exhibit 10.4 - Executive Employment Agreement, dated February 16,
1998, effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Anthony S. Ocepek.
Exhibit 99.1 - Press Release, dated April 24, 1998.
Exhibit 99.2 - Resignation of Terry D. Farmer, effective as of
the Effective Time.
Exhibit 99.3 - Resignation of Frank D. Lackey, effective as of
the Effective Time.
Exhibit 99.4 - Resignation of Jon D. Word, effective as of the
Effective Time.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SPECIALTY TELECONSTRUCTORS, INC.
(Registrant)
Date: May 7, 1998 By: /s/ F. Howard Mandel
--------------------
F. Howard Mandel
Vice President and
General Counsel
6
<PAGE>
The registrant hereby agrees to supplementally furnish to the
Securities and Exchange Commission, upon request, copies of all schedules to the
Amended and Restated Agreement and Plan of Merger, dated as of April 22, 1998,
among Specialty Teleconstructors, Inc., OAI Acquisition Corp., OmniAmerica
Holdings Corporation, OmniAmerica, Inc., Omni/HSW Acquisition, Inc. and
HMTF/Omni Partners, L.P., as listed below:
SCHEDULES
4.1.1 Corporate and Partnership Existence and Authority
4.1.2 Capitalization
4.1.5 Governmental and Other Consents
4.1.6 Financial Statements
4.1.7 Absence of Certain Liabilities
4.1.8 Absence of Changes
4.1.12 Insurance
4.1.13 Title to Properties
4.1.14 Real Property and Real Property Leases
4.1.15 Intangible Personal Property
4.1.16 Agreements
4.1.17 Indebtedness and Guaranties
4.1.18 Debts to and from Related Parties
4.1.21 ERISA
4.1.22 Employees
4.1.23 No Conflicts of Interest
4.1.27 Tower Space Leases
4.1.28 KISCO Shares
4.2.4 OmniPartners Consents
4.3.1 Corporate Existence and Authority of STI
4.3.2 Capitalization of STI
4.3.4 Execution; No Violations of STI
4.3.5 Governmental and Other Consents of STI
4.3.6 Financial Statements of STI
4.3.8 Absence of Changes of STI
4.3.10 Disputes and Litigation of STI
4.3.12 Insurance of STI
4.3.13 Title to Properties of STI
4.3.14 Real Property and Real Property Leases of STI
4.3.15 Intangible Personal Property of STI
4.3.16 Agreements of STI
7
<PAGE>
4.3.17 Indebtedness and Guaranties of STI
4.3.18 Debts to and from Related Parties of STI
4.3.21 Employee Benefits of STI
4.3.25 Licenses of STI
SPECIALTY TELECONSTRUCTORS, INC.
Date: May 7, 1998 By: /s/ F. Howard Mandel
------------------------
F. Howard Mandel
Vice President and General Counsel
8
<PAGE>
EXHIBIT INDEX
Exhibit
2.1 - Amended and Restated Agreement and Plan of Merger, dated April
22, 1998, among Specialty Teleconstructors, Inc., OAI Acquisition
Corp., OmniAmerica Holdings Corporation, OmniAmerica, Inc., Omni/
HSW Acquisition, Inc. and HMTF/Omni Partners, L.P.
4.1 - Post-Merger Stockholders Agreement, dated April 23, 1998, among
Specialty Teleconstructors, Inc. and the stockholders of Specialty
Teleconstructors, Inc. party thereto.
10.1 - Executive Employment Agreement, dated February 16, 1998, effective
as of the Effective Time, between Specialty Teleconstructors, Inc.
and Michael R. Budagher.
10.2 - Executive Employment Agreement, dated February 16, 1998, effective
as of the Effective Time, between Specialty Teleconstructors, Inc.
and Carl E. Hirsch.
10.3 - First Amendment to Employment Agreement, dated April 22, 1998,
effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Jeffrey A. Howard.
10.4 - Executive Employment Agreement, dated February 16, 1998, effective
as of the Effective Time, between Specialty Teleconstructors, Inc.
and Anthony S. Ocepek.
99.1 - Press Release, dated April 24, 1998.
99.2 - Resignation of Terry D. Farmer, effective as of the Effective
Time.
99.3 - Resignation of Frank D. Lackey, effective as of the Effective
Time.
99.4 - Resignation of Jon D. Word, effective as of the Effective Time.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 23, 1998
SPECIALTY TELECONSTRUCTORS, INC.
(Exact name of Registrant as specified in charter)
NEVADA 1-13272 85-0421409
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction Identification No.)
of incorporation)
12001 STATE HIGHWAY 14 NORTH 87008
CEDAR CREST, NEW MEXICO (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (505) 281-2197
DAFS03...:\95\66295\0003\1761\8-K6128X.58E
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On April 23, 1998, Specialty Teleconstructors, Inc., a Nevada
corporation ("STI" and, together with its subsidiaries, the "Company"),
consummated the transactions contemplated by that certain Amended and Restated
Agreement and Plan of Merger, dated as of February 16, 1998 and amended and
restated as of April 22, 1998 (the "Merger Agreement"), among STI, OAI
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of STI
("Acquisition"), OmniAmerica Holdings Corporation, a Delaware corporation
("Holdings"), OmniAmerica, Inc., a Delaware corporation and wholly-owned
subsidiary of Holdings, Omni/HSW Acquisition, Inc., which, prior to its merger
with and into Holdings immediately prior to the Merger (as hereinafter defined)
was a Delaware corporation ("Omni/HSW"), and HMTF/Omni Partners, L.P., a
Delaware limited partnership ("OmniPartners"). On April 23, 1998, (i) Omni/HSW
was merged (the "HSW Merger") with and into Holdings, with Holdings being the
surviving corporation of the HSW Merger and (ii) immediately thereafter,
Acquisition was merged (the "Merger") with and into Holdings, with Holdings
being the surviving corporation of the Merger and, as a result of the Merger, a
wholly-owned subsidiary of STI.
At the effective time of the Merger (the "Effective Time"), each
share of common stock, par value $.01 per share, of Holdings outstanding
immediately prior to the Effective Time was converted into the right to receive
0.09109398 shares of common stock, par value $.01 per share, of STI ("STI Common
Stock"). At the consummation of the Merger, STI issued 6,750,000 shares of STI
Common Stock to OmniPartners, the former stockholder of Holdings.
The aggregate consideration paid to acquire Holdings and its
subsidiaries pursuant to the Merger Agreement was determined as the result of
arm's length negotiations between STI and Holdings. Prior to the consummation of
the Merger, Holdings and its subsidiaries owned assets constituting real estate,
equipment and other physical property used in the operation of the wireless
communications and broadcast transmission tower business and, subject to any
dispositions that may be agreed upon in the future, such assets will continue to
be utilized by the Company for such purposes.
Pursuant to the Merger Agreement, effective as of the Effective
Time, three of STI's directors, Terry D. Farmer, Frank D. Lackey and Jon D.
Word, resigned from the Board of Directors of STI. Simultaneously therewith, the
remaining members of the Board of Directors of STI increased the size of the
Board of Directors to eight directors and elected one director designated by
certain existing stockholders of STI, Jeffrey A. Howard, and three directors
designated by Hicks, Muse, Tate & Furst Incorporated, a Texas corporation that
is an affiliate of OmniPartners ("HMTF"), Jack D. Furst, Carl E. Hirsch and
Lawrence D. Stuart, Jr., with one additional director to be designated by HMTF
subsequent thereto, to fill the vacancies created by the increase in size of the
Board of Directors of STI. The Restated Articles of Incorporation of STI provide
for a classified Board of Directors. The members of the Board of Directors of
STI are classified as follows:
2
<PAGE>
Class I Directors
-----------------
Jeffrey A. Howard
Lawrence D. Stuart, Jr.
Class II Directors
------------------
John D. Emery
Carl E. Hirsch
Class III Directors
-------------------
Michael R. Budagher
Ernie L. Carpenter
Jack D. Furst
Each Class I director will hold office until the 1998 annual meeting
of stockholders of STI, each Class II director will hold office until the 1999
annual meeting of stockholders of STI and each Class III director will hold
office until the 2000 annual meeting of stockholders of STI and, in each case,
until his successor is duly elected or appointed and qualified in the manner
provided in the Restated Articles of Incorporation of STI or Amended and
Restated By-Laws of STI, or as otherwise provided by applicable law.
At the Effective Time, pursuant to the Merger Agreement, the
following individuals were elected as officers of STI:
Jack D. Furst -- Chairman of the Board
Carl E. Hirsch -- President and Chief Executive Officer
Michael R. Budagher -- Chief Operating Officer and Vice Chairman
Anthony S. Ocepek -- Chief Financial Officer
Jeffrey A. Howard -- Vice President -- Corporate Development
F. Howard Mandel -- Vice President and General Counsel
Steven M. Smith -- Vice President -- Finance
In connection with the consummation of the Merger, STI and certain
stockholders of STI entered into that certain Post-Merger Stockholders Agreement
(the "Stockholders Agreement"), dated as of April 23, 1998. Pursuant to the
Stockholders Agreement, HMTF is entitled to designate up to four directors of
the Board of Directors of STI, dependent upon the percentage of the STI Common
Stock owned by OmniPartners and its affiliates. Also pursuant to the terms of
the Stockholders Agreement, STI has the right of first offer upon the proposed
transfer of certain shares of STI Common Stock that are subject to the
Stockholders Agreement. In addition, OmniPartners and certain of its affiliates
have agreed that prior to the termination of the Stockholders Agreement, none of
them will purchase or otherwise acquire, directly or indirectly, more than 49.9%
of the outstanding shares of STI Common Stock. Furthermore, none of such parties
will take certain actions, including, without limitation, soliciting proxies,
encouraging the formation of voting trusts or commencing other actions in order
to seek control of the Board of Directors of STI.
3
<PAGE>
The description of the Merger Agreement contained herein is
qualified in its entirety by reference to the definitive agreement, which is
filed herewith as Exhibit 2.1 and the description of the Stockholders Agreement
contained herein is qualified in its entirety by reference to the definitive
agreement, which is filed herewith as Exhibit 4.1.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The following are the audited historical financial statements
for (i) Holdings as of December 31, 1997 and for the period from inception
(October 15, 1997) through December 31, 1997, (ii) HSW Associates, Inc., a
Florida corporation ("HSW"), as of December 31, 1997 and for each of the two
years in the period then ended, (iii) TowerCom, Limited, a Florida limited
partnership ("TowerCom"), as of December 31, 1997 and December 31, 1996 and for
the years then ended, (iv) Miller Transmission Tower Company, Limited, a Texas
limited partnership ("Miller"), as of December 31, 1997 and December 31, 1996
and for the years then ended, and (v) Kline Iron & Steel Company, Inc., a South
Carolina corporation ("Kline"), as of September 30, 1997 and September 30, 1996
and for the years then ended.
4
<PAGE>
Report of Independent Auditors
Board of Directors
OmniAmerica Holdings Corporation
We have audited the accompanying consolidated balance sheet of OmniAmerica
Holdings Corporation (the Company) as of December 31, 1997, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
the period from inception (October 15, 1997) through December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
OmniAmerica Holdings Corporation at December 31, 1997, and the consolidated
results of their operations and their cash flows for the period from inception
(October 15, 1997) through December 31, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
February 20, 1998
5
<PAGE>
OmniAmerica Holdings Corporation
Consolidated Balance Sheet
December 31, 1997
ASSETS
Current assets:
Cash $ 4,442
Accounts receivable, less allowance for doubtful
accounts of $323 15,273
Prepaid expenses 56,411
-------------
Total current assets 76,126
Property and equipment:
Land 234,805
Buildings and improvements 729,195
Towers 517,239
Office and computer equipment 37,855
Vehicles 38,707
-------------
1,577,801
Less allowance for depreciation 2,407
1,555,394
Other assets:
Goodwill, net of accumulated amortization of $11,848 5,040,640
Investment in Kline Iron & Steel Co., Inc. 7,509,019
Other 425,314
12,974,973
Total assets $ 14,606,493
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 11,175
Accounts payable, officers 568,184
Accrued liabilities 937,895
Note payable 6,325,000
------------
7,842,254
Stockholder's equity:
Common stock, $.01 par value:
Authorized shares - 30,000,000
Issued and outstanding shares - 7,501,000 75,010
Additional paid-in capital 7,500,990
Retained earnings (deficit) (811,761)
------------
Total stockholder's equity 6,764,239
Total liabilities and stockholder's equity $ 14,606,493
See accompanying notes.
6
<PAGE>
OmniAmerica Holdings Corporation
Consolidated Statement of Operations
Period from Inception (October 15, 1997) through December 31, 1997
Tower rental revenues $ 15,597
Cost of services 1,206
-----------
Gross margin 14,391
General and administrative expenses 838,791
Depreciation and amortization 14,255
----------
853,046
----------
Operating loss (838,655)
Other income (expense):
Equity in earnings of Kline Iron & Steel Co., Inc. 59,279
Interest income 360
Interest expense (32,745)
----------
26,894
----------
Loss before income taxes (811,761)
Income tax benefit -
----------
Net loss $(811,761)
==========
See accompanying notes.
7
<PAGE>
OmniAmerica Holdings Corporation
Consolidated Statement of Stockholder's Equity
Period from Inception (October 15, 1997) through December 31, 1997
<TABLE>
<CAPTION>
Additional Retained Total
Common Stock Paid-in Earnings Stockholder's
Shares Amount Capital (Deficit) Equity
--------------- -------------- --------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
Balance at October 15,
1997 (Inception) - $ - $ - $ - $ -
Common stock issued
for cash 7,501,000 75,010 7,425,990 - 7,501,000
Issuance of stock
option (Note 9) - - 75,000 - 75,000
Net loss - - - (811,761) (811,761)
--------------- -------------- --------------- ---------------- --------------------
Balance at
December 31, 1997 7,501,000 $75,010 $7,500,990 $(811,761) $6,764,239
=============== ============== =============== ================ ====================
</TABLE>
See accompanying notes.
8
<PAGE>
OmniAmerica Holdings Corporation
Consolidated Statement of Cash Flows
Period from Inception (October 15, 1997) through December 31, 1997
OPERATING ACTIVITIES
Net loss $ (811,761)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 14,255
Equity in earnings of Kline Iron & Steel Co., Inc. (59,279)
Provision for losses on accounts receivable 323
Change in operating assets and liabilities:
Increase in accounts receivable (15,596)
Increase in prepaid expenses (56,411)
Increase in accounts payable, officers 568,184
Increase in accounts payable 11,175
Increase in accrued expenses 937,895
-----------
Net cash provided by operating activities 588,785
INVESTING ACTIVITIES
Purchase of property and equipment (76,564)
Acquisitions of tower sites and related property (208,725)
Investment in Kline Iron & Steel Co., Inc. (7,374,740)
Other (425,314)
-----------
Net cash used in investing activities (8,085,343)
-----------
FINANCING ACTIVITIES
Proceeds from stock issuance 7,501,000
Net cash provided by financing activities 7,501,000
Increase in cash 4,442
Cash at beginning of period -
-----------
Cash at end of period $ 4,442
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest $ -
Income taxes -
Non-cash investing and financing activities:
Issuance of note payable to purchase Radio Seaway
Incorporated (Note 8) 6,325,000
Issuance of stock option (Note 9) 75,000
See accompanying notes.
9
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements
December 31, 1997
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
OmniAmerica Holdings Corporation (the Corporation), a Delaware corporation, is
headquartered in West Palm Beach, Florida, and was formed by HMTF/Omni Partners,
L.P. (the Partnership) as a holding company for its wholly-owned subsidiary,
OmniAmerica, Inc. (Omni), on October 15, 1997. The Company owns and manages
transmission towers for radio and television broadcasting, paging, cellular,
personal communication system (PCS), and other wireless technologies throughout
the United States.
On November 14, 1997, the Corporation acquired a one-third interest in Kline
Iron & Steel Co., Inc. (Kline), a tower fabrication company, for approximately
$7 million which is accounted for using the equity method (see Note 9).
Additionally, the Corporation acquired the following towers, real estate, and
property during 1997, each of which was accounted for using the purchase method
of accounting:
<TABLE>
<CAPTION>
PROPERTY ACQUIRED PURCHASE
FROM LOCATION PRICE DATE ACQUIRED
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dein P. Spriggs and Palm Beach $ 175,000 November 24, 1997
Robert D. Abersold Gardens, Florida
(three non-operating
towers)
Radio Seaway, Warrensville $6,325,000 December 19, 1997
Incorporated (one Heights, Ohio
operating tower)
</TABLE>
The statement of operations includes revenues and operating costs of the
acquired towers from their respective dates of acquisition.
2. ACCOUNTING POLICIES
PREPARATION OF FINANCIAL STATEMENTS
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.
10
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation
and Omni. All significant intercompany accounts and transactions have been
eliminated.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets, as follows:
Buildings 39 years
Towers 15 years
Antenna equipment 5 years
Vehicles 5 years
Furniture and fixtures 7 years
Computer and office equipment 5 years
GOODWILL AND OTHER ASSETS
Goodwill of $5,052,488, primarily associated with the Radio Seaway, Incorporated
transaction, is being amortized on a straight-line basis over its estimated
useful life of fifteen years.
REVENUE RECOGNITION
Revenue is recognized as earned over the respective lease terms.
FEDERAL INCOME TAXES
Income taxes are reported under the liability method. Accordingly, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities, and are measured using
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
11
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
INVESTMENT IN KLINE
The difference between the cost of the Corporation's interest in Kline and the
amount of underlying equity in net assets at the date of acquisition is
approximately $6.2 million, which is being amortized on a straight-line basis
over 40 years.
CONCENTRATION OF CREDIT RISK
The Corporation provides services to major communications companies, most of
which are in major metropolitan areas. The Corporation may perform periodic
credit evaluations of the customers' financial condition and generally does not
require collateral. Receivables generally are due within 30 days.
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31
1997
----
Accrued professional fees $555,691
Accrued payroll and related 332,186
Accrued franchise taxes 32,075
Accrued interest 16,636
Other 1,307
---------
$937,895
12
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements (continued)
4. INCOME TAXES
Deferred tax assets and liabilities are as follows:
DECEMBER 31
1997
----
Deferred tax assets:
Tax benefit of net operating loss carryforward $ 64,028
Start-up costs deferred for tax purposes 271,643
----------
Total deferred tax assets 335,671
Less: valuation allowance (312,789)
----------
22,882
Deferred tax liability:
Equity in earnings of Kline Iron & Steel Co., Inc.
not currently taxable (22,882)
----------
Net deferred tax assets $ -
==========
The difference between the effective income tax rate and the statutory tax rate
is attributable to the uncertainty of the realization of deferred tax assets.
The Corporation has a net operating loss carryforward of approximately $165,000
for tax purposes to offset future taxable income. The net operating loss
carryforward expires in 2012.
5. RELATED PARTY
Carl E. Hirsch and Anthony S. Ocepek, officers of the Corporation, used personal
funds to pay expenses relating to the formation of the Corporation, such as
office space rent, travel, telephone, payroll, and purchases of property and
equipment. These expenses totaled $568,184 and are included in accounts payable,
officers.
13
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements (continued)
6. COMMITMENTS
The Company leases office space and certain equipment under operating leases
expiring through 2000. Rent expense was $29,719 for the period ended December
31, 1997. Future minimum payments under non-cancelable operating leases for the
year ending December 31, are as follows:
1998 $42,260
1999 9,000
2000 1,500
-------
$52,760
=======
7. TOWER RENTAL REVENUE
The Corporation receives rental revenue from its tenants for use of its towers.
Certain leases with tenants include renewal options and/or escalation clauses.
Future minimum tower rental revenues under tower leases in effect at December
31, 1997, are as follows:
1998 $ 493,176
1999 457,782
2000 402,039
2001 355,797
2002 259,974
Thereafter 766,188
-----------
$2,734,956
===========
8. NOTES PAYABLE
The acquisition of Radio Seaway, Incorporated was financed by the issuance to
its owner of a note payable for $6,325,000, bearing interest at 8% and due on
January 7, 1998. The note was paid in full on that date, including $16,636 of
accrued interest.
14
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements (continued)
9. INVESTMENT IN KLINE IRON & STEEL CO., INC.
Summarized financial information of Kline is as follows:
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31 SEPTEMBER 30
1997 1997
-----------------------------------------------------
Sales $ 13,311,541 $ 49,045,582
Gross profit 1,931,713 6,608,425
Net income 480,939 1,009,375
(UNAUDITED)
DECEMBER 31
1997
----------------------------
Current assets $ 14,327,009
Non-current assets 3,408,961
Current liabilities 11,494,362
Non-current liabilities 2,267,391
Stockholders' equity 3,974,217
In connection with the Kline transaction, the Corporation granted Jerome C.
Kline, Kline's shareholder, an option to purchase up to 500,000 shares of the
Corporation's common stock at an exercise price of $1.00 per share, increasing
8% per year, for a period of five years commencing on November 14, 1997, and
ending on November 14, 2002. The value assigned to this option at its date of
issue of $75,000 represents additional consideration for the Kline stock
purchase. As of December 31, 1997, no options have been exercised.
The Corporation's investment in Kline includes a 1.5% transaction fee of
$105,000 paid to Hicks, Muse, Tate & Furst Incorporated, an affiliate of the
Partnership.
15
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements (continued)
10. PARTNERSHIP INTERESTS
The agreement under which the Partnership was formed (the Partnership Agreement)
provides for conveying to members of management, interests in the partnership,
representing rights to partnership distributions to the extent cumulative
partnership distributions exceed specified thresholds. The partnership interests
that may be allocated to members of management range from zero up to a total of
15% (rights to up to 6.4% have been allocated to members of management through
December 31, 1997). The percentage to be conveyed is determined based on
performance criteria set forth in the Partnership Agreement. The fair value of
partnership interests earned through December 31, 1997, is not material.
11. YEAR 2000 ISSUE (UNAUDITED)
When the Corporation was formed during 1997, it purchased Year 2000-ready
computers and related office equipment. Additionally, management has determined
that its towers and related equipment are unaffected by the year 2000.
12. SUBSEQUENT EVENTS
On January 6, 1998, the Corporation issued 11,183,724 shares of common stock to
the Partnership in exchange for approximately $11.2 million cash. A portion of
these funds were used to pay the note payable to Radio Seaway, Incorporated.
On February 4, 1998, the Corporation issued 55,414,574 shares of common stock to
the Partnership in exchange for approximately $55.4 million cash.
Through February 20, 1998, the Corporation has acquired the following towers,
real estate, and property:
ACQUISITION LOCATION PURCHASE PRICE DATE ACQUIRED
- --------------------------------------------------------------------------------
Ardman Broadcasting
(2 operating towers) Ft. Pierce, FL $ 1,350,000 January 15, 1998
TowerCom, Limited
(2 operating towers and 2
towers under construction) Miami, FL $27,500,000 February 5, 1998
Miller Transmission Tower
Company Ltd.
(2 operating towers and 1
tower under construction) Dallas, TX $24,100,000 February 6, 1998
16
<PAGE>
OmniAmerica Holdings Corporation
Notes to Consolidated Financial Statements (continued)
12. SUBSEQUENT EVENTS (CONTINUED)
On February 17, 1998, the Partnership signed a definitive agreement under which
the Corporation and Specialty Teleconstructors, Inc. (Specialty), a publicly
traded Nasdaq-listed company, will merge in a stock-for-stock transaction valued
at approximately $500 million. The Corporation and Specialty will combine in a
tax-free exchange of stock in which the Partnership will receive approximately
6.75 million newly-issued shares of Specialty in exchange for 100% of the
Corporation's common stock.
Immediately prior to the closing of the Corporation's merger with Specialty, the
Corporation expects to merge with Omni/HSW Acquisition, Inc. (Omni/HSW), a
corporation formed by the Partnership in 1998 which, in January 1998, purchased
and currently manages 22 operating towers and has two towers under construction.
These transactions are expected to be completed by the end of April 1998.
17
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholder
HSW Associates, Inc.
We have audited the accompanying statement of assets sold by HSW Associates,
Inc. (HSW) as of December 31, 1997, and the related statements of revenues and
direct operating expenses of assets sold by HSW Associates, Inc. for each of the
two years in the period then ended. These statements are the responsibility of
HSW's management. Our responsibility is to express an opinion on these
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets sold by HSW
Associates, Inc. and the related statements of revenues and direct operating
expenses of assets sold by HSW Associates, Inc. are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of assets sold by HSW Associates,
Inc. and the related statements of revenues and direct operating expenses of
assets sold by HSW Associates, Inc. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the statement of assets sold by HSW
Associates, Inc. and the related statements of revenues and direct operating
expenses of assets sold by HSW Associates, Inc. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all material
respects, the assets sold by HSW Associates, Inc. as of December 31, 1997, and
the related revenues and direct operating expenses of assets sold by HSW
Associates, Inc. for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
March 31, 1998
18
<PAGE>
HSW Associates, Inc.
Statement of Assets Sold by HSW Associates, Inc.
December 31, 1997
Fixed assets, at cost:
Buildings $ 152,201
Towers 1,669,608
----------
1,821,809
Less: accumulated depreciation 431,812
----------
Fixed assets, net $1,389,997
==========
See accompanying notes.
19
<PAGE>
HSW Associates, Inc.
Statements of Revenues and Direct Operating Expenses
of Assets Sold by HSW Associates, Inc.
YEAR END DECEMBER 31
1997 1996
------------------ ----------
Lease revenue of assets sold $962,664 $638,887
Direct operating expenses of assets sold:
Depreciation 99,518 60,609
Utilities 118,596 98,968
Maintenance 48,846 29,780
Insurance 1,195 1,552
Property Taxes 33,322 20,115
Other 22,563 13,429
---------- ----------
Total direct operating expenses of assets sold 324,040 224,453
---------- ----------
Excess of revenues over direct operating $638,624 $414,434
========== ==========
expenses of assets sold
See accompanying notes.
20
<PAGE>
HSW Associates, Inc.
Notes to Financial Statements
December 31, 1997 and 1996
1. BASIS OF PRESENTATION
HSW Associates, Inc. (HSW) and OmniAmerica, Inc. (the Buyer) entered into an
Agreement for the acquisition of certain towers of HSW (the Agreement) dated
January 15, 1998, under which the Buyer acquired certain assets and assumed
certain obligations of HSW. The assets acquired consist primarily of twenty-four
telecommunication towers (the Towers) owned by HSW. Of these twenty-four towers,
twenty-one are currently operational. The remaining three towers are valued at
$54,252 at December 31, 1997, and are included in the Statement of Assets Sold
by HSW Associates, Inc. Under the terms of the Agreement, the Buyer assumed all
obligations of HSW as landlord, licensor or tenant relating to the tower space
leases with respect to the period after the closing date. The Buyer also assumed
all obligations of HSW subsequent to the closing date relating to the operation
of the Towers and any contracts entered into by HSW during the ordinary course
of business of HSW relating to the Towers but only to the extent that such
contracts were chosen to be included in the obligations assumed by the Buyer.
The Buyer did not assume any of the following operating liabilities incurred
prior to the acquisition of the Towers: liabilities relating to litigation or
claims, tax liabilities, liabilities of HSW as employer, operating liabilities
incurred prior to the acquisition of the Towers, liabilities relating to
indebtedness of HSW, environmental liabilities and liabilities associated with
transaction costs incurred by HSW relating to the Agreement.
The accompanying statement of assets sold by HSW Associates, Inc. and the
related statements of revenues and direct operating expenses of assets sold by
HSW Associates, Inc. were prepared for the purpose of complying with the
requirements of the Securities and Exchange Commission for inclusion in the
Current Report on Form 8-K of Specialty Teleconstructors, Inc. and are not
intended to be a complete presentation of HSW's assets and liabilities or
revenues and expenses.
Property taxes are allocated for the assets sold by HSW based on the respective
asset's net book value.
Lease revenues represent charges for tower usage billed to third-party customers
under lease arrangements.
21
<PAGE>
HSW Associates, Inc.
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue is recognized ratably over the lease term, reduced by any amounts not
considered collectible.
DEPRECIATION
Tower and buildings are depreciated using a straight-line method over 15 years.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
FUTURE MINIMUM RENTALS
Future minimum rentals receivable under noncancelable operating leases as of
December 31, 1997, are approximately:
1998 $1,114,145
1999 988,707
2000 883,959
2001 674,941
2002 and thereafter 370,121
----------
Total $4,031,873
==========
22
<PAGE>
Independent Auditors' Report
The Partners of
TowerCom, Limited:
We have audited the accompanying balance sheets of TowerCom, Limited (the
Partnership) as of December 31, 1997 and 1996 and the related statements of
operations, partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership as of December
31, 1997 and 1996 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
March 19, 1998
Jacksonville, Florida
23
<PAGE>
TOWERCOM, LIMITED
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ------------- --------------
<S> <C> <C>
Cash and cash equivalents $ 149,148 495,617
Accounts receivable- trade (note 3) 200,134 179,699
Accounts receivable- related party (note 5) 100,237 23,609
Prepaid expenses 57,825 58,868
-------------- --------------
Total current assets 507,344 757,793
Property, plant and equipment (notes 2, 3 and 4): 11,209,671 10,643,177
Less accumulated depreciation (1,311,641) (951,387)
-------------- --------------
9,989,030 9,691,790
Accounts receivable, net of current portion 506,216 387,370
Goodwill, net of accumulated amortization of $68,117 in 1997 258,740 280,541
and $46,316 in 1996
Deferred debt issue costs, net of accumulated amortization of 107,835 123,520
$49,016 in 1997 and $33,331 in 1996
Other 12,454 24,820
-------------- --------------
Total assets $11,290,619 11,265,834
============== ==============
Liabilities and Partners' Capital
Current installments of long-term debt (note 3) 762,194 703,935
Accounts payable 10,502 11,796
Accrued liabilities 48,350 39,878
-------------- --------------
Total current liabilities 821,046 755,609
Long-term debt, excluding current installments (note 3) 5,824,760 6,552,848
-------------- --------------
Total liabilities 6,645,806 7,308,457
-------------- --------------
Partners' capital 4,644,813 3,957,377
-------------- --------------
Commitments (note 6)
Total liabilities and partners' capital $11,290,619 11,265,834
============== ==============
See accompanying notes to financial statements.
</TABLE>
24
<PAGE>
TOWERCOM, LIMITED
Statements of Operations
For the years ended December 31, 1997 and 1996
1997 1996
---- ----
Rental income (notes 3 and 4) $2,720,657 2,721,020
Operating expenses (note 5):
Salaries and benefits 244,247 181,384
Depreciation and amortization 400,207 437,252
Real estate and other taxes 62,562 61,303
Insurance 53,119 45,186
Rent 22,194 17,736
Utilities 69,445 69,961
Repairs and maintenance 81,698 101,561
Professional fees 45,614 67,523
Security 80,696 78,042
Travel and entertainment 12,200 16,637
Promotion 12,116 4,226
Other 37,443 31,248
---------- -----------
Total operating expenses 1,121,541 1,112,059
---------- -----------
Net operating income 1,599,116 1,608,961
Other, net:
Interest income 43,226 16,668
Interest expense (577,590) (663,595)
Development expense (46,909) (34,637)
---------- -----------
Total other (581,273) (681,564)
---------- -----------
Net income $1,017,843 927,397
========== ===========
See accompanying notes to financial statements.
25
<PAGE>
TOWERCOM, LIMITED
Statements of Partners' Capital
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
TowerCom, South- South John H. Anthony S. Total
Inc. coast Atlantic Wilson Ocepek
Capital Tower
Corp. Corp.
--------- ---------- ---------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $32,358 1,461,885 1,461,885 279,652 - 3,235,780
Net income 9,274 418,998 418,998 80,127 - 927,397
Distribution to Partners' (2,000) (93,000) (93,000) (17,800) - (205,800)
--------- ---------- ---------- --------- -------- ------------
Balance, December 31, 1996 39,632 1,787,883 1,787,883 341,979 - 3,957,377
Paid in Capital - - - - 675,000 675,000
Net income 10,178 436,634 436,634 83,505 50,892 1,017,843
Distributions to Partners' (10,056) (454,234) (454,234) (86,883) - (1,005,407)
--------- ---------- ---------- --------- -------- ------------
Balance, December 31, 1997 $39,754 1,770,283 1,770,283 338,601 725,892 4,644,813
========= ========== ========== ========= ======== ============
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
TOWERCOM, LIMITED
Statements of Cash Flows
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,017,843 927,397
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 400,207 437,252
Changes in assets and liabilities:
Accounts receivable (215,909) (121,555)
Prepaid expenses and other 10,942 (10,965)
Accounts payable (1,294) (16,262)
Accrued liabilities 8,472 (19,851)
------------ -----------
Net cash provided by operating activities 1,220,261 1,196,016
------------ -----------
Cash flows from investing activities:
Capital expenditures (566,494) (13,759)
------------ -----------
Net cash used in investing activities (566,494) (13,759)
------------ -----------
Cash flows from financing activities:
Paid in Capital 675,000 -
Distributions to Partners (1,005,407) (205,800)
Repayment of long-term debt (669,829) (614,543)
------------ -----------
Net cash used in financing activities (1,000,236) (820,343)
------------ -----------
Net increase (decrease) in cash and cash equivalents (346,469) 361,914
Cash and cash equivalents at beginning of period 495,617 133,703
------------ -----------
Cash and cash equivalents at end of period $ 149,148 495,617
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 580,143 635,429
============ ===========
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
TOWERCOM, LIMITED
Notes to Financial Statements
December 31, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
TowerCom, Limited, a Florida Limited Partnership (the Partnership),
was formed on November 17, 1994 to engage in the business of owning,
developing, constructing, leasing, operating, and selling broadcast
towers and related equipment. The Partnership currently owns and
leases two broadcast towers located in Dade County and Orange
County, Florida.
The Partnership is owned 1% by TowerCom, Inc., a Florida
corporation, 42.898% (45.18% in 1996) by Southcoast Capital
Corporation, a Florida corporation (Southcoast), 42.898% (45.18% in
1996) by South Atlantic Tower Corporation, a Delaware corporation,
5% (0% in 1996) by TowerCom's President, and 8.204% (8.64% in 1996)
by an individual.
(b) Cash Equivalents
Cash and cash equivalents includes all short-term investments with
original maturity dates of three months or less.
(c) Property Plant and Equipment
Property, plant and equipment, excluding the towers and buildings,
are recorded at cost and depreciated over their estimated useful
lives by a method that approximates the double declining balance
method.
The towers and buildings are recorded at cost and depreciated over
their estimated useful lives by the straight-line method.
(d) Goodwill
Goodwill represents the excess of the purchase price over the fair
value of property, plant and equipment and is amortized over 15
years by the straight-line method.
(e) Deferred Debt Issue Costs
Debt origination costs are deferred and amortized over the term of
the loan using the straight-line method which approximates the
effective interest method.
28
<PAGE>
TOWERCOM, LIMITED
Notes to Financial Statements
(1) Summary of Significant Accounting Policies, continued
(f) Revenue Recognition
Rent income is recognized as revenue over the life of the lease by
the straight-line method.
(g) Income Taxes
No provision for Federal or state income taxes has been made since
income taxes of the Partnership are the responsibility of the
Partners.
(h) 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.
(i) Allocation of Profits and Losses and Cash Distributions
As defined in the Limited Partnership agreement, the following
summarizes the allocation of net income and losses and cash
distributions:
o The net income and losses of the Partnership shall be
allocated to the Partners in proportion to their Percentage
Interests, as defined.
o Annual cash distributions shall be made in amounts at least
equal to the Federal Income Tax liability of the Partners
attributable to the net income allocated to the Partners for
the year calculated at an assumed marginal income tax rate of
thirty one percent (31%).
o Cash distributions for any other purpose are at the sole
discretion of the General Partner and shall be distributed to
the Partners in proportion to their Percentage Interests, as
defined.
29
<PAGE>
TOWERCOM, LIMITED
Notes to Financial Statements
(1) Summary of Significant Accounting Policies, continued
(j) Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of
Long-lived assets and certain identifiable intangibles, including
goodwill, are 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 impaired, the impairment to be recognized is
measured by the amounts 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.
(k) Reclassifications
Certain 1996 financial statement amounts have been reclassified to
conform to the 1997 presentation.
(2) Property, Plant and Equipment
Property, plant and equipment consists of the following at December 31,
1997 and 1996:
Estimated
depreciable
1997 1996 lives (years)
------------ ------------ -------------
Land $ 2,558,334 $ 2,174,148 -
Land Improvements 469,802 469,802 15
Towers 5,680,925 5,680,925 30
Buildings 1,690,996 1,686,643 39
Electrical, mechanical and
technical equipment 554,559 542,042 7
Office equipment 43,297 39,278 5
Furniture and fixtures 22,484 22,299 7
Other 28,040 28,040 7
Construction in progress 161,234 -
------------ -------------
Property, plant and equipment 11,209,671 10,643,177
Less accumulated depreciation (1,311,641) (951,387)
------------ -------------
Net property, plant and
equipment $ 9,898,030 $ 9,691,790
============ =============
30
<PAGE>
TOWERCOM, LIMITED
Notes to Financial Statements
(3) Long-term Debt
Long-term debt represents a promissory note payable to a bank, secured by
all property, plant, and equipment, rents and leases. Monthly installments
of $104,164, including interest at 8.23%, are payable through November
2004.
Principal payment requirements for the next five years and thereafter are
as follows:
1998 $ 762,194
1999 825,275
2000 892,423
2001 967,436
2002 1,047,503
Thereafter 2,092,123
----------
$6,586,954
==========
The fair value of long-term debt, as determined using current rates,
approximates carrying value. The long-term debt was paid in full on
February 6, 1998 (note 7).
(4) Rentals under Operating Leases
The two broadcast towers and adjacent buildings are leased under various
operating leases with expiration dates extending to the year 2010. The
cost and accumulated depreciation of these assets were $7,371,920 and
$768,765 at December 31, 1997, and $7,367,568 and $537,924 at December 31,
1996, respectively.
The following is a schedule by years of the minimum future rentals on non
cancelable operating leases as of December 31, 1997:
1998 $ 2,264,917
1999 2,113,982
2000 1,328,255
2001 1,153,471
2002 820,758
Later years 2,834,657
-----------
Total minimum future rentals $10,516,040
===========
31
<PAGE>
TOWERCOM, LIMITED
Notes to Financial Statements
(5) Transactions With Related Parties
Accounts receivable represent non-interest bearing advances due from two
related parties.
The Partnership had a management agreement with Southcoast. Management
fees of $30,000 a year were recorded for the years ended December 31, 1997
and 1996, respectively.
The Partnership paid $7,000 and $6,000 to a related party for
reimbursement of attorney costs associated with ongoing lease review and
new projects for the years ended December 31, 1997 and 1996, respectively.
(6) Commitments
On August 27, 1997, the Partnership entered a capital lease with the
Milwaukee Area Technical College (MATC) for excess tower capacity on a
transmission tower yet to be constructed, on land owned by MATC. The
initial lease term is for 25 years with renewal options extending the term
for up to 80 years.
The Partnership has agreed to finance and construct the tower. The debt
service cost is to be recovered from gross revenues received from tenants
on the tower which the Partnership must secure. The Partnership will then
share 30-35% of the remaining net cash flow after debt service cost with
MATC, as defined in the lease agreement.
To date, no contracts have been entered for the engineering, construction
or financing of the tower.
(7) Subsequent Event
On February 6, 1998, the Partnership was sold to OmniAmerica, Inc. for
$28,000,000. The senior vice president and chief operating officer of
OmniAmerica, Inc. also served as president of the Partnership from May 21,
1997 to the date of sale. The note payable to the bank was paid in full in
conjunction with the closing of this sale.
32
<PAGE>
INDEPENDENT AUDITOR'S REPORT
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
New York, New York
We have audited the accompanying balance sheets of MILLER TRANSMISSION
TOWER COMPANY, LTD. (A TEXAS LIMITED PARTNERSHIP) as of December 31, 1997 and
1996 and the related statements of operations, changes in partners' deficiency
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MILLER TRANSMISSION TOWER
COMPANY, LTD. (A TEXAS LIMITED PARTNERSHIP) as of December 31, 1997 and 1996 and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
MENDLOWITZ WEITSEN, LLP
East Brunswick, New Jersey
March 3, 1998
33
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS 1997 1996
------ ---------- ----------
ASSETS
Cash $ 132,936 $ 306,110
Accounts receivable 19,371 20,375
Prepaid insurance 12,967 12,557
Land 1,207,260 1,207,260
Towers, net of accumulated depreciation 2,079,195 2,376,219
Investment in partnership 5,274 -
Deferred loan costs, net 42,662 53,545
---------- ----------
$3,499,665 $3,976,066
========== ==========
LIABILITIES AND PARTNERS' DEFICIENCY
LIABILITIES
Note payable $3,989,443 $4,300,000
Accrued expenses 47,150 43,888
Security deposits 116,360 89,280
Prepaid rental income 19,746 1,000
---------- ----------
4,172,699 4,434,168
PARTNERS' DEFICIENCY (673,034) (458,102)
---------- ----------
$3,499,665 $3,976,066
========== ==========
See notes to financial statements.
34
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997 and 1996
1997 1996
---- ----
SALES $1,575,110 $1,512,843
OPERATING EXPENSES 873,075 729,989
---------- ----------
INCOME FROM OPERATIONS 702,035 782,854
---------- ----------
OTHER (INCOME) EXPENSES
Interest income (11,739) (1,553)
Income from partnership (4,474) -
Amortization of other assets 10,883 908
Interest expense 352,297 427,081
---------- ----------
346,967 426,436
NET INCOME $ 355,068 $ 356,418
========== ==========
See notes to financial statements.
35
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIENCY
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partner Deficiency
------- ------- ----------
<S> <C> <C> <C>
PARTNERS' DEFICIENCY, DECEMBER 31, 1995 $(5,144) $(509,376) $(514,520)
CAPITAL DISTRIBUTIONS - 1996 (3,000) (297,000) (300,000)
NET INCOME - 1996 3,564 352,854 356,418
-------- --------- ----------
PARTNERS' DEFICIENCY, DECEMBER 31, 1996 $(4,580) $(453,522) $(458,102)
CAPITAL DISTRIBUTIONS - 1997 (5,700) (564,300) (570,000)
NET INCOME - 1997 3,551 351,517 355,068
-------- --------- ----------
PARTNERS' DEFICIENCY, DECEMBER 31, 1997 $(6,729) $(666,305) $(673,034)
======== ========== ==========
</TABLE>
See notes to financial statements.
36
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $355,068 $ 356,418
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 297,024 281,392
Amortization of other assets 10,883 908
(Increase) decrease in:
Accounts receivable 1,004 29,165
Prepaid insurance (410) 645
Increase (decrease) in:
Accrued expenses 3,262 43,888
Security deposits 27,080 200
Prepaid rental income 18,746 618
------------ -----------
Net cash from operating activities 712,657 713,234
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in partnership (5,274) -
------------ -----------
Net cash (used for) investing activities (5,274) -
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - 4,300,000
Deferred loan cost - (54,454)
Payment of notes payable (310,557) (4,401,424)
Capital distributions paid (570,000) (300,000)
------------ -----------
Net cash (used for) financing activities (880,557) (455,878)
------------ -----------
NET INCREASE (DECREASE) IN CASH (173,174) 257,356
CASH, BEGINNING 306,110 48,753
------------ -----------
CASH, END $132,936 $ 306,110
============ ===========
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
CASH PAID FOR:
INTEREST $352,297 $ 310,910
============ ===========
</TABLE>
See notes to financial statements.
37
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Miller Transmission Tower Company, Ltd. is a Texas Limited Partnership whose
primary purpose is to lease tower space on two transmission towers. The towers
are located in the State of Texas.
Method of Accounting
The Partnership prepares its financial statements on the accrual method of
accounting, recognizing income when earned and expenses when incurred.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Partnership considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Accounts Receivable
Management believes that all accounts receivable as of December 31, 1997 and
1996 were fully collectible. Therefore, no allowance for doubtful accounts was
recorded.
Property and Equipment
Property and equipment is stated at cost. The cost of equipment is depreciated
over the estimated useful lives of 15 years utilizing the 150% declining balance
method. A change to the straight-line depreciation method was made in the year
in which the straight-line method yields a higher expense than the 150%
declining balance method. Depreciation expense for December 31, 1997 and 1996
was $297,024 and $281,392, respectively.
Deferred Loan Cost
The deferred loan cost is the unamortized balance of bank fees and
professional fees that were incurred to obtain long-term financing from Compass
Bank. These costs are amortized on a straight-line basis over 60 months.
Amortization expense for the years ended December 31, 1997 and 1996 was $10,883
and $908, respectively.
38
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
Income Tax
The Partnership is not a taxpaying entity for Federal and State income tax
purposes and therefore no provision for Federal income taxes has been recorded
in the financial statements. Income from the partnership is taxed to the
partners on their respective income tax returns.
Partnership Allocation
The General and Limited Partner have an agreement as to the allocation of net
earnings and distributions.
Concentration of Credit Risk
Financial instruments that potentially subject the Partnership to credit risk
include cash deposits in excess of federally insured limits.
Credit risks to the Partnership relate to the broadcasting industry which
serve as its customer base.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures 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.
NOTE 2 - TOWERS
The towers are summarized as follows:
1997 1996
----------- ----------
Tower - Milton $ 4,889,029 $4,889,029
Tower - Evelyn 200,000 200,000
----------- ----------
5,089,029 5,089,029
Less accumulated depreciation 3,009,834 2,712,810
----------- ----------
$ 2,079,195 $2,376,219
=========== ==========
39
<PAGE>
MILLER TRANSMISSION TOWER COMPANY, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 3 - NOTES PAYABLE
On November 21, 1996, the Partnership borrowed from Compass Bank, a Texas
state chartered association, in the form of a promissory note, $4,300,000. The
proceeds of the loan were used to refinance the existing long-term debt and for
the repairs and maintenance of the towers. This note was subsequently paid off
on February 2, 1998 (see Subsequent Events).
The interest rate on the outstanding principal amount of the loan was
based on the prime rate as published in The Wall-Street Journal's "Money Rates"
table. The rates at December 31, 1997 and 1996 were 8.50% and 8.25%,
respectively. The outstanding principal amount was to be paid in sixty monthly
installments which began January 3, 1997. Accrued but unpaid interest on the
loan shall be payable on the same dates as, but in addition to, the principal
payments. Any additional prepayments of principal will be applied first toward
accrued but unpaid interest and then to principal in the inverse order of
maturity.
The loan was collateralized by a first priority deed of trust lien on the
two towers and guaranteed, jointly and severally, by each partner.
Interest expense incurred on the above note was $352,297 and $41,388 as of
December 31, 1997 and 1996, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Partnership is managed by the general partner, Cadogan, Inc. The
Partnership paid the general partner $231,000 and $225,080 during the years
ended December 31, 1997 and 1996, respectively, for management services.
On May 6, 1997 Miller Transmission Tower Company, Ltd. paid $800 for an
eighty percent interest in Cowboy Tower Company, LLC, a newly formed Limited
Liability Company. Its share of income from Cowboy Tower Company, LLC was
$4,474.
NOTE 5 - SUBSEQUENT EVENTS
The Partnership sold its land, building, and towers on February 6, 1998
and has effectively ceased active operations.
40
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Kline Iron & Steel Co., Inc.
Columbia, South Carolina
We have audited the accompanying balance sheets of Kline Iron & Steel Co., Inc.
as of September 30, 1997 and 1996, and the related statements of income,
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kline Iron & Steel Co., Inc. as
of September 30, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information is
presented for the purpose of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated, in all material respects, in relation to the
basic financial statements taken as a whole.
DERRICK, STUBBS & STITH, L.L.P.
December 9,1997
41
<PAGE>
EXHIBIT A
KLINE IRON & STEEL CO., INC.
BALANCE SHEET
SEPTEMBER 30, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ -------------- ---------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $3,901,167 $
Accounts Receivable - Customers,
Less, Allowance for Doubtful Accounts
(1997 - $9,989; 1996 - $9,989) 7,953,448 7,158,078
Accounts Receivable - Other 81,865 47,035
Inventories 2,421,259 2,643,472
Prepaid Expenses 205,953 139,457
Income Tax Refunds Due 47,785
Investments 30,000 30,000
-------------- ---------------
Total Current Assets $14,593,692 $10,065,827
-------------- ---------------
Long-Term Receivables:
Notes Receivable - Related Parties $ 121,296 $ 135,699
Cash Surrender Value of Life Insurance 215,627 195,259
-------------- ---------------
Total Long-Term Receivables $ 336,923 330,958
-------------- ---------------
Property and Equipment:
Machinery and Equipment $6,511,786 $ 6,346,461
Vehicles 449,598 364,843
Office Equipment and Furniture 1,192,001 1,102,521
Buildings and Improvements - West 2,714,334 2,699,775
Columbia
Leasehold Improvements - Columbia 340,485 329,763
Other Property 19,688 49,797
Land - West Columbia 274,690 274,690
Construction in Progress 1,972
-------------- ---------------
Total Cost $11,504,554 $11,167,850
Less, Accumulated Depreciation 8,127,699 7,593,013
-------------- ---------------
Net Property and Equipment $ 3,376,855 $ 3,574,837
-------------- ---------------
Other Assets:
Deposits with Others $ 3,740 $ 3,625
Deferred Financing Costs - Net of
Accumulated Amortization
(1997 - $10,735; 1996 - $6,939) 3,691 7,488
-------------- ---------------
Total Other Assets $ 7,431 $ 11,113
-------------- ---------------
Total Assets $18,314,901 $13,982,735
============== ===============
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDER'S EQUITY 1997 1996
-------------------- -------------- ---------------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 2,781,335 $ 3,655,636
Current Maturities of
Long-Term Debt 570,684 397,951
Billings in Excess of Costs and
Estimated Earnings 6,489,592 3,384,852
Sales Tax Payable 91,394 64,430
Payroll Taxes Payable 38,093 38,839
Accrued Expenses 1,497,859 462,954
Accrued Income Taxes 316,007 5,646
Other Liabilities 31,636 30,715
-------------- ---------------
Total Current Liabilities $11,816,600 $ 8,041,023
-------------- ---------------
Long-Term Debt, Less Current Maturities:
Notes Payable $ 2,778,063 $ 3,341,526
-------------- ---------------
Deferred Income Taxes $ 206,960 $ 96,283
-------------- ---------------
Total Liabilities 14,801,623 $11,478,832
-------------- ---------------
Stockholder's Equity:
Common Stock:
Voting (100,000 shares of $1 par value
authorized; 32,000 shares issued and
outstanding) $ 32,000 $ 32,000
Non-voting (1,000,000 shares of $1 par
value authorized; 160,000 shares
issued and outstanding) 160,000 160,000
Additional Paid-In Capital 11,527 11,527
Retained Earnings 3,309,751 2,300,376
-------------- ---------------
Total Stockholder's Equity $ 3,513,278 $ 2,503,903
-------------- ---------------
Total Liabilities and Stockholder's
Equity $ 18,314,901 $ 13,982,735
============== ===============
</TABLE>
See Notes to Financial Statements.
43
<PAGE>
EXHIBIT B
Sheet 1
KLINE IRON & STEEL CO., INC.
STATEMENT OF INCOME
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------------- ------------------------------
% of % of
Amount Sales Amount Sales
------ ----- ------ -----
Sales $49,045,582 100.00 $36,423,115 100.00
- ----- ----------- ------ ----------- ------
<S> <C> <C> <C> <C>
Cost of Sales:
Inventories - Beginning $ 2,643,472 5.39 $ 2,145,286 5.89
Purchases - Steel 10,709,825 21.84 9,829,072 26.98
Purchases - Bolts 486,762 .99 484,343 1.33
Purchases - Paint 929,381 1.90 1,210,299 3.32
Engineering - In House 1,292,614 2.64 1,118,478 3.07
Engineering - Outside 1,842,501 3.76 1,588,207 4.36
Plant Salaries and Wages 3,913,893 7.98 3,145,804 8.64
Plant Vacation and Sick Pay 274,091 .55 264,823 .73
Plant Payroll Taxes and Insurance 511,003 1.04 440,934 1.21
Plant Workman's Compensation 210,150 .43 283,647 .78
Plant Supervision 854,528 1.74 755,031 2.07
Temporary Labor 297,477 .61 113,191 .31
Quality Assurance 119,888 .24 110,566 .30
Repairs and Maintenance 723,481 1.47 590,809 1.62
Welding Supplies 188,401 .38 147,418 .40
Painting Supplies 189,224 .39 213,457 .59
Small Tools and Supplies 329,522 .67 247,334 .68
Plant Vehicle Expense 82,214 .17 65,119 .18
Utilities 423,735 .86 412,121 1.13
Depression - Machinery and Equipment 307,599 .63 167,157 .46
Depreciation - Plant 160,915 .33 157,870 .43
Rent 108,000 .22 100,000 .27
Property Taxes 167,176 .34 122,309 .34
Other Plant Expense 162,511 .33 144,985 .40
Sublet Fabrication 5,962,399 12.16 2,534,005 6.96
Sublet Installation 7,228,873 14.74 3,750,948 10.30
Purchased Finished Goods 3,349,288 6.83 3,173,681 8.71
Sales and Use Tax 369,186 .75 155,030 .43
Insurance and Bonds 310,151 .63 75,143 .21
Other Direct Job Costs 343,278 .70 351,496 .97
Delivery Expense - In House 140,314 .29 118,900 .33
Delivery Expense - Common Carrier 226,564 .46 721,971 1.98
----------- ----- ----------- -----
$44,858,416 91.46 $34,739,434 95.38
Inventories - Ending 2,421,259 4.93 2,643,472 7.26
----------- ----- ----------- -----
Cost of Sales $42,437,157 86.53 $32,095,962 88.12
----------- ----- ----------- -----
Gross Profit $ 6,608,425 13.47 $ 4,327,153 11.88
----------- ----- ----------- -----
</TABLE>
See Notes to Financial Statements.
44
<PAGE>
EXHIBIT B
Sheet 2
KLINE IRON & STEEL CO., INC.
STATEMENT OF INCOME
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------------------- ------------------------------
% of % of
Amount Sales Amount Sales
------ ----- ------ -----
<S> <C> <C> <C> <C>
General and Administrative Expenses:
Administrative Salaries $ 1,784,835 3.64 $ 1,154,904 3.17
Vacation and Sick Pay 25,680 .05 19,765 .05
Payroll Taxes and Insurance 120,337 .25 101,764 .28
Selling Expenses 1,296,328 2.64 1,126,255 3.09
Commissions 33,500 .07
Profit Sharing Contribution 233,727 .48 42,684 .12
Office Supplies 51,555 .11 56,848 .16
Office Repairs and Maintenance 30,844 .06 22,479 .06
Temporary Services 2,914 20,819 .06
Advertising 17,994 .04 18,158 .05
Telephone and Telegraph 46,708 .10 48,257 .13
Dues and Subscriptions 42,870 .10 33,441 .10
Travel and Entertainment 53,355 .11 48,660 .13
Taxes and Licenses 49,505 .10 53,358 .15
Insurance - General 293,365 .60 247,852 .68
Insurance - Life 114,622 .23 58,922 .16
Utilities 32,432 .06 30,887 .09
Legal and Auditing 89,332 .18 66,659 .18
Special Services and Education 130,612 .27 54,051 .15
Automobile Expense 47,436 .10 48,604 .13
Depreciation - Vehicles 1,500 1,500
Depreciation - Office Equipment 21,328 .04 18,367 .05
Depreciation - Furniture and Fixtures 3,597 4,718 .01
Depreciation - Office Building 15,565 .03 14,726 .04
Amortization - Cost of Obtaining Loan 3,796 4,214 .01
Rent 100,000 .20 100,000 .28
Janitorial Services 22,116 .05 19,434 .05
Other General Expenses 77,261 .16 64,253 .18
---------- ---- ---------- ----
Total General and Administrative
Expenses $4,743,114 9.67 $3,481,579 9.56
---------- ---- ---------- ----
Operating Income $1,865,311 3.80 $ 845,574 2.32
---------- ---- ---------- ----
</TABLE>
See Notes to Financial Statements.
45
<PAGE>
EXHIBIT B
Sheet 3
KLINE IRON & STEEL CO., INC.
STATEMENT OF INCOME
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------------ -----------------------------
% of % of
Amount Sales Amount Sales
------ ----- ------ -----
<S> <C> <C> <C> <C>
Other Income and Deductions:
Other Income:
Discounts Earned $ 18,962 .04 $ 17,885 .05
Interest Earned 114,813 .23 4,344 .01
Gain on Sale of Fixed Assets 7,500 .02
Net Recoveries of Bad Debts 7,545 .02 3,685 .01
Service Charges 55 105
Other Income 5,223 .01 3,782 .01
Management Fees 26,250 .05
---------- ---- --------- ----
Total Other Income $ 180,348 .37 $ 29,801 .08
---------- ---- --------- ----
Other Deductions:
Discounts Allowed $ $ 4,813 .01
Interest Expense 339,845 .69 402,727 1.11
Contributions 76,251 .16 36,563 .10
Loss on Disposal of Fixed Assets 11,032 .02
Other Deductions 14,989 .03 47,113 .13
---------- ---- --------- ----
Total Other Deductions $ 442,117 .90 $ 491,216 1.35
---------- ---- --------- ----
Income Before Income Taxes $1,603,542 3.27 $ 384,159 1.05
---------- ---- --------- ----
Income Taxes:
States $ 87,711 .18 $ 19,031 .05
Federal 506,456 1.03 88,110 .24
---------- ---- --------- ----
Total Income Taxes $ 594,167 1.21 $ 107,141 .29
---------- ---- --------- ----
Net Income - Exhibit C $1,009,375 2.06 $ 277,018 .76
========== ==== ========= ====
Net Income - Per Share $ 5.26 $ 1.44
========== =========
</TABLE>
See Notes to Financial Statements.
46
<PAGE>
EXHIBIT C
KLINE IRON & STEEL CO., INC.
STATEMENT OF RETAINED EARNINGS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
---------- ----------
Retained Earnings, Beginning $2,300,376 $2,023,358
Net Income - Exhibit B 1,009,375 277,018
---------- -----------
Retained Earnings, Ending - Exhibit A $3,309,751 $2,300,376
========== ==========
See Notes to Financial Statements.
47
<PAGE>
EXHIBIT D
KLINE IRON & STEEL CO., INC.
STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income - Exhibit B $1,009,375 $ 277,018
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 595,442 426,358
Deferred Income Taxes 110,677 76,272
Allowance for Doubtful Accounts (5,750)
(Gain) Loss on Sale of Property and Equipment 3,532
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (830,200) (1,979,227)
(Increase) Decrease in Inventories 222,213 (498,186)
(Increase) Decrease in Prepaid Expenses (66,496) 351,685
(Increase) Decrease in Other Assets 47,671 (52,141)
Increase (Decrease) in Accounts Payable and Accrued Expenses 498,104 1,774,777
Increase (Decrease) in Excess Billings 3,104,740 1,516,854
--------------- --------------
Net Cash Provided by (Used in) Operating Activities $4,695,058 $1,887,660
--------------- --------------
Cash Flows from Investing Activities:
Purchase of Property and Equipment $ (409,696) $(1,527,661)
Purchase of Investment Property (219,989)
Proceeds from Sale of Investment Property 440,542
Proceeds from Sale of Property and Equipment 12,500
(Increase) Decrease in Notes and Loans Receivable 14,403 (28,533)
(Increase) Decrease in Cash Surrender Value of Life Insurance (20,368) (22,033)
--------------- --------------
Net Cash (Used in) Investing Activities $ (403,161) $(1,357,674)
--------------- --------------
Cash Flows from Financing Activities:
Net Principal Payments on Debt $ (390,730) $ (870,793)
--------------- --------------
Net Increase (Decrease) In Cash $3,901,167 $ (340,807)
Cash:
Beginning 340,807
--------------- --------------
Ending $3,901,167 $ -----
=============== ==============
Supplemental Disclosures of Cash Flow Information:
Cash Payment for:
Interest $ 356,610 $ 400,454
=============== ==============
Income Taxes (Net of Refunds) $ 114,685 $ 156,868
=============== ==============
</TABLE>
See Notes to Financial Statements.
48
<PAGE>
EXHIBIT E
Sheet 1
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1. Nature of Business and Significant Accounting Policies:
1.1 Nature of Business:
The Company, founded in 1923, contracts nationally and
internationally for the fabrication of structural and tower steel
products for private, industrial, commercial and governmental
markets. The Company's revenue from an individual customer typically
exceeds 10% of the total revenue from all contracts during the year.
Because of the nature of the Company's business, the major customers
will vary between years.
1.2 Revenue Recognition
The Company recognizes revenue from contacts on the
percentage-of-completion method, measured by the percentage of costs
incurred to date to estimated total cost of each contract. This
method is used because management considers total cost to be the
best available measure of progress on these contracts. 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. Changes in job performance, job
conditions and estimated profitability may result in revisions to
costs and income, which are recognized in the period in which the
revisions are determined. The asset "costs and estimated earnings in
excess of billings" represents revenues recognized in excess of
amounts billed. The liability "billings in excess of costs and
estimated earnings" represents billings in excess of revenues
recognized.
1.3 Cash and Cash Equivalents:
Cash and Cash Equivalents include cash in banks and all highly
liquid investments with a maturity of three months or less.
1.4 Inventories:
Inventories of structural steel (materials only) are stated at cost,
using the last-in, first-out method (LIFO). All other inventories
are valued at the lower of cost or market, using the first-in,
first-out method (FIFO).
1.5 Property and Equipment:
Property and Equipment is recorded at cost. For financial reporting
purposes, depreciation is computed using principally the
straight-line method over the useful lives of the assets which are
as follows:
49
<PAGE>
EXHIBIT E
Sheet 2
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1. Nature of Business and Significant Accounting Policies (continued):
1.5 Property and Equipment (continued):
Years
-----
Autos and Truck 5
Machinery and Equipment 5 to 10
Office Furniture and Fixture 7
Computer Hardware and Software 5
Buildings 10 to 20
Leasehold Improvements 10
For income tax purposes, depreciation is computed using principally
the accelerated methods over recovery periods prescribed by current
tax law.
1.6 Deferred Income Taxes:
Deferred income taxes are provided for in the financial statements
as a result of timing differences between book income and taxable
income. Timing differences arise principally from the use of
accelerated methods of depreciation.
1.7 Profit Sharing Plan:
The Company offers a defined contribution profit sharing plan under
Section 401(k) of the Internal Revenue Code covering employees who
meet the age and service requirements. Employees may elect to make
voluntary salary reduction contributions of from 1% to 15% of their
compensation limited to $9,500 per calendar year (amount adjusted
annually). During the year ended September 30, 1996, the plan was
amended to provide for employer matching contributions of 25% of the
employee's salary reductions up to 4% of compensation. Additionally,
the Company has made discretionary contributions based on net
profits of $233,727 and $42,684 for 1997 and 1996, respectively. At
September 30, 1997 and 1996, the Company had unfunded contributions
to the plan of $233,727 and $42,684, respectively. Profit sharing
plan expense, including employer matching and discretionary amounts,
for the years ended September 30, 1997 and 1996 were $282,376 and
$49,286, respectively.
1.8 Deferred Loan Costs:
The Company has incurred $14,427 in financing costs in connection
with obtaining several loans. These costs are being amortized over
the lives of these loans using the straight-line method. Accumulated
amortization at September 30, 1997 and 1996 was $10,735 and $6,939,
respectively.
1.9 Bad Debts:
Bad debts are provided for using the reserve method of accounting.
50
<PAGE>
EXHIBIT E
Sheet 3
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1. Nature of Business and Significant Accounting Policies (continued):
1.10 Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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.
2. Inventories:
Inventories consist of:
1997 1996
----------- -----------
Raw Material, structural steel $ 1,694,906 $ 2,319,408
Work in Process 615,049 186,020
Bolts 7,000 37,000
Paint 69,104 67,298
Plant Supplies 35,199 33,746
----------- -----------
Totals $ 2,421,258 $ 2,643,472
=========== ===========
Under the last-in, first-out (LIFO) method of valuing inventories, the
procedure has been to charge higher costs to cost of goods sold while
deferring relatively lower costs in inventory, thereby reducing earnings and
inventories both for financial reporting and income tax purposes. The
amounts of inventories valued by the last-in, first-out (LIFO) method,
$1,694,906 at September 30, 1997 and $2,319,408 at September 30, 1996, are
less than replacement or current cost by $1,826,129 and $1,435,588,
respectively.
The last-in, first-out (LIFO) method's effect was to decrease net income for
the year ended September 30, 1997 by $390,541 and to decrease net income for
the year ended September 30, 1996 by $158,641.
3. Investments:
Investments are categorized as available-for-sale and consist of the
following:
1997 1996
---- ----
State of Israel floating rate Bonds $ 30,000 $ 30,000
======== ========
51
<PAGE>
EXHIBIT E
Sheet 4
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
4. Notes Receivable - Related Parties:
Related party notes receivable consist of non-interest bearing notes arising
from Company payments of premiums on life insurance policies owned by
certain corporate executives or their wives under split-dollar life
insurance agreements. The notes are collateralized by assignment of the cash
surrender values of those policies which in aggregate at September 30, 1997
and 1996 were $113,796 and $91,082, respectively.
5. Notes Payable and Capital Lease Obligations:
5.1 On October 24, 1994, the Company entered into a loan agreement with
Carolina First Bank which provided for three types of financing.
This agreement was subsequently modified on March 26, 1996. The
financing arrangement includes:
A revolving working capital line of credit in the maximum amount of
$3,000,000. Interest only payments, based on the bank's prime rate
plus one percent (prime + 1%) are payable monthly with the entire
balance becoming due on April 2, 1997. The due date was subsequently
extended until April 2, 1998.
A permanent working capital term loan in the amount of $965,000.
Interest on this loan is calculated at the bank's prime rate plus
one percent (prime + 1%). The note provides for monthly interest and
principal payments of $12,620 with the entire remaining balance due
April 2, 1999. The note also provides for an additional principal
payment due December 15th each year based on 25% of year-end net
income after taxes less current maturities of long-term debt. An
additional principal payment of $146,230 is due for the year ended
September 30, 1997. No additional principal payment was due for the
year ended September 30,1996.
A $550,000 mortgage loan. The loan provides for monthly principal
payments of $3,056 plus interest at the bank's prime rate plus one
percent (prime + 1%) with the remaining balance becoming due on
September 2, 1997. The due date was subsequently extended until
April 2, 2000.
The above loans are cross-collateralized and are secured by liens on
the Company's accounts receivable, equipment, inventories and by a
first mortgage on the Company's West Columbia real property.
Carolina First Bank also received assignment of a $2 million face
value life insurance policy on Mr. Jerome C. Kline (the Company's
President). These loans are unconditionally guaranteed by Mr. Jerome
C. Kline.
The loan agreements contain various restrictive covenants pertaining
to net working capital, current ratios, tangible net worth, debt to
tangible net worth and cash flow. At September 30, 1997 and 1996,
the Company was not in compliance with the loan's indebtedness to
tangible net worth covenant, however, the Company subsequently
received waivers of that covenant violation from Carolina First Bank
effective until October 1, 1998.
52
<PAGE>
EXHIBIT E
Sheet 5
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
5. Notes Payable and Capital Lease Obligations (Continued):
5.2 On March 1, 1994, the Company entered into a promissory note with a
major shareholder which provided for the following:
A promissory note agreeing to pay the shareholder the principal sum
of $835,175 in thirteen (13) equal annual installments of $60,000
beginning on March 1, 1995 and continuing through March 1, 2007 with
the entire remaining principal balance being due and payable on
March 1, 2008. Interest at the prime rate plus one-half of one
percent (prime + 1/2%) was payable monthly beginning April 1, 1994.
Mr. Jerome C. Kline, President, had personally guaranteed the
obligations of the Company under this agreement and as security for
this personal guarantee had granted to the shareholder a first lien
mortgage on his real estate on Huger Street, Columbia, S.C. The
Company had also agreed to carry life insurance on the shareholder
in the amount sufficient to cover the note. The life insurance
policy had been assigned to the shareholder as further collateral
for the Company's obligation.
In November 1997, the Company paid the remaining principal balance
of this note in full. Prior written consent waiver was obtained from
Carolina First Bank and the surety company. The Company's balance
sheet (Exhibit A) reflects both current and long-term portions of
this debt at September 30, 1997 as if the note was to be paid
according to the original schedule of payments to avoid distortion
of the Company's financial ratios.
5.3 On February 8, 1994, the Company financed the purchase of an angle
machine for $197,000 with Machine Tool Finance Corp. The terms of
the agreement are a down payment of $4,000 and 65 monthly payments
of $3,676 including interest of 8.08%, beginning April 1, 1994
through August 1, 1999.
5.4 On August 16, 1994, the Company financed the purchase of a 1994
Dodge Intrepid for $16,800 with GMAC. The note provides for monthly
payments of $532 including interest of 8.5%, beginning September 30,
1994 through August 31, 1997.
5.5 On January 1, 1995, the Company financed the purchase of a Drill and
Marking Press Machine for $496,851 with Machine Tool Finance Corp.
The terms are 84 monthly payments of $7,942 including interest at a
rate which is 275 basis points over "LIBOR", beginning February 1,
1995 through March 1, 2002.
5.6 On June 10, 1994, the,Company financed the purchase of a phone
system for $76,753 with Siemens Credit. The terms are 60 monthly
payments of $1,594 including interest of 10%, beginning June, 10,
1994 through May 1, 1999.
53
<PAGE>
EXHIBIT E
Sheet 6
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
5. Notes Payable and Capital Lease Obligations (Continued):
5.7 On September 9, 1996, the Company entered into a capital lease
agreement with Amplicon, Inc. involving a Peddinghaus coping
machine. The term of the lease provide for a down payment of $5,107,
twenty (20) quarterly payments of $15,321 including interest at
8.05% beginning December 1, 1996 through September 1, 2001 and a
final purchase payment of $27,951 due October 1, 2001. The coping
machine has been capitalized at a cost of $285,394 with accumulated
depreciation of $28,538 at September 30, 1997.
5.8 On October 17, 1995, the Company entered into a term loan agreement
with the South Carolina Jobs-Economic Development Authority (JEDA)
to provide a $500,000 community development block grant loan for
equipment acquisition and working capital at its West Columbia
plant. The lender is the City of West Columbia, South Carolina.
Under the terms of the loan, $250,000 is to be used for equipment
acquisition and $250,000 for working capital. Interest accrues at
eight and one-half percent (8 1/2%) fixed. The loan is to be repaid
in 59 equal monthly installments of $6,082 including interest
beginning October 31, 1995 through July 31, 2000 with a final
payment of $318,150 due August 31, 2000.
The loan is secured by a first purchase money lien on equipment
acquired with loan proceeds and a second priority blanket lien on
all furniture, fixtures, machinery and equipment owned by the
Company. Carolina First Bank (See Note 5.1) has granted waiver of
its security lien as it relates to equipment purchased with JEDA
loan proceeds. This loan has also been unconditionally guaranteed by
Mr. Jerome C. Kline (the Company's President) and life insurance in
the face amount of $500,000 on Mr. Kline has been collaterally
assigned.
This loan is pursuant to certain job creation restrictions whereby
if the Company fails to create/retain twenty-five (25) new jobs
after twenty-four (24) months, JEDA has the right to demand payment
of the loan balance or to increase the rate of interest up to an
additional five percent (5%). This stipulation was satisfied during
the year ended September 30, 1997.
On March 27,1996, the South Carolina Jobs-Economic Development
Authority transferred and assigned this loan to WAMCO XXIV, LTD.
5.9 On September 28, 1995, the Company entered into a note payable to
Concord Commercial in the amount of $342,200 to purchase a Pangborn
vertical blasting machine and a Peddinghaus fabripunch machine. The
note bears interest at eight and one quarter percent (8.25%) and is
payable in sixty (60) monthly installments of $5,340 beginning
October 13, 1995 through September 13, 2000 with one final payment
of $117,765 due October 13, 2000. The note is collateralized by the
equipment purchased.
54
<PAGE>
EXHIBIT E
Sheet 7
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
5. Notes Payable and Capital Lease Obligations (Continued):
5.10 On November 25, 1996, the Company financed the purchase of a 1996
Chevrolet Impala for $26,238 with Carolina First Bank. The note provides
for 36 monthly payments of $827 including interest at 8.264% beginning
January 2, 1997.
5.11 The comparative principal balances of notes payable are as follows:
<TABLE>
<CAPTION>
1997 1997
------------ ------------
<S> <C> <C>
Carolina First Bank - Line of Credit (Note 5.1) $ $
Carolina First Bank - Working Capital (Note 5.1) 876,003 940,970
Carolina First Bank - Mortgage Loan (Note 5.1) 449,167 482,778
Shareholder Stock Purchase (Note 5.2) 655,175 715,175
Machine Tool Finance Corp. (Note 5.3) 74,852 111,195
GMAC (Note 5.4) 5,615
Machine Tool Finance Corp. (Note 5.5) 336,928 399,573
Siemens Credit (Note 5.6) 27,883 43,327
Amplicon Lease (Note 5.7) 215,501 271,930
JEDA Loan (Note 5.8) 431,826 466,482
Concord Commercial (Note 5.9) 261,794 302,432
Carolina First Bank - Auto Loan (Note 5.10) 19,618
------------ ------------
Totals $3,348,747 $3,739,477
Less, Current Maturities 570,684 397,951
------------ ------------
Long-Term Portion $2,778,063 $3,341,526
============ ============
</TABLE>
5.12 Future maturity of debt is as follows:
Year Ending September 30,
1998 $ 570,684
1999 1,024,754
2000 978,283
2001 336,371
2002 83,480
Subsequent Years 355,175
----------
$3,348,747
==========
55
<PAGE>
EXHIBIT E
Sheet 8
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
6. Uncompleted Contracts:
Costs, estimated earnings and billings on uncompleted contracts are
summarized as follows:
1997 1996
------------ -----------
Costs Incurred on Uncompleted
Contracts $44,003,729 $27,916,466
Estimated Earnings 7,192,472 3,895,673
------------ ------------
$51,196,201 $31,812,139
------------ ------------
Billings to Date 57,685,793 35,196,991
------------ -----------
Billings in Excess of Costs and
Estimated Earnings $ 6,489,592 $ 3,384,852
=========== ===========
7. Income Tax Matters:
Net deferred tax liability at September 30 consists of the following
components:
1997 1996
------------- ----------
Depreciation $(217,832) $(130,662)
Bad Debt Reserve 3,726 3,726
Inventory Capitalization 7,146 10,171
Contributions Carryforward 20,482
------------- ----------
Total Deferred Income Taxes $(206,960) $ (96,283)
============= ==========
The provision for income taxes charged to operations for the year consists
of the following:
1997 1996
-------- --------
Current Tax Expense $483,490 $30,869
Deferred Tax Expense 110,677 76,272
-------- --------
Total Income Tax Expense $594,167 $107,141
======== ========
The income tax provision differs from the amount of income tax determined by
applying the U.S. Federal income tax rate to pretax income for the years
ended September 30, 1997 and 1996 due to the following:
1997 1996
-------- ---------
Computed "Expected" Tax Expense $545,204 $ 133,072
Increase (Decrease) in Income Taxes
Resulting from:
Depreciation Method Difference (75,746) (110,203)
Nondeductible Expenses 47,575 38,596
State Income Taxes, Net of
Federal Tax Benefit 48,097 8,012
Difference in Book and Tax Loss
on Assets Disposed (3,712)
Contributions Carryover (17,770)
Alternative Minimum Tax (60,158) (38,608)
Deferred Tax Increase 110,677 76,272
--------- ----------
$ 594,167 $ 107,141
========= =========
56
<PAGE>
EXHIBIT E
Sheet 9
KLINE IRON & STEEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
8. Related Party Transactions:
The Company leases its Huger Street property from the Company's President
and major stockholder, Mr. Jerome C. Kline. The lease is for a period of ten
years beginning February 1, 1994 for a monthly rental of $ 16,666 ($200,000
annually).
On March 1, 1994, the Company purchased and retired 269,000 shares of
non-voting common stock from a major shareholder for $895,175 (See Note 5.2
for additional information).
Until July 1997, the Company's major shareholder, Mr. Jerome C. Kline, owned
a 40% interest in Prioleau Steel, Inc. In July 1997, Mr. Kline disposed of
all of his ownership in Prioleau. During the periods, the Company had
business transactions with Prioleau as follows:
1997 1996
-------------- -----------
Transactions:
Sales To $ 127,054 $ 181,295
Purchases From 2,334,725 226,916
Balances:
Accounts and Notes Receivable 34,667 55,480
Accounts Payable 476,207
As discussed in Note 4, the Company is owed $ 121,296 by certain executives
or their wives pursuant to split-dollar life insurance agreements.
9. Lease Commitments:
The Company has entered into certain lease agreements covering real property
(Note 8) and vehicles. Minimum future lease payments at September 30, 1996
ar summarized as follows:
Year Ending September 30,
1998 $ 229,995
1999 209,838
2000 200,000
2001 200,000
2002 200,000
Thereafter 266,668
-----------
$1,306,501
10. Subsequent Event - Change in Ownership
In November 1997, Mr. Jerome C. Kline, the Company's President and former
sole shareholder, sold one-third of his stock in the Company to OmniAmerica,
Inc. and a one-third interest in his Huger Street rental property (see Note
8) to Carl E. Hirsch and Anthony S. Ocepek. Mr. Kline maintains management
of the Company.
57
<PAGE>
SCHEDULE 1
KLINE IRON & STEEL CO., INC.
SCHEDULE OF LIFE INSURANCE IN FORCE
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Policy Policy Amount of Annual Cash Type Insured Owner and
Number Date Insurance Premium Surrender Beneficiary
Value
9/30/97
---------- --------- ------------ -------- ----------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jefferson-Pilot Life JP4325636 8/12/94 $2,000,000 $17,500 $ Universal Life Jerome C. Kline Iron &
Insurance Company, Kline Steel Co.,
Greensboro, N.C. Inc.(a)
Jefferson-Pilot Life TP4375052 9/11/95 500,000 2,275 10 Year Term Jerome C. Kline Iron &
Insurance Company, Kline Steel Co.,
Greensboro, N.C. Inc.(b)
Manufacturers Life 5808645-5 8/7/90 1,300,000 55,000 213,014 Flexible B.H. Kline Kline Iron &
Insurance Company Premium Steel Co.,
Toronto, Ontario Adjustable Inc.(c)
Life
Jefferson-Pilot Life JP4454060 7/1/97 400,000 5,400 2,613 Adjustable R.C. White Kline Iron &
------------ --------
Insurance Company, Joint Steel Co.,
Greensboro, N.C. Ownership Life Inc. and
R.C. White
Totals $4,200,000 $215,627
========== ========
</TABLE>
(a) Collaterally assigned to Carolina First Bank
(b) Collaterally assigned to JEDA
(c) Collaterally assigned to Mr. B.H. Kline
58
<PAGE>
Specialty Teleconstructors, Inc.
Pro Forma Combined Financial Statements
(Unaudited)
(b) Pro Forma Financial Statements.
The following pro forma combined summary of operations combines the
results of operations of STI, Holdings, TowerCom, Kline, HSW and Miller as if
all acquisitions occurred at the beginning of the periods presented. The pro
forma information for Kline represents Holdings' one-third interest accounted on
the equity method. The pro forma combined summary of operations reflects known
changes resulting from the acquisitions but does not reflect impacts of any
changes in operations, anticipated efficiencies and synergies from
consolidation.
The pro forma combined balance sheet reflects STI's consolidated balance
sheet as of March 31, 1998 combined with the balance sheets of Holdings as of
March 31, 1998, as if the acquisition of Holdings had occurred on March 31,
1998. TowerCom, HSW and Miller are included in the Holdings balance sheet as of
March 31, 1998.
The business of these entities is subject to seasonal fluctuations and,
therefore, the results of operations for periods less than twelve months may not
be indicative of annual results. The pro forma adjustments are based on
preliminary estimates, available information, and certain assumptions that
management deems appropriate and may be revised as additional information
becomes available. The pro forma combined financial information does not purport
to represent what STI's financial position or results or operations would
actually have been if such transactions had in fact occurred on those dates and
are not necessarily representative of STI's financial position or results of
operations for any future period. The pro forma combined financial information
should be read in conjunction with the historical financial statements of STI,
Holdings, TowerCom, Kline, HSW and Miller included herein or previously filed
with the Securities and Exchange Commission.
59
<PAGE>
Specialty Teleconstructors, Inc.
Pro Forma Combined Income Statement
Year Ended June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
DESCRIPTION STI (A) HOLDINGS (A) TOWERCOM (A) HSW (A) KLINE (A) MILLER (A) ADJUSTMENTS COMBINED
- ---------------------------------- ------------ ------------ ------------ --------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues earned:
Installation services........... $ 57,250,485 $ ---- $ ---- $ ---- $ ---- $ ---- $ ---- $57,250,485
Component sales................. 8,376,315 ---- ---- ---- ---- ---- ---- 8,376,315
Tower leasing .................. --- 566,628 2,737,795 830,144 ---- 1,570,747 ---- 5,705,314
------------ ---------- ------------ ---------- --------- ----------- ------------ -----------
Total revenues earned.......... 65,626,800 566,628 2,737,795 830,144 ---- 1,570,747 ---- 71,332,114
------------ ---------- ------------ ---------- --------- ----------- ------------ -----------
Cost of revenues earned:
Installation services........... 48,298,454 ---- ---- ---- ---- ---- ---- 48,298,454
Component sales................. 5,113,096 ---- ---- ---- ---- ---- ---- 5,113,096
Tower leasing................... ---- 42,112 681,234 293,978 ---- 577,295 (136,609) D 1,458,010
------------ ---------- ------------ ---------- --------- ----------- ------------ -----------
Total cost of revenues earned. 53,411,550 42,112 681,234 293,978 ---- 577,295 (136,609) 54,869,560
------------ ---------- ------------ ---------- --------- ----------- ----------- -----------
Gross profit on revenues earned... 12,215,250 524,516 2,056,561 536,166 ---- 993,452 136,609 16,462,554
Selling, general and
administrative expenses......... 5,915,808 ---- 437,603 ---- ---- 253,762 2,630,396E 9,167,399
(231,282)H
(18,888)I
180,000 J
Earnings from operations.......... 6,299,442 524,516 1,618,958 536,166 ---- 739,690 (2,423,617) 7,295,155
------------ ---------- ------------ ---------- --------- ----------- ------------ -----------
Other income (deductions):
Interest income................. 181,516 ---- 25,613 ---- ---- 6,506 ---- 213,635
Interest expense................ (429,615) ---- (607,449) ---- ---- (389,896) 997,345 F (429,615)
Earnings in affiliates.......... ---- ---- ---- ---- 336,458 1,119 ---- 337,577
Other, net...................... (20,101) ---- ---- ---- ---- ---- ---- (20,101)
----------- ---------- ------------ ---------- --------- ----------- ------------ -----------
(268,200) ---- (581,836) ---- 336,458 (382,271) 997,345 101,496
----------- ---------- ----------- ---------- --------- ---------- ------------ -----------
Earnings before income taxes.... 6,031,242 524,516 1,037,122 536,166 336,458 357,419 (1,426,272) 7,396,651
Income taxes...................... 343,500 ---- ---- ---- ---- ---- 628,500 K 972,000
------------ ---------- ------------ ---------- --------- ----------- ------------ -----------
Net earnings.................... 5,687,742 524,516 1,037,122 536,166 336,458 357,419 (2,054,772) 6,424,651
------------ ---------- ------------ ---------- --------- ----------- ----------- -----------
Supplemental information:
Net earnings.................... 5,687,742 524,516 1,037,122 536,166 336,458 357,419 (2,054,772) 6,424,651
Pro forma adjustment for income
taxes
of entity acquired by STI 2,140,500 ---- ---- ---- ---- ---- ---- 2,140,500
------------ ---------- ------------ ---------- --------- ----------- ------------ -----------
unrelated to
this transaction previously
filing as an
S Corporation.................
Supplemental net earnings after $ 3,547,242 $ 524,516 $ 1,037,122 $ 536,166 $ 336,458 $ 357,419 $(2,054,772) $ 4,284,151
============ ========== ============ ========== ========= =========== =========== ===========
adjustment for Income taxes of
acquired entity...............
Shares of common stock used in
computing earnings per share:
Basic.......................... 7,110,282 ---- ---- ---- ---- ---- 6,750,000 G 13,860,282
============ ========== ============ ========== ========= =========== ============ ===========
Diluted........................ 7,188,758 ---- ---- ---- ---- ---- 6,750,000 G 13,938,758
============ ========== ============ ========== ========= =========== ============ ===========
Net earnings per common share:
Basic.......................... $ 0.80 $ 0.46
============ ===========
Diluted........................ $ 0.79 $ 0.46
============ ===========
Supplemental net earnings per
common share:
Basic.......................... $ 0.50 $ 0.31
============ ===========
Diluted........................ $ 0.49 $ 0.31
============ ===========
</TABLE>
See accompanying notes to pro forma combined financial statements.
60
<PAGE>
Specialty Teleconstructors, Inc.
Pro Forma Combined Balance Sheet
March 31, 1998:
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
DESCRIPTION STI HOLDINGS (C) ADJUSTMENTS COMBINED
----------- --- ------------ ----------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents. $ 1,405,400 $ 4,200,437 $ ---- $ 5,605,837
Available for sale
securities................ 50,000 ---- ---- 50,000
Contracts receivable, net. 14,431,737 216,778 ---- 14,648,515
Costs and estimated
earnings in excess of
billings on uncompleted
contracts............... 3,220,249 ---- ---- 3,220,249
Finished goods inventory.. 3,523,546 ---- ---- 3,523,546
Prepaid income taxes...... 261,775 ---- ---- 261,775
Other..................... 402,318 180,623 ---- 582,941
------------ ------------- ---------------- ------------
Total current assets.... 23,295,025 4,597,838 ---- 27,892,663
Property and equipment, net 9,405,468 21,251,451 ---- 30,656,919
Goodwill, net of 81,633,143 L
amortization............ 3,231,872 61,387,761 (61,387,761) M 84,865,015
Investment in
unconsolidated subs..... ---- 7,670,081 ---- 7,670,081
Other assets, net......... 600,017 82,197 ---- 682,214
------------ ------------- ---------------- ------------
Total assets............ 36,532,382 94,989,328 20,245,382 151,767,092
------------ ------------- ---------------- ------------
----
Trade accounts payable.... 4,589,709 1,648,475 ---- 6,238,184
Lines of credit........... 3,031,171 ---- ---- 3,031,171
Notes payable to
stockholder............. 999,000 ---- ---- 999,000
Billings in excess of costs
and estimated earnings on
uncompleted contracts... 469,497 ---- ---- 469,497
Accrued expenses.......... 616,535 1,086,235 ---- 1,702,770
Current installments of
notes payable........... 570,998 ---- ---- 570,998
Current income taxes
payable................. 1,142,848 ---- ---- 1,142,848
Deferred income taxes..... 372,469 ---- ---- 372,469
------------ ------------- ---------------- ------------
Total current liabilities. 11,792,227 2,734,710 ---- 14,526,937
Deferred income taxes..... 90,000 ---- ---- 90,000
Notes payable to banks.... 2,404,760 ---- ---- 2,404,760
------------ ------------- ---------------- ------------
Total liabilities....... 14,286,987 2,734,710 ---- 17,021,697
------------ ------------- ---------------- ------------
Stockholders' Equity:
Common stock............ 81,555 929,060 67,500 L 149,055
(929,060) M
Additional
paid-in-capital........... 14,528,644 92,051,940 112,432,500 L 126,961,144
(92,051,940) M
Treasury stock.......... (1,387,500) ---- ---- (1,387,500)
Retained earnings....... 9,022,696 (726,382) 726,382 9,022,696
------------ ------------ ---------------- ------------
Total stockholders'
equity................ 22,245,395 92,254,618 18,769,639 134,745,395
------------ ------------- ---------------- ------------
Total stockholders'
equity and liabilities $ 36,532,382 $ 94,989,328 $ 20,245,382 $151,767,092
============ ============= ================ ============
</TABLE>
See accompanying notes to pro forma combined financial statements.
61
<PAGE>
Specialty Teleconstructors, Inc.
Pro Forma Combined Income Statement
Nine-Month Period Ended March 31, 1998:
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
DESCRIPTION STI HOLDINGS (B) TOWERCOM (B) HSW (B) KLINE (B) MILLER (B) ADJUSTMENTS COMBINED
- ------------------------------- ----------- ------------ ------------ --------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues earned:
Installation services........ $39,835,298 $ ---- $ ---- $ ---- $ ---- $ ---- $ 39,835,298
Component sales.............. 5,191,456 ---- ---- ---- ---- ---- 5,191,456
Tower leasing................ ---- 470,859 2,121,603 837,677 ---- 1,207,926 4,628,065
----------- ------------ ------------ --------- ----------- ------------ ------------
Total revenues earned...... 45,026,754 470,859 2,121,603 837,677 ---- 1,207,926 49,664,819
----------- ------------ ------------ --------- ----------- ------------ ------------
Cost of revenues earned:
Installation services........ 34,422,763 ---- ---- ---- ---- ---- 34,422,763
Component sales.............. 3,222,544 ---- ---- ---- ---- ---- 3,222,544
Tower leasing................ ---- 58,113 470,761 284,431 ---- 440,028 $ (51,212)H 1,202,121
----------- ------------ ------------ --------- ----------- ------------ ---------- ------------
Total cost of revenues earned 37,645,307 58,113 470,761 284,431 ---- 440,028 (51,212) 38,847,428
----------- ------------ ------------ --------- ----------- ------------ ----------- ------------
Gross profit on revenues
earned................... 7,381,447 412,746 1,650,842 553,246 ---- 767,898 51,212 10,817,391
Selling, general and
administrative 2,978,303 1,478,010 323,945 87,520 ---- 247,332 1,700,394E 6,813,523
expenses.....................
(122,538)H
(14,443)I
135,000J
Earnings from operations..... 4,403,144 (1,065,264) 1,326,897 465,726 ---- 520,566 (1,647,201) 4,003,868
----------- ------------ ------------ --------- ----------- ------------ ------------ ------------
Other income (deductions):
Interest income.............. 87,068 3,743 30,533 ---- ---- 6,918 ---- 128,282
Interest expense............. (375,688) (45,240) (330,647) ---- ---- (216,890) 547,537F (420,928)
Earnings in affiliates....... ---- ---- ---- ---- 473,340 ---- ---- 473,340
Other, net................... 122,337 ---- ---- ---- ---- 3,930 ---- 126,267
----------- ------------ ------------ --------- ----------- ------------ ------------ ------------
(166,283) (41,497) (300,094) ---- 473,340 (206,042) 547,537 306,961
---------- ----------- ----------- --------- ----------- ----------- ------------ ------------
Earnings before income taxes 4,236,861 (1,106,761) 1,026,803 465,726 473,340 314,624 (1,099,664) 4,310,829
----------- ------------ ----------- ------------
Income taxes................... 1,624,000 ---- ---- ---- ---- ---- 152,000K 1,776,000
----------- ------------ ------------ --------- ----------- ------------ ----------- ------------
Net earnings................. $ 2,612,861 $(1,106,761) $ 1,026,803 $ 465,726 $ 473,340 $ 314,524 $(1,251,664) $ 2,534,829
=========== ============ ============ ========= =========== ============ ============ ============
Shares of common stock used
in computing earnings per share:
Basic...................... 7,939,998 6,750,000G 14,689,998
=========== ============ ============
Diluted.................... 8,061,836 6,750,000G 14,811,835
=========== ============ ============
Net earnings per common share:
Basic...................... $ 0.33 $ 0.17
=========== ============
Diluted.................... $ 0.32 $ 0.17
=========== ============
</TABLE>
See accompanying notes to pro forma combined financial statements.
62
<PAGE>
Specialty Teleconstructors, Inc.
Notes to Pro Forma Combined Financial Information
(Unaudited)
(A) The year ended June 30, 1997 for STI does not include the operations of
Holdings as their operation did not commence until October 15, 1997.
However, activity pertaining to immaterial acquisitions by Holdings with
operations during this period are reflected in the Holdings column. The
amounts presented for TowerCom, HSW, Kline and Miller represent historical
activity for the year ended June 30, 1997. The amounts under the Kline
column reflects Holdings' equity interest in one-third of the net earnings
of Kline, which does not require consolidation. See Note (K) below for a
discussion of pro forma income taxes and the reason that historical income
taxes are not provided for the acquired entities. The supplemental
information presented in the STI column represents the pro forma adjustment
to historical income taxes of STI and the effect on earnings related to the
fiscal year 1997 acquisition of Microwave Tower Service, Inc., which was an
S corporation and was accounted for as a pooling of interests. See Note 12
to the STI consolidated financial statements in its 1997 Form 10-KSB.
(B) The nine-month period ended March 31, 1998 includes the operations of
Holdings for the period October 15, 1997 (inception) through March 31, 1998,
including post-acquisition results of TowerCom, Miller and HSW. The amounts
under the TowerCom and Miller columns represents the seven-month period
ended January 31, 1998 prior to Holdings purchasing each of the operations.
The amounts under the HSW column are for the period July 1, 1997 through
January 15, 1998, when Holdings purchased the operation. See Note (K) for
discussions of pro forma income taxes and the reason historical income taxes
are not provided for the acquired entities.
(C) As of March 31, 1998, Holdings had acquired TowerCom, HSW, Miller and its
one-third interest in Kline; accordingly, such acquisitions are reported in
the historical balance sheet of Holdings.
(D) To reflect depreciation of property and equipment based on fair value
adjustments in connection with applying purchase accounting and the change
in depreciable life from a fifteen (15) year period to a thirty (30) year
period.
(E) To reflect amortization of intangible assets resulting from the application
of purchase accounting producing preliminary goodwill of approximately
$81,600,000. For purposes of the pro forma combined results of operations,
STI has used a weighted average useful life of approximately 30 years for
amortization purposes. STI is in the process of completing the allocation of
purchase price, including the identification of identifiable intangible
assets.
(F) To reflect elimination of historical interest expense related to TowerCom
and Miller. The indebtedness of such entities was either not assumed or was
repaid at acquisition using equity funding. STI's acquisition of Holdings is
being funded entirely by the issuance of common equity.
(G) To reflect shares of STI common stock issued in connection with the
acquisition of Holdings as if they had been outstanding for the entire
period.
(H) Prospective increase in compensation of an officer of STI offset by
contractual reductions in historical compensation of former owners of
acquired entities, employee benefits, management fees, and other contractual
items eliminated for the acquisition.
(I) Amounts associated with items not acquired in acquisition. Also includes
acquisition costs expensed by acquired entities that are not applicable to
ongoing operations.
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(J) To reflect oversight fee payable to Hicks, Muse, Tate & Furst based on the
higher of $180,000 per year or .2% of revenues. For the year ended June 30,
1997 and the nine-month period ended March 31, 1998, the minimum fee would
have been paid.
(K) To reflect income tax expense at STI's effective tax rate of 39% for all pro
forma adjustments and results of operations of the acquired entities,
including the effect of TowerCom, HSW and Miller as if these entities had
been a C corporation throughout the stated periods, giving the effect to
non-deductible goodwill amortization.
(L) To reflect the application of purchase accounting to STI's acquisition of
Holdings. The total purchase price of $112,500,000 was paid through the
issuance of 6,750,000 shares of STI's common stock, valued at $16.67 per
share.
(M) To eliminate historical balances of the acquired entities.
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(c) Exhibits.
Exhibit 2.1 - Amended and Restated Agreement and Plan of Merger,
dated April 22, 1998, among Specialty Teleconstructors, Inc., OAI
Acquisition Corp., OmniAmerica Holdings Corporation, OmniAmerica,
Inc., Omni/HSW Acquisition, Inc. and HMTF/Omni Partners, L.P.*
Exhibit 4.1 - Post-Merger Stockholders Agreement, dated April 23,
1998, among Specialty Teleconstructors, Inc. and the stockholders of
Specialty Teleconstructors, Inc. party thereto.*
Exhibit 10.1 - Executive Employment Agreement, dated February 16,
1998, effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Michael R. Budagher.*
Exhibit 10.2 - Executive Employment Agreement, dated February 16,
1998, effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Carl E. Hirsch.*
Exhibit 10.3 - First Amendment to Employment Agreement, April dated
22, 1998, effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Jeffrey A. Howard.*
Exhibit 10.4 - Executive Employment Agreement, dated February 16,
1998, effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Anthony S. Ocepek.*
Exhibit 23.1 - Consent of Ernst & Young LLP
Exhibit 23.2 - Consent of KPMG Peat Marwick LLP
Exhibit 23.3 - Consent of Derrick Stubbs & Stith, L.L.P.
Exhibit 23.4 - Consent of Mendlowitz Weitsen, LLP
Exhibit 99.1 - Press Release, dated April 24, 1998.*
Exhibit 99.2 - Resignation of Terry D. Farmer, effective as of the
Effective Time.*
Exhibit 99.3 - Resignation of Frank D. Lackey, effective as of the
Effective Time.*
Exhibit 99.4 - Resignation of Jon D. Word, effective as of the
Effective Time.*
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*Previously filed.
65
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SPECIALTY TELECONSTRUCTORS, INC.
(Registrant)
Date: July 7, 1998 By: /s/ F. Howard Mandel
-------------------------------------
F. Howard Mandel
Vice President and General Counsel
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The registrant hereby agrees to supplementally furnish to the Securities and
Exchange Commission, upon request, copies of all schedules to the Amended and
Restated Agreement and Plan of Merger, dated as of April 22, 1998, among
Specialty Teleconstructors, Inc., OAI Acquisition Corp., OmniAmerica Holdings
Corporation, OmniAmerica, Inc., Omni/HSW Acquisition, Inc. and HMTF/Omni
Partners, L.P., as listed below:
SCHEDULES
4.1.1 Corporate and Partnership Existence and Authority
4.1.2 Capitalization
4.1.5 Governmental and Other Consents
4.1.6 Financial Statements
4.1.7 Absence of Certain Liabilities
4.1.8 Absence of Changes
4.1.12 Insurance
4.1.13 Title to Properties
4.1.14 Real Property and Real Property Leases
4.1.15 Intangible Personal Property
4.1.16 Agreements
4.1.17 Indebtedness and Guaranties
4.1.18 Debts to and from Related Parties
4.1.21 ERISA
4.1.22 Employees
4.1.23 No Conflicts of Interest
4.1.27 Tower Space Leases
4.1.28 KISCO Shares
4.2.4 OmniPartners Consents
4.3.1 Corporate Existence and Authority of STI
4.3.2 Capitalization of STI
4.3.4 Execution; No Violations of STI
4.3.5 Governmental and Other Consents of STI
4.3.6 Financial Statements of STI
4.3.8 Absence of Changes of STI
4.3.10 Disputes and Litigation of STI
4.3.12 Insurance of STI
4.3.13 Title to Properties of STI
4.3.14 Real Property and Real Property Leases of STI
4.3.15 Intangible Personal Property of STI
4.3.16 Agreements of STI
4.3.17 Indebtedness and Guaranties of STI
4.3.18 Debts to and from Related Parties of STI
4.3.21 Employee Benefits of STI
4.3.25 Licenses of STI
SPECIALTY TELECONSTRUCTORS, INC.
Date: July 7, 1998 By: /s/ F. Howard Mandel
-------------------------------
F. Howard Mandel
Vice President and
General Counsel
67
<PAGE>
EXHIBIT INDEX
Exhibit
2.1 - Amended and Restated Agreement and Plan of Merger, dated April
22, 1998, among Specialty Teleconstructors, Inc., OAI
Acquisition Corp., OmniAmerica Holdings Corporation,
OmniAmerica, Inc., Omni/HSW Acquisition, Inc. and HMTF/Omni
Partners, L.P.*
4.1 - Post-Merger Stockholders Agreement, dated April 23, 1998,
among Specialty Teleconstructors, Inc. and the stockholders of
Specialty Teleconstructors, Inc. party thereto.*
10.1 - Executive Employment Agreement, dated February 16, 1998,
effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Michael R. Budagher.*
10.2 - Executive Employment Agreement, dated February 16, 1998,
effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Carl E. Hirsch.*
10.3 - First Amendment to Employment Agreement, dated April 22, 1998,
effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Jeffrey A. Howard.*
10.4 - Executive Employment Agreement, dated February 16, 1998,
effective as of the Effective Time, between Specialty
Teleconstructors, Inc. and Anthony S. Ocepek.*
23.1 - Consent of Ernst & Young LLP
23.2 - Consent of KPMG Peat Marwick LLP
23.3 - Consent of Derrick Stubbs & Stith, L.L.P.
23.4 - Consent of Mendlowitz Weitsen, LLP
99.1 - Press Release, dated April 24, 1998.*
99.2 - Resignation of Terry D. Farmer, effective as of the Effective
Time.*
99.3 - Resignation of Frank D. Lackey, effective as of the Effective
Time.*
99.4 - Resignation of Jon D. Word, effective as of the Effective
Time.*
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*Previously filed.
